Endurance Technologies Limited (ENDURANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Endurance Technologies Q2 FY '22 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that 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, Manisha. Good morning, everyone. Welcome to Q2 FY '22 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, Endurance Overseas; Mr. Satrajit Ray, Director and Group CFO; and Mr. Raj Mundra, Treasurer and Head, Investor Relations. I'll now hand over the call to Mr. Jain for his opening remarks, post which we can have the Q&A session. Over to you, Mr. Jain.

Thanks a lot. Good morning to everybody. I would like to share details of how we have done in the second quarter of the financial year 2021/'22. In India in the second quarter of FY '22 as per the CM data, the 2-wheeler industry sales degrew by 4.5% compared to quarter 2 of the previous financial year. Scooters grew by 2.3% and motorcycles degrew by 6.3%. The automotive industry in India had a degrowth of 1.4%. As you all know, our 2-wheeler business in India is approximately 80% of the total Endurance India stand-alone business. As per the CM report, the 2-wheeler volumes for quarter 2 FY '22 were at 52.2 million numbers as compared to 54.6 million numbers in quarter 2 of FY '21. This 4.5% decrease from quarter 2 FY '21 to quarter 2 FY '22 2-wheeler volumes we feel is mainly due to the shortages of the ABS ECU for the 150cc-plus motorcycles and the lower rural demand leading to lower entry-level 2-wheeler demand. Against this 2-wheeler volume drop of 4.5%, Endurance stand-alone top line sales grew by 16.5%. In our overseas operations in quarter 2 of this financial year, the European and U.K. markets saw a decrease of 23.6% in the volume of passenger cars sold, while our European sales degrew by 19.5% in euro terms. I will now brief you on the financials of the second quarter of FY '22. During quarter 2 of this financial year as compared to previous year's same quarter, our consolidated total net income grew from INR 17,772.9 million to INR 18,957.5 million. Consolidated EBITDA degrew from INR 3,203 million to INR 2,681.9 million. Consolidated EBITDA margin was at 14.1%. The profit after tax degrew from INR 1,671.5 million in quarter 2 FY '21 to INR 1,333 million and was at 7%. This included the income of the Maharashtra Package Scheme of Incentives of INR 302.6 million. There was no consolidated net debt, and the company had a positive cash flow of INR 3,524 million. During quarter 2 of this financial year, our stand-alone total income grew from INR 12,927 million to INR 15,057 million. Stand-alone EBITDA degrew from INR 2,357 million to INR 2,170 million with an EBITDA margin of 14.4%. Stand-alone profit after tax degrew from INR 1,343.9 million in quarter 2 FY '21 to INR 1,223.6 million, and the profit after tax was at 8.1%. This included the income of the Maharashtra Package Scheme of Incentives of INR 302.6 million. The main reason for the drop in EBITDA percentage is due to the RMC percent increase from 59.8% in quarter 2 of FY '21 to 64.8% in quarter 2 of FY '22. This is mainly due to the large aluminum alloy and steel price increases. We would like to mention that Endurance is focused in both its Indian and European operations for profitable growth and in growing higher than the industry growth. The detailed financials are available with the stock exchanges and on the Endurance website. I would also like to now share certain key points for quarter 2 of this financial year. 79.4% of the consolidated total income, including other income, came from our Indian operations and the balance, 20.6%, came from our European operations. In India, till quarter 2 INR 2,364.40 million of new business has been won from OEMs, which included Hyundai, Tata Motors, Case New Holland, Hero MotorCorp, Mahindra & Mahindra and Sanmina. I would like to mention that, in addition, we have INR 19,948 million worth of request for quotes from OEMs, which are being discussed. Our focus is to supply all our core product area products to all our OEMs. I would also like to mention that Endurance is also focusing on a more value-add and profitable product mix in its future business, which includes braking, suspension and casting supplies to 2- and 3-wheeler EV OEMs and the new start-ups. Second is a 200cc-plus motorcycle brakes and clutch assemblies with the help of our acquisition of Adler and Grimeca in Italy in the year 2020. The 200cc-plus motorcycle brakes business has already started from September 2021 and the 250-plus motorcycle clutch business will start by quarter 1 of the next financial year. Other product mix focus areas are the paper-based clutch assemblies replacing the cork-based clutch assemblies for motorcycles; the continuous variable transmissions automatic clutch for scooters; the anti-lock brake systems or the ABS for 150cc-plus motorcycles with our collaboration with Beijing West Industries, which is ex Delphi. We have already started supplies to Bajaj Auto from September 2021 onwards. Next is the 200cc-plus motorcycle inverted front forks and adjustable rear mono shock absorbers. This is with the help of our collaboration partners, KTM AG. We are working with KTM to increase supply of both the on-road and also start with the off-road motorcycle higher technology, inverted front forks and rear shock absorbers and we have already made a 5-year plan for. We are also focusing on fully finished machine castings as compared to raw castings and semi-finished castings for 2-, 3- and 4-wheelers. We are also focusing on aluminum casting machine business for nonautomotive applications like for gen sets and for the 5G telecom industry. We have been already awarded a total business of INR 1,100 million for this nonautomotive business -- this nonautomotive casting business, which will start in March and April 2022. As this brake assembly business is growing with addition of Bajaj, TVS, Royal Enfield, Yamaha, Hero MotoCorp and HMSI new business, we are increasing supplies of disc brake assemblies from 285,000 brake assemblies a month to 570,000 brake assemblies a month and discs from 375,000 numbers a month to 675,000 numbers a month, which will reach full capacity by March 2022. Our second plant at Waluj, Aurangabad has been set up for this increase in volumes and we will start by the end of this month in the new plant. As mentioned earlier, on second February 2021, we started operations at our new plant at Vallam near Chennai, to supply machined aluminum castings for Hyundai, Kia, Royal Enfield. And now we're in the process of acquiring new business for this plant from both existing and new OEMs. In September 2021, we have also started supply of aluminum cylinder head, low-pressure die casting at our Pantnagar, Uttarakhand plant. The order is for 720,000 cylinder heads per annum. We're happy to inform you that the supply of 2-wheeler ABS assemblies has started in the last week of September 2021. Our plan is to reach a run rate of 400,000 ABS assemblies per annum by July/August of 2022. As you may be aware, competition is mainly from Bosch, which controls the major market share in the Indian ABS market, which requires approximately 3 million to 3.5 million ABS assemblies per annum, and this market is growing. This is a very large opportunity for Endurance as there are very few suppliers due to the high technology requirements. We also focus on supply of our products for EV 2- and 3-wheelers. We have already started supplies of brake assembly, suspension and aluminum castings for electric scooters and 3-wheelers. Our focus is to supply our EV products to 2- and 3-wheeler OEMs, both existing and new, including Ola Electric, [ Antia ], Okinawa, Ultraviolette, Ather and Hero Electric and new start-ups, which are funded by OEMs. I'm happy to inform you that we have recently won the brake system order from Ather, which will start in quarter 1 of the financial year 2023. Due to increased orders from Bajaj and Yamaha India, we are increasing supplies from 240,000 alloy wheels a month to 320,000 alloy wheels a month in our existing Chakan plant near Pune by end of next month. As far as Europe is concerned, till quarter 2 of FY '22, we have won EUR 10.03 million business from Porsche, Daimler, Case New Holland and Stellantis, which is a Peugeot JV. As mentioned in previous investor calls, I would especially like to point out that in the last 3 years, EUR 130 million of business has been won for electric and hybrid cars, which has already started in FY '21 and will reach peak volumes in FY '27. Out of this EUR 130 million value, EUR 35 million business won is for electric cars for Audi and Porsche and EUR 95 million business won is for hybrid cars for Volkswagen, Daimler, BMW, Stellantis and Maserati. I would also like to point out that Endurance both in India and Europe is actively pursuing its focus on gaining access to new technology and focusing on new product organic and inorganic growth. I would also like to mention that Endurance has also started -- has also entered into 2 backward integration product areas, which are import substitutes also. First is the aluminum forging access plans required for our inverted front forks. Endurance has entered into a technical collaboration with FGM, Italy and supplies will start at Aurangabad plant from next month. The second product is wire braided hoses for ABS applications for mid- and high-end bikes. The supplies have already started in June '21 of this year from our Aurangabad plant. Both of our projects will help us in our future profitable growth. In the second quarter of this financial year, our aftermarket sales grew from INR 713.54 million in the previous year to INR 1,100.5 in this financial year. The aftermarket business was at 7.3% of our net India stand-alone sales in the second quarter of this year. We are exporting our aftermarket parts to 30 countries. And now we are adding 4 more countries in this year. We have started trading in 2- and 3-wheeler tires for both India and exports. In quarter 2 of FY '22, the export sales for the India stand-alone business increased by 52% from INR 427.23 million in quarter 2 of FY '21 to INR 516.93 million in quarter 2 of FY '22. On the environment front, I would especially like to mention that Endurance is striving to being carbon neutral in its plants by effective use of solar power and wind power, creating carbon sinks by driving tree plantation and thereby creating dense forests, and driving use of natural oil gas and LPG in the place of electric power and furnace oil. We are also focusing on lowering hazardous weight generation so as to achieve 0 waste to landfill. At Endurance, it will be a continuous endeavor to grow through organic and inorganic growth with a focus on technology upgradation, quality improvement, cost and environment, health and safety. We will do our best to fulfill all our stakeholder expectations by following our 5 values of customer centricity, integrity, transparency, teamwork and innovation. With these opening remarks, I would like to invite questions from all of you. Thank you very much.

[Operator Instructions] We have the first question from the line of Ashutosh Tiwari from Equirus Securities.

Yes. Sir, you mentioned that you received the brake assembly order from Ather. Is there any other order as well from any of the EV OEMs? And what would be this -- this order, this Ather order?

This is about INR 500 million per annum to start with. And I would just like to say we are actively engaged with all the major 2-wheeler EV companies, and we are quite at an advanced stage with most of them.

Okay. And this Ather will start from Q1 FY '23, you mentioned?

Yes, yes. Absolutely.

Okay. And secondly, on the alloy wheels side, is there a delay in the ramp-up? You said that earlier you were talking about October '21 starting a plant? Now is this...

Yes. So there is a delay of next year as far as the plant is starting. But as far as the supplies are starting, we are, in fact, supplying from our existing plant. So we have not been affected by schedules at all. But of course, we are under stress on the existing plant. But from next month, it should be much better because, as you know, we are starting for the increased supplies to both Bajaj and IYM -- Yamaha, India. And we are also talking to other OEMs quite actively. So we want to increase the alloy wheel business now from the new plant.

Okay. Sir, the new plant capability, 320,000. So the overall considerable will go to 320,000 units per month.

Overall is 320,000 with the existing. So basically 80,000 numbers of alloy wheels a month, which is the increase in the new plant. But we can further increase it because the plant is large, so we can further expand that. It's not a problem.

So you're seeing good traction in this alloy wheel business?

So we are interacting with a few other strong OEMs on this. Very, very advanced stage for that. So when it happens, we will, of course, inform you.

And can you provide some color on the margins in this business? Is it like a decent margin because I think a few calls back, you mentioned that it may not...

Margin is decent. That I can assure you. Otherwise, I won't expand. So the margin is, for sure, decent.

Okay. And lastly, you mentioned that even excluding the material cost impact, there's a growth of almost high single digit in India operations Y-o-Y. So which products are doing the best as of now, let's say, in this year so far in terms of driving the growth?

Sorry. Sorry, I didn't understand, sorry.

You mentioned that in this quarter versus last year, there is a -- even if you had removed the material cost there's an increase in the selling prices. There is a high single-digit growth Y-o-Y, right, versus industry decline? So which are the products which are driving this growth this year, major products?

Yes. So no, I did not say that, excluding raw materials, the growth is high single digit. There would be a small growth because there was a very high increase, like I mentioned, by 5% from last year to, I mean, this year. But I can tell you the major areas, which are driving growth is, of course, the brakes, as you know, I've been talking about it. And I would say, I mean, the casting business because what is happening we are going into fully finished. And I'd mentioned in the last few calls the casting business is very attractive for us because getting into full machining, the margins are better, I've been saying the last 2 years. And now getting to nonautomotive business like 5G, telecom and gen sets, it is a very, very good machine casting business. So we have -- and we've already got, like I said, INR 1,100 million of business starting in March/April 2022. It's just 5 months away from now. So this is a very attractive and a huge scope of increase here. So we are quite excited about this business for our plants in Chakan and in Vallam, which is our new plant for die casting. So I would say in all this challenging situation we are in, there are some nice interesting things happening: on the EV front, on the alloy wheel, on suspension, on brakes, on nonautomotive as well as fully machined castings for our existing OEMs. So there are quite a few. And of course, I didn't talk much about the new organic/inorganic opportunities where we're actively involved. I've been talking for the last 9 months to a year. So that, of course, we'll inform you once that happens. So that's also something very interesting happening.

This INR 1,100 million is new business you mentioned?

Sorry.

This INR 1,100 million new business is from which?

Yes. This will start from March and April 2022. So the company is called Sanmina for the 5G telecom and a company called Generac for the gen sets. These are all machined aluminum casting applications for the gen sets and for 5G telecom.

We have the next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

My question first pertains to the India business. So while there has been some impact of commodity cost on primarily benefiting revenue growth, can you share what would be revenue growth for our 2-wheeler segment revenues? And what will be the contribution of E segments now in the second quarter versus last year?

So what you're asking is what would be the growth in the 2-wheeler percentage?

2-wheeler segment revenues.

See, the 2-wheeler percentage has gone up to about 81% now. It's normally 80% -- was 75%, 80%. But 2-wheelers is going up because it depends upon how the 2-wheelers are doing versus 4-wheeler in terms of volumes. Plus, what happens is our major customer, Bajaj Auto, to be honest, has quite done well because of its exports business, which is about 45% to 50% of sales. So they continued to do well in the COVID times. You know what I'm saying. And because they are more in the premium bikes, the major impact is more on the ABS, you see, but still they are doing well. And so I would say the 2-wheeler is about 81% of our India stand-alone sales.

Sure, sure. And CVs would be still high single digit or that has been also growing quite rapidly?

Yes. So 4-wheeler has also grown. It is now about 6.5% of our India sales. See, the value has grown. The issue is there is a percentage -- because 2-wheel has done better, the percentage looks like our EBITDA margin, it's the same way. So I think -- but this is a focus area for us now 4-wheelers, Hyundai, Kia, Tata Motors, Mahindra & Mahindra, like I mentioned last time.

Sure, sure. So the 6.5% in 2Q this year, how does this compare with same quarter last year?

No. This is for the half year, I'm telling you. Half year. So it has increased by, I think, 1% over last year approximately. It's a 1% increase.

Okay. Understood. Second question is on the new credit line, which we have talked about. Any update on that? By when do you expect to clue us on that?

Yes. You're talking about organic/inorganic growth?

Organic, yes.

I would say 2 projects at a very advanced stage. So that's all I leave it at because I can only say that it's very interesting and an exciting stage. But we'll tell you once it's done. So we'll tell you about that. We will update you the last 1 year on this, but there are some good things happening, which are on proprietary, I could say. It is also EV-specific. So our criteria when we evaluate is, of course, the market size and growth potential. It should be a technology product with barriers to entry, it should be a few players. Of course, we look at the profitability and the ROCE, which will be EV agnostic, and should have synergies with our operations and R&D strengths, which are there in Endurance.

Right, right. And lastly, on the aluminum business, both in India as well as Europe, are you getting any feedback on shortage of magnesium and potential impact on our supply?

So magnesium, I think, Mr. Massimo Venuti will tell you as he needs more of that. As far as we are concerned, definitely, the silicon shortage because of the power crisis in China, which is a major supplier of silicon -- manufacturer and supplier has created havoc, if you ask me. So there's availability at a price. So for example, we saw INR 50 to INR 60 a kg going up on a price of about INR 170 a kg from first October. So you can imagine what it does to the RMC percentage to sales. So that is a kind of issue. Of course, there are shortages, but it is available. If you're willing to pay the price, which all OEMs are willing because they can't lose sales. So that is the kind of impact. But I must -- but I'm happy to tell you that steel is stabilizing, the steel pricing. That has stabilized now, which was just going crazy from quarter 3 of last financial year. But aluminum alloy is still going up. And only the new -- first it's the scrap shortage, the scrap prices went up. Now that stabilized a bit. Now you have the silicon shortage. I'm talking India. As far as overseas is concerned, I'll request Mr. Venuti to speak on the magnesium. It's a similar situation here. Massimo, would you like to explain about the magnesium?

Yes. The market in this moment till today we haven't had a problem with aluminum even if, as you know, in Germany we produce part of our production capacity with primary alloy, where there is the magnesium that arrived from China. Till today, no problem. We have stronger contracts with our supplier even if we know that some competitors stopped their activity due to the fact that they haven't the open contract with a specific supplier. Apparently, the situation will improve starting from February. This is the feedback that we received from our customers. So in this moment, as Endurance Overseas, no impact regarding the aluminum.

Okay. And Massimo, any update on the European business. Shortage impact in 2Q obviously was quite bad. But based on the production schedules, which are getting for third quarter and fourth quarter, are you seeing a material improvement in shippability, and in turn, recoveries for us?

So in this moment, it's very difficult to understand clearly the situation, frankly speaking. I can tell you that we have seen a very bad result in terms of registration also in the month of October, as probably you know, because the market closed with more or less minus 30% and also the production capacity in Germany degrew by more or less 40%. But now we are receiving the first positive signal for the month of November, December and January. Apparently, we have seen an increase compared to the program of the last 8 weeks. So it means that probably we reached the minimum level from my point of view. The feedback from our customer is that starting from the first and the second quarter of 2022, we can come back to the normality. Also because, as you know, the situation of the semiconductor affected a lot of customers, a lot of automakers, but some like for the General Motor, Stellantis much harder than other like Toyota, Tesla and BMW. So it depends also from the contract that they had with the final supplier. In my opinion, the positive aspect in this moment is that we are working in a tough way with our customers for the new development. And so it means that they apparently want to confirm the volume for 2022 as per their previous forecast.

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

Anurang, as you have mentioned in the press release that India business, excluding the impact of aluminum price increase, has grown at high single digits, excluding the impact even of our government incentives. So similarly, if you can share a number for Europe that what would have been the decline excluding the impact of aluminum price increase?

So Massimo, would you like to answer that for Europe?

Yes, for sure. So first of all, if we speak about the turnover, as Mr. Jain told you, despite a reduction of 23.6% of the general market, as Endurance Overseas we have had a reduction of 19.5%. But if I consider the same price of aluminum, the reduction was more or less 23.6%. And so it is completely aligned with the reduction into the market, speaking about the turnover. If we speak about EBITDA, we closed the second quarter 2021 with EUR 6.3 million of EBITDA, so it means 13.8% of EBITDA. If I try to offset the impact of the increase of aluminum, the turnover, the EBITDA should have been 14.7%. And so it means that we have had a reduction of EBITDA 1% only due to the increase of aluminum.

Okay, okay. Fair enough. The next question is on the India business. Specifically for the die casting business, if you can help us understand that what kind of order wins we are seeing for electric vehicles? Which are the products in die casting we are able to win for electric vehicles? What could be the pricing and comparable pricing for ICE products?

See, as far as the rate of the casting is concerned, the rate -- the weight may be slightly lower but we are finding a number of parts to be more as far as EV is concerned. And as far as -- I think I mentioned it last time, as far as value add is concerned, though I don't like to say on such calls, the value add we are finding is better. Okay. Now the type of castings we are seeing, I mean, just to give you some idea, is, for example, battery housings we are seeing terminal grounds, terminal bases, base MCU, upper plates, motor housing, we are seeing -- I mean, that is one example. Also as we are seeing like case transmissions, castings, middle plate, copper plate. So names are different compared to crankcases and covers and cylinder blocks and cylinder heads, which are in an IC engine. So we are -- so these are the kind of parts in castings we are finding. But let me be very clear, the overall weight is a bit lower. But because -- but the number of parts are more. But the value add with machining, we are finding it to be better. Just to give you some idea.

And we have already won orders in die casting for EV components, right?

We started supplying to, I mean, our first customer was, of course, Bajaj Chetak. We're starting with 3-wheelers. And now we are going to work with the new EV companies. Also, we have got an order for castings with Aptiv, which supplies to Tata Motors the aluminum casting, it's a housing actually. We won orders. So we're also looking at 4-wheeler Tier 1s to supply to who are making, say, battery packs or something even for 4-wheelers because these are good orders. So like I mentioned in, I think, one of the calls last time like even for IC engines, we are working with Maruti-Sundram partners JV. We have won the orders, we'll start next year. Then Cummins also with Sundram partners, we've got another good order next year. This is all for our Vallam plant actually in Chennai -- near Chennai. So we are working wherever we can make money and there is a good business opportunity. You know what I'm saying.

Yes, yes. A final question, any update on the tire business? So we have seen a strong growth in aftermarket. So what has been the contribution from the tire segment? And how margins of this segment is as compared to the company average margin?

Okay. Let me clarify to all the people. We do not manufacture tires. After the strong reaction we got in 2019 from all of you, we had the same evening stopped the project because to see the interest of all of you because of your experience, we didn't think tires was a good business. So we don't manufacture tires. What I'm saying is we are trading in our aftermarket. It's still a very small thing, for 2- and 3-wheelers. We hope to expand it, but our aftermarket margins are not bad, let me put it that way. So this is a business in trading, we want to grow. So nothing to do with manufacturing. We are not in the 2- and 3-wheeler tire manufacturing business. So that's -- we are looking at now, like I said, a lot of more interesting organic/inorganic operations in the EV space as well as on proprietary space for 4-wheelers as well as for 2-wheelers.

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

Sir, first question would be on the India business, the ABS opportunity. And actually, you are now a large global producer that had a big share. Now [indiscernible]

I couldn't understand the last sentence.

I'm sorry, sir. Mr. Sharma, your line is breaking. The audio is breaking from your line. It's not clear, sir. Could you adjust your instrument or move to an area where you have connectivity?

Sure. Is it clear now?

Yes, it's better.

Yes. It's clear.

Apologies for that. Sir, on the ABS opportunity in India, till now there's not been one major global player that had a larger share. Since you are adding into it, what do you think -- where do you think that your share in the overall pie can be in the domestic ABS market?

That's a very -- see, I don't like to give forward-looking figures. I can only tell you that we have created the confidence with our first customer. We have a benchmark, our major competitor, Bosch. And we have achieved -- we are up 3 years, but we could match the performance. I said we are very competitive. Quality has to be very good. So right now, our capacity is at 400,000 in a market of 3 million to 3.5 million. Let us stabilize that. I said we'll do it by July/August 2022 we should reach because the challenge is not that we cannot do it even from next quarter, but the semiconductor shortages affecting the ABS ECU supplies from a major supplier, Mando HELLA. But we hope that from April we will start doing much better volumes. And that's why July/August, we should reach, I'm hoping, reach peak run rate at 400,000 per annum. And then we'll take it from there because we are engaged with other OEMs. So see, Bajaj is our godfather and I've always said that. They give us always the opportunities and then the rest OEMs normally do follow. So we are engaged with a lot of them because nobody wants to only depend on one supplier. So the opportunity is huge. It's a very high-technology item. Very difficult item to meet standards of performance. It's taken us 3 years. And there must be a test track, 29-acre test track has helped us to achieve it at least 1 year faster. Though we've been late, but still, I would say we were 1 year faster. So ABS is, of course, a very, very good opportunity going forward.

Sir, how cost-efficient would be your ABS at the similar technology level? So I mean does it provide the OEM more of a cost advantage while getting similar or a higher quality of product?

Yes. So that's exactly what I said. See, Endurance always enters at lower price than competition. And then I've said many times we have our own strategy on operations, on sourcing, on technology, value engineering. So we still like to make a decent amount of money.

Sure. The second question would be the normal question on the European operations. If you could share the revenue, EBITDA and PAT in euro terms for this quarter.

Sure. Turnover second quarter 2021, EUR 45.3 million. EBITDA, EUR 6.3 million, 13.8%. Net profit, EUR 1.6 million, 3.4%.

Massimo, can you share the similar number for last year, the same quarter, is it possible?

Sure. 2020 turnover 56.3% -- EUR 56.3 million. EBITDA, EUR 9.8 million, 17.4%. Net result, EUR 3.8 million, 6.8%.

We have the next question from the line of Sonal Gupta from L&T Mutual Fund.

Sir, one was could you repeat the aftermarket numbers? I mean like you said 7.3% of sales. But could you give us -- again, sorry, I missed that, till this year and last year numbers for Q2?

Yes. So aftermarket, actually the numbers were INR 1,100.52 million in quarter 2 of this financial year. And last year, quarter 2 was INR 713.54 million. So we had a growth of 54% over last year in the aftermarket.

And similarly, exports, you said INR 516 million. What was the number for last year?

Yes, yes. So last year was INR 427 million. So about 21% growth, 21%.

And there would be a overlap between these 2 categories, exports and aftermarket or there's not much so?

There is overlap. I'll just tell you -- I think I'll request Mr. Ray to answer that.

Aftermarket exports in quarter 2 this year was about INR 31 crores compared to INR 22.5 crores last year. So this grew by around 37%, 38%. And the number of total exports that Mr. Jain said just now includes these 2 numbers of aftermarket for the respective years.

Got it, got it. No, that's very helpful. And just on this, sir, on the -- any thoughts now on the PLI scheme? And how could you -- would you be able to take advantage of it?

See, right now, I mean, what we have gone through, the only item right now, which we think of is of a CVT continues well with transmission. We need the clarity whether it's applicable for 2-wheelers. And I'm also going to check on the ABS if that's valid. But certain projects we are looking at, like I told you, organically as well as inorganically. Those are fitting in this PLI scheme. So once we go -- once we finalize that, those projects will help us. I cannot tell you what they are, but that will help us. But right now, I could only see a CVT there.

Right. And just a clarification on your April brake order. I mean, this is like the traditional thing that you're supplying even for the say, the premium motorcycles in India? Or is this sort of a technologically different?

It's similar. It is similar. Similar type of braking system. Of course, it is different, but it's similar.

We have the next question from the line of Chirag Jain from DAM Capital.

Just wanted to get a sense in terms of the sourcing strategy for the new edge electric 2-wheeler start-ups versus the traditional 2-wheeler companies. So in the 2-wheeler industry, I think the supply chain is fairly well established, where large part of outsourcing is done and OEMs typically tend to do the assembly part. Are we seeing similar sort of a sourcing strategy even in the electric 2-wheeler start-ups? Or there is a lot of in-sourcing with them in the initial phase so that they can respond to the market a bit faster. Any color on that front?

Yes. So our products, which are brakes, suspension and castings, is the same sourcing strategy. There is no change at all. In fact, the good part is that for the castings, it is from day 1 fully machined. Like when we started the earlier IC engine business for castings, a lot of the customers had in-house machining, whether it's semifinished or full machining. So here for EV, everybody is giving orders only with machining. So that's a good value add for us. But brakes and suspension, look, they don't have the technology inside. So that has to be done by us only.

Okay. And second, on the competitive dynamics since a lot of players would be keen to enter, let's say, electric 2-wheeler start-ups. So how is the competitive dynamics for the products that we are doing, I mean, vis-a-vis the traditional 2-wheeler OEMs, and let's say, electric 2-wheelers? Are the pricing slightly lower because a lot of people will be keen to enter into that?

In fact, I would say the pricing -- I'll just put it this way. I don't want to -- the pricing is attractive. And the competition is the same. I don't see anybody new coming.

Okay. And just lastly, any thoughts on the Tesla, the -- I mean, die casting, let's say, disruption that they are trying to do, single or maybe 2 sort of a component die casting for, let's say, 4-wheelers. Any thoughts around that? Would that be a disruptive risk over a longer term?

No. See, we are not engaged with Tesla, but they have their own very captive, it's called some Giga Press or something where they are doing it in-house, which is a technology of their own. We have, I think, worked with an Italian company called Idra, if I'm not mistaken. And that's a huge, huge investment and I believe they are doing it in-house. I'm sure they are maybe having some suppliers for castings even outside, I don't know really. I think that Massimo Venuti can maybe throw some more flavor if he knows this. But we are not engaged at this stage from India with Tesla.

But can that technology or that manufacturing process could be sort of a threat for our aluminum casting business I mean this is obviously from longer-term perspective.

See. What I believe -- I understand what Mr. Elon Musk with Tesla has done is he has reduced the number of die casting components. So if there were 5, 6 parts going in an assembly, it's made into 1, in 1 die casting, which requires a massive press with more investment and it is a technology. And he has, I think, jointly worked, I believe, with Idra from Italy to make these special presses. I don't know whether there is a clause where he cannot sell those machines to others. I don't know if there's a clause like that, but it's not affecting us in any way.

[Operator Instructions] We have the next question from the line of Pramod Amthe from Incred Capital.

This with regard to ABS. Since the -- you have almost started the production now, what type of challenges you feel, considering it's a very high valuation and a critical component, you are going to face in the near term? And also in terms of what type of global capabilities you may have to bring on board, considering that it has a lot of electronics also parts in all in it if we have to ramp up to the requirement of other OEMs?

Yes. See, I think right now, of course, like I've always mentioned, the focus is on process controls and quality. So it's very important that we have 0 customer complaints and no warranties. I mean that's our target, which is, I think, one, I will not say it's a challenge as well as a focus for us. And that's why we have started with a few thousand then we went to 8,000 and we'll go slowly to 10,000, 15,000, 20,000, 25,000, 35,000 ultimately. So I think we want to do gradual things to look at the quality. That is very, very important. As far as the concern today, which is there, the challenge in the semiconductors. I can easily supply double, easily. The semiconductor shortage, so we've already placed longer-term orders with Mando HELLA, which will keep -- start increasing from January, and then we should normalize our requirement. But at the same time, I think, just to tell you in general, I'll only say one sentence: we would like to derisk as much as possible, all these concerns. Whether it is a new supplier or it is in-house, that we will see. It will take time, but that's always been our strategy. We do in-sourcing like we are doing, I said, like we did bio-braided hoses for ABS, we have already, announced with our own technology. We're going to aluminum forgings. We will be depending on high-cost suppliers from Europe. So we are doing our own. These are all areas where we want to make more money. So I would say these are strategies we are going to adopt. We already started working to make more money on the ABS. So I think there would be a lot of derisking happening in future.

And the second is for new order wins for ABS. Considering your experience, and as you alluded, that you were marginally behind the time line to meet the production, do you get more confidence now if you win new orders? Is there a possibility of executing on time the new orders or you can shorten that production or the win to production time line for ABS per se?

Definitely, we can based on our experience over the last 3 years in meeting the benchmark standards. We are very confident of doing it in a shorter period of time. One of the biggest advantages Endurance has is its own test track. I don't need customer test track or the ARAI test tracks or other test tracks. We'll do it on our own test track with the supervision of our OEM customers. So the lead time will be short. Of course -- so lead time will be short. The only challenge would be the semiconductor. But I'm told from quarter 4 of this financial year things will improve.

[Operator Instructions] We have the next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

So my next question pertains to the new business. We have seen a substantial reduction in staff cost on a Q-o-Q basis. Any one-off this? Or this is primarily to do with the -- to the contract workers being required lesser?

Massimo, I think it's for you, I think. Massimo?

Massimo, there is a question on Europe about staff cost. So Jinesh, can you repeat the question once more?

Yes. So do you see a good reduction in staff cost on a quarter-on-quarter basis vis-a-vis first quarter. So is there any one-off? Or this is normal variants in line with the production?

No, there is nothing important. There is only a reduction due to the -- wait a moment because I'm checking the number. There is a reduction of EUR 4 million. No, it's only due to the different application of the cost due to the leasing contract because I explained to you, in Italy, the leasing contracts are expenses and are not salaries. And as you can imagine, due to the reduction of volume that we have had, we are doing in-sourcing of activity. The first activity that we can do in Italy in Europe when there is a reduction of volume is to stop the leasing contract, okay, and to in-source all the activity in order to work with our payrolled people. And this reduction is only due to this effect.

Okay, okay. And second question on the EU business. Again, this quarter, we had a tax write-back. So what should be the sustainable tax rate for full year this year and going forward?

Sorry. Hello?

Yes. Did you get my question, Massimo, primarily for the tax rate?

Could you repeat the question.

The tax rate for full year considering the second quarter had a write-back and sustainable tax rate going forward?

Yes. Frankly speaking, I hope no because, as you can imagine, when there is a reduction in the tax rate, it means that there is some company that is losing money or you are receiving incentive from the government. In this moment, it is only due to the investment that we have done in the past where we have the tax asset. Also in the next quarter, the situation will be the same. Starting from the first quarter of 2022, we will come back to the normality.

Ladies and gentlemen, that was the last question. I would like to hand the floor back to the management for closing comments. Please go ahead.

No. From my side, I think no further remarks. No further comments. And I want to just thank everybody for their time on this call.

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