Ladies and gentlemen, good day and welcome to SJS Enterprises Q2 FY 2024 earnings conference call hosted by JM Financial. 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 this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ronak Mehta from JM Financial. Thank you, and over to you, Mr. Mehta.
Thanks, Nitish. Good morning, everyone. On behalf of JM Financial Institutional Securities, I welcome you all to Q2 FY 2024 earnings call of SJS Enterprises. From the management team, we have with us today Mr. K.A. Joseph, Managing Director and Co-founder, Mr. Sanjay Thapar, CEO and Executive Director, Mr. Mahendra Naredi, Chief Financial Officer, and Ms. Devanshi Dhruva, Head Investor Relations. As we do always, we will start the call with a brief opening remark from the management, followed by Q&A session. With that, over to you, Devanshi. Thank you.
Thank you, Ronak. Good morning, ladies and gentlemen, and thank you for being with us over the call today. We appreciate it. Moving on, this is how we intend to take today's conference call forward. I will pass on the dais to Mr. Joseph, our MD and Co-founder, who will make the opening remarks. Then he will hand it over to Mr. Sanjay Thapar, our CEO and Executive Director, who will take you through some of the slides of our presentation that have been uploaded on the stock exchange as well as on our website. Sanjay will take you all through the industry view, our business performance, and also give a strategic outlook for the future growth of the company at the end. Mr. Mahendra Naredi, our CFO, will update you all on our financial highlights, post which we will open it up for Q&A.
The duration of this call will be around 60 minutes, and we will try to wrap up our comments in about 20 minutes so that we leave enough time for you guys to ask questions. If time is not enough, please feel free to reach out to us through email, and I may try to answer all your questions to the best of my abilities. Thank you once again, and I will now hand it over to Mr. Joseph to make his opening comments. Over to you, Joe.
Yeah. Thank you, Devanshi, for the introduction. Hello, and good morning, everyone. I trust you would have had a chance to look at our investor presentation and the results published yesterday. While Sanjay and Mahendra will take you all through the presentation later, I would like to quickly share some updates with you all. Number one, this will be our first quarter where Walter Pack India, our recent acquisition, has been consolidated, and hence, all consolidated numbers will be including both Exotech and Walter Pack, along with SJS financials. Please note that for the full year, FY 2024, only nine months financials of Walter Pack will be consolidated with SJS numbers. Secondly, in August 2023, Everstone Capital sold 29.53% of their equity stake in SJS in the secondary market.
We would like to take this opportunity to welcome all the new investors who have shown faith and confidence in us and have now become shareholders of our company. After the stake sale transaction, Everstone's equity holding in the company is now 4.63%. Consequently, both their nominee directors, Mr. Vishal Sharma and Kazi Zaman, have stepped down from our board. However, on the work front, nothing has changed, and it is business as usual with me and Sanjay spearheading it along with our professional management team. Now, coming to Q2 FY 2024 updates. As you all know, Walter Pack acquisition has opened up a plethora of new opportunities for us. This acquisition has enabled us to penetrate deeper in the passenger vehicle and consumer business, thereby further reducing our two-wheeler concentration.
As per SJS Q2 FY 2024 consolidated performance, including Walter Pack, 39% of our revenue contribution is from two-wheelers, 33% from passenger vehicles, 28% from consumer and other businesses. Both Exotech and Walter Pack acquisitions have helped us to balance our portfolio well between the automotive, two-wheeler, passenger vehicles, and consumer businesses.
Since this is the first quarter post-acquisition of Walter Pack, hence, I believe we may take two to three quarters to understand the business better and to integrate the systems and processes in line with SJS. I am looking forward to seeing how SJS growth pans out in the future with all the synergies and cross-selling opportunities on back of these acquisitions and new product additions. With that said, I would like to now hand over to Mr. Sanjay to take you all through some of the businesses and industry highlights for the quarter. Thank you. Over to you, Sanjay.
Yeah. Thank you, Joe. Hello, and good morning, everyone. Starting with our Q2 highlights, we have yet again outperformed the automotive industry for the 16th consecutive quarter. Auto industry, two-wheeler plus passenger vehicle production volumes have de-grown by 0.3% in Q2. Our consolidated revenue, that is SJS plus Exotech plus Walter Pack, grew by 39.5% YoY during this quarter, primarily on the back of the Walter Pack addition from Q2 onward this year. Strong 25.2% YoY growth in the automotive business, that is two-wheelers and passenger vehicles combined as compared to 0.3% YoY de-growth in the industry. Help us navigate this quarter. Automotive business has grown well for us, both in the domestic markets at 25.4% YoY, and exports market at 20.2% YoY.
Q2 FY 2024, post the completion of our Walter Pack acquisition, our net debts stood at INR 599.4 million and our cash and cash equivalents were INR 238.5 million as of September 30, 2023. We added marquee customers like Lear Corporation and also some OEMs like Neolync and GDN, and also Foxconn Technology Group, who supply to the telecom segment. Despite muted performance of the auto industry in Q2, SJS has consistently outperformed, and this growth was no different for this quarter. In Q2, the two-wheeler industry production decreased 1.5%, while SJS consolidated two-wheeler sales grew by 8.4% on a YoY basis. The company witnessed PV growth of 51.3% year on year, while the industry production volumes grew by 5.6% during the same period.
Automotive, two-wheeler and passenger vehicle industry production decreased by 0.3% YoY, while SJS witnessed a robust growth of 25.2% year on year on account of this Walter Pack acquisition and increasing their business in the automotive segment. Overall, consolidated SJS sales grew by 39.5% year on year, while organic auto growth stood at 6.3%, and we performed better than the underlying industry. Q2 organic growth was impacted due to flattish performance of the underlying industries. Simultaneously, for the first half of this year, automotive industry, two-wheeler passenger vehicles put together grew by 1% year on year, while SJS consolidated automotive revenues grew by 22.2% YoY and an organic growth of 13.9% year on year. We are seeing some improvements in the export market, as it witnessed a growth of 25.6% year on year for the quarter.
New business wins were partially offset by the slow paced recovery in certain pockets of exports, like Europe and Brazil. Overall, for H1 FY 2024, we saw a robust growth of 54.1% in exports to INR 232 million. Q2 FY 2024 exports constituted roughly 7% of our total consolidated sales. Both Exotech and Walter Pack are primarily domestic businesses, and hence exports as a percentage of consolidated sales is 7%, while exports is 12% of the SJS standalone sales. Apart from adding new customers like Lear and OEMs who supply to telecom segment, we continue to expand our share of wallet by winning new businesses from our key customers like Mahindra & Mahindra, Stellantis, Foxconn, Maruti Suzuki, Bajaj Auto, John Deere, Godrej, Škoda Auto and many others. I would like to share one more update with you.
I am delighted to mention that the Screen Printers' Association of India and the Federation of European Screen Printers Associations has awarded Mr. K.A. Joseph a Lifetime Achievement Award in appreciation of his human service rendered in the industry with visionary leadership and extraordinary achievements. Congratulations, Mr. K.A. Joseph.
Thank you.
Last thing on the CSR front, we have been passionately supporting certain social causes and we are seeing a visible impact. Some of these initiatives are Let's Feed the Needy, a Bangalore-based NGO that provides daily meals to the poor and needy people at orphan centers, roads, railway stations, old age homes, et cetera. Continuously, we support a Paralympic athlete, Mr. Manikandan, for the past six years to compete on global platforms. He recently won a bronze medal at the IFSC Paraclimbing World Championships in Switzerland in August 2023, once again making our country proud. Supporting Kumarappa Institute of Gram Swaraj for the past seven years, we provide free cost education, books, et cetera, to several children of migrant laborers. Apart from this, through our garbage cleanup initiative, we help by improving lives of villages by providing them clean and hygienic environment to live in.
Our coverage has been extended to eight more villages this quarter, taking the total count to 20 nearby villages. It is satisfying to note that these initiatives are helping improve lives of thousands of people in a positive manner. I would now like to hand over the call to Mahendra, our CFO, to update you on the SJS financial performance before I talk about future growth. Over to you, Mahendra.
Thank you, Mr. Thapa r. Good morning, everyone. Before I talk about our Q2 FY 2024 results, I would like to briefly explain the accounting treatment of Walter Pack acquisition for everyone's benefit. As communicated, we have acquired 90.1% stake in Walter Pack for INR 2,393 million. An independent valuer has ascertained net equity value to be INR 413 million on acquisition date, which is 1st of July 2023, and an intangible asset to be INR 853 million, majorly for acquired customer relations, non-compete, et cetera. Therefore, that liability on intangible assets has been created for INR 220 million, with the sum of that, the total value of the company has been arrived at INR 1,043 million on 100% valuation. After adjustment of 9.9% of minority interest, SJS has acquired asset total of INR 940 million, representing 90.1% stake in the total net asset of Walter Pack India.
The remaining amount of INR 1,445 million, which is acquisition price minus 90% stake into our company valuation, was accounted as goodwill. As per accounting standards Ind AS 103 and Ind AS 110, we will consolidate 100% assets in asset side and 9.9% of minority interest will be showing under the liability side. On P&L side, the sales and EBITDA will be consolidated each line item wise, whereas PAT will be bifurcated into SJS and the minority. Effectively, Walter Pack India PAT to the extent of 90.1% will be added to PAT in consolidated SJS financials.
The ascertain intangible asset portion of INR 853 million will be depreciated and adjusted from the consolidated PAT. We anticipate an impact of approximately INR 28.9 million pre-tax and INR 21.5 million post-tax on going forward. These findings have been obtained through an independent valuation company, which we have currently relied upon and by our auditor. However, according to standard, a timeframe of 12 months is available for validation of all assumptions and if any change comes, it will be adjusted in the further period.
Now, coming back to Q2 FY2024 financial update. Referring to slide 12 and 13 in our earning presentation shows the quarterly financial in a snapshot. Slide 12 shows the organic business performance of SJS and Exotech, and Slide 13 shows the consolidated picture including Walter Pack India. Moving to slide 14, 15, which talks about our financial performance in detail. Consolidated revenue for Q2 stood at INR 1,632 million, a growth of 39.5% YoY, primarily on back of Walter Pack India addition. Organic basis, the revenue growth was 6.3% YoY basis. Our adjusted consolidated EBITDA, which is reported EBITDA led by one time acquisition cost of INR 21.5 million, stood at INR 398.7 million, grew 19.4% YoY on a margin of 24.2.
EBITDA margin in Q2 were largely impacted on account of Walter Pack India performance, where EBITDA margin stood at 12.5%-13%. Walter Pack India margin got impacted due to lower automotive revenue during this Q2 as one of our largest PV OEM customer who has undergone model upgradation for three of their models and the existing model volume was tapered down before the launch of new models, which led to the lower autos component sale for Walter Pack India. Also, Walter Pack India sales for Q2 included a large proportion of tooling sales for these new models, which is at a much lower margin than the regular component sales. However, these models are now launched and we are gaining volume back in the auto business. We expect the sales mix to stabilize in FY2024.
Excluding Walter Pack organic adjusted EBITDA, that is for SJS and Exotech, was INR 349.2 million on a healthy margin of 27.7%, witnessing a growth of 4.6% YoY. Again, this EBITDA exclude one time expense of acquisition cost to the tune of INR 21.5 million which we have incurred for Walter Pack. Adjusted consolidated PAT at INR 208.1 million grew 4.3% YoY and PAT margin stood at 12.8%. Adjusted PAT margin have largely been impacted due to lower other income, which was INR 23.5 million in Q2 FY23 and INR 16.8 million this quarter. Higher interest cost to the tune of INR 11.1 million on account of debt taken to acquire Walter Pack India.
Higher amortization cost on intangible which I thought in the before to the tune of INR 28.9 million and lower margin at Walter Pack due to lower component sales and temporary change in product mix in this quarter. Organic adjusted PAT growth has been 5.1% to INR 209.7 million on a healthy margin of 16.9%. Profitability was impacted on account of lower other income as prior to Walter Pack acquisition, the company had surplus fund and generating interest income of INR 25 million to 30 million every quarter, as well as higher amortization cost for intangible post-acquisition to the tune of INR 28.9 million.
Our consolidated ROC during this quarter stand at 17.9% and return on equity at 13.7%. ROC was lower due to Walter Pack India acquisition. This will improve gradually over next one or two year with better utilization of investment. As Mr. Thapar mentioned earlier, our cash and cash equivalents were INR 238.5 million at the end of September 2023. Post Walter Pack India acquisition, our net debt has increased to INR 599.4 million. Of the total debt, INR 120 million has been repaid during October 2023.
We have strong conviction in Walter Pack business and are confident of achieving our growth targets in the medium term on back of stabilization of auto sales mix, various cross-selling opportunity, synergies between all the three business and growing economics of the scales. I would now like to hand over the call back to Mr. Thapar to talk about our future plans and growth outlook. Over to you, Mr. Thapar.
Thank you, Mahendra. Considering the underlying industry performance for H1, whereas the automotive industry production volumes are flattish year-on-year, we are confident that we will outperform the industry significantly on the back of our presence in multiple industry segments, our global presence, and also the diversified product portfolio and strong customer base. On Exotech capacity front, we would like to update you all that we partnered with a chrome plating manufacturer and booked their capacity for Exotech orders. We have started working with them since October 2023 and are very closely working to standardize processes and quality standards. We believe this will help us in overcoming any capacity challenges that we have, and Exotech will be able to maintain its growth trajectory for the near term.
Simultaneously, our team is working on finalizing the revised capacity expansion plan of Exotech and Walter Pack together, that we expect to complete in calendar year 2024 as guided earlier. As a company, we have always focused on introduction of new premium products and technologies that will help us to increase our addressable market significantly as we aim to be a one-stop solution provider for all aesthetic products. You all know by now that we are working on this journey of diversification and accelerating our efforts to increase our kit value in two-wheelers, passenger vehicles, and the consumer businesses with the addition of new premium products to organic and inorganic routes. We see this increase in kit value playing out with the addition of chrome-plated parts to Exotech, IML, IMD, and IMF parts through the recent Walter Pack acquisition.
Just to give you all some more color on this increasing kit value and how it will play out for SJS growth, I will talk about a live example wherein currently we are supplying several parts directly from all these three companies to a leading PV OEM for a specific model. At the start of the year, SJS was supplying only INR 250-INR 300 per vehicle worth of logos to this PV OEM. However, now, SJS standalone supplies INR 750-INR 800 vehicle worth of aesthetic parts like steering wheel, illuminated logos, and appliques. Through Exotech and Walter Pack combined, we supply an additional INR 1,500-INR 1,600 per vehicle worth of products like logos, fully automatic temperature controller parts, deco parts, wheel caps, et cetera, to this OEM.
Hence, the total kit value supplied has increased not just 2x within SJS standalone itself, but overall, it has increased to over seven to eight times already with the cross-selling of positives that we are playing out in favor of the consolidated SJS. We are excited about this and look forward to seeing how we can execute a similar strategy for other OEM customers as well. Similarly, we also are in discussion with some OEMs to get approvals for cover glass. That will be a complete game changer for us. Apart from that, we are working closely with some OEMs to introduce innovative premium products like IML wheel caps and complex IML, IMD parts for consumer companies. It gives us great satisfaction to see our organic, inorganic strategy is playing out well.
Our potential content per vehicle for PVs has, over the past two years, increased by over four times, and today we are a mainstream supplier for passenger vehicle segment as well. It is because of the way we plan, strategize, and execute ideas ahead of the curve consistently, trending towards premiumization, we believe we will continue to outperform the industry in the future. Now we will talk of the outlook for FY 2024. At the beginning of the year, we expected the underlying markets to grow by 8%-10% and had guided to a top-line growth of 50% year-on-year for FY 2024. However, despite the muted performance of the industry in H1 FY 2024, we still expect to deliver annual revenue growth of close to 45% year-on-year on a consolidated basis, and organic growth for FY 2024 might be closer to 20%.
Accordingly, our PAT growth is likely to be about 30% on a YoY basis. This 30% growth will be excluding the higher amortization cost of INR 28.9 million each quarter due to this intangible asset amortization and one-time acquisition cost of INR 21.5 million occurred during Q2. PAT guidance is lower mainly because of the impact on Walter Pack India profitability in Q2 on account of disruption and slow ramp-up of the models by the customer. This, we believe, is a one-off event.
Unlike SJS in the interiors plastic business, model changes happen once in six or seven years. We hope that in the next few quarters, you will see a much improved performance from Walter Pack India. In fact, in the last three months, we won new businesses at Walter Pack that give us great confidence of a strong order book and top-line growth for FY 2025 at Walter Pack. We are confident that this Walter Pack acquisition is the right fit for SJS and will help us drive both growth and profitability in the long term. With that said, I come to an end of my quarterly updates. Thank you. Now we are open to answer questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Pritesh Chheda from Lucky Investment Managers. Please go ahead.
Sir, just some clarifications on the way numbers played out. You mentioned about INR 2.9 crore is per quarter extra amortization, which is now flowing from quarter two. Is that correct?
Yeah, absolutely right.
Okay. Second thing now on the Walter Pack, I couldn't still comprehend what is this model change and what is this sudden impact on the GM of that business, where the last conference call would have happened in the month of August, where you would be halfway through your quarter and nothing was called out at that time, and suddenly in these numbers, everything is being called out. You have done the acquisition in quarter four of last year at some 30% EBITDA margin, which now you're telling that it will take the next four quarters to ramp up. So I am unable to comprehend what you want to exactly say.
Yeah, Mr. Chheda, let me just correct you. We are not saying it will take four months to ramp up. This is a one-off event that we were taken by surprise. Let me explain the situation to you. I will not blame the OEM. As Walter Pack was doing robust sales, in fact, we are the only suppliers to this company for these category of parts. They had reported a 30% EBITDA margin for the quarter one of the operations. We acquired this company in July, and there were forecasts by the OEM that they will launch new models and the SOP for the new model was planned for the month of July. In fact, they were so keen to do this that we air freighted in June, close to about 11 tons of tooling to expedite and support them with this launch.
Unfortunately for Walter Pack and for us, the ramp-up of volumes at OEMs did not take place. We are not talking of just one model. We are talking of three main models which are supplied, or product for these models are supplied by Walter Pack to this customer on an exclusive basis. Since this customer launch was delayed, volumes were impacted very dramatically in the month of August and September. September, the vehicles volumes at the OEMs stabilized, and in the month of October, they've come back in a large manner. So recovery is going to be much faster than what you understood. So already we see that these volumes are coming back. All the launch issues at the OEM are behind them, and we expect these margins to come in very strongly.
I will now hand over to Mahendra to explain to you the delta between how has this impacted the margin at Walter Pack for this quarter. Mahendra, just go through that breakup please.
Sir, just before that, I want to ask from what you mentioned, the revenue for Walter Pack is still INR 350 million in this quarter. The run rate, which was mentioned at the time of acquisition was INR 1.3 billion. So INR 1.3 billion divided by four is still INR 350 million for this quarter. INR 350 million, INR 370 million, whatever is the number.
INR 390 million for this quarter.
Yeah, a ballpark approximation. There is no deviation versus the run rate. What you mentioned is incremental. Incrementally, there was supposed to be a particular model which was supposed to be ramped up and was supposed to generate that growth. How can there be a sudden erosion then in the base business which you are doing at whatever this INR 1.3 billion growth? Yeah.
Let me take a minute to explain. I think it is a very important point. Everybody would be keen to know this. We are the only suppliers to this OEM for three main models that they make. All these three models underwent a generation change. They have completely changed to a much premium, higher quality inward form part. That business is ramped up and tooling for this was developed. This tooling cost was close to about INR 11 crores, which the company billed in this quarter. At the overall sales number, the INR 39 crore sales that you see comprised of almost INR 10-INR 11 crores of tooling cost that we have billed. Tooling cost margins are far lower than the component margins that we have, and that is what we mean when we say the production mix or the product mix got screwed.
My component sales, which is two-thirds of the sale of the company. Before we acquired Walter Pack, for quarter 1, two-third sales came from component sales and one-third sales came from their consumer business. The most profitable business there is the automotive business. The automotive sales, because of these production issues at the OEM in this launch phase in August and September, made the sales volume for automotive products decline to just one-third of the overall sales that this company did in that quarter. Out of that INR 39 crores, just one-third came from component sales, which is high profit margin business for us. On the top line, apparently it appears that because of that INR 10, INR 11 crores of tooling sales that was done, the top line doesn't seem to have changed much visibly on the outside.
There is a big difference in terms of margins that we earned over tooling. This is a new generation, new category of parts. It is a very complex part being launched for the first time in India. The OEM had issues with this. There were some modifications that were done. The margin on the tooling were negligible. That put together constituted a significant drop in the margins for Walter Pack for this quarter. Having said that, in the month of October, sales have come back, so the models are now ramping up, and we are extremely positive in our outlook for Q3 and Q4 at Walter Pack, where we think that we should come back to normal. This was just a one-off case, which took us by surprise.
Nobody can anticipate that OEM will delay a launch by two months, and they had actually taken up model changes for three new cars at the same time. It was very challenging time for us, but we have come out of it now. I hope that answers your question, Mr. Chheda.
Yeah. Just a follow-up on the outlook that you shared at 30% PAT growth. If it is supposed to adjust by one quarter, that's some INR 3, 4 crores of EBITDA impact for this quarter, INR 4 crores or 5 crores EBITDA impact. I'm just wondering why for the full year then, the profit growth number that you guys have estimated is 30% now? Because then the only deviation remains is the extra amortization number for which you need to give us clarification as well, why this amortization number suddenly increased within one quarter's time.
I'll ask Mahendra to take this and explain to you in detail about the amortization. Just coming back on the guidance for PAT, that why are we talking of 30%? As I said at the beginning of the year, we expected that the automotive industry, two-wheeler, four-wheeler, would grow at about 8% to 10%, and we had figured in our numbers based as that. Walter Pack was growing very, very strongly. In fact, the order intake for Walter Pack has been far higher than what we imagined. We are going to really deliver great numbers. Starting from by the end of this year, those new parts also should be in production. The outlook is bright, but the overall industry volume has been muted. We are just guiding that for the balance part of the year.
For the first six months as we've said, the industry has de-grown. There is a very muted growth in the industry against that 7%, 8% that we had imagined. This is a factor of both Walter Pack margins impacted in Q2, 1-off event. Certainly, we will come back. The industry growth that we've said, even our organic growth that we talked of, about 20% to 25%, we'll be closer to about 20% because of this muted industry growth. Our intrinsic business is extremely strong, healthy. Our margins are normal and sustained. This is only an event which is because of this hiccup in this- Sorry?
Sorry, sir. Please continue.
Yeah. My slide finished, so I hope that clarifies the matter.
Okay, sir.
Regarding addressing your query on the depreciation, this depreciation is on the asset and intangible, which is done by an independent valuer, and that majorly belongs to the non-compete with the Walter Pack Spain, plus acquired customer relations in the Walter Pack India. This amount is intangible and depreciable over a period of time. That depreciation, INR 28.9 million, it will continue from this quarter for a couple of years.
Thank you.
Okay, sir.
Next question is from Valmik Shirish Guthe from HDFC Life Insurance. Please go ahead.
Hi. Hi, am I audible?
Yes.
Yeah, sir. Just want to understand, just continuing on the same Walter Pack. How has the kit value changed between the models when the model change has happened? If you could explain what has been the change in terms of kit value in the SOP and the?
I will not be able to give you the exact answer for confidentiality purposes, but the new models are close to about 40% higher. Our kit value in the new models is about 40% higher than the old models. What forecast was given by the customer was, their SOP was to be in July for two models, and for the other model, it was end of July. This got deferred. Even though the volumes took time to ramp up in the workings that the Walter Pack team had done prior to what acquisition we did, they did not show a blip because they had assumed that these new models will compensate for the decline in phasing out of the old models, decline in revenue due to phasing out of the old models.
On the overall sales plan per month that was provided to us at the time of this acquisition, I would not blame Walter Pack team as well because it was something that is on account of the customer delay. It was a new model launch and they had issues with many parts, so they could not launch it on time, and there was a close to about two and a half months delay in terms of ramping up the volume for that model, which has happened, and unfortunately for us, it happened in just one month after acquisition. We have to live with it. We examined that, and we see this volume will come back in Q3 and largely in Q3 and Q4, it may be absolutely normal.
Okay. Sir, also some of the OEMs who have launched the lighting, etc., the content is going up that we see. Walter Pack is supposedly doing that also for them?
Shirish, sorry to interrupt you, but your voice is not coming clear.
Okay. Hello. Is it any better?
Yes.
Yeah, please continue.
Sir, I just want to understand, in the industry, there is a trend of higher interior lighting content that is going up, especially from one OEM. There are a few new launches that we saw, like there was [Foxconn], et cetera. Is that what kind of work which Walter Pack is doing? Or it-
Absolutely. This is a new generation of cockpit launched for the first time. This was new for the customer, new for Walter Pack. Walter Pack Spain was involved in developing these tools. These were developed in Europe. Fundamentally, to get light to come through to a dashboard, as you said, you need what is called a 2K molding. The substrate is opaque, but light comes through the part which is transparent. You basically in the mold inject two plastics. One is a transparent plastic, which is the light guide material, and the other is the substrate that matches with the other part for the interior. This is what the product is.
Okay.
That has been lighting. Yes, the new generation of products have inbuilt lighting built into the IML part.
Sure. Sir, any other ones potentially that we will see for Q2, or Q2 should be far smoother and sailing?
Sorry, I did not get that question. Any other-
Sorry, for the next Q3. Hello?
Please repeat that question. What was the question?
Are you seeing any other potential issues that might crop up, or it should be smoother sailing?
We don't see any potential issues. As I said earlier, model changes in especially interior parts, they are very expensive tooling and the customers don't change this. They carry forward to the other models. Strategically, it is a great acquisition of business by us and the Walter Pack team, and this will continue, I think for the lifetime is close to about seven years. I don't foresee that there will be a hiccup or another one issue, because they are not going to change their part for the next six, seven years. That's what they've guided us. The customer has guided us.
Thank you, sir. Thank you so much, and come back in the queue. Thank you. Thank you for that.
Thank you.
Thank you. Next question is from the line of Ajox Frederick from Sundaram Mutual Fund. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, you mentioned that tooling margins are low, and therefore the margins got impacted. How much are the tooling margins, sir?
Unfortunately, I cannot share that with you because there are customers on this call, maybe.
Okay. Sure.
All I can share with you is that this is a new generation tool that was launched. It weighs about 11 tons, and we air freighted this huge tool, and this was done offsite. Most of the tools, because this is a new generation tool, it was developed overseas, so the margins are quite low. There were some design changes that happened by the OEM, so there were rectification costs, etc. That is why what I mentioned is that the margins were very low, because this was a technology that was being implemented for the first time in India, not just by Walter Pack, but no OEM in India has this capability or this technology in their vehicles. So it was first time, totally outsourced tool, therefore low margin.
Okay, sir. Understood. Sir, if I remember, you mentioned that tooling was about INR 11 crores out of the INR 39 crores, and remaining is INR 28 crores. If I do a math, it roughly turns out to be 20% sequential decline. To your point of three models decline, it is exactly matching 20% on a sequential basis, those three models which you mentioned. How much is this customer contributing to Walter Pack? It seems to be about 90% of share of business is coming from this one customer.
Yeah. If I add here, this Auto Sales is adding 2/3 of our total sales. This turnover almost has gone down-
If you remove tooling for this quarter, the business coming from this particular OEM.
Yeah. Sorry.
Continue, please.
For the year, just to let me give you a perspective. For the year, this is close to about 40% of sales of this company, not 90%. Just to give you a ballpark idea.
Okay. The OE is contributing 40% of sales.
Largely, yes. By and large.
Okay. You are saying that this kind of scenario happens more like whenever the model is refreshed.
No, it is not just the model refresh. The challenge was that they changed all the three models, and they had ramp-up issues, not with our part, but with other parts that they have to. Ultimately, they are customers, so we need to live with it.
Okay
it is behind us. We see October and November. October recovering, November is good. We see volumes growing in. Therefore, we are saying that these margins will come back. So in Q3, it will be close to about 80% of what overall we expected in terms of revenues, and by Q4, we will be back 100%. That's our expectation.
Okay, sir. That's very reassuring. The second question, sir, is on the amortization. The increase in goodwill I see in the balance sheet is about INR 144 crores. So that is on the acquisition of INR 39 crores. Is that the right understanding?
Yes. That is part of INR 239 crore of acquisition. When we acquired, the net tangible book value of the Walter Pack was INR 42 crore. The remaining amount is being assessed by an independent valuer who are expert into valuation of these topics. They came out INR 85 crore of intangible in the form of customer relations and non-compete, and that is going to be depreciated over a period of time.
So INR 85 crores, INR 2 crore roughly per quarter is the run rate we should expect, INR 3 crores per quarter.
On the appreciation, INR 2.8 crore, and on the PAT level, INR 2.1 crore.
Understood, sir. The third question is on operating cash flows. I see a muted number due to increase in receivables. Is it due to tooling as well for the quarter, for the first half?
On the operating cash flow, this quarter is something confusing to everybody because Walter Pack is going to be added first time and all working capital is added first time into the working capital. Henceforth, you are seeing a decline number. If I remove it, then we have a very good amount, positive number. Yes, our receivable has gone up because of the higher sales and higher export. But this quarter is basically for the Walter Pack first-time consolidation of balance sheet.
Understood, sir. Those are very helpful. Thank you, and all the best.
Thank you.
Thank you. Next question is from the line of Rajesh Kothari from AlfAccurate Advisors. Please go ahead. Rajesh Kothari, may I request you to unmute your line and go ahead with the question, please. Due to no response, we move on to the next participant. Next question is from the line of Nilesh Saha from Julius Baer. Please go ahead.
Hi. Good morning. Are you able to hear me?
Yes, we can.
Okay, great. Hi. Thanks a lot for the opportunity to speak with you guys. I actually wanted to understand a bit about the context in which the Walter Pack acquisition was done. I am not sure if you have explained this in a prior call, but would still like to understand what was the sequence of events that led to the earlier promoters selling that company, and what was the process by which you acquired this? As a corollary, perhaps you can tell us a bit about the management team of that company. Have they stayed on with you, and if so, at what role? Thank you so much.
Okay. Let me answer that. Yes, we explained at length in previous calls of the rationale of acquisition of Walter Pack India. I will just repeat for your sake. Walter Pack is one of the leaders in the in-mold formed business. Their main play is in the automotive interior business. They supply to all the Western European OEMs. They are headquartered in Spain, and they have expansion also ongoing in Mexico.
Yeah.
They have, of course, this plant in India. We as a company, SJS, we were predominantly a two-wheeler focused company. Close to 70% of our sales in FY 2019 used to come from two-wheelers, and we wanted to democratize our sales mix and reduce dependence on one customer, one segment, one product line. The Walter Pack product portfolio was very interesting for us because it gave us access to automotive interiors and the four-wheeler business, which we were missing. Thanks to this acquisition, our share of business for the four-wheeler has increased to close to about 33% now, and the two-wheeler business has come down to 37%. We have achieved an objective of becoming a mainstream player for the four-wheeler business, which we were missing.
Now, to give you larger context in terms of TAM, the global market for aesthetic parts, 68% comes from four-wheelers, and we were, let us say, a very small player because all that we had to offer for four-wheelers were dials for cars. Recently, two years ago, we acquired a chrome plating plastic painting company, Exotech. That supplies about 1,100 odd INR parts or 1,100-1,500 INR parts in the content they supply to a four-wheeler. But with Walter Pack, this value, we have added an incremental 3,000-4,000 INR at an average in a car because of this interior aesthetic part that Walter Pack does. These are formed films, which are then injection molded, and you have a discrete component that adds to the aesthetics of the interior of the car. That was the rationale for our acquiring it. Why did Walter Pack Spain sell it?
Because of this war in Europe, post-COVID, there were challenges both in terms of energy costs and in terms of financing costs rising in Europe. They were already committed to an expansion in Mexico. To raise funds, they had no option but to sell the jewel in their crown, Walter Pack India. We were keeping close tabs on this company, and that's how we acquired it. It was a good acquisition, we believe, which is a force multiplier for SJS and lays the ground for us to cross-sell these parts to our range of customers.
Walter Pack, for example, does not supply to consumer appliances companies. Now, with this technology, we are knocking on the doors of the global consumer appliance companies, which are already long-time customers for SJS, to grow our business and address this huge TAM that has opened up for us. That briefly is what is the rationale for the acquisition.
Thank you for that. If I may ask you a small follow-up. The business that Walter Pack India does, could you talk a bit about the clients that Walter Pack India has? How are those clients managed? The reason I'm asking that is because, I would imagine that given Walter Pack is a European company, were these relationships managed globally?
Let me just butt in here. No. Walter Pack had an employee that they took on in India, a gentleman called Roy Mathew. He's been with this company from day one now for almost 12, 13 years he's been with the company. He was instrumental in landing these relationships and growing the India business. That is the service Walter Pack took in. Roy owns stake in the company, and he is now a part of the SJS team.
Okay.
He's cashed in about 5% of his equity. 10% of his or 9.9% of his equity is still with the company. We, along with the company, acquired management back fit and ensured continuity by having Roy Mathew as a part of this team. Coming to who are the customers of this company. As I said earlier, Tata Motors is a big customer for this company.
Okay.
Maruti Suzuki is also a big customer. These are two large customers that we've added to our portfolio, and we are now a major interior supplier to these two companies. In addition to this, they have many other customers. Largely that is what the answer to your question is.
Thank you. Nilesh, I'm sorry to interrupt you. I'll request you to come back for a follow-up question. Thank you. Next question is from the line of Ronak Mehta from JM Financial. Please go ahead.
Yeah, hi. I just have one question on the capacity utilization for SJS standalone, Exotech and Walter Pack, and what is the CapEx plan for this year or next year? Yeah.
Okay. In terms of capacity utilization for SJS, we are in the range of around 65%-70% as of now, whereas Exotech, we are close to 95%. As you know that we have almost tripled our sales in the last three years. So that is close to 100% utilization of capacity in Chrome plating. Of course, we also have some additional capacity for painted parts in Exotech. Regarding Walter Pack, we have had some capital infusion to the extent of close to about INR 20 crores. With this new expansion, we would be still around, I think about 65%-70%. Yeah, 70% utilization.
What is the CapEx plan?
Hope this answers your question, yeah.
Okay. What is the CapEx plan for FY2025? Given that you are at about 70%, and given the strong order book, you will look to add the capacity. If you can just indicate some CapEx amounts for next year.
Ronak, yeah. On the CapEx side, we estimate that this year we would be somewhere INR 40 crore to INR 50 crore, and out of this we have acquired one land for Exotech expansion, which I communicated in our earlier calls. Remaining, we now place more amount for Walter Pack for a big growth we are anticipating. Mr. Joseph said, INR 20 crore we are placing for Walter Pack expansion.
So this year we would be somewhere INR 40 crore, INR 50 crore. Now talking about the next year, we will be in the same range, but our plan for expansion for Exotech is going on. We earlier thought now since we acquired the Walter Pack, we will make a frugal decision that how can we make a better investment considering the further expansion of Walter Pack. So another CapEx of around INR 80 crore will come into the next year. Yeah.
Okay, thank you. That was for my side.
Thank you. Next question is from the line of Tushar Khurana a retail investor. Please go ahead.
Yeah, hi. Thank you for the opportunity. I just have one question. You did mention about the cover glass opportunity that you are discussing with the OEMs. So I just want to-
I don't think we can hear you. Losing your audio.
Can you hear me now?
Yes.
Yeah. I would request you to please talk more about the cover glass opportunity and how this can help us in increasing the top line. Thank you.
Okay. As you know, there's a trend towards premiumization. A lot of customers who buy cars do online research before they step into a showroom. Mahindra was the game changer in this business with XUV700, where they launched a digital cockpit with a very large cover glass. This was supplied by one of the key customer for SJS, and this customer we've been working with for the past more than 15 years. We are today addressing RFQs for this cover glass for multiple models. This is an aesthetic part. This is glass, which is then printed, which is the forte at SJS. We have more than 35 years of precision printing experience, and we have good trust by the customer. Then this requires some special coatings of anti-reflection, anti-glare, anti-fingerprint, depending on the model.
Cars today use more and more of these clusters, which are electronic and digital, and all of these require a cover glass which sits on top of the TFT screen that there is. Our scope of supply is the printed cover glass with all these coatings. These are very high-value parts. An average cover glass costs about INR 4,000-INR 5,000 for a product like the XUV700. For smaller cars or smaller displays, it could be about INR 1,000 or INR 1,500, again, depending on the size of the display. It is our firm belief that in the next 4-5 years, more than 50% of the cars in India are likely to have a cover glass, and the size will tend to be bigger and bigger. With this addition, we will increase our TAM. It is a new category of product.
I think SJS is an early mover in this. We have been engaging with customers for more than three years, giving prototypes, marketing ourselves. This opens up a great opportunity for us in terms of expanding growth at SJS.
Where is this currently sourced from, this cover glass?
Currently, the entire display is imported by these customers. They come out of countries like Japan. But the companies would like to localize in India. People after COVID understand the virtues of a supply chain which is close, and especially since we have the credibility with the customer in terms of managing new technology products, they are very keen to develop with us. When they localize this in India, instead of buying the complete display as a CBU or a completely built unit, they will do what is called CKD assembly. They will buy parts separately. The TFT screen could continue to be imported, but the cover glass could be localized, and we will try that it is done with us. This assembly is done by the tier 1 supplier themselves at their line. One of the key players in this business is Visteon.
They've already invested one and a half years ago in a local bonding line, which is to assemble the display in India. The intention of the customer is clear. That is a great opportunity for us to add this to our product portfolio and add close to about INR 4,000 as average addition to our kit price of what product we offer to a car.
Okay. If I may squeeze in one more question, please. If you could update on the Foxconn, where you are going to be supplying the aesthetics which would be going into the two-wheeler EVs.
Yeah. Foxconn, the question I could not hear so well. What was it about Foxconn you wanted to know?
For Foxconn, will be supplying the aesthetics that goes into the two-wheeler EV vehicles, right? I just want some update on that front.
We supply to them, again, like a car I explained, in the four-wheeler also, there are displays, and companies are now localizing the two-wheeler display also. In the two-wheeler display, there is a cover glass that goes onto the two-wheeler display also. That is what Foxconn is developing with us for one of their customers, and those products are under development as of now. We started supplies of some pilot lots. This is under process now.
Okay. Okay, sir. That is all from my side. Thank you so much and all the best.
Thank you. A reminder to all the participants, you may press star and one to ask a question. As there are no further questions, I will now hand the conference over to the management for closing comments.
Thank you everyone for joining us on this call. Hope we were able to answer all your questions. If you have any further questions, please feel free to reach out to me, and we will answer to the best of our ability. Thank you, everyone.
Thank you very much. On behalf of JM Financial, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.