Varroc Engineering Ltd (VARROC) Q3 FY23 Earnings Concall Transcript

Varroc Engineering Ltd (NSE:VARROC) Q3 FY23 Earnings Concall dated Feb. 07, 2023.

Corporate Participants:

Bikash Dugar — Head, Investor Relations

Tarang Jain — Chairman and Managing Director

K. Mahender Kumar — Chief Financial Officer

Analysts:

Karan Kokane — Ambit Capital — Analyst

Aditya Jhawar — Investec — Analyst

Anand Trivedi — Nepean Capital — Analyst

Rishi Vora — Kotak Securities — Analyst

Chirag Shah — Nuvama — Analyst

Vishal — Swan Investments — Analyst

Basudeb Banerjee — ICICI Securities — Analyst

Priya Ranjan — HDFC AMC — Analyst

Priya Ranjan — HDFC AMC — Analyst

Abhishek Jain — Dolat Capital — Analyst

Jyoti Singh — Arihant Capital Markets — Analyst

Deepak Pawar — Vasuki India Fund — Analyst

Chirag Shah — Nuvama — Analyst

Vignesh Iyer — Sequent Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Varroc Engineering Limited Q3 FY’23 Results Conference Call hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Karan Kokane from Ambit Capital. Thank you and over to you, sir.

Karan Kokane — Ambit Capital — Analyst

Yeah. Thank you, Operator. Good evening, everyone. I welcome you all to the Varroc Engineering 3Q FY’23 results conference call. From the management team, we have with us Mr. Tarang Jain, Chairman and Managing Director; Mr. Arjun Jain, Whole-Time Director; Mr. Mahender Kumar, CFO; and Mr. Bikash Dugar, Head, Investor Relations.

I’ll now hand over the call to Mr. Bikash. Thanks and over to you sir.

Bikash Dugar — Head, Investor Relations

Yeah. Thank you, Karan for hosting the call. Just a small disclaimer before we start call that today’s call might include statement, which might constitute forward-looking statements or the statement that are additional expectation or progression about the future including but not limited to statements about the strategy for growth, business development, market position, expenditure and financial results are forward-looking statements. Forward-looking statements are based on certain assumption and expectation of future events and involve known and unknown risks, uncertainties and other factors. The company cannot guarantee this assumption and expectations are accurate or adjusted or will be realized. The actual results or performance or achievement could does differ material from those projected in such forward-looking statements. No obligation is assumed by the company to operate the forward-looking statement content there in.

Thank you. I will now hand over the call our CMD, Tarang for his opening remarks.

Tarang Jain — Chairman and Managing Director

Thank you, Bikash and thank you, team Ambit for hosting the call, and also a very good evening to everyone. Before talking about the operational performance of Q3 FY’23, I would like to again inform you that we have completed the divestment of our four-wheeler lighting business in Europe and America on the 6 of October 2022. With the transaction behind us, the team in Varroc is now totally focused on the continued operations to reduce cost and invest in identified focus areas to drive future profitable growth.

Speaking about the operational performance, in India, the automobile production for all the segments in Q3 FY’23 fell on a Q-on-Q basis, because of the early festive season and reduction of inventory at the channel partners. On a year-on-year basis, we saw good growth in most of the segments due to easing of the semiconductor issues and improving economic activity. But two-wheeler saw tepid growth as a lower end of the segment is still not picking up. Two-wheelers production grew only by a mere 0.5%, three-wheelers by 13.13%, passenger vehicles by 21.4%, and commercial vehicles by 12% on a year-on-year basis.

In terms of our operations, our revenue from operations grew by 15.3% to INR17,228 million on a year-on-year basis. Our EBITDA margins came in at 7.8% and it improved on a year-on-year basis by 140 basis points due to improvement in the overseas performance. Sequentially, the EBITDA margin has fallen due to lower revenue in India operations, whereas overseas operations EBITDA margin has improved. The reported PAT for the quarter was INR218 million.

We continue to have strong order wins for new businesses in line in the nine months FY’23 across business units, enabling our future growth in India. During the nine months FY’23, lifetime revenue from new order wins is INR35,653 million, out of this business wins from five prominent EV customers is INR8,917 million. The order book also reflect our effort to diversify as you see nearly 48% lifetime order win from the four-wheeler segment and 52% from the two and three-wheeler segment.

Diversification can also be seen in the order book from a customer perspective at a top customer new order book is only 19%. As stated previously, also profitable business wins improving of the contribution margin, focusing on profit before tax instead of EBITDA margins, sweating of the assets, inventory reduction, commercialization of our R&D efforts, control on overall costs, growing free cash flows and debt reduction and prudent capital allocation remain the focus of the company.

I now handing over the call to MK, our Group CFO, who will walk you through the presentation, which is — which has already been uploaded in our website and also in the stock exchange. Over to you, MK.

K. Mahender Kumar — Chief Financial Officer

Thank you, Tarang. Good evening, everyone. So let me take you through the highlights first. If you go to Slide number 3 in the presentation, as our Chairman, once again pointed out, we completed the sale transaction on October 6. So that’s behind us now. In terms of the revenue growth, we grew by about 15%, though the industry went down of sequentially and of course, certain segments grew year-over-year. So the revenue came in at about INR1,723 crores. In terms of lifetime business won also, I think we could get about INR35 billion of lifetime revenue through the orders, which was — which we booked in the last nine months. Of that nearly INR9 billion is relating to the EV customers.

EBITDA margin was about 7.8%, which is still 1.4% above what it was last year same time. Although, sequentially, it went down or that’s largely driven by the impact of the operating leverage caused by the lower revenue — lower revenue levels compared to previous quarter. Coming to the rating agencies, rating outlook, they actually rated it as stable outlook. Earlier it was kept under watch, because of the completion of the transaction. As some of you might have noticed already India ratings has given A1 rating to us on the commercial papers. This is, of course, ICRA was A2 — A2 plus. So India Rating Scale gave on for commercial papers. So on the whole as we explained earlier, now we are in a far better position to service our debt levels. And also we are focusing heavily on improving profitability and cash flow.

So going to the next slide, this is about the overall industry trend. As explained earlier of the two-wheeler grew marginally of about 0.5% or more or less flat. Three-wheeler, and of course, other segments had double-digit growth compared to last year. On quarter-over-quarter, of course, every segment had only a de-growth, which is the reason why we also had some impact on the revenue.

Now going to the next slide, Slide number 5, where we talked about the overall consolidated financials. On a revenue of INR1,723 crores, we reported EBITDA margin of 7.8%, a PBT of INR114 million or INR11.4 crores and the PAT of INR21.8 crores, now the reason why PAT is more than PBT was, we also had a couple of changes in the tax assumptions. We actually reflected a deferred tax asset in VPPL polymers business, which is basically a reflection of the lower tax rate from 35% we move to a 25%, tax regime there. And then similarly, we also recognize the benefit of reduction on forex losses, which we booked last year. So because of that the benefit actually resulted in good PBT [Phonetic] of INR21.8 crores.

Then in the next slide, we give the overall business split. Of course, two and three-wheelers constitute 70% of the total business. Bajaj, as a percentage of total business is now at 38%. Geographically, if you see the total earnings coming in foreign currency considered about 19% of the total. The remaining 81% is domestic. And if you see, the business split also PBU accounts for 32%, almost one-third of the total, EBU and Lighting account for 22% each, and Metallic account for 12%, aftermarket mine and the overseas IMS operations about 4%.

Going to the next slide, on Slide number 7, we gave the split of the total order book, which we got in the last nine months. The lifetime revenue is about INR3,565 crores. Nearly one-fourth of this is relating to the electric vehicles. And in terms of the two-wheeler, three-wheeler split also, if you really see nearly half of it is from two-wheeler and three-wheeler and the remaining half comes from passenger vehicles and commercial vehicles. And similarly, if you see the overall split also in terms of customer concentration on these orders, Bajaj accounts for only 19% of the total.

So the other slides, of course, are backup slides only, which you would have seen earlier also. So let me stop it at this level now. I hope if you have any questions we can take on. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Aditya Jhawar from Investec. Please go ahead.

Aditya Jhawar — Investec — Analyst

Yeah. Hi, thanks for the opportunity. My first question is on EBITDA margin, if you can help us give a breakup of what is the EBITDA margin of India business and overseas business, which was not provided in this quarterly presentation, it would be good?

Tarang Jain — Chairman and Managing Director

Yeah. See the reason why we [Technical Issues] previously, of course, we had this confusion between continuing and discontinuing. Now it is largely India business only. So the EBITDA margin on overseas business certainly improved compared to what it was in Q2, but it is still very small number compared to the overall scheme of things. So that’s the reason we did not give the split, but compare to Q2 there was improvement.

Aditya Jhawar — Investec — Analyst

Yeah. I mean, and so I think this is the third time we have slightly changed disclosure of India and overseas, both in terms of revenue and margins. Earlier, we used to have discontinued plus IMF separately disclose. From modeling perspective, incrementally what should we expect to be plan to the report numbers separately revenue as well as on EBITDA?

Tarang Jain — Chairman and Managing Director

No. No, we don’t intend to report separately for overseas hereafter, it will be reported at a total level only. And if you see our segmentation also, we do it only like automotive and others. So we don’t do the geographical split in our segmentation. Again, once it becomes significant level, we will start reporting, but as of now, it’s not at all significant.

Aditya Jhawar — Investec — Analyst

Okay. And what would be your share of — sir, you mentioned that Bajaj share in overall order book is about in 19%. What would be Bajaj share in EV order book?

Tarang Jain — Chairman and Managing Director

I don’t think we will give that customer-wise specification on the new orders.

Aditya Jhawar — Investec — Analyst

So you have given it for new orders for total for specific customer for similarly for EV?

Tarang Jain — Chairman and Managing Director

Yeah. That’s somewhat confidential. We don’t want to give that kind of breakup within sub-segment. We will give it at the total.

Aditya Jhawar — Investec — Analyst

Okay. And what is — Tarang, if you can tell us, what is the roadmap of our debt reduction that we have planned in FY’20 — FY’24 and ’25?

Tarang Jain — Chairman and Managing Director

Yeah. See as of now, we are focusing on improving profitability and improving free cash flow generation also. But any concrete debt reduction, I think we will most probably happen only in next year. I would rather say, maybe after H1 only. So in-between, of course, we will continue to improve operations, but a significant reduction if you want to see. I think it will start happening only from H2 onwards.

Aditya Jhawar — Investec — Analyst

Yeah. So from H2 of FY’24?

Tarang Jain — Chairman and Managing Director

Correct.

Aditya Jhawar — Investec — Analyst

Okay. Okay. Final question is about the capex plan for this year and next year, if you can give some sense?

Tarang Jain — Chairman and Managing Director

Yeah. This year we may end up at around INR150 crores of total capex. Next year, maybe slightly higher, maybe at somewhere between INR200 crores, INR250 crores is what we may end up at.

Aditya Jhawar — Investec — Analyst

Perfect. That’s it from my side. All the best.

Tarang Jain — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Anand Trivedi from Nepean Capital. Please go ahead.

Anand Trivedi — Nepean Capital — Analyst

Yeah. Hi, congrats on a good set of numbers. Just following-up on the earlier question, what do you expect to end up this year with net debt side? Net debt number?

K. Mahender Kumar — Chief Financial Officer

Net debt will more or less be around the current levels. I think we have been maintaining at INR1,300 crores since the — our divestment. It will more or less be around those levels, it may slightly go up or down by about INR30 crores to INR50 crores depending upon various other factors. But there won’t be a significant change from the current levels.

Anand Trivedi — Nepean Capital — Analyst

Okay. And I just wanted to understand the concept of lifetime new orders. What is the — what is lifetime mean?

K. Mahender Kumar — Chief Financial Officer

Yeah. So generally, we assume that there is a five-year lifecycle of the product, whatever we get. So we basically compute what could be the probable revenue over the next five-year period once we start making the product.

Anand Trivedi — Nepean Capital — Analyst

Okay. So numbers that you have in the presentation they are carryover the next five years?

K. Mahender Kumar — Chief Financial Officer

Yeah. So from the time they start. So we have given the commencement of production also in the table.

Anand Trivedi — Nepean Capital — Analyst

Right. So from, for example, we have 14 to 16 from FY’23 onwards. That is what you’d expect, starting from FY’23 over the next five years?

K. Mahender Kumar — Chief Financial Officer

Correct. Correct.

Anand Trivedi — Nepean Capital — Analyst

Okay. And one last question from my side for Tarang. Obviously, the two-wheeler segment has been challenging. Are you seeing any green shoots, what do you think will cause a turnaround? Just what’s the macro view on this?

Tarang Jain — Chairman and Managing Director

You’re talking about the two-wheeler segment.

Anand Trivedi — Nepean Capital — Analyst

Yes.

Tarang Jain — Chairman and Managing Director

Yeah. The two-wheeler segment actually is definitely subdued as we know in all end, post this festive season. And I really don’t see much of it though I do see some improvement in January on the volume side, but frankly speaking, we have to wait-and-watch, I think till the first quarter of FY’24. Because at the moment, I don’t really see increase in volumes presently, because except maybe on the premium side of the two-wheelers, where we see a level of growth, but a larger portion, which is up to this 125CC, I mean, there, we don’t really see much of traction at the moment. So we will wait-and-watch. How — maybe get into the monsoon season and then there is an improvement. I don’t really — the moment, it also feel confident that things are going to really drastically go up, it will go up from the level of November and December what we saw, the last quarter, but then that’s not significantly up. So maybe we’ll wait probably till the monsoon, so really see a kind of a change happening. So that’s what I — that’s what I see at the moment, I don’t really next three, four months, I don’t really see things are going to really change much.

Anand Trivedi — Nepean Capital — Analyst

What do you attribute the slowdown to be, this business may have pickup in — like I said, the premium side, there’s been a pickup in EV side. Is there something that’s holding this recovery back?

Tarang Jain — Chairman and Managing Director

I think it’s more the — more the entry level, right. I think people are really saving the money, they don’t want to. I mean, see the — I mean the lower middle class or other sections. They don’t want to really — they want to postpone the investment in two-wheelers, because many real incomes are not really gone up and today they to save for health and other important reasons. And so they were postponing that buy as such, so it also — so that’s where it is and therefore, you see that everybody, who is in the entry level is impacted. The other issue is, obviously, as you know, the exports are already down for everyone. Because of forex issues in abroad, I mean, because of this issue, the war in Europe and for many of the reasons oil prices going up. I mean, people are constrained in African countries, South America and other places. Even in South Asia, I mean, there are challenges and therefore those volumes that we have seen really de-grow in the — in this financial year.

So that’s the other impact, which is happening also on the two-wheeler, which is also in a way, this is over end of the segment largely, especially for us. So the export side and even the domestic side, both are challenge, I would say, yes, the challenges today we have see some more of the reduction in the export volumes of our customers. But even on the domestic side there is space — there is space for the reasons I mentioned.

Anand Trivedi — Nepean Capital — Analyst

Right. Okay, thank you so much.

Operator

Thank you. The next question is from the line of Rishi Vora from Kotak Securities. Please go ahead.

Rishi Vora — Kotak Securities — Analyst

Yeah. Thank you, sir, for taking my question. Just on quarterly performance, if I look at your gross margins, it has declined on a sequential basis. So is it more to do with, let’s say product mix, less geographical or business mix, because I would have expected some RM benefit to come through in this quarter. So what has happened on the gross margin side for this quarter?

Tarang Jain — Chairman and Managing Director

So it’s primarily driven by the fact that we still have material and forex pass-through that need to go through. Forex in particular, I think it’s in the steep increase. But I think we should recover this over the course of the next few quarters.

Rishi Vora — Kotak Securities — Analyst

Okay. So like we should — like next quarter also you don’t expect a material benefit because of RM market decline?

Tarang Jain — Chairman and Managing Director

It will be spread over a period, of course, every customer, we don’t take some differing amounts of time, but we are confident we will recover, but hard to commit exactly when.

Rishi Vora — Kotak Securities — Analyst

Right? And just this INR9 billion of lifetime revenue from EV players, can you just give us some indication on — in this, what is the breakup for your order wins for EV components specific not your ICE business per se?

Tarang Jain — Chairman and Managing Director

So as our CFO has already said, we are not commenting on sub-segment splits.

Rishi Vora — Kotak Securities — Analyst

Okay, understood. Thank you.

Operator

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

Chirag Shah — Nuvama — Analyst

Hello. Yeah. Thanks for the opportunity. But as three questions, first question is the order book data that we have kept —

Operator

Sir, your audio is not clear, it’s sounding very muffled.

Chirag Shah — Nuvama — Analyst

Hello. Is it better now?

Operator

Yes sir, much better. Thank you.

Chirag Shah — Nuvama — Analyst

Yeah. Sir, first question is the order book that you have to share very indicated 48% from PVs. Now this is significantly higher than your current revenue mix. So when do the transition start happening, or is this a one-off event, where there is a high order book in favor of PVs? Or this is a new trend that one should look at?

Tarang Jain — Chairman and Managing Director

See today — see we are very much focused on — also the formula segment, yes, you’re right that two and three-wheeler segment for us historically and even in the future, we remain, of course core to us. But at the same time, there are these product segments like Lighting. The Lighting space and the plastics space where actually we are a full service supplier and that in years where — we are actually driving a lot of growth and we are also getting a lot of traction with all the — with the lot of the customers in India. And this is where we see a lot of order wins coming in the past nine months and this is going to continue going forward that you will see our order book on the four-wheeler side especially in these two — these two product groups really significantly improving.

Chirag Shah — Nuvama — Analyst

And sir, this order book is largely domestic, right. This doesn’t include any exports, international business or anything like that?

Tarang Jain — Chairman and Managing Director

No. This is — what we are stating largely domestic, but yes, we also have exports also, including mainly for maybe metallic products and electronics, which we are now exploring. But presently this order book on four-wheeler largely more to do with this two product segments of Lighting and plastics — plastic molding.

Chirag Shah — Nuvama — Analyst

Is the general perception is that the profitability in four-wheeler, we expect it to be lower than two-wheeler given your legacy with two wheelers?

Tarang Jain — Chairman and Managing Director

No. No, it’s the other way around. It’s the other way around. Two-wheeler is a very competitive business. I would say, relatively, four-wheeler business for us is better.

Chirag Shah — Nuvama — Analyst

Okay. This is helpful. Sir, second is on the EV side again, now I’m not interested in doing the broad breakup. But on one of the slides, you have indicated the different components of EV, where you have won the business. Is it fair to assume that the INR900 crore order that you indicated represents all the components are — if some of the components are in early stage of development and it is not a part this — managed order doesn’t fall product — order book?

Tarang Jain — Chairman and Managing Director

So today, you can say that we are present, these order wins — I mean, we are today present in all these segments what we have mentioned and depending on which EV customer, whether it’s startups or OEMs, the current OEM, we are driving sales for particularly EV powertrain parts as well as the other parts, which are other electronics or plastics or seating, everything. But today I’m saying already we are supplying products — in all products like this for customers and whatever we have won for the future is across all these product lines.

Chirag Shah — Nuvama — Analyst

Okay. So it’s across, right from traction motors to battery management and even onboard chargers and also stuff?

K. Mahender Kumar — Chief Financial Officer

Nearly 80%, 90% of all this what we have mapped, we have got the order booked, on this few products are still under testing and — at the customer end like BMS and charges. But other than that, within the — motor controller, AC/DC converter, telematics, you name other things — all the polymer and other over typical products are — although are — we are getting orders from the customers.

Chirag Shah — Nuvama — Analyst

And sir, second question is, if you would wish to address that, how many EV customers today you have onboard, including these order, in terms of number of EV customers if you can highlight?

Tarang Jain — Chairman and Managing Director

We already have five. We have won from five EV customers and we are also discussing with another four to five.

Chirag Shah — Nuvama — Analyst

On other four, five, okay. Great, this is helpful. Thank you and all the best.

Operator

Thank you. The next question is from the line of Vishal from Swan Investments. Please go ahead.

Vishal — Swan Investments — Analyst

Thank you for taking my question, sir. Sir, just one question regarding our de-merger, it was said that there was some EUR28 million, which were in the escrow account, so just wanted to have a status on that?

K. Mahender Kumar — Chief Financial Officer

Yeah. I think that still take some more time because there is some kind of cooling off period after the closure of the transaction. So most probably in Q4, we will have some indication of that amount.

Vishal — Swan Investments — Analyst

Okay. Okay.

K. Mahender Kumar — Chief Financial Officer

Actual cash flow may happen later, but at least the discussions will happen in Q4.

Vishal — Swan Investments — Analyst

Okay. Okay. Whether do you see the same thing is happening in FY’24 or it will be in ’25?

K. Mahender Kumar — Chief Financial Officer

It’s difficult to predict now unless we see the details from the other side, maybe in the next call, we’ll be able to provide some details.

Vishal — Swan Investments — Analyst

Okay. Okay. Okay. Sir, the second question is regarding the divestment plans of your IMES business or the Chinese operation. So can you throw some light, where are we in those plans or we have shoveled off?

Tarang Jain — Chairman and Managing Director

See IMF for us is, presently see, we’ve been focusing of a better operational performance in IMF. And we have been — I mean, we have been doing quite well in the past months. Our performance has been quite strong in IMF. Having said that, okay, from a future angle, it’s not really a core business for us. So we have to see how things kind of progress and if we talk about from a long-term angle, yes, it’s not really a core business for us in IMF. We will see as things go along. At the moment, it’s not really the right time to do anything, because of the war in Europe. So things are not looking so good. Though, of course, the — we are doing quite well because it’s more of a non-auto business and that’s doing fairly well.

Coming to the China side. The China side, today, we have a joint venture partner. And in all of these processes, we are taking long — we are splitting from our joint venture partner in China. And this process will take another probably one to two quarters to materialize. I know, we were expecting things to happen sooner. But yes, these things will take its time. But from a long-term future angle, China will be for four-wheeler lighting, it will be a part of our overall business today. We don’t consolidate it. But post play with a partner, it will be 100% subsidiary company. So we are looking at, of course, China as a good growth market going forward on the four-wheeler lighting side.

Vishal — Swan Investments — Analyst

Okay. Okay, sir. Sir, what will be — whether the China business will it be a ROC accretive or ROC dilutive business going ahead in — if you foresee with the plan for FY’24 and ’25?

Tarang Jain — Chairman and Managing Director

See, China is that we are very busy, it’s a most important market in the world and we have a very good business model in China. So I would say that it would be overall accretive only. To our overall business, it will be a positive, once we consolidated that to our rest of the business.

Vishal — Swan Investments — Analyst

Okay. Okay. Okay.

Operator

Thank you. We’ll move onto the next question that is from the line of Basudeb Banerjee from ICICI Securities. Please go ahead.

Basudeb Banerjee — ICICI Securities — Analyst

Thanks, sir. Three questions. One, if I look at your P&L, in your initial comment you said, net debt is still somewhere around INR1,300 crore, INR1,350 crore, am I right, sir?

K. Mahender Kumar — Chief Financial Officer

Yeah. That’s right.

Basudeb Banerjee — ICICI Securities — Analyst

Last two quarters, if I look at average interest outgo is roughly INR50 crore, annualized INR200 crore so on a INR1,300 crore debt, INR200 crores interest outgo implies a rate of almost 16 odd percentage. So where — if misconnection is that you cannot process all. And post debt reduction after selling of VLS, interest was expected to go down. So when should we expect that and what should be a stable level of interest cycle?

Tarang Jain — Chairman and Managing Director

Yeah. Thank you, Basudeb, that’s a good question. See in addition to the debt, we also do the discounting of receivables wherever needed. So the discounting charges are also grouped there. So that’s on top of that, the index is one month accounting, that acquires the leaders in terms of depreciation interest. So the interest component also goes some [Indecipherable]. So it’s a combination of other thing. Yeah, but quarter one, yes, the interest rate also of course have gone up as in the last six months. [Technical Issues] so it’s a combination of all the factors.

Now the second question, when it is going to go down, of course, initially as you all know, we expected that the net debt will be zero [Technical Issues] happened that way. So now, because we are working on operational improvements as we explained here in this half, because it also occurs to materialize and confirming to cash [Technical Issues] another question I mentioned that, if you want to see some significant debt reduction, we should wait until H2 of next year.

Basudeb Banerjee — ICICI Securities — Analyst

Next question is, sir, if I look at your revenue trajectory more or less somewhere around that INR1,650 crores odd entered in last four quarters. So that has —

Tarang Jain — Chairman and Managing Director

A little bit louder.

Basudeb Banerjee — ICICI Securities — Analyst

If I look at your revenue figure, it’s more or less centered around INR1,650 crores, INR1,700 crores for last four quarters, whereas in Q3, you see that staff cost has moved up almost to INR183 crore, which is highest in last four quarters. So any one-off in this line item because Q-o-Q revenue decline and Q-o-Q staff cost is up from 5%, 6%. So what is one-off in that, sir?

Bikash Dugar — Head, Investor Relations

Sorry. There is no one-off in terms of our revenue recognition in this quarter. These are all operational revenue only.

Basudeb Banerjee — ICICI Securities — Analyst

No. No, Bikash, I was asking, where revenue is slightly down or seasonally down right way to put — staff costs is up and highest in last four quarters. So is this a quarter of annual pay hike or bonuses? Or any one-off is that from a staff cost line item perspective?

Bikash Dugar — Head, Investor Relations

Okay. Sorry, I think — so your question was about employee cost?

Basudeb Banerjee — ICICI Securities — Analyst

Yes, sir.

Bikash Dugar — Head, Investor Relations

Okay. Yeah. So employee cost was higher during this quarter for a couple of reasons. One, we also added some R&D resources in the overseas markets. So we strengthened the R&D resource skills there. If you have attended the Auto Show, I think you would have seen the product, which we showcased there. To support all those projects, we have added some R&D resources, plus in Q2, there was also some kind of transfer of cost to the buyer as part of the transaction. So there was some credits also. So it’s a combination of both. But primarily, it is because of the resources, which we added.

Basudeb Banerjee — ICICI Securities — Analyst

Okay. And last question, sir, as I don’t want to go into the deeper pre-closer —

Operator

Banerjee, sir, your audio is breaking up.

Basudeb Banerjee — ICICI Securities — Analyst

Is it fine now?

Operator

No, sir. It’s still the same. May we request that you use the handset mode while speaking and not the speaker phone?

Basudeb Banerjee — ICICI Securities — Analyst

Is it audible?

Operator

Yes, sir. Please proceed.

Basudeb Banerjee — ICICI Securities — Analyst

Yeah. So last question, I just don’t want to dig deeper as per disclosures are concerned. But just wanted to understand like as per past disclosures where India margin is to hover around that 9.5 odd percentage, where it is now this quarter?

Bikash Dugar — Head, Investor Relations

Yeah. See whatever EBITDA margin we represented there, is largely driven by India only. So the overseas thing is very negligible. So that’s it is directional.

Basudeb Banerjee — ICICI Securities — Analyst

Okay. Okay, understood. Thanks.

Operator

Thank you. The next question is from the line of Priya Ranjan from HDFC AMC. Please go ahead.

Priya Ranjan — HDFC AMC — Analyst

Yeah, thank you. So just one thing, I mean, what should we look at your future direction of margin. Should we just consider it like say high-single-digit margin company now or I mean, can we consider it’s a lower double-digit also? Because I mean after say split also, we have not seen meaningful improvement in operating leverage of operational efficiency, although we have keep talking about operational efficiency etc., but we have not seen any kind of improvement in that. So can you just throw some light on the margin trajectory?

K. Mahender Kumar — Chief Financial Officer

Yeah. So there is two part question. One is, of course, driven by the volumes. So definitely Q3 being a very low quarter for the industry as whole. This is not the right quarter to actually to look at. So because of the operating leverage working against us, there was dip in margins, but having said that, yeah, we are also working on operational efficiencies, but as you know, these things don’t happen overnight. So we’ll have to put the structure in place. We will keep working on various actions. Over a period of time only we will see the benefits. So most probably in the later part of next year, I think we should see some kind of improvement, but we are working on that.

Priya Ranjan — HDFC AMC — Analyst

Okay. And in terms of the cash flow, so how should we look at the improvement in free cash flow generation? Because that is also crucial for your future deleveraging because whatever deal is etc., has happened, has already happened. So I mean, the smaller pieces are actually left, so we can’t get significant amount of de-leveraging from those assets?

K. Mahender Kumar — Chief Financial Officer

Yeah. See the free cash flow improvement, as you know, depends upon various factors. First of all, I think we need to get the revenues up and we need to improve the profitability. So that remains the focus area. We are also taking various actions to limit our working capital. In fact, we are trying to reduce them from the current levels. Things like inventory reductions, collection of our overdue receivables. So these are the areas, which are getting a lot of focus. Plus we are also now very prudent on capex. As I mentioned earlier in the call, we are limiting the capex of this year is about INR150 crores, and next year also it could be maybe around INR200 crores to INR250 crores. So with all these actions and of course, the improved operating leverage is giving us the benefit from increased volumes next year. I think we should expect some kind of decent free cash for generation next year. But again, we have to wait for a couple of quarters to see a concrete reduction, conquering — improvement in the free cash.

Priya Ranjan — HDFC AMC — Analyst

Understood. And in terms of the last one, on the new lifetime order wins. So you have indicated around INR3,500 — INR35 billion of worth of new order. So when can we expect, I mean, whatever order you have already won, when can we expect that those numbers will be coming into your number? I mean, the top line —

K. Mahender Kumar — Chief Financial Officer

I think that’s explained in the slide, we gave a table, when that revenue will commence and we gave the number also. You can refer to that slide. So we explain how much will come next year and the following year.

Priya Ranjan — HDFC AMC — Analyst

And these are mostly incremental or how much is replacement and how much is incremental?

Bikash Dugar — Head, Investor Relations

These are all new. So nothing here is replacement. And that’s why you see that our revenue growth has been better than the — that is the trend, which you can see in terms of our revenue growth and this gives us the confidence that our revenue growth will be better than the industry.

K. Mahender Kumar — Chief Financial Officer

Again, it’s not a guidance, but this is our expectation.

Priya Ranjan — HDFC AMC — Analyst

Okay. Okay. Thank you. Best of luck.

Operator

Thank you. The next question is on the line of Abhishek Jain from Dolat Capital. Please go ahead.

Abhishek Jain — Dolat Capital — Analyst

Thanks for opportunity. Sir, you have a status supply motor and controllers to Bajaj Auto, and the container for vehicle is around INR15,000 to INR17,000. So have you started to supply these products to other player?

K. Mahender Kumar — Chief Financial Officer

Yeah. So can you please repeat your question?

Tarang Jain — Chairman and Managing Director

Audio is not clear, I’m sorry.

Abhishek Jain — Dolat Capital — Analyst

Hello. Sir as you started supply motor and controller to Bajaj Auto and the content per vehicle is around INR15,000 to INR17,000. Have you started to supply these products to other players?

Tarang Jain — Chairman and Managing Director

No. We’ve not entered that production for any other players so far.

Abhishek Jain — Dolat Capital — Analyst

So you have a right to start production for the other players of these products — motor and controller?

Tarang Jain — Chairman and Managing Director

Yes. Yes, of course.

Abhishek Jain — Dolat Capital — Analyst

Okay. So Bajaj is the only player, sir, to whom you are supply motor and controller, right?

K. Mahender Kumar — Chief Financial Officer

We don’t want to give you that kind of customer data, but yeah, predominantly, yes.

Abhishek Jain — Dolat Capital — Analyst

Okay, sir. And sir, what is the current revenue from the EVs on a quarterly basis?

K. Mahender Kumar — Chief Financial Officer

As of now, it is just about 2%, very specific number. But in specific to each higher levels coming for the years.

Abhishek Jain — Dolat Capital — Analyst

So what is the — what is your target for the FY’24 in over revenue terms in — from EVs and what would be the breakeven points in EVs?

K. Mahender Kumar — Chief Financial Officer

Yeah, it’s difficult to put a number to it, because we continue to win these orders, so all these things add up to the revenue potential for the future. But maybe a couple of years down the line, we should see around INR1,000 crore revenue coming from EV, EV products.

Tarang Jain — Chairman and Managing Director

Well, definitely it is a growing, as you know that there’s — it’s a growing segment, the EV segment for two-wheelers and also around the three-wheelers also where we are present, that also will start next year. So definitely, whatever we doing with — we do expect the revenues from EVs to actually double for us. So it’s going to be a growing market for us. And like FY’25, we’ve already said that two and three-wheeler segment, we will get almost INR1,000 crore in revenue just from the EV side.

Abhishek Jain — Dolat Capital — Analyst

And in terms of the gross profit and EBITDA, what is your target on the INR1000 crore kind of the revenue?

K. Mahender Kumar — Chief Financial Officer

No, we do not give any guidance on the sub segment level. [Speech Overlap]

Tarang Jain — Chairman and Managing Director

Yeah. We can only say, that it’s a fair margin. It’s a fair margin. And we are happy with those margins, which we can derive out of the products.

Abhishek Jain — Dolat Capital — Analyst

But most probably that margin would be lower than the existing business?

K. Mahender Kumar — Chief Financial Officer

No, no, no. The margin won’t be lower than the existing business.

Abhishek Jain — Dolat Capital — Analyst

Okay. And sir, in electronics and component business, how is the current revenue mix in two-wheelers and four-wheelers, and how do you see the changes going on it?

Tarang Jain — Chairman and Managing Director

Are we talking about electronics in general overall?

Abhishek Jain — Dolat Capital — Analyst

Okay.

K. Mahender Kumar — Chief Financial Officer

Yeah, you are asking about the outlook for electronics business.

Abhishek Jain — Dolat Capital — Analyst

Sir, actually, I want to know the — what is the mix in terms of the two-wheelers and four-wheelers and how the mix will change in the coming days?

K. Mahender Kumar — Chief Financial Officer

See, we explained this trend at the total level but not at the sub-segment level.

Abhishek Jain — Dolat Capital — Analyst

Okay. And how is the trend now in the — on a total level, sir?

K. Mahender Kumar — Chief Financial Officer

The total level has explained in the slide about 70% comes from two and three-wheelers, remaining 30% comes from others.

Abhishek Jain — Dolat Capital — Analyst

And what is your target by FY’25 or ’26 to changes our revenue mix?

K. Mahender Kumar — Chief Financial Officer

No target and structure and you can see the order books replaced that we are getting more orders from four-wheeler. So gradually, our dependency on two-wheeler will reduced. But as a company, there is no target. Our motor remains to improve the performance and the profitability of the company.

Abhishek Jain — Dolat Capital — Analyst

Okay, sir. And sir, how — what is the current —

Operator

Sorry, Mr. Jain, sir, may we request you return to the question queue, other participants waiting for their turn?

Abhishek Jain — Dolat Capital — Analyst

Okay. I will come in the queue.

Operator

Thank you. The next question is from the line of Jyoti Singh from Arihant Capital Markets Limited. Please go ahead.

Jyoti Singh — Arihant Capital Markets — Analyst

Yeah, thank you for the opportunity.

Operator

Ms. Jyoti Singh, there’s a lot of background disturbance from your line. We would request you to move to silent place?

Jyoti Singh — Arihant Capital Markets — Analyst

Now it’s better?

Operator

Yes, please proceed.

Jyoti Singh — Arihant Capital Markets — Analyst

Yeah. So my question is on the inventory loss side. So sir, how much inventory we lost during the quarter, if you can comment on that?

Bikash Dugar — Head, Investor Relations

Sorry, inventory?

Jyoti Singh — Arihant Capital Markets — Analyst

Inventory loss?

Bikash Dugar — Head, Investor Relations

Inventory loss. Sorry, what do you mean by that? I couldn’t understand.

Tarang Jain — Chairman and Managing Director

There is no inventory loss.

Jyoti Singh — Arihant Capital Markets — Analyst

Sorry, you did mention starting when call started?

Tarang Jain — Chairman and Managing Director

No. We said that we are working on to improve our networking capital inventory reduction — reduction in our inventory levels. Inventory [Technical Issues] Free cash to — improve our cash flows, that’s what we mentioned.

Jyoti Singh — Arihant Capital Markets — Analyst

Okay. So like how much inventory reduction we did during the quarter?

K. Mahender Kumar — Chief Financial Officer

We don’t want to put the number to it. We are looking for a significant reduction. So but it takes time, so we need to see how it develops.

Jyoti Singh — Arihant Capital Markets — Analyst

Okay. And sir what’s your view for the Q4 FY’23?

Bikash Dugar — Head, Investor Relations

Sorry, what is the — you’re asking about the forecast? No, no, we don’t give those kind of guidances. But yeah, it depends upon how the industry performs. The Q4 should be better than Q3. That’s the way it has been. So obviously, the benefits of operating leverage should help us, but we don’t want to give any guidance.

Jyoti Singh — Arihant Capital Markets — Analyst

Okay. So sir, as we are targeting to reduce our two-wheeler revenue max going forward? And two-wheeler is also not doing very well. So can I expect going forward in Q4 and Q1 FY’24, we’ll see a reduction on two-wheeler revenue mix side and increase on the other segment, like passenger vehicle and CV side and or still we have time to decide on that?

K. Mahender Kumar — Chief Financial Officer

Yeah. I think it’ll take some time. I don’t think it changes so drastically in the near-term or short-term. So maybe over a period of time, the mix may change as we continue to win more orders in passenger vehicle, but definitely not in the next one or two quarters.

Jyoti Singh — Arihant Capital Markets — Analyst

Okay. And so currently how much we are doing on the capacity utilization front?

K. Mahender Kumar — Chief Financial Officer

It may varies from plan to plan, product to product, but broadly we can say the range around 70% to 75% across multiple businesses.

Jyoti Singh — Arihant Capital Markets — Analyst

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

Operator

Thank you. [Operator Instructions] The next question is from the line of Deepak Pawar from Vasuki India Fund. Please go ahead.

Deepak Pawar — Vasuki India Fund — Analyst

Yeah. Thank you. Am I audible?

K. Mahender Kumar — Chief Financial Officer

Yes.

Deepak Pawar — Vasuki India Fund — Analyst

Yeah. So first, congratulations on good set of numbers. My question would be in line with the previous question, which was asked, but can you give us idea that splitting up the China JV is still remaining — continuing your business with China? So you’ll be doing it on standalone basis by your own. Am I right?

K. Mahender Kumar — Chief Financial Officer

Yes. Yes, that’s right.

Deepak Pawar — Vasuki India Fund — Analyst

And what kind of business split is not being disclosed? What kind of percentage of the bottom line that contributes from China?

Bikash Dugar — Head, Investor Relations

Too early to comment on that, I think we should wait for the split to happen. So maybe once we are close to the reality, then we will talk about it.

Deepak Pawar — Vasuki India Fund — Analyst

Okay. I might have missed this part, but the current revenue share or for the nine months revenue share, whatever we have, which — how much part or how much percentage does it come from EV?

K. Mahender Kumar — Chief Financial Officer

EV I think, rightly — currently now, it’s about 2%. That’s all we mentioned.

Deepak Pawar — Vasuki India Fund — Analyst

2% for nine months, also the complete nine month?

K. Mahender Kumar — Chief Financial Officer

Yeah. Yeah. Correct.

Deepak Pawar — Vasuki India Fund — Analyst

All right, thank you. Thanks for the opportunity, sir.

Operator

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

Chirag Shah — Nuvama — Analyst

Hello. Yeah, thanks for the opportunity. Sir, I had a question on inventory, which in EV? So one, what is this nature of high inventory that you have with its finished product or it’s more raw material? Secondly, either you shouldn’t be sitting on a very inventory, right? Your’s B2B business, so you can adjust your production schedule based on VM indication, right? So why are you running with — why — what is driving your high inventory, if you can explain?

Bikash Dugar — Head, Investor Relations

Yeah. So the inventory obviously comprises of all the components including raw material, working progress and finished goods also, maybe more in terms of raw material and working progress less in terms of finished goods. Yeah. So ideally, what you are speaking about is an ideal void. But it’s not so perfectly linked in terms of OEM schedules. So at times there will be some fluctuation, which is what we are trying to correct it, bring it down.

Tarang Jain — Chairman and Managing Director

And if I go a step further, right, in general, the supply chains that we operate in have been fundamentally challenged. [Technical Issues] current particular, I think is an extremely well known issue. And for us, [Technical Issues] keep our customer lines going and in, where we also help drive sales for ourselves, which meant that we were — which meant that we were on higher inventory levels for a while. Also I think as you know, I think the market has also been challenged versus what has been expectation. However, I think that is the trend now we look to correct. So that is really, what is — maybe in the reductions in inventory now going forward.

Chirag Shah — Nuvama — Analyst

Okay. This is more of finished goods that is there, right? Or what more finished goods, it’s not raw material?

Bikash Dugar — Head, Investor Relations

No, it’s — honestly, it is — it’ll be a split in the grade that you would normally assume a split. But in general, we’ve been holding higher levels of — in general, we’ve been holding higher levels of inventory.

Tarang Jain — Chairman and Managing Director

It says, opportunity still be more in raw material. That’s what we are trying to say.

Chirag Shah — Nuvama — Analyst

Yeah. Okay. Thank you.

Operator

Thank you. The next question is on the line of Vignesh Iyer from Sequent Investments. Please go ahead.

Vignesh Iyer — Sequent Investments — Analyst

Thank you for the opportunity, sir. My question is on the debt side of it, I just wanted to know of debt actual stand and is there any — and I want to know about this INR695 crore loan that is due in next 12 months. Are we planning to refinance or anything of that sort?

K. Mahender Kumar — Chief Financial Officer

Yeah, yeah. So see interest rates, where they are right now, most of them are in the range of 9% to 9.5%. Coming to this refinancing, yes, we are working on the refinancing option. A major part of this INR695 crores is in NCDs, which are coming up for repayment in Q1 and Q2 of next year. So other than that, we have few more loans. Yeah. But we are working on various proposals. We already got a few proposals from the banker. So we are working on that. We’re trying to optimize them.

Vignesh Iyer — Sequent Investments — Analyst

Okay. Okay. Thank you. That’s for me.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.

Tarang Jain — Chairman and Managing Director

So thanks again for joining, listening and asking all your questions. We continue to pursue excellence in our day-to-day life for creating value for our stakeholders. Thank you.

Operator

[Operator Closing Remarks]