Subros Limited (517168) Earnings Call Transcript & Summary

I'm Momita, moderator for the conference call. We welcome you all to Q4 FY '22 and Full Year 2022 Conference Call of Subros Limited, hosted by Aditya Birla Money. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Mr. Vidrum Mehta from Aditya Birla Money. Thank you, and over to you, sir.

Thank you. Good morning, everyone. On behalf of Aditya Birla Money, we welcome you all to Q4 FY '22 and full year FY '22 earnings conference call of Subros. From the management side, we have Mr. Parmod Kumar Duggal, CEO; and Mr. Hemant Kumar Agarwal, CFO and VP, Finance. Before we start, may I remind you of safe harbor. There may be some forward-looking statements that have to be understood in conjunction with the uncertainty and the risk that 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, Duggal sir.

Thank you, Vidrum. Good morning, ladies and gentlemen. My name is P.K. Duggal. A warm welcome to all of you for Subros' investor call for quarter 4, '21-'22 and also for the year '21-'22. The Indian automotive industry drives -- drove into FY '23 with a very positive mindset on its quest to reach the prepandemic level of sales volume, having built a solid foundation in FY '22 despite the semiconductor shortage hampering production. While on the other hand, we see a revival in the vehicle demand, on the other hand, the high commodity prices and semiconductor front has aggravated problem for auto manufacturer, which is causing a major concern for the industry per se. The increasing price of commodities in India has resulted a record high price of the new and used vehicles in the country. Despite all or in the industry, the industry has grown in FY '22 at 19% during the year. Still key challenges for the supply chain disruption are commodity price escalations, logistics disruptions, crude oil price volatility and availability of ships and containers. The result of quarter 4 2022 and for the year have been shared with the stock exchange. You must have chance to see that. Let me elaborate on the summary of the results one by one. First, I'll update about the industry, the relevant part of our business. In this quarter, passenger vehicle industry has shown a growth of 2% on production basis in comparison of corresponding quarter of the last year. However, on an annual basis, PV industry has registered a growth of 19%, whereas Subros passenger vehicle segment, thermal product growth in quarter 4 is 3% in comparison with corresponding quarter of the last year. However, it has grown by 24% on an annual basis. So we have done better than the industry performance due to model mix and also SOP of the new projects in quarter 4. Commercial vehicle bus has registered 47% growth during the year, whereas Subros has grown by 61% in comparison to last corresponding year. Though the tourism sector, school bus business and public transports are not still fully operational, but ambulance still has -- ambulance has [ ample ] to help this happening to fill up the deficit and also each state government is improving on their medical infrastructure to deal with emerging situation of COVID in future. On commercial vehicle truck segment for N2 and N3 category, which is relevant for AC or a blower industry, the industry has shown upside trend after 2 years. The industry has grown by 43% in FY '22 as compared to corresponding last year, whereas Subros has grown by 29% in this segment during the year. Growing is -- growth is mainly because of more AC fitment ratio and consumer preference of shifting towards AC truck as compared to normal truck. After extended lockdown and we are hoping larger spaces in various parts of the country, then the overall home appliance industry has also shown growth. In this year, the [ home aircon ] sales have grown by 3% as compared to the corresponding quarter of the last year and 43% on annual performance basis. The total sales in Home Aircon segment by Subros is INR 127 crores. Revenue from operation has been recorded at INR 681 crores in this quarter, whereas corresponding quarter was INR 659.93 crores. This is overall 3% growth over the corresponding quarter and 24% growth for the year. Let me explain each segment-wise contribution to the sales during the quarter. In this quarter cash versus noncash segment contribution is 89% and 11%, respectively. Maruti Suzuki and Suzuki Motor Gujarat has contributed roughly 78% of the total sales during the quarter as against 79% in corresponding quarter. There is a 1% improvement here. In this quarter, Home AC has contributed INR 60 crores of revenue, which is approximately 9% of overall revenue of Subros. Our share of business in passenger vehicle air-conditioning market is 40%, although it's lower by 2% from FY '21 because of drop of share of Maruti overall. And in Truck segment, we are at 43% share of business, and Bus segment we are having 27% share of business. Now let me talk about the operational performance. As I mentioned before, there are a lot of challenges in supply chain which have never been experienced by anyone so far. Commodity price increase, logistic cost escalation have impacted the margin in big way. Significant increase in lead time of import shipment and subsequent reduction of schedule by OEM due to semiconductor shortage has impacted the overall inventory level, which has increased by almost 10% to 15% and blocking the cash flows. Still we are able to survive and maintain our cash management efficiently. Commodity price fluctuation on the upside to the extent of 30% to 40% during the last 6 months have impacted substantially on the metal sales ratio. Though there is a compensation formula on the regular commodities with OEMs, but there is a quarter or a periodic lag. In some cases, it's a 6-month lag. Further on nonregular commodity, which is used by our sub suppliers, there is a cost impact to us as well. We are in discussion with customers for compensation of such fluctuation also for future. Continued demand and supply imbalance causing steep price increase of import consignment, diesel price increase, leading to increase in logistic costs, are also a key contributors of margin stress. The company has realized EBITDA of INR 49.88 crores in quarter 4 of FY '22 as against EBITDA of INR 40 crores in last quarter, which is 24% more than this quarter. If we compare EBITDA margins of the year versus last year, it has decreased by 3%. And if we compare EBITDA with a corresponding quarter of 4 -- quarter 4, it is down by 24%. Profit before tax in quarter 4 is INR 21.19 crore, which is 3.12% of the net sales. If we compare PBT margin against quarter 3 of current year, it has improved by 83%. If we compare PBT margin for the year versus last year, it has decreased by 19%. And if we compare PBT with the corresponding period of quarter 4, it is down by 46%. Profit after tax in quarter 4 is INR 16.94 crores which is 2.49% of the net sales. Let me now briefly summarize overall results. The revenue is INR 681 crores in quarter 4 and INR 2,238 crores in FY '22 with a growth of 25%. EBITDA is INR 49.88 crores in quarter 4 and INR 158 crores in FY '22. PBT is INR 21 crores in quarter 4 and INR 45.39 crore in 12 months and PAT is INR 16.94 crore in quarter 4 and INR 32.59 crores in FY '22. On the overall business update, business performance of quarter 4 is better than quarter 3. Semiconductor availability and other challenges are still ongoing and substantial impact of commodities, as I mentioned before. We have now relatively better visibility about the future scenario based on the OEM projection which we received so far. The mobility landscape with a fundamental transform over the next 10 to 15 years is the reality now. And we are now evolving our product strategy for PV segment also. All of our provision for launching of PV product is in alignment with customer plans. Our products are at final stage of validation with the customer, and we are hopeful that our penetration of PV segment, both in passenger vehicle, bus segments, and other mobility area would be penetrated as per the transformation which is happening in this sector. Business expansion in Rail coach AC is also improving now. We are at the last leg of RDSO approval. And based on that, we will be participating in large tenders which are planned for this year and the next year. Development activities of all the new program because in the last call, we advised or we informed that we got a large order from the OEM for up to 2025 SOPs. So all programs are as per the schedule, and we are progressing based on the customer milestones. Just an update on Maruti Toyota Alliance project, which will be produced in Toyota Kirloskar Bangalore. Our plant [ preparation at ] Chennai is completed now, and we are waiting for the SOP, which is scheduled in August or September. So all the preparation for this supplies have already been lined up and we will be starting this project as per the customer milestone. Thank you very much from my side and now we are ready to take questions.

[Operator Instructions] Our first question from Mr. Ashutosh Tiwari from Equirus. So Mr. Tiwari has taken back his question. We'll move to the next person, it's Mr. Abhishek Jain from Dolat Capital.

Congrats for a decent set of numbers in a tough quarter. Sir, in FY '22, domestic PV growth was 19% on a production basis, while the revenue growth was 24% in passenger with the AC segment. That means realization growth was only 4% to 5% in FY '22. And that shows a small part of RMA inflation was passed to the clients. So how much under recovery is expected to pass in FY '23?

Can you repeat the last part of your question? It was not very clearly audible.

So revenue growth was 24% in passenger vehicle AC segment versus a 19% production growth in industry. That means realization growth is only 4% to 5%. And that shows the small part of RMA inflation was passed to the client.

Okay. So it is not that 19% is industry growth on the quantity and 24% growth at Subros is not that only relevant for the price correction, but it is also based on the model mix because there are certain models where we have secured business now, which was not with us before. So that is one. And second, of course, there is a price correction impact due to the inflation factor. So it is a mix of both.

So what was the volume and the realization growth in the list of 24% in passenger vehicle AC segment?

So I may not have a very direct answer, but I may say that it may be out of 24%, 2% or 2.5% would be for the price correction and rest would be the volume growth.

Okay. On the margin side, sir, gross margin is contracting from last many quarters, which it used to be 30%, now it has come down to 23%. So that shows that still a lot of the under-recovery is there. So -- and I just wanted to know what negotiation is going with the clients, especially for the part on the nonregular commodities.

There are 2 aspects to this. One is that whatever compensation we are getting from customers, it is not marked up with 30% gross margin. It is 1:1. So if we are getting, say, INR 100 impact in cost, INR 100 given in the price. So that will definitely impact on the overall gross margin. Second point is, yes, there are certain under-recoveries which are related to Tier 2, Tier 3 commodities used by the supplier at Tier 2 PSC level. They are not part of our contract for compensation. So we are now negotiating with the customers to even cover for that also. But since the overall pricing pressure is there on the OEM, still they are at a negotiation stage, but we are hopeful that next 2 quarters we'll be able to reconcile that also.

So what would be the key driver for the margin expansion? And what is your medium-term margin target?

So a key driver for us now is to very aggressively push for the localization for whatever remaining part, we have, we have almost 17%, 18% import content still available. So one of the key driver is to push localization, and we have made a very aggressive plan now for the next 3 years that we need to bring it to less than 10% quickly. So that is part one. Second is that since now, last 2 years, we have been struggling for even fixed cost management because volumes were dropped and there were lockdowns available and there are almost no production month also available. So during this time, due to the austerity measures, all operational efficiencies have been built up now. So when this volume will grow up, definitely, there will be a proportionate benefit on the margin side.

Can we expect the double-digit margin, what you were making earlier, in FY '23? Quarter 4?

I'll say it will not be fully recovered. But yes, there will be a substantial improvement going forward now. Maybe in quarter 3, quarter 4, you will see a substantial improvement in both gross margin as well as for EBITDA.

Okay, sir. And my next question is related with the Home AC segment. You have done around 1.3 billion [ inbit yet ]. And what is your target for FY '23?

So we are planning almost 20% growth in Home AC segment now in FY '23.

But sir, in the last year first half was quite low, and the base is quite low. So can we expect 2 billion, 2.5 billion kind of the revenue in this year?

Potentially, we can. Opportunities are available, but we are very mindful of our margin protection also because commodity impact in Home aircon is extraordinarily high. And in this segment, the customer is very conservative in terms of compensating such fluctuation. So I'm a little bit conservative while giving you this figure, but it may be better. It may go better, provided we get a software compensation and not to sacrifice on our margins.

Okay, sir. As you mentioned earlier that the backward integration will be the only solution to improve margin in the Home AC segment. So how is the progress there?

So we are in discussion with a few technology providers for the backward integration. The discussions are still on. We have not yet signed off anything. But yes, progress is positive.

[Operator Instructions] Our next question from Mr. Ashutosh Tiwari from Equirus.

Firstly, I got off earlier, this MSIL Toyota Alliance project, what parts you're supplying over there?

So for that Maruti Toyota joint alliance project, we will be supplying HVAC, compressor -- not condenser, radiator, hose and pipe. So other than condenser, all parts are being supplied by Subros.

Okay. And we're also supposed to supply this HVAC panel, right? So, no, that's different. Sorry, sorry. So this is 1 project. And you also mentioned 3 projects won in the PPT. What are those basically? Can you highlight?

Three projects? Can you repeat?

Yes, in the PPT it's mentioned that in Q4, we have won 3 projects, 3 SOPs -- SOP of 3 new projects in Q4.

That is SOP. So that means the new Baleno is SOP done. That was done on January '22. There is [ YHP that is ] Ertiga minor change also is done during this period. And also 1 project of Mahindra also done during this period.

So were we not supplying any parts earlier? There is increase in value content over the year? Or is it same earlier in the year -- it's same earlier?

In Baleno, there is no change in the overall content. Yes, no, there is a change because condenser is added. So almost INR 1,200 to INR 1,400 per kit will be the delta incremental revenue coming from that SOP. Breeza – this Ertiga, there is no change in scope. Mahindra, yes, there would be a change in scope of around INR 1,200 -- INR 12,000.

And is this -- which model are we supplying to?

For?

Which model of Mahindra we are supplying to, this INR 12,000 [ payment ]?

That is Thar upgrade. Yes.

And we're also [ going to caralieu ] in the earlier model?

There is upgrade. I'm saying there is a [ third ] upgrade. Earlier was also there, but now there is a model change.

But INR 12,000 increasing content or is the same as earlier? The [ content and frame ].

The content would be almost same, but there would be delta volume coming.

Okay. Okay. And can we provide the sales segment volume like we have done for passenger vehicle, EVs, C&D buses [ range on all]?

So I can give you a broad numbers of how much we have done in [Technical Difficulty] [ car ] INR 4,680 crores, INR 586 crores is sales for car in quarter 4. And roughly INR 94 crores is for non-car. Out of that, INR 60 crore is coming from Home aircon. And the rest INR 34 crore is from truck, bus and railway, et cetera.

I just wanted to [ tell the ] full year. How much we've done for [ railway vehicles ] and car ACs.

For full year?

Yes.

So full year, out of INR 2,235 crores, that is the revenue coming from operation. Cars would be roughly INR 1,600 crore, around INR 1,700 crores from aircon products and INR 300 crores from radiator.

300? Okay. And buses?

Buses would be roughly INR 25 crores and truck would be INR 60 crores. Home aircon INR 127 crores.

And we also mentioned that you got first rail coach AC business awarded. So this would be what size?

So that is roughly -- INR 12 crore is the first order we got as a first entrant to this and that will be supplied in this current financial year. That is under final non-manufacturing and it would be supplying from maybe August somewhere, August to November is the delivery time.

Okay. So obviously, we got new orders and are really strong in your car ACs, buses, and CV as well. But railway, how do you see the business like over the next 2, 3 years, now that we got the first order?

We are focusing very high on that because railway definitely, one, it is moving for EV in first preference. So our products are already lined up now. We started getting business for EV railway also. And after this coach AC, the product is finally approved and supplied as a first lot. Definitely, we see a huge potential here. So we are hopeful that between maybe INR 60 crores to INR 90 crores is the potential which we can realize in 3 years' time from railway segment.

Okay. Okay. And what is our market share you mentioned in CVs and buses, I missed that number?

CV, I think it is 43%; and buses, it is 27%.

Market share, okay. And we talked about products like EVs, cars and buses as well. So where we are in that process right now? And by what time our product should be in the market?

In Passenger Vehicle segment, we are at a final stage of product evaluation. And in fact, in Mahindra, we have already pushed our products almost at a final negotiation stage. Now since Maruti has also announced their plan for EV launch maybe in '24, '25. So that is also lined up now and product evaluations have started happening now. Bus aircon EV, we already supplied our kits for final fitment trials and field trials. So they are also at a final stage. Railway, as I mentioned, we already supplied the EV kits now. So things are at a reasonably advanced level.

Okay. And this bus aircon is like it is from, say, [ coming like ] Tata Motors or [ actually ] or some other suppliers -- some other players?

Other for body builders also including JDM and [ Denso ].

Okay. Okay. Okay. And any [ code ] how this -- for this passenger vehicle car, how the content of the AC product versus normal IC engine car, now that we are already at the final stage in negotiating?

So in IC engine, AC is, if it is x, so EV side, it would be roughly 2.5x.

2.5, okay. And you said that margin side, so obviously, you said second, third derivative, the commodities, we have not got passed through. But are we getting timely pass-through in, say, in plastics and aluminum, which probably are covered with OEM? Or there also there are delays happening?

No. Plastic and aluminum, we have no challenge because it is almost back to back, but there is a time lag. So time lag can be 1 quarter or 6 months based on different customer contracts. The major discussion which we are having is in steel or some ABS or some nylon material, which is different non-regular commodities. That is what we are negotiating with.

And lastly, on CapEx, how should we look at FY '23?

So CapEx last year, we have done roughly CapEx of INR 90 crores, and we have restricted it that whatever is the internal accrual, we should be able to do CapEx within that. So no additional borrowing was taken to manageable CapEx and the same trend will follow in the next year also, and we'll be doing CapEx from the internal accruals only. Roughly between since there are 2, 3 new projects are lined up now and during [ estimate transportation ] for Toyota supply. So we are keeping our CapEx around INR 100 crores.

Okay. And what kind of numbers we can look at from that project basically on a monthly basis?

For which one?

Toyota, Maruti.

Toyota, Maruti would be -- maybe between INR 15 crores to INR 20 crores would be some month revenue coming in when the peak volume will start.

In terms of volume, how that would be?

Volume would be between INR 10,000 to INR 15,000 per month.

[Operator Instructions] The next question from Mr. Sanjay [ Akhedbani, InVision ] Capital.

Am I audible?

Yes, please.

So mostly, I have got the answers. But I just wanted to know that what are we moving ahead with this rail AC business or railway business, which we have won for INR 12 crores orders, what is this exactly we are working on this?

So we are working on 4 share aircon. So, so far, our presence was on a [ driver kit ] in aircon. So we were present with CLW, I see -- and now we started moving for coach aircon, which is quite large potential. So that is our development activity.

Okay. Okay. So let's see, once you bid for these rail orders, what is the margin component in the rail orders? I mean if you can disclose it, I mean, if you are able to tell us something on that, the margin [ point ].

I will not be very specific in numbers, but I'll say that coach aircon definitely is because of the revenue. Per unit price is quite high. So they are comparable, and they are better than other few segments.

The Chennai plant which you mentioned, when will this be ready? I don't know if you mentioned this in your opening remarks, but just wanted to confirm that by when this will be starting?

Chennai plant is already existing for last 5 years. So they are supplying for all CV segment and Bus segment and Railway segment for last 5 -- 6 years, rather. Now Chennai plant is being prepared for Toyota, Maruti Alliance project. So this is only incremental thing which we are preparing there. The new line is set up that would be operational by August and September as per the [ superative ] of this project.

Okay. This is very clear, sir. And any revenue and margin guidance for FY '23, if you're able to tell us and the current order book in line with, I mean, if you can mention anything on that?

So since we have done roughly INR 2,235 crores revenue during this year, so I'll only mention there are definitely many uncertainties attached to this. The risk factors [ still ] are not eliminated, but we are sure that we will do double-digit growth.

For revenues?

That is for revenue. So revenue, we will be doing double-digit growth from the current base of FY '22. And definitely, margins will also proportionately increase because incremental revenue will not come with a proportionate fixed cost. So definitely, there will be improvement in margins.

Okay. And the order book visibility?

Order book for our kind of business is not really important because once we are present in the model, we are there for 5, 6, 7 years, whatever is the product life time. So for that number, that much of double-digit growth, we already have secured orders.

Okay. This is very clear, sir. And last one thing from my end is that, I mean, some earlier participants spoke to you and you said that we'll be very aggressive in pushing localization within the next 3 years. I mean what is this point exactly? Can you please elaborate on this?

So localization information we have been sharing for the last 3 years that when we were around 40% of our purchases of the revenue was coming from import. Right now, we have reached to almost a level of 17%, 18%. So 20% localization we have already achieved. And now because of the volatility, it is important that we push it further. So remaining 17 -- 18%, which is remaining now. We have aggressive plans to bring it to less than 10% in next 3 years' time. For that, projects are lined up and we are pushing localization now.

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

Sir, industry is targeting 15% to 18% volume growth in the PVs. Would you like to -- would you outperform industry growth because of the new business you are getting from Toyota, Maruti alliance and a strong outlook for the CVs and the Bus Aircon?

So Abhishek, I just mentioned before also that the growth will be in double digits, that is for sure, based on the base of 2235. Yes of course, we are aligned to the industry growth, and it would be slightly better than that, but I will not be able to be very specific [Technical Difficulty], which is definitely -- is [ factored in ] as of now.

And sir, what [ estates ] are you taking right now to protect your gross margin? Are you still going down the quarter and every quarter.

So I think I already replied this question before also that for gross margin improvement, our focus is definitely on localization, material cost optimization and on operational efficiencies, whatever we can get as a benefit of productivity and operational efficiency improvement, all these plans definitely will support us in improving margin, both at gross margin level and also at EBITDA level.

Sir, about the pass on the commodity inflation. As you mentioned that the realization growth was only 2%, 3% in the last year. So that was much lower than the commodity inflation. So can we expect that some costs will be passed on in the coming quarters to the OEMs?

No. I think the recovery -- because last year, our settlement for commodity increase, which was non regular commodity started from second quarter onwards. So we got a partial settlement relevant for maybe 1 quarter or 2 quarters. But this year, definitely, there will be a full year recovery. So as long as the commodity prices are stable or there are certain incremental impact, that compensation would be there. Right now, we don't see anything that we have to pass this benefit back to the OEM because we don't see that commodity prices will sharply decline now in 1 year's time.

And sir, what is the outlook for the CVs and truck sector growth. As you mentioned that your growth in this year, it was around 43% versus the industry growth of 28%, right?

Yes. So commercial vehicle truck market is definitely now at a very sharp recovery path, and we have seen 2 years as a sharp decline. So now the recovery is very high. Of course, one reason is that the base is low. But having said, so 43% growth in FY '21, '22. We see more than maybe a better than 20% plus delta can be the growth here. And the added advantage to us is that AC fitment ratio is also improving in trucks. So that would be added advantage to us for the growth as a growth driver. Now coming to Bus Aircon. Since school started opening and also tourism started coming back to the regular. So whatever was held back in last 2 years will definitely support us as a key driver to the sales in this year. So we expect these 2 segments definitely will be growing much faster and much better than CV segment.

Okay. And sir, how much is the current content for people in the Bus segment, ICE and EV both?

So normally, Bus Aircon is ranging between a small bus starting from 75,000 to the large bus up to 3.5 lakhs. So that is IC-engine-based aircon. And if we go for EV, so it would be roughly 1.4 lakhs to maybe 5.5 lakhs or maybe 6 lakhs or so. In some cases, it may be 7.5 lakhs to 8 lakhs or so.

So there are n numbers of the orders are coming from the government for the EV side. So have you started the supply for this year?

Not yet. Not yet because they are right now all imported kits because it was -- it required a validation because EV definitely is a new segment and all OEM want to evaluate product for Indian requirements. So localized products are still under evaluation.

So can we expect to start the production from next 2 to 3 quarters for this EV buses?

I'll say that maybe some portion in quarter 4 and rest of the portion will go in next financial year.

Okay. And sir, during this quarter, tax rate -- during this year, the taxes stood at 28%. What would be the effective tax rate for the FY '23-'24?

Effective tax rate for '23-'24 will remain 30% to 32%. And from the financial year '24-25, it will be 22% plus surcharge, so effective at 25%.

Okay. And my last question is regarding the inventory situation. How the inventory situation for the finished goods right now? Is it at normal level or at a higher level?

You are talking of inventory?

Yes, sir. Finished goods inventory.

Finished goods inventory. So normally, we count on our total inventory as per our system because finished goods, we don't keep normally the big stock at our end. So inventory levels are slightly high in this year as of closing on 31st March because of, as I mentioned before, the lead time of containers and the shipping issues, which are happening because of Ukraine war and because of China and other things. So our inventory is almost 10% to 15% higher than before. But we are sure the kind of recovery we have and these inventories will be liquidated in this coming year.

Okay, sir. And the last quarter, sir, how was the capacity utilization in passenger retail AC?

Capacity utilization?

Yes, sir, capacity utilization in quarter 4.

Capacity utilization in quarter 4 is almost 85% to 90%, vary between different products. So we are almost at a 90% utilization level.

So as you mentioned that the next year, the CapEx would be around INR 100 crores. And we are looking at [ ST ] growth around 15% to 18%. Can we expect the [ farther ] CapEx for the passenger vehicle AC segment?

So this issue I have already explained a number of times that when we see CapEx directly related to the market growth, it is always incremental CapEx because there are certain base equipment which are there for even 2.5 million requirement also. So right now, whatever we are talking about is only the bottleneck operation where the investment would be incremental, not the full line investment. So that's all out of INR 100 crores, a substantial portion will go into that capacity bottleneck recovery. And in the next year also, whatever market growth would be there, we'll be spending, continue spending on capacity buildup on incremental basis.

[Operator Instructions] Our next question from Mr. Vidrum Mehta from Aditya Birla Money.

Sir, just correct me or help me understand, with respect to EV front, you said that content in IC engine, is -- if it is x, then in EV, it would be 2.5x. So is there any major modification or higher the content which is required when we supply to EV?

So EV, the major change is the compression and compression [ price ] between IC engine compression versus electric compression is almost 10 to 15x. So since compression contributes a substantial part of kit, that's why overall on the kit side, it would be 2.5x.

Okay. Okay. Fair enough. And with respect to demand front, you guided that for FY '23, it would be double digit. But if you could help us some more -- if you could give more color on your major client Maruti as to what are its plan in terms of production schedule or what are -- in terms of for FY '23? Will the monthly run rate, which we have guided probably, say, for first half or first quarter?

So I don't want to be controversial by announcing any OEM plan. But of course, the broad mathematic sales that in the month of May '21, then there was a lockdown. And now we don't expect that such lockdown will happen. So 1 month production recovery will give you roughly 10% to 11% volume growth in any case as a base. So that much would be there and 4% to 5% would be the natural growth overall as an industry. That's how industry is talking, between 15% to 18% growth. So this is a broad basis on which we are saying that our growth also will be on a double-digit basis. And on top of that, the other key sales driver for us is that this Maruti Toyota alliance, which will be an incremental sale for us because that's a new model, it's not part of our existing product profile. So that will be addition, which is maybe starting at the maybe last month of this financial year or maybe middle of the financial year, maybe September. So that 6-month sale would be the delta for us. So that is making us confident that we can do double-digit growth.

Right. And sir, any update on the Denso new product or technology which was likely to come in? Like...

So Denso new technologies, we already started now lining up. And as I mentioned before, compressor technology transfer has already completed, and we started this new [ rendo free ] technology for India market. This commercial production has already started in January '22. So that is the third project that -- yes, this is the third project which we completed successfully after the equity infusion. So first project was a new [ rec ] condenser, that is regional efficient condenser, 11.5mm thickness, which is the slimmest condenser in the world. That is the newest technology we launched in India. And after that, we had this new efficient radiator also is the slimmest radiator in the world. That is the second technology transfer, which we had post equity. And also, we got some investment to our TA-based production. Third project, which we have executed now from January, is the new wind rotary compressor that is SVE08, that is also a new series of rotary compressor first time launched in India. That is the third transaction. And now we will be upgrading SVE08 to SVE10, so that we can cover even B plus and C segment vehicle also on that. And the fourth project with the new technology transfer as part of our collaboration activity would be part of the Toyota Maruti Alliance project, which we'll be starting maybe in August and September. That is also there. And for hybrid vehicle also, the technology transfers have already happened. And when this new hybrid vehicle will be launched by Maruti under maybe Toyota Maruti Alliance project, that will also be commercialized maybe in the middle of this year. So a lot of progress now it is happening, which is almost confirmed.

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

Sir, what is the share of business in Tata and Mahindra now? And also if you can highlight Maruti?

So in Mahindra, we are at around 28% of share of business with them. Tata passenger vehicle, we have a very low share of business, but in CV, we have around 58%. And in Maruti, we have around 76%.

So with Mahindra, have we improved over the last 1 year or in the...

Yes. Earlier 16% of this share of business. Now we have improved to 27%. And maybe based on our business engagements right now with them, by end of maybe middle of '24 -- '23, '24, we'll be touching around 40%.

Okay. Okay. And the 16% number was there in which year? Like last year or '21, '20 was...

3 years before.

Okay. Okay. And Tata, let's say, can you make some progress over there as well?

Still under progress in PV segment. CV, we have made substantial progress, and we are there in almost all the platform of CV with Tata. But on PV side, still, we are in discussion for the new technology launches, including EV for future.

And who will be supplier over there, if you can provide the color?

Who will be or who is?

Who is the supplier in Tata motors [ gear units ]?

Right now, I think on IC, they are having Air International. That is -- there is a subsidiary company.

Okay. Okay. So in this truck AC business, like you mentioned that the share of AC is increasing. So what is the penetration right now? How do I say, last year or 2 years back?

So as you know that right now, the notification of the regulatory mandate only the ventilator, the blower [ clean in ] trucks. But optionally, OEM started launching this AC [ across ] and they have seen quite an encouraged feedback from the market. So earlier, it was only 6% AC fitment ratio, which has already increased to around 15% to 17% now with the different OEMs. So it is seeing an upside trend even though the regulation is delayed, but still I think if end consumers find it beneficial to have a AC truck, then definitely, this penetration will improve in future.

Okay. And lastly, when we say SOP, these are -- we measure in terms of overall value or only expect to look at?

No, we counted by the overall thermal buying product of the customer, which is the aggregate of all the products.

Okay. And you also mentioned about new hybrid project of Toyota, Maruti. So this is actually in which segment is it?

It would be in B Plus segment.

B Plus?

Yes.

Okay. And in this -- your radiator business, mainly supplying to Maruti right now, right, that [ retail ] revenue is mainly from Maruti only? Or Toyota as well in that?

No, it would be to Maruti, to SNG, and also now it would be starting for Toyota. So this radiator will go to 3. And the next year, we will be supplying to Mahindra tractor also.

Mahindra?

Mahindra tractor.

Okay. Okay. And the content will be higher in tractors, right?

No, it is not grossly different because it is a radiator. So it is not substantially different. There may be a 10%, 15% plus/minus, but it is not substantially different.

Okay. So this can also grow ahead of industry basically this segment [ as it is ]...

And this radiator market is [ mainly for binder in ] sector market and this new Mitsubishi Mahindra Alliance Project which is coming now, that will have our product going into, and this would be exported to U.S. and Japan also. With that route, we will get into a global entry of our products.

Okay. So as of now this is only limited to Mitsubishi M&M joint project.

Say again, please?

So as of now, the supply to Mahindra tractors is only to this Mitsubishi M&M project product.

Yes, yes. As of now, yes.

Our next question is from Mr. Shyam Sundar from Sundaram Mutual Fund.

You mentioned our share of business with Maruti at 76%. Is it fair to assume that on the new model launches of Maruti, whether it be Maruti Toyota or Maruti's own complete model -- new model per se, our share of business will be maintained at the same 76% level -- 75% 76% in that range?

I will be more optimistic it is going to improve. Sustained plan it is a plus.

Okay. Understood. Understood, sir. That is helpful. Sir, one other question. On the RM basket, I suppose passenger vehicle aircon say, INR 100. I'm just assuming INR 100 as an indexed price per se. How much of that is actually -- can be passed through and how much do we have to absorb per se?

For RM index issue, you're saying?

Yes, sir, suppose it is at INR 100 for AA passenger vehicle aircon. How much it can be passed through? And how much do we have to absorb purchase?

I will just give you a ballpark figure. I may not be very precise in that, but it would be between 70 to 30 ratio.

Okay. So 70 can be pass-through and 30 will have to be absorbed, if at all, there is a fluctuation in that [ if indy one ]. Sir. And any currency fluctuations that we had in this quarter?

Currency fluctuation, yes, there is. And -- but based on our hedging policy, we have tried to cover that or protect that.

[Operator Instructions] The next question is from Aditya Makharia from HDFC.

Just 1 question on the currency fluctuation. The yen has actually weakened very sharply versus the rupee and even the dollar. So isn't that beneficial for us? Because imports, you said are 18%, right?

So since it is a back-to-back platform with the customers, and we hedge as part of our customers' investment also. So no major benefit of this currency movement, either side.

Okay. But let's say, 6 months later, it can benefit us?

It is on the application side.

Okay. But going ahead, okay, right on your contracts are obviously you're hedged. But 6 months later, will you have to pass on the benefit to the customer? Or can you retain something?

Which benefit?

Sorry?

Which benefits pass on?

No, no. The currency weakening, the yen, so imports are going to be cheaper for us, right? So now you are hedged in this quarter, I understand. But as you move forward into next year, you will get fresh orders and you will be importing material. So at that time, with the yen falling 20%, 25%, will that benefit us in any way or it will just be a pass-through?

It is a passthrough but it is a quarterly pricing with the customer on currency. So if it go up, customer will increase the price and when it go down, customer will decrease the price for the foreign currency content.

[Operator Instructions] Sir, there are no further questions. I would now like to hand over the floor to the management for closing comments.

Thank you very much. I think we have addressed most of the queries which we have. Only 1 positive thing I can mention here is that things started normalizing now other than a few disruption on the supply chain. But based on the experience of last 3, 4 months where OEM started getting some firm supplies of semiconductors. [ Shedoos ] for this year FY '23 is looking promising. And we -- right now, based on the current business assumptions or the situation which we have, we are hopeful that FY '23 will be much better on the top line side. And of course, the sellers will remain on the bottom line. But based on our aggressive plans, we will recover some partial things in FY '23, but future is definitely very, very promising. Good luck and thank you very much.

Thank you, sir. Ladies and gentlemen, on behalf of Aditya Birla Money, this concludes the conference call for today. Thank you for your participation and for using [ Dusa Pass ] conference call service. You may disconnect your lines now. Thank you, and have a good day, everyone.