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

Ladies and gentlemen, good day, and welcome to Talbros Automotive Components Limited Q4 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, Mr. Talwar.

Thank you. Good afternoon, everyone, and a very warm welcome to our Q4 and FY '24 earnings call. On the call today, I'm joined by Mr. Navin Juneja, our Director and Group CFO; and SGA, our IR, [ Badri ] from Mumbai. The results and the presentation are uploaded on the stock exchange and the company website. I hope everyone has seen it. Let me begin with the industrial and economic overview. In FY '23/'24, a total of 23.8 million vehicles were sold as compared to 21.2 million units in the previous year, showing a growth of 12.5%. Sales improved across all automotive segments and passenger vehicles grew by 8.4%. Two-wheelers, surprisingly has made a come back with the growth of 13.3% and commercial vehicles remained flat. Domestic customer vehicle segments increased by 8.4%, reaching over 4.2 million units as compared to 3.9 million units in FY '23. The PV vehicle segment's sales are led by the mini SUVs and the SUVs, which grew by 26% to 2.52 million cars as opposed to 2 million in the previous year. In the PV segment, the domestic industry sales mix is expected to be largely skewed towards UV in the segment sales mix with higher export volume and increasing share of CNG, hybrid and EV in the fuel mix. Two-wheeler segment increased by 13.3%, reaching 18 million units. Growth was particularly robust in the two-wheeler segment expected to have a significant potential to grow, primarily driven by expected revival in rural economy and the trend towards terminalization by OEMs. EV sales in FY '24 witnessed a strong increase of 41% despite subsidy cuts. Total EV registrations have surpassed 1.6 million units in FY '24 as compared to 1.1 million in FY '23. EV [ foundation ] rate increases to 6.8% in FY '24. Passenger cars in the EV segment have shown double the growth as compared to last year. Talbros have good opportunities for growth and expansion in the EV space, and the revenue contribution from EV this year stood at 3% as compared to 2% in the previous year. We have pretty much [indiscernible] all your Tata Motors EV vehicles as well as some very prestigious EV [ enormous ] as well. Coming to company performance. FY '24 have been a very strong year for Talbros Automotive. At the group level, including all joint ventures and 100% value that the company achieved a revenue of INR 1,258 crores, a growth of 21% year-on-year. Over the last year, in July, Talbros received orders worth INR 400 crores from both domestic and overseas customers across its business divisions, product segments and JVs. These orders are executed in the next 5 to 7 years, which also includes a multiple EV order of INR 205 crores from leading OEMs. In November '23, we received another multiyear order of about INR 580 crores from both domestic and overseas customers across all our business lines. And this includes an export order of INR 415 crores and multiple EV orders of INR 270 crores from the leading OEMs, which are to be executed in the next 5 years, covering the product lines of the company, gaskets, heat shields, forgings, chassis, rubber hoses. Last month, in April, we received a very large order from a new OEM in Europe for about INR 1,000 crores. This will come from our joint venture, Marelli Talbros Chassis Systems. A very precious order. This order is going to commence by quarter 4 of this year. And this will be supplied to conventional ICE vehicles and the new HEV platforms for EMEA and NAFTA regions, taking to Europe and to South America. Capitalizing on consistent order inflows from the leading OEMs, we anticipate a strong upward trajectory in our business and profitability. Also, the orders will help us increase our share within existing customers and new customers across geographies gaining market share in the coming years. We are determined to increase our exports from 25% to 35% in the next 3 years with a focus on gaskets, heat shields, forgings, and the Marelli joint venture. Our Gasket division has shifted its focus towards heat shields a year ago, and it was extremely demonstrating a good performance in FY '24, where the heat shield revenues came to INR 44 crores. We have a strong order book in the heat shield division from strong clients like Maruti, Kia, Hyundai and also now trying to work with Tata Motors and not to mention, we're pretty strong with 1 of U.K.'s largest jeep manufacturer. We are at an inflection point for our joint venture. Our Marelli Talbros Chassis joint venture, expanding, focusing export and on EVs. We've also entering a large suspension products increasing its customer base and also reaching economies of scale as it gets bigger and bigger with the new product expansion happening in Pune as we speak. In January 2024, we have concluded this investment of 40% ownership interest in our joint venture entity, Nippon Leakless Talbros. This decision is consistent with our long-term goals and the proceeds will be invested in future capital expenditures and high-growth businesses, such as forging of chassis and even in gaskets. The trend towards EV is expanding, and we've also strengthened our EV portfolio, securing orders from both domestic and overseas OEM and expanding our focus on EVs through our JV, Marelli and from a standard business in the Forgings business. Also, we are in the process of working something significant through our gasket division also in the EV space. We're committed to our vision to becoming a global leader of an automotive component manufacturer in the process as we embrace and celebrate the margin we see so far, we aspire to sustain our growth while advancing the future by being relevant to the services we offer. Furthermore, to make the most on the growing opportunities in more domestic and global markets, we shall maintain our diversified and hedge position for the prior provider of auto components and adhere to a preestablished strategy for augmenting our product lines through introduction of value-added products. To conclude, 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 delivering value to our customers and shareholders. With this, I request Mr. Juneja who's our Group CFO, to give us the financial perspective. 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 Q4 of FY '24 stood at INR 203 crores as against INR 175 crores in Q4 of FY'23, a growth of 16% on a Y-o-Y basis. For FY '24, our revenues stood at INR 791 crores as against INR 653 crores, a growth of 21% on Y-o-Y basis. EBITDA for Q4 FY '24 stood at INR 36 crores as against INR 27 crores, a growth of 32% on Y-o-Y basis. And for FY '24, EBITDA stood at INR 127 crores as against INR 94 crores, a growth of 36% on a Y-o-Y. EBITDA margin for Q4 FY '24 stood at 17.1%. And for FY '24, it stood at 16.1%. PAT before exceptional gains for Q4 of FY '24 stood at INR 22.7 crores as against INR 16.9 crores in Q4 of FY '23, a growth of 35% on a Y-o-Y basis. And for the initial year '24, our PAT stood at INR 82.9 crores as against INR 55.6 crores, a growth of 49% on Y-o-Y basis. ROCE for FY '24 stood at 20.4% as compared to 16.5% in FY '23. ROE stood at 20.2% as compared to 16.6% in FY '23. Debt to equity ratio stood at 0.16x for FY '24. In the Gasket division, I'm coming to the division wise. The Gasket division for Q4 FY '24, our stand-alone gasket sale was INR 128.3 crores as against INR 115.8 crores in Q4 of FY '23, a growth of 11%. For FY '24 our standalone gasket sale was INR 502 crores as against INR 427 crores in FY '23, a growth over 20%. This segment saw EBITDA of INR 23.5 crores in Q4 of FY '24. And for FY '24, this segment saw EBITDA of INR 81.5 crores. Now coming to forging division. In revenue of in Q4 FY '24 grew by 26% to INR 74.4 crores as against INR 59.2 crores in Q4 of FY '23. In FY '24, revenue grew 26% to INR 276.3 crores as against INR 219 crores in FY '23. EBITDA in Q4 for FY '24 grew by 17% to INR 12 crores as against INR 10.2 crores in Q4 for FY '23. In FY '24, EBITDA grew by 39% to INR 47 crores as against INR 33.8 crores in FY '23. Now coming to our JV Marelli Talbros Chassis System Private Limited. Our revenue for Q4 FY '24 stood at INR 70.6 crores versus INR 54.8 crores in Q4 FY '23, registering growth of 29% on Y-o-Y basis. For FY '24, revenue stood at INR 259.9 crores versus INR 209.8 crores, a growth of 24% on a Y-o-Y basis. Now for Q4 of FY '24, our EBITDA in this business stood at INR 10.8 crores as against INR 9.2 crores in Q4 of FY '23, a growth of 18% Y-o-Y basis. For FY '24, EBITDA stood at INR 36 crores as against INR 25.9 crores in FY '23, a growth of 39% on a Y-o-Y basis. Now turning to our joint venture Talbros Marugo Rubber Private Limited, revenue stood at INR 31 crores in Q4 of FY '24 versus INR 28.9 crore in Q4 of FY '23, registering a growth of 7% on Y-o-Y basis. For FY '24 revenues stood at INR 122.5 crores as against INR 85 crores, a growth of 44% on a Y-o-Y basis. going further for Q4 FY '24 EBITDA [indiscernible] stood at INR 2.7 crores as against INR 4.1 crores in Q4 for FY '23, a degrowth of 34% that already estimated in earlier calls that gives some shifting issues. This has happened. Now the things have stabilized and hopefully, things will be very bright in the next financial year. For FY '24, EBITDA stood at INR 9.3 crores as against INR 7.2 crores in FY '23, a growth of 30% on -- year-on-year basis. The Board of Directors have recommended a nominal dividend of INR 0.50 per equity share a face value of INR 2 per share, which is 25% of face value. Total dividend for the FY '24 stood at a rate of 35%, stood at INR 0.7 per equity share, including interim dividend of INR 0.2 per equity share. Now looking ahead, we see various opportunities for sustained growth in the automotive industry. The company has made substantial investment in new technologies, expanding its capacities, diversified its product portfolio, broadened its customer base and entered additional markets. Talbros is confident that these initiatives will drive long-term growth of our company and [indiscernible] to take advantage of future opportunities in the industry. This is all from our side, and I will now like to open the floor to questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Jiten Parmar from Aurum Capital.

Congratulations on a good set of results, Anuj and Navin. My question is on the capacity utilizations for our divisions like for Gaskets, Forgings and Marelli and the Marugo JVs. What are the capacity utilizing we are running at each division?

[indiscernible] is around 90% in [indiscernible] division and 90% in forging division [indiscernible] product mix -- around it's not more there. Magneti Marelli is around 80% and Marugo Rubber [indiscernible] in both we are touching around 90% capacity utilization.

Okay. So my next question is since you have 80% to 90% kind of utilization on each, when do we need to basically enhance the capacity? And what is the -- if you can throw some color on that?

Yes. We're already in the process of advancing in Gasket and heat shield divisions. Already, we have -- because of new premises on rent [indiscernible] of Pune and the supply will start from there in the month of July onwards hopefully. In the month of June -- July, it will start supply. And my plan for CapEx in this division is around INR 40 crores for this year already started -- CapEx has already started. In the Forgings divisions, we are enhancing our capacity further in machinery and in some related equipments and our -- however, which we set up in the last quarter of the last financial year [indiscernible], I think the start -- the trial run already started last week, and the commercial production will start within [indiscernible] and we anticipate around INR 30 crores of CapEx in this division in this financial year. Finally, for which we have explained that we got a huge order the Pune plant is already in the construction [indiscernible] industry plant. And that [indiscernible] early September/October. In the meantime, we already start ordering the machine. We are expecting a CapEx of INR 62 crores -- INR 60 crores to INR 62 crores in that division. And Marugo, we are expecting a CapEx of around INR 6 crores in this division already the order has started for that [indiscernible] of our enhanced our capacity and to take care of future orders which we already have in our hands.

Okay. So all this CapEx -- it will take us basically how much time for that to ramp up to these kind of utilizations? I mean just to get the revenue potential from all this...

You're expecting that the CapEx will be -- I think all the CapEx will be taken care from third-quarter of this financial year, already started because we expect [indiscernible] this quarter that is because of election, et cetera, is not very, very vigorous. We expect that it will start from second quarter onwards. And by that time, we will ready with the capacity. We're expecting the last 2 quarters will be very useful in this financial year.

Okay. My question is on margins for the Marugo JV. They have declined, any reason for that?

No, next year, you can see a change. We expect an EBITDA margin of 9% to 10% in this division next year.

Okay, okay. And final question is basically on the raw material situation. Raw material prices might have increased. So how are you mitigating that and what effect will be there in the current financial year?

The prices of the 4 quarters [indiscernible] and increase with our [indiscernible] et cetera. And we already start negotiating with our suppliers, and we'll recover that in next financial year. Already...

So what is -- okay. So how much is the lag effect for us to pass on to the increase this thing? Or we have a back-to-back...

[indiscernible] every quarter, we take out the average...

[Operator Instructions] The next question is from the line of Riham Goel from Spark Capital.

Okay. Congrats once again for your great results. But I have a question regarding your industrial segment and what the contribution is to Gasket revenues? And are you planning on expanding? Yes, you make industrial Gasket as well, right?

Yes. It's a very small...

Okay. Can you put a percentage to it? Or is it too tiny to...

It's around 2%...

Okay. All right. Another question I had regarding -- so basically exports or graphs are showing really good numbers. And export auto components are going to increase in the coming years versus in India it's a [indiscernible]. So how do you plan on increasing your expose? And how do you plan on dealing the decreased demand in India?

So it was planning to -- already we have got export order for [indiscernible] customers. You know that, already in the pipeline, we're in the process of [indiscernible] that. But the same customer give us more order and their volume people increases. And in fact, that order value is -- it's a team effort. We supply to their customer in India, and they take delivery from [indiscernible] and it's a team effort, not direct [indiscernible] huge, and it would be around [indiscernible] for us. It's a team effort. We will [indiscernible] margin in Indian rupees and they will take the material directly there -- and they will supply to their plants worldwide on their own. It's a team effort. [indiscernible] in '25/'26 onwards, I can assure you.

All right. Okay. And I have a third question, if that is okay. So there's a shift in the market from ICE to hybrid. Do you see the shift directly from ICE to hybrid, what is your opinion? Do you say ICE to hybrid or ICE to EV? And if it's directly to EV then how will that affect your topline?

First of all, ICE to hybrid, no change, okay? The more hybrid, the more component will grow. Coming to the ICE. We are not putting components in ICE also [indiscernible] even gasket is inputting it's component ICE...

In the EV.

So we are -- now we can see about 3% of total top line is EV, which is around INR 40 crores, if I take total INR 50 crores at least 3% you can take around INR 40 crores EV. Now I have brought huge order [indiscernible] are with gasket division also and forging and [indiscernible]. The vehicles with -- for which we have got export order are being launched in '25/'26 only, when they will launch the component will go.

Our products, as Navin mentioned [indiscernible] affected, whether ICE, hybrid or EV because we are constantly innovating and putting our product in EV vehicles.

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

Congratulations on the stellar set of numbers. So my question is on the order book side, like if we have INR 1,000 crores of order -- so that include EV also? And how much is the EV order book?

Navin, you have the breakup with you?

I have a breakup of last 3 orders, which I got from last July till now I have a breakup. Out of this INR 2,000 crores of order book which we have received from last year till last month -- from last 1 year, out of which INR 475 crores is EV, okay? And INR 450 crores is about export. This order of Marelli, it will be -- put in exports, we are not aware, how much will go to ICE, how much will go to EV. We have no detail available with us as of today. Okay. But it's the component we will go with both of your vehicles. There is no change in that.

Okay. And sir, as we have mentioned in the presentation that we are targeting 13% [indiscernible] by '27. And also, you mentioned the category -- segment-wise top line. So like the strategy and what are the positive things that we are seeing and which are the OEM from where we are seeing really good order book? So if you can explain on that front.

[indiscernible] we mentioned a top line of around INR 700 crores, I understand, is okay? You're right. We already achieved INR 500 crores. We have still 3 years to go. And here, we are working with some export customers. And I think we are in the process of volumes. Some would order from customers for PV space. I think with the next 6 months, we'll be able to have some [indiscernible] on them. Plus on the -- in the Indian front, we are just entering [indiscernible]. We are developing heat shields and gasket for them. And hopefully, in the next 1 year, you can see they would jump in that plus a normal growth of 8% to 10% of the business which will easily cross INR 700 crores, easily. Now coming to my [indiscernible]. We anticipated, I think, INR 500 crores in this business by FY '27. And last year [indiscernible]. It has a huge backlog of product developments. We are working on that. We are getting very good order. Order book is lying with me for JCB or Dana and [indiscernible], we had just concluded audit last -- I think yesterday only. [indiscernible] other customers who are sitting on my head to expand their portfolio. And we expect this business to grow about 25%, 30% per annum on the basis of the order book they are having, but the potential order, we are working on that. The only problem is for our development time, that is the only issue here. Now I think in Marelli business, we anticipated a top line of INR 700 crores. The last year, they grew about INR 270 crores -- and around that -- INR 260 crores and INR 270 crores. With the order of this quarter, we have got of INR 1,000 crores, you can see exponential growth from '25 '26 in the business. And we are hopeful that we're able to achieve this INR 700 crores very easily. I think next year, they will be tendered something after doing INR 500 crores plus with the outlook they have got. And coming to Volvo, we are last year, we closed [indiscernible]. This year, again, we are expecting a growth of 20% plus there. And I think we put it out INR 200 crores easily we can call that figure because we have new technology [indiscernible] are coming from Maruti and we already bought up that. [indiscernible] Mahindra, we are working with Mahindra whole business. Hopefully -- we are quite hopeful to cross that figure also. [indiscernible].

The next question is from the line of Uttam Purohit from Monarch Network Capital Limited.

Congratulations on great set of numbers. So my question was around the margin side for the quarter. If I look at the margin of forgings and -- forging -- the Marelli business, it has gone down by some [indiscernible]. On the contrary, gaskets has gone up quite a bit. So is this impact on margin of Marelli and also in forging business. Is it because of raw material prices? And can you please also comment on the improvement of margins of the assets?

Margins of, I think, Marelli, is now holding between 13% to 14%, okay? 13-point-some percent margins there. The reason is because of the product mix, the more the export, the more the margin. And I think this margin will grow further. It will be, I think in next 2 years, we should be touching around 15% here in this with the export business with that new business coming in, where the margins are good. We are hopeful it can be up to 15%. Next year, it should be around 14%, [indiscernible] will be around 15% plus in this business. And the second thing, what you were saying about forgings something -- something, I guess missed that.

[indiscernible] impact on the margins of forging business as per -- and also there's a great improvement in the margins of Gaskets business. So can you just comment on both of them?

Please don't see quarter, see the year. I always say see the year, some price increases come in 1 quarter and it's the impact of that in 1 quarter. For the full year, on a annual basis, we had a margin of 16.1%. I think for this last financial year. We are hopeful that should be over in around that for next year after that, it can go up further the more export/import. I think it can go up to further, but don't expect 20%. I wouldn't tell you earlier also don't expect that. It would be 0.5% -- 0.2%, 0.5%, it will be over or next financial year only. [indiscernible]. I think with the benchmark over 16%, we have already achieved that. We need to stick to that benchmark first and see the more good businesses at core business we get, the more margin we come. We are working on [indiscernible].

Great. And this amount we would receive from this [indiscernible] and JV. So it would be utilized towards internal CapEx? Or are we planning to acquire or do some acquisitions?

I'm going to talk -- now I'm talking about the normal business. We are -- okay, we are still working for that, for JVs or some new acquisition, not really for new JVs or PA, we are working on that. Let's see, when it matures. We are working on that very [indiscernible].

We're in a few new projects. We're working on a few new projects, technology transfer where it's -- but not a JV working in.

Just one bookkeeping question. So I can see our noncore investments have gone quite [indiscernible]. And I can see the -- some cash inflow from our lease investment from the JV. So can you just explain what things are -- how the transaction [indiscernible] now?

Pardon me. What did you said, how the transition?

How much the transition received the entire amount? Or is it part pending and the increase -- and the substantial increase in the noncurrent investments.

Yes, yes, yes. Absolutely, right. We received [ INR 81.80 crores ] in the third -- by [ 21 ] -- 25 January -- and after paying the tax rate and some legal expenses, we're left with a bigger [indiscernible], we are invested and for a period of more than 1 year in the government securities and is lying in the noncurrent asset because more than 1 year. That's -- it's already with us. Income, we are getting about 7.75% to -- 7.8% average return that we're giving on [indiscernible].

The next question is from the line of Shikha from [indiscernible].

Congratulations on a great set of numbers. Sir, I wanted to inquire about our non-auto businesses, which we have started, I think sometime last year. So I wanted to understand how those are moving for us?

[indiscernible]

[indiscernible]

[indiscernible] off-roader is doing very well. Last year, we -- I think in Forgings division INR 40 crores business is off-roader business. If you see Forging on the -- my off-roader share is a hovering around 40% -- I mean, less than that -- just a minute I can tell you. It is doing very well. And we are able to -- I think this year to go further Forging business, my share of 2 year aggregate off-roader is 48%. Of this [indiscernible] but agri also for off-roaer is around INR 40 crore turnover out of INR 276 crore.

Okay. Understood. And this is again mainly in Europe, right?

U.K.

Understood. Understood. And sir, another bookkeeping question. This quarter, I think our other expenses were up as a percentage of revenue. Was there any one-off in that or related to Nippon Leakless or something?

One-off, one-off is in Forgings division [indiscernible one-off. The reason being [indiscernible] just give you background, the one is [indiscernible] issue started in December, somewhere. It carried out for the full year, plus because of the Red Sea problem by [indiscernible] stuck because of Hamas issue, et cetera. And we need to send some 8 to 10 shipments to JCB by air. So that component [indiscernible] on that. That component added quarter. So that is the only thing regarding the Red Sea thing. We'll able to recover in future quarters. And that is one-off -- one time off.

[Operator Instructions] The next follow-up question is from the line of Riham Goel from Spark Capital.

So another question I had was, last year, you've contributed 2% to the company's revenue. This year it is 3%. So how exactly are you projecting 12% in order your FY '27? What is the rationale behind that?

Yes, all the other acquisitions that we're working on.

Already, we have the orders, I'm telling you. It keeps that model of where we have got orders will -- I think it will -- okay, it will be close to that. That vehicle, I think which was going to launch in this October, November have been delayed by 6 months, right? The [indiscernible] vehicle and the launch of EV by 6 months. That's why you can see order is there. Whenever they launch, we will be able to supply there.

Okay. Okay. And now that you have exited from Nippon, will you still be offering non-asbestos gaskets in your product portfolio?

No, no. That's our core product. Non-asbestos, yes.

[indiscernible] we'll continue on non-asbestos [indiscernible] that's the core.