AUTOMOTIVE AXLES LIMITED (AUTOAXLES) Q2 FY23 Earnings Concall Transcript

AUTOMOTIVE AXLES LIMITED (NSE:AUTOAXLES) Q2 FY23 Earnings Concall dated Nov. 09, 2022

Corporate Participants:

Dr. N. Muthukumar — President and Whole Time Director

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

Mr. Ranganathan S — Chief Financial Officer

Analysts:

Mr. Sailesh Raja — Batlivala and Karani Securities India Private Limited — Analyst

Chetan Gindodia — AlfAccurate Advisors — Analyst

Sunil Kothari — Unique Portfolio Management — Analyst

Viraj Kacharia — Securities Investment Managers — Analyst

Sridhar Galani — Axis Securities — Analyst

Radha — — Analyst

Shashank Kanodia — ISS Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, Good day and welcome to the Automotive Axles Limited Q2 FY ’23 Earnings Conference Call hosted by Batlivala and Karani Securities India Private Limited. [Operator Instructions]

I now hand the conference over to Mr. Sailesh Raja from Batlivala & Karani Securities India Private Limited. Thank you over to you Sir.

Mr. Sailesh Raja — Batlivala and Karani Securities India Private Limited — Analyst

Thanks Renju. Good afternoon and thanks to everyone who have logged in into Automotive Axle Q1 FY ’23 earnings conference call. Today we have the senior management team of the company Dr. N Muthukumar, President & COO, Meritor HVS India Limited, Mr. Nagaraja, President and Whole Time Director, Automotive Axles Limited; and Mr. S Ranganathan, CFO, Automotive Axles Limited.

So I would now like to turn the call to Mr. Muthukumar for the opening remarks followed by Q&A. Sir you may begin now.

Dr. N. Muthukumar — President and Whole Time Director

Thank you, Sailesh. Good afternoon, ladies and gentlemen. Once again, happy to be back with you, and I’m sure that every one of you would be good and safe. Just wanted to give you before starting the regular about merit about the comment merit better together. All of you know that we’ll be eager to hear from this. As indicated earlier, the integration process is going on smoothly. — we are around day 90 after the official integration between both the company and the statement of both common President and — to Ms. Jennifer Raser excited to welcome Medicare employee to come in.

Together, Samin and Meritor will move further and faster in developing economically viable decarbonized power train solution. Ladies and gentlemen, you all know that come into targeting towards going to destination zero in order to make this mother much, much better place for the future. And the same is with Meriten, a great combination working. The Chairman of our JV, Dr. Baba convey his wishes to the team, and he feels that there is going to be bringing great changes to the organization, and it’s also good for the future. I think both the team, Jennifer and the Group President and COO Global; and Dr. Vadakaleni, can you as that Betties to the members of the shareholders of automotive axle — with that introduction, ladies and gentlemen, I’m sure that we will have a lot of questions at the end.

I’m going to answer it back, but I’m requesting Nagaraj to talk about where are we now in terms of our footprint, how the business is what is actually that we are doing in our sustainability and what type of product that we are using, followed by Mr. Rangarajan will talk to you about the financials for the quarter and how we are performing I’ll come back to you on the last slide on what is the focus for continuously through the time situation.

With that introduction, ladies and gentlemen, over to Mr. Nagaraja for the binding interaction. Over to you Nagaraja.

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

Thanks, — Just a question here, which slide we are in?

Dr. N. Muthukumar — President and Whole Time Director

We are Slide three. snapshot Q2 FY ’20

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

Okay. Thanks, everyone. Again, good afternoon, and Nagarajan here. As you can see here, the while Arana is going to touch upon the revenues separately, we’ve been doing reasonably well in terms of revenue, EBITDA and PBT. And just to give you brief background about our manufacturing location and everything. We have one manufacturing locations, mother plant is in Minsur. — and we have satellite plants in both Jemena and have a warehouse in mainly to support to the customer for the last mile. So we have 2,000-plus employees. We have customers all the major OEs we supply our products.

And our products consists of access brakes and suspension systems. And as you can see, as far as independent manufacturer sponsor excluding the OEs who have got a backward integration, we are number one in AXL and number two in brakes. Next slide, please. So Muthu, did mention about the green initiative and especially sustainability road map. It’s not just that we are supplying product to meet the market demands. But how do we manufacture them? How do we ensure that there is a good balance between our industrial activities and then still maintain mother earth. So we started off our journey in 2017.

As you can see, we started introducing green energy, we were about 20% at that point of time. But over the last five years, there’s a significant improvements have been made. We not only — now we are about 70% of our energy is coming out of renewable energy. And then we are also focusing heavily on controlling their missions in all parts of our manufacturing activity. There was one mandate just about a month ago, we talked to the suppliers. — and we started encouraging our supplier also to embrace these green technologies in every aspect of manufacturing.

So on the right side, we are looking at how is the main six pillars of our model, one is starting off with the green energy, what I talked about how do we sustainably manufacturing, whether it’s use of water or elimination of some of the subsidies, which are Hazard tenement. We also started working on the IO team, which is we see basically Internet of Things.

In fact, as we speak, two of our production lines have been completely digitized. And then we continue to work with the society, whether it is the education our planting trees or connecting with the other layers in the society, team has been fully engaged Corporate governance is one thing.

Our Board is very, very I would say that very, very focused in that area and the Board has been guiding us to ensure that not just in our corporate function, but at all levels, including all the stakeholders, we are focusing on that. Next slide, please. Okay. So — as you can see, we are catering to the diverse markets and almost all the customers, both in India also globally, whether it’s a truck trailer or the offer market or even as there is a new focus coming on the military, especially make in India.

We continue to support that our focus going forward will be more on the off-highway where we have — looking at developing a specific solution and having no comment knowledge and the capability in the off-way is going to really help us — we continue to shop still remain our largest customer, but we are expanding and adding more products with the other customer, whether it’s data in or Daimler. So we also export to UD from India. And we can also continue to do more exports to the other Meritor locations.

So with that, I’ll pass it on to Ranganathan to go through the financials.

Mr. Ranganathan S — Chief Financial Officer

Thank you, Nagaraja. Thank you, Muthu. On the financial results, I hope you would have all of you seen the performance but just give a quick snapshot. Revenue for the quarter is about INR475 crores as compared to INR310 crores the last same quarter revenue growth of 54% and EBITDA is about INR551 crores as compared to INR23 crores last year, the same quarter — the EBITDA percentage, what we see is about 10.7 7.5% is close to about 48% increase. With EBITDA, EBIT stands at 8.5% as compared to 4.5% last quarter. The pivot level, the percentage growth is close to about 89%, thanks to the volumes and also the cost performance.

As for the half year performance is concerned, the half year revenue growth is INR977 crores, as compared to INR566, 566 last year same quarter. EBITDA, it’s about INR104 crores for the six months at 10.7% and compared to INR39 crores last year at 7% [Indecipherable] PBIT, we were at 8.4% for the first half year with INR80 crores on absolute values. Last year, the same six months, the PBIT at 3.8% with INR21.7 crores as an absolute value. Overall basis, the volume definitely yielded a good amount of leverage, as well as the material cost and other conversion cost performances, also driving the bottom line in spite of the heavy commodity impact we may observe in the last six months.

With this introduction, probably I’ll ask Muthu to take over the growth through mission [Indecipherable] strategies as well as the key actions going forward. Muthu?

Dr. N. Muthukumar — President and Whole Time Director

Thank you, Ranga, and one minute [Indecipherable]

Mr. Ranganathan S — Chief Financial Officer

Maybe I can touch base on the growth in —

Dr. N. Muthukumar — President and Whole Time Director

Yes, You can finish up the growth.

Mr. Ranganathan S — Chief Financial Officer

Okay. As all of you as far as the growth is concerned, all of you know, 2022, the MHCV market is close to over 300,000 levels. As of town, we are anticipating the whole year ’22-’23 at 370,000 to 380,000 mega level. So definitely, we, as an organization is focusing on the grow revenue. We will be at the market. We try to work on to grow beyond the market growth. Our growth rates, we always try to aim at growing a little ahead of the market growth rate. So our focus continues on that.

As part of the machine 25 enhanced profitability is a very, very key initiatives. All of you are noticing when the market goes ups and downs, we are able to control the cost and try to bring the reasonable profitability as the volume decides. So new business wins, the Muthu team is continuously working with almost all segments in terms of the enhancing the share a business. Our focus in to how the aftermarket business or enhancing the export business.

So operational excellence, whether through the material performance, our IoT definitely is a key focus. We are working on it. We are also working on the digitization as well as the paperless office initiatives part of operational excellence. Every function in automotive actually is working on the excellence in their own function, which gives an overall operational excellence, which brings a consistent and cost benefit in the long term.

Customer focus and customer value is always our key focus area, which comes through the value proposition to the customer in terms of most of the cost delivery, as well as the new product introductions. And overall outlook, the market is looking better. We hope and the market will be better than the previous quarter. I will definitely perform as a market volumes for the Q3. So as I said, the focus will continue as our industry 4.0. Commodity definitely is getting softened maybe in the second half of the year, probably will definitely have some advantage in the second half of this financial year. Our focus continues on the operational excellence, conversion costs, and other material cost performances.

And there are key actions broadly, safety, our primary focus. So we work on all the safety measures, employee first, safety first. And also, we are also taking the ESG as Nagaraja has explained earlier through the green initiatives. So we have continued to focus on those things, make sure that the gearing initiatives, not only in Automotive Axle, and also the entire value chain. So though COVID is softened and more or less, it has got us settled down. but we are also continuously taking care of the entire system as well as the employees that the COVID pressure on the whole system is low.

As far as the cost measures are concerned, definitely, our M25 initiatives to the operational excellence, definitely, we’ll continue to focus on the cost performance metrices. More importantly, these commodity price changes, we are closely watching on and managing the business that doesn’t really affect our total performance. The business growth strategy, all of you have known that last time, Muthu has mentioned that we have signed up a long-term agreement with our key suppliers, key customer [Indecipherable] as well as we won a gold award for the great cost savings of the value proposition to our share guidance, we got an award last time.

Again, as a matter of fact, the focus on export definitely continues. Definitely, we are seeing good opportunities. And definitely, our organization would benefit in the coming days. Improved operational performance, increase the share of business way. That’s always a focused area for our front and team. So we are working with all key customers. And we are also constantly looking at the product development is one of the strategic initiatives to give a value proposition as well as to get a better position with the customers. Digitalization, and as I said, paperless office continues to drive across organization as part of the green initiatives.

With this brief kind of performance update all of you. We are open for the questions. Thank you.

Dr. N. Muthukumar — President and Whole Time Director

Thank you, Ranganathan. Just before we open to questions, maybe [Indecipherable] on the Slide number five, where the circular economy where Nagaraja presented. If you go to the bottom of the slide, it shows what is the initiative that your company is taking towards migrating to renewable power. There’s a small selling mistake. The replacing of LPG with the LNG is not in December ’22 by December ’23. I just wanted to bring it to your notice. Sorry for the typographical error.

With that, I think, [Indecipherable] you can take it forward for the question answers.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Chetan Gindodia from AlfAccurate Advisors. Please go ahead.

Chetan Gindodia — AlfAccurate Advisors — Analyst

Hello, sir. Congratulations on a good set of numbers.

Operator

Sorry to interrupt. Mr. Gindodia, [Indecipherable] handset, we can’t hear you very clearly.

Chetan Gindodia — AlfAccurate Advisors — Analyst

Hello.

Operator

Yes. Please go ahead.

Chetan Gindodia — AlfAccurate Advisors — Analyst

Yes. I wanted to understand what are the initiatives that take to grow ahead of the CV industry and to increase our content for [Indecipherable]. That’s the first question. Second question is with respect to our new suspension product and products to increase our share in the LCV market, what is the update on this? And if you can also share the revenue breakup between brakes and axle, that would be great.

Dr. N. Muthukumar — President and Whole Time Director

Okay. I will [Indecipherable] and answer one by one. I think the — in terms of the growing revenue, Ranga explained to you very well, and one of the areas the initiatives that we are doing, and we want to be ahead of the market. You would have even seen that our growth in the market in terms of top line is better than the market growth in commercial vehicle segment, particularly 7.9 is the number. So the company will continue to innovate the products, introduce the product that is needed for the new application, and keep on going.

The second question, in terms of addition of the adjacent or addition of the value, we will continue to improve on the content or access to content or wait with one content per axle by increasing the back[Indecipherable] to the customers. But in terms of adjacency, you know that we have introduced multinet the third one. the relaunch of the product at this point of time is doing well. We will continue to grow in that segment. I think maybe next one year, we will see the substantial quantum of potential is being sold from the company from releases [Indecipherable] but sorry, just when you wanted a fit between the brakes and axles that you know as a policy, we don’t share normally the share of business with the customers, our shares between different vertical and also our export content. I’m sorry, on digital, I’m not able to provide you that information at this point in time.

Thank you very much. I hope to clarify some of your question.

Chetan Gindodia — AlfAccurate Advisors — Analyst

Yes, yes. Thank you. Just sir as a follow-up. I wanted to understand now with coming up as a partner, is there any change likely to our relationship with the subsidiary — Meritor subsidiary? And is there a plan for merger or increasing our share of business, wallet share with the other non-[Indecipherable] OEMs?

Dr. N. Muthukumar — President and Whole Time Director

Clearly, this partnership between coming from Meritor — it brings the land of an enormous opportunity for us to export the mute there are many customers where come into force and very strongly the relationship where we can penetrate. At the same time, there are a lot of customers where Meritor is defer strongly where we’ll have an explore what can be done for some — and the management team, we are working very strongly. At this point in time, the relationship between both the partners are being very strong, and we are working on a long-term strategy. We don’t have any plans at this point of time of doing any changes to the existing sector, what we have in terms of the JV.

Chetan Gindodia — AlfAccurate Advisors — Analyst

Okay. Got it. I wish you all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sunil Kothari from Unique Portfolio Management.

Sunil Kothari — Unique Portfolio Management — Analyst

Thanks for the opportunity, sir. Congratulations for good numbers. Sir, the presentation, Mr. Ranga clearly mentioned that commodity price softening will definitely help us by second half. Up to now, we were not able to take any benefit. So would you like to talk about the possibility of maybe margin — if not numbers –what the scope of reducing costs and what type of benefits it will give?

Dr. N. Muthukumar — President and Whole Time Director

Yes. Thank you, Mr. Kothari for asking this question. I can understand your [Indecipherable]. Really appreciate. I think Ranga touched upon the point that comedian and it is ease out a little pressure. But all of you know if the commodity went up, all of you have appreciated that we are able to be back to back with the customers and trying to report the money. The same thing will happen when the commodity comes down, and we’ll be passing on to the customers in the commodity. Of course, there is a little time difference, which is going with money. But I want to be very, very fair that the commodity goes up and down other than the base impact in terms of the percentage, it’s not going to have a huge impact into our bottom line. Ranga, please correct me if I’m wrong on that particular statement.

Mr. Ranganathan S — Chief Financial Officer

Yes, absolutely right, Nate. So definitely, the commodity as a principle is going up or going down. We have a specific understanding with the customers to pass on to then. Definitely, the commodities soften, definitely, there is a have stake and come pass on to them. And so end of it, it’s no gain or going loss for us. Only thing is other than that, it creates a base impact, either in terms of the percentage the plus or minus, depends on material going up or down or so.

Sunil Kothari — Unique Portfolio Management — Analyst

Okay, fair. Fair. And sir, my second question is with coming in, may not be in a very near term, next 12, 18 months. But over a period, do you feel there is a scope to bring some products which enhance our market as market size — if you can talk a little bit about the possibility without mentioning any numbers?

Dr. N. Muthukumar — President and Whole Time Director

Thanks for this question. But obviously, — at this point of time, I know many of you have attended method, the management vectoring investor call public days before. And it is too early for us to predict that what product you’re going to bring in. Please understand that Axles is a different vertical and the engine is [Indecipherable] different vertical.

And while we will be bringing a lot of synergies in terms of sales, in terms of access in terms of growing revenue — it’s going to take a little more time for bringing in a product because the both the products are unique by nature, and it’s not — immediately, we can merge these two — so we are discussing on strategically and what could be the potential opportunity in short term and in the long term and continue to work.

But rest assured that this is going to bring in great opportunity for the organization are we going to make this organization to grow naturally. That’s for sure.

Sunil Kothari — Unique Portfolio Management — Analyst

Great, sir. And my last question is, sir, — looking at the performance, we already crossing the all-time high numbers of the — our revenue, hopefully, by this year, which we have done in 2018, ’19 and looking at the overall economy and the demand. Would you like to talk about the industry demand scenario on the ground — what you are observing? What’s your expectation for maybe next year — how do you see this medium to heavy and other products moving on?

Dr. N. Muthukumar — President and Whole Time Director

As you rightly said with the current indication of what we have completed first two quarters, we crossed the old INR950 crores. And as you rightly said, looking at the market projection for the next two quarters, we will definitely cross our previous peak of 2018 even though the market has come back only to 70% to 70% of 2018 peak, the system can answer to many of you that we are growing — outgrowing the market growth. I will send it first. So your organization — your company will continue to focus on the growth, and we will reach the milestone much before our competition at.

But in terms of the industry growth, as you said, the industry is growing going very, very strong in study. while the commodity prices in India is softening, steel prices is coming down, there are certain — I will talk about some of the factors that could inflate the market rather than what we are talking about. The Russian are continuing, it’s putting a lot of stress on to the European system and the cost of Europe in terms of the power everything has gone up, receptor the big advantage for India for doing more and more exports in India to the other countries. You know the cost of living or the inflation in North America and also Europe, which — and also the dollar depreciating again dollars, where is appreciating against other currencies, we’re going to give a distinct advantage for India in terms of exports.

But in terms of the local inflation, because of the three operators, even though the fleet utilization is one of the peak — now, still the fleet operators are finding extremely difficult to take a position to invest money in terms of buying the vehicle.

The availability of funds is also a concern for them in terms of the load. These are certain impediments that can be done — but looking at the pent-up demand between 2018 and now a lot more than — so even though we were talking about four [Indecipherable] even before six quarters before point market that comes on for commercial there is a good demand amenable. We didn’t have the right product. It’s not the same product that we sold in 2018 is getting sold now. They’re getting a bigger truck, bigger axle and new ICE platforms are coming in — so I believe that the market between this year and next year is set to grow at least above 15% next year to come with. This is the current condition.

But the recession, what is going to — talk about the recession in the global market, particularly Northern Europe may have some impact to us, but we strongly believe that the prediction currently, the India GDP is going to drop only by one point, which means the commercial at segment will still continue to grow with what our prediction.

You would have seen the latest analysis on the medium and heavy commercial. The industry predicts that by FY ’24, itself, we will reach a peak Originally, in earlier investor as we are told, by FY ’25, we will get in back to the FY ’18 numbers. But the latest prediction in the market, even though with the 1% drop in GDP, the research predicts that in 2014, it was the India [Indecipherable] 2018 numbers –But ladies and gentlemen, just believe if not the customer numbers. In terms of the tonnage we are already [Indecipherable] because we are going for a bigger vehicle, bigger actual and bigger tonnage. If you calculate again 2018 numbers in terms of the tonnage, we are already on top of it.

Sunil Kothari — Unique Portfolio Management — Analyst

Right, sir. Thanks a lot. Wish you good luck. Thank you very much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Viraj Kacharia from Securities Investment Managers.

Viraj Kacharia — Securities Investment Managers — Analyst

Yes. Sir, just two questions. First is on the off-highway peak. So with Cummins coming in — you briefly talked about off-highway being an opportunity for growth. Can you elaborate what is the investment market opportunity? What kind of products anyone can kind of look at and who are the media players who are currently serving the market?

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

Well, I don’t — thank you for that question. It is a very good lead and I would like to say that Cummins do have a very strong [Indecipherable]. Forget about the global market in India market, and that gives a big avenue for automotive is projected to this. In terms of the product, whether it be a back on loading, is in terms of trade we are continuing to have the product bringing into India and try to see the market.

As you see, we have definitely grown in both in terms of exports and after when compared to what we were at about 2014 and in 2018. But the thing is it takes a lot of time because of a lot of new products on it because the Indian volumes of offering is much, much lower, whether — we’re going to do a lot of export to India to outside, that’s there. So we will definitely — already, we are working very closely with some in to find out what type of opportunities available and how we can go to the customers — and these are the synergies we’ll come to know in the next two quarters, maybe at some point in time, when you wider investor costs together with the Colignan.

Viraj Kacharia — Securities Investment Managers — Analyst

But any perspective you can share I mean the off-highway space, I mean, just from an India perspective, what will be the market opportunity and faxes and rate products? And who are the other major players competing in the market there?

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

There are a few players, somebody from overseas and somebody from India, but I don’t want to name about competition in this investor call. And — but there are a good presence available in terms of the local players and also global players. But as I said, this market is a quite good market. And definitely, the actual market is about — for the axle is quite good. And even if we capture about 20% of the market, it will give a substantial increase in our top line. I think that’s what — but the biggest challenge here is most of the way customers in India, they have a capital active manufacturing. GTDi India is a big customer, but they have a captive manufacturing — that’s where the biggest challenge. Gel has a car manufacturing. We are the things which puts a very, very difficult, challenging, but it’s not achievable. We’ll be definitely able to penetrate and grow because of the product premium or product superiority that Meritor has.

Viraj Kacharia — Securities Investment Managers — Analyst

Okay. Second question was largely on the export piece. You briefly talked about the opportunity in terms of the cost of manufacturing our — so we have been making efforts for the last many years now. But if I have to look at, say, the new parent Cummins they were historically had a very strong focus on exports and for them India is one of the most cost competitive markets globally. So for us, if I were to look at a next, say, five, seven years kind of a thing pretty long term, how should one understand our export evolution post comments coming in?

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

Typically like what you said coming as an automation very support the export from joint interest. And also, they have been a strong believer that India is a great company to do best cost sorting. So we will be definitely accelerating our journey towards export. Earlier, it was a little different because of the product segment that we have been serving, there’s a huge largest fixed lead time, which the customers we are looking at. And we have manufacturing across all over the world. So with this, the definitely there’s going to be a lot of shift, a lot of both value addition that’s going to come from India.

In terms of not only the axles and brakes but also some banyan confident that you got export from this quite for a few quarters to tell us because we are not giving you the number, you are not able to really see the growth in exports what we are doing. It’s not that we are doing great, but definitely, we are inching towards but this will be an accelerated process but we’ll be able to give you a concrete the plan maybe in about next two quarters to see that how much we are going to do once the entire integration process over and our strategies with that. But at this point of time, billing-related intent, the management towards utilizing India for the globe.

Viraj Kacharia — Securities Investment Managers — Analyst

Just one clarification for exports or even for new products. Automotive access will be the entity for supplying either for India globally high? Because I mean, in case of new parent, they have multiple ventures. Sometimes the product comes in the less sometimes it doesn’t. So just trying to understand, the product categories, which merits and and probably you also cater to will be the sole entity from that point of view, right?

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

See, if you ask me where more entity, the NTD has a different meaning because we have from one side of our joint venture partner. Barefoot on the other side come in an number of partner exports is there. But one thing please understand the case of it what automotive actually have in terms of apples manufacturing, none of the other side has. So if it is going to be related to axles and break, you can just assure that it will be the manufacturing will be at automotive active project.

Viraj Kacharia — Securities Investment Managers — Analyst

But the other JV in India the private entity, they are primarily into servicing and marketing. They don’t have any manufacturing base.

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

They don’t have any manufacturing base, but they have a strong engineer improvement. The product is coming out from the IP is controlled by them and the product application is not just selling the product manufacturing from India, the application and service support globally for those applications is all being drawn from the other company. It’s not just a servicing company, what basically a company which designs, develops the product and convert into the manufacturing for India.

Viraj Kacharia — Securities Investment Managers — Analyst

Okay, wish you goodluck.

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

We really appreciate your question.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sridhar Galani from Axis Securities. Please go ahead.

Sridhar Galani — Axis Securities — Analyst

Thank you for the opportunity. I just have a few follow-up questions. First thing I would like to understand is that if the commodity prices rises, then you have a pass-through effect, which is generally with the lag — now when now the prices are correcting itself, so in terms of percentage, if you could give us a guidance as to how much your top line will also be affected?

Dr. N. Muthukumar — President and Whole Time Director

Ranga, you want to answer?

Mr. Ranganathan S — Chief Financial Officer

No, no, I didn’t get your last sentence. Commodity softness? Can you repeat the question?

Sridhar Galani — Axis Securities — Analyst

If the commodity prices now softens, it corrects then say suppose if commodity prices fall by, say, 5%, then your top line, I also believe will be affected because of the pass-through agreements that you have with your customers?

Mr. Ranganathan S — Chief Financial Officer

That definitely will be there. So as effect, we had taken into the system, obviously, that to have any correction to that extent in the top line as well as in the metal cost.

Sridhar Galani — Axis Securities — Analyst

So my question was like it is, say, if it’s 1%, if it corrects, then your top line shall be affected by equal or a little higher because there’s obviously a processing cost involved and other costs also in what?

Mr. Ranganathan S — Chief Financial Officer

No, no, no. It’s actually a purely commodity price. There is no other cost that will get impacted and the commodity price changes. And secondly, I just want clarity, I want to give it to you must be knowing, but just clarifying it in — so we measure it in terms of the number of axles we supply a number of brake supply. The commodity is more a market conditions, okay? But more or less, there will be a very little — very small fluctuations might be there in the top line, but margins are well protected. I don’t think we have any concern on it. So we are more focusing on it in terms of the volumes and the commodity is quite natural to the market conditions

Sridhar Galani — Axis Securities — Analyst

Okay. Okay. And sir, second question follow-up is on the exports. Like if you could just if it’s possible, if you could share to which markets you are currently exporting and once comes into the picture to which the possibility of other markets that will open up?

Mr. Ranganathan S — Chief Financial Officer

If you again look at the exports from India, Meritas doesn’t fully there in North America, South America, China, Europe, Australia, and you ask me where are you exporting? We are not exporting the full axle, but we are exporting resistant altusystems to China to North America to Europe, a little quantity to South America. South Americas very, very competitive and we are doing really good. But what is happening is in the last couple of months, amount of impact that we have seen on the price is having a huge impact for everybody to take the decision.

While there are favorable factors like the past from is going up, the preprice is going up. The labor price is going up. the largest fixed cost is — had a great impact in the last couple of years. Of course, that market is softening. So we are doing for every region because we are selling the products, which we have very specific capability that we are developing at about.

Sridhar Galani — Axis Securities — Analyst

Okay. And one last question on the status of open offer from Cabin since it was at a very low price. So if you could just say like what is the status of that? Any comments on those, if you could make and like if the company via its open offer in the future? Is it looking to increase stake?

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

Ranga, you can answer.

Mr. Ranganathan S — Chief Financial Officer

Right, [Indecipherable] is really very blurred. So I’m not only hear the question. Sorry, can I repeat, sir?

Sridhar Galani — Axis Securities — Analyst

Sure, sir. Sir, I just wanted to understand the status of open offer from Cummins since it was at a fairly low price. And like is there a possibility of the increasing stake in the company more in the future?

Mr. Ranganathan S — Chief Financial Officer

No, we don’t have any such information on hand at this moment of time. It’s a procedure as a by guidelines following. So obviously, we had to wait in much we have no information, nor any kind of, I guess, from our side, what they’re going to do.

Sridhar Galani — Axis Securities — Analyst

Thank you so much. Thank you.

Operator

Thank you. [Operator Instructions] Our next question is from the line of Radha [Phonetic].

Radha — — Analyst

Hello. Am I audible? Congratulations to the entire management team for Setco results. So, my first question was regarding export. So, I believe in exports, apart from Meritor, we have two major clients that is Volvo Thailand and also you mentioned UD trucks in your opening remarks. So given that this is one of the major drivers for our growth, so is there any other customer addition to this list?

Dr. N. Muthukumar — President and Whole Time Director

Okay. We have secured the business of Volvo on silence back in the year 2018 for supplying brakes and action from our combination. And this is a customer which Medicare globally was not probably being met. If you look at our strategy today, Medicare has launched in China, in Australia, Europe, South America, and we don’t go and compete with them in other regions where we want to supply. While we are continuously working Nagarajan continue to be working on innovation to identify the products along with the engineering to even what more we can do it for Volvo now you both the same company man.

Volvo has been taken over by globally the band. Now the Untes which was part of Volvo becomes. So we are continuing to work with them to find out what and similarly to other customers, it is not American, will not go and compete with other areas where military is already servicing them. In those cases, we’ll be only supplying the component and so system from here, so the glass mail connectivity can be there. I hope we’ve clarified your question.

Radha — — Analyst

Yes, sir. Also continue the same question. So, from the total revenue, what is the total direct and direct exports for first half FY ’23?

Dr. N. Muthukumar — President and Whole Time Director

I wish able to share that normally, as you said, the CFO has exposed in the earlier thing, we have a policy of not sharing the segment-wise sales or we don’t give that breakup plan.

Radha — — Analyst

Okay, sir. Sir, I believe that we have a lot of new product launches and pipeline and given that we are venturing into ICV space. So, could you give us some comments on what are the, how many product launches are expected in FY ’23? And from that, how much has been done in the first half?

Dr. N. Muthukumar — President and Whole Time Director

Let me take back a little from FY ’20 when the BS VI migration was done. You all know that we presented it. We have launched four different platforms, almost more than 35 different part numbers for the customers in the new platform. Almost every other product, what we have been supplying in BS IV, we have made the bubble and gone into the new launches, which was giving more efficiently, better cost and, of course, better reliability for the product. You all know that the migration from BS VI, most of the customers’ demand for doubling of the warranty has become a mandatory and Merita has been successful in launching the product.

Therefore, we are seeing that post BS VI, our growth has been steady, and it’s almost faster. At this point of time, for some of the ICV, we are launching the product, there are two more platforms which the team is working between Nagraj and our engineering team is working, and we’ll be launching those two platforms for the ICV segment to penetrate. The team is doing a preliminary product validation, product application support and all. Maybe by middle of FY ’22, the first quarter in, we’ll be launching those products.

Radha — — Analyst

Understood, sir. Also, in this quarter, we have seen that there is significant improvement in margins. And a lot of it is also coming from reduction in employee and other expenses. So, a few of the factors that we have been working on was automation, digitization and of course, some operational efficiency and also lower freight costs must have contributed to this. But is there anything else also that has contributed that maybe I’m missing out?

Dr. N. Muthukumar — President and Whole Time Director

Nagaraj, do you want to answer I think the team is doing on initiatives, ensuring the reducing the scrap in the plant, improving the reliability. I think Nagaraj can give some close some light on the areas, what you’re doing for conversion.

Mr. Nagaraja Sadashiva Murthy Gargeshwari — President and Wholetime Director

There are a couple of things, as Muthu mentioned, One is we have been continuously working on the productivity improvement, these are all the standard things where we are looking at can we line, run the line to the production rate, can we improve the automation by multi manning, the machine. So, and also, we are looking at how we can improve the yield as part of earlier, we are talking about every step of how can we grow and minimize the wastage we minimize the rejection. Are those things, we are continuously working on that and that has really contributed for maintaining or even optimizing our commercial cost.

Radha — — Analyst

Okay, sir. Just one last question. With respect to commence acquisition. So on the management side, I believe that the automotive access management will continue to remain independent. But apart from that, what kind of changes can we expect on the management level?

Dr. N. Muthukumar — President and Whole Time Director

Randha, you want to address the [Indecipherable]?

Mr. Ranganathan S — Chief Financial Officer

Yes, we no time our commenced Merita Global Head and Motukuma that is the India head. And of course, atomic-level, me and Nagraj continues in operations financials. At this moment of time, this is what it is there today. And so, as you go along, any changes, all of you next year will come to know. At this moment of time, we don’t have any other information update.

Radha — — Analyst

Thank you for answering.

Mr. Ranganathan S — Chief Financial Officer

Yes, I just wanted to let all the regimen. The management changes of acquisition of Comonomer which is a different thing. But we have very clearly committed that none of our customers, one of our employees, none of our shares will have any impact on this and our continued focus on customers, focus on continue on innovation, focus and continue the various exams that we have for profitability improvement. And of course, people better are key. Well, the market has seen a large amount of exits in the last couple of years particularly post-COVID and the people, we have highest engagement appeal and our team is working intact.

So, the management changes will happen at the business level. But in terms of the operations, in terms of running the business in terms of the report system, we something will be governed by our carcinoma system, and we’ll cantilever on this. So, I just want to reassure you that these management changes are not going to put that into any of the impact which will have impact on to our customers, our deliveries or in terms of the quality or in terms of running the business efficiently.

Operator

Thank you. Our next question is from the line of Shashank Kanodia from ISS Securities.

Shashank Kanodia — ISS Securities — Analyst

Yeah. Good afternoon, sir. Just wanted to check incrementally for MSC percenter domain, the orders are flowing the other how does our content per vehicle change in electric process with its special rational petrol retail or buses?

Dr. N. Muthukumar — President and Whole Time Director

Maybe you may have to remove your talking from a headphone as I think a very lot more cracking. Can you repeat it that?

Shashank Kanodia — ISS Securities — Analyst

Yes. So, I’m asking that in the C the percent of people domain, a lot of new orders are in the electric buses domain, right? So how does our content postal changes for electric versus the traditional IC base?

Dr. N. Muthukumar — President and Whole Time Director

See, there’s a government announcement that government is going to buy about 45,000, 50,000 buses in this year. And of course, predominant of that is going to be electrical. At this point of time, if you look at the Indian electrical vehicle for buses, most of them are remote muted, and we are present. Our regular access is being used, for example, metronelectric vehicle our actions are being used at a more modalities. We are also working with large more new companies who are going into this business and continue with how we can present.

So, while we know that the buses are going to come in more, we are continuing to make sure that we are not getting impacted because of this, and we continue to grow in that segment also. I can say that today, in India, there are more than about 25 companies which are working on the electrification of the vehicle, be it the truck, be it an LNG or be buses and on at least I would probably say that more than 50% of the content we are available.

Shashank Kanodia — ISS Securities — Analyst

Pain data motors, we are there with electronic or maybe two motor also because it is also putting new orders in electric edema?

Dr. N. Muthukumar — President and Whole Time Director

Yes. Talamod makes their own axles. JBM, not to say they are importing, but we are working closely to see with how we can penetrate into those markets. But Patmos you rightly said they are, they don’t get it and they’re using it. However, for e-Axle, — we are working with all customers because we have a capability and we are trying to see how we can penetrate into that. But it’s too early for the DXL market to come in India on India globally. And it’s going to take some time. One of the surveyed by 20%, 30% to 15% of the market will be rectified in the PD.

So a long way to go, but your organization is preferring itself that even if the launch is going to be there — ladies and gentlemen, for your information, I just wanted to let you all know that we are in every segment of the new power that is going to come whether it is a hybrid in cell, whether it’s the hydrogen, whether it’s a remote mount all electric mutation or battery-operated EV, the company is giving solutions to the customer to see it ending.

Shashank Kanodia — ISS Securities — Analyst

You mentioned EHC the option is not aliveness One are using it.

Dr. N. Muthukumar — President and Whole Time Director

We, as still as an option is available in India. It is being evaluated. It is really tested. It’s an option available in India, but at this point, the OEMs are contemplating at what time we need to do. So as the government is giving us upside and it’s going to be available See, at the end of the day, whether we actually are remote mounted the customers have to decide and he will decide only in the business case is going to be better. So it becomes a very, very imperative of OEM us the systems provider to see that it’s not only question of affordable by the people, but at the same time, the business case also should make sense to them.

Shashank Kanodia — ISS Securities — Analyst

Throw some light, how expensive is it versus the traditional axle

Dr. N. Muthukumar — President and Whole Time Director

Sorry, that’s so early. I will refer this question. But at the end of the day, we did going to be expensive, but we are working to see that the total cost of ownership is better is what we are looking at.

Shashank Kanodia — ISS Securities — Analyst

Sir, secondly, your initial remarks, you mentioned that in the tonnage voice, we’ve been already doing a peak this year, right in the domain. So next year, given that you are guiding for some 15% volume growth for the industry, — so in that case, can we enter or more given that the tonnage growth might not be tax rate?

Dr. N. Muthukumar — President and Whole Time Director

I see. Next year, the number was the 468 what has been achieved in FY is what people are saying. When I say next year, it’s 23, 24 FY ’24. So they are predicting that it will cross that number. But what I’m saying is it all of tonnage, the number of the vehicles which are higher than have substantially gone up, which is definitely — even current year if we are crossing the FY ’18 standard. This is what the prediction

Shashank Kanodia — ISS Securities — Analyst

Okay. So we might still grow in line with the industry as well, right? So 15% to 20%

Dr. N. Muthukumar — President and Whole Time Director

You will see moving towards tractor trailer, and which were not available earlier — that’s a low rating changes I’ve made in all three to 4 times. So if you see that there is a 10% to 15% increase in tonnage as an average has happened between FY ’18 to now for the same number of weeks

Shashank Kanodia — ISS Securities — Analyst

Okay. And sir, one last thing. As per your Vision 2025, what is the margin range that you are working with are you targeting?

Dr. N. Muthukumar — President and Whole Time Director

Being an I showed you in the previous or previous slide, He’s asking about FY ’25 margin.

Shashank Kanodia — ISS Securities — Analyst

No, I’m asking about FY 25 billion documents. So what is the margin that you’re targeting?

Dr. N. Muthukumar — President and Whole Time Director

Yes, I know that’s what you are asking about our EBITDA to get in FY ’21

Mr. Ranganathan S — Chief Financial Officer

So we are very aspirational in terms of the growth As I said, there are two things. Definitely, our aspiration to pull always be there. If you really see the market grows, definitely, we’ll the margin will go along with that market. So Surely, we have growth prospects that are in the Mission 25 really driving is all about. All the initiatives to grow revenue as well as the operational excellence to build the cost competitiveness you’ll definitely see our company is performing well. The market is going up definitely up there in terms of expectations.

Shashank Kanodia — ISS Securities — Analyst

Sure, Sir. Thank you so much.

Operator

Thank you. Our next question is from the line of Sunil Kothari from Unique Portfolio Management. Please go ahead.

Sunil Kothari — Unique Portfolio Management — Analyst

Thanks again for the opportunity. Sir, being on the call, Mr. Muthukumar, is there Cummins Meritor Chief for India. My request or my message is to convey the way we are taking efforts internally, the way we have our strategy vision, we have our e-mobility or hydrogen-driven vehicles, every products we are having, the market, we, as an investor are not able to get the right valuation. The reason being — you are the only company which is having manufacturing your own base and marketing also done by parent and other group organization.

So it is giving a little bit discounting to the valuation — so with the change in parent comments coming in, if you can convey the message from people like us, minority shareholders because there is IP that can be parked in parent company and you can charge technology fees or royalty or whatever. But this local marketing done in a different organization, manufacturing them in different organization that is not existed actually that type of any example or trend in the Indian stock market. If you look at whether it’s Cummins, they have 100% subsidiary. But whatever Cummins India is producing that is been delivered and marketed by Cummins India only. So I would request to convey this message to the Board, Cummins.

Dr. N. Muthukumar — President and Whole Time Director

Thank you, Mr. Kothari, for bringing back to our Nordic and your concern. I just wanted to — while we will definitely convey your– the message, your perception sooths to the board of both the JV partners. I also would like to reiterate that what we are doing is completely as per the process and a and believe it’s going to be beneficial for us. I think this process has been evaluated by both to make sure that it brings more and more transparency into the business and more and more conversion to India. But however, we have taken lot of your concerns and feedback, which we will definitely take it back to the board of the company. Thank you, Mr. Kothari, for the feedback.

Sunil Kothari — Unique Portfolio Management — Analyst

Basically, sir, you transparently disclosed the number. So we don’t have any doubt on numbers. Point is this type of arrangement always create discomfort in the minds of minority solar. So that is the message I would like to convey.

Dr. N. Muthukumar — President and Whole Time Director

I fully understand and you were concerned, definitely, we will take it in the right spirit and then take it up to an

Sunil Kothari — Unique Portfolio Management — Analyst

Thanks a lot. Thank you very much.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the floor back to Mr. Sailesh Raja for closing comments. Over to you, sir.

Mr. Sailesh Raja — Batlivala and Karani Securities India Private Limited — Analyst

Thank you all for attending this session. We especially thank the Automotive Axles team for the time. Mr. Sir, would you like to make any closing comments?

Dr. N. Muthukumar — President and Whole Time Director

Yes. Thank you very much. I think thanks, ladies and gentlemen, for all of you for joining this call. I profusely thank all of you for the confidence that you are active is organization and case on the leadership team and you continue to support with the one which makes us to perform. Trust me and believe me that this acquisition by Cummins in this company is going to bring a lot more technology, a lot more turnaround from the organization, which is going to be for good.

You all know that come in as a very strong aspiration — it’s not on the top line revenue, bottom line, everything is there, but a destination deal, which makes some other as a better place to live than what we are today and in our journey. So your company will continue to invest on sustainability. The company will continue to make sure that all the products and services we produce will meet the sustainability standards in the days to come.

Once again, thanks Sailesh for organizing this, thanks everyone for taking time to join with us — with this small note, I wish to. I wish every one of you a very, very happy in Protea — and let’s look at it how the next year is going to turn around and make all of it much more profitable and at the same time, much more satisfied human. Thank you very much.

Operator

Thank you. Ladies and gentlemen, on behalf of Batlivala Karani Securities, [Operator Closing Remarks]