Gabriel India : Q2FY22 Earnings Call

"Gabriel India Limited

Q2 and H1 FY2022 Earnings Conference Call"

November 15, 2021

Disclaimer:

This document is subject to errors and may or may not contain words which have been included/ omitted due to human error while transcribing the conference call. Any and all information should be verified with the company by the reader.

MANAGEMENT: MR. MANOJ KOLHATKAR - MANAGING DIRECTOR -

GABRIEL INDIA LIMITED

MR. RISHI LUHARUKA - CHIEF FINANCIAL OFFICER -

GABRIEL INDIA LIMITED

MR. NILESH JAIN - COMPANY SECRETARY - GABRIEL

INDIA LIMITED

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Gabriel India Limited

November 15, 2021

Moderator:Ladies and gentlemen, good day and welcome to Gabriel India Limited Q2 and H1 FY2022 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Kolhatkar - Managing Director of Gabriel India. Thank you and over to you, Mr. Kolhatkar.

Manoj Kolhatkar: Thank you and good morning everybody on the call. Hope all of you had a wonderful Diwali. I think it was definitely a welcome change after last Diwali I think little more brighter I must say now that the country is witnessing a sustained downtrend in COVID cases, but we need to be very cautious still because after the festive season it is expected it may spike so we will all have to be cautious, but nevertheless very happy New Year to all of you before I start.

So we have uploaded the investor presentation for the quarter I hope you all had a chance because we had our board meeting on Friday and since it was a weekend we have to take the call today and of course with me joining today on the call is Rishi Luharuka our CFO and Nilesh also our company secretary and our investor relations advisors SGA.

First and foremost, I would like to share that the board of directors declared an interim dividend of Re. 0.55 per share of the face value of Rs.1 for the year 2021-2022 and with this I will now get to the update on our operations in the quarter that has gone by. The company did face disruptions in the first quarter as you all know in particular the month of April and May due to the second wave and it was quite bad. Of course this time it affected many of us as you all know, however after this, the recovery was strong. From June onwards we witnessed a continuous recovery and all our facilities are running quite smoothly now. Yes, of course, the recovery was not as steep as what we saw after the first wave of COVID it has been a little muted to that extent, but nevertheless recovery has been strong.

Before we delve into numbers let me provide you with an update on how the current environment is shaping up. The auto industry as you all know is facing challenges due to rising fuel prices and the biggest challenge which all of you must be reading is the shortage of semiconductors which is resulting in delays of production or even rescheduling or

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Gabriel India Limited

November 15, 2021

reducing the demand of many of the carmakers, particularly. This is not only in India in fact globally it is even worse than in India I must say it is a little muted. High upfront cost caused the production issues which increase the waiting period for popular automobile models and high fuel cost combined with inflationary pressure has dampened the sales momentum. Normally the festive sales season account for 40% of the annual vehicle sales I mean this is right from the month I would say they start around Onam and Ganesh Chaturthi and they go on right up to post Diwali. This has been definitely lesser than the comparative festive period last year. Passenger vehicle dispatches to dealers were affected mainly because of the supply issues which I did mention already to you, but the good part here is that the consumer demand is very strong in passenger cars. It has been positive across all the segments, two-wheeler wholesales also have improved month on month and again one more bright spot is the commercial vehicle sales are also witnessing gradual recovery. Two- wheeler entry-level sales did not pick up due to the rural distress, rising fuel prices, and generally the mass is trying to save money than making a high-value purchase because as you all know this time the COVID impacted rural areas quite significantly so that affects is clearly coming out in terms of the two-wheeler demand mainly.

In terms of the CV segment, small commercial vehicles are picking up due to the demand for intra-state movement of goods. Of course, the rise in e-commerce demand is also fueling this. Few carmakers have halted the production schedules because of semiconductor shortages I mean they range from 30% to 40% cut in production schedules, which is quite significant for passenger cars. During Q2, auto sales were impacted due to these constraints in the PV segment. The prevailing shortage of semiconductors and recent lockdowns has impacted what I did mention on the volumes. This situation definitely is improving and we will have to keep a close watch on the same. The other challenge has been the prices of major commodities steel and aluminum. In fact, every commodity that we speak has gone up significantly over the last I would say 6 to 9 months, but we are seeing just some ray of hope that over the last two weeks we are seeing a little mellowing down of prices both in steel and aluminum so we will again have to keep a close watch on this. The availability of ships for material transportation is adding to the problem with the current supply constraints and logistical challenges, vehicle prices may take some months to adjust.

With the pandemic going on we have taken utmost care for the safety and well-being of employees, we have shared that in the presentation as well. We have ensured that the vaccination rate for the first dose was 100% and the second dose based on of course people getting affected, the second dose vaccination is not 100% due to very genuine reasons but even that will touch 100% very soon. We have set up a dedicated COVID care helpline and we continue to maintain all the precautions in our operations across all our plants for Gabriel as well as Anand Group and ensure that this is monitored very very closely.

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Gabriel India Limited

November 15, 2021

Now moving on to the numbers, this quarter we had our highest sale ever for a quarter. In fact, we reported a top-line growth of 29% which is almost transferring into a value of Rs.590 Crores which is the highest margin. The earlier highest we had reported in the month in Q4 of last year was Rs.580 Crores now we have beaten that and we have moved to Rs. 590 Crores. We have recorded 21% year-on-year growth in EBITDA in Q2 at about Rs.43 Crores. Margin stood at 7.3% for the Q2 FY2022. I did mention there has been a significant increase in raw materials over the last few quarters which is just sustaining month on month, so this has have put significant pressure on the margins. We have been able to pass through a large part of the input cost increase. However, part of it will happen in the subsequent month as well. Our supply chain was better, we did not face issues. We have geared up much better this time for the festive season so we do not face issues of the supply chain in meeting the festive demand this time.

Our focus on the core 90 which is cost reduction in 90 days which have now become a very strong initiative that is why we are continuing with the name of core 90 across the company for cost optimization. Productivity has been very closely monitored, reviewed, and being implemented across the company. It has enabled the company to partly offset the part of the price increase due to the commodities and limit the impact on EBITDA. We reported a PAT of about Rs.25 Crores for Q2 FY2022. Our profitability in terms of PAT was affected due to one-time adjustment of deferred tax.

Moving on to the balance sheet and cash flows, we continue to maintain a robust balance sheet position with net cash of Rs.257 Crores as of September 30, 2021. We are continuing our thrust on collections and working on inventory levels but yes I have to mention here that managing inventory has been a little challenging again owing to fluctuating schedules and schedule cuts by customers due to the semiconductor shortages. So they are also continuously correcting their schedule based on the number of semiconductors they receive but still this has led to a healthy cash remuneration to the tune of Rs.29 Crores for H1 as compared to Rs.110 Crores out of outflow in FY2021. Our working capital release was significant compared to the previous period. Our net working capital stands at 17 days as compared to 28 days for the same period last year. Our debt-equity ratio stood at 0.28 at a good level, ROE stood at 10.2%, ROCE at 20.2% on the annualized basis,

The CAPEX that we incurred during the quarter is about Rs.35 Crores which included the backward integration effort that we have done to reduce our dependence on China. This strategic decision we have taken post the steep recovery we saw in last festive season last year and we implemented augmentation of our casting and machining facilities which included some expansion of Hosur plant and some automation and some of course balancing equipment expansion even at our Chakan, Pune plant.

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Gabriel India Limited

November 15, 2021

Coming to segment-wise performance. We changed the product mix in two-wheelers, Gabriel continues to gain market share, we hold a 25% market share in this segment. Two- wheeler and three-wheeler put together form almost about 65% to 66% of our total sales in Q2 FY22. We reported a growth of 24%,. Our growth was driven mainly in terms of improving the market share with our customers, our efforts in terms of developing new products, and good acceptance of end products in the market. Here I am of course quite delighted to share that we have received a new order for a new motorcycle from Honda and this is on the 100% share of the business. So this is the first time that Honda has awarded possibly business on a 100% basis and I am glad to share that this has been awarded to Gabriel.

Coming upwards to the hot topic which is EV, we all are seeing a lot of news about EV daily and the numbers are also improving particularly of course in the two-wheeler and three wheeler segment. People are clearly making a shift to EVs for cost savings and individual governments also have declared many incentives to promote this particular adoption of EVs by everybody. As I had shared we are very well entrenched players I mean you have also seen in the slide in the presentation that we are with you know Ola of course on single source basis. We are with Okinawa, with Ampere, with Ather and of course in three-wheelers with Piaggio, with Bajaj, with TVS, on two-wheelers, with Mahindra electric for three-wheelers. We are very very well entrenched in the EV space and we are of course seeing improvement in numbers month on month on EV.

On Ola electric side, which of course all of you will be very keenly following, we had started supplies in the month of October. The ramp-up schedule is being again corrected by Ola and of course, there are some ramp-up challenges, but we are meeting the demand as per their schedules. On the passenger vehicle side again we have witnessed an improvement in volumes and as I told you while the sales may not be reflecting the true story, the demand is very solid. The inventory levels in the passenger car segment are only as low as 10 to 15 days and in some cases even lesser. There is a huge waiting list for many models in the market as you all know. So this clearly augurs well for future demand whenever the chip shortage problem is solved. Of course, it will take some time as it is but what is more important is we are delighted to report year-on-year growth in this segment, we grew by 42% and our market share also has improved significantly. We now have a market share of 21% and it will go up further because we have won some more new models like I had mentioned last time Maruti Jimmy model and also added to that we have won a new model which is going to be made in Maruti as well as in Toyota so this is dyson YFG and YXA. This is a small SUV, it will be a replacement of the Brezza and S-Cross but this time it will be made and designed also to make higher volumes in Toyota and we have got that order completely. There is also an electric vehicle based on this platform for which also Gabriel has got the order.

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