Endurance Technologies Ltd (CN)

NSE:ENDURANCE

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day and welcome to the Endurance Technologies Q3 FY '23 Conference Call, hosted by Axis Capital Limited.

[Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nishit Jalan. Thank you.

And over to you, sir.

[Nishit Jalan, analyst]

Thanks, Mike. Thank you, Mike. Good morning, everyone. Welcome to Q3 FY '23 post-results conference call of Endurance.

From the management, we have with us Mr. Anurang Jain, Managing Director; Mr. Ramesh Gehaney, director and COO; Mr. Massimo Venuti, director and CEO, Endurance Overseas; Mr. Satrajit Ray, director and group CFO; and Mr. Raj Mundra, Treasurer and Head, Investor Relations.

I'll now hand over the call to Mr. Jain for his opening remarks, post which we can have Q&A. Over to you, Anurang.

[Anurang Jain, executive]

Thank you. And good morning to everybody.

I would like to share details of how we have done in the third quarter and in the first 9 months of this financial year, FY '23. In India, in the third quarter FY '23, as per SIAM data, the two-wheeler industry sales degrew by 0.43% compared to the previous financial year. Scooters grew by 14.5% and motorcycles degrew by 4.6%. The automotive industry in India had a growth of 3.8%. In Europe, in quarter 3, there was an increase of 14.9% in the European Union automotive sales, including U.K.

On the financials, I will talk to you about the third quarter FY '23 and then the first 9 months of FY '23. During quarter 3, our consolidated total net income grew by 11.1% to INR 21,067.5 million from INR 18,965.9 million in quarter 3 of the previous year. Consolidated EBITDA grew by 19.2% to INR 2,510.2 million from INR 2,106.7 million in quarter 3 of FY '23 -- of '22. Consolidated EBITDA margin was at [ 7.9% ]. The net profit grew by 14.4% to INR 1,082.3 million from INR 946.3 million in quarter 3 of FY '22. And the net profit was at 5.1%.

There was no Maharashtra state megaproject incentive in quarter 3. There was no net debt and there was a positive cash available of INR 3,065 million.

During quarter 3, our stand-alone total income grew by 7.4% to INR 16,047.46 million from INR 14,939.05 million in quarter 3 of FY '22. Stand-alone EBITDA grew by 9.2% to [ INR 1,856.33 million ] from INR 1,699.50 million in quarter 3 of FY '22. The EBITDA margin was at 11.6%. Stand-alone net profit grew by 5% to INR 922.06 million from INR 878.46 million in quarter 3 of the previous year. The net profit was at 5.7%. There was no Maharashtra state megaproject incentive in quarter 3.

The Endurance Overseas sales growth in quarter 3 FY '23 was 26.1% at EUR 60.1 million, as compared to EUR 47.6 million in quarter 3 of FY '22. The Endurance Overseas EBITDA margin grew by 64.6% to EUR 8.6 million in quarter 3 of FY '23 from EUR 5.2 million in quarter 3 of FY '22. The EBITDA margin percent grew from 11% to 14.4%.

As far as Maxwell is concerned, the EBITDA loss of [ INR 61.5 million ] in quarter 2 FY '23 has come down to [ INR 46.7 million ] in quarter 3 of FY '23. The main reasons are the postponement of the launch of the Hero MotoCorp scooter EV, which is the VIDA; and the semiconductor shortage. Our full focus is to have a profit growth from the next financial year. For this, at Endurance, we are investing in our own in-house BMS assembly line, which will substantially lower the major costs of the BMS. Also, RMC or BOM, led by the semiconductor chip prices, will come down. Maxwell, being a startup, was not expected to post profits in the first year.

During the first 9 months of FY '23, our consolidated total net income grew by 19.9% to INR 65,943.19 million from INR 54,987.02 million in the first 9 months of FY '22. Consolidated EBITDA grew by 5.4% to INR 7,754.83 million from INR 7,358.64 million in the first 9 months of FY '22. Consolidated EBITDA margin was at 11.8%. The net profit grew by 5.7% to INR 3,431.09 million from INR 3,245.21 million in the first 9 months of FY '22. The net profit was at 5.2%. This includes the Maharashtra state mega project incentive of INR 585.56 million.

During the first 9 months of FY '23, our stand-alone total income grew by 23.5% to INR 51,361.31 million from INR 41,574.16 million in the first 9 months of FY '22. Stand-alone EBITDA grew by 10.1% to INR 6,016 million from INR 5,465.87 million in the first 9 months of FY '22, with an EBITDA margin of 11.7%. Stand-alone net profit grew by 14% to INR 3,044.06 million from INR 2,670.09 million in the first 9 months of FY '22. The net profit was at 5.9%. This includes the Maharashtra state mega project incentive of INR 585.56 million.

There was no net debt and there was a positive cash available of INR 1,836 million.

CRISIL, in January '23 of -- this year, has reaffirmed our rating as AA+ stable for long-term funding and the highest rating of A1+ for the short-term funding. The Endurance strengths cited included operations, financials, customer [ strengths ] and the diversified revenue streams. The risks cited were moderately high customer concentration and the industry's cyclicity.

The detailed financials are available with the stock exchanges and on the Endurance website.

I would like to share certain key points for the first 9 months of this financial year. In the first 9 months of FY '23, 78% of our consolidated total income, including other income, came from Indian operations; and the balance 22% came from our European operations. In India, till date of FY '23, [ INR 8,774 million ] of new business was won from OEMs other than Bajaj Auto, which included HMSI, Hero MotoCorp, Ather Energy, Hero Electric, Mahindra, TVS and Tata Motors. This new business will -- includes INR 7,221.3 million of new business and INR 1,552.7 million of replacement business.

The total business win for EV's, electric vehicles, till date is INR 5,771.8 million. This includes, in this financial year, INR 1,987.8 million of new orders for the EVs, mainly from Ather Energy, Hero Electric and Aptiv. I would like to mention that we have INR 19,866 million worth of requests for quotes from OEMs.

I would like to mention that, since FY '20, in India, INR 27,440 million of business has been won, out of which INR 19,620 million is new business and INR 7,820 million is replacement business. In this new business, out of INR 19,620 million of new business, INR 4,410 million has already -- will happen in this financial year of '23, FY '23. A further INR 6,730 million will be a further increase of business in FY '24. And the balance INR 8,480 million will happen in FY '25 and FY '26.

Our consolidated net worth is now in excess of INR 40 billion. Our customers recognize us as a trusted and capable partner in the value chain in terms of both our technical and financial strengths.

As I mentioned last time, the electronic vehicles market continues to offer significant opportunity for growth of -- for the auto component industry. It is estimated that Indian EV market will touch INR 150 billion by 2030, growing at a CAGR of [ 90% ] in the next decade. Therefore, at Endurance, we have taken a major step forward to harness this opportunity by executing a share subscription and purchase agreement for acquiring 100% of equity share capital of Maxwell Energy Systems Private Limited in a phased manner. We have already concluded the acquisition of 51% stake in Maxwell.

Maxwell, as you all know, is in the business of advanced electronics, particularly in the battery management space for automobiles, EVs and battery packs. We're happy to inform you that we have recently won a INR 700 million order for BMS from Hero Electric, which supplies will start in quarter 1 of the next financial year. With the current order book, order pipeline and technical strengths as well as synergies between Endurance and Maxwell, we are extremely confident of achieving our goals in the embedded electronics space.

In Europe. To help our overseas operations to grow in the European two-wheeler component profitable aftermarket business, we acquired an Italian company, Frenotecnica, in July '22. This company is involved in the business of friction materials and components for braking systems like brake pads for two-wheelers. They have a renowned brand name, Brenta, in the aftermarket and replacement business. This acquisition gives growth opportunities to the Endurance Group in the aftermarket; as well as provides access to in-depth know-how of process technologies of friction materials, especially for the brake applications.

Also, in November 2022, we acquired the Italian company Newfren SRL. Newfren is engaged in the business of brake discs, centrifugal clutches, pads and brake shoes for two-wheeler vehicles. The operations are carried out from its plant in Italy; and its subsidiary, namely GDS [ srl ], situated in Tunisia in Africa. The primary business activity comprises of sale of products under its trademark Newfren through the aftermarket channels.

The acquisition of our [ past ] Italian collaborators Adler and Grimeca in 2020, Frenotecnica in '22 and now with the acquisition of Newfren, we at Endurance Overseas want to create a center of excellence in Italy for a business of premium components in the two-wheeler segment, giving profitable growth opportunities to the Endurance Group.

I would like to mention that Endurance is focusing on a more value-add and profitable product mix in its future business, which includes the braking, suspension, advanced electronics and aluminum casting supplies for two- and three-wheeler EV OEMs and start-ups; 200-cc-plus motorcycle brakes and clutch assemblies with the help of acquisitions of Adler and Grimeca in 2020, the 200-cc-plus motorcycles brakes business that's already started and growing and the 200-cc-plus motorcycles clutch business which will start in quarter 1 of next financial year. Some other product mix focus areas are paper-based clutch assemblies replacing cork-based clutch assemblies for motorcycles. We are setting up a paper manufacturing plant at Waluj, Aurangabad as a backward integration, and operations will start in quarter 1 of the next financial year. This will help in lowering the costs of the paper and also the dependence on imported paper which comes mainly from the U.S. and China.

Another focus area is the continuous variable transmission or automatic clutch for scooters. With Hero MotoCorp, we are at an advanced stage of testing; and we expect to start supplies from the next financial year. We will increase antilock brake systems or ABS business for 125-cc-plus motorcycles with a collaboration with BeijingWest Industries. We have started supplies to Bajaj and Royal Enfield and engage with other OEMs for winning new ABS business.

We are increasing business also of the 200-cc-plus motorcycle inverted front forks and adjustable rear mono shocks. This is with the help of our collaboration partners KTM AG. We are increasing supply of both the on-road; and also will be starting with the off-road motorcycle, higher technology, inverted front forks and rear shock absorbers. We've also started supplies of inverted front forks to HMSI [ or Honda three-wheelers in ] India and have won orders for the inverted front fork from Hero MotoCorp; and also are in engagement with other OEMs to get new business for the inverted front forks and rear mono shocks. We are also focusing on fully finished machine castings, as compared to raw castings and semi-finished castings, for two-, three- and four-wheelers; as well as for nonautomotive castings.

This brake assembly business is growing with addition of Bajaj, TVS, Royal Enfield, Yamaha, Hero MotoCorp, Ather and HMSI new business. Our second plant at Waluj, Aurangabad has been set up for this increase in volume and has already started operations. As well as mentioned earlier, the supply of [ two -- ABS assemblies ] to Bajaj Auto started in last week of September '21. ABS assemblies to Royal Enfield, supply started from February '22, onwards. We will reach a run rate of 400,000 ABS assemblies in this month. As you may be aware, competition is mainly from Bosch, which controls the major market share of our Indian market which is about 3 million to 3.5 million ABS assemblies per annum.

We'll -- we are also in the process of supplying dual-channel ABS also by June 2023. And [ we are scaling up ] additional assembly lines for adding volumes of 200,000 ABS assemblies per annum by March, which is next month, of 2023 for the same, which will take our total volume to 600,000 ABS assemblies per annum. We are further planning to increase the volumes to 1.2 million single- and dual-channel ABS assemblies per annum by the second half of 2024. We will also, from next month which is March 2023, manufacture in house the ABS valves, which is not only a technology component but will help in substantial lowering of our costs and increasing our profit margins on the ABS.

We also focus on supply of our products for EV two- and three-wheelers. We've already started supplies of brake assemblies, suspensions and aluminum castings for electric scooter and three-wheelers. After the acquisition of Maxwell, we are also supplying BMS for 2-wheeler EVs and battery pack makers. Our focus is to supply our EV products to all the existing as well as new two- and three-wheeler OEMs. In this financial year, as mentioned earlier, we have won INR 1,988 million of new business for EVs till quarter 3 of this financial year. The total business win for EVs is INR 5,570 million till date. We have just got the LOI a few days ago from Ather for the front fork, rear shock absorber business for the Ather 450 elected vehicle. The business value is INR 230 million and it will start in the end of quarter 1 of the next financial year. We are also focusing on e-bicycles business, especially for our suspension, BMS and brakes. This is both for Indian OEMs as well as exports.

Due to increased orders from Bajaj, Yamaha India, TVS and Hero Electric, we have added a new plant at Chakan to help increase supplies of -- from 240,000 alloy wheels a month to 380,000 alloy wheels a month. This plant has started operations last year, in July '22. The supplies also started in the same month, and the supplies to Hero Electric will start from this month onwards. As far as Europe is concerned, till date of this financial year, we have won EUR 67.4 million of business, mainly from Volkswagen Group, Daimler and Stellantis, so in the last 2 years, approximately EUR 140 million of new business have been won. I would also like to point out that Endurance, both in India and Europe, is actively pursuing its focus on gaining access to new technology and focusing on new product organic and inorganic growth.

Also as I mentioned earlier, Endurance has entered to backward integration product areas, which are import substitutes also, first, with aluminum forging axle clamps required for our inverted front forks. Endurance has already -- Endurance entered into a technical collaboration with FGM Italy. And supplies have already started from our Waluj, Aurangabad plant to both Bajaj Auto as well as direct exports to KTM, which are growing. We also received orders [ for same ] assembly in under-bracket aluminum forging from Hero MotoCorp. We also engage with other OEMs for supply of aluminum forgings other than for inverted front forks. The aluminum forging segment is a huge opportunity for growth at Endurance. The second product is, of course, wire steel braided hoses for ABS applications for mid- and high-end bikes. This supply already started last year. And both these projects are helping us in our profitable growth.

In the first 9 months of this financial year, our aftermarket sales grew 7.33% from INR 2,874.48 million in the previous year to INR 3,085.15 million in the first 9 months of this financial year. We are exporting our aftermarket parts to 31 countries. And aftermarket sales growth is a very large focus area for us. In the first 9 months of this financial year, the export sales of the India stand-alone business degrew by [ 3.7% ] from INR 1,426.12 million in the previous year to [ INR 1,385.12 million ] in the first 9 months of this financial year. The major impact was due to lower export orders in our aftermarket, to countries like Africa, South American countries like Colombia as well as the [ Asian bet ].

On the environmental front, I would especially like to mention that Endurance is striving to be carbon neutral in its plants by effective use of solar power and wind power, creating carbon sinks by driving tree plantation and thereby creating dense forests and driving use of natural gas and LPG in place of electric power and furnace oil. The use of furnace oil has been completely stopped at Endurance. We are also focusing on lowering hazardous waste generation and to achieve 0 waste to landfill.

At Endurance, it will be a continuous endeavor to grow through organic and inorganic growth, with a focus on technology upgradation, quality improvement, our costs and environmental, health and safety. We will do our best to fulfill all our stakeholder expectations by following our 5 values of customer centricity, integrity, transparency, teamwork and innovation.

We at Endurance have a very positive outlook based on our new large order business wins since the last 3 years, including for electric vehicles, both in India and Europe.

With these opening remarks, I would like to now invite questions from all of you. Thank you.

[Operator]

[Operator Instructions] We have the first question from the line of Aditya Jhawar from Investec.

[Aditya Jhawar, analyst]

My first question is on our EV components. So firstly, congrats for the BMS order from Hero. So going ahead, what is the expansion strategy for EV components?

[Anurang Jain, executive]

As far as strategy is concerned, as you know, suspension, brakes as well as aluminum castings are the orders we have been getting, so far, apart from the BMS, of course. So Hero Electric is order which we have already won for the BMS. So these are the products as of now which we are focusing on. There are new products. I can't talk about those on this call, but when we start that or we are about to start that, I will talk about the new products in the electronics space also, but we are working very, very actively on that. So right now you can say for the EV is your suspension, front fork and shock absorbers, brakes; and different types of aluminum castings, including case transmissions, battery housings, motor housings. So this will be our focus. And of course, our focus for EV is to engage, like I said, with all the existing as well as the new OEMs. And we are fully engaged with them, and that's why the wins are happening quite fast. We have been a late entrant [ by a year ], but now I would say, because of our strengths in process and product technology, the business wins are happening quite fast. And that's why we have already won in 9-months INR 8,770 million worth of new orders, including almost INR 2,000 million of EV orders. So the strategy is this, to win orders from existing and new OEMs, and we are engaged with all of them.

[Aditya Jhawar, analyst]

[ Fair enough ]. For the European business, we saw there was a price pass-through for a few customers, but should we expect that another -- a quantum of price pass-through with some of other set of customers to come in Q4? Or largely it has done in Q3 itself.

[Anurang Jain, executive]

Are you talking about new customers?

[Aditya Jhawar, analyst]

No, no, no. So I'm talking about the energy cost pass-throughs...

[Anurang Jain, executive]

I -- so -- okay, okay, okay. So I will request Mr. Massimo Venuti to answer this.

[Massimo Venuti, executive]

Yes. During the third quarter of this financial year, we've increased our EBITDA compared to the previous year and also compared to the previous quarter due to the fact -- for 2 different and positive situations. First of all, we received a part of incentive from the government, from the Italian government. And the second one is that, fortunately, all the customer [ accepted to support us ] to recover more or less 50% of the total cost -- of the total delta energy costs compared to the previous year. If you analyze our profit and loss, we closed with 14.4% of EBITDA compared to 11% of the previous financial year; and more or less, with the same increase compared to the previous quarter of the previous financial year, where as you know we didn't receive support from our customer. I can tell you that also, for the future quarter, the situation with our customer is already defined, so we can say that we can offset the increase of energy costs. Speaking about: The incentive from the government is not clear because, unfortunately, in this moment -- the Italian government officialize that it will support the company till the end of March 2023. [ And after it ], we will see, but fortunately, as you have seen in the last 2 months, there was an important reduction of energy costs compared to in the previous quarter. And so we are optimist to manage the situation in a correct way.

[Aditya Jhawar, analyst]

Yes, and that's helpful, Massimo. Massimo, if you can give us some sense on how is -- the demand outlook is looking like in Europe, especially in our countries like Italy and Germany. What are the sense you're getting from customers?

[Massimo Venuti, executive]

Yes. So in the previous quarter, first of all, we closed with EUR 60.1 million of turnover compared to EUR 47.6 million of the previous financial year. And certainly that is in Europe we grew 26.1%, compared 14% of the total market. And so [ I think ] that we are taking share from our competitors, as you can imagine. The sentiment, frankly speaking, in Germany and Italy and Europe is not so good in terms of volume due to the -- a very weak demand due to the inflation, due to the increase of interest rate. And so if you compare the results of this quarter compared to the previous year, for sure, the situation is positive, but I want to underline that the third quarter of 2021 was the work of the history in Europe. And so -- but as in Europe's -- I can tell you one thing. In this moment, the [ most ] positive info regarding the previous quarter for Endurance Overseas is the acquisition, as Mr. Jain told you before, of other EUR 42 million business in 1 quarter, of which EUR 25 million was with Volkswagen Group and EUR 17 million with Stellantis. And please consider that, this EUR 25 million with Volkswagen, 100% electric project. And this EUR 17 million with Stellantis, 17 -- 100% of hybrid technology. And certainly that, in the last 2 years, we acquired more or less EUR 140 million or more than 50% of our customer portfolio, 30% completely electric, 53% completely hybrid. And so it mean that we are following the market in the correct way. Because 2 days ago, we received [ the study of the outcome over the ] previous financial year [indiscernible] and calendar year January-December 2022. And in Europe, the electric vehicle reached, in 2022, 13% of the total market. And so it mean that, if in our portfolio we have more or less 30% of electric components, we are in a strong situation for the future months and for the future years.

[Aditya Jhawar, analyst]

Yes. And a similar question for the India business, Anurang. Last year was a little bit of a challenging year for us. How are you seeing the next year both in terms of growth as well as on margin?

[Anurang Jain, executive]

See, I think the most important, I would say, aspect for Endurance and its 19 plants in India is that the capacities are used up. In fact, we could have done much better in quarter 3, barring the fact that, towards the latter part of the quarter, the sales really dropped. And it's from all OEMs, even if you see the SIAM figures of the industry. I mean the last 30 to 45 days of the quarter was quite weak. And for us, in the 19 plants, we have done enough of consolidations in the past. We don't want to consolidate anymore the plants by shutting down plants. We want to get new business. And that's why I mentioned about almost INR 28,000 million of new business which we have won in the last 3 years. So we have to occupy the plants. So I would say, as the capacities get used up, the margins become incremental for us, which I've mentioned even the last 3 years. I've been always saying that. And that's why we feel we could have done much better with, I think, volumes being much better. Of course, quarter 3 is always worse than quarter 2 every year because quarter 2 is more of a quarter going in the festive period. And that's why quarter 2 is always the best amongst the best quarters, quarter 2 and, I would say, quarter 4 also.

So I think one is on the volumes front, definitely with the new order wins; and like what I mentioned, that out of this 2,744 million (sic) [ INR 27,440 million ], 1,962 million (sic) [ INR 19,620 million ], 72%, is new business. In this new business, this financial year was INR 4,410 million. Next year, INR 6,730 million of new business will be added irrespective of what happens in the market. And from FY '25 and FY '26, it will be INR 8,480 million of further incremental business will be added.

So our strategy is to go for profitable new business growth. And it helps us further because, when we occupy these plants, the economies of scale really improve for us and the profit becomes incremental there. So our strategy is that, to be honest. And of course, like I mentioned earlier, EV is a large focus for us.

[Operator]

We have the next question from the line of Jinesh Gandhi from Motilal Oswal.

[Jinesh Gandhi, analyst]

First, can you share the revenue, EBITDA impacts for Maxwell [ and impacts ] for European operations?

[Anurang Jain, executive]

Yes, sure.

[Unknown Executive]

Can you repeat the question, Jinesh?

[Anurang Jain, executive]

He wants the, I think, financials, EBITDA...

[Unknown Executive]

Are you looking for sales and EBITDA numbers for Maxwell and Europe?

[Jinesh Gandhi, analyst]

Yes, yes, revenue and EBITDA impacts.

[Anurang Jain, executive]

Yes. So Maxwell total income for this quarter was -- quarter 3 was 58 million. And loss at EBITDA level was INR 47 million. And I would like to tell you that, in the last quarter -- I have shared that we started consolidating Maxwell from quarter 2. In the last quarter, their total income was 40 million. And EBITDA -- loss at EBITDA level was INR 61.5 million. So as you can see, from quarter 2 to quarter 3, there has been a marginal increase in sales and the loss at EBITDA level has come down. So I would request Massimo to cover and give you the Europe numbers.

[Massimo Venuti, executive]

Okay. In the third quarter, we closed with EUR 60.1 million turnover with EUR 8.6 million of EBITDA, 14.4%; and with a net result of EUR 3 million, 5.1%. The increase compared to the previous year was 26.1% in turnover, 61.6% in EBITDA and 171% in terms of net result. I want to underline that, without consider the increase of aluminum price, the EBITDA should have been 14.7%, compared 14.4%, of the previous in the -- compared to the previous financial year, but if I compare the impact of the raw material compared 2 years ago, only to give you an idea about the situation in our profit and loss, the EBITDA should have been 16.4%, compared 14.4%. And so it mean that, in the last 2 years, we lost 2% in our EBITDA in terms of percentage only due to the increase of raw materials.

[Jinesh Gandhi, analyst]

Okay, okay. And continuing on the European business. So can you share the order intake number? I missed that part. It was 40 million for the first 9 months. Is that correct?

[Anurang Jain, executive]

Will you repeat the order...

[Massimo Venuti, executive]

Yes, okay. We acquired in the last quarter EUR 45 million -- EUR 42 million of business. Because the previous quarter -- with EUR 25 million business acquired. And this quarter -- the year-to-date is EUR 67 million, EUR 42 million more, of which EUR 25 million with Volkswagen Group for different parts, 100% electric, of the platform and EV; and EUR 17 million with Stellantis for clutch housing of the new transmission for the hybrid vehicles. Year-to-date of this financial year, EUR 67 million of new business acquired, year-to-date compared; in the last 2 years, EUR 140 million.

[Jinesh Gandhi, analyst]

Got it, got it. And with respect to availability of chip supplies, are you seeing that getting addressed in a material way and productions are now coming back to normalcy? Obviously it's not -- might not be back to the full normalcy, but you are seeing sustained improvement on -- quarter-on-quarter basically on the chip supplies.

[Massimo Venuti, executive]

So the situation of the chip supply in this moment is, from my point of view, under control, also because, as I told you before, the demand is very weak. And in this moment, the volume are not so good. For this reason -- for sure, the customers are recovering in this field. Probably there continues to be some problem in specific premium car, but in these moments I can tell you that this is not the problem of the European market. In this moment, the problem continues to be the inflation and the interest rate because, with this level of inflation, in some ways, as you can imagine, we have to increase also the salary. Otherwise, we can't go and -- we can't manage 11% of inflation in the European market. We are not used to have this level of inflation. Speaking about the raw material, I hope that, due to the recession that will arrive in the next months due to the inflation, there will be a reduction. And so probably we can come back to the normality of the previous financial year. And so in this way also, in terms of percentage of EBITDA, we can recover.

[Jinesh Gandhi, analyst]

Got it. And my next question pertains to the India business. So clearly we have seen some moderation in demand, post festive season, in the two-wheeler side. How does the order book look like or production schedules from our customers look like going, getting into the fourth quarter which is also [ a merit season ], heavy quarter?

[Anurang Jain, executive]

So the quarter 4 is always better than quarter 3, so it will be better, for sure, quarter 4. And so I mean, to answer the question: Quarter 4 will be better than quarter 3.

[Jinesh Gandhi, analyst]

Okay, okay. And are we seeing any benefit of lower aluminum prices now percolating to our P&L, at least some perspective of mathematical benefit?

[Anurang Jain, executive]

No. I don't think -- because I think there has been a correction already in the aluminum as well as steel. I am not seeing any correction in quarter 4, any further correction.

[Operator]

We have the next question from the line of Aashin from Equirus Securities.

[Aashin Modi, analyst]

So sir, aftermarket sales in 3Q was down 6%...

[Operator]

Mr. Aashin, your audio is not very clear. We request you to, kindly, come a little closer to the microphone.

[Aashin Modi, analyst]

Am I audible now?

[Operator]

Yes.

[Aashin Modi, analyst]

Yes. So sir, aftermarket sales this quarter is down 6% year-on-year, which we have highlighted has -- facing some headwinds from exports. Sir, could you help us break down and give domestic aftermarket sales numbers and give a guidance on what aftermarket sales in domestic market is? Like...

[Anurang Jain, executive]

Okay, I would request Mr. Ray to answer that.

[Satrajit Ray, executive]

Our quarter 3 domestic aftermarket sales for FY '22 was 844 million versus 871 million, which is a 3% increase quarter 3 versus quarter 3. And exports declined from 303 million to 208 million, which is a decline of more than 31%. So on the total, aftermarket sales, from 1,147 million, we came to 1,078 million, which is a 6% decrease, but if you look at the 9 months period, domestic sales went up from 2,061 million to 2,531 million, which is an increase of 22.8%. And exports came down from 813 million to 554 million, which is a decline of 31.8%. So in totality, 2,874 million, that is YTD December FY '22, versus 3,085 million YTD December FY '23, which shows us a growth of 7.3%. Export markets, predominantly Sri Lanka, Bangladesh, Egypt and certain parts of South America, have not picked up as soon as they should have, but we believe that in the next 3 to 6 months things will improve in the export market.

[Aashin Modi, analyst]

And sir, my second question is regarding ABS. So we were saying that we would -- in last quarter, we have mentioned that, by December '22, we would get an approval of dual channel in ABS from RE. So where are we on that? And also if you can share the 3-month and 9-month number from -- revenues from ABS. And how do you see that run rate going forward?

[Anurang Jain, executive]

So one is the dual channel is under approval, first, at Bajaj [ actually ]. And RE, of course, will follow. Our capacity will be ready by end of March. And we hope to start supplies sometime in the second half of the first quarter of the next financial year because our capacity will be going to 600,000, which will include about 200,000 of dual channel. And like I said, we'll go to 1.2 million by the second half of 2024. So that's the plan. Well, I can't tell you the value because -- although I've told you the numbers which is there, I cannot give the value because you'll know the pricing; and that's a concern. That is, I will say, something I can't share.

[Aashin Modi, analyst]

[ All right ]. And then what sort of run rate do we see from ABS going forward? And what sort of...

[Anurang Jain, executive]

See, what you will see is a much more profitable growth. Like I said, this is technology component which is a valve. We are starting actually end of this month itself, and March will be the normal supply. And all the valves will be made in house. We have the technology from BWI. They have really helped us with this. And this will substantially bring down the price compared to outsourcing, so I think this initiative will give us a much more profitable growth on the ABS. So that's what we could expect is a much better profitable growth in the ABS business.

[Aashin Modi, analyst]

And sir, my third question is in terms of our EV order book in India. So there are a few players who are facing actions [ due to same, to subsidy being taken off ], so especially [ new electric ] [indiscernible]. So if you can give us some idea about what percentage of our order book are coming from these players. And do you see any problem, [ pressures ] over there?

[Anurang Jain, executive]

So I would say the percentage, if I include this BMS also, order which we have got, from both these companies, would be about 20%, is my rough estimate, [ as you just asked me ]. I don't have the figure, but I think -- so we'll have to see how that plays out, [ their aim to subsidy ]. And there, of course, I have no idea at all, to be honest, but like I said, we are engaged with everybody and we are going to win orders from everybody. And what volumes they do, that depends on the market and how their vehicles sell.

[Aashin Modi, analyst]

Okay. And sir, my last question is on the CVT supplied to HMSI. So we have said that, from [ 4Q FY '23 ], you expect that, so where are we on that?

[Anurang Jain, executive]

Actually, for the testing, in a way, it's almost been cleared.

[Unknown Executive]

[indiscernible].

[Anurang Jain, executive]

I mean yes. We are talking about HMCL, right, Hero MotoCorp, yes.

[Aashin Modi, analyst]

Yes, yes, sir...

[Anurang Jain, executive]

Yes, yes. So testing is almost cleared. It's there are some finer, I will say, tuning on the acceptance criteria. We are in a real hurry to start this also with Hero MotoCorp, so that is something which is -- I know, gone slower than expected, but we are totally at it to see that we get this cleared, as far as for supplies.

[Operator]

[Operator Instructions] We have the next question from the line of Nishit Jalan.

[Nishit Jalan, analyst]

I have 2 questions, Anurang. Firstly, on the casting side, we had -- got a lot of orders from four-wheeler OEMs and also some non-auto customers, so just wanted to understand. Where are we in that? And how much ramp-up can we see in that business over the next 1 to 3 years? And my second question is on Europe. Massimo talked about incentives from Italy government in this quarter, so I just wanted to understand. What was the quantum of that? And will this be recurring in nature, or will it -- will we get this in 1 or 2 quarters in a year? So this is, sir, my first 2 questions.

[Anurang Jain, executive]

Yes, yes, okay. So first bit, I'll reply. So if you see -- I mean, as far as the four-wheeler business is concerned, like I said, we have got almost INR 250 crores from Hyundai and Kia. That's why, second plant in Vallam, we started last year. And because, I would say -- and I would also say, from Tata Motors, we have got new orders; and even from Mahindra & Mahindra. So I think this four-wheeler increase has already started to play out because, if you see, it is basically the casting business which is driving up our share of business in the four-wheeler. So what was, I would say, a year ago, these -- so if you see, the share of the four-wheeler was at about 6.5%. It's now more than 8% in the total share of our sales value. And slowly, we want to take this higher, step by step, which is there. So definitely we have a very large focus on the -- as far as the four-wheeler casting business is concerned, the total machining. And of course, what is not coming in here is also the nonautomotive business which we have got from Sanmina for the castings required with the tie-up with [ Jio towers ]. It's almost a INR 750 million business. And even from Generac, for gensets, that export business to this company called Generac in the U.S. That's about a INR 450 million business, which is still to start. So I think this will also -- so I would say the four-wheeler and the nonautomotive. We want to take it now more than 10%, but we want to go step by step. But that business is doing well. I mean that is increasing, to answer your question.

[Nishit Jalan, analyst]

Sure. And the Europe side...

[Massimo Venuti, executive]

If we -- about the energy -- the Italian government gave in this quarter, the third quarter; and also in the first quarter of this [indiscernible] January, March 2023, an incentive of 45% of the delta energy costs compared to the previous year, 45%. This incentive is a tax credit [indiscernible] we have a benefit immediately in our profit and loss. And we can compensate the payment of tax in terms of cash-out, starting from, let me say, July of the next -- of 2023, when we pay the normal tax [ in front of the government ]. This incentive is only a shot because, starting from April -- this is -- it's not clear. We will see the position of the government. It is the only incentive [ we're receiving in Europe's overseas ] because the German government -- even if it was an [ EUR 200 billion ] for the next 3 years in order to support consumers and companies, till today, it's not clear in which way they will support the company. They will officialize the situation, apparently, within June of this financial year. I have to be very honest: The last period of time where we have had anything to share with you is a reduction of 50% of electricity and 52% [ of gas ] compared [indiscernible]. Now the situation in this moment is, more or less, under control. And for this reason, the government is taking time in order to officialize the future of incentives, but in this quarter, the only support was from the Italian government.

[Nishit Jalan, analyst]

Okay. Just one last question. What was the total CapEx for us in the 9 months, so far? And I understand that in India we would not need to incur any major growth CapEx given the capacity utilization is low, but in Europe we are growing very well, gaining market share. Would we need to incur any growth CapEx in Europe in next year?

[Massimo Venuti, executive]

Yes, so speaking about Europe. In this financial year, at the end of November, we closed with a gross CapEx of more or less EUR 25 million. The net CapEx will be most clear at the end of March, as you can imagine, because we are covering part of these investments from our customers. Speaking about 2023, '24: In this moment, we are preparing the budget, but I can tell you that these -- the next financial year will be the much important effort of our history in terms of investment because we are installing the production capacity for the EUR 140 million of business acquired in the last 24 months. And so we could reach also EUR 40 million, EUR 45 million, EUR 50 million, but now we are speaking about the total investment and not cash-out because we have to see which will be the impacts of the support from our customer in terms of lump sum for the tooling and also -- for the tooling of machine and also for the tooling of foundry. But apparently, we could spend, more or less, EUR 45 million in the next financial year.

[Operator]

[Operator Instructions] We have the next question from the line of [ Anik Mitra from Findata Research ].

[Unknown Analyst]

Am I audible?

[Anurang Jain, executive]

Yes. We can hear you.

[Unknown Analyst]

Yes, sir. Sir, my first question is in the presentation it was mentioned, along with some other parameters, elevated metal prices helped top line growth. Can you throw some light over this?

[Anurang Jain, executive]

Yes, yes. He is talking about the metal prices as part of the sales growth, [ yes ].

[Satrajit Ray, executive]

Yes. See -- yes. So typically what will happen is, when metal prices go up, it affects my raw material costs. And similarly there is a pass-on of that cost on my top line also through the sales price. So suppose today I am at INR 100 of sales and INR 70 of raw material costs. If there's a INR 2 increase, INR 100 will become INR 102 and INR 70 will become INR 72. So that's the kind of impact that happens. So that -- I mean in quarter 3 that amount, to my mind, was not extremely large for a company of Endurance's size. It was close to 30 crores, but for the 9 months, it was much larger. It was close to 300 crores.

[Unknown Analyst]

That means, sir, 100% pass-on is possible from year-end.

[Satrajit Ray, executive]

Yes.

[Unknown Executive]

Yes, yes...

[Anurang Jain, executive]

Yes, yes. It is passed on every [ quarter ].

[Unknown Analyst]

Okay. And sir, my next question is you have acquired a couple of companies. One is Frenotecnica, Another one is Newfren SRL. So sounds quite similar in terms of name. Like are these 2 separate entities altogether?

[Anurang Jain, executive]

No. They are both separate companies, completely separate companies.

[Unknown Executive]

Owners were different.

[Anurang Jain, executive]

And different owners.

[Unknown Analyst]

Okay. And sir, when we can expect some contribution from these companies to our top line and EBITDA.

[Massimo Venuti, executive]

I -- for sure. [ I hope ], yes, for sure. The strategies in the next 24 months, to prepare an analysis because, as I told you in the past, the strategy is to enter in the aftermarket in the two-wheeler segment in Europe. And for this reason, we decided to acquire 2 important companies -- because Newfren is [ absorbed with ] -- very, very, very well recognized in terms of brand for clutch and for brake components; and from a technical -- specialized in the -- in brake pads in -- not only in the 2-wheeler motorcycle but also in the bicycle. Newfren -- the acquisition of Newfren of the -- on November 2022 has a reason also in the industrial footprint of the company because, as Mr. Jain told you, we have a plant in Tunisia. And this plant could be really competitive in terms of cost of production for all the range of products of the two-wheeler. The strategy is to try to make synergy between Adler; Grimeca; [indiscernible], the brand already in our portfolio [ till ] the previous financial year; and now also Brenta, the new brand in Frenotecnica; and Newfren. And to define different position of -- for each brands into the market in the two-wheeler, motorbike, bicycle market; and to increase the profitability, for sure, I hope. In this moment, we are thinking about a total turnover for all the company of more or less EUR 13 million, EUR 14 million, but our target is to increase, to reach the double in the next 3, 4 years. This is the strategy.

[Operator]

Thank you. That was the last question. I would now like to hand it over to the management for closing comments.

[Anurang Jain, executive]

No, I don't have any further, I think, comments. Whatever comments I had, I made it in the opening remarks, but I want to thank everybody for this call.

[Unknown Executive]

Thank you.

[Massimo Venuti, executive]

Thank you.

[Unknown Executive]

Thank you.

[Operator]

Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.