Precision Camshafts Limited (PRECAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Precision Camshafts Limited Q3 FY '24 Earnings Conference Call. [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. Good afternoon, ladies and gentlemen. I'd like to thank you all for being a part of the Precision Camshafts Limited Q3 FY '23/'24 Earnings Conference Call. In case of any detailed questions regarding finance, please e-mail us your questions at [email protected], and we will provide you with answers in a reasonable time for the same. We have submitted our investor presentation for Q3 FY '24 to the stock exchanges on Thursday, February 29, 2024, and the same is available on our website. Investors are requested to refer to the same. I'm happy to share that despite the challenging times that we work in, the total income of the company was INR 173 crores on a standalone basis and INR 270 crores on consolidated basis. The parent business, PCL, has grown in the last year by better utilization of its foundry as well as machine shops. And we're happy to share that PCL has on-boarded several new customers in India and overseas, and we see long-term visibility of contracts for the Camshaft business. MEMCO in Nashik has seen consistent demand. Total income at MEMCO was INR 12.47 crores in the previous quarter. MFT in Germany continues to face several headwinds due to the slowdown in Europe, and the total income of MFT during the previous quarter was INR 33.3 crores. EMOSS in the Netherlands continues to show a strong order book, but the short-term demand has reduced due to a slowdown in Europe and diversion of subsidies to other macro factors in Europe, including the war situation. The total income of EMOSS during the previous quarter was INR 51.6 crores. In India, our eLCV development is going strong. We have deployed more than 270 -- sorry, my bad. We have deployed more than 20 vehicles with large customers across India and are collecting data for further optimizing the product. We have 2 variants of the electric Tata Ace already certified and offered to customers, and we have 1 variant of the Ashok Leyland Dost Plus retrofit electric kit, which is in final certification. We see the demand picking up in the second half of the year after sufficient testing and data has been collected. Coming to the financial performance of the company, starting with the standalone business of PCL, which houses the Camshaft business. Total income for Q3 FY '24 increased by 1.2% year-on-year to INR 173 crores. EBITDA margin for this quarter was 24.5%, and PAT margin was 13.6%. And coming to the consolidated business performance, the total consolidated income for this quarter decreased by approximately 9% to INR 270 crores. EBITDA increased by 26% to INR 40.6 crores. Profit before tax was INR 36 crores and PAT was INR 24.4 crores. EBITDA margin at a consolidated level was 15%, and the PAT margin was 9%. I think this covers most of the business as well as financial performance. And with this, I would like to open the floor for question and answers. Thank you.

[Operator Instructions] We'll take the first question from the line of Tushar Khurana, a retail investor.

My first question is regarding the range that we can get on a fully loaded retrofitted LCV on a single charge versus the industry requirement. I mean, I want to understand like what is the need of the industry for a fully loaded vehicle versus what we are providing right now.

Thank you for that question. I think we have several variants of electric drivelines for the Tata Ace as well as for the Dost Plus, and these are actually designed in such a way that they are optimized for the use case of the customers. So for example, we have several customers that we are dealing with that do not require more than 50 to 60 kilometers of range on a single charge, whereas there are other customers who require more than 100 kilometers on a single charge. There are some customers that do not require fast charging. There are some customers that do want fast charging. So with the variants that we have available, we can cover the entire spectrum of the industry's requirements. So we have 1 variant where we can provide up to 70 kilometers of charge -- 70 kilometers of range on a single charge. We have another variant which can go up to 100 kilometers, and one variant has slow charging only and one variant has fast charging, where you can use public charging and charge the vehicle within 30 minutes to a full charge. So I think we have the industry requirements covered under the different variants that we have.

Okay. And sir, when do you expect for this to be finally commercialized, maybe in second half of this financial year?

Yes. We have actually started selling some already. We have sold our first lot of vehicles. Besides the pilot vehicles, we have also sold some vehicles. These are deployed in the Delhi region, in the city of Delhi and a lot of these are used for e-commerce applications right now. So we have started commercial sales as well as pilot deployment with large customers. And I think for us to see demand picking up would be towards the second half of this year after we have sufficient data collected.

Yes. What I am trying to understand is, say, if any existing IP LCV whose registration is going to expire, say, after 15 years in case of petrol LCV. So are those also some of the prospective clients for us, where we can retrofit their LCV and then they can get re-registered. And like is it really a viable solution for them if they do that?

More than the age of the vehicle or the number of years, the health of the vehicle is much more important for us to consider retrofitment, because you also have to make sure that the wear and tear on the vehicle is not too bad. So the condition of the chassis also has to be healthy enough for it to be converted. So we typically say anywhere between 3 to 7 years old vehicle should be converted and not older than that. But in any case, based on what we see today, the investment for converting -- I mean, of course, like I said, we have multiple variants. So somebody who has a small range requirement, we have a smaller battery pack, we have a bigger battery pack. We have fast and slow charging, et cetera. But if I have to give you a range, the conversion cost can be anywhere from, let's say, INR 5,00,000 all the way to INR 12,00,000, depending on what the variant is and what the type of vehicle is also. It's not necessarily Ace. It can be also the bigger Dost Plus vehicle. And if you consider, let's say, an average of INR 6,00,000 to INR 7,00,000 as conversion cost, then the customer is able to save INR 2.5 lakh per year simply on fuel, which would be replaced by power, electricity. And you have a payback of less than 2.5 years on such an investment. So I think it is a very economical solution, and we have really considered the total cost of ownership as a very important factor in proposing this to our customers.

Do we have other players also in India who are doing this retrofitting for LCVs?

Not that I know at this point of time.

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

So my first question relates to exceptional items. So there is a write-back of INR 70 crores and there is a write-down of inventory of INR 36.5 crores. So this pertains to the same program or write-down pertains to some other programs also?

Sir, I think we can answer this question offline to you, if that's okay, because we don't have somebody from the finance team joining this call today. But we'll surely get back to you with the exact details of this. I think Tanmay from our side will note down this query and we'll get back to you.

And there is an impairment of property, plant and equipment. That must be general. So it must not be related to this floor. So who should I contact to get the answer?

You can write to us at [email protected], and we'll get back to you.

No, if you can give the name of any particular person, it would be...

Yes, it's Tanmay. Tanmay is the name of the person.

Tanmay is the name of the person. And my second question is, you shared cost -- regarding retrofitting, the owner will recover his initial investment in 2.5 to 3 years. Is that correct?

Correct.

Correct. But what will be the warranty for this battery pack, which we provide in terms of number of years?

Again, depends on the type or the variant that we have. Because we have multiple variants, they are different. But it is anywhere from 5 years to 8 years as the warranty. And we give approximately, on average, 100,000 kilometers as warranty on the batteries.

100,000 kilometers?

Yes.

And again, coming back to this Camshaft business, since such a large program has been scrapped, so should we expect this machine camshaft volumes to come down further in coming quarters?

I'm not sure which program we are talking about. We don't have any program that is scrapped as of now in the Camshaft business.

No, no. In your exceptional items, this write-back is INR 70 crores. So it must be a big program, no?

But it is at the consolidated level. So it can be a consolidation of different write-offs at our subsidiary companies as well. I think to the best of my knowledge, without quoting the numbers itself, I think we have had certain programs in our subsidiary company, MFT, which have been canceled several years ago, and we have reutilized quite a lot of those machines into different programs already and different customers already, but there are certain customer-specific machines that were part of that program that have been written off in the last quarters. So I think that is what we are seeing. But I think, again, if you please e-mail this to us, we'll get back to you with the exact details. But just to clarify, there are no programs or no contracts in the Camshaft business that have got canceled, and there is no impairment due to that.

So we should not expect any further reduction in camshaft volume?

Not at all. In fact, we have got new contracts that will add to this.

So I missed your initial remarks. So if you have made any initial remarks regarding camshaft volumes, I would request you to repeat it shortly, sir?

No, I have not made any specific remarks. But we do have additional business from Indian customers as well as overseas customers for camshafts, and we have a fairly strong order book at least for the next 3 to 5 years. So there's no reduction there.

So in summary, Camshaft business will be on a growth path only, normal growth path only?

Yes.

The next question is from the line of Shagun Jain, an individual investor.

Karan, congratulations for the good performance. So I have a few questions. One is, in terms of EMOSS, I wanted to know, which is your European business, has there been any cancelations in the orders there in EMOSS or we continue to hold all the orders and delayed delivery of orders is happening there? That's the first question which I wanted you to answer on.

Yes. So there's no cancellation of orders, but there is a slowdown for sure. So as you have probably seen with other OEMs in Europe, or in general the economic conditions in most of the countries across Europe, there is a slowdown. There is a pushback on order delivery. So the order book still stays and is fairly solid. But there is delay in decision making from the customers. Like I said in the opening remarks, a lot of the subsidies that have been earmarked for e-mobility have been diverted for the war situation at this point of time. We hope that these will be reissued or brought back in the coming months or years, but it's a very uncertain situation right now, and we are in very, very close contact with all of our customers there. And we think that we should wait until the end of this year to see what really pans out, but in terms of the demand, there is a slowdown for sure.

Okay. Got it. Now on the India business, you are putting a plant, right, for conversion. And you have base, you say that in 1 sitting you can convert a vehicle. So not a hypothetical question, because you gave out capacities and capacity utilization for the Camshaft business. For EMOSS India, can you let us know what would be the estimated conversions, number of vehicles which can be converted per day across all your production lines, whatever you have now, so that we can make an estimate as to 2 quarters down the line what is the business size we are looking at from EMOSS India?

Yes. I wish I could answer that, but that's really hard to do, because we do have 1 plant setup in Solapur to do conversions, right? And just to give you 1 number, we are able to convert an entire vehicle start to end in, let's say, 8 to 10 hours or one shift. Now you can extrapolate that and see what the capacity would be. But the point is that we are seeing demand from different areas in India. It is not necessarily from Solapur, Pune, this Maharashtra area. Like I said, we have some demand from Delhi. We have some demand in Bangalore. We have some demand in Mumbai, et cetera. If that demand picks up and becomes larger numbers, we have to do that conversion locally. It cannot be done all in Solapur. Because as you can imagine, the vehicles, the diesel vehicles cannot be all transported to one location, converted, and then sent back. The logistical cost would be prohibitive in that case. So we are looking at partners or perhaps our own setups, our own smaller setups closer to our customers, where we can do conversions in a much faster and a much more efficient way. But this all really depends, and I can't give you numbers today, because it all depends on how the demand picks up, where the testing results come out and so on. So I think in the next couple of quarters, we should be able to give you a better idea on that.

So that means if we were to set up like 7, 8 centers across the country, so it will entail some amount of CapEx also from our side, right? We'll have to look for places. We'll have to look for working capital as well. So have you planned out for it or you have yet to plan out the estimated expenditure over the period of next 2 quarters, so that we can provision for the same as we start growing our business rapidly?

Look, there is a provision, of course, that we are internally working out. And whatever CapEx will be, that it is not going to be significant. It's not a very large setup, right? These are not like OEM automated assembly lines, right? These are more or less very well built and highly equipped workshops that we are able to set up base, where we can bring in a vehicle, disassemble and assemble it within a particular period of time. So it's not a very high CapEx business or a setup. Of course, the working capital will be required, because we need to source all components and do all of this. But that we can fund internally for some point of time. We also have some financing partners on board already, who are willing to finance the conversion to our end customers. So all of that is being put in place right now. And I think that in the next few quarters we should be able to tell you much more about it. .

Okay. Lastly, now you were saying that some of the vehicles have been sold to customers also. So these are individual customers or these are e-com players who have bought it from you besides the pilot vehicles. So how is that?

Yes, so the customer is an operator who basically has bought the vehicles from us and has deployed it to e-commerce companies and so on. So in most cases, there are third-party logistic companies or operators who typically own the assets and then run it for an end customer. Whether it's a municipal corporation or an e-com player or an FMCG company, it is typically operators that own and run the assets. So these are who we are working with right now.

How has been the feedback in terms of the first few vehicles which are deployed in the market vis-a-vis the readymade EV available from Tata Ace or Dost, how does it compare in terms of performance? Do you have any idea?

Performance is at par. There is no reason to complain. I think what customers like with our solution is that it can be customized for their need. And when I say customized, even the price depends on the need, right? So if you need 100-kilometer range, then I will give you a product that is priced like that and gives you the performance. But if you don't require that, we have the ability to give you a different variant, which is less expensive, but gives you the 50, 60 kilometers that you need. So I think that flexibility is something that our customers like.

[Operator Instructions] We'll take next question from the line of Tushar Khurana, a retail investor.

Just a follow-up question, sir. So the range that you mentioned from 70 kilometers to 100 kilometers, is it on the fully loaded vehicle? .

This we consider as an average laden condition. So of course, vehicles will be either fully loaded or will be partially loaded, or will be empty at some point in that trip, so we consider an average of that.

We'll take the next question from the line of [ Pratik Bhandari from Art Venture ].

Yes. So just a couple of questions from my side. As to whether do you have any plans to get into the EV space in the 2-wheeler segment as well? .

No, we don't have any plans to do that as of now.

Okay. And looking at the margins at which currently the business is operating, do you see the same margins to be maintained in the range of 10%, 11%? Or do you see a further upscaling in the margins? .

No. I think these are the margins that have been consistent in the last, I would say, 3, 4, 5 quarters, and this is what we see consistently going forward.

All right. And in terms of revenue growth, what would drive the revenue growth going ahead?

Yes. I mean, we have new contracts from customers in the Camshaft business. We have the EV customers in Europe that are slow at this point of time, and there is a slowdown in general. But if the demand comes back, then there is tremendous potential there. We are looking at new orders with our customers in our MEMCO subsidiary as well. So I think in general, the Indian market has been good. The growth rate has been good. And as the customers grow, as the OEMs grow, we grow with them. So I think that's -- I can't give you a forecast or a number, but I think we have a good order book in place.

So like when do you see that slowdown getting converted into a peaceful business cycle for you in terms of the overseas market?

I mean, I really can't say that because it's a macroeconomic condition, it's a war situation. There is a...

Sir, I'm asking at a broader level. When do you see it getting over...

I really can't answer that. I don't know that. I mean, some would say, 3 months, 6 months, 1 year. I don't know. I think till the end of this year at least it's a wait and watch situation.

Is it going to impact the upcoming quarter as well if there is a slowdown?

Surely, yes.

That's what I wanted to understand.

Of course.

And do you have any CapEx plan for the next fiscal?

There is already a plan. In the Camshaft business, we are building a new plant for assembled camshafts, which we have already declared. I think it's about INR 50 crores for the plant setup, which is already sanctioned and approved by the Board. And this is already under construction. But besides that, we don't have any other significant CapEx that is planned right now.

Okay. For the FY '25?

Yes.

The next question is from the line of Shagun Jain, an Individual Investor.

Karan, moving out on the financial aspects of the company, one suggestion I had was instead of you guys declaring the dividend year-on-year, can we look at a buyback kind of a thing in this year? Because every year you declare around 10% dividend, which leads to around INR 10 crores of outflow. Probably a buyback would ensure that the float comes down and it also enhances the EPS and enhances the valuation for the long-term investors. Otherwise, the money just goes out, right, when you declare dividend. This is something which is suggestion from our side. If you could consider it in your next Board meeting whenever it happens.

Okay. Noted. We'll look at this internally.

Yes, yes. Second is, because you guys are going to do some amount of CapEx and some amount of investments will be required for the EV business, are we looking at consolidating the EV business into a separate entity and then looking at raising some sort of capital? Though it will be a wholly-owned subsidiary of Precision Camshaft, but some amount of capital can be raised for the EV business, which can accelerate our -- more money coming in and we can accelerate the business with more amount of money which we have. Is there some thought to it or any plans?

Yes, it is under discussion right now within the company. But we don't have a firm plan yet. We have an ambitious plan to actually move away from retrofitting in the coming years and become more OEM-like company where we offer our own ground up build product. So that will require significant CapEx, significant R&D and development costs. So I think we might consider a separate entity for that in the coming years.

And probably you will consolidate the entire electric mobility business into that entity.

Yes.

This is something which we look forward to, because all your experience and the expertise which is there, which we can create value with a real product coming out into the market, something which we look forward to.

Correct.

Okay. Last -- third question is, 2 quarters back I had asked you this question of the non-engine components. You had said that we have got 1 product approved with the non-engine component. So where are we on the non-engine component? I mean, I have not got any information from you guys on that currently.

So we have 1 product which is already in production and started supplies also. So it's a braking system component, and we are already machining those parts and supplying them to the customer in Europe. And this is already in the ramp-up phase. So we have 1 complete machining line dedicated towards this project. In the coming year or so, we will be developing the casting for this product also in-house, so it will add more non-engine components to our portfolio. At MEMCO, we have increased our non-engine component business quite a bit, which was, let's say, 5%, 6% about 3 years ago, to about more than 20% today of MEMCO revenue comes from non-engine. We have another non-engine component that we have developed and working with the customer in Europe from MFT. So I think across all the auto component businesses, automotive businesses that we have, we have started to diversify. I actually started the SOP of these products also. So it's not only in discussion phase anymore.

Okay. Fantastic. And are we looking at this precision components, whatever you're making, are we looking at further expanding into other industries and sectors besides auto, probably something like defense and space? Because you are into precision components, right? So is there something on that front? .

Yes, I mean, yes. But it all depends on the type of component and which should suit the infrastructure that is available. The good thing is between MEMCO, MFT and PCL, we have a wide variety of expertise in different types of components, different types of metals and small components, big components, small volumes, big volumes, et cetera. So the right fit can go to the right company, not necessarily at PCL, but could be at one of the other subsidiaries. But yes, I mean, we are looking at a variety of options right now for diversification.

Okay. Look forward to more updates on the India EMOSS front. I mean, if you could give us a little more update. Last one final suggestion and request would be, I requested earlier as well, if you could do these presentations and con calls during the earnings season, that would be great. I mean, our company seems to be the last one to do con calls and earnings presentations, and then the next season starts. So before the 15th of the following month, if it is possible, it will be great. So we all investors are glued into it, and it will be easier for us also as to keep working at it. So that's basically the consideration, yes. This is a request from our side.

Yes.

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

Yes. So what is the contribution of non-engine components to the turnover as a percentage of turnover currently? And where do you see it in 2, 3 years down the line?

Different for different companies within the group. But I don't have the exact percentage numbers right now. And we can get back to you on this if you can just please drop us an e-mail. I mean, look, we are not saying that only the non-engine business will continue to grow. As I said, we have quite a strong order book for camshafts as well as other components that we do at subsidiary MEMCO, and we will continue to grow those businesses as well, because this is something that we are good at, we have very strong connections with our customers, and we are continuing to invest in even new projects for automotive components and engine components at that. So wherever we see the right opportunities to invest and grow the nonautomotive business, we will do that, but it's not necessarily that we do one at the cost of the other. And it's really hard to tell you where it will be in 2 to 3 years from now, because the traditional businesses are also growing. So if you can please just drop us one e-mail, we'll get back to you on the percentages of nonautomotive in the 3 subsidiaries, but I don't know them off the top of my head right now.

But Mr. Karan, most of my questions on all calls reply saying -- I'm not criticizing you, but it will be better if somebody from your accounts team also joins the call, because we also forget to drop the call (sic) [ e-mail ]. So request you to keep your accounts team also on the call.

Yes, they had to be available on the call. But unfortunately, it was not possible today due to some reasons. And so that's why they're not there. But typically, they are joining the calls.

And last question, this retrofitting of battery packs. So most of it must be imported, no?

None of it is imported. More than 90% of the components are made in India.

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

Thank you very much. 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 very much for joining this earnings con call again. Bye-bye.

On behalf of Precision Camshafts Limited, we conclude this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.