- #DynamaticTech signs long-term contract with #DassaultAviation
- Reviewing #MetroBrands' Q3 results with management
Samina Nalwala and Agam Vakil speak to Dynamatic Tech and Metro Brands' management on 'India Market Open'. #NDTVProfitLive
Guest List:
Udayant Malhoutra,CEO and MD, Dynamatic Technologies
Nissan Joseph, Chief Executive Officer, Metro Brands
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- Reviewing #MetroBrands' Q3 results with management
Samina Nalwala and Agam Vakil speak to Dynamatic Tech and Metro Brands' management on 'India Market Open'. #NDTVProfitLive
Guest List:
Udayant Malhoutra,CEO and MD, Dynamatic Technologies
Nissan Joseph, Chief Executive Officer, Metro Brands
_______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
Visit NDTV Profit for more news: https://www.ndtvprofit.com/
Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports
Follow NDTV Profit here
Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit
LinkedIn: https://www.linkedin.com/company/ndtvprofit
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03:13 Welcome back, this is India Markets Open and we are now in conversation with the management of Dynamatics Technology, Udyant Malhotra.
03:21 He is the CEO and MD who is joining us to give us and tell us a little more on the latest update with respect to the company.
03:29 Well, we understand that the company has signed a long-term contract with Dassault Aviation and system manufacture and assemble critical aero structures,
03:37 structures for Dassault's flagship Falcon 6X aircraft and collaborations are likely to and expected to strengthen partnerships between the two companies.
03:47 Udyant, good morning and thanks for joining in. I have given the basic details out for our viewers.
03:53 If you could perhaps help us understand what this particular partnership means and what this contract can perhaps mean for the company as well.
04:03 Thank you, Agam. As you are aware, Dynamatics is a long-term tier one to Airbus, Boeing, Bell Helicopter.
04:13 We are a global sole supplier of various major and complex assemblies for them, aero structure assemblies.
04:21 An aero structure is typically hundreds, perhaps even a thousand parts put together.
04:27 So we have a subsidy of ours that makes little detail parts and then we put them together.
04:33 So this facility around me is a facility where we make a flat pack beam assemblies for all the variants of Airbus 318, 319, 320, 321 and 8330 on a global sole supplier basis.
04:50 These are, you know, what you see under the wings that move the flaps up and down, that lift aircraft up into the air when it's taking off and bring it back to Earth safely.
05:01 So they're very flight critical and complex.
05:06 Over the years, we've developed a lot of excellence out of the production at Bangalore and our subsidy in UK, which makes certain alternative set of parts.
05:19 So we do complex five axis machining in the UK. We do all our complex and highly crafted ship pedal parts in Bangalore.
05:31 And over here we have the major assembly. With the latest contract, as you know, Dassault is going through a big boom across the world.
05:40 Not just in India, they have a huge order book and backlog for their Apel fighter jet.
05:48 And also they are a very, very successful manufacturer of very high end business jets.
05:56 The Sixx is their latest business jet.
06:00 Given their huge demand, they are looking at India as the global manufacturing hub. And so this actually is the new, the brand new Falcon Sixx.
06:14 And so when we talk about aero structures, we've signed actually two contracts with them.
06:19 One is to make detailed parts and one is to assemble those into segments of aircraft.
06:27 So this would be a very solid start to a long term business with an extraordinary global company called Dassault.
06:39 Right. Adhiyan, if you could tell us a little more about the kind of order book that the company has currently.
06:44 Also, what this particular contract would mean and how long is this contract for in terms of a time horizon?
06:52 So I, if you don't mind, I won't share financial data. I will give you whatever you need.
06:58 Otherwise, you know, this is that period of time where we are in a silent period and we just need to be careful about any numbers.
07:09 We have a very, our order book is of the company in aero structures is around five and a half, six thousand crores existing.
07:20 And in addition to that, we have an order book of our hydraulics products of another roughly five, six thousand crores.
07:29 So we have very strong order books. Typically, these kind of products are life of program.
07:35 So I haven't even taken the life of program. I've just taken what we have.
07:40 If you take life of program, it would be double or two and a half times that.
07:45 When you start manufacturing these complex products, you typically engineer them, work with the customer and work through the lifecycle of that product.
07:56 So the six X being the latest of their aircraft, we will have a very, very long business on this.
08:05 And then, of course, it will grow because this is just the first step.
08:09 The first step with Dassault. Dassault is very, very bullish in India. India has been a big market for them for 70 years, not just the Rafale, but from the Tufani, the Mirages.
08:22 They've been a very strong industrial partner to our defense sector.
08:28 With the emerging world class manufacturing that they're seeing out of India, they want to make India manufacturing hub as well.
08:37 Right. Right. I also want an idea on the kind of opportunities that you see in the markets that you already cater to.
08:45 Areas that Dynamatic Technologies hasn't yet covered, but does plan to going forward over the span of the next few years.
08:55 So actually what we try and do is not sell products. We try and sell expertise. We try and sell capability.
09:03 So a lot of, except for our really long term shareholders, who are very strongly associated with the business, we grew very strongly for two decades.
09:13 And the last decade, we basically gone sideways.
09:17 What we explained to all our shareholders was this was a unique opportunity in the last decade to take a very high quality and capable automotive business and to segway it completely into a world class aerospace company.
09:34 So we did that for 10 years. So we've been a global supplier to our partners for the last 17.
09:41 So let me just tell you, two years ago, we won Airbus's Global Sustainability Award. It's one of its best of the best, global best of the best award out of the 18,000 suppliers.
09:52 We just gave it to one company. A few months ago, we were a supplier for Boeing.
10:00 And it's again, one company out of 11,000 companies. We are Bell Helicopters' best global supplier. So what we see now is the opportunity to do bigger and better things on the back of this demonstrated capability we have.
10:17 So I think we are going into the next wave, which will be the next decade. And I think we've done that focus of real change into a business that we want to do.
10:31 It takes a long time. Everybody talks about aerospace and defense, how they do it. Everybody is starting now, it will take a decade to do it. We've got it behind us.
10:42 All right. And also, one idea in terms of the kind of traction that we have seen with respect to input costs.
10:56 I reckon that we have seen a little bit of a reining in of the kind of inflation that we saw maybe in the previous few years that hasn't been the case in the last couple of quarters.
11:10 What is your observation and what kind of impact do you think it could have on your margins? Once again, I'm not asking about this specific quarter.
11:20 No, no, this is a very fair question. And it's a good question. So the last few years, especially after COVID, have been a hugely inflationary period.
11:32 The advantage in the aerospace world is that we are a fully enabled supplier. So we have access to long term contracts of all our major customers on material.
11:45 So we have a full 100 percent pass through on the material side. In terms of manufacturing, our internal costs, we continuously have efficiencies that come from efficiencies of scale and also through productivity gains.
12:04 So we are able to be ahead of the inflation curve. That said and done, very specific to dynamics, we have bulked up, we have muscled up for the next wave of orders.
12:16 So we've actually built around us multiple plants capable of doing double or two and a half times what they're doing on the basis of anticipated orders that we will get this year.
12:30 So what is interesting is we've already absorbed the cost increase on an existing volume of business.
12:39 But the incoming volume of business will be far greater and will not necessarily have the same additive costs.
12:48 So I think we're in a very good position, as I said, to go into the next S curve. Very specific to us.
12:56 Right. Well, we leave it at that. Thank you so much for joining us and taking us through the prospects of the business, as well as the latest contract that you have at Dassault.
13:05 And of course, we continue to keep an eye and track on the upcomings for the company. We wish you the best for the future.
13:11 But on that note, we slip into a short break. But on the other side, we get you the management of Metro Brands. Stay tuned in.
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16:46 Welcome back. You're watching India Market Open.
16:48 It's a stable day of trade after the fall that we saw over the last three days and Nifty is keeping itself together. Stocks like HDFC Bank as well, trading around levels of 1500.
16:57 Well, one company in focus this morning is Metro Brands. They reported numbers yesterday after markets closed.
17:04 The management of Metro Brands is joining us on the show this morning. Nisan Joseph, Chief Executive Officer at Metro joins in.
17:11 Good morning, Mr. Joseph. Thanks a ton for joining in. Mr. Joseph, we were talking just before we came to you in the break.
17:19 You did say that the numbers were actually pretty good and better than what you'd have liked.
17:24 But the markets at this stage, Mr. Joseph, don't seem pleased. The stock is down 5%.
17:29 Would you help our viewers and investors understand more about what went on in the quarter for you?
17:35 Sure. Samina, good morning and thank you for having me.
17:37 I think when you look at our numbers of 33% EBITDA, you're looking at a 17 plus percent PAT.
17:43 You know, those are numbers that most retailers would yearn for. Right.
17:47 And I think in our footwear industry, we're definitely best in class with those numbers.
17:51 What you're really facing and I think what people are trying to read behind is the fact that we're going against a COVID bump from last year.
17:58 So last year, there was a lot of pent up buying, wardrobe refreshes.
18:02 A lot of things were happening last year with the consumers and they weren't traveling as much.
18:05 You know, you look at people, they're out traveling today. They're watching movies, as we saw on IMAX's numbers.
18:10 So they are out doing more things than they did last year and they're not refreshing their wardrobes and there's no pent up buying happening.
18:17 So when you compare it against last year, you know, of course, it causes some people to raise an eyebrow or two.
18:24 However, if you look at the trend that Metro Grants has had over the many, many years, right, we've grown our profits consistently, both in a rupee value, but also as a percentage.
18:34 We've maintained our EBITDA north of 37 percent.
18:37 You know, all our numbers are actually north of the guidance that we've given.
18:41 So I'm quite pleased with the quarter. And, you know, this unfortunately, this COVID bump from last year continues through this quarter as well.
18:49 So we're not going to see a normalization of those numbers till Q1 of fiscal 25.
18:54 Right. So then we start getting normal numbers that you can use the same metrics.
18:58 In retail, everybody looks at comparable to last year, which I think is usually a good number.
19:03 But comparing it to last year, the year of the COVID bump, is probably not the best way to look at it.
19:08 I think one should look at the fundamentals of the business, how gross margins when it comes to product is at 60 percent, which shows that the consumer appreciates and wants our product.
19:18 And there's not a slowdown in it. When you look at our EBITDA, it's north of 30 percent.
19:22 It's actually 33 percent. And then when you look at our path, it continues to be north of what we guide it to.
19:27 We guide to 15 to 17 percent. So overall, you know, I'm quite pleased with the numbers.
19:33 Indeed, in fact, it's a stable company. I think that's what matters.
19:36 You've delivered quarter on quarter growth over the historic past and also paid dividends.
19:42 So a couple of things that actually stand out for Metro. Let's talk about margins, Mr. Joseph.
19:48 The EBITDA margins have declined about 300 basis points.
19:52 Is this because of your net margins that you're sort of getting on your products or is it operational efficiency expansion that you're investing in, which is impacting your margins?
20:05 So I think a couple of things. One of them is the deleveraging.
20:08 You know, as sales are coming in at the same rate, you get a little bit of deleverage there. That's number one.
20:15 But number two, you know, we are there's two other factors. One of them is the in-data accounting that impacts us in the EBITDA, the way we have to account for it, especially with the number of new stores we've opened.
20:25 We've opened north of 80 stores this year. Right. So that kind of also takes a little bit of a toll.
20:30 I think somewhere in the in the 60 basis point hit there. And then also, you know, we are now back to business as usual.
20:37 So our expenses are all fully happening. We're not doing many more Zoom meetings.
20:41 We're actually getting down in person to see stores to have store managers come here and visit us.
20:46 We're also investing in technology and talent.
20:49 You know, and we're trying to get make sure that we set the company up for continued growth to ensure that we have the kind of performance that we've done in the past that continues to grow as we go to the future.
20:59 So while there is a little bit of degradation on the EBITDA, let's not forget, it's still 33 percent, which is north of the 30 percent that we guide to.
21:08 No, I agree. I think it's better than what you've guided for.
21:11 I think we just spoiled after seeing the kind of margins we have for Metro in the past.
21:16 Talk to me about expansion. How many new stores have you added this quarter?
21:20 Yeah. So we've added north of 80 stores this quarter. You know, we closed the quarter with 826 stores.
21:26 And I'm just talking standalone numbers because, you know, the Kravitex numbers can be quite dilutive in some ways as we go through the cleanup of Kravitex.
21:33 But we closed with 826 stores. We guided, Samina, that we would open 100 stores for two consecutive years.
21:41 And, you know, we're already north of 80, so we're well on our way to crossing the 100 that we said we would in this fiscal year.
21:48 And next fiscal year, we hope to open an additional 100 plus stores. That is not counting our Foot Locker and our Fila stores.
21:55 Right. And as you know, both of those have immense opportunities in a country that is just starting to get active,
22:01 that is starting to lean towards athleisure and sneaker culture.
22:06 Right. I want to talk to you about the new growth engines.
22:10 I think that's what the markets would like to know more about as we, of course, try to look ahead.
22:15 Fila and Foot Locker, that's the big bet Metro is making.
22:19 When is this going to start turning revenue creative? And also, what is the expansion plan there?
22:25 What sort of top line contribution are we expecting from both these international brands in the near to medium term?
22:31 Sure. I think, first of all, let's not forget, we have immense growth opportunities in our Metro shoe stores, in our Mochi, in our Walkway and in our Croc store.
22:40 So we have immense growth opportunities in all those four verticals. Right.
22:44 So but having said that, what we are excited about also, not getting taken anything away from our existing amazing business opportunities,
22:52 is that we have two new brands of Fila and Foot Locker to add to that portfolio.
22:57 The two things exciting about both of those is that, one, it gets us into an athleisure space,
23:02 a space that we thought was a white space in our portfolio of brands,
23:06 a space that we predict is going to be the fastest growing segment in the footwear business in the years to come.
23:13 So that's one part of it. And the second part of it, obviously, it's new to us. Right.
23:16 So it is something that we are now going to be able to add on to what we have.
23:21 Looking at the growth plans, you know, this year, Fila is going to be quite an investment, as I call it.
23:27 It's a drag on our on our performance. But that's OK. We look at it's a long term, multi decade agreement with Fila. Right.
23:34 So like everything we do at Metro, it's not about this quarter or next quarter.
23:38 It's really about what's right for the long term of the business, the continued growth, the sustainable growth.
23:44 And that's how we want to set it up. So this year has been quite the cleanup year for Fila and will continue to be this quarter as well.
23:51 It will continue to be a little bit of a drag on us. However, starting in twenty five, you know, it's not going to be dragging us.
23:58 And towards the end of twenty five, it's going to probably be not a drag at all or not dilutive to our earnings at all.
24:04 By the end of twenty five in twenty six, we actually expect Fila to be creative to our existing numbers.
24:10 Right. So that's when you'll also see us accelerate. So this year has been clean up.
24:15 Next year's repositioned the brand and the third year is accelerate the brand. Right.
24:19 And then and from there on out, we can keep growing that. Speaking of Foot Locker, you know, we are hoping to open four to six stores in Q3 of this coming year.
24:28 So somewhere around the October time frame, we should be starting off. We want to stay very focused on our growth.
24:33 And it is a very premium product that Foot Locker has in their stores. It's a very premium retailer.
24:39 We want to make sure that we build it correctly.
24:43 So we're able to capitalize on the backside of that growth. And that as well is a multi-decade agreement. Right.
24:48 So we do like long term relationships with our partners and we support that Foot Locker,
24:54 I think, has the opportunity to be in every major city with multiple outlets in India in the next three to five years.
25:01 So those are the kind of the runways we're looking at.
25:04 Joseph, another quick one is Fila and Foot Locker better margin products?
25:11 So Fila is definitely a better is accretive to our numbers, will be accretive to our numbers.
25:17 Foot Locker is a different structure altogether. Right.
25:20 It's a retailer that sells third party brands. And what that does is, you know, brings in your RCE numbers.
25:28 And it will help the other aspects of our business. You know, the EBITDA should continue to not be a drag on us at all.
25:34 But it is a totally different business model. Right. Fundamentally, Samina,
25:38 there's not many businesses out there in retail that do 17 percent profit, 33 percent EBITDA.
25:44 So, you know, when you look at something accretive, you know, it's not that it's going to be when you look at adding on another
25:49 another vertical, it's honestly going to be accretive.
25:53 But, you know, the synergies that it brings, the learnings that it brings, the the the optimization of scale that it brings,
25:59 the ability to get better deals and rentals, all of those have a trickle through effect throughout the entire Metro Brands portfolio.
26:09 Joseph, one quick word. I know you're picking up international brands, partnerships for the India market.
26:15 Any global plans? Very quickly, before I get told off by my producers.
26:20 You know what? None. There is too much opportunity in India.
26:24 We have too many options on our plate that we need to focus and maximize this.
26:29 And I want to make sure that the management team here is absolutely focused on taking advantage of India's growth story.
26:36 So if we do have an international plan, it'll probably be in the year 2050, five zero.
26:44 Right. Thank you, Mr. Joseph. Congratulations. I guess the going is going well for Metro.
26:50 We'll speak to you soon and have a more detailed conversation on your business.
26:54 With that, it's a wrap on India market open.
26:57 Ajay Shrivastava, MD Dimensions Consulting joins us on the other side on Talking Point.
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