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

Ladies and gentlemen, good day. And welcome to Samvardhana Motherson International Limited Q4 and FY '23 Earnings Conference Call. [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 evening, ladies and gentlemen. Welcome to Motherson Financial Year 2023 Annual Results Presentation. I'm glad to announce SAMIL Board has approved the annual results and are happy to report another strong quarterly performance. Key highlights of our performance are: We have delivered a strong performance with the highest ever quarterly -- yearly gross revenues of INR 89,000 crores. We are getting good support from our customers in sharing the inflationary cost structure. Lowest debt and leverage ratio of 1.4 in the past 6, 7 quarters. SAMIL Automotive business is nearly $70 billion or INR 5.7 lakh crores. This is a reflection of our customer support entrust. Approximately 20% of this would be coming from the EV side. So even strategic acquisitions in the past 14 months, potentially adding 40 facilities, 8,000 employees and approximately $4.9 billion on gross and $1.1 billion net basis to the top line as a company post closure. I now hand over to Vaaman. He will take you forward. Thank you.

Thanks. Good evening to everyone. As you know, this has been the first full year of operations post our reorganization, and we have achieved the following strategic objectives. We've signified the group structure by bringing all of the auto components and allied businesses under one umbrella has created alignment of interest of all the stakeholders. We've also created a strong platform and future growth with a well-diversified product portfolio, customers and our countries. The company has reported yet another stellar performance with the highest ever consolidated revenue of over INR 78,700 crores. This is a 23% year-on-year growth. And correspondingly, the absolute EBITDA is also the highest at INR 6,400 crores. Please note that the PAT has grown 3x against last year. For Q4, we have achieved another highest ever quarterly revenue of approximately INR 20,500 crores, representing an 11% quarter-on-quarter increase and a 30% growth on a year-on-year basis. Correspondingly, the absolute EBITDA is INR 2,000 crores, with a 23% growth sequentially and 61% growth on a Y-on-Y basis. Please note that the PAT of INR 654 crores is up 5x of the same year -- same quarter last year. The company has been able to deliver strong performance against the backdrop of elevated cost structure, higher rate pressure and the rising interest rate scenario. We would like to thank our customers for their trust and support as we continue to work with them in sharing of these inflationary cost structure. While majority of the discussions for FY '23 have been concluded, the volatility and challenges in the business environment continues. And hence, these conversations will be a recurring one for next year as well. For the first time, we have highlighted our Automotive Booked business of nearly USD 70 billion. As a brief walk through, this stops up the SMRP BV Booked Business of about USD 39.5 billion, with other automotive business divisions such as [indiscernible], Lighting & Electronics, Elastomers et cetera. Out of the USD 70 billion booked business, 20% is geared towards pure EV platforms. This is a very exciting future for us. On the industry side, the LV production in FY '23 dropped in at [ 8.5 ] million units, which stabilizes supply chain. While there has been recovery in the year, [indiscernible] moved a 20% behind pre-COVID levels in Europe market and just about coming back to normal level in emerging markets, including China and India. This could possibly imply that the downside risk in developed markets could be limited, and there still exists significant upside and potential growth comings in with normalization of production schedules and the trends of electrification. Thus, to treat it to the existing and future demands for our customers, especially in higher growing emerging economies like India, you're planning to set up 7 new [indiscernible]. 6 of those will be in India; 3 for automotive and 3 for the nonautomotive new businesses. In fact, you may want to note that our stand-alone business is already at the same size as [indiscernible], which was demerged last year from SAMIL. Total India business including subsidiary is over INR 15,000 crores in FY '22 and has grown at over 25% for the year. With this growth CapEx and purchase of related [indiscernible], the CapEx for the next year is likely to increase to about INR 3,000 crores plus/minus 10% as compared to INR 2,200 crores this year. We also continue to focus on deleveraging. Our net debt-to-EBITDA ratio further decreased from 1.8x in December 22 to 1.4x in March. And this creates enough balance sheet strength for us to embark in both, organic and inorganic growth. As the supply chain further normalizes, reduction in [ elevation ] working capital ensures that it deleverages. During the year, we completed 7 acquisitions that will add to combined gross revenue of approximately USD 4.9 billion on gross basis and about USD 1.1 billion on a net basis. The full growth potential of all will be unlocked in coming times. It is important to note that all these transactions are expected to be cash EPS accretive for the company. At the end, we would like to conclude that operational excellence, diversified business model, long-standing customer relationships, having a strong balance sheet and experienced management has combined together to make SAMIL a strong platform for future growth and look forward to exciting journey ahead with all of you. Thank you. And now we are open for question and answers. Moderator, please take over.

We'll now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Raghunandhan N. L. from Nuvama Institutional Research.

Congratulations, sir, on stellar numbers. And thank you for sharing order book details for both, the upcoming and ongoing programs and presentation. Sir, 3 questions. Firstly, as you mentioned in the opening remarks, global 4-wheelers are seeing an improvement in supply situation. And they are notably lower from the peak levels, which was seen in 2018, '19. How are you seeing the ramp up in the near term on the 4-wheeler side in the developed markets? Secondly, energy costs have reduced, considering the current natural gas prices, which continue to correct, would you expect further margin benefits in coming quarters? And just lastly, on the order book details for both, upcoming and ongoing programs, what would be the average duration in terms of number of years we should consider by looking at upcoming orders and ongoing orders?

Thanks. Kunal, would you take this thing? And Raman, you can add up.

Sure. So Raghunandhan, I think on the 4-wheeler side, as you rightly pointed out and as the government was mentioning, it is still around about 20% below pre-COVID levels in the developed world. With whatever production schedules that we have, we continue to see a bit of a ramp-up happening still. So we're not seeing any decline, et cetera, as yet. In fact, on an aggregate level for the year, we still expect that the industry is likely to grow. Now the growth pace is obviously going to get calibrated depending upon how the environment plays out. But overall, the downside risks of this is much less than the potential upside is the way we see it. On the energy price, while we have seen a sizable decline happen in this quarter and ongoing as well, we anticipate at least up till now that things are looking pretty static to where it was in the end of the previous quarter. It, however, remains at least 3, 3.5x higher than pre-COVID level. So we are not out of the woods. And obviously, much of the geopolitical aspects will get played into it. The good part, however, is our conversations, I mean, with the efforts that the team has done to work with the customers, we've been able to share some of the elevated cost structures with the customers. And hence, that should aid well even if there is an amount of increased cost going forward. But overall, we expect that hopefully, the energy prices are not going to shoot up again going forward. On the duration of the order book side, the average duration is anywhere between 5 to 6 years. So that's the time span over which we expect this INR 5.7 lakh crore order book to get delivered.

Not much to add over there. I think Kunal covered that it well. I would just like to say, I think as a group, we've all come to -- we are thinking that these elevated cost structure are there to stay. Really comparing them to pre-COVID levels is not the right comparison anymore. We are living in a...

Sir, your audio is not coming clearly.

I think Raman trying to mention that the cost structures that are there on an elevated level is potentially the new normal, and we have to work around our own business around this area. What has been hit effectively is the lower end of the market. The premium and SUVs continue to do well. And hence, our product mix is also aiding our growth. So maybe that's the reason why we are not seeing as much of a downside risk as maybe some of the other players are.

Absolutely. And also the order book being aligned towards the growth as well. I think that's really going to help there, new models that are coming up. Since we have [indiscernible] was in part of the new order book aligned to the [ BVs, ] we expect them to do well as well. So we should do better than what is the average expectation in the market.

[Operator Instructions] The next question is from the line of Pramod Amthe from Incred Capital.

First question is with regard to the vision systems. If I were look at your revenue momentum, it looks pretty impressive at 30% Q-o-Q versus your own presentation talking about the muted growth in the regions which you cater. So what is this driving 30% growth on Q-o-Q? Is it more new orders or the content per vehicle has gone up? If you can give more color to be helpful and the sustainability of this momentum.

Rajat, you are there?

Yes, I am here. Thanks for the question. So primarily, again, I think it comes down to the fact that we are working with OEMs on premium models and SUVs, and that's the trend that we are playing on. And that's the segment which is still seeing good performance overall and growth. So bulk of that is coming from there. And also, as you would know, there is also a lot of contracts which have been renegotiated, and all the discussions been going on for some time. So that also is helping to then reflect in the top line growth.

Okay. And the second question is with regard to the debt, working capital and interest cost. Even though it's interesting to see the net debt coming down by almost more 10%, the interest cost seems to be still elevated and usually moved up by 80%. So is it more the cost going up itself is still a reflection and is it a more sustainable interest cost on a quarterly basis? That's one. Second is, you are planning to substantially reduce the working capital requirement. So the reduction in net debt [indiscernible] is part of that? And what the extent of journey are covered in working capital reduction as the supplies improve? Or you feel there's more headroom available to [indiscernible] your working capital?

So I think on the interest cost side, yes, things have obviously moved up on the interest rate side as some of our fixed rate instruments are getting refinanced into the newer instruments, yet the interest cost is going to move up. Having said so, this quarter, there has been ForEx losses also that is embedded in the interest cost. Some of the corresponding gains have come on the top line side. So that's how it's been reported. From the perspective of debt, we do expect the deleveraging to continue on the organic side of the business. The working capital improvements are not out of the way completely. We are there some parts of the business has been able to do, but I think there is still a long journey to go. And as we go through this year and as more normalization happens through the year, I think we should be able to continuously deliver our -- I mean reduce our working capital going forward.

The next question is from the line of Amyn from JPMorgan.

Yes. One clarification and one question. Firstly, you mentioned that the cost pass-through discussions with the OEMs for FY '23 are already done. So does it mean that the impact of that is already being seen in the P&L? Or will you get these recoveries in the coming quarters?