Ladies and gentlemen, good day and welcome to the Varroc Engineering Limited Q2 and H1 FY26 earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Vivek Kumar from ICICI Securities Limited. Thank you. And over to you sir.
Thank you, Anushka. Good evening everyone.
From Varroc Engineering, we have with us Mr. Tarang Jain, Chairman and Managing Director, Mr. Arjun Jain, Full-Time Director and CEO of Business Unit 1, Mr. Dhruv Jain, Full-Time Director and CEO of Business Unit 2, Mr. Mahendra Kumar, Group CFO, Mr. Bikash Dugar, Head IR and Finance Controller of Business Unit 2, and Mr. Vishal Raval, Group Finance Controller for Business Unit 1. We'll start the call with brief opening comments from the management followed by the Q& A session. I would now like to invite Tarang sir for opening remarks. Thank you. Over to you sir.
Thank you, Vivek. Thank you, team ICICI Securities, for hosting the call, and good evening to everyone. Tarang Jain here to start with. The Indian economy continues to perform well, experiencing robust growth and has become the world's fastest growing major economy. India's real GDP grew by 7.8% in the April to June 2025 quarter. The inflation in India continues to moderate. Globally, rising tariff barriers, supply chain restrictions, and geopolitical tensions are increasingly an uncertainty for businesses. Supply chain resilience and regionalization are becoming key corporate strategies. Amid this uncertainty, the automotive industry is also preparing to deal with these challenges. In these uncertain times, it becomes very important for the company to find ways to manage this uncertainty and grow simultaneously during the period. We are moving fast to make our organization more agile, fundamentally strong, and customer focused to succeed in this environment.
Over the last three years since the divestment exercise, we have been consistently improving on financial prudence, cost reduction and customer delight. As you all know, we focus on free cash flow generation and managed to reduce our debt significantly. As a result, the net debt to EBITDA which was more than 2x in FY2023 is now below 0.3x . The interest burden which was close to 3% of revenue in Q2 of FY2023 has been reduced to below 1.5% in Q2 of FY2026. We also improved our gross margins during this period by almost 1%. We also delayered the organization during Q4 of FY2025 which moderated our manpower costs. All these improvements reflected in improvement in PBT margin during this period from 1.1% to over 4% now.
We are also continuously improving our speed of response, program management efficacy, and delivering first time right. As indicated earlier, we also established a strong R&D facility in China this financial year to enhance our capabilities and to take advantage of skill sets available there. We are also exploring opportunities to rationalize fixed manpower costs in plants through VRS schemes. In taking these decisions, we're giving more importance to long term growth rather than short term impact. Over the last few years, we've been able to scale our EV products portfolio and this has resulted in our revenue growth in this segment, helping the overall growth of the company. Today, more than 11% of revenue comes from supplying to EV customers. We are also experimenting with artificial intelligence in areas like quality, inspection, and corporate functions to improve productivity and cut down inefficiencies.
We are also working on various other initiatives to reduce working capital and improve throughput. We will be sharing more updates on the same in our future discussions with you. Our growth plan is built mainly on three pillars. The first opportunity for growth comes from content increases driven by safer, smarter, sustainable, and more premium mobility. As an organization, we are focusing significantly on E- mobility, connectivity, and ADAS. The second pillar of growth comes from portfolio management. Leveraging the China arbitration verdict, we took the call not to have manufacturing footprint in China. Instead, we have set up a location in Thailand, which is a well-established auto manufacturing hub and offers several export opportunities. The third pillar of growth is looking through adjacencies, and the company is looking to further grow its business in the aftermarket and exports both organically and through M&A.
These strategic calls along with strong financial prudence enabled us to generate a good amount of free cash flow and improve the return ratios. In Q2 of FY2026, the ROCE of the company was at 23.6% as compared to 12% seen in FY2023. Coming to the performance in this quarter, let's first understand the industry performance in India in terms of automotive production. In India during quarter two of FY2026, all the segments registered growth on a year-on-year basis as well as on a quarter-on-quarter basis due to a buoyant economy as well as the early festive season. On a year-on-year basis, two wheelers grew by 10.6%, three wheelers grew by 18.3%, passenger vehicles grew by 4.2%, and commercial vehicles grew by 11.8% on a quarter.
On quarter basis two wheelers grew by 17.4%, three wheelers grew by 39.3%, passenger vehicles grew by 6.5%, and the commercial vehicles grew by 2.9%. Coming to the operational performance during quarter two of FY2026, the company registered a consolidated revenue of INR 22.7 billion with a growth of 6.1% year on year. With India operations growing at 7%, the Indian revenue was impacted by industry wide rare earth issue. This resulted in a loss of INR 750 million of revenue in quarter two of FY2026 or else the growth in the Indian operation would have been at 11.8%. As stated earlier for future growth perspective, we had established an R&D center in overseas location to support formidable lighting and the electronics businesses. This has resulted in a higher employee cost starting from Q1 of FY2026.
Thus our EBITDA for the quarter was around 9.1% as compared to 9.7% on a year-on-year basis. Our PBT before JV profit was at about 4.1% of revenue in Q2 of FY2026 as against 4.3% in Q2 of FY2025. However, I would like to bring to your attention the point that the India EBITDA and PBT were strong at 11.5% and 7% respectively and grew both on a year-on-year basis as well as sequentially. As explained earlier, the overseas electronics, lighting, and forging businesses continue to face challenges due to customer concentration and the macro environment. However, we are winning significant orders for the overseas electronics and lighting businesses already and a turnaround is expected to be visible from half two of FY2027. We continue to strengthen our balance sheet.
The net debt of the company in half one of FY2026 was reduced by INR 3,680 million and as. A result the net debt to equity.
Is reduced to below the absolute net debt figure was at INR 3,800 million with significant growth enabling investments planned in half in H2. The net debt may see only a modest improvement in half two of this year. In half one of FY2026 we achieved net new business wins with annualized peak revenues of INR 8,928 million. Notable business wins among these are four wheeler lighting business for passenger vehicles and also business wins from existing EV customers for the increased volume in the near future. We also remain confident to win the high voltage electronics for a range of high performance E-powertrain components for our Romanian plant before the end of this calendar year. As emphasized earlier, for the transformation to continue in this volatile new normal environment, we continue to build resilience to manage uncertainty while also driving growth.
With this, I will now ask M.K., our Group CFO, to walk you through the presentation and give more insights into the financial performance. We uploaded the investor presentation to the stock exchanges as well as on the website.
Thank you, Tarang. Good evening, everyone. Let me take you through the presentation. This time we added a few slides more to make the entire presentation more informative to all of you. You see that in slide number five we actually gave an overview of the entire R&D footprint, which is spread across multiple countries including India, Italy, Poland, and China, which is the latest one we added. Let me take you to slide number 8, which has the highlights of Q2. As our CMD mentioned, we reported a revenue of INR 2,207 crore, which is a 6.1% growth. At the consolidated level, India operations registered close to 8% growth. This includes the impact of rare earth magnets issue that the industry had in Q2 and, of course, to some extent towards the end of Q1 also.
Because of this issue, the growth was actually reduced by about 4% in Q2, so otherwise we would have almost reported a 12% growth. The revenue from EV customer also came in at around 11%. Even this could have been more without the rare earth magnet issue coming to profits. PBT was at 4.1% versus 4.3%. EBITDA was at 9.1% versus 9.7%. Again, we'll explain the reasons for this dip in the subsequent slides, but primarily this is driven by the increased mix of tool sales and overall sales which came in at low margins. Plus, we also had this China R&D set up which we mentioned earlier also. Because of that, it appears to be lower, but these two initiatives will only improve the growth going forward. These are more like investments for the future.
Coming to the peak revenue from new orders, peak annual revenue during H1 actually adds up to about INR 8.93 billion with 63% of this related to electric vehicles which is quite a positive development. On net debt we continue to reduce the net debt further so now stands below INR 400 crores at about INR 380 crores . CapEx was significant this time and most of it got front loaded this time so we spent about INR 186 crores. Part of this also is related to the new facility which we just started in Thailand. Coming to the patents, we filed more than 14 patents in H1 taking the total to more than 130. R&D setup of course we discussed already but the new expansion in R&D is going to focus on growth areas like exterior lighting, ADAS and also intelligent cockpit for future growth.
Going to the next slide, slide number nine. This is about the industry. Q2 was a mixed bag with many changes taking place. We had the early onset of festival season. We also had the GST reduction negative and positive impact. Initially there was a lot of uncertainty around the timing of it, but subsequently when it was reduced it was well received by the market. The rare earth magnet issue also of course we discussed already. Despite all this, the two wheeler industry grew by 10.6% year over year, three wheeler by 18.3%, and passenger vehicle by close to 4%. In terms of sequential growth also it was pretty good, largely helped by the festival demand of GST reduction. Also the two wheeler grew by about 17.4% and three wheeler by 39% with a significant growth, and passenger vehicle grew by about 6.5%.
The EV two wheeler volume also on sequential basis it grew only by 11.2% because the industry got impacted with the rare earth magnet issue which is now anyway getting resolved. We are hoping that Q3 will be better than what it normally is. Let me take you to the next slide which is slide number 10. Here we are giving the consolidated financials. As mentioned earlier it is 6.1% growth. Considering all these factors, EBITDA of 9.1% versus 9.7%. Now the tooling impact and the R& D cost contributed to this kind of a reduction. If you adjust for these two, you are actually at par with the last year Q2 EBITDA levels of 9.7%.
We also reduced the effective tax rate this time because in consultation with the Big Four consultants we actually created a centralized model for R&D which will be monitored and controlled from India with India taking all the risk and all these other overseas markets acting as outsourcing R&D units for India. Because of that, there is going to be some tax benefit also. That is reducing the effective tax rate this time. Talking about the overall H1 performance, it was 6.4% growth with EBITDA of 9.3% and PBT of 4%. In the next slide we have given the breakup between India and overseas. This has been the request from many investors in the past. Considering the expectations, we actually wanted to give this kind of clarity.
If you really see there are three boxes here, the India business, Oasis business, and the R&D which we do for Oasis business. If you look at India business, the growth of 8% is visible there and EBITDA actually grew by 11% and PBT by 24%. In terms of percentages also, if you really see, it is coming to almost 7.2% in terms of the overall PBT. If you see the overseas business, this is where we had a significant, I mean, we continue to see the dip. This time also we saw about 18% dip in the overall revenues. This comprises of multiple businesses. Of course, we have two-wheeler lighting business which is, though it is having some kind of a revenue decline, it is still profitable.
The electronic business in Romania, which we explained in the past also, still saw some kind of a dip, and forging business, because of all the U.S. tariff issues, there actually seems some kind of a reduction in the revenue. Because of all this, the overall overseas business revenue went down by 18%, which also had the impact on EBITDA and PBT levels. The third box denotes the R&D spending, which is spread across these multiple overseas centers. Now, the important point to be noted here is, of course, we are coming out of the, we have come out of the non-compete restriction back in October after the divestment, which means now we can actually compete and win businesses across the world.
This kind of spread out R&D setup is basically to enhance our capabilities in advanced electronics and also four-wheeler lighting. We found the China team to be quite effective and knowledgeable in these areas. That is the reason we have set up the China R&D center, which we explained last time also. This is more like an investment for future growth, which will start yielding results maybe in the next one to two years. The most positive thing here is the India business continues to grow strong both in terms of top line and bottom line. Going to the next slide, which is slide number 13. Here, of course, we explained how the journey is continuing to reduce the debt. Right now it is about INR 380 crores with a very strong debt equity.
Net debt to equity of 0.22 and net debt to EBITDA of 0.47. The subsequent slides we gave the revenue breakdown. Of course, the split between the segments also where you see two and three wheelers adding up to 74% and four wheelers quantities and geography. Of course, 89% continues to come from outside India. 11% is the world series in spec exports. In terms of customer concentration, 45% is Bajaj and 55% promoters. The next slide, slide number 15. Here again we made a slight change to the way we were showing the order book wins here. We gave this kind of clear movement. Where did we start the year? We started with about INR 100,307 crores of order book and we won INR 892 crores in terms of annual. All these numbers are in terms of annual peak revenue.
During the year, INR 470 crores so far has moved to SOP, start of production. That leaves about INR 1,693 crores , INR 1,693 crores of the outstanding order book at the end of H1. We also gave the calendarization of these orders, meaning in terms of when they will hit the SOP. This is not the annual revenue which we are going to get in the respective years. This is basically about the value of the peak revenue of those orders which are moving to SOP in those years. In terms of the business win breakup, EV customers add up to 63%, which is pretty strong this time. In terms of the two-, three-wheeler, and four-wheeler mix also, it is 61% for two and three wheelers. You see that the four-wheeler order revenue is strengthening, there is no touch, 39% in terms of customer mix.
It's 58% for Bajaj because of these recent wins and 42% for others. We also added a couple of slides on business too, giving the overall description about the products and the footprint. I'll request Dhruv to say a few words on this.
Yes, so I think just coming to this, coming to this slide, we've already mentioned in the past regarding the business two locations in Europe and Southeast Asia, particularly the ones of course in Vietnam, Romania and Italy where there have been growth challenges and of course profitability challenges. As a result as well.
Another key activity that's been happening in business two are some pretty significant R&D investments. The main location here would of course be our location in China that we have set up recently for R&D but also locations in Poland and India. Really our expectation in the subsequent. Quarters.
Is to have significant new business wins. This will not just contribute to growth but also our expectation is to successfully absorb these investments in the coming years as the program that we win reach SOP and in terms of just going into some more. Some.
More information in terms of the main areas that we are focused on. Of course, exterior and interior lighting is a key area here. The center of excellence really for us is our China R&D team. We feel that the combination of technology, cost, and speed that this team brings would be a unique value proposition for most customers globally, whether they are in Southeast Asia, India, Europe, or North America. Beyond this, we also have a focus on electronics manufacturing services. This would be for the key high voltage electronics in a vehicle to do with EV powertrain, but also the key low voltage electronics to do with ADAS and cockpit. Even though electronics manufacturing services, there is a key role that R&D plays here. R&D plays here as well as in terms of design for excellence support, validation support as well.
Certainly here as well our R&D locations will be important. We've already had business win that we've announced a few quarters back but definitely there will be new businesses that we expect to be announcing quite soon. Then beyond this we also have our own product area that we've invested in to do with ADAS cockpit fleet management. Here too our R&D locations in China, Poland, and India are very important factor. Next slide please. This slide just goes into some more information particularly with respect to our new location that we set up in Thailand. As of October of 2025 we are able to develop business for exterior lighting outside India as well.
Our thought process was that a combination of our China R&D capabilities, also deployed through an export-friendly location like Thailand, would be a strong combination and would be able to address our customers' needs in a unique way. Here too, we expect in the coming quarters to be announcing some business wins and then, of course, in the coming years to also start production. Beyond this, as mentioned already, our overseas locations in China and Poland are also important areas for our endeavors when it comes to ADAS and the intelligent cockpit space.
Thank you.
Okay, thank you, Dhruv. We will stop here. We'll be happy to take any questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. If you wish to remove 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. We take the first question from the line of Aditya Jhawar from Investec. Please proceed.
Yeah, thanks for the opportunity and congrats on good set of numbers especially on the debt reduction. A couple of questions for me. The rare earth situation, I mean you highlighted that it had a bearing on performance in Q2 incrementally. How is the situation now? Are you seeing you have a line of sight of a normalize production as we speak? That is my first question.
Yeah, so I would say I think. The normalization took place already towards the end of Q2. Right. I think we have been in a normal state, and when I say normal state, really a de-risked state for the last couple of months. So. I think that reflects in the market numbers also that OEMs are putting out now.
Sure, that's good to know. Order wins are quite encouraging. Almost INR 600 crores in this quarter. Can you please throw some light in terms of products? I mean, you have given a disclosure for two-wheeler, three-wheeler, four-wheeler in terms of what product order wins we have got, especially in India.
I think I'll start with passenger car lighting. I think we have a significant business win, a significant business win for passenger car lighting, which I think is a bulk of the order win in Q2. We also have further capacity expansions for EV product and in particular e powertrain product, which is another significant contributor. We've also been able to win some significant business in displays or instrument clusters.
Okay. Okay, that's. That's good to know. You know, if you can throw some light, typically, you know, we see a little bit of a slowdown in production as we approach the year end. This time around, because of, you know, GST card, are you experiencing that the outlook for the next two, three months shared by OEM is much better than the previous year end that we have seen?
Yes, I would say the period after. Diwali so far seems to be stronger than what we have seen in past years. I would also call out it is also driven by the fact that I think rare earth topics created a level of backlog. I think the combination of filling up that backlog plus I am sure the GST reduction has also had a level of positive impact. Demand is definitely better post Diwali versus what the normal is.
Okay, that's good to know. You know, final question is an overseas business, if you know, if you can shed more light, you know, especially on the business. You know, Dhruv, if you can talk about the, you know, electronic business in Romania, that how should we see a ramp up in some of the order wins and the legacy business? Are we out of the woods where one of the key customer was facing some challenges and there were market related challenges? If you can split and speak on both the new businesses of electronics and our legacy business.
Yes. I will just address our Romania electronics plant. Here the key really will be the new businesses. We already have announced one business win. I think we announced this in the first, it was two quarters back. This program will SOP in the middle of 2026. In fiscal 2027 we will see the SOP for this program. We also mentioned an interior lighting business win and this one also will SOP in the middle of 2026. Definitely with these two programs itself we expect to be out of the woods when it comes to our Romania plant. There are some advanced discussions that we are presently having for further business wins.
We're not announcing it as of right now but we feel confident that the next time we have this call that this will be announced and this one will be also a very significant businessman. Of course, at that point then the Romania plant, it's not about Nestlé turning it around, it's about really thriving in this location. We expect in calendar 2027 to be in a completely different situation to where we are right now with this location. Just to clarify, when it comes to legacy customers on this one, and I think without maybe talking. Yes. When it comes to legacy customers, I think we had a single customer dependence when it comes to some of our other locations like Vietnam and Italy and this customer has degrown significantly.
I cannot say that we will, there'll be a big increase in the sales. The key for us will be to, will be on the new businessman side.
Just to add, please don't take any of this as future revenue. Guidance.
You know, final question if I can squeeze in, you know, Tarang mentioned that debt reduction in second half of the year will not be, you know, significant. Is it because of a higher CapEx that we plan to do in second half and what would be your annual CapEx guidance?
Yeah, that's it for me.
Yeah. Right, Aditya. Let me take this. Previously, remember we indicated that the CapEx should be about INR 270 crores on regular CapEx plus another INR 150 crores for land. We may increase it by maybe another INR 80 crores -INR 90 crores from that level, say close to INR 100 crores is what's going to be the increase. This is mainly for the future growth opportunities. Because of this, yeah, you're right. Most of the cash flow that we are going to generate in H2 will go to actually fund the CapEx. We do not expect any significant reduction in debt from the current levels.
Okay, that's it. From my side. All the best. Thank you.
Thank you. Before we proceed with the next question, a reminder to the participants, in order to ask a question you may press star and one on your touch-tone telephone. We take the next question from the line of Dhaval Pandya from 47 Alpha Capital. Please proceed.
Good evening, am I audible?
Yes. Yes.
Yeah, congratulations on great numbers. I had two questions but one was being letters previously. Another question is as we know the rare earth element got some issues. Can you tell me which were the major product line that got affected due to rare earth settlement issue?
Yeah. A primary product line that got. Affected as a result of the issue was the powertrain product line and really the traction motor that we produce. Of course there was impact across other product lines as well. You know, whether it is, you know, topics like TPS or, you know, throttle position sensors or, you know, other engine electricals like starter motors, AC generators. I would say all the other product lines that were impacted, I think the de-risking was a lot quicker. I think on the traction motor it took a little bit longer, which is why we see the gap, which is why we see a certain gap in sales.
Okay. That's it f rom my side. Thank you.
Thank you. We take the next question from the line of [Khandelwal] from Swan Investments. Please proceed.
Yeah. Hi. Commendable job on the debt reduction. Just wanted to understand what do. You see is the future interest cost run rate which you expect for coming quarters?
Y eah. So basically you can compute based on the existing levels like what I mentioned there may not be a significant reduction from the current levels in the remaining six months. There will be interest cost at the rate of maybe around 8% on this. Plus we also have like what we mentioned earlier, we also have the receivables discounting that's close to anywhere between INR 700 crores -INR 750 crores. That goes at around, around 7%. Based on this you can compute that should be the run rate. There will be few bad charges here and there, but more or less that should be the run rate.
Understood. My next question is based on your overall corporate business vision roadmap. For Varroc, where do you see Varroc going, heading in the next three to five years horizon in terms of top line, profitability, and technology improvements, etc.?
I think we mentioned in the earlier calls also that our ambition is to basically double the revenue by 2030 and take the PBT also well above 10%. That is the overall direction we are working towards.
All right, thank you.
Thank you. Before we proceed with the next question, a reminder to the participants. You may press star and one in order to ask a question. We take the next question from the line of Vishakha Maliwal from ICICI Securities. Please proceed.
Hi, thanks for taking my question. Just on EGR revenues, the share now stands at 11% of total revenue. Do you have any internal target for its contribution over the next one to two years?
Yeah, so I wouldn't say that there. is an internal target. Right. I think we take, you know, if I take a step back, we take a fairly balanced view across different potential powertrains. Different potential powertrains that could be in play. Of course, in a core market of two and three wheeler, we see very strong advent of EV, but we see very strong advent of EV. I would say our product portfolio across different, you know, across different types of powertrains is, you know, is very strong.
Right. We have a very strong portfolio for ICE, we have a very strong portfolio for EV. I think with that, I would say we are really in the right spaces and in the right product lines. I think we are very satisfied with where we stand in these product lines and the market share we have in these product lines. When we look to the future, of course, the more the market moves towards EV, the bigger this ratio becomes and the more significant growth for us is largely because into an electric vehicle, I think we really put almost 5x-7x the content we put into an ICE vehicle. If I were to summarize, I would say we have strong technology, we have strong positioning across all powertrains.
We now wait to see how the market evolves, and we are ready to, we are in the right place to take advantage regardless of which direction the market moves in.
Thank you. Before we proceed with the next question, participants, please press star and one in order to ask a question. Take the next question from the line of Rahul Kumar from Vaikarya , please proceed.
Yeah, hi, just one data question. Can you tell us the tooling sales in this quarter and also was there any cost impact because of the rare earth issue?
Yeah, so I don't want to give that exact number of tooling sales. But yeah, I mean like what I said, if you adjust for it, we were more or less there at the previous quarter levels in terms of the EBITDA margins and PBT margins. Coming to Reddit cost, maybe some additional freight cost or something, but which is recoverable from the customers. There is no bottom line impact on margins because of that other than loss of sales, of course.
Okay, so when you're comparing your EBITDA margin, you are comparing with the previous year quarter two, FY2025.
Correct. Correct.
Second question on the order wins. I think I see pretty strong wins for your existing EV customer. What would that product be?
Yeah, so the. Large portion of the EV order win is expansion in volumes of current programs. Right. The next generation of the programs and, you know, the further capacity requirement for the programs and the products that we do for EV are the E-powertrain, of course, which is the motor, the motor controller, the BMS. Yeah. And some engine-agnostic product also that goes into those vehicles.
Okay. Do we have any progress on this? Any other two wheeler EV customer? Top tier EV customer in two wheelers.
I would say we have progress with customers and like we said before, I think we will SOP with our second customer in this year. In terms of top tier, I'm not sure exactly what you mean but if you mean really the guys in the top three, of course we have engagement, but we do not have a formal business win with anyone other than one of the top three.
Okay. Okay. And this four wheeler business which we have announced for the lighting business, is that for the, for the overseas business or is it for India business?
This is for India.
I think one fundamental question which I had was I think we had a big spare capacity in our Romania plant for the four wheeler lighting and we are now going to expand.
I'll just clarify. We had spare capacity for electronics in our Romania plant and here we have already one business that will actually, one business that will launch in the middle of 2026 and we are in advanced discussions on some other business opportunities as well that will launch at the end of 2026. We'll be utilizing this capacity. There's a plan to utilize these big capacities.
Okay, okay, fair enough. Understood.
Thank you. We take the next question from the line of Priya Ranjan from HDFC AMC. Please proceed.
Yeah, thank you. Just couple of question. What is the next year CapEx thought process? What how much we want to. I mean this year we. You said, I mean there is whatever is a free cash flow probably we will do that much of every the CapEx and so what is the next year plan?
Yeah, next year we should go back. To the normal levels which is around INR 250 crores or so.
As for India plus I think depending on the business wins abroad I think that CapEx could be more, so that could be also depending on the extent of the business win, it could be anywhere between INR 50 million-INR 100 million for the business, for the plants abroad.
Okay, okay. Will it be directed most towards Romania and Thailand? I mean, Thailand, we want to produce lighting, right? What is that?
We have already invested, the formula is for formula lighting. We have already invested about INR 40 crores , which we had announced in this plant. There will be, as we are trying to win more businesses, which probably will be announced in the coming quarters for lighting, so that may entail some more CapEx, you know, so that will probably come in for next year. Also, of course, certain investments will also probably happen in Romania, further to whatever the capacities we have, which, as Dhruv mentioned earlier, will be utilized in the next financial year. If we are winning more business for electronics, which we are hopeful of, that will require some further investment there.
Yeah, so those will be linked to the programs.
They will link to the programs.
Yeah, yeah, understood. Any thoughts on, I mean, expanding domestic in the electronic side, the more SMT lines or any new areas where you want to go in the, say, consumer electronic side or something with the contract manufacturing or with the BCV or something in that kind of things is in your mind, or you just wanted to stick to the automotive side only.
Today we already operate the equivalent of 17 SMT lines in India across two locations and we have a fair amount of scale when it comes to electronics already. Of course, today we are largely, almost completely automotive focused as you mentioned, but we definitely keep an eye on and we start to explore other spaces also because, you know, especially where there is a level of design content involved, we believe even in non-automotive spaces we bring strengths to the table. I think that as things materialize, we talk about it then.
Yeah, to answer that question, yes we are definitely exploring also the non-auto space when it comes to electricity, electronics, and electricals. That is something we are already exploring. So. Yes, we do want to get into the non auto space also.
Okay, great. Thank you. All the best.
Thank you. We take the next question from the line of Vinay Jain from Karma Capital. Please proceed.
Yeah. Hi. Thanks. Congratulations on a decent set of numbers. Heartening to see the reduction trajectory and India business margins at about 11.5%. My question was on the R&D expenditure which we have given for the second half at the EBITDA level at around INR 26 crores, INR 27 crores. What would be the number for the first half?
No sir, we didn't indicate anything for second half. Sorry.
For your quarter it sits around INR 26.8 crores.
Yeah. More or less that kind of pattern will continue in the remaining two quarters also. That should be more or less the.
So this is a recurring number, or? You expect it to come down in the coming quarters.
Yeah. So the point here is whatever we indicated here, you're talking about the slide where we showed the R&D expenses separately. Right,
right.
That's the recurring thing that will continue in future also.
now there is. In future, there is. No revenue which is commensurate revenue which is coming from this R&D which you're expecting to come through in the future quarters.
Yeah, that's what I was mentioning, that there's more like investment for future growth. Like how Dhruv explained, some of them are in advanced stages. This will basically pave way for that kind of a growth.
Sorry. Yeah, please go.
Please, please carry on.
No, on the overseas business again, when. We're saying that in the second half or second half of calendar year 2026 you're expecting the orders to come through. Can the overseas business also maybe say not in FY2027 but in FY2028 do margins similar to what the India business is doing right now?
It's difficult because kind of prediction. Yeah, I mean like we explained, there are significant orders being expected if all of them materialize and depending upon their SOP timelines also. That's the ambition, that's what we are targeting.
That is the objective. Let us see how it pans out.
Understood. The tax benefit which you mentioned of around INR 11 crores . So. That is again with the R& D recurring, the tax expense or the tax benefit also would be recurring in nature or was it a one time thing?
Yeah, correct. That will be recurring. That will be linked to the R&D spending we are doing overseas. That will be a continuing feature from now on.
Got it, got it.
Yeah, sorry. In Q2 we recognize benefit for both Q1 and Q2. That way to the extent it may get mitigated, but yeah, the benefit will continue in future.
Thank you so much and all the best to you.
Thank you. Before we proceed with the next question, a reminder to the participants in order to ask a question, you may press star and one on your touchtone telephone. We take the next question from the line of Ronak Jain from Equirus Securities. Please proceed.
Yeah, good evening sir. I have a few questions. Firstly, on the lighting segment, the domestic PV order that you earlier alluded to, can you throw some more light, like whether it is for front lamp or tail lamp and whether it is for, whether it is in the, and also I would like to get your insights on how you see the. Lighting segment going ahead given the sharp. Competitive intensity, the lighting space.
Yes. It is a rare lamp from a technology perspective. Definitely, it is definitely advanced technology rare lamp. And from an LED versus bulb perspective. We coat. We only do LED now. We do not do it, we do not quote any bulb. So it is LED. And sorry, what was the second part. Of your question again?
I wanted to. Competitive. Yeah. [audio distortion]
I think from a. There are a fair few players in the market. Right. This competitiveness is not something that is new, something that has been around, but I think really driven by our global engineering capability, especially when it comes to lighting. I think some of the technology we're able to bring to the table definitely stands us in good stead. The market is competitive, but I think we are quite clear and comfortable with what our strengths are. I think fortunately our customers also appreciate that.
Yeah. So I have a few clarification questions as well. For your new lighting plant from Thailand, I wanted to understand like which geographies and segment is it going to cater to?
Yes. The thought process for Thailand of course is to target the Southeast Asian geography. But not just that, but you know, we also want to target customers in Europe and North America. We feel Thailand is also an export friendly country, low cost as well. So yeah, it's really the target would be customers globally, not just in Southeast Asia but also in Europe and North America.
Okay, got it. Just one more last question. On the order book side, the order book which you mentioned for H1, are these new orders or replacement orders or a combination of both?
It is a combination, but it is the net new orders. Right. Even if there is a replacement, it is only the delta content increase that we report. It is net new.
Net of replacement.
Yeah.
Okay, got it. Thank you so much.
Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Yeah. Thanks once again to all of you for joining the call and for your continuing support. We hope to see you again in the next quarter. Thank you.
Thank you.
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.