PPAPNSEQ4 & FY22May 16, 2022

PPAP Automotive Limited

5,632words
66turns
10analyst exchanges
2executives
Management on call
Abhishek Jain
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICE, PPAP AUTOMOTIVE LIMITED
Sachin Jain
CHIEF FINANCIAL OFFICER, PPAP AUTOMOTIVE LIMITED
Key numbers — 40 extracted
19%
The overall automobile passenger vehicle production volumes in financial year '22 increased by 19% year-on-year basis even after marred by several headwinds like supply chain bottlenecks and semic
0.87%
units in financial year '22. The percentage share of EVs in overall vehicle sales increased from 0.87% in financial year '21 to 2.61% in financial year '22. The year gone by posed several challenges t
2.61%
he percentage share of EVs in overall vehicle sales increased from 0.87% in financial year '21 to 2.61% in financial year '22. The year gone by posed several challenges to the business due to COVID-rel
27.4%
chip shortage. Despite the challenging operational environment, PPAP reported a revenue growth of 27.4% on stand-alone basis and 30.9% on a consolidated basis in financial year '22. During quarter 4 of
30.9%
lenging operational environment, PPAP reported a revenue growth of 27.4% on stand-alone basis and 30.9% on a consolidated basis in financial year '22. During quarter 4 of financial year '22, there was
72%
tlook all around. Due to increase in demand, the capacity utilization of the company increased to 72% in quarter 4 of financial year '22. With our focus on achieving higher growth through addition of
10.4%
mprovement in operational efficiencies, the company has been able to maintain an EBITDA margin of 10.4% in this quarter. The Board of Directors has decided to reward the shareholders of dividend of 15%
15%
.4% in this quarter. The Board of Directors has decided to reward the shareholders of dividend of 15%, which is Rs. 1.5 per equity share of face value of Rs. 10 each. In financial year '22, we publ
Rs. 1.5
arter. The Board of Directors has decided to reward the shareholders of dividend of 15%, which is Rs. 1.5 per equity share of face value of Rs. 10 each. In financial year '22, we published a report on s
Rs. 10
reward the shareholders of dividend of 15%, which is Rs. 1.5 per equity share of face value of Rs. 10 each. In financial year '22, we published a report on sustainability for financial year '19-'20, a
rs,
200,000 pieces every day to its customers. We are developing almost 300-plus parts for our customers, which will be in production in the next 2 years. The expansion in Chennai plant will be complete
85%
aruti Suzuki and other customers. This year, we anticipate that our utilization levels will reach 85% plus. Apart from the automotive customers, we are getting active interest for supplying parts to
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Guidance — 20 items
Abhishek Jain
opening
“I hope everyone has had a chance to go through our investor presentation which includes the strategy for making the company and the subsidiary companies stronger, resulting in higher growth going forward, along with the financial performance for the quarter and year ended March 31, 2022.”
Coming on the business side
opening
“We are developing almost 300-plus parts for our customers, which will be in production in the next 2 years.”
Coming on the business side
opening
“The expansion in Chennai plant will be completed by end of June, and this would take care of the new businesses being proposed to be started in this financial year for our customers in Southern region like Hyundai and Toyota.”
Coming on the business side
opening
“We will be adding a new warehouse facility in the Northwest region to cater to the requirements of new businesses for Maruti Suzuki and other customers.”
Coming on the business side
opening
“This year, we anticipate that our utilization levels will reach 85% plus.”
Coming on the business side
opening
“This year also, we will be expanding our network to more than 150 dealers across the country.”
Coming on the business side
opening
“Our aim is to improve capacity utilization levels going forward.”
Coming on the business side
opening
“And this year, we hope to achieve a utilization of 85%.”
Coming on the business side
opening
“Our endeavor is to target 5% to 8% of the total revenues from this segment in the next 2 to 3 years.”
Coming on the business side
opening
“The EV component subsidiary has achieved breakeven in the quarter, and we expect EV business to deliver consistent performance going forward.”
Risks & concerns — 8 flagged
Although it may take another year to completely come out of this risk, with easing of COVID- related restrictions, there is a positive outlook all around.
— On the EV front
However, there is a pressure on the margins due to rise in commodity prices.
— Coming on the business side
To overcome this problem, we are actively discussing with our customers for onetime compensations for unprecedented rise in raw material prices as well as some system of quarterly compensation to reduce the risk permanently wherever we do not have the contracts in place.
— Coming on the business side
Once that is sorted out, I think your questions, your concern will be answered automatically.
— Abhishek Jain
The 100% normalcy, what industry experts are saying, it will still take about a year for this concern to get finished.
— Abhishek Jain
But to completely get out of this concern, it will take at least 1 more financial year.
— Abhishek Jain
So, I know that currently, there are some problems on the commodity side where we are facing the challenge.
— Piyush Jain
So, now in the past 3, 4 years, we’ve started focusing on other customers like Maruti and MG Motors and all the new customers which have come in so that we can generate more business from them and reduce our risk for this Honda business.
— Abhishek Jain
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Q&A — 10 exchanges
Q
So, my question is, sir, how has the business momentum been on ground in quarter 1 of FY23? And if you could also throw some light on supply chain issues.
Abhishek Jain
So, on the ground, the demand for automotive business continues to be strong. We are seeing, there was always a demand for the vehicles. But supply side, we had a lot of issues, especially for semiconductor shortages. But now our customers are well-poised. They have secured a lot of sourcing for these semiconductors. And they are estimating that their committed production volume would be somewhere in the range of 90% plus for this year. So, this year, demand expectation is to be quite strong.
Q
Sir, I had a question on the capacity utilization actually. So, our capacity utilization has increased sequentially from 65% to 72%. Sir, what is the optimum utilization that we can expect for full year '23?
Abhishek Jain
This year, we are anticipating this utilization level to reach up to 85% for the automotive part business. And what is the estimated CAPEX plan for this year? So, this year, the CAPEX plan would be more on the replacement side and the balance of equipment side to meet the customer requirement. So, next year, we are not planning any major expansion plans. So, that could be, as per the requirement, so that could be lesser than this year. And sir, a few questions on the EV segment. So, going forward, which are the other products that we are targeting apart from the battery pack in the EV segments
Q
Sir, in the auto segment, is PPAP supplying to any new customer?
Abhishek Jain
I'm sorry. Can you repeat that, please? In the auto segment, is PPAP supplying to any new customers? Any new customers? Yes, sir. We are supplying to basically all the passenger vehicle makers in the country like Maruti, Toyota, Honda, Renault Nissan, Hyundai, Tata Motors, Volkswagen, MG Motor, Kia. All of them, we are supplying parts to.
Q
Sir, my question is actually a few years back, we were having a good profit and earnings per share was very high. From profitability angle, when we can expect that? Two years down the line? Three years down the line? One year down the line?
Abhishek Jain
Mr. Sharma, as indicated in these results for quarter 4 and the full year, we recovered on the top line this year. And in this financial year, the demand again continues to be strong. So, we should be able to grow the company much better in what we've done in the last 2 to 3 years. On the profit side, as you all know, and we've been saying very transparently, the unprecedented rise in commodity prices have actually hit the bottom line. So, whatever internal efficiencies, we have to improve, like doing a reduction in rejections and all that, all those activities we have completed now. And now w
Q
I have 3 questions. Firstly, the commodity prices have been on a rising trend. So, how much percentage of the rise in raw material price is passed through to the customers? And what is the lag?
Sachin Jain
As of now, the 50% of the commodity prices are a pass-through and there is a lag of 1 quarter in that. Secondly, what is the content for vehicles for MG Cars and Kia Motors? Sorry? I'm asking what is the content for vehicles for MG Cars and Kia Motors? For MG Motors, it is much higher. We are doing business with them about Rs. 6,500 per car. For Kia Motors, our direct and indirect business, that is just about Rs. 1,000 per car. And lastly, on the industrial front, semiconductor issue seems to be easing out. So, by when do you expect normalcy on the ground? The 100% normalcy, what industry expe
Q
Sir, a question on the aftermarket business. So, how is it shaping up? And what is the percentage share in the overall revenues as of now?
Sachin Jain
In FY22, the share of business from aftermarket is around 2% in the financial year. And since we are getting good demand from the customer side and our products are being very much appreciated by the dealers, and they are giving the response that our product, to the customer or the retailers, which they're dealing, they want the products which are being manufactured by the PPAP. And also mentioned by the MD san in the start of the call that we have also started a new central warehouse today itself. So, we are very confident and hopeful in that business that it will contribute, in a big way, in
Q
Sir, I just want to get a qualitative aspect from the business perspective that as you are entering into many segments or maybe you had highlighted in the past con call as well that the new areas which you are exploring or evolving. So, I just wanted to understand your view or the sense that how do we see company down the line, let's say, in the next 3 to 5 years? And what sort of changes that we are doing in the organization?
Abhishek Jain
The organization side, we’ve basically divided the company into 3 areas. One is the business development function, which is primarily focused on getting business for all these functions. Second is what we call as a supporting function. Supporting function means all the central functions like sustainability, HR, administration, finance, IT, information technology, et cetera. And then the third is basically the operations segment wherein all synergies of all these businesses will be consolidated under one management. So, when we're talking about manufacturing of plastic parts, whether it is for
Q
For this Kharkhoda plant, I understand it is going to be a long-term affair or going to be next maybe 2 or 3 years. But for Kharkhoda plant, any of our competitor who would be closer to Kharkhoda plant than us?
Abhishek Jain
Most of Maruti supply chain is located in this Manesar-Bawal-Guargaon belt. So, I cannot actually comment on what others are doing, but just as a basic common sense is that if distance is not that far and it is very well connected, I don't think many people would like to invest in new plant. No, I'm not talking about the new plant. Based on the existing location of the existing competitors, due to this whether the Kharkhoda plant would become more closer to any of our competitor? Or will it still be the closest to newer plants? From our Surajpur plant, Kharkhoda plant will be much closer to us
Q
Sir, I have 2 questions. The first question is our second largest customer is Honda Motors and they have lost approximately half of their revenue in the last 2 financial years. So, what we are taking approach to gain that business from either Honda Motors or some different customer?
Abhishek Jain
Yes, thank you for that concern. Honda, of course, in Indian market, continues to be a problem area. At one point of time, their market share has reached almost 20% levels. And now I think they're down to single-digit market share. So, Honda, unfortunately, they are not -- they don't have too many new products for the Indian market to offer apart from their flagship, City and all. For PPAP, Honda was, of course, a very big customer. At the peak curve of Honda's performance in the country, they were contributing almost 40% to our top line. Now they contribute about 20%. So, now in the past 3, 4
Q
Thank you, Margaret. I thank, everyone, for taking time out of your busy schedules to attend the conference call today. Please feel free to approach us with any questions that you may have. We will be more than happy to show you around the excellent facilities that have been created to service the customer. I thank SGA Advisors for organizing this call. Last but not the least, a big thank you to the team at PPAP for supporting this call. Thank you very much.
Sachin Jain
Thank you. Thank you, all.
Speaking time
Abhishek Jain
19
Moderator
12
Sachin Jain
8
Ankit Agarwal
5
Riya Verma
4
Vaibhav Badjatya
4
Dripta Shah
3
Piyush Jain
3
Sonu Harshana
2
Let me start today by sharing the industry scenario
1
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Opening remarks
Abhishek Jain
Thank you, Margaret. Good afternoon, everyone, and welcome to our Quarter 4 and Financial Year '22 Earnings Call. My name is Abhishek Jain, and I'm the Managing Director and CEO of the company. Along with me, I have Mr. Sachin Jain, – the CFO, as well as SGA, our Investor Relations Advisor. I hope everyone has had a chance to go through our investor presentation which includes the strategy for making the company and the subsidiary companies stronger, resulting in higher growth going forward, along with the financial performance for the quarter and year ended March 31, 2022.
Let me start today by sharing the industry scenario
The overall automobile passenger vehicle production volumes in financial year '22 increased by 19% year-on-year basis even after marred by several headwinds like supply chain bottlenecks and semiconductor shortages. The impact caused by the successive waves of the pandemic and the consequent lockdown restrictions by various states across the country adversely affected the rural as well as the urban markets.
On the EV front
The overall EV sales volume has increased from 133,831 units in financial year '21 to 429,342 units in financial year '22. The percentage share of EVs in overall vehicle sales increased from 0.87% in financial year '21 to 2.61% in financial year '22. The year gone by posed several challenges to the business due to COVID-related disruptions, geopolitical disruptions and most importantly, semiconductor chip shortage. Despite the challenging operational environment, PPAP reported a revenue growth of 27.4% on stand-alone basis and 30.9% on a consolidated basis in financial year '22. During quarter 4 of financial year '22, there was a robust demand for vehicles as semiconductor issue seems to be easing out. Although it may take another year to completely come out of this risk, with easing of COVID- related restrictions, there is a positive outlook all around. Due to increase in demand, the capacity utilization of the company increased to 72% in quarter 4 of financial year '22. With our focu
Coming on the business side
As you all know, we have restructured the company into 5 segments, and I would like to talk about key highlights for each segment today. For the automotive parts, in this segment, the company began supplying its products made up from plastic extrusion and injection molding to newly launched vehicles of marquee OEMs in the year. Some of the projects that we worked on were for Maruti Suzuki's Baleno, Volkswagen's Kushaq, MG Motors' Astor, Maruti Suzuki's Celerio, Skoda’s Slavia and many more. We are continuously scouting for new customers and increasing our per car value for the existing customers. The company is supplying more than 200,000 pieces every day to its customers. We are developing almost 300-plus parts for our customers, which will be in production in the next 2 years. The expansion in Chennai plant will be completed by end of June, and this would take care of the new businesses being proposed to be started in this financial year for our customers in Southern region like Hyun
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