Sona BLW Precision Forgings Limited (SONACOMS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sona Comstar Q2 Full Year '26 Earnings Group Conference Call. [Operator Instructions] Please note that this call is being recorded. [Operator Instructions] Some of the statements by the management team in today's conference call may be forward-looking in nature, and we request you to refer to the disclaimer in the earnings presentation for further details. The management will also not be taking any specific customer-related questions or confirm or deny any customer names or relationships due to confidentiality reasons. Please refrain from naming any customer in your questions. Now, I'll hand over the floor to Mr. Kapil Singh, Nomura, Head of Consumer and Digital Commerce Research India and Lead Auto Analyst. Kapil, please go ahead. Thank you.

Good day, everyone. Today from the management team, we have Mr. Vivek Vikram Singh, MD and Group CEO; Mr. Vikram Verma, Whole-Time Director and CEO, Driveline Business; Mr. Sat Mohan Gupta, CEO, Motor Business; Mr. Praveen Rao, Group CTO; Mr. Rohit Nanda, Group CFO; Mr. Amit Mishra, Head, Railway Business; and Mr. Pratik Sachan, GM, Corporate Strategy and IR. Vivek, without further ado, I'll hand over the call to you for opening remarks and presentation.

Thank you, Kapil. And after 3 quarters, we are back to saying our favorite opening statement, so welcome all of you to the earnings call for our best-ever quarter, where we've achieved our highest-ever quarterly revenue, EBITDA and net profit. As long-term shareholders will know about us, and we keep writing about in the annual report, we as a company aspire to become one day anti-fragile. What that exactly means is that we don't want to be a company that's just resilient in the face of external shocks, but we want to become someone who gains from disorder. Our performance in this quarter underscores, I would say, the first part of the anti-fragility hypothesis. And if you remember, 6 months ago in our Q4 FY '25 earnings call, I had said that we expect many opportunities to emerge from the current global disorder. We believe that many weaker players may not survive this disorder, while strong companies with technology moats and bulletproof financial foundations, like ours, would consolidate and grow over the medium term. I think we're already halfway there. In the past 6 months, 3 of our direct competitors in Europe have filed for insolvency proceedings. This has resulted in an unprecedented increase in inquiries from European customers to us. Hopefully, in the next few quarters to come, we can win significant new orders from Europe, add them to our order book, and hence, in some way, prove the second part of that anti-fragility hypothesis, which is that we have built a company that gains whenever large disorders happen in the ecosystem. Now, as our policy has always been when talking to our owners, our shareholders, we will begin with the challenges. First, one of our global customers continues to face demand challenges. And this is particularly in the sales of one specific model, which has seen a significant drop. This has had a noticeable effect on our EV revenue in both the second quarter as well as the first half of the year. Second, since 8th April, and as has been widely reported, China has stopped supplying heavy rare earth magnets. This shortage has impacted the production of EV traction motors for us in Q1. In response, what we did was we shifted to alternative motor designs that do not rely on heavy rare earth magnets. So now what we manufacture our motors using light rare earth magnets, and in this quarter, we have also successfully developed, tested and validated a rare earth-free ferrite-assisted synchronous reluctance motor for electric 3-wheelers and light commercial vehicles. Third, again, in the news a lot, but uncertainties regarding U.S.A. and the tariffs, they continue to persist during the second quarter. However, I would like to add that the recent decision by the U.S. administration to extend tariff relief on vehicles assembled in the U.S. for 5 years, it should benefit our U.S. customers who are predominantly assembling their vehicles locally within the U.S. Coming now to the good news, and the good news is that despite all of these challenges, we have achieved our highest ever revenue, EBITDA and net profit numbers in the quarter. There is more good news. We have won our first order for our new driveline plant in Mexico to supply differential assemblies to an OEM in the U.S. This order win is meaningful given the current uncertainties regarding tariffs and trade policies. We have also been nominated for 2 more programs for our motors and motor controllers for the predictive active suspension systems. One nomination is from an existing customer, an Asian EV OEM. And the second is from a European OEM of luxury performance cars. These nominations are significant, as they show that our innovative suspension system has begun to gain wider acceptance within just months of its first commercial launch, which is very encouraging when you make a new product for the first time. Additionally, we have collaborated with NEURA Robotics of Germany to jointly develop advanced components and technologies with a focus on industrializing robots, cobots and humanoids in India as well as the other markets. In terms of end markets, I'll keep it short, the growth has primarily been from trains, tractors and traction motors. So the Railway segment, the off-highway segment and electric 2-wheelers, these are where we see growth. The other ones are flattish or too moderate growth. Now shifting to our performance in the last quarter, in financial terms, our revenue grew by 24% year-on-year, while EBITDA and net profit increased by 13% and 20%, respectively. We have also managed to come back to our 25% EBITDA and nearly there on 15% PAT number. And at the cost of being blamed for self-indulgence or even word self-praise, I would like to say that it is quite remarkable to see this resilience in action, especially when the odds were so spectacularly stacked against us in every single market, every single macro. I think we've not only persevered, we've come out stronger than we have been ever before. Now, many companies are good at navigating calm waters, but I think it's commendable that our team can sail through even stormy and choppy season. And I could not be prouder of our business leaders and our entire team for making this possible. Moving on to the not-so-good part. Our BEV revenue has declined by 17% in the last quarter. The revenue share because of this has fallen to 32%. Now, this decline is not a reflection of the general industry trends. It is primarily due to one customer, and a large part of it is linked to actually a single model decline for us. In response to this, we have undertaken a review of our entire order book and corrected it to reflect the true picture. And I'll provide more details on this when we come to that slide later. So, despite a pretty stellar Q2, if I say so myself, our financial performance in the first half of the year has still been modest due to the exceptionally weak Q1. Our revenue and PAT are up by 10% and 4%, respectively, while EBITDA is actually lower by 3%. ROE and ROCE have declined to 13% and 16%, respectively. And this is because of the equity capital issue that we did in September 2024, and the full-year effect has come into the denominator now. We expect now the return ratios to start improving gradually, as we invest the cash that we have in various growth initiatives that we have outlined. Now we move to an update on our first strategic priority, which is electrification. Our BEV revenue share has declined from 35% in H1 of last year to 30%, and BEV revenue in rupee terms has also decreased by 21% to INR 4.75 billion. As I mentioned before, this decline is primarily due to a single customer and is largely linked to a single model. We continue to build on our EV order book. We now have 62 EV programs across 32 customers, 33 of these programs are in production, 19 are fully matured and completely ramped up, 14 are still in the ramp-up phase, whereas the remaining 29 are not yet in production and will start during this or the following years. Now, as we previously told you, the first car model with ClearMotion's fully active suspension system was launched earlier this year. ClearMotion's innovative suspension technology is controlled by Sona Comstar's BLDC motor and motor controller-based actuator. As we anticipated from the very beginning, I'd say, this technology is now finding deployment across more models. We've been nominated for 2 more programs to supply these suspension systems. One nomination is from an existing customer, an Asian EV OEM. And the second is from a new customer for us, a European OEM of luxury performance cars. These nominations, while not very big in size, are proof that the innovation and the technology that we've deployed in the suspension systems has begun to win acceptance. And within months of its first commercial launch, these 2 nominations have an order value of, as you can see on the screen, about INR 8.2 billion in the lifetime, and they are expected both to start production in Q2 of FY '27. This brings me to our net order book. And as a matter of prudence, we have reviewed all the programs in our order book and proactively removed all those with low visibility of future production volumes. This, we have done in order to present an accurate and true picture of the order book to the outside world as well as for our own planning purposes. The consumption of INR 36 billion includes the residual value of all the programs that have been removed from the order book. Now, we've also had fresh additions of INR 10 billion worth of new orders. So with that, netting that off, our net order book now stands at INR 236 billion, and the EV share continues to remain high at 70% of this order book. The current order book also includes the Railway business. It has orders worth INR 13 billion, which are obviously of shorter duration because it's a different nature of the industry and they are expected to be executed mainly within the next 12 months. As I mentioned earlier, we've secured a first program for the new driveline plant in Mexico, from where we will supply differential assemblies to a recreational vehicle OEM in the U.S. This program has added INR 2.6 billion to our order book with production expected to start in the second quarter of FY '28. This is a second order from this customer, which obviously shows confidence of the customer in us, but is very significant given the current geopolitical and trade environment and shows that we were right in opening or launching our Mexico plant last year when we did so. Our fourth priority is diversification. And this quarter, we really wanted to highlight how over the last couple of years we have actively diversified across our revenue mix, be it geography, product, market segment as well as customer base. We have, as some of you would know, consistently held the view that global light vehicle sales are unlikely to grow very significantly in the medium term. Therefore, as a major global player in our product segments with high growth aspirations, we are hyper aware that we need to diversify into alternative modes of mobility as well as the urgency to expand our product range as well as our global market footprint, so not either or, this is all 3 at once situation. Now with 70% of our revenue coming from export markets, we have obviously been working to reduce the potential risk posed by the changing geopolitical dynamics. This is the reason why we expanded into the Railway segment. And this is why we've been focusing on expanding our presence in the East, which obviously includes India. These shifts are not only giving us new growth opportunities, but they also position us for success when the environment is so chaotic and rapidly evolving. Today, geographically, India is our largest end market in H1. It accounts for 45% of our revenue for the first half. North America has become our second largest market, contributing 30%, and significantly for us, it's quite a shift. For the first time since we went public, we've achieved higher revenue from the Eastern markets than we do from the West. I'd like to add that after careful consideration, we have decided to put a proposed joint venture with JNT in China in abeyance. This decision is based mostly on geopolitical factors and the need to prioritize other active capital allocation decisions. We remain in touch with JNT, and hopefully, we'll do some other things together. But for now, the joint venture is in abeyance till things change. Now moving to products. Our fastest-growing product segments this quarter has been EV traction motors, where we've overcome, I'd say, almost insurmountable seeming difficulties to deliver our motors, manufacture them using alternate technologies and designs. And, of course, the railway brake systems. This, of course, reflects in the product mix, which has changed quite a lot. Even when you come to Market segment, revenue share from non-automotive sectors has gone from 10% to 29% in H1 of this year. The off-highway market has also been a very bright spot for us, especially in the Indian context. Now, we are always in pursuit of risk optimization through diversification in our customer mix as well. And this, we wanted to share with you for this time because there is a lot of change that has happened over the last 2.5, 3.5 years. So if you look at this thing, there is so much diversification and so much growth in the customer base. In Q2, the top 5 customers contribute 51% of total revenue. This is down from 62%, 3.5 years ago in FY '22. Additionally, the contribution from our top 10 customers has been reduced to 72% from 80%. And the biggest points to note are this, that our largest customer, plus 2 of the top 5 customers and 3 of the top 10 customers were not even present in our customer base in FY '22. So the largest customer today was not there. The top 2 in the top 5 and 3 of the top 10 are actually customers we have added in this duration and grown our business with them to get them into the top 10. This shows the success of our ability to continually add new customers at scale and to diversify with agility. We've doubled our revenue run rate since FY '22, mind you. So this is in a much larger pie. And this is despite our largest EV customer, their contribution to our revenue declining from 23% in FY '22 to a mere 7% or actually 6% now. Despite this large change, we have managed to deliver, I would say, fairly strong growth. With this, I turn to our group CTO, Praveen, to update us on technology. So over to you, Praveen.

Thank you, Vivek. Good evening, everyone. Next slide, please. We are progressing very well on our technology roadmap. As you all might know, we recently signed an MoU with NEURA Robotics of Germany. NEURA is a pioneer in the field of cognitive robotics. This strategic collaboration aims to jointly develop advanced technologies, components and subassemblies as well as industrialization of robots and humanoids for India and mutually agreed markets. With this strong foray into robots and humanoid space, several of our products listed on our technology roadmap that you see will now transition from pure concept to prototype testing and development phase. Next, please. We are also pleased to inform that we have successfully developed and tested rare-earth-free traction motors. These ferrite-assisted motors are based on synchronous reluctance technology for both mid drive and hub motors. As the name suggests, these motors do not use rare earth magnets, and therefore, are not dependent on China raw materials and manufacturing. The performance of these motors have been tested in the lab in actual road conditions and found comparable to existing technology. We plan to offer these products to OEMs of electric 2-wheelers, 3-wheelers and light commercial vehicles. An important innovation introduced in this product will also remove the last bit of rare earth magnet, which is part of the rotor position sensor. The sensor based on induction principle with copper coils deliver the same performance and can be applied across other motor technologies. Next slide, please. The shift is vividly captured in these pictures, showing the impact CO2 and other harmful emissions from IC engines have on plants and life in general to moderate effect from rare earth technologies to a complete green technology like rare earth-free magnet motor technology with minimum impact on the environment. In summary, as technology shifts from IC engines to EV and we continue to be challenged by uncertainties in global supply chain, Sona Comstar will play a pivotal role in rapidly developing cleaner and greener technologies. With this, I now hand over to Rohit to cover the financial update. Thank you.

Thank you, Praveen. A very good evening to you all. It's my pleasure to share our second quarter and half yearly results for the financial year 2026. Our revenue for the quarter grew by 24% to the highest ever number of INR 1,144 crores. It includes the first full year quarter of Railway business revenue after we completed the acquisition on 1st of June. Our BEV revenue declined by 17% and constituted 32% of our Automotive revenue. Our EBITDA has grown by 13% in the same period to INR 289 crore. EBITDA margin is lower by 2.3% compared to the same quarter last year, and that's primarily due to product mix and operational leverage. Our profit after tax grew by 20% to INR 173 crores, and margin was lower by 0.6% due to transmission of lower EBITDA margin through to PAT. Moving on to the first half results. For the first half, our revenue has grown by 10% to INR 1,994 crores. Our BEV revenue declined by 21% and was about 30% of our Automotive revenue. Our EBITDA declined by 3% year-on-year to INR 492 crores as margin was lower by 3.2%, primarily on account of operating leverage and product mix. Our profit after tax grew by 4% to INR 298 crores, and margin was lower by 1.1% due to transmission of lower EBITDA margin, although there was a higher net interest income. Next slide, please. Coming on to the cash flows. We generated INR 340 crores as cash from operations in the first half of the year and spent about INR 198 crores on CapEx. Besides this, in the first half, we also saw major cash outflows on account of Railway business acquisition and last tranche payment of NOVELIC acquisition, aggregating to nearly INR 1,700 crores. There was a dividend distribution of INR 100 crores, and there was a purchase of land for the Railway business future expansion, INR 110 crores. This has left us with close to INR 1,000 crores of cash at the end of the first half. This brings us to the last slide in the presentation, which is on the key ratios. I had explained in the last quarter also when we first time consolidated 1 month Railway numbers that there has been a change in some of the ratios like value addition to employee cost, working capital and fixed asset turnover ratios due to addition of Railway business, as this newly acquired business has a different cost structure, working capital terms. And for the same business, there has been purchase of additional land. All of these things have affected these 3 ratios. Apart from this, return on capital employed and return on equity have dipped because of the capital raise that we did last year, which is now fully reflected in the denominators of these ratios. We expect these ratios to improve in the quarters and years ahead. On the negative net debt issue, the negative net debt has come down because we have discharged the purchase consideration of Railway business, because of which negative net debt -- that negative number has reduced. With this, we have come to the end of our second quarter's earnings presentation. And I'll now hand the proceedings back to Nomura team for Q&A.

[Operator Instructions] The first question goes to Amyn.

Congratulations on the business improvement. Two questions. First of all, you mentioned something around some of your peers -- direct competitors in Europe facing financial difficulties and you've seen an improvement in inquiries. So these players were currently supplying to some of your potential customers from Europe, and it is now possible that these customers may want to look out for sourcing from India. Is that how we should understand it?

Yes. But that's a very short answer, so I'll elaborate. No, but you're right. We had anticipated that this would happen. As you know, with the thin margins they have, and Europe has been affected also by the loss of the export opportunity in U.S., so they double whammied in this space. So they're not just in financial difficulties, I think 3 of them have filed for insolvency proceedings. One is now in -- the court has adjudicated that it should be liquidated. The other one is also heading that way. Third one, we don't know. But when so much uncertainty arises in the supply chain, let's say, one of our suppliers filed for insolvency, I would be on top of that and telling our procurement team to diversify away immediately and get me somebody who can do those parts as soon as possible. And these are all 3 driveline players. So they are all either differential assembly or differential gear makers. And there aren't that many to begin with. So there aren't that many choices. So yes, that's why the inquiries and that's why the urgency.

Okay. That's helpful. And secondly, on the JV abeyance in China, so maybe slightly something that we've been discussing for a while, the opportunity from Chinese OEMs is something that we haven't been able to tap in yet, and this was supposed to be a starting point for doing something. So are we still doing other things? Is there something that you can share as to how could we address this large opportunity of Chinese EV OEMs?

Yes. So this one, as you know, I have to be very careful in answering for a variety of reasons. But for now, I think the opportunity in China, we will pursue with very high degree of caution. What we can do with our existing plant in China, we will continue to address. As you know, we have a plant there. What we can export from here to China, we'll continue to do. But if -- obviously, if things change -- there are certain factors, lead indicators, if they change, yes, I think there is a business rationale to do it again. That's why our engagement with JNT is still strong. We will pick it up where we left off, but some things on the ground have to change before that.

The next question goes to Gunjan.

Okay. Good to have the business come back, honestly. It's good to see the growth coming back in the business, and best wishes that we get back to our earlier growth trajectory. I had 2 questions. Firstly, Vik, always you bring up the headwinds right upfront. So I also wanted to sort of hear your thoughts on 2 specific issues that we see cropping up. One is this whole Nexperia chips issue, how big you are picking up as that as a risk to the LCV production and the aluminum fire that has happened at Novelis plant? I mean, I'm just trying to get some sense from you, are these risks from a next 3 to 6 months perspective for our customers?

So excellent question, Gunjan, because these are both risks that have suddenly cropped up recently, did not affect us in last quarter. We're still evaluating. Now, the Nexperia one is limited because, as you know, European customers' exposure, especially in the passenger vehicle segment, where this is there, is lower. For us, Nexperia chips are used widely, but Europe seems to be far more affected than other geographies. We also in-house use some Nexperia chips. So we -- our purchase team has been on it. However, the larger issue, as you know, always is if our customers cannot resource, whatever we can do at our end does not really help because a 99% car has no value. Every part should be there. So we are monitoring it. For us, I would say it is not that big a risk because of the way we are exposed to and the kind of customers we are exposed to. Let's see. The Novelis fire, of course, does have an impact on one of our larger customers. So Sat, if you want to answer that one.

So Novelis fire, I mean, it's impacting F-Series truck for Ford Motor Company. And there is definitely -- the production level has gone down for all the models. We are primarily supplying for series, which is a diesel series, and it's 250, 350 and F-650. So there is some impact, but it's not a major impact what we are seeing. So the releases from the customer are very -- it's not drastically came down. So there is some impact, but it's not a major impact.

Yes. So Gunjan, both of these are low risk for us given our exposure to what kind of customers, what kind of models, et cetera. But we are monitoring them actively. Are there any second order effects of these? We can't tell so far, so -- but we are on it.

Okay. Got it. And the second question is on the suspension system. If you can just share a little bit more on how we should see this business revenue building up from one customer to now being nominated to a couple of more customers? And also just a clarification, why do you call it nomination and not an order win? I mean, is there something that I should be reading into the nomenclature?

Okay. Because ClearMotion is our customer, and this is an order that ClearMotion has received. So the quantity has increased, hence, that term because it is not a direct order to us, right? ClearMotion has to supply, we supply to ClearMotion. So that's the nomenclature, not much to differentiate between direct and indirect. I think, look, revenue buildup will still take time. When you introduce a brand-new product that changes how an old technology works, right, you have early adopters, you have one guy who actually sticks their neck out, develops it, so ClearMotion. We've been working on this for 4 years, and our customer, who did it first, knew. Then it starts -- other people after it is commercially launched, only then can they actually try to replicate. So it's heartening that we have one more from Neo itself, and then, one new customer. But it will be gradual, and it will take time to go from that upper-end niche EV vehicles to a more mass thing. It all changes when the first large-volume customer comes. So it's kind of binary, Gunjan. When anybody who makes more than 1 million or 2 million cars picks it up, that's when it genuinely starts taking off. So we don't know is what we can say at this point. But the day that happens, that's when the takeoff is almost vertical.

Vivek, we've got a few -- quite a few questions in the chat box. So I'll just read out some of those. Firstly, it's from Jinesh. He's asking about the Mexico plant. What is the visibility for ramp-up of this plant? Do you plan to shift some programs from India to Mexico? And what is the revenue potential from this plant?

So Vikram's baby, so let him answer. He started this plant. And rightfully, the success of that plant should be answered by him. So Vikram, over to you.

When we started, it was for a large OEM customer originally. That was how it was perceived -- conceived, that project. Then, we shifted some business because the customer wanted. This is, again, the recreational vehicle, which Vivek spoke about it. So we are in the present stage of productionizing those, which is the business transfer from here. But, however, Mexico in itself is able to win business. And this is again coming from the same customer. But we see traction of many customers in North America and Mexico that they would like to develop from that plant. So that plant has a lot of potential to expand. We can't tell it as of now because as the equations keep changing there, we will see how it grows.

But I'll add to what Vikram said, Jinesh, to your question, it's a good one, if you remember when we actually announced the inauguration of this plant, I think it was April, May last year, we had actually said that this is not a defensive move against any trade realignment. This is an offensive move because each business unit or each plant that we set up, we like for it to be entrepreneurial and start winning business, getting to profits and earning revenue on their own. Their business development have to build the business for them. And it's not just a shifting thing. Shifting things around, I mean, sometimes can be necessitated by external conditions, but that is not an ideal way to start a new investment because you've basically taken something from somewhere where your return was decent and put it somewhere else to justify the CapEx invested in the other place. I don't think currently, there is any plan to shift anything. Equations, as you know, on the final tariff outcome, what will be MCA, will MCA be respected, all those things are still unclear. But it is a good optionality to have them. What I keep saying that, if at low cost you can build an option that if a really bad scenario emerges, can you shift in a pick? Yes, we can. So that option we'll retain, but that's not the primary objective. The primary objective is for this to be a revenue and business-generating unit of its own.

Okay. Another question is updates on NOVELIC product to commercialization and new product pipeline and road map for Railways.

Sure. So NOVELIC, as you know, we won an order. I think productionization should start in a couple of quarters that we will start to supply. So productionization, if any investor wants to visit us in our new SMT line in Chennai. We'll be very happy to show them how the production is happening. But the SOP of the customer has to start for serial production to start. New product pipeline and road map for Railways, I will like for the new Head of Railway business, Amit Mishra to answer. Amit over to you.

So on Railway, we spoke last quarter as well. So now we have spent about 5 months in the business. We are very optimistic about the potential that the business presents from a medium-term perspective. As of now, we are working on meeting the demand. As you can see from the order book as well, there is order book, which is higher than what the business run rate is. So we have to scale up to meet the demand, which is quite strong. Over the medium term, we have to add new products. We are working on our existing product, adding new varieties of brakes, coupler, suspension. And then we have identified new areas where we'll enter from the next 3- to 5-year perspective. So we do see a strong growth potential, and we have mapped out the new product, which will be a key driver of growth over the next 5 years.

And again, just to add to what Amit said, this is our, for the lack of a better word, playbook, whenever we do an acquisition, if we don't bring value in building it into something more than it was, then why have we purchased it. So that's exactly the same thing we did with the Motor business when we did Comstar, we -- it was a single product company making starter motors. Today, as you know, it makes starter motors. It is the largest traction motor maker in India. It makes suspension motors, it makes controllers. So take a single order business and try to make it multiproduct because that is all that we know. That is all that is there in our DNA, we are engineers who like to build new things. Same thing we want to do in Railways. It's early days. it's just been 4 months actually of full ownership. We will -- we are working on some products. And once again, welcome to visit us in Faridabad, where we can show you R&D facility and where we are actually in active development of at least 3 products. Some of them are finding good traction with our final customer, Indian Railways. Some of them have also got development orders. So it's going well, but that is the path regardless of what we do. In NOVELIC too, we bought a services business, which we are pivoting into a product business. It is what we know how to do. It is in our nature, and that is what we will continue to do. Kapil, Should I read out questions from Q&A?

Just waiting for -- Ivy, can we take the next question?

Yes. Sorry to keep you waiting. I now move on to our next investors, [indiscernible] .

Just continuing on Railway. As you stated, INR 13 billion worth of orders are in hand. The question is more a little longer term. I understand you completely stated that new products also we are trying because you have a very large market share in brakes for Indian Railways. How much? Because you're enhancing your capacity as well there. So can you talk about a little bit more on the potential here? Because why I'm asking you this because this year, also on the overall mix, Railway will look pretty decent. But next 2 years, if growth is so strong and you're enhancing capacity as well, Railway will also start growing at very much faster pace. That's what I was able to understand what Amit and you were articulating. So can you throw us some light where both respect to potential and even profitability. Because I remember when at the time of the acquisition, you were very clear that time that there's a lot of inefficiencies at the plant, and there is a lot of scope of improvement in margins that can happen. So if you can throw some light on that? That's my first question. And second...

Let me answer this one because the question is very long. Otherwise I'll forget the question itself. So all the things you stated are correct. There are some low-hanging fruit in terms of the ability to improve margins. We are working on those. There is a larger opportunity to improve cash conversion cycles because I wouldn't call it inefficiencies, but the way automotive works and the way railways production works are different. We're trying to bring that rigor that TQM approach, that theory of constraints type reviews so that we can improve every week, a little better than we were before. And there are enough areas that there is -- I mean, there is enough juice left that we can squeeze out of this, on margin front. Growth should be robust. I think this is -- some of the constraints for achieving this growth are 100% in our country. And actually, that's a very heartening thing because in a lot of the other verticals, we are, mostly, we are affected by macros that we can just sit and worry about, but can do of nothing about it. I can't go sell cars on behalf of my customer. I can't change global trade policies. But here, demand is not as big a constraint as it is in other spaces. I would say I'm immensely impressed by the Indian Railways, the Railways Board, the RDSO teams and their ability to grasp the advantages of new products, new technologies and to give you opportunities to work with them. But we don't want to say too much too early, it's just 4 months since we owned it, but it -- fingers crossed, touch wood, whatever other superstitious are there, but it looks really, really good. But Amit can add more because he's there every day. So he knows more than we.

Most of the things. So in terms of products, yes, today, a large part of our revenue comes from brakes. But we do have good market share even in couplers and suspension also, we may be the largest player in the country. So we have other products. There are other products which are under development. We are -- it's being tested, put into trains for testing, and there is a cycle that it will be tested for 12 months. If it passes the test, then you get approval to supply in higher volumes. Then there are products which are slightly early in terms of development, which we expect to come in the next 3 years. So at this point, we have very clear time line set. And the way different products are positioned for commercialization, I think we should deliver good growth over the next 5 years. If we are successful in delivering or developing and getting approval for the new products. So it will be driven by new products. And we have a very good pipeline of products, both in our core segments of brakes as well as in the other segments that I talked about.

My second question is on the overall profitability because you stated in your opening remarks that one of your largest EV customer, which was 23%, came down below 7%. EV revenues first half to last year first half declined, the percentage came down drastically. Despite that, your overall profitability margins are very steady. I mean I can't compare you with any other company because you're still, I think, the highest profitable margin company in the country with respect to autos. But that is still very steady at 25% plus. How one should think about these profitability aspect despite facing so much pressure on the revenue side on your largest customer side. We haven't seen the deterioration which could be a 10% margin company or a 12% margin company could have faced. So if you can articulate a little bit on that, that will be very helpful. That's my last question.

Sure. So. Pressure is a privilege man, pressure is only on people who are capable and you expect things from them, right? If there is low expectations or low capability, there is very low pressure and you can live a more peaceful life. So it takes a lot of doing. So if you see a duck in a pond, it seems as if it's gliding effortlessly, same margins all the time, but it's paddling furiously under the surface. There is a lot of work that goes into it. Every single process, there is some room to improve even after 25 years of doing the same thing over and over again. We are finding new areas where we can lower cost. Prices, you can't really manage, right? Prices are set by your competitors. What you can do is manage your house better. And that is a continual process every week, every day, every year, you have to keep getting better. I would share one example. Actually, Vikram, you should share it about the die life improvement and how it has resulted in just the costs going down for all our gears.

Using a particular process technology for many years, and it had certain die life and however, we said okay? This is an acceptable -- as of now, maybe acceptable quality, but we wanted to go 2 steps above, the quality in a gear is defined by certain ISO standards or DIN standard. We wanted to up quality standard to by 2. And for that, you're required to change processes. So while the straight method is you make it at much colder temperature, the accuracies improve. However, it has detrimental to both machine size, machine size goes up and the die life reduces. However, we have to find a way that both things are achievable. So I think it took the last 6 months or more than a year actually, to connecting various data because forging is not so straightforward like a machine. There are 100 more parameters, which affect the life and the quality. So the team is always on to improve quality and improving the die life by which the cost comes down. So that's the DNA of what we do. So every year, we have something.

So that's one example. Same thing I'll say in Motor. Can you use less material less process time to make the same product. And that's a challenge we post to ourselves in every single aspect of what we do. And if you do follow it, you can maintain over the longer term, but yes, there is a lot of pressure. You know our higher-margin markets are declining because of the entire situation that we have. But again, if the core fundamental technology with which you make your products, all the processes, all the knowledge of the material is with you, you can keep working on each of those elements for constant improvement, which is what we try to do. Can you change the metallurgy? Can you change materials. This drive or this zeal to improve is why we are able to -- I mean 8th April, heavy rare earths got banned, we shifted to light within 3 months. Now lights may have a problem. We have shifted to ferrites. So it is basically the zeal that if you know how to do every step of it yourself, you can move much faster. And we know that there are pressures as a company that there are market pressures, which means we will focus more inwards on cost improvement activities. And cost improvement doesn't mean the normal consultant way of saying fire people, shutdown plant, those kind of things. It comes from improving how you make everything that you make every day. Use less material, use less time, use less machines. So that's, I guess, a very long answer and a philosophical one to probably a more financial question.

I'll take a few questions Vivek, from the chat box. So first is, can you elaborate on the composition of this order book? What is the current status and ramp up pipeline for 60 EV programs? And how much of these will go into production in FY '26 and FY '27?

Yes. I think the breakups there on the slide, we can go back to the Slide 13 that -- I think we gave the breakup pretty transparently. Yes, this is the breakup. EV, within EV, how much is passenger vehicle, how much is 2-wheeler, 3-wheeler, CV off-highway customers and programs. All of that is actually in this chart. We do not give future guidance. And if I tell you how much of these programs are going into FY '26, it literally means I'm telling you how FY '26 ends and FY '27. And so we don't do that. For a lot of reasons. Second, very, very short-term questions are not good either for people who are looking to invest for the long term or for companies who are looking to build businesses over the long term. I mean all of us have been here for a decade plus, right, who run the company. Vikram has been for much longer. We can't be allowed to think only in terms of what goes into order next quarter or FY '26 has only 2 quarters left. So I apologize, but this is not a question I think should be asked of any company that is looking to grow a business and build a business and probably make an institution for the longer term.

Okay. Then another question is revenue ex of Railway business has moved to 5% growth Y-o-Y as compared to a 10% drop last quarter. This has been driven by traction motors and other segment. Others is now 9% of large revenue base versus 5% Q-o-Q. What does this include?

Others is all the projects that are here not because Railways also, as you know, have some other products apart from the 3 main ones. Motors also, there are other products apart from the 3 main ones. In Driveline, specifically, there are now many types of gears in Driveline parts that we can't classify technically as differential gears or differential assembly. I think, Pratik , if you go back to that slide, I can illustrate better. Yes, the product mix slide. So it's not like this number was small ever but we are increasing as the pressure comes on traditional product because if your existing customers don't sell enough vehicles, you have to start also making new things for either existing customers or new customers. So that is others of all the divisions put together. I would not have the exact breakup of that others with me right now. But anything that is beyond the 8 main product categories is in that. We have, I think, about 20 products, so 12 will be in that.

Okay. One more question is if we are deducting INR 2,600 crores from order book due to low visibility, then we may also debit some orders quantity in future also.

Of course, the future is always unknowable. But we have done a review. This, I think one needs to do every 3 years or so. But can it happen after 3 years again? Sure, it can. For the first 10 years of my career, almost never we had the opportunity to correct or any reason to correct because almost always things used to happen and automotive is fairly predictable. This last few months and some of those models have been exceptional events, which is why we've done it. But can something like this happen in the future. Of course, there is literally no guarantee of nothing adverse ever happening in the future. So it can of course. Unlikely, but can happen.

Would it be possible to share some color on nature of acquisition opportunities that are being pursued actively by the company?

No. It's -- as you know, I don't even think it's allowed. It is UPSI and all that. So I don't think I can talk about it. What we can say is the general nature that it will be in the mobility segment. It will follow the 4 guidelines that we always do. It should be something -- anything that we try to acquire, should have visibility that, that product will be in a mobility device for at least 15 years that is all we can try and estimate the future for. Second, filter, which is that whatever we do, we should have the ability to have market leadership in, which means top 5 in the world, hopefully. If not, whichever product category we're going for in that absolute leadership like brakes is, we are leaders in India, maybe perhaps top 5 in the world too, but I cannot say with full confidence. We'll have to get the data for that. Third, it should make good money for us. So we have financial thresholds also of expected return expected margin. There is a curve on which it should fall. And last, it should be something that is good for humanity. So something that has no other purpose than -- well, have negative impact on humanity. We will not pursue so highly polluting processes and industries, weapons. These are things we do not foresee us ever looking. So that same criteria we will use, but exact opportunities, I don't think we should share.

Vivek, there's a question on hybrids with many OEMs in India and globally talking about hybrids. Why is the company not talking about hybrid motors it used to show?

We are. I mean, it's in our mix. Hybrid is one of our bigger mixes. Hybrid is good for us. I think I saw this question a couple of weeks -- a couple of quarters back also, someone asked this. Actually, in a plug-in hybrid, our value content per vehicle is the highest. We would be very happy if more hybrids come into place. ICE is where we make less money. Hybrid is actually most because it also has a starter as well as a traction motor and the differential assembly is primed to the highest stock drivetrain. So it will be more prime towards the electric side of it. But it is a decent part of our revenue even now. Again, Pratik, I think you'll have to go to the power mix chart, I think it's in the appendix. I think we, I think, second or third slide in the appendix. I think we moved it to the appendix because there was usually nothing to report, but I think we missed it. But can you just share with people on the call what it is, the hybrid share?

Yes, I'll take a second. I'll get back.

Sure. It will be robust. There's not much change in it. It might have grown actually.

Okay. Vivek, there is a question on the margins. With regard to margins, they are on a downward trajectory. Want to understand what is the baseline to expect with impetus on growing India and the Eastern markets?

Are they on a downward trajectory, though I think those are upward trajectory, but okay, I think this is a question that -- see, when you take -- this is just a mathematical thing. This is the first quarter with Railway integration. If you take a 26%, 27% EBITDA business, and that is 80% of revenue, and you add 20% of EBITDA, which is 20% of revenue, the margins will go down in percentage terms. So we have added a full quarter of the Railway business, which is obviously lower margin. So the margin profile will shift downward. I think the question -- the more likely question should have been, how is it still above 25% rather than how is it on a downward trend because it isn't, I think last quarter, I had said, I answered this question that did you expect it to be? And I think I said in the range of 23% to 25%, I think just this quarter, we've actually done higher than that. But I would say that is the range, 24%, 25%, and that is our target, even when we listed, we used to say that between 25% to 27% is our target. Post this acquisition, I'll say, between 24% to 26% is what we try to do.

Okay. There is a set of questions which talks about the ownership of jointly developed technologies with external partners. How is the ownership determined and what are the explicit criteria to allocate patent rights? And how are joint innovations managed to ensure fair and clear intellectual property protection on both sides? And I think there's a related question for -- it's for other mobility offerings like suspension systems, powertrains rating tangible cross-platform benefits for performance, automation and product adaptability. So basically, how will the company leverage the technical expertise it has gained from its robotics partnerships?

We don't have any JV partnership so I'm struggling to figure out how to answer it because I don't think any of the partnerships, the 2 we did, with Enedym Or Equipmake, have been commercialized. So there is no aspect of sharing of the technology or what revenue accrues were. Most of the products we do or almost all what we do is basically in-house technology only. With NEURA, that is something to be still worked out. There is a concept of background and foreground IP that both sides keep the background IP or the core process with which we develop their part of it. And then the foreground IP, the application of what you have developed belong either to the customer or to one of you depending on who's the prime agent and prime buyer. So it is very well articulated right at the start. And mostly, these are things covered in the partnership agreement. So whenever we do sign binding contracts, this will be part of it. This is one of the, I would say, main areas of discussion and negotiation. Who does what, who takes credit for what? Who gets the IP rights for what? And then how is the revenue attributed to each party. And obviously, in a good partnership, we try to do it in a fairly and equitable manner. So we try and do it for all. Right now, I don't think we have much of those kind of cases.

Answer to that hybrid question. Basically, we have 24% revenue share of automotive products from hybrids.

So thank you, Pratik, just keep that slide in the appendix in general because I know it doesn't change that much quarter-on-quarter. But if we keep it in the appendix, I think people can see exactly what the split is in powertrains.

Sure, I will.

Yes. So now we will take the last question by Jay Kale.

So my first question is on the suspension motor business. There is a significant amount of TAM available over there, and it's happening to see new business wins from new customers. But if you can just speak a little bit about whether there are any conversations with ICE customers. You've mentioned about order wins with electric PVs, but are ICE customers also actively looking at it?

So. Excellent question, Jay. Actually, suspension has nothing to do with the powertrain, right? So both kinds of customers are engaged. However, what is happening is most people in new launches which are coming, let's say, a year later or 2 years later, happen to be EV because even now, I think there's a BofA mobility newsletter that comes out. So I saw the August numbers. EV growth was still pretty high. I think it was 38%. Europe is again going quite fast towards electrification. So what is happening is that if you want to integrate a new suspension in a vehicle platform, you would not like to do it on an existing thing because you don't want to change the assembly stations, et cetera. So you would want to do it in a new model. And new models are invariably electric for a lot of people, which is the reason. So it's not like we're not engaged with ICE customers, the orders or inquiries we get are for EV but it has 0 bearing on the nature of the product.

Understood. The second question is on the United Robots. Of course, it's still a nascent industry and the supply chain is still getting developed. There will always be a type of a of J-curve hitting in your planning and discussions with your customers, when do you see that J-curve hitting? And maybe 5 years down the line, how big an opportunity do you see in terms of the contribution of this business to your revenues?

So Jay, I would say, let's broaden the definition just to humanoid. Humanoid is a shiny human looking face of the robotics movement. But the real volumes are in cobalt and industrial robots. So cobots, by cobots, I mean, cognitive robots, like robot-assisting people in surgeries, people on floors, so many areas. That number is actually much higher. So if you just look at TAM, that number, if you look at a 5-year horizon, will be much higher. If you look at a 15-year horizon is when humanoid TAM exceeds probably even those ones. For us, it's both because almost everything that we do, we do motors, we do gears and we do sensors. Together, they form the core of almost every joint and joints and movement. Basically, how many degrees of movement and how many can you enable intelligently. That's a lot more in humanoid so the number increases. But it is applicable for all robotic categories. I would still say I don't think one should try to whenever an investor is looking to make a business case, add too much of it in 3 to 4 years, it will take a lot. I mean, if you just go by, my own lived example of 2016, we started investing and doing things with EV drivetrains. We really made money 5 years later in 2021 for the first time and even then it wasn't much. Now is when we really make money. So first 3, 4 years, you'll make almost nothing. Suspension motor, another example. 2021, we started developing first samples, et cetera, '25, we started making decent money, but '28, '30 is when you make really big money that starts becoming a category in your pie chart instead of just going and sitting in others, it actually becomes something. So 0 to 5 to get to good or some revenue and 5 to 10 to go to massive revenue. That's usually this scale. I believe humanoid plus cobots as an industry in 2040 might be bigger than the entire automotive sector put together. So it is an opportunity. I'm fortunately 46, so I have at least 15 years. So I see that thing happening. And it's great that you can see 2 new industries and technologies, pan-out in your lifetime. So that's the goal. But if anybody and especially the people who ask me about what does '26 look, second quarter look like. Yes, do not build it in your business case for the next quarters or next 2, 3 years. It is not going to mean anything. It's an investment in learning. It's an investment in capability building and it's an investment, hopefully, that brings us a much brighter future.

Got it. And just one last question. I know it's heartening to see your ferrite assisted synchronous reluctance motor development. But just curious, of course, this there would be certain inherent advantage of rare earth, I mean the high rare earth metals developed motors. So are the limitations of ferrite assisted synchronous motors behind us or we are still in the development curve because if it was so easy, it could have -- should have been developed earlier as well, right? So there would definitely be some disadvantage of these kind of motors, which there will be a development curve?

So Jay, because I know you and I know how closely you track us. We launched this first in 2022. That was the first time. We didn't find much customer traction because when easier alternative is available even if you make something innovative people don't switch to it. There is an inherent disadvantage that the weight is higher not by much, but the way it is higher. There are some other things Sat or Praveen, actually you can speak about it. But in those intervening 3.5 years, we have improved a lot more. And at that time, I think we were not using synchronous reluctance. We were using some other technology, but using ferrite magnet. But Praveen or Sat, whoever wants to take this, can talk about this more.

Thanks, Vivek. So in general, you are right. The rare earth magnets have a higher power density, and then therefore, it can give you top density as well. But when we look at ferrite, it has an inherent advantage in that the temperature-related degradation is not there like you see in the rare earth magnet motors. So that advantage we have been able to leverage to take care of the power density and therefore, the disadvantage in terms of weight increase, which Vivek talked about. So barring the overall weight increase, we have been able to more or less compensate the disadvantage that we would have moving from PMSM with the rare earth to a ferrite assisted synchronous machine. So overall, in most applications, you can offer this as a comparable product. And therefore, it can be a good replacement. So that's a short answer. But we are working with all the applications right from, as we mentioned, 3-wheeler, LCV, 2-wheeler and all the segments. So we will have to work towards achieving a good balance between packaging weight and the specific requirements in terms of torque and power.

One thing, that Praveen forgot to mention because he's obviously concerned about customers who listen to this that the cost is lower.

Yes, right. Absolutely.

And that Jay accounts for a lot. Lower cost can make up for a lot of things.

So in the interest of time, we will conclude the call now. If you have any follow-up questions, please feel free to e-mail at Nomura sales rep or corporate access. Thank you once again for everyone's your time. You may drop off the line now. Thank you so much. Thank you.

Thank you.

Have a good evening. Bye.