Gabriel India : Q2FY23 Earnings Call

"Gabriel India Limited

Q2 FY '23 Earnings Conference Call"

November 11, 2022

Disclaimer: E&OE - This transcript is edited for factual errors. In case of discrepancy, the audio recordings uploaded on the stock exchange on 12th November 2022 will prevail.

MANAGEMENT:

MR. MANOJ KOLHATKAR, MANAGING DIRECTOR

MR. RISHI LUHARUKA, CHIEF FINANCIAL OFFICER

MR. NILESH JAIN, COMPANY SECRETARY

SGA - INVESTOR RELATIONS ADVISORS - GABRIEL

INDIA LIMITED

Page 1 of 19

Gabriel India Limited

November 11, 2022

Moderator:Ladies and gentlemen, good day, and welcome to Gabriel India Limited's Q2 FY '23 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 the 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 this conference call, please signal an operator by press star then zero on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Manoj Kolhatkar, Managing Director at Gabriel India Limited. Thank you, and over to you Mr. Kolhatkar.

Manoj Kolhatkar: Thank you. Good morning all, and a warm welcome to this earnings call of Q2 and H1. All of you had a very good, safe and very happy and joyous Diwali. We had both the festivals Dussehra and Diwali in the month of October. I must say a bonus month as far as festivities are concerned. Good to see all of you back. Along with me is Rishi Luharuka, our CFO; and Nilesh Jain, our Company Secretary; and our IR advisers, SGA on the call. We have uploaded our results and the presentation for the quarter ended 30th September. I hope you have been able to go through the same.

So I'll, of course, take you through the presentation on some of the slides as we go around. But before that, I'll just give a brief industry overview. So top line, of course, we are very happy to report that our growth momentum has been very good, continued in the second quarter, and we had the highest ever sales in a quarter ever.

So I mean that's something really significant. If we see, we have been able to accommodate a lot of new product launches during this period and relatively flawlessly, so we are seeing an improvement as we go along product large after product launch in terms of our own maturity of launching new products that is helping us the time-to-market part. In the EV market, of course I'll share that as well, it continues to be a good success story. So in fact, all of our business verticals have exceeded our expectations, resulting in increased volumes. Capacity utilization is in the range of 65% to 70%. In fact, the passenger car, as we speak, is going up even higher. I'll come to that when we probably go through the questions.

So coming to the auto industry, yes, the challenges continue. Thankfully, and hopefully the COVID pandemic is behind now. It's already a thing being declared as an endemic. So that challenge is relatively, I must say, taken care of. But the semiconductor and supply shortages still continue in the industry. And as we all know, it will still take time that is what industry experts say. Commodity prices, the inflation was really severe over the last two years. So that

Page 2 of 19

Gabriel India Limited

November 11, 2022

clearly has started easing off from the last quarter onwards. And we are seeing prices come off all those highs and coming back to almost pre-covid levels. We talk about steel, aluminum, copper every commodity, we are seeing a reduction that is happening. Of course, this is, as you know, in our case, it's a back-to-back arrangement with the customers. And you all, of course, it must have read the recent article on the huge backlog of or waiting list of cars. In fact, if you go to buy any car now, the standard rating it is 1.5 to 2 months, some models going over a year as well for waiting, which shows a very clear robust pipeline for passenger cars particularly.

And of course, yes, there is a bit of cautious optimism there in the industry as well. I've been speaking to some of the OEMs. They say that once this demand is over, again, this demand, you have to treat it with a little bit of pinch of salt, because there is some double booking which happens in these times. But once this demand is over, you know, there might be a, I am not telling a slowdown, but definitely we will not see the growth rate that we have witnessed in this first half.

As regards the passenger vehicle segment, we had a record month in September, record quarter as well. Clearly, you know, the volumes for passenger cars are going to cross 4 million figure for the first time as regards the annual numbers are concerned. There is a very strong response, particularly for the SUV vehicles. As you know, SUV's are over 50% of the sales. So that is a clear shift that has happened in the industry. Infrastructure and real estate are expected to expand as are also mining, e-commerce, transportation and logistics, which all are very important for economy and for mobility, which is where, you know, we come into play.

In the coming months, we will be shaped by the adequate rainfall which has thankfully again been very good for the country. The first six months of the fiscal year, the CV industry grew very strongly at 54%. It has not yet reached the peak in terms of volumes, what we witnessed in 2018-19, which was over a million. But if you see in terms of tonnage, it surely has crossed that figure. As you know, the tonnage norms got redefined based on the axle load norms. So if you see the tonnage kilometers, I think we have exceeded the earlier figure as far as the industry is concerned.

Another growth area has been the three-wheeler segment, which was very dominant, particularly because of the most impacted segment during COVID, because people were not preferring this mode of transport. The schools were shut, colleges were shut. But this has shown a huge increase in sale in April to September, the first half of the year. Within this, of course, the movement towards EV is even stronger, as you all know, which again I'll share during the slide.

Again, talking about EV, the demand for two-wheelers is really very high. In the month of October, though it's not in H1, but you all know in the month of October, the industry, I mean the two-wheeler industry EV sold over 74,000 vehicles. So that's really a huge jump from the earlier 50k peaks that were, which the industry was hitting in August, September. October has been a bumper month with over 70,000 two-wheelers in terms of EVs.

Page 3 of 19

Gabriel India Limited

November 11, 2022

So here again, as I mentioned, Gabriel has been quite successful in you know, getting all the orders from the key two-wheeler makers, so that has helped us gain market share in the overall two-wheeler segment as well. Coming to the numbers, now I'll take you through the presentation. So I'll just read the slide.

If you go to slide number 5, which is the financial highlights Q2 FY23, as you can see, we, like I already mentioned, we did a revenue of INR 800-plus crores. The first quarter, we did INR 800+ crores which is almost 36% jump year-on-year. And even if you see sequentially, INR 802 crores would be about 10% - 11% compared to the previous quarter, which was also a record quarter, which was INR 720 crores, which you can see below. In terms of EBITDA, we did INR 59 crores, which is 7.4%. So marginal improvement in EBITDA from, as you can see below Q4, the last couple of quarters from 5.5% to 7.1% to 7.4%. So, our efforts on cost reductions and CORE 90 which I already mentioned earlier on several calls, those are working. And similarly, in PBT, you see pretty much the same improvement of 36% - 37% Y-o-Y.

Coming to Slide number 7 is the financial highlights for the first half, H1. So we crossed, INR 1,500 crores so INR 1524 crores in sales. I mean needless to say, highest ever. EBITDA of almost INR 110 crores, PBT of INR 94 crores. The balance sheet position also is good net cash of INR 251 crores and we had in H1, we had cash flow from operations of almost INR 25 crores, which was a little less than the last year's corresponding period. But in the quarter, if you see, we had a much better cash flow compared to the last quarter. We incurred almost INR 47 crores of capex in this year, mainly on R&D and capacity improvements and quality and safety improvements that we have done all across our plants.

Slide number 8, is the very quick P&L. I'll not go through the detailed figures because I already shared that.

We'll move to Slide 9, which shows the trend. As you can see, FY '23 half year sale is INR 1,523 crores, which is more than the full year sale of FY '17. So good growth, good gain in market share in all segments that Gabriel has achieved has led to this good improvement in the sales figures. ROCE for the quarter, again has been really good, almost 34%. So again based on our good efforts by all the teams and Rishi who is on the call, I think this we have achieved quite well.

On Slide 12 are the key ratios, I mean, again, I'll not go through each of the ratios, but we also know that we declared the interim dividend of INR 90 paisa yesterday in our board meeting. So this is again, something which is definitely in line with what we have been planning to do.

Coming to Slide number 14, which is the segment performance. 2-wheelers and 3-wheelers, this is including aftermarket. So, the market share here, of course, is the OEM market share. As you can see, while 65% of our total revenue comes from two-wheelers. The market share is 32%. This is including EV. Just to share the same slide last year, which was the half yearly call, which we had in November of 2021, this figure of market share was 25%. So, you can see a very healthy improvement in market share mainly on the back of the EV dominant position. We

Page 4 of 19

Gabriel India Limited

November 11, 2022

continue to get good models, recent launches being the TVS Raider, which is very successful, Jupiter 125, Mahindra, all the platforms of Yezdi and Java and Bajaj these are 3-wheeler models. And EV - Ola, Ampere, Ather, Okinawa, we also got an order from Hero Electric, which is the only one which we didn't have. We also got that order and SOP will begin in the next quarter.

Coming to Slide 15, which is an EV, share of business in EV is 66%. So the industry figure was 32% as you saw on the previous slide. But the EV share of business is 66% and you can see the models. So Okinawa, Ampere Ola, Ather, TVS, ICUBE. We are there in all these industry leaders of except Hero. So that all does well for us, for sure.

Coming to passenger car. Again, this has been a good performance. The market share is 23%. The same figure exactly one year back was 21%. So, we again, marginally improved mainly on our increased share of business from Maruti Suzuki and the Toyota platform. So Maruti Suzuki, we have won the what we've written here is, say, YXA, YFG, which is basically the Grand Vitara, Brezza and the Toyota Hyryder. So these are the two key volumes and in pipeline is YWD and Y0M which is the new Alto is already been introduced. YWD is the Jimny which is shortly going to be launched.

We also have started the Stellantis. CC21, eCC21 which has been received quite well at the market. The volumes are small. But it's a good car I must say, quite a spacious rooming and a good value for money for the price point.

So still on Slide 16, which is the passenger car. So yes, we also have already got the business from Volkswagen and Skoda for all the new vehicles that you see currently, right, from Slavia, Virtus, Kushaq and Taigun. So that is entirely with Gabriel. So this will of course, keep adding to, as a volume ramp of the passenger car sales as well.

Going to Slide 17. Yes, slide 17 is commercial vehicles. So here we have the dominant market share, almost 90% all the new platforms. I mean, almost all OEMs are with us. We continue to work on some new technologies here as well so that we are able to answer all the future requirements very well. Our export program in DAF is also going quite well. We are already exporting to Netherlands and Brazil, and we have won some more programs from them as well. And in fact, recently, we had the PACCAR DAF vendor meet, the annual vendor meet where we were asked to present to the entire fraternity on the success story of Gabriel. So we already have won the award from them as the best new supplier and also top quality supplier, which they have an award called 10 PPM, so we have won that as well. So this augurs well for our exports and how - I mean we surely want to leverage this in terms of a global journey in CV particularly.

The next slide, slide 18 is on railways, where you can see a lot of new pictures here, new models for us. So we have got a first breakthrough for the Vande Bharat express, this we will be supplying to Medha who has got the order for the rakes from the government. We're also talking to some other rake manufacturers. The discussions are on and another important thing is we have been developing and working on the locomotive dampers, which Gabriel was never supplying. So we have again got the first development proto order, and we have actually supplied our parts

Page 5 of 19