Ladies and gentlemen, good day, and welcome to the Q1 FY23 earnings conference call of Alicon Castalloy Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you, sir.
Thank you. Good day, everyone, and thank you for joining us on Alicon Castalloy Limited's Q1 FY23 earnings conference call. We have with us on the call today Mr. Rajeev Sikand, Group CEO, Mr. Vimal Gupta, Group CFO, Mr. Shekhar Dravid, Chief Operating Officer of Alicon Castalloy Limited, Mr. Andreas Heim, Managing Director of Illichmann Castalloy, and Rajiv Gupta, Head of Domestic Business of Alicon Castalloy Limited. Mr. Vimal Gupta will cover the financial performance for the quarter, following which Mr. Shekhar Dravid will walk us through the operating highlights. In order to share more granular view of the initiatives towards both the global and domestic markets, we also have Mr. Andreas Heim and Mr. Rajiv Gupta to provide insights on these areas. Following the comments from the team, our Group CEO, Mr.
Rajeev Sikand will give us a brief summary of the quarter gone by and encapsulate the strategic imperatives. Thereafter, we shall open the forum for a Q&A session. Before we begin, I would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings documents shared with all of you earlier. I would now like to hand over the floor to Mr. Vimal Gupta for his opening remarks. Over to you, sir.
Good morning to all our investors. I hope that all of you and your near and dear ones are safe and well. Thank you for taking the time out To join our earnings call. We have started the new fiscal year 2023 on a positive note despite multiple challenges on the macroeconomic front, such as a volatile economic backdrop, lingering supply chain issues, ongoing COVID dynamics, and the continuation of the Russia-Ukraine war. For the mobility customers, the sharp rise in input prices has led to price hikes by OEMs, while increase in fuel costs has contributed to higher cost of ownership of vehicles. Further, there has been a backdrop of high inflation impacting discretionary income, even as increasing interest rates are further contributing to the pressures. Despite this potent mix of challenges, the demand environment across domestic and international markets has remained resilient and is turning favorable.
We have witnessed higher than expected volumes across the global and domestic industry. S&P Global has recently revised upward their projections for global light vehicles production for calendar year 2022 from 4.1% to 4.7%. In India, we have witnessed increased traction in auto sales, especially in the passenger vehicle and medium/heavy commercial vehicles categories in the industry. On a year-on-year basis, we have seen sharp increase in volume performance due to the low base of the prior quarter, combined with the improved availability of semiconductors in quarter one of FY 2023. Based on our assessment, the domestic industry has now revised to around 80% of the performance benchmark set in financial year 2018-19, which was the best year in the last five years.
Overall, our total income stood at INR 344 crores, higher by 63% year-on-year basis, which significantly outpaces industry growth, which was around 39% year-on-year. More importantly, in 2018-19, which was the best year for the industry in the last five years, we reported revenue of INR 298 crores in the first quarter. Even with the industry at around 80% of the level of 2018-19 at present, we have significantly outpaced the benchmark and our revenues of INR 344 crores in quarter one FY 2023 are 15% higher than the previous highest quarter one, indicating the different trajectory of performance. We are also pleased to make progress on our strategic objectives this quarter. Our focus on opportunities from the EV technologies is being widened in scope of a focus of carbon neutral technologies.
This wider ambit encompasses opportunities from battery electric vehicles, hybrid electric vehicles, plug-in hybrid, as well as fuel cell and hydrogen cell technologies, which are also emerging as viable options across the mobility landscape. Secondly, we had talked about a focus on shifting towards higher value addition across all of our business activities. This quarter, there is a visible shift away from two-wheeler business, which has limited value addition towards passenger vehicles and the commercial vehicles. Exports and the EVs on the carbon neutral opportunities, where the scope of value addition is large. If you were to observe our last three-year trend, which we have included in the earnings presentation. We will see how our product mix has evolved. Input prices continued to move higher in quarter one.
As we have spoken last quarter, we have been constantly collaborating with our customers to undertake price increases and have successfully passed on some part of increased costs in the quarter. Apart from repricing, the enhanced product and revenue mix have enabled us to deliver stable margins in the face of a challenging environment. We have recorded incremental sales from value-added components, which has supported improved margin performance. Our gross margin for the quarter stood at 47.5% in quarter one FY 2023, against 15.2% in quarter one of FY 2022. We witnessed raw material prices peaked out in quarter one at present, and at present, iron prices are around 10% lower than quarter 1 levels. Coming to the cost metric, we continue to face challenges related to the 5 C framework that we had discussed earlier.
The COVID impact, chip shortages issue, cost of new product development, the conflict between Russia and Ukraine, and global cost-based inflation together are serving up a highly dynamic operating environment. One of the key challenges last quarter is the reduction in gas supply to Europe, which is resulting in a domino effect on energy costs across the globe as Europe seeks alternate energy supplies. This means that global gas prices, coal prices, and that of crude oil continue to remain at elevated levels. Industries which with intensive power requirements such as industrial, metal, foundries, et cetera, have also been hit the hardest. In quarter four and in the quarter under review, we have witnessed a significant increase in power costs across our operations. Anticipating this, we have moved to set up a captive solar power project, which will serve around one third of our annual requirement.
Overheads across our business continued to move higher in quarter one. The cost optimization initiatives implemented earlier have enabled us to substantially mitigate this impact on our operational performance. The Kaizen principle-based initiatives that we have adopted have helped us bring in optimization across all facets of our business model, right from inventory management, employee expenses, to power cost optimization, among others. We have seen a notable reduction in fixed expenses, overheads, and interest expenses as a result of these initiatives. EBITDA margins stood at 11%, higher by 251 BPS year-on-year basis. In a normalized environment, our medium term target is to improve our EBITDA margin to a level of 14%-15% on the back of our cost efficiency measures.
In absolute terms, our EBITDA during the quarter gained at INR 37.95 crore, higher by 110% year-on-year. Profit after tax during the quarter stood at INR 10.77 crore. I'm happy to share that we have delivered a performance surpassing the pre-COVID level. On the CapEx front, we plan to deploy around INR 90 crore in the FY 2023, which includes maintenance CapEx and new machining capacities, on which in the quarter we have already undertaken a INR 24 crore CapEx. Currently, our manufacturing plants in India and Europe continue to operate at normalized utilization levels with a tune of 65%-67% in the quarter. To summarize, we have seen an encouraging start to the fiscal year 2023. We continue to focus towards augmenting and maintaining our financial fitness.
Our focus continues to be on improving margins, return ratios, and streamlining our working capital cycles. In a normalized environment, we look forward to delivering a strong and consistent. On that note, I would like now to hand over to Mr. Shekhar Dravid, who will talk about operating highlights for the quarter.
Thank you, Vimal. Greetings to all. I trust all of you are well and staying safe. The domestic auto sector saw a significant demand improvement in the quarter, with most categories witnessing encouraging traction. Passenger vehicles, commercial vehicles, and three-wheeler segments registered an improved performance on year-over-year basis, backed by the pent-up demand, improved availability of semiconductors, festive push, new product development. In case of commercial vehicles and heavy vehicles, factors such as increased infra spend, mining activities, logistic growth, and resumption of school sales added demand. On the production front, we saw steady levels across OEMs, which augur well. On the raw material front, we have seen cooling off in aluminum and related alloy prices recently. This is mitigating costs to a large extent. Higher chip availability and easing supply chain issues further supported this traction.
On the domestic front, we had projected industry growth of around 5% in 2022, but the expectation is now being raised to 7% growth for the full year. Internationally, trends continues to be favorable as global customers have adapted to the challenges like constrained availability of semiconductors as well as realignment of the supply chain. We are seeing healthy leads and inquiries from our international business segments and remain optimistic of delivering growth going forward. On a consolidated basis, we have reported a strong growth. Our volumes marked a healthy double-digit growth translating to 63% increase in revenues on year-on-year basis. At the start of the financial year, we had budgeted for the growth of around 18%-20% on year-on-year basis on the back of new parts to start to commence production, new customers added, and the business mix shifting towards higher value addition.
Our assumption was the market environment would largely remain. However, we are now seeing improved market conditions. Also, contributions have raised our internal budget for growth to 25%-28% on a year-on-year basis. Let me take you through the highlights of our performance across each domain. The first being our auto business. The domestic auto sector has seen many headwinds in last four years, adversely impacting due to COVID, demand, regulatory changes, input pressure, among others. However, we are now seeing emerging positive vibes with uptick in demand despite higher fuel prices. There is increasing traction in IC vehicles too. We delivered strong volume growth across verticals in the quarter. This is due to the increased volume on account of the start of production of a key program for a global customer.
We have two programs set to go live in the current quarter, which will lead to a further ramp in volumes. Coming now to the second of our growth pillars, which is the carbon neutral technologies opportunity. While we anticipated stronger demand in electric two-wheeler segment in India, there has been a lot of negative news in the domestic market regarding battery explosions, which seems to have impacted customer sentiment. However, the passenger vehicle ecosystem is progressing well in India, leading to an impressive volume growth and rapid approach towards critical mass. In 2021, 330,000 units of EVs were registered in India, clocking a growth of 168% as compared to 2020. The increase was on the back of performance towards higher personal mobility, environment friendliness, and spiking fuel prices.
The second phase of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles, FAME II, has further accelerated the adoption of electric two-wheeler, which has witnessed close to 110,000 units in Q1 2022. As per a report by Indian Venture and Alternate Capital Association in collaboration with EY and IndusLaw, electric vehicles are expected to account for 39% of the total automotive sales in India by 2027, growing at an approximately 68% CAGR over the next five years. For this segment, we are working with OEMs as well as the tier one suppliers, which have been working extensively with Dana Incorporated, Scania, Tata AutoComp, Eaton Corporation on both the domestic and international orders. During this quarter, we added two parts as well as two new logos of Rimac and Ducati.
After some gap, we are pleased to add new logos to our customer list. Another area where we are seeing strong response from customers is the lightweighting of products in the auto and EV space. We are getting increased inquiries from the OEM, both in domestic and export markets, and we are actively developing new parts to focus on this segment. We have already built up a portfolio of over 103 parts catering to EV and are progressing well on our targets for scaling up revenues from carbon neutral technologies. While we have shared that our initial target, it is to bring the wallet share from carbon neutral technologies to 25% of overall revenues by 2025-26. Our existing order book already comprises share of business of 25%.
As this converts from orders into a start of production, we will achieve our target for the share of revenue from carbon neutral technologies in an accelerated manner. Based on this high visibility, we had shared an accelerated target of 26% from carbon neutral technologies by 2025-26. Now on to our third growth pillar, the technology agnostic platform. We are steadily adding value-added products to our basket. Various aspects of our vehicles are cross-functional across both IC and carbon neutral platform and would remain relevant should there be emergence of a new alternative technology too. Our aim is to ensure that we gain relevance in interesting and accretive niche around these products by leveraging our core competencies. In this regard, we are working on diversifying and expanding our portfolio to include several niche and value-enhancing offerings.
During the quarter, we added one part to this portfolio. Coming to our fourth segment, which is a non-auto business, in which we are witnessing healthy growth in demand from the diverse sectors we serve. During the quarter, we received an order win for one part. This is under the Atmanirbhar Bharat, where we quickly developed a complex and critical part for a reputed domestic customer. Our fifth growth lever is our focus on improving customer wallet share. This will be by leveraging our R&D and competencies and our relationships. Our R&D facilities are core to our operations and enable us to keep pace with upcoming opportunities. Overall, we are well-placed to enhance contributions from repeat customers and demonstrate customer stickiness. Our long-term approach is towards building wallet share and positioning ourselves as a trusted supplier for an existing customer base.
On that note, I would like to now hand it over to Mr. Andreas Heim to throw light on our global business.
Thank you, Mr. Shekhar Dravid. A warm welcome to all of you. I will briefly cover the development on our international business. We have delivered a healthy performance in Illichmann Castalloy during the quarter on the back of steady demand environment in our key global markets of U.S., Europe, and China. While we are seeing initial signs of supply chain issues easing across markets, the ongoing conflict has put inflationary pressures on some key inputs. We witnessed aluminum prices and steel prices.
Mr. Heim, I'm sorry to interrupt, sir.
Yeah.
Your voice is not clear, sir.
I'm coming really close to the mic. The ongoing conflict has put enormous inflationary pressures on some key inputs. We witnessed aluminum prices and steel prices at elevated levels in-
Andreas.
I'm sorry, sir.
Andreas, your voice is not clear.
Yeah.
I request all participants.
I, it's-
Mr. Heim.
It's a lot here.
I'll reconnect you. All right?
Thank you.
I request all participants to stay connected while we connect Mr. Andreas Heim.
Andreas, please hear again. I am audible?
Yes, please go ahead.
Yeah. I will start again for my speech. Thank you, Mr. Shekhar Dravid. A warm welcome to all of you. I will briefly cover the development on our international business. We have delivered a healthy performance in Illichmann during the quarter on the back of steady demand environment in our key global customers in the U.S., Europe, and China. While we are seeing initial signs of supply chain issues easing across markets, the ongoing conflict has put inflationary pressures on some key inputs. We witnessed aluminum prices and steel prices at elevated levels in quarter four and quarter one, and impacted by the ongoing rise in gas prices generating power costs in Europe.
The rising prices of inputs are passed through to customers, and we are working with them to arrive at the formula for higher energy costs to further the elevating installation of solar power to diversify our energy mix. An important point to share here is that our manufacturing facility is located in Slovakia, which is the second most assured nation in Europe in terms of gas availability. Slovakia already has assured stock of gas up to April 2023 and will further augment its stocks in the coming weeks and months. Against this backdrop, we have reported a healthy performance in the international business exports, including obviously the revenues contributed to 23% of the total revenue in quarter one financial year 2023. We add two new parts from two global customers in the quarter.
We developed a motor housing for Rimac, an associated company of Porsche, which holds 45% ownership. Rimac is present at the gateway of Europe, and we commenced supplies to Rimac Automobili in this quarter. For them, we leveraged learnings from customers served in the past, enabling us to drive solution in shorter timeframe. We were able to develop a motor housing in three months against normal cycle of 5-6 months. Further, Rimac also has engineering division which supplies to large global OEMs, including its parent company, Porsche. We also took a thermal engineering project for Rimac, which is working on developing EV parts for other OEMs. There is a huge potential to build on these new supply arrangements. This development will help us to create more such instances from global and domestic OEMs. We also add Ducati to our customer roster in this quarter.
Ducati is the third largest two-wheeler manufacturer in Europe. The largest is KTM, followed by BMW, both of which we have been customers for over two decades now. With the addition of Ducati, all three of the largest European two-wheeler OEMs are part of our customer list. For Ducati, we developed a trim component through our gravity die casting process, which offers a solution with greater efficiency at more competitive costs. If we look ahead, we are monitoring the evolving landscape across the global markets. The demand for transitional technologies remains relevant even as demand for carbon neutral technology continues to accelerate in the medium to long term. There are many growth opportunities in our key target markets in Europe, Middle East, and the U.S. Over time, with Alicon building its presence in these regions, we are confident of improving performance as the environment normalizes.
On this note, I would like now to hand over to Mr. Rajiv Gupta, who will cover the development in the domestic business for the quarter.
Thank you, Andreas. Good day, everyone. The Indian automotive industry has posted robust growth in the quarter gone by, with passenger and commercial vehicle segments logging growth, with two-wheelers witnessing steady redemption and demand. We are also seeing encouraging indicators such as improved production levels from OEMs, strong buildup in inquiries, and increasing trends in order books. These positive trends bode well for the industry and in turn for Alicon. In the quarter, we have delivered a strong performance. Total contribution from our domestic segment stood at 77%. On the whole, we have reported encouraging growth in the domestic auto segment during the quarter, led by improving trends such as push high preference towards personal mobility. We continue to witness good level of inquiries and bookings in the market and are hopeful that improving macros will further support this momentum.
In the non-auto business, we received an order win from one part from a reputed industrial house in India. This complex and critical part will support the rollout of a cutting-edge technology for a customer and falls under the prestigious Atmanirbhar Bharat program. On this note, I would like now to request Group CEO, Mr. Rajeev Sikand, to share with you his perspective on Alicon performance.
Thank you. Good day, everyone. We have reported a healthy set of results during the first quarter of fiscal 2023. Our growth has been driven across businesses of auto, non-auto, and structural and technology-agnostic products. Across domestic and international markets, we have marked strong client engagement and have demonstrated healthy progress against new customer leads. We added a total of two new logos across markets and verticals, and our wallet share has been on an improving trend. We have chalked out a focus on global customers and invested significantly into human resources and R&D in order to enhance our global competitiveness. We challenge ourselves to develop a greater proportion of critical and complex parts. We have pushed our teams to think of providing solutions to customer rather than focusing on parts or components, enabling us to transform the business model.
The logos we have added and our presence with top three European 2W OEMs validates our progress with this enhanced approach. Another element of our strategy that I've shared was to increasing footprint of passenger vehicles and CVs in our value addition mix from 50% in FY 2022 to 70% in five years, while reducing 2W dependency from 40% in FY 2022 to under 20% in next five years or earlier. Further, we are increasing the share of global business from 37% in FY 2022 to over 45% in next five years. The focus is clearly on a higher value addition. As a team, we are obsessively monitoring the VA per KG. We also aim to increase our sales per machine by enhancing the proportion of machine parts in comparison to as cast at present.
I'm pleased to share that this is starting to reflect in our performance. With the industry growing 39% on year-over-year basis, we outperformed in a meaningful way, reported a revenue growth of 63% year-over-year in Q1. Further, we have rebranded our focus from EV into carbon neutral technologies, which mirrors the wider focus by our team. This is reflective of the potential technology mix that we foresee in the mobility sector over the rest of the decade and beyond. We also seek to build out our contribution from structural parts which are technology agnostic. Currently, the contribution from carbon neutral and structural part is 17%, and we aim to take this to over 45% in five years' time.
On operational efficiencies, we have optimized costs across our business model and brought in higher efficiencies that enabled us to restrict the impact of costs on our margin profile during the quarter. We are actively working towards increasing our sustainability footprint and ensuring commissioning of our captive solar power will significantly transform our energy mix. I would once again reiterate that we are future ready. As an organization, we enjoy a favorable outlook on back of global recovery. We see a strong demand trend. However, we see some challenges in which may emerge from U.S., and these we have to take into account.
Already, as my colleagues have shared the five challenges which are ongoing—corona pandemic, chip shortage, cost-based inflation, the conflict in Russia and Ukraine, high cost of new product development—we are well placed to deliver on our targets and aspirations through our commitment, courage, confidence, and capability, supported by the right behaviors of foresee issues and providing support proactively. Our total order booking for auto business now stands at around INR 3,115 crore for a period of five years with an average annual volume value of INR 620 crore. We look to build on this further with deepening engagement with existing and potential customers. On that note, I would now request the moderator to open the forum for any questions or suggestions that you may have. Thank you.
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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Dhruvin Upadhyay from Sushil Finance. Please go ahead.
Hello. Congratulations for a good set of numbers. My first question is towards the guidance. Just wanted to get some clarity on it. Are we revising our guidance from 18%-20% to 25%-28% for the overall business or for a particular segment of ours?
This upward revision is for the overall business for the year of financial year 2023, because in the last call, we had given the guidance of 18%-20% growth, but now we have revised and increased from this to 25%-28% level.
Okay, sir. For FY 2024, is it too early to say, or do you have some guidance for that year as well?
At this moment, it is too early, but as we explained in our earlier call that the overall, in the next 4 years, we have kind of CAGR of more than 20%.
Okay. Now coming to the contribution of the new product addition, what kind of contribution are we looking at, from these new product additions, and what is the order intake that we had in Q1 FY 2023?
In quarter one, 2022-2023, we have added four parts from three customers, and this is roughly around a yearly average sale of INR 24 crores and around INR 100 crores over five years of time.
The good thing is that we have added two new logos. That is Rimac, which Andreas also has explained very clearly. The higher opportunity with this particular account, because we call it as a Tesla for Europe, and 45% of Porsche stake is with Rimac. Good opportunities. We have also Ducati, which we have added. Again, the third largest two-wheeler maker in Europe. The good thing what we have grasped is a non-auto business, a highly complex and critical part with high value addition. That is what we have added in last quarter.
If you talk about the overall mix, what we have added from 2018, 2019, the good thing to note is we have booked 71% from four-wheeler, where I get a good margins, where it's as per our strategy, and 21% was with two-wheeler with strategic move. This will help us further to get good value addition in and in turn, good sales going forward.
Okay. My last question is towards the European facility that we have. The voice was a little unclear. Have we secured the gas power through gas-based power plants till April 2023, and post that we are moving to solar? Is my understanding correct?
No, it is not like that. There is availability there, but definitely, they will have Europe will have the other sources, and we'll be able to supply the gases there. We are looking for some other alternatives like solar to reduce our cost.
In India also.
In India, already I've explained in the piece that already we have got this opportunity, and maybe from the quarter three we will be able to see the impact in our financial results.
Okay, sir. Thank you. That's it. That's it for now, sir.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. We have our next question from the line of Karthik from Suyash Advisors. Please go ahead.
Yeah, good afternoon to all of you. Very impressive commentary. A couple of quick things. One is in terms of contracting. Can you talk about what specific terms have you put in place to protect yourself from the volatility that's been seen in the past? I think these are relatively longer term contracts. One. Two, can you share some perspective on the kind of opportunities that are emerging in the European manufacturing space due to the turbulence seen over there? And if at all any are emerging, are these tactical in nature or more structural in nature? Thank you.
Sure. Talking about the second point on the opportunities with Europe. The good thing is what we noted is we were not adding logos in European entity, but we have noted with the change in the market condition, we need to go look for new customers, which we have delivered in last quarter. Also we are in a strong discussion with the existing customers to add value. The way we started from 2016, 2017 with the move, the early mover in EV. Now even the European OEMs have noticed the capacity and capability of delivering such a critical part is there within Europe as well as India. With that move, now we are planning to increase our portfolio with existing OEMs and the new accounts.
Sure.
Please.
Mr. Karthik.
I was asking you about how the contracting structure. These are longer term contracts, how are you able to protect your profitability, you know, given the volatility in costs? You know, are there terms that will help you preserve a certain level of profitability, either on a per kg basis or on a percentage basis?
Yes. We have the long-term contracts with all OEMs, because generally you know that these are the technology parts, and they have to spend a lot of money and time for the development. Generally they don't go to another supplier. Maximum we are the single source or maybe somewhere when the volumes are high or like what type of risks are there with the OEM, so they go for the second source. In this, like for the protection of the profitability, one is the aluminum, because that is a more volatile commodity. There is a complete pass through to the customers. All whatever the variation is there, we pass on to the customer.
On the other side for other commodities, other costs, so we have the agreement with the customers that periodically we have to discuss with them and take the corrections in the pricing.
Sure. Can you specify periodicity of changes? You know, that will help. I understand people talk about pass-through with a lag and, you know, time intervals tend to be fairly long.
It is-
That is the-
It is, with maximum customers, it is on quarterly basis. Some customers.
Right.
They are directly involved with the suppliers. There is no impact of any variation in the prices.
Right. Just one question to understand this better. From a rupees per kg perspective, you know, what would have been the shift that you've seen? Going ahead, how can one think about that, you know, in terms of material processed? Any inputs would be interesting there.
So ma-
The key is, you know what happens at the back end of our processes are same, which we have commonized. Of course, some are very critical and needs investment. Over a period of time, as we will go for a complex part.
Yes
The weight of the part changes. As the weight changes, the parts per minute, the cycle time, you know, we are able to harness a higher value addition.
Right.
That's what we are aiming at.
Sure. Fine. Thank you so much, and best wishes.
Thank you.
Thank you. We have our next question from the line of Vishal Patel, an individual investor. Please go ahead.
Good morning, everyone. I just want to get details on how the contracts with PSA and the Toyota, which was there for the engines for the first time, which we got, how is that progressing?
Uh.
Yeah. I think PSA and Toyota, the good thing is, we have submitted the samples, and now we are ready. The samples are approved, and now we are ready for the mass production. Also the good news, what we are noticing, the launch, like Toyota has given, announced this, one of the part will go to the Hyryder, and this vehicle is receiving a good booking in the Indian market. We are also hoping that our numbers would definitely reach immediately, and we'll look for opportunity if close to expectation. The good thing is we are ready now, and the SOP is there in the next quarter, which will be also noticed in our results in this quarter.
Okay. It will be regular supplies which will start as per the contract from this current quarter?
Yes.
Okay. I have been an investor with Alicon for almost 15 years. I just have one suggestion. I think the equity is too small, and the volumes are not there. Probably if you can split it, say, into 1 rupees and increase the number of shares, that might help the investors probably.
Thank you. Well noted, your suggestion.
Thank you. Thank you.
Thank you. We have our next question from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi, just a couple of questions. One is, there has been no accretion in order book since quarter three FY 2022. Any thoughts as to why that has happened?
Yes. Your question is, in fact, we have been a little bit more prudent in accepting the orders. Our own way has been now to balance what we have and go for a higher value add, rather do the same and you know, it's a horses for courses, you know, like something like that. We want to play in a higher field and higher value addition. That's where we are little bit checking out what is good for Alicon in the long term, and does it meet the carbon neutral products which are coming up.
Got it. How should I think about the order book accretion from here on?
You know, when you think about order book, you should see what we have done in the last quarter. By having a very large order book and, you know, the year-on-year changes should be very significant. The shift, how does the change happen when we change from two-wheeler to four-wheeler? It does not mean that we will leave the two-wheeler when we say we will have it below 20%. It is our bread and butter. It is something which our people have honed the skill. We are the leaders in this business. It's a shift. As the order book keeps coming, we will keep updating.
Got it.
Something which we are not at all worried as of now.
Essentially, what you're trying to say is that irrespective of order book, the mix shift or the value-added component within the order book is very high. From that perspective, it is margin accretive and absolute EBITDA accretive, right?
Yes.
Okay. Second question was on the underrecovery of RM. I think you mentioned that there has been a 10% price reduction from Q1 exit. Are you done with underrecovery of RMs after this 10% price reduction? And will we see benefits going into the next quarter on the margin side?
No margin, there will be little impact as, in the earlier quarter I was explaining that there is, when we see that the, our margin as a percentage to sale. Definitely, we are looking for the higher margins. When there is a recovery, maybe 10% we are seeing, but maybe stagnant or. Because the major impact on the prices of the RM is due to the energy costs, and still energy is the issue. We feel that though there was a significant increase in the last one year, that is the reason it is stabilized or little bit gone down. We feel that maybe after 10%, or maybe next, maybe 4-5% further they will go down. We will stabilize that at that level.
Yes. Have your under-recovery stopped or you have passed down the all RM increase to the customer?
Yeah, the full debt that we passed on. It is complete recovery.
The recovery is complete. From here on, if there is a price reduction, the final selling prices will also be reduced, right? The customer will ask for price reductions.
Yes. That +1 we have to do with in the price.
Got it. Just wanted to check with you know, adjusted for price inflation in the last couple of years, have you really outperformed industry growth in this quarter? You talked about industry growth being 39% versus your growth, which is far higher. I was just thinking that if I were to adjust for RM price increase, which would be also reflected in your top line, from a volume perspective, has your volume grown higher than the industry growth?
Yes.
Okay.
Even when we discount the RM, we do that internally. I am reviewing every remove the RM fluctuation from our base budget.
Got it. Got it.
that we see even the everything. Otherwise our marketing people will always like to show higher, you know, as a natural tendency.
Got it. Just this revenue guidance which you gave, if we were to adjust for last year's low base, which was there in June 2021 because of the Delta wave, and if I were to then look at now the growth you are guiding for, it looks like that for the next couple of quarters the growth will be single digit or high single digit. Is that a fair understanding? Because the bulk of the revenue growth has come this quarter, right? If you're guiding for a 25% revenue growth, the next three quarters the growth looks slightly muted.
Next quarter as per our internal estimate looks maybe the same. The two quarters which we have factored, the last two, it all depends on where U.S. is heading. See, we cannot all be escaping that as of today. That is what the team has factored. If it turns out that it will be smaller, in fact, so be it, but we should be ready for it.
Sorry, I'm just harping on this again. If I were to look at your trailing twelve-month growth, right? The number which comes, and then I were to see or to calculate, you know, the guidance which you have given, that differential is such that mathematically it seems that the growth for the next three quarters is 10-11%.
Yes. That's the same thing Mr. Rajeev Sikand is explaining because many things we have factored in this while making the forecast for the next three quarters. Maybe we see that the how the things move and we keep our fingers crossed and maybe in the next con call we again will revise on the upward side.
Great, sir. Thanks. Thanks a lot.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We have our next question from the line of Apurva Mehta from AM Investments. Please go ahead.
Yes, yes. Just wanted your view on this margin point because, you know, we had guided about 14, 15% margin going ahead as our volume goes up. We are still struggling with this kind of a low-end % margin. Can you throw some light when we can see, you know, some improvement in margin way ahead? Because that was what we had projected that all our new orders which will be executed with much higher margin close to more than 15%. You know, just on that, can you just review and let us know what is your thought process?
Yes, Apurva. Let me explain. Because you see in this quarter, if you remember in the last con call, as I explained that in this year we are targeting the improvement by 0.7 to around 1% against the last year of margins. That was around 10.7 or 10.8%. Now we are revising that also and increasing our target of increase that approximately 1.2%-1.5% for this year. It is not like that in just one quarter we will see a big jump in the margins because there's a lot of challenges that we have explained in our commentary, like the cost-based inflation.
There is a huge cost increases in the energy especially, and we have to mitigate that, and we have to maybe and we have to absorb some costs and maybe fight with the customer for some increases, and they have to absorb. Definitely that maybe when like volumes are going up and when you are talking about the impact of the new businesses. New businesses impact of the higher margins that have started coming from this year, but suddenly that, after year on year, the things will improve. In one year, we can't see that just a big jump in the margins.
Sir, previously because our traditional margins also were around 12, 13, 14%. We are, you know, last December quarter and the March quarter also we were at 12% on lower turnover. You know, if we are improving, then it will be 12 + 1% margin or what will-
Yes. For the full year, we are expecting to cross 12%.
Okay. On an average, we will cross 12% this year. On a turnover of mostly-
On the side, you see that in this quarter also, where when we explained the impact of the energy, there is a huge impact. Again, there is this increase in the cost of the logistics.
Okay.
The freight cost of the containers.
Mm-hmm.
those costs also we have to absorb.
Mm-hmm.
There may be that increase in the manpower cost because we have to take care of the people.
Mm-hmm. Okay. This year we will be close to INR 1,400 crore turnover, closely. That is that. On that, we should assume around 12.5% kind of a margin if we want to just.
No, I think that is a very forward-looking statement you are asking me to give. I've given the idea.
Yeah. Okay. Going forward, this will gradually improve only. It will not. We will not have some big impact coming in.
Because, uh-
Maybe next year or going forward.
Next year, first important thing was an improvement in the top line.
Okay.
That we are confident that we are seeing the trend, and like we explained, see how we are moving and how the things are going in the right direction. Definitely now our focus is to reduce the cost, and we are also seeing maybe in the coming time there will be some ease out in the inflation also.
On the availability of labor and, you know, that side, are you seeing any challenges on the high quality labor, on the trained labor? Are you seeing any challenges on that?
No, at this moment we don't see any big challenge for this, for availability of the skilled people.
Okay. Good. On the expansion front, have you started working on that? Any further expansion where we want to go ahead and are you-
It's a continuous process. Like every year we are doing investments in the range of maybe INR 70-INR 80, or this year maybe a little on the higher side. Because it is not like that we have to put in one new plant or in the automotive and make a huge investment. Because all our investments are linked with the order book from the customer.
Okay.
When we go for the new order, so definitely based on the requirement of their processes and the capacity, we are doing that.
Okay. When are we planning to do any greenfield projects? Will it come in next 2, 3 years or no?
Totally depends how the market moves. Because, at this moment we are trying to postpone that greenfield project.
Okay.
Your question is very valid. We are trying a number of factors. Firstly trying to improve internally. Looking at some small value add in machining which we can outsource so that we don't take that headache of machining in-house.
Okay.
We have our criteria which is not complex and which are very low value add.
Okay.
We are looking at small, rather than going for fully our own location, maybe we need to take a small place and rent and put some machines there. These are the measures which is all in our mind. Obviously, we keep looking at new technologies and new areas of growth.
Current capacity, whatever we have currently, at peak level, what can our revenue be? Roughly maybe INR 2,000 crore or INR 2,500 crore at the peak.
See, you know what happens in capacity is a very interesting topic as you must be dealing with so many other companies.
Yeah.
You invest in capacity for a particular customer.
Okay.
Right? The customer gives you x volume. You also know little bit about market, you adjust. Our capacities are tied with the customer, volume. This is the automotive business that you must be dealing with.
Yeah.
It's something which you can't say. Some plants may be running at 80%, some may be at 40.
Okay.
There's a cyclical mess in the industry and things like that. Generally we are running still at 65%. You know, we have a scope. We keep increasing that base.
Okay.
Raising that capacity.
Okay, thanks a lot, and wish you all the best.
Thank you.
Thank you. As there are no further questions, I would now like to hand the conference over to the management team for closing comments. Over to you, sir.
Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our team or CDR India. Thank you once again for taking the time to join us on this call, and we look forward to interacting next quarter. Thank you very much.
Thank you. On behalf of Alicon Castalloy Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.