Sandhar Technologies Limited (SANDHAR) Q1 FY23 Earnings Concall Transcript

Sandhar Technologies Limited (NSE:SANDHAR) Q1 FY23 Earnings Concall dated Aug. 07, 2022

Corporate Participants:

Yashpal Jain — Chief Financial Officer

Jayant Davar — Co-Chairman of the Board

Analysts:

Abhishek Gaoshinde — Sunidhi Securities and Finance Ltd — Analyst

Yash Agarwal — JM Financial — Analyst

Abhishek Jain — Dolat Capital — Analyst

Kumar Saurabh — Scientific Investing — Analyst

Mohit Khanna — Banyan Capital Advisors — Analyst

Shashank Kanodia — ICICI Securities — Analyst

Nikhil Kale — Axis Bank — Analyst

Navneet Bhaiya — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Sandhar Technologies Limited Q1 FY ’23 Earnings Conference Call hosted by Dolat Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operators Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhishek Jain from Dolat Capital. Thank you, and over to you, sir.

Abhishek Jain — Dolat Capital — Analyst

Thanks, Andrew. Good morning, everyone. On behalf of Dolat Capital, I welcome you all in first quarter FY ’23 conference call of Sandhar Technologies. From the management side, we have with us Mr. Jayant Davar, Co-Chairman and Managing Director; and Mr. Yashpal Jain, CFO of the company. We thank the management for providing us the opportunity to host the call.

Now, I hand over the call to the management for their opening remarks, followed by the question-and-answer session. Over to you, Jayant, sir.

Jayant Davar — Co-Chairman of the Board

All right. Thank you, Abhishek, and a big thank you to Dolat Capital and a big thank you to all the participants for today. Let me begin by, first of all, giving you what the current situation is or the good news as to where we stand. I think — I believe that the manufacturing is back to almost pre-COVID levels or — and growing from there as we step into where we are today, especially the second quarter.

The good news is also that the commodity prices have started to stabilize rather than a downward trend in a large perspective. The Indian currency has stood firm and has been stable after an initial depreciation. The oil prices again are kind of stabilizing. We’ve had adequate monsoon, and the expectation of rural demand drive is quite affirmative. COVID is no longer a concern, so I think these are some of the good news that we have as we are in the second quarter.

The concerns obviously stay with inflation around the world in terms of regular consumer goods, as well as perishables and nonperishables. There is stabilization, but the overall impact of inflation around the world will be there for everybody to witness and watch as to what is going to come of it. The concern obviously stays on the Ukraine war, which is not abating as yet, although it’s been factored in by the rest of the world, but I think it’s still a matter of geopolitical importance and let’s see where that leads us.

In terms of the market, as we are today, the CVs continue to do okay. The tractors are down compared to what it was, but the message that we get is that there is a likelihood of this to go up now. Two wheelers remain a concern to a certain degree. We still haven’t reached the levels of pre-COVID, but where this quarter — the current quarter is concerned, where we are today, there seems to be bullishness on account of the festival season that is now fast approaching. The off-highway and construction equipment is also stable. There is a small drop that typically happens during the monsoon season. It’s also been affected by the BS Phase 2 issues, but it is not a great matter of concern as we sit here today. The good news, again, is the PVs are doing well and growing. The exports continue. So I think those are good factors where the market demand is kind of concerned.

So I think I’m going to stop there and wait for questions and respond accordingly. Me and Yashpal will try and take all the questions and hopefully give you answers that satisfy you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Abhishek Gaoshinde from Infina Finance [Phonetic]. Please go ahead.

Abhishek Gaoshinde — Sunidhi Securities and Finance Ltd — Analyst

Hello?

Jayant Davar — Co-Chairman of the Board

Yeah, morning.

Abhishek Gaoshinde — Sunidhi Securities and Finance Ltd — Analyst

Good morning, sir. Thank you for the opportunity. Sir, if you can throw some light on the — what kind of RM cost pressure we are looking going forward or we are looking for [Speech Overlap]

Jayant Davar — Co-Chairman of the Board

A little louder please, a little louder.

Abhishek Gaoshinde — Sunidhi Securities and Finance Ltd — Analyst

Hello, am I audible, sir?

Jayant Davar — Co-Chairman of the Board

Yes, better now.

Abhishek Gaoshinde — Sunidhi Securities and Finance Ltd — Analyst

Sir, just one question on the RM cost side that what kind of outlook you’re sharing for the RM cost trend going forward?

Jayant Davar — Co-Chairman of the Board

RM costs, raw materials, right?

Abhishek Gaoshinde — Sunidhi Securities and Finance Ltd — Analyst

Yes, yes.

Jayant Davar — Co-Chairman of the Board

Yes. So, Abhishek, just to answer your question, if you look at the results of the last quarter, we have been deeply impacted on account of raw material costs. And if you got a chance to see the presentation, you would see that we’ve been affected by almost 3.8% of our margin because of raw material costs on a stand-alone basis, and my understanding is 6.8% on a consolidated basis. Now, while all other factors and all our other costs are under control, not just under control but better off, the raw material impact and the manpower costs are the only two factors which have had an effect.

At this point of time, where we sit, these have started stabilizing, and we will get the impact of the raw material change, we get it on a prospective basis. So that has started to arrive, and we are very hopeful that we will go back to neutral levels soon enough.

Abhishek Gaoshinde — Sunidhi Securities and Finance Ltd — Analyst

Okay. So is it fair to assume that the double-digit kind of a margin expectation we have built up earlier would be met by the end of the year?

Jayant Davar — Co-Chairman of the Board

Absolutely. There’s no question. That is our normal operating margin and I see no reason why that should not be there. So if we were to look at the impact and put it together on a neutral working basis, we haven’t lost that margin at all.

Abhishek Gaoshinde — Sunidhi Securities and Finance Ltd — Analyst

Okay. Okay. Thank you, sir.

Jayant Davar — Co-Chairman of the Board

Thank you, Abishek.

Operator

Thank you. Next question comes from the line of Yash Agarwal from JM Financial. Please go ahead.

Yash Agarwal — JM Financial — Analyst

Yes, hi, good morning, sir, and congrats on a decent set of numbers. My first question is, so what sort of residual capex is left for FY ’23? And is it primarily in the India business or the overall business? And what is the peak turnover which you can do after completion of all the capex, maybe not this year, but in the next one to two years? That is my first question.

Yashpal Jain — Chief Financial Officer

Capex side — sir, can I answer?

Jayant Davar — Co-Chairman of the Board

Yes, please.

Yashpal Jain — Chief Financial Officer

Yes. So as of now, as we have given in the presentation, we are executing total eight new projects, right, which has a total capex of INR549 crores as per our revised plan. Out of that, INR250 crores has already been spent on this, so INR300 crores is the residual capex to finish up all these eight projects, so they are into the commercial production. We plan to spend another INR300 crores in the same financial, I think, this financial year itself, so that the plans are through the — as per the schedule in the production. So INR300 crores is our residual capex as of now.

Yash Agarwal — JM Financial — Analyst

Sure. And what could be the turnover after this peak turnover after this is [Speech Overlap]

Jayant Davar — Co-Chairman of the Board

Well, typically, we look at asset terms of about three times to four times, yes. So that’s the potential that we are looking at.

Yash Agarwal — JM Financial — Analyst

So basically, the INR500 crores could give you INR1,500 crores to INR200 crores jump in revenues

Jayant Davar — Co-Chairman of the Board

INR2000 crores.

Yash Agarwal — JM Financial — Analyst

Right, right. Got it. My second question is on the JV losses. So last year, we had about INR9 crores, INR10 crores of losses on the JV. In the first quarter it’s continuing like INR2 crores, INR2.25-odd crores or something. Now, where do you expect this to turn around? And when do you expect this to turn around by? Is it going to be in the foreseeable future?

Jayant Davar — Co-Chairman of the Board

Yes, absolutely. So we have to understand that the JVs were a little fragile. You mentioned yourself that the losses are similar to what they were. But we only have to keep into mind that these losses are despite the commodity price increase. Has that not been the case, the margins would have shown a very good improving trend.

As we said today, I’m very happy to say that more than 60% of these joint ventures have already turned around, and we are working very hard. The focus of the company is to set matters right where the JVs are concerned. JVs were babies when COVID started and obviously, they were affected much more. But now with the focus on, we expect a turnaround very, very quickly, and you’ll be able to see that soon enough.

Yash Agarwal — JM Financial — Analyst

Got it, got it. Also, lastly, on Spain subsidiary, so it is a decent size subsidiary for you. How is the situation there given the fact that there is volatility around the gas prices and the demand situation also? So are we expecting some bit of muted performance in the near term from the Spain subsidiary? Or do you feel that it’s well placed to sort of get through these challenges?

Jayant Davar — Co-Chairman of the Board

No, you’re absolutely right, Yash, in the fact that energy and gas prices have been impacted majorly there. To give you an example, gas prices have gone up by eight times, and energy prices have gone up anywhere between four times to six times. We have been lucky in the sense that we’ve been able to tie up the cost on a long-term contract with power and with gas and power suppliers. So we’ve been impacted to a much lower basis, and we will continue to be impacted on a much lower basis. However, our business demand there is very, very solid as we speak.

So whether it is Europe or whether it is North America or other places that we export to, the demand for our products, not only the ones that were existing, but the new ones that have come in is also very solid. And you would appreciate and understand when new products are concerned, there, if the pipeline is big on newer products, then the pricing that is done for those products is done at the current levels of power and gas as well.

So while you will see some muting in terms of margins, but overall, for the annual purpose and for future growth, which will also now include Romania new plant, which goes into production in a couple of months, I think the outlook is extremely, extremely encouraging.

Yash Agarwal — JM Financial — Analyst

Got it. And last question from my side. So do we stick to the 40% revenue — annual revenue growth guidance that you gave in the last quarter for this financial year FY ’23?

Jayant Davar — Co-Chairman of the Board

Well, the thing is it might vary here or there depending on commodity prices and where it is. You know that when commodity prices start to fall, the overall revenues also drop down to a certain extent, although the margins go up. But I would say — I would continue to say that we are very close to what we were. It was also on the implementation of new projects. That seem to be going unabated, maybe a delay of a month or two. So for our side, I don’t think we’ve made much modification in our forecast. Our forecast is probably variable to an extent of about 5% or so.

Yashpal, do you want to come in and say something?

Yashpal Jain — Chief Financial Officer

No, sir. I mean, we are very well on the track. And we are expecting the new projects to be as per schedule, just a delay of around one to two months depending on the customer schedule, sir. We’ll be able to achieve.

Yash Agarwal — JM Financial — Analyst

Got it. Thank you so much for answering my questions.

Operator

Thank you. [Operator Instructions] Next question comes from the line of Kumar Saurabh from Scientific Investing. Please go ahead.

Kumar Saurabh — Scientific Investing — Analyst

Hello, sir. Am I audible?

Jayant Davar — Co-Chairman of the Board

Yes, you are.

Kumar Saurabh — Scientific Investing — Analyst

Sir, in the latest presentation, I think this is slide number 12. So you have given the expected target of new EV products, which includes your motor controller and DC controller and all. So one question I have is, what we have seen is usually players who are already ready with this kind of kit, they had almost 2% kind of R&D cost they have filed for multiple patents, where our R&D

Jayant Davar — Co-Chairman of the Board

Can you be a little louder, Kumar?

Kumar Saurabh — Scientific Investing — Analyst

Yes. So sir, this is regarding slide 12 regarding our EV preparedness with products like motor controller, DC controller. What we have seen is players who are already in the market with these offerings, they have spent around 1.5% to 2% on R&D, filed lot of patents, whereas our R&D cost has been less than 1%. So how have we prepared for this? And what is the total kit value we are expecting out of these products? So let’s say, the EV bike price or scooter price is INR1 lakh. What is the kind of revenue we are expecting from this product line in terms of that INR1 lakh bike value?

Jayant Davar — Co-Chairman of the Board

Yes. So, Kumar, obviously, the market expects that the prices of Indian componentry once billed [Phonetic] will be close to what their Chinese imports [Technical Issues]. That’s the kind of target pricing that’s been there, right?

So we have been very careful to pick up product lines which need that particular criteria. Now, if you look at hub motor, mid-drive motor, motor controller, DC controller, EV chargers and — charger and the battery management system, each one of them is priced differently. And in many cases, the prices of these depend on the size or the vehicle that’s been produced. That depends on the configuration of the vehicle where it’s going to go. So there is a lot of variation.

If you were to pick up, let’s say, a motor controller or a battery management system, depending on the — let’s say, if you’re looking at a two wheeler, for example, which is the early pick fruit, there it could range from anywhere between INR3,000 to INR8,000 depending on whether it is a high-speed vehicle, whether it is a low-speed vehicle, the kind of power it will have and so on and so forth. So I will not be able to give you individual tasks.

The only thing that we’ve done is, we have managed to create these from a perspective of performance validation done for medium range. Now medium range means that we can pick it up to low range or we can pick it up to a higher range or drop it down to a lower range. So these are — the individual pricing depending on the product line will be very, very difficult for me to give you today.

Kumar Saurabh — Scientific Investing — Analyst

And sir, have we developed it in terms of some kind of JV or partnership because our R&D cost has not been so high? So can you throw some light, please?

Jayant Davar — Co-Chairman of the Board

We have done it. A lot of it has been done in-house. Our Sandhar Centre of Innovation and Development plays a huge part, and we started working on this going back almost five or six years. It was gradual, and it’s been built up to this particular stage. We also have some partners, some in the line of technology suppliers and some possible joint ventures in case they were to come through. But largely from an overall perspective, even if there were to be joint ventures, they would fall in the Sandhar domain of having the control and the pricing impact that needs to be there.

Kumar Saurabh — Scientific Investing — Analyst

And sir, two more questions. So our core products like sheet metal and all, so if the commodity price decreases, what is your view? Do you see any kind of margin improvement now happening in the next three to six months? That is one. And given you mentioned about the new capex, which will be coming, so should we expect more increase in debt in coming quarters?

Jayant Davar — Co-Chairman of the Board

We have said this in the past, and I continue to repeat myself that we have an operating margin of our business. Several times I have been asked this question, is the margin that should be between 12% to 13%, okay? Now, it has obviously suffered on account of commodity prices, on account of what has happened in terms of [Indecipherable] and the other. But as prices start to stabilize now, we are starting to see the green shoots of that reversal happening. Because of the delay in the passing on of these commodity prices to us, as well as for stabilization, I think we are at a stage now where the reversal has already happened.

How long will this take, whether it will take three months or six months is anybody’s guess. But suffice to say that the motion has turned already and we expect that we will start going back towards our aimed and our proven margin goals that we always used to have.

Kumar Saurabh — Scientific Investing — Analyst

Thanks a lot, sir. And sir, one last question. So because we have a good amount of exposure to Hero, and I also listened to the Hero conference calls, and they have been quite bullish that the numbers will improve. But somehow with all the FADA number coming and even when the July November came, it looks like the monthly volume numbers of Hero have not improved. So any idea because that — ultimately that is going to benefit us. So what is hampering Hero’s growth? If you can throw some light?

Jayant Davar — Co-Chairman of the Board

Well, it’s very difficult for me to speak on behalf of the OEM. What is truly happening and the way we look at it is a little differently. It is that the parts and the models that Hero is coming out are becoming more high-value in a sense. And I think that turns positive for companies that are moving up the value chain in terms of the componentry supply. So while volumes, of course, remain a matter of concern and there are changes that are happening to the schedules, the good news like I said is for most of our components that we supply or most of the products or the basket that we supply, that basket itself is going up.

You are aware that we started a new project in Gujarat, for example. That for us is a wallet growth rather than a volume growth in some sense. So we, as a company, will see higher revenues coming from Hero than we have done in the past. And because there are high-value products comparatively, our margins will be better. So that’s what I can talk about our company. I cannot obviously talk about what is pulling and what is not pulling Hero in a particular direction at this point of time.

Kumar Saurabh — Scientific Investing — Analyst

Sure, sir. Thanks a lot. This helps and best wishes for the coming quarters.

Jayant Davar — Co-Chairman of the Board

It is bullish for everyone.

Operator

Thank you. Next question comes from the line of Abhishek Jain [Phonetic]. Please go ahead.

Abhishek Jain — Dolat Capital — Analyst

Good morning, sir. First of all, congrats for decent set of numbers in tough time. Sir, my first question is related with your existing capacity. So how much peak revenue can we generate from your existing capacity? And what is the current capacity utilization?

Jayant Davar — Co-Chairman of the Board

Abhishek, that’s a very difficult question to answer because you are aware that we are in several different product categories. And within those product categories, again, there is components that go into a different scenario. So while I can answer that if you were to look at our capacity in terms of aluminum casting, for example, or plastic, for example, where it’s pure commodity run and you can do the calculations in terms of tonnages, there, it is easy to do.

But for most part, we are a proprietary product manufacturer and supplier, which means it’s locks or it’s mirrors and stuff like that or sensors and electronics now. There, the capacity is never a constraint. So if I was to say, well, I get orders of another 30% of the same thing, it takes me hardly any time in just putting up a small assembly line, and that’s where it is because the entry barrier is the technology that we already have.

So if you are looking at the case scenario, then I think the best would be to calculate it on the basis of our capital employed and — or do an asset turn in terms of the capex that has been employed so far. And typically, like I said, we work on 3.5 times to four times of that number. That should give you an overall potential of the revenue that we can generate. And I answered that question even earlier on the new capex that’s been done. The new capex again, that’s been done is largely being done from new product lines altogether.

I don’t know if that answers your question.

Abhishek Jain — Dolat Capital — Analyst

Yes, sir. So in past quarters, you had indicated that you can generate a revenue of around INR4,000 crores from your existing capacity. And thereafter, you have done a capacity of around INR500 crores to INR600 crores, including the FY ’23 numbers, and the capacity utilization and this asset turnover is three times to four times. That means you are able to do a INR5,000 crores of the numbers.

Jayant Davar — Co-Chairman of the Board

Yes. That’s the number. Absolutely, maybe even higher.

Abhishek Jain — Dolat Capital — Analyst

Okay. So that means that your capacity utilization at the current level would be around 60% only?

Jayant Davar — Co-Chairman of the Board

Yes. If you were to do that hybrid mix and an easy way of calculation, yes, you are correct.

Abhishek Jain — Dolat Capital — Analyst

Okay, sir. And sir, second question on related with the margin side. As you indicated that you are looking for the double-digit margin. So just wanted to know what is the road map to achieve double-digit margin on a sustainable basis? Well, power and logistic cost is still high. And so, how much benefit are you expecting from the fall in the RM prices and how much benefiting from the operating leases and the change in mix?

Jayant Davar — Co-Chairman of the Board

Yes. So typically, what happens is with the OEMs, Abhishek, I’m sure you know from the others as well, while commodity prices are calculated and adjusted as what is called a pass-through by the OEMs, there is a lag of three to six months for that to happen, but it happens. On the flip side, the other costs, which are manpower costs, which are power and fuel costs and other operating costs, those are calculated or those are adjusted either at the time of new product lines or new part numbers or when new models come out or else, in some cases, they are done on a basis of when it grows over a certain number.

So if the costs go up beyond 5% to 10%, then that’s the time when the suppliers go to the OEMs and starts. So, in fact, we just closed one particular case, which has been pending for 3 years for some of these costs with one particular customer. So while it’s an ongoing thing, I would say that the other costs are still very difficult to bring into the system, but commodity prices in any case get adjusted on their own.

Now, what has happened in the last few quarters, obviously, the commodities haven’t abated and they continue to rise to levels which we have never seen before. In some cases, they went up by over 100% and so on and so forth. So — and the lag effect of that is still continuing. However, like I said, now with the reversal happening, these will start coming into our system, and we will get the changes that are required in a prospective basis for some periods of the retrospective periods as well. So you will see that margins will begin to improve and the double-digit margin that you spoke about is something that is not far away according to me.

Abhishek Jain — Dolat Capital — Analyst

So what is the margin outlook for the second and — second quarter and the second half of FY ’23? So

Jayant Davar — Co-Chairman of the Board

I will not be able to give you directly that answer as a future outlook. All I’m saying is, we are headed there. And it will depend again on the speed of the OEMs to give our — all I’m saying is that just raw material itself has impacted us by 3.8% on a stand-alone basis and 6.8% on a consolidated basis.

Am I correct, Yashpal?

Yashpal Jain — Chief Financial Officer

Right, sir. Right.

Jayant Davar — Co-Chairman of the Board

So if you were to add those numbers, you are at double digits and more. So that should answer your question, Abhishek. All we need is these calculations to be brought in and that pass-through to happen, which, like I said, has started to happen. But it’s not — that happens one day and that’s it. It’s a continuous process that keeps happening depending on when the raw material was bought and when the supplies were done. So if they were done in a particular month, it would go on to that corresponding period in the next quarter or so on and so forth.

Abhishek Jain — Dolat Capital — Analyst

So what are your key raw materials where you are able to pass on the prices to the OEM? And what are the key other raw materials where you are not — unable to pass on?

Jayant Davar — Co-Chairman of the Board

[Indecipherable], zinc, brass, nickel. These are the majorities which have had a huge impact. And of course, there is steel. You can’t take that away. But besides this, all the other things also that were based on this have been impacted. For example, for us, because we do electronics, that could even be something like copper wires. There could be solders, which, again, are a possible composite of some of the raw materials that we buy. So yes, there is an impact that has come in because we get affected in our proprietary goods. We use almost all materials that you can think of.

Abhishek Jain — Dolat Capital — Analyst

Okay. And sir, in the Cabin and Fabrication business, it is showing a very impressive growth. [Speech Overlap]

Cabin & Fabrication business is showing impressive growth. So how is the current capacity utilization? And how is the margin improvement as the steel prices have gone down, what kind of the margin you are looking from this business?

Jayant Davar — Co-Chairman of the Board

Again, that was a business in growth, and that has stabilized now to high capacity utilization. We are very, very fortunate that some of the OEMs that were still left out from our system of supplies have now been added to the portfolio. You are aware that exports have started to happen from that particular unit. So as we speak now, we have almost everybody who operates in the country as our customers. Our margins there obviously also have suffered on account of the steel price increase and other things, but they’ve started to reverse.

So I would expect that barring one thing or the other, for example, there was a change in two months for JCB’s manufacturing more out of Faridabad than out of Jaipur and things like that, which are temporary in nature. But if you were to look at the cost and our margins, our margins will run up to the same level as the rest of the business. We are looking at a potential double-digit margin coming there as well as we go forward.

Abhishek Jain — Dolat Capital — Analyst

And sir, in aluminum die casting business, most of the companies have started to show improvement in the margin because of the fall in aluminum prices. So your revenue growth is also very impressive from the last two years. So just wanted to understand what is your revenue guidance for the ADC segment including your foreign business as well as what is the margin outlook going ahead?

Jayant Davar — Co-Chairman of the Board

Again, Abhishek, what we are trying to do now is to make a hybrid of this. So if you look at our new projects, for example, the eight of them, two of them have to do with the machining portion of aluminum. So we will be doing — and I think it’s in the public domain that within the first year of its operation, we expect a revenue of INR77 crores that’s coming only from machining, which is job work.

If it is job work, obviously, we — the margins there are more than double of our regular operating margin. So as a hybrid, you will see margins going up, you will see revenue growing up. And that is something for all times in the future. We want to get into areas. Internationally, we do operate on very high technology and precision castings and machine. And that’s what we are trying to do here as well. So you will see that these margins will continue to grow. I mean, typically, if you look at European companies, you will not see the margins that we operate on in the aluminum business because we do very, very precision parts. And I think our precision parts will carry better margins than what’s the normal commodity aluminum casters typically do.

Abhishek Jain — Dolat Capital — Analyst

Sir, what is the machining mix right now in the ADC segment?

Jayant Davar — Co-Chairman of the Board

Right now, we deliver full components, right, where machining is actually limited compared to what we are getting in for now. I mean, in these two plants that are being set up, we will have close to about 300 to 400 machining centers, all automated, all robotized. So it’s a new concept altogether that’s been brought in, into our operation of business. And we — because this is an area which also has a huge potential for exports and growth.

Abhishek Jain — Dolat Capital — Analyst

Okay. And because of the change in the mix in the ADC segment, it is expected that the margin will improve by the 30%, 40% from here on because of the change — better mix in the material side?

Jayant Davar — Co-Chairman of the Board

Abhishek, you’re tying me on to numbers. I don’t want to give you numbers exactly where it is, but suffice to say that we are in our calculations. And again, in a public domain, we expect margins to be at least double of the margins that we currently have in the business coming out of the machining element of this entire category.

Abhishek Jain — Dolat Capital — Analyst

Okay, sir. Thanks, sir. That’s all from my side.

Jayant Davar — Co-Chairman of the Board

Thank you, Abhishek.

Operator

Thank you. Next question comes from the line of Mohit Khanna from Banyan Capital Advisors. Please go ahead.

Mohit Khanna — Banyan Capital Advisors — Analyst

Hello?

Jayant Davar — Co-Chairman of the Board

Yes, Mohit.

Mohit Khanna — Banyan Capital Advisors — Analyst

Am I audible?

Jayant Davar — Co-Chairman of the Board

Yes.

Mohit Khanna — Banyan Capital Advisors — Analyst

Yes, sir. Good morning. Sir, I just wanted to understand the way our contract works with the OEMs and how does the cost pass on thing works? So did you receive passthroughs in this quarter, first of all?

Jayant Davar — Co-Chairman of the Board

We did, but it was very limited because there wasn’t too much of — it was on a continuously growing basis, right? The commodities were going up. So when the commodities are going up, even if I get settlements of the last quarter, let me give you an example. I think that should be able to suffice.

If I am supplying at INR100 a kilo and I’m buying at, let’s say, INR120 a kilo. From next quarter, my buying price goes up to INR140, but the OEM has settled at INR120. So for three months, I am buying at INR140, but selling at INR120. Unless this entire pattern reverses, when the pattern reverses, then what happens is, then I’m buying at INR100, but I’m supplying at INR140 in the subsequent quarter.

Mohit Khanna — Banyan Capital Advisors — Analyst

Right. So, sir, that’s what I was coming at. Sir, there would be a situation, if I get this correctly, maybe one or two quarters down the line when the raw material prices have come down, wherein you would see a marked bump up in the margins and it would stabilize at those levels if everything remains [Indecipherable], right, that’s how it is accounted?

Jayant Davar — Co-Chairman of the Board

Yes.

Mohit Khanna — Banyan Capital Advisors — Analyst

Thank you so much, sir.

Jayant Davar — Co-Chairman of the Board

See, the only thing is, in a long-term, Mohit, what happens is, if you calculate over a period of 10 years, 15 years, 20 years, commodity prices typically are always on the way up.

Mohit Khanna — Banyan Capital Advisors — Analyst

Right.

Jayant Davar — Co-Chairman of the Board

Yes. So let’s say, steel, for example, going back 10 years ago, used to be INR30 a kilo, right? And over these 10 years, even if it stabilizes today at INR60 or INR55, there is that inflation element, which is always there, right? Now, for us, if you look at the industry, it suffers from that paradigm for the existing components. Of course, when the model is over and we are on to the next path of new components, at that time, the new prices are taken into impact.

Mohit Khanna — Banyan Capital Advisors — Analyst

Got it, got it.

Jayant Davar — Co-Chairman of the Board

And so it [Speech Overlap] on both sides, but in scenarios like what has happened in the last year, we will stabilize and go back into our neutral territories and you are right, we will get the bump up.

Mohit Khanna — Banyan Capital Advisors — Analyst

Right. Sir, one more thing. In the overall product basket, when we shifted to BS6 on the two wheeler side, how much has the import content increased?

Jayant Davar — Co-Chairman of the Board

For us?

Mohit Khanna — Banyan Capital Advisors — Analyst

Yes.

Jayant Davar — Co-Chairman of the Board

For us, we don’t do any components, we hardly do any components which have anything to do with the powertrain.

Mohit Khanna — Banyan Capital Advisors — Analyst

So, I mean, on the raw material side, how much — how has the import has increased if it has increased?

Jayant Davar — Co-Chairman of the Board

No, we haven’t increased any imports. Our imports are typically for some componentry or some electronic componentries that used to be there from Japan or Taiwan or Russia [Phonetic]. That continues, but BS6 has not had any impact on us. In fact, a positive impact because some of the models when they were changed by the OEMs, they went into a higher value add and to justify that price increase, they added some high-value components other than the ones that have to do with the powertrain.

So for example, we were told, you need to use better kind of locks which had a higher value. So otherwise, as a company, Sandhar doesn’t do too much work in the category of powertrain. And even within that, the stuff that we do are more commodity linked than anything. So — and no imports — so we are not really impacted by any of that.

Mohit Khanna — Banyan Capital Advisors — Analyst

Fair enough. And sir, last question, if I may just squeeze in here. You did mention that the industry production volumes have started to improve now and — after the last quarter, especially on the two wheeler side, right? And what is your sense? I mean, if the improvement has started after the decline that we saw, what is the sense on the whole industry part that — is it — will this improvement have legs? Or you think that maybe by next year, we might be in a little bit more subdued level or it might take some time to come back to the pre-COVID levels?

Jayant Davar — Co-Chairman of the Board

Mohit, you are asking me to play astrologer here, which I don’t think I can.

Mohit Khanna — Banyan Capital Advisors — Analyst

No, you are very much closer to the market on the ground operational realities than what we are, and that’s what we are trying to get a sense, sir.

Jayant Davar — Co-Chairman of the Board

You have a very valid question. I wish I knew the exact answer to that. But maybe you’re right, in being in the industry, one is seeing green shoots of some revival of demand even in the two-wheeler segment like I said, but for us, the more important thing is that, for Sandhar, the contribution per vehicle is going up. If I used to supply them seven components to one company, now I’m supplying them nine or 10 different parts. So for me, the pocket share, the wallet share is growing, right? So irrespective, if you look at our numbers, and I think that’s a part of the presentation, if I’m not mistaken, we saw that what happened with the industry and you compare it with how we’ve done, you will see that difference.

Yashpal, you just want to give us the numbers of how the industry grew and how we grew?

Yashpal Jain — Chief Financial Officer

Yes, sure, sir. I’ll just give them. So like on an overall basis, while the industrial growth has been around 38%, we have grown by 65%.

Mohit Khanna — Banyan Capital Advisors — Analyst

Industrial growth, 38% when you say that, sir, you are incorporating what other — what segments?

Yashpal Jain — Chief Financial Officer

We are incorporating two wheeler, four wheeler, commercial vehicles and off-highway vehicles.

Mohit Khanna — Banyan Capital Advisors — Analyst

Sorry, commercial vehicles and EVs?

Yashpal Jain — Chief Financial Officer

Off-highway vehicles.

Mohit Khanna — Banyan Capital Advisors — Analyst

Off-highway vehicles, fair enough. Thank you so much, sir.

Yashpal Jain — Chief Financial Officer

Yes.

Jayant Davar — Co-Chairman of the Board

All segments actually.

Mohit Khanna — Banyan Capital Advisors — Analyst

Yes. Great.

Jayant Davar — Co-Chairman of the Board

So that gives you a feel as to how we have kind of grown compared to the industry. And why that happened is because we’ve added more product lines.

Mohit Khanna — Banyan Capital Advisors — Analyst

Got it, yes. Fair enough. Thank you so much, sir.

Jayant Davar — Co-Chairman of the Board

And because we’ve added product lines, you understand where it’s coming from. So our job is to make sure that we grow faster than the industry.

Mohit Khanna — Banyan Capital Advisors — Analyst

All right. Thank you so much, sir.

Operator

Thank you. [Operator Instructions] Next question comes from the line of Shashank Kanodia from ICICI Securities. Please go ahead.

Shashank Kanodia — ICICI Securities — Analyst

Yes. Good morning, sir. Just, sir, picking up from last question. So sequentially, we [Speech Overlap]

Jayant Davar — Co-Chairman of the Board

A little louder, please, Shashank.

Shashank Kanodia — ICICI Securities — Analyst

Yes. So sir, sequentially, we’ve witnessed a dip in revenues, right? So given the fact that you are increasing your wallet share with existing clients, you had new clients on board in terms of HMSI. So, shouldn’t be your top line growth higher for this quarter itself on a sequential basis?

Jayant Davar — Co-Chairman of the Board

Sequential basis, what has happened is, of course, the demand kind of fell on account of a lot of confusion in the market, Shashank. And that happened — if you look at what happened was because of commodity price increases and a large part also because of semiconductor shortages. So there was semiconductor shortages, the sentiment was low, Ukraine war was happening, the rupee, and there was a lot of dilemmas that happened in the last quarter. And I think while that has stabilized towards the end of that quarter, the new horizon has kind of opened from the current quarter that we are in. So you will see a dramatic change happening now.

Yes, there has been a little drop in the revenue. And of course, like I said, the bottom line was hit largely on account of continuing commodity price. All these have only stabilized in the last month or so. So I think those are the reasons and the kicking off that you are talking about is happening very gradually. So while it will take shape and our new projects will start ramping up from now on, although we did start some of the units in the last months or a couple of months, the ramping up and the initial teasing issues are always there in terms of supply and OEM compatibility and that has started to [Indecipherable].

Shashank Kanodia — ICICI Securities — Analyst

Sir, secondly, on one of the opening slides, you mentioned underperforming the four-wheeler industry on Y-on-Y basis. So could you please specify what are the [Speech Overlap]

Yes. Sir, on one of your slides in the presentation, you mentioned underperforming the four-wheeler part, right, on a Y-on-Y basis, meaning you grew 21% and the industry grew was — growth was 38%. So did we lose any client or any specific [Speech Overlap]

Jayant Davar — Co-Chairman of the Board

We did not lose. Unfortunately, for some of the Japanese OEMs including Honda, which is a large customer for us, their sales dropped because of their diversion of semiconductors to some of their other global facilities where they felt this was more important to do. And therefore, if you look at numbers of Honda, for example, that will tell you that the drop that they’ve had is much larger than the drop that we had, in that particular quarter.

Shashank Kanodia — ICICI Securities — Analyst

Fine, sir. And sir, lastly, on the margin front sir, do you foresee Q2 is still hitting a double-digit mark? Or you see Q3 probably will hit the double-digit margins [Speech Overlap]

Jayant Davar — Co-Chairman of the Board

And Shashank, what were you saying, sorry?

Shashank Kanodia — ICICI Securities — Analyst

On the margins front, do you see Q2 itself be hitting a double-digit mark or Q3 be hitting a double-digit one because Simon again says you have [Speech Overlap]

Jayant Davar — Co-Chairman of the Board

I am not allowed to give you any forward-looking statements, but suffice to say that this is on an improving trend and quick improving trend.

Shashank Kanodia — ICICI Securities — Analyst

Sir, that is true, but, sir, you’ve always kind of overpromised and underdelivered on the margin front, right? So we’ll be maintaining a 12%, 13% kind of a target, but sequentially, which [Phonetic] is a decline.

Jayant Davar — Co-Chairman of the Board

No, no, I’m not trying to argue here. All I’m saying is it is improving, and therefore, I’m not giving you a margin call. I am saying, I have given you the basic as to how we have suffered on the basis of a commodity price increase. And I’ve given you percentages there — exact percentages there in 3.8% and 6.8%. Now, how much improvement is happening is for all of us to see, calculate and decipher. According to us, they have started stabilizing and the bump up that somebody spoke about earlier in regards to OEM compensating us will bring a better margin call.

Now what exactly that call is going to be? And maybe like you said, I’ve given overpromise. So I don’t want to overpromise anything, Shashank. I would rather say let’s go with the flow, it is improving as we see. And it is very, very difficult for me to be able to predict some of the histological reasons as to our buying today. Our buying is, of course, at lower levels today. But what happens if it goes up in the next month, that’s difficult call for me to take.

Shashank Kanodia — ICICI Securities — Analyst

Right sir, right sir. Thank you so much, sir and wish you all the best.

Jayant Davar — Co-Chairman of the Board

Thank you.

Operator

Thank you. Next question comes from the line of Nikhil Kale from Axis Bank. Please go ahead.

Nikhil Kale — Axis Bank — Analyst

Yes. Good morning, everyone. Thanks for taking my question. So, yes, just one question on the slide that you’ve given in the presentation where you talked about the products that are under development. Just wanted to understand

Jayant Davar — Co-Chairman of the Board

Nikhil, which slide is it?

Nikhil Kale — Axis Bank — Analyst

Slide number 12, which — the expected target for new EV products.

Jayant Davar — Co-Chairman of the Board

Okay.

Nikhil Kale — Axis Bank — Analyst

Yes. So just wanted to understand, I mean, we are developing quite a few products here, specifically on motor control, BMS. I mean, are we getting comfort on the new orders here from the existing incumbent OEMs? Or is this more from the new-age OEMs? The reason I ask this is we are getting kind of a mixed feedback wherein there are certain OEMs who are saying that they want to have these components in-house and have control on these components whereas some of the new-age OEMs are open to outsourcing?

Jayant Davar — Co-Chairman of the Board

No, we are looking at the incumbent ones who are already present. At this point of time, a large part of all of this is being imported, Nikhil, as you are aware. And everybody is in a rush to kind of localize it and localize it without the import of any sub-componentry that goes into it. And that’s what we managed to largely do. And like you say, most of them are in proto readiness now, and we expect the validation to get over in the coming months. Yes, we are in talk with the incumbent ones, all the ones that all of us know about.

Nikhil Kale — Axis Bank — Analyst

Okay. Got it. And then secondly, on our JV, just wanted to understand, I mean, the JV performance has been impacted because of certain industry-related issues. There have been certain internal issues with some of the JVs as well. But just, I mean, on some of these JVs, is there any thought that, okay, there is some, say, you want to maybe try it out for maybe a year or two and then take a call whether you want to continue or shut down those businesses? Just some thought process on the strategy there?

Jayant Davar — Co-Chairman of the Board

We, obviously, Nikhil, you would understand that you’re right, it is a mixed bag in some sense. There are some where we see a long-term potential and we continue to follow them. And we are focusing on them so that their numbers are improving by the day. There are some in which because of the COVID lag, we are in touch with our joint venture partners to see whether either product lines or some of these could be diverted to other places as exports or what is the best way forward for some of these to have a long-term growth potential for both us and our joint venture partner.

So those conversations are growing. I am sure that within the next quarter or two, we will have complete clarity on how we are running forward with these JVs because you are right, I mean, these JVs have been a burden on us and it’s time for those JVs to either start producing or they are diverting.

Yashpal Jain — Chief Financial Officer

By quarter three, we will have a definite clarity with the JVs, how they are going to perform by quarter three.

Jayant Davar — Co-Chairman of the Board

Yes. I think, Yashpal is giving you a direct picture now.

Nikhil Kale — Axis Bank — Analyst

Okay, got it. Yes, thank you, thanks a lot.

Jayant Davar — Co-Chairman of the Board

The next question comes from the line of Navneet Bhaiya [Phonetic] an individual investor. Please go ahead.

Navneet Bhaiya — Individual Investor — Analyst

Good morning, Mr. Davar. My question is regarding a couple of your OEs. So the volumes of these OEs are below their peak level for a reasonable period of time and maybe if we can take names of Hero and Honda cars over here. What happens to your surplus capacities? Because you’ve been supplying to them at their peak as well, and their volumes are like well below their peak right now. So can you use your surplus capacities for some other OE? Or do you just wait for them to get back to their peak?

Jayant Davar — Co-Chairman of the Board

Yes, Navneet, that’s a good question. So I think one of the good news that I forgot to give you is that, by the way, we’ve got the complete orders for all Suzuki Motorcycles including the introduction of our Smart Locks. So that’s something that we can happily announce that’s in the public domain now. And that is a large order for us, and we break into the territory of Smart Locks, which I don’t know what the number is, but if I’m not mistaken, the lock sets now go up to a price of something like INR3,000.

And that has been a big breakthrough, which will be the first ones to be launched in India, both the shutter key and otherwise. I think the volumes that we’ve been given as projected again in the public domain are INR7 lakhs for the shutter key system and — which basically has a potential revenue of something like INR500 crores in its full run. So that is something a good news that I wanted to share.

Coming back to your Hero and Honda, again, our interest, Navneet, largely is that our business with them should be on a growth track. So irrespective of whether they grow or are stable or even have a little bit of a detrimental sales volume, our pocket share, our wallet share is going up, so the number of components that we supply or the amounts that we supply. So if you go back and see, at one point of time, we used to supply them something like INR1,500 worth per motorcycle.

Today in many models, that’s crossed the level of INR7,000, INR8,000 and even in the case of TVS probably INR10,000 or [Technical Issues]. So our job is to make sure that we keep adding [Indecipherable] of revenue from these. So for Hero, for example, will grow irrespective and that is a number that you saw when the industry grew by something like 38%, we grew by about 60-odd percent.

Navneet Bhaiya — Individual Investor — Analyst

Okay. And in the case of Honda, how does it work? Because I believe their volumes are also like 40-odd percent below from the peak that they used to do at one point of time?

Jayant Davar — Co-Chairman of the Board

That’s right. So they’ve been consolidating their product profile and line. We have tie-ups with them and we’ve tied up with them for the future models, which have just been locked in. They are now also looking at India to be a hub for supplies into Southeast Asia and so on and so forth. So some of the componentry that we are doing will add to volume. They’ve had a difficult three to four years, but I do see revival happening. And in the meantime, to be able to cut costs and to be able to add more value to us, we’ve added some of the parts that used to be imported into our city. So, for example, if you look at our project profile, the new products and new projects being set up, one of them is the SMT, which is a PCB manufacturing SMT assembly.

So for us, that’s going to be another value-add that comes to us. So we are trying to determine wherever we fit in, but each focus and everything is based on how much better value-add and profitability we can build into these product lines and to these OEMs irrespective of whether they are growing in volumes or not. The thing is, Navneet, we supply to almost everyone today and because we supply to almost everyone today, the entire industry can also go down, but we as a company must make sure that we grow.

Navneet Bhaiya — Individual Investor — Analyst

Right. No, so the clarification I wanted like the manufacturing unit in, I think, Gurgaon where you supply locks to Honda cars. So now that their volumes are low, so for locks, are you underutilized to that extent? Or can you divert that capacity to some other product or some other OE? Or you just have to wait for their volumes to pick up?

Jayant Davar — Co-Chairman of the Board

Yes. So two things there. One, like I said in the beginning, the assembly process itself is limited to very small spaces where capacity really is of no constraint, either up or down where a large portion doesn’t go in there. What goes into capital expenditure is paint shops, for example or magnesium casting, for example, where we’ve already diverted our thing to the electric cycles that are being made by, let’s say, Hero electric or Hero bicycles that is being done in Europe. So we are using those capacities for other customers in any case. And in case Honda or others who were to come back with larger capacities, we will still have margins to be able to do that in terms of assemblies and so on.

Navneet Bhaiya — Individual Investor — Analyst

Okay. So you’re not sitting on unusually large spare capacities?

Jayant Davar — Co-Chairman of the Board

No, no, no. We don’t do that at all.

Navneet Bhaiya — Individual Investor — Analyst

Okay. Got it. And my second and last question is for the four-wheeler segment, the supplies that you do to Autoliv, TRW and Bosch, are these again for particular cars? Or these are OE agnostic? How does it work as in

Jayant Davar — Co-Chairman of the Board

Yes. So like I said, most of the parts that we deliver and supply are agnostic to the kind of powertrain that there is, right? And in fact, a lot of these are now going into the EV models as well. So for us, the changeover of our powertrain is not going to have an impact in tax. EV growth is going to be very positive for us because these are new componentries that have come in. So for example, we are world’s largest producer of seat belt spools. Now, irrespective of what the powertrain is, the seat belts still continue to in every vehicle. That is not going to change. We make [Speech Overlap] motor boxes. So that is never going to change.

Navneet Bhaiya — Individual Investor — Analyst

Okay, got it. So seatbelts, I would presume you would be supplying to Autoliv. So my question was that if Autoliv is supplying to a particular OE, would the volumes of that OE be relevant? Or are you OE-agnostic because Autoliv might have multiple OEs and they can divert. If VW is not doing well, maybe they can divert to BMW, I’m just taking examples over here.

Jayant Davar — Co-Chairman of the Board

Okay. If you — okay, so let me put it in another way. We supply to 30% of all the seatbelts that are manufactured in the worldwide horizon, okay? And irrespective of whether it is Autoliv or whether it is TRW or whether it is the Japanese manufacturer, we supply to all these. So we are largely dependent on the overall size of the world market rather than saying which one is pushing that. So if TRW loses an order and Autoliv wins an order, for us, it remains neutral in that respect.

Navneet Bhaiya — Individual Investor — Analyst

Understood, yes, okay. Perfectly understood. Right, so that’s all that I had. All the best for your future quarters. Thanks so much.

Jayant Davar — Co-Chairman of the Board

Thank you, Navneet.

Navneet Bhaiya — Individual Investor — Analyst

Thank you.

Operator

Thank you. As there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Jayant Davar — Co-Chairman of the Board

Thank you, Dolat, for putting this together. In terms of — I’ve already spoken about where we are headed, things look a little better than what they were in the last quarter. Some of the concerns have kind of gone. Some of the long-term pivotal impact of inflation continue, and we will have to fight all of that. We, in ourselves are trying to rationalize and optimize cost to their best possible scenarios.

We are very, very happy with the new order wins that have come in into the system, not only for the coming short term, but also for the long term. We are very, very excited with the new eight projects that are going on stream. And this will not only build capacities, but new relationships and new wallet share gains that will come to us. And suffice to say that the company keeps itself on a very, very prudent basis. And while we haven’t been able to deliver the kind of returns that our investors and shareholders expected us to, we are very, very positive and focused on bringing a smile to their faces soon.

Thank you very much.

Operator

[Operator Closing Remarks]