MOTHERSON SUMI SYSTEMS LTD

FINANCIAL STATEMENT ANALYSIS

PROJECT REPORT
ON
“MOTHERSON SUMI SYSTEMS LTD”

Submitted By- Submitted to-

Shreya Karpe Prof. SB Subramaniam
Roll no- 20194452
Core - 2

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NAME OF THE COMPANY Motherson Sumi Systems ltd

TYPE OF INDUSTRY Auto Ancillaries

SECTOR Automobile
NATURE OF THE PRODUCTS AND Electrical Distribution Systems &
SERVICES Polymer Processing
(The company has a strong and
growing rear-view mirrors presence
in wiring harnesses, rear-view
mirrors, cockpits, bumpers, interior
trim as well as a broad range of other
polymer, elastomer and metal-based
parts and systems)
NEAREST COMPETITORS Yazaki Europe Ltd, Volex plc
DATE OF ESTABLISHMENT 1986
CORPORATE PROFILE Motherson Sumi Systems Limited is a
specialised full system solutions
provider and caters to diverse range
of customers in the automotive and
other industries across Asia, Europe,
North America, South America,
Australia and Africa. It is the flagship
company of the Samvardhana
Motherson Group and is listed entity
HEADQUARTERS Noida, India
KEY MANGERIAL PERSON Vivek Chaand Sehgal (chairman)
RETURN ON CAPITAL EMPLOYED Consolidated ROACE-15%
(ROACE) Standalone ROACE - 42%

PROMOTER’S AND KEY PEOPLE BEHIND MANAGEMENT

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Founder chairperson - Smt. S.L. Sehgal

Chairman (BOD) - Mr. Vivek Chaand Sehgal
Chief Financial Officer - Mr. G.N. Gauba
Director - Mr Shunichiro Nishimura
Mr. Laksh Vaaman Sehgal
Ms. Noriyo Nakamura

PROMOTER’S HOLDING AND CONTROL IN THE BUSINESS

PROMOTER 61.7%
MF 10.02%
FII 16.38%
OTHER INSTITUTIONS 2.55%
PUBLIC 9.32%

SHAREHOLDINGS
9%
3%

16%

62%
10%

PROMOTER MF FII
OTHER INSTITUTIONS PUBLIC

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MSSL Shareholding patterns

SWS 25.34%
Public 38.27%
Sehgal family 2.96%
SAMIL 33.43%

Shareholding structure

25%
33%

3%
38%

SWS Public Sehgal Family SAMIL

Comment- During the year 2018-19 the shareholding pattern of MSSL is same
for SWS and SAMIL whereas the shareholding pattern of Sehgal Family has
increased by 0.11% compared to previous year but the shareholding patten of
public was 38.38% which have reduced to 38.27%

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MSSL Shareholdings in major subsidiaries as on 31-03-2019

Motherson Samvardhana
100%% Sumi Systems 33.43%% Motherson
ltd % International ltd

51% 49%

PKC Group SMRP B.V

95.5%% 100%

Samavardhana 100% Samvardhana

Motherson Motherson
Reflectec Peguform

Samvardhana
Indirect holding Motherson
reydel
companies

REVIEW OF PERFORMANCE BY SEGMENT SUBSIDIARIES

Growt
CONSOLIDATED 2019 2018 h
MSSL Standalone 73959 73084 1%
12984 11883
SMR 0 3 9%
29807 26043
SMP 0 7 14%
PKC 95186 78738 21%
Others 27488 28661 -4%

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62454 55975
TOTAL 3 3 12%

DIVISION WISE ANALYSIS OF MSSL STANDALONE BUSINESS

Growt
  2019 2018 h
Wiring Harness 53231 52289 2%
Modules and Polymer
Components 19514 19840 -2%
Rubber/ Metal machined &
other products 1214 955 27%
Total 73959 73084 1%

March 31, 2019 March 31, 2018

Wiring harness Wiring Harness

Modules and Modules and
polymer Polymer
2% Components 1%
26% 27% Compnents
Rubber/ Metal Rubber/ Metal
machined & machined &
other parts other products
72% 72%

Comment - there has been 2% growth in wiring harness business whereas the
Modules and Polymer components business has fall down by 2% and Rubber
metal machined & other products have shown growth of 27%. Overall there is
a growth of 1% in MSSL standalone business

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SEGMENT WISE BUSINESS

Wiring Harness
Growt
Wiring Harness 2019 2018 h
Customers
Within India 45468 45689 0%
Customers
Outside India 7763 6600 18%
Total 53231 52289 2%

March 31, 2018 m aR ch 31, 2019

Customers Within India Customers Within India
Customers Outside India Customers Outside India

13%

15%

87%
85%

Comment -Wiring harness division have shown an overall 2% of growth during

the year 2018-19. Within India sales is neutral but Export has shown growth of
18%. We believe that in coming years due to the increase in demand for
electric vehicle this would substantially increase the value of wiring harness
per car due to the need for high voltage wiring harness systems  

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Modules and Polymer Components

Modules and Polymer Growt
Components 2019 2018 h
Customers Within India 18216 18640 -2%
Customers Outside India 1298 1200 8%
Total 19514 19840 -2%

March 31, 2018 March 31, 2019

6% 7%

94% 93%

Customers Within India Customers Within India

Customers Outside India Customers Outside India

Comment -Modules and polymer components division have shown an overall

fall of 2% in the year 2019. But the sale outside India have registered a growth
of 8% during 2018-19

Rubber/ Metal machined & other products

Rubber/ Metal machined Growt
& other products 2019 2018 h
Customers Within India 396 353 12%
Customers Outside India 818 602 36%
Total 1214 955 27%

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March 31, 2018 March 31, 2019

Customers Within India Customers Within India
Customers Outside India Customers Outside India

33%
37%

63%
67%

Comment- During the year this division have achieved an overall growth rate
of 27%.ie. 12% in its domestic revenue and 36% outside India

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WHETHER IT IS A GOING CONCERN

 The net worth of the company has shown 4% growth compared to previous
year.
 There has been positive 3% growth in reserves of the company this year.
 Standalone financial statements are maintained as per India Accounting
Standard specified under section 133 of the act which is in accordance with
Companies (Indian Accounting Standards) Rules 2015.
 The revenue and income of the company has been increasing year after
year thought the percentage of growth may not be at the same pace
 Value of assets are more than liabilities which can help companies in
meeting their obligations.
 Cash flow from operating activities are positive and growing
 Current ratio of the company is greater than one. So, we can say that there
is a liquidity.
The income statement of 2019 will show decline in its growth and profitability
but actually they haven’t decline this is the effect of the AS that company have
adopted which is explained through the note stated below
(NOTE-with the effect from April 1 2018 the company has adopted Ind AS,
‘Revenue from Contracts with Customers’, with certain modified
retrospective approach. After evaluating the implication of this
implementation, they came to know that in certain contract, it has been
assessed that the Company is acting as an agent and therefore, revenue has
been recognised excluding the cost of components sold. This change in
presentation has resulted in decrease in gross sales by ` 3,624 million and
does not have impact on profit before tax.)

Therefore, all of the above reason mention satisfies the idea of going
concern

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Workings of relevant indicators

Ratio 2019 2018 2017 2016 2015
Current ratio 1.72 1.60 1.71 1.32 1.47
Debt ratio 0.29 0.30 0.30 0.37 0.36
quick ratio 0.97 0.97 1.16 0.78 0.97

 Current ratio of company is more than one so this indicates that company
don’t have any debt due in a year or less are greater than its asset.
 Debt ratio of the company is less than one i.e its total assets it means the
company is solvent in that case don’t have any significant issue
 While looking at the quick ratio of the company we can say that as the ratio
of the company in most of the time is between 0.5 and 1 so it is considered
as satisfactory. So, it seems that company have adequate quick ratio.

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DOES THE COMPANY FOLLOW ACCRUAL BASIS ACCOUNTING AND

CASH BASIS ACCOUNTING?

Company follows accrual basis accounting because it gives more realistic idea
of income and expenses
Following are the statements on the basis of which we could establish that
company use accrual basis-
 Whatever duty drawbacks and export incentives income they get from duty
drawback and export incentives is recognized on an accrual basis.
 Royalty income policies says that Royalty income is recognized in Other
operating income is done on an accrual basis in accordance with the
substance of the relevant agreements.
 During the year, the Company had incurred 26,853 million on capital
expenditure at the consolidated level, which has been largely financed from
borrowings and internal accruals within the group.
 As per the policy of Revenue from contracts with customers is recognized
when control of the goods or services are transferred to the customer,
generally on delivery of components
 Also, as per the policy for revenue from sale of components is recognised at
the point of time when control of the assets is transferred to the customer.
 While deciding the transaction price for the sale of equipment, the
company take into consideration the following effects - variable
consideration, non-cash consideration and consideration payable to the
customers
 Company have trade receivables as well as trade payables component in
balance sheet which is clear cut tells us that company follows accrual basis
Note - Revenue recognition is assessed as per the principles of Ind AS 115

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Key highlights of MD/ Chairman and Board of Director report

Past Results
 Consolidated sales pf company ended at INR 62,572 crores which is up by
12% compared to last year.
 PAT grew by INR 1,613 crores and revenue outside India was up by 13%.
 The dividend pay-out constitutes 35% of consolidated profits after tax
 Recently they have done through the acquisition of PKC and SMRC.
 Their results confirm that the inorganic growth is strong and in line with
their 2020 targets
Comment - As the company focuses more on inorganic growth through
mergers and acquisition through which they can gain access to the new
markets through successful mergers and acquisition which will help them to
increase their market share. PKC has a strong presence in the American and
European wiring harness market for commercial vehicle segment which will
provide new opportunities to MSSL

Future Outlook
 The company set revenue target at USD 18 billion by March 31 2020.
 The company has also set the ROCE target at 40%.
 Also, they should constantly keep on reviewing the multiple acquisition
target.
 40% of consolidated profit as dividend
 3C X 15 this means that no country customers or components should
contribute more than 15% to our revenues

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Nature of Auditor’s report

The Report is Unqualified as the report provide true and fair view also the
auditor doesn’t provide any kind of disagreement over the matter. Therefore,
the report is said to be unqualified
The auditor’s report says that it does not contain any qualification, reservation
or adverse remarks. It is being also told that the notes on the financial
statement referred to in the auditor’s report are self-explanatory and do not
call for any further comments

Points of Qualification
During the Financial Year 2018-19, the Auditors have not reported any matter
under section 143(12) of the Companies Act, 2013. Therefore, no detail is
required to be disclosed under section 134(3) (ca) of the Companies Act, 2013
As per the director’s report the preparation of annual accounts for financial
year ended March 31, 2019, the applicable Accounting Standards have been
followed and there are no material departures

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ANALYSIS OF PROFIT AND LOSS STATEMENT

Objective of analysing income statement- objective is to know the net

income, profitability, expenses.

COMMON -SIZE ANALYSIS

Following are the analysis based on common size statement as a percentage of
net income over 5 years
 There have been 0.86% decrease total revenue from operations as a
percentage of total income over last 5 years this may be the effect of the
adoption of Ind AS of revenue from contracts with customers
 0.26% decline in revenue from other operating income
 6.6% increase in cost of material consumed
 There is no excise duty on sales of good in 2019
 4.3% increase in employee benefit expense
 0.31% decline in finance costs

YEAR – ON- YEAR ANALYSIS

Note- Standalone sales grew marginally by 1% to 73959 million excluding Ind
AS 115 impact sales increases in standalone business is 6% to 77583 million.
Currently 13% of the standalone sales originate from outside of India

Sales 2017-18 Sales 2018-19

Customers Customers
outside India outside India
11% Customers within 13% Customers within
India India

89% 87%

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REVENUE FROM OPERATIONS

There was 19.2 % phenomenal growth in revenue in 2016-2017 which is much
higher growth compared to any other year this growth was because there was
increase in number of finished goods sold within India. The company said its
growth was fuelled by strong performance across the major product divisions
and geographies. Also, globally they have 14 plants at different stages of
completion, out of which four were new plants which were added since
December 2015 quarter.
OTHER OPERATING REVENUE
The other sources of operating revenue sales of services, scrap sales, job work
income, recovery from customers.
 In 2017 they reported highest operating income because –
o At that time were able to recover the money from customers.
o There was also increase in export incentives and around 50%
liabilities were written back.
o Exchange rate fluctuations very high
o Approximately 62% of interest earned is in the form of income from
financial assets at amortized cost.
 Again, they have experienced increase in other income in 2018 this increase
was due to increase in dividend income from subsidiaries

COST OF MATERIAL
For the financial year ended March 31, 2019, the cost of material was
367,383 million against the cost of material of previous year 343,121, which
is 59% & 61% of total revenue respectively for both the years. Cost of
material increased by 7% corresponding to increase in sales by 12%. This
increase is primarily due to increased production volume and higher
engineering projects due to launch of new projects for our OEMs.

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EMPLOYEE BENEFIT EXPENSES

 Company experienced increase in the employee benefit expenses in 2017-
18
o As they have made approx. 80% contribution towards provident and
other funds
o Increase in gratuity may be due to many employees might have retired
or separated from the company.
 Company experienced increase in the employee benefit expenses in 2018-
19
o The main reason for increase in overall employee cost is increased
capacity and production level, ramp up of production in new facilities,
and headcount increase at new Greenfield plants.
EXCISE DUTY
No excise duty was paid during the year 2018-2019
NOTE- Revenue from contracts with customers for periods up to June 30, 2017
includes excise duty. From July 01, 2017 onwards the excise duty and most
indirect taxes in India have been replaced by Goods and Service Tax (GST). The
Company collects GST on behalf of the Government. Hence, GST is not
included on account of adoption of Ind AS of Revenue from operations.
Therefore, the aforesaid change in indirect taxes, Revenue from operations for
the year ended March 31, 2019 is not comparable with March 31, 2018.

NORMALIZATION OF PROFIT AND LOSS

As per the analysis done there is no such items which need to be adjusted to
normalize

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15% increase in YOY growth FY19 in provisions- non-current because of the

following-
o Gratuity increased from 2.20 crores to 3.70 crores
o 32 % increase in other retirement benefits
o There was no provision for warranty expenses

BALANCESHEET
OBJECTIVE -
 To know the assets and liabilities
 To know the liquidity
 To know about trade debtors and trade creditors
 To determine actual value of business at the time of sale or liquidation
Common-size
 There have been increase in the investment of property as relative
percentage of total assets
 There have been increase in loans provided due to increase in non-current
loans provided to its employees
 Trade receivables of the company has been reduced because the company
have derecognised trade receivables amounting 1325.95 million as it had
transferred the contractual right and substantially transferred all risks and
rewards of ownership of these receivables to various financial institutions
 Reduction in deferred tax assets as deferred tax assets and deferred tax
liabilities have been offset to the extent, they relate to the same governing
taxation laws.
 Increase in inventories this is due to at the year end the write back of
inventories on account of provision in respect of slow-moving items
amounting to 20 million. These were recognised as an expense during the
year and included in the value of inventories of work in progress, stock in
trade and finished goods in statement of profit or loss.
 Increase in other bank balances due to increase in unpaid dividend but
according to section 125 of the Companies Act, 2013 there are no amounts
due for the payment to the Investor education and protection fund

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 There are no amounts due for payment to the Investor Education and
Protection Fund under Section 125 of Companies Act, 2013 as at the year
end
 Reserves on amalgamation remains same in line with previous year

Y-O-Y Growth

 In 2019 they have shown increase in investment as they have invested in

plant property and equipment in that year.
 In 2019 there have been decline in receivables
 Government grants are declining yearly
 There has been constant increase in total outstanding dues of micro, small
and medium
 In 2019 there has been Increase in capital expenditure as there is a 17%
growth in PP&E
 Positive 1% increase in investment in financial assets
 Decline in the growth of inventories compared to previous year’s growth
Note – during the year, the company incurred capital expenditure of 3976
million on expansion facilities in Pithampur, sanand and Noida for wiring
harness and new facility in pithampur for wire business
NORMALIZATION OF BALANCESHEET
As per the analysis done there is no such items which need to be adjusted to
normalize

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Contingent liabilities

Claims against companies not acknowledged as debt

March 31 2019 March 31 2018
Excise, sales tax and service tax 94 85
matters
Claims made by workmen 41 39
Income tax matter 120 123

Against which Company has given bank guarantees amounting to 6 million

a) The Company does not expect any reimbursements in respect of the
above contingent liabilities.
b) The Company has assessed that it is only possible but not probable that
outflow of economic resources will be required.
Comment – contingent liability can potentially reduce company’s asset and can
have a negative impact on company’s future net profitability and cash flow. It
can influence the decision of investor as they will avoid investing in such a
company as well as it will influence decision of creditors while lending capital
to the company. It can also have negative impact on the company’s ability to
repay the debt. It is necessary for the company to know the probability of
contingences.

Impairment

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An impairment is recognised to the extent that the carrying amount of

receivable or asset relating to contracts with customers
(a) The remaining amount of consideration that the company expects to
receive in exchange for the goods or services to which such assets relate;
less
(b) The costs that relate directly to providing those goods or services and
that have not been recognised as expenses

Note-
 The company have made investments in various subsidiaries/ joint venture/
associate companies. Considering the long-term nature of these
investments their impairment assessment requires judgement and
significant estimates
 For assets excluding goodwill, an assessment is made at each reporting date
to determine whether there is an indication that previously recognised
impairment losses no longer exist or have decreased
 The losses arising from impairment are recognised in the profit or loss.
 Goodwill relating to the associate or joint venture is included in the carrying
amount of the investment and is not tested for impairment individually.

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CASH FLOW STATEMENT

OBJECTIVE –
 To provide information regarding inflow and outflow of cash
 To identify any non-cash item
 To know the dividend paying capacity of the company
Following are analysis done on the basis of cash flow statement -
 The gain on disposal Property, plant and equipment is negative throughout
the year.
 No gain on sale of investment (negative growth)
 Dividend pay-out capability is very high which is 3.32
 Trade receivables have shown positive growth compared to other years it
means that company is able to recover its amount from the customers.
 Decline in trade payables but increase in other trade payables.
Comments-
o Operating profit before working capital changes was 13162 million
which was in line with compared to 13742 million for the year 2017-
18
o During the year company has incurred capital expenditure amounting
3796
o During the year 2018-19 no new borrowings were raised
o The company paid dividend amounting 2.25 per share on pre bonus
capital

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FORECASTING:

For forecasting purpose, we have used the following parameters-

 Sales growth
 Net profit margin
 Fixed asset turnover ratio
 Non-current assets turnover
 Current assets turnover
 Current liabilities
 Asset to Equity
Following are the forecasting done-
 On the basis of certain parameters, we have forecasted that total income of
the company will be declining further
 The growth in the profits will be fluctuating it won’t be stagnant
 There will be decline in the purchase of fixed asset in further years which
will reduce the capital expenditure
 There will be growth in the value of total current asset whereas decline in
the value of non- current asset
 Here will be increase in the value of current liabilities this might be due to
increase in payables
 It is also forecasted that asset will be 1.46 times of equity
 Total equity and liabilities have not shown much difference
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 Total equity has shown increase in forth coming years it might be due to
increase in profits of the company. More profits mean they will be able to
transfer more amount to the reserves.

OTHER FORECASTING
 As new car technologies are now focusing on connecting the car with its
external environment with the objective of optimizing operations,
maintenance, comfort, and convenience of passengers. So this would result
in increase in number of sensors used in car which will help in the increase
in the business of wiring harness as well as polymer business.
 Driver assistance and autonomous driving systems is expected to be
adopted quickly it also expected that the autonomous cars to constitute
15% of all PV sales by 2030 this will also drive increase in content for wiring
harness, mirrors, and polymer business

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RATIOS
Ratio 2019 2018
EPS 2.58 4.18

Comments- EPS of the company has gone down. This is an indication that share
price of the company had to go down
Ratio 2019 2018
ROCE 57% 70%

This indicates that the company is less capital intensive. Though the ROCE has
been reduced it should be more than the cost of capital. This ratio is important
from investors perspective because it shows investor how many rupees in
profits each amount of capital employed generates. As in 2019 there have
been decline in ROCE it means that less amount of profit is generated by each
rupee of capital
Ratio 2019 2018
EBIDTA margin 19% 19%

EBIDTA margin remained same as compared to last year it means that there is
no change in cash profit of the company. It is always good to have higher
percentage it shows that company is easily paying its operating expense
Ratio 2019 2018
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Current ratio 1.72 1.56

There is an increase in current ratio. A current ratio of 1.72 means the

company have 1.72 more times current assets than current liabilities. High
current ratio means company will be more easily able to repay its debt
Ratio 2019 2018
Inventory Turnover 7.85 9.66

The inventory turnover ratio of the company has reduced which indicated that
there are certain slow moving / obsolete inventories this may be due to
unnecessary maintenance of excessive inventories as it is important for any
company to keep high turnover this shows that the company does not
overspend by buying too much inventories
Ratio 2019 2018
inventory turnover (days) 46.50 37.77

In 2019 company averagely needed 46.50 days to convert inventory into sales
and in 2018 company have taken 37.77 days to convert inventory into sales.
But in 2019 it has taken more days compared to previous year
Ratio 2019 2018
Current ratio 1.72 1.56

Ideally the current ratio should be greater than 1.5 in the above case the
current ratio is greater than 1.5
Note -Interest coverage ratio of Motherson Sumi Systems Ltd is zero which is
less than 1.5 it is a red flag. The higher the ratio the less a company is
burdened by debt. If a company has no debt or the loan interest is being paid
by interest income from investments or other activities the ratio is zero which
of course is excellent

Ratio 2019 2018

Debt equity ratio 0.18 0.19

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Here the debt equity ratio is less than one which means that company have
more equity than debt
Ratio 2019 2018
ROE 13% 14%

ROE tells shareholders about how effectively their money is used by company.
There is a decline in ROE it means that company is not generating profit
efficiently

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