SAS' capex need is much lower than our traditional business: Motherson

SAMIL announced it is buying SAS Autosystemtechnik (SAS), which manufactures automobile cockpit modules, from French company Faurecia at an enterprise value of Rs 4,790 crore

The need for capital expenditure at SAS Autosystemtechnik (SAS) is “much lower” than our traditional business as it involves running assembly lines near carmakers’ facilities to integrate auto components for producing cockpit modules, said Samvardhana Motherson International’s (SAMIL) vice-chairman Laksh Vaaman Sehgal on Monday.

Noida-based automotive component manufacturer SAMIL on Sunday announced it is buying SAS Autosystemtechnik (SAS), which manufactures automobile cockpit modules, from French company Faurecia at an enterprise value of Rs 4,790 crore.

In a conference call with analysts, Sehgal said: “It was our customers’ directive to move to the assembly line business. We definitely have customer support. We have spoken to our major customers. They see a positive trend of this (assembly line) business growing and welcomed Motherson’s decision to move in this direction.” 

SAMIL has been in the cockpit module assembly business at a much smaller scale and only with select customers, he added.

“Here, (with SAS acquisition) now we have got a diverse range of customers, and possibilities to do backward integration and supply more products from our (SAMIL’s) portfolio to SAS,” he said. 

Sehgal said that SAMIL will observe which auto components are being used to build the cockpit modules at SAS. It will then see if SAMIL itself can manufacture those auto parts for SAS. “It is a very exciting possibility for us,” he added. 

However, this type of “insourcing” will be possible when SAS gets new orders from automobile companies, and therefore, it will take time, he said. “It (insourcing) is difficult to do with running orders,” he added.

The EV business constitutes nearly half of the total net revenues of SAS. SAS makes cockpit modules and other components for EVs of European auto majors, such as Volkswagen, Škoda Auto, Mercedes-Benz, Porsche, Audi, and Chrysler. 

About 60 per cent of SAS’ revenues come from Europe, 31 per cent from the Americas, and 9 per cent from China. SAMIL's acquisition of SAS is expected to be completed by Q2 of FY24.

Sehgal said that there is a trend now where carmakers are outsourcing their cockpit modules to suppliers like SAMIL.

“These cockpit modules have to be done (manufactured) very close to the carmakers’ facility. It is mostly an assembly process. There is no huge capex there,” he said.

Steady state capex is around euro 30-40 million, maybe it is euro 45 million, in this business, he added.

“Of course, if you win more modules and more orders, then more facilities will be required,” he stated. SAS employs about 5,000 people at 24 manufacturing facilities across 12 countries.

SAS is a well-profitable asset and comes with a lot of complexity, he said.

“The assembly process to manage so many suppliers, produce just in time as well as sequence and line makes it a very complex operation. The skills and the know-how are very complex and we will have a lot of opportunities to grow with customers,” he added.

SAS had a net turnover of about Rs 7,950 crore in 2022. SAMIL manufactures wiring harnesses, vision systems, bumpers, door panels and instrument panels.

Sehgal said: “SAS gives us the opportunity to do more insourcing. We will figure out a way to deliver 40 per cent growth in the medium-to-long term on this asset."

The risks regarding SAS would be the same as the auto industry, he said.

“It has a disproportionate share from the premium end of the vehicles segment. It has a disproportionate share from the EV side of it. So, as long as SAS’s customers perform, we do not see any risk. Some of these facilities have been newly set up to meet some of the increased demand from customers. I see the downside risks as fairly limited,” he added.