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

Ladies and gentlemen, good day, and welcome to Talbros Automotive Components Limited Q2 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which is based on the beliefs, 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] 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, Mr. Talwar.

Yes. Thank you so much, and a very good afternoon, everybody, and a very warm welcome to our Q2 and H1 FY '24 earnings call. On the call today, I'm joined by Mr. Navin Juneja, our Director on the Board and our group CFO; as well as S. Jain, our IR from Mumbai. The results and the presentation are uploaded on the stock exchange and the company's website. I hope everyone has had a chance to look at it. Let me begin with the industry and the economy overview. The auto component industry has shown resilience and a will to succeed despite economic hardships, supply chain disruptions, technology upheavals and even major global geopolitical scenarios like the ongoing war that's happening. Not just supplies shortage in China, but also powerful incentives offered by the Indian government has encouraged domestic manufacturing and has been industry's driving force. Along with that, Indian automotive industry saw an exceptional growth of 21 million units in FY '23, creating a robust demand for auto components. So far in H1 FY '24 11 million vehicle units have been sold with a growth of 9% Y-o-Y, whereas in H1 of FY '24, the total production of passenger vehicles, commercial vehicles, 2-wheeler, 3-wheelers was 14 million units, probably one of the highest ever. In FY '23, '24, the passenger vehicle segment is expected to remain on a positive side with a growth rate of 6% to 9% on a year-on-year basis. The commercial vehicle industry has also followed a similar path and its overall industry volumes are projected to reach pre-pandemic high levels, even as growth is expected to remain at a modest level of 2% to 4% Y-o-Y, although we believe that H2 will be stronger for commercial vehicles, given the fact that an election year coming up next year as well. The growth is particularly strong in the passenger vehicle segment and expect it to continue to expand in the coming years. The journey of PV vehicles of our country has just begun. Furthermore, the demand for commercial vehicles has been boosted by government initiatives through infra spend on CapEx, on highways, roads and ports. As a company that is strong in both 3 segments, Talbros stands to benefit from this trend and has ample opportunity of growth and expansion. Coming to company's performance. First half of '24 has been a better period at Talbros Automotive. At a group level, including our joint ventures, the company achieved a revenue of INR 616 crores, which is a growth of 23% Y-o-Y for H1. During H1 FY '24, 2- and 3-wheelers contributed to about 21%. Passenger vehicles made up the largest share at 33%. Commercial vehicles at about 25%. And agri and off loaders at about 11%. For H1 FY '24, our exports, 15% came from the Gaskets business, 55% came from the Forgings business, 17% came on the Marelli business chassis and 3% came from Talbros Marugo Rubber. Following the order won back in FY '23 and H1 of FY '24, our overall growth trajectory is anticipated to continue in an upward direction. To reinforce our existing order book, we are actively trying to secure additional orders. Throughout the year, JV operations have demonstrated a resolute performance in respective segments, particularly in the PV and the CV segments. We are committed to our vision of becoming a global leader as an auto component manufacturer. In the process as we embrace and celebrate the milestone achieved so far, we aspire to sustain our growth while advancing in the future by being relevant through the services we offer. Furthermore, we shall maintain our position as a diversified and hedged auto component provider and implement a predetermined course of action to bolster our product portfolio through the introduction of new value-add items to capitalize on expanding our domestic and international market opportunities. The company's growth has been supported by innovation and business development as well as capturing market share in our existing markets and going to different territories worldwide. We are assured of achieving our group sales target of INR 2,200 crores by FY '27, of which 35% export -- will be from export. This will come from the U.S., the U.K., Europe as well as Japan. To end that, we are pleased with our strong financial results and optimistic about the future of the automotive industry. We remain committed to innovation, operational excellence and driving value to our customers and shareholders. With this, I request Mr. Navin Juneja, our Group CFO, to update you on the financial performance. Thank you all.

Thank you, Anuj. Good afternoon, and a warm welcome to all the participants. Let me begin with the financial overview. The total revenue for Q2 of FY '24 stood at INR 197 crores as against INR 162 crores, a growth of 21% on Y-o-Y basis. For H1 of FY '24, our total revenue stood at INR 382 crores as against INR 317 crores, a growth of 21% on Y-o-Y basis. EBITDA for Q2 FY '24 stood at INR 31 crores as against INR 22 crores, a growth of 39% on Y-o-Y basis. And for H1 of FY '24, EBITDA stood at INR 59 crores as against INR 43 crores, a growth of 37% Y-o-Y. EBITDA margins for Q2 FY '24 stood at 15.6% and for H1 of FY '24 stood at 15.3%. PAT for FY '24 stood at INR 20 crores as against INR 13 crores, a growth of 53% on Y-o-Y basis, and for H1 of FY '24, the PAT stood at INR 37 crores as against INR 25 crores, a growth of 50% on Y-o-Y basis. The Board of Directors have declared an interim dividend on INR 0.20 [ per share ] this year, a face value of INR 2 for the company. In the Gaskets division, including Nippon Leakless Talbros. For Q2 of FY '24, our stand-alone Gaskets and Heat Shields sales were INR 130 crores as against INR 107 crores in Q2 of FY '23, a growth of 22%. Total value of Nippon Leakless was INR 26 crore in Q2 of FY '24 as compared to INR 25 crores in Q2 of FY '23, a growth of 3%. For H1 of FY '24, our stand-alone Gaskets and Heat Shields sales was INR 252 crores as against INR 212 crore in H1 of FY '23, a growth of 18%. Total Revenue of Nippon Leakless was INR 49 crores in H1 of FY '23 as compared to INR 48 crores in H1 of FY '23, a growth of 3%. This segment saw a combined EBITDA of INR 27 crores in Q2 of FY '24 versus INR 21 crores in Q2 of FY '23, a growth of around of 29% and for H1 of FY '24, this segment saw a combined EBITDA of INR 48 crores as against INR 39 crores, a growth of 23%. Now coming to our Forgings division. Revenue in Q2 of FY '24 grew by 23% to INR 68 crores as against INR 56 crores in Q2 of FY '23. In H1 of FY '24, revenue grew by 26% to INR 132 crores as against INR 105 crores in H1 of FY '23. EBITDA in Q2 of FY '24 grew by 55% to INR 12 crores as against INR 8 crores in Q2 of FY '23. In H1 of FY '24, EBITDA grew by 62% to INR 23 crores as against INR 14 crores in H1 of FY '23. Now coming to Marelli Talbros Chassis Systems Pvt. Ltd., our JV. Revenues for Q2 of FY '24 stood at INR 64 crores versus INR 55 crores in Q2 of FY '23, raising a growth of 17% on a Y-o-Y basis. For H1 of FY '24, revenue stood at INR 121 crores versus INR 100 crores, a growth of 21% on Y-o-Y basis. For Q2 of FY '24, EBITDA stood at INR 9 crores as against INR 6 crores in Q2 of FY '23, a growth of 51% on Y-o-Y basis. For H1 of FY '24, EBITDA stood at INR 16 crores as against INR 10 crores in H1 of FY '23, a growth of 52% on a Y-o-Y basis. Now coming to our third joint venture of Talbros Marugo Rubber Pvt. Ltd. Revenue stood at INR 33 crores in Q2 of FY '24 versus INR 20 crores in Q2 FY '23, registering a growth of 68% on Y-o-Y basis. For H1 FY '24, revenue stood at INR 63 cores as against INR 36 crores of H1 of FY '23, a growth of 74% on Y-o-Y basis. For Q2 FY '24, EBITDA stood at INR 1.6 crores as against INR 1 crore in Q2 of FY '23, a growth of 62% for H1 of FY '24 EBITDA stood at INR 4.5 crores as against INR 1.8 crores in H1 of FY '23, a growth of 143% on Y-o-Y basis. Anticipating the future, we foresee a multitude of prospects that promise to foster continuous expansion with the automotive sector, significant investments have been made in new technology, capacity expansion, product portfolio, diversification, customer base expansions and market entry by the organization. The company is certain that these initiatives will position the organization to capitalize on forthcoming opportunities in the industry and foster long-term growth. This is all from our side, and I would now like to open the floor to questions and answers. Thank you.

[Operator Instructions] The first question is from the line of [ Akash Mehta ] from [ Capaz Investments ].

My question was mainly on the new segment that you have entered, the agri construction and offroad segment and you've done a CapEx of about INR 400 crores for the same. So I just want to understand how lucrative is this business segment for us? And is it slow moving? Or is it expected to grow at a fast pace?

Your voice is not very clear.

Voice is not clear.

Sir, talking about the new segment that we've entered into, the agri construction, offroad segment. So we've done a CapEx of about INR 400 crores for the same, right?

No, no, no, INR 400 crore. It's not INR 400 crore.

CapEx for Forgings, the new agriculture segment.

No, no, the total CapEx on a stand-alone basis for the first 6 months is around INR 23 crores. Okay. Out of which forgings is around INR 17 crores -- INR 16 crores, INR 17 crore only, okay. Now repeat the question please?

Okay. How lucrative is the segment for Talbros? I just want to understand is that fast-moving segment or?

During the first 6 months, this segment, we sold around -- my sale is around INR 30 crores plus, INR 30 crores to INR 40 crores. We export -- we expect that this segment going forward should give a revenue of around INR 100 crore per annum in a couple of years.

It's a lucrative segment. It's a lucrative business. Its business out of U.K., where we exported to U.S.A. and Europe. So it's a very -- it's a strong growth business.

And on the margin front, how do we see the margins growing?

This EBITDA is around 18% plus.

[Operator Instructions] The next question is from the line of [ Dipen Shah ], who is an individual investor.

Hello, am I audible?

Yes, you are audible, sir.

Okay. I had just one question on the profitability of the subsidiaries. We understand and we see in the presentation that Marugo as well as Magneti, the relative profitability is slightly lower as compared to the Forgings business. So in your opinion, over the next couple of years by FY '27, what kind of EBITDA margin should we assume for Marugo as well as Marelli?

First, let me talk more about Marugo. Please don't look at the last quarter. During the last quarter, the company has shifted its manufacturing facility from existing -- earlier in Manesar, there were 2 plots. Now we have bought a big facility in Bawal. During the shifting, we, first of all, extraordinary expenditures were incurred in shifting and installation of machines, plus a lot of manpower -- trained manpower was not shifted to Bawal, which is around 50 kilometers from the existing -- old facility. So they didn't turn out there. So we had to employ fresh manpower, which resulted in higher material costs, higher rejections and low productivity. These are extraordinary payments for the company in the last quarter. I say that by now, 90% -- 80% to 85% problem has resolved. Manpower -- trained manpower is there. Now we can see a much more improved next 2 quarters in this. This is one-off quarter, please ignore this quarter for us. This is one-off because of our shifting. Now everything is -- 80% of things are online. And I think this quarter -- coming -- this current quarter, you will see a much better EBITDA. And after that, it will be much, much better in the next -- in '27, the EBITDA of this business should be between 30% to 50%, number one. Mareli is a chassis business -- it's a sheet metal business. We buy sheet metals. There's lot of -- and raw material cost is 75%, 76% in this business. The business margin you can't compare with Forgings where at 55% is -- gasket which is a proprietary product. So going forward, this business -- going forward, this business can give you -- also give you EBITDA of between 14% to 15% in next 2 years. Export is yet to pick up. My export is yet to pick up. The [indiscernible] margins are better. And I think in the next 2 quarters, you can see a little flavor of that improved EBITDA in this business also.

The next question is from the line of Jyoti Singh from Arihant Capital Markets Limited.

Sir, my question is on the other expenses side, which is higher 6% sequentially. So if you can throw some light on that? And secondly, congratulations on the good set of numbers.

Thank you. Thank you. First of all, regarding other expenses. The other expenses basically is higher on the Forgings side. There are 2 things happening there because the export is going up, and we saw some problem in the packing side. The packing was on the lower thickness side, the packing boxes. We increased for -- the higher weight because my components weight is going higher and higher. Now we have improved the packing. So we have incurred the additional cost of about INR 50 lacs in this process. So my packing has improved so customer complaints which were there, have been resolved. So in all the export packaging, we have improved the packing. Plus there is one-off expenses related to trade, which was partially linked to first quarter, has been debited to this quarter. So this is one-off, again, okay? You need to compare -- please compare H2 '23 to H2 '24, that will be better. I have a fewer -- don't compare Q1 to Q2 and other expenses, this is some onetime expense. That's all.

Okay. And sir, another on the margin side. So like in this quarter also, we delivered 15%. So we will be going to continue this trajectory or we have any projection going forward?

Going forward, my margin EBITDA should be above 15%. We are quite hopeful about it. Yes, we should sustain it. Not 15.6% is a little higher in this quarter. But going forward between 15% to 15.5%, it should be there.

Okay, great. And sir, if you can also guide us on the top line side.

For which year? Hello? For which year?

The coming years.

I think to be honest, we've -- we should maintain a good double-digit growth rate even for H2 and then we'll get back to you after.

It should not be -- because last year it was very higher -- the second [ quarter ]. It should be better this year also. But overall, it should be around 18%, it should be there. Yes, for the full year growth.

So sir, for that, we have any good order, if you can explain to as that in the pipeline?

Yes. Yes. We have orders in pipeline. Also some new business is being converted in the coming quarters also. It will be added to our top line, plus the existing business growth should also be here. And regarding the future, we are in the process of compiling the order book -- fresh order book, and it will be shared with the investor community shortly.

[Operator Instructions] The next question is from the line of [ Rajvi Shah ] from [ Bright Sec ].

I just had one question. What has driven H1 FY '24 revenue to grow by 21% year-on-year?

What has driven? I think it's a mixture of the current growth in the Indian market. Our increased market share with customers, new products, new customers, same products, new territories. And for example, the Heat Shield line is growing, the Forgings business is growing in a massive way to the U.K. for the agri and offroad business. EV component called the battery cradle for Tata Motors as an EV product line from Puna is growing. The bio fuel hoses which are [ supplied by ] Marugo, that is growing. So a mixture of products, new business acquisitions, as I told you, is all leading to the growth.

[Operator Instructions] The next question is from the line of [ Ravi Shah ] from [ Okal Sec ].

Am I audible?

Yes.

First of all, congratulations for a good set of numbers, sir. Second, so I had a few questions about EV -- pertaining to EV only. So your revenue share in the presentation you have mentioned, we plan to take it to 12%. It currently is at 2%. So what are the -- so we are looking -- what CapEx we're looking over here? And what could be our capacity utilization after this CapEx? So a little comment on that.

Regarding the EV, 2% to 12% of the business is being -- under process of being awarded. The production is yet to start. In the case of VP customer, we have won of the business, I think, a decent business for the product to be launched from next year. So from next year, you will see a little bit traction in that business going forward. And because when the model will start, when the things will start, it will grow, the order book is with us for that, but we have got the Maruti order of -- but whenever [indiscernible] Maruti, we are a single source [indiscernible] in that. So that will be launched in '25, so the business -- EV percentage will go up in that time. So regarding the CapEx -- capacity utilization. If we -- my stand-alone of business of Gasket and Heat Shields is around 90%. In my Forgings division, it is around 85%. And in Magneti, Marelli is again 80% plus. In my Talbros Marugo, it is around 19%. In my joint venture of Nippon Leakless is around 75% capacity utilization.

Understood, sir. I have one more question, sir. So what should be the 3 key external and internal drivers that would lead to a sustainable [ pack ] margins that we have?

I think basically the hedge portfolio supplying to different type of components, car makers, truck makers, off-loaders. At the same time, we export a lot, a constant watch on our cost controls, constant watch on our manpower cost, constant watch on localization BAV. So it's a mixture of that. Also economies of scale, like in Forgings business line or chassis, we're building higher revenue part numbers. So automatically that adds more direct value to the bottom line.

So the current margin, can we assume to be sustainable? Or it can increase from the other side?

The margin -- sustainable margin is 15% plus is sustainable margin.

[Operator Instructions] The next question is from the line of [ Jia Shah ].

Hello, am I audible?

Yes.

Sir, we have mentioned to increase our presence to 22% approximately by FY '27 in export market. So how do we plan on executing this? Like are we planning on new geographies or volume price realization?

Only export we document them. Not retail.

So what you are saying? What's the question, could you please repeat that?

Okay. So what I'm trying to ask is that we are trying to increase our presence in the export market, right, to approximately 22%. So how are we planning to execute this?

We are looking to [ put ] our exports north of 25% in '27. And how we're going to execute this ma'am, is basically, we are looking at new territories. We are looking at new areas, newer product lines, new customers. Even a lot of customers in U.K., U.S. all wanting to buy from India with the whole China tariff situation. So in the same plants that we have, better audit facilities, I would say, better quality systems.

And expanding our capacity in that also. We have lots of export orders in pipeline also at present. And we are in the process of closing more export orders, I think, in the next 6 to 9 months. So it is visible. It is -- we can see light of that -- we are confident of achieving that. We have to add the equipment, machines. We are in the process of doing that.

There is nothing out of the ordinary. It's very similar components that go in India also go by exports. So nothing that you have to make a 360-degree change. No, nothing of that sort.

So some great [ part numbers ] are there, we are careful of developing those [ part numbers ], don't worry about that.

Okay. I have a second question. We have about 50% market share in the Gasket business, which is great. So my question is that how do we see our market share further growing? Are we like targeting new customers or new markets? Would you like to throw some light on this, please?

First of all, of course, you have 50% plus, you are right. We are adding, first of all, more customers in that. Lot of new customers are giving -- new part development is coming to us. So there are new part numbers and more value addition part numbers. Number two, heat shield is coming in a big way to us.

Which is in the Gasket business.

Which is included -- which is added in the Gasket business. It is also come in big way. Last year, we did as a whole around INR 20 crore of Heat Shields business. In the first 6 months, we've already done INR 21 crores this year. So it is -- we are looking at great future in that also.

The next question is from the line of [ Ruchi Gupta ] from [ Value Consultant ].

Yes . So I understand that our CapEx is funded majorly through internal accruals and some debt, right? So is it fine to say 20% would be through debt and could you quantify debt numbers and cost of debt for the same?

Yes. Ma'am, total debt of the company is around INR 85 crores. Out of which around INR 5 crores is term loan, balance is the working capital, okay? The cost -- out of which around INR 40 crores in the form of banking credit, which at present is around 5.9%. Balance, I think, 40% out of it -- except leaving INR 5 crore, balance in our WCTL, working term loan which is around 7.9% now with -- my improved rating that rate has gone down to 7.59% to 8%. This is my borrowing cost.

Okay. Okay, sir. Sir, I have 1 more question. Who are our top customers in the Gasket and Forgings business? And how much do the top 5 or top 10 contribute to these businesses?

Yes. In the Gasket and Heat Shields business, my top customers are in the first 6 months Tata Cummins, there, we did a sale of INR 41 crore. Bajaj Auto, we did a sale of INR [ 48 ] crore. VCV, we did sale of INR 16 crores. Tata Motors INR 15 crore. Hero MotoCorp, INR 10 crore. JLR INR 8 crore. John Deere INR 8 crores. Maruti INR 7 crores. And these are my Gaskets and Heat Shield. And the Forgings, my main -- top customers are BMW, INR 28 crore; JCB INR 22 crores; DANA Italy export is INR 18 crores; JLR export is INR 14 crores; [ GTS ] export is INR 11 crores. These are my -- what was the other questions? This is my customer of Gasket and Forgings. And what you said -- anything else which you said? Hello?

[Operator Instructions] The next question is from the line of Yash Kukreja from Equitree Capital.

Sir, my question is regarding the orders from the nonautomotive segment. So sir, how much this segment contributes as of now?

At present, it's very minimal to be very fair to you. It's around INR 10 crores. Order book is there at INR 10 crores to INR 12 crores at present, very minimal at present.

Okay. So sir, are we planning to expand it a bit?

Agri is...

See, we consider agri, offroad, construction automotive basically.

And industrial segment, we are there. In generator or from other industrial segment was [indiscernible] et cetera, we are there. You can call it nonautomotive.

The next question is from the line of [ Ravi Shah ] from [ Okal Securities ].

So basically, we had received a big order during July period of INR 400-odd crores. After that, I mean, any new client addition we have done or anything or update on those fronts, sir?

We have already orders. We are in the process of compiling those data. And shortly, we will release that order book. Very shortly.

Okay. Understood. Any names you can give me?

It's there...

Sorry?

The fresh orders are there. We are in the process of waiting some more orders to close, and we will release this to the investor community shortly.

Understood, sir. Sir, one more question I had was on the cash flow and actually receivables have jumped by INR 20-odd crores. Any reason for that?

Yes. Because, you have seen, for the first time that we are talking about JCB, we have started supplying to them, I think INR 22 crores sale has been done. Firstly, we have to -- we have a depot there in U.K. We have to stock for that with the results, my debtor has little bit gone up. And I think this is one time and now the inventory, they start -- I think, intake has started and it will be. I think, it will come down -- by the March, it should be under control because the number of deals have not gone up. Number of days has not gone up, number of days is still the same, but the figure is...

Correct. Correct. So what kind of normal working capital cycle should we expect going forward? Like I mean...

It depends on business to business. In OE, we -- payment is around 75 days, okay? My -- in export, it is around 130 days and it depends on customer. In Maruti, we do it in 1 month. For stand alone, we are not selling much to Maruti. In JV, we are selling to Maruti. Otherwise, 50 to 90 days payment terms are there, OE, Indian OE. Exports, it usually takes about 100 to 130 days.

Understood, sir. Because a lot of -- I mean, we made good profit growth, but it's not directly translating to cash flow, so I was a little concerned on that one, but all good.

It will be because the margins are good, everything is built in that and the cost is built -- inventory holding cost, everything is built in that. Of course, I agree with that. Agree with you.

As that was the last question for today, I would like to hand the conference over to the management for the closing comments. Over to you, sir.

Yes. Thank you so much for being part of the call. We've had a good quarter. We've got a good year. We're very confident about our progress going forward, and we wish you all very Happy Diwali.

Thank you very much. On behalf of Talbros Automotive Components Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.