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A file photo of a Motherson Sumi plant. Photo: Bloomberg
A file photo of a Motherson Sumi plant. Photo: Bloomberg

Motherson Sumi’s virus update fires up stock, but concerns loom

  • Even before the virus outbreak, firm was facing the impact of a slowdown due to the pain in global auto industry
  • Its measures to enhance liquidity to tide over covid-19 disruptions have also gone down well with investors

Shares of Motherson Sumi Systems Ltd soared 13% on Wednesday after 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 7,150 crore, it said in a release to stock exchanges. This is lower than the 7,991 crore in FY19 and the 7,594 crore in FY18. However, debt may rise again, depending on how long the lockdown continues.

Paring debt
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Paring debt

The board has given approval for raising 1,000 crore debt, if needed.

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.

On Tuesday, Fitch Ratings downgraded the Netherlands-based Samvardhana Motherson Automotive Systems group BV’s (SMRPBV’s) long-term issuer default rating from “B+" to “BB".

“The downgrade is driven by the significant impact the coronavirus pandemic will have on SMRPBV’s earnings and cash flow in the financial year ending March 2021, which will hinder or delay the improvement in leverage assumed in our December 2019 review," added Fitch.

Investors seem to be willing to overlook some of these concerns given that valuations have turned cheaper after a 57% drop in the stock price since April 2019. “Our positive view on Motherson remains intact, owing to the stabilization of its greenfield plants, execution of SMRPBV’s strong order book, and recovery in India," said a note by Motilal Oswal Financial Services Ltd.

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