AUTOAXLESNSEQ1 FY 2023-24August 04, 2023

Automotive Axles Limited

10,129words
103turns
9analyst exchanges
4executives
Management on call
Muthukumar N.
INDIA LEADER, CUMMINS- MERITOR
Nagaraja Gargeshwari
PRESIDENT AND
Ranganathan S.
CHIEF FINANCIAL OFFICER – AUTOMOTIVE AXLES LIMITED
Sailesh Raja
BATLIVALA & KARANI SECURITIES INDIA PRIVATE LIMITED
Key numbers — 40 extracted
rs,
from 7- ton GVW of vehicles, all the way to 55-ton tractor trailers. All major OEMs are our customers, Ashok Leyland is our largest customers. We also supply to Mahindra, UD, Tata, Caterpillar and also
5,084 million
also SMR. Next slide, please. So this is our financial information. As you are aware. Revenue was 5,084 million, EBITDA was 611, and PBT was 505. And again, we are catering to the diverse market. We not only c
INR534 crore
Thank you, Muthu. Thank you, Nagaraja. As far as Q1 2023, '24 is concerned. Our revenues are at INR534 crores and EBITDA at INR609 crores and PBIT INR509 crores. I really see compared * Aut
INR609 crore
u, Nagaraja. As far as Q1 2023, '24 is concerned. Our revenues are at INR534 crores and EBITDA at INR609 crores and PBIT INR509 crores. I really see compared * Automotive Axles Limited Gtow
INR509 crore
Q1 2023, '24 is concerned. Our revenues are at INR534 crores and EBITDA at INR609 crores and PBIT INR509 crores. I really see compared * Automotive Axles Limited Gtowln ancf Perk>fmonce ..
7%
ancf Perk>fmonce .. .lhrovgh Technology ond T.omwoitc to the last year, our revenue has grown by 7%, and our EBITDA has grown by 16% and EBIT grown by 22%. If you really see our EBITDA last year, t
16%
chnology ond T.omwoitc to the last year, our revenue has grown by 7%, and our EBITDA has grown by 16% and EBIT grown by 22%. If you really see our EBITDA last year, the same quarter is 10.5%. EBITDA
22%
to the last year, our revenue has grown by 7%, and our EBITDA has grown by 16% and EBIT grown by 22%. If you really see our EBITDA last year, the same quarter is 10.5%. EBITDA for the current quarte
10.5%
s grown by 16% and EBIT grown by 22%. If you really see our EBITDA last year, the same quarter is 10.5%. EBITDA for the current quarter is what 11.4% and last year, we had the PBIT at 8.3%, currently i
11.4%
eally see our EBITDA last year, the same quarter is 10.5%. EBITDA for the current quarter is what 11.4% and last year, we had the PBIT at 8.3%, currently is about 9.5%. So though the revenue has grown
8.3%
quarter is 10.5%. EBITDA for the current quarter is what 11.4% and last year, we had the PBIT at 8.3%, currently is about 9.5%. So though the revenue has grown only about 7%. We have improved our EBI
9.5%
or the current quarter is what 11.4% and last year, we had the PBIT at 8.3%, currently is about 9.5%. So though the revenue has grown only about 7%. We have improved our EBITDA year- on-year as part
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Guidance — 20 items
Muthukumar N
opening
“The projections for the next year is going to be at 6.5 GDP.”
Muthukumar N
opening
“We will continue to -- the plant will continue to focus on Industry 4.0 last time Nagaraja presented you on how the company is taking the digitalization initiatives and how we are going towards paperless office, the focus will be there.”
Muthukumar N
opening
“Of course, enhancing profitability will be core.”
Muthukumar N
opening
“In terms of sustainability and government, water positive, 80% energy from renewable source by end of next year are some of the milestones that the team is working on to achieve this.”
Aditya Welekar
qa
“So just wanted to understand, since now we are saying that the MHCV market will grow, the growth rate will moderate to 3% from a strong growth of 37% in FY ‘23.”
Muthukumar N
qa
“So we strongly believe that our projection of 3% to 6%, 7% single-digit growth will definitely happen.”
Muthukumar N
qa
“We believe that the tipper sales continue to be good and the country is also looking at a favorable monsoon, even though it is not going to be more than, but it's going to be average monsoon, which means the agricultural output will be good and we'll have a good amount of good transportation.”
Aditya Welekar
qa
“So is there anything, one off in that, which we have to consider or that will be a run rate which we can see in future quarters?”
Amar Mourya
qa
“And can we expect our gross margins to sustain or improve from here on?”
Amar Mourya
qa
“And lastly, on the new product initiative, so this year, can we expect any increasing contribution from off-highway, LCV and also the suspension segment.”
Risks & concerns — 6 flagged
Ranga was mentioning that the commodity price soften.
— Muthukumar N
Commercial vehicle market, you are saying that it is slowed down, but we strongly believe that the slowdown in the first quarter is just an inventory correction, and we are already seeing that the market is picking up in this quarter.
— Muthukumar N
Sir, I wanted to understand, so FY ‘23 are gross margins where you know, slightly under pressure because of RM inflation and this, there has been a very healthy recovery in the gross margin.
— Amar Mourya
Last step for the savings specifically, I think it's a bit difficult at this point of time to share specifically on to that.
— Narayanswamy
The point I am saying that, the unseen picture is about the commodity impact of the P&L and how we have taken steps internally in all respects to mitigate and show the improvement in the market.
— Ranganathan S
And some of you even expressed the concern about, hey, so much of money you're spending when the market industry is at fault, what will happen?
— Muthukumar N
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Q&A — 9 exchanges
Q
Yes, so thanks for this opportunity, sir. So just wanted to understand, since now we are saying that the MHCV market will grow, the growth rate will moderate to 3% from a strong growth of 37% in FY ‘23. So what are our key growth triggers going ahead? Means given that the pace of CV industry growth is slowing down as compared to last year, are these new products which will drive our growth or exports or any capacity additions? What are your mid-term or long-term plans for getting away from the volatility of this cyclical space and coming up with a sustainable growth outlook? * Automotive Axles
Muthukumar N
Thank you. I will divide your questions into two. One is what we are doing internal, what you are doing external. Commercial vehicle market, you are saying that it is slowed down, but we strongly believe that the slowdown in the first quarter is just an inventory correction, and we are already seeing that the market is picking up in this quarter. So we strongly believe that our projection of 3% to 6%, 7% single-digit growth will definitely happen. The trigger for this indicator, if you see, the voluntary vehicle scrappage policy, the government spent towards public transportation. If you see l
Q
Hello sir. Congratulations for a great set of numbers. Sir, I wanted to understand, so FY ‘23 are gross margins where you know, slightly under pressure because of RM inflation and this, there has been a very healthy recovery in the gross margin. So is this because of recovery in RM inflation, or is this because of some mixed change? And can we expect our gross margins to sustain or improve from here on?
Ranganathan S
No, I'll take this call. See, as far as Q1 is concerned, as Muthu was mentioning at the beginning, that the on-highway business is little softened in the first quarter. And we are able to get a good share from the export and the aftermarket due to the reduction in non-IP. Of course, aftermarket, this quarter we have done better than the last quarter. Definitely, that is actually, mix is one of the contribution. Second, our lot of cost reduction initiatives part of the mission 25, that is the second important point. And these are all the basically the two main, and definitely the last year you
Q
Yes, good afternoon, team. Firstly, can you share the revenue from Axle and brake segment for the quarter and also for the last financial year?
Management
Ranga, over to you. See, at this moment of time, the Axle is generally takes a major portion of the revenue. So we'll definitely come back to your question, taking comments of the feedbacks about to share or not. So at this moment of time, we can be rest assured, the Axle takes a major share of the business and brakes, will be half the size of it. Okay, and so on the brake side, what sort of market share are we eyeing over some medium to long term periods, maybe three year to five year, what is the market share we are eyeing? Axle, we already have a very large market share in India? Ranganatha
Q
Thanks team for the opportunity and congratulations for a reasonably decent set of numbers. Sir, first on the book keeping side, if you can give some capex outlook for FY'24 and FY '25 please?
Narayanswamy
Ranga, you can give the areas where we are investing and continue to keep focusing. See with the last capex we expanded in the year '19, '20 and major capacity expansion to ensure market growth we have invested. To that level, the investment as of today, we are not anticipating. However, as you can see that the automation, especially industry driving the industry 4.0 is a continuous focus. ESG is one of the key pillars of the strategic focus. So, we are definitely driving our capex to improve the hurdles or automation in the operations line and improving the kind of capacities within the -- ou
Q
Hi, sir. Thank you for the opportunity again. Sir, just wanted to understand on the off-highway segment, what could be the size of the off-highway segment right now in India that for the product you are targeting and who are the major competitors and is the pricing in the market leading to more margins, are more competitive than the MHCV segment or is it more import- driven and hence margin can be better here?
Narayanswamy
Sir, off-highway segment, if you ask whether off-highway is profitable than on highway segment, it again depends on the organization ability in doing this. I don't want to do this comparison, but I can tell you that it's going to be very, very tough on competition. Even if you look at the entire market, most of the team is making their enough manufacturing and we don't have a ready-made global product, which can be brought into the system because the type of vehicle what India -- for example, the JCB backhoe it’s not available anywhere outside the country. It is unique, and they are making by
Q
Sir, my question was regarding, again, the margins. So in our past conversation, I understand that in 2016, '17, '18, we had adopted automation, IoT, and we were quite early in adopting that. So, have we -- what sort of benefits have we seen of that on the margins or that the benefit has been negated with the increase in cost, other cost items?
Narayanswamy
Sir, I will leave Ranga to tell, but I think thanks for taking the lead from 2016, '17, and you are tracking our information. You could have very well seen that how our -- the cost of conversion and cost of fixed cost has come up because of these types of automation that we have done in the plant, okay while it is not completely negative, but there are a lot of new products that –see the customers before in 2020 the market warranty for those products is Nagaraja is it 18 months and 150,000 kilometers, right? Yes. But today, all the products that we are making has to be a reliability of about 3
Q
Thank you for giving the opportunity. Sir, if you can throw some light on the order book, in the upcoming quarter could be a great help, sir?
Muthukumar N
Sir, can you repeat? I think I could not hear you properly. Sir, if you can throw some light on the order book, in the upcoming quarter that could be a helpful, sir. Okay, sir, your voice is not audible. If my understanding is right, you are looking at the order board for the next two quarters, is that right? Yes, sir. Yes. Thank you very much. See, that's the beauty of the Automotive Axels that come in Meritor. We have a defined business and we focus on the share of business with the customers and the organization is highly agile. We never lose business just because of a ramp-up time or order
Q
Hi, sir. Thank you for the opportunity and congratulations to the team for good results. So two questions from my side. First, you spoke about the MSM-185 product. So on this, are new trucks having MSM-185 over the tandem axles and what are the features it is offering and what is the cost difference of MSM-185 versus the axles that it is replacing? How can we -- how much can we replace the old tandem axles in the next two to three years? And does Tata have such product? And can we try replacing their Tandem Axles with our new MSM-185 product?
Muthukumar N
Wow, that's a nice question. Nagraj, over to you. * Automotive Axles Limited Gtowln ancf Perk>fmonce .. .lhrovgh Technology ond T.omwoitc Yes, thanks for the question. As we mentioned, this is a unique product with 500 mm ring gear, applicated for a 55 train tractor, which earlier was using either 6x4 tractor, now it has become 6x2. I'm sure that our competitors are also probably looking at developing a similar thing, but we are the first one to get into the market. And also this particular product has been time tested. This product has been in use in US in a slightly different avatar for last
Q
Yes, thank you all for attending this session. We especially thank the Meritor-Automotive Axels Team for their time. Muthu, sir, would you like to make any closing comments?
Muthukumar N
Yes, thank you, Sailesh. Thank you, ladies and gentlemen, for the confidence that you have given the organization and your support. Your support and the feedback that you give in the investor calls and during the face-to-face meeting gives us a lot of encouragement and also it * Automotive Axles Limited Gtowln ancf Perk>fmonce .. .lhrovgh Technology ond T.omwoitc adds our responsibility to meet up to and live up to expectation. Your company will continue to do everything to make sure that you meet up your expectation. Just want to let you know that we are graduating, we are migrating with Cumm
Speaking time
Muthukumar N
21
Ranganathan S
13
Moderator
11
Dhaval Shah
11
Nagaraja
7
Amar Mourya
7
Management
7
Narayanswamy
7
Dhruv Aggarwal
7
Amit Hiranandani
5
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Opening remarks
Sailesh Raja
Yes. Thanks, Lizann. Good afternoon, and thanks to everyone who has logged in to Automotive Axles 1Q FY '24 Earnings Conference Call. Today, we have senior management team. We'll be hearing from Mr. Muthukumar N, India leader, Cummins-Meritor; Mr. Nagaraja, President and Wholetime Director, Automotive Axles; and Mr. Ranganathan S., CFO, Automotive Axles. I would now like to turn the call to Mr. Muthukumar for the opening remarks, followed by Q&A session. Sir, you may begin now.
Muthukumar N
Thank you, Sailesh. Good morning, ladies and gentlemen. Thanks for taking your time to join your company's investor call, and we really appreciate your time. And we have -- like, what Sailesh said, we have Mr. Nagaraja and Ranganathan, are with us. They're going to take you through the presentation about the company, the products, the ESG initiatives, how the financially we have performed and how the market is. I think it is one of the questions that used to come so we are just putting on how the commercial vehicle market is and how we have performed, followed by the focus of the company. With that introduction, ladies and gentlemen, thank you once again for joining. I will hand it over to Mr. Nagaraja to talk about our location, product and ESG initiatives. Over to you, Nagaraja.
Nagaraja
Thanks, Muthu. Good afternoon, ladies and gentlemen. My name is Nagaraja Gargeshwari. I'm President and the Executive Director on Automotive Axles. So just for those people who are not familiar with Automotive Axles, just an introduction here. The Automotive Axles established in 1981. So we have 40-plus years of existence here. We have been growing. We have 4 locations in our 2 in Mysore, and then 1 in Pantnagar, and in 1 Jamshedpur and 2,600-plus employees. We are the largest -- the number 1 axle manufacturer for commercial vehicle in India and also the number 2 when it comes to brakes. And as you can see, we have products that range from 7- ton GVW of vehicles, all the way to 55-ton tractor trailers. All major OEMs are our customers, Ashok Leyland is our largest customers. We also supply to Mahindra, UD, Tata, Caterpillar and also SMR. Next slide, please. So this is our financial information. As you are aware. Revenue was 5,084 million, EBITDA was 611, and PBT was 505. And again, we
Ranganathan S
Thank you, Muthu. Thank you, Nagaraja. As far as Q1 2023, '24 is concerned. Our revenues are at INR534 crores and EBITDA at INR609 crores and PBIT INR509 crores. I really see compared * Automotive Axles Limited Gtowln ancf Perk>fmonce .. .lhrovgh Technology ond T.omwoitc to the last year, our revenue has grown by 7%, and our EBITDA has grown by 16% and EBIT grown by 22%. If you really see our EBITDA last year, the same quarter is 10.5%. EBITDA for the current quarter is what 11.4% and last year, we had the PBIT at 8.3%, currently is about 9.5%. So though the revenue has grown only about 7%. We have improved our EBITDA year- on-year as part of the strategic initiatives and also a larger extent, thanks to the commodity reductions in the last 2 quarters. So this is a financial performance for the Q1 and Muthu, can you take it over the economic outlook and market outlook? Hello?
Muthukumar N
Okay, because there is a slide before the financial. Okay, I will talk about the market and we'll come back on to that. Ladies and gentlemen, I think last time, there were many discussions about how the commercial vehicle is going to be. So we had a discussion, we took up with SIAM, we took it from the various other sources IMF and all, find out how -- India continues to be the fastest-growing economy. You all know that, and we are in a very, very advantageous situation at this point of time. The IAP, even though the stock continues to be good. The projections for the next year is going to be at 6.5 GDP. With the diesel prices standing flat and the realization for the rental of truck going good and with the amount of infrastructure boost that is coming up from one side from the government, the 1 and 3 vehicle scrappage policy available here. We are looking at how we can continue to grow. The commercial vehicle segment, its ability to be very, very positive. I think you have more inform
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