Ladies and gentlemen, good day, and welcome to Gabriel India Limited's Q2 FY 23 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 the date of this call. These statements are not a guarantee of the 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 this conference call, please signal an operator by pressing star and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Kolhatkar, Managing Director at Gabriel India Limited. Thank you, and over to you, Mr. Kolhatkar.
Thank you. Good morning, all, and warm welcome to this earnings call of Q2 and HY. So all of you had a very good, safe, and very happy and joyous Diwali. So we are now, of course, we had both, both the, you know, festivals, Dussehra and Diwali, in the month of October. So I must say, a bonus month as far as festivities are concerned. So good to see all of you back. Along with me is Rishi Luharuka, our CFO, and Nilesh Jain, our company secretary, and our, you know, IR advisors, SGA, on the call. We uploaded our results and the presentation for the quarter ended 30th September. I hope you have been able to go through the same.
So, I'll of course take you through, you know, the presentation on some of the slides as we go along. But, I mean, before that, I'll just, you know, give a brief industry overview. Top line, of course, we are very happy to report that our growth momentum has been very good, continued in the second quarter, and we had the highest ever sales in a quarter, ever. So, I mean, that's something really significant. If we see, you know, we have been able to accommodate a lot of new product launches during this period, you know, and relatively flawlessly. So we are seeing an improvement as we go along, you know, product launch after product launch in terms of our own maturity of launching the products.
This is helping us, you know, in the time to market part. In the, you know, EV, EV market, of course, I'll share that as well. It's, it's been an... It continues to be a good success story. So in fact, all of our business verticals have exceeded our expectations, resulting in increased volumes. Capacity utilization is in a, in a range of 60%-70%. In fact, the passenger car, as we speak, is, you know, going up even higher. I'll come to that when we, when we probably go through the questions. So coming to the auto industry, yes, the, the challenges continue. Thankfully, and hopefully, we are in a, we are-- I mean, our, the COVID pandemic is behind us now.
It's already a thing being declared as an endemic, so that challenge is relatively, I must say, taken care of. But, you know, the semiconductor and supply shortages still continue in the industry, and as we all know, it will still take time. That's what the industry experts say. Commodity prices, the inflation was really severe over the last two years, so that clearly has started easing off, from the last quarter onwards. And we are seeing prices, come off all those highs and coming back to almost pre-COVID levels. We talk about steel, aluminum, copper, you know, every commodity is, you know, we are seeing a reduction that is happening. Of course, this is, as you know, in our case, it's a back-to-back arrangement with the customers.
You all, of course, must have read a recent article on the huge backlog of a waiting list of cars. In fact, you, if you go to buy any car now, you know, the standard waiting period is 1.5 to two months. Some models are going, you know, over a year as well for waiting, which shows a, you know, very clear, robust pipeline for passenger cars particularly. Of course, there is a bit of cautious optimism there, you know, in the industry as well. I've been speaking to some of the OEMs.
They say that once this demand is over, again, this demand, you have to treat it with a little bit of pinch of salt, because there is some double booking which happens in this, in these times. But once this demand is over, you know, there might be a, I'm not telling a slowdown, but definitely we'll not see the growth rate that we have witnessed in this first half. As regard the passenger vehicle segment, we had a record month in September, record quarter as well. Clearly, you know, volumes for passenger cars are going to cross four million figures for the first time, as regard the annual numbers are concerned. There is a very strong response, particularly for the SUV vehicles.
As you know, SUVs are over 50% of the sales, so that is a clear shift that has happened in the industry. Infrastructure and real estate are expected to expand, as are also mining, e-commerce, transportation, and logistics, which all are very important for economy and for mobility, which is, which is where, you know, we come into play. In the coming months, we'll be shaped by the adequate rainfall, which has thankfully, again, been very good for the country. The first six months of the fiscal year, the CV industry grew very strongly at 54%. It has not yet reached the peak in terms of volumes, what we witnessed in 2018, 19, which was over one million.... But if you see in terms of tonnage, it surely has crossed that figure.
You know, as you know, the tonnage norms got redefined based on the Axle Load Norms. So if you see the tonnage per, you know, tonnage kilometers, I think we have exceeded the earlier figure, yeah, as far as the industry is concerned. Another growth area has been a three-wheeler segment, which was very dormant, particularly because of, I mean, the most impacted segment during COVID, because people were not preferring this mode of transport. The schools were shut, colleges were shut. But this has shown a huge increase in sale in April to September, the first half of the year. Within this, of course, the movement towards EV is even stronger, as you all know, which again, I'll share during the slide.
I mean, talking about EV, the demand for two-wheelers is, I mean, really very high. I mean, the last, in the month of October, though it's not in H1, but you all know, in the month of October, the industry, I mean, the two-wheeler industry, EV, sold over 74,000 vehicles. So that's really a huge jump from the earlier 50,000 peaks that were, you know, which the industry was hitting in August, September. October has been a bumper month with over 70,000 two-wheelers in, I mean, in terms of EVs. So here, again, as I mentioned, Gabriel has been quite successful in, you know, getting all the orders from the key two-wheeler makers. So that has helped us gain market share in the overall two-wheeler segment as well.
Coming to the numbers, and I'll take you through the presentation. So I'll just read the slide. Like, if you go to slide number 5, which is the financial highlights Q2 FY 2023. As you can see, we, like I already mentioned, we did a revenue of INR 800+ crore. The first quarter, we did INR 800+ crore, which is almost, you know, a 36% jump year-on-year. And even if you see sequentially, INR 802 crore would be about 10-11% compared to the previous quarter, which is also a record quarter. Which is INR 720 crore, which you can see below. In terms of EBITDA, you know, we did INR 59 crore, which is 7.4%.
So, you know, a marginal improvement in EBITDA from, as you can see below, Q4, the last couple of quarters, from 5.5 to 7.1 to 7.4. So our efforts on, you know, cost reductions and Core 90, which I already mentioned earlier on several calls, those are working. And, similarly, in PBT, you see pretty much the same in, improvement of 36%-37%, you know, year-over-year. Coming to slide number six, slide number seven, sorry, is the financial highlights for the first half, H1. So we crossed 1,520, 1,500 crores, so 1,524 crores in sales. I mean, just to say highest ever. EBITDA of 100, almost 110 crores. PBT of 94 crores.
The balance sheet position also is a good net cash of INR 251 crore. And we had in H1, we had cash flow from operations of almost INR 25 crore, which was a little less than the last year's corresponding period. But in the quarter, if you see, we had a much better cash flow compared to the last quarter. CapEx, I mean, we incurred almost INR 46-47 crore of CapEx in this year, mainly on R&D and capacity improvements and quality and safety improvement that we have done all across our plants. Slide number eight is, you know, the very quick P&L. So I'll not go through the details, because we've already shared that. We'll move to slide nine, which shows the trend.
As you can see, FY 2023 half-year sales are INR 1,523 crores, which is more than the full-year sales of FY 2017. So good, good growth, good gain in market share in all segments that Gabriel has achieved, has led to this, you know, this good improvement in, the sales figures. ROC for the quarter, again, has been really good, almost 34%. So again, based on our, you know, good efforts by all the teams, and Rishi, who is on the call, I think it's, we have achieved quite, quite well. On slide 12 are the key ratios. While, I mean, again, I'll not go through each of the ratios, but, we also know that we declared, the interim dividend of INR 0.90, yesterday in our board meeting.
So this is again, something, which is, you know, definitely in line with what we have been planning to do. Coming to slide number 14, which is the segment performance. Two-wheelers and three-wheelers, this is including aftermarket. So this, the market share, here, of course, is the OEM market share. As you can see, while 65% of our total revenue comes from two-wheelers, the market share is 32%, this is including EV. Just to share the same slide last year, which was the half-yearly call, which we had in November 2021, this figure of market share was 25%. So, you know, you can see a very healthy improvement in market share. So mainly on the back of, you know, the EV dominant position.
We continue to get good models, recent launches being the TVS Raider, which is very successful. Jupiter 125, Mahindra, all the platforms of Yezdi and Jawa, and Bajaj, we have three-wheeler models. And like, I mean, EV, you know, Ola, Ampere, Ather, Okinawa. We also got an order from Hero Electric, which is the only one which we didn't have. We also got that order, and the SOP will begin in the next quarter. Coming to slide 15, which is on EV. You know, so our share of business in EV is 66%. So the industry figure was 32%, as we saw in the previous slide. But the EV share of business is 66%, you know, which is-- and you can see the models.
So Okinawa, Ampere, Ola, Ather, TVS iQube . We are there on all these industry leaders except Hero, so you know, that, that all goes well for us, for sure. Coming to passenger car, again, this has been a good performance. You know, the market share is 23%. The same figure exactly one year back was 21%. So we again marginally improved, mainly on our increased share of business from Maruti Suzuki and the Toyota platform. So Maruti Suzuki, we have won the what we've written here is YXZ, which is basically the Grand Vitara, Brezza and the Toyota Hyryder. So these are the two key volumes, and in pipeline is YWD and of course YZ, which is New Alto, has already been introduced.
YWD is the Jimny, which is shortly going to be launched. We also started the current or the previous October, CC, CC 21, CC 3 as well, which has received—which has been received quite well at the market. The volumes are small, but it's a good car, I must say. Quite a spacious, roomy, and a good value for money for that price point. Next slide. So still on slide 16, which is the passenger car. So, yeah, the, we also have already got the business from Volkswagen and Skoda for all the new vehicles that you see currently, right from Slavia to Virtus to Kushaq, and Taigun. So that is entirely with Gabriel.
So this will, of course, keep adding to, as the volumes ramp up, this will add to the passenger car sales as well. Going to slide 17. Yeah, the slide showing commercial vehicles. So, you know, here, of course, we have the dominant market share, almost 90%. All the new platforms, I mean, almost all OEMs are with us. We continue to work on some new technologies here as well, so that we are able to, you know, answer all the future requirements very well. Our export program in DAF is also going quite well. We are already exporting to Netherlands and Brazil, and, you know, we have won some more programs from them as well.
In fact, recently, we had the DAF vendor meet, the annual vendor meet, where, you know, we were asked to present to the entire fraternity on the success story of Gabriel. So we already have won the award from them as the best new supplier, and also, top quality supplier, which they have an award called 10 PPM Supplier, so we have won that as well. This is. This all goes well for our exports, and you know how, I mean, we surely want to leverage this in terms of our global journey in CV, particularly. The next slide, slide 18, is on railways. So as you can see, a lot of new pictures here, new models for us.
So we have got, you know, actually the first breakthrough for the Vande Bharat Express. So this will be, we'll be supplying to Medha, who has got the order for the rakes from the government. So we're also talking to some other rake manufacturers, so discussions are on. And another important thing is we have been developing and working on the locomotive dampers, which we were which Gabriel was never supplying. So we have again got the first development proto order, and we have actually supplied our parts for tryout to the locomotive works. So this will also, you know, increase our presence in the railways. Having said that, yes, the volumes are still small for railways. They're still not, you know, recovered fully to pre-COVID volumes.
So we have to wait and watch this particular segment. But yes, our product portfolio has definitely increased. The content for railways, as I call it, has definitely increased, as it actually is. Coming to next slide, which is slide 19, aftermarket. Again, very, I mean, strong growth, 24% growth on H1. And in fact, we have hit almost a 100% growth figure, in a quarter, in this last quarter for sales of aftermarket. So a lot of new product launches, you know, that has been... And we are trying to reduce the time to market. We are increasing our traded products or the branded products that we have.
Our tires, while we had launched it earlier, we had some challenges, so we have now renewing the push on tires, and we surely expect this to increase, you know, quite well going forward. The initial response has been good, with the new launches that we have made in tires, particularly. Slide 20 is the exports. Yeah, as you can see, this has been, you know, while the story was good and we are on the right track for the entire last year, and I would say, post-COVID-...
But then due to the Ukraine conflict that is going on, you know, Volkswagen has almost closed down the operations there, so which has a significant impact on us because we were supplying on a single source basis to Volkswagen Russia for their air dampers. That decision is yet to be taken. What we hear is they are likely to shift this production to a different country. But till that time, yes, this volume has gone out from our figures. But despite that, you can see from Q4, Q1, where we were doing INR 21-INR 22 crore of quarterly sales, we have still improved it in Q2 to INR 25 crore. This means largely on, you know, the increased orders from DAF of Netherlands. Twenty-one is the balance sheet.
Again, I'll not, I only shared the broad numbers, which is INR 251 crores of cash at the end of September, and CapEx of INR 648 crores that we have done. We have also lined up some new CapEx for increasing capacities, which is Hosur, where we are doing an in-house manufacturing. Actually, a backward integration, where we'll reduce dependency on our imports from China, which is, which has been a, you know, continuous initiative for us. Chakan for capacity expansion, because the Toyota Hilux and the Vitara Brezza both are being supplied from Chakan, and the Volkswagen as well. So, you know, because of this, there is a good increase in demand in Chakan. Dewas, paint line is an improvement. The paint line was very old, so, you know, we are having quality and safety issues.
So this was a planned decision. So this is on stream now, new high-tech paint line with much, much better efficiencies and quality. Khandwa, again, expansion due to, you know, really good volumes of Maruti Suzuki, in addition to our own increase in the share of business with regard to Maruti. So both these together... This we have started last year itself. We are actually, you know, coming to the, we'll probably come to the close of the capacity expansion. We are also putting up a adding a building, for which, of course, we have to take relevant permission. So that, that is on stream. Our cash flow, again, I'll not spend time on this. The Core 90, which is slide 23.
I'm, why I'm mentioning this slide is, you know, this has definitely helped us when you reduce your seeing the results. We continue to push, we are reviving it again. I mean, it's always there, but we are again pushing so that we make the most of, you know, the, the improved commodity scenario and, try to improve our margins further. Yeah, so this is, I mean, the slide 24 is a vision, and going forward is the corporate overview, where you can see on slide 25, the picture of our new tech center in Chakan. Absolutely state-of-the-art tech center. So this will also help us in our journey in improving our positioning with customers.
So this is, in short, a quick, you know, run through our numbers, based on the presentation that we have uploaded on the site. So now I'll, you know, end my presentation. And just one more thing is, you know, the sustainability report. You know, we have been, as a company and as a group, very focused on sustainability, right from, you know, inception, to be honest. You know, we have also won several awards in the industry, within the auto component industry. Also, I mean, yes, we are known to be doing very well on this front and the human resource practices, as you all know.
So I'm very happy to share with you that we'll be launching our first ESG report very soon. In fact, in the next week. It is ready, but I thought I'd take this opportunity to share with all of you that we'll be launching the first sustainability report for 2021, 2022, and from next year, it will be along with the annual report itself. So with that, I hand over back to the moderator and look forward to your questions and your inputs. Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question at this time may press star and then one on their touchtone telephones. If your questions are answered, you may withdraw yourself from the question queue by pressing star and then two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question is from the line of Viraj from SIMPL. Please go ahead.
Yeah, hi. Thanks for the opportunity, and congratulations on a good set of numbers in such a challenging environment. Just have a couple of questions. First is on the cost part. You know, so we know we have been for last many years undertaking Core 90 program, and I think the benefits of it we have been clearly seeing in last few quarters. So just to kind of drilling a little deeper into this, because you know, when you look at the OpEx costs and at the reported level, you know, we have this management service fee, which I'm assuming is kind of apportioned across the four quarters.
So if when we to kind of just kind of adjust for that, you know, how would our break-even cost moved in last few quarters, you know, as a benefit of Core 90? So any deeper if you can drill into, and incrementally, what kind of a savings one can expect further, you know, from this program?
... Thanks, thanks, Viraj. So, yeah, I mean, we have been working, we tracked the breakeven point, and the breakeven point has been reducing. So the absolute breakeven point, of course, has gone up due to higher volumes and higher costs. You know, there are some conscious investments that we have to do as we move to the next level of revenues. So, I mean, that definitely adds some cost. But however, the breakeven point in terms of percentage of sales has been continuously reducing. That's how you see the improvement in, you know, the margin that you have seen over the last couple of quarters. So that remains a focus area. Now, your second question of, you know, you know, how much we can expect more from this cost reduction?
It's a game which is, you know, you have to play to survive in this industry. While, as you know, the OEMs also have not passed the entire price increase to the market. They have absorbed some, some of the commodity increases to the market, which is why you are seeing such a good demand as well. So they are absorbed in terms when, you know, the reduction scenario starts. While we have to pass them on, there is a continuous pressure from them to, you know, pass on reductions due to volume increases. That continuously goes on, so, you know, you have to, what do you call, keep running twice as hard to stay in the same place, as we say.
So that continues, but, definitely, you know, COVID-19 has sensitized the entire team towards cost. That is a good part. So we are better prepared in case of, you know, when things go, things do not go as planned.
So just two follow-ups on this. One is, you know, in the past, we used to talk about the breakeven being around, say, +70%-75%, and we—I think, you know, the last call, we got it down to below 68, 67, and this was a couple of quarters back. So I have to just understand in current perspective, would it be still around those levels, or we have managed to further bring it down to, say, probably somewhere between 60, 65, you know, those kind of levels? Just a perspective, you know, if you can share, but maybe not the exact figures.
Down from 68% levels, surely. So, I mean, I would say a couple of percentage points, yes.
Okay. Second part to the question was that, you know, as volumes further improve, just try to understand, you know, the cost base, which you are looking at right now, and we have been kind of maintaining this kind of a cost base for quite some time. So what kind of a scale this cost base kind of can cater to, you know, try to look at next two, three years, and beyond which we would have to kind of look at significantly increasing the investments or, you know. Just to kind of give a perspective in terms of, you know, what kind of a cost base this, what kind of a turnover this cost base can cater?
Yes, in terms of, you know, I would say, maybe try to rephrase your question, and I would say that, you know, there will be some costs that we'll add to be ahead of the industry in, or at least, you know, even be some in some cases in line with the industry. As regards technology, so as we have already shared, you know, in terms of having a dedicated technology team, we've already added our CTO from who's an expert. We are adding a couple of people more there, in fact, we'll add them in Europe and back end here in India as well. So these will be some additional investment that we'll do in terms of, you know, ensuring that technology is in place for the future development of suspension.
So these are costs that we'll have to add. Also, yes, we have to add some, you know, while we've had a good land bank, we still have a good land bank. We have to add some more greenfield locations now going forward, because up to INR 3,000 crore, you know, it, like I had mentioned in the earlier call, also some years back, possibly, we'll have to look at additional, additional buildings, even in new spaces. So we, we will be definitely adding a footprint in South to increase, to meet the increased volumes of two-wheelers, EV, and also improve our backward integration. You know, one dedicated initiative that we have taken is reduce dependence on imports, mainly, as you know, from China.
Mostly from an angle of one, geopolitical uncertainty, and second, also from, you know, being more flexible, and third, being more cost competitive. So these are some investments that we'll have to do that will add to the cost, if that answers your question.
Okay. So, you know, the reason why I was asking is, you know, in last couple of years, we've kind of also made a significant investment. So we have opened few more R&D centers, you know, we have added some, you know, we've kind of built some, skills, roles at the senior level. So in that perspective, despite those investments, you know, we have kind of able to maintain the cost base quite well. And hence, I was kind of trying to understand in relation to the current cost base, what is the kind of scale one can kind of cater to without before going into a major, next level of investment? So that was the whole thought process. Second question is in relation to, you know, you mentioned about greenfield investments, which we are looking to cater to.
So when you're kind of looking at setting up a business, what are the kind of commitments or communications you are getting from your customers? You know, if you can just kind of give a more deeper dive, which segments these are in? ... you know, which we are seeing demand growing, and hence we are kind of looking at greenfield investments per se. So that is second, and third, is any update you can give on the new venture or the new product which we are kind of evaluating? I think it's been more than a year, year and a half, so any perspective you can give on those points? Thank you.
Yeah. So, yeah, quite a few questions. So on the greenfield, I'll tell that, you know, the basically, yeah, I mean, the customer volumes, and we can't, we can't double as the customer. We are seeing clearly, there has been a very solid growth, quarter after quarter. So we'll have to be in line with that. We do all of the factoring of volumes of, of course, each customers, but then we are still clearly seeing a growth. And as I said, part of it is customer-driven, part of it is our own, intent to integrate backwards, so I know, there is a cost base. So greenfield is a mix of both.
The other part also on the new product, or, you know, I would take it on a larger level, which is inorganic growth. So yes, we are, as we speak, you know, in discussions on, I would say, a couple of projects. But obviously, I cannot share as of now, because they are still in discussions.
So, for new product, I meant more from a sensor. I think that is one of the products we were evaluating then.
Yeah. So sensor is a product we are evaluating. Again, we've done the complete detailed study. So, we had even, you know, applied for the PLI benefits there. So, you know, that is one of the commodities. So the detailed scanning is done in terms of who are all the players who can give us technology. But yes, it is still in early stages.
Sure, I'll come back. Thank you. Thank you.
Okay.
Thank you very much. Ladies and gentlemen, before we take the next question, we'd like to request participants to please limit their questions to two, so that the management is able to address all questions. Our next question is from the line of Deep Shah from YES Securities. Please go ahead.
Yeah, thank you for the question, sir, and just a couple of questions. First is on the market share gains, which you have mentioned in the PPTs. For two-wheeler segment, it was at about 2%, if I'm not wrong, sequentially to 32%, and similarly for CVs also, it is at about 4%. So first of all, what explains this, and whether these are sustainable expansions?
That's Shah, and they're certainly sustainable because we have made some, you know, as I said, in the EV space is helping us. I mean, their volumes are increasing as you see month-on-month, and the growth is 300% in EVs, and it only keep going up. So there, we will continue to increase our market share totally. Having said that, yes, maintaining this kind of share of business in EV will not be easy. Certainly there'll be other people, you know, vying for this space, as well as OEMs will be looking at alternatives, so that will go on as a process. But on a, you know, trend line, yes, this market share improvement can continue even with the legacy customers. Let's say, TVS, we improve our market share.
With HMSI, it has improved marginally, but with the introduction of this new motorcycle which they are planning, it'll... where we have got a 100% share of business. So it's a first motorcycle entry, actually. So this will improve our share of business with HMSI further. Similarly, if you see, on PC side, Maruti Suzuki, we are getting more and more models. Tata Motors, we have got one model, and we are just last week we have got a confirmation for another model. So where our presence was quite low, so that's why it's significant. So we are gaining there also. And I mentioned on Volkswagen, we were under development.
Now, all, all the products are developed and cleared, and we already started production, but each and every model will start getting production as of now. With all this, clearly, I see the market share improvement will surely continue.
Okay. Sure, thanks. Second question was on this, backward integration CapEx, which, you have been talking about. So if you can talk more on how things will shape up, let's say, on the cost savings front, because we are talking about localizing the trans- component as, from China. So on sustained basis, do you see, this would add at least 40-50 basis points, to our margins?
Yes, that's an interesting question. See, there are multifaceted reasons as to why we've done the localization and why we continue to do sort of some, some amount of insourcing rather than actually buying. A couple of things. One is largely also driven by the customer's requirement and some of the strategic processes to be done in-house. The other is obviously to streamline the supply chain and reduce the dependency because of the high lead time that we have seen. The third aspect is with regards to cost. Cost is something that, you know, while obviously when we take these decisions, it's beneficial to us. And, a project like Nest, that's what we mentioned in the capacity, in the CapEx slide as well, is significantly going to help us in terms of sort of improving our raw material costs.
But over a long period of time, these initiatives are largely driven towards maintaining a steady state of supply to the customer and also to reduce dependencies where there are processes which are critical to the product. So in terms of benefit overall, well, the way we look at it from there, in one way or the other, there will be another compensation for this. So, not very clear to sort of comment on the 0.5 at this moment, but the endeavor is definitely for each of these projects to ensure that there is a reasonable payback and the higher rate of IRR is also taken care of.
Just to follow up, what is the absolute CapEx amount for this particular stuff for backward integration?
Well, we keep adding. You know, we had done, you know, almost if you ask me, we had done almost INR 20 crore, already in terms of-
Okay.
- increasing or adding furnaces and machining centers. You know, the biggest commodity that we buy is the aluminum front fork outer tubes from China.
Mm-hmm.
Now, let me also tell that they are really absolutely efficient and real top quality. You know, it's really difficult to even find a supplier in India who can give that quality, that quantity at that price.
Okay.
So that is, that is why we took the, took this decision of making it in-house. So we have done investment. We are further increasing the capacity by adding one more furnace, which got approved, just checking yesterday's, you know, board meeting. So we will, we will continue to do that. So like I mentioned, and Rishi also mentioned, China is, we, as we all know, really competitive. So it's, you know, it's not that by doing that I will, you know, we immediately save some big amount of money.
Mm-hmm.
It's not like the localization from Japan or the developed countries, where we have 20, 30% margins.
Mm-hmm.
So that is the difference. But also let me tell you, there is an improvement. They, we obviously get some benefit, and the bigger benefit is in terms of the flexibility. So if you know, last, not last year, but when after COVID, when there was a steep flurry, we had incurred a freight bill of almost INR 10 crore-INR 15 crore in the year, when we used to get supplies from China. Because there were COVID factors, container factors being not available, et cetera. But now, here, you know, I, I hardly got a call from any customer during Diwali, even during these high volumes.
Mm-hmm.
Which clearly means that, you know, it's the supply chain is far more streamlined. It's a much much more smoother supplies, which improves our customer customer goodwill, improves cost. No doubt, we don't incur these costs and, you know, reduces a lot of stress, unnecessary stress in the system.
Sure, sir. Thank you.
Thank you. Our next question is from the line of Chetan Ginodia from Alf Accurate Advisors. Please go ahead.
Hello, sir, and congratulations for great set of numbers. Sir, I had two questions. Firstly, if I see two-wheeler and passenger vehicle volumes on a quarter-on-quarter basis, they have grown by 14%-16%, whereas our revenues have grown by 10%-11% on quarter-on-quarter basis. So has there been any realization decline that we are seeing that we have passed on, and is it now entirely complete? If you can explain this.
Chetan, did you say our revenues have? I probably lost you on that again. Revenues have grown?
Revenues have grown by 10% quarter-on-quarter.
Yeah. Yeah, 11%, yeah, that's right. And?
Yes. Versus EV and two-wheeler industry growing 216% quarter-on-quarter basis. So is there a realization decline?
No, I wouldn't think so. In fact, the figures that we have in terms of volumes of the industry, let's say in passenger car or, CV or two-wheeler, three-wheeler customers, we clearly see, I mean, our growth has been ahead of, you know, the industry. So maybe we need to-
Got it. Got it, sir. And, secondly-
Yes, but we'll come back to you on that.
Okay. Sir, secondly, we have multiple new models. We are part of a multiple new models in the PV segment and also increasing our share of business with Maruti. So, when can we see our market share improvement in the passenger vehicle side, similar to what we are seeing on the two-wheeler side?
Yeah. So, as I mentioned, we, we have already seen an improvement from 21% to 23% in passenger cars. I'm talking of year, I mean, same presentation last year versus this year. Now, in two-wheelers, the, I mean, the good point of the blessing that we had was the EV, the change in, you know, the dynamics of the market because of the EV players, and many of them being non-traditional, not aligned to any particular, you know, OEM, that played to our advantage. You know, where they wanted a definitely a good, reliable brand name with a lot of flexibility in development, that's where we could win business. That happened in two-wheelers and three-wheelers.
But in passenger car, in the EV space, you know, that we are not seeing that kind of a huge volume. So obviously, while our market share will improve from 23% to, I mean, we, we definitely targeted higher than that, much higher than that, but it won't be in the same pace as two-wheelers, due to, as I said, the dynamics in the market.
Okay. Got it, sir. Thank you, and all the best.
... Thank you. Our next question is from the line of Akshat Hariya from Multi- Act PMS. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity, and congratulations on, you know, record high sales numbers. I had just, you know, one question mainly on margins. So if you look at it, we've seen significant improvement in our cost structure below the gross margin level, and that is what has led to our recovery in EBITDA. However, if you look at the raw material cost or the cost above gross margin level, what we see is that the raw material cost, which used to be around 71%-72%, you know, up until 2018-2019, now, since last few years, has been in the range of above 75%-76%. In fact, this quarter also, we've seen a sequential increase from 76.5%-77%.
So, you know, and at the same time, we've increased our market share. So any, you know, such indication that the increased market share is coming at the cost of, you know, lower realization or something like that? Or when do we, you know, think about going back to our historical 71%-72%, RMC?
Yeah, Akshat, good observation. On the raw material, as you all know, the commodity cycle was continuously increasing, so that definitely, you know, increased the percentage. So once these commodities are coming down, we'll see some marginal correction. But, honestly, going back to 72% is difficult, because, again, this is the way the market is moving, and we have to compete finally. So but, what we need to do in terms of improving our raw material percentage is try to maximize on, you know, aftermarket and on exports. So that's what we are trying to do, so that it will balance out, the market place.
You know, so that's why we are seeing that push in terms of aftermarket, in terms of exports, you know, so that's... and yes, getting new technology products. So that's why the push on technology as well, where eventually we'll be able to reset the margin, not the raw material, but overall profitability base, we'll be able to reset it at a higher level when you introduce new technology products.
Understood, sir. And sir, overall, on the EBITDA, you know, our target of double-digit EBITDA margins, you know, are we on track? And, you know, what could be the, you know, timeline or a glide path towards that 10% EBITDA margin? Because still, you know, we are like at almost 2.5, 2.6% away from our target range. So the glide path would be mainly through RM cost or, you know, even further efficiencies below our gross margin level. And also, you know, if you could give the thought process on management fee and, you know, any feedback on the feedback which we got on the last many calls. So any thought process on that from the management side? Yeah.
Yeah, so EBITDA, I mean, 10%, yeah, it's very difficult. I mean, I really cannot give a guidance going forward. But, you know, we clearly are focusing towards getting to the double digits. It is getting more and more difficult, to be honest, as we go along. With every change in the market place, we are seeing this is becoming all the more difficult. So really difficult to define a timeline when it will happen, but and we had earlier thought about, you know, 2025, but then COVID took away two years. The whole thing got reset. So we have to rework on this, on that number of getting back to 10%. Yeah, that's what I think I can share on this.
Sir, and any, you know, reward from the board or the management on the management fee suggestions which we've received in last many calls?
Well, Akshat, on the management fee, we've explained in the previous call as well, these are towards expenditures which are incurred by the Anand Corporate towards the various services, plus the brand for which we are able to realize the profitability from. And also we've done the benchmark transfer pricing study on the same as well, and we have found that in line with it. This also, as you might be aware, gets tested in the income tax assessment as well. So from that perspective, we are in line to the principle as well as the percentage that is being given on this. Yes, there are some thoughts and discussions of looking at the model going forward, given the increase in scale and volume.
But yes, we have to still see that volume on a budget or a strategy number for us to look at the model. So as of now, we would like to continue with the current model.
Thanks a lot, sir. Thank you.
Thank you. Ladies and gentlemen, please limit your questions to two, so that the management can address all questions. Our next question is from the line of Dhiral Shah from Phillip Capital. Please go ahead.
Yeah, good afternoon, sir. Thanks for the opportunity. Sir, on the export side, what is our outlook considering the global slowdown and all?
Well, Dhiral, fortunately for us, you know, the, I mean, DAF is really doing very well. They've in fact introduced two models, which won the Truck of the Year award, and... and I'm proud to say on both of which, you know, Gabriel has been supplying... so that way that story is very strong. And, the slowdown that we are seeing, of course, is mainly on the passenger car side, which we are not currently not supplying. Commercial vehicle is still going quite strong. And, you know, the issue, as I said, Volkswagen Russia, which I mentioned, once they decide to shift it to another location, that actually will, you know, restart. So, while it is a temporary setback, but going forward, I see that as an upside.
Okay. And sir, how much we are backward integrated as of now? And with the new CapEx that we are talking about, how much this will improve the ratio overall?
Well, in terms of aluminum castings, you know, we still do buy a lot from outside sources. But we have, you know, close to half of it, we have already done. Plus machining as well, we have, you know, done even more. Powder coating also we've installed. So that, that is done. This is the main component in two-wheelers. Coming to passenger car side, you know, we do the piston rods in-house with very green and top-of-the-line technology. So that, that is again, a main component we do, I mean, I don't have the figures to as such, how much of, you know, on overall, because it's a mixed model-wise, we sometimes do a make versus buy even model-wise.
So at gross level, if you want me to answer, you know, what would be our backward integration or what is the buy that we do, then I don't have that figure, but we can definitely revert back to you.
Okay, sure. Sir, lastly, on the aftermarket side, what is our strategy to accelerate the overall growth?
So, I mean, couple of things. One is, you know, we, we are continuing to increase our penetration and, you know, we have done in tier two, tier three cities, but, you know, we take it much deeper. And also, you know, trying to penetrate, you know, areas like, Northeast, which, which we can do more. That is one. Second, we have, we have a very successful program called the Elite Retailer Program, which we do in India. So now we have, you know, launched that in Nepal as well, and we plan to do that in the subcontinent, which connects us to the retailer, who actually is the main, main, person, you know, who can make a big change as far as sales is concerned. So this is the second part.
Third part is, as I said, tires, which we see as a good potential in terms of sales. You know, that we had some... we had our own challenges, where we had to, you know, change the supplier as well, based on quality reasons, quality and capacity. So we have done that, and the response has been really quite good. So with this, we'll be able to increase our, you know, new product push through tires. We continue to add new products. You know, we've already done in terms of three-wheeler cone set, in terms of we are also looking at drive shafts. And you know, we are doing, we are already doing the radiator coolant and, you know, the transmission oil , et cetera.
So that is already in place. We also added the brake pads, last, two years back, you know, the passenger car brake pads as well. So with this, you know, aftermarket should definitely improve. In addition, we have, formed a task force internally, to improve our time to market and to introduce more and more products in the market. So that is also fallen in place. That's why you see that, you know, we have been able to actually record quite good numbers, a good growth. And, as I mentioned, you know, a sale of almost just a little less than INR 100 crore in a quarter.
Can we expect that this run rate going ahead?
Pardon?
Can we expect, you know, this run rate of INR 100 crore or even more than that going ahead also?
Yeah, I mean, I would say yes. I mean, I also forgot to mention, we also added our dedicated exports manager in aftermarket team. So where, you know, next year we want to, you know, push the aftermarket sale as well. So even that addition we have done.
Okay, sure. Thank you so much, sir.
Thank you. Our next question is from the line of Jyoti Singh from Arihant Capital Markets. Please go ahead.
Yeah, thank you for the opportunity and congratulations on the good set of numbers. So, sir, my question is on the EV side, that how much percentage we are going to expect that, we will grow? And another question on the competitor side, like we are, in the, smart lock and keyless. So the now we are expecting it will grow ahead. And, last thing that, I, I do connect with the management for, for the long time, but I'm not able to, so if you can help me in that also.
Okay. Thank you. You said your name was Jyoti?
Yes.
Okay. Yeah, Jyoti, so we, you noted your last point. We will request Ajay also to, you know, try to, you know, get that connect done. On the other part, we lost you in between. I couldn't hear you, but I'll, you know, just mention on the first part which you asked about the EV and the competition, and the growth. So it's growing, I mean, as you know, you know, April, May, June, it was at 60,000, I'm talking of two wheelers, which is the main segment that is moving in EV space in good numbers. That has gone to 70,000 in October. The schedules that we have got in November, October, November also are good, and that growth rate will continue.
I mean, obviously, you know, the penetration of EVs is still only 4% compared to the industry. But it is improving. Last year, actually, it's gone to almost 6%. Last year, same time, I think it was about 2%. So from 2%, it's gone to 6% in two years. In three years, it is higher. So the growth rate, for sure for next, you know, two, three years in EV will be very strong. I don't see an issue with that. In passenger cars, yes, as long as the OEMs are able to bring cost-competitive models, you know, this, this growth rate may not happen that quickly, like it is happening in two-wheelers. There is range anxiety as well.
We are reading several reports on, you know, the claimed range versus actual range due to terrain, driving conditions, is very different. So on passenger car, on the growth we are seeing, but we may have to be little more watchful. But two-wheeler, three-wheeler, for sure, it will continue to grow very well.
Ms. Singh?
Yeah, and also on the competition side, how we are competing in the market, like, we are in the smart key and keyless segment. So there are other, a number of, companies who are very surviving to OEMs. So how we are differentiating from that, and how we are competing?
Sorry, but yeah, this is what I could not understand. We'll ask you for that. But on the car key and smartless, we are not playing in that segment, so we don't have any offering in that segment, in the product.
Okay. Okay, thank you, sir.
Thank you. Our next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities. Please go ahead.
Congratulations on a good set of numbers, and thank you for providing me an opportunity. So my first question is, the context of PLI that we have applied for, I mean, what is the status? And, can you just, help me out in understanding the opportunity in the sensors, which we are, I mean, which we have applied in PLI?
Jay, thanks for, thanks for the question. So eventually, the step towards this, PLI application was done along with the Anand Group of, of all companies, for the purpose of being able to qualify the various criteria which were there. We, have applied under the sensor category. This project evaluation is complete in terms of the market space study, also the current, customers and the way the supply chain, as well as the current production, is being done. We are looking at the domestic sensor space only at the point in time. The way it currently stands is that, the technology partners are being evaluated in terms of who to, sort of evaluate for further discussions.
Post which we will start looking at the numbers, because again, in sensors, there are various categories of sensors, and we are yet to decide as to which ones we would like to foray into eventually. So it's currently a little fluid in that space, but as and when the plan reverses, we'll be happy to announce on that.
So, what is the investment that we have applied for in that PLI?
The PLI, overall investment would be in the range of INR 40-50 crores over a period of two years time. But that will all depend upon what kind of manufacturing footprint as well as template we acquire.
Okay. And, so last question on, so railways opportunity. We have, I think we have got a breakthrough, in Vande Bharat, from Medha, I guess. Can you just throw some light on the opportunity side here? I mean, where, what, what can be the sales potential, I mean, that you are looking in next, say, for two, three years?
Well, sales potential-wise, it still is a small, small part of it. But the point is, you know, the LHB coaches, which we have seen, is moving to this, you know, Vande Bharat. So earlier, it moved from the old bogies to LHB. From there, we are seeing a shift to, I mean, the Vande Bharat trains. So we are seeing an improvement, but yeah, the volumes will still be very, very new, I would say.
Okay. That's all from my side, sir. Best of luck for future.
Thank you. Our next question is from the line of Pankaj from Affluent Assets. Please go ahead.
Thanks a lot for taking my question, and congrats for excellent set of numbers. Sir, just wanted to understand, are we... We have been claiming to have successfully cost control measures taken over the last three to four years, but our margins are still seven odd %. So are we in any kind of commodity product? Well, because since I tracked some other company or competitors of ours who are enjoying upwards of 10% margins, and in our, in, in a question earlier by dear participant, you were quite hesitant in saying that it would, it will be difficult for you to give a timeline to reach that double-digit margin mark. So just wanted to understand, since we are into ride suspension quality product-...
Why are we not able to defend our margins or claim better margins, given the seven-odd% of margins we have been charging historically?
Yeah, Pankaj, it's a good question. So it's not exactly a commodity market, but, I mean, yes, there are several players in the market, so that there's a fierce competition, from what it was earlier. So as you know, in the last couple of years, several players have got added in the fray, so that makes it that much tougher for everybody, surely. It is not a commodity product because OEMs still value this product and, you know, also give a lot of importance to the ride and handling, particularly the global OEMs. So I don't think this falls in the commodity space. Yeah, the market pressures are there.
And, your question about, your point about other players being in a higher margins, actually, you know, of course, there are some in competition who are in listed space, where we have the figures. They also are a, you know, a group of companies, so ascribing that entire margin to this particular product, I don't think would be, would be right. I mean, we don't know because it's competition and not, the data is not shared. But yes, there is, for sure, room for improving margins, definitely. So I think, I can only share this much with you.
Despite our success in the cost-saving measures, we are still there. Secondly, I suppose this is the first time we have introduced a full-fledged slide on railways. So, do we see substantial portion of share going forward coming from railways? And, are they at better margins or that would be a tender business?
Yeah. So, you know, Pankaj, the margin is definitely, I mean, much better than the others, no question. But the volumes are really, you know, as I mentioned, very big. This Vande Bharat also, the orders that we have is just a couple of crores, you know, so it'll take time. And even, yeah, you also mentioned it's a tender business. That's right. So it's a tender business, so it gets shared between, you know, four, five players. As of now, there are lesser players, but they have a policy where a new player gets a 20% order as development supplier. So yeah, it is always, I mean, you can't expect a higher share, it is distributed. Margins are good, but revenues are revenues are small.
They definitely help in the margin front, not in the top-line front.
Okay, but I understand that there are around orders of around 400 odd Vande Bharat trains. And are we not present in metro business, metro segment?
No, we-
It also would require-
We are not there in metro. So we have, we have been in talks with Bombardier and Alstom. So that needs a different, different product. But right now, yes, we are not in metro, metro business.
As there are 400 orders of 400-odd Vande Bharat trains-
Yeah.
Are we getting only minuscule share of the whole?
No, it's only a start now. I mean, once we get into it, we normally operate on a, you know, 20%-25% share.
What is the potential that we can reach?
In terms of railways?
Yes.
Well, if you see the total revenue now that, you know, our revenue is, let's say, in first half, we did INR 59 crore. So railways would be, you know, a very minuscule portion. I mean, just about, a few percentage points. Low single, very low single digits.
All right. So what is the potential then? Can it contribute meaningfully to our share of revenues?
No. Honestly, no, because, you know, this is a completely tendered business. I mean, whatever we do, even if we are in a much better facilities, much better R&D, we have to compete with a supplier who's, you know, I mean, what is there? I wouldn't even, consider him as a tier two supplier. So, you know, that's, that's, that is the way the business is.
Okay. Thank you. Thanks very much.
Thank you. Our next question is from the line of Viraj from SIMPL. Please go ahead.
Yeah, thank you for the opportunity. Just two questions. First, on the CapEx for this year and next year, if you can just guide, what is the CapEx we are looking to spend?
Well, it should be in the range of INR 120-INR 150-odd crore.
For both the years put together, or you're talking about each of the years?
Each of the years.
Sorry, your voice was breaking.
Each of the years, Viraj.
Okay, got it. And second is on the export piece, you know. So you said that, you know, despite VW being not there, we're still kind of doing around 25 odd crore INR kind of per annum. With the new orders, you know, how should one understand the export, you know, roadmap for us for next few years?
So the immediate target is, of course, crossing INR 100 crore. That would be for the year.... and going forward now, you know, we are seeing some good interest, at least, generated due to, you know, the China factors. You know, as you know, the China plus one strategy. So there are some people who are, you know, relooking at resourcing the China, China imports or China buy. So yes, it will take time, and we don't have an order which we can say, "Yes, we've got it, so you know, the SOP is so and so." But, but we clearly see this materializing into good orders, let's say from 25 onwards.
Okay. Last question is on the margin, and especially the contribution margins. So, you know, if I look at our own history, you know, we are at the lower end of the historical band in our contribution margins. Now, I understand there's an impact in terms of raw material pressures and other factors. But, you know, if I have to look at going forward, your communication seems to be that even close to double-digit margins, you know, looks a little difficult. So is it that the new orders which we have kind of won, are they at a much more aggressive, you know, price point, and hence the margins which we typically earn those segments are, you know, won't be enjoyed in the future? Is that how I want you to understand?
Yeah, we are. So, the answer is yes. So, the margins are under pressure. It's not only for Gabriel. This is the overall set of numbers. You can actually do a check on the overall industry as well.
Okay. But in terms of major segments which we have won the order, say, in case of EV, two-wheelers or passenger cars, passenger related new orders, the base margin in that business has not moderated materially, right? Or has that been the case?
So EV, EV, we are seeing better margins, of course, as of now. But yes, once, you know, they're, they are under market pressures, you know, things will flow back to the suppliers. But as of now, EVs, we are getting it at, relatively better margins.
Okay, fine. Thank you very much. Good luck.
Thanks, thank you.
Thank you. Our last question is from the line of Dhiral Shah from Phillips Capital. Please go ahead.
Yeah, thanks for the call up opportunity, sir. Sir, does content per se coming EV is better than the ICE on the two-wheeler and three-wheeler side?
Well, Dhiral, content is the same, you know, but our realization is, I mean, realization and margins are a little better. Content is pretty much, pretty much the same.
So if you can quantify how much the realization better?
Sorry, Dhiral, I can't do that.
Okay. At least 10%, sir, not more than that?
Well, no, Dhiral, unfortunately, that's the information that would be counterproductive, so we would not like to share that.
Okay. Lastly, if you can, you know, bifurcate your CapEx, how much for, you know, capacity increment amount for the backward integration and how much for the internet, when you are guiding INR 120-INR 150 crore each for this year and next year?
Given that we do INR 25 odd crores of maintenance CapEx. Apart from that, everything else would be largely for capacity enhancement, or it would be for insourcing. The exact mix would depend upon the year as well as the LOI that is, that is going to come.
Okay, sure. No worries, sir. So I would love to, you know, love to meet the management if given an opportunity. So when, you know, speak to your IR.
Good. Thank you, Dhiral.
Okay.
Thank you very much. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Kolhatkar for closing comments.
Thank you, and thank you all for your, you know, very thoughtful questions. Yes, we understand, you know, your key, key question concerning around the margins. We have taken a good note of that. And yes, going forward, the year, as I said, the, the fiscal year for the country, in terms of overall automotive industry, I think will still be good. Yes, the coming year, which is 2023-2024, there is likely, there will be a likely backlash from what is happening in the global and the global marketplace. So we have to be little cautious about 2023-2024 in terms of the volumes.
But again, having said that, I think, overall economy, and, the country is in good shape, so it will still be definitely far better than the rest of the globe. So look forward to, meeting you all again in the next, next call. And thank you, thank you once again for all your questions. Thank you. Bye-bye.
Thank you, Mr. Kolhatkar, and members of the management team. Ladies and gentlemen, on behalf of Gabriel India Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.