Uno Minda Limited (532539) Earnings Call Transcript & Summary

Good evening, and a warm welcome to all the participants. I hope that all of you and your loved ones are well and safe. We had once again saw challenging times during last quarter on rise of second wave of COVID-19. We, as a country, as an industry and as a company, have shown exemplary resilience to such challenging times. We hope you had a chance to have a quick look at our financial results and presentation that is uploaded on stock exchange as well as the company's website. I'll briefly discuss about the business landscape and then update on our performance in the preceding quarter, following which we will be glad to respond to your queries. Health and safety of our people, i.e., our employees as one family becomes the topmost priority during such times. Care for our people like family is embedded in our group vision statement to be sustainable global organization. Pursuing our vision, Unominda Group has always provided unwavering support to the employees and their families. During this period as well, we have taken several measures and initiatives, including, but not limited to, proactive testing, vaccination camps, financial assistance, online doctor consultants, medical consulting, counseling, et cetera. We had also set up COVID care centers with oxygen beds at various locations for our employees and their families to provide immediate medical attention in case of requirement of hospital facilities. Unfortunately, we have lost lives of some of our employees to the COVID battle. We stand with their families. And besides additional financial support, we are providing permanent job opportunity and education support to [ students until ] graduation. Coming to financial performance. We hope -- so coming on to financial performance, I'll be able to discuss about the business landscape and then update on our performance in the preceding quarter. On the business landscape, on the national front, data suggest swifter than expected recovery from the second wave slump and this trend continues in early August, with a fat tail in a number of cases across the country. While the COVID-19 cases remain flat around 40,000 a day and close to 5 million doses per day, the vaccination pace is higher than the daily rate of 3.9 million in June. There have been statewide divergences on the [ sero privilege ] rate, infection cases, vaccinations and the lockdown situation. Some states are doubling down on restrictions like Karnataka and Tamil Nadu, while others like Maharashtra easing restrictions. Manufacturing activity in India had rebounded to a 3-month high in July after contracting in the previous month. Factory orders rose amid reports of improved demand and easing of restrictions. Strengthening international demand contributed the uptick in total order books. New export orders expanded markedly in July following a moderate contraction in June. Automobile retail sales in India came back strongly in July and continues to do so in the month of August with the opening of dealerships across the country as COVID restrictions were eased in the affected states. Besides the low base effect, also continued [ apace ]. CV segment recovery is impacted by semiconductor shortage, long wait periods due to supply side constraints continue to persist for last few months. Dealers are reporting 2 to 4 months waiting on select [ variants ]. Besides chip shortage, the delta variant of COVID if it goes out of proportion can be another deterrent and put brakes in auto retail recovery. 2-wheeler sales rose 28% in July as compared to corresponding month last year, which was a low base. Deeper and wider penetration of the second wave of pandemic [ contributed to the ] temporary closures of dealerships and higher [ selling market ] inventory moderated recovery of wheelers ]. Coming to our quarterly financial performance. You may refer to Slide #5. At a consolidated level during Q1 of FY '22, the company reported revenues of INR 1,603 crores as against INR 468 crores in Q1 of FY '21. Unlike Q1 FY '21, it was not a complete lockdown in the recent quarter. Most of the OEM had restarted production in June after maintenance or temporary shutdown in May. Some of the OEMs had even continued their operations to meet their export commitments. Sequentially auto industry volumes were down by [ 26 ] %, whereas our consolidated revenues fell by 28% quarter-on-quarter, depicting we have continued our outperformance even in these challenging times. EBITDA for Q1 FY '22 was at INR 147 crores in comparison to EBITDA of negative INR 84 crores for the corresponding quarter. EBITDA margin have also decreased from 13.5% in Q4 of FY '21 to 9.2% in Q1 FY '22, primarily due to negative operating leverage. There were [ other factors ] pricing pressures as well, which were partly offset by favorable product mix and process improvement during the quarter. Profit before tax for Q1 FY '22 was at [ INR 6.38 ] against PBT negative of INR 175 crores in Q1 FY '21. Share of profit or loss of associate joint ventures for the quarter has improved to [ negative INR 5 crores from 16.2 ]. Our CNG business and the Minda Westport and infotainment business with Denso Ten continued to do well during the quarter. Our safety systems and seatbelt business with TG and Kosei Minda aluminum didn't do so well due to impact of COVID-19, and hence were negative during the quarter. Moving to the product lines. You will please refer to Slide #7 and 8. Starting with Switching Systems. The segment achieved revenue of INR [ 441 ] crores for Q1, contributing about 27% of consolidated revenues. We have further received orders from Indian OEM portfolio, which is increasing their share of business from 50% to 60%. Moving to Acoustics -- our Acoustics business. It has achieved a revenue of INR [ 150 ] crores for Q1, contributing 9% of our consolidated revenues. Impact of COVID-19 on this business has been lower as a major portion of revenues for our Acoustics business is contributed by our European subsidiary Clarton. Clarton has also received further orders of advanced electromechanical horns from a European OEM. Moving to our castings business. It has achieved revenue of INR [ 265 ] crores for Q1, contributing to 17% of our consolidated revenues. We have received further orders from Korean OEM for LPDC 4W alloy wheel, making further inroads in increasing fit value and share of business with them. We have commissioned 3 lines out of total 4 lines at our 2 wheeler alloy wheel plant at SUPA and the fourth line is expected to be commissioned in Q2 FY '22. The capacity expansion for 4Wheeler alloy wheel at Bawal is in progress. Moving to Lighting business. It has achieved revenue of INR [ 3.3 ] crores for Q1, contributing to 20% of our consolidated revenues. We have received additional orders from India as well as Japanese 2Wheeler OEMs, mainly for LED head lamps, further increasing our [ ally ] with them. Our seatings business achieved revenue of INR [ 97 ] crores for Q1, contributing 12% of our consol revenues. The company has received additional export orders INR 75 crores peak annual value from American and European OEMs. Moving to other product businesses. It has achieved revenue of INR [ 227 ] crores for Q1, contributing 14% of overall top line. Other businesses mainly comprised of sensors, blow molding business, [ Isis ], battery, et cetera. Moving to Slide 11. In terms of our revenue pie for the quarter ended 30 June 2021. OEM business accounted for 92% and aftermarket business around 8% for Q1. The aftermarket share of business is lower than normal, primarily due to staggered lockdowns in various states across the country. Our sales from international market, i.e., export from India plus sales from overseas operations stands at 23% of total consol revenues. Our international revenues contribution has increased as the impact of COVID-19 [ on ] European subsidiaries was less relative to India. In summary, we would like to highlight that Q1 has historically been lower than Q3, Q4 for the industry as festivity and New Year usually boost sales in Q3 and Q4. Besides, as you know, there are annual price adjustments, which contributes to better profitability in latter part of the year. Besides cyclical lower volumes, Q1 was further impacted by a second wave of COVID-19. Despite challenging times, we have been able to post a resilient performance. We have seen sharp recovery in auto industry in July and momentum is continuing in August. With normalcy returning, we are confident to soon return back to performance levels demonstrated in previous quarters. Now moving on to a few recent company updates. First on Harita merger, as you are aware, that we have completed merger of Harita Seating Systems with Minda Industries pursuant to the scheme. And as per the option chosen by shareholders, we issued equity shares and redeemable preference shares as part of the consideration. Though preference shares were issued with a maturity of 6 months, preference shares also -- shareholders had also option for early redemption within 3 months. Barring few shareholders holding around 10,000-odd shares, all other shareholders have already opted for early redemption. Moving to QRP. As you know, the company has successfully closed its qualified institutional placement of equity shares at issue price of INR [ 7.20 ] per equity share for a total of [ 9.22 ] lakh equity shares. So overall fund raised was around INR 700 crores. The funds will be utilized for online broad purposes. First is redemption of preference shares issued to shareholders of Harita pursuant to merger as explained above. Acquisition of Fehrer [ stake ], which has already been announced repayment of some of the debt, some investment in a subsidiary company and some of the general corporate purposes. In terms of the merger of IConnect, we have made further progress in merger exercise of Minda IConnect. The scheme has been filed with NCLT on second June 21. We are now awaiting NCLT for announcing the date of convening shareholders and creditors meetings. We expect the merger process should be completed in the current financial year. Minda TG Rubber as part of our corporate restructuring process, post the dilution of 1.1% stake in MTG, it had become a JV company and had ceased to be subsidiary of the company. MTG is proposed to be merged with TG Minda. The respective Boards already approved the schemes. We will be filing the scheme with NCLT post receiving NOC from creditors. In terms of EV opportunities, our JV initiatives continues as per plan as earlier communicated with Smart Plus Telematics already into production and commercial sales resume as commission is started. Body control models has also progressed to under production from under development. And other products like AC/DC converter, onboard charger [ and GMS ] is under development. Moving to our cash flow and debt level. Our net debt as of June 30 was INR [ 127 ] crores compared to INR [ 800 ] as on March 21. The net debt as of 30th June also include nonconvertible ratable free shares, INR 229 crores, issued to shareholders of Harita pursuant to merger scheme, which was part of current liabilities in March 21, under deferred purchase consideration. Working capital requirement has also increased a little bit during the quarter, primarily due to lockdown situation in May, and we believe that was largely temporary. Our net debt-to-equity ratio is still healthy at 0.47x. As you are aware that we have INR 700 crores in the QRP. Part of the proceeds, as we mentioned earlier, will be used to reduce the debt which will further improve our debt equity ratio and strengthen the balance sheet. And in terms of CapEx, as you are aware, we had announced project CapEx for setting up additional plants in Gujarat for [ formula ] automotive lighting and expansion at [ Baral ] by setting up [ 60,000 ] capacity for 4-wheel alloy wheel plant. We had commenced capital expenditure on these projects and have incurred around INR 30 crores. The project progress is [ satisfactory ] and is expected to start operation in first half of FY '23. Moving to ESG. As we all know, ESG has gained prominence in the last few years. However, we have already been working on these areas for the last 2 years. We have installed rooftop solar installation across our plants, meeting 20% of energy requirement of these plants. We have recently also invested in 2 entities, i.e., Dakshina and Strongsun, which are developing solar power plant and will be supplying power to us on completion. We target to achieve 40% of our energy requirements through solar energy. We have also been working on reducing water consumption, carbon emission and waste reduction. As you know, we also run charitable trust for development of underprivileged and women empowerment. Today through our charitable trust we [ serve and educate ] over 12,000 people from villages across 7 states in India. On governance front, we have set up very robust corporate goal as framework with well-diversified board to oversee the same. We are constantly improving our governance framework and policies by benchmarking to the best practices. Our efforts in the field of corporate governance have also been recognized by reputed external organizations like the Institute of Directors by awarding one of the most prestigious awards; i.e. the global -- the Golden Peacock Award for Excellence in Corporate Governance 2020. We are committed to continue this journey of excellence. We have also recently appointed 1 of the big 4 consulting firms to devise the ESG framework to have more focused approach. We now open the floor for questions.

[Operator Instructions]. We have a first question from the line of Ashutosh Tiwari from Equirus Securities.

On this order of alloy wheels from the Korean OEM, so including the earlier that we got from the OEM. What is the peak order value and the sales values we can see on a yearly basis? And from when it will start ramping up?

So overall, the volumes, Ashutosh, we now have a visibility of almost like 20,000 wheels a month. So when it started, it was like 8,000, then it went to 12,000. Now with all the orders in place, we are looking at order book of close to 20,000 wheels a month. And in terms of start, we have already done a trial production at the plant and -- which is now being audited by the customers. So as you know that the production actually is linked with the new [ model ] launch for our customer, which is slated somewhere in Q3 around the festival season.

Okay, okay. And...

[ The total peak ] will be maybe after a year or so.

Okay. The total peak. So this new order also for a new model or the same model we got [ associated ]?

No, it was another model.

Okay. This is also a new order only on the company or existing model?

Sorry?

The new order that we got, you -- also for another new model or is it also for the existing model of the company?

No, we don't know whether it's a facelift or whether it's a new model. Difficult to comment whether it's existing or new because we are -- we normally see whatever is the next launch. So from that perspective, it might be a facelift, it can be new also.

Okay. And secondly, if I look at the revenue in the Other segment, which is around 20% of sales in Q4, around INR 440 crores. And this time, you do INR 227 crores. So what has caused major decline? Because decline over the year is more than other segments -- all other segments [ overall ]

In other segments...

In Q4 '21, they go to 20% of the total sales, around maybe INR 440-odd crores. This quarter, it is INR 227 crores. So why the decline over here is larger than what we've seen in the other segments?

Ashutosh, Ankur here. This would be largely on account of COVID only, and I don't think there's any other abnormal item here.

Okay. Okay. I'll discuss off-line. And lastly, on the export orders in Seating, which geography it is from? And basically, again, when it will peak out in terms of -- when we can receive the full order value?

Yes. So it is in, as I said, one American OEM and that is the European OEM. And both -- the production expected starting in FY '20 to '23.

So '23 to -- also peak out in '23, or will peak out in '24?

From this quarter perspective, yes.

[Operator Instructions] We have next question from the line of Aditya Jhawar from Investec Capital.

Sunil, a couple of questions. Firstly, on CapEx, so if you can break up, number one, what is the quantum of the CapEx that you're planning for '22 and '23? If you can break up the CapEx between the money that you plan to spend for the [ first ] die casting business, for lighting plant as well as for blow molding? That is the first question. The second question is a little bit more clarity on the EV component one. You mentioned that Smart plug and [ Telematic ] So what we understand is that you're supplying these 2 products to 2 OEMs as of now. And you also mentioned that one product went from under development to production. What was that product? Can you please repeat? And are we supplying that product to the 2 OEMs that we are already engaged with them in EVs?

Yes. So BCM is a body control module which has gone into production.

Okay, okay. And we are supplying this to both the OEMs?

No, one of them.

One of them. And on the CapEx, actually, if you can throw some light?

Sure. So in terms of CapEx, as we said, the alloy wheel CapEx is roughly around [ 160 - 170 ] crores. The blow molding was around INR 90 crores, and the lighting was around INR 100 crores.

Okay. Okay. Final question. So this quarter, if you see sequentially, the performance of the lighting division -- the decline was higher as compared to the overall decline. And we were expecting that ramp up in the 2 orders from Maruti, would mean that the performance of lighting revenue is a little bit better. So if you can shed some light on why there is a disconnect.

Yes. So as you know, that the new businesses or what we have secured, the production for them is flat starting in next year somewhere in financial year '22, '23. And that's what we are also putting a new plant. So there was [ no ] expectation of those new orders business to start adding anything in the current financial year. And in terms of the overall volumes, I think they are in line with the whatever COVID impact we had. Otherwise, there is no factor which was we are expecting and not happened.

[Operator Instructions] We have next question from the line of Vimal Gohil from Union AMC.

Sir, my question was on Harita's margins. If you can just highlight -- if you would want to quantify that would be great. But what was -- I mean if you -- what was Harita's EBITDA this quarter? Or...

So as you know, Vimal, we have stopped giving business-wise profits for last 2.5 years now, based on whatever feedback we have.

So can you indicate -- I mean, the trend as to whether the margins have sort of fallen in line with the overall business? Because that will also help.

Yes, definitely. So at a big picture, I think despite the COVID impact, the seating business was in green. So they were not in red.

Okay. So basically, the margin would have fallen in line with the overall business? Would that be the right assumption?

Not fully because I can tell you upfront because in the seating, there are -- there is a big commodity price impact. And while we have got from some customer, we have not got from all. So to that extent, we have not realized the full potential of seating in Q1.

Got it. Got it. Okay. Okay. So gross -- because see, what I was wondering if you see your gross margins have improved on a quarterly basis. So I was wondering if that was coming from Harita or I'm not sure where is that coming from. But if you're saying that the [ gross for ] Harita have fallen, then what explains the sequential improvement in gross margins?

We are looking from Q4 to Q1, right?

That's right, yes.

Yes. So it's primarily a lot of tax on account of mix also. And also, we have been able to get some customers whatever price corrections, but some are still pending. But that also plays its part. And in terms of -- I think largely, it's a mix [ as well ] .

Okay. Fair enough. Sir, in your net debt number, you said that out of INR [ 1,221 ] crores, your preferential debt was about INR 200 crores, right?

INR 228 crores, yes.

INR 228 crores. And that will be sort of -- okay, so that is going to stay for whatever because the shareholders have opted for the 3 -- after 3-year payment, right?

No. So that's what I said, Vimal, the preferred share is something around INR 228 crores or INR 229 crores. So there was an early redemption option and majority of the shareholders have opted for early redemption. So we are expecting that to [ be ] within this quarter.

Right. So your net debt -- your core net debt, excluding nonconvertible now will be about INR 1,000 crores, approximate?

Yes.

Okay. Okay. So this INR 229 crores, that has already been paid out, right? You disclosed that on the exchange [ now ].

No, that will be paid out.

Okay. By when?

Information to exchange on Saturday was that they have opted. So within, I think, this month, it will be paid out.

Okay. Okay. So probably next -- I think September balance sheet, it won't be there.

Yes, you are right.

Okay. Got it. On your -- you said that your EV components, sir, if you can just highlight maybe if there is any progress that has been made by -- we completely understand that you have very well-entrenched relationships with existing OEMs. But the way things are going right now, especially on the 2Wheeler front, it becomes very important for us to engage actively with the startups, and then they are sort of gaining ground. So if you can just highlight some progress where if Minda has made on that aspect.

Yes, Vimal. So, as you know that from the new age -- I think you're speaking specifically from new age OEMs, because EVs are also manufactured by the existing IC engine manufacturers. So from that perspective, you are right that from the existing players who are also ICE engine manufacturers, so we are having a very, very good business already from the EV perspective. From the new age players, we have been having active discussions. We have got some of the businesses already from them for a couple of our products and -- like seating or horns or something, but we are in active discussion with them. And hopefully, within this year, we do expect to get more components from these players, especially because EV manufacturers are the new age EV manufacturers, if I may say so.

Okay. So the seating products, are you saying that you've got orders from these new 2Wheeler OEMs for your -- for seating, right?

You asked only for 2Wheelers so I respond only for 2Wheelers.

We have next question from the line of Siddharth Bera from Nomura.

Sir my first question is on the ramp-up of alloy wheel -- 2Wheeler alloy wheels and sensors controllers, how will be -- how much will be the revenue we have done for this quarter? And how are they looking at the ramp up, say, over the next 2 years [ versus this quarter ]?

So 2Wheeler alloy wheel, Siddharth, this quarter obviously had an impact because, again, because of COVID. So we could not realize the full potential. In this quarter, they were around something like INR 40-odd crores of top line, which was broadly in line with the previous quarter. So in fact, it is marginally lower than Q4 because of this -- May month had a significant impact. And our customer obviously has taken a shutdown. So we also had to. So because of that, the Q1 was lower, but with -- now Q2, where we are currently planning to not only ramp up the existing line but also commission the third line. We are expecting good increase in Q2 revenue for 2Wheeler alloy wheel project.

Got it. And on the alloy -- sorry, on the sensors and controllers. How are we looking at the ramp-up?

Yes. So sensor and control both sort of -- again, if I exclude the COVID impact, so sensor did, if I remember, something like INR 40-odd crores of revenue in Q1. So I think sensors and controllers both -- put together, yes, it was like INR [ 40 ] crores, INR [ 50 ] crores.

INR 50 crores. Perfect. Okay. And then in terms of our targets which we have for FY '23 I mean, do you think they have an upside to where the adoption in the EV is happening and we are gaining share [ overall ] ?

No, definitely. We are working on it. I think both of these business are [ sunrise ] businesses. I don't know what numbers you have factored in FY '23, but the target which we have shared earlier for next 3 to 4 years, I think we are on track.

Okay. Okay. So from 2 to 4 years, what we are saying is like 5 million to 8 million type of top line right, for each?

So total, if I remember, was -- we said INR [ 4 ] crores to INR 400 crores of revenue plus.

Okay. Okay. And lastly from the depreciation effect in the quarter, it has dropped a bit compared to last quarter. Any particular thing which has happened here?

Yes. Depreciation, as you know, that normally you will provide either a double shift or a triple shift based on the business. But again, in May, when there was a shutdown period. So as per the standard, you can only schedule single shift, you don't provide a double shift or a triple shift operation. So that also leads to some reduction in depreciation.

Okay. So this should normalize in the current quarter?

Yes.

Okay. And lastly on the Harita Fehrer side, if you can throw some light in that EV part of the business, which we have been trying. I mean, ramp up in revenues, which we are looking. And in terms of new orders, would you have any -- can you share something on that?

Yes. So Harita, as I said, we have actually got a couple of businesses, export orders of peak value of INR 75 crores a year. So from that perspective, I think it continues to do well. But specifically on the domestic front, we all know, CV is yet to pick up, while we are all hearing that CVs are the next in line to sort of catch up but it's not coming, honestly. And Harita, half of the revenue comes from the CV business. So there [ in that regard ], the challenges, again, are industry-driven because this vehicle doesn't manufacture -- our destiny gets linked with the vehicles being manufactured.

Sir, actually one [ thing ] about the passenger vehicle side. I mean we are pushing seats in the passenger vehicle side as well.

No, not yet, Siddharth. I think we spoke earlier also as of now we don't have a ready product available from PV side. What we have got secured businesses only [ like ] headrest or center armrest like that, but not specifically seating for PV. In fact, the target which we also shared last time of doubling the revenue, that doesn't factor any PV shipping actually. If that happens, that will be additional.

We have next question from the line of Ronak Sarda from Systematix Group.

My first question is on the other expense in the employee cost line item. Is there any one-off in the quarter? And related is, I mean, given the major impact on margin is more of operating deleverage. So how has the utilization been in, let's say, July and half of August? Are we inching back to, let's say, Q4 levels?

No. So employee cost, definitely, it's purely an operating leverage play because there is nothing [ actually only ] additional is the increments because last year, when employees have all contributed voluntarily for contribution or salary cut, if you may use that strong word. So this time, I think company has also been, I would say, proactive in terms of handing out increments, which [ we do and ] lot of people did not and we also increased a little bit of quantum of those increments. So that is the only thing which is additional if you see from a quarter-on-quarter perspective.

Got it. I understand that. So yes. And how is the utilization being in, let's say, July and August? Are we inching back to Q4 levels?

Yes, definitely, as I said, July was very, very good. August, again, as you know, we just heard from a couple of our customers, primarily Maruti also, and where there are some challenges because of [ seat back holders ]. So I think barring that, we should be on track to at least sort of reach close to the top line, what we achieved in previous quarter.

Got it. Perfect. And the other question was on the alloy wheel expansion, primarily for -- in the Bawal plant or let's say, for the non-Korean OEMs. I mean the expansion looks slightly small, given how the industry is now quickly migrating to alloy wheels. So is it -- the plan is to do the CapEx or expand capacity much slower than what we had -- the industry will grow? Or is it more of a cautious approach? Just trying to understand that because we could have done it a larger expansion in one go.

So I think you're referring to the Bawal expansion...