Sharda Motor Industries Ltd (SHARDAMOTR) Q2 FY23 Earnings Concall Transcript

Sharda Motor Industries Ltd (NSE:SHARDAMOTR) Q2 FY23 Earnings Concall dated Nov. 16, 2022

Corporate Participants:

Puru Aggarwal — President and Group Chief Financial Officer

Aashim Relan — Chief Executive Officer

Analysts:

Ankur Shah — Quasar Capital — Analyst

Karthi Keyan — Suyash Advisors — Analyst

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Chirag Shah — Nuvama — Analyst

Amar Kant Gaur — PhillipCapital — Analyst

Ronak Sarda — Systematix Group — Analyst

Apurva Shah — PhillipCapital Private Client Group — Analyst

Nirvana Langham — Private Investor — Analyst

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Sonaal Kohli — Bowhead — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Sharda Motor Industries Limited Q2 FY ’23 Earnings Conference Call.

This conference call may contain forward-looking statements about the Company, which are based on the beliefs, opinions and expectations of the Company as on date of this call. These statements are not guarantees of future performance, and involve risks and uncertainties that are difficult to predict. [Operator Instructions]

I now hand the conference over to Mr. Puru Aggarwal, President and Group CFO from Sharda Motor Industries Limited. Thank you, and over to you, sir.

Puru Aggarwal — President and Group Chief Financial Officer

Thank you. Good evening to all. A very warm welcome to all the participants on this call. I hope you had a safe and happy Diwali, and wish that the New York brings prosperity into everybody’s life.

This evening, I’m joined by Mr. Aashim Relan, our CEO, and our Investor Relations Advisor SGA.

I’m hoping that you have seen our results and have received our investors presentation by now. The presentation is also uploaded on stock exchange as well as Company’s website for reference.

Before discussing the Company’s performance for the quarter, I would like to shed some light on the industry. The recent festive season has brought some cheer to the auto industry, which is touted as one of the best festive period in the last few years. Also with commodity prices moderating and other issues like semiconductor shortage and supply chain disruption easing out, the auto industry is looking forward to better performance in the near to mid term. This is also substantiated with the growth outlook of the OEMs and new model launches planned in near future.

On the segment front, we are seeing sustained uptrend in CV volume due to which — it’s a good sign as it reflects the overall economic buoyancy [Phonetic]. The volumes for YTD FY ’23, that is April to October period, has been positive with Y-o-Y growth of 53% in CV. PV volumes also registered a strong growth of 37% during the same period. Another key segment tractors registered a 11% growth, largely driven by festive demand and recent government announcement for higher realization for rabi crops. The two-wheeler and three-wheeler also registered for the period 14% and 19%, respectively. In fact, the data suggests that all the segments in EV that is two-wheelers, three-wheeler, passenger car and bus has surpassed the FY ’22 sales in April to August period of the current financial year. I’ve shared my thoughts on the industry.

I will now move to operation and financial performance of the Company. We registered a revenue of INR698 crores, which is a growth of 19% as compared to Q2 FY ’22 and 11% on a sequential basis.

Our EBITDA for the quarter is INR76 crores as compared to INR61 crores in Q2 FY ’22 and Q1 FY ’23. It grew in excess of 20% on Y-o-Y basis as well as on Q-o-Q basis. We improved our EBITDA margin to 10.8% in Q2 FY ’23 as compared to 9.7% in Q1 FY ’23, whereas our margin on Y-o-Y basis improved by approximately 40 basis points as compared to Q2 FY ’22.

Our PBT for the quarter was INR74 crores compared to Q2 FY ’22. After accounting for share in profit in JV and Associates, the PBT grew by 29% and 22% as compared to Q2 FY ’22 and Q1 ’23, respectively.

The PAT for the Q2 ’23 was INR55 crores, which is a growth of 31% and 21% as compared to Q2 FY ’22 and Q1 FY ’23, respectively.

On the first half year basis, our revenue, EBITDA and PAT grew by 25%, 35% and 51% to INR1,326 crores, INR130 crores and INR100 crores, respectively. The EBITDA margin grew by 70 basis points to 10.3% as compared to 9.6% in H1 FY ’22.

On the balance sheet front, we continue to maintain healthy liquidity position and cash surplus as on September 30, 2022.

With this, we can open the floor for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Ankur Shah from Quasar Capital. Please go ahead.

Ankur Shah — Quasar Capital — Analyst

Yeah. Hi, sir. Congrats for the good set of numbers. Sir, couple of questions. First is on the business side. Sir, from next year onwards, the RDE norms will kick-in, right? Is that true?

Aashim Relan — Chief Executive Officer

Yeah, hi. This is Aashim this side. Good evening. Yeah, RDE norms will kick-in from April 1, 2023.

Ankur Shah — Quasar Capital — Analyst

Okay. And in the RDE norms, the diesel engine will have 25% increase in content and petrol will have 10%. Is that right?

Aashim Relan — Chief Executive Officer

Yes.

Ankur Shah — Quasar Capital — Analyst

Okay. So, has the inquiry and the order formation started or will that take time?

Aashim Relan — Chief Executive Officer

Yeah. All our orders are already nominated and now we have already underway doing capex, etc., and we really be starting production probably in the end of Q4 of this financial year for RDE norm products.

Ankur Shah — Quasar Capital — Analyst

Okay. And from the viewpoint of RDE and TREM V, what will be the total capex outlay? Is there a figure which you all have plan for it?

Aashim Relan — Chief Executive Officer

It’s all incremental in nature, so we expect our capex run rate to be at historic levels. So there wouldn’t be no substantial increase for this [Indecipherable]. But of course, just as we’ve gone historically, we would have a similar trajectory.

Ankur Shah — Quasar Capital — Analyst

So, in the range of INR50 crores, INR70 crores per year?

Aashim Relan — Chief Executive Officer

Not to give a specific number, but yeah, about that range, you can say.

Ankur Shah — Quasar Capital — Analyst

Okay. So, this actually brings me to the question of capital allocation. See considering the cash generation which we have been doing, it has been spectacular. And at the same time, the level of capex intensity which our business requires, and the cash balance which we have, and the kind of valuations at which the — even the Company trades at, sir, aren’t considering a serious buyback option? Because your cash position is now almost 20% of the market cap.

Aashim Relan — Chief Executive Officer

Yeah. So, we are definitely looking to utilize the cash surplus in the best possible manner. Our first preference is utilizing the cash for an M&A opportunity in powertrain agnostic products, and always there is few deals that we are looking at, but we don’t have a fixed timeline and we want to be very careful with the valuations plus deal that we go ahead. But of course, we also want to return back the cash in a friendly manner, tax-friendly manner and all kinds of options we are looking at in terms of how to do that apart from M&A activity as well.

Ankur Shah — Quasar Capital — Analyst

Okay, great. Thank you so much.

Aashim Relan — Chief Executive Officer

Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Karthi Keyan from Suyash Advisors. Please go ahead.

Karthi Keyan — Suyash Advisors — Analyst

Yeah, thanks for the opportunity. Good afternoon, Aashim. Couple of questions. One, can you talk about the outlook for the next, second half that is, in terms of the momentum on the standalone side and also some thoughts on what’s happening at the joint venture level? I’m talking about the CV joint venture that you have.

Aashim Relan — Chief Executive Officer

Sure. So, on the H2 side, we maintain to have good order book. And if our customers do well, we will do well as well in H2, but of course, things are dynamic given the global environment, and all what we read in the news. But we will, in general, as a trend, it looks good.

Coming to the joint venture, in specific, you are referring to the Eberspaecher joint venture, or…

Karthi Keyan — Suyash Advisors — Analyst

Yes. I meant the Eberspaecher joint venture, because I see again another quarter of this INR50 lakhs [Phonetic], so I’m assuming we’re still in that breakeven revenue level of maybe INR45 crores, INR50 crores. So, just trying to understand.

Aashim Relan — Chief Executive Officer

Yeah. So, we are in — full focus right now for that joint venture is stabilization and bring it to profitability. So, I think we’ve come a very good rate this financial year to at least come to green, right, and that showcased I think in last quarter and this quarter. But some issues remain there in terms of the engines that they are selling to are not performing as well as the market is performing. So, a lot of business development activity and other initiatives are underway also to further improve the performance. But I think full focus is to stabilize and really maintain and probably increase the profitability.

Karthi Keyan — Suyash Advisors — Analyst

What would drive the growth in that part of the business? I mean, you’ve referred to the model for quite often, so I’m just wondering whether it’s such a prolonged problem.

Aashim Relan — Chief Executive Officer

Yeah. So, these are newer engines, which we are supplying for, and as the Indian market has borne, they’re still preferring the older engines, so we are working towards initiatives on how these products can be cross used between old and new as well as some other opportunities that have opened up in the market. But just given first phase, the full attention, is on stabilizing and really maintaining a green position, and, of course, parallelly looking at these initiatives on how we can also improve sales performance.

Karthi Keyan — Suyash Advisors — Analyst

Sure. And any update on the Eberspaecher export initiatives either on the component side or any other Initiatives on that side?

Aashim Relan — Chief Executive Officer

Right now there is no material uptick, because full focus is to bring this part to success. And I think already a lot of good work has been done, but we want to remain focused on really stabilizing before we look at the next [Indecipherable].

Karthi Keyan — Suyash Advisors — Analyst

Just one quick question on the H2 performance that you spoke about. Can you sustain the growth rate that you achieved in the first half?

Aashim Relan — Chief Executive Officer

Sorry, I missed your…

Karthi Keyan — Suyash Advisors — Analyst

I was asking you on the standalone side, can you sustain the growth that you achieved in the first half?

Aashim Relan — Chief Executive Officer

Yeah. So, totally depend on our customers. If our customers’ numbers remain good…

Karthi Keyan — Suyash Advisors — Analyst

Based on schedule?

Aashim Relan — Chief Executive Officer

With the schedules which we have only one to two months from right, but in general, the trend looks good. But it is totally contingent on market and macro-environment and all our customers depend in general right. So, we are totally linked to how the customers will do, but in general, it looks good.

Karthi Keyan — Suyash Advisors — Analyst

Okay. Sure, thanks. Let me get back in queue. Thank you so much.

Aashim Relan — Chief Executive Officer

Sure.

Operator

Thank you. [Operator Instructions] The next question is from the line of Tarun Sancheti from Sancheti Nidhi Limited. Please go ahead.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Hi, good evening management team. Am I audible?

Aashim Relan — Chief Executive Officer

Yes, you’re audible. Good evening.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Okay. My question is very specific to your MHCV segment. So, in this segment from a capability perspective, we have partnered with one of the very strong player, which is Eberspaecher. However, in last quarter, our market share used to be close to 10% to 15%. In that context, I got two questions. One is that based on previous interaction, management has indicated that we are working on one-one engine platform for both of the large CV OEMs. The question I would have one part is that what is the percentage of CV market share those engine platforms account for?

Aashim Relan — Chief Executive Officer

Sure. That is dynamic, and because the MHCV segment is so concentrated in terms of the engine. So, I think maybe just five or six engines drive 90% of the market, right? So, it’s very difficult. I don’t have the latest quarterly numbers for how the engine performance has come, but we’ll get back to you on the specific share. But, it’s quite dynamic in the MHCV segment when it comes to market share, just because of the concentration of value that is there in this couple of engines in the entire market.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Okay. So, what I understand is that it’s kind of a very concentrated and then there is a long trial. So, the one-one engine that we are working on is that part of those five to six Indian models that you alluded about?

Aashim Relan — Chief Executive Officer

Yeah. They are the newer formation of those — the new-generation of the six engines, right? So, there is always some of the customers who are working on new-generation engine, so we are on the new-generation engines within those six.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

So, is it right to infer that being a new engine platform, it may take some bit of a time and even within being part of that 90% bucket, it may not be contributing substantially to the market share? Is that the way to read it?

Aashim Relan — Chief Executive Officer

I think it is dependent on two things. One, how the new engines perform in the medium-term, and that’s totally based on market response and few other factors. And probably second is how we can standardize the cross engines and how we can modularize and how well we do on that, right? And these are initiatives, but they are medium-term initiatives, so hard to put a timeline. But, yeah, these would be the two factors when we are talking about those engines in specific, but once we modularize, the cross application really increases.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

And follow-up to that would be, I think, in the last meeting you mentioned about a new RFP opportunity coming up in calendar year ’23. So, if we have a visibility at this point of time, how big the market share would be for those engine platform, wherein you have spoken about a possible RFP?

Aashim Relan — Chief Executive Officer

Yeah. So, as of now, there is no clear visibility as such, but if we win one engine also that could lead to a substantial increase because of the concentration of value over few engines. But there is no visibility, so I would not like to comment till we don’t have something concrete.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Sure. And just to clarify that and maybe I can put it this way, are those new RFPs part of that five to six engine that you spoke about in the previous answer?

Aashim Relan — Chief Executive Officer

Yeah, they are.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Okay. Great.

Aashim Relan — Chief Executive Officer

They are a mix of new generation and old regeneration, so that’s there — that as the years go and the market trends in MHCV gains [Phonetic], customers are looking at newer generation engines. But the response of older generation so far seems to be better, but there, of course, tweak that are happening in the market, so it’s market response, and that’s more towards the end customer, so we have limitation. But year, that strategy is definitely to look at standardization, cross-applications in this industry.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Sure. This was very helpful. Another question related to this JV itself is that, based on some of the public available information, what we understand is that Eberspaecher also have partnership in India for PV segment. Keeping that context in mind, our partnership on CV space is that exclusive one with Eberspaecher or is there a possibility wherein Eberspaecher may perhaps work with another Tier 2, Tier 3 vendor in the CV space itself?

Aashim Relan — Chief Executive Officer

Are you talking CV or PV? Commercial vehicle or passenger vehicle?

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Yeah. So, our partnership is on commercial vehicle space. And I’m giving a reference that even for that matter, in PV, they have partner with someone else. So, going parallel to that, is there a possibility that within the CV space itself, our partnership is exclusive one or is there a possibility that they may partner within the CV space with another vendor as well?

Aashim Relan — Chief Executive Officer

So, I think the previous partnership is some technical agreement or something which is maybe a decade or two decades kind of relationship, right? And that’s for the passenger vehicles space, ours is for commercial vehicle. And we are above the engine threshold and with some exceptions, we are exclusively working on that. But of course, it is based on segment, so passenger vehicle, both companies are free to do with other partner and that’s the old partnership they have. And in the case of passenger vehicles, we are standalone sufficient company and we have our own technology, so we play in the passenger vehicle and LCV segment as a standalone company, and we don’t require any technology [Phonetic].

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Sure. Final bit of question, and maybe I can jump back in the queue again. At least directionally, what is the future plan of the JV? And how long of an agreement Sharda have with Eberspaecher at present? Is there a term [Phonetic] cut-off take to that?

Aashim Relan — Chief Executive Officer

Sure. So, I think full focus is on stabilizing, right? So the joint venture because of the pandemic last two years did not make good result. So, our full focus right now to stabilize, bringing it to profitability, which we’ve been successful on, and we want to first finish that phase and then we want to move forward in terms of the next phase of the joint venture.

In terms of terms and conditions like this specific there is nothing material that we can share in terms of the annual or whatever, there’s nothing material like that.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Sure. Thank you very much, and all the very best.

Aashim Relan — Chief Executive Officer

Thank you so much. Thank you.

Operator

Thank you. The next question is from the line of Chirag Shah from Nuvama. Please go ahead.

Chirag Shah — Nuvama — Analyst

Yeah, thanks for the opportunity. Sir, first, I’ll continue with the Eberspaecher question actually. Just wanted to understand what is the key issue with the engines that we are working on? Is it the cost shake? Is it the performance? Because industry should be willing to accept the new-gen engine, right, or new-gen technology in that sense?

Aashim Relan — Chief Executive Officer

Sure. So that is something that the end-customer really has to articulate because that’s not our core competency on looking at engine response to the market, that’s for the truck and bus makers really to gain, but they are, of course, working on various initiatives to improve market response to new generation engine.

Chirag Shah — Nuvama — Analyst

And if you can indicate this refers to which tonnage category? Is it in the 2.5 ton to 3.5 ton category you are referring to or…?

Aashim Relan — Chief Executive Officer

I’m not aware of the tonnage that these go into and what my understanding is that there is cross application between tonnage, right? So, we — this being an engine-focused company, we look at the literage and I think these are like about above 4.5 liter engines.

Chirag Shah — Nuvama — Analyst

Above 4.5 liter engines, okay. Because it’s slightly — and who supplies them for the older version which you are supplying for the newer engines? Are you still — you are also a supplier for the older engines or there is somebody else?

Aashim Relan — Chief Executive Officer

Competitors one [Phonetic]. We are suppliers for the newer ones.

Chirag Shah — Nuvama — Analyst

Okay. Sir, second question is again if we just step back on Eberspaecher JV, it seems the time we have done the JV, it appears to be lagging versus what was the initial expectations or vision that was set aside. And I’m including the potential outsourcing opportunity also in this. What are the key reasons? And how are you addressing the challenges that gives you confidence that from here on next two year things will improve drastically?

Aashim Relan — Chief Executive Officer

Yeah. So, I think you be joint venture was done in 2019 and really it’s been a pandemic joint venture in terms of that COVID came one year after. So, I think April 1, 2020 was the launch of BS-VI and the products that we had, and we’ve really suffered due to the pandemic and the CV market was of course hit very hard as well as travel restrictions, etc. So, our full focus first is again to just be on phase one right now. I think stabilization is very important for us and we are laser-focused on that, and we first want to go ahead with phase one and then only even discuss phase two at this juncture, right?

Chirag Shah — Nuvama — Analyst

Okay. Because CV volumes are kind of almost there, 2019 levels, that is like touching distance, but our profitability is still not to — it’s not moving up the curve. That was — that’s the reason I was asking. Was it driving because of higher import content or anything else?

Aashim Relan — Chief Executive Officer

Just this, what I just mentioned, regarding the new and older engines, right? And then because the focus being a new company and the right after the pandemic came in, so definitely it’s challenging to manage a new company in the pandemic, so that’s why stabilization of very important, and we will be successful on the stabilization if you look from losses last year, it’s at least now in green, right? I think it’s a great first step, and we want to continue on the stabilization effort because the foundation has to be strong [Indecipherable].

Chirag Shah — Nuvama — Analyst

So, the second question was on the RDE norms, you indicated 25% increase in diesel and 10% in petrol. I presume the combination between own manufacturing and bought-out will stay the way it is or it is going to see a change?

Aashim Relan — Chief Executive Officer

There is no change as such apart from just what the norms have additional content that’s coming, rest there’s no big change. [Speech Overlap]

Chirag Shah — Nuvama — Analyst

You will be able to also enjoy markup on this increase, right?

Aashim Relan — Chief Executive Officer

Sorry.

Chirag Shah — Nuvama — Analyst

You will be able to enjoy your markup on this cost escalation that OEMs will have? So, if 25% is the increase in diesel content and your average margin is also 8%, 9% or 10%, you will be able to make those margins on it? Or is it only initial phase this will be just a cost pass-through and mark-up may not happen given the jump that is being seen?

Aashim Relan — Chief Executive Officer

Okay. I’m not clearly able to understand, but yeah it is just the general, so we expect to have similar margins in the new products also.

Chirag Shah — Nuvama — Analyst

Okay. Yeah. So that was the question. [Speech Overlap] My worry was that 100 becoming 125, you may not be able to mark-up on the incremental 125, if the reported margins would go down. That is not the risk, that’s not the discussion [Phonetic]?

Aashim Relan — Chief Executive Officer

Yeah, we are expecting similar profile.

Chirag Shah — Nuvama — Analyst

Similar profile. Sir, any thought process on two potential opportunities, one which is exports, how are you looking at it especially on PV side or on tractor side? Because we have — is there an opportunity available? First — that’s the first question. And if yes, are you looking at it? And how are you looking at it?

Aashim Relan — Chief Executive Officer

Sure. So, there’s a really big opportunity available when we look at the export market. And we are looking at two segments, right? One is in the off-road or small-engine segment where we can supply exhaust systems. We already do little bit to one or two customers in America, but we really need to double down on that and add customers on the small engine exhaust system side, which is an exportable product, right?

And second is on the sub-component, right? So, one very good thing about our company is that we are backward integrated. And now one or two components which are proprietary in nature also we have just initiated now actually that the production is starting. We have started manufacturing in-house also and they also have a huge export market.

And we are working towards building an export hub, and definitely as things materialize, we will keep sharing. At this juncture, we do have good amount of RFQs, etc. And as we get success in the market, we would keep sharing.

Chirag Shah — Nuvama — Analyst

So, how should we look at the timeframe for this? Because generally it’s a three to five-year cycle before you are able to make an inroad? Is that right to look at it or it could be shorter time-frames and then you get the initial trial order and then second round of order comes to? So, it’s a — is this the understanding right that this could be a lengthy process from here on even if we take today’s base zero?

Aashim Relan — Chief Executive Officer

Sure. So, we are hoping for a shorter timeframe, and the reason for that is few. One on the small engine side, the customers’ profile is different. It’s not big OEMs. And there, cycle of business development is traditionally shorter. On the sub-component side also the customers are not the big OEMs. The target customers, they are Tier 1. And in the case of Tier 1 also, the business development cycle is shorter. And then third, there is a mega-trend of China Plus One, where global supply chain are really looking for an alternative to China, and they are also a little bit enthusiastic. And, of course, India and few other countries play as a very good alternative. So that mega trend also may help us shorten the cycle. But again, we are new to the export market. As of now, about 4%, 5% of our revenues is only coming from exports. So, we will have to wait and see, but we expect very good results and a shorter timeframe than what you have…

Chirag Shah — Nuvama — Analyst

And sir just one clarification. So, are you only focusing on US as of now or even Europe is under consideration? Because given that you are starting…

Aashim Relan — Chief Executive Officer

US and Europe.

Chirag Shah — Nuvama — Analyst

Yeah, I just want to — okay, great. This is helpful. Sir, lastly if I can squeeze in one more on this Kinetic Green. Any update on that? And on the EV side in general, how are you looking at? Anything to share about it?

Aashim Relan — Chief Executive Officer

Sure. So, on the kinetic side, one good news to share like we have our first prototype ready, and the first prototypes are under testing. We of course want to be 200% sure of the designs and test them extensively on the field before the manufacturing process, given in the industry we got the various things. And in addition to that now the government has shared the AIS Amendment 3 and we want these batteries to be compliant to that. So, within that the prototypes are being testing. And if things go well, some gradual very minimal production should begin end of Q3, Q4 based on how the testing performance goes. So that is on the side of it kinetic JV.

In the side of electric vehicles, our strategy right now is to develop powertrain agnostic parts, right, and to play in the EV field more on the two-wheeler and three-wheeler side, and try to utilize the cross experience that we gained from this kinetic JV and look for other businesses. But again, EV side, we want to first focus on phase one, which are these battery assemblies for the JV which are under testing. And on the powertrain agnostic front, there is definitely a lot of discussions are going on, on other potential products like we can add within our same customer-base as well as looking to revamp some of our existing verticals, like the suspension vertical with possible technology tie-ups, etc. But as things get more material, we will keep sharing.

Chirag Shah — Nuvama — Analyst

And if I can ask just on kinetic energy itself, Kinetic Green itself, that how are they pursuing the opportunity for themselves? Is it — are they looking to become a most effective producer across OEM platform or it is only for in-house? Because this is an evolving space and lot of things are happening over there. So, is there anything that you could share on how they’re thinking?

Aashim Relan — Chief Executive Officer

Sure. So, EV and especially two-wheeler, three-wheeler segment, it’s ever-evolving, right, so the change is almost every day happening. And I think kinetic is positioning itself to really play in two-wheeler and three-wheeler market as well. And in terms of specific strategy of that, that is something that I would not be the right person to share, but I think they really excited about this segment and they are enjoying good growth also what we see in the market that they are doing very well. In the last few months, they’ve really done well.

Chirag Shah — Nuvama — Analyst

Okay, great. Thank you very much, and all the best.

Aashim Relan — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Amar Kant Gaur from PhillipCapital. Please go ahead. Mr. Amar Kant Gaur, your line is in talk mode. Please go ahead with your question.

Amar Kant Gaur — PhillipCapital — Analyst

Hello?

Operator

Yes, sir. Please go ahead with your question. Your line is in talk.

Amar Kant Gaur — PhillipCapital — Analyst

So, my question is on RDE norms. So, in terms of its application, is it based on the production of vehicles by 1st April or on the retail sales? Do you have any clarity on that?

Aashim Relan — Chief Executive Officer

There still remains to be ambiguity there. And I think the customers are seeking clarity also. There is some ambiguity whether it’d be retail or production, and we are working on both scenarios. Till there is no clarity by the government.

Amar Kant Gaur — PhillipCapital — Analyst

Okay. And sir, on the RDE itself, could you help us with what is the potential change and what would be the quantum of cost increases for that for the vehicles?

Aashim Relan — Chief Executive Officer

Cost increase for the entire vehicle, so that’s something that I don’t have the data for. I have the data only for our product and our side of it. I’m not very sure about what will be the overall impact on a vehicle. And for our side, diesel we are expecting about 25% increase and other content, and for gasoline, 10%.

Amar Kant Gaur — PhillipCapital — Analyst

Okay. So, would that be in the range of INR15,000, INR20,000, or more than that, or — any ballpark figure if you can give?

Aashim Relan — Chief Executive Officer

No, just very broadly that this is the percentage, because we don’t share the content per car anyway, so we’re just giving the guidance percentage. But for car makers themselves, I don’t know. That is something that is not our core competence, and the OEMs were better for that.

Amar Kant Gaur — PhillipCapital — Analyst

Understood. Because — I was asking this because different OEMs are indicating number that are quite different. Some are in the range of mid [Technical Issues] Like INR10 and INR1,000, so I just wanted to get a better understanding of that.

Aashim Relan — Chief Executive Officer

Sure. That’s something that — there are other products also and the other changes that they need to make that’s why they will have a much better view on the overall picture.

Amar Kant Gaur — PhillipCapital — Analyst

Understood. That’s it from me. Thank you for taking my questions. Thank you, sir. All the best.

Aashim Relan — Chief Executive Officer

Thank you so much.

Operator

Thank you. The next question is from the line of Ronak Sarda from Systematix Group. Please go ahead.

Ronak Sarda — Systematix Group — Analyst

Yeah, hi. Thanks for the opportunity. Sir, first question, so assuming, let’s say, the industry volumes or the production volumes remain — in FY ’23 remain as same as ’22, we should see a 10% to 15% kind of revenue growth, purely driven by content. Is that way, I mean, we should see this?

Aashim Relan — Chief Executive Officer

Yeah. So, if you can just repeat your question? Do you mean FY ’24 may be right or calendar year ’23. Can you just…

Ronak Sarda — Systematix Group — Analyst

Yeah, right FY ’24, yeah.

Aashim Relan — Chief Executive Officer

Sure, yeah. So, if all things equal, yes, but it is not so easy to measure our growth against traditional industry growth when we look at PV and CV, because we are engine-linked, but yes, if the same number of engines at the same mix get produced, then it will be based on the gasoline and diesel mix, 10% and 25%, all things equal.

Ronak Sarda — Systematix Group — Analyst

Got it. And is there — I mean is there a big part which product mix also plays when we look at our products? I mean, SUV proportionate increasing in a big way. Does that also have a very large part in how our topline growth has been for the last two years?

Aashim Relan — Chief Executive Officer

So, our products are not so much linked to what we see in the market in terms of SUVs or pass [Phonetic] cars and things like that. Our products are really engine-linked, right? And then it’s a little bit technical, but different customers have different strategies to meet the norms, right, then it’s choices on technology, etc. So that does have a mixed play in it, and it’s very technical to go through the varied strategies that customers can take to meet these requirements. So that does have a mixed play, but not what we see on the market like an SUV or pas-car or whatever segment, so it’s not segmented impact.

Ronak Sarda — Systematix Group — Analyst

Okay. Got it. Thanks for that. The other question was on the technical partnership with Bestop for manufacturing of roofs systems. So, if you can just help us understand what are the plans there? I mean sunroofs are becoming a large part of the industry now, and like we understand still a lot of them are still being imported or maybe coming in as the [Indecipherable]. So, maybe if you can just help us understand maybe what are we doing over the next two years?

Aashim Relan — Chief Executive Officer

Sure. So, Bestop is a company that does convertible canopies and canopy — soft-top canopy. So, it’s not a company that does sunroofs. And the strategy with Bestop is already good work has been done on one model in India. And we are looking at other applications of these kind of convertible canopies and soft-top canopies in the Indian market. But this is a niche segment. This is not like sunroof or…

Ronak Sarda — Systematix Group — Analyst

So, this won’t have any application worthy of sunroof system?

Aashim Relan — Chief Executive Officer

Not this one. No.

Ronak Sarda — Systematix Group — Analyst

Okay. Got it. And finally on the battery manufacturing, JV with Kinetic, so — I mean, is it fair to understand maybe in the next three to five years, we intend to be 50% captive for Kinetic Green and 50% would be other OEMs, or this would majority — majorly be a captive production for Kinetic?

Aashim Relan — Chief Executive Officer

Yeah. So, the intention of the joint venture is definitely to build products for beyond Kinetic, the EV space is ever-evolving, right, and that’s why we have to take it step-by-step. And the first step is to get going on at least some volumes and start really put in these batteries on the field. And then, once there’s stabilization, then we’ll go to step two, and just because the space is so fast evolving, right? But the intention is to look at other customers also and not just Kinetic. So, the JV was signed in that intention.

Ronak Sarda — Systematix Group — Analyst

Got it. So, when you say phase one, does that include BMS capabilities as well? So, are we designing it and plan to have a manufacturing line for that as well, or that would come in phase two?

Aashim Relan — Chief Executive Officer

Sure. For now, we want to be very asset-light, right? So, it is to assemble everything together and buying the BMS and buying the cells, etc. And just overall designing and the assembly is where step one is.

Ronak Sarda — Systematix Group — Analyst

Got it. Okay. Great. And you touched upon the export part, right? So, is there a market size? What — I mean in the smaller engines, what you’re targeting, how large is that market in exports, any numbers which you can share? And in terms of capabilities, I mean these units would be largely similar to what we manufactured in India or — I mean given the emission norms are almost similar now in India and globally, or does that need much higher content or value addition?

Aashim Relan — Chief Executive Officer

Sure. So, on the small engine exhaust side, very good news and the big asset that we have is that we have all the intellectual property, design, R&D available to supply to the global market, right? We are one off the smallest companies in the world with such technology. So, we do have the capability to really now go towards the whole world and supply this product, right, because the norms are largely same in America, Europe, everywhere, they’re very similar to Indian norms. And we want to — as you know just dabbling in the international markets, want to focus on this segment which is exportable, right? And we already exports. So if you see about 4%, 5% does come from this segment right now and we want to double down or triple on this segment itself.

And in terms of market size, it’s exponential, right? It’s just that — it’s — right now the Indian market is a very small percentage from a value perspective of the overall market. So, the addressable market is literally exponential, and even a small percentage or few percentage that we can take will really support our growth journey. But we want to again go step-by-step, and the first step is to start building more customers on the small engine front.

Now coming to the component exports, as we backward integrated, we do already make a lot of these components in-house, but we do it for internal consumption right now for our internal plants, but now we want to utilize this core competency and utilize it for the export market actually. And there also the market size is very large, because American and European market is of course much larger.

Ronak Sarda — Systematix Group — Analyst

Got it. So, just a follow-up here. When we say small engine, I mean, what do we — in terms of global partners, is that two liter engine or smaller than that or is it three liter engines? Because a lot of market is now getting consolidated in that two liter engine markets. So is that what we are talking about or even smaller than that?

Aashim Relan — Chief Executive Officer

Yeah. So, I don’t have literage available with me, but just to give you a flavor of the segments it is the small tractors, generators, construction equipment and other cross usage of these engines, right? So there is no threshold per se as the literage or the horsepower, but more on the exportable nature of the product, right? So, some are more compact than others in terms of that configuration. But just to give a flavor, these are the segments that we are looking at.

Ronak Sarda — Systematix Group — Analyst

So, passenger vehicles would be a long-time away in that sense, that they are not the addressable market right now?

Aashim Relan — Chief Executive Officer

Yes, passenger vehicles is something we are not looking directly, because the product is really big. The exhaust system, it can’t really be exported. But within that, we can look at subcomponent [Speech Overlap] exportable.

Ronak Sarda — Systematix Group — Analyst

Great. Okay. Great. Thanks for answering my questions. All the best.

Aashim Relan — Chief Executive Officer

Thank you so much. Thank you.

Operator

Thank you. The next question is from the line of Apurva from PhillipCapital Private Client Group. Please go ahead.

Apurva Shah — PhillipCapital Private Client Group — Analyst

Sir, thanks for the opportunity. Sir, can you just give the revenue breakup for the first half for CV, PV, and maybe — is there any contribution from the EVs?

Aashim Relan — Chief Executive Officer

Sorry, if you can just repeat your question? There was some background noise.

Apurva Shah — PhillipCapital Private Client Group — Analyst

I want revenue breakup for commercial vehicle, or maybe LCV, passenger vehicle, and as well as the EV, because the EV IV is already implemented. So, are we getting any traction over there?

Aashim Relan — Chief Executive Officer

I think you mean CEV IV, right?

Apurva Shah — PhillipCapital Private Client Group — Analyst

Yes, construction equipment vehicle.

Aashim Relan — Chief Executive Officer

Okay. So for — I don’t know, because CEV is kind of small, so I don’t have that number in front of me. But roughly for PV and CV, the breakup is that PV is approximately 44% and CV is 55%, 56% or 55% around that range. And CEV, I don’t have the break up.

Apurva Shah — PhillipCapital Private Client Group — Analyst

Okay. And sir, is there any change in the market, sir? And how do you measure markets? Because in the earlier convert system, what we used to sit, we have almost 30% market share in PV, and almost 15% to 20% in CV. So, is that — the number remains the same? And how to exactly measure your market, sir?

Aashim Relan — Chief Executive Officer

Sure. So, because the engines are cross used, right, between passenger vehicles and light commercial vehicles, so it is bit challenging to have exact market share numbers, but broadly our market share remains the same in both the segments. And when we say CV, it also includes LCV.

Apurva Shah — PhillipCapital Private Client Group — Analyst

Okay. And sir, anything you would like to highlight on the regulation part? Because CEV IV, even though it’s implemented, but the revenue is not flowing into our P&L. So, I think because of some leeway given by the government because few companies have already started that product, but still that is not reflecting on numbers. So when can we expect significant revenue contribution for us?

Aashim Relan — Chief Executive Officer

Sure. So, as I guided before, the TREM IV or CEV IV is always going to be marginal. TREM IV is not the big revenue side, but on the tractor segment, the government has now posted the date of Jan 1, 2023. So, it was originally meant to be October, now it’s January. So, I guess that’s why the marginal revenues have not started flowing in. And based on the new date, we’ll be able to get incremental revenue, the big TREM V. And TREM V as of now is scheduled for April 1, 2024. But given TREM IV has been delayed slightly, there could be a slight delay in TREM V, but no notification. But that would be the big bang where all the tractors will require a product. For TREM IV, it’s a niche. And maybe post January, the revenues incrementally could show from TREM IV.

Apurva Shah — PhillipCapital Private Client Group — Analyst

Okay. So sir, if I want to assess the revenue potential for FY ’24, so apart from this growth — organic growth in the industry and then because of RDE, there won’t be any material revenue coming from new regulations. Is it fair understanding?

Aashim Relan — Chief Executive Officer

The new regulations are RED, right, so that comes in April 1, 2023. And then, TREM IV — but BS’s RDE is of course more significant. TREM IV is not as — it’s not really a big segment at all, that would be Jan. 1, 2023. These are the two regulations coming in, in the next one year.

Apurva Shah — PhillipCapital Private Client Group — Analyst

Okay. And for this Kinetic Green JV, if everything goes as per the plan, so what can be the revenue? Maybe if you’re expecting anything in FY ’24, maybe some initial guidance?

Aashim Relan — Chief Executive Officer

No, initial guidance. We are going to go really step-by-step, and first is just to get going. Now it’s under testing, it’s under field testing. So, we want to go step-by-step. So, as of now, there is no guidance that we can give. But if all goes well, then we would have at least some revenue coming in from there.

Apurva Shah — PhillipCapital Private Client Group — Analyst

Okay, sir. Thank you very much, and all the best.

Aashim Relan — Chief Executive Officer

Sorry. One thing I also that the CPCB IV Plus also that will come July 1, 2023. That’s another regulation. It’s again a niche regulation for gensets, but it could have some marginal increase as well for our company.

Apurva Shah — PhillipCapital Private Client Group — Analyst

Okay, sir. Thank you so much, and all the best.

Aashim Relan — Chief Executive Officer

Thank you so much.

Operator

Thank you. The next question is from the line of Nirvana Langham [Phonetic], an individual investor. Please go ahead.

Nirvana Langham — Private Investor — Analyst

Hi. Am I audible?

Operator

Yes, sir.

Aashim Relan — Chief Executive Officer

Yes.

Nirvana Langham — Private Investor — Analyst

Yeah, hi. Good evening, Aashim and the management team. So, my question is regarding the BMS. So, you said that you’re taking it really slow. I wanted to understand on this technological expertise for batteries and BMS, where exactly is it coming from for the JV? So, is it through industry hiring or is it through existing knowledge base between Sharda and Kinetic? I mean, assembly might be less technically intensive, correct me if I’m wrong, but BMS would require some expertise right, so where is it exactly flowing into the JV from?

Aashim Relan — Chief Executive Officer

Sure. First just a clarification, we’re doing BMS selection right now, right, so we will select the kind of BMS and how it fits well into our design. We are not making BMS right now. But the overall competency, it’s a combination of three. So, Kinetic of course has a good competency given the experience of producing two-wheelers, three-wheelers and they have lot of partnerships that also bring that forward. Second is definitely we are doing industry hiring as part of the Kinetic team and a little bit in terms of the joint venture team. And then third, Sharda has a very good competency of managing complex products as well as buying in scale and program management, so the combination of all three is being utilized for bringing this product.

Nirvana Langham — Private Investor — Analyst

Okay. So, BMS design — I mean the JV was launched with a view of making BMS as well. So, like, I understand you’re taking it slow step-by-step, which is the right way, but in terms of the roadmap internally, when do you think, if everything goes right, will you be in a position to manufacture BMS? And do you already have the capability to do that in the JV? Or will it have to be built?

Aashim Relan — Chief Executive Officer

Sure. So, in terms of the timeline for making the BMS, we don’t have any guidance that we can give in terms of the timeline. In terms of capability, definitely partnership would be required. And there is partnership that we already have. And there are various conversations around this — the joint venture is having in terms of BMS partnerships. But again, there is nothing material, so full focus is on the first phase again to really get started with the assembly and no formal guidance right now in terms of BMS manufacturing, etc.

Nirvana Langham — Private Investor — Analyst

Okay. And as far as I understand in a two-wheeler, a battery along with BMS etc., contributes, say, around 40% of the sale value of the vehicle. Will you be in a position to help us understand the BMS system plus the assembly part of it, not the manufacturing of the cells etc., but the assembly and BMS, how much value addition would that be doing if the vehicle was 100%?

Aashim Relan — Chief Executive Officer

I don’t have that data with me, but I could seek that data and report back to you, but I don’t have this data off hand.

Nirvana Langham — Private Investor — Analyst

Okay. All right. I think last year in one of the calls you had mentioned that if everything goes well beyond the supply to Kinetic, you would look at EV sub-component supply, I mean, EV battery and BMS sub-components supply to others. Could you tell us what sub-components these are exactly?

Aashim Relan — Chief Executive Officer

Yeah. So, these are just parts which go within the assembly, and there are various small, small parts that go within the assembly. One of the parts which is most interesting is battery cases. But again that there is nothing that has moved forward on that front, right? But there are various components that the battery is build with.

Nirvana Langham — Private Investor — Analyst

Okay. So, final question on BMS. So you must be scanning this space. I’m sure you’re aware that an extrusion company set-up a JV in the BMS space about I think three years back, and they are posting good numbers and they claim to have 15% two-wheeler domestic market share in BMS right now. So, given that rapid scale-up and coming from a company which did not have previous expertise and they supposedly gained it via a JV from — with a European supplier, so how do you see this market evolving? And like, do you feel that the JV needs to move fast and it’s a game of who moves fast or do you see that there’s enough runway do it the right way to even take it slow?

Aashim Relan — Chief Executive Officer

Sure. So, we are fully focused to first get going. And step one is where eyes are. In general, there are lot of good opportunities. The way we read the market is that the adaptability and flexibility will win in the long-term, because it’s an ever-changing market, and technology shifts quite often, right? So, the more adaptable and flexible our manufacturing as well as team is, I think that will be the strategy that we are taking rather than it being a race towards the existing technology, right? And that’s why we want to, for the time-being, be asset-light and really look at it and learn more about it before we take the next step.

Nirvana Langham — Private Investor — Analyst

Right. So, Aashim, that approach seems to signal that you are really digging in for the long-term and trying to build capability. So, towards that end, is hiring really happening of that quality or that aggressiveness in order to build those capabilities? We’ve been scanning in the market to see — we have seen some signs of it in Kinetic end, but could you comment on that on capability building? Are we also taking it slow there?

Aashim Relan — Chief Executive Officer

For the joint venture or for Kinetic?

Nirvana Langham — Private Investor — Analyst

No, for the joint venture and — I mean, in order for the joint venture to deliver value, whatever hiring needs to happen either in the joint venture or at Kinetic, is that happening in the satisfactorily? Because the strategy you mentioned seems to be hinting towards building a deep capability and then moving big when everything is in place.

Aashim Relan — Chief Executive Officer

Sure, So, I can’t comment on Kinetic front, because that is their business. On our own front, we are building the team required for step one, and also as part of our strategy, be our lining up the right resources, and that is where we are at, I think, initial, right? And as we have some material information, we’ll keep sharing.

Nirvana Langham — Private Investor — Analyst

Okay. So, final question. This is not related to BMS, but this is related to adjacencies to our current emissions business that we have for PV and CV. So, first question is that I understand the sensors, the NOx sensor, oxygen sensor or even the AdBlue dispenser, etc., the competence that have come in in BS VI, those are not manufactured by Sharda, right? Those are provided by multinational third parties. Am I right?

Aashim Relan — Chief Executive Officer

Yeah. So, that is for few products what you mentioned, those are manufactured by suppliers, right, and we don’t manufacture any of the products that you mentioned.

Nirvana Langham — Private Investor — Analyst

Right. And even for the catalytic converter, can you help us understand what is the value addition that we do? Is it only the canning part and the remaining thing comes from a third-party supplier?

Aashim Relan — Chief Executive Officer

Sure. So, we do the complete integration and the catalytic converter has a thing called the catalyst, that is the third-party supplier, and we do the complete integration and designing of the entire system. And that is on the hot-end side. And there is also the cold-end side, which deals with NVH, and that is the muffler, etc., and that’s something that we do in addition to that. So, it’s all the way from the engine till the tail pipe, which has both the emission as well as the NVH parts. So, on the emission part, we do the integration like canning, as well as the full designing, and supply to the OEM. And on the NVH side, we do the muffler making, the pipes, etc., and we supply to OEM.

Nirvana Langham — Private Investor — Analyst

Right. So, my question is that we seem to be early mechanical plus fluid dynamic side of the emissions system and vibrations, etc. What is the possibility of moving into the adjacency of electronics to — or even AdBlue dispensing to sort of provide a complete package to customers? That would be very valuable I assume. But is it practical to hope that Sharda could move into that space?

Aashim Relan — Chief Executive Officer

Sure. So, I think there subject that you’re referring to is extremely technical, right? And just for the — this particular call, I would just say that in general we are looking at further adjacencies, etc. And as full integrators, right now, there is no intention. But if ever an opportunity presents itself, we would always look at it. And there are a lot of other technicality, which I won’t go into, of what you’re referring to in terms of [Indecipherable].

Nirvana Langham — Private Investor — Analyst

Okay, Aashim. I would try to the Investor Relations team. Hope I can get a response there. And thank you so much for patiently answering the questions. Wish you all the best.

Aashim Relan — Chief Executive Officer

Thank you so much.

Operator

Thank you. The next question is from the line of Manpreet Aurora from Aurora Wealth Advisors. Please go ahead.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Yeah, thank you for taking my question. So, am I audible?

Aashim Relan — Chief Executive Officer

Yes, you’re audible.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Yes, all right, thank you. So, Aashim, on the TREM VI, TREM V or rather on the TREM V, the question — so, we understand that there has been some concerns or pushback by the tractor manufacturing bodies with respect to TREM V, not only because it will raise the cost of these tractor, and election year coming in a couple of years, but also because of the typical Indian agri conditions where farmers also use unclean fuel and stuff like that. So, how do you assess the government’s willingness to push through this legislation? Do you see the TREM V will see the light of the day because of the cost increase? Or do you see it going — delayed further? Just a color if you can give on that?

Aashim Relan — Chief Executive Officer

Sure. So, one thing about the government that it is definitely very, very much for the greener initiative. So, we are quite sure that they will go ahead with all greener initiatives. In terms of the timelines, right now, the first is TREM IV. That’s something not just because of the challenges you mentioned, but also COVID and few took place that they have put the date to Jan. 1, 2023 for TREM IV. And for TREM V, as of now, it is April 1, 2024. But whether few months they’ll push back, that is very hard to predict. But in general, I can tell you that all customers are prepared for TREM IV and they are preparing full swing for TREM V products as well. So that can be a good signal, because the end customers are also fully preparing for the legislation, so that gives us a very positive feeling that this will definitely come to life [Phonetic].

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Thank you. And just a follow-up on that, Aashim. So, we understand that there are several steps when we do a TREM V rollout. We’ll start from a prototype to calibration to do a field validation of it, and then only sign-off before final launch. So, do you know at which stage are we with respect to TREM V? Are we already in the field validation stage? Are the OEMs in the field validation stage?

Aashim Relan — Chief Executive Officer

Sure. All OEMs are progressing well. Now, different OEMs will be at different stages, right, but all are progressing well and working towards TREM V. And in terms of specific customers stages, etc., that of course we cannot disclose, but as a general trend, all are progressing quite well and preparing for these norms.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Okay. Thanks. And on the legislation side, potentially, let’s say, if TREM V get delayed, do you see that potentially maybe CEV V gets implemented before TREM V, because CEV V is more on the construction equipment vehicle side and doesn’t impact farmers that much? And is there a possibility that CEV V comes before TREM V?

Aashim Relan — Chief Executive Officer

Sure. I’m not — I won’t be the right person to tell about the chronology. We can go as per what are the notifications and guidance given by the customer as well as the government. But in general, you CEV is a much smaller market than TREM. Reason for that is just in numbers, construction vehicle industry is — this on a number basis, is much smaller than the agri tractor market in India. So, I’m not sure on the chronology of it. And of course, the focus is more on trend in CEV. In addition to that, there is the CPCB norms which are also norms which will go into gensets, and we also have a different cycle. But on all fronts, we are seeing very positive momentum and a very strong preparation by all the customers. So that’s a good signal I think for us that all the customers are taking this full swing.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Okay. Thanks. So, just a follow-up there, on the CEV side, you said it’s potentially a smaller market, and — so do we already have relationships with the CEV OEMs? I mean I know we have for TREM, on the tractor side, we do have. But on the CEV side also, we have relationships?

Aashim Relan — Chief Executive Officer

So, there’s a lot of cross relation between engine usage in CEV and tractors. And the way the engines are cross used a good percentage of them are used by the different engine makers and different, what do you call, final appliers of those engines. So, we have good relations with either people who will be supplying engines to the CEV market and some CEV makers also.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

All right. Thanks. That was very helpful. One final question on the sub-component export side. Just to understand the sub-components a little better, on the exhaust systems, is it — would mufflers, resonators, would they qualify as sub-components or are sub-compounds even at much more granular level than that?

Aashim Relan — Chief Executive Officer

It is more granular, one level granular to that.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

All right. Thanks a lot. I’ll get back in the queue.

Aashim Relan — Chief Executive Officer

Thank you so much.

Operator

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

Ankur Shah — Quasar Capital — Analyst

Yeah. Thanks for the opportunity again. Sir, one broad question on the strategic plan. Sir, considering sort of a clear understanding that we are engine-based company and the kind of growth which is visible for two years, the products will grow. But we have been a proprietary company — proprietary product company, so apart from the exhaust system part, which is eventually going to get phased out, how are we thinking as a company? Like from a company angle, what are we trying to develop or how are we going to develop the Company itself for the future?

Aashim Relan — Chief Executive Officer

Sure. I want just to share that our core competency or success factor has been customers, right? We are very customer-focused as a company and these relationships have only helped us evolve to where we are into a proprietary companies, because we work very closely with our customers. But I’ll give you a flavor of our strategy for the next five years and how we are looking at the market.

So, first, we see that the tractor segment and the CV segment will grow, and it’ll grow substantially in the next five years. In addition to that also we’ll see with content increasing, even few other EV cycle also. So, we want to maintain or increase market share in domestic LCV and PV for exhaust systems and focus on RDE and future norms. We want to gain market leadership in the domestic tractor market, which is going to be of course TREM IV, but more importantly, TREM V as well. And we really want to build focus on the export of the sub-components as well as the emission systems for the smaller tractor, genset, etc., that I mentioned, which is a really big increase in our addressable market.

In addition to that, we want to utilize the build-buy [Phonetic] approach for powertrain agnostic products. So, we are looking at possibilities to revamp our suspension vertical, and of course, look at buy-ups and/or acquire companies with powertrain agnostic products, so that we continue to play in all powertrains. And then of course, we want to dip our toes into the EV field, but focus more on the two-wheeler and three-wheeler segment. And then, as we are dipping our toes, evolve there also with more partnerships tie-ups as well as going on an capex-light model. So, that is really our vantage point in terms of the next five year.

Ankur Shah — Quasar Capital — Analyst

So, sir, like you mentioned that we’ll be focusing on powertrain agnostic products. So, from a competitor angle, now let’s say, all the companies we tried to talk to, they are having a similar strategy. So, like, do we have a base plan in our mind that which kind of products we want to focus in? Where do our capabilities lie? Where can we have a proprietary product base where we can have some research and development spends, so that the ROE profile which the Company has been maintaining in the last so many years — because if, let’s say, by any chance you go into a normal commodity product, it is not going to allow you to make the ROEs which you make in exhaust systems. So, from that angle, have you thought of it on a very specific basis? Because, yes, obviously the future is for the non-powertrain products. But on a specific basis, if you can throw some light on that?

Aashim Relan — Chief Executive Officer

Sure. So, one that we had actually done a very similar exercise to what you are just saying and that we have a short-list of products and that’s where our discussions on M&A, JVs, etc., centered on the powertrain agnostic side. But just we would not like to disclose till there is nothing material, but very similar to the flow of logic that you just mentioned is what we have done this exercise on.

Ankur Shah — Quasar Capital — Analyst

Sure, sir. Wish you all the very best. Thanks.

Aashim Relan — Chief Executive Officer

Thank you so much.

Operator

Thank you. The next question is from the line of Tarun Sancheti from Sancheti Nidhi Limited. Please go ahead.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Thank you for taking my question, again. Just to confirm, am I audible again?

Operator

Yes.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Thank you. The follow-up question, Aashim, is that, and I think perhaps I asked this last time also. What we understand is that some of the key CV OEM got their own JV or sort of a technical partnership or a subsidiary working into exhaust system itself. Keeping that in context, our partnership on CV space, will it not be very challenging for us to scale up and increase the market share, given the fact that those CVs already have their own captive capabilities? And even if we are able to do some bit of a cross selling, how significant that is going to be?

Aashim Relan — Chief Executive Officer

Sure. So, the CV space that the joint ventures that you’re referring to are on the broader emission systems, right, and their usually engine plus submissions and it’s not our product. The same companies also outsource this product that we are doing. So, in the entire market, there is a full opening for us to build the canning aspect of it, right? But the joint ventures are more on the engine front and the engine linkage front, not so much on the after-treatment system what we are doing. Content we have that are no JVs right now that these people have, and they have no intension also.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

So, in a way, is it right to conclude that upstream processing happens at the JV level or the subsidy level, and from there on we take up the canning work or the assembly work. Is that the right…

Aashim Relan — Chief Executive Officer

Exactly. So, our part of the value chain, that is completely open for resourcing. Upstream, there are — on the engine and engine linkage front, I think one-off — two of the commercial vehicle makers have JVs.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Yeah, that’s right. Okay. Another bit would be that, again, more broadly, from an industry landscape perspective, if you can help with who would be the key tier 1 or 2 suppliers to CV OEMs apart from us?

Aashim Relan — Chief Executive Officer

Sure. So, we have two competitors broadly on the CV, and they’ll be the same in the tractor market. And very few people in general have this technology in the whole world. And we don’t name competitors on this call, but again that there’s an American, a large company who is in this market, as well as a French large company who is in this market, and they are our two competitors. And maybe there are some very small emergent listings [Phonetic], but with minor share. I would say 95% of the business that is not with us would be with these two companies.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

So, the multinationals that you referred about are doing pretty much the canning and the assembly work that we do?

Aashim Relan — Chief Executive Officer

Yeah, exactly. They do exactly the same what we do.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Okay. Fair enough. And again, directionally, at least from a internal budgeting perspective, what is the sort of market share that we are looking at for ourselves in, let’s say, two years’ timeframe? And extending that horizon, over a period of, let’s say, three to four year timeframe, what is the market share that we are looking for ourselves in the JV exhaust system?

Aashim Relan — Chief Executive Officer

Sure. Nothing that we can share as of now as a guidance, but of course, we are always looking to increase market share. But nothing that we can share as per guidance as a number.

Tarun Sancheti — Sancheti Nidhi Limited — Analyst

Fair enough. Thank you.

Aashim Relan — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Sonaal from Bowhead. Please go ahead.

Sonaal Kohli — Bowhead — Analyst

Hi, Aashim. Congratulations on the best quarter ever.

Aashim Relan — Chief Executive Officer

Thank you, sir.

Sonaal Kohli — Bowhead — Analyst

Couple of questions. Am I audible to you clearly?

Aashim Relan — Chief Executive Officer

Yeah, you’re audible.

Sonaal Kohli — Bowhead — Analyst

Great. Sir, firstly, wanted to understand if you would have the data for your growth in exports in Q2? And who heads the initiatives? And any new senior hires you have done in last one, two years, either in India or on-site presence?

Aashim Relan — Chief Executive Officer

Yeah. So, exports, we are maintaining status quo in terms of sales in Q2 right now, because, of course, anything that developed takes a couple of quarters to come. In terms of a network, we are — we would say newly creating international sales team, right, and there is no person as such that we have earmarked from outside. It is an internal person which we promoted to this position and he is building an international sales team for the export side.

Sonaal Kohli — Bowhead — Analyst

So, in terms of capability, would you say that you are in the early stage of it and it will get built over a period of time, or would you be in a late stage of it?

Aashim Relan — Chief Executive Officer

The sales team or the capability side in terms of getting it, this is an initiative which we started a year ago, so I would say that we are in the middle of it. We have had quite a few people join into this team, and we expect to get some more people in this field who has good competency in international business development. And this is one of our prime areas from a team building perspective as well.

Sonaal Kohli — Bowhead — Analyst

And if I heard you correctly, you said your LCV market share is 15%, 20%, or was my understanding incorrect?

Aashim Relan — Chief Executive Officer

Sorry, if you can just repeat that?

Sonaal Kohli — Bowhead — Analyst

If I heard you correctly, did you say that your LCV market share is 15% to 20%.

Aashim Relan — Chief Executive Officer

No, we didn’t speak about LCV in the call today. I think what — there was a question on CV or something like that. No, I did not say LCV. LCV would be a higher market share.

Sonaal Kohli — Bowhead — Analyst

Sir, can I say when you said 30%, because you don’t have the breakup of LCV in car market, you actually have 30% combined market share, because you’re looking at the total volume of engines, considering you don’t have the breakup. Is that a fair understanding?

Aashim Relan — Chief Executive Officer

In a broad level, yes.

Sonaal Kohli — Bowhead — Analyst

Great. Secondly, between your diesel and petrol mix, in terms of volumes or value whatever is possible for you to share at a very rough level, what would that be?

Aashim Relan — Chief Executive Officer

I don’t have that mix breakup right now between petrol and diesel, but we can look internally and get back on that.

Sonaal Kohli — Bowhead — Analyst

And would do you expect your diesel mix to deteriorate considering the price hikes on the diesel side would be way higher than the petrol side? Are you preparing for it already?

Aashim Relan — Chief Executive Officer

Sure. So, I think anyways mostly diesel is used on the LCV side and on this, what you call, the CV side. It’s not so much used in pas-cars. I think pas-cars, it’s anyways less. And on LCV as well as CV, it’s really between diesel and CNG and both the prices are up, because CNG prices have also substantially gone up because of this geopolitical situation that we are in. So, yeah, so I think diesel, would be largely more towards the LCV and CV segment.

Sonaal Kohli — Bowhead — Analyst

Okay. Just to reiterate what one of the earlier participants had asked, just wanted to reconfirm. So, let’s say, we sell a vehicle of INR100, there is a 25% price hike. So, the price of our part of the products which we supply, the exhaust system, becomes INR125. So, if are making an EBIT of INR10, let’s say, on this INR100, our EBITDA would become 12.5% at a rough level. So, that the EBITDA margin in both cases is 10%. In first instance, 10 divided by 100, in second instance, 12.5 divided by 125, or is my understanding incorrect?

Aashim Relan — Chief Executive Officer

Just because — on a call, it tough to articulate the exact thing that you’re asking, but yes, that’s — profile gets maintained right, so if there is a value addition, then we maintain that profile on the value addition as well in terms of content increase.

Sonaal Kohli — Bowhead — Analyst

Great. That’s nice to hear. Secondly, I also wanted to understand — so TREM IV was originally meant for September ’21, and now it’s coming in January ’23 and COVID is over now for some time. So, what were the reasons, at least, for the last leg for it to go up? And is it also possible that TREM V could be postponed by a year or so? As one of the participants said that — I mean if elections are scheduled in April ’24 or May ’24, it’s highly unlikely that at least on April ’24 this is going to happen.

Aashim Relan — Chief Executive Officer

Sure. So, I’m not very good in terms of giving guidance on what maybe the thought in the government. But what I can say is that the signal is very strong from our customers and preparation is very strong. Now, there is a slight delay three months, six months, whatever, it doesn’t have a very big impact, right? And I think that’s very visible in the case of TREM IV also. Even if there was a delay, there is no visible impact in terms of the delay, because we are generally capex-light only, right? So, it’s difficult to predict at this juncture and I think we have to take it as per the government notification — that the government notification as of now has come into TREM IV and future, the customer is already preparing. So, there can always be a slight delay.

Sonaal Kohli — Bowhead — Analyst

But we are not building in your base case of one year or two year delay?

Aashim Relan — Chief Executive Officer

There is nothing as such that we have guided to it, but that can always be based on the TREM IV delay to 1st Jan.

Sonaal Kohli — Bowhead — Analyst

So, if I had to just see the drivers for growth from next 24 month perspective, the first one, the larger drivers, would be basically your RDE norm, right? And in terms — and then, at a later stage, TREM IV? And on a medium term, as and when you get traction in your exports or MHCV market share gains and the EV initiative? Is my understanding in terms of order — I’m not talking about small, small numbers which could change volume of revenue by 2%, 3%, like cranes, etc., I’m talking in the larger picture, if you look at from a three, four, five year perspective.

Aashim Relan — Chief Executive Officer

Sure. So, I think the immediate definitely is BS VI RDE, which is the big one, right, which just coming in shortly and there full preparation everything is there for April 1, 2023. Some very marginal growth will come from CPCB IV plus, which will come in July 1, 2023, as well as TREM IV, which will be for Jan. 1, 2023. In the horizon after that, that the norms that come in are definitely TREM V, CEV V and expansion onto the BS VI norms or there could even be BS VII. But as of now BS VI norms. And of course the growth drivers on the export side of the business as well as the sub-component business, which would start yielding results towards that time horizon.

In addition to that, we are parallelly actively looking at M&A opportunities on the powertrain agnostic space, and the deployment of that could also be a growth driver. And even on the build approach, we are in discussion with customers for powertrain agnostic products, and there are few that have been identified, but around that time horizon that could be another growth driver. And then of course, we are in the beginnings of the EVs right now, but we hope that we can play a much more significant role in the medium term on the two-wheeler, three-wheeler side of EVs. So, this is in a nutshell the growth drivers.

Sonaal Kohli — Bowhead — Analyst

Well, thank you, Aashim. This is really helpful. My last question, as far as your standalone business is concerned, do you reckon that your Q2 would be your peak quarter because of the volumes overall for the car industry or do you see a possibility of this repeating in Q3 and Q4 also? Because what we understand is that the car makers have — replacing inventory for various models and that part is more or less over. So, based on order book at least, whatever I understand you won’t know what will happen in Q4 or Q1 next year, because you have only that much visibility. But do you think there is a possibility that in Q3 also we can repeat this kind of performance?

Aashim Relan — Chief Executive Officer

It totally depends on the market environment, right, and how the markets perform and the OEMs perform. Right now there is no guidance that I can get give. The momentum is there, but it totally depends in the absolute short-term on how the customers are doing and their plans really in terms of production, because we really are linked to production more than even sales, so it totally depends. It’s hard to give guide on it. Somewhat the momentum so far is good, but given the macroeconomic environment, it’s very hard to predict that there is a lot of volatility in the world, of course.

Sonaal Kohli — Bowhead — Analyst

Thank you, Aashim, so much for answering my questions, and congratulations once again for a great quarter, and wish you luck for the subsequent quarters as well. Thank you.

Aashim Relan — Chief Executive Officer

Thank you so much.

Operator

Thank you. The next question is from the line of Karthi Keyan from Suyash Advisors. Please go ahead.

Karthi Keyan — Suyash Advisors — Analyst

It’s fairly long call and I am sure you’re bored. So, I’ll try and make it interesting. Just one thing, if you can share with us your best understanding of the pain that Eberspaecher is facing in Europe and, therefore, what kind of opportunity someone like Sharda can benefit out of — from that?

Aashim Relan — Chief Executive Officer

Sorry, what’s the first part of the question, if you can just repeat?

Karthi Keyan — Suyash Advisors — Analyst

I was asking you the kind of pain that Eberspaecher is facing in Europe, given all the challenges over there, and therefore, are you seeing specific opportunities emerging in a more time-bound manner versus open-ended matter?

Aashim Relan — Chief Executive Officer

Okay. So, I would not share specific to any company, right, even this thing, but I can just talk little bit about the broader things what we are seeing in Europe and what I think companies are experiencing. Of course, it’s been — last two, three years have been lot of pain in Europe, given that there was COVID, then there was the semiconductor issue, and then this geopolitical crisis, which has led to an energy crisis, and so on. So, plus Europe is really dependent on the China supply chain also. So, this trend of looking at alternatives to China and this China Plus One strategy, I think European as well as American companies are fully engaged in this mega trend, and that brings an opportunity for companies like us who can increase our export market.

Karthi Keyan — Suyash Advisors — Analyst

Given what you say, how soon can we expect some kind of announcement? I know it’s not fair to pin you down, but I’m just wondering this conversation has been happening for reasonable amount of times. So, are there any near-term…

Aashim Relan — Chief Executive Officer

Sure. There is no timeline as such, because these kind of things we can only do as we have something material to offer right. So, it’s totally dependent on the success of our business development team and the efforts are on. Opportunity is there. And when there is something material only we could share.

Karthi Keyan — Suyash Advisors — Analyst

One last detail. I know this has been asked in three different ways. But in very obvious term, so the RDE increase in content for the diesel side, the 25%, would the share of manufacturing be a substantial part of it or would outsource component be a substantial part of it?

Aashim Relan — Chief Executive Officer

For diesel?

Karthi Keyan — Suyash Advisors — Analyst

Yes.

Aashim Relan — Chief Executive Officer

For diesel or for gasoline? So, just gasoline is 10%, diesel is 20%, 25%. And that would be on our value-added side.

Karthi Keyan — Suyash Advisors — Analyst

So, the entire 25% accrues to the manufacturing side?

Aashim Relan — Chief Executive Officer

Yeah, 20% to 25% would accrue to the manufacturing.

Karthi Keyan — Suyash Advisors — Analyst

Okay. So, this doesn’t have any component of, say, catalyst sourcing or any of those things, right? It’s bit more valuable than what you suggested earlier, so.

Aashim Relan — Chief Executive Officer

Yeah. So, we are just — when I’m giving this kind of guidance, we are giving on value-added number, right? So, we do not include the catalyst in the base also and neither in the denominator, neither in the numerator, so just to neutralize for it and the guidance in this [Indecipherable].

Karthi Keyan — Suyash Advisors — Analyst

That’s significant. Very, very helpful. And thanks for the extremely patient answers. Much oblige. Thank you.

Aashim Relan — Chief Executive Officer

Thank you so much.

Operator

Thank you. Ladies and gentlemen we’ll take the last question from the line of Manpreet Aurora from Aurora Wealth Advisors. Please go ahead.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Thank you again for the follow up. Just one book keeping question first. On the inventory side and the — we see that there has been substantial increase from INR131 crores to INR190 crores of inventory. So, if you can provide any color on why the significant increases because of the increased scale of operation or — if you can provide more color on that?

Aashim Relan — Chief Executive Officer

Sure. So, I think inventory better to measure in terms of number of days, right? And because of cost as our sales grow, so will inventories grow. So, it’s only a few days that inventory is up by and we are keeping more inventory just to secure ourselves from all the supply chain issues. But it’s very just a couple of days, it’s not as much, because if you neutralize it for the sales growth also, it is not very high number.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Okay. Thanks for that. And then just a question on the — how the industry operates, Aashim. So, let’s say there is a new engine program and we will get some RFQs or RFPs for that, and we will respond to that. So, what differentiates Sharda when we get into an engine program? Is it the price? Or is it the technology? What differentiates us?

And also a follow-up to that is, when a OEM decides on a vendor like Sharda, is it like one vendor for engine program, one supplier, or [Indecipherable] will have two of them and one engine program can have multiple vendors, if you can give more insights into that?

Aashim Relan — Chief Executive Officer

Sure. So, first, I’ll take the question — the second question that in the case of one engine, usually it is one supplier, sometimes it’s two suppliers, right? So, it really depends. But usually they tend towards — going towards one supplier only, but there are exceptions to that, right, and there are exceptions. But I would say most of the time just because the effort to develop a supply in this product is a lot from the OEM front also.

Now, what is the key differentiator or competitive advantage that we have, number one is, the R&D, right? So, we have extremely good setup of R&D in Chennai where we have 100, 150 engineers, which have extensive experience, and we have also been doing R&D in this product since 2009 now, right? So, 14 years of Indian experience on these products, which no other Indian company has. And even a lot of the global companies, they also really appreciate the facilities that we have in place, where we have an end-to-end R&D center with very good technology available for these products. And only our multinational competitors and largely only two or three companies have a similar technology. So, we are actually the smallest company in the world with this kind of technology. So, that’s something true for all of us to be proud about.

Then second, these products which are BS VI Plus, these are extremely technical and complicated products. And all the customers are looking at product experience in the field. So, let’s say that if there is new supplier who does not supply these products wants to enter this domain, they won’t be able to enter it because OEMs require past experience, right? And we have now developed very successful products onto the market, and that gives us further competitive advantage.

In addition to that, we are quite backward integrated. And we make a lot of our proprietary stampings, as well as key components, which gives us cost advantage as well as supply reliability advantage vis-a-vis the competitors. And lastly the manufacturing technology also for these products is very proprietary, and that is also something with lot of experience over the years that we have developed and which gives us a further boost at competitive advantage.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Thank you. Just going back to your first point. So, to understand you correctly then if there is usually a one supplier to a engine program, so that — it means that for the entire life of the engine that vendor is locked in, till the time that engine is in the market, the business is with the approved supplier. Is that correct way to understand?

Aashim Relan — Chief Executive Officer

It is — again there are exceptions. I’m saying the tendencies there, and then engines go through regeneration and then there are new norms that kick-in like now BS VI, RDE is kicking-in, so they will go in for the calibration and all. So, up to the next emission norm, generally that is the case, but there are always exceptions. So, I’m just giving you a directional tendency rather than it being all in true.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Okay. Thanks a lot. And one on the CV side, you’ve patiently answering a lot of questions. So, from the field what we have realized we’ve seen that a lot of fleet operators are not happy with — not happy, I will say, with the BS VI engines, you have this additional requirement of the DEF for AdBlue, and they are not very happy with this new change and I’ve seen some OEMs also talking about moving to CNG CVs. So, if there is some shift in — towards the CV side in the CNG — in the CV space, if there assumptions towards the CNG side, we — are we — so, in that space and will it come from our standalone entity or will it still be through our joint venture?

Aashim Relan — Chief Executive Officer

Sure. So, we saw good shift towards CNG or we saw some lot of traction I would say in CNG probably pre-Ukraine war, right? But I think after CNG prices have also come up we’ve seen a slowdown in the market regarding CNG. But in general, I think all customers are looking at being agnostic to changes. So, they are preparing on all fronts. And in terms of the application of these products that could determine whether it would be on the standalone entity or whether it would be in the joint venture. It depends on the application, engine size, etc. So, it will depend on that.

Manpreet Aurora — Aurora Wealth Advisors — Analyst

Okay. Thanks a lot. Appreciate all your answers, Aashim, and all the best.

Aashim Relan — Chief Executive Officer

Thank you so much.

Operator

Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Puru Aggarwal for closing comments.

Puru Aggarwal — President and Group Chief Financial Officer

We thank you for your participation in our earnings call today. We hope we have been able to address all your queries. However, if you have any further questions, you can get in touch with our IR advisors, Strategic Growth Advisors. Thank you, and have a good evening.

Aashim Relan — Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]