Margins will definitely improve: Vivek Sehgal

<p> <IMG src="http://www.myiris.com/IndexServer/storyImages/2012/06/05/20120605_892920_1.jpg" align=left>Vivek Chaand Sehgal, vice chairman, Motherson Sumi Systems says, ""We believe that going forward the marginswill definitely improve because of the efforts that are being put in the phenomenal manner by the whole group to support Peguform"" </P> <p>Following are the excerpts of the recently concluded conference call following their fourth quarter results: </P> <p>Could you brief us about the financial performance of Motherson Sumi Systems for this quarter? </P> <p>I think we have hit an all time high as far as sales are concerned and for the first time in within one quarter we have crossed 1.25 billion even at the extended dollar to rupee rate. This is the highest ever sales achievement in any one quarter even the consolidated PBT and the PAT for the quarter is highest at 3.02 billion and 1.95 billion respectively. We believe that both the acquisition of SMR and SMP are progressing at the right pace where we wanted them to be. We have still not seen any head winds coming in the European side of our business and we are very enthused by the response that both we are receiving from the car makers globally. We believe that there is a lot in store for these companies. </P> <p>What kind of debt reduction that one can look forward to in FY"13 and FY"14? </P> <p>I think first of all we have taken the debt in last year November, so we have five year period where this debt is there and obviously when we give a guidance that in five years we are going to go from USD 1-USD 1.5 billion to USD 5 billion or the group would go to the USD 10 billion, you are definitely going to look at some kind of debt that will come in to our books. We at Motherson are not disturbed at all about the debt, in fact we believe that our cash flows are extremely strong and we will continue to reduce our debt as we go along. We are doing a huge exercise in Peguform as well where we are coming into a situation where we are looking at the kind of operations that are there and taking the decisions which we have to where we can reduce the debt by selling off particular portions of the business which we are not interested in. All these particular things we are looking at in a very focused manner. Whatever we felt was the right way to present our accounts, as the way Motherson always does which is very conservative way of looking at account, we have done the account of Peguform in that basis also. So we believe that going forward there are no surprises. There are no hidden things anywhere and whatever is there on the table is something open for everybody to know and for us to deal with. We believe the cash flows are very strong and through the cash flows and the internal accruals not only we will take care of the interest but also take care of the debt in the coming time. </P> <p>Peguform and has very strong return ratios and is one of the leading players in this business. So if you can give some sense on what is the potential of this business and how it can grow in the next five years? </P> <p>Peguform is into the interiors and exteriors. My knowledge of Plastic Omnium tells me that they are in the exterior business and the bumpers business. So they are only focused on that. We believe that the acquisition of Peguform in the group leads to phenomenal opportunities within the group. For every 1% that we can improve in Peguform, the bottomline gets that much stronger for a phenomenal amount. I believe that Plastic Omnium is a French Company if I am not wrong and it is more focused on the exteriors while Peguform is focused more on the interiors and the exteriors. Its really very difficult to compare an apple with the pear. </P> <p>Can you give us a sense of what is the total interior market size where does Peguform stand in there and all of you are looking at? </P> <p>The exteriors and interiors in Europe they were the largest, globally I think they are ranked three or four.. We believe that the opportunities for Peguform are in USA because they have no plant in USA as of now. We will start to work on this thing. In fact a lot of our customers are asking us to set up shops in US and in the next year and a half to two years you will see tremendous amount of things which we are exporting at the moment from Europe, will start to be manufactured either in Mexico where they are setting up a brand new plant, or also in US where we would be coming close to the customers. So we believe that the new businesses from new customers like Daimler, BMW are going to increase the margins of the company and also the existing work on the existing companies is also going to help to improve the margins in SMP. On the revenues front what drove the Peguform performance sales for the quarter and if you can broadly quantify in terms of what was the exchange benefit and what was the actual volume growth which you see in Peguform? </P> <p>I think Gauba you can give the growth in the Euro terms as well as this. I think this is overall growth and total turnover is approximately 1.8 Billion Euro with a growth of 1.6% vs last year. It is not just a rupee growth it is also a growth in Euro term. As you are aware that the German car makers Volkswagen Group, BMW and Daimler together account for almost 92%-93% of turnover of Peguform and if you look at their results last year you will find that there were an exponential growth for all these companies. They have posted excellent results and that is the place from where the growth of these bits and pieces are coming. Going forward obviously these companies are very strong and we are going to try and balance out by getting more orders from outside companies. We are already talking to the Indian car makers. They are very interested as well because the SUV market in India is getting pretty interesting. We are talking to JLR. We are making presentations to everyone, Ford, GM and all that. </P> <p>On the margins front Peguform witnessed quite a good improvement in the Q4 so is there any further improvement in margins and if yes then what kind of measures you have to take into Peguform to improve the margins further from here and what is your target on the sustainable basis? </P> <p>When we come in and take this company over last quarter we have announced just 39 days of Peguform numbers, and most of the accounting and everything was provided for as it came to us in the acquisition this year. What we have done now is we have put everything as per Motherson’s more conservative policy on accounting and we have put the fact in front of everybody. We believe that going forward the margins definitely will improve because of the efforts that are being put in the phenomenal manner by the whole group to support Peguform and bring relevance and operational excellence in to that particular ambit. The most focused effort is being put on those companies which are actually benchmarking in Peguform and those companies which are laggards on that particular thing. We are asking the companies which are the benchmarks to go and actually help those companies to improve because the European factor. The European people understand how to explain to the other Europeans what all has to be done to improve the performance of the company and this is leading to some very good results. A lot of cross functional teams have already been established. We are monitoring these teams and seeing the results coming in. </P> <p>Have you seen any change in the OEMs ordering the payment behavior because of the volatility what you are seeing in the broad economy? </P> <p>We have not encountered any behavioral change. Most of the OEMs are sitting on surplus cash. They are very careful if there are any of the new projects coming and things like that we have not seen any hesitation from their side to help us with the tooling and investments and things like that so I have not seen anything which is negative, or positive. </P>