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

Ladies and gentlemen, good day, and welcome to Talbros Automotive Components Limited Q3 FY '24 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 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.

Yes. Thank you so much. Very good afternoon. everyone, and a very warm welcome to our Q3 earnings call. On the call today, I'm joined by Mr. Navin Juneja, our Director and Group CFO; SGA, our Investor Relations advisors. The results and the presentation are uploaded on the stock exchange and the company website. Let me begin with the economy and the industry overview. In the interim union budget for '25, I would like to highlight on key points that benefit our industry. The most that is, with regards to corpus being set aside for providing financing with low or nil interest rates, which we encourage the private sector to scale up research and innovation significantly in sunrise domain like ours. Second is on increased CapEx allocation by 11.1% over last year. This should give a boost to infrastructure across segments, which directly impact the automotive industry, especially in commercial vehicles. Thirdly, and importantly, the government has given emphasis on expanding and strengthening the vehicle ecosystem by supporting manufacturing and charging infrastructure. I'd like to mention Talbros is already now increasing its share in the EV spectrum. Coming to the industry overview. In terms of the domestic sales, the passenger vehicle industry, domestic sales grew by 25% year-on-year in the 9 months FY '24. The segment's growth trajectory continued for 2 consecutive fiscal years with vehicle availability and an interest in new and refreshed models from various OEMs. For commercial vehicle volumes, I expect it to gain further traction as the year progresses, supported by the healthy allocation for CapEx by the government. As mentioned earlier, increasing infra spend by the government will definitely help and improve this segment, in particular, and also off-loaders and excavators as well, which we are a part of. In quarter 3 FY '24, Talbros has demonstrated a very strong growth and profitability compared to previous year, with a 40% increase in EBITDA to INR 33 crores, and a 66% growth in net profit to INR 23 crores. In the 9 months, revenue from operations grew by 22% to INR 576 crores, while EBITDA grew 38% at 92 crores with a 15.7% margin. The JVs demonstrated consistent performance in their respective segments throughout the year. Business growth has been consistent throughout the year and building up upon orders acquired last year. We had mentioned to you that Talbros received an orders of about INR 980 crores, across their various product segments. This order will be executed over the next 4 to 5 years. But what we're happy to announce that of this INR 980 crores order book, 415 orders -- INR 415 crores of orders came from exports, and INR 475 crores of orders are directly for passenger vehicles in the EV space, both for the domestic and the export market. So almost about 45% of order book is for EV. In December 2023, the company has taken a strategic decision to divest its complete 40% ownership interest in its joint venture entity Nippon Leakless Talbros. Following this stake sale, Nippon Leakless will hold a complete ownership interest in the company. We signed Nippon Leakless team for the successful partnership and mutual success in their future endeavors. We foresee there are immense opportunities in the Indian automotive industry into their current portfolio. We believe that the proceeds from this stake sale will help us putting more business and more CapEx in our growing businesses such as forging, such as gaskets, such as heat shields, And at the same time, will help us manage our -- leverage our debt positions required further. I would like to say that we've had a good quarter. We again see a good quarter coming up as well. I think our hedge portfolio, our diverse segments will be supplied to EV, non-EV, agri, off-loaders, excavators, passenger cars, makes Talbros, a good company to be in. With this I request Mr. Navin Juneja, our Group CFO, to update you on the financial performance. Thank you.

Thank you, Anuj. Good afternoon, and a warm welcome to all the participants. Let me begin with the financial overview. Our total revenue for Q3 of FY '24 stood at INR 202 crores as against INR 160 crores, a growth of 26% on a Y-o-Y basis. For 9 months of FY '24, our revenue stood at INR 583 crores as against INR 477 crores, a growth of 22% on a Y-o-Y basis. EBITDA for Q3 of FY '24 stood at INR 33 crores as against INR 24 crores, a growth of 40% Y-o-Y basis. And for 9 months of FY '24, EBITDA stood at INR 92 crores as against INR 67 crores, a growth of 38% on Y-o-Y basis. EBITDA margins for Q3 of FY '24 stood at 16.5%. And for 9 months of FY '24, it stood at 15.7%. PAT for Q3 of FY '24 stood at INR 23 crores as against INR 14 crores, a growth of 66% on a Y-o-Y basis. And for 9 months of FY '24, PAT stood at INR 60 crores as against INR 39 crores, a growth of 56% on a Y-o-Y basis. Now coming to our division-wise financial performance in the Gasket division, including Nippon Leakless Talbros, for Q3 of FY '24, our stand-alone gasket sale was INR 130 crores as against INR 104 crores, a growth -- in Q3 of FY '23, a growth of 26%. Total revenue of Nippon Leakless was INR 26 crores in Q3 of FY '24 as compared to INR 21 crores in Q1 of FY '23, a growth of 22%. For 9 months of FY '24, our stand-alone gasket and heat shield sale was INR 380 crores -- INR 382 crores as against INR 316 crores for 9 months FY '23, a growth of 21%. Total revenue of Nippon Leakless was INR 75 crores in 9 months of FY '24 as compared to INR 69 crores of FY '23, a growth of 9%. This segment saw a combined EBITDA of INR 28 crores in Q3 of FY '24 versus INR 19 crores in Q3 of FY '23, a growth of 48%. And for 9 months of FY '24, this segment saw a combined EBITDA of INR 77 crores as against INR 58 crores, a growth of 32%. Now coming to our Forging division. Forging revenue in Q3 of FY '24 grew by 27% to INR 71 crores as against INR 56 crores in Q3 of FY '23. In 9 months of FY '24, the revenue grew by 26% to INR 203 crore as against INR 161 crores in 9 months of FY '23. EBITDA for the Forgings division in Q3 FY '24 grew by 29% to INR 12 crores as against INR 10 crores in Q3 of FY '23. In 9 months of FY '24, EBITDA grew by 49% to INR 35 crores as against INR 24 crores in 9 months of FY '23. Now coming to our joint venture, Marelli Talbros Chassis Systems Private Limited, the revenue for Q3 of FY '24 stood at INR 69 crores as against INR 55 crores in Q3 of FY '23, registering a growth of 24% on a Y-o-Y basis. For 9 months of FY '24, revenue stood at [ INR 190 crores ] versus INR 155 crores, a growth of 23% -- 22% on a Y-o-Y basis. For Q3 of FY '24, EBITDA stood at around INR 10 crores as against INR 7 crores in Q3 FY '23, a growth of 47% on a Y-o-Y basis. For 9 months FY '24, EBITDA stood at INR 25 crores as against INR 17 crores in 9 months FY '23, a growth of 50% on a Y-o-Y basis. Now coming to our last joint venture of Talbros Marugo Rubber Private Limited. Revenue stood at INR 29 crores in Q3 of FY '24 versus INR 20 crores in Q3 of FY '23, registering a growth of 42% on Y-o-Y basis. For nine months FY '24, revenues stood at INR 92 crores as against INR 56 crores, a growth of 62% on a Y-o-Y basis. For Q3 of FY '24, EBITDA stood at INR 2 crores as against INR 1 crore in Q3 FY '23. For 9 months FY '24, EBITDA stood at INR 7 crores as against INR 3 crores in 9 months of FY '23, a growth of 112% on Y-o-Y basis. We are confident towards achieving our growth throughout the year and believe that the margins are -- these margins are sustainable. And that's from all our side -- all from our side. And now I'd like to open the floor to the question and answer. Thank you.

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

Congratulations on a very good set of numbers. Fabulous performance in terms of profits. I just had a couple of questions. Firstly, in terms of the profitability, could you just give us some more insight on what led to this improvement in profitability? And this 16.5% margins, which we have achieved in this quarter, Mr. Juneja said that we can maintain this kind of margins. So should we understand that 16%, 16.5% could be the new normal for margins going ahead?

Thank you, Mr. Shah. And first of all, I want to tell you that our growth is basically from -- coming from -- you know that from the new orders we have acquired, from the new customer products. Same customer, new products. Same customers, same products. Growth is there. And these are the basic mantra of our growth. And second is I think we have a question on the margin. Of course, this quarter was something extraordinary we achieved. And on the cumulative basis, let's see the business as a cumulative basically because something happened in quarter wise. We can't say this is the best. Of course, we are trying to do the best. But on a cumulative basis 16.7%, I assure you that it should be in the range of [ 15.6%, 16% ] minimum it should be.

Okay. That's great to hear, sir. And one more question is hybrid vehicles are also picking up pace with several manufacturers looking at hybrid vehicles as against, or as compared to electric vehicles. Are you seeing any further trends in terms of popularity of hybrid vehicles becoming better? And if you could just throw some more color on that?

Yes. So I'll -- yes. Carry on Navin [Foreign Language].

Hybrid vehicle, we are present in all hybrid vehicles, number one. Our focus goes in hybrid vehicle also. Maruti is focusing more on hybrid. I can see it now. I think Mahindra is also entering into hybrid vehicle. These 2 are working very, very -- especially Maruti, and we are there -- very well there in the hybrid vehicle.

Our all our heat shields are actually present in all the hybrid vehicles of Maruti. So in the future, whatever they launch will be a part of it. So yes, so there is a lot of talk on hybrid. Sometimes we talk about EVs. Like I said earlier also in the call, in last several calls, every kind of mobility will be there. You'll have gasoline, you'll petrol, like Mahindra, when I was with them 2 weeks back, they talk about diesel engines because they want the torque, they want the power, they want to drive the jeep from Bombay to Alibaug, Alibaug to Lonavala. So they want that. So everyone has a different story. As long as we are present everywhere we are fine.

Okay. And one last question which I had is -- if you look at the forecast, which has been given by SIAM or other associations, the commercial vehicle segment is expected to grow by 3% to 5% in the next year. That is what they are saying. And -- sorry, the passenger vehicles. And the commercial vehicle segment is also expected to be relatively flattish. So if you could give us some more color on to whether this could impact us or we will be able to gain more market share and grow maybe in double digits next year also?

Yes. So I'll answer the first part and Navin can answer the growth part of Talbros. You see the passenger vehicles had a very strong run for the last 2 years, as you know. Commercial vehicles was like a muted growth for this quarter 4 because of elections, right? After that it's going to boom. Okay, if the Government comes back because I was looking at their show giving commentary and talking to some people there. So they also feel that quarter 4 slow, little slow. Be cautious and then long run, there's no problem. With infrastructure spend that's happening, there should be no issue. As I mentioned to you earlier, Talbros Automotive is a very hedged company. We don't rely on one customer. We're getting orders from JCB in the U.K. in a big way, JLR in the big way, BMW in a big way. In India, we are increasing our product portfolio with heath shield with Hyundai, with Maruti. We're entering now Tata Motors electric vehicles in a large way. So we will keep working on our market share. We're not going to depend on these 1 customer, 1 guidance. That's our mantra.

Yes. Plus, we are hopeful that next year also, at present, we can see a growth of minimum 15% plus. And I will be able to give you in our next earnings call, which will happen sometime in May. So we are 15% plus we should easily achieve that.

Next question is from the line of Jyoti Singh from Arihant Capital.

Congratulations on the very good execution in this quarter. And sir, my question is on the order book side, like Maruti is planning for the plant in Gujarat. So are we in any active discussion for the Gujarat plant order?

Maruti -- yes, you are right. Maruti is planning to put up a plant in Gujarat, and we are there in that platform also. Our Magneti Marelli joint venture is supplying their components of sheet metal component to that plant -- EV plant, which is coming there, which is very much there. Plus we are opening our warehouses in Gujarat at present, other components like Marugo is also supplying to Gujarat. They have a warehouse there. Because this is lightweight component, so we can easily manage from -- by putting a warehouse. And so is our heat shield also, we are putting a warehouse there at present. But we are -- I think within -- after 1 or 2 years when the Tata Motor will also start making EV and Maruti will be in -- I think, progressing much more there, we will definitely look at some plants there in -- I think from that next financial year, we should look for something prudent.

Okay. And sir, on the growth side, like in this quarter, we did an extraordinary. So what are targets going forward?

It should be a -- I told you earlier, is between 5.7% to 16% somewhere it should be there. It's a sustainable EBITDA.

[Operator Instructions] Next question is from the line of [ Ravi Shah from Opal Securities ].

Am I audible.

Yes, you are audible.

Yes, yes.

So my first question would be volume related. So what would be our volume growth for the gasket segment and for heat shields segment, can you share that if it's possible?

[Foreign Language]

Volume for gaskets and heat shields growth.

Yes. Number of pieces, I can't tell you. I can tell the numbers, last year, we did in heat shield of around only around INR 20 crores. And for 9 months, we have already achieved INR 32 crores, okay? That figure I can give you. Balance is the growth in the gasket business.

Understood, sir. And sir, just one more forward-looking question, like in the longer term, what would be our growth guidance going forward? And like what kind of contracts would we be looking at something on those lines if you can help me over there?

Yes. So the growth guidance we had given last year that we are -- by '27, we are looking at the top line of combined all businesses up INR 2,100 crores approximately, with the EBITDA of around 16% going forward. And regarding your second question, is on the...

So what would be our like our growth plan, you said like this will be whatever contracts like what kind of contracts you'll be majorly looking at...

We've mentioned to you already, we secured contracts worth about almost INR 1,000 crores last year. And this entails about INR 400 crores of EV and about [ INR 470-odd crores ] of exports. Over and above that, we're looking at a growth about 15% next year. Regarding future contracts, as and when they come, we will update you.

[Operator Instructions] Next question is from the line of [ Bhavya Agarwal from Capital Securities ].

Am I audible?

Yes.

Sir, I just wanted to ask you that could you please throw some light on the divestment in NLK JV and what is the strategy behind in doing that? Like you mentioned for future CapEx, what kind of CapEx are we talking about? And apart from the cash proceeds of INR 82 crores, do we plan to raise any debt or anything like that?

So that investment in the -- first of all, the strategy was -- the business was, if you see the growth of that business for the last 4, 5 years, the business was flat. There's hardly any growth, may be 2%, 3%. And -- but our vision is to invest in those businesses, which grow at 20% -- 15%, 20% minimum. But that potential should be there to grow the business. The potential we were not looking -- as for us, the protection of that business is not matching our expectation. That is the reason for exit. Of course, we got about INR 82 crores from the sale of the business. Our initial investment was around INR 5 crores for that business. Okay. The money what we have -- the money will be there for the 2, 3 things are there. For the growth businesses like Forging, heat shield, the money will be utilized. We are looking at a growth of minimum 20% plus in this business, plus it should be kept aside for the future inorganically opportunity, which may come our -- on our way because we also want to grow inorganically also. So that money will be utilized for that purposes. Regarding that debt position, we are not taking any more further debt at present, and the business are such efficient to fund their own debt -- own CapEx because they're generating enough funds for that. And we have no repayments lined, [indiscernible] is hardly INR 5 crores INR 6 crores that's all.

Right. Great. Sir, the next question was, do we plan to increase our exports in coming years? Like as you mentioned, we have the...

Bhavya, your audio is not very clear.

Yes, our vision is to have the export of 30% plus in next 3 years, that you will also see -- on the expanded top line, my export is still at 25%. And going forward, it will increase further next year. It should be around 26%, 27% next year. As soon as there is this export of EV -- the EV platform starts in '25, you can see a huge jump in export.

So sir, I just wanted to ask you that currently, 25% of our revenue comes from exports and the Forgings business model delivers more than 50% of exports, right? And so just wanted to know if you have any further plans to increase?

Yes, yes, because all dealers have different plans. Forgings export is around 56%, Forging divisions. Gasket, heat shield export is around 15%, and Marelli is around same. I think Marelli is around 15%, 16%...

15%.

15%. And Marugo is hardly 3%. And Nippon was 0. And going forward, the order we have got from our export customers like JLR, JCB and some business of JLR are starting in '25, okay? That's a huge for the EV -- potential EV vehicle. And that's where the business starts, the export will start picking up in a big way. Plus, we are developing the JLR parts. On the Phase I we have developed, we are working on Phase II, then Phase III also there. The way we keep on developing and start -- commercialization will start, the export will further increase. This division of, I think, my Forgings division next year should give a export of 60% plus.

[Operator Instructions] Next question is from the line of Aryan Mehta, Individual Investor.

Am I audible?

Yes.

My question is, our TMS segment has grown 62% on a Y-o-Y basis. Could you throw some light on that, sir?

This is a -- first of all, this is primarily -- this company is primarily catered to Maruti, okay? 55% sales is to Maruti. Maruti, of course, the volume has gone up, you know that. They are doing well. Secondly, they have introduced biofuel hoses. ordered last November, December, last year, December. So -- and the price of that hose is 2x -- 2.5x than the conventional hoses. So the volume -- and they are putting these hoses in all vehicles, all models. So the growth is coming from that -- extraordinary growth coming from that.

Okay. My fourth -- one more question that I have is, do we plan to enter non-auto segment?

We are already there, non-auto. Already there in some way we are in the industrial segment. We are not, plus, if you count off-loader and excavators as automotive and nonautomotive, they're not automotive. We are there in a big way.

Next question is from the line of Uttam Purohit from Monarch Networth Capital.

So my question was on the working capital side. So we have greatly reduced our working capital from last 3, 4 years. So I just wanted to understand, is there any kind of gap between inventory and payable days for Forging business and our Gasket business?

Your question, there's any -- what you were asking, there is any gap, you said?

Gap in inventory days and the payable days for Forging business and Gasket business because both their vendors are different and inventory works are also difference for both the business?

Yes. Both the business has different levels of inventory and debtors. The debtors in the gasket business are within 82 days, that's all. And in the Forging business on an average is 113 days because there is more export there. Otherwise, the banking limits are the same. My working capital is around 75, which is there for last 1.5 years, It's not increased with the increase in turnover, and that is around -- turn around is around INR 5 crores, INR 6 crores. That's all.

So with the increasing share of exports and also increasing share of our Forging business, do we expect our working capital cycle to go at a higher end?

No, no, now that the level has come because there are enough cash accrual from their side, that will not go up.

Next question is from the line of [ Ruchi Gupta ] from Value Capital Partners.

Am I audible?

Yes.

Sir, for last order book was announced in November '23 of INR 580 crores, right? Since then, have you received any orders? Or yes, then how much is exports in that?

Ma'am, we have received some orders. We are waiting for some order more to come. Whenever a sizable amount will be there, then we will announce. You need to wait for a couple of months for that, please.

Next question is from the line of [ Amit from World Foods ].

Sir, you have guided the revenue of INR 2,200 crores for our company? Or it includes the full sales with the JV companies also? So will this just be Talbros' share? Or will this be the total share?

Total share. Total share. Total share.

It will be the total. So Talbros will be around INR 1,400 crores, INR 1,500 crores out of that?

You can see the presentation, it's there. INR 700 crores is my gasket and heat shield, INR 500 crores is my Forgings business, INR 600 crores to INR 700 crores is my Marelli business. I think INR 200 crores around with Marugo business. It's like that.

[Operator Instructions] Next question is from the line of [ Rajvi Shah from Bright Securities ].

I just had a question. What contributes to the 30% revenue growth? Do we have pricing advantage or volume growth?

So there's no pricing advantage. In fact, the prices have come down, especially in Forgings division the prices have come down and the metal prices. As you are all aware, it is -- it has come down from the last year. So there's only volume only due to volume. New customers, new parts of new same customers -- this is basically the mantra of the growth.

As there are no further questions, I will now hand the conference over to the management for closing comments.

Thank you so much for joining the call today. Thanks a lot, and I hope we've answered your questions. And thank you so much, and we're still looking forward to a nice, robust quarter 4. Thank you.

Thank you.

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