Ladies and gentlemen, good day and welcome to Q4 FY 2022 Results Conference Call of Samvardhana Motherson International Limited and Motherson Sumi Wiring India Limited. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you have assistance during the Conference Call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vivek Chaand Sehgal. Vivek, hand over to you, sir.
Thank you. Good afternoon, good evening, ladies and gentlemen. I'm pleased to announce the results. I think you must have already got a copy. We did INR 16,911 crore of revenues in SAMIL Q4 . The EBITDA is about INR 1,287 crore, and quarter tax is about INR 122 crore. Please keep this under the circumstances of very tough quarter, rising costs everywhere. Yet the company has been able to mitigate the challenges. An amazing job has been done by the people in containing the costs and also getting price increases.
One particular thing that you must note is that this is a work in progress kind of a quarter, because tremendous amount of costs almost on a weekly basis have gone up for some reason or the other, depending upon the geography that we are looking at. That, of course, is a big challenge for us. Also with the segregation of two companies, the costs and the legal costs and all that, they also have been written off in this quarter. Those are the one-time expenses. It also gives you the kind of opportunities that we are having. The more the headwinds, the more the opportunities to acquire companies. In the acquisition, because we do it along with the customer, we also get the opportunity to reset the pricing and things like that.
I call it a work in progress kind of a year. Very challenging year. We've come back really hard and we are confident that the coming quarters are gonna be better. I think you would have a lot of questions, so we'll go ahead with that. I think the MSWIL, which is Motherson Sumi Wiring India Limited, has also come up with very impressive Q4 results. That's because India is doing very well. With revenues about INR 62 crores, which is up almost 14%. The EBITDA is up almost 21% quarter-on-quarter. I think we can easily say that India is kind of a shining point in the whole group, along with Americas and some other countries.
Happy to answer your questions and give it back to you. Thanks. Thank you very much.
Thank you very much. We will now begin the Q&A session. Anyone who wishes to ask a question, press star then one on your touchtone telephone. An operator will state your name and announce your turn in the question queue. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Kapil Singh from Nomura. Please go ahead.
Hi. Good evening, sir. My question is related to SMP and SMR margins. What we notice is that you called out on slide number 15, the impact that has come from high labor costs and high energy, high utility costs. The impact is much larger in case of SMP than in case of SMR. If you could give some more color as to how much is the energy cost, that is there for SMP and SMR and how much cost inflation we have seen. What are the kind of conversations we are having with customers in these unprecedented, cost inflation times to pass on these costs? Because what I understand historically, you know, these things have not been passed.
Thanks, Kapil. You're right. It's more pronounced in SMP because SMP has more plants in Germany and the affected areas. While SMR is that much more in the non-affected areas. While I'm not gonna get into it politically whether it's correct or wrong, but Hungary continues to take precedence. They're continuing with their contracts while the whole E.U. is trying to get away from the Russian gas and things like that. All those political things are known to you. SMP has to bear the brunt of it more than SMR. Look, these are things that have been taken over by Vaaman. Vaaman, can you please take this political thing up and how you are trying to mitigate it?
Yes, sure. I think, like Vivek said, most of SMP plants in Europe are participating on the German side. That's why you are seeing more impact of the energy costs there.
Definitely these costs are being constantly shared with our customers, and we are asking them for support during these extremely tough times. These are all costs that are really out of our control, including not just the energy costs, but also raw material and consequent raw material prices that, for example, the risk from our suppliers, et cetera. These are all to be shared, and we're working on a good plan to our customers to how we can mitigate it moving forward.
Vaaman, any indication or any thoughts you have on how much time it can take to pass this on? Do you think it can happen in a quarter or it will take, you know, six, nine months or a year for it to get fully passed on?
There's no standard. Some customers have already gotten to these discussions where they are wanting to, you know, compensate. Again, there are discussions going on on when it happened and how much of it was gonna be shared, et cetera. I think all good kind of things are happening, and different customers are in different kinds of process depending on how much information, et cetera. There are depending on the contracts, you know, their launches. Everything is contract specific. Like I said, we are already engaged with all of them, and they're in different levels of how much information exchange is currently happening.
Okay. Second question I have on
Standalone. Actually, Vaaman is leading it personally. That's how important this is for us. He's speaking with all the top people going and sorting out the particular issues. Sorry, go back to your question, Kapil.
No, that's very important information. We look forward to the update on the same. Yeah, the second question was on the standalone business for MSWIL. You know, we have reported INR 1,611 crores of revenue and 18.2% margin. I just you know wanted to understand what are the one-offs here. Are they both in as well as EBITDA or you know just EBITDA? If you can just explain the adjustment and what is the underlying margin which we should work with on a normalized basis.
Go ahead, Kunal.
Hi Kapil. Kapil on the standalone slide, as you reflect on the 18.2%, it is partly on account of the improved performance of all the India businesses. As Mr. Sehgal was mentioning, India has been a shining spot, and all our businesses in India have seemed to have done better than the previous quarter. The one-off that you are seeing, if you see the slide 13, it has a note talking about INR 65 crore of pre-tax income, which is one-off, which is in relation to the nine-month rental and management fees that MSWIL has paid to SAMIL for the nine-month period, which has been accrued in this quarter, as this is the Q1 which has given effect to the demerger.
On a normalized
Accounted for which line item?
It is the slide 13. The note on slide 13.
No, I understand that, but I'm saying, is it in revenue? Which is in other operating income? Where do we account for that INR 65 crore?
It is in operating income.
Okay. Other operating income.
That we have seen, you know, increasing to INR 122 crore.
The underlying margins. To understand the underlying margins here, we need to adjust INR 65 crore. Is that right way?
From both EBITDA level. That's right. At an EBITDA level, that is true. At a post-tax level, it is 38.9%.
All right. Thank you, sir. I'll come back in the queue.
Thanks.
Thank you. The next question is on the line of Raghunandhan N. L. from Emkay Global. Please go ahead.
Thank you, sir, for the opportunity and thank you for providing more details from Motherson Wiring. On Motherson Wiring, my first question on the EV wiring harness, can you give some color or update on how many customers does the company have and to which segments it is supplying as of now? What has been the increase in content per vehicle in EV versus ICE, if you can share. And also, is there a risk to this increase in content because of technologies like flex PCB?
You want to specify you're talking about SAMIL or you're talking about MSWIL?
Motherson Wiring, sir.
Yeah. Go ahead.
This is Vivek. I mean, if you're talking only about India markets, we are doing both India and outside India and India markets.
India market. Motherson Wiring.
India market, as we had explained in the last calls also, we are doing all segments. We are doing two-wheelers. We do also passenger cars and wherever needed for the commercial vehicles as well, or the machines, et cetera. That's what we do. In terms of content, of course, the content in the EV side is much more depends on the vehicle. As you know, the penetration at the moment in India is not so high. You all know that it is there and it is going to grow over a period of time. That's how it is.
Can you give any sense on how much would be the increase in the content in EVs versus ICE? I mean, people are talking about technologies like Flex PCBs, which might restrict the increase in content. Your thoughts on that?
I think what is important for you to understand is that new technologies, because these gates cannot solve the kind of challenges, I think automotive will. Flex PCBs and all that thing makes a lot of sense when you talk about electronics. But in car, you don't have that sort of need for Flex PCB and all that. And the amperage, we are talking amperages at 100 amps, 200 amps, Flex PCBs won't work there. Think about it, but if you're talking the use of flex every year, sure it will grow. But will it be a replacement? Well, it hasn't. My experience of 47 years tells me that, no, it won't, because you need amperage, and you need the conductors to carry that kind of current.
You may be talking about some of the technologies which some companies or the companies which are doing very well on the next fit globally are tending to use. I think your question was related to India market, so it's not in use in India at the moment.
Thank you, sir. Any sense on that content, basically, if possible, just a broad range.
Generally, what happens is that the vehicles continue to use, let's say, low voltage cables, which continues. If we take bulk of 70% to 75%, or in some cases even more, would be which continues in the way. Then that content goes up because the features are much more in an easy way. The only thing which gets changed is the engine wiring harness, engine doesn't remain, and instead of that, the voltage and the motor related, all those ducts comes in. That depends on the content. I mean, if you take charging cables, charging connectors also into the whole system. Vehicle by vehicle it varies, and then it can be even more than the overall low voltage. I mean, how much is the value add?
There are a lot of things which go into the whole system, and that will be vehicle maker by vehicle maker in that sense. You know, it's up to us, how do we want to take that into consideration?
Pankaj, my second question was, is the company able to sustain market share in India considering competition like Yazaki and Aptiv who are trying to gain share in a you know changing powertrain environment?
Look, you know, we have been there in India for a very long time. As you know, all the players have been in India for a very long time. Your company has never focused on market share. That's the reason why it is one of the most preferred suppliers to its customers. Because rather than focusing on market share and looking at what others are trying to do, we try to focus on creating value for them, jointly working together with them. Even when somebody tries to do price cutting or anything of that sort, we never worried about it. We always continued, and that's how we have been a long-term partner with all our customers and continue to grow with them and remain a trusted player.
We believe we will continue to do so in the future.
I think, you know, they are very respected names that he's taking, so we're not trying to beat them or they are trying to beat us. What do you think, I mean, why they have not been successful in eroding our market share, boss? If that's what you think that, you know, we are fighting on sentiment. There is a total amount of connectors in the components that we are supplying. There's a total support that's necessary for the sector. The markets outside India are very big, big markets. Obviously they have not really focused so much on the India side. You should think about the localization, the capability to set up, components, the capability to set up special wiring. I can go on. I can tell you the market commitment that Sumitomo and Motherson have given.
In fact, this whole particular segregation of the company has been done so that we can take care of the needs of India. I don't subscribe to this, that I have to compete with them. I have to keep competing with Motherson. If I can beat Motherson, then I'm sure I'm gonna be in business, and we all can watch that happening.
Thank you, sir. Very helpful. I'll come back in the queue.
Thank you. Our next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Hi, sir. First I have a clarification with respect to the control numbers which we have declared. What is the difference between the reported number and particularly reported numbers you said on the last page? Or maybe Kunal can share, throw some light on that.
Yeah. Jinesh, the SEBI reported numbers are as per the accounting standard where we have continued and discontinued operations. Its reference is against continued operations for the past year. For the current quarter, obviously, the merger has been given effect as well. When you look at the other one, the pro forma one, that is where the merger and the demerger has been effected for all the four quarters.
It's for reference to draw, like, the comparison. The main presentation is against the SEBI reported numbers.
For the Q1 , the book numbers should be same, similar as now seen.
From previous quarter?
The current quarter, so quarter which we have reported.
Yeah.
The SEBI reported as well as our pro forma numbers should be same, right?
That is right. Other than there are one-off expenses. The 65 crores that Kunal had just the question, the 65 crores should have in the pro forma would have been spread on all the four quarters. In the SEBI reported one, it is accrued in the same quarter, so that's the difference between one and three at a pro forma level in here.
Got it. Can we request more friendly? If you remember, you had shared your business segment-wide revenue and EBITDA in addition to current PPT. If you can share it on ongoing basis for context on that.
Yeah.
From your side. Yeah.
We'll share that in due course as well. Going forward, that will be the new reporting concept that we will go from next quarter onwards.
Oh, great. That will be very useful. Have few questions on the India wiring business numbers which you have reported. Just one clarification. The price increase, there is a revision every six months, right?
Every quarter. Now, the quarter need not be necessarily the calendar quarter. It could be any three months.
Yeah, got it. Okay. Got it. Usually what would be appropriate as a percentage of our revenue is it? For certain business for our cost whatever, relevant.
It will vary between passenger car and commercial vehicle, and motorcycle may be higher. Ballpark you can take, depending upon the price, 18% to 22%, total raw material cost, something like that. I will have to come back based on the current number to copper price and all that.
Okay. 22% of that to the cost for RM cost. Got it.
It can vary depending upon the product mix as I said.
Sure. All got it.
EV it will become more even higher.
Sorry, for what it will become high?
EV
EV. Right. Got it. What is the interest income in that because I believe you have started sharing the GPY and numbers. Probably you should share here also, what is the interest income in that group?
We will have the full annual report coming out soon, so you will have all the data there on the foreign exchange exposure and all that.
Got it. Last question with respect to EV. Just a clarification on what Pankaj mentioned. They are present in two-wheeler, EVs and CVs. That is on electric side or this is in general and electric will be the presence will be different as of now?
The question was on electric. Of course we are there on the low voltage vehicles, but also on the electric.
Got it. Thanks. I'll call back if there are few more questions.
Thank you. The next question is from the line of Joseph George from IIFL. Please go ahead.
Thank you. Good evening, everyone. I have a few questions on, you know, some of the numbers which were discussed some time back, which is firstly the INR 65 crore payment to Motherson Sumi rather SAMIL. What I want to understand is this. You mentioned that this is payment for three quarters. Does it mean that going forward we should think of a quarterly update of say INR 65 crores or thereabout if there are more of them? Is that the number we should think of going forward?
Yeah, bulk of that would be right. The number would obviously have variations to it, but yeah, bulk of that should be.
Understood. Which line item of the income or reported format is this reflected in MSWIL's results just to understand the corresponding line items?
On SAMIL's side. On the MSWIL side, it is also described to clarify on the footnote that the management fee goes before EBITDA as an expenditure. When we are talking about the rentals of the factory premises which are taken on lease from SAMIL, that gets accounted for under Ind AS 116 or whatever is the relevant standard, which means that it's the operating lease gets converted into interest and amortization.
Understood. The last question that I had was, when I look at MSWIL presentation, I'm looking at slide number seven, where I noticed that compared to the reported number, you've made an adjustment of INR 24 crores on EBITDA and INR 74 crores on the PBT line. Can you explain what is this INR 24 crores and INR 74 crores respectively?
INR 24 crores is in respect to the management fee for the nine months, previous nine months, which has been booked as an expenditure in the last quarter. Because as Kunal explained in another question that in the last quarter, we have booked the entire management fee on both sides. When we talk about PBT, the difference is on account of factory lease premises being accounted for interest and depreciation amortization as per the standard.
Understood. The last clarification that I needed, this adjustment has been made to entire amount or two-thirds, because one, you know, one-third of the amount would be for Q4 ? Have you adjusted for entire nine months number or only for two-thirds?
No, we have adjusted nine months prior period, and the current cost remains as part of the normal cost.
Understood, sir.
Because this is the Q4 , not the Q3 .
Understood. Thank you.
Thank you. The next question is from the line of Saurabh from Ambit. Please go ahead.
Hello. Hi, sir. Just needed one clarification. If it is possible, could you please share the gross profit figure for both FY 2021 and FY 2022 in regard both the entities, Standalone and MSWIL?
It will come out in due course as the annual reports are out as well.
I just need the gross profit headline number. That's it. Just to hand it to you right now.
Unfortunately not right now. Please just wait for the comments.
I think we have to tell them that we have two different public listed companies. We cannot discuss right now.
We can connect you offline, number.
No worries. Thank you.
Thank you. The next question is from the line of Amyn Pirani from JP Morgan. Please go ahead.
Yes. Hi, good evening, everyone. Thanks for the opportunity. Before that question, I will take it. When I look at nine months, MSWIL and full year MSWIL for FY 2022, for revenue and raw materials, these are like-for-like. There is no adjustment that I need to make.
That is correct.
If you look at full year or rather nine months to full year, your gross margin is broadly, you know, flattish at a time when obviously raw materials have gone up quite a lot. Is it because you have been able to get the corrections from customers at a faster rate, or have you done any specific cost cutting from efficiencies at your end? I don't understand, because actually this is a very flat gross margin, which is a very good outcome in the current environment.
I think, I mean, you are absolutely right. Our teams are working very hard. You have to give due credit to them because there have been all adverse situations, both not just in the raw material prices, but as well on the shipping costs or freight costs or the transport costs. People have found the ways so that these costs can be contained.
Okay. Going forward, I mean, I feel your fiscal production growth will be higher. What is the kind of commodity cost pressure that you are seeing going forward? You know, broadly should we expect margins to move higher from here into next year?
Sir, first of all, we don't give guidance for the short term, neither on the EBITDA margin. You either get unnecessarily trapped into some question. What is important is also for us to work in partnership with the customers, as we have said, that the environment still remains volatile. There are supply chain challenges which the OEMs have. We also have sometimes from the component suppliers. We continue to do our best and work with customers as well as with the suppliers so that we perform in that given circumstances. I'm sure the teams will continue to perform better.
Understood. Thanks so much.
Thank you. The next question is from the line of Arvind Sharma from Citi. Please go ahead.
Hello. Good evening, sir. Thanks for taking my question. I have just one personal question. One on the other income on the Standalone side seems to be very high. What's the reason for that?
That is largely on account of the dividend that we have received during the year.
Apart from it, because even on annual basis, would it also be apart from it coming from MSWIL?
No, it does not come from MSWIL. No. I'm assuming you're referring to 711. On slide 13, you've also seen Q4 , we have received 264.
Right.
Arvind, you have MSWIL balance sheet and P&L account, there is no outflow of dividend. Dividend is proposed, which will be paid in the financial year 2023 to all the shareholders, including public shareholders.
Right, sir. That is why I just wanted if you could, because Standalone other income is almost INR 784 crores. On an annual basis, it's up from the INR 711 crores or INR 790 crores. Just want to understand what is the contribution to this earnings within other income.
That's because Standalone factories have just been merged, no? That's why it has happened, isn't it?
INR 264 crores is the dividend income received in Q4 itself, out of the INR 383 that you are referring to.
All right. Thank you so much, sir. Second question is on FMR 380. You are subject to margin pressures due to escalating costs. Any idea by when could margins kind of go back to the levels we've seen earlier? In terms of costs, when do you think I know it's difficult to fathom right now. When do you think costs would
Thank you so much for being so appreciative that it's difficult to fathom, but still you want an answer from us. We will give it to you. I hope yesterday. Look, we have to work together with the customer, make them understand the whole thing, and then do it. We can't do it with a breakneck kind of decision over there. We have to be cognizant of the fact that everybody is facing a challenge. Definitely we want that the growth and everything comes back to normal. We also want our life back to normal, and we don't want monkeypox to monkey around with our future coming up. Look, wishes are horses, even beggars would ride. Yeah, we are all trying to work under the difficult circumstances. It's very difficult to give a clear answer to you.
Yes.
I'm appreciative that you understand that.
Sure. Thank you so much.
Thank you so much.
Thank you. The next question is from the line of Mumuksh Mandlesha from Emkay Global. Please go ahead.
Thank you so much for the opportunity, sir. A few questions on Motherson wiring. In the revenue classification, there's another item, others in revenue. Which segment does it take, sir?
Hello? Vaaman, can you take that?
Sorry, can you repeat the question?
Yeah.
Yeah. In the Motherson wiring, there's an item, others in revenue taken. Which segment does it take, sir?
Yeah. This could be through any of the segments which are otherwise described, because this is more to do with Tier 2 as well as components.
I see.
some parts could relate to passenger cars, some parts to commercial vehicles, or those.
See, globally, Sumitomo has a strong presence in industrial wiring business. Over the medium term, can Motherson also diversify into industrial wiring business or any other segment, sir?
Sorry, I didn't get you. Diversify to what?
Industrial wiring business, sir.
Industrial wiring.
Yeah.
Industrial wiring. What do you classify as industrial wiring?
Non-automotive, something like aerospace or aviation.
Sir, now you want to know my strategy, but I can try and help you out there also. Please wait till November this year. We will come up with a 2.5 or half-yearly report on our industrial different segments. You'll have to wait for that. I can't speak, they're hundreds away from me. Please wait for another six months, and you will have the half-yearly IR meeting, half-year waypoint report. Then you will understand where all we are getting into.
Sure. The company is a leader in the wiring harness EV segment and the second-largest player in two-wheeler segment. Would it be possible to share or indicate market share of the other segments like CV, EVs, and two-wheelers?
We don't believe in market share, but all I can tell you is that if we are in it, we are in it. When we go for it, we don't wait for, you know, percentages. We don't guide normally on this. I do not know why you want to know what's our share, market share. We don't believe in market share.
Just, in other segments where our company has presence.
Why do you want to know that? How does it help you?
No, no problem, sir.
Okay. Sorry, we normally don't give it, so I'm wondering why you want it.
No problem, sir. Thank you so much, sir.
Go ahead. You can always ask.
Thank you. The next question is from the line of Vimal Gohil from Union AMC. Please go ahead.
Yeah. Thank you for the opportunity, sir. First question is on the wiring business area. If I look at the performance, clearly you've outperformed the industry by a very healthy margin. Just wanted to understand the contributions to the same. You know, if you think this probably helped us, how much of that has come from the content increase? How much has come from pricing increase? Clearly because the margins also show that you've taken healthy pricing increases. If you could just help us, maybe break that up to understand your revenue performance better. I have one more question on margins.
I'm afraid we don't have such kind of working. Nor we try to do that because that will be something which will divert our attention to something which is more important from the more important work. As we said, our teams are very focused. We work very closely at our plants. We focus on our plants, our work, and ensure that we meet the customer expectation, reduce the wastages, eliminate wastages. This is all about the focus and that's what drives the increase in volume. It's not comparable because the vehicles which are sold in this quarter would be entirely different than in the previous quarter for those things. It will not be giving us any result. It is better to focus on today and tomorrow, how we can further improve our performance.
I'm sorry, I don't wanna.
Right. Right.
Do your analysis, but this is how we have been performing and historically we have been presenting the data, which you can see. I mean, although, can I support you with one line? We also don't have so many people bisecting and dissecting and all these particular things happening, and that's how we save money. We focus on people who add positivity to the production, the quality and these kind of things. We are not a research organization, we are a production company. We focus on what delivers value on to the bottom line. I hope that would also help you.
I understand that, sir. It's just that, competitive environment is gone quite well, so I was just trying to understand better on that.
We never waste a crisis. We always come out stronger. You should have seen the last year's first quarter results. We almost had tears in eyes, but then the next quarter we came back very strong. That's exactly what we do. We don't waste the crisis. We use that to our advantage. Without doing just, you know, shakiya, let's compare this also, let's compare that also. Our people are very focused. They know exactly what to focus on, and that's probably the reason why we both create, you know, Motherson results are that much better.
Great. Sir, just one question on margin.
We don't guide on margin.
Sure.
We don't guide.
No, I'm not asking for guidance. Just wanted to understand your nature of your employment. Given the fact that, you know, this is a slightly more labor-intensive business, as compared to some of the other parts. Would your employee cost remain fixed for a certain amount of time before you probably expand capacity? How should we understand your employee cost growth, going forward?
Let me tell you, almost about 65% to 70% of our workforce is ladies. Luckily, the ladies get married and then they move around. That's probably one advantage point that we have. Maybe that helps you to understand our margin and sustainability of margin. Does that help you?
Right. Right. Got it, sir. Thanks a lot. Thanks a lot, sir. Thanks a lot.
You're welcome.
Thank you so much.
Thank you. The next question is from the line of Ronak Sarda from Systematix. Please go ahead.
Yeah, hi. Thank you for the opportunity. First question is on the consolidated leverage. I mean, we have INR 2,200 crore of working capital impact, and on the leverage. How should we look at this number over the next one year, so OCF minus CapEx, and plus any recovery on the working capital. How should this, you know, number trend over the next one or two years?
Ronak, the INR 2,000 crore of working capital that we called out was largely to highlight the fact that, given the supply chain disruptions that we are seeing across the globe, we are required to keep a much higher level of inventory. We are also required to have multiple supplier bases in place just to make sure our supply chain is there to service the customers. That's why the working capital has been expanded. Now, going forward, as things normalize, this will also normalize, and hence these should get released.
At the same time, you know, with better realizations, and better, you know, pass through of some of the inflationary costs to our customers, hopefully, you know, the improved performance would also mean that there is improved cash flow, and this in turn would imply that the debt figure should be looking down going forward. In general, you know, there is no major CapEx that we have in play. There is no major greenfield, et cetera. Our current order book, our current capital assets are sufficient to meet the requirements of the current order book. Hence in general, subject to market conditions, we should be on a de-leveraging path. Obviously subject to any new acquisitions that come into play.
Of course. That's clear. Second question is really mostly wiring part. If you can just help us understand, you know, on the yen exchange rate, so are we already seeing benefits of the yen depreciation or these are also, you know, on a three to six-month contract, how does this, you know, impact our financials?
As far as copper and Japanese yen is concerned, that is a pass-through for us.
Okay.
With a lag or whatever those terms are.
Got it. Sir, any indication? I mean, MSWIL will continue to generate a very strong free cash flow. How do we intend to, you know, deploy this cash given we have a pretty long-term agreement with SAMIL on the component supply? How do we, you know, intend to deploy this cash which is generating 40%+ ROC?
Return back to the shareholders, please. Thank you. We need it.
Okay, fine. Vivek Chaand Sehgal, sir.
Ronak, that is one part, but the whole purpose of reorganization in terms of just that there has been that we want to Sumitomo wants to focus on the domestic wiring market because the domestic wiring industry is also undergoing a change. You will see that this requirement coming from the customers, we would be making necessary investments so that we go ahead of the time to service our customers as has been the past track record. As Mr. Sehgal said—Thanks, Ronak. Thanks, Ronak. You're right. I will just try to have fun because of this question here that you'll have cash, so why not? I said, "Look after the shareholder out there." We look after everybody, so why not we look after the shareholders also?
Yeah, I think, to answer the question of the other gentleman who was trying to find out about our competitive landscape, probably Motherson Sumi Wiring Systems will invest tremendous amount of money in the electrification needs, if there are any, also for the hydrogen cars, for the different wonderful cars that everybody wants to be seen made in India. Probably Motherson would be the one company which would be taking care of all the needs. Definitely, that's the logic, if you agree with it.
Okay. What I understand, I mean, when it's electrification, hydrogen car and where specifically could be the investments through?
To make the wire. You see, the wire will not be the normal wire. The components will not be the normal components. You need to make special investments in new technologies, new products, new materials, because you can't use normal thing for this particular thing. You can't charge it on a home charger. You need a special charger because the needs are very different. That's more technological play. Definitely we are. We have it, and we also are very capable to take more from Sumitomo also.
Okay. For the ICE vehicles, where a lot of the time parts and components come from SAMIL, for, let's just say, EVs and hydrogen, MSWIL will place investment in those components. Is that the way to understand?
Sure, why not? That also. If there is any need for them to have more help, then Motherson Company is always, SAMIL is there.
Sure. Okay. A couple of clarifications from Kunal Malani. On slide 13, SAMIL standalone EBITDA of Q4 , which you have highlighted is INR 93 crore. I mean, if I look at the reported format, it's much lower at INR 63 crore or INR 59 crore. How do you go from that number to 93? If you can just help us with that.
You're referring to standalone, right?
Yes. SAMIL standalone. Yeah.
Where are you picking it up from the steady standalone numbers?
EBITDA standalone numbers is around INR 263 crores if I do revenue minus raw material, employee and other expenses.
There is a dividend income of INR 264 which is excluded, as highlighted, which is not part of the EBITDA.
Right.
Right. There's an interest income also which we do not consider as part of EBITDA, so that also needs to get excluded.
Uh, let me
I can share.
Sure. Besides clarification, the erstwhile SAMIL entities, right, the one which you highlight on a consolidated basis or the proportional basis, those be part of the SAMIL standalone. They will still be as a separate entity, right? Or at some point, do we intend to merge all of these companies as well?
What business used to exist in the erstwhile SAMIL standalone is now part of SAMIL standalone. There are businesses which are 100% subsidiaries, as well, which remain out. There are joint ventures which also are separate legal entities and they remain out.
Okay. Perfect. Thank you. Thanks a lot, sir.
Thanks. Thanks for bringing up that because we have now simplified it. It's either this or it's that or there's nothing. The segregation has been completed.
Right. Right. Thank you.
Thank you. The next question is from the line of Jay Kale from Elara Capital. Please go ahead.
Yeah. Thanks for taking the question and good evening to the team. My first question is regarding the MSWIL, you know, on the wiring harness side. You did mention that you are committed to investing in India. We've seen that, you know, your competitors maybe in the current EV wiring harness, maybe, you know, the high voltage wires, a lot of components will be imported. So how different are we versus the competition in terms of our localization content for the high voltage wires? You know, we understand the connectors are one of the major components over there. Would we be, you know, producing it in India, and hence our cost structures would be much better than competition?
You know, would it require a different kind of homologation from the OEM, since these are?
No, no. Let me just help you out here. The customer is going to decide based on the economics. Think about it. If you go and blindly go and copy the components and start making it here, I think it's a big mistake. At the end of the day, you need the volume, otherwise, you see you are better off importing it. So, you know, the tools itself can cost you INR crores. So it has to be a make or buy decision that we have to do. That's the reason why at this moment we are not really going for this thing, because the volume for cars is very small. The other gentleman was also asking about electric cars and things like that. How many cars are being produced in the way of electric vehicles?
I think, you know, we just lose our balance and just want to seem like a pendulum from left to right or from right to left. There is make or buy kind of a decision which is there. These types of things will be answered maybe another two, three, four, five years. That's the reason why Samvardhana Motherson better felt that it's better to segregate that and set up special plants depending upon what the need is. We don't really know what is going to be the real numbers that we are talking about. If you have any of those numbers and all that, we'd be very grateful if you can give it to us here.
Sure, sure. Next question is regarding the, you know, SMP business. You know, we've now kind of not segregating the startup costs because now it's part of normal operations. Just an indication, how would we be in the journey of margin improvement for the plants? Are they operating at optimal capacity utilizations? You know, are we closer? For those plants, our margins kind of have trended towards the company average margins or they are still at the breakeven level? Just some directional line. I understand you might not be able to give exact numbers as part of normal operations.
Kunal and Laksh , can you take this one, please?
Sure. I think Laksh can offer more details on that. They classified them as normal plants now. We do not see them as startup plants anymore. Laksh, please, dive on more details where we can.
Absolutely. Yes. With regards to SMP in Alabama operations in United States, this is predominantly serving Daimler vehicles and SUVs that are produced in here. As we know, this is extremely well-selling product line. Our performance is very satisfactory in regards to the top line and the bottom line in this facility. All past growing pains of greenfields are long behind us. I think continually we are improving our operational performance and efficiency. This is a good example of that. In regards to Kecskemét, again, very similar situation. In Hungary, that facility is supplying premium vehicles for Daimler and Audi.
Again, very different story than it was two years ago. Well operating organization and performing, I would say above the average SMT in regards to the, you know, the financial indicators. Of course, we are facing in both locations some pressures from inflation, but we are countermeasuring that with functional negotiations with customer and suppliers. I hope it's up to your question. Thank you.
Sure. Thanks and all the best.
Thank you. The next question is from the line of Chirag Shah from Middle East. Please go ahead.
Thanks for the opportunity. Sir, I have a question on SMRP and PKC first. We wanted to understand that the raw materials or the fixed contracts that we have are generally annual ones in nature. Obviously with excessive demands, we may have negotiations with the customer, right? What is the nature of contracting of SMRP, PKCs?
I don't know where you're taking this up from, but look, if the pressures are unprecedented, then definitely whatever we have to do, we have to do. Again, I would let Vaaman answer this particular question because you are talking about SMR, PBV, SMP, and you're talking about PKC. PKC. Right context. We'll take care of that. Vaaman, right, Vaaman will take care of SMP.
On PKC, generally our, like, most of the contracts for auto would be six-monthly or quarterly. Similarly for some of the countries where there are currency risks, the same risks for the currency as well.
Yeah. For SMT?
Vaaman?
Are you talking about the raw material cost in particular?
Yeah.
In SMR, there is no pass on to the customers in the contract. It's all actually cost to them. Usually, in the contract, we do take some margin of movement fee. But if it's beyond a certain limit, which is happening, a volatile movement of raw materials, it's a discussion to be had with the customer. Like we have already said in the call, we're already having those talks with the customer and figuring out a way that we can, you know, minimize this noise that comes from this high volatility.
When you say contract, you refer to the life of the contract or on annual basis you again have a discussion?
Yeah, it's on the annual basis.
It's on annual basis. I presume that we would have kind of in process of concluding some of them. Sequentially, the margin pressure should start subsiding. Is it the right way of looking at it? As you conclude your discussions, so the sequential pressure will start subsiding.
Yes, absolutely. If the customers are willing to adjust their support and we have certain discussions, we will decide maybe be better as we move forward.
Yeah. Secondly, recently VW CEO made a comment on giving up chip supply and ramping up their production of software. Is that kind of indication has flown to you also as a supplier, as a key supplier? Directionally, is it possible to indicate what is the ramp up there in the industry? I know you can't share the
Customer comment. In many interviews for the last six months, I've been saying that the chip situation is improving on a daily basis virtually. By September end, according to me, it could have eased considerably. If not because of the war situation or whatever the other things that are there, maybe December might be showing you a betterment of the IC situation. Please don't ask us to comment on what the customer is saying and customers telling us. We can't tell you that.
Okay. Sir, just one question.
He doesn't tell us. He actually increases the order, and we know that he and we are grateful for that.
I want to understand what is the people's message that they are agreeing. I was trying to refer to that only. Recently
See, Chirag, that's a very good point that you're trying to raise. Actually, people are thinking that the world is doing nothing. Please believe me, even plants which had been given up as bad have been restarted. Lots of things are happening. The people are not talking about which plant, what is happening and all that because if competitor gets that information, then it becomes at a cost. For obvious business reasons, they don't talk about it now. Believe me, we are seeing it every day, every month, there is an improvement. As much as what the world needs is not there. That's for sure.
Just one clarification from Pankaj Mital, sir. If I look at QCC number, if you look at QCC results, your revenue on wiring harness is very slightly higher than what you have last year been saying. Margins are on the lower side. Is it largely because of costs or has to do with the industry dynamics in terms of demand being on the demand side?
As you know, Chirag, that there have been high inflationary pressures. There have been huge increases in the RM costs as well as people related costs. That has been the impact of that. Also, there have been erratic production due to the shortage of materials. While the capacity is there, it's still not 100% of the production could take place. It's a combination of all these.
Is he asking about Europe or America? What is it?
An overall.
Overall.
It is a combination.
I think we should give the example of Mexico, no? Where the very minimum cost has gone up.
Correct.
22%. There are many
There have been unprecedented increases in Europe also. Double digit increases in minimum wages in most of the countries, and in Mexico has been very, very high. This is all compounded, and you know wiring harnesses are people related business. It's
This is helpful. This is really helpful. Thank you very much.
These are all being mitigated. The customer is also facing the same problem. Customer is not that he's sitting pretty and he has his own workforce and he has to pay them nothing. I mean, here the minimum wage has gone 22% in Mexico, so even the car makers are affected, so there's no way that they can run away from it. It's a general increase that's going to be there. Inflation is at the highest everywhere. That's also because a lot of money has been given globally as, you know, in the COVID times to help the people and all that. A lot of reasons. You can't really pinpoint and say this is the reason why that has happened or something.
No, this is helpful, sir. This is really helpful. Thank you and all the best.
Great. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now end the Conference over to Mr. Vivek Chaand Sehgal for closing comments.
All right. Thank you all very much. I think what is important is to understand, according to me, this is a work in progress quarter. You will see the effect, the positive effects of this coming in the next quarter and then quarter after that. It will be going on for some time to come. I think it needs about, well, at least six months to a year to really settle down. Till that time, it's a challenging environment. In Motherson we always say when a challenging environment is there, that's when more acquisition opportunities are there. I hope all the wonderful companies that you admire are also falling in Motherson's lap. With those wishes, wish you all a very happy weekend coming up after tomorrow, and all the best. Stay safe, stay healthy.
Thank you. Ladies and gentlemen, on behalf of Samvardhana Motherson International Limited and Motherson Sumi Wiring India Limited, that concludes this Conference Call. Thank you for joining us, and you may now disconnect your lines.