Q1 24/25

Aug 5, 2024

Summary

Q1 FY25 revenue rose 5% YoY, while EBITDA increased 40% and PAT 39%. Growth plans center on exports, TREM V, commercial vehicles and lightweighting, with no near-term numerical guidance.

Ladies and gentlemen, good day and welcome to Sharda Motor Industries Limited Q1 FY 2025 earnings conference call hosted by Equirus Securities. As a reminder, all participant line 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. Ashutosh Tiwari from Equirus. Thank you and over to you, sir. Thank you. Hello everyone. On behalf of Equirus Securities, I welcome you all on this conference call. From the management side, we have CEO, Mr. Aashim Relan and President and Group CFO, Mr. Puru Aggarwal. Without further ado, I hand over the call to Mr. Aggarwal. Over to you. Thank you, Ashutosh. Good evening, everyone. A warm welcome to all the participants on this call. I am here with Mr. Aashim Relan, our CEO, and our investor relations advisors from SGA. I hope you have had a chance to go through our results and the investors presentation. You can find the presentation on the stock exchange and on the company's website. I would like to start by giving a brief on the corporate action. The company has bought back 10,27,777 equity shares at INR 1,800 per share, totaling to INR 185 crores. Following the completion of this buyback, the company's remaining cash reserve stands at INR 778 crores as of June 30, 2024. This strategic move aims to enhance shareholder value. It also reflects the company's strong financial health, enabling it to return a significant amount of capital to its shareholders while maintaining a healthy cash reserve for future growth. Coming to brief overview on industry. For the quarter ended June 30, 2024, the auto industry reported decent growth, largely driven by a revival in demand for two-wheelers in rural areas, the marriage season, and the launch of new models across various segments, reflecting a positive trend for the industry. In the first quarter of fiscal year 2025, the passenger vehicle segment saw a growth of 5% in sales volume compared to the same period last year, reaching to a total of 12 lakh units. This growth was primarily driven by new model launches and positive market sentiments. Utility vehicle experienced a significant 20.10% rise, while van segment grew by 8.6%. Despite a decline of 13% in passenger car sales, the overall performance of this segment remained strong. Notably, domestic sales of passenger vehicles crossed the 1 million unit mark for the first time in the first quarter. In the commercial vehicle segment, sales grew modestly at 3.8%, reaching a total of 2.4 lakhs units. This growth was impacted by high temperatures affecting the agricultural sector and a slowdown in both public and private capital expenditures due to the elections. However, we expect that the upcoming infrastructure projects will have a positive impact on the sector in the near future. The two-wheeler segment saw significant growth, with sales increasing by 19.8%, reaching a total of 60 lakhs units. This boost was driven by favorable market conditions, including stable fuel prices and the introduction of new models. In Q1 FY 2025, the tractor segment saw an increase in domestic sales fueled by supportive government initiatives and favorable agricultural conditions. The rise in the minimum support price for major kharif crops, coupled with the timely arrival of southwest monsoon, has enhanced farmer sentiment. With retail momentum picking up due to land preparation and kharif crop sowing, there is positiveness for continued demand for tractors in the coming months. I will now shift the focus to the operational and financial performance of the company. Consolidated revenues for Q1 FY 2025 grew by 5% compared to Q1 FY 2024 and amounted to INR 685 crores. Our gross profit margin for Q1 FY 2025 expanded to 26.3% from 20.90% in Q1 FY 2024. Our EBITDA expanded to INR 96 crores in Q1 FY 2025 from INR 68 crores in Q1 FY 2024, and registered a growth of 40% YOY. The EBITDA margin for the quarter also experienced a robust expansion from 10.4% in Q1 FY 2024 to 14% in Q1 FY 2025. For the quarter under report, our profit before tax amounted to INR 102 crores. Our JV registered a profit of INR 0.5 crores in Q1 FY 2025. Our profit before tax witnessed robust growth of 38% compared to Q1 FY 2024. In Q1 FY 2025, the profit after tax amounted to INR 77 crores, marking a notable growth of 39% compared to Q1 FY 2024. With this, now we can open the floor for Q&A. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourselves 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 from the line of Dinesh Kulkarni from Finsight. Please go ahead. Hello, sir. Can you hear me? Yes, you're audible, sir. First of all, congratulations on a good set of numbers, especially on the profitability front. My question is, we've been seeing the revenue growth has been very sequential in the range of 4%-5% over the last few quarters. Is this trend we expect to see going forward to remain in this range, or can we see a boost on the revenue front? That's my first question. Hello, good evening. Thank you for the question. This is Ashim Desai. Regarding revenues, we always guide that in our company to be looking at absolute gross profit growth as an indicator of value-added sales because our products have a nuance of catalysts which, in some cases, is free of cost and in some cases, we buy. Hence, the gross profit growth has been good even this quarter and in the last few quarters. There was a good amount of outperformance that we had last year in gross profit growth, which is an indicator of our value-added sales, and that will due to our demand. In the long term, we will continue to outperform the industry. Yeah. Awesome. Thanks for that. One more question. We have seen the cash balance is still quite on the very high end compared to our fixed and variable expenses, what we expect, and they keep on increasing the cash balance even after this buyback. What is the further capital allocation strategy we have apart from cash buyback, which we have seen in the recent past? Do we see any M&A or one-time dividend kind of a thing? Are we expecting that? Sure. Our first preference to utilize, let's say, the cash reserve that we have right now is, of course, for M&A, which is centered on powertrain-agnostic products. However, for that, there is no fixed timeline as we are conservative and want to be very careful of the EV plus valuation. We just don't want to do M&A for the heck of doing M&A. We will wait and look for the correct deal and correct valuation, and that's something that's always ongoing. Many talks and interactions are always happening. We initiated, of course, the buyback as phase one of returning back to our shareholders, and I think that trend would continue in terms of returning back to shareholders. Intention is not to keep a cash reserve much beyond what we have already. All the incremental cash reserve that keeps coming in will be returned back, and that can be in the form of dividends, buybacks, or anything else that comes about as we go forward. Well, yeah. Just one more thing. If we are expecting any M&A to occur in the next few quarters or whenever that happens, I am not sure, do we have any company in India or even in abroad which can fall in this range of, say, INR 1,000 crores or something? Are we looking to add any more debt on that, or do we have additional other resources like any land balance which we can think of potentially monetizing those land balance and then raising further capital for that? What is the capital strategy, if at all there is any M&A, which we can foresee in the future? Sure. At any given point, there are multiple discussions. However, we are not planning to do something that will be significantly large, at least, unless it fits right into our strategy. Most likely, we would not require any debt at this juncture for end funding any kind of M&A. We do have additional land parcels available, which we are looking to monetize, and that, of course, is in addition to the cash reserves. It does not look like we would need to have debt at this juncture. Okay. It will be probably last question from my end. What is the growth strategy going forward like YOY? Because we know that new models are coming up from across automobile companies, but how are we planning to increase our market share, which has been very constant for the last few years? Which are the new models or what is the new strategy where we could see our market share would increase that would lead to higher revenue base as well? That is what I want to know. Yeah. For the next five years, our focus on growth is first onto the TREM V market or the tractor market. Currently, tractors, off-highway exports all put together contributes under 5% of our sales. With TREM V coming in, we are expecting a very good market share there and would become a very significant part of our sales. In addition to that, in commercial vehicles, I see 3 to 4 liter segments on the standalone basis. Currently, we have no market share. Now we have the technology and product ready, so we will be looking to increase market share substantially in that segment. After that, exports is a huge opportunity that has opened up for us. Maybe it is by far the biggest growth opportunity, and that is for multiple reasons that exports has become interesting. In export segment, we are focusing on four sub-segments, which is one is commercial vehicle emission components, second is the emission adjacencies of the off-highway market, third is genset emission systems for the smaller genset, and then under 100 horsepower tractors. This is something that we expect to grow and grow quite substantially over the next five years. Currently, it's a very small percentage of our sales, but will definitely increase. In addition to that, we have been focused mainly on our emissions vertical. However, we have also started deploying effort, time as well as capital into the lightweighting vertical. Our first plant is coming up right now in Pune, which will be for additional capacity on lightweighting and suspension systems, and that will also grow substantially as a percentage of sales. Currently, it's about 8%. In addition to all that, we spoke, of course, on the M&A potential in powertrain-agnostic sales. Okay. If you could just quantify what's our export as a percentage of total sales and where do you see, as you mentioned, with current scenario which we are seeing, where it could be three years from now in terms of sales? Sure. We don't give like the standalone, it's a very small part. Exports, off-highway tractors, everything that I said put together also contributes less than 5% of our sales. We expect that to substantially increase. No number as a guidance three years, five years from now. However, the traction on these areas is very strong and we hope to multiply the business in these areas. Okay, thank you and all the best. Thank you so much. Thank you very much. To ask a question, please press star and one now. The next question is from the line of Karan Kulkarni from PGIM India AMC. Please go ahead, sir. Yeah. Hi, am I audible? Yes, you are audible, sir. Yeah. Hi, sir. Thanks for the opportunity and congratulations on a great set of numbers. I just had a few questions. I was just looking at your numbers. You have delivered almost a 32% kind of a YOY growth in gross profits. I am looking at gross profits, not at revenue from operations. This seems like a very healthy number. I just wanted to understand what is the breakup of volumes and price within this 32% number. Sure. Thanks for the question. We do not give a breakup of volume and price per se. However, the outperformance is of course, one, due to incremental business additions that we have. Plus, we have also had a favorable product. There has been maturity in our RDE products, which was not the case in Q1 of last year. Q1 of last year was the SOP of all RDEs. If we look back, April 1, 2023 is when RDE product started. Of course, the first three months is not optimum, and it requires time to gain maturity. From that perspective, even the base has helped a lot. These are the reasons for the strong outperformance. Okay. Sir, second question is that, I am looking at your EBITDA numbers now. For the last four quarters now, the EBITDA has been range bound between INR 95 crores to INR 100 crores. Do you think from next quarter onwards we can see some uptick in this number? Because from next quarter onwards, the base quarter itself will have INR 100 crores kind of an EBITDA. You spoke about this TREM norms and then exports and CEV and all of that. Just wanted to understand when do you expect all of this to start kicking in? For FY 2025, can we see a healthy EBITDA growth YOY? Sure. Giving guidance on one particular year or one particular quarter, I think that is something which is difficult. As we are seeing that geopolitical tensions, et cetera, are heightened and there is a lot of volatility in the market, and we refrain from giving any quarter or even annual guidance per se. However, we would in the long term be outperforming overall industry growth like we have, and on a long-term basis, we can expect a very good outperformance. Difficult to quantify from a quarter perspective or annual perspective. Okay. Sir, these TREM V norms, when do you exactly expect this to start kicking in? Because there were news flows which spoke about these norms getting delayed. Any sense on the timelines? Sure. The timelines have been notified for April 1, 2026, and so far all the OEMs have nominated and developing the products on track for April 1, 2026. Okay, sir. Just last question, so you said that you would continue to outperform the industry. Typically, some of the auto ancillary players, they give a multiplier to the underlying industry growth rate. Any similar number from your end, 1.5x, 2x of the industry growth? As of now, we are not giving any particular number. However, in the longer term, we would be outperforming and would be similar to how we've outperformed the last couple of years as well. However, no specific number or guidance that we're giving at that. Okay, sir. Thanks and all the best. Thank you. Thank you very much. The next question is from the line of Chirag Shah from White Pine Investment Management Private Limited. Please go ahead. Yeah. Thanks for the opportunity, sir. I have three, four questions. Question number one is just a clarification on TREM V, or rather if you can help us understand it. When it gets implemented, what would be the increase in the vehicle cost? Not just your part of product, but in general aggregate increase in vehicle cost. Because there are a few more things in TREM V, right? If you can just help us understand that first. Sure. There are many more things that would be there in TREM V, which is beyond our scope, and it would depend on engine strategy, OEM strategy, and other things at the OEM level. I would not be the right person to give a guidance on the overall cost increase. That is something where the customers would know much better. But yeah, definitely there are other things apart from us also that are required on TREM V. It is a broader range. Is it very high, like 10%-15% increase happen, or it is more like 4%, 5%, 5%-10% kind of range or it is double digit increase is possible? I would not be the right person to answer that, given it is much beyond our scope, right? It is something which requires, probably the OEMs would have a better answer for that. The second is, on the domestic business, any new customer entry or addition, given that you have a very high market share, but any new customer addition entry? The reason I'm asking is some of your existing customers are indicating a very weak market, so their volume growth is going to be a bit weaker. It will have an impact on your side, on your revenue/gross profit number. So any addition to your customer pool or new product pool that would help you to ward off this industry slowdown? Sure. I think when we are seeing very high market share, we refer to the PV and LCV segment only. Yeah That's the segments that we play in. However, now completely new segments have opened up for us, right? One of the segments is of course tractor, which we've spoken about, TREM V. In addition to that, there is the off-highway segment, and in addition to that, there is the export segment, which are totally different and customers are also different. Apart from that, when we discuss right now, when we are referring to high market share, we are mainly talking about the emission verticals, right? Of course, in addition to that, now our lightweighting vertical will also start kicking in more than it has before. That would of course all be additional. As the M&A becomes interesting, that of course, would be on top of that. In terms of specific customer additions, that's something that we may have, especially in these new segments. However, at this point, we don't guide on customer additions. But yeah, definitely as the segments are coming in, there would be a lot of customers that would have been added as well. My question was more with respect to the off-highway would take time, right? Are you saying that off-highway revenue would start picking next 12 months itself for you? Tractor TREM V, whenever it happens, you will see the benefit. So probably Q1 of next year. Yeah. So as and when the norms kick in, that's when we would also see the evidence. Yeah And maybe in the case of the off-highway segment, it depends which component and which business, because some very small norms are coming in between as well. Sir, TREM V, April 1st. Sorry. Sorry, the TREM V, April 1 is 2026, right? Yeah. Okay. Yes, sir. On the lightweighting vertical side, you were highlighting something. Sorry. A new plant would be coming towards Q3, so that is something also. Is it possible to indicate what kind of investments you have made or what kind of revenue potential at peak utilization that plant has? Whenever you achieve the peak utilization. The investments or the investments that we will be making, I think that's already we had announced last quarter, only approximately INR 50 crores. Right now in terms of peak revenue, peak guidance, that's something we're not giving as we're new to this. As and when it matures, then we'll start providing more inputs on that. Okay. One last question on the export side. Generally, if you are a new entrant in the export market or even in domestic market for that matter, there is a 2-4 year lag from RFQs to conversion or start of SOP. So where are we in this process? Apart from RFQs, where are we and how should one look at the export revenue flow through to happen? If you can just help us understand from when it will start, because we have been putting effort since more than a year now on the export side. That's why I'm asking. Sure. Whether 2, 3, whatever years, I think that's something there can't be translated into exports. However, in the case of exports, we have been putting effort for 1.5 years, 2 years also maybe, and hence it's on the maturer front. We have a very good RFQ pipeline. We've added and built a very good team which is focused on exports. We do expect good customer additions, but of course, exports is also about building trust, so initial orders will be pilots and will grow over time. As and when there is something that is substantial, I'll keep updating on the progress. Just one request, if you can, in future, indicate the progress, maybe customer validations or something, either in presentation or on the call, it would be helpful. It will help us to understand the progress that we are making. Okay. Yeah. Thank you. Thank you very much and all the best. Thank you. Thank you very much. The next question is from the line of Vansh Modi from Swan Investment. Please go ahead. Thank you for taking my question, sir. My question is actually the follow-up of your export business. You have been guiding us that you are seeing this export growing significantly. So what makes you confident that after three, five years you are seeing this export to grow? Can you provide some lines in which segment you are focusing, passenger vehicles, LCV, or tractors, or all three? Which geographies you are targeting, and what kind of OEM, some inputs on your export vision. Sure. Thanks so much for the question. Your voice is slightly echoing, but I feel I have got the gist of the question. Regarding exports currently is less than 2% of sales. What makes us confident is that we are one of the only emission companies in the world who can cater to this market. There is a lot of consolidation that has happened globally, plus the force of China Plus One that has played out, where lot of these markets that we were addressing, the business was being catered out of China or still is. In terms of sub-segments where we are focused, first on the sub-segments, we are focused on commercial vehicle emission system components only. Second is the emission system adjacencies of the off-highway market. In construction equipment and so on, the adjacencies in itself have a very good content, and these are all exportable products. Then third is the small genset emission market, and that is also something that we cater to even today. The export sales to the smaller genset emission system market, we want to build more customers and more products there. Last is the smaller tractors, which are generally under 100 horsepowers. In terms of the markets, we are almost fully focused right now on the U.S. and European market, U.S. being a larger market and followed by the Europe market. Sir, when you were saying that you would be replacing, there are lot of demand from China Plus One strategy from global OEMs. What kind of growth opportunity, how big that market will be for you? Some inputs on the overall size of these markets. Yes. How big is the Chinese player catering this market there, opportunity size which you are targeting? Sure. That is not exclusively the opportunity that we are targeting. However, the market is huge. It is multiples of what we are catering to right now, and hence it will not be right to talk about the whole market. We are going to go in a step-by-step approach. Even if we get a very small percentage of the market, we would have grown substantially. It is an exponentially bigger market to the Indian market for various factors. In terms of specific Chinese companies or the business going out of China, I think it is all segmented, so very difficult to give a number, but the number is large. We are just looking to at least begin at a small percentage also, which would be a substantial growth for our company. So, sir, similar to you, how many OEMs similar to you are participating in this kind of opportunity? Sir, if you can just repeat the question, it is echoing. Sir, similar to you, how many OEMs are participating in this opportunity where a replacement of Chinese players in the global scheme? In our component or in general? In your component. There are not too many, right? There are very few companies, maybe almost no companies in India that can cater to these segments. These are tech-centered segments. They require a lot of RDE. So in India, it is very few companies that would be able to, or maybe none that can cater to a lot of the markets that we are addressing. Globally, we are aware of all the players. Globally, there would be many companies, sir? Not many. These are generally this special emission segment or something that is technology-focused, so there are not many players globally also. Okay. Sir, how many OEMs, if you can throw some light, how many OEMs have approached you, or any in terms of approval also, for our components? Sure. From a, let's say, funnel approach or a sales funnel approach, we are in discussion with multiple OEMs. It's not a number, it's multiple OEMs, and we have got in touch. They have got in touch. Almost all the OEMs who are our target customers in these segments, we are in touch with them and in various stages of discussion. Are our products being approved already with some of the OEMs, or we are still in process with approval pending, basically? The funnel doesn't exactly go as approval or approval pending. However, yes, in some OEMs, we are in a more mature phase. In other OEMs, we are in a lesser mature phase. Yeah, but it doesn't exactly go as approval or not approved. Sir, my last question, at which year, two years, three years, you see the inflection point in your export journey will begin? Sure. I think very hard to give an exact year. However, we are very confident that as part of our five-year plan, currently exports is less than 2% of sales. That could be a much more substantial part of our sales. Exact year, inflection point, and so on, that is very difficult to determine. However, we are very confident that in a five-year period that it would be a substantial part of our sales. As and when we have material wins, we will also keep updating on this item. Okay. Thank you, sir, and all the best. Thank you. Thank you. Thank you very much. Participants who wish to ask questions may please press star and one at this time. The next question is from the line of Ankur Shah, Kasara Capital, please go ahead. Yeah. Hi, thank you. Congratulations for a good set of numbers. Just one question, again, on the export front. Are the terms of business as lucrative as the Indian business? Yeah. So in exports, the terms of business, I would guess, is basically a better ROCE. What we are seeing is that the margins are much better in exports than in Indian business. However, the working capital requirement in exports is also higher than Indian business. On a net basis, if you neutralize a higher margin and higher working capital requirement, from a ROCE perspective, it is similar or maybe slightly better, but they are quite similar if you look at it from a return on capital perspective. Okay. Sure, sir. One more thing, just from an investor angle that I have been tracking the company since couple of years, and we have been mentioning about the M&A part. I completely get that point that in M&A, you need to be conservative, et cetera. But why aren't we proactively pursuing any new product opportunities with the domestic OEMs? Because if I see the evolution in the last 3, 4 years, there have been so many new products which the OEMs would have required because the content per vehicle, et cetera, is increasing and considering our very strong relations with some of the OEMs, why aren't we able to organically within ourselves, which is I think much more in our control, why aren't we able to build some product where we have newer avenues to grow? It's just a question from that angle, business growth. Sure. So a couple of factors. One, that on organic side, we have started building up our lightweighting vertical, which is suspension and control arms. For that, we are setting up a new plant right now, which is coming up in Pune. Organically, the journey has started. When it comes to M&A, we will be very conservative and we won't do M&A just to do an acquisition. For that, we'll wait for the right time and the right deal. A lot of backend work is always going on in terms of evaluation of various deals. However, we'll only do it when we are comfortable and we'll have strict thresholds on what we see from a capital allocation perspective. Organically, I think the lightweighting vertical is something that we will continue to build over the years. No, absolutely agreed on the M&A. Absolutely. On the lightweighting vertical, sir, at INR 200 crore sales, we have mentioned that we have 10% market share. That indicates the market share, right? In the suspension arm space? Yeah. The 10% which is written Yes In the presentation. You mean to say that the whole market is around INR 2,000 crores and here we are catering around 10% market share? Is that the right way to see it? Yeah. Two things that what we refer to is more on the control arm and assembly side. Lightweighting is much bigger than that as a theme. We are, of course, catering to very small part of that theme, and there are various other nuances in terms of content that comes into it. But that would be the right indicative way of looking at it. At the same time, the lightweighting opportunity from a content perspective is very large. Very large, right? Our current play is limited to control arms and axle effects. That's something that, of course, on the perspective of adding new customers there is where a lot of work is going on, and a lot of R&D work is going on adding content as well now on the lightweighting side. Okay. Thanks, sir. I really appreciate your focus. Congrats. All the best. Thank you. Thank you so much. The next question is from the line of Kartik AM from Suryash Advisors. Please go ahead. Yeah. Hi, good evening. Just one thing. Can you elaborate a bit on the work done on the genset side? I assume the approval cycle could be faster over there. Can you talk a bit more in terms of companies that you would be supplying and so on? On the genset market? Yes. Yeah. Genset market, one in India already has some legislation which is coming, and this is very small in India, so it is only less than 1% of sales. We anyways have good market share there. However, in the case of exports, there are a couple of things that are happening. One, our current exports also is basically to the genset market only. So we already have a product available. We already have a very good track record in that market, and that is something that we are looking to build upon to, of course, add new customers when it comes to the genset market. And genset market is going through a boom right now in the U.S. It is something that is growing very, very fast. It is something we did not expect also that genset should become so prominent in the U.S., but that is backed by the data center boom. So yeah, that's something that we should be adding some customers in because we already do that business as expected. And the ones you supply to would be the more leading players or the smaller players on a global scale for your export sensing? Yeah. So we supply to probably the leading player or if not the, then the second, right? It's a close competition, I think, between two companies globally. So we do already supply to a very large company. Okay. That could either be Cummins or one of the other players. We don't comment on any customer names. But we do supply genset emission systems even in India now. Right. The second thing would be this. Congrats on onboarding several institutional investors. Just curious to know if you had any interactions with them and what was the broad expectation that they outlined. It is interesting to see a chunk of good quality investors in the roster, so Sure. I think the goal was always to add the institutional investors. And when we were interacting and strategizing, I think there was only a request to provide liquidity or improve liquidity, and that's something that we had done as part of the block deal. And always the goal is to improve institutional ownership into the company as that is very good for all shareholders in the block. Yes. If I may request you to be slightly more explicit. One question. At what stage do you think you would be able to, say, achieve a 15%+ kind of revenue run rate, at least for a period of time? The reason I ask you this is we all follow the numbers and so on, but just trying to understand where you would be able to achieve consistent growth based on all the drivers that you have talked about. It is exciting, but we are unable to fix any kind of timeline. Can you share some thoughts on that? Sure. A particular number that you are mentioning, no number guidance. No. However, over the next five years, we are looking at outperformance as part of our strategy. Any particular year or quarter, that is something that would not like to share given all the market dynamics. However, we have a new strategy, five years, we are confident to outperform the industry. Fair enough. Congratulations and very best wishes. Thank you. Thank you so much. Thank you. The next question is from the line of Piyush from Acquaintance B. Please go ahead. Hello, sir. Congratulations on a good set of numbers. Sir, wanted to clarify. So the impact of RDE is completely priced in and any incremental emission on everything is priced in right now until the TREM V kicks in, correct? Yeah. By priced in, you mean that do we have the technology? Yes, we do have the technology and TREM V is anyways product maturity is very high there. No, what I mean really is it is already in your base, so any incremental growth will be only from the volumes of the industry, right, for you? At least till the period TREM V kicks in. I am not able to understand the question. If you can just repeat the question, please. Yeah. So for the next, until TREM V kicks in, the growth that we would see in, say, gross profit would correspond directly to the industry volume, which is LCV plus PV mix, right? Rather than any incremental value add due to emission norms change. Yeah. So some smaller emission norms are changing. Our lightweighting vertical is kicking up, and as well as we are working on the export front, as well as we are working on the commercial vehicle market share increase front. So all those things are ongoing, so very difficult to say when they would mature. TREM V, there is nothing in the base per se, because tractors is a very small part of revenues, and that is going to be a totally new addressable market that we will be getting into. Correct. No significant value add also from CEV side? Will that also be a very, very small proportion of the entire turnover? The CEV that is coming in January 2025? Yes. We had business there, especially on the adjacency front, we have a good business there. However, the CEV market compared to the tractor market and export market is a small market. Okay. And sir, can you elaborate more on the 3 to 4 liter, in which you are aggressively targeting, how big is that market, 3 to 4 liter engine? And what specifically are you eyeing for there? Yeah. As of now, we have no market share there. We, in fact, did not have the technology to cater to that segment a few years ago. Over time, we have developed the technology, we have developed the product, and that is something that we are now looking as a standalone company to cater to. And this market is catered largely right now by just one of our competitors, so definitely the opportunity is there. However, as it takes some time on emission products, it will be something that we have to gauge and enter into. Though our product is already ready in terms of opportunity size, that is something that we are not right now guiding on this subset. Okay. Thank you, sir. Thank you. Thank you. The next question is from the line of Manpreet Arora from Arora Wealth Advisors. Please go ahead. Hello. Thanks for taking my question. Am I audible? Yes, sir, you are audible. Thank you. Asking a couple of questions. One, if you look at the investor presentations, let's say a year back, we had and also the investor calls, we were talking about our joint venture with Kinetic Green Energy & Power Solutions on the EV side and battery packs and AIS certifications. The last couple of the calls and investor presentations, we do not really talk about our JV with Kinetic Green Energy & Power Solutions. Just wanted to know, are we still, is the management bandwidth invested there? Are we still moving ahead with battery packs and are we still bullish on that segment? Any outlook you can give there will be helpful. Sure. I think the two-wheeler EV market, I think that in itself has evolved a lot over the last maybe one or two years. Many things have happened regarding battery packs and then, of course, the market in itself. One, the AIS-156 Amendment 3 compliances have come in, plus two-wheeler EV subsidies have been reduced. There is a lot of competition that has come in from China, from many, many, many small players there. Battery packs as a segment is not as attractive as it was one or two years ago. However, we do remain to be invested in this. We are also waiting and watching because we will not deploy any significant amount of capital till we are not sure of the overall attractiveness of the business, which has shifted over the last one, two years, given various things that have happened. I think that is all there in the two-wheeler EV side as well as batteries that have come about. Lots and lots of players have entered this battery pack. We will be cautious. We are still there and still prototypes are available and the new ones now are awaiting testing and so on. Given the fast-changing dynamics and as well as a very high field quality risk of the product, we are being very cautious and hence not projecting any timeline on revenues and so on and not taking it into our plan. Okay. Will that depend on KINETIC's strategy on how they want to penetrate that market? It would just depend on the overall attractiveness of the segment and the business plan, and not particularly just the JV partner. Of course, there is captive numbers over there. However, also the overall attractiveness of the segment, the product and the industry. Basically, over the last two years, the attractiveness of this industry has diminished because of the competition and other norms that have come in. Is that the right way to understand? Yeah. The dynamics are also very, very fast changing, and we have observed very high field quality. We are going to be very cautious, and that's why we've been cautious since the start on deploying capital. We don't want to deploy capital into areas which are too risky or as well as don't have attractive projected returns in the business plan. As things evolve, things could change. Things could even become better. But we'll watch out before we deploy anything and then guide anything as a result. Yeah. I appreciate that. My other question is on the lightweighting vertical question, and if you can help us understand this a bit more. My understanding is that EVs, because they are heavy inherently, the lightweighting trend has happened there. But also on the ICE engine, because of fuel efficiency, CAFE norms, et cetera, we are looking at lightweighting becoming a trend there as well. And you mentioned that we are now setting up a new plant, and we have been nominated for a new platform on the side. Our lightweighting products will primarily be on the arm control assembly and the suspension arm to start with, and will that move to other products? Or these are the areas for now that we will be targeting on the lightweighting front? Sure. I think the way you narrated the, let's say, mega trend of lightweighting, I think that is very accurate that there is a mega trend going on, not just for EVs, but ICE, hybrid. Everything requires the overall car to be lighter as well as stronger, right? Because there are also safety norms and so on that come into play. So there are various ways of doing lightweighting, and there are almost, you can say the content is huge when it comes to lightweighting. However, we are taking it one step at a time, and for the current plant, we are only focused on the products which you mentioned, which are control arms. And we will first stabilize that. Parallelly, we are doing RDE work on how we can increase content in this area. Nothing is mature enough to update as part of this call. However, yeah, for the time being, the plant is coming in for control arms. Okay. On the control arms, let's say the lightweighting products for the control arms, will that be a better margin profile from the existing product that we do? Sorry, if you can just repeat the question, please. Will that be a better margin profile than the new control arms which are meant for lightweighting vertically? Sorry, new control arms? If you can just repeat your question. It is a new product, right? Which will have a better weight metrics than the current product that we do on control arms. Is that the right way to understand? The new Yeah. We have been nominated for a new platform. The plant is coming up for a complete new platform for one of our customers, so it's a new product all in, right? It's not something that we are replacing. This is a new product all in. In terms of margins and so on, it's too early right now to comment. We are also new to do it in a full focus way. However, all our capital allocation decisions are taken with ROCE in mind, right? So this project is looking good from the ROCE perspective. In terms of individual margins and product margins, that's something which I would not comment for the time. Okay. The amount of capital that we are spending is INR 50 crores on this, is it? Yeah. Correct. Yes. Would you be able to share at peak utilization, what kind of asset turns we can assume from this plant? Is incremental capacity similar to our emission systems where it requires little investment, or is it a different profile? Sure. At this point, probably it's not in a mature phase to guide on asset turnover or incremental capacity. The capacity that we are coming with is a good amount right now, and that's something as the product and vertical matures, maybe it's better to guide at that point. Sure. Thank you. Thank you. Thanks. Thanks. Thank you very much. Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand over the conference to Mr. Puru Aggarwal for closing comments. Thank you. We appreciate your participation in our earnings call today. We trust that we have addressed all your queries. Should you have any further questions, please feel free to reach out to our investor relations advisors, Strategic Growth Advisors. Thank you, and have a lovely evening. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.