The Motherson Sumi stock has surged 20 per cent over the past week on expectations of revenue recovery and lower losses at its greenfield plants. While consolidated revenue in the June quarter was down 49 per cent over the year-ago levels, the company expects the sales trend to improve and reach pre-Covid levels by the December quarter. With demand improving, capacity utilisation at most of its plants is at 50-75 per cent.
Despite revenues falling 40 per cent on a sequential basis, losses at the company’s greenfield global plants have come down. This was led by fixed cost optimisation and productivity gains. Analysts at ICICI Securities say that greenfield plant loss has been one of the key monitorables for the Motherson stock and this has shown marked improvement.
While losses at the greenfield facilities have reduced to 19 million euros from just over 50 million euros a year ago, analysts expect them to turn positive at the operating profit level by the end of FY21. This should help improve operating profit margins at the consolidated level. Given the weak top line and lack of operating leverage, the company posted an operating loss of Rs 630 crore compared with a profit of Rs 1,255 crore and operating profit margins of 7.5 per cent a year ago.
Consolidated net debt increased by about Rs 2,000 crore in FY20 to over Rs 9,000 crore, but this was led by working capital loans and should reduce with improvement in revenues. The company is looking at a capex of Rs 2,000 crore in FY21, however, investments after the current financial year are expected to reduce as a major part of the capex cycle is behind it.
In addition to demand uptick in India and international markets, the Street will keep an eye on margin movement, debt levels and progress on restructuring.
Despite the uncertainty on demand across markets, most brokerages are positive on the company and expect gains led by a strong order book, diverse product base, and increasing content per vehicle.