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

Ladies and gentlemen, good day, and welcome to Sona Comstar Q1 FY '27 Earnings Group Conference Call. [Operator Instructions] Please note that this call is being recorded. [Operator Instructions] Some of the statements by 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 will hand over the floor to Mr. Kapil Singh, Deputy Head of Research India and Lead Auto Analyst at Nomura. Kapil, please go ahead. Thank you.

Yes. Thanks, Sneha. Good evening, everyone. To take us through the Q1 results, we have the whole management team of Sona Comstar. We have Mr. Vivek Vikram Singh, MD and Group CEO; Mr. Vikram Varma, Whole-Time Director and CEO of Driveline Business; Mr. Sat Mohan Gupta, CEO of Motor Business; Mr. Praveen Rao, Group CTO; Mr. Rohit Nanda, Group CFO; Mr. Amit Mishra, Head, Railway Business; Mr. Ankit Agarwal, Head, Investor Relations; and Pratik Sachan, Head Strategy and M&A. With this, I'll hand over the call to Vivek for his opening remarks and the presentation.

Thank you, Kapil, and welcome, everyone. Today's call will be a little different from our usual quarterly discussions. I'd like to first spend some time sharing how we are thinking about the next phase of Sona Comstar's journey. Those of you who read my recent letter to shareholders know that FY '26 was a year that tested us in many ways. But while we were dealing with those challenges, something equally important was happening in the background. We were quietly preparing for our next decade. There's a poem by Edwin Martham that I like. It goes, When you are the anvil, bear. When you are the hammer, strike. And we believe that every company goes through both sorts of phases. There are times when resilience matters the most, and there are times when a company must forge its own future. Now, over the last decade, we transformed Sona Comstar from a small automotive components company into a midsized global mobility technology company with a diversified product, customer portfolio with leadership positions across many categories. It's natural for us to then ask ourselves this question, like what does it take to go from a midsized company to a truly large company? And our answer is what we call Sona Comstar 2.0. This is not a change in direction. It is a natural evolution of the strategy that has brought us this far. We began working on this strategy more than 2 years ago. But we deliberately chose not to talk about it because we wanted to do something tangible and have something to show before we came to you. Ambition without substance can easily be mistaken for hubris, and we wanted to come to you not with ideas alone, but with actions. Yesterday's announcement of the Denso JV is one example. Our work in robotics and physical AI is another one, which is perhaps an even bigger move. In other words, Sona Comstar 2.0 is not something we are announcing today. It is the beginning of year 2 of our next decade's journey. And today, we'd like to share that journey with you. So let me begin by explaining how we've been thinking about the next decade. We did some reflection. I put this in our annual report 2 years ago. But when we look back at our own journey between 2015 and 2025, we noticed something that was both interesting and humbling. Our revenues increased tenfold in that period, yet more than 85% of that growth came from just 3 strategic decisions. We entered new product verticals. We expanded into global markets, particularly the West, and we recognize the electrification opportunity early and acted upon it. That reinforces for us an important lesson that big companies rarely become exceptional because they make hundreds of small good decisions. They become exceptional because they make a handful of truly transformational decisions and then execute them well. Our ambition over the next decade is simple. We want to build another 10x company. But every decade obviously brings a different set of opportunities. Our job is not to repeat what worked before. It is to build on the capabilities that brought us here while creating new growth platforms for the future. This is why we've broadened our addressable market from automotive to mobility. Now, our first growth engine remains new product verticals. It has been our biggest driver of growth over the last decade, and we intend to accelerate it through both organic innovation and disciplined acquisitions and partnerships wherever necessary. Our second growth engine is what we call our look East strategy. So let me first explain what it is not. It is not a shift away from the West. Europe and North America will remain strategically important markets for us. Our ambition in those markets is every bit as strong as it has always been. But what is changing is that over the next decade, we intend to build an equally strong presence in the East and not through incremental expansion like having more sales staff or doing more business development calls, but through carefully chosen strategic moves that strengthen our access to technologies, customers and markets. Our railway acquisition was one such move. Our partnership with Denso is another, and we expect that we'll continue making similar long-term strategic moves over the next decade. Our third growth engine is undoubtedly our boldest yet. Alongside electrification, we are adding another long-term technology theme to the company, robotics and physical AI. We believe this has the potential to become a significant long-term growth platform for us as a company. So now, let's begin with the first growth engine, new product verticals. We believe that one of the biggest differences between great manufacturing companies and really good ones is where management chooses to spend their time. Most companies spend most of their energy defending the business that they already have. We have spent our creating businesses that we did not have. Ever since our IPO, investors have actually often asked me what they believe the market still underestimates about Sona Comstar. We look up to and say, what do people not understand fully. And in the last 5 years, I don't think I've ever fully answered that question. So let me try and answer it today. First, it's our ability to consistently create entirely new products and businesses through our own engineering and R&D. Today, more than 35% of our revenue comes from products that simply did not exist in our portfolio 7 years ago. 19 of those products were conceived, designed, industrialized and scaled entirely through our own R&D funded from our own cash flows. If I annualize our quarter 1 together these new products represented INR 1,800 crores revenue business, generating over INR 230 crores of annual profit. If this was a stand-alone company, this would be 1 of the biggest innovation success stories of India. That's literally the equivalent of creating a multi unicorn from scratch in just 7 years. And this is the power of building new businesses from within, but organic innovation is only 1 part of the story. The second capability, which is probably not understood, allocation. Just because we have good engineers, doesn't mean we can't also be thoughtful investors. Over the last 7 years, we've invested around INR 2,750 crores, across the acquisitions of Comstar, NOVELIC and the Railway business. And today, at the end of Q1, these 3 businesses contribute roughly 40% of our revenue. And if we assume comparable margins, they contribute INR 270 crores of net annual profit. And this is despite the railway business being in its first year of post-acquisition integration. All of you are very good at math, so you can do the math of how good or how return accretive these acquisitions have been. The point is whether we build or we buy, the objective is exactly the same, to create capabilities that compound over decades. When we believe we can build something better, we build it. When we believe someone else has already built an exceptional capability, we try and acquire it. Sona Comstar 2.0 means that we intend to become even more ambitious and double down on both of these fronts. This brings me to the second pillar of our Eastward expansion strategy. Yesterday, we announced what I believe is the most important strategic partnership in Sona Comstar's history. Our partnership with Denso. Not because it's a joint venture, although this is our first joint venture in my time period here. But because of what it enables us to become. Over the years, we've built India's broadest portfolio of electric powertrain products. But there was 1 big gap. All of you know it. We did not participate at all in high-voltage electric as well as hybrid powertrain systems for passenger and commercial vehicles. This partnership fills that gap. More importantly, it competes our entire electrification portfolio. Today, we have a leadership position in 2- and 3-wheelers in India. And through this partnership, we should hopefully add more customers to the 2- and 3-wheeler JV and extend our leadership position to one of dominance. Through JV 2, we will have the opportunity to build a meaningful presence across the entire electric and hybrid powertrain spectrum across every vehicle category. And that opportunity is far, far more substantial in revenue potential terms. If we go by S&P Global Mobility, Indian hybrid and EV car and commercial vehicle market alone represents an addressable market of over 2.3 million vehicles, which would roughly amount to about a INR 24,000 crore opportunity in 2030 itself. If you go to 2035, it will be many times this. And this is even before we consider our longer-term global ambitions. India is where we will begin, but just like we've done with Driveline and Motor business, our ambition is always ultimately global. Now that's a question that some of you may have had is why Denso. But I think an even more interesting question is why Sona Comstar, Denso is the world's second largest mobility technology company. It has no shortage of potential partners across the globe. But I believe they saw Sona Comstar what we have been building over the last decade. Our company with strong engineering capabilities, proven frugal execution and technologies that complement their own with their strength in hybrid and our strength in electric, I think it makes for a fairly killer combo. It is a strategic partnership between 2 technology companies, where each brings distinctive strengths to the table, and together, we can build something that neither company could have built as effectively on their own. And that, in our view, is the hallmark of a successful long-term partnership. To get into the weeds, the partnership consists of 2 joint ventures. The first will focus on high-voltage electric and hybrid powertrain systems for 4-plus and 4-plus wheeled vehicles. So all passenger and commercial vehicle applications in short. In this JV, Denso will hold the majority stake, contribute the relevant technology and intellectual property and lead the business from a management perspective. The second joint venture will focus on 2- and 3-wheelers, where Sona Comstar has already established a strong technology position. Here we will retain majority ownership and management control while licensing our own technology into the joint venture. Let me also clarify because we've got some calls that our suspension motor business, together with our -- all our other nontraction motor businesses, remain completely outside the scope of this transaction, which only concerns itself with the traction part of the business. Now, let me come to what I personally find 1 of the most satisfying aspects of this partnership, the royalty structure. The ultimate validation of any technology is quite simple. Technology has value when someone else is willing to pay to use it. In this partnership, the royalty arrangements are equal and reciprocal in both. JV2 will pay royalties to Denso for its high-voltage technologies, while JV1 well will pay royalties to Sona Comstar for our 2- and 3-wheeler technologies. And it tells you that this is not a partnership where 1 company brings technology and the other brings manufacturing. Both companies bring technology. Both companies contribute intellectual property, both companies contribute engineering expertise and both companies strengthen each other. I believe that mutual respect is what makes partnership successful. And if I may end on a lighter note, I suspect we may be the first Indian automotive company to receive royalty income from 1 of the global mobility technology companies. And that is certainly something as an Indian everybody could be proud of. Moving on, our new addition to the third growth engine is robotics and physical AI. And I want to spend a couple of minutes on explaining why we believe this is such an important opportunity. Every few decades, a technology comes along that fundamentally changes almost every aspect of human endeavor. Economists call these general-purpose technologies. Fire was the first. The wheel was another one. And more recently, electricity transformed the world. The Internet did the same in our lifetimes. We believe artificial intelligence will be the next general purpose technology. And so far, AI has largely transformed the digital world. The world of bits and bites. But we believe that the next phase of AI will be different. It will move into the physical world, the world of atoms and that will transform almost every machine on the planet. The machines will no longer simply execute instructions. They will sense, they will think, they will act. And most importantly, they will continuously learn. This is what we mean by physical AI. So what does all of this have to do with Sona Comstar? And the answer is simple, the same technologies that power modern electric and autonomous vehicles, motors, gearboxes, actuators, sensors, electronics and software. These are exactly the fundamental building blocks of intelligent machines. People often think of automotive and robotics as 2 completely different industries. We don't. In fact, we believe those 2 industries have already started converging. Dynamics, there are companies making humanoid, which are from the automotive sector. And whether it's an electric robotaxi or an autonomous mobile robot, a collaborative robot or a humanoid, the underlying technologies are the same or remarkably similar. Therefore, robotics and physical AI is not a departure from our strategy. It's a natural extension of the capabilities that we've been building for over a decade. The long-term opportunity for these components is quite large. Morgan Stanley has a report called the Robot Aluminac, I would encourage you to read it. According to that, the global market for radars, reducers and electric motors over the next 25 years could grow approximately 260x, 590x and 260x respectively, like absurdly large numbers. They're expected to reach an estimated size of $60 billion for radars, $1.4 trillion for reducers and $2.5 trillion for motors. If we succeed in taking even a fraction of this opportunity, the future is very, very bright for us. Now coming to this slide. This slide is about what we have already built. So we're not announcing our intent to enter robotics in physical year. We are announcing that Sona Comstar has already entered. Over the past year, we have invested in technology, invested in equipment, and we have developed products. And even more importantly, we've been working very closely with customers. We see 3 distinct revenue streams for ourselves. The first is advanced components and subsystems, an area which is closest to our existing capabilities. We have deep capabilities in motors, gearboxes and sensors. These are all mission-critical building blocks for intelligent machines. The second is the perception stack, an engineering services around perception. Here, we will provide engineering and R&D services, while also developing perception software and integrated hardware-software solution for customers so that whatever it is that the customer requires, we are able to provide that part for them. The third and perhaps the most ambitious is the development and manufacturing of selected full robotic platforms. Initially, our focus will be on 2, autonomous mobile robots or AMRs and cognitive collaborative robots or COBOTs. Earlier this year, we showcased the prototype of our first AMR at CES in Las Vegas, and development continues to progress fairly rapidly. And 1 more thing. We already have customers. We've secured our first order for an advanced robotic subsystem. Our second order is for a perception engineering services for AMR. And our third combines both hardware and software. It's a complete short way in radar perception solution for an Indian commercial vehicle OEM. Together, these 3 orders, they add INR 6 billion to our robotics and physical AI order book, which takes the total order book for this new vertical to INR 8 billion. And what has pleasantly surprised us is that unlike electrification products or our suspension motor product, this market may be developing far faster than we had originally anticipated. We've obviously positioned ourselves early in that journey. So this is no longer an idea and aspiration and ambition, it is now a business. A small business today surely, but 1 that we believe has the potential to become a meaningful growth engine for Sona Comstar over the next 10 years. So before I move on to the more project business of our quarterly performance, let me leave you with 1 final thought. As we work from Sona Comstar 1.0 to Sona Comstar 2.0, we spent a lot of time thinking about 2 questions. What should change? And equally, what should never change? So let me begin with what will not change. Our purpose will not change. Our values will not change. Our commitment to our customers, our shareholders and our people will not change. Now, in the principles that have guided us over the last decade, engineering excellence, disciplined capital allocation, operational execution, financial prudence and transparency, those foundations will remain exactly the same. What will change is the scale of our ambition. We will pursue larger opportunities. We will enter larger markets. And where appropriate, we'll make larger investments and much larger strategic decisions. I believe after yesterday's announcement, we have entered the big league. And when you enter the big league, it is wiser to make bigger moves. However, whatever decision we make will be judged against the same 3 questions that we have always asked ourselves. Does it create meaningful value for our customers? Does it create long-term value for our shareholders? And do we have the capability and management bank width to execute it well? If the answer to any 1 of these questions is no, we'll walk away. And that discipline is what has served us well over the last decade. We believe will serve us equally well over the next. Over the last 10 years, together, we built 1 10x company. Our ambition for the next decade is to build another 10x company. With that, let's now go back to the quarterly performance and the quarterly numbers. So coming to the quarter, I'm happy to share this was a best ever quarter for revenue, BEV revenue and BEV revenue share with very healthy momentum continuing across the business. But as always, I will begin with the challenges. Inflation continues to be the biggest near-term challenge. Commodities and other input costs remain elevated. They have impacted margins during the quarter. April was tough. May was even tougher, but June showed improvement, as material cost pass-throughs and other cost reduction and mitigation measures started catching up. Those of you who followed us know that cost pass-through with automotive customers always lag inflation. So they come a little later. This, along with the arithmetic impact on both revenue and cost may continue to create some pressure on margin as a percentage. However, the encouraging part is that directionally things have started improving as the quarter has progressed. Beyond that, the operating environment remains uncertain. We all read the news. Trade and geopolitical developments continue to be choppy. But certainly, they've been uncertain for so long that I don't think they should be used as an explanation anymore for business performance. Our job is to manage through all the choppiness. Now I'll move to the positives. Of course, they are far more than the challenges. Demand has remained healthy across all the markets we serve. India delivered another strong quarter, particularly in passenger vehicles and electric 2-wheelers, which was phenomenal. Europe has surprisingly to many, it has not just remain stable. It's actually growing now. And the U.S. has also improved meaningfully as the quarter has progressed. China was the only 1 which remained kind of mixed; however, for us, it was our fastest growing geography this quarter because of the suspension motor ramp-up and its success in China. Second point, EV demand continues to gather pace. Our BEV revenues were -- I think they more than doubled during the quarter. And BEV revenue share has also reached an all-time high. Finally, business development efforts. This quarter, we secured new business across EVs, hybrids and ICE across India, Europe and North America. And across virtually every product category we operate in. And that's very gratifying for us because there are -- usually, there are times when some things do well, some parts of business don't. This is the business that we've been trying to build, a diversified 1, which can grow strongly across customers, geographies, products and powertrain technologies. Now to the numbers. Our revenue grew by 54% year-on-year, while EBITDA and net profit increased by 49% and 45%, respectively. EBITDA margin was 23.1%. Margins were heavily impacted by input cost inflation, labor cost increases as well as the timing gap in the customer recoveries or the pass-throughs. This was especially true during April and May. But as I mentioned earlier, June was significantly better. We expect that these recovery measures will become progressively more visible from quarter 2 onwards. There was also a product mix impact as traction motor sales grew quite rapidly, and as is well known to you, that product category has the lowest margin relative to our average company margin. So that also dragged it down a little bit. Let me now turn to electrification. This was an amazing quarter for us. We continue to see electrification gaining tremendous pace. We delivered the highest ever BEV revenue and BEV mix during the quarter. And BEV revenue grew 104% despite EV demand in the U.S. remaining weak. This is quite a testament to how our EV business is no longer dependent on a handful of customers on 1 particular geography. We have also added 2 new EV programs and 1 hybrid program, which takes our EV order book to 69 programs across 36 customers. Now, let me go to order wins. So the quality of our order book continues to improve. We are increasingly winning businesses across multiple powertrains, multiple geographies and multiple product categories. This quarter, we received a new order from an existing North American OEM for hybrid differential assembly and, again, surprising but very gratifying. If North America takes on to hybrid, I think this opens up another avenue for growth. Second, we won 2 traction motor programs from a new age Indian electric 2-wheeler OEM. To add to this, we also won meaningful ICE differential gear programs. This is our first product category. So it often gets glossed over by newer and more exciting products, but I just wanted to reiterate that we continue to gain in this category. We received an ICE differential gear program from a traditional North American OEM with an order value of INR 2.1 billion, along with additional business wins and starters, differential gears and railways. And at the end of Q1 FY '27, our net order book stands at INR 240 billion with EVs accounting for 64%. As you can see, we've added robotics and physical AI to our order book, which is a small 3%. But as they say, all great endings have small beginnings. Hopefully, this is 1 of those. So now, let me come to diversification, which is our fourth strategic priority. This is 1 area where we continue to see a lot of time progress on our strategy. For example, Eastern markets contributed 59% of our revenue this quarter. This was 56% last year. This shows that there is a continued shift in our geographic mix. We have seen a similar trend across our product portfolio. Fastest-growing business this quarter was EV Suspension Motors, followed by EV Traction Motors, and something that gets lost in the others category, our emerging product portfolio. This includes steering bevel boxes, intermediate gears, epicyclic gear trains, input rotor shafts and several railway products. So with this, I will turn to our group CTO, Praveen, to update us on technology. Over to you, Praveen.

Good evening, everyone. Next, our technology focus and customer-centric approach continued to deliver significant business wins and shape our road map. We are advancing market-relevant products and solutions across automotive and railway applications from magnet motor solutions and exterior radar solutions to air springs, HVAC and door systems. Product under commercialization this quarter include short-range radar sensors and advanced robotics components. The shortage exterior radar sensor developed for a leading commercial vehicle OEM is designed to meet the upcoming Government of India regulations on advanced driver assistance systems, also known as the ADAS. The business win in advanced robotic components builds on our deep expertise and foundational capabilities in automotive product design, tooling and manufacturing. And notable addition to our road map is the autonomous mobile robot, or AMR. This product brings together capabilities across motor, driveline and sensor divisions while also establishing expertise in newer domains, such as robot perception, motion planning and control, telematics, reinforcement learning and AI orchestration. The AMR platform is being developed as part of a broader robotic portfolio focused on manufacturing and warehousing applications. It is designed to support use cases across automotive, electronics, pharmaceuticals, FMCG and other sectors. The field of robotics and physical AI is expanding rapidly as smart and flexible manufacturing scales up. Manufacturers are moving from isolated automation initiatives to connected and coordinated operations, creating opportunities for Sona Comstar and physical AI, including components, actuators, and in some case, full systems. An interesting aspect of deployment of physical AI is the need for training. This is an area likely to be the next frontier in cognitive robotics. In summary, as we evolve from an automotive components company into a global mobility technology provider, we will continue to strengthen our core mobility portfolio while expanding into the emerging growth areas such as robotics and physical AI. With this, I conclude and hand over to Rohit for the financials. Over to you, Rohit. Thank you.

Thank you, Praveen. A very good day to you all. It's my pleasure to share our first quarterly results for financial year 2027 with you. Our revenue for the quarter grew to INR 1,310 crores, a growth of 54% over the first quarter of last year. BEV revenue grew by 107% to INR 436 crores over the same quarter last year. BEV revenue constituted 44% of our automotive product sales. EBITDA for the quarter grew by 49% to INR 303 crores. EBITDA margin was 23.1%, which is lower by about 0.7% compared to the same quarter last year. The margin was lower primarily on account of product mix and higher input prices despite positive impact of the operating leverage. Our profit after tax grew by 45% to INR 281 crores. PAT margin was 13.6%, which is lower by 0.7% compared to last year. Between EBITDA and PAT, we had positive impact on the margin from lower depreciation percentage and exceptional expenses booked in the first quarter of last year, whereas PAT margin was pulled down by lower EBITDA margin and lower net finance income. Now, on to the final slide on our key ratios. All these ratios, except VA to employee costs have shown improvement in this quarter. In case of VA to employee cost, there is a decline compared to previous period, mainly due to change in the product mix in favor of assembly products. Our return ratios continue to show gradual improvement, as I had indicated in the previous quarters as well. The impact of QIP fundraise has been absorbed in the ratios, and incremental returns from businesses are now supporting these ratios. Our net debt continues to be negative. Therefore, net debt-to-EBITDA ratio also continues in a negative territory. Both the turnover ratios showed improvement in this quarter, supported by a robust revenue growth. Besides this, working capital turnover ratio also improved due to a significant reduction in debtor days, which also made this as our best quarter from an operational cash flow perspective. With this, we have come to the end of our earnings presentation. I'll now hand over the proceedings back to Nomura team.

[Operator Instructions]

Yes, Vivek bhai, by the time the question to build probably I'll start off. First of all, congratulations to you and the entire team for executing this very significant and momentous joint venture, and we look forward to all the progress from this, but I'll start off with a question on area, which I don't understand much, which is AI. How should we think about this and compare and contrast this to automotive business in terms of, firstly -- we understand you have certain physical capabilities, but there is probably half of the value lies in the software aspect as well? So -- is that -- how are you going to target that, if at all? And secondly, in terms of the return ratios, capital commitment, how are you thinking about it? Because it's a completely new and evolving area. So any guidance here in terms of how your thinking will help?

Sure. So let's go back, Pratik, to that slide, which had the services, et cetera, yes, the robotics and physical AI slide. But first, Kapil, one, thank you for being a host for 5 years, which obviously gives you the privilege of asking questions first. And you have seen all our presentations. So we've been talking about the software and hardware becoming almost 1 for a long while now, if you remember. Our suspension motor product has 2 million lines of code. Almost nothing we make today is just metal. It is metal and a few lines of code. If you look at the car, a car today has over 1 million lines of code, even a regular one. The more advanced electric vehicles who do our 5 million-plus and robotaxis are actually physical AI products. Robotaxis, now what you want to classify them is up to you as an analyst. But to be honest, a lot of these devices have already crossed that border. The closest example I can give to make you understand this is when electricity was first electricity came into our lives. It wasn't that it created revenue only for electricity utility companies or power plant companies. Every single device in your home was connected to electricity and changed. General Electric did not just build light bulbs, toasters, washing machine, vacuum cleaners. Same thing will happen. So that was the electrification of the machine. This will be the addition of intelligence to the machine that these are thinking machines. They can learn and calibrate their behavior as opposed to scripted machines. I think the boundaries between industries will blur quite fast. The things that go into, and I'll give you an example. So you take a reducer that goes into a car, right? We make the reducer for electric vehicles. That will have a 9:1 reduction for the motors sort to be increased and RPM to be decreased, right? In a humanoid in a joint, that ratio will be somewhere between 100 to 160. But it is fundamentally the same concept. It is much smaller. It is far, far more precise, but it is the same product. And you will see the companies that are the new entrants into this place, even in China, if you cover the Chinese coverage of robotics and physical AI, and you'll see very, very similar names to what you are used to when you compare them with people like us, our competitors, in fact. So it is a natural extension in that field. Motor players are the ones who will get into frameless motors. And I think a few quarters ago, we actually showed a humanoid and said how many motors and how many actuators actually go into one humanoid. But humanoid is not the only application. The robotaxi is 1 and AMR is one, a quadruped is one. You will have multi-access robots that work in factories can move between stations and can do multitasking. All of those require the same building blocks. So that is one. And software is already something we do. The example of the win that we spoke about. And I think it's good that we waited 1 year to announce our entry after we won because then these questions would perhaps have a suspension or belief element to it. Now, you don't have to. So our first services 1 is 1 in which we are training an AMR and providing the entire perception software stack. That's it, we're not building the machine. We're providing poor software. The third 1 is where we'll provide the device as well as the software. So yes, in a thinking machine environment opportunities will come from all sides. They will also come from people who do very hardware-oriented things like sheet metal because, I mean, it has to be made of something. And those guys will perhaps still we have value in a pure hardware thing. But most of us will be hardware plus software. Returns, you know how we have invested so far. We were asked these questions in 2016 by our Board, that time we didn't have external public shareholders, in 2020 and '21 by public investors when we were investing in suspension motors and traction motors. I think our record speaks for itself that we are fairly frugal in how we allocate capital. And so far, touchwood, our returns on innovation have far exceeded even our own high expectations.

Okay. As long as Rohit approves of all the plans, I am fine.

He is a very hard man to please. So if we can get it past him, you know that it passed me.

Yes. Yes. Sneha, we can move along with the question queue.

Yes. We have a question from Pramod Kumar.

Vivek, my first question is on the joint venture to, as you call it, the high voltage out the venture. So what are the time lines you can share here with -- given the understanding you have with Denso? As to what should be the time line we should see some bit of revenue recognition starting or any kind of -- some color on when can we expect some more updates on the business on the high voltage because the 2-wheeler and the 3-wheeler traction mode of the business which is gaining traction in which ways and it goes to the JV straightaway? And also, if you can share by both the joint ventures activation will be on the same date or there could be some gap between the good -- the incorporation of the joint ventures and all of that? So if you can just share some color on the timeline.

Okay. The SOP time lines, I will answer, and I'll let the second part be answered by Rohit or Sat, whoever chooses to. The SOP time line, unfortunately, Pramod, we are restricted by confidentiality agreements on it because multiple parties are involved from Denso side, from customer side. So we'll have to hold that. But as soon as we humanly can is really the actual time line. But Rohit and Sat can answer on the specifics of the JV formation and which 1 will lead and lag, et cetera.

Thanks, Vivek. Rohit, you want to answer?

It's okay Sat, please go ahead.

Thanks, Rohit and Vivek. Pramod, the first JV will be leading it. And second JV, we will be following it. So I can't share you the timing exactly, but the first JV is the 1 which will kickstart faster. Yes.

Yes. And Vivek, I'll try another attempt on the product portfolio for the JV, too, because Denso is a world leader when it comes to a lot of the hybrid systems. They are by far the world leader and have like 2 decades plus of experience on the hybrid side. So -- and also the pretty -- as a developed the EV vertical, also, the battery vehicle vertical also very well. So if you can just help us understand, what is the kind of capability? What it brings to rig the joint venture? Because we were not exactly fully updated on the -- at least I was not fully updated on your own solar plan on the high-voltage motor as to what all parts we will be doing, whether that included the liquid cooling, the cooling systems and the inverters and all of that. And given Denso already has a very globally proven portfolio there, what could be the potential here? If you can just help us understand some bit of sizing up of the market, the TAM because you kind of gave us a pretty good view on the robotics side. So if you can help us understand or size of the opportunity here, which one should look forward to in this journey of 10 years.

Yes. So good question, Pramod. And you're absolutely right, Denso is not our leader, it is by far the runaway leader when it comes to hybrid powertrains. The electrification business revenue for Denso is above $8 billion a year. That obviously we gave the JV2 gains immensely from that exposure and that would be a market-leading position in itself. The EV part, you're right, we have made some progress, and we will do more progress jointly. There are some parts that they bring in, including -- I mean, in controller technologies, they have the full spectrum. You name it, you name any kind of technology in control systems, and Denso has it in their portfolio. and that strengthens our own controller thing. What we are good at is the motor part, the manufacturing excellence, design because you -- we start with frugal design because we are starting even at TRL level 1, we do cost targets. So it is you're building something for a very different market in which cost pressure is very high, which allows us to offer a compelling product. So both of them put together should make a fairly, fairly strong combination. Market size, I did say 2030, INR 24,000 crores. But if you were to look at 2035, this number will be many times that. It will be maybe 3x that. And that is what we are looking at. Frankly, neither Denso nor us have ever accepted anything less than market leadership. We will leave it to your imagination of how much market share that entails, but neither of us are people who like being second. So hopefully, that gives some color. I can't really say more than this.

And anything on the CapEx intake for JV 2?

Sure. CapEx intensity of motor business and control system businesses is actually low. I mean, even in our 2-wheeler thing, as I think I've shared before, for INR 1 of CapEx, you can get INR 8 to INR 9 of revenue easily. In high voltage systems, Sat, how much do you think for INR 1 of CapEx, how much revenue is the thumb rule?

It will be at least INR 11, INR 12.

Yes. Because it is know-how, the number of iterations you've done, it isn't a very capital-intensive thing. It is more engineering intensive.

And sir, I understand that the competition intensity in this category is not as severe as the 2-wheeler space. So if you can just help us understand, when you look at the India high-voltage motor landscape, how many guys are actually out there who have got local manufacturing capability with high level of localization? And -- or is it we are still relying on largely imported subassemblies getting put together here?

Pramod, your question has the answer. And I can't say more than that because I'll get into trouble because some of these things may not even entirely be legal. Some of these things will be people claiming PLI when they shouldn't exactly. So I don't want to get into a contentious issue. But what I will say is 2-wheeler, 3-wheeler is far more competitive, and we have been able to on our own take market leadership. This 1 is less competitive because of the technology barrier. High-voltage technology is not easy to crack. And hence, there will be lesser competitive intensity. I think, we'll make a fairly big dent in the month.

[indiscernible] from Nitin Arora.

My first question is, if you can throw some light on this EV volumes, which are going up. Just how you're thinking about capacity because on the recent calls, all the OEMs are just upsizing their capacity on the EV. So just wanted your take how you are looking at the schedules or how you're looking -- thinking about EV growing, EV market in India? Europe and U.S., what kind of traction you see? Is it you feel that this is something really now coming at inflection, the kind of inquiries what are you hearing from OEMs? So my first question is on that.

So Nitin, as always good to hear your voice. EV is, in a way, right now, we are not constrained by demand actually. All our OEMs are not constrained by demand, they are constrained by their own supply chain challenges. We are definitely not the supply chain challenge. And if you talk to an OEM, please tell them that if you're having capacity issues, please go to Sona Comstar. We have enough and more capacity for them. Sat, do you have any capacity constraints?

Not right now.

I cannot now you neither does Vikram. We have always built capacity ahead of market and -- that is definitely not our problem, but unfortunately, Nitin, and as you well understand, any vehicle has hundreds of parts. So even if 1 supplier becomes the bottleneck, the whole system has to stop. If you read the book Goal, the slowest member of the team actually decides the pace of the group. So unfortunately, we are being able to sell less than we ideally would have, but not much we can do about other players in the supply chain.

How is the EV you're seeing traction in Europe and U.S.? Because -- and also if in Europe, do you see further traction on that supply chain area, which was getting little weakened?

So Nitin, Europe is electrifying very fast. I mean whether it be fully web or whether it be strong hybrids or plug-in hybrids, they are actually accelerating quite fast. India is actually the fastest-growing EV market in the world, I think, right now. So India is doing phenomenally. U.S., we are seeing a shift to hybrid, as you saw even in 1 of our new quarter wins, but the EV market is not doing so well in the U.S. right now. But despite that, I think we will see phenomenal EV growth in this year at least. This is, I don't know, Nitin, if it's an inflection or not. After COVID, I would have definitely said was an inflection because this is just 1 quarter of data. Let me have 2, 3 data points. So another quarter or so, then we know that it's actually inflection, but it is trending very, very positively.

Just lastly, as I think as Kapil said, even I don't understand the third part of the business need to dwell more on the physical AI. But when you started your electric scooter business, whatever the number today is it took you, I think, about 4, 5 years. You said you have INR 800 crores of order already in the order book. How we should think about this business ramp up? Because I'm sure when you're talking about opportunity buy, you will get more. But is it from an execution perspective? Is it going to take the same time? Or how we should think about the sizing of this business over the next 2, 3 years?

Good question, Nitin. And I think I've answered this on a prior earnings call, in which I said, first 3 years, when you make a new product or get it to a new technology, you make no money. Here, you see our first dollar of revenue. You have 5, you start making the first $10 million odd number. And year 7 or year 8 is when it becomes a $100 million business. We saw that with EV differential assemblies. We have seen that with EV traction motors. We will see that with suspension motors, pretty much the same time line or time frame of how it happens. I think this 1 will be faster, much faster probably. So that's the difference. It is faster than our internal assumptions, too. How much? Too early to tell. But yes, we will get to each of those milestones earlier than we typically used to.

Next question is from Jay Kale .

Congratulations on the announcements, heartening to know. My first question is regarding your passenger vehicle motor. You have the JV with them. So you have had tried your share of making the passenger EV motor the last few years. So there would have been some developments around that. And of course, now what kind of capabilities you bring to that in this JV. And also from a backward integration perspective, do you think that you have a significant lead compared to the -- compared to your peers who are trying to get into this? And your existing business can also capture a lot of that opportunity feeding into this JV. That would be my first question.

Jay, short answer, yes. Long answer is, of course, even if you get in PO today, it will take 3 years to SOP, right? I mean, that's how automotive works, 32 months is the cycle. But yes, we are well positioned because the supply chain is same. So there are 2 or 3 building blocks to this. First is design that can you design your motor to be the most frugal, yet the best quality expression of what you're trying to build, that you -- your job is to provide traction while using the least amount of material possible. So that is the most efficient way to do it. So design from a cost perspective from day 1 to building a supply chain because no man can do this alone. And there is -- it is an assembled product, as Rohit was mentioning and value addition at our end is lower. Third will be the knowledge of the market, and hence, designing a product that works for India. So you need to know the duty cycle. So you would have had to study it. If you remember 2021, in our second or third earnings call, Jay, I had mentioned that we have done an MoU with a 3-wheeler company to get data. For 1 year, we just capture duty cycle data to make better motors and inverters for the 3-wheeler market, and year after that is when we actually launched the product. So you have to work on all 3 and make a product that day 1 becomes the most competitive product in the industry because in automotive, as you well know, it's not enough to be the best, you have to be the best as well as the most economically competitive. It is a combination of this that 1 has to work on always. Of course, we will bring some of these. But Denso is a company we admire like these are the companies you want to become 1 day. Bosch, Denso, that's the league in which we also want our name to be taken on. They have taken 85 years to get there. We are just 25 years old. And hopefully, we will get there. But it comes by partnering with people of that stature. And the question that you should ask, why would someone Denso feel comfortable with someone like Sona Comstar. We are 100th their size, I think, in revenue. But the respect that we have got from them is not definitely not 100th. And that means we've been building something which is important. It is something that is worth be proud of.

Great. My second question is regarding how your view on how do you see this evolution of this market in terms of OEM adoption. Was -- take e-access for context, how do you see the adoption of OEMs for e-access versus taking the products independently and integrating, and in your JV, is there any future possibility of transitioning to that? Or do you think that maybe the localization efforts of the -- of your peers are not up to the mark where you have a significantly lead over them? So just your view on the evolution of this market over the next 5, 7 years?

So let's just first start with what is in e-axle. And e-axle is an integrated assembly, which assembles a motor an inverter and a gearbox, right? You add all of these, you get an EX. Now this could be done by a Tier 1 for a or it could be done by the OEM themselves. And frankly, both models are equally valid in early stages of electrification when people are making far less volume they're okay, keeping the whole e-axle outside, but I suspect it will come inside also because -- and Jay, you know how this works. Battery is not in your control, e-axle is also gone. What is your design leverage as an OEM? What is your cost leverage as an OEM? And what is your bargaining power? Like what are you making, the shell and the wheels like that's kind of not that critical then? So I think this will change. More OEMs may integrate it themselves. But for the JV, the JV can sell to Tier 1s who make exes. It can sell directly to OEMs, integrating motors and inverters themselves. And it can also sell to Sona Comstar to our driveline division, where we could make the e-axle with the help of our own motor inverters. So all 3 models are open, but ultimately, the customer decides what they want and who they want it from. And you must always stay humble and know that the customer is the 1 who comes first, who is above us all.

That's great to know. I'll just squeeze in 1 last question on the robotics side. Of course, this quarter, you've been much more open about sharing a lot of details than the last few quarters and then, of course, because of some developments. Just from your perspective, have -- has the market evolution surprised you positively over the last few quarters? Or has Sona Comstar's pace of development been faster than expected for this? Because is a mark change on a lighter note on your comments on robotics in historical quarters or maybe you were downplaying it to currently on the developments?

Yes. So Jay, I'll answer that. We were down paying it a little bit. One, without proof of success, I think 1 should not talk about anything. I know there are a lot of companies out there who talk about things that may happen in 3, 4 years, and we didn't want to be those. And second, also remember, last year was not that great for us. I know we threw in everything, but not to our satisfaction. And when you're not doing so well, right? There are 2 tendencies that 1 out of desperation, you start announcing big things. And then people start -- you lose credibility, which is why we downplayed it intensely, that we will come when we have something positive, when we have something substantial, then we will talk. Otherwise, there aren't people who like -- I mean, in India, you know that mentality that we will want to see you fail. And if you're an innovative company, 100% they want to see you fail that there will be many critics -- and they'll say, "Oh, these guys will just tell stories or something negative. Why go through all that? So when we are in a position of strength, we are doing well. We have the orders. That's the right time to do it. As always, under promise, over deliver is a better strategy than promising before time. To the first part of your question, both have surprised me. Our team is brilliant. Vikram's team has done wonders that they have moved so fast. However, the market evolution also, Jay, is much faster than we expected.

Next question is from Sonal Gupta.

My side, just going back to JV one. I mean we are already doing very well on the traction motor for 2-wheelers and 3-wheelers. And that's been -- I mean, clearly this quarter, again, a very strong growth in that business. So I'm just trying to understand the motivation for putting that in the JV. And in what respect do you think Sona gains from putting that as a JV with Denso?

Sonal, if a company like Denso wants to partner with you and they think they bring value, I wish you were from my industry. I mean to serve in my industry, it is -- this question is kind of unthinkable legit given a question. Second, there is a customer base that is, in a way, not that open to us right now, that opens up. Third, the export opportunity opens up for us to other markets where Denso was far more dominant. And fourth, yes, on paper, it's 2 different JVs. But in our minds and in our hearts, it is 1 JV. It is structured differently, but we want to partner across the board, like I said, across vehicle categories across technology. When you partner with someone, like when you marry someone, either commit fully or don't commit. You can't pick and chose. That is a very spreadsheet way of looking at life. And it seldom works out in my opinion.

Right. No, I'm just asking -- I don't know, I'm frankly not aware of how much Denso is focused on 2-wheeler, 3-wheeler market, so that's why that question.

If they weren't focused, they wouldn't do it, and they won't pay money to do it. It's a natural, I would say, answer to that.