Sharda Motor Concall Notes Nov 2023

Volume growth is not shared; gross profit increase is an indicator of volume which has roughly grown by 22-23% QoQ
All new products launched as part of BS VI norms from 1st Apr 2023 are value added sales part; had a good product mix this quarter which contributed to higher margins
Likely delay of new norms due to elections, likely that the date will be post elections
Regarding productivity improvement: Q2 is good indicator of new products(launched from Apr 23) to be streamlined, good part of productivity improvement has already come in this quarter, but there’s always scope for further optimization as products mature
Expect a tailwind(can’t quantify) due to new products; as products have come in, have grown in indicative volumes as well as gross profit leading to higher EBITDA, market grew at 5-7% whereas Sharda’s gross profit grew at 20% this quarter; this delta is due to content per car on a blended basis
On QoQ basis, gross profit indicates volume increase, going through a per vehicle increase in profitability
On entire new process stabilizing over next 2-3 quarters: Nature of the business is very long term oriented, working on a potential index, as a product matures, profitability increases but hard to say how much of it will come and how much has already been captured, markets are dynamic, just to be conservative our focus is to stabilize
H1 had gross profit growth of 15-18% growth,
On plans to monetize Noida land: Land prices have gone up a lot, if they get a very good deal would wait and monetize it
On EV Venture: Products are at Testing queue, it remains to be very dynamic, multiple regulatory changes, there’s cost pressure, will wait for full testing to be done before investing in this venture
Have applied for PLI, have engaged with a consultant. As of now not considering any benefit from PLI in the numbers.
Dividend policy as of now is 10-30% of PAT, but given cash reserves, working on upward revision of the same; work is on to lessen the range of 10 to 30, so there’s more predictability
In terms of next regulatory trigger, there could be delay till FY 26; new market has opened up
Without giving any specific numbers, company remains optimistic for FY 24 & FY 25, also there has been some surprise developments in some business segments such as suspension, have been nominated for few EV programs, international business development cycle is looking good, volumes look solid in terms of how the automobile industry is doing, one more interesting business that has developed is in 3L to 4L segment in CV segment. If co is able to break into that segment, that is a fairly large market, but at the same time have to be cautious due to global headwinds & macro factors
Revenue mix right now in Emission side is 40% PV & 60% in LCV etc
Percentage of catalyst content in revenues is not disclosed; margin goes up as catalyst content goes down
In New products(introduced from Apr 2023) there’s no catalyst, margin profile is similar or slightly improved over the years
On utilizing heavy cash on balance sheet: First preference is to utilize it in M&A activities in powertrain agnostic products, but also want to be conservative & long term oriented in terms of M&A, at the same time looking at benefiting shareholders via dividend
On conducting international roadshows: Augmenting management bandwidth to enable better interactions, last 4-5 years have seen good growth due to great execution
On sustainability of margins & exports: This quarter did see a very good product mix, also was the first quarter with full products coming in which are on value added basis; will maintain 10% plus margins, quarter was a favourable product mix quarter, new in terms of exports, started 1-1.5 years back, exports would not be a large %, mainly supply to the US markets, have now developed a complete team for intl business, macro is a huge tailwind for India, China + 1 theme is playing out much more than the co imagined, initial learning curve is there for exports, do see a very large opportunity
Will stick to core auto business, as of now no plans to do diversification, good opportunity in gensets
Broadly 5 year growth plan is to maintain or increase market share LCV, Enter new space in 3L to 4L,
More focused on 2 wheeler and 3 wheeler side on EV
In tractor segment, there are only 3 cos that are present in India and globally only 4 to 5 cos, competitive intensity is lesser due to tech requirement, in general tech that is reqd is much higher
Very early to comment on PLI scheme as there’s lot of ambiguity

Disc: Invested

HI Grp,
Thanks for bringing the company to my notice, I was not aware of it before.

A quick look at the financials gives me the impression that its more of a trading business rather than a IaaS platform (which E2E is). The company does not look like having a large services business either as the margin profile (Gross margin of ~ 30%, Ebitda of sub-15%) reflects the business model to be more of Value added resller rather than providing any self developed IP. Also, the company seems to be trading at very high multiples (80+ times EV/Ebitda leaving very little margin of safety if something were to go wrong).

Such businesses are outside my area of competence hence I would not be in a position to provide any views/insights.

Hope this helps.

CNBC TV 18 hosted Vivek, Partheeban, COO of caplin points today on their show and here are the takeaways.

• 34% EBITA margins attained in Q2 are expected to sustain.
• Aspire to clock 280-300crs from the US business (Caplin Steriles). especially with the new production line commercialized.
• Oncology business has been kick started in LATAM with contract manufacturing. The capex to do this in-house is in progress (Which might aid the margins even further).
• Aspire for a 15-17 percent revenue growth for FY24.
• Comfortable with the cash on books.
• Open to inogranic growth LATAM market, especially Brazil and Mexico.

Link for the full interview.

Base Business Is Doing Well, Focussed On Completion Of Oncology Facility: Caplin Point | CNBC TV18

What’s interesting is that Vivek thinks the EBITDA of 34-35% are manageable. In the earnings concall the management had mentioned that the gross margins of 60% that they attained this quarter might be difficult to sustain, but I think with Caplin sterile picking up pace I think the margins may sustain at these levels.

Disc : Invested and biased

The company is supplying its products through corporate gifting. This Diwali corporate gifting and upcoming New Year gifting trends to be seen in Q3 results.