In an interview to CNBC-TV18, Vivek Chaand Sehgal, Chairman of Motherson Sumi Systems spoke about the results and his outlook for the company.
Below is the verbatim transcript of the interview.
Anuj: The consolidated margins have been below estimates, also the Samvardhana Motherson Peguform (SMP) business margins. Can you elaborate on the same for us?
A: The SMP’s margin may appear to be a bit on the lower side but that is because one of the biggest plants of SMP has just been launched, that is the Zitlaltepec or the Audi plant for SMP in Mexico is not ramping up to full load. We are very excited by this particular thing because this was one plant which was being commissioned for the last almost year and a half to two years. So it is coming into fructification.
In fact, the good news is that in the next 18 months SMP will add almost USD 1 billion plus to the topline because of three new plants that are coming up. One is Zitlaltepec, in November we will start the Kecskemét plant which is in Hungary and by next year, approximately, September-October, we will be starting the Tuscaloosa, Alabama plant.
So yes, SMP may be looking at some raised expenditures because of the new plants that are coming, but we are very confirmed that overall, the position of SMP will be very strong and they will add almost 40 percent to their turnover. So the sort of costs are only one-time costs. We are not worried about it.
Surabhi: You have given us an outlook on what they will add at the topline level, but looking at the product profile, can you tell us what will happen to overall margins in FY18 with all these plants coming on stream?
A: Normally, we do not guide on margins for particular companies or plants, but all I can tell you is just look at the performance of SMP even in this kind of a situation. Their revenues are up by 16 percent and their earnings before interest, taxes, depreciation and amortisation (EBITDA) is up by 12 percent. So surely, your guess is as good as mine or better.
Anuj: Will there be an increase in debt with the new capacity coming on stream?
A: I am absolutely sure that debt is very comfortable. Even now, we are at 1.3 times on EBITDA. So it is not something to worry about. The final capital expenditure (capex) cycles are happening for these three plants in SMP and somewhere in the wiring on the site and things like that. I think in the coming six months to a year, you will start to see the capex slow down a bit till we set up new plants or get new orders for new plants and all that. I think debt will definitely have only one way to go and that is going down.
The other thing that we have done is we have repaid almost 500 million in July, which is probably not showing in this quarter yet. The interest cost has been brought down from 4.1 percent to approximately 1.8 percent. So, overall the interest cost is down dramatically, less than half.
Surabhi: Earlier you did tell us that North America is seeing a little bit of traction. So can you put a number to that? Give us some sense on the geographical performance specifically there?
A: The geographies of Europe, America and Asia are doing very well. The South Americas is still a bit weak but Mexico is doing phenomenally well, but South America is on the weaker side. But other than that, every geography, we are doing phenomenally well. Even the Indian standalone, if you have noticed, we have grown by almost 19 percent in the revenues and EBITDA and profit after tax (PAT) is up 33 percent. So other than South America, all geographies are doing phenomenally well.
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