Wheels India Q2 FY23 Earnings Call Analysis
Revenue, margin, capex, fundraise and order book outlook from management commentary.
Management growth scorecard
Revenue
Category 3
Margin
Category 1
Fundraise
No
Order
N/A
Capex
Yes
2 of 4 growth signals are positive.
Full analysisRevenue guidance
Category 3- Tractor exports are expected to continue growing quarter-on-quarter year-on-year.
- Aluminum wheel business aims to break even and become profitable early next calendar year, driven by increasing volume and domestic OEMs.
- Air suspension business is expected to show robust growth over the next 8-12 months, supported by state transport undertakings (STUs) and electric bus orders.
- Windmill-related business, after a downturn this year, anticipates significant growth in FY23 and entry into offshore wind supply in FY24.
- Export growth is phased and gradual, especially in North and Latin American markets, with Europe as a potential new market.
- Domestic commercial vehicle demand is expected to improve gradually with government infrastructure spending boosting related segments.
- Industrial segments like air suspension and fabrication for construction equipment are expected to see healthy EBITDA growth.
- Overall, growth is cautious with phased business ramp-up and prudent CAPEX management.
See what Wheels India management said on margin guidance — free account, 30 seconds.
Fundraise plans
No- No new debt fundraising planned currently; focus is on managing with internal accruals.
- Company aims to avoid taking additional term loans for CAPEX unless there is clear market buoyancy.
- CAPEX spending is being curtailed prudently in the second half and coming year to avoid incremental debt.
- Previously planned CAPEX is being postponed or cut back due to export market slowdown.
- Focus is strongly on free cash flow generation and deleveraging the balance sheet.
- Term loans have come down, with most debt now being working capital borrowings.
- Factoring without recourse with export customers is being explored to accelerate receivables and improve cash flows.
See what Wheels India management said on order book — free account, 30 seconds.
Capex plans
Yes- A new plant for machining large castings related to windmill customers was started at the end of September, with an investment of about Rs. 75 crore.
- Planned CAPEX for the year is being cut or postponed due to the export market slowdown, with postponement to next year or when the market improves.
- Additional CAPEX will be considered only if market buoyancy is visible; the company aims to avoid taking additional debt for CAPEX.
- Future investment plans include expanding aluminum capacity once volumes reach critical levels, with fresh investments planned to increase machining cells and casting machines to a target scale of 750,000 units.
- Focus is on prudent CAPEX spending to support free cash flows and deleveraging.
- Offshore wind parts supply may represent a strategic growth opportunity starting FY24.
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Margin guidance
Category 1- Aluminum wheel business expected to breakeven and become profitable by early next year, with full scale leading to double-digit EBITDA margins.
- Industrial product segment anticipated to achieve clean double-digit EBITDA margins going forward after steel price corrections.
- Air suspension and fabrication (construction) businesses growing and expected to yield healthy EBITDA and faster growth.
- Windmill business, currently facing degrowth, is expected to grow significantly in FY24, including offshore wind opportunities.
- Margin expansion anticipated as new businesses breakeven and under-recovery issues resolve.
- Focus on internal accruals and improved free cash flow for deleveraging, with CAPEX prudently managed.
- Export growth seen, though phased and gradual, particularly in aluminum wheels and tractor exports.
- Overall margin improvement expected over next 1-2 years driven by scaling up newer segments and improved product mix.
Order book
- The company has made progress with one OEM they were already supplying, now exploring wider product range.
- For two other OEMs, quotes have been submitted, RFQs won, products validated; phased trial with one plant for 3 months followed by expansion to other plants.
- The process of gaining share of business is gradual, starting with ~20%, moving up to 30% per plant.
- Discussions are currently more active in the Americas (US, Mexico, LatAm) and efforts to engage Europe are ongoing.
- Tractor exports continue to grow quarter-on-quarter year-on-year.
- The wind segment has backorders due to supply chain constraints but expects recovery and growth in FY24.
- New plant started for machining large castings with confirmed backorders.
- The company anticipates order normalization from December onwards following market corrections.
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