How Daimler deal gives Motherson a big push to achieve its American dream

NEW DELHI: For Motherson Sumi Systems, one of India's largest auto parts makers, a Rs 15,400-crore order it just won from Daimler will take it closer to a cherished goal: achieving 30% of consolidated revenue from the Americas in the next five years.
Under the deal, the Noida-based company will set up two plants, one each in the US and Hungary, close to the German auto giant's manufacturing facilities in those countries.Once these factories start production, it is expecting orders from other auto manufactures as well. Increasing orders from the Americas is part of Motherson's strategy to reduce overdependence on Europe, from where the company got 58% of its consolidated revenue of over $5 billion in the fiscal year ended on March 31, 2014. North and South America accounted for 10% of fiscal 2014 revenue and 14% in the first nine months of fiscal 2015.
"We have been trying options to increase our business in Americas for the past two years," Chairman VC Sehgal said. "With this new order from Daimler, we will have a backup to further push the journey of growth in this region." Under the order announced last week, Motherson's unit Samvardhana Motherson Automotive Systems Group would supply a range of exterior and interior systems for several future generations of Mercedes-Benz vehicles over a period of about five-and-half years. To support Daimler's expansion activities, Motherson would increase capacity at its existing plants in Germany, besides setting up the new factories.
Supplies are expected to start in 2018. The company has already short-listed land for a plant at Tuscaloosa in Alabama near Daimler's plant. The plant in Hungary will be located close to Daimler's operations at Kecskemet.
The US plant will be first off the block. Construction is expected to start by the end of this year and trial production, by 2017-end.
"First, we will start off with Mercedes supply but as soon as we start getting orders from other customers, we will start expansion to service them from this plant," Sehgal said on its plans for the new US factory.
The order is important for the company as it will help enforce its ‘3CX15 strategy', which means no country, no commodity or no customer should account for more than 15% of turnover. The Volkswagen group, including units such as Audi, contributed as much as half the total revenue in fiscal 2014, compared with just 3% by Daimler. The new contract is expected to double Daimler's contribution.
Sehgal said the Daimler order "will give us a balance", which can be achieved not by "refusing orders from (existing) customers" but only by getting more new orders.
In August last year, Motherson acquired the wiring-harness business of an American company, Stoneridge, for $65.7 million. That gave a strong footing for it in the US, the largest automotive market in the world. Sehgal expects revenue from this to grow to about $1 billion in five years from about $300 million now.