Suprajit Engineering Limited (532509) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Suprajit Engineering Limited's Q3 FY '22 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers. [Operator Instructions] And there will be an opportunity to ask questions after the presentation concludes. [Operator Instructions] I would now like to hand the conference over to Mr. Vijay Sarthy from Anand Rathi Shares and Stock Brokers. Thank you, and over to you, sir.

Thanks, Janis. Good morning, all. On behalf of Anand Rathi, I welcome you all to the Q3 FY '22 Results Conference Call of Suprajit Engineering. On the management side, we have Mr. Ajith Kumar Rai, the Founder and Chairman; Mr. N.S. Mohan, MD and Group CEO; Mr. Akhilesh Rai, Director and Chief Strategy Officer; and Mr. Medappa Gowda, the CFO and Company Secretary. As always, we will have initial info about -- initial review about the current quarter, and then we will follow it up with Q&A session. Over to you, Mr. Ajith.

Yes. Good morning, everybody. Thank you for joining us for our Q3 results con call. I, first of all, thank Anand Rathi and Vijay for organizing this call. I would like to request our team to make a short brief on their respective areas. Mohan, Akhilesh Rai as well as Medappa will have -- will cover some of the areas of our Q3 and YTD performance. And then I'll have a brief chat. And with that, we'll start the question and answer. With that, I'll hand over to Mohan to start the first part of the discussion. Thank you, Mohan. Go ahead, Mohan. Sorry.

Yes. Thank you. Very good morning, everybody. Well, before I get into any kind of details, it's pretty obvious and bring us to notice that this was a difficult quarter for us. Now it compounded with that we are comparing it with the same quarter last year, which had witnessed a sharp V-shaped recovery with all the pent-up demand that was clearly visible last year. And against that, this year, the third quarter faced both demand and supply challenges. The demand in 2-wheeler industry was tepid primarily due to dropped rural and urban demands, specifically in the entry-level segments. I think, personally, I feel that it is more due to the EV uncertainty on the horizon, so people are not yet ready to put their foot forward to go and buy an ICE engine. But we don't know. Let's hope it's not so. Premium segments got affected primarily due to chip shortages. Globally, the chip shortages are still being experienced both in Europe and U.S., while demand looks to be pretty healthy. Overall, if I can comment, the commodity prices were not benign. The container and the shipping issues are continuing, and it continues to haunt us. So now with this, let me get into the specific sector. So as usual, what I will do is I will cover each one of the divisions that we have. I'll start with the Domestic Cable Division. Our performance here was reasonably good, and very specifically, we did an excellent performance. We have excellent performance in our aftermarket segment. We have been able to pass on the material cost increases, albeit, as usual, with that kind of a lag, which generally happens because you have to go through these new negotiations and convincing exercises with the OEMs. So we have been able to be reasonably good on that front. Our Narasapura project and also our consolidation of the aftermarket operations plan, both these projects are under progress, and it's going on at a good pace. Moving on to our Phoenix Lamps Division. This is where we experienced some strong headwinds. Now this happened primarily on the account of severe cost pressure, be it [ moly ], tungsten, glass or the gases like krypton, everything kind of shut up. While we could have gone in for a price increase in the aftermarket being the market leader, which we did earlier months, here, this time, we took a conscious decision not to as this was going through what we call it as the aftermarket scheme period, where the -- all the shelves are being populated by our product. And any price instability at this point in time can drop the market and basically attack the market shares. Therefore, we did not want to do that. Similarly, on another front, with one of the OLMs, we have not been able to revisit the prices as we have had a fixed price contract. However, this will be addressed when it comes up for a review. The good news, however, is at the OEMs, we did manage to get the price increases. This was a tough exercise, but I think we were successful there. But you have to note that in the overall scheme of things, the OEMs content is lower. Our aftermarket clocked a very smart growth, and the drop in solution of LED has been accepted very well in the aftermarket. Trifa and Luxlite continues to be a challenge with severe COVID restrictions in Europe as well. From PLD, if I can move on to the Non-automotive segment, here, we have had the growth as planned. And also, we have been able to pass on the cost increases. The resistance levels were more because they are not used to this much. However, the team did a great job, in my opinion. And many of the increases kicked in from January of this year. Therefore, we have been successful in passing on the cost increases there. On the automotive exports front, while the schedules from one of the major OEMs is getting more and more stable, the other one continues to show volatility. Apparently, the reason is supposed to be [indiscernible], but that's what we come to understand. While overall we do have a growth, the uphill task of ensuring that price increases are getting passed on to the customer, I think that continues. However, we will continue to push for the price revisions and claw back on the cost increases. And we have already placed the request in front of these OEMs. Container costs and shipping costs are yet to get under control, and the gain is pretty high, I would say. Moving on to the last part, our technology center. Our STC, or the Suprajit Technology Centre, continues to get us some good commercially exciting products, particularly in the areas of instrument clusters, electronic throttle controls, combi braking system, parking brake handles and gearbox for seeding mechanism. And in these kind of things, I think we have started getting good traction. We are aggressively demonstrating in the marketplace, both at the OEM level and otherwise. And we have got a very good positive responses both from established players and also tremendous interest from the new players, very specifically the EV players. Therefore, all in all, I would say that our investment in the STC will start paying off as we go forward in the Suprajit story. With this, I end and hand it over. Thank you.

Thank you, Mohan. Akhilesh, will you give you a -- are you on? Will you give a brief on LDC?

Yes, I'm here.

Okay, good. Go ahead.

Okay. I keep my update short regarding the LDC acquisition. Things are going well with the various work streams, and the Suprajit teams are working globally to make sure the integration process works smoothly and LDC becomes a strong part of Suprajit going forward. That being said, even though we've got all the specific legal and regulatory things in place, we still had a slight delay in some of the operational carve-outs specifically due to some COVID-related issues at LDC. Suprajit had an option of wavering this as a condition precedent, or a CP, for closure, but we've decided that we prefer that all these carve-outs are completed before the closing date. So this means that we're looking at a few weeks delay in closure probably in April, but the date has not been fixed yet. But that's the only update from LDC. Back to you.

Thank you. Thank you, Akhilesh. Medappa, will you give you a quick update on the numbers?

Yes. Thank you, sir. Good morning, everyone. We announced the financial results for the quarter and 9 months ended December 2021. The results are not exactly comparable for the corresponding period of previous year due to COVID scenarios. The consolidated revenue for 9 months ended December 2021 was INR 1,335 crores as against INR 1,128 crores, recording a growth of 18%. The consolidated operational EBITDA for the 9 months ended December 2021 was INR 190 crores as against INR 155 crores, recording a growth 23%. The stand-alone revenue for the 9 months ended December 2021 was INR 915 crores as against INR 766 crores for the corresponding period of previous year, recording a growth of 20%. The stand-alone operational EBITDA for the 9 months ended December 2021 was INR 157 crores as against INR 122 crores for the corresponding period with a growth of 29%. We are also happy to inform that the overall group debt level has reduced to INR 291 crores as against INR 327 crores as on March 2021. Further query session, you can approach me any time even after this investor call. Thank you.

Thank you, Medappa. I will quickly give a quick sum-up before I let you all ask questions. I think the Q3 is, how do I say, I would say that it's kind of a disrupting quarter for us. The reasoning being simple, I think the first round of price increases, both at the vendor and from the customers, they're all fairly well done by September. Whereas in the third quarter, there were continued price impacts, whereas we were forced to give some of the price increases to most of the suppliers, whereas the reciprocal from the customers had not happened. It is being done. It will happen. So in a sense, the Q3 numbers are somewhat skewed because of their one-sided impact. However, what's more important is to see that overall, I think that for the 9-month period, we'll give a more appropriate and correct view of how the company is performing. As you would see that, in fact, even our EBITDA margin on a YTD basis has improved as well as our overall growth, which has been at about 18%, 19%, is almost double that of the automotive growth in India, which is at about 8%. So on a YTD basis, you would note that it is in line with the guidance the company has given that has been for quite a few years now. We are very well consistent within that range. The last part is about the Q4 performance. We expect Q4 to be reasonable. The challenges from chip shortage, challenges of certain customers changing their schedules continues to be there. We expect the chip shortage issue is still going to be there for another 6, 9, 12 months, I think. It may not be as intense as it is seen, but it will continue to be there disrupting operations across the world. However, we expect Q4 to be fine, and we will end up the year in line with our guidance that we have always given. So overall, I think we feel that everything is under control so far. So thank you very much. With that, I will let the moderator to take over and let the questions to start. Thank you very much. Over to you, moderator.

[Operator Instructions] The first question is from the line of Mumuksh Mandlesha from Emkay Global.

Yes. Sir, I just want to understand, can you indicate how many cables are required in a scooter versus a motorcycle? And also, how is it different in an electric scooter?

Mohan, will you answer that question?

Yes, sure. Now between scooter and motorcycle is the first question. So I will handle it, and then I will conclude with EV. Now between motorcycle and scooter, motorcycles, again, has got 2 segments within that: the one with ABS and one without ABS. That means depending upon the engine size. So in those entry-level segments, the number of cables are higher because you have also the braking cables coming in. Whereas when you go to ABS, the number of cables comes down in a motorcycle. In scooter, by and large, comparatively, I would say, on a ballpark number, it will be similar kind, so there is not much of a change. In scooter, there will be additionally a C+ cable. So to that extent, that makes the change. Now moving over to EV. EV world is completely -- slightly different animal. Therefore, to that extent, it changes where the number of cable gets reduced.

Is it possible to quantify what kind of a reduction would be then for -- in EV segment?

It again depends in the sense that how the customer is designing the product. For example, if they go from ABS, for example, in the product, then the cables will be less to that extent. If it is a regular drum-run vehicle, then again, the cables will continue to be there. Where the challenge has come is in probably the throttle, where purely because of EV, if you look at it, the throttle control can be electronic. That's why, as we have said earlier, electronic throttle is one of our products which is getting launched. And in fact, we have got some commercial of business as well indeed from some of the EV guys. So that one cable certainly comes down. So I would say, overall, there is a reduction, but the numbers depend from product to product actually.

Sir, what would be the major customers in EV space, sir?

Again, Mohan, will you answer generally what are all the customers you are currently dealing with?

Sure. Can you hear me?

Yes.

Yes. In EV, we have -- we are supplying to Hero Electric. And we are in discussions with quite many others. But majorly, I would say that our products are readily going into Hero Electric. Other than Hero Electric, we are also in discussions with people like Ola or Okinawa, these kind of people. Then just the established players like Bajaj or, let us say, TVS iQube, we are already supplying.

Right, sir. Sir, just a question. In this quarter, was there any impact of the acquisition in the numbers, sir?

Sorry?

In this quarter, was there any impact on EBITDA level because of the acquisition?

The only -- I mean the acquisition is not complete, as Akhilesh just stated to you. But then the cost related to the acquisition is -- since the other entities of LDC will be held by Suprajit U.S., about $1 million worth of expenses are booked in the Suprajit U.S., which you will see in the consolidated in the other income. It would be an additional expenditure for the quarter.

So it happened in Q3, right?

In Q3, correct?

The next question is from the line of [ Ranjan ] from [ ICICI Mutual Fund ].

A couple of things on margin front. So how do we look at the Lamps division margin because that is broadly we are more into the aftermarket? So what is driving the margin down there? And it has been very volatile since last 5, 6 quarters, if you look at. And secondly, on SENA, as you mentioned that there, probably the cost pass-through has not yet happened, right?

Yes.

So can you just explain the margin?

SENA, I think margin has been fairly steady. I think there has been no issues there. I think for the quarter, that's same thing, but if you look at the YTD, it's in a similar level. And I think it will also recover quite well. As I just explained, I put $1 million of additional expenses sitting on Suprajit U.S. for the quarter in relation -- which is connected with the acquisition cost. On PLD exactly, Mohan has explained, but I'll ask him to again explain on the PLD margin.

Sure. See, on PLD, it's like what I said, there have been huge cost pressures. And obviously, the question then, the ability to pass on that cost to your consumer or your customer. Now here, there were 2 portions here. One portion is a conscious decision that we have taken, not to pass on the cost increases. The reason is very simple, because we were going through what we call the aftermarket scheme. And aftermarket scheme generally runs from August 15 to January 26. So there, from Phoenix, what we do is we try to push the products into the market. Therefore, they are all sitting on the shelves. And we literally blocked the competition to get in here. Therefore, it's chockablock. The market is chockablock with our product. So this is what we do every year. And in this time period, if we go and think around with the price, it can have different kinds of effects. And one of them could be loss of market share. So the question was do we want to take that or not. We took a conscious decision not to. Therefore, can we go and increase the price? The answer is yes because we are the leaders -- the market leaders. And we have shown our leadership position by increasing the market prices last time. So we were just waiting from the scheme period over. The other portion was with one of the other label manufacturers or OLM, as we call it, the segment, where we have fixed price contracts. So here, we could not go and touch the prices. Therefore, we were constrained here. One was conscious, and other was constraint.

To add to that, I think the second part of it, the fixed price will get over pretty soon, so I think we'll be able to get the price adjustment done. Whereas with the OEMs, we have been able to get price increases. But so you must realize that the aftermarket business in PLD is about 70%. So that is one of the main deals that we're waiting. And I think now we have the time -- we have -- my process of finalizing the price increases in the market. So it will effectively come into picture from the next year just to complete the point.

Okay. And in terms of the cost inflation or the commodity inflation, how much is it helping in our top line as of now? Because if we are hitting...

I see. Okay. Yes. But difficult actually because different divisions, different places are at different levels. I would say on the top line, it may have, this is a ballpark number, maybe 5%, 6% -- 5% maybe, 6% probably at best.

Okay. And in terms of the demand outlook, I mean, any improvement you are seeing from the OEM side because on the ground, it's not fully visible at least in the 2-wheeler side? So what's your thought on that?

I agree with you. I think we also believe the same. The 2-wheeler entry-level segment, that is a 100cc up to 125cc segment, is undergoing a severe headwind in terms of the market volumes. I think that is where some of the leading 2-wheeler manufacturers also have dropped significantly the volumes of manufacturing. We don't think that the headwind will go away. I think it's going to be there for some time until the entire economy really picks up from the rural market side, that's there. The reasoning is simple. I think also the aspirational issues of people, historically, 25 years ago when 2-wheeler became a rage and everybody was in the 100cc bike, the rage was to go from a cycle or a motorcycle. Now I think the aspirations are going from not 100cc or 125cc but to go for a higher-end bike. So I think that is the kind of, I think, market shift along with the market economies in the grassroot level is affecting the thing. So I think it is not transitory. I think there is going to be a little bit of stickiness in this, according to me, personally. I hope it is not so, but that's what we think. Having said that, I think overall volumes also has come down in the sense that I think 2-wheeler numbers are probably -- this year would be something like a 10-year low, as we have mentioned. I think it is so everywhere. Even China went through a huge volume, and then the volumes came down in the last 5, 6, 7 years. I think we are also going through the same process, but what is good for us and give a little more perspective to it is that, come next year, when the LDC closure happens, 2-wheeler business will be only 20% of our business from what it was 95% 10 years ago. So we'll be a little less impacted by all these market dynamics, but yes, I think the markets are weak for the 2-wheeler particularly at the entry level.

And one thing on LDC. So the moment you get the entire acquisition that was done, so what is your game plan? Is it, I mean, you want to transfer the production to India or you want to keep it there? How is it...

I think more at a philosophical level to answer, I think so far, Suprajit was made in India, made for the world. I think now that works pretty well all these years in our growth strategies. And we had our warehouses in various parts of the world, and we deliver to our customers from the respective warehouse. Still we're able to do just-in-time, time of the day kind of situation. But the COVID has changed the psyche of customers significantly. They want to have a lot more local manufacturing even at a cost simply because these -- today, one of the biggest challenges, container shortages, shipment delays, port conditions, it is all scaring the customer. So I think this LDC is a perfect fit with that kind of an outlook from the customers. So we are able to now offer customers in North America from Mexico, European customers from Hungary or Chinese customers from China, things made in India. I think that will give you a lot of comfort with a strong manufacturing base in India as well, where true volumes can still be made with the cost effectiveness. So the strategies are slightly changing in line with the customer base. I think that's going to be a big win-win for Suprajit in the next 5 years.

The next question is from the line of Jeetendra Khatri from Tata Mutual Fund.

Sir, I wanted to ask you, when you're targeting the e-throttle for Okinawa and others, so are you having the same margins there, the general ones you make? And secondly, so is it that currently the OEMs are doing it in-house or you are [ gaining ] someone's market share? How is it working there?

No, this product is a fairly -- it's a new product in this segment. So customer is not making it. It's the suppliers who were supplying this to them. In terms of margins, we believe it's a very good margin product. In fact, we get pretty excited. It's also -- in addition to the margin, it adds to the value of the -- our market wallet in the 2-wheeler industry. In fact, our -- today, with the STC working and some really wonderful products for the 2-wheeler as well as other industries. In next 3 to 5 years, we believe that our wallet share in 2-wheeler manufacturers will be what it -- will be much more than what it is today, which is only the case. I think that's how we look at it.

Okay. And sir, are you saying the 2-wheeler OEMs showing [ asset ] flexibility in outsourcing as you see the ICE engine ones doing historically?

Sorry, I didn't get the question.

I'm saying that are they as much willing to outsource to suppliers or just curious, you say, a Bajaj, TVS, will do? Or because of the electronics involved, you see them doing more in-house. Just trying to understand, yes.

Today, basically, at least the manufacturers are referring to outsource as much as possible. In-sourcing actually adds to their overheads a lot more. Finding efficient supplier is the issue. So I think that's what they are trying to do.

Okay. So the outsourcing trend is still there?

Very much there. Very much there, yes.

[Operator Instructions] The next question is from the line of Chirag Shah from Edelweiss.

Sir, my first question is on the raw material and its sourcing. So do you source...

Can you please repeat? I can't hear you.

I hope I'm audible now.

Yes.

Sorry for this trouble. Sir, the first question on raw material sourcing, which is really -- are the spot rate or the contracted rate are [ working ] for you? If you can help us understand that.

Yes. It is the contracted rate most of the time. But the contract, although this is a time line, if there is a significant increase just as we go to the customer, the supplier comes to us. So -- but on -- I would say only in steel, it is to some extent spot because that rates fluctuate quite a bit, which are also about 40%, 50% of our input in terms of our products, which is fairly thought every month, every 2 months, they come for a discussion, negotiation. But as the rest of it generally is a contract.

Yes. So I presume [indiscernible] you are talking PLD division, right?

PLD doesn't have much of a steel requirement. There are all components which are also gases. Gases are also spot, which is a humongous cost. So yes, there is also both spot and contract combination.

Yes. So sir, the question I wanted to understand is that to the extent when you look at the pass-through of costs, so is it right to assume that large part of the cost has been dropped and is it more about pass-through, which is less? Or given the nature of contracts that you have, the actual impact of the jump in prices yet to come in your own cost sheet because of the contracted prices that you are working with?

Yes. The contracted price also, Chirag, even though it's been a contracted price, let's say, with a supplier that we finalized price for the annualized basis, if the price increase is too hot for any comes running and if you don't give me starts choking the supply. So the contracted price is more on paper, really speaking, I would say. Spot rates, of course, keep going on up. To me, I think in terms of our own impact on our input cost, I think they've all been absorbed. It's fully, whereas in terms of customer relief for it is not fully. That's what has been seen in the Q3, actually.

What was the under recovery and how should I indicate? Is it 200 to 400 bps? Or it is more than that?

The reason for -- it's probably more, but the reason for us not to be able to give you a percentage is because negotiation is always difficult to say where it will end. We are asking for the 7%, 8%, and customers start with 2%, 3%. And we come to somewhere in between after a lot of discussions and negotiations. So it's difficult to say. Suffice to say that if you sort of normalize everything, I think we have been able to mostly manage domestic price increases. Global price increases, particularly automotive exports, it is not normalized. We are still starting the discussion with the customer. So except there, I think generally, we are able to manage. PLD, we are still in discussion particularly we have got some contracted prices which when it comes for a negotiation, we need to see what we will get the price increases. So there is a little bit of a question mark. But it's an ongoing exercise. I mean, an overall basket, when we say we'll operate in 14% to 16% EBITDA margin. We are still confident to say, despite last 1 year of -- to continue to see that we'll work in that operating margin. That's what our understanding of the overall current book is concerned.

And sir [indiscernible] question was, last quarter, we were relatively confident that [indiscernible] on the cost sheet side and the pass-through will happen and business should normalize at least going ahead but recently got postponed another quarter or 2.

No, I think the -- so yes, you probably are right, Chirag, on that. I think the issue was we went to [ customers ] already twice in the last 12 months, either second, third time we are going. So there has been some amount of, I would say, clipping on this. So to that extent, I think we could not complete everything in December. But knowing what has happened subsequently in January and February, we are confident to say that we are able to recover quite a few of that maybe probably to some extent...

The second question was on throttle control unit. Can you comment on that? You indicated you are working on a throttle control unit as a replacement to throttle cable.

Yes.

Did I hear it right? So what...

It is a replacement for the throttle cable. I'll ask Mohan to probably elaborate a little bit on.

Yes. So the follow-up on that is, what exactly is that product? And when do you expect to launch it? What exactly is that product? And when we expect to launch it?

Okay. Yes. Mohan?

Sure. Well, you see when you want to accelerate, you already have this to your right side a kind of a grip which you are going to twist, and that's going to pull a cable in an ICE engine. And that either goes through an electronic throttle control -- sorry, electronic fuel injection equipment or an electronic carburetor. Okay, now that gets replaced here. In throttle, what we are having is, it is a completely IP65 or IP68 level, that it's completely environment-protected device, which has got a kind of a sensor inside, which is going to sense the amount of twist that you are going to give. That twist is going to send a signal to the either electronic fuel injection equipment or to a motor control unit. [indiscernible] motor control unit. So this is what we are doing. But what is interesting in our model, as Suprajit what we have brought out, is some, I would say, added features, like how can you do a reverse. Even by chance due to the mistake also, we should not be -- if we just twist it the other way around, it should not get it to reverse. So there will be a locking mechanism. These are the kind of things. And also a lot of, I would say, ICE protection inside. So that is what is making our product more unique.

Sir, when do we expect to launch it? So is it in the trial runs or test runs? Or when can we expect and how realization move? Because throttle cable is generally a high-priced product in the cable family. So will the realization be more? And bought out versus manufacturing, how is that will be -- there is a good amount of bought-out component in this in the initial phase?

Well, it didn't have a sensor. Since it has a sensor, it has to be -- a part of that would have to be bought out. We have our own injection molding done in-house. Therefore, that continues to be made in-house, and we will do the assembly here ourselves. But what is more important is the patent that we are going to hold on it which is going to bring us some ICE protections, I would say.

And to add to that, I think, Chirag, the throttle -- this electronic throttle control that we are talking about is a much higher price than the cable. It is not that 2, 3, 4x. It's much more than that in terms of the price per product. So although throttle cable is higher priced, but I think this product is much, much higher priced. So as I said in my statement, in 3 to 5 years' time, we believe that we'll have a higher wallet share of 2-wheeler as far as Suprajit is concerned.

And that it would be helpful at some point, so can you also indicate are there...

[Operator Instructions]

I can't hear you.

So small request, it's more -- indicate more about similar other products that we are working on and the kind of journey you are trying to achieve in including the content in the 2-wheelers space, it would be helpful.

Yes, sure. I think that Mohan will do that. I think in the last -- I think Q2, I think we have given a list of products that we are working on from the STC, where a lot of commercial work is there. And also, we had sort of made a statement that we have got an order worth INR 100 crores from those new products that Suprajit Technology Centre has done. Please have a look at it. And I still would like Mohan to probably brief on the products and type of stuff that we are doing at STC.

So sir Mohan, when do we expect this contribution from the throttle unit? When can we expect it to [ bring ] in the P&L?

Well, it will all depend upon the kind of ramp-up that we are looking at with the customers. Right now, we have already submitted the samples. We have fitted it out to their vehicles, who are very extensive clients. Therefore, once the overall product betting has been done, then we get into the mainstream production. So in terms of time line, it is not dependent on how fast our customers can move ahead and get some homologation in case it is needed done at their end as a vehicle.

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

Sir, just a clarification on the LDC acquisition. So this USD 1 million is a onetime cost? Or is it going to recur?

It's a onetime cost for the due diligences, legal counsels, and we operate it out of 5 countries on due diligence. So in the cost, it will be onetime. And it is not complete. I must answer that because still closure and a little after that, there'll be still some costs coming in. Once it is done, I think probably, I would say, March, April would be the last. But most of the expenditure has been booked in, but I think there will be some more to come. But it will be onetime, yes.

Got it, sir. So for Q4, should we build in any costs related to this? Or...

We have, of course, built some costs ongoing on this, but I mean, we can't quantify it now that we are still halfway through the closure. So it won't be anything near to that $1 million that I mentioned.

Okay. Got it. And sir, since you mentioned that 70% in the Phoenix division is still tending to take a price hike, and even in the international OEM business, we need to take a price hike. So is the assumption of Q4 being on the lower side of the margin, like 14%, is it a fair assumption?

Still, we are still in discussion with the customers. It's very difficult to say where we'll end up. It's very difficult also to give a very clear commentary on a quarter and a quarter simply because sometimes the timing, particularly in the automotive industry is different when the impact happens, when the pass-through happens. So that's what has been the effect of Q3. But I think Q4 would be better. But if you say what is the percentage, I don't want to say because it's difficult to say. But all I want to say is that on an YTD basis or even at the year-end basis, the guideline or guidance that we have given in the beginning of the year that we'll operate between 14% to 16% on a consolidated basis, EBITDA operational margin and a growth of 5% to 10% more than in automotive growth, this is our stated position on both margin and top line. I think that will perfectly hold as I see it.

Understood, sir. And sir, on the new products which we are doing in the STC division, what will be the margin profile there?

Again, some of them have gone into production. I think we have -- I would say that it would continue to -- all I would say that it will continue -- Mohan, would you like to make a comment? But my view is that the products are -- some of them have been launched. Some of them are yet to be launched. So the commercial terms are under discussion. So it's a very difficult question. Maybe 2 quarters down the line, we may be able to answer it better. But our view is that some of these products have excellent margins. In fact, some of the products that we recently finalized, for example, a fairly large project for the next 2, 3 years' time for North and South American market, I think where the margins are phenomenally good. So some may be exceptionally good, some may be not that great. But as a basket, I would think that the idea of setting up STC is to come out with products which are proprietary in nature, which would be patented, too, so that we will have ability to price the product as we want or to the best of our ability. So that would mean that they are all basically decent, good margin products.

Got it, sir. And sir, last question from my side. So the Phoenix Lamps Division, it hasn't performed after we have restructured it and after you've taken more steps 3 quarters back. So do you think more and more spending on the restructuring side and some processes need to be tightened up even further to show performance in this division?

I think the performance improvement or enhancement is an ongoing process. I would say that it is not only in PLD division. It happens now on all divisions. PLD has been a special case simply because, of course, now we are in the seventh year of acquisition. As we stated in the beginning, after 5 years, it will be more and more LED, and that's what we are seeing. The growth will have certain challenges, but the idea is to see how best we will keep our market leadership in the aftermarket where we could price the product. As Mohan explained right now, I think one of the reasons has been that we decided not to do it due to certain specific business reasons. But the point is that it will continue to generate cash. It will continue to generate margin. Whether the margin will go up or down by a couple of percentage points, I think that may happen in PLD. But our idea is to make sure that we continue to keep the market position, so that at some point when the capacity is vanished across the world, we'll again have the marketing and the pricing power, which would help us to bring back and claw back the margins. It is a journey of highly competitive position. I think we are doing well. All I can say is that most of our competitors are bleeding in this market, whereas we are still generating cash.

The next question is from the line of [ Akshita Mehta ] from [indiscernible] Asset Management.

I have couple of questions. One, on the acquisition of the Kongsberg Automotive, so what kind of synergies are we expecting from this acquisition? What kind of EBITDA addition are we expecting?

Mohan, will you -- I think I'll say that, as I think we mentioned in the last call about the EBITDA margin, I think we are operating at about 8%, 9% EBITDA. Hopefully, once you get in and get a full hand of it with them, they are also having a much higher overage today an MNC like them is structured. So we're expecting to get some improvement on that. That is as far as the margin point. And on synergies, Mohan, would you like to comment?

Sure. Basically, it has got 2 types of synergies. One synergy obviously is the geography synergy, where we will get manufacturing footprint across -- because in the automotive segment, we don't have it in the North America, therefore, we get the manufacturing footprint there. We get a manufacturing footprint in Europe, in Hungary, which is a low-cost country within Europe, I would say, and also into China. Therefore, there is a geographical synergy. Second is, there is a product synergy, product synergy in the sense that we will be able to expand our market both in terms of automotive and non-automotive. And more importantly, there are certain segments of the product which we are not yet into, which is going to be brought into this table. I think to that extent, it helps us. These are the critical synergies that we will be getting.

So will it be possible to throw some light on the products that are -- you are not yet into granular planning to get into?

Mohan?

Yes. No. Akhilesh, you want to answer?

Yes, sure. So I mean, if you look at the background well, you see they are basically into sleeving actuation systems. So they have a cable-based system, and it attaches to a kind of a motorized actuation system. This is something that is not done to a big extent even in India. So if you look at synergies, bringing that technology to India is also another very interesting opportunity. But we were also not in the sleeving cable business to a large extent. We're very small in that space. We were more in the cables that go into your fuel lid opening or [ foot release ] for parking brakes. We were not able to sleeve in cable mechanical systems, which they are big players, and they're probably the biggest in the world for that specific cable product. And that's what we will be -- a big product that we're going to be capturing with it. In addition, in terms of technology, a lot of the technology is that the [indiscernible] and are very focused to be a global player. And we have -- we will be getting a global customer base both from LDC and, of course, with Wescon and our current global footprint. So this brings a very good synergy where we can bring a lot of new products to new markets and the agenda of made in India.

Right. So can we assume that most of the new products will be in the 2-wheeler segment because we are planning to increase the wallet share in that segment?

No. Can you answer it? Yes.

Yes. LDC has got very minimal 2-wheeler exposure. They're in automotive. They are mainly bigger in the passenger vehicle side. So LDC, you can't look at the 2-wheeler. 2-wheeler is mainly in our Domestic Cable Division is the main supplier to 2-wheelers. And that's where all these clusters and throttle and all that coming. These global markets, we would look at things like actuation systems. You look at these -- like these systems that you've talked about from tech center which is focused on everything from precision agriculture to power sports, to all these other industries. But LDC doesn't have a big 2-wheeler customer base. They mainly supply to Honda in China. And of course, we have -- we are one of the key suppliers of Honda in India as well, so we will become a globally a very important supplier to Honda 2-wheelers as well. So I hope that answers your question.

Yes, yes. Okay. So my next question is on the cost situation and the chip shortages. So what is your outlook? How long is it now going to continue? And what is going to be the effect on demand?

I just answered that question to somebody else, but I'll ask -- let's hear Mohan, our Managing Director, on the same.

Well, on the chip shortage, at least from what I have been hearing from the industry sources, is going to continue because it has got multiple dimensions to it. It's a capacity issue, number one. It's a capacity allotment issue, number two. And also, it is a technology issue because what bakes into the automotive industry is a specific technology which is slightly outdated, therefore, probably the industry is not ready to invest into the capacity there. Therefore, it's a multidimensional issue. Is it going to go away soon? The answer, I don't think so. But will it? Of course, it has to stabilize over time. Somebody has to see that there is an opportunity here.

Okay, okay. And my last question would be on the throttle control unit. So by when do we -- when can we expect to capitalize on this opportunity? Or when can we expect these products in the market?

Mohan?

Yes, I just explained it. We have already submitted the sample, and it is undergoing testing with the OEMs. And it probably will have to go in certain areas with homologation at the vehicle level. Therefore, once that gets done, we are ready to go. As far as we are concerned, we are ready. From a product perspective, we are ready. From a process perspective, we are ready.

Can we expect in the second quarter of FY '23 or something?

I think it's a good -- it's a fair chance to say that, yes.

We will take the next question from the line of [ Rakesh Jain ] from Axis Capital.

Sir, I just want to harp on the margins, which you had impact -- said. So can you tell us like what was the margin impact due to the price hike you give to the suppliers and for which you are yet to receive the compensation? And on a similar line, the question is, what is your gross margin impact on different business levels, for example, auto, non-auto, cables and lamps, et cetera? If you can highlight that, too.

I think the second part, I think you probably can talk to Medappa off-line. It's differently affected, so I don't have the numbers with us right now. But overall things that in terms of the net impact for the quarter probably was about 4%, 5%, I would say, because what has happened in this quarter was we had to give the price increases to suppliers beginning and as the quarter went by. Whereas we had just finalized the price increase with customers probably, I think, in anywhere from July, August, September. So we're sort of vacant for a month or 2 because this is the third time we are going through the customer price increase. So it's -- there's so much pressure from them. So we sort of -- we've delayed it a little bit. So the impact of that, whatever few percentage points, would happen in Q4. And we expect that most of it will be given by the customers. So there will be a timing effect. I think that's what has happened.

So is it -- sir, out of the 4%, 5%, is that equally divided between the domestic and the export market? Or it's more driven on the export side right now?

No, I'm talking about more the domestic, let's say, division, whereas in exports, I think an automotive, it's a contracted price. You don't really get price increase as well as what is the advantage happening now off lately that we are also launching a new product which has been won by us. So they are all at the current prices. Having said that, I think as Mohan explained earlier, the 2, 3 or 4 mega customers we have gone back, described a hedge contract in that we need a price increase. We have not said no. They're asking us to keep coming back with more details. We are providing them. So we will know probably in this quarter whether we'll be able to get that impact or not. Whereas in the non-automotive, I think most of the places we have been able to pass on the price increases, generally speaking. And that's why the largely, on a YTD basis, they're generally similar. And as Mohan explained on the aftermarket, PLD, we consciously delayed the price increase, which we'll be doing now. And with 1 major customer, there's a contract in price, which goes to another 3, 4, 5 months. Only then we can get it. That's why you see a little more intense price impact at the PLD, yes.

Sure. Sir, next question, you have indicated a lot of new products, e-throttle and everything. So how do you see your CapEx moving forward for this year and for next year?

As we said, I think, in the last release, [ Rakesh ], I think we mentioned about INR 125 crores investment for the current and the next year. Well, these are dynamic situation, as you rightly said. We are seeing which one gets commercialized first and which one gets launched and where the full is there. So we will go through another iteration during the course of probably year-end or whatever it is depending upon the position. So that INR 125 crores, will it go up a little bit? Possible, but at the moment, we are sticking to that as our CapEx for current year and next year.

And one final question I had on the export cable market. What is your current quarterly run rate? And how are you seeing the growth over there?

Yes, you are talking the automotive sales, yes. Okay. Automotive, okay, let me give a world perspective on automotive. Actually, the automotive volumes have shrunk last calendar year -- the '22 calendar year by 10%. And the '21 calendar year had a 10% drop. That means merely, we are off by 15%, 18%, 19% from the 2019 levels in the global car automotive market. Every customer has been affected, and so have we been. So although we are showing a decent growth in the automotive division that is between SAL and SEU, the growth is good. But actually, we were expecting a much higher growth. That growth momentum has come down because of the volumes have come down. So both major customers, whether it is Volkswagen, Nissan or BMW, all of them have cut the volumes. And they are saying that from April, May, things will be a lot more normal. That would mean that next year could be a very good year for exports. But again, as Mohan said, chip shortage is not going to go away that fast for some time.

So I believe that the non-auto part is still growing better than the auto part right now.

Yes. We have seen that [indiscernible] number, if you see SENA has grown much better than others.

Okay. And you can continue growing that for next several quarters?

At the moment, that's how it looks. But yes, I think it looks fine.

We take the last question from the line of Abhishek Jain from Dolat Capital.

Sir, are you looking to launch digital speedometers under STC?

Yes, of course. I think Mohan, will you give our key products for the next few years, but...

Yes, the answer is definitely, yes. And just to give some more color on to it, we are going on a platform-based approach where we have what we call a Supra 1.0, Supra 2.0, Supra 2.5. They're our different levels of technology versions of instrument clusters, which are more geared towards a 2-wheeler segment. Therefore, this is what we are focusing on.

And to add to it that we have won new contracts, and we have started even deliveries to a couple of customers. And it will start accelerating in the next 2, 3 quarters.

So there's a strong opportunity size because of that there's a strong demand for 2-wheelers and the single scooter of these products. So have you started supply to some domestic OEMs?

For domestic people only we're talking. I don't want to mention names because these are very competitive and sensitive subject to disclose the customers at this moment. We are in discussion with multiple customers, OEMs. And of course, quite a few of them are also EV customers. So that's why I said in the next 2, 3 quarters, you will hear more and more about digital clusters from Suprajit.

And what would be the content per vehicle of these particular product?

It depends upon assets. As Mohan said, there's a Supra 1.0, which is a basic model, 2.0 is a next level, and 2.5 is the highest end that the customer will require. The price point will be anywhere from INR 500, INR 600, INR 700 up to INR 2,000. Am I right, Mohan, in general, giving the number?

Yes, ballpark, yes, correct.

So you are supplying only the cable? Or...

All our cables, the digital speedometers. Cables, of course, is a different matter. Okay. Thank you very much. I think moderator, we will call it a day now, I think. Thank you very much.

Yes, sir.

I'll just say that thank you very much for your continued interest. If there is any further information any of you need, please contact Medappa, our CFO, for additional information. I appreciate your continued interest in Suprajit, and thank you very much for joining our call. I hand over to the moderator and thank Anand Rathi and Vijay, again, for this wonderful opportunity to exchange our views with our investors. Thank you very much.

Thank you very much. On behalf of Anand Rathi Shares and Stock Brokers, that concludes this conference. Thank you all for joining. You may now disconnect your lines.