PPAP Automotive Limited (532934) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '23 Earnings Conference call of PPAP Automotive 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 are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Jain, MD and CEO of PPAP Automotive Limited. Thank you, and over to you, Mr. Jain.

Thank you, Tanvi. Good evening, everyone, and welcome to our Q3 and 9 months financial year '23 earnings call. I am accompanied by our CFO, Mr. Sachin Jain and SGA, our Investor Relation advisor on this call today. I hope everyone has had a chance to go through our investor presentation which includes the strategy for making the company and the subsidiary companies stronger, resulting in higher growth going forward, along with the financial performance for the quarter and 9 months ended December 31, 2022. Before we begin on our company's performance, let me talk about the overall industry scenario. The domestic automobile industry looks resilient and has delivered healthy sales volumes across segments. The passenger vehicle segment reported a sales growth of 31% on a year-on-year basis from 26.14 lakh vehicles to 34.21 lakh vehicles between April 22 and January 23. Sector witnessed a robust festive demand, coupled with premiumization of cars. The availability of semiconductor chips is somewhat eased. And with the reopening of China, it may bounce back to normalcy going ahead. The Indian auto ancillary sector catering to domestic market will benefit due to revival in demand across segments. Healthy order book of OEMs augurs well for the auto component industry. Auto ancillary companies with higher aftermarket exposure can benefit from improving replacement demand and better pricing. In the recently held Auto Expo 2023 which is India's flagship automobile show, Indian automobile industry, both OEMs and auto component players showcased their might across the business verticals. The key focus was on EV themes wherein the industry is ready to harness the EV technology and shape the future. PPAP being a manufacturer of battery packs finds itself in a formidable position to capture the encouraging trends in the EV vertical. Now let me throw some light on our business model, which we have curated in the last 2 years. PPAP was established in 1978 for manufacturing custom-made extrusion products. Today, the company, along with its subsidiaries and joint venture companies delivers value-added products to various customers in automotive and ancillary industries. The company's core competence is in developing plastic and driver-based extrusion systems as well as plastic injection molding systems for various industries. The company also focuses in developing high-precision plastic injection tooling. I am delighted to share that all our products are engine-agnostic which enables PPAP to cater to all the OEMs and all of their models, irrespective of the engine specification. The company started the journey of achieving global level excellence in 1985 with the start of automotive business. Over the years, the company strives to delight its customers in the automotive industry as well as industrial products industry. PPAP Group is poised to establish itself as a leading product solutions company in areas of its core competence. We have also set its foothold in the aftermarket business with development and sale of spare parts accessories. The business is in 100% owned subsidiary called Elpis Components. The focus is on pan-India distribution with offline and online models. We've received a robust traction for our products and our endeavor is to achieve 10% of the total revenue from this business segment in the next 2 to 3 years. With the advent of electrification, PPAP established itself as one of the leading manufacturers of lithium-ion based battery pack solution for the 2-wheeler and the 3-wheeler industry. We are in the process of designing and manufacturing our battery pack, which will be in compliant with the AIS Phase 2 standards, and we are in the process of getting them certified by ICAT, Therefore, by the end of March, when these new regulations kick in, we will have a value-added product ready for our customer. The group has started its journey for achieving ESG standards with the objective of running the operations sustainably and responsibly. I'm happy to share that our new report for sustainability has been released recently, and we will soon put it on the company's website for everyone to have a look at. Through the company's CSR activities, there is a constant focus on enriching people's lives in areas of environment, health and education. The group supports various biodiversity parks by planting and sustaining native trees to improve the environmental conditions, which are detrimental in the NCR area. Now let me throw some light on the financial performance and key developments. Revenue grew by 24.4% from INR 293.7 crores to INR 365.2 crores in 9 months on a year-on-year basis on account of supplying parts to newer models across OEMs for stand-alone PPAP. EBITDA registered a growth of 27.5% to INR 34.4 crores in the 9 months. EBITDA margin improved from 9.2% to 9.4% on a year-over-year basis. PAT stood at INR 5.6 crores in 9 months as against INR 1.7 crores in the previous year and 9 months same period. 93.1% of the revenue is derived from the sale of parts, whereas balances derived from sale of tools and others. Maruti Suzuki continues to be the largest customer of PPAP, and it contributes more than 40% to the overall revenues. We have begun supplying plastic extrusion and injection molding parts and rubber extrusion parts from Maruti's new models, which are Baleno CNG and Toyota's much awaited Hycross model. The company has also been awarded for Quality of Spare Parts Appreciation and QCC Qualification at National Level by Honda. The capacity utilization for 9 months stood at 75%. Our aim is to improve utilization going forward to achieve operational efficiencies. On a consolidated basis, our aftermarket business continues to be profitable and continues to yield value as it is growing. On a consolidated basis, the revenue grew by 26.6% to INR 299.3 crores -- from INR 299.3 crores in 9 months financial year '22 to INR 378.8 crores in the current 9 months. Similarly, EBITDA has also increased from INR 26.5 crores to INR 35 crores. Just to summarize, the 5 business segments will act as growth levers for the company, the semiconductor issue again has been easing out now and will soon be seeing things completely normal. Going forward, the macroeconomic factors should be favorable, coupled with an industry growth that will enable us to take the best drive forward in capturing the market and catering to new models of all the OEMs. Thank you for your kind listening, everyone. We will be happy to answer to any questions that you may have. Over to you, Tanvi.

[Operator Instructions] The first question is from the line of Raj Joshi from [ Hayes Securities ].

Sir, my first question is gross margin has dropped by almost 200 bps in Q3 FY '23 as compared to Q2 FY '23. What has led to this drop given -- what has led to this drop, given the softening of the raw material prices.

Am I audible? Tanvi?

Yes, you are audible.

So regarding the drop in the gross margin, if you see there are some incremental tool sales in this quarter. In this quarter, we have the part sale of around INR 110 crores and rest is from the tooling sales. In tooling because the trading part is also involved in that. So the metal cost is a bit higher if you compare with the last quarter. And in this quarter, in Q3, there is an increase in the employee cost also because we added the festival season, so there was a distribution of gift and extra and winter uniforms, we have distributed across the plant. Further, in the south side, the new model is coming in the South, like YFG, that new Hyryder and Vitara from the south side. So we are also recruiting more spend power in that area. And so due to that, there is an increase in them and power cost also and other expenses side, in this quarter, we have the plant maintenance and the maintenance expenses has gone up and sales promotion has gone up. So which led to the drop in the gross margin by 200 basis points with respect to the last quarter.

Sir, my second question is, what is the revenue mix between the plastic institution and the injection modeling part?

It is almost 50%, 50%. It depends 1% here and there in every quarters.

The next question is from the line of [ Ravinya Tomar ], Individual Investor.

Thank you for the opportunity given to me to ask this question. First of all, I want to ask that what is our average realization per vehicle for our top customers such as Maruti, Honda. And the second question is that we have been very vocal about our stand-alone performance. However, if we see our performance at a consolidated level, we see that our performance has not been good. And I want to know that how are these JVs doing value addition to our business. And if they are not profitable at all, then why are we pursuing them?

So regarding the average realization from the top customer for Maruti, it ranges between INR 2,500 to INR 3,000 per car, Honda, INR 6,000 to INR 7,500. MGI to INR 6,500, Tata, it is up to INR 1,400, INR 1,500 -- the share. About the consolidated performance, if you see the main is the loss in the JV, which we are having in this year. So we have also taken with the customer regarding the price increase. So that was very quite advanced stage, but due to some abnormal situation at the customer end, it got extended. And we are quite hopeful that we will be able to get this price compensation from the customer in this quarter. After that, the situation will turn around for the JV company, about supporting the overall group business by this JV company, if you see in this company, we produced mainly rubber technology part. So due to that, we are able to showcase ourselves to our customer as a complete solution provider for the interior -- exterior part in the rubbers and plastic category. So when we go to the any customer, so like with Maruti, Honda or any customers who present ourselves that we have the complete range of product, which they are required for their [ ceiling ] system.

Yes. One more question, I just wondered to add what percent of our revenues are coming from exports currently? And how do we see this number going ahead?

Right now, there is no export as such in company. Currently, we are supplying domestically and the materially exported by the customer itself like we supply some CKD part to our customers, and they exported out outside India. And export is also one of the areas which we want to get into because it provides better margin than the other things. So that is in our radar. But right now, we don't have any export.

The next question is from the line of [ Shekhar Shah ] from [ HS ] Securities.

So I have 2 questions. So the first one is in quarter 3, we have undertaken maintenance work at plant. So where all the plants under maintenance? If yes, how many days there was a shutdown. The second one is since we are supplying our products to newer models across OEMs, what is the content per vehicle, especially for Maruti and Toyota.

Regarding the maintenance, the shutdown period, it was directly linked with the customer requirement. The south side that is linked with the Hyundai and TKML requirement, Nissan requirement in north, it is more linked with the Honda and Maruti requirement. So shutdown is taken based on the customer shutdown period, it lasted 3 days to 7 days based on the linkage with the customer shutdown period. And second, as I always already mentioned about the content per vehicle. So Maruti again, INR 2,500 to INR 3,000, Honda, INR 6,000 to INR 7,500. So that I have already informed. Anything else?

[Operator Instructions] The next question is from the line of [ Hima Kotari ] from [ SK Securities ].

I wanted to understand that we were supposed to receive the compensation from OEMs and revision enterprises. So have you received it from all the OEMs, including Maruti?

No, no. As I already mentioned that regarding one of the company that is spending with the Maruti. So we had to receive that compensation.

Okay. And also, how is the demand scenario on the ground?

I think demand is strong, as I already mentioned in the opening speech by MD san that there is -- has some growth in the production and sales around 31%. So demand is there. There is no issue with that demand right now.

So can we now expect normalcy in terms of supply of semiconductor chip?

More or less, it's quite normalized. And early this quarter 4 is supposed to be the highest quarter for the entire year. So quite [indiscernible] for this quarter. It should go quite strongly.

The next question is from the line of [ Kanika Kotari ] from [ Kothari Securities ].

So sir, I wanted to ask that in the past, EBITDA margins have been fluctuating. So at what level can we see sustainable EBITDA margins going forward?

From the last -- we always maintained that the sustainable margin would be in the range of 13% to 14%. So that is our internal target, and we are working on that. There are some challenges in this year, which we are facing regarding competitive price, understating the plant under the customer requirement. So that says there is a pressure this year in the margins. And we are quite confident and hopeful that from next year, we'll be able to have good margins along with the good topline.

Okay. And secondly, on the CapEx front. So has the company incurred any CapEx in Q3. Can you kind of give a color on what amount of CapEx you will incur in FY '24.

Yes, FY '24 figures, so right now, I don't have. Until 9 months, we have had the CapEx of INR 29.8 crores. And in this quarter, we done the CapEx of INR 8.7 crores.

[Operator Instructions] We have a follow-up question from [ Ravinya Tomar ], Individual Investor.

Yes. So I wanted to ask it in your investor presentation, you have been mentioning again and again that after -- there's a big aftermarket in cars such as phone holders, chargers, sockets, et cetera. So in my opinion, I think these are very low-margin businesses. So I want to do that, what is our strategy as to how we are going to gain market share in this field.

Mr. Tomar, the main business of aftermarket is for supplying of spare parts. So last year, we did, I think, sales of about INR 10 crores and this year, the business is supposed to grow by somewhere in the range of 75% to 80%. This accessory in what you're talking about, this forms a very small part of that business, which we are doing online. And now we are starting to roll out on offline distribution also. But majority of this aftermarket business is the spare parts business? Accessories business is a very small part of it.

And I just wanted to know that in coming 5 years, where do you see your company going ahead? And what will be the big changes in new products where you will be the leader.

Are you talking about aftermarket business or overall business?

Not like in general, where do you see your company going ahead in the next 5 years. Like are the EBITDA margin is going to be the same or the product mix? Is the product mix going to be the same? Where do you see your company standing in next 5 years?