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Subros Ltd
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Ladies and gentlemen, good day, and welcome to the Subros Limited Q4 FY '24 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Jayaraj from Batlivala & Karani Securities India Private Limited. Thank you and over to you, sir.
Thank you, [ Manuja ] Welcome to Subros Limited 4Q FY '24 Post Results Conference Call. From Subros Limited management, we have with us today Mr. Parmod Kumar Duggal, Chief Executive Officer; Mr. Hemant Kumar Agarwal, Chief Financial Officer and Vice President, Finance; and Mr. Sukhbinder Singh Gill, AVP Finance. I will hand over the call to Mr. Parmod Duggal for opening remarks, to be followed by question-and-answer session. Over to you, sir.
Thank you, Jayaraj. Good morning, ladies and gentlemen, and a warm welcome to all of you for Subros' investor call for quarter 4 FY '23/'24. The passenger vehicle industry reached a significant milestone in FY '24 by surpassing 4 million domestic sales for the first time. As a result, India upheld its position as the third largest PV market globally. The PV market experienced an 8.4% year-on-year growth in FY '24. Over the past 3 to 4 years, consumer preference has significantly shifted towards SUVs. This trend persisted in FY '24 and SUV accounting for more than 50% market share. A substantial portion of the growth is in PV market as driven by popularities of SUVs. Overall, in quarter 4 of FY '24, the Indian auto industry demonstrated a robust performance, marked by a strong recovery in sales across various segments. PV continued to be a lead in charge with notables driven by new model launches to increase customer demand.
The CV segment also shown a positive momentum, benefiting from the investment and heightened economic activities. Additionally, 2-wheeler segment witnessed a gradual rebound as rural market began to recover and improved semiconductor availability played a very crucial role in overall industry performance. PV bus market also is improving now because of tourism sector and public transport system improving. Industry has shown a growth of 37% on production basis in comparison with corresponding quarter of the last year, whereas Subros has registered a growth of 43% in comparison with the corresponding quarter of this last year. This is also due to the increased AC fitment ratio in buses.
Further in commercial vehicle, across category that is N2,N3 category, which is relevant for AC and blower. Industry has shown a degrowth of 5%, and this has reflected in Subros' performance also. Whereas on overall value terms, we have grown by 6% in this segment because of better AC fitment ratio, which is almost 6% in this quarter. In home AC space, we continue to be muted our efforts. The sales in the year is around INR 7 crores. Still, the market is not very positive to compensate the cost escalation, so we are going slow on this market. And we are watchful of market softening and price pressures coming out. And then again, we'll push our sales efforts very aggressively.
At Subros, in quarter 4 of FY '24, we have grown by 11%. And in the year, we have grown by 9%. This is very much aligned to the industry growth. The company has achieved a total revenue of INR 831 crores with a growth of 11% as compared to the corresponding quarter. Now the results of quarter 4, which have been shared with the stock exchange and also posted on our website. Let me elaborate the summary of results one by one.
The revenue from operation has been recorded as INR 831.51 crores in this quarter. And overall, there is a growth of 11%. In this quarter, car and non-car segment has contributed 94% and 6%, respectively. Maruti Suzuki and Suzuki Motor Gujarat has contributed 84% of our total sales during the quarter. Our share of business in passenger vehicle segment has improved by 3% during the year. And in truck segment, we continued to achieve 54% share of business. And in bus segment, we have secured a share of business of 17%. Now overall performance in operations. So last 2 years, we have been talking about the steep recovery of our operational performance. So company has realized EBITDA of INR 80.86 crores in quarter 4, which is 9.76% of the net sale as against EBITDA of INR 56.67 crores, which was 7.59% of the net sales in the corresponding quarter last year.
The improvement in EBITDA is by 43% as compared to last year -- last year quarter. And profit before tax in quarter 4, it is INR 45.30 crores, which is 5.47% of the net sales. PBT margin with the corresponding quarter of the last year has improved by 70%. Profit after tax in quarter 4 is INR 30.68 crores which is 3.70% of the net sales, and PAT margin has improved by 65%.
Now the results summary for the year. The revenue from operation is INR 3,070 crores, which is with a growth of 9%. EBITDA is INR 268 crores with a growth of 43%. And PBT is INR 140.70 crores with a growth of 98%. The PAT is INR 97.66 crores with a growth of 103%. Now on the business update, I'll mention that in quarter 4, performance has started improving, and registered a growth in EBITDA, PBT and PAT, mainly because of the increased sales. And we continue our effort in the future also to keep the double-digit growth of the company, factoring all the challenges and opportunities, which are visible as on today.
Profitability was a bit a challenge in the last 2 years. Now the service is on the upside, and we continue to sustain on that. And our efforts on aggressive cost reduction, both in fixed and variable cost has also resulted in positively. Localization efforts are also aggressively pursued, which is reflected already in annual comparison of metal sales ratio. Company is now debt free. There is no long-term borrowing on the books of accounts, and this will support cash generation more positively going forward. Based on the company's financial performance, the Board has recommended dividend of 90% subject to shareholder approval as against 65% during the last year.
On the new business and product development side, Subros is poised for a promising future, underpinned with the strategic initiative and strong commitment to innovation. We have expanded our product portfolio and enhanced our technological capabilities to meet the future technology transformation. Also focusing on sustainability and energy efficiencies is a guiding principle for product development as well as for operational sustenance. The company has tied up business on alternative fuel, thermal products, which are including CNG, hybrid, electric and other green mobility, which is almost contributing to 17% as of now. And going forward, it should be contributing around 20% of the total revenue.
Few new launches, which has already impacted are included in our financial performance. And going forward, in the next 2 to 3 years, it will have reflections more. Our initiative towards the product development for Tractor segment is progressing well. Tractor AC with Mahindra & Mahindra, new tractor OJA, M-star tractor for U.S. market. The production has already started. These tractors will be exported to Japan and U.S. market. And both -- we have both ECM as well as HVAC business for OJA tractor and HVAC system for M-star tractor. This will add to our growth journey in tractor space going forward.
Further, on product development for electric cars, the EV project of Mahindra & Mahindra, we are at final stage, including Maruti Suzuki for product evaluation, and the SOPs are planned in subsequent quarters. With the product development or pickup vehicle for Mahindra & Mahindra, which is our SOP stage, and few similar projects are in pipeline now in next 2 to 3 quarters, they will also be starting the production. Business engagement for truck aircon under the N2,N3 category, which is notified in last year August '23. We are at a very advanced stage of our final negotiation and product approvals for introducing AC [ system ] for these trucks. This notification is now effective from October '25, but probably the start of production will start happening a quarter before which are still in the pipeline.
Our effort on coach aircon kit development has completed all the approvals. And now we are at a delivery stage for the first tender, which we got last quarter. So this would be completed in this quarter and subsequent tenders are in pipeline to secure more business in railway space. So we have our priorities very clearly identified. The growth pattern is very clear to us. And now we are striving for this growth journey to take it to the next level. And also, we are committed for environmental and sustainability targets and company has set a target for carbon neutrality by 2040.
That's all from my side, and now we are ready to take questions.
[Operator Instructions]
The first question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.
Congratulations on a great set of numbers. Sir, my first question is in terms of the margins. You had indicated we are moving very quickly towards the 10% and the trajectory is what it is. I just wanted to understand what's driving this? Because in the last quarter, you mentioned we may have got certain one-offs in terms of cost corrections. But even sequentially, we have seen a margin growth. So if you could just help us understand what are the key drivers for this?
So there are 2 aspects, Arjun, on this margin improvement journey. So last year, because of a lot of cost pressures, we initiated our aggressive cost down -- reduction plan. Few of the projects completed in the second half, and few completed in last quarter. So there would be, in fact, now annualized impact in the next year. That is one aspect of that.
So far, although it would be too early to say, but commodity started easing out in the last quarter. We are not sure now how this Red Sea and other economic issues will move up further. But right now, it is beneficial to us. We also did some cost corrections with the customer to offset any sharp increases further. So that has also, that will sustain at least in the next 1 or 2 quarters.
On operational efficiencies, also as you must have seen the increase in sales that has contributed significantly in terms of managing margins because the proportionate cost has not increased. So this will sustain. So these are 3 or 4 guiding drivers, which will at least assume that we will improve from here on.
Right, sir. Sir, when we talked of the new products coming in, you mentioned the EV products, you mentioned N2, N3. Essentially, would that drag down margins, these would be margin accretive business from current?
I won't say negatively. Truck AC market, when we are penetrating into a more N2, N3 AC -- aircon, it is comparable to the passenger vehicle margins. So there is no deterioration to that. EV products right now at very initial stage. And so far, we have not compromised on the prices, and we are trying to keep the same margin level.
Sure, sure. Very helpful, sir. Sir, the second question is regarding home or ACs, we have seen a lot of our peers have very strong numbers given the stock out situation. In your comments, initially, you didn't talk much upon this. What is the situation? How do we see this business scale up and last quarter, you mentioned it's on a standby position. If you could update us?
So Arjun, I did mention that we are doing good on again pursuing very aggressively on the home aircon market, although the numbers -- market is available from a revenue side. But if you must have followed all players, all other Tier 1 suppliers are struggling with EBITDA and the profitability margin. It is less than if you take the average of our current business segment.
So we don't want to impact our financials just because we are very aggressive in this segment, so we are going mute on that. But having said so, we are watchful of this industry. the moment pricing pressures are over, we will be aggressively pushing on that. Market is available. It is only up to us whether we want to compromise on margins and aggressively pursue on that, and we wait and watch just to say that the market is positively contributing to the company financials.
Sure. My final question, sir, if we look at our CapEx, the last year also, we have done roughly INR 120 crores, and you have been mentioning we'll be in this range. If we do only that much of CapEx, is it possible to grow at the rates we are seeing currently? Is it possible to grow at more than, say, 15%, 20% at just these levels of CapEx?
So there are 2 aspects to that. One is that CapEx required for any greenfield project, which we already did 3 years back. So now at least on the infrastructure side, that investment is already done. Now the investments are only into the incremental capacities which we need to generate, not the whole line investment. So that investment can be offset from this INR 100 crore plus CapEx, which we normally do every year, just to debottleneck operations and try to get more capacity in that.
When we go into the new technologies, when we have to set up the complete new technology investment, that delta will come. But right now, we are just at a feasibility stage of evaluating these technology potential in the market, but that will be for more of business opportunities, which will come '26, '27 onward. So we are trying to differentiate 2 level of investment, one is for sustenance to achieve at least between 8% to 10% growth and second is for the technology investment.
The next question is from the line of Abhishek Jain from AlfAccurate Advisors Private Limited.
Congrats for strong set of numbers. Sir, can you provide any full year number of passenger vehicle AC, CVs, radiator and railways?
Sure. Abhishek, the total number for our passenger vehicle AC products is around INR 2,300 crores. I'll be just giving in the round-off figure. ECM is around INR 500 crores. Bus market is around INR 40 crores. Truck is around INR 90 crores. These are broad numbers which we have for the overall segment.
And railways?
Railways is last year is a very small number around INR 5 crores, which will mainly the order execution will happen in this year only.
Okay. And sir, as you mentioned that you have one -- you have increased the share of business to the 43%, 3% gain in this year. So have you won the new business, and that's why the share of business has improved?
Answer to this is yes. And also because of the model mix changes, as I mentioned before, that SUV market growth is much more than the A segment car or B segment car. And SUV, we have -- most of the customer, our share of business has improved. So that is a key contributor to that. And also another factor is that in certain products, the growth is more than the average market. And there's certain model where the growth is 20%, 22%, whereas overall industry growth is around 8%. So that has positively contributed to overall growth.
And how much share of business with Mahindra & Mahindra right now? Are you looking to increase the business from them?
Yes, Mahindra & Mahindra share at around 24% of their total thermal buying as of now. And going forward in next 2 to 3 years' time, this will increase.
So have you won any new business from them for the new launches like SUV 7 and 3XO?
We have -- all their born electric vehicle, we have secured business for a few components. SOP will start from probably September onward, one by one, each model will be SOP gradually. So that will contribute to the overall share of business.
Okay, sir. And my last question on the tax rate, still tax rate is around 32% to 34%. So what would be the effective tax rate in FY '25?
25.19%.
[Operator Instructions]
The next question is from the line of Jyoti Singh from Arihant Capital.
Congratulations on the good set of numbers. My question basically, on the growth path side, as we have very strong order book from Mahindra and also we are working for the new product. So what growth rate we are targeting in '26 and '27?
'26 and '27, okay. So we did mention about this that slightly, we'll be doing better than the overall industry growth. So '26, '27, our estimate of industry growth would be between 6% to 8%. This year, we are expecting slightly moderate growth. But next year, there will be some recovery of that. So we have our ambitious target of going double-digit growth even in '26, '27. .
Okay. And sir, another that we are already supplying to Mahindra. And what about Maruti, that their upcoming plant and more pipeline on the hybrid side. So how much opportunity we have on that front?
So with Maruti EV launch, which is going to happen in the next year. We already had tied up business, and product is at different stage of evaluation. So whenever SOP will happen, we will be there. On the upcoming plant in Kharkhoda and subsequently in Gujarat, whenever it will be announced officially. But for that plant also, we are talking about capacity ramp-up within the existing products -- existing plants. And going forward, we are evaluating how to service 1 million capacity for this Kharkhoda plant.
Coming to your question about hybrid. So the launch, which is going to happen first model of Maruti in Kharkhoda will be a hybrid vehicle for that business is already tied up. Since we are a supplier to the hybrid of Grand Vitara and TKM by Subros. So similar on that ground, we will be taking this business also. So this is also aligned.
The next question is from the line of Aashin Modi from Equirus.
Sir, my question is regarding this EV business and strong hybrid business, which we are talking about. So what -- understanding that the content is 2 AC and 1.5. But given the fact that we have not yet localized the technology, what would be the difference in content that we would be having in this order versus our normalized vehicles?
Aashin, there are 2 aspects to that. If we separate out the compressor, which is a complete technology change in EV versus ICE. If I just pass for the time being and keep the other kit that is ECM, condenser, hose and pipe and HVAC, the ratio between ICE conventional thermal system to EV would be roughly 1.5x or 1.8x. But only talking about compressor, it is almost 4x.
So right now, since we don't have electric compressor localized as of now. So we are not counting on that. And whatever we are saying is incremental penetration in EV is based on 1.5x or 1.8x delta, which will be coming from EV space.
Okay. And sir, any plans on localization of that compressor? And who would be supplying that to currently to M&M? Any color on that? Is it imported?
So right now, all the electric compressors are imported. We are in the feasibility steady stage of investing into EV compressor localization. These are at very initial stage of our evaluation because this required a large investment. And also, it required, whenever we do a large investment, the utilization percentage of the capacity has to be very, very substantial. Otherwise, we'll have a challenge on the realization.
So we are now just watchful of how this EV penetration is happening because last 3 years, we have just reached to around 90,000 EV vehicles only. So if we are talking of 10% to 15% penetration, that means we need to reach to almost 1 million EV vehicle by next 7 years. So moving from 90,000 to 1 million is a very watchful decision for us because it may not happen very quickly. It may take longer time. So that's how we are adjusting our investment decision based on the market ramp-up.
And sir, my last question is regarding our business with M&M. So if I remember correctly, you mostly supplied pipes and condenser over there. So any breakthrough in compressor or HVAC over there, which could lead to high increase in share of business with them?
So in Mahindra & Mahindra, we have HVAC business for certain models. We have business for condenser and compressors also. Now on the PV side, we have businesses for hose and pipe, which has a large number because in EV, hose and pipes are a multiple of 2x of existing conventional pipes. In addition to that, in Mahindra pickup vehicle, we have full system. That means all 4 aggregates. And going forward, in a few programs, which we are right now working with Mahindra, the talks are also for substantial part of thermal product in such models.
[Operator Instructions]
The next question is from the line of Aditya, an individual investors. .
I just want to know what is the current market share in each product category? And my second question is, do we have monopoly in any of the current product offering?
So Aditya, thank you. Answering your question, we don't have any monopoly in any product. That is the answer to the second part of your question. Second, on the share of business, I already mentioned in my initial view. In the PV space, we have share of business of 43%. In truck aircon, we have a share of business of 54%. In bus, we have a share of business of 17%.
Okay. I have one more question. We are working with MG, Citroen, Renault. Are we working with these companies?
So Aditya, we are working with the customer. Disclosing customer name at this stage would be difficult because of the confidentiality. But yes, we are working with these.
Okay. So there is one advice. So there are so many players in the passenger car segment. So I think the business development team of your company marched to tap this MG, Citroen, Citroen has got a manufacturing facility in Chennai only. And so it is very risky to depend on Tatas and Mahindras for the business. So it is better to explore these new customers. So this is one advice, and I hope the company will follow the advice.
Noted, Aditya.
The next question is from the line of Jyoti Singh from Arihant Capital. .
So just wanted to confirm on the order book side, if you can just explain it again?
So with respect to order book, I'll say that right now, last year, in FY '23, '24, we have booked orders of around INR 475 crores, overall spread out into the various customers and segments. Previous to that, we did an order booking of around INR 530 crores. Normally, our cycle of development to SOP is between 12 months to 18 months. So that will have reflection within next 2 years or so. But that doesn't mean that all this INR 1,000 crores will be incremental revenue because out of that, there are certain model changeovers also. It would be a kind of replacement business, but this is how the order booking right now is.
The next question is from the line of Jayaraj from Batlivala & Karani Securities.
I have few questions, sir. One is, what would be our current localization level? And what is our target, sir?
Localization level, as of now, we have around 83% is our localization content, 17% what we import as of now in variable -- all the segments. Our target in next 3 to 4 years, we have to be less than 10% that's the aggressive target we have taken so that we can derisk ourself for any fluctuation of foreign exchange, which may impact operational efficiency.
But in 3, 4 years, some more products, we also come up, no sir? Electric and all, so that the import content again can be more. Still, we want to reach 10%, including that?
Including that we are targeting because all -- the new technologies, we want to initiate localization at the start of production itself.
In the electric vehicle, sir, other than HVAC system, do we have any other opportunities?
So in electric vehicle, there are normally 5 components which goes into electric, which relates to thermal. One is HVAC, second is condenser, three is high temperature radiator and four is hose and pipe and fifth is the compressor part of that. And hose and pipe include 2 set of that. One is to do a connecting element for cabin aircon, and second is connecting element for the battery aircon. So in EV space, we have in certain customer models, we have business for HVAC, hose and pipe both for cabin as well as for battery cooling. In few models, we have a radiator and condenser. That's how it is variably spread. .
Okay. Okay. In AC buses, is there any other opportunity sir? EV buses, sorry.
Yes. So in EV buses, now we are at almost conclusion stage of the specification with a few large customers. We'll start seeing the order booking now coming in at least in the second half of this year. So that alignment is done now, and that is a very fast-growing market especially in the public logistic domain. So it's a very attractive growth opportunities for us.
But there on the initial import content can be high, no sir? because of what scale?
Probably high maybe. But since the numbers are not substantial, so it may not impact the overall percentage.
No, no, I understood that. But initially, obviously, the volume will be low?
Yes.
And currently, a lot of electric vehicles are sold in the container, sir. So HVACs -- I mean, core is supplying -- it's importing and supplying to them or who is supplying now, sir?
So in EV vehicle, those who are on the road as of now, there are suppliers who are associated with Tata Motor or with MG or with other big OEM. So a few of the kits are imported because the number -- they are very small for any investment there. But yes, for Tata Motors, since he's having the large share of business of the global EV market. So they have local supplier available in Maharashtra.
As there are no further questions from the participants, I now hand the conference over to Mr. Jayaraj from Batlivala & Karani Securities India Private Limited, for closing remarks. Over to you, sir.
Yes. We thank all the participants. Sir, do you want to make any closing comments, sir?
Not exactly but what we said we are trying to realize better performance than what we did. And quarter 4 definitely is a very encouraging operational performance for us. We [indiscernible] for all subsequent quarters, and that's how we want to progress. Thank you so much and thanks for participating.
Sir, only one more question has come there. Operator, can you call Mustafa, he is available online.
The next question is from the line of Mustafa Rangwala from Motilal Oswal. .
So again, congrats on the good set of numbers. I just wanted to ask that there are certain technologies that you mentioned, right, that you want to expand into. So what are these technologies and what would be the estimated CapEx cost for it?
I did mention that there are technologies related to hose and pipe, especially for battery cooling module and also for HVAC, which will be used for EV. There are technologies required for hybrid condensers or radiators. There are technologies required for compressor with this complete change of technology in the EV space.
So a few investments have already been done, which will be resulting into SOP of this product next year. But the investment, which is mainly for electric compressor that is at feasibility stage, I will not be able to quantify the investment. But once we decide to go ahead because that mainly depend upon how sharp ramp-up of EV penetration in the industry. So we are just mindful of that situation, and we will announce the exact investment and the realization of that investment in subsequent calls.
Understood. And what sort of increase in revenues can be assumed from all these increase in new technologies that we'd be adopting?
So revenue growth is overall for the industry. And as I mentioned before also that we are expecting double-digit growth in the next year, but we are also subject to the conditions which are prevailing right now. including the geopolitical scenario, also the economic stability after the elections are over. Subject to that condition, we are hopeful that we'll be able to do better than the overall industry. But of course, these new technologies, whenever it will ramp up, it will contribute substantially the overall revenue, but that situation may come in '26, '27 onward -- till 2031.
The next question is from the line of Mayur from i-Wealth Management. .
Sorry, it was almost the last question and then we logged in. Sir, a couple of questions from my side. Sir, in around 2015, '16, '17 also, we used to have margins of 11% and 12%. Now with the understanding that localization, you plan to bring it even lower as we go -- sorry, localization will improve and import will go lower as we go ahead. When do you think we can reach around 11% or 12% margins?
I'll not quantify the exact time but yes our efforts are now, again, go back to the best period whatever we had before. This was COVID, but we are gradually moving to that. Our first milestone is to break the 10% EBITDA level that immediate target what we have and then moving to 11% and to 12%. It will take time because a lot of market correction has happened in the last 5- to 7-year period, a lot of new businesses, which are secured, had a price pressure. There are a lot of cost escalation, which has happened now. So it has taken a lot of time to settle down, but we are very hopeful that in the next 3 to 4 years, we will be recovering back all this deficiencies.
That's great to hear. Okay. Sir, just something understanding and pardon me if the understanding is not very expert or very good over here. Sir, what is the -- why can't we get attached to Tata Motors EV cycle means what is it that local suppliers can do, what we cannot do? And just from an understanding of whether it's a product thing, whether it's a pricing issue, whether it's just an OEM mindset, what is it which stops in general from Subros getting that business?
I'll be answering this at a very general level, not specific to and it would not be sounding negative. Right now, the EV market in India is evolving and we have reference point of which geography we'll be trying to apply to India condition. One geography is a European model. Second is American model. Third is China model, and fourth is a hybrid of that. So right now, whatever business is available based on what is easily available. And current reference is China model because the EV penetration in China is very high. The products available -- off-the-shelf available to launch immediately, that's how the current market is because the numbers are not so great to have a complete investment because the risk factor is we are evolving into EV technologies or battery charge or the thermal performance is evolving.
So it may take time, next maybe 2 to 3 years' time to finalize which technologies are suitable for India's climatic condition. So that's how it is taking time to go very aggressive. Because if we go very aggressive now and invest into localization of any of the solution and tomorrow if that solution is not required, the investment may go waste and you can appreciate that just number of 90,000 EV vehicles on the road, any investment for meeting 90,000, even though with the share of business of 50%, 40,000 may not be resulting very positively.
Sure, sure. Okay. That's helpful. And sir, you said EV for the compressor part -- it's feasibility as investments are higher. Sir, is the compressor technology for a pure EV versus hybrid different? Or is there an overlap on -- because whether we may debate about the timing and the time it may take for the EV penetration to enhance an increase. But whether it's pure EV or whether it's hybrid, some form of EV will definitely have a substantial share than currently where we are. So will that -- how will that shape up? And what is your understanding on it?
That's right that either it is hybrid or EV, whenever you have to take electric charge from the battery, it is EV compressor. So hybrid also use the same compressor and also that EV part require the same compressor. So when I'm saying EV penetration, it is EV and hybrid penetration that is important for us to take decisions when and for how much.
On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.