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

Good day, and welcome to Talbros Automotive Components Limited Q4 and FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the 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] 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.

Yes. Thank you. Good afternoon, everyone. A very warm welcome to our Q4 and FY '23 earnings call. On the call today, I'm joined by Mr. Navin Juneja, our Director of the Board and our Group CFO; SGA, our IR firm in Mumbai. The result and the presentation are uploaded on the stock exchange and the company website. I hope everyone has seen it. I'll begin with the industry and the economy overview. In FY '22-'23, the automotive industry experienced a significant boost in production and sales, largely due to increased economic activity and mobility. According to industry data, a total of 25.9 million vehicles were produced between April '22 and March '23 compared with 23 million units in the previous year. Sales improved across most automotive segments, including passenger cars, commercial vehicles, tractors, resulting in a 20% increase in the overall automobile sales from 17.6 million in '21-'22 to 21.2 million units in '22, '23. Domestic sales of passenger vehicles increased by 27%, reaching over 3.9 million passenger cars, highest ever in our country, up from 3.1 million units in FY '22. The commercial vehicle segment had the second highest domestic sales with an increase from 7.2 lakh to 9.6 lakh units, representing a growth of 34%. 3-wheelers also witnessed impressive growth, surging from 2.6 lakh to 4.9 lakh units, an increase of 87%. 2-wheeler sales, which was lagging the high end, also increased from 13.6 million to 15.9 million units last year. The growth was particularly strong in the passenger vehicle segment and is expected to keep going on for the next coming years. And you've seen a lot of announcements from the big boys in Maruti and Tata, how they're adding capacity. The demand for commercial vehicles have been boosted by the government initiatives aimed at building infrastructure such as roads, highways and ports. As a company that is very strong in these 2 segments, Talbros will continue to perform even better and stronger and take more market share in these segments. Now at the company performance. FY '23 has been a strong year at Talbros Automotive. At a group level, including the joint ventures, the company, for the first time, achieved a revenue of INR 1,037 crores, a growth of 18% year-on-year. As we said earlier, our company has received multiyear orders of about INR 1,000 crores from both domestic as well as overseas OEMs across all our business lines, including gasket, heat shields, forging, chassis and rubber. Our gasket division has shifted focus towards heat shields while constantly diversifying the segment portfolio and securing exports. In this activation, we're happy to announce that for the first time, our heat shield division crossed about INR 20 crores of revenues, and we expect this to reach about INR 90 crores by FY '27. Gasket been the cash now as a market leader. We continue to get more and more orders from domestic OEMs as well as global OEMs. And we believe that even now we can get a lot more of exports in our gasket business line. We've also increased our contribution towards PV segment and CV with standing into new geographies like Russia, Japan, for LCV, HCV and offroad segment products. In the forging division, we are leveraging our company's capability to convert castings into forgings and increasing our focus on electric vehicles. We recently added heavyweight parts up to 30 kilos, and generate our focus and expose managing geographies like U.K., North America, which has added a landmark customer in the U.K., which we mentioned about who converted from casting to forgings, who is very big in the construction and the off-highway segment. You will see in our joint ventures are clearly an inflection points. Each one of them is showing very strong high double-digit growth going forward. Our Marelli joint venture, we already supplied components to the domestic OEMs and export OEMs. We are supplying components for the chassis, suspension and now recently making a cradle for Tata Motors, which is directly a needy component whether battery motor will fit. Coming to our JV with Marugo, you have seen that how the company has turned the fortunes both in top-line and bottom line. We were successfully able to reduce a part for Maruti for the E20 hoses, which is the product for the biofuel, which the government is planning 20% ethanol into fuel to reduce its imports of crude oil mine. We are one of the few companies in the country to have successfully commissioned this product, and we will supply this successfully to the Maruti last 4 months. Now this will only go up. Nippon Leakless is a very high EBITDA margin business, and the company has strong relationship with Honda and Hero Motor corporations. We're constantly working on increasing our exports from the current level of 25% to 35% over the next 3 to 4 years with focus coming from all our business lines to grow more and more export-oriented, obviously, with fulfilling all the requirements of the domestic OEs first, where we find the demand to be very, very strong. The trend towards sector vehicles is expanding and we've been strengthening our EV portfolio, we secured orders from leading OEMs, both domestically and globally in the EV space as well. We also have secured some orders from the nonautomotive segment, and this will help us hedge our revenue going forward. With continuous innovation in products like heat shields, strengthening EV portfolio, orders of non-automotive segments, [ saw ] clients and journey towards sustainability for manufacturing biofuel hoses for the E20 segment, we are very strong. We are very confident of achieving good growth in the near future. As informed, the investment in investor community recently, we plan to double our revenues and become INR 2,200 core company by the year FY '27. I think with all this, what we shared with you that being a segment player, being into every segment, being in export and very strong cost controls internally through our presidents of all divisions and focus on localizations, I feel that our margins should increase over 15% to 16% EBITDA by FY '27. Before I hand the call to Navin Juneja, our Group CFO, who will take us through the numbers, I'm very happy to announce that we are proud to have delivered a strong performance last year and even above that in quarter 4. Navin, over to you.

Thank you very much. Good afternoon, and a warm welcome to all the participants. Let me begin with the financial overview. Our total revenue for Q4 of FY '23 stood at INR 177 crores as against INR 150 crores, a growth of 18% on Y-o-Y basis. For FY '23, our revenue stood at INR 653 crores as against INR 585 crores, a growth of 12% on Y-o-Y basis. EBITDA for Q4 FY '23 stood at [ INR 70 crores ] as against INR 23 crores, a growth of 18% on Y-o-Y basis. And for FY '23, EBITDA stood at INR 93 crores as against INR 83 crores, a growth of 12% on a Y-o-Y basis. EBITDA margins for Q4 of FY '23 stood at 15.2% and for FY '23 stood at 14.3%. PAT for Q4 FY '23 stood at INR 17 crores as against INR 13 crores, a growth of 34% on Y-o-Y basis and for FY '23, PAT stood at INR 56 crores as against INR 45 crores, a growth of 24% on a Y-o-Y basis. The Board of Directors have declared a final dividend of INR 2 per share of face value of 10 each a total dividend for FY '23 stood at INR 3 per equity share for FY '23. In the gasket division including Nippon Leakless Talbros for Q4 of FY '23, our stand-alone gasket sales are INR 119 crores as against INR 102 crores in Q4 of FY '22, a growth of 17%. Total revenue of Nippon Leakless was INR 8 crores in Q4 of FY '23 as compared to INR 7 crores in Q4 of '22, a growth of 8%. These numbers are our share of business of 40%. For FY '23, our standalone gasket was INR 434 crores as against INR 382 crores in FY '22, a growth of 14%. Total revenue of Nippon Leakless was INR 35 crores in FY '23 as compared to INR 30 crores in FY '22, a growth of 19%. Nippon Leakless numbers are -- reflect our share of business, our share of shareholding with 40%. That is 40% only. The segment saw a combined EBITDA of INR 18.6 crores in Q4 of FY '23 versus INR 16.4 crores in Q4 FY '22, a growth of 13% for a full financial year of 23 days, this segment saw a combined EBITDA of INR 67.5 crores as against INR 59.5 crores, a growth of 13%. Now coming to our forging division. The revenue of this division in Q4 of FY '22 reach grew by 23% to INR 59 crores -- sorry, INR 59 crores as against INR 48 crores in Q4 of FY '22. In FY '23, revenue grew by 7% to INR 219 crores as against INR 204 crores in FY '22. As you are aware in the first 9 months, there was a shortage of chips, et cetera, logistic issues of a lot of issues, a lot of demand of JLR and [indiscernible]. So now everything is falling in line, and we are back on track in this division. EBITDA in Q4 FY '23 grew from 9% to INR 10 crores as against INR 8 crores in Q4 of FY '22. In FY '23, EBITDA grew by 14% to INR 34 crores as against INR 30 crores in FY '22. Now coming to Marelli Talbros Chassis Systems. Revenue for Q4 FY '23 stood at INR 27 crores versus INR 25 crores in Q4 '22, registering a growth of 11% on a Y-o-Y basis for FY '23 revenue stood at INR 105 crores versus INR 82 crores, a growth of 27% on Y-o-Y basis, these numbers are our 50% share of business. For Q4 FY '23, EBITDA stood at INR 3 crores as against [ INR 2 crores ] in Q4 FY '22, a growth of 26% on a Y-o-Y basis. For FY of '23, EBITDA stood at INR 11 crores as against INR 8 crores in FY '22, a growth of 34% on a Y-o-Y basis. Now coming to our large JV of Talbros Marugo Rubber Pvt Ltd. Revenues stood at INR 14 crores in Q4 of FY '23 versus INR 9 crores in Q4 FY '22, registering a growth of 68% on Y-o-Y basis. For FY '23, revenue stood at INR 42 crores as against INR 27 crores, a growth of 55% on Y-o-Y basis. Again, these numbers are our share of 50% only. For Q4 of FY '23, EBITDA stood at INR 2 crores as against INR 1 crore in Q4 of FY '22, a growth of 148%. For FY '23, EBITDA stood at INR 4 crores as against INR 1 crore in FY '22, a growth of [ 109% ] on Y-o-Y basis. Looking ahead, we see various opportunities for sustained growth in the automotive industry. The company has made substantial investment in new technologies, expanding new capacities, diversifies product portfolio, broaden its customer base and enter additional markets. Talbros is confident that these initiatives will drive long-term growth for our company and positioned to take advantage of future opportunity in the industry. That's all from my side, and I would now like to open the floor to question and answers. Thank you.

[Operator Instructions] The first question is from the line of Shikha Mehta from Equitree Capital.

Okay. Congratulations on a good set of numbers. I just had a few questions. Anuj, on my last cost call, you mentioned the agri segment that you have in Italy, et cetera. So how is that shaping up for us now? And also how is orders looking overall?

Yes, agri is doing good. We supply to Dana and Carraro division to the agri segment industry, is doing strong, is doing okay. The carmakers like BMW and Jaguar Land Rover, slightly, I will not say sluggish, but muted but looks okay. We are looking at a good quarter, good year ahead for our forging division also going forward. We are fine. And I think the onset of the new customer, HCV, which has come in, that will obviously add on a value and revenue to the company. So we are not [ at all foldout that ].

Okay. Great. And so If I remember, we had a small pause in the wire harness segment in our portfolio. Are we looking to grow that? Or what is the strategy regarding that?

Yes, we are looking to grow that. In fact, as we speak, we are looking to -- we have approached another OEM in the U.S. for the wire harness business. And also one potential OEM in the country, who is not currently using this technology is visiting us 1st week of June. So hopefully, thinking [indiscernible]. And also from Russia, we've already got the order of about INR 10 crores plus for this component for the local Russian market engines.

Okay. And overall right now, what would be our exposure to wire harness?

Wire harness is about INR 30 crores, INR 40 crores per annum at the moment, but this will go to about INR 65 crores, INR 70 crores in the next 2 years.

Okay. Got it. Sir, if you could also shed some light on freight and power cost for Q4?

On what?

Freight and power.

Freight and power cost. Yes. Freight has -- overseas freight has come down, okay? We enjoyed the benefit of tax to the last forging divisions, basically overseas freight is higher because of the major exports are coming from there. And it has come down and from pre-COVID levels, and we enjoyed the benefit of cost during the last 4 months. But I think we have to reset the prices of all the customers going forward. I think we will do it in this quarter. Power, I think power is already we are under control in power segment. And in future, we have in some plants. We have a case in LCR, we can't run in the summer and the containers. We have converted our DC set to PNG. So we will be using PNG going forward for the DC sites. So it's under control. Power is not a major concern for us.

[Operator Instructions] The next question is from the line of Naysar Parikh from Native Capital.

My question is that in FY -- is on the EV side, right on -- in FY '27, also, we are expecting maybe 10%, 12% to only come from EVs. So I just want to get your sense that how -- one, how do you see that evolving? And from the gasket side, do you see growth continue keeping the heat shield business side, do you still see growth over the next 3, 4 years in your gasket division.

So coming to your question on EV side, of course, we are expecting from 2% to around 12% on the double top line, around INR 250 crores business we are expecting by FY '27, the growth drivers will be heat shield. We are going to be setting the order for the heat shield to be fitted in the EV. So that order we are already negotiating number one from that side. Plus on the battery, we are going to -- already got the order for some revised gasket on the battery. Number 2, on the forging front, we are already supplying for our BMW vehicles, Volvo for our EV vehicles. The products are going. We expect a good growth of this business going forward. Plus our joint venture, [ MMP ] already got a very good order was a grade from Tata Motors. The value -- volume of this business around INR 32 crores, plus already we have got an order from Maruti for the EV vehicles. So that will also add to the plus JLR, we have already got for the chassis business, order or their EV vehicles going forward. So all these, as of today, the picture looks like INR 250 crores. And I think the more we'll go forward as figure should increase. It should not go down, it increase further. That is the way we are going.

Got it. And if I just look at your gasket business, and I think you spoke about this a couple of calls back also. But when we look at the gasket business, what kind of products if today, we assume a like-to-like ICE vehicle is replaced by EV, then your gasket and your forging, what products replace it, as is like-to-like? And just from a content for vehicle -- cost per vehicle, how much does it use to you?

Forging has got no impact at all, number one, nor the chassis, nor above. In the gasket business line for us, if I even remove hear shield your question you asked me, even in gasket because we are into commercial vehicles, into tractors, in to agri, into off-roaders and to PV. So it will continue to grow. I'm not saying [indiscernible] the gasket business. No, I'm not. There's no like that suddenly to model the world will be replaced by EV. We will continue to grow in gasket. In fact, the feed study that there is a consolidation happening in this segment and a lot of the gasket owners, or [indiscernible] owners or bearing owners globally are owned by funds. And they're not bullish about it. So it's coming a lot to companies like us in India who are still not that large. We're still able to capture more business going forward. So we have grown last year by 30%, 40% in that result. And going forward, we are -- our vision is to double this turnover in the next 4 years.

Right. Got it. And sir, last question, this INR 1,000 crores that you mentioned, which are the orders that you received. Can you give some guideline in terms of how much is it for FY '24 out of that, that you need to do?

I think you should divide it by -- I mean, INR 150 crores to INR 200 crores year-on-year. But that has to come into production and cycle and SOPs and all, that should be a number.

[Operator Instructions] The next question is from the line of Divya Daga from Vijit Global Securities.

My first question is can you provide the breakup for the new order intake we got in this quarter as well as for the whole year.

We can't hear you. I have a question that can you provide a breakup of order book for this quarter as well as for the whole year? Breakup for the order book?

Yes. The existing order book that the company have.

This is the presentation we have uploaded, that all have the details of all the presentation. You can see the order book there on the page #2. It was multiple segments, multiple products, multiple territories is already uploaded. You can look at from there please. It's all detailed out there that how much is [indiscernible], how much is commercial vehicle, off-road vehicle, all that.

Yes. So is it a complete order book that we have -- you have given?

It's a new order. You can't give the existing order as we keep on repeating if we do we keep on getting.

Okay. And my next question is that as I saw the PBT, I have noticed that capital utilization for FY '23 has fallen down a little bit. Is there any specific reason?

Capacity has come down a little bit. Utilization?

Capacity utilization, especially for forging.

Yes, it happens in the last -- every year, in the third half and fourth half -- first quarter, we put up the new age for the new financial year in advance. A slight effect of the net of that, please. Because if we are growing, we need to put the machines in advance for the next year. That is the [indiscernible].

The next question is from the line of [ Rahil Shah from Crown Capital ].

Sir, the question is about the outlook for on a more near-term basis. So I understand you've given your FY '27 targets about reaching -- doubling your revenues. So that is like roughly from this current stage, 20% CAGR will be growing for the next 4 years. But then let's say, you mentioned you want to gain more market share and then you mentioned the industry overall is going to grow at a certain percentage on a CAGR basis. So given all these things, and let's say the demand suddenly shoot the way more than expected, are you in a position in the next 1 to 2 years to grow more than this 20%?

Of course. Number one, these are the positions given on the basis of the what we can foresee as of today, okay? And tomorrow Maruti double the production, of course, we will be growing that way. Tata Motors double its production as compared if we get huge demand comes up as volume increases, of course, we can deliver. This is the basis of this, we expect the industry to move out. If it is go back, it goes better, of course, why not.

Okay. So you're definitely in position. So let's say, if there is a lot more demand than this 20% -- 25%.

I mean we're putting up a new plant. We're moving our rubber facilities to Palwal now we have a larger plant there. We're looking at a potential plant in Gujarat in the near future, we're working on a case study with that. So that's always ongoing. We put up a brand-new center in Palwal for machine, brand-new machine unit. And so we're all ready for that. It's not that [indiscernible] demand with somebody else.

Okay. And the EBITDA margins also will move like in a stage like phase-wise manner from...

You can see for the year, we have by [ 14.2% -- 3% ]whatever it is. Of course, as the volume goes up, it will improve, but it can't jump from 1 year from 14% to 15%. It can't, because there are cost escalation also, everything is there. And so we will go up to 15%, 16% definitely. There is no way we can't go there.

But at least we can say that in this FY '24, it will at least maintain sustain and then any improvement it will be possible...

[indiscernible]

[Operator Instructions] The next question is from the line of Divya Daga from Vijit Global Securities.