Sona BLW Precision Forgings Limited (NSE: SONACOMS) Q2 2025 Earnings Call dated Oct. 23, 2024
Corporate Participants:
Vivek Vikram Singh — Managing Director and Group Chief Executive Officer
Kiran Deshmukh — Group Chief Technology Officer
Praveen Chakrapani Rao — President and Head of Motor Business R&D and Group Chief Technology Officer Designate
Rohit Nanda — Group Chief Financial Officer
Pratik Sachan — Group General Manager, Corporate Strategy and Investor Relations
Sat Mohan Gupta — Chief Executive Officer, Motor Business
Vadapalli Vikram Verma — Chief Executive Officer, Driveline Business
Analysts:
Kapil Singh — Analyst
Unidentified Participant
Presentation:
Operator
Ladies and gentlemen, thank you and welcome to Sonar Comstar Q2 FY ’25 Earnings Group Conference Call. Please note all participant lines are in the listen-only mode as of now. There will be an opportunity for you to ask questions after the presentation concludes. Please note this call is being recorded. We request you to place your line on mute except when asking a question.
Some of the statements by the management team in today’s conference call may be forward-looking in nature and we request you to refer to the disclaimer in the earning presentations for further details. The management will also not be taking any specific customer-related questions or confirm or denying any customer names or relationship due to confidentiality reasons. Please refrain from naming any customer in your question.
Now I’ll hand over the floor to Kapil Singh, Nomura Head of Consumer and Digital Commerce Research India and Lead Auto Analyst. Kapil, please go ahead.
Kapil Singh — Analyst
Good day, everyone. To take us through the Q2 FY ’25 results and to answer your questions, we have the management team of Sona Comstar with us. I’ll just introduce them quickly. Mr. Vivek Vikram Singh, MD and Group CEO; Mr. Kiran Deshmukh, Group CTO; Mr. Praveen Rao, Group CTO Designate; Mr. Sat Mohan Gupta, CEO, Motor Business; Mr. Vikram Varma, CEO, Driveline Business; Mr. Rohit Nanda, Group CFO; Mr. Amit Mishra, Head, Investor Relations; and Mr. Pratik Sachan, Group GM Corporate Strategy and Investor Relations.
I will now hand over the call to Vivek for his opening remarks and the presentation. Over to you.
Vivek Vikram Singh — Managing Director and Group Chief Executive Officer
Thank you, Kapil, and welcome, everyone, to the earnings call of what has once again been our highest-ever quarterly revenue EBITDA, BEV revenue, and BEV revenue share. But before we discuss the quarterly performance in in detail, we have an important strategic announcement to share. As we continue to grow as a company and to keep expanding the canvas in which we paint, we need to look at different opportunities and we need to expand our focus beyond the automotive sector to broader mobility areas if we are to achieve our long-term growth ambitions and continue the growth momentum that we display for the entirety of our 25-year old journey.
And with this thought in mind, if you remember about a year back, about 12 months back, we had updated our vision statement to reflect this shift and we had taken out auto inserted mobility. And since then, in the last 12 months, we’ve been exploring various areas of mobility. While doing that, and as some of you may already know, we’ve said this on multiple occasions, we have a few filters that we put regardless of whether it’s an organic opportunity or inorganic opportunity that we put in to evaluate.
The first is the products. Are they expected to exist for at least the next 15 years or not? In this case, we are confident trains will have brakes for perhaps much longer than 15 years. Second, we aim at sectors that are not only sizable but also fast-flow. Because I think Bob Iger, it was — he said that do not be a trombone oil salesman, because even if you are the best at it and the market leader in it, there is only a very small amount of trombone oil that [Indecipherable]
So the market has to be large enough as well as fast-growing. And whatever we acquire should have the ability to take market leadership in its product category. Escorts Kubota Limited railway division is already the market leader in railway brakes in India. And we believe with the right investment and the right focus, it has the capability to become one of the market leaders globally as well.
Third, it should further our long-standing strategic priority of diversification, whether it be in our market segments, in our customer mix, or our product offering, which this obviously does. Fourth, and obviously very important from a shareholder perspective, it should be a good financial investment. In the current case, we expect that this acquisition would be earnings-accretive from year one itself. And lastly, but at least to the management team as a group, very, very importantly, it should be good for the world we live in. And hence the opportunities we explore must be in the cleaner part of the mobility system.
Now, railways is the most environmentally-friendly mode of motorized transport available today. With this acquisition, Sona Comstar reaffirms our commitment to promoting green and clean mobility solutions.
So this is, in a way, some elements are repeated here, but I’d say more than repeated, is reemphasizing that the acquisition of the railway equipment division of EKL checks all our filters to screen new growth opportunity. The railway industry, and we will cover it in a little bit, presents long-term growth opportunities. And with the railway equipment division business, we see significant potential to broaden our product range by doing what we as a company have done best so far, which is incorporating advanced technology and engineering products.
Now, taking these things point by point, Indian Railways, as some of you may already know, have the second largest railway network in Asia and the fourth largest globally. The railway component market in India offers a significant opportunity due to various long-term growth factors and considerable, and I will want to restate it to mark the infrastructure, considerable entry barriers, especially in critical products like brick.
Why? If you look at the second half of this slide, this potential, if you look at the increasing investments in expanding the railway network and the various modernization initiatives of railway, the total investment has grown at an annual growth rate of 17% over the last 10 years. This is one of the highest investment categories that is there in India today. And despite it being a 200-year old industry, even after all these years, it is amongst the most economical and environmentally-friendly modes of transportation for large populations. We expect trains with brakes to exist for the next several decades, if not more.
Again, to reiterate that point, Indian Railways have a fairly high barrier to entry for component suppliers due to a very strict vendor approval process. And this is especially true for critical components like brake systems. Escort Kubota’s railway equipment division, or RED, has over 60 years of experience in the railway component industry and has been a long-term partner of Indian Railways and major private railway OEMs. I think the revenue split is 50-50 broadly. And it, I would say, easily has one of the most extensive product portfolios among railway component suppliers in India. RED is a market leader in rig systems for various types of rolling stock. It is also one of the top suppliers of couplers, suspension systems, and friction products. I think as we look at it, even more importantly, it also has a robust pipeline of new product.
This is where Sona Comstar ownership can make the greatest delta. And with the significant potential of growth this business already has, I think if we accelerate new products to the R&D process, we can go the distance on this acquisition.
Coming to the financials. RED has a fairly strong record of financial performance across all the three key areas that we consider important: Revenue growth, profitability, and return ratios. Last year, the business reported revenue of approximately INR950 crores with an EBIT of INR179 crores. Over the past five years, the company has had a CAGR of 19% in revenue and 18% in EBIT, while consistently maintaining return ratios above 35%. This, of course, as I said, is very important to us because as a management team we believe that any product we make must benefit society and the world.
This acquisition aligns with our goal of promoting clean mobility. I mean, if you live in Delhi NCR or anywhere in North India, you will understand and appreciate the criticality of this goal. As most of the management team of this company lives here, this is an important thing. Railways are among the most green and clean modes of motorized transport today. And if you look at the bottom half of this chart, it includes metro rail, electric buses, national rail, electric cars, and plug-in hybrid vehicles. As you know, we offer multiple products for electric cars in both BEVs as well as PHEVs. And we are also developing powertrains for electric buses. By acquiring RED, we are entering the railways as well. And this rapidly growing railway component market should help us contribute more to greener mobility solutions.
Now, coming to the terms. We will acquire the RED business at an enterprise value of INR16 billion, or INR1,600 crores. After closing, we expect the transition to be EPS-accretive for us from the first year itself. Our strategy for this business will be similar to the approach we have taken with the Comstar acquisition in 2019 and NOVELIC acquisition in 2023.
We believe very deeply in empowering the management of the businesses we acquire. We actually spend a lot of time evaluating the management of the business we acquire, and only if they are capable do we take that leap. And by empowering them and providing them with the capital to invest in growth and R&D, as well as fostering a culture where they have the freedom to take risks and learn from failure, I think that’s the kind of M&A that we do. With Comstar, I mean, if you take it as an example, it was 100% startup motor business focused on ICE, but the same team, Sat — under Sat’s leadership, and Praveen’s been a large part of it, it has pivoted to a large EV motor and inverter business as well.
We are doing something very similar, a similar transformation and develop, where we try to shift from a service-led business model to a product-driven model. We intend to do something very similar from a strategy perspective with RED, empower the management team to invest in R&D and develop more and more innovative products for our customers, because what this opportunity gives us is also a channel into expanding an existing business relationship with Indian Railways or the private OEM supplying to Indian Railways. Yes, it is an asset purchase and not a share purchase. And that I think there will be more to that, that we can take up in Q&A.
Now coming to the, well, at least for this quarter, slightly more mundane aspect, the regular performance update on our business. So financial terms, as I said, we achieved our highest-ever revenue and EBITDA. Revenue grew by 17% on a year-on-year basis, while EBITDA and net profit increased by 14% and 16%, respectively. Net profit would have also been our highest ever. However, it was adversely impacted by exceptional expenses of about INR83 million, or INR8.3 crores, related to acquisitions-related expenses, which Rohit will explain later. And also in a lighter way because I get asked this a lot.
I want you to add that 12 months into the EV slowdown narrative. Our overall growth continues to be driven by BEV revenue. It has grown a staggering 53% last quarter, and its share in revenue has increased to the highest ever at 36%, which goes to show that sometimes narrative does trump data. But numbers are numbers, and they should be given precedence is at least our opinion.
First half, we continue to do well on all the three financial indicators. Our revenue, EBITDA, and PAT are up 19%, 19%, and 21%, respectively. We have had a decline in return on equity and ROCE. That is due to the recent capital raise of INR2,400 crores to the QIP that we did last month. We expect these return ratios to improve as we deploy and invest the cash in various growth initiatives of the company.
Now moving to the update on our strategic priorities that we do every quarter. The first one, most importantly, electrification. Our BEV revenue share has increased from 27% in H1 last year to 35%. And BEV revenue in rupee terms has grown by 53% to INR6 billion. For us, the growth in BEV revenue is in fact with seven times the growth in non-BEV revenue. The order book, we continue to build on EV order book. We now have 56 EV programs across 32 customers. 27 of them are in production currently. 13 are mature or completely ramped up at peak volume, and 14 are still in the ramp-up phases. The remaining 29 programs are still not in production and should start during this or the following year, which brings me to our net order book.
We have consumed INR14 billion last quarter, which is the reason why we have grown so much in the last quarter. We have also won business worth INR12 billion and added that as an addition. So at the end of Q2 FY ’25, the net order book stands at INR231 billion with the EV portion remaining quite high at 78% of the net order book. Quite interestingly, this is the first quarter in which we also won some CNG starter business. And this I just wanted to mention because we do get questions on alternate fields sometimes. So the answer is this. Irrespective if it is either way, the motor or the engine, whatever powers it, it won’t matter. That business will still come. So just reemphasizing that alternate or hybrid powertrains do not really have any impact on our business.
Diversification, which has always been an important KRA. Increasing electrification and decreasing ICE dependence continues unabated. In the first half, we saw BEV revenue share increased to 35% and ICE-dependent revenue strength to only 9%. The Europe demand slowdown has meant that the revenue share from hybrid and micro-hybrid vehicles has been lower than the previous year.
Now moving to the other revenue cuts. If you look at geographically, North America remains our largest end market, contributing 44%, and frankly, the most stable from a demand perspective as well, while India remains our second largest market with a revenue share of 28%. I mean, after a strong recovery last year, we have seen a slowdown in demand in Europe. That is why the 26% has shrunk to 22%.
By product, if I come to, our fastest-growing product segments have been EV differential assemblies and EV traction motors. This you can see reflected in the product mix as well.
Another thing which is notable is the weakness in commercial vehicle demand, especially in India, although it is everywhere, but it is even more acute in India, which has resulted in a share of revenue from the segment going from 14% to 10% in the first half. This is quite a decline.
Now the non-automotive revenue, as you can see on the screen, has also declined. First half, or H1 last year, this was 12%. And this year, it’s 9%. This is due to the weakness in the off-highway segment, once again, in both U.S. and India.
With this, I turn to our Group CTO, Mr. Deshmukh, to update this and update us on the technology section for his last time. Over to you, sir.
Kiran Deshmukh — Group Chief Technology Officer
Thank you, Vivek. Good evening, everyone. On an earnings call, this is my last address as the company’s Group CTO. After nearly five decades in the automotive industry and four decades with the Sona Group, I will retire on October 31.
As I conclude my journey, I am filled with nostalgia and gratitude. I joined Dr. Surinder Kapur 38 years ago to help build a fledgling steering systems company. We have since grown into one of India’s top automotive technology firms, supplying critical systems to leading OEMs worldwide. This journey required us to unlearn traditions, embrace innovation, experiment even with failures, and cultivate passionate individuals. Together, we overcame challenges and celebrated milestones, all driven by our commitment to innovation. This farewell marks not just my retirement, but a celebration of our collective success.
I’m pleased to pass the baton to my successor, Praveen Chakrapani Rao. With over 30 years of experience, he has held leadership positions across diverse functions, contributed to global product development, and played a crucial role in expanding our R&D team. I’m confident he will continue our legacy of innovation and leadership.
Given that Praveen will now lead our technology march, it is most appropriate for him to explain this slide. Over to you, Praveen.
Praveen Chakrapani Rao — President and Head of Motor Business R&D and Group Chief Technology Officer Designate
Thank you, Mr. Deshmukh. I’m happy to present the technology update this quarter. Sona Comstar has achieved a significant milestone with ASPICE Level 2 certification being awarded for its advanced active suspension system product. This affirms our commitment to delivering high-quality, reliable, and innovative systems and software solutions to the mobility space.
ASPICE framework is globally recognized as a standard for assessing software development processes. Efficiently implementing automotive spice leads to better process and product quality. The standard helps to improve cooperation among complex supply chains and between globally distributed development and engineering centers. This capability strengthens our current position in the market and opens up additional opportunities for business with global OEMs.
I now hand over to Rohit to cover the financial update. Thank you.
Rohit Nanda — Group Chief Financial Officer
Thank you, Praveen. A very good day to you all. It’s my pleasure to share our second quarter and first half results for financial year ’25 with you all.
First, we start with the second quarter results. We’ve had a good quarter with a year-on-year revenue growth of 17% to INR925 crores. In comparison to our growth, the underlying light vehicle market in North America, Europe, and India being the largest three markets for us declined by actually 2%.
Our BEV revenue grew by 53% to INR317 crores, and now it constitutes 36% of our revenue in this quarter. Our EBITDA grew by 14% to INR255 crores. However, adjusted for the higher ESOP cost in this quarter, the actual growth was 18%. Adjusted EBITDA margin improved by about 20 basis points on a year-on-year basis.
Our profit after tax had an adjustment for exceptional expenses on account of certain potential inorganic opportunities. Compared like-to-like, adjusted for these expenses, our PAT grew by 23% to INR158 crores compared to INR129 crores last year. On the positive side, net finance income helped our adjusted PAT margin by about 80 basis points.
We move to the first half financials then. During the first half, our revenue grew by 19% to INR1,818 crores as compared to the underlying growth of 3% in our key markets of North America, Europe, and India. Our BEV revenue grew by 53% to INR600 crores, being 35% of our total sales. Our EBITDA for the first half adjusted for higher ESOP cost grew by 22% to INR523 crores. Adjusted EBITDA margin expanded by 0.6% on account of operating leverage and lower material cost.
Our PAT adjusted for exceptional expenses grew by 26% to INR307 crores. Adjusted PAT margin was higher by about 80 basis points mainly due to improved EBITDA margin and net finance costs.
This brings us to the cash flow for the first half. So we’ve generated INR467 crores of cash from operations against an EBITDA of INR506 crores in the first half. Our capex spend was INR224 crores and therefore our free cash flow was INR243 crores. Besides operations this quarter, we also had a net cash inflow of INR2,370 crores from the QIP done during September month. Temporary deployment of QIP proceeds, besides surplus operating cash flow, led to an increase in investments by INR1,890 crores, net loan repayments of INR224 crores, dividend payout of INR88 crores, and there was an increase in the closing cash by about INR385 crores.
This brings to the last slide in the presentation, which is on the key ratios. The key highlights on this slide include further improvements in the working capital and fixed asset turnover ratios, now close to 5 times and 4 times, respectively. Our net debt-to-EBITDA went further negative due to repayment of borrowings out of the QIP proceeds. Our return ratios have seen a dip in this quarter consequent to the QIP fundraise that we did last quarter.
With this, we have come to the end of our second quarter and first half earnings presentation. And I’ll now hand the proceedings back to Nomura team for Q&A.
Questions and Answers:
Operator
Thank you very much. Now we are at the Q&A session. We would like to open the floor for Q&A. [Operator Instructions] The first question, we will open the line for Gunja [Phonetic]. Your line is unmute. Please go ahead with your two questions.
Unidentified Participant
Yeah. Hi. Thanks, team, for taking my questions. Congratulations for the closure of this deal. Good to see the business diversification continue. I had two questions. Firstly, on this acquisition, I just wanted to hear a little bit more from you in terms of what happens to the management team. Is it the entire team coming along when you’re buying this business? And more from your perspective, I’ve heard you that businesses that you pursue typically should have a right to win, right? So I’m just trying to understand, when you look at this business, what is the biggest right to win here? And how does the competitive landscape sort of looks like? What positioning? I know their leader, but how the business dynamics — is it about product? Is it about cost? What is the edge that this business has?
Vivek Vikram Singh
Very happy to get an [Indecipherable]. So first — second. Management is very, very important to us. That’s actually one of the first things. The first question we ask ourselves is, see buying things, looking at financial metrics, we’re not traders. We are permanent. It’s easy. You can buy something, it may look good on finances. How will you run it and then how will you grow it to become an institution on its own, you would need capable people. We don’t believe we are some superhumans who can come into any business and make it great. We rely on people who have capability and drive and have had some concern. Maybe it is constraints on capital, maybe it is constraints on focus. Like in this case, it is a great company that is part of. But for that company, it is not a core business, and hence it may not have got the attention that if it got, it might prosper more. That’s the thing. All the management team of the current railway equipment division of EKL is coming along and we would like to add more to the team, but everybody will coming along.
The second part, the right to win. I think that question, usually, you know that line I’ve said, I think maybe before that. [Foreign Speech] It means, what is panel does not usually read evidence. If you have been the largest market share in any product category for decades, you would usually have something. But if you’ve been a market leader in a product category for some time, along with high margins, kind of like in ourselves, like in our gear business, there will 100% be some reasons for that.
It is a very clear market. So brakes is a very critical thing. So there is — there are global really big companies. One big European company, one big American company, and this one Indian company. Three of them compete. The product validation process is super-strict and the entry barriers are very high. So these three compete among see each other, sometimes cost, sometimes technology. Depends on which generation of product you’re in. If it’s a same as us, right? Like in automotive business, if it’s a product that’s been same for 20 years, then you have to be much better at process quality cost. If it’s a product that is new, then technology and how much better you make it for the customer, that comes in also.
Cost will always run. There is no — I don’t think there is a single customer purchase decision in any category of any product where price is no value. Maybe apart from Giffen goods that we studied in economics, everything else does have that thing.
Did I miss any part, or…
Unidentified Participant
No, I think this is useful. I mean the message that I get is it’s still a very concentrated market and it’s basically just the validation from the government agencies, which is relationship over a period of time also matters a lot.
Okay. The second question that I had was on the order book. Now we continue to sort of see the ramp-up in the programs coming through on the ramp — on the full ramp-up line. Typically, you’ve had this 29, 28 programs which were — which have won, but not really translating into revenue. So I just wanted to hear again from you, given the entire setup in autos with the slowdown, is that we — should we continue to still sort of work with the assumption that this book will translate into revenues three years out? Does that still sort of hold true, or there should be some change to the timelines there?
Vivek Vikram Singh
See, there isn’t much that gives me any ground to change my view. There is — there are two programs that are delayed. One, a European program that’s delayed by a year, and there is one Indian EV two-wheeler program that’s already been delayed for six months. Apart from those two, I don’t have any instances to say one way or the other. And that, frankly, Gunjan, as you will know, could happen with — it’s got — I don’t know if it’s powertrain, like model launches getting delayed happens. It is more a factor of, I would say, overall economic situation or customer readiness levels. I don’t know which one it is.
Unidentified Participant
But fair to say INR231 billion or INR230 billion over a span of three to four years should translate into revenues? You don’t see a major risk of…
Vivek Vikram Singh
So I can tell you this. I don’t think there is a single program there. And Pratik, please do confirm.
Unidentified Participant
Okay.
Vivek Vikram Singh
Starting later than 2020, like at least start of SAP. Fully ramped up or not, I don’t know. I think there are some in there which are beginning 2027 calendar. But ’28, I doubt. Pratik, would you know?
Pratik Sachan
Yeah. So that’s completely right. So most of the programs we start by FY ’27.
Vivek Vikram Singh
Correct. Because, Gunjan, as you know…
Unidentified Participant
Got it. Thank you so much.
Vivek Vikram Singh
…24 months. I mean, beyond that is really, really — it will be exceptionally unusual.
Unidentified Participant
Got it. Thank you so much. I’ll join back the queue.
Vivek Vikram Singh
Thanks, Gunjan.
Operator
We’ll go to the second investor, Pratik Sen [Phonetic]. Your line is unmute. Please go ahead with your two questions, Pratik.
Unidentified Participant
Hello.
Vivek Vikram Singh
Hi, Pratik.
Unidentified Participant
Thank you for the opportunity. Sir, can you help me understand the domestic EV traction motors and controllers market? And how is this market evolving and what’s our market share?
Vivek Vikram Singh
So it has been our fastest-growing product category, I think, for the last three years. But that is because the waste was incredibly small. And this industry was growing quite fast till the first shock came when the first duty withdrawal happened, if you remember May last year. Then I think now again, we are where it’s coming to a stable thing. And all our growth comes from new programs starting. Actually, that’s been true for most of the industries we operate in.
If you look at underlying, and Rohit does a good job, each time, each quarter, he talks about that industry underlying growth was like 2%, 3%, whatever. And our growth was this. We have always grown faster than that because we grow on the order of new orders. Basically, it means either you increase wallet share with an existing customer or you get more customers and increase market share. That is how we have grown. Right now, I don’t think the [Indecipherable] industry is growing very fast now at this stage.
Market share, Pratik, is very complicated because what is the denominator then? EV two-wheeler plus EV three-wheeler plus EV four-wheeler or just EV two-wheeler? So that — it varies. And also, by the way, the complication, it also varies month-to-month. If you notice the EV two-wheeler guys sales numbers, the fluctuations are quite wide. And depending on which OEM is doing better or worse, our market share also fluctuates a lot every month. But let’s say there’s, Sat, maybe you can answer this and he can do the denominator. How many would we be selling per month?
Sat Mohan Gupta
Right now, we are selling around 20,000 per month.
Vivek Vikram Singh
Correct. So on an average, Pratik, 20,000 per month. If you take, and most of it is EV two-wheeler. If you take EV two-wheeler market, I don’t know exactly how many vehicles are sold every month, but use that as the denominator because each one will have exactly one vote. None of them have two. You will get a market share or get close to it.
Did that help? Pratik?
Unidentified Participant
Yeah, sir. That’s very helpful. Thank you.
Vivek Vikram Singh
Thank you.
Operator
We go to the next investor with a question. Ralson Lewis [Phonetic], your line is unmute. Please go ahead with your two questions.
Unidentified Participant
A recent purchase of EKL, right? So I just wanted to understand what is the kind of revenue that you anticipate it adding onto the overall — the company’s performance in the upcoming years? And secondly, what are the kind of competitors that you anticipate to be competing alongside EKL in the braking system and the other businesses that EKL is involved in? That’s all.
Vivek Vikram Singh
So I will let Rohit or Amit Mishra answer this also in tribute to their role on this transaction, these two gentlemen led and closed the entire transaction. I did very light-lifting.
So I’ll let these two answer the question.
Rohit Nanda
Amit, are you taking this one? Okay. So I think the last year revenue from this business was about INR900 crores-odd and their EBITDA margin is about 18%. So that’s where this business is currently.
Vivek Vikram Singh
Rohit, is it EBIT or EBITDA?
Rohit Nanda
Yeah, sorry. EBIT. That’s what they report. So correct. So that’s where they are. That’s the size of the business currently.
Vivek Vikram Singh
[Technical Issues] We don’t give future guidance for our business. Neither will we give it for this after acquiring it. So we can only give historical what is the number.
Rohit Nanda
Is there a follow-up question on this?
Operator
Kapil, would you like to go ahead, Kapil?
Kapil Singh
I’ll check if there is any follow-up question on this, or can I take questions? If you can just check.
Unidentified Participant
Yeah, I just wanted to understand the flavor on the competition alongside EKL for the railway business in the business that the EKL is involved in. Any competition that is involved against which you all would be working towards?
Vivek Vikram Singh
Two other big competitors. One is a large U.S. origin brakes maker and one is a large European brake maker. You know we don’t take names of other companies in our presentation. But it is a very clear market in that case, the brake category. There are other products in which there are other competitors, but that’s on the slide.
And second, just to help and maybe we can go to that slide, Pratik, can you take the — take us to the financial slide which will be number six or number seven of the acceleration part? And why we don’t want to guide [Indecipherable] Pratik? Yeah, this one, number nine.
So Ralson, if you look at it, this is a very, very high growth rate, right? It was FY ’21 of INR479 crores with this and now it’s INR950 crores. Every year, though, it won’t be like this. So it is in a fast-growing state. There will be some years which will be not so fast, like this year, there has been an election year, so it will not be the fastest. FY ’25 might even — might most likely be flat. But by the time we get in, which will be by the time we take some time to close off the fact, we don’t know exactly [Technical Issues] Only then does the journey begin for us.
The past and what growth has been in the past is not necessarily a great guide for the future, but it does give indication that if investments into the railway sector, investments into building new tracks and new locomotives continue, the growth rate can be expected to be fairly high. How much that will be? Like I said, we don’t guide because of a very simple [Indecipherable] I don’t think any of us know. All of us excite in trying to find certainty in a world which is inherently uncertain and the future is inherently unknown. There is no way for us to know nine months later, whenever the railway budget comes, what exactly will be it’s going to.
So instead of trying to do that, we focus on trying to do what is in our control, trying to do the right things, trying to develop new products, win new contracts, win new businesses, work on cost, work on R&D. And we will continue to do that as we have for the last 3.5 years that we’ve been public, you’ve been seeing us. That’s exactly what we will do with this business. That’s exactly what we do with our business. We will continue to do those things in that nature.
Guessing what will happen and trying to predict that and then share it with the world, I don’t think that is something we have done or will do.
Kapil Singh
I’ll take a couple of questions from the chat box. So these questions are from Ayush [Phonetic]. The first question is if the team can explain lag with respect to addition of orders to our order book. Also, are we seeing any delays in execution of other, especially, concerning European geography?
Vivek Vikram Singh
I didn’t quite understand the first part, but I can answer the second part. We had one — I actually did answer that. There is one European EV related new order whose SOP is delayed one year. Apart from that, we have not seen any other delays outside India. One India EV two-wheeler, I think it was only us. The rest is a demand thing in here. See, Europe PV, India CV, U.S. off-highway, these three segments are seeing a fairly bad slowdown.
The good thing with diversified revenue streams like ours is even in this environment, we can do good things. Yes, there will be quarters where the headwinds will be so high that you can’t do it. But these are the theories that for now I can say are the most effective. The rest are flat. Mostly flat.
But was that the question? I didn’t get the lag or the…
Kapil Singh
I mean, I’ve just read from the chat box, so not really sure what is being asked here. Maybe Ayush, you can raise your hand or reach out directly.
Vivek Vikram Singh
Write down again in the box what is the meaning, because see, you get a purchase order. From purchase order to SOP will always take between 18 months to 24 months. Sometimes it’s faster if it’s a running product and you’re replacing someone, but that’s not always usual, especially if you’re a built-to-spec or black box-type of company like we design the product. So design process has a longer time. Or, if it’s a very new type of product, then sometimes it goes to even beyond 24 months. That’s the thing.
Kapil Singh
Okay. One more question was there from Ayush. The fairly new plant set up in Mexico, can you talk about the capacity utilization of that plant? And how are the synergies which we are aiming to achieve in America market coming along since this acquisition?
Vivek Vikram Singh
Sorry, which acquisition?
Kapil Singh
I don’t know. I think maybe this is just related to the plant in Mexico only.
Vivek Vikram Singh
Okay. Because we’ve not acquired any [Indecipherable] plant and it commenced production. So capacity utilization is any… We have to put up the equipment for the inauguration.
Vikram, when do we expect it to start production?
Vadapalli Vikram Verma
Q2 or Q3 of next year.
Vivek Vikram Singh
Yeah. Calendar year, right?
Kapil Singh
So — and…
Vadapalli Vikram Verma
October time frame.
Vivek Vikram Singh
Yeah. October ’25. And only a quarter after that would [Speech Overlap] same number have any meaning.
Kapil Singh
And then one question is there from Mike [Phonetic]. The EBITDA margin of railway business you’re acquiring is lower than the company average. So should we expect it to converge up to the current company average over time?
Vivek Vikram Singh
So I’ll let Rohit answer that. But one, we don’t know the EBITDA margin because it’s definitely important. But no, I doubt that. I doubt it will converge up to the current company average.
Rohit Nanda
Sorry, Kapil, could you please repeat the question?
Kapil Singh
Yeah, sure. So the question is, EBITDA margin of the railway business you are acquiring is lower than the company average. So should we expect it to converge up to the current company average over time?
Rohit Nanda
I think this would be too premature. Let’s assume the current EBITDA margin continues for now, okay? But having said that, the PAT margin would be largely in line with our current PAT margin. So at a PAT level, it should be having a similar margin.
Kapil Singh
Okay. And then one question is there from Narottam [Phonetic]. I want to understand the rationale for Escorts to sell the businesses. And were there other potential acquirers?
Rohit Nanda
So I guess that’s for Escorts to answer and not for us to answer. I guess their board meeting is coming up shortly. Narottam can reserve this question for that meeting.
Vivek Vikram Singh
Well, all jokes aside, I think it would be there in the schedule. So I’m pretty sure they would have put up on the exchanges this decision themselves. But it can’t — when there are two listed companies involved, communication would be there. But I would say for — you know that Escorts Kubota Limited is own majority by Kubota Japan, which is one of the largest farm equipment manufacturers in the world. For them, if you look at this railway equipment division as a percentage of their global level, not just as a part of Escorts Kubota Limited, even as a part of Escorts Kubota Limited, I don’t know, it’s like 13%, 14% of the revenue. But if you look at it as a global thing, it would be a very small part, maybe a 1%, maybe less. It isn’t their focus. It is something that is not aligned with the rest of their business. I think that’s the reason. And anything more than that, seriously also, not in a lighter way, I think you should address to Escorts’ board [Indecipherable]
Rohit Nanda
I just gave the same answer with a smile. I was not joking.
Vivek Vikram Singh
Yeah, but I added the first bit, so that was my contribution. I can read the Q&A chat box. So you are right that it is between — I mean, we estimate it to be between 18% to 20%. EBIT is right now, let’s just do last year. So that’s 179 upon 950, right? So that’s [Indecipherable] So, yeah, 20%, 21% should be there EBITDA. And those are the numbers Escorts Kubota Limited has been reporting the railway division number as a segmental revenue. So revenue and EBIT and all of those numbers are there in their public disclosures every quarter part of their investor presentation. So all of them can be easily found in the public domain.
Kapil Singh
Vivek, I have actually one question for Mr. Deshmukh, if he’s there, since it’s the last time we are interacting with him, sir, on this public platform. So I would like to know, in terms of — you’re leaving behind a legacy, right? So we just want to understand, what do you think is the strength of Sona as far as the R&D process is concerned, the approach to R&D? And what kind of processes have you built so that we or the company doesn’t miss your presence as you move out?
Kiran Deshmukh
Firstly, I think one of the strengths of Sona Comstar is — has been R&D. It’s a company built on technology. If you see the kind of financials that you’re seeing, they’re purely because of the technology that it has and it owns. So this company doesn’t depend on external help for technology. It is completely owned by itself and developed by itself. And this has happened over last 25 years. So the processes for R&D, processes for developing new technology, and when we talk about R&D, it is not just about products, it’s more about also the processes.
So both processes and product R&D go hand in hand. And the processes for developing the processes and processes for developing the products, they’re extremely well-defined. And the company follows TQM practices. As I think everybody knows, in TQM practices, you have very process — it is a process-driven approach. So everything is — it doesn’t depend upon individual. It depends on the — what systems you have in place.
So already very strong systems in place. And therefore, when I leave, I leave with sense of satisfaction. And I have full confidence that the team under Vivek and Vikram and Sat and Darko will take this company to the next level.
Kapil Singh
Thank you so much. Yeah. Dina [Phonetic], we can go back to the question queue. I can see a few raised hands.
Operator
The next one we will go to Mukesh Saraf [Phonetic]. Mukesh, your line is unmute. Please go ahead with your two questions, Mukesh.
Unidentified Participant
Thank you. Am I audible?
Operator
Yes.
Vivek Vikram Singh
Yes, Mukesh.
Unidentified Participant
Great. My question is, firstly on the acquisition. Just trying to understand the — one of the key strengths. Is it — so my question is, is pricing one of the key strengths for the Escorts Kubota braking systems? The reason I’m asking this is, obviously, they’re competing with large European giants who have products, technologies throughout the world. And when I look at the margins of, say, one of those companies, it’s upwards of 35% in India. So, just trying to understand, is pricing basically localizing some of those technologies here, being able to supply it at a lower price? Is that one of the key strengths here for this braking business?
Vivek Vikram Singh
Rohit, do you want to take it?
Rohit Nanda
Yeah. So, Mukesh, the thing is that, I mean, based on our understanding of the market and their positioning, Vivek already mentioned that this is a market which is — and especially if you look at brakes, which is their largest product, it’s a market which has three players. So — and they have a large market share. So it is both price and quality, because eventually, all these orders, railway orders, are won through a tendering process. So price cannot be the only criteria. And as you can imagine, brakes is a safety product. So this is something on which railways or any company would not compromise just for cost reason. So it has to be both. It has to be quality as well as cost.
Vivek Vikram Singh
Thank you, Rohit. And in general, I don’t think there is any category anywhere in which you can be the largest market share by being cost alone. You have to be good and have a good cost. We’ve been in auto business for long enough to do that. It is never price alone. You have to do two out of three, either best, cheapest, most convenient. You have to be at least two of the three. If you’ve all [Speech Overlap] you are God. But at least two out of three you have to do.
Unidentified Participant
Okay. So absolutely, Vivek. So as also — the reason I ask this question is are there cases where you’ve probably seen in the past that EKL’s breaking business has kind of brought in a new technology, maybe even ahead of the European competitors? So that’s the reason I asked the question. So have you also been — have this — has this has also been technology?
Vivek Vikram Singh
True. So Mukesh, yes, answer to that is yes. We can’t talk too much about it. As you know, it is an announcement with an intent to acquire. Till it’s closed, we don’t actually own the asset, right? So there are some things we can’t disclose. But the answer to that is yes. However, there is a very bizarre thing in the investor — in the private space, if you are first with the technology, actually you have a first-mover advantage, you get a lot of market. In railway actually, because they always have to have multiple suppliers for each product, you have to actually wait for others to also come up with the technology. Only then we [Speech Overlap] So it’s slightly different from our area.
But the short answer, have they been able to do it in the past? Yes. And can we do it in other product categories also? The answer to that is we’ll show you. And third, an unanswered part of your question, when there are big global people, we love that. That is what we love doing. What do we do in differentials? We compete against big, big global companies.
Unidentified Participant
Sure.
Vivek Vikram Singh
We compete against big global companies. In life in general, if you’re an ambitious person who wants to achieve a create something of significance, fight people above you, compare yourself to people bigger and better, not just compare yourself to the lowest, to the low and be happy and satisfied fighting for that. Let’s compete with better people. That’s what we’ve done in every single business that we do. That’s what we intend to do in this one.
Unidentified Participant
Got that. Thank you for that. And secondly, my question is on the core business. If there is any color you can provide on one aspect that I was looking at, which is your non-ferrous forging. So you have mentioned that now for the last few quarters as future products. So any updates that you can provide, anything at all on non-ferrous? And the reason I’m also asking this is obviously now with the new business of railways, how is the top management focus going to be shared across these business lines? So, yeah, this question.
Vivek Vikram Singh
So first part, easy, I won’t even bother Vikram, because if there was an update, we would have shared. When an update — an update has to be that we have won a purchaser. Till then, all updates are in a way meaningless to at least the shareholder community. Internally, as I mean, you know also, so you know we track it on that entire technology readiness level, each product. From TRL1 one to TRL7 is the progress that is all in-house. TRL8 is when you get a custom order, only then does the disclosure make sense. So when that happens, we will.
Effort is relentless. Result, sometimes even with best intention doesn’t come. But when it does, of course, we will.
The second part, which is top management bandwidth, I think I partially answered to Gunjan’s question, which is why we like buying or acquiring businesses where there is already. We don’t intend to do much. I mean, you look at our history, NOVELIC, you know the entire team is there, right? I probably go there once every four or five months. Rohit spends some time with them. But mostly we do it on phone calls. It isn’t — if it does require a very heavy involvement in us going and firefighting, we’d probably not do it. We hold management bandwidth and available time to be very sacred. In fact, we will even go to the extent of things are most valuable. And we don’t waste them lightly.
So we like getting businesses with great management teams and good leaders. I mean, look, that business has gone from what, 450 to 950 in four years. The guys are doing something right. That is a good team already. If it was a bad team, they wouldn’t be able to grow it so fast and so well. They have added new products, they’ve introduced and are working on new future pipeline. It’s a good team.
Unidentified Participant
Sure. Understood. Thanks a lot for that.
Operator
Thank you very much. We shall move on to Nikhil [Phonetic]. Nikhil, your line is unmute. Please go ahead with your question.
Unidentified Participant
Congrats to the team on the acquisition. Just had one question on some of these new products that you’ve spoken about for the railway business. Can you just throw some light on them? And also wanted to understand in terms of — I mean, would you have to go through the entire approval cycle for these new products, or would it be like a shorter gestation period to that extent, a quicker kind of commercialization?
Vivek Vikram Singh
So Nikhil, short, I don’t know entirely helpful answer is. Shorter than it would if we were complete outsiders. But you still have to go through the process. Actually, we tried looking at this organically as well before obviously acquiring because that’s the first thing we do. Anything acquisition-related, we do make versus buy, and say, can we make it ourselves.
What you realize is the approval process, if you want to go in as a non-empaneled gap is so long, it’s like five to six years. So if you’re already empaneled and doing safety-critical products, the time is short, but it still will require the whole process and steps to be completed. It’s relatively short.
Operator
Hi, Nikhil, do you have any follow-up questions?
Unidentified Participant
Yeah, thanks for that. And just want to understand, so for all the new products that you’re kind of looking at HVAC and some of these other products that you kind of showed on the slide, the plan is to kind of do all the entire manufacturing in-house or kind of show some of these components and maybe become like a system supplier, or how are you looking at that?
Vivek Vikram Singh
That will depend from product to product. And frankly, it’s likely early to be talking about future products [Technical Issues] But it will depend. Again, these are obviously operational decision. But let me just boil it down for you. This is — by the way, in our regular business, whenever you get the purchase order for something, even before that, you would have submitted your entire cost to the customer, etc. In doing that, you would have already developed and found suppliers. You would have already figured out what you will produce and at what process times, etc.
So it is different for everything and you take that decision, what is the best for the end customer from a both cost and quality perspective. Of course if there is something that is strategic and can increase value in the long term, for example, software. We give an update on ACPICE, this time like Level 2, why do we think software is so core that we keep most of it in-house and we have a dedicated team? I mean, if you do find ASPICE Level 2 means we are actually getting certified for automotive software. I mean, four years ago, we didn’t even have automotive software. We are now competing with those companies in that domain because we think it’s the [Technical Issues]
So like that, there will be parts, even in hardware that we say this is too critical to outsource, there will be things that we will outsource. Forget parts, sometimes there’s also processes. For the same part, there are multiple processes. Some we’ll keep in-house, some we’ll outsource. It depends. I know it depends is the least helpful answer. It genuinely is the answer. It depends.
Unidentified Participant
Understood. Great. Congrats. All the best, and wish you a very Happy Diwali.
Vivek Vikram Singh
Thank you, Nikhil. Thank you so much.
Operator
Thank you so much. We are now going down the list. Rohit Gupta [Phonetic]. Rohit, your line is unmute. Please go ahead with your questions. Hi, Rohit. Are you able to speak up? Seems like they — he’s having some challenges.
We shall go on to the next investor. Nitish Mangaon [Phonetic] Nitish has dropped. Let’s go back, try Rohit. Rohit, are you able to speak up?
Vivek Vikram Singh
Well, evidently not.
Operator
Perhaps you can type your question in the chat box here, Rohit. We’ll move on to the next investor. Pradeep Jain [Phonetic]. Pradeep, your line in unmute. Please go ahead.
Unidentified Participant
So Vivek, I want to know about CV traction motor factory. What is the status of that? Thank you.
Vivek Vikram Singh
Sorry, Pradeep, you’ll have to repeat that.
Unidentified Participant
CV manufacturer, traction motors, we are establishing the works? CV traction motors?
Vivek Vikram Singh
Okay.
Unidentified Participant
What is the status?
Vivek Vikram Singh
We currently don’t have any CV taction motor.
Rohit Nanda
For bus motors.
Vivek Vikram Singh
Bus? Okay. Sorry, I thought…
Unidentified Participant
Yeah.
Vivek Vikram Singh
Sat, you can update on the bus traction motors.
Sat Mohan Gupta
Pradeep, we are on track. I mean, as we promised in the previous investor calls also, we are on target. And we are just in the first calendar year, first quarter of calendar year ’26. We are there on — we are going ahead with the plan. So it’s on track right now.
Unidentified Participant
Yeah. Okay. Thank you.
Operator
Hi. Kapil, do you want to take on?
Kapil Singh
Yeah. So there are no further questions in the queue. So I’ll hand it back to the management in case there are any closing remarks.
Vivek Vikram Singh
Kapil, no closing remarks. Yeah. Thank you, everyone, for being here. Thank you for listening. Thank you for asking questions. Please ask us good questions. Makes us better, keeps us on our toes. And wish everyone a great holiday season. Happy Diwali. See you next quarter. Bye.
Kiran Deshmukh
Bye.
Kapil Singh
Ladies and gentlemen, on behalf of Nomura, we thank you for joining this call, and wishing you all a Happy Diwali as well.
Dina, we can close the call now.
Vivek Vikram Singh
Thank you.
Operator
[Operator Closing Remarks]