AGM - Analyst Meet
Latest in AGM - Analyst Meet
L&T Finance Holdings conducted an analyst meet on 23 July 2014 to discuss the results for the quarter ended March 2014 and way forward. N Sivaraman, President and Wholetime Director of the company addressed the call:
- Loan assets increased 19% yoy to Rs 40764 crore, while disbursement grew 11% to Rs 25959 crore at end June 2014. Thrust was given on rural products, personal vehicle and housing finance with focus on operating projects in infrastructure
- Assets under Management (AAUM) of AMC increased 44% yoy to Rs 19895 crore, while the wealth management business achieved average assets under service of Rs 6139 crore as at end June 2014
- Improved Retail NIMs with change in product mix towards high yielding assets, offset by dip in Wholesale NIMs
- Asset quality remained under stress due to seasonal pressures in the retail portfolio and minor slippage in infrastructure segment. Increase in net restructured assets in wholesale finance also stressed asset quality
- Credit costs remained stable with plateauing of stress in the mid-market segment
- Company sees NPA level to be at peak level at end June 2014, while expects NPAs to decline going forward.
- Company does not any have any significant restructuring proposals. However, Corporate Debt Restructuring (CDR) cells related two restructuring proposals are already classified as NPA, which would be upgraded from NPA category on approval of restructuring package.
- Easing NPAs would help to curbing credit cost. The company expects the credit cost to decline to 1% by Q4FY2015.
- The yield on Loans Against Properties (LAP) stands at 12.5% to 13.5%.
- The company is more interested in universal banking licenses than a small or payment bank license.
- Company expects improvement in lending business ROE to 18% and ROA to 2.2% by Q4FY2015.
The company held its Analyst Meet on 18th June'14 and was addressed by Mr Anand Kumashi GM Accounts and Finance and Mr. Abhiraj Choksey Managing Director
Despite challenges, FY 2014 was a good year for the company in terms of new capacities being stabilized, continue to have strong relationship with customers, maintain dominance in the business and higher depreciation and interest costs being absorbed.
The company operated at around 66% of installed capacity in FY 2014 and expects to increase further to more than 75% in FY'15. Presently, in April May, the plant was operating around 75% level.... (more)
- Rane group consist of holding company in the form of Rane Holding followed by various subsidiaries namely Rane Madras (56.3%), Rane Engine valve (53.6%), Rane Brake lining (45.2%)and Rane Holdings America (100%). It also includes joint ventures namely Rane TRW Steering (50%), Rane NSK Steering (49%), and JMA Rane Marketing (49%). It also includes two associate companies namely Kar mobiles (39.5%) and SasMos HET Technologies (26%).
- Rane group reported net sales of Rs 2687 crore, almost flat on YoY basis and PAT before EO of Rs 54.5 crore of VRS expenditure, stood at Rs 101.1 crore, a growth of 7%. Group operating EBIDTA stood at 9.8%. Groups operate at Debt Equity ratio of 0.82.
- In terms of product line basis, of the total group sales, about 24% come from manual steering and suspension, 18% from Hydraulic power steering, 20% from steering columns and Electronic power steering, 15% from friction material, 14% from valve train, 3% from die casting and rest 3% from seat belts, aerospace and defense business. In terms of markets, about 69% of total sale is to OE, 14% to aftermarket, 17% to exports.
- Rane Madras is a manufacturer of steering and suspension systems for every segment of automobile industry viz passenger cars, multi utility vehicles, light commercial vehicle, heavy commercial vehicle and farm tractors. It holds 39% market share in Steering gear products and 72% market share in suspension and steering linkage products in India. The company has moved to manufacture hydraulic products as well.
- Rane Diecast has been merged with Rane Madras in FY'14. The company has exports of about Rs 70 crore and has accumulated losses, which resulted in lower tax for overall Rane Madras. Going forward, with R&D expenditure and accumulated losses of Diecast, management expects lower tax to continue in FY'15 and thereafter around 15-20%.
- Rane Madras has 6 manufacturing plants. Management has highlighted that going forward, more automation will be introduced and a sizable capex of about Rs 195 crore is planned for next 18-24 months. About 30% of capex will be towards steering business while rest will be on die-casting business.
- Management expects Rane Madras to grow its sales by about 23% CAGR in next couple of years. New customers, growth from existing customers and exports will drive the growth. Company now supplies nearly 40% of total Maruti cars steering requirements which was at one point of time was only around 25%. New products generated about 18% of total revenue in FY'14.
- Also as per management, modernization and higher capacity utilization (Currently around 70%) will lead to around 100 bps improvement in margins for Rane Madras.
- Management expects Tractor segment growth to moderate in FY'15 given the bumper year of FY'14. They expect tractor segment to grow around 7-8% in FY'15 by volume terms.
- Rane Engine Valve (REV) manufactures engine valves, valve guides and tappets and valve train components for various engine applications and caters to all segments such as PC, LCV, UV, SCV, M&HCV, 2W, 3W etc. The company is market leader in terms of market share in OEM and replacement market. It is well known brands in exports to EU, North America and Far Eastern markets.
- The key issue in REV is the legacy of having 5 plants. Management is taking concrete action and has closed down one of its plant and the land is up for sale. It's a 10 acre land and in prime location and the surplus will be used to reduce the debt of the company. Present debt equity ratio is 2.25:1.
- Management is very optimistic about REV as the company has lots of large order book. For the first time, BMW Germany will outsource its 3 and 5 series engine value requirements from the company and this is a big break through. The company will supply the engine valbe for all the new diesel cars of Maruti. Rhino Nissan model will also be using the engine valves of the company. Management is confident about the future outlook and aims at sales growth of 20% CAGR for the next couple of years.
- Excluding the VRS expenditure of Rs 40 crore for FY'14, the loss at PAT level for FY'14 stood at Rs 3 crore as compared to Rs 18.9 crore for FY'13. This is despite the fact that power costs were high in Tamil Nadu and Andhra Pradesh.
- REV successfully turned around in Q4 FY'14 into profits and that had more to do with aftermarket sales increase. However management is confident of turning around overall in FY'15 into profits with better OPM. New products contribute about 8% in FY'14 and as per the management a sizable change will be visible in FY'15 and going forward.
- Rane Brake lining (RBL) is a JV with Nisshinbo Brakes for know how in asbestos free brake linings, disc pads and clutch facings. It has applications in every segment of auto industry such as PC, LCV< UV, SCV, M&HCV, 2W, 3W etc. Domestically, it has 37% market share in OE, 15% in aftermarket and 15% in rail. The company exports its products to various countries in Saarc, Middle East, EU, Far East and Africa. It is currently supplying composite brake blocks to Srilankan railways and Malaysian railways.
- The entire market in brake lining moved from asbestos to asbestos free brake lining market in FY'14. This resulted in increasing the import content in the overall raw material costs and particularly in around July Aug'13, where rupee was more than Rs 65. This has resulted in lower sales and margin in he first 9 months of FY'14. While through internal efficiencies and higher after market sales, the margins were better in FY'14 on YoY basis, to around 10.5%, there is a scope for further improvement in the same.
- Exports constituted around 8% of total RBL sales and management expects the exports will increase further. Also the company is working on localizing the asbestos free technology which will reduce the import dependence. With rupee around Rs 60 is much better for RBL then rupee at Rs 65, the margin outlook for FY'15 looks better. Management aims at capex of about Rs 67 crore in next couple of years and sales target of around 22% CAGR for next couple of years.
- Kar Mobile (KML) is engaged in production of quality valves for internal combustion engine and is specialized in manufacture of large engine valves. It is a preferred supplier to OEM's such as John Deere, Escorts, Cummins, Ashok Leyland and it exports to companies such as Wartsila, Electro Motive, Liste Petter, Hatz etc. KML is specialized in manufacturing range of valves for all off road engines like caterpillar, komatsu, for power generation engines like Cummins, wartsilla and for heavy commercial engines like MB, Scania, Volvo, Navistar, mack etc.
- Operating EBIDTA margin hit a low of 7.1% for KML in FY'14 as plants did not operate at optimum capacity and resulted in un absorption of fixed costs. Management aims to restructure its operations and modernize the same in FY'15.
- The KML exports were down by 12% in FY'14. Management aims to increase the geographical presence for the company. Also aims at up gradation of technology to manufacture large and extra large valves. Capex of about Rs 32 crore will be spent in next couple of years with an aim of sales growth of about 25% in next couple of years.
- Rane TRW Steering System (RTSSL) is a JV partnership with TRW Automotive USA, which manufactures steering systems, Air bags and seat belts. The Steering gear division manufactures fully integrated hydraulic steering gears, hydraulic pumps, power rack and power steering fluid including plastic reservoir. The JV has a dominant market shares in commercial vehicle steering, passenger car steering and utility vehicle segment.
- Almost entire market in Passenger Car segment is shifting towards Electric Steering with particularly the new models comes with electric steering. CV market continues to operate at hydraulic steering system and management does not expect any change in CV market steering in next 5 years. CV market did not do well in FY'14 which continued to hurt sales and margins for the company.
- Operating Ebidta reached 8.5% from around 14% in 2011. Management expects to reach to around 10-11% in next couple of years through higher exports, new customers and sales of Air bags.
- Airbag market is around Rs 1000 crore market in India and the legislation regarding the implementation is yet not through. As and when the legislation comes in, it will be compulsory in every car in India on roads. The company is nearly ready to tap this market.
- The company has won new orders from Daimler, Isuzu and Tata Motors. The company is also working on innovative power steering system for SCV and tractor segment.
- Rane NSK Steering (RNSSL) is a JV with NSK Japan where Rane group has 49% stake. The JV manufactures manual steering columns and electric power steering and is a preferred OE partner to major PC, Commercial vehicle and Multi Utility vehicle manufacturers.
- The company reported fall in sales of 8.5% to Rs 524 crore as there was lower supply to Ashok Leyland, Tata Motors and Maruti due to its plant issues. However going forward management is very optimistic about this segment. All the new Honda and Hyundai cars that will be launched will come with electric steering made by the company from here on. Overall increase in localization and new customers will result in higher capacity utilsation and better operating leverage for the company.
- Overall, Rane group has targeted to achieve a turnover of about Rs 4600 crore by 2017. Dividend policy of group companies stands around 35-40% of PAT. Management continues to be optimistic about the future and a combination of higher exports, localization, increase in new customers and revival of domestic confidence will drive the growth going forward.
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