AUTOMOTIVE AXLES LIMITED (AUTOAXLES) Q3 FY23 Earnings Concall Transcript

AUTOMOTIVE AXLES LIMITED (NSE:AUTOAXLES) Q3 FY23 Earnings Concall dated Feb. 06, 2023.

Corporate Participants:

N. Muthukumar — President and Chief Operating Officer

Nagaraja Sadashiva Murthy Gargeshwari — President and Whole Time Director

Ranganathan S. — Chief Financial Officer

Analysts:

Sailesh Raja — Batlivala & Karani Securities — Analyst

Presentation:

Pratik Kothari — Unique BMS — Analyst

Sagar Parekh — One-Up Financial — Analyst

Rahil Shah — Individual Investor — Analyst

Naveen — Mahindra Manulife — Analyst

Aditya Welekar — Axis Securities — Analyst

Dhaval Shah — Girik Capital — Analyst

Krishna Kumar — Lion Hill Capital — Analyst

Radha — — Analyst

Operator

Ladies and gentlemen, good day, and welcome to Automotive Axles Limited Q3 FY’23 Earnings Conference Call hosted by Batlivala and Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sailesh Raja from Batlivala Karani Securities. Thank you and over to you sir.

Sailesh Raja — Batlivala & Karani Securities — Analyst

Yeah. Thanks, Nirav. Good afternoon, and thanks to everyone who have logged into Automotive Axles Q3 FY’23 Earnings Conference Call. Today, we have senior management team of the company, we’ll be hearing from Mr. Muthukumar N., President & COO, Meritor HVS India Limited; Mr. Nagaraja, President and Whole Time Director Automotive Axles; and Mr. Ranganathan S, CFO, Automotive Axles Limited.

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

N. Muthukumar — President and Chief Operating Officer

Thank you, Shailesh. Good afternoon, ladies and gentlemen. Thanks for taking time to join our the Investor calls and we really appreciate your interest in our company.

We have spoken to you about exactly a year before on 22nd February of 2022, we have announced Cummins acquired Meritor globally. And also in the month of September, we announced that the integration is complete. In the month of August — 3rd of August ’22, and we said the integration process is on. It’s almost 180 days from the integration is over, to almost 365 from the date of announcement, the integration project is going very well and both Jennifer Rumsey, the Cummins President and CEO; and Mr. Kalyani, Chairman of Bharat Forge Limited and also, Chairman of the Automotive Axles have found that this coming together is going to look very good for the organization and this is going to put us in the right trajectory.

With the destination zero, which is welcomed by Cummins and also Meritor in terms of providing innovative products and solutions to the customer, this is a great coming together, which can provide an excellent solution to the customer and thereby grow the organization in India.

So as far as India is concerned, the acquisition legal process between Cummins India and Automotive Axles JV is on the process and the legal clearances are under the way, it’s not as clear. So at this point of time when the global acquisition is done and moving on the processes, in India the legal process of acquisition is still on way.

Over to next slide. When compared to last year where we have ended up with INR1,494 crores for the full year of FY ’21 and ’22, the snapshot of Q3, you see as on date under the year, we have already crossed last year turnover and we are at about INR1,634 crores and you can see that the last quarter is till on there and we’ll be able to move. I’m sure that Ranga will share with you subsequently on the growth of EBITDA and growth of PBT, and the management team and also the people have done a remarkable job in terms of ensuring value — better value to all the shareholders.

We continue to work with four manufacturing side at Mysore, Jamshedpur, Pantnagar and Hosur, and all sites are in full operation to take care of the customer needs. There is no change in the customers — our equity share between the partners, Meritor Incorporated Global or Cummins Incorporated Global at 35.5 and kalyani Group of 35.5, and the public is 29%. We continue to work with about 2,000 plus employees in the company and our customers include all major CV specialty, defense OEMs. And of course, exports to.

We continue to run with the products of axles, brakes, and to most of your [Indecipherable] we introduced, and we are limping on supplies of suspension from getting into the market. We continue to be a number one position in axles as an independent axle manufacturers and we are number two in brakes, but we are consolidating our brakes position.

With that introduction, ladies and gentlemen, on our company’s the status of the integration and where we are for this quarter, I leave it to Mr. Nagaraj, to talk about the sustainability initiatives and also what’s happening to the plant and what could happen to the customers. Over to you Mr. Nagraj.

Nagaraja Sadashiva Murthy Gargeshwari — President and Whole Time Director

Thank you, Muthu. Good afternoon, everyone. It’s a pleasure to interact with you and share with you all the progress that we are making. So our sustainability model which we have been sharing with you earlier also, I’m going to give you a progress update on that.

So our sustainability model has six pillars. As you can see — there is a layer in — it starts with decarbonization. There may be as spelling error there, apologies for that, and then more to water positivity, green supply chain, digitalization, social connect and corporate governance.

So we started off this journey in 2017 where we first got to 20% of our energy from renewable sources, solar energy, and then we continue to make ore progress in this direction. And as we speak, we are already at about 43%. That is mainly because this particularly year because of legal requirement we could not get hydel power anymore. But as committed to you, by end of next year 80% of our energy requirement will be coming from renewable sources. We are already water positive and then we’ll be making more progress there, as you can see there, 70% of our water positive goal. We have already achieved, and we’ll be make in more focus in that area.

So the idea is or the goal is to switch over to, or become a green manufacturing plant and work towards starting from sustainability maturity, all the way up to excellence in sustainability. Our goal is to achieve this by 2028.

Next slide, please. So again, giving a little bit more details on the circular economy. As you are aware, we are really focusing on a sustainability portion of it. There are several areas where we are taking the initiates. For example, working on reducing the packaging. In fact, I would say that nearly 80% of our shipping is going through either returnable containers or one time containers. So essentially, eliminated use of wood packaging and we’ll be completely coming out of it probably in next two years.

So we continue to work with the customers and suppliers in terms of identifying opportunity for recycling and then reduces emission in supply chain. In fact, we already looking at how we can use LNG vehicles for all the transportation. We continue to focus on employee safety, health and treatment. One of the area I want to mention is, there will be a lot more focus on bringing in diversity in our teams. We have been very — we are taking lots of steps in terms of connecting to the social needs, whether it is promoting education or promoting planting of trees, all those areas we continue to work with our partners.

Next slide, please. So We are presenting a diverse end market. As you can see there, we cater to almost all the major OEs in India, and to all the commercial vehicle segments, whether it’s a truck trailer, bus, off-highway or aftermarket. In fact, as Muthu mentioned, we have made some significant inroads into defense area, where we are supplying some of the suspension products and then also we have been working closely with many of these customers to increase our product share in the are of, especially off-highway and then aftermarket.

With that, I would I’ll pass it onto our CFO, Ranganathan.

Ranganathan S. — Chief Financial Officer

Thank you, Muthu. Thank you, Nagaraj. Its indeed a pleasure to talk to all the investors. As far as the financial results are concerned, for the last quarter we had — our revenue was INR657 crores for the quarter compared to INR376 crores the same quarter last year, and with a year-on-year growth of 75% in the above value terms.

As far EBITDA is concerned, we ended this quarter with 12% EBITDA for the quarter and as compared to 9.7% in the last year. In terms of the percentage, we improved the percentage points by 24% year-on-year basis. As far as the PBT is concerned, we are at 10.3% as compared to 7.145% up as compared to the last quarter in the same year India. As far as YTD performance is concerned, we already more or less crossed the last quarter revenue, but this is about — this just nine months revenue is about INR1,634 crores compared to INR942 crores in the nine months period the same time last year So more or less around 73% growth has been seen now. EBITDA is about 11.2% for the first-nine months, this is 8.1%, about 38% growth. As far as PBT is concerned, about 9.2%. This is 5.1% last year. Close to about 80% growth in profit before-tax compared to last year in terms of the percentage terms.

When it comes to the next slide, just a quick update on how are we progressing in terms of the revenue, the market growth. You can see now volumes, which is in the green, which is basically the market MSME [Phonetic] volumes. Last year, the volumes were up roughly close to 300,000 vehicles. This March 2023 [Indecipherable] we are anticipating the market be around 400,000 vehicles.

As far as our revenue is concerned, whole of last year we did about INR1,494 crores, close to INR1,500 crores as compared to the nine months actually is about INR1,634. We already cross the last year revenue, that’s about INR170 crores right now. So this three months, definitely we are going to now show a good progress the year-on-year the whole year basis. And as M25, every quarter we are updating it. Our focus is basically to grow revenue, enhanced profitability. Definitely, this is one of the key points we have been driving the business. And definitely, Muthu and team has been very consistently working with the customers for the share of business as well as winning the new business. And Nagaraj, definitely on the operational excellence is working on the delivery and quality to make sure that we are creating value for the customer.

Our focus now continue to be there on overall growth and profitability. The commodity definitely was doing a lot of pressure in 2023, nowadays it’s getting softened, and so you can see the the benefit of softening maybe in the coming days. And definitely, Q4 as far as the broader outlook what we are seeing today is the Q2 on the same level or can be slightly better than the Q3 far as revenue is concerned.

So broadly, on the key actions to manage successfully as a growth strategy. As we said about, we have long-term agreement with the customers and we are focusing on exports, and Muthu team brought in lot of — bringing lot of new businesses on exports. We are looking on a long term strategy to see that how we can grow the business, definitely is on the cards, with one of the frequent questions we are having it. Your company is working on that. So, hopefully in the coming days you can see a better perspective in the space.

And definitely, new product launch is always there, lot of new products this year we already introduced, maybe one or two is still in the pipeline, we continue to work on it. As well, the new axle for new mobility is business is definitely on the cards. Lot of development is happening. So it’s a long kind of business or the market need. Nevertheless, our operations — digitization is very important focus area for us in terms of how to bring Industry 4.0 [Phonetics] into the entire end-to-end manufacturing, so we are taking great interest to implement in the system.

Our focus continues to be on improving the profitability to the ’25 initiatives as well as we are definitely working on how to mitigate the commodity pressure which is coming in on a year-on-year on our financials. Safety is very important aspect of it and the employee safety, product safety is very critical for us. We are continue to focus on it. With the COVID settled down largely, still some of the key precautions still are continuing about it, as ESG is on of the key factor coming in, as Nagaraja explained in the earlier slide. And net zero and the e carbon-neutral, that focus is continuously working on. We are putting specific strategy around it.

So with this, probably I’ll leave to Muthu. We have some kind of appreciation from the customers, he can take us through. Muthu, Over to you.

N. Muthukumar — President and Chief Operating Officer

Thank you, Mr. Ranganathan. Thank you, Mr. Nagraj for giving details of activities. Ladies and gentlemen, I think Nagaraja explained about what is the operational Improvement that we are going to do and as a responsible company and towards our destination zero of carbon emission, what type of initiatives are being taken up. I think the details have been drawn into the last point to make sure that every process in our company we work towards sustainability to ensure that the contribution of natural resources is there. And being a company in automobile where the mobility solution, we wanted to make sure that we are pioneers in terms of reducing the carbon.

Ranga spoke about our strategies of what are the things that we’re trying to do to increase our revenue in the top and how we can continue to improve our bottom-line, the other things, and what type of environmental initiatives or EMG for the plant improvement that they went through. While as an organization, we’ll be working with the various clients that we have, like our Mahindra, Ashok Leyland, Tata Motors, and the global company of Meritor. Last year, we have received two awards out of the total seven awards in global. Whereas this year, our team has bagged three awards out of the seven awards that we have. Bharat Benz has given us a quality [Indecipherable] award for sustaining Bureau. And Nagaraja and team have done a remarkable job in terms of managing the customers quality perfections and also on function. These are some of the recognitions and the team is continuing to work. This motivates the team and continues to keep up the plans in good.

With those Initial Presentations and data’s, I’m taking on to Sailesh back for question-and-answer session. Thank you very much for your listening and looking forward to have a interaction with you. Over to you, Sailesh.

Questions and Answers:

Sailesh Raja — Batlivala & Karani Securities — Analyst

Thank you very much. We’ll now begin the question-and-answer session [Operator Instructions] First Question is from the line of Pratik Kothari from Unique PMS. Please go ahead.

Pratik Kothari — Unique BMS — Analyst

Hi, Good afternoon, and congratulations on the strong execution. Sir, my first question is — you have highlighted in the presentation that this year MSME numbers are expected to be 30% 35% higher than earlier. Can you give us a broad sense of how tonnage move if we compare it to last year?

N. Muthukumar — President and Chief Operating Officer

The commercial vehicle market this year is likely to be about 390,000 to 400,000 In terms of tonnage, there is a growth of about 10%, which is happening. In all probability, when we compare to the peak year of 2018 when the commercial vehicle market was at 465, we believe that this 400,000 will be most about 10% less in terms of tonnage of the vehicle because most of the vehicles after the BS6 is almost coming to the higher tonnage. So we believe that even though the number of vehicles — the axle size has gone up, but the number of axles has not gone up substantially. That is what I would like to add at this point of time.

Pratik Kothari — Unique BMS — Analyst

Okay, so what you’re saying is this is just 10% below tonnage as compared to the 2018, ’19 peak which we saw.

N. Muthukumar — President and Chief Operating Officer

Yeah, exactly we cannot say this is towards the direction.

Pratik Kothari — Unique BMS — Analyst

And I agree tonnage would be a better number to look at rather than the number of units sold, right?

N. Muthukumar — President and Chief Operating Officer

It it cannot be, because — it cannot be directly because drive axles is what we are talking about by adding up dummy axles the tonnage can go up. So it cannot be a direct measure, but its a direct measure of the number of tons of goods that is going to be moved in the market at the end of the day. The customer is going to buy the vehicle for moving the goods. So this is — from the end customers, yes, what you’re saying is right. But when the axle — if you are saying the number of tonnage wise we achieved, can the number of axles go more, it’s not going to go more, but the size of axle, yes, its going up.

Pratik Kothari — Unique BMS — Analyst

Fair point, sir. The second question in recent I think one of the analyst meet, Bharat Forge or one of their group companies had presented eAxle, it’s one of the products — this is one of its three products that they’re going to use to cater to EV market. So is this something different than what we are doing or can this be a potential competition to our products, if you can just highlight the same?

N. Muthukumar — President and Chief Operating Officer

See In terms of electric axle there are many more forms that is available today. People are talking about hydrogen, hydrogen fuel cell, electric axles and so many things are coming and everybody is trying to play in that filed. Whether it is the same design of eAxle, there are — even in the eAxle configuration there remote mounted configuration that’s available with the driveline, without drivelines and all. And because you do not know who is going to be the player who is going to come in because there is some organized commercial vehicle manufacturer can come, and like Tesla, how it got into the car market, some of the new players also come, every company is trying to put their bet on to this.

So the Meritor is working on a particular strategy of a eAxle to get into the market. Whereas whether if you ask me whether that’s the only way, there are many ways available. So everybody is taking it up and that is where our innovation is going to keep us challenging and then we — already we wanted to be in foray there.

Pratik Kothari — Unique BMS — Analyst

So different company comes in, but when our own parents through a different subsidiary is coming in, that is why this question is — if someone else would have done it don’t think would have come up.

N. Muthukumar — President and Chief Operating Officer

The market is big. I don’t want to get into that who the parented is coming in, but the market is big and then people will, I think rather than we — like whatever you said that’s the parent company and we are a child company, I think the question should go into the parent company questions when your child is playing [Speech Overlap]

Pratik Kothari — Unique BMS — Analyst

Sir, but the Last quarter they had said that in all axle and brake manufacturing will only happen in auto axle, the sale and marketing can happen somewhere else, but the manufacturing should happen here, and hence this question.

N. Muthukumar — President and Chief Operating Officer

We never said that, sorry. I think if I have communicated like that, not right. We are seeing that the manufacturing of mechanical actually what we are today because we don’t have a — we’re not a motor manufacturers, to be honest with you. We don’t have the capability on making motors. Whereas motors — the other company can acquire the company and make motors. I don’t know. Ranga, is there anything that we said all the manufacturing of parent company also will happen in our company?

Ranganathan S. — Chief Financial Officer

No.

N. Muthukumar — President and Chief Operating Officer

I’m sorry. If we have told, but you love to hear that and we will try to address if you are confident it will be ready.

Pratik Kothari — Unique BMS — Analyst

Sure. fine. Sure. Thank you, sir, on this.

Sailesh Raja — Batlivala & Karani Securities — Analyst

Thank you. [Operator Instructions] Next question is from the line of Sagar Parekh from One-Up Financial. Please go ahead.

Sagar Parekh — One-Up Financial — Analyst

Yeah sir, good afternoon, and congratulations on excellent set of numbers. So first question on the defense. So you touched upon defense market in your opening remarks, but I wanted some more details. If you can give us some kind of color on in terms of which — what — how big is the defense right now for us and how potentially — what is the potential for the defense products like defense axles that you would be supplying to different OEMs? So Some color on that would be helpful. Thanks.

N. Muthukumar — President and Chief Operating Officer

See, as we said. We are investing a lot on defense business in India because this is going to be a long term business. As we have indicated at this point of time, we are supplying axles to the defense — for various OEMs and we are not directly supplying to the military or Indian Army, but we are supplying through OEM.

We are investing a lot on various product platforms for the defense. But the product gestation when these things are going to come is going to be a long drawn process. While we have a practice of not splitting our revenues into the different segments like axles or brakes or customer wise or vertical wise, I’m sorry I’m not able to provide you that information. We continue to invest so that tomorrow when the market comp is good, I would say that we are at least about four platform of our products have been approved for defense and the vehicle order is going to come, is going to grow.

Sagar Parekh — One-Up Financial — Analyst

Yeah, just putting it another way, so there are no vehicle orders which have come in yet for either of the OEMs for the platforms that we have been approved as of now, is just the developmental order that we have been investing in right now.

N. Muthukumar — President and Chief Operating Officer

No it is not so. We have also sold some axles this year to them and we have got an order for about more than 220 sets up a particular thing. See, as and when the comes we continue to supply. When Ashok Leyland is go to supply or when the other OEMs are going to supply to the customers is not know, but we have received orders and it is coming into the field. But continuously we are also investing time on the new product development and keeping it ready, because it depends — again, it depends on many things on the allocation of the government when the product is running in the proto, the time that it’s taken for the product to get into the production and bidding takes about four to five years.

Sagar Parekh — One-Up Financial — Analyst

Got it. So this 220 sets of orders we are going to supply in current calendar year.

N. Muthukumar — President and Chief Operating Officer

No, it will not be able to complete before March. It will come now and then it will go to the tenure of next year also.

Sagar Parekh — One-Up Financial — Analyst

So FY’24?

N. Muthukumar — President and Chief Operating Officer

The recruitment itself is like that from the defense.

Sagar Parekh — One-Up Financial — Analyst

Okay. And this is Ashok Leyland order for us? Like we will be supplying to Ashok Leyland.

N. Muthukumar — President and Chief Operating Officer

I will not be able to tell the customer name, but we have sets of order reports available. We are supplying at this point of time to more than three to four OEMs.

Sagar Parekh — One-Up Financial — Analyst

Three to four OEMs, okay, got it. Secondly on this integration with Cummins, now since it’s almost been like six-seven months or at least five-six months since integration is complete, could you give some color in terms of what could be the synergies on the revenue side or on the cost side for us between Cummins and Automotive Axle, India?

N. Muthukumar — President and Chief Operating Officer

Yeah, this point of time, the integration process is on in terms of the legal clearances from India. I think we know that we have — Cummins has already given the buyback of shares to the market and that feedback is there and the other approval from the various governmental agencies is going on. As an organization, we already communicated — I think our Chairman’s message was there very clearly that this synergy is going to bring in lot of areas where we can operate together. There are some areas — certain areas, or certain OEMs where Meritor is present in very strong, whereas Cummins penetration will be less.

There some of the area where Cummins penetration is very high and Meritor is not able to be there. So this synergy is definitely going to bring in terms of penetrating to more customers in terms of penetrating into off-highway customers or in terms of penetrating into the good technology. Cummins is already in an advanced stages on decarbonization with their technology that’s going on.

So we’ll be definitely working on various integration between these organizations in terms of technology, in terms of people practices, and in terms of bringing the best people policies, in terms of going to the customer, every sphere of this move we will try to bring in financial management to make sure that the synergy between these two companies is going to give the best quality, ultimately to all the stakeholders of the company.

Sagar Parekh — One-Up Financial — Analyst

Got it. So no quantification of any line item, basically either revenues or cost?

N. Muthukumar — President and Chief Operating Officer

At this point of time, as I said, it’s a global acquisition that has happened and the Indian Navy. You see that, again the Global, the Meritor’s India’s share is very less. I don’t think we’ll be able to provide you any specific target, but you know, we have already presented our Mission 2’5 strategy and it will continue to grow, and maybe by yearly — middle of next year we’ll be launching our Mission ’28 strategy, which we are already working on, which will definitely have these input and then we will see that what is it we are looking at.

Sagar Parekh — One-Up Financial — Analyst

Got it. And my final question would be on the slipper-type suspension products. So if you can give some color on that, how is the traction in that? I believe in the last one or two quarters we have been seeing some decent traction from Ashok Leyland on the higher tonnage side.

N. Muthukumar — President and Chief Operating Officer

You’re tracking the product well in the market. See, its had different challenges, the product challenges in terms of the design, in terms of quality has been to found it working well. But at the end of the day, end of the time, these products give much more value, total cost of ownership to the end-customer, but customers ask has to perceive that these additional value on their paying is going to get them a return on investment. So we are looking at various consumers, the end consumers in terms of convincing them that whatever the additional that you pay for the new design is going to give a return on investment to you. Think hard to penetrate into it. It’s very — it’s almost because of the quite different the customers are finding it extremely difficult to penetrate more.

Sagar Parekh — One-Up Financial — Analyst

Got it.

N. Muthukumar — President and Chief Operating Officer

You have a value for this. You have a value for this but that — the more-and-more better infrastructure, more-and-more high-speed vehicles and it is going to come, then it’ll make sense. Maybe today they may feel that it is not of their benefit today.

Sagar Parekh — One-Up Financial — Analyst

Sure. Right sir. That’s it from my side and all the best. Thanks.

N. Muthukumar — President and Chief Operating Officer

Thank you very much.

Sailesh Raja — Batlivala & Karani Securities — Analyst

Thank you. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Rahil Shah, an Individual Investor. Please go ahead.

Rahil Shah — Individual Investor — Analyst

Hi, sir. Very good numbers there. What is your outlook in the next financial year? And it’s all in terms of revenues and the margins, how do you expect to gains and to continue the momentum? I just wanted your view and if you are able to give a certain target you are expecting to achieve?

N. Muthukumar — President and Chief Operating Officer

I will answer for the first [Indecipherable], but I’ll leave it to Ranga about the — see, the momentum for the organization will continue to be there to penetrate into the share and grow with the market, as we all feel that we are definitely outgrowing the market growth and we’ll be definitely better, that is one we should take in view, but I can’t give a very clear numbers on how much of the revenue we are projecting. The latest — the budget that has come very-very positive. We are seeing the global recession is not — are going to have any impact in the India business at this point of time, but every OEMs are really very, very cautious of making a flat or plus-minus is what the market is projecting.

Already people are predicting about some drop in the car, and of course, in the two wheelers also, whereas commercial vehicle, people are looking at about flat or margin in plus-minus. So the market is going to be very-very tight with the inflation that has happened. The cost is going to go up. The competition that is going to be one of key for us to see that how we can penetrate. Our competitions will not keep quite. Everybody will continue to work onto see that how we can penetrate. But rest assured, that you have management team members and your team of employees who work here always work for next level of innovation, next level of improvements in the products to make sure that we are ahead of the curve of the market.

In terms of profitability, yes, it’s going to be very-very tight. Ranga, you want to add anything.

Ranganathan S. — Chief Financial Officer

Yes, so there are a couple of things I just wanted to speak. One is about in terms of the forecast, we’ll go with the market, as Muthu was talking about it. We always try to grow better than the market itself through volumes. And I know our Mission ’25 objective is about optimize the margins. We’ll definitely continuously do that through operational excellence. So that focus will always be there. So we are not — we are constrained rather to share the specific numbers for the forecast of 2024. So, definitely we can take the market forecast for the next financial year and definitely we’ll be at par or I think better than that. So definitely our aspiration is always be there and our efforts are going in that direction. That is one aspect of it.

And as far as the margins are concerned, yes, all our efforts are there in terms of cost optimization, operational excellence, and definitely to the market volumes we’ll definitely produce good numbers that we have been demonstrating in the last four-five years. And now we are also working on various strategies on growing the business, definitely as an investor you can see those benefits in the coming quarters.

Rahil Shah — Individual Investor — Analyst

Okay, okay, sir, that all sounds really confident from your side. So thank you for the detailed answer, and I wish you all the best.

Ranganathan S. — Chief Financial Officer

Thank you.

Sailesh Raja — Batlivala & Karani Securities — Analyst

Thank you. [Operator Instructions] Next question is from the line of Naveen from Mahindra Manulife. Please go ahead.

Naveen — Mahindra Manulife — Analyst

Yeah, hi, thanks for the opportunity. Just following up on the previous discussion. This quarter our performance in terms of topline versus the market and even some of our key customers seems to be quite impressive. Just wanted to kind of dive deeper to understand is it kind of increase in share of business with some customers or is it led by content increase. Any color on that?

N. Muthukumar — President and Chief Operating Officer

It’s a very, very nice question, and you hit us on this. I’ll tell you — while I won’t be able to quantify, without share of increase — share of business increase we could not have achieved more than the market growth, you are right. As I indicated earlier, with the tonnage of the vehicle goes up we also increased our content per vehicle — or content per axle, which is on account of cost. Third is also some of our customers have expanded their market share. So when the customer expands the market share, yes, we do expand the market share indirectly.

Naveen — Mahindra Manulife — Analyst

Got it, sir. Okay, sir. The point being that it should — largely if the product mix at the industry level and for our customers remain similar, this is the kind of — the share of business should kind of sustain at what we seen in 3Q.

N. Muthukumar — President and Chief Operating Officer

We will continue the first and second what I said, the content increase and our share of business increase and the customer will continue to be there. We work very, very closely with the customer. The customers’ marketing to see that what type of product we need to supply to them for penetrating them into the customer, we continue to do this. They had penetration to the customer and expanding is that’s not in our hands, but we’ll continue to work with them on [Indecipherable], but our company’s interest in penetrating into the customer share and increasing the content will continue to be there.

Naveen — Mahindra Manulife — Analyst

Understood.

N. Muthukumar — President and Chief Operating Officer

I can’t commit on behalf of them.

Naveen — Mahindra Manulife — Analyst

Sure, thanks. Just another question on margins. If I understood right, some of the commodity cost reduction benefits are yet to slow in going forward, is my understanding right there?

N. Muthukumar — President and Chief Operating Officer

I just wanted to clarify, we have a very good system of customer commodity prices going up and comes down, how do we do the settlement other than the base impact, it’s not going to have much of impact on the P&L.

Naveen — Mahindra Manulife — Analyst

Okay. And just one last one, sir, in the presentation you mentioned that 4Q should broadly be similar to the third quarter. Seasonally, as we understand, fourth quarter tends to be a little more higher as compared to third quarter even in terms of production volumes. So I’m just trying to understand is it based on what you’re seeing in terms of customer dchedules or any other factors?

N. Muthukumar — President and Chief Operating Officer

This year, the last quarter has seen a substantial increase when compared to the traditional. Normally we see the Q3 will be less and then Q4 is going up. We have seen a very strong Q3. So with the production of the OEMs and the sales what the registration has happened, we believe that it is going to be flat in this quarter is or belief. But the company will be ready if the OEMs are going to increase the production, we’ll be able to deliver more.

Naveen — Mahindra Manulife — Analyst

Got it. And just one last one, sir. What could be our current capacity utilizations across, let’s say axles and brakes?

N. Muthukumar — President and Chief Operating Officer

Ranga you want to answer?

Ranganathan S. — Chief Financial Officer

Yeah, you see more or less about — around roughly generally with the installed capacity we have not touched the peak. As last time when we have increased the capacity of 2018, ’19 volume, we have created the capacity to the meet the 2018, ’19 because that’s not our plan. We are running short of the capacity. Today if the market is 400,000 vehicles, you can see that we are 20% lower than the market. So you can measure the capacity utilization, but definitely the small variations in the capacity they are still able to accommodate it.

Naveen — Mahindra Manulife — Analyst

Okay and any capex number that we would firmed up for FY’24?

Ranganathan S. — Chief Financial Officer

No it is too early to comment because we do all these capital commitments and assessments than for on digitization that will be there in the. But any kind of big capex what we invested in ’18, ’19 that goes with the business case. As you we along we get the new businesses that probably need an investment, definitely we will do that. But at this moment of time nothing big is not seen in the near future, but definitely we are close to what’s on the business plan.

Naveen — Mahindra Manulife — Analyst

Got it, sir Thank you. Thanks a lot, and best wishes for the future. Thank you.

Sailesh Raja — Batlivala & Karani Securities — Analyst

Thank you. [Operator Instructions] Next question is from the line of Aditya Welekar from Axis Securities. Please go ahead.

Aditya Welekar — Axis Securities — Analyst

Thank you for the opportunity. Congrats for the good set of numbers. So in the last concall, you said you will see 15% growth in MHEB production volumes in FY’24. So given the strong quarter, what is the outlook for FY’24 MHEB production volumes? Do you see any upside to that number?

N. Muthukumar — President and Chief Operating Officer

I don’t see a further upside from this number. Originally, we forecasted during the last quarter. We didn’t anticipate this strong third and fourth quarter. But if you see the current third quarter increase that has happened, the current year FY’23 projection itself is going to be about 10,000 vehicles more than this. That is why we said that 15% what we have projected it will become like a flat or plus minus. The main concern today in the market is they increase the interest rates and people want to conserve cash with the global recession on the cards, but the Finance Ministers budget has very clearly come out that India is on very, very strong capital growth. So, the sentiment should be positive, but at this point of time we are looking at a flat or plus single-digit growth.

Aditya Welekar — Axis Securities — Analyst

Okay, understood. Thanks. Second question is on, if you see the personnel cost as a percentage of sales in this quarter, those have come down. So what it mentions that our, from — with the same amount of employees we are generating higher revenue. So can we expect that the personnel cost will increment in the same range going forward.

N. Muthukumar — President and Chief Operating Officer

Sustaining this as the long-term is very, very difficult. But on the short-term, we are trying to do this. As I indicated, it is – the company is working on continuously doing improving efficiency. But if you ask what we can fetch it in this quarter, whether we can do every quarter is a little difficult. The organization is working on not reducing the people, but improving the processes and enable people to perform better. I think that’s our objective of working. So, we’ll continue to focus on these areas and improve, but whether this is a sustainable model, this much of sales is going to come on this, it’s going to be a million dollar question.

Aditya Welekar — Axis Securities — Analyst

Okay. And last one, recently we have seen some inch up commodity, with this China openings steel prices have rallied. So what I understood from your previous conversation is that on a gross margin basis you are not much worried because it remains of a 100% pass-through basis. So there might be some lag in pass-through of the steel prices, but on a net basis the commodity volatility will not affect the business much. Is that understanding right?

N. Muthukumar — President and Chief Operating Officer

In general yes, what you’re saying is right and you you’re exactly caught this lag between this. But you know, customers are very tough and everybody wants to make sure that how during this time they also wanted to make it better because every OEM is also struggling to make to their bottom line. So, good amount of pushback, push through is going on at this point of time, but you should also understand that whatever the inventory that we have is at the higher rate, higher price if the market goes down that also has an impact over overall the business. So, managing all those things is the management responsibility and I’m sure there might be — Nagaraja is managing it very well.

Aditya Welekar — Axis Securities — Analyst

Okay Thank you. That’s it from my side. Thank you.

Sailesh Raja — Batlivala & Karani Securities — Analyst

Thank you. The next question is from the line of Dhaval Shah from Girik Capital. Please go ahead.

Dhaval Shah — Girik Capital — Analyst

Hello, sir. Great performance. Congratulations to the team. Yeah, couple of questions from my side. First being, as you mentioned about the higher share of business from the customer. So was it more on the domestic side or there was also influence of exports into it for the third quarter?

Second question will be on the e-axle. So just want to understand or get some clarification. So, the e-axle which will be sold by Meritor in India, will it be passing through our company or how would that be? Yeah, these are my first. Two questions.

N. Muthukumar — President and Chief Operating Officer

Okay. I will I’ll answer your first question on the growth of share of business. We have grown in domestic, we have grown in export even though we don’t declare the number because it was a market, even the US market and Class 8 is going very, very strong at this point of time even though people talked about the downturn that’s coming up in the US, we are seeing a very good numbers in the next couple of quarters at this point of time. So our growth has happened across all the segments for domestic. So when I said our OEMs — when I said that the customers also expanded, our customers, OEMs has also expanded the market, which indirectly helped to penetrate into more access. These are the two things.

Dhaval Shah — Girik Capital — Analyst

Okay, so I think we had more to Meritor subsidiary globally like more…

N. Muthukumar — President and Chief Operating Officer

Yeah. Yes, yes. That’s why we said exports also have grown, when we have grown from 500 — the growth has happened 25% or something, everywhere it has grown, most of the segments, most of the verticals, axle, breaks, export, everything.

Dhaval Shah — Girik Capital — Analyst

Okay

N. Muthukumar — President and Chief Operating Officer

On to your question on second point on e-axle, see e-axle, we should understand it from a different — the perspective of that. The current automotive axles has the capability of making mechanical axle, so the e-axle is not going to be completely different. The e-axle constitutes of electrical, electronics and mechanical portion of it, okay. At this point, we’ll continue to enhance the maximum utilization of our mechanical axle component from here.

We are looking at the strategy of where to get the electrical, electronics and where to do at this point of time. Meritor has globally occurred Siemens commercial vehicle business, which is making motors in Europe. And Cummins in India has an extensive capability on electronics and in terms of making the electrical competent from that. So we are evaluating where to make this because the current unit of the JV doesn’t have that capability for making motors and electronics. So while the mechanical portion of this will continue to be like this, we are evaluating under production and manufacturing strategy, but just wanted to tell you about all our view.

The current prediction of M&SCV, by 2032 the M&SCV segment will be even about 10% on electrification. That is what the prediction that is given by the biggest research agency. So it’s a long way process. So we continue to invest on our innovation. We continue to focus on product development or mechanical axle because we cannot drop this and then move on for getting foot. [Phonetics]

Dhaval Shah — Girik Capital — Analyst

Yeah, exactly, because as Ashok Leyland has the switch mobility — has received a massive order for supplying to the state transport authority, so now the buses. So there how will we play? So are we there? Are we supplying to those which are…

N. Muthukumar — President and Chief Operating Officer

We are a strategic partner and we supply to them, but that’s not in e-axle, just for your information. That’s an electric axle. That is an electric vehicle but not using e-axle.

Dhaval Shah — Girik Capital — Analyst

Got it, got it.

N. Muthukumar — President and Chief Operating Officer

And we are present there in our mechanical axle.

Dhaval Shah — Girik Capital — Analyst

So there still the mechanical axles are only being used there in those…

N. Muthukumar — President and Chief Operating Officer

I’m sorry, I just said in general, we are present.

Dhaval Shah — Girik Capital — Analyst

Okay.

N. Muthukumar — President and Chief Operating Officer

That’s a combination of innovation, but it is running like that.

Dhaval Shah — Girik Capital — Analyst

Okay, got it, sir. Thank you. And lastly, sir, when you said about defense, if I heard it correctly, you said you are supplying to more than four OEMs, right?

N. Muthukumar — President and Chief Operating Officer

Yeah. See, in defense, the OEM is — there are many players other than the traditional OEMs, right? There are new players who are also supplying to — anybody who’s supplying to vehicles to defend Army, I call them as OEMs. L&T supplies. So many people are supplying.

Dhaval Shah — Girik Capital — Analyst

Okay, okay, so would you be comfortable sharing the revenue contribution from defense?

N. Muthukumar — President and Chief Operating Officer

While I love to do that, but at this point of time normally we don’t share vertical-wise revenue including exports or axles or brakes. So I’m very sorry that I’m not in a position to share it.

Dhaval Shah — Girik Capital — Analyst

All right. All right, sir, great. Thank you. Thank you very much. Good luck.

Sailesh Raja — Batlivala & Karani Securities — Analyst

Thank you. [Operator Instructions] Next question is from the line of Krishna Kumar from Lion Hill Capital. Please go ahead.

Krishna Kumar — Lion Hill Capital — Analyst

Congratulations, sir, on a set of very good numbers. Most of the questions have been answered in the previous round. So just on — while you said you would not give break-up in terms of verticals, but if you could give some perspective in terms of whether export grew faster than domestic or via- vice versa or could you just give some growth rates on segments and also brakes, is that possible? Talk about growth rates at least.

N. Muthukumar — President and Chief Operating Officer

Ranga, show your smartness.

Ranganathan S. — Chief Financial Officer

No, no I just wanted to bring perspective to you. If you really see, the actuals — brakes we are present with almost all OEMs. And Axles, we have been [Indecipherable] predominantly present with one or two OEMs, And of course, TML, we are very legal element to the whole process, so whole share is concerned. See the growth definitely, TML grows, our brakes definitely grow and there is no doubt about that. As you rightly said, the overall market growth — our actual growth is directly dimensioned of the growth of Ashok Leyland and other OEMs.

In terms of percentage, we already mentioned it. If the market growth, as Muthu was saying that it could be around single-digit or maximum about 10% market growth. Our growth is in-line with the market. So within the segment, brakes were better than axles because of the TML growth in the market-share goes up, definitely the brakes share in the business will definitely go up. But overall if you really look at the revenue growth is largely the revenue per axle comes from the axle is better than the brakes. Nevertheless, our aspiration to grow the topline and bottom will continue. So in terms of the percentage we are — the growth will be at the market rate or slightly better than the market. If the market grows 10%, we try to aspire to grow by 12% or 13%. But definitely, we are kind of — so that much I can say.

The exports, you had been talking about — said you don’t want to give a breakdown about the segment wise. I think overall, export is concerned, predominantly we are doing it for our own group companies as definitely the group companies is looking at India as one of their destinations for using India’s capability and capacity for the global growth that is only on the cards. But it’s very premature at the moment of time to show that how much is going to materialize. We are seriously working on it and coming days you will definitely see we are expecting a kind of an improvement in the exports business share and overall share is concerned, that much I can share at this moment of time.

Krishna Kumar — Lion Hill Capital — Analyst

So that is helpful sir. Thank you for that. Sir, on the e-axles question earlier, you had mentioned that probably there is no answer at this point, but just to get a directional perspective, the project would be definitely involve somewhat of capex if the motor and the electronics, etc., is made within Automotive Axle. So is it right to believe that there could be a company outside in the group which would probably be the integrator and we would continue to make the mechanical axle to supply, is that something directionally possible there?

N. Muthukumar — President and Chief Operating Officer

I’m not sure at this point in time. It all depends on what is the adaption level of EV and how it is going to come up and what type of technology is going to come in. For example, today, 80% of the vehicle that is made in India on electric vehicle platform, which you are being sold in FAME I and FAME II, that is in e-axle. Because when the range is going to be 80 kilometers to 120 kilometers like a city buses, they find out the different method of doing. It is also going to work as long it is electrification, they don’t need that much of battery space, a lot of changes are happening. So it needs a huge capex at this point of time, while we are continuously working on technology or sourcing it from the right partner at this point of time, the manufacturing strategy is being rolled out.

But one thing that I can assure you is while it’s very-very premature to talk at this point of time, the mechanical axle portion of is because we have reliability and capability here, we’ll definitely go with, we’ll be making it here. Rest of the thing, what type of aggregator we use, where are we going to assemble and all is too premature to say because it all depends on finally the technology that is going to come in and where it is going to come from.

Krishna Kumar — Lion Hill Capital — Analyst

Great, sir, thank you very much, sir. Wish you all the best, sir.

N. Muthukumar — President and Chief Operating Officer

Thank you very much.

Operator

Thank you. Next question is from the line of Radha. Please go ahead.

Radha — — Analyst

Hi, sir. Thank you for the opportunity and congratulations on excellent performance. Sir, my first question is on the exports. So as per our last annual report, I can understand that exports should be around 4% to 5% of revenue. And given that you mentioned that you are aggressively pursuing exports, so could you tell me, would it be in the low-double-digit number exports as of now out of total revenue?

N. Muthukumar — President and Chief Operating Officer

Ranga.

Ranganathan S. — Chief Financial Officer

No, no, madam, I think we have shared the perspective. We generally don’t segregate segment wise revenue numbers or we don’t give it. Kindly pardon us. But definitely as a focus, we are working with opportunities for exports and definitely that will play a kind of — one of the growth strategy for us. So sorry that we don’t share the segment wise numbers or other growth aspiration segment wise at this moment. Sorry about it.

Radha — — Analyst

Okay, sir. Sir, just following up on this. Have we — other than Volvo, have we added any new customer in exports? And if you have been, then who would that be?

N. Muthukumar — President and Chief Operating Officer

See, at this point of time, Volvo is the customer that currently with Isuzu. Just for information, because the UD trucks of Volvo have been acquired Isuzu, and we are supplying to them to the Thailand facility. Rest of the areas we supply only subsystems and systems to our Meritor Company and they do the end assembly, we don’t directly deal with any of their customers.

Radha — — Analyst

Understood, sir. Secondly, on the axle part. So previously as I understand we had a low-single-digit or medium single-digit share of business with Tata Motors, and given that we have been pursuing Tata Motors in axle space, so can — you said the share of businesses with them have gone up to double-digit now.

N. Muthukumar — President and Chief Operating Officer

No, no, our supply to Tata Motors is almost very, very low-single-digit only for critical axle which is going for some export. Currently, they have built up a lot of capacity inside their plant and they are using their capacity only.

Radha — — Analyst

Understood, sir. And sir, in the off-highway segments, so what are the top OEMs that we are targeting? I understand JCB and BEML are [Indecipherable] but are we still pursuing them? And if not, them are we presuming any other OEMs?

N. Muthukumar — President and Chief Operating Officer

We will not leave anybody because till we finalize it we are talking to, with L&T, because there are only five, six players, and it is a different type of segment, right. And we will be working with everybody. But at this point of time, most of them have integrated their manufacturing inside their manufacturing. Very tough to crack it, and its also a huge cost in terms of design of making this product because the volume is very, very low. So we are evaluating, but it is our focus area for growth for sure. The management has put in lot of effort to grow in that segment, construction and off-highway.

Radha — — Analyst

Okay sir. And sir, we recently entered into the LCV, HCV bus segment. So With respect to this, how many products we have in this and how many more orders [Phonetics] are expected in this segment particularly? And currently from the LCV, HCV bus, are we supplying only to Ashok Leyland or anyone else as well?

N. Muthukumar — President and Chief Operating Officer

Predominantly we supply to Ashok Leyland. It doesn’t mean that we’re not supplying anybody else, some of the Mahindra’s LCV, we have presented the other way. It is mainly used for LCV trucks and also some buses, both are there, the school bus.

Radha — — Analyst

Sir how much potential business can we see some this particular segment in the next two to three years?

N. Muthukumar — President and Chief Operating Officer

LCV, the segment is growing. And even though our Meritor presence is very, very strong in medium and heavy commercial vehicle and not on this. We continue to penetrate on this and we definitely we’ll be growing. But if you see that the volumes are totally is, very very less. The company is working on improving the penetration into those segments which is a very, very a highly competitive segment.

Radha — — Analyst

Okay, sir. And sir in the suspension segment in this slipper type suspension that we have. So previously we had — we are in logistics as one customer. So other than that, have we seen any other players who have upgraded their suspension from bell crank to slipper type.

N. Muthukumar — President and Chief Operating Officer

See, BRL is not our customer, he is an in customer, but their supplies are going through Ashok Leyland, okay. We don’t sell suspension directly to the end customers, we sell it only to Ashok Leyland as Ashok Leyland fill it. As I explained earlier, while we try to put it into five or six different customers, will be extremely challenging in terms of managing the cost of the bell crank suspension. So, we are seeing these customers, but penetrating into needs lot of mindset, lot of infrastructure improvement in the roads on high speed vehicle to come, then it makes sense for them to use this suspension.

Radha — — Analyst

And just one last question from my side. So, from the overall portfolio I believe we can sell some excess systems and brake assemblies in the aftermarket segment, so — and during that, majority of our sales is to o OEM as of now, do we have any strategy to increase our sales in the aftermarket segment?

N. Muthukumar — President and Chief Operating Officer

We are selling in the aftermarket and We are selling to OEs and also to the dealers by our network.

Radha — — Analyst

Understood, sir, okay. Thank you sir for answering all my question patiently. All the best.

N. Muthukumar — President and Chief Operating Officer

Sailesh, I want to keep this on timing.

Operator

Thank you very much. [Operator Instructions]

N. Muthukumar — President and Chief Operating Officer

That’s it’s all the time we, on so maybe…

Sailesh Raja — Batlivala & Karani Securities — Analyst

Sir, we don’t have anyone in the queue. Would you like to give any closing comments.

N. Muthukumar — President and Chief Operating Officer

Ladies and gentlemen, thank you for very much for your interest shown and thanks for your appreciation of our performance. You can rest be assured that the team is committed to continue to innovate. The team will continue to innovate, invest in the new technology that is going to come, and of course, giving the best returns to all the stakeholders in the business. So we’ll continue to do the business in a transparent way and communicate to you about what we are doing, ow we are performing, and looking forward to your continuous support to your organization to make us to grow better in the days to come. Thank you very much to B&K for organizing this call with the team and really appreciate everyone’s support and time. Thanks Ranga and Nagaraj for joining and then giving you perspectives. hank you very much.

Nagaraja Sadashiva Murthy Gargeshwari — President and Whole Time Director

Thanks, everyone. Thank you.

Ranganathan S. — Chief Financial Officer

Thank you.

Sailesh Raja — Batlivala & Karani Securities — Analyst

Thank you very much. On behalf of Batlivala and Karani Securities India Private Limited, that concludes this conference. Thank you for joining us.

[Operator Closing Remarks]