Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lumax Auto Technologies Ltd (BOM:532796, Financial) achieved a robust 20% year-on-year growth in revenues, reaching INR756 crores for the quarter.
- The Advanced Plastics domain grew by 13% from INR371 crores in Q1 FY24 to INR420 crores in Q1 FY25.
- The Mechatronics domain saw significant growth, more than doubling from INR11 crores in Q1 FY24 to INR28 crores in Q1 FY25.
- The company has a strong order book of INR1,000 crores, with 90% being new business.
- The company is optimistic about the industry's performance in the second half of the fiscal year, driven by the festive season and multiple new launches planned by OEMs.
Negative Points
- The Aftermarket domain experienced flattish growth in Q1 FY25 compared to the corresponding quarter of last year.
- The electric vehicle segment experienced a slowdown in growth following the conclusion of the FAME subsidy.
- There are headwinds in the passenger vehicle industry, which are expected to continue in Q2.
- The company has not yet established a business relationship with OLA in the two-wheeler EV segment.
- The EBITDA margin for IAC dropped by 140 basis points QoQ, with the normalized sustainable EBITDA being closer to 17%.
Q & A Highlights
Q: Congratulations team for the decent set of numbers. Sir, my first question is on the IAC. Basically, we are seeing that our IAC revenue has grown by 7.5% year on year in quarter one, despite M&M's growth of 24% for the same period and despite IAC has been winning new businesses from other clients as well. Sir, what is the reason for this low growth?
A: So Mr. Hiranandani, just two clarifications. Number one, when you're talking about a 7.5% growth on IAC in Q1, this includes a huge amount of tooling revenue, which was there in quarter one of last year. There has been no tooling income in quarter one of current fiscal year. So if you were to compare just the product revenue, the manufacturing revenue, that has actually grown by 19%, up from INR182 crores last year first quarter to INR216 crores in first quarter of this year, which is pretty much in line with Mahindra's own growth of 15% on a Q1 to Q1 basis in terms of the production numbers.
Q: Continuing with the IAC, so the IAC's EBITDA margin, including other income is about 19% level. So although, it dropped QoQ by roughly 140 basis points, but this is this 19% level sustainable?
A: So as we explained in our last Investor Call, the normalized and the sustainable EBITDA for the IAC business is closer to 17%. And the last quarter EBITDA, which was 21%, it also included certain policy corrections. And this quarter also, there is a onetime or an exceptional income of around INR4 crores to INR5 crores, relating to this correction of the tooling provision reversal. So excluding that, the normalized EBITDA for this quarter also is closer to 17%.
Q: What is happening basically in the Aftermarket side, because we have just grown 1%. From my check that the grey market has emerged out again. So is this right, sir?
A: No. So I think aftermarket, as I mentioned in my opening comments, number one the aftermarket, there are two challenge points. One, the OEMs by their own service networks have definitely become a lot more aggressive on the pricing, because they definitely feel that they can garner a bigger piece of the pie of the aftermarket. So the OES, the OEM spares, is becoming a lot more competitive when it comes to pricing, which is definitely resulting in a bit of headwind in Tier 1 growing and expanding their Aftermarket channels. However, having said that, we still continue to believe, that a double digit growth for the full fiscal year is something which we should definitely be looking at.
Q: Sir, my second question is on basically our consolidated entity is about 50% revenue comes from the passenger vehicle segment. And as per our on ground checks, the PV dealers have high inventory of 60 to 90 days plus the significant discounting is ongoing. And most of the dealers are also guiding to flattish to lower sales for the upcoming festivals. So sir, based on this, are you reducing your consolidated guidance of 20% to 25%? Or do you still maintain that revenue growth guidance?
A: So I would say that the full year guidance for the consolidated entities could be anywhere between 15% to 20%. You're absolutely right that there are headwinds in the passenger vehicle industry currently in Q1, and we do anticipate this to continue in quarter two as well. However, most of our growth is coming from new models and new product introductions into the current models. So it would be a new revenue for us, rather than being dependent on the volume growth of the current model in the market. So for the full year, my guidance would still be 15% to 20%. However, I believe in quarter two, we probably will be looking at a slower growth rate even compared to quarter one growth rate on a year on year basis. So majority of this growth will come into H2.
Q: This is a bookkeeping question for the consolidated entity. On a YoY basis, the employee cost increased substantially. And similar is the case for other expenses? So any one-off here?
A: So if you compare with the Q4, there has been an increase in manpower cost for about 1.5%. So one of therefore, there was a one-off in Q4 of the last year, one being certain gratuity impact, and other thing again, a relevant policy correction, in which there were certain costs that were transferred to inventory, and there was a certain reversal of revenue, more specifically in IAC, which led to reduction in manpower cost in Q4 of last year.
Q: Sir, year on year also, we are seeing substantial increase in employee neglect.
A: So yes, there has been increase of about 1%, you can say that, if you see as a percentage of sales. So that has been only this inflationary impact, which has been a part, in this quarter.
Q: Sir, my next question is Aftermarket growth has remained flat, as you mentioned. We are seeing cash collection issues. So can you highlight why the industry is seeing this issue? Like what are the reasons behind this issue?
A: I think there are many reasons. I think number 1, the liquidity in the aftermarket is a bit of a challenge. Again, aftermarket works on a very different cycle. Quarter one, usually is also a sluggish quarter, where quarter four, there is a lot of inventory which gets piled up, and people probably do not have fresh orders in quarter one to that extent. However, as I said, we've already started to see some signs of improvement on the realizations in quarter two. And hence, we are still hopeful that for the subsequent quarters and for the full fiscal year, we still should be anticipating a double-digit growth in the Aftermarket.
Q: Sir, I just wanted a view on the performance of the EV business. So industry-wide, I believe we are seeing some low traction, post the removal of the FAME subsidy. So yes, I wanted just to understand from you how the performance has been.
A: So I think the performance on EV, as I mentioned, definitely in the two-wheeler space, the EV footprint continues to expand. I think if you look at the numbers, they are very encouraging, and they continue to grow on a month on month basis. The top podium positions have changed. And I think now, more or less, the legacy players are the ones commanding these podium positions rather than the new entrants. So I firmly believe the two-wheeler EV penetration will continue to increase going forward. However
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
