Ladies and gentlemen, good day and welcome to the Sandhar Technologies Limited Q1 FY 2023 earnings conference call hosted by Dolat Capital. 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 in the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Jain from Dolat Capital. Thank you, and over to you, sir.
Thanks, Andrew. Good morning, everyone. On behalf of Dolat Capital, I welcome you all in first quarter FY 2023 conference call of Sandhar Technologies. From the management side, we have with us Mr. Jayant Davar, Co-Chairman and Managing Director, and Mr. Yashpal Jain, CFO of the company. We thank the management for providing us the opportunity to host the call. Now I hand over the call to the management for their opening remarks, followed by the question and answer session. Over to you, Jayant, sir.
All right. Thank you, Abhishek, and a big thank you to Dolat Capital and a big thank you to all the participants for today. Let me begin by first of all giving you what the current situation is. All the good news as to where we stand. I think I believe that the manufacturing is back to almost pre-COVID levels and growing from there as we step into where we are today, especially the second quarter. The good news is also that the commodity prices have started to stabilize around a downward trend in a large perspective. The Indian currency has stood firm and has been stable after an initial depreciation. The oil prices again are kind of stabilizing.
We've had adequate monsoon and the expectation of rural demand to rise is quite affirmative. COVID is no longer a concern. I think these are some of the good news that we have as we are in the second quarter. The concerns obviously stay with inflation around the world in terms of regular consumer goods as well as perishables and non-perishables. There is stabilization, but the overall impact of inflation around the world will be there for everybody to witness and watch as to what is gonna come of it. The concern obviously stays on the Ukraine war, which is not abating as yet although it's been factored in by the rest of the world. I think it's still a matter of geopolitical importance, and let's see where that leads us.
In terms of the market as we are today, the CVs continue to do okay. The tractors are down compared to what it was. The message that we get is that there is likelihood of this to go up now. Two-wheelers remain a concern to a certain degree. We still haven't reached the levels of pre-COVID. Where this quarter, the current quarter is concerned, where we are today, there seems to be bullishness on account of the festival season that is now fast approaching. The off-highway and construction equipment is also stable. There is a small drop that typically happens during the monsoon season. It's also been affected by the BS phase two issues.
It is not a great matter of concern as we sit there today. The good news again is the PVs are doing well and growing. The exports continue. I think those are good factors where the market demand is kind of concerned. I think I'm gonna stop there and wait for questions and respond accordingly. Me and Yashpal Jain will try and take all the questions and hopefully give you answers that satisfy you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Abhishek Gaoshinde from Infina Finance. Please go ahead.
Hello.
Yeah. Morning.
Good morning, sir. Thank you for the opportunity. Sir, if you can throw some light on what kind of RM cost pressure we are looking going forward, or we are looking for some kind of
A little louder, please. A little louder.
Hello.
Abhishek.
Hello, sir. Am I audible, sir?
Yeah, better now.
Yes, sir. Sir, just one question on the RM cost side that, what kind of outlook you are sharing for the RM cost trend going forward?
RM cost. Raw material, right?
Yes. Yes, please.
Abhishek, just to answer your question, if you look at the results of the last quarter-
Mm-hmm.
We have been deeply impacted on account of raw material costs.
Yes.
If you got a chance to see the presentation, you would see that we've been affected by almost 3.8% of our margin because of raw material costs on a standalone basis. My understanding is 6.8% on a consolidated basis.
Okay.
Now, while all other factors and all our other costs are under control, not just under control, but better off, the raw material impact and the manpower costs are the only two factors which have had an effect. At this point of time where we sit, these have started stabilizing, and we will get the impact of the raw material change. You know, we get it on a prospective basis.
Okay.
That has started to arrive, and then we are very hopeful that we will go back to neutral levels, soon enough.
Okay. Is it fair to assume that the double-digit kind of a margin expectation we have built up earlier would be met by the end of the year, sir?
Oh, absolutely.
Okay.
There's no question. That is our normal operating margin.
Okay.
I see no reason why that should not be there. If you were to look at the impact and put it together.
Okay.
On a neutral working basis, we haven't lost that margin at all.
Okay. Okay, sir. Thank you, sir. Thanks. This was wonderful.
Thank you, Abhishek.
Thank you. Next question comes from the line of Yash Agarwal from JM Financial. Please go ahead.
Yeah. Hi, good morning, sir, and congrats on the decent set of numbers. My first question is, so what sort of residual CapEx is left for FY 2023, and is it primarily in the India business or the Europe business? What is the peak turnover, which you can, you know, do after completion of all the CapEx? Maybe not this year, but in the next one to two years. That is my first question.
CapEx side.
Sir, can I answer?
Yeah, please.
Yeah.
Go ahead.
As of now, as we have given in the presentation, we are executing total eight new projects, right? Which has a total CapEx of INR 549 crore as per our revised plan. Out of that, INR 250 crore has already been spent on there. INR 300 crore is a residual CapEx to finish up all these eight projects so that they are into the commercial production. We plan to spend another INR 300 crore in the same financial, I mean, this financial year itself, so that the plants are through the, as per the schedule in the production now. INR 300 crore is our residual CapEx as of now.
Sure. What could be the turnover, you know, after this peak turnover after this is completed?
Well, typically, we look at asset turns of about 3-4 times here. That's the potential that we are looking at.
Basically, the INR 500 crore could give you an INR 300-INR 200 crore jump in revenues.
It does.
That's the right assessment.
Right.
Got it. My second question is on the JV losses. You know, last year we had about INR 9-10 crores of losses on the JV, and the first quarter is continuing at INR 2- INR 2.25 odd crore or something. Now, where do you expect this to turn around? When do you expect this to turn around? By, is it gonna be in the foreseeable future?
Yes, absolutely. We have to understand that the JVs were a little fragile. You know, you mentioned yourself that the losses are similar to what they were. We only have to keep in mind that these losses are despite the commodity price increase. Had that not been the case, the margins would have shown a very good improving trend. As we said today, I am very happy to say that more than 60% of these joint ventures have already turned around, and we are working very hard. The focus of the company is to set matters right where the JVs are concerned. JVs were babies when COVID struck, and obviously they were affected much more.
Now with the focus on, we expect a turnaround very, very quickly, and you'll be able to see that soon enough.
Got it. Also lastly on Spain subsidiary, it is a decent size subsidiary for you. Now, how is the situation there, given the fact that, you know, there is volatility around the gas prices and the demand situation also. Are we expecting some bit of muted performance in the near term from the Spain subsidiary, or you feel that it's well placed to, you know, sort of get through these challenges?
No, you're absolutely right, Yash, in the fact that energy and gas prices have been impacted majorly there. To give you an example, gas prices have gone up by 8 times and energy prices have gone up anywhere between 4-6 times. We have been lucky in the sense that we've been able to tie up the costs on long-term contracts with power and gas suppliers. So we've been impacted to a much lower basis, and we will continue to be impacted on a much lower basis. However, our business demand there is very, very solid as we speak.
Whether it is Europe or whether it is North America or other places that we export to, the demand for our products, not only the ones that were existing, but the new ones that have come in, is also very solid. You would appreciate and understand where new products are concerned, there, if the pipeline is big on newer products, then the pricing that is done for those products is done at the current levels of power and gas as well. While you will see some muting in terms of margins, but overall, for the annual purpose and for future growth, which will also now include Romania, new plant, which goes into production in a couple of months, I think the outlook is extremely encouraging.
Got it. Got it. Last question from my side. Do we stick to the 40% annual revenue growth guidance that you gave in the last quarter for this financial year, FY 2023?
The thing is it might vary here or there depending on commodity prices and where it is. You know that when commodity prices start to fall, the overall revenues also drop down to a certain extent, although the margins go up. I would say I would continue to say that we are very close to what we were. It was also on the implementation of new products that seem to be going unabated, maybe a delay of a month or two. For our side, I don't think we've made much modification in our forecast. Our forecast is probably variable to an extent of about 5% or so. Yashpal Jain, do you wanna come in and say something?
No, sir. I mean, we are very well on the track, and we are expecting the new projects to be as per schedule, just a delay of around 1-2 months, depending on the customer schedules, and we'll be able to achieve.
Got it. Thank you so much for answering my questions.
Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Kumar Saurabh from Scientific Investing. Please go ahead.
Hello, sir. Am I audible?
Yes. Yes, you are.
Sir, in the latest presentation, I think this is slide number 12, so you have given the expected target of new EV products, which includes your motor controller and DC controller and all. One question I have is, what we have seen is usually players who are already ready with this kind of kit, they had almost 2% kind of R&D cost. They have filed for multiple patents. Where are our R&D-
Louder. Louder, Kumar.
Sir, this is regarding slide 12, regarding our EV preparedness, with products like motor controller, DC controller. What we have seen is, you know, players who are already in the market with these offerings, they have spent around 1.5%-2% on R&D, filed a lot of patents, whereas our R&D cost has been less than 1%. How have we prepared for this, and what is the total, you know, kit value we are expecting out of these products? Let's say the EV bike price or scooter price is INR 1 lakh. What is the kind of revenue we are expecting from, you know, this product line in terms of that INR 1 lakh to the bike value?
Yeah. Kumar, obviously, the market expects that the prices of Indian complementary once built will be close to what their Chinese imports today are. That's the kind of target pricing that's been done, right? We have been very careful to pick up product lines which meet that particular criteria. Now, if you look at hub motor, mid-drive motor controller, DC controller, EV chargers and, charger and the battery management system, each one of them is priced differently. In many cases, the prices of these depend on the size or the vehicle that's been produced. That depends on the configuration of the vehicle, where it's going to go. There is a lot of variation. If you were to pick up, let's say a motor controller or a battery management system, depending on the...
Let's say if you're looking at a two-wheeler, for example, which is, you know, the low-hanging fruit, there it could range from anywhere between INR 3,000- INR 8,000, depending on whether it is a high-speed vehicle, whether it is a low-speed vehicle, the kind of power it will have and so on and so forth. I will not be able to give you individual tasks. The only thing that we've done is we have managed to create these from a perspective of performance validation done for medium range. Now, medium range means that we can pick it up to low range, or we can pick it up to higher range or drop it down to a lower range.
These are the individual pricing, depending on the product line, will be very, very difficult for me to give you today.
Sir, have we developed it in terms of some kind of JV or partnership? Because our R&D cost has not been so high.
Yes.
Can you throw some light?
We have done it. A lot of it has been done in-house. Our Sandhar Centre for Innovation & Development plays a huge part, and we started working on this going back almost 5 or 6 years. It was gradual, and it's been built up to this particular stage. We also have some partners, some in the line of technology suppliers and some possible joint ventures in case they were to come through. But largely from an overall perspective, even if they were to be joint ventures, they would fall in the Sandhar domain of having the control and the pricing impact that needs to be there.
Sir, two more questions. Our core products like sheet metal and all, if the commodity price decreases, what is your view? Do you see any kind of margin improvement now happening in next 3-6 months? That is one. Given you mentioned about the new CapEx which will be coming, should we expect more increase in debt in coming quarters?
You know, we have said this in the past, and I continue to repeat myself, that we have an operating margin of our business, you know, several times I've been asked this question, is a margin that should be between 12%-13%. Okay. Now, it has obviously suffered on account of commodity prices, on account of whatever has happened in terms of costs this, that, and the other. As prices start to stabilize now, we are starting to see the green shoots of that reversal happening. Because of the delay in the passing on of these commodity prices to us, as well as for stabilization, I think we are at a stage now where the reversal has already happened. How long will this take? Whether it will take three months or six months is anybody's guess.
Suffice to say that the momentum has turned already, and we expect that we will start going back towards our aimed and our proven margin goals that we always discuss.
Thanks a lot, sir. If there's one last question, sir, because we have good amount of exposure to Hero, and I also listened to the Hero conference calls, and they have been quite bullish that, you know, the numbers will improve. Somehow with all the FADA number coming and even with the July number came, it looks like the monthly you know volume numbers of Hero have not improved. Any idea? Because that, you know, ultimately that is going to benefit us. You know, what is hampering, you know, Hero's growth if you can throw some light?
Well, it's very difficult for me to speak on behalf of the OEM. What is truly happening and the way we look at it is a little differently. It is that the parts and the models that Hero is coming out are becoming more high value in a sense. I think that turns positive for companies that are moving up the value chain in terms of the componentry supply. While volumes of course remain a matter of concern, and there are changes that are happening to the schedules, the good news, like I said, is for most of our components that we supply or most of the products of the basket that we supply, that basket itself is going up. You're aware that we started a new project in Gujarat, for example.
That for us is a wallet growth rather than a volume growth in some sense. We as a company will see higher revenues coming from Hero than we have done in the past. Because they are high value products, comparatively our margins would be better. That's what I can talk about our company. I cannot obviously talk about what is pulling and what is not pulling Hero in a particular direction at this point in time.
Sure, sir. Thanks a lot for your help, sir, and best wishes for the coming quarter.
It's bullish for everyone.
Thank you. Next question comes from the line of Abhishek Jain. Please go ahead now.
Good morning, sir. First of all, congrats for decent set of numbers in tough time. Sir, my first question is related with your existing capacity. How much peak revenue can you generate from your existing capacity, and what is the current capacity utilization?
Abhishek, that's a very difficult question to answer, because you are aware that we are in several different product categories. Within those product categories, again, there is components that go into different scenarios. While I can answer that if you were to look at our capacity in terms of aluminum casting, for example, or plastic, for example, where it's pure commodity run and you can do the calculations in terms of tonnages, there it is easy to do. You know, for most part, we are a proprietary product manufacturer and supplier, which means it's locks or it's mirrors and stuff like that, or sensors and electronics now. There the capacity is never a constraint.
If I was to say, well, I get orders of another 30% of the same thing, it takes me hardly any time. It's just putting up a small assembly line, and that's where it is. Because the entry barrier is the technology that we already have. If you are looking at the case scenario, then I think the best would be to calculate it on the basis of our capital employed or do an asset turn in terms of the CapEx that has been employed so far. Typically, like I said, we work on 3.5-4 times of that number. That should give you an overall potential of the revenue that we can generate. I answered that question even earlier on the new CapEx that's been done.
The new CapEx, again, that's being done is largely being done for new product lines altogether.
Sir.
I don't know if that answers your question.
Yeah. Yes, sir. In past quarters, you had indicated that you can generate a revenue around INR 4,000 crore from your existing capacity.
Yes.
Thereafter, you have done a CapEx of around INR 500- INR600 crore.
That's it.
Including the FY 20 23 numbers.
Yes.
and the asset turnover is 3-4 times.
Yes.
That means you are able to do INR 5,000 crore of the numbers.
Yes. Yes, that's the number. Absolutely. Maybe even higher.
That means that your capacity utilization at the current level would be around 60% only?
Yes. If you were to do that hybrid mix and an easy way of calculation, yes, you are correct.
Okay, sir. Sir, second question on related with the margin side, as you indicated that you are looking for the double-digit margin.
Yes.
Just wanted to know what is the roadmap to achieve double-digit margin on sustainable basis when power and logistic cost is still high. How much benefit are you expecting from the fall in the iron prices, and how much benefit from the operating leverage and the change in mix?
Yeah. Typically what happens is with the OEM, Abhishek, I'm sure you know from the others as well, while commodity prices are calculated and adjusted as what is called a pass-through by the OEMs, there is a lag of 3-6 months for that to happen, but it happens. On the flip side, the other costs, which are manpower costs, or which are power and fuel costs and other operating costs, those are calculated or those are adjusted either at the time of new product lines or new part numbers or when new models come out. Else, in some cases, they are done on a basis of when it grows over a certain number. If the costs go up beyond 5%-10%, then that's the time when the suppliers go to the OEMs and start.
In fact, we just closed one particular case, which had been pending for three years, for some of these costs with one particular customer. While it's an ongoing thing, I would say that the other costs are still very difficult to bring into the system, but commodity prices in any case get adjusted on their own. Now, what has happened in the last few quarters, obviously the commodities haven't abated, and they continue to rise to levels which were never seen before. You know, in some cases they went up by over 100% and so on and so forth. And the lag effect of that is still continuing.
However, like I said, now with the reversal happening, these will start coming into our system, and we will get the changes that are required in a prospective basis for some periods of the retrospective periods as well. You will see that margins will begin to improve, and that double-digit margin that you spoke about is something that is not far away, according to me.
What is the margin outlook for the second quarter and the second half of FY 2023?
I will not be able to give you directly that answer as a future outlook. All I'm saying is we are headed there, it'll depend again on the speed of the OEMs. All I'm saying is that this raw material itself has impacted us by 3.8% on a standalone basis and 6.8% on a consolidated basis. Am I correct, Yashpal Jain?
Right, sir. Right.
If you were to add those numbers, you are at double digits and more. That should answer your question, Abhishek. All we need is these calculations to be brought in and that pass-through to happen, which like I said, has started to happen. But it's not that happens one day and that's it. It's a continuous process that keeps happening depending on when the raw material was bought and when the supplies were done. If they were done in a particular month, it would go on to that corresponding period in the next quarter or so on and so forth.
What are your key raw materials where you are able to pass on the prices to the OEM? What are the key other raw materials where you are not unable to pass on?
Aluminum, zinc, brass, nickel, these are the materials which have had a huge impact. Of course there is steel. You can't take that away. Besides this, all the other things also that were based on this have been impacted. You know, for example, for us, because we do electronics, there could even be something like copper wires. There could be solders, which again are a possible composite of some of the raw materials that we buy. Yes, there is an impact that has come in because we get affected in our proprietary goods. We use almost all materials that you can think of.
Okay. Sir, in the cabin and fabrication business, it is showing a very impressive growth. Capacity-
What?
Cabin and fabrication business is showing impressive growth. How is the current capacity utilization and how is the margin improvement as the steel prices has gone down? What kind of the margin you are looking from this business?
Again, you know, that was a business in growth, and that has stabilized now to a high capacity utilization. We are very, very fortunate that some of the OEMs that were still left out from our system of suppliers have now been added to the portfolio. You are aware that exports have started to happen from that particular unit. As we speak now, we have almost everybody who operates in the country as our customers. Our margins there obviously also have suffered on account of the steel price increase and other things, but they've started to reverse. I would expect that, you know, barring one thing or the other, for example, you know, there was a change in two months for JCBs manufacturing more out of Faridabad than out of Jaipur and things like that, which are temporary in nature.
If you were to look at the costs and our margins, our margins will run up to the same level as the rest of the business. We are looking at a potential double-digit margin as coming there as well as we go forward.
Sir, in aluminum die casting business, most of the companies have started to show improvement in the margin because of the fall in aluminum prices. Your revenue growth is also very impressive from the last two years. Just wanted to understand what is your revenue guidance for the ADC segment, including your foreign business as well as what is the margin outlook going ahead?
Again, you know, Abhishek, what we are trying to do now is to make a hybrid of this. If you look at our new projects, for example, the eight of them, two of them have to do with the machining portion of aluminum. We will be doing, and I think it's in the public domain, that within the first year of its operation, we expect a revenue of INR 77 crore that's coming only from machining, which is job work. Now, if it is job work, obviously the margins there are more than double of our regular operating margins. As a hybrid, you will see margins going up, you will see revenue growing up. That is something for all times in the future.
We want to get into areas, you know, internationally, we do operate on very high technology and precision castings and machines, and that's what we are trying to do here as well. You will see that these margins will continue to grow. I mean, typically, if you look at European companies, you will not see the margins that we operate on in the aluminum business because we do very, very precision parts. I think our precision parts will carry better margins than what the normal commodity aluminum casters typically do.
What is the machining mix right now in the ADC segment?
Right now we deliver full components, right? Where machining is actually limited compared to what we are getting in for now. I mean, in these two plants that are being set up, we will have close to about 300-400 machining centers, all automated, all robotized. It's a new concept altogether that's been brought in into our operational business. Because this is an area which is also has a huge potential for exports and growth.
Okay. Because of the change in the mix, in the ADC segment, it is expected that the margin will improve by 30%-40% from here on because of the change, better mix in the machining side.
Abhishek, you are tying me down to numbers. I don't want to give you numbers exactly where it is. Suffice to say that we on our calculations, and again, in the public domain, we expect margins to be at least double of the margins that we currently have in the business coming out of the machining element of this entire category.
Okay, sir. Thanks, sir. That's all from my side.
Thank you, Abhishek.
Thank you. Next question comes from the line of Mohit Khanna from Banyan Capital Advisors. Please go ahead.
Hello.
Yeah, Mohit.
Am I audible? Yes. Yes, sir. Good morning. I just wanted to understand the way our, you know, contract works with the OEMs, and how does the cost pass-through thing work. Did you receive any cost pass-through in this quarter, first of all?
We did, but it was very limited because there wasn't too much of. It was on a continuously growing basis, right? The commodities were going up. When the commodities are going up, even if I get settlements of the last quarter, let me give you an example. I think that should be able to suffice. If I am supplying at INR 100 a kilo, and I'm buying at, let's say INR 120 a kilo.
Mm-hmm.
From next quarter, my buying price goes up to INR 140, but the OEM has settled at INR 120. For three months, I am buying at INR 140, but selling at INR 120.
Right.
This entire pattern reverses. When the pattern reverses, what happens is, I'm buying at INR 100, but I'm supplying at INR 140. In the subsequent quarter.
Right. That's what I was coming at.
Sure.
There would be a situation, if I get this correctly, maybe, you know, one or two quarters down the line when the raw material prices have come down, wherein you would see a marked bump up in the margins, and it would stabilize at those levels.
That's right.
If everything remains at those levels, right?
Yes.
That's how it's accounted. Right.
Yes.
Thank you so much, sir.
See, the only thing is, in a long term, Mohit, what happens is, if you calculate over a period of 10 years, 15 years, 20 years, commodity prices typically are always on the way up.
Right.
Yeah. Let's say steel, for example, going back 10 years ago used to be INR 30 a kilo, right? Over these 10 years, even if it stabilizes today at INR 60 or INR 55, there is that inflation element which is always there, right? Now, for us, if you look at the industry, it suffers from that paradigm for the existing components. Of course, when the model is over and we are on to the next path of new components, at that time the new prices are taken into impact.
Got it.
I think we need both sides, but in scenarios like what has happened in the last year, we will stabilize and go back into our neutral territories, and you are right, we will get the bump ups.
Right. Now one more thing. In the overall product basket, when we shifted to BS6 on the two-wheeler side, how much has the import content increased?
For us?
Yes.
For us, we don't do any components. We hardly do any components which have anything to do with the powertrain.
I mean on the raw material side, how much the import has increased, if it has increased?
No, we haven't increased any imports. Our imports are typically for some componentry or some electronic componentry that used to be there from Japan or Taiwan or Korea. That continues. You know, BS6 has not had any impact on us. In fact, a positive impact, because some of the models, when they were changed by the OEM, they went into higher value add. To justify that price increase, they added some high value components other than the ones that had to do with the powertrain. For example, we were told we need to use a better kind of locks which had a higher value, you know.
Sure.
Otherwise, as a company, Sandhar doesn't do too much work in the category of powertrain. Even within that, the stuff that we do are more commodity linked than anything. And no imports.
Fair enough.
We are not really impacted by any of that.
Fair enough. Sir, last question, if I may just squeeze in here. You did mention that the industry production volumes have started to improve now and, after the last quarter, especially on the two-wheeler side, right? What is your sense? I mean, if the improvement has started after the decline that we saw, what is your sense on the whole industry? Is it. Will this improvement have legs? Or you think that, you know, maybe by next year we might be in a little bit more, you know, subdued level or it might take some time to come back to the pre-COVID levels.
Mohit, you are asking me to play astrologer here, which I don't know if I can.
No. You are much closer to the market on the ground operational realities than what we are, and that's what we are trying to get assessed, sir.
You have a very valid question. I wish I knew the exact answer to that. Maybe you're right. In being in the industry, one is seeing green shoots of some revival of demand, even in the two-wheeler segment. Like I said.
Mm-hmm.
For us the more important thing is that for Sandhar, the contribution per vehicle is going up. You know, if I used to supply them 7 components to one company, now I'm supplying them 9 or 10 different parts. So for me, the pocket share, the wallet share is growing, right? So irrespective, you know, if you look at our numbers, and I think that's a part of the presentation, if I'm not mistaken, we saw that what happened with the industry, when you compare it with how we've done, you will see that difference. Yashpal, do you just want to give us the numbers of how the industry grew and how we grew?
Yeah, sure, sir. I'll just give them. Like on an overall basis, while the industrial growth has been around 38%, we have grown by 65%.
Industrial growth 38%, when you say that, sir, you are incorporating what other, what segments?
We are incorporating two-wheeler, four-wheeler, commercial vehicles and off-highway vehicles.
Sorry, commercial vehicles and EVs.
I mean, off-highway vehicles.
Off-highway vehicles.
Yeah.
Fair enough. Thank you so much, sir.
Yeah. All segments, actually. Yes.
Right.
That gives you a feel as to how we have kind of grown compared to the industry. Why that happened is because we've added more product lines.
Got it. Yeah. Yeah.
Because we've added more product lines.
Fair enough. Thank you so much, sir.
you understand where it's coming from. Our-
Right, got it.
Job is to make sure that we grow faster than the industry.
Right. Thank you so much.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Shashank Kanodia from ICICI Securities. Please go ahead.
Yeah. Good morning, sir. Just taking further to last question. Sequentially there was a drop in revenues-
Shashank?
Yeah. Sir, sequentially, there was a dip in revenues, right? Given the fact that you are increasing your wallet share with existing clients, you had new clients on board in terms of HMSI, shouldn't your top line growth be higher for this quarter itself on sequential basis?
Sequential basis, what has happened is, of course, the demand kind of fell on account of a lot of confusion in the market, Shashank. That happened, you know, if you look at what happened was because of commodity price increases and a large part also because of semiconductor shortages. There was semiconductor shortages, the sentiment was low, Ukraine war was happening, you know, the rupee and, you know, there was a lot of dilemma that happened in the last quarter. I think while that has stabilized towards the end of that quarter, the new horizon has kind of opened from the current quarter that we are in. You will see a dramatic change happening now.
Yes, there has been a little drop in the revenue, and of course, like I said, the bottom line was hit largely on account of continuing commodity price. All this has only stabilized in the last month or so. So I think those are the reasons. The kicking off that you're talking about is happening very gradually. While it will take shape and our new projects will start ramping up from now on, although we did start some of the units in the last month or a couple of months, the ramping up and the initial teething issues are always there in terms of supply and OEM compatibility, and that has started to go.
Sir, secondly, on one of the opening slides you mentioned underperforming the four-wheeler industry on Y-o-Y basis. Could you please specify what are the specific-
I'm sorry.
Sir, on one of your, you know, slides in the presentation you mentioned underperforming the four-wheeler part, right, on Y-o-Y basis, wherein you grew 21% and industry growth was 38%. Did we lost any client or any specific-
No, we did not lose. Unfortunately for some of the Japanese OEMs, including Honda, which is a large customer for us, their sales dropped because of their diversion of semiconductors to some of their other global facilities where they felt this was more important to do. Therefore, if you look at numbers of Honda, for example, that will tell you that the drop that they've had is much larger than the drop that we had.
Okay.
In that particular quarter.
All right, sir. Sir, lastly, on the margins front, sir, do you foresee Q2 itself hitting a double-digit mark or you see Q3 probably will hit the double-digit margin target again?
Again, Shashank, what are you saying, son?
Sir, on the margin front, do you see Q2 itself be hitting a double-digit mark or Q3 be hitting a double-digit mark? Because, time and again, sir, you have
Not allowed to give you any forward-looking statements. Suffice to say that this is on an improving trend and quick improving trend.
Sir, that is true, but you always kind of overpromise and underdeliver on the margin front, right? We've been maintaining 12%-13% kind of targets, but.
Yeah.
You know, sequentially business will decline.
No, no, I'm not trying to argue here. All I'm saying is it is improving, and therefore I'm not giving you a margin call. I am saying I have given you the basic as to how we have suffered on the basis of a commodity price increase. I've given you percentages there, exact percentages there, in 3.8% and 6.8%. Now how much improvement is happening is for all of us to see, calculate, and decipher. According to us, they have started stabilizing and the bump up that somebody spoke about earlier in regards to OEM compensating us will bring a better margin call. Now what exactly that call is going to be, and maybe like you said, I've given overpromise, so I don't want to overpromise anything, Shashank. I would rather say let's go with the flow.
It is improving as we speak. It is very, very difficult for me to be able to predict some of the astrological reasons as to our buying today. Our buying is of course at lower levels today. What happens if it goes up in the next month? That's a difficult call for me to take.
Right, sir. Thank you so much, sir. Wish you all the best.
Thank you.
Thank you. Next question comes on the line of Nikhil Kale from Axis Bank. Please go ahead.
Yeah, good morning, everyone. Thanks for taking my question. Yeah, just one question on the slide that you've given in the presentation where you talked about the products that are under development. Just wanted to understand.
Nikhil, which slide is it?
Slide number 12, which, the expected target for new EV products.
Yeah. Okay.
Yeah. Just wanted to understand, I mean, we are developing quite a few products here, specifically on motor controller BMS. I mean, are we getting comfort on the new orders here from the existing incumbent OEMs, or is this more from the new age OEMs? The reason I ask this is, we are getting kind of mixed feedback wherein there are certain OEMs who are saying that they want to have these components in-house and have control on these components, whereas some of the new age OEMs are open to outsourcing.
No, we are looking at the incumbent ones who are already present. At this point of time, a large part of all of this is being imported, Nikhil, as you are aware. Everybody's in a rush to kind of localize it and localize it without the import of any sub-componentry that goes into it, and that's what we've managed to largely do. Like you say, most of them are in proto readiness now, and we expect their validation to get over in the coming months. Yes, we are in talks with the incumbent ones, all the ones that all of us know about.
Okay, got it. Secondly, on our JVs, just wanted to understand, I mean, the JVs, the performance has been impacted because of certain industry-related issues. There have been certain internal issues with some of the JVs as well. Just, I mean, so on some of these JVs, is there any thought that there is some, say you want to maybe try it out for a year or two and then take a call whether you want to continue or shut down those businesses. Just some thought process on the strategy there.
You know, we obviously, Nikhil, you would understand that you're right, it is a mixed bag in some sense. There are some where we see a long-term potential, and we continue to follow them, and we are focusing on them so that their numbers are improving by the day. There are some in which, because of the COVID lag, we are in touch with our joint venture partners to see whether either product lines or some of these could be diverted to other places as exports or what is the best way forward for some of these to have a long-term growth potential for both us and our joint venture partners. Those conversations are growing.
I am sure that within the next quarter or two, we will have complete clarity on how we are running forward with these JVs, because you are right, I mean, these JVs have been a burden on us.
Yes.
In some sense. It is time for those JVs to either start producing or we are diverting.
By quarter three, we will have a definite clarity with the JVs, how they are going to perform by quarter three, yeah?
Yeah. I think Yashpal is giving you a direct picture now.
Okay. Agreed. Yeah. Thank you. Thank you. Thanks a lot.
Thank you. The next question comes from the line of Navneet Bhaiya, an individual investor. Please go ahead.
Good morning, Mr. Davar. My question is regarding a couple of your OEs. If the volumes of these OEs are below their peak level for a reasonable period of time, and, you know, maybe we can take names of Hero and Honda cars over here, what happens to your surplus capacities? Because you've been supplying to them at their peak as well, and their volumes are, like, well below their peak right now. Can you use your surplus capacities for some other OE, or do you just wait for them, you know, to get back to their peaks?
Yeah, Navneet, that's a good question. So I think one of the good news that I forgot to give you is that, by the way, we've got the complete orders for all Suzuki motorcycles, including the introduction of our Smart Locks. So that's something that we can happily announce that's in the public domain now. That is a large order for us. And we break into the territory of Smart Locks, which, I don't know what the number is, but if I'm not mistaken, it's the lock sets now go up to a price of something like INR 3,000. And that has been a big breakthrough, which will be the first ones to be launched in India, both the Suzuki and otherwise.
I think the volumes that we've been given as projected, again, in the public domain, are 7 lakh for the Suzuki system which basically is a potential revenue of something like INR 500 crore in its full run. That is something, a good news that I wanted to share. Coming back to your Hero and Honda, again, our interest, Navneet, largely is that our business with them should be on a growth path. Irrespective of whether they grow or are stable or even have a little bit of a detrimental sales volume, our market share, our wallet share is going up. The number of components that we supply or the amounts that we supply. If you go back and see, at one point of time, we used to supply them something like INR 1,500 worth per motorcycle.
Today, in many models, that's crossed a level of INR 7,000, INR 8,000, and even in the case of CBS, probably INR 10,000. Our job is to make sure that we keep adding 50% of revenue from these customers. For Hero, for example, will grow irrespective. That is a number that you saw when the industry grew by something like 38%, we grew by about 60%.
Okay, in the case of Honda, how does it work? Because I believe their volumes is also like 40-odd% below from the peak, that, you know, they used to do at one point of time.
That's right. They've been consolidating their product profile and line. We have tie-ups with them, and we've tied up with them for the future models which have just been locked in. They are now also looking at India to be a hub for supplies into Southeast Asia and so on and so forth. Some of the complementary that we are doing will add to volumes. They've had a difficult 3-4 years, but I do see revival happening. In the meantime, to be able to cut costs and to be able to add more value to us, we've added some of the parts that used to be imported into our city.
For example, if you look at our project profile, the new products and new projects being set up, one of them is the SMT, which is a PCB manufacturing itself. For us, that's going to be another value add that comes to us. We are trying to determine wherever we fit in, but each focus and everything is based on how much better value add and profitability we can build into these, product lines and to these OEMs, irrespective of whether they are growing in volumes or not. You know, the thing is, Navneet, we supply to almost everyone today. Because we supply to almost everyone today, the entire industry can also go down. We as a company must make sure that we grow.
No, the clarification I wanted, like, you know, the manufacturing unit in, I think Gurgaon, where you supply locks to Honda cars. Now that their volumes are low, for locks are you underutilized to that extent? Or, can you divert that capacity to some other product or some other OE, or you just have to wait for their, you know, volumes to pick up?
Two things there. One, like I said in the beginning, the assembly process itself is limited to very small spaces where capacity really is of no constraint, either up or down, where a large portion doesn't go in there. What goes into capital expenditure is paint shops, for example, or magnesium casting, for example. There we've already diverted our things to the electric cycles that are being made by, let's say, Hero Electric or Hero bicycles that is being done in Europe. We are using those capacities for other customers in any case. In case Honda or others were to come back with larger capacities, we will still have margins to be able to do that in terms of assemblies and so on.
Okay. You're not sitting on unusually large spare capacities?
No, no, we don't do that at all.
Okay, got it. My second and last question is, for the four-wheeler segment, the supplies that you do to Autoliv, TRW and Bosch, are these again for particular cars or these are OE agnostic? How does it work as in?
Yeah. Like I said, most of the parts that we deliver and supply are agnostic to the kind of powertrains that there is. Right?
Okay.
In fact, a lot of these are now going into the EV molds as well. For us, the changeover of a powertrain is not gonna have an impact. In fact, the EV growth is going to be very positive for us because these are new components that have come in. You know, for example, we are the world's largest producer of seat belt spools. Now, irrespective of what the powertrain is, the seat belts still continue to be in every vehicle. That is not gonna change. We make-
Okay.
Wiper motor gearboxes, so that is never gonna change.
Okay, got it. Seatbelts I would presume you would be supplying to Autoliv. My question was that if Autoliv is supplying to a particular OEM, would the volumes of that OEM be relevant or, you know, are you OEM agnostic because Autoliv might have multiple OEMs and they can divert. If Volkswagen is not doing well, maybe they can divert to BMW. I'm just taking examples over here.
Let me put it another way. We supply to 30% of all the seatbelts that are manufactured in the worldwide horizon. Irrespective of whether it is Autoliv or whether it is TRW or whether it is a Japanese manufacturer, we supply to all these.
Got it. Okay.
We are largely dependent on the overall size of the world market rather than saying.
Understood.
Which one is pushing that. If TRW loses an order and Autoliv wins an order, for us it remains neutral in that system.
Understood. Yeah. Okay. Perfectly understood. Right. That's all that I had. All the best for your future quarters. Thanks so much.
Thank you, Navneet. Thank you.
Thank you. As there are no further questions, we have reached the end of question and answer session. I would now like to hand the conference over to the management for closing comments.
Thank you, Dolat, for putting this together. In terms of, I've already spoken about where we are headed. Things look a little better than what they were in the last quarter. Some of the concerns have kind of gone. Some of the long-term pivotal impacts of inflation continue, and we will have to fight all of that. We in ourselves are trying to rationalize and optimize costs to their best possible scenarios. We are very, very happy with the new order wins that have come in into the system, not only for the coming short term, but also for the long term. We are very, very excited with the new eight projects that are going on stream. This will not only build capacities but new relationships and new wallet share gains that will come to us.
Suffice to say that the company keeps itself on a very, very prudent basis. While we haven't been able to deliver the kind of returns that our investors and shareholders expected us to, we are very, very positive and focused on bringing a smile to their faces soon. Thank you very much.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us.
Thank you.
You may now disconnect your lines.