“We do so only after making sure that we have all the resources to make the acquisition a success and add more value to the products and services (even after a request from the customer). We only pick those companies that want to be saved,’’ says Sehgal.

Though Sehgal’s acumen for acquiring the right company is slowly becoming the stuff of legend, he is quick to point out that his strike rate is very low—just 5%—because of the time and energy spent on planning and execution. “Nearly 90% of our time is spent in planning before any acquisition and only 10% in execution,’’ says Sehgal. “If I don’t get the right deal, I won’t do it.” And for making sure that the deal is right, the company leaves no stone unturned. “We never make an acquisition before setting up an office in that country and getting the local people to do proper due diligence,’’ says G.N. Gauba, chief financial officer, Motherson Sumi Systems.

When the deed is done, then the focus is on “customer delight”. Sehgal credits the long Japanese connection for this. “The Japanese taught us something brilliant, that was customer delight. Whenever we acquire a company, we ask them to raise their expectations before visiting our factories. We invite them to India to come and see the genesis of Motherson,” he says. “And they are shocked.”

Inside Motherson’s wire harness factory in Noida (one of the 35 in the country), close to 2,500 workers work in step with high-end industrial robots. What catches one’s eye and ear is workers taking memory tests of every wire harness fitting over and over again amid the constant clanking of machines. That’s how Sehgal ensures precision at the grassroots level. The company’s stated objective in its turnaround strategy—Sehgal is allergic to the word—is simple. He says improving the performance of the shop floor by making it more efficient will translate into better financial performance. The easiest way to do that is by eliminating waste. “If you can bring down the rejects from 10% to 6%, it will result in huge capacity augmentation and greater profits,’’ says Gauba.

Gauba says lowering rejects is key for an original equipment manufacturer (OEM) because when a car manufacturer discovers defective sup-plies, he appoints contractors to separate them.These contractors are paid from the amount earmarked for vendors or suppliers—a double whammy. Therefore, cost-cutting measures arewelcome, but orders that could entail cutting corners are not, says Sehgal. He would rather walkaway from them. “Do the right things, provid eexcellent services to customers, make beautiful products but never compromise on quality,’’ says Pankaj Mital, chief operating officer, Motherson Sumi Systems. The other reason for the company’s success on acquisitions is its financial discipline. “Our policy is never to exceed 2.5 times the net debt to Ebitda [earnings before interest, tax depreciation and amortisation] ratio, which essentially means that I should be able to pay off my debt in 2.5 years. Our comfort level is more 1.5-2 times,’’ explains Gauba.

The only time the company touched 2.5 times its net debt to Ebitda ratio was when it bought out Peguform for ₹890 crore. Says Seghal: “If my customer asks me to make an acquisition of $3 billion, I am not going to say no. That number is not cast in stone. And then do whatever is required to come back to the comfort level, which may take a few months.” But he will do nothing that threatens the bottom line. “But I won’t sacrifice everything for the top line. In fact, in every presentation of mine, I make it clear to my people that top line is vanity, bottom line is sanity and cash in bank reality.”

The company is clear that whenever it does an international acquisition in Europe it will be done in euro or dollar bonds, depending on where the company is located, but never in Indian rupees. Interest payment in India can go up to 15% to 16%—8% to 9% in interest plus the forward premium for borrowing in dollars or euros. “But borrowing in the international market is far cheaper because euro loans are available at 1.8% for five years, which is likely to come down further to 1% or 0.8%’’ says Gauba. A special team is always in talks with banks to replace high-cost debt with low-cost ones.

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