Release Date: February 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Samvardhana Motherson International Ltd (BOM:517334, Financial) reported a robust revenue growth of 27% year-over-year, reaching INR 25,700 crores.
- EBITDA showed a significant improvement, growing by 42% year-over-year to INR 2,400 crores.
- Net profit on a normalized basis increased by 61% year-over-year to INR 733 crores.
- The leverage ratio was reduced from 1.9x to 1.7x, with further reductions expected by year-end.
- The company is expanding its footprint in India with 11 new greenfield projects to support growth in both Automotive and Non-Auto businesses.
Negative Points
- Hyperinflation in Argentina negatively impacted the reported PAT by approximately INR 190 crores due to significant currency devaluation.
- Geopolitical conflicts and inflation continue to create headwinds for the company.
- Interest costs have been rising due to refinancing of low-cost debt at current higher rates.
- The vehicle OE mix was weaker in the quarter, impacting the International business segment.
- Freight rate volatility due to geopolitical issues in the Red Sea could potentially impact supply chain and inventory levels.
Q & A Highlights
Q: Congrats on a good set of numbers. Sir, first on this modeling, which you said has been an issue in terms of the vehicle OE mix being weaker in the quarter. Just wanted to clarify this impact only the SMR vision or module segment or there is an impact, which is there in other segments as well?
A: This is Vaaman here. Thanks for that question. Of course, the larger impact is on the International business because the share volume is much larger. But just so that I think we still maintain that the long-term trajectory, will be more favorable towards these trends that we have spoken about before of premiumization, the higher level of cars and the transfer that will happen from one type of engine to the other. But it's just happening at a much slow pace, and there will be variations in the quarter. So it has dipped a little bit. We still believe that the long-term impact will continue on the trend that we've seen over the last, I think, couple of years, albeit at a slower pace. The good news is that we are fully supplying to all the different models. So where you see one thing go down, you see growth in the other sectors, and that's how you're seeing still growth in the overall performance of the company. I hope I was able to answer.
Q: Sir, a follow-up on that is that, I mean, if you look at the profitability, clearly, I mean, it has been much ahead of what we would have expected and I mean, given the weaker mix that was also a surprise. So can you -- possible to indicate whether I mean we can see sort of the sustaining or improving going ahead and does this also factor in some of the cost pressures, which you have highlighted on the labor side and other areas in the quarter?
A: Yes, thanks. Look, of course, it's been a challenging quarter, I would say, a challenging year, right? I mean there are multiple impacts that were happening with geopolitical rate increases, commodity moving. So I think, one, of course, we are grateful to the customers for their support and help as well as we go through these things and try to discuss with them the different impacts. And of course, the team's hard work to continue to focus on reducing the cost, improving the efficiencies and delivering the performance. So it is kind of a mixed bag. I think there are new challenges that we saw in the last year. But like I said at the start of my speech as well that we're seeing more stability. I think the worst is behind us. Things are stabilizing and we have reached that new normal that we've spoken about in the earlier calls. And that is, again, helping us to now build efficiencies and show you improved numbers. I think, as the state continues to stabilize, we should have even better performance from here.
Q: Got it. And sir, one last question is when you have indicated the incremental revenues from the new acquisitions in the quarter than the profitability. The biggest one was Schneider. And if I look at the profitability is close to 10% probably in the quarter. So Schneider, I remember was acquired at maybe close to 0% margin. So are we already close to double digits for that entity? Or am I reading it correctly or just needed your clarification.
A: Yes, I think you are listening to everything, so that's good. But should observe the thought of how we do acquisitions, right? We are -- we look to pick up assets that are performing poorly, work together with the customers to create a plan, increase operating efficiencies, and we enter the assets already with a game plan of how to improve it. So that's obviously playing out. Our plan is under execution. The teams are over there that are making sure that this asset continues to grow from here, not be in the financial condition that it was. And of course, it's all part of the plan that we had put into place, when we were going to acquire that asset and to turn it around, and that is playing out. So the teams are doing quite well and ahead of their target.
Q: Got it, sir. Sir, last question, if I may. We have seen interest costs continuously going up. So if you can guide around that the debt level is also coming down like you have guided, what should be the sustainable level of interest cost we can see going ahead?
A: Hi Siddhartha, Kunal here. So look, there is a function also of our low-cost debt getting refinanced at the current rate. Which is what is driving this delta that you are seeing, plus there is the whole Argentina net monetary position, which is also lying in the interest cost right now. We hope that the Argentinian pieces, we are able to solve along with the customer sooner than later and should not be an ongoing feature forever. The rest, as I think we deliver, you should be able to start seeing some of the reductions that will happen on the interest rate side as well. Having said so, do bear in mind that we still have a INR 300 million bond payout coming due, which is a 1.8% bond that will be coming due in June. So when you adjust these factors against the current rates, obviously, you may still see some rise on a quarter basis. But on an average yield on the debt, you should be able to see a reduction.
Q: And nice to see the ROCE number on a reported basis also starting to improve. My first question is on the wiring harness business. Very strong improvement on EBITDA as well. So first a clarification is a large part of this driven by PKC? And the reason why I ask this is because that business also has a lot of volatility because of the exposure to China. So how should we think about this going forward?
A: This is Pankaj here. So well, this is all around. So this is a total number of the whole wiring piece, including be it India or the PKC or MWSI or other subsidiary companies in the Wiring industry. So you would have seen that in the wiring space, yes, there has been improvement because the business was set in the past with the rising costs and also supply chain issues, which have been getting normalized and improvement in the performance of the cross. PKC does have some business in China. I mean, this is not the largest piece of business because our larger pieces are in Europe and in Americas. But we have seen improvement in China as well from the past. So this is all around, all across improvements which have been done.
Q: Okay, okay. And just on the impact of the risk fee, you have mentioned as to how things were looking in 3Q, but I'm getting -- they have become more problematic as this quarter has gone by. So just for our understanding, in case freight rates were to move up massively because of this, how does the current arrangement with OEMs work in
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
