Ladies and gentlemen, good day and welcome to Suprajit Engineering Limited Q1 FY 2025 earnings conference call hosted by Anand Rathi Shares 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 touch-tone phone. I now hand the conference over to Mr. Mumuksh Mandlesha from Anand Rathi Shares and Stock Brokers. Thank you and over to you, sir.
Thanks, Manoj. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Suprajit Engineering Q1 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, Mr. Medappa Gowda, Group CFO and Company Secretary. I request Ajith sir and team to give an introduction review about the results and then we can follow with the Q&A session. Over to you, sir.
Thank you, Mumuksh. Good morning to you all. Welcome to our Q1 results and business update call, the day after the Independence Day. I welcome you all again heartily. We will have the quick briefs from Mohan, followed by Akhilesh and then Medappa and I will close our initial brief with my remarks and then we will follow with question and answer. With this, now I hand over to Mohan, our Managing Director.
Thank you very much. Very good morning and belated wishes for the 78th Independence Day. I would like to start with a brief market overview and then we will dive into the divisional updates. Let me start with the Indian market. While most automotive sectors, especially the passenger car vehicles, have surpassed the pre-COVID level, the two-wheeler market still lags and this is due to various factors like rising incomes, availability in the used car market, tepid rural growth, which is more worrying. Also the switch to the EVs hampered by one is customer uncertainty, poor infrastructure in terms of charging and also government hasn't helped with its FAME III policy not coming out.
Moving over to the U.S. market, the automotive sector, the Big Three saw a growth in the first quarter, the Detroit Big Three, but the production cuts in this quarter are out to even out their inventory in the market. The Japanese OEM continued to perform well there. In the non-automotive sector, particularly as we call it as the OPE or the Outdoor Power Equipment vehicles, the struggles continue due to the shift from ICE to electric drives, coupled with high inflation and also increased interest rates and reduced interest in the equipment ownership. Moving on to the European market. Europe faces a unique situation and there are uncertainties with the tightening of emission norms and also the shift to EVs. But very interestingly, leading Chinese manufacturers like BYD, Geely have already entered the market and they are muddying the waters there.
Moving on to the Chinese market, the local brands dominate and they are completely sidelining the foreign competitors. Very interestingly, the China expansion into the global market, be it Brazil to Australia, across all the time zones, is to be noted. Well, let me conclude by telling that our strategic approach, which is the onshore, nearshore and offshore, has started yielding results and this is evidenced by the support that we have got from the European OEM Tier 1s and also the recent wins that we have had from the leading U.S. OEMs. With this, I hand it over to Akhilesh for the divisional updates. Akhilesh, over to you.
Yeah, thank you, Mohan and good morning, everyone. Today I'll cover the business update essentially what is published on 14th August. In terms of headline business performance, Suprajit had a good standalone and consolidated growth in both revenue and EBITDA. Within our division, the Suprajit Controls Division, SCD performed adequately considering the global conditions being challenging. SCD's operational revenue grew marginally in the first quarter by about 3.3% while crossing the 8% EBITDA margin level for the first time. The division will be driven by strong order wins in the automotive segment despite flat growth in the global automotive industry. Our international operations also saw positive developments. Our new plant in China is operating well, securing new business for the coming year. Suprajit Europe, SEU continues to win large contracts, while growth in Hungary seems to be continued to be muted mainly due to the geopolitical situation there.
In North America, we witnessed a good margin recovery at Wescon. This is due to multiple restructuring efforts, operational improvements, and also many synergies that we have found within the ATD Division, which have been found over the last few quarters. This strong effort is despite challenges from severe non-automotive markets, which conditions Mohan explained earlier. Our Indian export operations continue to win significant contracts with healthy margins. So we're very well-positioned for future growth. Turning to the Phoenix Lamps Division, we saw significant margin improvements in India and in Luxlite. The restructured Luxlite is performing well already, with improved margins and increased sales. As you may recall, in the past, in Phoenix in India, we had significant improvements in material consumption and productivity to counter the steep rises of these rare gases and other material costs that the division was facing.
Today, with the material cost going back to almost pre-COVID levels, PLD numbers are reflecting the excellent work to reduce the consumption, while also getting these advantages of improved material costs at the division, and also the restructuring projects that we have done across the division. Lastly, our Suprajit Electronics Division, SED, has made solid progress with new business wins and good EBITDA growth. The quarter, we had a key business win in the electronic throttle area from a major two-wheeler EV, the largest EV in India right now. We have also got a great sensor business. This is all driven through Suprajit Technology Center, which also continues to strengthen its capabilities and support development of new products across various units. As you know, during the quarter, Suprajit signed the SPA to acquire SCS from insolvency in Germany.
SCS is a reputable German-headquartered light-duty cable manufacturer with a strong customer base and offering a low-cost manufacturing location in Morocco, with skilled German engineering team and export capabilities through China and Canada. on July 16th, we completed the first stage of the acquisition, which will be effective July 1st, including the asset and business acquisition in Germany and equity plants in Poland and Morocco. Our teams are already on the ground to stabilize the business, while certain restructuring measures are also already underway. Lastly, with the strong traction in business, Suprajit is actively scouting for more industrial properties to support our long-term strategic plan. With that, I will hand it over to Medappa for financial highlights. Medappa?
Yeah. Thank you, Akhilesh. Good morning to everyone. In terms of headline business performance, Suprajit standalone achieved a 13% growth, while consolidated revenue rose by 8.1%. Our standalone EBITDA grew by 9.5%, while consolidated EBITDA saw a 16.1% increase. Debt for the quarter reduced from INR 623 crores- INR 581 crores, and the surplus funds invested in mutual funds stood at INR 493 crores. Thank you.
Thank you all. Last but not the least, I am pleased to announce that our board has announced a share buyback of 15 lakh equity shares at a price of INR 750 per share, amounting to about INR 113 crores from all eligible shareholders as on the record date that will be announced. You all may know the last buyback was in March of 2021, and we had in the last five, six years have said that our payout to our shareholders will be through both dividends and share buybacks. So this would be our second such event. We expect to complete this buyback by September 30th, 2024. The buyback reflects our commitment to enhance shareholder value and our confidence in our underlying business. With this, I will hand over to moderator, and we are happy to take questions from all of you. Thank you very much.
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 only 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 Amit Hiranandani from SMIFS Limited. Please go ahead.
Thanks for the opportunity and congrats team for the decent set of numbers looking at the global macro situations. Sir, first, two bookkeeping question from my side. What is the reason for higher effective tax rate and lower other income? What would be the sustainable numbers for the same? Secondly, we have noticed other expenses increased higher, whether we look into the number year-over-year or quarter-over-quarter. Any reason for the same?
Mohan. Sorry, Medappa, can you ask about the tax issues, why it is higher?
Hello, Medappa. Medappa, sir.
I can hear. You are saying higher tax provision. Any particular reason? Is it the deferred tax reversal? Basically, deferred tax provisions.
Sir, what would be sustainable?
Sorry. I can provide additional details later if necessary. It is basically deferred tax, not that current tax.
So this number is sustainable for the balance sheet?
We have to see, because that is actually basically on the U.S. as well as at console level. I will explain to you later. We will kind of check in.
Sure. And sir, what about the lower other income? Any particular reason for the same?
That is from the basically MTM as well as investment incomes. It will vary from quarter- to- quarter.
Okay. And sir, secondly, yeah.
Okay. What is the last question? Sorry, yeah.
Other expenses increased higher?
The other expenses, is it? Okay.
I think basically I would say that on the other expenses, some comment, because it would also be seen in our DCB performance. If you look at it, our Suprajit Technology Center has grown in size tremendously in the last one year. We, I think, had 30 or 40 STC staff a year or so ago. We have 100 + at this moment. We are not capitalizing anything. It all hits the P&L. So the other expenses you will see going up. Also considering increased overall global operations, we are also strengthening our corporate teams. So that also adds to a little bit of expenses. I think those are the two things that I can think of. Even freight cost increased, actually.
The other point is, yes, of course, the very important key part is the container cost, which has gone up significantly across the world. As we do in global trade, the container costs have gone up by six, seven times since the last year same time. So that would have also affected our other expenses.
Thanks for the clarification, sir. Secondly, if you can give us some highlight what is happening on the Indian aftermarket, as based on our understanding, things are not going to see any sudden revival for the next three to four quarters, and I request your views on the same. Secondly, sir, continuing with this only, how much PLD and DCB's revenue comes from the aftermarket, sir? Thank you.
On the overall Indian aftermarket, I think, generally, you are right.
I think we have made this announcement last year as well that, in fact, last year our aftermarket sales had de-grown. Whereas this year it has not de-grown any further. It is flat at the moment. But from what I understand from our teams in July, things have been picking up. So we are actually expecting a growth in the aftermarket. That is as far as the Indian aftermarket is concerned. Although overall aftermarket scenario may be somewhat tepid, we do expect a decent growth by end of the year, particularly in the second half. In fact, we are already seeing it in the month of July and August. Now coming to the breakup of aftermarket and between PLD and Domestic Cable Division.
I think at the PLD, we have always said this, our overall aftermarket, whether through India or our global market, it's almost, I think, 70%+ now, and only about 30% or so is in the direct OEM. As far as the DCB is concerned, I don't have the number offhand, but I think within Domestic Cable Division, it's still mostly OEM-driven. I would say 65%, 70% probably would be the OEMs, and the rest would be aftermarket.
Correct. Sir, my second question is basically on the DCB. DCB Division reported lower than the industry's quarterly production growth, and margins also dropped in Q1 YoY. So was there any one-off in DCB? And outlook, if you can, on the segment's margin, please.
On the reason for drop in EBITDA, I would say DCB, please note, also covers both STC and corporate.
I think we just explained the increases in STC and corporate. That is one part of the answer for you. The second part is that last year, the price increases with customers are at a particular timeline. Typically it is once in six months. Last year in April, we got a price increases which affected that quarter positively relating to previous period, because we discussed a particular point from a previous period. We had a bump up in incremental revenue in the Q1 of last year. Whereas in this year's Q1, it has been the other way around, because there has been a downturn in prices in the commodity. We have given a price drop. It is actually double-whammy. Last year there was an increase, this year there is a decrease. Going forward, I think the pricing now is stabilized.
In fact, from September onwards, we expect some more price increases to come based on the current scenario. Over the period of time, I think this material part of the cost escalation will be evened out and averaged. That is what I can say.
And sir, a sustainable number margin for this DCB?
One quarter is difficult to say. I think probably we will know by the second quarter. Because if you take the DCB by itself, excepting taking out the corporate and STC level cost, which as a matter of accounting is some kind of this, I think DCB has a very strong margin. I think it continues to be as good as ever.
Sure, sir. I will come back in the queue. Thank you so much, sir.
Thank you. We have our next question from the line of Gokul Maheshwari from Awriga Capital. Please go ahead.
Thank you for the opportunity. If you could just comment on the SCD business, which is now nearly half of your overall business. In the context that while you have been mentioning that we are winning very strong orders, there is also news about slowdown in certain parts of the world, whether in Europe, et cetera. In that context, what is your expectation for the organic growth for the SCD business in FY 2025?
Mohan, will you comment on the SCD business?
Sure. Basically, when we are looking at SCD business, like what I said, there is a kind of depression out there in terms of market. That, I would say, is an opportunity for us because that is going to put the small players under a lot of pressure. When that comes under pressure, OEMs would like to go to somebody who is strong in the market financially. Therefore, I would say the way it is happening, it is consolidation. Because consolidation is going to happen, there is going to be more wins for us, and that is what we are seeing in the market right now. Particularly like what I said with these three strategy, what we are talking about, onshore, nearshore, and offshore. It is appealing to the customers. Therefore, in a shrinking market, our idea is to grow.
Just to add to what Mohan has said, I think if you look at the automotive part of the industry is concerned, typically they are all five to seven-year life cycle of the project. So every year, let us say, 15% of the business drops off because the project has completed and the new project kick in. Our order wins has been so strong that despite the flat or negative market, both in automotive and non-automotive market, we continue to hold on to it. That means actually we are having a growth in terms of market share. So that is what is happening. Consolidation is the key, as you said. So we expect that this will accelerate more, and I think in the next two, three quarters, you will see the signs of the growth very clearly in our P&L.
Would we be able to grow double digits this year in this region?
Yes. I think that is our target for the year. I think at this moment it is at about 3%, 4%, but still we see quite a bit of attraction. Whether it is double digits, 8%, 10%, 12%, I don't know. But we will be doing that kind of a number by the end of the year as I see it now, despite the industry not growing.
Okay. Second question is on Wescon. While you mentioned that the environment still remains a bit challenged in terms of equipment sales, could you just comment on when do you see this really sort of bottoming out and turning? Also you mentioned in your opening remarks about certain synergies playing out. If you could just elaborate more in terms of what are these synergies, and how did it come across to us?
Akhilesh, would you want to comment on the Wescon, the work that we are doing?
Yeah, sure. I think the first question on the market, I think that will be difficult to comment on. It only depends on, like Mohan said, right now with the increased interest levels, there is much less investment in the housing market, which then trickles down to not having that much investment in new products like gardening related equipment or these kind of household equipment that Wescon supplies to. With the second question on synergies, yes, certainly there have been a lot of cost synergies. In the past when Wescon was the only foreign plant in the U.S. for us manufacturing, it was very tough to suggest what are the kind of cost improvements that they could do because they cannot do things exactly how we do it in India. However, with the acquisition of LDC, there were a lot of synergies between Mexico and Wescon.
Some examples I can give you are today a lot of Wescon's injection molding is done in LDC rather than in a third party supplier. So we have been able to announce that. We have also been able to do a lot of cost reductions by consolidating supplies. So we had certain suppliers that were supplying to our Matamoros plant and to our global plants, and we were able to use those same suppliers to supply to Wescon in terms of materials, which certainly brought their material cost down. Lastly is just a lot of general operational improvements and synergies that we have brought in. We had a new plant manager joining six, seven months ago, and he is also driving a lot of production improvements as well. So I think between these areas most of the synergies were found.
Great. Lastly, just a clarification. SCS business. Now you have done the stage one of the acquisition, stage two is to go. But what kind of revenues could be getting consolidated for our business in this year and in specificity also for next year?
I think on SCS, all I would like to say that it is a little bit too early to say. The business, when we sort of started discussing is about $45 million- $50 million. I think it will probably remain around $40 million, $45 million. I must say around $45 million. I think when somebody goes into insolvency, some customers get panicky and move some of the businesses. But almost 95% of the businesses stayed, and I think that is being delivered. We just are in charge of a part of the SCS, and a lot of work is being done.
Our people are sitting in the grassroot at the plant, trying to understand some of these businesses. Please understand, it is an insolvent company, so there is a lot of work to do. So I think the run rate on a full year would be what we have announced typically.
But I think for this year, we still don't know because the second part of the transaction is expected to happen sometime in Q3. Only when we get the full handle of it, we will be able to comment. All I would like to say is that Morocco is a cost-efficient manufacturing base, large facility, which will give a perfect footprint for us. China, we have one facility which is typically looking at domestic market, whereas the SCS plant is typically looking at export market. It gives us a further synergistic position within China. That is where we are at the moment.
Great, sir. Thank you, and all the best.
Thank you.
Thank you. We have our next question from the line of Mumuksh Mandlesha from Anand Rathi Shares and Stock Brokers. Please go ahead. Thank you. We have our next question from the line of Mumuksh Mandlesha from Anand Rathi Shares and Stock Brokers.
Yeah. Hi. Can you hear me?
Yes. Please go ahead.
Yes. Sorry. First, continuing on the previous question on SCS, sir. Can you share just more on the profitability side, how that company is moving, sir? Also, you can share some of the balance sheet details, like how is the gross block, net worth for the company, and the debt, sir?
First of all, I think, Mumuksh, we have only done half of the deal, so it is very difficult to say. Suffice to say, it is an insolvent company, so for the next two, three quarters, I do not see any EBITDA positive number. It would be loss-making entity for the next two, three quarters for sure, till we get the good handle of it. But what we are looking at is beyond that. There are a couple of points that I would like to make. One is that we have been able to convince customers to give price increases. Secondly, I think one of the reasons for losses was the manufacturing happening both in Germany and in Poland. All of that is completely now moved to Morocco. Morocco has to stabilize in terms of operations and in terms of operational efficiency. That will take at least two, three quarters.
Whereas once we do the China part of it, I hope that it will be a lot more streamlined, unlike what we saw in Europe. It is difficult to comment in terms of the balance sheet. Certainly, when we come in September, when we need to announce the balance sheet, we will have a little more clarity on the numbers. Please understand that we are only actually in saddle for about 30 days now, effective. We signed the closure on the 15th of July. So we will take some time. All I am saying is the positive sides of it. The numbers will have to wait for some time.
But broadly, sir, I mean, this business also can make a high single-digit EBITDA margin once we turn around for next one year, one, two years, sir. So that could be achievable margin, sir?
It will take some time. As I said, our belief is that in the global automotive component industry, the margins are between 6%-10%. We have had 5%, 6% in SCD. We just touched 8% in last quarter. So that is our aspiration, and I am pretty sure over a period of time, probably after a couple of quarters, we will be clear as to when that timeline will be. But I am pretty sure we will reach there.
Okay. Got it, sir. On continuing the SCD, sir, the overseas cable business. You mentioned about the non-auto profitability has improved. Again, the cons part, has that also seen the improvement in margin, sir?
Sorry, I didn't hear the last part of it.
On this, you mentioned about non-auto, where the profitability has improved this quarter which has grown the margin for the SCD business, overseas cable business. So for the acquisition part of the consumables which we had acquired, have they also recently improved in margins, sir?
Okay. I think most of the margin improvement, as Akhilesh said, has been at the Wescon, which has done a wonderful turnaround. In Matamoros, I think the non-automotive part of the business is not as large. Wescon is completely non-automotive business. Whereas in Matamoros, it's both non-automotive and automotive, where automotive forms the larger part of it. Typically, a non-automotive business has a slightly better margin than the automotive. So that's where I think in Matamoros we find a little more tough situation compared to all our plants. So Matamoros will take some more time to get over this hump in terms of improving the profitability, I think.
Got it, sir. What you can say, sir, with the improvement non-auto, we can get closer to double-digit margins, sir, in this.
Sorry?
With the improvement in the non-auto part of business, we can get close to double-digit margin for this division. Right, sir?
In Controls Division, I think we have always said this, that our first target is 8%. We just touched it this quarter. I think the idea is to consolidate there for, I also hope that it goes to double digit. But this is not an easy job to go to double digit in the global auto component industry. I think we will continue to work closely with all the units and see how from 8% we can go to 8.5%, and a 9%, and 9.5%, rather than jump from 8%- 10%, I think.
Got it, sir. Sir, on the non-auto, you mentioned about the challenges of EVs and reduced interest ownership. Sir, over the medium term, is there any change in the growth profile for this business? Will this continue to be a growing business or there is a risk of some structural challenges there?
Mohan, will you answer that question?
No, I couldn't get this question. Sorry. Can you repeat it?
Yes.
Okay. I will answer. I think there are multiple things happening in the non-automotive sector. A part of it, I think what Mohan alluded earlier, is part of the OPE segment, outdoor power equipment, which includes things like outdoor lawnmowers and bigger size lawn management equipment. We are talking about power sports vehicles, et cetera. These are under some amount of a cloud at this moment because the interest rates are high. Somebody who is buying a new home, he just wants to get his house done and not much worry about putting investment in these equipment. That's where we are affected. Secondly, I think today with, as Mohan was mentioning, I think, easy labor available from south of the border, I think some of these lawns, et cetera, in the household, gets managed by somebody who comes and does it for them rather than they do it themselves.
In terms of ICE to EV, there is some switches there that will change the complexity of the game. However, it may have a limited impact on us, but probably it's now a positive one, because right now we are pitching our Electronics Division, the SED products to some of these ICE and EV players in this non-automotive space. In fact, recently won a sensor business with one of the global market customers. So that is all happening. So there is a churn in the global business, but I think we are positioned ourselves to deal with it pretty well.
Got it, sir. Sir, on the Electronics Division, SED, you have mentioned about this new order win for electronic throttle and sensors. Can you talk a little more about this order win from a large two-wheeler OEM? Also, can you update on what could be the annual order book now, sir, for this division?
Akhilesh, will you want to answer that?
Yeah, I think first on the order book side, we made a one-time disclosure and we are not doing quarterly disclosures on the order book. But in terms of the specific business, I think we were always doing throttle sensors for exports and a few smaller EV customers. This is a leading EV two -wheeler in India that has a significant volume, and they have given their electronic throttle business to us. Of course, that will be ramping up over the next few quarters, and will add to the business. But we are not commenting specifically on the change in the order book right now.
Added to that, I think there is also an interesting new sensor business that we have won for our international non-automotive customer. That also goes to say that the STCs and the Electronics Division products are getting more and more traction. It is also important to say this, that basically as Electronics Division focuses at this moment at least, although there is some export orders, it is mostly to Indian business. If you combine the Domestic Cable Business and the SED businesses, you will see a nice growth that is happening as far as the domestic business is concerned.
Yeah. Also even in the passenger vehicle side, SED is supporting CD, the Controls Division on various control boards. So we are able to in-house a lot of things that we were previously outsourcing to other suppliers. In fact, that production should start in the next two months.
Got it, sir. Lastly, on the lamps, sir, we have seen a strong 16% margin, sir. Can you explain what is driving the improvement? Going ahead, sir, what would be the sustainable number for this segment, sir?
Mohan, will you answer that, concerning lamps margin improvement?
Sure. You see, a few quarters back, we had mentioned that there were heavy headwinds on the material cost. At that point in time, we struggled in the market. We tested the price elasticity in the market, but we were able to successfully pass on good amount of, I would say, price increases that have happened, albeit with some sort of a time lag.
I think that is now paying off because the material costs have come down now. Therefore, material costs as a percentage of revenue has dropped significantly. This is one portion of the answer, large portion of the answer. The second one is Luxlite, where we were always struggling, has started also turning around with the restructuring that has been completed. That is both Trifa restructuring and at Luxlite also, we did some amount of restructuring. Both, I would say, has contributed with material cost being the major one. In terms of sustainability, we are always optimistic.
I think to add to what Mohan has said, I think it is also important to understand one thing, that we have restructured the European operation, but Trifa brand still sells well. It is now sold through Luxlite. Trifa brand is now positioned against the global marquee brands as our top-end market, which also has got top-end product, which also has a slightly better margin. So that business, although from a small base, is starting to grow as we are positioning Trifa as our global brand for the halogen lamps. Last but not the least, we always said it is the last man standing, and we have been strongly standing on this business, and that has paid good dividends over a period of time, with all the small and insignificant players finding it hard to meet the global marketplaces.
Got it, sir. Thank you so much for the answers.
Thank you. We have our next question from the line of Jinal Sheth from Awriga Capital Advisors. Please go ahead.
Good morning, Ajith, sir, and the Suprajit team. My first question is: Sir, when you look at the global Chinese OEMs, they have been gaining share aggressively. So just wanted to understand our thoughts that do we do business with them, and if so, what would that be as a share of our revenues with these large OEs, and how do we think about the growth with them in the next 10 years?
Our business with the Chinese OEM, is that the question?
Yes.
Mohan, will you answer?
Yeah, sure. Right now, if I look at it, I would say we are there as tier two, not as tier one. I think that is a wise way of doing business in China. You can't be a tier one, or you might aspire to be a tier one. Having said that, we are trying our best to enter as a tier one itself. You have to understand that we are now in a better position than what we were earlier at Suprajit, because we have our own plant, and interestingly, we haven't decided to call it as Suprajit. We have continued to call it as Lone Star Shanghai with a specific reason. We have a DNA, a culture of entrepreneurship, where we are allowing the local teams to build their businesses.
We have a very strong team there, and we believe in the team, and very recently, we have invested there. We have moved into a new facility, which is much more modern, spankingly new, and that, I think, is going to give a level of confidence to the Chinese OEMs, also to the tier 1s there, to believe in us. I think that's going to fetch us returns in the long run. But answer is yes, we cannot discount the Chinese OEMs. We have to penetrate this market.
Just to add what Mohan said, I think whenever the second phase of our SCS acquisition completes, we will have a much stronger base in China. We must say that at this moment, our footprint in China is fairly modest for the size of the industry. You must also understand that in China, there are a lot of regional players in auto components. They supply to that regional OEMs. Few customers have got few preferred vendors. It's a little bit of a long-drawn process, but China is a big market, and with the eventual two plants that we will have, I am pretty sure we will be able to increase that business growth ahead of the industry and try to garner more business. That is something that is very much on our radar, and that is a part of the plan for the future.
Thank you for that. My next question. Sir, on the Electronics Division, saw some encouraging statements in the PR of the facilities, see some throttle wins. There were no comments on the braking business. Any developments there? Any updates there?
Under the Braking Division? Okay. Mohan, you want to generally comment? I think it is a long-drawn process, but Mohan can comment.
Sure. When we are talking about Braking business, it is a good point that you pointed out. Yes, it is a missed remark. We should have updated you. Good thing is we have got traction on the MBBS. We have got our first customer. The line is already in progress. Product validation has already been done. So that is one very good thing. On the combi brake systems, we have got two customers. Therefore, that is again, good news out there. And on the friction products, specifically where we had entered this product through the aftermarket route, if you know. So now we have got very good inquiries coming from the OEMs. We had one OEM, but it is not enough, but I think we are now getting good amount of interest from the OEMs.
And very importantly, I would say that overall, if I look at it, we are being seen as a total system provider, from the lever all the way up to the brake, including the caliper, everything. I think that is going to be a game changer in the marketplace, and we would be seen as somebody who is going to bring value in the market, in the supply chain.
That's fantastic to hear. Lastly, a small point. Any update on the U.S. duty issue?
Well, it's in the legal process. We have been told by our legal team that sometime in September we will get clarity on this. We are still confident that this would be in our favor. Right now we are charging that and debiting to our P&L, and hopefully if that order reverses, there will be a significant reversal in the P&L. But at this moment we have no further news. It has been all submitted, but the government, the department work, not very dissimilar to what happens in India. It takes its own time, unfortunately.
Thank you for all the responses. Good luck to the team.
Thank you.
Thank you. We have our next question from the line of Viraj from SiMPL. Please go ahead.
Just couple of questions. Bosses on the U.S. duty impact. So what if there is an adverse ruling? Then in that case, what options we would have to mitigate the hit we are taking to the P&L? And related question is, on the duty part I can understand, but we had a similar size impact from the wage inflation in Mexico. Typically there is a certain lag with which one gets a price increase from the OEM. But so far we have not been able to get any pass through from the OEM. Just trying to understand, what have been the limitations or how we trying to mitigate the impact.
On the duty part of it, I think we are already charging. So it is already charged to the P&L. So if there is going to be a reversal, it will come back, but otherwise it will continue to be there. Maybe at that time we may have to or we will have to go back to the customer and say that, "Look, this is not accepted to the customer, so we need to have some compensation." I think that we can do only when we have a clear legal result from our presentation to the department. In terms of wage increase, I think it is something not only us. I think entire particularly the belt of border, wherever whoever has got plants have this big impact. I think the newer contracts that we are winning, we are winning with the newer prices in terms of wages.
Existing businesses passing on to customer is next to impossible. Customers does not give price increases for some wage increases that we know. That's why the numbers are a little bit tough for us. Only with time these things will change. Having said that, overall on the Controls Division, you would see that in the last two quarters we are slowly but steadily improving our position in terms of margins. There's more work to do.
On the duty, just a follow. Hello, am I audible?
Yeah, I can hear you.
On the duty, just a follow-up. What will be the size of the business which is having this impact in terms of P&L for us? The reason why I'm asking this is, say, SCS also has a facility in China, right? They do export it to U.S. through the entities in Canada. The similar impact or the risk per se is also there in the operations of SCS as well, right? Just trying to understand what is the problem. If you can give some color of the size of the business, even if you have to walk away or just continue the business. Would that be material for us? Because right now it seems we do not making any money on that business.
Okay. Let me give a point here. It all depends upon whether your business transaction is ex works or customer is picking it up or you are delivering it to us. If I am delivering from Matamoros to U.S. customers, the duty impact is on me. If SCS China, if SCS Canada is an ex works price, and then if customer is picking up, it is on customer. As I know, customer also has some kind of a setback on this duty in their end product, which I am not fully clear of. I do not see there is any issues in terms of our future transaction part of it. But on Indian, on this Matamoros part of it, yes, it is currently on us because we deliver to customer.
Let me just add a few points.
Yeah, sure.
One is this duty issue is specifically on a motor and not on general cables. This is a specific issue where a duty that should be charged on a small motor of, let us say, $2 is being charged on a large actuation system which we are assembling in Mexico. The argument is, of course, that we are doing a lot of transformation of the product from a small motor to a complete actuation system. And it is a key part of the LDC business. The actuator business is a key part of that business and also a key part of our future growth prospects in terms of we currently only do these actuators to U.S. customers, and we want to do it for our key German customers as well going forward. So it is definitely a key product that we cannot just let go.
I'd also say that we have, of course, an alternative motor now that is not from China, which is in development and is an alternative if we don't win this case. That will give us an opportunity to switch to a different supplier, and not have to deal with these duties. China is the most competitive for these kind of products. We do have alternatives, and I think these actuators are only in LDC, and it is not part of SCS business as well. From overall, that way.
Okay. Just two questions. One is on SCS. You said in the comment that the operations from Germany, Poland have been moved to Morocco, but we still expect the losses to continue for next 2 to 3 quarters. Is it the losses due to we expecting any provisions, write-offs, or is it more due to sub-scale of operations? What is driving that? The related question is, the EV which we talked about somewhere around $13 million-$14 million, do we see any further investment happening in SCS, in this financial year?
I think the reasoning is that this business has been badly run. You know how it is. It's easy to say that we'll turn around a ship, and it will turn around perfectly. People efficiencies, supplier efficiencies, operational efficiencies take time. Those two, three quarters are bare minimum, if I may say. Please understand, the business of SCS moved from Germany to Hungary to Poland to Morocco, and also from Germany to Morocco. In the process, lots of things have happened. We are now trying to settle down in Morocco and make it a one-stop shop for all the production that we need for Europe. It will take time. Please also understand there are ongoing expenses that would require to, let's say, close down Poland. Poland is still been a part of a Share Purchase Agreement.
As a part of the share buy from the current insolvency. There is still some force whom we have to settle. All these costs in between now and, I think, the end of this year will keep hitting the P&L from time to time. This year's number will not be any directional number. It will includes all those expenses that we'll be undergoing to take on the P&L. It's going to take that much time, at least.
Okay, just last query. Of the DCB business, historically, if I look at last, on the Domestic Cable Business, if I look at last 15, 20 years history, we have always been operating in that 16%, 17% to 18%, 19% band. I understand there have been some costs of corporate and STC. Would it be that the larger part of the impact in this quarter was because of the raw material benefits which were to be shared with the OEMs and not really per se on the additional investment in STC? Should we then expect maybe from Q2, the business to revert to or close to the margin they have been operating in the past?
I think the answer to that is both yes and no, I guess, because the STC cost is on DCB at the moment. That's the way it has been accounted anyway. As I said, we had 30, 40 people last year, and we have 100+ people, and it's continuing to grow with the kind of new business that we are winning. So that cost will continue to sit on that. You take it out, that is X margin, right? Corporate, as I said, there's been some increases in terms of considering our global scale of operation. That also, if you take it out, and average out your price increase, price decreases, I can say with full assurance that the DCB margin has not deteriorated at all. It remains what you mentioned historically. It continues to be there.
Okay. On the business as well, right? Because I think there was a transfer of speedometer from DCB- SED from this quarter. Because when you just look at the reported numbers, it seems that there's been a significant underperformance vis-a-vis the two-wheeler and industry in the domestic cube.
Got it. I got your point. Okay. If you take that thing off and you bring that back in, and also take the price reduction that we had to give during the quarter, if you look at the quantity to quantity growth, the cable division has grown about 18% on quantity. That's what I want to say.
Thank you very much.
I suppose that answers your question.
Yes, it does. Thank you and good luck.
Thank you.
Thank you. We have our next question from the line of Amit Hiranandani from SMIFS Limited. Please go ahead.
Yeah, thanks for the opportunity again. Sir, on the Phoenix Lamps side, we understand the major margin improvement was just due to the raw material gas price correction and some price increases in Luxlite restructuring. Any more benefit to come on this part?
I must say, Amit, PLD has done phenomenally well. It has gone back to its historic levels of margin. I think beyond certain level, I do not think you guys should expect any further improvement. Of course, our aspirations are to increase, but to have this kind of a business from a 3%, 4% a year and a half ago is a phenomenal performance. I think we will continue to perform at this level. That is what I can say. Improvement, we all aspire, but we will have to wait and see.
Sure. Secondly, broadly, on the consolidated level, what would be the now key growth drivers for top line improvement for the next two years? Are we maintaining the consolidated EBITDA margin guidance of 12%-14% range for this fiscal?
I think we said that the aim is to touch 12%. We are at about, I think 11%, 11.5%. Let's say that's our aim. I do not think that has changed. Eventually, that would be the range, that what you talked about. In terms of growth drivers, I would say that, where do we start? I think the wins in the automotive business and the entire Controls Division is very robust. I think that is something that gives lot of comfort, that there is a consolidation of this business, and that consolidation is helping us because of the footprint and what Mohan said about the close shoring, on-shoring and off-shoring in terms of low cost. That is really winning us new contracts. What we are also seeing as a sort of green shoots is that we are starting to win some interesting new non-automotive businesses.
That will add to it. The Electronics Division will continue to perform well, continue to grow. Phoenix Lamps Division, as you all know, it's a market which is diminishing in size, but we are continuing to grow. Overall, we have said that a 10% business growth for the group is the target, and I think we continue to stick to that target.
Great. And sir, lastly, indirectly we have mentioned about some inorganic plans. Wanted to understand directionally the plan will be, in which area or geography and by when we can hear the announcement.
We have not talked about any inorganic opportunities in this press release. I do not know from where that is coming from. We only talked about buying some property.
Yeah.
Industrial property, yeah. That is more for our long-term strategic requirements. As you know, it is an asset purchase, just land and building, hopefully, to increase our ability to meet customer requirements on new projects.
Oh, that is very clear, sir. Thanks. All the best. Thank you so much.
Yeah, I think it is 12:00 P.M. now. I think maybe we can take one last question.
Sure, sir.
If there is.
The last question is from the line of Senthil Manikandan from ithought PMS. Please go ahead.
Good morning, sir. Thanks for the opportunity. Sir, first question is with respect to the feeder gearbox order that you have got this quarter.
I can't hear you properly. Sorry. Can you repeat?
Sorry, sir.
You're a little broken. Okay, go ahead.
Yes, sir. First question is with respect to the feeder gearbox order that you have received from a global OEM. If you can just share some insights into what's the market opportunity and how is your competitive landscape and things like that, sir. Thanks.
Yes, Senthil. Akhilesh, you can give some feedback or Mohan when you're not here.
Yeah. Okay, sure. I will just give my understanding. From the feeder gearbox, this is a project that we have been working closely with a couple of OEMs in North America and Brazil to work on, let's say, a forward integration of a feeder gearbox cable that we had already been supplying for many years. We have now won our first business for the gearbox itself, which will actually be manufactured from PLD and supplied through SCD. I think it is a large possible market. At the same time, there are some headwinds in Brazil and in North America for the harvesting season and the investment in these machines. We will have to see.
It is going to be a combination, but we have got our first entry with the OEM, which will then hopefully open up the opportunity at other OEMs as well as they start looking at these cost reduction opportunities. Because we offer certainly a much better price than our competitor in these products.
Oh, thanks sir. Second question is on a broader strategy level. The LD acquisition and now with the SCS. Globally, if you can just share what is the Suprajit standing in terms of cable. Going forward, the new acquisition will be on the newer product side. How much space is left to grow on the cable side? That is broadly in the strategic point of view, sir. Yeah, thanks.
I think we believe Hi-Lex is the largest cable maker in the world. We are probably around $ 400 million. I think with the SCS acquisition, we probably will be over $ 350 million+ Let's put it this way, we are the top two cable makers in the world. In terms of the global opportunities, we are still seeing significant RFQs being floated by global majors, and we are pursuing multiple opportunities in multiple geographies. What is happening in the industry is very similar to what I probably have been talking for two, three years about Phoenix Lamps, as to how there will be consolidation, and eventually the strongest will emerge as the winner in this business. I think in a sense, a similar scene will work out in cable business as well.
Globally, customer will want two, three, four suppliers max, who has the wherewithal to do on-shoring, close-shoring, and off-shoring. I think we are well positioned in that. In fact, I would say we are the best positioned amongst all cable makers as far as this is concerned. I think that will give us a lot of opportunity. We continue to believe that although industry globally, because now we have to benchmark ourselves with the global industry growth may be 1% or 2%. In fact, this year it is probably going to be flat. We will continue to grow, and we have talked about a 10% kind of a growth. I think that is because that we believe we will win new contracts at the cost of small and marginal players who will find it very difficult to survive in this very competitive business.
Oh, great, sir. That is very helpful. Thanks for the opportunity. Thank you.
Thank you. With that, I would like to thank you all for your continued interest in Suprajit and understanding our business model. We appreciate your questions and queries. I hope we have answered that well. If there is any further queries that you have, please direct it to Medappa, our CFO and Company Secretary. We will try to give out as much information as is possible. Thank you very much. I also appreciate Mumuksh and his team at Anand Rathi for hosting this conference for us. We appreciate your continued service and thank you so much.
Thank you, sir. On behalf of Anand Rathi Shares and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.