Lumax Auto Technologies Limited (LUMAXTECH) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the acquisition update call of Lumax Auto Technologies Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. Since the conference call today is regarding the acquisition, we request all to restrict questions and discussion to the acquisition only. I now hand the conference over to Mr. Anmol Jain, Managing Director of Lumax Auto Technologies Limited. Thank you, and over to you, sir.

Thank you. A very good afternoon, ladies and gentlemen. A very warm welcome to our acquisition update conference call. Along with me on this call, from Lumax Technologies, I have Mr. Deepak Jain, Promoter Director; Mr. Sanjay Mehta, Group CFO; Ms. Priyanka Sharma, Head of Corporate Communications; Mr. Ankit Thakral from Corporate Finance. From Greenfield Energy Solutions, I have Mr. Akshay Kashyap, the Managing Director; and along with SGA, our Investor Relations advisers. We have uploaded the press release and other requisite documents highlighting the details of the transaction. I do hope everybody has had a chance to go through the same. At Lumax Auto Technologies, our core strength lies in forging strategic partnerships with leading automotive component manufacturers both domestically and internationally. These organic and inorganic alliances facilitate the introduction of advanced technologies and a diversified product portfolio into the Indian automotive market. Over time, these collaborations have solidified our position as a key supplier in the automotive sector, helping us establish a strong and influential presence across the industry. Furthering our vision, we are thrilled to announce another significant development of this strategic acquisition of 6-0, 60% stake in Greenfuel Energy Solutions alternate fuel business. This acquisition represents a transformative step for Lumax Auto Technologies and marks our foray into the green and alternate fuel segment. It paves the way for our future growth in sustainable solutions, aligning with our long-term goals and setting the stage for expanded opportunities in this rapidly growing sector. This business specializes in high-pressure fuel delivery and storage systems for CNG and hydrogen vehicles as well as fire and smoke detection systems for the automotive industry. This acquisition strengthens our capabilities, diversifies our product portfolio, increases our per vehicle content and aligns with our commitment to providing advanced sustainable solutions to the market. Greenfuel Energy Solutions, based out of Gurugram and Haryana, is a prominent provider of clean mobility solutions for over 15 years, supported by robust and long-standing technology partnerships. Greenfuel has been a leader in sustainable mobility, serving as a Tier 1 supplier to prominent automotive OEMs including the likes of Maruti Suzuki, Tata Motors and Volvo Eicher vehicles. This strategic partnership comes at a time when the CNG vehicle segment, specifically for passenger vehicles in India, is poised for a strong growth with key OEMs like Maruti Suzuki and Tata Motors already outlining aggressive expansion plans in this segment along with other OEMs like Hyundai Motors also foraying into this space. Both Maruti Suzuki and Tata Motors has projected 33% and 25%, respectively, of their overall portfolio will be from the CNG by 2030. By joining forces with Greenfuel, we aim to capitalize on this growth potential and expand our portfolio to offer sustainable automotive solutions that will meet the evolving needs of both the industry and consumers. Greenfuel's management team, under the able leadership of Mr. Akshay Kashyap, will continue to oversee the company's strategy and execution, ensuring seamless operations and driving future growth. With Greenfuel's strong product expertise and technology partnership, coupled with Lumax's strong customer relationships, manufacturing excellence and sound governance practices, we are well positioned to capitalize on the growing demand for green and alternative fuel systems and to create value. Coming to the key deal contours, Greenfuel's equity has been valued at INR 221 crores, of which Lumax Auto Technologies through its SPV will purchase a 60% stake for INR 133 crores, subject to customary closing adjustments. This will be paid in cash, funded by debt and internal accruals. The strong free cash flow generation in Greenfuel will ensure debt repayment within 5 years. Revenue of Greenfuel's alternate fuels business stood at INR 214 crores in FY '24. The business is expected to witness a 20%-plus growth in FY '25 and continue a strong growth path thereafter. The EBITDA margins for the business has consistently been in the high-teen percentages. The acquisition will be EPS and ROCE accretive for Lumax Auto Technologies on a consolidated basis. Together with our new partners at Greenfuel, we are committed to delivering sustainable high-performance solutions that address the current market needs, while positioning ourselves for future demand as well. With this, we open the floor for questions.

[Operator Instructions] The first question is from the line of Amit Hiranandani with SMIFS Limited.

First of all, congratulations to the team for this attractive acquisition in the fast-growing CNG components market. Sir, my first few questions is to understand more about the business. So wanted to understand what are components are included in this acquisition and what is excluded. Secondly, how much is the import content for these acquired products? Thirdly, the most important thing is what is the capacity utilization of the acquired assets? And who are our top 3 customers and what is the contribution of the top 3 customers in the total revenue? And lastly, the present order backlog, how it is looking at present?

So thank you. The first question I will take is on the CNG, the products. As I mentioned, the products are specific to delivering the high pressure system from the tanks to the engine. Currently, we are strong on things like receptacles, which are already been there in mass production. We are also getting into the production of tube and fittings in due course. We are currently supplying both to the passenger vehicle space as well as the commercial vehicle space. So that's just a quick overview on the current product. Apart from the CNG specific, as I mentioned, there are also certain safety critical components and systems, more specifically for the commercial vehicle and the buses space, which we are currently doing in this company. What was your other question, Amit?

Sir, this doesn't include the batteries, right?

No. This does not include the EV battery business of the company.

Correct. My second question is basically how much of the import content in this product?

I'll let Akshay answer that.

Yes. So today, we have localized a lot of the content. Having said that, we are still importing some critical products, which comes to about 50% of the value of the product.

Okay. And sir, what is the capacity utilization of the assets?

So the capacity utilization today stands between 65% and 70%.

Okay. And sir, our top 3 customers and what's the revenue contribution of these top 3 customers?

So the top customer is Maruti Suzuki, which would contribute close to about 45-odd percent of the total revenue for FY '24; followed by Tata Motors, which would be close to 18% to 20%; followed by Volvo Eicher commercial vehicles, which would be close to around 13%. They would be the top 3 customers. And then we also have players like ACGL which would contribute about another 7% to 8% and then a few miscellaneous customers, which would add up to the remaining pie, like Ashok Leyland, et cetera.

Okay. And sir, how is the order backlog presently looking?

So I think we do have a strong order book with the few critical and important models, which will be launched by the OEMs in the CNG space coming in this year as well as next financial year. As I said before, the outlook is that we would continue to drive growth around 20% to 25% at a CAGR level. And fundamentally, the two key growth drivers for this company, number one would be to increase the share of business from the present levels, improve the wallet share with key OEMs like Maruti Suzuki and Tata Motors. And the second growth driver would be increasing the per vehicle content from currently at about 20%, 25%, doubling into 50% the minute we get into the tube and fittings mass production.

And sir, what was the share of Maruti's business -- share of business from Maruti Suzuki?

It's -- about 30%, 35% of the total Maruti's buying would be from Greenfuel so about 1/3.

And our overall share in the CNG product is about 35%, right?

No. Let me just -- let Akshay clarify that.

Okay. So if you see the content per vehicle, it's about -- if you take all of it, it's about INR 15,000. Today, our content per vehicle is about INR 3,200, right? So that represents a 20% content per vehicle. If we see just the product and the component, for that component, we are about 35% market share.

So with the tube and fittings, our content per vehicle from around INR 3,000, INR 3,200 per vehicle will climb up to close to around INR 7,000 to INR 8,000 a vehicle. And hence, I said the content per vehicle will go from 20% of the entire system to 50% of the entire system, which is INR 15,000 on an average per vehicle.

Yes. Just secondly, sir, I was reading that Greenfuel has some technical collaboration. So like can you please tell us more about this? And how is the arrangement and what services we get from this?

Yes. So we have a technical collaboration for the last more than 15 years with a German company called [ Weygas ] Technologies. They were the original inventors of this product called the Receptacle. And we have a perpetual technical license agreement with them to manufacture their products locally in India.

And the agreement continues on an as-is basis. There will not be any changes to the agreement whatsoever with our technical partner.

So how much is the contribution of this product, Receptacles and the total revenue?

So that would be about 1/3 -- a little over 1/3. About 40% of the revenues would come out of Receptacles.

40% of revenue coming. And sir, how is the royalty payment to this German company?

Yes. The royalty payment is made once in a quarter depending on the volumes for that quarter.

And is there any percentage you want to disclose?

No. So it is dependent on the value addition which is done and again based on the import content. So there are certain boundaries, but there is no specific percentage of royalty, which will be continued to be given on a piece price basis. .

All right. Understood. And my second question is basically, sir, was the revenue split between the station products, PVs, CVs and the safety products?

Yes. So the station products today contribute a very low -- less than 2% to 3% at this point. We -- as far as PV and CV goes, it really depends. Because every year, it keeps changing. PV is a more stable industry. CV is kind of dependent on diesel pricing as well. So there have been times -- but on a weighted average, you would say that PV contributes at least 50% of our revenue base.

And we're very bullish going forward. Because if you look at the passenger vehicle forecast, I mean, today there are almost close to 600,000 total CNG cars, which were made in FY '24, which represents close to 15% of the total passenger car production. And this is expected to grow to upwards of 1.25 million by 2030 based on forecast given by top OEMs like Maruti Suzuki and Tata Motors.

So sir, station products, 2%, 3%; PVs, 50%. CVs in FY '24, what was the contribution?

So in FY '25 -- '24, the contribution of CVs will be about 35% -- 30%, 35%.

Okay. And sir, lastly, on the financial side. So if you can please give us a broad financials of Greenfuel for FY '24 as well as FY '23 because we presently have only the revenues in hand. Just we require some other details like EBITDA excluding other income, the PAT level, the gross block, net worth, cash...

As I mentioned, the revenue was about INR 214 crores in FY '24 with EBITDA margins historically been hovering between 17% to 19%. And at a PAT level, we are operating at about 10% to 12%. We do expect these margins to be sustained going forward at a growth of 20%, 25% CAGR.

Understood. And sir, as per the press release, the FY '23 revenue dropped by about 5%. However, our largest customers, Maruti Suzuki, so their CNG volumes have seen 40% growth for the same period. So if you can help us, what am I missing here?

Yes. You see, the volumes are very model-specific. So in those years, certain models of passenger cars, which we are specifying in, were actually discontinued and they came in next year.

It was more of a product mix, specifically for Maruti. That's the reason, but there was no loss of business or change of wallet share.

Correct. Okay. No loss of business. Correct.

Yes. Also, you have to understand that there was an anomaly year for commercial vehicles because of the differential in diesel and CNG pricing. And in that year, the CV volumes were extremely high the year before. So -- while our pass car volume still did grow, the CV volumes went down, but overall on a revenue level, there was a 5% effect.

So you're saying there is some drop -- discontinuation of the model and the CV -- CNG vehicle has also seen some lower contribution.

Yes.

Our next question is from the line of Ravi Shah from [ Opal Securities ].

Am I audible?

Yes, you're audible. Go ahead.

I just wanted one clarification that Greenfuel has a battery division. So is there any particular reason why we did not acquire as EV is doing very well in India?

So I think first and foremost, our philosophy is always the EV-agnostic, and we will continue to grow based on that philosophy. We would currently not like to enter into any specific EV-critical products. We still do believe that at least in the passenger car space, EV is something which may or may not happen up to the expectations, which were set before. We've already started seeing some headwinds in the EV demand. So that is one area which we would like to stay clear of. I think, hence, this partnership continues to focus on servicing alternate fuel applications and the regulated environment, which is expected to develop in the coming years, even if you look at the PM's e-drive, there is really no passenger car which -- subsidy, which is being given to passenger cars on that. So based on the current estimates, we do believe that the CNG vehicles will actually continue to have a much more significant share in the overall passenger vehicle market over the next 5 to 7 years. And that's the reason why we did not look at the EV battery business as a part of this transaction.

Understood, sir. Also, I had another question, sir. How does the company plan to finance this acquisition? And are we -- do we have any option for acquiring more stake in the future?

So right now, the transaction, as I mentioned, will be a mix of debt and internal accruals. And as I also mentioned, that the cash flow, there is a very strong cash flow at Greenfuel, which should be able to service this debt over the 5-year period. So that would be my take on how it was being funded.

Understood, sir. And sir, for the remaining stake, how are you going to acquire that?

So I think we continue to co-create value. I think the idea is that the motor at Greenfuel, of course, will continue. The technical partnership will continue. And as a strategic partnership where Lumax brings its customer portfolio, customer relationships and the technical and the day-to-day management and execution will continue to be with Mr. Kashyap and the team. We continue to drive the way forward in a similar way. So as of now, there will be a 60-40 split, which will continue.

Understood, sir. Sir, my last question would be, sir, on exports. I think I missed it. So do we have any export contribution to our revenue? And if we do, how much is it as of now?

So we did just do some pilot projects in export for Africa, as the market is just developing there debt, so the revenue share is very insignificant. Having said that, we are very bullish on the African market, but it also depends on some government policies and the infrastructure development there. But yes, we started some pilot projects in the -- for the African continent.

So I think we will continue to be watchful of these emerging markets, specifically Africa. And as and when there is a growing need, we will look at strategically how do we utilize those or service those markets from India.

[Operator Instructions] The next question is from the line of Radha with B&K Securities.

Many congratulations. Sir, I wanted to understand that historically, you mentioned that the EBITDA margin was in high teens. But in FY '23, we have seen a huge drop in margins from 18% to 10%. So could you please explain the reason for that happening in FY '23? And how has the numbers been in FY '24?

I'll let the finance team handle that.

Those numbers, if you see in the financials of the company, actually also include the EV business. So once you look at the CNG business in a split segment, those are consistently being between the 17% and 19% range that we mentioned.

All right, sir. 17% and 19% range in the CNG business has been consistent for the past 3 to 4 years?

Yes, that's correct.

All right, sir. Sir, secondly, could you please share your thoughts on -- you spoke a little bit about the EV, but your thoughts on green hydrogen as well and -- hydrogen automobile versus your thoughts on EV.

I'll let Akshay handle that question, please.

So thank you for that question. I think green hydrogen has a very promising future. Each country will have its own energy and energy security strategy. As far as the Indian government is concerned, as you are already aware, we are extremely bullish on green hydrogen. There are some PLIs for electrolyzer manufacturing as well. Greenfuel, as a company, is excited because we have done already about 35 trucks and buses on hydrogen in India. And going forward, as the market matures, progresses, we do believe that this is going to be an exciting opportunity for diversification.

Any highlights on what are the specific products that we have supplied for green hydrogen?

Yes. So again, these include the fuel delivery and storage systems because we are already familiar with 200 bar systems. So going to 350 bar with hydrogen has been a very easy transition for us, and we have the knowledge for doing that.

All right. And sir, the fuel delivery system, they are making for CNG as well as hydrogen. So would it be -- the capacity, would it be fungible? Or how the production line will be completely different for green hydrogen?

No. So the production line can be very similar because the parts do look similar from the outside. But yes, they will have some differences in the material composition, et cetera, which -- but they can be made on the same line, if that's the question.

And on a PBT basis, are we making money on green hydrogen or we yet to reach there?

It's a very small -- it's more of a proof of concept. So right now, it would not be fair to assess are we making money on hydrogen or not. But I think the key point is that the company has the technology and the technical capability to also meet the needs of the market, should the market shift towards green hydrogen in the future. So we do believe that there is a big opportunity out there. And once the scale comes into play, we should be able to make margins on the hydrogen as well.

Our next question is from the line of Shashank Kanodia with ICICI Securities.

Congratulations for this great transaction. Sir, just wanted to get some numbers. So is there any debt on the business that we're acquiring, this portion of business?

So the debt right now is only of working capital, which is approximately 1-5, INR 15 crores. There is no long-term debt on the business currently.

Right. Sir, is my understanding correct that this company has been acquired at an effective valuation roughly 6x EBIT to EBITDA and roughly 10x earning.

Can you just say that again, please?

So effectively, is my understanding correct that this transaction has been acquired at roughly 6x EBIT to EBITDA and roughly 10x price to earning.

Yes. your understanding will be correct.

Good. And sir, who will be a competitor in this space sir, the business that we acquired?

Primarily two similar scale groups. One is the Krishna Group and the other is the Uno Minda Group. Both of them have certain joint ventures for this business segment.

Okay. And right, so we have 35% market share. So even these guys hold similar shares in that pie right? Or is it...

There are different products. But yes, as a part of the whole CNG landscape on the fuel delivery system, they are -- they both are also present, but it may be on a different product category.

Right, right. And sir, secondly, regarding this acquisition. So can you help us understand, so out of this INR 133-odd crores, what part goes into fixed asset and what is largely you charged to your goodwill or intangible assets?

So the closing is still under process and subject to the -- any closing adjustments, we will be able to communicate this in some time.

And effective IRR for this or the payback period would be, what, 4 years for us?

Yes, it will be closer to between 4 to 5 years.

Right. And sir -- lastly, sir, I have one request. So regarding the time line of a con call, sir, so we announced the transaction sometime over the weekend right. So as a practice, if you could have these calls a bit early and closer to a transaction dates only?

Surely noted.

The next question is from the line of Apurva Mehta with AM Investments.

Many congratulations on a great acquisition. Sir, just one question was on the content per vehicle from INR 3,200 to INR 7,000 to INR 8,000. So practically, when it will start? Means what is the time line for that?

So this will start in the next financial year, quarter 1 of FY '26. This shift will start to be seen.

Okay. And can you throw some light on what type of -- which are the models -- current models which we have there? And future models which we are likely to be there, 3 of them, which are bigger in size.

Sure. So I'll let Akshay handle what are the key models we are currently on and we have in the pipeline.

So for the current products that we supply, we have two of the largest models, which is the Swift hatchback and the Swift regular notchback. And we also have the eco model and the Alto K10, which will come in a new form next year. And for the fittings project, I am not allowed to disclose at this moment in which vehicles we will come, but the volumes will be significantly good from March '25 onwards.

So the models which Akshay had mentioned are for the Receptacle. And for the tube and fittings, we've already got a confirmed order for one of the new models, as I mentioned, which will come into mass production in Q1 of next financial year.

That's from Maruti?

Yes. That is from Maruti Suzuki, correct.

And on the Hyundai side, are we also going to supply? You are telling that Hyundai is also coming with CNG.

So right now, we do not have an existing business relationship with Hyundai. But clearly, as a part of our strategic landscape, we will definitely engage with Hyundai. As you know, Lumax Group already has one very large joint venture, which caters to Hyundai Motor India. So we will utilize our customer relationships there to try and see what kind of business opportunities we can get for Greenfuel in the future. .

Okay. And on the product expansion side, are there any gaps remaining where you would like to develop or enter into some products which are related to the CNG side?

Yes. The answer to that is emphatic yes. We have quite a few product technologies in the works, which will allow us to address different areas within the vehicle as well.

I think the idea is to try and bring these products and technologies to try and continuously up our content per vehicle and penetrate deeper on to the opportunity that lies with the INR 15,000 per vehicle content on the whole CNG delivery system. And these are all without the tank. We are not talking about tanks yet.

The next question is from the line of Harshal Shah, an individual investor. .

Congratulations on a great acquisition. So my question is Maruti's growth for current year is 30% in CNG vehicles, April to August period. Sir, if you can give us April to August turnover, it will be great, sir. How much have we grown like? .

I think the growth for the first half would be again close to between 25% or upwards. A Lot of this growth is also driven by the safety and critical component space, not only from the CNG. But again, as these are cyclical in nature, please look at the annual guidance which I continue to maintain, would be around 20% to 25% growth rate for a full year basis.

And sir, what is the absolute number for April to August?

I'll come back to you. I don't have that number right off the top. I'll come back to you.

Okay. And sir, what's the order book of the company?

So this year, we expect to do between INR 260 crores to INR 280 crores of revenue, which represents the 20% for growth from last year's revenue.

Okay. And sir, with increasing turnover, like do we get operating leverage? Like can the margins be ahead of 20%?

I think for now we want to maintain a guidance that the operating margin at first will continue to maintain at a similar level. There may be certain governance costs which would also go up being a part of a listed company. So all in all, I think right now, with a 20%, 25% top line growth, which is projected, we would like to give a guidance of similar margins between 17% to 19% EBITDA to maintain.

And sir, last question is on the capital employed. So what is the capital employed for the company? Like I have FY '23 numbers, but then that inventory includes the battery division also. So like if we can give the capital incurred number for current business, for the business that we acquired.

So the capital employed would be close to 17 to -- Sorry, INR 70 crores to INR 80 crores, INR 7-0 crores to INR 8-0 crores.

The next question is from the line of Amit Hiranandani with SMIFS Limited.

Sir, need absolute EBITDA number for FY '24, excluding other income, please.

So Amit, I don't have that number right of the top, but it would be approximately close to somewhere around INR 40 crores. I don't have the exact number, but ballpark, that would be the range. .

Okay. And sir, how is the annual CapEx guidance for this company? .

So the company is light on a CapEx model. So it has a higher asset turn. I think the guidance I would like to give is perhaps the total CapEx over the next 3 years should be maybe around INR 40 crores to INR 50 crores.

Okay, okay. And sir, how LATL is planning to scale this new business? What are the internal targets and steps taken to improve the overall business and its financials?

I think I already explained that the clear growth drivers are to increase the content per vehicle and also to expand the current wallet share with the current OEMs and also penetrate into other OEMs. That is where LATL would bring the customer relationship. And the guidance, as I said, if I look at a 20%, 25% CAGR over the next few years, then clearly this revenue could double from its current level over the next few years. .

Sir, I just missed that content per car. Basically, there's some confusion in that. Can you explain what is the current and how you're projecting it further?

I explained that out of a total INR 15,000 per vehicle which is the, let's say, estimated content per vehicle out of the entire CNG delivery system, currently, this company is operating at about only 20% of that entire system And we are around INR 3,000 to INR 3,500 on a vehicle model. We also have confirmed orders where the content per vehicle will go up from INR 3,000, INR 3,500 to roughly close to around INR 8,000, once these new products are introduced to the market. So -- and again, we continue to see what are the opportunities, how do we get the content per vehicle further up from INR 8,000 to perhaps INR 10,000 to INR 12,000 in the coming times. .

Sorry, sir, last one, final question, basically, I wanted to know the exact gross block and net worth of this company?

Gross block as of now is closer to INR 15 crores and net worth is closer to INR 60-odd crores.

Thank you. As there are no further questions, I now hand the conference over to the management for closing comments. .

Well, I will take this opportunity to thank everyone for joining into the call. We will keep the investor community posted on a regular basis for updates on your company. I hope we have been able to address to all your queries. For any further information, please get in touch with us or Strategic Growth Advisers, our Investor Relations adviser. Thank you once again, and have a good day.

Thank you. On behalf of Lumax Auto Technologies Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.