Samvardhana Motherson International — the auto parts maker formerly known as Motherson Sumi Systems — sees revenue potential of Rs 300 crore in its latest acquisition: Daimler India Commercial Vehicles' frame manufacturing and assembly operations facilities in Chennai.
The acquisition opens up a new avenue for the company and augurs well for its business, Samvardhana Motherson Chairman Vivek Chaand Sehgal told CNBC-TV18. “We were doing contract manufacturing for them in the last year... and now (Samvardhana) becomes a full supplier," he said.
As a part of the deal, Samvardhana becomes the sole supplier of frame assembly to Daimler India CV for 10 years.
The development comes at a time when the auto sector is struggling against a sticky surge in elevated costs eating into the margin.
Samvardhana's margin, is at a multi-quarter low, said Sehgal. "The money is going to come, but when it comes, that’s when we will declare it in our results,” he said.
The company is actually betting big on inventory buildup, hoping to take it to pre-pandemic levels.
“Higher inventory is something a customer is already paying you for and he wants you to build inventory. So it doesn't really bother us very much on that. And the moment, these things are up, the semiconductor and other issues, you will find that our inventory will come down back to normal,” Sehgal said.
The management expects its levels of debt and inventory to return to normalcy as soon as supply chain-related issues ease. Sehgal exuded confidence that the company's debut will "not be very high".
"We always have the avenues of increasing the equity in the company. We are quite comfortable in that situation, but I believe that we don't see a need for that in the coming next six months to one year," he said.
Until now, Samvardhana Motherson ran the manufacturing operations of the frame manufacturing facility of DICV but the frame assembly operations were managed by DICV itself in a separate facility.
Once the transaction goes through, the auto component manufacturer will own the assets, including long-term leasehold rights for land, and will run end-to-end operations for frame manufacturing and assembly, and supply to DICV under the long-term contract, according to its filing last week.
Samvardhana expects to close the deal in the quarter ending December 2022 subject to regulatory and other nods.
On Monday, Samvardhana Motherson shares rose by as much as Rs 1.9 or 1.5 percent to Rs 125.6 apiece on BSE, gaining for the third session in a row.
Samvardhana Motherson shares have risen about one percent in the past one month, half the Nifty50 benchmark's return.
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