Talbros Automotive Components Limited (505160) Earnings Call Transcript

Ladies and gentlemen. Good day, and welcome to Talbros Automotive Components Limited Q3 and 9 Months FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the 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. Anuj Talwar, Joint Managing Director of Talbros Automotive Components Limited. Thank you, and over to you, sir.

Good afternoon, everyone. A very warm welcome to our quarter 3 and 9 months ended FY '22 earnings call. I hope you all are staying safe and healthy. On the call today I'm joined by Mr. Navin Juneja, our Director on the Board and our Group CFO. We also have SGA, our investor relations advisers on the call. The results and the presentations are uploaded on the stock exchange and the company website. I hope everyone had a chance to look at it. Before I move into the industry outlook and what's happening, we are happy to announce a robust set of numbers for quarter 3 amongst the chaos in the automotive world. I'll give you a quick update on the industry and the economy as well. Auto OEMs reported blended numbers across segments, especially the 2-wheeler segment faced the most challenging situation due to subdued demand in the domestic market. The sign of recovery, especially in the entry-level 2-wheeler segment might be prolonged. Passenger vehicles continue to face the brunt of the semiconductor shortage. There is demand, but there are supply issues that we have to deal with both in the domestic market and also the international markets. However, with the government's push on infrastructure and the recent announcement of 25,000 kilometers of new highway, the CVs have shown a very positive sign, and will continue to do so, where Talbros is a very significant player in commercial vehicles. This will help us going forward as it did in quarter 3. The quarter was challenging not only restricted to the semiconductor shortage, but the massive inflation across commodities such as steel, et cetera, was difficult and weighed on margins. OEMs are trying hard to keep this increase at that level, but some have also passed this on to the end users. The performance of the auto industry for 9 months according to CM, as the data published by CM in the third quarter of FY '20, sales of passenger vehicles in quarter 3 has been the lowest in 5 years. While the 2-wheeler is the lowest in 9 years. Only the heavy goods segment in commercial vehicles have shown a positive growth compared to quarter 3 of previous 2 years. Sales of buses and 3-wheelers continue to be a concern with COVID, Omicron, with different variants of the virus coming along. Bearing 2020, the sales of commercial vehicles in quarter 3 have been the lowest in last 5 years and sales of 3-wheelers bearing 2020 is the lowest in 13 years. There is signs of improvement of chip shortage. We are hopeful that the situation should come to terms in the next 6 months. We also expect recovery in demand from all markets, especially when we're seeing a decline in COVID cases in the country. From now onwards, we see a sign of recovery, an increase in production schedule of OEMs going forward. Now I'd like to highlight on the Talbros standalone and the joint venture business structure. We are a diversified auto comp player with presence across 2-wheelers, passenger vehicles, commercial vehicles and farm equipment. Our business is broadly divided into a stand-alone business, gaskets and forging and 3 joint ventures with global auto giants for gaskets, suspension and other components. In gaskets, we continue to be a market leader with having a market share of over 50%. As I've repeated in my various calls, we've done a lot of investment in R&D, and this is the reason that we are ahead of our peers. Our forging business continue to perform well. We've had a bit of a hiccup in quarter 3 due to some export businesses being hit by the chip shortage, but it's a very strong business moving forward. In the forging business line, we're already supplying to the electric vehicle space in the global market. Our joint ventures with Marelli and Marugo, which are basically for suspension components, chassis components and rubber components are linked directly to capturing the vehicles in the domestic business and now also some exports globally. We'll be supplying EV parts worth about INR 25 crores in India and global OEMs in FY '22. As I mentioned to you earlier, forging is already supplying to the elective vehicle space. And even in our JV with Marelli, we are supplying to large Indian OEMs in all the electric vehicle spaces. During the 9 months FY '22, our domestic sales, 27% was contributed by 2- and 3-wheelers, 28% was contributed by passenger vehicles, 28% by commercial vehicles and 9% by the agri space. As we've always mentioned to you and said it earlier, we remain to be a head auto component supplier, which helps us in delivering margins and growth rates and not only to a particular segment in the auto sector. Our export portfolio continues to do well. We've had a bit of a setback in our forging business line in quarter 3 due to chip shortages, but still almost 25% of our revenue comes from exports. Now I request Mr. Juneja to take you through the numbers and the financial performance of the quarter.

Thank you, Anuj. Good afternoon, and a warm welcome to all the participants. Let me begin with the financial overview. In the gasket division, including Nippon Leakless Talbros, for Q3 of FY '22, our stand-alone gasket sales was INR 101 crores as against INR 84 crores in Q3 of FY '21. Total revenue of Nippon Leakless was INR 20 crores in Q3 of FY '22 as compared to INR 26 crores of -- in Q3 of FY '21. It's a combination of 2 factors. One is the Hero sale was down by 30% and the Honda sale was down by 20% in Q3. Secondly, in this financial year, we had developed a new gasket for 100 cc engines for Hero with a localized steel, the sale price of which is approximately 25% cheaper as compared to an older version. That's why a drop in sale is there, but the EBITDA margins are being maintained at a healthy level. This segment saw a combined EBITDA of INR 20 crores in Q3 of FY '22. Coming to the forging division, the forging business is consistently performing well. The revenue in Q3 FY '22 is INR 49 crores as against INR 50 crores in Q3 of FY '21 as Anuj explained because of the chip shortages, and the closure of all the export facilities in the month of December impacted our sale little bit. Coming to Marelli Talbros Chassis Systems Private Limited, the total income for Q3 of FY '22 stands at INR 43 crores versus INR 41 crores in Q3 of FY '21. Now coming to Talbros Marugo Private Limited, total income from operations for Q3 FY '22 stands at INR 13 crores, which is same as the last year. Other major revenue numbers are all -- of all our joint venture businesses, our total revenue, including our share of business. Now coming to the consolidated financial performance of the company. On Slide #10 of our investor presentation, we have reported consolidated revenue based [indiscernible]. Total income including other income stood at INR 151 crores in Q3 of FY '22 as against INR 132 crores in Q3 of '21, a growth of 14% Y-o-Y basis. On 9 months basis, revenue stood at INR 435 crores versus INR 293 crores in 9 months of FY '21. The financial for the period reflects strong business performance. Execution of multi-year orders received in the past years, with additional count of new product lines bodes well in expanding our order book. Now EBITDA including other income stood at INR 21 crores as of Q3 of FY '22, it's the same in -- versus the Q3 of FY '21. On 9-month basis, our EBITDA stood at INR 60 crores versus INR 40 crores in 9 months FY '21. EBITDA margin stood at 14% for the quarter versus 16% in last year's Q3 '21. Majority of the commodity prices, especially the steel hike by more than 20%, 30% on Y-o-Y basis, followed by hike in salaries of all the category employees led to overall dip in margins. We have recovered major portion of our steel price increases from major OEMs. But steel price increase in the month of October '21, which is INR 5.60 per kg has not been recovered yet. We are in the process of recovering from -- in the process of recovering the sale from each customers and the recovery should happen by March '22. Also, rupee appreciated versus euro. As you know that our forging exports is 90% euro-based and which has affected our forging sales and the margin, [indiscernible] to some extent. Our tax stood at INR 11 crores in Q3 '22, which is same as Q3 of FY '21. On 9 months basis, tax stood at INR 32 crores versus INR 12 crores in 9 months of FY '21. Our gross debt at the end of 31st December, including working capital stood at INR 97 crores. For the quarter, Q3 of FY '22, we [ employed ] a CapEx of around INR 8 crores. We continue to witness strong momentum and benefits of our held portfolio and accordingly we see highest-ever probabilities for Talbros in FY '22. This is all from our side. And I would now like to open the floor to questions and answers. Thank you.

[Operator Instructions] My first question is from the line of [ Sanjay Awatraman ] from Envision Capital.

Sir, the margins which we are expecting in the future only in the coming quarters or next quarter, if you can highlight some points on that, that will be great, sir.

We expect a margin of around 14% in this last quarter, that I can say, around 14%.

Okay. So these will be EBITDA margin, right?

Yes, EBITDA margin I am talking about.

Okay. And anything on FY '23, I mean, if you can give us something, sir?

So FY '23 we will -- I think we would like -- we will avoid giving at this point because lot of chip shortages world over is there. We would like to do that in our next call for the financial year. Indeed when we'll meet in the month of May, we'll definitely like to give at that time.

Okay. Okay. And any CapEx plans next year for FY '23, if you can guide us for that?

It's a continuous CapEx plan that will be happened. It will be happened in another -- I guess we will do a CapEx of around INR 8 crores to INR 10 crores definitely and forging will also do about INR 8 crores to INR 10 crores CapEx next year.

Okay. So this is the total for the whole year, right, INR 8 crores to INR 10 crores?

No, each. Jointly, it will be around INR 16 crores to INR 20 crores jointly, both standalone basis.

Okay, okay. For full year, right?

Yes, full year.

The next question is from the line of Ravi Naredi from Naredi Investments.

Sir, very fantastic result you have given. Sir, how many months order do we have in hand? And can we hedge this commodity price which orders we have in hand?

So commodity prices hedging is not possible here, I doubt, because no mill is [indiscernible] because, first of all, my offtake is not very, very high, number one. Second, these mills are, some components we are able to -- some raw materials we are importing. The buyers are not -- sorry, the factories are not able -- don't want to add -- give us the fixed price for a certain period. Of course, we are trying to do a little bit, but not for more than 1 month, we can't hold them. One month [indiscernible] but after that no. Because there is a huge demand -- gap between demand and supply, you know that. When the supply is little and demand is more so, you know then what happens.

Right, right, right. This profit from joint ventures are low level compared to last year. These are also on commodity-driven?

No, no, this is not commodity-driven because if you see the joint ventures, Nippon Leakless is based -- is OE suppliers to Honda and Hero only, okay? And [indiscernible] in this quarter. Hero was down by 30%, Honda was down by 20%. This is one of the reasons. And both Marelli and Marugo, they are -- Marelli is 60% based on Maruti, okay? And Maruti was down by 12%. And balance is exposed to JLR, it was pathetic last quarter because JLR was in bad shape last quarter. So it has affected us bottom line. In Marugo, Marugo is 75% Maruti-based #1. Plus the price increase we had launched with Maruti has is stalled, has not been received till now. We expect this to receive in this month only. And next quarter you will see a better picture, definitely.

Definitely, definitely. Yes, sir, up to which time inflation on commodity may continue? Can you give some time line?

So we don't really know, but we will try our best to recover the prices from the customer, maybe in another quarter or, no one really knows. But our attempt is that, in some of the business lines we've already got the increase from the customers. Some are delayed tactics. But over a quarter lag we get it. But we can't predict how long it will be on for. Nothing is permanent in life. So hopefully it should get better.

Whatever goes up comes down also in life, so let's see.

The next question is from the line of Akhil Hazari from RoboCapital.

Sir, I just wanted to know, in the EV segment, are you the sole supplier of EV parts to the Tata companies?

Yes. From the JV, Marelli Talbros where we make suspension controllers, it's a product which is basically for the suspension, which connect the steering wheel to the power train. So we are supplying single-source to the EV vehicles of Tata Motors from that JV.

So that will make you the sole supplier in the EV segment. So overall, you won't be the sole supplier of any other parts for the Tata companies, right?

No, we supply Tata Motors with various components, like for example, from our gasket business also we're supplying gaskets to Tata Motors, to Tata Cummins [indiscernible]. We are supplying suspension components from our JV. So various products we supply to them, heat shields. But electric vehicles of Tata Motors, like they -- what they have come up, we are supplying through the JV right now.

Okay, fine. Okay. Great. Great. And sir, going forward also, any -- you won't be able to give any revenue guidance for FY '23 also, right?

I think it's better to wait this quarter. We are confident of our order pipeline. But I think better to just wait for this quarter because of so much uncertainty with the chip shortage no one really knows. So we are confident of a good show, that much I can -- but let's wait a couple of months for this whole uncertainty to settle.

The next question is from the line of [ Vikram ] from [ DBS ].

Mr. Navinji, first of all, congratulations for such a fabulous results for 9 months. It's good to see, in spite of challenges in auto segments, Talbros Automotive doing such a good job. Just one question. Going ahead, the focus on EV coming into picture, what is the focus of the company developing products with respect to EV market?

Yes, we are -- as you -- as Anuj just told before your call, that we are -- though our JV we are supplying to Tata Motors. And through our JV we are also supplying to JLR, all the new vehicles of JLR, our EV vehicles, our component will go there. And we are -- through our forging division we are -- through [ GKN ] we are supplying to Volvo our EV components. So plus we have -- as you are aware, we have developed the heat shield business and which is growing, and it will grow to all the vehicles out, whether EV, non-EV, whether CNG cars, et cetera. And we are hopeful that this portion will grow over the next couple of years…

Juneja, is there any CapEx towards this EV business plan for next year?

What you are saying, I couldn't get this.

Sorry. Any CapEx plan for this EV expansion next year, in next year?

At present there is no CapEx for EV, no. It's whatever component we're supplying to IC engines, we're also supplying some to EV, so nothing in specific. It's not like a separate CapEx, no.

[Operator Instructions] The next question is from the line of [ Nidhi Khanna ] from [ Isha Securities ].

So my next first question is that what should we expect from the JVs in the next quarter and FY '23? If you could share some color. I know the semiconductor supply shortage is continuing and you've emphasized on that, but if you could give some color.

Yes. I can say about this quarter only, okay? The key performance should be better as compared to Q3 because number one, Maruti is I think the chip shortage has been controlled little bit as per their guidance. So the performance should be better in Nippon Leakless -- I'm sorry, in Marelli mainly and Marugo Rubber. And Nippon Leakless, it depends on how the Hero and Honda performs. I think they are performing not very good till January, let's see next couple of months, but it will be definitely better than this quarter because we are expecting a price increase in Marugo, which will be [indiscernible]. So it will be definitely better. That I can say.

All right. My next question is that what is the capacity utilization that we had in the last quarter?

In the last quarter in the gasket division my capacity utilization was 85% to 90%. In forging it was 75%. In Magneti Marelli it was 70%. In Nippon Leakless it was 60% to 65%. And in Marugo Rubber it was in anti-vibration, it was around 70%. In my other business of hoses it was 40%.

All right. And lastly, I want to understand if we've applied for the PLI scheme and are there any plans to apply in the coming period?

Ma'am, as of today, our -- whatever the components we are having, we are in the process of having -- doesn't quantify in the PLI. They don't qualify in the PLI.

Sir, EV component also?

EV vehicle, they go in EV vehicles components. The suspension go in an EV vehicle. The forging goes in the EV vehicle. But I don't think so it will be [indiscernible] special CapEx, et cetera, because I can make this component in the existing equipment which I am having. I don't I have to plan for a new setup of, I'm not making a new motor or something that qualified, or battery, whatever it is.

The next question is from the line of [ Priyanka Shah ] from [ NM Securities ].

Sir, how is the demand in the month of January? And what is the visibility for overall quarter 4 at domestic and global levels as Indian OEMs are commenting on activities to pick up in quarter 4?

Well, I think on the global front, the demand is better as compared to Q3, that I must say that. But on the export front still it's little better, not much, on that export front. Of course, I think in the fourth quarter I should be a shade better than Q3.

Okay, sir. Sir, one more question. Can you please discuss quarter 3 FY '22 performance across all segments of 2-wheeler vehicles and other segments?

So we gave you the breakup, no, that in our domestic business about - this time, about 27% came from 2-wheelers, 37% came from commercial vehicles and about 28% came from PVs and 9% came from the tractors and heavy industry of our domestic global business. Domestic business, sorry.

[Operator Instructions] The next question is from the line of Bhaskar Chaudhry from Entrust Family Office.

Sir, sorry if some of these questions are basic. But I'm just looking at 9-month numbers and the other expenses line has increased quite significantly. So compared to the previous 9 months there should have been some more operating leverage. Why has that not really flown through?

First of all, in the other expenses 70% expenses are variable. Consumer stores, processing charges, power and fuel. These are all part of other expenses. Crate. And as you are aware, at port crate has doubled in last 1 year, doubled. So that is the major reason for increase in that. Of course we got the price increase. This is being reflected in the top line, not -- so, if you see my top line has also gone by 20% as compared to the 9 months of last year. And 70% expenses [indiscernible] shared with you are in the variable nature, like -- just a minute. I will just give you a full breakup of that. Last year was there -- no travel, nothing was there. Now some -- people have started moving. So business promotion expenses are also happening. Other expenses, if we see what it comprises of. It comprises of consumer stores, labor and processing charges, power and fuel, repair to building, repair to plant and machinery, insurance, travel and conveyance, sale promotions, packing trade and forwarding. Packing trade forwarding last year 626, this year it's 850. Like my travel, tour and expenses last year was 71, now it's 146. My -- similarly, my consumption of tools was fair because turnover has gone up by 20% or INR 7.52 crores, now INR 9.84 crores. So these are the major reasons for that.

I understand, sir. And I'm sorry, I joined late, so please excuse me if you've covered this earlier. So for the 9-month number, what is the value growth and what is the volume growth?

Volume is very, very difficult to calculate because of the component [indiscernible]. So I can give you the value growth because the forging components…

So, one -- sorry, you were saying something, Please go ahead.

Because the components are gaskets, that are small gaskets, big gaskets, it's very difficult to calculate the volume of that. In lakhs. In forging also in thousand lakhs volume was there. So we don't have the figure of volume.

I understand, sir. I understand. And just one last question. Again, a little bit of a basic question. So -- and slightly more strategic. So in terms of your current product portfolio, sir, how much of it moves from the IC engine phase to the EV kind of era seamlessly? And what kind of other products are you looking to launch for the broader EV space? How much overlap is there? And what are the new products you're looking at?

So new products, we have only in the existing range like heat shields we are looking for the EV space. That is a special component. We already received orders from JLR in a big way for EV, which is [indiscernible], as Anuj told you earlier because Tata Motors, all EV vehicles [indiscernible] components, that if number goes up, our numbers will go up. Of course, we will go to other customers for that also. In our forging, our -- we are in the EV space of the BMW vehicles and the Volvo vehicles. And we are getting new parts. I think some commercialization has started now. It will be materialized in the next 3, 4 months, and mature volume will come within 1 year in that. So it's happening day by day. Whatever the demand is there, we have -- specific to our [indiscernible] - sorry, specific to our production capacity, et cetera, capabilities, we are doing that.

The next question is from the line of Pratik Kothari from Unique PMS.

Sir, just one question on the forging part that some components that we supply on the hybrid side, what would those start to be?

Yes. Those are basically -- they're called bushes. They are called -- they are worked on the motor, electric motor. So for the electric motor basically, there are some bushes that are made. It's high-end machine products.

[ There is an AI machine ].

Okay. And which are the parts that we earlier used to supply to IC vehicles also or currently we are also doing that?

There's no replacement of products, they're new product by itself. It's an addition to the line. It's not replacement.

The next question is from the line of Amit Shah from [ Ace Securities ].

I have 2 questions. Sir, can you please discuss about our foreign exchange hedging policy as we are increasing our export business?

Yes. We grew minimum 25% to 30% our exported hedge minimum and balance we keep it open. Sometimes in -- if the rates are good, we will go up to 40%, like in -- when the euro was around EUR 87 and 88, we did about 40% export hedging in that.

Okay, sir. Sir, and sir, on EV business, sir, how is our margin differential in EV business as compared to non-EV business?

The same.

The same?

Yes, more or less same. It depends on the customer. BMW business, good margin, so margins are good. Tata Motors, you know that how they got, so little bit. Not [indiscernible] domestic, whatever the difference between domestic and export margins, the same margin.

[Operator Instructions] The next question is from the line of [ Nisha Desai ] from [ Raga Securities ].

Sir, I have a few questions. So I wanted to understand what is peak revenue of our orders received in the last year?

Peak revenue of orders.

What do you mean by that peak revenue orders, I didn't understand that question.

What would be the peak revenue which we can achieve for the orders which we have received in last year?

I think that -- it's a -- that's an ongoing thing. I mean it's -- I mean we received orders of about $30-odd million, which we declared over -- and it's coming in 2 phases. So it doesn't come in one go, but about 10%, 15%, 20%, 30% comes [indiscernible] basis. So we can't decipher that. I mean what we will say is that the orders that we have won will only give us a good growth rate in our top line for all our divisions going forward.

Yes. But again, depends on the end-customer. They should -- the production will also go up according to that order, no?

Okay, sir. Okay. Sir, in our non-EV business, what is the progress on the orders for the upcoming year?

Sorry?

Non-EV business.

In our non-EV business, what is the progress on the orders for the upcoming year? I mean can you give a broad idea for next 2, 3 years?

It remains very, very strong across all segments. There is no issue at all. We're still predominantly supplying to the IC engine with some EV thrown in, but very, very strong because we are supplying to heavy commercial vehicles, passenger vehicles, tractor industry. So it's still very, very strong.

Export also in a big way too, so.