Ladies and gentlemen, good day, and welcome to the Q2 FY 2024 results conference call of Samvardhana Motherson International Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need 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. V.C. Sehgal. Thank you, and over to you, sir.
Thank you very much. Good evening, ladies and gentlemen. Thank you for joining the results conference call of SAMIL. First of all, a very happy Diwali to all of you and your family. I'm pleased to announce that the board has approved the results for quarter two. Motherson has delivered a consistent performance against a backdrop of global uncertainties. We have posted highest ever quarterly revenues. All the divisions have shown a good double-digit growth. Customers continue to trust Motherson with the highest ever booked business of $77.2 billion. The environment is also offering us a lot of opportunities. We have announced 15 acquisitions since September 2022, and the team continues to explore more.
This is definitely a work in progress quarter, and I have with me Vaaman, Pankaj, Kunal, and Rajan to provide further business insights and clarify any questions. I'll hand it over to Vaaman. Vaaman?
Thanks, Papa. Good evening, everyone. So as Papa was saying, Vaaman has delivered the highest ever quarterly revenues of INR 23,500 crore, which is about 28% growth year-on-year, and with that, an absolute EBITDA of about INR 2,000 crore, which is 34% growth year-on-year. All the business divisions have performed well and were further supported by four acquisitions coming on stream in this quarter. These were SAS, the mirror business of Ichikoh, Saddles and Yachiyo. Our book business, excluding the greenfields and M&As that were done in the current five-year plan, has improved from 12.6% in FY 2023 to now 16% in HY FY 2024. As we speak, we have a solid booked business of more than $77 billion US dollars, which is up from $69 billion, as reported in March 2023.
All of this we have been able to achieve in a challenging business environment, where wage inflation across key geographies, rising interest rates and geopolitical uncertainties continue to mount pressure. Thankfully, there is slight respite coming from energy and commodities stabilizing, although these are at higher levels than pre-COVID. On the automotive production, developed markets were impacted by the annual summer shutdowns, disruption supply, disruption in supply chain for key European OEMs and labor strikes in North America. At a global level, production remains stable at 22 million due to significant growth coming from emerging markets, specifically India. And now India and China comprise about 40% of global LD volumes. With the ever-changing and unpredictable external factors and evolving industry dynamics, we have taken several measures and initiatives to remain agile and breathe with the market.
A few I would like to highlight: We continue to remain in constructive discussions with our customers, as sharing of inflationary cost structures will remain a recurring feature in the short to medium term. At the customer's behest of acquisitions, we have added 22 facilities in Europe and 7,000 associates with the recently closed M&As. Given this footprint expansion, we have also announced a phase reconfiguration in a few countries in Europe. This is done to streamline our operations and improve efficiencies and deliver more synergies. Current quarter results include a one-time cost provision of about INR 250 crores, which will enable us to be competitive on a sustainable basis and capture future growth from our reorganized footprint. In emerging markets, specifically in India, there has been a spurt of growth opportunities for both auto and non-automotive business.
India is among the fastest growing economies, and as you are already aware, most of the OEMs are now building new capacities to support this growth. We're also investing INR 1,500 crores of CapEx in India to set up 10 new greenfields, few of them which will come online this year and the remaining in the subsequent fiscal year. This includes capacities for both automotive and non-automotive business. Therefore, we are revising our full year CapEx guidance to about INR 4,500 crores ±5%. This is done to support the growth that is coming out of emerging markets and CapEx outlays for the acquired assets, which were not part of the earlier guidance.
Our net debt has increased by INR 5,000 crore, but this is mainly driven by the payoffs for the acquisitions of nearly INR 3,800 crore, which were closed during the quarter, and the higher CapEx that we are going to put in to capture these growth opportunities. Consequently, the leverage ratio has also increased to 1.9 times EBITDA. But please note, this is a temporary increase and well within our stated policy of 2.5x. As you can imagine, to capture these growth opportunities, we definitely do have to invest in CapEx. I'm pleased to inform that we have announced 15 acquisitions since September 2022, which have a combined pro forma revenue of about $6.4 billion in gross revenues and about $2.6 billion in net revenue.
Integration of close transactions is progressing well and is completely on track. I would like to thank our customers for their continuous support and trust in Motherson. And with this, I would like to conclude and open the floor to questions and answers.
Thank you very much. Yes. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. An operator will take your name and announce your turn in the question queue. Participants are requested to only use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Raghun andhan N.L. from Nuvama Institutional Equities. Please go ahead.
Thank you, sir, for the opportunity. Congratulations on the profitability growth and ROCE improvement. Also wishing festive greetings to everyone. Sir, my first question on the standalone side, raw material cost as a percentage of sales is higher than the last three quarters, and even the employee cost is higher. What has led to this cost increase? Is there any one-off or, and would you expect the RM cost to sale to normalize ahead?
Hi, can you, can you hear me?
Yes, sir.
I can now hear. So look, I don't know if you're referring to employee cost. Employee cost is a function of the nature of the business that we are in. If you look at it as a percentage, employee cost has actually decreased on a quarter-over-quarter basis. It was 11.4% ROCE for the three-month period June 2023, and it is 11% for the three-month period September 2023. The absolute value would obviously go up because, you know, there's more business that we have done. The top line has grown accordingly in that line. If you're referring to the cost of material, it's a mix of businesses as you know, in standalone that we do.
And, you know, it's dependent on how the commodity prices are, et cetera, et cetera. In this particular quarter, we also had, you know, the business that we had acquired, the DICV business, which has a metal component to it, and then it varies depending upon how those commodity prices have played out. At an aggregate level, I think the margins in the standalone business has actually improved, and that's showing you the operating leverage that we are in the existing business. Also showcasing in some way how, you know, the growth in India is playing out.
Thank you for that, Kunal, sir. Just to understand and sum up, so this increase in the raw material cost would be mainly because of the DICV metal components effect? And would there be any increase in input prices as well in this quarter, which you think can normalize in the coming quarter?
Look, it's a, it's a variety of different businesses. There's metal, there's polymers, there's wires, there's wiring harness. So given the variety of mix, it's very difficult to predict, you know, how things are going to move. And much of this is really pass on construct, at least in India. Majority of it will have a pass on element to it with some lead lag effects. So we don't really worry too much about it.
Got it, sir. So standalone, when we break it up, there is wiring harness, modules, and polymers. When I look at the segmental reporting, this emerging businesses, how much of that number would be coming from the standalone?
We'll come back to you. Very difficult to really,
No, fair point. I'll take it offline. Secondly, on SMP, profitability has reduced on a QOQ basis. Would it be mainly due to lower volume and higher employee cost? Was there any one-offs?
Yeah. So for SMP, as you know, the majority of the business is in Europe, so definitely if you're looking at quarter-on-quarter and not year-on-year, you will see differences because this, this quarter has a lot of the holidays in Europe and the shutdown, so it's not really the right reflection. You should look at it year-on-year. Apart from that, of course, there are multiple challenges in the Europe region. You know what's happening on the macroeconomic front. Not only that, some of the customers are also, you know, not hitting the volumes that they wanted on the EV front. Luckily for us, we're engine agnostic, so you know, where we might not be selling as much on the EV side, some of the platforms on the non-EV side are getting extended.
So you know, those kind of challenges are still there. You are seeing, you know, quite a bit of macroeconomic pressure still coming up, now, the winter coming. A lot of things are still to play out over there. But, like we mentioned, in the report that, you know, talking to the customers and getting those, you know, discussions with them on, on, support for capacities that were not filled up or for commodity prices fluctuation that are happening, they're ongoing. I think the good part is that, look, their confidence is on us. They're giving us more and more acquisitions. We're taking on more assets there.
So definitely in times to come, this, once it stabilizes, will show a better result, and we are working closely with the customers to take, you know, support where we are, where we are getting hit for no fault of ours.
Thank you for that, sir. The impact of wage increments, would that be already factored in numbers, or is there any major increase expected in coming quarter?
So which, for which, are you talking about in general, or are you talking more about?
In general, sir.
Yeah. So most of the wage increases are already, has already happened, have been factored in. There could be certain locations where there could be a, you know, certain events, where the regulation changes or something like that, where, you know, where we have to change it midyear, but most of them are already, are already—you've already seen the impact of that.
Sir, lastly, on the loss of net monetary position in Argentina, the net effect is INR 57 crore, right? And this is a, this should be one-off, or is there any more impact expected in Q3? Excluding this cost, the interest cost is INR 360 crore. Would that be the fair number to work with for coming quarters?
You're right. Look, in Argentina, it's a special situation, where the central bank has disallowed Forex payments for importing material, and hence, you have liabilities sitting in dollars and euros, which you are unable to remit, and as the currency has devalued, it's created a large Forex loss. The impact of that, we have classified it in interest cost because it's, there are corresponding cash that is there, where we are earning interest. So this is the net monetary position, which is the income we are generating on the cash that we are sitting on, versus the Forex loss that we have incurred there, which is the INR 130 crore number. Given in August and September, there was a very steep depreciation in the Argentine peso after this regulation came into play.
Where things stand, you know, I, I believe, the new government is, is coming into play in November. The elections will happen sometime now, and by December there will be greater clarity on how the, the monetary position they, going to look like going ahead. So difficult to comment on it, if it's one-off or not, but, but, hopefully, after this depreciation, the impacts will be significantly less, even if there is any. Secondly, on the, interest cost, you're right on the 360, the number may be a little bit actually lower because there would be, other charges, et cetera, or, you know, the, the upfront payments, et cetera, that is done for all the, debt that was raised, right now for all the acquisitions.
Those would have also broken up the interest cost to some extent. But which on a normalized basis, this would look more like INR 300 crore-INR 320 crore, versus the INR 360 crore you are referring to.
Got it, sir. This is very helpful. Thank you very much. I'll fall back to the queue.
Thank you. We have our next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Hi. A few questions from my side. One is, with respect to, your call-out for organic growth of about 18% at console level. Any color which you can give on either organic EBITDA or organic EBITDA margin for the quarter, to have like, like, comparison?
Sorry, could you repeat the question again? It was not very clear, Jinesh.
In the presentation, you have called out for organic growth of 18% at revenue level. Similarly, can you talk about what would have been organic, EBITDA or EBITDA margin for the quarter?
The EBITDA margin for the quarter for the organic business, is that what you're asking for?
Yes. Yes, yes.
So that, I think it is 8.4%, or if I remember right. The number is there, I think it's INR 180 crore is what we need to reduce from the INR 2,000 crore, so that's the INR 1,820 number for the organic piece, which is tantamount to around about, I think, 8.4%, if I'm getting the math right.
Got it. Got it. No, this is helpful. Secondly, we have also called out for restructuring in Europe, so, is the last part of cost already reflecting in second quarter, or we expect some more provisionings coming in coming quarter? And what exactly are we doing there?
Yeah, thanks for that. Look, that is, the majority, we're taking it upfront. It is, as you know, we've added, 22 facilities and 7,000 people, so obviously a lot of those facilities that we have taken over, are not running at full capacity. There's, we would have some troubled facilities that the customer asked us to take over. So we're looking at merging some of the facilities, really rationalizing footprint in that context. So we are really, you know, dealing with the market because we are growing significantly in that, in that region. So that will again require some reorganization. These are all, we have already put into play. These are all part of the acquisition when we took that over, so we are taking them all upfront. The majority is already there.
Okay.
Jinesh had said in the beginning that this is a work in progress quarter.
Right.
So, there is a lot of the acquisitions. I can't give immediately magic this thing a bullet which will solve the problem. But give us three months. Watch what happens next quarter.
Sure. Sure.
With time, yeah.
Right. And lastly, we had talked about, the book business going up to $77 billion at the consolidated level, and SMRPBV also you have shared, the number. Would it be possible to share net order book number of SMRPBV which needs to share, which for March 2020 was?... close to EUR 20 billion, 19.7 to be precise, what it could be for September 2022?
Can I tell you, we've moved to the book business construct. I think you gave a wrong picture. I think the book business gives you a better reference point to see, you know, how the trajectory is versus the revenue stream that you are seeing on a quarterly or annual basis, as the case may be. So request if you know, we live with the book business construct.
Okay. So in that context, the delta in Book Business over a period of time is the gross addition, right? That's the simple way to look at it?
You think is this gross revenue? No. So yeah, look, the order book, the Book Business moved from $69 billion to $77 billion.
Right.
which is only automotive, right? On the non-automotive side, at least on the aerospace side, you would see we've highlighted the fact that after-
Right.
The acquisition of AD Industries will be $1.3 billion on the aerospace side as well.
Right. So, the $77 billion is the gross revenue, right? Not the net revenues, as we report in P&L.
No, this is in relation to the economic revenue that is there.
Okay.
Closer to the net revenue construct rather than the gross revenue view.
Got it. Great. Thanks, and all the best.
Thank you.
Thank you. We have our next question from the line of Arvind Sharma from Citi. Please go ahead.
Yeah. Hello, good evening, sir, and thank you for taking my question. So the first question would be on the broader demand scenario that you are seeing in the SMRPBV business. On the organic part, where do you see demand going on from here, both for industry as well as for SMRPBV? That was the first question.
Look, you know, you're seeing a lot of new launches that are coming up in the Europe region, and I guess in the globe in general. I mean, SMRPBV is now a global enterprise, so it's probably more helpful if we talk about the different regions. We talked about the immense traction that we're seeing in the developing economies. We're seeing a lot of stuff that's happening in India. So the demand is holding very, very strong here. Internationally as well, like I said, there are some challenges in EV with some of those models. Customers have spoken about that. But, you know, whenever that happens, the customer comes back, and even more facelifts and new model launches to capture the customer back.
I think our strategy of 3CX10, no customer, no country, no component is, you know, favoring really well for us because we are not overexposed to EV, and we're really engine-agnostic. So, we are seeing growth even though there could be pockets where, you know, demand could be a little bit weaker. Motherson continues to grow because of our diversification strategy.
Sure. Thank you so much. And, sorry, just one clarification. I think somebody asked it previously as well. This INR 250 crore of one-time cost provision, is it reflected in the 2Q P&L anyways?
Yeah, it's coming as part of the exceptional items.
So this entire INR 250 crore in the 2Q is in the second quarter, the one which you reported?
That's right. That's right.
All right. Thank you, sir. Thank you so much.
Thank you. We have our next question from the line of Siddhartha Bera from Nomura. Please go ahead.
Yeah. Hi, sir, thanks for the opportunity. Sir, first question is on this acquisition. So, if what we understand is, in the past, this company used to do about, like, 11.5% margins. I understand we are in the process of restructuring, so any color, how much improvement can we do potentially, say, in a year, when we are done with this entire restructuring process and the business is happening on normal pace?
Sir, which acquisition are you talking about? We've done 15 since September of 2022.
This is the SAS, which had come for two months into context.
Right. So, SAS is a running business there, and it is a profitable business, so it is very different to some of the other acquisitions that we have done. So some of the reorganizations are more towards the other acquisitions, which were not performing as well and which we need to restructure. But SAS is looking more towards growth. We've actually added the CapEx in there for growth. There's not much restructuring or one-offs that are happening over there. There could be just a small exception, but in general, you know, we are seeing that as a growth business. Kunal, maybe you want to add something there?
Yeah. So if you're referring to the margins of SAS, please bear in mind it's two months, August, September. August is where the summer shutdowns have been. So this is not necessarily reflective of SAS's capability, so where to put it. We do anticipate things to improve as in quarter three, quarter four, when the production levels are much more normal. And from a restructuring perspective, as Rajan was mentioning, right now we see a lot of synergy benefits, lots of areas where it can grow. And the business is structured that on a more variable cost structure versus some of our other businesses. So if we see some of the places which are unviable, at least in SAS, it's a lot more easier and flexible to move the production centers around.
So it's relatively a more flexible manufacturing construct.
Yeah, it's important that you understand the real synergy of, you know, Motherson SAS, because whatever Motherson SAS is assembling right now, Motherson currently produces.
So the synergy benefits are tremendous, and we hope to play them out in coming quarters. It's just been two months. Please give us some time, but we believe it's a very exciting opportunity and really transforms us to a [Tier 0.5] and gives us a lot more ability to grow on the assembly side as well.
Understood.
I think, in just two months, we're already transferring one from SMP to SAS, isn't it? Because-
I'm sorry, sir, your voice is not very clear. Can you come closer to the microphone, please?
Raman, can you?
Yeah. So already, you saw that there are some movements of business from our SMP or polymer business into Motherson SAS. So we're already starting to push through the synergies, and like I said, please give us some quarters, and a lot of that will play out down the line.
Got it. So second question is on the CapEx number of INR 45 billion. Now, shall we assume that this will be the normalized CapEx going ahead, and, does this factor in the, CapEx for the new acquisitions also, which we have done?
Yeah. So that's the exact reason, so that we are highlighting the revised CapEx. We had highlighted INR 3,000 ±10%, earlier. Now we are revising to INR 4,500, which includes a portion of the CapEx for the new acquired assets that have been simulated in this quarter. Also, it includes the, you know, the 10, actually 11 greenfield, brownfield that have been set up in emerging markets, 10 of them in India, 1 of them in China. If you remember, 7 of them we had anyway highlighted to you, in March 24, 2024, which was part of the INR 3,000 that we had talked about.
There are four new ones that have been for which we have got the orders now, and hence is under the execution stage for which the additional capital would be required. So, the INR 4,500 really carries a lot of growth CapEx into it, given how the Indian environment is, given how we are seeing a lot of traction on the non-automotive side of the business as well. And hence, you would not say it's a normalized maintenance CapEx, the way to put it. That number will probably be half odd or so of this number.
Got it. Thanks, sir. That's it from me. I'll come back in touch.
Thank you. We have our next question from the line of Pramod Amthe from InCred Capital. Please go ahead.
Yeah, thanks. Is there a scope to get this increased CapEx split across regions, or the overall INR 45 billion, if you had to split across your four verticals, so that we can get some-
Pramod, we can't hear you too well.
Sorry, can you please use your handset mode?
Yeah, I'm on handset. No, what I was asking was the $45 billion CapEx, which you guys have called out. Is there a scope to give it by division-wise, so that we can—that can help us to build the revenue profile or growth profile going forward?
Don't have the details right now. Maybe we can add some of those details going forward. But I think, as I mentioned, you should consider half of it as give or take regular maintenance, which will flow in all the divisions in the respective places. The new one, we can give you more color as we go ahead. We don't have it right now.
Sure. And the second question is with regard to the broader industry related trend for wage costs, the type of negative surprises some of the OEMs faced in U.S. Do you see that falling through for some of the Tier 1, Tier 2 suppliers also as an increased wage cost when you renegotiate? Or second, considering your global operations and inflation being pretty high in many of the countries, do you expect some repercussions of the same in many other plants?
So look, as far as we are concerned, you know, we have already closed this year's increases, and, you know, we are doing it year on year. So we don't have a pileup of three years and then putting together as one contract, which might be there in more organized environments. So for us, I think it's a regular. We've already been talking about inflationary pressures in the last year and this year as well. So more or less we are already, you know, to date, on such increases. Now, how does that affect on other, you know, companies? You know, really, we can't comment.
We can't guide. We don't know.
Yeah.
Okay.
Sure. Thanks a lot.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We have a question from the line of Joseph George from IIFL. Please go ahead.
Hi, thank you for the opportunity. Just a couple of questions. One is, when you look at our debt level at the end of September and, think of how it will move the next six months, any please guidance on the pluses and minuses that will come through in the next six months? You know, maybe more acquisitions or payment, I think more acquisitions, working capital moving up and down, et cetera. Just some guidance there will be helpful. Thank you.
Let's put it this way, we can't really guide on acquisitions. Difficult to predict when it will happen, but needless to say, there is a strong pipeline. There is a lot of-
Sorry, can I just interrupt you there? Sorry. So when I said acquisitions, I was referring to payment for the acquisitions that have been announced and yet to be made. So that's one, and, you know, whether you expect some reversal of the working capital, et cetera, going into the second half of the year.
Yes, so organically, if you are referring to, I think we should continue our deleveraging path organically, even after considering the INR 4,500 crore of CapEx guidance that we have spoken about. I think working capital, if you would have seen our presentation earlier in March, we had highlighted around about INR 2,000 crore of additional inventory. That number is down to INR 1,500 crore. So directionally, things seem to be improving. As we synergize with some of the acquired assets, we do expect, you know, quarter three, quarter four to play out better. That's how traditionally our business has been, where quarter three and quarter four have typically been better than quarter ones and quarter twos. So with that construct, we do expect some amount of deleveraging to happen. Vaaman, you want to add?
Yeah. Look, I just want to, you know, reiterate that, you know, this is a really, really exciting time for us here at Motherson. We have patiently waited for the last four years, waiting for this moment, really, in a sense where the customer is asking us to go and pick up all these acquisitions. When, you know, interest rates were extremely low and, you know, a lot of deals were happening, we were patiently waiting and deleveraging. So we've come down significantly because we knew that we have to grow at, when the time will come, there will be, opportunity for us to really do large acquisitions and, increase our, our footprint in the, in the customer portfolios, and that's what exactly is playing out.
So it's not that we are, you know, looking at these numbers and saying, you know, the numbers have gone up significantly. This has been planned for us. We've deleveraged from our current levels because we anticipated that there's growth, there will be a window of growth. And if you can understand, we are literally the last man standing in that sense, where the customers are saying, "Please, you know, look at some of these acquisitions and support." And we have the headroom to be able to do it. So we are—this was an event which is, you know, really setting us up for the future. A lot of growth will come in.
As you can see, we're putting a lot of investments for these acquisitions and the growth opportunities, and this will play out in the coming quarters. I mean, 15 acquisitions in 12 months, that is a pace that we really haven't seen before. And like I said, we never. Yeah, and you know, we were, we are, we are prepared for it.
Sure. But the second question that I had was in relation to CapEx. So, you know, you have upgraded the CapEx number to INR 4,500 crore for this year, but this wouldn't include CapEx that you would incur for some of the acquisitions which are yet to be completed, right? Because there are some due to get completed, I think, in Q4 or so, which will add another $1 billion or so in terms of revenues. So would it be right to assume that FY 2025, we should look at a CapEx number which should be higher than what you have guided for FY 2024? Because some of those acquisitions will happen towards the end of FY 2024.
Joseph, I think Vaaman highlighted 10 new greenfields in, for which we are setting up, or for which we are spending INR 1,500 crore. That's nothing to do with any of the acquired assets. I don't think this is a normal CapEx levels that our business will be carrying going forward. These are growth CapExes, more specifically in India, just given the trajectory of what's happening in India. If you see, every OEM has announced expansions, and as vendors to them, we too need to be ready to be able to cater to these expansions that are happening in India. Plus, on the non-automotive side, there is a great amount of traction to set up facilities in India and showcase our strength in there. That's the organic part.
You're right to the extent that the assets which we haven't closed, the CapExes associated with that is not embedded in this number. And as they close, we will have better color, and we can come back to you with whatever changes that needs to be done around this. But for the current state of business, as per the current quarter, we do anticipate this INR 4,500 crores this year should be more than sufficient.
Good. Thank you. That's all for me. Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. Participants are requested to press star and one to ask a question. As there are no more questions, I would now like to hand over the call to Mr. V.C. Sehgal for closing comments. Over to you, sir.
Thank you all very much. I would again request you to understand that this is a work in progress quarter. We are always seeing that traditionally, the second quarter is always where the holidays come in in Europe, and then coupled with the UAW strike in U.S., it sort of dampened the whole particular thing. But I believe that the quarter was phenomenal, and the results, the teams worked very hard to deliver the superlative results that are there in front of us. Thank you very much, and wish you all a very, very happy Diwali and all the best to you. Thank you. Bye-bye.
Thank you, sir. On behalf of Samvardhana Motherson International Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.