Precision Camshafts Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Precision Camshafts Ltd (PRECAM) Q3 FY22 Earnings Concall

Management Update:

• The company said it delivered a 16% growth in revenues at a stand-alone level and an 11% growth in revenues at a consolidated level compared to 3Q21 despite challenging times.

• PRECAM said that while it hopes to grow the India business in the coming 3 to 4 years, the focus right now remains on the European market, where the demand is consistently growing, and there is great visibility in order position until 2023 and beyond.

Q&A Highlights:

• Yash Agarwal from JM Financial asked about the reason for higher utilization in the machine camshaft business in 3Q22 and the sustainability of it. Karan Shah ED said the company has seen an uptick in demand over the last 3 to 4 months, which is why there has been an increase in the sale of machine camshafts. PRECAM added that this should be a sustainable number going forward.

• Yash Agarwal of JM Financial also asked if the existing margins of over 20% is sustainable with even higher commodity prices in 4Q22. Karan Shah ED replied that typically, in PRECAM business, there is an index for commodities, which the customer passes on to the company, especially on the metal side. Therefore, PRECAM is insulated on that. There is sometimes a lag on the compensation for that, but the materials are generally a pass through.

• Yash Agarwal of JM Financial also asked about the order book number for EMOSS and how many years of sales is the company covered. Karan Shah ED answered that the numbers cannot be given but said that significant outlook and visibility is there for this year, the next year and beyond.

• Akshay Garvan asked about the seasonality for the EMOSS business and what will cause the sales to go up. Karan Shah ED said this is not a month-on-month or a QonQ business that should be tracked, it’s a long term business to look at. Three years ago the turnover was INR40 crore and now it’s at INR50 crore per quarter, which shows the growth. On seasonality, there is not much, except that in August there is a summer shutdown across Europe and in December a Christmas shutdown.

• Vipul Shah from Sumangal Investment asked about the sales mix for EMOSS, how much is retrofitting and OEM sales. Karan Shah ED replied that it’s give or take 50-50 right now. It changes month-to-month.

• Vipul Shah from Sumangal Investment also asked about margins for retrofitting and OEM. Karan Shah ED said that margins would be better and more sustainable for the OEM supplies because it’s more standardized, sourcing is done are larger volumes. On the flip side, the selling price of retrofits is much higher.

• Vipul Shah from Sumangal Investment asked if the company is adding any capacity at the EMOSS level in the near future. Karan Shah ED replied that it is adding. The company has an additional plant now in the Netherlands to cater to the new demand, but it does not call for significant capex because it’s an assembly line.

• Subham Jain asked if the company has started sourcing components from India for EMOSS Netherlands now to reduce the cost further for the business, which is happening in Europe. Karan Shah ED answered that PRECAM has started the process, but not yet executed or implemented yet because it’s — we have to look into a variety of factors, including European norms and standards and compliances and things like that.

• Akshay Agarwal enquired about the company’s domestic strategy and if PRECAM would be optimizing for profitability in the short run or running the product at a bit of loss for few quarters to seed the market. Karan Shah ED said the question cannot be answered directly. However said, the company will try and get into this market over the next 12-18 months, have good products which the customers can use.

• Akshay Agarwal also queried about the medium term outlook for the cam shaft business. Karan Shah ED said PRECAM is not seeing any pressure on margins at this point of time due to change in EV or otherwise. For the camshaft business, the company has an order book for the next 3-4 years. In terms of asset utilization, and what can be done at the plants, PRECAM more or less have good visibility for 3-4 years.

• Akshay Agarwal asked about the medium-term plan of doing any capex for the machine cam shaft business? Karan Shah ED replied that PRECAM does not have a capex at this point of time planned, but will let shareholders know once there is some solid plan.

• Vipul Shah from Sumangal Investment asked about the annual capacity for machine camshaft. Aarohi Deosthali Finance Manager said that capacity for the machine camshaft is 4 million, running at 81% of capacity in 3Q22. Including foundry and machine shaft cumulatively, PRECAM is using 64% of the capacity.