FIEMINDNSEQ2FY23November 17, 2022

Fiem Industries Limited

7,665words

181turns

18analyst exchanges

5executives

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Management on call

J.K Jain

CHAIRMAN AND MANAGING DIRECTOR

Rahul Jain

DIRECTOR

Rajesh Sharma

DIRECTOR

Arvind Chauhan

CS, MR. SANJEEV KUMAR-SR. VP

Sahil Sanghvi

MONARCH NETWORTH CAPITAL

Key numbers — 40 extracted

25%

report that the company has delivered a strong performance in Q2 FY '23 with revenues growing by 25% year-on-year and profit growth of over 42%. Now I would like to talk a little bit about the 2-whe

42%

rong performance in Q2 FY '23 with revenues growing by 25% year-on-year and profit growth of over 42%. Now I would like to talk a little bit about the 2-wheeler industry's performance. The 2-wheeler

5.6 million

heeler industry's performance. The 2-wheeler industry in Q2 FY '23 recorded production volumes of 5.6 million units, which is an 8% growth on a year-on-year basis and 17% on a sequential basis. This growth h

The 2-wheeler industry in Q2 FY '23 recorded production volumes of 5.6 million units, which is an 8% growth on a year-on-year basis and 17% on a sequential basis. This growth has been driven by go

17%

corded production volumes of 5.6 million units, which is an 8% growth on a year-on-year basis and 17% on a sequential basis. This growth has been driven by good monsoon and encouraging farm activitie

550%

for our industry growth in the electric vehicle space for H1 FY '23, the EV volume has grown by 550% to 2.77 lakhs. We continue to strengthen our position in this segment and the increased penetrati

2.77 lakh

industry growth in the electric vehicle space for H1 FY '23, the EV volume has grown by 550% to 2.77 lakhs. We continue to strengthen our position in this segment and the increased penetration of the EV

INR 527 crore

company in Q2 FY '23. We continue to outperform the industry and have achieved a total income of INR 527 crores, which is a growth of over 25% over the same quarter last year. Sequentially, the revenue have g

18%

h is a growth of over 25% over the same quarter last year. Sequentially, the revenue have grown 18%, EBITDA and PAT has also grown to INR 70 crore and INR 39 crores, respectively, reflecting the st

INR 70 crore

ame quarter last year. Sequentially, the revenue have grown 18%, EBITDA and PAT has also grown to INR 70 crore and INR 39 crores, respectively, reflecting the strong operational performance of the company. LE

INR 39 crore

year. Sequentially, the revenue have grown 18%, EBITDA and PAT has also grown to INR 70 crore and INR 39 crores, respectively, reflecting the strong operational performance of the company. LED share as percen

47%

performance of the company. LED share as percentage of the total automotive lighting has touched 47% this quarter, reflecting the trend towards the faster adoption of the technology.

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Guidance — 20 items

J.K. Jain

opening

“We continue to strengthen our position in this segment and the increased penetration of the EV should help to grow volumes going forward.”

Rajesh Sharma

“These new models will be launching by next financial year and for export as well as for domestic, both.”

Aashin

“So what sort of revenue can we expect and how many models can you expect in the next one, two years?”

Rajesh Sharma

“It will be a ramp up, but how much production will be there next year, that will be definitely be given in the next quarter only.”

Rajesh Sharma

“So next year, few models will be launched and it will be continued respectively.”

Suruchi Parmar

“It is a specific strategy something that maybe other – maybe other smaller players are doing it, but we are not doing it because of some specific reason of the management or we have any plan to penetrate the replacement market?”

Ashutosh Tiwari

“Firstly, on this Hero models from next year.”

Rajesh Sharma

“So as we have shown this year, by next year, we are expecting more than 60% converting to LED.”

Jatin

“Or as this a seasonally strong quarter and for the full year, we should expect around 12% every?”

Finance Team Member

“So I think for us, we will continue to guide around 13-odd percent range going forward.”

Risks & concerns — 5 flagged

So it is difficult to give you the exact volume increase for this thing.

— Arvind Chauhan

In previous two quarters, you had indicated that there will be some slowdown in Yamaha because of the export revenue.

— Saurabh Savla

Like is there anything changed on that or whether we'll see a further decline in Yamaha revenues?

— Saurabh Savla

So it is very difficult to give factory-wise.

— Arvind Chauhan

But what will result into a deal, it's difficult to say.

— Finance Team Member

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Q&A — 18 exchanges

Sir my first question is that you are seeing a very strong sequential growth in plastic product and rear view mirror revenue. So could you please highlight that what has led to that growth?

Arvind Chauhan

Actually, the increase in overall sales, and accordingly, this growth is also reflecting in the plastic as well as in rear view mirrors. So actually, they have grown 30% sequential. So is there something which is there apart from our normal sales? No, this is a little bit increase in the plastic products item. Yes, this is because of addition of some parts. Which OEM? This is mainly for Honda. Honda and Suzuki. And sir, you talked about that you're working with our existing customers for the new facelift versions and new models. So firstly, talking about Yamaha. So we are the last time we said

Congratulations sir, for the blockbuster result. I want to know two, three things. What is our EV contribution for this quarter? Finance Team Member: What is our EV? So EV is still in that range of 4% to 5%. I think what is critical to see is how many new customers are being added and how much development is happening. Volumes are still small. So I think our, in terms of percentage sale, it will not exceed 5%.

Suruchi Parmar

And can you give a fair bit of idea maybe in a two year time period? What can be the share in EV we can see? It will really depend on a number of factors, including government policies. EV Sector is going through a lot of dynamic changes in terms of the regulation around battery, the FAME subsidy. So while I think the consensus view is clearly there that EV will become very strong but what percentage of the total market, it will take, and consequently, our share will really depend on a number of moving parts. But I think over two to three years, if you see till 2025, a penetration of 15-odd pe

Yes, hi sir. Congratulation on very good numbers. Firstly, on this Hero models from next year. Are these existing models of Hero or new order launches that we are going to supply item?

Rajesh Sharma

These are all new model launches. And obviously in a combination of LED and halogen both? These are all LEDs. And basically, in terms of, we probably have heard in the earlier calls as well. Can you provide some perspective on whatever models are in development right now on lighting side, what proportion of that would be LED is of now? Total, you are talking about the total number of the projects and how much is the percentage of the LED in there? Ashutosh Tiwari Yes. I think it's almost 100% the new projects are there with LED, because most of them are EVs and EVs are all LEDs. But let's say,

I was asking that like broadly when move from halogen to LED headlamp, as in most of the models, you said high-end model. What is the content increase in terms of value?.

Rajesh Sharma

This will be around 60%.. . Sorry. It will be around? Sorry, what you said?

A couple of questions. So one, if I look at your margins over the last few years, we've been very close to -- been very consistent at around 12%. Now this quarter with the volumes moving up in what is I assume a seasonally strong quarter, we have seen margins move to 13.5%. Now are the margins can we sustain here? Or as this a seasonally strong quarter and for the full year, we should expect around 12% every?

Finance Team Member

So you're right. We've always guided to 12.5 odd percent to 13%. This quarter, significantly beaten that number and we hit more like 13 and half. Now that is obviously clearly driven by the significant volume jump that you see in the overall sales volume, which actually helps in adoption of the full operating cost. So I think for us, we will continue to guide around 13-odd percent range going forward. But you've seen our intent quarter-over-quarter, I think operationally, we like to do the best and get the best out of the whole margin. But I think from overall guidance, it still remains around

Sir, I wanted to ask on the LED mix, we have been guiding that the LED mix will gradually improve. So based on the current interactions with your customers and the order pipeline that you have, the 50-odd models which are working plus the EV customers. So two years down the line, what could be the level of LED mix in our total lighting revenue?

Rajesh Sharma

Yes, around 60%, we are expecting in the next 2 years. And so this is based on the existing models, which we are working? Or this is a ballpark number that you are... Overall. And sir, when we say that LED mix would increase to 60%, does that mean that absolute level, the non-LED lighting will see a degrowth from this level or even that will grow but at a slower rate? Yes. Basically, you see the trend is going towards EV and more and more EV will for LED lighting. And similarly, the higher model itself is there for LED. So the growth is going towards LED. So there will be more and more users o

Just I wanted to get a clarification on the product numbers, a very good October, fifteen lac fifty thousand - odd 2-wheeler vehicles sold out. Sir, I wanted to know because most of the supplies of these October months were done in prior to the months. So in Q2, that they got reflected in your sales jump. We wanted to know what -- how sustainable is the current run rate of the actual ground reality of 2-wheeler sales because somewhere other places we are hearing the rural prices is stretched. So I wanted to get a sense about what is in the coming months or how we see the 2-wheeler sales happen

Finance Team Member

I think you will have to see the commentary of the OEMs who are actually tracking at the dealer level. From our perspective, we are guided by how their production schedule be looked. And obviously, the festive season quarter 2 is generally better. So that is always the case that post-festive season, Q3 is slightly lower, but it remains to be seen how it plays out over the next couple of months. So I wanted to know what your diversification was the 4-wheeler side because still you have majority of the revenue coming from the 2-wheeler side. So by when can you see significant revenue coming from

Sir, firstly, like in EV 2-wheeler space, what market share will be, like have like, do we have a sense of that?

Management

I think if you look at the overall number of EV, we just highlighted the first H1 number. It's still very, very small. I think the overall EV market itself is so small. So it is kind of at this point of time to calculate market share may not be something that will achieve much. But what we do want to tell you is that, I think it's been highlighted in the past that there are more than 20 EV OEMs that we are working with in terms of development, in terms of actual supply. So that is a significant number. And if you -- even if you look at the top 10 EV players right now, we will be present in a m

Sir, one of the line items in the financials, the employee benefit costs has been higher Q-on-Q also and from the trends that we are seeing for the past few quarters. So, anything one-off over there or this trend will be continued, if you can explain on this?

Arvind Chauhan

See, if you see our employee cost is 12.08% in this quarter. And as the sales volume has grown, so definitely that will increase. So it depends on the sales. Otherwise, there is no one- off kind of thing in this employee cost. And on the trend of the raw material costs and the realization, if you can explain anything, I mean how are they moving? You're asking about the price hike of what? Yes. So raw material cost trends and the realization? See, there is softening in raw material prices. As this is always pass through. It is not a problem for us. There may be a lag of 1 or 2 quarters, but it

Sir, congrats on a great set of numbers. I had majorly two, three questions. So could you give me an update on what kind of capacity utilization we are running on currently? And what kind of additional capacities are we looking to put maybe in the next 1 year, 1, 1.5, 2 years?

Arvind Chauhan

See, currently, almost 80% plus capacity working in this quarter. And -- So what we are saying that we are adding the capacities in our south factories because we are feeling a little bit more business opportunity over there. And so depending upon the situation, we are increasing the capacity.

Sir, in is quarter, cash balance around INR 150-odd crores, something. So do we have any plan to use for this? Because we are doing some INR 50 crores capex. So has this capex been done expense out? Finance Team Member: Yes. So total capex is in the range of INR 50 crores to INR 75 crores. That is ongoing that we've already announced to South India and some of the other. We are supplementing with the machinery. But no opportunities on within…

Management

And sir what would be our gross margin this quarter in H1?

Arvind Chauhan

The EBITDA margin is already reflected this is 13.52% . Yes, that is already mentioned. Gross margin, do we keep the gross margin? Based on the EBITDA margin, this is our main benchmark actually. Okay. Sir, what was the ROE for this H1, ROCE, return on capital employed? Sir, ROCE given on the yearly basis, this is in 20% range, already given in the presentation. For '22, correct, not for H1? Yes, FY '22, yes.

So you break the shares of your other like core customers Yamaha, Suzuki. Could you do the same for Royal Enfield also?

Arvind Chauhan

See, we share this wallet share on a full year basis and we give only for top four customers. Sorry, would you be able to share that later? Yes. We can share. Varun Arora: And the second question is regarding -- I just wanted to understand how the margin profile of new products like rear view mirrors is different from our conventional lighting and LED lighting, how would the margins be different in new products? See, please understand, even the rear view mirror is our old product line. And all the products goes to the similar -- I mean the same customers. So our margins are on the broad level

Yes. I guess I got dropped off. So I was just continuing on the capex question. I wanted to ask how much of the total capex that you're adding in south as a percentage of your total capacity right now?.

Arvind Chauhan

It is -- in South, we are having four factories. So it is -- we are not giving in the factory-wide capacity is giving on the overall company is and there is always an addition in the every factory. So it is very difficult to give factory-wise. And as and when your LED share will be increasing, like you said, in the next two years, we will go to 60%. Do we expect a margin expansion on the back of LED as well? Does LED have a higher margin relative to other products? See, as you know, the LED has the higher realization in comparison to the conventional, almost start from 2x and even go to higher

That is the railway business is all about and at the moment, how big it is as a percentage of your total revenue?

Management

Yes, our apologies we're getting some -- please go ahead.

Amarnath Bhakat

Yes. I just wanted to do 1 division of your business is just supplying LED display panel to railways and buses and all those things. At the moment, how big it is? And what is the percentage of your total revenue coming from this side of the business? See, our major business is coming from 2-wheeler segment, and we are -- yes, this -- all other segments are quite lower at this stage. But do see the prospect on this? Because we are hearing that the ministry of railways are now very aggressive in giving and modernizing different kind of stations and everything where your lights would use. So are

Yes, I was asking about this inorganic opportunity, you were saying something?

Finance Team Member

That's right. So on the inorganic, I mean, clearly, we are open. There are a lot of opportunities which we are seeing evaluating. But what will result into a deal, it's difficult to say. But I think clearly, we are completely open to what is happening in the market. And beyond that, the organic start also is good. However, I think we are in a position where if the market presents something interesting, we'll be happy to take it. You have a concept of kind of content per vehicle. I mean like other suppliers, they always have a kind of content per vehicle that whether that has been in an increas

Thank you, everyone, for participating in the con call. I do hope that we have been able to reply all your queries adequately. We are available for any additional questions you may have. Thanks and good day.

Management

Speaking time

Arvind Chauhan

Rajesh Sharma

Amarnath Bhakat

Moderator

Finance Team Member

Suruchi Parmar

J.K. Jain

Ashutosh Tiwari

Saurabh Savla

Aashin

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Opening remarks

Sahil Sanghvi

Good afternoon to everyone. Thank you, Tanvi. On behalf of Monarch Networth Capital, I welcome you all to the Q2 FY '23 Conference Call of FIEM Industries Limited. We will start the call with the initial comment about the results and the future outlook of the company, and then we will open the floor for question and answers. So without much delay, I now hand over the call to Mr. J.K. Jain, Chairman and MD of the company. Over to you, Jain, sir.

J.K. Jain

Thank you. Good evening, everybody. I welcome you all to the Q2 FY '23 earnings call of the FIEM Industries Limited. Joining me on today's call are Rahul Jain, Director; Rajesh Sharma, Director; Sanjeev Kumar, Senior VP, Finance; Arvind Chauhan, Company Secretary and other member of the finance team. Results and the investor presentation for Q2 FY '23 have been uploaded on the stock exchange and the company website. I hope you all have gone through the same. I am pleased to report that the company has delivered a strong performance in Q2 FY '23 with revenues growing by 25% year-on-year and profit growth of over 42%. Now I would like to talk a little bit about the 2-wheeler industry's performance. The 2-wheeler industry in Q2 FY '23 recorded production volumes of 5.6 million units, which is an 8% growth on a year-on-year basis and 17% on a sequential basis. This growth has been driven by good monsoon and encouraging farm activities and positive consumer sentiment. The festive season has

Sanjeev Kumar

Thank you, sir, and good evening to everyone. I will present the quarter two number for FY '23. The company registered a total sales of INR 521.32 crores in Q2 of current financial year. against rupees 416.26 crore in corresponding quarter of FY '22 and reassuring a growth of 25.24% on a year-on-year basis. On a quarter-on-quarter basis, this is an increase of 17.95% from a base of rupees 441.98 crore. The EBITDA was INR 70.46 crores, translating into an EBITDA margin of 13.52% as compared to an EBITDA of INR 51.95 crores that is 12.48% in Q2 of the previous financial year. EBITDA margin reflect by strong operational performance of the company. PAT increased by 42.51% to INR 39.12 crores as compared to INR 27.45 crores in corresponding quarter of FY '22.on quarter-on-quarter basis, PAT is higher by 28.47%. During the quarter, the company has made a capex of INR 10.32 crores. We continue to be a net zero debt company. With this, I end the financial brief, and now the floor is open for q

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