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PPAP Automotive Ltd
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PPAP Automotive Ltd
NSE:PPAP
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Ladies and gentlemen, good day, and welcome to the Q2 FY '20 Earnings Conference Call of PPAP Automotive Limited. 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]. I now hand the conference over to Mr. Abhishek Jain, MD and CEO of PPAP Automotive Limited. Thank you, and over to you, sir.
Yes. Thank you, Stephen. Good afternoon, everyone, and welcome to our quarter 2 financial year 2013 earnings call. I am joined by my colleague, Mr. Sachin Jain, who is the CFO for the company; and SGA, our Investor Relations adviser. I hope everyone has had a chance to go to our investor presentation, which includes the strategy for making the company and its subsidiaries stronger, resulting in higher growth going forward, along with the financial performance for the quarter and half year ended September 30, 2022. The global economy is still witnessing multiple headwinds such as elevated crude oil prices, inflationary pressures on the raw material plant, higher [ interest rate ] despite such challenging macroeconomic scenario, the Indian economy is resilient and growing steadily. The automobile industry recorded healthy sales in financial year 2023 so far. The Passenger Vehicle segment reported a same growth of 57% on a year-on-year basis from 7.5 lakh vehicles to 24.07 lakh vehicles between April to October 2022. The industry has witnessed a strong festive season. However, longer waiting period for cars and semiconductor issues will prevail in the sector. The demand for vehicles will continue to gain momentum and will lead to industry growth in the second half of the financial year as well. The Indian auto component industry is in a sweet spot and will grow on account of the increase in vehicle production and exports. There has been a significant thrust by the government in terms of battery shopping policy, realize [ sales ] and promoting semiconductor manufacturing in Asia. The adoption of EV is proven to be a catalyst for the automotive industry growth, both include user segments and passenger [ vehicles ]. I'm delighted to share that all our products are engine agnostic, which enables PPAP to cater to all the OEMs and all of [ the models ]. Apart from the rerouting products, we are also taking up special projects for electric vehicles and are doing development on the charter side for these OEMS. Now let me move to life on our businesses. PPAP was established in 1978 for manufacturing customer made exclusive products. Today, the company, along with its subsidiaries and joint venture companies delivers value-added products to various customers in automotive and ancillary industries. The company's core confidence is in developing plastic and lever-based excision systems as well as plastic injection molding systems for various industries. The company also focuses on developing high-precision injection tooling. The company started its journey of achieving global-level excellence in 1985 with the start of the automotive business. Over the years, the company's trying to delight with customers in the automotive industry as well as in the industrial products industry. PPAP growth is poised to establish itself as a leading product solutions company in the area of its core competence. We are also a seclusion provider of designing and manufacturing of classic injection mold. These mold cater to the requirements of various industries such as automotive, wide goods, medical, electrical and related industries. This business has a huge potential of growth because every company is now facing global logistics challenges and everybody is focusing on derisking their operations and adopting China 1-plus policy. The company has also started investing product division, which is an extension of the core competence of plastic and [ lower ] processing to [ labeling ] industries other than automotive. We are developing application engineering products for various industries. With the advent of electrification of the industry, PPAP has established itself as one of the leading manufacturers of lithium ion-based actual division provider of mobility, [ mold dealer and ] 2-dealer antigen storage applications. We have also set our foothold in the aftermarket business with development and sales of spare parts and accessories business. The business is done in 100% owned subsidiary of LFComponencs. The focus is on developing a pan-India distribution network with both offline and online models. We have received a robust structure for our products and our endeavor is to achieve 10% of total revenue going forward from this business segment. We already have a network of 100-plus dealer distributors, which are being spread out all throughout the length and the breadth of the country. The group has started its journey for achieving ESG standards with the objective of running the operations sustainably and responsibly. Through the company sees our initiatives, there is a constant focus on inviting people banks in areas of environment, education and health. The group supports based variety parts by planting and sustaining native trees to improve the environmental conditions. Now let me close some light on the financial performance and key developments for quarter 2 and half year of financial year ‘23. For the stand-alone PPAP, our revenue grew by 19.6% from INR 103.8 crores to INR 124 crores on a year-on-year basis. The company closed a sales growth of 21.8% in the first 6 months of financial year '23 as compared to the [ sales ] period last year. EBITDA grew by 6.3% from INR 11.7 crores to INR 12.5 crores in the quarter. Similarly, it witnessed a sharp uptick from INR 152 crores to INR 25 crores resulted in a growth of 53.7% in the first half. EBITDA margins improved from 8.4% to 10.4% in the first half of this financial year. PAT stood at INR 5.3 crores in the first half against a loss of INR 0.7 crores in the previous year first half. 90% of our revenue is derived from our sales and the balance is drive from focus and others. Maruti [ TGP ] continues to be the largest customer of PPAP. During this period, we've been awarded by excellence and best quality by one of our customers as India private limited. Our capacity utilization for the quarter under review stood at 80%. This capacity utilization has seen an improvement trend quarter-on-quarter basis, and we aim to achieve higher operational efficiencies with this utilization getting improved. The Board of Directors has announced a dividend of INR 1 per share, that is 10% of the [ fast value of 0 ] to all the shareholders during the Board meeting held for quarter 2 results. For the consolidated PPAP, our aftermarket business is now profitable and continuously adding value to the top line and the bottom line. For consolidated results, we recorded a revenue growth of 36.3% from INR 184.7 crores in the first half of last year compared to INR 261 crores in the first half of this year. EBITDA has increased from INR 13.4 crores in the first half last year to INR 21.4 crores in first half of this war. Just to give you an overall summary, the 5 business segments noted above and explained about with growth levers for the company. The semiconductor issue has been easing out now and will take some new time to be completely normal. Going forward, the macroeconomic factors will be favorable, coupled with the industry growth, that will enable us to take the best trade forward in capturing the market and getting to new models of all the [ roles ]. Thank you, ladies and gentlemen, for your time listening. We will be happy to answer any questions that you may have. Over to you Stephen.
Thank you very much. So we'll now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Akash Mehta from [ Capas ] Investments.
I mainly have 2 questions. The first one on the EV business. So what is the current order book for our EV business? And what is our progress with major OEMs in the 2-wheeler segment?
Sorry, could you repeat the second question, please?
So what is the progress that we made towards tie-up major OEMs in the 2-wheeler segment? That would be the second one.
Okay. Thank you, Akash. For the EV business, we -- there are -- apart from focusing on the plastic parts for -- our basic focus for EV business is, first, we want to extend our product range, which is existing products to all the EV makers. So passenger vehicle side, we already are doing business with Tata Motors and MG for their electric vehicles. And these products are our plastic extrusion system and some of injection-molding products. For EV, we also -- we've also done one project for developing the charger body for Tata Motors. Apart from this, over now we are focusing on developing [indiscernible] part for [indiscernible] so soon, we will be starting [indiscernible] our business with Okinawa. And after that, we will be having [indiscernible].
Sir, may request to keep the phone a little away from your mouth so we can hear your breathing.
For the second focus on EV, we are developing the [ retail battery ] tax for 2-wheeler and 3-wheeler segments. So in this segment, as you know, that now government has introduced new rules and regulations out of which, Phase 1 is going to start implement – rolling out from December 22 onwards. So currently, we are developing products according to those regulations and getting them certified from iCAT so that we can be ready for all these according to the new regulations. Currently, we are doing business with one customer on the 3-wheeler side. And we are doing business with 3 customers on the 2-wheeler side, which we are making [ mines ] in battery sides.
Okay. And what would be the current order book for the overall business?
Current order book, very difficult to say right now because this market is still going under transformation. So I think next quarter, we'll be having a much more better visibility.
Okay. And if I may just ask one last one. What is the percentage share of the revenue that we derive from the core passenger vehicle vertical? And what would be that for the other vertical?
Passenger vehicle contributes – the passenger contribute around [ 90% of 29% ].
90%. Okay. That's [ commentary ].
[Operator Instructions]. The next question is from the line of [ Aman Butah from Arian Capital ].
Just wanted to understand if you can give us business breakup for aftermarket and [ consolidated basis ].
On the consolidated basis in this quarter, so the automotive contribute around 92%. And aftermarket is 3%. And the rest is our business is [ sisomicin ] to loan industry product and the battery.
[Operator Instructions]. The next question is from the line of [ Badjatya from HNI Investments ].
So I have a couple of questions. The [ canceled ] inventory has jumped from INR 56 crores in March 22 to INR 78 crores in September to -- can you [ ask in the recent part ] is on this?
Yes. Basically, the inventory is -- there are 2 reasons for increasing the inventories [ amass ], the material because the EV division vendor, we can see that the open phase, so we have bought some material in that on [ requirement on ] the customer demand. So that's why the inventory has called up in that unit. Further in PPAP also case as we know, we are also in the commercial cooling business and the maturation period is quite high, and we also need to buy that tool for our customer also. So we develop the tool for the customer also, and that's the timing of sales depend on the SOP of the particular model. So that why inventory has gone up if you compare with the March trading.
Okay. And sir, could you throw some light on any new product that has been developed by the company in the automotive segment?
New products is [ high rider ], which has been launched for Maruti, Vitara [indiscernible] New Auto, which has been launched. We are supplying parts for that vote. And MG, we are already at the time for all the models.
Mr. [ Sha ], any other questions?
No.
[Operator Instructions]. The next question is from the line of [ Rajendra Goel ] from ICICI Securities.
So I just want to ask on the lithium battery pack. So are we reporting from outside the market in just assuming and providing to the year or we have manufacturing and announced?
No, this is lithium-ion battery pack business, which we are in. So lithium-ion battery is not available in India right now. So we also imported some out sales. And then we are doing the design and validation part of the factory back and manufacturing it according to the customer specification.
Okay. So basically, we are just importing and providing data brand name, the quality testing only if I get it right...
The complete designing of the pacific is being done by us for our customer. It is not just we are buying and selling it in the market, but we designed it along with our customers.
Okay. Second would be with respect to targeted products like motor controllers. So will you be looking for any partners for developing these products or we have the capability of manufacturing due [ retirement of on channel ]?
Currently, we are focusing primarily on lithium-ion battery packs because this is our new opportunity in front of us. We intend to develop all the other parts in then. But right now, our primary priority is to become a leader for lithium-ion battery tax in the country. So we want to establish ourselves as one of the top players of this industry and give good quality and reliable product to the customer.
The next question is from the line of [ Sharad Jain ] from Globe Capital.
I just want to understand results from on the consolidated basis side because on the consolidated basis, our operating margin has gone down on Y-on-Y and month-on-month. This is also, and there's just the share of the JV profit of JV that has -- that loss has increased to 2.5 years. Could you please just [ say in ] this portion?
Sorry, what is your question Mr. Jain?
I want to understand results on the consolidated basis because on the consolidated basis, our margins have gone down and this share of the profit of JV, the loss has been increased Y-on-Y and quarter-on-quarter. We have posted some minus 2.5 year figures. So I just want to understand on the consolidated basis, if I look at it.
Okay. So consolidation is basically happening of 3 companies in PPAP. One is our aftermarket subsidiary, LPs component, which is already positive contribution. Second is PPAP Technology Limited, which is the lithium-ion battery pack company. This company is still not positive about negative 4% issues are there. This is primarily because of the market changing and the regulation is running about, and we expect that from next quarter onwards, [ year ] onwards when the regulations are in place, things will get much better. Third, consolidation, which happened is of our [ 2020 ], which is PTL, it is a 50-50 joint venture between PPAP and [ Papago ]. This company established in 2012 for [ rubber ] products. Now issue with this company is we've done all the [ software ] analysis. And in last 1 year, the rubber prices have unexpectedly gone up. And because of that, this company has come in loss. So as countermeasures, we are discussing with our customers now to gives price increase. We've already had several meetings with them. 85% of the sales of this company is for Maruti. And the rest is for Honda, Toyota, Subaru, et cetera. So we are discussing with Maruti about price increase. We represented to them, we've had a couple of meetings about establishing what the gain and everything is. So now I think sooner than later, we should be getting this price increase. As soon as this price increase comes, this company should again become [ ingrain ]. Apart from this, there are other 2 focuses, which we are doing to make this company more profitable. One is improving our internal material yield ratio. And second is we are doing alternate development of material sources. So both -- all these 3 components put together, they will make sure that this company remains in green going forward. All these actions are already initiated. It is just a matter of time now but once these actions get implemented and then we'll start seeing effects coming in on the balance sheet side. But now I think are 100% here, our action plan to make this company profitable is also quite clear. We see the direction. The only thing is the timing of implementation, which is funding now.
[Operator Instructions]. Next question is from the line of [ Anirudh Singhi from Bajoria ].
Am I audible?
Yes, sir. Please proceed.
So my question is regarding the lithium-ion business. So who are customers right now?
So we have 2 customers for 3-wheeler business and 3 customers for the 2-wheeler business. And a couple of customers for the solar side as well.
Okay. And what revenue are we doing right now? What is the potential at capacity?
Total potential at capacity would be about INR 80 crores to INR 100 crores. We have 3 lines set up already. One for making us– 2 for making cylinders and 1 for [ prismatic cells ]. Right now, we are doing a revenue of INR 3 crores in this quarter, but things should start improving from next quarter onwards when this new regulation starts coming in, and we are giving iCAT-certified products to the customer.
So did any of our products fish any issues in terms of prior?
No, not really. Our complete processes has enough checkpoints from incoming quality to in-process quality tech to final testing of products. We're doing a lot of testing before we sell this product to the customer.
Okay. And could you give us some sense of the pricing per megawatt hour?
Pricing in what sense?
Pricing versus direct imports.
No, I didn't understand your question.
I asked an OEM, if I were to buy from PPAP versus importing directly from China [ area ].
No, I think our customers, they're not really comparing our cost to such systems of reporting from China or somewhere because if they want to take benefit under the same scheme, then they have to localize this product. So the costing and everything, of course, the sell costing is transparent. So people have idea about it. But they don't compare generally the cost of the complete battery pack imported or broken. And it's not that they have an option of buying imported battery pack. If they do that, then they won't get sales succeeding.
Okay. So what -- so would it be about $100 per megawatt pricing?
I'm sorry, I don't have that data point right now with me. So we can get back to you on that.
Okay. So just for example, for this quarter, it's INR 3 crore of revenue, what was the volume in terms of megawatt-hour?
I'm sorry, I don't have that data as well. [ I’ll get ] back to you on that specific point.
Sure. And apart from the current clients, what are the other clients that we're looking at?
We are developing 5 more products for our customers, which should come into mass production for next year onwards, next quarter actually.
The next question is from the line of Anuj Shah from Srinath Securities.
So now that we have reached 50% capacity utilization level, what is the peak utilization we should expect in this financial year?
On the full-year basis, we are expecting to achieve around the recent suite pricing as the [indiscernible] in that as well capacity of pricing of [ 72% ] in first quarter. So full-year basis, we are expecting somewhere 8% to 5%.
And sir, what is our current debt-to-equity ratio? And what will it be by the end of FY '23?
Sorry, can you repeat?
At equity ratio.
Okay. Current debt-equity ratio and [ end of it ]. So the current debt-equity ratio on the stand-alone basis is 3.8 and end of the year, we are expecting somewhere around 135.
[Operator Instructions]. The next question is from the line of [ Prachi Sharma ] from [ AS ] Capital.
I just have a very small question. What is the per-car contribution from Maruti and others? If you could just give me the data.
First, our contribution for Maruti, it ranges from INR 2,500 to INR 3,000. For Honda, it is INR 6,000 to INR 7,000. Similarly for MG also, there are models which we've gone up to INR 6,500. And currently, Tata is about INR 1,400. Next year, this INR 1,400 will go up to INR 3,000 per [ car ].
The next question is from the line of [ Shashank Kanodia ] from ICICI Securities.
Just wanted to get a sense what is the production schedule you're getting from Maruti per se up November, December and going forward.
Maruti still continues to be strong. We do not have any revision or something from them. Demand is quite strong for them.
Are producing at the rate of... Line specific numbers or... So they have been produced at remain 7 lakh per month. So do you see an uptick from here on or the steady-state number which will be retained for the rest of the year?
Yes, in October, they did about 1.65 lakhs. November, we’re planning, including SNG is INR 1.72 lakh. And INR 1.72 lakh, I think includes the vehicles which we are producing in Tata plant as well. So just one for maximum for this year, any monthly volume which we got from Maruti was about 1.94 lakhs per month. But I think there are a half time within achieving that volume. I think somewhere between 1.7 to 1.8 [ crore to INR 185 ].
Onto a path of profitability, [ timing ], you've been guiding that you'll be reaching with the OEMs. So this was a time when you used to go of double-digit return ratios, [ healthy margin pop ]. So now going forward, how do you see -- so next year, 24, we have a [ Del ] ratios, 14%, 15% EBITDA margin popping to feel that, that is not the case anymore with PPAP Automotive because our performance of the profitability continues to be testable and it's been quite some time that has not improved.
Yes. We understand that it's taking time for us to come back to higher profit levels than compared to the previous level. But we understand what an are the problems behind it, and we are taking countermeasures and actions to overcome all those. Our basic problem has been that this unprecedented rise of commodity prices for us unguarded. That was the major problem for us. But on a stand-alone basis, we are seeing softening of all these prices happening. So profitability is going to rise as a result of that. On a consolidated basis, our main problem was this joint venture company getting into a loss situation. As I explained to the previous speaker, there are 3 areas which we identified very clearly now. And all 3 areas, we are taking strong actions. So I personally believe that it is just a matter of time. Maybe by next quarter onwards, we should start getting better results because the effect of all these actions, which we have taken over the last 6 months, they are going to start giving us results.
Because the…
5% and all what we achieved, I think that is a little difficult to achieve. If we were on a smaller scale something, maybe that would have been possible. But as we are growing the business, at least in the short term, 21% looks quite difficult, but we are quite comfortable in maintaining margins of about 14% to 15% going forward.
So sir, for the next of the full fiscal year in FY '24, can we expect PPAP Automotive to close 15% EBITDA margin?
Financially at ‘24, we should start seeing this performance on include...
So you said that you stating for next quarter, is that right? Or even if it takes 6 months to witness [ at ratios ].
If we take at least 1 or 2 quarters to take the comp shift has mentioned that we will start seeing the effect of the actions which we are taking. So it is not that the next quarter itself, we will be able to achieve 40% thing.
So directionally will move to that range. So we'll have...
It will move to that [ connection ].
[Operator Instructions]. The next question is from the line of Akshay, [indiscernible] Investor.
I hope I'm audible.
Yes, sir. Please proceed.
Okay. I guess a few questions. One is regarding the [ decromized parent ] battery business. So we have a few customers already, but are we also reaching out to the bigger automotive players on that?
Currently, we are trying to reach out, but they already have their supply chain systems already full. So is this going to be a slow process in getting hold of the big players. Most of them have their own R&D in-house and they set up this facility in-house by themselves.
All right. And the second, that you just talked about – you have talked with Maruti and other players for the increase in price. But if I'm not mistaken, I'm just hearing this from the last 3 quarters. So what is the issue in that? They are not willing to raise the price?
They require a lot of documents and groups and all that. So it took a lot of time to have all the documents or everything organized according to how they require, [ growth ] required. All that information comparation took a lot of time. Now, all that thing as were completely. Now they are just waiting for their approval to happen from top management, which will get implemental. We are strongly pursuing [ on ].
So even if the approval happens, so we started talking from last 2 quarters. So will there be like a one-time competition for that or they will start raising the price for maybe...
Yes, we are distie from customers or out the one-time compensation from [ upper ] numbers.
All great. Okay. Just a last question on that. I was just going to the balance sheet, and I saw one of the borrowing to buy one of the assets. I cannot pinpoint right now, but can you just elaborate on that? What is the asset that we market for the morning?
Borrowing for buying asset?
One of the assets I see we have done a borrowing for this quarter.
I don't understand what assets are you saying, [indiscernible] asset?
Okay. I'll do one thing. I can [ expect ] with you on the offline. I think I can take a screenshot and you can reply.
[indiscernible].
[Operator Instructions]. The next question is from the line of [ Anika Kotari ] from Kothari Securities.
Just one question. I wanted to know how are things going on with respect to the semiconductor chip supply?
Things are getting better. It's not 100% resolved, and it's not as bad as what it was last year. Still a few of our customers like MG Motors and Volkswagen, they are finding it difficult to achieve that production volume just because of semiconductor issues. Even our other customers, they are unable to make high-end vehicles because of this issue. So it's not completely overlay, but availability is getting eased out. And maybe by next year – next quarter, most [ things ] should in line down...
Ms. [ Kotari ], you have any other questions?
Hello?
Yes, ma’am. Please proceed if you have any other questions.
And wanted to ask one more thing. How long do you think it's going to take for this to get back to normalcy?
The semiconductor problem?
Yes.
Our original expectation was, I think by quarter 1 of next year. So let's move that happens.
[Operator Instructions]. As there are no further questions, I now hand the conference over to Mr. Abhishek Jain for closing remarks. Over to you, sir.
Thank you, Stephen. I thank everyone for taking time out of their busy schedules to attend the conference call today. Please feel free to approach us with any questions that you may have. We’re more than happy to show you around the facilities that have been created to service the customer. Last but not the least, I thank HGI Adviser for organizing this call and my team for a PPAP for supporting this call. Thank you very much, everyone. Have a good evening. Thank you all.
Ladies and gentlemen, on behalf of PPAP Automotive Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.