Amber Enterprises India Ltd

NSE:AMBER

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day and welcome to Amber Enterprises India Limited Q4 and FY '23 Earnings Conference Call.

This conference call may contain forward-looking statements about the company which are based on beliefs, opinions and expectations of the company as on the 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] Please note that this conference is being recorded.

I now hand the conference over to Mr. Jasbir Singh, Chairman and Chief Executive Officer. Thank you.

And over to you, sir.

[Jasbir Singh, executive]

Hello and good morning, everyone.

On the call, I am joined by Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, CFO; Mr. Sachin Gupta, CEO, RAC and CAC Division; and SGA, our investor relation advisers.

We have uploaded our results presentation on the exchanges, and I hope everybody had an opportunity to go through the same.

Indian RAC market has grown to almost 8.4 million units in FY '22, '23; and poised to create healthy growth in the upcoming years, owing to rising temperatures, boom of residential sector, growing retail and hospitality sectors, rising construction activities in the commercial and real estate space, along with rampant expansion on SME and commercial hubs. The growing construction projects across the country, supported by governmental spending towards infrastructure, would eventually result in the disproportionate demand for HVAC solutions by stepping up the transport infrastructure of the country such as railways, metros and buses. With AC industry peaking to a market size of 8.4 million in FY '22 and '23 and the continuous rising demand for air conditioners, Amber looks forward towards an optimistic and steady growth in coming quarters.

This year, we witnessed many brands shifting their strategies and adopting to insource assembly rather than outsourcing. While markets looked at this change as a threat, we at Amber turned it into an opportunity by expanding our offerings under the components and sub-assembly segment. Owing to the rise in components and sub-assemblies businesses, Amber during the year expanded its market share in room AC industry at manufacturing footprint level, in value terms, to 29.4% in financial year, FY, '23 vis-à-vis 26.6% in FY '22. In last 5 years, each division entered into adjacencies. I am glad to announce that all divisional engines are firing well by expanding geographies, adding customers and products and expanding its wallet share in existing customers. The company is marching ahead in its export initiatives, have started getting approvals from its export customers and expecting orders to flow in current financial year, FY, '23, '24.

We remain focused on prudent asset allocation, which results in better return on investment, while balancing growth, profitability and improved return ratios, witnessing a strong 4% (sic) [ 4 percentage points ] jump in ROCE in FY '23, which improved from 11% to 15%; and expect it to improve further in the range of 19% to 21% in next 2 to 3 years time. Our net working capital days has improved to 29 days from 39 days largely due to better control on inventories.

Closed our financial year '23 at a net debt level of INR 588 crores at consol level. During FY '23, we did a CapEx of INR 698 crores at consol level that helped in increasing the profitability and improving the share of business in RAC segment and other divisions.

Since IPO in FY '18, Amber group has transformed from largely an RAC player to a diversified B2B solution provider. While RAC remains to be our focus segment, all other divisions such as mobility, electronics, motors and components are on a strong growth path contributing significantly in both top line and bottom line with good return on investments. We are currently witnessing a muted quarter 1 FY '24 due to unseasonal rains, largely in the North part of India, which generates a large amount of demand during this period. However, we are strongly hopeful to consistently grow our bottom line due to product mix change and operational efficiencies.

I will now take you through the consolidated financial highlights.

The revenue front. For FY '23, revenue still -- stood at INR 6,927 crores versus INR 4,206 in FY '22, marking a growth of 65%. For the quarter of Q4 FY '23, revenue stood at INR 3,003 crores versus INR 1,937 crores in Q4 FY '22, a growth of 55%.

On operating EBITDA, for FY '23, operating EBITDA stood at INR 475 crores versus INR 296 crores in FY '22, a growth of 61%. For quarter 4 FY '23, operating EBITDA stood at INR 204 crores versus INR 133 crores in Q4 FY '22, a growth of 54%. Operating EBITDA margins for FY '23 and Q4 FY '23 stood at 6.9%. Financial year and Q4 operating EBITDA is before the impact of ESOP expense and other nonoperating income and expenses.

Now moving to the divisional performance. RAC and component divisions: For FY '23, revenue stood at INR 5,074 crores versus INR 3,065 crores in FY '22, marking growth of 65%. For the quarter FY '23, revenue stood at INR 2,371 crores versus INR 1,529 crores in Q4 FY '22, a growth of 55%. For FY '23, operating EBITDA stood at INR 284 crores versus INR 178 crores in FY '22, a growth of 60%. For Q4 FY '23, operating EBITDA stood at INR 140 crores versus INR 91 crores in Q4 FY '22, a growth of 53%.

This division has added new customers during FY '23. This division has also realigned its strategy to offer comprehensive solutions in components and sub-assemblies, in tandem with the strategy of RAC customers to insource the assembly businesses. We converted gas-charging customer into complete manufacturing solution and also expanded geographical presence.

On the mobility application division, which includes Sidwal, for FY '23, revenue stood at INR 422 crores versus INR 289 crores in FY '22, marking growth of 46%. For the quarter 4 FY '23, revenue stood at INR 113 crores versus INR 82 crores in Q4 FY '22, a growth of 37%. For FY '23, operating EBITDA stood at INR 99 crores versus INR 67 crores in FY '22, a growth of 47%. For quarter 4 FY '23, operating EBITDA stood at INR 28 crore versus INR 20 crore in Q4 FY '22, a growth of 43%.

This division is having a strong order book of more than INR 700 crores as of today. It commenced production of pantry systems for Vande Bharat Express, increasing its wallet share in increasing -- in existing customers. It has done transport-of-technology agreements in the plug door segment and gangway segment, which will help in expanding their wallet share in the existing customers of railways and metros. And defense application for this division is also seeing a robust growth.

On the electronics division, which includes IL JIN and Ever. For FY '23, revenue stood at INR 1,125 crores versus INR 617 crores in FY '22, marking growth of 82%. For the quarter 4 FY '23, revenue stood at INR 415 crores versus INR 245 crores in Q4 FY '22, a growth of 69%. For FY '23, operating EBITDA stood at INR 51 crores versus INR 26 crores in FY '22, growth of 95%. For Q4 FY '23, operating EBITDA stood at INR 21 crore versus INR 13 crores in FY '22, a growth of 53%.

In this segment, the wearable segment is witnessing a strong growth. It has also done -- the pilot lot of telecom products also has started. It has onboarded new customers in wearable and telecom sectors. And the room AC PCBA market share has crossed 20% of the complete RAC sector [ in ] PCBA and is consistently growing.

On the motors division. For FY '23, revenue stood at INR 307 crore versus INR 236 crores in FY '22, marking a growth of 30%. For the quarter 4 FY '23, revenue stood at INR 105 crore versus INR 80 crores in FY '22, a growth of 31%. For FY '23, operating EBITDA stood at INR 42 crores versus INR 25 crore in FY '22, a growth of 69%. For quarter 4 FY '23, operating EBITDA stood at INR 16 crores versus INR 9 crores in Q4 FY '22, a growth of 78%.

It is expanding BLDC motors now in ODUs; and WACs; and commercial segment of heating, ventilation and air conditioning. It is at advanced stages to add marquee clients in exports and also developing motors for newer applications other than RAC segment.

With this, I would now open the floor for Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Dhruv from AMBIT.

[Dhruv Jain, analyst]

Congratulations, sir, on a great set of numbers. I have a couple of questions. One is that, sir -- the growth that we are seeing in the RAC business and the entire business in that sense. And you mentioned about new customer additions. So if you could just give some indication as to what was the quantum of the growth that was driven by new customer addition. And how should we look about -- look at it going forward?

[Jasbir Singh, executive]

Thanks. Each division has actually added customers, so from consol-level point of view, the newer customers addition, we don't have a number right now, but we can definitely come back to you at a later stage. But it has -- all these new customers that were added has come in quarter 4, and that's the reason why quarter 4 revenue jumped significantly. So we were in touch with these customers from last 2 to 3 years, and as explained earlier, the lead times to onboard a customer is quite high in our businesses. And this was a very positive part, from all the divisions perspective, that has led to this kind of a growth.

[Dhruv Jain, analyst]

Okay. And sir, question on Sidwal. So your order book now is at about INR 700 crores and there is optimism all around railway and defense division. So from a, say, 3- to 4-year point of view, do you think that this business can double with respect to whatever you've been doing on the defense and the other applications side also? Or it is just a onetime thing in FY '24. Your thoughts there?

[Jasbir Singh, executive]

Well, see, what we are -- there are -- 2 things happen simultaneously. One is that because railway industry now is launching more of Vande Bharat Express, which is completely air-conditioned train. Earlier, only 29% to 30% of coaches were getting air conditioned. So that is one shift which is increasing the addressable market. Second shift is newer kind of trains in the metro lines which have been launched by urban development ministry, which is RRTS as well as the normal metro trains, rapid rail transit system. So we've got approvals in all the 3 categories. And what we are doing to further enhance our addressable market is to get into adjacencies, like as I explained that we have entered into pantry systems for Vande Bharat Express. We are now -- we've done a -- transfer-of-technology agreements for getting into doors and gangways, which will enhance our offerings to the same customers. So our offering in the bill of material of a metro will double, so from that perspective, it will be right to assume that, yes, we can double the revenue in 3 to 4 years time.

[Operator]

Mr. Dhruv, I request you rejoin the queue for any follow-ups.

[Dhruv Jain, analyst]

If you can just spell out, sir -- just one question. If you just spell out the CapEx numbers for FY '24 and '25.

[Jasbir Singh, executive]

FY '23, we have done INR 698 crores. And this year, we should -- we have planned for a CapEx of 350 crores to 375 crores, which will largely be spent on 4 areas, R&D and maintenance CapEx and also expanding the -- expansion of the subsidiary businesses and also brownfield expansion in the components and sub-assembly [ business ].

[Operator]

The next question is from the line of Ankur Sharma from HDFC Life.

[Ankur Sharma, analyst]

Just 3, 4 questions. One, if you could give us the volume breakup for your RAC business for '23 and, if possible, between split and windows. Second, if you could just -- I mean you did mention that Q1 seems to be a little muted. And we are aware that there have been unseasonal rainfall across North and a couple of other regions. So if you could talk about channel inventory. Is it only in the North where inventory seems to be high, or are you seeing that across other parts of the country as well?

And thirdly, in terms of your overall industry growth itself for '24. You did talk of a number closer to 8.4 million, 8.5 million in '23. Given summer has kind of been a little weak to start off, how do you see volumes for the full year?

[Jasbir Singh, executive]

Ankur, basically on the volumes side we've stopped giving the volume numbers because it has become a company sensitive information. We saw it in past, that some of the customers, they took the numbers and started renegotiating, which was negative for the company. On the value terms, I have explained that we have started seeing our offering to customers from a wallet share on the bill-of-material part. So at the 8.4 million number, the market size comes to about 25,000-odd crores, which converts into 17,640 crore in the manufacturing footprint level. And room AC -- plus, the room AC components, we have done about 5,194 crores, which comes to about 29% market share. So that is on the value terms. On your second question, on [ Q1 status ], yes, the demand is muted. And we are all seeing very unseasonal rains in the middle of the -- May. Temperatures in Delhi on 2nd of May was 21 degrees, so you can expect that air conditioner system -- but yes, channel inventory is high as we speak today. We are hopeful that this will be liquidated in the month of June and July. And on the overall industry growth, we were optimistic that industry will touch about 17% to 18% growth, but now I think we are still hopeful, looking into the lifestyle shift and [ power adequacy, plus ] other so many other reasons, industry should be in a 10% to 15% range in the financial year-end. So that's our estimates. So 8.4 million should move to about 9.5 million by financial year-end.

[Ankur Sharma, analyst]

Sure. And how do you see margins also? So if I may squeeze in one. Because, especially on the stand-alone level, our margins has -- at the EBITDA level, we used to be at about 7%, 8%. This year, we are at a number closer to 4%, so given inventory is high; brands are facing pressures, not able to take price hikes, how do you see yourself? I mean, do you think margins can improve either because of price increases? But I think that was difficult given the brands themselves are suffering, so how do you see margins and obviously pricing?

[Jasbir Singh, executive]

Ankur, I have been actually requesting each of the investors and analysts, every time I've met in last 5 years, that you don't see our balance sheet in that percentage of margins. Percentage of margins are a complete function of commodities, currency and product mix. Now what we see is the absolute number, and that's what we are focused on, so for us -- for example, I go to a customer. And he offers me to supply a 100 crore business on the component side, which is at an 8% to 9% margin, but he also asks me to put about 70 crores, 80 crores of sub-assemblies, which is actually a pass-through for me. So from my point of view, the billing will be 180 crores to him, but the percentage of margins will drop. But I can't say no to it, so as a solution provider, a comprehensive solution provider, we need to see the absolute number growth. That has -- that's what I guided earlier, has been guided and I would again guide, is that we look at the CAGR of delivering 25% to 30% of absolute EBITDA numbers on a year-to-year basis irrespective of the margins on the -- gross margins. The gross margin on the standalone which you are seeing which is looking at the subdued level is primarily because we have added a lot of components business but other sub-assemblies we have also started actually getting added. So today, customers, most of the customers, then move on lean manufacturing systems. And they outsource much of the assembly part to customers like us, so that's why you are looking at a [indiscernible] balance sheet shows you a number of 5% on the gross margin side.

[Operator]

The next question is from the line of Bhoomika Nair from DAM Capital.

[Bhoomika Nair, analyst]

Yes. Congratulations, sir, on a good set of numbers. Sir, my first question is on the market share, which has now become 29%. And you spoke about PCBAs being about 20% of the industry, so from the rest of the kind of components that we have, say, motors or in terms of the plastic molding, et cetera, what is the level of market share? And on an overall basis, how do you see this inching up to 29%? Or is this something that -- where we are starting to hit a ceiling? Number two is if you could just talk about the overall exports outlook on both motors as well as on AC. And the motor, as you say, margins have inched up to 15% over the last 2 quarters, so is this something which is sustainable?

And sorry, if I may just lastly just squeeze in. On the CapEx number, you spoke about 350-odd crores of CapEx in '24. Last couple of years, we've seen a very aggressive CapEx cycle per se. Do you see that kind of tapering off? And where do you see the net debt here, I mean, settling into the next 2 month -- or 2 years?

[Jasbir Singh, executive]

Thanks. So I'll start with your first question, on the components share of business other than the inverter PCB board. So I think, on the motors front, we -- PICL is the leading company today, in the motors front. We'll be sitting somewhere about -- close to about 26% to 27% market share on the component side. And in sheet metal, we are largest in the country giving solutions in the sheet metal side. We should be somewhere about 35% to 40%. And then on the cross-flow fan side, again we are one of the leaders, again having about 25% market share. So in each category of the components, except heat exchangers which is largely made in house by customers, we are enjoying a dominant share in the components side. Now your question about whether the 29% can go upward: That will completely depend. Yes, our endeavor is to take it upward. We have already jumped by almost 300 basis points from 26% to 29%. We will endeavor to move further up, inch upwards as we move ahead.

On the exports of motors front in the -- it's growing steadily. It takes about 2 to 3 years, as I've explained earlier to everybody, for getting customer approvals because this is a functional component. We have received approvals from our customers. And we are expecting to add 2 large customers within this financial year. On the sustainability of margins on the motors side, it will completely depend on the product mix side in the percentages terms, but yes, there will be definitely growth on the absolute number. So BLDC motors, they are a little less in the margins. Other than BLDC, we are enjoying good margins, so it is -- completely depends on what is the -- but on the absolute line number, we are expecting a good growth. On net debt level, we crossed debt -- we closed the year at INR 588 crores. And I think we are expecting to close the FY '24, given the CapEx which we have announced, despite of that, by -- at least it will come down by 100 crores [ to 250-odd ] crores in these financial years.

[Operator]

The next question is from the line of Sonali Salgaonkar from Jefferies.

[Sonali Salgaonkar, analyst]

Congratulations on a great set of numbers. Sir, my first question is regarding price hikes, also with respect to the new BEE models that are there in the system now. So what is the quantum of price hikes that you have taken from January till now? And also, an extension to this question: Is the transition to the new BEE almost complete? And have all channels [ now reached of ] the new models?

[Jasbir Singh, executive]

Thanks. On the price hikes, there have been no price hikes because commodities [indiscernible] more or less stabilized now. And BEE norms, everybody has adjusted. All the inventories are well taken care of. And it has been digested by the markets, so it's a new normal now.

[Sonali Salgaonkar, analyst]

Understand. Then second question: Any update on the PLIs, please? You have received 2 PLIs, 1 in the normal category, 1 in the large category. Any update you would like to share at this point in time?

[Jasbir Singh, executive]

So we have crossed our, I mean, threshold limits both on the incremental -- the CapEx which was required and also the incremental sales. So we peaked both the part of the PLI eligibility and we are eligible. I think, within this financial year, we expect to receive the first part of the PLI.

[Sonali Salgaonkar, analyst]

Understand, sir. And on the incentive, what is your strategy on that? Would you like to share it back with the brand owners, or retain it with yourself?

[Jasbir Singh, executive]

We have not shared any incentives with the brand owners because there is no equity investments done by our brand [ in ] the CapEx required by the government for getting eligible in the PLI. And so then we are not sharing any part of the [ PLI ] with any of the customers.

[Operator]

The next question is from the line of Madhav Marda from Fidelity International.

[Madhav Marda, analyst]

I completely understand that [ percent of ] margins is not the right way to look at the business, but if you look at the RAC and component division, where you reported INR 284 crores of EBITDA in FY '23 -- so as I go into FY '24 and '25, you did indicate that we can grow ahead of industry, but like how should the EBITDA basically shape up? Because last time, there was a lot of volatility in terms of commodity costs and product mix shift, et cetera. So just as we go into FY '24, if you could give us some sense in terms of how the EBITDA overall on an [ actual ] basis could grow.

[Jasbir Singh, executive]

So I think we are seeing stability in the commodity cycle. I don't think so -- there should be any further change in the commodity cycle. And so we should be able to maintain what we are at, but yes, we expect to see some kind of operational leverage because capacity utilizations as -- at our new plants are a little less, which will also add some bit of margins going forward.

[Madhav Marda, analyst]

Got it. And just in terms of the shop costs as well. That should start coming down. Like I'm assuming that would have peaked out in FY '22 or '23 [ for us ].

[Sudhir Goyal, executive]

So shop costs for the current financial year, like the financial year '22, '23, is [ 27 crores ]. And the current financial year, which is like financial year '24, we are expecting it is around 18 crores to 19 crores, like it will start coming down over the period.

[Madhav Marda, analyst]

Okay, got it. And what is the capacity utilization at our plants currently? Is there like a blended number that you have or any broad sense you can give us? Because that will be very helpful.

[Jasbir Singh, executive]

Madhav, each of the division is at different capacity utilization. [ We've talked about ] 2 greenfield facilities which we've just started. It was started in -- Sri City started in quarter 4. And we have -- we just ended up having 20% capacity utilizations, but this year, we expect the capacity utilization to go to -- at 35%, 40%. But other than that, all divisions are at different levels, so on a blended basis I would say we should be at about 65% to 70%.

[Operator]

The next question is from the line of Nitin Arora from Axis Mutual Fund.

[Nitin Arora, analyst]

I understand you've stopped giving the volumes for the reasons which you stated, but generally in the last 4, 5 years, in the stand-alone side which is your RAC, you have grown at 24% -- 23%, 24% CAGR. What could be the industry CAGR in that case?

[Jasbir Singh, executive]

Industry has grown about 16% to 17% CAGR.

[Nitin Arora, analyst]

Okay. Then sir, what was the need of moving into the components side? Just a little structural Question Because, one, a company becomes -- loses 400, 500 basis points of margin. You become a very thin-margin company on the RAC, from about 7%, 8% to 4%. So generally as a business call, when you are increasing the market share, if you would have lost it, you will have moved to the other business in terms of increasing your content. When someone is gaining the market, then what was the need of coming to the component where you're losing out in terms of even ROE, ROC? If you can throw some light. I understand, as a promoter, it's a long-term call, but generally it doesn't add up in the call that we are not losing market share. That's the only question, sir.

[Jasbir Singh, executive]

Let's -- first of all, we should be very clear in what category of business we are in. We are a B2B company, so we are not a brand. We are not a B2C company. In B2B businesses, you need to be flexible in your approach to realign your strategies whenever a customer decides to shift its strategies. Our endeavor is to be thick and thin with the customers in their journey on a long-term basis irrespective of their strategies to insource or outsource. So earlier, the market was moving towards outsourcing. It peaked to almost about 41% of the industry was outsourced in FY '21. And then when the PLI got announced, all the major customers decided to put their assembly units on their own. So they plan to take everything insourcing. And last year, we saw that 41% opportunity came down to 35%. This year, our estimate is it will be as low as 30%. And that will come down to 25%. Now in this shift, how can you grow more than the industry? That has been always our endeavor, that we have to outnumber the industry in value terms, so we shifted our strategy proactively, looking -- and we became very aggressive on the components strategy because we can deliver 70% of a bill of material to a customer other than compressor and other than wiring harnesses and [ packing ] material. That is the advantage of Amber. And through our 25 manufacturing locations, we are present now in entire of the geography of India, wherever you want; and this strategy proved very well.

Now tomorrow, you imagine. If this situation get reversed, we already have capacities for room air conditioners. And we can deliver both numbers in the volume terms as well as in the component side, whatever you want. So we want to grow with you as a customer moving into -- as you are moving ahead in the market share perspective, so on the market share, we have not lost [ even a single ] customer. It is just that strategy has shifted, so if customer has taken their assembly in house, we have started supplying them components.

[Nitin Arora, analyst]

Got it. This is helpful, sir, but generally as an outlook from here, because your CAGR in EBITDA is 3%, you think this CAGR will start going up if the strategy is working well for you from a profitability -- yes.

[Jasbir Singh, executive]

Yes. It will grow in line with the industry growth as we are going from here onwards.

[Operator]

The next question is from the line of Pankaj Tibrewal from Kotak Mutual Funds.

[Pankaj Tibrewal, analyst]

On the CapEx side, we have done a very aggressive CapEx over the last 2 years and, as a result of asset turns and the shift in business, have suffered on the margins side. And the resultant impact has been on the return on capital. Can you give us some sense on how you foresee in the next couple of years these metrics to start improving? And what will contribute? A little more granular detail will be appreciated.

[Jasbir Singh, executive]

So I think green shoots are visible in the last financial year results, 400 bps increase in the return on capital employed, largely because of operational efficiencies. And this will continue further. The -- we are not going for any large CapEx like we did last year, so we will be having more free cash flows in hand. And the operational efficiencies and the control on the inventories all put together, plus the product mix change, will help us to creep to 19%, 21% level in next 2 to 3 years time.

[Pankaj Tibrewal, analyst]

Okay. Because when we look at the last few years, we have done about 1,800 crores to 2,000 crores, inclusive of acquisitions, CapEx, everything, but the profitability has not commensurately expanded accordingly. So now you think that the CapEx cycle probably will not be that, to that intensity. And with whatever you are talking about on the industry and your growth should help you improve your return on capital. Is that, the understanding, right?

[Jasbir Singh, executive]

Yes, that's right. And Pankaj, on a practical basis, out of the INR 700 crore CapEx, which we have done INR 698 crores, large part of about INR 300 crore CapEx has been done in February and March. Now if we -- that results have yet to come, so if I minus that, our ROCE, if we can calculate, have already touched 17.5%, but we are not talking about that. So there's a lot of capacity. Whenever you put up a plant, greenfield facility especially, it is larger part of the building and the plant, but the real operational leverage comes over a period of years. So that's right understanding, what you have said. Moving forward, we are focusing on all the areas for returning -- improving the return ratios.

[Pankaj Tibrewal, analyst]

Because when we look at the reported number, it still looks high single digit, about 8.5%, 9%, so there seems to be a long way to reach that 18%, 19%. So I'm not very sure that -- how that number of 19% in next 2 years is coming through. That means the asset turn needs to really improve from the CapEx which you have done.

[Sudhir Goyal, executive]

Pankaj, Sudhir here. How this like 8% or 9% comes on the ROCE side...

[Pankaj Tibrewal, analyst]

Yes, please.

[Sudhir Goyal, executive]

So maybe we can...

[Pankaj Tibrewal, analyst]

[ The total ] capital expanded base on the overall -- yes, we can...

[Sudhir Goyal, executive]

[ Connect it ] separately and just see that -- how you have calculated the number. Because as per our calculation, it is coming to 15% for the current financial year.

[Pankaj Tibrewal, analyst]

Okay, let's connect it separately and take it forward from here.

[Sudhir Goyal, executive]

Sure, sure.

[Pankaj Tibrewal, analyst]

And just last one, on the outsourcing part which you spoke about, when we look at one of your competition. And their AC revenues have grown multifold over the last 2 years, and that traction still continues to be very strong. What are the disconnect of -- kind of we are missing out there? The competition is talking about aggressive growth numbers, but on the other side, we are seeing that, that percentage is coming down. Are we missing something from our understanding perspective?

[Jasbir Singh, executive]

No, we are not missing anything, Pankaj. We are just not onboarding lower-margin businesses. And it's a very cautious call which we have taken, and that's the strategy.

[Operator]

The next question is from the line of Nikunj Gala from Sundaram AMC.

[Nikunj Gala, analyst]

So I have 2 question. Firstly, again on the ROCE part: So a few comments which you made that your blended capacity utilizations are 65%, 70%, even if I adjust the capacity of INR 300 crore which came in February month. From FY '20 base, sir, our capital employed has more or less become 1.8x, sir. And during this period, our absolute EBIT, like, you are focusing on that. The absolute EBIT is the focus and not the percentage, so on the -- you in -- during this period from FY '20 to '23, our absolute EBIT has hardly grown in tandem with the capital employed in the business, so is it a right understanding that incremental EBIT which is coming in is at a lower ROCE than we -- our earlier nature of the business?

[Sudhir Goyal, executive]

Sudhir here. So if we see our capital employed, it was 1,900 crores in the last financial year and now grown to 2,542 crores, a growth by 32%. There is EBITDA improvement. On the operating EBITDA improvement, it is more than 60%. I'll tell you I think you are aware the calculation is going wrong from your side based on the [ face ] of the balance sheet. So there is some investment, cash investment, in the bond equivalent to amount 191 crores which you might not be considering to calculate the net debt level.

[Nikunj Gala, analyst]

Okay. Because I was just looking, like, reported numbers at the equity side and the -- even I was excluding the cash bond, but I'll take it offline to understand your 15% reported ROCE, which according to our calculation comes hardly double-digit kind of a number, okay. And secondly, the...

[Jasbir Singh, executive]

[indiscernible] the same. We are not taking cash in hand...

[Nikunj Gala, analyst]

Yes. So even I was removing that part, sir. That core capital employed in the business from the -- and this is on the net block, sir, so -- even on the gross block. It would be high single digits in net block, which currently we have highly depreciated one. So at a gross incremental return on capital perspective, I think it would be hardly double-digit kind of ROCE you will be making on the incremental capital employed.

[Sudhir Goyal, executive]

So on the incremental capital employed. Like Jasbir Singh has mentioned, that CapEx which we have done in the second half of the financial year, that -- the ratios of the same will be coming in the upcoming years. So it doesn't come in the same year. Like a large part of the CapEx has been done in the quarter 4 as well, so you will see the better return over the period. And the latest CapEx will give you the -- more returns in the coming years.

[Nikunj Gala, analyst]

Let's put it in a very different question then. As of March, whatever capacity or block we have, sir, assuming we -- like whatever block we have on FY '23, what is the absolute EBIT you can generate on this block, sir?

[Sudhir Goyal, executive]

Maximum EBIT. That is...

[Jasbir Singh, executive]

That is [indiscernible].

[Sudhir Goyal, executive]

That's -- need a detailed calculation to work on and give the EBIT calculation for the same, but on the sales turnover, [ like I said then ], we can easily go there. Like from here, we can reach around 9,000 crores to 10,000 crores with the current CapEx base.

[Nikunj Gala, analyst]

Okay, sure. And just lastly, in the presentation where you mentioned Amber's value market share: Here, the Amber sales which you have mentioned, are these stand-alone numbers? As per our understanding, the stand-alone revenue used to contain some non-AC component sale also, right?

[Sudhir Goyal, executive]

So this Amber sales includes RAC and RAC components. This Amber here means Amber group, which includes RAC sale of Amber, RAC components sale of Amber and the motor sales of which -- used in the RAC.

[Jasbir Singh, executive]

Inverter...

[Sudhir Goyal, executive]

Inverter PCBs both for the RACs. This all includes complete RAC -- anything to do with...

[Jasbir Singh, executive]

[indiscernible] which we are offering to the customers.

[Nikunj Gala, analyst]

Okay, so this is not the stand-alone. Because the numbers were exactly matching with the stand-alone numbers, so that's why I ask. It's not a stand-alone number, right?

[Jasbir Singh, executive]

No, no. It's not stand-alone number.

[Operator]

The next question is from the line of Aditya Bhartia from Investec.

[Aditya Bhartia, analyst]

I wanted to understand about the PLI scheme. How are you going to book the incentives given that you have crossed the threshold limit? Have you booked some incentives as they've come in this year itself? Or will they be recorded once you receive it in the next year?

[Sudhir Goyal, executive]

So as explained, we are following the accrual base of accounting, so incentive is already booked in the financials for the financial year '22, '23. Whatever is the threshold incentives, we have achieved that. And we have already filed [ that QPR ] as well with the government, so that has been booked in the books of account.

[Aditya Bhartia, analyst]

Understood, understood. And we've crossed the threshold limits in both the schemes, right, so we will be receiving...

[Sudhir Goyal, executive]

[ So first, we crossed ] both the threshold limits of CapEx as well as sales.

[Aditya Bhartia, analyst]

No. I meant for the -- for Amber as well as for the electronics business.

[Sudhir Goyal, executive]

No, no. Electronics, we took the first 2 years as a gestation period, so '21, '22 and '22, '23 is the investment period only. And so CapEx, we have already done and crossed the threshold limits. So first year of IL JIN electronic one for sales threshold will be in the financial year '24.

[Aditya Bhartia, analyst]

Understood. And sir, I was just wondering given that our CapEx numbers have been higher than what was initially being envisaged. If I look at the large investment schemes also under the PLI schemes, that would have entailed an investment of 600 crores, which honestly, we have already done, so why didn't we then offer the large schemes and opted for normal investment schemes? At least our incentives could have been higher.

[Sudhir Goyal, executive]

In the PLI scheme, the eligible CapEx is only the CapEx done for the component businesses, not for the assembly line and not for the land and building as well, because this INR 698 crores includes a large part of the land and building as well which doesn't falls under the PLI capital investment.

[Jasbir Singh, executive]

And Aditya, a word to that, what Sudhir has explained. The large investment blocks comprised of compressor, copper and aluminum, so which we were not participating.

[Operator]

The next question is from the line of Alok Deshpande from Nuvama Institutional Equities.

[Alok Deshpande, analyst]

Congratulations on a good set of numbers. Just one question from my side. So this year or probably past -- over the past 2 or 3 years, you have seen several new AC brands come in the market, so I just wanted to understand in terms of the value market share gain that we have seen. How much of this has been with those new brands? As in, can you share some numbers in terms of the number of brands that you were working with, let's say, 3 years back; and let's say, FY '23; some color on that?

[Jasbir Singh, executive]

We've got about close to -- about 26 customers in the room AC category. And they keep on shifting as per their market shares and as per their requirements, so it's very difficult to answer your question on the newer brands.

[Alok Deshpande, analyst]

Okay. And sir, just one question on working capital. How should we look at working capital going forward over the next 2 or 3 years?

[Jasbir Singh, executive]

On our net working capital days, we've almost touched 29 days from 39 days. And I believe this is maintainable part from [ 35, 30 ] days.

[Operator]

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

[Pritesh Chheda, analyst]

No. My questions have been answered. Thank you.

[Operator]

The next question is from the line of Anupam Goswami from SUD Life.

[Anupam Goswami, analyst]

Congratulations [indiscernible]...

[Operator]

Anupam, your voice is breaking. We're unable to hear you clearly...

[Anupam Goswami, analyst]

Am I audible now?

[Operator]

Much better.

[Anupam Goswami, analyst]

My first question, on the outsourcing industry. You said how it was 41% 2 years back. And now with the PLI scheme, it has come down to almost 25% in this year. On that note -- and you -- also you mentioned about the industry size growing at 10% to 15%, so on that note: Our outsourced unit market share or industry, that is becoming flat. And how do we see to grow -- outgrow that for Amber?

[Jasbir Singh, executive]

See, I've -- let me give you a clear picture that we are a B2B player. So we have to move according -- we have to realign our strategies according to the strategies of our customers. Now in our business model, we have derisked 2 large risks. First risk is that brands keep on exchanging market shares between them. Earlier, from 2004 till 2011, LG was the undisputed leader. Then Voltas became the leader. Now we don't know who is going to be the leader in next couple of years. So our offering -- from that perspective, if we are supplying to all the major brands, that shift doesn't impact us. Second is their strategy of insourcing, outsourcing. That can shift anytime. That is we don't control, so whenever they want to shift their strategy to insourcing or outsourcing, we need to realign our strategy, so it is irrelevant today to look at the numbers of volume terms. From our perspective, from a B2B player perspective, it is important to see are we growing with that customer or not. If I have done 200 crores business last year, am I doing 300 crores business this year or not, in case he is growing? So that is what we look at. How does it matter to us? Whether I'm supplying 70% of the raw material or 100% of the raw materials in a finished good format, it doesn't matter to us. For us, the wallet share in the customer matters and the growth with them matters. That's what we focus on.

[Anupam Goswami, analyst]

Okay, so -- and how that has grown with the same customer bill of material growth.

[Jasbir Singh, executive]

Yes, it has grown. That's how we have increased our share from 26% to 29% [ in ] the whole industry range.

[Anupam Goswami, analyst]

Okay. Last question is how...

[Operator]

[ Mr. Goswami ], please join the queue...

[Anupam Goswami, analyst]

Sure, sure, sure.

[Operator]

The next question is from the line of Jayesh Shah from Ohm Portfolio Equi Research.

[Jayesh Shah, analyst]

I just have one basic question. When you have shifted your strategy from outsourcing to insourcing with components and assemblies, in terms of absolute ticket size per customer, I'm talking of, say, unit value, does it go up or go down?

[Jasbir Singh, executive]

It completely varies from customer to customer. If customer wants to supply -- they want us to supply sub-assemblies also, then it is almost on the same part because, earlier, they were supplying compressors. So that's the pass-through. Other than that, if we are supplying components in a separate bit, it becomes almost similar, but if customer chooses not to take all the kind of customers from -- components from us, they want to take a few of the components from us, then it will reduce. So it will vary from customer to customer.

[Jayesh Shah, analyst]

Understood. And what has been generally your experience with your customers?

[Jasbir Singh, executive]

Generally experienced. So I can give you example of one [ Korean ] customer, when they took their business in house. We were doing about 156 crore business with them while supplying ACs, but when they shifted their strategy to in house, today -- we are supplying them almost 600 crores business of components today. So it completely varies because it opens our door to many folds when we start supplying components. Not only in their room air conditioner division, but their other divisions also start buying components from us.

[Jayesh Shah, analyst]

That's helpful. So in another way, do you look at value-add per customers which come to you or accrue to you as margins? Is it going up every year? Is that how you look at [ your results ]?

[Jasbir Singh, executive]

That's how -- that's the main part which we look at. That one is are we growing in tandem with their growth. So if customer has grown by 20%, are we growing more than that? If I am supplying -- I was supplying 1 component to them and I am supplying 3 components to them today, my growth will be more than that with that same customer. And plus the value terms in the bottom line, what we were generating earlier and what we are generating today with that customer.

[Jayesh Shah, analyst]

Yes. So let's say your margin per customer, your top 10 customer. Has it remained constant, or has it changed?

[Jasbir Singh, executive]

No, it keeps on varying. It completely depends on the product mixes, what kind of product mix they are wanting us to supply them. So we need to be geared up to deliver them any kind of mix of components versus kits, versus finished goods whenever they want. So that's the strategy. And margins will keep on varying.

[Operator]

The next question is from the line of Keyur from ICICI Prudential Life Insurance.

[Keyur Pandya, analyst]

Congratulations to the team for great results. Sir, first question is on the RAC growth. You have mentioned that, RAC and components segment, company will outgrow the industry. Now when you talk about, say, 10% to 15% kind of growth for the industry and higher channel inventory -- so generally we have seen some kind of lag in our growth when inventory is high in the system, so what will drive our growth faster than the industry growth? And will that be back ended since inventory is high? Or it would be high in the first half. That is the first question.

[Jasbir Singh, executive]

So largely what we do is we keep on [ horizontally ] deploying our complete range of components with the customers. So for example, I am supplying customer A only motors and heat exchangers. Now this year, I have started -- heat exchangers, motors, I was already giving. We have started supplying them sheet metal and cross-flow fans, so my offering to them increases. Irrespective of their -- even if they don't grow, my business will grow with them. So that's what we are doing with almost every customer. That's why we are saying that we'll outnumber the industry.

[Keyur Pandya, analyst]

Okay, okay. So that commentary that is there in the presentation, also that relates to the entire consolidated business. Or I thought this is for stand-alone business where it mentions that we'll grow faster than the industry growth.

[Jasbir Singh, executive]

Yes, this is on a stand-alone basis.

[Keyur Pandya, analyst]

Okay, so basically even that also will be, say, driven by the components in the stand-alone business. Faster growth will be driven by components.

[Jasbir Singh, executive]

Yes. It can happen also -- in finished goods also. I mean for us it matters that, if for example customer A is growing by 20%, are we growing 25% with them or not. So that is what we need to see.

[Keyur Pandya, analyst]

But you are confident of outgrowing the industry.

[Jasbir Singh, executive]

Yes. Last year also, everybody was skeptical about Amber, that every customer of us has started their own factories. Who will procure materials from Amber? But we've proved everybody that the strategies of derisking is right and we've outnumbered the industry. Industry hasn't grown by 60%, but Amber has grown by 65%.

[Operator]

The next question is from the line of Pulkit Singhal from Dalmus Capital Management.

[Pulkit Singhal, analyst]

Congrats on a good set of numbers. My first question is on the motor division. Can you help us understand, what is the size of the industry? What kind of growth do you expect from the industry? And what is the kind of market share that you have within the space? How many competitors [ are there ]? And also, what is the contribution of the AC division within this, within motors?

[Jasbir Singh, executive]

[ As we've said ], we are competing with a Japanese company called Nidec. And then there's a European company -- American company called Regal Beloit, which was earlier the motors [indiscernible]. They compete with us. And of course, a large part of motors continue to be imported from China, so a large part of the competition is in -- from China, not from India, but on the overall size, I think, at 8.4 million numbers, we -- the motors we sell is close to about INR 1,000 per AC. So that is the market size we are talking of today. Of the complete -- out of that, almost 60% of motors are imported from China and other divisions.

[Pulkit Singhal, analyst]

So what kind of growth are you expecting there?

[Jasbir Singh, executive]

We are expecting close to about 30% to 35% growth in motor division largely because we are expanding our offerings not only in RAC but other part of heating, ventilation and air conditioning products. And also some bit of exports are opening [ our ] products.

[Operator]

The next question is from the line of Vinod Chari from BOB Capital.

[Vinod Chari, analyst]

I think my question has been answered. My question was similar to what was asked earlier in terms of your margin profile. I think, FY '18, you were at close to 9% margins in the AC and component business. And now we have gone down to 6%, so again the same thing. I mean, is it like a structural margin that we're looking at, at these levels?

[Jasbir Singh, executive]

Yes. So margins -- actually, percentages of margins, it doesn't matter to us. So it's better the absolute growth because we don't define what customer wants from us. We supply what they ask. So their sub-assemblies can increase. Their kits can increase. I mean, for example, if I am supplying finished goods, and in that, compressor and heat exchanger is getting supplied by customer, I can't demand a margin on that part of it, but my billing will be [indiscernible] close to [ complete it ]. But whereas in other cases, on the components side -- so what we see is the blended basis of the absolute number with the same customer.

[Vinod Chari, analyst]

Okay. Because I think your component has grown at almost 3x the rate at which the AC business has grown in the last 5 years. So is that contributing to a lower margin profile is what I wanted to understand.

[Jasbir Singh, executive]

No, no. It's basically sub-assemblies. It is components. It is also...

[Unknown Executive]

[indiscernible] electronics...

[Jasbir Singh, executive]

Electronics also. We have an electronics division which is at about 4.5% EBITDA level. So there are many factors which -- it's a diversified company today. So we have businesses ranging from 4.5% to 23% EBITDA levels.

[Vinod Chari, analyst]

And lastly, on working capital. How is your working capital ex Sidwal? And what is Sidwal's working capital?

[Jasbir Singh, executive]

Sidwal's working capital is actually -- it's at...

[Unknown Executive]

110 days...

[Jasbir Singh, executive]

110 net working capital days, but on a consol level it is 29 days.

[Vinod Chari, analyst]

Okay, yes. And [indiscernible] so what is the ex Sidwal ROCE that you have currently?

[Jasbir Singh, executive]

We haven't calculated that. We'll let you know, I think, separately.

[Operator]

Ladies and gentlemen, due to time constraints, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you. And over to you.

[Jasbir Singh, executive]

Thank you, everyone, for joining on the call. I hope we have been able to address most of your queries. For any further information, kindly get in touch with SGA, our investor relations advisers. And have a good day ahead. Thanks very much.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of Amber Enterprises India Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.