Automotive Axles Limited (505010) Earnings Call Transcript & Summary

Okay. If you look at our volumes of FY '19, which was the previous peak, the industry did about 476,000 and it is about 8.7 million tonnes because it's not only the number of vehicles but also the capacity of the tonnage that we have produced. Last year, the year which is past away, FY '24, we ended with 423,000, which is about 9.2 million tonnes. So in fact, in looking at the number of vehicles, we are 10% less when compared to there, but we are slightly above in terms of tonnage. So I just wanted to bring it to the fact that we are not comped. So at this time, our revenue was about INR 1,700 crores or INR 1,800 crores, now it is about INR 2,300 crores, which means we have grown in other segments. Even though, if we have taken the commodity, commodity went up, came down. And of course, it has only about 2% impact, not more than that between that time and now. So that is the reason from the market volume and tonnage-wise, okay? Having said that, the company continues to improve the cost reduction, we have improved the reliability of product and we have also enhanced the value of the product. Thereby, our per axle realization has gone up, but of course, the plant did tremendous job in terms of cutting down the costs. I think COVID gave us a lot of insights post 2019 peak to find out how we can enhance our operational capability. Those things have really helped us to grow and almost the same margin, even though the volumes is quite less on this particular segment. Of course, we spend a lot of money on the CapEx on the defense, but the real realization of defense is still not started. The government is giving order little here and there but it is a long-term investment. With that, I leave it to Ranga to answer specifically on the profitability comparison between 2019 and now.

Yes. Thank you, Muthu. Just wanted to take your point. Amit, if you really see 2018-'19 was a peak in terms of the market. In that year, we did about INR 1,940 crores, if my memory goes right, okay? And as of today, if you look at it, our revenue is close to about INR 2,100 crores or INR 2,200 crores now. There are -- between 2018-'19 and now this is more than about the commodities change is quite huge. And in terms of -- so that is one of the significant aspect which is -- value terms, which is impact -- which has got an impact on the revenue perspective. And that's one of the reasons probably it is showing up or showing low, okay? Last 2 years if you see the significant commodity reductions have happened in ‘'18-'19 to close to ‘'20-'21 is only an increase. After that, last 2 years is commodity is in a declining stage. So as Muthu said, the revenue -- the overall market is down by about 10% to 12% compared to ‘'18-'19 peak. Still, we are not reached to that. Maybe broadly in terms of tonnage we may be closer to that. But -- so though the per axle revenue has improved, but realistically if you look at it, the overall revenue is still much lower than the 2018-'19 volume. If market come closer to that, you can really see the same INR 1,900 crores level with our market presence with all customers with all initiatives we have taken with all the customers in terms of improving a share of business with them, the introduction of product gaps what you have and what are the new products we introduced recently, we definitely will be not less than another about INR 400 crores to INR 500 crores will be added as compared to the '18-'19 level. So very comfortably we'll be reaching around INR 2,500 crores to INR 2,600 crores with the current presence if the market reaches ‘to '18-'19. So that's a perspective all of you understand because one thing we really see is a value comparison. But in terms of the commodities plays a significant role. And today we're able to show up the revenue up is only because of our active presence with our customers in terms of the share that comes to purely based on our delivery and quality performance and also -- and our new product introduction to fill the gaps on the customer requirements. As far margin perspective is concerned, though the market still not reached the 2018-'19, you touch the point about 12%, percentage is really one piece of it. If you really look at the absolute value you, [indiscernible] the absolute value in terms of the real measurement you look at it EPS and EPS has significantly grown compared to ‘'18-'19 to now.

So sir, are you indicating more juice left on the volumes and margin side for Automotive Axles?

The margin, by default, will come through our initiatives. There's no doubt about -- I will -- I told you very clearly. We are -- really work on the initiatives of -- we have our internal mission 25 initiatives. And we really drive our performance on the costs, and year-on-year -- especially on the material and conversion costs. We have taken significant efforts in terms of bringing the value in terms of the material cost optimization as well as the conversion cost optimization. That effort will continue. Year-on-year, we stretch ourselves to find new avenues to bring the value through -- early through the financials. And definitely juice left out, our pursuit is there to improve the margins. As market grows with the current efficiency, we will be doing much better. That's the point I'm trying to drive here.

Absolutely, you can take it with confidence the market is [indiscernible] previous peak. I think whatever the indications have been given in terms of our top line and bottom line will certainly happen, but the team is working hard to make sure even before such a volume [indiscernible] market, how we can enhance our profitability. I think that's the challenge the team is working on.

Great to hear this. Sir, just last 2 bookkeeping questions...

Just -- Amit, sorry to interrupt. Just to give data for your confirmation. If you really see our EPS, in '18-'19, the peak volume is at INR 80 and now with a 10% to 12% reduction, our EPS is about INR 109 per share. So this is one of the parameters internally we'll see how we -- are we really increasing the value with our share, so just an indication to you. That's it.

Sir, are you still facing any commodity...

Sorry to interrupt, Mr. Amit. Could you please fall back in the question queue for further questions?

Yes.

[Operator Instructions] The next question is from the line of Pratik Kothari from Unique PMS.

Sir, just one question. It's been about 2 years since this -- Cummins acquired Meritor, so -- and we had highlighted in the past about kind of getting some new products, new orders from this. If you can highlight anything which has happened in the past 6, 9, 12 months?

The -- exactly saying, with this August, it is going to be 2 years. I think 2nd of August is what we announced the actual acquisition even though we have communicated about February '22. On 22nd of February '22, we announced [indiscernible]. A significant of work is happening. You all talked about penetrating into another OEM where Cummins is strongly present and at the end of the day, when somebody has a huge capacity in their own plant replacing their axle with our axle...

Sorry to interrupt, sir. The voice is coming muffled now.

Again? So the team is working with the customer and, along with the Cummins support to see then how we can penetrate into other OEMs where Automotive Axles does not have good share today. So we are trying to work with the combination to make sure that how we can get real efficiency. A good amount of activity has been done in the last 1 year. And we are coming into some stages, but we are not in a position to announce anything that, yes, we made a big win at this point of time. But I know this [indiscernible] acquisition bringing a lot of synergy, first and foremost is bringing a lot of good systems into the company in terms of whether it is a talent management, in terms of the launches and we are improving with the synergy coming in between both the best practices, it is breaking into a good to great company. So we are working on this, but at this point in time, we are not in a position to announce that we have made this business win, we have made this, but definitely a lot amount of progress is happening both in off highway business as well as in the regular business.

Sorry, so this -- you highlighted that, I mean, it is helping us penetrating other OEMs, so this is largely off-highway that -- the focus is or even EVs globally.

No. Even in non-highways, sir. Even in non-highway where we are not present like Tata Motors is one of the questions earlier on it was asked Cummins has a very good leverage with them, so we are working. So we -- and Cummins-Meritor is working with all the customers of Automotive Axles, working with all the customers to see that where we can penetrate. I think the team is working extensively, work on -- working with all the new vehicles that are coming up. So everywhere, the team is making sure that we try to penetrate. A lot of new players are coming in the EV segment where it is not an EV axle segment, but remote-mounted segment, where also this company is continuing doing the business is to start supplying for them.

All right, fair enough. And sir, earlier, we had an aspiration that, once obviously the volumes come back, once we have scaled, I mean, we should be able to see some early-teen margins. I mean, does that aspiration still stay given the current context and things that you operate in?

Ranga, over to you.

Yes. I couldn't hear you properly, sir. Can you repeat again?

So sir, 2, 3 years back, we had an aspiration that, once the volume comes back and we are at scale, we should be seeing some early-teen margin, 13%, 14%, 15%. Does that still hold?

Absolutely. We have already mentioned that our continuous pursuit of every initiative what we are taking is about is to be present in the market and dominant player in the market and keep the customers happy. And parallelly, see how to build value to the organization. That is continuous focus still holds good and there is absolutely no doubt about it. That's the reason Nagaraj was explaining the automation process is more -- make the operations more efficient and more quicker deliveries can be made to the customers and all the stuff. Definitely, we are committed to grow in terms of the bottom line and every initiative is taken is towards that only, sir. As you said market it goes up, definitely margin will much -- go much higher than what we are having it today. But whether it is 13 or 14 depends on the product mix and various things. But definitely you will see a significant growth in the margins.

The next question is from the line of Deep Shah from Yes Securities.

So a couple of clarifications, since voice was not very clear. So in the opening remarks, you had said a price hike of about 0.5% with the end customers, so can you elaborate? Is this over and above the RM inflation pass-through or what it is exactly?

No, no, no. This is not over and above. I said the commodity settlement which has lowered the revenue by 0.5%, which is a commodity which we accommodated in year '23-'24, I said. So nothing impacted to the P&L. Whatever the customer settlement, the same with supply settlement, so your P&L is well protected.

Okay, okay, okay. That's one. And the second is the new launches, especially on the axles side that you just mentioned, are those for FY '25 or it will come in FY '26 also?

Yes. So yes, these are all the ones -- so in fact, as we speak, we are launching these products. So like we keep on iterating that what Automotive Axles -- the value what it brings in is, along with our partners Cummins, Meritor, we develop a product and then be ready well ahead of time even before the market is ready for it. So our MS 185 axle is already launched with one of the customers. It's going pretty well with a 55-tonne tractor. And the product has been updated and then being launched with our key customers. So that is going to happen this year. So both the bus axles and our largest axle MS 185 and then the brakes, all of them will be launched this year. And we'll be realizing some revenue out of these new product launches.

Perfect. Perfect. And sorry, I missed the number you had shared. So the share of revenues from the new products, was it about 16 or 60? Sorry, I couldn't get it.

So again, it is a little bit of challenge, right? It's -- so we -- it also depends on what customers, what our OEs are realizing from the market. So our focus is, from somewhere around 65%, where we are present, we'll take it all the way up to 80% with the launch of these products. So that's the coverage we are going to have for all the 7.5 tonne and above trucks and tractors applicated in the market.

Got it, got it. And sir, last question, on the industry outlook itself. So when we hear the commentary of, let's say, the OEMs themselves, let's say Tata Motors and Leyland both -- they both have a divergent view in terms of FY '25 outlook, especially the M&HCV segment. While one is saying kind of growth and the other is saying kind of a muted -- maybe a mixed commentary, one from the other ancillaries. So what is -- I mean, as per your view, what is the overall outlook for FY '25 in terms of the volumes that the industry can achieve? Because in last call you had mentioned it was something close to the flattish earnings for FY '25, if I'm not wrong. So what is that today?

You are right. When compared to FY '24 to '25, we are projecting flat or about 4% to 5% less. If you see the start of the quarter, the first quarter, is not going -- that going good. And most of the activities needs to be picked up. And they are talking about the reasons could be many. They are talking about elections. After elections we will start. We are also likely to get an average or above-average rainfall which means we don't see any interference in that side. On the infrastructure push from the government continues to be good. That's what the government is committing. But we need to wait for the new government to come back. We as a component supplier tier 1, if you look at it, we're going with the OEMs preparations. The OEMs are something even though they are predicting the visual target is less, but they're talking about an aggressive target that yes, we will grow. Everybody wants to grow and expand the margin. So we as a company like what Nagaraj presented the market could be -5% or it can even go up to 7%-or-something. Because even though we are losing [indiscernible] the next 3 quarters can run well. One good thing is the industry inventory has come down substantially in the last quarter. Even though the last quarter production is less, things have been -- the inventory has come down [indiscernible] inventory. I am sure that this year we'll have a positive outlook, when I say positive outlook, it will be single digit growth would be still there. The company internally we are preparing for whatever the number changes from the customer whether it goes up or comes down, the organization is run efficiently and convert it very, very positively to make sure that every bit of opportunity that we get, we should convert in the top line and every opportunity that we have to cut down the cost we should add it up to the bottom line. I think that's the team in the -- Automotive Axle team continues to work. But industry outlook at this point of time looking at the industry inventory, the government spend, the push for passenger buses, everything if you look at it, I am positive about it.

Ladies and gentlemen, due to time constraints, this will be our last question for today's call. It's from the line of Chirag Jain from Emkay Global.

Just a couple of clarification. Do we supply to the defense space from, let's say, this entity?

Yes. We supply to the defense entity, not -- I think, not directly to the defense. We need to sell it to VFJ, but now VFJ has started making axles. They are buying the entire vehicle from Tata [indiscernible]. So our supplies are going to Ashok Leyland or to the other customers through which it's reaching defense, but we are supplying defense axles from this entity. You are right.

Okay. And in terms of future of, let's say, product pipeline, let's say, e-axle, would that be part of this listed entity or could be potentially a part of, let's say, part of the group but may not be in this company. Any thoughts on that?

See, at this point of time, e-axle at this -- the segment [Technical Difficulty].

Sorry to interrupt, sir, but the line for Mr. Muthukumar has been disconnected.

Okay, yes. So the thing is we still have a capacity to manufacture some of the key components required for the e-axle. So at this point of time, e-axle, it is basically a part of Cummins-Meritor, but we supply them the parts wherever it is required. And the volumes, at this point of time, it is still too early for us to tell how this overall e-axle business is going to develop. Having said that, we are already supplying to key customers for the e- or battery vehicles our special axle which is being applicated on that. Most of the OEs, at this point of time, are preferring to remote mount type design, which is the cost effective at this point of time. So just to confirm, that e-axle still requires quite a lot of components which we are producing, which we have a capacity for that. I'm sure that we will be a part of any future e-axle production in one way or the other.

Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to Mr. Sailesh Raja for closing comments.

So thank you all for attending this session. We especially thank the Automotive Axles team for their time. Muthu, sir, would you like to make any comments?

Yes. Thank you, Sailesh. Once again, ladies and gentlemen, thank you very much for your time. Rest assured, on top of I think whatever we spoke I also wanted to congratulate your team. They have got the JIPM TPM award, last year. Nagaraja team did a wonderful job of last 3-4 years on the journey of TPM and they've been now awarded by the JIPM TPM. I think the team went to Japan and got the award. This gives confidence on the ability of the flexibility that we have created in the plant to increase customer-varied demands. The team is continuing to put the efforts in terms of new product launch, in terms of improving the reliability, at the same time increasing the flexibility in the plant to make sure that multiple models and deliver it at the shortest time. We'll continue to put the efforts and look forward to -- I think my team is there in the next 2 days in the conference in Mumbai. I think they'll be available in person to meet you, talk to you and [indiscernible] commitment. Though I am not able to come, but that session that the organization on -- will put everything make sure that the value for the -- all the stakeholders. Once again thank you very much for taking time to join today. And thanks, Nagaraj and Ranga for taking the call. Thanks, Sailesh for coordinating this and really appreciate every one of your time. Thank you very much.

Yes, thank you.

Thanks, everyone.

Thank you very much.

Thank you very much. Thank you.

Thank you. Bye.

On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.