Motherson Sumi Systems Ltd

BSE: 517334 | NSE: MOTHERSUMI | ISIN: INE775A01035 
Market Cap: [Rs.Cr.] 35,306.87 | Face Value: [Rs.] 1
Industry: Auto Ancillaries

Management Discussions
Management Discussions And Analysis

Overview

MSSL is a leading global Tier 1 supplier of rear view vision systems, interior andexterior modules and wiring harness. The Company has established "strategic supplierpartner" relationships with all major global OEMs with its commitment to providequality products and services in time.

The Company is always focused on doing strategic investments aimed to achieve its longterm vision. Key elements of this strategy include continuous profitable growth in orderto maintain a healthy balance sheet with investment grade credit metrics and increasingreturn to shareholders.

MSSL achieved its 2014-15 revenue target of US$ 5 billion, one year in advance of itsVision 2015 with operating margin significantly better than previous year(s) in volatileand difficult market conditions.

The Company continues to report sharp improvement in operating performance driven byits strategy of increasing content per car, global footprint with strong in-house R&Dcenter and improvement in utilization levels. The consistent growth across all divisionsand product line even in current sluggish market is due to strong global presence,diversified product portfolio and trust built by the Company among its customers whichwill further create opportunity on revival of market conditions.

Highlights

The Company reports highest ever revenues and earnings for the year both onConsolidated as well on standalone basis.

Some of the major accomplishments during 2013-14 are as follows:

• The Company achieved its target of consolidated revenues of US$ 5 billion forthe year 2013-14, one year ahead of Vision 2015.

• Consolidated sales up by 20% and standalone sales up by 5%.

• Exports from India up by 21%.

• Growth in our operational EBITDA margin magnifies the impact of operationalimprovements and revenue growth on the profitability of our business. Profit beforeInterest Depreciation and Tax (PBIDT) has substantially increased by 50% on consolidatedbasis and 16% on standalone basis.

• Driven by continuous operational improvement across all business units,consolidated operating margins for the Company have improved significantly. Profit beforeTax (PBT) registered strong growth of 84% on consolidated basis and 20% on standalonebasis.

• Profit after Tax (PAT) has significantly improved by 72% on consolidated basisand 14% on standalone basis.

• The Company has improved Return on capital employed (ROCE) from 18% (2012-13) to26% in financial year 2013-14.

• Significant improvements at SMR and SMP:

• Samvardhana Motherson Reflectec SMR has delivered strong results, recordedsubstantial improvement in profitability along with highest ever annual sales of Rs.90,690 million (Euro 1,119 million). SMR has delivered strong growth in EBITDA by 93% atRs. 8,698 million (Euro 107 million), PBT by 180% at Rs. 5,960 million (Euro 74 million)and PAT by 311% at Rs. 2,167 million (Euro 27 million).

• Samvardhana Motherson Peguform (SMP) has achieved turnover of Euro 1.9 billionwith substantial improvement in EBITDA by 76% at Rs. 8,466 million (Euro 104 million) andPBT by 1412% at Rs. 2,720 million (Euro 34 million). Growth and improvement in performanceat SMR and SMP is achieved through various measures including operational improvements,enhanced relationship with the OEM’s, servicing of new orders won post acquisition.

• MSSL continues to deliver progressive returns to the shareholders, dividend ofRs. 2.5 per share on the enhanced equity which is increased with allotment of bonus sharesconsecutively for the second year in the proportion of 1:2 to celebrate 20 years ofListing. The total dividend outgo including tax thereon represents healthy dividend payoutratio of 34% (Previous year 31%) of the consolidated profits after tax.

• MSSL is achieving synergies through horizontal and vertical integration,supplied Wiring Harnesses of Rs. 3,466 million (Previous year Rs. 2,248 million) and othercomponent of Rs. 787 million (Previous year Rs. 669 million) to SMR and other polymercomponent of Rs. 366 million (Previous year Rs. 113 million) to SMP during 2013-14. Theserevenues are netted at the consolidated sales.

• This year the company has incurred significant capital expenditures in expandingits footprint and enhancing existing capacities, amount capitalized (on consolidatedbasis) of Rs. 13,517 million:

• Mirror Division (SMR) has started commercial production and supplies from newfacilities and additional capacities in Langfang (China), Yancheng (China), Mexico, Spainand Korea for mirror manufacturing and vertical integration. Further construction of newplants and expansion is in progress at USA, China, India, Thailand and France.

• Polymer Division has set up new interior/exterior plant in Foshan (China),Durban (South Africa), Tapukara (Rajasthan) and Chennai, the ramp up of commercialproduction and supplies at Tapukara and Chennai have started during the year whereas atFoshan and Durban ramp up will be during 2014-15. SMP has also incurred major capitalexpenditure at Oldenburg (Germany) for enhancing paint shop capabilities and improvementsto bring operational efficiencies. Also construction of new plants and expansion is inprogress at Schierling (Germany), Btzingen (Germany), Polinya (Spain) and Sanand(India).

• Wiring Harness Division expanded its capacity at existing facilities in Noida,Chennai, and Bangalore. The ramp up of commercial production and supplies at Mexico andThailand facility has started during the year.

INDIAN VEHICLE & COMPONENT MARKET

Changing economic and business conditions, evolving consumer preferences, rapidtechnological innovation and adoption and globalization are creating an increasinglycompetitive market environment that is driving corporations to transform the manner inwhich they operate. The domestic market continued to be challenging for the automotiveindustry and for the year witnessed a distinct slowdown/negative growth. The demand wasrestrained by higher interest rates, inflation, fuel prices, volatile commodity market,industrial unrest and adverse forex fluctuations.

Figures in thousand

Segment

2013-14

2012-13

2011-12

Passenger Vehicle
Numbers 3,072 3,241 3,124
Growth Rate -5% 4% 5%
Commercial Vehicle
Numbers 699 873 912
Growth rate -20% -4% 21%
Two Wheelers
Numbers 16,880 15,759 15,454
Growth Rate 7% 2% 16%

Source: ACMA Report

With the new Government at the center having clear majority, focusing on policydecisions, inflation control and commitment towards industrial and infrastructuredevelopment, customer sentiments are expected to improve in the country in medium to longterm and stimulate the demand for the Auto industry.

GLOBAL CAR PRODUCTION

Vehicle Production:

2013-14

2012-13

Region (in numbers)
Europe 19,612,359 18,792,196
North America 16,404,893 15,433,508
South America 4,383,643 4,362,470
Asia (including India) 43,261,973 41,032,544
Grand Total 83,662,868 79,620,718

The global production of passenger cars and commercial vehicles has increased by 5.1%in 2013-14. There is moderate growth in automotive production in Europe, North America andAsia excluding India.

Segment performance - Automotive / Non Automotive

The Company predominantly operates in manufacturing of automotive products and alsomanufactures non-automotive products. Hence the operations of the company have beenclassified as Automotive and Non-Automotive.

The following tables and charts show business progress with respect to segmentdisclosure during 2013-14:

Rs. in Million

Consolidated

2013-14

2012-13

Growth

%

Amount

Amount

%

Automotive 98% 297,865 246,098 21%
Non-Automotive 2% 5,715 6,155 -7%
Total 303,580 252,253 20%

Rs. in Million

Standalone

2013-14

2012-13

Growth

%

Amount

Amount

%

Automotive 93% 41,689 39,083 7%
Non-Automotive 7% 3,049 3,330 -8%
Total 44,738 42,413 5%

The CompanyRs. s automotive segment is a supplier of Wiring Harness, High TensionCords, Wire, Plastic Components, Rubber Components, Cockpit Assembly, Mould for wiringharness components and mould parts, Plastic Molded Components, Brass Terminals,Thermo-Formed Products, Polyurethane Molded Products, Blow Molded Products, HVAC Module,Compressors, Body Control Modules, Meters Clusters, Interior Mirrors, Exterior Mirrors,Bumper Systems, Plastic Components for vehicle exteriors, dashboards and vehicle interiortrims. In automotive segment the company supplies to all the leading automobilemanufacturers globally.

The participation of automotive segment in the Company’s revenue has improved to93% from 92% on standalone basis and on consolidated basis it remains identical at 98% in2013-14. The growth in the automotive segment has contributed to considerable increase insales by 20% on consolidated basis and 5% on standalone basis, compared to previous year.In non automotive segment, MSSL is one of the largest suppliers of wiring harnesses tomanufacturers of material handling equipments and industrial forklifts. The company offersvariety of products like Plastic Components for white goods, Household Wires, Plates,Aerobin, Re-Timer light device, Premium embossed travel case, USB recharging cable to itscustomers from individual parts to full system solutions.

The Non automotive business witnessed marginal decline in revenues on account ofvariation in demand for Company’s products, this segment will get benefited with therecent acquisition of wiring harness business which also has presence into agriculturalequipment, material handling equipment and off- road vehicles.

Sales Performance

MSSL has outperformed the market growth at both domestic and global front. Theconsolidated sales rose by 20% to the remarkable level of Rs. 304 billion (equivalent toUSD 5 billion approx.) whereas standalone sales registered a growth of 5% at Rs. 45billion. On geographical ground sales performance of the Company during the year 2013-14on consolidated and standalone basis are as follows:

Rs. in Million

Consolidated

2013-14

2012-13

Growth

%

Amount

Amount

%

Customers within 16% 47,275 45,672 4%
India
Customers outside 84% 256,305 206,581 24%
India
Total 303,580 252,253 20%

Rs. in Million

Standalone

2013-14

2012-13

Growth

%

Amount

Amount

%

Customers within 84% 37,700 36,616 3%
India
Customers outside 16% 7,038 5,797 21%
India
Total 44,738 42,413 5%

The Company is continuously exploring new market opportunity, expanding its globalfootprint and strengthening its position in the region where it is already present byadding new customer and increasing content per car to accelerate organic and inorganicgrowth.

MSSL has substantially expanded its customer base globally and further emphasize itsaffiliation with existing customers. The Company has presence in 25 countries and conductsits operations from over 135 manufacturing facilities supported by technical centerslocated globally.

The Company’s sale to customer outside India has taken a modest jump with healthygrowth in exports from India as well as contribution from facilities outside India, Salesgrew by 24% on consolidated basis while on standalone basis grew by 21%. On the domesticfront, the company’s growth is 4% on consolidated basis and 3% on standalone basisdespite continuing volatile and depressed market conditions in the Indian automotivemarket in 2013-14. MSSL has established itself as a preferred supplier among OEMs with itscommitment to keep improving on QCDDMSES (quality, cost, delivery, development,management, safety, environment and sustainability). The ability to provide end to endsolutions, from global manufacturing capabilities and competitive footprint to coreexpertise in all aspects of design, research, engineering and development has been thedriving force behind the growth of the Company.

FINANCIAL REVIEW

MSSL continues it track record of outperforming the market and delivering strong growthin revenues and profitability. The consolidated financial performance is impressive interms of profitability with strong growth in profitability of SMR and further improvementin operational efficiencies at SMP. The summary of the financial position and results ofthe company on consolidated and standalone basis is as follows:

Consolidated:

Rs. in Million

Financial Position

2013-14

2012-13

% change

Net Fixed Assets 65,660 56,629 16%
Other Assets:
- Inventory 32,822 26,036 26%
- Trade Receivables 32,384 29,400 10%
- Cash & Bank Balance 9,061 5,944 52%
- Other Assets 13,696 10,266 33%
Total Assets 153,623 128,275 20%
Liabilities (other than Loans) 67,737 52,320 29%
Net Assets 85,886 75,955 13%
Source of Funding:
Net Worth 26,615 19,912 34%
Reserve on Amalgamation and Consolidation 2,978 2,978 -
Minority Interest 7,896 4,025 96%
37,489 26,915 39%
Loans Outstanding:
- Payable within one year 8,452 8,328 1%
- Short Term Loans 10,111 13,553 -25%
- Long Term Loans 29,834 27,159 10%
Total Loans 48,397 49,040 -1%
Loans (net of cash and bank balances) 39,336 43,096 -9%
Capital Expenditure (Net of disposals) 13,517 10,895 24%

Rs. in Million

Results

2013-14

2012-13

% change

Sales 303,580 252,253 20%
Other Operating Income 3,631 3,917 -7%
Cost of Goods Sold 193,615 164,838 17%
Employee Cost 51,065 42,827 19%
Other Expenses 33,853 29,413 15%
PBIDT (*) 28,678 19,092 50%
Exchange Fluctuation Loss / (Gain) on Long Term Loans 1,777 1,279 39%
PBT 15,960 8,350 91%
PAT 10,965 4,516 143%
Concern Share after adjusting Minority
Interest 7,650 4,445 72%
EPS – Diluted (Rs)# 8.67 5.04 72%

*Excludes foreign exchange fluctuation on Long Term Loans, exceptional income / expenseand Non Operating Income. # EPS of previous year has been restated on account of BonusShares allotted during 2013-14, in the proportion of 1 share for every two shares held.

During the year under review, the Company’s consolidated sales hit a new recordlevel of Rs. 303,580 million in comparison to the previous year sales of Rs. 252,253million.

The major raw materials required by Polymer Division of the Company are polypropylenes,polycarbonates, ABS and various grades of nylons and resins. Finished products incorporatedecorative (leather, textile and foils), chrome, fasteners, wiring harnesses, electronics,electrical parts, die-casting, plastic and metal parts. The major raw material used in themanufacture of tools and molds is alloy steel.

The main inputs for the company’s mirror business are glass actuators, powerfolds, glass, electro-chromatic glass ("EC glass"), wiring harnesses,electronics, electrical parts, die casting, plastic parts and resins. The key raw materialfor the company’s wiring harness business is copper.

Employee cost on aggregate comprises the second largest cost after raw material. Itincludes salaries & wages, contribution to provident fund, gratuity funds, employeepension schemes and expenses incurred on staff welfare. Employee costs have increased by19% in 2013-14 is in line with increase in revenue and strengthening the organizationstructure for projected growth.

Profit before Interest Depreciation and Tax (PBIDT) substantially increased by 50% atRs. 28,678 million from Rs. 19,092 million during 2013-14. The Company has reported strongprofitability on account of significant improvements at SMR and SMP.

Profit before Tax (PBT) substantially increased by 91% at Rs. 15,960 million from Rs.8,350 million during previous year. Profit after Tax (PAT) concern share significantlyimproved by 72% at Rs. 7,650 million as against Rs. 4,445 million during the previousyear.

During the year, the company incurred exchange fluctuation loss of Rs. 1,777 million onaccount of long term loans including mark to the market (Previous year exchange loss ofRs. 1,279 million).

During the year the Company incurred capital expenditure amounted to Rs. 13,517 million(Previous Year Rs. 10,895 million), which is funded from internal accruals.

The Company monitors its net working capital regularly and able to maintain itadequately even with the increasing scale of operations. In terms of days, net workingcapital employed as on March 31, 2014 is of 24 days (28 days as on March 31, 2013).

Loans (net of cash and bank balances) have reduced by Rs. 3,760 million inspite ofmajor borrowings in foreign currencies and have negative impact of weakening of Rupee.

Standalone:

Rs. in Million

Financial Position

2013-14

2012-13

% change

Net Fixed Assets 14,863 15,057 -1%
Other Assets:
- Inventory 5,628 5,420 4%
- Trade Receivables 5,754 5,464 5%
- Cash & Bank Balance 191 658 -71%
- Investments 5,821 5,132 13%
- Other Assets 4,387 2,673 64%
Total Assets 36,644 34,404 6%

 

Financial Position

2013-14

2012-13

% change

Liabilities (other than Loans) 10,010 8,891 13%
Net Assets 26,634 25,513 4%
Source of Funding:
Net Worth 17,393 14,577 19%
Reserve on Amalgamation and Consolidation 1,663 1,663 -
19,056 16,240 17%
Loans Outstanding:
- Payable within one year 1,400 915 53%
- Short Term Loans 1,957 3,263 -40%
- Long Term Loans 4,221 5,095 -17%
Total Loans 7,578 9,273 -18%
Loans (net of cash and bank balances) 7,387 8,615 -14%
Capital Expenditure (Net of disposals) 1,455 3,089 -53%

Rs. in Million

Results

2013-14

2012-13

% change

Sales 44,738 42,413 5%
Other Operating Income 770 804 -4%
Cost of Goods Sold 25,142 25,296 -1%
Staff Cost 4,976 4,393 13%
Other Expenses 6,105 5,491 11%
PBIDT (*) 9,285 8,037 16%
Exchange Fluctuation Loss/ (Gain) on Long Term Loans 576 290 99%
PBT 7,584 6,497 17%
PAT 5,351 4,696 14%
EPS – Diluted (Rs)# 6.1 5.3 15%

*Excludes foreign exchange fluctuation on Long Term Loans, Dividend Income and otherNon Operating Income.

# EPS of previous year has been restated on account of Bonus Shares allotted during2013-14, in the proportion of 1 share for every two shares held.

During the year, the company standalone revenue grew by 5% to Rs. 44,738 million.

PBIDT registered growth of 16%, increased to Rs. 9,285 million from Rs. 8,037 millionduring previous year.

PBT amounted to Rs. 7,584 million, up from Rs. 6,497 million during previous year,recording growth of 17%.

CASH FLOW

The following tables sets forth consolidated and standalone cash flow information forcurrent and previous years.

Rs. in Million

Consolidated Cash Flow

2013-14

2012-13

Operating profit before working capital changes 30,144 19,541
Change in working Capital 2,403 (1,019)
Operating profit after working capital changes 32,547 18,522
Taxes paid (5,597) (3,662)
Cash flow from operating activities 26,950 14,860
Capital Expenditure (Net of sales) (13,517) (10,895)
Cash flow from other investing activities (206) 105
Cash flow from Investing activities (13,723) (10,790)
Cash flow from financing activities (10,801) (2,558)
Net Increase/(Decrease) in Cash & Cash Equivalents 2,426 1,512
Net Cash and Cash equivalents at the beginning of the year 5,845 4,42
Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

Vivek Chaand Sehgal , Chairman

Toshimi Shirakawa , Director

Amarjit Singh , Director

Arjun Puri , Director


Company Head Office / Quarters:

2nd Floor F-7 Block B-1,
Mohan Co-operative Indl Estate,
New Delhi,
New Delhi-110044
Phone : New Delhi-91-011-40555940 / New Delhi-
Fax : New Delhi-91-011-40555940 / New Delhi-
E-mail : investorrelations@motherson.com
Web : http://www.motherson.com

Registrars:

Karvy Computershare Pvt Ltd
Plot No 17-24 ,Vittal Rao Nagar ,Madhapur ,Hyderabad-500081

 
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