Motherson Sumi Wiring India Limited (MSUMI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 and FY '24 Earnings Conference Call of Motherson Sumi Wiring India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. V.C. Sehgal, Chairman of the company. Thank you, and over to you, sir.

Thank you. Good day, everybody. A warm welcome to the annual and quarter 4 results of Motherson Sumi Wiring India Ltd. I would request Pankaj to summarize the Board meeting and the results. And over to you, Pankaj.

I am pleased to announce that the Board has approved the Results for Financial Year 2024 and quarter 4. MSWIL has delivered a record performance in its second year of operations since being listed and demerged from SAMIL. It continues to benefit from the strong parentage of both partners, Sumitomo Wiring Systems and Motherson. The Company recorded the highest yearly revenue of INR 8,330 crores and EBITDA of INR 12,000 crores. This robust performance is against the backdrop of a vibrant Indian automotive industry. The company significantly outperformed the industry by 11% with the continued customer demand and trends of premiumization and SUV's playing out. The company further benefits from being able to service and provide solutions to customers across passenger, commercial, two-wheelers and off highway and agriculture equipment. On a quarterly basis, the company clocked revenues of INR 2,230 crores and EBITDA of INR 290 crores, which is the highest ever in any quarter. I would like to reiterate that we are a Company that focuses on absolute profitability and growth. For FY '24, the ROCE achieved is 48%. The company is well equipped to support the growing and evolving needs of our customers, further strengthening our presence with two new facilities that are in pipeline. The Capex guidance for the ensuing financial year 2025 is approximately INR 200 crores. Together with us are Anurag, Mr. Mahender Chhabra, Mr. Vaaman Sehgal. Over to you for questions and answers, please.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Siddhartha Bera from Nuvama.

Sir, my first question is basically on the growth side.

Sorry to interrupt you, sir. May I request you to please use your handset?

Yes, yes. Is it better now?

Yes sir, please go ahead.

Yes. So sir, first question is on the growth side. We have seen a quite healthy, strong double-digit growth in FY '24 backed by volume growth as well as premiumization like you have talked about. Going ahead in FY '25, we do see OE industry volume growth probably slowing down to mid-single digits. And we are witnessing probably a lot of launches happening on the small car side now in the last few months. So given this backdrop, any expectation, if you want to share about the growth which we can expect for the coming years?

Thank you. Pankaj or Anurag, who would take this question?

Okay. Thank you. Anurag this side. Thanks, Siddhartha-ji for asking this question. If you see the market which we are seeing, I think the major OEM's have already announced their plans and they are already available in the public. So, if you see those, I think some of the major customers, like Maruti Suzuki, they have already given a plan of increasing it from 2.3 million to 4 million and they are already ramping up this capacity in next six to seven years' time. And same like Tata also, as well as plans are there for the new companies coming to India. So, market is going to be very interesting. And I think which showcases there is going to be a very good growth in the future also. So, I think to answer your question, I think we are looking at a very, very positive at this point in time.

Okay. Okay. So my question was more on FY '25 because if you see Maruti has also talked about only 2% to 3% industry growth. So more from the near term, do we expect a meaningful slowdown to like low double-digit type of growth? Or should we probably see mid-teen type of growth sustaining is what probably I was trying to get at?

Sir, this is Pankaj here. Siddhartha-ji, what Anurag mentioned was very clear that we see that our customers are expanding their footprint, their production capacities. As you mentioned, they're bringing in small cars, compact cars as well as larger cars, more enriched vehicles as well. So it's a market in which all kinds of vehicles are coming in. And we said that it will be very interesting to see. We don't second-guess market. So we won't be able to give a prediction as to what kind of percentage that he mentioned like we do see positive trends in the market in terms of still the premiumization as well as the new facilities being set up by the customers, which to us would signify growth. That that's the reason why they're investing more into the new facilities.

Got it, sir.

Pankaj, just to add to what you are saying. I think it's a no-brainer. The market cars are coming with more and more features and more and more features is always an added plus for Motherson because the more the features, the more the value of the wiring harness going up because the features are related to the market condition. The market is very competitive on the features when they come.

Got it, sir. Sir, second question is on this capacity which you have indicated that 2 more facilities are sort of coming up. Any timelines by when will they be available in the year? And how much extra capacity they will add compared to our existing capacity?

Anurag?

Right. Siddhartha Ji, these 2 new facilities are going to increase our current capacity to approximately another 2 plants, you can say to approximately 10% to 15% will be a number around that only.

Okay. And we should expect this by which month or during second half or in any particular part of the year?

Yes, they are going to be operational in Q1, but the ramp-up or the volume ramp-up is going to happen in the middle or the third quarter of the -- the third or fourth quarter of this financial year.

Okay. Okay. And just to clarify, these are basically for ICE models or this also include the high voltage or EV sort of capacities which would come up?

This is for the both.

Okay. Okay. Got it. Sir, last question is on the margin side. Now we have continued to see a very good increase and pickup in margins over the last 1 year each quarter. So, I know, I mean, you generally don't compete on margins, but just wanted to get a sense that in the current quarter, on the gross margin side, are there any price increases which we have got, which is sort of reflecting here and this should normalize? Or overall, we should sort of see the improving trend continue going ahead?

Mr. Chhabra or Mr. Anurag, Pankaj, or whatever?

Okay. Anurag this side. So this, as you said, EBITDA is not something we talked about, and we always keep focus on ROCE. And as per the group guideline, it should be more than 40%. And as Mr. Mital has already said in the opening session that in this year we have achieved around 48%, which was 44% in FY '23. Now, though you will see that we are sequentially growing into there, but there are expansion happening, that also we have mentioned. There are two plants which are upcoming facilities and will be operational soon. And as many OEMs in the country already announced their plans, MSWIL is aligning to the same. On the other hand, MSWIL team is working very hard on the improvements continue, supported by the cost reduction activities and recoveries from the customer as well, and despite this inflationary headwinds. On operational improvement, for the shop floor company has extensively undertaken the digitization efforts also. So, all these efforts are towards improvement on the shop floor which does bring into the ROCE improvement. And I think this answers your question as well.

Okay. Got it. Got it. Okay sir, I'll come back in the queue.

[Operator Instructions] The next question is from the line of Harini from Sundaram Alternates.

I just wanted to get your thoughts on how do you see the whole RM going forward? Because even Q-o-Q, we have seen a bit of increase in the copper prices. Where do you see that? And how do you see the gross margins turning up? How generally is the pass-on time for us with the OEMs? Just some color on that.

Harini, thanks for this question. When you compare it from one quarter to another, the product mix, it is very difficult to say that because it is not a similar sort of customer which you are making from one quarter to another. And with the commodities like copper, it is a straight pass-through. Obviously, it's a quarter lag or sometime in some customers, it's a 6 months lag.

Understood. Understood. Okay. Thank you. I'll come back. Thank you.

Thank you. The next question is from the line of Siddhartha Bera from Nuvama.

Sir just a clarification, would it be possible to share the top 2 customers for us, like you have shared for the industry your segment mix in terms of CV, 2-wheelers and other segments? Possible to share the top 2 customers mix this year and last year?

Pankaj?

Normally, we have not provided any customer stratification. But if you see, we are supplying to all the big car makers in the country, so -- and also the 2-wheeler makers and commercial vehicle makers. As a group, for Hyundai and Kia, we have a separate joint venture, which is Kyungshin Motherson, which supports. So you would see that, of course, Maruti is our biggest customer, with whom we have started. We will see if we can stratify and provide this data in due course of time to you in terms of our customer base.

[Operator Instructions] The next question is from the line of Harini from Sundaram Alternates. Ms. Harini, can you unmute your line and speak, please?

Can you just throw some light on where is our market share right now? Because I remember in the annual report last time, we had mentioned that across the group, we would be standing in the PVs at around 55%. If you can throw, if there's any improvement or where do we stand currently in the market share?

Ma'am, we normally do not guide market share and all that, but, Pankaj, can we help her?

Ma'am, as you would see that we are growing faster than the market growth. We, as a group supply to nearly all the customers. To be honest, like Mr. Sehgal said, we do not evaluate ourselves in terms of the market share. But of course, we want to be the most preferred solution provider and a supplier to our customers and to be amongst the top suppliers to them in terms of our performance. So the whole idea of the group is to...

Pankaj, what I was saying is, I think it might be of relevance to her to understand, we don't supply bags of cement or something which has a fixed kind of a thing. Everything is depending upon the model, what we see and all and maybe in that light, you can explain to her why market share is irrelevant to Motherson.

So ma'am also as we supply to the OEMs and to different models, the model mix is very different. Some models do well, some models may not do well, so there can be a shift in the -- in terms of calculations of what the market share would be. But you would find us in most of the vehicles, and that's what I can only say.

Understood. Sure. Sure. Thank you so much for this.

[Operator Instructions] The next question is from the line of [ Avish from Chanakya Capital Service Private Limited. ]

Am I audible?

Yes sir, you are audible.

Congratulation on good set of numbers. Just wanted to ask on the margins front. I know you don't give a margin...

Sorry to interrupt you, sir. May I request you to please use your handset.

Is it better now?

Yes, sir. Much better.

So on the margins front, I was asking, can you give me like the top, ranking wise, that which segment contributes the most to the margin, if possible?

Again, I would reiterate that we do not guide on margin. We prefer to work on return on capital employed. And I think Chhabra Saheb, this time what is the ROCE for the year?

Yes. So for ROCE, for the current year FY '24 is 48%, which is better than 44% that we delivered in the previous year.

[Operator Instructions] The next question is from the line of Harini from Sundaram Alternates.

Thank you again for the opportunity, sir. Just wanted to understand what would generally be the asset turns with the CapEx that we've been incurring and also the INR 200 crores of CapEx that we have called out for next year. Some light on that, sir. I know you've talked about the ROCEs, but what would be the -- if fully ramped up, what would be the potential revenue that these CapEx could generate for the company?

Well, Anurag or Mr. Chhabra?

Yes, sure, sir. So we're looking at a CapEx of roughly INR 200 crores for next year or the current financial year FY '24, '25, which includes like all the categories growth or expansion, productivity, quality improvement as well as the maintenance or the replacement of the assets, which have lived the useful life.

Understood. But do we have any sense as to what would be maybe the additional revenue potential when, say, maybe 3 years down the lane when it's fully under production under full utilization?

Chhabra Saheb, our balance sheets -- Harini, I think wiring harness is more assembly as indicated, it normally goes for land and building. And so I do not know what your expectations are on asset turns and all that. But I think with this we are trying to give some -- the same idea on that.

Sure, sure.

We have 26 plants. I mean 2 more plants are coming. So roughly, we are above 10% to start with. In the first 6 months, it will be less, but then after that it will go up. But Chhabra Saheb, can give this thing, otherwise, you can take it offline.

Sure, sure, sir. I will connect offline.

The next question is from the line of Raghvendra Goyal from Ambit Capital.

Sorry for repeating the question, I joined the call a bit late. Sir, I know you don't provide guidance in terms of margins...

Sorry to interrupt you, sir. May I request you to please use your handset.

Hello.

Yes, sir. Mr. Goyal. We have lost the connection of the current participant. We'll move on to the next participant. [Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. V.C. Sehgal for closing comments.

Thank you very much. The Board actually complemented the entire team and the management for phenomenal results. We have hit our highest ever turnover and also we have plus INR 1,000 crores as EBITDA. Motherson is a company which has always focused on growth, we don't focus on margins because the product keeps changing [indiscernible]. We have ability to improve the margins only eventually as relates to what your ROCE is being done. So I hope all of you understand that. And our products keep changing. That's the key challenge, but also the biggest opportunity that Motherson has. Thank you all very much. Wish you all a very happy and good day ahead. Thank you.

On behalf of Motherson Sumi Wiring India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.