NDR Auto Components Limited (NDRAUTO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '24 Earnings Conference Call of NDR Auto Components Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you.

Good day, everyone, and a warm welcome to all of you participating in the Q3 and 9 months FY '24 Earnings Conference Call of NDR Auto Components Limited. We have with us today on the call Mr. Pranav Relan, Whole-Time Director; Mr. Vinod Kumar, Chief Financial Officer; Mr. Sanjeev Kumar, Financial Advisor; and Mr. Rajat Bhandari, Executive Director and Company Secretary, along with other members of the senior management team. Before we begin, I would like to mention that some statements made in today's discussion may be forward-looking in nature and are subject to risks and uncertainties. A statement in this regard is available in the Q3 and 9 months FY '24 earnings presentation shared with you earlier. We will start this call with opening remarks from the management, following which we will have an interactive question-and-answer session. I now request Mr. Pranav Relan to share some perspectives with you with regard to the operations and outlook for the business. Over to you, sir.

Good day, everyone, and a warm welcome to our Q3, 9 months FY '24 conference call. Let me start by quickly recapping our financial performance for the quarter and 9 months under review. In Q3 FY '24, on a consolidated basis, our total revenue Y-on-Y increased 31.7% to INR 141.06 crores. Our EBITDA increased by 56.46% to INR 13.73 crores, translating to EBITDA margins of 9.73%. PAT for the quarter under review amounted to INR 8.54 crores, translating to a nonannualized EPS of INR 7.18. Our YTD revenue amounted to INR 428.18 crores, EBITDA at INR 42.44 crores with operating margins of 9.91%. Nine months FY '24 PAT amounted to INR 27.1 crores. We are delighted to inform you that NDR Auto Components has been impaneled as a supplier to Hyundai Transys to supply seat trims to Kia and will commence supply from January 2025. The seating trims will be manufactured at the company's manufacturing facility in Bangalore, which is in close proximity to Hyundai Transys' manufacturing operations. This is a reflection of our strong operational capabilities and is in line with our strategic endeavor to widen our OEM relationships. Kia is now our third OEM partner, adding to our other esteemed and long-term automotive OEM relationships with Maruti Suzuki and TKML. Also in line with our business strategy of expanding our product portfolio, we are happy to announce our entering into a technical assistance agreement with Hayashi Telempu for the supply of sunshade, which we will supply to Maruti Suzuki and Toyota Kirloskar Motor. Hayashi Telempu is an USD 1.8 billion revenue company based out of Japan with capabilities in producing automotive interior and exterior parts and operations spread across Asia and North America. Both these initiatives enhance our scale and stature and offer us a wider performance for futures and strategic initiatives. Utilizations at our facilities across Haryana, Bangalore and Gujarat stood at 70% to 80%, offering us an ample runway to enhance sales with present capacities. Installation of new capacities for Maruti Suzuki Limited has commenced and is expected to be completed by December '24. The auto component space is an exciting phase, and we believe there will be several opportunities for companies like us. We are happy with our financial and operating performance in the just concluded quarter and 9 months, but believe there is a lot more to do. We will now be happy to discuss any thoughts or questions you may have.

[Operator Instructions] We have our first question from the line of [ Jatin Chawla ] from RTL Investments.

Congratulations on the quarter as well as expanding both your product basket and clientele. Now first, a couple of questions on the 2 new initiatives you have announced. So on the sunshade side, just to kind of clarify, what's the exact product? This is the rear passenger the sunshade that is put in? Or what is this exact product?

So it's at the rear passenger.

Okay. Right. And with the INR 8 crores kind of investment that you're doing, what is the asset turnover in this line of business? So what is the revenue potential with the investment that you are doing?

So it's about INR 30 crores to INR 35 crores.

Understood. Understood. And is this for a particular model that you have to order or are there -- is the product here kind of not products -- model-specific?

So it's for a particular model. Now once the model comes with the new feature, then we'll let you know which model its for.

Got it. Got it. And this order with -- for Hyundai Transys, this is only trims right now, right? This is not seat frames?

It's only trims right now. That's our first step into Transys.

Okay. Okay. And in the future, is there an opportunity to get into frames as well or that is something that Hyundai Transys does itself, does on its own?

So that's something we are evaluating as well. Trims was the shortest lead there.

Got it. And on the trims side, with the INR 8 crore investment, what is the kind of revenue potential?

So that is closer to the INR 80 crores to INR 85 crore number.

Okay. Okay. And again, this is for a particular model or for the entire kind of Kia portfolio?

This is for the new model, which is expected to start in January 2025.

We will take our next question from the line of [ Saket Kapoor ] from Kapoor & Company.

Sir, if you could give us an understanding how the revenue mix is likely to be post these 2 are into operations going ahead in terms of the current mix in the product profile and how are these 2 going to change?

So I don't have that off hand. We will share that with you after the call.

Okay. And sir, as you mentioned about the sunshade part, in the entire ecosystem, how will the things work? The entire set will be prepared on a different line and we will be doing the installation work? Or how will this work?

So it's a completely new investment that we will do assembly at the moment and eventually, we will localize all the products in India.

Okay. So currently, the entire thing would be assembled at your location. You will be outsourcing all the components and the same would be just assembled at your lines and then -- we'll be doing this job work. There will be no other -- we will be not manufacturing any of the components. That is what the understanding.

We will manufacture most of the components, except one component is imported at the moment that we will localize shortly.

Okay. And the entire -- when that total component -- of what percentage of -- value addition will be done at our end and the import, any split you can provide?

So we'll share that with you.

Okay. And sir, if we look at the current -- your sales order book and also your -- the deliverable schedule from the OEMs, what is the outlook you'd like to share? And Q-on-Q, sir, what explains this dip in revenue, sir, from September quarter to December quarter?

So September to December quarter, the decline is probably because of the offtake. December quarter usually have more holidays, the Diwali holidays and block shutdown. That is why there's a minor decline. On a quarter-to-quarter basis -- we were up by about 40% on a Y-on-Y basis.

Okay. And for Q4, sir, how likely the profile is going to be? The revenue -- what is the revenue trajectory?

It should be better than Q3. Normally, Q2 and Q4 tend to be the best 2 quarters.

Okay. And we are utilizing our lines at optimum levels -- utilization levels are optimum?

So I think Q4 should be the best quarter.

Okay. No, in Q4, we will be -- we will be utilizing it at an optimum level?

Yes.

Okay. Sir, going ahead in terms of our main product line in terms of seats, are you expanding further? And also, are we engaging with other models -- preparing ourself for other models of Maruti going ahead? And any thought process on that?

So there's a new model that's coming in end of the year for Maruti. And in addition, we've got new business from Kia.

Okay, sir. And how the revenue mix will be looking? What kind of business is anticipated from Kia?

It's -- seat trims is from Kia. And for Maruti new model, it's frame and trim.

Okay. The Kia business size would be what, sir?

It's about INR 80 crores.

Annual business we'll be doing with -- from Kia of INR 80 crores?

It's INR 80 crores, yes.

Okay, sir. And in terms of the RM part, sir, how are the prices? And how is the RM behaving?

So in the Kia business or overall?

Yes, sir. Overall, sir. Overall, how are the RM baskets shaping up?

So RMC does not affect us since it's a pass on.

Okay. But it is after only a lag effect? Or sir, it is also done retrospectively?

It's done -- as soon as the quarter finishes, we -- whatever we pass on to the supplier, we get that.

Correct. And lastly, sir, on the...

Mr. [ Kapoor ], I request you to join back the queue, please, as we have other participants waiting. We have our next question from the line of Majid Ahamed from Smart Sync Investment.

So my first question that I have is -- so now you are saying your plan to do with Kia and as well as selling for the sun top -- what is the revenue potential that? Like it seems the revenue...

The Kia business is about INR 80 crores. The shade business is about INR 35 crores.

INR 35 crores. Annually or...

Annually.

Okay. Sure. So what happens to the PAT margins? Where you have the PAT margin has gone down?

PAT margin, Y-on-Y has increased. Q-on-Q because of the lower off-take from our customers.

Okay. And going forward this year, like what is the EBITDA margin that you plan to this year...

Approximately 10% is what we'll close in.

We have our next question from the line of Dhruv Shah from Ambika Fincap.

Pranav, congratulations on a really good set of numbers. I have 3 questions. First one -- first of all, congratulations on tying up with Kia. Are we still pursuing with other clients? Or are we right now good with 2 clients and want to build Kia before we pursue any other clients?

So we're pursuing other clients and we're going to build Kia.

Okay. But that brings to me that you are planning to grow Kia in Bangalore, and we were already running at optimum capacity in Kia. So do we have enough land available there to put up more capacity for Kia?

Yes, we have enough land.

And will you be able to quantify that?

So the Bangalore facility is on rent. So we've just taken additional space next to it.

Okay. Fair enough. Fair enough. And can you just also tell us what's the capacity utilization right now in Gujarat and Bangalore?

So both are close to 70% to 80%.

Okay. So if that is the thing then next year, ex of your new tie-ups, can we still expect a double-digit growth because you're running already at optimum capacity?

There's a new model coming in Gujarat. And there is a model shift from Gujarat to NCR. So yes, I think next year should be a decently good year.

Okay. Okay. Okay. And next question is on your technical assistance with this global major. Can you just shed some light on that? Because in one of your press release, you have mentioned that 1.8 billion yen. So it's quite a big one. So apart from sunshade, are we looking for any other technical tie-ups? And what are the commercials we have tied up with?

So at the moment, we've done a technical assistance agreement. We are a Toyota supplier for interiors and exteriors. They do all the interior parts, except seating. So we started with the shade because there is a need for shade. We have a first-mover advantage in the country, and we see a large opportunity going ahead.

Okay. So there are plans to take this technical assistance even further from sunshade, will that be a right perspective?

Yes.

And in sunshade, it's basically the thing which you get in all the luxurious cars, right, for -- it's not a film, but it's just a sheet, right? So how is the -- is it expensive? Is there any technical thing which you need to tie up, like I couldn't get that part?

So the luxury cars is electronics. This is a manual -- mechanical part. So the technology is in the mechanical -- mechanism of it.

We have our next question from the line of Parikshit Kabra from Pkeday Advisors, LLP.

I'm new to the company. So I just wanted to ask a simple question first. You're obviously growing much faster than the automobile market is. So you're probably gaining market share from your competitors. Just wanted to understand what is it that is allowing you to do so rapidly gain market share? And what are you doing different that is enabling such success?

So in addition to gaining market share, our product is becoming very premium. For gaining market share, we have high volumes in the country. So we are using that, the Maruti volumes in Hyundai, Kia also.

So can you help me understand how the high volumes is enabling you to get a competitive edge?

So we have the Maruti volume base, we are leveraging that for Hyundai Kia.

Do you mean in terms of economies of scale, in terms of procuring raw materials?

Yes. And footprint utilization.

You mean your factories, the footprint of the factories being closer to the OEMs?

Exactly.

Got it. So who are -- could you name some of your key competitors that you're gaining market share from?

So we've got business from Hyundai Kia.

No. Sorry, I don't mean your customers. I mean your competitors whose expense you're growing on?

So our competitor in Maruti is Krishna Maruti. And in Hyundai Kia, there was Saddles. And then there is a Korean company.

Got it. Got it. Got it. And so between a mixture of being close to their existing -- to the OEM's existing factories and being -- having such a high volumes, you are able to provide the same quality or better quality product at a lower price. That is your key competitive edge, correct?

Yes.

Great. And now -- so again, you might know better, but from what I'm hearing in the -- reading newspapers today, the automobile sector is supposed to slow down in terms of growth, the growth that it has seen over the last couple of years, some expectations of it going down to 3%, 4% over the next year or 2. How do you think that's going to affect your business? Will the premiumization and the gain in market share more than compensate for the loss in tailwinds in the industry?

So all our customers want to double their capacity in the next 6 or 7 years. So that is the end goal, maybe 6 months, 9 months there's slowdown, but we'll come out of that.

Got it. All right. So you're not expecting any significant slowdown in the recent...

No significant slowdown.

Got it. All right. And lastly, you -- I'm not sure if you already mentioned it, but do you have any CapEx guidance for this year and next year?

So we've got about INR 20 crores for next year.

Okay. All right. And in terms of margin, are you expecting it to increase further or now it will stable -- be stable at around 9%?

It's stable around 10%, I think, we should be hitting.

[Operator Instructions] We have our next question from the line of [ Jatin Chawla ] from RTL Investments.

So this installation of new capacity that you said by December '24, where is this and for which model?

This is in Gujarat. It's for a new model. And from Gujarat, we will ship some capacity to NCR.

So what is the capacity that you're putting up by December '24? What is the size?

So we will around 250,000, 300,000 in Gujarat.

And right now, it is?

It's about 250,000, 300,000. But then we have to shift for the model in NCR. So we were at 1.1 million, we'll be at 1.3 million, all across.

And this includes the Kia capacity or this is without that?

This is without the Kia.

Okay. Kia thing will be additional?

Yes.

And this Kia because -- the business, because you are doing trims, I see that the asset turnover is very high. So does that mean that the margins would be lower than the normal 10% margin that we do right now?

So margins will be slightly lower. But in terms of ROCE, we should be at the same number.

Okay. And similarly, for the sunshade program -- margins there as well...

The margin will be higher and the ROCE will be similar.

Got it. Got it. And any kind of order book number that you can share with us? Where are you right now?

So we were at about INR 100 crores, INR 150 crores. In addition, we've got another INR 120 crores. So we should be closer to the INR 200 crores to INR 250 crores number.

And this is additional to whatever business we are doing today?

Yes.

We have our next question from the line of Darshil Pandya from Finterest Capital.

Sir, I just wanted to understand one thing for the sunshade business. So any -- you said that you'll start it in around January 2025. So is it going to take around 10, 12 months for us to build this capacity or how is it?

The order is for January 2025. So the model changes, the Suzuki model gets launched then, it is for that.

Okay. So for just 1 specific product, we are building -- we are spending INR 8 crores for this model?

So what we believe is that this is the premium most car and slowly, slowly will come down for most of the vehicles.

All right. So post this, it will be around all the Suzuki Motors models that you are serving?

Yes. I think slowly, slowly, they will start installing this feature in most of the cars.

So the sunshade that you're building, so does this have a common size or something? How is it? I just want to understand this one. So we can -- it can easily be used in other models or how is it? Or is there an agreement with Suzuki or how is it?

So we've tied up for all the OEMs in the country. Suzuki is the first maker that we've got business from.

Okay. So we can expect this business to go with other OEs as well?

That's what we're planning.

We have our next question from the line of [ Saket Kapoor ] from Kapoor & Company.

Sir, if you could explain the share of profit of associates and the same from the joint ventures also? I think these are the equity stake that we have in the other company?

Associate is Bharat Seats. It is 28% or 29% if we consolidate. And joint venture is Toyo Seat. So that is -- I think that's minor.

Sir, if -- the way we have seen the growth in this year, what kind of taking these initiatives into account and also the things which are in the anvil, which you will be definitely letting us know when the time comes, what kind of product profile addition and growth in business are we expecting, for instance, 2 to 3 years down the line? And what kind of CapEx are we envisaging going ahead?

So once we start getting new orders and new initiatives, then maybe we can give some more targets.

But how likely -- so what -- the growth numbers which we have for the 9 months, are we going to end the year on the same -- in the same trajectory, most likely?

Yes, I think we should be at a similar trajectory.

Right, sir. And sir, on the cash balance, sir, what is the status there? We have finance cost to the tune of INR 70 lakh, so do we have any long-term borrowings or is it all the working capital?

So we've got lease liabilities. As per the Ind AS standards, all our lease come as finance cost. We do not have any long-term liabilities. We have cash on the books.

What is the cash on book, sir, as on...

Around INR 20 crores or INR 30 crores.

INR 20 crores?

INR 20 crores to INR 30 crores.

What was the number for September quarter? I will try and look into it, no issue as we have the results...

Yes.

Sir, to pressing in the type of growth numbers, sir, if you could give us some color what's the likelihood next year? We are now only 1 to 1.5 months or -- in fact 2 months left for this year to end. So going into the next year, what would be the growth trigger? What should we investors look forward from the company?

So next year should be a stable year, maybe low double-digit growth. The year after is when our real order book and initiatives will kick in again.

Okay. You mean to say FY '26-'27?

Yes.

Okay. Sir, can you give some more color on when you were saying that our initiative will take into place, what will lead to that? Which initiatives are going to crystallize or materialize?

By January, we should have the Kia model -- the Kia launch in place, the shade business in place and some new Maruti models in place. So that should ramp up by maybe February or March. And then next year, that should come in play, the whole number.

Correct. And sir, do we have any dividend distribution policy or what percentage of profits will be shared with investors?

So we're doing 10% at the moment. Of course, we see a lot of growth potential.

We have our next question from the line of Dharmendra Dave from JM Financial.

Many congratulations for a good set of numbers. Sir, my question is, is it possible to give us a revenue breakup via -- by the customers like large customers like Suzuki, Toyota, Kia?

So Suzuki should be maybe 60% to 70%, or maybe even 80% at the moment. No, so Suzuki should be 60%. Toyota Boshoku should be another 30% and 2-wheelers should be about 10%. So this is just off-the-hand. I'll share the exact numbers with you.

Okay. No, this is helpful. Okay. And sir, how does it work? Is it like you are a sole supplier for the products where you are or there will be more supplier to any product?

So there is one more supplier for Suzuki. So it's between us.

Okay. So in that case, what would be the penetration level would we will have?

In market share or...

Yes, yes, market share.

We are about 30% to 35% of Suzuki's business. And Hyundai Kia, we just started.

Okay. Okay. Yes. And sir, the end user industry has been -- particularly on the passenger vehicle industry has been growing at around single digit. What gives you confidence of double-digit growth going into next year?

New products and new customers, and we're also working on market share expansion for the existing OEM.

We have our next question from the line of Parikshit Kabra from Pkeday Advisors, LLP.

I was hoping that for the last few quarters, if you could break down your growth number between the 3 drivers that you mentioned. One is a premiumization of the product, two is the number of volumes of your existing brands that you might be catering to or existing products that you might be catering through the expansion of that versus number three, adding new products to your portfolio as well as new customers to your business?

So last year has predominantly doing premiumization and adding -- expanding our market share. Going forward, we expect all 3 to come into play. Exact numbers I'll share with you.

Okay. Understood. And you've mentioned that your competitive edge has been built on the back of your relationship with Maruti and the common theme and several interviews also that you have a very strong relationship with Maruti. Can you please elaborate on how that got formed and what makes such a strong relationship?

So we actually were the first joint venture with Maruti Suzuki back in 1980s. So when Maruti was coming in, we just restarted work with them.

Okay. So this is a relationship before NDR also?

So NDR got demerged out of Sharda Motors. And first, Bharat Seats was a joint venture between our family and Maruti Suzuki.

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for closing remarks. Over to you, sir.

Thank you for your time and participation. We continue to be optimistic about the opportunities before us and look forward to sharing these with you as we move forward. Should you need any input or clarification, please write in to us or our Investor Relations partner, CDR India. Thank you.

Thank you, sir. On behalf of NDR Auto Components Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.