A firm believer in long-term play, Vivek Chaand Sehgal set audacious goals and took a measured path to achieve them. The result: A global auto component behemoth and a shareholder's delight
When Motherson Sumi listed in 1993, it raised a paltry $700,000 from the market. The company had clocked Rs 12 crore in revenue and there was little to suggest that it would go on to become India’s largest auto component company. Few had heard of the Delhi-based maker of wiring harness and, as a result, not many gave it much of a chance. Few had also expected it to become a producer of a sizeable chunk of what goes into a car—think mirrors, air-conditioning systems, bumpers, spoilers and more.
But promoter Vivek Chaand Sehgal wasn’t perturbed. He, instead, was preoccupied with other, bigger plans. Sehgal, chairman of Motherson Sumi, had just acquired a new toy—a desktop computer. On his Microsoft Excel sheet, he plotted the carmakers’ projections. And what he saw surprised him. If it continued growing at its (then) current rate, Motherson Sumi would be on track to clock Rs 100 crore (in revenue) by 1999.
Meanwhile, at Visiocorp’s offices, the effects of the worsening financial crisis were being felt all too clearly. “We saw things going from bad to worse,” recalls Vaaman. “First the lunch stopped, then the tea stopped and then the toilets stopped being cleaned.”
At the end of the month, Sehgal submitted an offer, agreeing to take over the company for free. Now Sehgal was not someone to overpay for a business. Case in point, in 2005, Motherson Sumi had raised a 50 million euro bond for acquisitions. The company had kept it unutilised as Sehgal couldn’t find a good deal to spend it on. Here, too, he’d reasoned that with Visiocorp bleeding cash, and with no buyers, the owners would be happy to offload.
He had miscalculated. This offer was summarily rejected by the eight hedge fund and private equity owners of the company. Father and son packed their bags and came back to India. With no certainty about the future, they believed there was no need to overpay. Or in this case, pay.
But as things got worse, the company’s customers continued to look at Motherson for a reprieve. The Indian company, in turn, continued to hold steadfast on its resolve to not overpay. Things got worse, another round of negotiations resulted in failure—and, in February 2009, The Economist reported an 82 percent decline in truck sales by Volvo. This served to drive home just how poor automobile sales were in Europe for Visiocorp’s customers.
Then, in March 2009, after General Motors announced bankruptcy, Motherson was called yet again for another round of negotiations. Pankaj K Mital, chief operating officer of Motherson Sumi, recalls an inspiring speech that Sehgal had made to his eight employees in Germany. “There could be a hundred reasons to not do this deal but even if there is just one reason to do it, we should,” Sehgal told them. Acquiring a company of a size comparable to that of Motherson’s during a massive slowdown in car sales was no small task. Even so, when the eight people were asked to vote, they all voted yes. “My father still has those pieces of paper that we voted on,” says Vaaman.
Inevitably, the post-purchase phase wasn’t a smooth ride. Sehgal realised that decisions had been taken with a short-term outlook and that the business was bleeding cash. In Germany, if a business runs out of cash, the chief executive is held liable and can even be jailed. At that rather tumultuous stage, Sehgal took a decision that shocked many within the company. He decided to name the then 27-year-old Vaaman as chief executive. “Of course we would never have allowed him to go to jail but that was the best training I could give him,” says Sehgal.
For the next four years, Vaaman was put through the paces. He toured Visiocorp’s (since renamed Samvardhana Motherson Reflectec) facilities relentlessly and worked on making processes more efficient. He learnt German. He also made personal calls to his customers—Volkswagen, Audi and Porsche among others—so that orders started flowing in once automobile sales resumed.
Within a year, Visiocorp was making a profit and today, it accounts for $1.3 billion in sales for Motherson. Not bad for a company that Sehgal acquired for $21 million at the height of the financial crisis. More importantly, with this acquisition, Motherson had gained global scale, global customers and global ambition.
The Secret Sauce
Motherson’s success can be traced back to three decisions taken by Sehgal in the 1990s. At that time, there was little that set Motherson apart from other component makers. Sehgal was not happy with the pace of growth and knew he would have to grow much faster than the industry to have a chance of becoming the largest. To that end, here’s what he did:
In 1993, the Rs 100 crore-target energised his team but Sehgal hadn’t put it down on paper. He knew it was a mistake and, come 1999, he wasn’t going to repeat it. This time he decided to aim for another ten-fold jump, to Rs 1,000 crore by 2005. He also said the company would maintain a 40 percent RoCE. “As a result of this, we started reviewing all our operations from a RoCE perspective. Every bit of machinery we bought was evaluated using this parameter. All inventory was stocked using this in mind,” says GN Gauba, chief financial officer at Motherson Sumi.
(This story appears in the 24 July, 2015 issue of Forbes India. To visit our Archives, click here.)