Precision Camshafts Limited (PRECAM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings call of Precision Camshafts Limited discussion of operational and financial performance for Q3 FY '22. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Karan Shah, Whole Time Director of Business Development. Thank you, and over to you, sir.

Thank you very much. Good afternoon, ladies and gentlemen. I would like to thank you all for being a part of this Precision Camshafts Q3 FY '22 Earnings Conference Call. I'm joined today by Mrs. Aarohi Deosthal from our finance team for finance-related questions. In case any detailed questions on financials, please e-mail your questions at [email protected], and we shall provide you answers in a reasonable time. We have also submitted an investors presentation for Q3 of FY '22 to the stock exchanges on February 21, 2022, and the same is posted on the website of the company. Investors are requested to refer to the same. I'll now start with an overview of the automotive industry and then get to the company's performance. The global automotive industry is still dealing through difficult times due to COVID and supply shortages on semiconductors and higher commodity prices. This has put pressure on the global OEMs and on ancillary businesses. While experts predict that the constraints on the supply chain should ease by the end of the year, it would be difficult to predict when things would get back to complete normalcy. Throughout these difficult times, we continue to take care of our employees and our facilities around the world to ensure the highest levels of safety and ensure readiness for customer demand. I'm happy to share that despite the challenging times, your company has delivered a 16% growth in revenues at a stand-alone level and an 11% growth in revenues at a consolidated level compared to Q3 of the previous financial year. The parent business, PCL India, has stabilized over the last year, posting consistent results and growth in top line as well. PCL has been awarded several new businesses from customers like Ford, Maruti, Kia, JLR, [ Autobat ], Renault, et cetera. These businesses have been awarded over the last 2 years and will help in better asset utilization at PCL. Machined camshaft sales have increased considerably quarter-over-quarter by almost 38%, which has led to an increase in the top and bottom line of the stand-alone company. The company has also actively started development and validation of new components in new materials, apart from camshafts, for customers who are powertrain agnostic, which means not dependent on IC engines. A new team at PCL is dedicated to this effort of diversifying the product portfolio and customer footprint to ensure that PCL is future-ready. The company has also started work on a 15-megawatt captive solar plant, which will further insulate us from growing power costs and also further our sustainability goals. In summary, PCL India as the parent company continues to enjoy healthy margins and is poised for growth over the coming years. Coming to MEMCO, based in Nashik, the company has seen consistent demand in the last 4 to 5 months, owing to pent-up demand in the CV market, and has delivered good top line and bottom line results, which is in line with previous quarters. Our group company, MFT, based in Germany, has seen stabilization of business, but we still see challenges ahead due to the increasing COVID situation in Europe and the long-lasting impact of semiconductor shortages. The team at MFT is also focused on bringing in new non-engine components to the company's portfolio. In summary, the group's automotive component business is now well diversified in terms of product as well as customer base, wherein no single customer contributes to more than 23% of revenues and is showing consistent growth in top line and margins. Now coming to our e-mobility subsidiary, EMOSS, based in the Netherlands, the company has registered significant growth in business over the last 2 years. Since we have completed the 100% acquisition in July of 2020, we have focused the business on adding new customers and technologies to the company. While the traditional business of retrofitting medium and heavy commercial vehicles continues, we now look forward to an exciting new journey as we partner with several niche OEMs across Europe to provide them with ready-to-assemble electric driveline kits. The company has posted a top line of circa INR 48 crores in Q3 of FY '22 with positive EBITDA and PAT margins. We look forward to an exciting and promising journey ahead at EMOSS. As you might know, over the last 1 year, the company has retrofitted a midsized passenger bus in 200% electric in India. The team has grown significantly and is currently road-testing the electric bus across Maharashtra. We see positive results from the initial testing and are in touch with several potential customers for conversion of buses. In addition, the company is developing an electric driveline for some 4-ton LCVs in India. There are over 2 million LCVs currently registered and running on Indian roads with approximately 500,000 new ones added each year. These are used for a variety of applications such as last-mile delivery, waste collection, postal services, et cetera. The company is focused on bringing a high-quality, reliable product to the Indian market while ensuring cost competitiveness by means of high localization. The various meetings with state and city officials as well as private corporates gives the company great confidence in the future of its e-mobility offerings in India. While the company hopes to grow the India business in the coming 3 to 4 years, our focus right now remains on the European market where the demand is consistently growing and we see great visibility in order position until 2023 and beyond. I thank you for joining the call, and I will now hand over to Mrs. Aarohi Deosthal for financial updates. Over to you, ma'am.

Yes. Thank you, Karan Shah. Good afternoon to all of you. Coming to the financial performance of the company, starting with the stand-alone business performance, Precision Camshafts Limited, which houses the camshaft business. Total income for Q3 FY '22 increased by 16.06% year-on-year to INR 145.37 crores. EBITDA for Q3 FY '22 reduced by 10.7% year-on-year to INR 32.58 crores. PBT for Q3 FY '22 is INR 22.59 crores, and PAT is INR 16.46 crores. EBITDA margin for Q3 FY '22 is 22.4%, and PAT is 11.32%. Total revenue contribution from export is 47.82% and balance domestic -- and balance is from domestic sales. Total income for 9 months FY '22 increased by 35.5% to INR 376.15 crores. Volumes -- or sales for Q3 FY '22. Camshaft casting sales for rupees Q3 FY '22 decreased by 2.96% quarter-on-quarter to INR 1.31 million. Machined camshaft sales for Q3 FY '22 increased by 37.93% quarter-to-quarter to INR 0.80 million. Total camshaft sales for Q3 FY '22 increased by 9.33% quarter-to-quarter to INR 2.11 million. Volume contribution to machined camshafts increased by 8% quarter-to-quarter. Now coming to the consolidated business performance. Total consolidated income rupees Q3 FY '22 increased by 11.4% year-on-year to INR 244.88 crores. EBITDA for Q3 FY '22 reduced by 3.10% year-on-year to INR 38.20 crores. The EBITDA for Q3 FY '22 is INR 17.63 crores, and PAT is INR 11.63 crores. EBITDA margin for Q3 FY '22 is 15.60% and PAT is 4.80%. Total income for 9 months FY increased -- 9 months FY '22 increased by 31.7% to INR 680.38 crores. Now coming to our group company's revenue, MEMCO, MFT and EMOSS. Revenue of MFT in Q3 FY '22 is INR 38.04 crores. Revenue from MEMCO in Q3 FY '22 is INR 13.38 crores. Revenue of EMOSS in Q3 FY '22 is INR 48.67 crores. With this, we would like to open the floor for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Yash Agarwal from JM Financial.

Congrats on a good set of numbers. My first question is the machined camshaft business, basically the stand-alone entity on machined camshaft has seen a dramatic improvement in utilization in the third quarter. Firstly, how -- what has led to it and how sustainable this is? Also, going forward, given the fact that you are hearing Maruti and all the passenger vehicle companies are looking at record production in the fourth quarter, can this get even better from what the third quarter level is? That's my first question. The second question is on the EMOSS side, you mentioned that there is one vehicle which is being tested. Have you participated in any government tenders of the Maharashtra government? And are we intending to participate in the Maharashtra, any other state government e-bus tenders in the near future? Yes.

Okay, thank you. Thank you for your questions. To your first question on machined camshafts, look, I think the last year and due to COVID, due to semiconductor shortages and other issues around the world, almost all geographies have been affected wherever we are supplying, including North and South America, Korea, India as well as Europe. We have seen an uptake in demand over the last, say, 3 to 4 months, which is why we see an increase in the sale of machined camshafts. We should -- this should be a sustainable number going forward. As far as the Indian OEMs that you mentioned to -- especially to Maruti and some others, we supply camshafts in the form of castings, which are further machined by the OEM themselves. So if there is an increase in demand from the local OEMs in the next quarter, then we are, for sure, aligned with them to provide them with additional camshafts wherever required. So that would be a derived demand for us. So that's on the camshaft side. On the EMOSS side in India, yes, we have one bus which we are testing at this point of time. We have not yet participated in any government tenders simply because the vehicle is not fully tested, and roadworthiness certification is not yet complete. We are in discussions with several STUs as well as private corporates for their requirements for retrofitting of buses. But like I said in the call, the intent of the demo bus was to really understand our capabilities of doing such work in India. But we are now looking at the LCV market, which is a really large market in India and is underserved at this point of time, to provide a really good solution for that. So this is where we are right now.

So a follow-up on the LCV. You mentioned, I think, a figure of 2 lakh LCVs that are applying for road and -- or annually being sold in India. What sort of market, 3 to 4 years down the line, is something which could be a market for you? I'm not saying that -- what we are going to win, but what potential could be the market size for this retrofitting of LCVs as...

I really can't put numbers to that right now. We're still just for the development of the vehicle. So it's very hard to say what the market would be in, say, 2 years from now. But the number is actually 20 lakh vehicles are registered right now of a similar kind. And even if you take a very, very small percentage of that, which can be converted into electric rather than buying new ones, I think that's still a very large-enough market for us. So it's very hard to put a number right now on that.

Sure. Also a follow-up on the margins. So our stand-alone margins have come in at a very healthy level despite rising commodity prices. So in light of even higher commodity prices possibly in the fourth quarter, do you think the sort of level is sustainable, over 20%?

Yes. Typically, in our business, we have an index for commodities, which the customer passes on to us, especially on the metal side. So we are more or less insulated on that. There is sometimes a lag in how we are compensated for that, but the materials are generally a pass-through.

Got it. Got it. And last question, so you mentioned that you are booked on the EMOSS until 2023. The demand is primarily coming from Europe. What is the order book number that we are going with that? How many years of sales are we covered just based on the order book from Europe? Some color, if you could provide.

I'm sorry, you know I can't answer that since it's a futuristic number. But enough to say that we have significant outlook and visibility for this year, the next year and beyond.

[Operator Instructions] The next question is from the line of [ Shubham Jain ], an individual investor.

Congratulations for a good set of results. I have one question currently on EMOSS. Okay, in 2 quarters, INR 950 crores of revenues. Last quarter, we had INR 45 crores; and the quarter 1, INR 948 crores. So what we're seeing in the EMOSS number, we -- have we hit a peak in terms of the quarterly run rate? Because that doesn't seem to be a month-on-month growth, which is generally expected in a high-growth business, right, or a quarter-on-quarter growth we are not seeing. Is there some bottleneck in terms of capacity expansion because you -- as you said, your orders are booked for the next 2, 3 years' time. Do we see some amount of quarterly growth also coming in, in the EMOSS business in the next few quarters? Or will we maintain the same run rate going ahead because we are not able to expand on the capacity side to deliver on the orders which you have on hand at a faster pace?

Thank you for the question. I think to answer you, we are not a month-on-month business or we are not a quarter-on-quarter business. So it's very difficult to kind of say that in 3 months, there will be a dramatic change in such a business. We are, at the end of the day, dependent on what the customer demands from us, how the industry looks at how the supply chain looks like, et cetera. If you look at the year-on-year growth, there has been significant growth, and I'm sure you can see that in the numbers based on what EMOSS was doing, say, 1 year ago, same quarter to now. And we see even additional business going forward. I can't put a number on that in terms of what the run rate would be. But in terms of capacity, that is not an issue for us. We have, in the last year, acquired an additional plant very close to where our current plant is in the Netherlands, and that is not really a constraint for us. So we should be seeing growth in the coming years. I think that -- I can't put numbers on it right now.

Okay, okay. No, no, at least we got a color in terms of what is happening. Okay. Now one more question, which I had -- in the last conference call, I also asked you in terms of what is happening on the OEM supply as a full stack solution to OEMs from the EV perspective, besides the retrofitting angle. So is there any development on that side? Do we see -- soon, do we see EMOSS [ stricken ] vehicles, the drive and sort of vehicles coming into the market?

Yes. So we have already 6 or 7 different OEMs in Europe that we work with already for the last 1 year. We supply to them complete EMOSS drivelines. And the vehicles are, let's say, produced by an OEM but powered by EMOSS. And that is what has been the growth driver for us over the last, say, 1.5 to 2 years. Discussions are ongoing in India. But like I said in the call also, our focus and our efforts right now are on the European market where the demand is and where we see visibility. India is still a nascent market. We are developing products for it, which I said is the bus that we have already done and an LCV that we are planning. And you'll hear more about that from us in the coming 6 or 8 months or so.

[Operator Instructions] The next question is from the line of [ Akshay Agarwal ], an individual investor.

My first question is regarding EMOSS. Essentially, what is the seasonality in the business? Because you seem to be quite confident in your voice and body language in terms of what EMOSS will do in the future. But like the previous question had also asked, there seems to be a little bit of plateauing of sales. Is there some events, for example, like Diwali or something there that causes your sales to go up? Or what is it that will cause your sales to go up? A new OEM, for example?

Again, I think the similar answer to the previous question, this is not a month-on-month or a quarter-on-quarter business that should be tracked. It's a long-term business that we should look at, starting where we did 3 years ago at devoted INR 40 crores of turnover per year. We are now at INR 50 crores of turnover per quarter. So I think that in itself shows you how much growth there has been. Seasonality, there is not much except for the fact that generally, in August, there is a summer shutdown in all across Europe. And in December, there is a Christmas shutdown. So in these 2 times, you should expect a little bit of dip, but there is -- the products that we do are going for essential needs at most places, right? It is delivery services, it is waste management, it is road sweepers and very, very niche applications. So it is not that there is more buying or less buying due to a particular season. So end of the day, there has been significant difficulties over the last 1 year, especially in Europe due to COVID and also supply chain shortages. And despite that, if we are maintaining -- even if it is -- it looks flat for the last couple of quarters, it has been a good business. And most importantly, I think one point that I did not mention in the previous answer is that at this level, this is probably one of the few EV businesses around the world which is EBITDA and PAT positive. So I think we've got to look at this holistically.

Yes. Karan, I think I really appreciated the fact that you're able to build a business of scale in Europe that is profitable. And the fact that you've built up business from INR 40 crores a year to almost INR 50 crores a quarter is also really appreciated. But most investors feels like the demand emerged. So just a little bit of color in terms of the sales mix or [ property ] going forward. Is there something happening in terms of the mix of sales between retrofitting and OEM sales that is causing this profitability to go up? It's unusual for businesses to change their profitability profile without dramatic sales growth. So is there something that is causing...

Absolutely. So 3 years ago, the company used to do 10%, 20% OEM sales and 80% retrofits, which are very, say, handmade custom solutions for the customer. And those are not standardized. Those are not productionized. We can't have an assembly line, et cetera. Today, I think we do almost 50%, 55% of the business is kits and OEM sales and the rest is retrofit. So moving away from these custom solutions to becoming a more solution provider for OEMs has definitely helped not only on the sales side, but also the bottom line.

Got it. For the India business, Karan, how are you thinking about retrofitting versus kits from 2 perspectives, one is the same subsidy and two is availability of OEMs who can actually produce for you? Or will they have to make any changes at all?

Yes. I think I can't answer the OEM or the kit suppliers at this point of time. It's just too premature to answer that question. So from a retrofitting point, yes, I think we've got -- one thing with the buses, we have learned that a higher level of localization is possible in India, which is what will drive cost down, which is what will make us competitive at the end of the day. And we are looking at this LCV market in a really big way because there are plenty of customers, whether they are state transport, municipal corporations, fleet owners, last-mile delivery guys, et cetera. So there's a large market for that. And we believe that we would like to start with purely as a retrofitting solution, at least until such time that we have proven that this solution that we provide, that the driveline that we provide is high quality, it's reliable, it's cost competitive, et cetera, et cetera, right? We want to have a track record of saying that these are vehicles that we have delivered that have driven hundreds and thousands of kilometers before saying that why don't we jump in and become an OEM. So I think that's where we are today.

And just to be clear, that's a really good and safe strategy. But that would mean that your product would be higher priced. I mean retrofitting wouldn't -- would that still allow you to claim subsidy from government?

No. There is -- Tier 2 is not applicable to retrofits.

So that would still have...

What it does is instead of you buying a new vehicle, which costs, say, X rupees, X lakh rupees, what -- the idea or the solution that we provide is that you already own a vehicle which you have been, say, driving for 5, 6 years. And it has come to a point where the internal combustion driveline has too many issues, has basically warranty issues, has pollution norms, don't fit, et cetera, where you can come to us, we convert your existing vehicle for X minus something-lakh rupees, it obviously would not cost as much as a new vehicle, and would give you an extended life for that existing vehicle of yours, right? So I think that's the whole idea behind this.

All right. Sounds like a smart strategy. I'll get back in the question queue.

The next question is from the line of Vipul Shah from Sumangal Investments.

Congratulations for a reasonably good set of numbers. So would you repeat the sales mix for EMOSS? How much is the retrofitting and how much is the OE sales? Or...

It's, give or take, 50-50 right now. It changes month-to-month, but give or take, 50% deals.

And margins are similar for both the businesses, Mr. Karan?

Well, I would say that margins would be better and more sustainable for the OEM supplies because it's more standardized, sourcing is done at larger volumes, et cetera. But then on the flip side, the selling price of the retrofits is much higher than that of the kits. But I would say still that the margins are more sustainable when it comes to OE supplies.

So are we adding any capacity at the EMOSS level in the near future?

Yes. But I mean we have an additional plant now in the Netherlands to cater to the new demand, but it does not -- I mean it does not call for significant CapEx or anything like that because it's an assembly line basically where we're sourcing and assembling kits and then installing our proprietary software and things onto the driveline.

So that Netherlands plant has become operational or it is yet to become?

Yes. Yes, yes, it is.

No. So I'm -- what I am asking about is adding of new capacity, Mr. Karan, at EMOSS.

Yes, we do have an additional plant, which is already functional. So that is where we will -- that is where -- from where we will supply the additional demand that we have for this year and the next year.

And lastly, 3 years down the line, can we expect this OE sales to reach 75%?

That, I can't answer that at this point, unfortunately. Our hope would be that -- our hope is that, but I can't answer it in terms of numbers.

[Operator Instructions] The next question is from the line of [ Shubham Jain ], an individual investor.

Karan, we have already started seeing competition in the Indian market. So there's a company called Terrago, who has already come in with an EV and LCV into the market. I'm just a little concerned in terms of the time lines of coming into the Indian market from an EMOSS participating in India. So what are your thoughts around this? Because the 2-wheeler market is really hot in terms of many more competitors coming in. And at the bottom end of the commercial vehicles, we have seen now players have started moving into the electric 3-wheelers coming in and now with people like Terrago with the LCV, the smallest LCV has also moved into the EV segment. So is it something which you're also looking at and preparing for commercial launch in this financial year itself?

In this financial year, in the next 1 month, definitely not. So...

No. I'm so sorry. I'm so sorry, the next financial year, the next financial, FY '23.

Yes, I hope so. I hope so. I think if we have all that goes according to plan, I hope so in the next financial year. But yes, of course, we have a close eye and ear to the ground when it comes to what competitors are doing, et cetera. And I think it's a very early-stage market. There's a huge market to play at, and I don't think there is a risk of saying who gets the pie because I think it's a large-enough pie for everybody to share at this point of time. I think our focus is on getting best-in-class technology, best-in-class product while being competitive. I don't wish to talk about any of the competitors in the space at this point of time. But I think our focus is on getting this European technology, but for the Indian market, and making sure that we have a good product here.

Okay. And have we started also our sourcing components from India for EMOSS Netherlands now to reduce the cost further for the business, which is happening in Europe?

Yes, we have started the process, but not yet executed or implemented yet because it's -- we have to look into a variety of factors, including the European norms and standards and compliances and things like that. So we are -- the process has started, but it will take some time to actually implement.

Okay. And lastly, I asked you this question in the last 2 calls as well. Give us a moment on the non-camshaft business for PCL, like we discussed and you had told us and the vision or the target is released to 25%, 30% in the next 4 years' time for non-camshaft business happening at the PCL level.

Absolutely. So I think like I said in my talk, we have a completely new team, a very senior team, comes from extremely good background, which is dedicated to this effort for diversifying the product portfolio. We have not started, say, series production for these parts. But the development and validation of a lot of new components is already underway. And these are not only non-camshaft, but very specifically non-engine components, which is what our target is for the next 4 years.

[Operator Instructions] The next question is from the line of [ Akshay Agarwal ], an individual investor.

Karan, first of all, congratulations cannot be said enough on the success that you've achieved at EMOSS. The question I had was if you could help us understand what is happening in terms of sales cycle at EMOSS because if price is a lever, like would you not consider giving people a 5% discount to get dramatically higher sales? And -- or would 5% not move the needle enough? What is it that one can do to accelerate sales, hiring salespeople or it's a business that cannot be precipitated by hiring salespeople?

Yes, no, this is, I think, very easy to say, very difficult to execute, but I think the fact is that we have grown significantly multifold over the last year, and it comes because of all of these efforts, number one. Number two, wherever we do supply, whether it is OE or otherwise, we are typically a single source to that customer. We are not complete. It's not a commodity product, right? It's not a plastic part that we are supplying 75% from cargo and we'll get more business. It's a product that has taken 3 years of research and development and validation and has gone through certification and homologation in, say, 15 countries that we serve and then goes on to the road. So there is tremendous amount of work that goes behind even one kit or one vehicle that leaves our premises and drives on the road. So the demand that we see right now has been the result of the last 18 months or 2 years of efforts with several customers, and that effort continues. And you will see the fruits of that effort in the coming 2 years and not immediately. So again, I would want to reiterate this that let us not look at this business as a month-on-month growth or a quarter-on-quarter growth, but long term, really long-term business. So you've seen what can happen in 3 years and only can extrapolate what could happen, and that's all I would say.

No, that is super fantastic. Just a question, not so much, because it clearly seems that you have a good product. So anybody to say even one truck under European regulations is kind of tough and especially in electric vehicles to sell the trucks that you're selling, you must have got a really good product. I was just wondering in terms of the -- you used the word of -- it's a long lead sales cycle. Is that -- is the demand not obvious, like every -- like you have to tell somebody, so it's not something that you do. It's like automatically and how the bush is figuring out that 3 to 10 of their trucks to meet their quarterly targets or something like that. Is that how demand comes? Or do you have to market like in India, you have to advertise on television, advertise in state fairs?

It's both ways. It's both ways, to be honest. When we work with OEMs, once we have a contract with an OEM, however many vehicles that they sell, we sell that many kits, right? That's very clearly derived demand. On the other side, when we are talking about new OEMs that we would like to partner with, that's something that we do as outreach. When there's some new convergence that we want to do, that's something that we do as outreach. So it's both ways, it's not one way.

Got it. Got it. No, that sounds really interesting. I'll get back in the question queue and ask further questions.

[Operator Instructions] The next question is from the line of [ Akshay Agarwal ], an individual investor.

Karan, a couple of questions around your domestic strategy. Of course, it's up for a lot of competition and demand, like you answered the previous participant. In terms of your own strategy, to the extent you could reveal it, is that -- would you be optimizing for profitability in the short run? Or would you consider running the product at a little bit of a loss for the first few quarters, maybe years, to seed the market and equally consider raising money? So the framework is essentially saying, would you need to raise money for a venture like this in India?

So to be honest, both are forward-looking numbers, I can't answer -- or forward-looking questions, I can't answer either of those questions. But the point is that we -- like I said in the previous answer, we will try and get into this market over the next 12 to 18 months, have good products in the market which our customers can use, drive, test and then say that you have a good-enough product, then you can actually have a good-enough market share if the product is good and the price is right, et cetera, et cetera. So I can't answer to you as directly as, will we set it for a profit or loss or do we need money? And I think those questions will have better answers when we are further down the development.

Got it. Got it. No, I think I think the market is quite early -- at an early stage, so your strategy will evolve as well. For the camshaft business, Karan, what is the likely medium-term outlook, not to say what numbers you will deliver next year or thereafter? Just from a medium-term perspective, you're already 10% of the global market in terms of camshafts from what I understand. And do you see the fact with EV increasing, margins will come down, but machined camshafts are going up? What's the medium-term best guess in terms of what will happen to margins?

So I think we don't see any pressure on margins at this point of time due to change in EV or otherwise. I think what we are saying is that for the camshaft business, we have at least an order book for the next 3 to 4 years that we know is [ EV quality ]. So in terms of asset utilization, in terms of what we can do at our plants there, I think we are -- more or less, we have good visibility 3 to 4 years. Having said that, I think we are also in very -- various negotiations and discussions with many customers around the world for new camshaft projects. So there is no such thing as -- there's IC systems or gasoline or diesel engines, which is the last kind of wave of engines that are being thread up and there will be no more. I think we all -- we still think that even 10 years down the line, there will be some sort of equilibrium between IC and electric and maybe some hybrids in there, maybe hydrogen-powered powertrains going forward. But I think in all of the mix, we see that the camshaft business will stay as is and will continue to grow based on some of the new businesses that we have got. So yes, I think visibility is there for sure.

Karan, the reason I asked this question is just for the camshaft businesses, when one compares the electric vehicle business with the camshaft business, the kind of growth that you have delivered in electric vehicles maybe 4, 5x in under 2, 3 years, and when one compares it with the camshaft business, you've set up a new plant with the IPO money, and utilization still after 5 years is still, let's say, 70% to 75%, what would it take for utilization to go up? Is it external export orders? Some domestic orders? Like do you see that -- do you see us shifting 100% capacity utilization sometime in the next 3 years?

100% capacity utilization doesn't exist. There are -- there's efficiency factors and things like that. So even for us to get to an 85%, 90% capacity utilization over the next 2 years, it's possible because of the new businesses that we have been awarded. There have been delays, there have been lags, there has been a slowdown in general globally in the last 2 years, and we're all aware of that. But if things pan out as per the contracts awarded to us, I think we do see higher utilization in the next couple of years. I'm saying how much.

Got it. And Karan, is there a large difference in the profitability of the Michelin camshaft business that explains the profitability as you see this quarter and the corresponding growth in the machined camshaft business?

Yes, absolutely, significantly.

Any order of magnitude, like is it like 5 percentage points better or 10 percentage points better or even more probably?

EBITDA margins for the casting would be in the 12% to 15% range. For the machined camshafts, it would be in the 25% to 30% range, so it's almost 2x. So that's where all the value addition comes in. So the more machined camshafts we do, the better the margin would be -- should be.

Okay, got it. And your large part of orders and the incremental orders are in the machined camshaft business and also some of the casting business. So is there any medium-term plan of doing any CapEx for the business, I mean either some sort of adjacent product or this business will effectively generate, let's say, some number between INR 50 crores and INR 100 crores of profit over the next every year on a rough basis? I'm just annualizing what you've delivered in the last few quarters. And all of it will effectively -- you'll do some maintenance CapEx, but it will basically be cash flow.

Yes. We don't have a CapEx at this point of time planned, but we will, for sure, let shareholders know once there is some solid plan.

Got it. Got it. No, I think most shareholders or at least some like us would suggest that you keep reinvesting into the EMOSS business, which has pretty interesting prospects. I have no further questions.

[Operator Instruction] The next question is from the line of [ Shubham Jain ], an individual investor.

Karan, I'm so sorry, but I keep coming back because I want a little bit more understanding on the EMOSS business, okay? Now I know that you're supplying to OEMs, but these are all very, very niche OEMs, if I may, if I'm not wrong, right, in terms of somebody who is doing the municipal sweeping [ Michael ] or somebody who's doing something else. But these are very niche, okay? And when are we looking at getting into the mainstream OEMs, probably in the large ones like a Porsche or BMWs of the world? So is there something you guys are talking to, because that's where the scale will eventually come in?

We don't intend to be also. All of the large OEMs have their own e-mobility divisions, which they spend billions and billions of dollars on, and this is not a space that we like to be in or want to be in. I think in the market that we are, in the niche OEM or the niche vehicle applications, there is tremendous headroom for us to still grow, and we will continue to be in this at least for the next couple of years.

So is it safe to say that we would be in a monopolistic situation in the niche OEM markets where we are supplying?

I can't say that we're sure at this point, but we do have a substantial market share, yes.

[Operator Instructions] The next question is from the line of Vipul Shah from Sumangal Investments.

Sir, what is our annual capacity for machined camshafts?

Aarohi, ma'am, if you could answer that exactly because I'm...

Yes, I will answer the question, sir. Capacity for the machined camshafts, including the fourth machine shop, is 4 million.

4 million. So we are running almost a 90% capacity utilization for right now for machined camshaft?

So we are in beginning -- in Q3, we are utilizing 81% of the capacity. And -- yes.

Okay. Sorry. Yes, go ahead, ma'am. Yes.

Yes, yes. It for the machine shop only. And including the foundry and machine shops cumulatively, we are using 64% of the capacity.

So casting and machine both together, that is what...

Yes, sir. Yes, sir.

Next question is from the line of [ Varun Gupta ], an individual investor.

This question is regarding the LCV business in India that you spoke about. So as the time today, given where battery prices are and crude prices are, how does the total cost of ownership for LCV which is EV-powered compare with the IC alternative? Are EVs cost competitive today? Or is it more an environmental approach that companies may take?

No, at least on the LCV side and some specific applications, the total cost of ownership over the lifetime of the product or the vehicle is definitely lower when it comes to EVs. But I can't put a number in terms of years for return on investment or things like that because we have not yet finalized pricing and sourcing in India. So I can't explain the numbers.

But order of magnitude, Karan, would it be 10%, 20% better; 20%, 30% better; or broadly equal?

Really, I mean I can't answer that because, see, I think the upfront CapEx that the customer has to bear is yet to be determined. We -- I can't put a number into that. And just in terms of operating costs and in terms of maintenance costs, those costs are approximately, I would say, 50% to 60% less compared to diesel. So there is certainly a lot of saving there in terms of operating cost. But in terms of total cost, it all depends on how the vehicle is priced, what the upfront CapEx is, et cetera, so I can't answer that right now.

I understand. But you are pretty positive that it will be economically viable. It is not just -- it's not seeking an environmental goal.

Yes.

Understood. And can you also talk a bit about the growth outlook for the camshaft business that you have? Like in terms of utilization, where are you guys at today? I think you mentioned 64%, but 81% in machined. So the machined camshaft, are we close to full utilization? And how much do you see that we go to in terms of overall utilization over the next 2 to 4 years?

I can't talk to you about how -- where we can go in terms of utilization over the next years because again, I would be indicating a future number. But I think we are at a lower utilization in the casting business and getting to a much higher utilization in the machining business or the machine shop business. And I think based on the orders that we have on hand right now, if everything goes as per plan, if there are no more issues in the supply chain or semiconductor shortages and plant closures, et cetera, then we should see higher utilization on both businesses.

I understand. And see, related to that, in the stand-alone business over the last 5-odd years, your EBITDA margins have ranged between 25% to 31%. But they were slightly lower in this year, in the early 20s. Is this a little bit of the lag that you were referring to that commodity prices got on with the lag? Or is this the new margin profile of the business?

No, I think the sustainable margins, like we have said, are in the mid like 20% to 25%, so that's sustainable margins. I think there are many impacts. Aarohi, ma'am, if you can answer, but I think there are several impacts like commodity prices, there is ForEx and plenty of factors that affect the margins.

Yes, sir. The raw material prices affected on the profit margin of the company. And the labor charges also affected on the profit of the company. And some repairs and maintenance costs, that is also expected. The number of reasons are there.

But do you see that...

Sorry?

Do you see that changing? Like at the stand-alone margin for each of the last 4 years are actually in the, as I said, between 25% to 30%. In fact, 30% in 3 out of the last 5 years. So do you see that those margins will not be material going forward? Is it more a 20% to 25% margin business going forward?

Aarohi, ma'am?

Yes, sir. 25%, yes, sir.

Yes, I think between the 20% to 25% is what we are saying as sustainable margin. There have been obviously certain quarters or certain years where it has been higher, and there are a variety of reasons for that, which could be ForEx being restated at a higher rate, lower commodity prices, different variety of factors. But like I said, this -- what we have right now should be sustainable.

I understand. I understand. Okay. And in general, EMOSS, I know you don't want to give any specific numbers, and I respect that. But from a growth outlook perspective, you don't think they are at the peak. This is not a steady cash cow business that will provide 10%, 15% or something like that. It can grow much faster if it still continues to be a growth business. Would that be a fair comment?

Yes.

Understood. So it's maybe useful to ignore month-on-month or quarter-on-quarter. But as one looks at it over a longer period, that accounting is going to be much higher.

If you look at the last 4 years, it has been about 40% CAGR. So I think that's the history. I think going forward also, we can look at -- I can't put a number, but it's definitely not month-on-month or quarter-on-quarter.

Okay. But it still continues to be compounding. This is not really [ restating ] that niche market. It's still very early in the niche market.

Yes. Yes.

I understand. And from a CapEx perspective, are there any CapEx plans that the company has over the next year or 2?

Not at this point of time, not that we have declared. We will definitely announce these as and when plans fall in place.

I understand. I understand. And one last question, if I may squeeze in. On the EMOSS side, as you said, it's still a growth business, you continue to invest for growth. Can one expect better margin profile? I mean EMOSS obviously still in the context of EV, probably rare profitable EV businesses globally, as you said. But can one expect meaningful change in margin profile as well as it continues to grow?

No, I don't think so. I think we're at roughly 8% to 10% EBITDA margin at this point of time, which is what should be sustainable.

Sir, we've been growing margins from here on, it may or may not happen. It's likely to be a 10% EBITDA, but high growth business.

Yes.

The next question is from the line of [ Shubham Jain ], an individual investor.

Karan, I wanted to also know or have an update on the status on this investigation, which has opened against our company a couple of months back, where the Ministry of Corporate Affairs had sought information pertaining to 2010, '11, et cetera. Is that gone by, passed by or still the company under investigation for? I don't know what was the reason for which we got the notice, but what's the status of that? It would be great if you could tell us.

No, I think this is, as far as we understand, routine investigation. We have provided all of the required details to the concerned authorities. And I think this is where we stand right now. Whatever was required to be provided has been provided.

So we can safely assume that we are past that particular incident which has happened, right?

All I can say is that all of the information that was asked from us has been provided to the authorities.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Karan Shah for closing comments.

Thank you so much for joining this conference call for Q3. I hope that we have been able to answer most of your queries. And we look forward to your participation in the next quarter. Thank you very much.

Thank you. Ladies and gentlemen, that will conclude today's conference. Thank you for joining. You may now disconnect your lines.