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Subros Ltd
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Ladies and gentlemen, I'm Prateka, moderator for the conference call. We welcome you all to Q1 FY '23 Conference Call of Subros Limited, hosted by Aditya Birla Money. [Operator Instructions] Please note that this conference is recorded.
I would now like to hand over the floor to Mr. Vidrum Mehta of Aditya Birla Money. Thank you, and over to you, sir.
Thank you, and good morning, everyone. On behalf of Aditya Birla Money, we welcome you all to Q1 FY '23 Earnings Conference Call of Subros. From the management side, we have Mr. Parmod Kumar Duggal, CEO; Mr. Hemant Kumar Agarwal, CFO and VP Finance; Mr. Sukhbinder Singh Gill, who is an AVP Finance; and Mr. Shiv Ram Singh, who is Company Secretary.
Before we start, may I remind you of safe harbor there may be some forward-looking statements that have to be understood in conjunction with uncertainty and the risk that company faces.
Now I'll hand over the call to the management for opening remarks followed by interactive Q&A session. Thank you, and over to you, Duggal sir.
Okay. So good morning, ladies and gentlemen, and a warm welcome to all of you to Subros' investor call for quarter 1 FY '22, '23. The financial year '22, '23 has started with a positive note as overall market scenario is improving. The market is showing sharp recovery and order booking at the OEM and is also very high. Passenger Vehicle industry has grown by 33% on production basis in quarter 1 of FY '22, '23. and commercial vehicle truck industry has grown by more than 100% during the quarter, though the base for the last year was low due to the COVID impact.
With the demand still beyond in passenger vehicle segment, amid changes and regulatory pressures are still prevailing. Many auto mobile manufacturers are upbeat to embrace new technologies, especially in the electric mobility space, which is expected to witness a slew of launch in both 4-wheeler and 2-wheeler segments.
Supply chain challenges continue to persist. While on the one hand, we have a sharp revival of demand. On the other hand, the high commodity prices, semiconductors and crunches have exhibited the problem for auto mobile manufacturer, which is causing a major concern for industry per se and same as for the auto component suppliers as well.
So during the quarter, we see some ease out in terms of commodity fluctuation. But rupee weakening is continued to be an economic risk, which is impacting the imports being costlier, especially in dollars. The results of quarter 1, '22, '23 has been shared with the stock exchange and also posted on our website.
Now let me elaborate the summary of results one by one. First, I'll update about the industry's relevant part of our business. In this quarter, the passenger vehicle industry has shown growth of 33% on a production basis in comparison with the corresponding quarter of the last year whereas Subros PV segment thermal business in quarter 1 has grown by 40% in comparison of corresponding quarter, of last year. So we have done better than the industry performance due to model mix and SOP of new projects in quarter 1. Commercial vehicle bus has registered 182% growth during the year whereas Subros' growth in this area is 25% in comparison with the last corresponding quarter. Tourism sector, school bus business and public transport has started now becoming operational but AC fitment ratio is yet to be improved.
On commercial vehicle truck segment for N2, N3 category, which is relevant for AC blower and AC segment for our business has shown upside run after 2 years. The industry has grown by 105% in quarter 1 as compared to the corresponding quarter of the last year and Subros growth in this area is 150% in the segments during the quarter.
Growth mainly is because of more AC fitment ratio, which has improved from 18% to now 25%. Consumer preference is shifting towards AC truck as compared to normal truck because the owners, fleet owners see some economic value by having AC trucks by using more mileage in this.
This year, big impact of environment change has been seen in various parts of the country, impacting home appliance sales. This sector is showing promising growth now and in this quarter, home electronic sale has grown by 142% as compared to corresponding quarter of the last year. Total sales of this segment in this quarter so far is INR 69 crores.
Revenue from operation has been recorded at INR 708.53 crores in this quarter, corresponding quarter, it was INR 480.45 crores. But in the last previous year, this quarter, there was a lockdown in the month of May, which has impact of almost 22 days sale loss at that time.
Overall, there is a growth of 47% over corresponding quarter of the last year.
Now let me explain each segment-wise contribution to sales during the quarter. In this quarter, car and non-car segment contribution ratio has improved to 76% and 24%, respectively. So in the non-car segment, where we were almost 18% to 19%, now it has improved to 24% contribution overall. Maruti Suzuki and Suzuki Gujarat has contributed 75% of total sales during the quarter as against 82% in the corresponding quarter.
Our sales of business in passenger vehicle AC market is maintained at 40% in this quarter, and the share of business in truck segment is 51%. And in bus segment, it is 25%.
Now I'll talk about operational performance. New development of China lockdown during the quarter 1 due to the COVID outbreak in China has significantly increased the lead time of import shipments and subsequent fluctuation of schedules by the OEM due to the semiconductor availability for a shorter period has impacted our overall inventory levels and which has been around 15% to 20% increase in our overall inventory levels during this period.
We have been continuously reporting that commodity price fluctuations during last 6 months has impacted substantially on the material sales ratio. So far, the trends were upside. And even with a quarter like compensation, it was not supporting MSR ratio because every quarter, there was increase recorded.
Now since we see some ease out on the overall trend, maybe in next 2 quarters, we will see some benefits coming into our material sales ratio and same as on the EBITDA level.
Company has realized EBITDA of INR 45.35 crore in quarter 1 of '22, '23, and if we see this EBITDA with the corresponding quarter of the last year, it has improved by 44%. And if we compare this by the previous quarter of last year, then it is down by 9%. Profit before tax in quarter 1 for FY '22, '23 is 17.38%, which is 2.46% of the net sales. Same way if we compare this profit margin as against the corresponding quarter of the last year, it has improved by 250%. And if we compare this with the last quarter 4 -- last year quarter 4, it is down by 18%. Profit after tax in quarter 1 is INR 11.43 crores, which is 1.62% of the net sales.
So finally, to conclude the summary of the financial results. Overall revenue, INR 708.53 crore, which is 47% growth over the corresponding period. EBITDA level Of INR 45.35 crores, which is 43% growth as against corresponding period. PBT of INR 17.38 crores, which is 250% growth against corresponding period and PAT level of 11.43% -- INR 11.43 crores, which is 267% growth against corresponding period.
A few updates about the business. The market is showing sharp recoveries, as I already mentioned, not only in passenger vehicle, but bus segment and truck segment is also showing very promising growth trend now. We, at the start of the year, have indicated a projection of double-digit growth during this year. And in quarter 1, we have shown a growth of 47%, though it is not completely comparable because of the lockdown period available in the corresponding period. But we see this is a more realistic projection that we continue to say that we will have a double-digit growth during this year.
On the new business side, the mobility landscape is fundamentally transforming in the next 10 to 15 years. So autonomous driving connected cars, electrified cars are going to contribute to the industry. The business side in the rail force is progressing fine now. We already got the approvals from RDSO. Now we are eligible for 4 shares on tenders for future for commercialization. And also for development activities for all future programs where the business is already committed is also progressing very fine as per the customer milestone.
In addition to that, Chennai plant has started supplying for Toyota Bangalore production, which is on behalf of Maruti Suzuki from this month, that is from the month of August. The supplies have already started as a first pilot lot and rest of it will be, I think, within the next 10 to 15 days time only.
Also, the new Brezza production also started at Maruti, where we started SOP in May '22. And in this business, we have compression business as Delta which was not there with us before. So that means there will be incremental revenue coming in from this new SOP.
That's all from my side. Thank you very much, and now we are open for questions.
[Operator Instructions] First question comes from Aashin Modi from Equirus Capital.
Sir, we have mentioned that this quarter, there was a sequential decline in gross margin due to the revenue mix. So which were the sector -- which were the businesses which impacted the margin adversely? And what sort of a margin -- I mean, profile we had in different businesses?
So gross margin, as I mentioned, has declined as against the last year. But if you see from the corresponding period, it has gone up. So major contribution of gross margin dip is mainly because of home AC sales, which has increased in this particular quarter because of the seasonal impact which may not be there in the full year, but there would be a gradual impact coming in from there. The major contribution mainly from the home air con.
Okay. And sir, going forward, since most of our imports are in yen, we would have a benefit of yen depreciation. So what sort of impact would that have on your margins going forward?
So since foreign exchange to the large extent is compensated by the customer. So both upside and downside trends will be adjusted in the pricing as per the formula exists between various customers. So when yen is costlier or cheaper, both sides adjustment will be factored in, but only gain can be to the extent of 1 quarter usage.
Okay. So we don't have a large gain in next quarter?
No.
Okay. Okay. And sir, my last question was on the share of business side. So you said that our share of business is in bus is 25%. So I mean who are our major customers? And yes, who are your major customers, sir?
So we are supplying to Force Motors. We are the largest supplier to Force Motors called bus air con. We are also supplying to Volvo Asia, Daimler and also to the aftermarket. That's what it is.
So any addition that is possible in this?
Yes, there are possibilities. So we are now expanding this customer base. And as we are moving more aggressively into the EV space. So the large OEMs who are now launching the large buses for state transport in PV side, so our engagement is on now to aggressively push the market in that area.
So do we see any order coming for that?
Not exactly right now because still the specifications are at the final stage because EV is at a very initial stage in India and every OEM is just trying to figure out the best possible combination of these products going forward. So still, I think we will wait for another quarter or so or from order booking on this.
[Operator Instructions] We are having a question from Abhishek Jain from Dolat Capital.
Sir, if you see the past trend of well addition growth...
Abhishek your voice is very low. Can you be louder place?
Okay. So sir, if we see the past trend of the realizing growth per return, it is quite low versus increasing RM costs. It can also be seen in the last 8 quarters gross margin. That shows a significant under-recovery on RM costs that we saw in the ADS and Bangalore factory. So now prices of commodity is on downstream. Can you expect gross margin has strengthened in the coming quarter?
Yes. Abhishek, as I mentioned in my remarks that so far in 8 quarters, each quarter was showing on the upside. So whatever compensation we were getting in a quarter, again, the actual consumption or the next quarter was on the upside. So the trend was always impacting the gross margin. Since now the recovery started, we see next 2 to 3 quarters when there will be ease out, and we need not to pass on immediately to the OEM, it would be in the subsequent quarter. We see some contribution coming to the gross margin. So we are very hopeful now that margins will start improving.
So I think past 8 quarters, we have lost around 500 bps to 600 bps this gross margin. So can we expect around 200 bps to 300 bps expansion at the gross margin in the coming quarter?
I will not be very specific with the numbers, but I can only say that there would be positive growth in that. I will not be specifying exactly 1%, 2%, 3%. But yes, there will be a better result out of that.
Okay. Sir, in initial comments, you had told that you had a negative impact on the rupee depreciation. But now you are saying that you are able to pass it on to the client. So there's a little bit confusion, can you throw a little bit light there?
So when we say that there was an impact of rupee depreciation because that was to the overall industry, not specifically to the Subros because imports getting costlier finally impacting on the selling price to the customer. And finally, it will impact the overall price of the car, which has to be increased and the market will start in competitive environment. But to us, rupee becoming -- foreign exchange becoming costlier will, impact, to the extent that the compensation will be to the extent of cost. It will not have markup there.
So if INR 100 is the impact, we'll get INR 100 in the selling price. So whereas MSR if at all is 72% to 28% markup will not be there. So that's how the impact will be on gross margin in percentage terms. So that was the comment made in the AGM. And we see when there would be eased out and the reduction will happen also in the same session, the percentage will improve in the future.
Okay, sir. And sir, as there is a fast premiumization trend can be seen in the passenger vehicles. Sale of LTVs has gone up to the 45%. And Maruti is also focused on the mid SUV segment. So how much increase in content per vehicle we can expect in the passenger vehicle SUV segment?
Your question, can you repeat? Your voice is quite low. If you'll be louder and clear on your question, it would be helpful for me. You mentioned about SUV.
Yes, sir. So the Maruti is now more focused on the SUV segment. SUV sales have gone up to the 45% in industry. So how much increase in content per vehicle we can expect in the back of the vehicle SUV segment?
So for us a thermal product, SUV or non-SUV but if it is like a sedan, impact of contribution will not be significantly different because condenser is condenser, compressor is compressor in both the cases. But in SUV, as I mentioned that this new Brezza, where we have an incremental scope of business where compressor was not there with us, and now compressor will come with us. So annually INR 70 crores to INR 80 crores Delta business, which we have secured will start helping us in improving there. So definitely, more sale of Brezza definitely will have a more sales, incremental sales to Subros.
Okay. And you have also started supply to the Bangalore plant alliance with the Maruti and Toyota. And you are supplying all parts like HVAC, compressors, radiators including the condenser. So how much will the content be sir?
Roughly, it would be INR 180 crores to INR 200 crores per year is the Delta business, which we got through this new business alliance of Toyota and Suzuki. .
So sir, content per vehicle right now, it's around INR 13,000. So how much increase can we see in this plant?
So you're talking about the -- okay, you're talking about the overall content per vehicle. That...
Yes.
That where you are calculating INR 13,000? It will increase. It can increase to the extent of 8% to 10%.
8% to 10%. Okay, sir. And next question is related in the home ac segment. So the backward integration would be the only solution for the margins in air con sir?. And you are also in discussion with the few technology providers. So can you throw some light on the progress now?
So till the discussions are on, we are not able to conclude anything concrete here because right now, there are a lot of differential focus, which is happening because of the PLI scheme, which OEMs or the brands have already committed to the government and the investment plans are in the final shape now for implementation. So still discussions are on. But as you said directly, the backward integration is the only solution here to improve margins in Home ac -- air con. Business, definitely is there, top line growth can happen anytime. But always, there will be stress on the margin statement. So that's why this action is important.
What is your revenue target for the home ac segment for FY '23 and '24?
FY '23, '24, since as I mentioned, quarter 1, we have already done roughly INR 70 crores, INR 69 crores precisely. So we'll be able to do around INR 130 crores, INR 140 crores in this year.
In last quarter, you had mentioned that you will do around INR 180 crores kind of the number in this. And you had also had capacity of around...
I'm sorry to interrupt. Abhishek, sir, could you please be louder. Your voice is feeble.
So sir, in the last quarter, you had a mention around that you will do around INR 180 crores. You are able to do around INR 250 crores to INR 300 crores. So why you are slow in this segment?
Yes. So Abhishek, as I mentioned just now that the revenue, you can increase to any number, INR 180 crores, INR 250 crores, INR 300 crores is not a problem in this space. But as long as you are able to compromise on the margin statements. So since these businesses are at very high MSR and the gross margins are not comparable to our other segment margins. So we are not willing to sacrifice margins substantially. That's why in the increasing trend market where the fluctuations are very high, extraordinary high, we want to go slow as of now. But of course, there is no compromise on the overall revenue potential that we can realize any time.
Okay. And my last question is related with your capacity utilization, it is around 85% to 90% now. And as we are looking at industry growth of 15% to 20% for FY '23. So can we expect further CapEx of around INR 200 crores or INR 300 crores?
No. Reason being that for this year, FY '22, '23, our CapEx is already been tied up and the capacities are either available or at the final stage of availability. So for this year, we don't see any big thing which is coming on. And if we take a sustainable industry growth target between 6% to 8% in the next 4 to 5 years. So only the incremental investment would be there and which is already every time we say that between INR 70 crores or INR 90 crores is our regular CapEx which we are doing, that is majorly for the debottlenecking of machines which are impacting overall capacities. INR 200 crores, INR 300 crores requirement is there when there is a greenfield project, and we have no plans for expansion of any greenfield -- new projects as of now. So, we will concentrate on this level of investment per year only. It would be less than INR 100 crores for next 2 to 3 years, but it will -- may not be crossing beyond.
But your maintenance CapEx is already INR 40 crores to INR 50 crores, and you were talking about the INR 70 crores to INR 100 crores kind of a CapEx only. Don't you think that it is a lower number, sir?
No, it is not. Because as I mentioned, we are not investing into full lines. There are certain machines where the capacities are already available. So for debottlenecking, we don't need a big investment. So the CapEx would be in this range only.
[Operator Instructions] We are having a question from [ Vaibhav ] Gupta from Bowhead India Fund.
I want to understand how would our realization vary in the strong hybrid variant of Grand Vitara?
So in strong hybrid, the differential in thermal products is the radiator and the compressor. So radiator is a high-efficiency radiator, which is costlier by around 10% to 15% from a conventional radiator. Electric compressor is required for hybrid, which -- where we don't have business in Grand Vitara for that particular portion. For other model of Vitara, which is why we have the business not for the electric.
Okay, sir. So like 40% to 50% bookings have been for the hybrid -- strong hybrid variant. So we won't be present there. Is that understanding correct?
No, no. We will be present other than compressor.
Other than compressor. Okay. And realization of compressor is around INR 6,000, INR 7,000?
No, it would be roughly INR 4,000 to INR 4,500.
INR 4,000 to INR 4,500. Okay. And sir, for the Mahindra Scorpio and the XUV700, so which parts are we supplying there? And what is the kit value?
So kit value for Mahindra's new launch for XUV700, it is only the pipes, which we are supplying, so it will be roughly around under INR 1,500 to around INR 2,000 number. And for Scorpio, it would be roughly around INR 4,500.
And what is the part for Scorpio?
That is the HVAC part.
HVAC part. Okay, sir. And sir, Mahindra is also going to unveil an electric car on 15 August. Would we be EV present there?
This is a proto car as of now or maybe the initial launch, but the main platform, which are planned for future discussions are still on to finalize the step.
[Operator Instructions] We are having a follow-up question from Abhishek Jain from Dolat Capital.
Sir, now late time of import shipment started to go down, it has to improve your working capital...
Abhishek your voice is low. I'm sorry, there is some...
Sir, now lead time of import shipments started to go down, we help to improve your working capital situation?
Yes. That is true, as I mentioned, that since there was a threat of lockdowns and the lead times were also very high despite even the continuous availability was a challenge. So that's why we were posed to have a higher inventory level to mitigate that risk. But if overall lead times start improving and we are able to get the material in the previous time within 21 days selling time, so definitely, inventory levels will be at the normal situation. So that will ease out the working capital requirements.
Sir, what is your late date at right now, including parts of the loan term?
Hemant, can you answer, please?
Yes. Short-term loan is miss, there's no loan. On long term, it is INR 21 crores as on first quarter end.
So your total late date is only INR 21 crore?
Pardon?
Your late date is only INR 21 crores, right?
Only. Only INR 21 crores. Yes.
Okay. And my last question is regarding the inventory situation. How is the inventory situation for the [ waiting list ] a normal -- it is on a normal level or at a higher level?
Inventory as of now is at a higher level, which will be reduced in the next 4 to 5 months. So we have a stock because of the global situation that delayed container arrival and the China issue. So we have kept some safety stocks at our stores.
Okay. And last question is related to book keeping. What was the revenue from the passenger vehicle air con, radiator and bus and truck ?
Now over to you Duggal sir.
So the radiator sales during this quarter is around INR 82 crores. And if we exclude radiator comp, INR 708 crores, so that is remaining is non radiator, thermal AC business.
And in bus and truck segment, how much was revenue?
For each segment?
Bus and truck, sir.
Bus. Okay. So buses is INR 10 crores in this quarter, and the truck is INR 24 crores.
[Operator Instructions] There are no further questions. Now I hand over the floor to the management for the closing comments.
Thank you. So we have already covered the most part in our initial comments as well as while replying the questions, we have tried to address that over our industry scenarios. So no more comments from our side.
Ladies and gentlemen, on behalf of Aditya Birla Money, this concludes your conference call for today. Thank you for your participation and for using [ Dosaba's ] conference call service. You may disconnect your lines now. Thank you, and have a pleasant day.