Suprajit Engineering Limited (532509) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Suprajit Engineering Limited Q2 FY '22 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vijay Sarthy. Thank you, and over to you, sir.

Good day and morning, all. On behalf of Anand Rathi, I welcome you all to the Q2 results of Suprajit. On the management side, we have Mr. Ajith Kumar Rai, the Founder and Chairman; Mr. Mohan, MD and Group CEO; Mr. Akhilesh Rai, the Director and Team Strategy Officer; and Mr. Medappa Gowda, the CFO and Company Secretary. As always, we will have a brief overview of the results from the management and then followed by Q&A. Over to you, Mr. Rai.

Yes. Thank you, Vijay. I appreciate Anand Rathi to have been organizing these calls every quarter for so many years. We appreciate your continued assistance to Suprajit in reaching out to the investors. I also welcome all the participants for this quarter 2 and H1 results conference call. We have, this time, Akhilesh as an additional person from the management team, largely because of the recent acquisition of LDC from Kongsberg. We'll also be talking a little bit about the developments at STC. This is -- these 2 are little apart from what we have been normally doing in terms of business update and operations and financial numbers. So with that brief, I will start with Mohan to give an operational review of all the divisions, followed by Akhilesh on the LDC as well as made Medappa a little bit on the finances. And then I'll give you final comments before we open the floor for questions from all of you. Mohan?

Thank you very much. Very good morning to everybody. As usual, what I'll do is I'll give you an update on various business divisions in entities. Before we start, I'll just give you some overview. As you all know that the global demand for the passenger car vehicles continues and -- to be muted and primarily because of the supply chain constraints in the market. Specifically, in India, the entry level of the commuter segment of motorcycle is under pressure, and that's indicating kind of poor rural demand. The uncertainty of IC shortages and also the commodity shortages has hit all the OEMs. Therefore, the predictability has become poor. Along with that, we have a strong headwinds due to commodity and cost increases. We have been able to pass on some of the -- to some of the customers we have been able to pass on the cost increases, and we are working in some other areas on the same thing. Overall, if I look at it, we have an enhanced and focused work on new product development within Suprajit Group. So let me delve much more into details and start with the Domestic Cable Division. Like what I said, despite the kind of cost headwinds, we have been able to do what I would call it as 3 Cs, contain the increase, compensate for the increase by [ productivity ] improvements and collect what has been increased at the vendor from the customer. So contain, compensate and collect has been the mantra with which we have been operating at the Domestic Cable Division. The Narsapura plant expansion will get completed by this year, and we will be ready for the new business that we have recently won from a marquee customer. And specifically, this had to be housed there, and hence, we expanded there. We are consolidating the disparate manufacturing facilities, which we were using for our aftermarket cable business and overall aftermarket business as such. And what we are doing is we are going to bring in some sort of a centralized facility to manufacture, store and service and cater to the aftermarket business. While mentioning this, I would like to caution that we are not adding capacity here, but the idea here is to release the real estate for any kind of future deployment of the new products. Moving over to the Phoenix Lamps Division. Here again, like other areas, we are facing extreme cost pressure, particularly in gases area, be it krypton, hydrogen and all the rest of the gases -- hydrogen. The gas prices have all shot up and through the sky. While we have been able to make certain price increases in the Indian aftermarket where we still hold the pole position, therefore, we are a market leader, it's taking time for us to get such a kind of increase both at the OEM level and other label manufacturing or OLM as we call it, and exports. Our new HS1 line will be commissioned by the end of this year, and we are on track there. Moving over to overseas. Well, before moving over to overseas, there is a cusp as always, our SAL plus SEU, the Cable Exports Division. Here, again, we have done pretty well, and we continue to clock new businesses. And here again, we are facing some material cost increase, coupled with freight and container cost issues. We are in discussions with our customers to bear this burden, and this is an ongoing process. Going over to 3 final slide. This continues to be a challenge, and we are critically reviewing with our team in Germany and Luxembourg as to how to make things better out there. Moving on to the SENA or Suprajit Engineering Non-Automotive, which is part of Wescon. Volumes have picked up here again, and we are approaching the customers to, again, look for compensation for the cost increases. Just to give you color on what's happening at what we call a Suprajit Technology Centre, or STC for short. We started this way back in 2015 with a dream of coming out with technologically innovative products. Here, the idea was to come out with enhancing the value propositions along with the cables and also look and explore beyond cables. So I'm very pleased and proud to announce that we have made some significant progress here, and we have taken about 15 patents. And we are now into the fields of digital speedometer, throttle position sensor, rotary sensor and combination braking systems mechanism, both in terms of geometry compensated and fixed ratio types. We have also launched the Seeder gear boxes along with the electromechanical clutches. And this is figured along with our rotary cables. So overall, we expect the business to be picking up here because these are all already started to get commercialized. And we feel that STC is going to contribute significantly towards the growth of future of this company. Thank you.

Yes, I will ask Akhilesh to give a brief on LDC, the recently acquired -- planned acquired acquisition of the Life Cable Division of Kongsberg and the recent updates on that. Akhilesh?

Yes. Thank you. So let me just give a quick brief on the transaction again. The EV of the transaction was about USD 42 million on debt free and cash fee basis. Considering the projected performance for this year for them at about USD 90 million turnover and close to double-digit EBITDA. We think this is an excellent value for our shareholders. Further, they are projecting $100 million revenue with double-digit EBITDA next year, and we believe they can hit this, especially if the global automotive -- the scenario bounces back strongly post some relief on the chip and supply chain prices that they are currently undergoing. The time line for closing will be Q4 for us, due to certain IT carve-outs that need to be done, certain manufacturing operational moves that need to be done. And of course, the regulatory approvals that need to come through. I'm just going to spend more time today just explaining some of the transformative nature of this acquisition for Suprajit. You know that we've had a global dream of being the #1 cable maker, and I think this is a big step towards that. It's important to understand that cable development and support locally is very critical for many customers. Many of our global customers have asked us to set up automotive plants in China and in Mexico. And this gives us the opportunity to now support them in these areas. This becomes especially important with more complex cables and systems that LDC are doing. This acquisition gives us that perfect low-cost manufacturing footprint to support customers and ensure that we can continue to give quality technology products on time and to the highest quality standards. Further, this acquisition and the people that are coming with it is very important. K is a global business, a global listed business in Oslo. And they come with high technology capability, good systems in place. and they have excellent engineering and sales that's right next to our global customers. So it will improve our relationship in all these areas. It finally, this acquisition gives us access to global platforms. This is a very important step for us. So with LDC's plant in China and in Mexico, we become a preferred supplier to a lot of these customers that have plants in those locations and would like a cable supplier that can supply locally and as well as export globally to them. The main engineering talent is out of Novi in the U.S., getting close to our customers in Detroit, but they also have a great engineering capability out of the U.K. and Germany. Last, I would like to just add, I mean, I think there were some questions in the last call regarding the EV scenario and how this transaction holds up in the EV environment. you will notice that one of the key customers is Tesla. It's very important to understand that this company supplies to the door and seat cable assemblies that go into cars. And regardless of whether it's an EV or an ICE, you will still need your doors, your windows and your seats to operate in the same way as they're currently operating. So we see no effect to this business with the change to EV. And probably there are even more applications of these -- of our mechanical cables in the EV as an alternate solution in case power [ flits ], the car runs out of battery, for example. Key things like door opening or fuel lid opening still needs to happen through a mechanical system, and that's always going to be a fallback. So with that, I will hand this over to Medappa. Medappa?

Yes. Thank you, Akhilesh. Good morning, everyone. We announced the Q2 financial results yesterday for the quarter and half year ended September 2021. The [ reps ] are not exactly comparable with the corresponding period of previous year due to COVID, the lockdown scenarios. The consolidated revenue for the half year ended September 2021 was INR 855 crores as against INR 621 crores for the corresponding previous year, recording a growth of 38%. The consolidated operational EBITDA for the half year ended September 2021 was INR 129 crores as against INR 69 crores for the corresponding period of previous year, recording a growth of 88%. The stand-alone revenue for the half year ended September 2021 was INR 564 crores as against INR 399 crores for the correspond period of previous year, recording a growth of 41%. The standalone operational EBITDA for the half year ended September 2021 was INR 104 crores as against INR 50 crores for the corresponding previous year, recording a growth of 107%. We are also happy to inform you that the overall group debt level has been reduced to INR 316 crores as on September 2021 from INR 327 crores as on 31 March 2021. For any further queries, you can approach me directly even after the call also, as usual. Thank you very much.

Thank you, Medappa. Just before I let the questions come, I just like to make a couple of general comments and a directional talk. What is happening with the LDC as Akhilesh rightly said, I think over the next 3 to 5 years' time, I believe that it's a transformational transaction for the company in a totally different league than what we have done in the past. I think our ability to have a footprint in both manufacturing, engineering and business development in the 3 key continents, Asia, Europe and North America would truly make us a player in a completely different league and probably the most preferred one if we play our cards right. So I think that is transformational in terms of our positioning in the cable business. I think what [ STC ] is doing, we have been doing it for the last few years. But with the new flip of -- relocating into a new place with much larger facilities, test houses and small manufacturing [ facilities ] for small batches, I think it gives us another new dimension that Suprajit on its own can develop products that would be feature ready, that would stand the test of time of changing technologies and that our engineers can deliver products which could be commercialized to any customer. I think -- The work done in the last 2, 3 years have now fructified into specific businesses. I'm really happy to see the young team doing a very good job. The new businesses have been won. We are reorganizing internally to make way for these manufacturing facilities. I think they are going to be game changers for Suprajit. These 2 are going to be -- I mean, the LDC as well as the STC are going to be the game changes for Suprajit in the next 5 years. With that, a little brief, I will now let the questions to come. Vij , you can please go ahead.

[Operator Instructions] The first question is from the line of [ Shreeman Padoria ], an individual investor.

A few questions. Firstly, on the LDC acquisitions...

Sorry to interrupt, sir, but your voice is slightly off. So if you can just maybe bring the phone a bit closer.

Yes. Is it better now?

Yes, I can hear you better. Yes.

So the first question is on the LDC acquisition from Kongsberg. Now given this acquisition is strategically so important for Suprajit as it takes you to those types of the global customers, as a vision, in the next 3 to 5 years, what sort of revenue should one anticipate this division can contribute to Suprajit?

I think as you know, historically, Suprajit has not been giving futuristic numbers. All I would like to say is that with this acquisition and once it's integrated into us, the kind of growth Suprajit will have with the LDC will be significantly superior to the industry growth. I think that's all I want to say. The reason being that we will be a one-stop shop where any customer developing and launching any product anywhere in the world, Suprajit can support them. I think that is the strength that we are offering to the customers. So that makes us a -- enough preferred vendor to these customers. So we don't talk about numbers. All I want to say is that the next year number, based on the current projections that has been given by LDC during our due diligence, is about $100 million and with an EBITDA for $10 million. Let me also tell you, Kongsberg, because of the way they are structured, they have much higher overheads. And we believe that we can optimize even better over the years. And the fact that we have got this transaction at $40-plus million is like a 4, 4.5x EBITDA. I think it's a great value for money. And in terms of numbers, all I can say that we will completely and significantly outperform the industry growth through this acquisition.

Right, sir. That's seems clear. So given that there are cost overheads in this division, are there quick like low-hanging fruits like which you could cut down and you could increase the margins in LDC in the near term, in the, say, next 1, 2 years?

I think 1 year will be a year of cleaning up. As it happens in all transactions, there will be cleaning up work to be done. So I don't think one should go by let's say, what will be the result of next year. I think I'm looking at beyond the year. And from that time onwards, please understand again, we are not taking the words of Kongsberg. So projects, we have a fairly lean operating and overhead structure. We're just taking their operating units. We are not taking their overheads of their divisional overheads or corporate overheads into this. So I think it will not come as a part of the baggage in the first place.

All right, sir. Sir, a few questions on the Lamps Division. And now in the European subsidiaries, in one of the subsidiaries where we have taken the impairment in this quarter, Luxlite, are we due to take another impairment for Trifa in the coming quarters?

Okay. Let me give you a little larger perspective -- to all the investors who are on the call. See, the value that was there in whether it's Luxlite or Trifa, is not that it was done by us, it came as a part of a transaction with those kind of goodwills or investment value sitting in their balance sheets. So it came as a part of the baggage. And when we looked at it, I think over the period of time, we realized that it was -- how do I say? Historically it was somewhat overstated, but it came as a part of the transaction. Now what has happened over the years is that for few years, we have tried that with a strategic intent that having a front end, just the way we have for our cables and other divisions, having a great front end would help in getting more business. We have realized now and we are regrouping ourselves is simple. This is an aftermarket business. This not an OEM business. So the price becomes an issue and the low cost of delivering the whole value chain to the end user, whether it's a distributor or somebody picking up a halogen lamp from a supermarket, value makes a lot of difference. So there is certain overheads that are sitting there. So we needed to prune that. That's what we did in the first step by making Trifa much leaner. They were 30 people and today with only 3 or 4 people. And the warehouse has moved to Luxlite. Now what is also the additional strategy that we are reviewing very critically is that it is time that we do all these things directly from India. We are looking at very focused direct export strategy, and also the OLM strategy, where we are working with the global majors. As you know, we work with Osram and some of the other marquee names to make sure that we are able to do direct exports out of India. Then the imperative is what is the importance of the these 2 units. So the whole, I would say, strategy would change going forward. And in that process, we thought that we'll take a very conservative approach of valuing these entities. And hence, the Luxlite, they have completely taken the full write-down of the investment value. It is not partial. It's a complete write-down. And in Trifa, there is hardly any goodwill left, and they still have cash in their balance sheet. So the valuations are now fair. But I think in the next 1 year or so, with the close internal assessment as well as with the Board's approvals, we should be making some final restructuring of these operations. I think it's part of -- when you're a global organization, there is always some cleaning up that needs to be done. I think we are taking that route over the next 1 year.

Sure, that's helpful. Lastly, on the non-auto SENA division -- Cable Division. So if I look at the quarterly volatility in the margins in this division, like 21% in quarter 4 of '21, and 16% in the first quarter and now 11%, what purpose drives this volatility and how should we look at the annual margins...

No. I think you should look -- not quarterly number. Please understand it's not only there, it's elsewhere also. There has been significant swings in margins quarter to quarter, quarter-on-quarter, last year to this year. We have been going through something like what we call a Samudra Mathanam. I think there has been fluctuations in quarter-on-quarter numbers, quarter-to-quarter numbers, half year to half year numbers. All I would like to see is that you look incrementally on half year results, don't look at Q2 results or Q1 results. I think that will give you a much more average actual sales rather than trying to analyze a quarter result. The reason is simple. The kind of variations in material cost, the kind of cost of shipments that -- if a person have -- if we have booked 10 containers in the first quarter, it would have been in the X. And if you book the same container in the second quarter, it would have been 3x. So the variations have been different. And also, we are receiving certain specific customer-related pricing adjustments, maybe pertaining to prior periods coming in this quarter. So not only this quarter's margin either looks up or if it is coming next year, next quarter for this quarter, this quarter number goes down. So I think looking at the individual quarter is not the right way. Please look at the half yearly results. I think having said that, I would like to say that our SENA division will continue to do well. The growth has been fantastic, the margins are stable. We'll continue to be able to do the similar margin that we have delivered last year on SENA. I think that's all I want to say.

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

Sir, despite lower volume in the 2-wheelers, our margin has been fast expansion in core cable business. So what is the key reason? And we have seen that [ Automotive ] has seen [ stark ] improvement despite semiconductor shortage. So can you throw some light on the new business acquisition in export and domestic, especially on the 4-wheeler side?

Mohan, will you answer that question?

Sure. I think there are 2 parts to this question. One is the 2-wheeler portion and the other one is the exports 4-wheeler portion. So let me first talk about the exports 4-wheeler portion. Yes, we have been winning new businesses. And incidentally, quite a few of these businesses are into the electric cars, done by traditional players, not necessarily the new guys who are coming in. So I don't need to put the names out there. But the good thing for us is that we have a stake of cables coming into all these passenger car vehicles, which are incidentally electric vehicles, which are coming into the future. So those are the businesses that we have been winning. I presume that I have answered that part of the question. Now I move on to your second part of the question, that is on the 2-wheeler. Despite the volume headwinds that we have had, how is it that we have got better results. Now again, I allude to what our Chairman was talking about. It is unfair to look at it quarter-to-quarter. But overall, on an H1 basis, I would say that is pretty stable. What happens is when there is a price increase that you give to your vendors, you will not be able to realize a price increase from your customer immediately because you will have to go to your customers and prove to your customers that this is a genuine case. And based on the merits -- and again, they also will look at what the other players are doing, whether they'll be able to buy it at a cheaper place from somewhere else, how much those people have asked for a price increase. And net of it, they will take a decision. Therefore, the whole process takes time. So in the process, what happens is there are 2 things that will happen. One is there will be a lag. Therefore, it can get booked in another quarter. Second thing is we would probably also be doing it backdated. So in some cases, that backdated enough comes in as a bonanza for us. Therefore, it will be unfair to look at it Q-to-Q. But I would say that -- I'm pretty much confident to say that we have been pretty much stable on our business in 2-wheelers.

So most probably, the margin will hit in the next quarter because this quarter you have gained the benefit of the past quarter's revenues. So this quarter and next quarter as there is a higher inventory in the 2-wheeler space, and plus that mix will also change the margin where [indiscernible] business will -- expect it to go down?

Abhishek, I think just to add on to your point. See, again, this quarter-on-quarter number will have such fluctuations. But if you look at it, as Mohan said, it is both at the supplier side and the customer side issues where the timings are different. So that's what you've seen. We have seen the previous quarters or previous period price increase is suddenly hitting in Q2, and it looks like the margins have gone up. It is not. All I can say is that to answer your question about how it will affect on the longer term. I think from an Indian customer point of view, on the Cable Division part of it, I think we have been able to fairly protect our margins. And we have been able to reasonably pass on the price enhancement to customers. Okay, give and take some here and there. So overall, to answer your question, we think that the DCD, there is a Domestic Cable Division's margins, are -- will remain fairly stable despite all this turmoil that we are seeing.

Okay. And my next question is related with the guidance for the margin in the SENA division on annual basis. As you have acquired the LDC business, which is a low-margin business, so what is the outlook ahead for the U.S. business margins for the Narsapura...

Sorry, you mean for Wescon? Or for SENA?

So -- yes, SENA because that most of the business comes from the U.S. And you have...

Yes, the business on from U.S., but made in India, right?

Yes. So to some extent it comes from the plant line.

Yes. Yes. Yes. See, ultimately, what are we providing? What are we providing to customer is an option, a menu of options where they want it to be made. Yes, if it is made purely in the U.S., there will be a little lower margin, obviously, due to the overheads. But as we see in SENA, some of the new business we are winning is being manufactured or most of it is being manufactured out of India. So that's why margins have gone into double digit. -- comfortably in Wescon -- I mean in SENA over the last 1 year from the previous years. So that margin, that's what I was mentioning, in the double digit, is expected to be stable going forward also.

So you are going to -- as you have acquired the LDC business and that is going to merge with the U.S. business. So margin is expected to go down in this...

Okay. Okay. You are talking about -- yes, I got your point. Yes, you are right, the new entities will be acquired within Suprajit U.S. So you are saying the total margin in the U.S., Suprajit U.S. Okay, let me put it this way. The first year -- I think I made this statement earlier. The first year, the margins may have an issue simply because as you know, we are very conservative in our bookkeeping and accounting. So we'll be completely making sure that everything is taken care appropriately. But going forward -- let's relate it this way. The margins at double digit is what we expect these businesses to generate, number one. Number two, that you will say that it's low margin compared to the India's legacy Cable Division, you are correct again. But please understand at what price we are getting these assets? What is the return on investment? What is the ROCE of the business. I think that's what we need to see. I think the ROC of getting a business of $100 million with $10 million EBITDA at USD 40 million, the return on capital would be the similar to what the businesses are generating out of India or close to it. So from an overall point of view, I think it would be an excellent fit, both from the financial point of view as well as the operational leverage that we'll get in our global ambitions.

So can we assume the 15% kind of the margins from the U.S. business and in the Wescon plus...

No, we will not expect that. If you ask it the return on capital employed, it will be similar to what we generate out of India.

The next question is from the line of Pratik Kothari from Unique PMS.

Sir, in this press release, you have mentioned the CapEx plan over the next 18 months of INR 125 crores. If you can highlight some more details on the same, please?

Yes, sure. Mohan, will you go ahead?

Yes, sure. Primarily, it has got 3 major content. One is the buildings, the facilities, okay? The civil works in the buildings. And the second portion is the plant and machinery. And the rest, I will clump it as others, okay, for the sake of ease. Predominantly, a big chunk of it is going towards putting up these 2 buildings. One is completion of the Narsapura project. And another is what we call as the aftermarket -- consolidated aftermarket unit. So we call it as Unit 8. So this would be one major. And in terms of plant and machinery, primary investments are going into 2 areas. One is the new HS1 line that we have been talking about in Phoenix. The other one is we are investing into our electronics business, particularly like putting up the SMT line and its associated investments for manufacturing of instrument clusters. These are the 2 critical, I would say, major big ticket items that comes into plant and machinery. And in the others, the big ticket item is what is getting into what we call it as green energy, the solar energy. So we are putting solar panels on most of our units to generate power. So of course, these are the 3 critical areas where we are investing.

Just 1 clarification on this new line in Phoenix, this is over and above the $7 million expansion that you're doing?

Sorry, coming again on this question. I didn't get it.

Last year, you'd announced that they are putting up a....

Yes, I got the question, Mohan. I think it is the same one getting completed. It was started, a part of it is getting spilled over to the next year, I think this year and next year. It is the same one.

Yes. Okay. Fair enough. And sir, my second question on the LDC part. One -- first, congratulations on an excellent acquisition. One, at a business we will -- not from the point that we are acquiring, but at a business level, what would be the ROC that this business would be making? And second, we did talk about certain operational benefits, et cetera, but once this plant is utilized, and I believe in the last call, you mentioned it's partly [indiscernible].

You're breaking up. I can't listen to you properly.

Is that audible better?

Can you speak a little louder, please?

Yes. Is this better?

Yes, this is better.

Yes. Sir, my question was on the LDC part. One at a business level, what is the ROC that they make.? And second, you did highlight that currently there's quite some unutilized capacity there. And maybe over a period of time, once this is utilized, just like we did in Wescon, would that be a strategy where you would be manufacturing more of those cables out of India and exporting them and catering to the client there? Or is this where we want to set up manufacturing plants closer to the clients, be it in China or U.S. or in Europe? And we'll be expanding our manufacturing base out of India?

I think -- I would only give a generalized answer. Ultimately, the customer is the king. We have to listen to the customer as to what they want, not as to what we want. That's the only way we can win businesses. In terms of whether it is return on capital or whatever it is, eventually, we expect it to be -- if you're trying to say what will be the next year's ROC, I do not know because I don't know how we are going to go about strategically integrating into Wescon as well as our India operations. But on a longer term, I think based on what we have seen because this is not the first time we have seen this asset, this was on the table 5 years ago as well. We know it is a fairly good, clean asset. I think the return on investment would be investors, people who are investors will expect from these kind of businesses as you would expect from Suprajit. I don't want to give a number, but I would say that it would be as interesting as it is from what we are doing currently on our return on capital. In terms of strategy, what the customer wants is most important. So now what will happen is that customer will have more than 3 plants to look at. I mean, customer can buy -- if North American customer wants to buy from North American plant, there is a Mexico. We can offer from India. We can offer from China. So it's the customer's decision. There is an issue relating to supply chain. Why customers now are preferring closer to them is you know what is happening in the global shipping, global container problems. So people are preferring to the closer home to the manufacturing plants of the suppliers. So that uses the greatest asset in this particular transaction. That will answer that question also. We can offer for Mexican plants, which is most of the manufacturing happening in Mexico for North America. We are in Mexico for them. We don't have to worry about China or India. And when the container will read one of the biggest challenges we had in the last one year is to make sure our customer lines don't stop because the ship is stuck somewhere in some port not able to unload the container. So I think it all depends upon how customer wants. But we have the footprint. That's about it.

Fair enough. And sir, just last on Luxlite part, I believe the operational rationalization we have already done in the past, it's just a write-off on the investments that we have done in this quarter. So there are no further benefits on the operations side that we expect?

No operational side, we still expect them to deliver better value in terms of more business for the group. Now whether it is delivered out of Europe or whether it is delivered out of our Noida plant is something different. So that's what we are trying to deliver directly out of Noida now, not so much from stocking and selling in the Europe. So the question comes whether we need such a big warehouse? Already we do have one now. Is it required at that size? What is the number of people that we need to have to do the change scenario? This is what we will study going forward. So we just wanted to make sure that we take a conservative accounting practice, so that there is no further issues on these matters.

Fair enough. And, sir, my last question in this press release, again, you have highlighted quite a bit about chip shortages and obviously, everyone else is also talking about it. So was this the bottom? And are we seeing improved going forward in terms of orders that we received from the OEMs? Or this would still persist?

As I said in our -- I think we have also said in our press release, we don't see a change of scenario until the end of March at least. I mean, there could be -- hopefully, there could be some improvement, but it has continued to be up and down in terms of the availability. And hopefully, for the next full financial year, I think the scenario will change and hopefully, it would be much better than this year. So this year, we'll continue -- we continue to have an issue today, whether it is in India or in Western world. this quarter also having challenges. And from what we understand from customers is that Q4, that is the first quarter of next calendar year is also an issue.

Next question is from the line of Chirag Shah from Edelweiss.

Sir, 2 questions. A question was a housekeeping one. Is it possible to quantify the price hikes that we have received in the [indiscernible]...

I can't hear you, Chirag. Sorry, what is that?

Yes, just a sec. It's my -- Sir, am I audible now?

Yes.

Sir, firstly, the question what is the term of price hikes that you exceed for the earlier quarter? And...

No, I can't -- you're very -- you're garbled Chirag.

Chirag, your voice is not that clear when you're speaking.

Is it better now, sir?

Yes, it is better.

Sir, my question is, what is the extent of price hikes or -- you have received in the quarter, which pertains to earlier quarters? And whether it is for a quarter or it is more back debted in nature? Is it just for 2, 3 quarters that we have received?

Yes. I think your question is about the impact of the price increase in this quarter. Yes, in this quarter, we have also received for the previous quarter as well as for the previous year. for example, if you are [ following SME ] [indiscernible]...

Is it possible to quantify?

I think, yes, it is possible. I think you can probably have a conversation with Medappa offline, Chirag. I think it should be possible.

Yes. Secondly, if I look at the stand-alone business, okay, we are closer to 20% margins now for -- on a consistent basis. Out of -- 3 out of last 5 quarters, we have been achieving closer to 20% margin. Now this is [indiscernible]...

Which 20%? Where you are talking about? I'm talking about [indiscernible]...

Stand-alone. Stand-alone.

Stand-alone, okay. Okay.

Yes. So we had done 18% plus then 19% plus and now 20%. Of the 5 -- 3 out of the last 5 quarters, we have been almost [ 18% ]...

I think last 2 quarters, Chirag, let me again clarify this has got significant price increase impact of previous years also. So please don't go by that.

Okay. Sir, second [indiscernible]...

And also to add on to this, I think in this quarter, we have also looked at critically some of the earlier provisioning and things that we had both at the supplier and customer ends and some of them, when we felt that was not required anymore, we had reversed that. So there is also an impact of that -- positive impact of that in this stand-alone as well. That is beyond the price increase, let me make it clear.

Sir, third is strategic one, on the LDC acquisition. So if you look at our past acquisitions, the Phoenix Lamps, we had some challenges over there in terms of restructuring, which is still in process. Okay? Now is this consuming management bandwidth over there? And secondly, when we look at the Wescon acquisition, we had a strategy that we can use it to expand our customer base and also cross-sell to other geographies. Some of these things haven't played out as we had yet hoped for. So how -- when we look at LDC, we have some similar explanations. So have you taken into consideration some of the learnings that we had from the vehicle acquisitions? That's not even questioning the price of acquisition because even both Wescon and Phoenix were extremely cheap acquisitions despite the delay in the strategy, it was not a drag on overall return on capital. So I'm not even questioning that. But -- my more thought processes on how we are looking at it. And in terms of management bandwidth that it consumes post the acquisition.

Good point, I think, Chirag. All I would like to say is that when we are trying to grow the business, what are -- what -- a company who has got global ambitions, we -- as we're looking at the 3 million cars in India or the 80 million cars in the world? So obviously, the answer is well known. So in that quest to acquire those markets and acquire those market shares, acquire those businesses, we take certain strategic decisions. You know very well when we are doing a due diligence, you only see the bride dressed up well, right? So without any pun, I mean it's no -- it is no offense. But it is all sort of presented in a certain way. And when we really do it, there is always some change to the practical situation there. Having said that, we also know these customers -- And these businesses have been in place for many, many years. That means they have been delivering value to over the owner or owners who had in the past. So certain things work exactly the way we look at it, certain things don't. Now in terms of the acquisition of Phoenix Lamps Division, at INR 40 crore to INR 50 crore EBITDA for the last 6, 7 years, our investment of INR 125 crores have been returned in more than one fold. So was there a challenge? Yes. Luxlite was a challenge. Yes. We've taken a call on that. But has there been a great cash generation? Yes, there has been a great cash generation. Similarly, Wescon, first 2 tiers, I have told you many times earlier. We went with the existing strategy, and then we had to change the strategy, we have to change the person -- or the people. So we did that, too. And then today, we are seeing the change of things, how the business is growing in the last -- Europe-U.S. market is growing at 3%. We are growing at 20%. That means we are getting somebody else's business. So the strategy, the timing may be different, but strategy has worked well for us. Now with LDC, is becoming a lot more transformational for us. Will there be something that is not gone exactly the way we want? It may very well be. But on an overall sense, if our intent is 80% met, I think we should be more than happy for the value that we are getting, at what price we are getting. I think we are already very much there at the best possible deal for us. But we learn with the times, right? I mean nothing is perfect in world. So we'll always get some imperfections. You have to ride over that. We have to correct it with time. And I think with the team's management bandwidth now, particularly with Jim joining who is a hard core cable guy and who is going to drive this -- having run this business, has been in that company for the last 20 years, I think it makes it much easier for us to drive this business better than what we probably have done in the past.

Next question is from the line of Deepak Lalwani from Unifi Capital.

My question was on the acquisition and CapEx. So how are we going to fund these 2 projects? And how much debt are we going to take for this?

Generally, I think we typically do something like a 50-50, Deepak, on such matters. I think the acquisition is about $40 million, $45 million, considering another maybe $5 million as an additional working capital or whatever. I think we'll go that also at a 50-50 way. They're already -- they have, in principle, a sanction in place from one of our bankers for that transaction. In terms of this, again it would be probably 50-50. I think again, that INR 125 crores, please understand, will be spread over almost 2 years, I think, by the time the building can all come up. So it is not that it's going to happen over the next 6 months. So we've just given a more directional CapEx than an actual 1-year CapEx or whatever it is. So again, that would be funded, maybe INR 50 crores, INR 60 crores of debt we might take. And we've got enough cash on the balance sheet, as you know.

Next question is a follow-up from the line of [ Shreeman Padoria ], an individual investor.

Just 1 bookkeeping question. The other income portion in this quarter was high at INR 15 crores. So was there any one-off in this quarter?

Other income, Medappa?

Basically, the ForEx fluctuation credits.

Credits. Okay.

Could you please quantify how much was that?

Other income, whatever shown there is one -- one is like ForEx fluctuation and some other income such as the [ EPP ] income and -- which is operational in nature, those things are included in that. I can give you the breakup later also.

Next question is from the line of Abhishek Jain from Dolat Capital.

Sir, how much CapEx planned for FY '22 and FY '23, including acquisition of LDC business? And how much gross block addition can happen in these 2 years after the acquisition of LDC?

In terms of gross block, exact number, I think you can come offline and maybe get some data from Medappa. But in terms of the CapEx, as I said, our [ $125 million ] CapEx domestically is over probably the next 18 months or so. And of course, the LDC acquisition at $42 million is the thing. They're the 2 CapEx that we are seeing. As you know, we have nearly INR 300-odd crores in our balance sheet. And as I just explained, I think we typically do a [ 1 is to 1 ] kind of split of our requirements between our own funds and the borrowed funds. So maybe it will increase our debt. Let's say, if you look at -- 2022, 2023, our debt probably may increase by about, I don't know, INR 75 crores, INR 80 crores or so over the next 2 years. We'll also be repaid on the existing one. Yes.

You are talking about CapEx of $125 million and $42 million?

INR 125 crores.

Okay. And $42 million?

$42 million is for the LDC acquisition. That is in dollars, sorry.

Okay. And sir, next question is Phoenix Lamp margin that is hovering in between 9% to 10%. So -- and that is because of the increase in the RF cost. So what sort of the plans do you have to take it in a [ mid-teen digit ]. Are you able to pass on the committed costs in the near term?

Mohan, will you answer this question?

Sure. Like what I said, in the aftermarket -- we are the aftermarket leaders here in India, therefore, we took that position that we will [ make ] the [ first move ]. And there was some amount of resistance in the marketplace, but we insisted that the commodity prices have gone up, and therefore, we will have to increase. After a few months later, all the other players also increased their prices. Therefore, the price parity between the competitors kind of came into the balance levels that we had earlier. So from that perspective, aftermarket we have done. Now the issue here is what we can do in the other label market, that means where we label it in other brands and give it to them, and also with the OEMs and their Tier 1s. That is the beam manufacturers. So right now, we are engaging the OEMs. We are discussing with them. And with 1 OLM we have already got a price increase also. Therefore, this is a process, but please understand that this market is not used to getting -- giving price increases, particularly in this commodity. Therefore, for the first time, we are going in front of them and talking to them, showing the numbers, telling that gas price has gone up, glass prices has gone up, [ molly ] price has gone up, Tungsten has gone up. Therefore, they are not used to it. Therefore, it will take time, but definitely, we will prevail on that.

Okay. I think it is 11:55. We will take maybe a couple of more questions, Vij. We have got another hard to stop at 12:00. So...

Definitely, sir. So we'll take our last 2 questions then, sir. Is that okay?

Yes, sure.

Our next question comes from the line of Nikhil Kale from Axis Capital.

Congrats on a good set of numbers. So just taking one of the earlier questions on the margin front. So if I look at last 4, 5 quarters on a consol basis, they've have been consistently hitting 16% margins, and in fact, even higher in a couple of quarters. Now I understand that you mentioned that there have been some pricing increases during the previous quarters, but I mean even on the cost side, there have been certain -- I mean, the income pressures have been there in [ the past few weeks they ] have not been passed on. Freight costs have gone up. So despite all these headwinds, we have been doing extremely well as a margin front. So I think in the past, we've been guiding for a margin range between 14% to 16% [indiscernible] EBITDA target is. Do you feel that now maybe structurally, the margins have gone up? And going forward with the situation turning favorable in terms of normalization of raw material prices, improvement in volumes, margins can actually further inch up and the range can maybe shift to 16% to 18%, that kind of a thing?

I think we are all optimistic Nikhil, but it doesn't happen in business. I think the moment the customers see some prices have come down, they come running to us also. So it's a 2-way street. So all I would like to say is that Suprajit has been very steady in their guidance. And we always said 14% to 16% is a doable and it is a very good margin for auto component businesses. And I think we'll continue to stick to it. I think the challenges are still not over. In fact, we just had a board meeting yesterday and some of our CXOs are all making presentations on the depth of price increases sought by some of the suppliers, particularly seen plastics, and as Mohan said, some of the PLD-related prices. They are not small, they're not 2%, 3%, 4%. The customer will give you 2%, 3%, 4% custom price increase. For example, Krypton gas has gone up by 10x, container costs have gone up by 5x. Where do you pass it on? I mean there may be some tempering of these prices. I just heard that container costs are sort of topped up. Great news, but then customer has not given it to us. So if it comes down, there may be some savings. But if it comes down a little more, they will come for a price reduction. So I think the 14% to 16% is a very good margin to aim at on a consolidated basis. That you know very well in some other businesses are not delivering that. It is being sustained by some other businesses. So on a complete basket, I think we continue to give that kind of guidance.

Okay. Okay. And just on the LDC front, I just had one question. Are there any pension liabilities given that we have employees [indiscernible]?

No, we don't have any pension liabilities from the incoming employees. No.

Okay. And just one last housekeeping question. So for the year, what is the kind of CapEx that you were looking at? We have done, I think, INR 22-odd crores for the first half. So what will we [indiscernible]...

Say that again? Repeat the question.

What would be the CapEx for the full year, FY '22?

For the current year? So what has happened is that we have reviewed the whole thing, and there will be a lot of internal discussion on the CapEx. So what we are doing is that not -- of course at the end of the year, we'll be able to tell you what is the CapEx we used this year. But we have completely reviewed for the next 18 months our requirement of CapEx, and that is at INR 125 crores.

Sir, would that be more back ended? So more of it would be [indiscernible]...

No, no, it will not be -- it will be sort of continuing because we are just starting the one major plant in Bangalore. It just started, we had the groundbreaking only recently. So it will be sort of spread over the next 18 months.

Ladies and gentlemen, we will take our last question, which is from the line of Pratik Kothari from Unique PMS.

Sir, Just one question from my side. In terms of the opportunities that you are seeing on the inorganic side in terms of acquisitions, given this LDC, I mean, are we done for a -- in the meanwhile? Or do we have much more opportunity out there?

Are we done for the meanwhile? Certainly, yes. But are we done for the rest of the -- our business career? No, I don't think so. Yes, at the moment, I think we have enough work to do, and we will be focused on this. But as you know, historically, Suprajit has always been both organic growth driven as well as acquisitive growth. So that gene is very much in projects. So it will continue. But at the moment, I think these are very important. As I said, again, I want to report -- repeat I think in 5 years down the line, if there are some investors who are that -- they are still with us today, they will know what -- how transformation this could be. So we will be completely focused on this at this moment. Thank you. And I would like to thank you all for the continued interest in Suprajit. I hope we have answered your questions reasonably well. If there's anything more that you need to know, you can always connect with Medappa to get some more data and information. And at the same time, I'd also like to thank Vijay Sarthy and his team at Anand Rathi for organizing these conference calls for us every quarter. And thank you very much, Ray, for the perfect moderation of this session. Thanks a lot, everybody.

Thank you very much, Mr. Rai. Ladies and gentlemen, on behalf of Anand Rathi Shares and Securities, that concludes today's conference call. Thank you all for joining us and you may now disconnect your lines.