Ladies and gentlemen, good day, and welcome to Automotive Axles Limited Q3 FY 2023 earnings conference call, hosted by Batlivala & Karani Securities India Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recored. I now hand the conference over to Mr. Shailesh Raja from Batlivala & Karani Securities. Thank you, and over to you, sir.
Yeah, thanks, Viva. Good afternoon, and thanks to everyone who have logged in to Automotive Axles' Q3 FY 2023 earnings conference call. Today, we have senior management team of the company. We'll be hearing from Mr. Muthukumar Vel, President and CEO, Meritor HVS India Limited. Mr. Nagaraja, President and Whole Time Director, Automotive Axles. And Mr. Ranganathan S., CFO, Automotive Axles Limited. I would now like to turn the call to Mr. Muthukumar for the opening remarks, followed by Q&A. Sir, over to you.
Thank you, Shailesh. Good afternoon, ladies and gentlemen. Thanks for taking time to join our investor call, and we really appreciate your interest in our company. We have spoken to you about exactly a year before, on 22 February 2022, we have announced Cummins acquired Meritor globally. And also, in the month of September, we announced that the integration is complete in the month of August, 3 August 2022, and we said the integration process is on. It's almost 180 days from the integration is over, to almost 360 days from the date of announcement. The integration process is going very well, and both Jennifer Rumsey, the Cummins President and CEO, and Mr.
Kalyani, Chairman of Bharat Forge Limited and also Chairman of Automotive Axles, have found that this coming together is going to work very good for the organization, and this is going to put us in the right trajectory. With the Destination Zero, which is worked by Cummins and also Meritor, in terms of providing innovative products and solutions to the customer, this is a great coming together, which can provide an excellent solution to the customer and thereby grow the organization in India. So as far as India is concerned, the acquisition legal process between Cummins India and Automotive Axles JV is on the process, and the legal clearances are under the way. It's not as clear, so at this point of time, when the global acquisition is done and moving on the processes, in India, the legal process of acquisition is still on the way.
Over to the next slide. When compared to last year, where we have ended up with INR 1,494 crores for the full year of FY 2022, the snapshot of Q3, if you see, as on date in this year, we have already crossed last year turnover, and we are at about INR 1,634 crores, and you can see that the last quarter is still on there, and we'll be able to move. I'm sure that Ranga will share with you subsequently on the growth of your data and growth of PBT. The management team and also the, the people have done a remarkable job in terms of ensuring that we give better values to all the shareholders.
We continue to work with four manufacturing sites at Mysore, Jamshedpur, Pantnagar, and Ghaziabad, and all sites are in full operation to take care of the customer needs. There's no change in the customers, our equity share between the partners, Meritor, Inc. global or Cummins Inc. global at 35.5%, Kalyani Group of 35.5%, and the public is 29%. We continue to work with about 2,030 employees in the company, and our customers include all major CV, specialty, defense OEMs, and of course, we export, too. We continue to run with the products of axles, brakes, and too most of you have seen the air-ride suspensions, another system that we introduced, and we are ramping up supply of suspension and getting into the market.
So we continue to be a number 1 position in axle as an independent axle manufacturer, and we are number 2 in brakes, but we are confident in our brakes position. With that introduction, ladies and gentlemen, on our company's, the status of the integration and where we are for this quarter, I leave it to Mr. Nagaraja to talk about the sustainability initiatives and also what's happening to the plant and what's going to happen to the customers. Over to you, Mr. Nagaraja.
Thank you, Muthu. Good afternoon, everyone. It's a pleasure to, you know, interact with you and share with you all the progress that we are making. So, our sustainability model, which we have been sharing with you earlier also, I'm going to give you a progress update on that. So our sustainability model has six pillars, as you can see, you know. There's a layer, you know. It starts with the decarbonization, you know, there may be a spelling error there, apologies for that, and then move to water positivity, positivity, green supply chain, digitalization, social connect, and corporate governance.
So we started off this journey in 2017, where we first gathered 20% of our energy from the renewable source and solar energy, and then we continued to make more progress in this direction. And as we speak, you know, we are already at about 43%. That is mainly because this particular year, because of a legal requirement, we could not get Hydel power anymore. But as committed to you, by end of next year, 80% of our energy requirement will be coming from renewable sources. We are already water positive, and then we'll be making more progress there.
As you can see there, 70% of our water positive goal, we have already achieved. We'll be making more progress in that area. So the idea is, or the goal is to, you know, switch over to, become a green manufacturing plant, and work towards, starting from sustainability maturity all the way up to excellence in sustainability. Our goal is to achieve this, by 2028. Next slide. Next slide, please. So again, giving a little bit more details on the circular economy, as you are aware, we are really focusing on, sustainability portion of it. There are several areas where we are taking, initiatives. For example, working on reducing the packaging.
In fact, I would say that nearly 80% of our shipping is going through either returnable containers or one-time containers. So essentially eliminated the use of wood packaging, and we'll be completely coming out of it probably in the next two years. So we continue to you know work with the customers and the suppliers you know in terms of identifying the opportunity for recycling. And then you know reduce the emission in supply chain. In fact, you know, we already are looking at how we can use LNG vehicles for all the transportation. We continue to focus on employee safety, health and fair treatment.
One of the area, as Muthu mentioned, is, you know, there will be a lot more focus on bringing in diversity in our teams. We are taking lots of steps in terms of, you know, connecting to the social needs, you know, whether it is promoting education or promoting, you know, planting of trees, all those areas, we continue to work with our partners. Next slide, please. We are presenting diverse end market. As you can see there, you know, we cater to almost all the major OEs in India and to all the commercial vehicle segments, whether it's a truck, trailer, bus, off-highway, or aftermarket.
In fact, as Muthu mentioned, we have made some significant inroads into defense area, where we are, you know, supplying some of the suspension products. Also, we have been working closely with many of these customers to, you know, increase our product share in the area of especially off-highway, and then aftermarket. So with that, I would pass it on to our CFO, Ranganathan.
Thank you, Muthu. Thank you, Nagraj. It is another, you know, pleasure to talk to all the, all the investors. As far as the financial results are concerned, for the last quarter, our revenue was INR 657 crore for the quarter, compared to INR 376 crore the same quarter last year, and with a year-on-year growth of 75% in the value terms. As far as EBITDA is concerned, we ended this quarter with 12% EBITDA for the quarter, and, for as compared to 9.7%, in the last year. In terms of the percentage, we improved the percentage points by 24% year-on-year basis.
As far as the PBT is concerned, we are at 10.3% as compared to 7.1, 35% up as compared to the last quarter of the same year. For the YTD performance is concerned, we are already more or less crossed the last year revenue, but this about this nine months revenue is about INR 1,634 crore compared to INR 942 crore, the nine months period, the same time last year. So more or less around 73% growth is being seen now. EBITDA is about, you know, 11.2. For the first nine months, this is 8.1, about 38% growth.
PBT is concerned about INR 9.2, which is INR 5.1 last year, close to about 80% growth in profit before tax compared to the last year in terms of the percentage terms. We come to the next slide. Just a quick update on how are we progressing in terms of the revenue with the market growth. You can see the, you know, volumes, which is in the green, which is basically the market, MHCV volumes. Last year, the volumes are roughly close to 300,000 axles. This March 2023, the total means we are anticipating the market be around 400,000 axles.
As far as our revenue is concerned, whole of last year, we did about INR 1,490 crores, but close to INR 1,500 crores, as compared to the nine months, actually is about INR 1,634 crores. We already crossed the last year, last year revenue plus about INR 170 crores by now. So these three months, definitely, definitely we are going to, you know, show a good progress in year-on-year, the whole year basis. And as M2025, every, every quarter we are beating it. Our focus is basically to grow revenue, enhance profitability. Definitely, this is one of the key points we have been driving the business.
And definitely, Muthu and team have been very consistently working with, the customers, for the share of business as well as winning the new business. And, Nagaraja, definitely on the operational excellence, is working on, on the delivery and quality to make sure that, we're creating value for the customer. Our focus, I know, continue to be, there on the, on the overall, growth and profitability. Commodity definitely was giving a lot of pressure in 2020-2023. So nowadays, it's getting softened, and, so we can see, the benefit of softening, maybe in the coming days.
Definitely, the Q4, as far as the broader outlook, what we are seeing today is the Q3 will be more or less in the same level or can be slightly better than the Q3, as far as the revenue is concerned. So broadly, as I know, on the key actions to manage successfully, as a growth strategy, you know, as we said about we have long-term agreement with the customers, and we are focusing on exports and Muthu and team working a lot of bringing a lot of new businesses and exports. We are looking on a long-term strategy as you know, to see that how we can grow the business definitely is on the cards, is one of the frequent questions we are having it.
Your company is working on that, so, hopefully, in the coming years, we can see a, you know, better perspective in that business. And, definitely another new product launch is always there. A lot of new products this year we already introduced, maybe 1 or 2 is still in the pipeline. We are continuing to work on it. As well, a new, you know, axle for the e-mobility business is definitely on the cards. A lot of development is happening, so it's a long-term kind of business or the market need. Nevertheless, our operations digitalization, very, very important focus area for us in terms of how to bring the Industry 4.0 into the entire end-to-end manufacturing. So we are taking measures to implement in the system.
Our focus continues to be on improving the profitability of the M2025 initiatives, as well as, we are definitely working on how to mitigate the commodity pressure, which is coming in on year-on-year on our financials. Our safety is very, very important aspect of it, and the employee safety, product safety is very, very critical for us. We are continuing to focus on it. As the COVID settle down, largely still some of the key precautions are still continuing about it, as the ESG is one of the key factors coming in, as Nagaraja explained earlier slide. And net zero and the carbon neutral, that focus is continuously working on. We are putting a specific, you know, a strategy around it.
So with this, probably I leave to Muthu. We have some kind of appreciation from the customers he can, he can take us through. Muthu, over to you.
Thank you, Ranganathan. Thank you, Mr. Nagaraja, for giving a brief of activities. Ladies and gentlemen, I think Nagaraja explained about what is the operational improvement that we are going to do and, as a responsible company and towards our Destination Zero of carbon emission, what type of initiatives are being taken up. I think the details have been drawn into the large last point to make sure that every process in our company, we work towards sustainability to ensure that the conservation of natural resources is there. And being a company in automobile, we are the mobility solution, we wanted to make sure that we are pioneers in terms of reducing the carbon.
I spoke about our strategies of what are the things that we are trying to do to increase our revenue in the top, and how we can continue to improve our bottom line, other things, and what type of environmental initiatives or ESG, so the plant improvement that we went through. While as an organization, we've been working with various clients that we have, like the Mahindra, Daimler, and Tata Motors, and the global company of Meritor. Last year, we have received 2 awards out of the total 7 awards in global. Whereas this year, our team has bagged 3 awards out of the seven awards that we have. BharatBenz has given us a Quality Gold Award for sustaining zero, and Nagaraja and team have done a remarkable job in terms of managing the customers quality perceptions and also to fix some functions.
These are some of the recognitions, and the teams continue to work. It just motivates the team and continues to keep up the plant in good. With those initial presentations and data, I am taking on to Shailesh back for question and answer session. Thank you very much for your listening. I'm looking forward to having interactions with you. Over to you, Shailesh.
Hi, we will be concerned with this.
Thank you very much. We now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question... First question is from the line of Pratik Kothari from Unique PMS. Please go ahead.
Hi, good afternoon. Congratulations on the strong execution. So my first question is, you have highlighted in the presentation that this year, MHE numbers are expected to be 30%-35% higher than earlier. Can you give a broad sense of how would tonnage move, if we compare it to last year?
The commercial vehicle market this year is likely to be about 390,000-400,000. In terms of tonnage, there is a growth of about 10%, which is happening. In all probability, when we compare to the peak year of 2018, when the commercial vehicle market was at 465,000, we believe that this 400,000 will be almost about 10% less in terms of tonnage of the vehicle, because most of the technical vehicle factor, the BS6, is almost coming to the higher tonnage. So we believe that even though the number of vehicles will be... The vehicle, the axle size has gone up, but the number of axles has not gone up substantially. So, that is what I would like to add at this point in time.
Okay. So, what you're saying is, we are just 10% below tonnage as compared to the 2018, 2019 peak, which we saw?
Yeah. Exactly, we cannot say, but it's towards the direction.
I believe tonnage would be a better number to look at rather than the number of units sold, right?
It cannot be, because it cannot be directly, because the drive axle is what we are talking about. By adding up the dummy axles, the tonnage can go up. So it cannot be a direct measure, but it, it's a, it's a direct measure of the number of tons of goods that is going to be moved in the market at the end of the day. The customer is going to buy this vehicle for moving the goods. So this is the... From the end customers, yes, what you are saying is right. But when the axle, if you are saying, "Hey, the number of tonnage which we achieved, can the number of axles go more?" It's not going to go more. But the size of the axle, yes, it's going up.
No, no, fair point. Sure. So second question. In recent, I think one of the analysts meet, Bharat Forge or one of their group companies, has presented E-axles as one of the products. So this is one of the key products that they're going to use to cater to the EV market. So is this something different than what we are doing, or is this some, can this be a potential competition to our product? Could you just highlight the thing?
See, in terms of electric axles, there are many more formats that is available today. People are talking about hydrogen, hydrogen fuel cell, electric axles, and so many things are coming, and everybody is trying to play that field. Whether it is the same design of e-axle, there are even the e-axle configuration, there are remote-mounted configurations that's available with the driveline, without drivelines and all. And because you do not know who is going to be the player, who is going to come in, because there is some organized commercial vehicle manufacturer can come, and like, Tesla, how it got into the car market, some of the new players also come. Every company is trying to put their bet onto this. So the Meritor is working on a particular strategy of an e-axle to get into the market.
Whereas, whether if you ask me whether that's the only way, there are many ways available. So everybody is taking it up, and that is where the our innovation is going to keep us challenging, and then we already we want to be in the forefront of it. So I'm not
A different company comes in, but when our own parent through a different subsidiary is coming in, that is why this question. If someone else would have done it, I don't think this would have come up.
No, the market is big. I don't want to get into that, who is the parent that is coming in, but the market is big, and the people will... I think, rather than like, whatever you said, there's a parent company and we are a child company, I think the question should go into the parent company questions when your child is playing on the field.
Sir, last part, and we had said that all axle and brake manufacturing is only happening in Automotive Axles. The sales and marketing can happen from there, but the manufacturing should happen here.
Uh.
Hence this question. We never-
See, we never said that. Sorry. I think, if I have communicated like that, not right. We are saying that the manufacturing of mechanical axle, what we are producing, because we don't have, we are not a motor manufacturers, to be honest with you. We don't have the capability on making motors. Whereas, motors as, maybe other companies can acquire the company and make motors. Right? I, I don't... Ranga, is there anything that we said all the manufacturing of parent company also will happen in our company?
No.
I'm sorry if you have told, but we would love to hear that, and we will try to address if we are concerned with it.
Okay. Sure. Thank you, sir, and all the best.
Thank you. Participants, press star one to ask a question. Next question is from the line of Sagar Parekh from OneUp Financial . Please go ahead.
Yeah, sir, good afternoon, and congratulations on excellent set of numbers. So first question on the defense: So you touched upon defense market in your opening remarks, but I wanted some more details, if you can give us some kind of color on, in terms of, you know, which, you know, what- how big is the defense right now for us? And how, potentially, what is the potential for the defense products, like defense axles, that you would be supplying to different OEMs? So some color on that would be helpful. Thanks.
Yeah, as we said, we are investing a lot on defense business in India, because this is going to be a long-term business. As we have indicated at this point in time, we are supplying axles to the defense to the various OEMs, and we are not directly supplying to the military or Indian Army, but we are supplying to OEMs. We are investing a lot on various product platforms for the defense. But the product gestation, when these things are going to come, it's going to be a long drawn process. While we have a practice of not fitting our revenues into the different segments, like axles or brakes or customer-wise or the vertical-wise, I'm sorry, I'm not able to provide you that information. We continue to invest so that tomorrow when the market comes, it's good.
I would say that we are at least about 4 platforms of our products have been approved for defense, and the vehicle order is going to come, it's going to grow.
Yeah, so just putting it another way, so there are no vehicle orders which have come in yet, for either of the OEMs through, for the platforms that we have been approved, as of now? It's just a developmental order that we have been investing in right now.
No, it is not so. We have also sold some axles from this year to them, and we have gotten orders for about more than 220 sets of a particular thing. So see, as and when the order comes, we continue to supply. When Ashok Leyland is going to supply or when the other OEMs are going to supply to the customer is not known, but we have received orders, and it is coming into the phase. But continuously, we are also investing time on the new product development and keeping it ready. Because, you know, defense, it's, it, again, depends on many things on the allocation of the government. When the product is running in the proto, the time that is taken for the product to get into the production is minimum, takes about 4-5- years.
Got it. So this 220 sets of orders we are going to supply in current calendar year?
No, it will not be able to complete before March. It will come now, and then it will go to the latter half of next year also.
So by 2024-
The requirement itself is like that in the defense.
Okay, and this is Ashok Leyland order for us, like we'll be supplying for Ashok Leyland?
I will not be able to tell the customer name, but we have a sets of order which works for them. We are supplying at this point in time to more than 3-4 OEMs.
3-4 OEMs, okay. Got it. Secondly, on this, integration with, Cummins now, since, it's almost been like 6-7 months, or at least 5-6 months since integration is complete, could you give some color in terms of what could, what could be the synergies on the revenue side or on the cost side, for us between, Cummins and, Automotive Axles Limited?
Yeah, at this point in time, the integration process is on. In terms of the legal clearances from India, I think we know that we have, Cummins has already given the buyback of shares to the market, and the feedback is there, and there are other approvals from the various governmental agencies is going on. As an organization, we already communicated, I think our chairman's message was there very clearly, that this energy is going to bring in lot of areas where we can operate together. There are some areas, certain areas or certain OEMs, where Meritor is present and very, very strong, whereas Cummins penetration will be less. There are, there are some other areas where Cummins penetration is very high and Meritor is not able to there.
So this synergy is definitely going to bring in, in terms of penetrating to more customers, in terms of penetrating into operating the customers, or in terms of penetrating into the good technology. Cummins is already in an advanced stages on decarbonization with their technology that's going on. So we'll be definitely working on the various integration between these organization in terms of technology, in terms of people practices, and in terms of bringing the best people qualities, in terms of going to the customer. Every sphere of business, we will try to bring in rational management to make sure that the synergy between these two companies is going to give the best for the, ultimately, to all the stakeholders of the company.
Got it. So no, no quantification of, any, any line item, basically, either revenues or costs?
At this point in time, as I said, it's a global acquisition that has happened, and India is meaning, you see that, I mean, the global, the Meritor's India share is very less. I don't think we'll be able to provide you a very specific target. But, you know, we have already presented our Mission 28 strategy, and it will continue to grow. And maybe by in early, middle of next year, we'll be launching our Mission 28 strategy, which we are already working on, which will definitely have these inputs, and then we will see what it is we are looking at.
Got it. And my final question would be on the slipper-type suspension products. So if you can give some color on that, how is the traction in that? I believe in the last one or two quarters, we have been seeing some decent traction from Ashok Leyland on the higher tonnage side.
Yeah, I think, I see you are tracking the product well in the market. See, it has its own challenges, the product challenges in terms of the design, in terms of quality, as Meritor found it working well. But at the end of the day, end of the time, these products give much more value, total cost of ownership to the end customer. But customers have to perceive that this additional value what they are paying is going to get them a return on investment. So we are working with various consumers, the end consumers, in terms of convincing them that, "Hey, whatever the additional that you pay for these new designs is going to give a return on investment to you." And trying hard to penetrate into it.
It's very almost because of the price difference, the customers are finding it extremely difficult to penetrate more.
Got it.
We have a value for this. We have a value for this, but at least, the more and more better infrastructure, more and more high-speed vehicles is going to come, then it will make sense. Maybe today they may feel that there is not of that benefit today.
Sure. Right, sir. That's it from my side, and all the best. Thanks.
Thank you very much.
Thank you.
Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Rahul Shah, individual investor. Please go ahead.
... I see, really good numbers there. Just, one outlook for the next financial year, 2024, in terms of, revenues and the margins, how do you expect to gain? Will it continue, the momentum? Just wanted a view, and if you're able to give a certain, target you're expecting to achieve.
I will answer the first stage of the question, but I'll leave it to Ranga, about the... See, the momentum for the organization will continue to be there, to penetrate into the shares and grow with the market. As you all seen that we are definitely outgrowing the market growth and will be definitely better off. That is one measure that I can give, but I can't give a very clear numbers on how much of the revenue we are projecting. The latest, the budget that has come is very, very positive. We are seeing the global recession is not won't have any impact in the India business at this point of time. But every OEM is very, very cautious of taking a flat or plus/minus, is what the market is projecting.
Already people are predicting about some drop in the cars and, of course, in the two-wheelers also. Whereas commercial vehicle, people are looking at about flat or margin plus/minus. So the market is going to be very, very tight with the inflation that has happened, the cost is going to go up. The competitiveness is going to be one of the key for us to see that how we can penetrate. Our competition will not keep quiet. Everybody will continue to work on to see that how we can penetrate. But rest assured that your management team members and your team of employees who work here always work for next level of innovation, next level of improvements in the products to make sure that we are ahead of the curve of the market. In terms of profitability, yes, it's going to be very, very tight.
Ranga, you want to add anything on that?
Yes, there are a couple of things I just want to say. One is about in terms of the forecast, we'll grow the market. As Matu was talking about it, we always try to grow better than the market in terms of volumes. And I know our mission will be very objective is about you know optimize the margins. We definitely continuously do that through operational excellence. That focus will always be there. We are, we are not - we are constrained, rather, to share the specific numbers in the forecast for 2024. Definitely we can, we can take the market forecast for the next financial year, and definitely we'll be at par, at, highly better than that.
So definitely our aspiration is always be there, and our efforts are going in that direction. That is one aspect of it. And as far as the margins are concerned, yes, all, all our efforts are there in terms of cost optimization, operational excellence, and definitely to the market volumes, we'll definitely produce a good number that we have been demonstrating in the last 4-5 years. As I know we are also working on various strategies on growing the business. Definitely, as an investor, you can see those benefits in the coming quarters.
Okay. Okay, so that, that all sounds really confident from your side. So, thank you for the detailed answer, and I wish you all the best.
Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. Next question is from Manav Naveen from Mahindra Manulife. Please go ahead.
Yeah, hi, thanks for the opportunity. Just, just following up on the previous discussion. You know, this quarter, you know, our outperformance in terms of top line versus the market and even some of our key customers seems to be quite impressive. Just wanted to kind of delve deeper to understand which, kind of, increase in share of business with some customers, or is it led by content increase? Any color on that?
It's a very, very, nice question, and, you hit us on this. I'll tell you, while I won't be able to quantify, without share of increase, share of business increase, we could not have achieved more than the market growth. You are right. As I indicated earlier, with the tonnage of the vehicle goes up, we have also increased our content per vehicle or content per axle, which is one of our cost. Third is also some of our, customers have expanded their market share. So when the customer expands the market share, yes, we do expand the market share indirectly.
Got it, sir. Okay. So, the point being that it should largely, if the product mix at the industry level and for our customers remain similar, this is the kind of, you know, the share of business should kind of sustain at what we are - what we see in 3Q.
We will, we will continue the first and second, what I said, the content increase and our share of business increase with the customer will continue to be there. We work very, very closely with the customer. The customer's marketing to see that what type of products we need to supply to them for penetrating them into the customer. We continue to do that. Their penetration with the customer is expanding, the time is not in our hands, but we will continue to work with them on the project. But our company's interest in penetrating into the customer share and increasing the content will continue to be there.
Understood.
We can't commit on behalf of them.
Sure, thanks. Just another question on margins. If I understood right, you know, some of the commodity cost reduction benefits are yet to flow in going forward. Is my understanding right there?
I just wanted to clarify. We have a very good system of when customer commodity prices going up and comes down, how do we do the settlement? Other than the base impact, it's not going to have much of an impact on the P&L.
Okay. And just one last one, sir. In the presentation, you mentioned that fourth Q should probably be similar to the third quarter. Seasonally, as we understand, you know, fourth quarter tends to be a little more higher as compared to third quarter, even in terms of production volumes. So I'm just trying to understand, is it based on, you know, what you're seeing in terms of optimal schedules or any other factors?
See, this year, the last quarter, has seen a substantial increase when compared to the traditional. Normally, we see the Q3 will be less, and then Q4 is going up. We have seen a very strong Q3, so with the production of the OEMs and the sales, what is the registration that happened, we believe that it is going to be flat in this quarter. This is our belief. But the company will be ready. If the OEMs are going to increase the production, we'll be able to deliver more.
Perfect. And just one last one, sir. What would be our current capacity utilizations across, let's say, axles and brakes?
Nanda, you want to answer?
Yeah, see, so we see more or less about around roughly, generally, you know, the installed capacity, we are not as, not touched the peak, as last time when we have, you know, increased the capacity of 2018, 2019 volume. We have, you know, created the capacity to the, to meet the 2018, 2019, because that point of time, we are running short of, the capacity. Today, the market is 400,000 vehicles. You can see that, you know, we are 20% lower than the market, so you can measure the capacity utilization. But definitely, if a small variation in the capacity, we are still able to accommodate it.
Okay. And any CapEx numbers that we would have formed up for FY 2024?
No, it's too early to commit, because we do always the capital commitments on systems and for, you know, on digitization, that will be there in the plan. But any kind of, you know, big CapEx of what we invested in 2018, 2019, that goes with the business business case. As we go along, we get the new businesses that probably need an investment, definitely we will do that. But at this moment of time, nothing big is not seen in the near future. But definitely, we are in a close watch on the business plan, and we'll do it accordingly.
Got it. Thank you. Thanks a lot, and best wishes for the future. Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Aditya Welekar from Axis Securities . Please go ahead.
Thank you. Thank you for the opportunity. Congrats for the good set of numbers. So, in the last conf also, you said, you know, you will see 15% growth in MHEV production volumes in FY 2024. So given the strong quarter, what's the outlook for FY 2024 MHEV production volumes? Do you see any upside to that number?
I don't see a further upside from this number. Originally, we forecasted during the last quarter, we didn't anticipate this strong third and fourth quarter. But if you see the current third quarter increase that has happened, the current year FY 2023 prediction itself is going to be about 10,000 vehicles more than this. That is why we said the 15% what we have projected, it will become like a flat or plus minus. The main concern today in the market is the increase in interest rates, and people want to conserve cash with the global recession on the cost. But the finance minister budget has very clearly come out that India is on very, very strong capital growth. So the sentiment should be positive, but at this point in time, we are looking at a flat or plus single-digit growth.
Okay, understood. Thanks. Second question is, if you see at the personnel cost as a percentage of sales, in this quarter, those have come down. So what it means is that our, from with the same amount of, employees, we are generating higher revenue. So, can we expect that the personnel costs will be given in the same range going forward?
Sustaining this in the long term is very, very difficult, but on the short term, we are trying to do this. As I indicated, it is, the company is working on continuously doing improving efficiency. But if you ask what we can achieve in this quarter, whether we can do every quarter is a little difficult. The organization is working on not reducing the people, but improving the processes and enabling people to perform better. I think that's our objective of working. So we continue to focus on this area and improve, but whether this is a sustainable model, this much of sales is going to come and this, it's going to be a million-dollar question.
Okay. And last one, recently, we have seen some inching up in commodity. With this China opening, steel prices have rallied. So what I understood from your previous conversation is that on a gross margin basis, you are not much worried because it depends on a hundred percent pass-through basis. So there might be some lag in pass-through of the steel prices, but on a net basis, you, the commodity volatility will not affect the business much. Is that understanding right?
In general, yes, what you are saying is right, and you have exactly caught it, the lag between this. But, you know, customers are very, very tough, and then everybody wants you to make sure that during this time they also wanted to make it better, because the OEM is also struggling to make their bottom line. So good amount of pushback, push through is going on at this point of time. But you should also understand that whatever the inventory that we have is at a higher rate, higher price, and the market goes down, that also has an impact to our overall, the business. So managing all those things is a management responsibility, and I'm sure that my team again is managing it very well.
Okay. Thank you. Thank you, actually, so much, sir. Thank you.
Thank you. The next question is from the line of Dhaval Shah from Girik Capital . Please go ahead.
Hello.
Yes, sir, go ahead.
Hello, sir. Great performance. Congratulations to the team. Yeah, a couple of questions from my side. First being, as you mentioned about the higher share of business, you know, from the customer. So, was it more on the domestic side, or there was also influence of exports into it for the third quarter? Second question will be on the E-axles. So just want to understand or get some clarification. So the E-axle which will be sold by Meritor in India, will it be passing through our company, or how would that be? Yeah, these are my first two questions.
Okay. I will, I will answer your first question on the growth of share of business. We have grown in domestic, we have grown in exports, even though we don't declare the numbers, because there was a market, even the U.S. market on classic, growing very, very strong.
Okay.
-at this point in time. Even though people talked about, the downturn that's coming up in the U.S., we are seeing a very good numbers in the next couple of, quarters at this point in time.
Okay.
Our growth has happened across all the segments.
Okay.
-exports, domestic.
Okay, so-
When you said our OEMs, when I said that the customers also expanded, our customers, OEMs, have also expanded the market, which indirectly helped us to penetrate into more axles. These are the two things.
Okay, so-
Coming back to the-
More to Meritor subsidiary globally, like more-
Yes. Yes, yes, yes. That's why I said exports also has grown. When we have grown from 500 to, the growth that happened, 28% or something, everywhere it has grown, most of the segments-
Understood.
Most of the verticals, axles, brakes, exports, everything.
Okay.
On to your question, the second, second point on E-axle. The E-axle, you should understand it from a different, the perspectives of that. The current, automotive axles has the capability of making mechanical axles, and the E-axle is not going to be completely different.
Yeah.
The E-axle constitutes the electrical, electronics, and the mechanical portion of it. Okay? At this point in time, we continue to enhance the maximum utilization of our mechanical axle component. From here, we are looking at the strategy of where to get the electrical, electronics, and where to do it at this point of time. You know, Meritor has globally acquired Siemens commercial vehicle business, which is making motors in Europe. And, you know, Cummins in India has an extensive capability on electronics and in terms of making the electrical components from there. So we are evaluating where to make this, because the current unit of the JV doesn't have that capability for making motors and electronics. So while the mechanical portion of this, we continue to release this, we are evaluating on the production and manufacturing strategy.
But just wanted to tell you about all of you, the current prediction of the M&HCV industry, is by 2032, the M&HCV segment will be around about 10% on electrification. That is what the prediction that is given by the biggest research agencies. So it's a long way process. So we continue to invest on our innovation. We continue to focus on product developments of mechanical axles, because we cannot drop this and then move on to the info.
Yeah, exactly. Because, as Ashok Leyland has received... The Switch Mobility has received a massive order, for supplying to, you know, to the state transport authority. So now, the buses. So there, how will we play? So are we there? Are we supplying to those units which are-
We are a strategic partner, and we supply to them, but that's not an E-axle, just for your information.
It will be some other, okay.
That's an electric axle, that is an electric vehicle, but not using E-axles.
Got it. Got it, got it.
We are present there in our mechanical axles.
So, there still the mechanical axles are only being used there, in those buses?
I'm sorry, I just said in general, we are present.
Okay. Okay.
That's a combination of some innovation that is running right there.
Okay, okay, okay. Got it, sir. Thank you. And, lastly, sir, when you said about defense, if I heard it correctly, you said you're supplying to more than four OEMs, right?
Yeah. See, in defense, the OEM is, there are many players other than the traditional OEMs, right? There are new players who are also supplying to... Anybody who is supplying to vehicle, to defense army, I call them as OEMs, L&T suppliers. So many people are supplying.
Okay, okay. So, will you be comfortable sharing the revenue contribution from defense?
Well, I would love to do that, but at this point of time, normally we don't share vertical-wise revenues, including exports or axles or brakes. So I'm very sorry that I'm not in a position to share that.
All right, all right. All right, sir. Great. Thank you. Thank you very much. Good luck.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Krishna Kumar from Lion Hill Capital . Please go ahead.
Yes. So, congratulations, sir, on a set of very good numbers. You know, most of my questions have been answered in the previous-
... So just on, you know, while you said you would not give the breakups in terms of verticals, but, if you could give some perspective in terms of whether, you know, exports grew faster than domestic or vice versa, or if you could please just give some growth rates on segments, and, and also breaks, is that possible? Talk about growth rates at least, little bit.
Ranga, show your smartness. You know, see, I just wanted to bring a perspective to you, probably, you know, if you really see the axles, you know, brakes, we are present in almost all volumes, you know. And axles, as we had in earlier calls also, we said we predominantly, you know, present in one or two volumes. And of course, TML, we are very, very big element to the whole process, so all share is concerned. So, see, the growth, definitely, you know, as TML grows, our brakes definitely grow, and there's no doubt about that. I think right to say that the overall market growth is, you know, our axle growth is directly dimensional to the growth of our supplier and other volumes.
So, in terms of percentage, we already mentioned it, you know. The market growth, as Muthu was saying, that it could be around single digit or maximum about 10%, the market growth. Our growth in line with the market. So within the segment, if you really see, brakes can improve better than the, axles because of, you know, the TML growth in the market share goes up, definitely the brakes share in the business will definitely go up. But overall, if you really look at the revenue growth, is largely, the, you know, the revenue per axle comes from the axle is better than the brakes. Nevertheless, you know, our aspiration to grow the top line bottom continues.
So in terms of the percentage, we are really the growth, really at the market rate or slightly better than the market. The market grows 10, we try to aspire to grow by 12 or 13%. That definitely we are our kind of an outlook. So, that much I can say. The exports you've been talking about, you know, as you said, we don't want to give a breakdown about, the segment-wise, maybe. I think overall, export is concerned, predominantly, we are doing it for our own group companies, as definitely, the group companies is looking at India as another destination for using India's capability and capacity for the global growth. That, is already on the cards. But it's very premature at this moment of time to show that how much is going to materialize.
We are seriously, and continue seriously working on it, and the coming days, you'll definitely see, we are expecting a kind of an improvement in the export business share and the overall share is concerned. That much I can share at this point of time.
Sure. So very helpful, sir. Thank you for that. Sir, on the E-axle question earlier, you had mentioned that, probably, you know, there's no answer at this point in time. But just to get a directional perspective, you know, the project would be definitely involve somewhat of capital CapEx, if the motor and the electronics, et cetera, is made within automotive axle. So, is it right to believe that, there could be a company outside, in the group, which could probably be integrator and you would continue to make the mechanical axle to supply? Is that something directionally possible, that way?
I'm not sure at this point in time. It all depends on what is the adaptation level of EV and how is it going to come up and what type of technology is going to come in. For example, today, 80% of the vehicle that is made in India on electric vehicle platform, which are being sold in FAME 1 and FAME 2 , that's an EV axle. Because when the range is going to be 80 kilometers to 120 kilometers, like a city buses, they, they find out that the different method of doing it is also going to work, as long as it is electrification. They don't need that much a battery space. A lot of changes is happening. So you know, it needs a huge CapEx at this point of time.
While we are continuously working on technology or sourcing it from the right partners at this point of time, the manufacturing strategy is being worked out. But one thing that I can assure you is, while it's very, very premature to talk at this point in time, the mechanical actual portion of it, because we have a reliability and capability here, we definitely go with, we'll be making it here. Rest of the things, what type of aggregator we use, where are we going to assemble it all, it's too premature to say because it all depends on, finally, the technology that is going to come in and where is it going to come from.
Yes. Great, sir. Thank you very much, sir. Wish you all the best, sir.
Thank you very much. Thank you. Next question is from the line of Radha. Please go ahead.
Hi, sir. Thank you for the opportunity, and congratulations on excellent performance. So my first question is on the exports. So as per our last annual report, you can understand that exports should be around 4%-5% of revenue. And given that you mentioned that, your address will be continuing export, so could you tell me, would it be in a low double-digit number, the export share as of now, out of total revenue?
Ranga? No, no, madam, I think we have already shared the perspective. As you know, we generally don't segregate sorry you know segment-wise revenue numbers, or we don't give it. Kindly pardon us, but definitely as a focus, we are working with opportunities for exports. And definitely, that is will play a kind of another growth strategy for us. So sorry that we can't share you know the segment-wise numbers or the growth aspiration, segment-wise at this point in time. Sorry about it.
... Okay, sir. So just following up on this, have we, other than Volvo, have we added any new customer in exports? And if we have, then who would that be?
See, at this point of time, Volvo is a customer, currently with E2E, just for information, because the UD Trucks of Volvo has been acquired from E2E, and we are supplying to them to the Thailand facility. Rest of the areas, we supply only subsystems and systems to our Meritor companies, and they do the end assembly. We don't directly deal with the end customers.
Understood, sir. So secondly, on the axles part, so previously, as I understand, we had low single digit or medium single digit share of business with Tata Motors, and given that we have been pursuing Tata Motors in the axles space, so would we—can I assume that the share of business with them has gone up to double digits now?
No, no, no, no. Our supply to Tata Motors is almost very, very low single digit, only for critical axles which are going for some exports. Currently, they have built a lot of capacity inside their plant, and they are using their capacity for the same.
Understood, sir. And, sir, in the off-highway segment, so what are the top OEMs that we are targeting? I understand JCB and BEML are captive, but are we still pursuing them? And if not them, are we pursuing any other OEMs?
We are... We will not leave anybody because till we finally, that we are talking to Sany, with L&T. So there are only five, six players, and it's a different type of segment, right? And we've been working with everybody, but at this point in time, most of them is integrated. They are manufacturing inside the manufacturing. It's very tough to crack it. And it costs a huge cost in terms of design of making this product, because the volumes is very, very low. So we are evaluating, but it is our focus area for growth, for sure. The management are putting a lot of efforts to grow in that segment, construction and off-highway.
Okay, sir. And sir, we recently entered into the LCV, ICV bus segment. So with respect to this, how many products we have in this, and how many more launches are expected in this segment particularly? And currently, from the LCV, ICV bus, are we supplying only to Ashok Leyland or anyone else as well?
Predominantly, we supply to Ashok Leyland. It doesn't mean that we are not supplying to anybody else. Some of the Mahindra's ICV also, we are present, and other OEMs we are working with. It is mainly used for the ICV trucks and also some buses, both are there. The school bus.
So how much potential business can we see from this particular segment in the next 2-3 years?
See, the ICV segment is growing, and even though our Meritor presence is very, very strong in medium and heavy commercial vehicle and not on this, we continue to penetrate on this, and definitely we'll be growing. But if you see that the volumes for total is very, very less, your company is working on improving the penetration into those segments, which is very, very highly competitive segment.
Okay, sir. Sir, in the suspension segment, in the slipper-type suspension product that we have, so previously we had VRL Logistics as one customer. Other than that, have we seen any other players who have upgraded their suspension from bell crank to slipper-type?
See, VRL is not our customer. He's an end customer, but their suppliers are going through Ashok Leyland, okay?
Mm-hmm. Mm-hmm.
We don't sell suspension directly to the end customer. We sell it only to Ashok Leyland, and Ashok Leyland sells it. As I explained to you earlier, while we try to put it into five or six different customers, it is extremely challenging in terms of managing the cost of the whole bell crank suspension together.
Mm-hmm.
With customers, but penetrating into this needs a lot of mindset, a lot of infrastructure improvement in the roads, and high-speed vehicles to come, that it makes sense for them to use this suspension.
Understood, sir. Just one last question from my side. So from the overall portfolio, I believe we can sell some axle subsystems and brake assemblies in the aftermarket segment. So, and given that, majority of our sales is to OEM, as of now, do we have any strategy to increase our sales in the aftermarket segment?
We are, we are selling in the aftermarket, and we are selling through OEs and also through the dealers by our network.
Understood, sir. Okay. Thank you, sir, for answering all my questions patiently.
I want to keep some timing. Yeah, yeah, thank you.
Thank you very much. A reminder to all the participants, you may press star and one to ask a question.
It's already time out, so maybe-
We don't have anyone in the queue. Would you like to give any closing comments?
Ladies and gentlemen, thank you very much for your interest shown, and thanks for your appreciation of our performance. You can rest assured that the team is committed to continue to innovate. The team is continue to innovate, invest in the new technology that is going to come, and of course, giving the best returns to all the stakeholders in the business. So we continue to do business in a transparent way and communicate to you about what we are doing, how we are performing, and looking forward to your continuous support to your organization to make us to grow better in the days to come. Thank you very much to B&K for organizing this call with the team. I really appreciate everyone's support and time. Thanks, Ravi Ranjan and Nagaraja, for joining and then giving your perspective.
Thank you very much.
Thank you.
Thank you. Bye.
Thank you.
Thank you very much. On behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.