Sona BLW Precision Forgings Limited (NSE: SONACOMS) Q3 2026 Earnings Call dated Jan. 23, 2026
Corporate Participants:
Vivek Vikram Singh — Managing Director And Group Chief Executive Officer
Praveen Chakrapani Rao — Group Chief Technology Officer
Rohit Nanda — Group Group Chief Financial Officer
Sat Mohan Gupta — Chief Executive Officer of the Motor Business
Analysts:
Kapil Singh — Analyst
Gunjan Prithyani — Analyst
Nitin Arora — Analyst
Rishi Vora — Analyst
Presentation:
operator
Ladies and Gentlemen, good day and welcome to Sona Comstar Q3FY26 earning group conference call. Please note all participants line are in the listen only mode. As for now there will be an opportunity for you to ask question after the presentation concludes. Please note that this call is being recorded. We request that you place your lines on mute except when asking questions. Some of the statements by management team in today’s conference call may be forward looking in nature and we request you to refer to the disclaimer in the earnings presentation for further details. The management will also not be taking any specific customer related question or confirm or deny any customer name or relationships due to confidentiality reasons. Please refrain from naming any customer in your questions.
Now I will hand over the floor to Mr. Kapil Singh, Deputy Head of Research India and Lead Autos Analyst at Nomura. Kapil, please go ahead. Thank you.
Kapil Singh — Analyst
Good evening everyone. Thank you for joining for this call for Q3FY26 results of Sona Comstar. Today we have the entire management team represented by Mr. Vivek Vikram Singh, MD and Group CEO Mr. Vikram Verma CEO of Driveline Business, Mr. Satmohan Gupta, CEO of Motor Business, Mr. Praveen Rao Group CTO Mr. Rohit Nanda Group CFO Mr. Amit Mishra Head Railway Business and Mr. Pratik Sacham Head Strategy and MNA and Ankit Agarwal from Investor Relations Team as well.
Vivek, I will hand over the call to you for opening remarks and the presentation over to you.
Vivek Vikram Singh — Managing Director And Group Chief Executive Officer
Thank you Kapil and Happy Vasanth Panchami and welcome everyone to the next quarter of Q3. This has been our best quarter ever across all financial metrics and proud to report that we have for the first time crossed 1200 crore in quarterly revenue and 300 crore in quarterly EBITDA. And this is the first time we have achieved this milestone. But as has always been our policy when talking to our shareholders, we’ll begin with the challenges. So first, China’s restrictions on the supply of heavy rare earth magnets to India continues. In response, we have shifted to alternative motor designs that do not use heavy rare earth magnets.
We are now manufacturing motors for electric two wheelers and three wheelers using light rare earth magnets. And this business has continued to grow very strongly for us. Secondly, uncertainties around US tariffs persisted during the quarter. However, on a positive note, the US Administration has extended the tariff relief related to USMCA content for 5 years to medium and heavy duty vehicles as well. This was previously only confined to light vehicles. So we believe that they should further moderate the impact of tariffs on exporters. Now coming to the good news, which as is usually the case, far outweighs the bad.
So first, our business recovery has been very sharp and well ahead of our own expectations. Frankly, just two quarters ago I had called Q1 as our worst quarter since IPO and today we are delivering our best quarter and meaningfully best quarter. So Q3 is our highest revenue, highest absolute EBITDA and highest adjusted pact excluding the one time labor code related costs that we have taken in our books this quarter. Secondly, amongst all doom and gloom about ev, EV revenues increased materially this quarter. This was our second best quarter ever by both BEV revenue and BEV revenue share.
This is especially noteworthy in a quarter when North America EV volumes saw big declines sequentially as well as year on year third while the market remains focused on global volatility and potential demand disruption. Our order pipeline tells us a very different story. Our current RFQ pipeline is the strongest in the history of the company and almost three times compared to the same time last year. What it means is the pace of new inquiries is the highest we have ever seen since COVID This reinforces the hypothesis that I laid out last quarter of antifragility that we have built a business that tends to emerge stronger from these periods of disorder.
We saw this during COVID and we see signs of that happening again this time around. Fourth, slightly philosophical point, but scale usually creates or at least supposed to create strength. But what it often does is that it creates rigidity it in businesses and scale. Companies with dominant product lines catering to large geographies usually find it really hard to pivot. I mean to pivot in a short time is hard by itself. It is even harder to do so while maintaining growth. And it is the hardest to pivot while maintaining both growth and margins. And over the last nine months we have done exactly that.
North America, which was the largest market in FY25, has nearly farmed for us while India has doubled in our revenue mix. And we have achieved this without sacrificing growth or margins. And I’m exceptionally proud of our management team that has pivoted hard at scale and did it without that much pain. Lastly, R and D is of course one of our clearest priorities and since acquiring the railway business we have re engineered its R and D roadmap. We have strengthened the R D team and I’d like to use the word embedded sonar’s R and D first culture into the business and in a really Short span of time.
We’ve already added a new product, Air Springs to our product roadmap, which in a commercial way will be, I’ll say it will quadruple the addressable market for us in suspension systems. This obviously for rolling stock in India, even beyond railways. We commissioned a new product in our motor division, the hydraulic motor controller. We did this during this quarter. Next please. Yeah. Coming to our performance in the last quarter in financial terms, our revenue grew by 39% year on year while EBITDA and adjusted net profit increased by 30% and 20% respectively. And I’ll pause here to personally thank Vikram, Sat, Amit and Rohit and their teams for this performance.
I mean, at a time when many of the global auto component industry peers and bigger companies are talking about weak demand and margin compression, delivering strong growth while sustaining margin at 25% level is a commendable achievement. At least I believe that. Now moving to BEVs, this was a very strong quarter for EV business. Bev revenues grew 21% quarter on quarter and the mix has expanded to 38% in Q3 from 32% in Q2. This was our second highest level till date. And the key thing to note is that this came despite a very sharp decline in the North America EV market volumes.
In North America EV market fell 45% quarter on quarter. Even on a year on year basis, our BEV revenues have largely held up. I know this. 3% down. This is despite North America, which is the second largest EV market, the volumes declined sharply 36% year over year. So this speaks about the strength of our execution and the diversification of our EV model. That map, which is now in the appendix on how many programs, across how many geographies and how many customers. That diversification is what helps us maintain this rate. Coming to nine months, despite the painful, painful low of quarter one, we are increasing sequentially and our financial results for the first nine months of FY26 have also strengthened.
Compared to H1. For nine months, revenue growth is at 19% while EBITDA impact have increased by 8% and 9% year on year respectively. Most importantly, margins have remained robust at almost a 25% level. As this quarter also marks the end of the calendar year. We have, as is our practice, reviewed our global market shares and despite the ongoing shifts in trade dynamics, tariff related uncertainties, we broadly held on to our market share in both differential gears and starter motors, while maintaining margins in our core business. The marginal movement at a global level was largely mixed, driven as the incremental light Vehicle production growth in CY25 was actually disproportionately led by China where obviously we have minimal presence.
If we were to exclude China, we actually gained market share in differential gears for CY25 and rest of the world, especially Europe and I would say even North America. Let’s see how things develop. But in my view we have the potential to increase this market share quite robustly in the next few years from what we are seeing in our RFQ pipeline and the market in general given competitors and their financial situation right now. So now moving to our first strategic priority which is electrification, our BEV revenue share continues to improve to 33% in the nine month period.
This was 30% in H1, although on a year on year basis it has declined modestly. It is that is because of the weak Q1 and the last quarterly call. I think I’d mentioned that there is one model that has really hurt us in the in this space. That said, we continue to add new EV customers and win new EV programs for our existing EV customers. So during this quarter we added two new orders. One from an existing customer for a new variant of electric scooters, two wheelers and another from a new customer for the hydraulic motor controller which was developed this quarter.
Praveen will discuss this in more detail in his presentation. So now we have 64 programs in EV across 33 customers. Of these, 33 programs are in production while the remaining 31 are yet to enter production. This brings me to our net order book. The order book remained broadly stable sequentially as new order wins were offset by order consumption. Q3 generally is a little sluggish for purchase order of bonds because as you know from the 15th of December to the 15th of January most of the Western world is not really actively engaged at work, so less opportunities to convert RFQs to POS.
And although we did not announce any large orders this quarter, engagement from European OEMs and Tier 1s has picked up meaningfully. Like I mentioned, I think in a last quarterly call as well as the one before that, our European competitors, quite a few of them are facing significant financial difficulties and a large part of increase in our BD pipeline. Almost one third that I shared in my opening remarks, one third of that comes from Europe customers. To sum it up, at the end of Q3FY26, our net order book stands at 235 billion rupees and the EV portion remains high at 71% of the order book.
Our fourth strategic priority is diversification and this is an area where We’ve seen tangible progress. Profitable pivots, as I mentioned at scale are very rare in the auto industry and we are executing one at pace without compromising growth or margins diversification. Those of you who watched us since our IPO has always been a core pillar of our anti fragility strategy and is clearly visible across geography, products, market segments as well as customers. There is a, I’d say common perception widely held by analysts that a higher India mix basically means very high margin dilution. Our Q3 results will, I hope at least clearly challenge this view.
The share of our India business has increased to 55% in Q3 even as consolidated margins continue to remain at the 25% mark. When I wrote about our new look east view in our annual report, it wasn’t just words that I was trying to be off the time and try to do because the US tariffs were there. We have taken actions and the result of those action is visible in just three quarters. So if you look at our geographic mix today, it has broadened quite meaningfully. Eastern markets today can account for 58% of total revenues. This was 33% last year.
So this kind of reinforces our belief that in the world that we live in today, diversification, revenue growth and margin resilience can coexist if there is a management team that can execute this with competence. If you look at the market segment front as well, diversification has accelerated quite strongly. The share of non Automotive revenues from 9% in FY25, today’s 31% is in the first nine months of this year. Off highway has been a bright spot MSAG with robust growth across all geographies. Tractors have done fairly well coming to the product side. Our fastest growing segment this quarter were EV traction motors and railway brake systems.
This you can see in the product mix change. We also saw strong growth in the others category. This includes a range of emerging products such as steering bevel box intermediate gears, epicyclic gear, trains, input rotor shafts and many many other motor and railway products. And this category is expected to keep growing as we add new products in this category like hydraulic motor controller that we’ve added this quarter.
So that’s all for me. And now I turn to our group CTO Praveen to update us on technology. So over to you Praveen.
Praveen Chakrapani Rao — Group Chief Technology Officer
Thanks Vivek. Good evening ladies and gentlemen. What you see in front of you is our familiar roadmap. But ever growing and getting busy as a technology focused organization, we at Solar Comstar continue to strengthen our roadmap with new and exciting products. Our goal in this process continues to be increase content per vehicle as we graduate from pure components to subsystems to eventually complete systems. So this quarter we are very happy to report addition of two new products to our roadmap. The first one which you see on the left in the dotted circle is the air springs for railway coaches.
These airsprings have become an important part of modern railway coaches. They provide enhanced passenger comfort and ride quality through superior cushioning. The addition of this product opens opportunities in growing segment of high speed trains including Rajdhani, Shatabdi Vande Bharat and Amrit Bharat. The addition of this air springs also makes Sonocom Star a comprehensive suspension system provided to the railways. The second product which you see on the right side top is the integrated hydraulic motor and controller for farm equipment. This compact motor with integrated electronics operates the hydraulic pump which aids in lifting farm equipment as well as in steering, braking and other auxiliary farm functions.
This product will enhance our offering to the farm sector where we already provide the traction motor and controller to leading OEMs. Next please. The recent government notification on implementation of adas systems for M2, M3, N2 and N3 class of vehicles or commonly known as Medium and heavy Commercial vehicles assume significance for sonocomstar. The graphic captures our foray into both in cabin and exterior ADAS solutions. As you are aware our sensors and software Vertical Novelic is a pioneer in the field of millimeter wave radar solutions and we have set up a state of art production facility in Chennai for an already awarded business.
This in cabin radar product has been further augmented with vision system to address the mandates covered under DDAWS. As you see on the slide. As per AS184 regulation, this integrated offering will make a comprehensive solution in the domain of driver monitoring system to the OEMs on the right. What you see is our unique 180 degree field of view exterior radar solutions and they provide an opportunity for OEMs to replace up to 12 traditional ultrasonic sensors and four corner radars with just four radar sensors while addressing all the mandates under the new regulations including Blind Spot Information Systems, Moving of Information System, AEBS and LDWS Sonar. Comstar will continue to leverage these breakthrough products to play a meaningful role in the growing ADAS market in India.
Thank you and over to you Rohit.
Rohit Nanda — Group Group Chief Financial Officer
Thank you Praveen. Very good day to you all. It’s my pleasure to share our third quarter and nine month results for the financial year 2026 with you. The quarter gone by has been the best quarter for the company wherein for the very first time we’ve clocked revenue in excess of 1200 crores and EBITDA in excess of 300 crores. Our revenue for the quarter was 1209 crores which is a 39% growth over the same quarter last year. BEV revenue was 320 crores which is 38% of our automotive revenue and is lower by 3% year on year.
EBITDA for the quarter was 305 crores which is a growth of 30% over the same quarter last year. Our EBITDA margin was 25.2% for the quarter compared to the same quarter last year. It is lower by 1.8% mainly because of change in the product mix at profit after tax level. As you all know there are new labor codes which have been notified by the government and are effective from 21st November 2025. A profit after tax for this quarter had a one time impact of 30 crore rupees from these newly introduced labor codes mainly on account of additional gratuity provision and to a small extent because of additional leave and cashmere provision provision.
Once we adjust our profit after tax for this exceptional cost. Our pad was 181 crores which is a growth of 20% over the third quarter of last year. Our adjusted PAT margin was lower by 2 1/2% because of lower EBITDA margin and lower net finance income despite lower depreciation cost as a percentage of revenue. Coming to the nine month results, next slide please. Our revenue for the nine month period aggregated 3203 crores which is a growth of 19% over the same period. Last year BEV revenue was 795 crores which is 33% of our automotive revenue and is lower by 14% year.
On year nine month EBITDA was 796 crores which is a growth of 8% over the last year and EBITDA margin was 24.9% which is lower by about 2.7% compared to the same period last year mainly because of change in the product mix adjusted for one time impact of new labor code which I just spoke about. Profit after tax for the ninth month has grown by 9% and stands at 478 crores. Our PAT margin is lower by 1.4% due to lower EBITDA margin despite lower depreciation cost. This brings us to the last slide which is on key ratios as I had explained in the last quarter also different cost and working capital structure of the railway business is flowing through our key ratios that you see on the screen for the current financial year, like value addition to employee cost and turnover ratios in the current year when compared to the earlier years.
But compared to what we reported last quarter, there are no material changes because last quarter itself had the impact of railway business already included. However, our return on equity ratio has slightly improved from the last quarter as deployment of capital in the railway business starts to bring in incremental positive impact compared to the finance income which it has substituted in the P and L account. In the end, there is an additional piece of information that I’m glad to share with you which is that we have received our first year PLI benefit from the government during the month of January.
So that completes our first cycle of PLI income booking and conversion of IT into cash flow. With this we have come to the end of our earnings presentation and I’ll now hand the proceedings back to Namura team.
operator
Thank you everyone.
Kapil Singh — Analyst
Yes, please start.
Questions and Answers:
operator
We will now open the floor for the Q and A session. If you wish to raise a question, please use raise hand function located at the bottom right of the Webex page. We will unmute your line and prompt you to speak or you may submit your question via Q and a chat box addressing to all panelists. Please remind it to keep your question to minimum of two questions. If you have more questions, please return to question Q. Thank you. We have a question from Amin Pirani. Amin, you can go ahead. Amin, you can go ahead.
Kapil Singh
I think we are not able to see him by the time we figure this out. If you don’t mind, I’ll ask a question by the time we get the Q and order. Vivek, you know you have consolidated the railway business during the year and you know some of the investors were trying to assess the performance of the business excluding the railway business as well. So how should we think about this? What is the right framework according to you to evaluate this?
Vivek Vikram Singh
It’s a relevant question, perhaps even an important one. But and I hate to disagree, but I usually don’t disagree with you but I have to on this point. So we don’t think excluding railways or any business that is a bu now is a way to assess management or company performance. I mean acquiring the railway business was a strategic capital allocation decision and the key test for us is quite simple, right? That whether it has added to EPS or has it not. I mean if you look at it fundamentally, the two biggest roles any management team has are and across businesses, right? Generating cash and then deploying that cash.
If the cash deployed returns higher money than simply holding it or returning it to shareholders, then the management has done their job well. And there are only two things you can control by making these decisions. The timing of the capital deployment, in this case an acquisition, and the price paid for it. So let me try and illustrate. Pratik, can you go to the appendix and put that chart which shows our 25 year growth journey? Yeah, this one. Okay, so there are two years, right, that we’ve done meaningful acquisitions of size. The motor business, which we acquired in FY20, that’s on your side there.
And the railway business in FY26. If we had not taken those decisions today, we would be a driveline company only and perhaps half the size of what we are today. And even more importantly, if you look at those years, those years were also the ones where our growth would have been lower or even far lower than our average growth rate. So both times we were able to time the acquisitions right for cash flows to flow in at the right time and add to the business. And both times we were able to do it at a price that made it return accretive.
I mean, you and everybody on this call would know the statistic of how many acquisitions succeed versus how many fail. And if you look at what we have done and what has happened in subsequent years. So the Philip in growth after FY20 came because of that acquisition and then both engines started firing. The goal is that once you develop a flywheel that generates a good amount of cash flow that you’re confident can stably and sustainably keep throwing up cash, you take that extra cash and deploy it ideally in another flywheel, not just a plug and play, something that just adds a gap, something that becomes another flywheel and then generates or throws up even more cash flow.
And you keep building on that. So now after seven months, I can proudly say that all three businesses of ours are long term sustainable cash flow machines that will keep adding to our cash bank. So yeah, in summary, what matters to us at least as a management team with a 15 year outlook, is whether capital has been deployed at the right price and the right time in a way that improves both earnings quality as well as earnings stability rather than how growth appears on X railway or ex motor basis. And not to forget, I mean railway also adds meaningful diversification beyond automotive.
This is fully aligned with our long term strategy, our often repeated stated goals, and I mean going forward, very, very high probability that we will add another beam. We are keeping our powder dry and with a Strong balance sheet and I don’t know, thousand or eleven hundred crores of cash sitting with us. We are likely to continue deploying capital prudently wherever we feel that there is clear earnings accretion and strategic fit. So 10 years later, when you look back at us, how will you judge that? What should I exclude and what should I include? We are evolving company. We are a growing company. We will keep becoming something else from what we are today.
Kapil Singh
Fair enough. Thank you. Just one last question from my side is on the new products that we have showcased more on the ADAS opportunity. Could you elaborate a little bit on this? Are we going to supply only the radars or are we going to be system integrators? And what is the value proposition that we offer? Is there a competitive advantage here compared to what is available in the market today? Just trying to get a sense of what could be the tam.
Vivek Vikram Singh
Tam’s pretty big, but we will focus only on the radar module. I’ll be honest. We can either be tier one to other large system integrators who are bigger tier ones or supply directly to OEMs who are willing to integrate the radar modules themselves. Praveen can talk about the cost as well as the technical advantages. Praveen.
Praveen Chakrapani Rao
Yeah, so thank you Vivek. So both on in cabin as well as exterior couple, you know, if you have that slide pulled up. Pratik. So there are several advantages of our in cabin as you see on the left portion of this slide. So these are all our, let’s say unique select points and it is basically one product which can do all of these functions. Now the ADAS regulation mandates a few of these functions today. For example occupant detection or child present detection or driver monitoring systems. But the product that we are offering to the OEM can do several other things, right? Several other value added features.
So this is something which we are pitching to the oem. The other thing is we are perhaps one of the early ones to set up facility in India for the radar product, right? If you look at where others are today. So that is something which is exciting because we will be launching production with our first product pretty soon which means we’ll be able to have the opportunity to support all the OEM programs anytime FY27 onwards. So that’s a great situation to be in. On the in cabin exterior with all the mandates that is coming up.
We have a product which as I said can replace ultrasonics and corner radars. So that’s a huge advantage in money terms. You know it’s almost like half of what they would be spending today to have this ultrasonic and radars. So it is definitely a big advantage and we are pitching to OEMs, you know, as both a technical advantage as well as from a cost point of view. And now with the production facility being there, you know, we are ready to support. So all in all I think it is very timely with the regulation coming in, pitching in, you know, FY20, I mean calendar year 27 is when at different points in time for existing as well as new vehicles, it will be mandated and know we are ready to support.
Kapil Singh
Thanks Sneha. Over to you.
operator
Gunjan Prithiani. Gunjan, you can go ahead.
Gunjan Prithyani
Hi, are you able to hear me?
operator
Yes.
Gunjan Prithyani
Okay, thanks for taking my question. You know, good to see growth coming back after really tough couple of quarters. I was just looking for, you know, you know, two inputs. Firstly I think on the traction motor, you know, really solid growth. When I look at it, you know, from an industry level. Of course EV adoption in two wheelers isn’t growing as much. So I just wanted to hear your thoughts on is the growth that we are seeing is market share gains in the industry. And if you can sort of give us little bit color on how does the market share stand like you share for other segments as well. And how big is this three wheeler opportunity? Has it started to also add in meaningfully? So a bit more color on how do we think about the growth outlook on the traction motors?
Kapil Singh
Vivek, I think you are on mute.
Vivek Vikram Singh
I was saying that Gunjan doesn’t need to thank us for taking a question. We are here for this one express purpose to answer all your questions. So we are at your bs so there is no need for thanks. EV penetration as percentage of two wheelers may not have changed meaningfully, but our new programs have started kicking in. We are also expanding share of wallet with existing customers. So the point that we made that our agility in shifting from heavy rare earth to heavy rare earth free magnets, that actually helped quite a lot. And I don’t want to belabor the point, but this is what I keep saying that capable people with strong engineering backgrounds in these periods of supply chain or disruption are usually the one to gain share of wallet and market share.
But market share calculation is harder to give you as a percentage. That’s why we basically end of year we will just see how many electric vehicles were produced, we see how many motors we made and because only one motor goes in each vehicle, you can just do that division. It’s fairly easy. What is hard to quantify is how much of it is still being supplied by China. Some people let you know that they are buying from China. Some people don’t tell you that they are actually buying from China. So that is the hard part. But I would say comfortably we would be the largest in this space.
Even if you take other vehicle categories, REB Opportunity is big and it’s actually growing one of the fastest and hopefully in the next couple of quarters you will see the growth being even more solid. What? Because the value is also much higher, right? As the power and voltage go up, the value goes up non linearly actually it goes up much harder. Because of which I would say for the next five years also I would expect traction motors and controllers to be our highest growth segment by far. I think.
Gunjan Prithyani
Okay, got it. No, that’s good to hear. I guess. I think the value opportunity I assumed is yet to kick in from the three wheeler piece. So.
Vivek Vikram Singh
This quarter some more programs will start. So it is coming in faster than anticipated and obviously the big boy piece which is the four wheeler bit is something that we are working on and hopefully we can share something in the times to come. But yeah, it’s closer than one expected. That’s a really big segment because even if you take a small number of vehicles and I know that for some reason we say Bev is the only one which has traction motor. All plug in hybrids also have traction motors. If you add that total volume and combine, multiply that by the value of the motor and controller, the addressable market is humongous. Even a small portion is a big and meaningful thing for us.
Gunjan Prithyani
What would be the value if you were to sort of share a range for the four wheeler?
Vivek Vikram Singh
Because then people can read this and then negotiate against me.
Gunjan Prithyani
Okay, got it. The second one, I wanted to go back to the comments that you made that you know there is a surge in inquiries almost similar to the supply chain disruption when we saw post Covid. Can you talk about what are these sort of inquiries that you’re seeing? Is it supply chain diversification? Is it, you know, you know just the product capabilities, you know getting more stronger within with Indian suppliers and you know, on the same lines the whole Europe opportunity that you spoke about in the last conference call. At what stage are we on on those, on that business?
Vivek Vikram Singh
Okay, so I’ll take it one at a time. So this auto supply chain is global by nature. That customers are spread across the world and even within customers. So we, let’s say we say X customers a North American manufacturer, they would most likely have manufacturing in Europe etc as well. The supply chain is also similarly distributed all over the world. When we say that European suppliers are facing financial difficulties, it is not just the Europe plants. It will also be their US plants and other plants. And I would say about, and this is primarily by the way, Driveline business, I would say is where we are seeing this the most.
I will come to starters after this. In Driveline, what we are saying is that about 400 million to 500 million euro worth of revenue companies might just fold and all that they do will have to be redistributed across the supply chain. When this kind of event happens, the most likely people to inherit this business or get this business resourced are, well, China and India and for political or whatever reasons, for North America that choice will not be China. So it then becomes India or find another supplier who is strong within the continental United States or within Europe.
For European OEMs it is hard to do that. So this is basically redrawing of supply chain maps itself. It is one of the bigger moves. I mean, you know, remember there was a time in 22, 23 you used to ask me about China plus one and all at that time even. And I think it’ll be in one of our transcript that I said this is not, it is not as real as people claim it it to be because there wasn’t really an imperative to do so. Now there is a financial imperative to do so. So there is a hardcore urgency behind this.
And as far as conversion goes, some may have already converted in the 15 days passed in January, but they can convert today, they can convert tomorrow. Because they are in almost all of them are what we call stage three or stage four, four of our pipeline, which is the phase in which you have demonstrated product, you have developed the product and now samples are approved. Now you are basically negotiating commercials. So that’s where a lot of this is right now. Starters. What we are seeing is interesting that the motor market, as you know, there are five or six large global players.
Some of them are looking at vacating the starter motor fleet. So here the opposite of the electrification thing is happening that suddenly a lot of people do not want to make starter motors. And really big guys, they may look to shutter plants and that capacity would have to shift somewhere. So that’s where the inquiries are coming from that people who were getting it from one of our bigger competitors, we are probably number six or number seven in the world in starters. So one of the top three, four and they have to now resource. So these are the two.
There is no real move towards India. It is a move to competent global suppliers who are already proven at global scale because we have in the past done those parts, done those assemblies. So the customers are well aware that you know we can do it. You would rather when you are in an urgent situation to Resource you would want to go with a tried and tested person. So that’s where it is today.
operator
Thank you. Please be reminded to keep your questions to a maximum two questions. If you have more questions please return to a queue. Now we will take next question from Nitin Arora. Nitin, you can go ahead.
Nitin Arora
Just first continuing this question what Gunjan asked and giving the way your confidence right now and has been in the last two quarters about this opportunity. How do you think about, you know, profitability of this opportunity? My question is, you know we used to be a very, when North America used to be very big we were like 27% margin company. I mean I’m not saying that today you are not a very big margin company. The question is that how do you think about this profitability movement happens when these orders also starts coming to you? Because I’m assuming if the way I’m reading your commentary nobody will come for one or two orders.
If it’s a supply chain thing he will obviously will try to scale vendors and, and you know, auto ancillaries like you for the longer run. So how do you think about profitability on that, on that account. And second, I know India has becoming big for you now and I need your outlook more on one aspect which is commercial vehicle which is a lot of noise in the last two, three quarters. And we as an analyst always think that, you know, eventually the fundamentals should prevail. You know the fleet size is pretty aging, growth should come back. But it has always been a false start. But this time it’s almost like a third month where the industry is growing in almost 20% plus. Just need your outlook on that as you are also a supplier there. So just these two questions.
Vivek Vikram Singh
I’ll cover both seats. CV obviously we have a good insight because we are, I don’t know what word to use but we are like above 80, 85% of CV industries are differential gears. So we see that very quickly and you are right, it is always wise to wait for three months before you take any judgment call on is CV cycle started or not. We have seen five false starts in the last five years. I hope this one sticks. I actually was thinking that the GST cuts would be the best for the CV industry. And when immediately it did not materialize I was slightly confused because usually we have we pride ourselves on getting these calls right.
I think it will man. So in India has done well because of traction motors as Gunjan pointed out trucks as you pointed out, tractors and train brakes. So all four T’s. So the four T’s have done well for us and I think all four are going to continue for some time. From a purely the trends we have seen in the past of vendor cv cycle, go up, down tractor cycle, all of them seem to be in favor of that hypothesis. On the first one, the margin front, same answer I’ll give that I gave to you when you asked me this question in I think it was April, May 2021 before our IPO.
It doesn’t really matter what new business we add subtract at that time. I used to say our range of EBITDA will always be between 25 to 27. After we acquired railway business as you know it has significantly lower margin than our average. I said it will be between 24 to 26. I don’t think it will change like this is also understand that these are the projects we are talking about. If I take their total value it may be the inquiries we have or in the pipeline it may be two to three times our revenue size.
We can’t possibly do all of them. So we will of course try to be prudent about it and choose the opportunities that are more commercial vehicle, more bigger vehicles, SUVs, pickup trucks where torque is high and value addition naturally is high and gross margin is high and hence our EBITDA margins are high. So we will continue to be that way because there is an element of choice also here that if it is a really low margin only volume increasing opportunity, we don’t do those things. It is very easy for us to have today at the end of year obviously to have been a 6,000 crore company with the same EBIT.
But those empty growth type of programs we will almost always reject unless there is a high strategic reason to do it that because of doing that we get something else which is meaningful. Otherwise we don’t. And most of these opportunities that are coming, maybe actually most of them that I can remember at least are higher margin than what we do today. On the India piece, I think going forward, hopefully the EU India FTA should happen going forward. I’m also keeping our fingers crossed of India US Trade deal happening. If those two do happen, I think this pendulum will swing back and then west portion of our revenue will also go up. We do not seek that India should become 80% because what is the meaning of diversification then? So we would want to keep a healthy mix. And we do see that North America and Europe will increase in the times to come. Have I answered your question, Nitin or not?
Nitin Arora
Yeah. Yeah. Thank you Vivek. And all the best to you and the team. Thank you.
Vivek Vikram Singh
I’m Kenit.
Kapil Singh
I’ll take Amin’s question. He’s not able to connect. Can you comment on how we should think about the recurring impact of labor codes on employee costs going forward? Probably. This is for Rohit.
Vivek Vikram Singh
This is 100% for.
Rohit Nanda
Yeah. So see our current estimate is it should be around 4 crores a year. I mean why I say this is because, you know rules and all are yet to be notified. So our understanding of this will improve as we go along as would be the case for everyone. But should be ballpark around 4 crore.
Kapil Singh
Okay Rohit, while we have you there are a few questions from Raghu as well which are on the financials. So just let me run through one by one. There is an improvement in gross margins. QoQ. What has led to this increase?
Rohit Nanda
So Q1Q. It has to be product mix only.
Vivek Vikram Singh
Yeah, it will be product mix. So if you have more products that are assembled in nature I would say versus if Driveline grows. No, Driveline will have more. Right. Once you make from component will have higher gross margin and the ones you assemble will have lower gross mark. So that’s just a mixed thing.
Kapil Singh
I think the second question we have covered on recurring impact of employee expenses from Q4 is specifically asked from Q4.
Rohit Nanda
Yeah. So okay. I mean if it has to be that specific 4 crores per annum will mean 1 crore a quarter.
Kapil Singh
Yes. Are the next is are there discussions with Europe OEMs at advanced stage for orders relating to Driveline parts due to bankruptcy of three competitors?
Rohit Nanda
I thought Vivek already covered it now.
Vivek Vikram Singh
Yeah. Yes. And I think I’m now reading those questions. So there’s one question on exact pli. Amount and all. Please do not answer that.
Kapil Singh
Then one question is would total railway revenue be around 357 crores this quarter?
Rohit Nanda
Sorry.
Kapil Singh
Would total railway revenue be 357 crores this quarter?
Vivek Vikram Singh
So we don’t report wise or probuise revenue. I think we are trying to take this. Like I explained at length to you Kapil. We are trying to take this thing away from this. I’d say almost excel sheet oriented approach that what row Is what? And then you have to. We are not a job is not to, you know, helping better models. Our job is to run a business. These three things are product lines. Our job is to ensure that on a consolidated level we as a company continue to do well. What contributes. What is an internal mis metric. It is not for outside. We give a fair amount of color on which product etc has given what. I think that is enough. We have always been very transparent on that. We have not ever changed or gone back on how much we report. But more than that sometimes becomes analysis for no real outcome.
Kapil Singh
Okay, and what is the potential of hydraulic motor controller?
Vivek Vikram Singh
Yeah, Praveen, if you’d like to answer that one.
Praveen Chakrapani Rao
Yeah, so yeah, thank you. So as I opened up on the hydraulic motor controller. So it has wide applications in the farm sector and as you would know, in farm sector you have a lot of agricultural implements which are used for towing, plowing, sowing and many things like PTO operation. So all of that actually run on hydraulics in most cases. So to run the hydraulic pump you need a hydraulic motor. And that’s what we are launched. So application is widespread in the farm sector. We have just begun with one program but the opportunity is immense and especially with electrification happening in tractor segment, it is only bound to grow.
Kapil Singh
Sneha, back to you.
Vivek Vikram Singh
There’s another interesting question that I noticed because I read the Q A thing someone asked about differential assembly revenue. Why has it grown sharply on a Q1Q basis? 1 are one of our customers or oldest EV customer has had some differential assembly revenue recovery, I will say and then some other customers also their program specifically in Europe. Actually EV growth in Europe has been fairly decent for us. So EV plug in hybrid. So differential assemblies has grown because of that reason. And the person who noted it, I have to compliment him. This is absolutely the correct analysis that for three consecutive quarters we saw decline in those volumes. So we were very happy that this quarter finally started inching back up.
operator
From Rishi Vora. Rishi, you can go ahead.
Rishi Vora
Hello, can you hear me?
operator
Yes, we can hear you.
Rishi Vora
Yeah. My first question is on the couple of partnerships which we announced, right? Nadigm C Motive Equipment. Can you just give us any update on all these partnerships in terms of product development? And just one clarification, when you talked about four wheeler traction motor, we are working on it. Is it for cars or is it for, you know, other commercial vehicle segments? Just a clarification on that.
Vivek Vikram Singh
So we are working on it. Doesn’t mean we have a purchase order yet. Otherwise we would have put that out. We are working for all segments, whatever they may be for four wheel and above. Hopefully in six, seven months time we will have a meaningful update for you.
Rishi Vora
Sure. Because in the past I remember you had said that passenger vehicle is not a segment which we are focusing on because the competitive intensity over there is on the higher side. So is there a a change in thought process in that segment at least in terms of product development?
Vivek Vikram Singh
Oh no. What I had said and I’ll clarify was exactly this that we will start with two wheelers then move on to three wheelers and then the toughest to compete is in four wheelers. So we will go to it in the end when we are certain of the capability of our product, the advantages we bring to the customer and only then would it make sense. If we. Are not able to do it ourselves. We will of course figure out a way to collaborate, partner, do something. But it is a segment that we will come to in the end. And this is something I said In I think 21 or 22 calendar when we had shown the map that we eventually want to address every single market segment. But this will be our order of progress. As you know, since then we have done quite well. I hope our numbers speak for themselves. We are perhaps the largest, if not the largest, we will surely be one of the at least the second largest in volume terms.
I doubt if we are not the largest in two wheelers. In three wheelers we have made a meaningful dent. So it is time and we have worked enough that we keep aspiring upwards. On your second question again, these are partnerships that were formed in 21 and 22. Not that much. These were. And now with the hindsight advantage I think in public markets purely R and D type of partnerships should not be announced because people ask questions as if there’ll be commercial opportunities we were trying to explore. So I’ll tell you all three. All three were tried to develop rare earth free motors.
I will let Praveen and S talk about where we are with each other but it is not something that can happen instantly. For 200 plus years motors have been made using magnets to challenge that you need breakthrough innovation and almost inventive leap and that does take a much longer time frame. We continue to work with I think equip make anidigm as well as C motive. We continue to monitor it but Sat and Praveen can guide more on where we are with those.
Sat Mohan Gupta
Thanks Vivek. On equipmake and anidigm I mean we are working with both the Companies and both the partners we are trying to see that, I mean how we can perfect the the application requirement into these technologies. So right now it’s under validations and trying to address some of the concerns of the current application requirement on same automatic. Praveen can help on.
Praveen Chakrapani Rao
Thanks sir. So CE motive as we informed earlier, it’s a kind of a moonshot technology. It’s what’s called electrostatic motors. So their primary applications were industrial basically to replace let’s say conveyors or electric fans with this kind of motor. The automotive was a challenge to be handled later because automotive talks about reliability, safety, form factor and packaging and other things. So they are currently in the state of, you know, working towards industrial applications. And I believe once they address that challenge we can then move to automotive because our requirements, as I said NVH and safety are still quite strong. So I think that is for the future. But for now I think they still have work to do before we get to automotive.
Vivek Vikram Singh
Well Rishi, good of you to remember old things.
Rishi Vora
Yeah, thanks team for the answer. And one just last question for Rohit. If you could just refresh on the commodity contracts because aluminum copper prices have gone up sharply. So is it a pass through in all our sub segments or just what are the broader contractual terms for the commodities?
Rohit Nanda
See steel is a pass through for driveline business. For motor business, copper and aluminum is a pass through. Steel is not a pass through in all the contracts, it’s only a pass through in some of the contracts. So that’s how it will stack up.
Vivek Vikram Singh
Yeah. So while we did not mention anything on commodities just for knowledge that we have achieved these margins and held on to them despite actually a quite sharp increase in commodity prices which although it does not affect absolute ebitda, it does affect the EBITDA margin because it gets added in numerator and denominator if you pass through also. So whilst mostly we pass through but numerically it always depresses margin, it has happened to us in FY22, if you remember that was the first time our margins fell below 25%. When we go above 26 or 27% that happens when commodity prices cool off quite a bit and then numerically or mathematically the margin goes up.
Kapil Singh
Vivek, there are a few questions in the question queue so let me just read out some of those. One was on how is the situation on rare earth supply panning out?
Vivek Vikram Singh
I think I dressed that in my opening comment. No supply from China on heavy rare earth magnets. We are still restricted as a Country.
Kapil Singh
There were some questions on earlier, some question marks on light rare earths as well. Is that fine or is there any risk there as well?
Vivek Vikram Singh
Fine so far. Don’t scare people.
Kapil Singh
On the differential assembly. There was a follow up. Is the EV plug in hybrid a new program or ramp up of existing program?
Vivek Vikram Singh
Ramp up of existing program. There has been no material big program that has started. Any program that started recently would be small ones. Pratik, you can correct me if I’m wrong.
Praveen Chakrapani Rao
Yeah, that’s correct. It’s an already existing program getting handled.
Kapil Singh
I think there are a few questions which are along the lines that macro. Do you see macroeconomic policies worldwide conducive for EVs? Most of our order book is from EVs. Do you see a risk there because of the policy changes?
Vivek Vikram Singh
The policy changes that were to happen have happened. I mean like when people say when the worst has happened, you can actually breathe a sigh of relief because you already threw it. So all EV subsidies or credits that were being given in the US have been scrapped already. This. So this performance is despite all of that. I did mention in my opening statements that 45% negative growth sequentially for North America EV market. So this is despite all that. Europe. But if you actually go and study and I think of our team takes out this mobility newsletter, which is pretty good, in which they track market by market EV sales.
So if you add EV plus plug in Hybrid, which is basically our segment, you’ll see pretty decent performance in Europe. Because now what is happening is that as battery prices continue to come down economically, the EV is making more sense. And once the world has seen that happening in China, they realize that even without any incentives, the EV is the better way to go. I think you will see that at least in India and Europe, you will see a very, very high tailwind for ev. And actually most of you, I think already concur from what I read. I do. I don’t read many of our company coverage reports, but when you guys publish the auto sector report, I do read it. I think you will also concur that the tailwind is very strong for Europe and India. Now in India.
Kapil Singh
Sure. And then there’s a question on what’s the status of products proposed to be developed under the Neura Robotics mou. What is the ballpark time you’re looking for in robotics and humanoids as this is very nascent stage.
Vivek Vikram Singh
Correct. I did address that last time. Also. Do not ask for five years now. We are much wiser after being public for five years. Please do not ask. This is something we are doing. I had explained to the length that 0 to 5 years you spend money but don’t make money. 5 years you start making some money. 5 to 10 you make money. Right? When we announced our suspension motor we were met with a lot of skepticism and scoffing. In 21 until 24 it was right. We did not make even a single dollar 25 when we made the first dollar.
26 will be when we’ll make millions and hopefully 28, 29 is when we go into tens and hundreds of millions. That is how it scales in differential assembly for EVs. 2016-2019 we made no money. 2019 onwards he started making some money and then it became tens of millions dollars. Post that this is the usual product development cycle. So if this is for making decisions on the near term basis, please do not consider it at all. Indulge us that these are something that we are passionate about and like to talk about. But this is not for today, this is for the company. Five years later we make 15 year plans. We don’t do this for the short term and we never will.
Kapil Singh
Okay, one question is on the rare earth three motors, how do they compare in terms of usage or output to rare earth motors? And then some comparison require where heavy rare earth or light rare earth, which are less efficient. Some color on that as well.
Vivek Vikram Singh
So. Good question. Sat, would you like to answer it? Actually let’s do it in three ways. What is heavy rare earth? Heavy rare earth, free or light rare earth and ferret. What are the three differences? I think Sat can answer this. Well, because we’ve been telling this to customers and the government for a while.
Sat Mohan Gupta
Between heavy rare earth and light rare earth. The difference is not major. It impacts two things. One is the performance which is in terms of the efficiency of the machine and the thermal handling of the system or the machine, you can say so between HRE and lre. I mean we work on different parameters to to meet the application requirements. So we work on copper, we work on size of the motors, internal size of the motor and try to see that. I mean there is not a big change between HRE and LRE application requirement when it comes to ferrite.
Ferrite is more thermal friendly. But as far as the power of ferrite is concerned, it’s lower than HRE and lre. In that case the the efficiency factors comes down drastically. And even after working on the design with more copper and other components, still it’s lags and it’s increased the weight of the vehicle. So the good fit I mean what we have seen and what we have done is to replace HRE with LRE which is without impacting the application and the customer requirements. But ferrite is a good options to to manage the supply chain more effectively. But it comes with little bit of challenge on efficiency as well as the weight. Hope I answered the.
Vivek Vikram Singh
Yeah so Nettech two wheeler, three wheeler if you engineer the product well and make some changes to the motor topology design other materials you can using LRE magnets get to the same application. So there is no no EM or none of our customers at least will compromise on product quality. So we will get to the same product quality with a few changes and the ability to change fast does help you as I answer to Gunjan increased share of wallet and market share. When these changes are happening.
Kapil Singh
Then there’s a question on what are the tariffs for Sona in US and eu. Who is paying the tariffs?
Vivek Vikram Singh
I’m not going to answer this question otherwise you know somebody big might get very very unhappy. Very, very fundamentally the tariff is paid by an importer, not by an exporter. Because that is how tariffs work that if you import something you have to pay a tax. That is what it is. Apart from that I think it’s well known. It’s not like Sona has some special arrangement with any country or government. Everybody has the exact same tariff rates if they are from a certain country or if their products fall under a certain HS code. So it is defined by HSN codes and you pay that tariff accordingly.
Kapil Singh
Then one question is regarding the strong RFQ pipeline. How long does it take for the order book to translate to revenue?
Vivek Vikram Singh
Good question.
Kapil Singh
I think the question should be how long does it take to first translate to order book?
Vivek Vikram Singh
Yeah, I think the first part is the one that once you get a purchase order, anywhere between 12 to 18 months is what it takes for revenue to flow in. Sometimes even longer. It can even go up to 24 to 30 months. Depends on how early that OEM has moved. What we are talking about are also special situations in which it is what is called a running chain that you have a supplier and you’re switching midstream. Those typically are shorter time cycle. So the answer is very sadly that it depends. It depends from program to program, context to context. As swiftly as eight, nine months and as long as 30 months from start to revenue.
Kapil Singh
And one question on financials is employee cost has increased 14% QoQ. Can you indicate the reason for increase and whether further increase is expected in the near term?
Rohit Nanda
No. So we don’t expect an increase in the near term. I mean, of course some part of the employee cost is also linked to the revenue, but the the staff cost there is an annual increment cycle which we have which is from October to October and that’s the reason why you see increase in the employee cost here. So in the near term it should not go up.
Kapil Singh
With this. I think I’ve covered all the questions in the queue. Sneha, back to you.
operator
Due to time constraint, we have to conclude this call now. If you have any further follow up questions, please feel free to email your Nomura sales representative or corporate access team. Thank you everyone for your time. You may now drop off the call.
Vivek Vikram Singh
Thank you. Thank you everyone.
Kapil Singh
Thank you everyone.