Subros Limited (517168) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Bharti, moderator for the conference call. We welcome you all to Q4 FY '21 and FY 2020 to '21 conference call of Subros Limited, hosted by Aditya Birla Money. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over the floor to Mr. Vidrum Mehta of Aditya Birla Money. Thank you, and over to you, sir.

Thank you, and good morning, everyone. On behalf of Aditya Birla Money, we welcome you all to Q4 FY '21 and full year FY 2021 Earnings Conference Call of Subros. From the management side, we have Ms. Shradha Suri, CMD; Mr. Manoj Kumar Sethi, EVP; Mr. Pramod Kumar Duggal, CEO; and Mr. Hemant Kumar Agarwal, CFO and EVP Finance. Before we start, may I remind you our safe harbor. We may be making some forward-looking statements that have to be understood in conjunction with the uncertainty and the risks that the company faces. Now I'll hand over the call to the management for opening remarks, followed by interactive Q&A session. Thank you, and over to you, team.

Thank you, Vidrum. My name is P.K. Duggal. I'll take the opening remarks and then followed by the question and answers. Good morning, ladies and gentlemen. A warm welcome to all of you. I hope and wish that you and your families are healthy and safe. We all are experiencing an unprecedented situation because of this COVID-19 pandemic. At Subros, we continue to observe all COVID SOPs and precautions, and are sensitive to human and social elements. During this period, on May 12, we lost our mentor, our industrialist and our Chairman, Mr. Ramesh Suri. Mr. Suri's visionary purpose has seeped through at the core of Subros over the year of - years of effortless dedication on his part. His spirit will be -- forever be the foundation of Subros. We pay gratitude for his vision and passion to build Subros the way it is today. Ladies and gentlemen, the year gone by was full of challenges and excitement. It began the nationwide lockdown imposed by the government to keep the pandemic in check resulted into no sales in April and May of 2020 and almost 3 weeks of June of 2020. The lockdown resulted into cash flow challenges for the company. And finally, we could sustain it through -- due to our strong financial prudence. Post quarter 1 of 2021. Surprisingly, we have seen a reshaped [indiscernible]. Last 9 months were full of excitement for the industry. On one side, challenges to keep health and safety of our workforce and follow all protocols were required. On the other side, managing V-shape recovery, ranging between 30% to 45% revenue growth in the last 2 quarters of the year at Subros, and topped up with the supply chain disruption in many ways throughout the year. With reference to the financial results of quarter 4 and for the year 2021 approved by the Board of Directors in yesterday's meeting, let me summarize the key points for all of you. The results are shared with the stock exchanges and also posted on our website. Let me elaborate one by one. First, I'll update about the industry, which is relevant for you -- for us related to air conditioner business. In this quarter, passenger vehicle industry has performed better and has grown by 27% on a production basis in comparison with corresponding quarter, whereas the Subros has grown by 32% in quarter 4 as against industry growth of 27%, so we have done better than industry performance in quarter 4. However, on year-on-year basis, it has degrown by 11% on production basis, that is industry figure. Commercial vehicle bus industry has registered a degrowth of 55% in this quarter and 77% degrowth on year-on-year basis. Overall, Subros has registered overall 44% growth in quarter 4 as compared to the previous quarter. On the revenue side, revenue from operation has been recorded at INR 659.93 crores in this quarter against the corresponding quarter of INR 458.47 crores, which is 44% growth as compared to the previous period. Annual revenue of INR 1,795 crores in the financial year 2021 as compared to INR 1,993 crores in FY '19/'20, which is 10% lower as compared to the last year, majorly contributed by 1 quarter sales loss during this year. This year, the Home AC has contributed INR 88 crore revenue, which is approximately 5% of our overall revenue. So this segment is progressing well now. So as we have been discussing in the past that noncar focus at the company is very high. So this year, noncar business contribution is 10% of the total revenue despite the fact that commercial vehicle industry is registering degrowth in double digits. We're also happy to update you that our share of business is 43% despite all challenges, although it is lower by 1% as compared to 2019, '20. Operational profit. Company has realized EBITDA of INR 65.92 crores in quarter 4 as against INR 50.23 crores in corresponding period. In absolute terms, there's a growth of 31% in EBITDA in quarter 1 to quarter 4, whereas in percentage terms, EBITDA is 10.01% of the net sales as against 10.97% in the corresponding period. The major reason for change in EBITDA is due to the sharp increase in commodity prices, logistic costs during the period and compensation from customers related to commodity prices will have a quarter lag. So that will be realized in the subsequent period. The company effort on localization and backward integration in the past few quarters has supported us favorably during this very sharp fluctuating period and little cost realization due to model mix as the home AC sale is increasing, which has a higher MSR, has also contributed to this impact. Due to COVID impact, the company has activated many austerity actions that has also supported our EBITDA level. But that is during the COVID period, and some part of that is sustainable to -- or recurring to the next quarters also. EBITDA in the year 2021 is INR 164 crores, which is 9.15% of the net sale as compared to INR 209.03 crores in FY '19-'20, which is 10.50% of net sales. Change in EBITDA for the overall year is mainly because of the sale loss in quarter 1. Profit before tax in quarter 4 is INR 39.10 crores, which is 5.94% of the net sales. However, in the corresponding quarter, it was INR 22.28 crores, that is 4.86% of the net sales. So there is an improvement of 71% in PBT in absolute terms. Improvement in PBT is due to increase in EBITDA and also lower finance costs due to improved cash cycle, companies operating and reducing the long-term borrowing. PBT in 2021 is INR 55.72 crores, which is 3.11% of the net sales. However, it was 82.39, that is 4.14% net sales in 2019/'20. Profit after tax for this quarter is INR 25.57 crores, which is 3.88% of the net sales. But in the corresponding quarter, it was INR 16.09 crores, that is 3.51% of the net sales. So PAT has increased by 59% in quarter 4. PAT for the year 2021 is INR 46.70 crores, which is 2.60% of the net sales, where it was INR 84.57 crores in FY '19/'20. So as a summary on the financial results, revenue was higher by 44% in quarter 4, EBITDA is higher by 31% in quarter 4. PBT is higher by 76%. And PAT is higher by 59%. So overall, company has performed better in this adverse market condition. On the business side, business outlook for '21, '22 was improving as per the customer plan, and growth in the next year was expected on an increasing trend. However, wave 2 of COVID-19 has impacted quarter 1 performance of this year, and we lost almost 1 month of sales in May '21. Although the now plans are showing encouraging trends, but we are watchful of the current situation and adjusting our plans based on expected wave 3 also. On the new product development side, all programs as per customer schedules are running, and we are ready for meeting the customer milestones. On COVID impact, due to the spread of COVID-19 second wave, the operations of the company were infected, and all manufacturing plants and offices were on the high alert to take care of precautionary action in the -- to fight the COVID-19. And we are following all guidelines issued by respective state governments. The impact of COVID-19 on this business situation and impact on the current financial indicators are not so significant with the current situation. However, we'll be watchful on this change in the market condition. Thank you very much from my side. Now we are ready to take questions.

[Operator Instructions] First question comes from Ashutosh Tiwari from Equirus Securities.

Yes. Can you provide the sales numbers for passenger vehicle ACs, radiators and CVs and all in last year?

For the last year?

Yes.

So passenger vehicle car sales out of 1,795 is around INR 1,620 crores is car sales, and balance INR 175 crores is for the noncar. That is the car and noncar. And radiator business is INR 245 crores out of INR 1,620 crores.

Okay. And INR 89 crores -- INR 88 crores is the sales for this Home AC. And what is the CV number for this year?

CV number, if we reduce INR 88 from INR 175 crores, balance is all CV.

Yes. Well, [indiscernible] all put together.

Okay. Yes. This Home AC number of INR 88 crores, how do you see this growing over the next 2, 3 years based on the weather we have today?

See, we were very bullish on these Home AC projections at the start of the year. But due to this pandemic and lockdown of all malls and markets, there is some impact on the demand as of now. And this year, the weather is also not favorable to this season. So right now, we are observing the market and are watchful of the market condition. But for the next season, so far, the projections are okay as per our plan. So we see now the -- this industry will be recovering the moment the season start in November '21.

Okay. So probably there will be some growth over last year number, but not considerable growth.

Last year, against -- I think we did -- Home AC last full year around INR 96 crores. Out of that, INR 88 crores we have already done. So of course, there will be considerable growth against...

Sorry, what did you say? INR 88 crores you did last year, FY '21. Hello?

We crossed -- we'll do about INR 100 crores.

Okay, in this year. Okay. Sorry. And lastly, if I may, on the margin front, you said that because of this inflation and logistics cost, basically, you have some pressure on the gross margin. But has those cost items been passed on in this quarter, Q1 FY '22, or is there some further delay over there?

We had a quarterly settlement with our customer. It goes back to back. There's a quarter lag, usually.

So in Q1 -- Q2 -- sorry, Q1, you are saying that margin should normalize whatever impact was there. From that side, gross margin will normalize.

Yes. It's a moving average.

[Operator Instructions] Next question comes from Abhishek Jain from Dolat Capital.

Sir, congrats for decent set of numbers despite in this tough environment. Sir, during this quarter, gross margins lead by 200 bps quarter-on-quarter and 400 bps Y-on-Y. So are you able to fully pass on increasing input cost to OEMs at that time when OEMs are already facing huge input cost pressure? I mean our component players are also taking some hits on gross margin? Hello? Hello?

Stay connected, sir. One moment.

Okay. So as I said earlier, we have a quarterly settlement with our customers. And there is an impact because the commodity prices are going up. But since there is -- but since it set on a quarter lag, it gets compensated. So all component players should be facing a similar issue.

Okay. So how much impact of the RM costs and overall decline in gross margin, I mean, excluding the logistic and the product mix?

Sorry. Could you repeat that, please?

So my question is related with the RM headwinds. How much impact only because of the increase in the RM cost?

As a percentage of net sales, it's about 2%.

2%. And whatever this increase in the logistic and products mix changes?

So product mix changes quarter-to-quarter. And sometimes it's favorable sometimes it is adverse, depending upon what product it is. So -- and as our logistics is concerned, it's less than -- I think it should be up less than 1%. Yes.

Around 1% or so. Sorry, I am back right now.

Okay.

Sir, despite was out in this first quarter, radiator business grew in FY '21. So have you won any new orders from OEMs apart from the Maruti?

No. As of now, we are servicing for Maruti and also SMG requirement for radiator business. So we are the single supplier for SMG as of now. So that is the business addition during last year. And going forward also, we are getting business from Maruti as well as SMG.

So what is the growth outlook for the next year for the radiator business?

So radiator business will be in line with the passenger vehicle growth. So as of now, I can't quantify specifically because it is uncertain conditions. But of course, whatever passenger vehicle overall growth will be during this year and that will also get reflected on ECM.

And what would be the impact of the incremental revenue from the SMG in the radiator business in FY '21 and FY '22?

So SMG right now is doing around 540,000 cars. And SMG maybe next year because we are setting up plant 3, and that is going to be operational now. So they'll be doing around 650,000 cars. That is the roughly plan which we have. So around 100,000 incremental cars, which would be reflected in HVAC, that means the air-conditioning system and ECM business will get reflected.

And how much incremental revenue will get -- what would be the...

Roughly, between INR 80 crores to INR 90 crores.

INR 80 crores to INR 90 crores. So can we expect that the radiator business will cross the INR 300 crores mark in FY '22?

I am not very keen to put some exact number on that. But of course, there would be a growth from the existing level of INR 245 crores. Whether it will cross INR 300 crores right now, I will not be very specific to that projection.

Okay, sir. My next question is the Home AC segment, where the company reported around INR 88 crores. So what was the current -- what is the capacity utilization in Q4 -- in FY '21, sorry?

In FY '21, so we have a capacity of roughly 250,000 in this location, that is Malaga plant. So against that, we are utilizing roughly 60% to 65% in quarter 4 specifically because it has no seasonal cyclical business.

And what can be the peak revenue from this Home AC segment if we consider the 250 to 3,000 units production?

It would be around INR 200 crores.

And are you looking to participate in this PLI scheme, what the government has announced? And do you have any CapEx plan for that, especially for the Home AC segment?

We have not formed up. As of now, we are still studying this scheme and understanding the CapEx requirement or also the advantage, which we get out of PLI scheme. So still, the study is on, so please wait for some more time.

Okay, sir. And sir, we have seen a significant reduction in base cost during this quarter because of the lower short-term loans. Going ahead, short-term date will start to increase from the first quarter because of increase in the working capital requirement. So how much -- so what kind of the date situation would be in the first quarter end?

At the end of the first quarter, only long-term loan will remain. Short-term working capital will remain a myth.

So what is the current situation towards the growth and late dating the books?

So correct position is that our short-term working capital is -- utilization is nil, and that will continue for the whole year.

Okay. Okay, sir. My last question is related with the inventory situation at your plant. Is -- this is higher, or is this a normal level?

So inventory level, as of 31st of March, is really on the higher side. And this inventory -- why is -- the inventory is high because of the issues we are facing in the import logistics where container is taking 40, 45 days minimum as against 20, 21 days earlier. So to optimize on the core that we may not wear tread the material, we have increased the inventory. And this inventory will get settled down by end of August. You will again see the sharp decline in inventory levels once the situation of the import logistics improves.

[Operator Instructions] Next question comes from Aditya Makharia from HDFC Securities.

Just wanted to know, do we have any updates on the new Toyota platform, which are coming in India? So are we there in the RFQs? Are we participating in those? And any status updates you can provide? And secondly, for this year, which is FY '22, what kind of volume growth can we expect for the passenger car segment in general? Because the first quarter has been washed out, or it has been impacted, let's put it that way.

So you have 2 questions. I'll answer the first one, that is on the Toyota-Maruti platform. If you're referring to Maruti, Toyota collaboration platform or you're referring to Toyota platforms?

Yes. No. No, Maruti-Toyota.

So Maruti-Toyota platform, we have participated in RFQs and still certain RFQs are ongoing. And we have secured business for 2 major components from this collaborated RFQ effort, and that will be serviced from our Chennai plant.

Okay. And just the timelines on these?

That would be in '22, '23 financial year. SOPs in '22, '23 financial year.

So this year, we will not see an impact.

No. This year, there is no SOP planned for this. And I think, FY '22 volume growth. So as of now, it is very difficult because we have seen one month of certain lockdown situation, although the April was excellent, and June is also following a better situation of volume as of now. But we are uncertain about the wave 3 condition as of now. So I'll not put figure on how much volume growth we are expecting. But of course, we can only say it would be better than FY 2021.

Right. And just also wanted your sense on -- we are obviously making AC -- or we have the technology to make AC even for hybrid and electric cars. Do you see these models becoming interesting soon? Because Tata Motors has launched the Nexon EV, and they talk a lot about building new models but other OEMs are not so excited. So how are you seeing this whole shift happening? And does it benefit you if we shift towards hybrid?

So basically, hybrid technology or EV technology is a long-term project. It cannot be a very short term that all OE will start pushing on that. Every OEM is doing a prototyping or launching a small segment just to experience how it would be settled in India. But I believe it will be 7- to 10-year program. So that's how we see this program. But from our product perspective, whether it is EV car or whether it is IC cars, from ASC perspective, there is no change other than the compressor. So that all components will remain same. So there's no direct major impact on us on our business. But we are ready for all kind of EV platform, whether it is in passenger vehicle or in a bus segment. So our product preparation is ongoing based on that.

Okay. And lastly, will you be supplying to the next on EV? Are we supplying our competitors and ACs for them?

No. We are not supplying for Nexon EV as of now.

[Operator Instructions] Next question comes from Ashish Sood from InCred Capital.

So I have 3 questions. So first one is can you tell me what is the capacity across different product line? And what is the [indiscernible] on it?

Your question is about capacity for all different product lines?

Yes. Correct. Yes, sir, all different product lines.

Okay. So we have almost 2 million capacity for major requisite of Edgeware condenser and almost [indiscernible] part of that. And compression, we have roughly 1.5 million capacity. On the overall utilization, we are utilizing roughly 90% of our total capacity available, both in HVAC as well as in compression side.

Okay. So -- and what are your CapEx plan for next few years?

So CapEx plan now, since we are utilizing capacity to the extent of 90%, so in FY '21, '22, we have planned for CapEx for capacity enhancement. So roughly INR 100 crores to INR 110 crores will be spent in '21, '22. And after that, it would be reducing to roughly INR 70 crores. And then after that, it would be only sustenance between INR 60 crores to INR 65 crores. That's our 3-year spread.

Sure. If you can give us the breakup for FY '21, the revenue for railway and special segment also.

So as I mentioned, on the noncar segment, we have total INR 175 crores. And out of INR 175 crores, INR 88 crore is for Home AC. And -- but this contribute roughly around INR 20 crores and just giving a round of figures. And truck segment is contributing around INR 40 crores. So that's all around INR 60 crores, INR 88 crores, INR 148 crore, and rest is all other segment, including trucks, tractors and aftermarkets.

Sure. And sir, the initiative you were speaking over cost-cutting side. So can we expect company to [indiscernible] 15% ROE by FY '23, '24? [indiscernible].

There is some background coming in our voice. Can you be clearer, please?

Yes, sir. Sorry to interrupt you, Mr. Ashish. Mr. Ashish, there is a background -- yes, sir, please go ahead.

Yes. Yes. So I'm trying to say, sir, you have taken a lot of initiative on cost-cutting side. So can we expect company with loss of 15% ROE by FY '23, '24?

15% ROI?

ROE by FY '23, '24, ROE.

No. I don't think so it will be 15%. But of course, there would be gradual improvement from our current level. But it may not be exactly 15%. It may be between 13% to 14%.

[Operator Instructions] We have a follow-up question from Mr. Ashutosh Tiwari from Equirus Securities.

Yes. What would be our share in the related sourcing of Maruti and SMG combined, now it has changed or going to change?

So right now, we have share of business around 65%. We have business between Maruti and SMG combined.

Okay. Our share of business. And what are the numbers, say, 1 or 2 years back and how we see going ahead? Will we contest...

We were at 45% to 50% 3 years back, and it has improved by almost 15% in the last 3 years.

Okay. And can it improve further going ahead?

It would be between 65% to 70% going forward in next 2 years.

Okay. So from here on, it will be smaller. Okay. And secondly, in terms of your AC/DC compression, HVAC and all, is there a contending also happening with changing new models or the contend or a per vehicle contend is similar only?

It would be similar, but only difference would be between the technology. If it is a fixed displacement compression and if it is wind rotary compression, the gap between per-vehicle content may be varying between 5%.

So varying, we are seeing 5% higher.

Wind rotary is 5% cheaper than fixed displacement.

And the issue that wind was that wind rotary only?

Pardon?

So I mean, the incremental things are shifting towards wind rotary, you are saying?

Wind rotaries will be 5% cheaper. But again, the construction is different, so cost level is also different. So it will not impact the operational margin, but of course, if you talk about per vehicle contribution, that will get impacted by prices.

Okay. So you'll maintain this -- make the same percentage margin, but your contend will go down.

Yes.

Okay. And is it happening -- like say, I think it earlier happened in Wagon Rs. Is it happening in more models going ahead, like, say, incrementally, all the models you're fitting towards that?

No. This is as per customer plan. As of now, this is applied to Wagon R and one small car model of Maruti. But going forward, it would be replaced in Baleno.

Okay. Okay. And what is our share of business, say, Tata and Mahindra currently? And how do you -- do you see it going ahead? Is it increasing or being flat or decreasing?

So roughly, in Tata Motors, we are present roughly around 20% of their total bank of thermal products. In Mahindra, we are between 27% to 30%. So right now, in Mahindra, there are discussion of the new businesses. So we've seen some rise. I can't quantify the exact number. And Tata Motors, we are in discussion for their future programs.

Okay. And you talked about this CapEx for capacity expansion. Post that, how much is the capacity on HVAC and compressor side?

So our plan is to increase the capacity in compression by 0.5 million. So we'll be around 2 million in compressor, and HVAC also will be around 2.5 to 2.75.

Next, we have a follow-up question from Mr. Abhishek Jain from Dolat Capital.

Sir, as you mentioned, capacity utilization was 90% in past, including HVAC and compressor. Was it for the fourth quarter only or a full year basis?

I'm talking about fourth quarter because full year to almost 1 quarter was nothing. So it is on the quarter basis. We are talking about peak capacity.

Okay. So what may be the peak revenue from the existing capacity?

I think we have done around INR 2,200 crores before, if I'm not mistaken. That is the peak revenue we have got capacities earlier.

Okay. So there's much headroom still out there. So sir, just wanted to know how much revenue of Maruti and Tata Motors in overall revenue.

I'll not have Tata Motors figure, but Maruti will be roughly around INR 1,500 crores to INR 1,550 crores or so, rough figure.

Okay, sir. And my last question is related with the export to the Renault. What is the current progress now?

So Renault export, we are already doing. We are exporting compressor as well as condenser to -- we are giving it to Renault India and they are exporting to Brazil. So this business is going on, and it will continue in these models have some life in Brazil.

And what is the quantum of the revenue from Renault?

So Renault, as of now, we have, I think, around INR 40 crores we are doing. That is good for India as well as exports.

Okay. And how is the outlook ahead as that things are improving in the global side?

So Brazil is still struggling because of COVID. So right now, the projections are fluctuating between every month. So we need to be a little bit more patient to get the final estimation about their growth plan in Brazil because that market is still struggling.

[Operator Instructions] Next question comes from Kriti Sahu from Narnolia Securities.

I want to ask, what is your outlook on Home AC and railway business for next 2, 3 years?

So Home AC, definitely, we'll have upside here. We are at INR 88 crores now in FY '20/'21. So we see some growth level, of course, better than the passenger vehicle segment in this segment. And on the second part is on railways. So railway, we are currently into travel cabin, and we gradually now are in our final stage of product approval for coaches also. So this segment will also grow because of the addition of the product profile in railway segment. So we'll see these 2 segments will be quite promising in next 2 to 3 years' time.

Okay. And sir, one more clarification. The revenue from PV AC business for FY '21 is INR 1,325 crores?

For PV business, Kriti? Yes, INR 1,375 crores.

[Operator Instructions] Next question comes from [ Bibhishan Jagtap ] from Canara Asset Management Company.

Yes. So just wanted to understand what was our import content as a percentage of sales in FY '21? And what's the plan you have to reduce this in coming time? And which are the parts we are currently involving or immediately [indiscernible]?

So your question is import for the full business, your question related to that?

Yes, sir.

Okay. So at this stage, our total import on our total revenue is almost 20%. So we have reduced this in the last 3 to 4 years period around 6% reduction we have done through the backward integration or through our suppliers. Our plan in next 2 to 3 years' time is to reduce it to below 15%. So that is on the overall plan. Does that answer your question?

Yes, sir. And which are the parts which we are currently importing? And on which regions or geographies are we immediately to turnaround?

So currently, we are importing certain raw material from China or from Japan, or we are importing certain electronic parts, servomotors or pressure sensor or power transistor from Japan. So these are the major parts which are contributing to this import content. And of course, the electronic parts are more thermometers, resister blowers. So there are so many.

[Operator Instructions] Next question comes from Nikunj Gala from Principal Asset Management Company.

So I Just need one clarification. I think in one of the response you mentioned, our current share of business with Maruti to be at 65% currently. But in last year's call, Q4 '20, you mentioned the share of business with Maruti was 77%. So I just want to check where has these...

That question was specific for ECM business, and I answered for only [indiscernible] business.

Okay. Okay. So what would be current share -- yes.

[indiscernible]

It will be same, 77%?

Yes. Around 75%, round about.

Okay. 75%. Okay. Secondly, on the CapEx front, when we are doing next year INR 110 crores and INR 70 crores, so this would be brownfield or greenfield expansion which we are doing?

No. No, we are not going for any greenfield expansion as of now. So it would be a capacity ramp-up in our existing facility and also for new technologies, investment which we are doing as per the customer plan. So it will in our existing plans on this.

Okay. So can you help us with what would be the incremental asset turn on in the CapEx, which we are doing for the next 2 years?

So would be difficult for me to answer exactly as of now but because capacity ramp-up require a long lead time. So it will take another maybe 15 months or so for capacity increase. And after that, it will -- in a gradual manner it will start generating revenue. So the final impact will come after 1 year, maybe 2 years of lead time from the investment. That's how the overall impact on revenue to asset on our income.

Okay. But after 2 years, any ballpark number you can give us?

So maybe it will, of course, increase from between 2.5 to 2.8 or so.

Okay. It would be higher than the current...

Of course. We are investing into capacity. Definitely, it has to be better at the business.

Okay. Sure. Okay. And just one more clarification. Sir, when we say are your share of business with particular OEM. So how do you calculate that, whether it's in terms of volume or value or their requirement of that particular component or how do you calculate that?

So we calculate by the total value of the thermal products that customer is buying, out of that, how much is our share.

[Operator Instructions] Next question comes from Aditya Makharia from HDFC Securities.

Yes. I just had a follow-on question. On the Home AC, do you localize the IDU and the ODU, or the outdoor unit? So is there any other major component other than the compressor which needs to be localized by us?

So IDU unit as of now is having a substantial import. Even the full assembly is getting export -- imported. We are working more, making it indigenous. So IDU localization is going on currently as part of the product development stage. ODU is already localized, but major part of import in ODU is compression, of course, but we are getting it in India. So that means routed through India identity. And other than controller and control units, we are importing as of now. So there is no plan as such on the control unit localization, but of course, we are working for long term, how much we can get benefit out of the localization.

Okay. So in FY '22, we are targeting INR 150 crores in Home AC revenue. Is that correct?

I'm not putting exact number, but of course, it would be much better than what we have done in 2021.

Got you. The other thing is in terms of exports. Is there any potential, which is showing up from DENSO at this point of time?

So related to export, as part of our business model, we are not doing direct export to any of OEM or to DENSO. So of course, it is through their IP offices in India. For example, we are exporting to Brazil but through Renault Nissan. We are exposing through Indonesia Suzuki, but through Maruti only. So It helps us in saving to set up the out international service centers because finally, if we have to deliver there, then we have to have setup there. So it is through the OEMs only. So we are exporting through Mahindra for their structure in U.S. We are exporting through Maruti for their export in South Africa as well as Indonesia. So that's our current business modeling is we are not directly right now making effort to go export by ourselves.

Next question comes from Chetan Vora from Abakkus Asset Management (sic) [ Manager ].

Sir, you mentioned that this year, we will be doing a CapEx of nearly about INR 170-odd crores. And the next -- sorry, INR 100 crores, and next, it should be INR 70 crores. But sir, I just wanted to ask, in last 4 years, including FY '21, we have done a CapEx of nearly INR 500 crores. And the revenue in the year of 2018 was INR 1,900 crores. We ended the year with INR 1,700 crores. So just wanted to understand that first thing that on the current gross book of nearly about INR 1,100 crores, what is the potential revenue that we can add to, though we are operating at 90% capacity on the exit quarter. But on a full year basis, what would be the capacity utilization? And secondly, what will be the potential revenue from the current gross block? And if the CapEx of INR 520 crores, which was incurred in last 4 years, what has been headed towards for?

Very elaborated question you have. So I'll answer -- try to answer as much I can. So last 4-year investment, other 5-year investment majorly into 2 parts. One is to set up one greenfield project in Gujarat. Post that is the potential investment done for that. Second is on our technology advancement because last 5 years, we have rolled out 3 new technology first time in India globally. That is on ECM. That is engine cooling module and also IDC condenser we have launched globally first time in India. So that's how this major distribution of INR 500 crores. I think 70% is between greenfield and the technology part of that. So we have not invested more on capacity side during this last 5 years. That is one. Point number two, if you see that in the quarter, we have almost INR 600 crores of revenue in one quarter. And that's why we are saying that we are utilizing almost 90% of capacity. And if this will remain evenly for the year that is around INR 2,300 crores, INR 2,400 crores revenue we can generate from this. But again, this is not specific to overall business. There are certain capacity which we have to do either for technology transition or for certain products where there are bottleneck issues. So that's how the spread of next INR 100 crores or INR 70 crore in next 2 to 3 years' time. It's majorly for capacity of certain parts or for new technology where the part will get replaced. So it will not generate incremental revenue, but this new technology will have a 7- to 10-year of sustained life. So that is more important because technology has certain life, products which has a certain life. After that, we have to upgrade our technology to stay in the business.

So Duggal sir, I will add one more thing. The investment which you have seen in the last 5 years, out of that INR 250 crores investment is on reinstatement of the Manesar plant, which was totally destroyed in fire. The written-down value of those machines and including building was INR 70 crores, while we invested INR 250 crores with a substantial part of the same is reversed by the insurance companies. So when you see the investment, it is reflecting as a part of the fact that, which is nothing worth the reinstatement of the plant. So the same revenue will continue on the same capacity.

Yes. That is also one.

Yes. Would you have had to assume that on a current gross book of INR 2,300 crores, INR 2,400 crores of revenue will be the cap [indiscernible]. And additionally, the INR 170 crores, what you are supposed to incur in the next 2 years? What will be the asset terms on that CapEx?

So that's what I answered before, that if we get this all incremental capacity is in place. So finally, our target is to generate around more than 2 to 2.5 [indiscernible] from our gross flow. But it will have some gestation period.

Right. And now when you're talking that we have invested towards the technology to make our product more superior and to get more value added, but in terms of margins as of now, neither it is getting reflected in the margin nor in the ROE also, sir. So where do we -- how do we address these 2 things.

So there are 2 aspects to that. One is that if you see our EBITDA margin for last maybe 7 years, we are around 11%, slightly up or slightly down from 11%. So there is a consistent performance despite the fact that there is a very stressed competition in the market. And we have an impact of around 10% to 12% in our product rise between RFQ. Whenever we switch RFQ, there is always impact of between 8% to 12% in advertising. Despite the fact that we are getting this business on a lower price, but we are able to maintain EBITDA level at around 11%. So whatever we contribute through our effort on backward localization or through cost optimization on variable costs as well as on fixed cost, basically, that is reflected in sustenance.

Next, we have a follow-up question from Mr. Nikunj Gala from Principal Asset Management Company.

Yes. Sir, my -- just the question is on the Home AC segment, where you mentioned our current capacities of 2.5 lakh, where we can do peak revenue of INR 200 crores. So I just want to understand this 2.5 lakh capacity, which you are mentioning, it's a totally built unit or it's a component-wise 2.5, and hence, these -- if I just want to convert into a total built unit, it would be more like 1.25 lakh.

No. It is a built-in capacity for both IDU, window, ODU. So that's how 250,000 is the capacity we have. Based on this, we are a little bit flexible on the mix part, and that's how this estimation of roughly INR 200 crores we can generate from Home AC segment.

Okay. So just to understand from the -- if I just consider one IDU, one ODU, and together, then the total capacity can we consider to be at 1.3 lakhs, 1.4 lakhs?

No. Normally, IDU, ODU, we are supplying in parts. So some [indiscernible] buying ODU, not IDU. So it depends upon how the mix is, which is not going in set.

Okay. And just lastly on the margin front. At the operating level, do you believe, is there any scope of having some kind of cost -- you're making some cost efficiency, and hence, the margin can look like more like higher than what we did in the last peak cycle?

So always our effort is to optimize on the cost efficiency, and operating margin growth is our target. And always, we have to strive for that. But last 1.5 years is quite struggling because of the disruption, which are unavoidable as of now. So that's how the impact is reflecting in that. But our plans are, in fact, still despite all this disruption to improve these margins.

Okay. So just to check on Q2, Q3 on account of various cost reduction you did, 11.7%, 11% kind of a margin, but when with more capacity utilization, do you believe this margin to look like more like 12%, 13% in long term?

I'm not again putting any figure on that. But of course, if we utilize capacity is better and the market is on the upside, margin definitely will be more comparable as quarter 2, quarter 3.

That would be the last question for the day. Now I hand over the floor to the management for closing comments.

Yes. Thank you very much for joining us today. It's indeed been, I would say, a very unprecedented year between the pandemic. The segment, of course, saw a hockey stick recovery. We were then again hit by the second wave. The second wave, of course, was extremely bad. We did lose our Chairman. This has been a big setback for us. The market seems to be now back on its way up. We are hopeful that this year is going against -- see a recovery. The good part is that we have taken a lot of measures to be leaner and also more efficient. So we are hoping for much better results this year. So thank you very much, and thank you for bearing with us. Thank you.

Thank you, ma'am. Thank you, everyone. Ladies and gentlemen, on behalf of Aditya Birla Money, this concludes the conference call for today. Thank you for your participation, and you may disconnect your lines now. Thank you, and have a good day.