Precision Camshafts Limited (PRECAM) Earnings Call Transcript & Summary

Good day ladies and gentlemen and welcome to earnings call of Precision Camshafts Limited Risk Operational and Financial performance for Q1 FY '23. I now hand the conference over to Mr. Karan Shah, Whole Time Director, Business Development. Thank you and over to you, sir.

Good afternoon ladies and gentlemen. I would like to thank you all for being a part of the Precision Camshafts Q1 FY '22/'23 Earnings Con Call. I'm joined today by Mrs. Aarohi Deosthali from Finance for financial-related questions. In case of any detailed questions on finance please mail your questions at [email protected]. We shall provide you answers in a reasonable time. We have provided the investors presentation for Q1 of FY '23 to the stock exchanges on 8th of September 2022 and the same is also available on our website. Investors are requested to refer to the same. I will now start with an overview of the auto industry and then get to the company's performance. The global automotive industry has seen a lot of ups and downs in the last 2 years. And while the demand recovery in India is encouraging, the European region still continues to struggle with higher commodity prices and high energy cost due to the ongoing crisis. There also seems to be a light at the end of the tunnel with regards to the chip shortage issue. I'm happy to share that despite these times your company has delivered a 33.3% growth in the total income at a stand-alone level and a 10.9% growth in total income at the consolidated level compared to Q1 of the previous financial year. Compared to last quarter, the total income has decreased by 4.5% to INR 148 crores on a stand-alone basis and increased by 3% to INR 240.9 crores on a consolidated basis. The parent business PCL India has grown by 30% over the last year by better asset utilization of the foundries as well as machine stock. Several new camshaft and non- camshaft projects have been awarded to PCL over the last year which have started serial production and R&D ramp-up phase. We are happy to share that PCL has on boarded several new customers in India and overseas and can see long-term visibility of contracts for the camshaft business. In summary, PCL as the parent company continues to enjoy healthy margins and has great visibility for growth in the coming years. MEMCO has seen consistent demand and delivered good top line and bottom line results in line with the previous quarter. The management of the company is focused on addition of new business from existing customers as well as new. The company is also focused on technology upgradation and installation of cost-saving programs like solar, power, etc. Our group company MFT based in Germany has seen stabilization of business during these difficult times. However, they still see challenges ahead in Europe due to the ongoing crisis. The team at MFT is also focused on bringing new non-engine components to the company's product portfolio. In summary, the group's automotive component business is now well diversified in terms of product and customer base, where no single customer contributes to more than 20% of revenues and is showing consistent growth in top and bottom line. Now coming to our e-mobility subsidiary, EMOSS based on the Netherlands, the company has registered significant growth in the last 2 years. EMOSS posted a turnover of circa INR 42 crores in Q1 FY '23 compared to INR 30 crores in the last quarter. However, the company continues to face headwinds in the European market due to severe shortage of component suppliers in Europe and a general state of uncertainty. EMOSS has not lost any customer business during this period and the order book does continue to look promising. Coming to e-mobility developments in India, the company is developing an electric driveline for sub ports and LCVs for the Indian market. There are over 2 million of such LCVs currently running on Indian roads with 500,000 new ones added each year for various applications such as last-mile delivery, waste collection, postal services, etc. The company is focused on bringing a high-quality reliable product to the Indian market while ensuring cost competitiveness by means of high localization. We are in the process of setting up our first EV conversion plant in Solapur and has signed up with several large customers across India. We will only be able to share more details about the hard product and the specifications in the coming quarters. With our growing team in India the company hopes to build out a sizable EV business in the next 3 to 4 years. Thank you for joining the call and I will now hand over to Mrs. Deosthali for financial update.

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 businesses the total income for Q1 FY '23 increased by 33.3% year-to-year [ to ] INR 135 crores. EBITDA for Q1 FY '23 reduced by 6.83% year-on-year to INR 25.8 crores. CBT for the Q1 FY '23 is INR 15.92 crores and PAT is INR 12.9 crores. EBITDA margin for Q1 FY '23 is 17.39% and the PAT is 88.15%. The total revenue contribution from the export of Q1 FY '23 is 55.29% and the balance is domestic sales. Quantity of camshaft sold during Q1 FY '23 decreased by 6.86% year-to-year and increased by 15.19% quarter-on-quarter to EUR 1.25 million. Quantity of material camshaft sold during Q1 FY '23 decreased by 2.75% quarter-to-quarter and increased by 50.30% quarter-to-quarter to EUR 0.83 billion. Total camshaft sold during Q1 FY '23 decreased by 5.26% quarter-to-quarter and increased by 27.06% quarter-to-quarter to EUR 2.09 million. Now coming to the consolidated business performance. Total consolidated income for FY '23 increased by 10.97% year-on-year to INR 240.97 crores. EBITDA for Q1 FY '23 decreased by 13.16% year-on-year to INR 27.40 crores. CBT for Q1 FY '23 is INR 7.17 crores and PAT is INR 4.19 crores. EBITDA margin for Q1 FY '23 is 11.37% and PAT is 1.74%. Now coming to our group company's revenue for Q1 FY '23, MEMCO, MFT and EMOSS. Revenue of MEMCO INR 12.90 crores, revenue of MFT INR 37.90 crores and revenue of EMOSS INR 42.47 crores. With this, we would like to open the floor for question and answers. Thank you.

The first question is from the line of [ Vijay Jadhav from Precision Camshafts Limited ].

I'm really excited to hear from our CMD that soon they will be assembling the line of electric vehicles. I'm really excited for this. I would like to know from the management whether you have any kind of joint venture with other leading companies for any kind of commercial launch and distribution [indiscernible]. And what would be your capital expense? Is there any plan for capital expansion for your company?

At this point of time, we are not able to share further details about our partnerships. However, we are not signing any joint ventures with companies in India for expansion of our EV business. However like I said in the call, we have already signed up with several customers across India, large customers across India, details of which we can share in the coming quarters once the product is ready. And at this point of time we are not looking at any additional capital expense.

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

I had a few questions there. One is on this EMOSS thing. We [indiscernible] INR 50 crores in around a couple of quarters back. And then all of a sudden it dipped down because I think there were some issues in terms of sourcing raw materials, etc. due to the war in Ukraine and Russia. I now will come back to INR 44 crores. Now I just wanted to know whether the situation is normalized and I believe that this not loss of sale. It is only [indiscernible] sales. Is my understanding correct?

There is no loss of sale, no loss of order book at this point of time. However, given the uncertainty that continues with the supply chain bottlenecks do exist and we are still working to get back to complete normalcy. But I think at this point of time given the uncertainty it would be hard to say when exactly that would be. But again, order book seems to be very much protected at this point.

And secondly, also you had earlier mentioned and I think I read in [indiscernible] report as well, you have put another space in Netherlands, another factory space. Is that an operation plan? Has that started contributing to [indiscernible] there?

Yes, absolutely. It has been operational for almost a year now.

And coming back to the [indiscernible] business in India, I mean these agreements with your customers these are only retrofit in the vitals? Or there is also retail some sort of OEM supplies as well?

At this point of time we are talking about conversions and retrofits. But I think we will be able to give you more details on these lines in the coming quarters once we have more clarity.

Any estimate on when the first product will be rolled out from your factories?

I will not be able to give you that estimate at this point of time, unfortunately.

But do we see this coming in the financial year? Or is it going to get pushed to the next financial year? That at least you can tell us.

Like I said I think it would be unfair to kind of provide that at this point of time. We are in the development. The development has been very positive and we still continue to work with the government authorities for certification, for homologation, etc. So it would be unfair to give an estimate at this point of time but it would be in the coming quarters like I said.

The next question is from the line of Panjul Agrawal from Green Portfolio.

Around 250 vehicles were supposed to be dispatched to Solapur Municipal Corporation by the end of 2022. So sir, is there any delay for that? So can we expect revenue recognition to begin from Quarter 3?

No, I think there is some misunderstanding. Solapur Municipal Corporation has 250 vehicles in their fleet. The MoU as it stands today is that we will be providing them with 3 vehicles for a trial basis by the end of this year and we still hope to achieve that. It's not an order of 250 vehicles.

So we are expecting to deliver them the 3 vehicles by the end of this year?

We are still hoping that we will be able to, yes.

In the revenue from EMOSS, can you give a breakdown of how much the revenue was from retrofitting and how much was from [indiscernible]?

Approximately 40% on conversion on retrofit and 60% from [indiscernible] approximately.

Have you received any Indian orders for the subsidiary for EMOSS?

No. As we have been mentioning in our annual reports as well as [indiscernible] the business of EMOSS in the Netherlands is completely focused on the European market. There is tremendous amount of demand there which is mostly driven by policy and regulation and we have a good customer base there. And we continue to focus the EMOSS business as a subsidiary in Europe. A separate division has been created in India for e-mobility initiatives which is only a LCV plant.

There is a follow-up question from the line of [ Shubham Jain ], an individual investor.

Would e-mobility be housed on the PCL or you're planning to set up a new [indiscernible] e-mobility India business?

At this point of time it would be under PCL itself.

One question I had is on the non-engine business you have spoken, right? We had earlier also had a chat. We want to diversify from [indiscernible] What is the progress there? I mean have you started booking revenue [indiscernible] some time? If you have started booking what percentage is coming from the non-engine business?

We have got new business which is from the non-engine component space particularly in the braking systems area for commercial vehicles. The serious suppliers have not yet started but are already in the customer pipeline. And I will not be able to say what percentage of revenue it is at this point of time because it's only ramping up. But we do see that we have additional orders from the non-engine categories going forward in the next 2 to 3 years.

And can we safely assume that probably our dependency from 100% at [indiscernible] level you come down to like 60%, 70% in 2 to 3 years time on the [indiscernible] business?

That is our target. We hope that 25% or so comes from non-camshaft or non-engine components by 2025. But like I said in the [indiscernible] also that we have been gaining new contracts within the camshaft business from old and new customers and volumes continue to increase. And I think PCL as one of the largest camshaft manufacturers in the world at this point of time, we are poised to look at new developments for OEMs around the world.

Related to the one question I have is while I understand the number of majority of the camshaft in-house by large companies as well, right? But if you hold a 10% market share globally. And besides [indiscernible] similar kind of market share. Probably 50, 60% is still within in-house, right? And are you still in those capacities or moving out? Because ultimately what is happening is the market is shrinking. Would it be moving out and coming to you?

Yes, OEMs are looking at offshoring or outsourcing more of their in-house capacities but this would be over a longer period of time.

And there has been some improvements in margin compared to the last quarter. And I just wanted to understand was it due to fall in the prices of the raw materials, the commodity prices falling down? And that's why this improvement has come? Or is there any other reason for improvement in margins?

That's particularly the main reason, softening of prices, commodity prices.

So you expect the margins to improve because commodity prices are softening [indiscernible] going down. So the margin should improve going ahead for [indiscernible] And EMOSS also has seen some erosion in margin from [indiscernible] Was this particularly due to the war situation which has happened?

I think you have to look at EMOSS separately. It is not a difficult manufacturing large volume business like what we do in the rest of the company. It is heavily engaged in R&D as well. There is a lot of development that we look at for the future. There are people, there are systems that are set up so that we are future ready. And I think that it would be difficult to look at EMOSS as a quarterly business delivering a fixed EBITDA margins per quarter. I hope that clarifies.

But on an annualized basis we will maintain 10% EBITDA margin, right?

Yes, we would hope so.

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 for joining this Q1 FY '23 con call of the Precision Camshafts Limited. I hope we've been able to answer most of your queries. And we do look forward to your participation in the next quarter. Thank you again for joining.