Fiem Industries Limited (FIEMIND) Earnings Call Transcript

Ladies and gentlemen, good evening, and welcome to the Q3 FY '21 Earnings Conference Call of Fiem Industries Limited, hosted by Monarch Networth Capital Limited. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anubhav Rawat from Monarch Networth Capital Limited. Thank you, and over to you, sir.

Yes. Thank you, Mallika. Good evening, everyone. On behalf of Monarch Networth Capital, I welcome you all to Q3 FY '21 Conference Call of Fiem Industries. We will start the call with the initial comments about the results and the future outlook of the company, and we will open the floor for question and answers. So without much delay, I now hand over the call to Mr. J.K. Jain, CMD of the company. Over to you, sir.

Good afternoon, ladies and gentlemen. We welcome you all to the conference call on the financial results of Fiem Industries for the third quarter and 9 months ended on 31st December, 2020. The company has released its results on 12th February. I believe you all got the chance to go through the same. Along with me on this call, I have Ms. Aanchal Jain, Director; Mr. Rajesh Sharma, Director; Mr. O. P. Gupta, CFO; Mr. Arvind Chauhan, Company Secretary; and other financial team members. Let me start with the company performance during the quarter. The financial results will be highlighted by the CFO. Then we'll start the session on question and answers. Our growth has remained in line with the growth of our medium OEM customers. During the third -- of the financial year 2021, the company has achieved a turnover of INR 355 crores, which is 10% increase on year-on-year basis. We had expected even higher growth during this quarter, but sales in December were impacted due to the regular yearly maintenance, shutdown by our key OEMs. Our top customers remained shutdown for more than 2 weeks and other customers were shutdown for 1 week. Looking at medium-term outlook, we are hopeful for the continued demand in 2-wheeler across the market, which will be mainly driven by the demand in [ bullet ] market and personal mobility preference by the people. Announcements in the recent budget with regard to the increase in spend on the road infrastructure and voluntary scrappage policy are favorable for the automobile sector. E-vehicle trend is also getting momentum and mainline OEMs as well as new players are entering into e-vehicles, which we think is very positive for industries, environment as well as for our company in the times to come. We are working on these opportunities and closely involved with the OEMs for their new product development. We expect that during the next 3 years, these new developments will significantly contribute in overall growth of our company. With this, I hand over the line to our CFO, Mr. O. P. Gupta, to update on financials. Thanks.

Thank you, sir. Good evening to everyone. I am pleased to inform that the company has achieved a total sales of INR 355 crores in the quarter 3 of FY 2021, as against the turnover of INR 323 crores in corresponding quarter of FY '19/'20, which has resulted in increase of 10% on year-on-year basis. During the quarter under reporting, the company had earned an EBITDA of INR 42.84 crores, which is 12.05% in comparison to EBITDA of INR 37.64 crores in quarter 3 of FY '19/'20, which was 11.65%, thereby indicating an upward trend in the EBITDA margin as compared to the corresponding quarter of last year. PBT of -- for quarter 3 of FY '20/'21 stood at INR 27.30 crores as against the PBT of INR 21.15 crores during quarter 3 of FY '19/'20, thereby showing growth of 29%. PAT of the company stood at INR 20.68 crores against the PAT of INR 26.05 crores during quarter 3 of FY '19/'20. During quarter 3 of FY '19/'20, the company had exercised an option for charging income tax at the lower rate of -- lower rate as allowed under section 115BAA of the Income Tax Act. Because of this, the company had made a reversal of deferred tax expense to the extent of INR 7.26 crores during quarter 3 of FY '19/'20. Without taking into account the reversal of deferred tax expense in quarter 3 of FY '19/'20, the PAT of the company has increased by 10% during quarter 3 of FY '20/'21 as compared to quarter 3 of FY '19/'20. Coming to the investment. Company has made an investment of INR 8.5 crores in fixed assets during the quarter under reporting. The total borrowing of the company stood at INR 62.47 crores as at 31st December 2020. With this, I end the financial brief, and now the floor is open for question and answers. Thank you.

[Operator Instructions] We have the first question from the line of Ashutosh Tiwari from Equirus Securities Private Limited.

So if I look at the revenue number for the quarter, it is actually lower than the second quarter sales that we did, despite the fact that market was -- I mean 2-wheeler, generally, volumes for companies were higher in the second quarter -- third quarter versus the second quarter. So is there any market share loss that we see? Because if I look at the revenue from Honda motorcycle, last year third quarter, it was 42% market share roughly, which is equivalent to INR 135 crore revenue. This quarter, that number is 34% only, which is equivalent to INR 122 crores. There is a decline in Honda revenue that we did in the current quarter versus last year by 10%. So what's the reason behind that?

Yes. I'm Rajesh Sharma. See, as our Chairman has already indicated in his speech, HMSI have almost closed for 18 days -- more than 18 days, during December month. And that was -- they are maintenance -- regular maintenance shutdown, which has majorly impacted on our sales because, as you know, we are -- HMSI is our biggest customer in our overall sales. And other customers also, if you see, the major -- other customers are also closed for a week during December month. That has mainly been impacted on our total sales of this quarter.

But generally, the sales of companies -- I mean the volumes of companies in third quarter was higher than the second quarter. Despite that, we have seen a dip, on a quarter-on-quarter basis, I'm saying.

No. Basically, this was -- normally, the maintenance took place in December, in 2-wheeler. So -- and normally, the maintenance is only for 7 days. So this time, it was strictly -- they have made it for 18 days. So this was -- that is why our sales is less.

Okay. So looking at the run rate that we saw in maybe January and schedules of Feb-March, do you think that the revenue going ahead in, say, Q4 and all, they will be higher than this quarter revenues season? Can we go at least...

We are expecting very good growth.

So can we surpass the Q3 -- Q2 numbers in Q4, sales side?

Yes, I hope so.

Okay. Okay. And secondly, in terms of Honda -- sorry, this Yamaha global order that we had got, so was the revenue in this quarter lower than the second quarter? And I mean how should we see the ramp-up in Yamaha global orders going ahead?

No. Growth in Yamaha is good. This is higher, actually.

Sir, I'm comparing this to second quarter and not versus last year numbers.

You're talking about this September ending quarter?

Yes, yes, September...

This is higher. Yes, this is higher.

So going ahead, I mean we were talking about deliberately in volume -- hello?

Yes, yes. Tell.

So we were talking about last time about the ramp-up further in Yamaha sales because we have got -- we have won new orders from new countries. So how should we see the ramp-up in that going ahead?

Yes. So we have already started 2 projects out of our total development. Those projects have already started exporting to outside countries through Yamaha, of course. And those projects are -- definitely will be very good demand as of now projected for next quarter.

You mean, fourth quarter?

Yes, fourth quarter.

So Yamaha revenue that we did over the last 2 quarters, it will increase from Q4?

Yes.

And will it be substantial growth or I mean moderate growth, basically?

It was a moderate growth basically.

No, no, I'm asking that -- let's say, we said that we will see some growth in Yamaha further deliveries from Q4 for export orders, so can we see substantial growth from Q4 to Yamaha versus what we did in second and third quarter this year?

Yes. Of course, Yamaha will definitely grow.

Of course, there will be a growth for last quarter.

Compared to second, third quarter as well?

Yes, exactly.

The next question is from the line of Anubhav Mukherjee from Prescient Capital Limited.

Sir, your competitor Lumax, they hosted an earnings call just 1.5 hours back. And beyond the call, claimed that due to their JV with Stanley, they have a lot of cost competitiveness and technology advantage in LED auto lamps, especially. And they specifically cited the example of TVS Motor where they have been able to -- they were not a vendor at all, and they have been able to gain specifically LED lamp for the Ntorq model. So sir, I would like to understand from you, is it actually that their cost at which they can supply to the OEMs is lower for LED lamps compared to us because they were very vocal about it?

Yes. See, we are -- as of now, if you see, we have taken few of the business from other competitors to us and we have started supplying for SXR model of Piaggio. That is 100% of LED. So it is a model mix. When our customer is required and how come and how fast we can give our -- the solution. So we have also design partner -- our design subsidiary company in Italy, and we are supporting in all kind of electronic designing as well as mechanical designing. And substantially, we are giving the good competitive prices to our customers, and we are getting good business.

And apart from this, we were the first to have SMT line, electronic line production, last 7 years, 8 years. Now people are doing now. So that is our main basic thing.

Okay. But like on the -- just on the pricing competitiveness, is it possible like somebody is willing to work at a lower margin? How -- what's your take on it? Because like -- what I understand is that we were the sole supplier to TVS and that competitor has been able to enter. So is it like -- it's not only about the quality, but is like pricing is something we could like -- we can't match up or...

Basically, we were not sole supplier to TVS-M because there was Rinder. Their second supplier was Rinder since many years. So -- yes, what you are saying, there is a possibility that in one product, they may try to enter for a low margin. But to have a low margin in the long run is not sustainable. So nobody can do that forever. So just to have an entry level within any country, one can give a lower level -- low level of prices, but it is not sustainable in the long term.

I get that, sir. And sir, just on this, there is a recent shortage of semiconductors, which is impacting the auto industry quite severely. So for us, sir, does that impact our production, our company in any way because we also would be sourcing the LED chip? So does it impact our profits in anyway?

No. See, we were aware of this for the last 1 year, and we were having heavy inventory at our end. So at the moment, we are not impacted and we have sufficient stock at our end.

I get that. And sir, last question from my side. Sir, overall, if you could share some details on any new business that you have won in this quarter, any new model or any new OEM added, that would be very helpful.

As we indicated in our last call also, we have 50-plus projects as of now under development. And out of which, we are expecting 35 projects will be launched within the next 3 years.

And few projects, we've already -- few projects -- we expect that this quarter, 1 or 2 -- 2, 3 projects will come. They will be launched during this quarter.

The next question is from the line of Varun Baxi from Equirus Securities Private Limited.

So firstly, my question is on the increasing competitive intensity in the industry. Like, 2-wheeler, we have seen many new players entering. So how do you see the pricing pressure on -- particularly on LEDs going ahead? Have we seen a significant drop in the pricing of LEDs?

Basically, we have been telling earlier also, our system is anything cost, plus 5% is always reimbursed by that customer. So we are not finding any impact on that.

No, sir. I meant like the difference between LED and conventional lamp, earlier it used to range from, say, 2 watts to 5 watts. So now, has it come down or is it in a similar range?

No, it is, at the moment, similar range. Not yet come down.

Okay. Also sir, last call, we had mentioned that there would be an announcement of addition of a new big 2-wheeler OEM to our customer list. Any progress on that?

We are already in touch, and we hope -- basically one order we have got from Piaggio -- Piaggio jeep -- Piaggio for India. That was new addition.

We have already started production in this quarter. And the fourth quarter will also be a ramp-up plan. It will be a good volume. And at the same time, we'll be exporting these lamps to Italy also.

Piaggio Italy.

Piaggio Italy.

Okay. Okay. And sir, if you can specify what would be our capacity utilization at this point in time? And any plans to further increase the capacity utilization or increase our capacity?

Basically, at the moment, we have 70% to 75% capacity utilization, which we can go up to 90% -- 90% gross.

Okay. So we don't see any foresee -- we don't foresee any significant CapEx in any...

Yes. Yes.

The next question is from the line of Priyadarshi Srivastava from Monarch Networth Capital Limited.

Sir, just wanted to know which are the new clients you have added in this quarter, sir?

So this quarter, we have added Piaggio.

Piaggio India as well as Piaggio Italy. As well as Yamaha export, also additionally we added Indonesia.

Okay. Okay. So sir, any 4-wheeler clients, sir, update on that? Anything going onboarding? How is the progress or how we are looking?

In terms of our passenger car, there is none. But of course, we are working with commercial vehicle and tractor segment.

Okay. And sir, any update on onboarding of Hero MotoCorp?

We are still working on that. We will update once things will be moved ahead.

Okay. One more, sir. Can you just help me with the split for the LED and the halogen auto light, sir?

Yes. This -- LED is 41% and halogen is 59%.

[Operator Instructions] The next question is from the line of Manas Saraswat, who is an individual investor.

Sir, I wanted to know what the capital expenditure for FY '21 and '22 was and the annual maintenance CapEx?

Yes. See, this is still under consideration. So in last call, we will be able to tell you when this all annualized free cash will come. So far, this is -- from this quarter, we -- this quarter, we -- INR 8.5 crore. This is our CapEx. And for the full year, it will be around INR 20 crore to INR 25 crore range.

Okay. Okay. And sir, my -- one more question. What is the plan for the free cash flow post debt repayment? And will there be any share buybacks or a higher dividend possible?

No. No. There will be no share -- there will be no buyback. But definitely we'll plan for a dividend payout and consider in the last quarter when we see the entire year results. Final dividend.

The next question is from the line of Ashutosh Tiwari from Equirus Securities Private Limited.

So on this Piaggio order, can it make a substantial difference to our revenue, like say, can it be 1% or 2%, 3% of our sales or is smaller because the size of deals in India is very small?