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Automotive Axles Ltd
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Ladies and gentlemen, good day, and welcome to the Automotive Axles Limited Q4 FY '22 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.
Thank you, Faizan. Good afternoon to all. On behalf of B&K Securities, I would like to welcome you to the Automotive Axles 4Q FY '22 Earnings Call. From the management side, we'll be hearing to Mr. Thimmaiah, MD and CEO of Meritor India; Dr. N. Muthukumar, President and the COO, Meritor India; and Mr. Nagaraja, President and Holding Director, Automotive Axles; and Mr. Ranganathan, CFO, Automotive Axles. We will commence the opening remarks with Mr. Thimmaiah. Following which, we'll have an interactive Q&A session. Over to you, sir.
Yes. Okay. Good afternoon. Thank you very much for joining our investor call today. We are very glad to take you through our quarter and the year how we ended.
Before I just hand over the floor to my team members, I just want to add a quick introduction. We have one new member today on the call. First time he's joining. So I'll just go around and introduce my team. We have Muthukumar. He is the Chief Operating Officer for the group, Meritor [ HVS India ] Group. And we have Nagaraja, as [indiscernible] was mentioning. He recently joined us as full time Director and President for Automotive Axles. He is not new to our company. He used to be in Meritor as an engineering head and then he was transferred to over headquarters in Michigan, in Detroit. He spent around 5 years there as a foreign assignment. Now he has come back and joined Automotive Axles as full time Director and President. And then we have, of course, Ranganathan, the CFO for Automotive Axles.
Now I'd like Muthu take through the business, Ranga on the financials, and Nagaraja on, the operations price place. Muthu, please?
Thank you, Thimmaiah. Good afternoon, everyone. Thanks for joining for this Automotive Axles earning call. Thanks to B&K Securities for organizing. We are just going to give a snapshot of business and how we performed. I think our FY '22 revenue stands at [ INR 1,495 ] crore sales, with an EBITDA of INR 138 crores, 9.3%, and a PBT of INR 100 crore, 6.7%. We have manufacturing locations -- at 4 locations, Mysore, the mother plant, where majority of the operations are happening. Just the information of everyone, this plant is 40-year old and a longest joint venture, with Meritor and Kalyani . We have facilities in Jamshedpur where we do the brakes manufacturing and the tire axle manufacturing for the customers, predominantly to the Tata Motors.
We have a facility at Pantnagar, where we manufacture and assemble brakes, predominantly for Jamshedpur and Pantnagar plant, and where facility to where we do the suspensions and value addition for [indiscernible] plant. You all know, but just to remind you, the equity share of this business, American incorporation at USA at about 35.5%, and Kalyani Group, 35.5%, and the rest is in the public. We have more than 2,000-plus employees working for this business, transforming this Mobility business in India, and dedicated team which is working right from the new product development to execution of the project and serving the customers in India. We have all the major [ PV ] specialty and depends OEMs for our customers. We'll talk about in subsequent slide. We have the products where we make axles, brakes and suspension systems. In terms of the market position, we are #1 in axles as an independent manufacturer and #2 in brakes.
Just want to give an update to all of you on the COVID. The company has gone through all the protocols in the last 2 years. And 99 point -- more than 99% of our employees are vaccinated in both the dose. And the booster dose is being organized for the employees. We have 0 active cases at this plant. And some of the key initiatives that we are working is a continuous awareness campaign for [indiscernible] employees and their families on COVID, appropriate behavior, regular communication by the leadership team to ensure that adherence of protocol in the plant, outside the plant and in their home, a shift to alternate working pattern to make sure that we follow the protocol, a continuous sanitization throughout the plant and all the areas for initiating disposable material for including the protocol adherence. As you all know, we have a diverse end market and diverse major customers include Ashok Leyland, Tata, Mahindra, Daimler, Volvo Eicher Commercial, we supply to Bharat Group for the defense. We supply to Volvo currently [ duty ] trucks, Caterpillar for the specialty axle.
We also supply to [indiscernible] Facilities and Jabalpur for the defense. And we do business with [indiscernible] and CargoTech. So your companies continue to focus not only on commercial vehicle business, but also penetrating into defense of construction business and comprehensiveness. Meritor and Automotive Axles produce the most comprehensive axles and brake offering right from, we call it, a [ 10x ] cycle, which was from [ 6x ] to about [ 55x ] we are supplying to both [indiscernible]. Meritor has a product variety to that level. That means each and every category of the commercial vehicle business, we offer a solution to the customers, and not only in axles, but also in brakes. And that is what is appreciated by customers, and we continue to grow with them. We are presenting light, medium, heavy and extra heavy. And the company has also continued to innovate the product, continue to introduce new products, which is catering to the various customer demands. The BS-VI launch has been one of the successful for your company. And we have launched almost all the models which have been running successfully.
With that, I will hand over to Mr. Nagaraja for running the next 2 slides, Nagaraja?
Yes. Good afternoon. So as you can see, Automotive Axles has a full-fledged axle assembly plant, where we have already implemented a robotic paint shop and then our complete NX Line has been equipped with the Industry 4.0. All the information with respect to the [ port ] restorability, subassembly and the customer product information is captured as a part of this MIS. So we have been working towards aligning ourself to make the whole operation digital. While we have just started now, a couple of lines have been already completed. Our target is, by end of this year, this whole transformation is going to be completed. And from the technology perspective, again, this is as a part of enhancing the digital manufacturing or Industry 4.0, all of our processes, whether it is welding, mentioning gear or assembly, every step under every process, we are capturing all the required information, significant and critical parameters. This will enable us to deliver to our customers the best-in-class products.
And -- go ahead, please.
Go ahead, Nagaraja. You have completed that slides on technology.
Yes.
Thank you, Nagaraja, for highlighting the focus areas in operations and adapting to Industry 4.0. Ladies and gentlemen, the company is -- the key actions that we continue to focus to make sure that our business works successfully, we work on business growth strategy to get into the new business wins and continue to work on expanding our share of business with all the OEMs. The product development, the team is doing an excellent job in terms of launching 4 different platform last year to ensure that we are competitive and reliable in the market. We are driving the e-mobility business, and that is going to be one of the core business in the days to come.
Like Mr. Nagaraja explained, digital and implementation of Industry 4.0 is one of the key initiatives we are taking to make sure that the business continues to grow. And we are up to capacity in the market and to make sure that the increasing demand when it is going to come, we gather all the customers at the right time with the right [ OEMs ]. We continue to work on cost measures to be competitive, the cost reduction measures and an organization figure, significant savings expected to Mission 2022 timeframe, and further cost measures in place in terms of conversion, material, manpower, cost control. The company continues to follow on the safety protocol, a vaccination drive, and of course, ESG drive and implementation progress.
Ladies and gentlemen, we just wanted to touch base with you and update you on the various actions that the company is taking on sustainability front. We have a clear road map that we have shared from the current level, how we are going to become an excellence in sustainability by achieving ISO 26000 for CSR assurance, projects per customer in all the initiatives. Some of the key initiatives that our team has [ done ] will become carbon neutral by 2027. And we're also working on achieving the Deming Excellence award. I will just take the next slide to show you on the sustainability index. At this point of time, your company uses about 30% of the power from a sustainable renewable measure. But we have an aspiration of taking our organization in the next 4 years to take up to 80% of the total power consumption by green energy. While your companies continue to work on making the energy sources from the renewable energy, there is a focus -- constant focus on reducing the power consumption for Axles, converting the LPG to pure natural gas.
These are the initiatives we are taking to make sure that our organization's carbon emission continues to be less. In terms of the groundwater level, the company has 0 discharge plant, and continues to work on harvesting waters and usage of recycled water for 100% of the process. With various recycle ponds in the company, the groundwater level continues to grow. And we keep on track to make sure that we turn water positive. As a part of the sustainable manufacturing, we are focusing on each every element of carbon emission that's happening, whether it is an incoming material transportation carbon emission or outgoing or the employees. And definitely, a clear indicator for us to work on, how we improve on our sustainabilities.
As we indicated earlier, digitalization is key to take our organization to a paperless office, and thereby continue to work on -- a sustainable way. The company works on social connect through CSR projects, working on -- continuously working on environment road safety, education to underprivileged and creating the talent and for health care facility infrastructure in the local area to ensure the society at the launch. As a part of the corporate governance, your company continues to work on reducing the attrition rate, improving the gender equality ratio and working on employee engagement score. One of the key initiatives that we have taken is to engage the people more and more to make sure that their organization is very, very sustainable going forward and comparable.
With that, ladies and gentlemen, I am requesting Mr. Ranganathan, CFO, to talk on the financial [indiscernible].
Thank you, Muthu. Good afternoon to all. The financial performance for this quarter, we did about INR 552 crores as compared to INR 426 crores in the same quarter last year. The revenue growth is close about 30%. As far as EBITDA is concerned, we did about close to 11.3% as compared to 10.8% last year the same quarter. In terms of [indiscernible] values, the EBITDA is close to about INR 625 crores compared to INR 459 crores, close to about 36% growth in EBITDA absolute values. As far the EBIT is concerned, we had about 9.3% as compared to 8.5%, and absolute value increased about 42%. As for the full year performance is concerned, overall revenue for this year '21 and '22, it stands at INR 1,495 crores as compared to INR 912 crores in the last financial year.
All of you know 2021 was a COVID year. So the past 6 months performance was very average. So this year, we were able to have the full year normal performance. So that's one of the reasons that revenue has gone up by 61%. And plus, the bigger the market in the last quarter. EBITDA for the whole year is about 1,000 -- or sorry, INR 138 crores, it compare to 700 -- [ INR 73 ] crores last year. That's about 9.3%, which is 7.9% last year. EBIT is concerned, we showed you full financial year at 6.7% compared to 3.3% last year. So this is our overall summary of the financial results.
Once again, ladies and -- thank you, Ranga, for presenting the financial performance. While the financial performance is -- I'm sure that we would have meet or even exceeded the expectations, your company continues to focus on the growth in the Mission 25 strategy. I remember a year before, Mr. Thimmaiah presented to all of you on how we have a very clear strategy to take our penetration of the commercial vehicle in line with the market, and we continue to keep growing. We have given you again the market volume what we are expecting for the coming year.
I know that market conditions is very, very tough. While commercial vehicle continues to grow, there are lots of uncertainty in line with what is happening in the Ukraine war in terms of the interest cost. But our customers, when we spoke to them, they are all upbeat about, because after the last 3 years of a value in the commercial vehicle, and the industry is trying to get back. So our projection is given. And you can all rest assured that your company will continue to focus and outgrow the market strategy. As we indicated earlier, our Mission 22 focus continues to be on enhancing our revenue, enhancing profitability, the new business plan to make sure that we're continuously on -- working on these operations excellence, which Mr. Nagaraja talked about, kind of creating the value for customers at this point of time on our target for Mission 25, your company is on track.
You all know that your organization continues to focus on innovation, continuing to focus on customers. And we believe very strongly, and we value that our employees are our strength. The company continuously engages with the employee engagement initiative, which is one of the key for our success, where it is giving a functional training for technical training or calibrating perceptual or giving them the confidence post COVID on emotional stability, your company continues to work with the employees to see that they are highly engaged employees, which is really a success factor for us.
Rewards and recognition for the employees is the key. And you can see the various initiatives in the organization, which makes for our employee feel that they are part of the family, and making this organization to take it to our Mission 2025 objectives. With that, ladies and gentlemen, I'll hand over back to Mr. Thimmaiah's for his closing comments and open up for the questions. Over to you, Mr. Thimmaiah.
Thank you, Muthu. I think you can see that in the last quarter and the full year with this pandemic even this year, and also it's not a great time to [indiscernible], our team has performed exceptionally well, I would say. And we see a momentum from now onwards, the market is very good. The demand outlook is very good. We see this momentum continue to pick up. Unless there is some major problem happens which is outside of our control, commodity, war, COVID, I think we are in a very good path through surpass our -- the best ever performance probably this year. With that, I will open up for the questions, please.
[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment Managers.
Yes. Sir, I wanted to understand, this 30% growth that we see in the quarter and 65% that we see a growth in the full year. Is it possible to know what would be the volume growth for us?
Muthu, you want to answer that, please?
When compared to the last year, our -- in terms of the overall, we are just giving it in terms of the financial as Mr. Ranga explained, because there are different actions in different [indiscernible]. But on an average, the industry last year, the commercial rate industry has grown by 28%. And we are also seeing that the year that is going to come, we have a good outlook at this point in time. And the April started very well for all of information in the [indiscernible]. So we believe that we clear also in about 28% to 30% growth.
[ Part of, to ] think number two, in terms of the volume wise, if you can give an overall reference in terms of axles, how much we've grown compared to the previous quarter?
Probably, I'll just give you a rough number because we don't...
Let's put it this way. In the 65% growth that we had, and let's say, CV industry volume growth was 28%. What would be the indicated volume growth for us?
Should be around 35% to 40%, I would say.
Okay. And the capacity utilization that we would have at the end of quarter 4, because, obviously, quarter 4 is a much higher number, the capacity utilization that you would have in quarter 4 would be what?
Would be still at around 75% level?
This will be 3 shifts put together or some calculation otherwise?
No. See, we operate some of the areas through shifts because of the cost actions like in treatment, et cetera. But some might be shifts. But overall capacity, when we calculate, it's like a majority of them will operate 3 shift basis. So this is like to like comparison, if I do. We have still like around last quarter, for example, will be around INR 550 crores. That was a current 75% capacity utilization, I would say.
And I just have 2 follow-ups, sir. Ashok Leyland, what would be our dependent -- or let's say, Ashok Leyland, what would or should be the contribution indicative to our revenue? And we had a certain margin target, which you were sharing, I think, in the previous presentation. Where are we on that progress on margin?
So the customer-wise share of business or our wallet share, we don't disclose those data. And in terms of the returns of the margin expectation, I think we are pretty much in line. But I'm not asking the full year perspective still, there is a way to go, because EBITDA, if you see that, we are still at around [ 11.3% ] on -- and if you all know that in the good year '18, '19, your cash flow grow. So that is going to be our target to at least surpass our the best ever performance in '18, '19. But quarterly, if you see last quarter, I think we had a really good -- sorry, full year EBITDA of 9.3% and last quarter is 11.3%, right? So we still have a little bit of room to improve I hope so.
The next question is from the line of Viraj from Securities Investment Management.
And congratulations for good set of numbers into the challenging environment. My question is broadly on 2 parts. One is, if I have to understand the Mission 2025 [indiscernible] -- if you give some color, one, in the sense that if you look at the actuals of risk, how would our market share change in the last one year? Because there's also a certain amount of CapEx which happened from [indiscernible]. So just trying to understand how would have that changed for us in last one year across these 2 categories. And any aspiration you would have by 2025? That do you have a certain market share started and what will guide that? And similarly, on the cost part, how would have our breakeven position really behave given that we have initially [ started ] automation and other operational excellence initiatives? So how would that change? So that is one.
In terms of the market share, the only thing I can tell you is this year that we and in every investor call, we get this question, and we answer in the similar way. Sorry for that. We don't disclose the actual market share because of the complexity it has, because a lot of OEMs make their own axles and they do some contract manufacturing and some they buy. So we don't do the market share in specific to the customer and the overall market to the outsiders. But coming back to the cost actions, but one thing I can tell you is our market share is on an improving trend. That is mainly because if you have seen our previous presentations, where we were doing a lot of new product introductions. We are getting into new segments. They were all contributing into our market share increments. In terms of cost actions, I will let Muthu answer that, please.
In terms of cost actions, I wanted to tell you the background of this. If you -- I'm sure that most of you are aware, the commodity prices have gone very high. And your company has been, at least at this point of time, as [indiscernible] in getting. But unless we improved in all of the areas like conversion in terms of fixed costs, we can't continue. Like what percentage, our Mission 25 strategy on cost reduction is one of the key areas. And your company in last quarter, if you see, we have improved our performance in both variable costs and fixed costs, which is what led to this.
So while we have an increased commodity on one side which is impacting our profitability, because of the base impact on other side, we continue to work on cost reduction for example, some of the areas. I'm sure that the [indiscernible] Digitalization of the plant is making us to see that how we can [indiscernible], thereby increasing their productivity of the people. The same way, the various cost reduction initiatives and so it team has done continue to focus on reducing the power cost, reducing the -- and working on. At this point in time, last quarter, the team has done an excellent performance, which is seen in the financial result. [indiscernible]
Yes, I understand. There's a commodity inflation, then it's been difficult to understand the efforts we are taking. [ And a kind of a thing ] in the sense of the breakeven point, how would that change? Last 1 year or last 2, 3 years. So that is one. And the market share increase which you talked about from new products, is that largely -- so is the captive part reducing, and hence, the overall pie is increasing, and our share in that increasing? Or the captive share is largely the same and then whatever new product launches we are seeing is between the existing openings? So that is one. And globally, there is an acquisition -- that has happened at the parent level, [indiscernible] Meritor. And post that, have we kind of seen any integration in terms of, I don't know, sales and marketing side, given that they are more strong on CV and off-road segment? Or in terms of the supply chain part? Any color you can give on that side as well?
Too many questions. I will answer the first 2 questions. And last question, I'll leave it to Thimmaiah on acquisition. First is on the breakeven point. You know that we have expanded the capacity in the year 2019, continue to outcome focus. One of the questions that was asked is, what is your utilization demand. For the -- our utilization is about 70% to [ 75% ]. But you can still see what is the top line revenue that we got underutilization on the plant, which indirectly indicates that how we have improved our breakeven point. I leave it to you, your judgment at that point of time. The second question, what you asked was, yes, our realization for Axles, we have improved because we have introduced a lot of new products which have improved the reliability.
And thereby, we are trying to get a more realization for Axles. And that is what is the growth in the top line which is happening. I think one of the question asked what is the volume growth and value growth? You could have clearly seen that our value growth is more than the volume growth, which is basically coming because of the value addition and the reliability improvement product that we make, which is bringing more realization to that. With those 2, [ some of questions of you ]. I hand over to Mr. Thimmaiah for talking about the acquisition and the impact to India business. Over to you, Mr. Thimmaiah.
Okay. Most of you have gone through the announcements by Cummins and also their investor presentation globally, et cetera. I think this acquisition from Cummin's perspective [indiscernible] fits very well in their overall strategy of providing the complete powertrain solutions. So they are very upbeat about acquiring Meritor globally, and are very happy about it. That's number one. Then number two is this test business is an add-on to them, which means that they didn't make any power kind of products to really optimize and integrate, but it comes with the new product vertical for them. So this is going to enhance the overall value for Cummins. And also coming back from Meritor perspective, it is extremely good acquisition, I would say, because we are investing in Meritor and stocking. They're investing with big electrification and future of e-mobility, et cetera. So with the resources and the financial power Cummins has, that investment can go multifold, and we can go faster into the market.
That said, from Automotive Axle perspective, at this point of time, we don't see any changes going to happen other than just the part ownership going to be changed from Meritor to Cummins. And as of now, still Cummins and Meritor are going through the shareholders' approval process. They're going through the regulatory approval process. And we are not talking to each other at this point of time. So we don't know at this point of time the overall -- how the integration is going to happen, what they're going to -- how the alignment is going to happen. Once the regulatory approvals have happened, then we will start talking to each other. Then probably by next investor meet, we should be able to give more insight.
[Operator Instructions] The next question is from the line of Sanjay Shah from KSA Securities.
And sincerely appreciate the whole team present to explain and help us to understand the company in detail. It was nice explaining about the Mission 25 focus of our company. But I would like, in this perspective and the growth, what we see current year also, and it's been endorsed by Tata Motors or Ashok Leyland also on the MHCV and bus demand coming in. Now we are working at 75% utilization. So what's the company's program ahead to enhance the capacity hereon? And it is coming in to a different leap in next -- by [ 2022 ]?
Now at this point of time, we don't plan to add any additional capacity in [indiscernible]. Of course, we will continue to invest into optimization, automation, and those kind of activities. As we are right, as we have said, we are still at around 70%, 75% utilization. With continuous improvement, our capacity will always keep going up because of the productivity, et cetera. So we don't see a need to increase capacity at least for next 3 to 4 years. While we are paying this by 2018, '19 was a peak year and MHCV segment from [ 7.5 ] and above, was around 480,000 unit.
And last year, we ended up with around, I think, 330,000 unit or something like that, right? So still, there will be a huge gloom available to go into that peak. Maybe this year, the overall industry might touch 380,000, 390,000 level. Still a long way to go to meet the 2018, '19 level. And with our capacity enhancement, what we have done, I don't see any reason why we need an increased capacity for at least next 3, 4 years.
Okay. So now can you highlight, upon addition of any new customers this year and coming ahead and even new products introduced?
Yes. Thank you. In terms of new customer, like I think you know that top commercial vehicle types, we are working. But your company is also continuously working with a lot of new players that were supposed to come. There are about more than 10 players who come into electric vehicles manufacturing at least in the plan. And we are working are up this company, and we have securing business to make sure that our actions are used in both vehicles. In terms of the products, like what we presented, we launched the 4 platforms in the days to come like [indiscernible] I think these are the product numbers which are a very, very clear technical applications to ensure the velocity of the product is up and different vehicle segments are coming on flights and into the competition. We continue to work on this. For your information, the product that we launched with the largest I think in India ,for the 55 tonne vehicle has been a grand access and doing very well.
The [ piper ] segment is what you produced and launched maybe this last quarter, last 2 quarters. It brings in the transition stage now. Still it is not completely done. That have been performed extremely as well. The company has also continued to work on focusing on the ICV segment, which is going up, by introducing the product to be for buses is quite right. And the latest addition to that is our axles of IT bus axles, which is going with quite right. And it is very well accepted by the customer deployed. So the team is continuously working on with all the way to make sure, not only the traditional OEMs, but also with the new platform OEMs. We do not know who's going to come, but we are working with most of the people do in the business in these segments.
I sincerely appreciate your understanding and being you as a technocrat and I'm not 2 [ hours ] of that. But what I understand is that what we are talking is of a good growth coming into Indian economy and where we are also optimistic about, I'm sure. And number two, that still there is a lot of penetration to be happened in MHCV side, bus segment and new [ EV ] vehicles and all. So don't you think that by the time we exhaust the full capacity, we need to have some plan in place to enhance that to higher levels from here?
I completely agree with you. That's what I think we are trying to explain. See, this year [indiscernible] '22, '23, we are expecting the market to be at around a number [indiscernible] 380,000 units. All the growth what we are talking about, what you are talking, that will amount to 280,000, 300,000 only because last year, it was around [ 220,000, 230,000 ]. So even if you say 25% growth, it could go up around [ 2 or 3 ] months. So we had capacity and again, you see another 2 years of 20% growth by 2024, 2025, the market will go to around 500,000 level only by another 2, 3 years down the line. And as we referred, we can handle, we have the capacity even if the market grows to around 500,000 level, which in last year was at 330,000 level. I think you're absolutely right that the market is growing, but you should also see that the DS is really low compared to what the peak commercial local market has in '18, '19.
Sir, any new business wins? I'm sorry if I missed out on that.
Last year, we spoke about this. I just told you about the [indiscernible] that we got it's quite right for an application in the bus segment, mainly older segment. The largest axle which I told, for [ 50% ] tractor trailer with an OEM and for this. So we continue to win the business. We have about 6 platforms of axle that we have -- and also in the brakes, we got the new business. And that is the primary reason why you are seeing that the value growth is going ahead much higher than what is the actual volume growth happening in the market.
So we have even started getting business from Tata Group because they have their in-house of axle, and they were supposed to outsource from outside.
Sir, we are -- as indicated earlier in many meetings, we supply brakes to Tata. And in respect of axle, because -- they have enough capacity with them, they use it as layered capacity. And they use it for specific applications like some of the bus stack they get it from us, because Meritor is well appreciated in the end customer for its reliability. So we are supplying some axles, but the rest of the axles, to be more frank with you, they have their own capacity, they have capacity. And that is the reason like what Mr. Thimmaiah earlier indicated the company is always again with many of the OEMs have their own active manufacturing. We have to work around on that and innovate the product always to make sure that we are able to penetrate with that.
[Operator Instructions] The next question is from the line of Abhishek Shah from Valcore Capital.
Obviously, sir, in line with what been saying, [indiscernible] job done by the team. Sir, one, the first question I want to ask is, if I just compare what we did back in 2018, that was about INR 1,500 crores. Our turnover is pretty much around that point. And that time, the market was at least 30%, 35% higher than what we are right now. So just want to understand, of this, how much do you think would be gaining market share and what would be volume growth? Maybe even qualitatively, if you explain, I would appreciate that.
So I think exactly right the point. When the market is less by 30%, we could still be able to achieve the value. That is because of the penetration of our share or introducing the value-added products. Both have really helped us in increasing. Of course, there is a commodity increase to a little extent is also there. So -- but the 2 major initiatives, so penetrating into the customer by increasing the share of business and also introducing a product where the realization works. These are the 2 that came in handy for us to achieve more growth. You are right. The market is at 25% lower than the peak -- or 30% lower than the peak. Still, we are able to achieve the same value.
Okay. Sir, second is on the strategy side. I think last when we spoke, I think, even in the past few quarters, you mentioned that besides the existing axles and brakes business we have, we are focusing on new products. Defense was also something that you were considering and was exports. So of these 3 new, new as in relatively smaller areas, is there anything -- I mean, can you tell us in -- at which stage in their life cycle are we at in terms of product development? Where is the defense? And maybe your next steps.
Thank you for the question. In terms of defense, there are about 11 platforms that we have worked in the last 4 years. Do you know the different spending against what government has committed still does not achieve the full value because of various issues, because of COVID and all. But the rest assured that your company is present in all the programs that we have, and we will start getting into that business. Different is the long-term gain. And that I think they're securing the business at this point of time is what our company is focusing. And the real fruit of it is going to come when really, I'm sure that the enhancement is [indiscernible]. The government is committing with more than 60% of the [indiscernible]. Your company has products in terms of very segment, both for tactical and also transportation and logistics vehicles. So we'll continue to focus on that.
In terms of the export, we continue to work. I think Mr. Thimmaiah explained last time on the challenges that we have in terms of export. The exports today with a huge shipment cost that is happening, all of you know that it has gone up by 5x to 6x. We continue to do a lot more to do that will become competitive at this point of time. But we are continuously pursuing and working on improving our export business to us. We have a very clear aspiration for that, and we continue to work for the business. The same thing is happening in the other segments of business, like suspensions and all. And you will come to hear this, because in the new product is getting introduced, particularly ahead of the market, it's taking a little more time. But these are the long-term investment that we are doing. We can definitely make us our organization much, much stronger.
Sir, is there any internal targets, let me say, in a Mission 25 or a percentage, maybe 1/3 of turnover to come from this, or any number that just to -- number or ballpark, whatever, if you give us some idea?
Like what Mr. Thimmaiah indicated earlier, normally, we don't disclose the segment-wise actuals on this. But you can rest assured that we -- the commercial vehicle cycle, which is going up and down, which is having a huge impact to all our business, we are trying to be reset by getting into this business. I think that is a general statement that I can give you, but especially our organization is working on to make sure that whenever they come, you could have seen, the commercial vehicle segment, how much they have done? How much drop will start to that level. That it is vindicated that much of new business in different verticals are coming into the business. Sorry, but I'm not able to answer you the details because [indiscernible]
No, no. That's right. I appreciate it. Just one more question. Sir, right now, if we see majority of the areas at cost and [indiscernible] across the industry, raw material prices have shot up, there are supply chain constraints. In such a situation, we've been able to come up with good margins. Otherwise, historically, any company would see a drastic fall in margin as this is what would have happened. I'm just trying to understand the industry dynamics. Is there a situation where competition has come down significantly at industry level -- or if I'm missing out on any point, if you can highlight for us.
For companies like us, Tier 1 world, which is applying to OEM on one side commodity increase. We are getting a huge pressure from both the sides. The customer is not able to pass on the money today and customers whereas the [indiscernible] are not able to hold the price of the prices is going up. The only assurance at this point of time, what I can give it to you and what we have done, you could appeal the performance of how much we are doing back to back with the OEM to see the impact for fewer companies nonpayer. I think that is the area we have succeeded and we do see whether the competition is not active. No, the competition will be active. The only thing is Meritor has been proactive in making sure that we have a reliable product ,we have an updated product that's available to ensure with the customers at -- I would not say you will depend on it, but customers are passionate with us to make sure that they continue to do the Meritor actions, which is really healthy.
Understood. Sir, sorry, just one, the previous participant asked a question on capacity utilized ratio. [indiscernible] also mentioned that at 500,000 units of volumes at industry level, we would still be able to supply. And that's why we are not immediately looking at adding any capacity -- just trying to understand this, I think was the number 600,000 earlier back in 2018, '19, when we added a significant sense of capacity? Or I mean, what is the maximum the industry can get to that we can -- before we have to add any capacity -- is it 500,000 or 600,000?
No, that was 480,000 [indiscernible] the market '18, '19.
So until then, we are okay, we have enough capacity?
Yes.
Okay. And that level, we reached peak utilization period.
May not be reasonable because that was [indiscernible], the company is also continuously working on. It is not the capacity what we have created in 2018 continuously there, but the digitalization efforts and the automation efforts, what Nagaraja presented to you, look like it on the technology advancements will make continue to increase our capacity. And that is what is the focus that we are all working and seeing that we are ahead -- just we are continuously tracking the OEM demand, how it is going. And at the right time, we automation will take a decision to invest on the balancing capacity or focus on the variable, make sure that we continue to deliver to the customer.
The next question is from the line of Sanjay Shah from KSA Securities.
Sir, my question was to Mr. Muthukumar. Sir, have you started getting any orders from LCV, ICV segment? And how big this segment could be in next 3, 4 years? Can we expect it to cross INR 100 crore as Ashok Leyland and Ashok Leyland is adding new capacities into CNG CV products? And they've launched 2 new models in CV 14 tonne also. So do we expect business from that [ time ]?
We are already presenting in 2 platforms for the ICV segment and the LCV segment. We are not migrated to sub the fixed end vehicle at this point of time. And in those segments, yes, we are working -- to your specific question, level, we'll get into the INR 100 crores at this point of time. As I said, we don't specifically, but we have our own target on LCV. And at this point in time, we are on track to meet the product. Not only with the Ashok Leyland, but also with Mahindra and their LCV we have launched a product which is running very well today.
Sir, regarding our margins, since we have -- our cost structure is always low. And where we see that we can expand the margin from here? What are the initiatives we have taken to make that -- improve margins from here?
The entire Mission 25 objective starts with that, continues to focus on reducing the material cost. We do the product innovation, we do the new design, we improve the reliability, thereby, cost of product, material cost comes down. We continue to focus on manufacturing efficiency to ensure that our conversion and fixed cost efficiencies [ go open ]. We all agree and our team manufacturing efficiency, team continuously work with suppliers, continue to see work rate on an engineering of the product. I think that is the reason.
So we continue to focus on all the areas in terms of material, in terms of conversion and in terms of the commercial efficiency and our productivity of the future. All this put together in all the verticals we are working [ with it in other product cost ], how much communication costs in the aspects of this company has like I think Ranganathan presented [indiscernible] and that's very appreciative, it's not that even transportation cost, how we can do in every area of the company is focusing on cost reduction.
It will help us to bring out our variable cost down.
I think you could have seen that our variable cost of we have broad came down over a period of last 2 to 3 years. The excellent amount of initiatives have been done by the plant to bring it down continuously.
My last question is regarding export. What is our percentage of sales in the export volume? And currently, how much percentage volume come from non-Meritor?
Sir, as we indicated, we don't give vertical-wise values at this point of time. And if you say non-Meritor business, we supply to [indiscernible], which was the earlier Volvo and those are the businesses that we are doing in at this time.
The next question is from the line of [ Krishna Kukreja ] from Lucky Investment Managers.
Congratulations on a great set of numbers. I had 2 questions, sir. We spoke about the volume versus value growth. I just wanted to get a sense of how both of these have compared over the last couple of years and if the value growth has surpassed the volume growth or vice versa. And secondly, if you could give us some guidance on the revenue growth. So what do you see it being in FY '23 and '24 going ahead? That would be amazing.
The value growth and volume growth, Thimmaiah already explained, while the volume growth is about 27%, 28% in terms of value growth it has gone more because of the higher realization of the product. We explained to you. In terms of the next Q3 revenue growth, I think if you see that the slide that what we have given we always probably outgrow. We are projecting 384 -- 380,000 vehicles at MHCV segment, in line with that our growth will be there. But at this point in time, because the industry volume is up and down we don't want to commit to any firm volume value product, but we will be outgrowing the market.
The next question is from the line of Devansh Nigotia from SIMPL.
Sir, just wanted to understand our pricing with the OEMs gross margin has been stable despite volatility in the steel prices over last [ 6 ] years. So is the pricing based on a per unit basis or it's on a percentage basis or a markup to the raw material?
No company is at least in the commercial vehicle business can mark up on raw material cost. I'm sure that you all understand it, and the markup on raw material costs have to be done only by the internal improvement. At this point in time, OEMs compensate only to be even not fully the raw material -- the company continues to work on improving the product, value the product, working with the sourcing our strategic suppliers to ensure the cost is coming down and focus on conversion efficiency to see that we offset direct of the cost.
It's challenging. I think the way in which commodity has gone up never gone up in the last 30 years. I'm sure that most of you know the steel prices have gone up and that is what is really putting a lot of steps into the entire system -- and many suppliers who were there before COVID is not there today. The supply chain is that every company is going to a revamp in the supply chain. And our company is also doing the same thing to see that how we can gear up for the next wave of higher numbers that's going to come.
Okay. Because I mean, if you look at this quarter's gross margin, material cost is around 72%. And I mean -- and if you look at the same number 3, 4 years back, used to be also maybe [ 49%]. Prices are at significantly higher level. So I'm just trying to understand, is this from the wastage control that -- all the efficiencies have come in? Or what exactly we have done here?
Our CapEx has come down. Our EBIT has improved. But still, if you see, like I indicated earlier, the compensation is done only for the material cost level. So every time when the commodity increase is there, this percentage will work even though not the actual of the past. I think these are the things that will be impacting the percentage.
Just to add to what Muthu said, we have been in MHCV segment quite long, and we have been working very closely with the market and with our customers. We need to succeed in the market. We need to have a very close watch on the market, what's happening in the commodity.
The lot of procurement efficiency we bring in to ensure that these sharp prices are mitigated, that's purely our smart [indiscernible] strategy and internal [indiscernible] strategy. This is also adding value to the whole process.
And if you can just elaborate on our strategy for exports. What is the target geographical area we highlighted or an existing customer in [indiscernible] Indonesia? But what is the bigger picture over here that we are looking at.
See we'll continue to see export don't look at our direct export? See, for example, whatever the exports that is happening like what we attributed [indiscernible] -- or we supply to them and then export, 100% of those exports use Meritor's axles. These are the areas also we are doing. We're not going to the directory of OEM, but whatever the exports from India, Meritor has a brand and because of that we are able to sell it out. But if you ask me target region wise, while we have an internal target, which we are working for North America, South America, Europe and the APAC region, that will be very, very difficult for us to out at this point in time.
Okay. Okay. So basically, these are axle supplied domestically and the OEMs are exporting their vehicles, right?
Yes. Because you asked for Indonesian market, whatever the axles will be supplied by them. [indiscernible] The buses that goes out of the shop level for exports have our axle. Okay, okay. It is where -- you have to get it to them and then get it done. And also on the commodity, you do the right thing that when the market is at a highly volatile. And we think -- we work very closely with the customers and make sure that we build confidence to them so that tomorrow, we will have a very strong relationship with [indiscernible].
So it's very easy to go and get the commodity prices at this time or push it. But at least, we want to be a partner and you got to make the decision so that our business grows along with the customer. Everyone needs to support each other in this tough situation to see that, at the end of the day, the overall Indian business grows and customers get benefited.
The next question is from the line of Shashank Kanodia from ICICI Securities.
Yes. Sir, firstly, just I'm a bit curious to know, because of this global transaction winning companies acquiring Meritor stake, wouldn't that take an open up for the Indian entity?
No. Maybe at this moment of time, [indiscernible] already mentioned the regulatory process, the legal process are going on currently. As far as the -- what's going to happen, how things are going to shape up, [indiscernible] so at this moment of time, part of the procedures followed as per as steady or in the [indiscernible]. So time being, we have no idea. And we wanted to keep our sight for answering this question, for time being, until proper dialogue or discussion happening between the 2 entities in India.
Because, sir, my understanding that it's a part of indirect acquisition, so we could have -- there was an expectation that some sort of initial notice separated by the new promoters of Automotive Axle.
We might have as the account comes from, so let's wait for more quarter, and let's see the details and [indiscernible].
Okay. And secondly, sir, you have been -- you're advocator of [ eAxle ] as a product. Sir, could you please specify, have you started supplying [ eAxle ] to any of the Indian OEMs? So supplying buses in the electric segment?
Not yet -- we are in discussion with many customers. We have not supplied anything yet.
The next question is from the line of [ Tami Birani ] from JPMorgan.
Sorry if I'm repeating this question because I joined a bit late. You mentioned in your presentation that you have been increasing the share of renewable sources for your energy and you also have a captive solar. So out of the 55% in FY '22, can you give a breakup of how much is coming from solar and other sources?
To see our presentation, between the FY '20 to FY '22, consumption also has gone up. At this point in time, we are about 30% to 35%, which is the renewable energy which is coming from solar. On top of this, we get about 3% to 4% of the hydropower, which is not a continuous model, but depending on the monsoon and [indiscernible]. But however, our company is working on adding up more facilities for solar with the partnership confirmed. And we will ensure that we increase this consumption of solar to about 70% to 73% in the years to come by 2025 or 2026. But at this point, we also know that we have a wind power, which is getting at about 7% of the power consumption. So all these things are working.
Okay. The reason I'm asking this question is because, obviously, in the near term, there is a lot of concern around thermal power and grid power. So are you facing any downtime in terms of production because of that? And how does that change your -- because I'm assuming that power is a significant input in your production sources. How does that change? And are you having to use backup power like diesel and all that?
The power will be very, very good for our organization with a continuous [indiscernible]. We don't have 100% power backup. But we have a dedicated line of mill. It's a line for our plants like a high consumption line. So that normally, we don't get impacted because of the power cuts, [indiscernible] et cetera. But as a country, you know, yes, our exposure to thermal power is more. But at this point in time, the place is where we are hoping it at. The government is proactive and trying to see that we don't have that mix impact at this point.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Sailesh Raja for closing comments.
Yes. Thank you all for attending this session. We especially thank the Automotive Axles team for their time. Do you have any closing comments you would like to make?
No. I think nothing more from my side. I think thank you very much for the continued support. And we hope we will continue to perform to your expectations. Thank you very much.
Thank you.
Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.