Motherson Isn’t Just an Auto Stock

The SOIC Podcast

The episode provides a deep dive into the business transformation of Samvardhana Motherson International, moving from an auto-ancillary focu

Key takeaways

• Motherson has executed 53 acquisitions since 2002, focusing on distressed assets and operational synergies.
• The company is transitioning from ICE-dependent components to engine-agnostic and EV-focused products.

Main topics

• Auto-ancillary business transitions
• M&A strategy and playbook

Notable quotes

The key purpose of a CEO is deciding where to allocate capital.

Conclusion

The episode highlights how established engineering firms can achieve h

Transcript preview

Speaker 1 (0:00) Hi investors, welcome to SOIC. In today's unique business analysis series, we will be talking about an auto ancillary company which has transitioned to different sectors. It is an auto-anked business and it is using its capabilities to go into the aerospace sector, semiconductor equipment sector and consumer electronics sector. In the last 3-4 years, I have observed one thing in the Indian markets. In Indian markets, the preceding engineering companies or auto ancillary companies are transitioning. There are two types of transition. The first type of transition is the auto ancillary companies. These are companies which have an ICE engine focused component business. Speaker 1 (0:48) From there, they are making good cash flows. So, the first way of transition is to go to engine agnostic products. Where, whether it is EV, hybrid or diesel or petrol vehicle, they will also sell their products. Then, another transition is to go to EV focused vehicles. For example, if you take the example of Varick Engineering, then today, 6-7 % of sales, 15 % of the sale comes from the EV part of the pie. If you take the example of Precol, they are making engine agnostic DIS clusters, which are instrument clusters. Take the example of Lumax Autotech, they are focusing on the engine agnostic sector. Or if you focus on EV, then Dhud Transmission, Shivalik Biometals, these will be EV focused auto component companies. So this is the first transition. The second transition is that companies are entering the precision engineering business using their core auto engineering capabilities. Speaker 1 (1:39) So, from today, close to 10 months to 1 year ago, we did video on 2 companies, which were joint videos. One was on Sansehra Engineering and the other was on Sriram Piston, a company named SPR Autotech. So, when we were talking about Sansehra Engineering, I had discussed that their auto-ank's core business, which is a base business, so that is a business which is exposed towards diesel and petrol vehicles and the two-wheeler vehicles are also exposed to that. The company is going more and more towards the ADS business i.e. Aerospace, Defense, Semiconductor and EV business. The market is now seeing this as a transition of sorts. Similarly, we discussed SPR Autotech, a company called Sriram Piston. The company is a market leader in Pistons, but Pistons is a big part of trucks. and trucks are oil and gas dependent, petrol and diesel are used for trucks Piston is a diesel dependent engine technology so at the end of the day, terminal value can be damaged in the long term but SPR Autotech has acquired engine agnostic companies which means they have acquired an interior company to go into the engine agnostic part so that their business can be de-risked So, Auto and Sleuth Businesses are doing such transitions. The first type of transition is that the company is going to the engine agnostic parts or EV parts. The second type of transition is that the company is going to aerospace, semiconductor, defense or electronics using its auto engineering capabilities. I will show you an example of this from multiple other companies. For example, here is an example of RACL GearTech. In this conference call, They talked about non-autodiversification for the first time. We are using the tool of CONCOL on stock scans. And they talked about focusing on aerospace for civil aviation, actuators, small micro motors, robotics and industrial manufacturing where a pilot is already running with Bhel and others. Incubation is the first approach. They will not do splurge, they will incubate and then they will increase their business. Similarly, there is another small company called OBSC. OBSC is also a similar business which makes these components for auto and they are also doing non-auto scaling up. They also scale up the non-auto business which had 150 % growth in Q1-FI27. So, they are talking about aerospace, humanoid parts, all these things they are talking about. Similarly, let's see another business example here. I had covered Sancerra Engineering with you earlier, almost 8-10 months ago. And if you look here, their summary will increase after the conference call. So, they are talking about semiconductor and aerospace business. So, by using Auto's core engineering capabilities, you are going to different precision engineering business. One more example is Sona BLW, a company we have covered on our YouTube channel long back. This company is finally transitioning to robotics and also to BEV. Their business is growing in electric vehicles. Denso is also doing JV with them. But Humanoids has an order of 800 crore from robotics. So this is an example of how we capture transitioning stories. CDMO was a generic API company in Newland Labs in 2021, we made a video on that. Loras was made in 2020, DVs was made in 2021-22. 5 years fast forward, what can you observe? Newland Labs is a generic API company, now people call it CDMO business. Loras was 10-15 % CDMO at one time, today it is more than 30%. Maybe in the next 3 years it will be more than 60%. DVs' custom synthesis business is now bigger than the generic API business. So when there are business transition stories, the revenues become more non-cyclical, more defensible and the margins slowly increase as you climb up the value chain. So the business we are covering today is in a similar thought process. It is an auto ancillary business. And this company is a large cap auto ancillary company that is transitioning. For example, Bharat Forging has transitioned towards defense forging. Similarly, the company that we will be discussing today is Mothers & Sumi. So, let me show you the basic financials of Mothers & Sumi in Stockscans. Then we will understand its story. The company's name is Samvardhan Mothers & Sumi. It sells a market cap of almost Rs. 1,75 lakh crores. But you see in the recent quarters, from the last two quarters, the company's PAT growth has increased by 40 % and 77 % PAT growth has come. Similarly, if you look at the operating profit growth, then the company's operating profit growth in the last two quarters has accelerated from 2458 crores per annum to almost 3100 crores per annum. So this is a thought process that we are trying to look at businesses where growth is fast, whether it is a large cap or a small cap, we don't care about caps, but something or the other is being transitioned. And how did I screen this company? So what did I do with basic screening? Basically, the company was matching my Alpha leaders and SOIC long term positive. So, in stock scans, you get a scan match feature. So, it was in the fine five scan matches as being large cap. So, because of that, it was screened and it was screened in strong quarterly growth because in large caps, it had one of the best profit growth in a particular quarter. If I tell you about their basic con calls, then we will go into business later. The consumer electronics business of the company is scaling up here. They are putting the largest facility of consumer electronics. And they are also acquiring for new businesses and emerging businesses. So in emerging businesses, aerospace, healthcare, these are the emerging businesses that they are seeding at the moment. And they are also trying to acquire new and new companies. Like in semiconductors, they are trying to position themselves as a B2B manufacturing partner. In which they are already winning small orders and talking about big orders Apart from this, if we look at the company's guidance, then the company is talking about that they have a consumer electronics capex of Rs. 6500 crores, 40 % of which is gross in consumer electronics. And along with that, they have also seeded the healthcare business and the aerospace business has also grown multiple order books. So today we will be doing a deep dive analysis of Mothers & Subhi. I just told you the mental model and the framework of how we screened this company. With this, we will start the analysis. Hopefully, you loved the mental model. Do drop a hell yes in the comment section below. If you have seen the transition in the last 2 years or 5 years on SOIC channel, in our thinking also, from being a commodity to a speciality when it comes to teaching you frameworks. With this, let's start the analysis of Mothers & Sumi. First, let's see the history of the promoter of the business Mothers & Sumi. So, actually if we look at the history of Mothers & Sumi, Mothers & Sumi started in 1975 as a small silver trading business in Delhi. So, Vivek Chand Sehgal was in his teens, I think he was 18-19 years old. He started a silver trading business with his mother. That's why the company was named Mothers & Sumi. And he saw that there are very low margins in the silver business. Then he entered into copper wires, copper wires are cables. Then finally they started making wiring harnesses. So in 1980s they faced a real break when the Government of India, Suzuki, basically set up a company by the name of Maruti Udyog. Right, so that is where their key break came because Maruti needed local suppliers who could meet Japanese quality standards and could supply wiring harnesses. So this is how the company started into Otto. In 1986 the company formed a joint venture with Sumitomo wiring harness system which is a company from Japan. And for years, Mothers & Sumi was a Maruti-linked harness company. And in 1993, this company finally came and listed in the stock market. Then in 2000s, the company started acquiring distressed auto component companies. Like VCO Corp acquired them in 2009. Then he acquired a German company. Then he acquired a Finnish company. Then he acquired a company called Radal. He acquired those companies without which OEMs like Volkswagen, Audi, Porsche could not run. But this company was distressed because there were some real problems here. So that is how the company did the acquisitions and the company truly became a global company. In 2022, the company was restructured and that is how the business started. So this is the history of