Motherson in top gear on strong operating performance

Higher capacity use and realisation should help improve margins

Automobile parts maker Motherson Sumi’s December quarter (Q3) show was in line with estimates. Consolidated revenue at Rs 10,514 crore was its highest ever for a quarter, versus expectation of Rs 10,700 crore. This was 13 per cent higher year over year, thanks to its performance abroad (subsidiaries SMR and SMP) and its Indian operations. Revenue from the two subsidiaries, which accounts for 86 per cent of consolidated sales, grew 12 per cent to Rs 9,061 crore over a year ago. Revenues from India were strong, up 24 per cent year on year.

The management said higher content per car and launch of new models resulted in India gains. 

Operating profit at Rs 1,109 crore was better than estimate of Rs 1,021 crore, and represents a year-on-year increase of 23 per cent. Tight control on costs, especially other expenses, helped improve operating profit and operating profit margin; the latter came in at 10.54 per cent or 80 basis points more than a year ago. Raw material costs rose 21 per cent over this period but did not impact margin since those are normally passed on to clients. 

Operating profit margin at the two subsidiaries came in at 7.8 per cent, 40 per cent higher than the December 2015 quarter. While SMR (Samvardhana Motherson Reflectec) margin improved by 100 basis points to 11.7 per cent, SMP (Samvardhana Motherson Peguform)’s margin gains were marginal at 10 basis points, largely on increased capacity use. Motherson Sumi is counting on new programmes and a leaner cost structure to improve margin. Further, a ramp-up in capacity use should boost profitability of the two subsidiaries. Good operating performance, coupled with higher other income (Rs 43 crore versus Rs 3 crore a year ago), helped Motherson post a net profit of Rs 416 crore (up 34 per cent year on year) versus expectations of Rs 395 crore. The stock, which hit a 52-week high of Rs 359 on Monday, shed the gains, closing a per cent lower at Rs 351, due to traders booking profits. The Street will keep an eye on the closure of a deal to acquire Finnish wiring harness maker PKC for Rs 4,000 crore, as well as the progress on the nine upcoming plants across the globe, three each in India and Hungary.