UNO Minda Limited analyst Q&A

Thank you. We will now begin the question and answer session. The first question comes from the line of Chandramouli Muthiah from Goldman Sachs.

My first question is around the automotive vehicle acoustic solutions, the ADAS. Could you give us some color around what the kit value could be there as that opportunity starts to take shape, as you said, potentially towards the end of next year? The second question is on the share of profit from associates. This quarter looks like it's close to about INR 63 crores. It seems to be higher than more recent quarters. Is there any one -off there? Or is this a sustainable rate? If you coul d just talk us through what the drivers are on that number? And the third question is just around the first 22 days of September during this particular September quarter, there seem to be some disruption to volumes that your customers, the OEMs could suppl y to their channel partners because of the issue and the GST transition. Was there an accompanied impact to production? And as a result of that, as you get into the December quarter, usually, there's a moderation in production during the December quarter. Will we see that normal moderation in production in the December quarter or because of the impact to production in September, is that unlikely to be the case? Those are my 3 questions.

Yes. Thanks, Chandru. So, Auto Vehicle Acoustic Solution is what we normally call AVAS. So, this regulation, we know has been in the works for quite some time. In fact, now we have already been working with our customers with this product, which has been ready for almost, I would say, three years now. And we are at the stage where we will be able to capitalize on this very fast. In terms of kit value, maybe we'll share with you once we have the SOP until then, you appreciate this is a little bit competitive sensitive information. So, at this point, I'm afraid I'll not be able to share the kit value for AVAS. In terms of share of profit of associates, as I have highlighted, during this quarter, the revenues at our joint venture, which manufactures airbag have increased significantly by around 28% and there is nothing exceptional or there is no one -off in terms of profit, but there has been a significant profit improvement from that business. And we do hope that that's not a one -off. In fact, that momentum should continue as we move forward because this is sheer adoption of more airbags and things like that. In terms of disruption of volumes and do we see any moderation in production in December quarter? The answer to that is, yes, you are right that normally December quarter volumes are less because end of December also like last week or so is always normally a shutdown for the annual maintenance shutdown, etc, which most of our OEMs and even we keep at our factories. So as of now, it will be a little early to comment on whether that shutdown period of a week, 10 days, whether it will get reduced or it will not. But excluding that, as of now, the volumes are quite normal, and we are not seeing any softening from that perspective. So, I hope I have clarified all your questions, Chandru.

The next question comes from the line of Aditya Jhawar from Investec India.

I think most of my questions have been answered. Just a couple of ones. So, I think Seating business continued to do quite well. If you can throw some more light on the recent order wins, new OEMs that we are able to penetrate, order book, how we are looking at it? That is number one. Number second, Sunil, you mentioned about a start -up cost. If you can quantify, it would be good. And just a clarification, the prior period income you spoke about was INR 69 crores that got booked in this quarter, right?

No, no, Q1.

Yes. Thanks, Aditya so in terms of Seating business, as we have been sharing with you, we are on track to achieve our target revenues, which we have promised for 5 years in terms of doubling the revenues. We are already there. In fact, this quarter run rate, if you see, we are almost there with INR 354 crores of revenue. Our run rate is INR 1400 crores to INR 1,500 crores range. That's what we have promised for this year, and I'm happy to say that we have achieved that despite the challenges we have faced. And second thing, in terms of order book, we normally don't share any order book you would have seen because why we have started giving this order book for EV, if you remember, 3 years back. And then after a year, we have to come because when we say order book, normally, we would get x volume estimation from our customers based on which we will say that this is the target. But based on the success or outcome of that model, it can go either way. So hence, we have actually sort of stopped giving that order book. Otherwise, it necessarily creates some maybe misleading impressions. So that's why we normally don't share the order book. In terms of start -up cost, as of now there are some of the plants where the business has started in last maybe 1 or 2 years. And as we have been saying, our normal target is that they should achieve their profitability metrics in the third full year and come to profit in the second or third year. So, to that extent, there are a lot of businesses which are under that nascent stage who have not achieved the reserve profitability or they are maybe in the negative or also some of the businesses which currently like Kharkhoda all, they're just in the phase of commissioning, starting the commissioning. But if you ask me a number, it's a little difficult to give a number because some of these plants or businesses are also attached to the existing businesses. But we note your point, maybe next time, we'll try and capture this information as well. And prior period, I think I already answered this prior period I have comme nted because I was mentioning about H1. So that's why this point came. Otherwise, nothing in Q2.

Okay. And final question Sunil. So now clearly, we saw a very good festive. And now going ahead, it would be great if you give us some sense of what kind of growth expectations you have for the remainder of the year for passenger vehicle and 2-wheelers?

Aditya, we don't give any vehicle volume guidance. We have never given and we don't want to second guess our customers. So, our objec tive or endeavour is that we should continue to outperform. And I can tell you that even though this quarter volume industry growth is, say, 10%. But if you see half of our revenues is 4 -wheeler roughly and half of our revenue is 2 - wheeler. Obviously, there is CV , OR as well. But 47% is 2 -wheeler, 47% is 4 -wheeler. 4-wheeler has grown by 4% and 2-wheeler has grown by roughly around 10%. So, if you do a blended average, the growth is something around 7%, 7.5% and our revenues we have grown by 13.5 %, so which clearly demonstrates a significant growth, more than 1.5x growth, which we have been promising to the investors.

Congratulations on strong numbers. Sir, firstly, on the lighting side, can you indicate a broad breakup within lighting, how would it be between headlamps, tail lamps and other lamps? And can you provide a sense as to which category is driving the major growth for you? Secondly, continuing on lighting, you also indicated LED penetration. What would be the current share of LED in 4 -wheeler and 2 -wheeler? Would it be over 50% in 4 -wheeler and about 80% in 2 - wheeler?

Okay. Any other question Raghu?

Yes, sir. In the joint venture with Inovance, have you received all the regulatory approvals. Has there been any order wins which you can share at the current point of time? And also, when you are looking at traction motor production, would it require heavy rare earth or will light rare earth be enough as the imports are restricted?

Yes. So, Raghu, we are taking your questions in the same sequence as you have asked. So, lighting what is driving growth, head lamp, tail lamp for others. So, while we hav e provided breakup of lighting business between 2-wheeler ,4-wheeler etcetera we don't provide any further breakup, but I can definitely answer your question in terms of what is driving growth. So, we are currently leading the -- at least in the what we ca ll EV segment, leaders in the tail lamp category and specifically the LED tail lamp. So that is the segment which is driving growth for us in this sector. And for 2 -wheeler, we are there in both EV or ICE and both head lamp and tail lamp. So, from that perspective, EV segment is where you will see 100% almost penetration in the lighting. So, from that segment perspective, EV is something which is driving the growth of LED. And in terms of JV with Inovance approvals, we have applied for this P N3 approval to government only in July. We have been working very close with the government. We understand internally, they have got certain approvals, but we don't know what all approvals they have got. But as you understand, it is going as planned, and we should be having approvals ideally in the next few months. Very difficult to say a time line because it's government and where things might take time, where things might not. But we are optimistic that ideally within this fiscal year, we should have approval in hand. That is an ideal scenario. In terms of traction motors, whether they use HRE, yes, they do use HRE magnets.

Got it, sir. And on switches side, you indicated market share gains. What would be the current market share in 4-wheeler, 2-wheeler? Would it be over 50% in 4 -wheeler and over 60% in 2 - wheeler? Would that understanding be right?

Yes.

Great. And in alloy wheels, 2 -wheeler alloy wheels, would the penetration level have reached 80% by now? What would be the share of Uno Minda market share in the domestic market? And if you can also highlight how much would be the import content for the 2 -wheeler and alloy wheel industry?

Yes. So, alloy wheel import content in 2-wheeler dropped a lot. It is pr imarily in the premium cars where the volumes are very less. Otherwise, largely, it is localized. In terms of our market share is for 2 -wheeler, you asked, it is in teens. And in terms of application ratio, it's been actually fluctuating between somewhere 70%, 75%, sometimes 80% because based on the end customer choices, our customers also have been sort of moving up from steel wheel to alloy wheel. Like, for example, in this quarter, one of our customers has used a little more steel wheels versus alloy wheels primarily driven by the market forces, which are definitely in no one's hands. So, there's a broad range of, you can say, 70% to 80% kind of range where the alloy wheel application for 2-wheeler has been hovering around. But still, this keeps on very fluid depending on the end market demands.

Got it, sir. Last question on margin, 11.5% in Q2 is a robust number despite the start -up cost. Given that you are running 10 projects, do you see the margin sustained or expanding considering the scale benefits, better fixed cost absorption going forward?

No, I won't what you call say that these numbers are not sustainable. Definitely, it is in line with our annual guidance of 11% plus/minus 5%. So, quarter-to-quarter, there might be some pluses, some minuses. So, if you see even in Q1, if you exclude that, what you call exceptional income, it was something around 10.8%. So, our full year guidance, we remain intact in the guidance. And we do hope to continue with that margin range may be for another year or 2 until we sort of commission a large part of our ongoing projects. After which we definitely do expect once things everything comes online and starts generating, the margin should get into a little bit of improved category.

The next question comes from the line of Siddhartha Bera from Nomura Wealth.

So, my question is on -- first on this other category, especially the sensors and controller and EV systems revenue. I think as we sort of hit the base growth seems to have a bit slowed down in this segment. Can you just talk about a couple of things here about any new product development which you are doing, which is sort of expected to come going ahead across any of these categories? What is happening, some color there?

When we talk of new product development, there are a lot of them, which some will see light of the day, some will not see light of the day. So, we normally communicate only once we have visibility on the new product, which is converting into actual business. Otherwise, there are a lot of them. I can share separately or I can shar e here itself that there have been certain products like I can tell you one is that touch-based switch for a 2-wheeler. We have developed years back, but there is no market because it's a premium product and it's a very price sensitive. Another one example was a heat and cool seat. The product was there, but it was expensive product. So obviously, it was only in the aftermarket. We didn't get into line fitment. So, you will have a lot of product development going on. But what we'll see the line OEM acceptance and the conversion to business is I think that's the right time to comment on in terms of addition of new products. So as of now, I don't want to get into a speculative kind of thing.

Sir. The second question is on this casting side. I mean, growth, you mentioned that there has been some deflation also because of commodity. But if we see in the last quarter, there has been some increase in the aluminum prices. And you also have commissioned your plant, which I'm assuming may not have co mpletely come in the quarter 2. So, should we expect a step -up in growth as all of these factors now sort of start benefiting you from this quarter onwards?

No. But Siddharth, first of all, I appreciate your point. If you see alloy wheel 4-wheeler, our quarter 1 to quarter 2 sales actually have improved by almost like 8%, 10%. And again, 2 - wheeler also has improved by something around better than more than 10%. So, if you see quarter-on-quarter, definitely, there is a growth. But yes, to your p oint, we have value -added capacity. On the other hand, the application ratio has been a little what we call stable. And with more low- end cars or low -end vehicles being sold, obviously, they have more steel wheel versus alloy wheel. So, alloy wheel, you wi ll find more in the premium vehicles and less in the low end or the base model variants, if you may say so. So that also drive a lot in terms of how much is the actual application. So, these are some of the factors which obviously is not in our hand. But we remain optimistic that directionally, the application ratio has been improving and over medium to long term, this will continue to grow. Quarter-to-quarter or year-to-year is a little difficult, but we have grown from like in PV from 13% application factor to all 40 -plus now. Globally it is 70, 80 plus. So directionally, we are there. Quarter-to-quarter, it's a little difficult whether application ratio will remain same or it will improve. It also, as I said, a lot depends on the end vehicle being sold.

The next question is from the line of Mukesh Saraf from Avendus Spark Institutional Equities.

Actually, most of my questions are answered. But I had something on the seating side. I mean I think a maybe a few quarters back, we had kind of we are working with TACHI -S for the seat reclining systems, etc, for 4-wheelers. So now just trying to understand what's the status of that? Are we seeing some progress with respect to 4-wheeler seatings? Or we still kind of are seeing traction more only on the 2-wheelers and the buses, etcetera, that we have been working on?

Yes. Right, Mukesh. So, in terms of TACHI-S, yes, definitely, when we entered into JV 3 years back, I think that time also we said very categorically that this is going to be a tough ride, challenging it's not going to be easy, knowing the entire ecosystem. And our prediction actually went right, and it's taking a hell lot of time than what we have been sort of thinking. So, we have actually now in terms of putting more impetus , we have delinked this business internally from our seating business with a separate team so that they remain focused, maybe a little -- get a little more attention from t his business. And we sincerely hope to see in the next year or so, we should have some good traction in this business as we move forward.

Okay. Okay. So, 4-wheelers itself, you're saying it's far more difficult than what we had imagined earlier.

I think we said at the time of entering JV itself because we know the competitive landscape, right?

Got it. Got it. Got it. Understood. And just one last housekeeping. I don't know if you had mentioned this and I missed it. The share of profit from associates has gone up. I mean, could you just call out which are the entities that probably has done well because it's I think, INR 63- odd crores this quarter?

Yes. As I said a little while back, one of our joint venture, which is into airbags, they have done really well. That business has commissioned its project expansion last year and now things are getting on line. Volumes are increasing since they were linked to the vehicle launch of OEM. So that business has done pretty well and will hopefully continue to do well. And that is the one which has added to the profit. So, there was some question earlier, was there a one -off in this? There is no one-off in this.

The next question is from the line of Sridhar Kalyani from Antique Stock Broking Limited.

Congratulations on a robust set of numbers I just wanted to under stand regarding the profit before tax in the stand-alone versus consolidated. So stand-alone PBT is around INR 400 crores and then we have got profit from subsidiaries INR 31 crores and share of profit from JVs is INR 63 crores, taking the total to INR 487 crores. However, the consolidated PBT is INR 409 crores. So just wanted to understand, is there any intercompany adjustment or any subsidiaries in which we are incurring losses? If you can just throw some color on this?

Sridhar, I'm not sure if you have noticed. There is a large other income in the stand -alone financials, which is primarily the dividend income which it receives from its subsidiaries. So, when you consolidate this entire dividend income sort of goes off. And also, there has been some income on various other services, which the company provides to its subsidiaries. So, all those things get knocked off when you consolidate.

That was the last question for today's conference call. I now hand the conf erence over to the management of Uno Minda Limited for closing comments. Over to you, sir.

Thank you. I would like to thank everyone for joining the call. I hope we have been able to respond to most of your queries adequately. For any further information, we request you to please do get in touch with us directly. Thank you.

Thank you. On behalf of Uno Minda Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.