I participated at their AGM, it was quite a long event where management took out a lot of time to answer a variety of questions that were raised. I am sharing my notes.
Q. We used to do EBITDA margins of 16% until FY21. Since then, lead and power costs have seen a sharp increase. When do we see ourselves getting back to our earlier margin trajectory?
- Have been unable to pass on full lead price hike to customers. Expect to recover to 14-16% EBITDA margin
- Have installed in solar plants (roof and ground based). Currently using 20% of renewable energy for meeting captive power requirements
Q. Over a longer period of time, our fixed asset turns have decreased, from peaks of 8x achieved way back in FY13 to now being 3-3.5x. Effect of this is also visible in the form of higher depreciation costs in our P&L statement, which has reduced our EPS growth rates over time, despite us growing sales at a decent clip. What has changed in the industry landscape that has affected the return metrics of the company over a long period of time?
- Have been adding capacities faster than demand growth which has impacted asset turns. Expect fixed asset turns to ramp up to 4.5-5x at full utilization which should be achieved in next 1-2 years
Q. And, can we get back to doing 25-30% ROCEs like we used to until FY18?
- With increased asset turns and margins, ROCEs should go up from current levels
Q. Our foray into lithium ion batteries is again very capital intensive, with us guiding for asset turns of 1x and margins in-line or lower than lead acid batteries. In this scenario, how do we navigate from the increasing commoditization of our business?
- Now expect to reach 1.4x fixed asset turns in lithium ion. As technology becomes more evolved and they have more experience with commercialization, asset turns are likely to increase further
- Currently have 70 scientists and engineers working in lithium ion vertical
Q. In recent times, a number of parent entities are getting merged with the company at reasonable valuations, and I applaud the management intent. Can you give a 5-year road map, as to how many group entities (and which ones) might get merged with the listed co? More importantly, how does management decide which entity to merge?
- Not answered
Q. With increasing capital requirement for lithium ion business, how do we see dividend payouts going forward? Will it further reduced below 15%?
- Dividend payout has reduced from 30% to 15% in light of increased capex requirements for the business. Will maintain 15% payout
Miscellaneous
- Have digitized supply chain for better monitoring
- Business breakup: 30% industrial + 70% home and auto
- In auto division, 65% revenues come from aftermarket with rest coming from OEM
- Mangal Industries: Plastic component plant running at 85-90% utilization
- Geographical de-risking: Will announce 7.2mn battery greenfield expansion across the country
- EV: Have products for auxiliary battery that goes into EVs, will introduce them as their OEM customers introduce these vehicles in the market
- Will commercialize both NMC & LFP platforms for lithium ion batteries
Disclosure: Invested (position size here, no transactions in last-30 days)