How was the quarter gone by for you in the India business, especially on the margin front and even the global business? Margin has been a key pressure point. When do you expect the margins to bounce back?
Last quarter was much better than the year before but May was a write off in India because of urgency on oxygen and the industry tried to support the needs of the people. Similar circumstances were there in Europe and in the US. Each and every plant was trying to keep up with the changing demand or the needs of the customers because of shortages. But overall, just two months of the quarter were really affected. I believe that this particular thing might continue for another quarter or so. This quarter, we will have the pandemic in Europe. We have the holidays in August and so that comes in.
But under these circumstances, demand continues to be very robust. We have huge requests from the customers to move into a situation where we can fulfil their demands. So, India was hit a bit but otherwise we have to be on our toes and keep adjusting to customer needs. But the good news for me is that the demand is very robust.
What is the outlook on global sales? What according to you are the challenges and opportunities in terms of growth for this fiscal?
There will be uncertainty because we really do not know what is going to cause a disruption. But the semiconductor shortage is happening globally and also in different parts of the globe, different challenges are emerging. But overall, our teams have been very attuned to exactly what the customer wants and has delivered on that basis. If the demand is good, definitely customers are going to produce that much and we will be that much better off. So, yes it is a challenging, ever changing situation but we are geared to take care of it.
Your net debt has increased to about Rs 6,158 crore on a sequential basis, because of higher working capital requirements. In the previous quarters, you tried to repay your debt. What is the near term outlook on your debt levels? Can we see it inching higher in Q2 too?
Debt presents a very interesting situation. The net debt to EBITDA has come down while in real terms it appears that the debt has gone up. I do not think you should take too much notice of that. I believe it is because of the uncertainty that the plants are trying to keep some more stocks and so the working capital has gone up a bit. We do not worry too much about it but overall our thinking is very clear. Unless we do an acquisition, all the debt definitely has to go towards zero and we must sit on free cash. That’s what Motherson wants to do going ahead.
What about the SMR vertical? You have managed to hold margins in excess of 11%. What is the outlook here going forward?
SMRPBV and most of our sales outside India are holding very well. One good thing is that we are supplying more to the upper end models and the car makers generally are diverting the surprise so that they do not get hit there as it offers them better margins. Motherson’s business is more related to the higher models and in that sense, we are in a lucky spot. Of course, there is the holiday period in August in Europe. There are certain signs that the car makers are trying to extend holidays by a week or two.
The same is happening in the truck industry also. Other than those challenges, this quarter should be much better than what is being anticipated by people. I am keeping our fingers crossed that there is no sudden disruption but yes, this quarter will be affected by the August holidays. Otherwise, the demand is very strong.
When do you expect commodity costs to cool down? That has been a pain point for your margins.
There is a lag of three or six months depending upon the customer and the geography and it definitely shows an impact on our results. But three months or six months later, you will see there is a payback. We do not think much about it. But remember, in spite of that, we are still giving a very positive result to the shareholders.
What is the situation on green fields?
Green fields have done very well. Their contribution has reduced the impact on others and so we are pleased with that. They are very stable and are doing very well. We do not even look at them as green fields, we look at them as normal plants. They are doing very well.
What is the plant efficiency and the production levels that you are operating at currently?
The key thing is to understand that one has to be on one’s toes to appreciate what the customer is going through and to help him to solve his issues and to keep his production on the higher side. So kudos to the work associates of Motherson, who are working in this particular environment. We have to change very fast. Keeping that in mind, I think we have done a great job and yes, the customer appreciates that very much.
They have to look at a lot of things and tier-3, tier-4 customers have issues but we all have to work together to solve the problems and keep the plants running everywhere. Under the circumstances, it was a phenomenal job.
In the last quarter you highlighted how EVs are forming a big chunk of your order book now. How has the momentum been in this quarter and what is the new orders’ perspective?
Terrific improvement is on way as many of the car makers are already advising that they are going to shift towards electric vehicles. We are enthused because the order book will also show a positive trend but three months is too short a period for us to keep giving guidance . However, if the market wants guidance every three months, we can give that too. But yes, it is all on the positive side, doing very well.
