Demand for automotive components for Motherson Sumi, India’s biggest manufacturer of auto parts, has surpassed pre-Covid levels across geographies but the company is experiencing production and supply-related issues.

Raw material costs especially that of steel and copper, and freight rates have increased substantially over the past few months denting margins of most manufacturing companies in the December quarter.

Kunal Malani, Chief Financial Officer, Motherson Sumi System (MSSL) said, “Cost of all commodities have risen, and risen quite drastically and substantially in a very short time frame. We continue to see cost pressure in the system and we continue to make conversation with our customers.”

As per estimates component manufacturing as well as their vehicle making clients have passed on 60-70 per cent of the cost surge to their customers already, and the balance is expected to be passed on in the on-going quarter.

“Freight rates remain substantially high which lead to us having a higher degree of working capital just to make sure that production levels that OEMs are having are met at one end. The supply chain issues also lead to very erratic production schedules at the OEM (original equipment manufacturer) level,” Malani added.

Max revenue from abroad

In developed western markets, demand remains robust with several passenger cars carrying unusually high waiting period. More than 80 percent of MSSL’s revenues is generated from outside of India. “Demand has been fairly good in the US and Europe with a lot of pent-up demand,” Pankaj Mittal, Chief Operating Officer, MSSL. Shortage of semiconductors is the other major reason for disruption in supply chain.

Backed by revival of worldwide OEM client volumes, strong order-book and electric vehicle neutral product profile, we expect 11 per cent net sales compounded annual growth rate over FY21-23E, said an ICICI direct report on MSSL.

MSSL is working towards lowering of debt which at the end of December quarter stood at ₹7,255 crore, a decrease of nearly 5 per cent compared to ₹7,627 crore reported at the end of the September quarter.

GN Gauba, CFO, Motherson Sumi Wiring India, said, “We expect deleveraging to continue. Even with the current EBITDA levels, we expected de-leveraging would have continued had it not been for the working capital expansion. As things normalise, we expect to keep on reducing debt subject to inorganic growth.”

By the end of the December quarter, MSSL incurred a capital expenditure of ₹1,750 crore and the company hopes to keep the total capex for the year below ₹2,500 crore by the end of the current quarter. Capex for FY23 is in the formulation stage, and will be shared by the company in the first quarter of next year.