Samvardhana Motherson International Limited (MOTHERSON.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Results Conference Call, hosted by Samvardhana Motherson International Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. VC Sehgal from Motherson. Thank you, and over to you, Mr. Sehgal.

Thank you very much. Good evening, ladies and gentleman. Thank you for joining the SAMIL results conference call. I am pleased to announce that the Board has approved the results for the first quarter of financial year 2026. I'm pleased to share that Motherson has delivered a resilient and disciplined performance in the first quarter of financial year '26 with our highest ever quarterly revenues. Despite persistent industry headwinds and tariff-induced volatility, our teams have executed with agility and precision in driving operational efficiencies, reinforcing customer trust across our global operations. We have taken several steps to mitigate the impact on our business, and Vaaman will talk more about them. In these violent -- in the volatile times, uncertainty often breaths opportunity. With our strong balance sheet and disciplined financial approach, we are well positioned to seize the growth opportunities as they arise. As we move forward, we remain committed to sustainable growth, innovation and value creation for all shareholders. We appreciate your continued support and confidence in Motherson's journey. For in-depth details on the results, I would like to hand it over to Vaaman and the team to provide a walk-through and business insights. Over to you, Vaaman.

Thank you, Papa. Good evening, ladies and gentlemen, and thank you for joining the earnings call for Q1 of FY 2026. The company has delivered a resilient performance with robust revenues of INR 30,200 crores and EBITDA of INR 2,466 crores, whilst navigating a challenging business environment. We reported a normalized PAT of INR 667 crores. This performance has to be viewed in a backdrop of dynamic production environment heightened with tariff-induced uncertainty. As a part of our conservative accounting policies, we booked the associated costs upfront and continue to engage actively with our customers on sharing this pain. On a year-on-year basis, the global light vehicle industry grew by 1.7% with the growth primarily coming out of emerging markets of India and China, while the developed markets such as Europe and North America degrew by 4%. On the commercial vehicle side, whilst there were signs of softening, cyclical reduction is now visible in North America, having degrown about 29% on a year-on-year basis. More information on this is on Slide 7. Against this industry performance, Motherson delivered a 5% growth on a year-on-year basis, which is contributed by our resilient and well-diversified organic business and well-executed mergers and acquisitions. On the profitability side, the business environment of late has become very complex with evolving trade policies, ongoing geopolitical conflict and volatility in ForEx. All these are putting pressure on the supply chain. Further, there are persisting structural issues in the developed markets. The cumulative effect of all of these factors have resulted in a transitory impact on our profitability this quarter. We are taking concrete steps, and I would like to provide a brief walk-through on some of them. First, to address the structural issues and [ beat ] with the market, we have launched a series of transformative measures in Central and West Europe aimed at delivering cost savings of EUR 50 million over the next few years. As a first step of this transformative road map and alignment with the works council and representative authorities in the different jurisdictions, we have booked provisions amounting to approximately INR 136 crores as exceptional items in this quarter. The actual cash out will happen over the course of the next 3 quarters. This will have a payback of less than a year. Secondly, in relation to the evolving trade policies, I would like to highlight that Motherson is well positioned to navigate this landscape. We have a globally local strategy and hence, a significant level of our production is the local -- is in the local country of consumption. As a result of this, majority of our sales to the customer in the U.S. and USMCA compliant -- in the U.S. is USMCA compliant. For the noncompliant piece, we are engaged in fruitful discussions with our customers to pass on some of these tariff-related impacts, albeit with a lead lag effect. In light of the recent shift of tariff policies towards India, we do not foresee any material impact on us as our export content to the U.S. is less than $10 million for Q1, with most being on ex work incoterms. Please look at Slide 6 for more information on this. Thirdly, we are setting up a number of greenfields to cater to the growth coming out of emerging markets and non-auto segments. As these begin to come on stream, there is a certain amount of start-up costs that is being incurred upfront. As some of these greenfields ramp up during the later part of the year, we should see a positive impact on the bottom line. There's more information on this on Slide 11. And lastly, as the year progresses, some of the recently acquired assets will be better integrated and will begin to contribute meaningfully. While the operating environment presents its challenges, we remain firmly on our organic growth trajectory, underpinned by a CapEx spend of approximately INR 1,200 crores -- around INR 1,200 crores during the quarter. Having successfully operationalized 3 greenfield units and 11 additional facilities progressing through various stages of completion -- this is shown on Slide 11. These strategic investments enhance our position to capitalize on growth in the emerging markets. As of now, we remain in line with our CapEx guidance of about INR 6,000 crores plus/minus 10%. However, we will recalibrate this as the year progresses in line with the changing production environment. Our leverage in the quarter saw a slight uptick with a net effective debt-to-EBITDA ratio at 1.1x. This is shown on Slide 12. This is primarily contributed by the expanding working capital owing to the high amount of uncertainty in the supply chain and further due to the sharp volatility in foreign exchange, there is a translation impact on the debt of about INR 600 crores. While we remain well within our comfort zone, our business divisions are actively implementing targeted initiatives to optimize working capital. Combined with ongoing operational measures, these actions will support our deleveraging efforts as we progress through the current fiscal year. While the current environment presents short-term challenges, we remain focused on supporting our customers with upcoming model launches and addressing supply chain constraints. Periods of uncertainty often create new opportunities. And with our strong balance sheet, we are well positioned to pursue and capitalize on them. I would like to conclude my remarks by reemphasizing that this is a work in progress quarter and all the steps that we are taking to mitigate the prevailing headwinds and breathe with the market. The business teams continue to work hard and burn the midnight oil. I have the team with me, and I'm happy to open the floor for your questions. Operator, please.

[Operator Instructions] Our first question comes from the line of Aditya Jhawar from Investec.

So just one question on the U.S. tariff. So we clearly understand that on the auto business, the impact would be very negligible. But on the consumer business, if you can help us understand, how should we think about it considering so many news flows about implication on tariff. That is question number one. Question number two is that with regard to the similar line of thoughts, how much CapEx we have incurred so far? And how should we think about the revenue ramp-up in terms of the next couple of years?

Thanks, Kunal, Vaaman, will you take this?

Yes, I can take some of it and Kunal can maybe add on the CapEx side. Currently, there's no impact on the consumer electronics business. The business is pulling as per the demand of the customer, and it's exempt from the U.S. tariff. So we don't see any implication on that. Of course, the larger facility is to come on stream only by middle of next year. So there's still a lot of time for that to happen. But the customer has not shown any indication of any slowdown in -- or change in demand. And we are continuing to set up those facilities for the envisaged requirement, which is only growing. It's not going the other way. Kunal, can you give a number for the CapEx?

Yes. So Aditya, if I understood you right, our CapEx for the quarter is INR 1,200 crores, which is as per what is there in the presentation. For the year, we are still guiding towards the INR 6,000 crores plus/minus 10%. Among the greenfields that are there, there are 2 which have been a little bit postponed by a few quarters, one in aerospace and one in the elastomers one, but that is about the change out of the INR 6,000-odd crores, pretty much 50%, 50% between growth and regular CapEx. So right now, I think with what we know, this is what we think we may likely end up in. In case, as Vaaman mentioned in his earlier comments that in case if the production environment looks different, then we will obviously recalibrate to meet the production requirement needs.

It's very helpful, Kunal and Vaaman. My question, Kunal, was pertinent to the consumer business that how much CapEx we have incurred till date? And how should we think about revenue scalability, if a broad sense you can give?

Pretty much half of what we had anticipated has already been spent about. Obviously, the largest piece will come with the larger facility, which will come in Q2 of next year. So nothing has changed as per what is the original plan. We remain exactly as per what was the original plan.

Sure. My final question is on the recent partnership that we have signed in Taiwan. So clearly, sunshade and roof system and encouraging, I mean, space -- we expected to see good growth. So what is the thought process in terms of which are the markets that we are targeting, how much CapEx we plan to incur in this line of business? And what kind of profitability we should expect in this? Yes. That's it from me.

Go ahead, Kunal.

So look, I think a very exciting product. More so as you think about premiumization that is taking place in India and the globe. As you know, we do cater to the global OEMs and in the luxury segment where this becomes a pretty used product, so to say. And as part of Yachiyo, there is a fair amount of in-sourcing opportunities that also exist, especially on the sunroof side. So I think from a potential perspective, it is fairly high considering the amount of content that we provide on the luxury interior space where products of this nature is applicable. And from a, let's say, the joint venture itself caters to India as well as to all our in-sourcing requirements. So initially, I think the start will be small to get to understand the business and the dynamics associated with it. But then the ramp-up can be fairly, fairly quickly given the large in-sourcing opportunity itself that this particular product offers us.

And just if I can add to what Kunal is saying, the CapEx is fairly, fairly low in this product because most of the stuff is anyway our capability on injection molding and smaller parts, which are sourced. So the CapEx is not very huge for this product. It's actually a very high rose business. So we are quite excited with some wonderful partners in Macauto, and that should scale pretty quickly.

That's very good to know. All the best.

Thanks. We already have the orders. I just wanted to add.

Next question comes from the line of Kapil Singh from Nomura.

Sir, we have mentioned the certain challenges as far as EBITDA impact is concerned on Slide 10. Is it possible to elaborate a little bit on each of the 4 points, like structural issues, what are we facing as a company and how we are tackling this? And on the tariff as well, what percentage of the revenues are non-USMCA? And are there any tariff-related costs which we have booked? Are these going to be only for this quarter? How much are they? Any color can be given. That would be my first question.

Kunal?

I can start, and maybe Kunal, you can add on to that. I think even on our last couple of calls, we were quite vocal about how there is a change that's happening in Europe with, of course, the customers still figuring out their production for EVs and hybrids and mixes over there. And of course, the large number of acquisitions that Motherson has done in the region, we are looking at consolidating our footprint there and of course, also being with the market and figuring out good ways to make sure that we are ahead of the curve for the demand that we see that's coming up. So that has only been heightened by some of the macroeconomic issues that are playing out over there. But we are quite firm because we have the orders, we have the order book, which, of course, we tell you also every 6 months. And our order book remains strong, but there is a transitionary impact as these different models and the customers are figuring out their production volumes. And we see an opportunity with the acquisitions that we have done to increase the order book and consolidate our footprint. And the timing is just right. Most of these things, as I spoke about in my opening remarks, will pay back in -- within the year and of course, will play out in the next couple of quarters. And this is a necessary step to secure our operations in the region. And as you know, the pass-through of some of these costs has been discussed with the customer. There is a time lag that this takes, but this was all discussed as we had acquired these assets and prepared a plan at that time itself to put some of these restructurings in place. So we are quite confident again that in the quarter 3 and quarter 4, you should see the impact of this play out and lead to a much better result in the region. Of course, we are hoping that the demand only improves from here, and there's no further impact. But we are quite confident and on track as per our plans to put these restructurings in place and make this region that much stronger and deliver better profitability. On the tariff, as we said, I think our group is always focused on sourcing locally, producing locally, supplying locally. So we do not have a very large number of business that is really being exported to the U.S. from outside of U.S. That's a big strength of Motherson, and that has played out really good for us. As you can see that the number was a fractional number compared to what we do and also perhaps mostly just some customer-directed kind of stuff that happens. We structurally are in a very good place to supply U.S. from U.S. and the impact for us has been minimal.

Yes. And if I could just add a few bits on it. Look, I think you've seen us invest a fair amount on the greenfields, including what you saw in the consumer electronics space, which we have kick started from November onwards. As the ramp-up happens, I think the profitability will be more visible. Right now, it is still in the ramping up phase, and hence, you do have some amount of start-up costs that exist. We bought Atsumitec at the end of last quarter. So this quarter, we have assimilated it's early days, but that integration benefits are yet to flow in. And hence, these are, again, pieces that will play out as we go through the rest of the year. On an aggregate basis, we do believe that at a reported level, this will probably be the lower end of our quarter. So the next few quarters, and right till the end of the year should be looking better than where this quarter is right now. And that confidence is coming from all the stuff that Vaaman spoke about in terms of the transformative measures that we are taking in Europe, together with the passing off some of the tariff issues that we have for which the costs are embedded into our P&L right now, which will all get transferred to the customer or claim from the customer. And then the ramp-ups of the greenfield and the integration of the M&As that we have done. I mean just to highlight, our non-automotive business has grown at around about 40% on a year-on-year basis, which again adds to the diversity, resilience as well as potential growth as the profitability of those kicks in during the latter part of the year.

Thanks, sir. Just on the divisions, modules and Polymer products and also emerging businesses, we see that the margins have come down. Anything additional you want to highlight there? Are there any nonrecurring items here which you would like to quantify?

Kunal, just for the -- I can again start and Kunal, please support. I think again, on the modules and polymer side, this is where we are seeing the largest chunk of the breathing with the market and the largest amount of acquisitions that we've also done to consolidate our footprint in the region. Hence, you're seeing that impact has largest been taken over there. The other divisions are -- have a more spread out footprint across Europe. And Motherson polymers will definitely bring the largest impact coming down the quarters for the transition that we are putting through.

And sir, on the Emerging Businesses division, if you could just highlight there, are we seeing the peak impact there in both of these divisions this quarter? And what was the reason for Emerging Businesses division margins to come up?

Sure. I can again start and Kunal can support. As you can see, the growth over there has been tremendous and the largest amount of new facilities buildup is also happening in the emerging businesses, which is all incurring upfront costs for the large growth that we anticipate next year. So that is some impact is from there as well. As you can see, there's -- the volume has not -- has gone up significantly, and the EBITDA is just preparing for the large step-up that we will see again next year.

And if I can add, I think this is where you would see the consumer electronics piece, which is still in the ramp-up phase, and hence, the profit margins are obviously dilutive right now in nature. This is also where the Atsumitec business has got embedded, which is again margin dilutive right now. And as the integration of that asset happens, we should be able to see better profitability as we move ahead. And then this also has the aerospace business where this quarter is a seasonally weak quarter. And hence, again, as the rest of the year transpires, I think we should be able to see improved profitability on that account as well.

Understood, sir. So this could be the peak impact. Is that the way to understand?

That is the way we see it with what we know today, that is the way we see it. That's why I said from an ensuing perspective, we should be able to see better performance on a reported basis.

Our next question comes from the line of Pramod Amthe from Incred Equities.

So continuing on this module business, considering that it's the largest EBITDA contributor and the margins have slid from almost near 9% to around 6%. Considering the type of actions which you are taking now, do you see a visibility when it should come back to the 8% type of margins?

Vaaman?

Yes, we don't guide on the exact number. But directionally, like we said, I think Q3 and Q4 should be much better. And Q2 always has the summer holidays, which is the largest revenue source for this division. As you know, August is all the shutdowns. So definitely, you should see the trend improve backward and go further from there in the second half of the year. Q3 and Q4 should show very strong performance.

considering the amount of write-off or the provision which you have made, it looks like just 1% of your EBITDA for the full year. But how can it be so transformational that it can improve your EBITDA by almost around 200 basis points? Can you give more color what has actually happened, is it plant related or customer related?

Yes. So it's not the only one that we have done. We had done it in past quarters as well, and we believe there is a significant amount of new launches, which are coming up towards the latter half of the year after which we should see significant reduction that we've already planned for in the past quarters for that to happen. So we're almost at the tail end of all the transformation that we need to do. As you know, we acquired these assets more than a year ago. Almost in the last 2 years. So we have been doing a lot of work to get it to stream. And it takes about as much time to integrate and to really show the results. So that's why we are quite confident that towards the latter half of the year, the trend should improve and the improvement should show on the bottom line, and we should be past some of the key critical launches of the customer as well.

Sure. And the second one is more a strategy -- sorry, shall I go ahead with the next question?

Yes, please.

Yes. So second one is more in terms of strategy side. Considering that now tariffs are the reality and different countries have reacted in a different manner. Any major change the way you are looking at M&A strategy template or any tweaks you are making when you are looking at the new acquisitions in the global landscape?

Look, Motherson has always grown exponentially in time of crisis. So I don't think we're going to change that strategy. But I think one particular thing which is happening is the goodness of our thinking and the focus of being outside India being in the local country where we are producing, that has paid off very well. We are [ lapping ] all the way to the bank actually. I think it's only to be extended to other businesses, other verticals also now, not just automotive, but I believe the other side also, we will have quite a chance to actually take advantage of that. Vaaman or Kunal, Pankaj, what would you think?

No, agreed, sir, I don't think there is any change in strategy. In fact, in these volatile times, we are probably finding the best of opportunities. And with the balance sheet strength that we have of a leverage of 1.1x, there is enough headroom that is there for us to capture this opportunity. So I think our diversified business model provides the resilience that we can capture these opportunities in not so good times. And that's exactly the position that we are in right now. So the pipeline remains strong, and hence, M&A is looking more imminent now considering the fogginess of the tariffs seems to be reducing. And hence, our ability to then consummate some of these transactions may improve as we look through ahead.

Our next question comes from the line of Raghunandhan from Nuvama Research.

Sir, firstly, on revenue, what would be the contribution of acquisition revenues on Y-o-Y basis Atsumitec has been added. And I think AD Industries also was there on the first part of the quarter last year.

Kunal?

Yes, sure. So Atsumitec has added around about INR 700-odd crores, give or take, in this quarter. So excluding Atsumitec, it is a 2% growth, if that's what you're looking at. Having said so, as we have communicated again and again, the ability of doing M&As come from the resilience of the business. So I've never understood this concept, again, as I said, of inorganic and organic from a growth perspective. But if it helps, that's what the numbers are.

And we know that inorganic has always been a part and will continue to be. Sir, secondly, on consumer electronics, last time you had indicated 15 million to 17 million units of capacity ramp-up by end of FY '26. Would we remain on track towards this capacity? And would it be possible to indicate what is the revenue potential of this 15 million to 17 million units?

Vaaman, would you take this?

Yes.

We can't disclose.

We can't really. We can't disclose more than that, but I can give you a directional sense. Of course, we are quite excited about the largest facility coming up in Motherson next year. And the customers has not shown any signs of slowdown on pickup over there. In fact, only opportunities of further growth. So we still remain on track. And we believe that the revenue potential is really meaningful on this business and will scale quite fast. You have to be a little patient with us. Of course, we are building this very large facility. It is going to come on track next year. But directionally, again, I can tell you that we are on track to spend the CapEx for it, and we are on track definitely also to achieve the sales that we envisaged from this business. It's only on the positive side. There's nothing that has changed over there. Please wait a couple more quarters, and you'll get a lot more color on that.