Gaholot says Motherson Sumi Wiring finds the market very interesting and expects very good growth in the future as well. Volume is growing from the OEMs who ate adding capacities and customers are also choosing feature-rich models or topline models. Hence upgrade is happening. There is more content of the wiring harness in the cars. Motherson Sumi Wiring always gets the benefit of cost if sales are dependent on models. Higher the model, the more the sales for MSWIL.
The passenger vehicle (PV) industry outlook for FY25 is muted with OEs talking about mid-single growth. Tell me, how is it that Motherson Sumi Wiring is seeing growth for FY25 and where is it that you think the drivers are going to come in from?
Anurag Gahlot: The market is supposed to grow because all the customers are heavily investing to create a capacity for this. Our biggest customer, Maruti Suzuki, has already announced that they will grow and will be building capacity to reach four million unit volume from 2.3 million, including the EVs, hybrid, and exports.
They are going to build these capacities in the next six to seven years’ time. This information is in the public domain.
Among other OEMs, Tata Motors has taken up the Gujarat facility of Ford. They have recently announced acquiring land in Tamil Nadu near Vellore and new companies are also coming to India.
Second, car penetration is still relatively low in India. It is 30 per 1,000 people whereas the world average is around 340-plus and in the developed economy, it is around 500-plus. So, there is opportunity over there as well. Also, India is the third largest automotive market and the second largest road network. So, new expressways and road infrastructure are coming up at astonishing speed. OEMs and customers are seeing that as an opportunity over there.
Another very important factor is that the Indian middle class is growing and the increasing disposable income is creating a large pool of potential car buyers and these potential car buyers are also feeding demand for the feature-rich models so that is prompting the new launches. At Motherson Sumi Wiring, we think that the market is going to be very interesting and we showcase that this is going to be very good growth in the future as well. Also, one major factor for us is there are only two factors in this; one is volume is growing from the OEMs and second one is that customers are choosing feature-rich models or topline models, hence upgrade is happening. There is more content of the wiring harness in the cars. Motherson Sumi Wiring always gets the benefit of cost of the sales are dependent on the models. So, higher the model, the more the sales for MSWIL.Let us discuss the capacity expansion plants. We are talking about Motherson Wiring. What is the overall investment you are looking at? Also, can you tell us when it will be operationalised? What kind of revenue potential do you foresee?
Anurag Gahlot: These two plants are going to be operational for the start of the Q1 or maybe the later part of the Q1. The volumes ramp-up is going to start from the Q3 onward and then it will be Q4 and the Q1 of FY25-26 also. So, this is going to be taking some time to start the ramp up. But these plants are ready, aligned with the customer firm orders, and we are aligned with the customer to start supplying the mass volume.
As far as the capacity is increasing, this is 10% approximately the capacity is going to increase by these two new facilities. And obviously, there are more expansion going to happen later part of the year or maybe the early part of the next financial year as well.
Is this plant going to cater to the EV part along with ICE?
Anurag Gahlot: This is both EV as well as ICE.
How do you see the profitability in terms of the drivers and the headwinds?
Mahender Chhabra: We measure profitability by way of gross return on capital employed and as an organisation, we have set a target of 40% that we should be achieving ROCE upward of 40%. Last financial year, in ‘23-24, our ROCE was 48%, which was better than 44% which we achieved in the previous year and that is what we would be focusing upon.
Anurag Gahlot: Rightly said Mahender ji. Our team is also working very hard on overall operational improvement, continued supported by the cost reduction initiative and recoveries from the customer, despite inflationary headwinds.
As I said, two plants are going to be operational; so expansion is happening. But we have to hire the people upfront, train them, and then these facilities will be operational soon and we are very much aligned on the operational improvements and the company has undertaken extensive digitisation efforts to streamline the process, improve the traceability and enhance the product quality. We are working on these things also and these all helps to improve the overall improvement on the shop floor and thus the ROCE is going to improve.