Suprajit Engineering Limited (532509) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Suprajit Engineering Limited Q2 FY '24 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. Mumuksh Mandlesha from Anand Rathi Shares and Stock Brokers. Thank you, and over to you, sir. Ladies and gentlemen, the line for Mr. Mandlesha has got disconnected. Please stay connected while we try to reconnect him. Ladies and gentlemen, thank you for patiently holding. We now have the line for Mr. Mandlesha reconnected. Sir, you may please proceed.

Yes. Thanks, Lijin. Happy Dhanteras and Diwali festive. Cheers to the management and participants. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Suprajit Engineering Q2 FY '24 Conference Call. I thank the management for taking time out for this call. From 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 the Chief Strategy Officer; and Mr. Medappa Gowda, the CFO and Company Secretary. I request, Ajith sir, to give an introduction review about the results and then we can follow up with the Q&A session. Over to you, sir.

Yes. Good morning. Thank you, Mumuksh. Good morning, everybody. And again, a Happy Diwali and Dhanteras. Thank you for joining us on our Q2 and first half results con call. We will start with some initial remarks from our team, and then we'll take on questions. We'll start with Mohan, our MD and CEO, followed by Akhilesh Rai, and then by Medappa. So I first hand over to Mohan. Go ahead.

Thank you very much. A very good morning, and wish you all a happy and a prosperous Deepavali and Dhanteras. As usual, what I will do is give you a market and general business update first and then take you through the individual units. In India, as you know, the passenger vehicle segment did well. But importantly for us, the 2-wheeler segment is still struggling. And very specifically, the entry level and the commuter segment is still not yet out of roads. Potentially, the failure of monsoon could have had this effect. But however, even in October, it hasn't been great, and this was probably due to the Shradh period. And I really feel that the festive season will kick in some amount of good news. November showed some potential, and we are seeing OEMs are picking a lot in the market. Now moving away from India market and into the global markets, some of you would have noticed that in the previous call, I wasn't there. I was in U.S. and Europe for about 2 months. And in fact, I met quite many customers apart from visiting our plants there. Let me start with the U.S. market. And again, within that, let me split it into automotive and nonautomotive market. Automotive market was hit by the UAW strike. And again, thankfully, it's behind us now. But having said that, I think it did leave a scar on our business. Nonautomotive segment has taken a very severe hit due to the combination of reasons. The housing market, high inflation, high interest rates has had this impact, specifically on discretionary spendings like lawnmower and power sports vehicles. Severe summer conditions did not aid either, and it did not foster the sale in these segments. I expect this effect will be a bit prolonged in the nonautomotive segment in U.S.A. Moving on to Europe. Europe is still yet to recover and settle down the post-Ukraine war scenario. And the further stability in this region hasn't helped either. However, we continue to win business in the European region. And I think it's a great news for our business at SEL and SEU. In China, one specific customer who is into nonautomotive got hit due to restriction in sale to Russia, and that has impacted us along with the relocation that we have right now in the midst of. So having said this general update, let me move into specific divisions, and I will start with our Suprajit Controls Division, which is basically all our operations outside of India, except for, of course, Luxlite. Our turnaround at SCD is taking more time and it is facing some headwinds, primarily due to the economic conditions like customs tariff, wage increases, interest rates and so on and so forth. However, our restructuring and assimilation exercise has been on schedule. And the Max teams, which we had initiated across all the territories, are coming together and bringing in synergies. Specifically talking about Lonestar China, we got a new plant head. And Shanghai Lonestar is facing this relocation, as I mentioned, causing some significant onetime and double expenses like rentals. And it is also a double whammy with slowdown in the nonautomotive business there. At Siofok, that is Hungary, we have identified parts which have been stressed on profit, and we have started bringing it to India as it still makes overall good business sense for us. As mentioned earlier, we continue to clock new business inside SEU. And -- am I audible?

Yes, you're audible, Mohan.

Yes, okay. And our concept of the front end in Europe with a back-end operation in India is getting accepted well. I think it's a very good news. And in fact, I was in front of a couple of customers, and I think it is really gaining traction. I think the track record that we have had is helping us to locate these low-margin product out of Europe into SAL, while we still continue to look for high value adds at Europe. In U.S., we successfully completed the transition of a third-party warehouse, it was called the Pmi Warehouse, to our own existing warehouse at Brownsville. So it brings in a lot of economic synergies there. We're also in the process of moving a lot of plastic injection molds from a third-party vendor who used to supply to Wescon and bring this in-house at our Matamoros plant, and this obviously will include the economics. So moving on to the Phoenix Lamps Division or the PLD, we grew business despite the continued LED penetration. And very importantly, the margins improved and went into double-digit levels. I'm glad to say that these efforts, both at the plant level and also at the business development level, have yielded this kind of results and improved profitability. You may have -- you may recollect that the EBITDA had dropped, and we had put together a plan to get to the double-digit level. Division's restructuring continues at Luxlite and Trifa, and the Trifa liquidation is expected to be concluded by Q4. Moving on to the Domestic Cable Division, we continue to retain our strengths in the form of our DCD. EBITDA remains stable. Our focus is clearly to go beyond cables and beyond 2-wheelers and cables. And these efforts continue. With this, I complete an update on the Controls division, Cables division and Lamps division. And I would like to hand this over to Akhilesh to talk about the other areas. Over to you, Akhilesh.

Thank you, Mohan. So I'll start with the Electronics division. As you know, it's the organically launched division that was only launched this year. I'm happy to say that it has made good progress and clocked very good growth. The teams at the plant have been working literally 24/7 to manage the kind of growth we've had there. You can see in our disclosure that Q2 over Q1 was almost 150% growth in sales. We're also happy that the division turned EBITDA positive in Q2 with just 1 year of operations, and as you can imagine, very high fixed costs. The division started deliveries of actuators for 2 of the large EV 2-wheeler customers. And I would say that the digital cluster business is only starting to ramp up. So we will see a lot more good, strong business in the coming year and the coming -- in the short term. I'll move on to the Tech Center. This is, of course, one of the key parts of Suprajit and one of the reasons we were able to launch the Electronics division. The Tech Center continues to change how Suprajit is accepted in our customers' eyes as a supplier beyond cables. We're in discussions on multiple products and in the late stage of a lot of the evaluations to start productionizing products across different areas. There's been a lot of interest shown by our customers in actuator systems, braking systems and, of course, the digital clusters that I've already discussed about. Regarding the coming quarter, I think we have -- and the balance year, we see few -- we see the challenges at SCD continuing mainly because of the global challenges already explained. However, DCD and Phoenix will -- and Phoenix Lighting Division, PLD, will continue to perform well. The SED growth will continue as is, as you see today. We continue to see this is one of the strong performers within Suprajit. And we're actively pursuing multiple infrastructural assets to house our beyond cable projects, which a lot of our customers have shown great interest in. The group is working on one ERP and one PLM initiatives to bring all of us under a single ERP and PLM system. This will help us collaborate and find much better synergies across the group. We finalized the licenses with both SAP and PTC in the previous quarter. The domestic business for Q3 has been strong so far, leading to some optimism and expectation for a good second half of the year. But overall business will continue to be strong, and we have clear long-term visibility on good growth. With that, I'll hand it over to Medappa.

Yes. Thank you, Akhilesh. Good morning, everyone. We announced the financial results for the half year ended 30th September 2023. The consolidated revenue for the half year ended 30th September 2023 was INR 1,389 crores as against INR 1,361 crores for the corresponding period the previous year, a growth of 2%. The consolidated operational EBITDA for the half year ended September 2023 was INR 144 crores as against INR 136 crores for the corresponding previous year, recording a growth of 6%. The stand-alone revenue for the half year ended September 2023 was INR 719 crores as against INR 723 crores for the previous year. The stand-alone operational EBITDA for the half year ended September 2023 was INR 125 crores as against INR 118 crores previous year, recording a growth of 6%. The total debt level was INR 629 crores as on 30th September 2023. The cash surplus balance was INR 517 crores as on 30th September 2023 invested in mutual funds and bonds. For any further queries, we can -- you may approach again directly also even after this call. Thank you. Thank you all.

Yes. Thank you all. I think I will leave my comments probably for a little later. We'll take the questions as it comes. So I'll ask the moderator to monitor the calls and direct it to us, please. Thank you.

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

Sir, my first question on the cable business. So how is the outlook for the second half in the domestic cable business? And the second is, what is the progress on the export cable business that is for the 4-wheeler side, if you can throw some light over there?

Yes. As for the domestic cable business, it will obviously relate to how the domestic industry will do. October, as Mohan has said, that has not been greatly exciting, but November, I see that the sales seem to be picking up. So I would think that just the October sales for us have been actually much ahead of the industry growth as far as I see for the month, but that is not really an indication. But I do believe that the second half will show some decent growth because typically, historically also, this is the time of maximum sales during the third quarter. And generally, Q4 is stronger. So I would expect H2 to be probably likely better than H1. In terms of 4-wheeler export, I think from SEL, the growth has been very good. The dispatch from our Suprajit Automotive has been strong. The order wins have been strong. But what has happened is that the existing volumes have come down with the customers, like all our big customers have sort of reduced the offtakes. And there has been certain postponement of the new launches. Although orders have been won, the launch dates have got postponed by 3 months, 6 months, some of them have been even pushed by almost in a year because of all the uncertainties across the world. So it's the issue of timing, I think. So having said that, I think SEL had a strong growth in exports of cables.

And the second question is on nonautomatic segment. Wescon and LDC is showing weakness. So most probably, when can you expect the revival in the volume as well as the bottom line both? And what kind of the CapEx you are looking on these businesses?

See, nonautomotive bottom line will depend upon the top line. The way we see it currently is that this and next quarter, we won't see any much change. This is the feedback that we get. I think Mohan has also been, as he said, been visiting a lot of customers. The customer feedback is that -- it's typically, let's say, a lawnmower, simple thing, if the season -- if it's too hot, there is no grass to mow. So people probably postpone the decision of buying a lawnmower from this year to next year. Similarly, if the snow season, with all the global warming, if the snow season is weak, the people don't buy, they postpone for another year. So I think the postponement is typically a year in the business that we are in. So if they've not bought this year, hopefully, they will buy next year. So certainly, next 2 couple of quarters, we don't see much change, and it will affect Wescon, it will affect a part of our erstwhile LDC divisions and also exports out of Bangalore from our Unit 9. So this, I would say, at least from what I see, this is at least a 2-quarter phenomenon, if not more.

So fourth quarter is always very much strong for the Wescon. So can you...

Typically, yes. I agree with you. Typically, yes. But I think this year -- another reasoning is that people buy these things also under EMIs, et cetera, et cetera, right? So with the interest rate in the U.S. today, with mortgage rates, I'm just giving an example, of 7% and 8%, if somebody can afford to pay a mortgage, they will postpone everything else later on. These are all discretionary items. So that is what is happening. So I think this high interest rate is another reason where some of these purchasing powers have come down, and there is going to be delay. It is not a lost business, but I think it's a postponed decision as I see it.

The next question is from the line of Viraj from SiMPL.

Just a couple of questions. First is on the Suprajit Control Division. Right now, if you look at the overall sales which you did last year, around INR 1,300 crores to INR 1,400 crores, so the business largely is...

Sorry, sorry, I didn't get that number. What are you saying?

So if you look at the overall sales which we did of the entity last year around INR 1,300 crores to INR 1,400 crores, so business largely has 3 parts: one is the automotive exports, which happens to SAL; then you have the SENA, which is nonautomotive part; and then the erstwhile LDC. Can you just give some more detailed perspective in terms of how the customer and the segment concentration is in each of these businesses? So to give a perspective in Wescon, what -- when we acquired, it had a very high concentration in 1 or 2 subsegments within the agri off-highway segment. But fast forward 2023, how has that changed in terms of the overall business mix? And based on the order wins which you had, how that is supposed to change over the next 2, 3 years? So any perspective you can give on customer and segment concentration in each of these businesses?

Yes. Let me make general comments on all the 3 points, the 3 subdivisions within that, I would say. The SAL and SEU, Suprajit Europe business is pretty strong. That model of front ending from Europe and some extent from U.S. and manufacturing out of India has been really hitting the sweet spots with the customers. So we have been winning significant new contracts at very good margins. So that part of the business is doing strong. Now with SENA is the one, I would say, is most affected at this moment because there's purely nonautomotive business. The reason why, of course, the Suprajit Controls Division has not grown is largely because of SENA because there has been a degrowth at Wescon. There has been a degrowth at Unit 9, which is -- sorry, Unit -- yes, Unit 9, where we are manufacturing nonautomotive cables because of the reason that we have said. It's in the power sport vehicles, it's in the outdoor power equipment. All those are discretionary purchases. That is where the significant degrowth is there, which is why overall -- although actually LDC, if you put separately, they had some decent growth. But when you're putting them together, I think the overall growth has been very marginal or flat. So that is in the individual basis.

And when it comes to, say, LDC or even the Suprajit Automotive, in terms of customer concentration, how would that pan out? I mean you talked about the top 3 U.S...

Yes. I think the customers -- one thing good about it, they're all complementary customers. We didn't -- the LDC purchases didn't -- except in 1 or 2 pockets, there has been now overlapping of customers. I think that has not been an issue. The big customers today are still, I would say, the top customers for us is BMW, Volkswagen, John Deere, a couple of these North American, of course, through Tier 1, Tier 2 and directly Detroit customers. I think they are the big, let's say, top 5 and, of course, Tesla is also a big customer. So these are, I would say, the top 5 customers in that.

Okay. And in terms of the second half, if we see ex of the nonautomotive business, do we see further deceleration in terms of the overall -- I understand there will be some impact because of the -- in October because of the strike in U.S., but I mean, adjusting for that, do we see any further deceleration in the overall sales or the new?

I think Q3 will have some impact because what has happened is that October has been badly affected because of this UAW strike. And the restarting has also been happening a little slowly. Now basically, we have lost almost like 7 weeks or maybe even 8 weeks. So to that extent, certainly, there will be an impact in Q3. And Wescon also will be weak in Q3 as well. Q3 is typically not a great month for Wescon in any case historically also. So that gets further accelerated. But I think -- then I would say that probably Q2, Q3 are the tough months for -- tough quarters for us. I should see some change, hopefully, in Q4, unless market itself decelerated for whatever reason in Q4.

Okay. Just 2 more questions. One is on the, again, Suprajit Control Division margin. We did like something like 3% EBITDA margin. And if I look at the subsidiary level, adjusting the consol from stand-alone, we have been having losses of around INR 17 crores to INR 20 crores for last 2 quarters. So again, looking at the business construct, you had SENA, which is always on double-digit, Suprajit Automotive earning INR 16 crore to INR 20 crore. And LDC also last few quarters, the trend has been more towards mid-single digit and above. So this drop in EBITDA is driven by what? I mean, if you can give some perspective with the quantum of one-off expenses which we incurred in H1 or Q2, that will kind of help us understand the true business margin.

Agree. I think there are both factors. I think, first of all, the deceleration in nonautomotive is certainly a major part why the margins have been affected. It is affected more significantly in Wescon, but it has also been equally strong in LDC, for example, in LDC itself. Of course, the -- I'll come to that consolidated number a little while. LDC also have got about nearly 30% of the business was in nonautomotive. That has also taken a hit. And Wescon has taken a hit. I think that's the 2 places where significant margin erosion has happened, which is what -- why that number, what you mentioned, has actually happened. But let me also make a general comment. Now I think slowly, we are losing this SENA, LDC, SAL, SEU color because the way we have started working now, just to -- I'll give you a few examples as well. It is working as a single division, not as separate entities. We are not looking at now, what is the margin at SENA or what is the margin at LDC. We are looking at what is the margin at the Controls division and what is the margin for the group. A few examples. For example, Pmi Warehouse, what Mohan mentioned, was for Suprajit Automotive. Now what we have done is that there's an additional expenses to run a separate third-party thing. So in Brownsville, we had an LDC warehouse. So we moved everything into the LDC warehouse. So in the process as a group, we are getting additional margin because we are not going to pay to a third party. I'm just giving one example. Another example, we have been underutilizing LDC's plastic molding capacity. So Wescon was buying a lot of plastic parts. So a lot of those vendors have been moved out and those multiple components, like probably 100 parts, have been slowly but steadily being moved to LDC. We had a problem with Hungary, I'm giving a few examples, with one big business where they had negative margin. Just recently, it has been started moving to our SEL, where we still are making some margin. So as a group, we'll get a better synergy. So this Suprajit Controls Division will become a single entity by itself, and it will not have pieces of LDC and SENA in the next year or so. So -- because we're working on the total synergies together. And in the process, there are some expenses. For example, Pmi, we had to pay them 1 year or whatever rental because it has been committed, but we are forced to move. So there is a onetime expenditure. We are doing it. I mean, China movement, we are paying 2 rentals until whatever time because we're forced to move, but we still have to pay rental to the previous landlord. I mean these are all not small costs. These kind of expenses are where -- for example, in Luxlite, of course, it's unrelated to this part of the business. There are expenses which is running for shutting it down. So multiple such events are happening. And then added to that, one of the reasons why, also, for example, some extent Controls division margins come down is a simple thing on the customs duty. We were asked to pay a much higher custom duty thinking that the component itself is from China. Of course, we have now filed an appeal and we are confident of winning. But until such time we win it, we have to pay the custom duty. So it hits the P&L. I mean these are the things that kept happening in this quarter. That's why we have seen some changes. But I think given another couple of quarters, I think all these things will settle down, and I'm pretty sure things should be much better than what it is today.

Is it possible to quantify the impact in H1 because of these additional expenses and restructuring? And I'm sure there'll be further more restructuring expenses, so...

There is -- I mean, it's an ongoing -- I mean, there is an internal -- I'm sure there's an internal data on what it is, but we have not really been sharing it to the outside world. But I think until end of this year, there will be ongoing this restructuring costs, but I think that's when it will all probably taper off.

And in the interim, do we see any need for infusion or any lending support to the subsidiaries?

Not really. We are fairly well funded. I think we also have good banking limits. So I mean if they need a few millions here and there, we'll always support, but I think it should be okay.

The next question is from the line of Amit Hiranandani from SMIFS Limited.

Sir, my first question is basically, how much CapEx we are planning to do in FY '24 and FY '25? And where are we going to spend this amount?

Mohan, will you answer that?

Sure. Like we had already told last time, we are working with the budget of about INR 140 crores for this year. And the 6 plus 6 that I was looking at very recently indicates that we should be well within that ballpark for INR 140 crores. There would be some reshuffling in investments than what we had originally perceived to what we are going to do, but these are minor changes, nothing great.

Okay. Can we assume this similar amount in FY '25 as well?

Ballpark, yes.

Okay. Sir, my...

Actually, just to clarify, I think what Mohan said is that's actually part of it gets spilled over to next year also. This is an ongoing CapExs. So we'll again be reviewing next year and will be coming out as to what will be required for '24,'25 and onwards, I think, yes.

Sure, sir. Sir, second is basically continuing with the previous participant question on the one-off expenses. So any broad number, can you throw what was the one-off in H1? And how much more one-offs expected in H2 because of China plant relocation and refine other restructuring exercises?

I think I don't have that number with me. Maybe you can connect with Medappa later on.

Sure. Sir, second question is basically on the -- I wanted to understand the reason for PLD's margin improvement and how much of this is sustainable?

That's an interesting question. I think quite a few were quite concerned about PLD division itself 3, 4 years ago. A couple of years ago or, I don't know, maybe 3 years ago, it was a hot subject with the LED penetration, what's going to happen to the division. And we have kept on saying, giving a couple of years' time, we should be getting back to double digit. And we had a clear plan of restructuring the entire division, and we have gone through that and not completed. There is a little more -- another couple of quarters, so until by March end. The tail of the restructuring is being done now. So what you're seeing, if you look at the last 3, 4 -- 3 quarters leverage, we are in double digit. This is what we have said, when we are in a low single-digit EBITDA, everybody questioned our ability to grow the business or our ability to go to double digit. And I think that is the wonderful teamwork that we have been able to do by our Phoenix Lamps Division, and it is now not only growing in a shrinking market, but also the margin improvement. As I have said earlier, a couple of years ago itself, the double digit was the target, and we have reached it on a fairly consistent basis considering 3-months average or 3-quarter average. And we expect that to continue going forward. And we are also expecting that business will be stable and probably will also grow because of the global requirement. It's the last-man standing position, and I think that will continue too. And just to answer some of the questions that was raised earlier, I think Suprajit Controls Division is also eventually will be a story like that. I think we are confident that the business that we know, that the business we know customer wants, there are very, very few players who have got a global reach, global manufacturing footprint, global engineering footprint. I can only talk about 2, one other than us having such a reach. So in this business of high competitive thing, those who have strong market presence, geographical presence and, of course, the financial strength are the one who will sustain this rate. I think the same story will pan out for Controls Division as well.

Great, sir. Good to hear about this. Sir, another is on the UAW...

Sorry to interrupt, Mr. Hiranandani. May we request that you return to the question queue. [Operator Instructions] The next question is from the line of Kashyap Javeri from Emkay Investment Managers.

I have -- my 2 questions are, question number one on margins. You mentioned about looking at now that SCD division, Suprajit Controls Division is now one unit. But if I look at within that, our margins on exports from India seem to be expanding quite well, but the contribution of that piece in the total business within SCD is still much lower than what Wescon plus LDC contributes. So eventually, when does -- what you are mentioning about double-digit margins, when does that happen? How many probably quarters or years that's still away from here? And within that, in the export division from India, margins have seen a fairly sustained expansion. So what is driving that? So that's question number one. Second question is to Akhilesh. In terms of supreme -- sorry, Suprajit Electronics Division, what's the order book at this point of time? And what is the execution time line?

Akhilesh, do you want to talk about electronics division, generally, the business and the execution times and the ramp-up times?

Yes. And so I'll just state that we have done a onetime disclosure of the order book last quarter. You can refer that order book. I think that has not really -- there's not been anything that's changed in that because those businesses are now going into production. What's interesting to see is that there were a lot of good businesses that got productionized even earlier than expected. And for example, some of the 2, 3 cluster businesses that were going into production have been delayed and are going to start in this quarter. So I think we've been executing on that order book. With the kind of growth that we have, our complete focus is currently on execution rather than building the order book even further. We'll see great growth in this year.

Sorry, just one clarification. This INR 150 crores, which was mentioned last quarter, these are annualized order or this is total order book?

Sorry?

No, I didn't understand what the question was.

Sorry, okay. So this is INR 150 crores, which was disclosed in the previous quarter. Is that annual business or this is total business which is executable over a certain...

No, no, no. It is a business as one where when it goes into full production, the annualized value was that. It is not the lifetime orders, no.

Okay. Okay, sure. On the margin side?

Yes. On the margin side, I think you are right. I think currently, the Suprajit Automotive margins are quite healthy and strong. And that is the model of Suprajit Europe front ending and Suprajit Automotive manufacturing. In fact, I can say that the maximum traction or significant large traction of our future business is in that part of the business, which is growing quite well. Having said that, the other businesses are also being one, whether it is for Matamoros, whether it is for Wescon or whether it is for Hungary, they're also one. But in terms of the concentration, I think that -- this part of the business is getting the largest concentration.

And sir, just one clarification on that. As you know, this division functions as one, and probably there are services which can be rendered from India to, let's say, LDC and Wescon put together. The shift in revenue can be seen within SEL division from overseas ops to Indian ops?

Yes. I think I just mentioned one of the business out of Hungary, we just started manufacturing out of India because there is no margin considering obviously Hungary employee cost and operational costs are much higher. We're able to -- the problem with all this movement is that customer approval takes a long time. And customer also wants a piece of the pie if you want to move to a lower-cost region, as you know. So it's a thing -- so the first large business has been moved, actually. And I think that is the kind of stuff we are talking about in terms of the restructuring when we said. I think that is very much part of that.

Let me add to that if I can. Look, I mean, what we've seen is that until now, we've had a lot of good exposure on the Europe market. Now with the SCD team being one of the leaders in the U.S. market, we've got great exposure in the U.S. as well. So some of the biggest contracts now that we are seeing are all either U.S.-based cable businesses coming to India or even actuator businesses that are now being seeing that we can be one of the few actuator knowledge and capability who can do it out of India. So these are the kind of 2 big drivers that we will see in the next few years. I think definitely in the next couple of quarters, we should have good updates on all these kind of business wins as well.

And added to that, I think what we are also doing as a general point, the part of restructuring is also that a lot of back-end work, we have started doing out of India. The engineering work, for example, or the design work, for example, simple engineering work to actual design work, I think Indian engineers are as good as any in the world. So a lot of engineers has -- a few of the engineers who are working and doing, let's say, CAD work or a design work out of U.S., they are now becoming a front end for us to customer interactions. And the back end is entirely done by our team, whether it's in STC or our SEL engineering teams are working with them. So there's a lot of internal synergy, what I would say, tapping happening. But they're all long -- not an immediate, immediate term, but this is a journey. Given a few quarters, I think we'll see all these effects falling into the operational margins.

Sure. But just one thing, as this transition happens, can we reduce the cost in terms of fixed cost in the ex Indian ops within Suprajit controls? Is it -- do we have a plan? And is it easy to reduce the cost over there because more business will shift to probably SAL?

I think it all depends how fast and how soon that happens. There would be some fixed cost reduction possible in terms of people. But infrastructurally, we'll continue to have these places because customers still wants onshoring. I think there is still a concern on offshoring.

And we should also get a lot of synergy from this one PLM and ERP plan, right? Then we will be able to do a lot more back-ended work in India, where right now, these ERP systems are based and supported out of these global operations.

The next question is from the line of Aashin Modi from Equirus.

Sir, my first question is related to the products at the Suprajit Technical Center. So we have said that we have got few orders from the instrument cluster side. So could you please help us understand whether those would be LCD or those would be TFT and what sort of a product are we supplying over there? And also we are saying of supplying few actuators and bringing electromagnetic actuator to India. So to where we are supplying that and what is the scope over there?

Yes, we cannot specifically talk about specific customer, but Akhilesh can answer both the questions.

Yes, sure. So right now in India, generally, there's not many 2-wheelers going with LCD and TFT clusters. So we have one current running business in the TFT cluster side and a couple that are in the pipeline. The rest of the business is more on the LCD and various types of, let's say, lower-end clusters that's below the TFT, so both LCD and what we call semi-digital clusters. In the actuator space, again, this is the -- one of the big reasons we won this business is because of showing the experience we had in LDC of actuators. And that's why we won the business in India even though we had no past actuator experience. And we won business in seating actuators, in steering lock actuators, in charging gun actuators, all for 2-wheelers. And we're also now working with a few passenger vehicle customers for some of their new models for seating-type actuators just like we have in LDC.

Okay. So this penetration of actuators would be pretty less in the country, right?

Sorry, I can't hear you properly. Can you speak a little louder?

I'm saying the penetration of these actuators within the 2-wheeler and passenger car segments would be quite lower in the country or are we gaining market share?

In -- Akhilesh, yes, go ahead.

Yes. No, I would say that the actuators, in general, this is -- actually, actuators are a much higher price replacement of cable-based mechanism that we were already doing, like a seat lock actuator was done with a cable and a lever, and now it's with an actuator. There's not much penetration right now in terms of the total number of customers using actuators for this because it's a higher cost replacement. There are not many customers using it. So I'd say within that, we have a good market share because I think we are basically one of the leading OEMs in terms of technology and also in terms of volume for these kind of actuators. So I would say in the 2-wheeler space, we'd probably be having a good leading kind of status in the market right now for actuators.

[Operator Instructions] We'll move on to the next question that is from the line of Senthil Manikandan from ithoughtPMS.

Just first question is on the Domestic Cables Division. So in the press release, you have mentioned that total India business has grown around 1.5%. So over the medium term, so how should we look at the growth prospects for the Domestic Cables Division? So will there be drivers like increase in content per vehicle if possible? So something on that line, sir.

Mohan, will you answer?

Sure. Let me talk about Domestic Cable Division. There are 3 parts to it, if I can split that question. One is the cables that we are supplying to the 2-wheelers. Now that will, by and large, follow the market. Whatever the market growth happens, to the same extent, we will be able to grow. To a certain extent, we would be gaining some market share here and there, and that would help us. Now the second portion to it is we are growing into cable space beyond 2-wheelers. That means basically manufacturing it for passenger car vehicles and CVs. So to that extent, it is going to add to our growth rates, which is going to be beyond the 2-wheeler growth rate. And the third part of the story is that we are talking about beyond cables. That means we are looking at mechanisms and products, which go beyond cables, but into 2-wheeler predominantly. Therefore, these 3 put together is where we are looking at how we can grow this division.

Just second question with respect to the Suprajit Electronics Division. So in terms of the digital cluster, is there any -- how is the competitive intensity over there? And so over a long term or a mid to long term, what would be the market size and if you can share some aspirations on the market share?

Mohan, will you take that question?

Yes. Again, I would always want to cut the elephant into pieces before I start chewing it. Therefore, let me start by telling that when we are talking about clusters, we should be talking about 2 portions. One is the ICE portion where there are established players who are already supplying. Then there is the EV market where we have equal opportunity, so as to say. Now our long-term vision is that we need to be in a pole position when it comes to the EV segment because we are working with multiple EVs, and they're also in their nascent stage and they are also growing. And our idea is to have the foot firmly in the door so that we are gaining the entry there. Therefore, acceptance again here would become easier with these kind of OEMs. Whereas when it comes to ICE players, it is going to take more time. It is a long-drawn way that we can penetrate into the market. But we definitely see ourselves gaining reasonable market share. But would it be a predominant market share? The answer is no. But would it be a reasonable market share? The answer is yes. Whereas in EV, we are looking at a predominant market share. I hope I have answered it.

We take the next question from the line of Gokul Maheshwari from Awriga Capital.

Just on the domestic 2-wheeler business, the industry is at a premium end growing while the entry level is not growing. So from that angle, do we get any benefits with respect to premiumization in the industry?

I think -- yes, let me put it this way. As it becomes premiumized, there's probably 1 or 2 cables also won't be there, whereas the cost or price per piece of cable probably will be higher because the expectations of performance is also goes up. So -- and overall, I don't think there's much of a change. Having said that, I would say that it's probably more neutral than anything else.

Okay, fair. And on the braking product, you've mentioned in the press release that we are now putting money behind in terms of commercializing this?

I can't hear you properly. Please, can you speak louder?

Yes, am I audible?

Now, yes.

Yes. On the -- in the press release, you mentioned that the braking product, you are now putting into commercial operations in terms of putting money behind creating capacity. So can you just give an overview with respect to the business win? And how much would this capacity be for this particular customer or customers?

Yes, Mohan, will you take the question? Or Akhilesh, anyone can -- okay. One word.

Yes, between -- yes, when we are talking about commercialization, what we are doing is we want to keep it as much as possible as asset-light. However, having said that, there are some OEMs who are wanting us to have a depth of manufacture. Therefore, we need to balance between these 2. Therefore, what we will be doing is we will definitely be -- there would be a certain amount of investments bringing in the depth manufacture, but we'll have to take a conscious decision between on what we call as a make-buy decision. So that's what's going to happen. Specifically, with respect to the capacity that you asked for, why I'm alluding to that is, when it comes to the process, then the process-based capacity, probably we will be investing a bit more, which would be across multiple customers, multiple lines. Whereas when we come to the assembly-specific product lines, it would be tailored to the projections that the OEMs have made. So there is no one single answer I can give so much is the capacity, but it will be at the process level defined differently, at the product level defined differently.

And to add to what Mohan said, I think -- we think that braking-related products would be one of the areas where we are going to concentrate. And recently last year, as you know, we restructured our aftermarket into a single large place. And that has actually released one of our plants for any of the use. So we are converting that into a space for setting up some of our braking products at the moment. And at the same time, we're also looking at additional space, as we have made in the announcement, that we are looking for additional infrastructure facility to house some of the projects that we are in the late stage of negotiations with customers for commercial orders. So I think there's quite a few interesting things happening in that space, and we are getting geared up for that.

Okay. Lastly, just on the global -- I mean, the global industry environment...

Sorry to interrupt, Mr. Gokul. May we request you to join the question queue, sir, as we have several participants waiting for their turn? [Operator Instructions] We take the next question from the line of Jinal Sheth from Awriga Capital Advisors.

So my question is that we're now considering the fact that we are a global business. What I wanted to kind of understand is internally, how do we plan, think for -- how does the management plan and think for uncertainties? And obviously, we've had learning. So wanted some thoughts and views on your -- from your side.

I'll let Mohan to give his thoughts. Maybe I'll add something more on that. Mohan, on our global business and how we are planning to deal with it?

Yes. See, one thing about running business is uncertainty. And I would say that at the end of the day, there is an area of concern and there is an area of influence. In an area of concern now, let's say, there is a war in Ukraine and it's a area of concern, you and I can't do anything about it. So we need to manage the situation. If there is a failure of monsoon in India or there is a weather pattern change happening across the globe, there is little that we can do about it. So that's an area of concern. But if we look at the long-term trends, we can use that area of concerns and bring it into area of concerns as to what we can influence within our businesses. So that's the way we always look at it. For example, I'll just give you a -- I will substantiate it with an example. Now let us say Euro 7, Euro 8 norms are going to come because of the environmental challenges that are coming. So what could be an impact for our business? Or do we see a business opportunity over there? That is the way we look at it, and we start preparing ourselves. So this is one way of looking at it. There are certain other areas where we will definitely not be able to predict it. But to a certain extent, we do what we call it as a risk analysis. So we have a Risk Committee. We sit with the Risk Committee. We make an assessment. And to those which has got what we call as RPM, high RPMs or the risk priority numbers, what we do is we prepare some sort of an action plan as to what we can do to stay away from this risk. This is the way we manage risk, so as to say.

And also from the -- more from the system point of view, as Akhilesh was mentioning, when you get into a single ERP, single PLM, a lot of things get connected and responses become much faster for our -- where we can influence kind of a situation. Global business is different in different countries and different geographies. But ultimately, we work with systems and processes. I think it should be possible and it is possible to monitor and also reasonably control well. And we have a system where we have our annual budgets, our midyear reviews, our monthly meetings where we constantly monitor their performance on a regular basis. So I suppose that way, we are generally in the picture everywhere so that we are able to understand and do what is required as and when it is necessary as we do the business with all these geographies.

Appreciate your response. And my last question is that considering the fact that the global industry environment is tough and we were already seeing consolidation, so is there any further exits or reduced competition from our weaker competitors?

So I think this is a similar situation, which I think I sort of elaborated a bit earlier. The situation at Phoenix Lamps, that was a similar situation where there were excess capacities and some people folded up. And slowly and steadily, the color turned. Those who are good manufacturers, value-for-money product, capable suppliers who had the reasonable balance sheet to fight this kind of a battle in this, what I would call, as a dog-eat-dog market, I think they come out well. I mean, it's the same thing. Is there excess capacity? Not -- I'm not talking about cable, I'm generally talking about auto components. I think is there too many suppliers? Yes, the answer is yes. Is there consolidation? Yes. I mean, we ourselves have done 5 cable asset purchases. So it's happened elsewhere also. The number of cable suppliers will come down. And in the long run, there can be only 4 or 5 good global suppliers. Right now, it is a lot more than that. Having said that, these smaller guys who are in INR 50 million, INR 40 million, INR 80 million of cable in terms of revenues, they don't have the full geographic reach. They're in part of the world, somewhere in half part, somewhere warehousing, but they are having big problems in terms of being viable and being profitable. So I think slowly and steadily, that breed will either get sold or go out of business. And that's when I think the stronger players like us will get these opportunities to further improve on what we are doing now.

[Operator Instructions] We take the next question from the line of Mr. Viraj from SiMPL.

Just 2 questions. One is on the global control division. So the kind of restructuring which we talked about, so if you look at the first half, we did something like mid-single-digit margins at the EBITDA level. Post this restructuring, to understand the journey towards double digits, would a large part of the improvement come from the cost restructuring part? Or in terms of -- or it will be more driven in terms of the recovery in sales and the new order wins? So that is one. And second, if you can just give some perspective in terms of the retrofit business, LED retrofit business, which we did either in on the full year basis in '23 or in the first half?

Okay. I'll answer the first question; and second, I'll probably pass on to Mohan. I think the point is simple. For example, I'll just give you a ballpark number, what can our Matamoros plant can produce? It can produce up to, let's say, 10 million a month or 8 million a month. What are we doing? Let's say, 4 million a month. So what happens is that when -- in the process, what I've said is the consolidation phase, as we get more and more business, our fixed overhead gets amortized on a [indiscernible] and the margins improve. As we go forward with the competition not being able to fight the war and as our volumes grow, our purchases and operational efficiencies improve. That is where the margins will add. So I think there are multiple things that will drive it. And of course, there is a lot of businesses will be made out of India, which anyway is probably amongst our group is the lowest-cost operations. That will add extra to the margins. And then we relocate businesses to customers' requirements or customer cost requirements. That will -- let's say, I just mentioned about moving something from Hungary. Maybe we'll move something more from Matamoros where margins are, let's say, very small or nonexistent, and maybe we'll easily get some margins out of India. So there's quite a bit of churn that's going to happen. But the trajectory is as the volume grows, as we do the restructuring, whether it's a year or 3 quarters or 5 quarters, I think the margin profile has to improve and will improve; and so is the top line. I think that is what we are expecting to do in the controls division. In terms of the LED retrofit, I think I'll ask Mohan to answer.

Yes, sure. Basically, when we tested the waters, we tested the waters in our area of strength, which is the 2-wheeler bulb market. That's where we brought -- introduced the drop-in solution of LED. And that retrofit or the drop-in solution, as we call it, we had some lessons learnt and we saw how the market is reacting, both in terms of pricing elasticity and also in terms of the technological improvements that we need to do. Having stabilized that, very recently, just about a month back, we introduced a new set of retrofits for passenger car vehicles. So our idea is that we need to cover the entire range starting from a 2-wheeler to a 3-wheeler, 2-wheeler, 3-wheeler combined, I would say, and then move to passenger car, which we have started just now, and finally move into the CV segment. So we would be having a complete range as Phoenix in the marketplace in the aftermarket.

So when you say retrofit, is it largely DRL? Or these are proper fully LED...

No, no, no. They are not DRL. They are -- they will have exactly the same mount like what a halogen bulb has a mount. There are -- trade calls it differently, as H4 and H12. Like this, there are different, different way, H7. So we have these different mounts. So what we do is we give the same mount, but instead of the halogen with the filament there, we put the LED there, but we will also have a driver circuit there. And again, when we put the driver circuit, there are technicalities, whether it is able to handle AC and DC and these are the kind of things. Can it handle the spikes? Because in Indian conditions, it's going to be completely different in terms of robustness that would be needed.

Okay. Any sales number?

I'm sorry to interrupt, Mr. Viraj...

Yes, I think -- also, I think we are already 12:04. We will take 2 more questions, I think, then we'll wrap it up, if there are questions.

We take the next question from the line of Mr. Ravi Purohit from Securities Investment Management.

Yes, all my questions have been answered. Thank you.

The next question is from the line of Kashyap Javeri from Emkay Investment Managers.

Sorry, my questions have been answered.

If there is no other question -- okay, go ahead. We'll take some more.

The next question is from the line of Mr. Rakesh from Axis Capital.

Just one question. If you can quantify what has been the overall impact of restructuring operations in our EBITDA, at what level was that? And going forward, with this all transition going on in your restructuring operations, let's say, another 2 quarters restructuring expenses will come in, what kind of impairment we can expect? Or will there be any impairment of the plant which you are exiting? And secondly, what are the breakeven levels for the new plants where you are transitioning this operation?

No, in terms of the impairment, it's difficult for us to say. I think only when restructuring is complete, we will know whether there is an impairment. Maybe end of March is one time when we'll look at any impairment, if at all. So it's difficult to answer that. In terms of the, I would say, cost of quantifying, it's an ongoing exercise. For example, we are now restructuring in China. We are moving from one place to another place. All those costs are actually on the P&L, and they have been booked as and when they are doing. Some of them are not tracked in that sense. The bigger one, probably, we know what is the cost. We'll have to pay lease at the existing one. We have to pay the lease at the new one. We have to pay power here, we have to pay for power there. Those kind of things are quantified. So there will not be an exact picture, but there may be some information, if maybe you could get some more color on this off-line with our CFO. Maybe he will be able to answer that question.

Sure. That's helpful. And one last question, sir. Sorry if I missed out on that. With this decline going in the non-auto side, will there be any shift of your CapEx program for this year and next year?

I think Mohan has already answered that. The CapEx, as earlier disclosed, at INR 140 crores for this year and part of next year, it still holds good. And I think there will be some reshuffling within that INR 140 crores, but the overall number remains the same.

Ladies and gentlemen, we take that as the last question for the day. I would now like to hand the conference over to the management for closing comments.

Yes. First of all, thank you all for patiently coming, listening to our comments on our quarterly as well as half yearly number. Thank you for your interest in Suprajit. I again wish you all a happy Diwali and Dhanteras and look forward to again interacting with you in the next quarterly meeting. Thank you very much. I hand over back to the moderator, please. Thank you.

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

Thank you.