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

Ladies and gentlemen, good day, and welcome to Talbros Automotive Components Limited Q3 and 9M FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the 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] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Talwar, Joint Managing Director of Talbros Automotive Components Limited. Thank you, and over to you, sir.

Thank you so much. A very warm afternoon, good afternoon, everybody. A very warm welcome to our Q3 and our 9-monthly 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 on our Board of Talbros as well as our Group CFO. Also, we have SGA, our Investor Relations Advisors from Mumbai. The results and the presentation are uploaded on the stock exchange and the company website. I hope everyone has had a chance to look at it. The company performed strongly in Q3 and 9 months of FY '23. The company registered a top line growth of 6% in Q3 at INR 160 crores. There was a slight slowdown in our OE spares business domestically as well as a slowdown in Europe -- with OEMs in Europe due to the inflationary costs that have happened due to unfortunate circumstances like the war. EBITDA and PAT have also grown by 14% and 24% to INR 24 crores and INR 14 crores, respectively. For the 9 months, the company delivered a top line growth of 10% to INR 477 crores. EBITDA stood at INR 67 crores at a growth of 11% and company achieved its highest PAT ever of 9 months at about INR 39 crores, a growth of 20% Y-o-Y. We announced several times in the last financial year, which is the current financial year actually, that we've -- we received orders worth about INR 1,000 crores from both domestic and overseas OEM customers. These product orders are across our various segments, like gaskets, heat shields for passenger vehicles, forgings, for Agri and offloader vehicles and chassis for again PV vehicles/electric vehicles as well. We continue to work on our export strategy. We continue to try and add new customers, which we have just recently done in the U.S. as well on the lawn mower segment. That's a new territory, new product line, new customer and as I mentioned to you, even Agri and offloaders in the U.K. Also we're quite dominant in the PV space in Europe as well as India. We'd also like to tell you that the orders we have received are from a very established domestic OEM for electric vehicles for over about INR 160 crores for 5 years. Another very [ distinct ] order we recently received is in our joint venture, Talbros Marugo. This order is worth about INR 150 crores over the next 5 years for rubber hoses. This -- if you see the government have been talking a lot about biofuels and E20 fuels and Mr. Modi had made a statement just a couple of days back that we should try and work on this blending of fuel with ethanol to reduce the import of crude oil. So we're very happy to announce that with the leading carmaker in the country, we're already supplying these products to them. It's about INR 150 crores revenue for the next 5 years. Coming to the industry and the economy overview. In the union budget, as I mentioned right now, the industry has got major boost towards electric vehicle manufacturing, hydrogen fuel adoption and changing technology mix. The budget should drive sustainable yet inclusive growth at a rapid pace as it focuses on increasing taxpayers' disposable income to increase consumption. In addition, focus on exports and a rise in infrastructure CapEx is expected to increase demand for commercial vehicles. Further, the announcement by the government to scrap all their government vehicles will be an immense boost to the CV industry. The domestic automotive industry has seen a healthy environment in the current fiscal aided by recovery in the economic activities across segments. Commercial vehicles are expected to drive past pre-pandemic levels next fiscal, driven by growth in replacement demand. At the same time, PV vehicles have also done extremely well in the last year due to pent-up demand. We're very happy to announce and say that your company Talbros is supplying components to all segments, whether it is in the PV space, whether it's in the Agri space, whether it's in the commercial vehicle space, 2-wheeler space, we are everywhere and that's one of the hedge strategies for us. During the 9 months of FY '23, of our domestic sales, 25% came from 2- and 3-wheelers; 21% came through the PV segment; 36% came through the commercial vehicles; and 9% came through tractors; and 9% is others. Business-wise, in 9 months of '23, exports contributed to almost 17% of the gaskets revenue, which was earlier only about 10%; 51% exports came in the forging business line; 16% came from Marelli Talbros Chassis Systems Limited; and 11% though Talbros Marugo. Overall, as a consolidated revenue, about 23% to 24% of the 9-month revenue came from exports. We are buoyant and bullish on the automotive sector. We're also happy to say that, yes, we may have had a slightly muted growth in quarter 3. We were not that buoyant, given the fact, for the 9 months, we've still performed steadily and quarter 4 looks to be buoyant. Having said that, I would like to definitely emphasize that even though we had a slightly muted growth in Q3 due to reasons already explained, we have maintained our costs extremely tight in the way we run our [ shifts ] and we've given good EBITDA margins as a result. Now I'll let Mr. Juneja take us through the financials. Please, Navin.

Yes. Thank you, Anuj, and good afternoon, and a warm welcome to all the participants. Let me begin with the financial overview. Our total revenue for Q3 of FY '23 stood at INR 160 crores as against INR 151 crores, a growth of 6% year-on-year basis, that is in the standalone business. For 9 months of FY '23, our revenue stood at INR 477 crores as against INR 435 crores, a growth of 10% on Y-o-Y basis. EBITDA for Q3 of FY '23 stood at INR 24 crores as against INR 21 crores, a growth of 14% on Y-o-Y basis and for 9 months of FY '23, EBITDA stood at INR 67 crores as against INR 60 crores, a growth of 11% on a Y-o-Y basis. EBITDA margins for Q3 of FY '23 stood at 14.9% and for 9 months of FY '23 stood at 14%. There is a recovery where we are falling short of 14% in the previous quarter now we have recovered in this quarter. PAT for Q3 of FY '23 stood at INR 14 crores as against INR 11 crores, a growth of 24% on Y-o-Y basis. And for 9 months of FY '23, PAT now stood at INR 39 crores as against INR 32 crores, a growth of 20% on a Y-o-Y basis. In the Gasket division, including Nippon Leakless Talbros, for Q3 of FY '23, our standalone gasket sales were INR 102 crores as against INR 101 crore in Q3 FY '22. Total revenue of Nippon was INR 21 crores in Q3 of FY '23 as compared to INR 20 crores in Q3 of FY '22, a growth of 7%. For 9 months of FY '23, our standalone gasket sales were INR 316 crores as against INR 280 crores in 9 months of FY '22, a growth of 13%. Total revenue of Nippon Leakless was INR 69 crores in 9 months of FY '23 as compared to INR 56 crores in 9 months of FY '22, a growth of 23%. This segment saw a combined EBITDA of INR 19.1 crore in Q3 of FY '23 versus INR 18.6 crores in Q3 of FY '22, a growth of 3%. And for 9 months FY '23, this segment saw a combined EBITDA of INR 57.9 crores as against INR 50.9 crores, a growth of 14%. Now coming to our Forgings division. Revenue in Q3 FY '23 grew by 15% to INR 57 crores as against INR 49 crores in Q3 FY '22. In 9 months, FY '23, revenue grew by 3% to INR 160 crores as against INR 156 crores for 9 months of FY '22. EBITDA in Q3 of FY '23 stood -- sorry, it has gone up by 56% to INR 10 crores as against INR 6 crores in Q3 of FY '22. In 9 months of FY '23, EBITDA has grown up by 9% to INR 24 crores as against INR 22 crores in 9 months of FY '22. For Marelli Talbros Chassis Systems, revenue for Q3 of FY '23 stood at INR 55 crores versus INR 43 crores in Q3 FY '22, which has registered a growth of 29% on Y-o-Y basis. For 9 months of FY '23, revenue stood at INR 155 crores versus INR 115 crores, a growth of 35% on Y-o-Y basis. For Q3 of FY '23, EBITDA stood at INR 6 crores as against INR 4 crores in Q3 of FY '22, a growth of 49% on Y-o-Y basis. For 9 months of FY '23, EBITDA stood at INR 16 crores as against INR 11 crores in 9 months of FY '22, a growth of 37% on Y-o-Y basis. Now coming to our large joint venture, Talbros Marugo Rubber Private Limited. The revenue stood at INR 20 crores in Q3 of FY '23 versus INR 13 crores in Q3 FY '22, which had registered a growth of 52% on Y-o-Y basis. For 9 months of FY '23, revenue stood at 56 stores as against INR 38 crores, registering a growth of 49% on Y-o-Y basis. As regard EBITDA is concerned, for Q3 of FY '23, EBITDA stood at INR 1 crore as against loss of INR 0.3 crores in Q3 FY '22. For 9 months of FY '23, EBITDA stood at INR 3 crores as against INR 1 crores in 9 months of FY '22. We are confident toward achieving the growth and believe that the margins are sustainable, maybe little improvement will be there in future also if our revenue stream goes up. This is all from our side, and I would like to open the floor for the question and answer. Thank you.

[Operator Instructions] The first question is from the line of Dhiral from PhillipCapital [ PCG ].

Yes. So my first question is, sir, if I look at your Gasket revenue on a Y-o-Y basis, there is only 1% growth. So wanted to know, sir, why there is a sluggish growth in Gasket since we are guiding for almost 15% kind of a growth in this segment?

Pardon me, what you are saying? Gasket, what you have said? Can you repeat the question?

Sir, our revenue growth on the Gasket business is almost only 1% on a Y-o-Y basis. And if I remember, sir, previously, we were guiding to grow almost 12% to 15%.

That you are talking about top line or EBITDA level?

Sir, top line, sir, top line.

Quarter 3 only, right?

Yes, sir, yes, yes.

Only quarter 3 you're talking about.

Quarter 3, I'm just telling you, why there is less growth in quarter 3, [ first off ], is season, after festive season, the demand is always less. You know that very well, plus there's a huge drop in the -- in this quarter in the spares market of OEM. Spare market came down very heavily from the OEM side. And that is one of the major reasons plus aftermarket also came down in this quarter. These are 2 major reasons. But now in the current quarter, everything is back to normal. That is a one-off only.

So when you say spare market of OEM, sir, if you can explain what is that exactly?

OEM, it takes -- 2 type of billing goes through OEM. One is for fitment in the vehicle. One is for selling in the aftermarket. All OEMs have their own aftermarket channels. Like Tata Motors have aftermarket channel, Hero has their aftermarket channel, Volvo has their aftermarket channel. Channel is there. Their billing came down very heavily.

Okay. And sir, any particular reason for low volume?

But I understood, from the aftermarket, we are not selling to aftermarket. There is less opening of [Technical Difficulty] plus they were having inventories in the past, they want to dilute that inventory. That is the particular reason.

And, sir, how is this current quarter going on at least for the gasket...

Current quarter, it has come back again, no issues in the current quarter.

Like he mentioned to you, it's one-off. If you look at 9 months, we've grown at 13%. It'll be okay.

No, no. For 9 months, at more than 15%. I think by the year-end, it will be 15% growth will be there in this business.

Yes. No worries.

Okay. Okay. And sir, when I look at the Forgings side, particularly the margins in the Forgings business have almost touched 16% versus 12% last year. So what has led to the substantial improvement in the margins on the Forgings side?

Yes, there are 2 reasons, one is export has gone up, one thing, plus -- the export out of -- I think, 70% or 60% export in euro. The euro has recovered a little bit. There are 2 reasons.

So this is a currency benefit that we are getting or is this from the operational performance?

I'm telling you, if the euro remains in the INR 86, INR 87, INR 88 range, this benefit will continue.

Okay. So are these margins sustainable, sir, moving ahead?

Yes, yes, it's sustainable, unless the euro comes down to INR 80, INR 78, then there is a little pressure on that.

Okay. And sir, lastly, on the Marugo Rubber JV side, so this quarter, we have seen very strong improvement, sir. So what is the outlook for the next quarter, sir, or maybe for the next 2 years?

The quarter -- I think it will be further better than this quarter. A little better than this quarter.

And sir, for the FY '24?

It will be much, much better but we are expecting my [ Marelli ] maybe will grow by 30% minimum and my Marugo will also grow by 30% next year.

We'll move on to the next question that is from the line of Shikha Mehta from Equitree Capital.

I have a couple of questions. So we have INR 160 crore order book on the EV front from one of the domestic OEM. Can you explain what kind of product we're supplying to that?

Ma'am, this is a product called cradle, this is the product, this is for the OEM based in Pune and that is the -- cradle is a structure on which the motor sits, and that is a -- I think the revenue of that 1 piece is INR 4,100, INR 4,200 per piece and the supply will start from August, September I think some initial supply will start. I think the major supply will start from the third quarter or maybe October, November.

Yes, Shikha, this is a product, which is sheet metal, welded, assembled, and it's directly where the e-motor sits, so direct product around the electronic periphery.

Okay, sir. Got it. And sir, in your opening remarks, you spoke about some pressures in Europe. Are we seeing that ease in Q4? Or is it expected to remain the same?

Europe is okay. I mean, for example, Q4 is better domestically, I feel, but Europe, I still feel even Feb is little bit soft at the moment, but let's wait and watch. But domestic market -- but don't worry, our company will come out strong in growth because domestic will pick up. And historically in India, it's always been a 45%, 55% H1, H2. But yes, Europe is still little bit slow.

Sir, last quarter, we spoke about adding some other countries in Europe. So do you think that's possible, given the pressure currently or...

Yes. We've added U.K. in a big way. And luckily for us, U.K. -- the customer that we added in U.K. is not really concerned much about chip shortages because it's purely an Agri, off-highway, off-construction product. So that will give a lot of buoyancy in the Forgings division starting next year, and that will only continue to grow because here, it's a very interesting story. Here the customer is moving from castings to forgings. So it's basically changing the product technology. So it's not schedules of, let's say, 100 vehicles or 200 vehicles slowdown. No. It's a complete overall ramp change in technology. So that will add a lot of buoyancy to the Forgings business, #1; #2, in addition to Europe, U.K., they're right now also getting some very encouraging movements coming from the Agri sector in Italy. That's also very, very buoyant. And U.S. is still remains to be very strong for our Gasket business, still remains very, very strong. And here also added a new customer, which is in the lawn mower segment. So [ exports ] continue to grow.

I want to add here, in the Gasket business, we also -- we are also in the process of getting -- already received, plus we're getting fresh order from Russian customer, that will also add to the export.

Yes.

Correct. And sir, could you also comment on the freight and the power costs? Last quarter, the power cost was a little higher. Has that normalized?

It is maybe one-off, it is one-off. It's normalized. But I think my freight has come down, okay? Freight has come down. If you can see in the last quarter also, freight is -- has come down, and I can just give you the freight cost things and it should not be much, much higher, I think so, one-off only, maybe. From where you have seen that freight cost stuff?

Sir, we mentioned this on our call last quarter.

Oh, last quarter, freight was -- it has come down. It has now been normalized. No issue now.

And sir, last question from my end. Can you elaborate what we're doing on the aftermarket segment because I understand we have some kind of coolants and stuff as well? So if you could just explain what products are selling on the aftermarket, sir?

From Talbros, from Gasket division?

Yes, from Talbros, right.

Yes. From Gasket division, we're selling the gaskets of all the commercial vehicles, et cetera, 2-wheeler, we added. We had added passenger vehicles also, and we also have added [indiscernible] coolant only, we're not adding more at present.