Uno Minda Limited (532539) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the UNO Minda Limited Q1 FY '23 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 is conference is being recorded. I now hand the conference over to Mr. Sunil Bohra, Group CFO from UNO Minda Limited. Thank you. And over to you, sir.

Thanks, Inba. Good evening, everyone, and a warm welcome to all the participants. On this earnings call today, I'm joined by my colleague, Ankur Modi. We have uploaded our financial results and investor presentation for Q1 FY '23 on the stock exchanges and our company website. We hope everybody had a chance to go through the same. Recently, we have changed your company's name from Minda Industries Limited to UNO Minda Limited and also launched a new tagline called Driving the New. This change is intended to reflect the unique legacy and identity of the company as a leading Indian automotive systems supplier and also a leader in technology and solutions across customers, consumers, distributors, partners, and employees. The renaming initiative will further strengthen and unify the brand UNO Minda. I would also like to inform that consequent to name change, our stock code has also been changed to UNOMINDA. Before speaking about the company's performance this quarter, I would like to throw some light on industry front. Automotive industry had its own challenges over the last 4 to 6 quarters due to rising commodity prices, shortage of chips and semiconductors, and geopolitical tensions across the globe. However, we tend to believe that the worst is behind us. The industry is progressing well and is on a high growth trajectory. Large scale digitalization and technological upgradation, the rapid growth of the economy, and learnings from past 2 years of the pandemic are expected to come in handy as demand continues to remain resilient, notably in the 2-wheeler and passenger vehicle segment. We have also witnessed demand picking up for CV industry, which is a good sign for the Indian automotive industry to be poised for sustainable growth going forward. Our discussions with customers are encouraging and gives us an optimism for the outlook for FY '23. We expect the festive season to do well, including the rural market as the vaccination push is aiding the economic recovery and so far the monsoon is also progressing well. We have seen good growth in last quarter in 2-wheeler passenger vehicle and CV segment. Industry grew as compared to previous quarters and volumes released by various OEMs for July also ended on a positive note with Q2 FY '23 looking positive. The PV segment is on the dream run as retail sales picking up with the economy stabilizing and approaching near normal. Also, the industry is continuously launching new models in the PV segment, which is adding fuel to the growth prospects. On the EV industry, the Indian government had been taking multiple initiatives to push for the EV adoption. We believe that the EV industry is at the cusp of the multi-fold growth. As the market and technology advances, EV market penetration is expected to increase rapidly, especially in 2-wheeler, 3-wheeler, and PV segment. The demand momentum for electric 2-wheelers remain strong with a high growth in FY '22 and Q1 of FY '23. EV adoption across the supply chain requirements, especially by the ecommerce place for the last mile deliveries, may also entail higher acceptance and penetration of the EV vehicles. We are optimistic about the demand scenario from both domestic and international markets. Supported with a diversified product portfolio, increased content for vehicle, and cross-selling of products to our existing customers, we maintain a positive outlook on revenue growth. We continue to deepen our R&D efforts, enabling us to seize the opportunity in the automotive segment, especially from the PV space which points to a solid future. Moving on to financial and operational performance for Q1 of FY '23, you may refer to Slide 5. The company has been expanding its capacities in alloy wheels, considering increasing demand on back of increasing application. During the quarter, we started commercial operations of 60,000 wheel per month capacity in Bawal. Out of 60,000, 30,000 was commissioned in April of 2022, while remaining 30,000 was commissioned in June 2020. [ Q2 2020 ] 4-wheel alloy wheel business also reported increased revenue. On 2-wheeler alloy wheel business, we are happy to inform that all 4 lines which were part of phase 1 expansion, which is 3.6 million wheels, are now fully operational and incremental revenues are expected to start flowing in from Q2 of FY '23. We've also started commercial operations from our 4-wheeler lighting plant at Gujarat. While we continue to increase asset value in some of the recently launched facelift models from Japanese and Indian OEMs, we are also thrilled by the incremental order wins from the EV OEMs for both EV specific components as well as our existing products. We'll talk about them in detail in subsequent slides. UNO Minda has raised the bar with its people practices and people-first culture, providing compelling employee value proposition and best experience to its employees. We have recently been recognized among the Top 50 India's Best Companies to Work For and also as one of the Best Workplaces in Auto and Auto Component for the year 2022 by Great Place to Work Institute. Coming to our financial and operational performance, you can refer to Slide 7 and 8. At consolidated level, revenue from operations for the quarter increased by 59% year-on-year basis to INR 2,555 crores from INR 1,602 crores reported in Q1 of FY '22, while revenues increased 6% on quarter-on-quarter basis as industry volumes gradually recover with easing supply chain constraints. We'd also like to appraise that we have reported our highest quarterly sales in Q1 of FY '23. We have witnessed growth at almost all businesses, especially alloy wheel division. As promised, we have continued to outperform the industry with 59% growth against industry volume growth of 37% year-on-year basis. Even after factoring price increases due to commodity prices, there is a significant delta with respect to industry volumes. It is pertinent to note that Q1 of FY '22 was impacted by the Delta wave adversely impacting the industry volumes during this period. EBITDA for the quarter was at INR 266 crores, improving by a stellar 81% from between INR 147 crores on YoY basis. The EBITDA margin for the current quarter were also higher at 10.4% as against 9.15% in corresponding quarter last year. EBITDA margins have declined sequentially from 11.4% to 10.4%, primarily due to higher energy costs, higher prices of [ critical ] raw materials like aluminum and electronic parts, and inflationary impact on employee and other administrative expenses. The prices of gas, which is largely consumed in our alloy wheel division has continued to increase on a quarter-on-quarter basis, adversely impacting the margins. We would also like to highlight that while commodity prices have come off from the peak, spot prices during the quarter were still higher than average prices of the last quarter. Hence, we continue to [ enforce ] high prices during the quarter. Recovery or price adjustment for the raw material price increase is expected in subsequent quarters as we continue to maintain our full year EBITDA margin guidance, which is between 11% to 12%. Finance cost has increased sequentially from INR 13.5 crores grow to INR 16.8 crores, however, still lower on YoY basis. The sequential increase is on account of increase in debt as well as increase in borrowing costs pursuant to interest rate hikes by the Reserve Bank of India. Other nonoperating income for the quarter return to normalized level at around INR 10 crores after the onetime gain of around INR 9 crores in the last quarter from revaluation of investment in Kosei Minda Aluminum post increase of stake by a JV partner from 70% to 88%. We see sequential reduction in tax expenses from INR 48 crores to INR 31 crores as we have moved from old tax regime to a new tax regime having lower tax rate. We continued in the old tax regime till last year as certain tax benefits were available only in the old tax regime. The profit after tax, which is a MIL share for the quarter, was at INR 139 crore as against INR 15.4 crores in Q1 FY '22 and INR 144 crore in the previous quarter. Coming to the business segment-wise performance. Moving to product lines, starting with switching system, you might refer to Slide #12. The segment achieved revenues of INR 730 crores for Q1, contributing 29% of our consolidated revenues. We continue to receive orders for new generation switches like sunroof, cruise control, power windows, switches, pedal switches, vehicle stability switches, etc., from various OEMs. Exports is another big revenue stream which is growing fast especially in the 2-wheeler switch segment. Moving to lighting business. It has achieved revenue of INR 582 crores for Q1, contributing to 23% of our consolidated revenues. Lighting segment has won many large orders in last 1 year and poised for promising growth in the coming years. In continuation of the same, we have one another large order from a new EV OEM for complete set of head lamps, tail lamps, blinkers for their newly launched model. Moving to our casting business. It has achieved revenue of INR 484 crores for Q1, contributing to 19% of our consolidated revenues. Casting business continued to grow with the expanding capacities with increased demand and application. As informed earlier, Bawal extension of 60,000 4-wheeler alloy wheel is completed while Gujarat is in progress and expected to commission by Q1 FY '24. Volumes are increasing in 2-wheeler alloy wheel as 4 lines come on stream -- as the fourth line come on stream. Moving to acoustics, Slide 17. Our acoustic business had achieved revenue of INR 172 crores for Q1, contributing 7% of our consolidated revenues. Our India business remained stable. European subsidiary Clarton Horn remained under pressure with unprecedented increase in energy [ costs and lower ] industry volumes. Moving to our seating business, which achieved revenue of INR 59 crores for Q1 FY '23, contributing 10% of our consolidated revenues. Revival in CV segment and better volumes from 2-wheeler had supported the growth in seating business. Moving to other product businesses which have achieved revenue of INR 328 crores, contributing 13% of overall top line. Other businesses mainly comprise of controllers, sensors, ADAS, blow molding business, [ struts and accs ], battery, and aftermarket. The share of profit loss of associate joint ventures for Q1 was at INR 22 crores against a loss of INR 5 crores in Q1 of FY '22. The share of profit has decreased sequentially primarily due to inclusion of price increase for previous quarters in Q4. While all our JVs have contributed positively, major contribution came from DENSO TEN, ROKI and TG. Moving to aftermarket and export, you can refer to Slide #14. In terms of our revenue pie for the quarter ended June 30, OEM business accounted for 91% and aftermarket businesses at 9% for Q1. Our aftermarket division revenues were at INR 223 crores as against INR 114 crores in corresponding quarter last year. In spite of a cyclical weak quarter, aftermarket has maintained the revenues. Aftermarket division continues to grow from strength to strength supported with increasing number of retailers and touchpoints, addition of new products, export, and focused branding and marketing initiatives. We have expanded our aftermarket network significantly in last few years, covering 620 cities in India with 1,400 plus business partners. We now have 44,000 plus retailers on board. In terms of geographical distribution of revenues, we have a pan India presence with fair distribution across 4 regions. As you can see from products segmental breakup, switches, lighting acoustics, automotive, battery contribute majority of the revenue pie, while alloy wheel and seats which are added in aftermarket recently contributed only 2%, but has significant potential to grow. Specifically in the alloy wheel segment where we were not able to supply enough quantities to aftermarket due to capacity constraints, but after completion of recently announced capacity expansion, we are expecting to increase our supplies to aftermarket. Our sales from international markets, which is export plus sales from overseas operations, stand at 17% of total consolidated revenues. International sales growth was led by German businesses having strong quarter with their innovative products in the European market. Moving to our cash flows and debt levels. Our net debt as of June was at INR 714 crores compared to INR 611 crores as on March 2022. And our debt to equity stands at 0.18%. The net debt has increased pursuant to CapEx and also a strategic investment of EUR 15 million in FRIWO AG. Moving to Slide #16 and #17. As you are aware, we have built one of the most formidable product portfolio for EV specific components. As you can see in the slide, out of 11 products, we are already supplying 8 products to EV OEMs. While another one of them, which is motor controller, we have already received LOI and SOP is expected in April '23 as this needs to be customized, adapted to new model of EV OEM. Other 2 products, which is battery pack and Vehicle Alert Systems are under development and in discussion with our customers. We would also like to inform you that we have now progressed from low voltage EV product band of 46 volts to 72 volts to a band of 48 volts to 96 volts. We have also started serving many light commercial vehicles. In fact, we have received a large order worth around INR 200 crores from one of Indian CV manufacturers for their mini-LCV model. Including the above order from mini LCV, we have received orders worth INR 470 crores during the quarter from EV OEM. The total peak annual value for orders received from EV OEM, still it stands at INR 980 crores with almost 52% orders for EV specific products. We have also presented the customer mix for this order book, which you can see is fairly diversified with orders from a significant number of players in the segment. With this, we now open the floor for questions.

[Operator Instructions] The first question is from the line of Aditya Jhawar from Investec.

My first question is on the order win of EV specific component of INR 430 crores. Now this is very impressive. But if you can give us a little bit more detail about what kind of products we have won. And Sunil, did you just mention that out of this INR 430 crores, INR 200 crores is on LCV, IF you can just clarify?

You're right, Aditya.

And what about the component breakup? Any broad sense?

I think we might let you know once they get productionized, but they are a mix of products, including onboard chargers, et cetera.

Secondly, if my understanding is correct, so if you look at the revenue recognition from the EV component, so all the revenue would be booked under the JV with FRIWO. Is that understanding correct?

Yes. For 2-wheeler, yes.

For 2-wheeler? But Sunil, we also supply like BMS to an incumbent with another JV partner like AMP. So that…

AMP was not a JV. AMP was a PLA.

Okay. So that will also be booked under business…

Yes. So what happens Aditya, if you remember last December when we spoke about the JV, so our joint venture partner also has win a few businesses in India, and we had also won a few business. So all of those businesses, we'll move to the new joint venture.

And so now based on the current order win, so if you can give a broad sense that what could be the contribution of EV component revenue in FY '24?

Let us the wait Aditya. Lett his get productionized.

Okay. And final question is on CapEx. What could be your CapEx number for '23 and '24?

'23, '24?

Yes, FY '23 and '24.

So '23, I think we have communicated last call, we are sticking on to that, which was a total CapEx of around INR 600-odd crores. FY '24, we have not yet worked out, honestly.

Our next question is from the line of Ashutosh Tiwari from Equirus Securities.

Sunil, when you mentioned this INR 470 crore order for e-products, is it the peak revenue number or total order over the years revenue?

It's the peak annual revenue. Annual, not total.

And can we assume this to a season, say, a 4-5-year time frame or it could be earlier as well?

It could be earlier, not 5 years definitely.

And this LCV order, is it also the multiple product which is included in the INR 470 crores?

Sorry, come again.

You mentioned that this mini LCV is 200 orders basically in this INR 470 crores.

Yes.

So that is also multiple products or any big product over there?

Yes. So there is one large product, which is the lion's share here.

Okay. Secondly, on the lighting side, we are seeing very good ramp-up versus where we were, say, pre-COVID FY '19 and all. Can you throw some color that in the, say, this INR 580 crores sales, is it 4-wheeler which is ramping up faster, 2-wheeler ramping more faster than 4-wheeler? Some color on that. And how do you see lighting business growing? Because we already are at annualized around INR 2,300 crore plus sales in this quarter despite industry is still lower than what they were in FY '19, meaningfully lower.

So if you see, Ashutosh, from the growth perspective, definitely I think the 4-wheeler lighting is a segment which we expect to do much better. However, if you see from a quarter-to-quarter basis, I think the numbers are broadly in line. But from a future perspective, as we have been speaking, the 4-wheeler lighting business with this new addition of all these LED businesses which we are not having earlier, which we already have in 2-wheeler segment, so we are expecting EV segment to outperform in terms of growth vis-a-vis 2-wheeler.

Currently what is the mix of 2-wheeler, 4-wheeler in this?

Mix, if I have to say this quarter, it's broadly equal.

And lastly, on this alloy wheel side, there again, we're seeing good ramp up. So what was really in 4-wheeler and 2-wheeler separately in this quarter?

So alloy wheel, 2-wheeler this quarter was not very, very significant. I think it was roughly around INR 100 crores for, what we call, 2-wheeler segment. And for the 4-wheeler, it's roughly around INR 300 crores.

And let's say, now 2-wheeler in green in terms of EBITDA and PBT level?

Yes, 2-wheeler is not burning cash now.

Our next question is from the line of Mumuksh Mandlesha from Emkay Global.

Congrats on a good performance and a strong EV order book. So is it possible to share some time period of the order book, sir? Like when would be the starting period for this and how long it will be, sir?

So starting period is somewhere around '24, '25 onwards. And second was, how long?

Yes.

How long actually depends on the life of the model actually.

Right. And some sense on what could be the breakup between the new age players and the incumbent players, sir?

New age and incumbent players for this…

Yes. The INR 1,000 crore basic total EV order book, sir.

EV order, I think even I have to work out. Well, we are capturing separately now because you've been asking earlier give us EV separately. So we started capturing EV separately. Now you're saying within EV itself new age OEM versus the existing ones.

Any broadly, sir?

We need to work it out.

Sure. No problem, sir.

Because we have started capturing definitely, what you call, in customer wise, but I think we also need to think whether we want to disburse information because some of it is also a little more competitive information, honestly.

And sir, what would be the like pending price hike required to completely pass through the inflation, commodity inflation?

Look, commodity, I think we are happy that we have been able to pass fully actually. Now what is happening is even now gas is people are saying it's falling under commodity because the prices, the kind of increase we have seen in the gas, I think they have been humongous and unprecedented. So we are in discussion with some of our customers if sort of that can also be considered as a commodity, it's possible, which is not as of now. Otherwise, you can see from all the commodities which are the base metal or steel or plastics, resin, et cetera, I think they have been aligned long back.

Our next question is from the line of Siddhartha Bera from Nomura.

Sir, in your commentary, you highlighted that for some of the models where there has been facelift also you have seen increase in the kit value. Possible to highlight what is it of quantum? And is it only because of the mix changing or for a like-to-like basis also the value has gone up?

No, there have been significant increases for some of the products which were not there in some of those models. I won't take names, but I'm sure you know that a lot of companies are now, or customers are doing facelift. So across the board, I don't think there is any exception. We have been able to increase our kit value significantly. And this kit value increase is not only because of what we call property price, this also increased maybe either share of business or either addition of more products or more systems which were not there in the preceding model.

And secondly from the EV order book, you have also mentioned that you have received orders for the motor controllers and the converters. So these are also part of this order book which you say in EV specific components?

Yes.

Lastly, sir, I mean in terms of margins, can you highlight which segment probably has seen the maximum pressure, and where do you expect improvement if we start seeing -- expecting improvement from current levels?

I won't call it a pressure, Siddhartha. You know very well that Q1, we know we have profitability versus Q4 is not comparable, even though we do it, rightfully so. And you know about it, so there is no surprise. But in terms of what has maybe not worked so well was or what was expected was primarily the aluminum prices. So if you see the prices at which we have been buying aluminum versus what we have been paid by the customers for Q4, that has -- based on Q4 average, has been the biggest hit, number 1. And number 2, obviously, you do expect in 1st of April, there are a lot of contract services where the inflation starts kicking in, also your increment space cycle, et cetera. So all that also has an impact immediately starting from the Q1 versus Q4. So I think this is broadly, I would say, in line, except this aluminum and also with gas prices, which had made some significant dent in our casting business system.

Sir, lastly, if you can share the revenues for the sensor, controllers, and probably the fewer entities, if you have it?

Sensor, controller is roughly around INR 100 crores for the last quarter.

Sensor, controller, put together is INR 100 crores?

Yes.

[Operator Instructions] The next question is from the line of Mukesh Saraf from Spark Capital.

My first question is on the EV orders itself. You mentioned INR 430 crores order in 1Q, but obviously, production starts next year. And in the previous slide, you had also mentioned that you're already started -- you're already producing, say, 7, 8 components and it's only motor controllers and DC/DC converters that we are not producing as yet. So would it mean that this order book of the orders that we have received in 1Q is largely only for these 2 components, because the other components, you're anyways producing already?

No, it's not like that, Mukesh. So what happens is, one is what you are producing, which is fine. The new business, what we have received, their SOP obviously is linked to the next model launch of the customer. Something might be next year, something might be year after. And of the total 7 products, they are all under production. We have mentioned that there are some small orders which we have received additionally. For that SOP, it's as soon as FY '24. It is not that everybody else delayed or something like that. In fact, there has been some businesses where we've got business even from the telematics aspect also. So I don't think we have mentioned here. So telematics is the one, motor controller is one, DC/DC converter is one, onboard charger is the one. There are lot of products we have got business.

And my next question is on the seatings business. We're seeing some of the models now being launched with these ventilated seats. And I think in December, you had mentioned that you are getting into a kind of a technical arrangement or a tie-up with an entity for sub-seats. Could you give any updates there on the seating business? And how are forays into the PV space overall for the seating businesses?

So EV space, we are still working. But in terms of the temperature control seats, you're right, we did a TLA with a small startup called Dhama, a couple of quarters back. So that is -- currently, the work is under R&D where we are sort of putting those under -- these are the small peltier modules, which we are putting under the existing seats, and we are in discussion with some of our customers and doing the trials. So hopefully, in next quarter or 2, we should have some good, what we call, business win on that product because based on current feedback, I think customers are also excited. And we do expect that to convert into some business within this year.