Precision Camshafts Limited (PRECAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings call for the operational and financial performance for Q1 FY '22 of Precision Camshafts Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Shah, Whole Time Director, Business Development. Thank you, and over to you, sir.

Thank you very much. Good afternoon, ladies and gentlemen. I'd like to thank you for being a part of the Precision Camshafts Q1 FY '21/'22 Earnings Conference Call. Mr. Ravindra Joshi, Whole Time Director and CFO of the company, is on business travel today and therefore not able to join this conference call. However, Mrs. Aarohi Deosthal from our accounts and finance team is attending this call for finance-related questions. In case any detailed questions on finance, please e-mail us your questions at cs@pclindia.in, and we shall provide you answers in a reasonable time. I will start with an overview on the auto industry and then get to our company's performance. India and the world have witnessed and is still living under one of the worst pandemics in the recent times. This, along with the global semiconductor shortage issue, has caused far-reaching effects across the automotive industry. And while we might see some light at the end of the tunnel with respect to global vaccination drives as well as efforts by the industry and OEMs to restore supply for semiconductors, it is difficult to predict when things will be back to normal. We at PCL are taking great care of our employees and facilities during these difficult times. Over the last year, PCL has donated INR 50 lakhs to the Prime Minister CARES Fund and an additional INR 50 lakhs to Chief Minister's Relief Fund, Maharashtra. In addition, the company has directed most of its current period CSR spending towards COVID relief by providing local hospitals and care centers with essentials, such as ventilators, bypass machines, oxygen concentrators, providing food and essential goods to the underprivileged and completely renovating and restoring the crematorium in Solapur, amongst other activities. Coming to our company, the Precision Group with its three group companies, which are MEMCO, MFT and EMOSS, has now truly become a global company with manufacturing facilities in India, Germany and the Netherlands with the global automotive OEMs in our clientele list. It is because of this global presence that our company has not only been able to tackle this slowdown, but in fact, posted good performance on a stand-alone as well as consolidated basis. The parent business, PCL India, has stabilized over the last year, posting consistent results. The company has clear visibilities to utilize capacity at its foundries as well as machining division as programs from key customers, which were delayed, have now come back on track. PCL has been awarded several new businesses over the last 2 years, which will even help us better utilize the assets. And then from the 29th Annual General Meeting of the company, the Precision Camshafts Limited has won new businesses from Ford U.S.A., Renault Nissan India, Kia Motors, India, Tata Motors, Fiat of Europe, Jaguar Land Rover and Royal Enfield over the last 2 years. PCL would be either supplying fully machined or casting camshafts to these customers. In summary, PCL India as a parent company continues to enjoy healthy margins and poised for growth in the coming years. Coming to MEMCO, which is based in Nashik. The company has seen a dip in sales due to the automotive slowdown, the COVID pandemic and chip shortages. We would like to believe that the worst is now behind us, and we hope for growth in the business in the coming years. Our objective at MEMCO is to diversify our product portfolio as well as customer base. Our group company, MFT, based in Germany has been stabilizing the business during these difficult times. The company has installed a new management at MFT, which will help steer the company in the right direction in the coming years. In summary, the group's automotive component business is now well diversified in terms of product as well as customer base, where no single customer contributes to more than 23% of revenues. Now coming to our e-mobility business, EMOSS, based in the Netherlands. The company has registered significant growth in business over the last 2 years. Since we have completed the 100% acquisition of the company in July 2020, we have focused the business on adding new customers and technologies to the company. While the traditional business of retrofitting medium and heavy commercial devices continues, we now look forward to an exciting new journey as we partner with niche OEMs across Europe to provide them with ready-to-assemble electric driveline kits. EMOSS caters to a wide variety of applications, including waste collection, airport buses, mid-mile and long-haul transports, road sweepers, cranes, reefer containers and more. Over the last 1 year, this company has retrofitted midsized passenger bus in India into 100% electric bus. All the initial integration work as well as [ road ] testing is being done in close association with the Automotive Research Association of India based in Pune. We have been able to localize more than 60% of the electric driveline on the very first vehicle [indiscernible]. We now expect this vehicle to outperform the original vehicle in terms of horsepower and torque while providing a range of over 180 kilometers on a single charge. Coming to the financial performance of the company. I'd like to start with the stand-alone business performance of Precision Camshafts Limited, which houses the camshaft business. Total income for Q1 of FY '22 increased by 119.87% Y-o-Y to INR 111.26 crores. EBITDA for this quarter increased by a strong 220% year-on-year to INR 27.7 crores. The total income and EBITDA has increased significantly year-on-year as the world was going through one of the most challenging times in Q1 of last year due to the pandemic and lockdown. The PBT for Q1 FY '22 is INR 18 crores and the profit after tax is approximately INR 14 crores. The EBITDA margin for this quarter was 24.9% and PAT margin was approximately 12.6%. Total revenue contribution from export was approximately 54% and the balance came from domestic sales. Coming to the consolidated business performance. The total consolidated income for quarter 1 FY '22 increased by 101% year-on-year to INR 217 crores. Consolidated EBITDA for this quarter increased by almost 200% year-on-year to INR 31.5 crores. PAT on a consolidated basis was approximately INR 7 crores. EBITDA margin for this quarter on a consolidated basis was 15% and PAT was approximately 3%. Just to give you a high-level revenue structure of the three group companies. Revenue at MFT for this quarter was approximately INR 45.9 crores. Revenue at MEMCO for this quarter was approximately INR 10.9 crores, whereas revenue at EMOSS in this quarter was approximately INR 49.9 crores. This covers the summary of the business as well as the financials. And with this, I would like to open the floor for question and answers. Thank you very much.

[Operator Instructions] The first question is from [indiscernible], an individual investor.

I wanted to know what is the capacity utilization, what we have at least in all these businesses, against the installed capacity which we have. I would be especially interested more to understand from our e-mobility business as to where are we and the capacity utilization levels at that particular level. My second question would be what is the total capital deployed across our e-mobility business? And what are the plans for the near future in terms of additional capital deployment there?

Thank you for that question. I can answer your capacity utilization numbers for the stand-alone business for the last year, which is FY '20/'21. Due to the pandemic situation and the lockdown, we were at approximately 60% utilization in our countries as well as [indiscernible]. However, this utilization will increase, given the new businesses that I have just spoken about during the call. We are not able to give you a forecast for what the rest of this year looks like. But needless to say, that it would be better than what it was last year. As far as the capacity utilization of the e-mobility business, we've not defined that in terms of capacity as most of the -- we have enough space and enough manpower to kind of do more number of retrofits as well as kits. That's very difficult to define the exact capacities at the e-mobility business. However, test requirements is almost not there at EMOSS because EMOSS is very much into the assembly process. And most of what is done there would be requiring working capital and not significant capital investment. So in the last [indiscernible] of the company, we have about EUR 8 million or about INR 60 crores of working capital invested into this business.

[Operator Instructions] The next question is from the line of Manish Shah from Fortune.

Karan, this is Manish Shah. Thanks for this brief introduction on Q1. The two questions I had was that how does the order book look for the EMOSS business, number one. Number two, as you said that you will -- you are attempting to replicate the EMOSS business in India and you're waiting ARAI certification. So obviously, the cost which one spends in Europe for the EV thing, those costs are not sustainable in India. Then how would you be able to manage that?

Sure. So I think your first question was regarding the order book. We are unfortunately not in a position to give you the exact number. It would be a futuristic number, so we're not able to share that. However, I think we have a very clear visibility for orders up to the end of next year. So there is no issue on the order side of things. I think it's going to be an exciting trip over the next 2 years to fulfill these orders. So I don't think there is an issue on that front. Coming to the India side of things, one of the key -- like you mentioned, the key factor for making this an affordable, ROI-friendly solution in India was to localize quite a lot of the driveline in India. And like I said, we have already, in the very first vehicle, we have localized 60%, which has brought down costs significantly compared to our European counterparts. But I think the way forward is that we need to get towards an 80%, 90% localization as well as fit-for-function drivelines, which are made for the Indian condition, which we are taking towards. So I think we are -- we would be in a very competitive space once we get to that point.

Yes. And once you get [indiscernible] would be ready to roll out this in how many months' time?

No, this is the first vehicle that we have done.

Right.

So the [indiscernible] vehicle based on mid-sized bus [indiscernible]. And this, we will be testing all across Maharashtra over the next few months for reliability, et cetera, et cetera. And then we are in talks with certain customers in India to do a variety of different vehicle [indiscernible].

Okay. So you don't expect any traction issue? I mean, once you are able to do it, you feel you will get the necessary orders and all that?

Right.

The next question is from the line of [indiscernible] from [indiscernible] Capital.

I'm sorry, my question may sound a little basic. But I was just wanting to understand the strategy that you are thinking of adopting for the e-mobility business as far as India is concerned. So would there be a B2C approach in terms of retrofit? Or would you be thinking of a B2B approach, discussing with sort of fleet owners or something like that? Could you throw some light on what strategy you're planning to adopt as far as e-mobility in India?

Yes. So this initial strategy will be towards looking fleet owners, end customers, state transport authorities, 3PL kind of players in the Indian space who are looking to convert their existing fleet of vehicles into electric. And given the vast experience of EMOSS in Europe on converting more than 600 vehicles up to date, we have that experience and we have the know-how to do a wide variety of vehicles and not restricted to one type. We have done in Europe retrofits like some 5 tonnes all the way to 55 tonnes of gross weight of the vehicle. So we are -- we have that experience. But yes, the initial strategy would be retrofits. But I think longer term, we do see a business model developing just as it has developed in EMOSS in the Netherlands that we are now tying up with several OEMs across Europe to provide them with modular kits, which they can use into their own vehicles. So the vehicle then is selected from day 1 and not a conversion one. So that would be the longer-term objective for India as well.

Okay. And would you require like ARAI certification or something like that for you to actually roll it out even to the fleet owners or the private guys?

Yes. I mean, it would require homologation. Every variant or every type of vehicle would require homologation. But this is a fairly standard process that we understand and can do in this area.

Okay. So would that also mean that once you retrofit any of this medium or heavy commercial vehicles, okay, the warranty or any other thing that comes with that does not get repelled or whatever, right, I mean, that maintains?

To some extent, yes.

Okay. Because there were issues earlier with vehicles as well as engine retrofit, a concern that if you fit a passenger vehicle with a retrofit [indiscernible], then warranty was not applicable. So these kind of things will not crop up as far as an EV retrofit is concerned?

So on engine EV retrofit, we're changing essentially the entire drive of the vehicle, [indiscernible] the engine, transmission, exhaust [indiscernible] essentially everything. So we obviously as the provider of this driveline would provide back to that warranty or guarantee to our suppliers, which they will pass on to the end customer.

Okay. Brilliant. And what kind of drivetrain would be there for -- I mean, with a single charge, I mean, in terms of kilometers?

I think that's one of the USPs of our business model, where we are able to customize all your needs. [indiscernible] kind of short-loop vehicle, we can reduce the cost significantly and provide a vehicle that only requires 50 kilometers on a charge, whereas if you are requiring it to be an intercity, we can also provide 50 kilometers on a charge. So it depends on the use of the customer.

Okay. And how much -- now since you have localized 60% of your manufacturing capabilities, I mean, how much would the cost work out to broadly a range kind of for these kind of retrofits on intra-city or intercity, just for me to get an idea?

It's very difficult to answer that question at this point of time. I think we'll get back to you once we have more clarity on that.

Okay. And as a company, when are you expecting any meaningful revenue contribution coming from this part of the business in India?

In India, I think it will be the next 2 years, 2.5 years or so. I think we should not look at this immediate addition to turn over significantly. But if you look at -- I think just to summarize this discussion on e-mobility, I think our focus, while -- because we are based in India [indiscernible] enter the Indian market and be part of the EV ecosystem here in India, our focus right now is very much on growing the European business because that's where the demand is. That's where the markets are stable. That's where the infrastructure is available. And you can see that this company has grown from a small turnover of about INR 40 crores 3 years ago to about INR 140 crores this year and more planned for the coming years. So our focus is very much on where the demand is. And of course, we would like to be first to market or being part of the first companies to market in India. But this will not be the key focus.

Okay. And the last question for now, Karan, on this front is as far as EMOSS is concerned, would it be possible for EMOSS to actually procure sort of components from India, thereby reducing the cost or having some traction on the margins for the European business?

Yes, of course.

The next question is from the line of [indiscernible], an individual investor.

Thank you for clearing up a lot of things on EMOSS. So my question is again a little bit on e-mobility is that, the other infrastructure for e-mobility that is power charging and all of that is still a bit of a challenge in India, right? So how are you planning to combat those challenges when you plan to introduce e-mobility in India? Are there any plans on that front?

No, I think it's a very valid question, which is something that I answered in the previous question also, where we said that our focus is where the market demand is, where the infrastructure is. I think India, we're still a little bit away from being in a space where we can provide [indiscernible] we as a company are unable to provide all of the infrastructure that goes along with the vehicle itself. However, we are tied up with a charger company in India that provides both slow charging [indiscernible]. And if a customer requires chargers to be set up in their facilities, then we can certainly facilitate that. And we, of course, long term would rely on the larger players in India, who are planning to set up public charging infrastructure across our highways or across central stations and things like.

Right. So as you said that you're focusing on where the demand is, so -- or where the infrastructure is, so can you say that it will still take more, [ 5 years ] for e-mobility to come in India, I mean, the buses and the trucks that you're planning?

Hard to put a number, but yes, it would take time.

At least take time, right?

It takes time.

Yes. So my next question is regarding camshafts. Your camshaft business is also doing pretty well, right? And you are the only one who has 4 technologies, the 4 types of camshaft as I can see. So what is plan your on expansion in India regarding camshafts? So any CapEx that is in India? What is your next 5 years in India expansion plans?

No, I think we have a fairly good market share in terms of camshafts in India. We continue to grow along with the OEM partners that we supply to. I mentioned in the opening remarks that we do have a lot of additional business that we have got from a variety of customers, which we will be planning to fulfill over the next few years. I think the only CapEx that we have planned for the next 1 or 2 years is about approximately INR 50 crores to INR 60 crores, which would be all going towards induction-hardened camshafts, which is required for the new platform that will be doing for [indiscernible] in India. So Aarohi, if you have any other thing to add to this from finance side, please?

No, nothing [indiscernible].

So another question is I read there is 10% revenue increase from MFT and MEMCO. And that is expected, right? So anything going on, on that front? There's a 10% revenue increase expected, so what is that about?

So I think we are obviously looking at growing all the businesses, which are part of the group company. And there are efforts going on to diversify the portfolio product at MEMCO and MFT. There is capital expenditure, which has been done at MFT and we're ramping up production there. So yes, I think both these companies are -- derive demand which comes from what the automotive OEMs do. And so as these companies grow, we would like to grow with them. I think that's the only answer there.

Okay. So sir, my last question is you said that capacity was 60% utilization due to COVID. So can you throw a light on before COVID, what has been your capacity utilization on average, if you can just...

I don't have those numbers in front of me. Aarohi, madam, are you on the line, if you can share those details?

Yes, sir. So we will do one thing, ma'am. We will come back to you through the mail on your questions. We will be give great details on the capacity utilizations before COVID.

The next question is from the line of [indiscernible] from Green Portfolio.

The first question I had was regarding EMOSS. If you look at EMOSS's revenue, it has grown by 86% Q-on-Q. And we're seeing the contribution to consolidated top line increasing from EMOSS. So my question is can we expect this trajectory to continue to increase 30% to 40% in the next 2 to 5 years? And along the same line, from my understanding, the EMOSS's order pipeline, as you mentioned earlier, I believe it is quite tight for the next 2 years or until FY '23. How are we making efforts to improve utilities execution in terms -- maybe in terms of new recruits?

Yes. So the first question that you asked, unfortunately, I can't answer futuristic-looking figures. So I'm unable to answer that question exactly. However, I think when I said that the order book is full for this year and the next, we have a very good outlook towards how the business is growing. And we do have a very good management, a local management there who we support to grow the business, whether it is in terms of additional people, additional talent, additional facilities or any kind of infrastructure that they require and then we are always there to support that. So we don't see a major challenge. I said in one of the questions, it's going to be an exciting journey for the next few years. So yes, we're looking forward to that.

And secondly, in this quarter itself, Einride, one of customers of EMOSS, have partnered with big names, like Lidl, Bridgestone and Oatly. Would it be safe to assume that the powertrains is only assembled by EMOSS? Or is there any other companies providing these drivetrains to Einride?

I can't comment exactly on the end customers and [indiscernible] because of confidentiality with the customers. But yes, we are developing and supplying drivelines to very large and key customers in Europe, including some of the names that you mentioned. But I can't tell you exactly.