Suprajit Engineering Limited (532509) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Suprajit Engineering Limited Q1 FY '21 Earnings Conference Call, hosted by Anand Rathi Share and Stock Brokers. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vijay Sarthy from Anand Rathi. Thank you, and over to you, sir.

Thanks, Devan. Good morning, all. On behalf of Anand Rathi, I welcome you all to the Q1 FY '21 conference call of Suprajit. From the management side, we have Mr. Ajith Kumar, the Founder and Chairman; Mr. N.S Mohan, MD and Group CEO; and Mr. Medappa, the CFO and Company Secretary. As always, we will start with the initial remarks about the results, and then we will follow it up with Q&A. Over to you, Mr. Ajith.

Yes. Thank you, Vijay, and thank you for Anand Rathi for hosting this conference call. Good morning to all the participants. I welcome you for this Q1 results con call. I will start with Mohan to give a brief on how the quarter was and what happened, followed by a quick remark by Medappa on the quarterly numbers. And then I'll make a few remarks, and then we will let the questions to come in. Mohan, can you start?

Okay. Thank you. While the first quarter was obviously not a great from the operational results perspective, I would say…

Mr. Mohan, I request you to speak a little closer to device, please.

Okay. Is it okay now?

Yes, I can hear you.

Okay. Just to repeat what I was telling. Like I was telling, the first quarter, obviously, has not been great results from the operation perspective. It gave us an opportunity to trim the bushes and the trees and deweed the garden. What I'm trying to allude to is that we focused on addressing the fixed costs. Some of these were temporary measures, like salary cuts, and some were more lasting, like reduction in headcount across all Suprajit entities, both within India and outside of India. The other big focus area for us in that quarter was to ensure that we keep collecting cash and keep the debtors under control. This was done in a very effective manner, both at the OEM level, Tier 1 level and also with the aftermarket distribution and dealer network. The final challenge for us during the quarter was a ramp-up, not just ramping up within our facilities, but also to get our vendors ramped up. So these were the primary focus area for us during this quarter. Moving on to specifics. At Wescon, the overall market weakness continued. And also our focus in building operational efficiency and restructuring sales and marketing areas. We are looking at working towards weaning away some of our customers away from the competition, and some of them have become financially weak in U.S. Moving on to Europe. We won new business from a marquee existing customer. And this is for an e-vehicle, it's an hybrid vehicle actually. And our Koper warehousing facility is fully operational now, and it is still having the customers on the Mainland Europe. Moving on to Trifa and Luxlite, our warehouse consolidation exercise is now completed. So we have one single warehouse. We have consolidated it. And we still see weakness in the global market, more so because a lot of that is being addressed in the South American market. And Brazil, as you all know, has been hit very hard. Therefore, that's one of the market, which is hit for us at Trifa, Luxlite. Moving to the Phoenix Lamps division. Our plant at Chennai is now fully loaded. And we have been recording excellent sales there. At the Domestic Cable Division, we have recorded very good traction in the aftermarket as the OEMs are still ramping up. Having said that, the month of June, and specifically, the July and August are looking pretty robust. Overall, while we saw a very tough first quarter, I'm pretty optimistic on second quarter. Thank you.

Thank you, Mohan. Medappa?

Yes. Thank you. We have reported the financial sales for the quarter ended 30th June FY '21. The consolidated revenue for the quarter ended 30th June 2020 was INR 177 crores against INR 363 crores for the corresponding period last year. The consolidated EBITDA was negative INR 4.8 crores against INR 51.2 crores last year. And the stand-alone operating revenue was INR 87 crores against INR 247 crores last year. And the EBITDA was negative INR 27 crores -- INR 77 crores against INR 41 crores last year. Yes. Thank you.

Thank you, Medappa. It's EBITDA was INR 7.7 crores against last -- against last year's INR 41 crores. I think the highlight that I would like to add on here is that not so much the last quarter, I think you all are very well -- basically, it's a COVID quarter, I would say, wherein not only our customers, I think most of our peers had a similar situation where business was at a standstill for 2 months. June month when it sort of restarted, it had a fairly decent uptick, which we have seen not just in India, but also across our group, generally, things have been warming up in July and August as well. In fact, aftermarket is very robust for us in both July and August, and it hopefully will continue. And OEMs are starting to come back to not entirely normalcy, but they're coming closer to their normal levels of operations. But for us, because of the current product mix, et cetera, we are able to more or less say that in the month of August, we will be as close to the same month, let's say, July, August would be let's say, close to 90%, 95% of what we did last year, so -- which is a good sign. So similarly, we are seeing that strong robust exports, both for automotive and nonautomotive units of ours. So what I'm feeling is that the -- unless there is a significant huge resurgence of virus and significant lockdowns, and the lockdowns are probably very selective and in localized, I feel that Q2 should be a pretty good quarter as almost nearly 2 months are over, and we are pretty clearly seeing that the numbers are coming in pretty strongly. So that's my point. And with that, I will now let the questions to come in, and we'll answer as far as we can. Thank you. Back to a moderator, please.

[Operator Instructions] The first question is from the line of Nikhil Kale from Axis Capital.

Sir, a couple of questions. First, on the nonautomotive cable division performance. So the revenues were down just 24% Y-o-Y, which is kind of a pleasant surprise. I believe in mid-June, you kind of highlighted that Wescon facility is operating around 50% of normal levels. So just wanted to understand what has driven this maybe faster than expected recovery at the nonautomotive division. So if you could just provide some color on that on the performance there?

Yes. I think what -- just as a matter of information, there have been some challenges for some of our customers in the North American market from one of the competitors of ours because of their own financial stress, I think. And their supplies have been also, to some extent, disrupted to our customers where we were common suppliers. So that has helped us to ramp up a little more in nonautomotive business. And we have been also able to get some of those new contracts. It's not that just our share of business increased. But we have also got some, what I would say, fast track orders for the nonautomotive, which also has helped us. So we are able to ramp up both Unit 9 in Bangalore, which does the nonautomotive business, but also we are able to do a slightly increased levels of operations at both at Wichita and Juarez in the nonautomotive space, which is the reason why it is not so bad, I mean that's the answer.

Okay. So would it be fair to assume that this is more like a sustainable market share gain that we've seen?

See, there has been some disruption from one of our competitors. And at the time, we supported our customers. Some of it will come back to us. But again, it's a long-term plan. It may not happen for this year. Probably it'll happen as a matter of change of sourcing from the customer. So that decision, we are working on. Actually, we are working on a few interesting opportunities in SENA, I mean Suprajit Engineering Nonautomotive Strategy, where we are trying to wean some of our customers away from some of these other competitors. So -- and from long term, yes, it is positive.

Okay. And just lastly, the second question is on the cost front. So you mentioned...

Sorry?

The second question is on the cost front. In the opening remarks, you mentioned that some of the costs will come back. So just wanted to understand the salary cuts that we have taken. Have we restored those to normal? So if you could just provide some more color on what kind of cost reductions are we looking for the year as a whole? Or would it be fair to assume that for, say, last year levels, our costs would be down by, say, maybe 5%, 10%. Any number you could provider, sir?

It's difficult to quantify. In terms of the salary cuts, yes, it is a temporary measure. Once the business comes back to normalcy, we certainly expect to give it back to our employees, ultimately they have really struggled through this difficult time. So I think once the volumes pick up and becomes normal, it's a question of time, we will restore it. So to that extent, yes, there will be that restoration. But at the same time, as I think Mohan has said, we also sort of let go some across our operations at the lower and mid-level, I think, across our global footprint, probably 8% to 10% of our team has been let go because we felt that we'll be able to operate more efficiently. And those kind of things will be permanent, whereas the salary cuts will be temporary. And some other overhead reductions, like, for example, we run buses to bus people, that numbers have been trimmed. We are able to optimize that or we've been able to do some more optimization within the operational front in respective units. Those things also, some of them will stick. So the numbers, how much it will pan out? Again, it depends upon how the scaling up happens. So some of them are permanent. I would certainly expect that there you would see certain savings in employee costs as well as overheads on a permanent basis, yes.

The next question is from the line of Nitinn Aggarwala from JM Financial.

Sir, can you tell us what do you think is a sustainable long-term industry growth for the halogen bulb segment in different markets like India OEM, India aftermarket and Europe aftermarket? And also elaborate on what is our strategy towards the threat from LED segment. Are we looking to enter this segment in near term? And if yes, are we seeing any inorganic opportunity? Or have we made any R&D progress in this front?

Mohan, will you answer this question?

Sure. I'll take. There were multiple questions embedded in one, I guess. So let me try to take each one at a time. First one, you asked the question, I know what would be the kind of halogen growth in the market? Now when you say that, are you looking at the market growth or are we looking at our share in the market? So I would rather look at it at our share in the market, because the way we are going about consolidating businesses, that there would be a shakeout. And when the shakeout happens, those things should fall into our net. So it should fall into our net, and that's the way we are working. And one classic example of that was the way we did the deal with one of what we used to call as a competitor who has now become our customer. Therefore, our utilization levels have become better and our margins are becoming reasonably stable. Therefore, that's one way of looking at it, where we are looking at enhancing our market share, therefore, growing our business, primarily because this is aftermarket business. If you look at the overall structure of Phoenix Lamps revenues, you would see a major part of it comes from aftermarket. So that is one way of looking at it. The second way of looking at it is just don't look at only India as your market, look at globe as your market. So we are looking into China. We are looking into supplying into Russia. We are looking into supplying into U.S.A., and we have already made some initial moves on that and initial samples have already gone in there. Therefore, the way I look at it in terms of market growth, will the halogen bulbs grow, will the LED be at threat? Over a long run, definitely, yes. But on a short term, I don't think so. When we looked at the acquisition 5 years back, we thought about it. It's been more than 5 years now. We have been pretty comfortable. Therefore, that's the way I look at it. Now I am coming to the second part of your question. The LED portion, are you doing something about it, organic or inorganic? Well, we keep always looking out for opportunities. And as and when opportunities come, let's have a look at it. In-house, we have started doing assembly of LED, and we have already introduced this in the aftermarket. It's already coming under the brand of Phoenix in the Indian aftermarket.

To add to what Mohan just said, we are also now the top 2 halogen players in this market, we are soon -- we are just behind them. The other one is Lumileds, which is erstwhile Philips. Even they have become our customers now. The idea here is to become the most competitive manufacturer of halogen lamps in the world, out of India and then feed the global market. So halogen lamps in the aftermarket will be there for a long time. So we are very comfortable that this business will be there for another -- a decade or at least that much. To tell you, the other fact is that it's very heartening to inform that starting in July and getting into August and September, we have started -- first started getting into the second shift. And as we speak, we are starting to get into the third shift at our PLD divisions. That means to say that there is a significant pressure on supplies on the PLD division. In fact, we are expecting that most of the critical lines will be running 3 shift during September. And even now as we speak, some of them already been into the third shift. So we are actually fully loaded on the PLD at the moment.

Okay. My second question is how relevant is the mechanical cable on the EV vehicles? In terms of content per vehicle, is there a reduction in EV vehicles?

As you -- I think I've answered this question multiple times on the previous calls as well. See, the EV is the engine pack that is changing, okay? Let me again make this clear. At the engine pack position, we do not have any cables, whether it's an IC engine or whether it's an EV pack. So the question of change of technology on the EV per se or any other technology at the engine, at the combustion, at the powertrain position is concerned, we don't have a cable at all in the first place. So that changing does not affect us anyway. Just to tell you, I think, recently, we won a couple of orders from VW as well as Ford. And I think most of these products are -- I mean, these cables are all for their EV range, which was getting launched in 2021 and 2022. We recently won a big contract for North America for Volkswagen. In fact, there are some very interesting parts. There are second cables. So, for example, particularly when there is a hybrid or even if there is just EV engine, the charger, the flap has to be opened, there is a cable. In fact, sometimes, there is a second cable as a safety to open the flap from inside. So actually, we are seeing 2 cables on just on a hood -- on a fuel release product, which was only 1 cable all these days. So we are not seeing any change in the content as far as the cars are concerned in terms of number of cables, to answer your question.

Just if I can squeeze in one last question. Okay. Sir, I'll come back in queue.

[Operator Instructions] The next question is from the line of Abhishek Jain from Dolat Capital.

Congrats for decent set of numbers in tough time. Sir, gross -- sir, gross margin have improved by 300 bps quarter-on-quarter basis. Is it because of the higher aftermarket or fall in the RM cost?

There is a -- I think there is a very modest fall in the RM cost. I don't think there is any other reason than that. Product mix also changes. We have, I think, to some extent, more aftermarket in this quarter. And also, there was more exports or our global business has increased. So I think 1 quarter number shouldn't really be taken into very serious in margin calculation because there have been so many ups and downs. And also, of course, there has been cost reductions and cost savings that has been done. So there have been multiple things that have happened. So there is nothing specific, I can say, I think.

Okay. Sir, how much current inventory is lying with you which needs to be liquidated in second quarter?

Sorry?

How much current inventory is lying with you, which needs to be liquidated in second quarter?

No, I don't think we had anything unusual. We don't really build to stock. We basically build to sell. That is our general philosophy in terms of how we manage our inventory. So probably, there was some extra inventory maybe in end of March, simply because there was sudden lockdown. But having said that, our inventory that has all been cleared up during the quarter, whatever, they're not significant anyway, as you'll see from the end of the year inventory numbers. So the inventories are pretty lean. We don't have an excess stock at all anywhere, actually.

Okay. Sir, in 4-wheeler segment, have you won any new business from Maruti? Just wanted to understand what is our wallet share with the different OEMs in 2-wheeler and 4-wheeler cable?

There's nothing new from Maruti. I think today, of course, with the COVID, there is no -- business development also is pretty challenging because everybody is just trying to get back to business, not working on new product development or new supplier development. In terms of wallet share, I think in the 2-wheeler industry, we probably have -- I don't know. Mohan, do you have any -- anything that you can share in terms of -- in 2-wheeler, 4-wheeler that you want to share?

In Cables, I would say, ballpark, I would put it at around 70%. And at 4-wheelers, I would put a ballpark at around 30%.

And…

Not direct -- not necessarily directly going to the 4-wheeler customers, going through the Tier 1s through.

Yes. Yes.

And what is the SOB with the -- customer wise SOB in the 2-wheeler…

Customers wise, I think you can call Medappa, and he will give you off-line. But with the -- as you said, when you're 70% with 2-wheelers, it's like we are #1 in most of these 2-wheeler guys. Some of them, we're at 80%; some of them, we're at 60%. I think that would be the difference amongst all of them. And on the 4-wheeler, I think it is more skewed. We have got higher share with Mahindra and lesser share with Maruti. Those numbers probably are available, we can try to give you off-line.

Sir, my last question is related with the Narsapura plant. So how much incremental revenue this will add on annual basis in normal circumstances?

See, Narsapura plant was set up to deliver products to our key customers, Honda Motor for their 2-wheelers. And it was being supplied from another unit of ours. That unit was highly congested and the capacity was not available to gear up to requirement of the full plant capacity of Honda in Narsapura. That's why we set up the plant there. It's actually not a new business. It is a relocated business from an existing plant to the new plant. The advantage for us being having gone there is being very close to Honda, we are able to get any time -- when other suppliers are having an issue and they always come to us. So we are able to get a slightly higher share of business. I think beyond that, it's not a new business, if I have to be clear on that, yes.

So what is the kind of share of business with Honda right now?

Honda, I think Narsapura plant, I don't know, particularly, but overall, we are at about 55%. Am I correct, Mohan?

Yes, that would be the number I would...

Yes, yes. Overall, yes, because we are supplying to all the plants. I would rather like to put on the overall Honda situation maybe around 55%.

The next question is from the line of Bharat Gianani from Sharekhan.

Yes. Yes. So just FY '21, obviously, would be a COVID situation so -- but I want to understand more from the long-term perspective or medium-term perspective of the Phoenix and the nonautomotive division. So while the domestic, as you have been earlier pointing out that domestic will -- auto cables will move more in line with the industry growth, but I want to understand the -- what's our outlook in the medium term for the Phoenix and the SENA division, nonautomotive cables? Because there has been a considerable kind of time the businesses have been taking to ramp up. So over the next 1 or 2 years, what do you think the growth outlook will be for the Phoenix division and the nonauto division? And the domestic, obviously, you have said that it will be mostly in line with the industry. So I just wanted your perspective on all the 3 divisions from medium term.

Mohan, will you take the question?

Yes. Let me first talk about Phoenix. Phoenix, it's not what we are going to supply just into India. Therefore, the dynamics are completely different over there. The focus should be to align ourselves with the major what we call as competitors today who will start sourcing it from us as they start shutting down their plants. So that's our game plan. Therefore, it will all depend upon how our competitors start behaving. Having said that, if you're asking me to put a number over there, I would not hazard a guess there. I can only tell you that from an investment perspective, it has paid us back pretty handsomely. And in terms of headroom for growth, we knew that it is going to be limited, but we are trying to expand it. Will it expand in single-digit, double-digit is anybody's guess. Now moving over to Wescon and SENA strategy, I'm much more optimistic there because I think that we have much more headroom for growth primarily for a couple of reasons. Number one, it's some of the players there are weak. Therefore, we should be able to get that share of business. And we are pretty much well positioned today there, both from an operational perspective with the 3-plant strategy perspective. Therefore, I would be looking at a much better growth perspective at WCL or Wescon Controls between Wescon Controls and Phoenix.

And to add to what Mohan says, again, from an overall perspective, Suprajit as a group, as a consolidated number, we continue to believe that the performance of the group in terms of revenues would be ahead of Indian automotive growth, whatever that is, by at least 5% to maybe even more than that. So what will happen is that different buckets within that multiple products, it is not just SENA or PLD or within cables, there is a speedometer also part of it. There is a cable part of it. And within that, there are multiple customers. Having regard to all these multiple balls that we have on the air, we are saying that on an overall basis, we'll continue to outperform Indian automotive growth on a consolidated group basis.

The next question is from the line of Chirag Shah from Edelweiss. As there is no reply from the current participant, we move to the next question from the line of Rohit Balakrishnan from VRDDHI Capital.

Hello. Am I audible?

Yes.

So I have just 2 questions. So can you talk a bit about the new customers that we've won that, I mean you alluded to, I think, in the opening comments? And just as an addition to this question is that in the past, in the Phoenix, the win you've talked about gaining market share, especially in the U.S. and sourcing away from China could be a tailwind for us. If you can talk about that as well. And also on the SENA part, you talked about our 3-plant strategy, and you also alluded in the past that something similar, like sourcing from India, producing from India has worked well in the automotive side in the cable division. So given the overall focus on cost cutting in general across -- across the globe, do you think there will be the strategy sort of we'll see much more acceleration for us? Are you seeing that? And finally, the last question is on the inorganic given our strong balance sheet and our past track record as well. Are you seeing more opportunities today? And if you would like to see -- if you'd like to comment anything on that? So these were my questions.

Thank you. Quite a few questions. Let me try to address. In terms of new customers, I think one is more new business from existing customers. I think that is happening pretty strongly. In fact, we recently won a contract for Volkswagen in U.S. as well as in Europe for some of their new platforms that is being launched in 2021 and '22. We also got some new business for Ford through one of the Tier 1 customers in the U.S. for the U.S. market. On the PLD -- I mean, we have won some other contracts as well in multiple places. But on PLD, we talked about you to mention China. In fact, we are able to enter China in the last 6, 8 months' time, where we are now supplying not only through our brand in the China market, but also entered one of the OEMs in China as a supplier through a Tier 1. So Phoenix Lamps is the question of the survival of the fittest and the most competitive one. We believe we are. In fact, we are able to track our competition pretty closely. Some have very poor balance sheets, and then they will have difficulty to sustain for long, particularly, that too with the COVID situation that we are all in. So we feel that, that will all give opportunities of not necessarily an acquisition. But also getting those businesses that they are not able to meet eventually. So I think we still -- as I said, we are already starting to run our PLD plants in third shift. That only says that we are starting to use more and more of the capacity that is there. 3-plant strategy of SENA has been what our mainstay as to how we want to grow the SENA strategy. This has worked very well in the automotive space, where Suprajit Europe worked as the front end and Suprajit Automotive worked as the back end for supplying these products. And it's been after 15 years of work, today that is working perfectly well and one of the most profitable divisions of ours. I think it's the same strategy we are adopting. I think we need some more patients in this. The 3-plant strategy, 1 from Mexico, which will give a mid-cost and India, which will give -- compete with China is very well accepted now in the market slowly and steadily. So I think it will take some more time to get the traction, but we are getting quite a few interesting inquiries. I think, in the next 1 year and 2 years, this strategy will work. And I think we are now as competitive as any in the world in manufacturing cable. So I think that would certainly work out given some more time to it. Inorganic, obviously, this is the time where a lot of people are having financial stress. So we don't want to say anything more than that. Opportunities will come. I think what makes sense to us and where we find value, we'll certainly look at it. This has been always our stand that we will continue to look at these opportunities. But I think we will let you know when things are really right and when things have really happened. I think at the moment, nothing is happening.

The next question is from the line of V.P. Rajesh from Banyan Capital Advisors.

Congratulations for a number of wins and the guidance. My question is -- and you may have answered it, and I missed it. This 300 bps improvement in gross margin, do you think it's going to continue this year? Or this -- was there some one-off in there? That's the first question.

Yes. I think I've answered that question. You are right, partly due to some of the salary cuts that we have all taken. I think that's probably one of the big reasons. And some of them are -- that would be probably restored in due course, whereas some of the other ones, they would be permanent in nature. As I said, there has been some white collar reduction of people itself, and that would be permanent, for example. And similarly, some cost cuts that we have done across and those could be permanent. But at the same time, there is an inflationary trend, not just in India, across the world. So there's also -- cost push issues also will come into picture. So will there be a change of 300 bps points in our numbers? I wouldn't hazard that guess, but I think there would be some, hopefully, some tailwinds because of all the tightening measures that we have taken.

Right. And the second question is with respect to Wescon. So I think I heard you say that one of the competitors is in a bad shape in the U.S. And that is helping us grow the business. Is that right? Or did I miss something?

Yes, it was a temporary relocation of one of our competition had some trouble to deliver on time to some of our customers, and they came on a SOS basis to us, and we are able to live up to the expectation of the customer and deliver the goods. So that has helped, to some extent, some of the severe downfall that we had, I mean, everywhere, of course, but it probably has cushioned a little bit. Some of that, hopefully, in the next 6, 1 year may convert into a long-term contract to us, but that's what we are currently working on. We helped the customer out, first of all, to make sure that their lines don't stop and that gives us a goodwill with these customers. So we are working on those goodwill at this time. But unfortunately, with everything is WFH now, very difficult to make a business pitch or tech pitch or a -- make sure that a face-to-face meeting to get some of these opportunities converted, but our team is doing everything. The SENA team is doing everything to make sure that some of these contracts at all -- at least would convert into long-term business. So that is positive for us, actually. Yes.

The next question is from the line of Ronak Vora from AUM Advisors.

I just have to ask a few questions. So the first one was on -- sir, how are we in terms with Maruti regarding the whole ramp-up and our production and everything?

Yes, please ask all the questions, so that I'll answer all of them. Maruti I have already answered. There is no change in the situation with Maruti.

Okay. No problem. And secondly, I want to see that, how do you see the whole growth rate panning out for SENA division in the next 3 years?

This is about getting into new business with the new customers in new segments for the same products. So some inroads have been made, but COVID has been a kind of a setback because it is difficult to do a business pitch today simply because every customer is just trying to get their plants running. The supply chain managers are making sure that their supplies from the -- from suppliers all over the world get them on time to keep their lines running. So the ability to push ourselves in, in these difficult times is quite tough. Despite that our team is making every effort. So this year is going to be a tough year to really do a big foray. But some of the things that I mentioned, one of our competitors having a difficult time. They all give -- open new vistas to us. So I think from those point of view, we will win. But for the -- over the next 3 to 5 years' time, I'm pretty sure, it will grow as well as we have grown in other divisions Suprajit as a group. I think that should be the aim that we will have going forward on a longer-term basis, which is easily possible knowing the size of the market in all these parallel horizontal segments where we are trying to enter.

The next question is from the line of Abhishek Jain from Dolat Capital.

Sir, how is your current gross and net debt position of the company?

Sorry, I didn't get it.

Gross net debt -- gross debt and net debt position of the company.

That I think we have announced in the -- it's in the -- in our announcement, current level, debt level.

Have you added any short-term debt?

No, no, no. In fact, if you see, I'll just read out from our business update, from INR 380 crores, which was our net position as of March 2020, has come down to actually INR 358 crores as of June 2020. So actually, there's a reduction in debt. There's no increase in debt. We have not used any of those new facilities that banks were offering. We never used.

And what is your CapEx plan for the next 2 years, sir, for FY '21 and '22?

CapEx plan, as we have again said in our earlier brief, there is no major CapEx is planned at all for the current or as we see for the next year. The CapEx will be more a maintenance CapEx, let us say, we have always said our maintenance CapEx may be around 2% of our revenues. So I don't think it will be anything beyond that over the next year or 2, as we see it, unless there's a huge robust growth that is coming to us.

Okay, sir. And sir, how much grant you received from the U.K. and European government in first quarter for employee cost?

I think the significant one was at Wescon. There is -- what they call it a PPP loan, which is about $2 million -- $2.1 million, from U.K. -- that is for keeping the people on your role and not letting them go. In U.K. and Europe, they are much, much smaller. I think U.K., maybe it was less than GBP 100,000, for sure. And in Luxembourg, and -- I don't think there's anything in Germany. Luxembourg also a very small amount, some EUR 50,000, EUR 60,000. They were not very material actually, except Wescon, of course.

So this is why that Wescon has reported around 6% margin -- EBITDA margin?

No, no, no, no. That has been shown. It is still a loan with -- in our books. It has not been adjusted into any P&L item at all.

Yes. Okay, sir, fine.

Eventually, it will be. But at the moment, we have not done. It has to be approved by the some authorities. And in those particular quarters, we will reverse those entries. At that time, yes, they will become additional income at Wescon. We have not done that as of now.

Okay. The next question is from the line of Chirag Shah from Edelweiss.

Am I audible now?

Yes, you are.

Yes. Yes. Sir, quickly, 1 housekeeping question first. The other expenditure, when I look at as a line item, it seems to be higher. So can we assume this is -- this is a fixed cost incident or there are some one-offs or lumpy expenditure due to COVID-related issues? How do we look at it because the reduction in other expenditure is far lower than your revenue? So how do we look at this? Should we see as a fixed -- normal fixed cost of the business? With stand-alone…

There has been one, I think, write-off that we took in the first quarter at Wescon because one of our customers went on Chapter 11, there was 1 such cost, as I know, as a one-off. I don't think there was any other one-off that probably if we take that out some $60,000, maybe that would give a different number to you.

Okay. This is helpful. Second is just on India order uptake. I was -- so from the OEM side, are you actually seeing upward revision in the order backlog? Question point one. Or secondly, is the order outlook given for a slightly longer period, say, 3 months or it's just a monthly order outlook that they're sharing with you or the procurement outlook that they are sharing with you?

As you know, I think you're an expert in auto components, I don't think anybody gives 3, 6 months outlook, that too in this COVID time, nobody is giving. We are getting some update for the month of September. That looks pretty interesting. All I would say is that if that is so, then I think September numbers will be at least as good as the previous year September's numbers. But then again, these numbers keep changing when they -- when the month actually comes into productionizing. So at the moment, it looks interesting, very interesting, yes.

Okay. And last question for me, just a very strategic one. On the Phoenix side first, was that you -- so you indicated that you are globally #2 now or…

I would say we'll be probably #3 in the top 3 in terms of the manufacturing capacity.

Okay. Sir, my question was, how do you look at this opportunity size? Are you making -- are you making a case that some of these big players who are also into LED would start moving out of halogen and hence, that's a big opportunity space for you? That is the strategy in halogen that you are hoping to play out apart from [indiscernible] replacement?

Yes. I think your point is right. I mean the other 2 players who are the Lumileds and Osram, and both are our customers today. They're our competition technically. But then one is a fairly significant player, Osram, because we have got a back-to-back buyback agreement, whereas the other one is the just a new one, whom we are able to convince why you want to manufacture out of your most expensive plants. We are doing as good, if not better than the products that have been required for the markets. So you buy from us at a competitive price. And that strategy has worked. So the idea is that we are working here, okay, let us see, in next 5 years' time, top 3 or 4 only will survive and rest will all fall by the side, then even if there is on a gross-gross level, there may be some reduction in halogen, but for an individual player, there will be larger opportunities. I think that's what we are looking at.

And Osram and…

If the question of how the best last man standing operating guy in this business, and that's what we want to be. And that's what will give us a long runway in this business, which is what we are doing today.

Yes. But Osram and Lumileds are also focusing on halogen, on LED?

Yes. Yes, of course, they're. That's a different business of them. And obviously, what they're doing is that they -- I'm not talking about these 2, but generally, some of these guys are having operating units in most expensive places in the world. So why you want to manufacture? Buy out.

And is there a thought process of growing organically in LED at some point of time? Is that somewhere in your strategy planning that we may start having our own organic opportunity in LED. So maybe…

I will let Mohan answer a little more detail because I think we have an organic plan. Mohan, will you answer that question?

Yes, sure. You see, when you look at LED, it's not just mere LED as a shift. It's the -- the entire beam comes into picture. Therefore, from that perspective, are we looking at opportunities? The answer is, definitely, yes. And if you're asking whether we are looking at in the aftermarket as a drop-in solution, that's already in the market now, and we want to expand that market.

So to answer your question, Chirag, in the aftermarket, Suprajit already has a LED solution for the headlamp. So we are working a little bit more than that, but it's on a longer-term strategy. Yes.

Okay. And just one last thing on this export automotive cable and also on the European side of the business and the automotive side. So we were hoping to win some big businesses because last 3 years, we have done good amount of seeding of business. Has COVID postponed that? And would it be a right statement that because of COVID grabbing new business with a new customer is slightly difficult, has got postponed because they won't -- they don't want to disrupt the supply chain as of now?

I think second part probably you're correct in some -- to some respect, because everybody is trying to manage the show today with the COVID crisis because nobody has time to spend a lot of time on new developments and new supplier developments. Whereas on the first side, you're very right. I think we have won quite a few new contracts. And when we won the contract, let's say, the order size was 100,000 vehicles or 0.5 million sizes, they all have now -- the sizing has fallen by wayside. I mean they're either half of what they have said or they have postponed the decision to launch. So first of all, there are 2 things happening. One is their existing volumes have come down because the volumes of production itself has come down from what they have proposed, say, 2, 3 years ago. And the new contract which is getting launched, when they thought about it 3 years ago, because we get involved 2, 3 years ahead of time. Was these now at half of it or some of them are actually postponed. So technically, because the new business is coming with smaller volume and existing coming down, we are not showing the kind of growth that we could have shown, but we are probably staying where we are in the process. So at the end of the year, second 9 months, we expect to actually our Suprajit Automotive and Suprajit Europe business to be -- at least to be as good as what it was last year, if not better, because of all these reasons.

But sir, what is the postponement anybody can think…

That could trigger a good growth for next year. That's what I'm trying to say.

Yes. I was just coming to that. Any indication what is the postponement that they're indicating? Is it 3, 6 months or it's like a 1-year kind of postponement?

They generally keep it in their own [chest]. Products are developed, but they're just saying there will be some development, there will be some delay. But these dates -- we don't really go by what they say. Only when schedules are released, we are really ready to roll, I think. When they ask us to say shipment of, let's say, for a European customer, they have to give us at least 3 months advanced notice for start shipments. So we are waiting for that to happen. Although on paper, they say it will be happening in the next quarter, next quarter. So not all of them. Some of them, let me also say that, yes.

And would it be right that if those business come back as expected, as they were expected earlier, say, with a lag of 6 months, you will need to increase your capacity, production capacity?

That's exactly what we did, no? We actually thought that this year is going to be a great year. That's why we increased our capacity last year to $300 million. I mean that has not happened. So the capacity is on the tap. We have no problem on capacity as far as cable supplies.

Okay. The capacity is there. So you already planned that. Now it has got just postponed.

We are just waiting for it. Yes, exactly. Yes.

The next question is from the line of Viraj Kacharia from Securities Investment Management.

And I hope everyone, you and everyone in the Suprajit family is safe and healthy.

Yes, thank you.

Had one question. On the Phoenix Lamps global play, what we are talking about, the top 2 players, which you said in our capacity are Phoenix -- Philips and Osram, right?

Yes.

So what will be the capacity differential in terms of, say, for us, after we have acquired the Osram? In capacity, we are somewhere close to 110 million. So what will typically the capacity differential be as we talk today?

I think the problem, Viraj, with all these customers, they don't really talk about their capacity of their independent plants. For them, this is a small part of their large business. So they don't really disclose too many things. But I would say that probably -- I don't know, Mohan, do you have a number? I'd probably think that they're around 200, 200-plus million kind of capacity they have, I think. Mohan do you have any numbers in mind? This is an estimate actually.

No. Offhand, I don't have -- no, I don't have.

No, because they don't disclose this anywhere, but we know that they are big players with the number of plants they have. So we are only going by that actually.

Got it. And just another follow-up question on the same thing. So when you say our capacity is 110 million lamps, from a global perspective, would it be like 5% or sub-5% kind of a share, just indicatively not exactly? What kind of…

Yes, I think after Lumileds and Osram, we are probably at the 3 -- I mean, touching on the heels is probably DH Lighting from Korea. They are at, I don't know, similar, maybe a little lower than us or similar sizes. What would be our share in the overall business? Frankly, we don't know because the aftermarket is fairly large, and there are too many players. And it's very difficult to estimate. All I can say that there is something like, let's say, 10 years' vehicle population is something like 700 million, 800 million vehicles and considering 4 lamps per vehicle, it's something like 3-point -- let's say, 3-plus billion lamps, and we are 100 million, right? So that's in the aftermarket. I'm just giving you size of the market. So that is where we see…

The next question is from the line of Chirag Shah from Edelweiss.

Sir, just one more question I had on this EV business that you won on the cable side. Now can you also indicate, presume these businesses would have LED as a bulb? And can you push both of them together if it's not LED then? Can you push halogen business as well as the cable business when the EV business -- EV vehicle comes up? Is that happening?

See, I think the strategy today, Chirag, in India, we are strong in OEMs. And overseas, we are still yet to play the OEM card in the developed markets of U.S. or Europe for the lamps business. The strategy there is only aftermarket because it's a huge market. So we wanted to be very focused. At the moment, there is no plan to get into, let's say, European OEM or U.S. OEM for the halogen lamps. It's only in the aftermarket. That is the game. Whereas in Europe -- for example, in China, we won recently a contract where we are going to supply to a Chinese OEM. And similarly, we are now working with a Brazilian OEM to supply through a Tier 1 to the Brazilian OEM. So that is the strategy. So we -- they are 2 separate, the purchasing teams are separate for cables and halogen. So it's difficult to contract the -- the RFQs are released at different times, different people, the assessment teams are sitting at different places. It's not possible to combine. It cannot be sold as a basket.

Yes. Okay. And coming back to that EV part, is it possible to make a comment that the quality of cable that will go in a EV, EV 2-wheeler, for example, is similar, better or better to current IC engines? Is there any difference, then content goes up by any chance even if you supply same number of cables?

We have not seen any change in the specs, as I see it, no.

No major change in the specs.

As there are no further questions, I now hand the conference over to the management for closing comments.

Okay. Thank you very much. I appreciate your continued interest in Suprajit. I think as you all know, first quarter has been a very challenging quarter. But second quarter looks equally interesting and challenging to make sure that we meet those requirements. So we are hopeful that Q2 onwards, if there is no further lockdowns and major disruptions, we are hoping that we will come out with a fairly decent numbers going forward. So with that, I will hand it over back to the moderator, and thank you all for your interest in Suprajit.

Thank you. Ladies and gentlemen, on behalf of Anand Rathi Share and Stock Brokers, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.