NDR Auto - A Proxy to Capture Maruti Suzuki's Growth Story
NDR Auto Components
- NDR Auto Components is an Auto Ancillary Company from the Rohit Relan Group that is into the manufacturing of Seat Frames and Seat Covers. The Company came into existence after the demerger from Sharda Motors in 2019.
- The company manufactures the seat metal frame and cover only which is then sent to the seat-making company that will do the Padding and fill up the foams to prepare the final seat that is to be supplied to OEMs like Maruti Suzuki and Toyota(New Client).
- In Maruti's case, the associate company Bharat Seats (A JV between Rohit Relan Group and Maruti Suzuki) is responsible for preparing the final seat while it is Toyota Boshoku (Another JV) in the case of Urban Cruiser Hyryder.
Their Customers Include
1) Maruti Suzuki (Major Client)
– 75% of last year's revenue came via supply to Maruti Suzuki 4W.
– NDR provides seating frames to 35% of the models of Maruti.
– Out of 16 lakh cars sold by Maruti PY, 5L cars have seats from NDR.
– Major Models include - Wagnr, Brezza, Ciaz, Alto, Dzire, Grand Vitara (latest), Jimny, Fronx.
2) Suzuki - 2W
– 25% of last year's revenue came via supply to Suzuki 2Ws.
– Gixxer and Access are the two models that NDR auto is catering to presently.
– For two-wheelers, they supply the frame directly to the company. The seat cover is supplied to an associate company that provides the entire seat system to the 2Ws.
– 40% of the frames and 70% of the seats in these two mentioned models are provided by NDR Auto.
3) Toyota (New Customer Acquisition)
– Seats to Toyota are being supplied from the new Bangalore facility that started production in Aug '22.
– Supplying for the Urban Cruiser Hyryder model from the Bangalore plant.
Additional points regarding customers
– The Company is looking to add more customers and increase product offerings in both the 4W and 2W segments to reduce client concentration risk. (Talks going on BIW Products for Bellasonica)
– The pricing mechanism is put in place in such a way that they can pass on 100% price hikes to OEMs.
– It takes almost 3 years to get approval to be a supplier to these OEMs. So it is not easy for new players to enter the market easily.
– ASP for Maruti was up by around 8% this quarter. This is due to a higher proportion of the SUV segment in the total sales mix. Since the kit value per vehicle for the SUV segment (Higher End Models) is higher when compared to the lower models due to features like artificial leather being used instead of fabric, NDR is set to benefit from the improving sales mix. (Maruti wants to double the SUV sales next year)
The Company has plants in 3 main regions
1) NCR Region - Capacity of 650000 seats.
2) Bangalore - Capacity of around 200,000 seats. (New Capacity)
3) Upcoming Capacity @Guj - 2,50,000 sets
Bangalore Plant
– Catering to Toyota Hyryder + Grand Vitara models only.
– Started production in August/September.
– Reported capacity utilization of 60-70% in Q3 FY23.
– Management guides for 80-90% utilization in the coming quarters.
Gujarat Plant
– Expansion to kick in from Mar '23.
– This plant is being set up to cater specifically to the export plant of Maruti Suzuki.
– It is expected to hit 80-90% utilization in the next fiscal depending on the launch and production of vehicles by Maruti Suzuki starting with the Fronx Model.
The company has incurred a capex of 30Cr each for both expansions each which were funded through internal accruals. They expect to get a 6-7x asset turn from the two expansions.
Numbers
– FY21 Sales - 114 Cr, Net Profit - 9, EPS - 14
– FY22 Sales - 233 Cr, Net Profit - 15, EPS - 25
– Guidance was for at least 30-40% growth for FY23, 24. The company has already hit the 260 Crore sales mark in the first 3 quarters of FY23. Could close FY23 Sales at around 370-380Cr (Q4 is usually the best), Net Profit of around 26 and an EPS of 43.
The margin is hovering around the 7% mark now. The company says this is at the lower end currently and guides for improvement in margins on the back of ramping up of new facilities and launch of new products over the next few quarters.
– Interest Coverage Ratio - 20 & D/E of 0.17
– PE of 16 and P/S of 1.1.
– Promoter Holding - 73.95%
Rough Calculation
--Q3 revenue was 105Cr. This can go up to 110Cr when the Bangalore facilities utilization picks up to the 80-90% mark guided by the management vs the 60-70% Utilization in Q3.
--30 Cr expansion in Gujarat commencing operations in Mar/Apr 2023. As per management, it will ramp up to 80-90% capacity from H2 FY24. At a 6x asset turn, this capacity can add 70Cr to the top line.
– FY24 estimated revenue could be around 500-520Cr (110Crx4 + 70Cr)
– The company has maintained around 7% NPM historically.
– FY24(E) PAT = 35-37Cr
– FY24(E) EPS = 60
Risk - Customer Concentration
The majority of NDR’s revenue comes from the supply of seats to Maruti Suzuki. So any drop in the production volume by Maruti due to bottlenecks such as semiconductor shortage will lead to underutilization of capacities thus having a direct impact on the performance of NDR Auto.
Conclusion
The growth of Auto Ancillary Companies is closely linked to the growth in OEMs. In the case of NDR Auto, its growth is very closely linked to the performance of Maruti Suzuki. With the OEMs like Maruti Suzuki starting to report good numbers, NDR Auto becomes an interesting proxy for an investor to play the auto upcycle especially if one is bullish on Maruti Suzuki.