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

Ladies and gentlemen, good day, and welcome to NDR Auto Q3 and 9 Months FY '25 Earnings Conference Call. [Operator Instructions] Please note that this call 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 '25 Earnings Conference Call of NDR Auto Components Limited. We have with us today on the call, Mr. Pranav Relan, Whole-Time Director; Mr. Vikram Krishan Rathi, Vice President, Finance; Mr. Rakesh Rustagi, GM, Finance and Accounts; 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 '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 Q3 and 9 months FY '25 conference call. Let me start by quickly going through our financial performance for the quarter under review. Q3 FY '25 total income stood at INR 176.22 crores, a growth of 25%. EBITDA at INR 19.61 crores, growth of 43%. EBITDA margins at 11.13% and PAT for Q3 FY '25 at INR 13.39 crores, which is higher by 57% as compared to the corresponding quarter last year. 9 months FY '25, total income stood at INR 523.87 crores, a growth of 22%. EBITDA at INR 55.79 crores, growth of 31%. EBITDA margins at 10.65% and PAT for 9 months FY '25 at INR 36.87 crores, which is higher by 36% as compared to the corresponding 9 months FY '24 last year. Our EBITDA margins and return ratios are the highest in the company's history. Margins stand at 11.13% in Q3 FY '25, and ROE and ROCE for the 9 months under review stood at 21.13% and 26.93%, respectively. Our results are driven by a combination of increasing proportion of innovation and value addition in our offering and a continued emphasis on operating efficiencies. The performance of our OEM partners too, as you would know, is also strong, translating to healthy order flow. Sales of seating solutions to Kia have commenced in December 2024. I am happy to announce that we have entered into a collaboration with Toyota Tsusho India and Toyotsu Vehitecs Company for the manufacture of seat insert fabric with technical assistance from Toyota Tsusho India. This collaboration is in line with NBR Auto's strategy of being at the forefront of technology changes and innovation in the auto component space. With Indian companies increasingly exploring localized options that can commit to quality, timely and cost-effective solutions, we are excited about the prospects for the seat fabric. Going forward, there will be 6 airbags implemented across all cars, of which 2 will be implemented in seats, and this is where the applicability of seat inserts come into picture. Seat inserts provide strength to PU pad so that proper deployment of the airbag can be done. The function of the product is when the accident takes place, seat inserts helps deployment of the airbag without distortion of the PUs. PVC has a global patent for the manufacture of seat inserts fabric, which is used in the manufacture of PU pad for the front seat of the airbag variants of the vehicles. In India, the product is presently imported entirely by Toyota Tsusho. With regulatory changes making all airbags mandatory, there is a keenness amongst Japanese OEMs to have a local supplier to ensure supply continuity and lower costs. We plan to invest INR 21.89 crores over the next 2 years and target to commence commercial production in July 2026. The payback period for the project is estimated to be 2.4 years. The revenue for FY '28 is expected to touch INR 100 crores. I'll end by saying that we are happy with our performance and look forward to maintaining this momentum. There are a number of opportunities in the auto component space, and we believe our capabilities and proven track offer us good runway for growth. We will now be happy to discuss any thoughts or questions you may have.

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

Congratulations on another fantastic quarter. The first question is on this new JV. So what's the structure? Is this a JV? It's a collaboration? What's the stake that NDR will have in this entity?

It's a technical assistance agreement. So it's a 100% stake.

Okay. It's 100% subsidiary that you have forming for this?

Yes.

Right. So and you will be paying some royalty to them for technical assistance.

Yes.

Got it. This product, you said in terms of -- it will be wherever there are airbags, -- is it -- even if there are 2 airbags, will this product be used or it's only when there are 6 airbags and passengers at the back also have an airbag is when this product will be used?

So 6 airbags is in the vehicle, 2 are in the front seat. So this will be used for the 2 in the front seat.

Yes. No, no, my question was if there are only 2 airbags in the vehicle, then will this product be needed? I'm just trying to understand what is the potential market size for this.

So 6 airbags is in the complete vehicle, not -- so this is only for seats where there's airbags put. So there are only 2 airbags that are put in seats.

But in a vehicle, which has only 2 airbags because that is what is mandatory, this will not be needed, right?

This will not be needed for that. But all the OEMs are adding this as a safety feature in all the vehicles.

Okay. Okay. And typically, on a per vehicle basis, what sort of content would this have?

So this should be approximately INR 350 to INR 400.

INR 350 to INR 400 of content, got it. And when you say INR 100 crore revenue potential, will you need to invest further? Or this INR 22 crores of broadly investment that you are doing can itself yield INR 100 crores of revenues?

The INR 22 crores is good enough to yield INR 100 crores.

Okay. Good. So the asset turns are almost like 5x?

Yes, in terms of fixed asset turnover.

Got it. Got it. And this product will be a bought-out component. So NDR when it is providing a seating solution to the OEM will be buying it from this entity, right?

Yes, that's correct. So this will go to us. It will go to all other Maruti suppliers and to all the Toyota suppliers also.

Okay. Got it. Understood. And in terms of -- when I look at your margins for this quarter, there's a very strong 150 bps margin improvement on a Y-o-Y basis. So what are the main drivers for this? And if you could quantify between premiumization and operating leverage, what is playing a larger role here?

So there's been a continuous focus on cost reduction and operating leverage. Majority of it has come through cost reduction initiatives.

Okay. Okay. And then I think last quarter, you said you can go to close to 12% margin. That can happen from the existing initiatives itself like premiumization, operating leverage and cost reduction or there is an element of backward integration as well that would be needed for the same?

No. So this is the existing initiatives, cost reduction, operating leverage and premiumization.

[Operator Instructions] Next question is from the line of Saket Kapoor from Kapoor Company.

Sir, firstly, with this kind of tie-up with Toyota, which we are pursuing currently, do they have any -- this kind of arrangement with other players? Or is it to be an exclusive one for Indian manufacturers?

We are the exclusive ones for the Indian manufacturers.

Okay. And globally, they have these kind of tie-up or what's the feedback, if you could just give some understanding how successfully they have been able to implement or execute it? And also, sir, the component of the airbag, how much would it contribute towards -- I missed the number?

So globally, they have a 100% company in Vietnam and China that they currently import from to India. So we are localizing it for them. And going forward, it will just be us are going to be 100%. The content should be approximately INR 350 to INR 400.

INR 350 to INR 400. But can you just make me understand what does this INR 350 to INR 400 -- is the value proposition that we are seeing or the contribution margin? Or what does this INR 300, INR 400 should be...

That's the content of the content per vehicle and into 3 million vehicles gives us approximately INR 100 crore revenue.

Okay, sir. Sir, when we look at the -- sir, if you could just speak closer to the mic, I can see your voice is just muffled or maybe my line is disturbed, kindly be closer to the mic. Sir, when we look at the RM composition, if you could give us some more understanding, I think so the prices for RM has been benign. So in that trend, that is going to be the way forward also, sir?

Yes, that's going to be the way forward.

Okay. And sir, if you could just further elaborate our journey in terms of this increase in the EBITDA margin percentage going ahead. So what should be we looking for FY '26 and '27 in terms of the EBITDA percentage going up from -- I think so 9 months, we did around 10.7%, if I'm not wrong. Where should we head -- I think so Q4 last year was also a reasonably good quarter. So the trend which we have for the 9 months, how confident are you that we will be replicating or improving on the same for the year ending also for the last quarter of this financial year?

So we're quite confident to achieve our margins. For FY '26, I think we should hit the 11% mark. And for FY '27, we're targeting the 12% EBITDA margin.

Okay. And sir, lastly, sir, for the product introduction part, means for the next year, what will be the new variant? I think to the Kia part of the story we will start to play out next year? Or if you could just explain to us what would be the value -- volume addition we will expect for the next financial year and the product addition also?

So Kia will start -- has already started in December. January, I think it will come completely into swings. For next year, there's a shade business that is starting and there's a new Maruti vehicle that is starting, and we have some BIW business that is starting. So we should probably add INR 250 crores, INR 300 crores of revenue next year.

Okay. So on an annual turnover, INR 250 crores to INR 300 crores should be the additional turnover that we are anticipating for the next year?

Yes. Yes. From what we closed at this current year, you can add INR 250 crores, INR 300 crores to that.

Come again, sir?

Whatever number we close at this year, you can add INR 250 crores, INR 300 crores to that.

Okay. Right, sir. And sir, when we look at our share of profit from associates, do we participate in their expansion initiatives also in terms of contribution? Or are they only the equity part of the story and only we are just -- it's a line item for us in terms of the compliances in consolidation?

So we participate in both. Our management is active. For NDR, we have a separate management. For BSL, we have a separate management, but we participate in both.

Okay. Sir, can you elaborate more on how our JV partner or the associates are also going to transcend the growth journey, I think so for the joint ventures are the ones which we are at nascent stages. But associates, I think so have a matured story. So what should we look forward? How are their contribution likely to shape up for the coming fiscal year?

So seats getting premiumization will definitely come over there. In addition, we're also focusing on margin expansion over there, and we are also working on expanding our market share in Maruti. So all 3...

And sir, the -- although we are dealing with the market leaders, but then also for the client concentration rates, what are the things in the [ end rail ] in terms of other OEMs like Tata and Mahindra, do we have that leeway of entering into their domain also? Or we are -- we are mainly concentrated towards this Maruti, Toyota and now the Kia part of the story going ahead?

So Maruti, Toyota, Kia is something we're definitely focusing on. We have something in place for Tata and other OEMs, but it's too premature to talk about that.

Okay. So we are looking forward -- I mean we are working on the same as and when the things mature or take shape, then we will be updating on this. And lastly, sir, if you could give some color on the cash balance what we have as on 31st December and our cash conversion cycle also the receivable days.

Cash balance should be the same, similar last quarter, I think only INR 50 crores to INR 40 crores. And cash conversion cycle, I'll get back to you. There's no change. There's not much change from last quarter.

I'll join -- because you have also spoken about this appointment of Mr. Rati. This is only for the chief -- CFO post have got vacant. He has also served for the Uno Minda Limited also earlier. So he will be only in the finance domain or also in the operational part of the business also because of his expertise?

Finance domain.

I didn't get you, sir.

He'll be CFO. He'll be in the finance domain.

We'll take a follow-up question from the line of Jatin Chawla from RTL Investments.

Just a follow-up on the Kia order which has started. I think it must be for the Syros, which has just got recently launched. So how are you seeing in terms of production volumes for that vehicle? Are they in line with what you had expected when the order was given?

Yes. They seem to be -- the ramp-up seems to be quite aggressive at the moment.

Got it. Got it. And Maruti's EV, is this the e Vitara, which has kind of started -- just started hitting dealerships?

Yes, that's the one that were on board.

Right. And for that also, production would have started in Jan, right? So we should see a full quarter in March?

Yes, it starts this quarter. I think they have a slower ramp-up. That's the only thing.

Okay. And sun shade, when is that starting?

For the new Grand Vitara minor change. So I think that should be March or Feb.

Got it. And I think a couple of days back, there was an announcement on a creation of an ESOP pool of about 250,000 shares. If you could just elaborate on what sort of employees are being given in the plan and what's the thought process on this?

So it's going to be for the key employees. We'll share that a little later.

Okay. Got it. So for next year, essentially, the key drivers would be this Kia and Maruti order then the sun shades, BIW and some regulatory changes also that are happening from the middle of the year, right?

Yes.

Okay. And with Kia, now that the orders have started, any further discussion in terms of any new orders going forward?

So we are in continuous discussions. Once something happens, then we'll let you know.

We'll take our next question from the line of Hitesh Goel from Riddhish Advisors.

Very good results. My first question is actually on this Maruti EV. What is your market share on the first EV?

So we're 50% on the first EV and 100% on the second EV. The second EV is, I think, a year or 2 away.

Okay. Okay. And this Toyota plant in Aurangabad, which is going to come in, right? What is the kind of market share do you have in that product -- in that...

Currently, for Toyota Boshoku, we have about 250,000 cars that we supply to out of the 300,000 or 350,000 cars, so which is about 60% to 70% share. We are looking to replicate that hopefully in 2028.

But that order has come to you already because already 3 years out now, right? So that order has been given to you in Aurangabad.

No, no, no. So any new order will probably come end of the year.

By end of the year. And this plant is expected to come then?

End of 2028.

End of 2028. And this is for...

At the moment, we've just acquired the land, and we are looking -- we are under multiple discussions. That's the status of it at the moment.

And you're only setting up capacity for Toyota there or you are also thinking of keeping some capacity additional so that you can supply to Mahindra and Tata if that fructifies from that plant?

So majority of that space is going to be for Toyota. So we already supply to Toyota Boshoku, and we have a relationship with Hayashi Telempu that we're looking to expand. And then we're discussing with some more Toyota Group companies.

Okay. But say, Mahindra is in Chakan, right? And Toyota is in Pune. So from that perspective, will they want -- in your business, will they want it closer to Pune and Chakan or Aurangabad can also be a place where you can supply from?

So Mahindra, Tata, Volkswagen will definitely want a facility in Pune, but we can obviously use -- send a lot of components from Aurangabad to Pune.

Okay. And in your value add in the seat business, do you think you have maximized in terms of value add or what else can be done to increase content? Or this is the maximum -- there's no major addition in content which can happen unless future technologies I'm asking?

Seat premiumization has just started. Our content is somewhere between maybe INR 15,000. The global average for seats is anywhere close to maybe INR 50,000 -- so now seats are coming with artificial leather, they're coming with power units. They're coming with ventilation systems. They're coming with seat belt reminder systems. That all will start coming into the seat in the next 2, 3 years. So we have a long way to go in terms of the premiumization.

Okay. So that content will keep on increasing. And my last question on ambit lighting. I think you had talked about an RFQ from Maruti, the [ ILC ] tie-up. So can you give us some sense on the ambit lighting orders, if any?

No. So we're waiting on any new products. Once something happens, we'll let you know.

Next question is from the line of [ Raunaq Sabharwal ] from PhillipCapital PCG.

One question. What is our order book as of today?

So order book is INR 400 crores to INR 450 crores plus you can add to Toyota Tsusho 100 crores. So that should be INR 500 crores to INR 550 crores.

Would this INR 500 crores to INR 550 crores be including the Kia orders? Or do we subtract that, I think, INR 80 crores from Kia?

That's including the Kia order. But in the December quarter, the Kia sales has probably just been [ INR 1 crores or INR 2 crores ]. So you can add it to the current run rate, the INR 500 crores, INR 550 crores.

Understood, sir. One question on the ESOP cost. So what would be the ESOP cost per annum going ahead, even a rough number will work.

Sorry?

The ESOP cost, what would be the ESOP cost going ahead because you implemented new ESOP plan. So what would be the cost incurred on that? I will get back to you on that.

[Operator Instructions] We'll take the next question from the line of Hitesh Goel from Riddhish Advisors.

Pranav, you're talking about a 12% kind of margin in FY '27, right? In terms of your order book accretion, like you said in '26, you'll add around INR 250 crores conservatively revenue in '26. What is the kind of revenue accretion we are seeing in '27? Because except for the new Maruti EV, I think there's no major orders until the Toyota order comes through. Am I right?

Yes, there's no major order at the moment. So FY '27 has the [indiscernible] Maruti...

Your market -- sorry, what did you say?

Yes. At the moment, that's the current status, but we're working on building that.

No. Sir, my question is then if Maruti grows at 7%, 8% CAGR -- sorry, rate, right, which is normal rate, you would end up like growing at 11%, 12%, right, in FY '27 in terms of revenue. So how is this 12% margin coming through until there is some cost savings, which you can talk to us about on raw materials?

No, no, we're focusing on operational efficiency and cost-saving measures. That's why we're quite confident of achieving through cost savings basically.

My last -- another question is on that the regulation which has had to come in March '25, right, about the airbag regulation. Has that been pushed through?

So there's no airbag regulation for 6 airbags, but most of the OEMs are implementing it.

No, in like Alto, Wagor R, right? I mean we are talking about small cars. They don't have 6 airbags, right? So that was the regulation which was about to come.

So there's no regulation, but all the OEMs are implementing 6 airbags in all the cars.

[Operator Instructions] As there are no further questions, I now hand over the call to management for closing comments. 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 into us or our Investor Relations partner, CDR India. Thank you.

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