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Automotive Axles Ltd
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Ladies and gentlemen, good day and welcome to Automotive Axles Limited 2Q FY '25 post results earnings conference call hosted by Batlivala & Karani Securities India Private Limited.
[Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Sailesh Raja from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.
Yes. Thanks, Neha. Good afternoon, and thanks to everyone, who have logged in to Automotive Axles 2Q FY '25 earnings conference call. So let me introduce you the management participating with us in today's earnings call, we have with us Mr. Nagaraja, President and Whole-Time Director, Automotive Axles; Mr. Ranganathan S., CFO, Automotive Axles; and Mr. Kishan Kumar, GM, Meritor India.
I would now like to turn the call to Mr. Nagaraja for the opening remarks followed by Q&A. Sir, you may begin now.
Thank you, Sailesh, Am I audible?
Yes, sir.
Yes. Thank you. Good afternoon, everyone. I'm Nagaraja Gargeshwari, President and Whole-time Director of Automotive Axles Limited. I warmly welcome all of our investors and shareholders to this investor call, Q2 financial year '24 and '25. I hope you had a great Diwali along with your family and friends. On this call, this time also I have with me our CFO, Mr. S. Ranganathan, and welcome Ranga. We also have Mr. Kishan Udupi, who is the President and the Whole-Time Director of Meritor HVS India Private Limited.
As you are aware, last week, we concluded our board meeting and updated the Board on company's second quarter performance. A couple of highlights here, I would like to share with you. As you are aware, market still looks a little bit soft. And in spite of that, we were able to continue to execute on optimizing our operational cost and thereby achieving a very strong performance.
This will be discussed by Ranga later on. And also, as we mentioned in the previous quarter, we introduced our new Axle MS 185 to Ashok Leyland. And not only we started the SOP, but we are also able to ramp up the production very well. And from the investment perspective, we continue to upgrade our plans with new machines and automation.
With that, now I would request Kishan to give a market update, followed by financial results review by Ranga. Thanks again for calling in to this meeting. Over to you, Kishan.
Right. Thank you, Nagaraja. I hope I'm audible.
Yes.
Yes. So good afternoon, and welcome, again. So a quick update on the M&HCV market, 7.5 tonnes and above where we play a major role. Like Nagaraja mentioned, we continued seeing softening of market from Q1 into Q2 as well. Most of this was expected to some extent after the general elections and the monsoon.
And the recent few days have shown some uptick in the retail sales, which is a positive trend. Also, we have seen the OEMs being very moderate about their inventory and not carrying much, which means from starting now onwards, we should see Q3 as well as Q4 being much stronger like the last year.
Having said that, we also have been following, there is not much of a significant change or market share shift among the major OEMs that we serve. So in all likelihood, we should end up Q3 in and around 90,000 to 95,000, that is our current forecast. And Q4 will be like last year at a higher note, around 100-plus thousand. This will still be a bit compared to last year, about 5%, which is expected after we see -- in every time there is an election, and we see that infra spend and other things, about having a say on that. So that's a quick update on the market. And of course, we can take more questions during the question-and-answer session. And over to you, Ranganathan S. Thank you.
Yes, very good morning to all of you. I'm Ranganathan here. I'll just give a quick update on the financial performance for the quarter. So quarter-over-quarter, we have done -- just crossed over the INR 500 crores sales as compared to last quarter, the same -- last quarter -- last year's same quarter, sorry, is about -- we are 15% down in terms of overall revenue. Last quarter -- last year same quarter, we did about INR 588 crores.
And EBITDA, by and large, you look at it, we are at 11.4% versus 11.9%. Though the drop of sale is about 15%. The drop in the EBITDA is lower. However, it's not as low as a drop in the sale. That's mainly due to the better operating performance and metal cost performance during this quarter.
And PBT stands at 9.7% compared to 10.3% same quarter last year. And [indiscernible] the first 6 months performance is concerned, we are close to about INR 1,000 crores sales for the first 6 months compared to INR 1,122 crores, the first 6 months of last year, is about 11% down. And EBITDA at about 11.6% for the first 6 months as compared to 11.2% last year.
Overall, if you really look at it, the PBT is 9.7% first 6 months against 10.3% the last year, the first 6 months. Largely, if you see the impact on the EBITDA largely because of the fixed cost under absorption more than anything else. The operating performance for the first -- this quarter and overall for the first 6 months, is comparatively believe much better as compared to the last year.
So it's the larger update on financial performance. Is there are any questions, we can take it up during the question and answer. Thank you.
[Operator Instructions]
The first question is from the line of Sunil Kothari from Unique PMS.
As Mr. Nagaraja is here on the call and Mr. -- our whole-Time director from Meritor HVS is also here. I would like to understand, sir, from you being a long-term investor of Automotive Axles, the thought process and strategic thinking about the Automotive, this American Axle India's CV business axles sales, which has been done and bought over by Bharat Forge Have we considered those act or not? And strategically, what was the reason or what are the reasons we should not go behind those type of deals? That will be really helpful if you can little elaborate on this.
Nagaraja, do you take it or I take it?
You take it Ranga.
By and large, we did not participate on the bid because the bid was not offered to us at the beginning. So at this moment of time, we don't have much details about that except other than what is available in the public. So time being, we are not commenting on this takeover until we get some more details on this. So at this moment of time, that's the only answer we have, sir.
Because, sir, that company has grown just during this 2 years, almost by 50%, where almost any auto component industry, including us, they're not able to grow. They've grown that particular business from INR 900 crores to INR 1,400 crores business. And -- so that's why, and you being an industry, I'm sure you'll be looking out for -- I'm listening and following you since last 4, 5 years, we are trying very hard to get Tata for extended business. But why we missed -- I would like to convey that we missed this opportunity. But yes, it's your thought process and your strategy -- yes.
Yes. I give my view, and as I mentioned that I don't have much details about this takeover, what the considerations been considered to bid and take this offer because we don't know the details. But by and large, we are -- as we say that we have been talking about -- last about 6, 7 years. Our focus is basically on medium and heavy commercial vehicles. We'll continue to focus on it. The industry, what we are serving, and we are definitely -- we are the leaders, and we are the largest independent axle manufacturers in India.
We continue to hold the position for the segment what we serve. And we don't have the details of the American Axle, what are the details? You may, hey, bits and pieces, we know the information, but it's not really appropriate to comment on it. But that's the reason I said that initially that without having much details, we don't want to comment at this moment of time. So as we get along the more detailed information, we can able to see that what -- it might be what is not making value to somebody, it may be making value to somebody else. So at this moment of time, again. Kishan and Nagaraja can add value there.
The industry, what we are focusing, we continue to focus on it. We continue to focus on new product development. We'll continue to excite the customers with our new products and our performance. And definitely, for an outsider, it may be a value add, but I'm not sure about -- we -- as we said that we since did not participate in the bidding, we have no details about the takeover and other information at this moment of time. But definitely, we will be the largest axle manufacturers as we see it, and we'll continue to be leaders in the coming days, too. I don't think we're going to do less or more -- definitely, we'll do more, but not less, and we'll continue to maintain our leadership.
Okay. Just last question or maybe some observation is, this company has been taken over by our -- one of the major partner promoter, Bharat Forge. So no information available, no detail available. I think this will create a little bit issue on the corporate governance side also. So I will request you to just give a thought on the point that when our majority partner is taking over this entity, will it not be wrong on somebody's side that it will create a competitive intensity, maybe more. They are a part of the Automotive Axles Group and now they are taking it over. So will it enhanced competition, will it affect our capability with the customer? So I think whenever something happens in the industry where there are only 2, 3 players are there, I think normally, management are aware about everything. They are aware about your competitive capability and your products and customers.
And I'm sure you must have been in this industry since long, so you must be aware about their positioning. I'm really surprised by this known awareness of the deal and capabilities and products and all these things, really, it is surprising for me. I would like to -- Mr. Nagaraja wants to comment on this will be really helpful.
Just a couple of things here is, again, obviously, we are not part of the bidding for this company, like what Ranga mentioned. We don't have all the details. There is just an announcement has come, but this transaction is not complete. It goes through all the legal proceedings, including anti-competition and everything. So that's why we said that it is probably premature at this point of time to make any comments on this. Once we have all the details, probably we'll be able to answer your questions.
[Operator Instructions]
The next question is from the line of Sagar Parekh from One Up Financial Consultant Private Limited.
I actually just mirror Mr. Kothari's thoughts here that Bharat Forge,, being a partner with us and they're acquiring this company on their own. I mean, I just want to understand the thought process and what are your thoughts on this going forward? And yes, I just mirror his thoughts basically. That's all I wanted to understand from you.
Sir, I fully respect your views here as an outsider as Nagaraja said, we don't have much details about the takeover. So we only have this announcement what you had this year. Whatever you heard, we also heard. Individually, we may have our opinion and feedbacks about this, but officially, before we need to comment -- we need to have some proper information before we're commenting on it. .
So at this moment of time, it's only an announcement made by Bharat Forge. So once probably all approvals are done and we get to know more details. Probably, we can able to give answers to some of your questions. At this moment of time, with limited information, we don't want to do guess and do something wrong. And so we're consciously saying that we don't have full information, and we are not able to comment on. That's only limitation we are trying to put forward to you. I hope you will understand it.
Yes. But just any...
Just to add to what Ranga mentioned, see, we have 2 equal promoters or partners. One is BFL, another one is Cummins, okay? Cummins is also in automotive. So as far as the governance is concerned, you can be very, very sure of that everything will be done as per the legal requirement. Again, I want to reiterate it, this is just an announcement has come. It is not the transaction is not complete. Until we have all the details, it is going to be premature for us and also not right on our part to make some assumption and make speculation regarding this particular takeover.
So just one color, like since it's an unlisted entity, how -- so we are largely present in the 7 tonnes or 7.5 tonnes and above segment. How big would that segment be for American Axle? Because I understand they would also be on the LCV side. So any sort of color on their business breakup broadly would also help us.
Yes. Unfortunately, we don't have -- because the only thing what we know is that their major customer is Daimler. That is the one thing which is available in the public, but otherwise, we don't know some of our competitors. We know what is our share of it. We will not be able to know our competitors' share of business, because there are captive axles are there and then also people are supplying like we also have Dana and then we also have Tata [indiscernible], they are doing their own axles. So it's a little bit challenging for us to know what their share of business would be.
What would be our share of business in Ashok Leyland?
Kishan, you can answer that.
Yes, sure. So our current share is around 63% to 65% depending on the product mix. .
60% to 65%.
Yes, 60% to 65%. Typically, that is where we range. And with the new products that we are planning to launch in a couple of months, we should be 65% plus. That is what we are aiming for.
So this new product launch that is this MS 180 is what you're seeing or something else?
185 and bus axle, which is coming up early next year and then also 177, which we are planning. So with all that, it will be a north of 65%.
Sorry, 177, 185 and the third one you said is?
The bus axle, which we have talked during the last investor call as well that there is a bus axle that we are working on, which is expected to launch sometime mid of next year.
Okay. That's it from my side. And looking forward actually to hear more on this American Axle deal maybe in the next -- or once you have more details, that would be really helpful.
Sure.
[Operator Instructions]
The next question is from the line of Natraj Sankar from DSP Mutual Fund.
Just wanted to understand on the bus business plan over the next 2 to 3 years. We had spoken in detail about in the last quarter. So I just wanted to understand in terms of time lines, when it will start and what is the plan over the next 2 to 3 years? And I had a similar question. I guess, you answered it, what percentage of the business between American Axles and Automotive Axles, is there overlap? But I guess you clarify that you don't have that information, but at some point in time, that will be helpful. But if you could just answer the bus part, that will be great.
Yes. The line was not very clear, but what I heard is the business plan for the next 3 years. Is that right? .
No, no. He is asking for the bus axle, when it gets launched and what is the outlook for the next 2 to 3 years' time for the bus axles?
Okay. Okay. Got it. So thanks, Ranga. So in the bus space, we have different categories of buses, 9-meter, 12-meter and then the 13.5 and 15-meter coaches. Today where we are present is only in the 12 meters. So we have our flagship product, [ 14, 97 and 59 ], which we supply to Ashok Leyland, 100%. Now where we are not present is where Dana, our other competition is actually supplying. So that is the 9 meters bus. So our new product that we are launching sometime in second quarter of next year and also the 177, which is in a very early phase of discussion for 13.5 and 15 meter coach. We see that the deficit of bus, which had after the COVID, is now taking up.
So these 9-meter and 12-meter will be more and more in the SKUs and also in the public sector. So we see with that, our overall impact due to the product mix, which we see otherwise, like this year and the previous year, that will come down because we'll be able to play where that 2%, 3% will otherwise make an impact. So in terms of overall market or the penetration into Ashok Leyland, we will probably be 2, 3 plus percent more than what we are today because of these 2 products introduction. Otherwise, the market itself is pretty small in India for the coaches. When I say coaches, it is a 13, 13.5 meters. Typically, we see Volvo, where anyway, it is our product imported from Europe. So the domestic players are now getting into this segment.
Okay. And on the -- just on that 65% market share in Ashok Leyland that you have, keeping aside the captive part of the axle sourcing from internally [indiscernible] Ashok and Tata Motors. Will American Axle be another competitor for us at all or...
I'm sure you had access to their -- I think somebody had a comment on this in the beginning, how they have grown. And I'm not seeing the reports in particular. But as we understand, their major share of business comes from Daimler, which is a contract manufacturing and which is 100% only for Daimler. So other than that, we are not aware of any other product, which they will be competing with us. And we have a full range of products that we have a pipeline of introduction.
Understood. And lastly, just a bookkeeping question. Can you just guide us to over the next 2 to 3 year CapEx?
Could please repeat that?
No. Over the next 2 to 3 years, can you just guide us through the CapEx plan?
Yes. As you are aware, last time itself, we mentioned that apart from our typical sustenance CapEx, the Board has approved about INR 70 crores. Once we completed that part of the investment probably by end of next calendar year, so then we'll be going for Phase 2 and Phase 3. Again, we are kind of looking at like what Kishan mentioned. This year and next year, we are kind of looking at a flat market. So we would like to make sure that we time the investment properly. Our expectation is, we should be investing close to about INR 200 crores in the next 2 to 3 years' time.
[Operator Instructions]
The next question is from the line of Rahil Shah from Crown Capital.
Can you hear me? Sir, will you be able to guide in terms of top line and EBITDA margins for FY '25 and if possible, for the next year as well? And some of the key developments the company is working on, which will drive growth for us in the coming years?
See, this is likely as Kishan was talking in the beginning in the market for this year looks to be flat, okay? And there may be, at this moment of time, the forecast, what we have is next 2 quarters, the volume should be the similar lines of the first year -- first half year. But could be possible that 5% to 10% upside can be quite possible. It purely depends on 2 things and how the market and how the inventory at the OEMs. So we are expecting another 10% more than the first -- first half year in the second half.
We had to wait and watch. And overall market, if you look at it, this continued to be just [indiscernible] below 400,000 vehicle level, with 395,000 around that level. It is there. So it's lower than the last year. But we have to wait and watch. So if you see our performance on the EBITDA is concerned, we are really very -- our EBITDA performance is quite consistent with the respective volume what we generate. I really see the operating level margin has substantially improved compared to last year, mainly on our focus -- continued focus last 6 years and the metal cost performance is yielding the benefit. Only what we are little suffocating at this moment of time is basically the fixed cost absorption.
So as I said that we continue -- the market is the same level, you can see the same level of performance of EBITDA in the next 6 months. If the market improves, as we are expecting an additional 10% to 12%, the second half of the year, our EBITDA improvement will be much, much higher than that. So definitely, that absorption benefit will come into the picture. So that will definitely make us a little better EBITDA as compared to what we achieved in the first 6 months. So that's all I would like to present the case. So in the -- even in the moderate performance, we are upholding our operating performance at the highest level. As Nagaraja was talking about the investments, the investments is basically meant to automate and debottleneck the issues in the production and on towards the -- suit the investment to the new products and so on and so forth.
So basically, the manufacturing automation is the main focus, which is resulting in an operating efficiency and will continue to improve the operating performance. As the market grows, we will able to get much better benefits in the overall EBITDA.
So what was our volume in H1?
H1, I just said in the beginning of the call that we did about close to INR 1,000 crores. And so we are expecting the similar volumes, I said that could be an upside, but plus 10% more, that could be possible. That depends on, again, how the market and the inventory what the OEM has.
Okay. So the next 2 quarters, you expect it to be flat. But what about FY '26, do you see recovery then?
We are expecting conservatively a flat, but always 10% upside is quite possible, that we have to wait and watch.
[Operator Instructions]
The next question is from the line of Radha.
Sir, my first question was that in this quarter, if you see overall MHCV goods carrier volume. So the industry volume fell by 13%. And a similar number for our key customer Ashok Leyland it fell by 22%. And adjusting for -- if you adjust the sales number that we have reported in second quarter with the lower raw material costs like you have mentioned in your opening remarks, then estimated volumes for Automotive Axles have fallen only by 12%. So which is lower compared to the fall in the industry or the fall that we are seeing in Ashok Leyland. So just wanted to know what led to this outperformance compared to the industry and also with respect to Ashok Leyland.
Maybe I'll give a little bit of overall what I know, then probably I'll leave it to Kishan about giving more details what he best know from a customer perspective. See, overall, if we look at it, Madam Ashok Leyland is into LCVs, MHCV in all segments they have. So with the overall performance, basically, if you look at it, I'm not sure I've not looked at the data, but if you look to all composite, you may be saying it.
And second is about -- this quarter, we had some better benefits coming from sales to aftermarket, which was probably the last quarter's backlog and we completed this quarter. And also some upside on the brake side for...
Sir, is this aftermarket thing a one-off in this quarter? And -- or do we plan to see an increase in aftermarket?
That's a backlog of last quarter, which probably we completed this quarter.
Sir, out of overall sales on an yearly basis, what percentage of sales is from aftermarket?
Generally, we don't share the percentage, but it's close to double digits.
Okay, sir. Sir, second question is regarding March 2022. So we had announced a Mission 2025. So in that 4 key growth levers were discussed, one was exports. So just wanted to know from the export perspective, currently, how much is export? And how is -- how has that increased compared to FY '22 level?
About the FY '22?
Yes, sir.
I need to really see what FY '22 -- are you talking about '21-'22 or '22-'23?
'21-'22.
Okay. I need to really check the data, but I don't have readily -- unable to comment on '21-'22 to current. But nevertheless, compared to '21-'22 definitely, our export performance would have definitely gone much better as of now is because that's definitely it's my gut at the moment of time. But exactly the quantification, I don't have it before me to comment on it.
And secondly, on the export segment, again, as I mentioned, that we don't do the segmentation, but you can take it if it's also close to the double digit, that is also. And definitely, as I mentioned that the marginal increase in exports and good increase the backlog of orders of aftermarket of last quarter definitely has benefited us this quarter.
Sir, exports 3 years back also we had 2 customers. One, if you see them, one is Meritor Group and second was the Volvo's Thailand. so apart from this in the last 3 years, have we added any customers and if not, then when do you expect to add new customers in the export market?
Kishan, would you be able to take it?
Yes, sure. So when we talk about export, it is also the intracompany export that we do. So what Ranga touched on, what you mentioned is the OEMs that we export. And regionally, the regional business units will be the end of sale point. That is how it will be, except for the 2 cases where we do it directly. And going forward also, our focus is the intracompany export, where all the new investment that we are doing to bring the systems to the upgraded version and also all the business that we are working with other regions like Europe and North America. That is all intracompany.
And your question earlier on the growth, I just pulled out some number, which may not be very accurate, but we have grown about 25% compared to '21, '22 to the current year. And all the new products also, what we are now working on, we are bringing them to the global standard. For example, 177, 185, we are -- these are global products, which are already manufactured somewhere else. So now introducing them in India gives us that advantage to also export to our intracompany elsewhere in the world.
Okay, sir. So why aren't we also focusing on -- Yes, sir? I wanted to understand, why aren't you also focusing on adding new customers in the export market?
Because the products are very unique in those regions. So what we are talking about is only [drive here]. But rest of the architecture is very unique for India. Just like, for example, in Europe, it is all cast housing. And in India, we don't have cast housing other than the heavy-duty hub reduction. So the uniqueness of the end product that goes into the OEM vehicle requires a different way of architecture, which is regional business units. So what we can supply from here is only the [driveline], which is our primary focus and the component.
Understood. So coming -- continuing with this question of the Mission '25. So second key target of the Mission was that we will be entering into LCV and the segment. So presently, as per our previous conversations, we are not present in the LCV segment, and bus also, just in one product we have mentioned, we have -- we are present. So sir, wanted to understand that this vision was set a few years back, but still we are not very largely present in these segments. So why has this taken so long to scale up? And how do you see it pan out from here on?
Kishan?
Yes. I missed that. I heard LCV, but I was not sure whether if you were talking about LCV?
Yes, sir, the LCV segment, in our Mission 2025 that we have stated 3 years back, where one of the key growth drivers was also entry into LCV and bus segment. However, we have not entered into the segment significantly. So just wanted to understand why has it taken so long to scale up this business? And how do you see it pan out from here on?
Right. So when we talk about LCV, we are still talking about the 7.5 tonne and above. We have had no intentions to go below that. So all our axles that look, the smallest axle that we have is also in the 7.5 tonne GVW, which we have a good, I would say, share of business with Mahindra and Ashok Leyland. Beyond that, we do not have any plan to go below the 7.5 tonne and neither we had in the past.
Now coming to the bus, as I explained earlier, there are clear path. And we -- our core competency is actually in the 7.5 tonne and above. There is no need for us globally also to look below that, which is totally a different ball game altogether. And we have been never in that game. So for that, those 2 reasons, our focus will be the 7, 7.5 tonne core where we already have products in production. The volumes are slightly lower compared to the lower end. But then the bus is where we are riding for and also the IC. So the new brake that we launched, the 394, that is a very sweet spot in the ICV segment, which we were not present in the earlier. So our focus has been always this 7.5 tonne and above and to be strengthening our product in the ICV segment, and that is what we have been working in the last 2, 3 years.
Sir, my question was in the...
Yes. Just add to what Kishan mentioned. If I understand your question is why it is taking so much of time. Again, in the last 3 years, when the BS-VI when we moved from BS-IV to BS-VI, we had to really upgrade all our current products. That's why we did mention in our previous investor calls, we have probably launched about 4 to 5 new products in the high-volume segment, especially on M and HCV segment, which is really helping us to meet and keep our share of business with all the critical supplier.
So bus axle was a little bit reprioritized, I would say. And that's why now that we have done with all our major high-volume products, the focus is coming on the bus axle. So we didn't slack off. Only thing is we kind of reprioritized in last 3 years based on the market conditions and the statutory and the legal requirements. Did it answer the question?
So my question was in the -- yes, sir. Just a bit more clarification. Sir, my question was in 7.5 to 14 tonne category only. So previously, we were in focusing more on greater than 16-tonne category. And then we had mentioned that we will enter in this 7 to 15 tonne category also. So my question was that in this category specifically that we have not significantly scaled up in this segment. So -- and you also mentioned something about Mahindra share of business. I just request you to repeat that. I have missed that part. So why has it taken time in this segment?
So maybe, Kishan, I will just add a couple of comments and then maybe you can further explain. So we do have 3 products in the 7 to 14-tonne segment. like what Kishan mentioned, our smallest axle now, which we supply to Ashok Leyland and that has grown in volumes in the -- over the last 3 years.
Apart from that, we also have 11x product and also the 120 product. So it is not that we don't have the products there. And some of these products have been kind of launched in or upgraded in last 3 to 5 years. So again, that particular volume is a bit a challenging one, and the volumes are also kind of probably Kishan can comment on that. So whatever the possible share of business, we have got the share of business there and also penetrating into some of the new products, which Mahindra has introduced, we are on that. And also some of these products are all being exported by the OEMs out of India. So we do in a way, indirectly, we are exporting some of these products.
Yes. Radha, just to add to that, there is also a significant shift in the market. Now as you see, the higher tonnage vehicles and the high value that our axles provide. That has also been the shift in the market. So we are aligning our strategy along with that, like all the new products that we are launching is in the heavy-duty, medium heavy-duty segment, which is where we are seeing the volumes.
The 8x2s, 10x2s, even the 4x2 tractor where the actual -- probably the 185, the largest axle we have in India, and that is the value we're bringing. And that is also where we can realize more penetration. Like, for example, Ashok Leyland, Mahindra, these are all the non-captive OEMs, where we are almost present 98%, 100% in these new segments, what we are launching.
All right, sir. My question, I'll continue with the second question, which will be continuing of this question only. So broadly, if we take the industry MHCV would carry numbers for first half FY '25. So the average monthly production has fallen in the 25 to 34 tonne and 46 to 55 tonne vehicles in 1H FY '25, if you compare that number to FY '24. And where we see the production increasing is the 16 to 25 tonnes and 25 to 49 tonnes. So hence, my question was in light to this that if the industry is shifting more towards lower tonnage vehicle, then have we been slower in launching products in these segments? And if you could just highlight what is our wallet share in the segment, 16 to 25, 25 to 49, where we are seeing higher production currently by the industry?
Your line was not very clear, but I understood you were saying 15 to 18 tonne is where the highest volume is sitting as per you from the production data. And then you mentioned some of the numbers, 49 tonne is what I heard. And that is probably what I was saying earlier. So the shift is very clearly -- and you are probably looking at only the last 1, 2, 3 quarters. But what we are seeing is the high tonnage, the 43 tonnes and above, that will be the one where the highest number of vehicles will be sold, including the tractor trailers.
And coming to the 15 to 18, we already have 3 products in that space, which is in production for a long time. And they are catering to most of the applications that we currently do with any of the OEMs.
So sir, basically wanted to understand if EV market falls, let's say, for example 20%, how much fall can we expect for Automotive Axles? Can we limit the downside to 10% for us as compared to 20% for the industry?
Nagaraj, I'm...
That's a very, very tough question. But what we have done over the years, I think you probably can witness that is when the market is growing at a certain x percentage, we have always grown more than that. That is by expanding our product portfolio, increase in the share of business with our existing customers. And also, we are being present in all some of the new EV OEMs or start-ups that are coming in.
And our export business in the last 3 years, it has grown. Of course, this year, all the European and North America markets are little bit soft. That's why we are kind of a flat. But that is the area we are kind of looking at. How do we continue to be competitive with some of the export opportunities to our own intracompany, so that we can limit the -- this cyclical effect of the market volumes impact both on our top line and bottom line.
And as we have demonstrated, in spite of our top line decrease, we still be able to hold on to our EBITDA margins. So we continue to work on that. Our expectation is as we invest more into our manufacturing plant and then launch some of these critical axles like bus axles, we should be able to minimize the impact. I cannot tell you whether it's going to be less than 10% or more than 10%, but we will try to make it as minimum as possible in spite of adverse market conditions.
So can we say it in this way that now we have a lot of growth levers, like aftermarket that you mentioned, why we have outperformed in this quarter. Aftermarket, exports, new products, new segments, so is it a fair understanding that if there is CV down cycle then our performance will be much better compared to the historical performance in a down cycle?
We will be definitely try our level best to be better than our peers. But again, it's very difficult to kind of dimension it because there are different product segment and different OE shares, how it gets affected. But like I said, spreading our product portfolio and then share of business with all these opportunities, exports, aftermarket and also new potential OEs, we will be minimizing it. And I think we have demonstrated time and again in our last several years, we always kind of outperformed our peers. So we'll continue to do that.
[Operator Instructions]
The next question is from the line of Ankur Shah from [Electrum BMS].
Sir, could you guide us just a ballpark number, what kind of revenue growth we're seeing in the next 3 years, this [ industry growth ] and sustainable EBITDA margins going ahead?
So I just -- generally, we don't paint a picture of the EBITDA, but definitely, you see the track today, you really see the highest volume we done in terms of number of vehicles is about '18,'19. Today, if you really look at it, we are much, much lower than -- in the next 12 months forecast, the market has continued to be at 400,000 vehicle level. So we don't expect much of growth in the next year or 2.
And beyond that, we are expecting the market might grow, but we have to wait and watch. As we said, that as the market grows, we will -- our growth will be better than the market for sure. On EBITDA, if the market touches the volume, of '18,'19, which is unlikely to my opinion, because the configuration of the vehicle, the market segment has completely changed in the sense that the type of vehicle what we have in '18, '19, which is currently happening is quite different.
But nevertheless, if there's an overall improvement in terms of the vehicle level, definitely, we -- our growth will be better than the market, point number one. Definitely, our operating performance, if you look at it '18, '19 to current is about we are much, much in a better position with a new improvements what we have done in the shop floor and our overall operating performance is much higher. And definitely, we can -- if the market grows, we can expect as a growth, we'll definitely leverage benefit will come hugely. Our profitability already is growing year-on-year. But overall, if you look at the next 3 years outlook, Kishan can say that, but overall more or less, even if it touches 450,000 vehicle levels, I think our EBITDA will be at least 20% better than or 25% better than what we are doing.
[Operator Instructions]
The next question is from line of Muskan Rastogi, an individual investor.
Sir, in the previous con call, you have mentioned that brakes are at around 10% to 15% of overall volumes for the company. And the company has launched 2 new models in brakes as well as we see more opportunity in the exports market. So in the light of this, please tell us where do you see 10%, 15% numbers in the next 3 years? And do you plan to increase the break mix to 20% plus?
Kishan, would you like to take it?
Yes. So the first part of the question was on the growth, what you're talking about. And like you, I think -- can you hear me?
Yes. It breaks...
Yes, yes, I can.
Yes. So if you -- I think in the previous call, we talked about Mission '25 or Mission '28. So similarly, that is for the operation. We also have a product road map, our technology road map for the products. And in the brakes, with the launch of 394, we are already seeing the market which was not available to us earlier. We are seeing that we can -- it easily increased our market share in the brakes by 2% to 3%. So our ambition is to come closer to 35%, 38% as the overall market share in the segment where we play -- which is the medium and heavy duty.
There are a few more brakes that we are looking at more specifically for EV, where today, if you see EV is still in the bus space, right? It is still growing in the buses. And the brakes that we are supplying is a regular brake. But there are opportunities to make modification or improvement in that segment that we are already working globally as well as in India. So with that also in the place for the next 3 to 5 years, then bus market -- the Electric bus market grows. We believe we can take our overall market share in brakes to about 35% - 35% to 40% even.
Okay, sir. Sir, my next question is in the last 3, 4 years, we have been able to grow market share in brakes from 30% to 35% to 40% now. Can you please talk about the challenges we faced in terms of getting new business? And how do we address them? And what gives us the confidence to take this to 50% in coming years?
Sure. I can probably tell you that the only other competition for us in India is Brakes India,and they are a brakes company. But we are as a full product solution provider. So brakes, while we are only talking about drum brakes. In the drum brakes space on the M&HCV side, we have already segmented them to cater to almost all the applications where Brakes India is present. Now always the challenge probably for Brakes India as well is the friction is always controlled by the wheel here, which means our applicating of the product is a little bit limited. It is not -- in other words it is not our stand-alone recommendation, but it is always jointly with OEM. And OEMs always have a dual policy. They always have a dual policy when it comes to any product and specifically brakes because there are 2 players here.
What differentiation we can bring is our global knowledge, like I gave an example of brakes specifically for EV. So they have done a lot of data gathering globally where we understand the EVs operate differently because of the architecture and the regenerative capabilities of the motor. So now we are mapping that back brake and making them more optimized, which means that within the operating space within the M&HCV and the bus space, we can bring up more efficient and more value-adding products, which I wouldn't say Brakes India will not be able to do it, but because we have this global connect, maybe our opportunities there are better. Challenge is always that the highest contributor to the BOM cost is the friction. So that is always in India with the OEM. So that will always be a limiting factor for us.
Okay, sir. Sir, Could you please talk about business opportunity in differential gears? And currently, where are Mahindra and Tata sourcing the gears, housing from?
Nagaraja, do you want to take that?
Yes. I think again, I do not understand what you mean by differential gears. Most of the differential gears, if you are talking about side gears and the disc pinion, which are all the smaller gears. Usually, it is always outsourced with precision forging companies. So I think they should be getting from the same supplier as I was. But as far as if you're talking about crown Wheel and pinion, we always -- most of the people they buy this crown wheel and pinion. They don't buy it. We do at least from the Automotive Axles perspective, we manufacture it announced in-house because that's where our IP is. That's where we can -- we do the value addition. So I believe our competitors are also most of them, they probably do in-house.
Okay, sir. That was helpful. Sir, in terms of ROCE, what is the delta between ROCE from axle business versus brakes? And what is the CapEx cost per unit for Axle and brake if someone is creating a fresh capacity?
That's -- the last one is very difficult because it depends on what kind of technology you're going to bring in. And definitely, it will be very, very expensive. I would say that because it requires quite a bit of CapEx, and that's also act as a high entry barrier for the new entrants.
Which -- our technology. I mean like from our technology, what would be the CapEx cost per unit for axle and brake?
Probably maybe Ranga, you should talk about it because I think we have invested over the 40 years. So it is -- we don't have one single ballpark number to say what should be the CapEx. So I think probably that's where I would stop. Like I say, just upgrading and then doing an automation in next 3 to 5 years, that's what we are telling that we are just investing INR 200 crores just for upgrading our existing lines.
Between axles and brakes, the majority of investment happens in axles for sure. And definitely, we are also focusing on -- in terms of automating the process, debottlenecking some of the areas as far as brakes too. But if you see majority of investment is on axles only. And if you see, it is a very complementary product both. We're consciously...
How much would it be?
No, we don't give a split. But you can say, I tell you about major investments in the whatever the CapEx, which Nagaraj indicated earlier in the call, we have assistance and also we have -- board has approved INR 70-plus crores to invest in overall basis. Majority, I'll say that would be in the axles business, axle clients, manufacturing clients that requires more automation and all this.
So our focus at this moment of time is on that. Definitely, we have investment quality improvement systems, productivity improvements in brakes, brake lines also to make sure that we sustain the capacity -- what 100,000-plus to cater down the market improves in the future. So as I said, we don't exactly -- I don't have a split to tell you how much it is. But nevertheless, I'll say that the majority is on axles.
Okay. Sir, in terms of ROCE, what is the delta between -- from axles and brakes business?
No, that's more internal, sorry, not able to share. But overall basis, we really see that our ROCE is at around 21%. As the volume grows, we can able to overall ROCE can improve much beyond '24 or '25. So we are just waiting for the volumes. But as I said, axles has more engineering content and the value additions compared to the brakes. Obviously, the margin goes with the same flow. So we see as an overall business together and see that it will be sustained in the market, both are very complementing product to the customer. So that's how we look at business here.
Okay. Sir, one last question. Overall, what is the expectation of the MHCV industry growth or degrowth in FY '25 and FY '26? And when do you expect the recovery?
Kishan, can you take it?
Yes. So there are mixed reaction to this. Some people believe this is not a degrowth. This is probably shift in the overall market dynamics. More closer to the Western world. So the idea here is, there is a very clear trend that the engine HPs are moving. The horsepower of the engine vehicle is moving from the lower 200 and the mid 250. 250 range, now we are seeing 300, 350 and with higher power engines, the goods carrying capacity, the tonnage is also increasing.
So I think the good comparison everybody can do is the 2018 volume of 476,000, which was about 8.6 [million metric tonnes] is now catered with 390, 380 market, which means the overall tonnage is now stabilized. We know where we are. Now in the next 2 to 3 years, what is expected is with all the growth corridors and the natural economy that is growing, the GDP, along with that, we can expect around 15% to 20% growth in the next 3 to 4 years. And for that, again, what will play a major role is, how this high-power engines and effective segments will have the mix in the overall volume. So that's how we are also thinking. That's how our entire thought process in terms of product launch is also aligned with that.
Ladies and gentlemen, we'll take this as a last question. I now hand the conference over to Mr. Sailesh Raja for closing comments. .
Thank you all for attending the session. Nagaraja sir, would you like to make closing comments?
Yes. Once again, thank you very much for calling into this investor call. Really appreciate. I do understand that there were some questions we could not properly answer to your satisfaction, especially related to this acquisition announced by BFL. But as we mentioned that with whatever the information we have, we cannot make any speculation or make any premature comments on that. So we'll wait how it turns out because this transaction is not over yet.
On the other hand, from the performance perspective, like we mentioned, we are committed. We are always growing better than the market. And then we have always been very prudent when it comes to operational cost, especially in the last quarter, so last few quarters -- we -- earlier, we used to invest heavily on the product development. Now we have also started investing and upgrading our operations and the manufacturing capabilities.
So with that, we are very sure and very confident the entire management to meet the growing challenges and demand from the OEs shift in the product lines and also maximize the opportunities that is available in both our aftermarket and exports.
So with that, again, I would like to thank Ranga and Kishan and also B&K, Sailesh, thank you very much. And have a great evening.
Thank you, sir.
Thank you all.
Thank you.
Thank you.
Thank you. on behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.