Domestic business recovers but a decrease in OEM volumes hurt international business | Q2FY22 Motherson Sumi Systems Results

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Standalone Results

  • Revenue from Operations for standalone business stood at Rs. 1,279 crores as compared to Rs. 996 crores. A YoY growth of 28.5% and QoQ growth of 14.8%. Such strong increase for the Indian business can be attributed to volume recovery for Indian OEMs leading to good demand.
  • Revenue for Domestic Wiring Harness business increased by 28% YoY to Rs. 1,400 crores.
  • EBITDA for the company came down by (-7.5%) at Rs. 129 crores in Q2FY22 compared to Rs. 139 crores in Q2FY21.
  • EBITDA margins for the company subsequently decline by (-392) bps to 10.1% in Q2FY22 as compared to 14% in Q2FY21.
  • PAT for the standalone business stood at Rs. 378 crores. A growth of 149% QoQ and 109% QoQ. Dividend income led to increase in PAT.
  • PAT was higher than the reported PBT as the company discontinued its Domestic Hiring Business. Its profits were added to the PAT after revenue and PBT being accounted for separately.

Consolidated Results

  • Consolidated revenue from operations for the company stood at Rs. 14,706 crores as compared to Rs. 14,957 crores in Q2FY21, a decline of (-1.7%). QoQ drop was significant at (-9%). Subdued volumes of customers was the key reason for decline in revenue.
  • EBITDA for the company decreased by (-32.2%) YoY and (-22.64%) QoQ to Rs. 944 crores in Q2FY22 due to frequent disruptions in productions at customers and higher raw material costs.
  • EBITDA margin stood at 6.4% as compared to 9.3% in Q2FY21 and 7.6% in Q1FY22, a decline of (-289) bps and (-113) bps respectively.
  • PAT for the company decline by (-35.8) when compared to Q2FY21 at Rs. 217 crores. QoQ decline for the PAT stood at (-25.1%).
  • PAT was higher than the reported PBT as the company discontinued its Domestic Hiring Business. Its profits were added to the PAT after revenue and PBT being accounted for separately.

Business Highlights

  • Disruption in productions of customers due to semiconductor issues caused impact on EBITDA margins.
  • Increase in input costs due to high prices of raw materials (copper).
  • The chip supply recovery is slower than expected.
  • The order book for the company stands at 15.3 billion Euros as it has won new orders worth 2.1 billion Euros in H1FY22.
  • The company is awaiting NCLT approval for next steps for proposed reorganisation.
  • The company has acquired 55% stake in CIM Tools (India) and 60% stake in Nanchang JMCG Mekra Lang Vehicle Mirror Co Ltd (China) in Oct-21.

Business Segments

  • Following are the business segments of the company:
    • MSSL Standalone represent Indian operations of the company which manufactures and trades automobile parts use in passenger and commercial vehicles.
    • SMR has Samvardhana Motherson Reflectec Holdings which is an overseas subsidiary of the company engaged in developing and manufacturing rear view mirrors and driving assistance systems.
    • SMP represents subsidiaries of Samvardhana Motherson Automotive Systems Group BV (SMRPBV), an overseas subsidiary involved in manufacturing and supply of plastic parts and system modules for interiors and exteriors of vehicles.
    • PKC is the PKC Group Oy which is an overseas subsidiary of the company involved in designing, manufacturing and integrating electrical distribution systems, electronic components for commercial vehicle industry, rolling stock manufacturers and other related segments.
    • Others represents subsidiaries other than mentioned above which are below threshold for separate reporting.
  • SMRPBV revenue declined by 14% on YoY and QoQ basis as volumes were down in important passenger vehicle markets. This happened due to chip shortages, increase in input, labour and freight costs in key markets.           
  • PKV revenue were impacted because of the substantial volume drop in China & European markets. Costs also increased due to new product launches and disruptions in supply chain.

Earnings Call Highlights

  • Shortages of key materials and semiconductors in supply chain will remain a key issue for OEMs in Q3FY22.
  • The management said that its focus on diversification has enabled the business to perform better than the market.
  • Diversification limited the revenue decline to 9% on QoQ basis as compared to volumes drop of 22% in passenger vehicle industry in Western Europe, 23% in US and 59% drop in China for medium & heavy trucks.
  • The company won new orders worth 2.1 billion Euros in H1FY22.
  • EVs share in order book at Sep-21 increased to ~27% as compared to ~25% in Mar-21.
  • The company would not be doing any new major capex. Maintenance capex and plant improvements will form majority of capex in FY22 as the current order book does not require any large capacity. Hence Capex for this FY will be close to Rs. 2,000 crores.
  • As the company keeps revising prices 2-4 times in a year, passing of raw material prices has been lagged by 3-6 quarters. Management expects this lag to decrease in future.
  • The net debt for the company has increased to Rs. 7,627 crores in Sep-21 as compared to Rs. 6,158 crores in Jun-21. The reasons for the same is increase in working cycle due to frequent production shutdown by customers, dividend pay out in FY21 and operating performance being weak.
  • Motherson Sumi Systems Ltd is currently supplying ancillaries to seven of top ten EV models in the world.

Domestic Wire Harness (DWH)

  • Motherson Sumi Systems Ltd will hold 33% of DWH after restructuring in the organisation.
  • The company reported financial performance of the business separately in discontinued operations segment.
  • The revenue for the business in Q2FY22 stood at Rs. 1,400 quarter, a growth of 26% QoQ due to higher realizations. EBITDA margin stood at 13.5% increasing by 220bps YoY.
  • Profit after tax for the business stood at Rs. 130 crores, increasing by 69% QoQ.

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