@T11, @nirvana_laha and I collaborated on the Q2 FY23 concall so as to get more insights from the management on the following next levers of growth:
- Eberspaecher JV on MHCV: Sharda’s potential to capture market share, MHCV competitive landscape, how this will move the needle
- EV battery JV with Kinetic Green – What kind of capabilities does Sharda have and how they are filling the gaps
- TREM 5 regulation for tractors: Prospects of TREM 5 regulation getting derailed or delayed significantly by the Government as TREM 5 will increase the cost of tractors for farmers.
Here are the Q2 FY23 concall notes (transcript here):
Eberspaechar JV on MHCV
- Focus is on stabilising the JV and bringing it to profitability. In the last 2 quarters, JV has been able to post profits, though quite small for now. As a side note, the management mentioned “focus on stabilisation of JV” quite a few times in the concall.
- The new engines that this JV is selling to are not performing as well as the other older engines. The older engines are still being preferred in the Indian market
- MHCV market is concentrated and 5 – 6 engines drive 90% of the market. The JV supplies to newer generation of 2 engines out of these 6.
- Market share will be dependent on how the new engines perform based on the market response and if they win new RFPs for other engine programs.
EV battery JV with Kinetic Green
- First prototype is ready and is under testing. If things go well, some minimal production may start at the end of Q3 or Q4.
- Focus is on phase 1 i.e. on battery assemblies for the JV, test these extensively, put them out in the field and once there is stabilisation, look at phase 2 i.e. expand beyond Kinetic Green.
- Want to be asset light in phase 1 I.e. will do just designing and assembly of battery packs
- Not making the BMS, only doing BMS selection right now. For making the BMS, partnerships will be required
- Market currently is dynamic with technology shifts. They want to be adaptable and flexible as a strategy.
TREM 5
- Government is very keen on clean air initiatives and they are sure Govt. will go ahead with these initiatives.
- Management did not want to comment on possible delays in TREM 5 but all customers are preparing full swing for TREM 5 so that gives them a very positive feeling that TREM 5 will be implemented eventually
- TREM 5 is a bigger opportunity than CEV 5
Exports
- Looking at exports in 2 segments
- Segment 1: Off-road or small engine segment for supply of exhaust systems. They already export to couple of customers in America but want to double down and add customers in this segment. Potential addressable market is large.
- Segment 2: Subcomponents. Some of the proprietary subcomponents they manufacture have a huge export market and they are building an export front. Have a good number of RFQs in their pipeline.
- Focus is on exports to US and Europe
RDE norms
- To be effective from Apr 1, 2023
- Sharda will have a 25% increase in content for Diesel engines and 10% for petrol engines
Cash utilisation and capital allocation
- First preference is towards M&A in powertrain agnostic products
- Also want to return it back to shareholders in a tax friendly manner
The meaningful drivers of growth for them in the short/medium term will be:
- TREM 4 (Jan 2023, minor)
- RDE (Apr 2023)
- CPCB 4+ (July, 2023, minor increase)
- TREM 5/ CEV 5 (Apr 2024, major increase)
- Sub component exports
- M & A in power train agnostic
- EV in medium term
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