Gabriel India Limited (505714) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the business update call of Gabriel India Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Also, please note that since we have recently ended the quarter, the company shall discuss any questions related to quarter at the time of results declaration. We request the participants to limit their questions only related to technical collaboration and alliance with Inalfa Roof Systems for manufacturing sunroof for the India automotive market. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Kolhatkar, Managing Director from Gabriel India Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everybody, and a warm welcome to this special investor call that we have arranged. So firstly, we are extremely happy to share that we Gabriel India has taken its first step towards diversification into a product beyond the core, which is suspected systems. As you all know, we have a leadership position in assessment in systems, supplying and catering to all segments right from 2-wheelers, 3-wheelers to PAT, commercial vehicle and always -- and we have been at some acquisition opportunities. As I've mentioned in the previous calls as well. We had looked at a couple of them in the past. However, they did not -- they were not up to the mark, so we did not acquire. And we also, in the meanwhile, we're a define products which could be of interest. And of course, the focus was if the product is agnostic to the powertrain technology, which is I see in oral icicles. And also, it's a high technology product. So obviously, this was one product that we identified with sunroof, very high-tech, esthetics, higher customer perception value product. So I'm very, very happy to share that we have found a great partner in Alta of Netherlands. They are the world's #2 in this sunroof system. So and I'm sure you must have read all the press releases we had a response on tested. We had the formal approval from the Board and on the -- and that's very briefly to introduce about today's call. And yes, as always, we're keen to listen to you and get your feedback annual positions and your comments on this major as you say, a new chapter, can give the speaker. So thank you, and over to you. Operator, are you there?

Yes, sir.

Yes. So I can move over to the questions now.

[Operator Instructions] Our first question comes from the line of Akash Pawar from Sahasrar Capital.

I just had a few questions. First one being, if you could help us understand like in general, what is the cost of Santo per half? I know if you have some car to car, but on a blended basis, if you could give us a sense on that. Second one, be who are our major competitors in this segment? And third one, what in the opportunity side, like total addressable market for us. Thank you.

Akash, sorry, your voice was little unclear, but could you repeat the last question? I got the first 2. The third question?

So third one was what is -- like what's the opportunity size for us to be stating.

Growth opportunity?

Yes. Addressable market, total addressable market for…

Okay. All right. So yes, so just to start with your first question. It is, of course, the cost per car, a, we are just getting on to this new business. Obviously, we are unable to share or device any details of the cost of product, but suffice to say that it's a very high-value product in a card. You should understand that the product is a very highly aesthetic product actually is a part of the car. Sand actually -- it is -- otherwise, if it was in the body, it would have been made by the OEM benzos, which is a part of the car, which is being manufactured by a supplier. So it's a high-value product, obviously. The second was -- second question was on competitors. This year, I'll start with maybe global perspective that there are quite a few players, I would say, mainly 5 or 6 key players. -- the world's #1 is a German company called RoDTEP. And number two is in Alpha systems, which gave you a side. So in India, there is only one player currently, which is RoDTEP, which I just mentioned, who have already set up to 100% subsidiary in Puna. They have a plant in Puna, and they are also around the plant in Chennai. So this is what is the competition currently in India. There are plans of maybe one player coming in, but I'm not a day sure about that. And third question was growth opportunities. So this product goes into the Sunroof and mainly the pay rate, as we call, is very high in the SCV segment. And as you know, the SUV segment is now growing at a very rapid pace. In fact, with highest growth in the passenger graft car growth story over the last couple of years. has been in the TV segment. And SCEs now form over 50% of the passenger car market in terms of sales. And in SUVs, the percentage of the Sun roots is very high. In fact, in some models, it has a 70% in some other models, it is 50%. So I would say the Phase I state that in HCV, it is about 40% of penetration of sunroof or 40% of the SCE made will have a sunroof in India. And the sunroof are also there on the Sedan and [indiscernible] now even a small hedge back like the Mumbai 20 also at a sunroof. So it is now starting at that level, but that is a smaller onlooker, the SUVs have typically what we call the panoramic endo, it is a high-value higher content per car. I hope I answered all 3 questions on that.

Yes. That was helpful. Just one question from my side. Like at in what is the cost of sunroof as a percentage of total vehicle costs like if we say in SUV segment?

We have difficult to state the heater percentage, but I can tell you it's definitely a category item.

[Operator Instructions] Our next question comes from the line of Viraj from SiMPL.

Yes. Just a couple of questions. First is, if you can just briefly talk a little bit more in terms of the GP partner -- so who are the major customers? And what are the major markets, they have traditionally operated into? And where it sales in India, did they have any sales, which can eventually -- so in terms of scale up on the India JV now that cannot happen at a much faster pace. So that is part one. And second, if you can talk a little bit more in terms of the EM economics for the product. So typically, either say, globally or in India, what is the typical margins ROC in this business, which one can look at on a steady-state basis?

Firstly, Viraj, we are having some difficulty with gearing the common quality as both in the earlier question as well as it -- so just give me a moment. Viraj just don't mind that we are having serious challenges on understanding the voice because it's more of a handset issue, I think we are in Deli. So we will -- I think we will have to reload the call to mobile we'll just share with you Rishi's number, and that will give a call on that.

Okay. I'll wait.

Yes. Please wait.

Yes.

Ladies and gentlemen, we have the management back online. Viraj, you can proceed with your questions.

So just a few questions. First is, if you can just talk a bit in a little more detail one on the JV partner and on the product itself. So globally, in the best release you said that they have a close to 25% share. But what is their strength. And generally, in this particular product, it seems that there are just 5 or 6 major players globally. So what are the barriers to entry? I mean, how does one really differentiate one from the other. And in that sense, what is the JV partner bring to the table? So that is one. And second is, if you can talk a little bit more in detail on the unit economics for the product. So typically on a steady-state basis, what is the kind of margin or return this business generally does. So there are 2 questions to start.

Okay. Good. And thanks for waiting for us on the call. Can you hear me speak?

Yes.

First, on the alps. I said, there is the net clear with almost 25% market share. They are based -- they started the journey we reached 1940s. And they are -- from there on, they have been supplying to absolutely the who's who of the automotive industry in U.K. across the continents. So there are key customers, just to name a few. In Europe, they are supplying to the Java Landover, the Rolls-Royce, the Bentsen in the super luxury segment, they're supplying to Scania, Sab, Volvo, Mercedes, Audi, BMW, Opel, Porsche. So these are the kind of brands. So they are all absolutely market labels. And in Asian side, they are supplying to Hyundai, Kia, Samsung, Mitsubishi, Renault, Nissan, Honda, Nissan already mentioned, these are customers. On the U.S. side, General Motors, Ford, of course, in addition to the global players like I mentioned, of Moses or, et cetera. So the customer spread is really absolutely top plus that is on the customer profile. And the strength of in our side, of course, because of these customer relationships, they understand the product very well. And like I mentioned, this is a skin panel. I mean it's part of the body and styling of the car. So it is highly valued and highly -- I mean, very close to the perception of a quality of a car of the OEM and the demand of the customer very high, mainly the demands are in terms of, one is Airtex. Second is there should be no noise Third is there should be no dust and water entry inside the -- even if there's a sunroof, even a slide and open and then it has to keep doing that function repeatedly over the life of the car. So it is a very intricate, very high technology, high quality product. So which leads us to the second question, which is the unit economics, it was asked by Akash also so you can -- that's why I said the value of the product is quite high. It is definitely far more than our suspension system, several times our suspension system that we supply for a car. In terms of -- we will, in terms of the steady-state operations, we are looking at margins which are -- I mean EBITDA margins definitely in defensing double digits. So that is what we are looking at. So there's definitely a much higher product value as well as margin product compared to our traditional suspension, mainly because, as I said, it's a high-value product in terms of the customers taking order.

Okay. Just 2 more questions, and I'll come back in queue. One is you -- in the press release also the interchange in the press, we talked about an aspiration of INR 1,000 crores sales by 2030 and is also looking to spend INR 170 crores over next 3 years. So in terms of the current market structure, say, for sunroof in India, except for the largest player who has our own facility, this bulk of the market largely catered to by imports. And in that sense, when we look to commission our own facility through Q1 of CY '24, would the scale up be much faster because there will be an import substitution happening. Is that the right way to think about it?

Yes, absolutely. You're right on the spot. It will be a rapid ramp-up. So we are -- for the first orders from Hyundai. And Alfa, Korea is supplying to India already. So we are going to get all the support from Inalfa Korea. In fact, there'll be expats also in our -- sitting along with us is a new factory site in Chennai. So we already located at the site and the ramp-up is going to be pretty fast. Our delivery date is also decided based on the localization of unit. It's a high product. So obviously, localization is very important. Second, logistically also it's a very big product. So it makes sense to localize it at the earliest. So that's how it is. So it's very much in the line of as we discussed the Atmanirbhar and Make In India mission where we'll be helping OEMs with localization of their very high-value key products.

And this last question was in terms of value addition, what do we have the value addition in India? So why I'm asking is when you say the sun roof system, the glass, everything, is there the local sources available? Or so in that sense, if you can explain what will be the value addition we would be doing. And when we say double-digit EBITDA margin, that is after constrain the royalty payment to give in India or even to the parent of KB.

Yes, absolutely. After thing I'm talking about EBITDA after every cost has been considered. That is what is. And in terms of value addition or I'll put it the other way. I mean, I can't share the valuation, but I can tell you that the glass, which is needed is being localized. We also have made a plan, very clear plan for localization already. We have started work on localizations. We have identified suppliers. In fact, we are in the midst of negotiations with suppliers. However, this will take some time because there be a validation from the customer as well -- but localization of the individual parts will be key that will happen over a phased manner.

Our next question comes from the line of [ N. Puranik ] from Enam Securities.

Yes. I have a question on what's the arrangement does you have with Alfa in terms of technology and in terms of marketing arrangement, what are the markets that you can focus on in any specific segments of the market?

Mr. Puranik, we have a technology agreement signed with them, obviously, the suppliers of the technology, developing the product from scratch, will bring their global customer base, which is how we are getting the orders. In terms of marketing, we have a mixed arrangement because the Indian OEM relationships, as you know, cable and a is very strong. So we will be bringing in the Indian customers. We have already discussed with customers in private. And we have -- I can only feel that there has been a very, very encouraging response with regard to this product and the need of OEMs to localize this product at the earliest and the need for a good reputed player like in all and supported by Jabil to cater to this market.

So if you can give a background to the selection of the partner and more importantly, the product, why did you choose this product? Is it that this will give you significant growth advantage or with -- or will it also give you an open more cross-selling advantage and growing your current businesses. So will there be opportunities that will come by.

Yes, good question. So we chose this product as one too, we are looking at higher technology, high-value product which is agnostic to the power train because there's so much of change happening, nobody -- everybody at sure what happens to EV, what happens to battery, whether there'll be a hydrogen or fuel cell, whether it will be higher hybrid, whether it will be a flex fuel with ethanol. It's a whole lot of combinations available and some products will change, which are directly dependent on this potent. Sunroof fortunately is one such product which is absolutely completely insulated from this. And in fact, it is -- it lies in the area of blue auction kind of strategy because there's only one player, number one. And number 2, this is the Indian buyer is now becoming more and more aspirational. And if you see this is mainly in the SUV segment, where, as I mentioned, the price elasticity of a customer who is going for SUVs is actually quite high. They're willing to expand and expand a bit in terms of their ticket size to meet their aspirations. They will not compromise -- just to this back, I can tell you, and then you can do your -- you can infect check it out yourself, but from you may also have done the same. Most of the bookings happen is the highest, what you call, highest warn the model. I mean the fully loaded version sales the most is what is the clear trend in vertically SUVs. Whereas in has back, it may be different because that is a very cost-driven position, right? But this is in an area where there is a very high growth and further scope available for high growth as more and more adoption and penetration of sun roof happen in this segment.

And in terms of market geography, which markets you'll be focusing on about from India.

India, we have clearly defined the territory is India.

And -- but however, the way cost Indian market is exciting, there's enough and more opportunistically, which is available in India, it's the highest growth market. We are all seeing that.

Correct. So I don't see it till 2030 that will be any dearth of the part in India.

And how big is Inalfa revenue and profit?

Inalfa is about INR 2 it's about INR 2 billion.

2 billion. And were it profitable?

Yes. 15%, 20% EBIT kind of margin. Yes, it's not a listed company. Yes, not excess -- that could be difficult to share. And -- on 15 countries globally have are very widely present. And in terms of engineering centers as well, there are 5 engineering centers all over the globe yes. And we have almost some 800-odd patents in the year '21 is with almost 5,500 employees globally.

And they do manufacture all kinds of sun roofs. So what are the opportunities this agreement provides any development contracts, product or other product development contracts with them apart from the marketing and the Indian customers.

So to answer your question, anything which is required to be supplied in the Indian country if part of this are a customer -- global customer will be Indian depending upon the model and the economics of it, the decisions would be taken. Indian customer, obviously, is a good opportunity because the decision-making happens largely in India in those cases. In case global, their relationship will energetics the be supply that will happen to the same customer in India. Balloons one of them.

Excellent. And it's going to be a big focus for growth going forward. Excellent.

In fact, just to answer your question, currently, Hyundai, Kia are not give customers.

So this opens up that customer. So on more cross-selling opportunity for you.

Absolutely.

[Operator Instructions] Our next question comes from the line of Chetan Gindodia from AlfAccurate Advisors.

Wanted to understand the CapEx that we are putting for the plan. what can we expect for this plant?

And then your voice was cracking.

Sir, just wanted to understand the INR 18 crores of CapEx do initial for the plant, what kind of asset terms can we see from this?

So look, because it's a new entity, some of these are necessarily machines. So if we take those pre-operated at Conesus well. So let's go with the number of INR 150-odd crores towards sort of productive machines which are going to be used in the production facility. That -- the capacity is around 200,000 units. So as of now, depending upon the customers, the per unit rate, will be the position that in terms of assets and better once we have the positive numbers out.

Okay. So the capacity is currently for the 2 light units.

Yes, the post line of am.

Okay. Got it, sir. Are there any aspirations you can share with respect to going ahead, what kind of even further CapEx that you are looking to make for the entity say, like 4, 5 years' kind of -- if you can share what is your outlook in terms of revenue targets for this new venture?

Yes. So we -- as you must have read in the press release, we have to hit INR 1,000 crores, if all goes well by 2030. And for that, we'll have to add top it up in the current one because we will profit up by the crores, INR 150 crores.

Our next question comes from the line of Dhiral with PhillipCapital.

So what kind of revenue do you foresee that will come to P&L in the first year of operation meter next year?

So Dhiral, again, these questions all going to answer the per-unit the revenue part. But because of a 2023 is are going to be settling up the facility and the bin sales in 2024. So anywhere between INR 300 crores to INR 400 crores. And we are targeting, again, hopefully, breaking the first year itself or your sales.

Okay. So when you talked about double-digit margins, so does it mean that after achieving certain scale, you will try to achieve that or maybe this will come from the first year of operations.

The double-digit state is from the second year of operations. Yes.

Okay. And you have also have orders in then from Humana, right? So have you also started talking to other TV majors like M&A or Tata Motor or even [indiscernible]?

Yes. Well, I also want to mention earlier, we also when we did -- where I think it was Mr. Pirani was why this product while this product was, of course, meeting all the criteria. Another thing is the voice of the customer. So we have been talking to customers regularly over the last couple of years and evening our interest to the customers that we are willing to look at some new products enable. So one product that came as a suggestion from most of the customers was actually sera. So we have been in discussion with them. with all the key OEMs and I can only say the response from them was very encouraging. You already got -- based on press release, any of them have actually voted back to me already stating their best wishes.

Our next question comes from the line of Dharmendra Grover from Helios Capital.

Yes. Good afternoon, Kolhatkar. Can you hear me?

Yes, go ahead.

So this is first serious attempt from Gabriel to go beyond ride control. So is it a more strategic thing in nature? And will there be more pores that we can expect like this?

Yes, absolutely. So that's why we made it clear this is the -- you rightly said, this is the first big step in our versification strategy. And the we actually, we have been working at it for some time. There were some targets which we have evaluated, which, of course, did not come through. However, the good part is this one, which is really -- we are all excited about the product because as I said, typically because of its real high value. This has come through with the is #2. So it covers very well. And this is the start of -- there was a strategy, and we will certainly be looking at more opportunities for sure.

And in this joint venture, did you go out and seek the new partner? Or did they come in the CQ in India?

Well, it was actually a mix of both and also with the kind of support of the OEM.

So it has kind of -- so once you heard what the OEMs were saying they put you on to the JV partner.

Yes. And we were also reaching out to grandeur up as a category, and we were also reaching out already has reached out several salute makers. And the customer definitely did help us a lot.

Sure. And can you give us any time lines as to what other 4 days and by when we can hear something about it?

This is the first one. So we need to, of course, get this off the block and digest this. So -- but yes, I mean, it would not be out of place to say that hopefully, within this fiscal itself, we may look at our other ones. That number.

Our next question comes from the line of Pratik Banthia from Girik Capital.

Yes, sir, just to understand, so for in alpha, which will be the -- like are they already supplying in India? Or it will be the first time we will be doing.

They are supplying currently in a for Korea supplies to both Hyundai and Kia from Korea.

Okay. So the leg market sales, which you expect for '23, it includes the sales, which is going to be under the joint venture now.

Yes.

Okay. What sort of market share are we eyeing over the next 3-year period?

The market share, obviously, we are looking at, I mean, being in the top 2, I mean, yes, as is the first movement on a year. So it would be difficult for us to tell about whether we can be #1. But definitely, as I said in the top 2, we should -- we are in other.

Okay. So you mentioned Webasto has put a [indiscernible] subsidiary, and there is one more company of CIE Group, CI Golden, having a plant in June. So are they also big and serious competition to us?

[indiscernible] also is a supplier of Sundays globally. But as I said, in terms of global pecking order, they are -- they would be #4 or 5.

Okay. And that will be the case in India as well. I mean, as for your competition.

Yes. Technology, I think [indiscernible] very honestly, even the leader which is [indiscernible], co-share a very comprehensive technology basket of products and studying across the whole range of sun roofs.

And if I heard you correctly, you said INR 400 crores sales in 2 years. Is it correct?

Yes.

Our next question comes from the line of Chirag Shah with White Pine.

Thanks for the opportunity. Sir, my first question is fairly different one. Why this acquisition happened in a listed company? Because if you look at the Anan Group, you have -- it is not that there has many businesses in the ancillary states, which are not a part of subsidiary. Then, in fact, a single company will have more than one business. If you look at the structure of the group, there is a separate company for each line of business, broadly speaking, except for one of the exceptions. So is there a change of top process from the promoter? And can we expect the consolidation happening in the existing list of companies also.

No, it's only that we -- I mean, as able as a company, we were too dependent on a single product, which is suspension, where we have made a good mark, and we have attained the leadership positions because always in our radar to diversify to products, we are fully debating this product. So Sunroof today is the right product maybe even 1 year back, it would have been even better.