Ndr Auto Components Limited

Q1 FY 2023 Concall Transcript

10th Aug, 2022

15 min read

  • Moderator

    Good Morning, Ladies and Gentlemen welcome to the Q1 FY23 Results Conference Call of NDR Auto Components Limited hosted by Kirin Advisors Private Limited.

  • 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 '*' and then '0' on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Supriya Madye from Kirin Advisors. Thank you and over to you, Ma'am.

  • Supriya Madye

    Thank you. Good morning ladies and gentlemen. 1 thank everyone for joining the first conference call of NDR Auto Components hosted by Kirin Advisors to discuss the performance of the first quarter of FY23. Now I would like to welcome management team of NDR Auto Components. Today we have with us Mr. Pranav Relan — Whole Time Director, Mr. Rajat Bhandari — Executive Director and Company Secretary, Mr. Vinod Kumar — CFO and Mr.

  • Sanjeev Kumar

    — Financial Advisor. Now | hand over the floor to Mr. Sanjeev Kumar for opening remarks. Over to you, Sir.

  • Sanjeev Kumar

    Thank you. Hello everyone. First I hope everyone is in good health. I welcome you all to the first conference call of NDR Auto Components Limited to discuss the performance of the Company during the first quarter of FY23. It is a great pleasure to have you all on call. Before we discuss the performance of the Company for the first quarter of FY2023, let me brief you about NDR Auto Components Limited. NDR Auto Components is a flagship company of the Rohit Relan Group. The Company was incorporated in March 2019 with a view to demerge the automobile seating business of Sharda Motor Industries Limited.

  • The company is engaged in the business of manufacturing, seating solutions like frames and trims to four-wheeler and two-wheeler vehicles. We have three plants right now. One is located at Gurgaon Haryana second is at Pathreri Haryana and third is at Bengaluru. They all are catering to Maruti Suzuki, Toyota Boshoku and Suzuki Motorcycle India Private Limited.

  • The management and the senior leadership team of the group have more than three decades as long experience and expertise in this domain. The Company is supplying seating arrangements to Relan Group Company Bharat Seats Limited who is key supplier to leading automobile companies like Maruti Suzuki India Limited, Suzuki Motorcycle India Private Limited, Toyota Boshoku Relan India Private Limited and Bellsonica, Our seating arrangements are used in the car model of Brezza, Alto, Ciaz, Wagon R, Swift Dzire, Toyota Highrider and Grand Vitara.

  • In the two-wheeler segments, we have a strong presence in Suzuki Gixxer and Suzuki Access.

  • For FY22 the Company has achieved consolidated turnover of Rs. 232 crore and net profit of Rs. 14.89 crores. Now I will brief you with the group companies. First is Bharat Seats Limited, The Company owns 28.66% stake in Bharat Seats Limited which carries on the business of manufacturing of car seat assemblies carpet set for automobiles and motorcycle seats. The Company posted a profit after tax of Rs. 11.91 crore during the financial year 2021-22.

  • Second is Toyo Sharda India Private Limited. The Company owns 50% stake in Toyo Sharda India Private Limited which carries on the business of manufacturing car seat lifter and recliner, The Company posted a profit after tax of Rs. 2.61 crore during the financial year 2021-22.

  • Third the Company own 50% stake in Toyota Boshoku Relan India Private Limited. Right now we have no operations during the financial year 2021-22 and we are in the process of discussion with them for future business opportunities. Now I will give you a little industrial background right now. The performance of auto ancillary companies is directly linked to the performance of the automobile industry. The auto ancillary industry supplies intermediate equipments as automotive parts to automobile manufacturers, The automobile industry witnessed laggard since FY2019 due to weak sentiments and tightening of liquidity in non-banking and other lending institution.

  • Further COVID-19 pandemic and lockdown further worsened the situation, but now with the opening of the economies at a rising demand for electric vehicles the automobile industry has started witnessing good demand and so has auto ancillary. It is expected that the auto ancillary markets in India shall become the third largest in the world by 2025. The auto ancillary market is anticipated to reach INR 7,756 billion by FY2027 expanding at a compound annual growth rate of 15.35% during the financial year 2022 to the financial year 2027.

  • Key growth drivers of the industry are :

  • e The enforcement of the BS-VI standard of safety and addition is anticipated to help the export market expand during the forecast period for the benefit of auto component player in India.

  • e Foreign players prefer India because it is a cost-effective location for manufacturing which works well for the auto ancillary markets.

  • © The demand for automobile is expected to remain upbeat with rising per capita income.

  • ° Improvement in road structures and national connectivity would drive the demand for the automobile sector.

  • ° The old vehicle scrappage policy 2021 will further provide impetus to automobile demand.

  • e As auto ancillary is directly linked to the automobile industry it will witness a sharp rise in demand.

  • The Future looks promising.....

  • Automobile demands are back on the track post pandemic. We are seeing good demand for vehicles popping up. We are completely focused on our future growth prospective and have outlined capacities expansion program. We are also looking for putting up plant in Gujarat to serve requirements of new plants and the same is expected to commence its production from March 2023.

  • Now let me take you through the financial performance of the Company for the first quarter of FY2023:

  • We started FY2023 on a very strong note. Ql FY23 performance made a strong growth path.

  • We are confident of strong performance for FY23 and thereafter your Company is poised to grow at exponential rate in years to come. For QI FY23 of the qualitative business the Company reported revenue higher by 40.46%. EBITDA increase up by 34.38%, PBT at Rs. 4.95 crores up by 73.68%, PAT at Rs. 4.12 crore up by 73.1%, EPS is now 6.81 against 3.97 in the corresponding quarter. On standalone basis revenues are up by 42.36%, EBITDA is up by 55.53%, PBT is up by 80.58% and PAT is up by 80.51%. So, we had a very strong performance in Q1. Now the house is open for the Q&A questions and answers.

  • Moderator

    Thank you. Ladies and gentlemen we will now begin with the question and answer session. The first question is from the line of Vaibhav Sharma from Kogin Research. Please go ahead.

  • Vaibhav Sharma

    So, I have three to four questions regarding business of the Company and on the financial. I will start with the business part as you told you are demerged from the Sharda Auto Components (Sharda Motor Industries Limited), so are we only doing the seating business or any other business also from Sharda that we are taking care of?

  • Pranay Relan

    So, at the moment we are only doing the seating business.

  • Vaibhav Sharma

    I see you are mainly supplying to Maruti Suzuki, so what kind of supply arrangements that we have and how much did we supply them in last financial year if you can throw some light on that?

  • Pranav Relan

    So, last financial year we supplied about 75% of our business to Maruti Suzuki four-wheeler and about 20% to 25% went to the two wheeler segment.

  • Vaibhav Sharma

    So, 75% of your business in terms of number of seats or anything that you can give idea like Maruti has sold around 16 lakh cars in FY22, so how much number of sets or seats that we have provided to them?

  • Pranav Relan

    About 500,000.

  • Vaibhav Sharma

    Majorly we are around 30%, 35% of our contribution to the Maruti I think that will be correct?

  • Pranav Relan

    Yes.

  • Vaibhav Sharma

    What will be net selling your sales to the Maruti in which model you have the highest?

  • Pranay Relan

    Wagon R and Brezza.

  • Vaibhav Sharma

    So, Brezza it is an old model as well as the new model that they have launched?

  • Pranav Relan

    Yes both.

  • Vaibhav Sharma

    So, you are directly supplying to Maruti or any other companies or what kind of arrangements do you have?

  • Pranay Relan

    At the moment we supply to Maruti through an associate Company Bharat Seats and our Bangalore facility is going to be up and running. I think the production has already started that is going to be for the Toyota company.

  • Vaibhav Sharma

    So, to Toyota you will be supplying direct?

  • Pranav Relan

    We are going to be supplying to the seat maker which in turn we will be supplying to Toyota.

  • Vaibhav Sharma

    So, you are not providing the full seat so how it works you are providing a frame or some parts or how does it work?

  • Pranav Relan

    We are providing the complete frame and the seat cover.

  • Vaibhav Sharma

    The padding and the foams will be added by another your associate company?

  • Pranav Relan

    Yes, the padding and assembly is done by the final maker.

  • Vaibhav Sharma

    So, currently I think I do not know I have listened or not currently for how many models do Maruti we are supplying?

  • Pranav Relan

    We are supplying for about 35% of the models.

  • Vaibhav Sharma

    So, can you just share the list which all models we are supplying?

  • Pranav Relan

    So, we supply to the Wagon R, we supply to the Brezza, Ciaz, Alto, Dzire and now the Grand Vitara and the Toyota Highrider and that was for the four wheeler and in addition we do this for two-wheeler, we do for the Gixxer and the Access.

  • Vaibhav Sharma

    So, in the two wheeler segment it will be same as four wheeler you are providing frames and cover and the padding and other things will be taken care by another company?

  • Pranavy Relan

    So, for the two-wheeler we supply the frame directly to Suzuki two wheeler and the cover we supply to an associate company which in turn supplies to complete seat system.

  • Vaibhav Sharma

    So, for Suzuki what kind of number that we have supplied during the last financial year?

  • Pranavy Relan

    ; So, can you repeat that.

  • Vaibhav Sharma

    So, I just wanted to know how many numbers of seats, frames that we have supplied to Suzuki I think you are providing for two models of Suzuki Access and Gixxer?

  • Pranavy Relan

    Approximately 40% is the frame and for the seat is closer to 75% to 80%.

  • Vaibhav Sharma

    So, I think had a sale of around somewhere around 8 lakh units so a 40% of frames that has been supplied by us and around 70%, 75% of the seats is that correct?

  • Pranay Relan

    Yeah that is correct.

  • Vaibhav Sharma

    So, for Toyota I am just coming on the Toyota part, so we have not supplied them anything in FY22 or in the past?

  • Pranav Relan

    The plant just started production in August and I think it is expected to ramp up from September or October. So, I think we will see the numbers of that in the following quarter.

  • Vaibhav Sharma

    So, for Toyota are we supplying for the model that they shared across both the brands like Suzuki Baleno and what about Toyota Glanza or are we supplying only for the Highrider only as of now?

  • Pranav Relan

    We are doing for the Urban Cruisers.

  • Vaibhav Sharma

    And you also mentioned I think Highrider also that they had launched?

  • Pranav Relan

    Yes we are doing it for them.

  • Vaibhav Sharma

    On other models Innova or Sedans?

  • Pranav Relan

    No, so we do not do anything for the Innova or Fortuner.

  • Vaibhav Sharma

    Sir coming up to your capacity utilization currently what capacity do we have for the manufacturing and how much we are utilizing with it?

  • Sanjeev Kumar

    Right now in NCR we are at 80% or 90% capacity. In Bangalore, we are also at 90% capacity and Gujarat we will be setting out which will get operational in March 2023 we will be reaching our capacity of 80% to 90%.

  • Vaibhav Sharma

    So, I think we have some kind of pre-order arrangement with our buyers, so if in Gujarat that we are planning in 80% to 90% that will be booked so I think you had pre-arrangement with Maruti and Toyota?

  • Pranav Relan

    Yes we have already booked our business.

  • Vaibhav Sharma

    So, how we are planning this CAPEX and what kind of amount it would be?

  • Pranav Relan

    So, we are doing all our CAPEX from internal accruals we are not taking any debt and that is going to be approximately 20 crores for the next two to three years.

  • Vaibhay Sharma

    So, it including the Gujarat plant also?

  • Pranav Relan

    Including the Gujarat plant.

  • Vaibhav Sharma

    In terms of number of seats so currently how much we have?

  • Pranav Relan

    Sorry can you repeat that?

  • Vaibhav Sharma

    In terms of number of seats frames how much capacity do you have I just forgot the numbers that you have said like you are producing around 4,50,000 that you have produced during last year so that was around 80% so exact number what would be your installed capacity?

  • Sanjeev Kumar

    We have 2,50,000 sets at Gujarat.

  • Vaibhav Sharma

    2,50,000 sets at Gujarat and from current manufacturing facilities how much we have?

  • Sanjeev Kumar

    Current in NCR we have got 6,50,000 capacity and in Bangalore it is 2,50,000 capacity.

  • Vaibhav Sharma

    And are we in touch with any other OEMs for any kind of business exposure do with them or we are just sticking to Maruti and Toyota?

  • Pranav Relan

    So, in addition to that we acquire a little bit of business from Bellsonica that is for new part altogether and we are looking to expand that.

  • Vaibhav Sharma

    So, Bellsonica is supplying to which OEM?

  • Pranav Relan

    No, that is for Maruti Suzuki.

  • Vaibhav Sharma

    So, apart from Maruti and Toyota we are not catering to any other clients?

  • Sanjeev Kumar

    No, Nothing.

  • Moderator

    Thank you. The next question is from the line of Dishan Jain from Quasar Capital. Please go ahead.

  • Dishan Jain

    So, actually I just missed on the numbers of capacity in terms of units so can you just repeat sir?

  • Sanjeev Kumar

    In NCR we have got a total capacity of 6,50,000 sets in Bangalore we have got a capacity of 2,50,000 sets and in Gujarat up to March 2023 we will have a capacity of 2,50,000 sets.

  • Dishan Jain

    And the second question is on the margins like currently if you look at it is around 25% gross margin in the Ql FY23, so is it sustainable going forward or do you think there will be change in those margins?

  • Pranav Relan

    No, I think it is sustainable going forward and we are likely to expand this.

  • Moderator

    Thank you. The next question is from the line of Jagvir Singh from Shade Capital. Please go ahead.

  • Jagvir Singh

    I just wanted to know at the full capacity including the Gujarat plant what kind of turnover we can do in the FY24?

  • Pranav Relan

    Sorry can you repeat that.

  • Jagvir Singh

    Including the Gujarat plant at the full capacity were on the 90% capacity in all the plants what kind of revenues we can do in the 23 and 24?

  • Pranav Relan

    I do not think we can give numbers at the moment, but I think we will be growing at least 30% to 40%.

  • Jagvir Singh

    And the next question is regarding the new product, so what kind of new products are you planning to do?

  • Sanjeev Kumar

    Please again repeat your voice is not clear,

  • Jagvir Singh

    I am saying in the presentation, in the press release you are talking about the new products?

  • Pranav Relan

    We are looking to add body in white to our portfolio. We have acquired very small business at the moment and we are working towards expanding that.

  • Jagvir Singh

    And we are in the JV joint venture what kind of the facilities?

  • Pranav Relan

    At the moment our relationship is a buyer and seller relationship. Joint venture is something we are not discussing at the moment I do not know what happens in the future. I cannot comment on that.

  • Jagvir Singh

    In the profit and loss account what is this year of profit of associate?

  • Pranav Relan

    The quantum of the opportunity ?

  • Jagvir Singh

    In Gujarat plant will commence from September this year or when?

  • Pranay Relan

    From March 2023.

  • Jagvir Singh

    It will start from March 23.

  • Pranav Relan

    So, the Bangalore plant has started and the Gujarat plant will start in March 2023.

  • Jagvir Singh

    Okay and we can achieve the 80%, 90% capacity in next year by December?

  • Pranay Relan

    I think the Bangalore plant is going to be 80% to 90% I think two or three months after production and the Gujarat plant will take a little bit more time.

  • Jagvir Singh

    So, | think Gujarat plant will start in March 2023 most probably it is possible by the December 23?

  • Pranav Relan

    I think that depends on the launch of Maruti Suzuki, but I think it should be at 80% to 90% the following fiscal.

  • Moderator

    Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.

  • Dhwanil Desai

    So, I think from what I heard a significant part of our business is coming from market, so is this relationship exclusive or are we not allowed to approach other customers and how do we manage the risk of having such a large part of our business from a single customer if you can throw some light on that?

  • Pranav Relan

    So, our relationship is very strong as we have already in an associate company that is a joint venture between Maruti Suzuki and us. Going forward there is no I mean we can obviously approach other customer and we are working towards that as well.

  • Dhwanil Desai

    So, the idea is to kind of increase the shares of other customers and derisk our business, ts that the part that we are seeing for our Company next three to five years?

  • Pranav Relan

    So, we want to add new customers and we also want to add new products.

  • Dhwanil Desai

    So, other than the one that you mentioned we have more products in the pipeline is that what you are indicating?

  • Pranay Relan

    So, again we are working on that we have added some BIW parts and we are looking to expand that as well.

  • Dhwanil Desai

    Second question is on margins so if I look at the margins of our Company and even the associate their margin is 6% to 7% range for a long period of time, so is this the normalized margin profile of our business or we see potential to move from 6%, 7% to double digit overtime and if so what would be the levers for a margins?

  • Pranav Relan

    So, as the new projects start kicking in our margins are expected to improve.

  • Dhwanil Desai

    It is not that 6%, 7% is a kind of a steady state margins so we do expect increase in margin overtime?

  • Pranav Relan

    That is probably at the lower end of the spectrum at the moment.

  • Moderator

    Thank you. The next question is from the line of Ankur Shah from Quasar Capital. Please go ahead.

  • Ankur Shah

    Sir, couple of questions like we have been observing that there is premiumization happening at every product customization and premiumization happening like seating system having airflow system, seating system having adjusting and particularly you mentioned that let us say we are not present in Innova or Fortuner, so is it that we do not have the capabilities to manufacture the high end premium products or we do have and we plan to explore and get into that and related question to that is like how do we like obviously one is the volume growth which the OEMs will do, how do we plan to increase the content per vehicle considering the complexities which are coming in going forward?

  • Pranav Relan

    So, we have the complete technology for seat ventilation, seat airbags. So, I do not think that is the problem. In terms of adding content per vehicle we are looking to add a lot of BIW part that we are in discussions with Bellsonica to expand the association with them.

  • Ankur Shah

    And content per vehicle increment is not possible in the seating business right. So, right now whatever we are giving it is a full-fledged package which includes all the technologies which are involved to them?

  • Pranay Relan

    No, As the OEMs start updating their product our content per vehicle for the premiumization will increase automatically and we have the technology for that.

  • Ankur Shah

    ; Sir, can you throw some light on the BIW business like what will be the cost, but value for that or what will be the market size or what else do we have vis-a-vis the competitors?

  • Pranav Relan

    The scope is pretty large it is as big as the seat for us. In terms of competitors I think there is SKH does, JBM does, Caparo does. We have a very good relationship with our customer. So, we are working to expand that.

  • Ankur Shah

    Sir considering the capacity which you mentioned and the utilization which you mentioned and with the hopes that there is expected OEM growth for the foreseeable future you do not feel the need to expand the NCR in the Bangalore capacity?

  • Pranav Relan

    So, that depends on what the customer product !ine at the moment our capacity we will have to cater them.

  • Moderator

    Thank you. The next question is from the line of Sandeep Mane an Individual Investor. Please go ahead.

  • Sandeep Mane

    Sir I have some questions my first question is what is our capital cycle?

  • Pranav Relan

    For the next 2-3 fiscal years is about 20 crores an annum.

  • Sandeep Mane

    And what is our asset turnover ratio sir?

  • Pranav Relan

    6.5 times right now for the FY21-22.

  • Sandeep Mane

    And what is the dividend distribution policy of the Company?

  • Pranav Relan

    So, at the moment it is 10% to 15% of that.

  • Sandeep Mane

    Sir, are we planning to spend on the distribution network?

  • Pranav Relan

    No, nothing on the distribution network no plans.

  • Sandeep Mane

    Sir, can you tell me what is our ROE and ROCE?

  • Pranav Relan

    So, our ROE for last year was 7.5% and ROCE was 9.13%. For this quarter our ROE is 9.13% and ROCE is 11%.

  • Moderator

    Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.

  • Dhwanil Desai

    Sir one thing wanted to understand was this Bharat Seats which is an associate company is also in a similar business or there is a difference between what we do and what they do and if there is no difference than some of the parts that we supply to them is there any cleaner structure that we are thinking about in terms of direct supply you talked about new Bangalore plant probably directly supplying to Toyota, but for the existing plants will it always go through the associate company and if so why such arrangement?

  • Pranav Relan

    Bharat Seats does the seat assembly and the seat foams and NDR does the seat covers and seat metals. So, there is a clear bifurcation of what we do in each of the companies.

  • Dhwanil Desai

    So, we will supply for the existing plant we will supply it through Bharat Seats and they will do the assembly and then supply to the OEM that is how it will work?

  • Pranav Relan

    Yes that is the current model.

  • Dhwanil Desai

    And that is how it will work for the new expanded capacity in Gujarat plants also?

  • Pranav Relan

    Yes.

  • Dhwanil Desai

    So, except for this Bangalore new capacity where we are supplying to Toyota directly I think almost everything will be with the structure?

  • Pranav Relan

    No, We are supplying to Toyota Boshoku India we do the same, we do the seat cover and the seat frame and then in turn they do the seat assembly and the seat foam.

  • Moderator

    Thank you. The next question is from the line of Ankur Shah from Quasar Capital. Please go ahead.

  • Ankur Shah

    Sir couple of follow up questions one I just wanted your thoughts on the capital allocation policy as of March I see that the Company has decent sum of cash and considering the CAPEX plan or expenditure outlay which you mentioned is around 20 crores which I think can be easily funded from the current cash flows, so how do you plan to utilize this huge cash prize?

  • Pranav Relan

    ; We are in very active discussions to expand the content and maybe to look at some acquisition or some joint ventures, but that will take at least two to three quarters for anything to materialize we are reserving capital for that at the moment.

  • Ankur Shah

    And sir one more point like the Gujarat plant, which is coming up, is it specifically for the Maruti export plants?

  • Pranay Relan

    That is for the Maruti plant yes.

  • Ankur Shah

    So, sir like from an opportunity point of view in the foreseeable future like do we see NDR think in the lines of having some competitive edge in the seating systems and taking the product in the export market is that a possibility altogether?

  • Pranav Relan

    So, our product is not exportable it is supplied directly to Maruti Suzuki which in turn supplies the vehicle. It is a very large product to export, but what we can look at potentially is some seat components on a once. We have not imagined it as yet, but may be we do that in the future.

  • Ankur Shah

    And sir on the ROE part like just wanted your idea because obviously there is a cash debt which is happening on the balance sheet which is getting our ROE down, but like when you are putting a new projects what is the kind of IRR expectations you all put let us say when you all discuss with the OEMs obviously this is sort of a partnership approach that when the OEM will tell you we have a requirement we will put up the plant, so what kind of ROE you all plan when you setup a project?

  • Pranav Relan

    So, we try to get the money back in 3 to 3.5 years that is what it does.

  • Ankur Shah

    So, that is around 22% to 25% ROE?

  • Pranav Relan

    Yes.

  • Moderator

    Thank you. The next question is from the line of Vaibhav Sharma from Kogin Research. Please go ahead.

  • Vaibhav Sharma

    I had two follow up questions so as you said you are selling from Wagon R till the Highrider range, so the seating price will be different, so what is the average seating in the said price any idea if you view on that?

  • Pranav Relan

    I do not think we can reveal that. I think we have Customer contract 'not to reveal that at the moment.

  • Vaibhav Sharma

    So, some questions related to numbers what will be our working capital cycle?

  • Pranav Relan

    30 to 45 days.

  • Vaibhav Sharma

    And related to the margin front is there any chance to improve the margins from current margin profile?

  • Pranav Relan

    As a new plant kick in and our new models kick in our margins are likely to expand.

  • Vaibhav Sharma

    Why are we in this special arrangement with Bharat Seat, are we not in position to supply to Maruti directly or is there prior arrangement that we are carrying on?

  • Pranav Relan

    So, Bharat Seats is a joint venture with Maruti Suzuki and us. So, I think the arrangement over there is to supply the complete seating system to Maruti.

  • Moderator

    Thank you. As there are no further questions I now end the conference over to Ms. Supriya Madye for her closing comments.

  • Supriya Madye

    I thank you NDR the total management and everyone for joining this call. If you have any queries please write it to us at info@kirinadvisors.com. I thank you once again to everyone for joining this call.

  • Sanjeev Kumar

    Thank you everybody.

  • Moderator

    Thank you. Ladies and gentlemen on behalf of Kirin Advisors Private Limited that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.

  • Note: Words/ sentences given in italics are for clarification only.