Greaves Cotton Limited (501455) Earnings Call Transcript

Ladies and gentlemen, good morning, and welcome to the Greaves Cotton Limited Q2 FY '21 Earnings Conference Call. From the management, we have with us Nagesh Basavanhalli, Group CEO; Ajit Venkataraman, Executive Director; Arun Srivastava, Head of Strategy. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nagesh Basavanhalli, group CEO of Greaves Cotton Limited. Thank you, and over to you, sir.

Thank you. Good morning, everybody. Thank you for joining us today. Hope everybody is doing fine, staying safe and healthy amongst these challenging times. Greaves has transformed multiple times during its 160 years' journey. We are at the cusp of a lot of disruption. And as part of that, the pace of technology change intensifies. Post COVID, there has been a lot of challenges and opportunities. We continue to strive to create a comprehensive ecosystem, which will be focused on several different areas: clean mobility; retail expansion; finance availability for enabling our businesses; and developing our core businesses of engines, aftermarket, gen sets and palm. With that, we aim to drive agility and drive the transformation, which is so very essential in these disruptive times. The company has made significant investments over the last 3 to 4 years in terms of building a clean tech portfolio starting with the BS-VI engines, which is now out on the road, and Mr. Ajit Venkataraman will talk more about it. The CREST technology, which is undergoing various stages of testing; the e-mobility division, which has panned off into both the 2-wheeler and the 3-wheeler division; as well as the B2C plays, which is into the Greaves Retail and now into the Greaves Finance. As we look forward, the focus areas of the company are sharp. Regarding the core engines, extending the engine capability towards a global engine play, both auto segment, non-auto segment, strengthening and growing the aftermarket, as well as the non-auto product portfolio, given some of the opportunities post-COVID. Also looking at industrial engines, both small and large. Regarding the newer mobility businesses, in terms of e-mobility multi-brand service, which is a Greaves Care, multi-brand retail or Greaves Retail, our mantra of getting closer to the customer, organizing the unorganized, extracting more value through the value chain continues. So the expansion across the length and breadth of the country in these areas will continue, whether it is the 2-wheeler, e-mobility store, the multi-brand service stores, the multi-brand retail stores. And over the journey of the next couple of quarters, you'll hear more about this. The team, as you're aware, has worked very hard. The last couple of quarters has been tough. And I'm confident that based on the prior experience where we had 9 to 10 quarters of continuous growth, that this team have the depth and will continue this transformation. So today, I'm very proud that we have organized the teams. Mr. Ajit Venkataraman, who was announced Executive Director back in August, continues to lead the Greaves Cotton core businesses, which is the engines, the aftermarket, gen sets, farm, et cetera, and grow those businesses. Sunil Shah, he, who is heading our non-auto business, moves on to take a bigger role in the new mobility area, especially in the 3-wheeler business areas. Mr. Mohan Ram, who was a KMP, steps down from the Board to focus more on its core area of manufacturing, supply chain and operations as we continue to grow. There was another KMP change, our CFO, Mr. Amit Mittal, who has come from private equity background, decided to go back to private equity. Hence, he has decided to leave for personal reasons. That CFO position will obviously be filled shortly, and we will announce it when we are ready. I would take this opportunity to thank all the customers, our OEM partners, our suppliers, our employees during these tough last 8, 9 months post COVID, who have stood together and were trying to come back stronger as the market recovers. Greaves is going to continue to do both the offense and the defense so that post COVID, we come out stronger. With that overview, let me hand it over to Mr. Ajit Venkataraman, who will talk to us about our Greaves core business, followed by Arun Srivastava, who is going to talk to us about the new mobility businesses. Ajit, over to you.

Thank you, Nagesh, and good morning to everyone in the call. And thank you, Nagesh, for giving an overview of the strategic direction we are heading. We are not immune to the COVID-led market slowdown. We have consciously invested in building capabilities, strengthening partnerships and collaboration. We are also removing redundancies, softened our focus on cash conservation, all to make the core stronger, leaner and more flexible. This will help us to focus on newer strategic projects. Our focus is to improve and grow. We will be scaling up these projects to build a stronger business portfolio with higher focus on value creation and profitability. With all structural changes, we have gained efficiencies at multiple levels. The recovery in Q2 has been positive but slow. The Q2 revenues, as you must have seen, has shown a growth of 96% over Q1 of this financial year. This quarter also saw soft [indiscernible] facility, and we are working to further realign locations, ensuring productivity levels in sync with demand. Revival seen across core sectors of the economy, we remain optimistic about the positive growth across various businesses we are in, in the balance part of the year and aim to drive the profitable growth. While COVID has created a short-term debt, we believe that the company will come back much stronger. Market is slowly recovering with major confidence signaling partner growth in the rest of the year. We have listed this period to engage better with customers, channel partners, suppliers, employees. They [Technical Difficulty] Sorry about that. Today, we are stronger and financially stable, going to the realignment of various structural costs. And tighter focus with several initiatives like closure of the Ranipet factory, optimizing people-plant-productivity levels to meet our new demand. We are also happy to mention that we have locked in a leading Indian OEM for us Indian business as well this quarter. On the financial side, we reported a revenue of INR 288 crore in Q2 FY '21 as against the INR 490 crore in Q2 FY '20. A de-growth of about 41%. The revenue for H1 FY '21 was about INR 435 crore against INR 967 crore for the corresponding period last year. Just to give you a quick update in the biggest businesses. The auto market is dependent upon the 3-wheeler industry. And as I have mentioned, we have seen strong comeback in the cargo segment especially, where it has reached the pre-COVID level. The passenger segment continues to have a slow recovery due to social distancing norms. We are seeing a good come back in October, but whether this momentum continues to depend upon post-Diwali sale. In the non-auto segment, infrastructure is picking up. Our non-auto engines has seen a robust growth of almost 2x compared to pre-COVID levels. Our aftermarket has reached pre-COVID levels. In terms of new business wins, one of which we have already mentioned that we have a new partnership with a 3-wheeler OEM for diesel. These are also at advanced stages of the conversations with small -- or global OEM for small coal dealers. The CREST CNG engines, we are also in advanced stages of discussion with a 3-wheeler of OEM. Last quarter, we also launched a couple of new products in the non-auto segment, Zero-Max sunset. And we also have won several different wins, deepening the play in the non-auto segment. With the economy opening up, opening up of officers, metro, schools, colleges, we anticipate a stronger recovery in the second half, a renewed investment in gen set business is going to be there in Q3 and Q4. With that, I would end. Thank you very much, and I will hand it over to Arun.

Thank you, Ajit. Good morning, everyone, and I hope that all of you are doing well. Ajit covered the brief part, I will be covering our new mobility businesses. An important part of our B2C and cleantech play is our e-mobility play under Ampere, which has 2 businesses, which is the electric 2-wheeler under the Ampere brand and the electric 3-wheeler under the ELE brand that we just acquired through Bestway in the last quarter. When we started working with Ampere early 2018, the business was at a monthly run rate of around INR 2 crores, and this has steadily improved over the past couple of years and has now reached close to INR 119 crore monthly run rate in September '19. This represents almost a 10x growth over the past couple of years while this is at a slightly lower base, but we expect the growth momentum of this business to continue further. Ampere, in the business, has further consolidated its positioning and increased its market share to 20% of the overall market in the last quarter. The business opened almost 60 new dealerships since unlocked again and now has 265 dealerships across the country. Ampere has also built a very strong portfolio of B2B customers with Ampere vehicles powering people, mobility as well as e-commerce delivery for customers like Bounce, eBikeGo, Amazon, BigBasket, Domino's, Reliance Retails, amongst a lot of other customers. We have seen a very strong response and support from some of our B2B customers, including the large repeat orders. We expect that this part of the business will also continue to grow and deliver a lot of momentum over the next couple of years as we go ahead. To enable different customer needs, Ampere has also built a very strong financing leasing and exchange programs, which can serve the needs of various customer segments. On the product portfolio side, Ampere has added the product portfolio from slow-speed lead asset products towards a much healthier mix of lithium-ion and high-speed products. Now if I look at it, our lithium-ion product portfolio is more than 60% of the portfolio. And if you recall, lead asset used should be almost 100% of the portfolio that we acquired. So the portfolio is very steadily shifting towards better technology lithium-ion products. Also the lead asset -- also the higher speed portfolio, which was -- which we entered the market sometime last year, has been growing fairly steadily and almost 30% to 35% of our sales are now coming from higher speed leaders. Our recent product, high-speed scooter, the Magnus Pro, has seen a very, very strong response from our customers. And we believe that now we are in the speed spot of the mass market mobility in the 35,000 to 80,000 price range. And this, we believe, is positioning which we have taken to help the overall 2-wheeler industry transition strongly towards electric as we go ahead in this decade. On the operational front, Ampere started building a team to deliver operational excellence, and this has also started giving the results now. Ampere has progressed significantly on product technology and substantially increase the localization content in its products. The front-end and back-end controls along with improving sales has helped the business deliver a positive EBITDA for the month of September '20. So this being a milestone for Ampere in terms of delivering EBITDA positive performance. And there are a lot of factors which have gone into it. Also notable for Ampere is that on the back of strong operational controls, the working capital, which used to be close to 108 days earlier back in September '19 has been brought down to 53 days with improved profitability, the cash position has also improved, and Ampere has now steadily started delivering positive cash flows for the second quarter now. On the e-3 wheeler front, we acquired the Bestway in the month of July. And Bestway is a very strong player in some of the eastern part -- eastern pockets of the country and the eastern UP. We are expanding the channel for Bestway into other bigger markets of northern part of the country as well as some of the emerging markets in the eastern -- in the Southern and Western parts of the country. So this business is also going -- experiencing a good traction. Post acquisition, we had 2 months of full play in the month of August, September. We've seen that the business has delivered almost 600 to 700 e-rickshaw sales per month. So this, again, makes Ampere integrated last mile mobility player with both speed dealer as well as 3-wheeler play and will constitute a very important part of our overall portfolio. As we look ahead into the world post COVID as the unlock process further intensified and it's almost -- and that the economy completely opens up over the next couple of months, safe, clean and affordable transport will be an important lever for the country going ahead. And all our Ampere businesses, be it the 2-wheeler or 3-wheeler, is uniquely poised in driving this momentum. So we are fairly confident that Ampere businesses will continue its strong growth trust and become a very strong as we move ahead. Thank you. And Ashok, I think, we can open up for questions now.

[Operator Instructions] First question is from the line of Manish Goyal from Enam Holdings.

I have a couple of questions. First, on the opening remarks, it was mentioned that we have logged in a leading OEM. So if you can provide more insight as to what fuel base it is and if you can share more details as well as on the global OEM for the 4-wheeler, which was mentioned. And in that related question on the progress for the CNG engine tie-ups.

So Ajit, do you want to take that on? I think it's all of the engine side.

Sure. Thank you, Manish, for the question. As I mentioned, we have tied up with the leading OEMs for 3-wheeler. This is for the diesel engine and this -- we will be announcing in detail at an appropriate time, fairly soon. At this point of time, I'm not able to reveal it -- reveal the name. But it is something which we have locked in, and we need to confirm from the other parties there. Second one was with respect to the global OEM. This is a similar state, but we are in the final stages of discussion. And again, at an appropriate time, very soon, we will make an announcement as well on that.

Sorry to interrupt, but this 4-wheeler engine is again for the diesel 4-wheeler or? If you can...

This is currently for the deiseal portfolio. And for the CREST CNG engine, again, we are in advanced stages of discussions. Again, with a 3-wheeler OEM. And we will be coming up with the details at an appropriate time.

But sorry to harp on this, but we have been kind of hearing about the tariff like for at least for the CNG for quite a long time and nothing material has been happening. So any time lines would you like to spell out, please?

So at this point of -- this is a new technology. And therefore, it takes a little bit of a time for signing of the contracts. And I appreciate your patience, but at this point of time, it is difficult to exactly say what time frame it will be done. But we will be making that announcement, fairly soon.

Yes. And if I can just jump in, Ajit. Thank you, Ajit. I think you've covered it well. For the gentleman who was asking the question on the CNG. I think on the deiseal side, Ajit has more than amplified. On the CREST, since there is a historical element to it, this is a transformational technology, worst time in this part of the world, but clearly the alpha and the beta stages of the pilot have gone very well. While there are not one but 2 OEMs who are working with us very closely, like Mr. Venkataraman was talking about, right? And at the end of the day, the BS-VI launch and then the COVID, obviously, caused a couple of quarters of delay. And at the end of the year, you're all aware, we are in the business of providing engines. And at the end of the day, we need to work with our OEMs. So we are working very closely. I think the team, in terms of the delivery, the solution, the value proposition, absolutely on track. In terms of the final sign up, like Ajit said, I think we will announce it hopefully sooner than later but once we get a final confirmation. To date, we don't have the final confirmation, although actual results are meeting or exceeding the goals of the fuel economy that was initially set, yes? So we will keep you updated. We are also as eager to kind of move with this transformational technology and bring it to India. Obviously, as a company, from a CapEx standpoint, we have made a decision that we will want to get a couple of customer sign ins before we invest any money, any additional CapEx. So hence, you can appreciate that, that we are being very prudent. We will work with our customers and announce at the right time.

And last question on electric vehicles. I just want to know how are we positioned on, say, strategy to replace the imports from China, especially batteries and other things. So if you can just highlight the company's strategy on this.

Sure. So Arun here, I'll take this question. It's a very important question because it is one of the pillars of our strategy that how do we reduce dependence on a single country and build a much superior supply chain. So in fact, we started on this journey almost a couple of years back. And if you recall, our product high-speed scooter Zeal was amongst the first scooters in the country to get the same 2 approval complying with some of the fees, manufacturing, planned guidelines, which were imposed last year. We have continued that journey, and it's in a fairly advanced stage right now. So for our high-speed scooters, the utilization levels are fairly high. A lot of critical components are coming from our partner ecosystem in India. And also this journey is not a simple and easy journey because, as you all would know that the component ecosystem in the country is -- or the electric vehicle side is still fairly nascent. So we have worked with a lot of OEMs to codevelop components, which would be suitable for the Indian market and in the Indian driving conditions. So as we look at in the next 3 to 6 months, we will largely complete our localization journey on the high-speed side. We have proactively taken up the localization for slow-speed scooters. Now there's no regulatory requirement for slow-speed scooters. But as part of our supply chain strategy, that has also been initiated. Slow speed may take slightly longer. But overall, in the next 18 months or so, we expect to complete the journey for the slow speed as well. So that's in a nutshell, in the next 6 months, largely for high-speed and slightly longer for the slower speed.

The next question is from the line of Anish Jobalia from Banyan Capital Advisors.

My question is what is going to be our strategy going forward, given the outlook around the passenger 3-wheeler is slightly negative? So how do we plan to reach the 3-, 4-wheelers at the revenue and [indiscernible]

So Ashok, the call was a little muted. Can somebody repeat the question, please? We couldn't hear the question properly. Get closer to the phone.

Mr. Anish. May I request you to speak little louder?

Yes. My question is, what is going to be our strategy going forward. Given the outlook around the passenger 3-wheeler is slightly negative. So what is going to be our strategy around this so that we reach our pre-COVID levels sooner than later?

I'll get that question. So Ajit Venkataraman addressed this earlier. Ajit, do you want to talk about the cargo and the passenger and by what quarter you see the market coming back post -- pre-COVID levels?

[indiscernible] for your question. As you must have seen that the 3-wheeler market have...

Sorry to interrupt you, sir. But your voice is not clear. Can you speak louder, sir?

Ajit, it is better now.

Okay. Anish, thanks for your question. The 3-wheeler market especially is, it constitutes of both the cargo segment and the passenger segment I had mentioned as before. [indiscernible] 45%. The cargo segment has almost recovered to the pre-COVID level and the passengers has not. It is going to take some time given the social distancing laws and the vaccines are a bit far away from now. So the good news is that our dependence is not just on the automotive segment. As you would have noticed, we have the aftermarket business and the non-automotive business. The aftermarket business is -- has bounced back to pre-COVID level and we expect a strong growth going forward in the remaining part of the year and going forward as well. The price side is in the nonautomotive segment. And especially in the highs of engines we deal with -- high volumes engines we deal with. It is the nonautomotive segment which constitutes the majority of the business, both domestically and internationally. And that is going to be our renewed focus. The second aspect of it is that we are not just going to focus on the products which is the engine. You might have noticed that we have also started getting very seriously into the equipment business, whether it is the light construction business or it's the farm equipment business. Those are strong growth areas. We call it the nonautomotive small engine segment. And this has shown some phenomenal growth and we expect that segment to grow as well. The other area which we are looking at is to try and find out new applications for our core Indian small engine segment. And this B2C has got a large opportunity in the overseas market, and which is where we will be focusing going forward.

Sir, so when do you expect to reach pre-COVID levels given the uncertainty around the engine -- auto engine business? So that's my follow-up, and that's my last question.