Precision Camshafts Limited (PRECAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to earnings call of Precision Camshafts Limited to discuss operational and financial performance for Q4 FY '23. [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 morning, ladies and gentlemen. I would like to thank you all for being a part of the Precision Camshafts Q4 FY '23 Earnings Conference Call. I'm joined by Mr. Ravindra Joshi, Whole Time Director and Group CFO for financial-related questions today. In case any detailed questions for finance, please email your questions at [email protected] or [email protected], and we shall provide you answers in a reasonable time. We have submitted our investor presentation for Q4 FY '23 to the stock exchanges on the 14th of June '23 and the same is also available on our website. Investors are requested to refer to the same. Let me start off by sharing with you a milestone that the Precision Group has reached at the end of FY '23. We're proud to share that PCL has crossed a turnover of INR 1,000 crores in FY '23 with a consolidated turnover of INR 1,103 crores, with a healthy EBITDA margin of 13% at the consolidated level. The company now has 14 plants in 3 countries, serves over 50 marquee global customers and manufactures over 15 different products catering to various industries, which are not only restricted to automotive. The company employs over 2,500 people globally and is on a consistent growth trajectory, delivering growth of 22% year-on-year. And despite the challenging global circumstances, including a slowdown in Europe and North America and continued supply chain shortages, your company has delivered a 12.3% growth in revenues at a stand-alone level and a 21.6% growth in revenues at a consolidated level compared to Q4 of the last financial year. I'm happy to share that compared to the last quarter, the company income has increased by 3.25% on a stand-alone basis and total income has decreased by 3.8% on a consolidated basis. On a full year basis, the revenue of the company on a stand-alone basis has grown from INR 532 crores to INR 660 crores, which is 24% year-on-year and from INR 914 crores to INR 1,113 crores, which is 22% year-on-year on a consolidated basis. The parent business, PCL India, has grown by the last year by a better utilization of its assets in both the foundries and the machine shops. As a company, we cast 5.82 million camshafts in FY '23 compared to 5.08 million in FY '22. Out of this number, the company machine 3.15 million camshafts in FY '23 compared to 2.8 million last year, delivering a 13% growth in the higher value-added machine camshafts. The company has actively started development, validation and supplies of new components in new materials, apart from camshafts for customers who are powertrain agnostic, that is not dependent on [ IC ]. A new team at PCL is dedicated to this effort of diversifying the product portfolio and customer footprint to ensure that PCL is future ready. PCL has managed to grow its camshaft business with existing customers and has added new camshaft customers as well to its client base. Our group subsidiary, MEMCO has seen an increase in total income as compared to the previous quarter. We posted a total income of INR 13.2 crores in quarter 4 of FY '23 compared to INR 12.3 crores in the previous quarter. MEMCO has also seen an increase in total income as compared to the previous year where we posted a total income of INR 53.4 crores in FY '23 compared to INR 51 crores in FY '22. The management of the company is focused on adding new business from existing and new customers. Our group company, MFT, based in Germany, has seen a slight decrease in total income as compared to the previous quarter. It posted a total income of INR 44.9 crores in Q4 of FY '23 compared to INR 45 crores in the previous quarter. But the company has seen an increase in total income as compared to the previous year. It posted a total income of INR 171 crores in FY '23 as compared to INR 162 crores in FY '22. MFT has seen stabilization of business during these difficult times. However, we still see challenges ahead due to the ongoing European conditions. I'm happy to share that MFT has been awarded with its first nonautomotive business, which include machining of aluminum components for a global manufacturer. The team at MFT is focused on bringing new non-engine components toward the company's product portfolio. Coming to our e-mobility subsidiary, EMOSS, based on the Netherlands, the company has registered significant growth in the last 3 years. Since we have completed the 100% acquisition in July of 2020, we have focused the business on adding new customers and technologies. Looking at financial performance, EMOSS posted a total income of INR 52.4 crores in Q4 compared to INR 80 crores in Q3. EMOSS has seen an increase in the total income as compared to the previous year. It posted a total income of INR 231.5 crores in FY '23 compared to INR 174 crores in FY '22. The specific dip in revenues in Q4 and the financials were mainly due to severe shortages of component supplies in Europe due to the ongoing crisis. The company has started to recover from the supply chain shock and will strive to recover this shortfall in revenue in the coming quarters. But suffice to say, the order book for the next 2 to 3 years look solid. Coming to the e-mobility developments in India. The company is developing an electric powertrain for sub-4 ton LCVs for the Indian market. As you know, there are more than 2 million LCVs currently driving on Indian roads, with 500,000 new ones added every year. And the company is focused on bringing a high-quality, reliable product to this Indian market while ensuring cost competitiveness with high localization. Our first EV plant in Solapur is being set up at this point of time. The various meetings with state and city officials as well as private corporates gives the company great confidence about its offerings in e-mobility in India. And while the company will continue to grow the India business in the coming 3 to 4 years, our focus is also very much on the European market, where the demand is consistently growing, and we see visibility and order position. At this point, we are working on several supplier and customer partnerships in India to accelerate our EV development, but recent changes in regulation have had a time line impact for our launch. Coming to the financial performance of the company, starting with the stand-alone business. Total income for Q4 increased by 14% year-on-year to INR 176 crores. EBITDA margin for the quarter 4 was 16%, and PAT margin was 8%. Total revenue from exports was 55% and balance was domestic sales. And total camshaft sales for Q4 increased by 5.3% quarter-on-quarter to 2.3 million camshafts. Coming to the consolidated business. The total consolidated income for Q4 increased by 22.8% to INR 286 crores. EBITDA margin was at 11% and PAT margin at 3.8%. And total income for FY '23 increased by 21.8% to INR 1,113 crores. I think with this, I've covered most of the operational and financial highlights of the company, and I would now like to open the floor to question and answers. Thank you.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have a question from the line of Vijay Jadav, an individual investor.

First of all, I would like to congratulate on the management team of Precision Camshafts Limited for -- giving us the robust number and good vision of the company, and I'm proud investor since last 5 years. And I would like to disclose that I have earned a handsome return from this company. And hopefully, in coming years, it will be a multibagger for all of us. And I'm a very proud investor to be very frank. I would like to ask Mr. Karan Shah sir that is there any plan for electric vehicle plant to be set up in Solapur MIDC or nearby any location in India?

Thank you, Vijay ji for your compliments. I will definitely pass on your compliments to the entire team at PCL who has been working towards this. To answer your specific question, yes, we have set up our first and for electric vehicle retrofitment in Solapur itself. The plant is almost ready, and we will be doing conversions and retrofits of electric -- LCVs into electric for certain customers. This is already being set up in Solapur.

Mr. Jadav?

No, no. No more questions.

[Operator Instructions] We have a next question from the line of Vipul Shah from Sumangal Investments.

So what will be the capital expenditure for this domestic EV initiative? And what will be the capacity? And we'll be doing only retrofitting, right, sir?

Yes, at this point of time, we will be starting with the retrofits only. As I described to the market, there is approximately 2 million vehicles on Indian roads right now, and even a very small percentage of those being converted into electric will mean significant volumes for us. At this point of time, it is too early for me to share what's the capacity would be, but enough to say that the plant is being set up so that we can cater to the demand of the customers at least for the next 1 to 2 years. There is not a significant CapEx required because these are not automated lines as you would have at an OEM. And whatever CapEx is required for these plants is being funded by internal generation.

So this technology is coming from EMOSS?

Yes, the technology itself is coming from EMOSS, but we have an entire team set up in India right now, which is working on redesigning of the powertrain for Indian conditions. As you can imagine that the same powertrain that works in Europe cannot work in India. We have completely different weather conditions, road conditions and even regulations. So this means that the powertrains need to be reengineered for Indian conditions. And most importantly, all components have to be sourced in India to make them cost-effective for the market. So this activity has already been done.

And sir, my second question relates to growth and profitability. If you notice, our camshaft volume, both machine and total, it is almost static if you compare year-over-year. And our subsidiaries are also not contributing any meaningful way to the profitability. So what means -- how do you see -- where from the growth and profitability will come because subsidiaries are not contributing any meaningful way?

Actually, if I can just correct the statement, the camshaft business has actually grown significantly over the last 1 year. We have done more than 14% growth year-on-year on the camshaft business itself in terms of volumes as well as revenues. So if you look at the share numbers, we have increased from INR 530 crores in FY '22 to INR 660 crores in FY '23, which is almost a 24% growth year-on-year. So there is growth for sure in the camshafts business, and this is mainly driven by the fact that volumes in India are significantly picking up for passenger cars as well as our export business is adding. We have increased sales of machine camshafts. And on top of this, we have actually got new camshaft business from various customers in India and overseas, which will add to our order book for the coming years. So we actually do not see this being a static business. Number two, I think the subsidiary, MEMCO in Nashik has been consistently delivering a healthy bottom line, around 17% to 18% EBITDA margins. And Mr. Joshi can maybe confirm these numbers. But this has been a subsidiary that has been doing well. The only one that we see some headwinds are the one in Germany, which is MFT and this is mainly driven by the overall circumstances in Europe that we face at this point of time and the slight slowdown, which is why we have not been able to accelerate growth as much as we would have liked. But in any case, as I mentioned during the initial talk, we have got new business at MFT, which will be nonautomotive, which will be completely different components for us. And it will start adding to top and bottom line in the coming years.

So sir, can you give one figure at stand-alone level, what percentage of our turnover is coming from non-camshaft business? New initiatives, which are drivetrain-agnostic as you mentioned.

Right. So at this point of time, I can't give you a percentage because the businesses are just about starting and these are in ramp-up phase. So they would be at peak utilization or peak capacity in the next 1 to 1.5 years. So I think it would be more reasonable to give you that number when the peak volumes are achieved and not at this point of time.

So in your presentation, you have given the camshaft and casting volumes only for quarter 4. So can you give year-over-year figure also because both camshaft casting and machine camshaft volumes for last quarter -- I mean fourth quarter...

That number, I mentioned that in my opening speech. So in FY '22, we have cast 5.08 million camshaft castings. And in FY '23, we have cast 5.82 million camshaft casting. So that is 0.8 million more than last year. And on the machining side, we have machine 3.5 million camshafts compared to 2.8 million, so that is about 0.35 million more. So in total, about 1 million additional camshafts have been sold in FY '23 compared to '22.

And regarding camshafts also, are we getting new inquiries? I mean new programs are also going on simultaneously?

Yes, absolutely.

Okay. But it would have been better if you could have shared figures on non-camshaft business and...

It's not material at this point of -- a bit higher, we are not able to share.

But directionally, can you say I mean which components are we going to manufacture?

Yes, of course, I mentioned to you that we are doing some -- it is also mentioned in our annual reports that we are doing braking components for global customers. From MFT, we are doing aluminum components for global customers, which are again non-powertrain related, in fact, nonautomotive altogether. So I think there is -- we have provided direction on where we are going, but unfortunately, we can't provide you numbers at this point of time. I hope you understand.

Yes, sir. But -- means, can we assume that 2, 3 years down the line contribution from non-camshafts will be, say, 20% of the stand-alone entity?

I can't say that today, sir, I'm sorry. I really cannot answer forward-looking numbers...

[Operator Instructions] We have a next question from the line of Shubham Jain, an individual investor.

Karan, fantastic performance in Q4. I had a couple of questions. Why there are dropping margins on the stand-alone business? And -- is it because of the -- because of volatility in commodity prices? Point number 2, you have done a CapEx, I see from a cash flow statements, capital work in progress of fixed asset purchases of only INR 60, INR 70 crores this year, INR 50 crores last year. Can you throw some light on what these -- where this money has been spent, INR 120 crores of CapEx last year and this year.

Joshi, can you please answer the question.

Sir, can you use your handset, please?

Hello.

Sir, we can hear you. Please go ahead.

So there is no relative margin [indiscernible] last year, we had...

I'm sorry, sir, your sounding muffled now. Can you use your handset mode, please.

Hello?

This is more clear.

Yes. Substantial increase in the margin when compared to last year. So last year, we had income, which is a compensation, which is from our customer. So last year, the margin was -- you need to say profit was good, but this -- without that income, margin is better than last year. So that -- if we exclude that from this profitability, our margin will be good.

So there was approximately INR 14 crores of exceptional income last year, which is not there this year. This is what you're saying, right?

Yes.

And. On the CapEx side, maybe I can answer that some of the new camshaft business that we have been awarded from OEMs as well as the non-camshafts business that we have been awarded, we have spent approximately INR 70 crores to INR 80 crores on machining lines for these projects.

Okay. And what about the EV facility which you're putting up in Solapur. So what is the quantum spend there for this kind of CapEx?

Yes. This is not a large quantum. I think the total consideration that we have put there is about INR 5 crores to INR 7 crores. But this is -- since it is a retrofitment plant, a lot of the facilities are -- it's not a highly automated plant. So it's an existing plant that we are basically -- we have converted into an EV retrofit plant, so that it's better on CapEx especially..

So Karan, will we be seeing a rollout of the first [indiscernible] in Q2 of this year? Or is that a fairly good assumption to make?

I really hope so. Like I said, that the regulation has changed quite a bit this year. Just in the calendar year '23, early part of '23, the regulation from [ ARA ] and from the government of India has changed. I think it's for the better. It makes the products safer and more quality. But unfortunately, because of this change, a lot of our suppliers have had to go back into recertification, which has impacted our time line for sure. I hope that within the next 3 months that we are able to have the first vehicles on the road.

Okay, fantastic. Now one more question which I had is, this particular India business has been -- from your point of view, it is 100% localized?

Almost. Almost. I would not say 100%, but very close to. Very close to.

And this can be a fair assumption that the technology, which we have been using EMOSS because we've got in 1 billion miles worth of data available has been used and replicated here in India for the benefit of the Indian market?

Yes, of course. But like I said, the conditions are very different. And so we have had to reengineer a lot of things. We're learning the best learnings from EMOSS. Of course, we use the most important bit of EV development, which is the software is all developed by our team in EMOSS and that we deployed directly. So there, we have a significant advantage. But of course, there has to be changes in the component selection as well as on the powertrain engineering when it comes to Indian conditions compared to Europe. But a lot, of course, have been done already, not that...

Okay. And last question for now at least -- now within INR 240 crores of -- INR 235-odd crores in EMOSS revenue. Do we have more in terms of capacity? Do we have more to increase the volumes there so that our revenue increases, besides the annual growth, which is happening, it increases substantially over the next 2, 3 years' time?

Yes. Capacity is not a constraint there. Basically, what we do is we build powertrains and battery packs, and we supply it directly to our OEM customers, which then assemble these packs into their vehicles. So the only thing that we require for additional capacity is more plant space and more [indiscernible], which we can do as and when required it. It's not a long lead time item or it's not machinery or equipment. It's space and people so that we can do as demand picks up. As you know that we have already in 2021, we have actually added a second plant in EMOSS and that's why we've been able to scale up the business from -- compared to 2019 or '20, for example. And we'll continue to do that as we go forward.

Yes. And what would be the percentage of retrofitment as a percentage of the revenues in EMOSS compared to OEM supplies there now? Or in this INR 240-odd crores...

As I said, 30%, 70%. 30%.

30% of retrofitment, okay.

Approximately, yes.

Okay. Okay. I'll come back sir on another set of questions.

[Operator Instructions] We have a question from the line of Vipul Shah from Sumangal Investments.

Yes, Mr. Karan, what will be the CapEx at stand-alone and consolidated level for this financial year?

For stand-alone, it will be about INR 50 crores for this year for our new business, PCL; and MEMCO, INR 5 crores. And I think overseas is near about INR 30 crores for MFT.

Okay. Okay. And sir, this year, was there any impact of the fall in steel prices and other commodity prices particularly in the latter half of the year on our profitability?

Yes. Our margin will increase substantially.

That is for this year. I'm asking about the year ended March. We had any negative impact from high cost inventory? That is my question.

Negative impact...

No. Generally, we have a pass through of all material prices to our customers. So this is compensated in one way or the other. There is just a lag of a quarter maybe, but all material prices, whether [indiscernible] are compensated by customers.

We have a question from the line of Shubham Jain, an individual investor.

Karan, if I'm not wrong, the money deployed from PCL into EMOSS or your -- the saying, holdco, which is in Europe. This has been converted from a loan into equity, right, if I'm not wrong?

Yes.

And that subsequently from the holdco where the money has been deployed into EMOSS, if I'm not wrong, is that still under the loan from? Or has that also been converted into equity now?

That is also converted into equity.

So there's no pressure on -- related by the interest payment for the overseas subsidiaries, right, now to the parent company?

Correct.

[Operator Instructions] We have a question from the line of Shubham Jain, an individual investor.

There's not a question, Karan. It's only a feedback for you guys, okay. We have seen this conference call today, there are only 3 of us who are participating, okay? The results were out on probably 2 weeks back, 2.5 weeks back, right? So my only request -- humble request to you would be Karan -- would be as soon as the results come out, we, as investors, want to wait for 15, 20 days to have an interaction with you guys, point number one. We would love to have the investor presentation is just a five slider, right. It hardly takes half an hour for every one of the team and us to make it. We would love to -- once the results are out probably within 24 to 48 or 72 hours, within 3 days, we would want to get the investor presentation out and we would want to have a conference call then because more interest of shareholders and participants would have been -- rather than after 15, 20 days, where a lot of interest goes away and it takes a lot of time and effort for us to go back, refer to the results and then discuss the way forward for the company as well. So this is something I would strongly suggest and request you to see if you can do it much, much earlier than what we have been doing right now, yes.

Sure, we'll definitely look into this.

We have a question from the line of Vishal Gupta from Leo Capital.

My question is around the stand-alone camshaft business. For this year, our EBITDA margin, there is about 18%, 19% for the full year. But historically, we have always guided to a mid-20s margin there. So can you talk about one, what's the right margin profile for this business going forward? And second, how much growth do you see in this business going forward?

Joshi, can you...

Karan, right now, our EBITDA margin is in between 13% to 15%. Okay. This percentage may increase because of the power cost. We have -- we have already installed [ 15 MW ] power plant in Solapur in [ Mangalwedha ]. So that will add to the margin substantially. So our profit margin will increase maybe from 15% to 20%.

So a sustainable margin is between, Let's say, 20% to 22% is what we would -- is sustainable margin.

Yes, yes. Because of the increase of raw material costs, there margin has come down. But because of this power cost, the margin will again come back to the stage now.

Got it. And how much CapEx was spent on this? Is this already operational, the power...

We have already spent here about INR 65 crores. And 1st of July, it will be operated. Now we already received this commissioning certificate. We are waiting for one more certificate after that full plant will commission.

I understand. Got it. Got it. And also, Karan, can you talk a bit about the growth outlook, both for the camshafts business and the EMOSS business. I know you don't want to cover numbers, but if you can just cover the drivers on what have been positive surprises, negative surprises there?

Yes. See, I think on the camshaft business, we are actually seeing quite a lot of new inquiries and new businesses that have been awarded to PCL over the last, I would say, 12 to 18 months. The fact that we have been awarded these businesses means that they will go into production in the next 1 year or so, 1 year, 1.5 years. But that also tells us on the positive side that if engines are going into production in '24, '25, that they will last for at least another 5 to 7 years from there. So we do see actually an increased requirement of camshafts both from the Indian market and overseas. It's not specifically to India. So that's on the camshaft business. On the EV side [ whether its market ] in Europe, I think we have strong OEM partnerships, which continue to partner with us, and we will grow with them as the business grows and as the demand grows. And like I said, in India, I think we have large enough installed base of vehicles for retrofitment in the near term. And it would be really hard for me to put a number on that at this point of time. But like I said, the market is about 2 million to 2.5 million vehicles in that one category that we are talking about, not across the whole, but in that one category that we are talking about, which is N1. And even a very small percentage of that being converted to electric would mean significant volumes for us.

Understand. And can you also cover that for the European market, the business which is already there and running?

Yes. This is what I said, right? We have the OEM partnerships in Europe which is in the Netherlands, in Germany, in Scandinavia, in the U.K. even in New Zealand. And these partnerships continue. And we are -- we have a very solid foundation of the products that we do. And as we continue -- as the demand continues to grow, we will grow with the customers that we have. And we are also looking for new customers at this point of time to grow the business with them. So the order book as it stands today for this year and for next year is very solid, and we are building out for 2025 onwards.

Got it. And I'm assuming given the order books are booked in advance, the revenues for this year and next year are pretty predictable? Or is that sort how is that works?

On the auto components side, yes, should be more or less predicted well. But on EMOSS side, it can be fluctuating and it's not purely driven by customer demand, but it is also driven by supply side shocks, which we have seen in Q4 compared to Q3, for example, or there has been a [ dip ] mainly driven by supply chain. So it's a little bit more difficult to predict, because it's not high volume like we are used to doing at PCL or MEMCO, MFT, but a slightly different business model.

We have a next question from the line of Vipul Shah from Sumangal Investments.

Mr. Karan with commencement of this new power plant, what percentage of our power requirement will be met by captive power? And what will be the annual savings? Can you quantify?

This is existing 25% of our existing requirement. And the saving is near about from INR 1 crores to INR 1.5 crore, minimum INR 1 crore, maximum, INR 1.5 crore.

Per year.

Sorry. Per?

Per month. Per month.

Per month. So it will be, okay, INR 12 crores to INR 18 crores annually, right, sir?

Yes.

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

Thank you so much for joining this Q4 FY '23 conference call. I hope we've been able to answer most of your queries. And we look forward to your participation in the next quarter. Thank you so much for joining. Bye-bye.

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