Precision Camshafts Limited (PRECAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Earnings Conference Call of Precision Camshafts Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Shah. Thank you, and over to you, sir.

Thank you very much. Good afternoon, ladies and gentlemen. I'd first of all like to thank all of you for being a part of this Precision Camshafts Limited Q4 FY '22 Earnings Con Call. I'm joined today by Mrs. Aarohi Deosthali from our finance team for finance-related questions. In case of any detailed questions for finance, please email your questions at [email protected], and we shall provide you answers in a reasonable time. We have submitted our investors presentation for Q4 of FY '22 to the stock exchanges on 8th of June 2022, and the same is available on our website as well. Investors are requested to refer to the same. I will now start with an overview of the auto industry and get to the company's performance. The global automotive industry is still going through difficult times due to COVID, supply shortages of semiconductors, higher commodity prices and the Ukraine crisis. This has put pressure on the global automotive OEMs and on ancillary businesses as well. While there seems to be some light at the end of the tunnel, it would be hard to predict when we are fully out of the woods. I'm happy to share that despite the challenging times, your company has delivered a 15% growth in revenues at a stand-alone basis and a 5% growth in revenue on a consolidated basis compared to Q4 of the previous financial year. On a full year basis, the revenue of the company has grown from INR 408 crores to INR 532 crores, which is 30% year-on-year on a stand-alone basis, and has grown from INR 734 crores to INR 913 crores, which is approximately 24% year-on-year on a consolidated basis. While doing so, we have also posted a growth in the consolidated PAT from minus 0.1% in FY '21 to plus 5% in FY '22. The parent business, PCL India, has grown 50% over the last year by better asset utilization of foundries as well as our machine shops. As a company, we cast 7.88 million camshafts in FY '22 compared to 6.32 million in FY '21. Out of this number, the company machined 2.8 million camshafts in FY '22 compared to 2.4 million last year. The company has actively started development and validation of new components in new materials, apart from camshafts for customers who are powertrain agnostic that is not dependent on IC engines. A new team at PCL is dedicated to this effort of diversifying the product portfolio and customer portfolio to ensure that PCL is future ready. Despite the challenging global circumstances, PCL has managed to grow its camshaft business with existing customers and add new customers as well to its client base. In summary, PCL as a parent company enjoys healthy margins and is poised for growth in the coming years. MEMCO and Nashik has seen consistent demand in the last few months owing to the pent-up demand in the CV market and has delivered good top line and bottom line results, which is in line to previous quarters. We are focused on growing the business with new customers this year. Our group company, MFT, based in Germany, has seen some stabilization of business during the difficult times, but we continue to see some challenges ahead due to the ongoing Ukraine crisis in Europe. The team is also focused on bringing in new non-engine components to the company's portfolio. In summary, the group's Automotive Component business is now well diversified in terms of product and customer base where no single customer makes up more than 20% of revenues and is showing consistent growth in topline and margins. Now coming to our e-mobility subsidiary, EMOSS, based in the Netherlands. The company has registered significant growth in the business in the last 2 years. Since we have completed the 100% acquisition in July 2020, we have focused the business on adding new customers and technologies. While the traditional business of retrofitting medium and heavy commercial vehicle continues, we now look forward to an exciting new journey as we partner with several niche OEMs across Europe to provide them with ready-to-assemble electric driveline kits. The company has posted a top line of INR 30 crores in Q4 of FY '22 compared to circa INR 45 crores in Q3. However, on a year-on-year basis, the top line of EMOSS has grown from INR 133 crores in FY '21 to INR 175 crores in FY '22, which is approximately 31% year-on-year. I would like to reiterate that the dip in revenues in the previous quarter, which is Q4, was mainly due to the severe shortage of component suppliers in Europe due to the Ukraine crisis. The company has already started to recover from the supply chain shock and will strive to recover this shortfall in revenue in Q4 during the coming quarters. Suffice to say, EMOSS has not lost any customer business during this period and the order book for the next 2 to 3 years looks very solid. Coming to the E-Mobility developments in India. The company has developed [indiscernible] for a sub-4 tonne LCV for the Indian market. There are over 2 million such LCVs currently plying on Indian roads with approximately 0.5 million new ones added each year for various applications such as last-mile delivery, waste collection, postal services, et cetera. The company is focused on bringing a high-quality, reliable product to the Indian market while ensuring cost competitiveness with high localization. We are in the process of setting up our first EV plant setup in Solapur and have also signed some agreements with large customers. The various meetings with the government officials, including the recent meetings with Union Minister Shri Nitin Gadkari, as well as private corporates, gives the company great confidence in the future of its e-mobility offerings in India. And while we hope to grow the business in India in the coming years, our focus is also on the European market, where the demand is consistently growing, and we see rate visibility and order position in 2024 and beyond. I thank you for joining this call now, and I will hand over to Aarohi Deosthali for financial updates. Over to you, ma'am.

Thank you, Karan, sir. Good afternoon to all of you. Now coming to the financial performance of the company. Starting with the stand-alone business performance, Precision Camshafts Limited which houses the camshaft business. Total income for Q4 FY '22 increased by 18.32% year-on-year to INR [ 155.48 ] crores. EBITDA for Q4 FY '22 reduced by 3.96% year-on-year to INR 32 crores. PBT for Q4 FY '22 is INR 21.91 crores and the PAT is INR 16.25 crores. EBITDA margin for Q4 FY '22 is 20.6% and PAT is 10.5%. Total revenue contribution from exports for Q4 '22 is 52.71% and balance is from domestic sales. Total income for FY '22 increased by 30% to INR 531.65 crores. The volume of sales for Q4 FY '22. Camshaft casting sales for Q4 FY '22 increased by 2.88% Q-to-Q to 1.34 million. Machined camshaft sales for Q4 FY '22 increased by 6.75% quarter-to-quarter to 0.85 million. Total camshaft sales for Q4 FY '22 increased by 4.35% Q-to-Q to 2.2 million. Volume contribution of machined camshaft increased by 4.26% quarter-on-quarter basis. Now coming to the consolidated business performance. Total consolidated income for Q4 FY '22 increased by 4.90% year-on-year to INR 233.57 crores. EBITDA for Q4 FY '22 increased by 122.06% year-on-year to INR 29.96 crores. PBT for Q4 FY '22 is INR 8.47 crores and PAT is INR 6.97 crores. EBITDA margin for Q4 FY '22 is 12.8% and PAT is 2.98%. Total income for FY '22 increased by 26.36% to INR 913.94 crores. Now coming to our group company's revenue. MEMCO, MFT and EMOSS. Revenue of MFT in Q4 '22, INR 36.01 crores. Revenue of MEMCO in Q4 FY '22, INR 12.33 crores. Revenue of EMOSS in Q4 FY '22, INR 30.44 crores. With this, we would like to open the floor for question-and-answer.

[Operator Instructions] Our first question is from the line of Vipul Shah from Sumangal Investments.

Thanks for relatively good numbers. So can you share more details about this LCV project? So in which tonnage category we are entering or what is the capacity, what will be the CapEx? And it's an electric CV only. So please give the details.

Thank you, sir. I can't share a lot more details at this point of time because we would reserve to keep that until we launch the vehicle itself. However, what we would like to share that, yes, we are in the LTV category. So it will be a sub-3 tonne GVW type of vehicle with a payload of somewhere between 1 ton to 1.5 tonnes. The vehicle will be fully electric, and we are intending that the use case is within the [ prosody ] use. So typically between, say, 100 to 200 kilometers of run per day. And we -- the product development cycle has been almost completed in our Dutch subsidiary, along with most of the localization efforts in India as well. So we look forward to sharing more news with you and more details with you once the product is ready for the market.

Fine, sir, but in which quarter of this financial year are you going to launch? And at least you can share the CapEx and how you're going to fund, that will be really helpful.

The CapEx, whatever CapEx is required for this project, will be funded through internal generations as well as the cash on hand that we have in the company, which is sufficient to fund the development of this project and the vehicle. In terms of the timing, unfortunately, I would not be able to provide an exact timeframe as to when the vehicle will be launched, but we will keep you updated as we progress.

But we have a test credit means extensively and means the test results are successful, that is that much if you can share?

Unfortunately, I'm not in a position to share that. I will, definitely, as we go down this journey in the coming quarters. I will keep on updating stakeholders and investors regarding the progress. But at this point of time, I'm only able to share so much there.

And sir, lastly, volume-wise, machined camshaft is at roughly 36%. So where we can expect this figure to settle down, 2 to 3 years down the line. So can we cross the 50% hurdle for machined camshaft volume-wise?

We expect to do that, because we have the capacity to do so. So if you look at -- in terms of capacity, we have the machining capacity to -- for approximately 4 million camshafts and a casting capacity of approximately 10 million. And based on the order book that we have, we hope that we are able to reach towards that full capacity utilization number in the next year or 2.

And sir, lastly, in the presentation, the value-wise figure for machined camshaft and casting camshaft for quarter and year-wise has not been provided. I think in previous year presentation, you used to provide those figures. So if you can provide those figures, it will be helpful, sir.

So we will try to do that offline with you. Aarohi, ma'am, if you can please note this, then we can share with you.

I will contact Aarohi, ma'am, for that?

Yes please.

Yes. Okay. I'll take it off-line, ma'am. Thank you so much, and all the best.

[Operator Instructions] Our next question is from the line of [ Vijay Kannada Jadhav ], an Investor.

Good afternoon. This is [ Vijay Kannada Jadhav, ] proud investor of [ PCLI Limited ]. First of all, I would like to congratulate all the stakeholder and members of the management who have given us the robust number during this all prevalent time. And it is -- was really an unfortunate event for Ukraine and Russian war. During that time also, you have given an outstanding number. My question is regarding what is your plan for your capital expansion? Is there any plan for a capital expansion? And is there any plan for future production improvement or production or expansion?

Thank you, Jadhav, for your compliments. In terms of the CapEx plan, we have certain CapEx which we have already announced during the [indiscernible] for the Precision Camshafts Limited camshaft business. Most of this CapEx is in induction hardening of camshafts for certain customers that we supply to. Besides that, we have -- we don't have any planned CapEx at any of the companies apart from the fact that we will be spending some funds on the development of the electric LCV, which is again through internal generation. Most of the production and the development of this vehicle will happen in our -- one of our existing plants in Solapur. So there is no additional planned CapEx at this point of time as well. In terms of operational improvement, yes, we strive towards continuous improvements in all of our companies, which is why we have seen a very stable EBITDA margin despite the fluctuations in input costs, in labor costs and other variables.

Yes, I'm very proud of you because the steel cost and all the material costs have shoot up like sky rocket. And even in the turbulent situation you have given and provided for robust numbers. And we will be patrons to your company till forever.

Thank you.

[Operator Instructions] Our next question is from the line of [ Vishal Agarwal ] from Leo Capital.

I trust congratulations are in order because it seems this is the highest revenue quarter on a standalone basis and definitely a year on a standalone basis. So congratulations on that during the turbulent time. My question is on the revenue has been great and often in auto components, EBITDA margins, then commodities go up, take a hit and they come back with a lag. For us also on a stand-alone basis, the margins this year are slightly lower. So I wanted to check how should I think about the standalone margins going forward? And also, is the INR 150 crores a quarter revenue run rate is now broadly sustainable or is it a seasonal high in Q4?

Okay. To answer both your questions on the margin front, I think you should see a rather stable margins between 20% and 25% as they have been in the past. There has been some different margins right now due to prices. And typically, we have a quarter lag with the material adjustment with most of our customers. So you should see this correcting in the coming quarters because there is an index that is linked to most of our products, and these will get compensated by the customer. So that's one thing. And on the standalone business, I think the run rate is pretty strong for the coming quarters and should only improve from here on out as we look at increased casting as well as machined camshaft sales to our customers, as well as addition of certain non-camshaft products also within our foundries and within our machine shops.

So this INR 150 crores for the quarter, you are saying, you are seeing this going up even further from here on. This is not a seasonal high?

No, it's not a seasonal high. No.

Understood. No, that's helpful. And switching back to EMOSS, you mentioned that there are a lot of supply chain challenges because of Russia, Ukraine, which kind of affected revenue. How do you see that business overall 2,3 year time period in terms of growth prospects? Any sort of -- is that a 15%, 20% type growth business? Or do you see a much better growth runway there?

I mean, to be honest, I can't give you a number as this would be forward-looking numbers that I would be sharing, but enough to say that the kind of growth that we have seen over the last few years should continue over the next 2 years. And I'm not saying this based on just a pipeline of what can happen, but it's a confirmed order book from our customers, which we have for 2023 and 2024, which more or less shows a growth path from here on out. It would be hard to say what that would be in terms of actual numbers, but enough to say that it will be growing. In terms of the war situation right now, yes, Q4 has been extremely difficult, although we have built out most of the vehicles and kits for the customers, we are not able to ship them out due to very small subsegment of components that we cannot procure and therefore take onto the vehicle. But I think once we have a better grip on things on the supply chain side, we should be able to recover this lost revenue in the coming quarters.

Understand. Makes sense. And for -- can you also, on the India electric vehicle plan, can you share more details around the timeline or in terms of how -- at what stage is the product in terms of readiness and testing?

No, as I mentioned in the previous answer, I'm unable to share more details on the timeline at this point of time. But I think we have more or less the product development cycle is complete at our Netherlands facility for the Indian vehicle, right? And we would be testing ,homologating and certifying the vehicles in the coming quarters. It would not be right to give you an exact date or a quarter when we will be launching the vehicle as we would like to keep that as something that we develop over the coming months.

I understand. But is there no product testing and suitability for India? Has that been done or is that something that is ongoing?

It's ongoing. It's all ongoing.

Got it. Congratulations again on navigating a tough time.

[Operator Instructions] Our next question is from the line of Nilesh Gandhi from Metadesign.

Okay. There was one -- we had probably gifted 1 vehicle to some municipal corporation, if I remember rightly. So any idea on how the performance is and anything which is transferred further after that?

No, we have not gifted any vehicle yet. We have an MOU with some multiple corporations in Maharashtra, as well as MOUs with several private customers across Maharashtra, but -- in India actually. But these vehicles will be delivered to the customers when the vehicles are ready and these have not been delivered yet. So it's still yet to be done.

Our next question is from the line of from Vipul Shah from Sumangal Investments.

Sir, can you share the order book for Precision Camshafts at standalone level and for EMOSS? And do you expect any sharp reduction in turnover at the EMOSS and MFT level due to nonavailability of any spare part please?

To answer your second question, we don't see any sharp decline in sales at MFT or EMOSS due to unavailability, but it is a temporary supply chain shock situation, which we hope to recover out of in the coming months or quarters. So we should not see any significant impact, although that you have seen an impact from Q3 to Q4. In terms of order book size, I would not be able to provide you with exact numbers as this would be forward-looking numbers, both on the standalone as well as consolidated. But as I mentioned in the call, I think we are looking for growth in all of the companies that are part of the PCL Group.

And carrying forward from previous participant's question, do we have any firm orders from any municipal corporation for which we have got our vehicle tested?

We have MOUs with several customers across India for the electric LCV, but these will all be delivered once the products are ready and only after that would there be discussions on orders and commitments. But based on what we are seeing as initial developments, I think it looks very promising and we are looking forward to actually launching the vehicle when it's ready. So I would not want to share too many more details before we are actually there.

So it will be in this financial year?

Hard to say that not right now, sir.

Our next question is from the line of [ Panjul Agarwal ] from Green Portfolio.

Sir, I understand that one front that company might be facing is raw material inflation. So in this front, I wanted to ask, how long does it take to pass on the prices of raw materials?

Like I said in my previous answer, I think it takes somewhere between 30 to 90 days lag between increase of the commodity prices to when it is actually passed on by the customer to us, simply because some of our customers are within stone throw of us and the deliveries are immediate, whereas we're also supplying to corners of the world like Korea, Russia and Brazil and other parts. So I think it's just a matter of time [ 30 to 90 ] days approximately.

All right. Sir, one more question. Like our other current liabilities have went up by like 175%. So could you please throw some light on it?

Aarohi, ma'am, if you can please answer this question.

Just a minute.

Ma'am, if you can repeat your question also so that we understand.

Sure. Yes. Other current liabilities have went up by 175%. So just if you could please throw some light on it?

Is it the standalone or is it consolidated...

Consolidated basis.

Other current liabilities.

Okay. So ma'am, we can come back to you with a brief information about this current liabilities on the consolidated basis. We will share with you soon.

Our next question is from the line of [ Tapan Bhatia ] an Investor.

So basically, I've got 2 questions. One is on the size if you've assessed any for this EMOSS electrical kits? And the second one is how easy -- it's a bit forward-looking, the second question. Is it like how CNG kits are right now available in the market? Are we looking at that kind of business for the electric vehicles as well or how will it be?

I didn't understand your first question. If you can repeat that, please?

Sure. So the first question is the size of the whole electrical parts replacement from the ICE vehicles to electrical kits replacement market, how big is that? Have you guys assessed it?

No, I think it would be hard to give you a market size on this because there are new OEMs who are coming out with their electric buses, LCVs, vehicles also, and there is also a conversion market for retrofitting. Especially for India, we are not playing in the truck and bus segment for retrofitting, but rather the LCV segment, which is sub-3 tonne or sub-4 tonne. Just in terms of market size, I can tell you that there are 2 million vehicles in our category that are plying on Indian roads today, 20 lakh vehicles. So if you consider that as the potential overall market for what we can do conversions of, so that's your total size, but even a small percentage of that addressable market can become a large business case for us. So I think that's basically what I can address on the market size issue. In terms of the conversion, the conversion to electric is nothing like what it is on the CNG front. So if I have to give you a small example, CNG -- in a CNG kit, essentially you're only changing the source of the fuel from diesel or petrol to CNG. Everything else in the vehicle stays the same, right? The engine stays the same, the exhaust system stays the same. Everything else remains identical, you're only replacing petrol or diesel with a CNG tank. Whereas in an electric vehicle, you're changing the entire vehicle powertrain itself. So you are replacing the engine, the gearbox, the transmission, the entire power electronics, the fuel source, obviously, from gasoline or diesel to lithium-ion batteries. So it's a completely different process and a much more an intensive process than CNG conversion.

Right. And also, if you can just throw some light on the pricing of kit or ballpark?

I can't answer that question right now because we don't have the product fully developed for the Indian market right now. So it would be premature to kind of give you a ballpark pricing right now.

Even in terms of euros?

It would not be relevant to -- so we will -- I think I'll get back to you once we have a better idea with the localization in India.

[Operator Instructions] Next question is from the line of [ Vishal Agarwal ] from Leo Capital.

You also talked about growth in the non-camshaft business. Can you talk a little bit about the CapEx that you would need for that? What are the plans there?

For the time, we don't have any significant CapEx. We would be utilizing our existing foundries and our machining shops for components in the non-camshaft space. These are mostly components which are used in braking systems, in commercial vehicles, in chassis components and other things like that. So we would -- most of the equipment that we have or most of the setup that we have will be utilized for these products. So we are intentionally finding good fit products in our existing infrastructure rather than spending more on CapEx.

Makes sense. Makes sense. Few quarters back you had also announced an investment for some -- for a solar facility for in-house consumption. Is that investment on track? And can you talk a bit about that?

Yes. The investment is, I think, more or less done. Aarohi, ma'am, if you can please address this on where we are on the project.

We are in the process of [ retrofitting ] and very soon we will complete the project and we are able to get the electricity from our own solar plant.

And how much is the rough CapEx for this one, and how much is the expected annual savings on this?

INR 65 crores is the investment we did for the solar project. And monthly bill, [Foreign Language] INR 1 crore from the electricity bill.

Per month?

Per month, yes.

Got it. Got it. And on the camshaft side, I think in one of the annual reports, you had mentioned that you have about 9%, 10% market share globally. Is that broadly the number even today? And are you seeing opportunities to gain share globally, given other -- or how is the competitive situation globally in the camshaft business?

The market share is more or less the same as it was before. In the last 2 years, [indiscernible] market, it has shrunk a little bit due to 3 large issues that we are all aware about. We have maintained our market share position. And we are definitely getting more interest from OEMs around the world and in different parts of the world where we have not explored before for new businesses and from the new OEMs, which we have never dealt with in the past. So I think it looks like a very promising future even for the Camshaft business because even if you consider some portion of the vehicles getting electrified, we still have significant headroom to grow the camshaft business from where we are today. So we actually think that there is quite a lot of runway for this business.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Karan Shah for closing comments.

Thank you so much, ladies and gentlemen. I hope we've been able to answer most of your questions. And if you do have any more questions, please email us at [email protected]. We thank you for your continued support and trust in the management during these difficult times, and we look forward to your participation in the next quarter. Thank you so much for joining this call -- earnings call. Bye-bye.

On behalf of Precision Camshafts Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.