Alicon Castalloy Ltd

NSE:ALICON

Earnings Call Transcript 2024-Q1

[Operator]

The conference is now being recorded. Ladies and gentlemen, good day, and welcome to Alicon Castalloy Limited Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you. Mr. Vaswani.

[Mayank Vaswani]

Thank you, Neda. Good day, everyone, and thank you for joining us on Alicon Castalloy Limited's Q1 FY '21 Earnings Conference Call. We have with us on the call today Mr. Vimal Gupta, Group CFO; Mr. Veera Babu, Group COO; Mr. Shyam Agarwal, Chief Marketing Officer at Alicon Castalloy; Mr. Andreas Heim, Managing Director of IIlichmann Castalloy; and Mr. Rajiv Gupta, Head of Domestic Business of Alicon Castalloy Limited. Mr. Vimal Gupta will cover the financial performance for the quarter, following which Mr. Agarwal will walk us through the operating highlights. Thereafter, Mr. Andreas Heim, and Mr. Rajiv Gupta will provide insights on developments in the global and domestic markets, respectively. Mr. Veera Babu will then share a brief summary on key focus areas, after which, we shall open the call for the 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 that have been shared with all of you earlier and have been uploaded on the respective stock exchanges. I would now like to hand over the call to Mr. Vimal Gupta for his opening remarks. Over to you, sir.

[Vimal Gupta, executive]

Good afternoon to all our investors. Thank you for taking the time. How to join our earnings call. I take that all of you have had a chance to review our earnings documents, which was shared yesterday. As we have indicated earlier in 2018, '19, it was the best year in the last few years for the global auto industry. Our assessment is that in quarter 1 of FY '24, the domestic industry has reached a performance level of approximately 81% of the base debt in quarter 1 of 2018, '19. For the international auto industry, the rate achieved in the trend to June of 2023 is about 84% level of the production in upbeat to June of 2019. At Alicon, our revenue performance in the first quarter is around 120% of the benchmark that we had set in the cofounding in 2018, '19. This clearly shows our performance when we compare to global and domestic auto industry. This has been driven by the addition of new parts as well as new customers. The Avian business to formation involved a strategic focus on multiple revenues for growth, which we have categorized into 5 pillars. These pillars are continue to scale strategic production in the IT business, addressing the opportunities from carbon-neutral technology, including battery electric vehicles, hybrid electric vehicles, fuel cell and hydrogen cell technologies. Opportunities from structural parts or technology-agnostic parts, which remain consistent, no matter which fuel technologies used to power the vehicle. Non-auto business encompassing opportunities from sectors such as defense, energy, telecom, to name a few, as where our competitives can be leveraged. Enhanced customer wallet share through value-add and combining products to offer our customers a one-stop solution. There are some key things for investors to monitor and to evaluate our progress and to understand the areas in which Alicon has transformed the business model. The cost aspect that we had communicated and which is visible in the business is unit product mix. The share of PV and CV in our revenue, which has been steadily increasing as we have focused on scaling up business from these segments as well as carbon-neutral technologies and technology basic parts. Their share of business from this segment will grow at a faster pace than from 2-wheelers leading to better product mix. Secondly, the customer profile is changing, and there has been addition of some Martiglobal names over ceteris -- there has been a considerable increase in the number of leading global OEMs and Tier 1 suppliers that we cater to. Thirdly, the component of business that is emerging from expertise in design, research and development and value engineering is increasing. Earlier, the key lever for business bank was reliability and cost competitiveness. Today, Alicon is winning business due to capabilities and design engineering, which is contributing to the changing nature of the business. The customers now look at us as a solution provider rather than a sort of lower cost components. In that backdrop, I will now run through the financial performance for the quarter under review. In quarter 1 of financial year '24, total income stood at INR 350 crores as compared to INR 344 crores in quarter 1 of FY '23, higher by 3% on a year-on-year basis. More importantly, on a sequential quarter basis, we have delivered a revenue growth of 11%. This has been driven by production commitment of new parts and new customers for some of our customers witnessed stronger-than-expected demand, resulting into increase in volumes. There was also some benefit of 2-wheelers volumes as OBD regulations, we still in -- from Opel contributed to volumes, which – [indiscernible] the gross margin for the quarter, which was 50.42% in quarter 1 of financial year '24 compared to 47.4% in quarter 1 of FY '23, is higher by 294 basis points on a year-on-year basis, largely due to the more favorable product mix. There has been -- there had outpaced slight contribution from the stabilizing of allot prices at lower levels. On a quarter basis the growth margin [indiscernible] 23% to 53.42% in quarter 1 of FY '24. This quarter, we consumed higher cost inventories, which have now fully passed through the system. There has been a sharp price in employee cost, which are higher by 20% year-on-year and 18% over the immediate preceding quarter. This is due to increasing in a minimal base as well as the protest of the increments we gave, which have keep in [indiscernible]. Lastly, there was the impact of the [indiscernible] cost of around INR 3.3 crores, which is a noncash charge. Other expenses were lower on a quarter-on-quarter basis as we have focused on cost-cutting initiatives as well as at all levels of our organization. Moving on the profitability front. EBITDA for the quarter stood at INR 40 crores against INR 38 crores in the corresponding quarter of the last year. Margins of Q1 of stood at 11.3% as compared to 11% in the quarter 1 of FY '23. I'm pleased to share that despite the increasing costs, we have reported an improvement in EBITDA margin by 13 basis points on a year-on-year basis and nearly 100 basis points on a quarter-on-quarter basis. Importantly, if we address the non-TAP chart for the Isocost, that adjusted EBITDA margin is 12.2% this quarter. This is an increase of over 100 basis points on a year-on-year basis and close to 200 basis points on a sequential-quarter basis. Some of you would recall our earning cost in the prior quarter where we had indicated that we will increase EBITDA margin by 100 basis points in FY '24. We have done more than that in the first quarter itself and our post to build up from this total year, we remain confident about our general upward direction and margin given by improving product mix. Further, we are on the cusp of launching our captive solar plants in India and Europe, which will contribute to assured power while helping to is power and fuel costs. In the prior quarter, we had indicated that we had incurred upfront costs due to the initial stabilizing requirements of new products. These have now been stabilized and are contributed to enhanced unit contribution. Finance costs were higher by 33% on a year-on-year basis from INR 7.1 crores to INR 9.5 crores, in line with the increasing in interest rates. We also witnessed an increase in the depreciation, which was higher by 23% on a year-on-year basis from INR 15 crores in quarter 1 of the last year to INR 18.4 crore in the quarter 1 of the financial year '24. The increase in depreciation has been the by 2 factors. One, we have taken some machines on lease and a -- as for accounting standards, we have to present a maximum useful life of 5 years, which results in a higher depreciation costs. Secondly, we reevaluated and shortened the useful life of some other assets, which has also contributed to confusing depreciation. As a result of higher finance cars and depreciation profit after tax for the quarter 1 of FY '24 stood at INR 9.5 crores as compared to INR 10.8 crores in quarter 1 of FY '23, lower by 12% on a year-on-year basis. On a sequential basis, sequential quarter, while PAT was lower by 2% from INR 9.7 crore to 9.5%. It must be noted that pad in quarter 4 FY '23 included a reversal of a deferred tax of around INR 6.85 crores, thereby we was elevating the base. I am pleased to share that our Board of Directors has approved a final dividend of INR 3.75 per share of a face value of INR 5. Each will sequence to 75% rate of dividend in addition to the interim dividend declared earlier. The total dividend for the financial '22, ‘23 comes to INR 6.25 per share of a face value INR 5 each, which increased 225% rate of dividend. This is substantially higher than the dividend paid in the prior year, which targets our focus on shareholder value creation. On the CapEx front, we have deployed INR 15.6 crores during the quarter and continue to have a target CapEx deployment of around INR 90 crores in FY '24.Coming to outlook. With a strong start of the financial year and a healthy pipeline of SOP from new orders and new customers, we are poised to take our business to new highs. We aim to deliver a revenue of over INR 2,200 crores by ‘25, ‘26 against the earlier estimate of INR 2,000 crores. This cuts to the CAGR of over 15% over a period of 3 years. Our confidence stems on the new orders which we have received and the discussions with the customers on new technologies and solutions. This will be accommodated by an improved margin profile and we aspire to take EBITDA margin to around 14%, and we have already attained adjusted EBITDA of 12.2% in quarter 1 of FY '24. -- which we will look to build out further. Lastly, we are looking to drive efficiencies across our balance sheet and working capital, which will contribute towards enhanced return ratios too. On that not, I would now like to hand over to Mr. Shyam Agarwal, who will talk about operating highlights for our business.

[Shyam Agarwal, executive]

Thank you, Mr. Vimal, greetings to all of you. As Dimagi has indicated, we have started the financial year 2023, '24 on a positive note. We have performed well in new markets and new products. The industry backdrop remains mixed with some segments reporting good momentum and other witnessing challenges due to supply chain issues. Despite this, we have delivered good revenue growth, especially on a sequential-quarter basis. During the quarter, we have added 17 new parts from 11 customers, including 2 new logos. This includes 3 parts from the EV, 6 parts from the ICE and 3 parts from the non-auto, and 5-part from the structural segment. Out of the 17 parts, 10 parts are for international business and 7 parts are for domestic business. During the quarter, we have added a new part under the eHigher segment with a prominent European customer. We also added a new part in a new market for autonomous driving with Volkswagen Commercial. These businesses will showcase capacity and capability to both existing and potential customers. Telecom has also won its made order amounting to INR 90 crores per annum, requiring application of the friction here welding technology from a European customer for a EV application. The FSW technology can be a key enabler for us to increase the EV business to ‘24 by 2025, ‘26. In the IT segment, we have added a new subcategory of products with our existing customer vendor. We have increased the wallet share from Maruti Suzuki with the addition of new cylinder heads. In the nonauto business, we have added business in the existing portfolio and are in active discussions with existing customers for further addition of parts. During Q1 FY '24, Alicon has booked new orders aggregating yearly average sale of INR 110 crores. With this, our total order booking has reached to INR 8,500 crores, which is executable over a period of 6 years from 2023, ‘24 up to 2028, ‘29. The other aspect to highlight is the improving product mix from the new business on about 52% are for the carbon neutral business, which is a value assertive. Further, 90% of new business during the quarter is for $4 million, which we will serve to enrich the product mix for them. The commencement of supply for the orders, along with the start of production, across our aggregated order bookings will contribute to the revenue momentum. We remain cautiously optimistic about our prospects, even as forecast for the global auto industry indicate possibility of a sluggish second half. Another focus area for our value-creation approach is to increase the value addition mix from our products both 4-wheeler and the CV segment. In carbon-neutral technology, we are in discussions with existing customers to increase the scope and our portfolio. Our focus remains on passenger vehicles, commercial vehicles and export opportunity as we see a greater scope of value addition in these areas. The focus is to continue to build the position of Telecom as a consistent and reliable supplier with a solution-driven approach. Customers should understand that Alicon will offer unique solutions while leveraging newer technologies. We had talked about 3D sandcasting in the prior quarter and have made good progress in friction stir building too with our metal order base. These applications will enable us to offer parts for the future, which are light, strong, and of high quality. On that note, I would like to hand it over to Mr. Andreas Heim to throw light on the global business.

[Andreas Heim, executive]

Thank you, Shyam. A warm welcome to all of you. I will briefly cover the development of our international business. The international business has done well in the Supras our targeted production for the quarter. European operations are gradually emerging on the chilling situation witnessed last year. Gas prices have stabilized and energy availability has improved, which combined with some cooling in the oil prices is providing our customers confidence to start ramping up the active of us. In our existing business, this quarter, we witnessed an increased in EV products for Samsung, which is a Tier 1 supplier. As explained by Shyam, we have added 5 new apps from 2 new logos in this quarter in the global business. We have added [indiscernible] commercial vehicle for autonomous riding applications.

[Operator]

Sorry to interrupt Sir, there is some kind of temping sound from your line. Let me disconnect and correct. For a second, please stay connected, while we the management going back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may go ahead.

[Andreas Heim, executive]

Thank you for reconnecting me. As explained by Shyam, we have added 5 new parts from Zumo Robots this quarter in the double business. We have added apart from Volkswagen Commercial vehicle for autonomous driving applications. While we have done work for the passenger vehicle business for Volkswagen, this is the first time we are working for the commercial arm. We have added 4 parts with [ impromnent ] European OEM leading to additional of another market for us. We have also been invited to work on development for [indiscernible] -breaking project. These images development of EV for electrification of highways. This will be achieving by providing overhead lines as it done in the case of [indiscernible]. Since the key challenge for electronic commercial entities in the size in life of the battery, the e-health concept that is being prototypes, which will be enable commercial vehicles to recharge on the move, which will solve for the challenges of titers in incident charging infrastructure. We are also in discussion with Marken's global customer for a new part on the category of structural or technology-agnostic parts. The order, which was received from [indiscernible] last year is processing value with involvement of the best technology and resources, both locally and overseas. As we had indicated last quarter, the end of the winter has able demanded for 2-wheelers and we have seen the reflected increased volumes for BMW and KPM, which picked up as in the basic. The global business contributed to 23% of the global revenue during the quarter and a slightly higher than the contribution from quarter 4 ‘23 as well as the previor financial year. Of our initiatives to reduce costs, we can share that we had commenced installation of solar panels and expect this to be activated in quarter 3, which will lead to reduction in energy costs and reduce the carbon footprint. The outlook remains mixed with stabilizing of energy costs and commodity prices can improve prospects. However, the forecast for the auto industry indicates softening of demand over the course of the year. Hence against our original expectation of 5% growth for the global auto industry in calendar year '23. We all antarticipate the growing between 4% to 5%. 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. In quarter 1 FY '24, domestic automobile market witnessed 3% growth on a year-on-year basis, driven by 7% growth in the passenger vehicle, 1% growth in the 2-wheeler segment and 2% decline in the commercial segment on a year-on-year basis. The domestic passenger vehicle industry volumes grew by 7% year-on-year in quarter 1 amid the ramp-up in the production and continuing interest in the SUVs. The domestic tubular industry was expected to benefit from a spillover in the demand from quarter 4 FY '23 due to the impact of OBT regulations. However, there was only marginal increase in the volumes due to supply chain issues with few vendors. Further, 2-wheeler exports also remained weak on year-on-year basis. The domestic commercial industry volumes declined by 2% year-on-year. The sequential decline was sharper than usual due to seasonality and some preponement of demand in quarter 4 FY '23 because of the RT and the OBD2 norms coming into effect from April 23. As explained by Mr. Shyam earlier on new business, we have added 7 parts from 6 customers in the domestic business. These are largely existing customers for whom we have experienced expansion of portfolio. We have increased the portfolio with Maruti Suzuki with addition of a 4-wheeler cylinder at. Further, we have added a new subcategories cylinder block and a prominent domestic customer, resulting in an increase in content per vehicle for us in a domestic toothsome -- we have increased the portfolio with addition of a new part and will also continue to increase the content per vehicle. In the nonauto business, we are working on tenders for the 2 products. One of -- one is for the supply of reels for the baseline, and we are also in line to win the order for a cylinder for the heavy-duty defense part, which will come into production in the coming quarters. On this note, I would like to now request our group CEO, Mr. Veera Babu to share his perspective on the performance for the quarter.

[Veerababu Siddineni, executive]

Thank you, Rajiv. Good day, everyone. It's a good performance this quarter and our performance compared to the domestic and global industry, we are actually working on certain initiatives to further build on the momentum. In order to further elevate our manufacturing excellence and to of expertise, we are actively implementing digital focus controls. This will ensure that our production purpose is elevated by an additional layer of supervision through mission intelligence. This will also provide us data, which will help us actively manage the operation as well as provide inputs for better decision-making going ahead. Secondly, we've now taken the initial steps in our production journey. The detailed road map to have been drawn of elevating the area in which the automation can introduce in our prospect. We are working on assessing the advantages and the efficiencies this will bring and various parts of being demand --demand center into those that can be fully automated versus those parts that can be only partially automated for now.As a power thinking organization, we are seeking yet protect house from any risk to the competitiveness from rising map of cost. As we progressed on this journey, we are confident that automation will bring a noticeable benefit across the process of excellences and bread quality in addition to cost benefits. We have significant aspirations to build the business further and have elevated our people processes. The purpose is to require a reach and talent with the right technical expertise as we seek to increase customer value share and enhance the share of value addition, it is essential to add a bit talent, which will enrich authorization competitors. We are actively adding associated with testing expertise and missioning expertise to our global teams. In order to better deal with the complexity, we are adding experts from Europe, who offers steels in desire and tool development. Replacing these experts in our European operations and leveraging the global feeds for prototype development for global customers, we are ensuring that we are closer to the customer and are contributing to shortening the pipeline for development. As we shared earlier, we are actually working towards increasing our sustainability footprint. The capital solar plant in India has been commissioned and will begin contributing to energy conjunction and contributing savings in the current quarter itself. The installation of solar panels at our facility in Europe will be completed in this quarter and begin contributing in the third quarter. These initiatives will be meaningful to our commission our energy mix. On this note, I would now make us to more to open the call for us for any questions or position that you may have. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Raghunandhan N.L. from Nuvama Research.

[Raghunandhan N. L., analyst]

Thank you, sir, for the opportunity and it's good to see the...

[Operator]

May I request to speak a little closer to the mike?

[Raghunandhan N. L., analyst]

I hope it is better now. So it is heartening to see that the revenue target has been increased to INR 2,200 crores. On my questions. Firstly, can you give some color on execution of new orders in FY '24, would you expect revenue to be over INR 1,600 crores this year, sir?

[Veerababu Siddineni, executive]

So Raghu, for this we are expecting to reach around the INR 1,600 crores because there this the second quarter will be the most critical second half of the year will be the most critical because we are going to implement various new projects. The main will start, and there is a ramp-up in the volumes for the new projects. So let's see the market, but we are expecting to reach that level about INR 1,600 crores, that is the target we are having in this year.

[Raghunandhan N. L., analyst]

So the ramp-up, which you are talking about, can you call out which would be the main one? Would it be JLR, Toyota and BSE?

[Veerababu Siddineni, executive]

Yes. The ramp-up you talked about the major contributors would be Toyota. Everyone knows Toyota is doing quite well. The vehicle which they have launched a highlight of 1.5 liter and also high gross, and this has added with the launches even declared by Maruti because it's the same platform, which the vehicle will go. And Toyota has given an official indications to relook on the capacities to support in the quarter 2 and quarter 3. So the main contributor is yes, Toyota. Second is BSE, yes, which you all know, they have already invested in a large fair Bangalore, and we have just started. So this also will productionize -- we are expecting numbers to add from next month. And the good thing is this is for the domestic as well as the French market. So we know about vehicle which they have launched, et cetera and steel creek, it's sitting quite well. And we have good response from the French market on that ground. Third would contributor would be Maruti Suzuki. As we have explained, we want to increase our portfolio in the passenger vehicles, especially in the markets and area where we were not there. Cylinder being a very critical and good we high -- I mean, basically showcase our capacity and capability. And that we are aiming and which you have noticed in the last couple of quarters, we are explaining additional businesses with Maruti. So yes, we have these parts are going into supplies now, and we are expecting one more cylinder will join in the coming quarters. So for Maruti, we are expecting a good jump in the volumes in the coming quarters, especially from the quarter 3 in the second half.

[Raghunandhan N. L., analyst]

Got it, sir. And on JLR side, like the company announced that they will be starting the bookings of the upcoming electric vehicle from October onwards. So even our supply should come in?

[Veerababu Siddineni, executive]

The JLR e-axle, which we were announced, I think it was an outlook -- sorry, August last year, the business, what we have back again for a platform which will come in 24, ‘25. And we are working in a right pace on that project. And even we have given them an option where even JLR first time is working on that model of a critical development of e-axle where they have done various situations. Yes, we are on right back, but this will come in SOP in next year, not this year. And we are seeking to get support major jump in ‘25, ‘26 from that project.

[Raghunandhan N. L., analyst]

Got it, Sir.

[Veerababu Siddineni, executive]

To add on -- basically on the previous point, even we are noticing on EV, the demand increase for Tata Motors, and we have explained last time, 2 of the motor housing they've already added. And this is now gaining momentum. Also, we are coming across from customers than similar platform, they're also exploring to other OEMs. So this is a very good opportunity where they get immediate volume increase for the part what we developed in that. So also Dana, which we added is now ticking quite well. So these are been some of the main contributors, which basically drivers, which we think will support us to post, but let's keep up in this cross because we know market is still more a tile. What we understood from markets, especially on global. First half, it noticed a growth of 10%. But we noticed in the second half, the increase what they're expecting is 1% or 2% only. That is because the U.S. will lower the interest rates are at the peak and other challenges in economies like China and so on. But yes, we are ready on those down. Also, we're exploring plan A, plan B, just to see that we don't for that with the capacities what we are putting for these numbers.

[Vimal Gupta, executive]

And Raghu, in addition to this, like the ramp-up of the new projects as well as what we have seen that there is a shift of business like echo what they are sourcing from China. So they are shifting to India. And we have almost finalized the one big business with that hope. So hopefully, from quarter 3, we -- that supply, we will be able to start.

[Raghunandhan N. L., analyst]

Which was the company, sir?

[Vimal Gupta, executive]

Concluding the components for the Tata Group.

[Raghunandhan N. L., analyst]

That's wonderful to hear, Sir. Thanks so much for the detailed respond. Vimal, Sir on the ESOP cost, the INR 3 crore cost was there in Q1. Is this expected to repeat even in the subsequent quarters?

[Vimal Gupta, executive]

So this is for this year. So -- but on the matter, will be very small amount, only this amount is coming to the current year. But even not we got.

[Raghunandhan N. L., analyst]

So all things remaining constant, Q2 onwards, we should see margin around 12% then?

[Vimal Gupta, executive]

That's the...

[Raghunandhan N. L., analyst]

Yes, sir. And the Capital Solar plant in India and Europe coming in Q2 and Q3, Mr. Veerababu spoke about it. So what kind of cost benefits can it provide?

[Vimal Gupta, executive]

So in India, almost we are expecting to make a saving of around INR 4 crores to INR 5 crores in a year. And in Europe, also, let's see, I think because it is all plants. So let's say, as to INR 10 lakh will not be a big jump, mix savings, but they are also well for this solar power.

[Raghunandhan N. L., analyst]

Got it. So for the full year, is it fair to assume around 12% margin? Or do you see any risk to that?

[Vimal Gupta, executive]

Yes, we are hopeful that we will be able to deliver this and must maybe better. It depends on the performance because the kind of the -- because only this what we are seeing in the second half, how this overall economy performs the global market, especially Otherwise, we have a very strong order book, demands are there. And we are seeing the improvement in the operations costs are going down. So let's see...

[Raghunandhan N. L., analyst]

Got it, sir. And the Germany from 12.2% margin in Q1, going towards 14% margin by FY '25, '26. So would it be right to assume that one sale benefit, second mix improving towards more value-added and overseas products. And third, your cost-saving efforts like automation, like what would you think would be the top 2, 3 factors, which will take you to 14% over the term?

[Vimal Gupta, executive]

So the main most important is the products. So what we are working? So especially, as you are aware that the contribution from the 2-wheeler that was in the year that has started going down year-on-year basis. Sites that we used to have more than 50% the CF tax. Now we have reached the 43% this quarter. So that is one. And second is the cost down projects what means our efforts to reduce our cost. And the third is the life growth in last on call, we've explained about the stabilization cost of the new projects. So hopefully, the new projects have started stabilizing. So cost of growth part that going production costs have started going down. And not that benefit, generally, we get that economy of scale. So these are the factors, those are going to drive to improve our margins in the, I mean year.

[Raghunandhan N. L., analyst]

Got it, sir.

[Vimal Gupta, executive]

Also to add on, we are working with a concept where we can increase our sales of machine. That's the reason we are exploring more of what the bigger and bolder part, which will give us more revenue over the traditional path where we went into so if past us more, we are working in a model where we can offer customers multiple tooling solutions where, again, with the aim to increase after is for machine.

[Raghunandhan N. L., analyst]

Got it, sir. Thank you so much for that. Last 2 questions from my end. Sir, on the debt side, how do you see the reduction in net debt? I mean we are planning a CapEx of INR 90 crore. But given the kind of growth we are seeing, we should be generating positive free cash flow. So how do you see the trajectory of debt reduction over the next 2 years?

[Vimal Gupta, executive]

Let's say. But based on estimates, I think at this moment, we are near to INR 300 crores to INR 290 crores, INR 295 crores in that range in crores. So hopefully, in the next 2 years, I think INR 70 crores, INR 50 crores, we should be able to reduce our debt.

[Raghunandhan N. L., analyst]

Got it. And last question on the tax rate, what rate should we work with, sir, around 24%, 25%? Would that be a fair assumption?

[Vimal Gupta, executive]

New tax design, we have not credit fallen. So that will come in the range 24%, 25%.

[Raghunandhan N. L., analyst]

Got it, sir. Thank you so much. Very useful. I'll come back in the queue for more questions.

[Vimal Gupta, executive]

Thank you.

[Operator]

Thank you. Next question is from the line of Saurabh Jain from Sunidhi Securities and Finance, please go ahead,

[Saurabh Jain, analyst]

Thanks for the opportunity. I have a couple of questions. First, to begin with Shyam. You have upped your revenue guidance by almost 10%, that's quite good. That shows our confidence and the momentum in the orders. So I just wanted to know, would you still call it conservative as we had been mentioning that INR 2,000 crores is a conservative number?

[Shyam Agarwal, executive]

Yes, that actually in our speak, I've already explained that we have improved our -- the guidance from INR 2,000 crores to INR 2,200 crores by ‘25, ‘26, approximately CAGR of 16%. But we -- that is explaining to the group that we have a lot of opportunities are coming up, especially one is one we are talking about the development of the new part because that takes retetime for the ramp-up and converting into the volumes. But another good thing is that we are receiving a lot of inquiries and we are in discussion with various OEMs or Tier 1 suppliers, about the shift to be. So the resourcing of those parts either from China or from other vendors or other countries, that has started. So hopefully, we will be able to revise our guidance for ‘25, ‘26 in the next quarter, maybe next coming 6 months on the upper side.

[Saurabh Jain, analyst]

That's great to hear. Sir, my next question is on gross margins. On a sequential basis, our margins have dipped. So what is the outlook going forward? Do we see margins improving with matters to stabilizing now?

[Shyam Agarwal, executive]

Metal is almost stabilized. So definitely, we -- our focus is more on the improvement on the margins. And we are working on each and every area of how we have -- we can improve this. So like major focus is from the gain in the sales mix, the product mix that is going to happen. And like we have already expanded the order book price in the new orders what we are getting from the new customers or new parts of home the existing customers. So that is happening. And when we are going for the new businesses, so we are mainly focused on the margin side and ROC. So that is definitely in the coming period that we will be able to improve our margins.

[Saurabh Jain, analyst]

Okay. So for the last couple of fiscals, it was below 49.5%. So now this quarter, it is at 50.4%. So like can we assume like around 51% for the full year and onwards?

[Shyam Agarwal, executive]

We hope so. Total it depends on the product mix. But definitely, our ambition is also that it should improve.

[Saurabh Jain, analyst]

Okay. My last question, sir, what number should we work with for depreciation and finance costs for the full year and these numbers were on the higher side this quarter?

[Shyam Agarwal, executive]

So like interest cost, one is that has impacted our, what we call untested increase that in the last years happened. So hopefully, because we don't know about that list, we are hoping that as stabilized there will not be any further increase in the interest rates in the coming period. So on the other side, now, we are more focused on how to do because some of ports like that port is increasing. So more focus on the like CSC, so take that benefit and reduce our interest cost. And another a little bit interest increments from the our [indiscernible] assets and depreciation is also increased like when we -- generally, our life of the asset, we consider 12, 10 years or more, so for the depreciation side. But for the leased assets, so that has also impacted on the depreciation, approximately around INR 40 to INR 15 for this quarter. And we have also made some corrections in the life of assets because based on what expectations of the utilization of those assets. So that also infected around INR 70 lakhs, INR 20 lakhs in this quarter.

[Saurabh Jain, analyst]

Okay. So should we work with this INR 18 crore of depreciation on a quarterly basis for coming it [indiscernible]

[Shyam Agarwal, executive]

On that year.

[Saurabh Jain, analyst]

Okay. That's all from my side. Thank you. All the best, sir.

[Shyam Agarwal, executive]

Thank you.

[Operator]

Thank you. Next question is from the line of [indiscernible] from Sushil Financial Services.

[Unknown Analyst]

Firstly, congratulations to the management on a better set of numbers and stronger margins. And thanks for this opportunity. So just a few questions. First, you mentioned the introduction of a new technology friction stir welding, what exactly is this technology, like what are the opportunities? Can it be a game changer? And also, you've received a INR 90 crore order for this, I believe, from your commentary.

[Shyam Agarwal, executive]

Yes. Thank you for the question. Friction Stir Welding is a solid-state joining process, and it has lots of applications in the EV, and it has lots of advantage as compared to the current processes which are in the industry right now. We have got a new order for this technology from a European company that is worth INR 90 crores. And we are in discussion with a couple of more customers for this technology. And I hope we will be in a better state to give you further update in next 2 quarters. Once we will finalize the next orders from the new customers. But to summarize, we see a good opportunity in the field of FSW to bring new orders and improve our product mix.

[Vimal Gupta, executive]

Yes, this is a great opportunity, what we are seeing at this moment because we are new and this is a patented technology that we have brought in India. And there is a huge demand for this product. So -- but this is an initial start. So we are not in a position to give some guidance on this, the numbers, but big opportunity we are seeing here, but we will be able to give more clarity in the coming quarter, maybe next quarter or next 6 months.

[Shyam Agarwal, executive]

And to add to this point, basically, the possibility to increase value addition is there when we give assembly parts when we talk about EV. So this is, again, one of the tools, which will help us to give assembly part to our customer and such a higher we. Secondly, what we came -- what we -- at this moment, these technologies are there in Europe, in China, where limited in India. So we are -- we've become a first mover with this technology. And we are quite sure with the reduction of this technology, a lot of RFQs and requests will come from existing and prospective customers, which is in line with our strategy to increase our portfolio in the carbon litanfootprints.

[Unknown Analyst]

Okay. Okay. That's great to hear. And just another question. So JLR is setting up a battery manufacturing plant in U.K. and of course, we supply battery housing and moves into them. So once this plant is set up, what are the opportunities and prospects for Alicon in this?

[Shyam Agarwal, executive]

Yes, we also came across this news in last week were Tata and JLR is coming up with a plan, maybe in Central inland or maybe Spain also their exploring. Yes, at this moment, we are focusing on the Gigafactory of battery manufacturing. One is we still will have an opportunity to supply battery housing. As you know, we have already as much as factory housing from a European entity. And this -- where we have given a solution over a traditional way of making a battery tax. So yes, one is the EXL part, what we added, will demonstrate our customer also of handling such a big and critical path add on what we have applied. So yes, we are in close discussions and will be into discussion to seek further opportunities under this project.

[Unknown Analyst]

Okay, thank you so much.

[Operator]

[Operator Instructions] Next question is from the line of Suhas Main from Keira Capital, please go ahead.

[Unknown Analyst]

Congrats to management on a good set of numbers. I have a couple of questions. One is on the new areas. The 2 areas which we talked about when you made a big mission of defense entering to defense. So could you talk a little bit about what is the opportunity that we are looking at in defense is the first area? And the second area you talked about the on the road charging, I just want to understand what is the opportunity for us in this -- could you just you have some idea for these 2 areas?

[Shyam Agarwal, executive]

Yes. Suhas, thanks for the question. So in the defense, we are already supplying the part to CVRD. That is the defense, India defense, which is situated in generally, and we are already supplying the road deals for the urgent tank. And we are voting the new tender, which will be for the next 3 years, and it's a big order for Alicon. That is the first one. Second thing, we are already supplying the cylinder pad for the defense truck to BM. And right now, we are getting further tender of a much, much bigger quantity, so which we have already quoted to them. And we are the single source for all these 2 customers. So we see the revenue will increase and the orders which will be get that will be for next 3 to 4 years.

[Unknown Analyst]

Okay. What could be the indicative size of these orders we are talking?

[Shyam Agarwal, executive]

The order value will be roughly in the range of INR 96 crores per year. INR 15 crores to INR 20 crores per year.

[Unknown Analyst]

Okay. The other question on a very broader scale, we are actually, as you say, 52% of the orders would be coming from the newer areas, the new technologies. So why are we only assuming a 15% growth because it looks like all our efforts put by you over the last few years, you're at kind of an inflection point now. At least that's what I got from when I heard to all the leaders in the team. So why are we sticking our files to a 15% growth?

[Shyam Agarwal, executive]

You're rightly pointed this point from your side. What we are noticing earlier, there were dominant players in the market and even the development pipe or a development lead type or a project like our projects were very high. Now there are a lot of competition in the market, and the project life has come down. So that we a factoring, we know like earlier a part which was developed will continue for a 15 years that, for example, Amarcylinder, which we developed for the 800 where we were supplying till around 30 to 35 years. So this has come down. Also, we are noticing some of the projects we developed and some even don't click in the SOP. So those things we are keeping in mind and now even new technology coming up from ICE to EV. We know very well in EV also or transformation will come. Like for example, we came across one article when Toyota is working on a new technology. It's a solid-state battery, which can run 1,200 kilometers in 1 charge and that batteries can charge in 10 minutes. So we know where a lot of companies are working in different adjacent technologies to aftermarket and dominate the market. So with those parameters, they are keeping up Indus gross... The point. So opportunities are there. So we are at this moment just a little bit on the conservative side. And when things move when we get up to a very advanced stage, then we start revising our guidance.

[Unknown Analyst]

And lastly, on the margin front, we are seeing 14% is what we are aiming for ‘25, ‘26, that's quite good margin from where we are right now. But is there -- is there a feeling there actually in terms of -- because I know that is a huge operating leverage. We are just 65% utilization right now. So operating leverage is still should take your margins to that 13%, 14% kind of a range. Apart from that, we are saying we are shifting from a tool winter, which is a low margin to -- most of the products now will be in the high-margin category. So put all these together, and we are working on the tent technologies where by itself, there will be a better pricing. So taking all this into consideration, is there a salary of 14% out there in terms of margin at peak utilization?

[Shyam Agarwal, executive]

For this, a little bit because you explained that we did work on the conservative side. So let's see because earlier also, we were not expecting that such kind of margin growth in the quarter 1. And the kind of projects we are doing for the cost reductions and change in the product mix. Hopefully, we should be able to deliver better.

[Unknown Analyst]

Thank you. Thanks a lot and all the best.

[Operator]

[Operator Instructions]

[Vimal Gupta, executive]

Thank you. | 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 of 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]

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