UNO Minda Limited analyst Q&A

Congrats on a good set of numbers. Sir, first question I'll take on the new order of capacitive switch, which you have indicated. Possible to highlight, how much will be the content compared to, say, a normal switch? And how to look at the value and the profitability for these type of switches?

Siddhartha, thank you very much. In terms of profitability, we are expecting it to be in line with the existing products, but as this is being made for the first time. We h ave to maybe wait until the actualization because the product will go into development, etcetera, and then you know that there is a development cycle. So while as of now, at our initial quote level, we do expect it to be in line. But we will see closer to the development cycle, we'll have a close watch. But overall expectation is that we should be able to maintain our margins. And despite the kit value is expected to be higher than the existing switches.

Okay. And second, sir, on the alloy wheel side, you have talked about increasing the penetration levels over the six to seven years. So first is what is the penetration level currently? And how much can it go up to when you say that -- see the potential? And secondly, if you look at the capacity expansion, I mean, it seems much smaller than the potential which you are sort of expecting. So I mean how are you thinking about that?

Yes. That's a very good question, Siddhartha. In fact, and I address both the questions. So first current application factor of alloy wheels is roughly around in the range of 42% to 44%, and it has been growing steadily over the past few years. We’ve been discussing, I think last year we were discussing around mid-30%, 30%, 34%. Now it has increased almost 10 basis points. And globally, we know that the application of alloy wheel is almost have 95% impact. Many times, we have to struggle to find a car with a steel wheel. It -- normally you will get in the big because -- not trucks, but the car trucks what we see normally, so very heavy duty vehicles normally have those steel wheels, otherwise mostly you have alloy wheels. So we do expect this trend to sort of catch up in India and everybody today now wants car with alloy wheels. And the reason being that if you see that the kind of alloy wheel, which are being sold in aftermarket and even the expertise t hrough the OEMs has been increasing gradually, which means that consumers may not want to pay price for the top model which comes with alloy wheel, maybe they want a base model itself with alloy wheel and that's what at lot of OEMs have now also started working in that expectation. So we do expect this to reach -- if not to 95%, at least to, I would say, 70%, 80% of application factor in next seven to eight years as you would have at that stage. In terms of capacity, yes, I appreciate that this capacity of 120K will definitely not be enough. And you know that almost every year, we have been expanding this. We will soon come out with, we are working on this, but we don't want to basically have all the capacity at one place. So while at this new location, what currently we're discussing, we will have the land purchased for incremental capacity beyond 120K. I would say beyond 120K, another 120K sort of flexibility will try and retain . And we are actually working on some other locations as well, which will come in due course. So to your point, yes, this capacity look smaller versus the competition level, which are expected over the next few years. But we're also trying to time our investments in such a way that we don't invest entire capex upfront and have the assets which are lying idle for utilization.

Okay. So this capex of INR540 crores, this includes the land cost as well, is it, because capex and all looks higher compared to the last 60K which we have done from INR190 crores.

Yes. So the way you have to see Siddhartha is first is it is not linear when we compare with last 60K because what happened, the last 60K, what we announced, there are some capacities available for painting and machining. So when we say 60K, it is not the entire plant on its own. It has some facilities, which are being used or optimized from the existing. So like the paint shop and machining, as you said, was to be used from the existing and you put two additional lines of casting, etcetera. So A, that is one factor. Number two, when you do a new total new plant, you have to start from scratch, right? So you have nothing. You have no common utilities, no paint shop, no leverage of existing facilities. So greenfield plant versus a brownfield will always have a delta. Number two, the costs have definitely gone up over the last few years. In fact, the land itself is very, very expensive and the construction costs have been going up. So yes, the cost has been higher. So we are endeavoring still that the kind of ROCE, which we have been talking has been our basis for approving the capex, and Board has looked into that and when it has been approved. So yes, the capex is a little bit higher, but it is not apple to apple compared to 60,000 and 120,000. When we do another, beyond 120,000 limits of capex, it will not be proportionate.

Got it, sir. So lastly, if you can share the alloy wheel revenue for the two -wheeler and four - wheeler?

So alloy wheel revenue for four-wheeler of the quarter has been roughly around INR370 crores. Ankur, do you have two-wheeler?

Yes, two-wheeler is INR175 crores, and for four-wheeler around 370 crores for MKA and KMA also there was another INR60 crores.

Yes, KMA also we start consolidating, yes, sorry, my bad.

The next question is from the line of Raghunandhan NL from Nuvama Institution Equities. Please go ahead.

Yes. Raghu, capex of INR540 crores, as I mention ed, includes payment for land from INR110 crores. So if you exclude that, the capex, actual land bank is somewhere around INR430 crores. And as we guided at the beginning of the year, the capex of around INR700 crores to INR800 crores, we are still looking at that kind of rates. Only now delta will be this new project, which has been approved for alloy while, that capex whatever gets spent in the next few months will get added, that's number one. And number two, this debt of INR400 crores, as of now, we are sort of expecting this land what we spoke of around 100 acres, which we are discussing with the government. We are wanting to sort of align this with the payment linked to the accusation of the land. So otherwise for our operational and other capex, there is no fund requirement. This is only for that strategic investment, and we will time it accordingly. But directionally we are expecting it in this quarter.

Got it, sir. Sir, In revenue in the other segment, there is a very strong 70% growth Y -o-Y or INR250 crores of delta. Within this, how much would be the sensors, controller revenue would be? Would it be over INR250 crores ? Would we be on track to achieve full year number of INR800 crores this quarter?

Yes. I think the controller and sensor revenue was roughly around INR230 crores for the quarter.

So we should easily achieve that full number of INR800 crores, possibly higher than that?

Yes, yes.

And on the EV side, sir -- electric vehicle, EV side -- so this year, at the current run rate, we should easily cross or go closer to INR600 crores for the full year. So would you look at the EV revenue going over INR1,000 crores by FY26?

Ideally, next year.

I believe next year. That's wonderful to hear. And on the license side, we had a very strong growth of 27%. So any new projects here or notable increase in the LED share? Just trying to understand what has led to the strong growth.

Yes. So lighting, if you remember, Raghu, we had, I think few months back commissioned our new plant at Gujarat and that was also linked to the new model launch by one of the OEMs. So that volumes have kicked in fully in this quarter plus there is one more product SOP. So it is primarily -- these two things have driven the growth in the 4-wheel lighting business.

Got it. And this also aligns with the increase in content, which you indicated for taillamps with that...

Because the new products which we have launched are LED. Typically has been significantly higher than the traditional ones.

Yes, actually, in one of the businesses, which is yet to go into SOP. Fortunately, I think there is a lot of complexities and technology advancements, which are happening in taillamp. And one of the businesses, which we secured, the taillamp value is actually higher than headlamp because the taillamp is entire end to end almost like 4.5 feet with lot of , what you call, the welcome gestures, color change, etcetera, etcetera. So the taillamp lighting has been actually getting more and more complex versus headlamp.

That's good to hear, sir. And on the lighting side, would it be fair to assume that you continue to gain market share given all the new orders?

Yes. So we have been gaining market share, no doubt about it. But in terms of actual percentage, how much is year on-again, maybe -- there's an annual exercise, so we might be able to tell you at the end of the year.

Got it, sir. And on the margin side, given the strong growth plant additions, new product additions, so some costs are getting added and margins compared to last year are broadly similar. How do you see the triggers ahead on the margin?

No. Margins has been broadly, Raghu, in line with what we have been saying . In fact, we said at the beginning of the year itself before that, like we expect margins in and around 11% plus/minus maybe 0.5 percentage point range. So we continue to be in that range, and this is all as expected. There is no surprise. So based on this, and there have been some new business, what we have secured at a very, very competitive pricing. So while that has ensured that we continue to grow very, very strongly on the top line, it does have some impact on margins, but it's a calculated decision that we are taking because at the same margins on an average if you able to maintain, we obviously would look for a calculated growth, not that we are taking business at a loss, but even business are at less margin, we have been sort of accepting that. And that i s what reason of we guiding of that 11% on an average range for the full year.

The next question is from the line of Nikhil Kale from Invesco.

Congrats on a very good set of numbers. So my question is on the alloy wheel side. So the new capex that you have announced certainly is it being driven almost entirely by Maruti or also -- or are you also seeing kind of new inquiries or kind of alloys coming in from some of the newer customers and other OEM which you have to think?

Yes. So I don't see, Nikhil, a newer customer, but definitely other OEM as well. So in South in Kerala -- you know that we have been servicing the customers like Toyota, Honda, Renault, and Nissan. And there also we have been getting good business traction and we have been willing to debottleneck capacity there. Hopefully, we'll come back to you, to the Board maybe in the next couple of quarters. In North, you know that we have been servicing only two major customers, which is one you took, another is Mahindra, so these two major customers we are servicing from our north plants. I'm sorry, I missed, we are also servicing the Korean customers from the West plant.

Correct. I was coming to that one. So again, there you have some LPDC capacity, but now again, you're talking more about on the JDC side. So would there been any -- any progress or maybe getting more share of business or more orders because at LPDC don't seem to be increasing capacity?

So, Nikhil, business is there to be taken, but at what price is always the question because once you go for fresh investment, you have to also see whether the business is remuneratory enough to justify the fresh capex I think that's where the dilemma has always been there. We have been very, very calculative in terms of new investment. And we don't want to make a new investment commitment with significantly low margins. So I think we have been discussing with the customers. They are very, very positive. The bus iness is there to be taken. But it is the price which is currently being discussed.

Okay. And the secondly, on the margin. So a couple of entities that caught my eye, one is on Kosei Minda also which is something that you have kind of recently gotten full control. What is the target over there? I mean, over the next maybe couple of years? Where do you see the margin stabilizing at Kosei Minda? And secondly Minda Kyoraku, last year, we’ve seen significant margin contraction. So have you seen any kind of an improvement coming up in the first half, so again there and we see margins?

Yes. So KMA, I think I'm happy to communicate, Nikhil that in the last quarter, we were in loss in terms of EBITDA. This quarter, we have actually turned into the green not at the bottom line, but at least EBITDA is positive. And in Q1, it was negative. So our first goal is to be PBT positive, which will take some time because you know that the plant which you have taken was into losses deep losses in fact i t has a huge carry forward losses of more than INR100 crores. And it's a tough task because it was a second hand plant, which was built up, put up by our JV partner and it takes lot of upgradation, etcetera. And that takes time because we need to do upgrad ation in running plant. It's little bit complex and time taking exercise, but the good thing is that directionally it is moving in a positive direction. And as I said, our first goal is to be PBT positive and gradually take it closer to our -- group profitability. It definitely will remain a little lower in terms of margin, and everything versus our North plant because, as I said, it's a very old plant. And it has its inherent disadvantages and the cost structure in South is little more than the cost structure in North. So all those structures do play back but we are working on it, and hopefully, this will be in black soon. Another you have asked for Minda Kyoraku. So Minda Kyoraku also has been doing stable operation over the past few months. The Bangalore expansion, which was started sometime last year has been now at a stable level. And so -- but in terms of profitability, I think team has been working very, very rigorously, very aggressively. But still this quarter also has been in loss, and we are expecting a significant improvement in the coming quarters. And Q4, we are expecting to be significantly in green. So directionally, things are improving there. But if you see for last 2 quarters, it is in red.

Got it. And just to follow up there, sir, there, I think the gross margins have come down. So was it just because of, say, inflation because -- or was it more related to the ramp-up?

No, it is primary related to the margins, gross margins, because the new business and etcetera, what you have taken -- somewhere the actualization cost has been more than what we had anticipated. So that's what we've been trying to talk to our customers, if possible, to get s ome price increases. In addition, we are also doing cost optimization and cost reduction exercises at the business level, which have also yielded some results. But yet this is initial journey, it will take maybe another couple of quarters, and hopefully, we should be in black soon.

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

Yes. Sorry about that. So first question is on the controller business. Obviously, that's right now part of the stand-alone entity. What I do remember that there was some commentary that once the EV plant starts at the JV level, there will be some -- either there will be related party transaction between the stand-alone and the JV? Or there'll be a move of some of these products into the JV? So could you just remind us of how that's going to work, sir?

Yes. So as of now, the -- all the new business which we are getting stays in controller. We have not yet moved to the JV and we're not expecting any significant shift or signi ficant business to move from controller to JV at this point in time, if it will be, it will be very, very nominal.

Okay. So the motor controller revenue that we -- or the orders that we have, that will be made separately at the JV level?

The motor controller is anyway part of the JV.

Right, right. But these controllers, you will not be moving. The existing controller business will remain in the stand-alone business?

Yes, yes, yes.

Okay. Okay. And second is, when I look at the number of new plants that are going to start for you, I mean, there's a lot of SOPs that are coming up second half this year as well as first half FY '25. So do you envisage some kind of a margin hit for us given that there'll be some fixed cost that might start hitting us while obviously, these plants can take some time to ramp up because it seems like a lot of it is getting bunched up in the next, say, 6 months odd?

So you are right, Mukesh, and that has been one of the reasons why that -- despite a significant growth in topline, we are not able to see significant growth in EBITDA, in fact, it looks like all the costs are fixed. So while there has been increase in the RMC and has impacted our gross margins, another reason as you rightly mentioned, is with all these new plants where the fixed costs are not absorbed or they are maybe marginally into that like the JV with TACHI -S or Buehler or some other products. They are actually margin dilutive. So to y our point, yes, there will be this near -term thing for maybe two quarters, three quarters. But as I said, the margin on an average of around the guidance what you are giving of 11% plus-minus some delta bakes into that kind of cost.

Okay. That already bakes into that. Okay. Got it. And then lastly, if you could provide some time lines of this 86-acre plot that we have now kind of look back for in Pune, so I do remember that you had mentioned that there is some kind of a consolidation that you' re looking at. Now that you are also looking at more land parcels across other regions of India. So I mean, what could be the broad time lines on when we can start expecting some consolidation of your plants in some of these large locations?

Yes. So Mukesh, the idea is that we don't want to sort of rock the boat unless it is required. So when I say that I mean if, for example, I have a running plant in that region. We have around 12 plants, 13 plants in Pune. So as long as the incremental growth is met by the existing plants, we don't want to spend more in building new plants unnecessarily get into the more capex and consolidate for the sake of it. Whenever they need more capacity, like for this lighting four -wheel plant in Pune, the team actually came up with another plant in Pune and that's what -- that's when we said no, we can't allow two plants in the same region. Build a bigger plant and move the existing plant also there. So what we are doing is, on one hand, we are creating a land bank. A nd on the other hand, we are creating -- keeping that flexibility so that whenever there is a new business, normally customer also ask do you have capacity before awarding a new business? So we can always go and say, now we have a land bank. If we get more business, which needs more capacity, we'll put a bigger plant and move the existing also there. So the point is, we have got a bigger land bank. We have got -- we have negotiated some better incentives from the state government. But the capex of constructing new plant, we will time it based on when the business need is, not just start consolidation and spending money.

Thank you. The next is from the line of Raghunandhan NL from Nuvama Institution Equity. Please go ahead.

Thanks for the opportunity again. Sir, firstly, on the associate profit, you indicated that there was some amount relating to the previous quarters. Was it a material number? Can you share that number?

Yes. It's not material overall thing, but if you see INR53 crores it is material. So it does include almost like INR7 crores, INR8 crores, which relates to the previous period.

Got it, sir. And secondly, EV specific capex under Buehler Uno Minda EV systems, how would be the gross asset turnover here currently at the company level, you have 2.5x?

FATR, you're asking? It's too early, Raghunandhan, to look at FATR, too early, the plant is yet to have SOP. Actually, the motor -- as I said, SOP will only be in January and the EV has just started in last quarter. So I think let us give some time, and I would request we look at FATR only from FY '25 and FY '26, because until then, we will have all then capex done and you will not realize the full potential.

Got it, sir. And just lastly on the PLI scheme incentives, just wanted to understand any time line you see for getting those benefits? I mean, that could also add to the margins?

Nothing we are expecting in current financial year, Raghu.

Thank you. The next question is from the line of Sabyasachi Mukerji from Bajaj Finance AMC. Please go ahead.

My first question is, you have grown revenue for the first half, around 24% Y-o-Y. What's your outlook on H2? Are we looking at a similar growth? Or will there be some slowdown?

So Sabyasachi, we normally never comment on the top line because our destiny is linked to the OE volumes. Our endeavor always has been whatever is the industry growth, how do we outperform the industry growth? And as you would have seen in the first half here, this is the full year numbers of industry volumes are flat, yes, there is some improvement in PV but not so improvement in two -wheeler, etcetera. On an overall basis, that is flat, but our revenues are better by almost 25% for the first half. So our long-term guidance has been whatever industry grows, industry grows by 10%, we grow by 15%, or if industry grows by 8%, we grow by at least 12%. So 1.5x is the floor, which we have kept a target for our growth versus the industry growth. So coming to the second half, if the momentum remains where it is, we do expect the similar numbers for the rest of the year. But yes, as I said, the entire question is the industry volumes. So if industry volum es remain robust, we do expect for the same trend to continue.

So sir, I was asking that given the conversations you are having with the OEMs, probably we understand that there could be some bit of channel filling done in the quarter 2, just ahead of the festive and there could be a production a bit lower in the Q3. What's your conversation, based on your conversations, how does the Q3 and probably the Q4 look like? Just in sense I was trying to understand?

So normally, Saby asachi, we do get indents which are on a rolling two- month basis but the indents many times get firmed up only at the end of the month for the next month. And within the month also, there are some changes. So while the rolling two months to three months numbers look attractive, it looks better than what they were last year, the sheer reason is that this time, the festive season has been delayed by almost like three weeks. So there will be some inventory build-up which continues to happen in October as well, but we are now in the festive season and this is the week where the maximum delivery of the vehicle happen, yes. The numbers will take some time to come out. But on the current rolling three month basis, we do expect a little better than what they were last year.

Got it, sir. Second question is in terms of margins, I understand that few of new plants are getting commissioned and also you are getting new EV orders at competitive prices that you have called out. But as we progress, do you see some improvement coming in probably three quarters, four quarters, five quarters down the line when things get settled down and probably you have a better handle on the cost? Can you see some improvement coming in the margins?

Well, definitely, we have been consistently working on to improve our margin profile. But as I said, we are in a competitive world. And there has been some business which we have taken at a very, very, I would say, increased competitive prices. So that does have some impact on the margins. But yes, from medium to long -term, we continue to work on improving our margin profile, but how much is difficult to communicated today, but maybe I will be better placed to answer your question for next year, maybe when we discuss for the Q4 numbers.

Thank you. The next question is from the line of Siddhartha Bera from Nomura. Please go ahead.

So just wanted the clarification on this other business, we have seen like about INR150 crores Q-on-Q jump. And you said INR230 crores from sensors and controllers. We already did INR200 crores last quarter. So how -- does it still add-up increase? Can you just explain what - - any other things which are also jumped in the current quarter?

Yes, Siddhartha. So blow moulding business with their new plant has also done well. So there is an increase there. Then I think our Friwo plant has started. The revenue is coming from there. Aftermarket business has al so grown. So all these other components have grown. So even our PCB business catallact, their outside chain is also better. So all of this has contributed to this growth.

Okay. So Friwo contributions will be how much in the current quarter?

We’ll take that offline, Siddhartha.

Thank you. As there are no further questions, I would now like to hand the conference over to the management for the closing comments.

I would like to thank everyone for joining on the call. I hope we have been able to respond to all your queries adequately. For any further information, we request you to please do get in touch with us. Stay safe, stay healthy, and thank you once again.

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