JTEKT India Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Record revenue, modest growth: Q2 FY24 revenue of ₹590 crore is the highest ever, but growth was only 2% YoY, tracking Maruti Suzuki's own 2% production growth.
• CVJ ramp-up is the growth engine: The new CVJ business contributed ₹5.8-6 crore monthly in Q2 at 64% utilization, with a second line planned; content per car rises ~28% when CVJ is added to CEPS.
• Margins improved through pre-merger rationalization: Consolidated EBITDA margin reached 10.3% in H1 vs 9.1% standalone last year, driven by joint cost-reduction work with the subsidiary even before the legal merger closes.
• Brazil export deal nears finalization: A group-entity export opportunity would add ~₹50 crore annually from 1.14 lakh units, with production starting in FY25-26.
• What to watch next quarter: Whether the Brazil deal is formally announced, the CVJ second-line capex commitment, and any progress on EV program SOPs with the three OEMs in discussion.

Revenue & Customer Mix

• Top customer concentration: Maruti Suzuki dominates at 55% of H1 sales, followed by Toyota at 11%, Mahindra at 9%, Honda at 6%, Tata Motors and Renault-Nissan at 3% each, and exports at 4%.
• Growth aligned with Maruti: The 2% revenue growth mirrors Maruti Suzuki's 2% production growth; a portion of Maruti sales came from the Grand Vitara manufactured by Toyota, so JTEKT's sales are comparable with Maruti's production sales.
• Toyota joint-model miss: For the Vitara and Hyryder model jointly developed by Maruti Suzuki and Toyota, JTEKT supplies only manual gears, not the CEPS dielectric column, so it did not capture 100% of the business despite having full Toyota business generally.
• Customer declines offset gains: Renault-Nissan and Tata Motors were both down in the quarter, partially offsetting growth elsewhere.
• Axle business exited: Axle sales dropped from 4.4% of mix in FY23 to 0% in H1 because Maruti Suzuki's Eeco model changed technology and JTEKT no longer supplies axle assembly for that model.

Chanana: "However, for this particular model, which is a joint development of Maruti Suzuki and Toyota, we have only a share of manual gears. So we are not supplying CEPS dielectric column for this particular business."

CVJ Business & Content Per Vehicle

• Current scale: CVJ monthly sales reached ~21,500 units or ₹5.8-6 crore in Q2, up from Q1; capacity utilization stands at ~64% on the first line, which has a maximum capacity of ₹110-120 crore annually.
• Second line planned: A second CVJ line of ~4 lakh units capacity will be announced shortly, costing ~₹80 crore; this would expand market share from ~5% at full first-line utilization to around 10%.
• Content per vehicle economics: CVJ averages ₹3,300-3,500 per vehicle, while CEPS averages ~₹12,000; together they lift content per car by ~28%, though CVJ is currently on only two models with a third under discussion.
• Market share ambition: Immediate target is 15% market share; the second line is a step toward that goal.
• Near-term trajectory: CVJ volumes will continue in H2, maybe slightly improved from the Q1-to-Q2 trend, but will not reach 100% capacity utilization this financial year.

Margins & Merger Synergies

• EBITDA improvement: Consolidated EBITDA margin reached 10.3% in H1 vs 9.1% standalone last year; the gap between standalone and consolidated widened from ~1% historically to 1.6%, achieved through ground-level rationalization activities on a joint working basis.
• Pre-merger cost actions working: Physical rationalization is not possible until the official merger, but management implemented cost reductions through joint working, pushing up EBITDA levels even before legal completion.
• Post-merger savings identified: Administration expenses, technical expenses, and directors' meeting costs currently incurred to maintain two separate legal entities will be saved once the merger closes.
• Sustainability claim: Management stated the 10.3% EBITDA margin is sustainable, with further upside from merger synergies.

Chanana: "There is no need to mention that there will be -- that we will be saving huge money towards the administration expenses, which we currently incur because we have to maintain the 2 entities as separate legal entities, huge administration costs, technical expenses, directors meeting. And we keep on counting these expenses. These are huge and the set of expenses, which will say so we can improve further rather."

Export & New Business Opportunities

• Brazil export deal: Discussions with the group entity in Brazil are in final stages; if successful, production starts in FY25-26 with annual volume of 1.14 lakh units, adding approximately ₹50 crore to revenues initially, with opportunity to grow gradually.
• Supply chain readiness: Management has been working for two years to build a strong and stable supply chain, which it views as the main condition to achieve export success.
• Existing export stability: Ezgo and Club Car exports are stable and gradually increasing, with good profitability; the company is working to increase products for US export customers.
• Parent engagement signals commitment: Three very senior visits from Japan in the last month, including Matsumoto-san, a Director on the JTEKT India Board, who spent three days understanding strategy and how Indian operations can add more value to the overall JTEKT operation.

Chanana: "In case we are successful in getting this business, it will be starting with a volume of 1.14 lakh on an annual basis and will add approximately INR50 crores to our revenues to begin with."

EV Strategy & New Product Development

• Product compatibility: The CVJ product is compatible with EVs; the company is currently working with at least three OEMs for their EV introductions, including active discussions with Tata Motors for their EV business.
• Tata Motors engagement: A physical meeting took place in Pune in July to understand technology roadmaps; management hopes to grow the current 3% business with Tata over time.
• New product investment: Spending is underway to develop a product for an electric SUV; the product is the same CVJ with different specifications and dimensions, with better pricing expected, though the specific content-per-vehicle increment was not separately quantified.
• Honda Elevate launch: Development spending also supported the Honda Elevate, which has been introduced into the market.
• Capacity additions: One additional 850-ton aluminum die casting machine was added, bringing the total to four machines of that capacity; a local technical center is being set up to support customers with quick response.

Capex, Cash Flow & Competitive Position

• Capex pipeline: Approximately ₹100 crore committed, with the CVJ second line at ~₹80 crore as the largest component; a CEPS additional line is also being set up.
• Cash generation: Management hopes to continue generating ~₹150 crore annually; the balance sheet carries a 0.09% debt-equity ratio.
• Competitive intensity: Management acknowledged intense competition across all businesses, particularly in steering, and framed the response as delivering the best quality product with the lowest level of quality issues.
• Parent product pipeline: CVJ success is expected to demonstrate capability to the parent company, opening possibilities for introducing more products in India.

Chanana: "Which business we do not have competition, I don't see any business where we don't find competition. There is a huge competition in the steering business. So it actually drills a point to you like how effectively and efficiently you are able to deliver the best quality product with the lowest level of quality issues."

Guidance & Commitments

Key Metrics