Could you echo to your Mr. Sehgal?
Thank you. Good evening, ladies and gentlemen. Thank you for joining the results actual call of Motherson. I'm pleased to announce that the board has approved and the results for quarter three and congratulated the various teams. Motherson has delivered a strong reference performance across all business divisions on the back of automotive industry, having good growth across regions. The leverage ratio of has been reduced to 1.7x from 1.9x. Having accounted for all the closed acquisitions, we are very comfortable with our debt and liquidity profile, and the visibility should reduce further at the year-end. India is at the center of our expansion plan. We see a lot of traction amidst the automotive and non-auto businesses in India, and to support this further growth, we are setting 11 greenfields in India.
Our focus on operations, improving financial discipline, and continued trust by our customers are demonstrated in our results. I will now hand over to Vaaman to provide further business insight, and the team is here to answer your questions. Vaaman?
Thank you, Baba. Good evening, ladies and gentlemen. I'm pleased to announce that we have achieved outstanding results for the quarter, showcasing robust revenue growth and a consistent improvement in EBITDA. Samvardhana Motherson reported revenue of INR 25,700 crore, reflecting a YOY growth of 27% and EBITDA of about INR 2,400 crore, reflecting a YOY growth of 42%. Our net profit on a normalized basis is at INR 733 crore and has grown by 61% on YOY basis. The reported tax has impact of hyperinflation, about INR 190 crore, particularly in our operations in Argentina, where the currency has significantly devalued from about 200 ARS per U.S. dollar in March 2023 to about 800 ARS per U.S. dollar in December 2023, resulting in INR 6 crore by the regulators there.
We are in discussions with our customers on the best way forward. There's more information on this on slide nine. Our performance is reviewed against the backdrop of stabilizing macro indicators with energy and commodity pricing showing visible signs of improvement. However, inflation and the geopolitical conflicts continue to create headwinds for us. The global automotive production has witnessed good growth on an aggregate basis, 9% year-on-year, 6% quarter-on-quarter, with a quarterly run rate production of 23.9 million cars at par with pre-COVID levels. As developed markets are still behind about 10-15%, I think emerging markets continue to propel growth. Sequentially, there was a slower ramp up by North American OEMs post the UAW settlement and significant growth in the EU, albeit on a lower base, and India coming off peak demand during the festive period.
In the third quarter, Motherson closed three acquisitions, being Dr. Schneider, Deltac arb, and SMA. The M&As that have been closed during the year are contributing meaningfully and are adding revenues about INR 4,000 crore in revenue and EBITDA about INR 410 crore in this quarter. Happy to inform that the integration for all the closed M&As is going seamlessly and as per plan. India has always been an important market for Motherson and continues to be a hotbed of new opportunities for auto and non-auto businesses, like I was saying. Most OEMs are building new capacities, and to support this growth, and align with the customer requirements, we are building 11 new greenfields. Sorry, 11 new greenfields in India, which are in different stages of completion, and majority of them will go on stream in FY 2025.
There's more information on this in on slide 12. We are reiterating the CapEx guidance given in the last quarter of INR 4,500 crores ±5% for FY 2024. Given the substantial inorganic growth, M&A payouts of about INR 4,550 crores net of cash and CapEx for future growth, our leverage ratio had picked up in the last quarter. I'm pleased to tell you there has been a reduction in this, bringing it down back to 1.7x from 1.9x, where we were. We're also fairly confident, as Baba was saying, with the current visibility of this going sub 1.6 by year-end. We are quite comfortable with our liquidity position with undrawn committed lines and cash of about INR 11,000 crores and incrementally committed financing for pending M&As.
This provides us with sufficient firepower to consistently move towards our Vision 2025 targets while maintaining financial discipline. There's more information on this on slide 11. We continue to monitor the growth metrics by focusing on improving operating performances across our divisions and the red, yellow, green status of all our plants. Growth, excluding the greenfields and the M&As that are done in the current five-year plan, has improved from 16% in the first half of the year to more than 17% in the nine months. Even on a reported basis, the growth is north of 15% as of nine months of FY24. This is short of our target, but will only improve from here, as we move. Our performance is a testament to the hard work and trust by our customers, and we are excited to build on this momentum.
With this, I would like to conclude and open the floor for any Q&A.
Thank you very much.
... We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on your telephone. An operator will take your name and announce your turn in the question queue. Participants are requested to use only handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question is from the line of Siddhartha Bera from Nomura. Please proceed.
Yeah, thanks for the opportunity, and, congrats to the good members. Sir, first, on this segment, which you said has been an issue in terms of the vehicle OE mix being weaker in the quarter. Just wanted to clarify, does this impact only the SMR or SMP model segment or there is an impact which is there in other segments as well?
Hi, Vaaman here. Thanks for that question. Of course, the larger impact is on the international business because their volume is much larger. But just so that you know, I think we still maintain that the long-term trajectory will be more favorable towards these trends that we have spoken about before of premiumization, the high level of cars, and the transfer that will happen from one type of engine to the other. But it's just happening at a much slower pace, and there will be variations in the quarter. So it has dipped a little bit. We still believe that the long-term impact will continue on the trend that we've seen over the last couple of years, and we are at a smaller, slower pace.
The good news is that we are fully supplying to all the different models. So where you see one thing go down, we see growth in the other sectors, and that's how you're seeing still growth in the overall performance of the company. I hope I was able to answer your question.
Yeah. To follow up on that, I mean, if you look at the profitability, clearly, I mean, it has been much ahead of what we would have expected and, I mean, even the weaker mix, that was also a surprise. So, is it possible to indicate whether, I mean, we can see sort of things sustaining or improving going ahead? And, does this also factor in some of the cost pressures which you have highlighted, on the labor side and other areas in the quarter?
Yeah, thanks. Look, of course, it's been a challenging quarter. I would say a challenging year, right? I mean, there were multiple impacts that were happening with geopolitical, wage increases, commodity moving. So I think, one, of course, we are grateful to the customers for their support and, you know, help as well, as we, as we go through these things and, try to discuss with them the different, impacts. But of course, the team's hard work to continue to focus on reducing the cost, improving, the efficiencies and delivering the performance. So it is a kind of a mixed bag. I think, there are new and new challenges that we saw in the last year.
But like I said at the start of my speech as well, that we are seeing more stability. I think the worst is behind us. Things are stabilizing, and we have reached that, you know, new normal that we spoke about in the earlier calls. And that is, again, helping us to now build efficiencies and show you improved numbers. I think as this continues to stabilize, we should have even better performance from here.
Got it. So one last question is, when you have indicated the incremental revenue from the new acquisitions in the quarter and the profitability, the biggest one was Dr. Schneider, and if I look at the profitability, it's close to 10%, profitable quarter. So Dr. Schneider, I remember, was acquired at maybe close to 0% margin. So are we already close to double digits for that activity or, am I, am I reading correctly? So just a little clarification.
Yeah, I think you are reading through everything, so that's good. But, so that's the part of how we do acquisitions, right? We look to pick up assets that are performing poorly, work together with the customers to create a plan, increase operating efficiencies, and we enter the asset already with a game plan of how to improve it. So that is obviously playing out. Our plan is under execution. The teams are over there that are making sure that, you know, this, that asset continues to grow from here, not be in the financial condition that it was.
Of course, it's all part of the plan that we had put into place when we were going to acquire that asset and to turn it around, and that is playing out. The teams are doing quite well and ahead of their targets.
Got it, sir. So next question, we have seen interest cost continuously going up, so if you can guide now with the debt levels also coming down, like, you have guided, what should be the sustainable level of interest cost we can see, going ahead?
Hi, Kunal here. So, there is a function also of our low-cost debt getting refinanced at current rates, which is what is driving this, Deltacarb that you're seeing. Plus, there is the whole Argentinian net monetary position, which is also lying in the interest cost right now. We hope that the Argentinian piece we are able to solve along with the customer, sooner than later, and should not be an, you know, ongoing feature forever. The rest, as I think we delivered, you should be able to start seeing some of the reductions that will happen on the interest rate side as well. Having said so, do bear in mind that, we still have a $300 million bonds payout coming due, which is a 1.8% bond that will be coming due in June.
When you adjust these factors against the current rates, obviously, you may still see some rise on a quarter basis. But on an average yield on the debt, you should be able to see a reduction.
Okay. Thanks a lot. I'll come back in the queue.
Thank you. Next question is from the line of Amyn Pirani from JP Morgan. Please proceed.
Yes, hi. Thanks for the opportunity and, you know, nice to see the ROCE number on a recorded basis, you know, also starting to improve. My first question is on the wiring harness business, a very strong improvement on EBITDA as well. So the clarification is, a large part of this driven by PKC? And the reason why I ask this is because that business also has a lot of volatility because of, you know, the exposure to China. So how should we, you know, think about this going forward?
Hi, this is Santosh here. Well, this is all around, so this is the total number of the whole wiring piece, including India or the PKC or MWSI or other subsidiary companies in the wiring space. So you have seen that in the wiring space, yes, there has been improvement because the business was hit in the past with the rising costs and also supply chain issues, which have been getting normalized and improvement in the components of the cost. PKC does have some business in China. I mean, this is not the largest piece of business, because our larger pieces are in Europe and in Americas, but we have seen improvement in China as well from the past. So this is all around across improvements which have been done.
Okay. Okay. And, you know, just on the impact of the risk, you had mentioned, you know, as to, you know, how things were looking in Q2. But I'm guessing, you know, they have become, you know, more problematic as this quarter has gone by. So just for our understanding, you know, in case, you know, freight rates were to move up massively because of this, how does the current arrangement with OEMs work in terms of whether, you know, it's owned by you or is it a pass-through? And, you know, are there discussions, so you're already having a lot of discussions with the OEMs on a lot of, you know, cost items. Is this something which is an extra thing or is there a pass-through here already incorporated?
See, generally, freight costs, depending on the different contracts with the customers, if we are procuring something which is directed by the customer, of course, it's a pass-through. Whereas if we are delivering certain products to them, in many cases, customers have an arrangement where they pick up the product and they pay for the freight. So again, in a way, it's a pass-through. Where we deliver, it's our cost. And these kind of things get discussed because we work in a transparent and a trustworthy way with our customers. So these are issues which may not be part of the contract, but they come under discussion. So there are two aspects to it.
One is that the cost of transportation goes up as the routing gets changed, and also the lead time of the products which are to be delivered or imported into different geographies, they get impacted, which we're passing through the next week.
Okay. So just on that last point, are we seeing the-
Just one addition. Most of our production is taking place close to where the customer is, so it wouldn't be too much really. Kunal, if you can elaborate.
So that's true, sir. So, like, most of our business is located in the geographies where the customers are. So, that's how we have always operated. So it is just to mention that, probably that there are issues which can happen because of the ratio, but majority, I mean, more than 95% of business is very close to the customer's location, so that doesn't get hampered in that sense. But if it leads to, you know, on an overall basis, commissions, as of now, we don't see any issues in businesses which we are doing close to the customer.
Understood, sir. Understood. Thanks for that. I'll come back to you.
Thanks. Next question is from the line of Jinesh Gandhi from Ambit Capital. Please proceed.
Hi, sir. My question pertains to the clarification on revenues acquired in the quarter of 2024. This includes Schneider as well as SaaS and other acquisitions done in second quarter, right? That's for all the assets acquired in the current financial year, and not just Q2 and not just assets acquired in third quarter.
That is right.
Got it. And, secondly, obviously with this, rate issue, so while obviously trade rates and those things will be volatile, but, are we seeing any impact of this from our efforts to normalize inventories, which has shown some, results over the last three quarters? Are we seeing that having impact?
Look, Jinesh, right now we are not seeing an impact. I think, it is still muted. Having said so, obviously, if this becomes very volatile, this is the natural, impact of saying, "Hey, then we have to keep a higher inventory level to take care of any supplies and volatility.
... As things stand, we should still be leveraging on the working capital side.
Mm, got it, got it. Great! Thanks a lot for this.
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America Securities. Please go ahead.
Yeah, hi. Thanks for taking my questions. I have a couple of questions. Firstly, on the common system based around things that you called refinancing, refinance, I think this is something that you will see a lot playing out through the market where, you know, everybody's seeing this refinancing happen now. In that context, are you seeing a lot of opportunities of M&A come up in the market? And, you know, should we expect this momentum that has been in the last year or so on acquisitions from your side, that should hold up this year as well?
Look, fingers crossed. I mean, we will only do acquisitions, which the customers really tell us. But if, you know, seeing the trend that is happening, I think what you're saying is, is fairly accurate. There should be, a lot of opportunities coming our way this year. But like I said, we don't, we don't wake up in the morning and try to hunt for companies with issues or something like that. We are, we are patient. We will follow the customer's lead. We only do acquisitions the customers behalf. But yeah, it's, it looks like there will be a lot of opportunities coming this year.
Okay.
Actually, guiding them at INR 36 billion for the end of next year, isn't it? We think that this is right because there is gonna be a lot of thing in the question.
Yeah, I missed that number. What is the guidance for?
That's a five-year target, which we had set in 2020, that, you know, we would like to be a $36 billion company. So we are hopeful that we get the opportunity to get there this year for the remaining bit that's still there.
Okay, got it. If you could talk about the Lumen acquisition that you did in December, December, I think, you know, it, it's a, it's a very different segment that you've been doing so far, so some color around that will help. Is it, is it a new segment that you're looking to scale up?
Yeah, my name is Rajat Jain. I'm heading the vision systems vertical. Yes, in a way, you are right, that it is an expansion into a new segment. Australia, as you would know, there is no automotive manufacturing in Australia anymore, but it's a very thriving market for import of cars and then also for the dealer equipment. This is a company which works very closely with OEMs and creates the kits for dealer equipment. As the cars get imported, they are all going through the dealer equipment for price conversion, for tailor fitting, for all the accessories, for accessorization that happens. All of that then is coming as a new addition through this company.
Then they are also growing into the same business in other markets. So they are gradually growing into South Africa. They're also growing into U.S. American markets. So, it is still a very small setup, but yes, holds a very high promise in the future.
Okay, got it. The second question I had was on the SaaS. You know, in your presentation, you talk about onboarding of new customers, start of vertical integration. Can you just update, you know, sort of update us more on what's happening at SaaS, you know, SaaS, and how should we think about both the revenue ramp-up that you all had called out and the margins there? How should they improve as I think that vertical integration is happening? A little bit color around what that is, you know, the company you've been acquisition into, you know, how you've integrated the acquisition with some color around that.
Sure.
Just want to add that Lumen's acquisition, almost 30%, is running harder. I'm not wrong. Right, right, Rajat?
Yes, sir. There is a lot of things which come from Group's strength, which we bring into this acquisition as well.
Sorry, please go ahead.
So I just took the SAS question on the strategy side, and Kunal maybe will add a little bit onto that for the numbers. Look, SAS is very, very important to us because they're really a 0.5, fully managing all the assembly, all the suppliers, and delivering the entire cockpit dashboard for customers in global locations. And I think with our footprint, manufacturing capability and our customer spread, this allows us to really take a full solution to the customers all the way from designing, manufacturing, assembly, and supplying just-in-time, just-in-sequence, just-in-line to the customers for that. So of course, integration was the first step, which has been completed. Very pleased to announce that it's gone exactly as per planned. The customers are also quite happy.
There was absolutely zero disruptions in supplying to the customers. On top of that, now we can go to the customers with a complete solution, of not just obviously the assembly that SAS was doing, but also the manufacturing piece, the design and engineering piece, which complements what we are doing together with SAS. So, on new conditions, we are going to customers as one unit, giving them the complete solution to be able to do things that they were probably not able to get from Motherson Group in the portfolio, and that's what's really exciting, that we can take a larger piece of the manufacturing, engineering, and assembly side, and the customers can focus on what they do best, is selling their cars.
And that's already started to play out. We've already going to customers, bidding on new programs, so hopefully it should show color in a couple of years, once those programs wins happen and the launches happen. But it's a really exciting moment for us to integrate them and add another level of, let's say, offering to our customers, and has really been welcomed by the market. And like I said, SAS has the opportunity to bring in new customers from the Motherson fold, and our polymer division has now capabilities to deliver the just-in-sequence, in-line, complete cockpits like we haven't done before. So that's on the strategy side. So as on the numbers side there.
So I'm assuming the numbers are clear. On slide nine, we had highlighted, you know, what the acquisitions are delivering. All of them are margin accretive, and profitable as it stands in Q3.
Okay, perfect. Okay, last question, I think recent will be the Q3 outlook. Given that, you know, there's still, you know, get closer to U.S. and Europe truck cycle, is there anything which we're reading from our customers that things may be slowing down, on the truck outlook for this year both in U.S. and Europe?
See, the outlook which we have is that in Europe, there has been some softening of the demand may happen. But in U.S. at the moment, the demand is quite strong as it was before. So it continues on a strong footing in that sense as of now.
Okay, got it. Thank you so much. I'll join right back to you.
Thank you. Next question is from the line of Pramod Amte from InCred Capital. Please proceed.
Yeah, thanks for taking my question. So following up on the same area, as in, continuing with the large piece of the top line, you have achieved a first quarter of 11% margin looks like. Is it usually one of your peak year, and what key is runway for margin expansion, because it's margin accretive business now versus when you acquired it?
So the SAS was always a profitable business. So, I'm not sure where the comment is coming from. But having said so, yes, I think we've been happy with the performance of the assets, and hopefully as it, you know, gets transformed under the Motherson scheme, where we can add a lot more components to it, a lot of customers to it, and also learn from it, I think at an aggregate level, we should be able to synergize very well with the assets. The early stages of vertical integration has already kick-started, so it does augur well to how the assets can play out as we move ahead.
I think, having said so, I think, the business has a degree of volatility that will happen, so I would not suggest start looking at it on a very quarter-on-quarter basis. I think every business has its own nuances and might be better off to view it over a, let's say, a year period or, you know, at least a few quarter period, other than just look at one quarter and, and build things out. There is no one-off that exists in this quarter. The one-off of Argentina that is part of that, has anyway been called out separately, as you would have seen. When it comes down to the other assets, as I said, it's all margin accretive. When Dr.
Schneider was brought in, we had highlighted that it would be profitable from day one, and I think the team has done well to deliver that. We continue to work on it to try and build further synergies on this and hopefully improve the performance from here on. So, right now, as it stands, all the assets that we have assimilated as on date are all profitable.
Thanks a million.
Thank you. Next question is from the line of Basudeb Banerjee from ICICI Securities. Please proceed.
Thanks for the line. First, so we had hopefully increase that in this Q3. So out of that, am I right?
That is right. The last chunk is driven of the Argentinian piece, the foreign losses associated with that. Yeah.
That minor increase is because of the financial higher cost.
That's right. So if you remember, we had an INR 2,000 crore entity which has been paid down in September, and the new financing is obviously at a much higher cost, so that's the larger piece of the delta.
The Argentinian taking one-off time for weaker for the report?
Sorry, that maybe we could not tell you well.
The Argentinian evaluation cost is one-off, so that one-time out interest payout won't happen for next quarter.
That's right.
Yeah.
Just to be, just to be clear, this is still right now non-cash in nature. It's not that there is any payment or foreign loss that has been realized. It's done on a mark-to-market basis, and obviously, we are working with the customers to try and find a solution for it. Right now, the Argentinian regulation does not allow us to pay the vendors. So no, you know, imports are being allowed to be paid, and I think that's the reason why the mark-to-market on the payables is causing this sort of slow.
Sure. Second question is, improved, Argentina, almost so given the depleted 9.2% actually. Am I right?
That is right.
Sure. Third clarification question, revenue due to recent revenue, as you have supplied to them, go through increased revenue from INR 3,000 or more, and INR 1,500-INR 3,800. And correspondingly, the depreciation increases around 150 QoQ. So this rise in the three requested QoQ purely driven by the higher alternate revenue, 15 and three, or anything?
I could not understand the latter part, Basudeb. So I captured the part-
70 crore of reported last year, INR 1,000 crore plus. So this whole increase is because of the higher, you know, revenue coming into play then. Is that the solution?
That's like that. Together with some of the... As you understand, there is a whole PPA accounting, the purchase price accounting, where some portions of the acquired assets are depreciated, the intangibles, the customer issues, the contract, et cetera. So that piece also enhances the depreciation and amortization piece.
So any part of this quarters or the clear amortization, is one-off or it will remain at seven?
No, there is no one-off. This is what will happen is over, let's say, 3-5 years, it's depending upon which other asset and, you know, what the PP adjustments are. Over the next 3-5 years, these will all die down, and then it becomes normalized to the book value of the asset.
Sure.
Different assets will follow a different trajectory there, so you may see at an aggregate level some change, but there is no one-off in there.
Last question is, roughly INR 4,000 crore of incremental revenue being just sub $2 billion. So Yachiyo plus Dr. Schneider plus also greater, other small ones, how much one can assume the incremental is out with revenue? Basically, one question, how much is left on a recurring basis coming to your total GPA?
So if you're asking about the acquisitions which haven't been closed, we have Yachiyo, which is the largest one, which is yet to come in.
Yeah.
We have Cirma, AD Industries and Lumen. I think these are the four which are left. If I remember right, I think altogether it would be around about, slightly more than $1.2 billion-$1.3 billion. That's the amount, yeah, one point one odd billion, that's the amount that is yet to come in from the acquired assets. Having said so, among the acquired assets, this time around, for the quarter, the full three months of SAS was there, the full three months of Dr. Schneider was there, which are the two large ones. I think all has been now there for a few months. Data is the only one which, is, there for just a month or so, but that's a much smaller asset.
Understood. That's basically, will it be right to assume that $1.3 billion-$1 billion fully in 50-55?
Now, for the full year, it will start moving in, absolutely.
Sure. Thank you.
Thank you. Before we move to the next question, I remind you to anyone who wishes to ask a question, may press star then one. Next question is from the line of Vivek Kumar from JM Financial. Please proceed.
Thank you for the opportunity. My question is on the arrangement with BIEL Crystal. If you can share your thought process around this arrangement and what is the potential that lies ahead of this arrangement? Thank you.
Thank you for asking those questions. Armin here.
Sure.
You know, in the last five years plan, we were very clear that, while we will continue to focus on the mobility and the automotive business, we will also look to diversify the business and use our strength in engineering, manufacturing, where, where we have other opportunities in other industries. That's where we set up, you know, complete teams to look at healthcare, again, manufacturing of products, logistics, and as we were building up these teams and aerospace and, and defense, of course.
So as we continue to make progress, and we know there is a big push in Make in India, and a lot of new customers are coming in, new industries are growing, you know, on the manufacturing side, and automotive being have a very strong reputation and capability in delivering highly engineered products. I think this was an opportunity that came to us through a partner and deal to make products in the consumer electronics space. We had a meeting of the minds, and a good partnership has been started, and we're going to obviously also try to grow in the consumer electronics space.
... So this will continue to diversify the revenue stream, give us opportunities of growth, when perhaps there are difficulties in some other industries. This will continue to grow, and bring in additional opportunities for our people.
Thanks, Raman. Any timelines for this arrangement to see movement in terms of products and customers?
Look, we will come back to you. Just—we've just signed the deal with the partner over there. As we start to get into that and start bringing in the capacities, we will come back to you and tell you a lot more of what we're doing over there. Currently, bound by confidentiality contracts and what we are trying to do. But rest assured, it's a very positive development. We feel it's an exciting revenue stream for us coming down in the future. And definitely we'll already start to show in about in the new year. Perhaps in a small way, but grow up fast as we are successful as a partnership.
Please stay tuned, and we'll come back with more color on it once I have more stuff to share.
Thank you, Vaaman, and all the best.
Thank you. Participants, you may press star and one to ask a question. Ladies and gentlemen, anyone who wishes to ask a question, press star and one. As there are no further questions, I would now like to hand the conference over to Mr. VC Sehgal for the closing comments.
Thank you. I think a lot has been said. Vaaman, I give it to you to do the closing comments, please.
Sure. So once again, thanks, everybody, for their time. Come onto the call and, and ask all the questions. As always, we are always available to answer any follow-up questions. The contacts are, are there on the, on the website. Please feel free to reach out to any one of us. We look forward to your continued support. It's been a, it's been a lot of hard work done by the teams, and in the last quarter of the year, definitely all the teams are focused on finishing strong, and entering into the last year of our five-year plan. So please, stay tuned. A lot of, a lot of exciting updates are coming up, and I look forward to speaking with you, all of you, in the next quarter. Thank you so much. All the best. Bye-bye.
Thank you. On behalf of Samvardhana Motherson International Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.