Greaves Cotton Limited (501455) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning and welcome to Greaves Cotton Limited Q4 and FY '24 Earnings Conference Call. From the management, we have with us Dr. Arup Basu, Managing Director, GCL; Ms. Akhila Balachandar, Group CFO, GCL; Mr. Atindra Basu, Group General Counsel and Company Secretary; Mr. Nagesh Basavanhalli, Nonexecutive Vice Chairman, GCL; Mr. Narasimha Jayakumar, CEO, Greaves Retail; Mr. Chandrasekar Thyagarajan, CFO, GEMPL; Mr. Varghese Thomas, Chief Communication Officer, GCL; Mr. K Vijaya Kumar, ED and CEO, Greaves Electric Mobility. [Operator Instructions] I now hand the conference over to Mr. Nagesh Basavanhalli, Nonexecutive Vice Chairman of Greaves Cotton Limited. Thank you. And over to you, sir.

Good morning, everybody. Nagesh Basavanhalli here, very glad to be here. Welcome to the Greaves Cotton Quarter 4 Analyst Call. And hope you're having a great day today. Our transformation journey from diesel engines to a multifaceted organization embracing a pure-agnostic approach and getting closer to the customer, the journey that we started a few years ago, I think, is beginning to bear fruits. The company's performance over the last quarter underscores the resilience of our diversification strategy. Collaborating with Excel Controlinkage, our newest entity that we acquired, has unlocked new capabilities and growth for Greaves Engineering both in India and abroad. For evolution from a B2B diesel engine-only company to a B2B plus B2C has been fueled by the robustness of the strategy. This has been pivotal in installing confidence as we go forward. I want to take this opportunity to bring the -- ask the CFO to comment and then the CEOs to come in and talk about their business in more detail. Over to you, Akhila. Ms. Akhila Balachandar will discuss the financial performance. Thank you.

Thank you, Nagesh. And good morning, everyone. Like Nagesh mentioned, we have had a very good financial performance this year. And we are happy to report our full year financials to date. On a stand-alone basis, revenue for Greaves Cotton stood at INR 1,779 crores, a growth of 15% year-on-year. Our newest acquisition, Excel, revenue stands at INR 263 crores on a full year basis, a growth of 41% year-on-year, with robust margins of 31%. Our engineering and retail businesses both registered double-digit growths of 17% and 10%, respectively. And like I mentioned, Excel's acquisition has proven value accretive with a first-year growth of 41% year-on-year. Almost 1/3 of Excel's revenues are from the export market, and this has really helped us to grow efficiently. Greaves Electric Mobility's revenue stands at INR 612 crores, with a strong focus on new product launches and a path to profitability. Coming to margins. Stand-alone EBITDA for financial year FY '24 stood at INR 232 crores vis-à-vis INR 151 crores last year, same period, a growth of 53% year-on-year. This has also been helped by extremely good margins at 13%, an improvement of 325 basis points compared to last year's 9.77%. And if I were to look at the GCL plus Excel at a combined entity, EBITDA is INR 309 crores, with the margins at healthy 15.2%. As I mentioned earlier in both our earlier earnings presentations, this has put us back on track to our historical trend of 13 to 15 percentage EBITDA margins. Here I would also like to emphasize that we continue on our EBITDA improvement journey. On a stand-alone basis, our profits were a decadal high -- our PBT was a decadal high of INR 366 crores. Along with the margin improvement journey, we have also focused on working capital management, and this has ensured that our ROCE stands at a healthy 50%-plus. In terms of balance sheet strength, the company continues to have an almost 0 debt; and stand-alone cash of INR 500 crores-plus, which will be used for further expansion and investments as we go forward. Given the healthy performance of the company, the Board has proposed a final dividend of 100%. Looking forward, we remain steadfast in our commitment to grow our -- to our growth and transformation journey. We are confident that our strong foundation and unwavering commitment to excellence will sustain our success in the forthcoming quarters and exciting opportunities the future holds. One area where we had seen a lot of pressure in the early parts of the last year was overall commodity cycle. I'm happy to note that the commodity cycle has been soft in this current financial year and had a very positive impact and will continue to do so going forward. We are also continuously monitoring and evaluating the current geopolitical situation and its risk impact. However, we continue to -- continue our internal endeavors in our profit improvement journey. With this, I invite Dr. Arup to share his remarks on the engineering business. Over to you, Arup.

Thank you, Akhila. Good morning, ladies and gentlemen. My commentary is on the performance of the engineering business. That is Greaves engines and Excel Controlinkage. In FY '24, the revenue of Greaves engines grew 17%, as Akhila said. We continue to make good progress on our ongoing program to build a future-ready energy-flexible portfolio to gradually wean us from a dependence on demand for diesel engines. As I mentioned during previous analyst calls on 8th November 2023 and again on 8th February 2024, the ICE engine and genset portfolio is being augmented with greener, fuel-agnostic variants that can use CNG and biodiesel and ethanol blended fuels. In addition, we have commenced sales of engine components. These products utilize our current manufacturing assets and are helping us maximize value from our manufacturing infrastructure and equipment. Additionally, as these products rely on our existing domain expertise in precision manufacturing, the business can grow relatively rapidly. Simultaneously, we are increasing share of exports in our total revenue. In FY '24, exports accounted for about 12.5% of total revenue. Our exports are relatively evenly distributed across the U.S.A., European Union and the rest of the world. This diversification is intentional as a form of geographic risk mitigation. The integration with Excel Controlinkage has moved to the next stage with initiation of cross-selling products and services. We are continuing to augment our prevailing domain depth in mechanical engineering with mechatronics and electronics. The latter will also help support the growth of electronic sensors. Overall, the prevailing tailwinds in the economy and the manufacturing ecosystem in general, our geographically diverse customer base, our complementary platform technologies and application areas, combined with our brand Greaves, makes us optimistic about the future. Thank you. I now hand over to my colleague Narasimha Jayakumar. Over to you, Narasimha.

Yes. Good morning, ladies and gentlemen. This is Narasimha Jayakumar. I'm the CEO of Greaves Retail, very pleased to be here to present to you the business commentary for Q4 and also for the full financial year. Greaves Retail had pretty strong revenue growth in quarter 4 with 27% year-on-year increase. Full year revenue increased by 10% Y-on-Y. Revenue was INR 162 crores for Q4; and for the full year was INR 588 crores, so a growth of 10%. Highlight was also the overall 120 -- almost 120 bps of margin improvement overall compared to last year. Just on the business itself. As you probably know, Greaves Retail continues to be amongst the top 3 aftermarket companies in India catering to the small commercial vehicle segment which spans three-wheelers, electric three-wheelers, and small commercial vehicles. During the course of the year, we have expanded our business operations significantly in spares distribution going across various vehicle segments. The network now spawns -- spans both domestic and international markets. We've also, in quarter 4, had done a major pipeline expansion to include electric vehicle parts like motors, controllers, batteries and so on, which targets the growing e-rickshaw market in the country and also in general on the electrification side. We have -- our digital initiative, which I touched on in the previous analyst call, is now really bearing fruit and is proving to be a moat for the business. We have scaled up our Greaves Upahar mechanic loyalty program quite significantly. We now almost touch 20,000 mechanics, and we have over 5,000 active scanning mechanics on a daily basis. This has led to good secondary sales and good retention of customers for us. Our Greaves Care outlets, which are essentially franchisee owned, franchise operated, have now touched almost 138 billing outlets in the country, which are a good sort of independent stand-alone spares consumption channel for us. And they also do multi-brand service outlets catering to both electric three-wheelers and three-wheelers. We've also, on the institutional customer side, acquired additional customers in the railway business for our [ genset spares ] and services and expanded our presence into new railway zones. Last but not least, our part lines now also include construction equipment parts, catering to the growing construction equipment industry in India. This is on the beachhead of Excel's own product portfolio for us. So overall it has been a very good quarter and year. We're very optimistic about the future. Thank you. And now I would like to hand over to my colleague, Mr. K Vijaya Kumar, CEO of Greaves Electric Mobility Private Limited.

Very good morning, ladies and gentlemen. Very happy to be here taking you through the performance of Greaves Electric Mobility for Q4. And so in quarter 4, our total two-wheeler sales was 8,448 units. Our three-wheeler sales was [ 2,579 ]. In total for Q4, we did 11,600, [ 11,527 ], to be precise. And we closed the year at 61,000 total units of two-wheeler and three-wheeler together. As an organization, as you're all aware, we are waiting for our subsidy approvals, for which we have completed all our part of commitments to the government of India. And we are waiting for the final approvals in terms of [ getting back onto the portal ]. The most important and significant information from our side is on the new product development. We are happy to share that we launched our most awaited technology model, we call it The Nex Big Thing, the product named Nexus, into the market through [indiscernible] as well as through our complete dealership network this month. And it has been received very, very well, in terms of overall response. I would like to spend a few minutes on explaining that. It comes with a -- very innovative and groundbreaking features, innovations which have been built into it, that it has, in the first time, a very multi-patented hybrid swing arm which has a twin suspension. Basically it's a 2-stage hybrid architecture, which isolate the [ wheel shafts ] from the best of the NVH performance which we see in the -- today's two-wheeler market; very effective [ wheel ] protection system, which gives it the 5x durability. So if you see from a two-wheeler perspective in terms of ride comfort, in terms of durability -- and it has been designed and developed in India by very, very -- by a very, very, I will say, different theme, which we based it on the arctic tern. It's a bird which has motivated us to design that product, so it has smart fit body panels, which is the first time again in India, where there are no visible hard mounting. So modular body panels for [ its serviceability ]. We are launching this first time around with the safest LFP battery. There -- as you are aware, it has a much better excellent energy chemistry, 30% [ better ] cycle life which gives it -- from a TCO perspective in terms of better durability and life. Unique thermal cooling architecture is what we have innovated this time, where the wind flow [indiscernible]. And from the front to the rear end, it's so aesthetically designed, but at the same time, [ the lowers gives and reduce feed ] on the battery side. So I will not get into very large details of the product, but it's been an innovation which has been acknowledged by the media, acknowledged by our partners and here [ our own way ], where it is expected to be really successful [ at least ] about our expectations. On the dealer partner and the supplier side, they are really motivated. We are seeing an uptick in terms of their response to the product as well as to the overall outlook towards this financial year. Coming to the three-wheeler business. Last quarter, we had released our electric three-wheeler called Eltra. It is now gaining traction in terms of visibility. We are going in staged phases launching the product. We started off from South India, and now we are entering Uttar Pradesh in a very big way. And we see a lot of green shoots on the electric three-wheeler also. So that's an overview overall from Greaves Electric Mobility side. And thank you, to be on the call. Over to you, Nagesh, please.

Let's open it up for questions. I hand it back to the moderator.

[Operator Instructions] The first question is from the line of Aashin from Equirus Securities.

Sir, my first question is regarding margins in the engines business and in the aftermarket business. So despite decent growth on a sequential basis, margins in both the business have reduced significantly, so could you please help us understand, what were the reasons behind that?

Akhila?

Yes. Thanks for this question. So essentially, if you realize, we have been going through a margin improvement journey. And over the last 8 quarters, both our margins in both the engines business as well as the retail business have constantly been improving. There are cyclical impacts. There will be some seasonality to it, but the North Star goal and target has been to move back to the 13%-plus range. And on a yearly basis, if you see, we have come back to what we were in the pre-COVID days. I would not put too much significance into the quarter 4 because, as I said, there will be a business mix. There will be product mix coming and playing in, but overall if I were to take on a yearly basis and also on a 8-quarter basis, we have been able to do a robust improvement journey.

My second question is on the e-mobility business. So with this FAME II subsidy almost ending, could you help us understand, where are we? Are we qualified for the PLI scheme?

So thank you so much for the question. So as I mentioned in my speech, we have completed all formalities from our side and we are awaiting approvals from the government of India.

Yes. And additionally, your question on PLI. We are not part of the PLI scheme. On -- back on the FAME and the EMPS, as you know, the FAME gave way to the EMPS scheme up to 31st July; and we are awaiting information on what happens beyond that date. Back on the PLI for just a moment, the supplier or the component PLI: We believe that, with -- working with our suppliers, we should be able to get the price advantage coming from the PLI scheme that will through market forces be passed on to us by suppliers.

Okay. And third question is regarding the...

Sorry to interrupt, Aashin. I request you to rejoin the queue for your follow-up questions, yes. The next question is from the line of Niraj Katemkar from Prosper Tree (sic) [ Niraj Kamtekar from Prospero Tree ].

Sir, my question is related to the stand-alone business. It's, see, we are used to sell the 290,000 units, engine units, in the FY '20. And now the company is fueled -- producing the fuel-agnostic machine, but our total sale is 88,846 units for the FY '24. Can we reach the FY '20 levels? And how we will reach to that level.

So this is Arup Basu. Maybe I can try and respond to that. So what you've indicated is the auto engine sales for diesel engines. As I mentioned, we are now building a portfolio which will have diesel as well as CNG and as well as, going forward, electric. That's part of the plan. And when we look at engine sales, auto is one angle. The other applications are in the nonautomotive applications, for example, pumps et cetera. There also we have just under 50,000 engines sales, so our total engine sales is 136,000. There is a pattern shift in three-wheelers where, earlier, there was essentially diesel-based three-wheelers; and now it's diesel plus CNG, plus electric. So the whole pie is changing. Three-wheeler industry is growing significantly, so we will be playing in the growing market of three-wheelers. Thank you.

Yes, but I think the -- FY '20, the number of units sold was 290,000. And we are half the mark, 136,000, in FY '24. Can we even reach to 200,000 mark?

I -- see there are 2 things that happened from that time. There was COVID, which pretty much had a significantly adverse impact on last-mile mobility because of the lockdowns et cetera. And combined with that, there was a lot of pushback against diesel-based three-wheeler applications. In many parts of India, there were diesel bans and so on. So what will happen is the three-wheeler industry is growing. Again it will grow, and our portfolio and our participation in the three-wheeler industry will grow. The fuel mix will be determined by many other parameters, not by us. And that's the reason why we have put our efforts to create a portfolio that is energy agnostic. So whether it's CNG, whether it's diesel or whether it's electric, we'll be playing in the entire range. Thank you.

Okay. And sir, my last question. The -- recently we launched the Nexus in the EV, but is it without the eligibility of the subsidy or with the subsidy, we have launched?

Yes. Thank you for the question. So presently what we have launched Nexus is without the subsidy build into it, so we are focusing more on innovation. And we are focusing more on building efficiency in our supply chain and our cost of goods purchased into that. So to answer your question: presently without subsidy.

But if the subsidy is allowed, then the difference will be around INR 10,000 as per the new guidelines.

Yes, [ please ]. Yes, the difference will be around INR 10,000.

Okay. And if -- permit me the last question, that the other expense at the stand-alone level has increased from INR 44 crore, on a quarter-on-quarter basis, to INR 57 crore [indiscernible] is there any specific reason for the -- such hike in the other expenses?

Yes. So let me take that. Essentially other expenses includes a lot of variable and manufacturing overheads, so if you see the growth from quarter 3 to quarter 4, that has also been significant. And majority of the increase is on account of the directly variable expenses.

But ma'am, the revenue has grown by 10%, and expense by more than the -- 20%.

That is correct. As I said, there will be various components of the variable expenses. And this has grown in proportion to the overall growth in the business.

So for our model purpose, will it be a -- INR 57 crores will be the base expense...

Sorry to interrupt, Niraj. I request you to rejoin the queue. [Operator Instructions] The next question is from the line of [ Chandrachur Domini from Prime Invest ].

Yes. Am I audible?

Yes, sir.

Yes. So my question is on EV business. Okay, so after the unfortunate set of events in the last 2 years, you have burned a lot of cash. And if I understand correctly, you are left with [ 200 crores to 250 crores ] in the [ EV ] division cash. 3 related questions: So how is your [ rupee investor ] viewing this situation, that is this kind of cash burning down? Second, how you are able to manage your dealership ecosystem with such a slump in sales volumes. And third is, on a 3-year basis, would you require additional cash in this business or additional fundraising? Or you will be able to manage it whatever is left. These are my 3 questions.

Yes. I'll take the question number one and three. And I'll request Vijaya to answer the question number two. Chandrasekar here. On the view of our strategic investor: They're part of our Board. They're part of the decision-making process at the leadership level. And they are fully supportive of the trajectory that we're taking as a business, right? On your third question, regarding funding, you may have already seen the [ general ] announcement that went yesterday. The Board of the -- our company has been discussing, deliberating the various options for raising funds in the electric mobility. And we will come out with more information as and when it is available.

And this is Vijay Kumar. I address your second question. So on a distribution standpoint, we have more than 400 partners in the country. And post the Nexus launch; and repricing of our present models which we have done, which is the Magnus and the Reo, there is a very good, positive uptake. And you will be able to see that momentum building in the quarters to come.

The next question is from the line of [ Bhavesh Patel from Patel Investments ].

A good set of improvement overall. My question is regarding the fundraising plan that you touched upon. It is in both Greaves Electric mobility as well as Greaves Finance, and one of the option is IPO and -- that option as well, so if you can give some more color to that in terms of what is the overall thinking. And the second question is, is there any likelihood that we might get back the subsidy that you paid to the government in the good faith, knowing that one of the [ possibility is that ] probably they have the money? And I could be wrong in that but would like to know your views on those.