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

Ladies and gentlemen, good day, and welcome to the PPAP Automotive Limited Earnings Conference Call for Q2 and H1 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.

Thank you very much, Bhoomika, and good afternoon to everyone. I extend a very warm welcome to all the participants joining us on this call. I'm joined today by Mr. Sachin Jain, our CFO; and with our Investor Relations advisers, Strategic Growth Advisors. Our earnings presentation has been uploaded on our website and on the stock exchanges, and I hope everybody has had a chance to go through the same. Before we move to the detailed performance, I would like to begin with a brief overview of the industry landscape during the quarter and then take you through the key highlights of our operational and financial performance for quarter 2 and the first half of financial year '26. The Indian automobile industry remained subdued through most of quarter 2 with a gradual recovery visible only towards the end of the quarter. Demand remained uneven across segments impacted by the shifting of OEM production schedules, high inventory levels and cautious retail sentiment in the early part of the quarter and also because of the proposed GST reforms, which were slated to be introduced by the end of September. Passenger vehicle sales remained slightly lower year-on-year. 2-wheelers witnessed moderate growth driven by rural demand and better affordability, while 3-wheeler and commercial vehicles continued to see healthy traction, particularly from exports and freight movement. Against this muted backdrop, our consolidated revenue from operations stood at INR 253.6 crores in first half of financial year '26, down by 5.2% year-on-year basis, primarily due to subdued offtake from key automotive customers and the shifting of the production startups for certain new programs, which led to a temporary volume softness and delay in project ramp-ups by key OEMs. Capacity utilization in the part business stood at 65% in the first half of financial year '26 and the tool business capacity utilization stood at 85%. The lithium-ion battery pack facility, however, operated at just 5% of the capacity utilization. Our consolidated EBITDA stood at INR 22 crores in the first half, which is down 21.9% year-on-year, primarily due to the lower utilization of assets, leading to under-absorption of fixed costs resulting from the decline in production volumes. At the consolidated PAT level, we reported a loss of INR 2.3 crores for the first half. This was largely due to the lower operating leverage of the entire business and a loss of INR 2.1 crores attributed by the battery business itself as initial discussions with prospective marquee customers got delayed and will materialize in Q3 instead of Q2, leading to lower sales in quarter 2. On the order book front, during the quarter, we secured lifetime orders worth INR 621 crores, taking the new order book inflow for the first half of financial year '26 to INR 707 crores, which includes INR 16 crores from the EV programs. These wins reaffirm our growing capabilities in both ICE engine and electric vehicle segments. With these additions, our lifetime order book now stands at INR 4,171 crores, providing long-term revenue visibility. During the quarter, we have also commenced supplies for new vehicles launched by our marquee customers in the market like Tata Altroz, Maruti Victoris, and Vinfast VF6. These model -- start of supplies of these models will further diversify our offerings and strengthen our partnership with key OEMs. As we move into the second half of the year, the automotive industry outlook appears more positive, supported by the festive demand, improving rural sentiment and the impact of GST 2.0 and monetary easing measures. With consumer confidence gradually improving, the sector is expected to witness a steady pickup in demand through the rest of the year. The improvement in capacity utilization levels due to start-up of new projects like Tata Sierra, Renault Duster, Maruti Suzuki e Vitara is expected to improve the overall financial performance of the company. Our Aftermarket business under the Elpis brand is continuing the growth momentum. With 133 active distribution partners and a product offering of 1,269 products, the business grew 37% year-on-year in quarter 2. Going forward, we will be increasing our product offering in the areas of spare parts, service parts as well as accessories and improving our distribution outreach to continue our journey for growth. We are quite hopeful that this division will contribute about 10% of the consolidated revenues in the next 2 years. Our Commercial Tool Room business under Meraki brand continues to build a robust order pipeline across both automotive and nonautomotive segments. This division has already received orders for 106 molds till quarter 2. The order book as on today is of 138 molds worth INR 30 crores. This division is on track to achieve a growth of 20% plus this year. It is operating at a capacity utilization of 85% and is expected to continue the trend for the remaining of the year as well. For better governance as well as financial discipline, this division will start operating as an independent company by the name of Meraki Precision Tool Engineering Limited from quarter 4 onwards. Our Industrial Products division is leveraging the company's core competencies in plastic and rubber extrusion technologies to diversify into nonautomotive applications. This year, this division is expected to grow multifold compared to the previous year, backed by strong traction from domestic as well as export markets. Our battery division under Avinya Batteries continues its engagement with marquee customers. As communicated in last quarter con call, we have developed the products and have completed the trial orders. However, due to certain delays in approvals, the sales could not be fully realized during the quarter 2. However, we expect the sales situation to improve in the second half of this year and anticipate a reduction of losses going forward. In light of all these developments in various businesses and various divisions, we see a visibility of achieving a consolidated revenue for financial year '26 in the range of INR 575 crores to INR 600 crores, EBITDA in the range of INR 60 crores to INR 65 crores and PAT in the range of INR 10 crores to INR 12 crores. Friends, that's all from my side. We will now open the floor for any questions that you may have. Bhoomika, please moderate the question-and-answer session.

[Operator Instructions] The first question comes from the line of Dhruv Ravani from Shreeji Finserv.

My first question is there are talks about antidumping duty being levied on...

I'm sorry to interrupt you, Mr. Dhruv, but your voice is breaking. Can you please speak through handset?

Is it better now?

Yes, sir, it's better.

So am I audible?

Yes, sir.

Yes, please go ahead.

Yes. My question was there are talks about antidumping duty on the PVC, which is one of our key RMs. What is the strategy or how does the management feel we'll be able to mitigate that as and when it is likely?

For the PVC, the government had already issued orders since last 1.5 years for the compound side. And since then, we've localized all the PVC materials which are used in the company. So even if they put antidumping duty on it, our materials, what we buy are from the local market, which are produced in India.

Okay. My second question is with regards to the guidance and the overall -- the broad picture that industry is doing and you have a good share in Maruti, Maruti is talking about good sales number. So what is the reason for the lowering of the guidance for this year?

Primarily is because of the battery business, which we anticipated to do a little better, but the sales are unfortunately not coming through. It's not -- the pivot that we've done is working well for us. It's just that when we are engaging with the marquee customers, the approval process is like getting slightly longer than we anticipated.

Okay. And just a follow-up on that battery division itself. What would it take for us to break even at least in the battery division?

On a quarterly basis?

Yes, because we are running now INR 2 crores...

Yes, it is around INR 15 crores of the sales we need to generate to have breakeven at the operational level.

The next question comes from the line of Vijay Pandey from Nuvama.

Just I wanted to check like the industry production has increased in the first half of this year by around 4% to 5% post -- even all our customers have -- their numbers have come out to be pretty strong, showing a decent production numbers. But then also our sales have declined. So what -- where is this mismatch coming? Are we losing some market share or some of the products that we had we are not able to supply? Like what is driving this decline versus industry growth?

Vijay-ji, the decline is primarily due to the models which we have business for, their numbers have come down. So we have high business with Honda, with MG Motor and one particular model of Tata, which is called Curvv. So it is just a model impact. Maybe the entire OEM has done overall well with production numbers, but the models which we are present in, they have had an impact of losing the production numbers, and that is what has impacted us.

Are we expecting in the second half, are we -- do we have some new models that -- where we are participating because the old models are not doing well, then that should continue even going forward. So where do we expect the growth to come from in the second half?

So that is what I said in the opening remarks as well. In the second half of this year, we have three new projects which are going to start. You must have heard about Maruti Sukuzi e Vitara, that was launched in quarter 2, but the full production is going to start in quarter 3. So that will improve our sales situation. Then the recent buzz in the market about Tata Sierra, that is expected to start production this month in November. That will drive our sales. And in the next quarter, quarter 4, you must have heard about Renault Duster being launched in the Indian market. So that we have a business for. So these three models will primarily drive the growth going forward in the automotive space. And apart from this, our Aftermarket business is also continuing with growth. And in the Industrial Product division also, we have to execute some export orders as well in quarter 3 and in quarter 4. So all these things put together, we anticipate that the second half of the year will be much better for us compared to the first half.

Okay. That's pretty good. That's pretty good to hear. Sir, our order book of INR 621 crores. So what is the time line for when -- like is it like 2 years, 3 years or when can we expect it to be completed?

So automotive side, order book, any particular model that has a volume degradation of 3 to 5 years. So whatever business we have received in quarter 2, after we develop it and launch it, it will have a life cycle of somewhere between 3 to 5 years.

[Operator Instructions] The next question comes from the line of [ Jigar Shah ] from Elevate Research.

Sir, in our previous call, I believe you have guided to achieve breakeven in our battery division. Sir, how are we progressing on the same? And what is our current capacity utilization and how revenue trajectory is shaping up for the coming quarters?

[Foreign Language] Jiger-ji, as I said in the opening remarks also, and I explained in the last conference call also, last year, [Foreign Language] to storage systems battery pack solutions. So that pivot is doing well for us. It is just that the approval process for the -- in these marquee customers, which we are dealing with now, developing products for them, it is taking a little bit of more time than anticipated. And for this first half, the sales was quite low, but we anticipate much higher sales in the second half of this year. [Foreign Language] Primary reason is because of this battery division only. And that's why...

Yes, sir, you can go ahead, yes.

That's why the breakeven discussion which happened in the last con call also, that is also getting delayed due to this reason, due to the sales...

Got it, got it, sir. Sir, my second question is that what are the key structural measures we are taking to enhance capital efficiency over the medium term?

You mean for the utilization side?

Yes.

It is only -- it is mainly a factor of sales only. So I mean, all these new models which are getting launched, which I just spoke about, so those will drive up the utilization levels in the automotive segment. And the Aftermarket and the Industrial Product business also, like I was telling the previous caller, we have increased orders in the second half of this year compared to the first half. And those will also contribute to the higher utilization of all the assets in the company.

The next question comes from the line of Dhruv Ravani from Shreeji Finserv.

I have a follow-up question. We had announced our tie-up with Mahindra, I think, in the last quarter but hasn't been able to launch any models...

Sorry, your...

Mr. Dhruv, I'm sorry to interrupt you, but your voice is breaking a lot. Can you please move to a better network area?

Is it better now?

Yes, sir, it's better.