JTEKT India Limited (520057) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY 2024-'25 Earnings Conference Call of JTEKT India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management of JTEKT India Limited. Thank you, and over to the management team of JTEKT India.

Good afternoon, everyone. My name is Rajiv Chanana, I'm Director and CFO at JTEKT India Limited. I would like to introduce our team here. Hatanaka-san is our Chairman and Managing Director; then we have Fujiwara-san, our Director; Mr. A.D. Rao is our Adviser Technical; Mr. Ashish Singh his Divisional Head Strategic Division; [ Kuwana-san ] is heading the department, sales and marketing. So these are the team members present here, and I would like to request Hatanaka-san to deliver the inaugural speech Thank you.

Thank you, Chanana-san. Good afternoon. My name with Minoru Hatanaka. Welcome to the JTEKT India Limited Annual Earnings Call. I would like to thank all participants for joining this call and the organizers. For the financial year 2024-'25, passenger vehicle segment achieved sales of 5.1 million units compared to 4.9 million units sold in to '23-'24, thereby achieving an annual growth of 3.7%. As per CM, high-base effort of financial year '23-'24 resulted in moderate growth in '24-'25. Several initiatives such as an attractive discounts and promotional offers helped the industry to sustain volumes and maintain growth momentum. Another positive news in the passenger vehicle saw their highest ever export in 2024-'25 of 0.8 million units, registering a growth of 14.6% as compared to FY '23-'24. Growth in exports have been driven by demand of global models being manufactured from India and are supplied in Latin America and in Africa. While '24-'25 marks the fourth consecutive year of year-on-year growth for the industry, the growth rate is the lowest in the past 4 years. In the first half of '24-'25, we observed events like elections, heat waves and heavy rains in certain regions, and all these events contributed to slow growth in all sector in the first half of 2024-'25. However, the industry recovered in the third financial quarter due to feasible sales and promotional offers by OEMs. Well, looking ahead, CM expects the auto sector to continue its growth in '25-'26, Stable economic conditions, proactive government policies and infrastructure spending are likely to support this growth. And normal monsoon, as forecasted, is also expected to boost the demand, particularly in rural and semi-urban areas. Now I will review the company's financial results. The financial results for FY '24-'25 are now available with you. During the financial year '24-'25, JTEKT achieved sales growth of 7% compared to passenger vehicle market growth of 3.7% during this period. Margins were, however, under the pressure due to the several external uncontrollable factors. EBITDA margins are down from 9.5% achieved last year FY '23-'24 to 7.6% in the current FY '24-'25. Due to lower-than-budgeted sales growth, we could not absorb the increases in employee cost, which is as a percent of sales increased to 10.4% in FY '24-'25 compared to 10.1% level last year. However, we were able to contain administration cost at INR 455 million in FY '24-'25 compared to INR 494 million incurred during the last financial year 2023-'24. Therefore, at the fixed cost level, management ensured that there was no negative impact on profitability. On the variable cost front, we faced several external challenges. In our presentation uploaded on the Stock Exchange yesterday, we explained these external factors which resulted in increase in variable costs. I would share a few major factors with you. One, export sales to our U.S. customers declined, reducing share of export sales in our overall sales from 4% to 2.4% in the previous year. In the current period, the export volume has now come back to its normal level. This decline in export last year resulted in a reduction in margin by 0.6%. The second, we faced quality defect in manual gear supply to one of our customers and had to jointly decide for product recall for a total quality of around 2,500 units. Most of the replacement jobs have been completed. This factor impacted our margin by 0.3%. Third point, due to increase in process costs converting employee wages, power costs, consumables and so on, and the company has received the result from the vendors for the price increase for which the company has made certain provisions in books at the year-end, we have started communication with our customers for recovery for this additional cost. As per accounting policy, the company has then taken the expense provision, which has impacted margins by 0.4%. As I stated earlier, most of these cost impacts are exceptional and onetime. With this, I would like to thank you for your participation and open for the -- conference for the questions. And I would like to share that I have to dismiss meeting shortly for my personal occasions. Thank you very much.

[Operator Instructions] We'll take our first question from the line of Aman Vora from Premier Capital.

My first question is on our CapEx. So we've done about INR 275 crores of CapEx this year. While our parent company, JTEKT Corp, in its investor presentation has highlighted JPY 30 billion, which is INR 1,800 crores of CapEx in India till FY '28. So I just wanted to understand what segments would this large CapEx entail? And what is the thoughts for the management and the typical asset turnover that we see on the CapEx?

Thank you. I'll start with the answer. I will first explain you the CapEx, which has been incurred during the current financial year. Then I will give you the picture about the last year, current year and the next year, about 3 years period. So for '24-'25, the company incurred a total CapEx of INR 287 crores, primarily towards expanding production capacity. So when we look at our total expenditure on creating new capacity out of this INR 287 crores, INR 191 crores was deployed towards that. Then we had some maintenance CapEx of INR 39 crores, IT expenditure of INR 7 crores and dyes, which are used in the manufacturing, about INR 50 crores. So this was a broad breakup of INR 287 crores. Where -- just to explain you where this money has gone. So at present, the company is working on the third CEPS line. We got 2 lines at our Bawal plant. We are setting up a third line. And this will help us to increase our production capacity from 10 lakhs to 15 lakhs units. About INR 100 crores kind of a CapEx is the total requirement for this expansion. Then we are working on the fifth manual gear line, Dharuhera facility, which -- where we have most of the manual gear production capacity. And this will increase -- this setting up the fifth line will increase our capacity from 24 lakhs to 29 lakhs units. Again, this will involve about a CapEx of about INR 35 crores to INR 40 crores. Then we announced to Stock Exchange in December '23 and February '24, you must have seen our announcements about setting 2 more manual gear lines. The sixth line will be at Dharuhera, and there will be one line -- one additional line, which will be line #4 at our Chennai facility. All these, when once it's completed, will increase our production capacity from 29 lakh units to 36 lakh units. Further in February '24, we announced about setting up a new CVJ line, and this will involve a CapEx of about INR 90 crores to INR 100 crores, and this will be happening during July '25 period. So all these CapEx are happening as we are speaking -- these capital expenditures are happening. A few activities started last year, a few will continue to the next financial year. How we met this capital expenditure, just to explain that. So '24-'25, we had a cash generation of INR 156 crores. We had some cash available from last year. As a result, the increase in bank borrowing was pretty small, like just about INR 43 crores required from outside and the entire INR 287 crores was funded out of the internal accruals. Our debt equity is still at 0.17 level, which means that we have still borrowing -- more borrowing capacity available. Now I tell you about the 3 years period. So CapEx for last year, '23-'24 was about INR 172 crores. Current year, as I told you, about INR 287 crores. Assuming INR 300 crores of capital expenditure for next year, we will end up with about INR 760 crores of CapEx over the 3 years period. So this -- out of this INR 760 crores, INR 430 crores will be utilized for our capacity expansion, like whatever I told you, CPS line, 3 MS gear lines, 1 CVJ line, these will be requiring about INR 430 crores of CapEx, which includes plant and machinery as well as the civil and building infrastructure because currently, we do not have space available. So we are constructing additional space at our Bawal plant, at our Dharuhera plant, et cetera. So together, that total expenditure will be around INR 430 crores. The remaining will be like maintenance CapEx, about INR 80 crores; dyes, which are used for production, INR 150 crores; IT about INR 15 crores. And then certain -- about INR 82 crores we have kept for activities like backward integration, our pressure die-casting plant, which we have. So we are setting up one additional 850-tonne machine. We have a technical center. We are expanding facilities there. And we have, for our building safety, certain civil expenditure will need to be incurred. So when we look at this INR 460 crores over the 2 years period, when we incurred about INR 460 crores kind of a CapEx, the increase in borrowing was just about INR 95 crores, which means that 80% of the CapEx was met out at internal approval. So now coming back to your next point about JJP explanation that we will be spending about INR 1,800 crores. So I've given you explanation about INR 760 crores. As we reported on 7th of October to Stock Exchange, 2024, about setting up a new facility in Sanand -- sorry, in the state of Gujarat, not Sanand. This is at Jalisana, very near to the Suzuki plant. So we expect this facility and currently, the layout and other planning process is on. This is required because we do not have any facility in the Western region. So this will be the first plant in Western region. It currently is very difficult to cater to the requirements from Haryana. So it's a good step. It will help us meeting the quality and logistics standards. We have -- at this point of time, we have allocated about INR 250 crores for this project. However, when we look at the overall plan for this project by expanding the -- including the production capacity, which we are planning to set up there, the total project cost will be around INR 650 crores. So these are the broad breakup. I'm not going to very specific details because there will be maintenance CapEx, there will be production dies, et cetera. So that altogether. So this number, which has been quoted is more or less tallies with my number, which I've just communicated to you. There is some cushion, right? So maybe JJP normally keeps some cushion available. They need to allocate funding for the entire world for all the [indiscernible], they allocate money. So some money has been allocated. We are happy that a good amount of money has been allocated to us, and JJP will be supporting that. right? So this is the answer. If you have any further things?

Yes, I just have one follow-up, sir, there. What is the -- like we identified INR 460 crores of incremental capacity that we have added. What is the typical asset turn that we would expect out of this capacity? And how much time does it take for you to realize full -- to reach full potential? So what is the typical asset turn that we should expect?

Okay. So asset turnover that typically depends on asset to asset. It's not that it's common for all the products. If you have seen our investor presentation, which we uploaded, our current [indiscernible] CR is about 4x. So I think which we have been able to maintain for almost 2, 3 years. Just to give you an example, like when we set up a new line for CPS, the asset turnover can be pretty good because it's a high-value product. It requires a lot of assembly operation rather than machining operations. And therefore, the asset turnover can be high. It can be up to 5x. But when we come to a product which requires a lot of machining, for example, CVJ, where we have to do the complete setup, there the [indiscernible] CR may be slightly lower, say, 1.5x, maybe a little lower than 2x. But this is an average game. So on an average, when we combine all the asset capitalization in our company, we are able to achieve -- so far for the last 2, 3 years, we've been able to achieve 4x [indiscernible] CR, which is considered very healthy from a component manufacturer perspective. Yes, there are opportunities, we will try to improve further, but that's the current picture.

Sir, why I asked that is that -- so we've introduced new CVJ products. We've expanded capacity in our current portfolio. But if I see the incremental between the volume growth, which is 3.7% and our top line growth, which is 7%, the differential is very less. I'm just -- what I want to understand is that how our top line growth can be -- we can grow quicker because of all of these interventions that we have done in the last 2 years and we continue to do so that the differential between our revenue growth and volume growth of these players is higher because we are introducing newer products in the market.

So I think let me answer you by giving an example of CVJ. So this particular introduction of CVJ is a step. We wanted to gain a share in the driveline segment of the auto component market. We are not a system supplier at this point of time, like we are a system supplier for the steering side. But the driveline, we still have a mileage to go. So we set up this facility at Dharuhera. The first line was set up. There was a total CapEx of about INR 880 crores, and then we infuse some more capital expenditure for this line. It got a capacity of approximately 3.7 lakh to 4 lakh units. Currently, we are using this facility for Grand Vitara and Toyota Hyryder, which is Toyota and Maruti joint production. And currently, our line utilization is just about 65%, 70% kind of a number. For example, '24-'25, we sold about 2.7 lakh units, which is about 1.35 lakh sets of CVJ. And that's just about 65%, 70% capacity utilization. Now what's happening, we are planning to start one additional model of Maruti Suzuki. And once that starts, the capacity will be short. So that's why if you recall, we already have started working on the second line. So while currently, the capacity utilization is less, we are simultaneously working on the capacity expansion. So it's like when the delays which have happened, I think this particular model has been delayed by almost 6 months now. But there are now good news that this will be starting now sometime in July. Once the -- and our second line will also be ready around July. So we are planning that not only the previous line will get fully utilized, but for the new line also, we'll have a sizable business. So we are waiting for that. I mean this is one of the examples. Similarly, to give you another example, we got an export order from Brazil. Again, that is slightly delayed. These are -- I mean, these are normal features. There's a lot of testing and validations are required at the OEM front, so many parts goes into the car and they need a lot of testing to be done. So these -- we have seen these launches getting delayed in the past also. So these are the 2 examples. And -- but just to give you a number is that we are moving ahead, and these facilities will be fully utilized, but I have told you the capital expenditure, which we have planned. We have a good visibility in terms of orders already available or in the pipeline. And we will be utilizing even at this point of time, our capacity utilization on, say, manual gear and CPS is approximately slightly more than 100%. And we have a good visibility that going forward also, we should be able to achieve 100%, say, end of March '27, our facilities will be fully utilized.

Got it, sir. Sir, just one last question is on margins. You've highlighted in your presentation how there were so many one-offs in the margins. So if I think about next year, with all those one-offs behind, should we get back to that earlier trajectory of 9.5%? And you had highlighted last year that we can -- we have a lot of opportunities with the merger of our subsidiary to even expand margins. So should we get back to that trajectory also like with CVJ being a better margin product than steerings, so should we get back to our margin -- original margin trajectory?

So I don't know if you have read our disclosure to the Stock Exchange made yesterday in our presentation. We have tried to explain that on the fixed cost front, like even though there was an increase in the employee cost by about 0.3%, we were able to contain that increase by improving the cost on the administration cost. So almost the same level, we were able to bring about a reduction. So on the fixed cost, which is actually controllable at the level of management, we have made sure that we do not increase that cost. So that's one activity which has already been done. Now coming to variable costs, as Hatanaka-san explained in his presentation, is that almost 80%, 90% of these factors are external like these were uncontrollable on the part of the management. For example, when we look at U.S. exports, they declined over the second and the third quarter, started picking up again. There were many, many factors. I think you people know better why and what conditions were prevailing in the United States for the past few months. And -- but we have turned around like in the month of May, just to explain you, the number is exactly the same which we had in quarter 1 of last financial year. So we have reached to the normal situation, which means this sector will not impact us badly in the current year. Last year, it impacted 0.6%, which is a huge against 1.9% dip in the margin when we try to analyze that, just one reason costed us 0.6%. Then as Hatanaka-san explained, the process costs, which we have -- as per accounting policies, if there are claims available from your vendors, which we need to disclose to our stat auditors as a listed entity; and as per the accounting policies, we are supposed to make provision despite knowing that most of that will get recovered. But the settlement process take a lot of time. While the provisions started coming in the last quarter, we couldn't settled that with customer. But there are good opportunity, good possibility that we should be able to recover at least a significant part of that. And then the third point, which Hatanaka-san told about the recall, say it happens -- it doesn't happen. We do not allow it to happen. That's our promise to you. We'll be more quality conscious. Our quality team is taking it as a challenge that we do not face the situation again. It was contained like it was not unlike last time, there was good traceability systems available in the company. We were able to contain it at a very, very low number. Otherwise, this could have boomed, right. And -- but yes, despite that, it impacted 0.3%. There are other small, small factors like the Red Sea issue resulting in higher inward freight cost. There were certain provisions which we have done -- which are required -- if certain inventories cannot be used; there are claims which are pending with our customer because there was an early EOP, so about 10 million claims are also pending, which are yet to be recovered. But in the books, we have taken a provision for inventories. There are the actuarial valuation, which is done in the employee cost. One of the reasons for employee cost going up is our actuarial valuation, which we get it done at the end of the year. There are financial factors which impact the valuation. This is a future liability valuation and the discounting rate plays a very important role. So this year, the discount rate was reduced from 7% last year to 6.5%, considering the interest rate fall. And that immediately increased our liability because the entire future liability got discounted at a lower rate and the volume -- and the value got up. Another thing was that we -- for employee motivation, we started leave encashment policy. So we had -- so that also. So there are a few changes which have happened in the actuarial valuations. So these are all these factors which I was explaining you, which costed about 1.8% to 1.9% decline are all onetime exceptional and should not be happening again. Having said that, yes, there are many areas where the company need to work to improve profitability; how we negotiate our orders with our customers; how we expand our export, which we are very serious about it; how we do more localization, for example, last year, we were able to localize our drop shaft axle, which is the main component for our CVJ and that helped us to improve profitability of CVJ. Yes, you rightly said the merger is giving us a lot of opportunity for production rationalization. We are shifting our jacket assembly production from our Bawal -- the old JFIN plant to our main Bawal plant so that the entire CPS can be under one roof. This will help us to save inventories as well as the logistic cost. And then we will continue to work on cost optimization by involving our vendors, et cetera. There are a lot of ideas which are available on the table, and we'll keep working towards that.

We take our next question from the line of [ Tushar Khurana ] from [ Peace Wealth ].

My first question is regarding this CapEx that we have lined up in our Gujarat facility. Like you also mentioned that while initially, we mentioned that there will be a CapEx of about INR 250 cr, which may go up to INR 600 cr as well. I would assume that there will be more attention in the products that we're making there? So I just want to understand how much of this capacity would be going into exports, like exporting towards the other JTEKT entities. Because if you see the presentation of JTEKT Corp, you also talked about positioning India as a global hub. So when we talk about positioning India, the global hub, what does it really entail in terms of exporting things from India to maybe other JTEKT entities or to some clients overseas? So if you could talk about this, please?

See, just like you, we are also glad to see JJP presentation where it said that about global restructuring paragraph, they mentioned that they are strengthening Indian sites, which means they are promoting India as a global site. So it can have many meanings here. But as you are aware, the process has started. So the big order which we got from Brazil. JTEKT Brazil is a group entity of our group. And they will be sourcing manual gear, which is where we are quite in terms of being cost competitive. We have -- in Indian market also, we got a good market share of this particular product. We have been exporting this product to U.S. And I'd say this production has stabilized, along with the supply chain, which is required, which has to be -- one of the main factors for increasing export is a very strong supply chain. So fortunately, we have been able to manage that. We have been able to establish a very strong supply chain for us. And we are in a good position to start exporting now. This is a start. And it will impact our share of exports in our overall sales volume from around 2% currently to about 4%. So -- sorry, around 4% currently to 6%. So we will move forward. I think this is one opportunity once we prove that there will be more opportunities available. We feel like that, and we will gear up for that.

But sir, if I talk about from an aspiration point of view, what kind of exports are we looking at paying in the next 4 to 5 years?

Look, normally, we do not have futuristic assumptions on this investor call, but I can only give you the past number. We touched 10%, 11% earlier. So I cannot -- I would not like to put any futuristic number on the table at this point of time. But we know that how important this is for our profitability. We very well -- the management very well understand that this can change the shape of our EBITDA margin. So we're very serious about it. That's what we can tell you.

Okay. No, that's very helpful, sir. My second question is regarding this Maruti EV that will be coming for sale in near future. I believe we have a dedicated facility where we'll be manufacturing the components for that EV model. So can you please tell me when have you already commenced this production of these components? And I believe most of these vehicles will be going for the export markets, especially to Japan. So if you could talk some about this particular thing? And what kind of volumes are we looking at initially for this EV model?

So yes, we are 100% supplier for this model. So whatever exports and domestic production will happen, we'll be supplying for that. And good news is that we are a complete system supplier for this particular product. We will be supplying manual gear, we will be supplying CPS and we'll be supplying CVJ also. We are very hopeful for that. Our lines are ready. We have already -- we are ready with our production facilities. And as per the current information, July will be -- they will start exporting. And we don't know the exact thing, that's something which Maruti has to decide. But just like you, we -- whatever information we have from the market data point, it's like that they will be starting soon now.

Okay. And then which facility you will we be using for this? Is it the Dharuhera facility? Or...

Dharuhera. So Dharuhera will be for MS gear and CVJ, and Bawal facility will be for CPS.

Okay. Okay. And Mr. Minoru mentioned about the promotional offers and discounting that was there because of the slower demand last year. So was that also the reason that we also provided discounting to the OEMs? Do we do that?

No, no, no. Not like that. Promotional offers are basically for the end customer, retail customers, not -- our understanding is different. As we have told several times is that we have arrangement for back-to-back compensation for any increase in the raw material costs and foreign exchange. So those rules still apply. There has not been any change in the rules. The only shortcoming is that the process cost change need to be negotiated. That's the only shortcoming. But that also, the customer has been very forthcoming. We have never faced any big challenge. But yes, it requires to be documented and explained.

Okay. And what is the current revenue mix from the different OEMs for this quarter?

I will give you for the full year. Is that okay?

Yes, sir.

But better will be a full year because that will be more representative number. So Maruti Suzuki is 56%; Toyota is 12%; Honda is 8%; Mahindra & Mahindra is 8%; Tata is 2%; Renault Nissan is 3%; then 1% Isuzu and 1% Stellantis. Rest is like others, like including spare supplies, et cetera, and then 3% exports -- 2.4% exports.

Okay. And have we added any new models from other than Toyota or Maruti? Like M&M or Tata?

Yes. We are working with many customers like we are working with Tata. Coral, which is a Tata Ace platform, it's a small commercial vehicle, which will be launched sometime in -- as per our current information, sometime in July. So we are working with that. We are working with other customers also. Honda, we are working -- we keep working with Honda because almost all the supplies to Honda come from our factory. So yes, we are working with a few other customer also.

Okay, sir. And then my last question on the CVJ front. Now you mentioned that CVJ currently, we are only providing for two models, which is Hyryder and Grand Vitara. So I just want to understand like how big this can be in terms of when we provide this product to different OEMs and not just Suzuki or Toyota. How do you look at this product especially? And also we announced about CVJ Forging also, which is backward integrated with CVJ. So how will that also help in further improving the margins for CVJ product?

So like we are hoping to increase our share of business for CVJ. We got two models now. We will be getting third model, which we expect that the requirement will be large. So currently, we are at around 5% market share. We -- I think we should be expanding to within a year or so. We expect that we may touch 7.5, 10 kind of a number. We will keep increasing. This is one opportunity which is available to us because every car requires A SET so there's 2 CVJ -- unlike manual gear, which is one, you need -- a complete -- you need set of CVJ. So it's a good opportunity and the price is better when we compare with manual gear because of the need to be supplied. So let's hope that we keep on expanding this. I do not want to put any number at this point of time. I cannot -- we will be growing. We will be growing in this field. And let's see. There are many, many opportunities available. So far, we are only talking Maruti and Toyota. We can go for the other customers also here.

We'll take our next question from the line of [ Vishal Maheshwari ] from [ Avenue Capital ].

Am I audible, sir?

Yes, please.

A follow-up to the previous question on the CVJ, can CVJ technology be used for commercial vehicles also? And are there other CVJ suppliers in India basically. And one more question, can any point of time, CVJ technology be mandatory for CV, commercial vehicles?

There's no difference between commercial vehicle and -- it can be used -- there's no difference. Not that it's a compulsory use of CVJ for commercial, it is not like that. Rao will you please explain? Mr. Rao will explain, just a minute.

My name is A. Rao. In the commercial vehicle, I mean, most of the time it is rear wheel driven. So rear wheel driven means like the drive from the engine goes through propeller shaft to the rear wheel, and that's how it is driven. Whereas in the passenger vehicles, it's a front wheel driven, and from the engine wheel -- the driven wheels are connected through this CVJ. Of course, like there are some light commercial vehicles where we have a different thing. And this is like, I mean, more for passenger vehicles than commercial vehicles.

So meaning to say there's not much opportunity for commercial vehicles when it comes to CVJ?

Small vehicles, we can consider, but I think our focus would be more on passenger vehicles as of now. There's a lot of potential in the passenger vehicles.

Okay. Great. My next question is, in FY '23-'24, we combined INR 460 crores CapEx and then we had launched these new products also. But despite that, our revenue growth was only 7% in FY '25. We would like to know your view on that.

So I think I replied that there are certain production need to be kicked in. For example, the new CVJ line, which is now being set up, will go into commercial production from July. Similarly, as I was replying to the previous question is that our export to Brazil will start a little later, whereas the facilities are already in there. So you need to be prepared. You need to spend. The CPS line, MS gear line, et cetera, need to be ready, maybe 3 to 4 months in advance before the sales will kick in. And then there will be a ramp-up also. It doesn't happen that the production will be on day 1 will be equal to the day 10. So there will be a gradual ramp-up of these. But as I told you, the current facilities, which are already available, MS gear and CPS, they are 100% utilized at this point of time. And if you want me to be very specific, the current utilization of CPS line is about 110%. And MS gear is about 92%. So that's the current utilization, And we have visibility as we'll be setting up these new lines through this capital expenditure, they will be -- start getting utilized. So we expect that by March '27, as we keep on adding more and more product, the capacity utilization will again touch to about 100%. In timing period, maybe they will be -- as the production will be ramping up, the utilization may come slightly lower, say, about 85% or something. But over a period of time, it will ramp up to 100%.

Okay. Sir, can I just ask 1 more question?

Please, please.

Yes. Sir, just a broad question that what revenue CAGR company had planned over next 3 to 4 years? Is there any internal revenue target for JTEKT India entity?

Look, we do not talk futuristic. And we are a component supplier and we are actually dependent on our OEM performance and a market demand situation. As I told you that we supply about 50%, 55% of the total Maruti Suzuki requirement. So our growth has to be linked with the growth of Maruti Suzuki and all other customers. So we'll look at market situation. And we -- at current, the news coming from CRISIL and [indiscernible] are very positive that anything between 3% to 5% on a continuous basis, the market can continue to grow. And one of the news which came yesterday is that India will be -- within India, the sale of vehicles will be 5 million by 2030. And that will be the largest in the world. Those kind of statements are very, very positive. And I think we will grow as the industry will grow as our OEMs will grow. And that's why our movement to Western region is because we expect that the Western region, there will be more growth. We have -- there are public news about Toyota expanding in Maharashtra and Maruti setting up a new plant. We don't know the exact details, timing, et cetera. But there are positive news about the Western regions. So that's how we plan our capacity expansion in the Western region. So we are moving as we understand from our OEM as we understand our business situation and as we understand the future, we'll keep taking our actions.

We'll take our next question from the line of Manoj Bahety from Carnelian Asset Management.

Two, three questions from my side. See, as you mentioned, that our capacity for manual gear, it is starting in July. And also CPS in July, CVJ also in July. So as this new capacity comes into play, I just wanted to understand whether our all fixed admin costs, it will also grow proportionately or you will see with the ramp up good operating leverage once you commence this facility? And also, is there any expenses pertaining to these facilities right now forming part of our P&L, which is not revenue generating right now?

So I don't think the admin costs should go up because that's already planned. In terms of our insurance costs, in terms of our rates and taxes, in terms of our indirect manpower, SG&A manpower, we don't see any change happening there. In fact, when we look at that line readiness, we are already training people for that line. So there are people who are getting trained on that line without any production happening. So second thing, a lot of activities are happening. For example, we spent a lot of money on product development. Just to give you a number, [ 112 million ] we spent on testing charges for the new product work. All these products, 3, 4 products on which we are working, there's a huge expense which we have incurred during the year. So these expenses, they are onetime. It will not impact your profitability for next year. So rather my understanding is that it will be a positive scenario as the production will start and the lines can start getting used. Only increase will be the depreciation because currently, these lines are not capitalized, though they are ready for production. But all other expenses like employee, administration costs, et cetera, will not change. I think at least in terms of percentage of sales, this will definitely improve in future.

Got it. Got it. Second question is just an extension to previous participant question. As for JTEKT Japan, they are like planning for almost INR 1,800 crores kind of CapEx in India. So does it mean that there will be a new product introduction also on that -- along with that CapEx? Or that CapEx will happen on the existing products? And along with that, because I think on the exports, generally, it is a long gestation. Like you have to start preparing today for at least like next 12 to 18 months. So is there any discussion happening on incremental exports also along with that as well as on the new product introduction?

So primarily, at this point of time, even though as I was explaining you, there is a limit available, like some extra money is available because my total will add up to INR 1,500 crores and we got flexibility up to INR 1,800. So there is some flexibility available because these are more like limits assigned to different [ regions ] based on our planning for production, et cetera. So we have some opportunity. But at this point of time, we do not have any concrete plan of launching any new product in India because CVJ need to stabilize at least for 1 more year. And we want to expand that to not only to Maruti and Toyota, we need to expand to other customers also. So this is where we are struggling and we are working, and we want this to be a big success story for India. And this is a possibility, and we are very, very hopeful about expanding CVJ. There are several parts of CVJ which can be there can be a possibility that over a period of time, not only the full manual gear, there's a possibility that we can start supplying some components also to overseas entities. So those opportunities are always under discussion at all point of time once the people have -- the way they people have explained that they want to strengthen the Indian sites and promote India as a global site, which means that there will be more opportunities available. Yes, this will be -- we will keep on discussing on this. So that's all I can say, but we'll keep reporting to you. As we get another opportunity on the table, we'll definitely keep reporting to you, sir.

Because I think Rajiv, a INR 1,800 crores kind of CapEx on a current base of fixed assets, which we are having in the balance sheet is a big one. And when your parent is making this announcement and they are also saying that they want to make JTEKT as like a global hub, so in that -- is there any futuristic discussion happening at least on the export side? Because I think domestic market, whether it will be able to absorb output of INR 1,800 crores, unless it is supported by exports.

You're right. No, we -- you're right, we have -- we should be looking at exports simultaneously. It's not that we are ignoring that opportunity. We'll keep trying to explore that opportunity as well. But yes, the current expansion, which I told you, for which we are spending about INR 759 crores, that will be for orders which we have visibility. Over and above that will be primarily expansion in Gujarat, which will -- which will start from '27 kind -- '27, '28. And there, we will keep looking at what are other opportunities available. So it will be a Phase 1 and Phase 2 kind of a scenario. So Phase 1, I've already explained to you today because I have visibility. Phase 2, I cannot explain at this point of time, but we are hopeful, yes. And that's why we have kept our resources lined up for that.

Okay. Okay. Got it. And my another question is on CVJ. So CVJ, how we are seeing the margin component. Because right now, we are just operating one line -- at a suboptimal capacity utilization and hardly we are there on the replacement side, which is a higher margin. So on CVJ, like how do you see the margin outlook going forward?

So as -- the new product will be a better product, and we expect that from the current level of margin, the margins will improve once we supply -- start supplying for a bigger vehicle. The technology is slightly different for which we have already done all the testing and development work. The pricing will be better compared to the one which we are supplying now. So our profit margin in the CVJ category will improve from the current levels.

And replacement part?

Again, sir?

Replacement market, CVJ.

We'll wait. We'll wait. We need to strengthen ourselves with OEMs. We are not hurrying of that because -- but that's -- definitely, that's an opportunity. We know GKN profitability is huge because they do a lot of supplies to the aftermarket. But we are aware about that. But it's not on the table at this point of time. Let us establish for the next 1 or 2 years, 1 year or so with OEMs first.

And one last question, Rajivji I have. See, margins have two components. I think cost part and one-off part, you have explained pretty well in the presentation. The second is the competitive dynamics in the market, the kind of competitive intensity which is there, which will drive your gross margin. So when you are having the negotiation or discussion for the fresh products, new products, how do you see the margins in the new products which are getting introduced, the gross level margins vis-a-vis your existing contracts?

We expect these to be better, sir. Despite competition being there, we expect that the margins will improve. Two ways, not only through the customer negotiation, but also that we are able to do our own cost reduction activities. We know that we have targets set for different cost levels. We expect that -- that's a very serious business here. And the way we conduct our cost [indiscernible] and other activities, we are very, very sensitive that it's not only that the customer who should improve our profitability. We are also responsible to take necessary action to improve ourselves. We expect that our employee cost will reduce next year. We have optimization plans on the table. We know that how to contain our administration expenses and ensure that we are able to fully utilize our assets up to 100%. So many, many things are on the table. Management is very, very sensitive about optimal utilization of the available resources. We'll make sure the profitability will keep improving. I think we have -- time is over. So can we close the meeting with a closing comment from Fujiwara-san?

Okay. Good evening. My name is Yosuke Fujiwara, Director of JTEKT India. Nice to meet you. I would like to thank everyone for joining on this call. I hope we have been able to respond to all your questions adequately. We are really positive about growth in automotive sector and would continue with our effort to expand to meet industry requirements. Thank you very much, and stay safe and stay healthy. And thank you once again for joining with us.

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