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00:00 [MUSIC PLAYING]
00:03 Hello and welcome.
00:10 You're watching the Small and Mid-Cap Show
00:12 here on NDTV Profit.
00:13 I'm Harsh Saita, and with me is Mahima Vacharajani.
00:15 We're going to take you through two very interesting companies
00:18 today.
00:19 First off, we have the management
00:21 of Sandhaar Technologies, an auto-ank play.
00:24 We have with us Mr. Jayan Dawar, who
00:26 is the co-chairman and managing director
00:28 at Sandhaar Technologies to talk to us about Q4 and beyond.
00:33 Welcome to NDTV Profit, sir.
00:36 Auto-ank play, typical.
00:38 And let's try and get in some perspective on the numbers,
00:42 because very strong set overall in Q4.
00:45 So talk to us, Mr. Dawar, what has
00:48 led to this very strong performance for Q4
00:50 specifically?
00:53 Thank you, Harsh, for having me on this morning.
00:56 Well, we are happy with the numbers
00:57 that we've brought up in Q4 and back
01:00 to the entire year of financial year '24.
01:06 We've been putting in capacities,
01:09 and I'm glad these capacities have now started to rectify.
01:13 So while the overall industry grew at about 8.99%,
01:18 I'm happy to say that we at Sandhaar
01:20 achieved a growth of 21.04%.
01:24 If you look at just the quarter 4 numbers,
01:29 we grew by 19% compared to the industry, which was almost 2
01:36 and 1/2 times less.
01:37 So our joint ventures, seven joint ventures,
01:41 they've all come into play.
01:43 They've all become profitable.
01:45 Our new lines are now ready, especially
01:48 with the EV project lines and EV products.
01:51 So our continuous focus on generation of more free cash
01:56 flow, deleveraging of the market,
01:59 concentrating on improvement on capital employed,
02:01 returns on equity, I think they've all played out.
02:04 So we're very happy with the numbers
02:06 that we've been able to achieve.
02:08 We also feel that going forward, the industry
02:12 seems to have traction, and we will continue
02:15 to grow at the same levels that we have in not just
02:19 the last year, but even the year before that.
02:22 Right.
02:22 Mr. Dhawar, Mahima joining in.
02:25 I want to understand that you've clocked a significant revenue
02:27 growth.
02:28 But if we see in the past two, three years,
02:31 the rate at which the revenue is increasing
02:33 is going down significantly.
02:35 Like in 2021, it was at 24%, '21, '22 was 25%,
02:40 but now it is 20%.
02:42 So I want to understand that going forward,
02:44 do you think this trajectory of the run rate of revenue
02:47 at which it is increasing will decline?
02:50 What is the way forward in the long term?
02:53 Mahima, if you look at the numbers that you've quoted,
02:56 we have an internal target of growing at double
03:01 than that of the industry.
03:03 And the numbers that you've brought in the last three
03:06 years, if you were to calculate on the basis of how industry
03:09 grew and how we grew, those ratios remain the same.
03:13 So suffice for me to say that irrespective
03:16 of the growth of the industry, we
03:18 continue to grow by two, two and a half times.
03:21 And that is the status that we like to follow.
03:25 Sure.
03:27 Mr. Dhawar, I want to try and cover, especially
03:29 on the margin front, your longer term guidance is roughly 12%
03:33 to 13%.
03:35 How quickly do you get there in terms of timelines?
03:39 What's the plan?
03:41 Well, Harsh, very quickly there.
03:45 We are a company that's a combination of growth capital
03:50 and growing very rapidly as also stabilizing the investments
03:55 that have been done in recent past.
03:57 So sometimes when you are growing,
03:59 a part of your EBITDA gets converged
04:02 on to growth capital.
04:05 However, now that we are stabilizing
04:07 and we have been doing that in the last two years,
04:10 our margins have been improving.
04:12 So this year, while we've seen a growth of almost 140 basis
04:16 point growth in the margin, we believe
04:20 that with continuous growth also coming,
04:23 including CAPEX going on in the next few years,
04:26 the next year we are pretty certain
04:29 that we'll be able to improve that by another 50 basis
04:32 points or so.
04:33 Eventually leading to 13%, that I believe
04:37 is a mature margin that our industry should have
04:41 or the auto ancillary should have.
04:43 Understood.
04:43 Well, Mr. Dhawar, since you mentioned CAPEX,
04:47 I want to know what are your CAPEX plans for FY25 going in?
04:53 Well, like my colleagues in the office try and remind me
04:58 that our maintenance CAPEX itself is between 3% to 4%
05:04 of our revenue.
05:06 So if you calculate that, that's kind of a standard number.
05:09 Beyond that, while a large part of the CAPEX
05:11 has already happened in the last three years,
05:14 there is still an expansion that goes on
05:16 in the form of two or three more manufacturing
05:19 plans that are being set up in this year, which
05:22 will be maybe another 3% to 4% of our revenue.
05:25 So that's the kind of a CAPEX that we
05:29 are looking at in FY25.
05:33 OK, and I want to talk a bit about one of your products,
05:38 Smart Locks.
05:39 What's the kind of market size that you have in this space?
05:46 And what's the kind of opportunity
05:48 which you are trying to tap in where this is concerned?
05:51 Because it's a large chunk of your business.
05:55 Yeah, Harsh, I'm very happy you asked that question very, very
05:58 timely.
05:59 You're aware in terms of absolute numbers,
06:01 we are the largest lock player in the world today.
06:04 And as locks now move into the new technology of Smart Locks,
06:08 we are very happy to announce that mass adoption
06:11 of this technology is happening in India.
06:14 We will have two major launches this year with two major OEMs.
06:19 And that happens in the month of 1 in October, 1 in November.
06:22 We, as Sandar, are 100% suppliers of these Smart
06:29 Locks to these two mass adopters.
06:33 The second thing is, in terms of value,
06:36 a Smart Lock can be 8 to 10 times more
06:39 than that of a manual lock.
06:41 And therefore, for us as a company,
06:43 this would be a major pivot in our operational output
06:49 of locks.
06:50 So we are very, very happy, very excited
06:53 to have this thrust upon us, which
06:57 will lead us to not just better revenues,
07:00 but much better profitability as well.
07:03 Well, point taken, Mr. Dhawar.
07:05 I tried to shift focus on EV.
07:08 From your Q3 call, you had said that you're
07:10 launching a new EV product in Q1 FY25.
07:13 So I want to understand that, is it on track, one thing?
07:17 And are there any kind of client acquisitions
07:19 that you've already made for this particular product?
07:22 Yeah, two things here.
07:24 Obviously, we are in touch and we
07:25 have orders for which we will start deliveries
07:28 from July of this year.
07:30 These would be in three different verticals
07:34 of auto EV products.
07:37 One is the motor controller, the other is the battery charger,
07:39 and the third is the DC-DC converter.
07:42 Clients for which have already been signed in,
07:44 we are at final stages of giving them pilot locks.
07:48 The ICAT approvals have been done already.
07:53 Again, very, very excited.
07:56 The added USP in our case is our product
08:00 is almost completely localized compared
08:03 to several of our peers and competitors
08:07 where the constituents of these parts
08:11 are still being imported from China here, there,
08:13 and everywhere.
08:14 And as the OEMs now want more localized product,
08:18 we are glad that we are in a stage
08:20 where we can give them localized products.
08:23 And therefore, we do see a quick and rapid expansion
08:28 into the Indian EV landscape.
08:31 Got it, sir.
08:32 And just with regard to the way in which you
08:34 are describing the pipeline, what's
08:36 the kind of growth number you would expect to clock?
08:40 Is there a benchmark?
08:41 Is there a three-year target that you have
08:43 in terms of doubling revenue?
08:45 How should one look at the number?
08:48 Well, I will not give you major forecasts
08:51 except to say that I see no reason why the results that we
08:58 have announced or the growth that you
09:00 have seen in the last year will not
09:03 continue into the next few years.
09:07 OK.
09:09 You know, Mr. Dhawar, I also want to understand,
09:11 you know, the other segment in your overall segmental breakup
09:16 is quite taking up.
09:19 It's going forward each quarter and each year.
09:21 So I want to understand what comprises
09:24 of this other segment.
09:26 Well, the other segment has several parts
09:29 which are not significant to the revenue per se individually.
09:34 They could be toolings.
09:35 They could be our plastic business.
09:39 There are several businesses like that.
09:42 In fact, as you see the EV space coming up,
09:45 for some period of time, it will probably
09:47 fall within others for us to say that this
09:52 is a significant portion.
09:54 So that is the combination of others that you see.
09:58 You know, toolings, for example, it is important for us.
10:03 It is strategic for us.
10:04 But in terms of revenue and profitability,
10:06 it is still insignificant in the size of the company.
10:11 All right.
10:12 I want to switch focus a little bit
10:14 towards what the downside risks on margins are.
10:19 You've guided for a 50 basis point expansion.
10:23 How much of this would be impacted by, say,
10:27 for example, commodity prices or input prices and any input
10:32 price pressure that could come?
10:34 That's my first point.
10:36 And how would that, therefore, impact your numbers
10:39 with regard to borrowing as well as your debt?
10:45 Well, Harsh, to answer that question, commodities,
10:47 of course, is an astrologer's play.
10:50 And it's very difficult for me to comment
10:52 on how it would play out.
10:54 The only thing I want to say there is for us as auto hands,
10:58 it is a pass through for us.
11:00 So whatever commodity prices may be,
11:03 it is typically passed on to the OEMs.
11:06 The only thing is we do suffer a lag.
11:08 And that lag is a period of typically three months
11:11 that happens while the new costings are being
11:15 arrived at by the customers.
11:16 This is a part of our typical agreements.
11:19 Of course, when prices go down, we
11:20 do also have the benefit of lag of those three months.
11:24 But over a period of decades and all,
11:25 typically, prices do keep moving up.
11:28 So there is, of course, that particular concern,
11:32 not very large.
11:34 But yes, it comes in play.
11:36 Of course, the other attributes of whether there
11:39 could be geopolitical stuff or political stuff or anything
11:44 to do with health, weather, those
11:46 are situations that obviously lie as force majeure for us.
11:49 It's very difficult for me to comment right now.
11:52 Fair, fair.
11:52 Take a point.
11:53 So 50 basis points of expansion largely
11:56 seems to be comfortable.
11:57 It seems comfortable.
11:59 I mean, we are all playing on the macro advantages of India
12:02 as how it stands in the economic framework in the world.
12:06 We are all anticipating the kind of growth that we are.
12:09 We still talk about its important demography
12:12 and therefore the advantages that come out of it.
12:15 We also talk about it being the fastest growing economy.
12:19 If that be the case, I see no reasons whatsoever in us
12:23 not being able to achieve what we are setting out to achieve.
12:25 Mr. Dower, thank you so much for taking our time
12:31 and speaking with us at NDTV Profit.
12:34 Well, one stock that is in focus on the back of earnings
12:37 is Execates Technologies.
12:39 It came out with its Q4 numbers where revenue was up around 14%.
12:43 But margins have taken a hit, and net profit
12:45 has been down around 44%.
12:47 But to discuss how the Q4 has gone by
12:50 and what the outlook of the company looks like going
12:53 forward, we have with us Mr. Arun Krishnamurthy,
12:55 CEO and MD of Execates Technologies, who joins us now.
12:59 Welcome to the show, sir.
13:01 Good morning.
13:02 How are you?
13:02 Thanks for having me on the show.
13:03 Yeah.
13:04 So my first question to you is that, Mr. Krishnamurthy,
13:07 the revenues have gone up.
13:09 But the EBITDA has slightly taken a hit.
13:12 If we exclude the one off in the base that is of 13 crores,
13:15 still the margins have significantly contracted.
13:18 So if you can give us some color as to why this has happened
13:22 and going forward, what are you expecting?
13:25 Yeah, firstly, I think like you said, on a top line basis,
13:28 we had very good growth.
13:30 We are very bullish on the engineering sector.
13:33 For Q4, compared to last year, we had a 14.5% growth.
13:37 Year on year, it's been 17%.
13:40 Last year, Q4, we had some one offs.
13:43 We had a large COVID grant which came through,
13:46 which basically skewed the margins for the previous year.
13:50 But if you look at the normalized basis,
13:52 from last year to this year, we had about a 5% growth
13:55 on the EBITDA.
13:56 So it's 130 crores this year.
13:57 Last year, it was about 124 crores
13:59 if you remove all the one offs and look
14:01 at the normalized EBITDA.
14:02 So I think the fundamentals of the business are good.
14:06 We continue to perform well.
14:08 I think one of the other things which we have done this year
14:11 is we have made a couple of acquisitions.
14:13 One is a company in Germany.
14:14 The other is a company in India.
14:16 So that cost has also got consolidated
14:18 into our books this year.
14:20 So that has also put some pressure on margins.
14:23 But from the health of the business
14:24 and from the growth perspective, you know,
14:26 there is-- it's looking to be on a good trajectory.
14:29 OK, Harsh joining in here.
14:31 So I want to try and break this down a little further.
14:35 So first off, let me introduce Anushi Vakaria,
14:38 who's our analyst with regard to-- and she tracks Infra
14:42 closely.
14:43 So she's joining us as well to talk to us about access gates
14:47 as well as what FY25 holds.
14:52 I want to try and understand what
14:54 are the levers for margin expansion, therefore,
14:56 in FY25?
14:58 Because Q4, could you talk to us about what's
15:02 happened, because even if I exclude the one-offs,
15:04 the number is slightly muted.
15:07 And therefore, what reverses in FY25 for you?
15:11 Yeah, so if you look at our EBITDA for Q4,
15:14 we did about 32.3 crores in EBITDA.
15:17 If you look at Q3 of FY24, that was 29.2.
15:21 So there's been a growth from Q3 to Q4.
15:23 Like I said, Q4 of last year was 44 crores,
15:26 and that included a one-time grant.
15:28 So that's the reason that it appears,
15:30 if you normalize the EBITDA, there is no degrowth.
15:35 So Mr. Krishnamurthy, Anushi joining you.
15:37 Now, I want to understand that there has been increasing
15:40 mixed towards the fixed contracts as compared
15:42 to the time and material projects.
15:43 I want to understand what is the implication of this
15:46 in terms of margins or any other aspects that we look at.
15:50 Yeah, so I think a few things.
15:52 I think just talking of the margin levers
15:54 that we are looking at in FY24, I think one is that we are
15:58 increasing the mix of our digital and embedded business.
16:01 So if you look at the company, approximately 70%
16:04 of the business is mechanical engineering-oriented,
16:07 and about 30% is digital and embedded.
16:10 What we have seen is that the profitability
16:12 on the digital and the embedded side is higher for us.
16:15 So one thing that we are on the journey of
16:18 is increasing the digital and embedded.
16:21 And we concluded the acquisition of Mistral
16:23 about a year and a half back.
16:24 They come with very good embedded services,
16:26 so that will definitely contribute.
16:28 The second thing is that, as you know,
16:30 we have a significant defense portfolio.
16:32 Almost 30% of our revenues are again coming from defense.
16:36 And in defense, we go through a life cycle where we do R&D
16:39 and then we move to production.
16:41 And in R&D is where we sort of invest,
16:43 and the margins are a little bit lower.
16:46 But when you get into production,
16:47 that's when the margins are quite high.
16:49 So we are now entering a phase where we are seeing
16:51 production ramping up for us.
16:53 So if you look at FY23, in our books,
16:56 about 30 crores was production.
16:59 If you look at FY24, that was almost 100 crores.
17:02 And in FY25, that will go up significantly as well.
17:06 So that would be the second factor which will help us
17:09 realize the margins for FY25.
17:12 And the third factor, of course, is that, you know,
17:13 as we grow, that'll give us economies of scale,
17:16 that'll give us the operating leverage.
17:18 And with that, we will sort of look at that.
17:20 In addition to that, of course,
17:21 we're looking at tier two cities,
17:22 we're looking at how we can change the pyramid mix
17:25 and look at all of those to contribute to EBITDA.
17:28 - Got it.
17:29 So quickly on to what you just spoke about defense.
17:32 Currently, a high single digit kind of contribution
17:36 to your mix overall.
17:38 Where does it go from here in FY25?
17:40 Because your book is healthy in comparison
17:43 to the number you've clocked.
17:45 So how will execution start to play out,
17:47 say FY25 and 26?
17:49 And what is it, a mid-20s kind of margin business?
17:53 - Yes, if you look at the defense business,
17:56 if you look at the entire life cycle,
17:57 it's 18 to 20% EBITDA, but it depends on the phase.
18:01 So if you're doing R&D in a particular project,
18:03 that is typically low single digit because we're investing.
18:06 But when it gets to production,
18:08 it's typically closer to 30% EBITDA.
18:10 But I think if you normalize it,
18:11 if you look at where we are now,
18:13 our defense business will be in the 18% region.
18:16 - Now I want to break down the order book for you.
18:18 You've mentioned that there is an order book
18:20 of about 749 crore, and we have reported a 25% growth.
18:24 What is the outlook for FY25 going forward?
18:27 And I also wanted to understand the execution timeline
18:30 that we can look for these orders.
18:32 - Yeah, so unfortunately we don't give guidance as yet.
18:36 So I won't talk of specific numbers.
18:38 Of course, we are looking at growing
18:40 beyond industry growth rates.
18:43 But if you look at the sector,
18:44 so it's defense, it's aerospace,
18:45 it's automotive, energy, and semiconductor.
18:48 So if you look at defense,
18:50 they're doing extremely well for us
18:51 and will continue to do so in FY25 and beyond.
18:54 Aerospace, we have clocked very good growth,
18:57 over 20% growth.
18:58 Again, that is something that we will continue to do.
19:01 Energy and automotive are relatively new verticals for us.
19:04 So the contribution is small,
19:05 but like I said, we have made acquisitions in that space.
19:08 So we are again, quite bullish that that will grow.
19:11 In sector, we are looking at
19:12 how that will grow.
19:14 In semiconductor, there are two parts of the business.
19:16 One part is the services business
19:18 where we work with large semiconductor companies.
19:21 The second part is the production business.
19:23 So what we're seeing with the services
19:25 is that is very robust.
19:27 But the production, because after COVID,
19:29 what had happened is there was an overstocking of inventory
19:32 and that has slowed down a little bit.
19:34 So we saw some softness in that in FY24.
19:37 We will see some of that in H1 of FY25 as well,
19:40 maybe from FY25, H2 onwards, that will start picking up.
19:44 So overall, we see a pretty good growth trajectory.
19:47 - Right, point taken.
19:48 Quick question to you, Mr. Krishnamurthy.
19:50 You had raised a QIP and your net debt
19:53 has reduced to 85 crores.
19:54 So when do you expect to be net debt free by?
19:57 - So we have said that by FY26
20:01 is when we'll aspire to be net debt free.
20:03 But we are on a very good track now
20:05 and we also have a good watch list from the QIP
20:07 for growth capital.
20:09 So that will be put to good use going forward.
20:12 - Okay, well, Mr. Krishnamurthy, with that,
20:14 we're completely out of time on this show.
20:17 Thank you so much for taking our time
20:18 and speaking with us at NDTV Profit.
20:21 It's time to slip into a short break now,
20:23 but stay tuned for more news and updates on the other side.
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