Ladies and gentlemen, thank you, and welcome to Sona Comstar Q2 FY 2025 earnings group conference call. Please note all participant lines are in the listen-only mode as of now. There will be an opportunity for you to ask questions after the presentation concludes. Please note this call is being recorded. We request you to place your line on mute except when asking a question. Some of the statements by the management team in today's conference call may be forward-looking in nature, and we request you to refer to the disclaimer in the earnings presentations for further details. The management will also not be taking any specific customer-related questions or confirm or deny any customer names or relationship due to confidentiality reason. Please refrain from naming any customer in your question.
Now, I'll hand over the floor to Kapil Singh, Nomura Head of Consumer and Digital Commerce Research, India, and Lead Auto Analyst. Kapil, please go ahead.
Good day, everyone. To take us through the Q2 FY 2025 result and to answer your questions, we have the management team of Sona Comstar with us. I'll just introduce them quickly. Mr. Vivek Vikram Singh, MD and Group CEO, Mr. Kiran Deshmukh, Group CTO, Mr. Praveen Rao, Group CTO Designate, Mr. Sat Mohan Gupta, CEO, Motor Business, Mr. Vikram Verma, CEO, Driveline Business, Mr. Rohit Nanda, Group CFO, Mr. Amit Mishra, Head, Investor Relations, and Mr. Pratik Kothari , Group GM, Corporate Strategy and Investor Relations. I will now hand over the call to Vivek for his opening remarks and the presentation. Over to you.
Thank you, Kapil, and welcome, everyone, to the earnings call of what is once again been our highest ever quarterly revenue, EBITDA, BEV revenue, and BEV revenue share, but before we discuss the quarterly performance in detail, we have an important strategic announcement to share, as we continue to grow as a company and to keep expanding the canvas in which we paint, we need to look at different opportunities, and we need to expand our focus beyond the automotive sector to broader mobility areas if we are to achieve our long-term growth ambitions and continue the growth momentum that we've displayed for the entirety of our 25-year-old journey, and with this thought in mind, if you remember about a year back, or 12 months back, we had updated our vision statement to reflect this shift, and we had taken out auto and inserted mobility.
And since then, in the last 12 months, we've been exploring various areas of mobility. While doing that, and as some of you may already know, we've said this on multiple occasions, we have a few filters that we put, regardless of whether it's an organic opportunity or inorganic opportunity, that we put in to evaluate it. The first is the products, are they expected to exist for at least the next 15 years or not? In this case, we are confident trains will have brakes for perhaps much longer than 15 years. Second, we aim at sectors that are not only sizable but also fast growth.
Because I think Bob Iger, it was, who said that, "Do not be a trombone oil salesman." Because even if you are the best at it and the market leader in it, there is only a very small amount of trombone oil that gets sold. So the market has to be large enough as well as fast growing, and whatever we acquire should have the ability to take market leadership in its product category. Escorts Kubota Limited Railway Division is already the market leader in railway brakes in India, and we believe, with the right investment and the right focus, it has the capability to become one of the market leaders globally as well. Third, it should further our long-standing strategic priority of diversification, whether it be in our market segment, in our customer mix, or our product offering, which this obviously does.
Fourth, and obviously very important from a shareholder perspective, it should be a good financial investment. In the current case, we expect that this acquisition would be earnings accretive from year one itself. And lastly, but at least to the management team as a group, very, very importantly, it should be good for the world we live in. And hence, the opportunities we explore must be in the cleaner part of the mobility space. Now, railways is the most environmentally friendly mode of motorized transport available today. With this acquisition, Sona Comstar reaffirms our commitment to promoting green and clean mobility solutions.... So this is, in a way, some elements are repeated here, but I'd say more than repeated is re-emphasizing that the acquisition of the railway equipment division of EKL checks all our filters to screen new growth opportunities.
The railway industry, and we will cover it in a little bit, presents long-term growth opportunities, and with the railway equipment division business, we see significant, potential to broaden our product range by doing what we as a company have done best so far, which is incorporating advanced technology and engineering products. Now, taking these things point by point, Indian Railways, as some of you may already know, have the second-largest railway network in Asia and the fourth-largest globally. The railway component market in India offers a significant opportunity due to various, let's say, long-term growth factor and considerable, and I will want to restate it to mark the emphasis, considerable entry barriers, especially in critical products like brakes. Why?
If you look at the second half of this slide, this potential, if you look at the increasing investments and expanding the railway network and the various modernization initiatives of railway. The total investment has grown at an annual growth rate of 17% over the last 10 years. This is one of the highest investment categories that is there in India. And despite it being a 200-year industry, even after all these years, it is amongst the most economical and environmentally friendly modes of transportation for large population. We expect trains with brakes to exist for the next several decades, if not more. Again, to reiterate that point, Indian Railways have a fairly high barrier to entry for component suppliers due to a very strict vendor approval process. And this is especially true for critical components like brake systems.
Escorts Kubota Railway Equipment Division, or RED, has over 60 years of experience in the railway component industry, and has been a long-term partner of Indian Railways and major private railway OEMs. I think the revenue split is 50/50, broadly, and it, I would say, easily has one of the most extensive product portfolios among railway component suppliers in India. RED is a market leader in brake systems for various types of rolling stock. It is also one of the top suppliers of couplers, suspension systems, and friction products. I think as we look at it, even more importantly, it also has a robust pipeline of new products. This is where Sona Comstar ownership can make the greatest dent up.
With the significant potential of growth this business already has, I think if we accelerate new products through the R&D process, we can go the distance on this acquisition. Coming to the financials, RED has a fairly strong record of financial performance across all the three key areas that we consider important: revenue growth, profitability, and return ratios. Last year, the business reported revenue of approximately INR 950 crore, with an EBIT of INR 179 crore. Over the past five years, the company has had a CAGR of 19% in revenue and 18% in EBIT, while consistently maintaining return ratios above 35%. This, of course, as I said, is very important to us, because as a management team, we believe that any product we make must benefit society and the world.
This acquisition aligns with our goal of promoting clean mobility. I mean, if you, if you live in Delhi, NCR, or anywhere in North India, you will understand and appreciate the criticality of this goal, as most of the management team of this company lives here. This is an important thing for us. Railways are among the most green and clean modes of motorized transport today. And if you look at the bottom half of this chart, it includes metro rail, electric buses, diesel rail, electric cars, and plug-in hybrid vehicles. As you know, we offer multiple products for electric cars in both BEVs as well as PHEVs, and we are also developing powertrains for electric buses. By acquiring RED, we are entering the railways as well, and this rapidly growing railway component market should help us contribute more to greener mobility solutions.
Now, coming to the terms, we will acquire the RED business at an enterprise value of INR 16 billion or INR 1,600 crore. After closing, we expect the transition to be EPS accretive for us from the first year itself. Our strategy, for this business will be similar to the approach we have taken with the Comstar acquisition in 2019 and NOVELIC acquisition in 2023.... We believe very deeply in empowering the management of the businesses we acquire. We actually spend a lot of time evaluating the management of the business we acquire, and only if they are capable, do we take that leap.
By empowering them and providing them with the capital to invest in growth and R&D, as well as fostering a culture where they have the freedom to take risks and learn from failure, I think that's the kind of M&A that we do. With Comstar, I mean, if you take it as an example, it was 100% starter motor business focused on ICE. But the same team, Sat, under Sat's leadership, and Praveen's been a large part of it, it has pivoted to a large EV motor and inverter business as well. We are doing something very similar, similar transformation at NOVELIC, where we're trying to shift from a service-led business model to a product-driven model.
We intend to do something very similar from a strategy perspective with RED, empower the management team to invest in R&D and develop more and more innovative products for our customers. Because what this opportunity gives us is also a channel into expanding an existing business relationship with the Indian Railways or the private OEMs supplying to Indian Railways. Yes, it is an asset purchase and not a share purchase, and that I think there will be more to that, that we can take up in Q&A. Now, coming to the... well, at least for this quarter, slightly more mundane aspect, the regular performance update on our business. So financial terms, as I said, we achieved our highest ever revenue and EBITDA.
Revenue grew by 17% on a year- on- year basis, while EBITDA, net profit increased by 14% and 16% respectively. Net profit would have also been our highest ever. However, it was adversely impacted by exceptional expenses of about INR 83 million or INR 8.3 crore related to acquisitions, related expenses, which Rohit will explain later. Also, in a lighter way, and people again ask us a lot. I wanted to add that 12 months into the EV slowdown narrative, our overall growth continues to be driven by BEV revenue. It has grown a staggering 53% last quarter, and its share in revenue has increased to the highest ever at 36%, which goes to show that sometimes narrative does trump data, but numbers are numbers, and they should be given precedence, is at least our opinion.
First half, we've continued to do well on all the three financial indicators. Our revenue, EBITDA and PAT are up 19%, 19%, and 21% respectively. We have had a decline in return on equity and ROCE. That is due to the recent capital raise of INR 2,400 crores through the QIP that we did last month. We expect these return ratios to improve as we deploy and invest the cash in various growth initiatives of the company. Now, moving to the update on our strategic priorities that we do every quarter. The first one, most importantly, electrification. Our BEV revenue share has increased from 27% in H1 last year to 35%, and BEV revenue in rupee terms has grown by 53% to INR 6 billion.
For us, the growth in BEV revenue has, in fact, been seven times the growth in non-BEV revenue. The order book, we continue to build on our EV order book. We now have 56 EV programs across 32 customers. 27 of them are in production currently, 13 are mature or completely ramped up at peak volume, and 14 are still in the ramp-up phase. The remaining 29 programs are still not in production and should start during this or the following year. Which brings me to our net order book. We have consumed INR 14 billion last quarter, which is the reason why we have grown so much in the last quarter. We have also won business worth INR 12 billion and added that as an addition.
At the end of Q2 FY 2025, the net order book stands at INR 231 billion, with the EV portion remaining quite high, at 78% of the net order book. Quite interestingly, this is the first quarter in which we also won some CNG starter business, and this I just wanted to mention because we do get questions on alternate fuel sometimes. The answer is this, irrespective if it is either way, the motor or the engine, whatever powers it, it won't matter, that business will still come. Just re-emphasizing that alternate or hybrid powertrains do not really have any impact on our business. Diversification, which has always been an important KRA. Increasing electrification and decreasing ICE dependence continues unabated.
In the first half, we saw BEV revenue share increase to 35%, and ICE-dependent revenue share to only 9%. The European demand slowdown has meant that the revenue share from hybrid and micro-hybrid vehicles has been lower than the previous year. Now, moving to the other revenue parts. If you look at geographically, North America remains our largest end market, contributing 44%, and frankly, the most stable, from a demand perspective as well. While India remains our second largest market, with a revenue share of 28%. I mean, after a strong recovery last year, we have seen a slowdown in demand in India. That is why the 26% has shrunk to 22%. By product, if I come to our fastest growing product segments, have been EV differential assemblies and EV traction motors.
This you can see reflected in the product mix as well. Another thing which is notable is the weakness in commercial vehicle demand, especially in India, although it is everywhere, but it is even more acute in India, which has resulted in our share of revenue from this segment going from 14% to 10% in the first half. This is quite a decline. Now, the non-automotive revenue, as you can see on the screen, has also declined. First half or H1 last year, this was 12%, and this year it's 9%. This is due to the weakness in the off-highway segment, once again, in both U.S. and India. With this, I turn to our Group CTO, Mr. Deshmukh, to update us on the technology section for his last time. Over to you, sir.
Thank you, Vivek. Good evening, everyone. On an earnings call, this is my last address as the company's Group CTO. After nearly five decades in the automotive industry and four decades with the Sona Group, I will retire on October 31st. As I conclude my journey, I am filled with nostalgia and gratitude. I joined Dr. Surinder Kapur 38 years ago to help build a fledgling steering systems company. We have since grown into one of India's top automotive technology firms, supplying critical systems to leading OEMs worldwide. This journey required us to unlearn traditions, embrace innovation, experiment, even with failures, and cultivate passionate individuals. Together, we overcame challenges and celebrated milestones, all driven by our commitment to innovation. This farewell marks not just my retirement, but a celebration of our collective success. I'm pleased to pass the baton to my successor, Praveen Chakrapani Rao.
With over 30 years of experience, he has held leadership positions across diverse functions, contributed to global product development, and played a crucial role in expanding our R&D team. I'm confident he will continue our legacy of innovation and leadership. Given that Praveen will now lead our technology march, it is most appropriate for him to explain this slide. Over to you, Praveen.
Thank you, Mr. Deshmukh. I'm happy to present the technology update this quarter. Sona Comstar has achieved a significant milestone with ASPICE Level 2 certification being awarded for its advanced active suspension system product. This affirms our commitment to delivering high quality, reliable, and innovative systems and software solutions to the mobility space. ASPICE framework is globally recognized as a standard for assessing software development processes. Efficiently implementing automotive SPICE leads to better process and product quality. The standard helps to improve cooperation among complex supply chains and between globally distributed development and engineering centers. This capability strengthens our current position in the market and opens up additional opportunities for business with global OEMs. I now hand over to Rohit to cover the financial update. Thank you.
Thank you, Praveen. A very good day to you all. It's my pleasure to share our second quarter and first half results for financial year 2025 with you all. First, we start with the second quarter results. We've had a good quarter with a year-on-year revenue growth of 17% to INR 925 crore. In comparison to our growth, the underlying light vehicle market in North America, Europe, and India, being the largest three markets for us, declined by actually 2%. Our BEV revenue grew by 53% to INR 317 crore, and now it constitutes 36% of our revenue in this quarter. Our EBITDA grew by 14% to INR 255 crore.
However, adjusted for the higher ESOP cost in this quarter, the actual growth was 18%. Adjusted EBITDA margin improved by about 20 basis points on a year-on-year basis. Our profit after tax had an adjustment for exceptional expenses on account of certain potential inorganic opportunities. Compared like-to-like, adjusted for these expenses, our PAT grew by 23% to INR 158 crore, compared to INR 129 crore last year. On the positive side, net finance income helped our adjusted PAT margin by about 80 basis points. We move to the first half financials then. During the first half, our revenue grew by 19% to INR 1,818 crore, as compared to the underlying growth of 3% in our key markets of North America, Europe, and India.
Our BEV revenue grew by 53% to INR 600 crore, being 35% of our total sales. Our EBITDA for the first half, adjusted for higher ESOP cost, grew by 22% to INR 523 crore. Adjusted EBITDA margin expanded by 0.6% on account of operating leverage and lower material costs. Our PAT, adjusted for exceptional expenses, grew by 26% to INR 307 crore. Adjusted PAT margin was higher by about 80 basis points, mainly due to improved EBITDA margin and net finance costs. This brings us to the cash flow for the first half, so we've generated INR 467 crore of cash from operations against an EBITDA of INR 506 crore in the first half. Our CapEx spend was INR 224 crore, and therefore, our free cash flow was INR 243 crore.
Besides operations this quarter, we also had a net cash inflow of INR 2,370 crore from the QIP done during September month. Temporary deployment of QIP proceeds, besides surplus operating cash flow, led to an increase in investments by INR 1,890 crore, net loan repayments of INR 224 crore, dividend payout of INR 88 crore, and there was an increase in the closing cash by about INR 385 crore. This brings to the last slide in the presentation, which is on the key ratios. The key highlights of this slide include further improvements in the working capital and fixed asset turnover ratios, now close to five and four times, respectively. Our net debt to EBITDA went further negative due to repayment of borrowings out of the QIP proceeds.
Our return ratios have seen a dip in this quarter, consequent to the QIP fundraise that we did last quarter. With this, we've come to the end of our second quarter and first half earnings presentation, and I'll now hand the proceedings back to Nomura team for Q&A.
Thank you very much. Now we are at the Q&A session. We would like to open the floor for Q&A, and if you wish to raise a question, please use the Raise Hand function located at the bottom right of Webex page. We will unmute your line and prompt you to speak. Or you can submit your question via Q&A chat box, addressing to all present, to all panelists. Please be reminded to keep your question to a maximum of two question. If you have more question, you may return to the queue. Thank you. The first question, we will open the line for Gunjan. Your line is unmuted. Please go ahead with your two questions.
Yeah, hi. Thanks, team, for taking my questions. Congratulations for the closure of this deal. Good to see the business diversification continue. I had two questions. Firstly, on this acquisition, I just wanted to hear a little bit more from you in, you know, in terms of what happens to the management team. Is it the entire team coming along when you're buying this business? And more from your perspective, you know, what is the... You know, I, I've heard you, you know, that, you know, businesses that you pursue typically should have a right to win, right? So I'm just trying to understand, when you look at this business, you know, what, what is the biggest right to win here? And you know, how, how does the competitive landscape sort of looks like?
You know, what positioning? I know their leader, but how... You know, what, how the business dynamics? Is it about product? Is it about cost? You know, what is the edge that, you know, this business has?
Very happy to get on this. So first, thank you. Management is very, very important to us. That's actually one of the first things. The first question we ask ourselves is, see, buying things, looking at financial metrics, we're not traders, right? We are permanent group. It's easy. You can buy something, it may look good on financials. How will you run it? And then how will you grow it to become an institution on its own? You would need capable people. We don't believe we are some superhumans who can come into any business and, you know, make it great. We rely on people who have capability and drive and have had some constraints. Maybe it is constraints on capital, maybe it's constraints on focus.
Like in this case, it is a great company that is part of, but for that company, it is not a core business, and hence, it may not have got the attention that-
If it got, it might prosper more. That's, that's the thing. All the management team of the current railway equipment division of EKL is coming along, and we would like to add more to the team, but everybody will coming along. The second part, the right to win. I think that question usually, you know, that line I've said, I think maybe before, "...", it means what is true does not usually need evidence. If you have been the largest market share in any product category for decades, you would usually have something. But if you've been a market leader in a product category for some time, along with high margin, kind of like us, right? Like in our business, there would 100% be some reason for that. It is a three-player market, so Gunjan, brakes is a very critical thing.
There are global, really big companies: one big European company, one big American company, and there's one Indian company. Three of them compete. The product validation process is super strict and the entry barriers are very high. These three compete amongst each other. Sometimes cost, sometimes technology, depends on which generation of product you are in. If it's the same with us, right? Like in automobile business, if it's a product that's been the same for 20 years, then you have to be much better at process, quality, cost. If it's a product that is new, then technology and how much better you make it for the customer, that comes in also. Cost will always run. There is no... I don't think there is a single customer purchase decision in any category of any product where price is no value.
Maybe apart from Giffen goods, that we studied in economics, everything else does have that, thing. Did I miss any part, or?
No, I think this is, this is useful. I mean, the message that I get is it's still a very concentrated market, and it's basically just the validation from the government agencies, which is the relationship over a period of time also matters a lot. Okay, the second question that I had was on the order book. Now, you know, we continue to sort of see the ramp-up in the programs coming through, on the ramp, you know, on the full ramp-up line. You know, typically, we've had this 29, 28 programs, which were, which have won, but not really translating into revenue.
So I just wanted to hear again from you, given you know the entire setup in autos with the slowdown, is should we continue to still sort of work with the assumption that this book will translate into revenues three years out? Does that still you know sort of hold true, or there should be some change to the timelines there?
See, there isn't much that gives me any ground to change my view. There is... There are two programs that are delayed. One, a European program that's delayed by a year, and there is one Indian EV two-wheeler program that's already been delayed for six months. Apart from those two, I, I don't have any instances to say one way or the other. So, and that, frankly, Gunjan, as you know, in auto could happen with... It's God, I don't know if it's powertrain. Like, model launches getting delayed happens.
Mm.
It is more a factor of, I would say, overall economic situation or customer readiness levels. I don't know which one it is.
But fair to say, INR 231 billion or INR 230 billion over a span of three-to-four years should translate into revenues? You don't see a major risk of,
So I can tell you this. I don't think there is a single program there, and Pratik, please do confirm.
Okay.
Starting later than 2028, like, at least start of SOP. Fully ramped up or not, I don't know. I think there are some in there which are beginning 2027 calendar, but 2028, I doubt. Pratik, would you know?
Yeah, yeah. So that's completely right. So, most of the programs will start by FY 2027.
Correct, because, Gunjan, as the CEO-
Got it. Thank you so much.
24 months, I mean, beyond that is really, really, it will be exceptionally unusual.
Got it. Thank you so much. I'll join back. Thank you.
Thanks, Gunjan.
We'll go to the second investor, Prateek Sen, your line is unmuted. Please go ahead with your two questions, Prateek.
Hello.
Hi, Prateek.
Thank you for the opportunity. Sir, can you help me understand the domestic EV traction motors and controllers market, and how is this market evolving and what's our market share?
So, it has been our fastest growing product category, I think, for the last three years. But that is because the base was incredibly small and this industry was growing quite fast till the first shock came, when the first duty withdrawal happened, if you remember, May last year. Then I think now again, we are where it's coming to a stable thing, and all our growth comes from new programs starting. Actually, that's been true for most of the industries we operate in. If you look at underlying, and Rohit does a good job, each time, each quarter, he talks about it, that industry underlying growth was like 2%, 3%, whatever, and our growth was this.
We have always grown faster than that because we grow on the order of new orders, basically means either you increase volume share within existing customer, or you get more customers and increase market share. That is how we have grown. Right now, I don't think EV two-wheeler industry is growing very fast now, at this stage. Market share, I think it's very complicated, because what is the denominator to EV two-wheeler, plus EV three-wheeler, plus EV four-wheeler or just EV two-wheeler? So that it varies. And also, by the way, the complication it also varies month to month. If you notice the EV two-wheeler, guy's sales number, the fluctuations are quite wide, and depending on which OEM is doing better or worse, our market share also fluctuates a lot every month.
But let's say that, Sat, maybe you can answer this, and he can do the denominator himself. How many would we be selling per month?
Right now, we are selling around 20,000 per month.
Correct. So on an average, Prateek, 20,000 per month, so if you take and most of it is EV two-wheeler. So if you take EV two-wheeler market, I don't know exactly how many vehicles are sold every month, but use that as the denominator, because each one will have exactly one motor. None of them have two. You will get our market share or get close to it. Did that help? Prateek?
Yeah, sir. That's very helpful. Thank you.
Done. Thank you.
We go to the next investor with a question. Rawson Lewis, your line is unmuted. Please go ahead. You have two questions.
The recent purchase of EKL, right? So I just wanted to understand, like, what is the kind of revenue that you anticipate it adding on to the overall, you know, the company's performance in the upcoming years? And secondly, what are the kind of competitors that you anticipate to be competing alongside EKL in the braking system and the other businesses that EKL is involved in? That's all.
So, I will let Rohit or Amit Mishra answer this. Also in tribute to their role on this transaction, these two gentlemen led and closed the entire transaction. I did very light lifting, so I'll let these two answer the question.
Amit, are you taking this one? Okay. So, I think the last year revenue from this business was about INR 900- odd crore, and their EBITDA margin is about 18%. So, that's where this business is currently.
Rohit, is it EBIT or EBITDA?
Yeah, sorry, EBIT. That's what they report, so correct. So that's where they are, that's the size of the business currently.
I think he answered, I think, what Rohit is... I just threw it to him. He got caught off guard. We don't give future guidance for our business, neither will we give it for them after acquiring it. So we can only give historical, what is the number.
Is there a follow-up question on this?
Kapil, would you like to go ahead, Kapil?
Check if there is any follow-up question on this, or can I take question from each other? If you can just check.
Sat Mohan go.
Yeah, I just wanted to understand the, you know, the flavor on the competition alongside EKL for the railway business in, you know, the business that EKL is involved in. Any competition that is involved against which you all would be working towards?
There are two other big competitors. One is a large U.S. origin brakes maker, and one is a large European brake maker. You know, we don't take names of other companies in our presentation, but it is a three-player market in that case, the brake category, I think. There are other products in which there are other competitors, but that's on the slide. And second, Rawson, just to help, and maybe we can go to that slide. Pratik, can you take us to the financial slide, which will be number six or number seven of the acquisition part. And why we don't want to guide it, Pratik? Yeah, this one, number nine. So, Rawson, if you look at it, this is a very, very high growth rate, right?
Because in FY 2021 it was INR 479 crore business, and now it's INR 950 crore. Every year, though, it won't be like this. It is in a fast-growing space. There will be some years which will be not so fast. Like this year, there has been an election year, so it will not be the fastest. I think that's why 2025 might even, might most likely be flat. But by the time we get in, which will be, by the time we'll take some time to close off with the fact we don't know exactly about only one. Only then does the journey begins for us.
The past and what growth has been in the past is not necessarily a great guide for the future, but it does give indication that if investments into the railway sector, investments into building new tracks and new locomotives continue, the growth rate can be expected to be fairly high. How much that will be, like I said, we don't guide because of a very simple reason. I don't think any of us know. All of us exult in trying to find certainty in a world which is inherently uncertain, and the future is inherently unknown. There is no way for us to know nine months later, whenever the railway budget comes, what exactly will be its content.
So, instead of trying to do that, we focus on trying to do what is in our control, trying to do the right things, trying to develop new products, win new contracts, win new businesses, work on cost, work on R&D, and we will continue to do that as we have for the last three and a half years that we've been public. You've been seeing us. That's exactly what we will do with this business. That's exactly what we do with our business. We will continue to do those things in that nature. Guessing what will happen and trying to predict that and then share it with the world, I don't think that is something we have done or will do.
I'll take a couple of questions from the chat box. So these questions are from Ayush. The first question is, if the team can explain lag with respect to addition of orders to our order book. Also, are we seeing any delays in execution of orders, especially concerning European geography?
I didn't quite understand the first part, but I can answer the second part. We had one. I actually did answer that there is one European EV related new order, whose SOP is delayed by nine months. Apart from that, we have not seen any other delays outside India, and one India EV two-wheeler. I think I've already answered. The rest is a demand thing in India. See, Europe PV, India CV, US off-highway, these three segments are seeing a fairly bad slowdown. The good thing with diversified revenue streams like ours is, even in this environment, we can do good things. Yes, there will be quarters where the headwinds will be so high that you can't do anything. But these are the three that for now, I can say are the most affected.
The rest are flat, mostly flat in quarter. But was that the question? I didn't get the large order book thing.
I mean, I've just read from the chat box, so I'm not really sure what is being asked here. Maybe, Ayush, you can raise your hand or reach out directly.
Correct. Write down again in the box, like, what is the meaning? Because, see, you get a purchase order. From purchase order to SOP will always take between 18 to 24 months. Sometimes it's faster if it's a running product and you're replacing someone, but that's not always usual, especially if you're a build-to-spec, or black box type of company, like we design the product. So design process has a longer time. Or if it's a very new type of product, then sometimes it goes to even beyond 24 months. That's, that's the thing.
Okay. One more question was there from Ayush: The fairly new plant set up in Mexico, can you talk about the capacity utilization of that plant? And how are the synergies which we are aiming to achieve in America market coming along since this acquisition?
Sorry, which acquisition?
I don't know. I think maybe, this is just related to the plant in Mexico only.
Okay, so we're not acquiring. We need the plant and it's not in production, so capacity utilization is coming. So we have to put up the equipment first. We shall do the inauguration. Vikram, when do we expecting to start production?
Q2, Q2 or Q3 of next year.
Yeah, calendar, right?
So, and
October time frame.
Yeah, October 2025.
Yeah.
Only a quarter after that, both of the numbers have any meaning.
And then one question is there from Mike: The EBITDA margin of railway business you are acquiring is lower than the company average. So should we expect it to converge up to the current company average over time?
So, I'll let Rohit answer that, but one, we don't know the EBITDA margin because it's never been reported. But no, I doubt that. I doubt it will converge up to the current company average.
Okay.
Sorry, Kapil, could you please repeat the question?
Yeah, sure. So the question is, EBITDA margin of the railway business you're acquiring is lower than the company average. So should we expect it to converge up to the current company average over time?
I think this would be too premature. Let's assume, the current EBITDA margin continues for now, okay? But having said that, the PAT margin would be, largely in line with our current PAT margin. So at a PAT level, it should be having a similar margin.
Okay. Then one question is there from Narottam: I want to understand the rationale for Escorts to sell the business, and were there other potential acquirers?
So I guess that's for Escorts to answer, and not for us to answer. I guess their board meeting is coming up shortly. If Narottam can reserve this question for that meeting.
All jokes aside, I think it would be there in the schedule. So I'm pretty sure they would have put up on the exchanges this, this decision themselves, that it can't. When there are two listed companies involved, communication would be there. But I would say. You know that Escorts Kubota Limited is owned majority by Kubota Japan, which is one of the largest farm equipment manufacturers in the world. For them, if you look at this railway equipment division as a percentage of their global revenue, not just as a part of Escorts Kubota Limited, even as a part of Escorts Kubota Limited, I don't know, it's like 13-14% of the revenue. But if you look at it as a global thing, it would be a very small part, maybe 1%, maybe less. It isn't their focus.
It is something that is not aligned with the rest of their business. I think that's the reason. And anything more than that, seriously also, not in a lighter way, I think you should address to Escorts Kubota Limited and not us.
No, I just gave the same answer with a smile. I, I didn't, I was not joking.
Yeah, but I read the first page, so that was my contribution. And Mike, I can read the Q&A chat box, so you are right that it is between... I mean, we estimate it to be between 18%-20%. EBIT is, right now, let's just do last year, so that's 179 upon 950, right? So that's 18.8%. So yeah, 20%-21% should be there, yeah. And those are the numbers. Escorts Kubota Limited has been reporting the railway division number as a segmental revenue. So revenue and EBIT, and all of those numbers are there in their public disclosures every quarter, part of the investor presentation, so all of them can be easily found in the public domain.
Vivek, I have actually one question for Mr. Deshmukh, if he's there, since it's the last time we are interacting with him, sir, on this public platform. Sir, I would like to know, you know, in terms of, you know, you're leaving behind a legacy, right? So we just want to understand what do you think is the strength of Sona as far as the R&D process is concerned, the approach to R&D, and what kind of processes have you built, so that we or the company doesn't miss your presence, as you move out?
Firstly, I think, one of the strengths of Sona Comstar is, has been R&D. It's a company built on technology. If you see the kind of financials that you are seeing, they're purely because of the technology that it has and it owns. So this company doesn't depend on external help for technology. It is completely owned by itself and developed by itself, and this has happened over the last 25 years. So the processes for R&D, processes for developing new technology, and when we talk about R&D, it is not just about products, it's more about also the processes.
Both processes and product only go hand in hand. The processes for developing the processes and processes for developing the products, they're extremely well-defined. The company follows TQM practices, as I think everybody knows. In TQM practices, you have very process. It is a process-driven approach, so everything is. It doesn't depend upon individual, it depends on what systems you have in place. Already very strong systems in place, and therefore, when I leave, I leave with a sense of satisfaction. I have full confidence that the team under Vivek and Vikram and Sat and Darko will take this company to the next level.
Thank you so much. Yeah, and, Dina, we can go back to the question queue. I can see a few raised hands.
The next one, we will go to Mukesh Saraf. Mukesh, your line is unmuted. Please go ahead with your two questions, Mukesh.
Check if I'm audible?
Yes.
Yes, Mukesh.
My question is, firstly, on the acquisition. Just trying to understand, you know, one of the key strengths. Is it... So my question is, is pricing one of the key strengths for the Escorts Kubota braking systems? The reason I'm asking this is obviously they're competing with large European giants, who have products, technologies, you know, throughout the world. And when I look at the margins of, say, one of those companies, it's upwards of 35% in India. So just trying to understand, you know, is pricing basically localizing some of those technologies here, being able to supply it at a lower price, is that one of the key strengths here for this braking business?
Rohit, do you want to take it?
Yeah. So, Mukesh, the thing is that, I mean, based on our understanding of the market and their positioning, Vivek already mentioned that this is a market which is, and especially if we look at, brakes, which is their largest, product-
Mm-hmm.
It's a market which has three players, so and they have a large market share. So it is both price and quality, because eventually all these orders, railway orders, are won through a tendering process. So price cannot be the only criteria. And as you can imagine, brakes is a safety product, so this is something on which railways or any company would not compromise just for cost reasons. So it has to be both. It has to be quality as well as cost.
Thanks, Rohit. And in general, I don't think there is any category anywhere in which you can be the largest market share by being cost alone.
Right.
You have to be good and have a good cost. We've been in the auto business for long enough to know that, it is never price alone. You have to do two out of three, either best, cheapest, most convenient. You have to be at least two of them. If you're all three-
Right, right.
You are God. But, at least two out of three, you have to do.
Okay, so, absolutely, Vivek. So as also, the reason I ask this question is, are there cases where you've probably seen in the past that EKL's braking business has kind of brought in a new tech, technology, maybe even ahead of the European competitors? So that's the reason I asked the question. So have you also been... Have this, has this also been technology?
True, true, true. So, Mukesh, yes, answer to that is yes. We can't talk too much about it. As you know, it is an announcement with an intent to acquire. Till it's closed, we don't actually own the asset, right? So there are some things-
Sure.
We can't disclose.
Got it.
The answer to that is yes. However, it is a very bizarre thing in railway. In the private space, if you are first with the technology, you actually have a first-mover advantage and you get a lot of market.
Mm-hmm.
In railway, actually, because they always have to have multiple suppliers for each product.
Yeah.
-you have to actually wait for others to also come up with the technology, only then you-
Yeah.
So it's a slightly different from our area. But, the short answer, have they been able to do it in the past? Yes. And can we do it in the other product categories also? The answer to that is also yes. And third, an unanswered part of your question, when there are big global people, we love that business, right? That is what we love doing. What do we do in differentials? We compete against big, big global companies.
Sure.
We compete against big global companies. In life in general, if you are an ambitious person who wants to achieve and create something of significance, fight people above you. Compare yourself to people bigger and better, not just compare yourself to the lowest of the low and be happy and satisfied fighting for that. Let's compete with better people. That's what we've done in every single business that we do. That's what we intend to do in this one.
Got it. Thank you for that. And, secondly, my question is on the core business. If there is any color you can provide on one aspect that I was looking at, which is your non-ferrous forging. So you have mentioned that now for the last few quarters as future products. So any updates that you can provide, any, anything at all on non-ferrous? And the reason I'm also asking this is obviously now with the new business of railways, how is, you know, the top management's focus, you know, going to be shared across these business lines? So, yeah, this question.
First part, easy. I won't even bother with that, because if there was an update, we would have shared. You know, when the update... An update has to be that we have won a purchase order. Till then, all updates are, in a way, meaningless to at least the shareholder community.
Yeah.
Because see, internally, as I mean, who knows? So, you know, we track it on that entire technology readiness level, each product.
Yeah.
From TRL one to TRL seven is the progress that is all in-house. TRL eight is when you get a customer order, only then does the disclosure make sense. So when that happens, we will. Effort is relentless. Result, you know, sometimes even with best intention, doesn't come, but when it does, of course, we will share. The second part, which is top management, bandwidth, I think I partially answered to Gunjan's question, which is why we like buying or acquiring businesses where there is already good management.
Mm-hmm.
We don't intend to do much. I mean, you look at our history, NOVELIC, you know, the entire team is there, right? I probably-
Yeah.
Go there once every four, five months. Rohit spends some time with them, but mostly we do it on phone call. It isn't, if it does require a very heavy involvement and us going and firefighting, we'll probably not do it. We hold management bandwidth and available time to be very sacred. In fact, we will, I'll even go to the extent of saying our most valuable, and we don't waste them lightly. So we, we like getting businesses with great management teams and good leadership. I mean, look, that business has gone from, what, 450 to 950 in four years, right? So guys are doing something right. That is a good team already. If it was a bad team, they won't be able to grow it so fast and so well. They have added new products. They've introduced and are working on new future pipeline.
It's a good team.
Sure. Understood. Thanks a lot for that.
Thank you very much. We shall move on to Nikhil. Nikhil Kale, your line is unmuted. Please go ahead with your question.
Congrats to the team on the acquisition. Just had one question on some of these new products that you've spoken about for the railway business. Can you just throw some light on them? And I also wanted to understand in terms of, I mean, would you have to go through the entire approval cycle for these new products, or would it be like a shorter gestation period to that extent, a quicker kind of commercialization?
Nikhil, short, I don't know, entirely helpful answer is, shorter than it would if we were coming in as an outsider, but you still have to go through the process. Actually, you know, we tried looking at this organically as well before obviously acquiring, because that's the first thing we do. In anything acquisitions related, we do make versus buy, and say, can you make it in-house? What you realize is the approval process, if you want to go in as a non-empowered guy, is so long, it's like five to six years. So if you're already empowered and doing safety critical products, the time is short, but it still will require the whole process and steps to be completed. It's relatively short.
Hi, Nikhil. Do you have any follow-up question?
Yeah. Thanks for that. And just want to understand, so, for all the new products that you're kind of looking at, HVAC, and some of these other products that you kind of showed on the slide, the plan is to kind of do all the entire manufacturing in-house or kind of source some of these components and maybe become like a system supplier, or how are you looking at that?
That will depend from product to product. And frankly, it's slightly early to be talking about future pipeline products on the day of whatever. But it will depend, again, these are obviously operational decisions, but let me just boil it down for you. This is, by the way, in our regular business, whenever you get a purchase order for something, even before that, you would have submitted your entire costing to the customer, et cetera. In doing that, you would have already developed and found suppliers. You would have already figured out what you will produce and at what process times, et cetera. So it is different for everything, and you take that decision on what is the best for the end customer from both a cost and quality perspective.
Of course, if there is something that is strategic and can increase value in the long term, for example, software. We gave an update on ASPICE this time, at Level 2. Why do we think software is so core that we keep most of it in-house and we have a dedicated team? I mean, if you do find out ASPICE Level 2 means we are actually getting certified for automotive software. I mean, four years ago, we didn't even have automotive software. We are now competing with those companies in that domain because we think it's critical. So like that, there will be parts, even in hardware, that we say, "This is too critical to outsource." There will be things that we will outsource. Forget parts, sometimes there's also processes. For the same part, there are multiple processes. Some we'll keep in-house, some we'll outsource. It depends.
I know it depends is the least helpful answer, it genuinely is the answer. It depends.
Understood. Understood. Great, great. Congrats, all the best, and wish you a very happy Diwali.
Thank you, Nikhil. Thank you so much.
Thank you so much. We're now going down the list, Rohit Gupta. Rohit, your line's unmuted. Please go ahead with your questions. Hi, Rohit. Are you able to speak up? Seems like he's having some challenges. We shall go on to the next investor, Nitish Mangal. Nitish has dropped. Let's go back, try Rohit. Rohit, are you able to speak up?
Evidently not.
Perhaps you can type your question on the, in the chat box, yeah? Rohit, we move on to the next, investor, Pradeep Jain. Pradeep, your line's unmuted. Please go ahead.
Vivek, I want to know about CV traction motor factory. What is the status of that? Thank you.
Sorry, sorry, Pradeep, you'll have to repeat that.
Yeah, C-CV, CV manufacture, traction motors, we are establishing the works now. CV traction motors.
Okay. Uh-
What is the status?
We currently don't have any CV traction motor.
For bus motors.
Oh, bus! Okay, sorry. I thought-
Yeah. Yeah.
But you can update on the bus traction motor. Pradeep, we are on track. I mean, as we promised in the previous investor calls also, we are on target, and we are just in the first calendar year, first quarter of calendar year 2026. We are there on, we are going ahead with the plan. So it's on track right now.
Yeah, yeah. Okay, thank you.
Hi, Kapil, do you want to take on?
Yeah. So there are no further questions in the queue, so I'll hand it back to the management in case there are any closing remarks.
Kapil, no, closing remarks. Yeah. Thank you, everyone, for being here. Thank you for listening. Thank you for asking questions. Please ask us good questions, makes us better, keeps us on our toes, and wish everyone a great holiday season and Happy Diwali. See you next quarter. Bye.
Bye.
Ladies and gentlemen, on behalf of Nomura, we thank you for joining this call, and wishing you all a happy Diwali as well. Dina, we can close the call now.
Thank you. Bye. Bye, Siddharth.
Thank you very much, everyone, for joining today's call. Have a good evening. You may drop the line now.