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PPAP Automotive Ltd
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Earnings Call Transcript
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to Q2 FY '25 Earnings Conference Call of PPAP Automotive Limited.
This conference call may contain forward-looking statements about the company, which are based on 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. Abhishek Jain, Managing Director and CEO. Thank you, and over to you, sir.
Thank you very much. Good afternoon, everyone. I'd like to extend a very warm welcome to all the participants joining us on this call. Here with me are Mr. Sachin Jain, our CFO; along with our Investor Relations Advisers, SGA. I trust you've had an opportunity to review our results and investor presentations, which are available on both the stock exchange and our company's website for easy access.
Let me begin the call with the business update across our different verticals, followed by a financial overview. First of all, I'm delighted to share that the first half of financial year '25 displays an all-around performance across all key financial parameters, including revenue, gross profit, EBITDA, margins and profit after tax. This financial performance serves as a validation of the strategic initiatives implemented in the preceding quarters.
The company has registered a consistent growth in operating margins since last 6 quarters and the EBITDA margins reaching up by 330 basis points to 12.7% year-on-year. This clearly demonstrates our commitment towards margin improvement that we have been saying to all the investors in all the previous conference calls.
Now let me shed some light on individual business segments. Our automotive parts business is the basic -- the biggest contributor to the sales of the company. PPAP's core competence is in developing the automotive body sealing system as well as Interior and Exterior Injection molded products. All the parts are engine-agnostic and hence, it is supplied for both ICE engine and EV models as well. We have a healthy order book in hand, which will be executed over the next 5 years. We have identified new locations in Pune and Sanand area to cater to the customers. These are expected to be -- to start operations in quarter 4 of financial year '25. Small expansions are also underway in our Pathredi and Viramgam plant to cater to the new models, which are expected to start production next year. I am also happy to share that we are also building a new plant in Chennai to cater to the requirements of the customers from 2026 onwards.
During this first half of the year, we have -- we started supplying parts to Tata Curvv and Maruti's new Swift Dzire, both the blockbuster models launched by Tata and the Maruti in the first half of this year.
On the customer front, we are constantly engaging with all our customers to further deepen our relationship and increase the per car contribution. We are focused on increasing the content per vehicle across all models for all the respective OEMs.
I'm happy to share that we have also introduced some innovative technology, which are very premium parts, which have been first time launched in the country for Tata Curvv, enabling us to achieve one of the highest contents for vehicle for our extrusion portfolio. We plan to leverage this technology with other customers as well and continue to focus on building on better and premium products for all our companies. We also continue to focus on onboarding our new customers. Our target is to capture the entire Passenger Vehicle segment. Therefore, we are engaging with Mahindra & Mahindra to be inducted at Tier 1 level, and we are aggressively trying to expand our product offering with Hyundai and KIA.
The automotive parts business is done by our JV company as well. I'm happy to share that now the JV company is keeping up with the growth trajectory and is continuously improving the margins as well, which are reflected in the consolidated results.
On the commercial toolroom front, this business is also now gaining traction. We operate this business under a brand called Meraki Precision Molds. This division has a healthy order pipeline across auto and electrical segments, and we remain committed in delivering these orders within the specified timelines and the specific quality expectations for all our customers. We plan to enhance our tolling capacity to 120 molds, along with ramping our existing utilizations to achieve operating leverage. We aim to explore additional opportunities within this segment, which will further enable us to diversify and derisk us from the automotive parts vertical.
This year, we expect 80% utilization of the capacity generated to be utilized in developing molds for automotive customers as well as the electrical goods makers as well. The aftermarket vertical, which is being operated at the Elpis brand in a separate company is also growing rapidly, and the company is quite satisfied with the performance so far. We have recently leased a new 22,000 square foot warehouse to cater to the increased requirements. This investments continues to grow at the rate of 20% to 25% per year. In quarter 2 of financial year '25, 3% of the total overall revenues of growth came from this segment, which we are -- which we intend to take out to 10% in the coming years. The company is focused on expanding its product portfolio and outreach via increasing distributors across the country.
The overall SKUs offered by this company are 1,237. The company possesses pan-India distribution network comprising of 137 dealers, along with the robust online presence on its own website shopelpis.co, Amazon, Flipkart, et cetera. The company continues to focus on expanding its international presence as well starting with the neighboring countries and the GCC countries. Our lithium-ion business continues to be challenging, however, we are able to see green shoots in the pivot that was done earlier this year, and we are very hopeful that good results will be expected soon.
Now moving on to the financial overview. On a stand-alone basis, for the quarter 2 financial year '25, revenue increased from INR 140.5 crores to INR 141.3 crores, reflecting a marginal increase of 0.6% on a year-on-year basis. However, gross profit witnessed an uptick year-on-year to INR 61.6 crores with gross profit margins improving to 43.6% from 40% earlier. The company was successful in negotiating with its suppliers on pricing contracts, which enables cost efficiency at the COGS level.
EBITDA also saw a rise to INR 17.9 crores in the quarter compared to INR 13.2 crores, which is a strong growth of 36%. We are delighted to share that we have restored the double-digit EBITDA margin of 12.7% in quarter 2. As a result of all of this, the company reported a profit of INR 5.6 crores against a profit of INR 2.7 crores on a year-over-year basis.
For the first half of this financial year, our revenue grew by 3% to INR 260 crores from INR 251 crores. The gross profit witnessed an uptick of 43.5% compared to 40.1%. EBITDA also increased to INR 29.9 crores compared to INR 20 crores for the same period last year, which is a strong growth of 46%. The margins have improved to 11.5% compared to 8.2% in the previous first half of the last year. And then to reiterate, as we have been saying in the previous conference call as well, our emphasis was on cost rationalization and enhanced productivity, which is now getting evident in the financial results that have been shown.
The company reported a profit of INR 7.1 crores for the first half of this financial year compared to a net profit of INR 1.1 crores in the last first half of the previous financial year. PAT margin has improved by 230 basis points to 2.7% in H1 of financial year '25, again primarily attributed towards improving efficiency, favorable financial leverages and better inputs on the cost front.
In terms of consolidated financials, for the quarter, the revenue was INR 148.4 crores, which is almost 2.4% decline on a year-on-year basis. However, gross profit witnessed an uptick to INR 63.1 crores to 43.5%. Similarly, EBITDA also saw an increase to INR 16.4 crores, which is a growth of 34% compared to the previous -- on a year-on-year basis.
We are delighted to share that we have restored double-digit EBITDA on the consolidated financial results as well, which is for quarter 2, which stands at 11.3%. And therefore, the company could generate profits of INR 2.9 crores for this quarter against INR 0.5 crores on a year-on-year basis. For the first half, the revenue increased by 3% compared to the previous year to INR 267.5 crores. The gross profit again showed an increase of 43.5%. EBITDA increased by almost 53% to INR 28.5 crores compared to INR 18.5 crores in the previous H1. EBITDA margins have also improved to 10% compared to 7%. And therefore, we could register a net profit of INR 3 crores against a loss of INR 2.2 crores on year-on-year basis.
We started our strategic priorities across verticals to be achieved going forward. All these strategic priorities have mentioned in the investor presentation. I request you to kindly have a look at them. Our strategic targets onboarding new customers, growth from existing clients, sweating of existing assets, improving material yield ratios and -- which will ultimately improve our margin accretion.
Furthermore, our commitment to excellence, technology and people will definitely fuel our top line and bottom line growth on a sustainable basis. We expect to conclude financial year '25 with consolidated revenues somewhere in the range of INR 550 crores to INR 575 crores, and aim to maintain a double-digit EBITDA margin in the range of 10% to 12%. The Board of Directors have declared an internal dividend of INR 1 per share as a gesture of appreciation towards our valued shareholders for their continued trust and support.
Thank you very much, everyone, for your active listening. Now we open up the session for question and answers. Please feel free to ask any questions that you may have, and we will try our best to answer it for you today. Over to you to the moderator.
[Operator Instructions] We have our first question from the line of Parth Vasani from KK Advisors.
Sir, basically, can you throw some light on how the order book flow is coming -- I mean, is in this coming quarter? Because I just wanted to understand, I mean, what are the major orders and what are new OEMs to which the company will be supplying and which are the new models in addition to the existing OEMs?
Are you talking about this quarter?
Yes, yes. Order flow in coming quarters?
I think a lot of new models are already in the pipeline to launch from -- all the customers, like same Swifts Dzire has already been launched. So we have our products for that model. In the news, you must have heard about new Amaze coming out by Honda. We have business for that model as well. Then you would have seen Renault planning to launch their Duster in this year. So we are developing parts for that model also. And we are actively engaged with Tata for the new Sierra project and other new projects, which are coming -- going to be launched.
Sure, sure. That sounds promising. Sir, second, sir, you just gave the guidance of INR 550 crores to INR 570 crores of revenue and EBITDA margin of around 11% to 12%. So my question is that how you see the bottom line margins, I mean -- I just want to understand how you manage your finance cost so that your EBITDA margin, I know how it flows down to your PAT margin?
Well, basically, as we are regularly mentioning that we are trying to keep our borrowing at the current level only what was in the FY '24. So that we try to maintain our finance costs. We will not increase this year overall borrowing. So that will result into the increase in our EBITDA to flow to the PAT margin.
The next question is from the line of Jyoti Singh from Arihant Capital Markets.
Sir, my question on the debt side, if you can explain how much debt we are currently having?
So the consolidated the level we have INR 155 crores of debt. And last year, it was around INR 257 crores.
Okay. So we have reduced it substantially.
Not substantially, almost similar as last year. We will try to maintain it at capital level only.
Okay. And sir, on the margin side, like we have already done in this quarter, good, I mean, 11.3%, and we are still targeting 11% to 12%. So like we will going to surpass this or will maintain the same range?
I think this financial year, we will try to maintain it because if you see -- if compare with the last year, so it was a significant improved performance. So we will try to maintain it this financial year to -- up to 12%. And next year, you will be able to see more improvement in that.
Okay. Okay. And sir, on the revenue mix side, we have a larger dependency on the Maruti. So like we -- though we diversified a lot. So going forward, this is going to reduce or will be similar range, 38% with Maruti?
See, on a group level, dependence on any single customer will obviously come down. And that is what our target is that we should not be concentrated on any single customer or any single product segment and even just geographical conditions. So that is why we've started our focus on all the fronts, wherein we are trying to derisk ourselves from all the -- all these factors. So automotive industry, we are trying to derisk ourselves. That's why we started working with the electrical makers on the tooling side and some other investor product applications also we are developing to derisk ourselves from automotive business.
From customer also, we're expanding in the aftermarket business, so that our dependent on any single customer directly comes down. Geographically, the aftermarket business and the industrial products business is trying to expand to neighboring countries and get into the export market. So that we can reduce our dependence on the Indian geography as well. So we started on the journey in about 3 years back. And now this year onwards, we should be able to realize all these deals that we have set on and build a robust company.
Okay. And sir, on the export side, what's your view and what are target?
Export side, right now, we don't have a fixed target in mind. Right now it's mostly under exploration, wherein we've sent small orders to the customers directly and some small orders are in the pipeline. But I think another -- after 6 months, then we would be having a very fair idea of what all we can do in the export market. But we are very hopeful that in the next 4 to 5 years, export should contribute at least 10% to 15% of the total group's top line.
Okay. And sir, as situation is not very good on the EV penetration side on Europe and U.S. So what's your view on that front?
On the passenger vehicle EV?
No. On the -- like EV overall, passenger vehicle and 2-wheeler side, like things is not going very great. So any view from your side you wanted to give?
See, I think it's very dependent on which kind of segment are you actually focusing on when you're considering the EV vehicle. So I think for commercial application, EV does have the economics behind it. And I think eventually, people will start -- the government and the service sector, everyone will start moving into that direction. Private ownership of vehicles, I think still the economics are a little challenging. The infrastructure is a little challenging. So there might be some hiccups in the journey forward. But I think considering the environmental conditions, things are moving towards electric vehicles.
We have our next question from the line of Anjana Shah from Shah Investments.
Questions from my end would be like this. So if you can give some update on the industrial product business? How is the industrial products segment evolving? And what is our order book that we have currently for this vertical?
So this industrial products division, I'll give you a brief background. This division is basically trying to expand our know-how of whatever we learned in the automotive sector into the neighboring sectors as well. So our core competence in the company is basically for extrusion profiles, which are made by either plastic material or by rubber material. And the second core competence in the company is of the injection molding process. So these three segments is what industrial products division is trying to expand -- trying to develop products out of the automotive industry.
And right now, I think, in this quarter the contribution is roughly around 1% of this division to the total sales. But yes, and we are working with a lot of customers. But I think order book is -- I mean, -- this business -- the nature of business is basically make-to-order kind of a business. It's not same as OE business, the auto business, wherein you -- the customers give you a fixed projection and then you follow that for the next 5 years or something. This is basically a make-to-order kind of a business. So right now, in this quarter also, we are expecting that it would contribute about 1% but next year onwards, we have some orders that should take this percentage up to maybe 2% to 3%.
Understood. Got it. Sir, if you can throw some light on our capacity utilization levels. Like I believe, currently, they stand at 72%. Sir, any other emerging areas where a company could try to work and focus on to increase the efficiency?
It's not about the efficiency, of course, that's always our focus to optimize the machines and all. And we've done a lot of Industry 4.0 projects on that. And every cycle time, every short is being captured for to check for whether it has been efficient of time or not. That is one area. But on the business side, that is the reason why we've started this Industrial Products division and the aftermarket apart from the traditional OE business. So that's basically our strategy to further improve the utilization of the plants as well. So currently...
So sir, what do we anticipate the utilizations to be going ahead?
So I think this year -- this year would be -- on a full year basis, it would be in the range of 74%. And next year, we are expecting up to full 80% utilization.
We have our next question from line of [ Atul Joshi ] from [indiscernible] Investments.
Yes. So congratulations on a good set of numbers. And just looking at the EBITDA margin, it has improved. I mean in your presentation also, you have mentioned what are levers for it. If you can throw some light on it on the details of it, how we have achieved, how much is because of the raw material and how much is from the efficiencies of the sweating assets, operating leverage kind of things it has come out? And how much of it is sustainable going forward? If you can throw some light on that, it would be helpful.
Yes. About the margin from that, so we are consistently saying that we are working on the three fronts. First is the price negotiation with the customer, on the side of the inflation price increases, the raw material price increases. And second time, we are working with our suppliers to reduce the pricing where there is softening of the raw material prices and renegotiating with the private terms. And third, we are focusing on the internal improvement where we are working on the consumption improvement side. So if you talk about the improvement of around -- as we have the 3.5% kind of improvement in the raw material cost. So around 1% comes the price realization improvement and around 1% is from the price, which we have renegotiated with the raw material suppliers and also softening of the prices. Rest is the addition of the value-added products and the financial improvement.
Okay. And so 1.5% is definitely on our side is sustainable of this, right? Because 2% is what we have also from of customer and 1% from...
But the price increase side, that is also a sustainable because it has impacted on sale prices. So it will continue to reflect in our future sales.
Do we have indexation kind of thing that after 3 months or some time that our prices will be adjusted according to the raw material prices. Is that kind of thing is in place with the customers?
Yes, we have previously also told we have [ extrusion ] technology and second is the injection part. So on the injection side, we have the complete indexation system with the customers where we have the back-to-back price agreement where there is a reduction in the prices, the prices will be reduced if there's increase in the raw material prices. So customers will compensate. There could be one quarter, two quarter lag in that. However on the extrusion side, we don't have any such kind of thing.
Okay. So -- and what's our split then extrusion versus injection molding revenue-wise?
It's around 50-50. Sometimes it varies to 47% to 52% to 53% kind of thing.
We have the next question from the line of [ Raman ] [indiscernible] from Sequent Investments.
Sir, I just have two questions. One, you talked about that you supplied some premium parts to Tata Curvv EV. You said it was like first in the country. Can you just expand more on that? And as of now, I want to know the product mix, like how much of the revenue is contributed by the auto part, industrial products and plastic injection as well as at battery pack? And what's your product mix you aim for in the future, like for -- with respect to FY '25 or FY '26?
Ramanji, I think, first of all, for the premium products question, if you look at Tata Curvv, the ceiling system that we have made for them, the outer belt, A pillar garnish to C pillar garnish, all these parts are -- they have finisher, which are available today in a vehicle, which is costing upwards of INR 50 lakhs, mainly European cars like a Mercedes-Benz and BMW and all that. So those kind of technology we have been successful in localizing for Tata Motors, and those kind of parts are being supplied for a INR 12 lakh, INR 7 lakh vehicle. So that -- sorry?
Manufacture it -- so we are able to manufacture and sell it for almost like 1/10 of the price, right?
No, it is -- these are expensive parts. What I'm saying that they ideally are fitted on INR 50 lakh plus up vehicle but Tata accepted our proposal to introduce all these parts in a INR 11 lakh vehicle. But the technology and all that is very premium. It's some -- it's -- these parts are some are used by all the luxury car makers rather than the mass market makers. So that is what I meant by premium products. And of course, in the country, nobody else makes these products. It's only us. And we are trying to expand this product range to other customers.
When you're talking about the product mix, on the consolidated level, the automotive parts, which is the OEM/OE business, that contributed around 85% of the total revenue. Aftermarket contributed 3% of the total revenue, industrial product was 1%, the cooling facility, which we have invested in, which is called Meraki, that contributes about 3%. The other toolings, which are sold as part of the customer's development projects that contributed 7% and the battery pack business, which is done under our subsidiary companies, that contributed around 1%.
Sir, what about the plastic injection -- injection mold?
Plastic, if you split it in the technology side, then extrusion would contribute around 52% and injection would be around 48% if you remove the tooling business and the battery business from this whole metrics.
Okay. Okay. And sir, what's the optimum product mix you are aiming from -- for?
Optimum product mix, what we are trying to do is this aftermarket and the industrial products division, this should -- ideally, we are trying to scale it up to roughly about 10% of the total revenue. Automotive parts business will also continue to grow but aftermarket and industrial products, we are trying to grow it much faster. This cooling facility...
So both -- including both will be 10% or each will grow 10% of the total revenue?
In 5 years' time, each should contribute at least 10% to the total top line. So roughly 20% of revenue should come from non-automotive customer, non-OEM business basically.
Sir, also one additional question. Sorry for that. Sir, in terms of margin, which is like a better margin business?
Compared to like what?
Like amongst like automotive business and industrial product business and aftermarket business, amongst the three, which is like a better margin business, higher margin?
Yes. Relatively, aftermarket and industrial product gives higher margins, but now as we are trying to penetrate that in most of businesses. So our main focus is to maintain the current margin and improvement in gross margin. So we will not try to see margins obstacles to -- which stops us to penetrate in this both the businesses because there would be more -- it will help in more utilization of our assets. So it will result in the overall improvement in the EBITDA margin.
[Operator Instructions] The next question is from the line of Ravi Shah from Opal Securities.
Yes. Sir, I just have one question. So Maruti's Chairman had recently commented that the automobile industry will only grow by 3%, 4%. So how do you see the business in Maruti after his comment? Like, will it affect us? How is it going to happen going forward?
See, this year -- anyways, at the beginning of the year also, it was not expected that the auto industry would grow at double digit or higher single digit numbers. I think the kind of numbers, which Maruti is declaring now, those were expected from the beginning, and that has already been factored into whatever we are planning for this year.
[Operator Instructions] The next question is from the line of Rohan from Turtle Capital.
Just comment you made a few minutes before that, you want to...
Sorry to interrupt, sir. You are sounding a bit muffled. Can you please use your handset.
So you said that you want to increase your aftermarket and industrial product division to 10% each in 5 years' time. Seeing that those are the high-margin business and you are -- that will lead to a better profitability. So with that, like, can we expect that your debt profile, which stands like -- our borrowing stand is INR 160 crores as of September. Can we see that reducing back to our pre-COVID levels?
Mr. Rohan, this year we are not planning to -- like -- in the last 3 years, we've increased our debt levels every year. This year, we've decided that we will not increase the debt level, and we will keep it same. And our internal target in that from next year onwards, we should start reducing our debt levels.
Okay. Sir, can you give us any...
So that will -- all these new business areas and better utilization of assets will obviously generate more liquidity for the company, and more liquidity then we'll try to reduce our debt levels so that we are, again, derisked from that kind of situation.
Okay. Sir, if you can help us out just understand like how much -- like if you have made any plans for reducing debt to a certain level in the next 3 to 4 years, as your capacity gets utilized and liquidity is generated. So if you can just help us out with any number if you can throw up -- throw at us?
For the longer-term target, like our internal target is to -- the funding in that way that the long-term projects should be funded from the long-term funding. So that way we'll try to keep ourselves the long-term investment through debt and the capital -- on capital mix or whatever capital mix, however, on the short-term side, we will strive to reduce it to the 0 in the next 3 to 5 years.
[Operator Instructions] The next question is from line [ Sekhi Pratap ] from Pratap Securities.
So just two questions from my side. So you gave a guidance of about 20% plus per annum of top line on the aftermarket business? How do you see the EBITDA margins in this product segment? And what steps the company taking for the development of new product portfolio?
Thank you very much for that. For the aftermarket business, in order to grow by 20% every year, our focus is basically, first of all, to continuously increase the product offering to our customers and trying to create more and more packaged solutions for the customers, like -- so that they can buy that complete kit for a car from us. So first, of course, focus is on increasing the product portfolio. Second, without active distributors, our reach cannot be completed. So second focus is to increase the number of distributors, which I think today stands at somewhere around 130 or something.
And third is we are also increasing our field staff who are directly interacting with all these dealers, distributors, retailers and even going down to the mechanic level to generate the orders, so the company trying to have better relationship with them. So all this capability development is what we are trying to do in the company, they help us. So that we grow this business every year at a steady rate of somewhere between 22%, 25%.
Apart from this, we are also looking at international markets. First focus is, of course, to the neighboring countries. And second is right now to the Gulf countries. We are not thinking about exporting to Europe or America right now. We want to concentrate more on Asia kind of level only. When it comes to margin, right now, because we are expanding this business, we are recruiting more and more people. We are organizing our operations, all these kind of expenses are there but we still expect that even after all these expansions, we should be able to generate somewhere around 8% to 10% of EBITDA margins every year.
For this -- during this quarter, this margin took a hit because we changed the warehouse. We started our new warehouse. So all these onetime expenses were there because of which the margins were hit in this quarter. But on a short-term perspective, we consider it to be an 8% to 10% margin business right now. Maybe once we grow the business to a much higher level, then we can further increase the EBITDA margins.
Okay. Understood. Secondly, you've mentioned about softening of raw material prices. So how do you see this trend moving forward? And how much percentage of raw material approximately do we import out of the current raw material requirement?
See, on the stand-alone basis, 52% of the products that we are making, the extrusion business, those materials are -- they don't have any contracts with the customer. 48% of the business, which is the injection molding side, that area has automatic indexing with the customer. So any increase, decrease that happened is automatically compensated by them.
Now for this 52% over the last 5 years, we have been substantially able to cut our imports, which were almost somewhere in the range of 35% to 40%. Now we are down to around 10% of import content. What we have tried to do is either -- three areas, which we've worked on. Some are true localization and some is gross localization. We've been able to request either our raw material supplier, if he's not able to -- first of all, we have requested all of them to put up facilities here. Whoever has not put up facility, they have supported us in building a warehouse here so that we can supply just-in-time to us, and we reduce our inventory level and reduced the capital block and all of that. We request -- many suppliers have supported us in localizing the products by themselves.
And third, of course, we've done a lot of -- we've been able to develop alternate sources, local materials, which was getting imported, we worked with all the suppliers. And together, we've been able to localize all these materials as well. So these three strategies is what we work on to reduce this import content from 35% plus level to now to 10%.
[Operator Instructions] As there are no further questions, I now hand the conference over to the management for closing comments.
Thank you very much to the moderator for organizing this conference call today. Thank you very much, everyone, for your active participation in today's call. We are very excited on the new -- on the path that we have started on. We have always transparently communicated to everyone that last 2 years have been quite challenging for the group, whether it's a stand-alone company or all the new businesses that we've started but the results which are coming out, especially in the quarter 2 and consolidated on the first half level, we are very positive that the worst is behind us. And from now onwards, we'll be able to build more and more significant value for all the stakeholders in the company and continue to grow profitably.
So thank you very much, everyone, for your support. And I would like to take this opportunity to thank our Investor Relations; Advisers also, SGA, for their continuous support and their guidance in organizing all the meetings between us and all the stakeholders. So thank you very much, everyone.
Thank you. On behalf of PPAP Automotive Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.