Greaves Cotton Limited (501455) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Greaves Cotton Limited Q1 FY '22 Earnings Conference Call. From the management we have with us Mr. Nagesh Basavanhalli, Group CEO and MD; and Mr. Dalpat Jain, Group CFO. [Operator Instructions] I now hand the conference over to Mr. Nagesh Basavanhalli, Group CEO and MD of Greaves Cotton Limited. And over to you, sir.

Thank you. Good morning. Good morning, ladies and gentlemen. I hope all of you are keeping well and staying safe in these difficult times. I welcome you all to the Greaves Cotton Q1 FY '22 Conference Call. I would like to begin by just starting off with an overview of the business, and my colleagues will talk in more detail as we go through. As we are all aware, the nation was under a lockdown during most parts of the first quarter due to COVID 2. Greaves continues its trajectory of diversification even in the middle of that lockdown. Q1 FY -- the Q1 faced strict lockdowns as the initial stages of the pandemic were ongoing. The company had plans to kind of -- from a business continuity, from an employee and our stakeholder well-being and in fact, vaccination of our people and some of our related immediate stakeholders. That was one of the first priorities for Q1, and glad to report that majority of our people are vaccinated. Our diversification strategies which started about 4 years ago have aided in the resilience of the company, and we continue to see that progress. We have restructured our business internally to focus on each business and align more efficiently in delivering value to our end customers. To that end, we have now restructured our 3 -- into 3 major businesses and 2 new business lines. Let me elaborate. Our core Greaves Cotton business or the Greaves core business, which was auto plus non-auto, is now combined under one vertical and one management team. Then we have retail solutions, Greaves Retail, which will be the traditional aftermarket plus the Greaves Care plus the Greaves Retail. Then we have the e-mobility solution, which is the Ampere suite of products. In addition to that, we have 2 newer businesses, fintech -- Greaves Finance or Greaves fintech and Greaves Technology. So with that, let me reiterate, the Greaves core business, which is auto plus non-auto; Greaves Retail; Greaves E-Mobility, which are the 3 primary businesses; and Greaves Finance or Greaves Fintech and Greaves Technology. This also is in line with our strategic mantra that we started 4 years ago of moving closer to our consumer, moving from a traditional B2B to a B2B plus B2C and extracting life cycle value. Now let me move to some of the other businesses. Ampere, the fast-growing e-mobility business of Greaves Cotton, has accelerated India's EV journey. I'm very happy to report that over the last several days, the team, thanks to the collective hard work of the team between our 2-wheeler and our e-rickshaw, they have crossed the new milestone of 100,000 EV customers over towns across the country. So over the last few years, since the acquisition, Ampere vehicles has emerged as one of the leading, affordable, reliable electric vehicle brands in the mass mobility segment, with increased acceptance from both B2B and B2C customers. Recent government initiatives and FAME II policy have also proved beneficial of this industry. We have passed on the benefits to our consumer, ensuring we cater to a much broader customer base. In line with our company strategy of expanding e-mobility, our Ranipet plant, which we have talked about, will be launched later this year. Happy to report that the progress on that is going well. We will also be looking at multi-brand e-mobility retails and to provide a one-stop shop for all things related to EVs under our Greaves Retail umbrella. Greaves has continued to build on its existing portfolio by investing in technology, talent and the entire life cycle. Talent has been added in some of the newer areas, whether it is e-mobility or finance or some of the services area. To begin with E-Mobility business, we have now established a strong digital network. We are also going to be launching an experience center for Ampere to enhance the consumer experience and immerse consumers into the future of mobility. The development of the Greaves Finance arm will be an additional enabler to the EV industry. As we have been mentioning in the past, our efforts at Ranipet continue, and we are excited that, that capacity increase will aid us as we go forward over the several -- over the next several quarters and several years. We've always focused on building our range of products and introduced a new range of products under our non-auto segment, which was one of the areas of diversification a couple of years ago. I'm happy to report that marine segment, which -- where our engines serve one of the largest fishing communities in the world, has seen additional traction. We've also launched over the last quarter light construction equipment, providing more efficient and durable engines in the construction industry. We are beginning to see, even as we get into the month of July, increased traction in both the non-auto segment and the E-Mobility segment. Thank you all. I will now hand it over to Mr. Dalpat Jain for a discussion of the [ financials ]. Thank you.

Thank you, Nagesh. Good morning, everyone. To give the highlights on numbers. So as Nagesh mentioned, the quarter was impacted by the COVID wave 2, and the lockdowns which started from last week of April continued until the third week of June, and that had a significant impact on the revenues of company. Still, if I compare from the last year's first quarter, which was again impacted by the COVID lockdown, company consolidated revenue grew by 47% to INR 229 crores. EBITDA loss reduced from INR 27 crores to INR 17 crores. Now if I look at the individual business units, as Nagesh mentioned, non-auto business reported a healthy growth of 142%. Volumes in the non-auto business grew by 78%. Engines volume in non-auto business grew by 78%. Our aftermarket sales and service and retail business grew by around 27%. In e-mobility, particularly the 2-wheelers, the manufacturing plant was shut for more than 8 weeks due to severe COVID impact in Coimbatore and that added impact on the revenue. But as soon as plants opened, we saw significant demand, and July has been best ever month for our electric mobility business. So demand is going to be continuing at a very strong level with all the government incentives out there. In the auto engine, where we saw a degrowth in the current quarter and volumes degrew by the -- by 16% mainly because of lockdowns and the secondary inventory in the dealer side. So that is going to pick up as we come closer to the festive season. During the -- subsequent to the quarter, the company also entered into an MOU with a developer at -- for selling its land at Pune, the Chinchwad, Pune area. The consideration for the land deal is determined at INR 320 crores, which will be received in 3 tranches. The first tranche of 10% is already received on signing of MOU. The balance will be received in December and March or earlier if the regulator documents are signed before that. With that, I will hand it over to moderator again to opening the floor for question and answer. Thank you, everyone.

[Operator Instructions] The first question is from the line of Ashutosh Tiwari from Equirus Securities.

So first question is on these new [ businesses ] of Greaves Fintech and Greaves Technology. So we already -- sir, over last 3, 4 years, the key areas we've targeted are like aftermarket, electric 2-wheeler, 3-wheeler and non-auto engines. And we have a very large ground to cover still in electric 2-wheeler from competition increasing. So with all these things where the opportunity is still quite big, aren't we taking too much on our platter, going into technology and fintech as well? And also, can you just highlight what areas in these 2 verticals we are looking at?

Yes. I think, Ashutosh, I'll just take that at a broad level, right? So if you look at it, right, the core business remains our traditional GCL core, which is engine fundamental where we have taken the manufacturing footprint, made it more efficient, moved everything to the Aurangabad [ mega ] site. We had operating efficiencies that we got last year. In addition to that, as we have said, by virtue of the next level of restructuring that we just announced, we'll get additional operating efficiencies starting FY '23, right? And by virtue of both auto plus non-auto combining and diversification with non-auto, that utilization and the efficiency and the throughput increases. I assume you are with me on that, right? So we have made that core business more efficient, more future-ready, right, by diversification, auto plus non-auto, point number one. Point number two, there are really 2 other businesses like you've said. One is the aftermarket business. And now by virtue of aftermarket business, when you look at it from 3,000 retailers plus several years ago, we have gone to about 7,000 -- close to 7,000, 6,700, I believe. From less than -- the mechanics are now greater than 12,000 mechanics. Greaves Care and Greaves Retail, which is multi-brand service, multi-brand retail has been added. So now when you look at it, the Greaves aftermarket -- or the Greaves Retail, it's really the aftermarket solutions all combined under one focus and under one leader. That's the purpose of that, right, second point. So no change there. Third is the e-mobility, which we continue to get traction in the belly of the market, the 2-wheeler/3-wheeler segment, which forms 75-plus percent of Indian population, right? That is just the 3 businesses we are focused on. Now let me tell you Greaves Finance is an enabler to our 2-wheeler/3-wheeler business. About 18 months ago, not very many banks were participating in the e-mobility transition. It's obviously changing now. And our involvement in Greaves Finance was to enable that transition, accelerate the transition of e-mobility, and I think we are seeing traction. So it's an enablement to our core business. Greaves Technology is very similar. Greaves Technology, what it does is we have engineering services arm that focuses on automotive engineering, that focus on embedded systems, some of the areas that Ampere from a technology differentiation and a technology moat needs. So it's again an enabler to the core business. So make no mistake about it, it's 3 fundamentally strong business and 2 enabler business. So that's kind of -- and it's all coming together with this transition from a B2B to B2B plus B2C. We're getting closer and closer to the consumer, whether it is the spare parts sale or the service sale or the 2-wheeler or 3-wheeler sale. So that's kind of -- the fundamental strategy hasn't shifted at all. It's refocused, sharpened and made efficient where we had efficiencies and obviously, investment in areas where we need investments. That's kind of the thing. I hope that answers your question.

So basically, technology is more like the back end for your electric 2-wheeler business?

Exactly. Especially at the high end, as you can imagine, the technology will be a typical enabler for success for the electric mobility, right? And it's no longer mechanical. It's electronics going forward and embedded systems and software. That's where the technology comes in.

Okay. Got it. And secondly, it was mentioned that July was the highest sales month for 2-wheelers. So what kind of volume we did in that month?

So I'll look to my colleagues. Dalpat and Arun, want to comment?

Yes. So Ashutosh, between 2-wheelers and 3-wheelers, we did close to 4,000 vehicle sales.

4,000 sales in a month?

Yes.

And the ratio of high speed would be how much?

Because it is upcoming quarter, Ashutosh, I may not be able to answer this now. We'll discuss more details.

Yes. And I think, Ashutosh, if I can just add one more thing to what Dalpat was saying. Keep in mind that this was after -- like Dalpat was saying earlier, after 8 weeks of shutdown -- Coimbatore was one of the worst affected, unfortunately, due to COVID 2, and the plant was shut down for 8 weeks. Our supply chain was shut down. So after that, both us and the supply chain start ramping up, so it is just month #1. So please stay tuned.

Sure. And this was more like wholesale, right, the sales from your side?

That's correct. But retail has also been equally strong, Ashutosh.

The next question is from the line of Vimal Gohil from Union Asset Management .

I hope I'm audible, sir.

Yes, Vimal. Very clear.

Yes. Great. So sir, I want to probably just harp on a slightly more long-term question, probably looking beyond the current quarter, what we've sort of had. Obviously, we've had a tough quarter. But my question is -- first question is regarding your e 2-wheeler business, which -- where were you expecting very high growth going forward. Now FAME II and state subsidies have sort of made, if you may call, the higher end of the vehicles more affordable in nature. So given the fact that going forward, the affordability of -- overall as a country in India is going to increase, you've seen that in the regular bikes and cars, that the premiumization trend is very strong even in COVID times. So you have seen premium end of the car selling very well, premium end of the bikes also doing sort of well over a period of time. So just wanted to pick the management's brains on what is -- what exactly are we sort of looking at in the long term? Are we still going to continue focusing on the mid-range or the lower end of the market? And if at all we are sort of targeting to go into the higher end of the segment, when do we do so? And do we have the sort of bandwidth to enter the high end of the segment? Because competition clearly there -- clearly is increasing big time in that particular segment as the competition is focusing on that segment.

Yes. Thank you for your question. I'll start off and then maybe my colleague can add. Thank you. Very important question. We have always been very clear that we play in the belly of the market. So when you look at it, right, we typically are in the mid-30s to the INR 80,000 type of a range, the heart or the belly of the market, right, point number one. Point number two, with some of the government FAME II subsidy as well as state government incentives, whether it was Delhi or Gujarat or Maharashtra or several other states, what we have seen is a significant traction in the belly of the market. What we have also seen is significant first-time buyers. These are not IC engine buyers. These are first-time buyers coming into the electric 2-wheeler segment. So our strategy of playing in the heart of the market, affordable last-mile mobility, which moves India, which is the fundamental DNA that Greaves was always about, about moving people and moving cargo. I think that's our fundamental thesis and will continue to be our fundamental thesis going forward. And we believe that's serving us well because even during the FAME II introduction, we stuck to our strategy and we stuck to our positioning. And that doesn't mean that we are not going up the value chain in terms of range, speed, craftsmanship, technology. Stay tuned for more announcements on that in terms of the future. But clearly, the affordable meat on the market or the belly of the market is where we are playing. Arun, if you want to add?

Yes. So Nagesh broadly have covered the points. I would just like to add one point, that our thrust always has been on the affordable mobility segment. And as we are seeing that with lithium-ion battery price reduction or some of these incentives coming in, either through FAME II or through the government incentives, we have been steadily improving the proposition of the vehicle. And our average price realization per vehicle every year is on an upward trend. So we are following the market. And as the customer propensity to pay and buy electric vehicle increases and booms, we will be in the market with the right solutions. It's part of our product road map.

Right. So as you call it, sir, the belly of the market. So if the belly of the market is going up to the higher end, if it is -- if there is a shift happening, would it be fair to assume that Ampere will also change its gears accordingly?

Yes. So it is not a question of capability, that -- whether we can get the right products in that market. It is a choice of customer segments which we have taken and the price value curve which we have decided for our product positioning. So if the market shifts, we will be ready ahead of time to tackle the market.

And if I can just add, the ASP that Arun was talking about, you can look at your data, where we were 2 years ago to where we are in terms of average selling price. I think it's moving in that direction as well.

Right, right, right. Sir, one last question. Any other piece of land that is up for sale? Because you've sort of consolidated very well. I think that's a brilliant decision. And any other land that is up for sale? And what are we sort of planning to do with the money that is coming in? Are we sort of planning to reinvest it, maybe probably reward the shareholders on a onetime basis? What is the plan there?

So ultimately, that's going to be a Board decision. But clearly, the new money coming in is all going to -- predominantly, we looked at to fund growth capital and investments into the future.

The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

A few questions from my side. Firstly, on Greaves Fintech and Technology [ you were just ] talking about. Just to clarify, these are purely from captive perspective, right and not -- would not be offered as well -- offered to third-party services?

It's -- let me elaborate. So on the fintech part, it clearly starts as an enabler for us. Having said that though, we do have a lot of interest from others. But we will -- right now, the primary focus is to get Ampere and ELE, our 2-wheeler/3-wheeler brands, going, right? I think that's the primary focus. And to a lesser extent, as you know, Greaves multi-brand retail where Greaves Retail can benefit, I think, is the primary focus.

Okay. And for the technologies?

Technologies, it's still early stage. I'll come back with a full vision, but rest assured that the primary focus is on developing the core expertise within Ampere. But the secondary focus in technology, because that's the nature of the business, is also to benefit other automotive OEMs because they already have a presence today in that area. And I think that's where the learning is coming in, by the way, meaning that will be where our engineers working not only on our projects but also working on other global OEM products. There will be synergies, and that's kind of how we see. So technologies will help us actually fast track the technology goal.

Right, right, right. And the second question was on the July increase. You talked about a 4,000 number. So that is only 2-wheelers, right? Or does it include 3-wheelers -- electric 3-wheelers as well?

Jinesh, it is total of 2-wheelers and 3-wheelers, not exact 4,000, close to that number for the month of July. In the month of March, we had done 3,800, so it is higher than that.

Right, right, right. And that will -- but you don't maintain to the level, I guess, because electric here would be very small given the market conditions?

So Jinesh, I cannot comment further on the details of it. But overall number -- total number is more than March number.

Sure. And all these incentives from the government, Maharashtra and Delhi and Gujarat and everything, how is the inquiry traction building up? And can we get some perspective with the recent market share level? Are we trending similar inquiries and the things are substantially higher given that cost to customers have come down materially?

Arun?

Yes. So the inquiry levels are actually much higher than quarter 4, March levels. Twin benefits to that. One is the FAME II and the state subsidy. Second is also the petrol price increase. So both of them have increased the customer interest in the product. And like we have maintained in the previous months that it is not demand which is a constraint for us, today, supply is a constraint for us. And that is where we are focusing on beefing up our manufacturing and supply chain.

Right. And any order book number which you can share? I mean I understand that there is a good amount of this kind of products on the ground. So any order backlog we should be [ talking about ] currently?

Typically, we don't share the order backlog, but it is a very healthy order pipeline. And the dealership interest is also very active in the business. Also, you would have seen our latest campaign where Ampere now has sold more than 100,000 units across 400-plus cities. So we are pretty much present pan-India now. And as the dealership network expands, the penetration will go further. But today, Ampere is a pan-India brand.

Right, right. And last question from my side is on the commodity prices. And particularly, the lithium prices have been also going up quite materially in the last few months. So A, have we started seeing impact of that on our cost? And B, what is your expectation of cost pressures on that side? And how do we plan to mitigate them?

Yes. So Jinesh, you rightly pointed out the commodity price increases across metal, plastic has impacted the RMC. We are working on some of the new ways of procurement, and we are also doing the localization. So along with localization, the idea is to develop strong supply chain partners who can give us a benefit of volumes as we scale up. So as of now, yes, in quarter 1, there has been impact of commodity price increases on the RMC. And we expect that to continue for some time in short term. But on a longer term, we believe it is going to get passed on to customers or we are going to have a better base of -- or cost-efficient sourcing chain.

Okay. Sorry, my question was specifically lithium price. Obviously, inflation there as well. I mean are we being impacted there as well? I mean inflation has been there.

No. So Jinesh, there in battery case, because -- one, obviously, there is a pressure on the lithium side, but at the other hand, there is overall reduction because the supply base has increased. So in particular, in battery, that's not a -- there has not been an increase overall at the battery level.

[Operator Instructions] The next question is from the line of Rahul Jain from Prudential.

Sir, 2 questions. One, you have appointed a good number of dealers, roughly around 180 post the lockdown. And could the number get an update? So how do we look at our distribution network over a period of next 2, 3 years? What kind of distribution network do you plan to build? That is question #1. And second -- do I go ahead with my second question?

Yes, [ Rahul ]. Please go ahead.

Sure. And sir, we have around 14%, 15% market share in the EV mobility space, the 2-wheeler space. And what we are seeing is any new players who have entered the freight and including now the incumbent also have been trying to scale up and enter the EV portfolio. So with so many players, how are we positioning ourselves to grow in the next 2, 3 years with regards to our market share? And how do we look at market share versus profitability as far as the EV 2-wheeler space is concerned? So what would be our priority going ahead for next 2, 3 years as far as the EV 2-wheeler space is concerned? My specific question is with regards to market share versus profitability.

Arun, you want to start?

Yes. So on the first part, in terms of the distribution network, Ampere, like I said earlier today is present virtually all across the country. We have 400-plus dealerships. There are certain markets where the presence is there, but the depth of penetration is not very high. That is something which we are working on. So there will be some augmentation, which will happen as we move ahead. The second part is we are also focusing extensively on the phygital channels. We have been working on digital showrooms and phygital connect with the customers not just physical retail-based connect. So that is one part, which will increase Ampere's play in the consideration set. The second part, when we come to the newer players coming in, et cetera, we have maintained this in the past as well that today the bottleneck for the industry is not the product or cost economics. It is the awareness with the customer segments. And with more players coming in, the anticipation is that the industry is going to expand fairly significantly, and we are moving quite close to the inflection point. That is point number one. So there will be enough space for multiple people to coexist. What we have been doing internally is working on some of the basics. So from virtually having only slow-speed lead acid-based products, our product portfolio is much stronger. Our flagship product, Magnus Pro, the demand is very, very good and it is off the roof actually. That is one part. The second part is in terms of the dealership network from a south-based or primarily Tamil Nadu-based dealership today, Ampere is virtually present all across the country. We have enabled financing solutions. Greaves fintech over a period of time will also act as an enabler to this business. The third part is we have also been working on creating technology-based enablers. And like I mentioned in some of the previous calls that there are technology areas like controller, BMS, battery pack, et cetera, which at the right time, we will look at developing a deeper play because these will act as differentiators because electric vehicle is ultimately a tablet on wheels. So this is where our thrust is to get the basics right. And to drive this, we have brought in a fairly strong professional team at Ampere. The leadership team is in place to drive the business to the next level. So these are some of the foundational steps, which we have taken, which we believe will help Ampere have a strong play in the market even when the full-blown competition is in the market. Does that answer your question?

Sir, just if you could -- sir, initially, when the industry -- I do accept you that the recent measures it looks like the industry can really explode in next 2, 3 years to come. So will we try to -- for the next 2 years or so, will market share will be our -- will receive much higher focus from our side? Is that a fair assumption?