Fiem Industries Limited (FIEMIND) Earnings Call Transcript & Summary

Good afternoon, everyone. On behalf of Monarch Networth Capital, I welcome you all to the Q2 FY '24 conference call of Fiem Industries Limited. Participants, please note that this conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectation of the company as on date of this call. The statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. We will start the call with the initial comments about the results and the future outlook of the company, and then we'll open the floor for question and answers. So without much delay, now I'll hand over the call to Mr. J. K. Jain, CMD of the company. Over to you, sir.

Thank you. Good afternoon to everyone, and welcome to the Q2 FY '24 Earnings Call of Fiem Industries. Joining me today on the call are: Rahul Jain, Joint Managing Director; Rajesh Sharma, Joint Managing Director; Arvind Chauhan, Company Secretary; O. P. Gupta, CFO; and other members of the finance team. The investor presentation and the results have been published on both the company website and the stock exchange. I trust that all of you must have reviewed the same. I am delighted to report that Fiem Industries has delivered a strong operational performance for the quarter with a net sales reaching to INR 506 crores in the Q2 FY '24. Our EBITDA stands at INR 66.4 crores with a margin of 13.1%. These numbers reflect operational efficiency and financial health. Our strong operational focus has been meant that our profit remains robust with a 15% increase to INR 42 crores on a sequential basis. We continue to benefit from our diversified product and customer mix. For the Q2 of the current financial year, 2-wheeler industry has registered production volume of 5.6 million units. We expect a strong second half, driven by the festive season and pickup in rural demand. During the quarter, EV volumes were 180,000 units, which is an increase of 23% on year-on-year basis. Fiem is strongly positioned with EV market and continues to outpace the market trend, driven by partnership with the leaders like Ola and TVS. We continue to move ahead in working jointly with our OE customers. Some of the models like TVS Raider, Suzuki Access and Honda Activa continue to do very well. We updated you last quarter about the Harley-Davidson X440, which was launched by Hero MotoCorp. This model has found good traction in the market, and our volumes are ramping up. Similarly, on new products, there is a strong pipeline. We are working closely with Yamaha on their recent launch, Aerox 155. This is a premium scooter for both Indian and export market. With TVS, we have started supplying for Jupiter 125 scooter model and also for a new 3-wheeler model, King Duramax. In the EV segment, we have added several new customers, notable being Raptee, Polaris and Numeros. Overall, we are very well positioned, and we get into the second half of the year and remain optimistic about future growth. I now hand over to Mr. O. P. Gupta and the finance team to update on operational performance. Thank you.

Thank you, sir. Good afternoon to everyone. First, I will present the quarter 2 numbers for FY '24. The company has registered sales of INR 505.85 crores in Q2 of current financial year against INR 470.71 crores in quarter 1, which is an increase of 7.47%. The EBITDA stands at INR 66.36 crores, translating into an EBITDA margin of 13.12% as compared to an EBITDA of INR 61.66 crores, that is 13.1% in quarter 1 of current financial year. PAT for quarter 2 is INR 41.91 crores as compared to INR 36.44 crores in quarter 1 of current financial year, which is higher by 15%. Now I will present the H1 number for FY '24. The company has registered sales of INR 976.56 crores in the first half of current financial year as against INR 963.3 crores in the corresponding period of previous year, which is an increase of 1.38%. The EBITDA has remained flat at INR 128 crores. PAT for first half of current financial year is INR 78.35 crores as against INR 69.56 crores in the corresponding period of previous year, which is higher by 12.64%. During the quarter 2, the company has made a CapEx of INR 33 crores, and total CapEx in the first half of current financial year is of INR 51 crores. With this, I end the financial brief, and now the floor is open for question and answers. Thank you.

[Operator Instructions] Starting with [ Garvit Goyal, you may unmute yourself and ask your question.

Starting with the Gogoro partnership. So supply was expected from August '23 to Gogoro. So 2 questions on this. One is, what was the revenue contribution from Gogoro in this quarter? And what is the expected number in H2? Along with, in August, Gogoro announced a partnership with Swiggy. And last month, Delhi government also now the requirement to replace the fleet of delivery partners and e-commerce players with EV. So what kind of upside in the revenues do you see on account of these developments for Fiem in the near to media term, sir?

Yes. About the Gogoro, first of all, I'd just like to brief because it is newly started, and they are ramping up their model -- there's a noise in the background. Okay. So they are ramping up right now. They have produced a few numbers of vehicles. And our supplies are on with that. Might be the next new -- next quarter, we can see some sales percentage and sales volume. This is what we expect as of now.

And what is your expectation on the new announcements like Gogoro made a partnership with Swiggy, and Delhi government also announced requirement to replace the fleets with EVs?

As of now, no such announcement is being heard by us.

Okay. During second quarter, Indian 2-wheeler registrations almost grew by 12% Y-on-Y, and EV sales also grew by more than 20%, as you mentioned in your opening commentary. So can you help me to understand, despite uptick in our underlying growth drivers, why did our top line degrew by 3%? Is it due to any intense competition we witnessed during the quarter? Or what is the exact reason for it?

So actually, if you look at the industry data, you should -- for our purposes, we focus on production data because we are linked closely to the production volumes. Now if you look at the production volume of the industry, if you take the full H1, for example, the industry has been flat. So we've actually -- in that way, we've done better than the industry. And if you look at sequentially, we've grown. But I think overall, what you are talking about is probably the final and retail sales of some of the OE customers. So on the production volume, the industry has been flat. But as we mentioned in our opening remarks, there has been a delayed festival this time. So there should be a good uptick in the second half, and you will see that growth coming.

Understood. And sir, can you share some clarity on the CapEx being incurred? And what kind of capacity expansions are we looking at with that CapEx?

So in -- if you look at first half, we have incurred already INR 52 crores of CapEx. This includes some of our normal CapEx, some of the CapEx because of some other events. Overall, this year, we should have on our balance sheet approximately INR 100-odd crores of CapEx. So that would position us well for future growth.

Understood. And we are planning to increase our PV revenues. But looking at one of our peers, the margins seem a little bit of lower, that side. So can you elucidate on what is the margin difference among 2-wheeler and PV segment that we cater to?

So PV, we are -- we've actually announced that PV is a focus area, which we will be going forward making some strides in that segment. But right now, that business is almost minimal. So there is no way to compare. As we move into it, we should be able to guide you better with the margins.

Okay. And lastly, since first half is over and with festive season, as you mentioned, coming in the second half, so do you think we will be able to grow 20% in second as compared to first half based on the demand you are witnessing from your channels? So going by that, can we achieve a ballpark sale number of INR 2,200 crore in FY '24?

I think we hesitate to give specific numbers. We are overall optimistic as we mentioned. But it would be tough to give a number because there are many variables in the overall industry. But overall, I would say that the overall trend remains very optimistic. There could be a delay in a quarter moving upwards.

So we can assume H2 will be better than H1 at least? Hello. Hello. Am I audible?

Yes. Do you have a question?

Yes. I was asking that means H2 should be better than H1 at least, correct?

Yes, yes.

Okay. [ Moksha Shah ], you can unmute yourself and go ahead.

So my question was, with the domestic 2-wheeler demand picking up, how do we see this turning out for our business?

So we -- I mean we've been kind of guiding over the last several quarters that we believe that the demand should pick up, and there are signs of that recovery happening. So clearly, we've always outpaced the industry. So that will be very beneficial for us. We should sort of move forward with our growth plans. So overall, domestic industry will significantly -- over the next 12 to 18 months, we are on a very positive trend.

Okay. And if you could help me guide for the revenues for FY '24 and H1 FY '25. Any guidance on the revenues?

I think what we've kind of mentioned in the -- your question as well, that it is -- we are not giving any specific data points on a specific number, but we generally outperformed the industry, and we are optimistic of doing that.

So are we expecting to keep the same numbers, we increase any growth rate number that you'd...

You will see much better growth in H2 is all I can say.

Mr. [ Viraj Kacharia, ], you may please unmute yourself and go ahead.

Congratulations for good numbers in such a challenging environment. Just 3, 4 questions. First is on -- if I look at our sales mix, right, in lighting especially, the share of LED has seen a good drop compared to what it used to be for last few quarters. So LED revenue share used to be 35% and then 40% last quarter. It's now come down to 33%. So if you can just give some perspective what really happened? And similarly...

We would just request everybody else to be on mute. There's a lot of background noise. And please go ahead with your question.

Yes. My question was that clear?

Yes, LED was clear. You had another question or should we answer?

Yes. So that was one. And second question just was related to the revenue part again. If you look at the others' customers, right, and others' products, I think last few quarters, we have seen a moderation in revenue share, both from other products and other customers as well. So if you can just also give some perspective what is happening there.

So first question on the LED. The LED for the Q2 has remained 47%. And for the Q1, it was 53%. So it was not in the range of 30%, what you said. And we have to see the overall -- yes, sorry.

Sorry, if I look at the presentation, which we shared for Q2, the...

No, no. Actually, yes, in the presentation, what you see is the automotive LED and the automotive non-LED as a separate group. So we are -- what we are showing. You have to see what is in total lighting, what is the LED versus the conventional. So what we are always saying that within the automotive lighting, 47% is the LED. So I think this is clear.

Sorry. So again, if I look at the -- even within auto lighting -- yes.

Let me clarify. If there is any confusion in the data points you are referring, we can clarify. But as of now, what I'm saying is that in the last quarter, the LED share was 53%, and now this is 47%. And we have to see the yearly basis because here and there in one quarter don't make a difference. Overall, the LED trend is quite increasing. That is one thing. Yes. And the second thing, I think what you are referring is the other products....

And other customers.

Yes, yes. So what is the other balance which are less than 10%, so these remain changing because our major 3 categories are automotive lighting, rearview mirrors and the plastic parts. So rest, others are -- it keeps changing based on the requirement.

Yes. Is it specific to 1 or 2 customers in others?

No, it depends, actually. Sometimes it depends on the customer requirement also, so it goes into the others because these are other than the 3 main product lines.

Okay. And in your other customers?

Other customers are -- you can see top 5, we always give the percentage. But other customers, even the EV segment there, we are adding in the other customers. So definitely, there will be a fluctuation in the share of the other customers. We are adding with the fast pace the EV segment customers.

So my question was that if you're adding new customers in EV, others, if you look at last 4, 5 quarters, we used to do around INR 55 crores to INR 60 crores of quarterly revenues from others. And that has kind of dropped to INR 44 crores in September quarter. So I was just trying to understand what is causing this drop in the current quarter.

So yes, that's -- your question is correct. But the reason is if there is any fluctuation within that metrics of the other customers, that numbers fluctuate. That is the only reason.

Yes. I'm just trying to understand what is causing the fluctuation because we are adding new customers. We are winning new orders. So...

See, depending upon the customer requirement, if suppose there is a high demand in some specific quarters, then in the next quarter that customers keep some low volume. It depends on that.

Okay. Just 2 more questions. One is on the CapEx part...

Sorry, but just to kind of make sure that you get the question there. There is no loss of market share in any of this. This is just 1Q -- I mean this quarter versus another quarter one particular customer having some variation. So there is no -- the reason is not any fundamental market share change.

And what will be the share from EV customers in this? Other EV or overall revenue from EV models?

EV, now we should be around 6% of our total revenues.

Okay. Now on the CapEx part, you said INR 100 crores is what we are looking at in terms of spending in the current year. And if I understand it right that earlier, our communication was that we have enough facility available at existing facilities and land bank to cater to any new orders. So if the market were to shift some, say, conventional to LED, on the current asset base itself, we could do upwards of INR 2,500 crores to INR 2,000 -- INR 3,000 crores kind of a revenue base. So this additional CapEx of, say, which we're doing total INR 100 crores, what is it towards, if you can give some perspective?

Yes. Great question. Let us clarify the earlier guidance of our capacity utilization and our plant being sort of up to it for a much higher sales, that remains. The enhanced CapEx that has happened, which you see right now, is because of that fire incident that we reported last quarter to you. So because of that, there is a replacement CapEx for some of those sort of plant -- I mean some of these machinery. And that would be fully covered in the fire policy. So that will not be really a cash out for the company, but you will see gross fixed asset going up because of that. So our earlier guidance of a real CapEx from a cash flow perspective remains the same, which is that INR 50 crores to INR 75 crores over the next 2- to 3-year period. So anything else that happens is just for a replenishment. And again, I reiterate, there is no cash outflow for the company. We don't expect any cash outflow.

So this money, we will be reimbursed from the insurance company in about 1 year or...

Absolutely. So we've raised a claim on the insurance. That is part of our notes to the account. And as and when that process is completed, we will be able to give you full figures around it. But all of this will be fully replenished is our belief from the insurance company. So the INR 100 crore CapEx from our cash flow perspective is not INR 100 crore CapEx. You should look at it more like a...

Okay. Last question to Mr. Jain specifically. Sir, so if we look at the current management structure before the recent announcement, the business has been led and driven by you as a CMD. And in last 6, 8 months, we also hired a senior person in the role of a CEO and Whole-Time Director. And just we kind of made a recent announcement about 2 new Joint MDs being added in the management structure. So just trying to understand the thought process behind this structure and what role and responsibility would each of these senior personnel would be looking after?

Basically, recently announced 2 new Joint Managing Directors are basically upgradation from the Director to Joint Managing Director. So they are not new. They are the existing ones. But they are doing better, so we are upgrading them. They are taking more responsibilities. Secondly, the other CEO we have appointed, that is for 4-wheelers. But that is going on, and it will give results after some time. So that is what -- yes, over a period of time, it takes time.

We can have the next question from Anubhav Mukherjee.

So if we look at the sales to Yamaha in this quarter, it has like degrown quite a bit year-on-year. And in the last quarter also, there was like updation that we would be like taking up new models of export and Indian models as well. So did that not fructify this quarter because there is a significant degrowth from Yamaha year-on-year?

Yes. So in Mr. Jain's speech, it has already been declared that Aerox 155 has recently been launched, and this is doing good in the domestic market. And might be we can look after in the next quarter or next to next week, we will have a domestic and export business sales also. Wherein other side, if we see Europe market is going down, slow down, and that is resulting our export business, which is being declared that most of the premium segment products we were having, and we will be exporting to Europe countries. And this is not resulting in the minus sales of Yamaha for the -- especially for the export. Domestic is, of course, increasing with the new models. And time to come, new models will further be launched in the next quarter or next year.

Yes. And like there was also a mention of you export only models that you would be cater to. So are these in the pipeline? Can you give more details on that, like for Yamaha?

Yes, we are having as of now 7 projects, which are under development right now, which will be launched in '24, '25 and -- both the years, 2 years plan -- 3 years plan we have as of now in our hand.

And these models are like mainly for the export market or like...

There will be domestic and export, both.

Okay. Okay. And these are new models? Or like have you gained like any existing export model or like international model?

There's -- 90% of the projects are new models wherein few are face lift also.

Okay. And sir, even in HMSI, like both for this quarter and overall H1, there is a year-on-year degrowth of revenue from HMSI. So can you give some color on that? Like is it -- because it doesn't seem like HMSI, at least sales data does not show that much of a degrowth. So is it like you've lost some share? Or how is it? Like all our models not doing well?

No, there are model mix, which is doing good in some of the quarter, wherein overall business for 4.71 million, whatever is being declared by HMSI, will be same and our share of business will remain also same. So we'll be not losing any business and wherein our overall growth with respect to HMSI will remain the same. We are expecting good sales during next quarter and second part of the year.

And HMSI, if you see the production volume on a year-on-year basis, it's down 5.7%.

Correct.

Yes. And even sales is down like 5%, 6%, which we get. But like at least the data -- because you shared the quarterly data, have been sharing for like now some time. At least what I can see is that year-on-year, our sales to HMSI has gone down by 12%, 13%. So -- which seems to be more than the...

See, the overall trend, as I said, 6% down there and ours is marginally more, sometimes marginally less. Those are dependent on models, one particular model. So there is, I would say, nothing more to read in that. Those fluctuations, one model will do well. The other model will come back next quarter. Those differences happen.

Good then. And also for Hero MotoCorp, apart from that Harley model, they do have some other -- they made some other launches as well, including I think a scooter as well. So were we the suppliers for some of these models? Or any other model apart from the Harley one?

Yes, we are working further on 6 models as of now, and those launches will be soon. Might be in next quarter or we are expecting 2 models launch in the next year.

Yes. [ Guneet Narang ], you can unmute yourself and ask your question.

So I had -- most of my questions have been asked. I don't have a question, but I have a recommendation for the management. So I mean we are sitting on a very huge cash pipeline. The share is also reasonably priced. So I mean why don't we do a share buyback, which will act as a good reward for the long-term shareholders? Because some of our shares will be extinguished permanently and the valuations would in turn be better because of the buyback and an act as a reward for the long-term shareholders and also, I mean, will also show us about the confidence of the company in itself. So I would just recommend, I mean, to do a share buyback with the idle cash that is with the company.

Thank you. Thank you for the suggestion. We will -- I mean obviously, these matters are discussed at the Board level all the time, and we will sort of take your suggestion. What we have to optimize as a company is future growth, where do we need capital, how are we looking at over the next 3- to 5-year plan before we make such decisions. But your suggestion is noted.

[ Garvit ], you still have your hand raised. Would you want to go ahead again?

Yes, yes, yes. Just -- you highlighted like Europe is facing headwinds. So I want to ask whether you people see any kind of impact on our consolidated revenue in upcoming months due to Europe headwinds?

No, I don't think -- we are not looking for that. It is only seasonal. We can say Europe is always, we go 6 months up, 6 months down. So we are expecting and we are very much optimistic to have a very good market from Europe time to come.

Understood. And can you also comment upon those new products that we are manufacturing in partnership with Gogoro? So basically, what is the competitive landscape there? Who are the existing players in India, who are already manufacturing the product and supply to 2-wheelers?

See, this Gogoro what we are supplying as of now, all the lightings, mirrors, plastic parts as well as the 2 products which has been recently we launched together with that is motor controller and hub motor. And this hub motor and motor controller is exclusively as of now for Gogoro. And with the support of Gogoro technology, we will be introducing these products to other OEMs also.

That thing I understand, but I was asking from the competitive landscape point of view. Like who are the existing players manufacturing these products and supplying to 2-wheelers in India?

There is a technology partner and technology behind this hub motor and motor controller. So we cannot see any competition within this market because there are unique technology, which is available as of now with the partner. So we are looking for a good market based on that.

Understood. And can you also discuss the competitive landscape for our LED lightings and the other automotive lightings that the products we are currently doing on? Like are you seeing any new competitors coming into the market or establishing or trying to snatch the market share from you?

No, it is very difficult. And we are very much open about this, and we are working for next 10 years of technology as of now in our R&D. So we cannot see any partner can take our business share, and we are taking the business from good customers and good results out of -- coming out from the customers' positiveness.

[ Viraj ], you have your hand raised. Do you want to ask question?

Yes. I just had 2 queries. One, sir, you talked about 6 models for Hero, which you will be looking to commercialize. So these are existing brands of Hero or these are new models altogether?

These are new models of Hero.

Okay. And in terms of existing brands, is there any action in terms of -- because the existing vendor that they had are having a lot -- facing a lot of issues and going under restructuring. So....

Correct. We are working very closely with Hero right now, but we cannot declare anything. But we are very open, and we have a capacity available to manage all the business, which has been -- which is covered and which is customer is looking for this.

Okay. And second question was largely in terms of unit realization, especially in auto LED lighting. So what we understand is there has been further technology changes and the prices of unit LED is on a downward trend. So if I have to look at Q2 generally or last few quarters, have you seen any moderation in unit realization because of this pause?

No. There, we haven't seen any realization downtrend at all. I think the realization has been fairly stable. LED, in fact, we are working with customers on more and more sophisticated LEDs, some of the ticket sizes are increasing.

EV customers are only LEDs.

India is not working for the domestic market. We are working on some specification in standard, which is being applicable for the world. And those are all being covered within the regulatory requirement wherein no low trend LEDs can be applied. So we cannot see anything which is being downtrend. Yes.

Downtrend.

Anubhav, you want to ask a question?

Yes. I just had 2 follow-up questions. Sir, like since you also mentioned that you are developing technology, which is accepted globally, and like this India manufacturing opportunity is like really accelerating, like we do hear a lot about in China Plus One and also manufacturing shifting from Europe to India. So is there a possibility apart from like our existing OEMs we -- can we like -- or are we approaching totally new OEMs to supply LED lighting? Is that a possibility?

Yes, sir. We are working globally.

With many European...

European like Piaggio, MBK. These are already customers wherein we are developing a few products, and we will be supplying to them. We are expecting good volumes and good business from global OEMs also.

But sir, the only thing is that Piaggio is there in India. And I think they have been our customers. So can we approach like completely new European or like American OEMs for supply of LED lights? Yes, is that a possibility like -- yes.

Right. As of now, like in America also, Harley-Davidson is our customer, and Triumph is also in our pipeline. So we are very regularly working on that, and we are definitely looking for the good business from worldwide market, wherever it is possible to get.

And we are working many new European OEMs also. But at the moment, we can't declare the same.

Correct.

And sir, apart from this Gogoro opportunity, are there any other broader diversification we are looking at, like any completion?

Yes. Yes.

There is a lot of discussion. There are a number of initiatives that the company is running. A number of dialogues happening because there is a lot of changes in the landscape happening with EVs and others. But we would be able to sort of come up with the concrete plan only post our internal deliberation. So I think at this point of time, there is Gogoro. But I mean there is a whole lot of other initiatives happening.

We have already like TOYODENSO is our partner wherein we are as of now supplying bank angle sensor where we have already signed a document for a total sensor as well as USB. So soon, we would be developing a few products for customers and supply to all the OEMs in EVs and others.

[Operator Instructions] And I think we have no further questions. Thank you to the management also for patiently answering all the questions. And thank you to all the participants for joining the call. Jain sir, would you like to give any closing comments?

Yes, please. I would like to thank everyone for participation in today's conference call. I do hope that we have provided satisfactory answers to all your queries. I wish you and your family a very happy Diwali. Thank you, and have a good day.

Thank you. Thank you, sir.

Thank you.

Yes.