PPAP Automotive Limited (PPAP.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PPAP Automotive Limited Earnings Call for Q1 FY '26. 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 the 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, Managing Director and CEO of PPAP Automotive Limited. Thank you, and over to you, sir.

Yes. Thank you very much. A very good morning to everyone. I extend a very warm welcome to all the participants joining us on this call. I am also joined today by Mr. Sachin Jain, the CFO of the company, along with our Investor Relations advisers, Strategic Growth Advisors. I hope all of you have had a chance to look at our results and investor presentation, which are available on the stock exchanges as well as on our website. I would like to start today with the industry highlights. India's automobile industry registered an overall sales decline of 5.1% in quarter 1 of financial year '26. Passenger vehicle volume went down by 1.4% year-on-year and 2-wheeler sales contracted by 6.2%, while 3-wheelers inched up by 0.1%. Commercial vehicle sales were marginally down by 0.6%. Looking ahead, SIAM maintains a cautiously optimistic outlook for Q2, supported by expectations of a normal monsoon, festive season demand and accommodative monetary policy. However, supply constraints on rare earth magnets from China remain a key risk factor to monitor for the sector. Now let me take you through the operational highlights for our company during quarter 1. We began the financial year on a strong strategic footing by securing lifetime orders worth INR 86 crores, including INR 11 crores from EV programs. These wins underscore the continued trust of our OEM partners and our growing traction in the EV space. With these additions, our lifetime order book now stands at INR 3,439 crores, providing healthy revenue visibility. The newly secured orders will be executed over the next 3 to 5 years. That said, quarter 1 is typically a seasonally soft quarter for us. Consolidated revenue from operations declined by 4.9% year-on-year to INR 116.6 crores, primarily on account of subdued demand and deferment of project launches by key OEMs. Capacity utilization in the Parts business stood at 62%, reflecting lower volumes and irregular order inflows from major customers. Despite these near-term challenges, we expect a gradual recovery from Q2, supported by improved execution and ramp-up of recently secured orders as well as new models. We are optimistic that we are on track to deliver our stated guidance for financial year '26. Automotive Parts business remains our primary growth engine with a strategic focus on enhancing content per vehicle, introducing higher value-added products and expanding our customer base. We continue to engage for new business opportunities with all the OEM manufacturers, underscoring our deep rooted relationships and robust presence across both ICE and EV segments. In our aftermarket business under Elpis, we maintained a healthy momentum with 1,275 SKUs supported by both off-line and online sales channels. The revenues from this business increased by 27% year-on-year in quarter 1. Our focus remains on expanding the domestic network and growing exports, targeting 10% revenue share overall by financial year '27. Our Commercial Tool Room business under Meraki Precision Tools Engineering is on track with a strong order pipeline across automotive and nonautomotive customers, supported by capacity enhancement plans to 150 molds per year. The order book showed a healthy increase of 30% year-on-year in quarter 1. Our Industrial Products division business is being rebranded as Avinya Industrial Products. The focus continues in leveraging our plastic and rubber extrusion capabilities as well as plastic injection molding capabilities for diversified industrial applications. The sales were almost similar to the same quarter last year. However, this year, this division should do twice as much as business done last year. Our Battery business under Avinya Batteries continues to advance its repositioning towards storage solutions following the strategic shift from mobility applications last year. While market adoption remains gradual, the division is making steady operational progress, engaging with marquee customers and laying the groundwork for scaling in the upcoming quarters. We remain confident that our new business initiatives will gain strong traction this year, helping to derisk our portfolio from sector-specific fluctuations. We are energized about the opportunities ahead and look forward to delivering a successful year. Thank you very much for your time and engagement. We can now open the session for questions.

[Operator Instructions] The first question is from the line of [ Jigar Shah from Elevate ].

So sir, a couple of questions from my side. So were there any supply chain challenges faced during the quarter? And also the subdued margins were mainly due to lower capacity utilization or higher material costs? And additionally, how do you view the stability of raw material prices in coming quarters?

Yes. Thank you very much for your question. There were no supply chain challenges during this quarter from our side, things have been quite smooth. Raw material prices have been stable and they are getting on the lower side as well. We are improving our injections and all. So material utilization percentage is also getting better. The margins that you see here are primarily because of lower capacity utilization and lower sales. If you look at the profile margin, the profile is getting better operationally, but only because of drop in sales, the bottom line is subdued.

Okay. Understood, sir. Sir, secondly, with Q1 starting on a lighter note, so what gives us confidence of achieving INR 600 crores revenue guidance for FY '26?

Like I said, Q1 typically is the slowest quarter for us. And we already are sitting on 11th of August today. And whatever sales we have seen in July and August, not only from the automotive side, but from all the business side, I think we are on track to achieve that guidance. One more important factor is that there were a couple of new models that production was supposed to start in this quarter 1, which has gotten delayed, which is delayed by the customer, not by us. We are ready for it. So as soon as these models start picking up their committed volume and the time when it's supposed to start, we will again come on track per the guidance.

The next question is from the line of [ Rajeev Saraf from Saraf Broking ].

Sir, given the current demand environment, how do you see the domestic auto sector performing over the next 2 quarters in terms of volumes, new model launches and customer offtake? And how does this outlook support your confidence in achieving the FY '26 revenue and margin guidance?

Yes. Thank you very much, Rajeev ji, for that question. As I said in my opening address, I think there are a little bit of challenges for the entire automotive industry for overall growth for this year. I think it's quite a challenging environment, and we have to wait for how things will pan out from the demand perspective. Your second part was about the new launches and all that. So like I've been saying in all the previous conferences as well, we are closely monitoring the trends which are following the industry. And as you know, SUVs are getting very popular. Tata and Mahindra are gaining market share. And EVs also are going to play an important role in the upcoming future. So our strategy of getting new business is completely aligned with all these market trends. Unfortunately, some projects have gotten delayed. They were either the customer was not able to make that many cars when it comes to EVs because of all the rare earth problems and approvals, which are happening now. And some projects which were supposed to start SUV for the ICE part, they have gotten delayed by 3 months, which are supposed to start somewhere around end of quarter 2. So all these things put together, I think we are on the right footing. Whatever best we can do, we are doing in getting all the business based on the latest market trends.

One more follow-up question. So margins came under pressure in this quarter alongside a weaker top line performance. How should we look at margins trending in the coming quarters?

Well, as I said -- yes, Sachin, do you want to take that?

Yes, yes. So on the margin side, if you see, our margin has primarily dropped due to the subdued sales. And we are quite positive for the rest of 9 months that we will be able to achieve the sales which we have planned for the rest of the quarter. So definitely, we are again back into the double-digit margin side on the stand-alone basis also, on the consolidated basis also.

The next question is from the line of [ Rajvi Shah from Bright Securities ].

I just had a few questions. The first one is, could you share the segment-wise breakup of the order book along with the anticipated revenue conversion around the next 4 to 5 years?

Yes. So you are asking about the segment-wise order book breakup?

Yes, sir.

Yes. In the con call itself, we have informed that from the automotive side, we have the order book of INR 3,439 crores. So it is to be executed across 3 to 5 years based on the model life. And beyond that, the tooling side, we have the order book of, as of now, around INR 30 crores. So that is to be executed over 1.5 years, and we will also keep adding more orders in the rest of the 9 months. If you talk about aftermarket, so aftermarket side, it is based -- you see it is more the sale to the dealer in that segment. So you have the recurring order in that segment. So we have also grown by around 27% in the quarter 1 itself. [indiscernible] product also.

Okay. And additionally, sir, who are the 3 top customers and what proportion of the order book would they represent?

So again, currently, our top 3 customers are Maruti along with SMG, and now Tata is again the second biggest customer, and the third currently is Honda. And if you talk about the order book, so order book side also, it is in the same way because currently, Maruti holds more than 50% share in the car industry, and we are in all the models which are going to come in next 3 to 4 years for which RFQ has been floated or LOA has been issued. So the order book is also like that only.

Okay, sir. And sir, my next question was like in Q1, consolidated revenue declined by 5% Y-o-Y. And the capacity utilization in the Automotive Parts business stood at roughly 62%. So could you elaborate on the key factors driving this softness?