JTEKT India Ltd
NSE:JTEKTINDIA
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JTEKT India Ltd
Earnings Call Analysis
Summary
Q4-2024
JTEKT India saw its highest-ever sales in Q4 FY '24, rising by 19% to INR 6,300 million. The annual revenue also grew by 10% to INR 22,000 million. The EBITDA margin improved to 11% in Q4 FY '24 from 9.4% last year, and for the full year, it reached 9.5% from 9.1%. Key expansions were announced, including doubling CVJ capacity. A new export order from Brazil is expected to significantly boost sales. The amalgamation with JTEKT Fuji Kiko is anticipated to enhance production and cost efficiencies.
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Ladies and gentlemen, good day, and welcome to the Q4 and FY 2023-'24 Earnings Conference Call of JTEKT India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management of JTEKT India Limited. Thank you, and over to you.
Good afternoon, everyone. Let me introduce the team members present from JTEKT side. My name is Rajiv Chanana, I am Director and CFO at this company. Mr. Hitoshi will be giving the inaugural remarks. He's the Chairman and Managing Director. And we also have with us Mr. [ Minoru Sugisawa ], he's a Whole-time Director; Mr. Yasuaki Doi, he's the Head of MD Office; Mr. Kawano, he's the Department Head of Sales & Marketing; Mr. Rao, he's the Adviser in the Design & Development in key department; and Mr. Shyam Sundar, he's the Deputy Department Head, Sales & Marketing.
I hand over the call to Mr. Hitoshi Mogi for the inaugural remarks.
Okay. Good afternoon, everyone, and I'm Hitoshi Mogi, I'm the Chairman and Managing Director of JTEKT India Limited. And welcome to the JTEKT India Limited Quarterly Earnings Call. I'd like to thank all participants for joining this call and the organizers.
First of all, I'll touch with the Indian economy. India's GDP growth rate for FY '24 recently come into the better than expected level of 8.2%. RBI at its recent monetary policy announcement raised GDP growth forecast for FY '25 to 7.2%, up from 7% earlier.
The central bank retained the FY '25 inflation forecast at 4.5%, a sustained -- price sustainability would set a strong foundation for a period of high growth. According to ICRA, supporting underlying factors such as rising per capita income, demographic profile, low vehicle penetration and favorable policy environment, including the infrastructure development, are expected to help in the growth of automotive sector demand at a fairly pace.
ICRA has projected a CAGR of around 9% -- 6% to 9% across the automotive segment over the medium or long-term period of time. So we have been closely watching the growth trend and announcement for capacity expansion made by the OEMs, including our largest customer, Maruti Suzuki. During my last interaction with you, I informed you that the company will soon announce the expansion of our production capacity.
I hope our investors have read the recent announcement made by the company at the stock exchange for capacity expansion. We announced in December '23 and February '24 for setting up two additional line for MS Gear. And in April 2024, we also announced doubling the CVJ capacity.
And now I would like to discuss with you the company's financial results. Our financial results for Q4 FY '24 are now available with you. In Q4 FY '24, JTEKT India achieved the highest ever sales of INR 6,300 million, which was 19% higher than the sales achieved in the corresponding quarter last year.
For the financial year '24, JTEKT India achieved the highest ever sales of INR 22,000 million, which was 10% higher than the sales achieved in the previous year. The growth of 10% of sales was better compared to the passenger vehicle segment market growth of [indiscernible].
The company has achieved a consistent increase in its EBITDA margin. EBITDA margin touched 11% in quarter 4 of FY '24 compared to 9.4% achieved in the corresponding quarter. For the full year, EBITDA touched a level of 9.5% in FY '24 compared to 9.1% in FY '23, an improvement of more than 0.4% shows management efforts to improve margin and control of fixed assets.
Lastly, I would like to also like to inform that the honorable NCLT, New Delhi, in its order dated 12th December 2023, approved the Scheme of Amalgamation of JTEKT Fuji Kiko Automotive India Limited with JTEKT India Limited. The said order of NCLT was filed with the Office of Registrar of Companies on 1st of January, 2024.
Since both the companies are part of the same value chain, involving production of steering gears, which is electric power steerings, and there exist natural synergies, the merger has opened up several opportunities toward production and cost rationalization to enhance our competitiveness in the market.
With this I'd like to thank you for your participation and open the conference for questions. Thank you very much.
[Operator Instructions] Our first question is from the line of Manoj Bahety from Carnelian.
So first of all, congratulations for good set of numbers. So I have three questions. First one is if you can help us understand the writeoff which we have done during the quarter towards some adjustment in the receivables, what exactly is the nature of that?
Was it a fraud? Was it the money has been taken out by someone? So that is my first question. If you can help us understand the details of the transaction and also to which year that transaction, original transaction belong to, was it like prior to the change in hands in the company or recently?
Yes. So I think these -- let me explain the nature of these transactions. So these were unidentified reconciliation entries, and these were pending in our receivable accounts. These entries actually pertain to deductions, which were made by OEMs from invoice value due to change in sale price, but not accounted for by us in the past periods.
And these entries, as you asked, are pertaining to a very old period, more than five years old, backward of 2019, backward from 2011 onwards. So very, very old entries, which were lying as unreconciled balances in our books. So during the current year, we discussed with our stat auditors and because that we need to clean it up, because we were not able to track -- trace this entry the back -- the rationale for these entries.
So based on our discussion with stat auditor, we hired an external agency, K. G. Somani & Company is a very renowned firm of chartered accountants and we carried out a detailed forensic audit. And the purpose was to establish the nature of such entries as well as the exact value of these transactions.
So the total value of INR 77 million was charged to profit and loss accounts in the current financial year, March 2024, we charged all these amounts. And we have accordingly reported this matter to Audit Committee, which in turn has reported the matter to stat auditors. Our stat auditors will now review the report as well as the observations of the Audit Committee and will decide if any further step is required.
As decided in consultation with our stat auditors, so the amount of INR 77 million, INR 7.7 crores is not material, considering the PBT of INR 145 crores for the year. No adjustment of the past period financial has been done. If you know that accounting standards require that if there is a past period error, which must be accounted for in the past period. Unless these are considered immaterial. So these differences were not considered material. Hence, there has not been any past period adjustments. The entire amount has been taken as a bad debt in our current financial year.
So management has also taken necessary steps to ensure that no such similar error exists and that was the whole purpose of involving independent agency, K. G. Somani. We could have done this exercise on our own, but in consultation with auditors and Audit Committee, we decided let there be a professional independent firm doing this analysis and then let there be formal report to ensure that there is no further hit or no further entries which are pending.
So we have received recommendations also from K. G. Somani & Company to establish additional internal financial controls. Internal auditors of the company now will be supervising the implementation of these internal controls to avoid any recurrence of such errors in future.
So two things. One, this pertains to the very past period. These were unreconciled adjustment entries, have been completely verified by an external agency. The complete hit has been taken. The amount is immaterial. And therefore, no past period adjustment has been done. And we have closed the entries in the current financial year.
Just one related question to this. If I adjust for the INR 7.7 crores, our EBITDA for the quarter is upward of 12%. So can you also attribute the reason for such a meaningful jump in EBITDA margin? And how you think on the customer relative of these margins?
Yes, thank you so much. So if you look at our profit margins, I think Mogi-san has already covered that. The company has achieved consistent increase in EBITDA. It touched 11% in quarter 4 even after taking this exceptional hit of INR 7.7 crores. And this is very high compared to 9.4%, which we achieved in the corresponding quarter of the last year.
Full year, I think full year are the more relevant numbers where we touched an EBITDA of 9.5% compared to 9.1% in 2023, 0.4% improvement, which actually shows efforts of the management to improve margins and control fixed costs.
These are sustainable. Why? Because we have -- the increase has happened through various current factors, including the merger, which has just been completed. So benefits of merger have already started pouring in, and we expect that this can only further improve. If you look at improvement areas, I think you must have seen our financial results and maybe I may explain a bit about that.
Whenever a new business is won based on competitive bidding, initial period, the cost of production, mainly material cost, is slightly high. This is followed by various initiatives, which are taken by the company for reducing the material cost through -- via the localization and negotiation. While we have seen an upward movement in material costs in the current financial year, however, we have made our best effort to contain other cost elements, especially fixed cost.
Just for the information of the investors, in the area of employee cost, the company has taken several initiatives involving rationalization, the digitization of manual and routine activities and productivity improvement. And this has actually helped us to reduce our employee and manpower costs.
If you look at our current manpower cost, it touched a level of 10.1% in '19 -- which was as high as 13.4% in 2019-'20. Along with that, you must have seen there's a complete control on the administrative expenses. So over the midterm period, there are certain initiatives which have been -- are being taken by the company.
And we are very sure that this will help us to improve margins further, better price negotiations with customers for the new orders, expansion of exports, localization of certain critical components for our new products CVJ, I think there are many, many activities which are in pipeline and progressing in fact successfully, and we are very sure that we are able to retain this margin in the future periods as well.
Great to hear on the margin side, that the initiative of the company is working. So my second question is on the CapEx, which you have done, both on the CVJ side as well as on the CEPS. Just wanted to understand that with the current round of CapEx, what is the potential revenue possible once that CapEx gets over? And what is the timeline of this CapEx? And after that, I have one last question, if I may ask you, please.
Okay. I think it's a relevant question. So we would like to answer the question. If we look at the, for the financial year '24, which we have just completed, we incurred a total capital expenditure of INR 1,700 million. That has included setting up one additional PDC machine, pressure die-casting machine of 850 tonnes. Existing, we have -- we are increasing our die-casting capacity.
We have apart from that, the new product development, which are happening, it accounted about INR 270 million of capital expenditure. We had capacity expansion for certain child parts of the CEPS, warm shop, warm housing, intermediate shop, accounting for about INR 270 million.
One additional activity, which was a different type of activity, is that replacing our diesel generator set with PNG. Environment point of view, yes, and because there have been several environment regulations which were troubling us. So we have replaced all of our diesel generators with PNG generators, costed us about INR 85 million.
Design and protocol, prototype center, which is continuously spending money every year to improve our technical capability, INR 44 million was spent. And then maintenance CapEx like procurement of dyes, et cetera, that was about INR 460 million.
And MS Gear, which we reported last time, the new line, which is under setting up, we spent about INR 124 million. So this was -- as if you will understand from my explanation is that most of the money is going into future capacity building. So that's where most of the money has gone.
So at present, while we are working on the third CEPS line, whereby we will be increasing our capacity from 10 lakhs units to about 15 lakh units. And we are working on our sixth manual gear line, which would increase our capacity from 23 lakhs to about 27.5 lakhs, around 4.5 lakhs more.
The capital expenditure on this will be upward of around INR 1,200 million. So this is one major capital expenditure, which we are planning in the current financial year. You must have seen our stock exchange reporting in December '23 and February '24, setting up two new MS Gear lines. And also April '24, we announced setting up one more CVJ line. There will be some capital expenditures, which we will start doing in the current financial year, but it may flow to the next financial year as well.
Coming to how we are going to fund these capital expenditures. The cash generation for the current financial year was about INR 1,870 million. And this was sufficient to meet our capital expenditure requirement of INR 1,700 million, plus dividend payout of INR 179 million.
There was a small increase in borrowings, about INR 500 million, and that was mainly towards funding our working capital due to increase in business. We have a corporate guarantee from our parent company available, JTEKT Corporation Japan. And therefore, the company has gotten access to very low cost funding for our future capital expansion.
So we are gearing up, and there will be additional capacity expansion, which will keep on happening, and we'll keep on reporting at our regular investor call as well as stock exchange reporting.
If you have any other specific questions, you can ask, please.
One last question, Rajiv. If you can also touch upon how you are seeing the exports. You have also notified to the exchange about one export order win. So how the export trajectory is likely to be continue over the next two, three years? And as well as any chances of any new product introduction from your current bucket to India? Any talks are happening in that direction?
So on the exports, I think at our last investor call, we reported that our discussion with our group entity in Brazil are in final stages. And we hope you have noticed our stock exchange reporting on 11th December 2023 about receipt of final purchase order from JTEKT Brasil for supply of steering components. JTEKT Brasil is a group entity of JTEKT Corporation Japan, which is our holding company.
So the total at the start, the volume will be around 1.14 lakh units, and this will get us an additional sales value of INR 450 million. Total value of the order actually depends on the final customer demand. However, as per our current estimate, this will be in excess of INR 1,800 million.
This will be our first success in our efforts that we have been making for the last two years. So we are very happy to announce that. SOP of this business is some time in 2025-'26. After this SOP, the percentage of our export sales will increase from our current 4% to about 6%.
And another thing, the effort which we are doing in respect of increasing our exports is our customers in the U.S., they are very stable, and there has been a gradual increase. There are two main customers in U.S., which is E-Z-GO and Club Car.
Just to quote you a few numbers, in respect of E-Z-GO, where we export rack and pinion manual gear and column assembly, the total value of export was INR 561 million in 2023-'24, which when we compare with the total value of INR 475 million last year, it shows a growth of 18%.
Similarly, for Club Car, where we supply steering gear, the total value of export was INR 274 million compared to INR 230 million in the previous year, showing an increase of 19%. So we are very, very aggressive with our existing customer as well as we are trying to find out more opportunities for exporting.
We are working with E-Z-GO for their new model also. It's a Liberty golf cart model, SOP is in the current month. And this will give us additional volume of small 10 million. But yes, we are continuing with these entities to win sell more models for export purpose.
So we are looking at it as this is first opportunity which has crystalized. We'll keep looking at export of component, export of steering gear in future as well, and we'll keep on reporting back to you.
And on new product introduction?
Yes. So we need to wait. We need to stabilize things in India. There are opportunities available. I will not shy away to say that there are more opportunities are not available. There are opportunity available for bringing in more product. There are opportunity available for exports of component. Many, many opportunities are available. We'll keep sharing that.
At this point of time, we do not have anything to share because that's not in the public domain, so we can't share at this point of time. But yes, we just can say there are opportunities available.
[Operator Instructions] Our next question is from the line of [ Tushar ] from Peace Wealth.
My first question is what is the revenue mix that we have from different OEMs as of Q4? And how can this number look like, say, two years out, if we consider the current pipeline of vehicles that are coming in from different OEMs, be it Toyota or Renault Nissan Group, and as well as on the export side. So just to understand some color on it. So that is my first question.
Okay. So just to give you a breakup for the financial year '24, Maruti Suzuki is 54%, Toyota is 12%, Honda is 8%, Mahindra & Mahindra 9%. Renault is 3%, Tata 2%, exports 4%, and the rest is aftermarket and other small products. So going forward, I think, as I said, export, we expect to increase from 4% to 6%.
We are working with several new models of Maruti and Honda. And we expect that, that business will increase. But we do not expect a major kind of a shift in our share of business of the different OEMs. We are working with almost all the OEMs for their new developments. And we hope that the share of business may be a little bit changed, but not significantly.
Okay. And sir, like we get almost 100% business of Toyota, 90% of Honda, if I recall these numbers correctly. So what is that number for Renault right now?
Renault Nissan is less. That's not -- if you look at the total figures, it's split between Mando and us. So that's not 100% with us.
Okay. And sir, what is the current utilization of all three segments, which is CEPS, MS Gear and CVJ, at present?
Current utilization on a two-shift basis for both MS Gear and CEPS is upward of 90%.
At present you're saying, right?
We are -- therefore, we are expanding. We will have -- we are planning -- we have already planned our new CEPS line as well as new MS Gear line and the activities are in progress.
Okay. And one last question, sir.
Please.
So yes, I mean, under Driveline, we had introduced CVJ. So I just wanted to understand from JTEKT Corp side, so I mean, how many products that we have under Driveline for JTEKT Corp? I'm not asking you what we can add from them, but just to understand how big this business is from the Driveline perspective.
So I can give you the numbers, some numbers on the CVJ, but I will not be able to share the total. Like steering, we got a complete system, which we are supplying to our OEMs. Driveline, we are supplying certain products of the Driveline combination, but we are not supplying Driveline as a system at this point of time. There are other products also which form part of Driveline, which we are not manufacturing.
Coming to CVJ, if you look at -- I think this will be some good numbers, which I would like to share with you. The current value of CVJ supply -- as I said, there's two units which are supplied as one for one particular car. And the current price is around INR 5,600, which we are supplying. And there is a possibility as we have an improved technology, the price can go up to INR 7,500 also.
So when you look at that, when you try to compare content per car, if we look at CEPS, which we are supplying and we take some kind of an average number for that, though the value will change model to model, we take 12,000 as a number and we take CVJ as 6,000 as an average number, which means that we are going to increase content per car by as much as 50%.
So it's a major change which has happened and this will open up a big opportunity for us. There is a competition involved. But the way we have started, we are just about 5% of the market at about current capacity. And we will -- like as we'll be doubling our capacity, we have aspiration to increase this business because this will help us to improve content per car in a big way.
So these are the activity which we're doing and we'll keep sharing with you. Other than that, there are products available in the Driveline segment. We are now a supplier of complete system of Driveline. Yes, I agree with that. But as we will have more opportunities open up for the Indian market, we'll keep reporting back to you.
Okay. And if I may just squeeze in one more question, sir. Can you please -- is it possible for you to name all the models that we are serving to for all the OEMs, major ones?
You mean to say Maruti Suzuki, for how many models we are supplying?
Yes, which models for Maruti and Mahindra & Mahindra, like that.
That's a huge list, my dear. Can you call me separately? For example, if I start counting all the orders, it will be...
I'll write to your IR. Yes, I really appreciate, sir. And all the best.
Runs into many sheets actually.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management of JTEKT India Limited for closing comments.
I'd like to thank you again everyone for joining on this call. I hope we have been able to respond to your all questions adequately. We really are positive about growth in automotive sector, and we'll continue with our best effort to expand to meet the industrial requirements.
Thank you very much. Stay safe, stay healthy, and thank you once again for joining us today.
Thank you. On behalf of JTEKT India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.