Fiem Industries Limited (FIEMIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '20 Earnings Conference Call of Fiem Industries Limited, hosted by Monarch Network Capital. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. The statements are not a guarantee 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. Anubhav Rawat of Monarch Network Capital. Thank you. And over to you, sir.

Thank you, Margaret. Good evening, everyone. On behalf of Monarch Network Capital, I welcome you all to quarter 4 and FY '20 conference call of Fiem Industries. We'll start the call with initial comments about the results and the future outlook of the company, and then we'll open the floor for questions. So without any further delay, I'll hand over the conference to Mr. J. K. Jain, Chairman and Managing Director of the company. Over to you, sir.

Good afternoon, ladies and gentlemen. We welcome you all to the conference call on the financial result of Fiem Industries for quarter 4 and FY 2020. I would like to wish you all good health and safety amidst this difficult time of COVID-19. The company has released its results on June 30. I believe you all got the chance to go through the same. Along with me on this call, I have Mr. Rahul Jain, Director; Ms. Aanchal Jain, Director; Mr. Rajesh Sharma, Director, Development and Marketing, Mr. O. P. Gupta, CFO; Mr. Arvind Chauhan, Company Secretary; and our financial team members. I will firstly brief discuss -- briefly discuss about the industry's performance and the impact of COVID-19 on our industries. Thereafter, I will update on our company's performance. As you all know, 2-wheeler industries have been badly hit by diverse factors, including slackening, liquidity, rise in insurance premium, price increase in BS-VI compliance and prolonged economic slowdown in the country. Financial year 2020 has remained another difficult year for the overall auto industries, including 2 wheelers. In addition to this, COVID-19 has further impacted the industries due to the nationwide lockdown started from March 25 onwards. The industries observed a 40-plus days lockdown and even after unlocking, these -- things are not normal. These are very difficult and uncertain times. During financial year 2019/'20, 2-wheeler industries registered a negative growth of 14.14% against a growth of 6.29% during financial year '18/'19. Domestic sales of the 2-wheeler has even a deeper negative growth of 17.76%. The degrowth has remained across the OEMs, and the exception of Suzuki Motorcycle, which registered a production growth of 7.52%. In this background and these unprecedented difficult times, your company was able to perform much better than industry and achieved a sale of INR 1,366 crores, during the financial year '19/'20 in comparison to INR 1,434 crores during the previous year. That is a decline of 4.75%. This was possible because of the increase in share of our business with our customers. Although the production of the HMSI, which is our top customer, declined by 13%, our sales to HMSI declined by only 1.37%. The company also registered a good growth in Suzuki Motorcycle, which is 19%. We believe that our increased share of business with our esteemed OEM customers has helped us to perform better in these difficult times. In order to continue production amidst COVID-19, the company has adopted appropriate safety measures of social distancing and health sanitization. I believe that when the situation improves, the recovery will be swift in 2-wheelers because of the pent-up demand and preference of the people to travel solo rather than share mobility or public transport. The rural economy is another hope for faster revival in 2-wheeler segment. We remain focused on strengthening our in-house design and development capabilities and going ahead with the new projects as per our customers' plans. Our projects confirmed orders is also very strong. We continue to be one of the most preferred supplier to the OEMs and successfully getting new business from OEMs because of their confidence in our R&D and production capabilities. Those -- these are very uncertain times, but we are closely watching the situation and are hopeful for a fast recovery. We are keeping ourselves ready for such situations, and hope that the starting of the festive season can be onset of such range. Now I hand over the line to our CFO, Mr. Gupta and his team, to update on financial performance of the company.

Thank you, sir. Good afternoon to everyone. It gives me immense pleasure to share the financial performance of the company for FY 2019/'20. The company has been able to achieve net sales of INR 1,366 crores during the financial year 2019/'20 as against the sale of INR 1,434 crores during the financial year 2018/'19. The sale for the fourth quarter of '19/'20 was INR 319 crore as against the sale of INR 352 crores for the fourth quarter of '18/'19. These represent a marginal decline of 4.75% on a yearly basis and 9.4% on a quarterly basis. The company's production facilities were closed from March 23 due to complete lockdown announced by the government in the wake of outbreak of COVID-19. The company has been able to earn EBITDA of INR 155.76 crores being 11.4% during the financial year '19/'20 as against an EBITDA of INR 155.26 crores being 10.83% during the FY '18/'19. This clearly reflects that company has improved its EBITDA percentage by 57 basis points in comparison to last financial year since EBITDA has gone -- not gone down despite of drop in sales by INR 68 crores. PAT of the company has significantly increased to INR 78.92 crores during the FY '19/'20 as compared to a PAT of INR 55.48 crores during the FY '18/'19, resulting in an increase by 42.25%. Further, PAT of the company for the fourth quarter of '19/'20 stood at INR 22.6 crores as compared to PAT of INR 15.47 crores during the fourth quarter of FY '18/'19, resulting in an increase by 46%. This significant increase in PAT is attributable to the fact that company has exercised the option permitted under Section 115BAA of the Income Tax Act, wherein domestic companies have the option to pay income tax at a lower rate of 25.17% against 34.94% paid by the company in earlier years if such domestic companies adhere to certain conditions. Accordingly, deferred tax liabilities have been remeasured, which has [ saved ] the profit by INR 14.52 crores. Further, company has also saved income tax to the tune of INR 6 crore approximately. PBT of the company stood at INR 87.12 crores during the FY '19/'20 as compared to the PBT of INR 85.13 crores during the FY '18/'19. Further, PBT for the current quarter 4 stood at INR 20.67 crores as compared to PBT of INR 24.86 crores during the quarter 4 of FY '18/'19. Updating on CapEx, I would like to inform that the company has made an investment of INR 58.33 crores in fixed assets during the FY '19/'20. With this, I end the financial brief, and now the floor is open for question and answers. Thank you.

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

Congrats on good set of numbers. Sir, firstly, the receivable number has declined from INR 146 crores to INR 77 crores. So while that -- is it something to the ELSS (sic) [ EESL's ] receivables?

Yes, yes. Your -- debtors has drastically reduced because we are having a very good recovery levels from main customer. Our main customer is Honda; and other customers, we are having very good recovery. So that is why you see that the receivable has drastically reduced.

So is it because there was not much production in March, so you probably get the money in time related to sales, that's why -- so will it increase going ahead when production normalizes at the same level?

Yes, you can say that. But in the last, say, 8 days, there was no production. And earlier sales money has already come in the end of March. So you will see that there is hardly any working capital liability. And as on the date of 31st March, you have INR 45 crores bank balance in the company. That is why you see this money is already there in the bank account. If debtor has not received, it would have also been then INR 40 crores.

No, no, sir, my question is that when production normalizes, let's say, by maybe September or whatever, that time the receivables will go to the same level?

I think it will also not be at the same level, it will be much less because the arrangement with all these good companies, they are now keeping the supplies in good shape, they are paying the money on time.

Okay. And is there any receivable related to ELSS (sic) [ EESL ] still, ELSS (sic) [ EESL ]?

Yes, yes, that money is pending. And the company is working hard to recover that. That is why you see this much of debtors. Otherwise, our debtors would have also virtually been half of this.

Okay. So roughly INR 35 crores, INR 36 crores is still there with ELSS (sic) [ EESL ]?

It is INR 21 crores.

INR 21 crores?

Yes.

Okay. And in the presentation, Others segment, basically, which is sales contribution less than 10%, there's a sharp jump from INR 85 crores to INR 130 crores. Is it related to some mold sales? Or what exactly is this?

Yes, yes. This is -- these other things are -- you're talking about the rest of the 3, right?

Yes, yes, yes.

Yes. This is...

The major sales, which is being reflected in the balance sheet, is of photo sales and some of our electronic working.

I didn't get it. So INR 85 crores number went to INR 130 crores. Can you just break out exactly where the major jump happened?

This is -- you are right. This is the increase of the molds majorly, and then other components.

So what are the molds sales number for this year? Last year, it was around, I think, INR 40 crores?

Yes. It is mostly same. It is INR 45 crores -- or INR 47 crores.

So then what increased basically in this jump?

Could you just -- Ashutosh, just hold for a second.

Yes, yes.

Yes. Your question is that what we've shown in the automotive lighting and then then mirrors and then plastic parts and then you were talking about the last 1 slide, right?

Yes, yes, Others. Yes, last one.

Others. So these others include...

Plastic parts.

This others include the sheet metal components and bank angle sensor chemistry we already shown separately. So this difference is majorly for the mix of all these 3.

Yes, yes. I got the point. I am saying that there is a sharp increase from INR 85 crores to INR 130 crores, jump of almost INR 45 crores. So that jump has come from what exactly?

Yes, yes, you are right, mold sales is more.

How much is the mold sales in this year?

Mold sales, you want the exact number?

Yes, yes, yes.

We will work out and let you know.

Sure, sure. And so bank angle sensor sales were around INR 5 crore last year. Now that this year we'll see the full ramp-up with BS-VI model. So what kind of sales we expect from bank angle sensors and canisters?

Bank angle sensor is around INR 35 crores and canister is now -- in the changing scenario, it should be around INR 5 crores.

Okay. Okay. And what is, let's say, our CapEx was INR 53 crores you mentioned -- INR 58 crores last year. Just want to understand what is the utilization level across plants right now and CapEx plan for FY '21?

Actually, as you know, there are not much of capacity increase this time. So that companies are only making maintenance CapEx, that is around INR 20 crores. We are not expecting much investment in fixed cash in the current scenario. And company is already operating at the efficiency of 40%, 50% and already have an installed capacity of 80%. So by that, we have already achieved from these fixed assets a turnover of INR 1,400 crores. So I don't think the company will have to make any further investment during this year.

So from these assets -- how much sales you can make from these current assets?

At least INR 1,400 crores we can definitely make as we made last year.

Okay. Okay. Because I think you could -- probably can make higher, so -- I think it is possible.

Yes, yes, 100%. Yes, you are right.

I am most conservative because we already have a cushion. You are right.

So over the next 2 years, the CapEx will probably remain low. Is that correct?

Correct.

At least for March '21, it will be low, but you do not know the situation between '21 and '22. If there is growth, definitely, then company will make investments, but it is not really easy to predict after March. But for March, We definitely know for sure that the company would will not be making much investment.

Okay. And how is the production ramping up, like say, May, June and also for July as such, from OEMs?

Basically, the order from June itself, our sales -- we have reached to the sale of 40% of the last year. So this year, from now onwards, we have good -- very good orders, and we expect very good ramp up from the order.

So like June was 40%, what number do you expect for July in terms of production schedule -- production level?

So basically, it depends on the availability of the labor as well as the COVID-19 breakdown.

So the point is that now there are increased schedules from the customers. So as we see, it will be increased. And I think 2, 3 months, we will be in a better position to see what is the level.

Okay. And lastly, we had this JV with Aisan. So what is status over there? I mean, what kind of revenue you expect from there in FY '21?

Actually, regarding Aisan, one has to first understand the agreement and the dealing of Fiem Industries with Aisan. So Aisan has made a loss of, say, INR 17 crores in last year and made a turnover of INR 35 crores, and we are expecting a reasonable turnover in this year. But this loss does not have a bearing on -- any financial bearing on the company because this loss of JV can only make an addition in the value of the company, it cannot decrease, because that is the kind of arrangement the company has already made with Aisan.

We get some other income from there, right? That's what I recall, right?

Yes.

So I just want to understand how will be the ramp-up and what kind of revenue? I understand your point that loss will not be a bearing in our numbers per se. I just want to understand how the sales would look like for Aisan JV in FY '20 and '21 based on the orders that we have.

So this is -- in changing scenario, this is very difficult, and they are already -- they already started supply to Bajaj. But it will depend, again, the ramp up of sales and the demand from the Bajaj. So maybe next quarter, the position will be more clear.

Okay. And just 1 more question on this LED lighting. In terms of our development right now, are we seeing the trend of increasing LED penetration in headlamps going ahead? Or there wouldn't be any major change to the structure what it was in FY '20?

Yes. This year and the next coming year also, we are expecting, it is, as of now, our sales for LED lamps, headlamps especially, is 39%, and we are expecting by this year-end and coming years will be around 50%. So increase is there.

So there is a trend -- increasing trend of adoptability of LED across the OEMs.

So even this year, you think that LED sales will be higher than last year -- I mean, in the proportion, I mean, our sales will be higher than last year?

Yes, of course.

[Operator Instructions] The next question is from the line of [ Manas Sarasa ], an individual investor.

My question is, are there any new joint ventures or products coming in FY '21?

No. Not at the moment. We are not taking any new projects at the moment. So this we will -- although there are many things in pipeline, but we will consider after the COVID-19 is over.

Okay. And the second question is, what is the scenario with the Italian design center? Is it operational?

Can you repeat your question, please?

The question was, what is the scenario with the Italian design center? Is it operational?

Working well.

The Italian design -- our total designing is being done in Italy. So it is very much in operation. And basically, this -- we are working full capacity there.

[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment.

Congratulations for managing the business really well last year in a tough time. Few questions, sir. On the Aisan JV, have we started booking the support fee, which we are supposed to get, and the management fee as per arrangement in our stand-alone P&L? And if yes, what is the amount which has been booked in FY '20? And is it linked with sales or some milestone achievement in Aisan JV?

Yes, you're right. The support fee to the extent of INR 2.60 crores has been booked in the P&L's account. And this fees is fixed. It is 10% of the amount invested, and it will remain fixed. It will not increase and it will not decrease also. So INR 2.60 crores per year will come in the form of support in the P&L account every year.

So when the Aisan JV revenue picks up in FY '21, there will not be any corresponding change in the stand-alone fee or anything of that sort?

No. There can be an increase in the share of profits because of the JV, but support fee will remain static, that is fixed.

Okay. Can you give the direction for Aisan JV in terms of size of the business possible on the injection part in FY '21 or FY '22, whichever you are comfortable with?

Basically, the installed capacity of the plant is 2.4 million. And at present, it is working -- it has just started. So basically, that capacity is not even 5% utilized and -- due to the COVID-19.

Okay? And we were supposed to supply to 3 OEMs, right, Yamaha, TVS and Bajaj? And what is the progress there? Have we started supplying to all 3 or now it is only a particular OEM?

No, no. Basically, it was basically meant for Bajaj first. So that is going on.

Okay. Okay. My another question is, we gained a lot in our business in terms of growth from Suzuki and Yamaha last year. And there was some upside potential possible from Yamaha's export product line and -- or global supply. Any progress there? And any direction you would like to share on the Yamaha's platform and the product and progress in Suzuki?

Yes. We are already working with Yamaha and Suzuki for their global platform. Those are under development and few projects have already started supplying to those countries.

That has happened last year. Any further upsides on those projects?

Yes. There are few projects, which are on the finalization of supply stage. Might be by -- from next month or next month onwards, we will start the supplies to Yamaha Italy and other countries.

For the same model or for certain model for which they were...

There are few different models. As of now, we can't disclose them as the models have not yet launched. So we cannot declare the name of those products.

Okay. So these are -- these are additional models for which some supplies can come up -- can be built up, right?

Yes, yes.

Okay. Okay. And same way on Suzuki, on their product lines, I think Brezza and Burgman is where we supply, right?

Yes, we are supplying for both Gixxer and Burgman both. And there are a few products which are under pipeline, and those will -- again, we will start within this financial year to Japan and other countries.

Okay. So some total based on what we shared on in terms of rise in LED headlamp revenue percentage and these supply wins from Suzuki and Yamaha, combined with higher sales from bank angle sensor, just like FY '20, do you foresee a situation where you would be able to hold on to your revenue despite some decline in the domestic 2-wheeler volume because of whatever the loss sales have happened, any thought process there?

Yes. At this moment, it is very difficult to predict the turnover of this financial year due to the uncertainty of the COVID-19, but our sales have grown -- shown a positive trend because of having a good schedule than forecast from our customer.

Okay. Okay. I actually understand that part. Okay. Lastly, sir, this -- whatever schedules we have, when do you expect to reach whatever this -- based on whatever interactions you are having with the OEMs, this 40% production schedule, which you have reached in June, when do you expect it to reach to about 100% type number?