Details from the conf call:
Atul’s Finance & Marketing Head attended the call. I have tried to segregate the call details into Risks, Opportunity and Fact segments as per my understanding, please correct me, if anything is wrong.
Risks
)- Keen interest to get into 4 wheeler’s, but plan still not finalized. Technical evaluation continues, opento tie up with other’s.
)- Greaves Cotton Relation- 35 years of working together. earlier the agreement’s were for 3 years at atime, now it’s for 7 years. No intention to enter into engine manufacturing. Regular price revisiononce a year to take into consideration the price increase for engines.
)- Capex plan - Still evaluating, need to put up another plant, In the next 12-24 month, they will need100 cr capex for new plant, for a capacity addition of 50k vehicles per annum on a single shift basis. To be funded by low Debt and internal accrual. Treasury is above 40 cr.
Facts
)- Expansion completed, current capacity is 48k vehicles per annum
)- Dealership network spread across 16 states of India, 144 dealership
)- Very good growth rate expected for next quarter too.
)- Domestic Market industry growth in Q3 - 11%
)- 50-50 breakup between passenger and cargo segment.
)- Factor’s driving growth -
)- Geographical expansion in addition to industry growth.
)- Major Markets
)- Western India - 60%
)- Southern - 22-25%
)- Eastern - 10-15% , just started entering this market.
)- Dealership Network - Now - 144, 12 month’s back - 104
)- 3 reasons for higher margins for Market Leader Bajaj - Economies of scale, almost depreciated plantand own engine.
)- Market share - they are into .5 ton segment - market share Atul - 10.5% , M&M - 22% , Piaggio - 62% ,scooter india ? - 5%
(Bajaj is in .35 ton category and hence they didn’t consider Bajaj as competitor. Also Piaggio & TVS are the other main players in this permit dependent market)
Opportunity
)- Working on the product’s for alternate Fuel - LPG and CNG products will come out in 2014. Recentlytied up with TVS for LPG engine (first time in Indian industry). They didn’t wait for Greaves tocomplete the engine R&D , as they had an urgency to come up with LNG-CNG vehicles.
)- Plan to enter Sri Lanka - Ministry of Industry cleared the proposal, next is ministry of environment,to be cleared in next 10-15 days. Land identified, plan to put a compact plant. 15-20 crore capex. It willbe a manufacturing plant. They will be sending half cooked stuff from India, and have to meet the valueaddition criteria of Sri Lanka. Capacity - 12k value per annum. Sri Lanka Market size is 10k per monthand Bajaj is the market leader in Sri Lanka.
The Sri-Lanka operation will have better realization than Indian market.
Reason for plant in Sri-Lanka - increase in import duty, the market not big enough for big boys Bajaj & Piaggio to put plantthere.
Question on my mind - Will this be a game changer??
)- Outlook for EBITDA Margin - hope to sustain at these levels of 12%
)- Atul plans to enter the 0.35 ton segment this year with a product this year.
Am surely gaining more confidence now after getting updates on the plans for alternate fuel models, Sri Lanka plan, and 0.35 ton models and will be keen to add more in next few days.