Ladies and gentlemen, good morning, and welcome to the Suprajit Engineering Limited Q2 FY 2024 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. 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. Sir, you may please proceed.
Yeah. Thanks, Elizabeth. Happy Dhanteras and Diwali festival cheers to the management and participants. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Suprajit Engineering Q2 FY 2024 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, the CFO and Company Secretary. I request Ajith, sir, to give an introductory review about the results, and then we can follow up with the Q&A session. Over to you, sir.
Yeah. Good morning. Thank you, Mumuksh. Good morning, everybody. Again, happy Diwali and Dhanteras. Thank you for joining us on our Q2 and first half results conference call. We will start with some initial remarks from our team, and then we will take on questions. We will start with Mohan, our MD and CEO, followed by Akhilesh Rai, and then by Medappa. So I hand over to Mohan. Go ahead.
Thank you very much. A very good morning, and wish you all a happy and a prosperous Diwali and Dhanteras. As usual, what I will do is give you a market and general business update first and then take you through the individual units. In India, as you know, the passenger vehicle segment did well. But importantly for us, the two-wheeler segment is still struggling, and very specifically the entry-level and the commuter segment is still not yet out of woods. Potentially, the failure of monsoon could have had this effect. However, even in October it hasn't been great, and this was probably due to the [inaudible] period, and I really feel that the festive season will kick in some amount of good news. November shows some potential, and we are seeing OEMs are pitching a lot in the market.
Now moving away from India market and into global markets. Some of you would have noticed that in the previous call I wasn't there. I was in U.S. and Europe for about two months. In fact, I met quite many customers apart from visiting our plants there. Let me start with the U.S. market and again, within that let me split it into automotive and non-automotive market. Automotive market was hit by the UAW strike, and again, thankfully, it's behind us now. Having said that, I think it did leave a scar on our business. Non-automotive segment has taken a very severe hit due to the combination of reasons. The housing market, high inflation, high interest rates has had this impact, specifically on discretionary spendings like lawnmower and power sports vehicles.
The severe summer conditions did not aid either, and it did not foster the sale in these segments. I expect this effect will be a bit prolonged in the non-automotive segment in USA Moving on to Europe. Europe is still yet to recover and settle down the post-Ukraine war scenario. The further stability in this region hasn't helped either. However, we continue to win business in the European region, and I think it's a great news for our business at SAL and SEU Europe. In China, one specific customer who is into non-automotive got hit due to restriction in sale to Russia, and that has impacted us along with the relocation that we are right now in the mid-stop. Having said this general update, let me move into specific divisions.
I will start with our Suprajit Controls Division, which is basically all our operations outside of India, except for of course Luxlite. Our turnaround at SCD is taking more time, and it is facing some headwinds, primarily due to economic conditions like customs tariff, wage increases, interest rates, and so on and so forth. However, our restructuring and assimilation exercise has been on schedule, and the max teams which we had initiated across all the territories are coming together and bringing in synergies.
Specifically talking about Lonestar China, we got a new plant head and Shanghai Lonestar is facing this relocation, as I mentioned, causing some significant one-time and double expenses like rentals. It is also a double whammy with slowdown in the non-automotive business. At Siófok, that is Hungary, we have identified parts which have been stressed on profit, and we have started bringing it to India as it still makes overall good business sense for us. As mentioned earlier, we continue to clock new business inside SEU. Am I audible?
Yes, you are audible, Mohan.
Okay. Our concept of the front end in Europe with a back end operation in India is getting accepted well. I think it is very good news. In fact, I was in front of a couple of customers, and I think it is really gaining traction. I think the track record that we have had is helping us to locate these low-margin products out of Europe into SAL, while we still continue to look for high-value adds at Europe. In U.S., we successfully completed the transition of a third-party warehouse, TMI warehouse, to our own existing warehouse at Brownsville. So it brings in a lot of economic synergies there. We are also in the process of moving a lot of plastic injection molds from a third-party vendor who used to supply to Wescon and bring this in-house at our Matamoros plant. This obviously will improve the economics.
Moving on to the Phoenix Lamps division or the PLD, we grew business despite the continued LED penetration, and very importantly, the margins improved and went into double-digit levels. I am glad to say that these efforts, both at the plant level and also at the business development level, have yielded this kind of results and improved profitability. You may recollect that Vidya had draft and we had put together a plan to get to this double-digit level. Divisions restructuring continues at Luxlite and Trifa, and Trifa liquidation is expected to be concluded by Q4.
Moving on to the Domestic Cable Division, we continue to retain our strengths in the form of our DCD. EBITDA remains stable. Our focus is clearly to go beyond cables and beyond two-wheelers in cables, and these efforts continue. With this, I complete an update on the Controls Division, Cables Division, and Lamps Division. I would like to hand this over to Akhilesh to talk about the other areas. Over to you, Akhilesh.
Thank you, Mohan. I will start with the Electronics Division. As you know, it is the organically launched division that was only launched this year. I am happy to say that it has made good progress and clocked very good growth. The teams at the plant have been working literally 24/ 7 to manage the kind of growth we have had there. You can see in our disclosure that Q2 over Q1 was almost 150% growth in sales. We are also happy that the division turned EBITDA positive in Q2 with just one year of operations and as you can imagine, pretty high fixed costs. The division started deliveries of actuators for two of the large EV two-wheeler customers, and I would say that the digital cluster business is only starting to ramp up.
We will see a lot more good, strong business in the coming year and in the short term. I will move on to the tech center. This is of course, one of the key parts of Suprajit and one of the reasons we were able to launch the Electronics Division. The tech center continues to change how Suprajit is accepted in our customers' eyes as a supplier beyond cables. We are in discussions on multiple products, and in the late stage of a lot of the evaluations to start productionizing products across different areas. There has been a lot of interest shown by our customers in actuator systems, braking systems, and of course, the digital clusters that I have already discussed about. Regarding the coming quarter and the balance year, we see the challenges at SCD continuing, mainly because of the global challenges already explained.
However, DCD and Phoenix Lamps division, PLD, will continue to perform well. The SED growth will continue as you see today. We continue to see this as one of the strong performers within Suprajit, and we are actively pursuing multiple infrastructural assets to house our beyond cable projects, which a lot of our customers have shown great interest in. The group is working on one ERP and one PLM initiatives to bring all of us under a single ERP and PLM system. This will help us collaborate and find much better synergies across the group.
We finalized the licenses with both SAP and TGC in the previous quarter. The domestic business for Q3 has been strong so far, leading to some optimism and expectation for a good second half of the year. But overall business will continue to be strong and we have clear long-term visibility on good growth. With that, I will hand it over to Medappa.
Thank you, Akhilesh. Good morning, everyone. We announce the financial results for the half year ended September 30, 2023. The consolidated revenue for the half year ended September 30, 2023, was INR 1,389 crores as against INR 1,361 crores for the corresponding period of previous year, a growth of 2%. The consolidated operational EBITDA for the half year ended September 2023 was INR 144 crores as against INR 136 crores for the corresponding previous year, recording a growth of 6%.
The standalone revenue for the half year ended September 2023 was INR 719 crores as against INR 723 crores for the previous year. The standalone operational EBITDA for the half year ended September 2023 was INR 125 crores as against INR 118 crores previous year, recording growth of 6%. The total debt level was INR 629 crores as on September 30, 2023, and cash surplus balance was INR 517 crores as on September 30, 2023, invested in mutual funds and bonds. For any further queries, you can approach again directly also, even after this call. Thank you. Thank you all.
Yeah. Thank you all. I think I will leave my comments probably for little later. We will take the questions as it comes. So I will ask the moderator to monitor the calls and direct it to us, please. Thank you.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question, may please press star and one on your touch tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Abhishek from Dolat Capital. Please go ahead.
Thanks for the opportunity. Sir, my first question on the cable business. How is the outlook for the second half in the domestic cable business? Second is, what is the progress on the export cable business that is for the four-wheeler side? If you can throw some light over there.
Yeah. As for the domestic cable business, it will obviously relate to how the domestic industry will do. October, as Mohan has said, has not been greatly exciting, but November, I see that sales seem to be picking up. I would think that just October sales for us have been actually much ahead of the industry growth as far as I see for the month, but that is not really an indication. I do believe that the second half will show some decent growth because typically, historically also, this is the time of maximum sales during the third quarter, and generally Q4 is stronger. I would expect H2 to be probably slightly better than H1. In terms of four-wheeler exports, I think from SAL, the growth has been very good. The dispatch from our Suprajit Automotive has been strong. The order wins have been strong.
What has happened is that the existing volumes have come down with the customers. All our big customers have sort of reduced the offtakes, and there has been certain postponement of the new launches. Although orders have been won, the launch dates have got postponed by three months, six months, some of them have been even pushed by almost a year because of all the uncertainties across the world. It's the issue of timing, I think. Having said that, I think SAL had a strong growth in exports of cables.
My second question is on non-automotive segments. Wescon and LDC are showing weakness.
Yes.
Roughly when can we expect the revival in the volume as well as the bottom-line growth? What kind of impact are you looking on these business?
In non-automotive, bottom line will depend upon the top line. The way we see it currently is that this and next quarter, we won't see any much change. This is the feedback that we get. I think Mohan has also been, as he said, been visiting a lot of customers. The customer feedback is that it's typically, let's say, a lawnmower, simple thing. If the season is too hot, there's no grass to mow. So people probably postpone the decision of buying a lawnmower from this year to next year. Similarly, with the snow season, with all the global warming, if the snow season is weak, people don't buy.
They postpone for another year. So I think the postponement is typically a year in the business that we are in. So if they've not bought this year, hopefully they will buy next year. Certainly next two couple of quarters, we don't see much change, and it will affect Wescon, it will affect a part of our erstwhile LDC division, and also exports out of Bangalore from our Unit nine. So this, I would say, at least from what I see, this is at least a two-quarter phenomena, if not more.
Fourth quarter is always very much strong for the Wescon.
Typically, yes. I agree with you. Typically, yes. But I think this year, another reasoning is that people buy these things also under EMIs, et cetera. So with the interest rate in U.S. today, mortgage rates, I am just giving example, of 7% and 8%, if somebody can afford to pay a mortgage, they will postpone everything else later on. These are all discretionary items. That is what is happening. I think this high interest rate is another reason where some of these purchasing powers have come down and it is going to be delayed. It is not a lost business, but I think it is a postponed decision as I see it.
Thanks, sir. That is also clear.
Thank you.
Thank you. The next question is from the line of Viraj from SiMPL. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Just a couple of questions. First is on the Suprajit Controls division. If you look at the overall sales, which we did last year, around INR 1,300 crores-INR 1,400 crores. Business largely is-
Sorry, I didn't get that number. What are you saying?
If you look at the overall sales, which we did at the SCD last year, around INR 1,300 crores-INR 1,400 crores. The business largely has three parts. One is the automotive which happens to SAL. Then you have the SENA, which is non-automotive part, and then the last one, LDC.
Can you just give some more detailed perspective in terms of how the customer and the segment concentration is in each of these businesses? To give a perspective in Wescon, when we acquired, it had a very high concentration in one or two sub-segments within the agri or highway segment. Fast-forward 2023, how has that changed in terms of the overall business mix? Based on the auto wins which you had, how that is supposed to change over the next one, two years. Any perspective you can give on customer and segment concentration in each of these businesses?
Yeah. Let me make general comments on all the three points, the three subdivisions within this, I would say. The SAL and SEU, Suprajit Europe business, is pretty strong. That model of front-ending from Europe and to some extent from U.S. and manufacturing out of India has been really hitting sweet spots with the customers. We have been winning significant new contracts at very good margins. That part of the business is doing strong. Now, SENA is the one I would say is most affected at this moment because that's purely non-automotive business. The reason why, of course, Suprajit Controls Division has not grown is largely because of SENA because there has been a degrowth at Wescon, there has been a degrowth at Unit nine, where we are manufacturing non-automotive cables. Because of the reason that we have said.
It is in the powersport vehicles, it is outdoor power equipment. All those are discretionary purchases. That is where the significant degrowth is there, which is why overall, although actually LDC, if you put separately, they had some decent growth, but when you're putting them together, I think, the overall growth has been very marginal or flat. That is in individual basis.
When it comes to, say, LDC or even the Suprajit Automotive, in terms of customer concentration, how would that pan out? You talked about the top three U.S.-
Yeah. I think customers, one thing good about it, they are all complementary customers. The LDC purchasers did not, except in one or two pockets. There has been no overlapping of customers. That has not been an issue. The big customers today are still, I would say, the top customers for us is BMW, Volkswagen, John Deere, a couple of these North American, of course, through tier one, tier two, and directly Detroit customers. I think they are the big, let's say, top five. And of course, Tesla, is also a big customer. So these are, I would say, the top five customers in that.
Okay. In terms of the second half, especially ex of the non-automotive business, do we see further deceleration in terms of the overall? I understand there will be some impact in October because of the strike in U.S. But adjusting for that, do we see any further deceleration in the overall sales or the new?
I think Q3 will have some impact because what has happened is that October has been badly affected because of this UAW strike. And the restarting has also been happening little slowly. Basically, you have lost almost seven weeks or maybe even eight weeks. So to that extent, certainly there will be an impact in Q3. And Wescon also will be weak in Q3 as well. Q3 is typically not a great month for Wescon in any case, historically also. So that gets further accelerated. But I think then I would say that probably Q2, Q3 are the tough quarters for us. I should see some change hopefully in Q4, unless market itself decelerated for whatever reason in Q4.
Okay. Just two more questions. One is on the, again, Suprajit Controls Division margin. We take something like 3% EBITDA margin. And if I look at the subsidiary levels, I am just seeing the consult from [inaudible] . We have been having losses of around INR 17 crore- INR 20 crore for the last two quarters. Again, looking at the business construct, you had SENA, which always was double-digit. Suprajit Automotive earning 16%- 20%, and LDC also last year, because the trend has been more towards mid-single digit and above. So this drop in EBITDA is driven by what? If you can give some perspective, the quantum of one-off expenses which we incurred in H1 or Q2, it will help understand the true business margin.
Agree. I think there are both factors. I think first of all, the deceleration in non-automotive is certainly a major part why the margins have been affected. It has been affected more significantly in Wescon, but it has also been equally strong in LDC. For example, in LDC itself, of course, I will come to that consolidated number little while. LDC also has got about nearly 30% of the business was in non-automotive. That has also taken a hit. Wescon has taken a hit. I think that is the two places where significant margin erosion has happened, which is why that number what you mentioned has actually happened. Let me also make a general comment. Now, I think slowly we are losing this SENA, LDC, SAL, SEU color because the way we have started working now, I will give you few examples as to this.
It is working as a single division, not as separate entities. We are not looking at now what is the margin at SENA or what is the margin at LDC. We are looking at what is the margin at the controls division and what is the margin for the group. Few examples. For example, TMI warehouse, what Mohan mentioned, was for Suprajit Automotive. Now what we are doing is that there is an additional expenses to run a separate third-party thing. So in Brownsville we had a LDC warehouse, so we moved everything into LDC warehouse. So in the process as a group, we are getting additional margin because we are not going to pay to a third party. I am giving one example. Another example. We have been underutilizing LDC's plastic molding capacities. So Wescon was doing a lot of plastic parts.
A lot of those centers have been moved out and those multiple components, probably 100 parts, have been slowly but steadily being moved to LDC. We had a problem with Hungary. I am giving few examples. With one big business where they had negative margin. Just recently it has been started moving to SAL, where we still are making some margin. So as a group, we will get a better synergy. So this Suprajit Controls division will become a single entity by itself, and it will not have pieces of LDC and SENA in the next year or so. Because we are working out the total synergies together. In the process there are some expenses. For example, TMI, we have to pay them one year or whatever rental because it has been committed, but we are forced to move. So there is a one-time expenditure we are doing.
I mean, China movement, we are paying two rentals till whatever time because we are forced to move but we still have to pay rental to the previous landlord. I mean, these are all not small costs. These kind of expenses are where, for example, in Luxlite are of course it is unrelated to this part of the business. There are expenses which is running for shutting it down. So multiple such events are happening and then added to that one of the reasons why also, for example, some extent controls division margins come down is a simple thing on a customs duty. We were asked to pay a much higher custom duty thinking that the component itself is from China. Of course, we have now filed an appeal and we are confident of winning.
But till the time we win it, we have to pay the custom duty so it hits the P&L. I mean these are the things that kept happening in this quarter. That's why we have seen some changes. I think given another couple of quarters, I think all these things will settle down and I am pretty sure things should be much better than what it is today.
Is it possible to quantify the impact in H1 because of these additional expenses and restructuring and I am sure there will be further more restructuring expenses so.
I mean it is an ongoing, I am sure there is an internal data on what it is but we have not really been sharing it to the outside world. But I think till end of this year there will be ongoing this restructuring costs and I think that is when it will all probably taper off.
And in the interim do we see any need for infusion or any lending support to the subsidiaries?
Not really. We are fairly well funded. I think we also have good banking limits, so if we need few millions here and there we will always support but I think it should be okay.
Okay. Thank you.
Thank you. The next question is from the line of Amit Hiranandani from SMIFS Limited. Please go ahead.
Thanks for the opportunity. Happy Dhanteras and Diwali to everyone.
Thank you.
Sir, my first question is basically how much CapEx we are planning to do in FY 2024 and FY 2025 and where are we going to spend this amount?
Mohan, will you answer that?
Sure. Like we had already told last time, we are working with a budget of about INR 140 crores for this year and the six plus that I was looking at very recently indicates that we should be well within that at ballpark for INR 140 crores. There would be some reshuffling in investments in what we had originally perceived to what we are going to do, but these are minor changes, nothing great.
Okay. Can we assume this similar amount in FY 2025 as well?
Ballpark, yes.
Okay.
Actually, just to clarify, I think what Mohan said is just actually part of it gets spilled over to next year also. This is an ongoing CapEx. We will again be reviewing next year and we will be coming out as to what will be required for 2024, 2025 and onwards, I think.
Sure. Sir, second is basically continuing with the previous participant question on the one-off expenses. Any broad number can you throw what was the one-off in H1 and how much more one-off is expected in H2 because of China plant relocation and define other restructuring exercises?
I think I don't have that number with me. Maybe you can connect with Medappa later on.
Sir, the second question is basically on the. Wanted to understand the reason for LED's margin improvement and how much of this is sustainable.
That's an interesting question. I think quite a few were quite concerned about the LED division itself three, four years ago. A couple of years ago, or I don't know, maybe three years ago, it was a hot subject with the LED penetration, what's going to happen to the division. We have kept on saying, give a couple of years' time, we should be getting back to double-digit. We had a clear plan of restructuring the entire division, and we have gone through that and not completed it. There's a little more, another couple of quarters or till by March end. The tail of the restructuring is being done now. So what you're seeing, if you look at the last three quarters' average, we are in double digits. This is what we have said.
When we were in a low single- digit, I think everybody questioned our ability to grow the business or our ability to go to double digit. I think that is the wonderful teamwork that we have been able to do by our Phoenix Lamps division. It is now not only growing in a shrinking market, but also the margin improvement. As I've said earlier, a couple of years ago itself, the double- digit was the target, and we have reached it on a fairly consistent basis, consistent three months average or three quarter average. We expect that to continue going forward. We are also expecting that business will be stable and probably will also grow because of the global requirement. It's the last man standing position, and I think that will continue.
Just to answer some of the questions that were raised earlier, I think Suprajit Controls division is also eventually will be a story like that. I think we are confident that the business which we know customer wants, there are very few players who have got global reach, global manufacturing footprint, global engineering footprint. I can only talk about two, one other than us having such a reach. But in this business of high competitive thing, those who have strong market presence, geographical presence, and of course, financial strength are the one who will sustain this phase. I think the same story will pan out for Controls division as well.
Okay. It is good to hear about this. Sir, another is on the UAW-
Sorry to interrupt Mr. Hiranandani we request that you return to the question queue.
Sure.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is of the line from Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Hello.
Yes.
Thank you so much, sir, for the opportunity. I have three questions. Question number one on margins. You mentioned about looking at now that SCD division, Suprajit Controls division as now one unit. But if I look at within that, our margins on exports from India seem to be expanding quite well. But the contribution of that piece in the total business with Wescon does and LDC contributes. So eventually, what you're mentioning about the competitive margins, when does that happen?
How many probably quarters or years that's still away from here? And within that, in the export division from India, margins have seen a fairly sustained expansion. So what is driving that? That's question number one. Second question is to Akhilesh. In terms of Suprajit, sorry, Suprajit Electronics Division, what's the order book at this point in time, and what is the execution timeline?
Akhilesh, you want to talk about electronics division, generally the business and the execution times and ramp-up times?
I'll just state that we have done a one-time disclosure of the order book last quarter. You can refer that order book. I think there's not been anything that's changed in that because those businesses are now going into production. What's interesting to see is that there were a lot of good businesses that got productionized even earlier than expected. For example, some of the two or three cluster businesses that were going into production have been delayed and are going to start in this quarter. I think we've been executing on that order book. With the kind of growth that we have, our complete focus is currently on execution rather than building the order book even further. You'll see great growth in this year.
Sorry, just one clarification. This INR 150 crores which was mentioned last quarter, these are annualized order or this is total order book?
Sorry?
I did not understand what the question was.
Okay. This is INR 150 crores which was disclosed in the previous quarter.
Yes.
Is it the annual business or this is total business which is executed?
No. It is the business as one where when it goes into full production, its annualized value was that.
Okay.
It is not the lifetime order, no.
Okay. Sure. On the margin side?
Yes. On the margin side, I think you are right. I think currently the Suprajit Automotive margins are quite healthy and strong. That is the model of Suprajit Europe front-ending and Suprajit Automotive manufacturing. In fact, we can say that the maximum fraction or significant large fraction of our future business is in that part of the business, which is growing quite well. Having said that, the other businesses are also being one, whether it is for Matamoros, whether it is for Wescon, or whether it is for Hungary, they are also one. But in terms of the concentration, I think this part of the business is getting the largest concentration.
Just one clarification on that. As this division functions as one, probably there are services which can be rendered from India to, let's say, LDC and Wescon together.
Correct.
The shift in revenue can be seen within SAL division from overseas ops to Indian ops?
Yes. I think I just mentioned, one of the business out of Hungary, we just started manufacturing out of India because there was no margin considering, obviously, Hungary employee cost and operational costs are much higher.
Okay.
The problem with all this movement is that customer approach takes a long time. Customer also wants a piece of the pie if you want to move to a lower cost region, as you know. The first large business has been moved, actually. I think that is the kind of stuff we are talking about in terms of the restructuring when we said. I think that is very much part of that.
Let me add to that.
Yep
If I can. Look, what we've seen is that, till now, we've had a lot of good exposure on the Europe market. Now with the SCD team being one of the leaders in the U.S. market, we've got great exposure in the U.S. as well. Some of the biggest contracts now that we're seeing are all either U.S.-based businesses coming to India or even actuator businesses that are now being seen that we can be one of the first few actuator knowledge and capability who can do it out of India. These are the kind of two big drivers that we'll see in the next few years. I think definitely in the next couple of quarters, we should have good updates on all these kind of business wins as well.
Added to that, I think what we are also doing is a general point. The part of restructuring is also the lot of back-end work we started doing out of India. The engineering work, for example, or the design work, for example. Simple engineering work to actual design work. I would think Indian engineers are as good as any in the world. A lot of engineers, especially old engineers who are working and doing, let's say, CAD work or design work out of U.S., they are now becoming a front end for us to customer interactions.
The back end is entirely done by our team, whether it's in FTC or our SAL engineering teams are working with them. There's a lot of internal synergy, what I would say, starting happening. They're all long term, not an immediate term, but this is a journey. Given few quarters, I think we'll see all these effects falling into the operational margins.
Sure. Just one thing. As this transition happens, can we reduce the cost in terms of fixed costs in the ex-Indian ops within Suprajit Controls? Do we have a plan, and is it easy to reduce the cost over there because more business will shift to SAL?
I think it all depends on how fast and how soon that happens.
Okay.
There would be some fixed cost reduction possible in terms of people.
Okay.
Infrastructure will continue to have these places because the customer still wants onshoring. I think there is still a concern on offshoring.
Okay. That is from my side.
We should also get a lot of synergies from this one PLM and ERP plan. Then we would be able to do a lot more back-ended work in India, where right now these ERP systems are based and supported out of these global operations.
Okay. Thank you so much, sir. That is it from my side. Thank you.
Thank you. The next question is in the line of Aashin Modi from Equirus. Please go ahead.
Hi. Thanks for the opportunity. Sir, my first question is related to the products at the Suprajit Technical Center. We have seen that you have got few orders from the instrument cluster side. Could you please help us understand whether those would be LCD or those would be TFT, and what sort of a product are we supplying over there? Also, we are saying of supplying few actuators and bringing electromagnetic actuator to India. Through where we are supplying that and what is the scope over there?
We cannot specifically talk about specific customers, but Akhilesh can answer both the questions.
Yeah, sure. Right now in India, generally, there are not many two-wheelers going with LCD and TFT clusters. We have one current running business in the TFT cluster side and a couple that are in the pipeline. The rest of the business is more on the LCD and various types of, let us say, lower-end clusters below the TFT. So LCD and what we call semi-digital clusters.
In the actuator space, again, this is one of the big reasons we won this business is because of showing the experience we had in LDC of actuators, and that is why we won the business in India even though we had no past actuator experience. We won business in seating actuators, in steering lock actuators, in charging gun actuators, all for two-wheelers. We are also now working with a few passenger vehicle customers for some of their new models for seating type of actuators, just like we have in LDC.
Okay. This penetration of actuators would be slightly less in the country, right?
Sorry, I cannot hear you properly. Can you speak a little louder?
I think the penetration of these actuators within the two-wheeler and passenger car segment will be quite lower in India. Are we gaining market share?
I would-
Akhilesh, go ahead.
No, I would say that the actuators in general, it's actually actuators are a much higher price replacement of a cable-based mechanism that we were already doing, like a seat lock actuator that was done with a cable and a lever, and now it's with an actuator. There's not much penetration right now in terms of the total number of customers using actuators for this, because it's a higher cost replacement and not many customers using it. So I'd say within that, we have a good market share because I think we're basically one of the leading OEMs in terms of technology and also in terms of volume for these kind of actuators. So, I would say in the two-wheeler space, we'd probably be having a good leading kind of status in the market right now for actuators.
Okay. Thank you, sir. I join my team.
Thank you. Ladies and gentlemen, a request to you to limit your questions to one per participant only. We move on to the next question. That's from the line of Senthil Manikandan from ithought PMS. Please go ahead.
Hi, sir. Good morning. Just first question is on the domestic cables division. In the press release, you have mentioned that total India business has grown around 10%. Over a medium term, how should we look at the growth prospects for the domestic cables division? Will there be drivers like increase in content per vehicle possible? Something on that line. Thanks.
Mohan, will you answer?
Sure. Let me talk about domestic cable division. There are three parts to it, if I can split that question. One is the cables that we are supplying to the two-wheelers. That will by and large follow the market. Whatever the market growth happens, to the same extent, we will be able to grow. To a certain extent, we would be gaining some market share here and there, and that would help us. The second portion to it is we are growing into cables space beyond two-wheeler. That means basically manufacturing it for four-wheeler vehicles and CVs.
To what extent it is going to add to our growth rates, which is going to be beyond the two-wheeler growth rate. And the third part of the story is that we are talking about beyond cables. That means we are looking at mechanisms and products which go beyond cables, but into two-wheeler predominantly. Therefore, these three put together is where we are looking at how we can grow this division.
Thanks, sir. The second question is with respect to the electronics division. In terms of digital cluster, how is the competitive intensity over there? Over a long term or a mid to long term, what will be the market size, and can you share some aspirations on the market share?
Mohan, will you take that question?
Yeah. I would always want to cut the elephant into pieces before I start chewing it. Therefore, let me start by telling that when we are talking about clusters, we should be talking about two portions. One is the ICE portion, where there are established players who are already supplying. Then there is the EV market where we have equal opportunity, so as to say. Our long-term vision is that we need to be in a pole position when it comes to the EV segment, because we are working with multiple EVs and they are also in their nascent stage, and they are also growing. Our idea is to have the foot firmly in the door so that we are gaining the entry there. Therefore, acceptance again here would become easier with these kind of OEMs.
Whereas when it comes to ICE players, it is going to take more time. It is a long drawn way that we can penetrate into the market, but we definitely see ourselves gaining reasonable market share. But would it be a predominant market share? The answer is no. But would it be a reasonable market share? The answer is yes. Whereas in EV, we are looking at a predominant market share. I hope I have answered.
Yes, sir. Thanks. That is it from my side.
Thank you, sir. We take the next question from the line of Gokul Maheshwari from Awriga Capital. Please go ahead, sir.
Yeah, thank you for the opportunity. Just on the domestic two-wheeler business, the industry is at the premium end growing while the entry level is not growing. From that angle, do we get any benefit with respect to premiumization in the industry?
I think, yeah. Let me put it this way. As it becomes premiumized, there is probably one or two cables also won't be there, whereas the cost or price per piece of cable probably will be higher because the expectations of performance also goes up. Overall, I don't think there is much of a change. Having said that, I would say that it is probably more neutral than anything else.
Okay, fair. On the braking product, you mentioned in the press release that you are now putting money behind in terms of commercializing this.
I can't hear you properly. Please, can you speak louder?
Am I audible?
Now, yes.
Yeah. In the press release, you mentioned that the braking product you are now putting into commercial operation in terms of putting money behind creating capacity. Can you please give an overview with respect to the business mix and how much would this capacity be for this particular customer or customers?
Mohan, will you take the question? Or Akhilesh, anybody? Okay.
Yeah.
Mohan, go ahead.
Yeah. When we are talking about commercialization, what we are doing is we want to keep it as much as possible as a twilight. However, having said that, there are some OEMs who are wanting us to have a depth of manufacture. Therefore, we need to balance between these two. Therefore, what we will be doing is there would be certain amount of investments bringing in depth of manufacture, but we will have to take a conscious decision between on what we call as a make-buy decision. That is what is going to happen.
Specifically with respect to the capacity that you asked for, why I am alluding to that, when it comes to the process, in the process-based capacity, probably we will be investing a bit more, which would be across multiple customers, multiple lines. Whereas when we come to the assembly-specific product lines, it would be tailored to the projections that the OEMs have made. There is no one single answer I can give, so much is the capacity, but it will be at the process level defined differently, at the product level defined differently.
Understood.
To add to what Mohan said, I think we think that braking related products would be one of the areas where we are going to concentrate. Recently last year, as you know, we restructured our aftermarket into a single large space. That has actually released one of our plants for any of the use. So we are converting that into a space for setting up some of our braking products at the moment. At the same time, we are also looking at additional space that we have made in the announcement that we are looking for additional infrastructural facility to house some of the projects that we are in the late stage of negotiation with customers for commercial orders. So I think there's quite a few interesting things happening in that space, and we are getting geared up for that.
Okay. Lastly, just from the global industry environment-
Mr. Gokul, may we request you to join the question queue, sir, as we have seven participants waiting to get on. Thank you. A reminder to all the participants to limit your question to one per participant. We take the next question from the line of Jinal Sheth from Awriga Capital Advisors. Please go ahead.
Good morning and Happy Diwali to the entire team. Am I audible?
Yes.
Great. Okay. My question is that, see now considering the fact that they are a global business, what I wanted to kind of understand is internally, how do we plan, think for, how does the management plan and think for uncertainties? And obviously, we've had learning. So I wanted some thoughts and views from your side.
I'll let Mohan to give his thoughts. Maybe I'll add something more on that. Mohan, on our global business and how we are planning to deal with it.
Yeah. See, one thing about running business is uncertainty. I would say that at the end of the day, there is an area of concern and there is an area of influence. In area of concern, now let's say there is a war in Ukraine and it's an area of concern, you and I can't do anything about it, so we need to manage the situation. If there is a failure of monsoon in India or there is a weather pattern change happening across the globe, there is little that we can do about it. So that's an area of concern. But if we look at the long-term trends, we can use that area of concerns and bring it into area of influence as to what we can influence within our businesses. So that is the way we always look at it.
For example, I'll substantiate it with an example. Now, let us say EUR 7, EUR 8 norms are going to come because of the environmental challenges that are coming. So what could be an impact for our business or do we see a business opportunity over there? That is the way we look at it, and we start preparing ourselves. So this is one way of looking at it.
There are certain other areas where we will definitely not be able to predict it. But to a certain extent, we do what we call it as a risk analysis. So we have a risk committee, we sit with the risk committee, we make an assessment. To those which has got what we call as RPN, high RPN or the risk priority numbers, what we do is we prepare some sort of an action plan as to what we can do to stay away from this risk. This is the way we manage risks, so as to say.
Also more from the system point of view, as Akhilesh was mentioning, when you get into a single ERP, single PLM, lot of things gets connected and responses become much faster for where we can influence kind of a situation. Global business is different in different countries and different geographies. Ultimately, we work with systems and processes, I think it should be possible and it is possible to monitor and also reasonably control well. We have a system where we have our annual budgets, our mid-year reviews, our monthly meetings, where we constantly monitor their performance on a regular basis. So I suppose that way we are generally in the picture everywhere so that we are able to understand and do what is required as and when it is necessary as we do the business with all these geographies.
Thanks, and appreciate your response. My last question is that considering the fact that the global industry environment is tough and we were already seeing consolidation, is there any further exits or reduced competition from our competitors?
I think this is a similar situation I think I sort of elaborated a bit earlier. The situation at Phoenix Lamps was a similar situation where there were excess capacities and some people folded up and slowly and steadily, the color turned. Those who are good manufacturer, value for money product, capable suppliers, who had the reasonable balance sheet to fight this kind of a battle in this, what I would call as a dog-eat-dog market. I think they come out well. I mean, it's the same thing. Is there excess capacity? I'm not talking to cable, I'm generally talking about the components. I think is there too many suppliers? Yes. The answer is yes. Is there consolidation? Yes. I mean, we ourselves have done five cable asset purchases, so it's happened elsewhere also. The number of suppliers will come down.
In the long run, there's going to be only four or five good global suppliers. Right now, it is a lot more than that. Having said that, these smaller guys who are in INR 50 million, INR 40 million, INR 80 million of cable in terms of revenues, they don't have a full geographic reach. They are in part of the world, somewhere in half part, somewhere warehousing, but they are having big problems in terms of being viable and being profitable. So I think slowly and steadily, that breed will either get sold or go out of business. That's when I think the stronger players like us will get good opportunities to further improve on what we are doing now.
Thanks, and good luck to the team.
Thank you.
Thank you, sir. A reminder to the participants to limit your question to one. We take the next question from the line of Mr. Viraj from SiMPL. Please go ahead with your question, sir.
Yeah, just two questions. One is on the global controlling division. The kind of restructuring which we talked about. If you look at this first half, you did something like mid-single-digit margins. Post restructuring, if I want us to understand the journey towards single digits, would a large part of the improvement come from the cost restructuring part or it will be more driven in terms of recovery in sales and the new order wins? That is one. And second, if you can just give some perspective in terms of the improved rate of business, LED retrofit business, which you did either on the per year basis in 2023 or in the first half.
I will answer the first question, and second, I will probably pass on to Mohan. I think the point is simple. For example, I will just give a ballpark number. What can our Matamoros plant can produce? It can produce up to, let's say, 10 million a month or eight million a month. What are we doing? Let's say four million a month. So what happens is that when in the process, what I have said is the consolidation phase, as we get more and more business, our fixed overheads get amortized on a much the margins improve. As we go forward, with the competition not being able to fight the war, and as our volumes grow, our purchases and operational efficiency improve. That is where the margins will add. So I think there are multiple things that will drive it.
And of course, there is a lot of businesses will be made out of India, which actually is probably amongst our group with the lowest cost operations. That will add extra to the margins. As we relocate businesses to customers' requirements or customer cost requirements, that will, let's say, I've just mentioned about moving something from Siófok.
Maybe we'll move something more from Matamoros where margins are, let's say, very small or nonexistent, and maybe we'll easily get some margins out of India. So there's quite a bit of churn that's going to happen. But the trajectory is as the volume grows, as you do the restructuring, whether it's a year or three quarters or five quarters, I think the margin profile has to improve and will improve, and so is the top line. I think that is what we are expecting to do in the close period. In terms of the LED retrofit, I think I'll ask Mohan to answer.
Yeah, sure. Basically, when we tested the waters, we tested the waters in our area of strength, which is the two-wheeler bulb market. Which is where we introduced the drop-in solution of LED, and that retrofit or the drop-in solution, as we call it, we had some lessons learned and we saw how the market is reacting, both in terms of pricing elasticity and also in terms of the technological improvements that we need to do.
Having stabilized that very recently, just about a month back, we introduced a new set of retrofits for passenger car vehicles. So our idea is that we need to cover the entire range, starting from a two-wheeler to a three-wheeler, two-wheeler, three-wheeler combined, I would say, and then move to passenger car, which we have started just now, and finally move into the CV segment. So we would be having a complete range as Phoenix in the marketplace in the auto market.
When you say retrofit, is it largely DRL or these are proper
No.
Fully-
No, they are not DRL. They will have exactly the same mount, like what a halogen bulb has a mount. There are trade calls it differently, they have H4 and H12. Like this, there are different way, H7. We have these different mounts. What we do is we give the same mount, but instead of a halogen filament there, we put the LED there. We will also have a driver circuit there. And again, when we put the driver circuit, there are technicalities, whether it is able to handle AC and DC and these kind of thing. Can it handle the spikes? Because in Indian conditions, it's going to be completely different in terms of robustness that would be needed.
Okay. Any sales number?
Sorry to interrupt, Mr. Viraj.
Yeah, I think we are already 12:04 We will take two more questions, I think, then we will wrap it up. If there are questions.
Yes, sir. We take the next question from the line of Mr. Ravi Purohit from Securities Investment Management . Please go ahead, sir.
No, all my questions have been answered. Thank you.
Thank you, sir. The next question is from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Sorry, my questions have been answered.
Thank you, sir.
If there is no other question. Okay, go ahead. We will take some more.
The next question is from the line of Mr. Rakesh from Axis Capital. Please go ahead, sir.
Thank you, sir. Just one question. If you can quantify what has been overall impact of restructuring operations in our EBITDA, at what level was that? Going forward, with this oil transit transition going on in your restructuring operations, let's say another two quarters restructuring actions will come in. What kind of impairment we can expect, or will there be any impairment of the plants which were existing? Secondly, what are the break-even levels for the new plants where you are transitioning this operation? Thank you.
In terms of the impairment, it's difficult for us to say. I think only when restructuring is complete, we will know whether there is any impairment. Maybe end of March is one time when we'll look at any impairment, if at all. So it's difficult to answer that. In terms of the, I would say, cost of quantifying, it's an ongoing exercise. For example, we are now restructuring in China. We are moving from one place to another place. All those costs are actually on the P&L, and they have been booked as and when they are doing. Some of them are not tracked in that sense.
The bigger one, probably, we know what is the cost. We'll have to pay lease at the existing one, we have to pay the lease at the new one, we have to pay power here, we have to pay for power there. Those side of things are quantified. So there will not be an exact picture, but there's maybe some information, if maybe you could get some more color on this offline with our CFO, maybe he'll be able to answer that question.
Sure. That's useful. One last question, sir. I thought you had missed out on that. With this decline going in the non-auto side, will there be any shift of your CapEx program for this year and next year?
Mohan has already answered that. The CapEx, as earlier disclosed at INR 140 crores for this year and part of next year, it still holds good. I think there will be some reshuffling within that INR 140 crore, but the overall number remains the same.
Okay. Thank you so much. All the best.
Thank you.
Thank you. Ladies and gentlemen, we take that as the last question for the day. I would now like to hand the conference over to the management for closing comments.
Yeah. First of all, thank you all for patiently coming, listening to our comments on our quarterly as well as half-yearly number. Thank you for your interest in Suprajit. I again wish you all a happy Diwali and Dhanteras, and look forward to again interacting with you in the next quarterly meeting. Thank you very much. I hand over back to the moderator, please. Thank you.
Thank you. On behalf of Anand Rathi Shares and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now disconnect your line.
Thank you.