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

Ladies and gentlemen, good day, and welcome to NDR Auto Components Limited Q2 FY '25 Earnings Conference Call. [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, Mr. Barar.

Good day, everyone, and a warm welcome to all of you participating in the Q2 and H1 FY '25 Earnings Conference Call of NDR Auto Components Limited. We have with us today on the call Mr. Pranav Relan, Whole-Time Director; Mr. Mohit Kumar Jain, Chief Financial Officer; Mr. Vikram Krishan Rathi, Vice President, Finance; 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 Q2 and H1 FY '25 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 Q2 and H1 FY '25 conference call. Let me start by quickly going through our financial performance for the quarter under review. Q2 FY '25 total income stood at INR 175.57 crores, a growth of 10.99%. EBITDA at INR 18.69 crores, growth of 17.39%. EBITDA margin at 10.65% and PAT for Q2 FY '25 at INR 11.94 crores, which is higher by [ 15.78% ] as compared to the corresponding quarter last year. H1 FY '25 total income stood at INR 347.67 crores, a growth of 21.09%. EBITDA at INR 36.18 crores, growth of 26.01%. EBITDA margins at 10.41% and PAT for H1 FY '25 at INR 23.48 crores, which is higher by 26.5% as compared to the corresponding half last year. Our EBITDA margins and return ratios are the highest in the company's history. EBITDA margin stand at 10.65% in Q2 FY '25 and ROE and ROCE for the half year stand at 22.41% and 28.50%, excluding nonproductive land and surplus cash. This improvement, which is sustainable, and we are focused on continuing to grow is driven by a combination of increasing the proportion of our premium offerings as well as our trust and efficiencies. We are pleased with our performance this quarter, particularly given the overall environment. The current fiscal is expected to be largely flat compared to the previous year. In this backdrop, we are encouraged to note that we continue to outperform our sector. This has been driven by steady execution on behalf of all our customers. Utilizations at our facilities across Haryana, Bangalore and Gujarat stood at 80% to 85%. As you are aware, though, the auto sector is facing some near-term headwinds, which are translating to slower order flow from OEMs in the near term. We anticipate this industry slowdown to continue for the next 1 or 2 quarters. Our outlook and visibility, however, remain extremely strong for the medium to long term. We have current order book of INR 400 crores to INR 450 crores. Our track continues to be both on expanding our portfolio with the introduction of innovative and disruptive options and expanding our OEM partnerships. The Board of Directors has approved the proposal to acquire approximately 25 acres of land at MITL, AURIC, Bidkin, Chhatrapati Sambhaji Nagar in Maharashtra, at an estimated cost of INR 37.63 crores. This is in addition to the 10 acres of land we acquired at Kharkhoda earlier this year. In addition, we are also exploring land acquisition possibilities at Anantapur, which is in close proximity to Kia's manufacturing facility. All these initiatives will enable us to be more efficiently cater to the requirements of our OEM customers. The potential for the auto component sector continues to be large. There are significant opportunities for the company who are prepared to innovate and deliver value. We at NDR Auto are excited about the road ahead and are confident of creating value for all our stakeholders. We will now be happy to discuss any thoughts or questions you may have.

[Operator Instructions] The first question is from the line of Jatin Chawla from RTL Investments.

Congratulations on a very good result, you've given the industry context. My first question is, you spoke about having an order book of about INR 400 crores to INR 450 crores. I think the number that you shared last quarter was about INR 250 crores. So what are the incremental orders that have come in, if you could just briefly highlight?

Last quarter, we said something between INR 250 crores and INR 300 crores. In addition to that, we've acquired INR 50 crores of business for BIW and we've acquired a new seating program of about INR 100 crores. So in the next 2 years, we should be about that INR 400 crores, INR 450 crore mark.

So this INR 50 crores BIW order, this is for with customer and similarly for the seating order? And what are the time lines as to when these programs go into execution?

So both are for Maruti Suzuki. BIW should come into play within 1 year, 1.5 years and the seating should be within 2 years.

Got it. Got it. The second question was on the Aurangabad land acquisition. It's a very sizable land parcel that you've acquired. So what sort of revenue potential are we envisaging for from this facility?

So we have applied for land from the government. We should acquire it shortly. In terms of the revenue potential, we wouldn't like to disclose at the moment. But what we can say is that we have a current relationship with Toyota Boshoku in Bangalore. We're looking to replicate that. We have another relationship with the company, Hayashi Telempu. We're looking to expand that, and we're discussing with some more companies what we can do for Toyota.

One last question.

Sorry, go ahead.

No, no, I can come back. That's not a problem. I'll come back in the queue. You can go on. I'll come back.

Next question is from the line of Saket Kapoor from Kapoor & Company.

You were alluding to some stress in the system. If you could just elaborate the same on how the auto industry is shaping up? And how are we aligned in terms of our utilization levels for H2 getting affected because of what you just spoke about?

So as you know, the auto sector is going through a slight slowdown, but it is recovering. I think Maruti showed the highest ever retail numbers in October. So there's a lot of inventory that's getting cleared down. Our capacities at the moment are between 80% to 85%. So there hasn't been too much effect on our capacity utilization.

But sir, going ahead, you are referring to issues. If you could just elaborate, what are we penciling in, in terms of lower demand from the OEMs? Or what is the pillar exactly which led to you outspeaking about we having some trouble in terms of business outlook for the second half?

I mean it's a slight slowdown. It's single-digit kind of slowdown. So we don't think that's a long-term problem.

Right. And sir, when we look at our capital work in progress number, if you could just elaborate where have we spent this money, the INR 24.27 crores closing balance? And when are we going to capitalize the same?

So that is for CapEx towards our Kia business, our new models and our shade business. I think that all comes into play next year.

And what kind of revenue generation asset turnover can we expect?

So our CapEx for the Kia business was about INR 7 crores to INR 8 crores. Shade was another INR 7 crores to INR 8 crores. The seating business was another INR 20 crores to INR 25 crores, and that itself will add about INR 250 crores, INR 300 crores to our top line, which is going to come into place next year.

Okay. So next year, we can expect an incremental INR 250 crores revenue?

Subject to market conditions, I think that's a fair estimate.

And sir, taking into account our diversification initiative, if you could just explain from derisking us from the -- only for the seating part of the story, what other steps are we taking? And taking 2 to 3 years horizon, how do we think the revenue mix would be in terms of seating and the other initiatives, which we have already done?

So we've added about INR 50 crores of BIW business this quarter. We've got INR 50 crores of shade business coming -- already coming 2 quarters ago. And then we're obviously looking to expand that. In addition, we are looking to diversify to new customers and new products. Once something happens, we will let you know.

That is correct, sir. But I was just looking at how this mix will change, say, 1 year down the line with the INR 250 crores new business or increased business coming up next year, how should the profile look like in terms of the fitting and the other business?

So our reliability on seating and our reliability on Maruti is going to start gradually decreasing. We're looking to be a multi-product, multi-customer company.

And sir, our margins outlook, if we can maintain these margins?

So at the moment, we're at 10.6%. We are targeting to expand our margins in the next 2 years.

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

Just continuing on the margin side, what we have seen in the last 2 years is there is a nice slow, consistent improvement almost every quarter. So I tend to look at margins on a 4-quarter rolling [Technical Difficulty].

The line for the participant dropped. [Operator Instructions] Next question is from the line of -- okay so we have Jatin Chawla reconnected.

Yes. Sorry, the line got disconnected. I don't know where I dropped off, so I'll just repeat the full question. I was saying that on the margin side, we've seen a nice, slow, consistent improvement over the last 2 years. And if I look at margins on a rolling 4-quarter average basis, there is almost a 10 to 20 basis margin improvement happening every quarter. So what is really driving the same? What sort of productivity enhancing measures are you taking that is helping this? And you said there is further scope. So over the next 2 years, what sort of further scope you see on the margin side?

So in terms of the current scope, we're taking advantage of our operational efficiencies. Our numbers have been good. We're trying to use as much of our footprint in order to expand our margins. Going ahead, in the next 1.5 to 2 years, we're targeting the 12% EBITDA margin.

Great. Great. Great. So when you say footprint expansion, I didn't quite catch that. How does that help?

We're trying to use our current footprint as much as we can for our new order book, and that is what's driving our margin expansion.

Got it. So it's largely operating leverage. As your utilization improves, margins are improving.

Yes.

And you spoke about some slowdown that you're seeing in 3Q. But I think 4Q onwards, you have some triggers coming up. You have the Kia and the sun shade order and thereafter, the Maruti EV likely in 1Q FY '26. So is it fair to assume that from 4Q onwards, we should start seeing some traction again on the top line side?

Yes. So that will be subject to the ramp-up. I think the Kia and the shade is January and the EV is sometime in March. So the way it ramps up, maybe it will be Q4, maybe it will be the following Q1, you'll see that complete coming into play.

[Operator Instructions] Next question is from the line of [ Yash Mehta ] from [ Art ] Ventures Private Limited.

Sir, I want to ask that our order book is around INR 400 crores to INR 450 crores.

Yash, sorry to interrupt, your audio is not clear. Can you speak a little louder, please?

Am I audible now?

Yes.

I wanted to ask that our order book is around INR 400 crores to INR 450 crores. Sir, what is the time line by which this order book will be executed?

1.5 to 2 years. 2 years should be a safe bet.

[Operator Instructions] As there are no further questions, I will now hand the conference over to the management for closing comments.

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 Relationship partner, CDR India. Thank you.

Thank you very much. On behalf of NDR Auto Components Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.