Rane (Madras) Limited (505800) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Rane Group Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from Christensen Advisory. Thank you and over to you sir.

Good afternoon. Thank you, Faizan. Welcome to the Q4 and full year FY '21 earnings call of the Rane Group. To take us through the results and answer your questions today, we have the management team from the Rane Group, Mr. L. Ganesh, the Chairman and Managing Director, Rane Holdings Limited; and Mr. Harish Lakshman, Vice Chairman, Rane Holdings Limited; Mr. P. A. Padmanabhan, President, Finance and Group CFO; Mr. Siva Chandrasekaran, who is Executive Vice President of Secretarial & Legal Services; and Mr. J. Ananth, CFO of Rane Holdings Limited. Please note that we have sent the press release and the presentation of the presentation deck. In case any of you have not received it, you could look it in our website or even the BSE site of Rane or alternatively could write to us and we'd be happy to send the details of this presentation over to you. Before this start, I would like to state that everything that has said in this call that reflects any outlook for the future or which can be constitute of the forward-looking statement, must be viewed in conjunction with the risks and uncertainties that we face. These uncertainties and risks are included, but not limited to what we mentioned in the prospectus and subsequently in the annual reports which you can find on our website With that said, I'll hand over the call to Mr. Ganesh. Over to you, sir.

Thank you, Diwakar. Good afternoon, ladies and gentlemen. Thank you for dialing in today. I would like to welcome you all to this teleconference. Hope all of you are staying safe and healthy. You have seen the Q4 FY '21 performance highlights of the group companies posted on the website. I'd like to provide a few comments on the economy and the industry and then hand it over to Harish. As you know, India, the economy was supposed to had a much bigger impact because of COVID, the first wave in the first quarter of last year. But fortunately, things started improving from Q2. And ultimately, the economy contracted by 7.3%, which was much less than what was originally thought about. And in fact, Q4, there was a positive growth of about 1.4%. So this was a good recovery for the year. In the second half, manufacturing, especially in the auto industry, saw some good traction in all the segments. And while certain segments like buses, naturally, people movement still being restricted was not showing signs of recovery. All the other segments started showing signs of recovery. So Q4 was a good quarter with a favorable demand environment across all vehicle segments in India, and it was kind of activity level like pre-COVID level. To compare the group's performance vis-a-vis market, a few details on the vehicle segments. In the Passenger Car Vehicle segment, Rane performed better than the industry due to higher growth of served models. In the Utility segment, of course, we did not grow as much as industry because of not being present in certain high-selling models. In the Light Commercial Vehicle segment, we won some new business for steering, resulting in higher growth. And in the medium and heavy commercial segment, the increased share of business and higher pack value resulted in our growth being better than industry growth. In the farm tractor also, we are happy to say that finally, we caught up and grew better than the industry. Because of our capacity in hydraulic power steering, which we increased during last year and more penetration in customers and power steering. And the higher growth in two-wheeler segment was due to the strong growth of friction materials where we have started applying the high-performing 2-wheelers. In terms of market segment, 67% of our revenue was from Indian OE and International segment contributed about 22% of sales. This is broadly what happened in Q4. I will now hand over to Harish for his specific comments on Q4 performance of the group.

Thank you, Mr. Ganesh. Good afternoon, everyone. As Mr. Ganesh explained, Q4 was a good quarter for the entire automotive industry because the demand was much higher than what any 1 of us had expected. Even though there were significant increases in raw material prices, the operational improvement carried out by the company's and the lower employee costs and the higher volumes helped our margins. The group -- at a group aggregate performance, the total revenue grew by 38% in Q4. The revenue from the domestic OE business grew by 46% with strong offtake seen across all vehicle segments. The revenue from international customers also grew by 27%, supported by strong offtake for occupant safety products and new business for steering products. The revenue from the aftermarket segment also grew by 30%. The EBITDA margin improved by 70 bps on account of lower employee costs and fixed cost reduction. However, the aggregate PBT loss for the group in Q4 was about INR 46 crores, INR 46.6 crores compared to a loss of INR 4.5 crores in the Q4 of last year. This is largely due to the warranty provision for Rana NSK that I will talk about shortly. Coming to Rane Madras stand-alone. The revenue increased by 47%. The sales to Indian OE customers grew by 56% and sales to export international customers grew by 74% due to the commencement of supplies to a new customer for steering products. And the sales to aftermarket increased by 30% The EBITDA margins declined by 257 bps due to the increase in material costs. The light metal casting business, India business is seeing good traction with new orders. In quarter 4 the business won a new order of about INR 9 crores per annum from a European customer. This is in addition to another INR 32 crores that was secured in the previous quarter. Coming to the light metal casting business in the U.S. Obviously, the COVID, as communicated in some of the earlier calls, has had a significant negative impact in 2021 in the U.S. market, and it did not spare LMCA as well. In addition to loss of sales of existing business, a couple of new program launches also got delayed. The operational performance of the business has improved with the introduction of TQM practices. This was evident from the significant reduction in expedited freight costs, repairs and maintenance costs and consumable and tooling costs and the cost of poor quality. The U.S. sales in the current year appears to be coming back starting strongly, and we are also launching 2 new customer programs. As mentioned in the past calls, the Board of Rane Madras is closely reviewing this business, and we will update our outlook on this business after the next Board meeting in July. Coming to Rane Engine Valve, the revenue increased 29%, supported by robust demand from Indian OE customers. EBITDA margin also increased by 157 bps. Lower employee expense helped offset the material cost increase. The market decline in COVID the impact -- the impacted time line of the turnaround plan. However, we have reduced the breakeven sales through operational improvements and cost reduction measures. We are also enhancing the order book position. Coming to Rane Brake Lining, we experienced a 27% increase in total revenue in Q4. The OE business -- domestic OE business grew 20%, and the aftermarket grew by 29%. As mentioned with the other companies, the lower employee costs and significant savings in fixed costs helped mitigate the increase in raw material prices. Coming to the joint ventures, Rane -- first, Rane TRW. The revenue grew by 41%. Growth was supported by strong offtake and higher share of business for steering products in the Indian Commercial Vehicle segment. The occupant safety products experienced higher offtake from international customers and better fixed cost leverage resulted in margin improvement. Coming to Rane NSK, the revenue increased by 43%. This was supported by robust growth in the served models, largely Maruti and better fixed cost leverage resulted in margin improvement. However, this has been a very difficult year for us due to the continued warranty claims on top of the COVID impact. Warranty costs have been provided based on the technical and statistical estimates of NSK experts and are expected to cover future claims as well. We are reasonably confident that all root causes have been identified and appropriate countermeasures have been put in place. However, the company needs at least another 6 months of product maturity in the market to ensure that no residual clots exists. At this time, our view is to provide for the worst and work and hope for the best. The second wave and resulted lockdown has definitely caught us by surprise. This has impacted the growth momentum that we were experiencing. We are still hopeful that the demand environment will turn around during quarter 2. Schedules from international customers are calibrated based on the chip availability. They prioritize the models differently in various geographies. We are largely seeing sustained demand. There are a few products and programs where we are seeing some reduction in schedules mainly because of the chip shortage. We continue to experience inflationary pressures on material costs. Our teams are working with customers on the price recovery, which will be keen to protect our margins. We continue to prioritize the safety of all our employees and continue to focus on cost management to navigate the challenging times. With these remarks, we will now open for any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

Yes. This is Shyam from Sundaram. And sir, at the outset, I think we have performed relatively very well at the operating level, given all the challenges on the commodity inflation and ramping up, say challenges in ramping up our production per se. Sir, my question firstly for Rane NSK. If you see, I think we started providing from F '19 first quarter onwards, at least we have provided more than INR 300-odd crores there in terms of the warranty provision. How much -- what is the total revenue that NSK, Rane NSK has recorded from the sales of these models that are now seeing these warranty claims over a period of 2 to 3 years, what is the total revenue price? Because just trying to understand how much more can the provisions happen, if at all, what can be the worst case provision. So from that perspective, just trying to understand what is the total sales for these models from an NSK perspective?

Shyam, we understood your question. We don't have the exact answer. So -- but I'll just hazard a guess that it will be the revenue, this warranty cost, as you said, is about INR 300 crores that has been provided for, obviously that includes the future provisions as well. The revenue is estimated to be around INR 1,200 crores for till date, yes. It's about INR 1,200 crores.

Okay. Okay. Okay. Understood. So of that -- and this INR 1,200 crores, I mean, we also made some changes in the product specifications in terms of some of our, say mitigate the issues at scale, so this INR 1,200 crores is the sales that we did for these models prior to the changes we did, sir?

Yes, I think during the period. That's what we'll -- we don't have the exact numbers, Shyam I know you're getting into a lot of detail. So I'm not -- I don't want to give a number that's wrong. So maybe we will review this and come back.

Okay. Okay. Sure, sir. And from a TRW perspective on the export side, there is continuing good performance there sir. And the last 9 months, we have held export revenues at an average INR 110-odd crores I thought the fourth quarter could have been slightly better. But is it any, is it because some chip shortages impacting the Korean customers, I'll say. So is it getting better as you go into the second quarter onwards, how are you looking at that right? Because we are also winning orders there. In this quarter also, we have spoken about a new order win of INR 48 crores. So how to look at the export revenues?

Just hold on 1 second. Okay. Yes. So Shyam, definitely the chip shortage has impacted the revenue. Otherwise, we could have done more. And we are hopeful that from Q2 onwards, the situation will slightly improve. And therefore, the numbers will look better. But at the same time, it's not near where the peak potential is. There is continued loss of revenue because of the global chip shortage.

Okay. Understood. Understood, sir. And the new order win is also from the same Korean customer sir? Or is it to -- we are also exporting to our parent also? Just to...

Yes. So while largely, it is the Korean, but in both Q3 and Q4, we have also resumed -- when we have also started supplying to our partners and many of which is also going to Europe. So that is steadily picking up in terms of top line.

Okay. Understood, sir. Understood. I appreciate for that sir. One last question on the Rane Madras perspective, we have also provided for INR 62.5 crores impairment provisions to the -- to RPDC. So just trying to understand because last year also we provided around INR 38 crores, we do have from our -- from a management perspective, we don't expect this business to revise because we have been continuously providing for the support that we have given during the year, at the end of the year as a prudent measure. So from your -- from the management perspective, what -- how do you think of this business? You think it may not revive and that is what we are providing for the support we have given during the year.

So as I told in my earlier remarks, Shyam, we will give you a full update in our July investor call on the way forward. But obviously, the -- because of the lack of increase in sales in that business over the last 2, 3 years and coupled by the impact of COVID, the top line further dropped during last year, as you know, from about INR 24 million to INR 17 million. And therefore, that has forced us to take these impairments. As I also mentioned, the situation is definitely improving in the U.S. market. And obviously, from a top line standpoint, it cannot be worse than that what we saw last year. And in addition to that, there are some new programs that was supposed to launch in Q4 of last year that got delayed because of COVID. Those are still there. It's not that those programs have gone away. And those programs will also start coming back in the coming quarters. So we will share more with you during our July call on the future of that business.

Mr. Sriram, may we request that you return to the question for follow-up questions. The next question is from the line of Sanjay Shah from KSA Securities.

Sir, my question was regarding this NSK warranty issue. So this has been a long 2 years we have been facing this issue. So now what is the status? How long do you see that coming in? And what steps are we taking? And have we lost this product to our competitor or still our OE people are buying from -- prefer buying from us the same product.

I'll answer the second question first. The answer is no, we have not lost any business to competitor. The product continues to be supplied and there is still life left over the next few years. As far as the first part of your question is concerned, as I said, whatever this provision that we have made includes future complaints that will come. So the financial provisioning includes some more warranty problems that will come in the market. But what comes in the market are all older cars. So we have taken various countermeasures in terms of changing the -- some parts of the steering design and manufacturing process, et cetera. So those changes have all been completed some time ago. So we are hopeful that in future, as I said in my remarks, all root causes have been identified. And in future, the problems won't be there, but we will continue to have some claims coming that belong to the past but which have been financially provided for.

My second question was regarding our Rane Madras, we have a market cap of around INR 550 crores, and we are impairment of around INR 100 crores, which is -- which we feel a bit scary. And we have many noncore assets also in line with us, cannot be utilize that to enhance the shareholder value or using the CapEx? ?

As of now, there is no intent to look at any monetization of land, et cetera. And as far as the future of this business, I think we have come -- coming through 2 extraordinary years on top of a turnaround situation that we were already struggling with. So we will come back on what the future direction is in the month of July.

And last question is regarding how do you see the market ahead for our industry, especially commercial vehicle for this year and next year?

So it is very difficult to predict, Sanjay. As you know, we are extremely volatile situation with -- we've had significant lockdown. In fact, we had to even postpone this investor call because Tamil Nadu has been under a very strict lockdown till last week. And even now, we are in lockdown, but some small relaxation has taken place. So there is a lot of uncertainty. But having said that, we still believe that there is demand in the market and the lockdown -- there not allowed the demand to be fulfilled. And if the Wave 3, et cetera, doesn't happen and the country opens up and vaccinations also continues in a significant way, we believe the coming quarters will be better.

What is the rationale behind believing that things should improve, especially in commercial vehicle in total? Because we need to understand is the pent-up demand you see coming in? Or you see some economic activity which can push the scale...

As a combination -- so if your question is specific okay, I was answering for all the vehicle segments, including passenger car, et cetera. In CV, yes, if the rate of pickup and demand will not be the same as what we see in passenger car or two-wheelers. We have to wait and see how the economic activity improves. I think obviously, that's a key driver for sales for the commercial vehicle, especially all the infrastructure projects et cetera. So that will be 1 element. But there is also some demand because, as you know, the CV market has been -- is cyclical in the market. And after the peak of '18, '19, the market has come down significantly, and it had bottomed out. So therefore, a combination of some cyclicality -- in the cyclicality of the inherent the business and economic activity can improve.

The next question is from the line of Manan Shah from Moneybee. The current participant is on -- kept the call on hold. We'll move on to the next question. The next question is from the line of Ashwin Agarwal from Akash Ganga Investments.

Sir, we had a INR 90 crore order from Nexteer for supply to General Motors for Rack & Pinion. Can you update how much we have supplied this year and this coming year, how much are we going to supply out of this?

Do we have that data?

I mean obviously, in my -- Ashwin, as I mentioned in my opening remarks, Rane Madras, the export growth in Q4 was 74% over last year. So obviously, as you are aware, the -- that is driven largely by that order that you are referring to. That business has also been impacted by the chip shortage. So the current quarter, we are not hitting the projections the customer had given because they are facing chip shortage issues. But it will pick up. So I'm trying to see if we have the exact numbers available.

So this year, we should be able to complete the value of the order, and we were also in discussion for further orders from Nexteer for some other customers. So any update on that?

Correct. So yes, so this order will continue, just hold on 1 second. Value order, in '21 is INR 55 crores. Okay. So okay, so 1 of the information that I'm able to pull out is that the Nexteer business last year for the financial year '21 was INR 55 crores largely driven by this program, which started somewhere in Q3 of last year. And as you said, that we still believe that, that INR 90 crore order, the full impact will be seen in the coming year. And the second part of your question, yes, we have 1 some more business with that same customer, and some of those programs are launching during this year.

Yes, that is a good news, sir.

Yes. But of course, as I said, the steering order that we started, while we were supposed to do INR 90 crores, there will be a chip shortage impact. So there will be some reduction to what was planned earlier. It all depends on how the chip shortage -- chip situation is in the coming quarters. But overall, we will see a growth in the export.

Okay. Can you give us a number for ball joint exports? What was the value of ball joint exports for Rane Madras for last year? And what is the target for this year? And we were also in discussion with Daimler and many other customers for export business. So anything has happened on that front?

No, with Daimler, there is no significant progress. But with next year, I don't know -- one second. Okay. We don't have -- how much -- okay. Yes. So the ball joint export is around INR 45 crores, and it will grow to about INR 65 crores is the estimate. And what was the other question that you asked?

No, we were in discussion. I said with Daimler and many other customers for a large export business of ball joints. So anything is happening there?

No, nothing significant as, nothing significant has happened. We have 1 with another customer for ball joints during Q4. I think that has also we had shared. We are not naming the customer, but yes, we have won 1 contract, but it's not a very large order.

Okay. Sir, lastly, coming to hydraulics, we had a target a few years back to reach INR 150 crores led by CVs and tractors, and we have made a few new products, and we have launched in the market. So what has been the revenue from hydraulics in last year? And what are the targets going forward?

Yes. So that INR 100 crore target remains. Last year, we did about INR 60 crores, INR 64 crores.

Yes. And by when should we be able to reach? And does this have any export potential?

There is very little exports. It's largely domestic contractor segment based. So hopefully, the target should be achieved in the coming year.

This is the operator, Mr. Agarwal, may we request that you return to the question queue for follow-up questions. The next question is from the line of Sunil Kothari from Unique Investments.

Sir. Hope everyone is healthy and safe for Rane Group. Sir, my question is on Rane Madras latest stand-alone quarter results and regarding the December quarterly number. So there is a wide variation in operating EBITDA margin. I understand the raw material has dentured is 1 of the reasons. Other expense also has changed so much in terms of from December to March. So just broadly, if you can, I mean, explain us this margin -- EBITDA margin, which normally we were able to achieve 10% plus 10%, 11%, 12% something, suddenly fallen to 6%, 6.5% how much time will it take to go back to those numbers? I mean, how much time it takes to pass on this cost to customers?

So I mean, definitely, the material cost has played a significant role, Sunil. And -- but we all -- we will back-to-back get the increases, that we are very confident, but there is always a lag effect. That is one. And second, also, as you know, the -- since the customer only compensates exactly to the amount of the increase is an inherent reduction in the margin. You understand what I'm saying, right? So if you have a material cost of INR 70 or INR 100 sale, and if we -- if INR 70 becomes INR 75, INR 75 becomes INR 105, then automatically there's a reduction in the margin. So that is also playing a role in addition to the absolute increase. The third thing is, of course, we must also understand that many of our employees took a huge sacrifice during last year's Q1, Q2 and most of Q3 by taking salary cuts and all that. So therefore, the Q3, the volumes picked up and many of the salary cuts, et cetera, were there. Of course, we reinstated many of those things, somewhere in the middle of Q3. So that impact is also fully seen in Q4. Is there anything else?

Sir, my point, basically, luckily, we are reaching at a really good size in terms of quarter number INR 370 crores, INR 390 crores, that should be benefits of operating leverage also. And if you look at our other company, like RBL, we have increased margin in this COVID year also. So is there anything inherently you feel which is not allowing us to get a respectable margin at standalone RML?

I mean, Sunil, as I've explained in the past, everything is fully the inherent profitability of the steering and linkage business. It will only be in that 10% to 12% range. Everything is perfectly aligned, we could reach 12%, 12.5%, otherwise, it will be in the 10%, 11%. And of course, quarter-to-quarter, there could be differences based on various things that hit us. So I mean, I'm not sure whether comparing with Rane Brake Lining would be correct because the nature of the businesses are different and Rane Brake Lining has a significant aftermarket exposure compared to Rane Madras. That's because, again, the nature of the product, the brake lining, friction material, aftermarket opportunity is much more than steering.

Sir, I thought luckily, we are getting now very good exports, interest and exposure also in Rane Madras because of ball joint and steering joints and all.

Correct.

So I thought there should be improvement in margin. Sir, my last question is, it's a really pain -- it will be and it is painful for you also to give so much time your very key people to improve this optional efficiency of U.S. subsidiaries, we are losing almost every year, INR 50 crores, INR 60 crores at PBT level. So have you analyzed -- if suppose any day we take addition, will this -- to stop this train, will it cost more than INR 100 crores, INR 150 crores? And is it worth taking this in. I'm not asking a very clear answer from you. I understand this. But is a draining, I think our management ability, it must be giving you stress also. So as an investor, we are feeling so much pain due to this situation I understand how much it will be troublesome for you. So any thoughts on this?

No. Sunil, we appreciate your comments and sentiments. And I know you've been a long-term investor. And yes, there is a lot of stress on the system. As I said, on top of a turnaround difficult situation, we were already in COVID hurt us even more. And therefore, in July, we will share the plans with you. But I also want to -- I think I had shared, I think, last investor call, I think Enam had asked the question whether we were getting any support from the government of U.S. And the answer to that question is, yes, we are getting support from the U.S. government. And that was not accounted for during last year. So there were some accounting procedures and processes that is involved with the U.S. government. So those supports are not being recognized. But we will share more details during the July quarter.

Fine. Sir, my point is that as an investor, we are ready to -- with you for this any hit to maybe INR 100 crores, INR 150 crores for this, when we come out from this. So that is what I wanted to convey.

The next question is from the line of Manish Goyal from Enam Holdings.

I have a few questions. First, on Rane TRW, if you can provide a revenue breakup between the steerings and the occupant safety for FY '21 and FY '20, it will be really helpful? And also a follow-up question on occupant safety. If you can give a revenue breakup between domestic and exports. This is the first set of questions.

One second Manish. So what is it steering exhibition? Q3 and Q4. Q4. INR 178 crores is the total steering revenue in Q4. You wanted Q3 and Q4, is it?

No, sir, I wanted for FY '20 and '21, full year?

Okay. Full year, is it?

Yes, yes, full year.

INR 486 crores and INR 451 crores.

Yes. Sorry, 4?

FY '20 was INR 486 crores and FY '21 is INR 451 crores. And coming to occupant was INR 602 crores and INR 542 crores.

INR 542 crores in FY '21.

Correct.

And out of which INR 348 crores was the export.

INR 348 crores export in, which year, sir?

'21.

And what was it in the previous year?

INR 355 crores.

Okay. Sir, my second question is on Rane Engine Valve, sir, it's been, again, quite challenging for us to see a turnaround over there. So if you can lay out your thoughts as to how do we see going forward for next couple of years on the turnaround of the Rana Engine Valve, sir?

Yes. So again, yes, that has also been a difficult problem for us over the last few years. But if you look at the operational performance of that business, there has been improvement at an operational improvement, at an operating level. But unfortunately, the volume has not happened. And therefore, the absorption of fixed cost is -- we are not able to fully absorb the fixed cost. So the operational turnaround plan is continuing, and there are some more initiatives that the company has taken in terms of improving the productivity of the machines. We are also doing some small VRS, et cetera. So I think a combination of that with the growth in the top line will help. Now in the top line, in addition to the domestic and export growth, we are also targeting a lot of nonautomotive customers for Engine Valve. And during last year, we have won several new orders for these nonautomotive valve application and some of those will also go into production in the coming year. So there is a conscious target by the management, keeping, of course, the long-term threat of electric in mind to also enhance the nonautomotive portfolio for engine valves, and we are seeing some early results in that. So ultimately, there is -- the top line growth, coupled with the -- with this continued operational improvement is what is going to help the turnaround. It's unfortunate that again in Q1, we have been hit by the COVID, but if the market grows by 12%, 13% during this year, the performance of that business will improve.

Okay. And sir, sorry to come back on Rane NSK warranty provision. So you said the product, basically, we have rectified the issue. So the product supplies for the rectified product has started from Rane NSK?

Yes, yes. Yes. That has happened some time ago.

And so when you said we have taken provisions factoring future liabilities as well, potential future liabilities. So why is it that we are still expecting some more provisions to come in for, say, probably next 6 months?

No, that is because typically what happens is once the warranty issue can come in a car that is 1 year old, 2-year old or sometimes 3-year old, et cetera, right. So -- and we have taken corrections all in the last year, many changes have been made. So even now it is possible that a customer who has purchased a car in 2019, could suddenly have a problem in the month of July or August, and they will go to the Maruti dealership and the steering will get changed.

So ideally, for such a long -- basically, this problem, which would not have faced by a customer in early part can still come after 2 years or 3 years?

Correct.

Yes.

But you would have made the provision accordingly, right, sir, in the past as well. So I'm just wondering. So my point is that in next 6 months, do we expect the quantum of provision to be significant to what we have seen in quarter 4? Or it would be -- provisions would be probably a smaller amount?

That's -- so as I said -- that's why I said, Manish, that we need another 6 months to answer that question. We believe all actions have been taken, and we have provided for the future. But however, we need 6 months more time to see the effect of these changes in the market before we can conclude. So that's why in my opening remarks, I said we need another 6 months.

Mr. Goyal, may we request that you return to the question queue for follow-up questions. The next question is from the line of Pankaj Prasul, Individual Investor.

My question is on the occupant safety, right, especially on the airbag side. So what kind of revenue we are making right now in the airbag side? And what kind of margin we are making. And since -- from April 1, 2021, the second airbag is mandatory in all the passenger vehicle. I believe in the commercial vehicle also. So post a scrappage policy, what kind of overall market you see in next 3, 4, 5 years? And what kind of market share we have?

Yes. The airbag sales for last year was about INR 200 crores and -- yes, INR 240 crores, all the airbag related business. Yes, and the legislation for the passenger airbag has also picked in. But the impact of that will be not that significant because even before the legislation came in, almost 90% of the cars that were being sold was being already sold with the passenger car airbag. While it was not mandatory, the OEMs were selling it as a standard package and 90% of the customers who are buying in that way. So that impact would be significant. And just to clarify, there is no regulation as yet for airbags on commercial vehicle. So the commercial vehicle airbag sales is almost 0. So -- and it was -- and there is no immediate regulation that we are seeing also.

What kind of margins we are making there, sir? And do we believe that we are going to capture much more market share in India?

So we don't have the airbag margin alone. Overall, it's about 7% to 8% EBITDA margin.

Okay. And where do we stand in terms of market producing #1, #2, #3?

For air bags?

Yes. In terms of airbags.

Yes, we will probably be #3 today in the market. That's largely because our presence in Maruti and Hyundai is limited.

Okay. So do we see in future we will get entry there?

Yes, yes, yes. We have already got an entry for seat belts in Maruti, and we have also made some progress in Hyundai.

Okay. Now my next question is on the Rane Engine Valve, do we see that within next year or next 24 months, we will make it turn around?

That is the intent. But I also, as I said earlier, the market also plays a role in terms of how quickly the economy revives and the growth that we see in all the vehicle segments. That will also play an important role.

Okay. And can you throw some light on the Rane T4U business? How do you see future of those verticals?

Yes. So the -- I mean, obviously, it is an area where there are a lot of opportunities, the connected space, trying to offer telematics and IoT-based solution. But at the same time, COVID has had a significant impact on that business. And we also -- 1 particular customer contract that we had came to an end. And that contract -- I mean it is not a renewable type of contract. There's 1 contract, but that could have been renewed, but finally the customers decided that they won't do it. So as a result, there has been a decrease in the top line both due to COVID and this. We are still optimistic of growing this business, but there is a lot of volatility in these kind of connected telematics type of solution. So it's difficult to give a long-term prediction on how exactly the growth of the business will be is it a little bit different from our core manufacturing business. But having said that, we believe there is opportunity. And in the next 12 months, we'll have some clarity on the future direction of the business and how much capital we want to allocate towards this, et cetera.

The next question is from the line of Naresh Vanka, Individual Investor.

Sir, my question with regard to Rane NSK steering. So we actually had a warranty provision of almost INR 351 crores from FY '19. Sir, last time, actually, there was a mention that there's been discussion for insurance claim. So are we eligible for claiming insurance for this warranty, sir Rane NSK?

So it is a very complex subject, and it is still under discussions with various agencies. So I'm not able to comment at this time on what is possible or what is not possible.

Okay. Sir, can you also see because it's been INR 351 crores provision, at least can you give us a figure like how many vehicles we would have done the replacement on how many -- maybe some 1 lakh, 1.5 lakh vehicles where we have done the replacement, sir, the EBS?

Yes. Yes. Incidentally, my understanding is the provision amount is INR 320 crores, not.

Okay.

INR 320 crores. Yes. So this provision will be approximately around 165,000 units.

165,000. So based on your estimates, like what will be the percentage of fault for which the replacement would have been done, sir? I mean the percentage of the fault, there will be some estimate, right, the these many vehicles could have been at fault. And -- or is it 100% provided for any figure on that, sir?

Yes. So it would be difficult to give an exact number, but it will be in the low single digits, 4% in that range.

Okay. Based on the fault, I mean, where you're expecting fault on that percentage sir. Like, we are expecting 2 lakh vehicles fault and we have provided 165,000.

No, no. As I told you, the INR 320 crores that have been provided for includes future liabilities. And as I answered to Manish earlier, as of now, this is a total amount. So this is 160,000. So today, it's not as though 160,000 vehicles have been replaced. The provision is for 160,000 vehicles. Now whether this will remain at 160,000 permanently or not, I think only in about 6 months' time, the clarity will emerge.

Okay. Okay. So but 160,000, we have not done the replacement. We have only provided for.

Correct.

Okay. Sir, 1 more question regarding to the Rane Light Metal Casting you have said. So I know -- I mean, there's a lot of pain, I guess, we have at least made a cash loss of INR 100 crore, INR 110 crore. So what are the outlook -- yes, I'm sure you answered to a lot of people that by July, you'll be able to give us a clear indication. So what will be the future plan for these subsidiaries sir because it's a big stress to the stand-alone business of Rane Madras. I'm sure you would have taken a call, and I guess by July, you will be giving us right.

So as I said, will share more details in July.

Okay. Okay. No problem, sir. So apart from that, yes, we are happy because I also -- we are also the same automobile business. We know the brand Rane. And 1 of the well-known brands, and wishing you all the best, sir. Thank you.

Thanks.

The next question is from the line of Raj Kumar. V, Individual Investor.

Yes. Sir, I have a couple of questions. The first question is on the Rane Madras operating margin. I was going to the question, the current credit rating report, which CRISIL has issued for RML. So we are talking about the margin suppression or margin pressure not only due to the overseas subsidiary. We are also talking about the domestic die casting division is also not performing well for Rane Madras and that is also putting pressure on the margins. So if you could please give color that this is not only the raw material issue and this is also creating a pressure on the margins for RML. Is that a correct statement?

Yes. So definitely, I mean, as we have been communicating in multiple investor calls in the past 2 years, the die-casting business of RML India, the 2 plants that we have in Hyderabad have been going through a very difficult time because we made a large investment in 2016, '17. And based on some confirmed orders that we received on an export customer. And finally, we ended up that export customer, the volume turned out to be something like 20% of what they forecast. So therefore, there was a significant impact. And we could not immediately utilize that capacity for other customers. So it has taken us about 3 years. But as I have mentioned in the past calls, we believe that the worst is behind us for that business because a lot of new business has been booked in the last 12 to 15 months. And we are -- the sales is steadily improving from Q4 of last financial year. And of course, Q1 of this year, there is again a COVID impact. But the -- all the orders are in place, and we think that going forward, we will see margin improvement.

And what was the number for the last quarter, sir, do you have like a -- was it a positive breakeven number or just in a loss for Q4?

The Q4 of...

The current year sir, 2021.

Is it correct? What is this then? No, no, what is INR 380 crores and INR 398 crores. No, no that stand-alone. Sorry, yes, so Q3 was about INR 42 crores. And Q4 was about INR 32 crores.

Sorry, sir, this is the bottom line number you're reading out or what?

No top line, top line.

Top line. And how about the bottom line, sir?

So the margin in Q3 was about 8.5%, in Q4 was about 14%.

Okay. So actually turned around then. It is not -- no longer a drag on the margin environment, right?

Yes, that's what I said. Going forward I think the worst is behind us for that business.

Okay. And the reason why CRISIL is highlighting this you have a reason or these are the current reports for May 21, they have highlighted. So you do not have this information...

If you look at last year's full year performance, definitely, that has impacted the RML negatively. So that is why CRISIL must have made that observation.

Okay. Sir, we -- this position turning ground, so we can expect your operating margins to move to 12% to 13%, right, given the raw material will be a pass-through at some stage we catch up on the pricings.

So you're asking for the die-casting business?

No, no, overall for RML.

No. I said overall, I mean very difficult to give a number. But as I said, the inherent -- it can be anywhere in the 10% to 12% band.

Yes. Sir, the reason if you see the guys like Mahindra CIE and all, they are already doing 12% to 13%, and we have aspirations to do 15%. So I was just wondering with Rane kind of a pedigree I mean, you should be ahead of those people. So that is the reason I'm asking these questions.

I understand.

Yes. Sir, the second question is on the Rane NSK. Given the significant provisioning. So are there any funding requirements will Rane be requested to fund further And also this narrative, which you currently said, you would wait for 2 quarter performance to see to wait for NSK to stabilize. So this narrative is kind of new norm because of the past conference calls, you have been saying that this warranty provision for the past it will not impact the current performance. So if you could just highlight why you are making these new normative norms?

So as I think, yes, you're right that in the past, we thought that the problem will be contained to a smaller number but it turned out to be bigger than what anyone had anticipated. See we go largely by the guidance given by the NSK experts, they do an estimation based on the kind -- the number of defects that are coming in the market, et cetera. So therefore, there was an unanticipated the -- or how do I say the analysis that was done did not comprehensively cover the full problem. But now we believe we have done that.

Okay. Sir, lastly, I just wanted to know, is there a way you could consolidate all your companies under 1 umbrella, and have a better valuation and also reducing volatility of your stocks because many mutual funds will not even look at companies which below INR 1,000 crore market cap, given that we are multitude companies below INR 1,000 crore market cap. It would be better Rane to look at merging all of them under 1 umbrella and have a better valuation. And you see guys of lesser experience in the market coming with higher valuation, and it's very stagnant to see Rane with almost 10 decades of history having lower valuation in the market?

Your point is noted. I see there are some companies that are joint ventures. So they will always remain stand-alone entities. But of course, merging everything and having the joint ventures also underneath that is theoretically a possibility. We keep discussing this internally. I'm sure at the appropriate time, we will come back.

Ladies and gentlemen, we will take the last question from the line of Shyam Sekhar from ithought Advisory.

Sorry to be repeating what a lot of people have said, but though you have provided INR 320 crores on NSK and the provisions are accelerating. I'm not sure how you are saying that you feel that you have provided for the worst somehow that is not convincing because the provisions are accelerating, and you are still saying you've provided for the worst. It would help if you actually say, how much of warranties you have paid out? You have actually provided for INR 320 crores, but can you give a number how much has been paid out till now so that we know what is the number that you have in cushion or in kind of a reserve to pay out into the future, I think the 2 numbers will give a lot more clarity than all the questions that we have been hearing on this issue.

Yes. So as of March, about INR 215 crores has been paid out.

Okay. And how do you say that you have provided for the worst?

As I said, based on NSK experts, they have given an estimation and we go by that estimation. As you know, this is a 51% NSK owned company, and their experts provide us an estimation, and we go by that.

So can we emphatically said that the worst is over.

I think I repeated. I think 6 months from now, we can be in a better position to answer. We believe we have taken all the actions to put this problem to rest.

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

So we appreciate all the comments. Obviously, this Q4 has been a very difficult 1 for us, while I think as someone mentioned, at an operations level, while we saw improvements on many fronts, unfortunately, we have had some significant setbacks from -- in terms of booking certain things in the accounts like the warranty provision, the impairment of the U.S. business, I think the small impairment we had to take in Rane Holdings at -- for the T4U investment. I think it's a combination of certain things that have impacted those business negatively and COVID, et cetera. So we decided that we will take some of these hard decisions. It's been a difficult quarter for us. But I'm hopeful that with the market improving and some of these provisions that have been made, hopefully, the future will look better. Thank you.

Thank you. Please take care. Thank you.

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