Alicon Castalloy Limited (531147) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Alicon Castalloy Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you, sir.

Thank you, Margaret. Good day, everyone, and thank you for joining us on Alicon Castalloy Limited Q3 FY '22 Earnings Conference Call. We have with us on the call today Mr. Rajeev Sikand, Group CEO; Mr. Vimal Gupta, Group CFO; Mr. Shekhar Dravid, Chief Operating Officer of Alicon Castalloy Limited; Mr. Andreas Heim, Managing Director of Illichmann Castalloy; and Mr. Rajiv Gupta, Head of Domestic Business of Alicon Castalloy Limited. Mr. Vimal Gupta will cover the financial performance for the quarter, following which Mr. Dravid will walk us through the operating highlights. In order to share a more granular view of the initiatives towards both the global and domestic markets, we also have Mr. Andreas Heim and Mr. Rajiv Gupta to provide insights on these areas, following which, our Group CEO, Mr. Rajeev Sikand, will give us a brief summary of the quarter gone by. Thereafter, we shall open the forum for a Q&A session. Before we begin, I would like to point out some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with all of you earlier. I would now like to hand over the floor to Mr. Vimal Gupta for his opening remarks. Over to you, sir.

Good morning to all our investors. I hope that all of you and your near and dear ones are safe and well. Thank you for taking the time out to join our earnings calls. We have reported a steady performance in the third quarter and delivered continued improvement each quarter through the year-to-date period this fiscal. This quarter witnessed several macro challenges coming together and intensifying. Alicon faced and combated four such key challenges, which we have termed as [ 4Cs ]. The first C is Corona, being the impact on our operations on account of the third wave of the COVID-19 pandemic, which impacted over these operations from mid-September and resulted in muted demand in domestic markets, especially in the latter half of the December. The second C is semiconductor as the chip shortages and supply chain constraint, which persisted during the period impacted -- impacting volumes for the automotive industry across the globe, especially in high-end vehicles and high-value addition parts. This, in turn, moderated our sales performance during the quarter. The third C was the cost-based inflation, wherein we saw higher input material costs on account of the inflationary trends and even increased trade and logistic costs, led by supply chain issues. And the fourth C was the cost of new product development. However, with rapid change underway due to EV evolution and the light-weighting, which has come with only a short gap from the switch from BS-IV to BS-VI, the product life cycles are shortened. Overall, the quarter was marked by these 4 key challenges, and despite some nonlinearity, we delivered steady top line in the quarter, with consolidated revenues from operations at INR 278.9 crores, higher by 4.2% over the immediately preceding quarter. The [ 4Cs ] impacted profitability too, especially the continuous increase in commodity prices along with inflated freight costs and cost towards new product development, which resulted in higher expenses during the quarter. However, our sustained cost reduction initiatives using guidance principals enabled cost reduction at micro level across our operations. This was supported by slightly and this product base as we were able to increase the volume of higher margin products. Like we had indicated last quarter, we have been working collaboratively with our customers to undertake price corrections and have successfully passed on some part of increased cost. The combination of these above factors helped us to support margin performance. This has been building results with our margins coming in stable at 12.1% in quarter 3. Another aspect to keep in mind is that the alloy prices are [ passed ] through for us, but higher prices elevate the denominator. So even when absolute EBITDA remains intact, the EBITDA margins will naturally reduce due to higher denominator. In quarter 3, the impact of higher denominator has led to EBITDA margin reducing by over 1% and had alloy prices been stable. We would have reported an EBITDA margin in excess of 13% this quarter. While the margins were lower by 40 bps year-on-year, on a quarter-on-quarter basis, we are higher by 268 bps compared to quarter 3 last year. So overall, the impact of our market has been largely contained despite the combination of challenges we faced this quarter. Another highlight to note here is that all our operating costs are tightly controlled and optimized across our business model. Even when the operating environment normalizes, we do not anticipate significant increase in the cost model going forward. Overall, the gross margin stood at 50.1% in quarter 3 FY '22. Our EBITDA stood at INR 33.8 crores. Profit after tax during the quarter stood at INR 12.1 crores with our continuous focus. As cost pressure stabilizes, we expect our EBITDA margins to return to pre-COVID level of 14% to 15%. On the operational front, in quarter 3, our factories in India and Europe did not face any mandated lockdown despite the disruptions due to the third wave. We continue to do our best to ensure we create and maintain a safe workplace for our people. Despite the cost pressures and supply chain disruption, we have focused on ongoing improvement. We witnessed a sharp increase in alloy prices, which had a resultant impact on cost of inventory and on debtor. However, we were able to drive greater efficiencies, which had enabled us to actually improve the working capital [ days ] despite these pressures. We expect this to stabilize going forward. During the quarter, we have reported steady cash flow from operations. The conclusion of equity raised through QIP and [ preferential ] issue has further helped enhance our liquidity and balance sheet of position. On the balance sheet front, our net debt has been maintained around INR 200 crores, INR 250 crores, and the net debt-to-equity ratio remains comfortable at 0.55. As you would recollect last quarter, we had discussed that we have deferred our CapEx for financial '22 due to the uncertain macro environment led by COVID-19 disruption. So we had envisaged INR 90 crores at the start of the fiscal '22, but we mostly would be closing this fiscal year around INR 55 crores to INR 66 crores -- INR 55 crores to INR 60 crores. More importantly, this CapEx has been utilized towards upgrading capabilities and elevating end of process capabilities, such as finishing and machining. Thus we have leveraged our unutilized capacity at the back end and deployed capital towards value addition in the front and out of process, enabling us to deliver a greater value creation for customers enabling margin addition. The balance of INR 30 crores to INR 35 crores, which is [ deferred ] CapEx for the FY '22, along with fresh CapEx to the tune of INR 60 crores will be invested towards growth in FY '23, resulting in cumulative CapEx of INR 90 crores next year. We anticipated normalized operating environment in FY '23 and expect faster recovery. To summarize, we have reported a resilient performance during the quarter despite the disruptions in the automobile industry. We continue to operate a healthy financial profile and strong balance sheet. In a normalized environment, we look forward to building on this further. On that count, I would like now to hand over it to Mr. Shekhar Dravid, who will talk about operating highlights for the quarter.

Thank you, Vimal. Greetings to all. I trust all of you are well and staying safe. The trends in the domestic auto industry continued to be a mixed bag. While we saw strong demand and higher consumption in the market led by festive and holiday season, inflationary trends in the global markets and a touch of the third wave during the latter part of December impacted sales performance for the industry as a whole. The auto and auto ancillary space continues to witness bottlenecks in the raw material supply chain. As a result, during the quarter, the industry has experienced an extremely challenging and volatile input price environment. In some cases, we have seen aluminum and related alloy reach new high. The new wave of the pandemic in the certain Asian countries has resulted in aluminum prices reaching a fresh 14-year high. In addition, logistical problems and inflation in shipping and freight costs further downplayed the momentum in sales. Across the domestic industry, [ CV ] volumes saw improvements during the period supported by the healthy demand for both passenger and cargo segments. 2-wheeler volumes, however, saw a notable impact due to lower consumer sentiment affected by the third wave of the pandemic. Similarly, the PV industry sales continue to be impacted by the supply chain constraints and the semiconductor shortages. Besides weak [ rural ] sentiment, delayed harvest season, floods in the Southern states as well as higher fuel costs restricted the pace of recovery in the quarter. On the international front, most of our key support -- key export geographies in U.S. and Europe reported strong auto sales led by festival holiday demand and stable currency. So against this backdrop, we have reported a stable performance during the quarter. The 4C framework that was discussed by Vimal impacted our overall growth in the quarter. This one of the rare times wherein we have seen all these operating challenges acting together in the industry. However, it is noteworthy how our team has been able to navigate through this difficult situation well, and we have been able to seamlessly manage supplies to all our customers on time. In the quarter, we have added 30 parts from 9 customers. Let me talk about the highlights of our performance across each of our 5 key strategic growth pillars, the first being our auto business. This industry in the past 2 years has been adversely impacted due to COVID, mobility restrictions across geographies, supply chain issues and raw material inflation. However, as the environment is normalizing, we have seen the mobility sector on a whole bouncing back with a staggered recovery in sales. The consumption across vehicle segments, be it the passenger vehicle, commercial vehicle or even the 2-wheeler segment, is on the increasing trend. So what we are seeing is that, while supply chain issues moderated production across the industry, the end consumer demand has been on the uptrend. There are [indiscernible] or signs that suggests semiconductor supply shortages could begin to ease in the latter half of 2020, albeit in the phased manner. This will further boost sales in the industry. Another data point here is that if we will -- if you were to look at the penetration levels of the cars across the globe, India is one of the lowest, with around 225 registered vehicles for every 1,000 people. Encouragingly, there has been a constant increase in this number in the past decade and as the macro environmental recover, the car consumption and the penetration level will keep growing. The pandemic, for instance, has accelerated the consumption for consumers, preferring personal transportation modes. We have been seeing sharp rise in first-time auto buyers across urban, semi-urban and rural markets, with improving traction in vehicle registrations. So overall, the outlook for this segment remains solid, and this in turn bodes well for Alicon. The global industry witnessed a downfall of 13% in last quarter over the last year quarter 3. Alicon witnessed a growth of 22%. New order wins SOP helped to perform predominantly better than the market. In ICE segment, we are seeing strong inquiry levels across domestic and export markets. We are also seeing repeat order wins coming in from customers, such as Eaton, Garrett and Maruti Suzuki. I'm happy to share that in the quarter, we have won orders of 7 new parts from these customers. Coming now to the second of our growth pillars, which is the electric vehicle division. The division continues to register exponential growth, not just in India, but also on the global level. According to the report by the International Energy Agency, roughly 1 lakh 30,000 EVs were sold every week in 2021 as against 1 lakh 30,000 EVs sold worldwide in the year 2012, suggesting an explosive growth. In the year 2021, while we saw the auto industry reporting moderate growth across traditional and hybrid segment, EV sales marked a healthy growth. Closer home, the total registered electric vehicle sales in India more than doubled in 2021 as compared to 2020 and crossed the 3 lakh mark in 2021, the highest ever annual volumes. December impact was the first time when electric vehicle registration crossed the mark of 50,000 in a month. 90% of the sales in India were in 2-wheeler and 3-wheeler segment. The market has seen strong proliferation of exciting EV models by established and new players. This, along with increased preference for personal mobility, reducing price parity between EVs and the ICE vehicles and growing awareness about the global warming continues to fuel growth in the EV sector in India. In the Union Budget as well, the government has announced supportive policy for electric vehicle, the announcement of a new battery swapping policy will improve the country's EV infrastructure and create an impetus on faster adoption of environment-friendly public transportation and 3-wheelers. Auto manufacturers will also be encouraged to develop sustainable processes for batteries, which will help in increasing the EV ecosystem efficiency. For this segment, we are working with OEMs as well as the Tier 1 suppliers. We have been working extensively with Dana Corporation, Scania, Tata AutoComp, ARRIVAL, Eaton on both domestic and international orders. During this quarter, we won -- we have won orders from existing customers, such as Tata AutoComp, and Scania. We have also added a new logo win in this quarter. We have received an order win from a customer called ARRIVAL for 17 new parts. We are the first Indian supplier to be empaneled with ARRIVAL, which manufactures electric buses and vans and belongs to a niche segment. They currently have the plants in U.K. and U.S.A and are coming up with the plants in Spain and India. In addition to the 17 parts already booked, we are in close discussions for other opportunities related to our [ frugal ] engineering and thermal solutions. We introduced light-weighting solutions, high-pressure die casting to low-pressure die casting conversion by giving customer advantage of a lower CapEx, thermal solutions for the components, like battery housing and motor housing, and other such technological advancements. One such area where we are seeing strong response from customers in the light-weighting of the product is in the auto and EV space. We are getting increased inquiries from the OEMs both in domestic and export markets and the development of various product categories, such as motor housing, battery housing and controller housings. In December 2021, for the first time ever, Tata Motor was the second highest seller of vehicles in the passenger vehicle segment. JLR, Tata Group company has already announced 100% EV by 2025. We are already supplying EV parts from our European subsidiary to them, and now we are in active discussions for the opportunities from India. Another exciting development for us has been the breakthrough orders with Tata Motors. We have been observing the progress being made by Tata Motors, which has emerged as a leader in electric 4-wheeler as well as passenger vehicle category in India. And we're very keen to be empaneled as a supplier given the prospects for the strong volumes. We are delighted to share that we have been empaneled for 2 critical and complex motor housing with them in the last quarter with good volumes. With the industry on the cusp of next phase of growth and Alicon is one of the front runners in the EV space to capitalize on these growth prospects. We have already built up a portfolio of over 101 parts catering to EV and other revenues from EV business, stands at 9% in quarter 3 financial year '22. Our target is bring the wallet share of EV business to 36% of our overall revenues by financial year 2025, '26. Clearly, we are progressing well with our strategy, as 57% of our new orders during the quarter were from EV segment. Now on to our third growth pillar, being a technology-agnostic platform. This segment is where we are directing a focus bringing value addition to all our product categories. Alicon's philosophy has always been towards manufacturing innovative and differentiated products. Having a European hub at an early stage of our growth journey gave us a first-mover advantage in the domestic markets. During the quarter, we have received orders from KTM. Coming to our fourth growth pillar, which is a non-auto business. In this, we are witnessing healthy growth in demand, especially from the defense sector. During the quarter, we have received an order win from existing customers, like JCB, and a new win from Textron, U.S.A. In the non-auto business, we have been seeking to add critical and complex parts in this segment with sustainable volumes. With the empanelment with the Textron U.S.A. for fully machined cylinder head supply to the U.S. market, we will be able to showcase our capability of manufacturing such parts to the other OEMs, which will open up more opportunities going ahead. Our previously announced orders are progressively as per the schedule, and we expect strong order wins in the quarters ahead. As discussed last quarter, we have submitted a tender of 400 -- 4,000 deals for defense, and we are expecting the finalization of the same shortly. We are penetrating with the existing customers, like Siemens, GE and Ingersoll Rand in this segment. The fifth growth pillar is our focus on improving customer wallet share and the customer stickiness, with several parts moving towards SOP, we are well placed to enhance contribution from repeat customers and demonstrate customer stickiness and build it in our brands. Our long-term approach is towards building wallet share and positioning ourselves as a trusted supplier for an existing customer base. On that note, I would like now to hand it over to Mr. Andreas Heim to throw light on our global business.

Thank you, Mr. Dravid. A warm welcome to all of you. I will briefly cover the development on our international business. We have delivered a steady performance in Illichmann during the quarter on the back of improving demands in [indiscernible] in our key global markets of U.S., Europe and China. However, a key profit issue across the globe resulted in a significant impact on our international business in sales in the third quarter. For the quarter, exports, including overseas revenues contributed to [ 22% ] of the total revenue; and for 9 months, to [ 24% ]. I am happy to share our exports, including sales from Illichmann subsidiary to strong during the quarter and was higher even in sequential basis. We are also seeing increasing costs on account of inflationary trends in aluminum and other alloys. In addition, [indiscernible] price cost has further resulted in higher expenses during the period. While these [indiscernible] margins during the quarter, we have been pressing over this price hike, which has resulted in the steady profitability on absolute basis. Overall, we have delivered in ensuring performance during the quarter in 9 months. While there are ongoing concerns about the pandemic in some of the key global markets, we had expected minimal and short-term impact. Overall, we remain very excited about our future growth prospects and opportunities in the medium to longer term across markets of Europe, U.S., Middle East and Brazil. On this note, I would like to hand over to Mr. Rajiv Gupta, who will cover developments in domestic business for the quarter.

Thank you, Andrea. Good day, everyone. We have seen mixed trends in the domestic auto segment during the quarter. While the demand has been upheld, issues on account of persistent raw material pressures and shortages have significantly impacted production levels for automotive players in the domestic industry. Lower product production levels due to chip shortages have resulted in unusual waiting period ranging from 6 to 9 months. We're also seeing a dip in inventory levels across dealership. Passenger car sales are seeing a continuous decline on account of chip shortage. Even entry-level segment is facing challenge due to increasing fuel prices and weak [ rural ] sentiment. The sentiment was further weakened by Omicron-related concern in December and January. However, we are seeing steady recovery from mid-January onwards as concerns around the third wave have eased. Also the chip shortage situation is easing up slowly and gradually, which we believe will elevate sentiment in the industry. Now coming to the performance given the macroeconomic backdrop, Alicon was able to report steady sales in Q3 FY '22. We have booked our average yearly sale of around INR 40 crores with project sale of around INR 155 crores over a period of 5 years in quarter 3. In 9 months cumulative this year, we have added 60 parts, of which 32 were in the EV segment, with average yearly sale around INR 30 crores, with a project sale of about INR 130 crores over a period of 5 years. Our total order booking now stands at around INR 3,250 crores over a period of 5 years, with a yearly average sale of around INR 650 crores till now. Overall, we are witnessing a good level of inquiries and bookings in the market and are hopeful that improving macros will further support this momentum. On this note, I would request our Group CEO, Mr. Rajeev Sikand, to share with you in perspective on Alison performance.

Thank you. I welcome all our investors. Thank you for joining the call. I hope you and your family members of well and safe. I would like to add that the way Alicon team has overcome the challenges thrown at us in the last 2 years gives me every reason to be optimistic that we will negotiate further challenges that will be thrown at us. In the ever-changing and dynamic scenario, the automobile sector is facing. My confidence in the long-term potential for Alicon and the opportunities across the auto, non-auto and e-mobility space remains unshaken. While we are seeing headwinds in light of persistent raw material challenges, the chip shortages across the globe. There are signs of the situation easing out with the resumption of chip manufacturing across Asia, but my view is it will take another 2 quarters for it to really stabilize. We are hopeful that with the parts of the world moving away from lockdowns to learning to live with the virus, we should see the pre-pandemic sense of normalcy return soon across domestic and global markets. Educational institutions, corporate and private offices are now slowly opening throughout India. This, along with the augmented consumer sentiments, improvement in finance availability and gradual pickup in economic activities, will translate to a higher demand, especially towards personal mobility. In addition, better macros will further support in commercial vehicles in the longer term. As discussed by my colleagues, in the 9-month period, we have announced significant order wins with multiple OEMs. Our current order book stands at INR 3,250 crores, and this provides us with strong growth visibility for years to come. Our business fundamentals are strong, and we are proactively engaging with the existing and new customer groups to accelerate this growth further. We are focusing towards improving our product portfolio and have added a range of high potential SKUs across auto, non-auto and EV segments, to bring in differentiation and value addition in our model. Sustainability is one of the cornerstones of our business framework, and we are pursuing many initiatives by way of business processes, manufacturing capabilities and product development. Looking ahead, we believe that demand conditions in the market will continue to improve, and we are optimistic on the medium-term outlook of the auto industry. Also, Alicon's diverse product suite will enable us to capitalize on demand reversal. The recently announced Union Budget also announced growth-boosting reforms, which will further create and maintain demand in the market. The battery swapping policy, scrappage policy, PLI-linked scheme, FAME scheme and improved CapEx towards road infrastructure augur well for the sector and will help boost consumption. On the whole, we look forward to a promising future. On this note, we would like to -- we would be happy to take your questions now. Thank you.

[Operator Instructions]. The first question is from the line of Saurabh Jain from Sushil Finance.

Yes. Okay. So first of all, congratulations on yet another wonderful set of numbers. I have a few questions. My first one is, in your opening remarks, you mentioned about new logos added and some order wins from ARRIVAL probably for 17 new products you mentioned and some products for Textron as well. So it would be helpful if you could quantify those orders and their execution time line, some highlight on that. And also the orders on hand for INR 3,650 crores plus, so what would be the execution time line for the same?

Over to you, Rajiv.

We have mentioned we have added 2 new logos in last quarter. One was for -- with ARRIVAL. In the EV space, we have added 17 parts, and these are very critical structures for us as well. And the thing with ARRIVAL is the concept with setting up plants across regions. So as currently this opportunity is for the U.K. market, but there are chances of multiplying this opportunity once they come up with future plans in Spain and India. So if we talk about order opportunity, this order, the yearly average sale is around INR 10 crores for the 17 parts. And on a project basis, this will be around INR 40 crores in total. So this was a pretty achievement because Alicon was the first supplier from India who is awarded with ARRIVAL. Second is Textron, yes, we were eyeing in this particular segment because this belongs to a niche segment. And also, these are very critical parts, which give us -- helps us to showcase our existing OEMs also. So this order is for the US market for a very critical complex cylinder head and this also we got in last quarter. And also, we added is Tata AutoComp with motor housing. We were eyeing in this segment, as mentioned in the last quarter, because we noticed the Tata Motors in the domestic market were picking up quite well. And with that, we have added 2 critical parts. So with that scenario in last quarter, we've added the confirmed yearly average sale of roughly around INR 40 crores with our total project value of around INR 150 crores over span of 5 years. With this, my order booking now have touched to yearly average of INR 650 plus crores and total INR 3,250 crores. The good thing over here is we were focusing on EV. And in last quarter also, the total order booking, 57% comes from the EV segment. So that was a good sign what we have noted. And if you talk about 9 months, the EV contribution is 33%. So we are moving ahead with what we have planned or what we have strategized.

Okay. So one follow-up on that. Of this INR 3,250 crores of order book, how much would be from EV overall?

17% is from the EV of total the INR 3,250 crores what we are talking. At this moment, it's 17%.

And this is also executed over the 5 years, right?

Yes.

Okay. So coming to my next question, this -- it's amazing to see gross margins being maintained especially during these tough times, which is currently prevailing across the industries. And this showcase our strength. Despite lower margins on the stand-alone, we did substantial improvement on -- in our European subsidiaries. We have managed to maintain our overall profitability on a Y-o-Y basis. So the subsidiary continues to do exceptionally well with almost, I guess, 21% EBITDA margins. So how is the trend looking forward? I'm talking about the European subsidiary.

So Saurabh for in the European subsidiary, the major margins now coming up from the EV segment because the orders are increasing, the volumes are increasing there. And we have negotiated because these are the initial stages, and the development stage is in the EV segment. So these margins, now this is a start and when the volumes will grow. So hopefully, we will be able to maintain because we can see that in the quarter 4 also, we will be able to even perform much better if you compare with the quarter 3. That are our expectations for this. And hopefully, we will be able to maintain the same momentum in the coming years.

Okay. Sir, one follow-up on that. To this quarter, we did a turnover of around INR 28 crores in European subsidiary. How is the possibility of scalability here?

So for this approximately this year, we will be able to do INR 120 crores, INR 125 crores. But as per our strategy, we have not planned to scale it up to a large level. The reason being we want to have -- it is our development center. We want to use that location to develop our critical part and also knowledge center because whatever the development we are doing in India, so those are being supported by the European team because you know that the cost of production in Europe is so high. Maybe you were seeing these volumes, the margins are high in Europe. Maybe on that basis, you are feeling that we should grow more there. But at the end, when the volumes go up, so they also do -- they also look for some alternate sources from low-cost countries. So our concept is that we will have -- we will maintain maybe INR 120 crores to maybe maximum go to INR 200 crores in the coming 3, 4 years. But the idea is to win the orders, bring the volume to India. So that is -- on that strategy we are working.

And sir, my last question, what was the contribution from new orders during the quarter? And if I believe in previous con calls, you had mentioned that the new orders for FY '23 contribution will be around in the range of INR 350-odd crores. So are we on track for the headwinds, which global auto industry has been facing for the past some time, [indiscernible] goal?

Okay. So with the new orders, we are noticing we will be booking around INR 260 crores to INR 280 crores for this year.

For the coming fiscal?

For the coming fiscal, this would be at a range of INR 450 crores to INR 500 crores.

Okay. So you are expecting a very big growth in the overall top line for next fiscal, right? Or there would be some major phaseout from this current year?

Yes. Talking about the current business, we are noticing the ICE segment, particularly the 2-wheelers, might get a hit with the acceptance of customers to the EV. So we are noticing that. And also with the other factors, like increasing fuel prices and cost of production. So with that, we are expecting the current sales with existing customers and parts might come down. But the good thing is we have added these parts, and this will help me to push on up and further increase sales going forward.

So would you be able to quantify it, the phasing out products or the contribution...

That we will come back, but the phasing out will be less only that because due to the challenging market. So we are not anticipating that there will be a growth in the running business. So that is the challenging factor that we are now facing in our plants.

Got it, sir. One last question, if I may squeeze in, just a short one. How is the revival seen in 2-wheelers? Do you get some [ feelers ] from the OEMs?

At this moment, we don't see really the enthusiasm from these OEMs. And we are keeping close watch and connect with our existing OEMs to get a feel on this. So that is the situation at this moment because of the dynamics of the market.

The next question is from the line of Raghunandhan N. L. from Emkay Global.

Congratulations, sir, for good results under challenging circumstances. My first question was, being an early mover, company is gaining market share in the EV space across segments. Would you be targeting higher market share in EVs compared to that of ICEs? And can you talk a bit about company's strengths or competitive advantage which will support you in getting the market share on the EV space both in domestic and export markets?

Thank you. This is Rajeev Sikand. Our playbook here is very simple. We are developing thermal technology, and this is very, very unique. And this has been done because of our European plant. The know-how was developed from 2016. And we've been supplying to Bosch. We supply to all the OEMs, then to JLR, to Samsung. So this technology is our playbook. And so we have divided our parts, thermal and other. So we are focused on thermal. Yes, at the same time, we have to focus on other parts in the EV segment. But we are finding that our capability is really being looked at all the global Tier 1s, like Dana is the Tier 1. So -- but they build a system for a bus, so this is where we are coming in. I hope that answers your question.

So basically, just extending on the same question, in terms of competition, would you say that this work, which you have done on the thermal side, has put you ahead of the competition and that will continue to remain a competitive edge for us?

When you come as a first mover, because of our advantage, because of Illichmann, where we invested, and we took this up in 2016, so this will remain for the time being. I don't see this competition going. But sooner or later, people do copy, do acquire. So -- but it is going to give us 1 or 2 years of headwind of free space to take this on because it's not so easy. You may even get the technology, but how to manufacture, how to handle on the shop floor. So we have paid that price in our building up in Illichmann. And that kind of thought process is now available with us.

That is very helpful. My second question was on the order book side. So management did make a statement, INR 260 crore to INR 280 crore order for FY '22 and INR 450 crores to INR 500 crore order in FY '23. The clarification I wanted is, is it the amount of new order executions or is it the new order bookings which was referred to?

Rajiv?

These are executions. This will be the realization from these accounts, what we are booking.

And another clarification was on TACO. The order book which we have is that lifetime order book of INR 150 crores or that yearly order of INR 40 crores. This is the overall order book with TACO or is it the new order wins?

It's actually a new order win. And what is happening in TACO, we are doing 2 things. One is we are supplying the global facilities, which they have acquired. And secondly, Tata Motors are gone in with the concept. Where other OEMs were doing [indiscernible] EV, Tata Motors have adjusted their EV. So like they have taken Nexon and other current car, which is in ICE and made an EV. So they have gone head on this. So what we have proposed here by importing these parts China, these critical parts and assembling them. So we are going to come in, in their Phase 1 of localization to develop this very strategic thermal solutions for them. And we have backed those 2 orders as of now, in the 2 very critical models.

Understood, sir. Next, I had a question in terms of the underlying domestic industry. Is there any improvement which you are seeing in the production schedules for the underlying 2-wheeler segment for February or March now that the COVID wave intensity is waning?

As my colleague just said, we are seeing this demand is muted. And you are much aware that how much OEMs have put up their capacity and what are their numbers. So the reading is it's both -- it's a couple of issues which they are facing and as my colleagues have already highlighted both on the demand side and the supply side. And the consumer is facing in the entry-level motorcycles, their own value in terms of purchasing power. And then there is also -- let us not run away that there is a demand disruption to extend in the -- with all this COVID on and off, a lot of the service industry has got impacted, small restaurants, small businesses like that. So there is an impact which are seeing.

Understood, sir. To Vimal sir. Sir, on the input cost inflation pass-through, now that the focus is on the monthly adjustments, given the further pass-throughs that are happening, would Q4 see a better gross margin compared to the Q3 levels?

Yes, definitely because in the last quarter, when I explained that there was the impact of the cost inflation on the margins, so -- and we have started negotiations with the OEMs. And we have seen the impact in the quarter 3, and that's still not settled with all OEMs, and that is also in process. So definitely, we are seeing the further improvement in the margins in quarter 4.

And sir, like on Europe operations, can you help us understand the key factors helping profitability? The management highlighted that now that the EV businesses are ramping up and initial phased margins are on the higher side, would that be the main reason? Or would there be any tooling revenue which is also helping the margin?

See, it is all composite. it's not only one. It's tooling revenues. It's the operations getting streamlined on those parts. If you make the same part every day, all the other costs, which were there in terms of building those parts plus, of course, the margin. So our team in Europe has done very good. We have a general manager from India, one of our best guys are running that, Mr. Satyapal. So we are very happy to see the progress our European team has done.

Sir, my last question on the side of your technology partner, so just wanted to understand from you how the support is continuing given the COVID times and travel is restricted? I mean how is the support continuing on new product development, plant upgradation or are they helping in terms of -- I mean, entire corporation helping in terms of getting new orders?

Yes, good question. Sorry, we have also missed out that. See Enkei is our teacher. And just to give you -- before I answer that question, I'll give you an answer as we have a new project with Toyota. And with the COVID time, these people are not able to come from Japan. But every day, they are able to visit the shop floor virtually, they are able to discuss this development. So every day, there's a call at 2:30 in our Indian teams, Toyota India, Toyota Thailand, Toyota Japan is joining. And there is a value addition from both sides, discussions. Same thing is happening with Enkei. That meeting is fixed. One is on the need-based, which is typical, and one is on a quarterly basis. So both the things continue, and Mr. Suzuki is very, very active personally in getting his updates every quarter. We have 2 meetings with them, so which is even more than what we were having when he was coming physically. Of course, we were having a virtual meeting, but this is a way I think the world has evolved, not only Alicon, every other supplier has also evolved in the same way.

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Yes. Can you hear me?

Yes.

My question is, you mentioned about the EBITDA margin, that this quarter, it was around 12%. And as a percentage of sales, it will look lesser because of the increase in the alloy prices since the denominator has increased. So at the same time, you also mentioned that margins would be 14% to 15% very soon. So even at this high alloy prices, you expect that margins can come back to 14%, 15%?

Yes.

The next question is from the line of Karthi Keyan from Suyash Advisors.

I had a couple of questions. One is the order book that you spoke about, the INR 3,250 crores of new orders, this is not adjusted for inflation, I assume. Is that correct?

Yes.

Right. So as and when -- actual come through, that is when the adjustments will be done?

Yes.

Right. The second part is that of the order backlog, you said an incremental INR 200 crores roughly would be executed next year over the current year's base. Is that correct, sir? I'm just making sure that I understood it correctly.

Right. Yes.

Right. And the third thing is what would be the current 2-wheeler contribution to your revenues because you gave a fairly -- shall I say, not very optimistic commentary on the 2-wheeler segment. So can I know the current contribution of 2-wheelers to your revenues 9-month basis?

Currently, it's 50%.

I'm sorry, sir, I missed that number.

It's 50% currently.

Currently, 50%, yes. And last question would be this. So you spoke about Illichmann revenues being limited to a certain level and a lot of the production being transferred to India. So in that context, I'm asking you this question. So when a customer places an order, does he identify the location or does he identify the entity? How exactly does that work? So can you split the order backlog between Illichmann's orders separately and parent entity separately? Any thoughts on this would be helpful.

Basically, what Vimal was trying to explain that Illichmann is our European entity, having European cost center. And certain parts cannot be delivered from India, keeping sometimes when you start in the EV, they are low volumes or there are special requirements. So Illichmann plays that role of easing some business out and acquiring this new parts into its portfolio, which is the playbook. But basically, for us, that is the second point is, it's our technology center to bring all these new 2 segments, EV and the structural agnostic parts or technology-agnostic parts, knowledge, their capability to us in India. So that is the role Illichmann plays. And it is not that there is some part which is shifted from there. It's been -- we offer those parts only from India, that is why the customer comes to us.

Okay. I was just making sure I understood that correctly.

The next question is from the line of Aveek Mitra from Aveksat Financial Advisory.

I got a question. I think I need your view on the long-term [ plan ] of the company. So the first question is basically on -- you have presently 70% domestic revenue. And I think mostly it is coming from your legacy business. And as we have already said that the legacy business part, mainly the 2-wheeler part will have some kind of a headwind ahead. So how would you plan to execute your long-term projection of reaching INR 2,000 crore revenue by the next 3, 4 years? So if you can give you a view, I think I'll appreciate that more [indiscernible].

Thank you. This, we will divide into 2 parts. Over the last 3 years, we have been reducing our 2-wheeler share of business. So it's not that suddenly we have -- it's more than a 3-year strategy, which -- or 4 years, where we've been using this, our share. Secondly, what we are doing is, we are going for higher machining, so whereas there is a more value add, which we are providing. And of course, 2-wheeler is by volume. It does not mean it is by the value addition also. So just to give you a context on the whole thing. And now I'll let Rajiv answer you on your numbers.

Yes. Over here, as Mr. Sikand had explained, we are focusing on increasing the share of business. Also, we are trying to penetrate to the existing accounts, where we were not there. Like earlier, we were supplying cylinder. Now we added a pipe or we added a headlamp, where we were not there, which will increase my content per vehicle. And also, we are now focusing to add new logos, where we are not there. So with this mix, definitely, we are going to increase our sales in this particular segment.

Okay. And -- but your EBITDA margin actually is almost the same or plus/minus [ 15 ] percentage points over quite some time now if I look into the trend. So if you can give a comment on what is your road map on this specifically going ahead?

So first is that when you see the EBITDA margins. So there is a structural change in the business that is explained by Mr. Sikand and Rajiv Gupta that are reducing the -- our exposure in the 2-wheeler market, but moving towards the other segments, either CV or passenger vehicles, where we are having the complete machine parts, so increasing our value addition. So they are -- we can see the improvement in the EBITDA margins. But that, as I explained, there is a major impact has come in due to the cost inflation in the last 2 quarters. Otherwise, if you take that impact and remove, so definitely, we are on the improvement side. But now we have taken the 2 ways to counter this. One is that to deal with the customers, going to the customers and asking for the absorb this cost and participate in this. And second is we have taken a lot of actions in-house to reduce our cost. So how to improve improvement in our operations, like the operational costs we have to reduce, then where we have seen the cost increase in the logistics, so negotiating with the customers and output from the people. So every area we are focusing, so from both sections, from customer as well as from in-house. So that will help us to improve further in our margins in the coming years.

So I don't hold you on this, but I just wanted to understand that what is the wish list of EBITDA margin when you reach INR 2,000 crores of...

That is really what we say that the forward-looking statements you are asking me to give.

No, I'm not holding you to that. I'm just asking for your wish list actually. What you wish to achieve?

Definitely, maybe 2% to 3% at least, we are seeing that improvement, further increase, minimum.

Okay. Good to hear that. And my last question, if I may allowed. I think you...

One more dynamic which has happened, where you are all seeing, '18, '19 was -- the first half was where the industry was doing phenomenally well and then started the ILFS issue and the decline, whereas fundamentally, structurally the things were same. So this itself this was changing period. And I think not only us, all the -- everybody has faced this challenge and is evolving from here. From this '18, '19, the base of -- the first half was the base, where we were growing also at 30%. So this is a very something structural, in which we have worked at, and it is not something which has happened. It has started from there. And where we have come today and thereafter subsequently, we got hit by this last -- I thought last year, Corona was very tough year, having worked in this industry for more than 30 years directly. But I think this year has been even more enjoyable, let's put it this way, for everybody. All the things coming at the same time, including the EV overhang in the mind of the consumer plus the fuel prices, plus the other things, which is affecting the purchasing power. So it also gives you insight that what the team can perform under these challenging circumstances.

Yes, absolutely. I think I really appreciate your effort of maintaining at least the bottom line and top line in spite of the perfect storm, which has been faced by the industry for the last 2 years. My last question actually is on, again, a view actually I'm looking for, that you are writing as a key point in your presentation that not reliant to a single customer, and we have got many customers with small far customer kind of revenue of INR 10, INR 15 crores, INR 20 crores, if I understood correctly. So as you know, over a period of time, the EV market will also get consolidated, and there will be 5, 6 or 10 players, who will be in the market. Like any other industry, like in Internet, we have seen thousands of companies, but ultimately, it has wound down to few. So how are you placed to really scale up with somebody, when suppose that guy is actually stabilized and becomes a leader, throwing out others? Like ARRIVAL you said that, that is a start-up, right, [indiscernible] don't know whether what will happen to this company to 3 years down the line?

Yeah, let me give you -- a lot of EV companies where we are giving, we also know maybe there is a 30% to 40% down, but some more will come. So this should not be forgotten by everybody because today somebody saying I want to be the supplier in the bus. So ARRIVAL is coming with that kind of -- and they have a -- they're certain -- it's run by a Russian billionaire and he was a minister, and he sits in a lot of oil assets. And there -- this is a foray into this. So there will be companies down, up. We have to secure ourselves. So this is one point. And we have a policy, wherein what we want from our each customer, the turnover must not go beyond a point. So we have our own norm, and these norms we review very clearly each quarter. And we are -- in fact, when we started way back, 5 years back, we were on hire. And each year, we keep on bringing this norm down per customer, so that our risk is -- we are derisked to an extent. And of course, as we will go globally, which is also what we want to do, our global business, so that is also another way of derisking ourselves, besides 4-wheeler and the other industry, which we have said.

But for somebody scales up really fast, will you be able to scale up with them? That is my question.

To scale up and down is part of the industry. See, it is not -- this is a value chain. And the chain is -- the weaker will break link. So if he has to scale up, there is also testing cost, there is also testing time because homologation times, whether it is India or anywhere in the world. So in automotive, it does not mean scale-up means it's certainly changing. Even if there is very, very fast, we -- the fastest we saw the scale-up was in '18, '19 in the first half, where everybody went to the peak number. So those kind of things you are able to manage.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our team or CDR India. Thank you once again for taking the time to join us on this call, and we look forward to interact in next quarter. Thank you very much.

Thank you. On behalf of Alicon Castalloy Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.