Ladies and gentlemen, good day, and welcome to the Suprajit Engineering Q3 FY24 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 touchtone phone. Please note that this conference is being recorded. 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, Muskan. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Suprajit Engineering Q3 FY24 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 Ajit, sir and team to give an introduction review about the results, and then we can follow up with the Q&A session. Over to you, sir.
Thank you, Mumuksh, and thank you for hosting this call. Good morning, everybody. Welcome to our Q3 and nine months results analysis call. I welcome you all and thank you very much for your continued interest in Suprajit. I will do a commentary in the end, but before that, I'll ask our team to quickly go through this quarter's and the nine months results and business updates. I'll start with Medappa, followed by Mohan and then Akhilesh. So I'll ask Medappa to give a quick summary of the financial highlights. So, Medappa?
Yeah. Thank you, sir. Good morning, everyone. We announced the financial results for the nine months ended December 2023 yesterday. The nine months consolidated business of the group grew by 3%. The standalone business also grew by 3% year-on-year. The nine months consolidated EBITDA grew by 4% and standalone by 7% year-on-year. The consolidated revenue for the quarter ended 31st December 2023 was INR 724 crore against INR 692 crore for the corresponding previous year, recording a growth of 5%. The consolidated operation EBITDA for the quarter ended 31st December 2023 was INR 87 crore as against INR 82 crore for the corresponding previous year, recording a growth of 7%. The standalone revenue for the quarter ended 31st December 2023 was INR 405 crore as against INR 368 crore for the corresponding previous year, recording a growth of 10%.
The standalone operation EBITDA for the quarter ended December 31, 2023, was INR 74 crore against INR 69 crore for the previous year, recording a growth of 8%. The total debt level was INR 622 crore as on December 31, 2023. The cash surplus was INR 600 crore as on December 31, 2023, invested in mutual funds and bonds. For further queries, Q&A, you may approach me directly after the call also. Thank you very much.
Thank you. Mohan?
Yes, thank you. A very good morning, everybody. As usual, what I will do is I will take you through a general market scenario and give a commentary on that and follow it up with specific business divisions. Let me start with what is happening in the automotive market. The Indian automotive market, obviously, as we are all seeing, it is showing some signs of growth.
While PCV, passenger car vehicles, is really doing very well, still, I would say from two-wheeler, I would say to these one thing, particularly in the entry-level segment, it is struggling. When we move on to Europe and North American markets, the challenges are plenty. That has led to some amount of postponement of some of the global customers' launches, which has impacted our trajectory. Specifically talking about U.S. market, last quarter was beset with UAW strike and hence associated supply chain issues.
While in Europe, we had these wars and the Red Sea-based problems. Non-automotive market has been something of a concern for us, because we expect not just now what has happened in the last quarter, but it to persist over the next few quarters also. Having said that, I would say that new business acquisitions would bring in some amount of good medium-term outlook in the segment for us. We continue to see these headwinds in this non-automotive market in U.S., Europe, and also in China, because it exports to Russia. Moving on to general economics and trade conditions. Obviously, there are many global concerns, but what stands out is the Red Sea issue.
It is causing significant delays in shipments, and it has created a lot of increase in container costs and air shipments also, our expedited cost as we generally call it in our lingo. Along with this, the other key thing is persistent high interest rates and inflation globally, which has been impacting the consumer behavior. Ultimately, it would mean that deferred discretionary spending. Now, here I would like to move on to specific divisions. I will start with the Domestic Cable Division. Our India cable business continues to grow strongly. What is important here is the passenger vehicle business has shown good growth. Our two-wheeler and aftermarket business, which was depressed in Q3, is showing a changing trend. Very importantly, in the Domestic Cable Division, we are commercializing what we call as the strategy of beyond cable products while retaining the focus on cables.
This generally includes the braking systems, latches and leaf and those kind of stuff. Moving on to Phoenix Lamps Division. This division continues to grow and margin improvement has been very consistent. Now we are at double-digit EBITDA margin both in Q2 and Q3. The aftermarket and LED retrofit business has had a very good solid quarter. Apart from that, the restructuring, what we started in Europe of winding down Trifa and propping up Luxlite has gained very good traction there. Trifa brand has been bought by Suprajit. It was sitting with Luxlite. We bought that from there. Trifa liquidation project, in my opinion, we should get it completed in the next couple of quarters. Moving on to the Suprajit Controls Division, which is all our overseas division. The operational revenue remained flat in these nine months, primarily because of the headwinds that I talked about.
The EBITDA declined due to the subdued Q3, primarily led by UAW strike and also the product mix change because generally high profitable margin products of non-automotive business has had a strong, I would say, backlog there. In terms of long-term restructuring projects to get to what we call a double-digit margin, we are moving ahead because they are all very operational, and we are very glad it is moved in the right direction. One of the main projects that we did was winding down a warehouse which we were using as a third-party logistics warehouse in Detroit and moving the entire thing into our Suprajit Brownsville facility. Therefore, that additional cost which we used to incur has come down. This is basically for exports from SAL.
However, operational challenges due to historical pricing and also the global wages rates, particularly in Mexico and the import duties that we talked about last time, which is still under appeal, has had impact on our operational results. On the positive side, we have won record number of, and also in terms of value contracts, and more are in pipeline, and our sales team are gung ho, and we are conducting many technical shows or tech shows as we call it, with the customers there, evincing interest. We also continue to relocate low margin businesses outside of India to SAL in India so that the group margin enhancement is taking place. Due to this, we will be now considering for a capacity expansion at SAL or Suprajit Automotive Limited. This by and large concludes what I would want to tell.
I would want to hand it over to Akhilesh to take over on Suprajit Electronics Division and Suprajit Technology Center. Over to you, Akhilesh. Akhilesh, you are there?
Sorry, can you hear me?
Yes.
Thank you. Good morning, everyone. Suprajit Electronics Division continues to make solid progress with excellent growth and margin improvements as well. It continues with the excellent ramp-up of deliveries of actuators, digital clusters, and throttle position controls to both the EV and ICE two-wheelers and three-wheeler customers. The new business wins on top of this also are looking robust. I think it is in line with our guidance in the past that this division will be a strong growth driver going forward. On the Suprajit Technology Center, STC has helped Suprajit win multiple braking contracts at both an Indian and a Japanese two-wheeler OEM and one of the marquee EV OEMs, and these will all be productionized in 2024, 2025. The STC is planning now a much larger new premises in Bangalore, where we will be housing growing technology teams.
We are being seen by most of our customers now as a real technology provider in the industry. STC has multiple advanced products under customer evaluation and final approvals with the clear focus on these three major areas, which are braking systems, actuator systems, and digital clusters. Our participation in the Bharat Mobility Show in 2024 in Delhi attracted a very good response for our product offerings. Our customers' response gives us confidence that the best is yet to come at Suprajit. A few extra strategic points that were not really covered in the press release.
Considering the kind of growth globally and within India and the technology growth at Suprajit, we have set up a task force, which is really focusing on employee development, succession planning to ensure that we have a team that is ready to take up technological and geographical challenges that Suprajit will have to overcome in the following years. There has also been a lot of focus on ESG. If you look at our export plants, we have gone live with captive solar at both our export plants and also four other plants of Suprajit, and we are evaluating various options for green energy adoption across all our plants. I am happy to inform you also that Phoenix, in last quarter, won the EcoVadis Silver Award for sustainability. This follows in the footsteps of Suprajit Hungary, which had also won this EcoVadis Silver.
This puts us in the top 25% of sustainable plants globally under the EcoVadis umbrella. Lastly, considering the strong traction, as Mohan mentioned as well, and as I have mentioned on electronics and braking products, we are looking at various land acquisition possibilities to expand. We have made one acquisition of land in Q3, and we continue to look for places to expand our operations. With that, I will hand it back to Chairman. Thank you.
Yeah. Thank you, Medappa, Mohan, and Akhilesh. I will just give a quick sum-up. I think in general terms, Q4 seems to have taken off pretty well. I think we had a fairly good month so far. As you have heard, DCD, PLD and electronics division is on strong wicket. Controls divisions will have a few more challenging quarters. But what is interesting is operationally it is now on a very stable wicket.
Margin pressures are to some extent because of the historic issues, the duties and wages, et cetera. But operationally, I think we have stabilized. And now with the restructuring is on the way, some of which have been done and quite a few to come, I think things will start turning better at the controls division. As has been said earlier, I think what is really heartening is the new business wins despite the tough global business environment.
Our teams in multiple locations are winning multiple contracts. I mean, we talked about the single contract of $5 million or the $30 million lifetime with a marquee tier 1 U.S. customer, which in turn is getting supplied to the world's probably the largest Japanese automaker. I think where we hardly had any presence, for example, but now this is really breaking into a Japanese stronghold, which means that we are taking on the main competitor as well in this process. So that is a very good development. And again, I think the developments both at STC and Suprajit Technology Center, as said earlier, is clearly showing that Suprajit is solidly moving and transforming itself beyond cables with the continued focus on cables, of course.
These are all the good things that is happening, and I see that Q4 would be a fairly decent quarter as we see it so far in the last 45 days. With that, I will hand it back to the moderator and look forward to your questions and comments to answer. Thank you very much. Back to the operator.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question may press star and one on the touchtone telephone. If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handsets while asking the question. Ladies and gentlemen, we will wait for the moment while the question queue assembles. First question is from the line of Aashin Modi from Equirus. Please go ahead.
Yeah. Hi. Thanks for the opportunity and congratulations on a great set of numbers. My first question is regarding the Suprajit Cable division. Despite facing major issues like Red Sea crisis, UAW, and also one-time impacts on China relocation, our revenue has not declined much. Is it majorly because of new order addition? What sort of a growth do we see in this business once things starts to normalize?
Okay. I think the order wins have been significant. They will start going in. Some of them already have started going in. That is why we still are not having any negative growth. In fact, for the nine months, we do have a decent number. That is largely because you must understand, our Controls Division has got non-automotive business, which had a negative growth, I think something like 15% or 18%.
However, the division by itself has grown a little bit in the quarter or generally stable. That means the automotive business has sort of covered it up. That is what is happening. That is the kind of growth that we are achieving. I think we feel that the bottom has been hit in the non-automotive side of the business, maybe one more quarter or so to go. But when that changes, there also we are winning new contracts.
In fact, we comfortably see a double-digit business growth in the Controls Division going forward, despite global markets being probably at flat rates.
Sure, sir. My second question was on margins in the Suprajit Cable division. This quarter we saw sequentially a decent jump. What was the reason behind it? Was it majorly because of changing business mix or some one-time cost going away?
Sorry, I did not get the question. For which division you are talking?
Suprajit Cable division. Sequentially, there was a decent improvement in margin. Was it change in business mix or some one-time cost going away?
You mean Domestic Cable Division?
Suprajit Cable. No, the Global Cable Division.
He means Controls Division. Yeah, sorry. Yes.
Sequentially, there was a decent improvement in margin. Could you tell us the reason behind it?
No, the point is that actually you must understand that operationally we are doing very well and a lot of restructuring also has happened. For example, moving the warehouses into a single place, moving some business out of Suprajit Hungary Kft. We are working on multiple other projects. All that slowly and steadily, despite whatever the market condition, they are adding to our overall improvement. I think that is what you are seeing.
And, sir, if you see in this business on a blended basis, this should be 9%-10% margin business at earlier levels. When do we see improvement to those levels? Do we see structurally, now with the big order win from exports out of India, do we see structurally margins improvement in the Global Cable Division in the longer term?
Yes, of course. I mean, as Mohan said, the target for all of us at the management and at the various teams at various places is to reach the double-digit margins in the controls division. I think, of course, there is some more work to be done, some more restructuring to be done. But you must realize that one is some of the historic issues that is plaguing us, but slowly and steadily they will go away. The new contracts that we have won, it is coming at a much more decent margins, whereas the older ones which we are sitting with bad prices, will at some point stop dropping off from the table. That is how the automotive industry works.
So as and when that happens, and as and when we continue to do some of those restructuring, moving businesses to get better margins, and winning, bringing in the newer and newer businesses. It is a journey. It is difficult to say from which quarter we will do, but I personally feel that we are at the bottom of the barrel. Maybe one more quarter here and there, then I think we will see a steady improvement. But the target is certainly a double-digit margin, which we are quite confident we will see it in the medium term.
My last question is regarding the Suprajit Electronics Division. We had earlier highlighted an order book of INR 150 crore per annum, and we have already reached an INR 20 crore per quarter run rate. Could you please give us more color on what is the order book right now, and how do you see ramp-up in that business going forward?
I would not say much about the order book, but on a little more color, Mohan, will you take that question as to what is all happening, maybe?
Sure. Let me break it into a couple of big product groups. One product group is the digital clusters or the electronic clusters. On this, we already have got a good business running, and we are almost running our SMT lines at around 54% capacity utilization. I expect that this could go very quickly more up because we are on the verge of winning one more major module with an existing customer, and this would be in the EV segment, and that is going to be a high volume high runner, as we call it.
Therefore, very quickly, I think we should be reaching our capacity utilization somewhere around close to 70%, 75%, 80%, which would mean that we would prefer to go in for additional investment on another SMT line so that we de-risk the business at the same time, add capacity so that we become more hungry for more business.
That has been a stated philosophy within Suprajit that we stay ahead of curve in terms of building capacity. That is the way I look at it from an instrument cluster business. Other than instrument cluster is where we have the mechanical latches, the electronic latches, seat latches, steering latch, et cetera. Here again, there is a good amount of traction. One of the marquee customers, existing players, has evinced interest based on what we have already started supplying to one of the big time OEM in EV business. That is also building up very well, I would say. The third portion of the product profile is electronic throttle control, where we are doing it just for only two customers now. But with this, we have been able to prove our capability in electronic throttle control.
Therefore, again, there we are gaining good amount of interest with existing players, both for our single channel and dual channel throttle controls. Overall, if I look at it, we started off by entering into the EV segment because that was an easy entry for us. We have proven ourselves there. That has attracted attention of the existing old-timers, as I would call it, or the established players, to be more politically correct. They are now approaching us telling that they would like to source from us. That's the way it's moving.
Just to add to what Mohan said, I think we look at Suprajit Electronics Division as a kind of a startup within our group. Typically in the startup, in the first year or two is like a hockey stick growth. That's exactly what you have seen in the first three quarters, and I think it is expected to continue for some more time.
Thanks a lot, sir, for the detailed answer. Really looks impressive. I'll join back the queue.
Thank you. The next question is from the line of Mumuksh Mandlesha from Anand Rathi. Please go ahead, sir.
Thank you. Sir, good to see the recovery of margins in the SCD division, new order wins, and the Phoenix Lamps continuing to maintain double-digit margins. Sir, you mentioned about the Red Sea issue where you have to shift some of the fleet to the air freight. Is it possible to quantify the impact which can be expected next quarter? Also, on the UAW strike, anything you want to quantify what was the impact this quarter?
On the Red Sea, I think what has happened is the routes have now gone via Africa, as you all know. Of course, the fleet companies, the container companies are all jacking up the price. I think it's something like 7x, 8x, 9x. Suddenly the prices of containers and cost have zoomed up. That is number one. Also, it is delaying the shipments. What has happened is that when there is a delay in shipment by, let's say, three weeks, and there is some line stopping somewhere in Europe or U.S., we need to air freight it. I think I don't have the numbers in my mind, but just in the last month, I think our freight forwarding cost probably has gone up by 4x. If you look at it will have an impact on the margins.
The point is, we're also growing so well, to some extent it gets offset. These are all passing phases now. Slowly, I think in the next, hopefully up to three weeks time, even if it stabilizes via Africa and if the containers are sort of prices have stabilized, it's okay. It has happened last time also when there was COVID, how it has gone up and it comes down. These are all seasonal things. We have to face it. It will have an impact in this quarter, but we are also doing well in some other places. I think it all will get offset one way or the other. In terms of UAW, I think September and October are the two months where we had an effect. I think October was much more serious.
I don't know the numbers, but we certainly lost sales from Matamoros, at least probably maybe $2 million-$3 million for the month of October itself. I think that is all past now, so things are back to normal.
Got it, sir. On the China plant, which is resuming from April. Just to understand what kind of revenues will you see from this new plant? Just to understand more on the potential of this plant in the China market. What kind of a growth potential is the China market?
I think the basic issue in China is that they were producing for China and for the Chinese market, but also to a couple of major export non-automotive customers who are manufacturing there and selling it out in Europe, and also, unfortunately, one very big customer to Russia. That business, because Europe has clamped some restrictions on sale into Russia, that businesses have dropped off. That continues to be dropped off. That business has gone down, so that has affected our China plant, these two things. The domestic business seems to be pretty strong. It continues in the way it was. The point was that last one year, we are all busy with relocating the plant, and it just completed. Now the people are all just settling down in the new plant.
What has happened is that in the process, we lost one year of business development time because everybody's focus was to get all the customers come and approve the plant, get approved for a change of location. A lot of other work gets involved. That is now behind. I think right now they are looking at new businesses. They did win a couple of interesting new contracts, but I think that will gather strength. In a sense, I would say that its effect will come into picture probably after three, four quarters of these new businesses. One or two quarters there will be still some amount of challenge at China. But I think the way we see it, and some of these new contracts are being worked on. After that, I think it should be much better.
At the moment, I think the strike rate is pretty low, about INR 1 million plus, INR 1 million in a quarter per month, I think is the current strike rate at that place.
Got it, sir. Sir, in standalone business, we have seen a DCD growth of 10% in Q3 quarter after a decline in last few quarters. Sir, can you share more on the segmental level at the OEM level, aftermarket level, what kind of growth we are seeing?
I think the aftermarket for the first nine months, including the last quarter also, has been fairly tepid. I think Indian aftermarket in this business has been a little slow. It has come back quite well in January, actually. That has been slow, and I think probably it did not grow in the first nine months. That has been sort of two-wheeler, although entry levels have had bad time, the other segments have done pretty well. That is why what you are seeing the 10%. And I think there is a reasonable festival sales also. There is a change of product mix happening in the two-wheeler segment per se, where the move is towards the mid and higher end segments. We also have good presence in the entry level. That is where some effect has been in the past. Now, I think it is also stabilized.
That is why you are seeing a decent growth in the Q3. And I think that is getting actually a very good momentum in Q4 as I speak. January sales have been very good.
Got it. Just continuing, aftermarket, any reason why it is soft? I mean, last few years aftermarket has grown very well. Any reason for slowness this year as well?
In all these businesses, to some extent, a little bit of cyclicity is there. There has been a two, three years of great growth. This, I would say, is a year of consolidation. Also, I think to some extent, monsoon, rural economies, all those have some effects in these markets. I think it's a passing phase. In fact, we expect in the fourth quarter aftermarket to have a good growth, actually.
Okay, sir. Just lastly, sir, you mentioned about assessing the global acquisition opportunities in the core business. Can you talk about what kind of opportunities you are seeing there, sir? Thank you.
I'll give a little, I suppose, a long-winded answer to your question. The point here is, globally, I've said this in many of the earlier calls that consolidation is the way, and that in the long term, the smaller players will find it impossible to deliver to global customers to global destinations. I think that's exactly what we are seeing now. As we have said in the last business update as well as we have talked about the big wins in this quarter. What's happening is that it is not that the overall business is growing, it is that the stronger one, better ones are growing the business. Certainly at the cost of the smaller ones. Today, 30, 40, 50, 60 million cable business with one or two destinations of production doesn't really give a global footprint. I think these guys are having typical problems.
They are not able to grow. They are probably de-growing at some time, so that will put tremendous pressure on their finances. We know all our competition, and I think we know what the stress is in this market for these players. Ultimately, customer is looking for a solid global supplier who will not only have a low cost base, but also capability to deliver locally with either a delivery model of warehousing or a close shoring kind of facility. We see that with the Red Sea, for example, customers are very particular about material coming from China or India into Europe because it has to go through Suez Canal. If there is a near sourcing opportunity, that gives them a little bit of comfort.
Current pressure is on price, but I think now customers will wake up to say that we need to have a supplier who has got a both low cost base as well as near sourcing capabilities, near manufacturing capabilities. We are looking at such opportunities, and I think if we are able to get the right such opportunities, the right assets, and at a price which is really value for money, we feel that strengthening our portfolio of such locations would probably help us in the long run to be really, really the best-in-class supplier. That is the basic thought process, and I think that's why that statement has been made.
Thank you so much, sir.
Thank you. Ladies and gentlemen, in order to ensure that management is able to address questions from all the participants in the conference, please limit your question to two questions per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Pritesh Chheda from Lucky Investments. Please go ahead.
Yeah, sir. My question is on the Suprajit Controls side, which is the international piece. What is the capacity utilization that you are running at in these plants? Number 1. How much portion of the business is what you're looking at offshoring, and at what extra GM over the next, whatever, four quarters, eight quarters, or 12 quarters, based on whatever plans you have, so that we get a better understanding on the margin projection.
Okay. In terms of capacity utilization, I will probably say we are 50% capacity utilized today in, let us say, our global facilities outside of India. In terms of the strategy of locating from elsewhere to India and improving the margin, I think, Mohan, will you take that question?
Sure. Let me just give you the background on how we are doing it. What we have done is at each of these locations, be it our Hungarian location or Mexican location, we have looked at all the part numbers and looked at the margin levels. Wherever the margin levels are a bit thin out there, we have floated the same inquiry to our India plant. There is a Suprajit Automotive plant, and we have taken the quote from here to see whether it makes business sense. Because if it doesn't make business sense here also, there is no point in moving it all the way here or go to the customer. Wherever we feel that we can manage our margins better, we have gone back to the customer and told, "Look, we are ready to service you at this price.
However, we need to move this to India. In case you wish this to be done here itself, we need a price correction." That's the way we have approached the whole project. This is going on, out of which there are a few projects where the customer said, "We are ready to move it to India, and we will give you approvals," because in the automotive world
We need to have the blessings from the customers when we have to move the production from place A to place B. Once we have done that, we have launched those projects. That's the way we are doing it. This is going to be an ongoing process for some more time, because when we move, it needs customer approvals also.
What I would like to also add to this is that the underlying philosophy is simple. By moving a business, does the margin for the group improve overall? If it does, it makes sense. Otherwise, we don't, or go back to the customer.
I think what portion of the business will be offshore in the next-
Okay. I think that's a difficult question to answer at this moment. We currently did one major transition from Hungary to India. We are working on at least another half a dozen projects. It is under assessment and evaluation. It's probably a process which will be done couple of projects at a time, not that there'll be a huge move from one place to other, and it's going to be very strategic. It's difficult to answer that question, what will be the value of it. But it is going to be a steady but regular process.
I think the way to state it is there's no specific, we will move X percent to India. That is not the goal. The goal is specifically on margins, where they are hurting, and go back to the customer or move. It really depends on what the customer does and a lot of factors. There's no specific number that we aim for.
Sir, then based on this offshoring plus new wins and your capacity utilization at 50% today,
The combination of these two, will we see the capacity utilization in your international operations moving to 75%, 80% over the next eight, 12 quarters? Because if it doesn't happen, then if you offshore, then you will have a lower utilization there, which will still keep the margin under check. If you could,
Yeah, I get your point. I think very valid point. I think what you must understand, if you have looked at our last quarter's business report where we have given the kind of business wins, as well as what we didn't give the whole picture, but we just gave one business order that we have won. The point here is that together, along with these new business wins plus the transfers, we expect operations to be actually improving in terms of value, in terms of volume, in every one of our plants. Now, there is a restructuring, as we said, going on. If we, at any time, feel that this is going to have, in the next two, three years, an issue with let's say an X plant, we'll see what needs to be done there. That's all I would say at this moment.
I'll also add to that in our business, the utilization, it's not like a machine shop where the utilization is as critical because our lines are very much done for a customer. It is not like these lines can be reused for any customer at any given time, or these machines can be reused. They have to go through a certain change process to be used for a different customer. That 50%, even though like Chairman said, it's maybe on a one-shift basis, we're fully utilized, but he's talking probably on a three-shift basis. If you look at it from that perspective, even if things were to change, we should be looking at bringing a lot more higher value products, and that's what we see.
More actuator products, more lever-based products to these kind of locations where they bring much more value to our customers to be nearshore.
My last question is on domestic cable business. In the nine months it grew 3%, it is much less than the auto growth in India. If you could give some comments there.
Yeah. I think we have mentioned in the last quarter and also in this quarter, I think I just mentioned earlier also. It is largely due to the aftermarket being weak in the first nine months. It is as simple as that.
Okay.
Whereas we have seen in the third quarter, we have gone at 10%. Whereas I think the Q4, we are seeing it coming back, so the growth will be more interesting.
Okay. Thank you very much.
Thank you.
Thank you. The next question is from the line of Viraj from SiMPL Limited. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Just a couple of questions. First is on the Suprajit Controls Division. If you can just give some perspective on how the end market degrowth has been in various geographies for the key segments which we cater to. I understand there is a new win which has offset the degrowth, which is seen in the market. But just to get a perspective, what is the kind of degrowth we have seen in those markets? In the press release, we mentioned about us winning an order from a large Japanese OEM. It is a global order. Is it purely a cables or this is an actuation system order for us? So that is-
Okay. The order that we talked of, $5 million, is purely a cable business. It will be made out of India at SAL, warehoused at Brownsville, and delivered by Suprajit to Brownsville to U.S. customers. But it is actually landing up in a Japanese number one car manufacturer. So you know who it is. So that is where I would leave that. In terms of the end market scenario, the problems have been in the outdoor power equipment, power sports vehicles. That is where our core of Wescon and non-automotive business are. That business has been weak. Actually, the kind of degrowth we have seen in that market is something 25%. So it is now fallen enough, so hopefully there is not falling anymore, and probably it is growing.
To offset that, I think the business that we have won in the last year or 18 months in the automotive side has offset it to as much as possible. Still, it has not been 100%. But going forward with that, the base has been now, I think, at the bottom for the non-automotive. We feel that the things should be for the next year would be better.
Second question.
Add to it the automotive wins, which have been extremely strong, will certainly give additional tailwinds to that.
Okay. Second question is on the margin for the Suprajit Controls Division. If I look at nine-month basis, can you give some perspective, what is the restructuring, relocation charges or the liquidation? There is also an impact of cost under recovery, impact of gauge increases or duty. What will be these expenses if I have to look at a nine-month basis?
I mean, we wouldn't be able to go into that kind of a detail. We don't give out such details. But suffice to say, for example, the annual impact of just the China duty is INR 2 million for us. That's just giving you one data point to you. In terms of warehouse moving, in terms of moving the China facility, they will certainly get into fairly decent numbers. There has been some restructuring in terms of manufacturing relocation from Hungary to India, which has brought probably more margin to SAL, but also has reduced the pressure of margins in Hungary. The actual numbers, it's internal, but we are not really going into that kind of a detail for giving out. All I would say is that they're fairly decent.
That's why we are saying it over the medium term, expecting a double-digit margin once automotive business starts into the manufacturing new win. As well as non-automotive slowly and steadily, probably recovering little more next year. We expect this to go back to the double digits. That's why we made those statements.
Okay, just two questions from my side. You talked about in the press release that you will look for opportunities to drive consolidation in the controls cables globally, right? Now, if I look at our utilization, it's around 50%. Our organic share expansion has been phenomenally well. In fact, we are driving new win rates to both the new and existing customers. The natural progression for us has been quite healthy in terms of share gains and driving consolidation. Then in what scenarios you will look for an acquisition? From a footprint point of view, technology point of view, segment coverage point of view, seem to be ticking all the boxes. So why would then we be looking at inorganic opportunities in this space, if at all we are looking? Correct me on my understanding.
Yeah, I mean, I get your point. I think the point here is that, do we have a perfect global supply chain footprint? What was there four years ago and what is there today is a superior one, but is it the ultimate one? I would say still there are opportunities. I will give you some color to it. There are people who moved from, let's say, Western world, say Germany to Hungary. People moved from that Hungary to Bulgaria or Hungary to Turkey or Hungary to Poland, and then still they found Poland is being more expensive. Then somebody moved to Turkey, somebody moved to Morocco, somebody moved to some other place. What I am trying to say is that we need to see one place which has got a fairly stable manufacturing low cost base, which is closer to the mainland, let's say Europe.
Similarly, let's say, for North America. I mean, Brazil is a big market. Do we have a presence in Brazil? Zero. What do we do about it? Do we set up a greenfield? Do we find somebody? These are all the questions that we as management face with. The idea is what? We need to be the perfect footprint company to make cables better than the competition that we have, and give the best value to the customer so that the customer will be able to say, "Okay, you give me the low cost from India or China. Do a warehousing. I am trying to take the risk of six, eight weeks. Red Sea, I will take care of. I will do air freight." Then it is one solution. No, I do not want to take the chance. I want it to be somewhere near Europe.
Then whether we go to Turkey or Morocco or whether we go to Bulgaria, that is what we need to see. Is there a supplier who has got this kind of a facility which answers this question? I think that is where we are coming up. It is not that we are looking out in desperation. Most of these companies in that price, I mean value in terms of revenues, whether it is 40, 50, 60 million, they are all struggling to survive today. That is some of them fit us best to further strengthen our Controls Division's overall strategy. I think that is what we are looking at.
Okay, just last one. In terms of the sheet, if I look at the cash, it is largely on the standalone. Major part is on the standalone books. The debt is largely in terms of the overseas entity. On an annual basis, we will be incurring, say, around INR 40 crore or INR 50 crore of interest expenses. If I look at from a CapEx point of view also, we have been talking about INR 100, INR 140 crore kind of annual spend. Even after that, the cash position will just keep on building up. Purely from a treasury or from a, say, debt consolidation point of view, how are we looking at it? Is there any thoughts in terms of further winding down the debt? Given the cash would always keep on building up further despite the CapEx plans we have.
Yeah, I think fair point. I think there has been a multiple debate internally, whether it is at our management level, at the board level, what we should do. I think what we have done in the first step, I think couple of years ago or a year ago, yeah, three years ago, we decided to increase the payouts to shareholders, saying that over a period of three or five years' time, the overall payouts should be between 30% and 40% from the then 20% to 30%. That means it would be not only dividend, but once in few years we will do buybacks. We did one buyback. The board will look at an appropriate time to do what is necessary to have that 30% to 40% distribution. That is one way of doing it. Secondly, I think historically, we always have had a cash pile.
If you look at our cash pile as a percentage of our sales, I don't think it has changed over the years. It remains same. Since our business has grown, our cash pile also has grown. The point about what do you do with the cash, whether you want to wind down some debt. I think our historic philosophy has been that if you do, it is all been an acquisition debt, basically. But that will be a 50/50. If it is a INR 100 crore acquisition, we will put our INR 50 crore, and we will take INR 50 crore debt. And we continued with that philosophy, and that is why the debt is. Can we retire the debt? The answer is yes. Will we have more opportunities going forward? The answer is also yes. You just asked a question, and I answered it.
Secondly, also, I think going forward within Suprajit, there will be more requirement of funds. We just made one acquisition of land parcel. We are looking at other ones. We are already talking about Suprajit Automotive having to expand its capacity because of the kind of orders we are looking at it. Mohan just mentioned about SCD starting to utilize its capacity more. We are looking at bringing in maybe new divisions within Suprajit to capitalize on what STC is doing wonderfully well in terms of product development. All of them will require cash.
Around core business of cables in India, you are right, the cash requirement may be less, but I think it is important to inform all of you that the color of Suprajit will change in the next five years from a pure-play cable player to a core cable player plus a significant other product player. I think that also would require cash. So we are being prudent in that way and conservatively continuing the current status.
Okay. Can I ask maybe one last query? On the LED retrofit, if you can just talk about how big that segment is now. Because we have been talking about a significant success and scale-up happening there. While all the discussion is on STC and SEL and all, but I think this is also an initiative which seems picking up for us now.
I will ask Mohan to give a color on our LED plans and what we are doing.
Sir, I did not get the question. Can you repeat that?
What is the scale right now on retrofit and the LED business under Phoenix?
Okay. LED business in Phoenix, is it?
Yeah. What is the scale right now?
Okay. See, we embarked upon this because there were a lot of Chinese imports coming in. One, they were expensive. Two, the quality levels were bad. So we said, we owe something to the market here, and it also meant a business opportunity for us. So instead of resorting to what everybody does, import and sell, we decided to invest into it. We started putting our own power circuits. Not only that, we started doing our own power circuits at our own SMT lines and get only the LED chips and ensure that the geometry is contained and proper. Therefore, technically, it is a strong product. So very quickly, the customers have realized it, and they have started taking it. We are not very cheap in the market, but we are known for the quality that we are putting out in the marketplace.
Therefore, we have got some good, I would say, movement by the dealers. The second thing that is happening is a normal replacement bulb goes in the spare parts market. Whereas LEDs were going not in the spare parts market, it is going in where more high-end people do upgrades. So we have been able to get those dealerships also interested. Therefore, it is moving on both the grounds now. It is growing in the traditional spare markets segment because it is a drop-in solution, but it is also growing in this segment where people go in for conversions. Therefore, I would say we have played out very well here. Not only that, it has attracted some of the global players who have come to us telling that whether we can make it for them. Therefore, very shortly, we should be launching for them also in their packaging.
Therefore, I would say that we have been able to get good amount of business being cornered in the LED.
Is it 10% of business or
Sorry to interrupt, sir. Sorry to interrupt. I just request you to follow back the queue as there are participants waiting for their turn. Please, sir.
Thank you.
Thank you. The next question is from the line of Resham Jain from DSP Asset Management. Please go ahead.
Hi. Good afternoon, sir. Thanks for taking the question. Overall, it seems that last couple of years we have won lot of orders, but obviously the industry environment has been quite challenging. Hence the growth was little tepid. Now, seeing your commentary, it seems that some of the acquisition-related stuff also is now improving. Going forward, how should one think about the overall growth at the company level? You have mentioned about division-wise, lot of new orders have been there and all. Let's say, in the normalized environment, how should one think about growth? The second related question is, some of the challenges which we had across the acquired entities. In this quarter, it seems that some of them are resolving and going forward, it will further improve. So how should one think about company-level margins going forward?
Yeah. Thank you, Resham. Yes, the reasoning has been twofold. The growth has been muted, as you rightly said, because of the global issues and also because of some of the delayed launches of some of these projects. I think it has come to a stage where we feel that the worst is behind us, I would put it that way, in terms of growth. In terms of growth, I see at least so far in this quarter, things seem to have been stabilizing. I think given another quarter or so, the growth should just take a momentum. But in terms of number, I think, next year, if you look at it, if we don't do a double digit kind of a growth easily, I think it would be, I would say, not up to our own expectations.
Despite the weaknesses in some of the markets, we feel that the new wins will have the tailwind to us, which will propel us into a comfortable double-digit growth in terms of business growth. I suppose that answers your question.
Yes, sir. On margins?
On the margins, I think, the margin issue is simply on the Controls Division. As you've seen, Phoenix Lamps has changed its profile. Its margins are in double digit. Electronics Division has also gone into double digit. DCD has always been a strong performer. The only challenge has been with the Controls Division. The challenge is to bring it to 10%. That I think will take, I would say, little more than couple of quarters. The idea is to see how it improves from now on, and I think our internal working is that we seem to see that it will slowly but steadily will go from, if not this quarter, from next quarter onwards to a higher level. May take three, four quarters before it hits the double digit, I think.
But that is where we think will happen when all these volumes fill up these plants, and I think that's what we're looking forward in the next four quarters.
Understood, sir. Sir, the last and the final part is with respect to the SED, and we have seen good steady ramp-up over there. Even at a lower level of revenue, you are making like decent margins, which is quite good. But sir, three years, five years out, because you have been very positive on this segment, and it took a lot of R&D work and all over a period of time. But let's say three, five years, what kind of number you see in this business? I'm not asking specific number, but will it be a INR 300 crore, INR 400 crore business or it can be like you see that to be, because these are high-value products compared to cable business, which are like INR 200, INR 300, INR 400 products. While digital cluster is a large value.
Yeah. Okay. In terms of the business, I think, the traction is pretty strong. We are doing INR 10 crore+ sales now comfortably, which is I think is quite strong within one year of our operations. We had talked about INR 100 crore+. I think we have already crossed that on a monthly run rate, and we expect to see this kind of a continued growth for at least for the next two, three quarters, because I think the order position is pretty strong. We are in the process of winning even more orders as we speak. The idea is that simply we put up a brand new division, is to get the right focus with a senior person running it, a separate infrastructure. The idea is that Suprajit has got a Suprajit Controls Division, a Phoenix Lamps Division, and now an Suprajit Electronics Division.
Obviously, a company of our size without having a vision of a size, let us say, of INR 500 crore for a division at a reasonable time period, I don't think it is something that we would be happy to do it. So that is the kind of vision the division has easily. I think in terms of the margin, I would say that, of course, automotive is a competitive market, but I think we have had in certain products a first-mover advantage, particularly things like actuators for locks and throttle controls, and of course, digital clusters is a product which others make as well. But I think we have been able to, in a short span, able to establish that. So I think one of the strengths of Suprajit, I believe, is our manufacturing excellence.
I think that is shown in the Suprajit Electronics Division in a short span to get into double digits. Our aspiration for our India business was always what it is. You have seen it in DCD, or you have seen it in SAL, or you have seen it in Phoenix Lamps. So I think getting those kind of margins on a sustained basis should not be a problem for us, I think.
Also just to add, in terms of going forward, Suprajit has been focusing, of course, on growing this global control cable business. Each of these control cables, like you said, a INR 100 control cable can be replaced by an actuator. That actuator, we have also developed that expertise in-house. Like you said, a INR 100 cable can become a INR 400 actuator or even more than that. So if you look at the global division, the kind of growth path that it has is that any control cable can be replaced by an actuator of some sort, which Suprajit will be one of the key global India-based providers of these kind of actuators, because there's nobody else who has this global footprint and based out of India.
I think that gives us a very big advantage where you can tell, at least we are talking about on these products, at least 3x, 4x, 5x the current buying price. You can see, even with the current products we have, we have a great future growth path within the divisions.
Okay, great. Thank you so much and all the best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that management is able to address questions from all the participants in the conference, please limit question to one question per participant. Should you have a follow-up question, we request you to rejoin the queue.
By the way, I think it is past 12:00, so we will take probably maybe at best two more questions.
Okay.
From two more participants. Thank you.
Okay. The next question is from the line of Abhishek Jain from Dolat Capital. Please go ahead.
Thanks for the opportunity. Sir, in the Suprajit Controls Division, how is the nine-month revenue mix for the LDC, Wescon, and the European cable division?
I think if you can come offline with Medappa, I think he will be able to provide. I do not have it immediately with me.
Okay, sir. My last question on the, how do you see the growth in automotive versus non-automotive in FY 2025? What would be the margin of each division?
For the Controls Division?
No, sir. I am talking about the automotive versus non-automotive revenue growth in FY 2025.
The international market you are talking about, I think.
Yeah. Automotive versus non-automotive, I am asking.
Yeah, I think non-automotive, as I said, as bad as in some of our customers are at 25%-30% de-growth in this year. From there, I think it will grow. We do expect it to grow, but I do not know whether we hit the bottom. That is the point. I think at the best, probably, hopefully, this quarter would be the bottom of the barrel, I hope. Then the growth will be there. For us, it is not the industry growth that will determine our growth. Actually, we are growing in automotive, let us say 15% in the next couple of years because of the new wins, argument's sake. Industry is growing at 2%, 3% globally, if at all. We are ahead of the market because we are getting somebody else's market.
The global automotive market growth has got no relevance to us, actually. It is the same thing for non-automotive also. We are winning now contract that will go into production in the next year. Our growth will be certainly ahead of the industry. The industry growth is not really a benchmark for us, actually.
Any specific number for FY 2025?
Sorry?
Any specific number for FY 2025?
That is what I said. Our growth would be very good double digit in automotive. Whereas in non-automotive, we are still not able to assess simply because we do not know where it is now and whether it is stabilizing at the current position. So probably next quarter we will have a better answer for the non-automotive. Automotive, we are quite comfortable at a comfortable double-digit growth next year and the year after next.
Thank you, sir. That is all from my side.
Thank you.
Thank you. The next question is from the line of Harsh from Marcellus. Please go ahead.
Yeah. Hello, sir. I have just one question from my side. When we look at the Domestic Cable Division and deduct the two-wheeler revenue out of that, the mass share almost 30% decline. This seems to be the number for the India aftermarket business. My question was, what has happened to this business, actually? Because I thought that this business should actually do well after we integrating all the three facilities to another plant, and that plant being seen by another plant all together. I thought that this business should have actually done well.
I think I have answered this question. This question was raised earlier, but anyway, I will repeat. The integration of the business into a single facility has improved operations tremendously and also improved the overall aftermarket, let's say, internal divisions performance. That is very clear. What has happened is in the marketplace, as I said, for the first nine months of the year, the markets have been somewhat tepid, whether it is monsoon or rural, things have not come back. There are multiple probably reasons for that, which we are seeing a change of trend in this quarter. For example, last quarter, we are seeing right now in the last 45 days, very strong uptake of the aftermarket. So it is the usual. We had three, four years of solid run in aftermarket.
It had a kind of, I would say, stabilization in the last nine months, but I think again, it is picking up, actually. Yes, you are right. The delta is because of that, mostly.
30% decline is not completely-
It is not 30% decline. I don't know how you calculate it. You can have a conversation with Medappa offline. There has been a marginal decline, yes, but it is not 30%. You must also understand the product mix of the main customers also.
It's much larger than that, I think.
Okay. Understood, sir. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, we will take this as the last question. On behalf of the conference, over to Mr. Ajith Kumar Rai for closing comments.
Thank you very much, all of you. I appreciate your interest in Suprajit, and I hope we have answered your questions. If there is any further questions, please do contact Medappa, and we will be happy to provide more information. Thank you very much. Thank you, Anand Rathi, and your team for hosting this call. Thank you and have a good day, everybody. Thank you.
Thank you. On behalf of Anand Rathi Shares and Stock Brokers , that concludes this