Rane Holdings Ltd (RANEHOLDIN) Q4 FY23 Earnings Concall Transcript

Rane Holdings Ltd (NSE:RANEHOLDIN) Q4 FY23 Earnings Concall dated May. 19, 2023.

Corporate Participants:

Diwakar Pingle — Partner, Strategy & Transactions and Head of Investor Relations Advisory at Ernst & Young LLP

L. Ganesh — Chairman and Managing Director

Harish Lakshman — Vice Chairman

Analysts:

Viraj Mehta — Equirus PMS — Analyst

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Prateek Kothari — Unique Portfolio Managers — Analyst

Chetan Bindhuriya — AlfAccurate — Analyst

Aditya Makharia — HDFC Securities — Analyst

Abhishek Getam — Alpha Invesco — Analyst

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Manish Goel — ThinkWise Wealth Managers — Analyst

Pankaj Prasoon — HNI Investor — Analyst

K. Mohan — Individual Investor — Analyst

Omkar Deshpande — Axis Finance — Analyst

VP Rajesh — Banyan Capital Advisors — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 and Full Year FY ’23 Earnings Conference Call of Rane Group. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Diwakar Pingle from Ernst & Young LLP. Thank you and over to you, sir.

Diwakar Pingle — Partner, Strategy & Transactions and Head of Investor Relations Advisory at Ernst & Young LLP

Thank you very much, Zico. Good afternoon, friends. Welcome to the Q4 and FY ’23 earnings call of Rane Group. To take you through the results and answer your questions today, we have the management team from the Rane Group; Mr. L. Ganesh, Chairman and Managing Director, Rane Holdings Limited; Mr. Harish Lakshman, Vice Chairman, Rane Holdings Limited; Mr. P A Padmanabhan, President Finance and Group CFO; Mr. Siva Chandrasekaran, who’s the Executive Vice President, Secretarial & Legal Services; and Mr. M A P Sridhar Kumar, Executive Vice President, Finance and CFO of Rane Holdings Limited.

Please note that we’ve sent you the press release and the presentation link of the deck. In case any of you’ve not received the presentation, you could look at it at the website of Rane Group or even the BSE site of Rane or in the alternative, you can write to us and we’ll be happy to send the detailed deck over to you.

Before we start, I’d like to say that everything that is said on this call that reflects any outlook for the future or which can be construed as forward-looking statement must be viewed in conjunction with risks and uncertainties of the space. These uncertainties and risks are included but not limited to what we mention in the prosecutors and subsequently in annual reports, which you can find on our website.

With that said, I’ll hand over the call to Mr. Ganesh. Ganesh sir, over to you.

L. Ganesh — Chairman and Managing Director

Thank you, Divakar. Good afternoon, ladies and gentlemen. Thank you for dialing-in. I’d like to welcome you all to this teleconference. You’d have seen the Q4 FY ’23 performance highlights of the Group companies posted on our website.

Just a few comments on the industry. The demand environment remain favorable and automotive industry experienced growth across all the vehicle segments in this year FY ’23 and Q4 FY ’23. Our seasoned [Phonetic] vehicle segment achieved new peak volume, driven by the launch of new models, continuous supply improvement and robust demand for UVs.

While during the year, there were some shortages of semiconductors for customers like MSIL, overall I think the volume growth was very healthy. Commercial vehicle segment continued the upcycle with the demand supported by infrastructure spending and better freight utilization in the industry. The demand for buses bounced back with the opening of schools, colleges and work-from-home kind of gradually transiting to physical work.

The Farm tractor segment also reached a new peak volume in FY ’23 and Q4 saw a strong growth. This is a bit of a surprise because we didn’t anticipate that. And two-wheeler again, ended the year with a growth, although in the first six to eight months with some traditional [Phonetic] in the entry-level segment.

The global economic activity presents some uncertainty as you all know, high inflation, tightened monetary policy in U.S and EU. And certainly challenges faced with recent turmoil in the banking sector in the U.S. hurting the economy. Rate seemed to be elevated and remain elevated maybe for some more time before declining. And in Europe, inflation remained sticky, cost of living, cost of — especially, energy and fuel has gone up significantly and there are some issues like labor shortages and labor action in some countries like France.

So, these are all the concerns if you see around us. The tension between U.S. and China has still not subsided and that is also causing some trade concerns. The war between Russia and Ukraine of course is a major negative. Given these challenges, the Indian economy has fared well and continue to be one of the fastest-growing major economies, despite a somewhat slower growth of 6.8% in FY ’23, but has shown tremendous resilience to the global activities and environment. So, going forward, we think that this momentum will continue and ’23 ’24 also, we are quite positive about the Indian economy.

With these few words, I’ll hand it over to Harish now.

Harish Lakshman — Vice Chairman

Thank you, Mr. Ganesh. Good afternoon, everyone. Happy to share that the Rane Group aggregate revenue for the last financial year came at INR6,864 crores. This is the highest ever our Group has achieved. The positive demand environment sustained throughout Q4 and hence the Group posting 18% overall growth with 49% growth coming from our international customers. The EBITDA margin for RHL consolidated increase 272 bps, supported by higher volumes and improved operational performance.

I will now provide some details around the business. During the quarter, we won — pardon me, first Rane Madras. During the quarter, we won new business worth INR145 crores from various domestic and international customers for steering products. During the year, of course, as you know the plant we had acquired Yagachi Technologies, I’m happy to share that the plant that we acquired has now been vacated and we have successfully transferred and integrated that plant within our Varnavasi plant. Export grew 56% for our Light Metal Castings India division. We are still working on operational improvements and also launching new programs for SOP in FY ’24.

Coming to the Light Metal Castings America; as you may have heard, we have decided to evaluate options to divest the business. We are working with an investment banker and work is going on. As and when we have a specific update, we will keep you posted. It is unfortunate that even after six years, we could not turn-around the business and this has significantly impacted RMLs financials. However, we are confident that we can improve the financial position and reduced the debt.

Coming to Rane Engine Valve, I’m happy to report the financial turnaround of REVL, driven by a strong top line growth and improved operational performance. The capacity utilization in all the plants improved significantly in order to meet the increased demand across client segments. We are undertaking several projects with key customers on hydrogen as a fuel for IC engines. In the upcoming year, the company would be strategically focusing on enhancing sales to EV insulated segment and ramp-up on new business to sustain the financial performance.

Coming to Rane Brake Lining; during the quarter, we had a good strong growth in the aftermarket business. The EBITDA margins, however, has impacted marginally due to unfavorable ForEx and increase in other expenses towards specific initiatives taken-up during the quarter towards energy and yield improvement projects.

Coming to our joint venture, ZF Rane Automotive. The steering business continues to benefit from the up-cycle in the commercial vehicle segment. We also won some new orders of about INR30 crores for the steering products. The occupant safety division is benefiting from evolving safety regulation in India and won orders worth INR360 crores for occupant safety products from several domestic OE customers. The inflators and webbing plant infrastructure has also been made ready and both plants are undergoing trials and production validation. During the year — during the quarter, the cushion plant was also expanded.

Coming to our NSK joint venture, the manual steering column business benefited on account of the up-cycle in the CV segment. The EPS business faced slower demand on some of served models due to the semiconductor shortage. The adverse mix and increase in material costs impacted the profitability. As some of you may be aware, unfortunately we had to make some additional provisions during the last financial year for the warranty. However, we are very confident that there will be no further provisions in the future. We are in continuous discussions with NSK to reduce the financial burden due to this issue. We will keep you all updated as and when there is specific progress.

Looking to the future, we are continuing to focus on the following; number one, enhancing the exports. In FY ’23, the exports grew by 38% and we are continuing to put a lot of effort in increasing our exports and we remain optimistic about the opportunity. Number two, we have reorganized our aftermarket business to create a group structure to facilitate synergy and drive group initiatives. This is going to help us grow the sales to aftermarket at a faster clip compared to the growth in the past few years. Number three, while more than 90% of our Group sales are agnostic to whether the vehicle is an IC vehicle or an electric vehicle, we are steadily winning new business, both in the domestic and export market in pure EV.

I’m also happy to share that we are looking to invest about INR1,000 crores across all the businesses over the next three years. Hoping that the market continues the positive trend. As we look ahead in FY ’24, the demand environment continues to remain favorable, the global economic scenario faces headwinds on inflation, slower growth and geopolitical situation. Though India remains relatively shield, the spillovers of global scenario cannot be ruled out.

India’s GDP growth is expected to moderate to around 6% in FY ’24. Though our order book position across businesses remain strong, we prefer to navigate this macro environment scenario cautiously, prioritizing operational improvements and cost reduction measures to balance out any risk on growth.

With these remarks, we will now open for any questions that you may have. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Viraj from Equirus PMS. Please go ahead.

Viraj Mehta — Equirus PMS — Analyst

Yeah, hello sir, and congratulations for good operational performance. Sir, my first question is obviously regarding the right of provisioning that we have taken. The provisioning for this year, is it like close to INR85 crores, right?

Harish Lakshman — Vice Chairman

Sorry, which company — you’re talking about MSK or Rane Madras.

Viraj Mehta — Equirus PMS — Analyst

MSK.

Harish Lakshman — Vice Chairman

MSK? So the warranty provision you’re asking?

Viraj Mehta — Equirus PMS — Analyst

Yes.

Harish Lakshman — Vice Chairman

I think INR74 crores.

Viraj Mehta — Equirus PMS — Analyst

INR74 crores? And what does this total amount now — since last four years, what does this amount total to?

Harish Lakshman — Vice Chairman

On the warranty issued, the total is now INR564 crore.

Viraj Mehta — Equirus PMS — Analyst

Sor sir, can you just — because, see, we have gone through this iteration even last year. I mean, what is the total — like, is it safe to assume that this is only for the older cars sold before Dec ’18 or are there newer cars also facing the same issue where we are seeing provisioning?

Harish Lakshman — Vice Chairman

No, it is only the older car.

Viraj Mehta — Equirus PMS — Analyst

So, there is no new problem which has arrived?

Harish Lakshman — Vice Chairman

No.

Viraj Mehta — Equirus PMS — Analyst

Okay. Sir, my second question is regarding, if I look at the operational performance of our subsidiaries and our JVs, we see significant improvement in the EBITDA margin across businesses for the full year and especially this quarter. So, if you were to look at just the aggregate Group numbers, we are now at like 11% margin. With the steel and with raw material where it is and you’ve been very optimistic about the growth this year, do you think these kind of margins are kind of sustainable or will we slip off a percent here and there?

Harish Lakshman — Vice Chairman

I mean the way we currently see things, we don’t — we see the commodity prices also leveling at this level. So hopefully, we should be able to maintain the margins, is our view.

Viraj Mehta — Equirus PMS — Analyst

So, you’re saying Q4 margins are sustainable for FY ’24?

Harish Lakshman — Vice Chairman

No, Q4, you know there is always that, what is the Q4 number?

Viraj Mehta — Equirus PMS — Analyst

11.1% at the Group aggregate level.

Harish Lakshman — Vice Chairman

Okay. Yeah. So, I mean, see obviously you know for us always there is a — the four quarters are not equally split. Q1 is always lower and then Q2 and then of course in Q4. So, while — so for the full year, yes, we believe that the margins can be maintained, but for — whether Q1, I’m not sure. You understand what I’m saying that’s because it is the sales — the sales of Q1 will never be the same as Q4 of last year.

Viraj Mehta — Equirus PMS — Analyst

Right, but I’m thinking at a gross margin level, we are still very comfortable. We are not going back to 5%, 6% margins that we used to do, six quarters back?

Harish Lakshman — Vice Chairman

No, no.

Viraj Mehta — Equirus PMS — Analyst

Right. And, sir, on INR1,000 crores, total capex that you mentioned, can you split it up relatively across the five companies? A little bit of color will be very helpful.

Harish Lakshman — Vice Chairman

Obviously, a lot of capex is going on in the occupant safety business. That is where the most amount of capex is going on because of the continued investments in both inflator and webbing as well as the capacity expansion we are doing for the fixed airbag legislation and export. I don’t have the exact split, but I’m guessing that it will be almost 45%, 50%.

Viraj Mehta — Equirus PMS — Analyst

Is that the total?

Harish Lakshman — Vice Chairman

Almost 45% to 50% of the total.

Operator

Thank you. Sorry to interrupt. Mr. Viraj, may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. Thank you. [Operator Instructions] Our next question is from the line of Ashwin Agarwal from Akash Ganga Investments Private Limited. Please go ahead.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Good afternoon. It is sad, but we are pleased that for the Rane Madras at least the management has decided to look at options to divest the subsidiary, because as you rightly said, in six years, INR300 crores were almost spent. Sir, can you give any timeline or any idea which you have more than this that by when you will be able to — whether there has — had been any interest you know and is liquidation also an option for us?

Harish Lakshman — Vice Chairman

So, as ZF announced yesterday, we are keeping all options open. Obviously, our intent is to divest this as soon as possible. Unfortunately, I’m not able to give you a clear timeline because it involves potential buyers and etc. But I can tell you that the entire team is working to get this done as soon as possible. So, I’m not able to tell anything more than that. As far as liquidation is concerned, while that is an option, we believe that there is enough interest to sell the company on an asset basis. So, that makes it easier and faster.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

So that is very good. And so, can we assume that no further infusion would happen from our side in terms of money?

Harish Lakshman — Vice Chairman

Well, there will be some infusion till the divestment is completed and — but it will not be anything significant. It will obviously be some lawyer fees and investment banker fees and things like that.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Got it. Sir, lastly, if you can give us an outlook of suspension, valve joints and rack and pinion, we were looking and talking to various clients for exports and we did get good exports and we are gaining traction. So, our relationship with Nexteer, and can we develop one more such relationship to enhance our exports?

Harish Lakshman — Vice Chairman

Yes, we are making very good progress. And we have now got orders from not only Nexteer, but two more global steering suppliers. We have got orders during the last six months. So, there is significant progress being made.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

And which are these companies, and what could be the order size?

Harish Lakshman — Vice Chairman

Both Bosch, as well as ZF are the customers. I don’t remember the exact size of the order, but it is part of that INR145 crores that I had mentioned in my opening comments.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Okay, so these are for both rack and pinion, as well as suspension?

Harish Lakshman — Vice Chairman

They are all ball joints.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Okay. And these are for the European market?

Harish Lakshman — Vice Chairman

Well, ZF was Europe. I forget on Bosch. I think both are Europe, both are Europe.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Sir, lastly, in Rane Madras, can we grew at a rate of 18% to 20% on a stand-alone basis?

Harish Lakshman — Vice Chairman

Obviously, with 70% of the sales of Rane Madras coming from the domestic market, a lot of the fortunes are linked to that. While export, we had a fantastic year last year and the outlook also remains very optimistic. It all depends on how the domestic market grows.

Operator

Thank you. Mr. Ashwin Agarwal, may we request you to rejoin the question queue for follow-up questions. Thank you. Our next question is from the line of Pratik Kothari from Unique Portfolio Managers. Please go ahead.

Prateek Kothari — Unique Portfolio Managers — Analyst

Hi. Good afternoon, and thank you. First of all, congratulations to the team for — and the Board for finally deciding on hard, but I believe [Indecipherable]. So, my first question is on the debt. [Indecipherable] balance sheet INR650 crores on the consolidated. And you did allude to in your opening remarks. So this over next two, three years, what kind of debt reduction that we will be looking at other than obviously the tax that you would generate from the business? Any equity raise, any non-core asset sales?

Harish Lakshman — Vice Chairman

No, none of those. I don’t have to — I’m not able to answer your first question with the clear number. The debt reduction will happen, it’s a continuous process, some debt will get done in three months, some six, some even 15 months, but yeah — but there is no initiatives to do any of the other two things that you mentioned.

Prateek Kothari — Unique Portfolio Managers — Analyst

Okay. What could be the debt-to-equity or debt-to-EBITDA number that we usually would be comfortable with I mean, maybe three, five years out, but…

Harish Lakshman — Vice Chairman

So clearly, we internally we track debt-to-capital employed and ideally we would like to be at about 50%. But right now, we are in the 65% range. So, the intent is to get back to those levels.

Prateek Kothari — Unique Portfolio Managers — Analyst

Okay. Fair enough. Sir, my second question is anecdotally we do hear about lot of multi-national and domestic auto, auto component players talking about increasing trust on Indian manufacturing or sourcing from here due to various reasons, especially large capable reliable suppliers are benefiting out of it. And I believe Rane Madras is one of those. So how are we positioning there and internally what are we doing to capture this opportunity, which are all ongoing?

Harish Lakshman — Vice Chairman

Yeah. So, clearly, this is a very important initiative for us. Even in my opening speech, I mentioned that continues to be a focus area. And we have expanded our offices and resources both in North America and in Europe. So we have sales people continuously knocking on doors to some of the large OEMs, as well as large Tier 1s both in North America and in Europe. And, of course, there is a lot of engagement going on with the what we call IPO or international purchasing offices here. So there is a lot of work and reviews that they create, and we remain optimistic.

Prateek Kothari — Unique Portfolio Managers — Analyst

Fair enough. Sir, my last question is on gross margin. I mean, four, five years back, we used to be at 45%-odd. We are at 35% now. Some part of it would be because of casting, which is domestic casting, which is also a lower gross margin business. But given — assuming the raw material stabilizes, where should this number settle down?

Harish Lakshman — Vice Chairman

We don’t track gross margin, so I’m not able to respond. As I’ve always maintained, for Rane Madras at a consolidated level, we always aspired to be upwards of 10%, and no matter what this conditions is. If we can cross 12%, we believe that we’re running the company very efficiently.

Operator

Thank you. We move to the next question. Our next question is from the line of Chetan Bindhuriya [Phonetic] from a AlfAccurate. Please go ahead.

Chetan Bindhuriya — AlfAccurate — Analyst

Hi, sir. Good afternoon. Sir, with respect to the Rane Madras subsidiary divestment, wanted to understand the INR200 crores of extraordinary loss that we have taken. So is this considering that the value that we will be — we are expecting to realize, or is it like the complete investment that has been written-off and later on, whatever is realized will be taken as gain?

Harish Lakshman — Vice Chairman

So this is an impairment provision that we make. As per accounting standard, the value of the investments carrying the balance sheet at the end of every year is valued. And if there is a gap between the carrying value and the actual value, it has to be impaired. So this INR200 odd crores that you see is an impairment. So after — so depending on what we do next year and what offer we get etc., that will be squared-off against the investments that are there in the books in the opening of FY ’23.

Chetan Bindhuriya — AlfAccurate — Analyst

Okay. Got it, sir. Sir, this INR145 crore would be the orders that we have received. So this will get added to like this — set to commence from next year itself?

Harish Lakshman — Vice Chairman

No. Some will be in ’24, some in ’25. So it will be over the next two to three years.

Chetan Bindhuriya — AlfAccurate — Analyst

Okay, got it. And just lastly, there has been a very sharp increase in standalone Rane Madras depreciation. So what is the reason for this, where have we added capacity, and what kind of revenue ramp-up are you expecting?

Harish Lakshman — Vice Chairman

One second, because I’m not able to connect to the numbers you’ve said. You’re talking of depreciation in FY ’22, ’23 over the previous year, is it?

Chetan Bindhuriya — AlfAccurate — Analyst

I’m talking of Q4 INR23 crores depreciation in Rane Madras standalone.

Harish Lakshman — Vice Chairman

Correct.

Chetan Bindhuriya — AlfAccurate — Analyst

So, there has been a sharp increase over last two quarters. So wanted to understand what is this led.

Harish Lakshman — Vice Chairman

Yeah. So it will — I mean, it is probably a combination of multiple capex investments that were made, including the Yagachi plant which has moved into the existing Varnavasi plant. There was an additional building that was added that went into production in Q4. So, it’s probably some of that and other capex is that we were investing during the year.

Chetan Bindhuriya — AlfAccurate — Analyst

Okay. Got it. Thank you.

Operator

Thank you. Our next question is from the line of Aditya Makharia from HDFC Securities. Please go ahead.

Aditya Makharia — HDFC Securities — Analyst

Yes, sir. Hi. I wanted to know what is our market share of NSK with Maruti, and how has that fared over the last three years?

Harish Lakshman — Vice Chairman

So if you look at the EPS business, which is almost — more than 95% of Maruti’s production, we will have about 50% of that.

Aditya Makharia — HDFC Securities — Analyst

Okay. And second thing, sir, you mentioned about the occupant safety norms for six airbags. But I believe that is getting pushed beyond October. So just wanted your thoughts on that. There were some recent notification by SIAM, the government body and there was no mention of this coming in October.

Harish Lakshman — Vice Chairman

No. As of now, we are all — till the last minute, we will never know depending on what lobbying is going on. But as of now, we are all working towards October. I mean, even if it gets posted by a couple of months, but also I’m not aware. We are all working towards October.

Aditya Makharia — HDFC Securities — Analyst

Okay. And the other thing, sir, you had mentioned in your earlier call that you’re going to simplify your group structure, you’re taking positive steps towards that and you will announce it. So I’m just wondering are you looking at some sort of reorganization of your holdings or just any thoughts if you can share around this.

Harish Lakshman — Vice Chairman

As I’ve always maintained, we keep internally reviewing this. So, no decision has been made or anything. So at the appropriate time, we will come back.

Aditya Makharia — HDFC Securities — Analyst

Okay, got it. Thanks. Those are my questions.

Operator

Thank you. Our next question is from the line of Abhishek Getam from Alpha Invesco. Please go ahead.

Abhishek Getam — Alpha Invesco — Analyst

Yes. Hi. Am I audible? Hello.

Operator

Yes, please.

Abhishek Getam — Alpha Invesco — Analyst

Yeah. So the first question was on NSK. We’ve seen a sharp deterioration [Phonetic] in EBITDA margin this time. So usually, we are around 10%, 9%, right sir? So what led to that in this Q4, and what sort of the forward trajectory for NSK business?

Harish Lakshman — Vice Chairman

So there are concerns in that business, while, of course, the order book per se is for the next three, four years is solid. But, of course, over and above, the warranty issue that impacted us. Even at an operational level, there are some concerns sustaining the profitability that was there in the past. And this is largely due to competition in the market and the prices for some of the new businesses. So, we are struggling to maintain the margins that we enjoyed in the past. So while the teams are working very hard towards improving the margin, I see some challenges from the next few years stands on, repeating the same kind of margins we used to see in the past.

Abhishek Getam — Alpha Invesco — Analyst

Okay. So we might be around 6% to 7% range for some…

Harish Lakshman — Vice Chairman

Yeah. I mean, I don’t know the exact number, but yeah, it will be lower.

Abhishek Getam — Alpha Invesco — Analyst

Okay. So also — so we have almost incurred now around INR600 crores provisioning, so how much is utilized out of that?

Harish Lakshman — Vice Chairman

Okay. Out of INR564 crores, I think about INR490 crores has been utilized.

Abhishek Getam — Alpha Invesco — Analyst

Okay.

Harish Lakshman — Vice Chairman

Yeah. So clearly, you can also see that it is coming down. So that is one positive thing I also want to share with everyone. The amount of debits we get every month, there has been a gradual reduction.

Abhishek Getam — Alpha Invesco — Analyst

Okay. So, another thing is for last three years, we’ve seen the provisioning comes in usually Q4. So is there a certain pattern, and then how is it looking at basically?

Harish Lakshman — Vice Chairman

No. To be frank, lot of it has to do with the auditors and the management discussions that happened in Q4 during finalization.

Abhishek Getam — Alpha Invesco — Analyst

Okay. Another — next question is on LMCA. So, we’ve taken a write-down on investment value, but from RML [Indecipherable] to RBL, right, so almost INR132 crores.

Harish Lakshman — Vice Chairman

Correct.

Abhishek Getam — Alpha Invesco — Analyst

So how will be that factored in, in case of divestment?

Harish Lakshman — Vice Chairman

Yeah. I mean, it’s very clear, so given Rane Group’s background, obviously, we will honor all our commitments to all the stakeholders, including our bankers. So depending on how the transaction fructified and if the transaction doesn’t cover all the bankers’ requirement, Rane Madras will honor it.

Operator

Thank you. We move to our next question. Our next question is from the line of Rajakumar Vaidynathan, Individual Investor. Please go ahead.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Yeah. Good afternoon, gentlemen. Can you hear me?

Harish Lakshman — Vice Chairman

Yes.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Yeah. First of all, congratulations for turning around Rane Engine Valve, so I think it’s been kind of a timing issue for many years. So I hope the same might have touched, you can do for NSK, Rane NSK [Indecipherable]. Sir, I have two questions. So the first one is on the Rane NSK, I see that they have incurred INR114 crores post-tax loss. Even if I back the warranty, even the operating loss still is about INR60 crores. So despite having a positive EBITDA, what was driving the loss in NSK, if you can give some color?

Harish Lakshman — Vice Chairman

So — yeah, no, I was trying to get some clarification. So, mainly because of the — there was a deferred tax write-off that was done, that was there in the book. I mean, again, the root cause is because of this warranty issue.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Okay. So that is — is it possible to give the PBT number for Q4 for NSK?

Harish Lakshman — Vice Chairman

PBT was — before the warranty expense was minus INR2 crores.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Okay. So, still it’s — okay. Still it’s less than what it was in the past, right?

Harish Lakshman — Vice Chairman

Sorry, can you repeat the question?

Raja Kumar Vaidyanathan — Individual Investor — Analyst

No, my question is, sir, even if you back out the warranty, still the performance was deteriorated. So I was just wondering is it something one-off or do you expect this to turn around or the warranty issue will go up, but the operational issues will continue.

Harish Lakshman — Vice Chairman

The operational issue, as I said, while, of course, whether there is a loss, there has been a challenge in Q4 for some other operational reasons. But generally, as I said, the margin, we are studying to getting back to the old margin levels. Lot of it is to do with the pricing for some of the new programs. And you know and also since with the prices are settled, there is also some cost inflation. So, while some we are working with the customer to recover, the inherent profitability of some of the new businesses is lower. So that is a challenge that we will have to overcome, but that will take a little longer time or maybe a year or two.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Yeah. Sir, then the second question is, for the debt reduction in Rane Madras, are we looking at selling of any of the excess real estate buildings, given that the markets will turn around on the real estate side?

Harish Lakshman — Vice Chairman

No, not at this point in time.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Okay. And how about any future funding from NSK, given that the net debt has almost [Indecipherable]?

Harish Lakshman — Vice Chairman

Yeah. So, we are still addressing — we’re looking at various options. So, I don’t have a clear answer at this point in time.

Operator

Thank you. We move to the next question. Our next question is from the line of Manish Goel from ThinkWise Wealth Managers. Please go ahead.

Manish Goel — ThinkWise Wealth Managers — Analyst

Yeah. Thank you so much, sir. First of all, thank you so much for taking that decision — hard decision on Rane Madras. And on Rane NSK, sir, just in your opening remarks, you had mentioned that the provision what we have taken is probably the last one and not much provision will be required, and we are in discussion with Rane NSK. So, maybe if you can just clarify this more because probably last year also we heard similar comments.

Harish Lakshman — Vice Chairman

Yeah. Yes, Manish. I mean, unfortunately, yes, I know that I pretty much repeated what I said last year. It has been a very slow and painful process, as I said — which also I’ve repeated in the previous call. The issue has been so complex because there are almost five entities involved, one is Maruti Suzuki India, and there is SMC, Suzuki Motor Corporation Japan, then there is NSK Japan, and then there is Rane NSK, and then there is Rane Holdings. So, we are — and the nature of the problem has also been complex.

So, when we try and identify the root cause and then try and establish which of these entities is — you can ascribe this root cause, this is getting very complex. But no matter what, Rane Holdings is putting best of efforts to arrive at that solution, and that’s taking a long time. I’m — including — to be frank with you, our ability to visit, Japan also was not possible till last June, July. Only after that Japan has opened up, so some meetings have happened and conversations are going on. So I don’t have anything concrete now. But one thing is for sure, we believe that this INR564 crores will be crystallized. It won’t go beyond this. And then how to address this, we are working.

Manish Goel — ThinkWise Wealth Managers — Analyst

Okay, fair point. And sir, also in one of our growth drivers, you had mentioned that we’ll focus on new technology and product introduction. So maybe if you can give us some perspective into, like which company will — probably what kind of products we are looking for? And also — like, you also mentioned about EV, you’d be getting EV business. So if you can — because, off late, we see that not many companies are getting large long-term contracts in EV businesses. So, for us, how is it shaping up and maybe on new technology and products, if you can highlight?

And also I’ll add on one more thing before the operator disconnects me. In fact, I would appreciate that if you can provide full-year numbers for ZF Rane and Rane NSK, because now we don’t get quarterly presentations and its half yearly, so — and again, this year, this presentation has only quarterly numbers. So we don’t get full-year numbers for both the JV. So would appreciate if you can help us..

Harish Lakshman — Vice Chairman

Yeah. I will answer this first. ZF, what is the full-year number? One minute. So the ZF full-year numbers for FY ’23 was INR1,857 crores, and out of which the occupant — just hold on one second. The occupant safety was INR937 crores. And the — OSB is — sorry, the occupant safety is INR937 crores and the steering is INR848 crores. So that is the total revenue. And Manish, we have noted your point about this quarterly information not being available. We will deduce this internally, what we can do about it.

Manish Goel — ThinkWise Wealth Managers — Analyst

Sure. And maybe on my first question, sir, on the new products and technologies [Technical Issues]. Hello?

Harish Lakshman — Vice Chairman

One second, Manish.

Manish Goel — ThinkWise Wealth Managers — Analyst

Sure.

Harish Lakshman — Vice Chairman

So, new — as far as the new products are concerned, I mean, we are essentially talking about whatever we have announced, it seems like doing inflator as an additional new product in ZF Rane, and then some of the hydraulics products we started in Rane Madras, etc. Over and above that, any new products? We have not decided on anything. So, as and when we decide, we will announce those.

As far as EV is concerned, yes, in fact, we are not articulating clearly what is the order book, but there is a significant amount of EV business that we’re winning, especially in the North American market. In fact, a lot of the Rane Madras as well as the die casting business, new orders that we have won, and most of them are for EV customers. The end vehicle, whether it’s a Ford vehicle or a GM or a Tesla, all of them are all EV vehicles. So there is a significant traction there. But going forward, really in the future, we will then start splitting this out so that you can see EV and non-EV. But as you know, for us, all our Rane Madras and ZF and Brake Lining, other than Rane Engine Valve, everything is vehicle agnostic.

Manish Goel — ThinkWise Wealth Managers — Analyst

Okay, okay. Thank you so much. We will connect again. Thank you.

Harish Lakshman — Vice Chairman

Yeah.

Operator

Thank you. [Operator Instructions] Our next question is from the line of Pankaj Prasoon[Phonetic] from HNI Investors. Please go ahead.

Pankaj Prasoon — HNI Investor — Analyst

Good afternoon, sir.

Harish Lakshman — Vice Chairman

Good afternoon.

Pankaj Prasoon — HNI Investor — Analyst

So, my first question is, why not Rane NSK provisioning we are meeting on — making on the quarterly basis? It will always be better than you are giving in the annual, just like a atomic bomb, so this much provisioning we had made. So, is it possible for you to — whatever the provisioning you are making, can you do it on a quarterly basis?

Harish Lakshman — Vice Chairman

Yeah. But going forward, we will not have anything. What will I — we take your point, but as I said, this is a discussion between, again, auditors in Japan, auditors in India, etc., based on performance during the year. But as I articulated, we believe that there will be no further provisions.

Pankaj Prasoon — HNI Investor — Analyst

Okay. So — and my second question is, the technology partner is NSK, right? So this is a kind of a fault in the design and why they are not taking the full hit because the warranty is from NSK? If there is a problem with the design, then the ownership lies with whoever made the design? Why Rane NSK is making all the provision?

Harish Lakshman — Vice Chairman

Yeah. So, as I mentioned in the past, it is a complex issue. I have never publicly said this is a design issue and there are multiple factors, maybe design is one contribution, maybe manufacturing is another contributing. There is — it is a combination of factors. So as I’ve said many times in the past, we are trying to break it down as to how much is due to design, how much is due to manufacturing, because if it is manufacturing, Rane NSK is only responsible. So it has been a complex exercise that we are continuing to work on.

Pankaj Prasoon — HNI Investor — Analyst

Okay. Next, my question is on the Rane Madras. So, we had already taken the impairment of almost INR223 crores in the Rane Madras light casting USA, right?

Harish Lakshman — Vice Chairman

Yes.

Pankaj Prasoon — HNI Investor — Analyst

And so, what is the likely good[Phonetic] country consideration for their sale? Will it be even negligible or what?

Harish Lakshman — Vice Chairman

We don’t know as yet. So, as and when we have an update, we’ll keep the shareholders informed.

Pankaj Prasoon — HNI Investor — Analyst

And our acquisition cost was, I think, $8 million or something like that?

Harish Lakshman — Vice Chairman

No, actually, we — the stock purchase was $1. And if I recollect, we had assumed the liabilities for about $8 million.

Pankaj Prasoon — HNI Investor — Analyst

Okay. Okay. So, total almost INR273 crores we have spent on that light metal casting. It is a very long this year, I will say. And we could have taken this hit last year only, because everybody has suggested you, let us get out of this. But I don’t know why we went to America and do all those things.

Harish Lakshman — Vice Chairman

Yeah. [Speech Overlap]

Pankaj Prasoon — HNI Investor — Analyst

It is very painful for the shareholder. It is very painful for the shareholder to look at look like this, NSK then metal casting.

Harish Lakshman — Vice Chairman

Of course, as a majority shareholder, it is most painful for us.

Pankaj Prasoon — HNI Investor — Analyst

Including you, you are the biggest shareholder, you must be also feeling the heat. I’m not denying that you are not feeling. But please, let us take some informed decision and accordingly we should work. And please get something from NSK Japan, because there is something in technology and design problem must be there. So let us reward us. We are long-term investor and we’ll keep — remain invested in the company. We have trust in you.

Harish Lakshman — Vice Chairman

Thank you.

Pankaj Prasoon — HNI Investor — Analyst

Thank you, sir.

Operator

Thank you. Our next question is from the line of K. Mohan, individual investor. Please go ahead.

K. Mohan — Individual Investor — Analyst

Good afternoon, sir. Can you hear me?

Harish Lakshman — Vice Chairman

Yes.

K. Mohan — Individual Investor — Analyst

Yeah. Good afternoon. I have been a long-term investor and a long-term player in the automotive market. To me, what is surprising is that INR564 crores represents, even if you take INR20,000 per car, we are talking about more than 300,000 cars which have had a problem with the warranty. [Indecipherable] so, is that somewhere close to mark or is it $0.5 million, $0.25 million? Any idea how much we are spending per car for replacement, is it INR30,000, INR20,000?

Harish Lakshman — Vice Chairman

Yeah. Just hold on one second. Yeah, so you are right. It’s in — approximately in the 300,000 vehicle range. And as I’ve shared in the past, as a percentage of the sales, it’s almost close to — for certain models — on certain models of Maruti, it is going higher, 10% to 11% of the total production.

K. Mohan — Individual Investor — Analyst

Yeah, so this has all happened in — hopefully, all this happen within six months, maybe a year. So they are talking of really roughly six months of Maruti sales which was impacted by this, it is a huge number.

Harish Lakshman — Vice Chairman

Two years of Maruti production.

K. Mohan — Individual Investor — Analyst

Two years of Maruti production. So two years of Maruti production, probably you’re right. 15%, 20% of Maruti’s production before the problem has come to light and then before we have taken corrective action. What is worrying me, two things. One is that we are domain [Phonetic] company, and therefore when we put out the product to the market, we do extensive trials, and we do extensive road tests etc. and say, okay, there is no problem, we put it in the market.

Now it has happened in the past, half a million cars, maybe 300,000 cars have been affected, but with the company with a turnover of INR7,000 crores, INR8,000 crores, all of the automotive, my worry is that if it passed to the chinks of billing company, what is the guarantee that something similar will not happen in any other company.

I’m sure nobody can give a guarantee, but some of the root cause has been found out and in time, this is a really serious — very threatening issue for our shareholder to realize that such a thing can bring about a collapse of the company and I don’t know whether we have discussed this with NSK, and what is their reaction to this. This is a large number, it’s not palatable. Anyway, this is my reaction and the shareholder and very grieved in pain. Thank you.

Harish Lakshman — Vice Chairman

Yeah, totally agreeing with you. I mean, it’s been very-very painful for us as well. This kind of a number, this is such a high-performing company and as you have observed and few others observed, the network has been almost completely eroded. Unfortunately, all the debit can only legally happen to this entity now, how this gets distributed as I said is complex. We are still working with our partner NSK.

K. Mohan — Individual Investor — Analyst

Can it happen again?

Harish Lakshman — Vice Chairman

So that’s a good question, so I mean, obviously, a lot of work goes on in product development and validation and I think you are from the industry, you know how robust the automotive systems that. But I think once every 10 years, something like this feeds through the system. And this has been a huge learning for us. So I think many improvement initiatives have been identified, both in the NDD process or design process as well as in manufacturing process to ensure these things don’t happen. So it’s been a huge learning, very extensive learning.

K. Mohan — Individual Investor — Analyst

But still is worrying me to say that after five years, you are still saying, yes, we’re trying to find out the root cause where it happened in design or manufacturing. That is not been found, they can say, we have not done that, if it is a design problem, you can do nothing about it, it is NSK to take the call. If it is a manufacturing problem, then it needs to be addressed at the manufacturing level, that we operate at the grassroots level or at the shop floor level. So therefore your statements saying that, we are still investigating, who is requesting how much, that is a worrying statement.

Harish Lakshman — Vice Chairman

Let me clarify. So first this root cause has been addressed. And there were multiple causes for it and the causes were a combination of design and manufacturing. So now that the causes have been identified, we are trying to attribute — we’re trying to transfer this financial numbers into which cause and what the mathematics work-out to. I think that is where the complexity is. But I can tell you that the issue has been addressed.

L. Ganesh — Chairman and Managing Director

No I have very high respect for the Rane management and I’ve known the management for close to 50 years. And I know that it’s a very large company, even in very large companies of equally good repute, there have been warranty issues, but not to this extent, to the extent of INR50 crore and INR100 crores. But in India, I am talking Indian companies, I am not talking of GE, General Motors and like that. But this is something which is very large and it a very-very sad thing that’s happened to you. I have very high for your professionalism and for your manufacturing standards, you are a domain company for five years or seven years around long. So anyway, I will conclude with my anguish and hope that like last year, I made a comment saying that I hope there would be some plot to identify some write-back of the provisions space, obviously I was very optimistic, but this year you’re saying that there will be no further provisions. I hope that that is the final nail in the coffin of warranty issue. Thank you.

K. Mohan — Individual Investor — Analyst

Thank you.

Operator

Thank you. Our next question is from the line of Omkar Deshpande from Axis Finance. Please go-ahead.

Omkar Deshpande — Axis Finance — Analyst

Hello, can you hear me?

Operator

Yes sir, please go ahead.

Omkar Deshpande — Axis Finance — Analyst

I just wanted to ask two things. One is that, when we are saying that we are going for an capex of INR1,000 crores, any idea of what the split of equity to debt for this?

Harish Lakshman — Vice Chairman

It’s very difficult to answer that question, because the capex get spent at the individual entity. And some entities, some companies have zero-debt. So there is — they are through internal accruals. Some there is that so it will be a combination. Difficult to give a single answer. I don’t have the numbers, because it is at an entity level.

Omkar Deshpande — Axis Finance — Analyst

Okay. And my second thing was, there has also been an impairment of investments in [Indecipherable], so would that continue further years also or like this was one of the last pieces for that impact. One, because it has been going on for Q3 as well?

Harish Lakshman — Vice Chairman

Yeah, so. I mean as of now this is the impairment value that was arrived that. I think we will be carrying costs now is only about INR9 crores in the Rane Holdings book. So we are still reviewing the business and we will take a decision during the course of this year.

Omkar Deshpande — Axis Finance — Analyst

Okay, thank you. That’s all from my side.

Operator

Thank you. Our next question is from the line of Rajakumar Vaidyanathan, Individual Investor. Please go ahead.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Yeah, thanks you. Just one question. On the Rane Madras standalone, I just wanted to know with the sale of this U.S. subsidy, will the standalone numbers whatever you reported that will kind of remain steady-state or will there be any cost that will come from the U.S. because I think in one of the previous calls you mentioned that you are leveraging the U.S. entity on sales-related work?

Harish Lakshman — Vice Chairman

I’m not clear on your question, are you asking the impact it will have on the standalone post the transaction, is that what you’re asking?

Raja Kumar Vaidyanathan — Individual Investor — Analyst

No-no, no, I’m asking are there any costs that will flow from U.S. to Rane Madras standalone because now that the subsidy will be sold-out, because you would need some portion, some people to obtain U.S. to support the Rane Madras operations, right?

Harish Lakshman — Vice Chairman

I’m not able to understand your question. [Speech Overlap]

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Because they are — I think in one of the previous calls you mentioned that you are getting the lead — sales leads, everything for the domestic operations of Rane Madras to the U.S. subsidiaries in the past.

Harish Lakshman — Vice Chairman

Yeah, that is separate, that is for the rest of the Indian businesses. Those salespeople who are sitting in the U.S. and Europe, they work to grow the Indian business, not the U.S. casting business.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

So those costs like sitting in Rane Madras standalone numbers or is it sitting in the U.S. subsidiary?

Harish Lakshman — Vice Chairman

Costs are actually shared. It is actually sitting in Rane Holdings. But equally, I mean, not equally, which is proportionately shared by Rane Madras, Rane Engine Valve, Rane Brake Linings.

Raja Kumar Vaidyanathan — Individual Investor — Analyst

Sir, actually my question is that whatever the standalone numbers that steady-state we can leave that, that would be the kind of numbers to go-forward, right. There will not be any further dilution in the numbers.

Harish Lakshman — Vice Chairman

Yeah. I mean other than the impact of the U.S. investment, obviously, you can see that we impact INR220 crores that pick the standalone. So similarly, there could be some numbers like that. But the operating margin, there is no change.

Operator

Thank you. We move to the next question. Our next question is from the line of Viraj Mehta from Equirus PMS. Please go ahead.

Viraj Mehta — Equirus PMS — Analyst

Sir this last couple of questions. Sir, on the INR500 crore capex that you said for the safety [Technical Issues] or what is the kind of revenue you think you can do.

Harish Lakshman — Vice Chairman

Sir, sorry, can you repeat?

Viraj Mehta — Equirus PMS — Analyst

For the inflation capex you told about INR500 crore capex over three years. Once that is done, what is the max revenue you can do from that capacity?

Harish Lakshman — Vice Chairman

So Insulator, it’s very difficult to link into revenue because insulator actually is a localized registered under PLI scheme. So there is not necessarily the topline will grow as a result of insulation but the margin will improve. But having said that, the occupancy of the business is going to have a very healthy growth rate because of the continued export growth for air bags, as well as the legislation coming in India. It will be a double-digit, 13%, 14% kind of year-on-year growth.

Viraj Mehta — Equirus PMS — Analyst

Okay. And sir, for the INR500 crore capex and for INR1,000 crore capex, is there an IRR number or an ROCE number that we work with, because when we put out such a large number of capex?

Harish Lakshman — Vice Chairman

Yeah. So, the IRR, definitely, we look at it for each investment we make. Our investments are generally linked to a particular businesses project, a particular vehicle platform, etc., and depends on the customer, whether it’s an export business, domestic business, various criteria are used. But yeah, obviously we look for a very healthy IRR return and overall you know we try to achieve at least a 20% return on capital employed in all our businesses.

Viraj Mehta — Equirus PMS — Analyst

Right. And sir, just last one thing on dividend. At an RHL level, as an RHL in Western, is there a dividend, obviously we did not give dividend two years back, last year we did INR12, this year we announced INR17. Is there a policy that we follow that how much dividend we get from the subsidiaries and from the JVs or what’s the mindset or thought process you have as far as distribution of capital is concerned?

Harish Lakshman — Vice Chairman

So, you know, obviously we can’t prefix numbers because it depends on how the business is performing.

Viraj Mehta — Equirus PMS — Analyst

Yeah. As a percentage or something or depends on capex, etc.

Harish Lakshman — Vice Chairman

Correct. So if you — if it is an ideal world in Rane Holdings, if we can declare 50% dividend, we would like to do that every year. But it again depends on the business conditions, the payout. 50% is the payout.

Viraj Mehta — Equirus PMS — Analyst

50% payout of the consolidated trough?

Harish Lakshman — Vice Chairman

Of Rane Holding.

Viraj Mehta — Equirus PMS — Analyst

Rane Holding or standalone?

Harish Lakshman — Vice Chairman

Standalone.

Operator

Thank you. We move to the next question. Our next question is from the line of VP Rajesh from Banyan Capital Advisors. Please go ahead.

VP Rajesh — Banyan Capital Advisors — Analyst

Thanks for the opportunity. I’m still new to the company. So I was just trying to understand that, as far as the positioning for the NSK warranty is concerned, that is about INR500 crore-plus. And then we have sort of people have right of INR300 crores for the bicuspid business in the U.S.. Is that correct?

Harish Lakshman — Vice Chairman

Yeah. Over the last many years, the NSK INR560 crores is over the last four years.

VP Rajesh — Banyan Capital Advisors — Analyst

And my second question was that regarding the structure of the growth here, is there any thought that these types of external issues etc., so all which will simplify this various entities we have and — I’ve been having multiple entities consolidate everything into one at some point in time?

Harish Lakshman — Vice Chairman

As I said, even earlier today in the call, we keep reviewing this. And previously the subject we add and then we have an update, we’ll keep you posted. Okay, thank you.

Operator

Thank you. That was the last question of our question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Diwakar Pingle — Partner, Strategy & Transactions and Head of Investor Relations Advisory at Ernst & Young LLP

Thank you very much ladies and gentlemen and we hope we were able to answer all your questions and some clarity on the warranty to the best of our ability. But we are really hoping that this will be the end of it and we don’t have address this in the future and we are looking-forward to a good year in 2023/2024. Thank you.

Operator

[Operator Closing Remarks]