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Automotive Axles Ltd
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Ladies and gentlemen, good day, and welcome to Automotive Axles Limited Q3 FY '23 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. Thank you, and over to you, sir.
Yes, thanks, Nirav. Good afternoon, and thanks to everyone who has logged into Automotive Axles' Q3 FY '23 Earnings Conference Call. Today, we have senior management team of the company. We'll be hearing from Mr. Muthukumar N., President and CEO, Meritor HVS India Limited; Mr. Nagaraja, President and Whole-Time Director Automotive Axles and Mr. Ranganathan, CFO, Automotive Axles Limited.
I would now like to turn the call to Mr. Muthukumar for the opening remarks, followed by Q&A. Sir, over to you.
Thank you, Sailesh. Good afternoon, ladies and gentlemen. Thanks for taking time to join our investor calls, and we really appreciate your interest in our company. We have spoken to you about exactly a year before on 22nd February of 2022, we have announced Cummins acquired Meritor globally. And also, in the month of September, we announced that the integration is complete in the month of August -- 3rd of August, '22, and we said the integration process is on. It's almost 180 days from the integration is over, almost 360 days from the date of announcement. The integration process is going very well, and both Jennifer Rumsey, the Cummins President and CEO; and Mr. Kalyani, Chairman of Bharat Forge Limited and also Chairman of Automotive Axles, have found that this coming together is going to work very good for the organization and going to the right trajectory.
With the Destination Zero, which is working by Cummins and also, Meritor in terms of providing innovative products and solutions to the customers, this is a great coming together, which can provide an excellent solution to the customer and thereby, grow the organization in India. So as far as India is concerned, the acquisition legal process between Cummins India and Automotive Axles JV is on the process and the legal clearances are under the way. It's not yet clear. So at this point of time, when the global acquisition is done and moving on the processes, in India, the legal process of coalition is still underway.
Over the next slide. When compared to last year, where we have ended up with INR 1,494 crores for the full year of FY '21-'22 and the snapshot of Q3 QC as on date in this year, we have already crossed last year turnover, and we are at about INR 1,634 crores. And you can see that the last quarter is still on there, and we'll be able to move. I'm sure that Ranga will share with you subsequently on the growth of EBITDA and growth of PBT and the management team and also the people have done a remarkable job in terms of ensuring that we give better value to all the shareholders.
We continue to work with 4 manufacturing sites at Mysore, at Jamshedpur, Pant Nagar and [indiscernible] and all sites are in full operation to take care of the customer needs. There is no change in the customers, our equity share between the partners, Meritor Incorporated Global, or Cummins Incorporated Global at 37.5%, Kalyani Group of [indiscernible] and the public is 29%. We continue to work with about 2,000 plus employees to the company, and our customers include all major CVs, specialty, defense OEMs and project [indiscernible] too. We continue to run with the products of axle, brakes and to most of your [indiscernible] suspension, whenever system that we introduced, and we are linking on supply of suspension [indiscernible] into the market. So we continue to be a #1 position in axle as an independent axle manufacturer, and we are #2 in brakes, but we are consolidating our brake position.
With that introduction, ladies and gentlemen on our company's -- the status of the integration and where we are for this quarter, I leave it to Mr. Nagaraja to talk about the sustainability initiatives and also what's happening to the plant and what's going to happen to the customers. Over to you, Mr. Nagaraja.
Thank you, Muthu. Good afternoon, everyone. It's a pleasure to interact with you and share with you all the progress that we are making. So our sustainability model, which we have been sharing with you earlier also, I'm going to give you a progress update on that. So our sustainability model has 6 pillars as you can see, there's a layer -- it starts with the decarbonization. There may be a spelling error there, so apologies for that and then move to water positivity, green supply chain, digitalization, social connect and corporate governance.
So we started off this journey in 2017 where we first got 20% of our energy from the renewable source, solar energy. And then we continue to make more progress in this direction. And as we speak, we are already at about 43%. That is mainly because this particular year because of a legal requirement, we could not get idle power anymore. But as committed to you, by end of next year, 80% of our energy requirement will be coming from renewable sources. We are already water positive and then we'll be making more progress there. As you can see there, 70% of our water positive goal, we have already achieved and we'll be making more focus in that area. So the idea is -- or the goal is to switch over to become a green manufacturing plant and work towards starting from sustainability maturity all the way up to excellence in sustainability. Our goal is to achieve this by 2028.
Next slide, please. So again, giving a little bit more details on the circular economy. As you are aware, we are really focusing on sustainability portion of retail. There are several areas where we are taking initiatives, for example, working on reducing the packaging. In fact, I would say that nearly 80% of our shipping is going through either returnable containers or onetime antenna. So essentially eliminated the use of wood packaging and will be completely coming out of it probably in the next 2 years.
So we continue to work with the customers and the suppliers in terms of identifying the opportunity for recycling and then reduce the emission in supply chain. In fact, we're already looking at how we can use LNG vehicles for all the transportation. We continue to focus on employee safety, health and the trade treatment. One of the areas, as Muthu mentioned, there will be a lot more focus on bringing in diversity in our teams. We have been very, we are taking lots of step in terms of connecting to the social needs, whether it is promoting education or promoting the planting of trees all those areas, we continue to work with the partners.
Next slide, please. So we are presenting a diverse end market. As you can see there, we cater to almost all the major OEs in India and to all the commercial vehicle segments, whether it's a truck, trailer, bus, off-highway or aftermarket. In fact, as Muthu mentioned, we have made some significant inroads into defense area, where we are supplying some of the suspension products. And then also, we have been working closely with many of these customers to increase our product share in the area of -- especially off-highway and then aftermarket.
So with that, I would pass it on to our CFO, Ranganathan. Thank you, Muthu.
Thank you, Nagaraja. It's indeed another pleasure to talk to all the investors. As far as the financial results are concerned, for the last quarter, we -- our revenue was INR 657 crores for the quarter compared to INR 376 crores the same quarter last year and with a year-on-year growth of 75% in the value terms. As far as EBITDA is concerned, we ended this quarter with 12% EBITDA for the quarter and for -- so as compared to 9.7% in the last year. In terms of the percentage, we improved the percentage points by 24% year-on-year basis.
As for the PBT is concerned, we are at 10.3% as compared to 7.1% 35% up as compared to the last quarter the same year. For the YTD performance is concerned, we are only more or less crossed the loss over revenue, but this 9 months revenue is about INR 1,634 crores compared to INR 942 crores in the 9 months period the same time last year. So more or less around 73% growth is been seen now. EBITDA is about 11.2% for the first 9 months, it is 8.1%, about 38% growth. PBT is concerned about 9.2%, which is 5.1% last year, close to about 80% growth in profit before tax compared to last year in terms of the percentage terms.
And come to the next slide. Just a quick update on how are we progressing in terms of the revenue in the market growth. You can see the volumes, which is in the green, which is basically the market MHCV volumes. Last year, the volumes are roughly close to 300,000 vehicles. This March 2023, the month we are anticipating the market to be around 400,000 vehicles. As far as our revenue is concerned, all of last year, we did about INR 1,400 crores or close to INR 1,500 crores as compared to the 9 months actually EBITDA is INR 1,634 crores. We already crossed the last year revenue by about INR 170 crores right now. So these 3 months, definitely, we are going to show a good progress in year-on-year, on a whole year basis. And in '25, every quarter, we are -- our focus is to grow revenue, enhance profitability, definitely, this is one of the key points we have been driving the business.
And definitely Muthu and team are very consistently working with the customers for the [indiscernible] business as well as winning the new business. And Nagaraja, definitely on the operational excellence we're working on the delivery and quality and make sure that we're creating value for the customer. Our focus continue to be there on overall growth and profitability. The commodity definitely was giving a lot of pressure in 2023, now it is getting soften. And so then you can see the benefit of softening maybe in the coming days. And definitely, the Q4, as far as the broader outlook, what we are seeing today is the Q3 will be more or less in the same level or kind of slightly better than the Q3 as far as the revenue is concerned.
So broadly as on the key actions to manage successfully as a growth strategy, as we said about, we have long-term agreements with the customers, and we are focusing on exports and Muthu and team brought in lot of -- bringing a lot of new businesses on exports. We are looking on a long-term strategy as [indiscernible] how we can grow the business definitely it's on the cards, so with the frequent questions, we are having it. Your company is working on that. So hopefully, in the coming years, we can see a perspective [indiscernible]. And definitely, the new product launch is always there, a lot of new products this year, we already introduced. Maybe 1 or 2 is still in the pipeline, we continue to work on. And as well a axle for the e-mobility business is definitely on the cards, a lot of development is happening. So it's a long-term kind of business or the market need. Nevertheless, other operations, digitization very important focus area for us in terms of how to bring the industry [indiscernible] entire end-to-end manufacturing.
So we are taking a pass to implement in the system. Our focus continues to be on improving the profitability, the intent initiatives as well as we are definitely working on how to mitigate the commodity per share, which is coming in on year-on-year on our financial. Safety is a very, very important aspect of it and the employee safety, product safety is very, very critical for us. We are continuing to focus on it. With the COVID settle down, largely still some of the precautions are continuing about it. As the ESG is one of the key factors coming in, as Nagaraja explained in earlier slide, and net 0 the carbon neutral that focus is continuously working on. We are putting a specific strategy around it. So with this probably I'll leave it to Muthu, we have some kind of appreciation from the customers maybe he can take us through Muthu, over to you.
Thank you, Mr. Ranganathan, thank you, Mr. Nagaraja, for giving [indiscernible] details on activities. Ladies and gentlemen, I think as Nagaraja explained about what is the operational improvement that we are going to do and as a responsible company and towards a Destination Zero of carbon emission, what type of initiatives have been taken up. I think the details have been drawn into the last point to make sure that every process in our company, we work towards sustainability, the consideration of natural resources is there. And being a company in automobile, where the mobility solution, we wanted to make sure that we are binding in terms of reducing the carbon.
And we spoke about our strategies of what are the things that we are trying to do to increase our revenue in the top and how we can continue to improve our bottom line, other things and what type of environmental initiatives or ESG, the plant improvement that we went to, while as an organization would be working the various clients that we have like the Mahindra, Ashok Leyland, Tata Motors and is a global company of Meritor. Last year, we have received 2 awards out of the total 7 awards in global, whereas this year, our team has bagged 3 awards out of the 7 awards we had. Bharat Benz has given us a quality award for sustaining [indiscernible] and Nagaraja and team has a remarkable job in terms of managing the customers, quality perceptions and also to fix some functions. These are some of the reputations and the teams continue to work -- this motivates the team and continues to keep the plant in good.
With those initial presentations and data, I am taking on to Sailesh back for question answer session. Thank you very much for your listening and looking forward to having interaction with you. Over to you, Sailesh.
Nirav, we can start the Q&A session.
[Operator Instructions] First question is from the line of Pratik Kothari from Unique PMS.
Congratulations on the strong execution. So my first question is you have highlighted in the presentation that this year, MHCV numbers are expected to be 30%, 35% higher than earlier. Can you give us a broad sense of how would tonnage move if we compare it to last year?
The commercial vehicle market deteriorate likely to be about 390,000 to 400,000. In terms of tonnage, there is a growth of about 10%, which is happening in all probability, when we compare to the peak year of 2018, in the commercial vehicle market was at 465,000. We believe this 400,000 will be almost about 10% less in terms of tonnage of the vehicle because most of the technical -- vehicle factor will be fixed with almost come in to the higher tonnage. So we believe that even though the number of vehicles -- the vehicle, the actual size has gone up, but the number of axles has not gone up substantially. That is what I would like to add it at this point in time.
So what you're saying is we are just 10% below tonnage as compared to the 2018, '19 peak, which we saw?
Yes, exactly, we cannot say but it towards the direction.
And I believe tonnage would be a better number to look at rather than the number of units sold, right?
It is -- it cannot be because it cannot be directly because drive axle is what we are talking about by adding the dummy axles, the tonnage can go up. So it cannot be a direct measure, but it -- it's a direct measure of the number of tons of goods that is going to be moved in the market at the end of the day. The customer is going to buy this vehicle for moving the goods. So this is based -- from the end customers, yes, what you're saying is right. But when the axle, if you are saying, hey, the number of tonnage weighs we achieved and the number of axles can go more, it's not going to go more. But the size of the axles here yes, it's going up.
Fair point, sir. Sir, second question in recent, I think one of the analyst meet, Bharat Forge or one of the group companies have presented e-axle as one of the production. This is one of the 3 products that they're going to use to cater to the EV market. So is this something different than what we are doing or is it -- can this be a potential competition to our product if you can just highlight the thing?
See, in terms of electric axles, there are many more farmers that is available today. People are talking about hydrogen, premium cell, electric axle and so many things have come in, and everybody is trying to play that field, whether we did the same [indiscernible] e-axle, there are -- even in the e-axle configuration, there are remote mounted configuration that's available with the driveline without driveline and valve. And because you do not know who is going to be the player who is going to come in because there is some organized commercial vehicle manufacturers can come. And like Tesla, how we've got into the car market, some of the new players the company, a big company trying to break down to this. So Meritor is working on a particular strategy of e-axle to get into the market. Whereas you ask me whether that's the only way, there are many ways available. So everybody is taking it up and that it will be -- our innovation is going to keep us challenging and then we -- anything you wanted to [indiscernible] I'm not.
That's where the company comes in, but our own parent through different subsidiaries coming in. That is why this question has come. If somebody else would have done it, I don't think this would have come up.
The market is big. I don't want to get into that who is the parent is coming in. But the market is big in that people will -- I think rather than -- like whatever you said, that's a parent company, and we are a child company, I think the question should go in the parent company question when your child playing...
Last quarter, you had said that all axle and brake manufacturing is only happening in Auto Axle, the sale and marketing happens under -- manufacturing happens here. And this...
We never said that, sorry. I think if I have communicated like that, not right. We are saying that the manufacturing of mechanical axles what we are producing because we don't have a -- we are not a motor manufacturers, to be honest with you. We don't have the capability on making motors, whereas motors as actually other company can -- the company and make motors, right, I don't know. Ranga is there anything that we said all the manufacturing of parent company also will happen in our company?
No.
Sorry, [indiscernible] but you would love to hear that, and we will try to address your concern [indiscernible].
Next question is from the line of Sagar Parekh from [indiscernible] Financial.
Congratulations on excellent set of numbers. So first question on the defense. So you touched upon defense market in your opening remarks, but I wanted some more details if you can give us some kind of color on in terms of which -- what -- how big is the defense right now for us and how potentially what is the potential for the defense products like different axles that we would be supplying to different OEMs? So some color on that would be helpful.
As we said, we are investing a lot on different business in India because this is going to be a long-term business. As we have indicated, at this point in time, we are supplying axles to the defense for -- to the various OEMs, and we are not directly supplying to the military or Indian Army, but we are supplying to OEMs. We are investing a lot on various product platforms for the defense, but the product gestation when these things are going to come, it's going to be a long drawn profit. While we have a practice of not splitting our revenues into the different segments like axles or brakes or customer wise or the vertical-wise, I'm sorry, I'm not able to provide you with that information. We continue to invest so that tomorrow when the market comp is good, I would say that we are at least about 4 platforms of our products have been approved for defense and the vehicle order is going to come, is going to grow.
Yes. So just putting it another way. So there are no vehicle orders which have come in yet for either of the OEMs through -- for the platforms that we have been approved as of now? It's just the developmental order that we have been investing in right now.
No, it is not so. We have also sold some axles from this year to them, and we have got an orders for about more than 226 or particular things. I see as and when the order comes, we continue to supply. When Ashok Leyland is going to supply or when the other OEMs are going to supply to the customer is not known, but we are receiving orders and it is coming into the field. But continuously, we are also investing time on the new product development and keeping it ready. Because defense is, again, depends on many things, on the allocation of the government, while the product is running in the proto, the time that we've taken for the product to get into the production it minimum takes about 4 to 5 years.
Got it. So these 20 sets of orders we are going to supply in current calendar year?
No, it will not be able to complete before March. It will come now and then it will go to be lower of next year also.
So FY '24...
The replacement axle would like that to be different.
Okay. And this is a Ashok Leyland order for us? Like we'll be supplying to Ashok Leyland?
I will not be able to bill the customer name, but we have sets of order that is available. We are supplying at this point in time to more than 3 to 4 OEMs.
3 to 4 OEMs. Okay. Got it. Secondly, on this integration with Cummins, now since it's almost been like 6, 7 months or at least 5, 6 months since integration is complete. Could you give some color in terms of what could be the synergies on the revenue side or on the cost side for us between Cummins and Automotive Axle India?
Yes. At this point of time, the integration process is on in terms of the legal clearance on India. I think we know that we have commented have already given the buyback of shares to the market and that feedback is there. And the other approvals from the varied governmental agencies is going on. As an organization, we already communicated I think our Chairman's message was there very clearly that the synergy is going to bring in a lot of areas where we can open it together. There are some areas, certain areas or certain OEMs where Meritor is presenting very, very strong, whereas coming penetration will be less. There are some other areas where Cummins penetration is very high and Meritor is not there.
So this synergy is definitely going to bring in, in terms of penetrating to more customers in terms of penetrating into off-highway customers or in terms of penetrating into the good technology Cummins already in an advanced stage decarbonization with the technology that's going on. So we'll be definitely working on the various integration between the organization in terms of technology in terms of people practices and in terms of bringing the best people qualities in terms of going to the customer. Every sphere of business, we will try to bring in financial management to make sure that the synergy between these 2 companies is going to give the best for the -- ultimately to all the stakeholders of the company.
Got it. So no quantification of any line item basically either revenues or costs?
At this point in time, as I said, it's a global acquisition that has happened and -- has been, I mean, the global -- the Meritor share is very less, I don't think we'll be able to provide you a very specific target. But we have already presented our mission '25 strategy and it will continue to grow and maybe by early -- middle of next year, we'll be launching our mission '28 strategy, which we're already working on, which will definitely have been to. And then we will see [indiscernible] we are looking at.
Got it. And my final question would be on the slipper-type suspension products. So if you can give some color on that, how is the traction in that? I believe in the last 1 or 2 quarters, we have been seeing some decent traction from Ashok Leyland on the higher tonnage side?
You're tracking the product well in the market. See it has its own challenges. The product challenges in terms of the design, in terms of quality has been [indiscernible] working well. But at the end of the end of the time, these products give much more value, total cost of ownership to the end customer, but customers have to perceive this additional value when we are paying, we're going to get them a return on investment. So we are working with various consumers, the end consumers in terms of convincing them they pay, whatever the additional that you pay for these new designs is going to give a return investment to you, trying hard to penetrate into it. It's very -- it's almost because of the price difference, the customers are finding it extremely difficult to penetrate more.
Got it. We have a value for this, you have a value for this, but at least the more and more better infrastructure, more and more high-speed vehicles is going to come, then it will make sense. Maybe today, they may feel that there is lot of their benefit today.
Sure.
[Operator Instructions] Next question is from the line of Rahil Shah, individual investor.
Just on the outlook for the next financial year and in terms of revenues and the margins, how do you expect to gain? Will it continue the momentum? I just wanted a view and if you're able to give a certain target you're expecting to achieve.
I will answer the first stage of question, but I'll leave it to Ranga about the [indiscernible]. The momentum for the organization will continue to be there to penetrate into the share and grow with the market and we all feel that we are definitely outgrowing the market growth and will be definitely better. It is one we should taken view, but I can't give a very clear numbers on how much of the revenue we are projecting. The latest budget that has come is very, very positive. We are seeing the global recession is not going to have any impact in the India business at this point of time. But every OEM is very, very cautious of taking a flat or plus/minus is what the market is projecting.
Already people are predicting about some drop in the car and of course, in the 2-wheelers also, whereas commercial vehicle people are looking at about flat or margin plus/minus. So the market is going to be very, very tight at the inflation that has happened. The cost is going to go up. The competition is going to be the key for us to see how we can penetrate. Our competition will not keep quiet, everybody will continue to work on to see with how we can penetrate. But the rest assured that your management team members and our team of employees who work we are always works for next level of innovation, next level of improvements in the products to make sure that we are ahead of the curve of the market. In terms of profitability, yes, it's going to be very, very tight. Ranga you want to add anything on that?
Yes. So there are a couple of things I just wanted to say. 1 is about in terms of the forecast, we'll grow the market as Muthu was talking about it, we always try to grow better than the market in terms of volumes. And I know our mission '25 objective it's about optimize the margins. We definitely continuously do that through operational excellence. So that focus will always be there. So we are not -- we are constrained rather to share the specific numbers and the forecast for 2024. So definitely, you can take the market forecast on the next financial year and definitely, we'll be at par or better than that.
So definitely our aspiration is always been there, and reports are going in that direction. That is 1 aspect of it. And as for the margins are concerned, yes, all our efforts are there in terms of cost optimization, operational excellence, and definitely, the market volumes will definitely produce a good numbers that we have been demonstrating in the last 4, 5 years. As we are also working on various strategies on growing the business, definitely, as investor, you can see those benefits in the coming quarters.
[Operator Instructions] Next question is from the line of [ Navin ] from Mahindra Manulife.
Just following up on the previous discussion. This quarter, our outperformance in terms of top line versus the [indiscernible] and even some of our key customer seems to be quite impressive. Just wanted to kind of delve deeper to understand, is it kind of increase in share of business with some customers or is it set by content increase? Any color on that?
See it's a very, very nice question and you hit us on this. I'll tell you, while I won't be able to quantify without share of increase -- share of business increase, we could not have achieved more than the market growth. You are right. As I indicated earlier, if the tonnage of the vehicle goes up, we have also increased our content per vehicle or content per axle, which has gone above cost. Third is also some of our customers have expanded their market share. So when the customer expands the market share, yes, we do expand the market share indirectly. [indiscernible]
Okay. The point being that it should largely if the product mix at the industry level and for our customers remain similar, this is the kind of -- the share of business should kind of sustain at what way, what we see in 3Q?
We will continue the first and second, what I said, the content increase and our share of business increase in the customer will continue to be there. We work very, very closely with the customer, the customer is marketing to keep that what type of products we need to supply to them for penetrating them into the customer. We continue to do that. Their penetration of the customer is expanding and is not in our hands, but we'll continue to work with them on that. But our company's interest in penetrating into the customer share and increasing the content we'll continue to do it. We can't commit on this.
Sure. Just another question on margins. If I understood right, some of the commodity cost reduction benefits are yet to flow in going forward. Is my understanding right there?
I just wanted to clarify. We have a very good system of when customer commodity prices going up and comes down, how do we do the settlement? Other than the base impact, it's not going to have much of impact on the P&L.
Okay. And just one last 1, sir, in the presentation, you mentioned that 4Q should broadly be similar to the third quarter. Seasonally, as you understand, fourth quarter tends to be a little more higher as compared to third quarter even in terms of production volumes. So I'm just trying to understand, is it based on what you're seeing in terms of customers' views or any other factors?
See, this year, the last quarter has seen a substantial increase in compared to the traditional. Normally, we see that Q3 will be less, and then Q4 is going up. We have seen a very strong Q3. So with the production of the OEMs and the sales whatever the registration has happened, we believe that it is going to be flat in this quarter. There's other billing. But the company will be ready. If the OEMs are going to increase the production, we'll be able to deliver more.
Got it. And just 1 last 1, sir. What would be our current capacity utilization across the, let's say, actual and mix?
Ranga, you want to answer?
Yes. See, so you see more or less about around roughly generally, the installed capacity, we are not past the peak as last time when we have increased the capacity of 2018-'19 volume, we have created the capacity to meet the 2018-'19 because at that point of time, we are running short of other capacity. So the market is 400,000 vehicles, you can see that we are 20% lower than the market. So you can measure the capacity utilization but definitely, it's a small variation in the capacity, we are still able to accommodate it.
Okay. And any CapEx numbers that we would have firmed up for FY '24?
No, it's too early to comment because we do all this the capital commitment on personnel and on digitization, that is there in the plan. But any kind of big CapEx what we invested in '18-'19 that goes with the business case. As we go along, we get the new businesses that probably need investment, definitely, we will do that. But at this moment of time, nothing big is not seen in the near future. But definitely, we are having a close watch on the business front and we will do it accordingly.
[Operator Instructions] Next question is from the line of Aditya Welekar from Axis Securities.
Congrats for the good set of numbers. So in the last con call sir, you said you will see 15% growth in MHCV production volumes in FY '24. So given the strong quarter, what's the outlook for FY '24 MHCV production volumes? Do you see any upside to that number?
I don't see further upside of this number. Originally, we forecasted during the last quarter, we didn't anticipate this from third and fourth quarter. But if you see the current third quarter increase that has happened, the current year FY '23 projection itself is going to be about 10,000 vehicles more than this. That is why we said the 15% what we have projected, it will become like a flat or plus/minus. The main concern today in the market is the increased interest rates and people want to conserve cash with the global recession on the card, but the Finance Minister budget very clearly come out that India is on a very, very strong capital growth. So the sentiment should be positive, but at this point in time, we are looking at a flat or plus single-digit growth.
Okay. Understood. Second question is on, if we see the personnel cost as a percentage of sales in this quarter, those have come down. So what it means is that our -- probably the same amount of employees, we are generating higher revenue. So can we expect that the personnel costs will remain in the same range going forward?
Sustaining this in the long term is very, very difficult, but on the short term, we are trying to do this. As I indicated, it is -- the company is working on continuously doing improving efficiency. But if you ask what we can fetch it in this quarter that we can do every quarter is a little difficult. The organization is working on not reducing the people, but improving the processes and enable people to perform better, to make sure our objectives are working. So we continue to focus on these areas and improve, but this is a sustainable model. This much of sales is going to come at this, is going to be the million-dollar question.
Okay. And last 1, recently, we have seen some inch-up in commodity with China opening, steel prices have rallied. So what I understood from your previous conversation is that on a gross margin basis, you are not much worried because the [indiscernible] 100% pass-through basis. So there might be some lag in pass-through of the steel prices. But on a net basis, you -- the commodity, volatility will not affect the business much. Is that understanding right? In general, yes, what you are saying is right, and you have exactly caught with the lag between this, but our customers are very, very tough and everybody wanted to make sure that how during this time, they also wanted to make it better because OEM is also struggling to make their bottom line. So good amount of pushback, push-through is going on at this point of time. But you should also understand that whatever the inventory that we have is at the higher rate, higher price and the market goes down, it also has an impact to our overall business. So managing all those things in the management responsibility, and I'm sure that my team Nagaraja, is managing this very well.
The next question is from the line of Dhaval Shah from Girik Capital.
A couple of questions from my side. First being, as you mentioned about the higher share of business from the customer. So was it more on the domestic side or there was also influence of exports into it for the third quarter? Second question will be on the e-axles. So just want to understand or get some clarification. So the e-axles which will be sold by Meritor in India, will it be passing through our company or how would that be? These are my first 2 questions.
Okay. I will answer your first question on the growth of Sara business. We have grown in domestic. We have grown in exports, even though we don't declare the numbers because the market, even the U.S. market on Class 8 is going very, very strong at this point in time, even though people talked about the downturn that's coming up in the U.S., we are seeing a very good numbers in the next couple of quarters at this point in time. So our growth has happened across all the segments both domestic. So when I said our OEMs have whenever say that the customers also expanded, our customers' OEMs has also expanded the market, which indirectly helped us to penetrate into more axles. These are the 2 things. Coming back to...
Okay. So [indiscernible] more to Meritor's subsidiary globally like more...
Yes. Yes, yes, yes that's why I said it's also have grown. When we have grown from 500 to -- the growth has happened 28% or something everywhere it has grown, most of the segments -- most of the verticals. Axles, brakes, export everything. And your question of second, second point of e-axle, e-axles you should understand it's from a different perspective of that. The current automotive axles has the capability of making mechanical axle, so the e-axle is not going to be become pretty different. The e-axle constitutes of electrical, electronics and the mechanical portion of it, okay? At this point, we'll continue to enhance the maximum utilization of our mechanical axle component. From here, we are looking at the strategy of where to get the electrical electronics and we had to do it at this point of time.
Meritor has globally acquired Siemens' commercial vehicle business, which is making motors in Europe. And Cummins in India has an extensive capability on electronics and in terms of making the electrical component from there. So we are evaluating where to make those because the current unit of the JV doesn't have that capability for making motors and electronics. So while the mechanical portion of this will continue to be like this, we are evaluating on the production and manufacturing strategy. But I just wanted to tell you with all of you, the current prediction of the MHCV industry by 2022, the MHCV segment will be about 10% on electrification. That is what the prediction that is given by the biggest research agencies. So it's a long way process. So we continue to invest on our innovation. We continue to focus on product development or mechanical axle because we cannot drop this and then move on to that in full.
Yes, exactly. Because as Ashok Leyland has -- the Switch Mobility has received a massive order for supplying to the state transport authority. So now the buses. So there, how will we play? So are we there? Are we supplying to those units, which are...
We are a strategic partner, and we supply to them, but that's not in e-axle just for your information.
Maybe some other -- okay.
That's an electric axle, there is an electric vehicle, that is not using e-axle. And we are present there in our mechanical axle.
So there still the mechanical axles are only being used there, in those buses?
I'm sorry. I just said in general, we are [indiscernible] That's a combination of some innovation, but it's becoming like that.
Okay. Okay. Okay. Got it, sir. And lastly, sir, when you said about defense, if I heard it correctly, you said you're supplying to more than 4 OEMs, right?
Right. See, in defense, the OEM is -- there are many players other than the traditional OEMs, right? There are new players who are also supplying to anybody who is supplying to vehicles to defend the army, I call them as OEMs, L&T supplies. So many people are supplying.
Okay. Okay. So would you be comfortable sharing the revenue contribution from defense?
While I would love to do this, but at this point of time, normally, we don't share vertical-wise revenues, including exports, axles or brakes. So I'm very sorry that I'm not in a position to share that.
[Operator Instructions] The next question is from Krishna Kumar from Lion Hill Capital.
Yes. So congratulations a set of very good numbers. Most of the questions have been answered in the previous round. So just on -- while you said you would not give breakups in terms of verticals, but if you could give some perspective in terms of whether exports grew faster than domestic or vice versa, or if you could you just give some growth rates on segments and also breaks, is that possible? Talk about growth rates at least.
Ranga? Show your smartness.
No, no, I just wanted to bring a perspective to you, probably if the [indiscernible] brakes we are present with almost with all OEMs. And axles, we have been really calls we said we are predominantly present with 1 or 2 OEMs and of course, [indiscernible] we have a very, very big element to the whole process so all share is concerned. So see, the growth definitely as TML grows, our brakes definitely grow, and there's no doubt about that. I think right saying that the overall market growth, our active growth is directly dimensional to the growth of supply vendor and OEM so. In terms of percentage, we already mentioned it, the market growth, as Muthu was saying that it could be around single digit or maximum to about 10% as the market growth, our growth is in line with the market.
So within the segment, if brakes could grow better than axles because of the TML growth in the market share definitely the brakes shares in the business will definitely go up. But overall, if you really look at the revenue growth, is largely -- the revenue per axle comes from the axle is better than the brakes. Nevertheless, our aspiration to grow the top line bottom line continues. So in terms of the percentage, we are -- the growth in the market rate are slightly better than the market. The market grows 10%, we try to aspire to grow by 12% or 13% but definitely, we are -- our kind of an outlook. So that much I can say.
The exports, you've been talking about, as you said we don't want to give a breakdown about the segment-wise I think overall export is concerned, predominantly, we are doing it for our own group companies as definitely the group companies is booking at India as another destination for using India's capability and capacity from the global growth that that's only on the card, but it's very premature at this moment of time to show that how much is going to materialize. We are seriously -- we are seriously working on it. And the coming days, you will definitely see -- we are expecting kind of an improvement in the exports business share and the overall share is concerned, that much I can share at this moment.
Very helpful sir. On the e-axle question earlier, you had mentioned that probably there is no answer at this point of time. But just to get a directional perspective, the project would be definitely involved some out of capital CapEx, if the motor and the electronics, et cetera, is made within automotive axle. So is it right to believe that there could be a company outside in the group, which could probably be the integrator and you would continue to make the mechanical action to supply? Is that something directionally possible that way?
I'm not sure at this point in time. It all depends on what is the adoption level of EV and how is it going to come up and what type of technology is going to come in. For example, today, 80% of the vehicle that is made in India and electric vehicle platform, which are being sold in [indiscernible] nothing in e-axle, because when the range is going to be 80 kilometer to 120 kilometers like city buses, they find a different method of doing it is also going to work as long as it is traits electrification. They don't need that much of battery space, a lot of changes is happening.
So it needs a huge CapEx at this point of time. While we are continuously working on technology or sourcing it from the right partners at this point of time, the manufacturing strategy is being worked out. But 1 thing that I can assure you is while it's very, very premature to talk at this point of time, the mechanical axle portion of it because we have a reliability and capability here, we definitely go with -- we'll be making it clear. Rest of the things, what type of aggregator we use, where are we going to assemble and all, it's too premature to say because it all depends on the finally the technology that is going to come in and where it is going to come from.
Next question is from [ Radha ].
Congratulations on excellent performance. Sir, my first question is on the exports. Sir as per last annual report, you can understand that exports should be around 4% to 5% of revenue. And given that you are mentioning that you are aggressively pursuing exports. So could you tell me, would it be in a low double-digit number, exports as of now, out of total revenues?
Ranga?
Madam I think we have already shared the perspective. We generally don't segregate much of -- segment-wise revenue numbers or we don't give it, kindly pardon us. But definitely, as a focus, we are working with the opportunity for exports. And definitely, that is a good play kind of the growth strategies for us. So sorry that we do not share the segment-wise numbers or over growth aspiration segment rate at this moment in time. Sorry about it.
Okay, sir. Sir, just if following up on this, have we -- as at Volva, have we added any new customer in exports? And if we have them, would that be?
See, at this point of time, Volvo is the customer currently with Meritor, just for information because the UD trucks of Volvo [indiscernible] we are supplying to them to the [indiscernible] team. The rest of the areas we supply only subsystems and systems to our Meritor companies, and they do the in-assembly. We don't directly deal with [indiscernible] customers.
Understood. Sir, secondly, on the axles part. So previously, as I understand, we had low single-digit or medium single-digit share of business with Tata Motors and given that we have been pursuing Tata Motors in the axles space. So would you -- can I assume that the share of business then has gone up to double digits now?
No, no, no. Our supplies to Tata Motors is almost very, very low single digit, only for critical axles, which is going for some exports. Currently, they have built up a lot of capacity inside their plant, and they are using their capacity for it.
Understood, sir. And sir, in the off-highway segment, so what are the top OEMs that we are targeting? I understand JCB and [indiscernible] as -- but are we still pursuing them? And if not then, are we pursuing any other OEMs?
We will not leave anybody because till we finalize that we are talking to [indiscernible] So there are only 5 big players and it's a different type of segment, right? And we're working with everybody, but at this point in time, most of them will be integrated their manufacturing inside the manufacturing, very [indiscernible] a huge cost in terms of design of making this product because the volumes is very, very low. So we are evaluating, but it is a focus area for growth for sure. The management is putting a lot of efforts to grow in that segment, construction [indiscernible].
We recently entered into the CV ICV bus segment. So with respect to this, how many products we have in this and how many more launches are expected in this segment, particularly? And currently, from the LCV, ICC bus, are we supplying to only Ashok Leyland or anyone else as well?
Predominantly, we supply to Ashok Leyland. It definitely means that we are not supplying to anybody else. Some of them ICV also, we have presented to other OEMs. It is mainly used for the ICV trucks and also some buses, both of them. The school bus.
Sir, how much potential business can we see from this particular segment in the next 2 to 3 years?
See, the ICV segment is growing. And even though our Meritor presence is very, very strong in medium and any commercial vehicle and not on this, we continue to penetrate on this and definitely, we'll be growing. But if you see that the volumes for total is very, very late. The company is working on improving the penetration into the segment, which is very, very highly competitive segment.
Okay. And sir suspension segment in the slipper type suspension products that we have. So previously, we had VRL Logistics as 1 customer. So other than that, have we seen any other players who have updated the suspension from [indiscernible] to slipper type?
See, VRL is not our customer, it's an in customer, but the supplies are going to Ashok Leyland, okay? We don't sell suspension to the end customer, we sell it only to Ashok Leyland and Ashok Leyland -- As I think explained earlier, while we try to put it into 5 or 6 different customers it's extremely challenging in terms of managing the cost of the [indiscernible] suspension to the. [indiscernible] with customers by penetrating needs a lot of mind set, a lot of infrastructure improvement in the -- high-speed vehicle to come, then it makes sense for them to use this suspension.
And this is then just last question from my side. Sir, on the overall portfolio, I believe we can sell some access subsystems and brake assemblies in the aftermarket segment. And given that majority of our sales is to OEMs as of now, do we have any strategy to increase our sales in the aftermarket segment?
We are selling in the aftermarket, and we are selling through OEs and also through dealers through our network.
[Operator Instructions]
It's already time out, so maybe a...
Sir, we don't have anyone in the queue. Would you like to give the closing comments?
Ladies and gentlemen, thank you for -- very much for your interest shown and thanks for your appreciation of our performance. You can rest assured that the team is committed to continue to innovate. The team has continued to innovate, invest in the new technology that is going to come, and of course, giving the best returns to all the stakeholders in the business. So we'll continue to do the business in a transparent way and communicate to you about what we are doing, how we are performing and looking forward to your continuous support to your organization to make us to grow better in the days to come.
Thank you very much to B&K for organizing this call with the team and really appreciate everyone's support and time. Thanks, Ranga and Nagaraja for joining and then giving your perspective. Thank you very much.
Thank you. Bye.
Thank you.
On behalf of Batlivala and Karani Securities India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.