PPAP automotive ltd

(Ronak) #42

Attached is the excerpts of an Interview my friend did with the with CFO of PPAP Automotive – Mr Manish Dhariwal on 12th Dec 2017.

Apologies as it is a bit dated - but thought it was worth sharing.

  1. Brief background
  • Co was incorporated in 1985 - started with Plastic based automotive sealing products. Maruti was their key customer even then.

  • Entered into technological tie-up with Tokai Kogyo Japan in 1989 for sealing products

  • Entered into technological tie-up with Nissen Chemitech for injection moulding products

  • Entered into JV with Tokai Kogyo Japan in 1912 for the rubber based sealing products

  • Co today is leading manufacturer of automotive sealing products - 90% of Maruti’s entire sealing requirement and 100% of Honda’s

  1. Revenue Mix
  • 99% biz from Passenger vehicles segment.

  • Maruti account for 48% / Honda 32%. Total 80% from top 2 customers

  • Maruti is the largest customer followed by Honda

  • It’s wallet share in a Maruti car comes to roughly 1000 to 1200 per car. Maruti sells 14 Lakh car in a year. Approx revenue 168 Cr

  • It’s wallet share in a Honda car comes to roughly 6000 per car. It sells about 2 Lakh cars per year. Approx revenue 120 Cr

2a. Why OEM’s would source such a large qty from single supplier?

  • 90% of all Maruti’s + 100% of Honda’s sealing product are sourced from PPAP.

  • OEM’s are no longer shy of sourcing it from single supplier. They conduct strict quality control checks in each of their suppliers facility

to ensure highest quality standard is maintained.

  • Every delivery from each of the supplier is ranked, for timeliness / quality / rejections etc. These ranks define the business which can

given to each of the suppliers

  1. Capacity Utilization
  • Injection Molding segment would be @ 80%+, sealing producst would be lower @ 65% to 70%.

  • Consolidated utilization would stand @ 75% for it’s parts business i.e. Injection Moulding + Sealing prodcuts

  • Co. turnover for FY 17, stood at 343 Cr. The max it can reach with the existing facilites is 450 Cr for it’s parts business

  • It’s tool division, the revenues are lumpy and dependant on mass launch of new products

  • While the company does not give any revenue guidance, the max it can grow is 30% from hereon with existing facilities

  1. Addition of Newer segments / newer customers
  • Co has tapped into newer segments, where it will supply parts to 2 Wheelers + LCV’s. The entry is nascent, hence

contribution is miniscule.

  • Co has bagged an order from Hyundai - 2nd largest PV supplier for some of it’s models.

  • Co will also supply to SML Isuzu from it’s Chennai plant

  1. Economics of Tools division
  • For every new model launch, a new mould / dye is required, as each model will have a unique shape and size.

  • The company associates with the OEM’s right from the stage of planning for the new model to commercial production, to understand

the product requirement. Through the tools division, it manufactures proto-types of the various parts

  • The OEM’s pay upfront for these moulds and dyes manufactured. Once the specification is approved, the company manufactures

the parts on mass scale, which is accounted for in the Parts business (Injection Moulding or Sealing Products)

  • The tool division therefore is necessary to complement the Parts business, though revenues will be lumpy and dependent on

launch of new products

  • The company is closely associated with OEM’s planning to launch newer products - It has bagged few oders from

Tata Motors, Honda & Maruti for new launches.

  1. Margins
  • The company has clarified in it’s concall that 18% kind of margins are sustainable.

  • Co does not have any pricing power, and the entire margin is dependent on Operating leverage + cost optimisation.

  1. High Margins, but low ROE, ROCE
  • Co admits that it has low ROE / ROCE, inspite of high margins, due to low asset turnover ratio.

  • With already 75%+ utilization, there is not much scope for asset turns to improve.

  • The co is therefore not aiming at the volume growth, but growth @ higher margins.

  1. Rating Upgrade
  • CRISIL’s rating upgrade is the recognition of the improving financial position of the company

  • They are aiming at A1+ rating from CRISIL, which will help them raise funds CP’s mkt at much lower rates

  • Currently, they are banking with 4 Bankers, and HDFC is offering them loans at MCLR (~8%)

  • They say there is a further scope of reduction to 6.5%

  1. Key Monitorable for future growth
  • The ability / skill set to develop new parts will be the deciding factor.

  • They have the necessary manpower / resources in place to capitalize on the opportunity.

  • Attrition rates are very low.

(devarshi84) #43

While PPAP has corrected a lot recently, it’s promoters have purchased a lot of shares in multiple transactions.
Can somebody confirm how much shares the promoters purchased?

(devarshi84) #44

Shares worth 3.84 lacs purchased by promoters again.