Note that this conference is being recorded. I now hand the conference over to Mr. Vivek Chaand Sehgal. Thank you, and over to you, Mr. Sehgal.
Thank you. First of all, a very warm welcome to the call for Motherson Sumi's final year, I mean, last year's report. The performance of the group is clearly telling you that whatever we have achieved in the last quarter is sustainable and growable from there. I would open up the whole thing to the question and answers because I'm sure we would have a lot of questions and answers. But if you understand that in this whole year, we have lost one quarter, and yet if you extrapolate that, the actual result of hard work of these people is really amazing.
So, as I said, I would stop here, but give it back to you for questions and answers, if there are any. We have Vaaman Sehgal, we have Pankaj Mital, we have G.N. Gauba on the call, and of course, we have Sahil and Kunal if they are there. So please go ahead.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Kapil Singh from Nomura. Please go ahead.
Good afternoon, and I hope everybody in the team is safe and keeping well. Congratulations on a great performance once again. My question is on the EV order book side. We've seen now almost 25% of the order book is coming from EVs. If you can explain currently what percentage of revenue is coming from EVs, and by when do we see, what period is this order book, by when do we see, let's say, 15%-20% of revenues also coming from EVs? I mean, I don't want an exact answer, but directionally would be helpful. Second, I also want to understand that as this EV order book flows through into revenues, what kind of effect it will have on growth? Will it be, when you look through it, is it likely that this revenue will come at a better return on capital than what we have today?
Okay. Thanks. From my side, I think the order book calculations have been done. They're projected. So the new orders that we've got, 25% of that is coming from the electric vehicles. So please don't confuse the two. But yes, Vaaman, would you like to go first on this?
Yeah. I can take that. I can take that. The order book is a reflection of new orders, so virgin orders. So by definition, these orders would have started in the next two years. But please understand that they do take two years, a year and a half, depending on, again, the launch of the customers to ramp up and reach their peak volume. So maybe much smaller numbers in year one, in year two, peaking towards year two, year three, and then tapering down as the order reaches towards the end of the life as well. So there is no fixed number. As you can see, most of the OEMs are also saying that by 2025, they will have significant options, 25%-30%, depending on the car makers that you look at. Everybody has their own different version. So we are clocking that. We're doing good.
We're picking up a lot of the EV orders, and it's in line with how the market is doing. So I hope that answered your question, but can't give you an exact number because the launch dates, et cetera, are all staggered, and these are, again, new business orders that haven't started yet in our production line.
Yeah. Thanks, Vaaman. I mean, the second part of the question was largely on return on capital. So when we look at these orders, because mostly initial launches will be more premium in my view, so just some thoughts whether return on capital is better on some of these new orders in your view compared to what we have today, or is it in a similar range? So we always strive to do better.
You have to understand that all these orders are one at a comparative level, and we have two years to kind of improve the profitability as we improve our efficiencies, planning, purchasing, layouts, et cetera. We do all of that. So definitely, the endeavor is that we continue to improve. And EV is an exciting space. It does allow us to have more options, introduce new technologies, et cetera, as well. So definitely, we hope that this will go in the right direction. And as SMR and SMP are improving, you will see these growth also improving with the launch of these orders.
Vaaman, are there any new areas in this also which are significant to highlight or new technologies which we are getting orders from in EVs?
Yeah. We are launching some of the camera programs, but again, they're very small in numbers. But yeah, some of these launches are happening.
Okay. And sir, can you also comment on the chip shortage issue that we are seeing in the short term? What kind of impact are you seeing from that in the short term? And by when do we see that problem getting resolved, both in India as well as globally?
So yeah, you can take that, but I just wanted to say that, look, chip shortage and all these particular things are at the customer end, and they're using whatever chips that they have very judiciously. So I was also asked a question whether the luxury cars are going down because of that. But I think it's a no-brainer because the luxury car gives more margins to the car makers. So I'm just saying that Vaaman will definitely answer this question. But whatever it is, within the next quarter, I think this whole particular thing would have sorted out. But Vaaman, whatever you want to add, please go ahead.
Yeah. Surely. Definitely, you've seen from the car maker side, some of the ones have taken the maintenance ones that they usually do in the summers. They have taken it in the month of May. All the car makers, as the car makers are affected, we are definitely affected. Of course, we are very well diversified, so there are pockets of growth as well. So the impact is lesser on us as we supply not only to the car segment but also to the bus, trucks, two-wheelers, et cetera, which, of course, like Papa was saying, the newest cars have the biggest issues because they are using the newest of the chips. But some of the old ones that are using older chips are getting more supply. So there is definitely an impact. We definitely see that it should sort itself out in this quarter.
But yes, as the car makers are slightly affected, we are too, but our diversification and our supply to all the car makers in the different industries is helping us to tighten through this crisis.
Pankaj, would you want to add on the wiring harness side, please?
We are seeing the same. Like Vaaman Sehgal explained, we are seeing the same situation.
Okay. All right. Thanks. Yeah. Go ahead. Back to you.
Thank you, sir. That would be all from my side.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Raghunandan N.L. from Emkay Global. Please go ahead.
Thank you, sir, for the opportunity. Congratulations on a great set of numbers. Two questions. Firstly, for SMP Greenfield Plants, how do you see their trajectory forward? When do you expect a PBT breakeven? Secondly, PKC is doing well, and despite better revenues, margins have compressed in comparison to last two quarters. Was there any one-off there? Thank you, sir.
Okay. I just want to inform everybody that if you look at the working days that were there from January till March end, they were actually much lower because every country almost in the world had extended holidays and things like that and work from home and all that was there. But also, they have extended the holiday. So one of the things where this quarter and quarter cannot be compared 100% is because the working days shortage is there. So your question was more to PKC first. Pankaj, can you take that?
Sure, sir. So when we see PKC, so there have been challenges in terms of while we have done very well, as you see that we are getting more and more traction from the customers. But the main commodity which goes into the wiring harnesses, and especially in trucks, the content is very high, is copper. And as copper has moved sharply upward, and there is a lag. We have contracts with all the customers for compensation, and they do get compensated, but there is a lag with it. So we see a lag impact quite sharply in this quarter. And apart from that, as the volumes rose in markets globally, and they came back sharply, so there have been supply chain challenges overall in the market, which have led to higher costs. So these are the two main things.
The topmost thing has been the impact of copper for the lag.
Thank you. Just to clarify, the lag would be three to six months?
Absolutely. Yes. Yeah, that's true. Mostly, it's three to six months. Those are the kind of contracts.
So it was asking about the lag.
I was thinking that you wanted lower. Sorry. Go ahead, Laksh.
No, I wasn't saying anything.
Okay. Sorry. No, she wanted to. She had another question on Polymer Greenfield.
She is not close to the phone.
When do you see the PBT breakeven?
Yeah. Look, there's constant progress on. Hopefully, we will get there soon. But we are making a lot of headway into improving the numbers, and let's see how the rest of the year pans out. I think we are quite optimistic about the rest of the year and the vaccination, et cetera, all rolling around and having a more normalized year. The team is making tremendous effort. As you can see, the good thing to look at is not quarter-on-quarter, but actually year on year because there are different holidays, different working conditions, different end of the year, et cetera, which happens. It's very difficult to compare quarter-on-quarter. It's much better to look year on year. And you can see the significant progress is being made. So the teams continue that, and we are quite pleased with how they are shaping up. And we continue to make progress.
So hopefully, very soon.
Thank you, Vaaman. Wishing all the best.
Thank you. The next question is from the line of Nishant Vass f rom ICICI Securities, please go ahead.
Yeah. Hi. Thank you for the opportunity, and congratulations for a good result. So I had two questions. First question was actually on PKC. So if Pankaj Sir could just elaborate in terms of how PKC's growth path is getting looked at over, say, the next couple of years? Obviously, the truck market cycle you mentioned. But in, say, the non-truck business, could you shed some light in terms of the potential growth opportunities in PKC?
PKC is truck business. It is non.
Truck as well as.
[crosstalk] truck as well as the non-truck business.
The non-truck business.
So I think the railways and all that. Just to clarify for you. Yeah. Sorry. Go ahead. Pankaj?
Yes. So mainly, PKC is focused on the truck business. And in wiring harnesses, we call it an SPG business. We can call it non-truck in the sense that which are coming from, let's say, Tier 1 and other companies like Polaris and specialty recreational vehicles kind of business. But that's all we take it as one business in the wiring harnesses side. The second is rolling stock, which is relating to the railways. And both the businesses are doing very well and growing. So we have, as you would have seen, we have acquired the customers themselves have given up their facilities to us in the rolling stock side as well. Bombardier and Alstom got combined, so Alstom becomes our very good customer overall. And we continue to go for more deals with them. We have recently taken over their Mexican facility also.
And on the commercial vehicle side also, we continue to make more inroads with our customers and also those customers to whom we were not supplying in certain parts of the world. So we are now supplying to them. And we do see that PKC's team has been doing very good work even in challenging times and building it up. So throughout the pandemic, they did very well, and we are very happy with their performance.
So Pankaj Sir, if I could check in terms of China from a market penetration perspective, where would you think you guys have reached in PKC?
See, China market has grown very well, and we have added new plants in China in this year. We are growing very well. So as you know, we have three joint ventures in China. We have one joint venture which is mainly supplying to the Foton Group and the Daimler Foton. So this is now expanding with FAW as well and started supplies from its previous facility. And now we are setting up a new plant for supporting FAW and increasing our business with them based on the demand from their side. Secondly, we have a second joint venture which is with JAC. Here, we continue to do the majority of the business with JAC. And the third joint venture is in Xi'an, which has been doing most of the business with Dongfeng. And there again, as you would have seen, all the volumes have been growing.
We continue to penetrate new customers as FAW is one of the largest truck makers in the world. We are already now supplying to them and growing and therefore expanding our facilities. I hope this answers your question.
Thank you so much for the details. My second question is on the non-automotive business. So could you give us an update as to where you are seeing this business at from your five-year strategy perspective? It's been roughly six months since you gave us that strategy. So any update on that would be helpful. Thank you.
Hello.
Yes, sir. Please go.
Okay. Sorry. Who did you ask the question to? Sorry.
Sir, anybody, yourself or Vaaman, anybody could respond for the non-auto piece.
Vaaman can you take that, please? Just for the non-automotive piece?
Yeah. As an update as to where you are seeing the progress because obviously, you gave out guidance about it over five-year structure. So have we seen any progress over the last six months?
Yeah. We are definitely making progress. I think, of course, COVID has not helped that situation, but we continue to grow those businesses with organic orders and look at inorganic opportunities as well. But of course, the last few quarters, as you can imagine, have been pretty much dealing with COVID and trying to recover strongly from it. While those teams are continuing to pick up organic orders and make progress, we will perhaps give you more clarity on that once this whole reorganization has happened, and those divisions will again show you the progress that they are making as we will report them in a different way. And then perhaps you will get a lot more clarity and update.
Sure. Thank you.
Actually, talking about the new segments and all that, I think you would probably have to wait till the next September, October when we will get the-sorry-2025 targets provide timeline. We have to wait for the midterms. That's the time when we will really give you the update. So there are a lot of things happening which are there, which, as Vaaman said. So please, you have to wait and see, and of course, the moment we acquire something or something, that would be news that you would be seeing anyway.
Understood, sir.
Exactly.
Nishant, do you have any follow-up question?
No. Thank you. I'm done.
Thank you. The next question is from the line of Chirag f rom Edelweiss, please go ahead.
Yeah. Thanks for the opportunity. Congratulations on this set of numbers. My first question is on the EV orders. Is it possible to indicate which part of the business we are winning? Is it more on SMR side, SMP side, or on PKC side?
[crosstalk] I also look only at all of them inclusive, all which are in SMRPBV.
Okay. And on the PKC side, when can we see the traction? Is it the truck side of the business?
On the one side. [crosstalk]
Versus PV?
Sorry?
As far as cost and return?
Chirag, I can't get your question because you're probably a bit far away from the mic, so I can't hear your question very well. But if somebody else has in the group, can you please answer that?
Am I audible now? Sorry for that. Is it better now?
Yeah. Okay. Better.
Yeah. So my question was first, on which part of the business we are seeing the EV order flow? And second, in your assessment on the truck side, how far it is lagging the passenger vehicles as far as EV adoption is concerned? If you can throw some light, when do you expect that the truck side will also start seeing EV adoption and more demand coming over there?
I think, first of all, we are not at liberty to disclose which car customer we have got what order from. And only once they have announced, that's the time that we can actually make it public. Now, that's one thing that you have to live with us, and that is that we can't disclose the customer because we are forbidden. Secondly, your question about trucks following cars and all that, my guess personally is that most probably the trucks are better suited for the EV adoption. A, the numbers are smaller. B, they do have the wherewithal. They're already doing it. But we can debate about it for the rest of our life. But it will happen when it will happen. Pankaj, do you want to help me on this one?
Yes, sir. Chirag, what we—I mean, we don't want to guess on that, but what we are doing is we are aligning with the customers, and we are supporting them in their electrification. So we work with them. But we also don't know exactly what kind of volumes will come. But we participate in all the developments. So we are doing wiring harnesses, junction boxes or electrical distribution boxes, et cetera. So that's the kind of activity which we are doing together with them for the developments, both for the smaller trucks as well as for the bigger trucks.
Thank you.
The kind of products that we are supplying to them is, of course, wiring harnesses, is, of course, mirrors, but also it has the plastic inside and the interiors and the exterior part. So a lot of our parts are common between the IC engine and the electric engine car. So maybe the raw materials in some might be different, and the pricing may be electric vehicle a little bit higher. But by and large, every product is interchangeable.
Yeah. And sir, would it be right that across the three products, the three or four main products that we have, the pricing in EV would be higher while we are engine agnostic, but the pricing, the realization would be better than the IC be it mirrors or be it the plastic parts or wiring harnesses?
No. Yeah. I mean, there will be differences, but the differences are not because of just the product itself. I mean, either electric or petrol or something, but the pricing is different because of the need of the car. For example, if the car is operating on 72V , the wiring harnesses will be a bit more expensive. 42V is a little bit cheaper. With IC engine, it will be normal, so there are multiple varieties of products that we are making. And as Pankaj said, we are working very closely with the car maker. If the car maker, truck maker wants whatever, that's the thing that we do, so really, you can't compare oranges with apples.
Sir, one last question on this acquisition of the inorganic side. How does the situation? Has it improved or valuations are still a concern if you can throw some light? Because COVID has been coming in between and postponing our plans, but any update if you can share on the inorganic side, it would be helpful.
So if I have to answer that question, I'd rather give it for Vaaman . But my sense that you should understand is COVID times are very tough. There are huge lockdowns everywhere. It's not easy. For example, if a company is, say, in a country, has two locations or three locations, when we want to acquire that particular company, we have to actually physically go there. Now, at this moment, our people are working with telephone cameras and then going through a factory. So please understand the situation. I think within this particular quarter, we will start to see easing of people traveling in India. Even now, what I've heard is that till 30th of June, 2021, there is a lockdown. So it's very difficult for people to move out and go to the plants and all that. And buying companies is not like buying vegetables.
So there are challenges, and we must honor them. We don't have to do crazy stuff or something like that. But in the meantime, our teams are working to make sure that there is a lot of clarity. We are doing management talks and all those different things. But the biggest lesson that I've learned in my life is that if I'm going to buy a land, I better stand on it. So nothing can take that away from our experience. And I am encouraging my people to keep that particular discipline. You have to go and visit the plant because seeing is believing. So Chirag, I'm sure you will understand that it is important for us when we are going to take it. We have to see the body language of the people also. You can't see it on a TV screen, yeah? That's my takeaway.
Vaaman, do you want to add something more?
No, Vivek, I think you said it. Nothing more to add from me.
Okay. Perfect. Perfect. This was helpful. And all the best, sir.
Thanks. Thank you.
Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Thanks for taking my question. My question is to Pankaj. We saw impact of copper price inflation in PKC business, but in India, impact was not that material. I mean, do we expect impact to come further or price pass-through happen at a faster pace there?
See, as I mentioned, Jinesh, that the content is very, very high in the trucks. As you'd realize, that there are very thick cables and the copper content is much, much higher there than in the passenger car businesses. And also, the benchmark, like in India, we have every quarter, most of the customers, and that the copper prices get updated. And in some of the customers globally, we have six monthly. So the lag becomes a little bit more. And the copper prices have risen very sharply if we see that in the last quarter and have continued to rise. So that's the reason for this difference.
Okay. So India business primarily has already accounted for that, but because of pass-through, impact has been lower and also because of lower content.
Because of also the wide variety of the product mix which is there in the India business.
Right. Right. Right. Understood. Understood. Thanks. I'll come back and see.
Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Pramod Kumar from Goldman Sachs. Please go ahead.
Thanks a lot for the opportunity and condolences to the group for the loss of lives due to COVID. And congratulations as well for the results. So my first question is pertaining to the CapEx and investment plan. Given how strong the order book wins have been for us, especially on the EV side, if you can help us understand what could be the nature of CapEx spend from beyond FY22. Because I understand for FY22, the CapEx is going to be quite controlled. So if you can help us understand, how do you see the CapEx trajectory for the next two, three years shaping up at SMRPBV particularly?
Gauba, can you take this?
Yeah. Pramod, thanks a lot. For FY22, as you know, we come out with a CapEx guidance year on year. You rightly said the CapEx for FY20 is also likely to be muted. What is important is that the CapEx guidance we give year on year because when we get to more acquisitions or more new businesses and you can see how Vision 2025 will be shaping up. Mr. Sehgal also mentioned about the midterm review which will happen in September 2023. I think you will get a better guidance on the CapEx. The reorganization plan should also get completed so all the new verticals CapEx will come. For SMRP BV, for the existing order book, we are not adding any significant greenfield. Our CapEx is likely to be EUR 175 ± million .
I mean, they start with that, but the teams have always done better on the CapEx side by cutting down the expenditure cost controls. So I think you should wait for post-reorganization when we give a guidance for the larger company. SMR PBV CapEx for the current order book, no significant greenfield or not likely to be much.
Sir, you're covering EVs as well. In a way, it will be more of redoing some of the lines in existing plants rather than doing any big fresh CapEx. Is my understanding right, sir?
I mean, Pramod, as you are aware, our CapEx for the specific program models, which is in terms of the tooling molds, is customer paid for, and which does mean that there is a working capital deployment, and you have seen, I think you would have noticed how efficiently the working capital of the company has been, and we have reduced the debt levels quite sharply even after the increase in the turnover. So therefore, the model-program-specific investment, which is in terms of tooling, will continue to be done by the customers, and we have been powertrain agnostic, but this also indicates that we are completely aligned with the customers when they are future planning for more and more EVs.
Thank you, sir. And the second question is to Chaand, sir. Basically, sir, now for a business like yours, which is engine agnostic or powertrain agnostic and which has a long-term ahead of itself in terms of premiumization and lightweighting, the general understanding is that businesses like those have been valued at a higher rate going forward because of the lack of disruption or lack of, or rather, the visibility of what these businesses offer. So given this, is it logical to expect that when there is more M&A opportunity or more targets which are out in the market, there could be more competition from rivals or new entrants who are trying to get this kind of a piece of a business given that investors are generally kind of starting to value these businesses at a higher multiple?
So how do you see that dynamic when it comes to M&A for engine which is related to plastics?
Yeah. I agree with you. A lot of the people think that it's an easy boat to ride. So they are buying companies left, right, and center. And even the big guys, they're all buying companies in the auto space and all that. But it's not an easy cake to eat. It takes a lot of time, takes a lot of pain, and you better have a lot of money and more than money, more experience behind you. Today, we are like 29 acquisitions, and other than one, every single thing is doing very fine. So I think we are patient. We have a five-year horizon. We don't have a five-month horizon or something like that. So we are patient. I'm telling my team, there are a lot of companies which are available, a lot of guys coming or private equities which want to throw money on that.
But it's not going to be easy. You need to have a very solid backing. You have to have a lot of, I mean, we have in Motherson, we now have five chairman offices all across the globe. So every single country is covered. The ability to move our people around is there. We have a great history behind us, and we capitalize on that. We've never moved a company. We've never moved a plant or something like that. So all these things do very well with the unions and all that. And if somebody else wants to come throw money at it, we'll wait another year, two years down the line. India was much cheaper. We are okay with that.
Sounds fair, sir. I think you need to play the long game. And great to hear that. And thanks a lot and wish you guys all the best. Take care. Thank you.
Thanks.
Thanks. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Chirag Shah from Edelweiss. Please go ahead.
Thanks for the opportunity again. Sir, my question is from Pankaj. Pankaj, how do we look at this interest expense? Because our net debt has been reducing significantly, but our interest expense is not really coming down. So how should we look at this if you can help us understand? And now, are there other income really going up that fast?
No. First of all, we are not putting the funds outside into. So the funds, as you know, our larger part of the borrowings are in euro terms. And we have been borrowing at a very competitive rate. So when you see the gross debt reduction, also, you don't see the impact because the interest rate which we were paying was hardly anything. So many of the loans, including the NCD which we took last year, have been swapped into euros because that has the old U.S. dollar. So the interest rate has been very, very low. But I'm not in full agreement with you because our interest costs have been coming down. Optically, in rupee terms, they may not show up lower because of the very fact that the rupee has depreciated more so because it's euro.
And so therefore, the true saving may not reflect into the rupee balance sheet.
It's more about translation rather than anything. I just wanted to understand that. Okay. Is there also that mark to market, if any, that happens, is also rooted in the interest expense item?
Yeah. That is also a P&L item unless and until there is an accounting standard which states that accounts very clearly.
Oh, okay. Yeah. This is helpful. The second question is for Vaaman. Vaaman, if I ask you to have a look back, the key model launches for which we had one order over the last, say, two years or last three years back, have they got delayed because of COVID? And that's one question. And is there a bunching up effect that we can expect next year of new launches, at least for the key models that you were supposed to start supplying?
No, nothing like that. I think all those launches have happened. If you were looking at the new plants and all them, they're all doing their launches. So there really hasn't been significant delays. Of course, maybe a quarter here and there because of the COVID situation or something like that. But most OEMs are launching their models with perhaps maybe, like I said, a slight delay here and there, but they're pushing models back a year or something like that. No, that's not happening.
Nothing? Okay. This is helpful. Thank you.
Given the SMP experience and also the SMR experience, then they will understand how the orders actually translate into the sales.
Yeah. So I was just wondering, is there any delay from the OEM side for launches given the uncertainties and which nothing?
Nobody. At least we have not heard even one delay. Other than what is in all the different matters, but because of COVID delay, no. In fact, they are in a hurry to catch up. So if you look at our order book last six months ago and to this thing, I mean, there's an increment of EUR 4.5 billion. So that's telling you how much of a hurry they are into servicing their models and things like that. Vaaman?
Thank you very much.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Joseph George from IIFL. Please go ahead.
Thank you for the opportunity. I have two questions. One is with respect to the old so-called greenfield plants because, I mean, now you've stopped calling it greenfield. But if you can give us some sense on how the Tuscaloosa plant is shaping up because when we look at the commentary in the prior quarters, the understanding is that the Hungary plant has improved much more in terms of profitability, and Tuscaloosa was slightly behind. If you can give some qualitative comments on those improvements, that would be great. And the second question is that when I look at the tax rate, there are some deferred tax reversals that are coming into the consolidated numbers. How should we look at overall tax rate going into FY2022 and 2023?
I'll take the first bit. I think the commentary that was made earlier was that the Hungary plant is also older. I mean, they're both new plants, but they are slightly older than the Tuscaloosa plant. So that's why it was obviously ahead in its maturity. But it's difficult to compare those two plants. The customers are different. So even though the Tuscaloosa plant was behind, it was also the larger plant out of the two. But we don't really look at it comparing one against the other. We benchmark them against themselves. So if you look at that, if you look at it from that perspective, definitely both Tuscaloosa and Hungary are doing better. We have also won subsequent orders for the plants. So that is very, let's say, heartwarming to see that they continue the journey.
Of course, now with the experience behind them, the launches will be that much better. The teams are really delivering to the plans that they had promised of improvement. It's really good to see that that's happening even though we have all these issues on the side making some noise. The teams continue to do better and drive better performances at these plants.
Yeah. Thank you. Gauba sir, if you can give some comments on the tax rate question, please.
Yeah. Joseph, I mean, I have said many times that we would like to have the normalized tax rate everywhere. At a certain point of time, as you know, Motherson follows a very conservative policy, and we had not recognized the deferred tax asset until the time we became very certain in terms of the recoverability of that. So we have recognized certain amounts which we have given in the presentation for quarter three as well as quarter four in order to be transparent. But I think a good thing is that all the businesses are now getting positive, and we should see more stable tax rates coming up. And the auditors have also been looking at the deferred tax asset be recognized because now there is better performance coming from the businesses. You know the tax rate of most of the countries.
They are somewhere in 25%± range. India is also 25% now. So I think depending upon year on year, you should have a tax rate getting more normalized, 20% or around that range.
Understood. Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. For other services, you may press star and one to ask a question. The next question is from the line of Priya Ranjan from HDFC Mutual Fund. Please go ahead.
Yeah. Thanks. Just two questions. One is on, I mean, if you can throw some light, if there would not have been COVID in the current quarter, what would have been our top line or, I mean, the top line run rate? And with the current capacity or whatever capacity we have, what kind of peak revenue potential and the order book we have, peak revenue potential, we can generate out of that. That is number one. And secondly, on the working capital side, we have seen some improvement in FY 2019, 2020, and 2021 in the SMRPBV. So the number of days now has come down to around five, and unbilled revenue has also gone down significantly. But with the new orders coming in, do you see some kind of uptake in unbilled revenue and then the working capital reversal?
Gopal, can you take that?
Yes, sir. I will. While on the revenue, COVID, if that had not happened, I mean, these are hypotheses which I would not like to get into. But I think you can see how the businesses have performed. In relation to the working capital, the company's focus has been very clear because we measure ourselves return on capital employed. And we have said in the past that a lot of new programs are coming into play. Yes, when the new order book, as we start preparing the engineering tools and the engineering work for them, there will be some increase in the working capital. But since this is again a short-term which goes up and comes down because this is how the customer risk has been identified, that model-specific investments are done by the customers, I think there could be some temporary spikes, plus minus.
But it is more of a normalized business. And the SMP has also grown to a stage where there is a significant base for it to not have the fluctuations so volatile.
Yes. Gopal, could you also explain if the Q1 result was normalized? What would be the thing? That was his question, the first part. I think you haven't answered that.
Yeah. So you can see in the last two quarters when we have seen the new capacities working, we have shown an EBITDA of INR 2,000 crore plus. So you can assume that if H2 was to replicate kind of a thing, we would have been in excess of INR 8,000 crores as an EBITDA.
And I think top line would have crossed INR 17,800, so maybe about INR 35,000 crores approximately, isn't it? If you bring that particular thing into the top line. So maybe if you want to extrapolate, then you can do that. But I think the results would have been phenomenally better, probably the all-time highs. Just on the working capital side, so should we assume now the five, six days is the normal working capital is what we should assume?
I mean, it is a function of, as I said, the particular point of time when you are measuring because it could be higher also. If the projects get launched in the month of May, June, then in 31st March, the working capital is higher. But broadly, I think the teams are very focused on ensuring that the working capital, at least on the serial production or the receivable side, remains stable. On the engineering, it will depend on the launches.
Sure. And in terms of, I mean, Vaaman or Chairman Sir can comment on. So based on what I mean, the order book we have, what kind of revenue potential we can see from the order book, whatever we have so far at the peak level, maybe in, say, two years down the line or three years down the line?
Three years down the line, it probably would be around 30 billion. So we give you a guidance for five years is 36 billion. So you can extrapolate all that yourself. But I think what's important for you to understand is the orders conversion, as Vaaman said, takes about a year and a half, two years. So we are only giving you the new orders that we have won. So then we leave it to your imagination, which is your responsibility. But if it helps you, the thing that I was trying to explain before is that in 2012, when we took over Peguform, it had a top line of EUR 1.4 billion . Today, it's sitting at about EUR 4 billion in spite of the weak Q1. So that's the effect of the orders that we're getting.
It's actually grown 4x or 3.5x in nine years, if that's what you want to take it as. The order book was very important for us to show you that there is good health and these are order commitments. I mean, if the order comes from a customer, then for any reason, if it doesn't happen, there's huge compensations that we will get for that. Up to now, in our history, we've never seen orders being canceled just like that.
Sure. Thank you. That's all for me.
Okay.
Thank you very much. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Shashank Kanodia from ICICI Securities. Please go ahead.
Yeah. Thank you so much for your opportunity. Sir, on the first point, you have quite prudently managed your RM costs, which has largely maintained the gross margins. So going forward, sir, over the next two quarters, do you foresee any pressure on the gross margin front because of steep rising commodities?
I would give it to Pankaj. I think probably your number is more about wiring harness, isn't it? Or which division do you want to talk to?
So let's say on the cost basis, if you could give a holistic view, as in since everything is passed through to the customers, but still, going forward, the next two quarters, do you foresee any pressure on gross margins?
I would like to put one thought in front of your mind. If you agree with it, great. Today, the car makers are struggling to produce the cars because of the tough conditions which are there. Everybody has his own reasons why they would have to either cut down the production for a particular part or something, but not because of demand. So if you understand that, you will understand why the next two quarters, I don't see them focusing on price or something like that. That's when all things are working fine, and that's the time when their attention goes to that. Today, the purchase managers of any company that you know of, please have a chat with them. For them, at this moment, they are hand-to-mouth on components, and they have freight issues. They have container issues. They have raw material prices issues. Everything going up.
I will put it to you very plainly that I don't think they would, at this moment, be doing it. But hey, if you know somebody who's doing it, then tell us. But we are not facing any such pressures. I don't see it in the next two quarters either.
Sure, sir. But secondly, on the SMP front, right? So in SMP, we are clocking sub 10% EBITDA margin, whereas SMR is above 21%-39%. So in the next two years, sir, do we see SMP margins converging towards the SMR range?
Sir, we don't give a guidance on margins. But if you want a margin decision, it depends upon how much of a margin you want to keep in a copy. We don't give guidance on margins.
Absolutely, sir. But see, the action is obviously since the greenfield plant.
Look, in the first decision, in the last quarter decision, you were asking, "Is this sustainable?" We are proving to you it's sustainable. We're also saying that it's improvable. See, please understand, today, the 275+ facilities that we have, people are sitting in their plant. They are not moving out. They don't have pressures of anything. They are sitting and looking at how can they cut their cost, how can they improve their performance, how can they improve. Every single thing is happening right there. So. People are available. There are no holidays, hardly any holidays or something like that over there. So definitely, you see plant efficiency becoming better and better. So it's up to you whether you believe this or not. But Motherson, we have a thing which is known as C2A2C, which means cut cost at all costs. So we are enforcing that particular thing.
We are asking our people to think out of the box, to come up with good. So I personally believe that all my plants are actually working towards this.
Sure.
Those people who know Motherson very well also know that every month, I get a detailed report from every plant. Every plant manager writes to me and sends me what improvement she has done, how she's focusing on that. You cannot imagine how much happiness I get when I see these kids working and the way they are looking at this particular thing. Yeah, it is something which we are very grateful for because they participate in such an exercise. Every month, I reply back to each one of them.
Sure, sir. Thank you so much.
You're welcome.
Thank you. The next question is from the line of Ankur Mittal from ICICI Bank Limited. Please go ahead.
Thank you for the opportunity, sir. Ankur here. My question is, I'm not sure if this has been covered earlier, but my question is, was there any issue on the labor front in the second wave? And has that been subsided now? And do you think would there be any issues going forward? And also, is there any plan that you might have in mind for any uncertainties in the future? There are thoughts of third wave also coming up.
Is there a particular division of ours that you want to direct this question to? Sorry? Is there a division? You're talking about labor, right?
Yeah, yeah. Labor, labor.
Okay. So our labor is not migrant labor, so things like that. They are very educated, and they are seeing there. So any division per se that you want to know this information, or are you just generally throwing it to the whole group?
I just wanted a general overview. If there was any migration of labor in the second wave because we saw migration of labor in the first wave and on the industrial level?
Actually, India-focused, right?
Yeah.
Migration of labor is India-focused.
Yes, sir.
Right? Pankaj, can you take that?
Pankaj, can you take that?
Yeah, sure, sir. What we do is even after the first wave, we could ramp up efficiently. As you would have seen, our customers' volumes went up sharply, and we have had no issues because we have kept all the people together, unlike many other companies who let go of their people. And we keep very close communication with our people and take care of them during this period when some customers are closed. So we haven't seen any big issues. I mean, in some plants, during some days, there could have been an attendance issue. But barring that, which is all manageable, we have not seen any major issues.
Okay. Thank you, sir.
Thank you. The next question is from the line of Naresh Suthar from SBI Life Insurance. Please go ahead.
Yeah. Thank you for taking my question. Sir, my question is again on the EV content per vehicle, which you might be seeing in the medium to long term. So sir, wiring harness would like to spend because of the higher voltage, it may have a higher content. But for SMP and SMR, if you can help me understand what kind of content increase can see whenever the EV portfolio comes for execution.
Just, very simply, it's very difficult to get into it because you're talking of a wide range. But in the electric cars, you need the plastic part, which constitutes a huge portion of the weight of the car. It is not using normal plastics like PP and things like that. It uses engineered plastics. Engineered plastics are more expensive, and also, they are lighter, but also, they are stronger, if you understand what I'm saying. From a normal plastic, from a normal PP part, they would actually go into more engineered plastics. That plastic part is actually lighter by weight and has to be stronger by strength because the electric cars are supposed to have very high speeds and things like that. But also, there are other aspects to it, like pedestrian safety, people just in case God forbid, if a car hits a pedestrian, then what happens.
So there's a lot of study on those particular things, and that's the reason why electric cars are more expensive than a normal car.
Understood.
So I hope that helps.
Yeah.
So again, on the same side, so if the content is higher, the raw material cost would also be higher, so margins would be a little lower comparatively if you supply the same material in IC engine or same part, I'm saying.
Boss, I never told you to buy an electric car. You could have bought an ICE car. That's also okay. But look, that is the need of the design of the car. So I can't say that why they are changing that. That's up to the car maker. It's the need of design. It's the need of their law, and they have to take care of all these particular things. So I just try to show you that the same part, if it was made for an ICE engine, would be cheaper. And then when you make it for an electric car, actually, the price goes up because they want the car weight to be lighter. You heard that the battery packs and all that are very, very heavy.
Understood.
Because they are trying to remove as much of the weight as possible. Even if the price of the component goes up, they don't mind because eventually, it gives a longer battery life for the EV vehicle. That's the point that I'm trying to explain to you.
Okay. Thanks.
And you can't use the same mold for the two parts because mold is designed to the raw material. So you see, because the shrinkages and all these particular things are different. So a lot of issues. They will have to actually.
Participants, please stay connected. Line for the speaker will disconnect while we rejoin back to the call. Ladies and gentlemen, please stay connected. While we rejoin Mr. Sehgal back to the call. Sir, sorry, you're disconnected.
I'm sorry. Did you lose me?
Yes, sir. Your line got disconnected.
Okay. Did I answer the question or?
Yeah, yeah. It is now clarified. Thank you.
Okay. Thanks.
Thank you very much. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to Mr. Vivek Chaand Sehgal for closing comments.
Thank you very much for the call today. I hope we could answer all the questions and remove the doubts if you had any. The company's board was very, very saddened by the loss of Mr. Tripathi, the independent director who has guided us for the last almost 10 years. We also regretted that a lot of the companies globally had a few deaths, which we lost very key people in our group. But other than that, I think the performance of everybody, as IC engines, was better and better. The good thing about the results is that it is something which is giving us a very clear indication as to what will happen in the next coming quarters for this particular year and the years after that. Motherson is always focused to be on its goals and exactly deliver what the customer is asking us to deliver.
And in that particular thing, we are becoming more and more precious for the car makers. And we are very grateful to a huge 150,000, 160,000 people globally which are doing this particular thing almost seamlessly. Thank you all very much. Please stay safe. Please stay healthy. And thank you very much for everything.
Thank you very much. On behalf of Motherson Sumi Systems Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.