Motherson Sumi: Allaying Covid-19 fears

Motherson Sumi Systems (MSSL), the auto component maker, shares gained nearly 15% in the last two trading sessions after it initiated steps to counter business slowdown fears and the board of directors approving fund raising plan.

The company issued a statement to allay concerns over the impact of covid-19 on its operations.

The key statement in the update was that net debt was now at its lowest in 11 quarters.

The company’s measures to enhance liquidity to tide over covid-19 disruptions have also gone down well with investors.

Motherson Sumi’s consolidated net debt as of March was Rs 7,150 crore.

This is lower than the Rs 7,991 crore in FY19 and the Rs 7,594 crore in FY18. However, debt may rise again, depending on how long the lockdown continues.

For now, only the company’s facilities in China have reopened after the lockdown. Manufacturing facilities in India, the US and Europe are closed.

The management assured investors that it hopes to restart these facilities in April or May, but the situation is highly fluid with the pandemic showing little signs of ebbing in these zones.

Thus, net sales and cash flows will be impacted in the next couple of quarters.

Even before the virus outbreak, Motherson Sumi was facing the impact of a slowdown because of the pain in the global auto industry.

It will also end FY20 far below its revenue target of $18 billion, which was intended to be met partly through acquisitions that have not materialized.

Further, the company also informed that its its board has approved to raise up to Rs 500 crore through issue of securities.

The committee of directors (administrative matters) of the company’s board in its meeting held on April 16, has approved the issuance of listed, secured, redeemable, non-convertible debentures (NCDs), with an aggregate amount up to Rs 500 crore on a private placement basis in one or more tranches.

MSSL, including its subsidiaries and joint ventures, is one of the leading manufacturers of automotive wiring harnesses, mirrors for passenger cars. It is also a supplier of plastic components and modules to the automotive industry.

While a swift resumption of production in China is an encouraging development for Motherson Sumi, the company also has facilities in Europe, India and USA which would be key for higher utilization levels ahead.

However in the near term the company will face significant headwinds from large outgo on employee costs, interest and depreciation which are likely to impact profitability significantly in the absence of topline growth.

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