Fiem Industries Limited (FIEMIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the 2Q FY '22 Earnings Conference Call of Fiem Industries Limited, hosted by Monarch Networth Capital Limited. 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 the date of this call. The 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. Anubhav Rawat from Monarch Networth Capital Limited. Thank you, and over to you, sir.

Yes. Thanks, Leo. Good afternoon, everyone. On behalf of Monarch Networth Capital, I welcome you all to Q2 FY '22 Conference Call of Fiem Industries Limited. We'll start the call with initial comments about the results and future outlook of the company, and then we will have Q&A. So without much delay, I hand over this call to Mr. J.K. Jain, CMD of the Company. Over to you, sir.

Thank you. Good afternoon, everyone. I welcome you to the Q2 FY '22 earnings call of your Company. Let me introduce the participants on today's call. Along with me, we have Mr. Rahul Jain, Director; Mr. Rajesh Sharma, Director; Mr. O. P. Gupta, CFO; Mr. Arvind Chauhan, Company Secretary; and other members of the finance team. I am pleased to report that your company has news to record [indiscernible]. This has been achieved in spite of the industry's heading like commodity pricing [indiscernible] and uncertainty around COVID.

I'm sorry to interrupt you, sir, but your voice is breaking.

[indiscernible] of our company and ability to adopt to changes in environment. In Q2 FY '22 -- can you hear me now? Hello?

Yes sir, much better. Please go ahead.

I am pleased to report that your company has been able to record very strong results, posting highest ever sales of INR 450 crores for the quarter. This has been achieved in spite of the industry's headwinds like commodity price increases, electronic component shortage and uncertainty around COVID-19 [indiscernible] and ability to adopt to changed environment. During the Q2 '22 [indiscernible] volume grew to 5.2 million units. This 1% jump [indiscernible] previous quarter of 3 clean units. This [indiscernible]

I'm really sorry to interrupt, sir, but the line isn't very clear. [Technical Difficulty ] Participants, thank you for patiently holding your lines. We have the line from the management reconnected. Over to you, sir.

Yes. Apologies for this connection. It seems we were having some issues. Were you able to get the speech at all or would we request to sort of start all over again, what would you recommend?

Sir, I think you can give the financial highlights, and then we can open the floor for questions.

We continue to outperform the industries and our sales grew by 12.2% year-on-year basis and 52.9% on quarter-on-quarter basis. This has been achieved due to our product mix and diversified customer base. And as you are aware, there has been significant escalation in the input cost during the quarter. Our raw materials and component costs rose by approximately 3.5% on a sequential basis. Due to the increased sales and better utilization of the fixed costs, our EBITDA margin declined marginally from 13.4% to 12.5%. Our effort in the EV segment continues and our teams are working closely with both existing and new potential customers. EV segment is witnessing a number of new entrants, although overall EV monthly volumes are still low. This should see significant pickup in the next 12 months. As you are aware, we are working with most of the leading EV players and this should start showing results in FY '23. We continue to work with our OEM customers in developing new products and have a very healthy pipeline for future growth. In order to prepare ourselves for the future, we are firming up CapEx plans of approximately INR 75 crores to INR 100 crores over the next 2 years. This should give us enough headroom for future growth. Given our strong cash flow position, we should be able to fund all this growth through internal accruals. We are entering an exciting phase in our industry with new products and technology, which are making a big impact. Your Company is uniquely positioned to benefit from these changes, and I am confident that we will continue to retain our leadership position in the 2-wheeler segment. With this, I hand over to our CFO, Mr. Gupta, and the financial team to update on detailed numbers. Thank you.

Thank you, sir. Good afternoon to everyone. I will present the total numbers for FY '22. The Company's sales of INR 416.26 crores in Q2 of current financial year against INR 370.95 crore in corresponding quarter of 2021, registering a growth of 12.2% on a year-on-year basis. On a quarter-on-quarter basis, this is a 53% increase from a base of INR 272.25 crores. The EBITDA was INR 51.95 crores, translating into an EBITDA margin of 12.48% as compared to an EBITDA of INR 49.81 crores or 13.43% in Q2 of previous financial year. The decline in EBITDA margin is mainly due to increase in input costs. PAT increased by 8.8% to INR 26.84 crores as compared to INR 24.67 crore in corresponding quarter of FY 2021. On a quarter-on-quarter basis, PAT is higher by 114.4%. During the quarter, the company has made a CapEx of INR 6.43 crores. We continue to be a net zero debt company. 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 Securities.

Sir, congrats on good numbers. Firstly, if I look at our sales to Yamaha in the first half and if we were to assume that similar sales were done in second half, then probably our sales to Yamaha will be almost up 60% versus last year in this year and also almost double of what we did in FY '21 -- sorry, FY '20. So my question is that how do you see Yamaha ramping up from here? Do we have more models to be added to this -- basically what you're supplying right now? So how do you see the sales with Yamaha going ahead over next 2, 3 years?

Yes. I'm Rajesh Sharma. I will just reply you back about this question. Of course, Yamaha is adding new models year-on-year. And in the past, if you see in last 2 years, almost 7 to 8 models is being introduced by them, not only for [indiscernible] countries like Indonesia, Italy, Thailand, Vietnam, Colombia and Japan. So we have started those underdeveloped products -- developed products now to those countries and volumes are increasing month by month.

So you are saying you're currently supplying 7 to 8 models already of Yamaha?

Yes, 7, 8 models has already been introduced. If I talk about MT-15; MT-15 series, 7 models have already launched with respect to their global markets. And those all products are under mass production now, and we have started supplying -- exporting from here to those countries.

Okay. And how many more models can flow through going ahead, say over the next 1 or 2 years?

There are almost 7 projects as of now under development.

And this is apart from this MT-15 you're saying isn't it?

Yes MT series also. There are a few products, which is coming under MT-Series. MT-Series is really a specific model, which is first time introduced by us, that is the smallest headlamp in the world, which is patented by us and our customer. And this model is being used for the different models by changing the outer peripheral and styling aspects.

Okay. So I think there is still a long ramp up possible in Yamaha revenue by us?

Right.

Okay, good. And, any other overseas customer order apart from Yamaha, we are making good progress?

We started with the Harley-Davidson export.

Okay. And this is a...

Harley Davidson, although they have stopped their activities in India mass production activity, but we have already started for their 4 models in Thailand as well as in U.S. So we are exporting directly from here to U.S. and Thailand. And they have further products -- this year we started.

This quarter only.

This quarter only, majorly.

2Q of this year, September quarter.

Yes.

Okay, so do you see further ramp-up from here?

Yes.

So I think we, -- so I know you also have Ola order now. So I think there will be a good ramp-up apart of industry growth rate and the variable over the next 2, 3 years.

Exactly. Correct.

Okay. This -- the CapEx that you mentioned, INR 75 crores to INR 100 crores, right, you said over the next 2 years?

Yes.

And what would be -- apart from this, say INR 80 crores to INR 100 crores CapEx, what would be your maintenance CapEx per year?

Yes, the [indiscernible]

Sorry, I didn't hear sir. The voice was breaking.

This includes the maintenance CapEx. Maintenance CapEx is not much around, INR 20 crores.

Sorry?

It will be substantially the growth CapEx.

Okay. So I think the next 2 year CapEx should not be more than INR 100 crores cumulative '23, '24?

That is what we estimate.

Okay. But I think still we generate very strong free cash flow going ahead. Okay. And the other thing is that if I look at other expenses have -- basically has not grown so much. Is there any one-off or we can maintain these levels going ahead? Like say, I mean obviously, this seems a big deal, but as a percentage of sales, it is a quite low number compared to what we have been doing over last 2, 3 years.

So these expenses are same. It's all -- know to other, means the fixed costs are almost same and this is a very high sales volume now.

I think as a percentage, seeing lower numbers because of the increased sales. But otherwise, to answer your question, they are not expected to increase other expense.

Sure. Okay. And looking at the gross margin computation, we probably have not been able to pass on the full impact of commodity to customers. So how do you see it going ahead? Are customers giving more price increases going ahead and we expect this to improve?

See, this raw material increase, it is the industry-wide phenomena. It takes around 6 months to 9 months to take on this price increase. But everybody is aware that commodity prices are increasing. So it is not a big deal to get that.

So if that is the case, and basically I think our sales also grows well, apart from industry variable and there will be some pass-through of this commodity inflation. The margins should actually go towards -- is it possible to go to towards 13%, 14% range over the next 2 years, directionally?

You can see our margins are better than the peers of the industry. So what we should think about the realistic, these are the -- this 12% to 13% as good.

Okay. And lastly, on this -- if I look at the plastic molded parts sales in this quarter versus Q1, it has almost doubled. So I mean, my question is that which are the key customers for us in plastic molded products?

Plastic molding is primarily be used for our captive use, but there are a few products which we supply to Honda, and that too for their first plant as well as third plant in Bangalore. These are the 2 plants where we are supplying and some -- few components are for TVS also.

You said first plant and other is Bangalore plant is it?

Okay. No. They're in Hosur -- sorry this. Ahmedabad plant.

Okay. So that's why -- because your Honda has ramped up well on quarter-on-quarter basis that's why your sales have gone up so much.

Yes, yes, right. And [indiscernible].

Okay. And just lastly, in -- like in terms of Y-o-Y growth, what part of this growth is driven by the price increase pass-through, if you can provide some color?

No. See this Y-on-Y, this is majorly the mix of value as well as the volume growth. So it is -- these are the only 2 factors.

So just to understand, what is the contribution by the value growth because of the pass-through of [ RM ] compared to last year?

Majorly value. Yes, it is difficult to break up, but it is majorly value.

The next question is from the line of Kashyap Javeri from Emkay Investment Managers.

Hello, am I audible, sir?

Yes, yes please. Please go ahead.

And congratulations for quite a strong set of top line. On the raw material side, one question, how would the pass-through happen? And any recouping of this quarter's gross margins that could happen in the coming quarters? That's question number one. Question number 2, in line with client-wise breakup that we give, HMSI is yet to get back to H2 FY '20 kind of number. How much of it is due to their production not coming up back online? And if any market share loss is also part of that decline? And the third question is on the EV side. When is our product supposed to roll out? Have any supplies happened in -- would the supply start in 3Q or would it be like 4Q next year only I mean 4Q FY '22 only.

So your first question first. Regarding this raw material pass-on, this is a continuous process, means everything what is happening, it is with a lag of 6 months to 9 months, it takes place. So it is well in the knowledge of the customer even before increase and everything. So it is -- whatever is -- suppose in this month, it was for a previous half year also. Now coming to your HMSI volumes, you are comparing the 6 months of previous year and 6 months of this year, correct?

No, sir. I'm comparing 6 months of FY '20, which is like 2 years.

Half year.

To answer the question, there is no...

September '19 and September '21.

So there is no market share loss. I think this is all driven by specific product volumes. So HMSI is getting back. Last quarter was obviously very, very low. This year -- this quarter, HMS has recovered. So I think we'll get back to our original volumes pretty soon. So there is no loss on market share.

[indiscernible]

Your voice is not audible.

Sorry, I'm asking in terms of supplies to the EV player, would they start in this quarter or would they start in next quarter?

Some of the EV have already started and some of the new models will be added in the next quarter as well as -- this will be -- continue for next year or next to next year, too. This is totally dependent on the carefully ramp-up plan of each customers.

Right. And one last question in terms of, let's say, supplies to electric vehicle and LED, would there be a difference in terms of realization, even when it's -- let's say an LED to EV versus LED to a conventional scooter or should they both be same?

Yes, both are same because the electrical requirement with respect to the lamp is same because these are all homologation parts, safety parts. So there is no much change.

The next question is from the line of Sahil Jain, who is an individual investor.

Thank you, and congratulations for the good performance, especially on the top line. Now my first question, continuing on the last participant. Sir, roughly, how much of the revenue share do we do from EVs right now, say, maybe in second quarter, if you can give me a rough estimate of the revenue from EV?

So Sahil, EV, as you know, is just starting the journey. Overall -- I mean, if you see the overall numbers as percentages from a penetration perspective also in India is not much. So I think the way to look at it and we are not sort of disclosing individual numbers customer-wise. But I think the point to say is that the journey [indiscernible] Over the next quarters, say over the next 1 year, we see significant ramp up. So -- and we are working with most of the top EV players in India already which are there. And you will see volumes coming through over the next 12 months. It would be difficult to give this quarter specific numbers.

My second question, again, on the EV side only, like you said that you are working with multiple EVs OEMs. So HMSI is also bringing on EV scooter by next year. So have we communicated anything yet? I mean -- and since it's a leader in the scooter segment and our key clients, so do we expect sole supplies to be based on, in turn, revenue growth from that?

HMSI have recently announced for the EV scooter than to be launched and that vehicle will be, of course, from their [ autocell ] parts, which has been running inside in Honda, some of the plant. And of course, the business for the Indian market is required Indian formulation. So those will be developed in India. And of course, priority will be given to the suppliers who are already engaged with them.

Okay. I mean, so when do we -- I mean, we start production for them, any timelines defined?

It's -- still announcement is done. We are just waiting for the drawings and RFQs to start the business for this electric vehicle.

And my last question, sir, is that in 2Q, which OEM clients led to the growth in your top line. So you have been broadly saying that it is more of a value-based growth. But was there also some new addition in the OEMs or any particular OEM client which specifically led to our growth in 2Q?

See, this is -- as I already said, this is a mix of value and volume-driven growth. And all OEMs have contributed. But Yamaha, yes, there is a big jump in Yamaha sales.

Okay. And that is something that will continue or how should we understand that, I mean about new volumes for Yamaha?

These volumes will be continued.

Okay. And sir -- and starting September, so particularly 3Q, have you already added any OEMs?

We are working with, means all leading OEMs. So this is -- as far as the new developments are concerned and new OEM potential customers are concerned, we are working. But this is not the right time to talk about it.

The next question is from the line of [ Srishti Agarwal ] from Next Capital.

Sir, I wanted to understand how is the working capital cycle shaping out? Are we facing challenges on the receivables and/or the inventory management? How is that shaping up?

No, there is no challenge on the receivables. Actually, there is an offer from the customer for the bill discounting. So our debtors are 20 days. And we deal with the top tier customers. So we don't have...

And there has not been problem of any payment from anywhere, nothing.

Understood, sir. So we are ahead of the industry.

Absolutely.

Understood, sir. So we have considerably reduced debt and we are expected to generate free cash flow. So what do we plan on doing with that cash? Is there any buyback on the cards?

See, we are -- I mean we are looking at big growth in the company. And whatever is the cash generation, it will be used for the growth of the company, whatever the CapEx requirement and whatever used in the business as working capital.

Okay, sir. So the CapEx that you -- so apart from the ones that you have announced, you all had planning on further CapEx as well or all the...

No, CapEx plan is already the one which we are saying. It will be between that range over the next 2 years. But essentially, between the dividend policy that we've already announced and the CapEx, at this point of time, there is no consideration for anything else. At some point later, if there is a change in situation, we can always have a look. But at this point of time, I mean, we would rather sort of invest in our growth.

Understood, sir. Sir and CV segment is expected to grow. Are we seeing any new client addition there? Do we -- are we working with all the top clients? Can you throw some light on that plan on the CV segment?

Yes. We are already working on CV segments with respect to the top customers. And of course, there are a few models which our customer is planning for years to come. And we are closely monitoring those things, and we are aligning with all customers together.

Can you name of your customers?

Of course, CV is always the Tata Motors and Ashok Leyland, these are the few, Mahindra & Mahindra; these are the customers...

So we're working with all of the top ones. Sir, one last question, how do we -- like, based on the current capacity, how do we expect our revenues and margins to look like, not from the point of your guidance, but from the existing capacity and what you plan, you know how do we foresee growth?

So if we talk about the utilization of our capacity, it is, of course, the -- as of now, we are retaining almost 75%. But it is totally dependent on the model base, like product mix, like what products we are producing as of now with the same capacity, which we installed years -- back on years, those components are, of course, the electric vehicle, EV, especially LED lamps, and those are being produced and revenue is, of course, more in that case.

Almost 2x.

Yes, so conventional to LED, there are 2 multiply by 2 or 3 also, sometimes 4 also. It is totally dependent on the volume as well as the configuration of the vehicle, which is being produced with the same capacity utilization of our machines.

Understood, sir. And where do we see margins going?

Margins will remain the same. This is what we already told.

The next question is from the line of Priyadarshi Srivastava from Monarch Networth Capital.

Congratulations on a good set of numbers, sir. So my -- most of the questions are answered. Sir, I just wanted to know, sir, what is your overall outlook on the 2-wheeler industry, sir? And by when do you see the numbers to come back to the previous level, or the normal level, sir?

We are very hopeful and we are sure that 2-wheeler industries will grow. It was growing 20%, 25% year-on-year basis before COVID. So we expect the same thing should happen in years to come. Basically, the growth we are expecting from 2022 onwards, because at the time, all the EV sector will also come and we are very much hopeful that the things will be much better than before.

Okay, sir. Okay. So any sir, like the broad guidance like by when you see that volumes to come back to the previous or normal level?

We expect by the first quarter of -- by the second quarter -- I mean the beginning of next year, I think the volume should increase. And by the second quarter, we should -- I think this COVID situation should be over. That is the expectation.

Okay. Okay. Sir. Sir, one last question that, what's happening with the -- like Hero MotoCorp from sir. Any update on that, sir?

Yes. The development is going on. Many product development is going on, and we are in that pipeline.

Thank you. The next question is from the line of Anika Mittal from Invest Research. There seems to be no response from the line of Anika Mittal. We'll move to the next question. [Operator Instructions] The next question is from the line of Anand Kumar, who is an individual investor.

Sir, is there any demand side issue as there is chip shortage in the whole automotive industry, as 89% of your revenue is form the original equipment manufacturer. And my second question is how much percent the solar business will add to overall top line in the upcoming quarters. And my third question, sir, is there any new plants added in the current quarter for the EV space? That's it sir.

So first of all, your first question is related to semiconductor as there is a shortage of semiconductors worldwide. And it is totally dependent on if we are managing our -- so with respect to the discussion with OEMs and we are buying few of the components which are critical from the open market and we are running our production line. And this will continue for another 2, 3 months and hope so by next year this whole situation will be cleared.

Sir, are you paying any extra amount for the semiconductor, sir, as there is -- and it a high demand for the chip shortage?

It is not like extra money, but it is supported by customer, so most of the time customer is talking with directly suppliers, and we are getting the support from manufacturers and suppliers too.

Okay, sir. And how much Ola business will add to the overall top line, sir, in the upcoming quarters as Fiem is the only sole supplier to the Ola?

This is just now started because ramp-up has started now. And month-on-month, their production will be established, and we are together very closely working with Ola, and we hope good market in future.

Okay, sir. And my third question is, any new clients added in the EV space other than Ola? That is by end of FY '22, Hero MotoCorp will launch the new EV vehicle. Is there any contribution of Fiem -- our company to Hero MotoCorp?

Yes, we are working together. But as of now, disclosing the name of customers because till that time vehicle is not launched, we have to keep confidential. But we are working with almost all the top leader of EV industries.

Okay, sir. And my final question, sir. Based on the balance sheet, an investment of INR 90.7 crores have been made, is it any start-up sir, any new start-ups or any other, sir?

No. Please understand, this is the temporary perking of the available funds. It is in the liquid mutual fonts.

Thank you. [Operator Instructions] The next question is from the line of Jehan Bhadha from Nirmal Bang.

Sir, if I look at the LED mix in total lighting, that is at 39% for this quarter as opposed to, let's say, around 38% in FY '20. So over the last 1.5 odd years, the mix has actually not increased much, right? We were anticipating that it should move closer to 45% to 50% by now. So any comments on that?

Basically, due to the COVID, the sales first quarter was down, almost. As the sales increases, automatically the LED content will increase.

Okay. Okay or is it that the OEM clients are not, just to keep the cost of scooters low, they are not adopting LED lights. Is that the case?

No, it is not the -- you see it is not because the trend of -- as you know, the trend of EV is going on. And on the EVs, you can't put a normal bulbs. So it is more likely to happen; day by day it is going to increase rather than decrease.

Right. Okay. Sir, second question is that whatever new business that we will get from EVs, to some extent, that will come at the cost of our existing sales to let's say Honda Activa. So for us the incremental benefit will be lesser, right? I mean, because on the other hand, the existing sales to Honda Activa will come down as the EV sales go up, right?

You see, as far as the industry is concerned, please note that we were working before COVID at 19.2 million. After COVID now we are working at 15.2 million, right? And the expectation at that time was that we should work somewhere around INR 24 million. So it is gone because of the COVID because it was nobody's hand. So as far as your question regarding the LED, this EV will come and normal existing player will be down, no. It will not be there. Please understand, we are not expecting that 100% changeover will happen before 2035. So it will take so much time. So that the existing vehicle and the new model of the existing things with petrol will also come along with the EV. So that is going to remain -- our estimate is 2035. So we are not afraid that because of the EV, the other -- our existing customer will be disturbed. As a matter of fact, everybody is preparing themselves for having -- coming out with EV, but at a suitable time.

Okay. Got it, sir. Sir, last question. If we look at scooters as a category and motorcycle, what is the LED mix in both the category separately?

Almost it is similar. I mean, if you can say almost 35% to 40%.

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

So on this Harley Davidson order that you have got from Thailand and U.S., is that LED or Halogen headlines or what lamps these are [indiscernible].

These are all LED.

All the lamps are LED lamps.

Okay. Harley order is completely LED. And are we also engaging with TVS for their new EV liner that they're planning?

Yes. We are very much working on that and we'll announce later.

Recently Rider is being launched. Rider model is being launched.

So there we supply, what supply was there?

Headlamp and tail lamp, both are supplied by us. Those are all [indiscernible] all lamps are with LED only.

That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Thank you, everyone, for participating in the con call. I hope we have been able to reply all your queries adequately. Please stay safe and be healthy. Thank you very much. Good day.

On behalf of Fiem Industries and Monarch Networth Capital Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.