Sansera Engineering Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
May 30, 2022
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Dear Sir/ Madam
Subject: Transcript of Earning group conference call presentation
Please find attached transcript of Earning group conference call held on May 24, 2022.
The above transcript will also be made available on the website of our Company at www.sansera.in.
Kindly take the same in your record.
Thanking you,
for Sansera Engineering Limited
Rajesh Kumar Modi Company Secretary and Compliance Officer
Encls: a/a
SANSERA ENGINEERING LIMITED (Formerly Sansera Engineering Pvt Ltd) Reg Off: No. 143/A, Jigani Link Road, Bangalore-560 105, India, Tel: +91 80-27839081/82/83. Fax: +91 80-27839309 E-mail id: info@sansera.in Website: www.sansera.in CIN: L34103KA1981PLC004542
“Sansera Engineering Limited Q4 & FY2022 Earnings Conference Call”
May 24, 2022
Disclaimer: E&OE - This transcript is edited for factual errors. In case of discrepancy, the audio recordings uploaded on the stock exchange on 24th May 2022 will prevail
MANAGEMENT: MR. BR PREETHAM – GROUP CEO - SANSERA
ENGINEERING LIMITED MR. VIKAS GOEL – CFO - SANSERA ENGINEERING LIMITED MR. PRAVEEN CHAUHAN – HEAD, OPERATIONS - SANSERA ENGINEERING LIMITED
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Sansera Engineering Limited May 24, 2022
Moderator:
Ladies and gentlemen, good day and welcome to Sansera Engineering Limited Q4 and
FY2022 earnings conference call. This conference call may contain forward-looking
statements about the company which are based on the beliefs, opinions and expectations of
the company as on date of this call. These statements are not the guarantees of future
performance and involve risk and uncertainties that are difficult to predict. As a reminder,
all participant lines will be in the listen-only mode and there will be an opportunity for you
to ask questions after the presentation concludes. Should you need assistance during the
conference call, please signal an operator by pressing “*” then “0” on your touchtone
phone. Please note that this conference is being recorded. I now hand the conference over to
Mr. BR Preetham – Group CEO - Sansera Engineering Limited. Thank you and over to you,
Sir.
BR Preetham:
Thank you. Good afternoon everyone. Welcome and thanks for joining this call. On this call
I am joined by our CFO, Mr. Vikas Goel and Praveen who is Head of our Operations and
also we have SGA team who are our investment relation advisors. The results and the
presentation are uploaded on the stock exchange and the company website. I hope all of you
have had a chance to look at it.
I am delighted to be here today to talk about our FY2022 and Q4 results and the progress
that we have made since our last earnings call. This has been a milestone year in the history
of Sansera, which started with our IPO and we are grateful and thankful to you and your
tremendous support. With our perseverance, we navigated through one of the most
challenging years that the industry has ever faced. I am very, very happy to say that we
crossed Rs.20 billion in revenues and also registered our highest ever quarterly sale of 5,808
million in the Q4 of this year.
We are also delighted to share with you that board has approved a dividend of 100% that is
on the face value of Rs.2 per equity share for FY2022. In line with our strategic priorities
we have built a very healthy order pipeline with a 20% increase in our annual peak revenue
as of April 2022, it is close to about Rs.15 billion. This 20% increase of our order pipeline
of 12.5 billion as of September 2021 is after considering almost 5 billion of orders moving
to the mass production, which we have reset which means that the order book which was
present as of September’21, so we have moved the components or the orders which have
started mass production. This is a very broad-based growth across 99 auto and non-auto
customers from India and international. Nine of these also customers have placed orders for
xEVs. Another aspect is our high focus on diversification that is two-wheelers which
constitute 47% of our current top line only represents 15% of the total future pipeline. Also
global orders constitute 61% of the pipeline. Both these are in line with our strategic
priorities.
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With respect to some of our recent order wins there have been several of them, but as we
feel that these are some of the very milestone orders. We have recently won a very big order
of Rs.30 billion from a leading North American OEM for connecting rods for their
upcoming project. We have already been supplying components to multiple locations of this
customer for several years. This order further strengthens our relationship with them.
We have also bagged orders for two packages consisting of 26 aluminium forged and
machined parts from BMW Motorrad amounting to approximately about Rs.3 billion over
the next 10 years. Now I would like to mention here that on this aluminium forged and
machined parts we have been getting several of interest and orders from several
international and domestic customers, but what we have mentioned here is that very
strategic orders which is kind of breakthrough for us in the aluminium forged and machined
components.
We have also been lauded for our creative technology and environmental initiatives from
our customers. As we had announced it in the April this year during the 30th GM Annual
Supplier of the Year Award held at Phoenix, Arizona, USA, General Motors awarded
Sansera an Overdrive Award which recognizes our outstanding achievement in one of the
six global purchasing and supply chain priorities, that enable them to navigate their business
results with focused initiative and cutting-edge culture. Sansera has been awarded by HMSI
(Honda Motorcycles and Scooters India) for environmental initiatives. Knorr-Bremse which
is one of the world’s leading manufacturers of braking system and a leading supplier of the
other safety critical rail and commercial vehicle systems presented Technology Support
Award to us last month. We supply critical components for the braking system for Knorr-
Bremse for their export requirements. I would like to mention here that we have set up a
fully automated line for this very critical braking system component which goes into the
commercial vehicle for their export requirement, the production is just about to begin and
there was a team which visited from Knorr-Bremse who were extremely happy with the
setup that they saw in our Pune facility.
Coming to some recent developments in the industry, as per the data published by SIAM.
Overall industry witnessed a de-growth of about 6% in FY2022. Sales of all four segments
of the auto industry are below even pre-pandemic levels despite some recovery from a low
base. Passenger vehicles, commercial vehicles and three wheelers grew on a low base of the
industry in 2021. However, the two wheeler segments saw 11% decline from the previous
year largely due to weak rural demand. The semiconductor shortage seems to be easing to
some extent, however the input cost will continue to be a challenge in this year., Having
said that cutting the import duties on the ferro-nickel coking coal, PCI Coal, coke and semi-
coke coupled with a hike on the duties on iron ore and steel exports which was announced
over the weekend could result in some respite or at least will stabilize the prices.
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Additionally we are also having ongoing discussion with our OEM customers for offsetting
this inflation as well.
Coming to our performance, Sansera continued to deliver a better than industry
performance with a total revenue of 5,808 million and an EBITDA margin of 17.2%. Our
CFO Vikas will talk about this in detail a bit later.
Our auto segment which caters to global and domestic OEMs across two-wheelers,
passenger vehicles and commercial vehicle space contributed around 90% of our sales in
Q4 FY2022. Overall auto segment grew by 18% in Q4 FY2022 on a year-on-year basis.
This was an all-round growth across the categories led by significant surge in scooter and
PV sales. In terms of current sales mix motorcycle contributed about 36% of our top line,
passenger vehicle accounted for about 29% of our top line, commercial vehicle accounted
for 13% of the top line. We expect CV segment to benefit from commercial vehicle upcycle
as well.
Within our auto segment, Auto Tech Agnostic and xEV products across all categories
contributed 7% of the total sales. Within the non-automotive segment, we manufacture a
range of precision components for the aerospace, off-road, agriculture and other segments
including engineering and capital goods. This segment contributed about 10% of the sales
in the quarter. In our current mix aerospace, off-road, agriculture each accounted for a tune
of 3% of the top line and the remaining 1% of the top line came from few other segments.
On the Capex front, as we had announced, we completed a Capex of around 2,550 million
in FY2022, which was also in line with our projected Capex plan. Out of this we have
recently finished the setting up of phase one of our dedicated facility for hybrid and electric
components within our existing plant in Bangalore. We are optimistic and with the response
that we have received from the EV space this facility would be fully used in a couple of
years. We have already secured business from both traditional OEMs and new age startups
in the EV space. The production of both hybrid and EV components has commenced in this
facility.
Further, we are constructing a Greenfield manufacturing facility in Bangalore dedicated to
aerospace and defense which is expected to come on stream by the end of Q2 FY2023. With
this new plant and a ramp up of production schedules by aerospace OEM and the defense
OEM we expect a considerable uptick in this segment FY2024 onwards.
Going forward, we remain focused on the qualities that differentiate Sansera, which are
operational excellence, product quality, ensuring the continuity of supply to our customers
and generating profits. We have witnessed strong momentum in demand for new
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components and business and currently we have about 255 components under various
stages of development including auto and non-auto excluding aerospace. We are also
working on another 300 components on various stages of RFQ. The aerospace pipeline
which typically works on large packages is also pretty good. I would like to reiterate that
we are committed to consolidate and strengthen global share in the existing portfolio as well
as diversify into non-auto technology agnostic components. So typically our order wins in
the global auto segment, which is primarily connecting rod is very much in line with our
plan of achieving 10% share of business globally.
I now hand it over to our CFO, Vikas Goel who will take the presentation forward with the
consolidated financial highlights.
Vikas Goel:
Thank you Preetham. Good afternoon everyone. I will first start with the performance
during fourth quarter of FY2022. Our revenue stood at 5,788 million against the 4,960
million in the previous year which is a 17% growth year-on-year. We saw an increase in the
raw materials cost in the past few quarters, however we were able to pass on these increases
to the domestic customers quickly and in some cases with a slight lag of up to three months.
The Q4 gross margins had a decline of approximately 4% primarily due to lag in the price
increases in domestic sales. The optical effect of numerator and denominator cost being
added in the sales as well as in the cost and also slight squeeze in the margins on the
international revenue due to the material price increases. I will cover a little bit more about
this in the annual performance section. The EBITDA stood at 1,000 million as against
1,044, a slight decline. The EBITDA margin for the quarter stood at 17.2%. This small de-
growth in Q4 2022 was driven by fall in the gross profit and higher employee costs
primarily due to the salary increments and the ESOP costs that we provided for during the
quarter as against last year. Some of the other expenses which increased were largely in line
with the volume growth that we had during the quarter. The quarter also registered higher
finance costs due to an increase in the borrowing cost - primarily volume expansion and
some Capex investments. The profit after tax stood at 374 million for the fourth quarter
against 472 in the fourth quarter of last year, this was a de-growth of 21% year-on-year
basis. The geographical sales mix for quarter four stood at as follows: India revenue was
63%, the revenue from Europe was 24%, USA 8% and other foreign countries about 5% of
the total revenues.
Now we move to the full year performance. Our revenue stood at 20.05 billion as against
15.7 billion for the last year which is a 27% year-on-year growth and it is a record revenue
that we achieved, we have crossed the threshold of Rs.20 billion in our revenue for the first
time. Notably within the overall revenue, our domestic revenues in India registered a 24%
growth, the exports from India registered a 40% growth year-on-year and our business in
Sweden grew about 20% on a year. All elements of the business had registered a growth
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despite difficult market conditions during this period. Our EBITDA stood at 3,491 million
as against 2,952 million for FY2021 a growth of 18% on a year-on-year basis. EBITDA
margin for FY2022 stood at 17.4% versus 18.8% and now I would like to explain a little bit
about this. I spoke about gross margins degrowth - optically our gross margin shrunk by
about 1.5% due to the material cost inflation and some of that got recovered due to higher
export mix and other efficiencies that we could generate. So net impact that you would see
on the gross margin is about 0.9% on a year-on-year basis. The net profit for FY2022 stood
at 1,319 million.
I am happy to share with you that the board of directors has recommended a dividend of
100% of the face value of Rs.2 per share for FY2022. We incurred a Capex of about 2,550
million during the financial year with the ongoing programs for our capacity expansion and
capability enhancement for new product lines that we have got orders for.
The geographical sales mix for FY2022 stood as follows: India 63%, Europe 24%, USA
9%, and other foreign countries about 5%. On the net debt front, our net debt stood at 5,948
million is about 1,100 million increase from the last year. With this we conclude our
presentation and open the floor for Q&A. Thank you.
Moderator:
Thank you very much. We will now begin the question and answer session. Our first
question is from the line of Basudeb Banerjee with ICICI Securities. Please go ahead.
Basudeb Banerjee:
Congrats Sir for the good set of numbers. Just a couple of things. If you can give us the
growth breakup for this quarter as Q-o-Q revenue is up almost 18% where domestic two-
wheeler industry is down from 8% sequentially. So such a beat in terms of revenue how
much is the commodity inflation and which segment did drive such a growth on a
sequential basis if you can explain?
BR Preetham:
You are referring to our Q4 numbers right?
Basudeb Banerjee:
Yes Q4 over Q3 growth is far higher than domestic two-wheeler industry growth so which
areas resulted in this huge sequential revenue jump, how much is commodity inflation and
which specific areas resulted in that jump and how much do you see any specific one-off
execution or how to look at that improvement broadly that is what I was trying to
understand?
BR Preetham:
Basically generally if you look at Q3, Q3 will be always a subdued quarter because the
change of financial year, the quarter so if you look at all the three quarters the Q3 will
always be a subdued quarter. So generally Q4 will be our best quarter if you look at that
way. So we have had growth in all sectors, we have had growth on two-wheelers, passenger
vehicle and also if you look at our exports also. All the fronts we have grown compared to
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Q3 to Q4. So it is not any particular one sector that we have grown, I would like to say that
we have grown in all the segments including non-auto which includes aerospace, passenger
vehicles I mean off-road vehicle and agriculture. So there has been an overall growth
compared to Q3 if you are referring to Q3 and Q4.
Basudeb Banerjee:
You were mentioning last time that some lag effect of price rise for Q3 will come in Q4 and
overall how much was price pass on to customers in Q4?
BR Preetham:
See overall in the whole of the year approximately about the overall effect of the steel price
increase is around 55 Crores so we have been able to get most of it into the system by the
end of this quarter, there is a very little increase that has to come from one of the customer
who would have a delay of one quarter basically that would come into the Q1 of this year
otherwise most of the price increase has been passed on to the supplier and also we have
received it from the customer.
Basudeb Banerjee:
Second question I missed out initially is that the ESOP cost was part of employee cost or
other expense?
Vikas Goel:
It is part of employee cost yes.
Basudeb Banerjee:
So if I see your revenue growth being 18% sequentially where other expenses were almost
up 30% so either other expenses were deflated last quarter or some one-off this quarter how
to look at it?
Vikas Goel:
Some of these costs are variable with the revenue and if you look at quarter-on-quarter
increase, it will not be giving a right picture like the freight cost and there are certain other
execution related costs which are variable in nature.
Basudeb Banerjee:
Sure understood those are freight etc., so those pushed up other expense. Last question any
outlook so if I look at two-wheeler retail numbers they have been improving since March,
May numbers were better than March and April. April numbers were better than March,
May first half is better than April so how are you looking at the two-wheeler demand
progressing from your key customers and any overall revenue guidance for FY2023 if you
are giving?
BR Preetham:
Yes we are also hearing that there is an improvement especially after the sentiments could
get better after the government’s initiative on reduction of taxes on fuel and our key
customers, some of our big customers have indicated a positive growth for this year it varies
from 5% to 10% some of the customers have indicated 5% some of them have indicated up
to 10% so please understand that there have been continuously de-growth for the two-
wheelers so we expect that this year there would be a positive growth between 5% and 10%
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from the OEMs, but as far as our revenue growth guidance is concerned, we have always
maintained that we will grow much better than the industry but to be very frank that things
are quite fluid at this point of time there are several uncertainties for which we still do not
have a clear cut or a time framed answer which does not get limited to the Ukraine war or
the commodity price increases that are being spoken about or even the power shortage that
is happening in some of the countries in Europe, which could affect some customers as well
as some imported steel parts but looking at all these uncertainties we still feel that we would
do much better than the industry, we have a very positive order book but I would not like to
give any guidance at this point of time. Probably I will wait till the end of the first quarter
and when we meet for the quarterly results, probably things could be more clear where we
could discuss it.
Basudeb Banerjee:
And last if I can squeeze in you mentioned the aerospace was roughly 3% of revenue am I
right sir?
Vikas Goel:
That is right.
Basudeb Banerjee:
So which means roughly 18 odd Crores so as I remember your existing aerospace capability
peak revenue potential you mentioned was roughly 120 odd Crores so which means
annualized revenue still is roughly around 80 odd Crores so when is that new facility
getting on stream and as per your firm orders in aerospace, by when you see your existing
capacity operating fully?
BR Preetham:
See this year was better than the last year in aerospace compared to the revenue last year we
have grown this year 7%, but things have started becoming much, much better and clearer
in aerospace so we expect very, very positive growth this year, we expect close to about
35% to 40% growth in revenue in aerospace sector this year, but having said that the new
facility would only get ready by the end of second quarter and then post that we would have
some first article production and then approvals by the customer, then recertification of the
plant new facility all this will take another two quarters I guess so we would look at the
mass production from the new plant to start from the new financial year. So in our estimates
we expect at least a CAGR growth of about 25% to 30% in aerospace for the next three
years.
Basudeb Banerjee:
Okay thanks.
Moderator:
Thank you very much. Next question is from the line of Vaibhav Shah from ICICI
Prudential Life insurance. Please go ahead.
Vaibhav Shah:
Thank you for the opportunity. Good afternoon to the team and congratulations on good set
of numbers. My first question is regarding the order wins which you have stated, so this
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Rs.30 billion orders from a leading North American OEM so I just want to understand that
is this a part of what we were already supplying to them or is this for a new platform and a
question connecting to that would be that would we be required to do any specific Capex to
meet this order requirement or will it be supplied out of our existing facility?
BR Preetham:
This order is for a very new technology engine, this is not in mass production currently so it
is a totally new technology, which would be much greener than the existing technologies
that we are talking about so there is going to be an investment that is going to be made this
because this involves a very big production volume close to about in excess of 5 million
components every year. So as we had indicated last time also we are looking at setting up a
facility in North America, most probably somewhere in US so this facility would be
prepared to cater to this requirement because at these volumes, customer have actually
indicated that most of the operations have to be done at the plant which we will setup in US
and this goes in line with our strategy because we were looking at setting up a plant in US
to attract higher share of business and also more content per vehicle from the North
American customers so this is very very clearly in line with what strategies we have laid out
for Sansera for the future growth. This would not be replacing any of our current orders
because currently we are supplying to this customer though from last several years, but our
share of business currently with this customer is far, far smaller because we are supplying
out of India, for this program we have been nominated as a single source.
Vaibhav Shah:
Just a follow up on that what kind of investment are we looking for to meet this order
requirement and do we have sufficient orders to kind of generate a decent ROI out of this
investment probably are we looking at some other customers as well right North America
has the presence of large customers in form of both EV four-wheeler OEM as well as
traditional OEMs, CVs also so if you can highlight probably what kind of investments are
we looking for a broad range and what kind of revenue we could expect out of this
investment?
BR Preetham:
Yes, this facility will have to be set up by 2025 so we are not looking at any immediate
investment, the investment should happen in 2024 because the production would start of
course the land and building will have to be made ready if we are going to lease the
building it would be much lesser upfront investment on the building but if we are going to
do a Greenfields that decision is not yet taken. As I speak our senior management including
our Chairman and Managing Director are visiting several of these shortlisted sites along
with our team. So depending on the location availability and then the benefits that we get
out of different locations, we would take a decision and then later on present a
comprehensive plan to the board and after the approval, I would be able to share this, but if
you look at the revenue that we are looking at it could be very close to about 75 million at
its peak per year so we would be looking at, at a peak investment of close to about around
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30 to 35 million so it is a very rough initial estimate that we have, but this could change
depending upon several other projects that we are working on. I am sure that you would
appreciate the fact that we will not be looking at a plant for only one customer and one
product. We already have an order book which actually works there for us to execute it
from partial execution from US. So this would be in addition to that this is a big order that
we have received. We are also in discussion with several of our existing as well as new
customers for a business that has to be done out of this place as well. So everything is still
very, very in the initial stages I will be able to give you more information on this in the
coming quarters when things become much more clear.
Vaibhav Shah:
That is very helpful. One last quick question if you can just explain the export mix out of
the total exports that we do and if you can probably also explain that do we have a
commodity pass through clause for each of the segments within the exports or are there any
specific clauses which are built-in?
BR Preetham:
Yes, the exports actually contributed to, you see the exports from India was about 28% of
our total revenue and overall this export grew by 40% last year. So our exports from India
grew by almost 40% year-on-year and we generally categorize this exports you know
mainly our exports are into passenger vehicle, two-wheeler, commercial vehicle and off-
road apart from aerospace and off-road customer one of these customers to whom we are
doing there is a pass-on of the raw material then in the aerospace also you understand that
above 5% of variation of the thing would be a pass on but with a lag and this off road was
also with a lag because we have an agreement of once this raw material will be reset, but on
the passenger vehicle and commercial vehicle front as I had explained it during the last calls
also these were all fixed orders, fixed price steel orders which we had signed but due to an
extraordinary situation customers were willing to look at it and some of the customers have
already agreed for compensating the price effective from 1st January and some of them
have in the consideration. So we are very, very hopeful that most of this price increases that
have taken place would be passed on in the exports also may not be from the retrospective
but it will be mostly from the prospective area.
Vaibhav Shah:
Thank you that is it from my side.
Moderator:
Thank you. Our next question is from the line of Ankit Kanodia with Smartsync Services.
Please go ahead.
Ankit Kanodia:
Thanks for taking my question. I just wanted to understand as to when the auto OEMs in
general are having a very tough time at least in the domestic market as we see and we see
consistently good results and good order booking from your side and also some of your
competitors. So, can you just give us some broad outlook as to how is the auto cycle in
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general and taking cues from the past how do you make sure that we are nearing the end of
the down cycle and probably the upcycle is going up, any sense you can share with us
which can help us in understanding the industry better?
BR Preetham:
Very good question. I am sure everybody is looking forward to finding an answer for that at
least I do not have an answer that how do we have to predict the cycle though this is a very
cyclical business, but we are actually caught in a last three years have been or three to four
years have been a continuous de-growth due to one or the other factors started with at least
in India changing over to BSVI prior to that the increase in insurance cost then GST and
then technology changes and everything has been contributing to the de-growth of the
industry, but at least some of us are most of the auto component manufacturers we are also
participating in the global program and as India is also quite well positioned and
appreciated for our work in the area of component development, consistent quality and also
clear cut price advantage that we have and the China Plus policy has really helped to
acquire more and more businesses. Now as the vehicle cycle is now getting into a newer set
of engines, newer platforms that are going to come up in the next couple of years across as
the technology is also changing a lot of outsourcing is also being done from the OEMs
which were traditionally otherwise being done now. That is one of the key reasons why we
have always said that our global share of business which was around 3% to 3.5% a year
back on the connecting rods which we supplied to several segments is poised to grow up
and we have targeted at least that we should reach about 10% of this and these are quite big
numbers and it is this kind of order wins from across sectors is keeping our growth above
the industry average and we expect that this would continue because just to give you some
splits in the last year revenue almost about 25% of our revenue came from the new
products. So though we had a 5% growth on our legacy business almost 25% of our revenue
has come from the new businesses that were either started previous year or from FY2019.
So this is a kind of order book that we have and it continues to grow so we are very positive
that we will be able to outperform the industry in the future as well.
Ankit Kanodia:
Thank you so much Sir that really helped and my second question would be related to our
big order win of Rs.30 billion so just wanted your understanding on this. When we take a
10 year contract it is very difficult to understand how the inflation will play out and how the
currency will behave since it is an export contract so how does our contract work because in
every year we have mentioned that we will be supplying them 35 million connecting rods.
So is the rate decided every year or how does the contract work over here if you can give
more color on that?
BR Preetham:
Generally these kind of contracts when we sign we are very clear about the place of
manufacturing. In this case we were very clear that this execution will not be from India it
would be from US so there will be no currency effect on this order because our place of
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manufacturing and place of sale will be the same so we have costed this component as per
the cost that would be prevailing in that country and we have also taken the inflation into
consideration while doing so. But having said that, most of our export orders there are
several ways of signing a contract, two of the most popular ways are that with a clear
understanding with the customer you actually upfront load the inflation as well as take a
calculated cost on to the raw material inflation as well and put it up front load it into the
contract which would be generally five to six years. Now there is always a scope for
speaking with the customer if there is a substantial increase or decrease in this cost
generally this is agreed that plus minus 10% on whatever we have assumed will not really
change the working so this is one way of contracting. The second way would be always
look at either a three months or a six months or a yearly reset of the raw material cost which
would go on an index based. So it depends on customer-to-customer what they would like
to have so it would be discussed and agreed upon. So we would have taken in our
calculation as we are we have data for several last year’s so we would have taken an
inflation both on a commodity as well as on human resource as well as on the raw material
while we contract. So in this contract specifically the raw part is a bought out for us which
is contracted separately by the customers. So we would not come into any kind of inflation
on the raw material on this specific contract.
Ankit Kanodia:
Thank you sir and since we mentioned that this would be done in US so how do we see our
cost of manufacturing in US compared to India and in your previous calls and also
interviews I have heard about your aspirations of growing the US production much higher
than what it is right now. So what are your thoughts on the different cost of production
when you are doing it in India and what are the advantages we see when we have our
production out in US comparatively?
BR Preetham:
We would have a mix of our machines as well as bought out machines. We would have a
significantly higher level of automation which would be done from our machine building
and automation itself and the cost of capital per se in US itself is going to be cheaper
compared to in India at least by 3%, 3.5% the cost of capital. So with all these things, we do
not expect that there would be any compromise on the margins in fact with the level of
automation that we are looking at, we would expect that there would be a slight uptick on
the margin on these products and these products are when we say that we are going to do it
out of other countries we would have costed on that basis we would not have taken the
Indian cost and later on try to decide so upfront we would have taken those costs and done
it. So because we have this advantage of using Sansera machines and automating them so
we are quite confident that we will be able to, if not better atleast maintain margins that we
now have on these products.
Ankit Kanodia:
Thank you so much that really helps.
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Moderator:
Thank you. Our next question is from the line of Siddharth Bera with Nomura. Please go
ahead.
Siddharth Bera:
Thanks for the opportunity. Finishing off on this North American order also last time we
had indicated a Capex plan of about 750 Crores over the next three years now with this
order how does this change how should we think about it over the next three years?
Vikas Goel:
Our three year plan that we indicated during last year remains intact. This new order
deliveries have to start in 2025 and investments will happen over 2024 and there will be
some interchange
BR Preetham:
The idea is that this 750 Crores what we had indicated would not have a significant portion
of this investment because this would be beyond that, most of the investment would be
made in FY2024 so this was not considered and there would be some, we had considered a
small amount for the US facility which would continue to be there within 750 Crores.
Siddharth Bera:
So fair to say that nearly it can go up by somewhere about 200 to 300 Crores over this
period?
BR Preetham::
No I do not expect that to happen in this period I expect that it would go close to about 100
Crores could increase, but that again depends on the other contingency the thing also we
have had so I do not expect too much of a change so it could be probably in the range of
between 750 to 800 Crores, we still working out the finer details I will probably be able to
answer to this slightly probably during the first quarter call.
Siddharth Bera:
Second question is on the orders we indicated that we have started the production of the 5.1
billion orders from this year so a large part of it will come in this year will it be a fair
assumption or it will be spread over the next two years?
BR Preetham:
No, I think it will be spread over the next two years, but we expect that this would
contribute also substantially this year as well.
Praveen Chauhan:
Most of this 5 billion would be coming, maturity would happen most of the components in
this financial year which is FY2023 and some portion might go to FY2024, but this 5
billion is actually overall order book that we are eliminating this year setting it right and
beyond that we still have another 1,500 Crores.
Siddharth Bera:
In case of XEV customer, I think last time we highlighted that we were in discussion with
three more of them would it be possible to share any more updates you have any more
discussions where are they right now and by when do you expect some of these order wins
also to come?
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BR Preetham:
As far as the two-wheelers are concerned we have already on board five of the EV
Sansera Engineering Limited May 24, 2022
manufacturers, we are in finalization with couple more so we expect that we would be
working with at least seven to eight on a long-term if not more, but on the passenger vehicle
it is still a lot of discussion is taking place with a few of the customers. I probably would
not like to indicate both domestically as well as globally these are both in terms of steel and
aluminium forged components so as of now we have confirmation that we are working with
two of the PV manufacturers, one global and one MNC out of India, but then on
commercial vehicle also both these are export orders so there are several of inquiries that
we have been working going and presenting a lot of our capabilities as well as the products
that we have developed and we are working on so we are quite hopeful that every quarter
you will see an improvement on this front from our side.
Siddharth Bera:
Last question is on the Sweden so how much will be the EBITDA for FY2022 for that
entity and going ahead do you think there will be more margin pressures coming up because
of the energy costs in Europe going ahead?
BR Preetham:
I will give it to my colleague Praveen who actually is involved fully in Sweden on the
operations front. As far as the EBITDA was concerned this year we ended up with a 7%
EBITDA on Sweden, but this year there will be a change because we have the product mix
change, Praveen could explain this.
Praveen Chauhan:
This last year that is FY2022 the EBITDA was 7% and going forward this FY2023 there is
a slight change because they have actually developed another source because they wanted to
not rely on 100% of a particular product which we have been supplying and in place they
have given us 11 litre and 16 litre engine connecting rods. These are under development as
of now, but the real growth out of these will come only in the next financial year which is
FY2024 so there will be some dip because of this shift in the existing product portfolio, but
it will be more than compensated in the next financial year. We expect some dip into the
EBITDA numbers may not be too much, but slightly different to the EBITDA numbers this
year.
Siddharth Bera:
Got it because EBITDA margins I think last year was closer to 12% it has already come
down to close to 7% is what you are seeing in FY2022?
BR Preetham:
Yes, this is again the same thing there has been too many variations in EBITDA cost which
has gone into development of the components which we are talking about D11 and D16
then you are already aware you mentioned about energy cost increase and again there also
there has been some impact of the numerator denominator which is optical because of the
steel price and other price increases on the top line which is only compensated to the extent
of change in the price so there is a mix of all these things which have impacted we are
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Sansera Engineering Limited May 24, 2022
hopeful not very sure as of now this energy cost is going to change, but probably it will
continue to be there in the couple of next quarters a higher increase in the energy prices
subsequent to that we expect that things might stabilize or may come down to normal
levels.
Vikas Goel:
Just to add to what Praveen said FY2023 will be a slight reduction both on the revenue and
EBITDA we are working on with various initiatives to ensure that in percentage terms we
do not dip but in the next year FY2024 the business will be back to normal and we expect
that we would be in double digits EBITDA.
Praveen Chauhan:
Just to add what Preetham said just now these new orders which is 11 litre and 16 litres are
coming at a better pricing because these are all new order wins.
Siddharth Bera:
Understood thanks a lot.
Moderator:
Thank you. Our next question is from the line of Jyoti Singh with Arihant Capital Markets
Limited. Please go ahead.
Jyoti Singh:
Thank you for the opportunity. Sir if you can throw some light on the other expenses is the
company doing any cost control?
Vikas Goel:
The large portion of the other expenses constitutes the freight costs and certain other
variable expenses and as you would know the freight cost is the outward freight especially
on the overseas segment has been a bit of a concern for the entire industry. We are doing
our bit to control that, but there is very limited that we can do in that sense as of now. We
are monitoring it very closely we are finding out alternate ways and in terms of negotiating
with the customers and the contractors also.
BR Preetham:
So we have a lot of cost initiatives that we are working on not only in the area of packaging
material optimization, a lot of renewable packing is being shifted to reduce our dependence
and to reduce also impact on the environment as well as to check the cost in control. We are
also looking at consolidating from Bangalore plants the logistic so a lot of work is being
done both in that front as well as not only on the other cost we have also contracted almost
close to about 85% to 90% of this year’s demand we have contracted or we have set up
facilities to come from the renewable energy so we would have a significant cost advantage
of that coming into this year so which will also have a offset effect on the inflation cost that
we will have so the company is working on a lot of initiatives to see that we can offset the
inflation cost that is going to come on to this year.
Jyoti Singh:
And sir what would be our future debt profile in this year we saw the significant growth on
the debt?
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Sansera Engineering Limited May 24, 2022
Vikas Goel:
We are estimating that our overall debt will remain constant in the current year based on our
estimates and whatever fresh debt we borrow, will be kind of compensating the repayments
that we have lined up for the year so overall we have programs in place to manage our cash
in more controlled way and despite the investments we are making in the working capital
and in the capital assets so we are planning to hold debt almost flat.
Jyoti Singh:
Thank you that is it from my side.
Moderator:
Thank you. Our next question is from the line of Dipesh Sancheti with Manya Finance.
Please go ahead.
Dipesh Sancheti:
Sir I think most of my questions have been answered. Just one question is when we should
be able to throw more light on the current order which we have received from US basically
what is the investment, what is the customer name and the process which we will be
developing or making over there?
BR Preetham:
I think it will take another at least a quarter so I should be able to give you more clarity
towards when we have the Q1 call so we would have much more clarity on our timeframe,
investments and everything.
Dipesh Sancheti:
Interestingly you have not mentioned the customer name. So is it because of some
agreement or…
BR Preetham:
Generally most of the customers would prefer to keep their name unless that we have a
specific request and then approval from them generally that is how it goes is that they
would not like to have that because especially this is a newer technology as well so in this
case they have asked us to keep the name confidential.
Dipesh Sancheti:
So in this new technology will we have to go through some R&D cost also because since it
will be a new product or have we already done that?
BR Preetham:
This is the technological cost is on them (the customer). So we would not have anything
specific to our component, this is a technology pertaining to the engine technology so our
components will be very much similar to what we do except for there is a change in raw
material front otherwise not much of R&D cost on our front.
Dipesh Sancheti:
The last question is whether the customer is also investing in the new facility I mean will he
also be doing any co-investments like will it be a SPV or something?
BR Preetham:
No it will not be. This would be purely our facility.
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Sansera Engineering Limited May 24, 2022
Dipesh Sancheti:
Purely Sansera will be investing in it right?
BR Preetham:
Yes.
Dipesh Sancheti:
And we will be also making products for other customers from this facility?
BR Preetham:
Absolutely and it could begin earlier to this orders also so we have plans for starting other
components and other customers earlier to this because this is a very significantly larger
order so we would like to have some kind of upfront a production facility that is running
before we do this so that is the idea.
Dipesh Sancheti:
And what is the effect of the war on our European customers?
BR Preetham:
It varies from location-to-location and place-to-place. We have customers in Poland
facilities in Poland which was affected now it is restarting because a lot of people had
moved over from Ukraine to Poland and that city where this was located was in a choke. So
later on it restarted we have one customer a North American customer to whom we supply
is not a very significant order, but then close to about 25 Crores per year so there is an
effect of revenue loss for this quarter which goes to actually Russia so there is an effect on
that, but otherwise there is some disruption on energy availability in some of the steel mills
where we have had supply disruptions, a minor delay in another thing but overall there has
been some impact on European customers, not a very significant.
Dipesh Sancheti:
And going ahead are we even tapping into the EV market for India as well I mean are we
supplying to the likes of Tata Motors and…
BR Preetham:
Currently, we are not supplying to Tata Motors, but not restricted to any of the customers.
We are in discussion and progressing well on this front with a lot of customers so there is a
lot of work that is going on in this front as you can see we have also added customers in EV
on two-wheeler front as their numbers are going up our business in this segment will also
increase so it will be similar for passenger vehicle as well. So we expect that technology
agnostic and non-auto components which stands currently at 17% this year would at least be
about 22% to 22.5% next year 50% growth in this segment and which is in line with what
we have projected that we would like to reach about 40% of this in the next three years to
come. So we are very clearly in that roadmap.
Moderator:
Thank you very much. Ladies and gentlemen as there are no further questions from the
participants I now hand the conference over to the management for closing comments.
BR Preetham:
Thank you very much everyone for your patience hearing and the support for Sansera. We
are always available for any of the questions that you may have or clarifications which
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Sansera Engineering Limited May 24, 2022
could be answered either directly or through SGA. So please feel free to contact us and we
would be more than happy to interact with you. Thank you very much and looking forward
to having conversation with you in the future as well. Thank you very much.
Moderator:
Thank you. On behalf of Sansera Engineering Limited that concludes this conference.
Thank you for joining us and you may now disconnect your lines.
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