Motherson Sumi Wiring India Limited (MSUMI) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q2 F527 Results Conference Call hosted by Madhusan Sumi Wiring India Limited. As a reminder, all participant lines will be in the listening mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star and zero on your touchstone four. In our hand, the conference over to Mr. V.C. Segal, Chairman of the Company. Thank you, and over to you, Mr. Segal.

Thank you. Good evening, ladies and gentlemen, and thank you for joining us today. I warmly welcome you to the Matheson Sumi Wiring India Limited results call for the second quarter of FY27, And I am thankful for your continued confidence in MSN. I am pleased to announce that the company has delivered a strong performance during this quarter. The revenue growth is supported by higher customer volume, new program launches, and contributions from our greenfield products. Our investments in new capacities are supporting the increased demand from our customers, and while our teams remain focused on managing quality-related headwinds and improving operations performance. We remain confident about the long-term prospects of the automotive industry in India, and we'll continue to invest in capabilities and capacity in line with our customers' evolving requirements. With that, I would request Vaman to take over and take you through the performance of our company and also introduce the other members in the call. Go to you, Vaman.

Thank you, Baba. Good evening, everyone. We are pleased to report a strong performance this quarter, with revenue going 47% year-on-year and 19% sequentially. EBITDA increased 34% year-on-year and 45% sequentially, while profit-after-tax registered growth of 35% and 54% respectively. Let me take you through the key drivers of our performance. The passenger vehicle industry continued to witness healthy growth, with volumes increasing 25% year-on-year and 14% sequentially. We grew ahead of the industry, reflecting the continued trust of our customers and our ability to capture growth opportunities. Vehicle premiumization, which is driving higher content per vehicle, along with our participation in new model launches across both EV and ICE platforms, supported our performance. EVs accounted for 10% of our revenue during the quarter and 9.3% for the first half of the year. Our three greenfield plants also contributed meaningfully to growth, enabling us to support higher customer volumes. The ramp-ups have progressed well, with the plants now operating at an optimal utilization level. Moving to margins, EBITDA margins stood at 9.2%, improving from 7.6% in Q1 through continued focus on operational efficiencies, which led to a resilient performance while headwinds from higher copper prices, minimum wage revisions, and other inflationary pressures remain. Copper prices increased by approximately 6% sequentially and 54% year-on-year. As we have highlighted previously, copper is a pass-through item with a typical time lag of about three months for recovery for a majority of the customers. We are continuously engaged in constructive discussions with our customers to recover these increment costs. Now, let's look at the outlook. Passenger vehicles' demand remains strong during the quarter. However, the second half of the year will be compared against a higher base following the GST reduction implemented last year. Based on current visibility, we expect the industry to continue registering healthy growth. The combination of healthy industry growth, continued premiumization, driving higher content per new vehicle, and new model launches provide the favorable backdrop for us. With that, I now have with me Omkitsar, Anurag, and Ghoshan to address your questions. Moderator, please open the floor.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question Q assembles.

Participant, Jimna Press, star and one, to ask the question. First question is from a man of couple things from Namora.

Please, go ahead.

Yeah, good evening, sir. And congratulations on a very strong performance for the quarter. My first question is just, you know, on the outlook for the second half, Vaman, you mentioned that, of course, growth will be slower, but when you look at absolute terms, most of the OEMs have actually given a fairly strong second-half growth guidance. So, in absolute terms, can we expect that the second half can be better than where we are in the second quarter? And are there some more new programs starting which could support growth in the second half ahead of the industry?

Thanks for that question. Look, third quarter is usually a strong quarter because of, you know, all the festive period that, as you know, has all kicked in. But it's also a precursor before that is the Shrath period. So, you know, a little bit of a balancing out there. But, of course, we are very hopeful. I think, of course, the GST cut provided a very strong boost, and we're hoping that the momentum continues. And like all the OEMs are saying, I think, you know, at the same time, we were very focused to deliver the capacities when the growth had kind of slowed down. So we kind of kept focused and made sure that we were ready for this kind of period. So we're completely ready. I think the ramp-ups, like I said, have gone really well. And we are really hopeful that this festive period, again, continues to deliver very strong revenue growth. Pankaj Sargulshad, can you add anything to that?

Vamsa, as you said, you're right that the momentum continues at the moment. So, if the momentum continues, then, yes, what he mentioned was that the kind of growth which you saw with respect to the last year, because this is, after the GST cut, the momentum has been continuing, and it continues. Definitely, we do believe that there should be continuous growth as we move forward, but the range of growth in terms of percentages may not be as wide as what it was with respect to our year.

And so, there are more programs starting in the second half as well?

Then programs have been continuously coming in. So, definitely car makers keep launching new vehicles and this will be a continued process.

Okay, sure. And so the second question was on margin. Now, what we have seen is that gross margins have been under pressure, and you mentioned about copper as well. Are we also on a quarterly basis getting the claims from the customer? And when we look at other operating costs, they have been, you know, fairly well controlled. So, just some color here, like how you are, what exactly are we doing here that, you know, other operating costs have been continuously coming down as a percentage of the sales. How should we look at this? Is it, is there scope for this to keep coming down further or there are certain expenses you have controlled and they could, they could increase a bit in the second half? Thanks.

Okay, sir, please go ahead.

Well, basically, when the greenfield size came up, there have been costs and the revenues were not there. And as revenues keep coming in, then when we look at the ratios, they're improved. And for us, as a company, our endeavor has always been to be preserved. We have always lost everything measures in place. So we continue to move up on that path. And so we can't, I mean, I'm not giving you a forward-looking statement, but that's the endeavor which we have. And it all depends on how the markets fluctuate and what happens. But that's the endeavor of the company, to remain, to optimize the first manufacturer, of course, and keep investing in the future growth and in the new technologies and keep investing in new technologies, new processes, and also digitization and automation as we move forward.

Oh, okay.

And, sir, we are getting the claims on a quarterly basis as we had expected because we are just trying to understand the gross margin has come off. So, are there claims pending here which will result in its gross margin improvement as well as we go forward or it will happen more through backward integration programs?

I think a couple. There are two things. One, the copper impact, and also the wage impact. So, these things are under negotiations with the customers, and you will see normally a three-month or a six-month flag is there. So, within this financial year, we will report better numbers.

Excellent. Thank you so much, sir. Best wishes, and look forward to that.

Thank you. Next question is from Ryan of Ragunandan NL from Nuwama Research. Please go ahead.

Congratulations to the entire team, Pankat sir, Anurag sir, Gulshan, on all-round weight. Good to see EBITDA margin at a four-quarter high. Sir, you just indicated that discussions are constructive with customers, and for both input and minimum wage inflation, And price hikes are likely to be received over a period of three to six months. Just a clarification here, for the minimum wage inflation, would you receive the entire pass-through or a partial pass-through?

It's under negotiation. I don't know what the reason, but why should it be partial? I didn't understand.

I mean, it is not index like copper, where 100% is generally a pass-through. So, because this is a negotiation, I was just trying to understand whether the customers will expect some part to be absorbed by the company.

Of course, and we try to do our best to get full recovery from there.

Noted, sir. That is good to hear. Yes, the margin is at a four-quarter high. On the raw material cost to revenue, it is still high at 70% of revenue, almost at an all-time high. Do you expect that as the pass-through happens of cost inflation, the margins will lower integration? So would that also help?

Yes, obviously, these are as the commodity price, which is proper in our case, is on the lag of a quarter with the major of the customers. So, in the next quarter, we'll see a recovery of that. So, there will be definitely an impact of that also, and localization is, yes, always on our cards to work towards that. And we are in a right direction to localize for the imported components.

You have also highlighted of the ramp-up of green fields. Karkoda plant in Q1 itself had achieved a high optimal utilization. Kusrat plant and Pune plant have also seen better utilization in Q2 versus the previous quarter. Sir, if possible, can you indicate whether the green field of utilization as per your own targets?

Yes, sir.

As Vaman sir has also said in his commentary, that these three green field plants has progressed, the ramp up has progressed well, and now we are operating at a very optimal utilization level. So now I can just tell you that there are no greenfield at this moment. Now they are with all the regular plants also. We are considering like that in total when we are doing the capacity utilization.

Thank you so much. And best wishes for future. I'll fall back to the case.

Thank you. Next question is from line of Joseph George from IIFL Capital. Please go ahead.

Hi, thank you for the opportunity. The question that I had was on the deficiency of or the lag in terms of, you know, the copper price pass-through. So, assuming that copper prices stabilize at the levels seen in 2Q, how much under-recovery is left in terms of, say, gross margins or the way to play?

Under recovery, I didn't understand the question, but see, over a period of time, it all equals out, whether the price is going up or going down, but a rug, if you can understand this better. Can you clarify any questions, Lou?

So, what I meant by under-recovering is, so, you know, copper price has been very volatile over the last 4-5 quarters, and if I assume that copper price stabilizes at the levels seen in 2Q, as in return increase or, you know, fall from the 2Q levels, how much more price increases are due from the customers, which will reflect in the upcoming quarters?

So basically, as the team has informed that we have a lag of mostly quarter. In some cases, smaller pieces would have been up to six months, but mostly majority is three months. So that's the lag. So if the copper prices are stabilized, and on a quarter-on-quarter basis, you know, it's there, but it has not stabilized, and we can't predict this now. But to answer your question, I mean, one quarter, two quarters, three quarters, if they remain exactly the same, then you'll buy and sell at the same price.

Okay, fair enough. Thank you.

Thank you very much.

Parasabhan, you may have started one to ask a question. Next question is from Nain of Kostov Bhuvna from Kamana Holdings. Please, go ahead.

Yeah, hi. Thanks for taking the question. You know, my question is around this whole content per vehicle topic. I wanted to understand, after speaking with EV automobile companies who are transitioning to EV in India, like for example, Mahindra and other companies, they all say they're shifting fully to zonal architecture. And once you shift fully to zonal architecture, that whole argument of content per vehicle actually is not there because the amount of wiring needed is much lesser. And so I wanted to understand how, you know, your view on this, where is this growth that we are showing today coming from And how much of this growth is at risk because of a lot of our customers moving to zonal? If you could give some in-depth color on that, it will be appreciable as it will help understand how to look at growth going ahead.

We've been hearing this transition to electric vehicles for, you know, approximately 20 years.

Yes, sir. And to answer this question, I mean, it's not a straightforward answer, sir, to your question, because this transition to zonal architecture has been there for a very long time. And maybe the benchmark would be, if you will look at globally also, that where the Rommel architecture has been implemented and in how many out of the total platforms which any carmaker has across. So far, we have seen that there has been a content increase. There have been discussions on the, because, you know, the aspirations of the people and also the innovations of the car makers to not just let it be a car, but it's more than just a mode of transportation. That has led to content increase. It's not about the architecture alone, but it's about the innovations that the car makers have brought in into making that product something more than just transportation. So it provides a huge amount of things to a person who is in the car. So, that's been, you know, fueling the...

Hello, yes.

What's more information? Yeah, we can hear you.

Yeah, okay, great. Thanks for that. So, also the second question is, do you have, does the company have this whole gamut of, you know, these high-end specialized wire harnesses And cabling for cars, because I also hear that some customers have to get some components for their interconnected systems from third parties because Madison doesn't have the full gamut of wiring options yet. Is that true?

Sir, approximately 7 to 8 million components and terminals, etc., are used in wiring harnesses. You mean to say you know of a company which does all that by itself?

No, I understand from you where...

No, no, no, no. Listen, wiring on this particular thing, that components, every component has a customer, customer design components. So, Tura design, Suzuki design, Honda design, like that. So, it's not practically feasible that you are making everything yourself. We, of course, have our own manufacturing of wires and components. We have collaboration with Sumitomo for that. So, it's a very long discussion, if you want to understand that. And it's not so easy to make you understand the type of components in a wiring harness are phenomenal. The range is out of the world. And so my thing is you make whatever you are using the maximum, you make it yourself, also import from different customers, according to the sources, as they say, but all the components can be changed individually. It has to be as per drawing. Drawing specifies which customer specifies which component in the wiring harness because you have an on-field, you have a lot of maintenance and all these things are required. So, you cannot make anything by yourself and just attach it.

Okay. Thank you so much for your answer. Thank you.

You're welcome.

Thank you. Next question is from Lanos Shubambatra from Ambet Asset Management. Please go ahead.

Hi, sir. Thanks for taking my question and congratulations on a very strong set of numbers. I just wanted to understand. So if I go back to 23, 24, 25, we used to do around 35% kind of gross margins, which have come down to 32.5% in FY26 and have further come down to 30%. Now this is likely due to copper impact. But I wanted to understand that hypothetically, if copper stabilizes at where it is, then what will be our normalized gross margin that we should think about in the coming years?

Okay.

Normally, we don't guide on the margins. We always talk about gross.

Yeah, so it's a, you see, we always work on return on capital employed and you will see that the company has maintained very healthy return on capital employed despite all these uncertainties in the market and also the increase in commodity. You would appreciate that we strive to get what we are doing. If the commodity price goes up, then the best for us is to get that recovery. So, in a medium term, you would not see that there is a certain sharp increase because when the customers are compensating us for these increases, then it's a numerator and denominator effect. So, whereas the margins you may now do, it's still as a percentage you may optically see that it is something like what you are seeing today.

He's talking about three years ago, the margins. That time, the international wiring hunts was also a part of this. So, maybe the answer is there somewhere, if you understand.

Sir, basically, I am trying to understand that because of the numerator and denominator impact, how much of...

Sir, I don't understand numerator and denominator. Can you please tell me how many years ago did you go to figure out?

Sir, I am basically looking at FI 25 and FI 24 cross margins.

In 24, MSL was there?

24 and 25.

24 MSL was not there, sir.

No, 24. MSL was there, sir. So, he is containing MSL only.

Huh? MSL only?

For us, sir, we don't provide a guidance on the margins because, you know, while MSL is We see as one company, it has a huge number of programs. We have hundreds of programs, multitude of customers. It's a combination of everything what we see in our result. And therefore, the directionally company has always been focusing on managing its tax, its capital in the most optimized manner. And that's where we continue to focus on the time and time.

Got it, sir. Secondly, sir, I wanted to understand, since now greenfields have also rammed up well, What would be our current capacity utilization across the company?

So our capacity utilization has been a stated policy in the company. The moment it hits around 80%, we are in an expansion mode. And you would see that as the volumes of the customers keep growing and the customers are putting up new facilities, the company will set up and expand its facilities. And the company has expanded its facilities in the past two, three years to ensure that we are ahead of time and we are in a position to support our customers' growth, and we never second-guess their growth, and that's the reason why we have been able to support our customers' growth. Got it, sir. Okay. Thank you, sir. That's all.

Thank you. Next question is from the man of Ankur Potdar from Swan Investments.

Please Hi, sir. Congrats on a very strong set of performance for the quarter. So, most of my questions have been answered. Just one clarification is on the green field itself. So, you may have You mentioned that they have reached optimum level of utilization and now we should look at it at a consolidated level with our base business also. So, is it fair to assume that the margins for the greenfields have also reached our company level margins?

Pankas, Anwar?

See, we don't talk about the margins as a plant-wise level or for the greenfields specifically. What the, you are seeing the total margin, it is for the overall performance of MS weather.

Okay, and understood.

Yes.

Yes, sir, please go ahead.

No, no, that's covered up.

Okay. All right, understood. And just a follow-up on the previous participant's question on the CAPEX that we are looking forward for this year and going forward. Can you give us some guidance there?

For this year, we have already laid out the guidance that largely in line with what we had in the previous year of 200 crores, approximately.

And for FI28?

FI28, it all depends on our, because we are supplying to our customers, so right now that schedules have not finalized, where we are setting in, so in terms of giving you the indication in terms of the capitalization at this moment for FI28 would be very difficult. But as we said in the beginning of so far that obviously the growth is there and we are looking at the capacities expansion and all. So that will be there. But in terms of quantifying it, how much it would be, that clarity would come in the upcoming time when it would be laying down.

Understood. That's all from my side. Thank you and best wishes. Thank you.

A reminder to all the participants, you may press star and want to answer questions. Next question is from the line of Audrey, from Cogito Advisors. Please, go ahead.

Hi, this is Amjee here. Congratulations for great numbers. I had just one clarification and one question. The clarification was that are we saying that EBITDA has lacked revenue growth? It is primarily due to raw materials, copper prices, and wage growth?

Good question.

Yeah.

Sir, can you clarify the question in terms of how you are looking at the EBITDA with the revenue growth, just for my understanding so that I would be able to answer?

Well, if you just look at your own figures, your revenue growth has been higher than your EBITDA growth, right? So, in a sense, you have not been able to take advantage of operating leverage, and there may be two very good reasons for it, So, I understood your question now.

So, the point is, if you just look at the revenue growth, the revenue growth is 47% in which the copper growth contains 12%. If you just take out the copper inflation, as you are aware that we don't charge anything on the copper. It's completely a pass-through. So just take out the revenue growth is 35%, and our EBITDA is around, growth in EBITDA is 34%. So practically on the similar lines where we are. And minimum wage impact are still there in this quarter, but due to continuous work on our cost optimizations, cost austerity measures and all, We try to control our cost as much as possible so that we would be able to have the better operating leverage in the results. That is, you are looking at it.

Right. And just one question. Across industries, actually, because of the sharp volatility in raw material prices, there have been moves to cut down the lag from three months to one month. Is this happening with you guys also, and is there any chance that the OEMs will agree to a shorter lack period in 20 quarters of months?

These are something, if something happens on that account, we will keep you informed. So far, there has been a lack period. Of course, there have been discussions, as you mentioned, and once anything happens, then, you know, it's, as Mr. Segal mentioned, that a lot of topics are micro-mediculations, which happen with the text mail. And we work as partners along with our customers to find solutions to the issues which are facing the industry and to find any good solutions at the end of the day.

Thank you. Thank you very much. And congratulations.

Thank you very much. Participants, you may press star and one to ask the question.

A reminder to all the participants, you may press star and one to ask the question. Is there no further questions?

And I'll hand the conference over to Mr. VC Segal for closing comments. Thank you.

Thank you all very much to make sense of what we have achieved. We are all very excited. We believe these particular questions have been answered over time, and they come. So we try our best to make you remember the history. Thank you all very much. Have a great weekend. Bye-bye.

Thank you very much. On behalf of Madison Sumi Wiring India Limited, that concludes this conference. Thank you all for joining, and you may now disconnect your lines. Thank you.