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

Ladies and gentlemen, good day, and welcome to Talbros Automotive Components Limited Q1 FY '25 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] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Talwar, Joint Managing Director of Talbros Automotive Components Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everybody. A very warm welcome to our Q1 FY '25 earnings call. On the call, I am joined by Mr. Navin Juneja, our Director and our Group CFO, as well as SGA, our Investor Relations advisers firm. The results and the presentation are uploaded on the stock exchange and the company website. Let me begin with the industry and the economy overview. During the last quarter, auto OEMs reported a volume growth of 10% year-on-year with broad-based growth in almost all the segments. 2-wheeler segment outperformed with a 20% Y-o-Y growth, followed by passenger vehicles with a 6% Y-o-Y growth and tractors grew 4% during the quarter 1. Demand for commercial vehicles was sluggish during the last quarter, with slowdown in demand in both medium and heavy commercial vehicles and light commercial vehicles also. There are some high levels of inventory today with the dealers. Demand for CVs is likely to pick up pace post quarter 2 of this year, with an uptick of infra projects post monsoon. Replacement demand and mandatory scrapping of older government vehicle is expected to support volume in FY '25. Coming to the company's performance. During the last year, we received orders over INR 1,000 crores during last quarter in April '24. We received new multiyear orders worth INR 1,000 crores of a leading European OEM through our joint venture, Magneti Marelli Talbros Chassis Systems Private Limited. Few of the orders are now getting commercialized now during the quarter. During the quarter, we have increased [indiscernible] export sales as well, there have been some issues to export. However, we've increased export sales to almost 27% of our total turnover. That's was the highest ever. Out Gasket division, as you know, is doing a lot of work in the area of the Heat Shields division. We have a strong order book in the Heal Shields division from clients like Maruti, Hyundai and Kia as well as for the export market. We are at the inflection point for our joint ventures, our JV with Marelli is expanding its focus on exports and EVs as well as entering a very large light commercial vehicle manufacturer in Europe. Our other JV, Marugo Rubber is also doing well, and we're looking to add some more product lines in the anti-vibration space. During the quarter, we have focused on cost optimization as well as a good product mix of domestic and export, which has led to an improved EBITDA of 16.5%, an increase of 150 basis points. We aspire to maintain these margins for the full year as well. Although there is a slight slowdown in commercial vehicles, but we are hopeful that with other segments we should manage. Capitalizing on the consistent order inflows from leading OEMs, we anticipate a strong upward trajectory in our business and profitability. Also, our order inflow will help us increase our share with existing customers and new customers across geographies. We are continuously working on increasing our exports from our -- from current level of about 27% to upwards of 30% in the next 3 years. To make the most of our growing opportunities in both domestic and global markets, we shall maintain our diversified and hedge position as a provider of auto components in various product lines and various segments. To conclude, we are pleased with our strong financial results and are optimistic about the future of the automotive industry. We remain committed to innovation, operational excellence and delivering value to our customers. Now I request Mr. Navin Juneja, our Group CFO, to update you on the financial performance.

Thank you, Anuj. Good afternoon, and a warm welcome to all the participants. Let me begin with our financial overview. Total revenue for Q1 FY '25 stood at INR 209 crores, as against INR 185 crores in Q1 of FY '24, registering a growth of 13% on Y-o-Y basis. EBITDA for Q1 of FY '25 stood at INR 35 crores as against INR 28 crores, a growth of 24% on Y-o-Y basis. EBITDA margin for Q1 FY '25 stood that 16.5% as compared to 15% in the same period of last year. PAT of Q1 FY '25 stood at INR 20.6 crores as against INR 17.4 crores in Q1 of FY '24, a growth of 18% on Y-o-Y basis. Now coming to the division-wise performance, in the Gasket division, for Q1 FY '25, our gasket sale was INR 132.7 crores as against INR 121.8 crores in Q1 of FY '24, a growth of 9%. This segment saw EBITDA of 21.2% in Q1 of FY '25, versus INR 16.6 crores in FY '24, a growth of 28% on a Y-o-Y basis. Now coming to our Forgings division. Revenue in Q1 FY '25 grew by 21% to INR 76.5 crores as against INR 63.5 crores in Q1 FY '24 with a growth of 21%. EBITDA in Q1 of FY '25 grew by 19% to INR 13.4 crores as against INR 11.3 cores in Q1 of FY '24. Now coming to our JVs. I will start with Magneti Marelli Talbros Chassis Systems Private Limited. Revenue for Q1 FY '25 stood at INR 69 crores versus INR 56.8 crores in Q1 of FY '24, registering growth of 21% on a Y-o-Y basis. EBITDA stood at INR 9.9 crores as against INR 7 crores in Q1 FY '24, a growth of 42% on Y-o-Y basis. Now on Talbros Marugo Private Limited, revenue stood at INR 31.3 crores in FY -- Q1 FY '25 versus INR 30 crores in Q1, FY '24, registering a growth of 4% on Y-o-Y basis. EBITDA stood at INR 2.8 crores and remained flattish as compared to Q1 of FY '24. Here, I want to add that there was some price increase pending with our major customers for last 8 to 9 months, that price increase has been revised and received by the company in the last week which are not accounted in this -- relative to this period also, it was not accounted in this result, you will see in the second quarter. As we look into the future, we are optimistic about the sustained growth prospects in the automotive industry. We, as a company have taken significant steps to capitalize on this opportunity and significant investment have been made in new technology, capacity expansion for that portfolio diversification, [indiscernible] expansion and entering new markets. We are well positioned to achieve our targets, and we believe that our margin is sustainable in the long term. This is all from our side. And now I would like to open the floor to question and answer. Thank you.

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

Sir, if you can highlight on the employee expenses side that has increased significantly in this quarter. And also on the EV side, what our future expectation is. We have an increase targeting a certain increase in the revenue mix. So if you can highlight on the new products that we started supplying and also our future expectation from these products?

Yes. The first, I will talk about the salary increase. As you are aware, at the end of every financial year, the increase is being due to the employees. We have given 10% salary increase. And in this quarter, onetime expense of incentive -- performance incentive, which is about INR 70 lakhs to INR 80 lakhs has also been debited. So this is one time. It will -- in the subsequent quarter, it will not be there. So that is the reason for salary increase. It happens every year -- every -- first quarter of every year, if they achieve the target. Now second, about the EV, we acquired [ points ] because of the EV, and we have received these very, very decent orders from EV segment. In fact, if you see in the last year, last year, my EV contribution was 3% of our total revenue. In this quarter, we have achieved 3.3%. Going forward, we are committed to achieve a target of 12% of our total revenue and orders are in hand, some are going to come in next 3 months, but some EV launches are being delayed by 3 to 6 months. So the effect, you can't -- you will see for a period of time, we will definitely see the effect It will grow, definitely grow. Orders are there. In fact, we are closing some very big new orders also on that. But I think we'll give you news some time in October on that.

Okay. Sir, if you can highlight if it is possible if we haven't signed the NDA. So like from which OEM we are getting the order on the EV side?

The European cars...

European cars and some Indian cars manufacturers also, but I can't disclose the name because we have signed the NDA with them.

It's for only EV vehicles.

Yes.

Okay. So sir, in Europe, there is a low penetration on the EV side. So -- but still we are getting good demand on that?

So these are new product launches, they are doing. They're converting their ICE engines into EV vehicles. And the company has a tie-up with the Indian OE also, they are setting up also a new plant here, so it's for that. This is a new vehicle they are launching. And I think it will be a very, very major OEM.

Our next question is from the line of Kuber Chauhan from Anandrathi.

Sir, questions from my side. What is the -- what is the CV segment as a percentage of our revenue? How much it contributes?

About 23%.

23%. And how much of -- how much was the reduction in this quarter, as you said that the demand was sluggish?

There was no reduction, but the growth was not bad because we supply some new parts also, there was no reduction, I think. So let me go through the detail also on the total front also, just a minute. Let me go to a pie chart.

A slight increase only in our accounting about CV. Actually, what came down was the tractor segment.

Tractor was okay.

It came down from last year.

Last year, little bit.

Tractor will now pick up this year. So there's no reduction. We have lost no... .

But the growth we are expecting was not there. That is wrong with it.

Okay. And I have also seen that there is a slight reduction in gross margin, it was 56%, right now it is 53%. Was it due to some commodity prices increase or what is -- what was the cost...

It's a contribution, it can be product mix also some time. Sometimes we have launched the price increase that has not been listed in this quarter, it will come in subsequent quarter. So it can be because of that. Don't worry -- it's highly margin [indiscernible].

You see the EBITDA is up at 24% over last quarter of last year. Percentage wise it was the highest EBITDA for the company. [indiscernible] timing issue of [indiscernible] customer, and all that, nothing else.

Okay. And when you were speaking about INR 1,000 crore order, so have you got any incremental order this quarter? Or is it -- has been stayed over INR 1,000 crores?

Yes, we have received some small orders, but we announce until the amount is substantial. We group it together. When the amount is substantial we announce it, definitely, we are getting orders.

Okay. Okay. And what is our execution rate of such orders if we can just -- or in terms of value, if you can?

The full order book is about INR 2,000 crores, this is over 5 to 7 years. So let's say, INR 155 crores, INR 150 crores [indiscernible] .

Till last year 10% was commercialized. This year, again, 40% will commercialize, [indiscernible] will commercialize, step by step, it goes on. Sometimes what is the -- but the vehicle launch has been delayed by 3 months, 6 months, so we can't commercialize.

Okay. And what is the target for this for execution, as you said, 40% could be commercialized on -- what is the -- I'm not asking about a specific number, but just in a range, if you can specify?

No, no. It started already.

There were different divisions, we've got many plants. So it is very difficult to bifurcate [indiscernible], you divide it by 5, 7 years [Foreign Language].

You mean [Foreign Language] per year, right? Of order book would -- will be executed?

Yes.

Yes.

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

Sir, my first question is, what is the status with the M&M as of now? As in last quarter, you had mentioned you are developing some heat shields for them?

Mahindra & Mahindra?

Yes, correct.

Yes, already, I think the plant has started the -- soft launch has been started for the plant. And we have set up a new plant for that, in [indiscernible] Pune. Plant has started the production for -- I think, the small batches have started. I think the major impetus will come from the September onwards, you can see the major commercial will take place. Already order was received. We are getting new orders. It is under -- dies have been made, development is going on, going on there. It's going on.

Understood. Okay. And sir, my second question is, in last con call, you had mentioned something about you are developing motors for batteries. So could you throw some more light on it?

Not motors for batteries. We are working on a product. We make bushes for electric motors, bushes for our Forgings business. That's about INR 15 crores, INR 20 crores per annum approximately.

It goes to BMW as well...

And we're working with -- we are working on some new components for the batteries, but that we will have better clarification after quarter 2.

Okay. Got it. And sir, my last question is, what's the update on the Pune facility that was about to commence in July, August?

Yes, I just mentioned the Pune plant facility has been -- machine has -- installation has started. We have started some production also, but I think all the machines will be, by September, [indiscernible] machines will be installed, which has -- which I think the good volume will start coming up on -- up to INR 3 crore per month volume will come from October onwards from that plant. And it will go up to INR 5 crores in the last quarter.

Our next question is from the line of Aakash Javeri from Time & Tide Advisors.

Congratulations on the numbers. My first question is Marugo Talbros saw growth of about 21% in revenues and 42% in EBITDA. Could you elaborate on what were the utilization levels like, was it some operating leverage at play? And is this growth something that we can target going forward as well?

You're talking about Marugo. Okay. Marugo is basically primarily, I think, 75% to 80% is a supplier to Maruti, okay, for anti-vibration and the hoses. And I think this year, we will -- our growth will be around 15% because the Maruti projections are based -- we are basically on Maruti only. And of course, there is EBITDA improvement, which you can see going forward. I just mentioned in the brief call that there was a price increase pending. Now we have received that also. So the -- at the end of 6 months, you can see a substantial EBITDA improvement. And going forward, it should be a double-digit EBITDA for us. And we are adding some new products, the effect of which you can see in next year, not this year.

Okay. And at the same time, Marugo number was more or less flat. So could you explain what happened there?

So it is flat...

Maruti, Maruti.

And they had a shutdown in June for a week, and we supplied the Maruti [ big time ] from this company.

Around 80% goes directly and indirectly to Maruti.

Okay. Another question was, is the 16% EBITDA margin like the new normal for us? And is it fair to assume that we would personally have heightened freight costs because of the Red Sea issue. So once that normalizes, we could see some improvement in margins?

So I think we should -- we should talk about around 16.5%. In some quarters, it can be 16.7%. Some quarters, it can be 16.25%, depends on our product mix because situation is very fluid. Sometimes the prices go up and the customers will take 6 months, 9 months to give us, sometimes if it is not much they can avoid that also. So we keep on fighting with them on that front. So I think for 1 year, I should -- I think we should look at 16.5% around the whole.

Sure. And just one last clarification. Our PAT growth was slower than our EBITDA growth. Is it right to understand portion of this is also because of the discontinuation of NLK?

No, NLK -- standalone NLK doesn't come into picture. The profits of joint venture are share of JV profit only. Okay, it's not affecting turnover or anything else, number one. And no, it's not like that. Because, the top line is only for the standalone business. The JVs only shares the profit from JV [ accounts ]. That's all.

[Operator Instructions] Our next question is from the line of Raj Mehta from [indiscernible].

Sir, my question was on the product plan. So what are the new products the company is specifically venturing into as mentioned in the presentation for Gaskets and Forgings?

What is your query? You've got new products.

Yes.

So in Gasket, we're working on a large gasket for heavy-duty applications, we're working on some plastic components for EV, plastic gasket for EV. We are working with some transmission gasket for electric vehicles. [indiscernible] for Tata Motors, Mahindra. And in Forgings, we're working on very heavy components now for excavators and the construction in the off-highway equipment.

And on the technology front, is the company focusing on any technology advancements in order to stay ahead of the industry standards?

Yes, yes, we are. We've got 2 joint venture partners, one is Marelli and one is Marugo and we have a technical partner called Sanwa for Heat Shields. So that's an ongoing basis. And also we're working on some focus towards EV applications as well. So yes, that's always ongoing.

[Operator Instructions] Our next question is from the line of [ Payal Shah ] from [ Million Securities ].

I just have 1 question. Can you provide details of the order book under each segment? And what is the expected time line to complete these orders?

That will be very different...

At present, I can send it to you through [ Devan ] our IR adviser, but at present it's not ready with me -- readily available with me.

These orders are across segments, across product lines, across divisions, so very difficult to decipher it on the call, but we can ask SGA to send it to you.

[Operator Instructions] Our next question is from the line of [ Yug Modi ] from [ AP Capital ]. Line from [ Yug Modi ] has been disconnected. Our next question is from the line of [ Ashish Rao ] from [ Z K Securities ].

So I have a couple of questions. So the first is, what kind of EBITDA margins are we currently making in our export business and do we see this improving with the global situation is improving?

Sir, EBITDA margins are generally 2% more than the domestic business. So -- and it depends on the customer to customer. Sometimes it is 16%, sometimes 18%, in some cases 19% also. It depends on customer to customer, okay? It's not fixed, okay. Number two, it's -- so far, we are -- our customers are there, their offtake is already there. We are not in -- basically, we are more in Agri, off-loader, construction equipment for the majority of 4-wheelers there in that segment, which is doing okay. We are not facing any major downfall going forward, no. Plus we are developing new parts, new parts. We are not -- lot of parts are new, 25% of the parts are new parts. So we don't see any issue in that.

Okay. Okay. And my second question is what is the sales for Heat Shields during the last quarter and...

What are the sales for? Pardon.

So what were the sales for Heat Shields during the last quarter? What are the [indiscernible] for the gasket demand for the improvement over time -- to improve over time?

If you see, we have bought -- in this division, we anticipate a growth about 15% plus in this financial year. Out of it, I think, the Gasket this year will be around INR 50 crores plus, INR 50 crores to INR 60 crores will be Gasket, balance will -- sorry, Heat Shields, I'm sorry. Balance will be Gasket. So we're getting good traction in both sides.

[Operator Instructions] Our next question is from the line of [ Atul Daga ] from [ Daga Securities ].

I just have 1 question. Like what are our capacity utilizations in all of our segments?

Okay, now coming to that. Just a minute, yes, our Gaskets and Heat Shields divisions, we are around 88%, okay? In Forgings, we are around 85%. And from Marelli, we are around 72%. In TMR by Marugo [indiscernible] and anti-vibration it is 85%, and whole is around 90%.

[Operator Instructions] Our next question is from the line of Uttam from Monarch Networth Capital Limited.

Sir, my question is, in the opening remarks, you mentioned that the CV growth was very subdued. So was it an industry thing over all the clients? Or is it because of the...

Sorry, you are not audible. Your voice is not clear.

So as you mentioned, the growth from CV was very subdued. So was it across the -- across all clients in CV, like it was an industry phenomenon? Or is it most particular to some of the clients?

It's a industry phenomena.

It's industry phenomena.

[indiscernible] it will pickup in quarter 2.

Don't worry. We are adding new products. We are not going to suffer much on that alone.

And also to one of the participants you mentioned, our dependence for MTCS and TMR is highly on Maruti. So are you looking to further diversify because it is a very high percentage and do we have any thoughts on...

No, no. This dependence of Maruti is only [indiscernible] number one. Marugo is a Japanese company and they supply to Suzuki there. It is import substitution, we've got it here. So don't worry, we are adding. We have other customers also, but they are not -- but their scale is not very high. Of course, we will -- we are having a target to bring down the share of Maruti over a couple of years, don't worry. But Maruti will do well, I'm hopeful because Maruti is setting up a new plant in Kharkhoda near Sonipat. They are putting a plant in, I think, Sanand also. So Maruti is not going to grow -- go, I think, there.

Okay. And just last question. As -- in the last con call, there was -- you mentioned about some issues with the performance of Marugo, because we were shifting. So are these issues sorted now?

Yes, 90% of the issue is resolved. There are some manpower issues still, manpower a little high -- it should have been lower. We are working on that. I think within 1 quarter, that issue will also resolve. Other issues are resolved.

So this subdued performance is because of both the results of Maruti and that's it, right?

Subdued performance is also one of the reasons [indiscernible] you know that Maruti has [indiscernible] okay. Number three, the price increase pending with Maruti has now been received, although it belongs to that result, it is different from -- reflection of that in this quarter, don't worry.

Okay. And also, we can see great performance from MTCS and highly improved margins, like, I think, 200 basis points improvement in the margin. So are these stable margins from -- for MTCS going forward? Or it was in some of one-off?

No, it's not one-off. This is not one-off.

Our next question is from the line of Jyoti Singh from Arihant Capital.

Sir, just wanted to ask on the commodity prices side, what is our view and how we are doing on that side?

The commodity prices, I think, is more or less not very volatile, number one. But exchange is volatile. Of course, we are importing also and slightly in Gasket division, there is a lot of -- and in Marugo, still we import lot of stuff. But there you know that how dollars and yen and euro is moving. Of course, that pressure is on us. And of course, we will recover from all customers, but it will take some time. So to that extent, to tell them we need to bear that. Otherwise, generally prices are not very much volatile, it's okay.

And sir, yes, just 1 clarification on the Marugo side, how much EBITDA they are earning and what are your expectations going forward?

So this -- our expectation is by next 3 years, it should be around 13% to 14% EBITDA. See the EBITDA at the end of the year. Don't see for this quarter, please, I request you. It will improve. You will see the improved EBITDA in the coming quarters.

Our next question is from the line of [ Yug Modi ] from [ AP Capital ].

How are we looking to utilize the INR 80 crores with the sale of [indiscernible] of Nippon?

This INR 80 crores out of which we paid capital gain tax and the balance left was INR 65 crores. That INR 65 crores is putting -- we have put in the FDs, which is carrying an average interest of 8%, okay? And this money will be used, number one, if we come out with a big project, we are talking about money. Would take out some money out of that. If we come out -- we look -- we are looking for some [indiscernible] et cetera, that work in parallel is going on. If that matures, the money will be utilized there. For normal operations, we want to use the money we are generating for the system.

Sir, lastly, sir, are we looking at any major CapEx in the coming 2 quarters?

It depends on the orders -- we are working on some orders where we require some decent CapEx, not major, not INR 100 crores CapEx, maybe INR 20 crores to INR 30 crores CapEx in money terms, we are working on that. Let's mature -- nothing is mature and I will come to you on that.

[Operator Instructions] Ladies and gentlemen, that was the last question for the day. I now hand the conference over to the management for closing comments.

Yes. Thank you so much, everybody, for joining the call. We've had a good quarter. We also anticipate our future quarters to be good and our margins to be also sustaining around 16% and plus -- and yes, thank you so much. Bye.

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