Olectra Greentech Limited (532439) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Olectra Greentech Limited Q1 FY '27 Earnings Conference Call hosted by Nomura. [Operator Instructions] I now hand the conference over to Mr. Kapil Singh from Nomura. Thank you, and over to you, sir.

Good evening, everyone, and thanks for joining this call. We are pleased to host Olectra Greentech's management, Mr. Mahesh Babu, Managing Director; Mr. Sharat Chandra, CFO, and along with the members from the finance team. We will now pass on the call to management for their initial opening remarks. And after that, we can open the floor for Q&A.

Good morning. This is Mahesh Babu speaking, MD of Olectra. I'm very, very pleased to meet on the call today after our Q1 results. First, I'll give you a brief of the industry. You all know that after the GST cut, auto industry has been growing at a very healthy rate due to the demand. Today, most of them, there is no demand issue. I think more of a supply issue across the auto industry. If you look at the EV penetration in Q1, I think it has grown from about 5% to 7%, which is a very healthy sign that EV adoption in e-bus segment is still at a healthy rate of production. Overall, there is a clear new tenders and our adoption on EV coming up in a very -- well, you all know that the PM-e Sewa (sic) [ PM-eBus Sewa ] tender is live on pipeline, and that tender is getting delayed. But however, there are about 4,000 to 6,000 tenders right now by the central government, and there are about another 3,000 to 4,000 tenders from respective state governments, which are under discussion. So it clearly indicates the e-bus segment is growing and in which we are operating at. During this period, I'm also happy to say that we have delivered the 4,000 electric bus during this -- in the recent past. And this happened, and we are the first company in India to deliver 4,000 electric buses to our customers, surpassing our competition and become an all-time high on deliveries in the country. We have also consistently been delivering 350-plus buses in the last 4 quarters now. And that clearly says that the new plant with the rhythm of manufacturing and supply chain have been set up. However, I would like to highlight to you in this quarter, we had a huge turbulence in terms of material cost hikes as well as supply chain disruptions due to shipping lines getting canceled and diverted and delayed all that due to the Middle East war into consideration and hence, more to do with a very specific geopolitical disruptions, which has happened. And that has slowly mellowed down now, and it is opening up and now the disruptions are going away. Hopefully, this will continue so that we'll be able to continue our business without any issues. In the Insulator segment, Q1 always have been a challenge because of the year starting, respective orders. Also due to the high raw material increase, some of our customers have slightly delayed their delivery because while the insulator plays an important role in the power line, the other aluminum prices have gone up and hence, they were slightly delaying that. But however, the orders will continue to get delivered in the coming quarters. So with this multiple challenges, with our strong background, I would say, we had a very strong start in FY '27. We had a revenue growth of 66% and EBITDA growth of 30%. And as you know that we have increased our CapEx both in Bus division as well as Insulator addition. The Bus division, where, as you know, we are investing in the new bus next-generation platform as well as new generation truck. Both the products developments are going good. And similarly, in the Insulator, or the power -- on the Energy division, we are expanding into new products, and that work has already started. We are evaluating hollow insulator, solid core insulator and many other allied products, which we are in, and hence, to support the energy and power sector in the country. These CapEx investments are going in. Similarly, our term loan on the CapEx of our plant has started, and hence, we have an impact on both profit as well as PAT and the PBT. I would say still, it is a very good start looking at the turmoil. Our growth rate is still protected. Both the divisions, the Bus divisions have achieved the 4,000 only -- first company in India to deliver 4,000 buses. Similarly, the Energy division, we are still #1 with significant market share. Both the divisions continue to grow due to geopolitical and raw material and supply chain disruptions. There is a minor challenges in our Q1. But I strongly believe going forward, Q2 and this financial will be a growth as we delivered in the past. And in fact, we'll do much higher than the growth what we have done in the past as well. Thank you now. I am handing over to Mr. Sharat Chandra, CFO of the company.

Yes. Good evening, everyone, and thank you for joining us. So as our MD has given initial remarks, so we are pleased to report strong operating and financial performance for Q1 financial year '26-'27, with the continued momentum, particularly in our Mobility division. The Mobility segment maintained healthy operating margins despite some changes in the product mix. The vehicle deliveries vis-a-vis the previous year, Q1 year-on-year, has gone up from 161 units to 358 units, representing a 122% growth on volume. The Energy segment has faced some headwinds during the quarter, primarily due to higher raw material costs arising from geopolitical issues and relatively lower contribution from exports. At a consolidated level, the revenue stood at INR 575.5 crores, up by 66% year-on-year. EBITDA increased to INR 72.9 crores, a growth of 30%. PBT at INR 34.7 crores was up by 3%, while the PAT at INR 23.2 crores represented 4% growth. On a sequential basis, revenue was lower by about 11% compared to Q4 mainly due to lower Energy segment revenue and product mix in Mobility. Nevertheless, the year-on-year growth reflects the underlying strength and continued momentum on our business. So with that, I will hand over the call to the Nomura team for the Q&A session.

[Operator Instructions] The first question comes from the line of [ Bala Murali Krishna with Oman Investment Advisors. ]

First of all, on the overall delivery plan for this year. In the last few years, we were targeting 2,500, but we could not be able to achieve that one. So this year, how would be the trend whether we can able to achieve that target or not?

Okay. Thank you for your question. This year, as you said, our budget is to deliver 2,500 vehicles. We have full confidence now that we'll be able to deliver on what is in the pipeline. As you know, that we are #1 from inception of 4,000 vehicles, not only from inception. If you look at India's e-bus registration as of today, we are still #1 with around 490 vehicles registered as of 12th August. So we continue to deliver to the market. But I strongly believe this year, the market would be able to absorb more than in the last year. If you look at the rate, I told you already, there is a Q1 about 2% increase in adoption in Q1 itself. So this clearly says this year, the market will be able to absorb much higher, and we'll be able to deliver 2,000-plus, 2,500 vehicles in this financial year.

Okay, sir. So on the pipeline tender, so do you anticipate any order intake in this financial year for the tenders you participated in recently?

So we have about 8,000 order book already. Last -- we have won a tender of 1,085 vehicles in Telangana as part of CESL tender last time. Recently, we have become L1 in Rajasthan. Today, only we have got the letter to call us for discussion. It is outright 155 buses. There were about 4 to 5 participants. I'm happy to say that we have become L1. This clearly demonstrate Olectra's both product quality as well as competitive costs in the market on the outright sale. This will be our new 9-meter platform, which we are developing for the next generation, which I'm told will be ready by in the last quarter of this financial year. So as I said, we already have 1,085 plus 155 under discussion, both of them for the new platform. And for the existing platform, we have about 8,000 which we'll deliver in next 2 years.

Okay. So in the Insulator division, I think you told some media interaction that you are going to scale up the business by some 4 to 5x in the coming years. So the product will be only -- we are enhancing the capacity or we are planning some new products to scale up that business?

See, in the Energy division, we have a strategy discussions held both at the leadership level as well as at the Board. Today, we are #1 in polymer insulator. If you look at the products around the same Energy division, we are already approved a product, which is hollow core insulator and solid insulator. These 2 has addressable TIV market close to INR 500 crores to INR 1,000 crores. That product, we are bringing in. We are also evaluating multiple other products in this category. Our intention is to -- next 3 years, to make this Energy division of 5x growth. That's the plan. And the team is working towards making that happen. And various -- it will be both product -- new products as well as capacity enhancement put together. Capacity enhancement expansion in the plant has already started. We will have another similar size of shed, what we are having today with all the equipments in the pipeline, which will enhance the capacity to this division in next 3 years.

Okay, sir. That's great. On the margin front, in the Energy business, so I think this quarter have some higher raw material cost. So how do you see this Q2, Q3, whether we can be able to regain the margins? Is there any pass-on of price escalation?

Yes, we had a challenge of raw material increase. Many raw materials have gone between 40% to 70% increase in raw material prices, in polymer insulator. And hence, we had a challenge in the margins this quarter due to the war and petroleum prices, which have gone up, but also supply constraints during this period. I think that has now mellowed down. Already the price has fallen close to 40%, in the first, out of 70%, 40% has fallen down. So we are expecting the average price from now on. If there is no disruptions to come back closer to the levels before pre-war. And hence, improvements are expected to be seen in the coming quarters.

Okay. Lastly, on this e-bus, sir, one question I have. So with our 8,000 order book and plus -- 1,000-plus new platform. So when do you think that we can be able to complete? Because if we get some new orders, then they will also follow up for deliveries. If we can deliver quickly, maybe that would be good for our company also. But having this backlog of 8,000 buses, it may restrict us to take some new orders or it may restrict some other agencies to give new orders because we have a backlog of orders.

See, if you look at auto industry, the top 3 guys have order book between 5,000 and 8,000 vehicles, all of them because these orders are all to be delivered in 2 years. Even the 1,085 orders for Telangana is to be delivered in 2 years' time line. And hence, all the order, whatever we are getting today is for FY '28 and FY '29. The start of delivery itself will happen by March of next calendar year. And hence, whatever pipeline we have, we need to fill up this pipeline with respect to competition. And all these deliveries are depending on ecosystem availability like power, availability of depot infrastructure and so on. And hence, if we have to consistently achieve 2,500 deliveries this year and higher deliveries next year, we need to keep getting orders as well as improve our delivery, which is our plan.

Sir, if there is any supply -- I mean, sir, the infrastructure hurdle, so we can deliver this 8,000, you can say, in FY '27 and FY '28, is that the right understanding?

See, the market has to absorb. If you see last full year, I think around 5,400 vehicles is the registered vehicles. If the market is 5,400 vehicles, delivering 8,000 vehicle by us will not be prudent or it will not be right for us to manufacture and keep it. Our working capital will get locked. So we'll have to time the production and supply chain in such a way that the market will be able to absorb whatever we are producing. Similarly, if you look at the first quarter, there are about 1,400 vehicles, which got registered, right? So we will have to see how we will have to deliver based on market readiness, not just aggressively produce because it will not give any revenue, it will lie in our stock. If the depots are not ready, which I've heard from many of the competition. I would say we, as Olectra company, is one of the most optimum in working capital maintenance because as soon as we produce the vehicle, the vehicle is deployed within 30 days or maximum, let's say, between 30 to 60 days, the vehicle is into the customers' operations. Now there are competitors who are holding the vehicle for 3 months for flag-off, for the depot readiness, who can afford to do the working capital lock. So I would say, rest assured, we are #1 since inception. We are #1 in this -- as of today in terms of registration. So we are delivering in this segment, the most vehicles into the market. And our -- as you rightly said, our intention is to strive to drive the market to higher adoption, which we'll continue to do.

Bala, are you done with the question? As no response from Bala, we'll move forward to the next participant. [Operator Instructions] Our next question comes from the line of CA Jinesh Chopra with Chopra Capital Partners.

Sir, I just wanted to know about Insulator division. What are the industry outlook for the next 3 to 5 years? And out of that industry growth, how much we will be able to capture the industry growth? Plus, how will the EBITDA margins look over the next 3 to 5 years, specifically for Insulator division?

Okay. See, while there are many predictions, our internal study says there is a strong growth in Energy or Insulator division because if you know, India is upgrading the power lines, many of them are getting upgraded to 800 kV lines. And hence, there is a potential that most of the lines -- today, as of now, we have close to INR 300 crores worth of orders in the hand, and we are continuing to get inquiries and the deployment over a period of time. I strongly believe that the growth rate with the new products, what we are doing, we have already said in 3 years, we are trying to do a 5x revenue in Insulator division. So that is the intention we are going to work. I strongly believe we'll be around 30-plus percent market share in this segment, continue to be 30% plus market share in this segment. And hence, we are taking as equally as Mobility division, the Insulator division also in terms of growth, in terms of investment, in terms of new product. And I believe the margins will depend on raw material as well as the product mix. But there is no reason to believe that it will drastically drop into what we are telling -- what we have seen in Q1 due to just a raw material price increase situation.

Okay. Sir, I just wanted to know what amount of new CapEx are we doing for the next 3 to 5 years? And what ROCE can we expect on this new CapEx?

See, it is very difficult to tell 3 to 5 years' CapEx. All that I can tell you is this financial year, we are planning a new building worth INR 30 crores, INR 35 crores, and equipment worth between INR 15 crores, we are investing for the capacity expansion as well as in the new product, what we are getting into it. These have been approved by the Board, and we have already started this expansion to get into it. This will give us path for 5x growth, which will give 2x plus for the next financial year readiness.

Okay. And sir, one more question. I just wanted to ask you what is our split for Energy division for export and domestic? Or it is entirely domestic?

Sharat, do you want to talk about it?

Yes. See, basically, last year, exports was about 40% -- so about 36% to be precise. So actually, this quarter, the export percentage has come down. So that is also one of the changes in the product mix. We expect the overall exports to be about 35% to 40% of the top line.

Okay. And sir, what are the top 5 customers for export and domestic division? If you can name some?

In terms of exports, we have large -- in terms of export, we have a very large customer known as MacLean Power Systems in the U.S. This is a major customer where we have direct exports. Apart from that, there have been exports through L&T and Tata Projects to the African region through their subsidiaries. So we are actually having discussions with various customers. And so we hope the export customer profile will increase in this current year. So this is -- as far as the export is concerned in terms of domestic, we have Tata Projects, we have Kalpataru, we have Transrail, we have Sterlite, Adani, L&T, and, of course, POWERGRID. These are the major customers.

The next question comes from the line of Shivam Kabra with Carnelian.

Starting with the order book. Out of the total order book, how much is attributable to MSRTC and BEST separately?

Can you repeat the question? Your voice was cracking.

Hello? Am I audible now? Hello?

Yes, yes. Go ahead. Go ahead.

So starting with the order book. Out of the total order book, how much would be attributable to MSRTC and BEST separately?

The 4,000 vehicles will be around for MSRTC and about 2,000 orders to be for the BEST.

And could you please provide some color on the aging of the order book. Specifically out of roughly 8,000 units of the orders, how much would be older than 2 years? And what are the challenges that we are facing in executing this order?

I don't have exact details, but all that I can tell you is both MSRTC and BEST is the old order. The challenges is, as you know, sometimes between the signed agreement and the actual reality, there are some gaps, which we have to engage. If you want to really be loss-making, then we can go aggressive on such products without resolving this and then make losses, which the management would not like to do. Management would like to resolve the issues, go only when there is a clear understanding between the STUs and us, and the benefits are on both sides, and then we will take this forward. So that is, by and large, the approach we have been following. That's why we are the only profitable EV company in the country. And hence, we will continue to work on and engage with all stakeholders by resolving issues and moving forward rather than just for the sake of moving forward.

Okay. Earlier, we had also planned to localize our battery pack assembly system at our new facilities. What is the current status on this initiative? And once completed, what will be overall localization level for the company in OEM division?

So if you look at our next-generation buses, earlier, we were planning to localize the battery alone. We evaluated that project, and then we decided instead of just localizing the battery, we will create a next-generation product with the localized battery itself. And that's why I said that we are investing on a next-generation buses and trucks in which we will have a localized battery already being integrated. Because just by localizing battery, we will have the existing product running without improvements because we have a rich knowledge of more than 700 million kilometers of running in the country, and we'll have to use this knowledge to our next-generation product. So management decided instead of just localizing battery, we will generate a new generation bus and truck platform with local battery into it. That is how we are going. And that's what I said by Q4 of this financial year, the next-generation electric bus followed by electric truck will be launched starting from the last quarter. I said, every quarter, we will launch 1 or 2 products for the next 4 quarters, starting from Q4 of this financial year. Our team is working closely into getting these products. I strongly believe these products are really next generation, and it will bring in value, cost reduction and hence, contribution. It will bring in new features and hence, customer meeting new regulations. There are a lot of new regulations coming. Market is moving towards many new adoption of regulations in the bus as well as truck, it will meet all the new regulations going forward as well as there are a lot of customer requirements in durability and reliability improvements, which we have learned in the market, which we are also improving in these products. And hence, instead of just the battery localization, we decided to get the next-generation product.

Okay, sir. And what is our current localization level?

The new generation products will meet PM E-DRIVE and eSewa (sic) [ eBus Sewa ] requirements, which is all the aggregates will be local and the remaining parts, except the cell will be all local. In the current level, you all know that there is a transition going on between old generation and new generation. The current level, I don't have the exact number, except the aggregates, I think many of them are local...

Okay. And what are the CapEx plans for the company in OEM division? And when we are expected to reach 5,000 units capacity that we were planning in single shift?

So the CapEx plan is -- we have said that we are investing about INR 450 crores in the new programs for both tangible and intangible in the new platforms. That is for prototyping design, testing, validation and productionizing these products, and that will get into market by Q4, that's about INR 450 crores. We are also investing about INR 100 crores in terms of building and other equipments to get to the new products, both truck and bus into the one. Insulator, I've already told, we are investing about close to INR 50 crores in terms of building and equipment, which will -- this is over a period of next 18 months.

So INR 450 crores is for 18 months figure. Am I right?

Yes. Yes, yes.

Okay. And sir, what is the rate at which we borrow our term loans? And what is the rate of the interest that we pay for the working capital requirements?

See, the term loan rate is about 9%. And we actually do a lot of mix of MSME, non-MSME platform. So our cost of working capital is about 7% for about the major portion of working capital. And we incur a lot of finance cost towards LCs, which is a major cost, which will come down going forward from next year. Q1 of next year, we see definitely lower LC cost.

[Operator Instructions] Our next question comes from the line of [ Nishita with Sapphire Capital. ]