Amber Enterprises India Limited (AMBER) Q4 FY23 Earnings Concall Transcript

Amber Enterprises India Limited (NSE: AMBER) Q4 FY23 earnings concall dated May. 17, 2023

Corporate Participants:

Jasbir Singh — Chairman and Chief Executive Officer

Sudhir Goyal — Chief Financial Officer

Analysts:

Dhruv Jain — Ambit Capital — Analyst

Ankur Sharma — HDFC Life — Analyst

Bhoomika Nair — DAM Capital — Analyst

Sonali Salgaonkar — Jefferies India — Analyst

Madhav Marda — Fidelity International — Analyst

Nitin Arora — Axis Mutual Fund — Analyst

Pankaj Tibrewal — Kotak Mutual Fund — Analyst

Nikunj Gala — Sundaram AMC — Analyst

Aditya Bhartia — Investec — Analyst

Alok Deshpande — Nuvama Institutional Equities — Analyst

Pritesh Chheda — Lucky Investment Managers Pvt Ltd. — Analyst

Anupam Goswami — Star Union Dai-ichi Life Insurance Company Limited — Analyst

Jayesh Shah — OHM Portfolio Equi Research — Analyst

Keyur Haresh Pandya — ICICI Prudential Life Insurance — Analyst

Pulkit Singhal — Dalmus Capital Management — Analyst

Vinod Chari — BOB Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Amber Enterprises India Limited Q4 and FY ’23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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. [Operator Instructions]

I now hand the conference over to Mr. Jasbir Singh, Chairman and Chief Executive Officer. Thank you and over to you, sir.

Jasbir Singh — Chairman & Chief Executive Officer

Hello and good morning, everyone. On the call, I’m joined by Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, CFO; Mr. Sachin Gupta, CEO, RAC and CAC Division; and SGA, our Investor Relation Advisors. We have uploaded our result presentation on the exchanges and I hope everybody had an opportunity to go through the same. Indian RAC market has grown to almost 8.4 million units in FY ’22-’23 and poised to create healthy growth in the upcoming years owing to rise in temperatures, boom of residential sector, growing retail and hospitality sector, rising construction activities in the commercial and real estate space, along with rampant expansion on SME and commercial hubs. The growing construction projects across the country supported by governmental spending towards infrastructure would eventually result in the disproportionate demand for HVAC solutions by stepping up the transport infrastructure of the country such as railways, metros, and buses.

With the AC industry peaking to a market size of 8.4 million in FY ’22 to ’23 and the continuous rise in demand for air conditioners, Amber looks forward towards an optimistic and steady growth in coming quarters. This year we have witnessed many brands shifting their strategies and adopting to in-source assembly rather than outsourcing. While markets looked this change as a threat, we at Amber turned it into an opportunity by expanding our offerings under the components and sub-assemblies segment. Owing to the rise in components and sub-assemblies businesses, Amber during the year expanded its market share in room AC industry at manufacturing footprint level in value terms to 29.4% in financial year FY ’23 vis-a-vis 26.6% in FY ’22. In last five years, each division entered into adjacencies. I’m glad to announce that all divisional engines are firing well by expanding geographies, adding customers and products, and expanding its wallet share in existing customers.

The company is marching ahead in its export initiatives, have started getting approvals from its export customers, and expecting orders to flow in current financial year FY ’23-’24. We remain focused on prudent asset allocation, which results in better return on investment while balancing growth, profitability, and improved return ratios. Witnessing a strong 4% jump in ROCE in FY ’23, which improved from 11% to 15% and expected to improve further in the range of 19% to 21% in next two to three years’ time. Our net working capital days has improved to 29 days from 39 days largely due to better control on inventories. Closed our financial year ’23 at a net debt level of INR588 crores at consol level. During FY ’23, we did a capex of INR698 crores at consol level that helped in increasing the profitability and improving the share of business in RAC segment and other divisions. Since IPO in FY ’18, Amber Group has transformed from largely a RAC player to a diversified B2B solution provider.

While RAC remains to be our focus segment, our all other divisions such as mobility, electronics, motors, and components are on a strong growth path contributing significantly in both topline and bottom line with good return on investments. We are currently witnessing a muted quarter one FY ’24 due to unseasonal rains largely in the north part of India, which generates large amount of demand during this period. However, we are strongly hopeful to consistently grow our bottom line due to product mix change and operational efficiencies. I will now take you through the consolidated financial highlights. In the revenue front for FY ’23, revenue stood at INR6,927 crores versus INR4,206 crores in FY ’22 marking a growth of 65%. For the quarter of Q4 FY ’23, revenue stood at INR3,003 crores versus INR1,937 crores in Q4 FY ’22, a growth of 55%. On operating EBITDA for FY ’23, operating EBITDA stood at INR475 crores versus INR296 crores in FY ’22, a growth of 61%.

For quarter four FY ’23, operating EBITDA stood at INR204 crores versus INR133 crores in Q4 FY ’22, a growth of 54%. Operating EBITDA margins for FY ’23 and Q4 FY ’23 stood at 6.9%. Financial year and Q4 operating EBITDA is before the impact of ESOP expense and other non-operating income and expenses. Now moving to the divisional performance. RAC and Component division: for FY ’23, revenue stood at INR5,074 crores versus INR3,065 crores in FY ’22 marking growth of 65%. For the quarter FY ’23, revenue stood at INR2,371 crores versus INR1,529 crores in Q4 FY ’22, a growth of 55%. For FY ’23, operating EBITDA stood at INR284 crores versus INR178 crores in FY ’22, a growth of 16%. For Q4 FY ’23, operating EBITDA stood at INR140 crore versus INR91 crores in Q4 FY ’22, a growth of 53%. This division has added new customers during FY ’23.

This division has also realigned its strategy to offer comprehensive solutions in components and sub-assemblies in tandem with the strategy of RAC customers to insource the assembly businesses. We converted gas charging customer into complete manufacturing solution and also expanded geographical presence. On the Mobility Application Division, which includes Sidwal, for FY ’23 revenue stood at INR422 crores versus INR289 crores in FY ’22 marking a growth of 46%. For the quarter four FY ’23, revenue stood at INR113 crores versus INR82 crores in Q4 FY ’22, a growth of 37%. For FY ’23, operating EBITDA stood at INR99 crores versus INR67 crores in FY ’22, a growth of 47%. For quarter four FY ’23, operating EBITDA stood at INR28 crore versus INR20 crore in Q4 FY ’22, a growth of 43%. This division is having a strong order book of more than INR700 crores as of today. It commenced production of pantry systems for Vande Bharat Express increasing its wallet share in increasing — in existing customers.

It has done transfer of technology agreements in the plug door segments and gangway segment, which will help in expanding their wallet share in the existing customers of railways and metros. And defense applications for this division is also seeing a robust growth. On the Electronics Division, which includes ILJIN and EVER for FY ’23, revenue stood at INR1,125 crores versus INR617 crores in FY ’22 marking growth of 82%. Quarter four FY ’23, revenue stood at INR415 crores versus INR245 crores in Q4 FY ’22, a growth of 69%. For FY ’23, operating EBITDA stood at INR51 crores versus INR26 crores in FY ’22, growth of 95%. For Q4 FY ’23, operating EBITDA stood at INR21 crore versus INR13 crores in FY ’22, a growth of 53%. In this segment, the wearable segment is witnessing a strong growth. It has also done — the pilot lot of telecom products also have started.

It has onboarded new customers in wearable and telecom sectors and the room AC PCBA market share has crossed 20% of the complete RAC sector in PCBA and is consistently growing. On the Motors Division, for FY ’23 revenue stood at INR307 crore versus INR236 crores in FY ’22 marking a growth of 30%. For the quarter four FY ’23, revenue stood at INR105 crores versus INR80 crores in FY ’22, a growth of 31%. For FY ’23, operating EBITDA stood at INR42 crores versus INR25 crore in FY ’22, a growth of 69%. For quarter four FY ’23, operating EBITDA stood at INR16 crores versus INR9 crores in Q4 FY ’22, a growth of 78%. It is expanding BLDC motors now in ODUs and WACs and commercial segment of heating, ventilation, and airconditioning. It is at advanced stages to add marquee clients in exports and also developing motors for newer applications other than RAC segment.

With this, I would now open the floor for Q&As.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Dhruv from Ambit. Please go ahead.

Dhruv Jain — Ambit Capital — Analyst

Congratulations, sir, on a great set of numbers. Had couple of questions. One is that, sir, the growth that we have seen in the RAC business and the entire business in that sense and you mentioned about new customer addition. So, if you could just give some indication as to what was the quantum of the growth that was driven by new customer addition and how should we look about — look at it going forward?

Jasbir Singh — Chairman & Chief Executive Officer

Well, good morning, Dhruv, and thanks. Each division has actually added customers. So from consol level point of view, the newer customers addition, we don’t have a number right now but we can definitely come back to you at a later stage. But it has — all these new customers that were added has come in quarter four and that’s the reason why quarter four revenue jumped significantly. So we were in touch with these customers from last two to three years and, as explained earlier, the lead times to onboard a customer is quite high in our businesses and this was a very positive part from all the divisions’ perspective that has led to this kind of a growth.

Dhruv Jain — Ambit Capital — Analyst

Okay. And sir, a question on Sidwal. So, your order book now is at about INR700 crores and there is optimism all around railways and defense division. So from a, say, three to four-year point of view, do you think that this business can double with respect to whatever you’ve been doing on the defense and the other application side also or it is just a one-time thing in FY ’24? Your thoughts there.

Jasbir Singh — Chairman & Chief Executive Officer

No, see, what we are — there are two things happening simultaneously. One is that because railway ministry now is launching more of Vande Bharat Express, which is completely airconditioned train. Earlier only 29% to 30% of coaches were are getting airconditioned. So that is one shift, which is increasing the addressable market. Second shift is newer kind of trains in the metro lines, which has been launched by Urban Development Ministry, which is RRTS as well as the normal metro trains, Rapid Rail Transit System. So, we have got approvals in all the three categories and what we are doing to further enhance our addressable market is to get into adjacencies. Like as explained that we have entered into pantry systems for Vande Bharat Express. We are now — we’ve done a transfer of technology agreements for getting into doors and gangways, which will enhance our offerings to the same customers. So, our offering in the bill of material of a metro will double. So from that perspective, it will be right to assume that yes, we can double the revenue in three to four years’ time.

Operator

Thank you, Mr. Dhruv. I request to rejoin the queue for any follow-ups. Thank you.

Dhruv Jain — Ambit Capital — Analyst

If you could just spell out, sir — just one small question. If you could just spell out the capex number for FY ’24 and ’25.

Jasbir Singh — Chairman & Chief Executive Officer

FY ’23 we have done INR698 crores and this year we should — we have planned for a capex of INR350 crores to INR375 crores, which will largely be spent on four areas; R&D and maintenance capex and also expanding the — expansion of the subsidiary businesses and also brownfield expansion in the components and sub-assembly segment.

Operator

Thank you, Dhruv. Request you to rejoin the queue for follow-ups as we have several participants waiting for their turn. Thank you. The next question is from the line of Ankur Sharma from HDFC Life. Please go ahead.

Ankur Sharma — HDFC Life — Analyst

Yeah. Hi sir. Good morning. Thanks for your time. Just three, four questions. One, if you could give us the volume breakup for your RAC business for ’23 and if possible between split and windows. Second, if you could just — I mean you did mention that Q1 seems to be a little muted and we are aware that there has been unseasonal rainfall across north and couple of other regions. So, if you could talk about channel inventory. Is it only in the north where inventory seems to be high or are you seeing that across other parts of the country as well? And thirdly, in terms of your overall industry growth itself for ’24, you did talk of a number closer to 8.4 million, 8.5 million in ’23. Given summers have kind of been a little weak to start off, how do you see volumes for the full year?

Jasbir Singh — Chairman & Chief Executive Officer

Good morning, Ankur. Basically on the volume side, we’ve stopped giving the volume numbers because it has become a company sensitive information. We saw it in past that some of the customers, they took the numbers and started renegotiating, which was negative for the company. On the value terms, as I explained that we have started seeing our offering to customers from a wallet share on the bill of material part. So at 8.4 million number, the market size comes to about INR25,000 odd crores which converts into INR17,640 crores in the manufacturing footprint level. And room AC plus the room AC components, we have done about INR5,194 crores, which comes to about 29% market share. So that is on the value terms.

On your second question on Q1 status, yes, the demand is muted and we are all seeing very unseasonal rains in the middle of the May. Temperatures in Delhi on 2nd of May was 21 degrees. So, you can expect airconditioner system. But yes, channel inventory is high as we speak today. We are hopeful that this will be liquidated in the month of June and July. And on the overall industry growth, we were optimistic that industry will touch about 17% to 18% growth. But now I think we are still hopeful looking into the lifestyle shift and power adequacy plus other — so many other reasons, industry should be in that 10% to 15% range in the financial year-end. So, that’s our estimates. So, 8.4 million should move to about 9.5 million by financial year-end.

Ankur Sharma — HDFC Life — Analyst

Sure. And how do you see margins — if I may squeeze in one because especially on the standalone level, our margins at the EBITDA level we used to be at about 7%, 8%. This year we are at a number closer to 4%. So given inventory is high, brands are facing pressure, not able to take price hikes; how do you see yourself? I mean do you think margins can improve either because of price increases, but I think that looks difficult given the brands themselves are suffering? So, how do you see margins and obviously pricing?

Jasbir Singh — Chairman & Chief Executive Officer

Ankur, I have been actually requesting each of the investors and analysts every time I’ve met in last five years that please don’t see our balance sheet in the percentage of margins. Percentage of margins are complete function of commodities, currency, and product mix. Now what we see is the absolute number and that’s what we are focused on. So for us for example, I go to a customer and he offers me to supply INR100 crore business on the component side, which is at a 8% to 9% margin. But he also asks me to put about INR70 crores, INR80 crores of sub-assemblies, which is actually a pass-through for me. So from my point of view, the billing will be INR180 crores to him, but the percentage of margins will drop, but I can’t say no to him. So as a solution provider — comprehensive solution provider, we need to see the absolute number growth.

That’s what I guided earlier, has been guided, and I would again guide is that we look at the CAGR of delivering 25% to 30% of absolute EBITDA numbers on a year-to-year basis irrespective of the margins on the gross margins. The gross margin on the standalone, which you are seeing which is looking at a subdued level is primarily because we have added a lot of components business; but other sub-assemblies have also started actually getting added. So today, customers — most of the customers, they move on lean manufacturing systems and they outsource much of the assembly part to customers like us. So that’s why you are looking at a — the balance sheet shows you a number of 5% on the gross margin side.

Operator

Thank you. Mr. Sharma, request to rejoin the queue for any follow-ups. The next question is from the line of Bhoomika Nair from DAM Capital. Please go ahead.

Bhoomika Nair — DAM Capital — Analyst

Congratulations, sir, on a good set of numbers. Sir, my first question is on the market share, which has now become 29% and you spoke about PCBAs being about 20% of the industry. So from the rest of the kind of components that we have, say, motors or in terms of the plastic molding etc; what is our level of market share? And on an overall basis, how do you see this inching up to 29% or is this something that we are just starting to hit the ceiling? Number two is if you could just talk about the overall exports outlook on both motors as well as on ACs and the motors margins have inched up to 15% over the last two quarters. So, is this something which is sustainable? And sorry, if I may just lastly just squeeze in on the capex number. You spoke about the INR350-odd crores of capex in ’24. Last couple of years we’ve seen a very aggressive capex cycle per se. Do you see that kind of tapering off and where do you see the net debt level settling into the next one or two years?

Jasbir Singh — Chairman & Chief Executive Officer

Good morning, Bhoomika, and thanks. So, I’ll start with your first question on the components share of business other than the inverter PCBA board. So I think on the motors front, PICL is the leading company today in the motors front. We will be sitting somewhere about close to about 26% to 27% market share on the component side. And in sheet metal, we are the largest in the country giving solutions in the sheet metal side, we should be somewhere about 35% to 40%. And then on the cross flow fan side, again we are one of the leaders again having about 25% market share. So in each category of the components except heat exchanger, which is largely made in-house by customers, we are enjoying a dominant share in the component side. Now, your question about whether the 29% can go upward? That will completely depend. Yes, our endeavor is to take it upward. We have already jumped by almost 300 basis points from 26% to 29%. We will endeavor to move further — inch upwards as we move ahead.

On the exports of motors front, it’s growing steadily. It takes about two to three years, as I explained earlier to everybody, for getting customer approvals because this is a functional component. We have received approvals from our customers and we are expecting to add two large customers within this financial year. On the sustainability of margins on the motor side, it will completely depend on the product mix side in the percentages terms, but yes, there will be definitely growth on the absolute number. So BLDC motors, they are little less in the margins. Other than BLDC, we are enjoying good margins. So it will completely depend on what is the — but on the absolute number, we are expecting a good growth. On net debt level, we closed the year at INR588 crores and I think we are expecting to close the FY ’24 given the capex which we have announced despite of that, at least it will come down by INR100 crore to INR150-odd crores in this financial year.

Operator

Thank you. The next question is from the line of Sonali Salgaonkar from Jefferies. Please go ahead.

Sonali Salgaonkar — Jefferies India — Analyst

Sir, thank you for the opportunity and congratulations on a great set of numbers. Sir, my first question is regarding price hikes. Also with respect to the new BEE models that are there in the system now so what is the quantum of price hikes that you have taken from January till now? And also an extension to this question. Is the transition to the new BEE almost complete and have all channels now restocked with new models?

Jasbir Singh — Chairman & Chief Executive Officer

Yes. Good morning, Sonali, and thanks. On the price hike, there has been no price hikes because commodities are not — it’s more or less stabilized now. And BEE norms everybody has adjusted, all the inventories are well taken care of and it has been digested by the market. So, it’s a new normal now.

Sonali Salgaonkar — Jefferies India — Analyst

Understand. Sir, and second question, any update on the PLIs, please? You have received two PLIs, one in the normal category, one in the large category. Any update you would like to share at this point in time?

Jasbir Singh — Chairman & Chief Executive Officer

So we have crossed our, I mean, threshold limits both on the incremental the capex which was required and also the incremental sales. So, we’ve ticked both the part of the PLI eligibility and we are eligible. I think within this financial year, we expect to receive the first part of the PLI.

Sonali Salgaonkar — Jefferies India — Analyst

Understand, sir. And on the incentive, what is your strategy on that? Would you like to share it back with the brand owners or retain it with yourself?

Jasbir Singh — Chairman & Chief Executive Officer

No, we have not shared any incentives with the brand owners because there is no equity investments done by our brand in the capex required by government for getting eligible in the PLI. And so, we are not sharing any part of the PLI with any of the customers.

Operator

Sonali, may I request to rejoin the queue for any follow-ups?

Sonali Salgaonkar — Jefferies India — Analyst

Sure. Thank you.

Operator

Thank you. The next question is from the line of Madhav Marda from Fidelity International. Please go ahead.

Madhav Marda — Fidelity International — Analyst

Sir, good morning. Thank you so much for your time once again. I completely understand that percent margins is not the right way to look at the business. But if we look at the RAC and Component division where we reported INR284 crores of EBITDA in FY ’23. Sir, as I go into FY ’24 and ’25, you did indicate that we could grow ahead of the industry. But just how should the EBITDA basically shape up because last year there was a lot of volatility in terms of commodity costs, product mix shifts, etc. So just as we go into FY ’24, if you could give us some sense in terms of how the EBITDA overall on an absolute basis could grow.

Jasbir Singh — Chairman & Chief Executive Officer

So, I think we are seeing stability in the commodity cycle. I don’t think so there should be any further change in the commodity cycle. And so, we should be able to maintain what we are at. But yes, we expect to see some kind of operational leverage because capacity utilizations at our new plants are little less, which will also add some bit of margins going forward.

Madhav Marda — Fidelity International — Analyst

Got it. And just in terms of the ESOP cost as well, that should start coming down. I’m assuming that would have peaked out in FY ’22 or ’23 for us.

Sudhir Goyal — Chief Financial Officer

Hi. So, ESOP cost for the current financial year like the financial year ’22-’23 is INR27 crores. And the current financial year, which is like financial year ’24, we are expecting it is around INR18 crore to INR19 crores and it will start coming down over the period.

Madhav Marda — Fidelity International — Analyst

Got it. And what’s the capacity utilization at our plants currently? Is there like a blended number that you have or any thoughts that you can give us, that would be very helpful.

Jasbir Singh — Chairman & Chief Executive Officer

Madhav, each of the division is at different capacity utilization. Talk about two greenfield facilities, which we have just started. It was started in — Sricity started in quarter four and we just ended up having 20% capacity utilization. But this year we expect the capacity utilization to go to at 35%, 40%. But other than that, all divisions are at different levels. So on a blended basis, I would say we should be at about 65% to 70%.

Operator

Madhav, request you to please join the queue for any follow-up. We have several participants waiting for their turn. Thank you. The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.

Nitin Arora — Axis Mutual Fund — Analyst

Hi, sir. Thanks for taking my question. I understand you’ve stopped giving the volumes for the reason which you stated. But generally in the last four, five years in the standalone side which is your ROCE, you’ve grown at 24% — 23%, 24% CAGR. What could be the industry CAGR in that case?

Jasbir Singh — Chairman & Chief Executive Officer

Industry has grown about 16% to 17% CAGR.

Nitin Arora — Axis Mutual Fund — Analyst

Okay. And sir, what was the need of moving into the component side? Just a little structural question because one, a company becomes — loses 400 basis points, 500 basis points of margin, you become a very thin margin company on the RAC from about 7%, 8% to 4%. So generally as a business call when you are increasing the market share, if you would have lost it, you would have moved to the other business in terms of increasing your content. When someone is gaining the market, then what was the need of coming to the component where you’re losing out in terms of even ROE, ROCE? If you can throw some light. I understand as a promoter it’s a long-term call, but generally it doesn’t add up in the call that we are not losing market share. That’s the only question, sir. Thank you.

Jasbir Singh — Chairman & Chief Executive Officer

So let’s — first of all, we should be very clear with what category of business we are in. We are a B2B company so we are not a brand, we are not a B2C company. In B2B businesses, you need to be flexible in your approach to realign your strategies whenever a customer decides to shift its strategy. Our endeavor is to be thick and thin with the customers in their journey on a long-term basis irrespective of their strategies to insource or outsource. So, earlier the market was moving towards outsourcing. It peaked to almost about 41% of the industry was outsourced in FY ’21 and then when the PLI got announced, all the major customers decided to put their assembly units on their own. So, they planned to take everything in-sourcing. And last year we saw that 41% opportunity came down to 35%. This year our estimate is it will be as low as 30% and further come down to 25%. Now on this shift, how can you grow more than the industry.

Now that has been always our endeavor that we have to outnumber the industry in value terms. So, we shifted our strategy proactively looking and we became very aggressive on the component strategy because we can deliver 70% of a bill of material to a customer other than compressor and other than wiring harnesses and packing material. That is the advantage of Amber. And through our 25 manufacturing locations, we are present now in entire of the geography of India wherever you want. And this strategy proved very well. Now tomorrow imagine if this situation gets reversed, we already have capacity for room airconditioners and we can deliver both numbers in the volume terms as well as in the component side, whatever you want. So we want to grow with you as a customer moving into — as you are moving ahead in the market share perspective. So on the market share, we have not lost even a single customer. It is just the strategy has shifted. So if customer has taken their assembly in-house, we have started supplying them components.

Nitin Arora — Axis Mutual Fund — Analyst

Got it. This is helpful, sir. But generally as a outlook from here because your CAGR in EBITDA is at 3%. Do you think this CAGR will start going up if this strategy is working well for you from a profitability, yeah?

Jasbir Singh — Chairman & Chief Executive Officer

Yeah, I it will go in line with the industry growth as we are growing from here onwards.

Nitin Arora — Axis Mutual Fund — Analyst

Got it. Thank you very much sir. Thanks a lot.

Operator

Thank you. The next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund. Please go ahead.

Pankaj Tibrewal — Kotak Mutual Fund — Analyst

Yeah, good morning. On the capex side, we have done a very aggressive capex over the last two years and as a result, our asset turns and the shift in business has suffered on the margin side and the resultant impact has been on the return on capital. Can you give us some sense on how you foresee in the next couple of years this matrix to start improving and what will contribute? A little more granular detail will be appreciated. Thank you.

Jasbir Singh — Chairman & Chief Executive Officer

So I think green shoots are visible in the last financial year results, 400 bps increase in the return on capital employed largely because of operational efficiencies and this will continue further. We are not going for any large capex like we did last year. So, we will be having more free cash flows in hand. And the operational efficiencies and the control on the inventories, all put together plus the product mix change will help us to reach to 19%, 21% level in next two to three years’ time.

Pankaj Tibrewal — Kotak Mutual Fund — Analyst

Okay. Because when we look at the last few years, you have done about INR1,800 crores to INR2,000 crores inclusive of acquisitions, capex, everything; but the profitability has not commensurately expanded accordingly. So, now you think that the capex cycle probably will not be to that intensity and with whatever you are talking about on the industry and your growth should help you improve your return on capital. Is the understanding right?

Jasbir Singh — Chairman & Chief Executive Officer

Yes, that’s right. And Pankaj, on a practical basis out of this INR700 crore capex which we have done, INR698 crores, large part of about INR300 crore capex has been done in February and March. Now if we — that results have yet to come. So if I minus that, our ROCE, if you calculate, have already touched 17.5%. But we are not talking about that. So, there’s lot of capacity. Whenever you put up a plant, greenfield facility especially, it is larger part of the building, but the real operational leverage comes over a period of years. So, that’s a right understanding what you have said. Moving forward, we are focusing on all the areas for returning — improving the return ratios.

Pankaj Tibrewal — Kotak Mutual Fund — Analyst

Because when we look at the reported number, it still looks high single digit about 8.5%, 9%. So there still seems to be a long way to reach that 18%, 19%. So, I’m not very sure that how that number of 19% in next two years is coming through. That means the asset turn needs to really improve from the capex which you have done.

Sudhir Goyal — Chief Financial Officer

Hi, Pankaj, Sudhir here. How this like 8% or 9% comes on the ROCE side?

Pankaj Tibrewal — Kotak Mutual Fund — Analyst

Yes, please. Capital expanded base on the overall — yeah, we can connect…

Sudhir Goyal — Chief Financial Officer

We can connect separately and just see that how you have calculated the number because as per our calculation, it is coming to 15% for the current financial year.

Pankaj Tibrewal — Kotak Mutual Fund — Analyst

Okay. Let’s connect it separately and take it forward. And just last one, Jasbir Ji, on the outsourcing part which you spoke about. When you look at one of your competition and their AC revenues have grown multifold over the last two years and that traction still continues to be very strong. What is the disconnect kind of we are missing out there? The competition is talking about aggressive growth numbers. But on the other side, we are saying that that percentage is coming down. Are we missing something from our understanding perspective?

Jasbir Singh — Chairman & Chief Executive Officer

No, we’re not missing anything Pankaj. We are just not onboarding lower margin businesses. It’s a very cautious call which we have taken and that’s the strategy.

Operator

Mr. Tibrewal, may I request you to join the queue?

Pankaj Tibrewal — Kotak Mutual Fund — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Nikunj Gala from Sundaram AMC. Please go ahead.

Nikunj Gala — Sundaram AMC — Analyst

Yeah. Good morning, everyone. So, I have two questions. Firstly, again on the ROCE part. Few comments which you made that your blended capacity utilizations are 65%, 70%. Even if I adjust the capacity of INR300 crore, which came in February month — from FY ’20 base, sir, our capital employed has more or less become 1.8 times, sir. And during this period our absolute EBIT, like you are focusing on — the absolute EBIT is the focus and not the percentage. So on the — during this period from FY ’20 to ’23, our absolute EBIT has hardly grown in tandem with the capital employed in the business. So, is it a right understanding that incremental EBIT which is coming then is at a lower ROCE than the earlier nature of the business?

Sudhir Goyal — Chief Financial Officer

Yeah, hi. Sudhir here. So if you see our capital employed, it was INR1,900 crore in the last financial year and now grown to INR2,542 crores, a growth by 32% whereas EBITDA improvement — on the operating EBITDA improvement, it is more than 60%. I’ll tell you I think where the calculation is going wrong from your side based on the case of the balance sheet. So there is some investment — cash investment in the bond equivalent to amount INR191 crores, which you might not be considering to calculate the net debt level.

Nikunj Gala — Sundaram AMC — Analyst

Okay. Because I was just looking like reported numbers at the equity side and even I was excluding the cash part. But I’ll take this offline to understand your 15% reported ROCE, which according to our calculation comes hardly double-digit kind of a number. Okay. And secondly, the — Hello?

Sudhir Goyal — Chief Financial Officer

We are not taking cash in hand.

Nikunj Gala — Sundaram AMC — Analyst

Yeah. So even I was removing that part, sir, that core capital employed in the business from the — and this is on the net block sir. So even on the gross block, it would be high single digits in net block, which currently we have highly depreciated one. So at a gross incremental return on capital perspective, I think it would be hardly double-digit kind of ROCE you will be making on the incremental capital employed.

Sudhir Goyal — Chief Financial Officer

So on the incremental capital employed, like Jasbir ji has mentioned, that capex which we have done in the second half of the financial year, the green shoots of the same will be coming in the upcoming years. So it doesn’t come in the same year like large part of the capex has been done in the quarter four as well. So you will see the better return over the period and the latest capex will give you more returns in the coming year.

Nikunj Gala — Sundaram AMC — Analyst

Just put it in a very different question then. As of March, whatever capacity or block we have, sir, assuming like whatever block we have on FY ’23, what is the absolute EBIT you can generate on this block, sir?

Sudhir Goyal — Chief Financial Officer

Maximum EBIT?

Jasbir Singh — Chairman & Chief Executive Officer

That is very difficult to calculate.

Sudhir Goyal — Chief Financial Officer

That need a detailed calculation to work on and give the EBIT calculation for the same. But on the sales turnover, like asset turn, we can easily go like from here, we can reach INR9,000 crore to INR10,000 crores with the current capex base.

Nikunj Gala — Sundaram AMC — Analyst

Okay. Sure. And just lastly, in the presentation where you mentioned Amber’s value market share, here the Amber sales which you have mentioned are the standalone numbers. As per our understanding, this standalone revenue used to contain some non-AC component sale also, right?

Sudhir Goyal — Chief Financial Officer

This Amber sales includes RAC and RAC component. This Amber here means Amber Group, which includes RAC sale of Amber, RAC component sale of Amber, complete motor sales which is used in the RAC, inverter PCBA board for the RACs. These all includes the complete RAC, anything to do with which we are offering to the customers.

Nikunj Gala — Sundaram AMC — Analyst

Okay. So this is not the standalone because the numbers were exactly matching with the standalone numbers so that’s why I asked. It’s not a standalone number, right?

Jasbir Singh — Chairman & Chief Executive Officer

No, it’s not standalone number.

Operator

Mr. Gala, may I request you to rejoin the queue for follow-up. Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead.

Aditya Bhartia — Investec — Analyst

Sir, just wanted to understand about the PLI scheme. How you’re going to book the incentives given that you have crossed the threshold limit? Have you booked some incentives, has it come in this year itself or will they be recorded once we receive it in the next year?

Sudhir Goyal — Chief Financial Officer

So Aditya, we are following the accrual basis of accounting. So incentive is already booked in the financials for the financial year ’22-’23, whatever is the threshold. Since we have achieved that and we have already filed the QPR as well with the government so that has been booked in the books of accounts.

Aditya Bhartia — Investec — Analyst

Understood. And we have crossed the threshold limits in both the schemes, right? So we’ll be receiving possibly INR15 crores?

Sudhir Goyal — Chief Financial Officer

We crossed both the threshold limits of capex as well as sales.

Aditya Bhartia — Investec — Analyst

No, I meant for Amber as well as for the Electronics business?

Sudhir Goyal — Chief Financial Officer

No, no. Electronics, we took the first two years as a gestation period. So, ’21-’22 and ’22-’23 is the investment period only. So capex we have already done and crossed the threshold limits. So first year of ILJIN, electronic one, for sales threshold will be the financial year ’24.

Aditya Bhartia — Investec — Analyst

Understood. And, sir, I was just wondering, given that our capex numbers have been higher than what was initially being envisaged, if I look at the large investment schemes also under the PLI scheme, that would have entailed an investment of INR600 crores, which honestly we have already done. So why didn’t we then opt for the large scheme and opted for normal investment scheme? At least our incentives could have been higher.

Sudhir Goyal — Chief Financial Officer

In the PLI scheme, the eligible capex is only the capex done for the component businesses not for the assembly line and not for the land and building as well because this INR698 cores includes a large part of the land and building as well, which doesn’t falls under PLI capital investment.

Jasbir Singh — Chairman & Chief Executive Officer

And Aditya, over to that what Sudhir has explained, the large investment block comprise of compressor, copper, and aluminum so which we will not participate in.

Operator

Aditya, request you to join the queue for any follow-up. Thank you. The next question is from the line of Alok Deshpande from Nuvama Institutional Equities. Please go ahead.

Alok Deshpande — Nuvama Institutional Equities — Analyst

Yeah. Good morning to the Amber team and congratulations on a good set of numbers. Just one question from my side. So this year or probably over the past two or three years, we have seen several new AC brands come in the market. So I just wanted to understand in terms of the value market share gain that we have seen, how much of this has been with those new brands as in can you share some number in terms of the number of brands that you were working with, let’s say, three years back and, let’s say, FY ’23, some color on that?

Jasbir Singh — Chairman & Chief Executive Officer

We’ve got about — close to about 26 customers in the room AC category and they keep on shifting as per their market share and as per their requirement. So, it’s very difficult to answer your question on the newer brands.

Alok Deshpande — Nuvama Institutional Equities — Analyst

Okay. And sir, just one question on working capital. How should we look at working capital going forward over the next two or three years?

Jasbir Singh — Chairman & Chief Executive Officer

So on our net working capital days almost has 29 days from 39 days and I believe this is a maintainable part from 35 days.

Alok Deshpande — Nuvama Institutional Equities — Analyst

Sure. Thank you. Thank you so much.

Operator

Thank you. The next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead.

Pritesh Chheda — Lucky Investment Managers Pvt Ltd. — Analyst

No, my questions have been answered. Thank you.

Operator

Thank you. The next question is from the line of Anupam Goswami from SUD Life. Please go ahead.

Anupam Goswami — Star Union Dai-ichi Life Insurance Company Limited — Analyst

How are you, sir? Congratulations…

Operator

Anupam, your voice is breaking, we are unable to hear you clearly. May I request you to come — yeah.

Anupam Goswami — Star Union Dai-ichi Life Insurance Company Limited — Analyst

Hi. Am I audible now?

Operator

Much better, please go ahead.

Anupam Goswami — Star Union Dai-ichi Life Insurance Company Limited — Analyst

Yes. My first question is on the outsourcing industry, you said how it was 41% two years back and now with the PLI scheme it has come down to almost 25% in this year. On that note and also you mentioned about the industry size growing at 10% to 15%. So on that note, our outsourced unit market share or industry that is becoming flat and how do we see to grow — outgrow that for Amber?

Jasbir Singh — Chairman & Chief Executive Officer

See, let me give you again clear picture that we are a B2B player. So we have to move according to — we have to realign our strategies according to the strategies of our customers. Now in our business model, we have derisked two large risks. First risk is that brands keep on exchanging market shares between them. Earlier from 2004 till 2011, LG was the undisputed leader, then Voltas became the leader. Now we don’t know who is going to be the leader in next couple of years. So our offering from that perspective, if we are supplying to all the major brands, that doesn’t impact us. Second is their strategy of insourcing, outsourcing, that can shift anytime, that is we don’t control. So whenever they want to shift their strategy to insourcing or outsourcing, we need to realign our strategy. So it is irrelevant today to look at the numbers of volume terms from our perspective. From a B2B player perspective, it is important to see are we growing with that customer or not. And if I have done INR200 crore business last year, am I doing INR300 crore business this year or not in case he is growing? So that is what we look at, how does it matter to us whether I am supplying 70% of bill of material or 100% of bill of material in a finished good format. It doesn’t matter to us. For us, the wallet share in the customer matters and the growth with them matters. That’s what we focus on.

Anupam Goswami — Star Union Dai-ichi Life Insurance Company Limited — Analyst

Okay, sir. And how is that has grown with the same customer bill of material growth?

Jasbir Singh — Chairman & Chief Executive Officer

Yeah, it has grown, that’s how we have increased our share from 26% to 29% in the whole industry range.

Anupam Goswami — Star Union Dai-ichi Life Insurance Company Limited — Analyst

Okay. Last question is how…

Operator

Please rejoin the queue. The next question is from the line of Jayesh Shah from OHM Portfolio Equi Research. Please go ahead.

Jayesh Shah — OHM Portfolio Equi Research — Analyst

Hi, thanks for the opportunity. I just have one basic question. When you have shifted your strategy from outsourcing to insourcing with components and assemblies in terms of absolute ticket size per customer, I am talking of say unit value, does it go up or go down?

Jasbir Singh — Chairman & Chief Executive Officer

It completely varies from customer to customer. If customer wants to supply — they want us to supply sub-assemblies also, then it is almost on the same part because earlier they were supplying compressors so that’s a pass-through. Other than that if we are supplying components in a separate bid, it becomes almost similar. But if customer chooses not to take all the kind of customers from — components from us, they want to take few of the components from us, then it will reduce. So, it will vary from customer to customer.

Jayesh Shah — OHM Portfolio Equi Research — Analyst

Understood. And what has been generally your experience with your customers?

Jasbir Singh — Chairman & Chief Executive Officer

Generally experience so I can give you an example of one Korean customer. When they took their business in-house, we were doing about INR156 crore business with them while supplying ACs. But when they shifted their strategy to in-house, today we are supplying them almost INR600 crores business of components to them. So it completely varies because it opens our door to manyfolds when we start supplying components not only in their room airconditioner division, but their other divisions also start buying components from us.

Jayesh Shah — OHM Portfolio Equi Research — Analyst

That’s helpful. So in another way, do you look at value add per customer, which come to you or accrue to you as margins? Is it going up every year, is that how you look at your business?

Jasbir Singh — Chairman & Chief Executive Officer

That’s the main part which we look at. That one is are we growing in tandem with their growth. So if customer has grown by 20%, are we growing more than that if I’m supplying — I was supplying one component to them and I am supplying three components to them today. My growth will be more than that with the same customer. And plus the value comes in the bottom line what we were generating earlier and what we are generating today with that customer.

Jayesh Shah — OHM Portfolio Equi Research — Analyst

Yeah. So let’s say your margin per customer, your Top 10 customer, has it remained constant or has it changed?

Jasbir Singh — Chairman & Chief Executive Officer

No, it will keep on varying. It completely depends on the product mix, what kind of product mix they are wanting us to supply them. So we need to be geared up to deliver them any kind of mix of components versus kits, versus finished goods whenever they want. So, that is the strategy and margins will keep on varying.

Operator

Mr. Shah, request you to join the queue for any follow-ups as we have several participants waiting for their turn. Thank you. The next question is from the line of Keyur from ICICI Prudential Life Insurance. Please go ahead.

Keyur Haresh Pandya — ICICI Prudential Life Insurance — Analyst

Thank you. Congratulations to the team for great results. Sir, first question is on the RAC growth. You have mentioned that RAC and Component segment, company will outgrow the industry. Now when you talk about, say, 10% to 15% kind of growth for the industry and higher channel inventory so generally we have seen some kind of lag in our growth if an inventory is high in the system. So, what will drive our growth faster than the industry growth and will that be back-ended since inventory is high or would be high in the first half? That is my question.

Jasbir Singh — Chairman & Chief Executive Officer

Largely what we do is we keep on horizontally deploying our complete range of components with the customers. So for example, I’m supplying customer A only motors and heat exchangers. Now this year I have started heat exchangers, motors I was already giving, we have started supplying them sheet metal and cross flow fans. So my offering to them increases irrespective of their — even if they don’t grow, my business will grow with them. So, that’s what we are doing with almost every customer. That’s why we are saying outgrow the industry.

Keyur Haresh Pandya — ICICI Prudential Life Insurance — Analyst

Okay. So that commentary that is there in the presentation also, that relates to the entire consolidated business or this is for standalone business where you mentioned that we will grow faster than the industry growth?

Jasbir Singh — Chairman & Chief Executive Officer

Yeah, this is on a standalone basis.

Keyur Haresh Pandya — ICICI Prudential Life Insurance — Analyst

Okay. So basically, even that also will be, say, driven by the components in the standalone business — faster growth will be driven by components?

Jasbir Singh — Chairman & Chief Executive Officer

Yeah, it can happen also in finished goods also. I mean for us it matters that if for example customer A is growing by 20%, are we growing 25% with them or not? So, that is what we need to see.

Keyur Haresh Pandya — ICICI Prudential Life Insurance — Analyst

But you are confident of outgrowing the industry?

Jasbir Singh — Chairman & Chief Executive Officer

Yes. Last year also when everybody was skeptical about Amber that every customer of ours has started their own factories, who will procure material from Amber? But we’ve proved everybody that the strategies are really tight and we’ve outnumbered the industry. Industry hasn’t grown by 60%, but Amber has grown by 65%.

Operator

Keyur, may I request you to join the queue for any follow-up as we have several participants waiting. Thank you. The next question is from the line of Pulkit Singhal from Dalmus Capital Management. Please go ahead.

Pulkit Singhal — Dalmus Capital Management — Analyst

Thank you for the opportunity and congrats on a good set of numbers. My first question is on the motor division. Can you help us understand what is the size of the industry, what kind of growth do you expect from the industry, and what is the kind of market share that you have within the space, how many competitors are there? And also what is the contribution of the AC division within motors?

Jasbir Singh — Chairman & Chief Executive Officer

In motors, we are competing with a Japanese company called Nidec and then there is a European company — American company called Regal Beloit, which was earlier GE Motors. They compete with us. And of course a large part of motors continue to be imported from China. So, large part of the competition is from China not from India. But on the overall size, I think at 8.4 million numbers, the motors we sell is close to about INR1,000 per AC. So, that is the market size we are talking of today of the complete. Out of that, almost 60% of motors are imported from China and other divisions.

Pulkit Singhal — Dalmus Capital Management — Analyst

So what kind of growth are you expecting here?

Jasbir Singh — Chairman & Chief Executive Officer

We are expecting close to about 30% to 35% growth in motor division largely because we are expanding our offering not only in RAC, but other part of heating, ventilation, and airconditioning products, and also some bit of exports are opening up for us.

Operator

Thank you. Mr. Singhal please join the queue for any follow-ups. Thank you. The next question is from the line of Vinod Chari from BOB Capital. Please go ahead.

Vinod Chari — BOB Capital — Analyst

Yeah, hi. I think my question has been answered. My question was similar to what was asked earlier in terms of your margin profile. I think FY ’18 you were at close to 9% margins in the AC and Component business. But now you have gone down to 6%. So again the same thing, is it like a structural margin that we’re looking at, at these levels?

Jasbir Singh — Chairman & Chief Executive Officer

Yes. So, margins — actually percentages of margins doesn’t matter to us. What matters is the absolute growth because we don’t define what customer wants from us. We supply what they ask. So their sub-assemblies can increase, their kits can increase. I mean for example if I’m supplying finished goods and in that, compressor and heat exchanger is getting supplied by customer, I can’t demand a margin on that part of it. But my billing will be close to completed. But whereas in other cases, on the component side — so what we see is the blended basis of the absolute numbers with the same customer.

Vinod Chari — BOB Capital — Analyst

Okay. Because I think your component has grown at almost three times the rate at which the AC has grown in the last five years. So, is that contributing to a lower margin profile is what I wanted to understand.

Jasbir Singh — Chairman & Chief Executive Officer

No, it’s basically sub-assemblies, it is components, it is also electronics also. We have an electronic division, which is at about 4.5% EBITDA level. So there are many factors, it’s a diversified company today. So we have businesses ranging from 4.5% to 23% EBITDA levels.

Vinod Chari — BOB Capital — Analyst

Sir, lastly on working capital. How is your working capital ex Sidwal and what is Sidwal’s working capital?

Jasbir Singh — Chairman & Chief Executive Officer

Sidwal’s working capital is actually 110 net working capital days. But on a consol level, it is 29 days.

Vinod Chari — BOB Capital — Analyst

Okay. And so what is the ex Sidwal ROCE that you have currently?

Jasbir Singh — Chairman & Chief Executive Officer

We haven’t calculated that. We’ll let you know separately.

Vinod Chari — BOB Capital — Analyst

Okay. Thank you.

Operator

Thank you. Ladies and gentlemen, due to time constraints, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you and over to you.

Jasbir Singh — Chairman & Chief Executive Officer

Thank you everyone for joining on the call. I hope we have been able to address most of your queries. For any further information, kindly get in touch with SGA, our Investor Relations Advisors. And have a good day ahead. Thanks very much.

Operator

[Operator Closing Remarks]