Key takeaways of the call

Operating environment continues to be challenging. The company continues to focus on tightening cost including innovation in manufacturing operations, getting leaner and improve efficiency and productivity.

Income in Q2FY20 stood at Rs 266.9 crore, a fall of 13% dragged by both domestic and export revenue with both register an identical fall of 13%. Revenue Mix in Q2FY20 – 2 wheelers 45%; PV 21%; CV 21%; and Non auto 9%. While gross margins stable at 48%, the EBITDA margin improved by 85 bps to 13.2% due to cost control and operating efficiencies.

Lower volume combined with the strategic decision of the company to reduce inventory has led to lower total income of Rs 267 crore in Q2 FY20. However, on a sequential basis, the company delivered a meaningful improvement, both in terms of revenues and profitability.

Lower volumes in Q2FY20 were largely as customers have deferred production schedules in the backdrop of an unprecedented slowdown in the Global & Domestic Auto Industry.

Income in H1FY19 stood at Rs 533.9 crore with domestic sales lower by 9.3%yoy and export sales down by 21.2%yoy. The gross margin though was stable at 48%, the EBITDA margin declined marginally to 11.8% from 12.1% in corresponding previous period.

Material cost rise is 100% is pass through but hat will get reflected. No gross margin erosion at product level. But the margin was impacted by sales mix as the margin of each part differs with others apart from BSIV inventory reduction.

The company has taken series of steps to compress inventory across globe in Q2FY20 in addition to cost rationalization. The company expects it to stabilize by mid Q3FY20.

Multiple orders won in Q2FY20. The company has won multi-year contracts aggregating Rs 810 crore from two global OEMs and two Tier-I suppliers for new platforms and new models. The new order win provide visibility for further scale up in next financial year. The supply against new order (worth Rs 810 crore) will commence in stages between from June 2020 and December 2021.

Capex including maintenance capex for FY2019-20 will be around Rs 50-60 crore and of which the company has already spent about Rs 25 crore largely out of internal accruals.

The company for the first time has got an order to supply to Pantnagar plant of Bajaj. This is for supply of cylinder for all the three models that got manufactured at Pantnagar and will be supplied from Delhi NCR plant of the company.

Non auto revenue has stabilized at around 10% of total revenue for last few quarters.

Volume guidance at this point of time is difficult to give. But the company expects better volume in Q4FY20.

Even as the company navigates the current turbulence in the industry, it is sowing the seeds for a more robust business model by expanding its innovative product offerings and augmenting its presence in various sectors like Infrastructure, Aeronautics, Defense, Energy and Agriculture.

The company has added a range of high-potential SKUs across auto, EV and non-auto segments. It has also been focusing on improving overall business efficiencies.

The company is confident that the automobile industry will bounce back stronger from the present day challenges. The upcoming safety and emission norms will enable higher component content per vehicle, which will help boost demand for the entire auto-components industry over the medium to long term. Overall, the company remains well positioned to cater to the many opportunities and are optimistic of delivering a sustainable and healthy growth trajectory going forward.