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Amber Enterprises India Ltd
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Ladies and gentlemen, good day and welcome to Amber Enterprises India Limited Q1 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the Company, which are based on the beliefs, opinions and expectations of the Company, as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
[Operator Instructions]
And I'll hand the conference over to Mr. Jasbir Singh, Chairman and CEO of Amber Enterprises India Limited. Thank you, and over to you, Mr. Singh.
Hello and good morning, everyone. First and foremost, I hope you all are keeping safe and healthy. On the call, I'm joined by Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, CFO; Mr. Sanjay Arora, CEO, Electronics division; and Mr. Sachin Gupta, CEO, RAC and CAC division; and SGA, our Investor Relation Advisors. We have uploaded our result presentation on the exchanges, and I hope everybody had an opportunity to go through the same.
The first half of the year was very good for the air conditioner industry. Amid scorching heat this season without any lockdown restrictions, as per the industry reports, the January to June AC market domestic is close to about 6 million units as against pre-pandemic levels of 4.25 million to 4.5 million units in H1 calendar year '19. The industry is expected to cross 8 million in this calendar year versus 6.4 million units in FY '22 and 7.2 million units in FY '20. This signifies that the pent-up demand is coming back into the system despite the inflationary pressures. From 1st July, 2022, new energy rating rules for air conditioners have been implemented. We expect smooth transition to new table, providing more energy-efficient products to the industry.
I am pleased to share that our performance stands out even when compared to quarter 1 FY '19 and quarter 1 FY '20, which was the last comparable first quarter when business and economic activity were at normal levels. Even when we compare the full fiscal year 2020 with trailing 12 months ended on 30th June 2022, our revenue has increased from INR 3,963 crores in FY '20 to INR 5,324 crores in trailing 12 months ended on 30th June 2022. On the operating profitability, we have clocked INR 377 crores in operating EBITDA in trailing 12 months, ended on 30th June, 2022 versus INR 326 crores in FY '20.
The quarter, however, continued to bring challenges related to inflation, rising interest rates, and foreign exchange fluctuations. The industry, however, witnessed some softening of raw material prices, but it still continues to be higher than the pre-pandemic levels. During the quarter, we were able to pass on the commodity price increase to our customers, that happens with the quarterly lag, as a standard industry phenomena.
Despite challenges, we are enthusiastic about the prospects for FY '23 due to strong order book and things has become normal post-pandemic and softening of commodity prices. On the new greenfield facility, Sri City facilities will be operational in the second half of this fiscal year 2023. We expect to start our trial runs in mid of September this year and commercial production start by mid of December 2022. We have been able to improve our market share and client wallet share because of our commitment to being a one-stop solution provider, a comprehensive and integrated solution provider for our customers. Our market share in value terms at OEM manufacturing level has increased from 21.2% in FY '18, the year when we got listed, to 26.6% in FY '22.
Now moving on to the divisional performance. In Room AC division; RAC division has grown by 138% in quarter 1 FY '23 over quarter 1 FY '22. Our volumes and revenues grew in tandem with the industry during the quarter. In the fiscal year 2022-2023, the industry is anticipated to surpass 8 million units, indicating a robust demand from consumers. On the commercial side, we have added new products for commercial ductable ACs as well as cassette ACs, which we have started to offer to our existing customers now.
In the Motors division, motor division has grown by 131% in Q1 FY '23 over Q1 FY '22. We have increased our product offering to our customers by adding new models for both the domestic and international markets. BLDC is currently a very small part of portfolio we have recently started. Reliability cycle is going on and we are about to start the mass production. So we see that this BLDC would be adding us revenue from both side in captive, as well as also on the component solution to our customers, having strong order book due to addition in new products, new customers and new geographies and expected to grow by more than about 30% in FY '23.
About the Electronics division, which includes IL JIN and Ever, this division grew by 254% in quarter 1 FY '23 over quarter 1 FY '22. We have added new big customers through brownfield expansion in South India. As informed earlier, we have added boAt as our customer and have started supplies for new age applications like smart wearables and hearables. This is a large business segment, which is growing at a fast pace. Our supply to boAt opens up large sectoral opportunity for Amber. We expect to see this segment grow at a faster pace in coming years. We are also expanding this division into a new vertical, new applications moving forward.
On the Components division, which includes AC and non-AC Components, our Components division grew by 218% in quarter 1 FY '23 over quarter 1 FY '22. Our Components division has played a very positive role in our growth. We are adding new products, new customers and new geographies in this segment.
AmberPR and Pravartaka, which are the 2 new acquired entities, are witnessing increased traction on both of -- cross-selling to existing customers and it is expanding its manufacturing footprint now in the Western region and southern region, respectively. The Mobility Application division grew by 91% in quarter 1 FY '23. We have onboarded new customers who are global leaders. We are now developing new products for multiple business categories. We've added products to cater to steel plants. We further serve -- to further serve our existing customers, we are developing new products to increase our wallet share in the railways and metros. And our order books today stand healthy at more than INR 625 crores.
To sum up, we believe that all our business engines are at sweet spot to grow multi-fold from here. RAC and Components division is expected to grow faster than the industry growth rate in this financial year '23. Motors division is expected to grow more than 30% in current financial year '23. Electronics division is expected to grow more than 35% in FY '23. Mobility Application division is expected to grow more than 15% in FY '23, and our new acquisitions AmberPR and Pravartaka are on a growth path to deliver more than 25% in this fiscal FY '23.
We also expect that our ROCE to improve significantly from current levels and is expected to be in the range of 17% to 20% in the next 2 to 3 years' time. The expected improvement in ROCE is despite investments in the growth CapEx.
I will now take you through the consolidated financial highlights. On the revenue, quarter 1 FY '23 revenue stood at INR 1,826 crores versus INR 708 crores in Q1 FY '22. On the operating EBITDA side, quarter 1 FY '23 operating EBITDA stood at INR 131 crores versus INR 50 crores in Q1 FY '22. Operating EBITDA margins for quarter 1 FY '23 and quarter 1 FY '22 stood at 7.2% and 7% respectively. Quarter 1 FY '23 and quarter 1 FY '22 operating EBITDA does not include ESOP expense of INR 5.29 crores and INR 3.26 crores respectively. On the PAT, quarter 1 FY '23 PAT stood at INR 43 crores versus INR 11 crores in Q1 FY '22.
All divisions are ready to take advantage of multiple opportunities. Our goal is to capture the bulk of the RAC and the component market share. We feel that this opportunity will boost our position in the domestic market, while also providing solid foundations for exports moving forward. And on the net working capital days, we have been able to reduce it from -- on a console level from 76 to 37 days comparative -- in the comparative quarters.
Thank you very much. And now I open the desk for the Q&A session.
[Operator Instructions] The first question is from the line of Aditya from Investec.
My first question is on some of the one-off costs that we had in this quarter. Could you provide the split between ForEx, loss on sale of fixed assets and the write-off on the fixed asset side that we are having? And simultaneously, if you could also explain the nature of ForEx MTM loss?
Sure. I think I'll ask Sudhir to answer this question.
Aditya, so on the ForEx loss, we have our M-to-M loss of around INR 23 crore in the quarter 1 and on the ESOP impact, what we have spoken is INR 5.29 crore and on loss on sale of fixed assets total is around INR 52 lakhs and -- sorry, this total is around INR 79 lakhs and also there is a M-to-M on the bonds, because that got adjusted in the interest income, that is around INR 1.95 crores.
Understood. And this MTM loss on ForEx that we are having is mainly on payables?
[ Onetime ] and buyers credit as well. And this will get adjusted in the future quarters in the form of price increase, which we'll take on the quarterly lag basis from the customers.
Understood, understood. My second question is on Sidwal, wherein we have seen a very strong growth in revenues in quarter 1. What has that really been on account of -- in terms of new customer additions, product additions, if you can just spin out in a bit more detail on that front?
So Aditya, as we explained in last few quarters, that we had added some marquee customers there, global players, who won new tenders from Indian government from Ministry of Urban Development and those trains now are almost ready to be dispatched. In fact, the first train, which has come out day before yesterday for trial run on the Delhi-Meerut new category of Rapid Rail Transport System, which has been supplied by Bombardier, that has got Sidwal's air conditioners in it.
And we've also won some recycling in the -- of air conditioners businesses from Delhi Metro, which we have accomplished this quarter, and our AMC business has also grown significantly in this quarter. So all this is adding up to a robust growth in that division.
Understood. And lastly, sir, can you also share the volume numbers for this quarter?
So this quarter, we have clocked a volume of 1.28 million this year, I mean, from April to June.
And would only -- would it be possible to just provide the proportion of Window ACs within that?
I would restrict that because that has become a very sensitive data we have seen in past few of our customers taking that data and they attempted a negotiation bid. So we've started that -- we have stopped sharing that data. But yes, we have grown in tandem. I think we are expected -- I'm expecting that industry will do a number of somewhere between 28% to 30% this year on the growth perspective and number, this financial year is expected to outnumber the industry by at least 2% to 3% or maybe 4% depending on how the last quarter goes.
And primarily, this outnumbering will happen because our gas charging customers are now at last leg of starting manufacturing with us. So Sri City is also opening where we are starting our manufacturing footprint, which will contribute very little -- very, very little this fiscal year, because it'll be starting in mid of December. But because of the new customer addition, we will be able to outnumber the industry in terms of volumes.
[Operator Instructions] The next question is from the line of [ Dhananjai from ASK Investment Managers. ]
Would it be fair to assume after taking out the exceptional, then your Q-on-Q would be a positive vis-a-vis which was reported -- Q-on-Q would be a growth -- your OPM versus what was reported as a negative?
You are talking about the operating margins?
Yes.
Yes. It has been positive as compared to Q-on-Q basis.
Okay. Sure, sir. After adjusting for this. [indiscernible] few of the listed peers have also mentioned that they are now setting up capacity for ODM solutions for other players going ahead and they themselves were initially consumers of other people. So now, do you see that having an impact on us also?
Well, I mean, we don't see any competitive landscape getting changed because of these initiatives by other companies. I believe that AC industry is heading towards a robust growth for coming decades and there is certainly a room for 1 or 2 more new players. But will they be able to offer their solutions in all the 23 geographies like Amber does? Will they be able to offer these solutions in the component space also, and that too also in 7 verticals in which Amber operates? That is yet to be seen. But as far as the stickiness with the clients is concerned, I think Amber is offering a very, very comprehensive and integrated solutions in different geographies of India.
But, yes, I mean, we welcome worthy rivals. So it's always good to have competitiveness in the market, which keeps you on toes.
Sure. And lastly, sir, in terms of the PLI, you mentioned that Q1 would have been the first quarter where we have started seeing some PLI benefits and margins [indiscernible] for the rest of the year. Will you be able to quantify that?
You see, we will not be able to quantify until the PMA agency certifies the PLI benefit, so that will happen on the yearly sales. So we have already crossed our threshold of investment last year. We are eligible for the incremental sale benefit this financial year, but we will apply for the benefit after closing of the financial year. And I expect that they will take another quarter or so to give us the certificate or stamp, whatever the incentive becomes. So right now, it's very difficult to assess that kind of a situation.
The next question is from the line of Renu Baid from IIFL Securities.
I have 3 questions. First, if you can help us give some color on how has been the operating performance of the various subsidiaries, whether it's the Sidwal mobility or...
Renu, sorry, but there is a bit of disturbance coming. Can I request you to talk a little louder.
Yes. Am I audible now?
Yes. Thank you.
Yes, Renu, you're audible.
Yes. Sir, my first question was, if you can help us provide some insights into the operating performance of the various subsidiaries that we have, and how have they moved in terms of our targeted margins of double-digit levels?
Sure Renu, so starting with the Motors division, we have done INR 83.44 crores revenue as compared to INR 35.89 crores on Q-on-Q, and this INR 83.44 crore revenue brings our operating EBITDA of INR 10.24 crores. And then when we go to Mobility Applications, that has jumped from INR 49 crores to INR 94 crores and with the -- at INR 94 crores, the EBITDA stands at INR 25.77 crores.
In the Electronics Division, we have jumped from INR 58 crores to INR 208 crores. This combines IL JIN and Ever together and the operating EBITDA from minus INR 160 crores has come to INR 8.85 crores. And AmberPR and Amber Pravartaka. So AmberPR, we are moving, we have done INR 33 crore because there is no comparison with the last year quarter. We just acquired these entities. At INR 33 crores, they have done INR 3.88 crores, which is about 12% EBITDA and Pravartaka has done INR 41 crores at INR 4.22 crores EBITDA.
So all of the subsidiaries, if you see have now almost touching or touched and crossed the double-digit EBITDA numbers. And except the Electronics Division, which actually by nature, the business is such. So we are on a growth path in all the 6 subsidiaries of Amber and I expect that we continue to grow like that in coming quarters.
Sure. My second question was actually related to the electronic subsidiaries Ever and IL JIN. If you see, there are a lot of activities happening in the space on the PCBA segment across various application, not just consumer products. And if we see some of the listed -- or the unlisted peers which we have, including the ones which are looking to come to the market for IPO, their EBITDA margins seem to be in double-digit levels for PCBAs. So how should we compare or how should we benchmark our operating performance or margins of Ever, IL JIN with some of the other peers, which will get listed in the coming months? And where do you see the gap in terms of our margin improvement?
You see, on one side, we have companies like Dixon to benchmark. On the other side, we have [ Sirma ], which you are talking about right now, which is just about to launch. So both the applications are very different. We are catering to applications of consumer durables and wearable and hearables, we are -- generally a lower EBITDA margin businesses. So as Dixon and IL Jin and Ever will be almost in the same range.
But sir, Dixon has a different business model in terms of assembly.
If you go for automobile sector or you go for defense or other sectors, then their EBITDA margins are certainly very different. Not even Sirma, I would talk about other companies, which we know about which are unlisted right now, which have -- which are aspiring to be listed very soon. Those operate in range of 12% to 14%.
So what we are doing at IL JIN and Ever is that first of all, we -- when we took over these companies, it was primarily a refrigerator and air conditioning solution provider and only...
Primarily to LG, correct?
Yes primarily to LG and IFB. There were only 2 customers.
Correct.
Now, we have 18 customers in that division, and we are also coming up with the third factory in South India, which will be operational in next 2 to 3 months that was on the rented premises, that is under installation right now. So what we are doing is apart from expanding our customers in the consumer durable business, so we have started giving solutions from not only refrigerator and air conditioners, but we have gone to washing machines, microwave ovens, fans, water purifiers and TVs, and now we have added another application, which is hearable and wearable and now we are adding telecommunication equipments also.
So which -- right now, we have just onboarded a customer, we cannot name them. We will be able to let you know once the commercial production starts with them, but that is again going to become a big business and also better margins from what we are today. So it is a mix and match of various applications, which will increase the margins going forward in these subsidiaries.
So probably from a 2 to 3-year perspective, do you think the electronics business can target a near double-digit margin for us, given the mix that we have 9%, 10% or probably that looks elevated?
You see, we are successful in getting the applications where EBITDA margins are generally high. But of course, it can hit that number. But if you want me to guide the numbers, I'll not be able to guide it.
No, no, sure. Not looking for specific guidance. Second, if you look at the core RAC market as in the offtake seems to be reasonably fine but pricing pressures in the industry continue. So what would be your outlook in terms of the pass-through of the cost escalation that we have seen? Is that transmission happening as expected? And resulting, should we expect the margins for all the core-RAC portfolio to improve, given that these cost pass-throughs will be there? And simultaneously, any comments on channel inventory would be an add-on.
See, now Room AC sector has entered into off-season quarters. So this Q2 and Q3 are off-season for the quarters. And then second headwind apart from the inflationary pressure, the second headwind was the BEE table change in the middle of the year, which is 1st of July. Normally, it used to happen in 1st of January. Now, what used to happen was that dealers used to pick up inventories in anticipation of forthcoming season, where they can sell it in a month or 2. But now since we have -- it is -- the cycle has reversed this time. So there is a bit of lag in the industry right now as far as the July month is concerned, but August seems to be quite normal.
I don't think so, anybody is carrying a lot of inventory now. It is completely at a normal level right now. Industry was very conservative while planning, and industry was surprised by the pent-up demand which came up. I think the CAGR of double-digit growth will be continued from this year onwards.
And on the price pressures, yes, some of the brands are still facing price pressures. Some of the brands have been able to pass on. So it's a mix and match from thereon. But as far as our contracts goes, it is basically supported by the price variation clause applicability, which we [indiscernible]. What happened last year -- last quarter was, there was a -- last to last quarter, there was a price increase. And last year -- last quarter also, again, there was increase but then in June end -- by middle of June, we all saw that commodities started easing off. But it did not ease off to the pre-COVID levels. So probably if the commodities continue to be where it is today, I think there should be slight margin improvement going forward in quarter 3, quarter 4 onwards.
Sure. But no pressures on you to reduce the prices and pass it on to brands at this point in time?
You see, it's a right -- I think it's a right of every purchaser to ask for price increase -- reductions from us, but it depends on -- it depends totally on whether we are in a position to do it or not. But we -- as a company, there is a very fundamental policies laid down on that front and we don't want to come -- bring the growth based on the margin depletion kind of a thing. So we are wary of that.
Of course, and in some of the companies, some of the customers, there is zero follow up also. It is automatically a understood phenomena, and they are all more than 70-year-old companies. So it's -- they have seen so many cycles of inflationary pressures in past also. So it's a complete, I would say, the commodities or currency exchanges are passed on without any follow-up with them. So that's how the industry works. So I think as far as we are concerned, we are not facing any pressures right now from the industry.
[Operator Instructions] Next question is from the line of Sonali from Jefferies India.
Sir, my first question is again an extension of the question on the demand. Now, I think the industry has taken cumulatively about 10% to 15% price hikes in the past 12 months. So is it fair to assume that there is some deceleration in the demand, especially for higher price point items such as the air conditioners? And also with the new BEE norm being effective from 1st of July, what is the quantum of price hikes that you think that the industry will take going forward?
Sonali, if you see, industry has already demonstrated or I would say witnessed more than 20% growth, despite of all the price increases, which has taken place. So that means that this product is actually linked with the lifestyle product, rather than somewhere [ where it is a ] price points. There are -- I mean I'll be -- you'll be surprised to know that there are shortages right now for some of the premium products in the market. If you want a 5-star inverter today, some of the brands, it is available at 10 days kind of a notice, not off the shelf. Some of the VRV units are available at more than a month's basis right now.
But having said that, I mean some of the brands are still keeping inventories. But from -- my opinion is that, industry is operating at a very normal inventory level. There is nothing -- no point to worry about that. And markets and retail has already digested the price increase, which has come. So there has -- we have seen impacts on the price increase in earlier quarters when there was a lot of resistance from retail side who accept that, and that's a natural phenomena whenever such kind of a price increase happens, which is unprecedented, retail definitely gives a [ bad ] pressure. But that got over after the summers. During the summers, everything passed out and brands were able to liquidate their inventories.
And on the BEE table, July month was a little bit a lag month because there was a slowdown to everybody. Some of the brands, they had already shifted to new BEE table from 1st of January. Some of the brands shifted right now, so they saw a little bit lag, but I think from August -- mid of August onwards, we are seeing the order book again coming back to normal.
So I would -- my estimate -- rough estimate is that industry should cross 8 million plus and somewhere we should be landing in the range of 8.2 million to 8.4 million this financial year. Of course, a lot depends on the quarter 4. I mean of course, if the winters get extended, this number may change, but as of now, the run rate -- I think that this number is achievable.
Understand, sir. So what is the incremental quantum of price hikes that you foresee the industry to take post the new implementation of BEE?
So in BEE, there is an impact from somewhere about INR 800 to INR 1,200 in the range of that per model. So 1 ton model will attract about INR 800 – INR 750 to INR 800 and 5-star 2 ton will be having about INR 1,250 odd change. So that is the range of the increment. It's not a very big number on a INR 35,000 or INR 40,000 product category.
Understand. Sir, and my second question is regarding your mix. Now components have been a fast-moving segment for you all. So say about 3 to 5 years from now on, what is the perceived mix between RACs and components in your overall sales?
Well, we are endeavoring that this split should come to 50-50 level. I think we are touching those numbers in some of the quarters. That should be -- that is our endeavor to bring components and other businesses to a complete 50% level and RAC at a 50% level. Now what further we are attempting is that RAC and RAC business -- I mean RAC as a finished good plus RAC components to bring that vertical at a 50% level. So which is right now at about 72%. So that is our endeavor moving forward for next 4 years' time. So other businesses are catching up,. You will see a lot of momentum in those businesses and we are gearing up accordingly.
Sure, sir. Sir, and last question from my side. The CapEx guidance, please?
On the CapEx, we still would be maintaining the same guidance what we gave last time. So INR 400 crore is what we are investing this financial year, out of which some part is going into greenfield facility, at Sri City, which will be getting over right now. And we are under discussion right now for 2 major expansion with customers. If that goes through, then we will be investing somewhere about INR 150 crore more in this quarter, but that is subject to the approvals, which we will come to know by end of August or maybe mid of September. And that's it from -- on the CapEx side.
Next year, there is no requirement on the new greenfield facilities. It'll be just a normal R&D CapEx and maintenance CapEx and few subsidiaries are expanding next year. So next year, we expect it to be in the range of INR 150 crores to INR 175 crores.
Thank you. Sorry to interrupt you, Sonali. I would request you to come back in the question queue for a follow-up question. [Operator Instructions]
The next question is from the line of Bhoomika Nair from DAM Capital Advisors.
Sir, just wanted to touch upon the margin aspect. If you see a lot of the brands are actually putting up their own facilities in the South. From that perspective, and given our own plant will come in, do you think there will be margin pressure as we move ahead, given that fixed costs for the industry will actually increase? And to that extent, what kind of an impact it can have on our ability to take price hikes?
In fact, if you see the manufacturing footprint right now in our sector, there are about 16 manufacturing companies, out of which 11 are brands. And those brands are having factories not from now on, but they're having factories since last couple of decades, and we are supplying components to them. So nothing on the competitive landscape is changing for us when the brands are investing in their expansion in the factories in the South India.
In fact, that becomes an opportunity for us to supply them the components, which they are not putting up. Just to give an example, like whenever brands put up a factory, they generally put up assembly lines and labs, plus heat exchanger lines and some of them, they add injection molding and sheet metal. And none of them is putting up motor plants, none of them are coming up with the inverter PCB boards, and some of them are not putting up sheet metal facilities, some are not putting up cross flow fans. So there is a lot of opportunity for companies like us, to give them. In fact, they are very supportive right now. They are very happy that we are starting our Sri City plant ahead of them. So we will be able to give some components to them, as we are giving right now.
Coming on the margin side of it. You see, we are a B2B company and B2B company is the extension of manufacturing arm of further customers. Now whenever that happens, there -- it is actually run by guided principles and in case a brand is manufacturing on their own, any kind of commodity increase or currency impact comes on them also. So in fact, with these kind of customers who have manufacturing plants on their own, they are very practical in approach. They also know that this is a standard part we cannot reduce or give the commodity increase portion to them in case it comes to us, it has to be passed on. And they have further to pass on to clients in the markets.
So in a B2B organization, it's a standard part that you have to continue touching base with the customer in case the commodities prices are going in the North direction and in case, it is going to the south direction, they have to continue talking to us. So that's the cycle what goes on. So I think on a -- we have seen our 2 decades' journey till now, a lot of competitive landscape has changed and we have been able to pass on commodity increases on a quarterly lag basis every time. So I don't think so that fundamentally, there is going to be a change there.
Okay. Sir, the other thing, the second question is on exports. We were looking at exports and we have started seeing some traction in the Middle East. If you can just talk a little more on what is the status of the same. Where are we? Are we started getting orders and how do we see that scale up over the next few years?
Yes, in Middle East, we are actually started penetrating in small numbers. We had already supplied some units last year and this year also, we expect to do about 3 lakh units this year -- I mean coming quarter and so. And we are also attempting to penetrate now in the U.S. markets. Our products are ready and we expect that our energy labeling part will get over in FY '23 and by maybe FY '24, we should be able to clock some small revenues from finished goods side.
As far as motors is concerned, that is going very well. We have already started getting repeat orders from US markets and Middle Eastern markets and now, we have added BLDC product, which was not available with us. So that will also go. In fact, we are also attempting to export cross-flow fans from [ here ] through our new acquired entity as a solution provider in the motor and the fans side.
So again, I would like to reiterate that exports is a long-term strategy. It's not a short-term strategy. So the significant impact of exports should be visible in the balance sheet, maybe 3 to 4 years from now.
Sure, sir. Sir, lastly, if I may just squeeze in the gross debt and the net debt numbers as at quarter end?
I'll ask Sudhir to answer that question. Sudhir?
So on a net debt position, so at a consol basis, we have around INR 625 crores of our net debt and gross debt is around -- just a sec. Gross debt is around INR 1,300 crores.
Next question is from the line of Nikunj Gala from Sundaram Asset Management.
Sir, I have just need understanding on the ForEx loss, which you mentioned in this quarter. So here, just want to understand as a business policy, we don't hedge, right, our -- the ForEx exposure?
No, we hedge the position at around 25% to 30% on a short-term basis and whenever there is a like large impact we see and we discuss with the various people and we increase it to 50% level as well, depending upon the scenario.
Okay. So whatever unhedged position, we have taken the loss of INR 23 crores, right?
No, no, it's the M2M. It is not a realized number. It is M2M because we need to reinstate all the liabilities at a closing rate.
Okay. Sure. And I think in one of the comment you mentioned, you will recover this from the client. Is that understanding correct, like in the coming quarters, if that [indiscernible]?
Yes. It happens that -- in the next quarter's costing, we have inventory lying with us and that gets valued at last quarter's average commodity prices, as well as the foreign -- at the currency rate. So that gets adjusted in the coming quarter selling price.
Okay. Sure. Sir, and just one point on this. If I look at the FY '19 numbers. So FY '19 was the year where the currency depreciation was also sharp. For the year, it was 8% and in between in one of the quarter, it was 9%. So how was that accounted during that time?
So during that time also, we were able to recover that depreciation in the future quarter sales and M2M loss is also always covered under the foreign currency fluctuation in the other expenses.
Okay. Sir, similar -- okay, similar kind of accounting was done in other expense during that time also?
Yes. There is no change in the -- any accounting policies since so many years.
Next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, just one suggestion, what previous participant asked. I think it's from a disclosure perspective, if you can just split out the ForEx every quarter, it helps us look at margins more objectively. Sir, my question is firstly in the previous quarter, you mentioned there were certain fixed costs under-recovery because of certain new facilities started, which were not contributing. Given that we still have the Sri City facility coming in the second half of this year, in the current quarter also, do we have some fixed costs, which have not been fully recovered? I'm just trying to understand the sustainable margins for the business.
Yes. There is still those newly started entities are not at a full capacity level, they did the business in quarter 1. So we need to wait for those plants, which have started in the last year, last quarter. They will be operational in a full capacity in the current year. But yes, there will be a, again, new entity, which is coming up in the H2, which is Sri City. There will be a small impact on the fixed cost in the first year, but from '23-'24, you will see that full-year business and no lag of the fixed costs will be there, going forward. You will see some of the fixed costs are more, because of the new plants we have started here.
Got it, sir. Sir. Also on Sidwal, our order book is one of the highest if not the highest in my recent memory. Can you just, for modeling purpose, help us understand what will be the time period in which we can exhaust the INR 625 crore kind of an order book? Is it 4 quarters, 5 quarters?
Generally, metro and train orders are extended towards close to about 18 to 20 months period and we expect Sidwal to deliver 15% to 20% range of growth this year looking at the current run rate, what's there. But order book is strengthening. I think the portfolio is getting extended, because we are not only adding air conditioners, but we have started delivering more products. We have increased our wallet share also within the same customers, be it railway or metro or other applications, which we're delivering, some defense orders have also come in. So it's moving very positive from that perspective.
The next question is from the line of Madhav from Fidelity International.
I just wanted a couple of questions. The first one was basically, you've mentioned about having this INR 150 crore CapEx for 2 customers in terms of like an expansion. So do you have -- I am trying to understand a bit about the nature of the expansions, like are we putting up a capacity near their facilities or what's happening there? Just wanted to understand this.
So we're right now under discussion for a brownfield expansion near to the customers, and these are going to be customers of component sector and that is what is in the discussion. So I think by next quarter or so, we'll be able to freeze. Right now it is moving positive with them, in case it happens, it will help us in good sales in next financial year.
Is [ there an ] RAC customer?
These are consumer durable customers, both RAC and other consumer durables.
Understood. And my second question was that you mentioned about 3 lakh units of exports that can happen, was that for finished good RAC or was it for some motor or other components?
No, no. So motors, we are doing slightly more motors. I think the number is moving positive, 3 lakh is something which we did last year in motors. This year, we are expected to do 0.5 million or more motors. In case of RAC, 3 lakhs are not sets, I have spoken about units. So we are attempting to do that numbers. Let's see how it goes.
But sir, even 3 lakhs units on our RAC side, I think it's a good number, right? Like, on our base of let's say 2.6 million units that we did in FY '22, if we can do 0.3 million extra just from exports, that's a good bump up for us, isn't it? Or am I missing something?
Yes. So we are attempting it right now. We are talking with the customer. There are positive notes going on. But it can spill over to next financial year also depending on the energy rating process, because that's quite a long process. But that order book is getting frozen maybe very soon, we'll be able to freeze that order book, but we'll see.
There are certain milestones when a customer freezes the order book. First of all, the prototyping has to happen and then the BEE norm has to apply. Now, if that goes fine, then that supplies will happen. Now, will that 3 lakh number come this year, that's very difficult to state.
Sir, which is completely okay as long as the business is trending in that direction that we can get that order, but this is the Middle East, is it? The point -- 3 lakh units that we're talking about, this fiscal or next fiscal?
No, no, no. So it's Middle East and South Africa region and U.S., all put together.
The next question is from the line of Nitin from Ambit Capital.
One question that you said that this year will most likely do closer to about -- or that the industry will do about 8.2 million pieces. So let's say in FY '23 to '25, India gets closer to something like 10 million pieces for room air conditioners. So what kind of a market share that you are targeting? Let's say, revenue market share you are targeting from 10 million RAC market in India. Do you have enough capacities for that after present year's CapEx? So just trying to connect the massive revenue potential from the capacities that you have and the market share that you are doing -- thinking from the 10 million AC opportunity?
So Nitin, if you see today on the value-term perspective, what we are offering to the industry, we have about 26.6% market share on the value terms with this, right? So that is based on the number of about 7 million. Now, when it inches towards the 10 million mark, I think we should be able to expand our market share by at least 200 bps or maybe more, because we are expanding into components more now on the value terms and we do not -- would not need any kind of a CapEx for 10 million mark at least on the assembly part of room air conditioners. We may need a little slight CapEx for the component side. Now that will depend on how we move ahead, whether heat exchangers are required or inverter PCB boards are required, but on a value-term basis, I think we should be able to maintain or grow our market share, if it inches towards the 10 million mark.
So basically, you're looking at something like a 29% market share on 10 million pieces and industry should be roughly at, what, INR 23,000 per set at that time, do you think or INR 24,000? Is that the right way to look at it?
No, no, no. In the bill of materials side, I think it should be little less. If you talk today on the bill of material side, it is roughly at around INR 19,000.
Okay. And do you think price concession will happen on this INR 19,000 by about 5% because of all the effects of BEE premiumization, et cetera? Or do you think it roughly stays there at INR 19,000 to INR 19,500 [ VOM ]?
Very difficult to predict because now, I don't think so that for next 3 years, BEE will be changing the table. So from BEE impact, I don't think so, it'll come, but inflationary point is very difficult to predict, but we can definitely take 3% to 5% range for inflation every year.
Last -- second question was about the Japanese. See a lot of Japanese are putting up captive manufacturing capacities and they're also thinking of India as an export base. They have global technology parentage and backing also, let's say whether it's Hitachi or Daikin. So help us understand that, how -- what is your competitiveness strength or weakness versus these Japanese? And how you can work with Japanese either as a strategic player at some point in time or you don't need that?
So if you see, Nitin, we are working with most of the Japanese clients. We have Panasonic, we have Daikin, we have Hitachi, we have Mitsubishi, Toshiba, Fujitsu General. So we are working with most of them and they do take a lot of time to onboard a B2B solution provider like us. We have been able to penetrate and give them solutions and now we are increasing our wallet shares as we move ahead.
And yes, you are right, some of the Japanese companies, I cannot name them, but they are thinking to shift geographies of exports from India and that 3 lakh number, actually which I said is going to happen -- part of that will happen through them also. So it depends on how we are -- I mean they are likely to shift some and even our Government of India is wanting now since we dedicated export console is getting set up at various positions in government, there is going to be a very, very focused approach from government also to convince multinational companies to shift their geographies.
In fact, that is the lowest hanging fruit in our sector now and if we are able to convince some of the multinational, especially Japanese and Koreans to shift their even small numbers, it will actually help expand the manufacturing footprint in India, where companies like us is well positioned to take advantage of that.
Okay. So you're saying that when you give that indication of exports, roughly you could be working through the Japanese companies, helping them with components or assembling on their behalf, so that they export their brands from India, is it?
Well, I don't want to state the nationality of the customer. But yes, they are multinational companies, which we are working. It may be a direct export also. So -- I mean the agenda is to export, whether direct or indirect doesn't matter.
Next question is from the line of Hitesh Taunk from ICICIdirect.
Sir, I have 2 questions. One is on the import front, the government has put up a ban on import of full gas filled AC. So have you seen any reduction on the imports of the AC, in the last 2 years? Earlier, I think it was around INR 3,000 crore to INR 4,000 crore of import.
So roughly about 2 million units were getting imported in '19 -- FY '19 and then September '20 was when the gas ban was impacted. After that, we have seen 88% reduction in the finished goods category and there are some few customers who are importing air conditioners minus gas. So nobody is able to bring the full finished goods now, that has 100% been banned. There are few customers who are getting the kits and we are likely to start getting -- shift those customers into manufacturing units in India. I think by next year, there should be 95% reduction in the imports. Right now, it is about 80% reduction.
Okay. And sir, my second question is on the PLI front. You said like you're going to hit the threshold of the PLI revenue. So we have a PLI in the different product category. So sir, could you please quantify what kind of threshold level is required to get the benefit for us?
See, there is -- we are eligible for INR 400 crore – INR 300 crore number and INR 100 crore in IL Jin, which is our electronic subsidiary and this CapEx has to happen in 5 years, where the first year was the last year. So the threshold of the CapEx has already been done. So that is a tick mark. Now we have to bring in 5 times the CapEx done last year, incremental sale this year. Now that is also being done. So we don't see any hurdles achieving those numbers, and after that, we will get 6% on the incremental sales, as a first-year incentive. So which will be the quantification of that will become evident by about -- it will be how much?
INR 15 crore?
It will be approximately INR 15 crores for the first year.
Thank you. Next question is from the line of [ Gopal from SBI. ]
Sir, my question was on, there has been a lot of competition at the brand level, and many of these companies are in the -- this good season, have reported negative margins. Do you expect a consolidation of brands in this competitive environment?
Well, very difficult question to answer because we are a B2B player. We are not in the marketplace. There are many brands listed on the BEE website if you see, those are people who are selling air conditioners, more than 50 of them. Yes, but the market is already consolidated, 80% of that goes through 10 or 12 players. So 75% to 80% is catered by then. Maybe moving forward, once the industry touches about 2 crores, 3 crores air conditioner, we should see some kind of a consolidation. But right now, it is a too early a stage for consolidation.
Yes. IL JIN was -- basically, we are also supplying to a lot of these fringe brands. So will that have any impact on our volumes or have you seen any of that on those brands in our volume share?
See, we have seen market shares getting exchanged between brands in last 2 decades. And we are a solution provider to the industry. I mean if someone merges one company with another one or someone buys someone out, that changes their market shares, but since we are supplying to most of the brands, I think we should not be affected at that point of time. In past also, when we have seen, today, Voltas is the leader. Last 10 years back, somebody else was the leader, but we...
Right.
When the market shares dropped of that brand, we continue to grow because we were giving solutions to Voltas also and to others also who were having the market share increases.
Sure, sir. The second question is on the gross margin for standalone business. Is there any one-off on the gross margin, or there is no one-off in the gross margin?
There is no one-off.
So basically in the last quarter call, we suggested that this pass-through of costs will -- majority of that will happen in the next quarter, which was like current quarter and so we used to do a gross margin of 14%, 15% and it is still holding around 10.5%, 11%. So -- and again we are going for next 2 weak quarters, so how we are going to recoup this loss on the gross margin?
So the increase in the community prices, which happened in the quarter 4 of the previous financial year, that was not eased out in the quarter one. Rather, there was a further increase in the month of April and May. So that is why there is no decrease in the EBITDA -- gross margin and if you see that let's assume there is a INR 85 of our RMC on a INR 100 selling price and if INR 10 is increased in the raw material prices to INR 95 and we increased the selling by INR 10, INR 110. So INR 15 or INR 110, in percentage term, it always looks depressed. And in a reverse cycle, whenever these are is ease out of the commodity prices, you see a percentage margin increase in the gross margins. So sales commodity prices are not eased out, rather they were stable at that point of time in the month of April, but rather further increased it. So that is why there is no ease out in the percentage terms of gross margins.
Okay. So when it decline and so it should reverse basically?
Once it declines to the previous levels, then it will -- you will see a better gross margin in percentage terms.
Okay. Sir, the last bit on the ESOP charge. So if you can just give some color on why we are differentiating it as a separate line item, not part of EBITDA?
See, we are depreciating it since it's a non-cash item for us as the -- it is not impacting our cash flow. That is why we are showing it as a separate line item.
And did this like INR 15 crore to INR 20 crore range, this will continue every year?
No, it will steadily going down if you don't come up with the new ESOP scheme because first year, it is always our higher impact on the P&L, and in the next 2, 3 years, it gets declined.
Thank you very much. Ladies and gentlemen, due to time constraints, that will be the last question for today. I now hand the conference over to the management for closing comments.
Thank you, everyone, for joining on the call. I hope we have been able to address all your queries. For any further information, kindly get in that with Manish or Strategic Growth Advisors, our Investor Relations Advisors. Thank you and have a good day.
Thank you very much. On behalf of Amber Enterprises Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.