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Exide Industries Ltd
Earnings Call Analysis
Q2-2024 Analysis
Exide Industries Ltd
The company is preparing to stabilize a newly launched project, with expectations to start production by the end of the next financial year. Despite the time required for stabilization, there is considerable confidence in the project, as demand seems robust with national demand estimates ranging from 100 to 200 gigawatt hours. The company's leadership is confident about rapidly achieving break-even, underlining that capacity evacuation, essentially turning production into sales, is the least of concerns given strong customer response.
In industrial markets, the company is experiencing growth across all segments, such as telecom, solar, and UPS power. They have established themselves as market leaders in each industrial segment they operate in, a testament to their robust universal presence and diverse industrial appeal.
The company has successfully navigated past issues with automotive exports that were subject to antidumping duties. By reconfiguring products to be outside the scope of antidumping, they have resumed supplies, highlighting their adaptability in international trade.
While the order book has remained consistent, indicating strong and growing demand, there have been schedule adjustments due to some difficulties faced by two-wheeler manufacturers concerning Production-Linked Incentive (PLI) schemes. These changes in timelines have not affected the volume of orders, maintaining stability in future revenue projections.
With the growing electric vehicle (EV) market, the company is exploring its positioning within the three global models of EV battery supply. They recognize the massive CapEx required for battery manufacturing and anticipate many OEMs relying on manufacturers rather than managing in-house production. With these market dynamics and expected demand, they are confident about the promising outlook for their lithium-ion venture.
Leadership has expressed a strategic focus on their core business areas rather than diversifying into adjacent or unrelated product lines. This focus underscores a confidence in the growth potential and competitive strength within their existing markets and offerings.
The company utilized a bridge finance solution, which they intend to repay from core business generation without needing to liquidate any investments. They assure there is no difficulty with this financial approach, suggesting a comfortable liquidity position and an ability to manage cash flows effectively.
At this time, the company is not considering exports for their new capacities, preferring to concentrate on the domestic market. This decision could imply there is ample demand within the home market to absorb the new capacities or may reflect a strategic choice to strengthen their domestic market position before venturing more aggressively into exports.
Company analysis has made evident gains in market share, and with internal operational efficiencies, they are positioned to enhance their market share even further, leveraging both market growth and competitive advantages.
Despite the complexity of scaling production for large-scale projects, the company aims to stabilize production expediently with help from their partner SVOLT. They forecast no issues with the orders to utilize full capacity, positioning them for a quick scale-up once production stabilizes.
Regarding the financial prospects of the newly launched project, the company looks to achieve similar EBITDA margins as their current levels, indicating that new ventures won't act as a financial drag. The capital expenditure for the initial phase is approximately INR 4,500 crores, including equipment, operating expenses, and GST. They expect this investment to be completed within FY '25.
The inverter segment, contrary to expectations, continues to grow even with increasing rural electrification. This growth is attributed to the still prevalent power quality issues in rural areas, suggesting a long-term demand for quality power solutions like inverters. With rural digitalization trends, power requirements are solidified as essential for education and daily life, indicating this market will endure.
The company acknowledges the inherent volatility of commodity markets but has witnessed an improvement in margins year-over-year and quarter-over-quarter, even with some net cost increases. This performance showcases their ability to optimize costs despite fluctuating market conditions.
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Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Call of Exide Industries Limited, hosted by Investec Capital Services. [Operator Instructions]. I will now hand the conference over to Ms Swapna Bhandarkar from Investec. Thank you, and over to you.
Good morning, everybody, and thank you for joining for the Q2 FY '24 earnings call of Exide Industries. My name is Swapna, and we apologize for the little bit of delay. We have the management of Exide with us. And I think [ Riku ] we can start, without further delay, we can start Q&A, please.
Yes, Ma'am. Thank you. We will now begin the Q&A session. [Operator Instructions].
While we wait for the call, we have the management and Mr. Subir Chakraborty, the Director of Finance and CEO and CFO, Mr. Asish Mukherjee. Along with them is Head of Investor Relations, Chhavi Agarwal. While we wait for the questions, I would request you to make some opening remarks for the audience, please.
Yes. So good afternoon, all of you, and thank you for joining this call. So we have just concluded the Board meeting and announce the results, which you may have seen in the various kinds of media. So we are looking at a situation where there is robust growth in lead acid industry, particularly in Q2, which is also backed up by very healthy growth in profit margins and profitability. So we hope that the trend will continue in the near to midterm, as we have stated, as I have stated in the press briefing. We are very well poised today not only to not only grow in lead acid, but also complete our lithium-ion project on time so that we are able to start production on schedule. So any questions have come?
Yes, sir, we will begin the Q&A. [Operator Instructions]. Our first question is from the line of Vibhav from JPM. Please go ahead.
Good afternoon and thanks for taking my questions. Congratulations from the strong business. My first question is on the lithium ion side and, particularly, what's happening globally to prices of lithium sales and raw materials; looks like hikes have come down considerably, and we could be heading into a more supplied market, at least in the New York, it looks like profitability across the value chain is getting impacted. Now, obviously, it's early days for you, but I just wanted to get a sense as to how you are reading into this environment. Is it getting easier for you to find alternate sources of suppliers? Is the decrease in nominal costs more than offsetting the decline in sale prices? Any early leads would be helpful.
Thank you for your question. Commodity prices globally keeps on fluctuating. Nobody depends on the commodity prices. They depend on various factors, including geopolitical factors, demand supply sections and so on. So now the question is, how does one see our project during fluctuations. Now the answer is not very complicated. We also operate in another such kind of environment, which is the lead asset. Lead is also a commodity keeps on fluctuating. So therefore, patience, which happened in the commodity prices, that should not be the deciding factor in getting to a project or getting out of a project because that is a fact of life. The question is that how does one then ride over these fluctuations. So all that I can tell you is that our technology agreement with supply would also include supply chain management. We get access to supply sources. And so therefore, to a large extent, we can floor with the global trends. And depending on the commodity prices, the pricing of the end product also changes, as we all know, for all such cases. And this is what is likely to play out. And we do not feel that this in any way will affect the profit or the profitability of the venture because, obviously, these corrections will have to happen in the marketplace.
Got it. Great. That's very helpful. And as a follow-up, could you provide the revenue and EBIT breakup in your subsidiary ESL for this quarter? And how much are you expecting in this financial year because you have a strong order book of around INR 600 crores to INR 700 crores?
The EESL has not yet started operating. ESL project is still in progress. And I think you are referring to EEP. Yes. So you're referring to that. Yes, we have a strong order position, which will get executed in the next eight to twelve months going forward. And the order book is going to grow in time. And right now, that particular unit is importing the lithium users, making the packs and modules and supplying to the market. It has certainly helped us to get a feel of the market and what it takes to actually build a module and pack plant and also to start a very meaningful dialogue with all our customers. So that unit has certainly been a good precursor to the main unit, which is going to come up. And ultimately, it is going to source cells, which will be manufactured by us. That is when it will get on full stream.
Okay. Understood. And my second question is on the lead asset side. So just for the full year, if you can just highlight how do you see the blended growth because it looks like the inverter sales have been kind of weakish on a high base that all the other segments are doing well. So just some thoughts on demand going forward.
So overall, as you know, the replacement demand kicks in about three years after the OEM supplies are made. So we are still going through those ideas. So now while the OEM demand has picked up now, there is robust demand in the OEM sector, but the replacement demand, which is a follow-through of the demand of the OEM vehicles during the COVID period. That is, to some extent, that affected last year and to some extent, this year as. But gradually, we are seeing an uptick in that market as well. So going forward, I think both in 4-wheelers and two-wheelers, we see the demand up as we go from quarter to quarter. So I don't see any particular major worry on that front.
Got it.
Our next question is from the line of Kapil Singh from Nomura. Please go ahead.
Sir, on the retail in business, can you talk about what are the areas in which or segment in which you are having good conversations where with the customers where you think you will have a good penetration to start off with?
So first and foremost, thank you for your question. Now we have a very well-diversified portfolio. We have a multi chemistry, multi-format product portfolio essentially in lithium ion phosphate. And in terms of formats, we have the cylindrical, we have the prismatic and sort of time, we could also think of [ dead ] cell. So we have a fairly diversified portfolio catering to the diverse retirement in the Indian market. And we have already started having very meaningful discussions with four-wheeler customers, two-wheeler customers with also, for example, telecom customers in the fixed space and many other such requirements. So therefore, as you can see, we would be one of the early movers in terms of getting up this gigawatt factory going in the country. And therefore, we should be enjoying by any logical measure, the early mover advantage in this particular business. Now while early mover advantage is important for lithium-ion business, let me take a minute to explain. It is because homologation of lithium-ion products takes about anything between 12 to 18 months for any customer. An early mover advantage is a tremendous boost to the prospects of that particular supplier. I think we are well positioned in that space.
Sir, initially, which chemistry you would be starting off with? We are starting in the first phase.
We are starting with both phosphate as well as lithium.
Okay. And sir, can you also talk about what is the breakeven capacity utilization for this facility? And by when can we expect the company to hit that?
The project of this scale and size will take a number of months to stabilize. Globally, that has been the experience. So this will take some months to stabilize. We are expecting to start production sometimes towards the end of next financial year. And thereafter, it will take a few months to stabilize. And then the actual commercial production I get, I suppose, will start. So that is the time scale that we are talking about. And so breakeven should happen subsequently. Understand one thing. There is no dearth of orders. evacuation of capacity is the list of the problems as far as this project is concerned, because today, we are talking about national demand of anything between 100 to 200 gigawatt hour. 200 being most optimistic, 100 being most pessimistic. So I guess the number will be somewhere in between. And in the first phase, we are talking about six year. So the kind of customer response that we have bought and we are getting increasingly it informs us that I do not think exaction of capacity will be a problem.
Our next question is from the line of Ankit Merchant from SBI Life. Please go ahead, Sir.
Thank you for the opportunity. First question is related to the lead acid business. So can you also highlight on the export front, how is the export growth momentum going for us as well as on the industrial front, are we seeing any changes, related to telecom or even solar as an opportunity?
So let me take your second part first. I think the industrial environment is extremely dynamic as far as India is concerned, positively dynamic in the sense that it is growing by leaps and bounds. So the Industrial segment, I think, presents a huge promise as far as the Indian market is concerned, because you have smart cities coming up, data centers coming up, you have more telecom, more of power plants. So you have a huge developmental agenda, particularly in the public sector. And also now we are seeing that uptick in the private sector as well. So industrial business presents a huge promise. Number one. Number two, exports also presents a promise because a promising segment for both automotive as well as Industrial. In Industrial, as far as industrial is concerned, we are globally competitive. And our quality is one of the best in the world. So particularly, let's say, traction batteries. We are supplying to German OEMs. So it's globally accepted. So therefore, there is a huge uptick in potential, which we are trying to leverage. Automotive also presents good potential because there is a lot of demand everywhere, and we have lead acid plants, which are particularly in spaces like Europe and so on and so forth. They have challenges out there. And so therefore, we feel that automotive presents a very good growth potential as well. So overall, if I were to make a comment, I think lead acid business presents a good potential going into the near term.
Okay. So between domestic industrial, which, as you highlighted, within those sectors as such, if you could quantify what could be the growth?
Industrial, we are seeing good growth across all segments. It is not one segment, telecom, solar, UPS power sector, project sector. So there is no sector which is not showing robust growth as on date.
In our market share?
Our market share in industrial, we are the market leaders in every segment. Other than in telecom, which is a conscious decision other than telecom, we are the market leaders in every segment.
Okay. And then exports, we were facing some antidumping duty in UA or Middle East countries now has there been a workaround related to that?
So yes, you are correct. In automotive exports, we did face a roadblock in terms of antidumping duties earlier. But we have now been able to configure products, which are outside the ambit of antidumping. And therefore, we have started supplies.
Okay. And just my last question related to lithium and business. So, in the last presentation, you had given order book of nearly about INR 600 crores to INR 700 crores. So has the order book changed materially or the execution or if you could give us some more color related to that?
Order book has not changed. And this is just the, I should say, the incipient stage because this was the first year of production, taking our orders. And so the order book has not changed, but the timelines have changed a bit because of certain difficulties being faced by two-wheeler manufacturers with respect to the PLI schemes. So, there are some orders which will get executed not as per the original schedule, but as for the revised schedule. So order book remains unchanged, and it is growing. So there is no difficulty in that. And this is just the start off.
Sure, sir. And the order book had large -- I mean, a good component coming in only from two-wheelers? Or was there any industrial or four-wheeler as well into it?
No, there was a high component of stationary applications like telecom also.
Okay.
Thank you. The next question is from the line of Mukesh Saraf from Avendus Spark.
First question, again, on the lithium-ion side of it. Is it fair to assume that once your plant gets stabilized and say to three years down the line, do you still have a much higher exposure to 2-wheeler, three-wheeler OEMs in the lithium ion side given that some of the larger OEMs are also looking to set up their own selling manufacturing units. So could you give some sense on this?
So let me tell you one thing that globally, there are 3 models which are in operation. One is a large particularly four-wheeler OEMs, they are thinking of or have set up dedicated plants -- for example, if we take Tesla so on. Then there are OEMs, which have agreements, long-term agreements with battery manufacturers because they are not interested to set up their own plant. And then you have others who don't have long-term agreements, but they source from various battery manufacturers. Now this is a function of the CapEx appetite of these individual OEMs because this line requires a huge CapEx to the extent of USD 70 million to USD 80 million per gigawatt hour, number one. Number two, OEMs per se, do not have any special scale of specialization in battery manufacturing. -- it's a completely different subject. OEMs are basically assembly units and their expertise is in the automotive area rather than in the battery arena. So this is a new expertise, which they will have to develop those who are thinking of getting into this area. So this is a huge challenge for many, many companies. And therefore, they adopt either of these 3 models that I talked about. And I do not think all OEMs will certainly get into battery manufacturers. And from the discussions that we are having, we are fairly confident that a good number of them will rely on the other 2 models that I talked about going into the future. And so that's the way it will play out. Two-wheelers, certainly, bulk of them will not get into lithium-ion manufacturer and specialty applications, certainly not. And you do not expect tell Vodafone to start manufacturing the mandatory. I don't see that happening. So therefore, there is adequate space adequate space. As I have talked about that demand is, let's say, if I take it at 150 gigawatt hour, which is in between the pessimistic and optimistic estimate, we are talking about first phase of sixgigawatt hour. I mean that is a challenge. And then in the second phase, maybe another six to twelve-gigawatt hour. So the market is very large, and it is going to grow. And therefore, this poses well places this particular lithium in venture in a very good position.
Understood. So we're not going to have like a significant skew towards just one or 2 business.
No, no. We are having a very diversified portfolio spread out across all segments. And as you know, Xi has got deep connects. We have been in this country for 75 years. All the OEMs that you see today, their first launch was with Exide battery in this country. So therefore, we have very deep connects with not only with OEMs, but also with customers in the stationary application area, where, again, we are the market leaders in practically every segment. So therefore, the conversations which are happening today are very, very positive. And we are very confident that this particular project will take off very well.
Sure, sure. And my second question is more on the aftermarket side currently. So we have a vast network of touch points across the country. And obviously, we have a strong brand in its size. How are we looking to use this over a longer term? I mean, are we looking at adjacent products, other consumable kind of products, which we do not even manufacture but use the brand use and at work that we have. What are our plans?
So we are right now not thinking of adding additional products with unconnected products to our range. Let me put it this way. using the Exide brand because we think there is sufficient scope and opportunity to expand in the core business area that we functioning. And as you may have seen, Exide largely speaks to the netting that we deal with, and we would like to continue on that journey. We are not thinking of adding other products that at this point in time.
All right.
[Operator Instructions] Our next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services Limited. Please go ahead.
A couple of questions from my side. First is on the lithium ion side, just a clarification. The battery pack revenues which we get reflected in stand-alone or in the next large subsidiaries?
So this is part of the Nextel subsidiary. So effective financials, not in the stand-alone excise results.
Got it. Got it. And the second question pertains to the Biman, it's a basic question. So the obligation process will start after plan has started or that process is based on the full source from Volt and that process is already underway?
No. We are presently importing some sales from SVOD for our next charge production where we make modules unpacked. We start making the cells. There is no need to import unless, of course, there is huge demand, and we need to cater to that demand or supply capacities. But we'll be manufacturing the cells in our own plans.
Sorry, sir, my question is on the homologation process or sell plant. So that will start after the plant has started off.
No. The process has started. Process has already started because those cells will be making here. So that process has already started. That is part of the discussion and dialogue, which is going on present.
Okay. And lastly, can you talk about the growth which we have seen on the laden business in 2Q. What was the growth between volume and ASP mix change benefit on revenues? Exchange benefit for... Sorry... Exchange... The price increase versus volume growth in 2Q?
Second quarter, we have reported a value growth. We have reported 10% value growth in Q2.
So, then how much is volume growth?
So volume growth is almost quite similar because there is no significant price revision during this quarter.
Got it. Got it. I'll come back to you a few more questions.
Our next question is from the line of Arvind Sharma from Citi. Please go ahead.
Thank you for taking my questions. Sir, the first question would be on a lithium ion cell facility. For an OEM customer, how much would be the cost savings versus if they continue to import?
So you see, it is like this. First was to understand the ecosystem in which OEMs operate. Oget about lithium ion, if you look at all the other components, most of the OEMs operate on a just-in-time basis. And basically, they do not stop huge amounts of inventory. What lithium ion has done is because the lithium ion batteries are not available in the country. They have had to actually go through a huge working capital cycle in order to be able to make EV batteries because you cannot import from China or wherever on a just-in-time basis. So therefore, you have to stock for two to three months, keep these batteries and so on and so forth. So therefore, there is a huge inconvenience today, which is happening as far as the OEMs are concerned. Now the advantage of having a local supply is that you can again revert back to the earlier process by the way you source other components, you can also source the batteries or the packs or the modules. So this is the first point of convenience. Second point of convenience is that the dialogue which can take place, which takes place today between, let's say, Exide lead acid batteries and, let's say, any OEM customer. There's a continuous dialogue on quality, on improvement on future products and so on and so forth. So that is a huge advantage the OEMs have got. So therefore, one has to look at it from a very holistic point of view and not look at only what will be the import price. However, having said that, we are fairly confident that we should be able to manufacture the product at the international cost and be able to command a fair margin on our products going forward. We do not see any difficulty in that. Along with all the other conveniences that I'm talking about, which I think will be a huge advantage for which many OEMs may be willing to pay a premium.
Second question was on the usage of cash for the first phase and the second phase. And how much debt do you think will you have? Or do you plan to liquidate some of your holdings or the current holdings?
Yes. The Phase 1, approximately, the requirement will be about INR 4,500 crores to INR 5,000 crores around that. And it will be largely from equity infusion. And we need some borrowing whenever it's required. It's kind of a brief finance, and the subsequent generation from the core business, we can repay that. So there is no requirement of liquidation of our investment.
So one related note, I just wanted to get your thoughts on the investment in HDFC Life. How do you treat that? Do you get as a long-term strategic investment? Or at some point in time, you would want to liquidate it because that makes a difference between treating it as a usable asset or treating it more like a very long-term strategic asset?
As I said that at least for the Phase I, we don't need any liquidation of assets, and we'll review the sitios going forward.
Sure, sir. So, for some time, it will remain in your balance sheet.
Our next question is from the line of Pramod Amthe from Incred. Please go ahead.
Thank for taking my question. So again, this is with regard to the old arrangement. Considering the global ambition of sold, what type of opportunities or restrictions the agreement gives you?
There are no restrictions in the domestic market. Exports, we are not even ensuring right now because it's a new subject for us, which we have to learn. And, the domestic market is quite huge. So therefore, at this point in time, for the capacities that we are envisaging, we are not thinking of immediately getting into exports. So we'll think about it when the time comes.
And will you be allowed to sell openly the cells or you have to go through a battery pack only of your own?
See, customers all over the world, again, I'm going by the global trend. They require either of the 3 formats. Some customers prefer only serves and then they do the modules and the packs themselves. Some customers wanted in module form and then they build the pack themselves. Some customers want it in fully complete condition that is sales module back. So in India also we will see that play.
But your agreement doesn't restrict you to sell the only cells if the customer needs?
No, no. There is no agreement with anyone. I mean you're talking about the SVOLT agreement. We're already doing it. Now I'm saying the free sales, if like for some OEMs. These also we can sell. There is no issue.
Okay, sure. And the second one is, if I had to look at the growth on the latest business this quarter, it seems to have come back to double digit. Is it more of a base effect? Or are you seeing any green shoots for a double-digit sustainable growth in the business?
I think it was fairly obvious to the people who are leading various kinds of annual reports that we have gained in market share. It's very obvious. So I mean, it's there on the paper, I mean, in the sense that one can easily calculate that. So I think we are well poised as a company with all the efficiencies which we have built in to be able to gain in market share further. Therefore, one is, of course, market growth that is happening. Other one is winning market shares. I think both the processes are simultaneously on. And I think, again, this is tied in a very good, very strong position as of now.
Thank you. Our next question is from the line of Raghunandhan N. L from Nuvama Institutional Equities.
Congratulations, sir, on strong numbers and festive greetings. Sir, actually, on the lithium project, once the production ramp-up start off from FY '26 onwards, how do you see the ramp-up happening? Would it be possible to reach optimal utilization of 70%, 80% in two, three years? And as and when you reach that utilization, what would be the kind of ROE that would be targeted by the company?
See, these are a little premature in the sense that the project is actually now coming out, but we certainly would like to stabilize our production as soon as possible. Any project of this scale requires time. There are global benchmarks and so on and so forth. So I'm sure with the active support of SVOLT, we will make it sooner than later. And once that happens, we would like to ramp it up to full capacity. Because as I said earlier, the evacuation of capacity as far as orders are concerned, should not be an issue.
Got it, sir. And would you be targeting 15% to 20% kind of ROE on this?
This is a very broad-based discussion because the numbers can only be worked out once the project goes on stream. But roughly, we would like to attend the same kinds of EBITDA that we have today. So it will not be a drag on our consolidated account.
Got it, sir. And sir, you mentioned that Phase 1 investment would be INR 45 crores to INR 5,000 crores. Just wanted to clarify that number because I think last time you had mentioned INR 4,000 crores. Has there been an increase in the investment budget?
There's no increase in the investment budget. That's INR 4,000 crores is the equipment. I mean, CapEx basically. There are other elements also OpEx as well as GST element on that. So all these taken together, it will be approximately around INR 4,500 crores.
Got it, sir. And given that the investment limit has also been increased by the Board and already you have done an investment of INR 1,500 crores. So the remaining investment should complete by FY '25.
Yes. It will be within FY '25.
And in the core lead acid factory business, what would be the kind of annual CapEx around INR 500 crores?
Yes, it will be around INR 500 crores.
And lastly, sir, on the inverter segment, lead asset batteries, how do you see the performance? Or do you expect the growth this year? How are you seeing that segment?
See, this particular segment is -- I will not say it follows a very defined kind of logic because every year, the situation is different based on power availability and so many other factors. But, the fact is that for the last 20 years, we are thinking that this market will basically not be there because of increasing rural electrification. But what we are witnessing is that with increasing electrification, this market has continued to grow, basically because the quality of power and the kind of power which is available, particularly in the hinterland, that is not of the same quality that is available in the cities. So therefore, there is a requirement for inverters. Now with increasing digitalization and the entire rural India, practically now getting used to the digital way of working. So therefore, power requirement has become a huge issue, not only for day-to-day life, also for education and everything else. So I personally feel that this market is going to be there. It is not going to just go away because people want that 24/7 assurance of power in their houses or hamlets or wherever they are. And so this market, now how much it will grow next year, how much it will go a year after that is very difficult to predict. But this market certainly will remain. I do not see it going away very soon.
Got it. Very useful. One last question, if I may. On the gross margin side, there has been an improvement quarter-on-quarter basis, some benefits of like softening commodities also there in the play. Just wanted to understand for next quarter, would you expect input costs to be stable? Or are you seeing any kind of increase.
We cannot give any future guidance on that, but the commodity market is always volatile. It's very difficult to predict what will happen in the coming quarters. We can only say that in Q2, it has improved on a Y-o-Y basis as well as on quarter-on-quarter basis. In spite of there is some increase in the net cost. In fact, Y-o-Y basis let cost increase was 4%, which had an impact on the margin, but actually, our material cost has come down. So that shows the improvement we are having on the cost optimization.
Got it. Thank you, sir. Thank you very much. Very helpful.
Our next question is from the line of Ashutosh Tiwari from Equirus Securities. Mr. Tiwari line has been unmuted. Audible? Please go ahead.
Yes. Congratulations on good set of numbers, Sir. Firstly, on the Y-o-Y growth side, like you mentioned that take growth of 10% has come from volume only, but listed as soft. So is the industrial vertical has grown like mid-teens in this quarter Y-o-Y in terms of volumes?
So both the segments have grown. I mean both the divisions have grown. So we do not get into micro-level analysis of each particular subsegment. But both the divisions have shown growth.
Okay. And any revenue that we booked in this quarter in the lithium ion battery packs, if you can provide that?
So I think that's not part of the standard. See, this is not part of the stand-alone results.
In the first half, you can provide some color on how much revenue we would have booked in this battery packs.
We'll get back to you.
Okay. And lastly, on the lithium-ion cell part, obviously, government is focused a lot on localization of the entire value chain in India. And you obviously have not got the PLI, but do you think that once the cell plants start coming into India, there is a possibility that they wind some custom duty increase something on the cells, which we broadly import in India right now. Is there any decision on that with government right now?
So we cannot predict what the government will do. But certainly, the government is encouraging Make in India and the Honorable Prime Minister has specifically emphasized this point in a number of meetings. So therefore, I do not see why the government should not be following the same line with respect to lithium ion because this is a major point of focus for the government of India. But how and when they will consider this is something that we cannot comment on. It is for the government to decide.
Okay. Got it.
Thank you. Next question is from the line of Saif Gurjar ICICI Prudential AMC.
So first question would be on exports. It would be what proportion of our total revenues, maybe you can have it for first half of the quarter as you wish. And, what would be the volume growth you are witnessing specifically for exports and in terms of our strategy, what level of exports are we targeting, and that would be on the back of half. So we are targeting to be a low-cost supplier. And does that mean a profitability can deteriorate from export segment? How should we think about that?
Well, as I've stated earlier, if you take industrial exports, we are really on top of the value chain in terms of quality, in terms of consistency, in terms of acceptability. Our strategy is not to sell some cheap product. We are selling quality products at a fair price and realizing the full value of our brand globally. That has been our strategic focus. And exports will gradually increase in course of time because of the quality of our products as well as the reach that we are trying to build now globally.
What would be the proportion of exports to the total stand-alone business?
Right now, it is about 3%. Right now, it is about 9%. But in course of time, it will go up. Also, the domestic demand is very robust. So we will see how to balance this one.
And what sort of growth this 9% has been based upon what growth we have achieved in exports maybe last year.
We have achieved, as I've said, we do not get into micro level discussions on each customer segment. But the growth in exports has been extremely robust.
Okay. And second question would be on sort of capacity utilization. If you can help us with capacity utilization levels four-wheeler industries?
Again, overall capacity utilization will be upward of 80%.
And what level can be achieved and beyond what level we would have to go for capacity additions?
See, capacity ending, it is not only capacity additions. It is also reconfiguring the shop floor and exercise which we continuously engage upon trying to make it more efficient. So therefore, capacity addition right now, maybe in one or two sectors, debottleneck is necessary. But overall, we have reasonable capacity now to meet the demand going forward.
Okay. That's it from my side. Thank you and all the best.
Thank you. Our next question is from the line of Aditya Rathi from Aequitas Investments.
Yes. And first of all, congratulations on a good set of numbers. Sir, my first question was related to Industrial division. So recently, we have seen a lot of announcements as far as data center is concerned. So I wanted to understand what is the market opportunity for us? And how do we see the growth panning out in this segment? Or how much of our revenue is contributed by this segment specifically?
See, data centers are a growing segment in the country. It is something like, for example, if I were to take a parallel like the drone segment. Now these are just started. This data center business was not there, let us say, ten years ago. gradually, this is picking up. So once this starts picking up, this is nowhere near the kind of scale that we have in, let's say, Singapore or U.S., California and so on and so forth. But it is going to grow because data center is a business which a lot of companies are embarking on this because of the sheer digital scale of our country and the growing prospects. So, this business is going to grow by leaps and bounds, and we are well positioned [ into this ] segment.
Right. So sir, I wanted to understand for us, let's say, per megawatt of data center, what kind of opportunity is there for us to understand how the growth can come for us?
So as far as we are concerned, this presents a huge opportunity, and we are catering to. Now as I have said, this particular segment is at a very incipient stage. It is miniscule compared to what is there in some of the more developed countries. So let this segment develop, then it will become clear to everybody.
Got it. Fair enough. Sir, and secondly, my question was again on the margin side. So we have definitely seen some improvement over the last three quarters in terms of EBITDA margin. But when we compare this with our historical averages, we are still almost 1.5%, 2% away. And so, what could be the reason now? And how do we see this going forward?
So again, we cannot give any future guidance on the margin, but we stated earlier also, we are having a lot of cost optimization initiatives. And this is showing results. That's what I said on a that in spite of some commodity price increase, we could get a better Q2 margin compared to the previous quarter. And so going forward, definitely, we are likely to see some benefits on the cost, and that should result better margin. But again, there are lots of other volatility like commodity price et cetera, those are also there. So very difficult to predict any margin, but our cost initiatives are on.
Got it. And sir, for us, what's the target, let's say, of EBITDA margin going forward? I don't want any guidance, but what is the target that we are trying to achieve?
Target is, again, to go back to the earlier position 14.5% to 15%.
Got it. Fair enough. Sir, that's it from my side.
Thank you. Our next question is from the line of Kapil Singh from Nomura.
Yes. Sir, you had mentioned that we have not seen an increase in order book for the lithium-ion battery pack. So just wanted some color on the industrial side. I mean you mentioned two-wheelers, but on the industrial side, why have we not seen an increase in order book?
Industrial side, there is an increase in order book. But industrial orders do not come on a steady stream. Industrial orders become lumped up. So, you supply on order, then you wait and then the next order comes, it is like that right now because this particular unit is just starting. Once it's well on its way with our battery cell manufacturing unit and everything else, then it will be more continuous. But industrial orders certainly have been good, more than our expectation.
Okay. So like overall order book has increased or it has not increased.
Understand INR 600 crores is nothing for this sector. It is just like getting your toe once the main plant comes still start getting manufactured, then is the time to really assess what kind of order book will come and what will exist and what will happen going forward. This is just the starting point.
Sure, sir. And if you could also talk about -- I was looking at some of the projections you have made on the demand by for two-wheelers in particular. What I'm seeing is that industry sides could become very large, for example, it could be, by 2025, we are talking of, let's say, three million plus kind of 2two-wheelers probably. So, with the one challenge it would pose is that the lead asset business could start to see a decline. I mean, just how do you assess that as a risk? And would it have executions for the company? How are you planning for capacities in that context?
See, our opinion is not that it will decline. Our opinion is that there will be a certain percentage of the business, which will go to the team, but the overall pie is going to increase. I think none of the projections that I have any OEM or any other manufacturer is showing a decline in lead acid business. What they are showing is a certain percentage in the future dedicated or will be taken out by EV business. Okay, number one. Number two is that if you look at the projections of the OEMs, the major OEMs, if you look at Suzuki, if you look at Mahindra, if you look at unit, they all are making robust projections of the standard format. This is the internal combustion engine format cars with hybridization. Some component of that will have hybrids, which again, for us, it is okay because we supply batteries for that. So therefore, I do not see any huge sudden change in the market where you will have only EVs and none of this. This is not happening. So I'm very sure that the future will play out with a multi chemistry multi-format kind of situation because the demand is going to be huge. We want to grow from INR 3.7 trillion to INR 5 trillion and then beyond. That kind of growth cannot be supported by any one kind of technology. This is our opinion. And going forward, we will have for existence of all formats, even EVs require on latest battery for auxiliary applications. Now, that is not a compromise. That is the best factory for that application. The lithium battery in that application, which is a 12-volt application is not the ideal technology solution. So, therefore, lead acid is not going away too soon. And we will have not only lithium-ion emergence of other technologies or technologies will find their own niche applications because all technologies come with pros and cons. There is no technology which has only pros and no cons. Therefore, that is the world kind of world we are looking at that is, in our opinion, but certainly, other people have are entitled to have their own opinions on this matter. This we feel is logical.
Thank you, sir. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
So thank you, ladies and gentlemen, for joining us in this call. It was very exciting for us to discuss some of our plans and programs with you as well as answer your questions. We found it very engaging and fruitful, and I hope you also found it likewise.
Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.