Samvardhana Motherson International Limited (517334) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY 2023 Results Conference Call of Samvardhana Motherson International Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vivek Chaand Sehgal. Thank you, and over to you, Mr. Sehgal.

Thank you very much. Good evening, ladies and gentlemen. The Board approved the first quarter results. I'm very happy to explain to you that this is the highest-ever sales in the quarter, including well in our earlier [indiscernible] of Motherson Sumi Systems and very, very pleased to tell you that the demand is very strong and robust. We're on our toes to keep up with the changing demands of the customer because of certain challenges on components and things like that. These challenges are basically multiple movement of currency and things like that. There's also logistics and there are some [ reports ] of people are going on strikes, people are a bit agitated because of the high inflation, et cetera, in those countries. [Technical Difficulty]

Ladies and gentlemen, thank you for patiently waiting. Over to you, sir.

The good news is that the customers are very willing to support the cost pressures. Only they are requesting for valid proof, and that takes time as multiple moving parts and challenges. Picture looks better and better as the world grapples to solve the challenges and demand for the higher-value cars augurs even better for us. Thank you, and over to you for your questions.  I have Pankaj Mital here. I have Kunal Malani, he's here. I have Rajat Jain and Laksh Sehgal to answer your questions for you. Good day. Thank you.

[Operator Instructions] First question is from the line of Siddhartha Bera from Nomura.

Sir, my first question is on this reporting structure. So you have this time separately reported in a format so there is some clarification required. For example, in the consolidated reporting numbers, if you look at the revenues as per [ TB ] and as per PPT, while your revenues are similar, there is a difference at the EBITDA level. So if you can just help us clarify that, why is that different? Both for control as well as stand-alone numbers.

Thank you. Kunal can you take that, please?

Yes. So I'm presuming you're referring to Slide 24.

Yes.

And the revenues there, if you get a look at the stated reporting, you will find that in the segment accounts. The segments will look exactly the same as what you have, so if you can highlight where the gap is in...

Okay. So basically, when we just [indiscernible] reporting format, EBITDA comes to at about INR 1,077 crores. But as per this slide, it is INR 1,151 crores. So just trying to understand why is this the gap?

So after SBI format, if you look there is interest as one, I mean, I don't know how you're treating the other income portion -- but if you look at the segments, again you will see 2 line items, which is interest income and other income.

Is that it?

Those are the 2 lines that we're excluding from the computation of EBITDA to reach to INR 1,151 crores. You may have taken the whole other income out of it because there are some portions of the income, which is still more operating in nature but classified under other income. And hence, that portion is still getting included in EBITDA, but the -- specifically the interest income and what is really other income is what is getting excluded, which is in the segment accounts.

Okay. Got it. So basically, that is not coming in the revenues, while that is coming more at the EBITDA level?

That's right.

Okay. And then, sir, I mean, is it possible to indicate the revenues like you have been doing for the past levels also for the SMT, SMR and PTC?

Look, we have highlighted those all the way back in January that we will be moving into this new format. You will get a little bit of flavor of what you are asking for in the SMRPBV results, which should be out pretty soon. But -- and then in the last appendix of the presentation, you would also see the historical [indiscernible] of the dividend. So we wanted to move to this new format. In case there are any specific aspects that you want to discuss on the new format, we can do so. But now the CODM aspect, the accounting side has already changed into this new format.

The next question is from the line of Joseph George from IIFL.

One question, when SMRPBV reports its numbers, will the segmental be split into SMP and SMR -- or will it be vision systems and modules and polymers, in line with your consolidated reporting?

It will be vision systems and modules and polymer. So as you would expect, the -- well SMP would largely be aligned to modules/polymers, and the erstwhile SMR would largely be aligned to vision vertical, though there'd be some minor differences. But largely, I would say, it's aligned with those.

The next question is from the line of [ Suhrid ] from Ambit Capital.

Sir, just like you helped us understand the SMP and SMR breakup, so would it be possible for you to help us reconcile the revenues from various entities into division-wise? So basically, I just want to understand how have you compiled the data division-wise, which was also being reported as per the entity-wise. Just help us understand how is the revenue flowing now so that we can kind of align our estimates according to the division-wise going forward.

Yes. So simply put, what was erstwhile SMR is now part of Vision Systems. What was erstwhile SMP is part of Module and Polymer and what was erstwhile PTC is part of Wiring Harness. So that's the simplest way to look at it. Obviously, now you're getting a full picture view of what is [indiscernible] even beyond PTC, which in our earlier disclosures used to end up being in Others. And hence, our acquisition that we had done of MWSI is also part of Wiring Harness, MSL is part of Wiring Harness; our wires business is part of Wiring Harness and so on and so forth. So this provides a much more comprehensive view of the entire division and all its sub-components that add up to it. Which was not there earlier than it was just a legal structure disclosure that was going on. Similarly, on the model and polymers, besides you can see our other international businesses that are in South Africa, Hungary or our India businesses are also part of this. Same applies for the vision side, where our India businesses are also now part of it. The other, hence, you would imagine is now a smaller number to what has been disclosed earlier. Though if you add the SAMIL portion, the numbers are then start looking larger. But that's the SAMIL inclusion that has happened, which then has the [ lighting ] business here, elastomer business, the metal side, [indiscernible] technology and so on.

Got it. But keeping aside the entity division by breakup, so when I was looking at the SAMIL stand-alone figures, so basically there has been some disconnect in the current presentation as compared to the presentation shared in the fourth Q of FY 2022. So could you please highlight if there is any disconnect on this end?

The presentation given in FY 2022 was under the old format of SMR, SMPPTC, it was not under the new division format. So I'm not sure which one are you referring to?

So basically, what I'm saying is, excluding the SMR SPKC business, I'm talking about SAMIL stand-alone business. So basically, in the fourth quarter FY 2022, SAMIL stand-alone figure was INR 1,611 while currently in the first quarter, we reported it as INR 1,618 INR -- sorry as 1,631 crores. So the difference over here. Similarly for EBITDA margin as well. So basically, in the fourth quarter, you had reported 18.2% as EBITDA for 4Q FY 2022, while currently it's showing as 14%. So there are multiple disconnects. So if you could help us understand how have we transformed those figure into this our -- so that will help us get some clarity on the accounting part at least.

The EBITDA one, I think could tell you the 14.2% that you are referring to has a note where we have computed the margin, keeping the exception of 14% we kept the margins keeping the exceptions. If you remember, in quarter 4, we had highlighted this INR 65 crores of rental income for the 9-month period that we had received, given the demerger was affected in that last quarter. So that's how the 14% is. So the like-to-like comparison was between 14% and the current quarter. That's why we changed that 18% to 14%, just to make sure that there was a like-to-like comparison; but the actual number will still remain 18% if you include the 65. So I hope that clarifies...

And the revenue part?

Yes. So if you see up 'til now in the earlier construct, you would be seeing something called revenue from contracts with customers. This did not include some of the operating income, which is the line item, if you would see called other operating revenue. Now just to avoid that confusion and to take the entire operating income into account, we've started disclosing the revenue from operations as the total revenue. That's the difference that [ you see ]. Again, there is a note on this regarding the presentation as well.

Understood. Understood. And sir, if I may continue asking questions, so I have a couple of questions really regarding the wiring harness business. So as addressed in the presentation, it says that we have developed some high-voltage solutions for electric vehicles. So if it is possible for you, can you please elaborate more on the product? And when will we start commercial production for the same?

Yes, these are the high-voltage wiring harnesses required for electric vehicles. And these are now already in SOP for one of the customers; for some, they will be coming into SOP soon.

Okay. And sir, there was some business question, I just want to get some clarity on the business part. So as we know that there has been increasing focus for weight reduction in [ an ] EV in order to accommodate higher mileage. So with increasing features, premiumization, electrification, we all know that wiring-harness content is expected to rise exponentially. So in order to put higher wiring harness content into an EV where there is a requirement for lower weight, so how as an industry are we trying to solve this problem? Are we coming up with improved technology? Or is it possible that we might come up with alternative solutions?

In this, Pankaj can answer that. But I would just like to add one thing that these are new technologies which are available with us in the commercial vehicle side, in the passenger vehicle side. Sumitomo [indiscernible] is also a great feature in this particular thing. So we have multiple options, but Pankaj will probably explain better.

I'm sure, sir. And also not just into the wiring harness but what the carmakers are looking at it is lightweighting the whole vehicle, because it's understood that when EVs come into play, there are more batteries which are coming into the vehicle, which adds to the weight and also these much more bigger wires for charging connections. So whilst, of course, adjusting more and more circuits into the vehicle, there have been more and more compacted cables and other electronic solutions, which have emerged over a period of time, which we already support our customers with. But also our Polymer division has done a lot of work to lightweight the products which we have been supplying. So it's on the overall vehicle side, if you look at it, but that's how the carmakers approach.

The next question is from the line of Chirag Shah from Edelweiss.

One question I had. In the stand-alone business, if you look at it, there is a sharp jump in raw material to sales. So is it -- I mean sequentially also there is a significant jump. So is it purely because of pass-through arrangements or is this a steady-state number from a mix perspective, if you can help us understand?

Chirag, that's what I'm trying to say. There are so many moving parts that the customer needs to be satisfied, their auditors, their costing people and all that, they need to be satisfied. So the work for our companies is huge. And that's why what we did is whatever factual numbers that we have given to you, we have not made any provisions for the amounts that the customers have asked us to agree to. So until the money comes in, we will not accept that. So maybe in the coming quarter or the 1, 2, 3 months up ahead, we are going to be in a better position to recover all the costs, but Pankaj, you can probably answer this question for all of us, maybe?

So Chirag, you are talking about higher material costs in consolidated level or in stand-alone level?

Stand-alone business. So I believe it could be either because of the mix. Is it [indiscernible] lead life because of the pass-through arrangements with the OE and there will be some delay effect? I just wanted to understand what is the driver of the sequential sharp jump.

So maybe I'll give you a little bit of flavor, Chirag. Number one, when you are looking at it from a historical perspective, specifically quarter 4 of last year, you should adjust the income levels for the one-offs that are there, the INR 65 crores that we spoke about, the rental income that came. And hence, that's artificially depressing the raw material cost on total revenue when you look at it. The second, as you rightly said, there is a parts arrangement on the wires business, which has a lag effect. And as the copper prices, especially in the latter months came down, that lag effect will take into account only in the next quarter.

Okay. Secondly, sir, beside a broader question, especially from demand in Europe. Any thoughts given the wage inflationary pressure and the various media articles indicate at the end consumer level, there seems to be some pressures coming across because some of the other companies who are exporting to Europe are indicating some kind of destocking being undertaken, at least at the dealer level. So any communications you are getting from your end customer about potential slowdown for a 1 or 2 quarter on volume side, or there will be a volume uptick?

So Chirag, as far as our information in our reports, there's a marked improvement from April to June. June numbers are really phenomenal all over. The customer doesn't give you a kind of a letter telling you what his demand is. He is actually working on the electronic [indiscernible], so the kind of push that we are getting from the customer for demand is huge. So I do not know how to answer that question for you. But our feeling is that the numbers are very robust. The demand is very strong. And I do not know what the other companies you're talking about, that's their problem. But we are getting a very strong demand.

Ah just, no, you answered the question.

Kunal, if you want, you can add to that.

Sorry?

I just wondered you may want to just assess this from the pipeline of production that we saw in the month of April to June, which highlights the strength of the demand. I'm presuming the OEMs won't be producing if the demand is not looking like. I understand the inflationary pressures, but as of now with whatever insights that we have from our OEMs, we are not seeing any decline on the demand side.

This is the highest-ever we have done in the quarter. Whatever [indiscernible] people are saying is true, but there are a number of [indiscernible] doing the talking.

The next question is from the line of Dhawal Doshi from Pinpoint Asset Management.

Can you just provide us some insights about what is the kind of pass-through which is still pending? As you said, you're working with the customers and you've got certain approvals, but 'til the time we don't get that, we are not likely to book. Can you give some sense in terms of what that quantum could be, how material that amount could be? And how do we see things going forward in terms of -- given prices have corrected, so that once again will start reversing, right? So just wanted some sense about the overall quantum for this.

Yes. I can understand that you would like to know some numbers over there, but that would be a forward-looking statement, and we can't make that to keeping ourselves under the guidance of what SEBI and all the big guys tell us to do. So that's why we have been kind of marking time accounting if the money is in the bank and we will take it into our books. But yes, we are discussing with all the customers, negotiating. They are, of course, offering certain numbers which we may not be happy with. There are certain numbers which we think they should give more; they should take cognizance of certain things in that area which are relevant to our need. So really very difficult to quantify it and give it to you. And also I think by law, we are not allowed. Kunal could you help me out on that?

Yes, as you rightly said, sir, we can't give you a view on the exact number, and we are being fairly conservative about it is what I can tell you. As Mr. Sehgal was mentioning, we want to make sure all of this is in a well-documented written form, cash received, et cetera, before we book any of these. But given our discussions that have been occurring, we are at least positively inclined towards it, and hence we feel comfortable that we should see improvement going forward.

So at least in terms of timing, can you expect this to happen in the current quarter?