This is so beautifully explained. Thanks for that.

Some notes from concall dated 10/30:

Capex:

• Capex for FY’24 is expected to be 320 Crs. So far, incurred 190 Crs. till H1FY24.
  • 190 Crs. total outlay for alloy wheels.towards capacity ramp up from 3 mil to 4.8 mil. 130 Crs has already been expensed. Production online by Q4.
  • 50 Crs towards alloy knuckles (new product)
  • Rest 80 Crs. is towards maintenance capex

AMW Autotech Acqusition:

• 138 Crs. cost consideration + 20 Crs. additional setup cost for AMW auto. To be closed in 6 months from word go.
• Plant expected to be operational by Q1FY25.
• Any tax benefit due to AMW acquisition – some tax benefit due to loss carry forward. Have to access the books once acquisition is complete.
• Numbers to start from Truck segment ~25K/month of large wheels. 100- 150 Crs. FY26 onwards will be larger number

Steering Knuckles

• Steering Knuckles – Capex of 200 Crs for 1st Mil units, will generate 240 – 250 Crs revenue. commencing from July 2024.
• For full year FY’24 Capex is 50 Crs. Already spent 15.5 Crs.
• Overall market Potential is 2000 – 2500 Crs exposure. Will like to repeat itself like alloy wheels playbook.
• Producing for PasCar for domestic. Export potential is very large however will take 2-3 years
• Capacity utilization will be 15% for FY25 and ~60% for FY’26

Exports:

• Export guidance for full Year- 600 Crs +
• Out of total 4.8 Alloy wheel capacity → 3.6 mil domestic and 1.2 Mil for export
• alloy wheel export to add ~100 Crs from current base
• No region specific challenges, most of the global demand is met by Asia supply. More participation from alloy wheel side for Next year

Debt Status:

• 800 Crs of Debt, for FY25 (or maybe till FY26).
• Historically 5x leverage is the peak, today it is 1.5X
• No further debt for any Capex. 145- 150 Crs for Knuckles, in total 180 crs will be spent via internal accrual.
• ~100 Crs will be taken as debt for AMW auto.
• Can pre-pay some debt next year.

Misc:

• Environment is competitive. Margin under pressure due to volume led discount
• Maruti break through for alloy wheel – Discussion are progressing well. Expected to have some news shortly
• Capacity of 4.8 Mil at cost of ~1000 Crs. More cost efficient due to Brownfield from existing 35 Acres
• Global size of Alloy wheel market 350 Mil. India is 9 Mil consumption
• Guidance – 4500 – 4600 Crs for this FY, 5100 – 5200 Crs for next
• Margin 244 Crs for H1 and to repeat the same for H2
• Disjointed Value and Volume growth explanation. Drop in realization for alloy wheels – LME has dropped and we have pass through clause.
• Overall alloy wheel has 37% market penetration, will move to 45% in India
• OEM export – discussion on with 2 customer. Testing and validation going on with 1 customer. 1 customer can get converted next FY
  [ Very important trackable IMHO…]

Overall, this 7 Mil capacity at a very reasonable valuation (~150 Crs) by way of AMW acquisition is very positive for the company – more so when they are already hitting upper end of capacity utilization on existing sites. AMW may also be margin accretive being into Heavy agri/truck segment.

Alloy wheels expansion by 60% is another positive unfolding well. Is a brownfield with ~3x asset turn with better margin business. There is definite market traction and they are able to garner share both domestic and in export markets.

On the other hand, this call has moderated all expectations from new steering Knuckles foray – at least in medium term. Though there is synergy with current product basket however an 1.2x – 1.3x asset turn venture with say 12% – 13% EBIDTA margin funded by debt wont leave much money on table. Even the scale-up is not swift enough to compensate for – phase 1 scale-up itself is going to take next 1.5 – 2.0 years. May be little early to call this as small avoidable distraction?

Thanks,
Tarun
Disc: Invested

i agree with the bank policy if they are trying to create a niche for customers of certain profile. It is not possible for a bank to service their customers well if they try to provide all services to every customer coming through the door. Every bank should first decide on its customer range then only it can design its products and delivery system to ensure proper co-relation between income and cost.

IDFCFB has already decided that it will not touch Infra customers and only 15% to 20% loan book for wholesale customers. The retail customers have already been segmented and being fine tuned as they go forward. I am invested since 2018 and I feel the bank should give superior returns for next three years and then settle down for normal growth as per their competency.

Okay. Unfortunately the link isn’t working Akshay and my independent research on MCA couldn’t locate this firm either. But I guess that doesn’t matter as your inference is clear.

I have met the promoters personally and they seem very decent guys. While theoretically still possible I would say its unlikely.

Also note, it is a 280 Cr business of which about 80 crores come from DSC. This too they are on a trajectory of reducing the channel partner contribution. So I wouldn’t worry about this too much.