Communication from MSSL has been excellent during such times. From press release given below
“MSSL has been intimated by its parent, Samvardhana Motherson International Limited (“SAMIL”) that part of its debt has been repaid as well and subsequently 30.5 mm MSSL shares are expected to be released from pledge during this week. It intends to pay back more facilities from internal accruals and dividends going forward.”
Some acquisition, more liquidity, plants operational in China.
MSSL stock price has witnessed the downfall for more than a year now, even before the COVID-19 crisis began to intensify into the broader geographies apart from China. That could be attributed to its exposure to developed markets such as Europe & UK where the macroeconomic situation was already grim and auto sales were affected by uncertainties arising out of factors such as Brexit and stringent regulatory frameworks. This was reflected as a subdued revenue collection for Motherson Sumi in the last few quarters :
To make things worse, this Pandemic must have struck at the wrong time for MSSL as the situation in Europe & UK (from where it is generating 40% of its sales) getting worse and economic activities becoming standstill. The massive disruption in demand due to prolonged lockdown & weakened consumer sentiment to go along with that, recovery certainly seems to be a few quarters away. Thus in such an unprecedented situation, things would have been much safer for MSSL had it been burdened with a minimal amount of debt. But it doesn’t seem so with its debt-to equity-ratio still at a relatively higher level of 1.12 as evident from the following chart :
In times of economic downturns, investors give preference to the minimally indebted companies, which have more chances of coming out of crisis situations faster & stronger. But as we can see, MSSL has fueled its growth(acquisition spree over the years) with debt. However, they haven’t been able to reduce their exposure to debt considerably which would have given investors a breathing space, particularly in times of this crisis situation. So to derive a long term investment perspective, it needs to be seen that how MSSL responds to the situation of the much possible environment of slower recovery in the sector.
They have consistently debt for last 10 years as far as i know. Still they manage to deliver to shareholders. What exactly they are doing better so that that attribute can be checked in other companies with large debts as the investor community catogorically avoids all companies with debt.
“The proposed reorganisation aims to simplify group structure and enable MSSL shareholders to benefit through 100 per cent stake in SMRP BV; create separate independent entity for DWH business with focused approach on this business; align interest of all stakeholders by bringing all auto component and allied businesses in SAMIL under listed entity; create strong platforms for growth,” the firm said.
Analysts at ICICI Securities believe the SAMIL acquisition is on the relatively expensive side compared to MSSL’s own valuations. Moreover, 43 per cent equity dilution for the same (issue of 136 crore new shares on existing base of 316 crore shares) would be EPS dilutive. However, the deal would not entail any cash outflow, it said.
Some of the points which comes to my mind about the recent restructuring deal and scenario going forward:
Here is an analysis from cnbctv which is concerning, here is the link
Some interesting insights from Mr. Kunal Malani (Head Of Strategy & M&A, MSSL), regarding recent restructuring announcement of Motherson Sumi.
https://youtu.be/aIOLEDYjUxA
Hi, can you please provide a fresh outlook on this stock? I am a rookie investor but invested in the stock mainly because I met a member of their Leadership team in UK and he shared his vision to invest in IOT services(capture information from data of the devises they manufacture, process and convert that into meaningful information/action) as a strategy for future. We discussed at length on this strategy, came back home and bought some stocks when they were around Rs113. They are currently doing 139 as per last trade price but not sure if its just sheer luck or their is still meat in the stock to hang on!
I had a question for everyone tracking this company. The guidance for 2015-20 was 18 billion dollars revenue but they managed to achieve only 8.9 billion and blamed covid-19 for this massive shortfall(src:AR). Covid has been around since maybe nov 19/oct 19 . Am I missing something major here ? Also I am not a huge fan of management, I find them really sly as numerous interviews with them on cnbc has shown(just my view).
Recent one being this Motherson Sumi Management On Its Ambitious 5-Year Target & FY21 Outlook | Bazaar Corporate Radar - YouTube
Guidance at the end of the day is guidance. One should keep one’s expectation in check and not beat up management too much on guidance. Especially in this case, where management is obsessively focused on long term ROCE. If management can not find something attractive enough to acquire, to justify long term ROCE target (40%), why should investors force him to do?
Motherson Mantra: Top Line Vanity, Bottom Line Sanity, Cash in bank Reality.
Even if we say that they have failed badly short of their target. Let us compare hard facts, till the FY 2019, excluding FY2020 for corona impact.
| Tables | 2015 | 2019 | CAGR |
|---|---|---|---|
| Sales | 34,661 | 63,523 | 16% |
| EPS | 2.9 | 5.11 | 15% |
| Dividend per share | 0.899 | 1.48 | 13% |
So company has delivered decent performance, not bad. One should understand that acquisitions can not be done in piecemeal approach to suit market’s expectations always.
I have been tracking the company actively since breakout of Covid. I am quite positively surprised by the sharp focus of management on communicating correctly and delivering to the point. They have been open about problems and challenges they face and what are they doing to solve the issue. Some example i would like to highlight:
Even if we go back over history, management had handled very tough times. With consistent communication and sharp focus to fulfill that commitment, they have been amply rewarded in past.
But hey who knows, past is just an indication of future, and not the exact future and they might be the crooks, market sometimes believe. But i don’t agree with that view.
I agree with your view point but guidance deviation in range of 50% doesn’t seem very appetizing for me. Also even though the sales CAGR was 16% , their OPM margins and FCF have been consistently falling. "Excluding acquisition " ROCE can always be made to appear path breaking for almost every organization but at some point the acquisitions should start contributing as was expected of them(for which I feel 5 years were sufficient).
Also they will be foraying into several other segments too , which I feel will further dampen the ROACE’s . I guess one needs to have a really long view and firm trust in management for this company.
I might appear to be a little harsh but I always tend to include only the best in my portfolios .
Anyways I will keep tracking them for time being and will need all the views I can gather from this forum. Thanks for the detailed exp. though 
Check this investors presentation for vision 2025, and at 47.00 mins, management answers guidance deviation of 2020. Hope this helps.
In my view this is no more just an auto industry play. I feel MSSL is turning into what Mohnish Pabrai calls an Apex Spawner. It has done amazing acquisitions in the past and I find the management very good at their job. (Mr Vivek Sehgal)
REASONS FOR VARIANT PERCEPTION OF SPAWNER :
They recently conveyed the msg that they are looking to cover more parts per vehicle by foraying and backward integrating into things like logisitics and supply.
Apart from this automotive side, company is entering into IT and consulting for manufacturing , healthcare and ed tech under the SAMIL brand.
Hoping that this perception plays out in the long run.
P.S. Spawner framework is from the latest talk of Mohnish Pabrai on his Youtube Channel
Disc : Invested at level of low 80s with a long term view.
Good read. Client wise revenue percentage breakup is given on this article
Motherson Sumi enters a JV with Marelli
Motherson Sumi Systems Limited acquires majority stake in CIM Tools Private Limited, forays into Aerospace
Motherson Sumi Systems Limited (MSSL), today announced the acquisition of a majority stake in CIM Tools Private Limited, one of the leading suppliers in the aerospace supply chain, based in Bengaluru, India. This milestone acquisition will mark MSSL’s entry into the aerospace industry.
MSSL will acquire 55% stake from the promoters of CIM Tools Private Limited (CIM). CIM in turn will hold 83% in Aero Treatment Private Limited (ATPL) and currently holds 49.99% in Lauak CIM Aerospace (JV with Lauak International, LCA). CIM, ATPL and LCA are hereinafter referred to as “CIM Group”.
The three founders, Mr Srikanth GS, Mr Umesh AS and Mr Vishwanath Deshpande, will retain 45% stake in CIM and will continue to drive further growth, in partnership with MSSL.
CIM has INR 15 Bn+ (USD 200 million+) cumulative booked business potential currently. It reported a proforma consolidated turnover of INR 2,031 Mn in FY20 and INR 1,296 Mn in FY21.
CIM is engaged in machining and sub-assembly of components for the aerospace industry. ATPL is a vertically integrated unit engaged in surface treatment of machined parts and LCA is engaged in hard metal machining.
MSSL’s entry into the aerospace segment is aligned with its growth strategy to venture into the non-automotive sectors as outlined in its five-year plan, Vision 2025.
The transaction will provide MSSL, access to a pedigreed customer base across the aerospace components supply chain along with specialised machining, treatment, and sub-assembly capabilities. The proposed transaction is expected to be closed within 3 months, subject to receipt of necessary approvals.
Commenting on the deal, Mr Vivek Chaand Sehgal, Chairman, Motherson said, “This acquisition is our first significant step towards growth in aerospace business. This is in line with our diversification strategy and will help us in strengthening our non-automotive business. This will be the 27th acquisition by Motherson, and we will continue to work towards adding more customers and products while serving diverse industries globally.”
Mr Srikanth G S, Mr Umesh A S and Mr Vishwanath Deshpande - The Promoters of CIM Tools Pvt. Ltd. said “We are delighted about the strategic partnership between CIM and Motherson. Both companies are aligned in their business objectives, vision, and philosophies. Together with the support of Motherson and established credentials of CIM Tools, we are confident that we will be able to offer a wider set of solutions to our customers, thus enhancing value for all stakeholders.”
