Porsche Vendor Eyes Brazil for $5 Billion Sales: India

Motherson Sumi Systems Ltd., India’s biggest auto parts maker, is targeting emerging markets including Brazil and China to meet its $5 billion sales target as vehicle deliveries at home drop.

The company that’s 25 percent owned by Sumitomo Electric Industries Ltd. forecasts sales will increase 84 percent in the year starting April 1 from 147.8 billion rupees ($2.7 billion) in the 12 months ended March 31, according to Chief Operating Officer Pankaj Mital.

The supplier of rear view mirrors, bumpers and body panels to Porsche Automobil Holding SE and Volkswagen AG is adding capacity in China, Thailand, Mexico and Brazil to reduce dependence in Europe and in India, where vehicle sales are poised to drop for the first time in a decade. Motherson is following its clients including Volkswagen and Bayerische Motoren Werke AG to Brazil where vehicle production capacity is set to rise 50 percent by 2014.

“We are growing our facilities in developing countries,” Mital said in an interview. “While there will be replacement in developed countries, new volumes will come from developing countries.”

Automakers last year delivered 3.8 million vehicles in Brazil, the world’s fourth-largest auto market, and the country’s sales have grown at an average annual rate of more than 9 percent the last five years, according to Brazil’s auto manufacturer association Anfavea. The group is forecasting growth of at least 4 percent this year.

Chinese Sales

Auto sales in China, including those of cars and buses, may accelerate this year and surpass 20 million units for the first time, spurred by a rebound in economic growth and urbanization, state-backed China Association of Automobile Manufacturers said last month. Passenger vehicle sales in China are expected to gain 8.5 percent to 16.8 million units in 2013, the group said.

Motherson Sumi’s shares have risen 68 percent in the past year making it the second-best performing stock in the Bloomberg Asia Pacific Auto Parts & Equipment Index. They gained 0.1 percent to 200.15 rupees in Mumbai.

The shares trade at a price-to-earnings ratio of 14.3 times, compared with 10.4 for Johnson Controls Inc., the largest U.S. auto parts maker and 14 for Japan’s Denso Corp.

Chairman Vivek Chaand Sehgal’s acquisition of German bumper and dashboard maker Peguform Group from Austria’s Cross Industries AG for 321.5 million euros ($429 million) in 2011 and U.K. rear-view mirror maker Visiocorp Plc in 2009 is helping the company’s drive to boost revenue from overseas.

Loss Narrows

Sales at its units including those abroad, now called Samvardhana Motherson Peguform and Samvardhana Motherson Reflectec, accounted for 74 percent of revenue in the year ended March 31, according to data compiled by Bloomberg.

Peguform’s loss narrowed to 5.6 million euros in the three months ended Dec. 31 from 16.2 million euros a year earlier, according to a company filing. Reflectec turned to a profit of 4.17 million euros in the nine months to December from a loss of 1.2 million euros in the earlier period.

The company’s ability to revive the unprofitable overseas units may help it to increase its return on capital employed to 40 percent in the year ending March 31, 2015, from 14 percent in the 12 months to March 31, according to its annual report.

“Globally, they’re becoming one of the biggest suppliers to carmakers,” said Surjit Singh Arora, an analyst with Prabhudas Lilladher Pvt. in Mumbai. “They’re on a strong footing as I believe that going forward, their profitability will improve.”

Mirror Factory

BMW, the world’s largest maker of luxury vehicles, plans to invest 200 million euros in a Brazil factory, while Volkswagen is investing 3.4 billion euros to upgrade its model lineup and factories in the South American nation through 2016.

The company is adding capacity at its new mirror factories in Brazil and Thailand and is also setting up a plant in China, Mital said. The mirror unit, which counts Ford Motor Co., General Motors Co., Fiat SpA and Daimler AG as its customers, is Motherson’s second-biggest division, Mital said.

The company, which started making cables in 1977, partnered with Sumitomo Electric in 1986. Motherson has been involved in 11 merger and acquisition transactions since 2005, according to data compiled by Bloomberg.

“Motherson has done a lot of backward integration and they also supply to luxury carmakers where margins are much higher, so even when the market is declining, they continue to grow,” said Rupin Shah, an analyst at BP Equities Pvt. in Mumbai. “I expect this performance to continue.”

(Source: Bloomberg)