Setco Automotive Q1FY18 Concall Summary

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Financial Highlights

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Current Business Scenario

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  • The company has started Tractor business. And all those things which were promised are done as the company has launched and shipped its new products to the United States.
  • The amount given to TransStadia will be collected by this quarter end and everything is as per schedule.
  • Debt is taken for the CAPEX purposes only, it will go down year-on-year as company is aiming to reduce or maintain working capital requirement.
  • Realization per clutch is around Rs. 5000- 6000 depending upon the size, for a dual clutch compared to around half of that for a single clutch. So, margins are better.
  • Foundry business has improved its operations and subsidiaries are doing well, new products have been launched, diaphragm spring production is also doing quite well. So, as soon as the market starts going up, overall performance is expected to be better.
  • After getting inquiry from major automotive players, it has been concluded that the company’s quality of product has been appreciated. Also, the cleanliness of the process and the modernized equipment which meet the environment standards have played important role for company’s international customer companies.
  • Some of the leading tier 1 manufacturers from Europe have rated the company quite highly as a foundry after getting quality certification, nonconformance repots and getting all NCRs closed.

Business Performance

  • Because of GST, the carry forward of excise duty benefit was not clear and therefore all the distribution channels were to hold minimal stock. So, profit is hit by 7-7.5 crores.
  • Because of the conversion of inventory from BS III to BS IV, OEM segment production is affected and it is down 42%.
  • Since the increase in prices of commodity has not been materialized, taking place in Q2, has impacted margins.

Future Expectations

  • The company expects OE sale to grow around 18% to 20% year-on-year. Overall, the growth is expected to be around 10-12%
  • The company is aiming around 15% for the margins, which will bring 570-580 crores.
  • As the market is shifting from single clutch to double, the company has chosen dual clutch segment and this segment is expected to grow by 30-40% YOY and can go to as high as 60% of total market.
  • Market is approx. 600000 tractors per year. The dual clutch segment consists of 50-60% of total market out of which the company has got 20%. So, this indicates that the business to be a 100 plus crore business in the next 24 months.
  • Over the next two years, the company will add 3 customers to the dual clutch segment and for this the company is in talk with all the OEMs. And all of them are very keen.Some of them are: M&M, Swara, Eicher, TAFE, CNH and Escorts for various stages.
  • In FY19, the company is looking at Rs 150-170 cr. as total annualized turnover.
  • As it is a starting period for the company and it is a vertical modeling line which is fully automated, the company expects 70-73% utilization.
  • In case the company might not be getting best profits internally, it is looking out for outside business to get higher realization of margins.

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Sterlite Technologies Q1FY18 Concall Summary

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Introduction

  • Focused on designing, building, and managing smart data networks for its customers
  • Offerings include high-quality optical communication products, system integration services, and software services
  • 3 state-of-the-art manufacturing facilities and two software development centers across India, China, and Brazil.

Financial highlights

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  • Highest ever revenues and order book in telecom industry
  • Revenues for the quarter stand at Rs.744 crore registering a growth of 23% Y-o-Y
  • Growth of 32% for EBITDA to EBITDA margins of 22%
  • PAT stands at Rs.61 crore with a growth of 61% Y-o-Y
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  • ROCE at the end of quarter at 26%
  • Net cash generation of Rs.60 crore after CAPEX and taxes leading to overall net debt reducing to Rs.860 crore
  • Gearing ratio at 0.9 and also will try to improve return ratio with plan for growth
  • 5-year Performance
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  • Revenue growth of 24% CAGR
  • EBITDA growth almost at 38% CAGR
  • ROCE profile in plus 20% range

Industry outlook

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  • Proliferation of digital content with more players entering the space
  • Total number of mobile internet users with high speed internet access and overall data consumption are expected to rise
  • Indian government’s initiatives to boost digital inclusion
  • 5G and FTTx require superior levels of performance for which fiber is required and will have to be brought closer to the point of consumption
  • Internet economy significant impact on GDP
  • Pace of fiberization continuing to increase rapidly
  • Requirement of fibre to meet capacity and performance goals of 5G

Business strategy

  • Evolution of business from pure manufacturing to services and software layer to offer end-to-end solution to customers
  • Strengths: Integrated manufacturing, strong system integration business and software capabilities for network operations, billing and monetization

Capacity Enhancement

  • Targeting $100 million net profits by 2020
  • Driving absolute profitability while maintaining a healthy ROCE of more than 20%
  • On track to reach 30 million exit capacity by mid FY18
  • Current quarter exited with capacity of 28million fkm
  • Fiber capacity expansion from 30 to 50 million by June 2019
  • Revenue from exports witnessed a significant 77% Y-o-Y increase
  • Stronger in Europe and China
  • Order book at all-time high of Rs.3410 crore with product’s order book more than doubling with order book of Rs.850 crores in current quarter
  • Building pipeline of long-term contracts for product’s business with more than 1 year of fibre capacity already booked and confirmed
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Key business update

  • Sterlite Tech to design, build and manage Kakinada Smart City in Andhra Pradesh
  • 4 new smarter optical communication technologies
  • Providing high-quality optical fibre cables with harmonized European CPR regulation
  • CII award for Customer Service

Kakinada Smart City

  • End to end fiber software offering with horizontal IoT platform integration, LoRA based city-wide wireless sensor network and disaster management system
  • Sterlite Tech IoT integrator
  • Will be building basic optical fiber backbone coupled with routing and transport layer
  • Initial design to managing operations and post-implementation projects for 6 years
  • Current smart city project in the range of Rs.110-120 crores as compared to Rs.30-50 crore for the previous projects

Senior level hiring to strengthen global leadership:

  • Steve Bullock in charge of North America
  • Richard Eichhorn in charge of Europe, Middle East, and Africa
  • Sanjeev Bedekar as Chief Delivery and Technology Officer for services business
  • Nischal Gupta leading companies’ digital transformation journey
  • Anshoo Gaur, ex- Managing Director of Amdocs India as a strategic advisor to scale and build our software capabilities

Products and services

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  • Order book mix: 50:50
  • Revenue mix: 75:25
  • China has taken aggressive targets for 5G rollout with another 10 year investment from 2020 to 2030 of almost $400 billion apart from the already announced plans till 2020
  • Cabling increased from 40% capacity in last year to 60-65%
  • Opportunities regarding Bharat Net continue to be bullish
  • Encouraging signs for 5G rollout with launches this year and the year after
  • Capacity expansion about Rs.1000 crores to 1200 crores with some part via incremental debt
  • For cabling business, manufacturing is based out of India

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Pokarna Q1FY18 Concall Summary

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Financial Highlights 

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  • The financials of this quarter were impacted due to a planned shutdown of 15-20 days of Quartz business for maintenancepurposes. It went up to 45 days.
  • Out of total revenue of Rs. 68 crore, quartz business revenues were Rs. 33 crore as against Rs. 53 crore during Q1 FY17 and granite business revenues were Rs. 34 crore as against Rs. 36 crore.
  • EBITDA for the quarter stood at Rs. 18 crore as against Rs. 34 crore, lower by 47%.
  • Margins for the quarter stood at 26% as against 39% generated during Q1 FY17.
  • PAT stood at Rs. 5 crore as against Rs. 18 crore generated during Q1 FY 17.
  • Quartz is getting exported about 85% and Gratine about 68%.
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Industry and Business Update 

  • Apart from IKEA, the company is looking to penetrating domestic market by direct marketing to builders and architectural community.
  • Demand in US is very good and the growth of quartz is much better than the other products. Business is being done with customers in Australia
  • The company has started a new quarry for improving the efficiency for granite.
  • To improve realizations, some products need to be replaced because increasing the prices is not possible as the industry is highly competitive.
  • Rs. 325 crore CAPEX has been planned for the Greenfield.
  • Capacity Build up take 15 to 18 months for entire erection and coming into production so the timeline cannot be given until the company gets the land.
  • The company goes end consumers through distributors and realization to distributor is around $6-$8 on an average which if going to increase with innovative products.

Breton Technology

  • There are 25 companies which Breton licensed players with 65 line working as of now.
  • Pricing of Breton Technology users and others is almost similar but it depends on the product quality. If the product looks exotic, it attracts price more than the average.
  • Since Breton does not want to sell anything to China, China produces the Chinese local machine made products which are shipped to US.
  • Bretonstone fetches better prices because Chinese productive is extremely low though they also make good money by providing manual products.

Major Concerns

  • The estimated time of shutdown dragged to 45 days from 15-20 days because of being a first shutdown in eight years, an entire revamping was needed.
  • Land which was originally allotted by the state govt. has been taken back because govt. decided to construct a new govt. office complex in that area. So, there is delay in expansion because of the land issue
  • The company also did a sponsorship of the CREDAI event in London where about 800 odd builders from India were there.
  • The plan to add one polishing line, and the CAPEX required for the same are yet to be finalized.
  • There is margin pressure on the quartz side because continuous innovation is required in the business so the company is looking for new innovative looks which can bring better realization.

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GCPL Q3FY17 Concall Summary

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 Impact of Demonetization

  • Sales was impacted significantly in the cash dominated wholesale channel in the couple of weeks post demonetisation.
  • The more discretionary categories like air fresheners, toiletries, personal carefaced bigger impacts.
  • Staples and essentials were relatively less impacted and the impact was felt much more in the East and the North.
  • Recovery has been fast and the quarter ended with 2% secondary sales growth.
  • January has been a lot better than December and secondary growth of 2% has been ahead of primary growth
  • Some pockets like small rural wholesale are still under pressure due to demonetisation.
  • Focused was increased on non-cash friendly channels such as modern trade, and modern trade business grew by 33%.
  • Credit was extended by about six or seven days and it will be reverted back to zero general trade credit fromFebruary.

General Business

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  • A&P as a percentage of sales has been around 11%.
  • In India, net profit growth was 19% and EBITDA Growth was 15%.
  • Due to India-AS and forex impact of Rs36 crore, there has been a loss this year while there was a gain in Q3 last year of about Rs 10 crore.
  • Some advertising was postponed for about three weeks from the last week of November to mid-December
  • Due to a little more demand for low unit packs, focus on LUPs will be intensified.
  • Renewed efforts in analytics to support micro analysis and better execution
  • Aer air fresheners, Cintholdeos and Ezee liquid detergents are poised to become contributor to overall sales.
  • For this quarter, innovation rate in India would close to 16-17%.
  • Gross margins expansion in India was due to lower consumer offers, and very select price increases in household insecticides towards the end of Q2 FY17. These consumer offers will not be present in Q4.
  • In international business, gross margins expansions were due to the favourable geography-mix impact
  • Margins got impacted because of increased investments that were made in sales promotions.
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Hair Colour Business

  • Godrej Expert Rich Crème grew in double-digits and reached its highest ever market share on an exit basis.
  • Dekhbhaalcampaign has helped in increasing distribution and penetration lead over competition.
  • Powders saw bigger challenges because of demonetisation than Crème.
  • New launches Hair Colour Crème and Godrej No. 1 face wash, performed below expectations

Household Insecticide Business

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  • Due to the demonetisation, relatively urban-centric formats like LVs and aerosols did better while coils felt some pressure.
  • Secondary sales growth was flat and was ahead of primary sales growth.
  • Non-household insecticides part of company’s portfolio has been growing 12% to 13% every quarter.
  • Focus area has been to strengthen rural distributionnetwork.
  • There is a strong opportunity of gaining market share from unorganized players.
  • Recently launched personal repellents range is receiving a very good response and production capacity is being increased to meet higher demand.
  • Fewer sales of insecticides go through the chemists’channel.
  • Anti-Roach Gel did very well after launch, but it has fallen off a little bit after that.

Soap Business

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  • Input cost pressures are being passed on by withdrawing offers and promotions and also taking selective price increases, which has resulted in destocking.
  • Value decline in growth in soap is about 6%.
  • This company is largely done with transition.
  • Volume growth was also effected by demonetisation.
  • Q4 FY17 is expected perform better in terms of volume compared to Q3 FY17.

Liquid Detergents

  • Delayed winter and the semi-discretionary nature of the category impacted demand, leading to some below historic growth rates.

International Business

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Indonesia Business

  • Currency challenges faced by the company international business has not much changed.
  • Organic constant-currency sales increased 13% and this was despite flat growth in Indonesia.
  • Margins were lowdue to relatively higher investments across most of businesses.
  • In Indonesia, flat growth was largely due to the slowdown in the insecticides business.
  • Despite of overall FMCG sector decreasing in volume by about 4%, GCPL’s volumes grew by about 3%, and is expected to continue in Q4.
  • For NYU, the hair care launch, initial response has been positive.
  • The macro-environment remained soft, and the EBITDA declined off.
  • Poor mosquito infestation season was also a problem faced by insecticides business.

Africa Business

  • Darling is consistently delivering double digit growth.
  • Strength of Nature’s business was low due to slowing ofshipments to Nigerian distributors due to dollar availability issues.
  • Local manufacturing facilities in various countries in Africa are being set up.
  • Margins are temporarily down due to currency devaluation in Nigeria, and investments in the businesses.
  • Renew has become value and volume market leader in South Africa.
  • Preparation is going on the wet hair care products in terms of their localisation of the SON business in Africa.
  • Localisation will have significant advantages in terms ofimport duty.
  • East Africa has outperformed the overall Sub-Saharan African growth rate.
  • East Africa also has higher demand growth than both Nigeria as well as Southern Africa.

Latin America and Europe

  • Growth was good and investment is continued in Latin America.
  • There are lot of margin expansion opportunities in Latin America, particularly Argentina.
  • Quarter was good for European business and growth and margins expanded.

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