Alicon Castalloy Ltd

NSE:ALICON

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Alicon Castalloy Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you, sir.

[Mayank Vaswani]

Thank you. Good day, everyone, and thank you for joining us on Alicon Castalloy Limited's Q1 FY '23 Earnings Conference Call. We have with us on the call today, Mr. Rajeev Sikand, Group CEO; Mr. Vimal Gupta, Group CFO; Mr. Shekhar Dravid, Chief Operating Officer of Alicon Castalloy Limited; Mr. Andreas Heim, Managing Director of Alicon Castalloy; and Rajiv Gupta, Head of Domestic Business of Alicon Castalloy Limited. Mr. Vimal Gupta will cover the financial performance for the quarter, following which Mr. Dravid will walk us through the operating highlights. In order to share a more granular view of the initiatives towards both the global and domestic markets, we also have Mr. Andreas Heim and Mr. Rajiv Gupta to provide insights on these areas.

Following the comments from the team, our group CEO, Mr. Rajeev Sikand, will give us a brief summary of the quarter gone by and encapsulate the strategic imperatives. Thereafter, we shall open the forum for a Q&A session.

Before we begin, I would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings documents shared with all of you earlier. I would now like to hand over the floor to Mr. Vimal Gupta for his opening remarks. Over to you, sir.

[Vimal Gupta, executive]

Good morning to all our investors. I hope that all of you and your near and dear ones are safe and well. Thank you for taking the time out to join our earnings call. We have started the new fiscal year 2023 on a positive note despite multiple challenges on the macroeconomic front, such as a volatile economic backdrop, lingering supply chain issues, ongoing COVID dynamics, and the continuation of the Russia-Ukraine war. For the mobility customers, the sharp rise in input prices has led to price hikes by OEMs, while increase in fuel costs has contributed to higher cost of ownership of vehicles.

Further, there has been a backdrop of high inflation impacting discretionary income even as increasing interest rates are further contributing to the pressures. Despite this potent mix of challenges, the demand environment across domestic and international markets has remained resilient and is turning favorable. We have witnessed higher-than-expected volumes across the global and domestic industry.

Standard & Poor's Global has recently revised upward their projections for global light vehicle production for calendar year 2022 from 4.1% to 4.7%. In India, we have witnessed increased traction in auto sales, especially in the passenger vehicle and medium heavy commercial vehicle categories in the industry. On a year-on-year basis, we have seen sharp increase in volume performance due to the low pace of the prior quarter combined with the improved availability of semiconductors in the quarter 1 of FY '23. Based on our assessment, the domestic industry has now revived to around 80% of the performance benchmark set in financial year 2018/'19, which was the best year in the last 5 years.

Overall, our total income stood at INR 344 crores, higher by 63% year-on-year basis, which significantly outpaces industry growth, which was around 39% year-on-year. More importantly, in 2018/'19, which was the best year for the industry in the last 5 years, we reported revenue of INR 298 crores in the first quarter. Even with the industry at around 80% of the level of '18/'19 at present, we have significantly outpaced our benchmark, and our revenues of INR 344 crores in quarter 1 FY '23 are 15% higher than the previous highest quarter 1, indicating the different trajectory of performance.

We are also pleased to make progress on our strategic objectives this quarter. Our focus on opportunities from the EV technologies is being widened in scope of a focus of carbon-neutral technologies. This wider EBIT encompasses opportunities from battery electric vehicles, hybrid electric vehicles, plug-in hybrid as well as fuel cells, and hydrogen cell technologies, which are also emerging as viable options across the mobility landscape.

Secondly, we had talked about a focus on shifting towards higher value addition across all of our business activities. This quarter, there is a visible shift away from 2 wheeler business, which has limited value addition towards passenger vehicles and the commercial vehicles export and the EVs on the carbon-neutral opportunities, where the scope of value addition is large. If you were to observe our last 3 years' trend, which we have included in the earnings presentation, you will see how our product mix has evolved.

Input prices continued to move higher in quarter 1. As we have spoken last quarter, we have been constantly collaborating with our customers to undertake price revisions and have successfully passed on some part of increased costs in the quarter. Apart from repricing, the enhanced product and revenue mix have enabled us to deliver stable margins in the face of a challenging environment. We have recorded incremental sales from value-added components, which has supported improved margin performance. Our gross margin for the quarter stood at 47.5% in quarter 1 FY '23 against 50.2% in quarter 1 of FY '22. We witnessed raw material prices peaked out in quarter 1 at present. And at present, RM prices are around 10% lower than quarter 1 levels.

Coming to the cost metrics, we continue to face challenges related to the 5G framework that we had discussed earlier. The COVID impact, chip shortages issue, cost of new product development, the conflict between Russia and Ukraine, and global cost base inflation together are serving up a highly dynamic operating environment. One of the key challenges last quarter is the reduction in gas supplies to Europe, which is resulting in a domino effect on energy cost across the globe as Europe seeks alternate energy supplies.

This means that global sales, gas prices, coal prices, and that of crude oil continue to remain at elevated levels. Industries with intensive power requirements such as industrials, metals, foundries, et cetera, have also been hit in that capacity. In quarter 4 and in the quarter under review, we have witnessed a significant increase in power costs across our operations. Anticipating this, we have moved to set up a captive solar power project, which will serve around 1/3 of our annual requirement.

Overheads across our business continued to move higher in quarter 1. The cost optimization initiatives implemented earlier have enabled us to substantially mitigate this impact on our operational performance. The Kaizen principle based initiatives that we have adopted have helped us bring in optimization across all facets of our business model right from inventory management, employee expenses, to power cost optimization, among others.

We have seen a notable reduction in fixed expenses, overheads and interest expenses as a result of these initiatives. The EBITDA margin stood at 11%, higher by 251 bps year-on-year basis. In a normalized environment, our medium-term target is to improve our EBITDA margin to a level of 14% to 15% on the back of our cost efficiency measures.

In absolute terms, our EBITDA during the quarter came at INR 37.95 crores, higher by 110% year-on-year. Profit after tax during the quarter stood at INR 10.77 crores. I'm happy to share that we have delivered a performance surpassing the pre-COVID level. On the CapEx front, we plan to deploy around INR 90 crores in FY '23, which includes maintenance CapEx and new machining capacities, on which in the quarter we have already undertaken INR 24 crores CapEx. Currently, our manufacturing plants in India and Europe continue to operate at normalized utilization level to the tune of 65% to 67% in the quarter.

To summarize, we have seen an encouraging start to the fiscal year 2023. We continue to focus towards augmenting and maintaining our financial fitness. Our focus continues to be on improving margins, return ratios, and streamlining our working capital cycle. In a normalized environment, we look forward to delivering a strong and sustainable growth.

On that note, I would like now to hand over to Mr. Shekhar Dravid, who will talk about operating highlights for the quarter.

[Shekhar Dravid, executive]

Thank you, Vimal. Greetings to all. I trust all of you are well and staying safe. The domestic auto sector saw a significant demand improvement in the quarter with most categories witnessing encouraging tractions. Passenger vehicles, commercial vehicles and 3-wheeler segments registered an improved performance on year-on-year basis, backed by the pent-up demand, improved availability of semiconductors, festive push, new product development, and in case of commercial vehicles and heavy vehicles, factors such as increased infra spend, mining activities, logistic growth and resumption of schools have added demand.

On the production front, we saw steady levels across OEMs, which auger well. On the raw material front, we have seen cooling off in aluminum and related alloy prices recently. This is mitigating costs to a large extent. Higher keep availability and unfolding supply chain issues further supported this traction. On the domestic front, we have projected industry growth of around 5% in 2022, but the expectation is now being raised to 7% growth for the full year.

International trade continues to be favorable as global customers have adopted to the challenges like constrained availability of semiconductors as well as realignment of the supply chains. We are seeing healthy leads and inquiries from our international business segments and remain optimistic of delivering growth going forward. On a consolidated basis, we have reported a strong growth. Our volumes marked a healthy double-digit growth, translating to 63% increase in revenues on year-on-year basis. At the start of the financial year, we had budgeted for the growth of around 18% to 20% on year-on-year basis on the back of new parts to commence production, new customers added, and the business mix shifting towards higher value addition.

Our assumption was the market environment would be largely pulling. However, we are now seeing improved market conditions also contributing and have raised our internal budget for a growth to 25% to 28% on year-on-year basis.

Let me take you through the highlights of our performance across each domain, the first being our auto business. The domestic auto sector has seen many headwinds in last 4 years, adversely impacted due to COVID, demand, regulatory changes, input pressure, among others. However, we are now seeing emerging positive vibes with uptick in demand. Despite higher fuel prices, there is increasing traction in IC vehicles, too.

We delivered strong volume growth across verticals in the quarter. This was due to the increased volume on account of the start of production of a key program for a global customer. We have 2 programs set to go live in the current quarter, which will lead to a further ramp in volumes.

Coming now to the second of our growth pillars, which is the carbon-neutral technologies opportunity. While we anticipated stronger demand in electric two-wheelers segment in India, there has been a lot of negative news in the domestic market regarding battery explosions, which seems to have impacted customer sentiment. However, the passenger vehicle ecosystem is progressing well in India, leading to an impressive volume growth and rapid approach towards critical markets.

In 2021, 330,000 units of EVs were registered in India, clocking a growth of 168% as compared to 2020. The increase was on the back of performance towards higher personal mobility, environment-friendliness and spiking fuel prices. The second phase of faster adoption and manufacturing of hybrid and electric vehicles, FAME-II, has further accelerated the adoption of electric 2-wheelers, which has witnessed close to 110,000 units in quarter 1, 2022. As per a report by Indian Venture and Alternate Capital Association in collaboration with EY and IndusLaw, electric vehicles are expected to account for 39% of the total automotive sales in India by year 2027, growing at approximately 68% of CAGR over the next 5 years.

For this segment, we are working with OEMs as well as the Tier 1 suppliers, which have been working extensively with Dana Corporation, Scania, Tata AutoComp, Eaton on both the domestic and international orders. During this quarter, we added 2 parts as well as 2 new logos of Rimac and Ducati. After some gap, we are pleased to add new logos to our customer list.

Another area where we are seeing strong response from customers is the lightweighting of products in the auto and EV space. We are getting increased inquiries from the OEMs, both in domestic and export markets, and we are actively developing new parts to focus on this segment.

We have already built up a portfolio of over 103 parts catering to EV and are progressing well on our target for scaling up revenues from carbon-neutral technologies. While we have shared that on our initial target, it is to bring to the wallet share from carbon-neutral technologies to 25% of overall revenues by 2025/'26. Our existing order book already comprises share of business of 25%. As these convert from orders into a start of production, we will achieve our target for the share of revenue from carbon-neutral technologies in an accelerated manner.

Based on this high visibility, we had shared an accelerated target of 26% from carbon-neutral technologies by 2025/'26.

Now on to our third growth pillar, being technology agnostic platforms. We are steadily adding value-added products to our basket. Various aspects of our vehicles are cross-functional across both IC and carbon-neutral platforms and would remain relevant should there be emergence of a new alternative technology too. Our aim is to ensure that we gain relevance in interesting and accretive niche around these products by leveraging our core competency. In this regard, we are working on diversifying and expanding our portfolio to include several niche and value-enhancing offerings. During the quarter, we added 1 part to this portfolio.

Coming to our fourth segment, which is a During the quarter, we are there 1 part to this portfolio. Coming to our fourth segment, which is non-auto business. In this we are witnessing healthy growth in demand from the diverse sectors we serve. During the quarter, we received an order win for 1 part. This is under the Atmanirbhar Bharat, where we quickly developed a complex and critical part for a reputed domestic customer.

Our fifth growth lever is our focus on improving customer wallet share. This will be while leveraging our R&D and competencies and our relationships. Our R&D facilities are core to our operations and enable us to keep pace with upcoming opportunities. Overall, we are well placed to enhance contribution from repeat customers and demonstrate customer stickiness. Our long-term approach is towards building wallet share and positioning ourselves as a trusted supplier for an existing customer base. On that note, I would like to now hand it over to Mr. Andreas Heim to throw light on our global business.

[Andreas Heim, executive]

Thank you, Mr. Dravid, A warm welcome to all of you. I will briefly cover the development on our international business. We have delivered a healthy performance in these months during the quarter on the back of steady demand environment in our key global markets of U.S., Europe and China. While we are seeing initial signs of supply chain issues easing across markets, the ongoing conflict has deepened inflationary pressures of some key inputs. So we witnessed aluminum prices and steel prices at elevated levels...

[Operator]

Mr. Heim, I am sorry to interrupt, sir. Your voice is not clear sir.

[Andreas Heim, executive]

I'm coming a little bit to the mic. The ongoing conflict has deepened inflationary pressures of some key inputs. So we witnessed aluminum prices and steel prices at elevated levels in...

[Vimal Gupta, executive]

Andreas, your voice is not clear.

[Operator]

Mr. Heim, I'll reconnect you. All right? [Operator Instructions]

[Andreas Heim, executive]

Andreas here again. Am I audible?

[Operator]

Yes, please go ahead.

[Andreas Heim, executive]

Yes. So I will start again for my speech. Thank you, Mr. Dravid. A warm welcome to all of you. I will briefly cover the developments on our international business. We have delivered a healthy performance in these months during the quarter on the back of steady demand environment in our key global customers of U.S., Europe and China. While we are seeing initial signs of supply chain issues easing across markets, the ongoing conflict has deepened inflationary pressures of some key inputs. So we witnessed aluminum prices and steel prices at elevated levels in quarter 4 and quarter 1, and it was occupied by the occasional rise in gas prices, elevating power cost in Europe.

The rising prices of inputs are a pass-through to customers and we are working with them to arrive at a formula for higher energy costs. Further, we are elevating installation of solar power to pacify our energy mix. An important point to share here is that our manufacturing facility is located in Slovakia, which is the second most assured nation in Europe in terms of gas availability. Slovakia already has assured stock of gas up to April '23, and will further add to its stocks in the coming weeks and months.

Against this backdrop, we have reported a weekly performance in the international business exports including overseas revenues contributed to 23% of the total revenue in quarter 1 financial year '23. We did add 2 new parts from 2 global customers in the quarter. We developed a motor housing for Rimac, an associated company of Porsche, which owns 45% ownership. Rimac is called as Tesla of Europe and we commenced supplies for Rimac also in this quarter. For them, we leverage the earnings from customers served in the past and leading us to drive solutions in shorter time frames. We have been able to develop a motor housing in 3 months against normal cycle of 5 to 6 months.

Further, Rimac's overhead engineering division, which supplies to large global OEMs, including its parent company, Porsche. We also took a thermal engineering project for Rimac, which is working on developing EV parts for other OEMs. They have huge potential to build on these new supply arrangements. This development will help us to grab more such institutes from global and domestic OEMs.

We also added Ducati to our customer roster in this quarter. Ducati is the third largest 2-wheeler manufacturer in Europe. The largest is KTM, followed by BMW, both of which we have been customers for over 2 decades now.

With the addition of Ducati, all 3 of the largest European 2-wheeler OEMs are part of our customer list. For Ducati, we developed its [indiscernible] through our gravity die casting process, which offers a solution with lesser energy with more competitive costs.

As we look ahead, we are monitoring the evolving lead gap across the global markets. The demand for positioning technologies remains driven even as demand for carbon-neutral technology continues to elaborate in the medium to long term. There are many growth opportunities in our key target markets in Europe, Middle East and the U.S. In this manner, we are actively building its presence in these regions and we are confident of improving performance as the environment normalizes.

On this note, I would like now to hand over to Mr. Rajiv Gupta, who will cover the development in the domestic business for the quarter.

[Rajiv Gupta, executive]

Thank you, Andreas. Good day, everyone. The Indian automotive industry has posted robust growth in the quarter gone by with passenger and commercial vehicle segments logging growth with 2-wheelers witnessing steady redemption and demand. We are also seeing encouraging indicators such as improved production levels from OEMs, strong buildup in inquiries, and increasing trend in order books. These positive trends bode well for the industry and in turn for Alicon. In the quarter, we have delivered a strong performance.

Total contribution from our domestic segment stood at 77%. On the whole, we have reported encouraging growth in the domestic auto segment during the quarter. Led by improving trends, festive push, higher preference towards personal mobility, we continue to witness good level of inquiries and bookings in the market and are hopeful that improving macros will further support this momentum.

In the non-auto business, we received an order win from 1 part from a reputed industrial house in India. This complex and critical part will support the rollout of a cutting-edge technology for a customer enforced under the prestigious Atmanirbhar Bharat program. On this note, I would like to now request Group CEO, Mr. Rajeev Sikand, to share with you in perspective on Alicon's performance.

[Rajeev Sikand, executive]

Thank you. Good day, everyone. We have reported a healthy set of results during the first quarter of fiscal 2023. Our growth has been driven across businesses of auto, non-auto and structural, and technology-agnostic products across domestic and international markets. We have marked strong client engagements and have demonstrated healthy progress against new customer leads. We added a total of 2 new logos across markets and vertical and our wallet share has been on an improving trend. We have chalked out our focus on global customer and invested significantly into human resources and R&D in order to enhance our global competitiveness.

We challenge ourselves to develop a greater proportion of critical and complex parts. We have pushed our teams to think of providing solutions to customers rather than focusing on parts or components, enabling us to transform the business model. The logos we have added and our presence with top 3 European 2W OEMs validates our progress to this enhanced approach.

Another element of our strategy that I've shared was to increasing footprint of passenger vehicles and series in our value addition mix from 50% in FY '22 to 70% in 5 years, while reducing 2W dependency from 40% in FY '22 to 20% in next 5 years or earlier. Further, we are increasing the share of global business from 37% in FY '22 to over 45% in the next 5 years.

The focus is clearly on a higher value addition. And as a team, we are obsessively monitoring the VA per kg. We also aim to increase our sale per machine by enhancing the proportion of machine parts in comparison to [indiscernible] at present. I'm pleased to share that this is starting to reflect in our performance. With the industry growing 39% on year-to-year basis, we have all performed in a meaningful way, reported a revenue growth of 63% year-on-year in Q1.

Further, we have rebranded our focus from EV into carbon-neutral technologies, which mirrors the wider focus by our team. This is reflective of the potential technology mix that we foresee in the mobility sector over the rest of the decade and beyond. We also seek to build out our contribution from structural parts, which are technology agnostic. Currently, the contribution from carbon neutral and structural part is 17%, and we aim to take this to over 45% in 5 years' time.

On operational efficiencies, we have optimized costs across our business model and brought in higher efficiencies that enable us to restrict the impact of cost on our margin profile during the quarter. We are actively working towards increasing our sustainability footprint, and ensuring commissioning of our captive solar plant will significantly transform our energy mix. I would once again reiterate that we are future ready. As an organization, we enjoy a favorable outlook. On back of global recovery, we see a strong demand trend. However, we see some challenges which may emerge from U.S. and these we have to take into account. And already, as my colleagues have shared, the 5 challenges which are ongoing, corona pandemic, chip shortage, cost base inflation, the conflict in Russia and Ukraine, higher cost of new product development, we are well placed to deliver on our targets and aspirations through our commitment, courage, confidence, and capability, supported by the right behaviors of forcing issues and providing support proactively.

Our total order booking for auto business now stands at around INR 3,115 crores for a period of 5 years with an average annual value of INR 620 crores. We look to build on this further with deepening engagement with existing and potential customers. On that note, I would now request the moderator to open the forum for any questions or suggestions that you may have. Thank you.

[Operator]

[Operator Instructions] We have our first question from the line of Dhruvin Upadhyay from Sushil Finance.

[Dhruvin Upadhyay, analyst]

Congratulations for a good set of numbers. My first question is towards the guidance. Just wanted to get some clarity on it. Are we revising our guidance from 18%, 20% to 25%, 28% for the overall business or for a particular segment of ours?

[Vimal Gupta, executive]

So this upward revision is for the overall business for the year of financial year '23, because in the last call we had given the guidance of 18% to 20% growth. But now we have revised and increased this 25% to 28% level.

[Dhruvin Upadhyay, analyst]

Okay, sir. And for FY '24, is it too early to say, or do you have some guidance for that year as well?

[Vimal Gupta, executive]

At this point, it is too early, but as explained in our earlier call that the overall -- in the next 4 years, we have planned a CAGR of more than 20%.

[Dhruvin Upadhyay, analyst]

Now coming to the contribution of the new product addition, what kind of contribution are we looking at from these new product additions and what is the order intake that we had in Q1 FY '23?

[Shekhar Dravid, executive]

In quarter 1, '22-'23, we have added 4 parts from 3 customers. And this is roughly around yearly average sale of INR 24 crores, around INR 100 crores over 5 years of time. And the good thing is that we have added 2 new logos. That is Rimac, which Andreas also explained very clearly, the high opportunity with this particular account, because we call it as a Tesla for Europe, and 45% of Porsche stake is with Rimac. So good opportunities. We have also Ducati, which we've added, again, the third largest 2-wheeler maker in Europe.

And the good thing what we have grabbed is our non-auto business, a highly complex and critical part with a high value addition. So that is what we have added in last quarter. If you talk about the overall mix what we have added from '18/'19, the good thing to note is, we have booked 71% from a 4-wheeler, where we get a good margin, where it's as per our strategy, and 21% was with 2-wheelers with a strategic move. So this will help us further to get good value addition, and in turn, good sales going forward.

[Dhruvin Upadhyay, analyst]

Okay. Okay. And my last question is towards the European facility that we have. The voice was a little unclear. So have we secured the power through gas-based power plants until April '23, and post that we're moving to solar. Is my understanding correct?

[Vimal Gupta, executive]

No, it is not like that. So availability is there, but definitely, Europe will have the other sources and we'll be able to supply the gases there. But we are looking for some other alternatives like solar to reduce our cost. In India, we already have explained in the piece that already we have got this opportunity. And maybe from quarter 3, we will be able to see the impact in our financial results.

[Operator]

[Operator Instructions] We have our next question from the line of Karthi from Suyash Advisors.

[Karthikeyan VK, analyst]

Very interesting commentary. A couple of questions. One is in terms of contracting, can you talk about what specific terms have you put in place to protect yourself from the volatility that we have seen in the past. I believe these are relatively longer-term contracts, one. And two, can you share some perspective on the kind of opportunities that are emerging in the European manufacturing space due to the turbulence seen over there. If at all any are emerging, are these tactical in nature or more structural in nature?

[Rajeev Sikand, executive]

Talking about the second point on the opportunities with Europe. So the good thing is what we noted is we were not adding logos in European entry, but we have noted with the change in the market conditions, we need to look for new customers, which we have delivered in last quarter. And also, we are in strong discussions with our existing customers to add value. And the way we started from '16/'17 with our move, the early mover in EV, now even the European OEMs have noticed the capacity and capability of delivering such a critical path is there within Europe as well as India. So with that move, now we are planning to increase our portfolio with existing and the new accounts.

[Karthikeyan VK, analyst]

I was asking you about the contracting stuff. So these are longer-term contracts, how are you able to protect your profitability given the volatility in costs. Are there terms that will help you preserve a certain level of profitability, either on a per kg basis or on a percentage basis?

[Vimal Gupta, executive]

So we have the long-term contracts with all OEMs, because generally you know that these are parts of technology parts, and they have to spend a lot of money and time for the development. So generally, they don't go to another supplier. So maximum we are the single source, or maybe somewhere when the volumes are high or like such type of risks are there with the OEMs, they go for the second source. So in this, like for the production of the profitability, one is the aluminum, because that is the more volatile commodity. So there is a complete pass-through to the customers. So whatever the variation is there, so we pass on to the customer.

And on the other side, for other commodities, other costs, so we have that agreement with the customers that periodically we have to discuss with them and take the corrections in the pricing.

[Karthikeyan VK, analyst]

Sure. Can you specify periodicity of changes. That will help. I understand people talk about pass-through with a lag and the time intervals tend to be fairly longish?

[Vimal Gupta, executive]

With maximum customers, it is on quarterly basis. And some customers, they are directly involved with the suppliers. So there is no impact of any variation in the prices.

[Karthikeyan VK, analyst]

So just 1 question to understand this better. From a rupees per kg perspective, what would have been the shift that you've seen? And going ahead, how can one think about that, in terms of metal processed? Any inputs would be interesting there.

[Rajeev Sikand, executive]

The key is, you know what happens, the back end of our process is same, which we have commonized. Of course, some are very typical and need the investment. But over a period of time, as we will go for a complex part, the weight of the part changes, and as the weight changes, the per minute or the cycle time, we are able to harness a higher value addition. That's what we are aiming at.

[Operator]

We have our next question from the line of Vishal Patel, an individual investor.

[Vishal Patel]

I just want to get details on how the contracts with PSA and the Toyota, which was there for the engines for the first time which we got, how is that progressing?

[Shekhar Dravid, executive]

PSA and Toyota, the good thing is we have submitted the samples and the samples are approved and now we are ready for the mass production. And also the good news what we are noticing, the launch, like Toyota has announced this, 1 of the part will go to the Hyryder, and this vehicle is receiving good bookings in the Indian market. So we are also hoping that our numbers would definitely reach immediately and we'll look for opportunities across the expectation. But the good thing is we are ready now and the SOP is there in the next quarter, which will be also noticed in our results in this quarter.

[Vishal Patel]

Okay. So it will be a mass supply, which will be regular supplies, which will start as per the contract from this current quarter?

[Rajeev Sikand, executive]

Yes.

[Vishal Patel]

Okay. And I have been an investor with Alicon for almost 15 years. I just have one suggestion. I think the equity is too small and the volumes are not there. Probably, if you can split it, say, into INR 1 and increase the number of shares, it might help the investors probably.

[Vimal Gupta, executive]

Thank you. Well noted your suggestion.

[Operator]

We have our next question from the line of Prateek Poddar from Nippon India Mutual Fund.

[Prateek Poddar, analyst]

Just a couple of questions. One is there has been no accretion in order book since quarter 3 FY '22. Any thoughts as to why that has happened?

[Rajeev Sikand, executive]

Yes, yes. Your question is -- in fact, we have been a little bit more prudent in accepting the orders. So our own way has been now to balance what we have and go for a higher value add rather than do the same. And it's horses for courses, something like that. So we want to play in a higher field and higher value addition. So that's where we are, little bit checking out what is good for Alicon in the long term, and does it meet the carbon-neutral products which are coming up.

[Prateek Poddar, analyst]

Got it. Got it. So how should I think about, sir, order book accretion from here on?

[Rajeev Sikand, executive]

When you think about order book, you should see what we have done in the last quarter. By having a very large order book, the year-on-year changes should be very significant. The shift, how does that change happen. When we change from 2-wheeler to 4-wheeler. It does not mean that we will leave the 2-wheeler when we say we will have it below 20%. It is our bread and butter. It is something which our people have honed the skills. We are the leaders in this business. So it's the shift. And as the order book keeps coming, we will keep updating, but that is one thing which we least worried as of now.

[Prateek Poddar, analyst]

So essentially, what you're trying to say is that irrespective of order book, the mix shift or the value-added component within the order book is very high. So from that perspective, it is margin accretive and absolute EBITDA accretive, right?

[Rajeev Sikand, executive]

Yes.

[Prateek Poddar, analyst]

Okay. Second question was on the under-recovery of RM. I think you mentioned that there has been a 10% price reduction from Q1 exit. So are you done with under-recovery of RMs after this 10% price reduction? And will we see benefits going into the next quarter on the margin side?

[Vimal Gupta, executive]

No, margin, there will be little impact, as in the earlier calls I was explaining that when we see that our margin as a percentage to sale, so definitely, we are looking for the higher margins. So when there is a recovery, maybe 10% we are seeing, but it may be stagnant, because the major impact on the prices of the RM is due to the energy cost. And still energy is the issue. So we feel that there was a significant increase in the last 1 year. So the reason of that is supplies have a little bit gone down. But we feel that maybe after 10% or maybe 4%, 5% further, they will go down. But we will stabilize that at that level.

[Prateek Poddar, analyst]

Yes. So have your under-recovery stopped, or you have passed on all RM increase to the customer?

[Rajeev Sikand, executive]

No, full, that we have passed along. It is complete recovery.

[Prateek Poddar, analyst]

So the recovery is complete. So from here on, if there is a price reduction, the final selling prices will also be reduced, right? The customer will ask for price reductions?

[Vimal Gupta, executive]

Yes, that plus minus we have to do in the price.

[Prateek Poddar, analyst]

Got it. Got it. And just wanted to check with you, adjusted for price inflation, in the last couple of years, have you really outperformed industry growth in this quarter? You talked about industry growth being 39% versus your growth, which is far higher, but I was just thinking that if I were to adjust for RM price increase, which would be also reflected in your top line, from a volume perspective, has your volume grown higher than the industry growth?

[Vimal Gupta, executive]

Yes.

[Rajeev Sikand, executive]

Even when we [indiscernible] the RM, we do that internally. When I am reviewing, we removed the RM fluctuation from our base budget. Because [indiscernible] everything. Otherwise, our marketing people will always like to show higher, as a natural tendency.

[Prateek Poddar, analyst]

Got it. And just, sir, this revenue guidance which you gave, if we were to adjust for last year's low base, which was there in June '21, because of the delta wave, and if I were to then look at now the growth you are guiding for, it looks like that for the next couple of quarters the growth will be single digit or high single digit. Is that a fair understanding? Because the bulk of the revenue growth has come this quarter, right? If you're guiding for a 25% revenue growth, the next 3 quarters the growth looks slightly muted.

[Rajeev Sikand, executive]

Next quarter, as per our internal estimate, looks nearly the same. The 2 quarters which we have factored, the last 2, it all depends on where USA is heading. See, we all cannot be escaping that as of today. So that is what the team has factored. If it pans out that it will be smaller impact, so be it, but we should be ready for it.

[Prateek Poddar, analyst]

Sorry, I'm just harping on this again. If I were to look at your trailing 12-month growth, right, the number which comes, and then I were to see or to calculate the guidance which you have given, that differential is such that, that mathematically it seems that the growth for the next 3 quarters is 10%, 11%.

[Vimal Gupta, executive]

Yes. That same thing Mr. Sikand is explaining, because many things we have factored in this while making the forecast for the next 3 quarters. So maybe we see that how the things move and we keep our fingers crossed, and maybe in the next con call, again, we will revise on the cost side.

[Operator]

[Operator Instructions] We have our next question from the line of Apurva Mehta from AM Investments.

[Apurva Mehta, analyst]

Sir, just wanted your view on this margin thing, because we had guided about 14%, 15% margin going as our volume goes up. But we are still struggling with this kind of 11% margin. Can you throw some light when we can see improvement in margins going ahead, because that was what we had projected that all our new orders which will be executed will be much higher margins close to more than 15%. So just on that, can you just review and let us know what is your thought process?

[Vimal Gupta, executive]

Yes, Apurva, I'm there to explain. Because you see in this quarter -- if you remember, in the last con call, I have explained that in this year we are targeting the improvement by 0.7% to around 1% against the last year of margins. That was around 10.7% or 10.8%. But now we are revising that also and increasing our target, increase that approximately 1.2% to 1.5% for this year. So it is not like that in just 1 quarter we will see a big jump in the margins, because of a lot of challenges that we have explained in our commentary like the cost base inflation. There are huge cost increases in the energy especially, and we have to mitigate that. And we have to maybe face and we have to absorb some cost and maybe fight with the customer for some increases and they have to absorb. But definitely, that may be when like volumes are going up and when you are talking about the impact of the new businesses. So new business is the impact of the higher margins that has started coming from this year, but certainly, year-on-year, the things will improve. In 1 year, we can't see just big jump in the margins.

[Apurva Mehta, analyst]

But our traditional margins also were around 12%, 13%, 14%. And last December quarter and the March quarter also, we were at 12% on lower turnover. But if we are improving, then it will be 12 plus 1% margin or what will...

[Vimal Gupta, executive]

Yes, for the full year, we are expecting to cross 12%.

[Apurva Mehta, analyst]

Okay. On an average, we will cross 12%.

[Vimal Gupta, executive]

So on that side, you see this in this quarter also we explained the impact of the energy. There is a huge impact. And again, there is increase in the cost of the logistics. So the freight cost of the containers. So those costs also we have to absorb, and definitely that increase in the manpower cost, because we have to take care of the people.

[Apurva Mehta, analyst]

So when we were -- this year, we will be close to INR 1,400 crore turnover. So on that we issued, assuming, around 12.5% kind of a margin if we want to just...

[Vimal Gupta, executive]

I think that is a forward-looking statement you're asking me. But I've given the idea.

[Apurva Mehta, analyst]

And going forward, this will gradually improve only. We will not have some big impact coming on? Maybe next year or going forward.

[Vimal Gupta, executive]

The first important thing was the improvement in the top line. So that we are confident that we are seeing that trend, and like we explained how we are moving and how the things are going in the right direction. So definitely, now our focus is to reduce the cost, and we are also seeing maybe in the coming time there will be some ease out in the inflation also.

[Apurva Mehta, analyst]

And on the availability of labor and that side, do you see any challenges on the high-quality labor or the trained labor. Are you seeing any challenges on that?

[Vimal Gupta, executive]

No. At this point, we don't see any big challenge for the availability of the skilled people.

[Apurva Mehta, analyst]

And on the expansion front, have you started working on that? Any further expansion where we want to go ahead and...

[Vimal Gupta, executive]

That is a continuous process. Like every year we are doing investments in the range of maybe INR 70 crores to INR 80 crores, or this year maybe a little on the higher side, because it is not like that we have to put in 1 new plant, automate it and make a huge investment, because all our investments are linked with the order book from the customers. So when we go for the new orders, so definitely based on the requirement of their processes and the capacities, we have to invest.

[Apurva Mehta, analyst]

So when are we planning -- any greenfield project will come in the next 2, 3 years' time or not?

[Vimal Gupta, executive]

It totally depends how the market moves, because at this moment we are trying to postpone that greenfield project.

[Rajeev Sikand, executive]

So what we are -- your question is very valid. We are trying a number of factors. Firstly, trying to improve internally. Looking at some small value-add in machining, which we can outsource, so that we don't take that headache of machining in out. We have our criteria, which is not complex and which are very low value add. And we are looking at small -- rather than going for fully our own location, maybe we need to take a small place in rent and put some machines there. So these are the measures which are all in our mind. Obviously, we keep looking at new technologies and new areas of growth.

[Apurva Mehta, analyst]

So current capacity, whatever we have currently at peak level, what can our revenue be, roughly INR 2,000 crores or INR 2,500 crores, at the peak?

[Rajeev Sikand, executive]

See what happens in capacity is a very interesting topic. As you must be dealing with so many other companies. So you invest in capacity for a particular customer, right? And then the customer gives you a volume. You also know a little bit about market, you adjust. So our capacities are tied with customer volumes. This is the automotive business, as you must be dealing in. So it's something which you can't say. Some plants may be running at 80%, some maybe at 40%, there's a cyclical mess in the industry and things like that. So generally, we are running still at 65%. We have a scope. We keep increasing that base. We keep creating that capacity.

[Operator]

As there are no further questions, I would now like to hand the conference over to the management team for closing comments. Over to you, sir.

[Vimal Gupta, executive]

Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our team or CDR India. Thank you once again for taking the time to join us on this call, and we look forward to interacting next quarter. Thank you very much.

[Operator]

On behalf of Alicon Castalloy Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.