Motherson Sumi Wiring India Ltd

NSE:MSUMI

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of Motherson Sumi Wiring India Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. V.C. Sehgal. Thank you, and over to you, sir.

[Vivek Sehgal, executive]

Thank you very much. Good day, everybody. Welcome you to the conference call of Motherson Sumi Wiring Systems Limited. I'm pleased to deliver the results, the hard work of our team members and the highest ever quarterly revenue, quarterly revenue has been cheap. Our EBITDA also is the highest ever. We are still a debt-free company, and I'm sure you would have a lot of questions.

So I would hand it back to the moderator to facilitate the same. Thank you very much.

[Operator]

[Operator Instructions] The first question is from the line of Jinesh Gandhi from Ambit Capital.

[Jinesh Gandhi, analyst]

Congrats on good set of numbers. A couple of questions from my side. One is would you be able to share more details with respect to what has led to such a strong top line growth, especially considering a weaker operating industry that way? So in that context, is there any boost of copper price pass-through which would have come through? Or if there is any more beyond that? So that's the first question.

And second question is on CapEx as well. If you can talk about what kind of CapEx are we looking for FY '25 as well, considering that you have commented about expanding capacities to support customer expansion plan? So these are my 2 questions.

[Vivek Sehgal, executive]

Thanks, Jinesh. Anurag, can you take the 2 questions, please?

[Anurag Gahlot, executive]

Right, sir. Jineshji, regarding the strong revenues you are talking about, we have to understand one thing that our customers are choosing the feature-rich models. And hence, the upgrade is happening. And this means more content of wiring harness in the car, which is good for us. So MSWIL always get benefited as cost of the sales are dependent on these feature-rich models. So hence, higher the model, the higher the sales for MSWIL. So that's what you are seeing that growth is substantial and promising.

On your second question on CapEx. In this financial year, we -- as we already explained that it is approximately INR 125 crores plus/minus. And for next financial year, still the working is going on. But yes, there are a few expansion plan also, which will be a part of the next year's CapEx, and we can discuss this maybe in our next quarterly update.

[Jinesh Gandhi, analyst]

Sure, sure. So just a follow-up on the revenue growth. So there is not material benefit of higher earning cost pass-through in this quarter. Is that a fair understanding?

[Anurag Gahlot, executive]

Sorry, can you repeat the question, Jineshji, please?

[Jinesh Gandhi, analyst]

So considering that there is usually a lag pass-through of copper prices and copper prices were higher in previous quarters. So is there any benefit of copper price pass-through, which also supported revenue growth. Is that a material factor?

[Anurag Gahlot, executive]

There is no as such impact of that because it's a clear pass-through of copper. So there is no impact of that on to these numbers.

[Operator]

The next question is from the line of Raghunandhan N. L. from Nuvama Research.

[Raghunandhan N. L., analyst]

Congratulations on stellar numbers. Sir, on my questions. Firstly, continuing on the revenue growth, compared to single-digit growth of industry Y-o-Y, we have done 26% growth. In terms of revenue, there are 3 parts. One is the underlying industry growth. Second would be the market share gains, if at all, third would be the content per vehicle increasing. So any color you can give in terms of whether this entire outperformance versus the industry was mainly due to content per vehicle?

And would it be possible to break the revenue growth into volume growth and value growth?

[Vivek Sehgal, executive]

Pankaj, I think you and Anurag should answer this question. It is very difficult to explain that we don't supply parts at a fixed price rate or something. As the requirements of the customers go up, the value goes up of the wiring harnesses also because more features are requested. So maybe you can help in Raghunandhan on understanding.

[Pankaj Mital, executive]

So well, we don't have this kind of a split, but as Anurag explained, that as we would have seen in the market that the kind of vehicles which are selling today, they have more features, apart from that, also it showcases that the customer has made MSWIL partner to progress with and consider it as the most preferred partner with them.

So in all segments in which the company has been working together with the customers have been developing new products and bringing in solutions. So it's a reflection of that proximity and working together with the customers.

[Raghunandhan N. L., analyst]

Understood. The new capacities, which company has put us at Chennai, Pune, for wiring harnesses and -- including high voltage, could the utilization levels be high at those facilities? The press release indicates that additional capacities are required to meet customer requirements. So just a sense in terms of how that ramp-up is happening and what are the additional expansion plans.

[Anurag Gahlot, executive]

Okay. Raghunandhanji, obviously, these capacities on the new plants, they are already reaching to a level. And these are also capacities are taking care for the future order as well. And on discussing that matter also, we are saying that whatever the future expansions or future orders are coming up, we are also having the expansion further also in other places also as well. So as you know, that we have a rule of -- as soon as we are touching to the 80% of our capacity, we started doing the expansion. So it's already on the cards.

[Raghunandhan N. L., analyst]

Got it, sir. This is helpful. And sir, like in earlier quarter, you had indicated that share of electric in electric vehicle and revenue was around 3%, 4%. Considering ramp-up in your high-voltage harness capacities, would the contribution in revenues have gone up now? How would you see the expectations ahead?

[Anurag Gahlot, executive]

If you see the overall the revenue has also increased and so the EV ratio what we are talking about has also increased in the same way. So -- what you have suggested. So it sits in the same numbers. And I think we are expecting because a lot of new models are also coming in the market. So we are seeing a positive response there.

[Raghunandhan N. L., analyst]

And lastly, sir, on the EV wiring harness, given that it's a newer category, how would be the level of imports or bought out components? And can you provide some color on your localization efforts?

[Vivek Sehgal, executive]

We don't normally give this thing, but Anurag, can you and Pankaj, can you give some kind of color on this?

[Pankaj Mital, executive]

Well, see, as time is passing and more progression is happening and the stabilization of the designs has taken place, the local content is getting increased. So that's what I would say. So we have localized a lot of parts. But yet, still, there are import content as well because on some of the connections, the import content is still there. And with the customers, we have a plan in place as to how we work together to find solutions on localization as the designs get more and more stabilized.

[Vivek Sehgal, executive]

Pankaj, I think if you advise them on the new wire plant for electric vehicles and high voltage harness, it might...

[Pankaj Mital, executive]

So the company has already localized and providing solutions on the CCS2 connectors also the charging connectors. It's also setting up a new facility for -- as a group to support on the new range of electric wires which are as per the global standards because as the customers move on towards that, both the shielded and non-shielded XLP and silicon cables. So all those kinds of things are in place together with the customers to take care of the ongoing requirements and launches of new models.

[Operator]

The next question is from the line of Kapil Singh from Nomura.

[Kapil Singh, analyst]

Congratulations on a strong performance. Firstly, I wanted to check when you look at the new orders that are coming for next 1 or 2 years, there will be good visibility. Is the content per vehicle still continuing to rise at the same pace, more of a qualitative kind of view you can give and some of the features, et cetera, which you are seeing could build upon where we are today?

[Vivek Sehgal, executive]

I think this company is going to be focused on wiring harnesses and all that, but I can't talk about the other company. So Pankaj, I think we will stay focused on wiring harness and taking care of the needs of the customers as far as that for that, whatever we have to do, we will do. Motherson, as you might have already seen is a debt-free company. So they have all the technologies available through Sumitomo San.

So I'm sure we won't be bereft of any need. And really, we have the land, we have the money, we have everything and the collaborators are very keen also. Our customers are talking about big numbers. So definitely, we would be spending our time and then working together with the customer, as Pankaj said.

[Kapil Singh, analyst]

Sure, sir, the question was from wire harness perspective only in terms of feature additions that if you are seeing continue, when you look at the model cycle for next 1 or 2 years, that is what I was actually asking.

[Vivek Sehgal, executive]

Okay. Pankaj, did you hear it? You can talk about it?

[Pankaj Mital, executive]

Yes, Kapilji, the answer is yes. That we do see this direction is still ongoing of features additions, yes.

[Kapil Singh, analyst]

Okay. Great. And just one more question. We have seen sequentially good margin expansion as well, whereas revenue level if you see in Q2 and Q3 is fairly similar. So could you talk through the factors what has helped this quarter?

[Vivek Sehgal, executive]

Anurag, Jogenderji or...

[Anurag Gahlot, executive]

Right, sir. Kapilji, the -- when you're talking about the EBITDA or you're talking about the revenue figures, you will see that in the quarter 3 also, we have the customer closures -- block closure. On top of that, you will see that instead of only doing this closure still we are able to beat our Q2 revenue figures.

So Q3 is generally remained weak as we have seen in the past. But this time, as I explained to the earlier question also that because of these feature-rich models, which are selling and which is a very benefit for MSWIL is helping us to bring us to that level.

[Kapil Singh, analyst]

So Anurag sir, this improvement in raw materials sales is largely a reflection of better mix of models selling. Is that the right way to understand?

[Anurag Gahlot, executive]

Yes. Sorry.

[Vivek Sehgal, executive]

Go ahead, go ahead.

[Anurag Gahlot, executive]

Yes. RMC is directly, Kapilji is a product mix, and it's difficult to compare it from one quarter to another quarter. So as you rightly said, it's because of the product mix only.

[Vivek Sehgal, executive]

I would just add one thing that nowadays, the guys who are buying the cars are really looking for a feature-rich. You see, the more the features, the more the wiring harness price goes up because that many more facilities have to be added in the car and the wiring harness.

[Operator]

[Operator Instructions] The next question is from the line of Nishant Vass from 360 ONE Asset Management.

[Nishant Vass, analyst]

Congratulations on good numbers. Sir, just on a directional standpoint to pick your brains on -- in terms of the new programs when you guys had indicated early part of this year in terms of your new program wins on both traditional vehicles as well as the new energy vehicles. But are you guys happy with your progress just to understand and update from how customers are reacting to your utilization plans on the new energy vehicle side as well as the newer, let's say, the newer content increases vis-a-vis, let's say, relative competitive positioning? Are you guys happy in terms of how you're progressing? What's the landscape? Just to give -- get some update on that?

[Vivek Sehgal, executive]

Well, it's rather my view in Europe and in U.S., we are seeing the electric vehicles are not doing so well. But it's very good that in India, they are doing very well. So I think it's a matter of the cars, the car makers and how they are performing it over there. But I think there's been a clear thinking in Motherson that we have to perform exactly as how the customers want us to.

So the customers are going more for electric this thing, we are absolutely ready for that. And for ICE engines, the existing engines, which are available on the cars, we are absolutely ready. In fact, we are seeing a lot of thing in the customer. They want us to be ready for both the things. And as and when a company is modeled as well, we go holistic on that.

And for any reason, we do do well, we are ready for the alternate also because car makers definitely want that flexibility with the suppliers. So I think the key this thing from our side is we are ready for either way. But for whatever it's worth. Pankaj, do you want to add something or Vaaman or Anurag, do you want to add something?

[Pankaj Mital, executive]

That's right, sir. That's the kind of trends which we are seeing. And as of now, this is how it's operating in the Indian market. And the pull has been there for the electric vehicles. Of course, the intensity could have been even higher, but slowly inching up. So we are exactly working with the customers, both on the EV, non-EV and any kind of fuels, which they want to use all kinds of powertrains, and we are fully embedded with them and working very closely for all kinds of developments.

[Operator]

[Operator Instructions] The next question is from the line of Kapil Singh from Nomura.

[Kapil Singh, analyst]

Just one follow-up. If you could also talk about what kind of progress are we seeing in segments other than passenger vehicles for electric vehicles, for example, commercial vehicles, buses or 2-wheelers? Are we seeing a good progress for the market as well as for the company?

[Vivek Sehgal, executive]

Anurag?

[Anurag Gahlot, executive]

Yes. Kapilji, we are already available in all the segments, whether we talk about passenger vehicle, 2-wheeler, commercial vehicle, buses. So -- and there are 2 type of customers also. There are one established customer and a next-gen customer. So we are also working with the next-gen customers also. So we -- the spread is to complete the whole market. We are supplying to all the segments as well as we are working very closely with the customer on the new upcoming programs.

[Kapil Singh, analyst]

Okay. And are we seeing the same type of pull that they are talking about in case of passenger vehicles in these segments also?

[Pankaj Mital, executive]

This is Pankaj. I think we would say that it is mixed, of course, there has been a pull in the 2-wheeler market to an extent, there has been a pull with the buses, but these are all driven by some of the tenders and in some places on their own. You don't see so much of a pull on the heavy-duty trucks, but more on the smaller commercial vehicles.

[Operator]

The next question is from the line of Joseph George from IIFL.

[Joseph George, analyst]

Congratulations on a great quarter. So I've 2 questions. One on the 2-wheeler industry. So historically, you've had a much higher market share in the passenger car wiring harnesses compared to 2-wheelers wiring harnesses, you may correct me if I'm wrong. And as the understanding was that with the shift to BS-VI et cetera, there was a strong opportunity for you to increase the 2-wheeler market. Can you give some color on how that has panned out? Whether the market share gains in 2-wheelers has played out strongly over the last 2, 3 years and how it's trending?

[Vivek Sehgal, executive]

Well, I think that needs some correction. I think we've never told the market that we are not in any segment. In fact, we are off to the highway vehicles, trucks whether 2-wheelers, 3-wheelers, name the particular thing Motherson has been very, very focused on every segment. So this thinking that we were only more focused on the car is a big anomaly.

I think not just in India, but even outside, we are very strong in the 2-wheelers, 4-wheelers, 6-wheelers, 30-wheelers, whatever wheelers, we are okay with that. But Pankaj, Anurag, if you can answer more specifically what he's trying to ask.

[Pankaj Mital, executive]

Yes. I think what Mr. George, I think you are referring to the discussions that the Euro 6 happened, the 2-wheeler went through a very big change and the value of the -- or the revenue content became bigger. So that's right. So today, the content-wise, 2-wheeler content has gone up, and it's there like what we talked earlier.

So of course, we have never looked at the business as a share of the market or something like that, but our closeness with all the customers continue, and we continue to support them in a big way on the 2-wheeler side as well as Mr. Sehgal mentioned, that we are supporting our customers on every segment.

[Joseph George, analyst]

Understood, sir. And the second question that I had was in relation to the factors that impact margins in the form of the inflation or JPY INR exchange rate et cetera. So in the past presentation, you have mentioned movement in, for example, copper being unfavorable movement in JPY becoming unfavorable -- being unfavorable, et cetera.

So what I wanted to understand was, are these 2 factors, copper and JPY of pass-through with majority of the customers? Or is it not?

[Anurag Gahlot, executive]

Anurag this side. Yes, Mr. George, you are right. It's a straight pass-through arrangement with the customers on both.

[Joseph George, analyst]

Okay. So then why is it that in the past PPTs -- I was running through some of the past PPTs, these have been mentioned as explanations or causes for impact on margins, et cetera. Just -- is it because of the lag impact?

[Pankaj Mital, executive]

Yes, yes. That's right. There will always be a lag because with some, it will be a quarterly adjustment of the past or 6 monthly. So there are different contracts, but they're all pass-through.

[Operator]

[Operator Instructions] The next question is from the line of Avish from Chanakya Capital Services Private Limited.

[Unknown Analyst]

Congratulations for the great set of numbers. Sir, I just wanted to ask that I recently came across an article, in which Tesla has patented a 48-watt architecture cable which will reduce the wiring by 77% and copper by 50%. So going forward, how do you see this impacting our business? And what do we forecast going ahead?

[Vivek Sehgal, executive]

Look, these articles, these are interesting things that's happening. When we were starting the wiring harness business way back in 1984, '85, there was a Nissan car that was made in which wiring harness was actually on the doors and the body of the car. And I was thinking, my God, I'm just starting the wiring harness business and here, Nissan is going to have laid out cables, printed cables on the body.

And my Japanese guru then told me, he said, "No, no worry. They keep saying all these things. But eventually, when it comes to cost, the wiring harness is the cheapest." Because in design change in wiring harnesses is a hell of a lot of design changes. New products, new components are coming. New subassemblies and things are coming. And the easiest thing to change is the wiring harness.

So yes, it's definitely all the cars that people are trying to find somehow that they can automate and they can make it simpler. But believe me it has not happened up till now and very difficult to happen because just like the nervous system in your human body. Each body is different. And -- but yes, people are trying. We are open to that. We have a lot of companies which are looking at ways and means by which even we can, if we can, do it where we try and do it. So yes, you can read articles but I don't think it will happen tomorrow morning.

[Operator]

[Operator Instructions] As there no further questions, I now hand the conference over to Mr. V.C. Sehgal for his closing comments.

[Vivek Sehgal, executive]

Thanks a lot. I hope we could answer all your questions. Just to leave you with 2 thoughts. One, people are talking about commercial vehicles and all that. I was with the customer who had said that a full tank of gas, the customer can easily cross about 4,000 -- 3,500, 4,000 kilometers. But when they come to charging and all that, then they're talking about 1/10 of that. So be ready for a lot of trucks waiting for charging and all that or we have to wait till the charging because that battery becomes better and the range becomes better.

So while it is a thing that has been concerning all my friends in the business world that what will happen, but please believe me change will not be so fast. There's a lot of considerations that we all have to take. But the good news is the people are going up to value chain. They are getting into better, bigger vehicles.

So my faith in automotive space, even mobile. So all I can say is we had a great team, which has done a great job. So have a good safe weekend and week ahead. Thank you very much. Bye-bye.

[Operator]

Thank you, members of the management team. Ladies and gentlemen, on behalf of Motherson Sumi Wiring India Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.