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Alicon Castalloy Ltd
Earnings Call Analysis
Q3-2024 Analysis
Alicon Castalloy Ltd
Alicon Group has expressed optimism for future growth, driven by new orders and active discussions with global customers like Daimler, JLR, Toyota, Stellantis, and Maruti Suzuki. Confidence in these customer relationships has enabled Alicon to move beyond development stages to active discussions regarding additional components and value-added solutions. An improvement in margin profile is expected, aspired to reach around 14% EBITDA margins, with quarter 3 of FY '24 reporting an EBITDA margin of 31.1%.
By August 2024, Alicon's new solar power capacity will contribute to over 50% of their energy mix, marking a significant step in sustainability. This strategic move not only enhances the company's eco-friendly initiatives but also serves as a unique selling proposition by positioning Alicon to address both domestic and international markets from their Indian and European locations.
The company's international business revenue marked an impressive 28% of the total revenue during one quarter, up from 20% in the previous quarter. The addition of 30 new parts from 4 customers, including 2 from electric vehicles, indicates a trend of expanding global presence and possibly improving international business as a share of total revenue going forward.
Alicon has experienced sales growth in various vehicle segments: 41% growth in passenger vehicles, 9% in commercial vehicles, and 8% in two-wheelers, all on a year-over-year basis. The company has started supplying cylinder heads to Maruti Suzuki, with more developments underway, anticipating significant volume once production fully ramps up. Deals with other companies like Daimler and two-wheelers manufacturers also promise increased volume and revenue.
The company has faced approximately INR 50 crores in impact due to variations in aluminum prices, projecting an estimated growth of 13% to 14% for the full year. For the next fiscal year, a smaller impact of around INR 15 crores is expected, and potential revenue growth is projected at 15% to 18%. Furthermore, ongoing discussions with customers indicate Alicon could achieve higher growth, overcoming modest global volume expectations through market penetration and new customer acquisition.
Development and initial supplies originating from Europe are expected to transition to Indian locations in the near future. This move anticipates an increase in volume in the coming quarters, and it's projected that in the fiscal year 2025 to 2026, there will be a volume of around 150,000 to 170,000 units, potentially contributing an additional INR 100 crores to INR 200 crores in sales.
Alicon sets a revenue target of INR 2,200 crores for the fiscal years 2025 and 2026, aligning their growth direction with this objective. The company also aims to improve its capacity utilization to above 80% levels to enhance return on capital employed (ROCE) and return on equity (ROE), which is critical for improving financial performance and operational efficiency.
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Ladies and gentlemen, good day, and welcome to the Alicon Castalloy Limited's Earnings Conference Call. [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, Mr. Vaswani.
Thank you, Michelle. Good day, everyone, and thank you for joining us on Alicon Castalloy Limited's Q3 FY '24 Earnings Call. We have with us on the call today Mr. Vimal Gupta, Group CFO; Mr. Shyam Agarwal, Chief Marketing Officer; Mr. Andreas Heim, Managing Director of Alicon 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. Mr. Andreas Heim and Mr. Rajiv Gupta will then provide insights on global and domestic markets, respectively. Thereafter, 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.
I would now like to turn the call over to Mr. Vimal Gupta for his opening remarks. Thank you, and over to you, sir.
Good morning to all our investors. Thank you for taking the time out to join our earnings call. I trust that all of you have had a chance to review our earnings documents, which was shared over the weekend.
We are delighted to report our highest ever revenue this quarter. As we have shared earlier, in recent years, there has been a strategic emphasis on serving new technology platforms in the autos industry, expansion into new geographies, the addition of capabilities and renewed focus on value engineering. This has enabled us to surpass the milestone of INR 400 crores in revenue during the quarter for the first time ever. And we believe this is a positive sign of things to come.
Our business transformation strategy is guided by 5 pillars, reflecting our commitment to diversify and solidify our growth levers to enable sustainable progress. Scaling strategic products in the IT business; addressing opportunities in carbon-neutral technology, including battery electric vehicles, hybrid electric vehicles, fuel cell and hydrogen cell technologies; exploring opportunities from structural parts or technology-agnostic components; expanding into non-auto business; leveraging our competencies in sectors such as defense, energy and telecom; enhancing customer wallet share through value-added products and comprehensive solutions. Investors should closely track the following key themes that underscore Alicon's business transformation or impact into our progress and evolving business model.
So first is, we continue to increase the share of passenger vehicle, the commercial vehicle, CV, in our product mix. This has reached 51% in 9 months for the financial year '24 compared to 48% in 9 months of financial year '23. Secondly, our customers profile is evolving with the addition of prestigious global names, including leading global OEMs and Tier 1 company, highlighting Alicon's growing stature in the industry. Currently, our business composition is shifting towards expertise in design, research and development and value engineering. Alicon now distinguishes itself by winning businesses based on innovation, technology and design, positioning us as a solution provider rather than just a source of low-cost components. As we continue to adapt and innovate, these themes serve as key indicators for investors to assess our ongoing transformation and strategic direction.
Now turning to the financial performance for the quarter under review. In quarter 3 for financial year '24, total income reached to INR 406 crores, that is a 12% increase compared to INR 362 crores in quarter 3 of FY '23. When we compare with the total income of INR 382 crores in quarter 2, this indicates sequential quarter growth of 6%.
Revenue growth has been driven by scaling up the production for the new parts and the new logos added recently including many critical parts being supplied through marquee customers. As a result, we have net an increase in utilization levels, especially at the European subsidiary.
Total capacity utilization, which was 68% to 70% quarter 2, has moved to 70% to 71% Q3. The gross margin for the quarter was 51.2% in Q3 '24 compared to 49.2% in Q3 of financial '23, higher by 198 basis points on a year-on-year basis. This is primarily due to a more favorable product mix accompanied by positive impact of the stabilizing dollar prices at lower levels.
There has been a sharp rise in employee cost, which is higher by 15% on a year-on-year. Apart from the differences due to increment, there is the impact of ESOP cost of around INR 3.7 crores for the quarter and INR 10.7 crores for the 9-month period, which is a noncash charge.
Shifting to our focus to profitability. EBITDA for the quarter 3 is INR 53 crores, a notable increase from INR 42 crores in the same quarter of the last year, so increase of 26.2% on a year-on-year basis. Despite a significant rise in the employee cost, EBITDA margin for the quarter 3 for the financial year '24 has improved to 13.1% in comparison to 11.7% in quarter 3 of financial '23. I'm pleased to share that we have reported an improvement in our EBITDA margin by 136 basis points on a year-on-year basis and by nearly 74 basis points on quarter-on-quarter basis.
Importantly, if we adjust the noncash charge for the ESOP cost, the adjusted EBITDA margin is 13.3% this quarter. This is an increase of over 180 basis points on a year-on-year basis. Some of you would recall our prior earnings call, where we had indicated that we will increase our EBITDA margin by 100 basis points in FY '24. We have already achieved that in the first 9 months itself and we'll hand over to build on this further. We continue to remain confident about the general upward direction in margin, given the improving product mix.
Finance was higher by 24% on a year-on-year basis from INR 8 crores to INR 10 crore, in line with the higher interest rates. We also witnessed increase in the depreciation, which was higher by 24% on a year-on-year basis from INR 16 crores to in quarter 3 last year to INR 20 crores in the quarter 3 of financial year '24. The increase in depreciation has been driven by 2 factors. One, we have taken some machines on lease. And as per the accounting standards, we have to factor a maximum useful life of 5 years, which resulted in a higher depreciation cost.
Secondly, we reevaluated and shortened the useful life of some other assets, which has also contributed to the increase in depreciation. As a result of higher finance cost and depreciation, profit after tax for the quarter 3 '24 was at -- is INR 17 crores as compared to INR 16 crore in quarter 3 of financial year '23, higher by 5% year-on-year basis. On a sequential quarter, profit after tax was higher by 15% from INR 15 crores to INR 17 crores.
For the 9 months ending December '23, revenue was INR 1,142 crores against INR 1,084 crores in the corresponding period last year, growing by 5%. The gross margin during the 9 months of financial year 2024 stood at 50.6% against compared to 48.5% in the 9 months of financial year '23.
EBITDA for the 9 months of financial '24 stood at INR 140 crores against INR 124 crores in 9 months of financial year '23, higher by 13% year-on-year basis. Profit after tax 9 months for financial '24 stood at INR 41 crores against INR 42 crores in 9 months of the last year.
In terms of CapEx, we have spent around INR 84 crores during the 9-month period, which is in line with our target CapEx deployment of around INR 90 crores in financial year '24.
Coming to the outlook. We -- as we have indicated in the prior quarter, the second half of the year will see an improvement in the revenue, given the healthy pipeline of SOP from new products and new customers. While we had delivered year-on-year revenue growth of 2% in the first half, after the strong third quarter, the year-on-year revenue growth for the 9 months period has increased to 5%. Given the muted base of the fourth quarter last year, a strong moment in current performance, we continue to believe that we will end financial year '24 with a revenue growth of 13% to 14% for the full year. Thereafter, we are poised to take our business to a newer height as we aim to deliver a revenue of over INR 2,200 crores by '25, '26. So this equates to a CAGR of over 16% over a period of 3 years. Our confidence stems from the new orders, which we have received and the discussions with the customers of new technologies and solutions.
If we look into our current report with our customers, including some multi-global names. You will notice that these customers initiated the relationship with Alicon with 1 or 2 parts. We monitor our approach and carefully observe the QCDD parameters on the quality cost, timeliness and completeness of the delivery and gauge our overall development capabilities. Once we are confident about the comprehensive approach towards these initial parts, they proceed to expand the scope of the business relationship to offer both critical parts with the higher value addition. We are now past the stage of development of initial products with Daimler, JLR, Toyota, Stellantis and Maruti Suzuki. Our initial products are already into or will shortly commence SOP. Having garnered their trust and confidence, we are now in active discussion on additional part currently working on solutions and seeking value addition. This will help us scale up relationship and each of these global customers and position us to win a larger share of our business from each of them.
As we scale our volumes and consequently revenue, we expect this will be accompanied by an improvement -- improved margin profile. We have talked about aspiring to take the EBITDA margin to around 14%. In quarter 3 of FY '24, the reported EBITDA margin of 31.1%. Adjusting the one-time expense of ESOP costs, which is a noncash charge brings the adjusted margin to 14%. We are looking to drive efficiencies across our balance sheet and working capital, which will contribute to our finance results, too.
On that note, I would like to hand over to Mr. Shyam Agarwal, who will talk about operating highlights of the business.
Thank you, Vimal ji. Greetings to all of you. We have steadily enhanced the performance in each quarter of the financial year and the initiative to strengthen and grow the business have helped us to boost our best ever quarterly revenue.
In addition to strong double-digit growth in revenue, we have witnessed improvement in margins. Further, the outlook remains promising with steady assertion to the order backlog. Overall, it has been a solid quarter with progress demonstrated across all key parameters.
Coming to some of the key business programs this quarter. For Toyota, where we supply cylinder head to their hybrid models, we have witnessed ramp-up in volume during the quarter, and our production is running in full swing to meet the increased demand. Toyota is coming up with their third plant in India. They have already signed an MoU with government of Karnataka for setting up the plant near Bidadi at Bengaluru. This will provide them incremental production capacity of about 1 lakh vehicles per annum. As the RM-approved supplier, we will aim to capitalize on the opportunity to increase volume with this enhanced capacity.
In quarter 3, we commenced supply of cylinder head to Stellantis India, which is for domestic market and will also be assembled and exported to Europe. Stellantis is seeking to create an Indian manufacturing hub in Hosur in India City. And Alicon is a single source supplier of cylinder head for those engines. During the third quarter, volumes have picked up, and it will further increase in quarter 4 and onwards.
With this business, Alicon has developed a model plant imbibing cutting edge technology and automation for this product, which will add in the development of the product. This will also serve as demonstration plant to other global customers of the capabilities and the global standards they can expect when partnering with Alicon.
As anticipated, supplies of cylinder head to Maruti Suzuki scaled further during the quarter. The sales and production will increase further in quarter 4 with the start of supply to Gujarat plant to Suzuki. In addition to this, one more cylinder head supply will commence from quarter 4. The volume of both cylinder heads combined will provide significant volume increase in financial year 2025 from Maruti Suzuki.
We expect better level of activities in quarter 4 and into the next financial year, given the visibility provided by the commencement of supplies, for these parts expected increase in volume for active parts and SOP, for few parts under development, all of which will contribute to enhanced revenue momentum.
The other aspect of highlights is improving product mix. Alongside the increasing share of products for ICE, being supplied to passenger vehicles and commercial vehicles is the increasing share of business catering to the EV and carbon-neutral segment. The share of business from EVs is into double digits at 11% for 9 months of financial year '24, and has nearly doubled from 6% share in the 9-month period last year. We expect product mix to be further enriched as all of the new business that we have won this quarter is for supplying parts for 4-wheeler and to global customers, which is aligned to our strategy of focusing on higher value parts.
Moving beyond the lever of product mix and customer set, we have also implemented initiatives and providing operational excellence and elevating our competitiveness. We have enhanced the machining capability and the capacity at Shikrapur facility with installation of advanced equipment. Enriching the competencies will add in enhancing customer wallet share while raising the proportion of value addition. Further, we have added a machine of larger size, which can manufacture parts up to 2 meters in length, enhancing the capability of the European operation. We have also augmented our team by adding personnel with rich experience in project engineering, toolmaking and single components to add their know-how to our operation.
To this end, we are also actively recruiting experts in casting and machining, strengthening our global team. To further sharpen manufacturing prowess and process expertise, we are proactively deploying digital process controls. This involves incorporating machine intelligence to add an extra layer of supervision to our production process, ensuring elevated precision and efficiency. The implementation of these controls will not only empower us with real-time data, but will also play a pivotal role in actively managing operations and furnishing valuable insights for informed decision-making moving forward.
In the area of cost competitiveness, our efforts towards diversifying the energy mix are bearing fruit. As we have shared earlier, solar panels have been installed on the rooftop of our plant in India and in Europe. Further, we have acquired share in solar installation and initiated a solar power agreement of 5.2 megawatts, which will enable us to achieve equivalent credit for the unit, which are paired into national grid. This will be operational in August 2024. And units fed into the grid will adjust against the units we continue at our manufacturing plant.
With these initiatives, the percentage of solar in our energy mix will cross 50%. These factors are serving to enhance the differentiation of Alicon in the global marketplace, in addition is our USP of being able to serve our customers, both in India as well as from our plant in Europe. The simultaneous presence in domestic and international locations helps as a key differentiator and prove advantageous in negotiations with global customers.
On this note, I would like now to hand over to Mr. Andreas Heim, who will cover the development in the international business for the quarter. Andreas, over to you.
Sir, Andreas is connected.
Andreas, now you can take over.
Thank you, Shyam. Good afternoon, everyone. The installation business has delivered a strong performance. We scale up by customers and improved visibility of performance due to the increased sales of additions. One of the key developments was the approval of the prototype of the eAxle for JLR, which scheduled for commencement of supplies along being concluded. During quarter 3, we commenced the initial product of supplies of this eAxle housing. Further, we've seen an increase in the volume by 3x in the auto business.
A couple of important perspectives to share about the JLR order. Given the capability of the order and the stature of the customers, as a leading manufacturing, we extend ourselves in order to win the business. We involve partners from Europe for mold-making, part development, and machining to ensure that we derisk the project. We were very keen to ensure the specifications we meet that we got it right the first time in the shortened lead time for the customer.
The degree of involvement extended by us was highly appreciated by JLR and their teams significantly improved the engagement and coordination at the development stage, which was a key factor in achieving the degree of success that we are sharing with you all of today. JLR has recognized that Alicon is not merely offering a product, but it's equally invested in offering solutions.
Secondly, we have highly diversified product range, which allows the customers to view us as a single source supplier. Customers realize that they can produce their requirements for ICE, hybrid and EV vehicles from a single supplier and hence, they do seek out one-stop solutions.
During the quarter, we are also won an order from Borg Warner. This is for an electric drive unit, or EDU, which Borg Warner requires for developing all-wheel drives for light commercial vehicles. This will result in overall supply to the prominent LCD manufacturers in Europe, such as Daimler and Volkswagen.
Other prominent customers such as Dana, Danfoss, [ TBK ] and Mahle, which we have started with small projects, is now in discussions to create more sustainable business. We anticipate better growth from these global names in the coming years. In addition, for direct supplies to OEMs, we were equally engaged with Tier 1 suppliers where we provide solutions. As we continue to observe strong growth potentials for several Tier 1 suppliers in their chosen niches, we believe there will be a cascading effect to Alicon for supply of product.
With these developments, the global business contributed to 28% of the total revenue during the quarter and 23% during the 9 months compared to 20% in quarter 2 and 21% in the 6 months period, indicating operation in international business in a single quarter. The share of international business can improve further as during the quarter, we added 30 new parts from 4 customers. This includes 2 parts from EV or carbon neutral and 11 parts from ICE. All 13 parts being rained to international business.
In carbon-neutral business, we added another part from Scania for the European market, and we have also added 1 part from Danfoss. In the ICE segment, we further added 8 new parts from Daimler Europe and 3 parts from Borg Warner.
In terms of operating landscape, we see normalcy turning in Europe. Electricity and gas prices are stable. And availabiity has also improved. In terms of raw materials, aluminum prices has been less volatile than in the past. For diversifying our energy mix, we installed solar panels on the rooftop of the manufacturing facility, and these have been running live since January, enabled us to reduce energy costs and enhance our sustainable footprint.
With that, I will hand over the call now to Mr. Rajiv Gupta, who will take you through the developments in the domestic business.
Thank you, Andreas. Good day, everyone. In quarter 3 FY '24, auto dispatches by industry showed an improved performance, especially the 2-wheeler segment, which witnessed healthy double-digit Y-o-Y growth. This includes 5% growth in passenger vehicle segment on a year-on-year basis, 6% growth in the commercial segment on a Y-o-Y basis and 19% growth in 2-wheeler segment on Y-o-Y basis.
Within the passenger segment, there is clearly dominance of UVs with both customer interest and market share steadily rising. Other categories within PV segment still face mixed demand. The domestic commercial vehicle industry volumes continued to do well, and there was an increase of 6% Y-o-Y in the segment despite seasonality on account of good momentum in the infrastructure and construction segment as well as steady growth and economic activity, as indicated by GST collections.
The domestic 2-wheeler industry was expected to benefit from higher volumes on account of festive season while there has been improved momentum and base quarter last year was impacted due to drop in demand on account of OBD regulations.
Further, we believe the electric 2-wheeler players are yet to regain loss run. However, there are signs of stabilization and impending loans of new models is likely to kick start the demand cycle.
Compared to this, at Alicon we saw the following trends: 41% growth in sales to passenger vehicle segment on Y-o-Y basis; 9% growth in sales to commercial segment on a Y-o-Y basis; and 8% growth in sales to 2-wheeler segment on Y-o-Y basis.
In terms of new business, we commenced the supply of one cylinder head to Maruti Suzuki. We are also working on development of one more cylinder head, which is for an SUV platform. As the demand of SUVs in robust and market share continues to rise, we expect this product to provide significant volumes once it enters production phase.
From Daimler, we added new business comprising a large package with commitment for long-term supplies. The product that we have added invoices supplies commencing from 2026 with expected delivery up to 2020, 2025. With the increasing engagement, we are in discussion for further businesses and to offer further solutions in upcoming models.
Even the 2-wheeler customers such as Honda, Hero, Royal Enfield, are projecting strong set of numbers for the coming quarters, which will help Alicon to gain more volume of business. We also see some revival in momentum in the non-auto with the increasing spend of the government infrastructure and defense and the renewed vigor of -- for Make in India campaign.
As you may be aware, for the last several years, we have been supplying aluminum wheels to enable light-weighting of battle tanks. With a healthy level of demand witnessing for our products, catering to the defense sector, we are now in discussion on a new tender in this quarter for supplies of products comprising road wheels as well as cylinder head, which is to be commenced on an immediate basis. Further, we are in discussion to add products for the larger size battle tanks.
During quarter 3 FY '24, Alicon has booked new orders aggregating INR 682 crores. With this, our total new order booking has reached to INR 9,000 crores, which is executable over a period of 6 years from 2023-'24 up to 2028-'29. Please note that this is a net new business and the products for which SOP has already commenced and expected to continue and are not a part of this number.
Some steps being taken to enhance our competitiveness include the initial phases of our automation journey. Our roadmap has been devised to access area ripped for automation within our processes. We are diligently evaluating the advantages and efficiencies that this paradigm shift can bring, segmenting components of our processes into different stages as one -- as one ready for fully automation; second, ready for partial automation; and third, not suitable for automation. We believe the benefits are manyfold and expect automation to not only yield cost efficiencies, but also evaluate process excellence and product already throughout our operational landscape.
On this note, we are now open -- I mean we can open the floor for questions.
[Operator Instructions] We'll take the first question from the line of Yash Dalal from Sushil Financial Services.
Firstly, congratulations for the management for achieving record revenues this quarter. So I had a few questions. First was, what is the volume growth in Q3? And what is the fall in realization this quarter due to raw material price fall? Could you please guide us on the same?
Sir, on the management's line, I would request you kindly unmute yourself and speak please.
Yes, on the increase in -- on the case of quarter 3, we have noted an increase of 12% over the last year quarter 3 and 5% on a quarter-on-quarter basis. And what is your second question?
Yes. So what was the fall in realization this quarter due to raw material price fall?
Yes. For the quarter, actually, when we worked out this due to the impact of aluminum prices. So for the full year, we are estimating approximately INR 50 crores is the impact. That converts into about 3% of the sales. So that is the impact. So when we are talking about to reach our full year growth of approximately 13% to 14%. So you can add up, so easily we can take 16% to 17% in real numbers.
Okay. And so we were focusing on the reduction of noise parts. What has been the contribution this quarter?
Yes, Yash. I will take this question. So for the noise part, as you know, it's part of our strategy and the customer also because when they place the order, they place the order in a bunch that we have to take the small volume part as well as the high-volume part also. So we cannot deny our customers to give us the low volume part.
However, in isolation, if some low volume parts are coming, so we generally deny those parts. And the earlier prevailing part, which were in the production is now going out with the life of those products are pending. So we are reducing significantly the noise parts.
Okay. Okay. And so another question is, you have mentioned previously ROCE to be at 25% when we reach our guided revenue of INR 2,200 crores. Are we on track for that?
ROCE, 25%. So we have not given the guidance. For 25% ROCE guidance, that is our aim. That is the goal. But by '22 this -- by '25, '26, so that is a difficult target what we are talking about. So because year-on-year, there will be growth. And we have a good target for maybe we can say on at least 2% year-on-year basis every year, some improvement we can see in the ROCE.
Okay. Okay. And any capacity additions needed for FY '25 and FY '26?
Yes, in fact, we are talking about the continuous growth and we have given the guidance for '25, '26 for INR 22 crores plus, And we are moving from small parts to bigger and critical parts. So we need some of the new equipments all this. So in this year, we have guided approximately more than INR 80 crores, we are already in the 9 months. And for the full year, maybe 100 plus, we will be there. And next year, now we are adding more capacities for -- to be ready for the '25, '26. So maybe INR 120 crores to INR 130 crores at this moment, the expectation is for the investment in the next year.
Okay. Okay. All right. And just a final question. So the ESOP impact, what will be the impact continuing in the next financial year?
Next year, a very small impact because this year, approximately around INR 15 crore impact will be there. But next year, maybe INR 3 crore to INR 4 crores, not more than that.
We'll take the next question from the line of Jyoti Singh from Arihant Capital Markets Limited.
And sir, congratulations on the good execution and better set of order books. Sir, my question is on the export side first. Is there any seasonality pattern in H2?
Our global numbers, yes, we noted have increased in quarter 3 also, and that was led with an opportunity of delivering a critical part to Jaguar. So talking of global market numbers, we're in discussion with existing customers where the anticipated volumes will be muted, not that aggressive. But Alicon is able to grow more against those numbers as we are penetrating with more of such parts with existing and also tapping new customers.
So yes, going forward, we see volume might be on lower side, but -- of the auto industry in global terms, but we see we are going to overpass those numbers with the additions what we have done in the past and also being aggressive going forward.
So Jyoti for this quarter, we have reached the global sales of 28%. And you made a comparison for the last year, it was, I think, 20%, 21%. So there is a big jump in the numbers. And continuously, as we are explaining that our focus is on the global business. So we are expecting to grow year-on-year in this global business.
Okay. Sir, we have done very good on the year-on-year basis, but if we see on a month-on-month basis, so that's not that great. So any reason for that, sir?
We have not achieved on quarter-on-quarter basis which numbers.
No, no. I'm asking a month-on-month basis. So like, if I compare December to January, so like it's not that great. Okay. We can discuss later on this, sir. So like my another...
Where you are coming from those numbers are not clear because we have not declared any month-on-month numbers.
Yes. Fine, sir, we can discuss on that later. So like my next question is on the Maruti side. Like we are getting order -- we're going to get the order from Maruti Gujarat plant. So are there any product besides cylinder head or only will be doing the cylinder head part?
Cylinder is A-class part where we try to gather or participate with the customers. There are other opportunities also when we talk about a low pressure and GDC what we are into. But our main focus is cylinder because it's A-class part and gives you good recognition and value addition to customers.
Jyoti, mainly that we need to understand like from Maruti Suzuki. You know the volumes, what kind of volume we are having and first of all, this entry into cylinder head. And at present, we are having very low volumes, approximately 40,000 to 50,000 this year on that basis. But now we are increasing that wallet and is giving the opportunity to enter into their models.
So like when we are talking about, it was 1.2 liter, so 1 liter, 1.5 liters. So all these new models are coming up. And in the coming period, maybe for -- we are expecting to deliver good numbers for the '24, '25. So that is the first big opportunity we are having. And maybe we'll see that based on the performance. So the opportunities are there for the other new parts.
Yes, Jyoti, I would like to add. You already know that the relationship between Maruti Suzuki and Toyota. And we are already supplying the hybrid cylinder head to Toyota, which is a very, very complex part. And first time in the history of Toyota, they have outsourced the cylinder. And Toyota will assemble the engines for the hybrid in their plant to supply to Maruti Suzuki. So that way, Maruti Suzuki is also very confident about the capacity and the capability of Alicon. And that is also helping us to increase the turnover and the business relationship with the Maruti. And as Vimal sir explained, the Maruti owns almost 45% share of business for the Indian market. So those will be a huge number for Alicon. Thank you.
Yes. And sir, another like we are doing in 2 wheeler, almost 50% market share in the 2-wheeler cylinder head. So similarly, we are targeting in the 4-wheeler?
Yes. That's what we were trying to explain. So ideally, this 4-wheeler cylinder head, if you go back, see traditional way, it was being manufactured at customer end before it was A-class critical part, which customers were not willing to offer or share the know-how to others. But we got this traditionally the calendar for 4-wheelers they're doing in-house or they were offloading to a technical partner who are expertise in this domain.
But we got this entry into the cylinder way back in 2018 when Renault came to India and we're very aggressive on price and we're looking for suppliers who can match that price and deliver such a critical part. So we've got renowned with Renault for India eventually after a year. We got this opportunity to supply to the Brazil location. This gave a lot of visibility to existing and upcoming customers.
Secondly, then we got this opportunity with Toyota when they're recognized of successful deliveries. And as Mr. Shyam explained, first time in history of Toyota they outsourced and they were comfortable with Alicon. And this is a history of 70 years.
Thereafter, we got again a breakthrough with Stellantis. So Stellantis have -- they came up in India again 2 years ago, and they are aiming to make engines of 300,000 a year. It's a big volume for India as well as for global market. So there are also we got an entry supplying cylinder heads for 100% volumes.
And even for that cylinder, we made our modern sales with a lot of automations, like auto boring, the core extraction, costing attraction. So we made our model cell to explain our customers and prospective customers. So basically, these steps are -- again, the customers understood that even Alicon, there's a company who can deliver such critical part and can participate in the upcoming developments and also like Maruti now started offloading the cylinder.
So we now -- going forward, we are aiming to increase penetration with our existing domestic customers and also to explore the global customers, which in coming quarters, you might see because strong discussions have already started with few global customers, which we see an opportunity to convert in coming quarters.
So Jyoti, we conclude that -- your question, so 2-wheeler, we are already down from 50% to 42%. So that share is going down, and the 4-wheeler started increasing. And hopefully, next 3 to 4 years, we will have a much, much bigger share of 4-wheeler compared with the 2-wheelers. So 2-wheelers being on the lower side in comparison to the 4-wheeler.
Okay. And sir, my next question is on the JLR orders. So like could you offer insight into the JLR orders, specifically expected quarterly delivery volumes, if we can disclose please?
Yes. So this order, we passed almost 1.5 years ago. And this is a big order. These are 2 pass ideally of 28 kg. So ideally 2 parts to 1 vehicle with a volume of 250,000 a year. And this is one of the critical and complex part for the EV vehicle. And this is for the existing -- I mean, the ICE Range Rover and Land Rogers, which you see on the roads, so ideally they're going to replace those models with EV. So this will go to that platform.
It's a huge opportunity where they're anticipating to cover global volumes.
Talking about our supplies, we started this development, initial supplies from Europe, but -- as a soft tooling, which you have noted that we have already started supplies in this quarter. Eventually, we see volumes in coming 1 or 2 quarters. And we are now already in full fledge execution plan to deliver this part from our Indian locations. So we are planning to submit the initial samples in next couple of quarters and thereafter to start supplies in the coming years.
Really, this year -- we have already started supplies in the year of '23, '24. So we have seen the impact in quarter 3 of the current year as well as it will continue because quarter 4 and then quarter 1 of the next year, quarter 2. But these are the proto businesses and because it is in development stage. And March volume will start from the '25, '26. So in the '25, '26, hopefully, they will have the volume of around 150,000 to 170,000 numbers. So that is the expectation. So maybe INR 100 crores to INR 200 crores addition in the sales we can see from there.
Okay. Sir, my last question on the growth side. So like what are the expectations for the '25 and '26?
So sales for '25, '26 our target is INR 2,200 crores. And hopefully, we should be able to achieve that, and we are in the right direction.
We'll take the next question from the line of Faisal Zubair Hawa from H.G. Hawa and Company.
What is the chances that we move our capacity utilization up to like at least above 80% levels because only that will improve our ROC and ROE quite well. And what does it need as far as shop floor changes? Or is it that the orders that we have received are having some time gaps, due to which we are not able to reach the capacity utilization?
So I'll just explain this. So first one, you are talking about that how to improve our capacity utilization. So mainly, we have to understand the processes here because there is a fluctuating volumes, and we have to keep our capacities idle for the customers' volume fluctuation because it is not constant and there is a consistency in the volumes. So that takes around 15% to 20% that capacity, we have to keep idle.
And secondly is that one you that -- every time we are talking about, what are the structural changes coming in the Alicon business. So all machines, those are -- we are using, those are not 100% convertible from one part to another part. So somewhere we have to use a dedicated machine for the particular parts.
So -- and business shipping is happening from a smaller part from 2-wheeler to when we are moving to the critical parts. So 100% utilization and the [indiscernible] worse will not happen. So some capacity of some machines, we will have to keep idle for this and add new machines. So -- and when we are talking about the utilization, when we are going for the new businesses also, so like when we are adding the machines here in this year or maybe '23, '24.
So those -- we have to put the capacities, but the utilization and maybe 70% or 80% will happen maybe after 6 months and 9 months after putting up the capacities. And during that period, we have to put another capacity, so this is a continuous process. So that makes our capacity idle for maybe 25% to 30%.
So then what is the second method of improving the ROC, ROE? Because whatever you may say about product mix and all, the ROC and ROE doesn't come in -- that means it's not a very capital efficient business.
So industries capital -- we need capital, but you see that in the last 4, 5 years, the continuous improvement in the ROC ROE, you will find. And this year also, we are going to improve more than 2%. And that I'm explaining so maybe next 2 to 3 years, we should be able to up to 20%. So that is the first target we are having.
The next question is from the line of Manas Jain from Jess Enterprises.
Manas here. Just one bookkeeping question. So the incremental sales, what we have delivered from quarter-on-quarter, I believe this has -- this is more pertaining to Maruti and Toyota. So is this being recorded from the European entity or because I thought that incremental change was in the consolidated numbers. So I just wanted to clarify that.
This Maruti, what we are seeing that now is the structural change is happening in Alicon Group sales. So like when we are explaining the growth in the sales of Maruti and Toyota. So on the other side, we are also seeing that the 2-wheeler sales is not up to that level of that industry is performing. So the growth for this quarter is -- the main growth has come from the Europe because earlier this JLR development prototype business, everything was planned in India. But now seeing the criticality, so it was decided by the management and the Board to do all these developments in Europe because -- due to the availability of the machines, availability of the technology, the technical people, the tooling -- so it is not like that in Europe, it is happening, but Indian sales is happening in Europe. That was opposed to earlier in India.
Okay. And second question is, I mean, what is the anticipated growth rate we are seeing for next year? I believe I understand you said 16% CAGR. But just next year, what is your guidance?
So it is a very rough idea because we are also in discussion with our customers. But our expectation is between 15% to 18% growth at least.
We'll take the next question from the line of Proleen an individual investor.
I have one suggestion, right? I mean can you be kind enough to improve your order book quarter-on-quarter in your presentation so that we can see a clear trend of what is happening in the next -- I mean, last 8 to 10 quarters? So that is on the projection side.
Just coming to the larger question of your order book, right? I mean you mentioned a number, right? I mean can you give me some construct in terms of what does this order book constitutes, right? I mean, in terms of 2-wheeler, 4-wheeler, EV, non-EV, defense, non-auto? Can you give some picture on what is the order book looking like?
Yes. So this order of what we have booked till now, if we see from the outlook of sales from '23 -- '24 to '28, '29...
Give a little background. So just to start with the Rajiv and he'll give the complete structure of the sale. So first of all, the order book, what we are talking about is around INR 9,000 crores. That will start base year of '23, '24. In the current year, '23, '24, out of this, maybe approximately INR 700-plus crores, we are -- already we are going to execute it. So he is going to give this breakup because we are now taking -- considering the old stuff that has already happened till '22,'23.
Sure.
Yes. Now Rajiv.
To talk about the contribution of this order book, around 42% goes with the EV bus. So this is again where we wanted to enter and we are very happy and pleased to share that we have done quite well in this area where a lot of companies still in India are just starting up to end up.
Second, even on technology agnostic where we are aiming to leave a good mark that we have touched around 6%. So that is also...
Technology agnostic is that we -- it doesn't matter whether we are manufacturing, it is going for ICE or EV.
If we see further exports are around 55% to 56%.
So that is the major thing is going to happen when we are targeting to export, to contribute -- exporting this global business, including our European facilities. So 50% of the total revenues that we are targeting.
And if you see segment-wise, this contributes around 80% to 84%, the 4-wheelers where we were aiming to increase our share. So just around 10% to 12% is to 2-wheeler, the rest is to the 4-wheelers where we were aiming to increase our penetration. So there we also have done well as per our strategy.
So this is another answer to the Jyoti Singh from, I think, Arihant. So it is the structural change in 2-wheeler and 4-wheeler. So major contribution will come from the 4-wheeler and going to replace the 2-wheeler for major -- big contribution.
And non-auto would be what part of order book, sir?
Non-auto looks to be around 4% to 5%.
Okay. And in case if some of these discussions that we are having on defense side, in case if they frutify, I assume that the thing that you mentioned, right, I mean, on the defense -- the comment that you make -- made, that is not part of your INR 9,000 crores order book. So can we see that in case if some of these discussion on defense turnout to be in our favor, the share of non-auto will go up. Is that a fair way to look at it?
Proleen, Just to update, like those numbers, what we are in discussion with the defense team is not included in INR 9,000 crores, that is true. So that will be over and above the INR 9,000 crores. But secondly, what is happening, our order growth is so high with the automotive businesses that if you see the percentage down, although we are in the non-auto in the absolute value, but in percentage term, it always looks low because we are playing a much bigger role in the automotive.
Sure. Sure. Correct. And one more question on my side. I have been tracking your company for quite some time now, right? What I find a bit difficult to understand is that we have such a large order book, right? I mean, such marquee customers. We are -- the transformation here that you talk about from 2-wheeler to 4-wheeler is happening at -- in order book is very visible. But that is yet to see its true colors in the form of revenue.
So what I understand is that, let's say, for example, this year, we will end up somewhere between INR 1,450 crores to INR 1,550-odd crores. So there is a part of that revenue which, in a way, is a drag, which in a way is reducing, which in a way you consciously also want to reduce, right, because you want to move away from that. Because if I look at your -- this year's revenue of INR 1,400 -- I mean, let's say, INR 1,550 crores, INR 700 crores is coming from incremental order book, which means that there is a part of the business which is dragging our overall numbers, right?
Could you quantify how -- what part of our business is declining, right? I mean for whatsoever reason, conscious or market-related reasons, right, in some sense? And when do we see -- in which year do we see that this incremental order book will probably be more than enough to take care of this drag that you're not talking about? So can you just philosophically help me understand this question?
Well, in this, actually, what is happening, we are already explaining that we are reducing the business side of this noise businesses. We have stopped this. And this -- there is a cycle -- life cycle of products. So maybe 5 years, 7 years. So some parts are already going down, the volumes are going down, and maybe when they are contributing maybe INR 50 crores. Now the contribution is gone to INR 5 crores or INR 10 crores. So that is a continuous process that is going to happen. And it will continue. And as well as when we are going for the new businesses, the earlier maybe the life cycle of the part was 10 years or 12 years and maybe I've seen the 15 years. But now it is reducing to 6 to 7 years. So that is happening, and that is the reason if you add from the existing business and the new businesses, so that will not end up in the total sales. So definitely, there is a -- that is definitely the decline in the regular already running -- my running businesses.
So -- and especially when we are not taking -- because this is our management strategic decision also from the management because that -- if we want to go to increase our top line, it is very easy for us. There are reduced prices or something realization due to the customers. Immediately, I will be flooded with the order book, right?
But our aim is to improve the bottom line, improve same kind of -- now you're seeing that people are asking for the ROC improvement, the EBITDA margin improvement, the bottom -- this PAT improvement. So all this happens when we see that I have to somewhere -- I have to compromise on the low-margin businesses.
Yes. So how do we quantify, sir? I mean, let's say, for example, this year, we did -- do close to INR 1,550 crores of turnover. Out of that, you are saying that INR 700 crores is coming from that order book that you have always been talking about. So let's say, 50% of your FY '24 sales is coming from the incremental order book. Out of that remaining 50% of INR 700 crores, INR 750 crores, that's your core business, what is the kind of decline that we...
So decline easily we can calculate suppose like when we are talking about -- because in the last year, maybe I say that INR 450 crores addition has come from the new businesses and this year, I'm talking over that INR 750 crores, so around INR 300 crores increase from the existing -- from the new order book. But the overall increase has happened approximately to -- or it will happen approximately INR 200 crores. So INR 100 crores itself has gone down. Maybe out of the INR 100 crores, INR 50 crores I have explained, due to the impact of the aluminum prices.
Sure, sure. So how long this...
So this is a combination because it's very difficult to quantify due to this declining because many -- so many combinations are there to work out this. But when we talk about the -- just a rough idea I have just given to you.
No, that's fair. But I mean, let's say, for example, if you can't quantify in rupees crore, is it fair to say that, let's say, in FY '25 on a whole year basis, your new order book or incremental order book will be substantial? Or will it be '26, in that year, in FY '26 where we won't be talking about this noise equipment, so to say, right, in some sense, or noise supply, which year, that would be where this drag is, I mean, very low that we don't discuss at all right? When do you think that year will arise? Will it be next year or will it be '26?
Around 70% to 80%, you will see in the next year. And yes, in '25, '26, you will see around 90% to 95%.
So '25, '26 is when all these efforts that you're making since past 2 to 3 years will finally show results in terms of pure sale and margins and ROCE in our numbers, right? I mean is that a fair summarization?
That is take of the year. We can say that '25, '26.
The next question is from the line of Kumar Saurabh from Scientific Investing.
So first, congratulations for beating the market industry in the last 3, 4 years and having an aspiration to do that for the next 2, 3 years.
I have 3 broad question areas. The first is an aspirational growth rate. And to achieve that growth rate, we are, of course, dependent on industry to do well. And if we look at the auto cycle, of course, depending on whether it's commercial or EV or 2-wheeler, the cycles are different, but 2 to 4 years, the cycles stop out. And we have an experience from 2018, '19. And though we have beaten the market the kind of aspiration we had that time we couldn't achieve. So from a risk perspective, we are doing well. We have good order book. But how do you see from an industry cycle perspective? Are we confident that we will achieve this number? We have a good order book, but do you see, based on your learnings from past cycles, do you see if the industry cycle tops out, the order book can also reduce. So my broad question is given the industry context and the cyclicity of industry, how confident we are to achieve this aspirational growth?
My second question is around our technical capabilities. So in a layman's term, we have invested a lot in the last 2, 3 years to build the technical capabilities and it is getting reflected in terms of the 4-wheeler order book, in terms of the growth and all of that. But if in layman terms, you can explain how we are technologically better than our competitors? And in all these new kinds of businesses who are our 2 close competitors and how we are better than them, what we have done in layman terms, that will be good.
And the third question is more around financials. So of course, I think in last 3, 4 years, from a 10% ROCE, we have gone to 14% ROCE. We have aspiration to go to 19% to 20%. So how that will happen? Will that happen because a 4-wheeler business will be a higher margin business compared to a 2-wheeler business? Or whether it will lead because of better asset utilization? I also see your cash flow conversions have also improved. Like if I look at 8 years versus 5 years versus 3-year trajectory, your EBITDA to cash flow conversion is improving. Is it because of working capital improvement? I just wanted to understand the drivers of how the better ROCE will be achieved. So these are my 3 broad question areas.
Lot of points you have covered. Talking first on the first point, yes, even we have noticed volumes are moderate, unlike 2018, '19, where the industry was noticing a double-digit growth. A lot of changes were noted like traditionally, a development by any OEM.
The product were live for maybe 10 years, 15 years, in some case, Maruti we have noticed, 20 years to 25 years. But now we are noticing the life span of product is very slow. And that's the reason after '18, '19, we understood the urgency to enter in different portfolios like penetrate with existing customers and enhance our portfolio, add new parts from existing customers and also look for new customers in domestic as well as global regions.
So we have done predominantly very good in these areas. Also, we were aiming to shift our focus from passenger vehicle -- from 2-wheelers to passenger and commercial vehicles. And also, we were aiming to -- how to drive further was to increase the value addition. Like if you see traditionally, we were 50% with 2-wheeler where we -- the option to supply machine part was very rare. But we -- as the shift is going, the customers are looking for ready-to-use component in the assembly, which includes some value addition.
On that one also, we see good momentum. And as the industry has just also noticing a changeover from ICE to EV. The OEM -- the majority 4-wheeler OEMs are looking to see partners, not supplier, but partners who are capable of giving such critical solutions. Like the example of Maruti, they are flooding EV -- I mean 50% of the volume of the market share is a big volume, and they are coming up and giving opportunity to Alicon. Toyota, you have seen an example. So these -- some developments we see as a good opportunity to overpass the traditional numbers of growth to leave a good mark in the growth numbers.
Mainly in this -- we are not totally dependent on the growth of the industry. So always looking for the new parts, new customers and expanding ourself in that area. So that is giving the major support for the growth as well as when we talk about -- because you see that cycle is there always. But at this moment, looks like that chances are less for this downfall because the government see the policies, the infrastructure investment done by the government and development of lot of new highway, roads are coming up. So the demand is growing in the automobile. That -- clearly we can see maybe somewhere a little bit to improve on the lower cost vehicle. But on the midsize and the larger luxurious size, the growth is phenomenal. So that is the area. And like that and when we are talking about the technology like Rajiv has explained, so maybe Shyam would like to explain on that.
Yes. On the technology front, if you see, like we are supplying almost 90 parts for the EV industry. And this journey we started in 2016 and '17 in Europe. We have an advantage that we have a plant in Europe. So whatever the European requirement, which come in advance of 5 to 6 years of India. So that we develop and already mastered those capabilities. So when these products like motor housing now coming to India, so we were the first choice for the OEM and also the supplier Tier 1 and the chosen one. So now we have developed good competencies on very critical parts where we have a thermal engineering solutions, which we are providing.
So those solutions are very light by the EV customers. And especially, if you see the motor housing and now the eAxle part, which is also very, very complex part and even JLR appreciated the efforts of Alicon to develop such a critical part at first time right. So if you see in this area, we have developed lots of competencies with the help of our European hub. And now we have mastered those technologies in India.
So if you see our customer base, we have all the marquee customers in our customer base. And in the EV, we have developed most of the critical parts, which comes out from the aluminum casting from the LPDC and GDC. So this gives us a good base to develop further competencies and increase our share with the customers.
Now secondly, we are also working on the HPDC part. We have already got the order of onboard chargers, which is a very complex part. It is in HPDC, the assembly of 3 parts. So we will also moving up the value chain by supplying the assembled part with the friction is steer welding. So our management is very, very focused on working on the new technology and master those technology so that we can increase our revenues and also the bottom line. I hope, Kumar, we were able to answer your questions.
Yes, sir. And if you can -- thanks for the elborate answer and if you can, one, discuss on the financial side and who are the close competitors in all these emerging areas of business?
Talking about competition for Alicon, we have got competition segment base. And also, it's the customer in-house OEMs. I mean, in all OEMs, like Maruti, Toyota, the in-house foundry, we are competing.
Talking about 2-wheelers, yes, there are various players. But yes, we pioneer in terms of solutions, in terms of delivery, in terms of volumes because we being a big player in this region and service since long.
And in 4-wheelers, yes, we completing, one is the OEM and second is several domestic as well as global players like to name some, it's Nemak, it's Crosman's, it's Linamar, where we are aiming to grab those share and thereafter cater to our customers.
Actually, these big players are not our competitors, but we have to become their competitors. Now we have to enter in the area.
And on the financial side, like what will drive the ROCE to higher number?
Definitely, you know that the structural change in the business when we are moving from this low margin business to the higher margin. So that is the major driver. And we are more focused on the cost downs as well as now we are seeing that maybe -- we have seen that the improvement. But definitely, again, we are more focused on how to control our working capital, maybe in discussions with the various customers for their terms also.
And another side is that the investment is how to control and maybe to reduce our investments. So definitely, based on this, maybe for our capital employed, control will be there. So that is the hand to hand. It is linked with each other. But there is definitely a clear -- our road map we are having to improve our -- the margins as well as the ROCE.
Sure, sure, sir. And one last question. I don't know if you looked at the business from this angle. So when we look at auto industry and when we look at the low-cost auto versus the premium, whether you look at 2-wheelers, the low-cost 2-wheelers have suffered the premiums relatively better when it comes to 4-wheeler we know in Maruti also the low-cost segment is not doing well. So when we supply the ancillary player, we supply parts to the various 2-wheeler, 4-wheeler EV companies, if we talk in terms of revenue distribution, how much is there in low cost versus high cost? And is there an intent to move our more and more revenue from low-cost OEM products to higher cost OEM products? Any views on that?
Yes, Kumar, like if you see in 2-wheelers, we are supplying the part to low-cost 2-wheelers as well as to the high cost. If you see the Royal Enfield. So there also, we are supplying. And in most of the models, we are the single source. And if you see the 4-wheeler also, so we are supplying to Toyota HyCross. And if you see the cost of that vehicle is more than INR 30 lakhs, almost INR 40 lakhs, you can consider, and you see the waiting period. So we are across the segment. And our endeavor, of course, will be to supply the high-value parts to all OEMs, but to generate revenue across all segments, we cater all segments. However, the focus will remain always on the high-value segment part.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarification 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 the this call, and we look forward to interesting next quarter. Thank you very much.
Thank you, members of the management. Ladies and gentlemen, on behalf of Alicon Castalloy Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.