Wheels India LtdQ1 FY23Auto Components

Wheels India Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

N/A

Order

N/A

Capex

Yes

1 of 3 growth signals are positive — mixed outlook.

Revenue guidance

Category 2

→Expect moderate growth in the domestic market driven by robust construction and agriculture segments.
→Anticipate a 20% growth in exports for the coming year, supported by new customer programs and expanded platform servicing.
→Target increasing exports to about 25% of total sales over time, focusing on Europe and the US markets.
→Growth to be supported by ramp-up in aluminum wheels business, with no expected destocking as seen in the previous year.
→Construction and agriculture equipment segments expected to contribute significantly due to new programs and infrastructure spending.
→Windmill segment volume expected to stabilize then grow, aided by resumed exports and ramped-up machining capabilities.
→CV segment likely to maintain double-digit growth fueled by government infrastructure spending.
→Overall revenue likely to reach INR 5,000 to 5,500 crores in 2-3 years, assuming stable commodity prices.

Category 3

→The company expects significant reduction in losses in the coming year and aims to reach a break-even situation the year after that (Page 14).
→FY24 revenues are projected around INR 5,000-5,500 crores assuming no mega inflation in commodity prices (Page 13).
→EBITDA this year is comparable to FY18/19 levels despite higher sales; a recovery to earlier margin levels is anticipated as cost issues normalize (Page 8).
→Margins in key segments: construction business has healthy double-digit margins; tractor business with exports expected to reach close to double-digit margins; CV business margins currently low (5-6%) but improvement efforts underway (Page 10).
→Focus on improving free cash flow and reducing debt to optimize return on capital, targeting sustainable ROCE around 18% (Page 13).
→Export business aims to account for about 25% of sales at steady state, contributing to growth (Page 10).
→Moderate domestic growth expected with infrastructure spend and export growth of about 20% projected for the year (Page 3).

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→No explicit mention of new fundraising through debt or equity in the near term.
→Current debt as of March 31, 2023, is INR 721 crores, down from INR 811 crores in March 2022, indicating net debt reduction.
→For FY24, debt is expected to remain stable at around INR 725-735 crores despite planned INR 200 crores capex.
→The company plans to fund capex largely via free cash flows from business operations, especially linking investments to internal cash generation.
→Emphasis on deleveraging and reducing working capital to optimize cash flows and manage interest costs.
→No indication of issuing new equity.
→Management focused on sustaining or lowering debt levels rather than increasing borrowings.

→The export market is expected to grow, with Wheels India targeting around 25% of its business from exports as a reasonable steady-state goal.
→The company is witnessing increased orders due to new platforms launching next year, particularly from the fourth quarter onwards.
→Windmill industry orders in Europe and North America are expected to improve from calendar year 2026 as regulatory clearances get resolved.
→There has been a slowdown in existing export volumes, but the number of platforms serviced with major customers is increasing, indicating growth potential.
→Domestic market segments like CV are expected to grow in double digits this year, boosted by government infrastructure spending.
→Tractor market growth is expected to be muted due to a record previous year and below-normal monsoon forecast.
→The company has some backlog in fulfillment but expects to address them more effectively in coming quarters.

Yes

→Planned capex of about INR 200 crores in the coming year.
→INR 50 crores allocated towards the aluminum project.
→INR 40 crores for windmill division, mainly to ramp up machining of large castings.
→INR 60 crores towards off-road projects, covering both Construction and Agriculture sectors; Agriculture on new projects, Construction focusing on cost optimization.
→Remaining capex directed towards maintenance.
→Focus on linking future investment funding to free cash flow of individual businesses, except new ventures like aluminum.
→Aim to optimize cost and improve return on capital through disciplined and planned capex payments.

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