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Sandhar Technologies Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Sandhar Technologies hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nikhil Kale from Axis Capital Limited. Thank you, and over to you, sir.
Thank you, Jacob. Good morning, everyone, and welcome to the results conference call of Sandhar Technologies. Apologies for the delay in starting the conference due to some technical issues. From the management team today, we have with us Mr. Jayant Davar, Co-Chairman and Managing Director; Mr. Yashpal Jain, CFO; and we also have Mr. Narender Dogra from the finance team.I will now hand over the call to Mr. Davar for his opening remarks, post which we can have the Q&A. Over to you, Mr. Davar.
Thank you, Nikhil, and thank you, Jacob, for organizing this, and thank you to all the participants in this call today. Let me begin by wishing you all a very good morning and hopefully, a good winter. Where the industry is concerned, we have a mixed bag. You are aware that 2-wheelers are a little slow right now in their uptick. The 4-wheelers are suffering on account of non-availability of semiconductors. The commercial vehicle market is kind of balanced and stable right now, so are tractors. The one area that is growing very rapidly is the construction equipment.So that's largely the play in the automotive industry as we like to look at it. Where Sandhar is concerned, I'm happy to purvey to you, as you've already probably seen the results that we have put up a strong performance in the first half of the year, despite the slowdown or the closure that happened for 2 months of the year. So if I look at your numbers, our revenue for the first half of the year are about INR 1,032 crores, which is up 63%. EBITDA is 107% up at INR 95 crores. Our cash profit is up [ INR 106 crores ], and cash EPS, not annualized, is INR 12.53. So that's where we are. I'm just going to leave it there and then leave it to questions and response, which may cover most of the items that you would want to know.I'm also very happy to announce that in line with the movement toward electrical vehicles. Sandhar has been active. And our revenues from the electrical vehicle areas are in tandem or in fact, ahead of the line of the entire electrical industry in India. So I'm going to leave it there and then ask you for your questions and plan this call in the best possible manner.
[Operator Instructions] The first question is from the line of Abhishek Jain from Dolat Capital.
First of all, congrats with the decent set of numbers in tough time. Sir, my first question is related with your CapEx plan. As you are putting around 5 to 6 plants in the next 2 years, so just wanted to know how much CapEx you have incurred and how much incremental revenue will come.
Okay. Thank you, Abhishek, for that question. Yes, I'm very happy to see that in these times, which are looking weak, Sandhar, as your company, continues to see the light at the tunnel. In terms of our new investments, which are fresh investments, and I'm not talking about new revenues that will be built on organic or other growth, but like you said, we are building 5 plants as we speak. The total investment in the next 3 years is likely to be in the tune of about INR 300-odd crores, which will deliver a revenue of INR 761 crores is our calculation. This will be spread. If you look at it on an annual perspective, most of this investment will come in the form of this current year and graduate to almost 0 levels in the next 3 years.The good news is that most of this is mature investment. So almost 80% and 90% of the revenue will start from the first full year of operations with that. So like I said, the investment is likely to be in the region of -- so the total investment actually is about INR 300-odd crores. There are some incentives that have been built in. With this, we will look at asset terms of about 2.3x to 2.5x.
So sir, can you expect that the future CapEx would be around INR 200 crores to INR 250 crores and a reflection of this CapEx would be seen on from then FY '23 onwards of adding around INR 500 crores to INR 600 crores of revenue?
So the new -- so I will give you the details. We will spend close to about, like you said, INR 250 crores in this current year, which will give us a revenue of something to the tune of INR 570 additional crores in the next year itself. This is [ '20 to 23' ]. In this year, because it's going to be graduated and most of this is going to come online starting from December until March, but it's slow, we will do INR 28 crores of revenue – INR 28 crores to INR 30 crores of revenue this year, but all INR 560 crores to INR 570 crores of which will come in the next year.
Okay, sir. And sir, most of the CapEx are towards the sheet metal business. So -- and the current run rate of the sheet metal is around INR 87 crores on a quarterly basis.
A little louder, please. Sorry.
Sir, most of the CapEx is towards the sheet metal business and the current run rate is around INR 87 crores on a quarterly basis. Can we assume that it will move up to the INR 130 crores, INR 140 crores in the coming quarter?
Absolutely. Absolutely. That's what we're looking at. So from the month of December onwards, we will start adding about INR 6 crores to INR 7 crores in -- from plant 1 and then plant 2, plant 3, plant 4. That's the basis on which we are looking at. The next year, we will be ramping it up to about INR 50 crores a month additionally to what we are doing.
And all these incremental revenues coming from the [indiscernible] and TVS or from the other peers...
It's coming -- yes, it is coming from [indiscernible], it is coming from Hero. We are putting up one new plant for Hero in Halol. That's a part of these new projects. There is Nalagarh. There is Hosur. There is Mysore. These are typically for TVS. So in all, it is coming from TVS, Hero and [indiscernible].
Okay. My next question is related with the aluminum casting business, which we have seen in numbers in this quarter, and the quarterly run rate has gone up to the INR 1.4 billion. So can we assume that these numbers will be sustainable? And just wanted to know that what are the new products have you added, which is giving boost to your revenue?
Okay. So this business is not only sustainable, this is growing business. So as we speak in the last call, I had told you that we have got a lot of additional business from [indiscernible] as well and from TVS as well as from DENSO. Now these are being developed as we speak in terms of tools and molds. And every month, there is an incremental number that will keep growing up in the aluminum industry business.
So what is the product-wise revenue mix, I mean, the 2-wheelers, 4-wheelers in aluminum casting. And have you won some new business from the 4-wheeler set?
Yes. So at this point of time, if I was to break it up, our 2-wheeler business constitutes 55% of our business. 4-wheelers is 24%. The construction business and tractors is 16% and others are 5%.
Sir, I was asking questions on the aluminum casting. So just wanted to know, product wise revenue contribution, 2-wheeler versus 4-wheeler.
So product-wise, revenue share is at this point of time, 23% is ADC, which is aluminum die casting, then there's locking system at around 20%. Sheet metal is about 14%, 15%. Cabin is about 13%. Assemblies are 9%. The mirrors are about 9% and the balance is others.
Sir, my last question is related with the cabin and fabrication business. You have won certain new business in India and overseas. So just wanted to know that what is the outlook ahead for margin and revenue both, cabin and fabrication.
Yes. So cabin and fabrication business is growing quite rapidly. At this point of time, we have reached a run rate of almost INR 40 crores a month. And typically, the last quarter is, of course, the strongest quarter. The market seems to be doing extremely well. And we are very fortunate to have won new contracts in this space, especially in the space of excavators. Now, we are supplying to almost every excavator in the country, and we believe that excavators is the fastest-growing module along with others. So we are very, very bullish with this business. If you remember, last year, we were making losses in some of the units. They are all now profitable as you see.
And what about the margins, sir? This business has a very low margin around 6% to 7%. What is the current margin?
That has been growing now. I think we've already upped it up by about 150 basis points to 200 basis points. As the revenues grow, obviously, this will grow. In the meantime, what has happened is because of the increase in commodity prices, while the absolute number of margin is growing, the percentage is having its effect because the raw material now constitutes a larger percentage.
[Operator Instructions] The next question is from the line of Sumesh Guleria from Green Portfolio.
First of all, congratulations on great numbers. Sir, question is with regard to the JV. So actually, we haven't seen much movement in the JV's financial performance over the years because when we read the news, it was very optimistic. But I think on Whetron, it was proposed like there will be INR 150 crores CapEx over the like 2, 3 years. But till now -- I guess, till the financial year '21, only INR 14 crores, INR 15 crores was showing in noncurrent assets. And in Daeshin also, we haven't seen any revenues in financial year '21. So any significant events happening currently in the JVs, like which we should be aware of something like that?
So Sumesh, just to answer that question, we have been very bullish on 3 of our joint ventures. Of course, Winnercom is now making profits, which is the one where we do shark fin antenna. The data cables have come to a breakeven level. The [ shark fin ] kind of slow right now because of the forward, there are many mandates of the government, which are still to be executed. However, the business of Honda has now been confirmed to us, and we will start supplying to them from the month of January. This is the rear parking sensor business where we will not only do gold for newer models, but there's running change is being done with our model starting January.But the 3 most important JVs for us, one was Amkin which was the helmet business. Unfortunately, because of COVID times and most of this business was supposed to be B2C, and the market's kind of closed, that did not get the revenue and the growth that we were expecting. However, like I said the last time, we have cleared the OEM for sectors of every 2-wheeler manufacturer. So we are the only ones who meet with the quality standards of every OEM and we've got orders now from everyone, that's point one.Point 2 is a big chunk of export orders have come to us. And therefore, we expect that when this starts also in January, the volumes there will jump up dramatically. So while in the current volume we've been running losses and losses were also expounded a bit on account of commodity price increases, we believe that in the next quarter, we will get a substantial relief from the losses and we will be on the way. So that is Amkin. That's point one.Point 2 was our joint venture where we do audio panels. This is in joint venture with a company called Jinyoung of Korea, where we set up a new plant in Chennai to supply with Hyundai and Kia. Again, because of differential of late launches and also on account of commodity prices, which delayed our negotiations with Hyundai in Korea, we continue to run losses. Those losses have now been brought into perspective and we do believe very strongly that those losses will continue to abate as we go forward.The third one is Kwangsung. Kwangsung is the one where we had [ tied up ] for the manufacture of sun visors and BOT films. BOT films have started production and billing from last month. The sun visor business, which was largely meant for export back to Korea and to the U.S. and Europe, that got delayed because of container shipments and dependency of Hyundai to field at India. At this point of time, if we start, logistics might create issues in shipping to different parts of the world. So that project got delayed. That project of [ CN7 ] has now been cleared, and our production will start off the sun visors in the month of February. So yes, there have been delays in the joint ventures, but we are as bullish as ever on this particular scenario.On Sandhar Daeshin, again, the models got delayed, and we used this opportunity, which was given by the government of India to bring down the taxes in new companies because Sandhar Daeshin has been incorporated earlier and there wasn't much work done, we decided to close that company as Sandhar Daeshin and opened a new one in the new tax regime. So that's where we are with the joint ventures as of today's events. And while losses have continued, we do believe that the next quarter will show up promise throughout the entire chain of the joint ventures that we have.
Sir, my next question is like what could be your expected revenue in like next 2 to 3 years from JV and as an absolute number and as a percentage of our overall revenue?
Well, we do believe, Sumesh, that our revenues from this will go up to almost INR 500 crores in 3 years. That's what we are looking at, number one. In terms of percentage, I would hazard a guess if you would ask. I would imagine that number to be somewhere in the region of about 10% of our overall revenue.
[Operator Instructions] The next question is from the line of Anish Jobalia from Banyan Capital.
Sir, one question I had on the ignition and the switching lock systems and you have a slide where you are winning more businesses from the electric vehicle players. So sir, what I would like to know is what are the trends over there, especially in this particular product? Is the requirement there for the keyless entry systems incrementally in this EV products? And do we have the capability around the same? So how should one expect the trends in this new segment of the vehicles?
Yes. Thank you, Anish. Very quickly, we are probably the ones in the front line of the business of immobilizers. Yes, you're absolutely correct that we are -- we've tied up with almost every key customer in the electric space for the supply of this particular product. There is a mixed bag. So some of the large volumes of players that you've heard of are looking towards not immobilizer kind of locks, but some other ones, for example, let me name. Let's say, Ather for example, is looking at immobilizer locks, and we are working with them. Overall, the other hand is looking at simpler locks on account of maybe reducing the cost because their cost numbers are high. It's a mixed bag, but suffice to say that in terms of capabilities, we are at the front end with us having 4 different levels of technology available in the immobilizer space, either with us directly from our own patented designs or from our partners in terms of whether it is Honda lock or whether it is Whetron or whether it is another foreign company that we work with.
Sir because your voice was a bit shaky, I mean, I was not able [Technical Difficulty] but you're seeing that the demand mix could be at a mechanical lock or it could be in the electronic lock?
Well, I would say mechanical is limited. It is electric, electronics and immobilizer kind of locks.
Okay. And we do have the technology for...
Absolutely. Like I said, 4 levels of technology. The only thing is there is a huge amount of price difference. Our traditional lock sells at about INR 300, INR 400. Immobilizer locks start at INR 1,600. So effectively, at some day, all vehicles, all 2-wheelers will have immobilizer locks. So that is a big play for Sandhar depending on when this starts to happen. And once it starts into higher models, it obviously comes down into lower models as well. So maybe we see this to be a 2-year, 3-year horizon where all of them will be in place. But -- so INR 1,600 is the start-up and the highest level of immobilizer or smart locks as we call them go up to INR 8,000.
Okay. And sir what is the...
Revenue benefit going forward.
Okay. So this will be a big center to our per vehicle right, as the transition happens?
In terms of even content per vehicle, we talk about sheet metal. Somebody asked about sheet metals. See, our content per vehicle, if you look at it, just for sheet metal. I'm not talking about the overall thing. Our current sheet metal for motorcycle, for example, over [ INR 655 ]. The new business that we've added adds around INR 3,772 per vehicle and the total from INR 655 can go up to INR 4,427 per vehicle. If I look at scooters, it goes up from INR 180 to almost INR 3,700. So there's a big jump in place. And that's just content per vehicle.
And sorry, I think because I was not able [Technical Difficulty]. You are saying that the content per vehicle is overall our content per vehicle right? Not...
No, no, I'm talking about sheet metal only. If I accounted locks and our other product line, our content per vehicle in motorcycles is grossing INR 12,000 per vehicle. Not everywhere, but in many cases. So it's a combination. Some could be INR 3,000, INR 4,000, INR 6,000, INR 8,000, INR 12,000 depending from model to model. But I'm just giving you a take as how this content per vehicle is growing. That's the story that Sandhar has always had, is to increase the content per vehicle.
Sir, the second question is around the aluminum die cast. [Technical Difficulty] probably provide some strategy or understanding of your strategy around this business. So are we targeting more of global or export markets? Or is it more domestic focused as it comes to [Technical Difficulty].
So you are aware that our business overseas is largely aluminum. And if you look at the business of let's say our overseas business to date, our overseas business is somewhere in the region, we expect that to be in the region of about INR 350-odd crores. So that's a large part of the business. That's all aluminum-based, which has been growing well. The EBITDA margins are in fact now higher than that of the Indian business. And with the new plant in Romania, those numbers will accentuate and grow even faster. However, the Indian business is also growing very rapidly in the aluminum space. This is a space that we got into in recent times. And like I said, today, if I look at it, ADC perhaps is the largest part of the business at 23% of our overall product-wise revenue share.
Sir, this business will also benefit from the China [Technical Difficulty].
Yes, absolutely. The plant in Romania is largely done on the substituted business that we have got from our customers who have decided to source it from us against what they were buying from China.
[Operator Instructions] The next question is from the line of Nikhil Kale from Axis Capital.
Sir, my question was on the overseas business, you kind of alluded to it in your previous remark. But can you just throw us some more color on what's driving growth in this business? Specifically, I think in the casting side, we have been focused on [indiscernible], but other plants maybe diversify and improve some lower components and what [Technical Difficulty].
Nikhil, you are aware that light weighting now is becoming a large part of the business, especially overseas in light of electric vehicles and so on and so forth, right? So traditionally, people have been going away from cast iron or sheet metal down to aluminum and in many cases, even magnesium. You are aware, we are also one of the frontrunners in the country doing magnesium business, but aluminum continues to be a pleasing scenario for the entire thing. We see a huge demand in this business going forward, not only overseas, but in India. We continue to not only upgrade our technology, but because of our supply lines, we have been a preferred supplier and many, many more companies are coming to us as OEMs in the new space as well as in the old space to build this new business. So we do expect that this business will continue to grow. And as I have been saying for years, the margins are growing. And we -- like I said, even this year, our margins in the international businesses are higher than those of our domestic business. And we see that this trend of increase of margins will continue in the overseas horizon.
Okay. Got it. And my second question was on the PLI scheme. Now I think just a couple of days back, the list of the advanced products and technologies which should be eligible for the PLI scheme have been announced. So how are you looking at this scheme? What other products -- are we manufacturing any of these products that can benefit from this? Or are there any plans to get into manufacturing some of these?
Yes. You are aware of some of our product lines that fall into this category. In terms of connected vehicles, in terms of EVs, in terms of safety devices. So you are aware that we do a lot of safety devices in these tools that we manufacture. And now there are other components that are going to go into it, our sensors business is something that falls completely in line with the list that has come out. Besides of this, not just parking sensors, but we've also got ready our tire pressure monitoring systems, which are again sensors. So in the current category that there are, we are already in the process on our supply, but I think there are 4 more categories which will align and meet with our plans for items that are ready and developed, which will fall into the PLI scheme, and we will start getting benefit of it as it is because, like you said, the list was notified only 3 days ago. We and our consultants are working on making a list as to what is the entire benefit that could accrue to us over the next 5 years. So to answer your question again incessantly, yes, it is going to be very beneficial for Sandhar going forward.
The next question is from the line of Abhishek Jain from Dolat Capital.
Sir, as investing moving from the normal locking system to the specialized locking, they will become like 3x to 4x higher. So how much growth are you looking in this business in the next 2 years?
Well, Abhishek, I cannot answer that question very clearly right now because it will depend on the adoption of the industry. You are aware at this point of time, as we said, some people have delayed plans on account of the slowdown that has happened in the industry, especially in the 2-wheeler space, I think the entry-level models have taken a back seat right now. So it is all about adoption. From our side, our products are ready to be rolled out. I know that the first set of rolling out is going to happen in the next year. But what is the speed of adoption is something that we will have to wait and see. That will be the OEMs who will decide. You will understand and appreciate that as soon as the first locks are rolled out, the second rung and the models below will also come in picture and also depends on which one takes the call first.So if one motorcycle manufacturer takes a call first, the others will follow very quickly. We know that when the adoption happens, it will happen very quickly. It's just a question of who's going to bell the cat and when it will happen. So it won't be possible for me to give you a structure of how fast this will happen and how quickly the benefits will accrue to us. But yes, we know that it is inevitable, it is going to happen. There could be a difference of 6 months or 1 year here or there. And once it happens, it will happens quickly, and it will mean a huge amount of revenue difference for us.
Sir, what is the difference in the content per vehicle for the EVs and IPs for the locking system?
The locking systems, our content per vehicle is the same, both for EVs and for the others.
Okay, sir. And sir, my last question is related with your investments in business in the Romania. So you are also getting some subsidies from the Romania government [indiscernible] this plant?
That's right. So we have got the first clearance from Romania. From what I understand, the incentive that has been given to us is to the tune of about INR 66-odd crores.
Okay. And in how many years you would be able to break it, INR 66 crores?
INR 66 crores over 4 years.
So most of the CapEx would be recovered?
Yes. So we would recover except maybe the land or whatever, but building and machines because they're going to be shifted in some new. We expect that almost 80% of this would get covered.
Sir, you're talking about the INR 2.5 billion to INR 3 billion CapEx for the -- most 2 to 3 years. So this CapEx is also included in that?
Yes. Everything is included in that. This is for the businesses, Abhishek, that we've already contracted for. Obviously, there are new businesses that come in as we go forward in the next 2 or 3 years, those would be additional CapEx for which I am not in the position to say because the businesses haven't been confirmed yet.
Thank you. As there are no further questions, I would now like to hand over the conference to the management for closing comments.
Okay. Thank you. Thank you, Nikhil, for putting this together. Thank you to all the participants for joining today. I hope that we've been able to clarify some of the questions that you had. In case there is anything else, feel free to write to us, and we will respond in more detail in any specific area that you might want to know or whatever is allowable under the act of the law, we'd be very happy to share that information. Like I said in the beginning, yes, the markets are a little slow, but it is right for us to remain in the way and feel as that the company continues its journey unabated and the investments that we've done in the past are coming to roost now, and we see the rate of growth to continuously grow despite how the markets are playing out. So that's where we are. I want to wish you all a very happy Diwali. I know it's gone by and the coming festive season and the New Year, God bless and take care.
Thank you. On behalf of Axis Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines.