Introduction
Igarashi Motors India Ltd (IMIL) is primarily engaged in the production and export of permanent magnet DC Motors for powertrain and seat applications and motor accessories for the automotive sector. The Company started off as a contract manufacturer in 1996. Since then, it has populated over 500 mn DC motors for usage in actuator applications in passenger cars. Today, Igarashi is recognized as a leading global automotive component market player in actuator motors. Their state-of-the-art manufacturing facilities and logistic warehouses are located at MEPZ-SEZ, Chennai & DTA Unit at Maraimalai Nagar. Robust manufacturing, innovation, and technology edge, vast expertise, and high operational efficiencies underpin the operations of the Company.
History
History The Company was originally incorporated as CG Igarashi Motors Limited (‘CGIML’) in Jan 1992 as a JV between Crompton Greaves Limited, India, Igarashi Electric Works Ltd (IEWL), Japan, and International Components Corporation, USA. Over a period, IEWL consolidated its stake in the Company by acquiring a stake of exited JV Partners. The Company’s name was changed from CGIML to Igarashi Motors India Limited on July 13, 2003. Post the subprime mortgage crisis the company suffered a huge loss due to adverse movements in currency and inappropriate hedging strategy, while adverse commodity movements took a further toll on the profits. The company went on to sell its stake in Agile electric and raise funds from the like of HBL Power Systems (~Rs 50cr) through its holding company (Agile Electric Sub Assembly) in FY2011. Looking at the increasing attention towards reducing emissions by OEMs and regulatory bodies in developed countries the company worked on creating a niche in the throttle actuator motor (TAM) space by building capabilities to manufacture motors for electronic throttle control, exhaust gas recirculation, wastegate actuator, coolant control valve, etc. This helped lift the performance of the company in the following years, during which the company’s promoters further exchanged hands when HBL Power sold Agile Electric to Blackstone which got the company a further infusion of ~Rs 60 cr as the then CEO bought a 32.6% stake. In 2016-17 Igarashi Japan bought back Agile Electric (in turn Igarashi Motors) from Blackstone and further consolidated its stake to 75% (>77% then). In order to avoid conflict of interest the company sold the business of Agile electric on a slump sale basis to IMIL at book value further in a sign of good corporate governance the company issued bonus shares only to public shareholders to reduce promoters’ shareholding to 75% (maximum permissible in India)
Segments
The company has three segments:
- (TAM) – Throttle Actuator Motors (~63% of sales)
The current product portfolio in this division consists of motors that primarily involve controlling the throttle (electronic throttle control) and reducing emissions (Exhaust Gas Recirculation, Waste Gate Actuator, Variable Turbine Geometry, Coolant Control Valve) - (CAM) Comfort Actuator Motors (~27% of sales)
Division involved in contract manufacturing and built-to-customer print addressing comfort body systems such as seat, window lift, and fuel pump sub-assembly to global players - Non-Auto (currently BLDC motors for consumer appliances – ~10% of sales)
Into energy efficient BLDC motors for consumer appliances, EV traction motor platforms, and Electronic System Design and Manufacturing (ESDM)
Product Portfolio
With technology being adopted in vehicles and further tightening emission norms, the motorization of vehicles is only expected to increase. Due to stringent emission norms within the Throttle Actuator Motor (TAM) division – the Company has expanded from being in the electronic throttle control space to being a player in the exhaust gas recirculation, wastegate actuator, variable geometry turbine, and coolant control valve, most of these motors help in reducing emission. While these are products that the company is already selling, the product pipeline in this segment is significant while some products may become obsolete as new sales for ICE-based vehicles may come down to zero over the next decade or two. However, the more electrified a vehicle will be the more motors will replace mechanical functions.
The Company is a vertically integrated player and is involved right from the designing to the manufacturing process. For auto, the product development to commercial production life cycle is generally a 2–3-year process depending on the criticality of the product. Even within the BLDC division, the company has designed and developed the motor and associated PCB in-house. The company has a strong R&D team in-house and is consistently working to develop new products to capitalize on emerging trends.
Source: Company, PIA
Company’s capacities (as of FY22) in the three divisions are as follows:
| Segment | Capacity (mn) | Utilization | Addition |
|---|---|---|---|
|
TAM |
39 |
44% |
|
|
CAM |
12 |
52% |
|
|
Non-Auto - BLDC |
1.25 |
44% |
Double capacity to 2.5 mn by end FY23 |
|
Non-Auto - ESDM |
2 |
NA |
Double capacity to 4 mn by end FY23 |
Source: Company, PIA
What went wrong in the last few years?
The company has been struggling to grow for the last 5 years (FY18-FY22) – revenue down 17% during the period. Segmentally the decline is higher for both TAM (-24%) and CAM (-29%), the decline in overall revenues is slightly offset by the addition of sales from the non-auto division since FY2020. The decline is mostly attributed to the decline in volumes (81mn in 2022 vs. 95mn in 2018) in the light passenger vehicle (~-15%) during the same timeline as new programs supposedly to be rolled out in 2019 got delayed due to a slowdown in auto and on expectations of higher penetration of shared mobility (requires different specifications due to a longer lifecycle in terms of km’s) further exacerbated by insourcing of its largest client – Bosch, while COVID led to further decline in the entire global auto industry. Uncertainty around car technology may also have led to delays in programs.
Competitors like Mabuchi and Johnson Electric within their auto business also faced a tough time in their auto business during the same period, confirming the slowdown. While on the total revenue front, they have done well due to diversification in power tools and personal care products which are sectors catered to by Igarashi China.
Focus on R&D and a strong product pipeline to bank on emerging technology and expand the addressable market
The company has always had a strong focus on R&D and continues its thrust on developing new products. In the TAM division, the majority of the revenue was driven by ETC motors (~85% in FY22), however, with stringent emission norms the company’s addressable market increased as motors like EGR (Exhaust gas recirculation), WGA (wastegate actuator), and VGT (variable geometry turbine) motors became applicable. Further due to the introduction of BSVI in India (norms in line with current Euro 6), the Indian market became applicable for the current product portfolio of this division.
While the risk of ICE-based vehicle sales going to zero will eventually materialize the company has started focusing on products that are technologically agnostic. All capacities of the company are fungible with minor investments so risk stands low in terms of capacity becoming obsolete. Division wise:
- 1.Within TAM, the company has built motors for electronic parking brakes as they are becoming common in new cards due to their feature-rich capabilities. The company has undergone product development and validation and is expected to commercialize this product in 2023, while the company has RFQ for some programs starting in 2024. Each vehicle will require 2 motors and the market size is 45mn units. Tighter emission norms in India have further made the 2W market also relevant, particularly the 150+cc market. Earlier, vehicles used to use a carburetor, which will now be replaced by an electronic fuel injector (for better efficiency and lower emission).
- 2.In CAM, TOCD (trunk open and close device) motor is seeing higher acceptability with an increase in sales for SUVs. Igarashi China (Igarashi Japan has 2 plants in China – non-overlap in terms of types of motors being manufactured in each plant) is the world’s largest player in TOCD motors and due to geopolitical risks, clients have asked Igarashi Japan to geographically diversify their risks. Undergoing prototype and sample testing phase and in discussion with Asian Tier 1 companies for offtake with the commercial launch by 2024.
- 3. BLDC division (currently Non-Auto) is working on an electric vacuum pump for brake boosters (will see higher adoption as brake boosters need vacuum from the engine and with higher EV sales this product becomes relevant), however, this product might be a few years away from commercialization. Further, the company has developed and is in the final stages of validation for a water pump for the battery management system and expects commercial supply from 2025. IMIL has also developed and is undergoing validation for traction motor for E2W/E3W and is in talks for contract manufacturing for a large European tier 1.
- 4. Non-auto business can be split into 2 – motor and ESDM. The company has in-house EMS and SMT capabilities. While the company will supply BLDC motor for fans it also designs, develops, and manufactures the associated PCB in-house and hence has build capacities for ESDM larger than the motor. For the supply of a traction motor, the controller is important. For the time being, the company has tied up with a Taiwanese company for the supply of controller, the electronics R&D team is working on designing, developing, and manufacturing its own controller and expect it to complete by 2025.
Way forward
With advancements in technology and the electrification of power trains, the automotive actuators market is growing continuously as Electric actuators have replaced hydraulic and pneumatic actuators due to lower noise emission, compact and lightweight design, digitalization, electronic close looping system, and flexible installation options. These actuators control various applications few of which are engine air management systems, headlight positioning, seat adjustment, grill shutter, HVAC systems, window lift drive, power tailgate drive, seat drive, sunroof drive, and cooling systems for ICE & battery banks. BLDC Technology We also foresee huge opportunities in newer, energy-efficient technologies for fast-moving electrical goods. Factors such as pent-up demand, government thrust on rural electrification and housing development, growing consumer preferences towards smart electrical products in a work-from-home (WFH) scenario, and premiumization in many product categories have been driving the growth of the industry. This would facilitate not only the Design and Development of BLDC Motor Controllers for Ceiling fans, Pedestal fans, and Air coolers but also for EV Motor controllers, EV Chargers, High Voltage Drives, and EV Battery Management Systems. In the next five years, huge growth is envisaged in fans at a CAGR of 12%, presently it is at 9% for the year 2021-22. The Indian Fan Industry is destined to enter into the Golden Era post-pandemic, with pent-up demand following customers’ aspirations to chase better quality and better aesthetics. With the substantial saving of >50% in power consumption in BLDC, this segment will herald a new revolution in the Indian fan market at a much faster pace and aggression in the years to come. These energy-efficient fans will spurt fresh replacements for conventional fans and would eventually result in an infusion of BLDC technology on a large scale. Another important aspect to note is that premium ceiling fans are gaining momentum following the widespread offerings by fan manufacturers to cater to the demand of the luxurious customer segment. This prompted the emergence of advanced concepts like smart fans – IoT-enabled, App operated, voice-controlled & decorative fans – under light versions, etc., gaining wider acceptance and popularity. Even foreign players are attracted to this segment of their offerings of energy-efficient products. Indian fan manufacturers are now focusing on import substitution in the TPW fan segment as it accounts for 30% of the Indian Fan market. Similarly, BLDC technology transfusion in the Air cooler platform presents an immense opportunity as it is only the standby option to combat the soaring summer and at the same time, accounts for substantial volume in the air-cooling segments. Leading Fan manufacturers are already exploring opportunities in TPW segments & Air coolers with the advent of BLDC technology and have already started positioning suitably in the market. The team has been working on various programs including Customer-specific projects in the areas of electronics development due to which scalable controllers were developed for products like IoT Enabled Fan with the option of IR Remote, Air Cooler, Fan with temperature sensing, and BLDC fans to work with standard fitments.
Coming to numbers, the worst seems to be behind, with several growth levers in place along with sector (consumer appliances) and product segment (controllers for EV motors, chargers, battery management systems etc.) diversification. For the ceiling fans business, the potential is immense:
| Fan Market Size (Mn) | Growth Rate % | Expected BLDC Penetration (in 4-5 Years) | Company claiming 20-25% market share | Implied opportunity |
|---|---|---|---|---|
|
65 |
6-7% |
30% |
~5 mn |
Rs 400-500 cr |
Source: Company, PIA
Also, the company is already working on BLDC motors for kitchen chimneys, air coolers etc. which will add to further volumes. Company would invest ~Rs 10 cr in capital expenditure to expand capacities in both BLDC and ESDM. For BLDC opportunity for fans, the company has three offerings wherein for USD20 the company will supply the motor with the electronics, USD17 for motor assembly and USD6 for PCB. Hence the additional capacity for ESDM, along with further potential for other opportunities in ESDM.
| Segment | Capacity post expansion (mn) | Potential Revenue (net of captive consumption) |
|---|---|---|
|
ESDM |
4 |
Rs 80-100cr |
Source: Company, PIA
Further, the company is seeing higher RFQ’s for their auto business, which already was at lows last year due to non-availability of chips which affected global auto volumes. Capacity utilization stands at close to 50% and conservatively assuming the auto business to double in 4-5 years (electrification of actuators will only lead to higher content per vehicle) along with higher contribution from non-auto can lead to revenues of at least 3x of FY2022 over 3-4 years.
| Segment | Capacity (mn) | Potential Revenue |
|---|---|---|
|
TAM |
39 |
Rs 700cr |
|
CAM |
12 |
Rs 350cr |
Source: Company, PIA
Company would need to spend close to 30 cr over the next 2-3 years for maintenance, balancing capacity and automation to achieve this.
Coming to margins, historical margins of 20% were only because of technical and tooling fees on the commercialization of new programs, which are sort of one-off in nature. They might repeat again but expecting a steady state of 16% EBITDA margins is a reasonable expectation. The non-auto business has a higher element of electronics and lower labor costs (the auto business is semi-automated) which will lead to lower gross margins at a blended level while at the EBITDA level, it will yield 14-15% once the operations are scaled up while PAT margins come to be in the range of 8-9% at full scale.
On the valuation front, the TTM PE may look abnormally high due to the problems around the higher cost of electronics in the last 2 years as the company rushed to buy from the spot market due to the China lockdown. The last few years have been abnormal for a number of reasons, however, on a long-term basis company has traded at a TTM PE of 30x which can be a fair multiple on normalized operations.
Source: Company, PIA, ACE Equity
| Particulars (INR cr) | FY20 | FY21 | FY22 | 9MFY23 |
|---|---|---|---|---|
|
Shareholder’s Equity |
422 |
439 |
438 |
429 |
|
Borrowings |
124 |
95 |
100 |
113 |
|
Fixed Assets |
394 |
370 |
378 |
369 |
|
CWIP |
11 |
10 |
11 |
15 |
|
Inventories |
76 |
101 |
82 |
93 |
|
Cash & Cash Equivalents |
3 |
13 |
7 |
5 |
Source: Company, PIA
Snapshot of Cash Flow Statement