Conference call Highlights on recent crisis
- Plan on proposed de-merger: De-merger would go on as scheduled.
- Current status of production:
- SMP and SMR: Customers have announced plant shutdown. Europe is impacted. Car maker’s plant shutdowns have started. US plants are still running. Current plan of car maker’s is to shutdown plant for 15-30 days and if required extend it to 45 days. They can prepone some of the holidays coming in next week.
- Wiring harness (both domestic and outside): US not impacted much. Volume drop can happen though. But their plants running fine. China plants who were shutdown has come back now. Except one facility in China, all others (26 others) are working normally (with 70-80% workforce attendance). South America plants running. As long as OEM plants work, they would continue to operate. India operations running fine till now.
- Is there any stress on supplier side, vendor side, supply chain situation? Most of the components are coming from big companies like in wiring harness, supplies are from Sumitomo mostly, Polymers come from Reliance. So they are strong supplier. 90% of other child parts used to prepare module is made by MSSL. At the same time, there might be some issues here and there. Part of their 3CX15 has helped them because mostly they source locally, supply locally and procure locally. Hence reduced impact of supply side problem. Motherson sumi won’t fall short of OEM’s demand due to this. OEM might face issues due to other manufacturers. But if the plants are running, MSSL would do fine.
- Any credit stress? No banker approaching us for this issue.
- Liquidity issue of SMRPBV, if plants had to run on low utilization level? How are we placed on cash position? Have we arrangement to get additional credit line as and when required? Enough liquidity both on cash on balance sheet or the unused credit lines. Consider group for all such issue. Group will support SMRPBV, if at all required. Government is also coming up with support for this time.
- Will there be any breach of credit in dire situation? Will creditor take a lenient view in such scene? If required, both MSSL and SAMIL can repay then loan. We have enough cash
- SAMIL has share pledge of MSSL of about 6%. Vivek stressed that they can pay the debt now, if required.
- What Motherson is doing to ensure that once production starts after shutdown, that we don’t see 2nd round of infection? No case till now for MSSL employees.
- As stock price has significantly corrected, would you consider buy back? No buy back. We want to conserve the cash so that we could ensure smooth operations across the globe post this situation. Our share price had corrected significantly in last crisis, went down till 38 but we did good. So not worried about stock price.
- What is the worst case scenario you are considering? It is the length of the duration of the stoppage which we are thinking as worst case. Supply, Manpower and Financing are within our control, the problem is how long the customers (OEM) want to keep the plants shut down, that is the only issue. Fortunately as this was last year of our 5 year plan, we had done cash conserving from last year to increase ROCE at the end of 5 year plan. Also capex cycle has ended for us and so good financial cushion for us. We are expecting worst case plants to be shutdown for 30-45 days. Because of china example, all plants were shutdown and now they started again in a normal way. We repaid some of our loans as well, actively looking into cash position.
- Can there come any major off expenses due to this recent issues? Like increased expense and all? Mostly the impact on this Financial year should be muted, because plants are only closing now, with just 11 days left for year end. No further comments on March Numbers for now.
- There would be ways and means that OEM would try to cover this lost time of production, once the issue becomes normal.
- What would be the Capex in 2021? Not disclosed, but numbers would be way reduced as per current market situation. We had sufficient investment and the order book we have can be handled by existing plants. So not looking for much capex. Details at quarter end.
- We have a track record of acquiring company at great valuations at distressed time and this is very tough time. Comments on this front? Global valuations have come down dramatically and we are much better off as terms of valuation than a month ago. A lot of the companies need help and more than the companies the customers are telling us to go and have a talk with them. We are not giving up on the very clear target of 18 Billion with 40% ROCE. If ROCE is not there, we won’t do the acquisition.
- Any impact on the order book from OEM side in last 1 month? Noting as such.
- What can be the new trends emerging post crisis, do you see that export would go down and more local to local transactions would go up? Not actually due to this virus, but this issue has been present for some time due to Trump. Showing that production has to go local. Some importance given to local industry than export. It is better for MSSL because of local production. Had we had concentration in production in 10-15 plants, we had had huge issues. We will keep adapting whatever be the situation post this scenario.
- One of the thing Vivek has been mentioning throughout the call that there would be a rethink in the thought process of shared mobility which has been going around for some time. Even Diesel and petrol prices coming down to their lows, people might have second thoughts about a lot things. There is a lot of steam left in the business MSSL operates.