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Edited Transcript of MOTHERSUMI.NSE earnings conference call or presentation 10-Feb-20 10:30am GMT

Q3 2020 Motherson Sumi Systems Ltd Earnings Call

New Delhi Feb 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Motherson Sumi Systems Ltd earnings conference call or presentation Monday, February 10, 2020 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gaya Nanda Gauba

Motherson Sumi Systems Limited - CFO

* Laksh Vaaman Sehgal

Motherson Sumi Systems Limited - Non-Executive Director

* Pankaj K. Mital

Motherson Sumi Systems Limited - COO & Whole-Time Director

* Vivek Chaand Sehgal

Motherson Sumi Systems Limited - Chairman

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Conference Call Participants

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* Binay Singh

Morgan Stanley, Research Division - Executive Director

* Chirag Shah

Edelweiss Securities Ltd., Research Division - Research Analyst

* Iqbal Khan;CRISIL;Analyst

* Joseph George

IIFL Research - Assistant VP

* Kapil R. Singh

Nomura Securities Co. Ltd., Research Division - Executive Director

* Kumar Rakesh

BNP Paribas, Research Division - Analyst

* Mayur Parkeria

Wealth Managers Pty Limited - Head of PMS & Fund Manager

* Prateek Poddar

Nippon Life India Asset Management Limited - Research Analyst - Investment Equity

* Puneet J. Gulati

HSBC, Research Division - Analyst

* Raghunandhan N. L.

Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst

* Sandip Verma

Axis Bank Limited - Assistant VP

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Q3 FY '20 Results Conference Call of Motherson Sumi Systems Limited. (Operator Instructions)

I would now like to hand the conference over to Mr. Vivek Chaand Sehgal. Thank you, and over to you, Mr. Sehgal.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [2]

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Thank you very much. Good afternoon, ladies and gentlemen. We are pleased to announce our third quarter results. Since you have already seen the numbers, we are willing to take your questions and explain these results.

Thank you very much. Back to you.

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Operator [3]

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Thank you. Sir, we can open the call for a Q&A session, right?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [4]

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Yes, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We take the first question from the line of Rakesh Kumar from BNP Paribas.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [2]

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My first question is around the revenue underperformances in this quarter and specifically in SMP and PKC. So PKC we have seen a revenue decline after several quarters and SMP usually December quarter is seasonally stronger than September quarter, which we have seen happening this time around. So can you help us understand that what led to this underperformance on the revenue front, especially in these 2 business segments?

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [3]

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This is Pankaj. I'll explain to you about PKC in both in U.S. and the North American market as well as in Europe. There has been a significant decline by about 19% in heavy duty trucks in North America and Europe by about 15.7%. And in those circumstances, we have to look at the results that our revenues have declined just by about 3%. So there has been a decline. Yet we are doing very well in those circumstances.

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [4]

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This is Vaaman Sehgal here. Again, at SMP as well, the third quarter is usually the one with the biggest holidays in Europe. And definitely, the markets have also been -- the performance is reflective of how the markets have been. So yes, it's slightly lower than what they usually come in at, but it's also a quarter effect because December has a lot of holidays, et cetera, which impact the sales.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [5]

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So based on the conversation, which you're having with your customers, do you think that this weakness can continue in the coming quarters as well?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [6]

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Hard to really predict. It depends on a lot of factors that's happening. If you look at what's happening with the coronavirus right now, I mean, of course, that's going to have an impact. I think that's yet to be seen when the Chinese factories open up and start sending a lot of raw materials to a lot of Tier 2 suppliers, Tier 3 suppliers. A lot of carmakers have also extended some of their breaks from the Lunar holiday that's going on. They were supposed to start up last week. They have -- some will start today. Some will even not start until the end of this week. And the real effect is really to be seen as they open up, and we'll see how the materials is being shipped out. So definitely, there is in the short term some more uncertainty that has to be there. On our front, we are preparing for that. We are trying to assess completely from our side what is the impact, if any. But again that will be realized that -- in this week as those factories open up.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [7]

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I wouldn't, in any way, try to guess this quarter because -- this is Chaand speaking here. I think that the real effect we'll come to know in the next 8, 10 days. And that will probably decide how this quarter will fare. So it's a very unfortunate thing that has happened with China. So we would reserve our comments at the moment.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [8]

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My second question actually was around the coronavirus impacting share. So far, based on your assessment, do you think any direct implication on your supply side or in the models, which you are providing components to getting impacted? Based on your early assessment, do you think any direct impact on that?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [9]

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No. Listen, other than our plants and the people over there, we don't see anything much. But Pankaj, do you think anything on the component side?

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [10]

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Yes. It depends on how long it gets prolonged because, as a safety, some suppliers have issued force majeure letters in North America and in some other regions, but that was because they didn't know if their plants will really open on the 10th. So some of the plants have opened today in China. So this is being monitored by the OEMs also because they have some Tier 2, Tier 3 supply bases and some raw materials or some electronic parts coming in on an overall basis. Yes. So they have given notices to the OEMs -- to the OEMs.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [11]

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Just to clarify. The notices have been given by them to the OEMs.

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [12]

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OEMs, that's true.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [13]

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We have not got -- Motherson has not got any.

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [14]

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Yes.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [15]

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Okay. So none of our plants as of now have taken any shutdown related to this?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [16]

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No, not yet.

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Operator [17]

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We take the next question from the line of Raghunandhan from Emkay Global.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [18]

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Sir, last quarter, you had shared on the update of how the ramp-up has been happening for the new plants of SMP. Losses for the new plant seems to have further reduced in the quarter. Any color you can share? And also, whether any change in the breakeven targets given the current scenario?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [19]

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Yes. SMP Alabama continues to make progress. It's credit to the team over there that's getting everything under control and making sure that the ramp-up is also -- advances smoothly. Daimler continues to up the numbers of cars that they're pulling. So at the same time, we are also ramping up and stabilizing. So like we mentioned in the last call, I think, the improvement should be visible every quarter as we keep growing. I wouldn't like to say more than that because this is a very critical quarter for us to see how things go, but fingers crossed that the teams keep their focus and keep this momentum and keep on improving day by day.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [20]

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I think the news is also obvious that some of the people almost said one time we were employing [73 trucks], very high rates. That particular thing has come down to almost zero. So no high cost consultants, per se. So I think that's kudos to the teams that they have got rid of all the high cost consultants that were there, but has [passed to come to see].

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [21]

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My second question was on -- recently there was this antisubsidy duty of up to 10% imposed on copper wire rods from 4 nations. Would this be relevant for us? And how much would be the lag, if there is a pass on that has to be done to the customers?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [22]

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Sorry. We are not aware of the --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [23]

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We are probably not buying from those countries. So our rods comes from some other -- so we are not affected as of now.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [24]

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Lastly, FY '21 CapEx number was expected to reduce. Would you be in a position to shed any light on possible CapEx plans for next year?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [25]

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I think next year is very important for us. We will also be coming with 5-year plan. So we would rather wait for things to (inaudible).

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [26]

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You should have that view in the next -- 1Q.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [27]

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Next quarter.

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Operator [28]

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We take the next question from the line of Aditya Bapat from Equentis Wealth. As there is no response from the current participant, we take the next question from the line of Binay Singh from Morgan Stanley.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [29]

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Now that a lot of BS-VI vehicles have started to ramp up, do you have better clarity on what is the content per car improvement in wiring harness in India between BS-IV and BS-VI?

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [30]

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As we have said earlier, that as far as the gasoline cars are there, there won't be much of a difference, but there definitely will be a difference and a value add in diesel vehicles as well as on the CV side and on the 2-wheeler side. So that still remains correct. And it is depending on the vehicle-to-vehicle, model-to-model as there are different ways in which OEMs tend to move towards that and depending on from where they are moving to what. So again, it's model-by-model.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [31]

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And any number you would like to share about your revenue mix across passenger categories, gasoline, diesel, 2-wheeler, 4-wheeler?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [32]

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See, the problem in that is that it depends upon the variance. And really, we would have to sit down with a Cray computer try to think out what are the moving parts of the lot, yes. So probably once the demand start to come in, then we will be in a better position to say so. But at this moment, really we can't give you any number. We know the numbers, but we can't give you because it's something related to the customer, please.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [33]

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And just one request. As we know the company is going through a reorganization, so it will be very helpful if you could at some stage share the breakdown between domestic wiring harness business and the other in terms of EBITDA, revenue, return on capital employed. So that we get a better sense on how the business separates, in case we have -- in case you have that handy then that will be very helpful, but do share that sometime.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [34]

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Absolutely. We will do a special call, and we will be telling you what the breakups will be once the Board approves, which should be happening in the next 30 to 60 days.

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [35]

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90 to 120.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [36]

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And just one last question. Sequentially, we've seen a sharp like 40% jump in interest cost and 6% jump in depreciation. Any comments on that?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [37]

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Yes. Binay, Gauba this side One, the depreciation also includes the impairment of Brazil, which is done in the quarter. Secondly, when we talk about Ind AS 116, the leasing, that amount gets splits into the interest and the depreciation. And thirdly, we have given a footnote as well that the interest component has a lot of mark to the market exchange loss in the current quarter, so about INR 39 crores in the quarter.

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Operator [38]

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We take the next question from the line of Jay Mehta from Edelweiss Financial.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [39]

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Yes. This is Chirag here. Sir, first off a fairly broader question. For sales in Europe, for example, is there a indirect impact because of coronavirus issue in China? Because I presume some parts, even in Europe, for your car customers would be coming from China. So to that extent, there could be some issue if the availability of parts from China becomes an issue. Is it a right understanding? Or the risk is very low?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [40]

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Chirag, really, we can't say anything because today is the day that China should have opened completely. And please give us some time to collect and get the information from our customers. Really, I can't give you on-the-spot news kind of a thing. We think the effect may not be so much on the carmakers, per se, but in the component makers -- different component makers, there are hundreds of thousands of component makers. And who is affected, who is not affected, we really can't guess or come to know somehow. So please bear with us. The moment we come to know, if there is something --

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [41]

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See, we haven't heard anything from our customers, right? So there's really nothing for us to report.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [42]

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Yes. Sir, it is possible that optically volumes could be slightly subdued because of shortage of some parts from China, which ultimately feeds into that particular car?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [43]

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Sure. If there is the --

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [44]

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Is Optically if it's a possibility in that sense?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [45]

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Possibility, possibility.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [46]

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Yes. And sir, second question was the difference on the PKC side. If we actually observe the U.S. classic truck sales have been weak since beginning of the year, but until now we have been immune. So is there some lead like effect that we have or given the way the order book may be playing out in PKC, if you can help us understand that this is the first quarter where we've actually seen a drop in PKC revenues on a Y-o-Y basis.

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [47]

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Yes. It's based on the production by the truck makers. So what you are referring to, Chirag, is the order bookings. And if you remember, there were backlog -- huge backlogs in U.S. which were being met in terms of supporting the market. And then the bookings had also gone up, but the customers start to then work out as to how much backlogs they want to keep and how they want to service the market. And this quarter, there had been a weakness, as I mentioned, in the European market also compared to the last year. So that's what we've reported to you.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [48]

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Yes. And there's one question for Gaubaji. Sir, just a clarification that when we look at our consolidated numbers and when we break it up into various subsegments, as you share, the balancing figure, which comes across as others are a balancing figure, generally, on a quarterly basis, those revenue and EBITDA number swings a lot. Is it possible to give us how we should understand that number? Because if I look at current quarter result versus last year, the balancing figure, there is a significant, almost 80% drop in that particular line item. Now I presume there will be a lot of intercompany balancing also that would be affecting. But on quarterly basis, this number really swings a lot. So how we should try to understand this particular line item? Is it possible to give some insight over there?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [49]

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Let me consider suggestion from your side, let me also think, and we can take this subsequently because we always felt this number is not large enough to have the impact. But surely, we will take your feedback and look into this in future.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [50]

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It may not be material also from manual, but on quarterly basis we do see a lot of swings over there.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [51]

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What's the range, Chirag, that you see?

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [52]

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Like, for example, when I do this balancing number, last year, same time, this revenue was some 12 -- almost INR 1,300 crores. And this quarter, when I take consolidated numbers and minus stand-alone, SMR, SMP and PKC, the balance number that we get, it is only INR 215 crores.

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [53]

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Then something is wrong. So we can discuss this offline.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [54]

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Yes, I think this would be better.

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [55]

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Because on the segment reporting this number is INR 995 crores compared to INR 1,125 crores. So we can take this offline.

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Operator [56]

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We take the next question from the line of Puneet from HSBC.

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Puneet J. Gulati, HSBC, Research Division - Analyst [57]

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Yes. Just trying to understand --

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Operator [58]

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Puneet, this is the operator. I'm so sorry to interrupt. Requesting you to please speak a bit louder, sir. Your audio is not very audible.

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Puneet J. Gulati, HSBC, Research Division - Analyst [59]

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Yes. Is it better?

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Operator [60]

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Yes.

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Puneet J. Gulati, HSBC, Research Division - Analyst [61]

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Yes. Great. So trying to understand a bit more on PKC side. Pankaj said that the market was down 19% and you're down only 7%. So obviously, you've done very well.

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [62]

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3%.

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Puneet J. Gulati, HSBC, Research Division - Analyst [63]

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Yes. What would have been the driving factor for this? Is there a gain in content, market share? What has really been driving this outperformance?

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [64]

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See, there have also been some markets which have moved up like Brazil has shown positive movement. So -- and it's also -- when we are talking, we are talking a broad number of the total market and then how much is the customer to whom we are supplying or the model which we are supplying has declined. That -- they also vary product by products.

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Puneet J. Gulati, HSBC, Research Division - Analyst [65]

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But I would presume you had a very, very large market share. I remember PKC talking about 60%, 70% of the U.S. markets and various other market.

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [66]

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You are right. I mean, U.S. market, it's true, that we really have that kind of a share. Europe, it will be slightly different. Similarly in Brazil it is different. Our aim is that as we do well, hopefully, we will get more.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [67]

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Definitely, in Europe, we have a very focused plan to improve our numbers over there. So yes, wherever there is a weakness, we are trying to focus on that.

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Puneet J. Gulati, HSBC, Research Division - Analyst [68]

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Okay. So it's more market and model-driven and no significant new customer gain in that sense? Should I read it that way?

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [69]

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Yes, you can. I mean -- and also, we have -- some gain is in the rolling stock side also. So we do have -- it's not just -- it's got a division. It's not a very large division. I mean, it contributes about 11%, 12% of the total revenues of PKC, but then everything put together comes out like this.

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Puneet J. Gulati, HSBC, Research Division - Analyst [70]

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Yes. Okay. Fair enough. Secondly, on the greenfield plant side, have they reached full revenue potential? Or is there a room for them to increase revenue based on the existing orders from those plants?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [71]

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Yes. There's still a little bit for us to grow over there. So the plants have been now scaled up to a point where we're reaching those peak levels, but there's still a little bit more to go.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [72]

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And also, I think, since we are now the largest supplier to Daimler on the truck side, all the newer models and all that definitely we'll get chances. I'm sure there's going to be lot of opportunity there.

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Puneet J. Gulati, HSBC, Research Division - Analyst [73]

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Okay. That's great. Sir, lastly, on the impairment side. What does that Brazil impairment relate to?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [74]

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Sir, as we all know, the Brazil passenger car market has not been improving. But there were some part of the CapEx, which was done over a period for the new models. So that is something which is being fully impaired to avoid any future risks.

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Puneet J. Gulati, HSBC, Research Division - Analyst [75]

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Okay. So there's nothing more risk in Brazilian part of the balance sheet?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [76]

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Yes. It is a noncash item I think.

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Operator [77]

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We take the next question from the line of Kapil Singh from Nomura Capital.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [78]

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A couple of questions. So firstly, on the greenfield, just a follow-up. Could you share the updates in terms of the improvement that we are expecting in the financial performance over there? What stage are we in and what are we working on?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [79]

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I think in general, the improvement has to be all throughout, right? I mean, we were talking about a lack of people being over there -- trained people. So we have running more people than we should. So improvements are put into place over there to make the operations more efficient. And also on the scrap levels, we were seeing that the scrap levels were quite high. As we have gone through the quarter, we have put special focus teams on that. That's performing better. And you can see that in the results. Also, we had a lot of external consultants since we couldn't hire local people. But since then, we've added a significant strength of people onto the team and been able to also relieve a significant number of those consultants that were there. So all these things are being worked on. Of course, we have to make sure that we continue to ramp up with Daimler's demands. That's happening as well, and making sure that we give them better and better quality. So overall, there's a big focus on SMP Alabama. We're attacking it from every aspect, from production to financial to purchasing. Every aspect is really being worked on and the --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [80]

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Vaaman, also, you are getting tremendous amount of help from your existing companies in U.S. They have really come forward and helped us dramatically in the Alabama. So SMR --

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [81]

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PKC.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [82]

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PKC, MWSI, so the companies that have existing plants that I think they have come to a great help to the group. That's very encouraging, isn't it?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [83]

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Absolutely. We've got all the people that are now on ground supporting, also having other facilities in the U.S. helped for -- because of the visa issue that we spoke about, that's not there, but the existing people that are working in those plants. They've all really stepped up and helped to stabilize SMP Alabama.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [84]

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So by when should we expect it to turn breakeven?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [85]

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I hope yesterday. I think this is something which we are discussing with the customers also. So just give us some time, and we hope we can give you some good news. But yes, we are discussing with the customer. We are discussing with -- as Vaaman said, every aspect of that. In fact Vaaman personally goes for 3 days every week to Tuscaloosa to follow up and make sure that Tuscaloosa comes back absolutely on track and makes good money for us.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [86]

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Okay. Great to hear that. Especially, we remember a lot of traveling that Vaaman did for SMR as well. So hope, at some point, we will see same kind of performance.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [87]

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Absolutely, absolutely. If you have memory of that, you'll remember. SMR, when we took over 10 years ago, my God, everybody thought that was the end of this thing. So now people think this is the end of Motherson again, but I'm sure Vaaman and his team will show that it's not the end of the world, actually beginning of a great relationship.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [88]

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Great. Yes, I look forward to that. Just a couple of more questions. On SMR, we noticed that there is a Y-o-Y drop in revenues. Could you just give some color? What really happened in terms of end customer demand with geographies or customers?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [89]

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Look, Korea was -- the Korean customer, that was one region that had significant weakness in the last quarter. So if you really look at it, it's kind of marginal, and going with SMR's fluctuations on quarter-on-quarter that happens. So except for the Korea bit, which really had a reserve --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [90]

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I think India also a little bit on the lower side because of lower offtake of cars.

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [91]

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That's right. So even India was lower. Korea was lower. So those were the kind of weak markets that we saw for December, but hopefully next few quarters should tick back up.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [92]

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Okay, okay. And in India, just one question in terms of current quarter as well. Do we expect some kind of lower production because we are heading into BS-VI and transition's taking place? So are you seeing that impact in the short term?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [93]

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I think it is best left to the Indian carmaker. But we don't have any this thing to say that they have reduced the numbers or anything like that. I think the numbers -- as far as my information goes is actually steady and up because people are trying to fill up the pipelines. But Pankaj, anything on the wiring harness side could also be applicable to the others. Can you explain something about Indian carmakers?

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Pankaj K. Mital, Motherson Sumi Systems Limited - COO & Whole-Time Director [94]

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No. I think what you said is absolutely right. So that's what --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [95]

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I think February and March look a little better. But I'm personally of the opinion that 1st of April onwards, you will see a huge comeback to the market. People would have solved this confusion between you're a IV, you're a VI and all that. And we also noticed that the aftermarket is really, really at the peak just now. So this means that people definitely want to buy cars, but it's the confusion, which is causing them to resist and wait for a month, 1.5 months, so that they can buy the new car because that would be legal every which way. I think -- it's personal opinion of mine.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [96]

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By aftermarket you mean for parts or for...

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [97]

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Secondhand cars. Secondhand cars.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [98]

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Secondhand cars, okay.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [99]

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There are no secondhand cars available in the dealerships. Just go have a look. It's amazing. It's a record -- which tells me people are desperate to buy new cars. That's my reading of it, right?

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Operator [100]

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(Operator Instructions) Next question is from the line of Suraj Chheda from IIFL.

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Joseph George, IIFL Research - Assistant VP [101]

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This is Joseph from IIFL. I'm just looking at Slide #11 of the presentation, where you've given the quarterly trend of SMP both on a reported basis and excluding the greenfields and Reydel. And what I noticed is that when I move from Q2 to Q3, I'm just doing a simple exercise which is deducting the organic business, which is excluding greenfields and SMRPBV from the total revenues and looking at the difference both in terms of revenues and EBITDA, which obviously the sum of greenfields and Reydel. And what I noticed is that compared to 2Q, 3Q is hardly different in terms of both revenues as well as in terms of EBITDA. So the improvement that you talked about in terms of lower rejection rates or in terms of getting the ex-PATs of the books, et cetera. Is that something that you expect in 4Q? Or is that something that you already achieved in 3Q? Because when I compare 3Q versus 2Q, it's hardly visible in the numbers.

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [102]

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Joseph, just to put the facts -- numbers right, of course, Mr. Sehgal and Vaaman will answer over for the other part. We had a green -- reported EBITDA of EUR 36 million and whereas the gross -- excluding greenfield and Ind AS 116, whatever, comparable to EUR 36 million was EUR 65 million. So the gap becomes EUR 29 million, which has become EUR 24 million.

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Joseph George, IIFL Research - Assistant VP [103]

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I see that. But typically, the European plastics business is something that sees a Q-o-Q improvement because September has got shutdowns because of the summer, et cetera. So even in Reydel, you would have seen some improvement. So are you saying that there's been a significant improvement in the greenfields or --

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [104]

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We come to the rest of the discussion. Of course, Christmas and Thanksgiving months holidays also impact the U.S. sales. But to say that there is no improvement on the EBITDA of (inaudible) is not a correct statement because though small amount but there is a number which is --

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [105]

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Yes. I think you also have to understand that we are also building a team over there. So while we've got rid of the consultants and things like that we have also added people from different parts of U.S. to come in and take some of those positions that were empty that were being filled with consultants. So the cost doesn't completely go away. It improves, and then these people are tasked with making sure that they drive further efficiencies, which, after the plant is stabilized, we will see. So definitely, in the next upcoming quarters with the full effort of the team, it should be much better. I think the direction is good because, again, the volumes are going up. The plant needs to stabilize. We were running at a very high level of scrap inefficiencies, which is getting better. But also to fix that, we've also added in a very high-caliber team over there that is also, of course, added on to the cost in that plant. But again, moving forward, this trend should continue. It should improve.

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Joseph George, IIFL Research - Assistant VP [106]

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Got it. And do you have a target -- I know it's difficult to pinpoint a particular quarter, but do you have a particular target internally on hitting maybe EBITDA breakeven on a full year basis next year or something like that? Some kind of indication that you can give us, help us understand this greenfield issue better.

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [107]

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No, absolutely --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [108]

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[14% growth]. See, one would love to fix these targets and things like that, but a lot of moving parts. But again, I would only request a little bit of patience because it's a brand-new plant, which is coming up over there in a big way. It's the largest plant that Motherson has. That's why the cost -- we have to be very steady in the improvements and things like that. We don't want to take any shortcuts. So secondly, the key thing, Joseph, which you have to remember is that in U.S.A., there are no shortcuts. We can't send 30 people from India go help out over there and in that way reduce the cost. We cannot be, in any way, seen to have broken any law or any guidance from the government. So we are going the right way. We have -- we're absolutely sure that we will do it. But for us, whether it's a quarter here or a quarter there it's of little consequence. The key thing is the confidence of the customer on us and the confidence of the government on us. I think that's crucial in U.S.A. So I hope you understand what I'm trying to say.

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Operator [109]

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We take the next question from the line of Mayur Pisarkar (sic) [Parkeria] from Wealth Managers.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [110]

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Sir, actually, I also had a similar question on the lines of the previous one was. When we look at the difference between the reported SMP numbers and revenues excluding greenfield and SMRC, so while -- and the EBITDA. You spoke about the EBITDA improvement, which is clearly there. But on the revenue side, the number broadly is same, around EUR 350 million. So when we say that the production ramp-ups are happening, is it -- shouldn't be that also visible on the revenue side?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [111]

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I don't know what you mean, but talking -- there are -- it is an increase of EUR 350 million, as you said, rightly. But the market generally is on the weaker side. So have you taken that into cognizance?

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [112]

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So you mean to say, SMR -- the Reydel revenues may be lower in that sense and hence the --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [113]

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Yes. Yes. Absolutely. Absolutely. So we -- that's why we've become very -- very difficult for us to explain because different cars, different markets are behaving differently. So very difficult to try and put color as to what happened, why it happened and things like that. But actually you've hit this thing. SMRC is down a bit last quarter and actually SMP is on the higher side.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [114]

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Sir, now that -- the -- Vaaman mentioned, directionally, you have pointed out about all the improvements which have happened. And clearly, just the reported EBITDA numbers over the last sequentially 4 quarters is a clear sign of that. From 2% to almost 5% we are now clocking on the SMP margins. So if we look at historical SMP margins, they were in the region -- EBITDA margins were in the region of 5.5%, 6%. So are you hopeful that, that can be reached in FY '21 again?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [115]

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Yes, absolutely. Again, we don't guide on the margins. We guide on ROCE. But definitely, our effort to improve the ROCE is EBITDA improvement, and we believe that we should do better than that.

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Operator [116]

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We take the next question from the line of Raghunandhan from Emkay Global.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [117]

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Just one query on Alabama plant. Last quarter, you've had indicated that there has been a ramp-up and -- from 700 cars it has gone to 1,000 cars per day kind of a production. So just wanted to understand, has that number further increased? And on an exit basis, would Alabama plant be running closer to full capacity utilization, in case you're able to share?

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [118]

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Look, I can't give you exact numbers. But further from there, it's -- numbers are being pulled by Daimler, another 10%. And we're contracted for a further increase from here as well. While it's a margin of another 10%, 20%, but that just depends on how Daimler ramps up as well and how the other suppliers do. So yes, we have moved up a little bit further up the rank. That's why, like I was saying before, that while things stabilize, they're also going to ramp up. So we're having those sort of effects in the plant. You can really drive through efficiencies once the number has stabilized and Daimler continues to pick up more. So we're working on both ends trying to kind of deliver the results.

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Operator [119]

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(Operator Instructions) We take the next question from the line of Prateek Poddar from Nippon India Mutual Fund.

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Prateek Poddar, Nippon Life India Asset Management Limited - Research Analyst - Investment Equity [120]

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Sir, just one small question. Any thoughts on CapEx for the next year? Or -- yes, that's it.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [121]

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Prateek, as Gauba said, we will give a clear guidance on our CapEx for next year, our plan for the next 5 year is also coming up in May, June when we have the investor conference. We'll give you the number of CapEx also at that time, plus also the new order book and what's happening to that. So --

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Prateek Poddar, Nippon Life India Asset Management Limited - Research Analyst - Investment Equity [122]

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Yes. Great, sir. And sir, just on Alabama, any -- if at all possible -- obviously depends on the carmaker, but is it fair to say that in the next 6 months, the full utilization would take place?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [123]

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Oh, sure. 3 month, not 6.

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Prateek Poddar, Nippon Life India Asset Management Limited - Research Analyst - Investment Equity [124]

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Okay, okay. That's great. That's great to hear. And --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [125]

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And May, June, we'll give you the fixed level on that also.

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Prateek Poddar, Nippon Life India Asset Management Limited - Research Analyst - Investment Equity [126]

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I would love to see that, sir. And lastly, thanks for this and all the best. And I hope you achieve your 3CX15 as well as $18 billion guidance by the year-end. Looking forward to it.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [127]

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Absolutely. Watch the space. As we speak, as we speak.

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Operator [128]

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We take the next question from the line of Iqbal Khan from CRISIL.

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Iqbal Khan;CRISIL;Analyst, [129]

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Hello?

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Operator [130]

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Sir, you need to please speak a bit louder. Your audio is unable...

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Iqbal Khan;CRISIL;Analyst, [131]

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I have a question on the order book. You guys didn't mention about the order book in this quarter. Can you just throw a picture as to how much the order book currently?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [132]

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So we give a guidance every 6 months. As of now, the whole guidance of 18 point -- what is the number?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [133]

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EUR 18.4 billion.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [134]

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EUR 18.4 billion, that's the order book as of the last guidance that we gave last quarter. And we will update that in May, June, when we come out with our results. So that -- every 6 months we do that because every 3 months it becomes really a waste of time.

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Operator [135]

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We take the next question from the line of Jay Mehta from Edelweiss Financial.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [136]

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Sir, my question is answered. Sir, just a clarification but on this BS-VI transition that you indicated. Is it right to assume all that -- the confusion around whether there could be some production cuts post the transition happens is largely behind and OEMs have a reasonable ballpark on what kind of order book that they are indicating? Is it a fair assumption that, that confusion or that uncertainty is behind?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [137]

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Chirag, I think the consumer is quite confused what will be the status of the cars of Euro 4 that he is buying today, what would be the resale value. So many questions are there in the mind of the buyer. So my personal opinion is that people's confusion will die down once the Euro 6 happens, all concerns about fuel because most of the cars are okay to work with either of the fuels and things like that. So all these confusions -- because everybody who is buying a car or a motorcycle is not so, how to say, literate to understand the differences, the nuances. So I personally think that 1st of April, all these particular issues that are doubts in the minds of the people would have gone, the government would have moved on, and everybody would have moved on. That's my personal opinion. I really can't say what the industry is thinking or saying, but I believe the market will bounce back quite well from 1st of April.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [138]

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And similarly -- I don't know whether you would be able to address the point. In Europe, over last 2, 3 years, we have seen a huge anti-dieselization drive, which has affected volumes to some extent for a good amount of players. Is it possible --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [139]

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I'm sorry, anti what drive? What drive?

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [140]

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Anti-diesel drive, in the sense --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [141]

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Anti-diesel drive.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [142]

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Diesel vehicles, yes, diesel cars. Is there any indication coming across that, that phase is largely behind and reception or acceptance to at least the latest Euro 6 diesel engine is improving over there? And --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [143]

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Chirag, thank you very much for making this point for me because this is a pro-Motherson point. We are agnostic to the engines and hence we can't answer this question. So for me, whether it's a diesel car, petrol car or electric car, my parts are still the same. So honestly, we don't get a feedback from the customer as to whether the plastic parts that we are supplying, is it going into a diesel engine or it's going into a petrol engine. So I hope you appreciate that point. We are seeing that the last 2, 3 months, we can see generally, the demand is moving up.

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Operator [144]

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We take the next question from the line of [Harish Advani] from Yes Securities. As there is no response from the current participant, we take the next question from Sandip Kumar Verma from Axis Bank.

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Sandip Verma, Axis Bank Limited - Assistant VP [145]

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/>

Sir, this is Sandip Verma. Just wanted to understand. Like what would be the impact on Motherson Sumi because of this coronavirus outbreak in China because a significant portion of your revenue as in 7% revenue comes from China? And even Korea contributes around 4% of the revenue. We have seen Hyundai has stopped production 7 -- 6, 7 days. So what --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [146]

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Yes, so, Mr. Verma, the thing is that 10th of February was the finishing of the Lunar Calendar New Year. So you asked -- you're asking me today what happened. I really can't give you a feedback on that. But definitely, some car companies have extended the holiday. Some city areas where they apprehend that the contagious atmosphere is there, they have shut down that whole particular thing. So really, we'll come to know as the time passes, 11th, 12th, 13th, we'll come to know more and more. We have already set up a command, this thing, which is there, in Shanghai. And we are getting daily updates from there as to what is happening. In fact, whatever help they want -- so for example, in some of the places they wanted masks and all that, so we are actually now sending masks from Dubai, airfreighting them and all that. So whatever we can do, we are doing over there. But you'll have to bear with us because it's a really unknown kind of a situation there. We've never been here before. And our thoughts and heart goes out to our compatriots there, people who are working for Motherson. So please bear with me.

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Sandip Verma, Axis Bank Limited - Assistant VP [147]

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/>

Okay. And sir, another thing, like government is also talking about bringing this scrappage policy within the next 30 days. Mr. Nitin Gadkari told this in -- it was in today's newspaper. So how -- so obviously, it is going to be positive for the company. But -- so probably since you people are very close to all these developments, how much likelihood do you see this scrappage policy actually being implemented?

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [148]

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Well, one thing is sure that whatever this government says, they do. So if they have promised you that in 30 days, they will come out with this policy, I'm sure the policy will be out. I think they will be very appreciative of the fact that it affects some of the lower -- or not too well to do people. So they will be very considerate. But yes, it's anybody's guess as to how the implementation will go through. But definitely, for the pollution's sake, since that was the only reason why they wanted to bring scrappage policy, I'm sure those areas where pollution is on the higher side, they will definitely be very, how do you say, strict. Rest of the world -- rest of India, I do not know how it will go. But I definitely think it's needed and it's good.

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Operator [149]

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We take the next question from the line of Mayur Parkeria from Wealth Managers.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [150]

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Gauba, sir, this is for you, just on the accounting and financial side. Sir, when we look at the segment assets and segment liabilities, right, and when we net off that, it is broadly the net worth, which comes as a resultant and not the overall capital employed, right? But on the -- and the segment results, which we have, that is PBIT, right? Sir, right? So the segment results are PBIT. Now if we look at PBIT and calculate those percentage, the net worth is a denominator, which is difficult to match the PBIT. It should be either PAT or the PBIT can be compared to capital employed. So what I was trying to understand that SMR, SMP, PKC and others, the performance of those subsidiaries in relation to their assets is not very clear from this statement. Sir, will it be a right way to look at?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [151]

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Yes. Apart from -- I mean, this will not necessarily show the net worth because there are intergroup transactions also. So there will be balances between SMR and SMP as well as between PKC and other part of the business as well as we have a shareholder though. So it is a bit more complex than what we think on the face of it. So unfortunately, my first reaction is it may not help you. I will, again, look at what it is.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [152]

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Sir, even at the total consolidated entity, even if we remove the intersegments in between, the total consolidated also, the PBIT figure really there, which will be compared to as a percentage of net worth, which will be very difficult to draw a conclusion based on the trends. So sir, if you can just look into that, the presentation, it will help us, sir.

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [153]

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Okay. Sir, I will look. But I mean, on half yearly basis, we produce a balance sheet. We also produce a cash flow. SMRPBV produces cash flow, balance sheet every quarter. I think there is -- and we also give debt levels at each quarter. So I think there are a lot of disclosures being made. Obviously, as part of the next investor meet or -- we would like to see how we can simplify or rationalize these disclosures because that will help you as well as help us to save on time as well as give you the relevant information.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [154]

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Do you think the [stretch of months] summary would help in this?

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [155]

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Yes, sir. In that sense, it will help, at least. There were many questions on the minority interest or those things, they will get --

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [156]

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They will all disappear.

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [157]

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They will all disappear.

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Operator [158]

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(Operator Instructions) Well that was the last question. I would now like to hand the conference over to Mr. Vivek Chaand Sehgal for his closing comments. Over to you, sir.

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Vivek Chaand Sehgal, Motherson Sumi Systems Limited - Chairman [159]

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Thank you very much. I think this was one of the toughest quarter that we have faced. The company, I think, has done a phenomenal job, their focus on ROCE, their ability to reduce the debt. Even the debt, if you look at it, has actually come down over the last -- from the last quarter, though marginally, but it has. Everything is looking good. We are on the verge of trying to look for the opportunity to complete our target, 1.5 months. Our teams are very focused on the top line and the bottom line. And I wish you all the very best, and be safe and please take care. Thank you very much. Bye-bye.

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Laksh Vaaman Sehgal, Motherson Sumi Systems Limited - Non-Executive Director [160]

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Thank you.

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Gaya Nanda Gauba, Motherson Sumi Systems Limited - CFO [161]

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Thanks a lot.

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Operator [162]

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Thank you. On behalf of Motherson Sumi Systems Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.