Gabriel India : Q3FY23 Earnings Call

"Gabriel India Limited

Q3 FY '23 Earnings Conference Call"

February 06, 2023

Disclaimer: E&OE - This transcript is edited for factual errors. In case of discrepancy, the audio recordings uploaded on the stock exchange on 7th February 2023 will prevail.

MANAGEMENT: MR. MANOJ KOLHATKAR - MANAGING DIRECTOR -

GABRIEL INDIA LIMITED

MR. RISHI LUHARUKA - CHIEF FINANCIAL OFFICER -

GABRIEL INDIA LIMITED

Page 1 of 17

Gabriel India Limited

February 06, 2023

Moderator:Ladies and gentlemen, good day, and welcome to Gabriel India Limited Q3 FY23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded.

I now handover theconference to Mr. Manoj Kolhatkar, Managing Director of Gabriel India Limited. Thank you, and over to you, sir.

Manoj Kolhatkar: Thank you. Good afternoon, and warm welcome to the Q3 FY 23 Earnings Call of Gabriel India Limited. And firstly, before I start, let me wish you all a very-very happy and prosperous New Year. Of course, the first interaction that we are having in this new calendar year. I hope this goes well, and we are all are safe and hopefully, we have the pandemic behind us.

So the call may contain forward-looking statements, of course, was already mentioned. So along with me, I'm joined by Rishi Luharuka, who's our CFO, and our Investor Relations Advisors, SGA. We have uploaded our results and the presentation for the quarter, as always, on the stock exchange and company's website. I hope, all of you had time to go through the presentation.

So what I'll do is, of course, before I take you through the presentation quickly, I'll just give a brief overview of the company's operations and take you along the slide of the presentation.

To begin with, if you refer Slide number 5 on the investor presentation, we had a reasonably good quarter. I mean, of course, yes, it would have been better in terms of volumes. But we had seen many of the companies going in for annual shutdowns this year. So that's why there was a little muted sale. Our expectation was a little higher.

Anyway, the quarter revenue, if you see year-on-year, increased by 17% to INR 711 crores with EBITDA margins, which are stable at 7.2%, mainly due to a commodity price stabilization and the increased volumes. We are able to keep pace with the industry in terms of the increased volumes. And going forward, the last quarter also, we hope to see a good quarter in terms of volumes, we'll discuss more about that later.

The recent budget, of course, while I'm on the slide, I'll also take reference on the budget because it was announced just a couple of days back, I think it was quite a forward-looking budget and the focus remains on green growth. And the focus remains on capex, which, of course, is very good for the industry.

The government has also mentioned about state receiving assistance in replacing old vehicles and ambulances. So at least the scrapping would somewhere begin now. The personal income

Page 2 of 17

Gabriel India Limited

February 06, 2023

tax rebate has also been increased, which will provide some more disposable income to salaried citizen, and which, of courseaugur well for the automotive industry.

Coming to the overall business dynamics, domestic automotive industry experienced a healthy revival in FY '23 aided by economic activity recovery and increased mobility. The passenger vehicle growth in the calender year has increased by 22%, commercial vehicle grows with 30%- plus and two-wheelers have grown marginally. While we are a fiscal year company, but we also keep track of the calendar figures.

Overall, it's been a very-very good growth year across the segments. The EV industry, of course, takes the cake particularly in two-wheelers and three-wheelers, which again we'll discuss more when we have the questions. The rise in living standards has increased the demand for premiumization. This is very clearly seen, more than 40% of the sale of cars is actually in the segment, which is about INR 10 lakh. So clearly, there has been a shift from entry-level cars to higher price cars and also SUVs. SUV now form over 50% of the total passenger car sales, which again is, , a good news for the auto component industry and auto industry in general. According to SIAM data, I mean I did share over the passenger cars. But within that, like I mentioned, if you want in figures, utility vehicles grew by 28% and passenger cars grew by 18%, which is what I said, there has been a higher growth in the UV segment.

In terms of commercial vehicles, the salesnumber increased by 12% in Q3 FY '23 compared to the same months last year. In Q3 FY '23, sale of M&HCVs increased by 23% while sales of LCVs increased by 6% year-on-year. It demonstrated continued sales recovery as a result of increased e-commerce, agriculture, infrastructure and mining activity and improved overall fleet owner sentiment. And of course, new model launches and overall better market.

This sector has been kept afloat by the government's ongoing infrastructure development push as well as rising demand for LCV, HCV buses and construction equipment. Despite the fact that the sentiment in two-wheel industry, this is, of course, a segment that has been continuously under a severe challenge. So the sentiment and two-wheeler industry did improve during the festive season in this year during the Diwali time in 2022. But it is still underperforming due to impact combined effect of high inflation and the higher price of the two-wheeler owing to BS- VI and ABS, etcetera. And of course, the increased cost of fuel. According to SIAM data, two- wheeler sales increased by 1% year-on-year, while three-wheeler sales increased by 13%.

Now three-wheeler sales mainly is because all the schools have opened transport has started as normal. So people are not shying away from using a shared transport. That's why we are seeing a good recovery in three-wheelers, which was actually a pent-up demand. Scooters increased by 20%, motorcycles decreased by 5% and Mopeds also decreased by 12% in Q3 FY '23. However, due to a good monsoon, the industry's positive momentum is expected to continue in the near future.

The bus and three-wheeler segments continue to recover strongly and the three-wheeler segment, particularly, has grown 42% year-on-year. And within that, e-rickshaws, the electric rickshaws or the EV three-wheelers as we call, are expanding rapidly. Given the demand for affordable transportation and the emphasis on reducing carbon emissions, electric vehicles will play an

Page 3 of 17

Gabriel India Limited

February 06, 2023

important role in India's transition to a more sustainable future as evidenced by particularly two- wheeler and three-wheeler segments in electric vehicles.

There has been a significant increase in prospects over the last 18 months, of course, supported by the FAME II policy, the extended FAME II policy, increased awareness and increased product launches. We are seeing e-two-wheeler and e-three-wheeler sales increasing across India, including in Tier 3 and Tier 4 cities. The majority of automotive segments such as passenger cars, CV, tractors have maintained healthy demand sentiments, but two-wheeler continues to be underperforming, largely as an effect of high inflation in the rural areas.

Now let's go to the numbers again. I'll again refer bck to the presentation that we shared. I did already share on the Slide Number 6. Yes, Slide 6 which says the financial highlights of Q3 FY '23. Revenue of INR 711 crores, as I already mentioned, EBITDA of INR 51 crores, which is 7.2% EBITDA margin, PBT of 5.5%. Net cash position of INR 217 crores. Cash flow from operations reduced by 4.2%. This is mainly on the back of working capital requirements and capex incurred during the period was about INR 23 crores.

Coming to Slide 7, which is for nine months. We have, of course, had a record sale so far in nine months which is INR 2,235 crores almost with an EBITDA margin of, 7.2%, which said it's kind of stabilized as of now, INR 161 crores of EBITDA for these nine months. Cash flow from operations in the tune of INR 21 crores as compared to a higher inflow in FY '22. Capex incurred is being almost INR 70 crores.

Coming to Slide 8, which is, again, the financial track record. You can see from the past quarters that the gross margin has actually improved, because we have had a lesser raw material percentage. So the gross margin is now at 24.4% compared to Q3 in the same time last year, 23.2%. Even if we see Q2, which is the preceding quarter, it was at 23%.

EBITDA is however, slightly lesser at 7.2% because Q2, of course, had a much higher sale, almost INR 90 crores higher sales than Q3. And ROIC, if you see in the table below, for the nine months, it was at 28.8%, which is, of course, the highest in the past couple of years.

Coming to Slide Number 9, which is quarterly performance trend, the same figures, which I did share with you is shown in a graphical format Slide 10 is, again, the P&L statement more in detail.I'm sure you'll have your observations on this and we will discuss on the same post my address.

Slide 11 is the financial track record. So you can see the growth, which we did INR 2,332 crores in the last year. We are already almost close to that in nine months. So obviously, this is going to be a record sale here. And the EBITDA, PAT, ROC and working capital days are shown in the side level.

Key ratios on Slide 12, which, again, I'll skip that as well. Coming to the revenue mix, which is on Slide 13. You can see that in channel mix, 13% aftermarket has grown slightly to 13%. In terms of segment which, two-wheelers has comes down from 66% to 61%. And passenger car has increased, and so also has commercial vehicle and railways, even they have increased. So

Page 4 of 17

Gabriel India Limited

February 06, 2023

there has been, as I said, lesser growth in two-wheelers that's why you see this effect. And also better business, better share of business in terms of customers in passenger car, which has led to the increase of the passenger car price.

Coming to individual segments. This is on Slide Number 14 is on two-wheelers and three- wheelers, this includes, of course, aftermarket sales. So this is about 64% of our total sales. Our market share in two-wheelers is 32%. So it continues to increase literally quarter-on-quarter. Our top customers remain the same, TVS, Yamaha and Bajaj Auto. But if you go to Slide 15, which we have shared even the last couple of calls is that our penetration in EV, EV sales forms almost 9% of our total sales. Just one year back, it was about 3%. So good growth on the back of almost a 300% growth in the EV two-wheeler and three-wheeler volumes in the industry. Our market share now here is over 60%. And if you can see the right bottom box, we are there in all the top models, OLA, Ather, TVS, and Ampere and of course, Okinawa, that is currently low, but we supply to them as well.

Slide 16 shows you some new business that we have just started. We described the first production lot to them. This is e-bicycle, which is getting very-very popular, particularly in Europe. So this is for exports only. This is being given to Hero Cycles, who will eventually do the e-bicycles as they call for European market. So we have started this and I mean let's see how it goes. This is a good technology and interesting product for us to chase. As we see the trend, particularly in Europe going this way. If anyone of you have visited Europe, you'll see particularly in the Scandinavian countries. In fact, most of the people are using the e-bicycle or just the same bicycle format. So this is something that we are keenly watching. But we have made our first small step.

Coming to Slide Number 17, which is the passenger vehicles.The market share has gone to 23%. This year, the good part is, again, on Slide 18, if you see, as I mentioned, the growing segment in this within the PC is the UV segment, which has grown at 50% in the industry. So Gabriel presence in this segment is becoming stronger. Now in this segment, we actually have 33% of the market share in terms of the utility vehicles compared to our 23% for the overall passenger car. So our position is getting strengthened in the growing segment within the passenger cars. So that is good news. The pictures of the key models that we are supplying today all are on single-store basis. You can very clearly see here. I mean, these are as you know, I mean, absolutely blockbuster models each one of the Jimny is yet to be launched, but this will be launched very soon the bookings are already open and response has been good.

Slide Number 19, shares about the commercial vehicle where, we continue the dominant position that and we have in turn decided to in fact leverage our dominant position here to pursue growth overseas, which has, of course, started through DAF, and we are trying to expand it further into other customers as well.

Slide Number 20 is on railways. I'm very happy to share that we now are there on every train. So LHB is already done. Now we have the Vande Bharat Express. We are the only Indian supplier qualified for this. We were not supplying to the electric locomotive even that development order has been supplied for both these Vande Bharat as well as the electric locomotives. So we are present in every aspect of Indian railways, be it locomotives, be it the

Page 5 of 17