Amber Enterprises India Limited (AMBER) Q2 FY23 Earnings Concall Transcript

Amber Enterprises India Limited (NSE:AMBER) Q2 FY23 Earnings Concall dated Oct. 22, 2022

Corporate Participants:

Jasbir Singh — Chairman and Chief Executive Officer

Analysts:

Sonali Salgaonkar — Jefferies — Analyst

Aniruddha Joshi — ICICI Securities — Analyst

Sudhir Goyal — Chief Financial Officer

Madhav Marda — Fidelity — Analyst

Manoj Gori — Equirus Securities — Analyst

Aditya Bhartia — Investec — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Veenit Pasad — Investec — Analyst

Dhananjai Bagrodia — ASK Investment — Analyst

Paras Nagda — Enam Holdings — Analyst

Dhruv Jain — Ambit Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Amber Enterprises India Limited 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. [Operator Instructions]

I now hand the conference over to Mr. Jasbir Singh, Chairman and CEO, Amber Enterprises India Limited. Thank you, and over to you, sir.

Jasbir Singh — Chairman and Chief Executive Officer

Hello, and good morning, everyone. Wishing all a very happy Diwali and a prosperous new year ahead. On the call, I am joined by Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, CFO; Mr. Sanjay Arora, CEO Electronics Division; Mr. Sachin Gupta, CEO RAC & 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.

Room air conditioner industry witnessed a dull period of July ’22 to mid-September ’22, due to BEE star rating change with effect from July 1, 2022, and unprecedented and untimely rains in the month of August and September 2022. Secondary sales didn’t pick up to the desired levels due to above two factors. However, as industry is now at normalized inventory levels, we expect good growth in quarter three and quarter four FY ’23. Other divisions, such as mobility, motors and electronics witnessed a decent growth due to additional new customers, products, and geographies.

Coming to the performance of Amber Group, the RAC and components division witnessed a revenue growth of 99% in H1 FY 2023, clocked revenue of INR1,797 crores versus INR902 crore in H1 FY 2022 and currently contributes 70% to the total revenue. Similarly, motor, electronics and mobility divisions are growing at a good pace and have been a significant contributor to the revenue growth. RAC and components, motors, electronics and mobility division, now contributes 70%, 5%, 17%, and 8%, respectively, to the total revenue.

Our standalone revenue saw a decline this quarter owing to ramped channel destocking on account of the change in BEE star ratings. Other expenses rose on a standalone basis on account of forex loss of INR7.5 crore and fixed overheads due to operationalization of new brownfield and greenfield facilities, which will come to normalized levels by next financial year. On the capex front, we intend to incur a total capex of INR600 crore for the year FY 2023. Our new greenfield facility, SriCity facility, will be operational by Q3.

Moving on to the divisional performance; first, RAC and components division. This division saw a revenue growth of 85% over H1 FY ’22 and RAC clocked a revenue of INR1,213 crores in H1 FY ’23 versus INR654 crores in H1 FY ’22. Components division is growing at a faster pace and grew at 136% in H1 FY ’22 — over H1 FY ’22. Revenues stood at INR585 crore versus INR248 crores. The growth is primarily fueled by a strong order book, new customer addition and expansion in newer geographies, like Chennai and Pantnagar areas. The ROCE for this division stood at 9% for H1 FY ’23.

Regarding Motors division; for H1 FY ’23, Motor division grew 71% to INR130 crores versus INR76 crore in H1 FY ’22. Operating EBITDA stood at 11.5% for H1 FY ’23 versus 9.2% in H1 FY ’22. ROCE for the division improved dramatically to 20% from 11% in H1 FY ’22. We have shifted to a new larger facility in Faridabad, to cater the future growth within this division, received BLDC approvals from few customers and few are in process right now and is expected to be received in coming quarters. On the exports front, approval from export customers are in process and expect to receive large orders in FY ’24. The strong order book with new product addition and geographical expansion gives us visibility of more than 30% growth for FY ’23.

Coming to Electronics Division, which includes ILJIN and EVER; revenue for the division for H1 FY ’23 was INR449 crores, representing a growth of 129% over H1 FY ’22. Operating EBITDA stood at 3.8% versus 2.6%. ROCE for H1 FY ’23 was 19% versus 10% in H1 FY ’22. We have successfully scaled up our supplies to boAt as a customer for new-age applications like smart wearable and hearables which has opened a huge opportunity for this division. Segment is expected to grow further, as we have added new few large customers and have accordingly expanded our capacity down south. Supplies to boAt has opened up large sectoral opportunity, and expect this division to grow at a faster pace.

Regarding Mobility Application division, which includes Sidwal, revenue of the division grew by 65% in H1 FY ’23 to INR200 crores versus INR121 crores in H1 FY ’22. Operating EBITDA stood at 25.5% versus 24% in H1 FY 2022. ROCE improved significantly to 51% from 44%. Increased impetus on infrastructure development and comfortable journey is providing a large opportunity for growth in this division. Apart from HVAC solution, we are exploring new applications to increase our share of business in the existing customers, as well as by adding new customers. Our order book for this division stands at INR650 crores as of now.

[Technical Issues] during the period and increased interest rates. This has resulted in a PAT loss of INR2 crores in quarter two, FY ’23. Net interest costs of H1 FY ’23 is actually INR25 crores against gross interest cost of INR45 crore, as we have an interest income of INR20 crores in H1 FY ’23.

On PAT levels, PAT for H1 FY ’23 was INR41 crore versus INR19 crore in H1 FY ’22. ROCE for H1 FY ’23 improved to 12%, whereas the net working capital days drastically dropped to 39 days for September ’23 from 93 days in September ’22. Despite all the external challenges, we at Amber remain committed to creating synergies through our strategic collaborations, driven by an industry experience of three decades and robust capabilities, we continue to explore better opportunities with an intent to expand beyond our current geographical presence.

I now hand over for the Q&A session. That’s all from my side.

Questions and Answers:

Operator

[Operator Instructions] We’ll take the first question from the line of Sonali Salgaonkar from Jefferies India. Please go ahead.

Sonali Salgaonkar — Jefferies — Analyst

Hi, Jasbir and team. Thank you for the opportunity and wishing you all a very happy Diwali. Sir, my first question is regarding the current demand environment, what are the initial feelers that you are getting, starting in October and the festive season? And you did mention that inventory is at a normalized level. But, I mean, are you seeing a normalized level across the SKUs in air conditioners for a particular name or a mass premium segment? [Technical Issues]

Operator

Excuse me, this is the operator. Mr. Singh, are you still there connected with us? Ms. Salgaonkar?

Sonali Salgaonkar — Jefferies — Analyst

Yes, am I audible?

Operator

Yeah, I can hear you, but I am not able to hear Mr. Jasbir Singh. Participants, we request you to remain connected. Maybe we can disconnect and call sir back. We request you to please remain connected.

Ladies and gentlemen, thank you for your patience. We have the line for management connected. Ms. Salgaonkar, may we request you to please repeat your question?

Sonali Salgaonkar — Jefferies — Analyst

Yes sure. My first question is regarding the demand scenario currently. So getting into October, what are the initial feelers that you’re getting about the festive demand? And also the inventory levels currently in the channel?

Jasbir Singh — Chairman and Chief Executive Officer

So demand, what we are seeing is there’s a lot of optimism from our customers’ side, looking at the forthcoming season, and a couple of customers are — they are planning to gear up for the inventories for the forthcoming season in Q3. And Q4, everybody is expecting a good summer. So in anticipation of that, demand scenario for Q3 is much better than what it was in Q2.

As far as the inventory levels are concerned, the industry is not sitting at any large inventory levels. It’s a very normalized inventory level. We saw sluggishness in July, because this is the first time that BEE table got revised in the middle of the year. Normally it gets revised by 1st of January. And what happens is that the retail sector, they start picking up the goods in anticipation of selling them in February and March. But whereas for July season, it went opposite, because we were entering into a leaner period, so there was no uptake from — on the secondary side basically. But times have [Phonetic] corrected, but then there was some disruption in quarter two because of unprecedented and untimely rains, especially in the North area. But now everything is back to normal, order book is getting stronger, and we look forward for a good quarter three and a much better quarter four.

Sonali Salgaonkar — Jefferies — Analyst

Understood. Sir, do you foresee any impact of this BEE revision in Q3 as well, in terms of — a bit of destocking left?

Jasbir Singh — Chairman and Chief Executive Officer

I think very slight impact would be there in case it is there. But largely now, as markets have digested the kind of increase or the shift in the Star rating. So I think now, what we talk today is we are talking on the normalized levels.

Sonali Salgaonkar — Jefferies — Analyst

Right. Sir, and would you like to update us on the price revisions that you have taken in air conditioners, because of this new BEE rating, and do you think that will positively impact the margin? So do you think it will be neutral on the margins?

Jasbir Singh — Chairman and Chief Executive Officer

So there are two impacts basically. One is — as explained earlier also, that we pass on our prices on a quarterly lag basis, largely on the commodity side. That has been done successfully. You will see the difference in quarter four for that. And as far as the BEE table impact is concerned, couple of customers, they actually changed the complete model lineup from January itself. So there is no impact in those customers. The customers who impact — who changed it in July, for them the change has happened already. There was a — there is a gap of almost about INR800 to INR1,200 per AC, which has been taken and adapted. And so have we done in our models.

Sonali Salgaonkar — Jefferies — Analyst

Right. So you are saying the average price hike is INR800 to INR1,200 per AC?

Jasbir Singh — Chairman and Chief Executive Officer

Yes. I mean, model — it will vary from model to model, but on an average that is the range.

Sonali Salgaonkar — Jefferies — Analyst

Understood. Sir, and my last question is, in terms of the PLIs, any update you would like to share on the progress in the PLIs, and when do you — for us to start getting the incentive? And also an ancillary question, what do you plan to do with the PLI incentive? In the sense, do you plan to share a majority part of that back with the brand owner, or do you intend to keep that with you?

Jasbir Singh — Chairman and Chief Executive Officer

So for PLI, the update is that, we’ve got approval regarding our PLI application a couple of quarters back. We were, in fact, the first one to submit our application and get the approval for that. So threshold of investments are moving on track, which is the first parameter of getting approved, as eligibility criteria is concerned. And we are also moving very much on track, as far as the sales — incremental sales is concerned. So this year will be the first year of demonstrating the incremental sale, and next year, basically, we will get the PLI benefit for this year, from Government of India. We are moving very much on track. There is no lag on the threshold of investment and the incremental thing [Phonetic].

Sonali Salgaonkar — Jefferies — Analyst

Understood sir. That’s it from my side, and wish you and your team a very happy Diwali.

Jasbir Singh — Chairman and Chief Executive Officer

Thank you so much. Same to you.

Operator

Thank you. Our next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah. Sir, the debt on the balance sheet has gone up, despite a non-season and some correction in working capital too. So how do you see the debt repayment plan over next one, one and a half year playing out? And sir, secondly, the margin range of the company — EBITDA margin range seems to have come down from the way the earlier EBITDA margin range used to be. So do you see the EBITDA margins moving structurally back to around 7% to 8% range, and by when?

Sudhir Goyal — Chief Financial Officer

So. Hi Aniruddha. First on the net debt level, which is at present INR662 crores, as on September 30 at consol level. So this is largely due to the seasonality in the business, as we have a larger credit period from the creditors, which gets paid during the off-season, and the capex which we have done during the H1 financial year 2023. So this will get normalized by year-end, because this is a cycle in which we are working on.

And on the other side, on the margins in terms of percentage, so as we explained earlier that we don’t look at the margin in terms of percentage. Reason is that, there are — lot many changes happen due to product mix, due to commodity price hike and due to currency exchange rate change as well. So percentage margin is not the right criteria to see the profitability. So we also internally check on the absolute amount of EBITDA, how we are growing that on a year-on-year basis.

Aniruddha Joshi — ICICI Securities — Analyst

Sir, basically, I mean the point is the return ratios have gone below the — in a way, cost of capital now. So it’s almost closer to 10% or less than 10%. So how do we see — either the margins should improve or the overall asset turn should improve. So how do we see the — basically the return ratios are moving back to earlier 13%, 14% kind of a — or higher than that range?

Sudhir Goyal — Chief Financial Officer

So we are expecting that ROCE to be improved by 200 to 300 basis points in the current financial year by year-end. And post that, further we are expecting that 200, 300 basis point in the next year. And if you see the other divisions, they are performing well and those are contributing in a good way during the off-season as well, because there the seasonality is not that much, which is there in the RAC business.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Sure sir. Sir, last question, what is the PLI benefit that the company is looking at for year FY ’23 and any indicative amount that can also — for FY ’24?

Sudhir Goyal — Chief Financial Officer

Yes, so PLI benefit is the fixed amount. So first year based on the incremental threshold. We will get INR15 crores and the next year, it is INR30 crores.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Sure. That’s helpful. Thank you.

Sudhir Goyal — Chief Financial Officer

Thank you.

Operator

Thank you. We’ll take our next question from the line of Madhav Marda from Fidelity. Please go ahead.

Madhav Marda — Fidelity — Analyst

[Indecipherable] I just wanted to understand very basic question, though our profitability is serious, these one-off cost impacts from ESOP, loss of sale of fixed assets, forex M2M etc, last I think two or three quarters. Firstly with ESOP, when this impact start going away? Like this is just until FY ’23 or there is this [Indecipherable] beyond that?

Sudhir Goyal — Chief Financial Officer

So ESOP expenses. We have a — like ESOP policy — as for ESOP policy it will be amortized over four years of a period. So first it is always a larger impact and going forward it cut down to the lower — a very lower level, almost half of the first year in the next year. And since as you know that last year we announced the first ESOP scheme, and this year also we gave the ESOP for the further employees — down employees further. So that is why this year, there will be a larger impact. Going forward, it will be cutting down to half of the current level ESOP expenses.

Madhav Marda — Fidelity — Analyst

So year one, the impact was about INR16 crores, if I’m not wrong, if I have the number right. So you think this year, it should be INR8 crores because you already have a INR13 crore impact in first half, so — or is a more rounded basis, which should start coming down?

Sudhir Goyal — Chief Financial Officer

So this year, the total should be around ’25, ’26 year, and next year it will come down to almost like — I don’t have the exact number, but around INR12 crores, INR13 crores.

Madhav Marda — Fidelity — Analyst

Okay. And then also on the — I think you do give guidance for number of RAC units that we sell in the standalone business. Could you give any sort of target for FY ’23, and also if you could give the number for Q2 as well, how many units have we…

Jasbir Singh — Chairman and Chief Executive Officer

Madhav, actually, since we have started tracking on the value-based proposition, so volumes — we would not like to guide anything on the volume side. But what we would like to guide everybody is — that on a value-based part of the complete industry, we will continue to maintain our market share of 26% and above. That is what we need to guide, and — because we have — this has become a very — volumes have become a very sensitive information to the company, because recently, in couple of months back, some of the customers, they started interacting us, looking at the volume-based proposition, and that was not a good part. So we’ve started tracking the complete proposition on the value-based. And now since this quarter also, you must have seen that our components have outnumbered the RAC well — on the revenue side also, so it becomes very important for us to track on the value proposition.

Madhav Marda — Fidelity — Analyst

Okay. Got it. So could you just give — I think for the motor division, you all have given the outlook in the PPT very clearly, which is 30% growth. Could you give the guidance for the electronics, Sidwal and standalone, just what kind of growth are we expecting? I think you usually give some guidance at each quarter, about how we are looking at the year?

Jasbir Singh — Chairman and Chief Executive Officer

Yeah. So Electronics, we can — we would like to guide for about 35% growth. And Sidwal, we are about 20% growth story right now, and our order book is also catching up positively. On both the divisions, it’s a good traction which we are seeing.

Madhav Marda — Fidelity — Analyst

And what about the standalone components, that has been growing at a very good pace, like last several quarters? So anything on that side?

Jasbir Singh — Chairman and Chief Executive Officer

Yeah, components will grow more. I think our strategy is very clear that, in the whole eco-chain of the manufacturing footprint, we should be available whether somebody wants an air conditioner or somebody wants components. Full kitty or half kitty doesn’t matter to us. So I think component side will grow faster than the industry.

Madhav Marda — Fidelity — Analyst

Okay. And just last question was, any update on the exports? I think we’re doing a lot of initiatives on trying to get the approvals and get the models etc in place. So, just where are we placed, sir?

Jasbir Singh — Chairman and Chief Executive Officer

So on exports, motors have started seeing positive traction, and that’s what we mentioned also that, we are expecting some very good orders coming by next financial year. What happened was, because of the two years, people did not travel to India, and now recently in last three months, we have been visited by our larger customers, who we were interacting with earlier, and they have liked the facilities, the product approvals are under process. So once the reliability assessments are done, I think you will see the exports moving up from next year onwards on the motor front.

As far as the finished goods are concerned, we are at level 2, where some of the model lineup has been ready and now the BEE table approvals are going on in some of the geographies, which we expect to be cleared by next financial year. And then post that, we should expect some orders coming in.

Madhav Marda — Fidelity — Analyst

So safe to assume some orders in FY ’25 or FY ’24 for finished goods?

Jasbir Singh — Chairman and Chief Executive Officer

Yes, we should expect in FY ’25 on the finished goods side.

Madhav Marda — Fidelity — Analyst

Okay, thank you.

Sudhir Goyal — Chief Financial Officer

And Madhav, on the ESOP, next year it will be around INR17 crores.

Madhav Marda — Fidelity — Analyst

INR17 Crores. And then FY ’25, it should go down even more, right?

Sudhir Goyal — Chief Financial Officer

Yes.

Madhav Marda — Fidelity — Analyst

Okay. Thanks.

Operator

Thank you. Our next question is from the line of Manoj Gori from Equirus Securities. Please go ahead.

Manoj Gori — Equirus Securities — Analyst

Thanks for the opportunity sir. Sir, my question is on the pricing side. So obviously BEE ratings would have led to some impact on the overall costing, but on the other side, when we look at the RM prices have come off. So how do you expect the pricing to play out for the industry and for you specifically?

Jasbir Singh — Chairman and Chief Executive Officer

On the industry side, I think we had seen in last quarter — four quarters, there was an impact of almost about 15% on the finished goods side, which was resisted earlier by the retail, but then digested, once the heatwave struck in the peak of the summer. Then came the BEE table revision, which was another impact by INR800 to INR1,200. So that has also been taken. I think now that this has passed, now the commodities are easing off, it has not reached to the pre-COVID levels, but certainly there has been some easing off there. So we expect that since the current pricing has been digested by the retail segment, the customers and the industry will continue at this price level. And as far as Amber goes, our pricing strategy is very clear, we pass on any kind of commodity impacts on a quarterly lag basis, and that’s what we have been doing very successfully and it’s reflected in the margin profile also.

Manoj Gori — Equirus Securities — Analyst

Right, sir. So sir, in this case, if you look at probably in the fourth quarter with a quarter lag, should we expect some margin improvement for us?

Jasbir Singh — Chairman and Chief Executive Officer

Yeah. I mean, on the component side, definitely we should see the margin improvement going on.

Manoj Gori — Equirus Securities — Analyst

Right. Sir, so if you look at for this year, already the season has been done. So when you are interacting for the next year, because you have already started with the initial round of discussion with the brands. So what is the overall outlook, like how volume should shape up next year, probably as compared to this year, and what are the expectations, if you can share?

Jasbir Singh — Chairman and Chief Executive Officer

Well, we are expecting as per current run rate level, my personal opinion is that, industry will cross or touch about 8.5 million units this year, and by next year we should expect at least 12% to 15% CAGR on this volume.

Manoj Gori — Equirus Securities — Analyst

Right sir. Sir, one last question is just on the accounting side. So probably I’m not sure how to read that, but on a standalone basis when we look at the gross margins, there has been a significant improvement, whereas EBITDA margins have been at normalized level, led to — led by higher opex and vice versa for the subsidiaries. So whether gross margins have declined significantly but opex has come down, and EBITDA margins, there is some impact, yeah. So anything to read over there?

Sudhir Goyal — Chief Financial Officer

So [Indecipherable] gross margin in standalone financials, those have got improved. The major reason is that, because of the product mix change in the standalone business, in which the component segment has grown much bigger, as compared to the RAC, because of the lean season. And the commodity prices have declined, which has happened in the quarter two, which has helped us to improve our gross margin, during quarter two, only on standalone basis.

Manoj Gori — Equirus Securities — Analyst

No, but if you look at your other expenses, probably — if you look at on YoY basis also, so like right from 8% of sales, it has increased to 13%.

Sudhir Goyal — Chief Financial Officer

Yeah. So it is — there are two major reasons. One is that there is a forex loss of INR7.5 crores in the current quarter, which was almost negligible in the last year same quarter, and the fixed costs, which we have incurred in the new units, or in new facilities, which we started in the current financial year, but those are not operational at a full level, because they are just starting and next year they will be going to a — fully operational. So these are the two reasons because of which, other expenses are on a higher side.

Manoj Gori — Equirus Securities — Analyst

Right. So it’s normal business operations, right?

Sudhir Goyal — Chief Financial Officer

It’s normal business operation, right.

Manoj Gori — Equirus Securities — Analyst

Yeah, yeah. Thanks a lot and wish you all a very happy Diwali.

Sudhir Goyal — Chief Financial Officer

Thank you and same to you.

Operator

Thank you. Our next question is from the line of Aditya Bhartia from Investec. Please go ahead.

Aditya Bhartia — Investec — Analyst

Hi, good morning sir. Sir, my first question is a continuation of the last participant’s question on gross margin…

Operator

Mr. Bhartia, I’m sorry to interrupt. If you’re on a speaker mode, can you switch to handset and speak. We can’t hear you clearly.

Aditya Bhartia — Investec — Analyst

Is it better now?

Jasbir Singh — Chairman and Chief Executive Officer

Yeah, Aditya, you are audible. Please go ahead.

Aditya Bhartia — Investec — Analyst

Hi, sir. Sir on the gross margin side, this trend of higher proportion of components is something that we were seeing in the last two quarters as well. But the expansion in margins that we have seen in this quarter is actually quite sharp. So is there something else to that as well? Is it a case that commodity costs have started falling and the benefit of that, we’ll end up passing to customers with a lag [Phonetic], and therefore, by next quarter, by next two quarters, gross margins will again come back to the kind of territory that we have seen in the past? How should we look at that?

Jasbir Singh — Chairman and Chief Executive Officer

Aditya, it’s largely because of the product mix. You know that we have got a range of products which we offer to our clients and it’s very difficult to predict which customer will buy which component, but on a larger side, the traction is towards components. And in components, we enjoyed little better margins, as compared to the finished goods. So if this trend continues, then certainly you will see better margins moving forward.

Aditya Bhartia — Investec — Analyst

Sure. And that’s our expectation that the trend should be continuing. So in that context, what’s the kind of sustainable gross margin kind of a level that you look at? Let’s say if we remove some of the bought-out components like compressors and just look at gross margin on the products that we are supplying.

Jasbir Singh — Chairman and Chief Executive Officer

Actually, it’s a very tricky question to answer, because — I’ll just give you an example. Like, for example, if the gross margin is at 20% right now on one component. But sometimes customers do ask us to give them sub-assemblies, by adding some bought-out items into that. So that reduces our percentage margin, because it’s like a pass-through kind of a thing. So in that case, the percentage will dip.

So it’s very difficult to predict, Aditya, on an overall basis, how the trajectory will be — because as a solution provider, we cannot say no to our customer, if they require such kind of a little [Phonetic] solution from us on a basically sub-assemblies part or adding any bought-out items into the components which we are supplying. So that changes the equation on the percentages. But what we see is that, how much Amber is contributing as a value proposition on the complete manufacturing footprint. I think that is very robust and that is where the fundamentals are, and we are moving very positively on both components and finished goods side. So probably if this continues — if there is no sub-assemblies, then yes, we can see some margin improvement.

Aditya Bhartia — Investec — Analyst

Understood, sir. And sir, my second question is on your comment on market share, wherein, you said that market share should remain steady over the next couple of quarters at least. Now there was a big import substitution benefit that you are anticipating, that roughly 2 million units get imported, of which 800,000 could potentially come to Amber. We haven’t, from my understanding, seen that benefit play out as yet. So shouldn’t that be leading to a significant improvement in market share over the next, let’s say, three or four quarters?

Jasbir Singh — Chairman and Chief Executive Officer

Yeah, I think — so basically, some of the — so what happened was, the 2 million number was pre-COVID levels and then the market fell down. So that number also came down drastically on a pro rata basis. So industry has yet to demonstrate the pre-COVID levels, it had touched 6.4 last year. So we did convert some of the customers from — in the phase 1 into gas charging units, and now we’ve already converted them into manufacturing parts. But on the other side, there is a shift happening, where some of the customers have decided to basically do the assembly on their own. So for them, it will be our component play and for the customers who have shifted to us, it will be a finished goods play.

So I think, if the industry moves to 8.5 million number, that’ll be a good jump from 6.4 million to 8.5 million, and we should outnumber the number by some part. So probably we should see some improvement in our share of business also — market share on the value proposition side.

Aditya Bhartia — Investec — Analyst

But you would not anticipate a very, very sharp improvement panning out over, let’s say, next one and a half years?

Jasbir Singh — Chairman and Chief Executive Officer

See, what is happening is that some of the customers on the other side are taking — are shifting their strategies. So as we have seen in past two decades, some of the customers from outsourcing, they went in-sourcing and then from insourcing they went outsourcing. So this is a transition phase happening, because of maybe PLI or maybe because of expansion in other geographies. And what — our strategy is that, we mitigated this kind of a risk, whether insource or outsource, or whether market share exchange between the brands, it should not impact us. So that — we have seen these strategies and the market share exchanges in last two decades happening.

Amber’s proposition is very clear, we are a very integrated, comprehensive solution provider, both in terms of finished goods and in terms of components. Today we can give you 69% to 70% of the bill of material, in case you want components. And if you want finished goods, we can deliver you that also, in any geography in India. So that’s the strength which it has.

Now, if this industry grows by that number, I think what we will see is that, components are growing a little faster, because we’ve added couple of customers on the component side very recently due to PLI benefits and additions. So probably the structure will change and that’s why, Aditya, you must have observed that, we have started observing our market share from a value point of view, which makes sense.

Aditya Bhartia — Investec — Analyst

Understood, sir. And sir, a very small clarification, what’s the nature of forex loss, and what’s the kind of hedging that we do on our payables?

Sudhir Goyal — Chief Financial Officer

So on quarter two only, we have a forex loss at a consol level of INR6.6 crores, and we have a hedging policy and we are regularly doing our hedging through — largely through a forward only, and minimum like 50% to 75%, we always kept it hedged.

Aditya Bhartia — Investec — Analyst

And this forex loss will be all MTM, or would there be normal forex loss involved as well?

Sudhir Goyal — Chief Financial Officer

So it’s a mix of both, realized as well as unrealized. So I’ll update you. I don’t have the exact number out of this, but largely out of this INR6.5 crores, largely it will be unrealized. INR2 crores or INR3 crores should be realized, but I’ll give you the exact number later on.

Aditya Bhartia — Investec — Analyst

Perfect. Thank you so much sir. Wish you a very Happy Diwali.

Sudhir Goyal — Chief Financial Officer

Thank you and same to you.

Operator

Thank you. Our next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.

Pulkit Patni — Goldman Sachs — Analyst

Sir, thank you for taking my questions. Sir, my first question is, that you don’t share the volume number as well as you’ve been saying that now, margins should not be looked at as a percentage number. But one should expect that EBITDA will grow at 25%. Now obviously, that EBITDA number has so many other things, in terms of forex, in terms of fixed costs not being realized. Can you tell us what actual EBITDA numbers we’ll grow at; because that number seems to be pretty significantly lower than what the guidance has been? So if you could tell us, because know some of these things will always be the case, right? forex — I mean in this country where rupee depreciates 4% — 3%, 4% every year, if you could just tell us what should we build in, in terms of normalized EBITDA growth adjusting for some of these one-offs which seem to be repeating a lot more?

Sudhir Goyal — Chief Financial Officer

So, hi. I don’t get your name.

Pulkit Patni — Goldman Sachs — Analyst

Sir, Pulkit.

Sudhir Goyal — Chief Financial Officer

Pulkit? Yes. So Pulkit, I understand that you are saying that there are few things which are non-operating. But you want the actual EBITDA. That is also improving, but this is one year where we have seen such a big impact of the forex loss, and with this hedging policy and the costing which we are doing with the customers, we are expecting that this will not hit us more, and we will make it not impacting our EBITDA margins. Still, we are, like, in a phase that this — only barring current year, where we already got this impact, we will be maintaining our EBITDA margin as well, with a CAGR of 25% to 30%, as well as PAT. So we are not guiding only at an EBITDA level, but also at a PAT level. So PAT is also growing at a CAGR of 25% to 30%.

Pulkit Patni — Goldman Sachs — Analyst

Sure sir, so we’ll build that for the normalized growth. Sir, my second question is, we have seen what some of the brands are doing in terms of inducing competition, and that seems to be spreading across. Now when a brand is not making as much margin as they were making maybe a couple of years back, it is natural for them to basically try to pass that on to a services provider like you. In that context, is it fair to assume that margins — I mean compared to what you were making two years back, that margins would be structurally under pressure?

Jasbir Singh — Chairman and Chief Executive Officer

Well, you see, brands have a very different permutation and combination due to which their margins are under pressure, because there are more than 42 brands existing in the country and the competitive intensity in the brands is very dynamic in nature. Earlier there were no online players playing a big role, but now they have also started contributing significantly. So — and there is always a pressure to maintain their share of businesses or market shares at their level.

What Amber’s strategy is that, from a component build to a complete comprehensive solution provider, we generally operate at a very kind of a predetermined fixed-cost basis. And beyond certain squeezing of the margins, we have — I mean, we have taken positions where we have neglected some kind of — or we’ve given the away the businesses, rather, to go on that front.

But if you see the structure of Amber today from last four years when we got listed, the structure has changed. We are no more a RAC play. So Room Air Conditioner, of course, will go through its own dynamic, but still being a most under-penetrated product category, will remain a very focused area, because we see lot of growth opportunities in this sector, and we want to strengthen our position by giving more comprehensive and integrated solutions in different geographies in India, in the room AC space. But however, we have been adding other businesses, which is now contributing 30% to our consol balance sheet, which are margin accretive and which are non-seasonal in nature.

So overall, if you see, I think probably we will give — we will maintain our guidance of demonstrating that 25% to 30% range of EBITDA in absolute basis, and similarly in the PAT levels also. It’s very difficult to assume, how the brands will pass on the benefits. I mean, from our perspective, brands come under pressure due to many reasons. Some of the brands have — in past, we have seen the new brands have a — they come with a balance sheet of buying market shares. So they start subsidizing the products. But there is no point that Amber should subsidize its products on a pro rata basis. So we have to take a call accordingly, and we’ve done that in past, we’ll do that in future also.

Pulkit Patni — Goldman Sachs — Analyst

Sure sir. Thank you so much.

Operator

Thank you. Our next question is from the line of Veenit Pasad from Investec. Please go ahead.

Veenit Pasad — Investec — Analyst

Good morning sir. Thank you for the opportunity. Sir, I had just one question. I think I missed the capex guidance number for this year?

Jasbir Singh — Chairman and Chief Executive Officer

So this year, it’s high a capex year for us. We will be doing INR600 crore capex this year. And next year — I mean, primarily because of our greenfield facilities and PLI commitments. But next year, it is definitely going to drastically come down.

Veenit Pasad — Investec — Analyst

So is it a case that we are preponing some of the capex which we were planning to do, otherwise in FY ’24?

Jasbir Singh — Chairman and Chief Executive Officer

No, there is no preponement. Basically, the two greenfield facilities were very well planned earlier. And then in — some of the subsidiaries are growing very fast, so there is slight capex there also. And we continue to maintain our focus on the R&D activities. So in an overall basis, maintenance of all — maintainable capex for all 23 plants, plus the R&D, plus subsidiaries and the new greenfield facilities, leading to this kind of a capex.

Veenit Pasad — Investec — Analyst

Understood. Thank you so much sir and wish you a Happy Diwali.

Jasbir Singh — Chairman and Chief Executive Officer

Thank you. Same to you.

Operator

Thank you. Next question is from the line of Dhananjai Bagrodia from ASK Investments. Please go ahead.

Dhananjai Bagrodia — ASK Investment — Analyst

Hi, sir. Just wanted to understand now the new changes you’ve mentioned. So now we have 26% market share of the INR12,160 crores of the room AC size, right?

Jasbir Singh — Chairman and Chief Executive Officer

Yeah, that’s right.

Dhananjai Bagrodia — ASK Investment — Analyst

And this INR12,160 crore includes all components; CBU, everything is inclusive, all of it– AC as a whole category, is that correct?

Jasbir Singh — Chairman and Chief Executive Officer

This is room AC and room AC components put together.

Dhananjai Bagrodia — ASK Investment — Analyst

Okay. So then the earlier [Phonetic] volume market share. And sir, just to understand now, right now we would have good clarity in terms of how the remaining year would be. What would be our growth, for example, for the remaining — for the next six months for room AC and room AC components?

Jasbir Singh — Chairman and Chief Executive Officer

So both the — basically — I mean that’s why we’ve guided that we will maintain the share of 26%-plus moving forward, as the markets are moving from 6.4% to almost close to 8.5%, we are moving in tandem to that and components are growing a little faster.

Dhananjai Bagrodia — ASK Investment — Analyst

So would it be fair to assume that the components will be like 1.08, like — around 1.10 times the room AC growth?

Jasbir Singh — Chairman and Chief Executive Officer

I mean, if you see in quarter two results also, the components have clocked a growth of 136% kind of a thing. So, I mean, right now, very difficult to predict, because customers have still to come up and tell us whether they want sub-assemblies or finished goods or only the components. We don’t know as yet. But I think from our perspective, what we are seeing clearly, is that our market share will be very much intact, or perhaps we may grow a little in the market share.

Dhananjai Bagrodia — ASK Investment — Analyst

Sure. And sir, you mentioned SriCity, you are opening — the operations in Q3 FY ’24?

Jasbir Singh — Chairman and Chief Executive Officer

Please pardon. Can you repeat the question?

Dhananjai Bagrodia — ASK Investment — Analyst

Sir, you mentioned SriCity will be operational by Q3 FY ’24?

Jasbir Singh — Chairman and Chief Executive Officer

Yes, yes, yes. It will be operational in Q3 — end of Q3.

Dhananjai Bagrodia — ASK Investment — Analyst

Okay. FY ’24?

Jasbir Singh — Chairman and Chief Executive Officer

No, FY ’23. So, basically, right now the factory is ready, lines have been put up and trials are going on. I think once we receive the customer approvals, the production will start — mass production will start.

Dhananjai Bagrodia — ASK Investment — Analyst

And sir, just to understand, what could be the asset turns on this segment?

Jasbir Singh — Chairman and Chief Executive Officer

So asset turns, generally, in these segments are about four, and we’ll begin with about three, then we’ll go to four and maximum — on the assembly side, we can go as long as seven to eight also. So it will depend on what kind of businesses we are getting moving forward. But overall on the asset side, we should expect somewhere about four — four to five.

Dhananjai Bagrodia — ASK Investment — Analyst

And sir, what would be the capacity volume for this — we are targeting for, let’s say, the year-end?

Jasbir Singh — Chairman and Chief Executive Officer

So SriCity, we have installed heat exchangers, sheet metal, injection molding facilities, tubing, components and assembly lines for 1 million air conditioners.

Dhananjai Bagrodia — ASK Investment — Analyst

Okay, sir. Thank you, sir. Best of luck.

Jasbir Singh — Chairman and Chief Executive Officer

Right. Thank you.

Paras Nagda — Enam Holdings — Analyst

Thank you. Our next question is from the line of Dhruv Jain from Ambit Capital. Please go ahead.

Dhruv Jain — Ambit Capital — Analyst

Hi, sir. Thank you for the opportunity. Sir, I had a question with respect to your capex. So last call you had mentioned that you will add INR200 crores of capex if you get those customer approvals. So now that you increased the capex guidance; one, is that we will see some extended period of subdued EBITDA in the standalone business, like we saw in this quarter as capacities get absorbed, so that carries through FY ’24?

Jasbir Singh — Chairman and Chief Executive Officer

Sorry, your question is pertaining to what? I mean, you are asking about the capex guidance. Yes. We’ve revised our capex guidance after our confirmations from the customer. What’s your question?

Dhruv Jain — Ambit Capital — Analyst

Yeah. So, one is that, we saw some unabsorbed losses of unutilized capacities in the standalone businesses this quarter. So now that incremental capex of about INR300 crores that you’re doing in FY ’23, does that mean that your margins will remain subdued till the first quarter of FY ’24 in the standalone piece, because you will take some time to ramp up capacities?

Jasbir Singh — Chairman and Chief Executive Officer

No, that’s not the case. In fact, the capacities which have been built up and which are getting added on the confirmations of our customers, that will be reflective from quarter four onwards. And the last one where we will be putting up capex in this year, will be reflectable in quarter one of next financial year. And these are all good businesses for long-term contracts to the customers.

Dhruv Jain — Ambit Capital — Analyst

And sir, for the INR600 crores, can you just broadly give the split in terms of how much you’re spending in ACs and the other components, motors, electronics?

Jasbir Singh — Chairman and Chief Executive Officer

So almost the SriCity capex is close to about INR350 crores, which is primarily ACs, and remaining are — all put together in subsidiaries, as well as — subsidiaries plus the maintenance capex and R&D capex.

Dhruv Jain — Ambit Capital — Analyst

Okay. And sir, on the electronics piece, so we’ve seen a decent growth in this quarter on a YoY basis. So — but the margins have declined a little bit. So if you can just give us a sense on — in the electronics piece what is the AC part and what is the non-AC part and just your general broad outlook on that, please?

Jasbir Singh — Chairman and Chief Executive Officer

It varies from quarter to quarter. Actually, in quarter two, air conditioner contribution is very less, because the complete industry went through a sluggish phase because of BEE table and some rains. So largely, in quarter two, the revenue is, I would say, maybe just 20% of ACs rather than — and 80% will be non-RACs.

Dhruv Jain — Ambit Capital — Analyst

Okay. And sir, over the last three or four years, we’ve seen that you have undertaken significant capex along with some acquisitions, right? And, I mean, in the — in some of the earlier participant questions you said that your market share — you are likely to maintain your market share and increase by a little bit. But considering the capex that you’ve done over the last three or four years, shouldn’t we expect like a very strong FY ’24 or FY ’25? Just your broad thoughts on that.

Jasbir Singh — Chairman and Chief Executive Officer

Yeah. So we are also expecting — I mean, this is in anticipation of industry growing around 15% CAGR, and also our endeavor to get into non-RAC components also, which are more margin accretive. So both the strategies are working on, and we should see that number panning out in the — reflective of margins, as well as the balance sheet on the bottom line side.

Dhruv Jain — Ambit Capital — Analyst

Okay, sir. Thank you so much and wishing you a very Happy Diwali.

Jasbir Singh — Chairman and Chief Executive Officer

Thank you. Same to you.

Operator

Thank you. Our next question is from the line Paras Nagda from Enam Holdings. Please go ahead.

Paras Nagda — Enam Holdings — Analyst

Yeah. Hi, Jasbir.

Jasbir Singh — Chairman and Chief Executive Officer

Paras, good morning.

Paras Nagda — Enam Holdings — Analyst

Yes, morning. Sir, I had two questions, one was on the gross debt. If I see your balance sheet, your gross debt has crossed close to INR1,300 crores. I actually fail to understand how the net debt is at INR665 crores. What is the cash and cash equivalent, plus the bank balance? So if you could — if someone could reconcile that for me, please.

Sudhir Goyal — Chief Financial Officer

Yes. So we have a cash balance in the — like, current account or the cash credit account, which we received on the last days, and — plus investment in the FDs and investment in the perpetual bonds of the bank, HDFC and SBI only. The total of these investments, including the cash balance is INR645 crores. So net debt is coming to INR662 crores. And this is happening, like — why the gross debt is higher? Reason is that as per the RBI guidelines, we need to draw first 60% in the WCDL, which is a Working Capital Demand Loan, for a fixed tenure. It ranges from like 15 days to three months period. And we can’t prepay it. So that is the reason that if we draw some WCDL, which is a low-cost than the cash credit account, then whatever balance left with us or received during that period, where we can’t prepay the loan, we have to keep it in the — largely in the FDs for a shorter tenure.

Paras Nagda — Enam Holdings — Analyst

And is it fair to assume that this is going to be the peak debt envisaged [Phonetic], or will the debt increase going ahead — net debt?

Sudhir Goyal — Chief Financial Officer

See, by year-end, we are expecting that it will come down to a great extent, because this is a cycle of the business, wherein in the off season, we have a larger net debt, and by the year-end we get a lower debt. And one of the main reason of the September quarter’s larger debt is the capex which we have done in the H1. And by year-end, we are expecting that this debt should come down by minimum INR200 crores.

Paras Nagda — Enam Holdings — Analyst

Got it, okay. And my second question is, Jasbir, could you update us on the export potential and what is happening on the export side of the business, please?

Jasbir Singh — Chairman and Chief Executive Officer

I already did, Paras, but I don’t mind repeating it. So on motor front, doing positive. Last year we did INR28 crores, INR29 crores worth of exports. This year we have a confirmed order of about INR50 crores. And next year, we are expecting very large orders. So I think we’ll see somewhere about a 70% to 80% jump from current year, next year in the motor business.

As far as finished goods are concerned, as stated earlier, our strategy and our guidance have been mid to long-term strategy, because there are four milestones to achieve in finished goods. One is the product readiness for the geographies; like in U.S., they don’t use high-wall mounted splits. Then in European markets, they have complete heating and cooling solutions and have different — structurally different products. So first milestone is to create those products.

Second is to get the approval of BEE on each country. Every country has different BEE norms and different BEE tables. There is no standardization across the world, which everybody follows. So even in — so if you go to Middle East, all the MENA region countries have a different kind of a BEE norm. Somebody follow different norms and somebody has a very — no one follows a standard one. So that’s the second milestone.

Third milestone is to have foot in the door. We as a company, and we as a nation have yet to prove on the deliverability, on the cost competitiveness to our customer, and on the quality side. Then fourth will be to increase the share of business. So in some geographies, like U.S., we are at number two, we are at milestone number two. The products have been ready, they are under testing, the samples have been submitted to — some prototyping is happening. And we expect that in — by 2024 financial year, next financial year, we should be over [Phonetic] by the BEE table norms. So FY ’25 is when we are expecting some good — decent orders as a foot-in-the-door kind of a thing to come in, and ’26 should be where we should see some share of business increasing in the finished goods category.

Paras Nagda — Enam Holdings — Analyst

Perfect. Thank you.

Jasbir Singh — Chairman and Chief Executive Officer

Thank you, Paras.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Jasbir Singh for closing comments.

Jasbir Singh — Chairman and Chief Executive Officer

Thank you, everyone, for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with Strategic Growth Advisors, our IR advisors. And once again, wish you all a very, very Happy Diwali and a prosperous New Year. Thank you very much. Have a good day ahead.

Operator

[Operator Closing Remarks]