Sunday, August 9, 2015

Motherson Sumi Systems Limited - Annual Report Analysis - Part 3

Consolidated revenue has increased from Rs. 82 billion in Mar 2010 to Rs. 345 billion in Mar 2015, a CAGR of 33.2% over FY11- FY15. Its order book has increased from €7.2 billion in Mar 2014 to € 10.8 billion in Mar 2015. Motherson Sumi has consistently improved its revenue over past decade by expanding its product portfolio and geographic reach. Strong earnings acts as catalyst for rise in stock price.

During FY11- FY15, it registered average gross margin of 37%. Over the years, the Company has consistently improved its EBITDA margin by effective cost control measure, efficient supply sourcing and increased vertical integration.  

Last 5 years, top line analysis indicates strong business growth across all product category and countries. thereby de-risking business from reliance from particular customer or country. 

Source: Investor Presentation

Source: Investor Presentation

Along with growth, financing aspect must also be considered. If growth is financed with huge debt, that growth may not be sustainable as most of the revenue will be deployed in payment of interest and repayment of debt. So, it is important that companies follow conservative financing policy and generate sufficient cash flow from operation to meet its annual interest and debt payment. 

Source: Annual Report FY11 to FY15

Graph indicates that company has cash flow generated from operation has improved from Rs. 4.2 billion in FY11 to Rs. 33.9 billion in FY15. Capital expenditure has increased from Rs. 7.6 billion in FY11 to Rs. 18.4 billion in FY15. Most of the capex of FY14 and FY15 are funded from internal accrual. All capital expenditure are incurred towards expanding its current manufacturing facility or towards setting up new plant.

During FY16, plant for moulded components and integrated modules at Sanand in Gujarat and plant for moulded components at Walajabad in Chennai India will be operational.  Also, capacity expansion of wiring harness division at existing facilities in Noida and new plant at Walajabad in Chennai  will be operational. This additional facilities will significantly improve its production capacity and improve its ability to cater to product demand.  

Source: Investor Presentation

For FY12, acquisition of Peguform was entirely funded through debt, as a result debt increased to 1.75x of equity from debt/equity ratio of 0.49x in FY11. During FY13 and FY14, debt / equity ratio improved to 1.60x and 1.05x. During FY15, MSSL through its subsidiary SMRP BV, refinanced its debt by issuing  issued 4.125% Bonds of €500 million with maturity of 7 years. This enabled company to significantly reduce its cost of borrowing and improve its debt / equity ratio to 0.75x

Management Performance
Return on average capital employed has improved over FY11-FY15. ROACE has fallen during FY12 and FY13. For FY12, high debt related to acquisition of peguform acquisition dragged ROACE, whereas for FY13, ROACE has improved but the company was impacted by slowdown in automobile industry.  Overall, management has demonstrated strong track record of efficient capital allocation. 

Source: Investor Presentation