Expect 20 new operational plants by FY19: Motherson Sumi

Motherson Sumi Systems’ operating profit rose 14 percent, despite the steep appreciation in the euro to Rs 69-70 per euro against Rs 80-82 per euro last year.Speaking to CNBC-TV18, Vivek Chand Sehgal, Chairman of Motherson Sumi Systems says 12-13 percent of Motherson’s sales comes from India and the balance comes from Europe, and that strong performance in Europe has helped the company negate much of the adverse forex movements. “The Japanese Yen has depreciated against the rupee by about 20 percent, the copper has fallen by 11-12 percent, euro is down by 20 percent; so if you put all of those things into perspective, you will definitely see a pull down on the rupee terms because our euro numbers are fantastic, they are doing brilliantly well,” he says.On its European subsidiaries, he says that sales for Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP) together rose 25 percent in euro terms, he says.On expansion plans, he says 20 new plants will be operational by FY19. These plants will coupled with product mix will benefit the company, he adds.Below is the edited transcript of V Sehgal's interview with Anuj Singhal and Latha Venkatesh on CNBC-TV18. Anuj: The consolidated margins have come below street expectation, is it due to some translational losses, higher employee expenses or is there anything else?A: It is important for me to point out to you that I am not a party to the street’s expectation. Basically, Motherson’s board actually congratulated the team for phenomenal performance. One very important thing over here is that 12-13 percent of Motherson’s sales comes from India and the balance comes from Europe, so we have to present all our numbers in rupees, so definitely if you look at it the Japanese Yen has depreciated against the rupee by about 20 percent, the copper has fallen by 11-12 percent, euro is down by 20 percent, so if you put all of those things into perspective, you will definitely see a pull down on the rupee terms because our euro numbers are fantastic, they are doing brilliantly well. I am sure you will agree with that.So, in the consolidated thing it looks like our sales are up 12 percent, Earnings before interest, tax, depreciation and amortization (EBITDA) is up 14 percent, Profit before tax (PBT) is up 22 percent, profit after tax (PAT) is up 62 percent in spite of the Rs 25 crore extra that we have provided. So, if you put that into perspective, for last year the euro was sitting at about Rs 80-82 for one euro, today it is sitting at about Rs 69-70. So, if you put all that into perspective, I am sure you will find the gap between the expectations and the real numbers that Motherson is bringing up.Latha: We will take your point on that, if you add that Rs 25 crore, then you PAT would come closer to Rs 300 crore and the street estimates was Rs 306 crore, but the performance of the European subsidiaries, can you just detail that for us?A: Yes, it is a fantastic performance, think about it. As a collective listing Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP), together the sales are up in euro terms in real terms 25 percent. Our PBT is up 33 percent and our PAT is up 225 percent- that is the concerned share over there and Samvardhana Motherson Automotive System Group BV (SMRPBV) raised another USD 100 million euro to take care of the capex and the future borrowing at 3.7 percent per annum which is one of the lowest rates that any company can enjoy and that is for 10 years, it is a fixed rate of interest. We have also then accounted for the Rs 25 crore that we have spent just to get this particular loan in, so in every term the performance of the subsidiaries is exemplary. The mirror companies the sales are up 24 percent and EBITDA is up 22 percent. SMP the sales are up 25 percent and then the EBITDA is up 28 percent, in fact this it the first time that they have collectively- it is a new record, they have crossed a billion euro plus which they had crossed last quarter also, so it is phenomenal performance for both of them.Anuj: SMR margins though have fallen to 9 percent from 10.6 percent sequentially. Apart from currency issues, any other hiccups in SMR?A: No, none at all. In fact I am a bit surprised that you are comparing it sequentially because the last quarter was a full year quarter, so there are lot of other things that come in the last quarter and we have to compare it with the quarter-on-quarter (Q-o-Q), year-on-year (YoY). So, in that if you look at it, the real absolute number we have grown up from 27 million and the EBITDA is up 22 percent of that and the percentage of EBITDA has come down from 9.1 to 9 but that is negligible and we can’t really pursue every quarter bang on- there is a product-mix changing, some countries are going up, some are going down, China and Brazil are the concern but we are watching them closely and yet in spite of all the challenges globally, it is a phenomenal performance by the company. Latha: What definitely even on number wise looks very good is the improvement in SMP margins, came in at 5.8 versus 4.6, any reason why? A: Yes they have and that is the point that I am trying to make. We are not making cement that every day we are going to be talking the same product all the time, we are making different products – the car mix is changing, the car product-mix is changing.  So in those particular things it depends and plus the effect of SMP is that new plant is coming in, the sales have started, all those things are happening. In fact on September 18^th we will inaugurate one of our biggest plants in SMP. So, all of these particular things are coming in very well and it is a process, the whole year is up ahead of us, so there is going to be some very interesting new developments and improvements in what we are doing.

Anuj: Your other subsidiaries have shown strong performance, can you elaborate on them especially companies like Stoneridge wiring harness? A: What we have done is, like we did with SMP and SMR, we are looking at the entire wiring harness companies on a unit by unit basis and each unit is trying to improve than what they had done before and we can see very high morale, very high spirits, they are turning their own companies around, they are really enjoying this particular phenomena. So, while last year at this particular time most of the units were in a loss situation, at this particular moment each unit I am sure has done phenomenally better and that is why the results are so good.

Latha: Were there any fresh orders that you secured in the last quarter, how is the order position comparing with the rear ago same quarter? A: What we do is we will give you a guidance on our new orders booked in the next quarter, the half-yearly results. This time what we do is we give you what new plants we are setting up. We have added that to our presentation, so you can see that there are 20 new plants that are coming up- all coming up within the ’15-’16, going up to as far as ’18-’19, so that is the new thing that we do, six months we give you the plants, six months we give you the order book.