Varroc Engineering Limited ($VARROC)

Ladies and gentlemen, good day, and welcome to Varroc Engineering Limited Q4 FY '26 Earnings Conference Call hosted by Investec Capital Services. [Operator Instructions] Please note that this conference is being recorded. Today, it gives me great pleasure to introduce you to the management of Varroc Engineering; Mr. Tarang Jain, Chairman and MD; Mr. Arjun Jain, Whole-Time Director and CEO, Business 1 ; Mr. Dhruv Jain, Whole-Time Director and CEO, Business 2; Mr. K. Mahendra Kumar, Group CFO; Mr. Bikash Dugar, Head, Investor Relations and Finance Controller, Business 2; Mr. Vishal Rawal, Group Finance Controller, Business 1. With that, I now hand over the mic to Mr. Bikash Dugar. Thank you.

Thank you, Investec. Thank you, Swapna. Good evening, everyone. Just before I ask our Chairman to give opening remarks, just a small disclaimer that today's discussion may include statements which may constitute forward-looking statements. All statements that address expectations or projections about the future, including but not limited to statements about the strategy for growth, business development, market position, expenditure and financial results are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events and involves known and unknown risks, uncertainties and other factors. So no obligation is assumed by the company on this forward-looking statement. So with this, I will ask our Chairman to give the opening remarks.

Thank you, Bikash, and thank you team Investec for hosting the call, and good evening to everyone. I am Tarang Jain here. To start with, I just want to say that the India macro tailwinds is supporting growth. India continues to remain one of the fastest-growing major economies supported by strong domestic consumption demand, infrastructure investments and policy-led manufacturing initiatives despite global headwinds. The rural consumption growth is driven by increased farm plus non-farm incomes and easing rural inflation, whereas the urban consumption growth is driven by fiscal stimulus, tax relief and lower finance costs. The synchronized consumption recovery is driving growth in the automotive sector also. In addition to this, mega trends like rising disposable incomes, increasing vehicle penetration, premiumization trends and a strong push towards electrification are also driving demand across segments. This was evident during quarter 4 of FY '26 with all segments of the auto industry showing strong growth on a year-on-year basis. On a year-on-year basis, 2-wheelers grew by 20.7%, 3-wheelers grew by 32.4%, passenger vehicles grew by 11.3% and commercial vehicles grew by 19.5%. On a quarter-on-quarter basis, 2-wheelers grew by 3.7%, 3-wheelers grew by 1.2%, passenger vehicles grew by 12.5% and commercial vehicles grew by 23.1%. For the full year of financial year '26 also, we saw similar positive trends across all segments. 2-wheelers grew for the full year by 11.8%, 3-wheelers grew by 23.9%, passenger vehicles grew by 9.4% and commercial vehicle grew by 13.1%. Coming to the operational performance during quarter 4 of FY '26, the company registered a consolidated revenue of INR 23.7 billion with a growth of 12.8% year-on-year. As indicated in our earlier calls, the overseas businesses have already started seeing revival in revenue growth, supported by a strong order book. Our EBITDA for the quarter was around 9.7% as compared to 9.3% in the previous quarter. PBT before JV profit was at 4.5% of revenues in Q4 of FY '26 as against 4.4% in Q3 of FY '26. For the full year FY '26, the company registered a revenue of INR 88.9 billion, a growth of 9%. The EBITDA margin stood at 9.4% in financial year '26 and PBT before JV profit margin improved by 50 basis points and stood at 4.3%. The revenue from supplying to EV vehicles in this quarter was around 14% of the revenues and for the full year, it was around 13%. However, I would like to bring to your attention to the point that the India EBITDA and PBT were strong for financial year '26 at 11.7% and 7.2%, respectively, and grew both on a year-on-year basis as well as sequentially despite the supply side challenges explained earlier. In overseas electronics and lighting business, we continue to win significant orders and the turnaround is expected to be more visible from half 2 of financial year '27. Our foremost priority remains accelerating revenue growth across both India and the international markets. India, we continue to leverage our strong customer relationships, technology capabilities and expanding product portfolio to capitalize on opportunities emerging from electrification and the premiumization trends. In our overseas markets, we are strengthening our presence through deep customer engagement, enhanced engineering capabilities and focused business wins, positioning ourselves as a reliable global partner. In financial year '26, we achieved the highest-ever net new business wins with an annualized peak revenue of INR 32,889 (sic) [ million ]. Notable business wins among these in the last quarter are the Wall-Chargers for our Romanian business from a Global EV player, gears and Crankpins from our ICE-Powertrain solutions. All this business win helps us to fill the existing capacity and sweat our assets even more. In this quarter, again, we also had some business wins from the non-automotive segment. We continue to follow a disciplined and a value-accretive capital allocation strategy with a sharp focus on investments in high-growth and technology-led segments, strengthening our R&D and innovation capabilities, particularly in lighting, electric vehicles and electronic domains, ensuring optimal returns on capital employed -- and ensuring optimal returns on capital employed, taking steps to correct the cost structure in the company like VRS, which we did in FY '26. And net debt of the company in financial year '26 is INR 4,952 million, which is a reduction of INR 2,528 million from the last year. The net debt to equity is at a very comfortable 0.27. The average ROCE of the company stood at 24.4% in financial year '26. In this volatile new normal environment, we continue to strengthen our company for long-term growth and performance by taking appropriate decisions and meticulously executing them. Please note that the Board of Directors have recommended 150% of the Face Value as dividend for financial year '26. With this, I will now ask MK, our Group CFO, to walk you through the presentation and give more insights into our financial performance. We have uploaded the investor presentation to the stock exchanges as well as on our website.

Thank you, Tarang. Good evening, everyone. Let me take you to the highlights slide, which is Slide #7. So in Q4, as our CMD explained, the revenue was INR 23,681 million or INR 2,368 crores with a growth of 12.8% year-over-year. India Operations within this grew at 12%. but the most important point is the overseas operations grew by 24%. We were explaining earlier that the automobile is now going to turn into strong sales performance this year. We have already started seeing it in Q4. So the momentum should continue in the current year also. Revenue from EV models in Q4 was at 14%, which actually amounts to a 50% growth year-over-year. And Q4 PBT was 4.5% versus 4.4% in Q3 of FY '26. EBITDA was at 9.7% versus 9.3% reported last quarter. And coming to full-year revenue, it was at INR 8,891 crores with a growth of up 9%. We are registering double-digit 10% growth. And full-year PBT at 4.3% compared to 3.8% of last year, which amounts to growth of 22%. But with this again [indiscernible] profit alone it grew by more than 40%. And revenue from EV models continues to be at around 13%, which again grew by 39% if you take full year. The order intake was [indiscernible] which is the highest ever order intake, nearly 65% of this related to EV models. And one of the notable recent business, the Wall-Charger business, which is going to be your manufacturer for Romanian Entity, which will further add to the revenue potential in the coming years. Coming to the net debt decreased by INR 253 crores compared to last year and stood at about INR 495 crores, there was marginal increase in the last couple of quarters in net debt, but that was largely due to the VRS scheme which we spoke about in the previous quarters, also from temporary challenges in the net working capital, which we should be able to correct in the coming quarters. And as previously explained the Board has recommended dividend of 150% of Face value subject to the approval from the shares. This compares to 100% dividend, which we declared last year. Going to the next slide, as our CMD explained, the industry growth numbers, basically the momentum continues in the Auto industry and in Q4 year-over-year in 2-wheelers grew by 21%, 3-wheelers by 32%, passenger grew by 11%. The full-year numbers almost all the segments grew in double digits. And the 2-wheeler volume on year-over-year basis also grew by about 54%. Coming to the Q4 financials, the total revenue was at INR 2,368 crores with a EBITDA of 9.7% and PBT of 4.5%. The full-year number is INR 8,891 crores, which amounts to 9.4% EBITDA and 4.3% PBT. Coming to the performance between the India business, overseas and R&D, you can see the -- During Q4, the India business top line grew by 12%, EBITDA by 14% and PBT by strong 27% and Overseas business also with strong growth of 24%, which also improved the overall EBITDA level. At PBT level, the improvement was not significant, but that is going to be visible in the coming quarters. In terms of the R&D spending, it was close to about INR 34 crores at EBITDA level. In the next slide, we explained the movement in net debt. As you can see, we reached the lowest point of INR 380 crores 6 months ago back in September. From there, we actually -- we had to take an increase the net debt by close to about INR 115 crores taking it to INR 495 crores, so this is a combination of the VRS scheme plus some increase in networking capital. And in the subsequent slides, of course, the business [indiscernible] . Let me stop here and we are happy to take your questions.

[Operator Instructions] We have the first question from Mihir Vora.

So sir, just going through the order book part here. We saw a very good increase in terms of the last quarter in the new order booking part. And can you just also give some split on to whether how much would be the overseas order booking here and more specifically in terms of how are we seeing the ramp-up of specific to overseas order booking?

Yes. So the overseas order book for this year was around close to INR 1,400 crores. And in terms of the ramp-up, we've already started seeing the majority of these programs start production within fiscal year '27. However, of course, there's a ramp-up period. So it's more, I would say, fiscal year '28 where we'll start seeing the full potential of these wins. However, we already are seeing the, of course, increased revenue in fiscal year '27 itself, but fiscal year '28 will be a lot more...

All right. Okay. And sir, this also includes like are we getting some traction on to the Thailand plant, the lighting plant orders as well? Some color on that as well.

Yes. So as part of this INR 1,400 crores of revenue that we have mentioned, this would also include business wins for our location. This would be, of course, within the sheer lighting space.

Yes. And this would be predominantly 2-wheelers or 4-wheelers?

It's purely passenger vehicle lighting.

Okay. It's purely passenger vehicles. All right. And...

This is head lamp to be more specific.

Yes. So just to clarify, this would also include a headlamp one.

Okay. Sure. So yes, very good to see the traction building in on to overseas business now. But as we see -- as the order book has built up and we have a good start SOP since from FY '27, '28 onwards. So will we need to see some increase in the CapEx here or our CapEx continues to be in the similar range as what you have guided before?

There will be some significant CapEx this year, both in India and overseas also, probably small amount next year also. But yes, there will be CapEx this year.

CapEx, I think overall will be at least to the -- between INR 450 crores to INR 500 crores is what we see as the overall CapEx for this year.

Okay. And this includes the land you are going to proactively purchase before...

This includes, I would say, a small part of the land. But we are looking at other options -- the land -- for the land availability. Is not that easy at the moment. So we're looking at other options also. But overall, I would say it would be closer to INR 500 crores, including whatever land we can get our hands on.

Actually, I have a couple of questions. So when we see the quarterly run rate for majority of our businesses, right, the HMI, E-mobility and even the aftermarket. So we are seeing some Q-on-Q dip. Could you highlight what is leading to that or that was as expected or on an expected lines?

Yes. So I would say -- I think particularly talking about what would be more EOE sales, which is -- they are normally two parts, around HMI and E-mobility. And E-mobility, for sure in Q3 we had significant level of backlog recovery also, resulting in good performance in Q3 versus Q4. However, otherwise, volumes have largely been steady. But minor differences in volumes and mix between 2-wheelers and 3-wheelers can also have material impact given just the sheer size of content in the vehicles. HMI, I think is largely from -- HMI, I would say, is largely along expected lines. However, I think for both of these product groups, I think as we look forward, I think given just the sheer increase in appetite for EV post whatever global macro crisis we have, we see a strong path. And I think -- for HMI, I think we see significant content growth taking place through the realization of the order book that we've already declared. And from after market perspective, yes, I'm searching for generally I would say Q4 is generally a little bit lighter. But yes, I think as we look forward, it is not actually a trend -- it is not a trend that we could expect eventually.

And just one more point to that. What was the under recovery this time moving to the material inflation that would have happened towards the early end of March. So is there an under recovery and that's why our margins might improve in the quarter once we pass on with the lag? Or how do we see the current situation of the material inflation impacting us in the near term? So that is the question.

So again, I think I'll break it into two? I mean, one is, in terms of talking about Q4 versus talking about what is perspective? And In Q4, it could not see the impact in the margin. I don't think there is [indiscernible] little bit here and there. I would not say there's a material impact in the margin yet. Of course, going forward, it is clear that there is inflation across commodities that we use and also in terms of -- across the commodities that we use. And here, I think we are fairly aligned with our OEMs in terms of how do we drive that.

So would it be like a monthly lag? Or would it be like a quarterly lag? How has the OEM spoken to you. Any light or any color on that?

Every OEM honestly operates differently. So the method of recovery in every OEM will be different. Having said that, there is a strong commitment. I mean the way the industry works also, there is strong commitment from OEMs and understanding with OEMs that inflation will be compensated.

But just to clarify, I mean, there could be -- in some of the cases, there would be probably a lag of at least a quarter, but we are expecting to be compensated in full despite this lag.

Okay. And just last question. So we see a very material ramp-up in the order book. So that's a very good silver lining this time. But as we go in 2 to 3 years, how are you seeing Varroc emerging over the next 2 to 3 years? Probably this is 1, 2 quarters is a very short story, but what our targets would be for the EV components per se that we do? And when we are pivoting to more like electronic Wall-Charger, how big do we see our contribution in that field to be? So just if you could throw some light around that, it would be very helpful.

So see, basically, as you know that in the last quarter in India, about 14% of revenues came from EV and we see some signals that this EV penetration is even going to increase definitely in our segment of -- at least the 2-wheelers, where we will see actually a major increase and even to an extent also in the passenger car. So I do see that there will be a good amount of percentage increase, I mean, as a part of our sales -- overall sales where the -- EV content is concerned. And when it comes to our business abroad, whatever the businesses we have won of inverters, interior lighting, where we have already started our supplies even going forward the Wall-Chargers and everything, the major part of all the electronics, which are the largest percentage, is all towards EV only. So I mean, at the moment, I think probably more than 80%, 90% would be towards -- all the wins we've announced -- all the wins in Romania all towards EV vehicles. And also -- the lighting segment is concerned, a major part, of course, is also towards EV segment. So whatever the revenues we see abroad coming out of Romania and later on in Thailand, which will start in a small way from December, all that will be towards EV. So our EV content as an organization will definitely be significant going forward.

And just to add to that, the per vehicle content which we will have in our overseas business from this EV customers will be very significant.

The next person is Mr. Rahul Kumar. [Operator Instructions]

This is Rahul from Vaikarya. Just one question on the international business. When do we expect the breakeven in this international business? I mean which quarter do we expect the breakeven to start from?

International business has 2, 3 parts. As far as the 2-wheeler business is concerned, it's already positive [indiscernible]. Only in Romania, we have significant challenge and we should reach EBITDA breakeven by Q4. As far as the Italian forging business is concerned, that may take maybe 1 more year to get to EBITDA breakeven.

Okay. Okay. And for this Italy forging business, we were planning to do some action either basis the sale or some other corporate actions. So is there any progress on that front?

We are working on both internal and external measures. We're also making some small corrections here and there to improve the operational efficiencies and improve profitability. Yes, but separately, we are also looking at -- looking out for suitable opportunities to find a proper buyer, but we are not in hurry to sell it at any cost. If the right price comes, we will [indiscernible] and then we will implement it.

Okay. And on the debt front, so what is the guidance you can give us, let's say, over the next 4 quarters? Where do we expect the debt to settle down?

Yes. So I think we explained it in the previous calls also. So this year, because of heavy CapEx we have and the business ramp-up, which is happening, we don't expect a reduction in debt from current levels. So the average debt could be in the range of INR 500 crores to INR 600 crores, more or less at the current levels or slightly upwards. We should move to a 0 debt status by, say, end of next year.

By FY '28?

Yes. FY '28, that's going to be the objective. But see, today, we see a lot of growth opportunities, and we don't want to lose those opportunities. So whatever the CapEx needed, we're definitely going to -- we're definitely going to incur that kind of CapEx for growth reasons. And we have to see how things go depending on all the opportunities. We see a lot of opportunities. So we don't want to miss out on those opportunities also. But like you said, we are very mindful. We are very financially disciplined. So we're very mindful of this overall net debt in the organization. But having said that, we don't want to lose on any opportunities also.

Okay. Can you just highlight a couple of opportunities that are actually doing the CapEx, which particular segment?

[indiscernible] I mean like we've likely talked about that also, right. I mean, our order book is heavily skewed towards E-mobility and supplying product into EV models. Act, of course, the CapEx will also be geared towards these -- geared towards these segments. And further to that, of course, we will drive a level of CapEx also to drive expansion in capacities that the market is now demanding.

Okay. Okay. Okay. And in the comments earlier, you also mentioned that you have won some orders in the non-auto segment. Can you just elaborate a bit more on the quantum, the customers and which segment we are actually doing this?

The non-autos wins today are primarily around motors and motor controls, they are smaller sized -- they are smaller-sized motors where we essentially even drive a level of -- drive a level of import substitution. In terms of the...

There will be more experimental or test [indiscernible] will bring some decent size only next year, but I think we should give it that much time.

Of course. And that is light with ramp up of -- like with ramp-up of any product, right? So there will be a gestation period and ramp-up. But I think the total value of business win that we have, you can...

It is around INR 50 crores annual peak revenue.

Got it. Just last question. Is there any progress on the order wins for the top 3 EV 2-wheelers, which we are discussing in the previous call?

So again, I think the status is the same as what we discussed last time where we continue to be engaged and hopefully have something to announce.

Okay. And this is with -- I mean, potentially with the top 3 players in the EV segment. Is that correct?

Yes.

I will now ask Mr. Shubham Jain from Investec.

Can you please help us understand on how should we think about the growth outlook going into FY '27, given that we have a strong order book and our overseas business is also seeing a good revival. Also the momentum in EVs is strong. Should we expect a mid- to high-teen growth in FY '27?

Yes.

Okay. Okay. That's great to hear. And also, can you please elaborate on how has the recent tensions in Middle East impacted us so far, given that we have a contractual pass-through for most of the cost overheads. How should we think about margins in FY '27? Should it trend higher versus our FY '26 levels?

So again, if the question is specific to the Middle East crisis, I would say the impact is twofold. I think one, the inflation -- one is the inflation that you call out. And like you said, we have material cost pass-through arrangements, and we expect that these costs will be passed through. The other topics really caused as a result of the situation is, of course, to do with -- through the supply chain in terms of both commodity as well as labor availability. Even here, I would say we are now largely stable. In terms of margin performance as a result of the Middle East crisis, I don't expect it to have a bearing on the absolute value of market.

Margins will be higher than what we reported in FY '26.

[Operator Instructions] Jyoti Singh.

One question on the non-Bajaj contribution has increased to 54% [indiscernible]. So which customer is driving the incremental [indiscernible]. And another standard question on the EBITDA margin side that has improved to 9.7%, but below peak level. So what are the key levers to reach this double digiti [indiscernible] if comment on the recent volatility and largely from [indiscernible] . If you can guide us on both sides and what kind of [indiscernible]. And another on the [indiscernible] and E-mobility is around 6.2%. How do you see this mix changing over the next 3 to 5 years? There is [indiscernible] international below 11% now, so going forward we are expecting to increase quarter or it will remain the same?

[Foreign Language] Percentage of share from Bajaj Auto, I would say that is reduced simply based on the execution of the order book. So I mean that's -- we've declared an order book. So as we keep executing it, share will move in line with what we execute first, what we execute second. That is the...

Yes. And from 9 months to full year, the percentage of share of Bajaj has remained the same for overall company. That has not gone down. The second question was that we are reporting EBITDA margin below 10%. So when we'll go above 10%.

Okay. So we don't give any guidance like that, but your question was also about the levers which will actually take us to the double-digit EBITDA. So definitely, the revenue growth and the operating leverage that comes out of that strong level for growth plus the we also talked about the turnaround in overseas operations and growth in overseas operations. So that should also help us in coming close to the target. But we don't want to give any specific time frame to it. But yes, these should be the levers to take us to close to 10%.

One more question was on the mix and international, whether that mix revenue percentage will change?

Will improve more in favor of the overseas business. Right now, it's around 7%. I think by end of this year, it should move close to 10%.

And the last question was the revenue mix between HMI, ICE powertrain, E-mobility, Body parts, whether that mix will undergo a change over the next 3 to 5 years?

Yes, for sure. I think the E-mobility share will definitely increase just driven by EV penetration. I think that's a trend that we see. I think E-mobility and HMI, I think I would definitely increase over the next 3 to 5 years. And ICE powertrain, I think as we already seen, continue to lag a little bit.

Understood. And sir, just trying to understand this Bajaj contribution will be going to remain the same? Or is there any chances that it will improve to non-Bajaj?

So if you look at our order book and we -- I think we declare our order book in terms of what is Bajaj Auto versus non-Bajaj, we will execute in line with that order book and the order book is skewed more towards non-Bajaj, so I would assume, yes, the share.

Sorry. Just one last question I'll allow because there's a couple of people on the queue.

So just one question of diversifying towards the aerospace because a lot of opportunity over there. And if we see we are already competing some of the company in the transmission component side and engine rotating assembly and precision part. So are we planning any such kind of acquisition going forward or is there any for discussion?

So if the question is aerospace is an industry are we looking to [indiscernible]. Having said that, nonautomotive as a space is something that we continue to explore. And we've declared business wins also in this space. So we've achieved our first business wins in the nonautomotive space.

I will move to the next person. The person is from a firm called SiMPL. [Operator Instructions] .

Just a couple of questions. First is...

Can you please share your name.

It is Viraj Kacharia from SiMPL. First question is, if I have to look at the margin and the return structure of the different business segments we are in, what would that typically be? And where do you see maximum scope for margin improvement?

No. So obviously, it is more coming from India because [indiscernible] have been strong. But overseas is also recovering as we explained earlier in the call. So the recovery from now in terms of margins will largely come from overseas business in the next couple of years. And of course, the India business also as the growth happens in the top line, the operating leverage also kicks in. So that's the way it goes.

Just to add to that, any new business which we take, we have criteria based on IRR, at least that kind of IRR new business could meet based on that only, we are taking a business into the company.

Understood. But broadly, if I look on an annualized basis, what will be the different margin bands each of the business would be operating for us right now?

We don't disclose margins at the individual segment level. But yes, broadly in terms of overall direction, earlier also we mentioned that our intention is to take PBT itself to 10% in the coming years. If you really look at our India business and in Q4, particularly, we are already at 8% plus. So our objective is to take the entire business to 10%, but it will take a few years. It won't happen in a year.

Okay. And just one more question on the lighting business. See, that business has seen some consolidation or flat if you look at Q4 also for us. So just trying to understand what is happening there? And how should we see this business evolving for us going forward?

So Lighting business in Q4 over Q3, it has grown. It's mainly because of overseas [indiscernible] and the lighting business has also grown. And also in India business also it has grown. And in coming years, because of the premiumization which is happening, I think this will be one of our growth engine.

Okay. So fast forward, say, 3 to 5 years on the line based on the order book we have, how should we understand the mix in the business evolving? Would we have more towards EV and lighting or the traditional business segments like Body parts and other ICE powertrains and 2-wheel also continue to be a majority share. Any color if you can.

So for sure, we would expect E-mobility, HMI and lighting to continue to occupy a larger share of the pie than the others, to be frank. Having said that, it does not mean the others will also not grow. They will also grow, but probably not as quickly as the other 3. And this is really driven, I would say, by technology change, technology differentiation that is required.

[Operator Instructions] Vinay Jain.

Vinay Jain from Karma Capital. Just 2 questions from my end. Firstly, again, like if I look at the domestic growth for the quarter, somehow like we have not been able to participate in the industry growth, which we have seen across, say, 2-wheeler, 3-wheeler and passenger vehicle, primarily, again, like 75% of the business being from 2-wheeler, 3-wheeler, which has grown at upwards of 20%. And again, coupled to that, if you see the EV business for us growing at 50%. So if I discount for that, then the growth seems to be even lower. So one, wanted to just understand why the growth lower versus, say, the industry or our largest customer as well? And secondly, on the CapEx, if you could just quantify the CapEx outline for the next 2 years and the areas in which it would be spent?

Yes. So I'll take the first question. And of course, you're right. In terms of -- if I think about the path that we have been on for the last 2 or 3 years, discussed multiple times, the focus has really been around driving content growth and driving growth in premium vehicles and in electric vehicles. Now given where the growth has come from really in Q4 and when we look at what is our customer mix and what is our model mix also within the customers where we have mixed, the segments where we have higher content have maybe not grown as quickly. And that is essentially why I would say through Q4, we are a little bit behind. Having said that, like we talked about -- like we mentioned earlier as well, as we look forward, we definitely see a very strong trend around incremental EV penetration, and we definitely see a strong trend around further premiumization even in, let's say, lower segment vehicles. The continued execution of our order book should allow us to play more significantly in the growth in markets that we see...

CapEx this year, it would be in the range of INR 450 crores to INR 500 crores. Next year, it would be lower, maybe around INR 300 crores to INR 400 crores, would be the requirement. Most of it will go to create capacities or to spend on program-related CapEx, which is also related to growth.

So basically, see, any --

Any specific areas if you could -- just maybe highlight?

So it will be, of course, towards electronics -- more towards electronics and lighting. And obviously, towards EV vehicles is definitely something we would prefer. Lighting and electronics is the area -- EV and electronics is the area where the focus will be more. But having said that, when it comes to even body parts or our metallic parts, we are seeing growth there also. So there also, we will continue to grow. And one thing also we are focusing is on the -- on more of mechanized and automation on the shop floor in India. So going forward, we do not also want to depend too much on the manpower, which we are finding a lot of challenges as we grow. So we would like to mechanize and automate more. And therefore, a part of the CapEx every year will also be towards some better technology equipment and also towards mechanization and automation.

The next question is from Mr. Naman Maheshwari.

So this is Naman from [indiscernible]. Just 2 follow-ups, right? One is on to the revenue trajectory, right? We already clocked close to about INR 9,000 crores, and we have SOPs worth INR 3,300 crores coming in FY '27 and FY '28. So is this the right way to look that the next 2 years, we could clock close to about INR 12,500 crores basically from the realization of SOP or are there some adjustments that needs to be made? I'm not asking for the guidance, but I'm just asking for the conversion on a like-to-like basis.

The order book we are confident. We don't need mess with the order book...

We will achieve that whatever you're saying, INR 9,000 plus that thing will happen.

Okay. Okay. And just on to the margin profile. So that would lead to the breakeven of our -- maybe the overseas businesses altogether. So the drag that is coming close to about INR 70-odd crores on the overall, that would also reduce by a lot, right, on a comparable basis?

Definitely, definitely. In 2 years' time, we -- I mean, we do want to breakeven overall abroad.

Okay. And just quickly, the last point that I wanted to make. So now excluding this year, right, this year could be an anomaly. But as we move into a steady-state high-performing EV plus electronics manufacturer, the delta change, right, in EBITDA, right, would it be like a conversion margin? Or would it be more towards a technology-oriented solution provider? Could you just explain that, which side it would be towards?

Across the product lines that we do, we operate different models -- we operate different models with the OEMs. But we own technology for every product that we supply. In terms of what margin profile would look like, and again, I think like our CFO has said before, our focus is on PBT and our focus is on return on investment. Here, we believe we will continue, we do not believe there's a material change on these metrics versus what is the business profile today.

Okay. And the NCD approval that we have taken, that's an enabling resolution? Or are we planning to raise the NCDs in the near term for INR 500 crores?

It's an enabling one.

I will take the question from Mr. Rahul Kumar.

Just one question. Actually in the previous comment, you mentioned the breakeven for the international business for 2 years onwards. So does the breakeven means including the R&D business also? Or is it only the operational subsidiaries?

It's only the operational one. R&D one will take some more time.

Okay. Okay. So to summarize the operational subsidiary, you mentioned the breakeven by Q4 of next year, right?

Yes, that's for the electronic business, normally I was talking about. 2-wheeler business is already in the positive. And then [indiscernible] will take one more year.

And out of this 14% EV revenues, how much is contribution from non-Bajaj customers?

Out of this nearly 4% to 5% is non-Bajaj.

Thank you. Thank you, everybody, for your questions. We'll wait for a minute if there are any last questions. We have a question from Mr. Akash Vora.

This is Akash from NV Alpha. Sir, my question will be pertaining to the answer that you gave to one of the earlier participants, wherein you said that growth for us this quarter has not come from the segments where we have a higher content per vehicle, which we can also see to a certain extent in the E-mobility segment. So sir, my question be regards to that since you are confident that those segments will work out positively in the coming quarters. So sir, I just wanted to understand where does that confidence come from? Because that E-mobility piece, I think one of our anchor customers there has also grown super well in Q4, but that growth has not replicated for us. So just wanted to understand or reconcile this a bit.

Yes. So I would say -- I think the first thing I would say is when we are comparing our growth vis-a-vis any particular OEM, you look at production data rather than the retail data. And from a production standpoint, I think we are fairly on track. And the further confidence of growth comes from the fact that we are seeing all read in the newspaper also, right, that there is a fundamentally larger demand for EVs today versus, let's say, 2 months ago.

Okay. So basically, if the shift towards EVs increases, our market share, our wallet share with our own customers should keep on increasing from here. Is that what you mean?

I think I'm not clear what is your definition of wallet share. But if you have more -- very simply put, our content in an EV is significantly more than what it is in an ICE. The more EV you have our total addressable market increases. And whatever portion of that market our customers gain we naturally gain also as a result.

I will take the next question from Mr. Naman. Yes.

Just a bookkeeping question, right? So now I think with the PYC thing being majorly sold, there's still a point in our auditor's report with regards to that. So when do we get to resolve it completely and get it out of the way? Any thoughts on that?

Yes. So the arbitration process is going on. I think there are different submissions to be made between now and end of the year. So most probably by end of the year, we should know which direction we are heading towards. But this is going to take some time is subject to the arbitration process.

But likely, we are hopeful that by the end of next year when we get the audited report, we are majorly through with that?

Yes, that's the objective. That's what we are working towards.

Okay. Okay. And just last thing that are we seeing any major production disruption happening in -- thus far till May? Or has it been kind of on track so far?

See, basically, see, what we have seen is issues not so much with us. We had issues also when it came to a shortage in labor because of this more crisis, not material. But I think more at our suppliers, Tier 2, Tier 3 is where we are facing challenges. And -- but after 15th of May, we see improvements over there. So what we are doing is that we are actually proactively working to see that that we're getting our supplies from all our suppliers, is to do with bought out components, not so much with the raw material. So once that is kind of there, then we will also see that we are able to manage the sales to the fullest extent. So -- but the things have really improved. We have kind of normalized after 15th of May. And we are also seeing more of normalization of the supplier end, which may probably kind of normalize by the end of this month. And at the same time, we are also now working on because there are -- we see a good growth going forward. So we're also now working on our own internal capacity expansion as well as at the supplier end. So this will be critical for achieving the higher level of sales which is there in front of us.

I think with that, we've come to the end of this call in the interest of time. I would like to hand the conference over to Mr. Tarang Jain, the Chairman, for his closing remarks. Thank you.

Thank you, Investec, once again, and I would like to again reiterate that with a strong foundation and a clear strategic priorities and a committed team, we are confident of delivering sustained growth and a long-term value creation for all our stakeholders. And thanks once again for joining the call and for your continuing support.

Thank you.

Thank you very much, sir, and thank you for giving investors the opportunity to host the earnings call. With that, ladies and gentlemen, we come to the end of this conversation. You may now hang up the call. Thank you.