Wheels India Limited (NSE: WHEELS) Q2 2025 Earnings Call dated Oct. 28, 2024
Corporate Participants:
Srivats Ram — Managing Director
P. Ramesh — Chief Financial officer
Analysts:
Vishakha Maliawal — Analyst
Amit Hiranandani — Analyst
Unidentified Participant
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Wheels India Q2 FY 2025 Post-Result Conference Call, hosted by ICICI Securities. [Operator Instructions]
I now hand the conference over to Ms. Vishakha Maliwal. Please go ahead.
Vishakha Maliawal — Analyst
Thank you Nikita. Good afternoon, everyone. Thanks to the management of Wheels India Limited for giving us the opportunity to host the call. We have with us the senior management represented by Mr. Srivats Ram, Managing Director and Mr. P. Ramesh, CFO of Wheels India Limited.
I’d like to hand over the call to the management for the initial remarks followed by Q&A. Over to you sir.
Srivats Ram — Managing Director
Thank you Vishakha. Good afternoon, everyone. Welcome to Q2 call. Wheels India has registered a net profit of INR21.92 crores, as compared to INR5.24 crores in the corresponding quarter of last year. Of course, last year we had one-off expenses for pre-delivery inspection charges, which was almost close to INR10 crores. So that’s why last year it was low. This year we registered revenues of INR1,085 crores for Q2 as compared to INR1,189 crores in Q2 of last year. There are a few reasons which I will also cover later on.
For the first half, if you look at it, the company registered a rise in net profit at INR47.29 crores as compared to INR18.46 crores in the corresponding first half of last year. Again, revenues were INR2,174 crores for the first half of this year compared to INR2,322 crores. Generally, if you look at it, I’ll come to revenue next, but first if you look at profitability, very favorable product mix, notably increase in machining of windmill castings, where we ramped up actually in this year.
Productivity improvement and cost control across units resulted in the good growth in profit that we had for the second quarter in succession. And these measures that we have in place are likely to continue to maintain some kind of profit trajectory in the current year. On the revenue side, if you actually look at it, Q2 saw a drop in both CV and tractor requirements. As all of you must be aware and it’s also in the media both these sectors had a drop. And for Wheels India specifically, there’s a significant drop in the lift air suspension system business for trucks as there’s a move away from multi-axle and towards trailers.
On the export front, as I’ve indicated in earlier calls also, things are slowing down globally, both in US and Europe, resulting in not only cut in schedules on existing business, but also delay in introduction of new products as customers have to exhaust their stocks. So, while this year we are seeing, probably going to see a reduction in exports, we expect that the new products, which have so far not come in, which will definitely come in next year, will ensure some growth in export in
The coming year.
On the capex front, while obviously existing business, capex, when utilizations are low, have not really happened, we are investing about INR225 crores, notably towards the expansion of machining of windmill castings, agriculture wheels, hydraulic cylinders and little bit in cast aluminium wheels. In terms of growth prospects, we — in the second half, we expect that CV tractor and to some extent aluminium wheels will pick up in Q4.
With that, I’ve finished my commentary on Q2 H1 results and now I’m open to any questions or queries that any of you may have. Thank you.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Amit from SMIFS Limited. Please go ahead.
Amit Hiranandani
Hi, sir. Congratulations for the good operational performance in Q2. Sir, can you please help us in understanding the export market situation at present, including the freight rates and the inventory situation or challenges over there? Also, if you can spend a few minutes and guide us on the outlook for the domestic market segment-wise, that would be really helpful, sir. Thanks.
Srivats Ram
Okay. I can try my best. I think on the — on the export front, actually Europe has been slowing down quite a bit over the years. And even recently, I was in an expo in Europe and people are saying that, even our distributors are saying that they’ve gained market share, but the volume has dropped. So it’s a question of actually those markets have gone through a little bit of a trough and we have to wait for those markets to improve. When the overall market improves, given our gain in market share, we should be able to improve. This is one example.
But if you look at the US also, US is also showing signs of slowing down. It varies from segment to segment. I am made to understand for example, that mining should improve in the coming year. Construction should also see some improvement. Although, I don’t know what the US results will have in terms of these various activities, but I’m just giving you the customer feedback.
For us, exports are largely agriculture tractors, construction equipment and commercial vehicles and also aluminum wheels. Agriculture tractors globally is going through a little bit of a recession. Not so much in India, but the rest of the world, volumes are down about, you know, 30%. So, it’s a cyclical business and at some point, the cycle turns and then the volumes grow by an equal number.
If you look at the domestic market, CV in Q1 was actually quite good. Q2 has been quite negative and while Q3 is not likely to be worse than Q2, we think we’ll have to wait till Q4 to actually see an improvement in the CV market. Tractor, on the other hand has been fairly muted. But we expect that due to the fairly decent monsoons, Q4, which is again because of the
Season, this whole harvest season which happens from mid-January, we expect that the Q4 will be strong on tractor.
On the passenger vehicle side, I would rather wait till post-Diwali and see how the sales actually have happened before I comment. But customers seem to be still confident of meeting annual numbers that they predicted.
I hope this has answered your question?
Amit Hiranandani
Yes, sir. This is very helpful, sir. Sir, secondly, so basically exports is about one-fourth of our business, which is expected to decline in this fiscal. And in the domestic, demand doesn’t look very healthy for the commercial vehicle and that’s another 25% of the business. So considering all these things in the picture, how much revenue possibly can achieve in FY 2025? And any aim for FY 2026 please?
Srivats Ram
FY 2025, the way I look at it, I think the revenues will be slightly less than FY 2024. Pretty much whatever you’ve seen in the first half is what you can expect in the second half, maybe Q4 may be slightly better. But pretty much what you’ve seen in terms of the company’s results in the first half are likely to span out for the balanced part of the year with some improvement possibilities in Q4.
Amit Hiranandani
Okay. And, sir, you have mentioned in your comments that new products introduction in the exports market. Can you please explain what exactly is this?
Srivats Ram
So, there are a couple of areas where we’re looking at. One is hydraulic cylinders, where we are seeing a lot of potential. Some of the business that we are looking at may take between one to one and a half years to kind of fructify. But at least within one year, we’ll get in some kind of committed state with the customer. But it may require expansion, in which case it takes one and a half years. The other area which we are looking at is actually widening the range of products that we have on agriculture tractors, because when you’re going to export markets, people are saying unless you have the entire range, we can’t look at you as a replacement supplier. We can’t look at you as a supplier who can take over existing people. So we’re widening the range of products. That is the second area that we’re looking at.
The third area is that there are some products on construction where the development or testing cycles are physical and very long. So as a result of which, while we’ve developed the product, for it to go through all the testing and come out will probably result in, not in this year, but in 2025-2026 or even 2026-2027 is when the volumes will come. So some of these products that we’ve developed are quite profitable.
Amit Hiranandani
Understood. And, sir, lastly, on the alloy side, so presently, alloys is on the LPDC technology. How much is the current capacity and are we planning to increase the same?
Srivats Ram
See, it’s [Foreign Speech] I’ll say probably about 40,000 is current. 40,000, which is let’s say 500,000 per year is the annual capacity. We’ll be increasing it by about 10,000 a month by the end of the year. It’s more de-bottlenecking as opposed to expansion in aluminium.
Amit Hiranandani
And sir, also continuing with this, if you can help us on the current utilization level of this alloys and any orders in hand and which clients we are serving, please?
Srivats Ram
Yes, sure. As you probably know, we don’t name clients, but I can give you some hint. When we started supplying, we had one MNC based in Chennai who was very low in volume. We have now started supplying to one of the top three manufacturers, not based in Chennai, but one of the top three car manufacturers and that customer has said that he will increase our volumes on a month-on-month basis and hopefully take us close to 20,000 for a single customer
Itself. This is in addition to, yeah, 20,000 a month for a single customer, this is in addition to our export business as well.
Amit Hiranandani
So, how much alloys goes into domestic and how much is in exports?
Srivats Ram
[Foreign Speech] But to give you, to give you an idea, let’s say instead of saying what it is today, let’s say if I go forward to probably say April or something of next year, it will be about 25,000 in domestic and maybe about 15,000 in export.
Amit Hiranandani
Okay, okay. And sir, lastly, on the margin side, we are very happy to see the margin turnaround in the industrial business segment. So, can you please elaborate the same and the sustainability, please?
Srivats Ram
Sure. So, one thing is, yes, of course, it looks fairly spectacular to go from a marginal loss to a profit. But last year, we had a one-off charge almost about I think INR9.84 crores or INR10 crores, which is predelivery charge. So, purely based on the fact that this year we don’t have it, you should have had a INR10 crore swing. But added to that, this machining of windmill castings is quite profitable and we have actually ramped that up quite substantially compared to the same period last year. Now, a little bit about this business. We are kind of tied with a large casting manufacturer, a
Multinational company. And they are currently operating at say 25,000 tons a year. Now, they have a plan to expand this to 45,000 tons in the next couple of years. And as they expand that, we also expect that our volume and our business there will also increase.
Amit Hiranandani
So the 7.5%, can we assume it’s sustainably on the EBIT margin?
Srivats Ram
Yes, yes, yes.
Amit Hiranandani
Okay. Okay. And sir lastly, sir, there was some margin fall observed in the auto segment on a quarter-on-quarter basis, despite having the flattest…
Srivats Ram
[Foreign Speech]
Amit Hiranandani
Understood. Understood. Okay. Okay sir, all the best. Thank you so much.
Srivats Ram
Okay, thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Rajakumar Vaidyanathan, an individual investor. Please go ahead.
Unidentified Participant
Yeah, good afternoon, sir. Thanks for the opportunity. Sir, just a couple of questions and then a couple of housekeeping questions as well.
Srivats Ram
No problem.
Unidentified Participant
Yeah, the first one is on the previous call, you mentioned that you’re working on some export programs that will translate into revenue in Q4. So I was just going through your press release. So, you are saying that there will be a drop in exports. So I just wonder whether that is also getting right shifted and we will not see that revenue in Q4.
Srivats Ram
Yeah, no, no, that’s, that’s absolutely right because what’s happened is because their overall schedules
Have reduced, their time to deplete inventory and commitments they made to existing suppliers has extended. So, as a result to that, our program starting has gotten pushed by actually one or two quarters.
Unidentified Participant
Okay. So, we will not see that revenue in this financial year that you get right shifted to 2025?
Srivats Ram
Right now it looks like April, May, June is when it will happen, yeah.
Unidentified Participant
Okay. Okay. Yeah, thanks for the clarification. Sir, so, if I see your this quarter number and the previous
Quarter number, it looks like your margins have kind of stabilized, whereas the revenue is kind of dropping because of the slowdown in demand. Is that a correct assessment?
Srivats Ram
No, that’s a fair assessment.
Unidentified Participant
So, we can expect that the margins to be kind of maintained in the subsequent quarters, whereas the demand could be soft or it could recover as things progress?
Srivats Ram
I believe so.
Unidentified Participant
Okay.
Srivats Ram
Of course, one thing that I need to say is, there’s any sudden increase in steel price, it could hamper the immediate quarter.
Unidentified Participant
Okay, got it, sir. Sir, I’m also…
Srivats Ram
Export correct, price corrections are prospective or not retrospective.
Unidentified Participant
Yeah, yeah. Yeah. Thanks for clarifying that, sir. Sir, I am also going through your press release. So, you are saying that, you know, I am just reading the last portion of the release where you are saying the measures, you know, will continue into the second half and we are hopeful of maintaining the profit growth in this trajectory in the current year. So, can you please…
Srivats Ram
Profit percentage is probably more accurate, probably. As you said that EBITDA margin maintaining that is probably more because growth depends on which reference period you are taking, yeah.
Unidentified Participant
That’s the reason I wanted to highlight that, sir. So, you are saying the EBITDA margins will be
Maintained?
Srivats Ram
Yeah, it would be very difficult to show any significant or any growth compared to last year Q4, as it was kind of a bumper period.
Unidentified Participant
Sir, usually you show a good Q3 and Q4 generally appears to be good for you because you get some discount and all that you mentioned in the previous call. So, is it safe to assume that those things will come even in this financial year?
Srivats Ram
No, I am a bit cautious on that because last year Q4 we actually had a price reduction. Whereas this year Q4, if there is a price increase, that price increase may take away that volume whatever you call that discount, purchasing discount.
Unidentified Participant
Okay. So, there will not be any lumpiness. So, basically the current margins will be kind of maintained?
Srivats Ram
Yeah, I am a bit cautious on this because, we don’t know what will happen in Q4, but the indications now seem to be suggesting that. So, that’s why I am factoring it in.
Unidentified Participant
[Technical Issues].
Srivats Ram
I’m sorry, can you repeat that? It broke off in between. So I couldn’t follow you exactly.
Unidentified Participant
[Technical Issues] I just wanted to…
Srivats Ram
Yeah. No, no. No problem. No problem at all. Yeah.
Unidentified Participant
The next question is, I see that your interest is [Technical Issues].
Srivats Ram
No, I think some here probably some credit should go to the team managing the inventory, who’ve taken it as a target and have found ways of reducing it.
Unidentified Participant
Okay. Okay. And so just two housekeeping question, the first one is [Technical Issues].
Operator
Sorry for interrupting you sir. But your voice is not clear. Could you please use handset?
Unidentified Participant
Yeah. Can you hear me?
Srivats Ram
Yeah. Yeah.
Unidentified Participant
Sorry about that. [Technical Issues] is on the cash. If there is an item of INR5.2 crores [Technical Issues].
Srivats Ram
I’m not entirely sure I heard you properly, Ramesh, would you like to take this question? Mr. Ramesh, you need to unmute.
P. Ramesh
Yeah. Yes, sir. Can you repeat the question please? Your voice was breaking.
Unidentified Participant
So, Mr. Ramesh in [Technical Issues].
Operator
Sorry to interrupt you, sir. Rajkumar, sir, your voice is not clear. It’s breaking still.
Unidentified Participant
[Technical Issues]
Operator
Still it is not audible.
Unidentified Participant
[Technical Issues]
Operator
The line for Rajkumar has seems to be disconnected. So we will next to the move next question. The next question is from the line of Vikas Bansali, an Individual Investor. Please go ahead.
Unidentified Participant
Good afternoon, sir. I’m Vikas Bansali from Ahmedabad. Retail sales investor. Sir, I just had a — yeah, thank you. Sir, just before three, four, five years ago at our sales at a price of [Technical Issues]. Sir, our company is doing sir, very well, the growth is very well. But the investor didn’t get any return from the last three to four years. So, what’s your?
Srivats Ram
[Foreign Speech] that’s not in my control unfortunately But I would imagine that if we continue to show this improvement stock market [Foreign Speech]
Unidentified Participant
But sir as a investor really I have like [Foreign Speech], my question is that sir.
Srivats Ram
You’re talking more about the share the stock price, that’s what you are asking?
Unidentified Participant
Yeah, yeah, sir. [Foreign Speech]
P. Ramesh
I understand, [Foreign Speech] I also agree with you — I also agree with you that beyond a point financial performance improves then market [Foreign Speech] price that should happen pricing should happen. I think…
Unidentified Participant
[Foreign Speech].
Srivats Ram
[Foreign Speech] so the only thing I can say is that [Foreign Speech] But I can’t make any commitments on what will happen to the price. [Foreign Speech].
Unidentified Participant
Right sir, right. Thank you, sir. Thank you very much.
Srivats Ram
Thank you.
Operator
Thank you. The next question is from the line of Rajakumar Vaidyanathan an Individual Investor. Please go ahead.
Unidentified Participant
Yeah, sir. Thanks for the follow-up. Sir, I was just asking this question on cash flow statement. There is an item of INR5.2 crores shown in negative as non-cash expense. So, if you could give some color on that?
Srivats Ram
Mr. Ramesh, can you take this?
P. Ramesh
Yes, sir. These are the movements in the provision because every quarter when we do the book closure, we either increase or decrease the provision based on the assessment of what needs to be provided for. So, the movement in the provision is what is — which is a non-cash item basically. It is what is reflected in this case.
Unidentified Participant
Okay. So, this provision is against what items, sir?
P. Ramesh
This could be against inventory. We have inventories and receivables.
Srivats Ram
See, we have certain norms in our company, receivables above a certain number of aging or inventory above a certain aging, we tend to provide for.
Unidentified Participant
Okay, got it, sir. Sir, the second housekeeping question is on the, if I see the profit numbers standalone vis-a-vis the consolidated basically I just see that the subsidiary number has moved from negative INR1.9 crores to positive almost breakeven?
Srivats Ram
Yes, yes, yes, yes.
Unidentified Participant
So, that is, that, so is the fact to assume that subsidiary has got turned around or are there…
Srivats Ram
Yes and my apologies for not mentioning this in the press note, but you’re very right. Your observation is right. The subsidiary from the first quarter of this year started turning around and now we are confident that for the full year, we’ll maintain profitability and hopefully going forward as well.
Unidentified Participant
That’s very useful. That’s excellent.
P. Ramesh
I can give you the number on this, sir. Last year, H1, the subsidiary had a minus INR11.73 crore and the current year, it is plus INR2.92 crores.
Unidentified Participant
Okay, yeah, that’s an excellent turnaround, sir. Congratulations for that.
Srivats Ram
Thank you. Thank you.
Unidentified Participant
That’s it, sir. That’s it for now. Thanks a lot, sir.
Srivats Ram
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Amit Hiranandani from SMIFS Limited. Please go ahead.
Amit Hiranandani
Sir, can you just help us with the current gross debt level?
Srivats Ram
Ramesh?
P. Ramesh
Yeah. As on March 24, we had a debt of about INR708 crores, which comprises of a long-term debt of INR62 crores, working capital facility of about INR401 crores and a public deposit of INR244 crores. This has moved down by INR10 crores on September 2024. The long-term loan has gone up to INR109 crores, whereas the working capital loan has come down to INR337 crores and public deposit is INR351 [Phonetic] crores.
Amit Hiranandani
Okay, so broadly INR700 crores is approximately gross debt level and what is the cash and
Investment presently?
P. Ramesh
Sorry? What is…
Amit Hiranandani
Cash and investments?
P. Ramesh
Yeah, you are talking about the — you are talking about the balance sheet in terms of the cash?
Amit Hiranandani
Yeah, I’m just calculating the net debt level presently.
P. Ramesh
Yeah. See, investment as on September 2024 is about INR21.37 crores and the cash and cash equivalents at about INR10.8 crores.
Amit Hiranandani
Understood? Understood. And sir, looking at the expansion plans of capex of INR225 crores and the working capital requirements, so can we assume that debt would remain at the same level for the next 12 months at least?
Srivats Ram
Yes, Ramesh, it may — well, not by March 24, but it may reduce going forward because the profitability of the company is also improving. So as a result of that, it’s likely to come down unless we can find new opportunities for investment.
Amit Hiranandani
Understood. And sir, for the capex guidance in Q4 call, you have guided for INR200 crore capex, but now it has increased to INR225 crores. Can you please let us know the breakup of where we are going to spend? And also, if you can also suggest the FY 2026 capex as well?
Srivats Ram
FY 2026 board [Foreign Speech] difficult for me to tell you, but roughly speaking, see roughly speaking, I’m leaving aside all this maintenance capex and all that, but there’s about INR40 odd crores, I think, in this machining of large windmill castings. And maybe about INR30-odd crores on balancing equipment for cast aluminium. On agriculture tractor, again, maybe something like INR40 crores, INR50 crores and hydraulic cylinders, maybe about INR15 crores.
Ramesh, have I left out? And this is roughly, these are the buckets, right?
P. Ramesh
The preparation, the material preparation capex could be…
Srivats Ram
There’s also about, so this is the other thing. You know this year we are looking at capex also from a viewpoint of improving our margins. So one of the projects that we’re looking at is whether we can reduce our material preparation cost. So earlier we were — it’s basically make or buy. So some make or buy decisions are being taken where earlier we were buying, where we may make it if we feel that there’s a financial gain.
Amit Hiranandani
So sir, like commenting on your this last line of material preparation cost. So are we taking any steps to you know, take our EBITDA margin to any, any you know, internal targets of 9% or something — any mid-term?
Srivats Ram
[Foreign Speech]
Amit Hiranandani
Internally [Foreign Speech]
Srivats Ram
[Foreign Speech] kind of stabilizing of the EBITDA margins and stuff like that. Next year also — but next year, see I don’t even know what — how the domestic economy is going to be and even global economy, I know to some extent, but as we get closer we’ll have a better idea. But assuming it is not a doom and gloom and has some positivity in it, yes, the margin should improve.
Amit Hiranandani
All right. All right. Thank you, sir and all the very best.
Srivats Ram
Thank you.
Operator
Thank you. The next question is from the line of Rajakumar Vaidyanathan, an Individual Investor. Please go ahead.
Unidentified Participant
Yeah, thanks for the follow-up. Sir, I am just looking at your segmental reporting. So I see that the, the automotive component segment, the profit has come down compared to the June quarter and similarly the industrial component has given a significant increase in bottom line. So is there anything to read into this?
Srivats Ram
No, no, I had actually answered one of your colleagues that asked a very similar question. Now, automotive coming down is largely due to the fact that CV has come down. CV had a very good first quarter, but CV in the second quarter came down quite a bit. So that explains the automotive profit part of it. On the industrial, there are two reasons. One is last year in the second quarter; we had a one-off charge of about INR9.84 crores towards pre-delivery inspection. And the second is we’ve ramped up the machining of large castings, which is profitable. So a combination of these has created that kind of negative to decent profitability.
Unidentified Participant
Okay, sir. And lastly, sir, any guidance on the interest line item? Will it be flat lined? Because you said that there will be some reduction basis…
Srivats Ram
You’re in Mumbai, Mr. Rajkumar?
Unidentified Participant
No, I’m in Bangalore.
Srivats Ram
Okay. So I guess the Mumbai guys will have a better feel for that as they’re closer to the government.
P. Ramesh
One point, so one point we can add. We were enjoying [Technical Issues] on the packing credit which the impact is roughly about INR1.5 crores a quarter and it was withdrawn from 1st of July. So…
Srivats Ram
Given that this interest subvention now is only permitted for MSMEs. Earlier, all companies used to benefit. So for us, that going away, the additional cost of that is about INR6 crores. That’s one of the impacts that we’ve had this year, Raj. But that said, one of our long-term goals is to look at improving our credit rating to the point that it actually has a bearing on the interest cost that is charged to us. But it may not happen immediately like this year, but it may take 2 years. But we are working towards that.
Unidentified Participant
Okay. Excellent, sir. Thank you.
Srivats Ram
Thank you.
Operator
As there is no further questions, I would now like to hand the conference over to management for closing comment.
Srivats Ram
So, thank you very much for all your queries. We continue to make improvements although the market is — has its challenges. And we really gain a lot from our interactions with you. So look forward to our next interaction with you. And before I sign off, I should wish all of you a Happy Diwali. Thank you.
P. Ramesh
Thank you.
Operator
[Operator Closing Remarks]