JTEKT India Ltd
NSE:JTEKTINDIA
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JTEKT India Ltd
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Ladies and gentlemen, good day, and welcome to the JTEKT Limited Q4 FY '23 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that the conference is being recorded.
I'll now hand the conference over to Mr. Amar Kant Gaur from Axis Capital Limited. Thank you, and over to you.
Thanks, Ryan. Good afternoon, everyone, and welcome to the Q4 and full year earnings conference call of JTEKT India Limited. From the management team, we have with us today Mr. Hitoshi Mogi, Chairman and Managing Director; Mr. Rajiv Chanana, Executive Director and CFO; and other members of the team.
I'll now hand over the call over to management for opening remarks, post which we can start the Q&A. Over to you, Mr. Mogi.
Okay Good afternoon, and welcome to the JTEKT India Limited quarterly earnings call. I'm Hitoshi Mogi. I'm the Chairman and Managing Director of JTEKT Limited. And I'd like to thank all participants for joining this call and the analysts. First of all, the Indian market has been impressive a year of 2022, 2023, with other sales of 245 million units, posting a year-over-year growth of 25,000, the highest ever annual growth in more than a decade. In the previous peak was achieved in first year 2018, '19 at 4.35 million units. This is attributable to the healthy demands relatively scalable semiconductor suppliers and providing to the of RDE on April 1st, 2022, '23. As a paramount year of previous interactions, I informed you about the completion of the investment of more than 150 million medium in setting up manufacturing facility from driveshafts with the close properties with a capacity of 25,000 units. And this year, we increased our production capacity from manufacture of the shaft, which is an important component at the Dharuhera facility and adding additional capacity of 60,000 units at the total of INR 70 million.
Our CapEx plan for the next year includes the expansion of the capacity of MS gear by adding one protecting line for each product. Additional, we are planning to increase the capacity of volume and digesting by adding additional 354 machine. We will also be adding an additional production line to manufacture warm housing, which is an important part of CVJs.
Our capital expenditure for next year and next 2 years is likely to exceed to INR 100 million annual. And now I would like to discuss with you the company's results and open also for questions. The financial results for Q4 2022 are now avaiable with you. For the end period revenue from operation at INR 5.2 billion for which shows a healthy growth of -- starting against revenue of INR 4.8 million achieved during the comparator of previous year. Post that's INR 237 million in quarter 4 showed an improvement of more than INR 90 million through the cost of the INR 125 million reported in the quarter of the previous year.
For the financial year 2023, revenue from operations at INR 20 billion shows a healthy growth of 28 against the revenue of the INR 16 billion achieved during 2022. This improved from the 6.9% to 8%. at INR 292 million in 2023 shows an improvement of more than 140,000 of sales on top of the 331 for it in 2022. VAT improved with the improvement in sales as well as a strict control of the fixed front.
Lastly, I would like to infomr that entities of a subsidiary company. The dedicated acquisition also, which the exchange is or -- we achieved the content of shareholders and a pre at the NCLT Meeting on 20th of May, we are now moving ahead with application to NCLT. With this, I would like to thank you for your participation and opening the conference for questions. Thank you.
[Operator Instructions] Our first question is from Aman, Carnelian Capital.
Sir, thank you for the opportunity and congrats on a good set of numbers. The first question was on gross margins, like this quarter, you are around 100 basis points kind of sequential improvement in the cost margin but still it is lower than the kind of gross margins we have done over the last 3. Since high raw material -- the raw material costing might be over by now. Do we expect some improvement in cost parting forward? .
Aman, thank you so much for this question. If you look at the gross margins, EBITDA, this has improved to a level of 8.5% on a entity on a stand-alone basis from 7.7%. However, you have seen my presentation which we uploaded on to stock exchanges. Can you hear me, Aman?
Yes.
Okay. So if you have seen the presentation, which we uploaded on the stock exchange, there is certain onetime expenses, which we had to book it, one, which is a very huge expense of INR 56.4 million, which we have booked in this quarter is actually provision for contingency. Why provision for contingency? Because there has been a recent by the Supreme Court on a GST matter pertaining to settlement of price, this is a Supreme Court judgment. So there has been discussion around it as a level and they advised us that even though the company has got very good chances to first of all, at any point of time, the litigation starts on this subject. Yes, because there has been a judgment on of Supreme Court is better that you make a provision in line with that of industry practice.
So this is a onetime provision for contingency, which has been created, no cash outflow. And we do not expect also that this will become a law at certain time. We have very good arguments for just justifying this element, of course. So this is an additional expense which we booked in quarter 4. Another you said onetime settlement, the manufacturing rationalization activity the company has done over the last 1 year. So total to our expenses, onetime expenses, which we have done on manufacturing rationalization was around INR 17.7 million. In this quarter, it was about INR 7.7 million. So it will adjust that In my EBITDA margin.
So EBITDA improved from INR 459 million to INR 523 million and between 2% to 9.7%. Now I'll come to the consolidated results. You are aware that we are in the process of merging Fuji Kiko Automotive India, which is a subsidiary company of JTEKT India Limited and is captive supplier to JTEKT India. You are aware that all the production of Fuji Kiko is utilized for internal production of electric power steering and gearing India Limited.
So if you look at the consolidated numbers, which we have published, it shows an EBITDA margin of 9.1%. made this for adjustment of onetime expenses to come to about 9.5% and on a full year basis. And if you look at the quarter of consolidating, it's 10.6%. So which means there has been a significant improvement in EBITDA from a level of 7.7%, and consolidated level, which even touch 10 points, we already touched 10.6%.
Moving back to the history, if I look at the EBITDA margins over the last 5 years, I think in F '18, 2018, we touched an EBITDA margin of around this level, slightly lower than. But at '20 onwards, you are aware the stress which the company has faced not only because of the declining sales, plus other details also. However, having said that, we are still committed to further improve the Africa margins. And you must have seen the way we are controlling the different costs. One was which I would like to mention here is the significant change in the employee cost from a very high level of around 13.5% to a single digit now. So all these efforts, which plus if you had seen other expenses, even those have come down.
So considering the effort which the management is doing and considering the growth in sales, which the company has achieved, and we expect that the market continued to grow at the same pace in the future years also. We expect that EBITDA margins will improve further. Can you ask any other question?
Yes. My second question was on an easy preparation, like a lot of our OEM client partners we had started already preparing for the more than in next 2, 3 years like are we in discussions with an -- has the products would the model be in 2, 3 years down the line, anything on this.
We cannot disclose this information. We are -- this is a regular but we continue to pass because the development phase at almost 2 years before the BP launch 1.5 years before the BP is actually launched. So yes, we are in discussion with another OEMs. We are regular partner for them other it small or any other OEM. We are actually work with them on a regular basis. There are -- we keep demonstrating to all our OEMs, our new products, which we are -- our capability. So this is a regular question, yes, we are working with our various OEMs and for the new launches in future, including working on the electric vehicle part and electric SUV vehicle also. So I think we will keep on giving you good news as we keep on building more business from our OEMs.
Another question, if I can squeeze in. It was on the service. We have been around 20 of this year. So how is the outlook looking for next year like do we intend to utilize our plan to maximum like since you can do around INR 120 crores of revenue on the good news, selecting expedition. We are in discussions with new clients and all on part of line to vehicle them. So the win on that side or anything you can add.
Yes. So introduction of CBT in Indian market is actually a step towards company's aspiration to increase its product portfolio. So we are very serious about it and this is to gain an important driven segment of the auto component markets. You are aware that company has set up machining and assembly line at its existing Dharuhera facility, and we spent more than INR 800 million on that. The total capacity of this is 45 lakh units. So we are aware that we have closed in. So when it will be using 2 dry shops. So the total capacity offset is some 75 lakhs. And with an expected turnover of INR 120 crores.
So last year, we launched this product in the month of September. So the INR 20 crore thing which you are saying is over a period of it has grown over a period of time. But currently, if we look at the current volumes, we are currently supplying CVJ to Maruti Suzuki for it's Grand Vitara model and for the Toyota Hyryder. These are the 2 models on which we are supplying our CVJ. And currently, more than 50% of our capacity is utilized. So if you look at on a month-on-month basis, starting from the last quarter, still up to this point of time, we are using more than 50% of our capacity.
Now what we are doing, we are currently working for using a new product. This is an electric subsidiary for which we are working with other OEMs and the likely start date for this particular model is October 2024. So with this, we will be 100% utilizing our capacity for the CVJ line, which has been setup between the entire INR 120 crores of business will be with us within this financial year, which means that we have to start looking at how to expand this capacity. So in the near future, we will be informing you about further expanding this capacity. Currently, if you look at our market share is just about 6% in our own CVJ segment, and we'll not restrict ourselves to 5%. Our idea will be actually to grow very fast in this area of business. And we are, as you rightly said, yes, we are taking to other OEMs, including Indian OEMs, Tata and Mahindra. We have done our shows regularly talking to them, explained them the capability of CVJ, which we already have set up. It's actually excellent product with a very good quality which we have introduced, and there has been absolutely no complaints about any quality-related issues so far, and we are pretty optimistic and there will not be any in future also.
So we are hopeful that CVJ dealership launch, and we'll be expanding our market share very fast.
Understood, sir. Just if you can tell me like, if you are present with Maruti or cannot do model they are long.
Maruti CPS, say again?
Are we present in sort of from like the parties growth.
We are supplying manual gear for that. Yes. We are present in that. And the Gemini model, which will be a new launch, we will be supplying both here as well as CPS. So the gearing system we will be supplying for Gemini.
Our next question comes from Sailesh Raja with B&K Securities.
Yes. Pre-COVID time, our expose used to be 6% to 8% of total sales that is more than INR 100 crores. So at that juncture, you used to guide us that the company is targeting 15% of the total sales and now the exclusive stress 3.5%. So what makes you this say and what is our plan to increase the export sales back to the 6% to 8% and eventually increase to 15%, sir?
Yes. First, I would like to our efforts, and then I will turn to answer your second question. So exports to our customer in U.S., there are 2 main customers which we have in U.S., EasyGo and the volumes are increasing with them. In respect of EasyGo, our sales increased by 13%. This was a level of INR 417 million in 2021, '22, and we touched a level of INR 472 million in 2022, 2023. So we are working with EasyGo for launching a new retail model and expected as of this particular model is December 2023. So we will -- we are working with them, and we continue to work with these customer in future to increase our export volume. And this is a very, very stable customer in the U.S., which we have. And INR 147 crores is business from -- existing business from one customer plus the new models which we are planning to produce. So having said that, we are also aware that we lost John Deere business in the past, which was a major contributor to our overall sales, that number which you are referring to. Unfortunately, we are not sorting that part at this point of time. but the other businesses have been continuing. So now the next step is that we need to explore opportunities for supplying to our overseas group entities. We are working on that. The to all the technology discussions. Yes, that's the reality. But we are now in discussion on the various studies, which are happening with those company, and we are actually participating in that. So at this point of time, I would like to reiterate. We mentioned this spend at our -- in our previous speaking in the last -- in the first half. And the first and foremost, requirement of expose to overseas entity is to manage supplies without disruptions. The main condition to this objective is to have a very strong and stable supply chain. So we are working towards this production and hope that expand our export business, but this is a precondition, which is -- today, it's very difficult for us to estimate a future target number at this point of time, but we would like to confirm our investors is that these discussions are in active stages and we are regularly discussing this topic.
Sir, any supply is expected to group companies?
Look, there are the 2, 3 -- actually until the time you get to transform business, we cannot disclose you know that. But just to answer your question, yes, there are 2 discussions, which are at a very active level. Maybe at our next trading even before that, we should be able to communicate this.
Okay. So my second question, could you please talk about the opportunity in the after market for the CVJ product. But unlike other products, we will be targeting this constrained in the aftermarket segment. So what is our plan and how quickly we can ramp up the sales of overall the comp details. Can you give some color on this?
So frankly speaking, on the first target for the JTEKT India Limited opportune worldwide is to establish itself as a good quality supplier for the main product. So this product we launched only this year. We will first like to explore our OEM business as early as possible, reach to a sizable portion and then possibly, we will start looking at the aftermarket. We saw that aftermarket is profitable. We know that aftermarket has got good profit opportunity for us, but we first like to establish ourself with our OEMs. We are talking to almost all OEMs at this point of time. We would first like to establish ourselves and expand our capacities and then maybe start looking at the aftermarket. it made maybe a year or so to give a concrete plan on that. So frankly speaking, we do not have a complete plan on this particular aspect.
So we invested closer to INR 80 crores, INR 90 crores. What is the payback you are looking for in the storage?
Say in 18 months.
INR 80 crores, INr 90 crores, we have invested in CVJ. What is the that you're expecting there in this product?
So at this point of time, as you said my return on capital employed on an overall business in FY '23, this is 14.5%. This is improving because there are several factors which goes into it, the man power, all the facilities which you have and high acquisition to begin with. So margins will continue to be almost same as our normal business. It will not be different. Yes, but yes, we expect that the next business, which we are targeting for an electric SUV the profitability or better compared to what we have achieved in our past. So currently, this is a business and we have not put any targets on that. But having said that, the profitability will not be lower than our current existing gearing business. Target for any entity is to achieve a 14% return on capital employed. We achieved that in FY '23, and we hope that we'll continue to see the same number with mix of with 1 project may looking a little bad also at some point of time. So we may be expanding in that category. So that's why whenever you introduce a new product, you are aware that the depreciation cost in the first few years will be very high. But yes, this is a part of the game, yes.
This color of what Mr. Aman asked, for the last 5 years, as you said, we have various fixed costs and conversion costs significantly. I highly appreciate you see point that cost. My question is from here on the only scope to improve the operating margin other than the scale benefits to improve gross margins. so gross margins used to be around 34%. And currently, it is at 29%. So if you add on that GST the write-back, then it is around 400 bps drop from what we used to reporting to '19 sheet. I understand there is a lot of pressure from competitors and also finding difficult to passing on cost inflation to the customer, pricing commodity. Now the commodities have corrected some peak levels. Can we expect good improvement in gross margins. If yes, what percentage of margins are you targeting are next 2 years.
So like interesting question. I don't know if rather you can explain the mathematics part of it. To give you the numbers. So F '19, we had EBITDA margins of 10.5. And as I explained on a consolidated basis, which is a reality because we are going to merge our subsidiaries, we will at the same levels. So we have brought our EBITDA back to old levels. Business was fine. And this is mainly because of its controlling our costs, so which we have actually been able to achieve it. Now coming from material cost, we see -- it's very difficult to explain that. When -- first thing is that it's a reality that we will go and acquiring new business, initially the cost is high because then it starts the process of cost rationalization to several areas like VA localization and as well as many other activities. So those activities will start immediately after the product goes into SOP and we start looking at cost elements and how that settings which you have rightly said, is a huge change in our raw material prices over the year. Over the last 2, 3 years, both with Corona and proposes geopolitical prices, they have rise in steel and aluminum prices, which are the main raw material part of our components. And as a result, both and you're also aware that our RM is fully compensated. So for the existing products, we have a back to back agreement with our OEMs. Any change in delta on steel and aluminium is compensated to us.
Now looking at this scenario, where I'm getting all the compensation. What's happening is that my numerator and denominator is changing in amount. But that is resulting in increasing the percentage. So that percent this normal, we should not go much into it as to why this has gone up by 1% because that not the actual increase actually. So I would like to see that you look at my profit margins if I'm making more than INR 100 crores of cash, which we will be able to fund my capital all capital suspension sources. Look at the way we have reduced our volumes practically 0, which is we are not paying any interest which we are making more tax for our shareholders. So I think we look at from that to a narrow your reason only on the metal go. That's why request.
Okay. Okay. Sir, are we supplying to any of the R model telcos having the passion with the period of the production by importing the products we hold because of time concern. And now they have 4, 5 models or any of the models we are up.
Surely, Mondo is the main supplier for Hyundai and get along to the same Korean family is price. So currently, Mondo is supplying to them. Having said that we are open. But let's see, we got this breakthrough with the Korean. Otherwise, we are happy. We have a sizable business for Maruti Suzuki. We got almost 100% business and we got almost 80%, 90% big order. So we are happy with that even if we do not get that part of the pie of the business, it's okay. But currently, we do not have that controlled by Mondo.
Okay. And my one last question, maybe reason why we have reduced our dividend payout cash generation...
We have not reduced dividend. From 40%, we have increased to 50% this year.
No sir. If you see in FY '19, we reported earnings. And we gave 0.8 as dividend and this time we had given only 0.3 so.
Look, we look at the dividend in -- if you look at the dividend history, we have been paying 50% and then we had to reduce it to 30%. Then last year, we increased it to 50% of the share capital. I'm talking about the share capital, our value of share capital share. So this year, we have increased to 50%. Yes, we are happy to share our corporate in our esteem shareholders, we are happy with that. And however we also need to continue to keep an eye on future expansion, which will add value for our shareholders. So you are aware that even in Japan and Maruti suzuki, 2 promoters sold 75% share of the company. And so we have this decision of restricting it to 50%, increasing it from 40% to 50% and not increasing further, is taken in the interest of the company to fund our capital expenditure for next year. So we will be needing some cash, which will go into further expanding the business of the company and eventually will be benefiting our shareholders.
Our next question comes from Dhruv Bhatia from Bank of India Investment Managers.
Sir, my first question is, if you could just provide question, the customer mix for it?
Yes, sure. so FY '23, this is 56%, EBITDA 6%, Mahindra and Mahindra 9%, Tata 4%. Then in the export category, it's around 3%, Renault-Nissan 4%, and rest is all of the and small OEMs of the market is.
Okay. And sir, I mean, if I look at the related party release which you have put because Maruti is a promoter or a shareholder of the company. This is year it seems like about 70% of the half yearly sales were to Maruti, but the full year it's just 56% is the customer, which is Maruti?
are something different. There we had sales expenses everything. That number will not be comparable actually. This is purely sales and with all GST. There you will notice, GST cover.
Okay, okay. Second is on the CVJ business, the segment -- my understanding was that for the full year, you were expecting somewhere about INR 50 crores, INR 60 crores of sales on a half yearly basis. But it seems like on the full year -- I mean, you've done about INR 80 crores change. So has there been a delay in terms of supply to the customer? Or there's been a delay in terms of the model as well from customers?
what started from September, but it was slightly -- however, in the second quarter, so in the last quarter, it picked up on right level. Currently, if we calculate my capacity equation is exactly the same number, a little lower.
You are currently you're saying on a monthly basis, you're running at a 15% capacity?
Yes, Slightly higher than 50%, yes.
Okay. And at these levels, are you breaking even at EBITDA level?
You know in side is anything in a PBT level was around 70%, 70% to 75%, at PBT level not at EBITDA level, but PBT levels.
Understood. And sir, I think this -- in the opening remarks, I mean if you could just reiterate in terms of CapEx of INR 80 crores to INR 100 crores planned for each of the 2 years of that INR 100 crores does for the CVJ expansion, which probably will plan post the capacity utilization, we can take in FY '24 for CVJ. Is that included in that INR 100 crores?
So what pointed out is that we will be now planning our capital expenditure in 3 or 4 areas. We will be expanding our manual gear capacity. We'll be expanding our capacity. We'll be expanding our PDC capacity. And then CVJ. CVJ Will come once our line is fully utilized, we'll start working for the next level of expansion. So please understand when we get an order from a customer you got time. While you are developing -- now you can devleop your products on the existing line and with taking help from your Japan technical facilities. And while the vehicle is being developed during the same time, you can expand your capacity also.
I see. I see. And sir, I mean, you've a lot on the cost aspect, I mean employee costs as a percentage of sales is obviously in this quarter almost come below 10% mark. And this is expected to continue going forward? Is this some time number now?
Yes. We have strict targets for performance. It's how we are able to improve the productivity. we have strict targets for that. People are very aligned at all the unit levels. Yes, we have a target in sites.
Understood. And just the last thing, I mean, Sudhirji was earlier consulted to 2023. Is that something his term expires? Or is it renewed, could you just give us some color there?
Sudhir Chopra for the last 1 year has been working with us as a senior adviser, and his main responsibility was to assist the company on the legal matters as well as the current merger transaction. So merger is almost on the walls of completion, I think there are a few formalities left. So this tenure will now be over from May this year onwards.
Our next question comes from Radha NK Securities.
Congratulations on good results. I wanted to understand on the LCV side. Previously, you mentioned some of the new product in the LTV segment for the years. So what would that be as a percentage of total sales in FY '23 and any new product line or any new models that we targeing in the segment?
So I think there is no change as such in the products which we are supplying. So if you look at -- we won the business of Tata Ace, which was a new version that in the last 1, 1.5, 2 years, we saw the new business, which was one. And then there was the other model, which is called a sell what we care. This is the 2 at which we have won. And Other than that, we are -- we already continues to continue with other models of TATA Ace. We are working with TATA around the world price, which is primer. These are the products which we're already supplying mainly, which we are supplying except that for order which is called Super Ace, we are supplying HPS also. So there are some Mahindra also for which we are supplying the.
Okay. And would it be as a percentage of total revenue, would it be 2% to 3% of sales from the LCV?
Yes, around that level. I have not essentially calculated it. Maybe I will be separately sharing that number. It should be around that number.
Okay. I just wanted to understand the CVJ product better. So does it have a application in the LCV segment and the rare wheel drive that.
this product is in both segments that was.
Okay. Sir, what would be time for the CVJ product in the LTV category?
The market is currently controlled by GTM at this point of time. So when we look at our growth of market around 35% is still controlled by GTL. Then we have players like MTN, we play like next year. Next year is the second largest provider of CVJ in the domestic market. Yes. These are the main players.
So given that we are already present with some models in the LCD with columns that we just spoke about, would be after targeting the PV OEMs in the CVJ segment. will be the planning to target CVJs for the LCV segment, at least in the current models that we are producing?
Like, we are just about 3% of the total market. So we have an ocean to explore. So we'll be exploring every nook and corner just marketing and technical team are already talking to all major OEMs and they will do the level back to see that we expand these figures. And we have grown into the market. We have tried to take the leadership position for CPs. We'll also definitely try for the same for CVJ as well.
[Operator Instructions] Our next question comes from Aman, Carnelian Capital.
Thank you for the follow-up. Just one more question from my side. But we have around 4% of revenue to Tata and NDA around 14% market share in domestic passenger vehicle industry. Like any plans to increase our wallet share and can give wallet share with Tata?
So our few experiments with Tata has been very succesful. For example, we started supplying HDS for TATA Harrier and TATA Safari. So these products have done well, and this has actually helped us to increase our share of -- our sales with TATA from an earlier level of 2% to 4% now. We are actively supplying models driveline various forums, Tiago, Tigor, Altra punch. Yes, we have several models. However, yes, we still have a very small business TATA. We continue to explore that. It's like opportunity is there, we will definitely slow that.
Our next question comes from Nirali Gopani with Unique.
is existing capacity on the revenue for the.
Are you are asking about the current capacity utilization?
Yes. So at the core of tiering you have that kind of revenue in.
So like we are currently at around 75% kind of utilization levels. I mean there is a possibility to expand further with the existing type of, can be -- the volumes can be increased. But yes, we are also planning to increase our capacity as we explain it by in future.
Right. you mention about INR 100 crore for 2025?
Yes, it will be upward of INR 100 crores. What we are trying to get as per the requirement as to the market growth, we'll be planning about capacity. As you win a new business, we start planning for a capacity expansion. So that's what we'll be doing for as we'll be winning more businesses, we will keep on expanding our capacity. So we believe that there will be a requirement with the current capacity utilization as we get new businesses, we will have to spend some money towards new manufacturing line. So we are planning for that at this point of time.
Okay. And sir, just to clarify that the only thing on the current utilization at or option level as you can go up to?
This is how we as capacity on a double shift basis. So we can of why will not do that, but there is a chance that you can even go with us on that or something which is advisable from a prudential setup because then you need to continue to maintain your machine 85% when we look at 85% to 90% on a double 2-shift basis. That's what we normally aim for.
And in fact, we can go up to 100% capacity already factors the efficiency.
Clearly, the INR 100 crores clear the capacity of a center as to in the coming year.
We can always expand the we got existing facilities available, we can always expand our capacity also, that's why not a problem. Very good business, very profitable business, and we can expand.
In our case that with the midterm for expanding as well as developing a product more to the right opportunity to expand our and we are.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Hitoshi Mogi for closing comments.
Okay. Thank you very much for now. So we are very appreciative of the. And automotive sector is growing and also will be expected, and we posted the making investment for future growth as well as company growth and also with the improvement of the. and thank you very much for today.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.