Rane Holdings Limited (RML) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Rane Holdings Limited Q2 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from Ernst & Young. Thank you, and over to you, Mr. Pingle.

Thank you, Michel. Good afternoon, friends. Welcome to the Q2 FY '24 Earnings Call of the Rane Group. To take you through the results and answer your questions today, we have the management team from the Rane Group represented by Mr. Harish Lakshman Vice Chairman, Rane Holdings Limited; Mr. P. Padmanabhan, President, Finance and Group CFO; Mr. Siva Chandrasekaran, Senior Executive Vice President Executive, Secretarial and Legal Services; and Mr. M. A. P. Sridhar Kumar, Executive Vice President, Finance and CFO, Rane Holdings Limited. Please note that we have sent you the press release and the presentation link of the deck. In case any of you have not received the presentation, you could look at it on our website or even the BSE site of Rane. Or you could write to us, and we'll be happy to send the details on presentation to you. Before we start, I'd like to say that everything that is said on the call that reflects any outlook for the future or which can be construed as a forward-looking statement must be viewed in conjunction with risks and uncertainties which we face. These uncertainties and risks are included but not limited to what we mentioned in the prospectus and subsequently in annual reports, which you can find on our website. With that said now, I'll hand you over to Harish for his opening remarks. Over to you, Harish.

Thank you, Diwakar. So good afternoon, ladies and gentlemen. Thank you for dialing in. I'd like to welcome you all to this investor call of Rane Group. Let me start with a few comments on the industry. Automotive industry experienced robust revenue growth and improved profitability in Q2 of the financial year 2024. The Passenger Vehicles segment witnessed a 6% growth driven by strong performance of new models in the SUV segment. The Commercial Vehicles segment continued the upcycle, supported by strong growth in the M&HCV segment. The Farm Tractors segment unfortunately experienced a 10% drop year-on-year due to the increased -- decreased monsoon activity and subdued market sentiment. The demand from international markets remains favorable across all the product categories. Coming to the group performance, our group aggregate revenue came in at INR 1,897 crores, which is a 16% growth on a year-on-year basis. The positive demand environment in India with growth across all the major vehicle segments and strong offtake from international customers continues to improve our sales. The EBITDA margin of Rane Holdings consolidated increased by 25 bps, supported by higher volume and improved operational performance. I'll now provide some details on each of our businesses. The steering division experienced a slower growth rate, primarily attributed to reduced volume of models which are being served by us in the Indian market. The light metal castings India business successfully started production and ramped up volume on our major export program for a leading EV maker in the U.S. During the quarter, we won new business worth about INR 110 crores per annum from various domestic and international customers. With the investment of our American business, the management continues to focus on increasing our export mix of both our businesses in India. And sales to international customers grew by 31%, driven by strong offtake for both steering and light metal castings products. Coming to engine valve. REVL continued to sustain the financial performance through strong execution on the robust demand. Export sales grew by 25%, and we also won a INR 5 crore order from a domestic EV customer for CNG applications. Our brake lining business, RBL capitalized on a favorable demand environment to drive top line growth. There is a strong traction on the 2-wheeler segment, where RBL is focusing on disc pad application. Though it is a small portion of the overall sale, RBL is working on expanding our international aftermarket business. Coming to our joint ventures. The first one is the ZF joint venture. The improved demand for commercial vehicles has been a key driver for growth for the steering division. We won new orders worth INR 32 crores for steering gear products from various EV customers, and this included a INR 3 crore order for EV applications. Our occupant safety business continues to benefit on account of increasing preference for safer cars and also the export business. The revenues from the occupant safety business grew by 27% this quarter. Our NSK joint venture, the column EPS product benefited by favorable demand on served models on the UV segment that we supply to Maruti. The manual steering columns had strong growth with the support of new product launches. We won new business worth INR 175 crores per annum for EPS from domestic customers for UV model. Despite the overarching economic and geopolitical challenges, I think, globally India remains fairly resilient. Favorable demographics and public and private spending is definitely aiding the growth. However, higher inflation and interest rates and drastic escalation of geopolitical situation could derail the momentum. So we remain cautiously positive given our order book position. We continue to prioritize operational improvement and cost savings to balance out any risk on the growth. I'm also happy to share that with the sale of our telematics business, Rane t4u and our U.S. investment [ LLP ] and the turnaround of both REVL and Rane NSK, all the businesses in our group have become profitable. I'm cautiously optimistic that we can further improve our margins as we go forward. With these remarks, I will now open for any questions that you may have.

[Operator Instructions] We'll take the first question from the Nisarg Vakharia from NV Alpha Fund.

Yes. Since this is the last quarter for the consolidation of the U.S. business, which has been sold in Rane Madras Limited, what will be the consolidated debt from the next quarter on the balance sheet?

I think the total borrowing is around INR 650 crores both -- and including long term as well as short term, including working capital...

Okay. Now this is almost 3x debt-to-EBITDA. We are at about INR 200 crore EBITDA run rate and we have INR 650 crores of debt. How do we plan to reduce this debt? And what sort of operating cash flows do you foresee to reduce this debt in the next 1, 1.5 years?

I think I've taken this in the last call itself. I think with the improved business scenario, we are planning to -- obviously, the business will be generating some cash to repay the debt. We are also evaluating any other solutions that may be available to reduce the debt. As and when we decide something, we will share.

So 2 questions in context to that. One is that the solution resolves some sort of an equity raise, or will it be through monetizing some assets like land sale or something? And secondly, you also announced an investment in Mexico. What is the quantum of the investment and some economics of that investment? If you could explain to us.

Yes. So to answer your first question, nothing has been decided. We are still evaluating our options. As far as the second one is concerned, we have made -- we have just announced the setting up of our company in Mexico. This is for the steering and linkage business, because some of our customers would like to see a small assembly operation over there. So first of all, it's going to be a very small investment. The investment amounts are not yet finalized. We had to incorporate the company to enable us to win the business with customers, which we have done. Now we are in the process of putting together the business plan. So as and when we have the business in hand and all the -- we're ready to kick off the investments, we will be sharing with the investors.

The next question is from the line of Sunil Kothari from Unique PMS.

First, congratulations on ultimately getting out from the division which has, I mean, haunted us last financial year and your time and your capabilities. My question is a little bit on -- again, on this plant at Mexico. I understood it's a very small investment assembly line. If you can elaborate little bit more because we have decided that it must be a sizable opportunity. We never think about very small, something looking at our size. So if you can talk about why they want there a plant. Are the type of scope or over maybe 3, 5 years? Something detail will be really helpful.

So obviously, while -- if you see our valve joint business, which has started to grow significantly, given now the geographies are spread across both U.S. as well as Europe. Now as you know, recently, there has been a, what they call, the USMCA that has been signed between U.S., Mexico and Canada. So -- which basically favors a little bit more local manufacturing in North America compared to buying from other parts of the world. So any company that has a footprint in Mexico, the opportunity for growth is more. And therefore, our customers are also been asking us to look at that as an option. So obviously, we have not had a positive experience with our investment in U.S. Of course, that was an acquisition, that to acquisition of a distressed asset. Here, we are doing greenfield. And the hope is we will start with one business. And by the time we launch that business, using this footprint that we are creating, we will be able to win more business. So at this point in time, we don't have the full picture. We're still talking to other customers. Obviously, there is one customer who has committed to give us an order and we'll be making the investments. I think -- I expect somewhere in Q4 of this financial year, so at that time, we will be sharing more. But we are still in the finalization stage.

Okay. Sir, my second question is from 2021, our exports was below INR 400 crores. And looking at the numbers, our growth rate currently also, we are growing 30%. We'll be crossing, INR 700 crores INR 750 crores next. Just during the last 3, 4 years, we have done a remarkable job. Same is our casting division. I'm saying talking about local casting division. That has grown from INR 80 crores to INR 220 crores. We are now at a very high operating capacity utilization. But unfortunately, for whatever reason, we are not able to get very respectable margin. I'm not asking any number, but below 10% is not at all, I think, the way you take effort, the way you grow business, the way you create new products and do to market and create a sizable revenue from those businesses. That is not reflected. So one is, why is so low, our stand-alone margin? And second, where are the scope? I mean, which cost factor you feel focusing or maybe you're rigorously trying to improve on which -- take us to some respectable margin?

And when you say margin, we are talking at PBT level?

EBITDA level, which is below 10%.

EBITDA level. Okay. Yes. No. I think, clearly, there is significant profitability pressure on the businesses. And the domestic business, the -- which is almost, I would say, more than 55% to 60% of our sales, that is a domestic OE business. Then you have exports and then you've aftermarket. The domestic business, the profitability pressure continues to be immense. And while the export is growing at 25%, 30%, and we are hopeful that, that kind of growth will continue -- the domestic business is also growing. And our ability to have better margins in the domestic has always been a challenge. Of course, there is always efficiency improvement that we can bring about in our operations, and we continue to push the teams to achieve that. But over and above that, having a slightly better mix between export aftermarket and domestic will also help. So we are definitely working towards improving the margin, and I'm hopeful that we can improve. But as I've said multiple times, for the steering business, the EBITDA margins that we have, visibility is only in the 11% to 12% range given the overall mix, domestic competitiveness, et cetera.

Okay. And sir, last question is, we have provided some INR 18 crores last quarter related to Maruti some onetime or whatever. Those issue has been resolved? Or any further -- if you can update on that?

Yes. So the issue is -- yes, definitely, the issue has been resolved, and there is no concern on future production. As you might have seen in the media also, Maruti did a recall, and there is a limited volume. So to be frank, unlike the NSK JV situation, there may not be concern here because the total quantity has been established, and of course, so the replacement in the field is going on. So I expect everything to get resolved in the next 2 to 3 months' time frame.

Sir, last question. I guess, during last 5, 6 years, I understand promoter, top management, everybody was behind this firefighting U.S. metal, NSK, all these things. Hopefully, we are out from those. What is your gut feel? How energized people are? What -- how do you feel after this 6, 5 years' challenging time?

As I said in my opening comments, after many years across the group, not only in RML, we had 4 businesses that have been consistently losing money. One was our U.S.; second was, of course, very small, but still telematics; third was engine valve; and fourth, of course, the large one was Rane NSK. All 4 either we have exited the business or we have managed to turn around the business. So clearly, there is a lot of positive mindset in the overall business. So I think all the major problems, what I would say in the group, they have been resolved. Now of course, can we do better on the margin? Definitely. And this also I commented. So all -- the entire management is now focusing on how can we improve our margins and start doing consistently double digits EBITDA margin. I think that is the goal we are working towards.

We'll take the next question from the line of Ashwin Agarwal from Akash Ganga Investments.

Congratulations, Harish Lakshman and the team. Finally, you have been able to sell the U.S. business. Harish, my question is, you said to the earlier participant that export has been growing by 25%, 30% for Rane Madras. And you foresee the same growth rate ahead? So this growth should continue, 25%, 30%?

Sorry...

He is asking, is it overall?

Okay. It's overall for the group and not Rane Madras?

No, overall for the group, of course, last year, we grew 26%, 27% and it is not possible to repeat that. At a group level, we are hopeful of growing double digits in 12%, 13%. Coming to Rane Madras, the export is definitely growing. And we have see this kind of growth rate continuing. As I said, only in the domestic side, there has been some pressure. But overall, I think there will be a reasonably good growth. But to repeat last year will be a challenge. As far as next year is concerned, we have to wait and see how the market is and [indiscernible]. I'm talking '24, '25. We'll have -- it's still too early to say, depending on the...

Exports continue grew by 25% for any Rane Madras, right?

Sorry?

Exports for any Rane Madras will grow by 25% to 30%?

Yes, yes. .

And what is the share of these exports in terms of geography? What would be to North America, what would be to Europe?

I don't have the exact number, but I would say about 60% is to North America.

Okay. And could you also tell us any new order wins and this Mexico order, what -- how large can it be in Q4, which we're expecting to finalize?

We still don't have the numbers as yet. The discussions are going on with the customer. As and when we have the clarity, we will share. So of course, that's why, as I said, we are not going to start doing the business in 2024. This is probably the revenue generation will happen only in 2025. We have created the company. Some initial work has started. We are, in the meantime, negotiating all the details of the customer. And once everything is concluded, we'll be sharing with investors.

And it would be a sizable opportunity for us?

No, the first one is a small one, but hopefully, we will build on it.

Okay. You indicated that you would be looking at 11%, 12% margins on a blended basis for Rane Madras and for other companies as well. So by when can you reach this number of 11% for Rane Madras on an EBITDA level?

Yes. I mean, if you can ensure the market continues to grow at 12%, 13%, then I expect in the next 18 months, we can achieve it.

Okay. You can reach that number, right? .

If you can ensure that all the people continue to keep buying cars at the rate of 12% year-on-year.

Got it, got it, got it. Sir, any -- since now the biggest headache light metal casting is behind you and you have been able to -- once you took the decision, you were able to sell it off in a very quick span of time. So how do you look -- I know you have given us an overview. But how do you look at the opportunity for Rane Madras? And as per the present capacity, what would be the optimum revenue generation for the company? And what are the CapEx plans?

No. I mean, overall, we are optimistic. I think both on the -- I mean, all 3 products, rack and pinion, linkage business as well as the casting business, we are seeing enough opportunities both in the export market as well as the domestic market. I would say that the capacity utilization today are at a very high level, upwards of 80%. Of course, some CapEx investments will continue to come and go, including, of course, this Mexico project. So obviously, there will be some investments that are going to happen later this year as well as going into next year because, as I said, the capacity utilization is at peak levels.

Lastly, this Mexico will be take-or-pay with the customer if you are setting up a small facility? It will be a take-or-pay kind of agreement that he has to take minimum offtake of so and so value? Or how it would be structured? .

No, not yet. That's all the discussions are still going on.

Because we just want to ensure that it should not be -- even if it's a minor facility or a small investment, that we have made investment and it is not being able to utilize it.

Right Yes, we understand.

The next question is from the line of Manish Goyal from Thinqwise Wealth Managers.

Sir, as you're discussing Rane Madras, I have a couple of more questions. First one, like you mentioned, we are looking to increase capacity. So what kind of CapEx we entail in current year and next year for Rane Madras and what kind of capacity increase we are looking, as you mentioned, across the 3 categories? That was the first question. And second question is that how is the competition intensity growing? Like you did mention that it's very difficult to make margins on our OEM revenue and while JTEKT essentially in their call mentioned that they are also looking to increase capacity by 50% in rack and pinion. So is it that, that competition intensity is increasing? And are we seeing any new players coming into this particular product? I'll come up with more questions.

No, I'm not aware of this JTEKT increasing capacity. But of course, with all the growth in the market and Maruti having announced their plans to go up to 4 million vehicles, so obviously, there are additional investments that are happening, I guess, across all auto component players. So we are also continuing to expand our capacities. As I said, we are at peak capacity utilization from most of our product lines. In terms of CapEx, Rane Madras traditionally invest anywhere from INR 70 crores to INR 90 crores on a year-on-year basis, depending on market conditions, what our order book is. So I expect the investment to continue only at that level. Because of Mexico, it may be a little bit more, but not very different.

So like Mexico, if we intend to do, in the near term, what can be CapEx over there, sir?

We Have not yet decided the amount. It's still discussions are going on with the customers based on the order size, et cetera, we will decide.

Sure, sure. And sir, in terms of exports, like are we seeing any potential disruptions due to conflict in Europe and Middle East? And like in terms of the optimism we have, what we have built up in terms of revenue share growing to almost 35%. Do you have a fair degree of visibility in terms of firm orders and commitments from our as Tier 1 customers?

No. I mean, obviously, there are some concerns, including the recent Middle East issue right now. While none of our immediate business sales has got impacted, depending on how the crisis is and how it can spread across other geographies, so that is something we need to just wait and watch and be careful. But right now, we are not seeing any change.

Right, sir. Sir, I have a couple of questions on 2 JVs, first on Rane NSK. So there's no warranty incremental provision. And last call, you did confirm that no more incremental provisions will come up. So I just want to reconfirm that -- with you that there are no more provisions expected, sir.

Yes. I mean, the way the current things stand and looking at the warranty numbers that we're getting month on month from Maruti in the last 2, 3 months, I see no reason [indiscernible].

So like we -- I believe we have done a provision of INR 550 crores, INR 560 crores until date. So how much is utilized that and how much is pending, sir?

INR 50 crores is remaining.

Okay, okay. So there is a possibility that we may write back also, if nothing more comes up?

No, I think that is very, very unlikely -- very unlikely.

Okay. And sir, in this quarter, we did see some uptick in margin in Rane NSK, but still quite low as compared to the historical level, which probably we have seen 13%, 14% margin. So how do we see that going forward at EBITDA level? And then also at the net level because Rane NSK also has, I believe, INR 300 crore plus debt to fund the losses. So just want to get a sense of Rane NSK business outlook and the margin outlook. And also, sir, continuing like what we -- probably there was an interview of Mr. Ganesh in August month in BusinessLine, where we had probably announced that Rane Group and NSK of Japan are agreed to sign design and technology development to drive future growth. And then there is a roadmap which is being laid out to probably indigenize a lot of components and grow the business as well. And it was also mentioned that there is -- we are in process of getting a large order from a large European OEM. So maybe if you can give us a perspective about Rane NSK because, again, if the problems are behind the -- energy would be focused on more on growth. And if you can please share.

Yes. So you've asked a lot of questions, Manish, I'll try to answer. So as far as margin is concerned, while obviously, the business has become profitable and the profitability will improve, but as I had indicated in the last call, in the short term, and I'm talking short term next 12 to 24 months, I do not see the margins going back to the old levels because some of the new business that we booked about 3, 4 years ago with NSK and which is going into production now, the profitability is not as good. So while we are doing our best to improve the profitability, I definitely don't see the margins going back to those levels in the short term. Obviously, medium term and long term, our objective is to get it back to that level. As far as the NSK collaboration is concerned, obviously, there are multiple conversations that are going on with them on the future -- the warranty issue, how we can work together, increasing localization, et cetera. These are just regular conversations that are happening between long-term partners. So hopefully, we will come up with a strategy which will improve this business and get accelerated growth.

Okay. No, in past, probably, we had also announced that for manual columns, we were looking to make India as a technology center and probably look for exports. So nothing much is happening on that side, sir?

Yes. So those conversations are going on. We are yet to bring any big order so far. But definitely the column capability, especially for the commercial vehicle column capability. There is a lot of capability that has been developed in the joint venture. And the idea is to use that to enhance export, but nothing -- no major results announced. A lot of work is going on, but nothing concrete yet.

Sure, sir. As we come to ZF Rane, sir, so probably this latest results show that the EBITDA margins have come a little bit, but the PAT margins have come down significantly. So I just want to understand that, number one. Number two, if you can just share us about the new facilities which have recently started for airbags and seatbelts along with the backward integration of webbing for the seatbelts and the inflator and the textile for airbag, which is part of the PLI scheme. So what kind of investments we have done and planning to do? And what kind of asset turns or revenues we can see? And also connected question is, again, on the exports. Will this facility also look for a higher export share? And maybe I'll ask the numbers after that, sir, in terms of revenue breakup.

Yes. Look, as far as the profitability is concerned, obviously, with all the growth that is happening and the addition of the 2 new plants, there have been more expenses during these last few quarters. But obviously, the realization of those expenses in terms of incremental revenue or margin improvement is yet to happen. So that is why we see the drop. But obviously, the -- all the expenses that we are incurring is towards the new facilities that we talked about, which is the webbing plant as well as the inflator plant. Now both the plants, I think the webbing plant has just started production last month, and the inflator plant is starting production next month. So both plants will gradually be ramping up. And the impact of these 2 investments is only mainly going to help improve the margin because both of these are localization initiatives under the PLI scheme. So therefore, this will help improve the margins. Now of course, there are multiple conversations that have also happened with our partners to also use these facilities for exports. And while there is no major order that has been secured, I can tell you that definitely, I'm optimistic about the opportunities that are coming up.

Okay. And what kind of investment? Because last call 6 months back, you had mentioned that as a group, we are looking at investment of INR 1,000 crores over a period of next 2, 3 years. Where does Rane account for a larger share? So maybe if you can give us a perspective how much we have invested and how much we intend to? And what kind of capacity it gets created even on the airbags and seatbelts?

No, definitely, I don't have the exact breakup, but the significant portion of the investment will be towards this occupant safety division. Because that -- to fund the both the capacity growth as well as the investments we are making in inflator and webbings. But I don't have the exact breakup with me, but approximately INR 1,000 crores is the amount that we're looking at.

INR 1,000 crores is at group level, right, sir?

Group level. correct. Correct.

Okay, okay. And sir, maybe if you can share the revenue breakup in terms of steering business and the occupant safety, and within occupant safety, the airbags and seatbelts and even the domestic and exports.

So for this quarter -- how much -- Steering was INR 237 crores and the occupant safety...

What was the comparative number, sir? INR 237 crores was this for the previous -- last year quarter?

[ INR 196 crores ]. And the occupant safety business was [ INR 290 crores ] for this quarter and comparative quarter was INR 234 crores.

Okay. And maybe if you can share the airbags or seatbelts number if you have..

Yes. Airbags was INR 113 crores -- sorry, Seatbelts was INR 113 crores. The airbags and cushion business put together is INR 180 crores.

Okay. And exports numbers, sir, please? What was your domestic and exports overall, and for the occupant safety?

Exports overall INR 180 crores, out of which INR 160 crores -- close to INR 168 crores towards occupant safety.

INR 168 crores, okay. Okay.

We'll take the next question from the line of Krishnakumar from Lion Hill Capital.

Congratulations on a set of improved numbers. And most of the questions are being asked by Manish. Just to take it further on some of the companies like Rane Engine or Rane Madras or Rane Brakes, is there a possibility to kind of use real estate intensity to relocate plants and kind of delever ourselves? Is there some being an active consideration? That is the first question, sir.

No. As I said earlier, there's no active plans to -- this is about relocating and realizing real estate?

Yes, sir. As most of them are within city -- as city is expanding. So is there a potential or opportunity available to -- when we do the modernization CapEx, et cetera, to relocate facilities and unlock real estate value?

No, there's no immediate plan. Of course, but always [indiscernible], for example, there's no more manufacturing. It's only our engineering center and corporate office that is there. So like that. Gradually, we may do, but there's no immediate plan right now.

Sure, sir. Sir, second question, Rane Brake, particularly, sir, we don't seem to be strong on the commercial vehicle space and the exports. So are there any historic reasons for that? Do we have any restriction on exports because of Nisshinbo being a shareholder and technology partner with us, sir?

So the question, of course, commercial vehicle, your question is about the domestic market, correct?

Domestic. Yes, sir.

Yes. So commercial vehicles, yes, we have -- at one point in time, maybe for 10, 15 years ago, Rane Brake Lining was actually the leader in the commercial vehicle segment. But then as the market moved to some of the adverse, we lost a lot of share. But because at that time, we didn't have the right products for that particular vehicle segment. But since then, we have developed a product and we are now slowly increasing our commercial vehicle sales. I'm confident that in the next 2, 3 years, we will see our share increase in the CV segment. And as far as export is concerned, no, there is no major restriction that we have with Nisshinbo. For various reasons, RBL has never focused on the export market in the past. And now, of course, there is a lot of effort going on in building the export business. I mean, in the past, we also found that competing with some of the Chinese companies in Europe and U.S. is becoming very difficult. But now we are seeing some opportunities, especially given the China Plus One, et cetera. So we are hopeful of building that portfolio also in the coming years.

Sure, sir. Sir, and from a margin perspective if you look at the REV business, although the industry is on a good upswing, et cetera, we seem to be in still single-digit margin. So do you think we can get to the double-digit 12%, 13% margin profile in a 2-year time frame in this company, sir, particularly?

I mean, if you see the steering business, we are -- definitely, it's possible. I think we're already doing perhaps -- double digit is not very close, and it can definitely be double digit. But the occupant safety business, I don't see that going to a double-digit business. But having said that, the sales to asset on the occupant safety business is very high, multiple of 6:1 or 7:1. Therefore, the ROCE will be reasonably decent. But improving margins to double digits on the occupant safety, I'm not seeing visibility for that.

Sure, sir. And on the airbag division, particularly with some of the local manufacturing, we should get into mid-teens kind of margin for a 3-year profile. Sir, is that something reasonable to expect, the valuation addition coming through on the inflator and other parts in the airbag businesses.?

Yes. So definitely, the margins will improve, including this inflator localization. That will add to the margin. But as I said, not double-digit levels.

Okay. Fine, fine. I understand, sir. And sir, lastly, from a VRS perspective, we've been doing prudent management of labor, et cetera. So are we now optimized across companies? Or is it more an ongoing effort? How should we look at it on a near-term couple of year basis, sir?

You're talking of permanent labor, is it?

Yes, sir. We have a voluntary -- VRS scheme at the company...

Yes, yes. So obviously, some of the older plants, there will always be some legacy challenges with an aging workforce, et cetera. So as and when we see the time is appropriate, we do offer them VRS schemes to some of them. So it happens usually in some of the older plants that have been there for 30, 40 years, if not more. So that is the continuous ongoing process. Every year, the businesses will decide how much you set aside for the year to offer, et cetera.

The next question is from the line of [ Rajkumar Vaidyanathan ], an individual investor.

Sir, 2, 3 questions. So the first one is on the JV Rane NSK. Like the previous participant asked about the Rane. I just want to know what is driving the PAT growth despite the 2% growth in EBITDA, if you see the PAT has gone up 112%.

Right. Yes, I think the reason for that is there was some one-off scrap sales in this quarter, so which increased the PAT.

Okay. Yes, I saw that INR 3 crores, but still the PAT has gone up by INR 5 crores. So there should be more than this scrap sales, right?

I think -- okay. So there is also another amount for deferred tax assets that has been created. So that is the reason for the PAT. Also over and above this onetime scarp sales, there were some deferred tax assets that were created.

And sir, so can we expect the PAT to reflect the EBITDA growth going forward both for ZF Rane and Rane NSK -- because otherwise, it becomes very difficult to follow how this 2 JVs will perform?

No. So we will definitely continue to provide the information on a quarterly basis. So I'm not clear on your question. We will definitely...

We are not able estimate the numbers based on the expected growth. The PAT is kind of volatile. So I just want to know, will it stabilize in the going -- for coming quarters? Or will we see a similar kind of trend?

It's very difficult to say that. I mean, definitely, the margins will improve. At the PAT level Sometimes, there are these one-off accounting adjustments, et cetera, or even some one-off scrap scales that may happen. So that could continue to happen for the next couple of quarters. So to that extent, you may see some variations.

Yes, because that distorts the numbers. Because when you report in your finance, you are only reporting 1 line, so it becomes very difficult for us to understand how this -- every quarter.

We'll review this. We'll just discuss it internally.

Yes. And sir, the next question is with the passenger vehicle built up the recent report in the newspaper, sir, I just wonder how is the H2 starting up for the group? Do you see any slowdown?

No. So far -- I understand it carefully. So far, the answer is no. We are not seeing any slowdown across all segments. All the customers are continuing to maintain their guidance and the forecast that they've been talking about. So therefore, we have no concerns. But the same time, we just want to be cautiously optimistic. Because I think the real sense will be known as the flexible period when we start looking at the second half of November sales and first week of December. So how that -- that will be a key metric. But having said that, at the customer level, there is a very good confidence that up to Q4, this growth will continue. .

Okay, okay. And sir, any update on the mergers? I think last 2 calls, you were saying that you were working on it. So anything to share on the -- I guess Rane...

Nothing to share. I mean, we keep evaluating this. And obviously, at the appropriate time, we will definitely come back to our investors.

Okay. And sir, the last question is on the [ DTA business ] that was recognized in the Netherlands subsidiary. I just want to -- is there any underlying business? Because after the sale of the LMCA business in the U.S., there should not be any of the business left or any investment left in Netherlands. So on what basis we'll be able to outset the [ DTA ] in the future? I just want to know.

I don't understand your question. Of course, we are going to continue to hold the Netherlands entity for some more time. As you know, we are also -- there is some deferred payment from the buyer of LMCA. So obviously, those payments would be made to those with that entity. The DPA that we are claiming is irrespective of the Netherlands subsidiary, right? So a write-off of the investment, we have made in through Netherlands.

Okay. No, I just want -- will we see cash or it's more an accounting entry?

Yes. Currently, it's an accounting entry.

Okay. But it will result in a cash inflow at some point?

At some point. Correct, correct. Yes.

The next question is from the line of Sagar from Financial Research Technologies.

Most of the questions have been answered. Just one question. Sir, in the earlier calls previous calls, you did mention that we may get some compensation for our technology partner NSK Japan relating to the warranty royalty claim. So any update on that?

No. As I said earlier in the call, so those discussions are going on with NSK as well as with Maruti. It's again, a complex discussion. But definitely, discussions are going on. As and when something is concluded, we will share with the investors.

Sir, do you think it should be done by the end of this financial year or difficult to...

No. Yes, I'm not able to give a clear guidance because we are not in full control of the conversations. There are multiple parties involved.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Yes. So thank you all for your time and your questions. I mean, obviously we'll continue to work on improving our margins and maintain this level of growth, if not, a slightly better growth. So I hope that the market also supports us in new initiatives. So thank you. I wish you all a happy Diwali.

Wish you too, sir. Happy Diwali to everyone. Ladies and gentlemen, on behalf of Rane Holdings Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.