JTEKT India Limited (520057) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the JTEKT Corporation Q4 FY '20 Results Conference Call hosted by Axis Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Kale from Axis Capital. Thank you, and over to you sir.

Thank you, Amba. Good morning, everyone. Welcome to the Q4 FY '20 Results Conference Call of JTEKT India Limited. From the management team today, we have with us Mr. Sudhir Chopra, Executive Vice Chairman; Mr. A.D. Rao, Technical Adviser; Mr. Rajiv Chanana, Chief Financial Officer; and Mr. Rakesh Bansal who is from the marketing team. I'll now hand over the call to Mr. Chopra for his opening remarks, post which we can have the Q&A. Over to you, Sudhir ji.

Thank you very much, Axis team, for organizing this conference call for JTEKT India. Good morning, everyone, and welcome to JTEKT India Limited quarterly earnings call. At our last investor call, we explained in brief the initiatives being taken by the company to enlarge its product portfolio by introducing new products in the Driveline business segment. We would like to now confirm that decision has been taken, and the company has received the go-ahead for the support from its parent company, that is JTEKT Corporation, for development of constant-velocity joints, in short, it is called CVJ, which is an important part of driveline -- important part of driveshaft. Just to brief you, the following important activities are in progress with support from our global parent company that is JTEKT Corporation Japan. Number one, we have already finalized the global production strategy for this product and the introduction of JTEKT India as a new participant in this segment of business. Completion of product/vehicle testing to [indiscernible] in India has already been achieved. We have also finalized machine specifications and identification of suppliers with emphasis on localization. Supplier identification to evaluate process capability and their quality assurance system is also being completed. Scale-up of Indian local staff to handle machine, troubleshooting, maintenance and quality evaluation that is in the process. Our discussion with OEMs are at an advanced stage, and we are confident to expand our Driveline business in India with the introduction of CVJ. Now I would like to discuss with you the industry developments, discuss our company's results and then open the floor for questions. The automobile industry was hit hard in fiscal 2020 as sales fell across vehicle segments. PV sector recorded its worst annual volume decline. Total sale of cars, SUV and vans in Q4 declined by 22% year-on-year basis. Passenger Vehicle segment was overall down by 15% during financial year '19/'20. There was an encouraging spike in the sales in Q3, stimulated by promotional offers, aggressive discounts, new model launches and the increasing availability of models offering Bharat Stage VI, that is BS-VI emission standards. The outbreak of a global pandemic in the month of March 2020 seriously impacted the quarterly results with the announcement of complete lockdown in the country. This situation has casted a long shadow over much anticipated mild recovery in the Indian economy in the fiscal year 2021. We are also expecting Q1 of FY '21 to be significantly impacted from both supply side as well as demand side due to plant shutdowns as well as subsequent lower demand as people tackle the COVID-19 issue. Despite declining growth in auto sector, at JTEKT India Limited, we have made all efforts to reduce the impact of market declines. Against decline of 15% in the PV segment, the decline in sales at JTEKT India was contained at 13.7% on full year basis. Several factors, including better share of business and presence in vehicle models doing better than others are a few reasons for restricting decline in sales. The financial results for Q4 FY '20 are now available with you. For the stand-alone entity, revenue from operations at INR 3,707 million for Q4 FY '20 shows a decline of 22.7% against revenue of INR 4,810 million achieved during the comparative quarter of previous year. Profit before tax declined from INR 378 million in Q4 FY '19 to INR 72 million in Q4 FY '20. The profit after tax declined despite strict control on fixed costs. There was decline in administration cost and interest expenses. Depreciation cost also declined as a result of strict control on capital expenditure. With this, I would like to now thank you all the participants and open the conference for questions. And I understand initially when we opened it by Axis Bank, we said that most of you, you are participating from your residence, and that is a change what has brought this COVID to all of us. I think 23rd March was the cutoff of the record date in our life, and that has opened a new era for us. And I think we all are thinking out of the box. And maybe I think there will be so many clouds, which would be removed from our minds. And perhaps, I think we will be able to do the things in a different manner, which are more efficient as well as at the same time cost effective. So I leave the floor to open. Thank you very much, ladies and gentlemen.

[Operator Instructions] Our first question is from the line of Sagar Parekh from Deep Financial.

Sir, firstly, you mentioned about this constant velocity joints, CVJ, products, so could you give us more color on this as to, first, are we looking at domestic and global OEMs for this product? And how big can this product be for us in terms of revenue over the next 2, 3 years? And what percentage -- I mean, in terms of margins, where do you see this product versus, let's say, our overall margins?

Well, gentleman, thank you very much for putting this question. Let me give you first a little background, and then I would request my Chief Financial Officer, Mr. Chanana, to maybe share the numbers if they are available with him. When you look at JTEKT India, so this is a company where we have a parent company, JTEKT Corporation Japan. JTEKT India is JTEKT India Limited, not the Corporation. When I say JTEKT Corporation, then it is my parent company, which is there in Japan, and which is a listed company. And JTEKT, you see, primarily, they are into auto components and -- they are in 4 segments. The first is the steering business. The second is the ball bearing. Third is the driveline component. And the fourth is the machine tools. And as you may be knowing, that JTEKT remains #1 and only one. When we talk about these 4 segments, JTEKT is holding dominant position in all these segments of their business. Now up till now, so far as JTEKT India is concerned, we were primarily into steering business. With JTEKT getting over the majority of that control, it is -- it has opened up an opportunity for us to also expand in other business. Now JTEKT Corporation Japan, they already have their wholly-owned subsidiary in India, where they do their ball bearing business. And they also have their another virtually wholly-owned subsidiary where they do their machine tools. Now the only segment which is open to us is driveline components. And to begin with, we are looking at CVJ, which is a very, I think, promising business, when we look at the other people who are already into this leap. So having said that, so far as JTEKT is concerned, they are present worldwide in this business. But this is the first time that they will -- they have now agreed that they will support the Indian company, provide us the necessary technology and their expertise as well as help us in setting up this project because so far, there is only one company which is into this business. And we see that, first of all, we will be focusing more on Indian business, and we will start with maybe our main customer and then see how we expand it further. Mr. Chanana, if you have to add something?

Yes. So just to give you on the financial part, each line of CVJ will require capital expenditure between INR 700 million to INR 800 million. Each line will have a capacity of about 4 lakh units. So we'll have a turnover of anything between -- around INR 800 million to INR 1,000 million on a full capacity utilization basis. Each set of CVJ is -- the price ranges between INR 3,500 to INR 4,500 depending upon the specifications of CVJ. So asset turnover, to begin with, will be in the range of 1.3 to 1.5. We have -- this is a start of a -- we need to understand like this is a start of a new era when we have JTEKT India become part of the global manufacturing strategy and are now being allowed to manufacture new driveline products in the Indian market. So these are the financial numbers. We'll start with our domestic market first. We'll be looking at domestic OEMs. There is a huge demand in the Indian market. The major player in the market is GKN, which is supplier to many OEMs in India. And if you have seen the financial results of GKN, it's a highly profitable company. Another thing which I want to add here, though we cannot say that we'll be definitely going for it, is the opportunity in the after-sale market. Unlike steering system, where the aftermarket opportunity is very, very limited, in the case of CVJ, this market is quite big in India. So we are looking forward to this, and we'll keep sharing financial numbers with you. We'll share with you the profitability numbers, but it is still more than a year away now. So that will be the development phase. When we actually start supplying, we'll start sharing the profitability number as well with you. Today, I've shared with you the investment details, the possible sales from one line and the asset turnover ratio. I think these are the numbers which we can share now.

Yes. So just a follow-up on that. So the INR 70 crores to INR 80 crores per line CapEx, so we are, at the moment, going for the first line, right? And this CapEx will be done in the current financial year?

We'll be looking at something -- no, this will be over 2 years' time. It will start from this year, starting from October and November onwards. And it will continue till the end of next year. So we are looking at either a 1 line or maybe 1.5 line kind of thing. So you build a machine and there is an assembly. We're going to be looking for a little higher capacity on one particular area and a little less. So approximately 1.5 lines we'll be looking at over 2 years period. So this capital expenditure may go up to INR 110 crores also.

Got it. Sir, my second question would be on this export market. So we are at 6% of exports right now versus 8% last year. And with this, I understand that we have a big presence -- the JTEKT Corporation would have big presence in China and Thailand. So with this entire anti-China movement going on across the world, can JTEKT India use that as an opportunity for significantly leveraging our manufacturing here and scaling up our exports?

Thank you for your question. I'm Rakesh Bansal from Marketing. Sir, as you know, that we have plant in all over world. We have a plant in China and we have a plant in Europe, in the America, we have all the plants. And as a JTEKT policy, like we cannot disturb their business because they have already contract with their supplier. But now we are focusing that from India, we can supply to our company like JTEKT Europe and JTEKT North America, and for that, we have already started working. Directly we cannot go to their customers, but we can supply because India is cheaper, as you say, across competitive destination. So from here, we can supply to our jemuko like JTEKT Europe and JTEKT North America. For that, we have already started working, and we are working some RFQs on that, but not directly. So that is the scope that we can increase export, not directly to customer, but to our company.

And adding to what my colleague, Mr. Bansal has said, this is Sudhir Chopra here. I think you specifically asked this question and you raised these anti-China sentiments. Personally speaking, it is my opinion. Well, everybody is talking about it. And the people that look India as a very promising alternate destination to set up the facilities over here. But this relocation, it will not happen overnight. It's not an easy thing. Even if somebody decides to relocate its facilities and whatnot, maybe it's 4 years, 5 years, long drawn battle. And even -- we see that even if we have to relocate our house from one place to another, it takes time. So I think, well, what you have said, it looks, again, another possibility. Most of the people, especially looking at -- you would like to be in a place where you are safe, where your ITR is protected. These are very, very important things for anybody and especially where the technology plays a very vital role. So in India, I think we are growing. We have -- we are creating our infrastructures and that will definitely, I personally believe, will fetch more, what you call, overseas investments -- [ investments by -- from foreign companies. ]

Sure. So just taking this forward. So once we start supplying to our sister companies across the world, where do you see this exports in the next couple of years, from 6%, can it like become like 15% to 20% of our sales? Or it would be more of a gradual increase in nature? What's your sense?

Yes. We have a target of this like 10% to 15% increase from 6%. So we have a target. And for this target, we have already started discussion with our jemuko company.

So we can achieve this target in 2 years?

Yes, we have a target. Definitely, we are -- our aim is to achieve this target within 2 years.

[Operator Instructions] Our next question is from the line of Aditya Makharia from HDFC Bank.

This is Aditya from HDFC Securities. I just wanted to know what is our -- would it be fair to say that exposure to Maruti would be about 60% to 70% of our revenues? So we were just -- how is the demand outlook now shaping up, now that there are some signs of a recovery? So that's my second question.

So if you look at the customer wise breakup of our sales, 57% is towards Maruti Suzuki; 10% is Mahindra & Mahindra; we got about 7.5% towards Toyota; 8% Renault-Nissan; 6% Honda; and then we have the balance we have exports is the major breakup of -- customer-wise sales breakup. What was your second question?

So now we are seeing some signs of a recovery. This whole entry-level cars are doing well. And what we heard is the retail numbers are quite good. So how are you expecting demand trends now from the second quarter onwards?

You're absolutely right. We are present in these segments. We are supplying for Eeco, Alto, S-Presso. All these models, we are definitely in. And we expect that as A-platform cars will be selling more because of the new scenario, which is building up due to this pandemic situation, we expect that we'll get benefit out of it. Just you want to add something?

Yes.

So we will definitely get that. So there are some indications, you rightly say, and we are in touch with our OEMs to see that how many numbers increase is possible. We are gearing up for that. Just to inform you that all our plants are now functional. All our 7 units are completely functional. And we have our supply chains completely tied up. There are absolutely no problem in delivering products as per the demand to our OEMs.

Right. And your utilization level currently would be how much?

Capacity utilization on the different products is, like we got about 75% capacity utilization in the case of CEPS category, which is a major product. And we got about 60% capacity utilization in our HPS or slightly less than 60%. And then about 65% in the case of -- 65% to 70% in the case of MS Gear. I'm talking about the last year's numbers. And so overall, if you look at our capacity utilization, if I include column, et cetera, where capacity utilization is slightly lower, it will be anything above 65%.

Okay. I mean, just last question. I'm just trying to gather that our utilization levels in June was higher than what they were maybe in January? Just to sense how we are doing.

The month of June will be equal to?

Would it be equal to Jan-Feb, what we were seeing pre-COVID?

No, it will not be. June month, the expected sales is anything around INR 60 crores to INR 70 crores. So that will be little less than compared to what January number where we touched about, I think, if I correctly recall, about INR 90 crores to INR 100 crores we touched. It will be like a slow start. So June will not be -- I think July will be even better. And then, going forward, we got better projections coming in. We are looking at these numbers. And we hope that a complete normalization is possible sometime in September or October. That's what we are hoping for unless the situation again deteriorates because of the current situation. We expect that September, October will come back to the last year levels, definitely. It will be another challenge maybe for 1 more month. Maybe July will be another challenging month. But starting from August, September, October, I think the situation starts improving.

Our next question is from the line of Manoj Bahety from Carnelian Capital.

A couple of questions. First one is, if you can give some color on the kind of opportunity size, which is there for Driveline business in India? And also, is there a replacement market for that? And second question is, like if you can give some update on our talks with Hyundai. I believe that in the last con call, you mentioned that some thoughts or something has started on that front.

India, we got a market size of anything between 3 million to 4 million market size. And each vehicle requires a couple of -- 2 CVJ joints. And 1 pair costs about INR 3,500 to INR 4,000. So that's the size of the market, which is quite huge market in India. So market is not a problem. It's a huge market. And as I told you, there is a huge scope for the aftermarket space as well. But it's like how you deliver, what's your product, how you are able to compete on pricing. So all those things factor in. So we are not looking at market size at this point of time. We are looking at how fast and how good product we can offer to our customer and at what competitive pricing, that's what our focus is now. But market is not a problem in India. Huge market.

Sir, it looks like Mr. Bahety's line just dropped out. In the meanwhile, we'll take our next question, that's from the line of Ronak Vora from AUM Advisors. There seems to be no response from this line. We have Mr. Manoj Bahety back in the question queue.

Sorry, sir, my line got dropped, so I did ask my question, but I'm not sure if you already answered that. The opportunity size for driveline as well as update on Hyundai?

We spoke about CVJ opportunity. So as I told you, about 30 lakh vehicles, which are annually produced in India, so there will be -- for every vehicle, there is a requirement of 2 CV joints. And a pair will cost anything between INR 3,500 to INR 4,500 or maybe higher depending upon. So it's about INR 1,200 crores of business looks like if I simply multiply it by the numbers. It's a huge market, that's why I explained, I think your call got disconnected. It's a huge market. So we are not looking at market at this point of time. We are trying to establish ourselves. So idea is to supply a good product at a competitive pricing, and with JTEKT technology being available, we are very sure that we can deliver a better product because JTEKT has got a huge experience in the production of this particular product and the data which we've got is that for several of the jemukos, they had absolutely no quality issues. That's what the data we have received. So we can offer a very good product with absolutely no quality concern, and we'll try to keep it our pricing as competitive. So that's what we are looking at. And that is a huge aftermarket space, which is available. So market is not a problem. It's for us to go ahead and develop this and start selling. We'll answer your second question. Mr. Rao will answer to your second question.

Sir, just a follow-up on this first question. Will there be any royalty for the technology which we will be getting from JTEKT for driveline?

Sir, nothing is free in this world. You see, when I look at it, I think it is a great opportunity for us to get into this segment of business. And I think looking at this deeper, I will be derisking myself because so far as we have been primarily into the steering business. So I think it is a great opportunity. The technology transfer, even because of the international transfer pricing norms, nothing can be given for free. But yes, if there has to be reason, it has [indiscernible]. So of course, whenever we get -- in the past also, we have got any technology, according to the value of the knowledge that we have got, we have paid for it.

Okay. Right, sir. My second question...

I think my colleagues have been using the word jemuko. Jemuko is actually a Japanese word, which means the other location or manufacturing locations or other companies of JTEKT Corporation Japan worldwide.

Okay. I'm A.D. Rao speaking. I would like to answer the second question. Our efforts with Hyundai are continuing. And though, as of now, not much breakthrough, but we are very positive about what we can achieve. But at the same time, we already have -- I mean, for Hyundai, as of now, there are 2 suppliers who are supplying steering system. One is Mobis, another is Mando. So we have, I mean, already a business relationship with Mobis. We continue to supply aftermarket parts for the older Mobis. And that's quite a good business as of now. With this relationship, we would like to also, like, I mean, have some breakthrough with their new models. So it's a pretty strong approach. And we are positive, though as of now, there is no breakthrough.

Our next question is from the line of [ Ritesh Chheda ] from Lucky Investment.

Sir, a couple of questions. So one, we did this whole organization buildup exercise during FY '20, where we hired 2 expats and we have this technology center, for which we have invested into. And it would have affected our OpEx and the margin line. So some thought process there as a lot of those costs are sitting on your P&L, number one; and number two, in such a situation that we are facing today where we have a volume decline in '20 and most possibly a volume decline in '21, how are we managing costs and the profitability side, if you could spend some time there?

So let me explain you how the margins have changed in the last 1 year time. And then I'll explain you what are the activities which we are now planning to do to further reduce these costs. The major challenge, if you look at the margins has been on the material costs, which was higher by about 1.7%. But we've been able to maintain our manufacturing and selling expenses well under control. And as a result, if you look at the contribution level, the decline was just about 1% from about 24% to 23%. So the major challenge which has come in the last year is because of the volume decline of 14%. So as a result, even though the employee costs are, despite there have been expats who are working with us, and they are very important for -- because on the technology side, very close coordination is required, and we need to ensure that we -- our products are increasingly successful in the market. So despite taking that cost, employee costs as a percentage went up by 10%. However, when we look at revenue decline of 14%, as a percentage of sales, it went up by 3%, which was very, very high. And this was a major reason why EBITDA declined from some 11.2% to 7.5%, so some 3.5%, 3.7% decline in our EBITDA. But that was -- it's mainly -- main contributor was the decline in sales, not essentially declining -- not essentially decline in the contribution level. So what has happened in the last 2, 2.5 years, we've been -- we started supplying for our new models. We started supplying for Wagon R starting from December '18, Ertiga for September '18, and then Honda City from the quarter 4 of last year. Also, there has been a major change in our Driveline business with Omni going out and Eeco coming in, there's been model change. And as a result, these -- any time when you go for new bidding, it's always competitive, and initially, the margins are low. And then it follows with a flurry of actions in the area of VAV localization to bring cost down. So business is important, so you'll have to take the new business and maybe reduce your margins a little bit to begin with, but then you will take up to the old levels. But at the same time, company tried all its effort to reduce fixed costs. And if you look at F '20, there has been a reduction in administration cost from INR 443 million to INR 377 million. Depreciation declined from INR 906 million to INR 865 million and interest costs substantially declined from INR 155 million to INR 99 million. When we look at all these 3 actions, the total saving is as high as INR 163 million, which is about 1% of the revenues. So company has been doing all its efforts to reduce fixed costs. The variable cost is something which you would have to cope up, and then you'll have to -- it will be a longer-term action. But fixed costs, we've been able to reduce significantly in the last 1 year. The current year, as you rightly said that next year will be even challenging with sales further declining. But this provides a lot of opportunities also. So opportunities in the area of manpower rationalizations. You can become leaner. We have been able to do manpower -- we have already started the activity of manpower rationalization. No attritions are being filled. We are doing capability mapping so that 1 person can do 2 activities. So when somebody is resigning, the other person can take charge of. So that huge activity has already kicked in. This has not kicked in now, it's kicked in about 6 months back. We have a manufacturing rationalization strategy. We completed our 1 unit. We were 8 units. Now we are down to 7 units. There was a backward integration unit into stamping unit in Gurugram. This we merged with our die casting unit, which was, again, a backward integration. So both the activities got clubbed in 1 unit, which helped us to reduce manpower on the administrative side as well as huge administration expenses cut. This year, we already have a plan to shut down our Sanand unit in Gujarat and once the manufacturing requirements shift to our Gurugram and Chennai unit. So these manufacturing rationalization are possible only when you have lower sales. When your sales are very high, you possibly cannot even think of such decisions. Coming to another cost, area of administration costs, as Mr. Sudhir Chopra has also pointed out, it's a new way of working emerging. We know that this will have a huge saving on our travel, communication, stationery, business promotion. And all those expenses will be practically 0, which maybe -- which was a significant part of the administration cost last year. So it's all there. We'll keep sharing with you as we go along as we move from quarter-on-quarter. We'll come back and share with you what all actions the management has taken on various areas. But we have -- I can assure you that we have started activities and action in all these areas. At our global level, there is an activity called emergency profitability action plan that has already kicked in. We have made our first representation to JTEKT Japan as to what all actions we are doing. All these actions are now being seen from jemuko to jemukos. If a particular jemuko has done something extraordinarily good, that information is being shared with other jemukos so that similar actions can be taken towards cost reduction. So this activity has kicked in, and we'll keep sharing with you the results of this activity in the quarters to come.

Okay. So last year, when the cost was addressed, it was about 1% of sales, which is about INR 14 crores, INR 15 crores, do you have any target number in mind this year in terms of absolute area of cost reduction?

Yes, we have. As I told you that, we have already prepared our emergency profit saving plan, cost-reduction plan. The number will be more than this number, which you gave. So we will be exceeding the last year target this year as well.

And lastly, what is the capital expenditure for FY '20 and FY '21? So what did you incur in '20 and what it is in '21?

So FY '20, the capital expenditure was INR 337 million, and this was split into new product development, technical center, which we are very hopeful that will be a big investment decision for us. We had some manufacturing rationalization activity and then normal maintenance CapEx. So this was not a very big capital expenditure last year. Coming to current year, there are 3 major capital expenditure, which we're planning for the current year. INR 120 million will be for the design and technical center. This will be the second phase of expenditure for this activity. There will be some INR 70 million for the civil work and about INR 50 million for the equipment for the design and testing. The second item will be for the CVJ project, as we just explained in detail, that the funds which are allocated for the current year is INR 350 million. And then there will be a new product development. So we got new orders on which there will be development expenditure, that will -- that fund allocated is about INR 200 million. So these are the 3 main capital expenditure activity, which involve a total outlay of about INR 670 million. So our CapEx, you can say, will be anything between INR 600 million to INR 700 million in this year.

And lastly, sir, there is a round of news flow coming since the last 3 weeks on possible JTEKT's intention to delist the company. Any comments there?

I think these are all rumors. These are all rumors. There was no such discussions as such among the management. We have no information about it. And frankly speaking, I can only say it is a rumor.

Our next question is from the line of Ashwani Kumar from Nippon India Mutual Fund.

Sir, I had 2 questions. One was that basically, when you offer a new product where existing supplier is there, where will the design come from? I mean, will the design come from the OEM? I mean to say, will there be a significant variation of what the existing guy is offering? And does it give you any kind of advantage? And second is, when you go on to sell to your customers, there are unlisted companies of JTEKT group. Those companies, when you go to sell to an OEM, whether it is Hyundai, Tata Motors, Mahindra, et cetera, is there anything common to contribute in terms of the sales effort because you have a basket of products? Or is it completely away from what you are doing?

Okay. I would like to answer the first question. What we receive from customer is the requirements. So we receive specifications of vehicle. And based on that specifications, we are supposed to design a product. And our product is -- I mean, it is specific to each vehicle. It is not like we have a standard product which can be fitted on every vehicle. So it varies from each vehicle. So based on that specification, what we receive from customers, the design what happens. As of now, earlier, we used to get most of the designs from our collaboration with JTEKT Japan. But having established a technical center in India now, most of the design work happens here, especially in manual steering, manual column, hydraulic power steering, almost 100% design happens here in India. However, in case of CEPS, I would say that roughly about 40% happens here, remaining 60% at Japan. And finally, there's also an element called testing. Testing also happens entirely in India for manual gear and HPS. So it's a design which is developed here majorly in India, of course, with the support of JTEKT Japan. And when you talk about the second question, I think -- I mean -- I already, I think, answered that, the products are specific to each vehicle. There's nothing like, I mean if I have one product, it can be offered to...

No, no, no. Sir, you have not understood. What I'm trying to say, I understand that every model would have a product and within that specific variant also would have a different product. What I meant, let's say, when you are entering, for example, the CV joints where you are competing with GKN, what is the extra which you will offer basically? I mean, in terms of the change, how will the customer benefit? That is what I wanted to understand.

Yes. Understood. So in fact, if you see the opening remarks of Mr. Chopra, one of the major work that we have done in this particular project is to understand Indian conditions considering the quality problems that customer is currently facing. So we have collected the entire warranty data from customer. And of course, we have these designs available in Japan, and they have been manufacturing and supplying to Suzuki. However, the conditions in India are very unique. The road conditions or the environment conditions or the usage is very, very different compared to what -- how it is in other global countries. So we have designed a experiment to capture the requirements. So we have mounted our product on the experiment vehicle and ran it in different locations, collected the data in terms of forces and other things. And then based on that, we have understood what are the deficiencies in our current product. And then the product that we would be offering is much superior by implementing whatever necessary changes are required. So with this, I mean, experimental data, I'm sure that our product would be much superior to our competitors' product. And we have explained it to our customers, and customers have understood and appreciated our efforts in this direction.

And just to add what Mr. Rao has said, it is also their own record. If I look at historically, when JTEKT has been supplying to Suzuki, there has been 0 quality issues. So I think that builds the confidence level of the customer. I think this is what you wanted to know how we are going to be different. But this is what has happened worldwide and other -- at other locations. But we -- I think that is a challenge to us that we have to create a facility in India, which is at par with the other jemukos.

Sure. Sir, I have just one follow-up question on this. Let's say, you have exports basically, which is a small proportion, and you indicated that you want to increase it. Now the scale of our factory versus -- our factory or factories versus the global scale and level of automation in the cost structure. See, we have seen in India, auto component companies have been able to export back to Europe and U.S. But Japanese have been very, very reluctant. So what would make this change? I mean, what exactly is required for you to be as cost competitive as Japanese and certainly, the same quality standards are required? If you could spend some time answering...

Partially, you have answered your question. And you are absolutely right, and I agree with you. When I look at the cost, Indian facilities are more cost competitive. Europeans, they have 30% to 35% of their employee cost fixed. We are very, very cost effective and we compare ourselves to U.S. as well as European companies. But when we are exporting, remember one thing, I see that the delivery and the quality is very, very important. If there are quality issues, then the overall margins you are going to earn it will be -- you'll be losing double of it, much more than that. I think that is the thing. So first of all, I think we should -- whomsoever is getting into this business, he must organize his house first and then step out.

Our next question is from the line of Chirag Shah from Edelweiss.

So first question is, what would be your market share in CEPS because I tell you, in India, CEPS would be 70% of the market and in our revenue, the share of CEPS is relatively lesser. So what would be the market share in CEPS? That would be my first question.

So market is divided 3 major players. One is JTEKT India; second is Rane NSK; and third is Mando. So we have about 30 -- and then some imports as well. So we have about anything between 30% to 35% share of the market today.

Okay. And that -- would it be the right number that CEPS of the 3 million to 4 million vehicles, CEPS would be in 70% of the vehicles, at existing value terms, it would be 70% of the market?

Yes, you're right. I mean, it would be roughly about 70%. And the remaining 30% is hydraulic system and manual system. So they are basically...

Yes. That is helpful, sir. But sir, my slightly strategic and longer-term question is, say, over the next 5 years, between CVJ and CEPS, which is an opportunity which is easily scalable for us? And also which is a bigger opportunity because these are the 2 areas where we can actually scale up in terms of market share? So if I have to ask you, which is the easier one to do for you over the next 5 years? And in terms of size also, which is the bigger one?

Chirag, both are different, [Foreign Language]. Let's not -- both are important strategies. And it's not that one is above the other. CEPS is something which is our bread and butter at this point of time. And we have developed this product worldwide, I'd say, JTEKT is a global leader in CEPS technology. We've pioneered this technology. So we'll continue to be -- we will like to be very strong in the CEPS category going forward. It has -- we understand that this is compatible with electric meters and all, this particular technology, and we expect that this will get us more savings over a period of time. Driveline is a separate category of products. And we'd like to be successful in the driveline category. It's an initial phase for us. And while our CEPS strategy is very well documented for the future, we understand what products will be introduced in the market in the next 5 years' time, and we are competing for that. CVJ strategy, on the other hand, is in the initial phase. So let's keep it both separate. Let's not say which one is more important for us. So we can't -- won't be able to tell you at this point of time that...

No, no, sir, both are important, but in terms of competitive dynamics, your product capabilities, would it be right to make an assumption that CEPS is an easily scalable business model because we are present already? And it's also, I presume CEPS is a much -- CEPS is a much bigger opportunity size than CVJ simply because of the value content?

I understand. Absolutely. Yes.

You see, gentlemen. Even the easiest thing is very difficult if a person is not able to perform better. And even the most difficult things become very easy when you are able to achieve the best results. So I think, well, technology-wise, even driveline components that it is highly technical components for JTEKT manufacturing. And in CEPS, as my colleague, Mr. Chanana has said, the first CEPS system was invented by JTEKT. And I think both are important. I think it is something like you -- somebody says whether the nose is important or the eyes are important, both are important. And we will like to, to that extent, at least get into the new segments, and that was our endeavor. And this is what I think all of our investors have also been looking at how when JTEKT has taken over the majority control in this company, we expand our product portfolio. So I think let's hope that this decision will make your company much more strong, and we are able to come up to the expectation of all of the stakeholders.

And sir, if I can just stretch this. So other way of asking would be, what would be your aspirational market share for both the products? Maybe 5 years or 8 years out, what is the kind of aspirational market share that you would look at in these products? Would it be -- any thought process on that? Has a framework been done on this side?

Look, JTEKT globally has got a philosophy to be #1 and only one. So we follow that strategy even for Indian business. We'd like to follow that strategy for Indian business. We like to deliver a product which is highly competitive, better quality product. We are entering into the CVJ market. So we can't tell you that how much successful it will be. We would like to be successful and become market leader in this technology as well. CEPS, we are the leader. We have share of market which is either equal or higher than our competitors. And we'd like to maintain our leadership position in the Steering segment, definitely. We are -- as I told you, we have a visibility for the next 5 years' time, what products will be introduced in the next 3 to 5 years' time. We are competing for that. And we'll continue to hold our leadership position in the Steering segment as well.

And 1 clarification. You mentioned that for CVJ, the asset turn is in the range of 1.1 to 1.25. Did I hear it correct?

Say again, 1.1...

The revenue -- the asset turn for our CVJ project is in the range of 1.1 to 1.25 in the next 2 years, right?

1.5 you can say. 1.5 will be the asset turnover ratio.

1.5, sorry. And that would include your working capital requirement also, I presume, correct? Asset turn of 1.5.

Working capital will not be much -- I mean, into inventory, we just need to hold for 2 or -- 2 days, and it will not be a huge requirement on the inventory side. Yes, but that will be over and above that. So 1.2 on the -- 1.5, which I told you is only the fixed assets. Not the working capital. Working capital will be over and above that, but that will not be huge.

Our next question is from the line of Nirali Gopani from Unique Asset Management.

Sir, you received an export order from Brazil and which was supposed to commence from January this year. So can you share an update on this order?

Yes, this order actually customer is under hold because they are launching a global RFQ, including that volume. And now we are bidding on that because currently, whatever the platform which we are discussing previously, now customer is included -- the customer is same and there is -- huge volume is now there given the RFQ for as a JTEKT global. But we are discussing on that.

Okay, sir. And sir, I know you have already answered your question on the exports. But in your last call, you had mentioned that your dream is to take exports to, say, 25% of the overall revenue. So can we expect this to happen, say, over the next 4 to 5 years?

Look, short-term target, as we told you, is to take -- to reach about 15% over 2 years' time. So this will continue to be a focus strategy, as Mr. Sudhir Chopra also pointed out is that there's a huge difference in the employee cost. And we are competitive. Having said that, every other country has got manufacturing facilities already available and while they may decide not to increase their manufacturing facilities, but they would like to use their facilities, to begin with. We expect market to revive. That's something which we are looking at, which is not happening for the last 2 years, and that is actually a setback, not only in India and -- but globally, the market has been under pressure. We expect that the things should revive globally and then in the Indian market as well. We definitely hope that our exports will start increasing, first to about 15% level as we are targeting for in the 2 years, 2.5 years' time and then maybe go higher than that level. These are opportunities which Mr. Bansal just explained, the global orders. These are very big opportunities and can definitely change the shape of our exports. But we are fighting for it. We are trying for it, and we are just waiting for our time for this. Definitely, we are competitive where we can deliver quality products. But it has to happen first before we actually -- before it actually gets translated into a new percentage for us.

Our next question is from the line of [ Ramkrishnan D ] from Equity Intelligence.

Sir, you have mentioned in several words that JTEKT has 0 quality issue with Suzuki. So -- but because of our earlier problems and all that, we lost out market share to Rane NSK. So recently, what I've seen is Rane NSK has provided some INR 88 crores in last 9 months this FY '20 due to warranty issues from provisions they have made. So because we have been losing certain products, certain high-growth products to Rane NSK, so going forward, our market share can -- is there a positive swing can happen? What is your view with that, sir?

So what we can explain you, in the last 1 year time, there was absolutely no big warranty issues. There have been 1 or 2 parts getting returned, which is a very usual thing. But apart from that, our warranty cost has actually declined. We had some issue 2 years back. But after that, in the last 2 years' time, we have been very, very strict on -- in meeting our quality parameters. So what we have done, we have established ourselves as a good quality supplier to Maruti Suzuki as well as other OEMs. We hope that this will benefit us in the longer term. Yes. So we can't comment on Rane as to what went wrong. We've been told by...

Are we seeing any shift happening in last maybe -- because this is a big...

No, no. In INR 88 crores...

Because even Maruti will be having issue with the customers, if suppose some warranty issue, then they have to call back the car and replace the product and all that. So because of that, are you seeing any shift to...

We should take the 2 situations separately. We -- it will not be good to combine the 2 situations. The situation #1 is that Maruti Suzuki is a large player in the Indian market, and they want dual supply there, okay? They want JTEKT India to be there, they want Renault and -- they want Rane also to be there as a joint supplier. This is a philosophy. This is a market strategy, which Maruti Suzuki has been following. Situation #2 is that whenever we have a problem in terms of warranty or -- Rane has a bigger problem at some point of time, then the Maruti will shift from its principal strategy of keeping a dual supplier base. Our understanding is that they may decide to tilt the percentage in favor of a person who is supplying better quality products, but will they completely shift to 1 player? We really don't know. And second thing is that all these platforms are normally for a very long period. So if we have a Baleno platform, that will continue for 6 years' time, 5 years' time, only then, whenever there's a change in design and the product uplift or something like that happens, then only the change of suppliers can happen. Except Swift where Maruti has been falling a dual supply base, and they have increased our percentage of supply from our side, other than that, Maruti has been buying 1 product from 1 supplier. So even getting out of that supplier in a very short time will not be easy. But yes, over a long-term time, we also pray and we also believe that the situation should tilt in our favor because the last 2 years, we have been able to improve our quality score with Maruti Suzuki.

Okay, sir. Sir, we were talking with Kia. So have we started supplying to Kia?

No, we have not started supplying to Kia. They are -- they have been -- it's a Korean company. So Hyundai has been buying from Mando. So I think some supplies are going from Mando to Kia.

Yes. Whatever Mando is supplying to Hyundai, the same product, they have carry over to Kia. So they don't have any new development. So they prefer to go with the existing product because the system is same for Hyundai as well as the Kia, the steering system. So they prefer they will go with Mando.

Ladies and gentlemen, that was the last question. I now hand the floor back to Mr. Nikhil Kale for closing comments. Over to you, sir.

On behalf of Axis Capital, I would like to thank the management and all the participants for joining the call today. Have a good day, everyone..

Thanks.

Thank you so much, everyone. Thank you so much.

Thank you.

Thank you, sir.

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