Strong show by Motherson's subsidiaries boosts margins, net profit

Revenues up 20% y-o-y to Rs 7,989 crore due to execution of orders at its subsidiaries, SMR and SMP as well as favourable currency movement, margins were higher on better product mix and higher cost efficiencies

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 revenues were up 20% year-on-year to Rs 7,989 crore due to execution of orders at its subsidiaries SMR and SMP as well as favourable currency movement, margins were higher on better product mix and higher cost efficiencies. The stock spurted 13% at the close of trading to end the day at Rs 203.75 on Friday.

SMP, which contributes about half of the consolidated revenues, turned profitable in the quarter with net profit of Rs 29 crore after making a loss in the September of Rs 49 crore. The key takeaway, however, were the spurt in margins for SMR, which makes rear view mirrors. Margins for the subsidiary went up 300 basis points over the year ago quarter to 10% and better capacity utilisation at both the overseas subsidiaries helped consolidated margins improve by 200 basis points to about 9.6%.

Margins at SMP, which makes plastic parts, were up 190 basis points year-on-year to 5.9%. The performance of the standalone Indian entity however was impacted by the slowdown in the auto sales with revenues growing at 4% year-on-year. Margins at 20% were flat on a year-on-year basis.

Good operational performance reflected on the consolidated net profit which was up 142% year-on-year to Rs 250 crore. Adjusted for forex losses, the same was up 33% to Rs 223 crore.

The performance is likely to continue in the coming quarter with a robust  order book of 6 billion euros and strong product pipeline of global car makers (Audi, Volkswagon, Hyundai among others) which are its key customers.

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

With Ebidta over a nine month period at Rs 2,071 crore which is more than the Ebidta for FY13 and net debt at Rs 4,436 crore, the debt situation is comfortable, says the company’s chief financial officer, G N Gauba. The company pays about Rs 250 crore in interest costs annually. While the company is looking at reducing debt (Rs 136 crore of reduction on a sequential basis in the December quarter), further reduction is likely to be gradual given the ongoing capex on international facilities. For FY14, the company has a capex of Rs 1,100 crore.