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Last Updated : Feb 22, 2018 05:49 PM IST | Source: CNBC-TV18

Currently focusing on return on capital employed, says Motherson Sumi

Motherson Sumi Systems seen a bit of selling pressure all through the last couple of weeks. The street fears cut in earnings estimates will weigh on the stock. In an interview to CNBC-TV, Vivek Chaand Sehgal, Chairman of the company said that he do not see any weakness on the sales front.

CNBC TV18 @moneycontrolcom

Motherson Sumi Systems seen a bit of selling pressure all through the last couple of weeks. The street fears cut in earnings estimates will weigh on the stock. In an interview to CNBC-TV, Vivek Chaand Sehgal, Chairman of the company said that he do not see any weakness on the sales front.

However, some weakness likely in certain small sectors, he added.

Talking about cost, he said we don't monitor costs on a quarter-to-quarter basis.

We are currently focusing on return on capital employed (RoCe), he said.

Below is the verbatim transcript of the interview.

Anuj: The stock is down 15 percent in six days and the concern is that the demand weakness in the European and the US region will impact the overall earnings for the company. Would that be a genuine concern?

A: First of all I don’t see any weakness on the sales side. Last quarter we had 31 percent, which had grown on sales so I wonder which weakness are we talking about. It could be in certain small sectors or something like that but I have no idea of that.

Surabhi: The SMR business margins were hit due to the start-up cost and higher raw material cost as well. Can you tell if these problems have been taken care of or could they persist in the near term?

A: No, there is a three months lag between the pass on of raw material and all that between the car makers and ourselves. In fact, we have taken the brunt of it in the last quarter and as far as our numbers are concerned they are pretty good. But there is a three month, four months, six months in some cases time between us getting the money back. But before the March 31, definitely we would have tried to close down everything because a year financially is changing.

Anuj: Are the start-up cost a one quarter thing or can we expect them to crop up in next quarter as wells?

A: I think definitely in this quarter and the next quarter there might be something but it is important to understand that we are just giving you that number, it has already been taken out from our margins. We have already reduced number and we are just given the look this is the start-up cost and this is happening because you know plants are coming up of fructification and have been in different stages of how these ends. Three of our biggest plants are going to fructification at the same time. I think that is something which might have a dip here and there. But we are never a quarter and quarter company, we have been saying it for the last 15 years.

Surabhi: Just to go back to your point you said it is had already been taken out of the margin, I just wanted to understand that so because of these start-up cost, does it means that margins won’t dip any further or could there still be pressure on margins?

A: We have already said that the capex is coming into the end of the capex cycle because we have got orders. The last time we had guided you that about Euro 15.2 billion worth on new orders. So, the plants have already come in for that. Generally, it should be on the lower side, but yes, the advance planning and the quality approved and all those things will continue and hence there is going to be a slight maybe a little bit of start-up cost might be there but I think by and large effect is already over.

Anuj: On Samvardhana Motherson Peguform (SMP) please guide us, if there is potential for double digit margins since you maintain that margins can be scaled up?

A: We never guide for margins. Normally, we are focusing on return on capital employed (ROCE) and the reason for that is think about it- we have three plants - in Mexico, we have new plant in Kecskemet in Hungary and we have new plant coming up, in April we will inaugurate it is coming up in Tuscaloosa in Alabama all three of them we will add Euro 1 billion to the topline of our growth. So, these are big plants they have capability to generate better profitability once they are stable. So, think about it just three plants will add a billion to SMP - it is approximately doing 2 some billion just now.

About a 40 percent growth coming because of this there plants. Motherson has not seen such a big plants so coming together so that is why a little bit people are getting a bit worried about it. We are not worried at all because from our side it is under control. There is no panic, no nothing. It is very good.

Surabhi: Samvardhana Motherson Reflectec (SMR) business revenues have fallen that is because of foreign exchange translation losses is that something to expect in the coming quarters as well?

A: These are translation losses, we don’t worry too much about it. There are two aspects - one is our customers has impacted in china because of different reasons, so that is one. Second thing this euro-dollar thing, euro has become very stronger. Lot of our sales in US which is the largest market at the moment for us is impacted, but the profitability is up and that makes a difference. At the end of that day, the sales and all that we are 100 percent OEM, so whatever the sales are our profit become better. That is what is very heartening for us. We think that is what distinguishes us from the boys.

Anuj: Will you have to take up lot of capex to execute the new orders?

A: Most of the capex are through. Next quarter – we will tell you what the order situation is.
First Published on Feb 22, 2018 02:37 pm

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