Sandhar Technologies Limited (SANDHAR) Earnings Call Transcript & Summary

In the overseas operations.

Sir, I will answer.

Overseas operations. Yes, that Yashpal will answer.

The reason if you see the footnote in the investor presentation. We have put up a onetime commissioning and charging cost of Romania plant amounting to [ INR 27.5 ] crores in 9 months. Okay. Do we have to normalize these expenses to normalize this start-up cost. And if we eliminate this [indiscernible] premiums to be, I mean, wonderful and [indiscernible] operations. So the only reason because drawing down the margins in the quarter is just because we have put up a onetime cost because Romania was commissioned in December last week. That's the result.

Sir, will it continue for the next quarter and...

No, It's already commissioned. So large expense has already been booked. Hardly around INR 1 crore may might come in this current quarter. Otherwise, everything is booked up in Romania. They have started [ emerging ] also from [ 21 ] December last year.

And when will you start to receive the incentives from the Romania government for setting up the plant?

Yes. So one installment, we already got, close to around INR 5 crore. Second installment is in pipeline of INR 23 crores. In converted rupee terms, we are expecting something around March or in between [ April ].

So that will be shown in the other income, sir?

No, no, it's for capital investment, so will we go [ net off ] from the capital investment.

You won't show in the profit and loss account.

Because actually, all these [ plants ], they are governed by the IFRS requirement -- so based on the treatment will be [ given ]. [indiscernible] capital expenditure. So we need to go through the capital expenditure route.

[Operator Instructions] Next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, what would be the current debt levels?

Currently, at the end of December, we had a gross debt of INR 573.53 crores, right? In terms of net debt, it was INR 553 crore, just not much of a [ better ].

Okay. And I just wonder why our interest cost is only, I mean, INR 9 crores to INR 10 crores a quarter?

Annually, we are expecting INR 36 crores of interest because in terms of working capital, we are not having much utilization of working that's the one reason. And our average borrowing itself, if you see the chart, it's not -- if I take an entire product of term loans and working capital, it's something about 5.5%, not beyond that. And we have...

Like we want to give a breakup of our costs in India and [indiscernible].

I'm coming to on that point sir also. So what I think like if I give a breakdown of the debt is of INR 573 crores, INR 60 crores is in India INR 313 crores in overseas, while the cost of overseas debt is ranging from 1.65% to 3.5% -- so that's the reason or the interest charge is lesser. If you straight away multiply by 7% or 6% that [indiscernible] that's the reason.

And a couple of clarification I wanted. I mean, in the previous call as well, we were looking at INR 2,800 crores to INR 2,900 crores revenue this year and about 30% growth next year. So is that the same -- I mean, is there any change in that?

No. If you see a 9-month figure, we have closed at INR 2,150 crore of total income. Correct. And quarterly, we are above INR 700 crores of more -- in quarter 3, we closed at INR 725 crores, and quarter 2 was INR 749 crores, and quarter 1 was [ INR 677 ] crores, right? So even if you take a moderate average of all these 3, INR 700 crores, we can easily add up in quarter 4. So that will be something around [ INR 2850 crore ] and plus in the current year. And with the new projects started and maturing and giving us a revenue. So next year, yes, we are very much on the claim growth that we have given an expectation in the earlier call of 30%.

So next year also 30% growth is what we are looking at, right?

Yes, because new projects will also start giving us revenue -- so that was fair enough estimate that we are sure of achieving it.

Correct. And you mentioned about 200 to 300 basis point improvement in gross margin, right?

Right.

So that's what we are targeting FY '24?

While improvement of margins is a continuous quarter -- so I may not be able to give you any assurance. But yes, we are targeting to improve our margins in terms of cutting down the cost also and in terms of pricing the customer. And we are looking forward to another increasing by at least 100 point basis in the coming financial year, 100-150 point [ basis ].

So 100 to 150, so currently 9%, maybe about 10% to 10.5% what you might be…

Yes, we are targeting double-digit also in the current financial year.

Double-digit margin. And this 200 to 300 basis point [ water ] improvement, maybe it might come in 2 to 3 years, right, driven by both the...

It will take a time... It will take [indiscernible].

[Operator Instructions] Next question is from the line of [ Udit Gupta ], individual investor.

Sir, my question is that you gave a debt picture for FY '23. So how are we looking at the debt position in FY '24, sir?

Sure. So like [ debt it's INR 573.53 crore ] as of December, right? And we are targeting that we won't be exceeding INR 700 crores by close of March ‘23. This is our target. And for the coming financial , we have kept a target from an internal [ network ]. We target to repay around INR 150 crores by free cash flow generation. So if you ask really ask me with the current CapEx, current cost of the project to fund those projects and complete those projects, March ‘24 is something more new project concern. We are targeting to be around INR 550 crores of debt, not beyond that.

And sir, on the export side, sir, by FY '24, what percentage of revenue are we expecting from the overseas business, sir?

Well, overseas business is generating revenue overseas, we are not much into exports because cost-wise and it's not viable.

My question was about overseas only, not exports.

Yes. Okay, sure. So overseas, we are expecting something that revenue might grow by another 25% with the Romania plant coming up. So we are [ expecting ] INR 300 crores we have done another INR 100 crore we are expecting -- INR 80 crore -INR 100 crore in quarter 4. So you can expect fairly something around INR 480 crores to INR 500 crores is the expected figure in the next financial year.

Next question is from the line of [ Abhishek ] from Sharekhan Limited.

Just a few questions that so we added a few new clients in our portfolio. But despite that, that [indiscernible] revenue, anything we are expecting in coming quarter or is there any other reason which need perform in the sheet metal business in this quarter?

Sheet Metal business like Abhishek, if you remember in the last call, we told that we have set new project and it takes some time for them to gear up with the revenues and the margins. So now out of our 4 sheet metal projects, 2 are industrial phase of commercialization, 2 will be by April ‘23. That's all. And we are again expecting to be above 8%, 8.5% of margins in treatment business in the coming financial year.

Any reason with this high margin expectation [indiscernible].

We are having good volume indications on the customer side. So what happens that after certain volumes, the fixed cost remains to be neutral and that [indiscernible] boost up our percent margins in terms of the revenue that's all.

But it is fair to assume that there is no price hike from the client side?

Pardon, can you come back?

Is it fair to assume that there is no price hike kind of thing as we are expecting the new margin that is because of the operational efficiency.

[indiscernible] price hike but yes, we are legit price at the current levels. Last quarter only we consider the price situation with the customer. That's all.

Okay. Any incremental orders are expected from HMSI?

Well, we are working closely with HMSI for all our verticals like ADC [indiscernible] with them for some smart products, we are expecting to materialize this very sooner. Okay.

And [indiscernible] outlook here assembly business?

Assembly business is doing fairly well. It is largely dependent on the consumer side, the [ customer ] volumes like other businesses are -- but it's going stable -- so we are not expecting much of our investment or much of a change in the assembly business.

Okay. And sir, one last question on the -- if you can share your outlook on the 2-wheeler sector, especially what you are hearing from the clients like Hero and TVS because in general, whatever we are hearing that it's 2-wheeler sector is one sector which is still lagging across the -- comparing the other segments of the automobile sector.

Sure. Mr. Davar will be right to answer this, sir, will you answer this question?

Yes, sure. Yes, you're absolutely right. We are still not at levels of what we were in 2018, 2019. As I mentioned in the beginning, and the price of 2-wheelers has gone up by an average of almost 60%, 65% in a huge shock to the entire ecosystem. However, from what we understand now and from the [ greenchips ] that we here, insurers of the fall, [indiscernible] with good monsoon that has happened second year in a row. There is stabilization in the understanding. The price hike came on account of several factors. One were mandatory with the government regulations [indiscernible]. Secondly, were levels of comfort that have been brought into the system. And third was the electronification and the entertainment aspects that were added on to various [ circles ]. I think those things have kind of stabilized now. And like I said, the market is extremely bullish on this going forward, each one of the OEMs for 2-wheelers have lined up profits. But I think the biggest thing would be the introduction of new models in the entry segment. So whether it is Honda or whether it is the Yamaha or whether it is a TVS, all of them are working very, very diligently on the [indiscernible] entry point [indiscernible]. And that, I think, will lead to the volumes that are necessary. Right now, like I said, probably the cheapest motorcycles are INR 80,000 to INR 90,000, which is much over the affordability levels. But these new entry points will be a game changer. And you will see that in this coming year.

Okay. Just one extension to this thing that you said that bullish on -- your customer are sounding bullish. Is it right or it is your thought process that things are [indiscernible].

No, no. It is... We are only going by the messages that we get from our...

[Operator Instructions] The next question is from the line of [ Kumar Gaurav ] from Dolat Capital.

So as we expect to grow 23% -- 22%, 23% in '23. So what is our revenue guidance by '24. How do you see FY '24 panning out for us?

So as I mentioned in the earlier question that [ INR 2150 crore ], we closed in quarter 3. And we have about [ INR 300 ] crores of turnover every quarter. So around we can [ say, we expect INR 2850 crore in ], the current. And next year, we are expecting something growth of around 30% in terms of revenue [ model ].

And if you can share, sir, major growth drivers for this revenue in FY '24, just basically some points, what you see...

Yes, sure. Basically, we set up 7 new plants out of 6 was largely in the [ power ] integration type, I would say, the new business types. So they will be all generating revenues in the current financial year in the current [ news ] FY '23 ‘24. So that [ we're ] boosting out to the revenue expectations.

Okay, sir. And second question, sir, what kind of ROC we are targeting, I mean, in FY '24 are going ahead in 1 or 2 years, sir?

Well, as of now, I may not be able to give the exact figure. But yes, we are targeting a very good ROC that loan investors were expecting us and we were generating in the year '18, '19. So we'll be moving to those figures quickly in a major span of 1 or 2 years of time. But yes, we are targeting EBITDA margin of the [indiscernible].

And my, sir, other question is on JV side. And Jain sir has already mentioned that all JVs expect the one has already turned EBITDA-positive. So could you please throw some more light on JV performance? And what is your outlook for JV going ahead?

Okay. So what is that all the deals at operational level we are EBITDA positive, [ wherein ] 2 JVs [indiscernible] because we have some part in foreign currencies and the dollar has shot up from see the levels of INR 50 to INR 81, 82. So that is an unrealized loss of ForEx that we have booked in to JV creation and [ counseling ]. Going forward, we see a very good business outlook. And even at [ EBIT, we are having 3 JV positives and EBITDA ], we are having 5 JVs positive [ turning ] to negative due to the ForEx fluctuation. In the coming year of time, we expect that all JVs in FY '23, '24, they will turn around even at the EBITA level.

And sir, my question on EV side. In our previous calls, we mentioned that we are developing some products for EVs. So what is progress there? And have we started production or anything from the site?

No. Like we have given a bar chart also with the time line. We are in the stage of development. Some products are developed there have been sales for validation. The customer also followed by the validation from the [indiscernible] other authorities -- we are working very fast quickly on migration to JV on powertrain. And in the coming financial year, I mean FY '23, '24, we expect to see some good action in JV, including starting off some starting many sections of some EV products.

Okay, sir. And sir, my last question is on RM inflation, we have seen some correction in RM, but we are hearing that there is some uptick in RM cost from January onwards. So what is your thought on that, sir?

Where it is a market driven. So if it goes up, we get a settlement in the succeeding [ partook ] on the customers. So quarter-to-quarter, it affects our profitability. That's all. But it all depends on market dynamics. So if you see the current financial year '22, ‘23, it has not been stable sometimes up, sometimes down. So that trend is coming is going on. I think that may continue in future also.

Okay, sir, as on EV side, are we adding any new products or any new project [indiscernible]? EVs because you can talk about R&D capabilities in EV, our R&D capabilities in EVs? What are we doing?

We have a dedicated R&D center Apart from that, we are tying up for new powertrain technologies to manufacture EV specific products. That's what I told, we are working on the same. And in the coming financial year, you will definitely see some action for side, including starting of manufacturing or some of those 2…

[indiscernible] to that question, on EV. EV for us is divided into 2 portions. One is our current level of supplies that we do in terms of product lines, which you are aware, whether it's our locks or mirrors or sheet metal or this that and the other. They continue unabated, and we supply to several of the new OEMs that are there in the EV industry as well as the traditional ones and the legacy one. Then there are new products which have been developed, which are both for EVs the new EVs, the these are new product lines for us. For example, a CBS or an electronic staring column lock or a foldable key or a tire pressure monitoring center, USB chargers and so on and so forth, our vehicle location and security system. We have several of them. But the third element, which is the element, which is the specific EV products, which means they have to do with the powertrain, which is the electric mobility product line. Now is we'd be happy to know that your company has already in readiness for motor controllers for 1 kilowatt, 2 kilowatt and 4 kilowatt [ DPD3 ] converters, which are absolutely ready, the EV chargers, which we expect to be ready in this quarter. The hub motor is already done. The mid-drive motor we put on hold for the moment. So this is where we are. We expect like Yashpalji has said, production of these new kind of EV powertrain product lines to be in the framework and in the market in this coming financial year. I hope that answers your question.

Next question is from the line of [ Sara ] from B&K Securities.

Sir, given that we have a diverse product range. So in this market, we would be considered as a top critical [ peers ]?

That's a very general question. I don't know unless you can be a little more specific. If you're looking at competition in peers, you're absolutely right, we are in diverse markets and diverse product [ line ]. And depending on the product line that you would want to pick we would have different competitors. Locks, for example, you are aware, your company is the largest lock to due in the U.S. If you look at mirrors, we are the largest. You look at seatbelts, we are the largest. If you look at cabins, we are the most diverse company supplying to everyone. So depending now in terms of who is our competition in aluminum, I guess, in aluminum casting almost everyone who is as aluminum castings would be our competitors. But if you were to take [ spools ] as a product line within aluminum casting, we are the world leader. So it is very difficult to answer your question in terms of peers or competitors directly on -- as a company. Yes, you can pick out individual things, and I'd be able to give you 1 or 2 names for who the others are.

Sir, in the locks business who business, who would be consider as our peer?

In locks business we will have a company called Minda, Minda Corp as a competitor. We would have somebody like [indiscernible] should be our customer. But again, even with the locks, the product lines are a little blur. In some cases, we fight directly because locks kind of very, very strong entry barrier. So if you see in history, there were 5 players out of those 5 players, we as a company acquired about which was a big loss. And now there is that there is Minda Corp there is [indiscernible] and of course, there are 1 or 2 small ones, one out of Aligarh and one out of somewhere else. But in the last 50 years, we haven't seen any new player come into this market.

Other than Hero and TVS, given that we are present in [ CV ] and as well as [our 5-year ] segment, who would be the top 2 players that we are supplying in CV and off-highway?

In off-highway, we supply to everyone. We supply -- if you look at off-highway, you supply to Caterpillar, we supply the Tata-Hitachi. We supply to [indiscernible], we supply to Volvo. We supply the Kubota. We, of course, supply our largest customer is JCB. If you were to look at the entire lineup, we supply to almost everyone there is in this industry, everyone.

Thank you. Ladies and gentlemen, that is the last question for today. I now hand the conference over to the management for closing comments.

Okay. Thank you once again, Dolat Capital, and thank you to all the investors for your time this morning. I hope we've been able to do some justice to your questions. We'd be very happy to have you visit some of our plants or discuss with us face to face to be able to really understand this a little more. What I can tell you is, as I sign off today, that our company is in very comfortable position in the industry today. We have a lot to look forward to. The investments that have been made in the past couple of years are now showing fruit. And this will only grow into the next financial year. I think Yashpalji has already said that we are probably looking at almost a 30% growth in the next year as well. So it should be a good time, good margins, good product lines. And the way things seem today, and the market goes unabated. Of course, there are some [ cons ] of higher interest rates that are dropping. Somebody mentioned about the volatility in commodity prices, not withstanding, I do see that I'm happy days ahead. With that, thank you all very much. And once again, I wish you and your families a Very, Very Happy New Year, God Bless.

On behalf of Dolat Capital Markets Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

Thank you.

Thank you.