Talbros Automotive Components Limited (505160) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Talbros Automotive Components Limited Q1 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the belief, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Mr. Anuj Talwar, Joint Managing Director of Talbros Automotive Components Limited. Thank you, and over to you, Mr. Talwar.

Yes, thank you so much. Good afternoon, everyone and [Technical Difficulty] to our quarter one FY '23 earnings call. I hope you all are staying safe and healthy. On the call today, I'm joined by Mr. Navin Juneja, our Director of the Board and our Group CFO; SGA, our Investor Relations advisors. The results and the presentation are uploaded on the stock exchange and the company website. I hope everyone had a chance to look at it. Let me begin with the industrial economy overview. The auto comp industry have been doing better in the last few months, thanks to rising demand, consumer confidence in the rural areas, the easing of the semiconductor supply issues and the declining commodity prices. As the data published by CM during period April to June 2022, auto sales shocked across the border. Recent auto sale figures supported by auto OEMs factored to show and of trend and as anticipated that this trend will continue in the second quarter as well as we approach the festive season and having a great monsoon. In fact, our key customers have indicated a positive growth for this year and I'm sure that you will be reading on the media probably end of the day we get a very strong picture by the auto industry. For the quarter gone by, our revenues increased by 11% Y-o-Y to INR 154 crores, our EBITDA which is up 9% and to INR 21 crores and our PAT increased by 20% Y-o-Y to INR 12 crores. We're keeping pace with the ever-evolving technology to be the forefront of all resolutions. Our core company, Gasket and forgings have done extremely well. Forging has had a slight issue due to the euro, Mr. Juneja will explain in the question-answer session and also lot of its customers had the semiconductor issue in Europe as we export about 40% from our forging business line. Gaskets transitioned very strong, we dominate the Indian market. Our market share is over 50% in the gasket business. We just added a new product line called [ HUs ], which we'll also talk in the question-answer session, adding new customers and new geographies. Our joint ventures are doing extremely, extremely well, whether it is the Marelli joint venture, which has given a lot of work for Tata Motors and especially lots of EV vehicles is doing extremely well and even our other joint venture with Marugo is looking at ramping up its revenue due to a big demand with Maruti. As a group with 100% of revenues of our standalone businesses, gasket and forging and our joint ventures, we achieved a turnover of INR 238 crores for quarter one, INR 154 crores in Indian accounting standards, but as a company as a whole, we achieved a highest of INR 238 crores. We continue to remain a very hedged auto comp company, with no customer being more than about 10% to 11% of our revenue and being hedged in our domestic sales about 23% of revenue comes from 2 and 3 wheelers, 27% comes from taxis and vehicle segment, 32% come by commercial vehicles and [ 13% ] agri product. Our exports are doing well as I mentioned earlier, with forging almost about [ 40% ] of revenue come by exports. Our export portfolio is around 25%. We just announced very recently that we won an order of about INR 400 crores, which will be -- will commercialize next 4 to 6 years. These orders are across all our divisions, gaskets, forging, chassis and rubber. We're proud to say we've also entered into a new segment, which is agri on off-highway in the overseas market and office particular order book about 18%, 18% will come from electric vehicles. We are investing in technologies, which will take us -- will make us stronger both in the domestic market and the global market as well. I request Mr. Juneja now to take you through all the numbers.

Thank you, Anuj. Yes, good afternoon and a warm welcome to all the participants. Let me begin with the financial overview, the gasket division including Nippon Leakless Talbros for Q1 of FY '23, our standalone gasket sale was INR 106 crores as against INR 88 crores in Q1 of FY '22, a growth of 20%. Total revenue of Nippon Leakless was INR 22 crores in FY '22, as compared to INR 13 crores in Q1 of FY '22, a growth of 69%. This segment saw a combined EBITDA of INR 18.6 crores in Q1 FY '23 versus INR 14.2 crores in Q1 of FY '22, a growth of 31%. Now coming to the forging division, revenue in Q1 of FY '23 did grew by 4% to INR 49 crores as against INR 51 crores in Q1 FY '22. This was primarily because of the new power trucks in the month of April and May in Bawal, Rewari, so the forging plant could not achieve the optimum level of capacity utilization, which led to a production and sales loss in Q1 FY '23. The value of that was around INR 3 crores approximately. For Marelli Chassis System Private Limited, revenue for Q1 FY '23 stood at INR 45 crores versus INR 32 crores in Q1 of FY '22, resting a growth of 40%. For Talbros Marugo, the revenues stood at INR 17 crores in Q1 FY '23 versus INR 12 crores in Q1 of FY '22, a growth of 36%. For FY '23, we are working on multiple orders across exports and domestic market and across various segments of OEMs. We remain confident of achieving growth over FY '22 in revenue terms. However, we are facing medium-term challenges on raw materials, inflation, logistic, et cetera. We will refrain to in guiding margins for FY '23, revisit post the second quarter, especially and long-term basis we believe that we are a substantial margin improvement. This is all from our side and I would like to open the floor to question and answer.

[Operator Instructions] Our first question is from the line of Shalini Gupta from East India Securities.

Sir, I have 2 questions. One is that the order book that you were saying, I just wanted to understand what's the [indiscernible] of that order book, why I'm asking you this question because couple of weeks back, we saw another auto-ancillary company and their orders were canceled by the company, they were going to be supplying to. So if you could just comment on this?

Yes, I would like to answer your question. First of all, these are the confirm orders and there is no question of canceling them. In some cases, we have received the tool advances also, number one. And these are the new products, new customers, some are new customers, some are -- we have entered into some agreements with them in some cases. And these orders are just I can tell you, in gasket INR 39 crore per annum, in forging division, it's INR 24 crores, at present but we expect this INR 24 crore to become INR 40 crore in the next 45 days I think so, in Marelli it's around INR 23 crores, out of which INR 18 crores is around if we divide by down INR 4 crores to INR 5 crores is approximately in EV vehicles. So combined total INR 85 crores is per annum business, 4 to 6 years, it will around INR 400 crores. That confirm orders, these are not going to cancel, in some cases, we are receiving advance also. This is what I can say.

Okay. Sir, at my end like as an investor, what should I look out for to make sure that the order book that a company is seeing is actually not open to being canceled. I just wanted to check at my end, as an investor, what should I look for?

Carry on, Navin, no, no, please carry on.

First of all, you need to see the [Technical Difficulty] company. We have got customers, we are working with them for so many years. And these are the customers which are renowned customers, these are customers which are working in the group with the group for so many years. These are customers which are not small companies, we are not replacement market companies. These are the big OEMs of the world. So in that case, when they enter with you, they enter with a long-term perspective, we have long-term contacts with them in some cases.

Sure. And sir also...

I like to add also one point out here, a lot of our relationship with our customers go back many, many years, number one, is built on trust and delivery. The other thing I'd like to also answer is that, a lot of our customers today in India and we are pretty much single sourced with them. So that's the kind of faith and belief that they have on the brand. And getting a customer today in a global scenario, in a Indian scenario is getting tougher, takes a lot of validation, takes a lot of efforts. All I can say is that we received some advances, some prototype tooling from them, so it should be okay. There's no problem at all. It's all trust and delivery, which we have built over the last many, many years.

Yes, and sir, my second and last question, like everybody is talking about the chip shortage easing. So I just wanted to check what in your opinion is the reason for the chip shortage, is it because new capacities have come up? Or is it that China lockdown is no longer that, I mean, China, the lockdown has been withdrawn. So what in your opinion is the reason for the chip shortage...

Even our own country today, India is looking to generate chip manufacturing. So lot of new capacities have come on board, that's what's happened and that is a reason for it.

[Operator Instructions] The next question is from the line of Dipen Shah, an Individual Investor.

I had a question on the margins. Mr. Juneja, you alluded to the fact that there have been some issues in the raw material pricing because of which you are not able to guide on the margins. Could you just elaborate a bit more on that? And maybe by when do you should be able to get a clear view?

Thank you, Mr. Shah. Yes, there are some pressures on the margins. One is because of the import dollar price, we are importing in cash a lot of stuff, which is -- I think the cost of which has gone up because of the dollar appreciating. And number 2 and some typical raw materials of rubber, we are facing problem on prices, but these prices are recoverable. 90% plus are recoverable from the customers. Of course, it takes one or 2 quarters to recover, we had launched the price increases and by the end of the year, you can see that our margins which are originally there will be there. We're not worried about that, but it's a time lag only. That is the only thing. Sometimes it impact the delivery also, we need to take some typical raw materials by air, it add to some costs, except that everything is fine.

But in the first quarter, was there any impact of this raw material price rise?

Yes, of course, of course, also there, the dollar went from 75, 76 to 80 in the first quarter itself. So as some material prices also increased in this quarter, we have all launched the price increase and you will see the effect of that in the coming quarters. It will be -- expect a positive result. We'll be able to recover the price increase.

Okay. Sorry to just stress it a bit, so...

Quarter-by-quarter, at end of year, you will see everything will be recovered.

So I just wanted to ask whether second quarter could be worse off than first quarter or maybe...

No, no, it should not be worst, it shouldn't [indiscernible] at all.

And overall from the OEM side, sir, we are seeing some positive comments coming across, except for the lower...

Yes and Anuj has just told you, yes, positive commercial going across and we are looking for a healthy order book going forward. And really, as you know, PV are going very well, Maruti has given very good numbers for this quarter. It will add -- Tata Motors, PV is for passenger vehicle very good numbers, both Marelli and Marugo are banking on these orders and they are doing very well. They did perform very well in the month of July. And on the gasket side, we are also doing very well. And but -- and forging the export division rooted in the month of August because of the holidays in the month of August in the whole Europe, but it will be recovered off time, I mean it happens, nothing new.

Yes, in terms of new model launches, sir, could you just guide us a bit on which all new models have you been selected for that is the new model?

Yes, we'll be selected, we added some new customers in India. We've added Hyundai as a new customer, so the new SUVs, we are a part of their journey. Maruti, the new variants that have been launched, we are a part of that as well. Tata Motors, we're very, very aggressive with our Marelli joint venture. So all their new models, the EV, the Punch, the Hornbill share a part of that also. We're also part of Jaguar Land Rover vehicles globally, the Discovery Sport, The Range Rover Sport and the Range Rover. So we are in a healthy situation. So it looks good. It looks very, very good actually. I mean there is slum of August is there a little bit, but I think the comment is so positive from OEMs, even 2-wheelers, if you look at like our 2-wheeler growth also pretty strong. All that commentary was coming earlier, TV whatever, even 2 wheeler looking very, very strong.

Our next question is from the line of Shikha Mehta from Equitree Capital.

Good afternoon, sir. I just have a couple of questions. Could you give me your capacity utilization across all segments?

Yes, I will give you that. The capacity utilization, if we just a second for me. Yes, it's approximately -- in case of gasket, it's around 87% to 88%. In forging division, it's 78%, in Nippon Leakless is around 80%, in minority Marelli around 75%. In Marugo -- in the case of antivibration is 90%, in the case of -- is 35% in the first quarter.

Okay. This is clear. And sir, currently, are we outsourcing anything?

Outsourcing in the sense, we are doing some OSP work, some machining, in forging some low-end machining is being outsourced. And similarly some gaskets, some low end processes are being outsourced, that's all.

Okay. And sir, could you also throw some light on how our products are doing in Europe currently given the demand for them?

Pardon, can you repeat the question again, sorry about that?

How we're doing in Europe broadly within the slowdown?

Europe, not bad, of course, it's little slow, the BMW sale is little down, I can say. But -- and even in case of [ GCM ] the sales are little down. And -- but not in the case of JLR, we are doing okay there. And rest of gasket is okay. In forging it'd little down because of -- first of all chip shortages. Second, in the month of August, especially their holidays. So -- but the [ PLD ] positions are good. There's no doubt on that.

Sir we don't expect to degrowing...

Nothing major, nothing major, maybe 2% here and there, that's all 2%, 3% here. Nothing major, but we are adding some new customers also which will start reverting into the commercial business in the third quarter and fourth quarter of this year.

Okay. And also, the semiconductor shortage issue seems to be -- it seems to be easing out, are we witnessing that in our product changes as well? Are we seeing demand improve?

I think it's not 100% over, in the low end car, I think it's over in the low end car like Maruti and Tata Motors, in the case of high-end car BMW, Volvo and those stuff is still there, it's not 100% over. Now in India, I think Kia has also increased the production, it means some relief they have got from China or from somewhere.

Our next question is from the line of Hiten Boricha from Joindre Capital.

Sir, I have 2 questions. The first one is on the revenue growth. So you mentioned the commentary from the OEM was very good, and we are seeing a very good traction here. So, what kind of revenue visibility we have in this year, like double-digit growth or anything? Any color on that? And the second question is on the order book, sir. So, after receiving the INR 400 crores order book -- order now, so what is our current order book?

First of all, I want to tell you regarding the outlook of -- top line outlook. Of course, we are very optimistic of booking. And if that thing remain, whatever we are hearing from the OEMs, we should be able to minimum double-digit growth we are looking in the top line for this financial year, #1. And how double digit, we can't say that it's 11%-plus. How much? It depends on how the things move in future also, because of -- daily you're listening some [indiscernible] China, et cetera, et cetera, I don't know what will happen there. Secondly, your question was on the order book. Order book is -- we get the orders from OEMs and the 4 customers for this annual order we get from 4 customers. And then it's a 3-month rotating order we get. And in the case of OEM also, we get 3-year orders. But the order -- indicative orders, but end up bringing on the -- but the order sometimes goes up and sometimes come down also, depending on their demand. And it's not dependent on the other product. There are other products in Indian [ Army ] vehicle, which has to be there. Sometimes we lose business because some other components are not available with them. It happened in the past. But still, we are -- order book is okay, healthy, and we are working for a double-digit top line.

Sir, can you quantify the order book?

So we can't quantify, nobody can quantify. You can't -- this is not a guarantee order -- Maruti will give you -- I will take this with vehicle -- for different vehicles. They give indicative for 3 months, which is confirmed at the beginning of the month only.

Okay, understood. And sir, on the margin...

For this quarter, Maruti is healthy, Tata Motors is very healthy.

Understood. Understood. Understood. Sir, and on the margin point, just a clarification, you mentioned we are going to at least maintain this 13% kind of margin, right?

Maruti, it will grow. It will further grow, don't worry.

Okay, okay. So we are not seeing any negative impact because of higher commodity prices?

No, no, no. No negative.

We should better it.

I told it would better it, don't worry.

[Operator Instructions] The next question is from the line of Jyoti Singh from Arihant Capital Markets.

My question is on the mutual side, it's been in attraction. So how much revenue we have in Q1 FY '23? And what is your outlook on the [ usual ]sale as we also got the order. So how much growth we are -- going ahead we are expecting? And also, we are facing any issue on the Europe side?

Okay. Now coming to the -- in the first quarter, I think we have done a business around INR 8 crores. But I want to tell you, we are -- the commercial business of Hyundai is yet to -- starting in next 3 weeks. Okay, some have gone, they are accepted. They want to visit the plant. They will visit any time now. And the commercial sale will start from -- I think, from next month, it will start Hyundai [indiscernible]. Maruti launches are there in October -- September/October, and the Maruti business will start. Further if I have the order book, which is under implementation or under development, et cetera, to the extent of INR 40 crores plus have got at present for valuation, and we are negotiating on new businesses and issued also with other customers, and we are hopeful that within next 3, 4 years, this business can touch up to [ INR 60 crores ] to INR 70 crores easily. Now coming to export orders, I want to repeat it, there is no boom in export order. It's just a temporary phase. And as we always do, but it's not bad, JLR is doing very well. We are getting -- Dana is okay. And other customers [ baskets ] are fine. There's no problem, but it's a little bit down, others can be closed. Nothing major problem is there.

Okay. And sir, also my question is on the other side. I mean, as we have almost whole month holiday. So because of that, we will see any impact?