Ladies and gentlemen, good day, and welcome to Gabriel India Limited Q3 FY23 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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 the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Kolhatkar, Managing Director of Gabriel India Limited. Thank you, and over to you, sir.
Thank you. Good afternoon, and warm welcome to the Q3 FY23 earnings call of Gabriel India. Firstly, before I start, let me wish you all a very, very happy and prosperous new year. As this is the first interaction that we are having in this new calendar year. So I hope this, you know, this goes well, and we are, all are safe, and hopefully, we have the pandemic behind us. So the call may contain forward-looking statement, of course, it was already mentioned. So with me, along with me, I'm joined by Rishi Luharuka, who's our CFO, and Sanjeev, and our investor relations advisors, SGA. We have uploaded our results and the presentation for the quarter, as always, on the stock exchange company website.
So hope all of you had time to go through the presentation. So what I'll do is, of course, before I take you through the presentation, quickly, I'll just give you a brief overview of the company's operations and take you along the slides of the presentation. So to begin with, if you refer slide number 5 on the investor presentation, we had a reasonably good quarter. I mean, of course, it could have been better in terms of volumes, but we had seen, you know, many of the companies going in for annual shutdowns this year. So that's why there was a little muted shape. Our expectation was a little higher. Anyway, the quarter revenue, if you see year-on-year, increased by 17% to INR 711 crore.
With, you know, I would say, EBITDA margins, which are fairly stable at 7.2%, mainly due to a commodity price stabilization and the increased volumes. So we are, you know, able to keep pace with the industry in terms of increased volumes. You know, going forward, the last quarter also, we hope to see a good quarter in terms of volumes. We'll discuss more about that later. The recent budget, of course, while I'm on the slide, I'll also take reference on the budget because it was around just a couple of days back. I think it was quite a forward-looking budget, and the focus remains on green growth, and the focus remains on CapEx, which, of course, is very good for the industry.
There is also, I mean, the state, the government has also mentioned about states receiving assistance in replacing old vehicles and ambulances. So at least this scrapping has, you know, somewhere, would begin now. The personal income tax rebate has also been increased, which will provide some more disposable income to salaried citizens, and which, of course, is, you know, auspicious for the automobile industry. Coming to the overall business dynamics, domestic automotive industry experienced a healthy revival in FY 2023, aided by economic activity recovery and increased mobility. The passenger vehicle, if you see the calendar year, the passenger vehicle growth have increased by 22%, commercial vehicle growth was 30% or 30% , and two-wheelers have grown marginally. This is on the calendar year.
While we are a fiscal year company, but, we also keep track of the calendar year. So overall, it's been a very, very, good growth year across the segments. The EV industry, of course, takes the cake, particularly in two-wheelers and three-wheelers. And again, we'll discuss more when we have the questions. The rise in living standards has increased the demand for premiumization. This is very clearly seen, more than, you know, 40% of the sale of cars is actually in the segment, which is above INR 10 lakh. So, you know, clearly there has been a shift from entry-level cars to higher-priced cars and also SUVs.
SUVs now form over 50% of, you know, the total passenger car sales, which again, is, you know, of course, good news for the auto component industry and the auto industry in general. According to SIAM data, I did share about the passenger cars, but, within that, like I mentioned in, if you want in figures, UV vehicles grew by 28%, and passenger cars grew by 18%. So which is what I said, you know, there has been a higher growth in the SUV seg, the UV segment. In terms of commercial vehicles, the sales, the number increased by 12% in Q3 FY 2023 compared to the same one last year.
In Q3 FY 2023, sale of M&HC Vs increased by 23%, while sales of LCVs increased by 6% year-on-year. It demonstrated continued sales recovery as a result of increased e-commerce, agriculture, infrastructure, and mining activity, and improved overall fleet owner sentiments, and of course, new model launches and overall better market. This sector has been kept afloat by the government's ongoing infrastructure development push, as well as rising demand for LCV, HCV buses and construction equipment. Despite the fact that the sentiment in two-wheeler industry, this is, of course, a segment that has been, you know, continuously under a severe challenge. So the sentiment in two-wheeler industry did improve during the festive season in this year during the Diwali time in 2022.
But it is still underperforming due to impact, you know, combined effect of high inflation and the higher price of a two-wheeler, owing to, you know, BSVI and, you know, ABS, etc. And of course, the increased, cost of fuel. According to SIAM data, two-wheeler sales increased by 1% year-on-year, while three-wheeler sales increased by 13%. Now, three-wheeler sales, mainly because all the schools have opened, transport has started as normal, so people are not shying away from using, you know, a shared transport. That's why we are seeing a good recovery in, three-wheelers, which was actually a pent-up demand. Scooters increased by 20%, motorcycles decreased by 5%, and mopeds also decreased by 12% in Q3 FY 2023.
However, due to a good monsoon, the industry's positive momentum is expected to continue in the near future. The bus and three-wheeler segments continue to recover strongly. And the three-wheeler segment, particularly, as I said, has grown 42% year-on-year. And within that, e-rickshaws or the electric rickshaws or the EV three-wheelers, as we call, are expanding rapidly. Given the demand for affordable transportation and the emphasis on reducing carbon emissions, electric vehicles will play an important role in India's transition to a more sustainable future, as evidenced by, you know, particularly two-wheeler and three-wheeler segments in electric vehicles. There has been a significant increase in prospects over the last 18 months, of course, supported by the FAME II policy, the extended FAME II policy, increased awareness, and increased product launches.
We are seeing e-two-wheeler and e-three-wheeler sales increasing across India, including in Tier-III and Tier-IV cities. The majority of automotive segments, such as passenger cars, CV, tractors, have maintained healthy demand sentiments, but two-wheeler continues to be underperforming, largely as an effect of, you know, high inflation in the rural areas. Now, let's go to the numbers again. I'll again refer back to, you know, go back to the presentation that we shared. I did already share on the slide number 1. So if you come to slide number six, sorry, slide number 6, I already shared. Maybe even 6, yeah. Slide number 6, which is the financial highlights of Q3 FY23.
Revenue of 711, as I already mentioned, EBITDA of INR 51 crore, which is 7.2%, PBT of 5.5%. Net cash position of INR 217 crore. Cash flow from operations actually reduced by, you know, 4.2. This is mainly on the back of working capital requirements, and CapEx incurred during the period was about INR 23 crore. Coming to slide seven, which is for nine months. You know, we have, of course, had a record sales so far in nine months. It is almost INR 2,235 crore, with an EBITDA of, again, 7.2%, which as I said, is kind of stabilized as of now. INR 161 crore of EBITDA for these nine months.
Cash flow from operations in the tune of INR 21 crore, as compared to a higher inflow in FY 2022. CapEx incurred is almost INR 70 crore. Coming to slide 8, which is again the financial track record. So you can see from you know the past quarters that you know the gross margin has actually improved because you had a little lesser raw material percentage. So the gross margin is now at 24.4%, compared to Q3 in the same year, last year, same time last year, 23.2. Even if you see Q2, which is the preceding quarter, it was at 23%. EBITDA is, however, slightly lesser at 7.2%, because Q2, of course, had a much higher sales, almost INR 90 crore higher sales than Q3.
And ROIC, if you see in the table below, the, for the nine months, it is at 28.8%, which is, of course, the highest in the past, couple of years. Coming to slide number 9, which is quarterly performance trend. The same figures which I did share with you, is shown in a graphical format. Slide 10 is, again, the P&L statement, more in detail. So of course, I'm sure you'll have your observations on this, and we will discuss on the same, post my address. Slide 11 is the financial track record. So as you can see, the growth, you know, which we did INR 2,332 crores in the full year last year, we are already almost close to that in nine months.
So obviously, this is going to be a record sales year. And the EBITDA, PAT, ROC and working capital days are shown in the slide, slide level. Key ratios on slide 12, which again, I'll skip that as well. Coming to the revenue mix, which is on slide 13. You can see that, you know, in channel mix, 13%, the aftermarket has grown slightly to 13%. In terms of segment mix, two-wheelers has come down from 60, 60 to 61, and passenger car has increased, and so also has, you know, commercial vehicle and railways, even they have increased. So there has been, as I said, a lesser growth in two-wheelers, that's why you see this effect.
Also better business, better share of business in terms of customers in passenger car, which has led to the increase of the passenger car side. Coming to individual segments, this is on slide number 14, on two- and three-wheelers. This includes, of course, aftermarket sales. So it, this is about 64% of our total sales. Our market share in two-wheelers is 32%. So it continues to increase literally quarter-over-quarter. Our top customers remain the same, TVS, Yamaha and Bajaj Auto. But if you go to slide, the next slide, which is slide 15, which we have shared even last couple of calls, is that, you know, our penetration in EV, which now EV sales, you know, forms almost 9% of our total sales.
Just one year back, it was about 3%. So good growth on the back of, you know, almost a 300% growth in the EV two-wheeler and three-wheeler volumes in the industry. Our market share now here is over 60%, and we are, if you can see the right bottom box, we are there in all the top models, let's say, Ola, Ather, TVS, Ampere, and of course, Okinawa. Slide 16 shows you some new business that we have just started. We dispatched the first quantity, first, you know, production lot to them. This is e-bicycle, which is getting very, very popular, particularly in Europe. So this is for exports only.
This is being given to Hero Cycles, who will eventually do the e-bicycle, as we call, for European market. So we have started this, and I mean, let's see how it goes. This is a good technology and interesting product for us to chase. And as we see the trend, particularly in Europe, going this way, if anyone of you have visited Europe, you will see, particularly in the, you know, Scandinavian countries, in fact, most of the people are using the e-bicycle or just the plain bicycle format. So this is something that we are keenly watching, but we have made our first small step. Coming to slide number 17, which is the passenger vehicles. Again, the market share has gone to 23%.
Here, the good part is, again, on slide 18, if you see, the, as I mentioned, the growing segment in this within the PC is the UV segment, which has grown at 50% in the industry. So Gabriel presence in this segment is becoming stronger. Now we have, in, in this segment, we actually have 33% of the market share, in terms of, you know, the utility vehicles, compared to our 23% for the overall passenger car. So we are, you know, our, our strength position is getting strengthened in the growing segment within the passenger cars, so that is good news. The pictures of the key models that we are supplying today, all are on single source basis.
You can very clearly see here, and these are, as you know, I mean, absolutely blockbuster models, each one of them. Jimny is yet to be launched, but this will, this will be launched very, very soon. The bookings have already opened, and response has been good. Slide number 19 shares about the commercial vehicle, where, yeah, we continue the dominant position. You know, that, I mean, this, this continues, and we have in turn decided to, in fact, leverage our dominant position here to pursue growth overseas, which is, of course, started through that, and we are trying to expand it further into other customers as well. Slide number 20 is on railways. So I'm very happy to share that we now are there on every, every train. So, you know, LHB was already done.
Now we have the Vande Bharat Express. We are the only supplier qualified for this, Indian supplier. We were not supplying to the electric locomotive. Even that, development order has been supplied for both these, Vande Bharat as well as the electric locomotive. So we are present in every aspect of Indian Railways, be it locomotives, be it, you know, the passenger car trains. So yes, the volumes are still down, but there has been a good growth compared to last year in this segment as well. Aftermarket, we continue to post good growth, and this growth has been, you know, I mean, last year, I mean, we, we have grown almost 25%, at the rate of 25%.
So this continues through new products, plus continuous new product development to address each and every vehicle pack model. So this, this has been, of course, our strength, and we continue to focus on the aftermarket as well. Coming to exports, despite the loss of Volkswagen Russia, I mean, we all know the reason why. Despite the loss of that, we did INR 29 crores in this quarter. So that is indeed, I must say, quite a good recovery. This is mainly on the back of, good orders from, you know, growing orders from DAF of Netherlands. So that, that has been, I think, a good story. So we'll just, again, this year, we'll definitely cross the three figure mark of INR 100 crores, for the second year in a row.
Slide 20 is the balance sheet, which, of course, Rishi will explain once we come to the individual question and answers, and same for cash flows. And rest of the slide, rest of the pack is, you know, the general overview, which we all are familiar with. So this is, this is what we have to share on, on the, our, our specific overall industry, as well as our specific company level initiatives. So, I'll now, you know, come to the question and answer session and, try to answer and note each of your questions as well as clear queries. So over to you, Rishi.
... Thank you. Ladies and gentlemen, we will 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. Our first question is from the line of Viraj from SIMPL. Please go ahead.
Hello?
Hello, yes, sir.
Yes, hi, thank you for the opportunity, and congratulations for a good set of numbers and for the challenging environment. Just got 2-3 broader questions. First is, if I look at the overall business mix, you know, for the quarter concerned, you have got an increase in share of CV, then aftermarket is also quite healthy and same as the case for exports. So we have been somewhere around, say, 24.2-24.3, kind of, for gross margin. While it has improved sequentially, given the kind of mix, you know, and the margin structure these businesses operated, one would think that maybe the margin would be even higher than what we reported.
So is it that there's some still some price under recovery which is yet to be played out, and which we should see that coming in Q4 and onwards? So that is one.
Yes, we are sure there is, and, you know, all the commercial settlements have not happened. So, you know, while one is the commodity settlements are back to back. So what happens typically is, you know, when we have this down cycle, the OEs are also more in the mood to discuss about also adjusting some overall inflation. So that's why some of the settlements are yet to happen. So yes, you might see some of the spillover effect.
Okay. Second question is largely on the working capital. You know, we supply to a sizable number of EV players, and many of them are startups, and, you know, some of them we are a sole supplier. So the kind of what we have been hearing is that many of these suppliers, they have somewhere between 6 months to 1 year, kind of, a subsidy outstanding from the government. So for us also, any, do we see any possibility of write-offs or any extended subsidy, receivables risk, from those customers?
This is Rishi here. It's an important question given the current things which are happening. Fortunately for us, we don't have any overdues from any of the EV players other than one, and that also is a very small amount, and we are in constant touch, and we are 100% certain of recovering that value.
Okay. Okay, and last question is largely, you know, the parent announced one, you know, so they have talked about a pretty big initiative in terms of the EV strategy. So just trying to, you know, get some perspective in terms of where do we fit in then?
Viraj, and we missed the first part of... What was it?
So, you know, the parent, they announced a new EV initiatives, and, you know, aspiration from the EV, exposure over the next 5–7 years. So in terms of Gabriel India, you know, do we see any play other than suspension or ride control products?
Okay, you're looking at if Gabriel is going to enter any other products in EV? Is that your question?
Yeah, it is in regard to the recent announcement by the parent company.
Oh, right. Okay. Okay. Yeah, I was wondering. Okay. Oh, yeah, that's the AnEvolve that we have announced. So we announced, you know, three different JVs in that. So yeah, I mean, our, I mean, we, Gabriel as such, we are not, you know, looking at any more products to be added in the EV space, particularly, because all our EV or clean mobility platform will be under that AnEvolve. That's what is the announcement very clearly. But however, we are scanning, I mean, as I said, I did not mention on that.
On inorganic opportunities, we are actively having advanced discussions on, you know, a couple of projects, which obviously we cannot, you know, share until we have more and we have made more headway, and we are firm on it. So, but otherwise, on EV products as such, pure EV, I mean, like motor, controller, battery, chargers, et cetera, that will be under the domain of AN Evolve.
Okay. So when you say inorganic opportunity, that is primarily to the suspension and ride control products?
Yes, yes. And, like I mentioned, we are also looking at, you know, maybe expanding our portfolio as well.
Okay, fine. I'll come back in here. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one. Our next question comes from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.
Yes, sir. You've mentioned about the EV spikes. If you could give some color in Q2, what was the... You mentioned about the total EV growth, but, sorry, the total two-wheeler growth. So similarly, if you could give us some numbers on the total, EV volumes for Q2, and, your market share you mentioned was above 60%. So, any, guidance on, you know, where you see the market share of two-wheeler?... I believe from 66 in total.
Yeah, probably, you could not get, but you can correct me if I'm not answering your question particularly. But you know, on if your question was about EV market share for Gabriel in suspension, we are at 60%+ as of now. Going forward, we've, in fact, we have got 2 more new orders. You know, the Ultraviolette that TVS has a stake, the motorcycle, very, very good looking motorcycle that was launched. We gained entry in that. We have added a couple of other more new EV players. So our endeavor would be to continue to hold on to this leadership position. Yes, however, having said that, obviously, you know, a leadership position is never easy, especially in a high growth and highly attractive market market segment.
But yes, and so far it's been, it's been a good story. And we will continue to, you know, reinforce our engagements. Also, just to share our relationships with all, all the EV where we are supplying is, has been, in fact, very good. So I don't see any, any big concern on this market share holding on in terms of two-wheelers and three-wheelers. In passenger car, yes, the leader is Tata Motors. The volumes are still small and not so big, but still, I must say, not bad at all. They, they're doing almost 40,000+. So while we are not on Tata Motors, we have entered Tata Motors through the Tiago segment.
We have also, it is shared in the presentation chart also, we have also got entry into Tata Motors' new SUV platform, which, as we learn, is also going to have a EV in its role. In addition, the newly, you must have read on, the Peugeot Citroën eC3, that's the electric vehicle, there, you know, Gabriel is 100%.
Right. And what would have been the growth in this, the two-wheeler, EVs for 3Q, the year-on-year growth? I understand the entire sector grew 1% with the EV portion.
EV portion.
For the industry.
For the industry?
Yeah, two-wheeler, EVs.
So EV, two-wheeler going to grow overall as an industry?
Yeah, for the industry, how much did it grow in 3Q? So...
Oh, it's, I mean, in 3Q, it's been, you know, we are doing... If you see two-wheelers, it's been doing almost 70,000+ per month, which was, you know, which was hardly 30,000. So it's, the growth has been, and, and let's say in April, May, June, in that, month, it was about 40–45,000, right, 70–75,000. So the growth has been, very, very significant in, in, two-wheelers.
FY 22 would grow 85%, that's right?
Excuse me?
FY 22 over 21.
Yeah.
So right now, the 70K will be maintained, right? I mean, like you said, new customers will be added, so 70K on this new side.
Yes, yes, yes. They'll be added on, on top of this.
Right.
And fortunately for us, if you see the market dynamics also, Ola is again the top position, where we are 100%. Ather is doing extremely well. It's number two, we are 100%. TVS is again amongst the legacy players, has taken a very, very good pole position in legacy players. There we are 100%. So all our customers actually are fortunately doing extremely well, and we are 100% there.
Would it be fair to say the margins would be higher in this portfolio versus the traditional portfolio? The EBITDA margins.
Likely, yes. Yeah.
Thank you. That's all from me. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one. Our next question comes from the line of Viral from PhillipCapital PCG. Please go ahead.
Yeah, good afternoon, sir. Thanks for the opportunity. So what will be our, you know, outlook for the export segment in FY 2024 and 2025 with the new business of this e-bicycle, which we have received, you know, from the Hero Cycles?
Yeah. So, in fact, we this year, again, despite, as I said, despite the Volkswagen said that we'll cross INR 100 crores, so next year, I mean, so we've added this bicycle. I mean, we don't know how it will go. It is still early days, but we see this market to be growing. I mean, I wouldn't, I would say, at least not in next year. I'm not saying we'll do this next year, but I would say INR 20 crore–INR 50 crore, will surely come through this e-bicycle.
The share of this e-bicycle, what will be our export, you know, guidance for next two years, couple of years?
So basically, you know, they have also just started, so, I mean, the relationship has just begun. We'll have to see. I mean, the volumes that they have shared with us are much higher. But, you know, it's very early days for me to take an estimate, because it's a completely new segment. The only thing, yes, we see I mean, terrific growth potential. I mean, the numbers in Europe, you know, this market is growing at, again, 30%+ in Europe. But we'll have to see how successful is our customer there. So it's very difficult for me to, you know, take a guess right now.
Okay. Sir, Maruti, you know, this year they have, you know, showcased 2 new SUV, Fronx as well as Jimny. So we are there in Jimny, so I believe we have not received order for, you know, the Fronx platform.
Yeah, that's it. We are there on Jimny. All right.
Okay, so what about Fronx, sir? Who will be supplying to Fronx?
Fronx is more of a, you know, platform. It will, it will be the competition.
Okay. Sir, lastly, sir, on the, you know, electric passenger vehicle side, sir, what will be our market share or what is our market share currently, sir?
Come in, can you repeat that?
Sir, on the electric passenger vehicle side.
Yes.
What is our market share, sir, right now?
Right now it's only low. You know, we are there only on the KUV 100, which hardly sells a few, you know, premium. And Tata Motors Nexon EV is on the market share. There we are, we are not there as of now. You know, going on, we are not there as of now. So in EV, it is a very, very marginal market share today. But eC3, the new PSA offering, which is going to get launched probably this week, there we are there.
This is from the Tata Motors side, sir?
No, this is Peugeot Citroën.
Okay. Okay, okay. Thank you so much, sir.
Thank you. Our next question comes from the line of Raj from Arjav Partners. Please go ahead.
Looking at the overall outlook you have given, looking at the cash you have, so 4–5 years from now, how do you see the company going on, like, you know, sales figure and, and everything? What do you aspire to be?
I think that we have articulated our vision. It's, you know, being in the top five.
Yeah.
While we have not given a figure in terms of the top line, but yeah, you, you can make, you know, you know, a good estimate based on that vision.
All right. All right. Looking at your existing installed set of capacity and everything, how much of the peak sales which you can do out of these facilities?
Okay. So the peak sales, you know, I had mentioned it sometime back also, I think. So two years back that we with the current plant installed capacity that we have, we can, you know, definitely reach up to this year's volume, which we have sold INR 2,800 crore–INR 3,000 crore. So we are right on. Now, we have a land bank.
Yes.
So we'll be expanding some facilities in Chakan. We'll also be expanding a little bit in Sanand.
Yeah.
Probably in Dewas.
It will be kind of an exhaust expansion to an extent, right?
Yes, expansion. And, we may also go into purchasing some land, you know, it's mainly, you know, of course, to add to the land bank going forward.
Okay, that's fine. That's fine. And after you expand and about the sales and the EV everything, how much could be the margins and all? Or, or will it be equal to the existing levels?
Well, I mean, it remains 7, as I mentioned, to reach, you know, EBITDA double-digit.
Mm-hmm.
But that remains the target in our new businesses, acquisition also. But yes, there are market players which supposed to, you know, take some, because, I mean, as margins are important, we are selling for surely.
Yeah.
Gaining market share also is equally important.
Yeah, understood. Understood. Okay, sir. Thank you. Have a good day.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one. Our next question comes from the line of Viraj from Securities Investment Management Private Limited. Please go ahead.
Yeah, thanks for the opportunity again. Just few more questions. First, on the e-bike, initiative. You know, if you look at even the traditional bike segment, you know, we've kind of shied away because the product offering was very commoditized, and there are not much margin in that business. So when you look at e-bike, you know, if you can just elaborate a bit more in terms of the thought process, how are the realization margins in this business? And, you know, globally also, if you talk about Hero, the market is already $2 billion, and it's growing at a very healthy pace. So when you look at our play or aspiration in this or next coming years, you know, what it could be for us?
Yeah. So, coming to e-bike, I mean, yes, this market, of course, in the traditional bike, I mean, when I talk about bikes here, is bicycle. Of course, I think it's the same thing you are referring to. Is that right?
Yeah.
Yeah. So, in India, bicycles, I mean, of course, are the lowest and the most basic level mode of transport. But however, you know, you are seeing now even in India, there's a huge increase in lifestyle bicycling, you know, sports, fitness, where people spend anything, you know, from a minimum of INR 20,000–INR 30,000 to INR 3–INR 4 lakhs per bicycle. I think, I'm sure maybe you also are, some of us also do own these bikes and pursue it as a lifestyle hobby. And elsewhere in Europe, it is even much more prevalent, that you must have seen. So we see a huge potential and, you know, the price offers a better leeway in terms of higher margins as well, for sure.
So we see a very good growth possible. In fact, if you see at the total, I mean, the figures that we have got in terms of the growth rates are really extremely encouraging. I mean, I can't share those figures, but they are quite encouraging as far as Europe is concerned. So that's why we decided as a very carefully chosen product segment, so it is only these, you know, front forks. Again, not all bicycles have front fork.
Mm-hmm.
There is, you know, many bicycles have fixed front fork, and many have front fork, which we are talking about. You know, where if you have a damping, where you can even adjust the damping. So we are only going to play in that space. Because essentially, once it is that type of front fork, it is a lifestyle bike or a mountain bike, where customer is willing to pay, I mean, I'm talking about the end customer, is willing to pay a very good price to the bicycle maker.
In that sense, what would be the addressable market for us and all the other major players catering to this?
I mean, these players, I mean, nobody's in India, of course. I mean, mainly there are a couple of players who dominate this market. A company based in Taiwan called SR Suntour, and there is another couple of... One is based in US. It's mainly in these markets. So there is definite potential for, you know, some, a good player in India to emerge in this space.
Okay. Second one, you know, what you said earlier, the comment you made on acquisition, that, you know, we are pretty close in terms of closing it. That is largely, you know, the acquisition which we are looking at it largely from, from a technology gap perspective, or is it more towards the market access or regional diversification kind of a thing?
Yeah, in fact, you know, the mandates that we have also internally discussed and decided upon is actually addressing, yes, one is technology. Second is, you know, new growth new markets, new geographies. So, and in fact, even, let's say, a strong brand. So these are some of the key, I mean, boundary conditions that, you know, we have kind of defined for our acquisition. So that's what we, our pursuit remains in that state only.
Okay. Is there any minimum, maximum ticket size which will be okay to go with in terms of size or scale, or?
Yeah, I mean, obviously, yes, we are not wanting to, you know, bite something that we can't chew. But, well, I mean, as long as it's a very, very good brand, with very, very good, technology and a solid customer base, you know, if it is that, we, we are open to, you know, looking at even a bigger size. Yeah.
Okay. Thank you very much.
Yeah. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one. Our next question comes from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.
Thanks, so just on the cost side, if you could share any initiatives being taken and give us a better understanding on the margin front, as you can go from there. And secondly, what percentage of the aluminum castings would be outsourced?
So, Pallavi, I'll take the first one. So in terms of the RMC, percentage, yes, it's the largest, sort of, number in the P&L, and, there is a systematic approach towards looking at that. We start, for example, the year with a workshop, where we look at the top parts which contribute to our sales, and then we break it down, to the last component, and thereafter do a proper workshop with all the clients and the people there, to come up with projects which will help us reduce, the consumption. The other part is to look at wastages, that's broadly under the, CORE 90 program that we run, that helps us to keep either it in check or even reduce it further.
The third was when the commodity cycle was up, and we had taken a very concerted effort to ensure that we have 100% recovery or close to 100% recovery from the OEMs. So, and to ensure that all prices or commodities is not indexed to get settlements from customers. The last was with regards to improving the price margins on various products, where settlements have not taken place in the past due to various reasons.
Now with the commodities on a downward cycle or a little bit on bad side, so now the idea and the sort of approach is to ensure that things which were not settled earlier, so with customers or for particular programs, we also now negotiate and don't give the whole downward movement to the customers, again, depending upon the each individual conversation. On the aftermarket side, we faced a bit of a sort of a higher cost because we could not increase the price in line with the commodities. So now with downward cycle, that's an opportunity, but it all depends upon the market forces. The aluminum castings? Aluminum casting, I mean, we have brought down our you know, buying this basically from China. I mean, you depend on China for...
We still do buy, but now it's more of a choice. I would say the percentage in-house versus bought out for outer frames will be, let's say 60/40.
60 would be in-house, sir?
Yeah.
Okay. And so our China was, I mean, how much percentage is?
Yeah, the rest of it was mostly China. Yeah, we have developed some sources in India as well.
But mostly China.
About 20%.
All right. Thank you, sir.
Thank you.
Thank you. Our next question comes from the line of Nihar Shah from Inam Investments. Please go ahead.
Hi, sir. Thanks for the opportunity. I just wanted a clarification, just to make sure I got this right. You mentioned EV sales as a percentage of your total revenue is now 9%?
Yes, that's right.
Okay, got it. And for the e-bicycle business, you know, I mean, that segment is more popular outside India. Any other customers that we are tapping into in Europe for this product?
Yeah, that's the idea. You know, the e-bike, while we have started with this, one customer, you know, who gave us the entry and, you know, of course, supported us in the development. So we, we will go with this customer, and the idea is eventually to reach out to even other customers once this product matures. Because it's, it's a, you know, it's surprisingly a quite a different technology from what we give for, two-wheelers, for, the regular ICE engine two-wheelers. It's quite a different bicycle. It's quite a different... It's not, it's not just cut paste. It's almost, entirely a different development. So we will start with this, and then, let's say, one year down the line, I'm sure we'll be able to find our own good set of customers.
There is a market, and we feel there's also a need. There is space for one additional source, for sure.
Sure, got it. Another question on working capital, right? I think we've made a lot of efforts to kind of reduce the working capital days over the last 2 years. We kind of seem to have seen a, you know, trend towards the mean of around 30 days. Can you talk about, you know, what's happened to working capital and where do you expect this to go going forward?
So yeah, on the working capital side, again, it's largely owing to reduction in the payable days. Debtors have remained, you know, couple of days a little higher, again, in the 30–60-day bracket . But and, you know, 2 odd days have gone up on the inventory side. So the payable, why payable? Essentially because a lot of commodity settlements take a little bit of a lagging effect as far as paying the cash out, because there's a lot of documentation involved. Also, if we compare with the previous year, there were some one-offs which have now got paid off. So payables have, in the, you know, in this particular cycle, in this quarter, we have, sort of reduced as compared, and that's where the reduction on the working capital side is.
As far as normalization is concerned, we would like to bring it down to, say, the 2020 all days number, and that's what we underwent it.
Sure, got it. Just one last question from my side. In the PV space, the FSD technology that we've come out with, just want to check, are we currently only supplying to the XUV700, or have we got newer models for this as well?
No, it's currently only XUV700, but we have already offered the product to at least two other OEMs.
Got it.
May I just clarify? I think I mentioned the EV so that you, you are also clear that this is almost, you know, 9% on the two-wheelers. So on the total, it is about 4%–5%. Okay?
Sure. Got that.
Yeah.
Got it. Thank you so much.
Thank you. Our next question comes from the line of Nikhil from Securities Investment Management Private Limited. Please go ahead.
Yeah, hello. Good evening. Am I audible?
Yes.
Yeah. Hi, three questions. One is on this e-bikes. Now, we've been having previous interactions, but this looks like a new development. Do you think there are more such opportunities which we were not targeting earlier and can be tapped into now? Or, do you think that these are largely opportunities which we have tagged, tagged now completely?
So, Nikhil, yeah, a valid question. In fact, you know, we had targeted. Not just e-bike, we had targeted the bicycle segment some time back. In fact, you know, we had even supplied a few samples and actually stopped the production because the product realization was too bad, it was too low, which was, you know, for the Indian bicycle. But we nevertheless continued with our strategy in exploring this segment. And this e-bike, like I said, you know, offers a wholly different proposition when it comes to value and willingness of customer to also, you know, pay us a good remunerative price. So that's why we had started this some time back. It is coming to fruition now. So we've got a good anchor customer as well.
There are, within the suspension domain, products, I mean, probably just one or two more products left, which we can, you know, pursue. One is, as you know, the, as we call it, the tailgate balancers or the dicky gas lift, as it's called, you know. That's one commodity where again, the price is a bit too low. So we were not pursuing, but as we see, the price is improving now. We do that, we are the market leader in aftermarket accessory for this product. While we do not manufacture, but we are the market leader. The brand is very strong in aftermarket for this product. So that this is one product that is available and left, but we'll have to see, you know, in terms of the economics.
It's a choice that we have, or a decision that we have been not to pursue it right now.
In this e-bike segment, globally, if we have to understand, it would be a couple of $2 billion kind of end market, the customer market, I'm trying to-
Yes.
And, there, this is our first entry.
Yeah.
In this market. So we have a defined, confirmed volume share from the customer for these products? Or like when you mentioned INR 30 crore–INR 50 crore, is it like a confirmed volume share and we would be the sole supplier initially?
Well, it's not a confirmed volume share, but they have definitely shared some very good numbers based on their export offering. So, as I said, we see this in the range of INR 20 crore–INR 50 crore, for sure. The market size can even much larger than that.
Yeah. Where I'm coming from is like in DAF, we started with a small segment, and then over the years, we've been pleasantly surprised with the kind of business increase we've been seeing. Should we see that a similar trajectory can be followed in this product segment also? Or would you say, though, that because DAF is a much larger business in terms of the brands and the operation on this segment, do you see it can provide us like additional INR 100 crore kind of... Eventually, not in two years, three years, anything, but can it be eventually INR 100–INR 150 crore kind of a business segment for us?
Yes, I'm, I'm pretty hopeful.
Okay. Secondly, sir, on railways, you mentioned that we've been part of most of the, on the locomotive side as well as on the wagon side. So, we know railway has a big plans in terms of the Vande Bharat and the intensity with which the whole modernization of railways is happening. How big do you believe this opportunity can be? Because as I understand, there were only two player. It was majorly a two-player market between we and Escorts. So one is, how big? And secondly, do you see more competition coming, or has the competitive intensity remained between among the two players?
Hello. Competitive intensity has definitely increased. You know, there are more than four players now. That is number one. Second, you know, whatever we speak about, you know, while there are railway, I mean, the Indian Railways and the government is very bullish, and, you know, they're talking of very big plans. The numbers, finally, the volumes are still, you know, very, very small. You know, even if they talk about, let's say, they're making 3,000 coaches, they'll go to 4,000 coaches, you know. While the percentage number may seem very high, but eventually, there's... I mean, the numbers, the absolute numbers are just so low, that, you know, it can't create a big, big difference to the revenue side. That's our issue. And then it's a tendering based business.
Mm.
So, once alternate sources are developed, you know, you would—we reap the benefit, let's say, for LHB, you know, when we were only the two, one of the two Indian sources qualified. But once, eventually, when everybody entered, you know, unfortunately, there doesn't seem to be a good premium being offered for a quality supplier. Then you all fall into the normal tenders.
Okay. So at best, railways cannot be more than a 5% kind of a business for us?
Yes. Yeah, that is also.
Yeah, but that, that would be still an optimistic number, but-
It is. So what we are doing instantly is also we are now looking at, you know, railways overseas. We had a small order where we catered to Sri Lanka Railways.
Right.
So we are looking at some focus markets where railway penetration is good in those countries, and we have in fact, you know, engaged an agency as well to pursue some orders overseas.
Mm.
So that's one, you know, offshoot of our plans, you know, for railway group that is coming.
Okay. Last question on acquisition. Now, I know we've been interacting with you for the last 2, 3 years, and you've mentioned that we are looking at acquisition, we are talking at deals, company is looking at deals. Where are the roadblocks you are finding in terms of closing those acquisitions? One, you have said about price and valuation not matching, but where are you finding roadblocks in terms of closing the acquisitions? And secondly, you said about, we would look at a brand as an acquisition target. I don't understand, because Gabriel already has a very strong brand positioning in the Indian aftermarket, and even in the global aftermarket, our aftermarket business has grown pretty well. So how does the brand fit in in our scheme of things? Maybe technology or mar- geography, I would have understand, but.
Where are, on the brand side, if you can just help us understand, how do you see void which can be filled?
What, yeah, what we meant, the brand is brand supported by a, you know, a local footprints. You know, every, and for starters, you know, Gabriel, we own the brand only in India. In India and the subcontinent and China. So China, it's, Gabriel unfortunately is not known. It's a very strong brand in this space, but the rest of the Gabriel is obviously not with us. That is with the major geographies who are, who are there. Secondly, when it comes to brand, there are, you know, these, let's say, I mean, let's talk about even Indian market, you know, like, you'd always have some very strong brands within each country. And let's say Amul, you know, in India is absolutely, you know, that everybody knows the brand, right? Whereas overseas, no, nobody would know.
So there might be some Amuls or some Gabriels in different geographies which are worth pursuing. Obviously, that, that, that is one way to get the top line. I mean, the top line and the bottom line, I mean, to get the business. So that's one entry. That's where the brand comes in. You know, if you want to play in the aftermarket space, brand is, of course, extremely important. You know, each space it may not be so important, but in aftermarket, it definitely is important. That is on the brand, brand part. The second, on the roadblocks, well, we unfortunately had, you know, proceeded some way, and then because of COVID, wave after wave, you know, we had to actually hold back our plans.
Even the target also had to, you know, ask us for keeping the plans on hold for some time. So COVID has definitely played a spoilsport in terms of, you know, physically, let's say, visiting or having discussions, and, unfortunately, you know, it was wave after wave. So that, then, yes, even due to COVID, you know, the target—I mean, obviously, the company's financials also, every company's financials went through, so they wanted to consciously defer the whole discussion. The roadblock has mainly been that, I don't see any other roadblock. Yeah, and being the first acquisition, obviously, we are also going to be, you know, take it very cautiously, yeah.
What prevents us from buying the entities, who own the brand outside of the subcontinent, say, in LATAM or other markets?
Absolutely.
So, are you looking at such kind of acquisitions outside of India? Because there, Gabriel brand is probably well known, and, I think somewhere you've mentioned also in one of the calls that Gabriel globally as a brand, commands something like a $300–$350 million kind of a sales in the, the total, shock absorber market.
Yeah.
Are you looking at, or are there any opportunities which are available for acquisition outside?
Yeah, they are available outside as well. I mean, as I said, you know, we are looking both outside as well as, you know, some opportunities within India also.
Okay. Okay, and last question was, in the call you mentioned that some of the RM cost, which we couldn't recover, and that you've always discussed, that the RM inflation was not completely recovered. As a result, the gross margin did take a hit. Now, when the RM prices are softening or benign, we are, we will try to take back or get some benefit, because on the upside, we had a hit. We took the hit. So if we have to consider all of this, do you think our normal gross margin, so our historical gross margin was something around 28%–30%, but considering the competitive dynamics and everything, do we think that we can recover back to a level of something like 25%–26%? We are already at 24%–24.5% this quarter.
But would you say that 25, 26 is a gross margin where the company can operate with the mix of business and everything?
Yes, yes, I mean, absolutely. And, like I mentioned, gross margin is one part. I mean, our, our target remains, you know, to get back to the EBITDA that we did earlier. So, yeah, I think, we, we, we surely can get there.
Because if gross margin comes to 25, 26, we would be inching closer to that double-digit EBITDA margin, because the major hit has been on gross margin for us.
That's right. Absolutely...
Okay, fine. Fine. Thanks a lot. That's it.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question for the day. I now hand over the conference to Mr. Manoj Kolhatkar for closing comments.
Yeah, thank you. Thanks, you know, for all those interesting inputs. Like I mentioned, we are also now exploring, you know, our journey through these new high growth areas of EV. You know, one more good area we identified is the e-bicycle as well. We'll continue to, you know, pursue in this space. Of course, you're, I mean, welcome to also share with us on any leads that you have. The last quarter, which is Q4, yes, it so far is looking. Yes, it started sluggishly because of the shutdowns in January. But nevertheless, the demands now look quite good.
The semiconductor issue of passenger cars particularly is still not out of it. I mean, we're not out of it completely as an industry. It's definitely reduced. And you know, and then, yes, to add to it, of course, the budget was, I must say, quite a fair and long-term outlook budget of growth. So with all this, we hope that auto industry will continue to grow in the coming quarter and the coming years as well. May not be at this pace, I mean, obviously, this was a lot of pent-up demand. So yeah, I mean, all in all, definitely an interesting space for us to be in.
So with that, I thank you all for your support and your enthusiasm and interest, and wish all of you continue to stay healthy and stay safe, as we find our way in the new year. Thank you so much.
Thank you, sir. On behalf of Gabriel India Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.