Motherson's arms help boost earnings

The performance is likely to continue, with order book of euro 6 bn and product pipeline of global car makers

Aided by a robust performance from its subsidiaries, auto parts maker Motherson Sumi Systems had another good quarter, beating Street expectations on all counts.

While revenue was up 20 per cent year-on-year to Rs 7,989 crore due to execution of orders at subsidiaries Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP) as well as a favourable currency in the three months ended December, margins were higher on a better product mix and higher cost efficiencies. The stock spurted 13 per cent at the close of trading to end Friday at Rs 203.75 apiece.

SMP, which contributes about half of the company’s consolidated revenue, turned profitable in the quarter, with a net profit of Rs 29 crore after making a loss of Rs 49 crore in the September quarter.

Key takeaway
The key takeaway, however, were the increases in margins for SMR, which makes rearview mirrors. SMR’s margins for the quarter were up 300 basis points over the year-ago period to 10 per cent.

Higher capacity utilisation at both the foreign subsidiaries buoyed consolidated margins by 200 basis points to 9.6 per cent.

Margins at SMP, which makes plastic parts, were up 190 basis points year-on-year to 5.9 per cent. The performance of the standalone Indian company, however, was hit by a slowdown in automobile  sales, with revenue growing four per cent year-on-year. Margins at 20 per cent year-on-year were flat.

Higher operational performance reflected on the consolidated net profit, which was up 142 per cent year-on-year to Rs 250 crore. Adjusted for foreign exchange losses, that was up 33 per cent to Rs 223 crore.

The December quarter performance is likely to continue in the next one, with an order book of euro 6 billion and a strong product pipeline of global car makers, including its key customers Audi, Volkswagon and Hyundai.

Yaresh Kothari of Angel Broking has a positive outlook on the company, supported by sharp improvement in its operating performance helped by its strategy of increasing the content for every car, improvement in utilisation levels at the new plants and profitability-improvement measures at SMP.

With earnings before interest, taxes, depreciation and amortisation (Ebidta) over the nine months ended December at Rs 2,071 crore higher than Ebidta for the financial year 2013 and net debt at Rs 4,436 crore, the company’s debt is comfortable, says G N Gauba, the chief financial officer. The company pays about Rs 250 crore in interest annually. While the company is looking at reducing debt (Rs 136 crore of reduction in the December quarter over the previous one), further reduction is likely to be gradual, given ongoing capital expenditure on international factories. For financial year 2014, the company has an expenditure plan of Rs 1,100 crore.