Endurance Technologies Limited (ENDURANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Endurance Technologies Q1 FY '21 Results Conference Call hosted by Axis Capital. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Nishit Jalan from Axis Capital. Thank you, and over to you, sir.

Thank you, Vikram. Good morning, everyone. Welcome to Q1 FY '21 Results Conference Call of Endurance Technologies. From the management team we have with us Mr. Anurang Jain, Managing Director; Mr. Ramesh Gehaney, Director and COO; Mr. Massimo Venuti, Director and CEO of Endurance Overseas; Mr. Satrajit Ray, Director and Group CFO; and Mr. Raj Mundra, Treasurer and Head of Investor Relations. I will now hand over the call to Mr. Jain for his opening remarks, post which we can have Q&A. Over to you, Mr. Jain.

Thanks a lot. Good morning, everybody. I'm Anurang Jain, Managing Director of Endurance. I would like to share details of how Endurance has done in the first quarter of the financial year 2020/21. In India, in the first quarter of 2021 as per the CM data, the 2-wheeler industry sales degrew by 72% compared to the previous financial year. Scooters degrew by 78% and motorcycles degrew by 70%. The automotive industry in India had a de-growth of 73.5%. In India, due to the COVID-19 crisis, 2-wheelers' first quarter sales volume was 1.63 million, 2-wheelers, which included the June 2020, 2-wheeler sales volume of 1.2 million numbers. June '20, 2-wheeler volumes were 38% lower than the previous year's June '19 volume. The 2-wheeler companies did especially well in June were Bajaj Auto and Hero MotoCorp. The sale recovery is now being driven by demand for entry-level bikes in rural and semi-urban India due to a good winter crop and on hopes of a bumper summer crop due to a good monsoon. Also going forward, preference for personal vehicle ownership amid the COVID-19 outbreak should boost 2-wheeler sales. But at the same time, we have -- we need to keep in mind the issues of intermittent lockdowns, which could happen. And challenge of getting 100% of scale manpower who were available in the pre-COVID period. We are happy to inform you that the sales in the second quarter of this financial year are looking good. In July, in India, our net sales value reached 75% of the normal pre-COVID net sales value. This month, in August 2020, our net sales value should be back to the pre-COVID net sales value. In Europe, there was a decline of 52.5% in the first quarter in the European Union, including U.K. automotive sales. Our European sales had a de-growth of 57% in euro value terms, partly also due to the fall in aluminum and oil prices. The July '20 actual sales and the short-term forecast purported to show signals of a rebound in passenger car sales in Europe. This is also helped by the intensive -- incentives, mostly for the EV passenger cars, apart from ICE vehicles also, but by almost all the EU countries, we are very positive on our casting supply for EV applications, especially for the Porsche Taycan car, with sales is rapidly growing. On the financials, I will briefly talk to you about the first quarter of 2021. During quarter 1, as compared to previous year same quarter, our consolidated total net income do -- degrew by 68% from INR 19,160 million to INR 6,140 million. Consolidated EBITDA degrew by 84.6% from INR 3,481.5 million to INR 535.8 million. Consolidated EBITDA margin percentage is at 8.7%. The net loss was INR 249.2 million at minus 4.1%. This quarter, while consolidated financial includes the Maharashtra state mega project incentive of INR 100 million. During quarter 1, our stand-alone total income, degrew by 73.6% from INR 13,645 million to INR 3,603 million. This is against the de-growth in 2-wheeler industry sales of 72% in quarter 1. Stand-alone EBITDA degrew by 97.3% from INR 2,488 million to INR 67 million with an EBITDA margin percentage of 1.9%. Stand-alone net loss was at INR 318.5 million at minus 8.8%. This quarter 1 stand-alone financial includes the Maharashtra state mega project incentive of INR 100 million. We wanted to especially mention that stand-alone net sales in quarter 1 were INR 3,603 million was at 26.4% of previous year’s quarter 1 sales of INR 13,645 million. In spite of this, our cost focus on lowering fixed costs, variable costs, material costs and CapEx has helped us to contain the net loss in this quarter. Our company had a consolidated net debt to equity of 0.03 is to 1 as on June 30, 2020. The India stand-alone had no net debt as there was a cash available of INR 275 million. On 29 May, 2020, CRISIL has reaffirmed our credit rating of long term as AA with positive outlook and short term has given us the highest rating of A1 plus. The detailed financials are available with the stock exchanges and on the Endurance website. I would also like to share certain key points for the first quarter of 2020/'21 59% of our consolidated total income, including other income, came from Indian operations and balance 41% came from our European operations. This was the reason because India had -- I mean, Europe had a lower de-growth than the Indian operations. In India, INR 828 million of new brake assembly business was 1 with TVS and Yamaha this business will start from the year 2021, 2022. I would like to mention that we have INR 15,438 million worth of request for ports in India from various OEMs. For our new customer TVS, we have been awarded INR 1,220 million of 2- and 3-wheeler brakes business and INR 320 million of 2 and 3-wheeler suspension business. Further, INR 540 million of brakes business and INR 276 million of suspension business is being discussed. AS combined braking systems, which are normally used for up to 125cc motorcycle is growing with addition of our new TVS and HMSI combined braking business, which both will start in this year. And also in order to derisk operations from a single plant at Aurangabad for brake assemblies, we are setting up a capacity of 600,000 per annum CBS brakes at our Pantnagar plant, which is in Uttarakhand state, which will start operations by April 2021. I would also like to mention that Endurance is focusing on a more value-add and profitable product mix in its future business, which includes 200 CC plus motorcycle brakes and clutch assemblies with help of our acquisition of Adler in Grimeca in Italy in the last 5 months. Paper-based clutch assemblies replacing COG-based clutch assemblies for motorcycles, continues variable transmissions or automatic clutches for scooters, antilock brake systems, or ABS, for 150cc plus motorcycles. In front forks and adjustable rear mono shock absorbers for both domestic and export OEMs, this is with the help of our collaboration partner, KTM components. And getting into fully finished machine castings as compared to semi-finished castings for 2-wheelers, 3-wheelers and 4-wheeler applications. For our European operations, I had mentioned in the last call that in the last 2 years, EUR 110 million of business has been won for electric and hybrid cars, which has started in this year and will reach peak volumes in 2023. Therefore, 45% of our last year's total Europe business value had already been won by us. Out of this EUR 110 million value, EUR 30 million value of business won is for electric cars, for Audi and Porsche. And EUR 80 million of business one is for hybrid cars, for Volkswagen, Daimler, BMW, PT Chrysler and Maserati. Also, for the EUR 45 billion business is being discussed with Volkswagen for the electric and hybrid cars, and we hope to win at least 15% of this business. In Europe, a focused cost containment program has been started, which includes lowering our labor costs, tight control on general expenses like travel, and we are also consolidating our foundry activities from 2 plants to 1 plant in Italy, which will lead to a saving of EUR 600,000 per annum. This consolidation will be completed by September 2020, which is next month. As mentioned earlier, our overseas company, Endurance Overseas Srl has acquired 99% stake of the 2-wheeler clutch company Adler Spa and 100% stake of the 2-wheeler brake company Grimeca. Both these acquisitions include all know-how, patens, brands and trademarks and has helped our Indian operations in getting new business for 200 CC plus motorcycle clutch assemblies and brakes, which will start in the year 2021, 2022. I would like to especially point out that Endurance is actively involved in technology-oriented and new product, organic and inorganic growth. I would also like to mention that Endurance is entering backward integrate -- 2 backward-integration product areas, which are import substitutes also. First is aluminum forging axle clamps required for a growing business of inverted front forks. Endurance has entered into a technical collaboration with FGM in Italy, and production will start at our Aurangabad plant from April 2021. There has been a slight postponement to this. The second product is wire braid hoses, which are required for ABS brakes, we will start operations of these hoses in quarter 3 of this financial year. Both these projects will help us in our future profit growth. It will be a win-win situation as our prices will be lower compared to the imports, and our profits will be higher. Our aftermarket business in India was almost 4.7% of our net sales in the first quarter of 2020/'21. The aftermarket sales, degrew from INR 592 million to INR 169 million in the first quarter of 2020/'21. The aftermarket sales are recovering fast, both in India and the overseas markets, and we hope to reach the average monthly 2019/'20 sales value by quarter 4 of this financial year. I also wanted to update you regarding our new Vallam plant near Chennai for supplying machine aluminum castings to Hyundai, Kia and Royal Enfield, we'll start operations from this October. We will be starting supplying the BI3 or the upgrade venue and the QXI, or the Sonic platforms, aluminum castings for Hyundai and the QY platform aluminum castings for Kia. We're also happy to inform you that we have further received INR 1,100 million of requests for ports for machine aluminum castings for Hyundai's plants in India, Korea and Russia. We are also targeting to supply our ABS brake systems in quarter 4 of this financial year. As part of our CSR work, during this COVID-19 pandemic crisis, Endurance has provided 4,300 food kits to people in rural areas of Aurangabad. And we have also taken over and are running our 80-plus bed COVID Center at Waluj, Aurangabad for asymptomatic patients. With these opening remarks, I would like to invite questions from all of you. Thank you.

[Operator Instructions] We have our first question from the line of [ Varun Bakshi ] from Equirus.

Sir, my first question -- hello?

Yes, yes, I can hear you.

Yes. Sir, my first question is regarding this new brake business that we have won from TVS and Yamaha. Sir, is this business going to this import subscription? I mean, where this brakes assemblies earlier bought from China by TVS and Yamaha and that we have been able to won?

Actually, this business talk started more than, I would say, a year ago. At that time, we had no idea regarding this issue of China tensions. So I think this was more of a derisking maybe. It's possible that TVS has done that. But not Yamaha, I think. So maybe they were thinking of it at that time. But this, I think, is a business where they want to get in a new Indian vendor who has the strength of technology, quality and cost.

Okay. Sir, and regarding this import subscription, so last time, we had said that we have -- in talks with one of the bigger OEMs for brakes business. Are we also looking at any other OEM apart from the earlier one mentioned? And what is the -- what are the other areas that we are looking from the point of import substitution subscription?

See, no, see, as far as the brakes business is concerned, the -- I mean, the new customers, TVS, we've already started for their Apache front brakes. And so that was a new customer I spoke about last time, and that's a huge business we have got for 2- and 3-wheelers from them. So as of now, we have started supplying brakes to TVS, but we're supplying to Royal Enfield. We are supplying to Bajaj. We're starting from Honda from next month. And we have won the scooter business for CBS Brakes from Yamaha, which I said will start next -- by end of next year. So we are only going step-by-step and covering all the OEMs. Because I think one of our growth areas is focused growth areas in supplying all our core product segments to all the OEMs, which we have not achieved yet. So that is something is also a growth driver, look for us.

Okay. Also, sir, coming to the European business. Sir, my question is regarding our competitors on at large like, we have been doing substantially higher margins than our competitors in European business. Despite having much smaller size as compared to, say, Nemak or George Fisher for that matter. So just wanted to understand, like, what has led to such a superior margin performance as compared to other? Is it purely because of the product mix or any other particular reason for that?

See, I think it's the product mix and cost focus, but I will require -- will request Mr. Massimo Venuti to answer this question. So Massimo, please go ahead.

Yes. So in the first quarter 2020, 2021, as you know, we have had a reduction in terms of turnover of 56.9%. But we have been able to reduce our total expenses from EUR 57.9 million of the previous financial year to EUR 24.8 million this financial year with a reduction of 57.2%. And so it means that we have been able to balance the reduction of the turnover with the reduction of cost. For sure, there is also an effect of mix product. Because as you can see in the first quarter, the first OEM became Volkswagen Group, where we have a higher profitability due to the fact that 100% of the production is completely machine. And so we don't deliver raw part with a different added value. The positive aspect is that we increased also the cash profit of the first quarter 2020, 2021 from 14.6% of the previous year to 18.1%. Basically with the reduction of cost, for sure, also with support from the government due to the fact that starting from the last week of March, we shut down -- we closed our plant. And in the European market in Germany and also in Italy, we receive supporting the labor cost from the government for more or less 30% of the total cost in Italy, only for a period of time of 12 weeks, in Germany for the period of 1 year. And so basically, the target was to -- the focus was to reduce cost and general expenses, for sure, also cost of material and employee costs. And we had a possibility compared to our competitor, from my point of view, to close immediately when the problem started at the end of March 2020, we closed 120 flexible contract that we had with the people. This is one of the main reasons why we have had the possibility to maintain a good level of cost in our profit and loss. We had this flexibility, this was the strategy of the company and we have had a possibility to reduce these 120 people. Our competitors are not in the same condition. This is my opinion.

We have next question from the line of Aditya Jhawar from Investec Capital Services. We have next question from the line of Vimal Gohil from Union AMC.

Sir. If you could just maybe highlight in terms of your Indian operations, how have your key customers done in terms of growth? Maybe if you can highlight Bajaj, Royal Enfield.

About how each of those customers had played in the first quarter or how we have played better with them?

Yes, yes, that's what -- how you have played with them.

So if I see quarter 1 to quarter 1, we have been 68% down with Bajaj Auto, with Honda, almost 88% because they practically didn't run only in the first quarter. It started in a very small way from June. Royal Enfield was about 78%. Hero MotoCorp also 78%, Yamaha about 84%. So these were the main ones. So they were really -- in fact, I would say, Bajaj outdid the best because they started, I would say, end of April, some operations for exports because they had huge backlog of export orders. So there was a lot of pressure during lockdown for them to start supplying for the export requirement to Aurangabad plant and the Pune plant. So we were least affected, I think, by Bajaj Auto, and that's what helped us, if you asked me in the first quarter.

Right. I'm so sorry, I joined the call a bit late. But when I joined, you were talking about some -- the deal wins with TVS. If you can just highlight that for me again, that would be great.

Okay. So you're talking about the business we have won with TVS? Yes.

Yes.

Yes. We have won about INR 1,220 million of 2- and 3-wheeler brakes business. The Apache TVS brakes we just started in this month. And we have won INR 320 million of 2- and 3-wheeler suspension business, which is a shock absorber front forks. And further, INR 540 million of brakes business and INR 276 million of suspension business is -- I mean, we are talking to them to try and get this business also, too. So that is the status of TVS.

Fair enough, sir. And sir, you do expect to get in line with your normal profitability levels as and when your sales normalizes post August, right? Or maybe in August?

I would say, in August. And I said August and August is going to COVID levels from this month. We're already at the run rate, right now.

That's great to hear. Just one last question. How much would be the CapEx for Europe and India this year?

See, Europe is going to be very less at EUR 2.5 million, which I'll request later Massimo to explain, I don't think more than EUR 2.5 million. But in India, the CapEx would be, I'd say, last time, INR 1,500 million, it may go to INR 2,000 million because of the new opportunities on the new plant at Pantnagar, I cannot lose the opportunity. And Hyundai and Kia preponed some of the models. So the Vallam plant, I need to do some investments. And the alloy wheel orders have gone up. So this has slightly pushed up the investments, but outer limit would be INR 2,000 million because I cannot lose on growth opportunities. I said INR 1,500 million last time, I remember.

Sir, this alloy wheel business, alloy wheel wins have been a result of import substitution or market share?

Yes. Yes. Yes, absolutely.

So yes, is it an import substitution thing or a market share? It will be largely import?

I believe it's an import substitution.

We have next question from the line of Aditya Jhawar from Investec Capital Services.

Am I audible?

Yes, I can hear you.

So you mentioned that, we were back to at about 75% level. Now if you split that into -- there are -- there could be some bottlenecks in ramping up production and there could be some slowdown in demand from the customer. So if you have to take a call back in July versus August, how will the supply seems to have evolved, keeping aside the demand side, what would you say?

See, I would say that even in July, we were affected because, as you know, there was a 9-day locked down in Aurangabad. And we had to keep 600 people in our 7 to 8 plants in Aurangabad inside after doing the antigen testing. It was a challenge because in the lockdown, they didn't allow the industry to run, it was crazy. I mean, the local authorities have a lot of power, as you know, nowadays, and they shut down the industry. So they allowed only if you could have people inside. So we had to house people inside neighbor's arrangements. And I feel if the 9-day lockdown would not have been there, this sales would have been higher, is what I feel. Because the demand was picking up, and there was a lot of backlog I know of even the export orders of the Bajaj. So the pressure was tremendous. What we have gone is like in 4 months, gone to 0 and coming back to 100%. So you can imagine where your migrant labor has mostly gone back. Now we are about 70% back now. We have arranged special buses to get them from outside states of Bihar, and UP and Madhya Pradesh because they were harder than the local people. I mean, the challenges have been huge. I mean, the pressures are huge. You can't even imagine. So it's been a very tough period, a learning period, but we love to have challenges. So it's good that we are back to normal now. The good news is that's a good problem to have. But to answer your question, the 8 to 9-day -- this 9-day lockdown did affect our sales in July.

Yes. But Anurang, that was a period in July. But in August, are you still facing challenges in meeting to customer requirements?

Well, I would say we are meeting them. It is a challenge. Because, I mean, the recovery's, I think, more than a v-shaped, and the challenges are there. Challenges are mainly due to skilled labor, which has gone back. Like I said, 70% has come back. Challenge is training the new people, which you have done started from May, training them, their output is not the same. And so these challenges are there. And we are under everyday pressure. I mean, people are even calling me directly. So the pressure is tremendous, but I don't mind this pressure. I like to have this pressure because I want to go back to normal paths I want to try and make up for the 3 months. So I'm very happy with this pressure. But the pressure is there.

The backlog -- order backlog is still there. And by when do you see that you will be able to meet the customer requirement as -- in a similar way as compared to pre-COVID level? The time gap?

I think it will happen in the second half of August. We will make up. It's not that we will not make up. We will make up customers. Also, they put all the pressures, but they also appreciate the situation. Because they also want to go back to normal, so I can understand their pressure. They've also suffered in the first quarter. So I think we'll be back to normal in the second half of this month. And if we -- and that won't be a problem. I mean, we are -- the issue is we are not able to have enough inventory in the warehouses. We have -- we have said we want to have 10 days inventory in our warehouses. We want to read that situation. So that we don't have the tensions in the lockdowns happen. Then you have enough inventory, so you won't go on under pressure, putting people inside your factories and all that. So our focus is -- so I think meeting the requirement is not an issue. I think it's more of an issue of the warehouse stocks, not being enough.

We have next question from the line of Priya Ranjan from Antique Limited.

Yes. Just 2 things. One is on -- I mean, the -- what kind of annualized run rate we can expect from, say, TVS going forward? First on that. And secondly, on Hero, what kind of incentive we have bought, I mean, in terms of employee costs et cetera, in the first quarter.

No, we did not get any incentive from Hero and about the TVS run rate, I would -- that you are to ask them. I only know that in the month of July, the sales were down as compared to 57% in motorcycles. But I would say, in 2-wheelers, they were 57% down. They were only down 8% in July. So they are definitely doing much better TVS. And I have no doubt that they will come back pretty fast. So -- but this is a question for them, it's not for me. As far as I'm concerned, I am ready for all the business. They, I mean, give me and we got no employment cost any incentives from Hero, 0.

I mean because the government was supporting, right? I mean so some wage costs, et cetera, they were reimbursing in Germany and…

No, no. You're talking about Germany? Or you're talking about India? I was talking about India to you. Because you mentioned Hero to me, right?

Right, right, Europe.

So you're talking about Hero in India or talking talk about Germany?

No, no, I was talking about Europe, overall Europe.

No, not, Hero. Okay. I heard. Sorry. For Europe, I would request Mr. Massimo Venuti to answer this. Massimo, please go ahead.

Yes. First of all, we didn't receive incentive from -- direct incentive from the government. The only possibility that we have in Europe is to start the short-time work. What does it mean? You have a possibility to reduce the number of people, the people say it on and the government pay part of the salary of the people from 30% to 60%. As I told you before, in Italy, only for 8 weeks, and in Germany for 1 year. But one of the major reason of the reduction of our labor cost is due to the fact that we closed with termination 116 temporary contract agreement that we had in our company because the strategy was to maintain flexibility. This is the difference because usually, when you have a flexible contract, they pay more compared to the fixed contract. And so a lot of companies prefer to -- in order to save money, to have 100% of the fixed contract. The strategy of Endurance in the last 10 years was to maintain more or less 15%, 20% of the total workforce flexible. Because when there is a reduction as in 2008, 2009, the only way is to have a possibility to stop immediately the contract. Why? Because when you receive this support from the government with the short-time working, the company can't fire people that you can't reduce your workforce. You can reduce the workforce only if you have the flexible contract, and this was our situation.

Okay. And secondly, on India business, I mean, what kind of, I may say, will it be fair to assume that probably second quarter growth of component guides will be much higher because right now, I mean, every OEMs is trying to hold as much as in terms of parts inventory because what has happened in the last couple of months?

Yes. So there is a possibility up to the festive season of Diwali and maybe even higher than last year. But I don't want to say anything. I can tell you about August because I've got the orders, and we are going to do the pre-COVID level sales for sure. But yes, it looks got up to the festive season of Diwali.

[Operator Instructions] We have next question from the line of Ronak Sarda from Systematix Group.

Congrats on the great performance. Anurang, first question, I mean, you answered the utilization levels have inched up pretty quickly in July and August, almost 80%, 90% now on an average. How has the cost behave now? I mean, given the sharp recovery, are we seeing the benefits of cost rationalization plan?

For sure.

Now at RM level and at admin level?

Yes. So I would say definitely, fixed costs -- see, we cannot reach the fixed cost level of the quarter 1 because that even included some salary cuts. 5% to 25% is what we had done for our people, quarter 1, and they really supported, as I must say. So you -- so -- and we are back to normal from July now on the salaries. So the question is, I cannot do those things. But yes, I can say that from the pre-COVID level, at least in the fixed cost, 10% less, we will maintain, 10%, yes, for sure. Material cost, whatever advantage we have got, we will sustain it because it was definitely lower than quarter 1 of last year. So these 2 I can be for sure. And of course, we are targeting variable cost percentage to sales. That's another target. We want to try and do lower than last year, but that is something we have to focus much more to, I mean, get that done. And CapEx, anyway, we have lowered which I told you, from a normal INR 3,000 million to about INR 2,000.

Great. And about that, once the product mix improves for the naturally should only help, right?

Yes, of course, of course. So whatever I said about the product mix will definitely help us. And that's been our focus in the last 10 years, we've been improving the product mix.

And sir, if I heard you correctly, you said the Maharashtra government incentive during the quarter was INR 10 crores?

Yes. So with INR 100 million, yes. So that is INR 10 crores.

And last question on the European side. I mean, this is despite lower utilization, there is some -- the gross margin has been the best in the last 5 years, at least. So what has driven that? Is it purely the aluminum cost, which has come down, which has improved the numbers? Or is it more a product mix-driven?

So I request Massimo Venuti to answer this.

So the -- both sides, for sure, product mix improved due to the fact that we have had an important increase of volume with Volkswagen, even if the situation was very bad. And as you know, with Volkswagen, we produced 100% of the company completing machine with different added value, neuro part in the period and also an important activity of cost reduction as I told you before, 120 people, termination contract, records to the short time working and also cost reduction by utilization of pay order disapproval. We have done in-sourcing, outsourcing activity for a small part. And the major effort will arrive from a point of view, starting from September, October, when after the shutdown of the plant in Grugliasco and we are shifting the production to Chivasso, will be effective from September and with a total annual saving of EUR 600,000. For this reason, I think that we can maintain the same level of cost fixed of the first quarter, also in the second quarter.

Right. Right. And Massimo, my follow-up question on the we are closing down a foundry business and merging it to one. What kind of fixed costs do we incur in Europe to do that? Is this substantial?

Yes. It's very simple. We are closing a plant with more or less 48 people, okay, of which 25 people are in direct position. And certainly, it's only 23 are direct people, okay? And so in this way, we can save more or less 23 people in our plant in Chivasso. And before I told you that we closed 120 contract for work, direct work. But we have, in this moment, the possibility to reduce other 30 people in employee maintenance, production, logistics and so on. So for this reason, we decided immediately to shut down Grugliasco because this is the only way to have a possibility to recover these amount in labor cost. For sure, we will reduce the production capacity because we will move only for machine compared to 8 machines installed in Grugliasco, but as you can imagine, in this moment, there is a level of saturation in the European market that is pressing. So we are sure that we can buy from the market, for sure, with the best price than past, okay?

We have next question from the line of Arvind Sharma from Citi.

Thank you for sharing all the data on the new order win, sir. Just on a blended basis, the new orders that you've got in first quarter. For how long, I mean, what is the annual revenue that they suffice for? And until when can we have these incremental revenues?

No. So I will tell you this INR 828 million, which I mentioned of the business won for the brakes of TVS and Yamaha. This is the annual sales value with the raw material prices of, I would say, quarter 4 of last year, okay? That's the way the value was done. So it's the annual value which is there. And here, the business will start to -- this will start from March '21 for TVS and October '21 for Yamaha. That is the SOP dates given to us.

All right. Sir, one more question on the European operations. Sorry, if I would have missed it. Is it possible to just share with us the revenue and EBITDA in euro terms this quarter and the corresponding quarter last year?

Yes, I'm sure we can. Over to Massimo.

Yes. Total turnover first quarter EUR 30.4 million compared to EUR 70.6 million, a reduction of 56.9%, a reduction of EUR 40.2 million. EBITDA, EUR 5.6 million, 18.5% compared to $12.7 million, 18% of the previous year, a reduction of EUR 7.1 million, 55.8 million -- 55.8%. Net result was EUR 0.8 million positive, 2.7% of sales compared to EUR 4.7 million, 6.6% of the previous financial year.

We have next question from the line of Aditya Makharia from HDFC.

Congrats on a positive commentary. I just wanted to know in our machine aluminum facility, what is the portion of machine castings versus nonmachine?

See, are you talking about the overall figure, I will not have it off hand. But for example, Honda and Kia, new business, largely machined. Bajaj Auto, we are going towards, I would say, 50% would be fully machined by this year and 50% by next year, going to full machining. And Tata Motors is fully machined business.

GETRAG is fully machined.

GETRAG, which were exporting, are also fully machined. I don't know the percentage. I can always tell that figure to you later. I don't know overall casting percentage of machining versus nonmachine. I wouldn't know that right now.

Yes. But would be very comfortably over 50% the way you're talking?

Yes, yes, of course. Yes. Definitely.

Right. And also, who are our main competitors in the aluminum machine space?

Aluminum, I would say, die casting and machining because you have to have both the capabilities. I would say Sundaram-Clayton, Jaya Hind Industries, these 2 are for sure. Rico Auto in a certain way for sure. Sunbeam is there. These folks come to my mind immediately, Caparo used to be there, they closed down. Amtek used to be there, they closed down. So these, I would say, would be the competition, was already.

Okay. Great. And just last similar competitors on the braking side. So I know you mentioned that there's a Brembo and Continental, but I believe there's Bosch and Continental.

No, no. I would like to clarify in brakes, there are 2 competition. One is a Japanese company called Nissin, applies to mainly Japanese companies, and there is Brembo. It was only on the ABS, which is an electronic and hydraulic control unit, and that technology is not there with Brembo. That has got Bosch and Continental. So our competition there, whenever we start, we are targeting quarter 4 of this financial year, with God's grace, everything goes well on the testing. There, it is Bosch and Continental.

We have next question from the line of Jatin Nayak from ICICI Prudential Mutual Funds.

Congrats on decent set of numbers.

Thank you.

Just one broad question. In the auto components industry, we've seen the component players who are reasonably strong with the OEMs on the wallet share point of view, they remain fairly stable. Now you were pretty strong with Bajaj, but in the past 2 years, you gained share with Hero, you've gained share with TVS and even Honda. Now on the call, you mentioned that there are new order wins from TVS as well. So how do you think about scale up on the wallet share point of view from these OEMs, where you were not too strong on the wallet share point of view? How long can this journey be? And how challenging is this scale up? When there are already strong competition and the strong partnership from the competition side.

I think that's a very good question you've asked. See, one thing which is very important is your technology. Technology in terms of product and process, which we have to keep upgrading, keep improving. How you can give more value add? I mean, I'll be honest, as far as Adler acquisition is concerned, they have come out with some really good 200 CC plus bikes plus technology. Which is better and maybe cheaper than the competition. It's better in performance and cheaper than competition, what we believe. And that's why already 3 OEMs have given us the orders, already. We start from next year. Now the question is, we have continuously -- we've got 4 R&D centers for each of our products. Apart from advanced engineering sales, now we have approving ground also for first-time type products. You have to continuously drive the performance, durability and cost. These are 3 things which people look at: performance, life and cost. If you keep doing this, and you will always have an edge on your competition. Now the entry point is what is your technology and your price. And then the quality will dictate whether your business will increase or not, or will go down. So we have, I think, the focus areas are technology upgradations, giving better prices, not only by way of compromising on your cost.

I'm sorry to interrupt. We seemed to have lost the line of management. Please stay connected, we'll be connecting the management. [Technical Difficulty]

Yes. So what I was saying is that, ultimately, continuous upgradation of your technology in products, giving value-engineered products could be lower weight, could be number of components unless in our shock absorbers or brakes, alternatives, some materials you can give. So question is you're continuously reengineer your products to give value for money. So one is on the cost front and the other is on the performance and life. And that's why the test track in Aurangabad 29-acre test track, where we jointly work with customers to test our products on the vehicle itself. Test which, of course, are very important. They have their own importance. But when you test on the vehicle, has its own importance. So I think the edge has been to get entry is your technology and price. And then the quality, I think, dictates the share of business. Because quality is normally the highest vendor rating, when it comes to the monthly vendor ratings.

Sure. Sure. No, that's helpful. And then secondly, if I look 2 years down the line, presumably, things normalize and pick up quite sharply. There will be a lot of free cash generation, even if you include the increased INR 50 crores CapEx, which you announced. Any comments on any asset allocation strategies, which you have in mind, you'd earlier indicated some interest in the tire industry? But any comments?

No, no, tire drop because of all of you because my price at the lower certain breakup by 20%. That's not good for you or for me. So because of all of you that had to cancel that project. But -- coming on the lighter side, on a serious note, let me just tell you, we are actively looking at some organic and inorganic opportunities in a new product area. So whenever the time comes, I said last time also, I will tell you because we are evaluating it. And that's a big focus area for us, for sure.

Sir, how is the environment right now on the M&A side? Has it become really more attractive? What we hear from some of your -- some of the other component players is that in the overseas market, because the government support has been so strong, in fact, that has pushed their M&A time lines by a bit.

See. I see the opportunity, there are plenty of opportunities are coming. The question is, what is suitable for us based on our strategy going forward? Because we like projects, which are technology oriented, also okay for EV as a good aftermarket, has few players. So we have a lot of requirements when we enter into a new business. So we are evaluating it, like I said in my opening remarks that we are actively looking at new products actively, and I really mean actively.

We have next question from the line of Pramod Amthe from CGS-CIMB.

This is with regard to the alloy wheel business. If you look at the status, one of the reasons OEMs always said the China reason being is the extent of quantity you can source from there. Has -- does it mean that when you are expanding in that business, you need to set up a substantial capacity? One. Second, are these businesses now coming at a discounted price to China? Or do you get the same pricing or at a premium?

No, I'll only say one thing, the pricing is fine. I will not say discounted or higher or whatever the pricing is fine. Pricing will be fine, without pricing, we don't do business. We are very clear on that. But as far as the opportunity, which has come immediately, which I'm investing is in my existing plant in Pune because that is immediately I can increase there. So that have been immediately, but yes, there are a lot of other few OEMs who have approached us, for which we'll have to set up a new plant. So we'll see how that opportunity is because the business is not bad, I would say, it is quite okay. So if the opportunity is there, we will take it. But that won't happen this year, that will only happen next year.

Okay. And would you restrict yourself only to the 2-wheeler alloy wheels or you're open for others?

Yes, yes. No, only for 2-wheeler.

Okay. And the second question is with regard to the aftermarket. You seems to indicate in your remarks that it will take some time to recover to normalcy, if I heard right, fourth quarter.

Yes.

I thought the aftermarket is the faster one to come back to normalcy as compared to the new vehicle sales. Any particular reason why the aftermarket is lower for you taking time?

See, the issue has been that there are a lot of restrictions also in many countries. Of course, now people are out of lockdowns. But what is happening is that the markets really have not fully yet opened up in South America and in Africa. The way it used to be working on the pre-COVID time. India is, of course, opening up very fast. So I think India may be getting back faster. But I think on the export front, though, we are adding 4 countries, further 4 countries in this year, we have already added 2 actually. We have, I think, added, I'll just tell you, just a minute. Because we had -- we were exporting to 28 countries last year. And we have added -- just give me a minute. Just give me a minute. Yes, we have added Qatar and Cambodia in the first quarter, and we plan to add Brazil and Congo. It will become 32 countries. So I think what my aftermarket is saying is, maybe I'm being a bit conservative that the export market is opening up a bit slower, especially in these larger regions of South America and Africa, where a lot of 2-wheelers are sold. So I think that's the reason. The Indian market will come back much faster. And I was talking about the overall sales.

We have next question from the line of Nitin Arora from Axis Mutual Fund.

Sir, can you hear me?

Yes, I can hear you. I can hear you.

Yes. So my first question is, maybe look at your other expenditure in a stand-alone or a domestic business versus a quarterly run rate of INR 200 crores, it's almost INR 70 crores this quarter. How much -- is it like 60%, 70% is variable cost only?

Sorry, I didn't understand the question.

The INR 200 crores run rate of other expenditures in this quarter has come down to INR 70 crores. In variable cost, as a percentage or let's say, as a part of the other expenditure is about 16%? That's why such low. I just want to understand why it is like at a INR 70 crores run rate, which is helping you reaching positive EBITDA.

Okay. I'll request Mr. Ray to answer this. I think he can answer this much better than me.

See, there are 2 things to be sort of understood. I will not give you a percentage here, but I'll give you some perspective for you to figure out your answer. Firstly, in the first 3 months of this year, if you remember that almost 40-odd days we were closed down completely. So therefore, that would have an impact on the cost, overall cost of other expenses. And when we start operations at full, those so-called benefits will disappear. That's number one. But what Mr. Jain said was very important that compared to last year's normalized fixed cost, we've taken some steps, which will help us reduce fixed cost in general by close to 10% or so. So these 2 are very important. And the third thing is that some of these costs, you can't really state jacket them into fixed and variables. Some of them are semi-variable as well. So they tend to pick up a little as and when operations grow. So that's your answer.

My second question is, Anurang, in sense of the new EV policy, which Delhi came out with looks to be very attractive in terms of -- if we include the same 2 benefits. Any thoughts for the thoughts in terms of…

Whatever I saw, in fact, I saw it only last evening because I was in my Board meeting. I think it is talking about mainly lowering the upfront cost by not including the battery cost, which is 40% of normally a EV vehicle. And then the batteries can be bought by the real suppliers of batteries whether it's import or India, and you can swap it. So maybe I think you are saving on, I don't know, some kind of -- though the GST is only 5%, I think, on EV, if I'm not mistaken. But basically, the upfront cost you can save compared to -- so you come to a value of a ICE vehicle then. Because if you compare Ather Energy with Honda Activa scooter, it will come down to the Honda Activa scooter prices what I read somewhere last evening by doing this. But then the swappable battery, how it will work? What was the cost incurred? I have no idea. I mean, that I'm not clear. It's basically bringing down the cost upfront cost to a customer of buying the EV vehicle without a battery.

Okay. And just one clarification. This TVS order, we've been talking about this order, and you've been guiding us from last almost 3, 4 quarters, the conversion has happened in this quarter, right? It's the same order, which we've been looking…

Actually, the suspension for front fork shockers started actually in September '19. That started in September, and it was growing till the other order was won this year was for 2021. We started now, it will keep growing. And the new orders will come, I think, they start -- the other orders of suspension brake would start good in the third quarter because there's testing around to be done.

Got it. So I got clarified because the same brakes [indiscernible]

Third and fourth quarter, you see a big one.

We have the last question from the line of Sonal Gupta from UBS.

Sir, just wanted to understand one, continuing on the EV side. I mean, are there any new components, et cetera, that you're looking at for EVs? I mean, like -- or just any thoughts there.

Well, to answer your question, yes, but I cannot tell you what it is.

Okay. And just in terms of like the -- I mean, like on your brakes, et cetera, I mean, with the value of the brakes or sort of like, I guess, when you shift on EV sort of a vehicle, will that should be very -- that will go down or be different? Or do you think that you're largely not…

I don't think it's going down because we are supplying the CBS for the Bajaj Chetak scooter, and it's different. It's not that the value is down. I mean, it is as profitable as any other CBS brake. So that's no problem. I don't see the value going down compared to a scooter, CBS of ICE engine and a scooter CBS over EV, that's your question.

Yes. Yes.

I don't see that going down.

Okay. And just -- I mean, like you had mentioned that some amount of benefit on the RM cost, but RM cost will be largely a pass-through for you, right? The commodity price…

It is a pass through, but it helps as a percentage to sales. Look your -- I mean, EBITDA margin goes up.

Okay. And just lastly, how much is casting of your India business as a whole?

It is, I think, 37.5%, I think, it's 37.5%, if I'm not mistaken, of the India business.

Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to Mr. Nishit Jalan from Axis Capital for closing comments. Over to you, sir.

Thank you, Vikram. On behalf of Axis Capital, I would like to thank Endurance management and all the participants for joining the call today. Mr. Jain, would you like to have any closing remark? Or we should just conclude the call?

So it's fine. I mean, I said in my opening remarks, whatever I wanted to. So we can close.

Okay. Vikram, we can close the call. Thanks.

Thank you. Thanks. Thank you very much. Thank you for the call.

Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.