Automotive Axles Limited (505010) Earnings Call Transcript & Summary

Company Secretary of Automotive Axles Limited. Welcome to you all to the 39th Annual General Meeting of the company. I request our CFO, Mr. Ranganathan, to make few necessary announcements.

Very good afternoon to all. I'm Ranganathan, I'm CFO, and I'm calling from my office, registered office at Mysore. For the convenience of members, I would now like to brief on certain points regarding the participation by members and speakers of this meeting. The facility of participation by members in this AGM through NSDL e-voting platform is provided on first come first serve basis. All members present at this meeting are by default put on mute by the moderator to avoid any disturbance arising out of the background noise and for smooth and seamless conduct of this meeting. Members may please note that on receipt of request from certain shareholders, company has registered them as speakers at this AGM. Once a floor for questions and answers is open by the Chairman, name of the members registered will be announced one by one. Each speaker on his or her turn will be unmuted by the company's moderator. The concerned speaker is, therefore, requested to click audio and video on button in his or her system. If speakers are not able to activate their video modes, speakers can choose to speak through audio mode only. While speaking, we request the speakers to use ear phone to minimize any noise in the background to ensure that WiFi and Internet are not connected to any other devices or other applications. So that proper lighting and sound is also around you to have a proper video and audio experience. If there is any connectivity problem at the speaker's end, company may reserve the right to ask the next speakers to join. Once the connectivity improve, the speaker may -- speaker will -- member will be reconnected to speak after other registered members complete their turn. Speaker member, once allowed to speak is requested to mention his or her name, number, place from where they are joining. We would like to request the speakers to speak -- limit their speech to 2 to 3 minutes. Questions should be relevant and should not be forward-looking or personal. Speaker members may please note that in order to avoid repetition, answers will be given by the Chairman at the end after completion of all the queries by the speakers. During the AGM, if a member faces any technical issue, he or she may contact the help line number, as mentioned in the notice of AGM. Again -- thanks once again, everyone, all the members who have joined this meeting. And hereby ask the company Secretary to declare the quorum.

I hereby declare that the requisite quorum is present in this meeting, and there are 37 members present in person. Now it is 40, then I request the Chairman to proceed for the conductivity of the meeting.

Well, thank you. Ladies and gentlemen, good afternoon. I'm happy to welcome all the members to the 39th Annual General Meeting of your company. As a requisite quorum is present and the meeting is validly convened, I will now call the meeting to order. Before proceeding further, I would like to request directors to introduce themselves one by one. First of all, for clarity, this is Baba Kalyani. I'm in Pune at my residence, and I'm alone in the room. Mr. Chris Villavarayan.

Villavarayan in Detroit, Michigan. I am alone.

Mr. Hattarki. You have to active your...

Yes, yes, I'm very vocal. I'm B Hattarki, Independent Director and also Chairman of the Audit Committee. I'm attending this AGM from my residence at Kalyani Nagar, Pune. Thank you.

Mr. B C Prabhakar.

Thank you. I'm B C Prabhakar. I'm independent member. And also, I'm a stakeholder of the company. [Technical Difficulty] I'm attending from Bangalore. Thank you, Chairman.

Shalini Sarin. Shalini?

I'm Shalini Sarin. [Technical Difficulty]

Maybe if you switch off video, audio will get better. Her connectivity is not very good. So Shalini, we were not able to hear you because of poor connectivity. So maybe you should be try switch off your video and [Technical Difficulty]

I'm Shalini Sarin attending from New Deli office. I'm an Independent Director with Automotive Axles.

Yes, thank you. Rakesh Kalra.

I'm Rakesh Kalra, an Independent Director of the Board of Automotive Axles. I'm joining this meeting from Pune, and there's no one in the room.

And Mr. Srinivas, Kumaradevan.

Yes, I'm Kumaradevan Srinivasan. I'm a Whole Time Director of the company. I've joined the meeting from my Mysore office, and there is no one else in my office now.

Well, thank you. We also have Statutory Auditor, Secretarial Auditor, Chief Financial Officer, and the company's Secretary participating in this Annual General Meeting through VC from their respective locations. I'd like to thank all directors, officials and members for joining this meeting. Due to the spread of COVID-19 and the social distancing norms, we are for the first time meeting through videoconferencing or other audio visual means. This is in compliance with the directions issued by the Ministry of Corporate Affairs and SEBI. Live streaming of this AGM is also webcasted through NSDL website. Since the AGM is being held pursuant to the MCA circulars, through VC, without physical attendance of members, the requirement of appointing proxies by the members is not applicable. Statutory registers as required under the Companies Act, 2013 are open to the members for inspection. Members who want to inspect these registers may kindly send their request to e-mail ID provided on company's website under the Investor Service Center. I now come to the Chairman's speech. Dear shareholders and members, on behalf of the Board of Directors of Automotive Axles Limited, I welcome you all to our 39th Annual General Meeting. As you can see, this year's AGM is unlike any other time. We could not have imagined the times we are living, even though -- even through 6 months back. Before the start, the business of the day, let us take a moment to extend our heartfelt gratitude to those fighting on the front line against this global pandemic. I hope you and your family are following all the precautions to stay safe and well. The need of the hour is of restrain and resolve. Your company remains committed to extending all possible support to government and healthcare agency in staving off and enemy we know very little about. We have contributed INR 1.5 crores to the PM CARES Fund and have worked towards enabling the local community to tide over the crisis through our CSR initiatives. With the requisite quorum being present, I now call the meeting to order. I hope you have already gone through our annual report for the financial year 2019/'20, which also contains our directors' report and audited financial report. As you may be aware, the global economy grappled with several headwinds in the year FY 2019 and 2020, much before the COVID-19 pandemic bought it to a standstill in the last quarter, the U.S.-China trade tensions, weak manufacturing, volatility in oil prices and heightened protectionism, dampened the investor and business sentiments. This weak environment was exaggerated by the pandemic outbreak and the subsequent great lockdowns. India too faced its own share of challenges amid sluggish manufacturing, weak domestic consumption demand and overall credit tightness in the system. The government along with the Reserve Bank of India made concerted efforts to revise economic growth. But the pandemic outbreak derailed any prospects of a recovery, India recorded its lowest growth in over a decade. The economic slowdown significantly impacted the nation's automobile industry with falling sales and piling inventory, the increase in third-party insurance costs and road tax, coupled with the liquidity crunch, raised the cost of acquisition for end consumers and kept the industry firmly in a grip of prolonged weakness. Being an auto component manufacturer, your company was not immune to the industry-specific challenges. That being said, we believe these are transient in nature and the auto industry will stage a sharp rebound as soon as the COVID-19 situation is brought under control. In fact, a marginal recovery in demand was witnessed as the lockdown measures were eased. Against such a backdrop, we recorded revenues of INR 952 crore and remained profitable with an EBITDA of INR 101 crore. However, production cuts by -- at our key OEM clients were a drag on our performance, as they remain cautious in ramping up to the BS-VI vehicle production due to an extremely weak demand scenario, especially in the commercial vehicle segment. As you know, the pandemic situation continues to evolve. Thus, it is difficult to ascertain the magnitude of the impact it would leave in its wake. We have thus undertaken several strategic initiatives that will not only enable us to ride out the storm, but also consolidate our strong positioning to capitalize on the long-term growth potential of the Indian automotive industry. During the year under review, we prioritized 3 key areas. First, efficiency optimization. We inaugurated our new state-of-the-art assembly line, which uses cutting-edge technology and contemporary equipment like robotic painting line and IoT-enabled processes. It has already delivered a batch of products and facilitated improved cost structure and productivity. Second, a digital focused production. The new production facility enables a digital shop floor that drives automation and data mining, in line with Industry 4.0. To facilitate data-driven decision making in optimizing production and cost, we are also strengthening our IT core by deploying the best available technologies and systems. And number three, manufacturing BS-VI compliant products. We have successfully overcome the technical challenges to produce BS-VI compliant offerings and are efficiently catering to this market requirement. The safety of our people remains a priority. Our people continue to be pivotal to our success and sustainability, despite the growing focus on technology and automation, their safety and well-being remain our utmost priority. This culture of safety played a key role in implementing proactive measures during the lockdown, unlock and ramp-up phases. We established world-class measures and preventive protocols and strict adherence to the government and the health ministry advisories. Notwithstanding the current adverse environment, a long-term India growth story remains intact. The government's focus on building a self-reliant India bodes well for the domestic manufacturing industry. And we remain confident that our recent capital expansion will help us steer growth and improve our margins once the volumes return to the pre-COVID levels and more. I believe together with your trust and support, the Board and the team of Automotive Axles Limited, your company will continue to be a formidable and a sustainable business. Thank you very much. Since the notice convening the 39th Annual General Meeting was already circulated, I would request the members present to take the notice of the AGM, together with the financial statements and the Board's report as read. Now, this is okay. The company has taken requisite steps and provided facilities to enable members to participate and vote electronically on all 5 agenda items of the notice of this AGM. Members who have not voted earlier through remote e-voting can cast their vote during the course of the meeting through NSDL e-voting facility. I'll now come to the auditor's report. The auditor's report on the financial statements of the company for the year ended March 31, 2020, and secretarial audit doesn't have any qualifications, observations or comments on financial statements, which have any adverse effect on the functioning of the company. Accordingly, as per Section 145 of the Companies Act, 2013, with the concurrence of the members, the auditor's report to be taken as read. We will now take up agenda items as set forth in the notice, which has been already sent to all the members. Item #1, adoption of audited financial statements of the company for the financial year ended March 31, 2020, including the audited balance sheet as at 31st March 2020, and the statements our profit and loss for the year ended on that date and reports of the Board of Directors and the auditors thereon. Item #2, confirmation of interim dividend of INR 6 per equity share of INR 10, each paid for the financial year 2019/'20. Item #3, declaration of a final dividend of INR 0.8, that is INR 0.80, per equity share of INR 10 each for the financial year 2019/'20. Item #4, to appoint a director in place of B N Kalyani, who retires by rotation and being eligible offers himself for reappointment. Item #5, appointment of Mr. Srinivas Kumaradevan (sic) [ Kumaradevan Srinivasan ] as a whole time director of the company. Now I'd like the company Secretary to announce the process hereafter.

As per the Companies Act, 2013 and Listing Regulations, the company had provided remote e-voting facility to the members, whose shareholding are recorded as on cut-off date of August 13, 2020, we have told them to cast their votes electronically on all the AGM agenda items between August 16, 2020, 9 a.m. to August 18, 2020, 5 p.m. Facility of e-voting is also provided to members present in the meeting and who have not yet cast their votes. Such members may please go to voting page of NSDL e-voting website and can now exercise their votes, while at the same time watch the proceedings of the AGM. Ms. Pracheta M., Practicing Company Secretary, has been appointed as the scrutinizer to scrutinize the votes cast at the meeting and through remote e-voting. The scrutinizer will submit her report in the prescribed manner, Chairman or his authorized representative within 24 hours of the conclusion of the meeting. Since the AGM has been convened through a video conferencing and other audio visual means and all resolutions contained in the notice have already been put to vote for remote e-voting and also announced by the Chairman at this meeting, there will be no vote by solo events or no proposing and seconding of resolutions. Now I request our Chairman to proceed with the rest of the proceedings of the meeting. And over to you, sir.

Thank you very much. I would now like to open the floor to the members for any questions that you have and answers will -- and we will take up the answers after all the members have asked the questions. Members may please note that in order to avoid reputation, answers will be given at the end after completion of queries by all speakers. Members who have registered as speakers through mail can ask the questions. So the floor is yours.

Now [ Mr. Dinesh Poticha ], I request [ Dinesh Poticha ] to ask your question, please?

Yes. Can you hear me, sir?

Yes.

Can you hear me? Yes, okay. Chairman, sir, Babasaheb Kalyani, my regard to you, namaste sir, to all the Board of Directors. Sir, I have the pleasure to attend this meeting, e-meeting for the first time with you. Sir, I was very happy with the results. In spite of all these problems with the COVID and all that, we have been able to do one thing very nicely, that is the reduction of the debts on Page 26, we had a debt of INR 73 crores. We have reduced it by another INR 50 crores, and the debt at the end of the year is INR 23 crores. Now this is a nice thing that we have done in the difficult period. Sir, success is a time to redefine our goals and setback is a time to redefine our methods. I mean, this is the first step that you have taken. And I would like to know, shall we be debt -- totally debt-free at the end of the year, 0 debt, I would like to know that. Sir secondly is that you have set 3 priority actions for 2021: one is the cost reduction; second is the product development; third is the process optimize and automation. The first one and the third one, I understood, but the product development, sir. What new products are we going to make? Because we've already got a series of products that we are making for the industry in the auto axle and the brakes category. Now are we fully utilizing -- when we use the full capacities, I mean, have we got orders on hand for new product development from any of the companies, I would like to know that. Sir, 1 year ago, you had inaugurated a new axle plant and R&D facility on 14/08/2019. What is the additional CapEx incurred there? And in the R&D facility, how many members are there? And top of the ongoing R&D that is going on and benefits which are accrued or which will be accruing during the current year, sir? Sir, other than that, I mean, we are in the pandemic, everybody say, there are problems and we are fighting this against all odds, every company's fighting against all odds. And I wish you all the best and hope to see you, sir, meet you in the meeting of Kalyani Steels, sir. Thank you very much. All the best.

Thank you, [ Mr. Poticha ], I will answer the questions after I get all the questions.

Mr. Sunil Kothari.

Hi, sir.

Hello, Mr. Kothari. Yes, you can ask your question.

Yes. Thanks for the opportunity, sir. Congratulations for very good results. And I have sent all my questions to Dr. Kalyani. Basically, I wanted to convey thanks and congratulations to [Technical Difficulty] my audio -- hello?

Your audio is -- yes, okay. Please go ahead, Mr. Kothari. You need to unmute, you are on mute.

I just wanted to basically congratulate, sir, the team. Our helm of Automotive Axles basically, Mr. Kumaradevan, our CFO, Mr. Panda, and from Meritor, Mr. Thimmaiah. Luckily, we are getting good conference call coverage every quarter as investor. So thanks for that, sir. And I have sent some 3, 4 questions regarding -- already sent to you. So whatever detailed answer and explanation if you can give that will be very grateful and helpful.

Okay. We'll do that.

That's all, sir. Thank you very much.

Sir, that is all the speaker shareholders registered questions. Now you can answer, sir.

Okay. So thank you, [ Mr. Poticha ], thank you, Mr. Kothari for your interest in your company. And I'll first get to the questions asked by [ Mr. Dinesh Poticha ]. You know, yes, we are a company that never has believed in having too much debt. So being debt free is pretty easy if we have a debt of only INR 50 crores. I think it is prudent for any company to have some banking limits, which may be useful for any future time, but we can be debt free pretty much any time we need to. We have a reasonable cash flow and very little debt. In terms of your questions on the R&D side, I think one of the good effects of having our own research and development area with testing facilities was the ability to develop all the products that are required for Euro VI. There is a big change that happens when Euro VI technology comes, the whole driveline changes. And therefore, we were able to seamlessly develop all the Euro VI products for our customers with a new driveline. I think we have to now wait for our customers to start selling more CVs in the market, and we will see the impact of our products once we see more and more trucks on the road using our product and which I think should happen in the next 1 or 2 quarters. You talked about -- you asked a question on product development. Yes, we are doing a lot of work to bring in products that will help us create, let's say, some kind of insulation on just a pure commercial vehicle business. So we are working very hard in 2, 3 new areas. One of them is on construction and off-road vehicles and construction equipment. So we have some new customers in that area for whom we are developing products. That's one area. The second area with declaration of Atmanirbhar Bharat and the new defense policy that has come in, in the country, just 2, 3 weeks ago, Automotive Axles should get a lot of opportunity through its OEMs to participate in the defense programs of its OEMs. We have some very unique products that are related to this part of the activity. And I think we can be pretty much ahead of other people as far as these products are concerned. And third, at some point in time, some of the OEMs will start moving towards electric mobility. And also in that area, our partners, Meritor, have a very good strength in terms of electric mobility, and we are working to see what electric mobility axles we can bring into India for applications. So this is as far as product development is concerned. Mr. Kothari, you talked -- you asked about some questions. I think you have given these questions in writing also. I will just -- I have already answered the question in relation to defense. But let me just say that we are also working on how do we improve the margins on our existing products with technology, with cost reduction, with proper engineering of the products to reduce weight, et cetera. So there's a lot of work that is going on, new product development, and this is really part of our strategic drive to increase market share as well as create new products to increase -- to get a revenue growth in the company. And I think once we see the pandemic situation under control, we will start seeing the impacts of some of these new product development that we are doing. Of course, one of our strategic pillars is to improve exports. And we are exploring opportunities with Meritor to see how we can do that. But right now, as you know, because of the pandemic, the whole global CV industry and the products that go into the CV industry have a problem with demand. And I think that has resulted -- that results in over capacities. But hopefully, like at any point in time, when things go down, they also go up after some time. So we are hoping that next year, by middle of next year, we should start seeing some growth coming back into this business. Your other questions, I mean, you asked a question in terms of what is our capacity in terms of revenue with the installed CapEx that we have done. I think at current levels, we can roughly say that we can generate about INR 2,500 crore top line. That's about the capacity that we have currently without too much difficulty. But a lot depends on demand. And of course, a lot will depend on our success in our new product development in the areas that I just talked about. So these are the answers to your questions. And if there is anything else left, please feel free to send us an e-mail, and I'm sure we will be able to answer any other questions that you might have. With this, I would like to thank all the members, all the Board of Directors and the members of Automotive Axles' operating team for joining this meeting through the video. I will now authorize Mr. Debadas Panda, the company Secretary, to conduct the voting procedure and conclude the meeting. E-voting facility will be open on NSDL site for next 15 minutes to enable those members who have not casted their votes and would like to cast their votes at this AGM. Results of the votes would be announced on to the stock exchange at the earliest, and the same would also be available on the website of the company and NSDL. With your consent, I and the Board members would like to leave this meeting and wish all stakeholders, all the members a safe and a well and healthy future. Thank you very much.