Fiem Industries Limited (FIEMIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Fiem Industries Limited Q4 FY '24 Earnings Conference Call hosted by Monarch Networth Capital. This conference call may contain certain forward-looking statements about the companies, which are based on beliefs, opinion and expectation of the company as on the date of this call. These 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. Sahil Sanghvi from Monarch Networth Capital. Thank you, and over to you, sir.

Yes. Good evening, everyone. On behalf of Monarch Networth Capital. I welcome you all to the Q4 and FY '24 Conference Call of Fiem Industries Limited. We will start the call with the initial comment about the results and the future outlook of the company. And then we will open the floor for question and answers. So without much delay, now I hand over the call to Mr. J. K. Jain, Chairman and MD of the company. Over to you, Jain sir.

Thank you. Good afternoon to everyone, and welcome to the Q4 FY '24 Earnings Call of Fiem Industries. Joining me today on the call are Rahul Jain, Joint Managing Director; Rajesh Sharma, Joint Managing Director; Vineet Sahni, CEO and 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's website and the stock exchange. I trust that all of you must have reviewed the same. Fiem Industries has reached a big milestone posting its highest ever sales by exceeding INR 2,000 crores and attaining a net profit of INR 166 crores in the financial year FY '24. Your company has delivered an outstanding performance, showcasing robust results for both the last quarter and the entire year. The 2-wheeler industries is growing strongly with the production volume reaching 21.5 million units in FY '24. This increase is due to the improved consumer sentiment and higher ruler demand. April numbers for the 2-wheeler industries also reflect the robust trend in the OEM volumes. We believe this growth will continue in the coming years, reaching new highs. For the full year FY '24, our valued customers have also done well. With Honda, TVS, Suzuki and Yamaha all achieving double-digit growth this year. Their confidence in future growth is demonstrated by the plans of many OEMs to setup new plants to beat the growing demand of the market. We also see good growth in export with Hero Harley development, new models specifically for the international market, backed by the success of the X440 locally. Additionally, TVS acquisition of the U.K.-based Norton had led to the collaborative efforts in developing new products for the Norton brand. We, thus, believe that overall demand outlook continues to be strong. In order to position ourselves for this demand, we are also preparing for a major capital expenditure program. We expect to spend INR 250 crores to INR 300 crores over the next 3 years to drive our future growth. In the last quarter, I announced that your company had made a breakthrough in the 4-wheeler passenger car segment in the European market. I am delighted to share that we have also received order from the reputed OEMs in the Indian passenger car segment also. We continue to make significant strides in our journey, marking this as a major milestone as we expand into the passenger car market in future. Further, I am pleased to inform that our Board of Directors have recommended a dividend of INR 20 per share on the enhanced share capital, post to 1:1 bonus share. I now hand over to Mr. O. P. Gupta and the finance team to update the operational performance. Thank you.

Thank you, sir. Good afternoon to everyone. First, I will present Q4 numbers. After which, I will cover the full year FY '24. The company has registered quarterly sales of INR 554.7 crores in Q4 of FY '24 as compared to INR 432.84 crores over same quarter last year, registering a growth of 28.1%. The EBITDA in quarter 4 was INR 75.46 crores translating into an EBITDA margin of 13.6% as compared to INR 60.21 crores over same quarter last year with EBITDA margin of 13.91%. The PAT of the company has also increased to INR 47.1 crores as compared to INR 38.05 crores in Q4 of FY '23, representing an increase of 24.02%. Now I will briefly cover the numbers for full financial year, '23, '24. During FY '24, the company has achieved net sales of rupee INR 2,014.37 crores as compared to INR 1,834.04 crores in FY '23, representing a growth of 9.83%. As a percentage of total automotive lighting, the LED lighting stands at 52% in comparison to 49% during last year. EBITDA stands at INR 267.97 crores as compared to INR 247.85 crores during FY '23. PAT of the company stood at INR 165.84 crores as compared to INR 139.63 crores during FY '23, which is higher by 18.77%. During the year, the company has made a CapEx of [ INR 85.86 crores ]. With this, I end the financial brief, and now the floor is open for question and answers. Thank you.

[Operator Instructions] First question is from the line of CA Garvit Goyal from Nvest Analyst Advisers, LLP.

Congrats on a good set of numbers. I have 3 questions. One is our company has consistently delivered bottom line growth year after year. And while this is commendable, I'm concerned about our top line growth, despite having the [ marquee ] clients, we are only achieving lower double-digit top line growth, maybe outperforming the industry, I believe, a company of our caliber under efficient management should adopt a more aggressive approach to increase the market share and diversify further. So can you please elaborate on why we are not pursuing more aggressive strategies for the top line growth? And what can be the steps that we are planning to take to improve our growth trajectory further? That's my question.

Thank you for that. I think, as you rightly said, we've outperformed the industry over the last many years. But also -- looking ahead, if you notice, we've actually made a lot of investments over the last 12 months and a lot of investments are now [indiscernible] as we just announced a large CapEx program. So in line with what you are saying, we've already thought through that there are several new areas that we want to work in. The 4-wheeler segment is obviously something that is -- could be a very, very big growth driver for us. The other segments, including hub motors and others are also being talked about. So I think your point is already noted, the management has already been working over the last 12 to 18 months towards several new initiatives, and you will see the output over the next couple of years. And the investment for that is being made as we speak.

And sir, you mentioned about the CapEx, like what is the area that this INR 250 crores to INR 300 crores CapEx will go into?

It will go across. So one is obviously enhancing our existing capacity for the current segment. There is certain capacity requirement in South India. There is also going to be CapEx for the new projects, which we announced on 4-wheelers. There will also be CapEx around the motor unit. So all of that combined, we [indiscernible] INR 250 crores to INR 300 crores CapEx to happen.

And sir, I'm also concerned about the apparent delays that are happening in Fiem and the Gogoro project from manufacturing [indiscernible] motor controller. So could you please explain why there has been no meaningful contribution to our top line so far? Additionally, please also provide some details on the capital expenditure incurred on this project to the date and specify when we can realistically expect to see some of the revenue generation from this area?

See, so about this Gogoro, what they did is because initially, they plan for market B2B, right? That was the one bottleneck because the price [indiscernible] first model, which is being launched was a little bit higher side. The acceptability from the market was very poor. Now company is already working to launch new vehicles, which will be competitive in the prices, which is equal to the part of the vehicle, which is being already in the market and company will be soon given that overall information to launch this kind of vehicle, which will be as par of customers. And same time, we will be doing the indigenization for this hub motor and motor controller because once it will be indigenized, ELI and other [ scheme ] can be managed by Gogoro. So another 3 months' time, we will be in a position to give you the exact figure and overall volume.

Basically, we were not able to give more because the production was -- of Gogoro was not there. So they have produced so far only 5,000 numbers. So basically, it is driven by the OEMs.

So do you see any kind of revenue coming into in FY '25 from this area?

We are expecting. It is totally dependent on the customer as well as -- and from Gogoro.

Okay. And lastly, on the innovation side. So could you also provide an update on the development time lines in the current stage of that USB charger and the gap sensor, which are being developed with technical assistance from the TOYODENSO? Further, what are the new innovations in the products of -- in terms of new development that we are doing right now at our R&D centers, sir?

TOYODENSO, it is being not the new part, it is being developed and already in the market. It is under supply since last 5 years. Wherein we are working for some new projects also, which will be still under discussion with customers.

And what are the new products that we are doing at our R&D centers, apart from these things?

Yes. We'll be working for so many projects like -- especially for the lighting areas only. One is a major thing, which we are planning right now to establish our EMC [indiscernible], which is necessary to have a testing and validation in-house. And there is a head lamp...

So I'll just add on. We are working on 3 main technologies. One is a laser technology, which is the technology of the future and that will go both in 2-wheelers and 4-wheelers and we propose to be the first in the industry to launch that, and we're working very closely with the customer. Secondly, we are also working on a night vision, which is the need for A segment, B segment and C segment cars. So we are working on that technology along with customers. And third, we are also working on the ambient lighting technology, which is more lightening, which is specific to 4-wheeler. So that is also a new technology that we are working on. So apart from that, we are also working on certain technology, which we cannot disclose at this moment.

Understood, sir. And sir, what is the guidance for FY '25 in terms of top line?

So it is difficult to give a number on this, but we will grow organically in this around 12% to 15% is what we anticipate in the coming year. However, if some targets come across our way, we will capitalize on that. But at this moment, we anticipate 12% to 15%.

Next question is from the line of Gagan Deep from Nvest Analytics Advisory LLP.

Sir, my question is already answered.

Next question is from the line of Viraj from SiMPL.

Congratulations on good set of numbers. Just a couple of questions. First is on the PE part. This new order, which we talk about, if you can just give some more perspective in terms of is it an existing order or it's a new product development, which we back for? And what will be the size of the order? And when do we expect it to commission?

One of the orders that we received for head lamps for European [indiscernible] is a totally new development. We are designing it in here, right? And the development is on. The design has already been approved by the customer. Prototype is under approval. And this development time will take another 6 months for [indiscernible] to be developed. And then we will start the supplier, let's say, in around end of this financial year, we should be starting the supply. The expected revenue will depend on the offtake from the customer.

Sir, on the Indian OE orders, any update you can give in terms of size of opportunity, when do we expect it to start?

Yes. So we received order from 3 of the Indian customers already. One of the product is under development, and we believe that we should be able to [indiscernible] it fast. In the next 3 months, we will start in a small way for the one small lamp. And then other RFQs we have started receiving and working on that.

So this order is for the head lamp piece? Or is it more on a tail lamp or any color for that you can give that is one. And when you say [indiscernible] how much we are allocating for the 4-wheeler fees?

So this order is for small lamp at this moment, but LED, new technology lamp. And this, we are doing it from our current plant only. We are not investing especially for this business because we have capacity. And this design is complete and approved by customer. The product is under tooling at this moment.

Okay. And sir, on the CapEx piece, when we say INR 250 crores to INR 300 crore CapEx over the next 2 to 3 years, earlier communication was when you look at our existing facility, which is largely for 2-wheelers, we have sufficient capacity to cater to, say, around close to [indiscernible] scheme if the market shifts to LED. Hence, the CapEx expectation for next 2, 3 years at least, was very muted. So when we say this INR 250 crores to INR 300 crores, even for PV, we are not going majorly in a brownfield -- not in [ greenfield ] way. So what are the major components of this CapEx, I mean?

So if you see the current year CapEx is already INR 86 crores. And so if you see organically, if you were to put next 2, 3 years' numbers, you will already be at INR 200-odd crores. So additionally, we built in some more CapEx for expansion at our Hosur plant and also for 4-wheeler that, as I said, is [indiscernible] number, which will be crystalized over the next 6, 9 months. So that's the broad CapEx range we are giving.

Okay. And in terms of the existing 2-wheeler business, sir, if you look at our production -- if you compare the production numbers of, say, HSMI or Yamaha, for last say 3 quarters, our sales performance has been underperforming compared to the production growth you are seeing in those 2 customers. So what explains the underperformance?

I think what you should do is ideally look at more of yearly and see the trend. [indiscernible]

Sir, I am looking at last 3 quarters, so almost a year what I'm looking at.

Yes. So actually, except for the first 2 quarters, last 2 quarters we've done better than their [indiscernible]. But what happens and we explained this last quarter also, sometimes one product for a particular customer [indiscernible] not there. If you look at overall volumes and overall our [indiscernible] and if you look at on a yearly basis, you won't find much of difference there.

Can you give the wallet share, which you used to give earlier in terms of headline payments for the top 4 customers?

Sorry, Viraj. That wallet share actually we tried to work out, but the information [indiscernible] take from the customers as well as from internal sources. So this time, we are not able to do that.

Okay. Just 2 more questions. On the gross margin part and again, on the realization [indiscernible]. So if you look at this particular quarter, we have seen a sharp moderation in our gross margin. So what is it driven by? And on realization, if you see globally, there's a change in technology in LED itself, which has given a drop in realizations across the board. So for us also, are we seeing any similar trends playing out?

So you're specifically questioning on the gross margin? Or you are talking about the EBITDA margin overall?

No. My question one is on the gross margin, sir. Then if I look at this particular quarter, Q4, we have seen a moderation in gross margin, almost 200 basis points year-on-year. What is it driven by?

So if we see the only -- if you see the [indiscernible] sale, even [indiscernible] is the same. The only -- some increase in the manpower, this is a [indiscernible] business. There is no big difference.

So I think I would say...

Yes.

Rather than quarter because what happens, there is always a lag in the customer compensation of the raw material costs. It is always better to see annualized working of [indiscernible]. And if you see that, the gross margin has not changed.

Okay. Just one more question. On the realization part, if you can just give some perspective. Are we seeing any moderation in realization, especially in the [indiscernible] part.

No, I think it is the same. It continues, not because we have back to back [indiscernible] compensation from customers and continue [indiscernible].

Yes, okay. Got it. And on the replacement business, if I look at this business for the last 2, 3 years, we've seen a very healthy growth and given where the market is shifting towards LED. Usually, the replacement cycle is much longer than what one would think. So what explains the growth in replacement business for us?

See, our replacement business is going on the same requirement from this -- whatever the products we are selling earlier. The only difference is that the lighting requirement is no more, because of the LED, it is steady. So even during the current year, we registered a good [indiscernible] in the replacement market [indiscernible].

We're -- as the vehicles become old, the old technology product requirement goes up and therefore, when we supply that, you see the growth in the business. So this is always -- it always happens like that. As the time passes, the lamps get replaced, the bulb technology, not the LED technology. And therefore, you see the growth in our [indiscernible].

Okay. Okay. And any update on the insurance for the [indiscernible].

So this is -- we already informed. We already submitted our claim, and this is under process.

Next question is from the line of Jatin Chawla from RTL Investments.

Just checking on the India PV side, did you say you received orders from 3 customers or was that RFQ?

So we have orders total from 3 customers, and we have RFQ from another 3 customers. So we will, in short time, we'll be working with 6 customers in OEM, including [indiscernible].

Got it. Got it. And on the CapEx side, I don't know why you guys are calling this as a large CapEx because it seems your are already spending INR 80 crores, INR 85 crores every year. So this INR 250 crores to INR 300 crores is the same run rate. So it doesn't seem there is any big pickup in CapEx or you're not seeing kind of growth revenues to invest going forward. So just some understanding on that.

No. So just our maintenance CapEx is more like INR 40 crores, INR 45 crores. So we will be seeing that over and above maintenance, there is some excitement, as we mentioned, there is requirement [indiscernible]. It could be requirement of the [indiscernible] dealer thing at some point in the future. So given that this question has been asked, [indiscernible] guidance, we are giving a number that we think is likely to happen.

Got it. So this INR 250 crores, INR 300 crores, what sort of asset turnover one can expect? What sort of incremental revenue could come from this?

[indiscernible] almost 3x.

Understood. Understood. And this hub motor CapEx that you're mentioning, will this be for beyond Gogoro or this is largely only to service Gogoro needs?

This is as of now is for Gogoro. Further on, once this overall facilities will be ready for [indiscernible], we will work together with Gogoro to cater this hub motor and motor controller to other OEMs also.

Got it. Got it. And this quarter, we have seen some pickup on Yamaha revenues as well. Last few quarters, the run rate was more around INR 70 crores. We have seen this go up to more than INR 80 crores. Any new models that are coming in? Or is this just seasonality where the March quarter was strong?

Yes, there are 2 models, which is being launched during last year. This one [indiscernible] and other models is for export. So those models have given us positive growth and sales figure overall.

And going forward, I think there were a few -- another 5, 6 models, which are going to come. So should we expect that this run rate will continue to go up?

Yes, of course, we are very much hopeful for this, and we are working on that area.

Got it. Got it. And just one last question. So Hero, I think you spoke about the fact that on the Harley side, there is quite a bit of traction. But beyond the Harley and in terms of some of the more mass market models for Hero, are we seeing any kind of orders coming for those as well?

Yes, there will be a few models, which are already being developed and might be next quarter, these models could be launched. And thereafter, we can give you the right picture which modern is being launch and what all kind of product is being developed by us. But there are 6, 7 projects, which are under pipeline. Under Hero model, mass models as well as Hero Harley also.

Next question is from the line of Omkar Arora from [indiscernible] Capital.

Congratulations on a good set of numbers. I have a couple of questions regarding the long-term view of the company. So if we see the sales growth for the company over long term last 8 to 10 years, we've grown at a CAGR of almost 11%. And I understand that we have 4 major revenue stream going forward, which are the 2-wheeler business where we are already catering where we provide lights and mirrors, LED lights within the 2-wheeler segment, new revenue segment where we plan to cater to 4-wheeler segment and new products under our JV with Gogoro. So my question is what kind of growth do we expect in the next 3 to 5 years in each of these revenue streams?

So let's look at organic business. The organic business is going to be when approached by the 4-wheeler industry growth. We've highlighted that we have -- we have a leadership position there. We have a leadership position in the EV segment. We also have indirect exports. So to that extent in the core 2-wheeler segment, we feel optimistic that the growth is coming back. You mentioned last 10 years. Out of that last 5, 6 years have been very tough for the 2-wheeler industry. So, a, the core organic growth should be stronger. We expect that -- given that the 2-wheeler industry will do well, we should do even better. We should definitely do [indiscernible] 15% of organic growth. Over and above that, there are several areas which we've highlighted, which we are looking at, including the hub motor business, including the 4-wheeler business and other opportunities that may arise. And I think we are preparing ourselves for those opportunities. So if you look at some of parts between organic and other, we do expect our growth to be much better than what you have witnessed in the past. We've set ourselves some ambitious targets on that. But some of them are binary and will depend on some of these outcomes, especially on the 4-wheeler and hub motor. And you may have to be patient for a few quarters before they kick in.

So is there any kind of numbers that you can throw on the 4-wheeler segment, in particular, what kind of numbers do you expect to do in the next 1 year, 2 year, and long term, 5 years or so?

So not at this moment. As you are aware, the incubation period for 4-wheeler and [indiscernible]. So we are already getting inroads into the customer that is step one. I think by the end of this financial year, we will be ready with our [indiscernible] business manner we'll share in the numbers [indiscernible].

And what kind of margins do you expect in this segment before we [indiscernible].

What we can see [indiscernible] margins as 2 wheelers. However, the value [indiscernible] because the price range is higher. So that is more on the absolute value and the margins remain similar.

Okay. But don't you think you face the competition in this segment as compared to the segment where you're leaders already? And that is kind of [indiscernible] margins here?

We are preparing accordingly.

Okay. And I have a last question. Can you also provide some details around the total capacity and the current cap utilization and the growth in the coming years, can it be met by the current capacity? Or do we see more capacity coming up in the next few years apart from this financial year as well? So if you can throw a time line of capacity that you must have prepared?

So about the current capacity level, we are around [indiscernible]. In our business, we have a good time for development. And during the meantime of design and development [indiscernible]. So it is -- capacity business and is not a big issue for us.

Next question is from the line of Varun Arora from B&K Securities.

Just some clarifications I want. So previously participant -- one asked, the growth you said 12% to 15%. So that's the revenue growth you're expecting for the FY '25?

Yes. Organic revenue growth, yes.

Organic revenue growth. Okay, sir. And just another thing on the PV Indian OEMs, so you won an order and you said one project is under development out of the [indiscernible]. Is this right understanding, sir? .

Sorry, can you repeat your question, please?

Basically, there are 3 customers you've got the orders from the OEM, Indian OEMs, right sir? And one project is under development, which will come out in the next 3 months. .

Yes. So 3 customers. One is export to India at this moment and 3 additional is [indiscernible].

Okay. And all projects are under development now. I mean, so after 3 months...

The order that we have they are under development, and one product of [indiscernible] customer is shortly timed. I think we should enter into [indiscernible] in next 3 to 4 months.

Okay, sir. Okay, sir. Sir, if I may ask you how big the order is for, I mean, which you got?

So this is a small order at this moment, around INR 10 crores annually, approximately for a full calendar year. But it is more of a beginning to start with the customer.