AUTOAXLESNSEQ4 FY 2021-22May 20, 2022

Automotive Axles Limited

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Management on call

Sailesh Raja Securities India Private Limited

BATLIVALA & KARANI

Thimmaiah Napanda

MANAGING DIRECTOR &

N Muthukumar Operating Officer

MERITOR HVS (INDIA) LTD.

Nagaraja Gargeshwari

PRESIDENT & WHOLE

S Ranganathan

CHIEF FINANCIAL OFFICER - AUTOMOTIVE AXLES LIMITED

Key numbers — 40 extracted

rs,

through our quarter and the year how we ended. Before I just hand over the floor to my team members, I just want to have a quick introduction we have one new member today on the call. First time, he

Rs.1495 Crore

I am just going to give a snapshot of business and how we performed. Our FY2022 revenue stands at Rs.1495 Crores sale with an EBIT of Rs.138 Crores, 9.3% at the PBT of Rs.100 Crores 6.7%. We have manufacturing

Rs.138 Crore

f business and how we performed. Our FY2022 revenue stands at Rs.1495 Crores sale with an EBIT of Rs.138 Crores, 9.3% at the PBT of Rs.100 Crores 6.7%. We have manufacturing locations at four locations, Mysor

9.3%

how we performed. Our FY2022 revenue stands at Rs.1495 Crores sale with an EBIT of Rs.138 Crores, 9.3% at the PBT of Rs.100 Crores 6.7%. We have manufacturing locations at four locations, Mysore, the

Rs.100 Crore

ur FY2022 revenue stands at Rs.1495 Crores sale with an EBIT of Rs.138 Crores, 9.3% at the PBT of Rs.100 Crores 6.7%. We have manufacturing locations at four locations, Mysore, the mother plant where majority

6.7%

e stands at Rs.1495 Crores sale with an EBIT of Rs.138 Crores, 9.3% at the PBT of Rs.100 Crores 6.7%. We have manufacturing locations at four locations, Mysore, the mother plant where majority of th

35.5%

ut just to remind you the equity share of this business, Meritor Incorporation at USA is at about 35.5% and Kalyani Group 35.5% and the rest is in the public. We have more than 2000 plus employees work

99%

ou on the COVID the companies have gone through all protocols in the last two years and more than 99% of our employees are vaccinated in both the dose and the boosted dose is being organized for the

10x

and Automotive Axles the most comprehensive axles and brakes offering right from, we call it as a 10x axle which about from 6-ton to about 55-ton truck we are supplying to both coaches. Meritor had a

30%

next slide to show you on the sustainability index. At this point of time your company uses about 30% of the power from a sustainable, renewable measure but we have an aspiration of taking our organi

80%

measure but we have an aspiration of taking our organization in the next four years to take up to 80% of the total power consumption by green energy. While your country companies continue to work on

100%

a zero discharge plant and continues to work on harvesting water and usage of recycled water for 100% of the process with various recycled ponds in the company, the groundwater level continues to gro

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Guidance — 18 items

Sailesh Raja

opening

“From the management, side we will be hearing from Mr.”

N Muthukumar

opening

“We have more than 2000 plus employees working for this business, transforming this mobility business in India and dedicated team which is working right from the new product development to execution of the project and serving the customers in India.”

N Muthukumar

opening

“So we have been working towards aligning ourselves to make the whole operation digital while we have just started now a couple of lines have been already completed our target is by end of this year this whole transformation is going to be completed.”

N Muthukumar

opening

“One of the key initiatives that we have taken is to engage the people more and more to make sure that your organization is very, very sustainable going forward and competitive.”

N Muthukumar

opening

“At this point of time on our target submission 25 your company is on track.”

Pritesh Chheda

“This will be three shifts put together or some calculation otherwise?”

Pritesh Chheda

“And I just have two follow up Sir, Ashok Leyland what would be your dependent or let us say Ashok Leyland what should be the contribution indicative to our revenue and we had a certain margin target which we were sharing in the previous presentation where are we on that progress on margin?”

Sanjay Shah

“Now we are working at 75% utilization so what the company's program ahead to enhance the capacity here on and it is coming into a different league in next quarter?”

Sanjay Shah

“Thimmaiah Napanda: At this point of time we do not plan to add any additional capacity in general, yes of course we will continue to invest into optimization, automation and those kind of activity.”

Abhishek Shah

“Is there an internal target maybe say mission 25 percentage maybe one third of turnover should come from this or any number that just to number ballpark whatever if you can give or some idea?”

Risks & concerns — 3 flagged

It is a challenging I think the way in which commodity has gone up never gone up in the last 30 years I am sure that most of you know the steel prices have gone up and that is what is really putting a lot of stress into the entire system and many suppliers who are there before COVID is not there today.

— N Muthukumar

We are not going to the directories of OEM, but whatever they export from India, Meritor asked the brand because of that we are able to fill it out, but if you ask me target region wise while we have an internal target which we are working for North America, South America, Europe and APAC region but it is very, very difficult for us to sell it out at this point of time.

— N Muthukumar

The reason I am asking this question is because obviously in the near term there is a lot of concern around thermal power and grid power, are you facing any downtime in terms of production because of that and how does that change because I am assuming that power is a significant input in your production process, how does that change and are you having to use backup power like diesel gen-sets and all that?

— Amyn Pirani

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Q&A — 10 exchanges

Thank you for the opportunity. Sir wanted to understand this 30% growth that we see in the quarter and 65% that we see a growth in the full year. Is it possible to know what would be the volume growth for us? Thimmaiah Napanda: Muthu, you want to answer that please?

N Muthukumar

When compared to the last year in terms of the overall, we are just giving it in terms of the financial growth which Mr. Ranga explained because there are different axles and different prices, but on an average the industry last year the commercial vehicle industry had grown by 28% and we are also seeing that the year that is going to come we have a good outlook at this point of time and the April started very well for all of you and information in general, so we believe that this year also is going to be about 28 million to 30 million. In terms of the volume wise if you can give overall refer

Thanks for the opportunity and congratulations for good set of numbers into the challenging environment. My question was broadly on two parts. One is if I have to understand the mission 25 and much more better and you know effort which is interesting, if you give some color one in the sense that if you look at the axles or brakes how would our market share change in last one year because there is also a certain amount of capex things which happen from Tata Motors so just trying to understand how would have that changes in last one you across in these two categories and any aspiration we would

Thimmaiah Napanda

In terms of the market share only thing I can tell you is this is what every investor call we get this question and we answer in the similar way sorry for that now we do not disclose that actual market share because of the complexities it has because a lot of OEMs make their own axles front, they do some contract manufacturing and some they buy so we do not do the brakes, market share specific to the customer and overall market to the outsiders, but coming back to the cost actions but one thing I can tell you is our market share is on an improving trend that is mainly because if you have seen

Good afternoon gentlemen and sincerely appreciate the whole team present to explain and help us to understand the company in detail. It was nice explaining about the mission 25 focus of our company but I would like in this perspective and the growth what we see current year also and it has been endorsed by Tata Motors, Ashok Leyland also on the MHCV and US demand coming in. Now we are working at 75% utilization so what the company's program ahead to enhance the capacity here on and it is coming into a different league in next quarter? Thimmaiah Napanda: At this point of time we do not plan to

Sanjay Shah

Okay, can you highlight upon addition of any new customers this year and coming ahead and even new products introduced? Thank you Sir. In terms of new customer like the top commercial vehicle guys we are working, but your company is also continuously working with lot of new players that were supposed to come. There are about more than 10 players who come into electric vehicles manufacturing at least in the plan and we are working in every of this company and we have securing business to make sure that our axles are used in those vehicles. In terms of the products like what we presented we laun

Thank you for the opportunity. Obviously if you are in line with what everyone has been saying has been a commendable job done by the team. The first question I want to ask is if I just compare what we did back in 2018 that was about Rs.1500 Crores a turnover is pretty much around that point and that time the market was at least 30%, 35% higher than what we are right now so just want to understand of this how much do you think would be gaining JA.Auton1otive AxlE market share and what would be volume growth maybe even qualitatively if you explain I would appreciate that?

N Muthukumar

I think exactly you raise the point when the market is left by 30% we could still be able to achieve the value that is because of the penetration of our share or introducing the value- added products both has really helped us in increasing of course there is a commodity increase to a little extent is also there, but the two major initiatives are penetrating into the customer by increasing the share of business and also introducing a product where the realization more these are the two that came in handy for us to achieve more growth. You are right the market is at 25% lower than the peak or 30

Thanks for opportunity Sir. My question was to Mr. Muthukumar. Have we started getting any orders from LCV, ICV segment and how big this segment could be in next three. four years, can you expect it to cross 100 Crores as Ashok Leyland and Ashok Leyland is adding new capacities into CNG, CV products and they have launched two new models in CV14 tonne also, so do we expect business from that Sir?

N Muthukumar

we are already presenting in two platforms for the ICV segment and the LCV segment, we are not migrated to vehicle at this point of time and in those segments yes, we are working to your specific question whether we will get into the 100 Crores at this point of time. As I said we do not specifically but we have our own target on the LCV and at this point of time we are on track to meet the product not only with Ashok Leyland Sir, but also with Mahindra and their ICV we have launched the product which is running very well today. Regarding our margins our cost structure is always a low and where

Good afternoon. Congratulations on a great set of numbers. I had two questions Sir. We spoke about the volume versus value growth I just wanted to get a sense of how both of these have compared over the last couple of years and if the value growth has surpassed the volume growth or vice versa and secondly if you could give us some guidance on the revenue growth so what do you see it being in FY2023 and 2024 going ahead that would be amazing?

N Muthukumar

The value growth and volume growth Thimmaiah has already explained while the volume growth is about 27%, 28% in terms of value growth it gets gone more because of the higher realization of the product we explained to you. In terms of the next three revenue growth if you see that the slides at what we have given. We always say that we outgrow, we are projecting 380000 vehicles at M&HCV segment in line with that our growth will be there, but at this point of time because the industry volume is up and down we are going to commit any values for it, but we will be outgoing the market. Thank you Sir

Thanks for the opportunity. I just wanted to understand our pricing with the OEMs roughly exhausted margins have been stable despite volatility in the steel prices over last six years, so is our pricing based on a per unit basis or if it is on a percentage basis or a markup to the raw material?

N Muthukumar

No companies use at least in the commercial vehicle business, they markup on raw material cost I am sure that you all understand that and the markup on raw material cost has to be done only by the internal improvements. At this point in time OEM compensates only to be even not fully the raw material. The company continues to work on improving the product, value engineer the product, working with the sourcing our strategic suppliers to ensure that our cost is coming down and focus on conversion efficiency to see that we offset the rest of the cost. It is a challenging I think the way in which c

Good afternoon Sir. Firstly just I am a bit curious to know because of this global transaction when coming securing minor stake would not that trigger an open up for the Indian entity?

N Muthukumar

Might be at this moment of time as Thimmaiah already mentioned the regulatory process, the legal process are going on currently. What is going to happen, how things are going to shape up, so at this moment of time whatever the procedure we followed as per the steady or any other guidelines that would be followed so time being we have no idea and we wanted to keep aside for answering this question for time being until a proper dialogue or discussions happening between the two entities in India. My understanding was that it is a part of indirect acquisition, so was the expectation that some sort

Sorry for repeating this question because I joined a bit late, you mentioned in your presentation that you have been increasing the share of renewable sources for your energy and you also have a captive solar so out of the 55% in FY2022 can you give a breakup of how much is coming from solar and other sources?

N Muthukumar

If you see our representation within FY2020 to FY2022 our consumption also have gone up. At this point of time we are about 30% to 35% which is a renewable energy which is coming from solar. On top of this we get about 3% to 4% of the hydel power which is not a continuous model, but depending on the monsoon, but however our company is working on adding up more facilities for solar with the partnership confirmed and we will ensure that we increase this consumption of solar to about 70% to 75% in the years to come by 2025 or 2028, but at this point that we also know that we have a wind power whi

Thank you all for attending this session. We especially thank the Automotive Axles team for their time. Thimmaiah Sir, any closing comment you would like to make.

Thimmaiah Napanda

No, nothing more from my side. Thank you very much for the continued support and we hope you will continue to perform to your expectations. Thank you very much.

Speaking time

N Muthukumar

Moderator

Sanjay Shah

Abhishek Shah

Thimmaiah Napanda

Pritesh Chheda

Devansh Nigotia

Shashank Kanodia

Amyn Pirani

Sailesh Raja

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Opening remarks

Sailesh Raja

Thank you Faizan. Good afternoon to all. On behalf of B&K Securities I would like to welcome you to the Automotive Axles Q4 FY2022 earnings call. From the management, side we will be hearing from Mr. Thimmaiah, MD and CEO, Meritor India, Dr. N Muthukumar, President & COO, Meritor India, Mr. Nagaraja, President and Whole Time Director, Automotive Axles and Mr. S Ranganathan, CFO, Automotive Axles. We will commence the opening remarks with Mr. Thimmaiah following which we have an interactive Q&A session. Over to you Sir! Thimmaiah Napanda: Good afternoon. Thank you very much for joining our investor call today. We are very glad to take you through our quarter and the year how we ended. Before I just hand over the floor to my team members, I just want to have a quick introduction we have one new member today on the call. First time, he is joining so I will just go around and introduce my team. We have Muthukumar; he is the Chief Operating Officer for the Group Meritor and Automotive Axles

N Muthukumar

Good afternoon everyone. Thanks for joining for this Automotive Axles earning call. Thanks B&K Securities for organizing. I am just going to give a snapshot of business and how we performed. Our FY2022 revenue stands at Rs.1495 Crores sale with an EBIT of Rs.138 Crores, 9.3% at the PBT of Rs.100 Crores 6.7%. We have manufacturing locations at four locations, Mysore, the mother plant where majority of the operations are happening just the information of everyone this plant is 40 year old and along a joint venture between Meritor and Kalyani. JA Automotive AxlE We have facilities at Jamshedpur where we do the brakes manufacturing and the tag axle manufacturing for the customers predominantly to the Tata Motors. We have a facility at Pantnagar where we manufacture and assemble brakes predominantly for Ashok Leyland, Pantnagar plant and we have a facility at Hosur where we do the suspensions and value addition for Ashok Leyland plant. You all know but just to remind you the equity share of

N Muthukumar

Thank you Nagaraja for highlighting the focus areas in operations and adapting to industry 4.0. Ladies and gentlemen, the company is the key action that we continue to focus to make sure that our business successfully. We work on business growth strategy to get into the new business event and continue to work on expanding our share of business with all the OEM, the product development, the team is doing an excellent job in terms of launching four different platforms last year to ensure that we are competitive and reliable in the market. We are driving the e-mobility business and that is going to be one of the core business in the days to come like Mr. Nagaraja explained digital and implementation of industry 4.0 one of the key initiatives, we are taking to make sure that the business continues to grow and we are geared up the capacity seeing the market and to make sure that the increasing demand when it is going to come, we cater all the customers at the right time with the right quoti

N Muthukumar

We continue to work on cost measures to be competitive, the cost deduction measures on organization pillar, a significant savings expected through mission 2022 timeframe and further cost measures on place in terms of conversion, material, manpower cost control. The company continues to follow safety protocol, a vaccination drive and of course ESG drive and implementation progress. JA Automotive AxlE Ladies and gentlemen we just wanted to touch base with you and update you on the various actions that the company is taking on sustainability lounge. We have a clear roadmap that we have shared with from the current level, how we are going to become an excellent sustainability by achieving ISO 26000 for CSR assurance, projects for systems in all the initiatives. Some of the key initiatives that our team has done we would become carbon neutral by 2027 and we are also working on achieving the billing excellent award. I will just take the next slide to show you on the sustainability index. At

S Ranganathan

Thank you Muthu. Good afternoon to all. The financial performance for this quarter we have about Rs.552 Crores as compared to Rs.426 Crores the same quarter last year. The revenue growth is closed to about 30%, as far as EBITDA is concerned we did about close to 11.3% as compared to 10.8% last year the same quarter. In terms of absolute values the EBITDA is closed to about Rs.625 Crores compared to Rs.459 Crores closed to about 36% growth in the EBITDA absolute values. As far as PBIT is concerned we did about 9.3% as compared to 8.5% in absolute value increase about 42%. As far as the full year performance is concerned, overall revenue for this year 2021 and 2022 it stands at Rs.1495 Crores as compared to Rs.912 Crores in the last financial year. All of you know 2021 was a COVID year so the first six months performance was very average so this year we were able to have JA Automotive AxlE the full year normal performance so that is one of the reason that only has gone up by 64% and plus

N Muthukumar

Thank you Ranga for presenting the financial performance while the financial performance I am sure that we would have meet or even exceeded the expectation your company continues to focus on the growth through the mission 25 strategy. I remember a year before Mr. Thimmaiah presented to all of you on how we have a very clear strategy to take it our penetration of the commercial vehicle in line with the market and we continue to keep growing. We have given you again the market volume what we are expecting for the coming year that market conditions is very, very tough while commercial ratio continues to grow, there are lots of uncertainties in line with what is happening in the Ukraine war, in terms of the interest cost, but our customers when we spoke to them they are all upbeat about because after a last three years of dull in the commercial vehicle in the industry is trying to get back, so our projections is given and you can always assure that your company will continue to focus and o

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