Q1 Review: Uno Minda Posts Steady June Quarter Earnings
#Q1WithBQ | #UnoMinda's net profit jumps 24% year-on-year.
Company's CFO and CEO Sunil Bohra decodes June quarter earnings. #BQLive
Company's CFO and CEO Sunil Bohra decodes June quarter earnings. #BQLive
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NewsTranscript
00:00 Uno Minda, 20-odd percent growth in revenue, slightly better on the EBITDA in the bottom
00:04 line front.
00:05 Margins almost maintained about a, I mean, relative to Bluemark estimates, maybe about
00:09 80-90 basis points lower, but largely in line with what they did 10.67 versus 10.41 in the
00:15 corresponding quarter last year.
00:17 Let's get in Sunil Bora, who is Group CFO and CEO of Uno Minda, to talk about how he
00:21 thought the quarter went by and what does this mean for the rest of the year.
00:24 Sunil, good having you.
00:25 Thanks so much for joining in.
00:27 Satisfied with the performance?
00:28 It seems to be a steady state quarter one.
00:31 Absolutely, we are very, very satisfied.
00:34 And specifically, when you see in the context of the industry volumes versus our growth,
00:39 while we always say that our target for medium to long term is not a growth on a quarter
00:45 to quarter, but on a sustainable growth of at least 1.5x to what industry grows.
00:50 And if you see last quarter in the industry, volumes actually have grown just by 2 percent
00:55 and our revenues have grown by 21 percent.
00:58 So I think there is a significant improvement.
01:01 And to answer your point, I think there are a lot of positive headwinds, sorry, tailwinds
01:06 also in the way of premiumization, in the way of the EV transition, the way we have
01:12 built up our EV portfolio.
01:14 We do expect this growth momentum to sustain for medium to long term.
01:18 Sunil, there are multiple points which I thought I read in your results as detailed by our
01:25 research team.
01:26 Incremental orders from global customers, you are expanding capacities in a big way
01:31 or a new plant across multiple line items as well.
01:35 Tell us a bit about what went right in the quarter and how will it move ahead in the
01:40 quarters to come?
01:42 Yeah, so you are right, Niranjit, we are currently having 10 projects which are currently ongoing,
01:49 be it a greenfield expansion or a brownfield expansion and across products you see lighting,
01:55 you see switches, you see alloy wheel, two wheeler, you see alloy wheel, four wheeler.
01:59 So across the board and specifically two new plants for the EV joint ventures with CREVO
02:03 and Booler.
02:04 So I think we have seen a significant positive from all the angles.
02:08 So if you go by business by business, right, so you see alloy wheel that is led by the
02:14 premiumization wave, the sheer penetration of application factor today in India is something
02:19 like around 40-45% which when we started a few years back it was 15%.
02:23 Globally the application is almost like 90-95% kind of offering.
02:27 So we do expect that momentum to continue for good five to seven years at least going
02:32 forward which is basically with the increasing application factor, the production or the
02:37 requirement of alloy wheel grows more than what industry grows.
02:39 That's number one.
02:40 The alloy wheel two wheeler is primarily an import substitution strategy or the way which
02:48 we have been riding on.
02:49 Then you see lighting, it is primarily the premiumization wave from halogen lamp to LED
02:53 lamp.
02:54 We have just commissioned our four wheel lighting plant in Gujarat, we have procured a land
02:57 in Pune and we are in the process of starting the work there.
03:01 So then you move to switch, we are having two plants which are currently going on for
03:04 construction in Chennai and Farukhnagar.
03:07 Then there is a lighting plant in Vietnam, we are just getting commissioned.
03:12 So I think across the board you see there are various levers, we have been gaining share
03:16 of business also.
03:18 So there are a lot of angles which we have been working on and fortunately I think there
03:22 is a tick in the box in sort of every strategy.
03:26 In which case talking about average capacity utilizations might be a bit of a misnomer
03:31 because you have plants coming on stream virtually every second quarter and therefore add to
03:38 the revenues.
03:39 So capacity utilization levels, do you look at them at all currently?
03:42 No, we do look at, absolutely we do look at.
03:45 In fact some of the plants are running close to 100% and that is why you need that capacity
03:50 because there is also a requirement from our customers which is a right requirement that
03:54 whatever is the capacity you need to have at least 20% of buffer for any positive up
03:59 move.
04:00 While yes I do appreciate that there are new plants which are coming and we will have
04:04 almost like every quarter one plant getting commissioned but in the existing plants we
04:09 are trying to de-bottle and create that capacities so that the customer line requirements are
04:13 met and there is no scarcity of capacity.
04:17 So this string of pearls thing of sorts of capacity expansion, as things stand for how
04:25 long does this last, I mean do you envisage a plant or a de-bottle neck capacity coming
04:31 on stream for you every second quarter for the next 2-3 years?
04:35 No, absolutely Neeraj.
04:37 In fact we are even thinking beyond that.
04:39 So we have just bought a patch of 86 acres of land in Pune and this is primarily for
04:47 future growth and if you see from a business perspective normally the plant sizes will
04:51 range from somewhere from 5 acres to 20 acres, 20 acres high capex alloy wheel plants whereas
04:56 some small plant will be 5-8 acres.
04:58 So you can see that in that perspective 86 acres for our business is a huge block.
05:03 We are looking for another similar or even larger block of land in north and a little
05:07 bit smaller size in south.
05:09 So we are working on our next 6-7 years long term strategy plan and we do expect the requirement
05:18 for land actually to continue not only 2-3 years but also much beyond it.
05:22 So we are quite bullish and for next 5-7 years there is enough growth which is there.
05:29 And would most of this capex being done by internal accruals or do you envisage at some
05:34 point of time because of this large expansion, I mean 86 in Pune, if you get a large parcel
05:39 of land in north as well, then do you need to raise any equity capital for any of these
05:44 capex plants?
05:46 Not at this stage Neeraj because if you see I think the business has been able to generate
05:51 healthy free cash flows.
05:52 So this year say for example if our EBITDA is even conservatively at 1400 crores or something
05:59 like that, the capex is just like 700 crores in EBITDA land bank.
06:03 We are I think sufficiently funded from internal accruals.
06:06 Yes, there might be temporarily mismatches in terms of cash flows which we do expect
06:11 to sort of meet through the short term borrowings or based on the cash flow, short to medium
06:17 term borrowings.
06:18 Okay.
06:19 So Neel, excuse me for not knowing this but have you given a formal guidance for FY24
06:25 or FY25 or a 3-year plan and does this quarter 1 performance keep you firmly in track for
06:32 achieving or beating that?
06:33 Yes, so Neeraj, normally we don't give a guidance for a top plan because you know that our destiny
06:39 is 90% of our revenue is linked with the OEM revenue.
06:41 So there is no point in me giving numbers and that's why we say whatever industry grows,
06:44 we will grow at least 1.5x to medium to long term and that's the outperformance we want
06:49 to target because if we start giving a number and there is no OEM or there is a dip in the
06:54 volumes, you can't manufacture and keep it in your inventory, right?
06:56 So from that perspective, we normally avoid giving any revenue guidance but if you ask
07:01 from the expectations and our internal plans, I think we are well on track and if you see
07:07 last few quarters, I think we have actually done better than even some of the internal
07:11 expectations.
07:12 Which is good to know.
07:15 One final question and which is relative to what you are or relative to what you were
07:23 in the EV versus the non-EV portfolio at the end of FY23, is there an internal target say
07:31 3 years out that you will be X percentage EV versus non-EV?
07:35 And part 2 of my question, does that kind of a portfolio mix also help in the ECG profile
07:46 and thereby the multiple profile that a company like yours and a business like yours would
07:50 get?
07:51 No, absolutely.
07:52 So first to start with, our existing business, you will appreciate, they have sort of agnostic
08:02 to IC or EV, so you talk of light, wheels, switches, lamps, all these products, you will
08:08 find application in IC engine as well as EV as well.
08:11 So EV, we have more been looking as a potential for a significant delta to growth and I think
08:17 we have been one of the early movers.
08:19 We have sort of laid down our EV strategy for 2 wheeler and 3 wheeler segment almost
08:23 like 4 years back.
08:24 The kind of product profile we have built in, I think that is unmatched to the industry.
08:29 In terms of revenue growth, you would have seen that the last quarter, our EV revenues
08:34 is almost like 12% versus the 4% share of EV in the 2 wheeler segment per se.
08:41 And in terms of order book, we already have annual revenue of more than 2.8 crores of
08:45 orders already booked from the EV specific vehicles which will include existing EV products
08:50 also.
08:51 And that order book continues to build in.
08:53 So in terms of revenue target, it's little tricky to give and I will tell you why because
08:57 IC engine market has developed for more than a century.
09:01 So there are clear practices which are settled what will be outsourced, what will not be
09:07 outsourced but if you see from EV perspective, A, there are a lot of imports.
09:11 B, even the industry is trying to figure out what one would try to manufacture in house
09:16 versus what you try to outsource to people like us.
09:19 So for example, there is an EV component which we are supplying to one customer but another
09:23 customer is doing in house.
09:24 So the market also is evolving.
09:26 So it will be very tricky to sort of put a number on the table that this is the target
09:30 revenue target you have.
09:32 But based on whatever guidance we have from our customers, based on the secured businesses,
09:36 today we have almost as I said 2600 crore kind of revenue, annual revenue for FY26 and
09:41 the book is consistently sort of building up.
09:44 Got it.
09:45 Okay.
09:46 Completely understand.
09:47 Just one.
09:48 Okay.
09:49 I'll extend this interview by one more question if you allow me Sunil.
09:52 And that is, I don't want to ask you about whether EV will grow faster than ICE because
09:56 both are equal customers for you.
09:57 Both are important customers for you.
09:59 What I do want to understand from you is that the industry is going through a metamorphosis
10:04 like no other segment of auto, at least in India, because in India, the EV adoption of
10:08 two wheelers is a lot quicker than what's happening to four wheelers.
10:12 So would you say that because your products are agnostic to ICE versus EV, you don't get
10:19 impacted too much, even if at a future point of time, the EV growth will slow down and
10:25 ICE engines continue to prevail?
10:27 That may not happen.
10:28 I'm just trying to understand if that were to happen, would you still believe that your
10:32 portfolio and growth will remain unaffected because you are agnostic to EV or ICE?
10:37 Absolutely.
10:38 So for all our existing products, it remains unaffected.
10:42 And therefore, you correct me if I'm wrong, but if you have such a large share of two
10:46 wheelers in your portfolio, that doesn't matter because you are agnostic to EV or ICE?
10:52 Absolutely.
10:53 So if you see the overall pioneer, I think it's important to understand from the total
10:56 revenue perspective, my two wheeler revenue is roughly around 40 to 44%.
11:00 As of now, 12% revenue is from EV.
11:05 Now when I say 12% revenue, it is not only EV component, it is EV vehicle.
11:09 Now roughly maybe half EV specific components and half is my existing vehicles.
11:13 So if you see from the overall impact perspective, yes, there will be some impact because once
11:19 the weightage from EV shift back to IC engine, which may or may not happen as you rightly
11:24 mentioned, because of that, the EV specific components which we have built obviously will
11:28 not have application.
11:29 So to that extent, yes, you will see some impact, but we don't expect that impact to
11:33 be very significant.
11:34 Got it.
11:35 Yeah, but that may not even happen.
11:36 I mean, just looking at the scheme of things, if anything, that's an irreversible trend.
11:40 But Sunil, this is good talking to you today.
11:43 Thank you for that clarification.
11:45 Congratulations on a good start to FY24 and all the best for many such quarters ahead.
11:50 Thank you.
11:51 Thank you very much.
11:52 Namaste.
11:53 And viewers, thanks for tuning into this conversation with the management of Unominda.
11:56 Thank you.
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