Motherson Sumi Wiring India Limited (MSUMI) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Q1FI27 Results Conference Call, hosted by Madhusen Sumi Wiring India Limited. As a reminder, our participant lines will be in the lesson-only 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, then zero on your touch-tone phone. Please note that this conference is being recorded. And now in the conference, I want Mr. Lakshwaman Segal from Madison Sumi Wiring India Limited. Thank you, and over to Mr. Segal.

Thank you. Good evening, ladies and gentlemen, and thank you for joining us today. I warmly welcome you to the Madison Sumi Wiring India Limited results call in the first quarter of 527, and I am thankful for your continuous support and trust in your company. I am pleased to announce that the company has delivered resilient performance during Q1, reflecting the enduring strength of our customer relationships. Our expansion into greenfield projects and successful ramp-up of new customer programs supported revenue growth outpacing the industry despite ongoing cost headwinds. Elevated copper prices and increased manpower costs, due to exceptional minimum wage increases, have impacted our profitability in this quarter. However, we continue to have constructive discussions with our customers to recover cost increases and maintain business momentum. Contribution from EVs continues to be strong, with 8.5% of our revenues coming from EVs in Q1. I want to reiterate the fact that we are an engine agnostic company and a key supplier to leading ICE and EV platforms in India. Built on decades of trust with our customers and powered by the passion and commitment of our people, we are well positioned for the future. With these strengths at our core, we firmly believe that our future is bright. With that, I now hand over to Pankatsa, Anurag, Nghulshan, who will be happy to address any questions you may have. Moderator, please support for the questions.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 or they touched on 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

Participants, you may press star and 1 to ask the question. The first question is from the line of Raghunandan NL from Nuama Research. Please go ahead.

Good evening, team. Thank you very much for the opportunity. Firstly, on the green fields, can you broadly indicate how has been the performance in Q1? If possible, please do share revenue and EBITDA, or qualitatively please do indicate whether the revenue has further grown and break-even has been achieved.

Yes, sir. So, with respect to the greenfield, we already had a break-even in the previous quarter, have a run rate of around 450 crores in the previous quarter. We maintain the same level of revenue and the break-level point at this quarter as well. So, in terms of the growth we are at, where were we in the previous quarter, obviously, some plants are in the process of ramping up stage. So, in terms of contribution towards our, you know, bottom line, that we need to wait for one or two quarters, which they will start contributing in that way also.

Thank you, Gulshan, sir. In terms of green fields, at optimal utilization for these green fields, margin may be lower than existing plants owing to high import content, but would ROIC be similar or lower because there will be a better effect turnover for these plants?

See, look, that's not how we look at it. Because see, these green fields were there as a part of the separate disclosures because the three plants have come in simultaneously. So there was significant impact, right? Because we never talked about plant level profitability in the past also. So now they have reached a stage where, you know, the break-even has already reached. So talking about, you know, the plant level of profitability is not the right way to look at it because there are certain level of productivity which we have already there in the plants, which we have there in operation for many, many years. So it is better to look at it at an overall level. And this notion is not 100% correct that the material consumed or the material cost is relatively higher in these plants. I think this is all about the scalability and the productivity, which has not reached to a level which other plants have already reached.

Noted, sir. Thanks for that clarification. In opening remarks, you alluded to Q1FI27 EV share of revenue at 8.5%. Within this EV revenue, broadly or approximately, how much would be the share of high-voltage and low-voltage business?

Would this entirely be high-voltage? No, this is not the high-voltage business alone. This is the business which we do for EV vehicles. So, that's what it is.

Understood, sir. But would you have it handy, any broad breakup?

No. It's a breakdown between what we do for EV vehicles and what we do for ICE vehicles. So, that's just that breakdown which we are mentioning.

Thank you. The cost is the minimum wage hike impact. You indicated that there is a constructive discussion with customers. By when do you expect customers to compensate, and would you be able to pass on, say, 80-90% of the impact? Thank you.

So you have asked multiple questions. I'll try to answer them. Andhra, please correct me when I go wrong. As far as other material costs are concerned, we use a lot of components which are specified by the customers. And if there are increases by the component makers in those component prices, we negotiate mutually and discuss along with the customers for those increases. As far as your question regarding the increased wage heights which have been mandated by the government, which have been very, very, I mean, much higher than what would have been anticipated at any point of time. These are all constructive discussions which are ongoing. Nobody can predict exactly the timeline, but our endeavor would be to reach an agreement with the customers as soon as possible. But we are a very patient company. We discuss mutually with the customers and reach agreements which are in the long-term benefit of both of us. Our customers are very transparent, and we have long-term relationships with them, and we do believe that they acknowledge that this is a product which we assemble for them. Our products are quite manpower intensive, and hence, they understand that this is a cost element which needs to be taken care of. I hope I can only disclose so much as possible.

Thank you. Thank you, sir, for those details. I'll fall back in the queue. Wishing all the best.

Thank you very much.

Participants, you may press star and one to ask the question. Next question is from the line of Kunjan from Bank of America.

Please go ahead.

Yeah, thanks for taking my question. Just quick follow-ups on the earlier questions. On the staff cost, is everything now well reflected in this quarter at 600 crores, or is there more to go just assessing, you know, how should we look at this line from an annual full year perspective?

So, it depends on how the other state governments react to it, because this increase was not anticipated in the beginning of the fiscal year also, but there was increase of 35 to 40% in NCR regions. So, as we speak, we are hearing something from the other state as well, but nothing has concluded so far. So, it's very difficult to anticipate that how the other governments... As on date, whatever is there, this is fully... Yeah, but as on date, whatever has been mandated by the government has been considered fully into this, yes.

And this is largely NCR, the minimum wage hikes, right? There's nothing with... none from the new plants as such.

Ma'am, there would be certain usual VDA increases and other things, adjustments which happen in different states, but the unusual increase was in NCR region.

And one of the plant was in NCR region also.

Okay, got it. And just on the pass-through discussions which you mentioned earlier, how does it, I mean, I'm just trying to understand how does it typically happen, you know, these are negotiations, And given these costs are more regulatory-led, is that something that we assume is a full pass-through, or is there a, you know, it's a negotiated discussion, so it's settled somewhere in between? How do these, you know, just trying to get a sense on what is the pass-through of this that we should, you know, think when we look at the more normalized profitability?

Ma'am, it's a matter which is between us and the customers, so I won't like to, I mean, I can't comment more on this. This is not a usual thing which happens every year. So when something unusual happens, it is definitely considered by our customers because it's in our mutual interest that in terms of the sustainability of business operations, these unusual costs are considered.

Okay. Got it. And just moving to the revenue side, is it possible to just sort of get an understanding of the 37% revenue growth that we've had in this quarter? You know, of course, the industry, you all get some benefit from content value, but what would be the element of hopper price inflation that is reflecting? So I'm just trying to get the breakup of the revenue growth, if that's something that you can give us a color on. And secondly, if you can give us the capacity utilization for the new plants that you've been typically sharing in the prior quarters.

So, out of the total 37% growth, 7% is on account of the copper inflation, and the remaining is on account of volume growth, content increase, premiumization, our presence on the new model launches by the OEMs. And in terms of the capacity utilization for the greenfield specifically, as I mentioned earlier also, our revenue was there with respect to the previous quarter. And improvement is already there. So, utilization is almost at the same level.

Okay, got it. Thank you so much.

Thank you. Participants, you may press star and one to ask a question. Next question is from the line of Siddharth Bera from Namora. Please go ahead.

Yeah, hi, sir. Thanks for the opportunity. Sir, again on this, cost increases. So, are we sort of shifting to a monthly lag for some customers going ahead or it continues to be a three-month or six-month lag which we are working on? And second is on the Pune plant, Greenfield, where we had told earlier that we were trying to get more customers. So, what is the status here?

How would have the additions moved in the Pune plant? So, can you hear us? Yes.

See, copper, you know, the lag is still on three to six months. There is a, you know, the situation which has happened, which we are seeing from past few quarters, which is abnormal, and obviously uncertainty, we don't know how it is going to happen in the next quarters also. So, three to six months is still the lag. Approach can be, you know, a month also, 15 days also. So, that's the desire from our side to the customer, but then we have to see when we are discussing these businesses with the customer. So, at this point in time, I can only say that the lag is still continuing with the three to six months.

I mean, your question is valid in the sense that that's the direction in which we are discussing with the customers to reduce the lag period. And so far, the lag is still there as we have reported this quarter. So, in case there is any change, definitely we will let you know in the future, but that's the direction. If possible, we would like to reduce this lag. There was another question on Puna, greenfield utilization.

Yeah, for, you know, now for these utilization, we are totally seeing into the totality for the utilization across the plants, not specific only to the greenfield only. But if I can see that in totality also, as we have said in the past also, as soon as we are going to reach to 80%, we started expanding ourselves. And the way the industry is going and the forecast figures with us, maybe in the next few quarters, you will hear us for that as well.

Got it, sir. And any new big plant you are planning to start in the next, this year in FY27 or looking with plant as of now?

As I said that, you know, seeing into the forecast and the plan given by the customer, they're still working on that. And as I said, that in the next quarters, you can hear from us that what are the new expansion plans for us.

Got it, sir. Okay. Thanks a lot.

Thank you very much. For the students, you may press star and 1 to ask a question.

Ladies and gentlemen, you may press star and 1 to ask a question. Next question is from Shubham Batra from Ambed Asset Management.

Please, go ahead.

Hi, sir. Thanks for taking my question. Firstly, if you could help me quantify the amount of minimum wage I can pay that you have seen in the quarter, we have roughly 600. Shubham, sorry to interrupt you.

Can you please speak through the handset? Your voice is coming muffled.

Yes. Hi. Is it better now? Yes. Sir, hi. Thanks for taking my question. So, firstly, if you could help me quantify the impact of minimum wage impact in the quarter that you have taken. So, we have recorded 600 crores of employee cost of this. How much would be pertaining to that cost?

So, as we mentioned, the increase is quite significant, which has absorbed in the current quarter result in terms of significant wages. Because in the NCR region only, we have seen an increase of 30% to 40% in the wages. So, quantifying that number, roughly, I mean, it's there in the results itself. Largely, the increase quarter on quarter attributed towards the minimum wage increases only.

Got it, sir. Got it. Thank you. So, secondly, on the greenfield margins, you highlighted that we achieved break-even last quarter. And we, for the full quarter, we recorded around negative 3% margins in the greenfield. So, fair to assume that this quarter, we would have clogged a low single-digit margin in the plant.

So, as I clarified in the earlier questions also, you know, in terms of the greenfield, in the last quarter, is that a break-even, if you can remove, if you just remove the copper increases impact, like lag impact in the copper prices. So, in terms of contribute, start contributing us in terms of margins or EBITDA, that is yet to start. If you look at the green fields in totality.

Okay, thank you.

Thank you. Next question is from Lano Joseph George from IIFL Capital. Please, go ahead.

Hi, thank you for the opportunity. Just one question. In the 4Q results, you had mentioned that there was a 200 to 250 pips gross margin impact because of the lag of copper pass-through. Could you update us what is the situation now with copper continuing to go up and with some of the price highs from the previous quarter coming in? Where does the shortfall stand today?

So, see, this goes on quarter on quarter. Some customers fall into a lag of quarter and some customers fall in the bracket of six months. And this is a very transparent mechanism, you know. So right now, if you just look at the quarter-on-quarter, there's an increase of 7%. So we still have a lag of, you know, the delta of 7%, which is sitting in the current results, unlike 17% in the preceding quarter. So in terms of the recovery, where the customers are being reset at a quarterly level, that has already happened. But with respect to the six months, it is yet to come.

So, is it right to assume that some of the price sites that are due from the March quarter are also pending and that will flow into the September quarter? And, of course, what is pending from the June quarter will also flow into the September quarter?

No, that's right. Some of the customers are there.

Okay. All right.

Thank you. Majority of our customers are on a three-month basis, barring few.

Okay. Thank you.

Thank you very much. Participants, you may press star and want to ask the question. Next question is from Leon of Kautam from Kamana Holding. Please go ahead.

Hi, thanks for taking my question. Could you please explain in layman terms how these new architectures, these upcoming architectures like zonal architecture and 48V architecture could potentially impact the content per vehicle for our products, For the company's wiring harness products, also how big of a risk is this change in architecture to the future volume growth for the company, and how realistic is this change? How tough is it for car companies to switch to these new type of architectures?

So we are fully geared up to make use of any new architecture which customers decide, And in the country also, there are different architectures which different models of vehicles are using, and we are contributing significantly to each one of them. There are a lot of data cables, auto video cables, which get used in the new architectures, and the company produces them and assembles those spatial cables also, which are more value-enhancing as well. And if we go to the new architecture, I mean, there are many different steps to reach architecture where harnesses may become simpler. I won't say they will become so less, but it's still very few in the world. So there are not too many. So, there are many different steps because the car makers also continue to keep using the platforms which they already have in existence and keep developing on top of them. To develop completely new things is also very expensive. And therefore, we have not seen so far in the country where MSVIL is engaged in new architectures we have seen, but we have not seen decontenting. Thank you.

Do you believe that the content per vehicle will still keep increasing for the company's product portfolio?

As I mentioned, that we have also, you know, been part of some global developments where simplification, you know, the point which you are going to, I mean, it may be a, if it happens, it may be a very long-term thing. We all remain prepared to take care of any developments which happen. Yet, even there also, it has been, as I mentioned earlier also, there's been very few vehicles. And does it get pursued in all the new launches by any of the car makers? It's also not there. So, in a hypothetical situation, yes, it's a possibility that in the long run, If someone develops certain new architectures, they can have products which can have lots more electronics, lots more other things, and make simplification of the wiring harnesses to bring back the production to countries. You know, this is more true in countries where it was very difficult to manufacture the product, and they had to go to many different other countries, bring it back. And also they had assembly issues and assembly of the harnesses and the vehicles also require people. So how to reduce that and can they automate that kind of a thing. So there have been a lot of studies and a lot of projects which go on in this direction. But we have not seen, we have seen so far content increase because the amount of features and amount of things which were unimaginable in the past. So you would see our customers bringing the very best in India to their clients and to the people who enjoy their vehicles and bring in more and more things which were, I mean, none of us imagined that these things would be available in a car which are there today.

The complexity is increasing day by day what we are seeing and in recent time it has been increased more what are the new designs and on also top of that we are also design partner for the vehicles which are going to happen in the future years also for the Japanese OEM I am talking about and there also we are seeing that not a very significant change what it is happening today in the coming time also except it is going to be more feature loaded.

Great. Thanks for the detailed answer. Give some perspective. Thank you. Best of luck.

Thank you very much. Participants, you may press star and want to ask a question. Next question is from the line of Preet from Incred Asset Management. Please go ahead.

Thank you. Thank you for taking my question, sir. First question is on the line of the raw material If we expect the raw material cost to stay where it is currently, is it fair to assume that in next six months, we would be back to 35, 36, 34, 35% gross margin which we used to make up here?

Sir, to answer your question, our first

endeavor is to get all the costs back to the normalized level where there is a lag and where they are still not being considered. Where we have spent, as we have mentioned also in our commentary, while releasing the result that we are a long-term supplier and we have supported our customers in these very difficult times and turbulent So the growth has taken place and we have also invested together to make sure that we become a partner in progress. However, even when the costs only get paid, then if you will see, the ratio becomes a bit different because the cost gets compensated. So on the sales to the raw material ratio will not be the same in the past. And then over a period of time, as we develop new products, as we are localizing more, as we provide more solutions to the customer, the idea would be in a medium term to a longer term perspective how we can again improve that. But as a company, we have never been just, you know, margin-focused or something. So we have been always a return-on-capital-employed-focused company working together with our customers. So that will continue to be our endeavor and continue to work in every element of our business to continue to improve.

Sure, sir. That was very much helpful. So, my next question on EBITDA margin side, if we expect our Greenfield to ramp up and stand at 1995% capacity utilization or utilization, same as our parent field, will we be able to make the same margin which we are at our company level?

Of course, you know, the idea is to, Greenfield is having a start point, and after a few months, it has to go and merge into the regular business, what we are doing for our existing business. Then only your focus will come, and you start looking at Greenfield also as a regular day-to-day operation business. So, yes, that's right, that after some time, they have to merge into your regular business, and they will give the same margin. But as Mr. Mittal said that we are a rose-focused company. Idea is to have it more than 40% and we all committed to that and we have shown that in the past also, in the past years also.

Sure, sir. Sir, next on the KPEX upfront, we mentioned that we might come up with some new facilities. How are we planning to do that KPEX? Will we be taking a debt or our internal accruals will be enough for that?

The current, what we have budgeted for this current year, the Capet, we will do from the internal accruals.

Thank you, sir. Thank you.

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. As there are no further questions,

I would now like to hand the conference over to Mr. Lakshwaman Segal for closing comments.

Thank you so much. Thank you. Thank you very much for your constant support, and we look forward to speaking with all of you in the next meeting. Thank you so much. Bye-bye.

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