Q2 Results: Motherson Sumi Profit Dips, Margins Contract Over Startup Costs

Motherson Sumi Systems Ltd.’s profit for the July-September period missed estimates as the company continues to incur startup costs.

Profit dipped 15 percent year-on-year to Rs 371 crore as the company reported a startup cost—or the expenses incurred due to setting up of new plants—of Rs 166 crore for the September-ended quarter. Yet, Chairman Vivek Chaand Sehgal promised better numbers from the January quarter. “The current quarter will be the last one where there will be a startup cost since we are filling up the order book with what the customers are asking us to do.”

The company, which counts Volkswagen, Daimler and BMW groups as clients, expects the launch of car models in January to reflect the real impact of full production “getting absorbed into the startup costs”.

The company’s consolidated operating margin saw a 50-basis-point contraction to 8.6 percent for the September-ended quarter, and on a standalone basis, Ebitda fell by nearly Rs 20 crore, year-on-year. “...Copper (prices) and (appreciation of the) dollar have had an impact on the standalone portion,” he told BloombergQuint in an interaction, adding that numbers would look much better by the end of the year.

Key Financial Highlights (YoY)

• Revenue rose 12.6 percent to Rs 15,105 crore, compared with the estimated Rs 14,810 crore.
• Ebitda up 6 percent at Rs 1,301 crore.
• Ebitda margin contracted 50 basis points to 8.6 percent.
• Order book stood at Rs. 1,64,315 crore at the Samvardhana Motherson Automotive Systems Group B.V level.

Key Takeaways:

• Fast change of automobile models and upgrades is excellent business for MSSL.
• The current quarter will be the last quarter where there will be a startup cost
• SMP subsidiary in Tuscalossa, U.S will contribute $400-450 million to the group’s revenue.
• The company opened 21 companies in the last three years at a profitable rate.