Pricol Limited (PRICOLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 conference call of Pricol Limited. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good evening, everyone. A very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Pricol Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the second quarter and first half of financial year 2024. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is clearly to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Vikram Mohan, Managing Director; Mr. P.M. Ganesh, Chief Executive Officer and Executive Director; Mr. Siddharth Manoharan, Director of Strategy; and Mr. Priyadarsi Bastia, Chief Financial Officer. Without any further delay, I request Mr. Vikram Mohan to start with his opening remarks. Thank you, and over to you, sir.

Good evening, everyone, and thank you for participating in this call. On behalf of Pricol and my team, I welcome you to the Q2 financial performance for FY '24 and also the H1 for FY '24. We have uploaded the presentation and I hope all of you have had a chance to see it. In line with our guidance, we have been seeing a steady increase in our revenue and we have been ahead of the market. And also EBITDA margins have been steadily increasing in line with our guidance. Our revenue from operations is growing at a steady clip, and so is the EBITDA, both on a consolidated basis and on a stand-alone basis. We -- the floor is now open for questions. [Operator Instructions]

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

Congratulations for a very good set of numbers. Sir, so can you break the sales between Driver Information and Connected Vehicle Solutions and Actuation, Control and Fluid Management Systems, what percentage of ours...

As mentioned in my earlier calls, it hovers between 65% for Driver Information and Connected Vehicle Solutions and 35% to the ACFMS division. That ratio will be maintained more or less going forward also, plus or minus 2% every quarter.

And sir, EBITDA margins are the same for the both verticals? Or is there any change in the EBITDA margins?

Export revenue coming in the ACFMS division, the EBITDA margin is slightly higher on the export products, but -- and the new products. But on the commoditized products, the margins are lower. Margins are steadily increasing and becoming steady in the DICVS division because electronics prices have more or less stabilized and all premium freights have stabilized. So there is much more normalized EBITDA margin. In terms of overall EBITDA, both are almost neck to neck.

[Operator Instructions] We take the next question from the line of [ Pankaj Kumar ], an individual investor.

Are you able to hear me?

Mr. Kumar, can I just request you to be a little louder, please?

Yes. Are you able to hear me now?

Yes. Yes, Mr. Kumar, please go ahead.

Yes. So I wanted to -- sir, in earlier calls, you have given a guidance of INR 3,600 crores of organic revenue by FY '26 and that implies a 20% plus kind of growth. I do understand that [ lenience ] every quarter, the growth is not going to be like that. But this quarter, the growth was -- revenue growth was around 12%. So is there a specific reason of slower growth in this quarter?

The revenue growth was not -- the revenue from operations quarter-on-quarter between last year and this quarter was about 12%. We are aiming for a minimum of 15% to 16% growth. So if you look at H1 -- as a H1 growth, we have seen about 16% growth. There have been some loss of sales on account of the lower production of the EV vehicles and deferment of schedules because of the FAME subsidy issue. But overall, in terms of -- over the next couple of quarters, that same revenue guidance we would like to maintain.

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

So can you break down the sales for driver information vertical to 2-wheeler, 4-wheelers and commercial vehicles? Is it possible, sir?

It's about -- in the driver information systems, about 65% comes from 2-wheelers; commercial vehicles would be another 20%, and the balance would be from personal passenger vehicles.

2-wheeler, you said 55% or 65%, sir?

65%.

6-5?

65%; commercial vehicles, between 20% and 25%, again a variance every quarter; and the balance from 4-wheeler personal passenger vehicles.

We take the next question from the line of [ Dinesh Kulkarni ] from RDS Capital.

Hello sir, can you hear me?

Yes, Mr. Kulkarni, please go ahead.

Congratulations on a good set of numbers. I just want to know, like, do we expect -- you would increase your shareholding in the company going forward? Because last 2 quarters, you see some increase there. Do we expect this to continue? Or like do we have any -- something -- some number like 40% or 50% ownership in mind, something like that?

If there is need, we will increase it. And whenever liquid cash is available with the promoters, we do infuse into our different business ventures as needed. But I think we have a fairly decent holding, and directly and indirectly, we hold about 41% because this 38-point-odd percent is referring to my immediate family unit and my extended family, which is my father's brothers and sisters and my mother's brothers and sisters, we are close to about 41%. So I think that's a very comfortable shareholding. If and when there is a need, we will increase our shareholding and based on liquidity.

[Operator Instructions] The next question is from the line of Richa Agarwal from Equitymaster.

Could you also give us the breakup between the share of new products versus...

Can you be a little louder, we are unable to hear you, please?

Is this better?

No ma'am, we are not able to hear you.

Can you hear now? Hello.

Yes, ma'am.

Ms. Richa, are you on a headset? Sir, line -- her line has got disconnected, sir. We take the next question from the line of Shashank Kanodia from ICICI Securities.

Just wanted to check on the margin front, sir. Our understanding was that with normalized chip supplies, your premium freight will be reduced and then eventually, there will be an uptick in margins. But our margins almost sequentially as on Y-on-Y basis have decreased drastically and even the gross part. So if you can explain what's going to be the margin trajectory? And any specific reasons for margin decline in this quarter?

No, there's been no margin decline. In fact, there's been a margin increase. And as alluded by me in my earlier calls, I said steadily quarter-by-quarter we'll keep increasing our margins and hit a steady state margin, EBITDA margin of about 13.5%. And our margins are increasing in line with that guidance.

Sir, any take on the raw material cost? Raw material as a percentage to sales have increased in this quarter.

Pardon me.

Sir, any take on the raw material costs? Your raw material cost as a percentage to sales have increased in this quarter.

No. Our EBITDA margins are steadily increasing and will keep increasing moving forward.

I think there's been some discrepancy in terms of EBITDA margin that you calculate. You calculate using other income in nature, we calculate excluding the other income.

You're not very clear. But can you repeat yourself, please?

Sir, we calculate EBITDA excluding the other income and you calculate the EBITDA, I think, probably including the other income, right? So if you...

Including what?

Other income?

But as an operational EBITDA, our EBITDA has been steadily increasing and will hit the steady state 13.5% quarter-on-quarter, our EBITDA has been only increasing as raw material prices have stabilized, and we are having better operational efficiency.

[Operator Instructions] We take the next question from the line of Pankaj Kumar, an individual investor.

I hope you are able to hear me.

Yes, Mr. Kumar. Please go ahead.

So are you still maintaining the revenue guidance of INR 3,600 crores by FY '26?

Yes. Unless there are any catastrophic, external, geopolitical events, I think we are still maintaining that revenue guidance.

With a margin of 13.5%, will that reach by FY '26 or earlier than that?

Earlier than that, for sure.

We take the next question from the line of Richa Agarwal.

Yes. Sir, my question was, could you give the share of new products in the current revenue and you're guiding for 13.5% kind of margin. What is the share that you expect for the new products in the product mix?

New product revenue typically is about 20% of our sales year-on-year. In FY '25 and FY '26, those numbers would be slightly higher as newer products like disc brakes and others are getting introduced and volumes are ramping up. But for the current year, it would be about 20%.

We take the next question from the line of Vipul Kumar Shah from Sumangal Investment.

Sir, we had signed several MoUs with -- from software developers, so what is the progress on that front, sir?

We have signed with BMS PowerSafe. We have signed with Sibros. What we have signed with Sibros has -- the proof of concept, everything has started hitting the market and it's also already under vehicle trials with at least about 10 vehicle makers. And as I mentioned, the revenues from those products, from those joint ventures will really start seeing traction in FY '26 onwards until FY '30. Similarly with BMS PowerSafe, the proof of concept is ready and is now being showcased to the customers. Those again, will go into revenue earning mode only from FY '26 and onwards. We have recently signed an engagement for cooperation agreement with TYW based in China. We have just started working together. It's very early days, and it's probably going to take about 6 months to 12 months to say what revenues are going to come out of that. And none of them are software companies, for your information, Mr. Shah.

Sorry for that. No, I remember -- so these all are exclusive MoUs, means they can work only with us or there is no exclusivity in this?

For certain vehicle segments, it's exclusive; for certain customers, it's exclusive; and for certain products also, it's exclusive.

The next question is from the line of Harini from Sundaram Alternates.

Sir, in your comments for a previous participant...

You are totally not audible, ma'am.

Am I audible now, sir?

Yes, please, ma'am.

Yes. So on a query to a previous participant, you had mentioned that the sales dip is on account of EV shares in the sales coming down. Is it possible to indicate how much of our sales currently is from EV? Any marginal number on how much?

Volume is about 7% to 8%. But in terms of value, it's slightly higher because per EV selling prices is much higher of the units that we are selling. And if you can send a query to our investor team, they'll be able to answer in detail. But the EV sales are again started picking up. The schedules have picked up. You would be aware because of the FAME subsidy issue all EVs had dropped production significantly in Q1 and Q2. From Q3 onwards, we have seen very healthy schedules. In fact, October has been also a good month.

The next question is from the line of Dinesh Kulkarni from RDS Capital.

I want to know like what's your CapEx plans for the next 2, 3 years, like, say, in the total...

I've spoken about this in my earlier call. We have a planned CapEx of about INR 600 crores, unless something very exciting inorganically comes up. Of which about INR 150 crores was spent last year, about INR 200 crores is being spent this year and another INR 200 crores would be spent in the next fiscal year. This is to enhance capacities, improve productivity and also going for modernization of some of our older plants. So that's a broad spend of CapEx. This will take our revenue up to about INR 3,800 crores to INR 4,000 crores would our capacity -- make capacity available.

[Operator Instructions] The next question is from the line of Jaimin Desai from Emkay Global.

Sir, can you provide some color on recent business wins on the TFT side for 2-wheelers? And also if you could elaborate on the 4-wheeler TFT opportunity?

I would like to hand this over to our CEO and Executive Director, Mr. Ganesh to answer this, please.

The TFT actually, whatever has been used by, particularly the EV makers of 2-wheelers, most of the models are supplied by Pricol. Barring like 1 or 2 models in the country, I would say, like out of 10 vehicles, 8 are manufactured by Pricol. 4-wheeler is something that we are evolving. As you're aware that 4-wheeler was not our focus until 2020 because we had a non-compete agreement. So we have just started penetrating with the 4-wheeler. So 4-wheeler, our presence on TFT is not much. But on the 2-wheeler, out of 10 vehicles manufactured, 8 of them are from Pricol.

The next question is from the line of Khush Nahar from Electrum PMS.

So my question was regarding...

Nahar, you're inaudible. Can you be a little louder, please?

Hello. Am I audible now?

Yes, please.

My question is regarding the content per vehicle. So could you guide us across our segments, 2-wheeler, 4-wheeler and CV, what is the average content per vehicle?

See a mechanical instrument cluster sells at INR 300 or INR 400. But that is dying a very fast death. For example, in the TVS X that we launched -- which was launched by TVS, it's a very high content per vehicle, okay? So if you want to ask in a 2-wheeler, what is content per vehicle. It's very different from a mechanical cluster, electromechanical, hybrid cluster or pure TFT cluster. And in TFT itself, there are multiple price points, right, based on the features, the size, et cetera. So this is a very, very difficult question to answer. But perhaps, I put it this way, from an average value of INR 300 per driver information system, today, we are at around INR 1,200 and making a transition to INR 2,500 over the next 3 years. I think that's a better way to put it. Similarly, on our ACFMS vertical, we were into very small value oil pumps and chain tensioners which are dying a natural death, and now moving into more complex BLDC fuel pump, electrical coolant pumps and other products, which are more towards the INR 1,000 mark as against what we were supplying at INR 150 and INR 200.

[Operator Instructions] The next question is from the line of Pranav Modi from Antique Stock Broking Limited.

Am I audible enough?

Yes, Mr. Modi, please go ahead.

Yes. Sir, I wanted to know the per unit dynamics. For example, if we have something for 2-wheelers, then how much we charge? And if we go over, say, Triumph or KTM 390 or those sort of premium bikes, then how much do we get per unit? And if it goes to a 4-wheeler, then how much it is? If you can share some detail on that.

Again, like the previous question, this is a very, very broad-based question. We are supplying something to BMW 2-wheeler at 15,000 per unit, a cluster. We also supply a car at INR 2,500 per unit for a driver information system. So I think categorizing is based on the technology, the size and the number of tell-tale and warning signs and what the customer wants and the resolution. So if you're asking for a broad-based answer, it would be next to impossible to give.

Okay. Fine but there -- so can we put up some ASP number for all the units put together? Would that be a fair assumption or better way to calculate our revenues?

That's exactly what I said. So INR 300, we are now at around INR 1,200 and moving up to about INR 2,500 in the next 3 years for 2-wheelers. Cars, we are still in the nascent stage. Commercial vehicle is obviously much, much higher. Micro LCVs is at a lower price point. So segment-wise, yes, we have an average selling price, but with 2-wheeler being 65% of our revenue, which is why I have the figure of about INR 1,200 today, going up to about INR 2,500 over the next 3 years.

[Operator Instructions] We take the next question from the line of Khush Nahar from Electrum PMS.

So my question was regarding the other expenses. You can see that year-on-year, last quarter and this quarter, it has increased around 55% last quarter and 39% this quarter. So was there any one-off expenses or above INR 40 crores should be a new quarterly run rate for other expenses?

I'll request our CFO to answer that, please.

The warranty cost is increasing, actually, for a couple of products, which got bounced back. So we have fixed the solution now. But yes, that cost was clubbed in this quarter, and that's why it is higher.

So our average run rate would be around INR 30 crores, INR 35 crores only, quarterly run rate going ahead?

No, it maybe be a little higher number definitely, Khush, because the other expenditures are increasing in line with inflation. So it should be around INR 40 crores, INR 42 crores.

We take the next question from the line of Pankaj Kumar, an Individual Investor.

I wanted to know what is the -- what will be the asset turn for INR 600 crores CapEx that you are doing?

It's different for different verticals of the company. For the ACFMS, it's different. For the DICVS, it's different. And even within the DICVS, for the disc brakes, the ACFMS -- the disc brake is different. If you can get in touch with us, we can break it up segment-wise and give it to you.

Okay. Sure. Just 1 more question. I think in the last call, you mentioned that you will reach to 13.5% to 14% kind of margin in the next 2 quarters. So is that still a valid assumption or...?

No, in the last call, I said over the next 2 years, and I said steadily increasing over the next quarter-on-quarter. I didn't say in 2 quarters. So I'm expecting an increase of about 0.3% to 0.4% every quarter and steadying at around 13.5%.

[Operator Instructions]

I think since there are no more questions, maybe we can call it a day?

Yes, sir. There are no further questions in the queue. So I would like to hand the conference over to you for closing comments.

Thank you very much and for the confidence in our company, and I'm sure my team will be able to deliver the same level of sustained and improved performance in the quarters to come, and look forward to connecting with you in the annual call for FY '24. Good evening, and greetings of the season.

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