Amber Enterprises India Limited (AMBER) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Q1 FY '21 Earnings Conference Call of Amber Enterprises India Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jasbir Singh, Chairman and CEO of Amber Enterprises India Limited. Thank you, and over to you, sir.

Hello, and good morning, everyone. First and foremost, I hope you all are keeping safe and healthy. On the call, I am joined by Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, Chief Financial Officer; and Strategic Growth Advisors, our investor relation advisers. We have uploaded our results presentation on the exchanges, and I hope everybody had an opportunity to go through the same. Now let me first take -- talk about the impact of COVID on our business and the current situation. Due to all India lockdown restrictions and halt in economic activities across the country, during the peak summer season, we witnessed a sharp drop in sale of air conditioners in Q1 FY '21. We were, however, positively surprised about the uptick in demand for air conditioners for the months of May and June. As the lockdown restrictions were eased, we've witnessed a surge in the demand for air conditioners, especially for Tier 2 and Tier 3 cities. We also saw an uptick in online purchases of air conditioners despite lockdowns. This gives us the confidence that air conditioners are no longer a luxury product and has become a necessity now, and room air conditioners market is at an inflection point and bound to grow here onwards. In May 2020, we partially resumed our operations, which gradually increased in June 2020 across all our plants in India after taking requisite government permissions. The pent-up demand led to release of inventories from the channels, and we witnessed new manufacturing orders from OEMs. In the month on June '20, we operated at 50% to 60% of capacity. The demand scenario has been improving on month-on-month basis and is encouraging, but since monsoon has arrived across the country, we have entered the off season for air conditioners. We anticipate that demand scenario should reach normalcy by around quarter 3 FY '21. Let me talk about the recent development and opportunities going forward. It has been estimated that about 30% of finished good -- room air conditioners has been imported in India in FY '19. Value-wise, it should be approximately about INR 4,200 crores to somewhere about INR 4,500 crores. And an equivalent amount of components of room air conditioners, including compressors, are being imported, and this is expected to grow to 2.5 to 3x by FY '25. To reduce India's import dependency and make India a global manufacturing hub, government has selected 12 champion sectors to make them the global manufacturing hub and AC industry being one of them. As per various news and media articles, various policy reforms are under discussion to curb the imports under Atmanirbhar Bharat initiative, like implement of PMP, which is phased manufacturing plan, for room air conditioner and its components, under which import duties will be hiked in phased manner over the period of 5 years; to bring air conditioners under licensing system; and to also introduce a production-linked incentive scheme for air conditioners. As a matter of fact, we envisage that this has become a priority for the government and active moment is happening. We expect some announcements on above initiatives soon. We believe this opportunity will further strengthen our presence in the domestic market and create a solid foothold for exports market. China Plus One strategy is [ unfolding good opportunities ]. We have already started getting inquiries, RFQs from big global players for room air conditioners as well as components. We are confident toward achieving the most out of this opportunity on the domestic as well as on the export front. Having said about the opportunities, I would also like to highlight on our capabilities to cater the same. In addition to our wide range of room air conditioners with multiple SKUs across all star rating and tonnage, including inverter ACs, we have successfully launched our wide range of offerings in commercial air conditioner segment also. We are continuously investing in R&D for new product developments and better energy-efficient products. We are also expanding our product portfolio in commercial air conditioning space to leverage and increase our wallet share in existing customers as well as acquire new customers. I will now take you through the consolidated financials. Please note that, due to the pandemic situation, this quarter is not comparable with the corresponding quarter of last year, as there was complete shutdown of operations for almost half of the quarter, which was also the peak season for air conditioning industry. On revenue side, our consolidated revenue for Q1 FY '21 stood at INR 259 crores, as against INR 1,236 crores in Q1 FY '20, a drop of 79%. For the quarter, RAC contributed 61% of total revenues, while components and mobile applications contributed 39% of the revenues. On EBITDA, on Q1 FY '21, we witnessed an operating EBITDA loss of INR 3 crores, as against operating EBITDA profit of INR 116 crores in Q1 FY '20. The drop in revenues led to the operating leverage playing out. We have resorted to various cost rationalization programs to curtail our fixed and semi-variable expenses, of which some of the benefits will be retained on long-term basis. Now coming to subsidiaries financials. On Sidwal, our mobility applications, our railway and metro business segment has been able to withstand challenges from COVID-19. We have been able to acquire new orders and strengthen our order book despite weak economic scenario. During lockdown period, Sidwal has bagged new orders worth more than INR 115 crores to be executed over next 1 to 2 years time. Due to early resumption of activities in May 2020 and order-based business, there was marginal dip in revenues for Q1 FY '21 on Y-o-Y basis. Q1 FY '21 revenues for Sidwal stood at INR 30 crores, and EBITDA stood at INR 4.9 crores with an EBITDA margin of 17%. We have utilized this time to enhance our capabilities in R&D. We have strengthened our commercial and bus and truck refrigeration solutions along with continuous development for metros and railways as well. With strong order book in hand and no major delays and results in order execution due to COVID-19, we maintain a positive outlook for Sidwal in FY '21 as well. We believe that, over long-term period, with increasing footprints of metro in various cities and increased manufacturing of air conditioning coaches, we are confident of achieving good growth in Sidwal. PICL, our motor subsidiary. Revenue for PICL stood at INR 8 crores for Q1 FY '21. And for Q1 FY '21, the PICL business saw an operating EBITDA loss of INR 1.8 crores. In PICL, we have been working on new product development for various applications and markets. PICL has successfully widened its product offering from current PFC motors to BLDC motors. PICL is also in discussion with various customers to launch motors for washing machines and higher-voltage motors for [ commercial leasing ] segments. It has also been approached with RFQs from various large global manufacturers based out of U.S. and Middle East. With increasing product offerings and enhancement in our capabilities, we believe we will be able to cater domestic and export market in more meaningful ways in near future and expect to double our revenues in next 2 years time. IL JIN and Ever. For Q1 FY '21, revenue for IL JIN stood at INR 16.7 crores, and in Ever revenue stood at INR 16.8 crores. Both the businesses experienced operating EBITDA loss for the quarter of INR 1.7 crores and INR 1.2 crores, respectively. As the market is moving rapidly towards inverter air conditioners, we are confident of growing our revenue share from IL JIN and Ever going forward. We have been adding customers in both IL JIN and Ever. And now post completion of reliability of our own-developed inverter PCB board, we expect to add around INR 250 crores to INR 300 crores more business in IL JIN and Ever in next 1 to 2 years time. Consolidated PAT. Due to significant drop in revenues because of COVID-19 pandemic and de-operating leverage playout, we witnessed net loss for the quarter-end June '20 to the tune of INR 24 crores, as compared to net profit of INR 64 crore in the same period last year. Our net debt on consolidated basis for 30 June 2020 stood at 407 crores. We have been collectively working with our customers and vendors to navigate these challenging times, and we believe we will emerge with stronger relationships for long-term mutual benefits. To conclude, I would like to reiterate that our constant endeavor will be to increase penetration and increase our wallet share in the existing customers, continuously add new customers, create a foothold in the exports market and enhance our products with new technologies that are focusing on R&D. With this, I open the floor for discussion.

[Operator Instructions] The first question is from the line of Bhoomika Nair from IDFC Securities.

Yes. So I have 2 questions. One is on the near-term numbers, if you can talk about how July has kind of panned out in terms of what percentage decline, though I do understand it's off season. And what will be the inventory level in the system both of the brand and the dealers put together? So that's question #1.

Bhoomika, on the July level we have witnessed almost similar to June kind of a scenario where we saw about 65% to 70% of order book as compared to last year month-on-month basis if we compare. On the inventory side, when lockdown was announced, and of course, there were no research reports on this but through industry resources, the number -- or somewhere about 2.2 million to 2.3 million air conditioners were in the inventory with dealers as well as the warehouses of the brands. So mid of May was when the lockdown started opening up in green zones, and that's when the sales started happening. So almost about 5.5 lakhs, close to 5.5 lakhs air conditioners were sold in May; and almost similar number was sold in June. And July was a little bit less than June because of off season, but I believe that almost close to 15 lakh air conditioners have been moved out of inventory in these 2.5 months time. I believe that, looking into the uptick in demand and working-from-home scenarios where you need more air conditioners, demand has come almost to a normal level. I believe if -- by September or October, we will be seeing that the inventory level have also been -- or has come to a normal level.

Okay, okay. Sir, my second question is more on the long term which you spoke about, import duties and various government initiatives to drive higher indigenization. Here I just wanted to understand for us what is the capacity that we have that we can take advantage of; or incremental capacity requirements, if any, that we'll make. And two is on the components side. Ex the compressor, if you can talk what is our import substitution opportunities from PICL, IL JIN, Ever or any other. And how competitive are we to kind of capture that market?

So basically, Bhoomika, on exports front, we have already started exporting and our shipments have started moving to U.S. and Middle East markets. So we are pretty competitive on components side. There are some models on which we still need to work on, which we are working on by bringing in some innovation there. On room air conditioner side, for U.S. markets, they don't require similar kind of split air conditioners or window air conditioners, what we use here. So we are developing new kind of models for them right now. And we have received some prototype orders from U.S. and we expect to launch them by December or January, and next year will be our reliability cycle. But China Plus One strategy is quite playing well. And I believe, on competitiveness, we will be able to meet the customers' expectations because we have had our initial round of discussions. Then the RFQs comes to you. Otherwise, they don't even [ float ] RFQs if you are way beyond the competency levels. And on the capacity side. We calculate capacities on the peak months' capacities basis. We don't do it on yearly basis. If I see from a yearly perspective, we have capacities of almost about 4.8 million units or maybe 5 million units. And exports, if it comes, we will not need larger capacity buildup because generally the exports starts from May; and it ends up in September, October. So it's very complementing for us. Any export orders, we will not have to add any capacities. However, if all the policy reforms are announced, there we would need some addition of capacities on assembly lines and some on components side.

Sir, we would have done last year the 3 million, so of the 5 million broad capacity, we've utilized 3 million so far. Would that understanding be correct, sir?

Yes. So -- but the 5 million is a yearly capacity. So when I say that if the orders are coming from exports, then we don't need any further capacity buildup, but if there is a ramp-up on the domestic side, like all the 30% air conditioners which were imported gets basically diverted to local manufacturing, then certainly we will have to build up small capacities in the assembly lines and in components backwards integrated space.

And what kind of CapEx will that require?

It all depends on what kind of opportunities we get. So we generally are like there is a possibility because we are seeing a new customer cluster coming up in South. So that is [ pretty much on card ], so there will be a greenfield facility which we will have to put up. So there will be a CapEx of about 150-odd crores to start with, which will be spread in 2 financial years, to begin with. And in case we have to ramp up on the components side and on the backward-integrated side, almost similar kind of CapEx will be required, but that is subject to the policy reforms announcements. Otherwise, if those are not announced, then we will not need that much of a CapEx.

The next question is from the line of Nitin Arora from Axis Mutual Fund.

Sir, just on a longer-term thing which you talked about, the PLI scheme. Can you elaborate a little bit? Where does that PLI scheme comes in [ with the categories ] when compressors are any which ways getting made -- or rather getting imported and made in the sense that whatever the new capacities by the MNCs have been putting up? Is it more to do with IDU and ODU where the PLI will come in? And if that comes in, in IDU or ODU, what makes -- or rather what is the entry barrier a brand cannot apply for that scheme, if it has to be for the domestic market? So just wanted to understand from you there.

See, production-linked incentive schemes, Nitin, will be -- it is being discussed on the similar template what has been announced for mobiles. And if you see mobiles, they have kept a "low investment" criteria for domestic companies. And they have a very high criteria, almost 5x more, for the multinational brands. So the similar kind of template is being discussed both for air conditioners and its components. Now the structure has still to come out. It has not been disclosed as yet, so I will not be able to comment on that particularly, but this is pertaining to complete air conditioners, not only for IDUs or ODUs. It will be all type of air conditioners will be covered -- room air conditioners will be covered in the segment. And PLI addresses basically 2 fundamental things. One is it gives parity for exports where you get some production-linked incentive and you become more competitive in exports, and that is one part. And secondly, it also comes with the objective of creating a -- global Indian champions out of India. So that's the reason why domestic companies have a lower barrier for investments and threshold for other bigger brands are more.

Sorry. Just to take it further: Mobile, we understand because it was already getting manufactured in India. I mean about 75%, 80%, I mean, just took that money away from an MNC and gave them to the domestic side. In AC category as such, where does that [ aim ] benefits you? So for example, my question was more towards, even if that time comes in -- and I understand completely those units are very much low as of now because of the last 2, 3 years. You can correct me if I'm wrong. And my own, I mean any vendor's own, supply chain is very much dependent on overseas, I think, including yours. So where does that benefit comes to you? Because then the overall [ PCB ], I mean the completely built units, are down. And if a brand applies for that -- for a particular PLI scheme and it is for the domestic market, a brand can go and apply and then start making and get that benefit in because we already run a plant. And yes, we just incur -- and if you're saying it's the magnitude [ for the benefits ] will be smaller, it will be high ROC for him straightaway. So just wanted your thoughts on that. That's my last question.

Well, if you see, on room air conditioners also only 30% are getting imported. The rest 70%, air conditioners, are manufactured here. So it's similar to what mobile phones was witnessing. On the brands, of course, in mobiles also you will see that all big brands have also applied and domestic companies have applied. And the government is picking and choosing 5 in each categories right now. So similar kind of things will come up, but it's very initial stages right now to comment on what kind of a structure we will come up with, but if production-linked incentive schemes, for example, similar to mobiles are announced, which is about 5% to 6% of incentives in initial 2 years, then it gradually goes down. So that makes the component ecosystem more competitive in India. And the whole component ecosystem, one, it will be -- whatever investments you do, you can recover it sooner because of the incentives. So it will make more viability of those components getting manufactured here. And as Amber, we are very rightly placed company to take advantage of that scheme whenever it is announced.

The next question is from the line of Renu Baid from IIFL.

Sir, my first question is to understand a bit on the non-AC side of the business, which is largely looking at Sidwal and IL JIN, Ever. So your -- on Sidwal we did mention that there is a reasonable large order backlog that you have built up, but can you also share the interest in terms of as in we were working on significantly improving the margin profile of the business and reducing working capital? So how should one look at financially this business turning around and contributing higher numbers in the next 12, 15 months on the strong backlog that we have reported?

Renu, on Sidwal, basically when we took over in last year of -- May, we -- Sidwal had almost 17%, 18% EBITDA levels, and we -- because of our initiatives, we took it to 24%. And the net working capital days were reduced from 180 to almost 83. So there has been significant improvement in productivities, inventory turns and asset turns and other R&D initiatives which we took. So the normal -- the order book which we are gaining now is in-line to our initiatives, and we will be maintaining similar kind of margins. Or maybe we get some more margins also as the defense is also opening up. So Sidwal also plays a role in defense applications. Their margins are very, very strong.

Okay. And on the components side growth with respect to Ever, IL JIN and the motor portfolio. [ As for motor ], you have mentioned that we are in advanced stages for exports as well as expanding portfolio on the BLDC and automation portfolio, but in your sense, the size of the business is fairly small today given that imports for a lot of the other white goods will look for domestic sourcing. So what is the kind of opportunity you think would be available for PICL? And is there a possibility that it can leverage out and increase its product offerings in other categories, especially washing machine, meaningfully in the next 24 months? Otherwise, the opportunity will be long, as it takes longer time to scale up.

[ Not really ]. We mentioned that -- during my earnings call that, PICL, we are expecting to double our revenues, as compared to last year, within next 2 financial years mainly because of domestic traction because of China Plus One strategy. And also because of the export orders, we are now ramping up the export [ ordering next ]. So yes, the margin profile will get better because the utilization of the assets will be better and assets will ship more. So there will be definitely a positive uptick on the margin side also. So we expect at least 150-odd bps increase in margins going forward in PICL...

But can you share potential clients who could be added here or customers or applications which can be added here in the next 12, 18 months? Where do you think you are ahead in terms of the reliability cycle?

We are working on 3 parameters -- sectors there. One is in the room air conditioner sector. We were not present in BLDC sector. So we have now launched our product portfolio. Second, we are getting into washing machine motors. So our washing machine motors is ready and it is under reliability. We have already received one order from a Japanese client. Second -- third is the commercial air conditioners and duct-able bigger-tonnages air conditioners motors. So that has already been launched and orders have started coming in. So all these 3 sectors have come in, and plus we are developing unique motors for U.S. markets. So the shipments have started going on.

[Operator Instructions] The next question is from the line of [ Nitin Baskin from Andup Capital ].

Mr. Singh, as you know -- one question is about the capital raise and possibly allocation. We have heard, we saw the resolution where you're looking to raise capital. Can you tell us what prompts that thinking? And if done, what sort of a range are you looking at in terms of size? And will it be done for something like acquisitions? Because in the last few years, you've done about 3, 4 acquisitions. And how should one look at it in terms of what capabilities are you acquiring these? So that will be the first one. I'll come for the second one later.

Yes. So we have taken an enabling provision for 1 year looking into the various policy reforms which are under discussion right now. So we would like to definitely leverage all the opportunities coming forward for the company. And looking into COVID situation, we want to pay a very big balance between our growth, ROCEs and debt. So we have taken an enabling provision up to INR 500 crore raise. Now it will all depend on if the policy reforms are all -- are announced and we have to immediately ramp up or maybe bring up new units. So we will be going ahead with that. Right now, we will not be able to comment on what -- exactly how much will be fundraised, but the enabling provision has been done for up to INR 500 crores.

Okay. So -- and it's not for inorganic. It's largely for organic expansion opportunities that you may pursue. It is not for inorganic. Can that one [indiscernible]?

At the moment, yes, but it will be a mix of things because of the COVID situation. There are some opportunities on the inorganic side as well which we are discussing. So it will be a mix of both.

[Operator Instructions] The next question is from the line of Bharat Shah from ASK Investment Managers Limited.

Mr. Singh, how do you get rid of China in the compressor ecosystem?

Serving -- compressor ecosystem has -- actually has started building up in India as well. So there is a company named Highly which has a plant in Ahmedabad; and another company, which is GMCC. So Highly has about 2.4 million capacities at the moment in country, and they are ramping up their capacities by another 1 million by next 1 year or so. And GMCC, which is the largest compressor manufacturer of the world, they have -- they are putting up a factory here. Because of COVID, it got delayed. Otherwise, it would have started by now. So we are expecting their factory to start by end of this year. And they are starting the capacities of 1.5 million, but the capacity -- the plant layout has been made in such a manner where they have done a provision for 6 million capacities. And there is one large Japanese client also looking to put up a facility for compressors by next year, so I think, in next 2 years time, we see that compressors will all be starting getting manufactured from India.

Yes, but this capacities, first of all, have only a minor section of the total need. And even that [indiscernible] the offering. So to that extent, that's not something which is in the realm of [ HVAC ].

No. If you see, today, 30% of ACs are imported. So out of 70%, almost 2 million compressors are getting sold within India -- getting manufactured from India. And with these new capacities which both compressor manufacturers are ramping up, next year, the -- almost 50% of the industry will be catered within India. And as -- the third manufacturer is putting up facilities, so by next 2 years, I think almost 80% to 90% of industry will start receiving compressors manufactured in India.

And what about components ecosystem?

Component ecosystem like inverter PCB boards and motors, it is getting developed. So we already have 3 motor manufacturers in the country, naming PICL, which is one of our subsidiaries. And we have Japanese company called Nidec. And Regal Beloit, which is a U.S. company, they have presence in India. And all 3 companies are ramping up their capacities to meet the demand, as the PMPs will be announced. So there will be a lot of traction for going. Today, almost 32% motors are getting sourced locally, and remaining are coming imported. So that is what government is targeting to actually curb these imports over a period of 2 to 3 years time, but as far as capacities technology, everything is available here. And on the inverter PCB boards, almost about 35% of PCB boards are getting manufactured already locally. And now recently, we have developed our own PCB board along with a joint development program done by Infineon, which is one of the chip manufacturer companies based out of Germany. So that has been very successful. And now we are seeing that a lot of people are shifting their orders from China and Thailand to India, with us. So I think, in next 2 to 3 years time, PCB inverter boards also will start getting manufactured in India. And the only component then would -- left to do is copper and aluminum foil. So industry has jointly done a big actually meeting with Hindalco, and we are planning -- they are planning to put up facilities for aluminum foil also. So I think, in the next 3 years time, as far as the air conditioner sector is concerned, we should be in a reasonable self-reliant mode for the component ecosystem also.

The next question is from the line of [ Ankur F from HPFC Live Consultants ].

So my question, sir, first, on the stand-alone numbers, if you could share the volumes sold during the quarter on -- AC volumes. And also, we once again see a pretty sharp decline on the gross margins on standalone, which is down to about 11.8% versus 15% last year. So is this again because of the mix where you have higher IDUs in the quarter? Is that the reason why? And can we expect this to continue over the next couple of quarters?

So in last year, we had done about close to 1 million or so in [ IDUs ]. And this year, we could hardly do just 200,000 numbers. And we were -- actually weren't expecting any order before July or August, the way lockdowns were getting announced, but we were positively surprised by the orders when it started coming from end of May onwards to us. So this has been a, I think -- or it took us positive -- we were positively surprised by the orders which flew in, but yes, the margins basically was because largely it was only indoors which were sold, not the complete units which were sold, in this quarter. And that's the reason why margin is down, yes. [indiscernible]?

Yes. I will pitch in. I would like to pitch in here. So the major impact for -- definitely in the gross margin is import expenses, like detention charges, which were being paid by the companies, due to lockdown, to the shipping agencies. And since the [ revenue is hardly INR 200 crore ], so that expenses contributed a lot, around 1.5% to 2%, for [ difference in ] margins. Because that is not being loaded on the inventory valuation because these are the nonoperating expenses.

Okay, okay. And sir, as you mentioned earlier, going into July, you're talking about 65% to 70% utilization versus last year. So how do you see this trajectory? When you said by Q3, you're saying it will kind of normalize. So should it be that we'll see about a 25%, 30% fall maybe in Q2 and then maybe a flattish Q3 and then some growth in Q4? Is that the trajectory of recovery on quarterly sales basis if I have to kind of look at the next 3 quarters?

Well, it all depends how our clients are performing. Some of the brands have done extremely well. And it all depends on mix of -- because we have mix of clients, both multinational companies and domestic brands. So it will depend based on that, but yes, quarter 2 looks like almost in a range of 60% to 65% as of now as we speak. But we see normalcy coming in quarter 3 onwards.

Okay. And lastly, sir, if you could talk about the gross debt number which is there. I think we spoke about the net debt which was there on the books with about INR 400-odd crores. What will be the gross debt here? And where do you see this number by the year-end? That's the last question.

Sudhir, would you like to answer, please?

Yes, [ sir ]. So the gross debt is around [ INR 550 crore ]. So we have around [ INR 150 crore ] of cash that is in our books. And expected net debt as on 31st March is still -- we have to still wait for some more time. Right now, the data is happening on the order book size since customers are still planning and sharing it with us, like how they are planning for the coming season. So probably we'll be able to share the expected number of net debt by September quarter.

The next question is from the line of Amber Singhania from Asian Markets Securities.

Just 2 questions from my side. First is on the export side, if you can give some color about what kind of size you are looking for in this year and next year in terms of export revenue and margins in this aspect. And secondly, when we are talking about developing the ecosystem for AC and components manufacturing in India, how do you see the competitive landscape panning out? Because as of now, Amber is the only -- or virtually only company which are manufacturing their ACs in India [indiscernible].

On the component ecosystem exports opportunities on motors, we have started. As I told you, that the reliability cycle is over and some of the customers have -- we have -- so we have just started shipping to just 3 customers right now in U.S. and Middle East, but we have 16 more clients where we have applied for participating in RFQs and bidding which we -- they do, and they are large customers. So we are expecting a very substantial -- for our motor business at least, we are expecting at least 30% to 35% of contribution from exports going forward incoming here, which used to be just 10% last year. So that is on that. On the competitive landscape, I think we are now getting competitive as we are gaining scale momentum. That is where our competitiveness is getting proved because we are participating in RFQs. So we know where other countries are bidding. And we have started getting orders, which is a testimony that we are competitive in that scape, but yes, on some of the models on especially finished goods in "one ton and below" category, we are not competitive at the moment. We have still to work on that and we are working on that, whereas on the bigger tonnages models we have -- we are now almost as par the -- with the customers' expectations.

Still, as an overall company, where do you see exports panning out in next 2, 3 years in terms of size other than the...

Well, the -- on exports, on a short-term basis, it will be moving slowly because in the large revenue mix it will be contributing a very small amount, but mid- to long-term basis, we expect a large contribution from exports coming onwards. There's a cycle of, first, the products has to go through reliability because, all of our components in which we are present like heat exchangers, inverter PCB boards, motors and all, the final product's performance is depending on the functionality of these components. So no customer will give us approval without conducting proper reliability assessments. And reliability assessments are -- generally range from -- somewhere from 9 months to 18 months, depending on what kind of customers they are. And that is the first leg of entry barrier. So we have crossed this entry barrier in -- with some customers. With many of them, we are still crossing that milestone. That is first barrier. After this, no customer gives us 100% share of business on day 1. They'll gradually grow. That's the reason of a strong moat in our business. It takes about 4 to 5 years to build up being a standard supplier to any large customer or multinational companies. So that's why I'm telling you that on short term it will be slow but on a mid- to long-term basis will definitely -- it will contribute significantly in our revenues.

And margin, sir?

Margin is at par with the domestic what we are doing today. So in some models it is less, as I told you, but it still makes sense for us because it is a complementary business in the off season. Because July, August, September is our leading period where -- if that orders come, even at a lesser margin, it makes sense for us. But otherwise, on the most of the models, we have seen that it is at par. And in some of the models, especially in motors, we are seeing that it's better margins also as compared to domestic market.

[Operator Instructions] The next question is from the line of Jignesh Kamani from GMO. [Operator Instructions] And there is no response from the current participant. I have muted the lines. The next question is from the line of Bharat Shah from ASK Investment Managers.

Mr. Singh, continuing with the dealer discussion. What in your opinion are the weak spots in developing compressor and component ecosystem, which even over a 3- to 4-year period we may not be able to possibly breach? So what may continue to remain weak points even after 3 to 4 years?

Well, sir, for compressors, if you see, the basic raw material of compressor that is electrical steel, there are routers which goes into that and there are motor shafts which goes into that. So generally, at the moment, the capacities which -- built up are being built up here. They are -- the basic raw material is import dependent. So I think, if -- the government has to do something for the component ecosystem for compressors. If that is addressed, then 100% you will see that it is getting manufactured here. So in first phase, the manufacturing is in SKU forms. So basically they will be assembling the larger part of it, but the basic raw material will come from -- is being imported. So that can term as a weak spot if the basic raw materials are not taken care of with the proper duty structure. It should not -- right now, there is an inverted duty structure which happens which is actually holding a large part of compressor manufacturing. So that has to be rectified. I think that can become a very weak spot moving forward in case that is not addressed.

And on components side?

Components side, it's only R&D. I think everybody has to focus on their own strengths of bringing in -- of doing your R&D and developing the complete ecosystem, not only assembling. So that will be otherwise -- on component ecosystem, like in motors case, if I see -- we don't import anything today for motors. Even the copper wires which are used, that is Indian-manufactured copper wires. So there is complete self reliance in motor space, whereas -- and in inverter PCB boards, there are pretty -- many components of electronic populated which goes on the populated PCB boards, like heat sinks and capacitors and other things, which still are imported, but it is -- it can be imported other than China also. So it will depend on how that shift is happening. So moving forward, I think electronic basic component ecosystem also has to get developed here. If we'll see, today, in mobile case also all the PCBs are getting manufactured here, but the components which are populated on those PCBs are all imports. So moving forward for 3 to 4 years time, as you asked, that can become a weak spot in case those component ecosystems are not developed here.

Sir, basically trading in imports is a kind of a lazy addiction to opium. It doesn't allow you to become strong because you don't develop a full knowledge of the entire chain and you just become -- over a period of time, you lose your capability once you stop doing something yourself and just rely on imports in a very lazy way. Of course, there will be areas of competence where others may have a far better strength and it may be better to rely upon them, but over a period of time, a lot of manufacturing has hollowed out simply because of the lazy addiction rather than really [ it hit ]. So...

Definitely you're right. In fact, what I say is that, during all these years from last 20 years, our industry has moved from -- there's 5 lakh air conditioners to almost 70 lakh air conditioners market, but the component ecosystem has not developed, as you rightly pointed out. The -- it's a propensity towards getting attracted towards a better price which makes us complacent for our own development activities. So in a way, we have exported our capabilities of product development throughout the world. So that's something which we need to reinvent again. And as Amber, we have -- we are willing to do. We have even shown our willingness, and we have done that successfully in motors. When we took over a motor company, this was 90% to 80% [indiscernible] was getting imported, but today, if I see, we don't import even a single piece from -- for motors from that. So we are completely manufacturing it in house, and it is possible. So it all depends on the willingness. I think, if willingness is there, intent is there, certainly it is a journey, a travel, and it can be traveled.

The next question is from the line of [ Abitek Imbalu from JSP Investments ].

I believe you have answered the PLI question in depth, and a lot of questions were asked on that as well. I have seen that all the details are covered on that. My second question is on your order book and where does it stand at. And what is the movement in the order book? And any new plans that you added?

Well, order book is getting strengthened on a month-on-month basis. From May, there was hardly any orders. Then June, orders started flowing in as the inventory started getting liquidated in the systems. And July, also we saw almost similar kind of a thing. And so it's still we are seeing that there are -- there is a mixed feeling. Some of the brands are doing extremely well. Some of brands are not doing well. So it depends. On the -- like we are also present into non-AC components side. So we saw a great demand coming in for other products which were non-AC segment like refrigerator, washing machines and microwave ovens, which we were doing -- we were preparing components. So order book is getting ramped up right now at the moment. As far as the Sidwal subsidiary is concerned, there that -- there we have a strong order book. We've already bagged INR 115 crore worth of orders in the pandemic, new tenders we have won. And our order book stands to almost about INR 555 crores right now as -- which was earlier in the range of INR 400 crores. So that is we have a strong order book there.

The next question is from the line of [ Nikil Chipala from Crispa Mutual Fund ].

Sir, my first question is with respect to the net capital requirement. So considering the net realized gains similar to mobile manufacturing happens for [indiscernible]. And then according to your assessment, I mean, what kind of capital you required [ for additional length amount of time ] to see this long-term opportunity available here?

Well, capital requirements will depend on what kind of opportunities we come across. If it'd be -- there is a license system on air conditioners and it will be in tune of room air conditioners which are getting imported right now. If let's say PMP is announced, then it will invite for opportunities in component ecosystems. So in component ecosystem and all put together, it will completely depend on when it is getting announced and that's how -- but I think on a normal point basis right now, we are looking towards, as I explained, that one greenfield facility which will come up, where we will be doing a CapEx of almost INR 150-odd crores to come up with. And plus, we have this maintenance CapEx of all [ 15 plants ].

And what is the maintenance CapEx per annum?

That's about INR 30 crores, INR 28 crores to INR 30 crores.

Okay. And sir, effect then in the component ecosystem will be similar to our company's level system. Or it will be slightly different from there.

That actually varies because we have got a pretty diversified company. In electronics, asset turns can go as high as 10 to 11. In motor space, we can do 8 or 9, but in heat exchangers the maximum asset turn one can achieve is only 5. So it all depends on what kind of opportunity you get to.

Okay. And what is the ROCE level you look for while putting the [indiscernible]?

So we have a policy of any CapEx which goes through a committee. We have a 6-member committee which decides on CapEx approvals, and the committee is driven through some policies and principles. And the basic policy there is that, if we don't get ROCE of 20%, we don't go ahead with that project. So you will see that we have also guided in the past, I will again reiterate, that our maintainable ROCEs on a long-term basis are in tune of 23% to 24%. We have already touched 18.5% last year. This year, of course, has to be discounted, but from next year onwards, you will see a positive traction on ROCE. So that is where the long-term maintainable ROCEs are going to be here.

The next question is from the line of Jignesh Kamani from GMO.

If I look at the mobile PLI scheme, it will be applicable on the incremental CapEx, on the incremental revenue. So we do already have a large part of CapEx on significant revenue play. It will be detrimental to us because for the existing client who are buying, you can say, component or IDU or ODU from us, under its PLI, similar to mobile, it is announced and preferred to buy from competitors. We get benefits under PLI. Or do in-house and [indiscernible]? Because on the current capacity we won't be able to report such kind of incentive-based play.

Well, I mean, in our sector, what is under discussion right now. Well, I mean, I'll not be able to comment on the structure and the kind of threshold because that is purely government's decision what kind of structure they will come up with, but the -- apart from incremental CapEx and incremental revenue, there is incremental value addition metrics also which is being discussed. So the companies which have a larger valuation will benefit from them.

But whatever investment we have done in past and whatever revenue we had any -- will we go on with any benefit under PLI, right? While other players who will start first investment, either we or competitors, will get the benefits. Can you say [indiscernible]?

It all depends on what kind of structure they come up with. In case it is a similar template to what they have come up with the mobile case, then the incremental revenue and incremental -- see, basic objective of production-linked incentive is to -- there are 3 objectives of it. One is to cater to exports. Second is to create global Indian champions by making them more competitive. How they will make more competitiveness? By coming out with a scale. So once the economies of scale come up, you reach to a certain level where you can be globally competitive, and definitely you'll win in Indian markets also. So that kind of objective will be achieved by the companies applying for PLI. It could be brands. It could be any company like us. And we believe that -- because we are most backward integrated and we are having larger valuation part in our range and also looking into the component ecosystem and the export opportunities coming forward. So we will benefit by incremental CapEx as well as the incremental sales turnover, but it depends on what kind of they become because they've not come up exactly similar in medical, electronics and pharmaceuticals. So in pharmaceutical, also PLI has been announced because it was a very different structure. So it will all depend on what kind of structure government comes up with.

And my second question was on the compressor. Do you think India has a scale to develop the compression ecosystem? Because if you think about Highly, they are in India since 7 year, and still they are loss making again even after the inverter duty sector get reversals last year. And they mentioned in one of their interactions that they are -- they've postponed their expansion plan because it's not viable.

Well, you're right. They came 7 years back. And the only reason they have been doing loss was because of the price parity, which was everybody was getting cheaper compressors from outside. And they did not ramp up. So once -- they already have 2.4 million capacities. And once their capacities will be built up, they are willing to -- we had a discussion with their senior-most members, and they are willing to invest further for ramping up their facilities by 1 more million in case these PMPs are announced. So it all depends because they have -- if you see, they were highly, well, very loss making when the duty structure was only 7.5%. By 10%, they got some breather. And 12.5% made them come out of the red, so now another 2.5% or 3% will definitely give them a leverage to see positivity on the bottom line also. And it will make them competitive.

The next question is from the line of Shrinidhi Karlekar from HSBC.

Sir, it's like -- it appears like company has some amazing opportunities both on AC side, components side, commercial refrigeration, mobility. I'm just wondering, sir. I just want to hear your thoughts on how company is investing on capability building both on the management side and R&D side, manufacturing side to exploit these opportunities.

So we are working on all the fronts. We are working on like training and development. We are working on a large R&D base and we have a big system there where we train fresh engineers also. And we continuously grow our R&D. Today, we have almost 102 engineers working with us in R&D; and we are developing more models, more energy-efficient models. And wherever required, we are taking help of outside design houses also. Like in some cases in electronics we have tied up with a Korean design house with -- in inverter PCB board. We have the chip manufacturing company out of Germany helping us in the joint development programs. So those are the developmental capabilities which are ramping up. On the manufacturing side, we have a very strong -- already strong management and strong system there on the -- we are also financing our ERP systems further for having the proper inventories and other systems on the yield items and idle time systems because we have a -- very unique SLE programs in -- going in our company in all the plants, where we call it loss-elimination drives. So those are all put in the system now, and there is a dashboard which -- so we are strengthening those kind of systems where everything is done hands on. So on management side, manufacturing, footprint and R&D, the company is working on all the 3 parameters. Basically we remain committed to our 4 pillars growth strategies towards continuous customer expansion, continuous product expansion, increasing wallet share within the existing customers and geography expansion. So all the 4 parameters are taken care of, correct.

And just one more, sir, regarding the and given the opportunities coming and there is this visibility of Ind AS providing that the domestic market will be protected from like imports. In that environment, do you see competition at the margin will increase in both EMS companies as well [ as some brand foreseeable ]? How do you think [indiscernible] competition perspective?

The competition landscape will not change because already 70% air conditioners are manufactured here. So it's only 30% which is not getting manufactured here. I think it will depend on which all -- brands. So there are many brands which are likely outsourcing who do not have their manufacturing facilities there or who are only trading. So those are the companies which will shift here. And basically, for a company like us, we will be benefited substantially from that kind of reforms whenever they're announced. I don't think so -- any competitive landscape will change all of that.

[ Even on the said earlier, PCB container ], we are hearing like some of the [indiscernible] plants in [indiscernible]...

So obviously Chinese and the Japanese have already been putting for many years. Like in motors we have a Japanese competitor called Nidec. They are one of the largest motor manufacturer of the world. We have Regal Beloit, which is fairly large-sized company based out of U.S. And in air conditioners also, we have seen some Korean component manufacturers already having -- and already there is a company named -- a Japanese customer -- competitor in PCB is already existing. So it all depends on how well ecosystem you are placed and, as I explained to you, the reliability cycles and then the increase of share of business. So these are some of the products which customers generally don't change once it is approved. So -- but yes, we are geared up to -- for any kind of competitive landscape, in case. We have been innovating ourselves. And I believe that I -- in case some competition comes, we term them as worthy rivals because we learn from what -- the rivals and then you tweak your strategy accordingly. But right now, as far I see, I don't see any big change coming in from that receptive.

Thank you. Due to time constraints, I would now like to hand the conference over to Mr. Jasbir Singh for closing comments.

Thank you, everybody. With the growth opportunities we foresee on the domestic and export front, along with government support, we believe we are well positioned to capitalize on those opportunities. Thank you, everyone, for joining us. I hope we have been able to answer all your queries. And in case you further require any further details, you may please contact us on -- or our investor relations adviser, Strategic Growth Advisors. Thank you very much.

Thank you. On behalf of Amber Enterprises India Limited, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.