Ladies and gentlemen, good day and welcome to the Suprajit Engineering Q2 FY 2025 results conference call hosted by Anand Rathi Share and Stock Brokers. 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. Mumuksh Mandlesha from Anand Rathi Share and Stock Brokers. Thank you, and over to you, sir. Mr. Mumuksh, your line has been unmuted. Please proceed.
Oh, sorry. Thanks, Tanmaya. On behalf of Anand Rathi Share and Stock Brokers, I welcome all of you to Suprajit Engineering Q2 FY 2025 conference call. I thank the management for taking time out for this call. From the management side, we have Mr. Ajith Kumar Rai, the Founder and Chairman, Mr. N. S. Mohan, MD and Group CEO, Mr. Akhilesh Rai, Director and Chief Strategy Officer, and Mr. Medappa Gowda J, CFO and Company Secretary. Request Ajith, sir, and team to give an introductory review about the results, and then we can follow up with the Q&A session. Over to you, sir.
Yeah. Good morning, Mumuksh and all the participants. Thank you for joining the call. Thanks to Anand Rathi for hosting our Q2 con call as usual. As usual, we will start with our brief. Mohan will give an overall view. Akhilesh will touch a little bit more on our SCS transaction, and Medappa a little bit about the financial numbers. Then we will open the floor for questions. So I will let Mohan to start. Mohan.
Thank you. Very good morning, everybody. As usual, what I will do is I will give you a general market update and then later give you an update about our business divisions. Let me start with the U.S. market or the Americas, as we call it. It is still struggling with the interest rates, poor demand update. It is not doing well both on the non-automotive and the automotive front. But there is a silver lining on the cloud. With the recent elections, there is a clear political stability, and the directions are clear. That is very important for any business, like the MAGA or Make America Great Again, tariffs, border controls, immigration. But significantly for automotive industry, the renewable energy takes a back seat. Therefore, our expectation is that ICE, and therefore U.S. car makers, will get back and they will have an advantage.
The impact and the fallout of all these things are being debated widely in public, and I would not like to get into details. Moving on to Europe. Europe continues with its own struggles, primarily with the Chinese cars being dumped in, what I generally call it, a Chinese invasion. European car makers are beating a retreat. Volkswagen has made quite many announcements, and we are all knowing about it. Large economies like Germany and France are struggling. There is a general fear in the market and also in the economy in Europe. China, if I move on, too, would be continuing on its own battles, primarily inside. But they are having aggressive market expansion, and right now targeting that at Europe. Apart from these geographical, I would say, territorial issues or opportunities as we call it, the Red Sea and Panama Canal issue is still there. It continues.
Therefore, our shipment times are still pretty high. Shortage of containers, therefore that's pushed up our freight costs. Well, despite all these uncertainties and headwinds, I would say that our Suprajit Controls Division, which means SCD, which is operating outside of India, has performed reasonably well with a very good 3% revenue growth. Also very importantly, the EBITDA has shown a strong northward march. SAL, the OU here in India, and [SU] the Europe, Hungary, Wescon, Shanghai Lonestar, they're all doing fine, and we are all clocking new business wins there, which is pretty good for us. Matamoros continues with the two key challenges that we have, that being the tariff issue which we have talked about earlier, and also the employee costs.
I was there in Matamoros about a month back, and we have launched aggressive restructuring exercise to consolidate, synergize, and very importantly, repurpose our management talent within Americas. This exercise will be stretched probably over the next two to three quarters. Moving on to our domestic cable division. It has kept its razor-sharp focus on growing profitability. Very important is it has bounced back on its profitability, and it is also expanding very well into what we call it as Beyond Cables strategy, specifically into the braking products. Moving on to the electronics division, it has started looking for business beyond India and beyond EV. As a first step, we have started supplies to our own overseas subsidiaries who are buying certain electronic PCBs locally. STC or our technology center continues its efforts in developing and commercializing new products, and adding them to the Suprajit stable.
Very importantly, I would say that we have planned to have our own infrastructure for STC at the place that we started in 1985. That means literally our birthplace. This signifies that we want to demonstrate technology as our powerhouse for a profitable growth as we expand and diversify. With this, I would like to hand over to Akhilesh to talk about SCS. Thank you.
Thank you, Mohan, and good morning, everyone. Coming to SCS, as you know, it was acquired out of insolvency. It is stage one of a two-stage process. In Q2 at SCS, there was an incredible amount of work that went into just stabilizing the SCS entities and bringing them back to normalcy. We have had to airdrop multiple teams into Europe and Morocco. We have had to create parallel SAP instances to run two legal entities in one location. We had to shut down the Poland plant, et cetera. Multiple things, which of course brings multiple complications and also led to certain one-off costs that had to be made in this quarter. Further, the SCS operational EBITDA being negative for this quarter was not unexpected considering this is a complex insolvency situation. Let me highlight five key reasons for the negative operational numbers.
Firstly, there has been a significant top-line drop in Europe due to the market in Europe, which Mohan also mentioned, and also because a lot of customers had built significant safety stock in case SCS had gone insolvent. You can imagine that this could cause significant disruption for them. So they had built an in-house stock, which they would consume in the case that SCS went insolvent, which of course we took it over, but to exhaust those old stocks, they also reduced the offtake from SCS, dropping the top line at SCS and the pickup from us. During this quarter, we also had a lot of expedited freights. As you know, we were shutting down the Poland location. We were ramping up the Moroccan plant, which required a lot of expedited freights with a very complex supply chain.
The way that SCS was structured was that all European purchases was first going to Germany, then it goes warehouse in Germany, then sent to Morocco, and in Morocco then send it back to Germany and then to the customer. The first thing that we have done as we have taken over is to simplify this and make sure all the suppliers are supplying directly to Morocco, so it does not come to this German warehouse. This change has almost been completed by our team in Morocco. We have also had multiple quality costs and sorting costs in Europe due to this ramp-up in Morocco. We have gone from zero to 800 people in two years. It is a huge feat in the automotive world, and that has led to certain production-related quality issues, which ended up with much higher than normal costs in Europe to sort and replace parts.
We see that in the most recent month that these quality costs have dropped, and we are positive that they will be able to continue this and hope that they will. These numbers also include certain Poland wages, extra people in Germany, for which we had a planned severance, and some of that severance is done. Some will be completed over the next two quarters. There are also other operational costs included in these operation numbers, like legal, IT, accounting, and other related projects. Some parts of these costs will continue and some will stop. We faced various non-operational one-off costs, more related to the transaction, and of course, the insolvency situation. For example, one significant cost was the severance cost in Poland. Most of this has been done, but there will be some further severance in Germany as well.
We also have certain one-off legal, accounting, and IT consultancy-related costs to implement these new systems and also to manage the complexities of the insolvency. These are all completed in this quarter. With that, I hope this gives you some color about what happened at SCS and the quarter one. With that, I will hand it over to Medappa. Medappa, you can go ahead.
Yeah. Thank you, Akhilesh. Good morning to all. The consolidated revenue, excluding SCS for the half year ended 30th September 2024, was INR 1,508 crores against INR 1,389 crores for the corresponding in the previous year, representing a growth of 9%. The consolidated operational EBITDA for the half year end 30th September 2024 was INR 184 crores as against INR 144 crores from the corresponding previous year, that is a growth of 28%. The standalone revenue for the half year ended 30th September 2024 was INR 827 crores as against INR 719 crores for the corresponding previous year, with a growth of 15%. The standalone operational EBITDA for the half year ended 30th September 2024 was INR 135 crores as against INR 125 crores for the corresponding previous year, recording a growth of 15%. The total debt level was INR 717 crores as on 30th September 2024.
The cash balance was INR 325 crores as on 30th September 2024, invested in mutual funds and bonds. For further queries, you can approach me even after the call. Thank you very much.
Thank you all. Just a quick brief from me. I think there are two parts for the quarter. One is, I would say it is a very good operational performance of all our four divisions, which is actually improved in this quarter pretty well, including the Controls Division. Our medium-term target was to achieve an 8% EBITDA level, which is what has been achieved consistently in two quarters. So I think that has been a, overall, divisionally, we have done well. What has been the real focus for us and also probably for people, investors, is what is happening at SCS. SCS was a case which we have taken up from an insolvency, and as Akhilesh has explained, there have been multiple challenges in reviving an insolvent company. But what is interesting is that we now understand what is happening in this insolvent entity.
If you look forward, say, by April, the way it will work is that we will have one major operational plant of Morocco, which will service Europe. We will have a lean and mean German operation, which will be only engineering and business development. We will have a Hungarian lower-cost warehouse for the Suprajit Controls Division, which will be managed by CFO, our existing plant. A complete shutdown of Poland. This is the overall restructuring, which will lead us eventually to offer to our customers globally. Of course, by the time the Canada and the China part of the deal will also be done. What we are going to offer, just for the benefit of all the business, is that out of China, we have one plant supplying to the domestic market, one plant exporting. Of course, India will be a strong export base.
For Europe, if the customer wants near shore, Morocco will be the big operational advantage. They are quite efficient in terms of overall expenditure compared to Europe. If somebody wants locally made, we have a Hungarian plant, with very good operating capabilities in terms of warehousing out of this new warehouse, as well as our Koper warehouse out of Slovenia. When you come to U.S., we have a two-pronged approach. One is from Canada to deliver to U.S., and one is from Mexico to deliver to U.S. Apart from our operations, which will be in Wescon as well as, of course, our engineering center. If you look at the macro perspective, in about six or eight months or nine months' time, we will have an operational footprint which will probably be unmatched by our competition.
I think that is what the real thing that is happening in the underlying operational numbers that you have seen, that I just wanted to bring to your notice. With that, I will open it for questions from anybody who want to ask. Over to the moderator, please.
Thank you very much, sir. 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 only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Viraj from SiMPL. Please go ahead.
Yeah, hi. Thanks for the opportunity, and wish you and the team a very happy Diwali and a new year. Sir, just a couple of questions on the operations. One is, would it be right to say that there was an additional cost of roughly around INR 30 crore due to mix of restructuring at SCS and SCD and other acquisition and trade-related impact? If that's the case, can you just give some breakup into the major components? Going forward, there will be charges, so would the intensity go in the similar manner? If you can provide more deeper perspective.
Yes, Viraj. I don't know how you got the number, but I think very interesting. Yes, I think if you really compile all the restructuring and acquisition of this insolvent SCS entity, the ballpark number is around INR 25 crore. So that includes multiple things. It also includes certain restructuring at the Controls Division as well. All these expenses relating to acquisition in Europe, all the lawyers and advisors' fees, et cetera, as well as few other expenses in terms of some of the write-off, severance costs, et cetera. So you are right, that is the number. If you put that back into our consolidated number at the profit before tax expenses, I think you will see actually it is better than last year's number. Is it every quarter that hit? No, I am not saying that at all.
I think, going forward, there will be still some cost relating to this acquisition because the China part is being done. It will be done sometime, hopefully in the early part of January. So that cost will be there and some more of these, we'll continue to have some restructuring costs in the SCD outside of SCS. So that will also be there, but the numbers will not be these numbers here.
Okay, just a follow-up. You also talked about restructuring at SCD, right? Post the restructuring at Matamoros, would that largely negate the kind of hit on duty and paid inflation in Mexico we have been incurring in our books? How are we incorporating this learning when we are building for new wins?
Yeah. I think it's very difficult to answer that question, first of all, because restructuring is an ongoing process. We are first making Matamoros particularly, which is from the entity that is the one which requires probably the most attention because there were both external and internal factors. The internal factors in terms of operational efficiency, team efficiency, et cetera, that is what is one side of the restructuring cost that we are incurring. Will it fully offset the wage price increase? As I said, in two years, we have something like 40%, 50% increase. That cannot be fully offset, I think. But it will make it a lot more efficient. But I think what we also need to see is how Suprajit Controls Division is performing from an overall perspective. There will be individual pieces that we need to address.
You are right, Matamoros is the one that we are addressing. As Mohan said, quite a bit of the other pieces have been performing very well. What is the SCD performance? I think in a global auto component industry, if you do between 6% to 10%, it is a reasonable EBITDA margins. 6% is okay, 8% is good, 10%+ is exceptional. From the 3%, 4% what we had, if you see our business uptake, we are now at 8%. I think we had a very good journey so far. We have reached our midterm targets. But of course, that journey continues and as we do more and more, these are this kind of further operational efficiency improvement and minor restructuring, which is ongoing, particularly at Matamoros. I think these numbers should continue to be in those range.
No, I think it's commendable, especially with the way the demand is played out in North America for the non-automotive and the impact it would have on the con profitability. We've done a fairly good job there. So congratulations to you and the team. Just two more follow-up questions. For SCS, the deal value was pegged at roughly an EV of $13.5 million.
Sorry, I missed your question. Sorry.
For SCS, when we acquired, the deal value was pegged at an EV of $13.5 million on a no debt, no cash basis. And within this also there was an adjustment towards networking capital and any other social liabilities or statutory dues. If I look at the phase one, we got a spend of around INR 94 crores in acquisition, which is what mentioned in the notes. Is there any revision approach in terms of the acquisition value and what will drive this?
There is no change in the EV as such. I do not know exactly the, Yeah, it is $13.5 million was the EV. But please understand, when we took an insolvent company, they did not have any working capital. So we had to pump more money into it. There has been an ongoing support to make sure that it stabilizes. Overall, there is no change in the enterprise value calculations, but the allocation of that enterprise value between the first phase and second phase is what probably would be the one that is being changed in the process, but otherwise there is no change.
The last one. In terms of investment on CapEx, we would need to do to bring it on par in terms of operational performance. What is the kind of investment in CapEx? Just one more. There are news of plant closures in Europe by major OEMs. Is there any risk to the business at SCS or largely the order books which we have been winning?
I think within SCD there is an internally allocated CapEx, which we do not really disclose to the market, but which comes within the INR 180 crores that we have mentioned, I think in the last quarter. All the SCD entities would work within those CapEx. For this particularly, any major CapEx in the next three, six months time, we are not actually foreseen anything or at least it has not come to our notice. I do not see. But certainly, when there is a negative cash flow, as you can see in the first quarter, a support is required and also plus the working capital that is required to manage it. As I think Akhilesh mentioned, the China, Canada part of it is actually profitable part of it.
When you look at SCS together in, let's say two, three quarters down the line, I think the picture will be significantly different. Now, to answer your second question on market demand, it is very difficult to say anything because, let's say the new president in U.S. works out a deal with Mr. Putin and the war ends in Europe and the whole scene will change. But right now, yes, we are all aware what folks who are going to announce and others are talking about. For us, all we need to do is to internally, we need to be very efficient and optimal operating in it. Like us, others also will suffer if the volumes drop. We should be the one with the least suffering. When the tide turns, I think we will be in the best place to capitalize.
That's all I can say, because the market is very difficult to assess at this moment.
Okay. I will come back in queue. Good luck.
Thank you.
Thank you very much. The next question is from the line of Amit Hiranandani from SMIFS LIMITED. Please go ahead.
Yeah. Hi, good morning team. Thanks for the opportunity. Sir, could you please explain what exactly we are doing regarding this restructuring of SCD?
Yeah. Okay. Mohan, will you touch upon the restructuring of SCD?
Sure. Let me just break it down into majorly two portions or two and a half portions, if you can call it. First, I will talk about Americas. In Americas, you have these two entities in Mexico. One is Juarez and another is in Matamoros. So we are looking at what and how we can synergize between these two, and who are the common customers, et cetera. Second thing is, these were all bolt-ons. That means we bought Wescon, then we got LDC. So these were all bolt-ons. Then they were bolted on from one piece to another piece. Basically, there were overlaps in management. Therefore, we can do a managerial shakeup and bring in certain amount of consolidation in management. Therefore, it brings in what I call it as unity in command and unity in direction. So that is another part that we are doing.
I think I had talked about this in the last time or so. We have kicked off what is called as MAX teams. These MAX teams are working already with each other to bring in synergies. Therefore, from a restructuring perspective, it is going to be management structure that we are looking at, therefore, we would be shedding some overheads.
I think in addition to what Mohan has said, let me also add that in this quarter, the quarter gone by, in Matamoros, we have done certain let go of people to tighten the belt. I think there will be some more work that we are going to do in that direction in this and next quarter. That is one. Secondly, I think there is also another interesting part which probably we have touched upon but not elaborated, is our ability to do in-house manufacturing. For example, we are buying lot of plastic part in the U.S. from outside, whereas Matamoros has got a large plastic molding facility. So we have brought a lot of them or bringing a lot of them to in-house. So that is one part. Secondly, for example, we are buying electronic component.
I think we have made a comment in our business update that we are insourcing to our Suprajit Electronics Division. So Electronics Division is starting shipment of these electronics components to our U.S. operations. So I am just giving you some example. There are lot of these in-house restructuring of manufacturing is placed and what makes it better strategic fit for us. So that is the other side of the restructuring in terms of operations.
Right. So sir, is this restructuring of SCD is aiming to achieve double-digit EBITDA margin? If yes, then possibly by when we can achieve this?
Amit, I have said this just now. I think in global, you guys track global auto component companies as well. Between 6% to 10% is good. We started below 6%, I think 3%, 4% at one point. We are at 8%. I think it is a good progress. Of course, our ambition is much higher, but they are all part of this journey. Yes, we want to improve it further, but we do not want to give a number. Obviously, we have our internal target.
Right. Sir, considering the poor global situation at the moment, when do you think, sir, SCS will achieve the EBITDA break even?
Honestly, I think I will be in a position to say in two quarters. Hopefully, by the time if you have completed the SCS Canada and China part, which as I said, if profitable happens, it happens, and when you combine those two together, hopefully it is EBITDA positive. Unless it is completely done, it is little premature for us to say that. Let me say this, what is more important is what we see so far in the numbers. We see, for example, the numbers of material cost at 50%-55%. That we know as a cable manufacturer is a good number to be considering our multi-geographical number. The rest of the cost, we have to bring it under control. I think that is the challenge for the operations team. As we have done, even in Wescon, with the lower sales, our EBITDA is double digits.
We know how to do it. I think knowing that our material cost is under control, I think the rest of it will fall into place over the next two, three quarters.
Right. Sir, two bookkeeping questions. There were some taxes paid as registered despite your lower profits, and debt level has also increased by 23% on a Q1Q basis. Wanted to understand these two things, please.
Yeah. I think the taxes, as you know, we have done hardly any borrowing for the transaction per se. But for the overall transaction, we have Sorry, am I on? Am I audible?
Yes, sir. Yes.
Okay, sorry. In terms of the taxes, as you know, for both our buyback and our acquisition, we have redeemed our mutual funds, which are all long-term in nature. Obviously, as you have seen, our mutual fund numbers have come down. It is all done for these two purposes. So the tax provision has been made for that. I think that is why you are seeing a higher tax number there. In terms of debt, no. I think for our Indian CapEx, I think we borrowed some amount, some maybe INR 25 crores, but basically our working capital, we have utilized little more for our overall operations. So that is basically why it is.
Debt level, basically, just wanted to understand what is the annual repayment schedule going forward for this?
I think you can take that offline with Medappa. We can provide those data. Not a problem.
Sure. All the best, sir. Thank you so much for the opportunity.
Thank you.
Thank you very much. The next question is from the line of Priya Ranjan from HDFC AMC. Please go ahead.
Yeah, thank you. My question is, basically, if I look at the standalone. So standalone is around INR 4,500 crore. The console number is around INR 8,300 crore in terms of top line. I mean, standalone, there has been hardly any change. I mean, it has been mostly in terms of profitability. So if I look at your subsidiary revenue, I mean, roughly around INR 400 odd crore. So INR 400 odd crore, what is the sustainable margin, I mean, do you think can happen? Maybe, I mean, once all the restructuring, et cetera, is done at the pure EBITDA.
Yeah. The aim is to go to double digit. As I said, right now, I think it basically is a Controls Division, I think. So typically, the margins that is outside of India is between 6% to 10%. We were at 3%, 4%. We crossed 6% last year, and I think now we are at about 8%. Of course, the aspiration is to go to 10%. I think that is what we would like to do over a period of time on SCD. But with SCS happening, it will be probably delayed by another few quarters because SCS restructuring itself is a separate operation.
Okay. And secondly, with the SCS acquisition, so how much additional top line is going to come if those two plants happens, probably the Canada-
Yeah. From the next year, yeah.
Yeah.
For the next, I think full financial year, because this will be a little bit bolt-on pieces this quarter and next quarter. I think for the next full year, between $40 million to $45 million will be the top-line addition.
Okay, $40 million to $45 million additional from what we are doing currently.
Correct. Exactly. Yes.
Yeah. This year it will be three months for the German and the European operation for the SCS.
It will be for three quarters. If Canada happens, which we are expecting in Q4, whatever number of months that will be there, it will be little again piecemeal. But it will be full pledge from 1st of April as it is.
Sure. Do you think, I mean, in terms of acquisition, we have gone little aggressive. We are actually battling too many fronts at the same time while we have been trying to stabilize the LDC last acquisition. Should we go slow on acquisition? What is your thought of the opportunity was such that you could just can't avoid it?
I think this was more an opportunistic thing that came on the table, Priya Ranjan. It came, and I thought it fit. We all felt that it was good fit for us in terms of our overall global footprint. Just as I said, both onshoring, closeshoring, low cost options. We are now providing that full capabilities to customers, and I think that is the real background why we were interested and serious about SCS. Now that we have done that, I don't think we have any plans to do any such cable asset acquisition, because I think our footprint is complete in most sense. So that is one part of it. On the entity, I think excepting Matamoros, which was partly outside of our influence, all the entities have stabilized. As I said, SCD today is generating 8% EBITDA, which is considered decent in international numbers.
We are already there. Of course, once Matamoros does even better, that number without SCS will probably can even improve further. But that is where we are. On an overall point of view, it was an opportunistic buy, and I don't think we have any more plans. And I think our bandwidth at this moment to deal with it is pretty strong, so we can certainly do it in the next couple of quarters.
Sure. And just on the, we talked about 10% or double-digit EBITDA margin. On the PBT level, what should we consider for subsidiaries?
I have no answer. I'd have to do some back of the envelope calculation, I think, but we could probably have another call to see whether we can get certain data on this.
Thank you, sir. Understood.
Thank you.
Thank you very much. The next question is from the line of Mumuksh Mandlesha from Anand Rathi Share and Stock Brokers. Please go ahead.
Thank you. Sir, just on continuing on the SCD, sir. When we see last year number, at the PAT level, there was still a loss at a 6% EBIT margin. Obviously the major challenge is the tariff issue. I just wanted to ask if there is any update on the tariff part where there also legal, we are trying to solve the issue.
Yeah.
Because to turn that PAT, I think that will be key for the margins. Any update on that, sir?
Mohan, will you answer that on the legal issue?
Sure. I've had discussions with the lawyers there. Basically, the stage that we are in is what is called as a discovery phase. In discovery phase, basically, we provide all the documentation to show evidence that this has been substantially transformed. Therefore, at the parent level, it need not have to be taxed as though it has come from China. This evidence, we have given it to the government authorities, and it is now pending with them, post which we will either get an out-of-court understanding with them, and therefore they will back off on that and we will get it back. Or if they decide to pursue and they have to give their line of defense, then we will go to what is called as a bench in the court. That's where we'll have to go to the court itself. So this is the way it is.
I have had these discussions with the lawyers. The way I look at it, by around March, April, we should be having some sort of an understanding where we are, hopefully. But you know, whether courts in India, courts in U.S., they all behave the same.
Understood. That is the case. Sir, Mohan, sir, to you only. Coming to non-auto part, it's another drag for the last two to three quarters. Just on the recovery part, how do you see that playing out in the coming quarters, sir?
Is the question to me or-
Yeah, go ahead, Mohan. You can answer that. Yeah.
Okay. See, let me split that into two portions. One is what we call a green season, another is called a white season. Okay? These are generally how we classify it. Green season basically talks about all these lawnmowers and those kind of stuff. Whereas white season is all about snow. Snow throwers and snow. That is where these two factors come in. Now, what has happened is if you look at the supply chain, there are what are called big boxers in U.S. These big boxers go and order on the OEMs, and the OEM then pull the parts from us. That is how it happens. Last year, there was huge amount, I would say, overstocking in the big boxers, and it did not move. What happens is, we always closely watch what is called a new home market, the real estate market.
More there is an uptick on it, people buy these houses, then they will go and start picking up all these equipment. That is going to be again, dependent on the interest rates. That is how the linkage comes in. For us, what we look at as a lead indicator is inflation, followed by interest rates, followed by the real estate, and therefore big boxers stocking and OEM producing. This is the kind of supply chain. If I look at it, I would say this year, it is not going to be great. I was there in U.S., and I was discussing with quite a few customers like John Deere, et cetera. I have not heard anything very positive and encouraging there. Therefore, it is going to be a bit tepid for some more time in my opinion.
Just to add, as I said earlier, I think despite the lower sales, we are doing better EBITDA margins compared to last year at our Wescon and at our Unit-09 operations. That shows that operationally, we are very lean. But of course, the business is what it is. There is no top-line growth.
One of the, I would just add also that with the change in political situation, especially things like what tariffs Trump might decide to put. A lot of Chinese imports of complete products, for example, there is a big problem of huge imports of golf carts from China into the U.S. A large tariff on something like that will completely change the situation because then they will do a lot more golf carts in Mexico or in the U.S. mainland, where a lot of our key customers are. So things could very quickly change very positive for us, depending on the political situation. Either way, we do not get affected because we can supply out of Mexico or Matamoros or out of India. Or of course, the U.S. mainland also, where we have onshore operations.
Important topic. This is very right, sir. Just in first half, sir, how much fall would be there in the non-auto parts, sir?
Sorry, I cannot hear that.
In the first half, how was the fall in the non-auto, sir?
How much is the fall, is it? I think if you see our pie chart, I think it shows compared to last year when we had, I think, something like 19%, I think, was non-automotive. In the first half year number, it is only 16%. Our top line has grown by almost 10% on consolidated basis, but our market as a individual pie chart share, it is only 16% of that compared to 19% last year. Yeah.
Understood, sir. Sir, lastly, on the-
Yes.
Last one. Sorry, lastly on Electronics Division. We have seen some growth there, sir. Just want to understand how do you see the next two year ramp up, and which are the key products that are expected to do well, sir?
I think Mohan, will you answer? I will also give a point later on.
In the electronics division, our first focus was on penetrating the market with the EV players. Because EV players are much more understanding. They are also startups by and large, and technically we were also a startup in the electronics industry. Therefore, it made kind of a good compatibility between the two of us. From here, our focus has been to move forward and try to get into the non-EV segment and also beyond what we call it as beyond EV, is what we are looking at. This is going to be a tough nut to crack but very important is we have now some history, some background. If somebody comes and audits us, somebody checks our SMT lines, our processes, we stand a very good chance in the, I would say, established world.
Right now we have had multiple customers visiting us, but this has to translate into business. But we are pretty upbeat about it. If you are asking me for a specific number, I would not like to give that because there are too many moving pieces. One moving piece is the EV itself. There is a shakeup in the EV. Some people whom we have as a customer are kind of falling off. Some people are doing okay, some people are not doing okay. And we are also gaining some new business with EV itself. But more importantly, non-EV portion is where we are looking at how to increase it, because that is going to be stable business.
To add to what Mohan said, I think one of our first big customers for electronics division is no longer buying from us because they are not operating. The whole thing has changed. Of course, in the process, we have also had to write off some of those receivables. Last year at this time, we were only from the electronics division supplying to EV guys. But today one major ICE OEM is become second-largest customer to us for the electronics division. And another large OEM ICE manufacturer is becoming a customer, and we are starting to do delivery sometimes too. What I am saying that the whole thing is changing, but I can also say this, I think electronics division will continue to be our fastest growing division.
Got it, sir. This is. Thank you so much.
Thank you very much. The next question is from the line of Gokul Maheshwari from Awriga Capital. Please go ahead.
Yeah, thank you for the opportunity. My one question is that, sir, when you are able to complete the acquisition of SCS, and you are able to offer nearshore, onshore and offshore, and you are putting all the equation together, what growth can you actually achieve on a sustainable basis over a two, three-year frame?
Well, there are so many moving parts in this, Gokul, but the way I would answer is that we would look at the global automotive growth. I think currently ex-India, it is almost zero. Let us assume that the global automotive growth is, say, 2%, 3%, 4%. We will be not successful unless we do a 5%- 10% on top of that. I think that would be the target. That can be done only through acquisition of market share from the competition through our model that we just described. So that is the way we are looking at business.
Okay. What is happening in Europe? Do you see that as an opportunity or a challenge for us from, again, from a two, three year perspective?
I think there are both sides to it. I think the challenge is simple. The volumes are not there, so we need to be much more efficient and try to manage our cash and manage our profitability. That is the challenge part of it. That challenge is even tougher for the competition, because who are probably not making money anyway in the first place, and they don't have a reasonably deep pocket to survive the operational cost requirement and the cash requirement. So that is actually the opportunity for us. I think I've said this before, there will be a lot of consolidation of the industry, which you have seen at least in our industry that happened. We ourselves have done multiple acquisitions. It's going to be more such consolidation, either through complete shutdowns, insolvency, restructuring, whatever.
In the process, I think customer will look at people having the supply chain footprint that I have just said. Described. So that is our true opportunity. The confidence that we have that we will outperform global automotive industry growth is purely because of the kind of model of business that we are able to offer to our customer.
Okay. Lastly, just on the domestic cable business, the margins year-over-year has come off a bit. Is there something you would just want to call out something over there?
Yeah, I think we mentioned in our last business update, we didn't repeat in this. Please note that the domestic cable division also, in the way it has been grouped, maybe next year we'll see whether we need to separately do it. It also takes care of the cost of Suprajit Technology Center and corporate. In both. In corporate, of course, we had done some extra people hiring, considering our global multiple things in IT, in strategy, in accounts to do all the global requirement of the company. So that corporate cost has gone up. And STC from the last year, I think maybe we are 40, 50 people. Today, we are 120 people. So that cost is all sitting on DCB. So if you take those numbers out, actually DCB is doing exceptionally well.
Great. Thank you, and all the best.
Thank you.
Thank you very much. The next question is from the line of Aditya from Securities Investment Management. Please go ahead.
Yeah, hi. Thanks for the opportunity. My question is on Phoenix Lamps. The margin improvements we are seeing, how much of this is due to lower raw material prices? Or it is more to do with increased scale and cost measures we have undertaken in this division?
Mohan, will you answer that?
Yeah. It is not attributable to only one item. It is both what we call as the material cost portion. Again, material cost portion has got two subdivisions into it. One is the consumption itself. That means the reduction of scrap, better consumption, better formulation, et cetera. Second thing is what we call as the basic price itself. As you would have seen that earlier at one point in time, a couple of years back, everything had gone literally through the roof. At that point in time, we had got some price increases. At the same time, we had gone on aggressive, I would say, material consumption conservation efforts. I think that is all paying off now. Other than that, when I come to the other productivity portion, primarily, you know we bought this company from Osram in Chennai. That did a great job.
The productivity improvement there has been phenomenal under our management. We did a big turnaround, I would say there. The kind of targets that I set to them, I was not sure whether they can meet it, but they wonderfully did it, and I am very proud of the team, in fact. I would say that it is productivity improvement and also material cost.
Understood, sir. Sir, given where the raw material prices are and considering our position as last man standing, focus from here on would be on maximizing volume scale or towards downwards margin sustenance?
Mohan?
Yeah. It is a double-edged game. Because people know that this is going to be. The question is your vendor base also believing in last man standing? Because there are some people, for example, there is one jack supplier who said, "No, I am going to shut down because I do not think this is going to go forward anymore." Therefore, then we will have to scurry around, look for another source somewhere other part of the world. So it is kind of a double-edged sword. It gives you a scaled-up advantage, and definitely we take advantage of that. But at the same time, on certain areas, there could be a possibility that a vendor might not look at this as a strategic way forward, therefore, we might have to now take some harsh calls or difficult calls on it.
So it is a mixed bag. There is nothing black and white about it.
Understood. Sir, just one more question. Coming to this Suprajit Electronics Division, there was some moderation in margins. So what has led to a drop in margins?
Sorry. Which division?
Electronics. Suprajit Electronics.
Electronics.
Yeah. There was some moderation in margins. What was the reason for the same?
I think I will give a general answer. One is, of course, this division partly also has our mechanical gauges, the old mechanical instrument or speedometer that we make. That is a pretty low-margin business. It is a small part of our overall business. But for the division, it is a fairly significant part of the business. That is the low-margin part of it. Whereas the electronics part of it, also, I just mentioned in passing that there has been a lot of turbulence in the EV space. Some of our customers either have gone bust or some of them have not paid up. We also had to do some write-offs during the quarter or even the previous quarter. There has been a great experience to learn the business, but some of them have not survived. There have been some of those effects also in that number.
I think that is the reason why it looks a little lower than what it was earlier.
Understood. Sure, sir. Thank you for answering my questions.
Thank you very much. The next question is from Gokul Maheshwari of Awriga Capital. Please go ahead.
After this, we will take one more question, moderator, after Gokul's question, because it is already 12:00 o'clock. Go ahead, Gokul.
Sure, sir.
Okay.
Good morning. This is [Genelia], sir. I think you're-
Okay. Hi.
Okay. Hi. You've answered most of the questions. Just a couple of them. Today, when we look at, sorry, just forget. When we look at the global, I'm extremely sorry. I'm just, I think that question just slipped out of my mind. I'll take the second question first. You did mention that the INR 25 crore state ops due to the SCS are extraordinary and one-offs that are there. When we look at the press release and mention what the actual EBITDA growth of the core operations at the console level was, only that number comes to around INR 25 crores. But fine, if you are mentioning INR 25 crores, the question that I have is that could you quantify, in the coming quarters, if that number is going to be far lower than what it is in this quarter? Is that possible?
I think I did mention in the earlier question itself that these one-off of INR 25 CR is not going to be continuing every quarter. No, it isn't.
Okay. Fair. And coming back to my first question, in our past conversations, we've always consistently mentioned that, look, ultimately being the lowest cost across the globe and what is happening to our peers, and when we hear about Volkswagen and the likes of them, isn't that a situation where it's actually an opportunity for us? Because today, they are also really looking out for suppliers who are sustainable and they have a cost advantage. So in a difficult environment, actually, that's an opportunity for us to gain share. I mean,
Absolutely. There's no question about it. In fact, we have been making remarks in every business update of ours every quarter that we are winning significant new contracts. That's all at the cost of the competition. Why we are saying that we will grow 5% or 10% higher than the global automotive growth is purely because of these new contracts. So that means to say what? Somebody else is losing. So somebody else is bleeding. So that's the reason why we feel that our model has been so well accepted.
So to your point, what you're trying to, in effect, say is that currently what our growth is, and when industry does pick up, and obviously adding to the point that we've had a lot of new order wins, that growth differential versus the industry should be far larger. Correct?
Yeah. That's all building a building without knowing the facts, right? I don't know. So if it is true that let us assume automotive industry grows by, say, 10% next year globally, which I don't think is going to happen, then we should also grow by 15%- 20%, but I don't think it's going to happen.
Okay. Fine. I do commend the way you guys have handled this entire SCS acquisition, the way you guys have made comments on the same. Good luck to you guys on the team.
Thank you. Last question, moderator, if any.
Sure, sir. Thank you very much. The next question is from the line of Senthil Manikandan from ithought PMS. Please go ahead.
Good morning, sir, and thanks for the opportunity. Sir, in one of the presentations in last month, you had a strategy of developing locally and disrupting globally, and you mentioned products like actuators and braking and digital clusters. Are we planning to take these products to the global OEMs? If you can share some insights on this.
Akhilesh, will you answer that? It is more towards the SCS products and our plans and strategy, I guess.
Yes. I think this is one of the important growth areas for us. Just like we have a great footprint for control cables, we also have a great footprint for our other products, which we are fully developing ourselves here in our Suprajit Technology Center in Bangalore. The key areas where we are developing is one is, of course, braking system, which is focused on off-highway and two-wheeler segment. Then we have actuators, which is focused on all the segments, including automotive, where we are already doing significant number of actuators for our U.S. customers. But we have a lot of opportunities to grow those actuators to our European customers, which have been our bread-and-butter customers in the past. This is an easy synergistic type of win to start supporting our European operations with actuator products. Lastly is the electronics and the digital clusters.
This, of course, right now you can see most of the growth is in India with our key customers in India, but there is certainly a lot of potential for our global business to buy electronics and work with our customers on their electronics needs, because we work so closely with both OEMs and tier ones. There is a lot of good potential for the new products we are bringing in at STC, yeah.
Thank you. Second question is with respect to the domestic cable situation. Sir, if you can just share on the two-wheeler industry growth trends. Is it that the premium part of the two-wheeler segment continues to outperform? Are there any change in trends?
Sorry, I don't think I caught your question properly.
Sir, with respect to the domestic cables division-
Yeah
How is the industry trend? In one of the earlier calls.
Yeah, industry trend. Well, right now the industry trend so far, of course, it has been all sort of attributed to no big growth in the rural development, and hence the non-100, 125 cc seems to have been doing much better than the 100 cc segment. But of late, the talk is that the rural economy is picking up. There are green shoots. This is what we are hearing, and hence, again, there is some traction in the 100, in that lower end of that cc range. Overall, there has been, of course, a better growth. If you look at historically, I think, the 150+ cc or 125 cc- 150+ cc range has been the one that has been growing faster than the 100 cc segment. So that is the market scenario. For us, it does not matter because we are in that entire spectrum.
As we speak, I think there seems to be some recovery in the rural demand, so overall market seems to be good. But I think I must bring to the notice of all the listening investors, is that, since we are talking of Q1, Q2 data, up to September, the industry has grown. I am talking about the entire segment of automotive, right from two-wheelers to passenger vehicles and LPV, HPVs. The OEMs have dispatched something like 12% or something like that number. Whereas the industry, I mean, whereas the FADA data says that the actual number of vehicles that actually been registered or sold in the marketplace has grown only by 2%. Of course, there is an export part of the whole business. That seems to say that there is a large number that is still in the market. So that needs to be sold. Yes, October was the good month.
I hope a lot of these stocks have been depleted, so that we are all in a good wicket. Otherwise, there is a bit of a challenge because this time October had both Dussehra, Navratri, and Diwali. Whereas last year it was in October and November. Both the months have been good. So we are also looking in November how it will be. So there is still some amount of uncertainty, but I have said this before that Indian automotive across the breadth will probably grow only in a single digit, so we will have to wait and see whether that remains the case.
Oh, thank you, sir.
Thank you. Thank you.
Thank you very much.
I think with that, I would like to say thank you all for your continued interest in Suprajit. I hope we have given you all enough insights into what is happening in our four core divisions of operations as well as our recent acquisition. If there is any further inquiry or questions you have, you can contact Medappa and try to get additional information as you need. Thank you all, and thank you also to Anand Rathi and Mumuksh for organizing this call and as well as to the moderator, thank you so much. That is all from our side. Thank you.
Thank you so much, sir. On behalf of Anand Rathi Share and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.