PPAP Automotive Limited (PPAP) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q1FI27 earnings conference call of PPAP Automotive Ltd. 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 risk 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 star and zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Jain, Managing Director and CEO of PPAP Automotive Ltd. Thank you and over to you, sir.

Yeah, thank you, Avirat. Good morning, everyone, and a very warm welcome to all of you. And thank you for joining us for the PPAP Automotive Limited's Quarter 1 Financial Year 27 Earnings Conference Call. I am joined today by Mr. Sachin Jain, our Chief Financial Officer, along with our Investor Relations Advisor, Strategic Growth Advisors. While Q4 Financial Year 26 marked a significant turning point for the company, reflecting the positive outcomes of the sustained efforts and strategic initiatives undertaken over the past several quarters, this positive momentum has continued into Q1 Financial Year 27 as well. Bottom 4, Financial Year 27, had laid a strong foundation for the future through a series of long-term strategic reforms. And organizational initiatives aimed at driving sustainable growth, improving efficiencies, and enhancing long-term value creation. One of the key initiatives announced during the quarter four was the decision to bring the company and all its subsidiaries under the unified identity of the Ajay Group. This transition is intended to create a future-ready organization with a shared vision, a unified culture. Stronger collaboration across businesses and enhance strategic alignment across our diversified operations. During quarter 4, we also completed the divestment of our stake in the joint venture company and initiated the restructuring of our tooling business. As part of this restructuring, the tooling business is proposed to be hived off into a wholly owned subsidiary of PPAP under the name of Meraki Precision Tools Engineering Limited. This process is currently underway and is expected to be completed by quarter 3 of financial year 27. In addition, as part of the group's ongoing efforts to streamline operations, simplify the corporate structure, and improve the efficiencies, company has initiated the process of merging Avinia Batteries Limited with the parent entity PPAP. The merger process is in progress and is expected to complete by quarter 4 of financial year 27. Coming to the quarter 1 of financial year 27, we have entered the new financial year with strong momentum, building on the progress achieved over the last few quarters. Higher customer production schedules, healthy demand across vehicle segments, And the ramp-up of new programs have supported a robust start to this new year. Our focus continues to remain on strengthening our core automotive business, expanding our technology and manufacturing capabilities, improving operational excellence, and creating sustainable long-term value through disciplined execution across all our business verticals. On a consolidated basis, the company reported revenues from operations of INR 156.4 crores, representing a growth of 34.1% year-on-year. The EBITDA increased by 33.3% year-on-year to INR 12.4 crores. This performance was driven by higher production volumes, improved. Operating leverage, better capacity utilization, and disciplined execution across all our businesses. Let me now briefly discuss the performance across our key business segments. First, we'll start with the automotive part business. The industry delivered an exceptionally strong performance in quarter one, recording its best-ever quarterly sales across passenger vehicles, commercial vehicles, and three-wheelers. The growth was supported by lower GST rates, improved availability of finance, new model launches, and strengthening consumer demand. Passenger vehicle sales increased by 25% year-on-year to 1.27 million units, driven primarily by the strong momentum in the utility vehicle segment. Two-wheeler sales grew by 20.3%. Supported by scooter demand, while commercial vehicle sales rose by 18.3% on the back of replacement demand and increasing infrastructure activity. Three-wheeler sales also remained strong, growing by 29.7%, led by healthy demand across both passenger and goods carrier segments. In addition, vehicle exports also recorded their strongest ever first quarter, reflecting improved demand across several global markets and strengthening India's position as a competitive automotive manufacturing hub. Looking ahead, the industry outlook remains encouraging. The upcoming festival season Lower vehicle ownership costs following the new improved GST 2.0, easier financing conditions, and overall a positive consumer sentiment are expected to support the continued demand momentum. At the same time, we remain watchful of the geopolitical developments. Commodity Price Volatility, and Global Supply Chain Dynamics, which could influence the operating environment over the course of this year. Coming to our business performance, the automotive part business continued to be the largest contributor to our revenues during the quarter. The segment benefited from higher customer production schedules. Improved capacity utilization and the continued ramp up of new vehicle program across all the key OEM platforms. During the quarter, we secured lifetime orders worth 131 crores representing a growth of 51.8% year on year. Importantly, the EV programs contributed nearly 64 crores out of this 131, highlighting our increasing participation in the rapidly expanding electric mobility ecosystem and strengthening our long-term revenue visibility. A key strategic milestone during the quarter was our technology partnership with Hutchinson, which is a global leader in the automotive ceiling system. Through this partnership, PPAP will offer modern and advanced body sealing system solutions to all the customers in India, enabling access to global technologies and next-generation sealing solutions. We believe this collaboration will significantly enhance our technological capabilities, accelerate new product development, and expand our addressable opportunities with OEM customers, and further strengthen our position as a preferred technology-driven mobility solutions provider. With a healthy order pipeline across both ICE and EV platforms, Increasing customer engagements and continued focus on technology-led growth, we remain confident of sustaining our growth momentum and delivering improved business performance in the coming quarters. Our aftermarket business also continued to deliver strong growth momentum with revenue increasing by 30% year on year in quarter 1 of financial year 27. During this quarter, we successfully launched 345 new SKUs, expanding our total product portfolio to 1312 SKUs compared to 1264 at the end of financial year 26. This reflects our continued focus on broadening our product offering and addressing a wider range of customer requirements in the aftermarket ecosystem. During this quarter, we also strengthened our distribution footprint by expanding our network to 155 distributors, further enhancing our reach across India as well as the neighboring international markets. The aftermarket business currently contributes around 6% to our overall revenues, and going forward, we remain focused on accelerating growth in this segment through continued product portfolio expansion, deeper penetration of our distribution network, and increased presence in both domestic as well as international markets. This business remains an important strategic pillar. In our efforts to diversify revenue streams, improve market resilience, and build a strong customer base beyond the OEM segment. We are very hopeful that sooner than later, this segment will start contributing around 10% to the overall revenues of the company. The tooling business continues to maintain a healthy order pipeline across both automotive and non-automotive customers. Capacity utilization currently stands at 84%, indicating sustained demand and efficient utilization of available resources. During the quarter, we received orders for 30 moles while maintaining a strong pipeline of 124 moles, providing healthy revenue visibility for the coming quarters. While last year, this division had successfully developed 148 moles. This year, we intend to increase our output by 20%. As part of our strategic restructuring initiative, this business is proposed to commence independent operations under the newly formed entity, Meraki Precision Tool Engineering Limited, from quarter three of this financial year. This transition is expected to enhance operational focus, improve agility in serving customers. And enhance our engineering capabilities by creating a dedicated platform for further growth in the tooling and precision engineering business. The industrial product business delivered a strong growth of 38% in Financial 26, reflecting on the progress made in expanding our customer base and product applications. However, in quarter 1, financially 27, the business witnessed some moderation in sales, primarily due to the seasonal nature of demand in certain product categories. Despite the softer quarter, the business continued to demonstrate encouraging traction in international markets with approximately 30% of the quarter's revenue generated from exports. This highlights the growing acceptance of our products in overseas markets and provides a strong foundation for future expansion. Currently, the industrial product division contributes less than 1% of the company's total revenues. Nevertheless, we see significant long-term potential in this business. With our ongoing business development initiatives, expansion of customer engagement, Product portfolio enhancement and increasing focus on export opportunity, we are targeting a meaningful scale-up of this vertical. Over the medium term, we are optimistic that the industrial product business can evolve into a significant growth engine and contribute approximately 10% to the company's overall revenues. While also supporting our broader strategy of revenue diversification beyond the core automotive business. The battery business continued to show encouraging growth momentum with revenue increasing by 1.28 times in financial year 26 compared to the previous year. During Q1 of financial year 27, the revenue increased by four times year-on-year basis. But that was primarily owing to a lower base of the last financial year 26. Despite the strong growth in revenue, the business continues to operate in a challenging environment, primarily due to increases in raw material costs, pricing pressures, and significantly shorter customer delivery timelines. We are working closely with our supply chain partners to improve the overall efficiency and to improve our inventory management and sourcing so that we can cater to their requirements in a better way. Our focus remains on improving the execution, controlling our costs, and minimizing the losses contributed by this business. Overall, we are encouraged By the strong start to financial year 27, across all our business segments, our healthy order pipeline, new product development initiatives, and favorable industry outlook provides a strong foundation for sustained growth. At the same time, our technology partnership with Hutchinson marks an important strategic milestone. Significantly enhancing our capabilities in advanced ceiling systems and reinforcing our position as a preferred technology-driven mobility solutions partner. However, raw material inflation remains an important near-term watch item across our businesses. While we have made progress in securing cost-fast Through arrangements with customers, a portion of the recent cost increases is still under discussion. We are continuously engaging with our customers closely and maintaining a disciplined approach towards cost management and margin protection. We also remain watchful of the geopolitical developments. Commodity price movements and the global supply chain dynamics, which could influence the operation environment over the course of this year. At the same time, we believe that our diversified business portfolio, technology-led growth strategy, strengthening customer relationships, and disciplined execution capabilities position us well to deliver sustained long-term growth and creating value for all the stakeholders. With that, I conclude my opening remarks and request the moderator to kindly open the floor for questioning. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press char and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Hardik Cheda from Lark. Please go ahead.

Yeah, sir, with regard to the Haji-Sangh Devi, can you draw or what kind of revenue are expecting over the next three years because of this? That is the main, I would say the main development. So, can you throw the details of that?

With the Hutchinson, we have signed a technology partnership agreement, wherein we will be developing new solutions for all the customers, not only covering only European, but across all the segments. So currently, we are engaging with the customers to look for more opportunities for these new solutions. Along with our engagement with the existing customers. Look, there are two ways of business happening in the automotive side. The business that is already doing PPAP,

they are already doing PPAP.

And we are adding new customers, like existing and new players. Hutchinson, we will be making Some new kind of products and that is under discussion. So right now we don't have a number in mind, but customers are very excited about these solutions being available in India market now. And I think this year we will be able to achieve some breakthrough.

Okay. So, sir, we will be marketing the existing product or we are developing products with them and then we will start marketing them.

We will be developing new products along with them.

Okay. And this product will be exclusively for India or after developing this product, we will even export this product. We are looking for only the domestic market, but once we are looking for exports of this market.

As of now, we are focusing primarily on the Indian market.

Okay. And sir, at least could you give me a bulk pass, means time, when will it actually translate into revenue, like quarter, right, two, three, four, how many quarters are we expecting it to translate into meaningful revenue?

Dekhi, we are already engaging with the customers, we, and so I think by end of this year, we should have some clarity on that.

Okay, okay, and you have one particular product or it's the range of products that you are developing with them.

This partnership basically has focus on one kind of product primarily, that is, the main focus is going to be on the glass run channel, but with the glass run channel, all the existing products that we are already making for the customers, that is also part of our agreement.

Okay, and how big is the market sir, for this Glasner channel in India?

I don't have the number right now in front of me for Glasner channel, but all, basically all managers, every car needs a Glasner channel.

Okay, okay, and who will be competing with, like main competitor, who's your main competitor in India?

In Glassland Channel, in this particular technology, main competitor is SFC, Anand Nishikawa, Toyota Gusey.

Okay. Thank you so much. So that's it from my side. Thank you, sir.

Thank you. The next question is from the line of Throof Ravani from PriceBridge PMS. Please go ahead.

Hello, sir.

Good morning.

I wanted to check that, you know, while we are seeing revenue growth, what is your plan for operating profit margins? When do you see that going up and what is your internal target on that?

So, thank you for the question. Regarding the operating margin side, because in this quarter, you see there was an impact of this raw material prices increasing across the businesses which we have. So, on the raw material side, the main impact is there. So, approximately 4% of the raw material cost has gone up due to these increases. Out of that, we're able to pass on around 2% of the raw material prices to the customer. For the balance, 50% price increases, we are in the discussion with the customer, and we are hopeful that by the end of Q2 and the start of Q3, we will be able to settle those price increases also with the customer.

Understood. So because, but even otherwise, do you have any internal target that at what level you would want your operating largest to look like, say, one year down the line or exit air 527 will?

Yeah, that is, their internal targets are there. So we are working closely to chase those targets and to achieve those targets.

Okay. With Mahindra, can you just help us, like, which, you know, vehicle onwards you'd be able to participate with them?

So, Mahindra, we have many relationships now, including Tier 1 and Tier 2. So, for the, primarily, for the Tier 1 business, wherein we are going to start our ceiling products with them. The SOP is going to start in Quarter 3. So that is our tier 1 business, but at tier 2 level, with Mahindra, we are already developing their injection molding tooling along with some sealing system for their sunroof system to their tier 1 maker hole.

Okay, sir. My third question is with regards to the sale process that we received from the exit of the Japanese JD. Can you throw some light on how we are utilizing that?

So, on the sale proceed which we got from the exit of the JV, so around 100 crores we got, so out of that around 8 crores has been utilized towards the payment of taxes. So, out of that balance amount, 25% would be retained for the working capital requirements, and rest would be used for the strategic capex requirement of the company.

As of now, we have to... So you would want to use this for the Hutchinson JV or the industrial tooling? Have you had any, any throw some light on that? Like what sort of apex you may look at?

Yeah, as of now, we are not having any JV with the Hutchinson. So, there could be some technological investment on the machine and the equipment, which would be required for this product development, which will be developed in the corporation of the Hutchinson. And industrial product also, product side also, there could not be any requirement because mostly these are the toolings of low value that is developed in-house by the company. So, investment would be in this financial year in three areas. One is the capability development in the APDM product. Second, in the expansion of the tooling tool room and for the land requirement on the west area near Shambhaji Nagar.

Okay, okay. Fourthly, on the battery division, you know, where are we in terms of break-even because we have been guiding that we are trying hard. So any, you know, positive developments out there which you may want to share that, you know, in terms of numbers, probably that what levels we have break-even and where we are in terms of Q2, Q3. But I think that is denting our margin in a long way.

Yes, you're right. Battery business. That is why in our opening comments also, we categorically said that the focus is basically on minimizing the losses which are contributed by this business. And we are continuously working towards that. We are engaging with customers, getting new customers on board, especially in the energy storage area. And I think quarter one, contribution was not that good, but we are hopeful that quarter two onwards, things may start get better. But it still remains a cause of concern for us.

Okay. Thank you, sir.

Thank you. Participants who wish to ask questions may press star and one at this time. The next question is from the line of Tanya Desai from BS Securities. Please go ahead.

Yeah, good afternoon, sir, and thank you for the opportunity. I had a couple of questions. First was on an aftermarket business. So we can see that this segment has been fastest growing parts in our portfolio, and we have added roughly around 345 products during Q1. I just wanted to understand how this growth trajectory would be like from this particular business, and also if you could highlight if we can see any kind of constraints in terms of growth, say probably in the distribution to each or any kind of demand.

Tanya, last year also this business grew by 30% and this year also we are expecting that this business will continue growing at that rate. We have been, we started focusing on this business just about 3-4 years back and we have a long ground to cover. So, till that time, this growth momentum will surely be there. And for this growth to continue, we are, like I said in the opening remarks, our focus is basically to improve our product portfolio and as well as our distribution network. So, by this, We should be in our growth space, and focus is not only just on the offline distribution, but online networks as well. And warehouse also, we have one distribution warehouse in the north, and I think in this quarter, we will be establishing one distribution warehouse somewhere in west as well to improve all this. So, I think we're quite hopeful that the growth will definitely be there in this business.

Understood, sir. So, my next question was to understand about the CAPEX for this FI 27. We believe that this business has been growing extremely strong and capacity utilization is expected to improve. So, have you outlined any kind of CAPEX for this FY?

Yeah, for this financial year, the capex is already outlined as I mentioned in the last question also. So, this year the main, the capex would be derived mainly for the epidium business because of the injection molding side and the plastic extrusion side, we have sufficient capacity and new order is also coming up in the epidium space where we are growing effectively and out of that one new line would be operational in the crew tool itself. And we would be further investing in Another two lines in this financial year and the tooling business also would be the another area where we would be investing.

Understood, sir. So, I believe we expect some incremental capacity investments, right? And, yeah, okay. Okay, sure. Thank you so much, sir. I'll get back into the queue.

Thank you. Before we take the next question, we would like to remind participants that you may press Charanvan to ask a question. The next question is from the line of Mihir Shah from MB Securities. Please go ahead.

Hello. Am I audible?

Yes.

Yes, please. Yeah. So, congratulations, sir, on the strong side of the year. You have reported over, like, 34% of consolved revenue growth in Q1, and have, like, also indicated a good robust order type 9. So, should we expect the growth momentum seen in Q1 to sustain throughout the year, or, like, this was some benefits from low base or deferred orders?

No, no, this year, even quarter two, till date, we are seeing strong growth coming in. So that momentum is still continuing. Okay, I think what we are expecting is the sales numbers to increase.

Okay, yeah. And, sir, another thing I would like to ask is, the EV component of your lifetime order has increased, like, quite sharply to around 64 crores in Q1 and roughly, like, 11 crores in the year ago period. Like, we have already talked about this in the earlier question, but, like, how should we think about the contributions from these EV programs to revenues over the next two to three years? And how are you seeing any meaningful vehicle? Like say, difference in content for a vehicle between your EV and ICE programs.

See, first of all, let me make it very clear to you that the products that we make, they are basically engine agnostic products. So, similar product goes in an ICE vehicle and similar goes in an EV also, only there are certain In EV, basically, appearance and all those requirements are little more than a nice vehicle today, and that's where a little bit of premiumness happens of our products. But technology side, all these vehicles, they basically use similar sealing systems.

Yeah, understood. That's helpful. And, sir, our EBITDA margins remain broadly stable in Q1. So, could you help me understand, like, the key factors currently limiting the margin expansion? And also on the FAT level, like, how should we look after the growth impact? And, like, how do we expect the finance cost to come down, considering the investment we have done in PPA-Pitokai?

Yeah, okay, so the margin side, if you see, In the quarter 1, the margins are basically improved, first is due to the better utilization of the capex, if we see on the fixed cost absorption, but due to the raw material price increases, the 100% effect we are not able to get on the margin side. And gradually, as soon as the topline would increase, as we have already indicated, and further the raw material prices are settled and our negotiations. With the customer would be stabilized or the paralyzed by the end of quarter 2 or the early of the quarter 3, then automatically there would be reflection on the improvement in the EBITDA margin and that could directly reflect to the.

Participants who wish to ask questions may press star in one at this time.

Ladies and gentlemen, in order to ask a question, you may press star and 1 now. The next question is from the line of Haritik Cheda from Lark. Please go ahead.

Sir, with the government opening of this deep sea exploration blocks, so many, and considering deep sea exploration, how would that figure for our company in the long run? How is that opportunity? In recent news, the government is opening up more and more blocks for deep-sea exploration.

Hadidji, we have nothing to do with deep-sea exploration.

Asha. Okay. Okay. Sorry. Okay. Okay. Thank you, sir.

Thank you. The next question is from the line of Sarket, an individual investor. Please go ahead.

Yes, I actually had a question regarding the company's margins. Historically, pre-COVID, the margin levels were significantly better, and off late, the margins have almost halved. So going forward, how do companies see regarding the margins improving to the pre-COVID levels, or there are some factors that are making the margins go lower?

Yeah, regarding the margins, if we compare with the pre-COVID levels, the situations were different, the revenue prices were different, and day by day when your profile is increasing, you are adding more customers, and so you need to be more competitive, and you need to keep the prices as per the market. So, the pre-COVID crisis is very difficult to achieve again, it is clear, and the margins would improve in Q2, Q3, gradually when the utilization of the assets would be better, and we are also able to settle the pending claims with the customers.

So, what would be sustainable margin levels for a longer term period of peace?

Yeah, if you talk about the automotive ancillary like us, and so because where we have the OEM customer there, we need to be most cost competitive. So 12 to 13% margins would be on the sustainable basis.

So now 19% we expected to go to 12 to 13%. Yes. But for the last several years, the growth in the top end has been very muted for our companies. The sector has grown very well, the auto sector. But if we see from 2020 to 2019, from 400 cores, we have just moved to 600 cores in the last six, seven years. So, like, what is plugging the growth in the sales?

So, this year, if you see our quarter number results, so in the Q1, we have the 34% of the growth. So, there are certain actions which we have taken in the last 2-3 years. So, now the result has start coming. So, this year we will be able to have the good growth and this momentum should continue for the next year also.

So, have we lost any client over the years? That is why the sales have not grown this much because the industry has grown much better than what we have grown.

Yeah, no, we have not lost any client per se, I would say, because the industry has grown, because if you see that there was the most, if you see that now, when you see in terms of actual numbers and the value of the car has gone up due to the inflation and other things, because the more advanced features has been added to the car, so in the electrical side, there was more and more parts were added. So we were not able to get benefit of those areas, if you see, because we were making primarily the ceiling system and the injection molded part. So there was not much changes in those categories. However, in the electrical side, there was a more sensor, more advanced feature card are now being developed. So due to that, that effect which has been shown in the other auto-ancelerier player would not reflect to the art of life.

Sir, one more question regarding the debt levels we have. So, going forward, like, do we see the company looking debt free in some time because of the info of money recently we have had? So, what are plans regarding the debt?

So, for the short-term side, our target is that in the next three years, at the net level, we would like to be debt free.

And regarding the capital, regarding the capital utilization, what is the utilization level as of now, sir?

In Q1, it was 73%.

Thank you so much, sir.

Thank you. As there are no further questions from the participants, I would now like to hand the conference over to Mr. Abhishek Jain for closing comments.

Thank you very much everyone for joining us today. We hope we have been able to address all your questions effectively. For any further questions or clarifications, please feel free to reach out to us or to our IR advisors, Strategic Growth Advisors. Thank you very much, Jeevan. Thank you, thank you.

Thank you. On behalf of PPAP Automotive Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.