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Gabriel India Ltd
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Ladies and gentlemen, good day, and welcome to Gabriel India Limited's Q2 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Manoj Kolhatkar, Managing Director at Gabriel India Limited. Thank you, and over to you, Mr. Kolhatkar.
Thank you. Good morning all, and a warm welcome to this earnings call of Q2 and H1. So all of you had first [ view ] all of you had a very good, safe and very happy and joyous Diwali. So we are now -- of course, we had both the festivals [indiscernible] Diwali in the month of October. I must say a bonus month as far as festivities are concerned.
So good to see all of you back. Along with me is Rishi Luharuka, our CFO; and Nilesh Jain, our Company Secretary; and our IR advisers, SGA on the call. We uploaded our results and the presentation for the quarter ended 30th September. I hope you have been able to go through the same. So I'll, of course, take you through the presentation on some of the slides as we go around.
But before that, I'll just give a brief industry overview. So top line, of course, we are very happy to report that our growth momentum has been very good, continued in the second quarter, and we had the highest ever sales in a quarter ever. So I mean that's something really significant. If you see, we have been able to accommodate a lot of new product launches during this period and relatively flawlessly, so we are seeing an improvement as we go along product launch after product launch in terms of our own maturity of launching new products that is helping us in the time-to-market part.
In the EV market, of course I'll share that as well, it's been on -- it continues to be a good success story. So in fact, all of our business verticals have exceeded our expectations, resulting in increased volumes. Capacity utilization is in the range of 65% to 70%. In fact, the passenger car, as we speak, is going up even higher. I'll come to that when we probably go through the questions. So coming to the auto industry, yes, the challenges continue. Thankfully, and hopefully, we are -- I mean, our -- the COVID pandemic is behind us now. It's already a thing being declared as an endemic. So that challenge is relatively, I must say, taken care of. But the semiconductor and supply shortages still continue in the industry. And as we all know, it will still take time for the industry [indiscernible] .
Commodity prices, the inflation was really severe over the last 2 years. So that clearly has started easing off from the last quarter onwards. And we are seeing prices come off all those highs and coming back to almost 3 [ corollaries ]. We talk about steel, aluminum, copper. Every commodity, we are seeing a reduction that is happening. Of course, this is, as you know, in our case, it's a back-to-back arrangement with the customers. And you all, of course, it must have read the recent article on the huge backlog of our waiting list of cars. In fact, if you go to buy any car now, the standard waiting period is 1.5 to 2 months, some models going over a year as well for waiting, which shows a very clear and robust pipeline for passenger cars vertically.
And of course, yes, there is a bit of cautious optimism there in the industry as well. I've been speaking to some of the OEMs. They say that once this demand is over, again, the demand you have to read it with a little bit of grains of salt because there is some double bookings which happens in this times. But once this demand is over, there might be a -- I'm not putting a [ strode ] on, but definitely, we'll not see the growth rate that we have witnessed in this first half.
As regards to passenger vehicle segment, we had a record month in September, record quarter as well. Clearly, volumes for passenger cars is going to cross 4 million figure for the first time as regards the annual numbers are concerned. There is a very strong response, particularly for the SUV vehicle. As you know, SUVs are over 50% of the sales. So that is a clear shift that has happened in the industry. Infrastructure and real estate are expected to expand as are also mining e-commerce, transportation and logistics, which all are very important for economy and for mobility, which is where we come into play.
In the coming months, we'll be shared by the [ equate ] rainfall, which has thankfully again, been very good for the country. The first 6 months of the fiscal year, the CV industry grew very strongly at 54%. It has not yet reached the peak in terms of volumes, what we witnessed in 2018, '19, which was over [ 1 million ]. But if you see in terms of tonnage, it surely has crossed that figure. As you know, the tonnage norms got redefined based on axle load norms, basically a tonnage kilometers, I think we have exceeded the earlier figure as far as the industry is concerned.
Another growth area has been the 3-wheeler segment, which was very dormant particularly because of -- I mean, the most impacted segment during COVID because people were not preferring this mode of transport, the schools were shut, colleges were shut. But this has shown a huge increase in sales in April to September, the first half of the year. Within this, of course, the movement towards EV is even stronger, as we all know, which again, I'll share dealing with the slide. I mean, talking about EV, the demand for two-wheelers is, I mean, really very high. I mean the last -- in the month of October, though it's not in H1.
But you all know in the month of October, the industry in the 2-wheeler industry, EV sold over 74,000 [ records ]. So that's really a huge jump from the earlier 50,000 peaks that were which industry was hitting in August, September. October has been a bumper month with over 70,000 2-wheelers in terms of EVs. So here, again, as I mentioned, Gabriel has been quite successful in getting all the orders from the key and tool makers so that has helped us gain market share in the overall tool and [ segment assets ].
Coming to the numbers, I'll take you through the presentation. So I'll just read the slide, like if you go to Slide #5, which is the financial highlights Q2 FY '23. As you can see, we -- like I already mentioned, we had a revenue of INR 800-plus crores the first quarter, we did INR 800-plus crores growth, which is almost a 36% jump year-on-year. And even if you see sequentially, INR 802 crores would be about 10%, 11% compared to the previous quarter, which was also a record quarter, which was about INR 720 crores, as you can see below.
In terms of EBITDA, we did INR 59 crores, we did 7.4%. So marginal improvement in EBITDA from, as you can see below Q4 the last couple of quarters from 5.5% to 7.1% to 7.4%. So our efforts on cost reductions and [indiscernible] already mentioned earlier, on several calls, those are working. And similarly, PBT will see pretty much the same improvement 36%, 37% Y-o-Y.
Coming to Slide #6 -- Slide #7, sorry. Is the financial highlights for the first half H1. So we crossed INR 1,500 crores, so INR 1,524 crores in sale. Needless to say highest ever EBITDA of INR 110 crores, PBT of INR 94 crores. The balance sheet position also good net cash of INR 251 crores, and we had in H1, we had cash flow from operations of almost INR 25 crores, which was a little less than the last year's corresponding bit. But in the quarter, if you see, we had a much better cash flow compared to the last quarter. CapEx, I mean we incurred almost INR 46 crores, INR 47 crores of CapEx in this year, mainly on R&D and capacity improvements and quality and safety improvements that we have done all across our plants.
Slide #8 is the very quick P&L. So I'll not go through the details because we already shared that. We'll move to Slide 9, which shows the trend. As you can see, FY '23 half year sales is INR 1,523 crores, which is more than the full year sale of FY '17. So good growth, good gain in market share in all segments that Gabriel has achieved has led to this good improvement in the same years. ROCE for the quarter, again, has been really good, almost 34%. So again, based on our good efforts by all the teams and wish you was on the call. I think we have achieved quite well.
On Slide 12 are the key ratios -- while -- again, I'll not go through each aberration, but we also know that we declared the interim dividend of 90 [indiscernible] yesterday in our Board meeting. So this is, again, something which is definitely in line with what we have been planning to do.
Coming to Slide #14, which is the segment performance. 2-wheelers and 3-wheelers, which is including aftermarket. So the market share here, of course, is the OEM market share. As you can see, while 65% of our total revenue comes from 2-wheelers. The market share is 32% even including EV. Just to share at the same slide last year, which was the half yearly call, which we had in November of 2021. this figure of market share was 25%. So you can see a very healthy improvement in market share, mainly on the back of the EV dominant position.
We are get -- we continue to get good models, recent launches being the TVS Raider, which is very successful. Jupiter 125, Mahindra, all the platforms of [ PSG ] and [ Java ] and Bajaj 3-wheeler models. And in EV, OLA, Ampere, Ather, Okinawa. We also got an order from Hero Electric, which is the only one which we didn't have. We also got that order and the SOP will begin in the next quarter.
Coming to Slide 15, which is EV. Our share of business in EV is 66%. So the industry figure was 32% as you saw on the previous slide. But the EV share of it is 66% -- which is -- and you can see the models. So Okinawa, Ampere, OLA, Ather, TVS iQube. We are there in all these industry leaders except Hero. So that all does well for us, for sure. Coming to passenger car. Again, this has been a good performance. The market share is 23%. The same figure exactly 1 year back, was 21%. So we again, marginally improved mainly on our increased share of business from Maruti Suzuki and the Toyota platform.
So Maruti Suzuki, we have won the -- what we've written here is YXA, YFG, which is basically the brand with the Vitara Brezza and the Toyota Hyryder. So these are the 2 key volumes and in pipeline is YWD and of course YOM which has already been introduced. YWD's with Jimny, which is shortly going to be [ lost ]. We also have started the [indiscernible] [ the previous approved ] CC21, [ eCC21 ] which has been received quite well at the market. The volumes are small. But it's a good car, I must say, quite a spacious room and a good value for money for that price point.
So still on Slide 16, which is the passenger car. So yes, we also have already got the business from Volkswagen and [indiscernible] for all the new vehicles that you see currently, right, from [indiscernible] to [indiscernible] to [indiscernible] and [indiscernible] . So that is entirely with given. So this will, of course, keep adding to -- as the volumes ramp up this will to the passenger cars space as well.
Going to Slide 17. Yes, right in commercial vehicles. So here we have the dominant market share, almost 90% all the new platforms, I mean, almost all OEMs are because -- we continue to work on some new technologies here as well so that we are able to answer all the future requirements very well. We -- our export program and [ dash ] is also going quite well. We are already exporting to Netherlands and Brazil, and we have won some more programs from the [indiscernible] .
And in fact, recently, we had the car that [ ran the meet, ran the meet ]where we were asked to present to the entire facility on the second story of [indiscernible] . So we already have won the award from them as the best new supplier and also top quality [indiscernible] , which they have an award called [indiscernible]. We won that [indiscernible] . So this is all for our exports and how -- I mean we surely want to leverage this in terms of our global journey in CV particularly.
The next slide, Slide 18, was on railway. You can see a lot of new pictures here, new models for us. So we have got a first before the breakthrough for the one day [indiscernible], this will be really for time to [indiscernible] who will get the order for the rate from the government. We're also talking to some other rate manufacturers. If the discussions were on -- and other important thing is we have been developing and working on the locomotive dampers, which we [indiscernible] never supplying. So we have again got the first development front order, and we have actually supplied our parts for tryout to be locomotive work.
So this will also increase our presence in the railways. Having said that, yes the volumes are still small for railways, there's still not -- we go fully to 3 [indiscernible] volumes. So we have to wait and watch this particular segment. But yet our product portfolio has definitely increased or the content for railway, which I call it has definitely increased as we got [indiscernible] .
Coming to next slide, which is Slide 19, aftermarket. Again very strong growth, 24% growth on H1. And in fact, we hit almost INR 100 crore figure in a quarter. In this last quarter for sales of aftermarket. So a lot of new product launches that has been -- and we are trying to reduce the time to market. We are increasing our traded products or the branded products that we have. Tires, while we had launched it earlier, we had some challenges. So we are now renamed the push on tires, and we surely expect this to increase quite well going forward. The initial response has been good with the new launches that we are making in tires, particularly.
Slide 20 is the exports. Yes, as you can see, this has been -- while the story was good, and we are on the right track for the entire last year, I would say post-COVID. But then due to the Ukraine conflict that is going on Volkswagen has almost closed down the operations there, so which has a significant impact on us because we were supplying on a single core basis to Volkswagen Russia for the rear adapters. Then the [indiscernible] yet to be taken, what we hear is we are likely to shift this production to a different country, working the timing this volume has gone up from our figures. But despite that, you can see from Q4, Q1, where we are doing INR 21 crores, INR 22 crores or quarterly, we have still improved it in Q2 INR 225 crores. This means largely on paying increased order from that [indiscernible] .
21 is the balance sheet, again, I'll not -- I already shared the broad number is INR 251 crores of cash at the end of September, and CapEx of INR 48 crores that we have done. We have also lined up some new CapEx for increasing capacity, which is for sure where we are doing an in-house actually a backward integration, where we can use dependency on our reports from China, it has been a continuous initiative for us. Japan for capacity expansion because the retailer [indiscernible] and the retailer Brezza, both are being supplied from Japan and the folks [indiscernible] .
So because there is a good increase in demand in Japan. There was [indiscernible] line an improvement and the paint panel was very old. So you're having quality and safety shoes. This was a planned division. So this is on stream now new hybrid paint line with much better efficiency and quality.
[indiscernible] expansion due to really good volumes of our utility. In addition to our own increase in the share of inventory [indiscernible] . So both these together. This we have started last year at we're actually coming to the -- will probably come to the close of the capacity expansion. We are also putting up a -- adding a building for this, of course, we have to take the information. So that is on stream. Cash flow, again, I'll not spend time on this.
CORE 90, which is Slide 23. I'm -- what I'm mentioning slide is this has definitely helped us when we are seeing the results, we continue to push. We are reviving it again. I mean it's always there, but we are again pushing for we make the most of the improved CORE 90 technology and try to improve our margins further. Yes. So this is -- I mean Slide 24 is a vision and going forward caused an overview, where you can see on Slide 25, the picture of our new tech center in Chakan, absolutely state-of-art tech center. So this will also help us in our journey in improving our position with customers. So this is I mean short -- a quick run through our numbers. The in the presentation that we uploaded on the site.
So now I'll end my presentation, and just one more thing is the sustainability report, we have been as a company and as a group, very focused on sustainability, right from inception to be honest, we also won several awards in the industry within the auto component industry. I mean, yes, we are known to be doing very well on this front and the human infrastructure as you all know. So I'm very happy to share with you that we'll be launching our first ESG report very soon, in fact, in the next week, it is ready. But I thought I'll take this opportunity to share with all of you that we'll be launching the first sustainability report for '21, '22. And from next year, it will be along with the annual report.
So with that, I hand over back to the moderator and look forward to your questions and your input. Thank you.
[Operator Instructions] Our first question is from the line of Viraj from SIMPL.
Congratulations on a good set of numbers in such a challenging environment. Just have a couple of questions. First is on the cost part. So we have been for the last many years, undertaking CORE 90 program. And I think the benefits of it, we have been clearly seeing in last few quarters. So this was kind of [indiscernible] because when you look at the OpEx cost and at the reported level, we have this management service fees, which I'm assuming is kind of a portion across the 4 quarters. So when are you kind of this kind of adjust for that, how would have our breakeven cost [indiscernible] in the last few quarters as a benefit of CORE 90. So any deeper you can go into? And incrementally, what kind of savings one can expect for the -- on this [indiscernible] ?
Yes. I mean we have been working, we track the break in point and the breakeven point has been reducing. So the absolute break in point, of course, has gone up due to higher volumes and higher costs and there are some conscious investments that we have to do as we move to the next level of revenues. So I mean that definitely adds some costs. But however, the breakeven point in terms of percentage of sales has been continuously reducing. That's how you see the improvement in the margins that you have seen over the last couple of quarters. That remains a focus area.
Now to your second question of how much we can expect more from this corporation season, it's a game which is you have a place to service in this industry. While as you know, the OEMs are also not pausing their price increase to the market. They have absorbed some of the commodity increases to the market, which is why you're seeing such a good demand as well. So they are absorbed in terms when the reduction scenario starts. While we have to pass them on, there is a continuous pressure from them to pass on reductions due to volume increases. So that continuously goes on. So you have to, what you call, keep running twice as hard to stay in the same place as we say. So that continues. But definitely CORE 90 has synthesized the entire team towards cost. That is a good part. So we are better prepared in case of when things go -- things do not go as planned.
So just to follow-up on this. One is in the past we should talk about [indiscernible] being around [ 3% plus 72%, 70% ]. I mean I think on the last call, brought it down to below [ 68% ], [ 67% ] and this was a couple of quarters back. So if I have to just understand on current perspective, would it be still around those levels or you have managed to further bring it down to, say, probably somewhere within 60%, 65%, those kind of average just the perspective you can share and maybe not exact figures?
We've been able to [Audio Gap] down from 68% present levels surely. So I would say, a couple of percentage points, yes. .
Okay. And second part to the question was as volumes further improve. Just want to understand, the cost base, which you are looking at right now and we've been kind of meeting this kind of a cost base for quite some time. So what kind of a scale this cost base kind of [indiscernible] cater to if I have to look at next 2, 3 years and beyond which we would have to kind of look at significant increase in the investment or this is kind of give a perspective in what kind of a cost is -- what kind of turnover is cost can cater?
In terms of, I would say, maybe if I refigure question, and I would say that there will be some costs that we'll add to be ahead of the industry or at least [indiscernible] in some cases in line with the industry. As regards to technology. So as we have already shared in terms of having a dedicated technology team. We have already added our CTO from -- with an extract. We are adding a couple of people more there in fact, we'll add them in Europe and back end here in India as well. So these will be some additional investment that we will do in terms of ensuring that technology is in place for the future development of expansion. So these are costs that we have had.
Also yes, we have to add some -- while we've had a good land bank, we still have a good land bank. We have to add some more greenfield locations now going forward because up to INR 3,000 crores, like I mentioned in the earlier call also, some years back, possibly, we'll have to look at additional buildings even in new spaces. So we will be definitely adding a footprint in South to increase -- to meet the increased volumes of 2-wheelers, EV and also into our backward integration. One dedicated initiative that we have taken is reduced dependence on imports, mainly, as you know, from China, mostly from an angle of one geopolitical uncertainty and second, also from being more flexible and third, being more cost competitive. So these are some investments that we'll have to do that will add to the cost, if that answers your question. .
Okay. So the reason why I was asking is in the last couple of years, you've kind of also made a significant investments. So we have opened a few more R&D centers. We have added some -- you kind of bridge some roles at the senior level. So in that perspective, despite those investments, we have kind of able to maintain the cost base quite well. And hence, I was kind of -- I'm trying to understand in relation to the current cost base, what is the kind of scale, one can kind of cater to without -- before going into mid next level of investment? So what is your whole thought process?
Second question was in relation to -- you mentioned about greenfield investments, which we are looking to cater to. So when you're kind of looking at setting up a business, what are the kind of commitments or communications you are getting from your customers? If you can just kind of give a more details at which segments these are in which we are seeing demand accruing and on were kind of looking at greenfield investments per se? So that is second and third is any update you can give on the new venture or a new product which we are kind of evaluating. I think it's more than 1 year, 1.5 years. So any perspective you can give on those points.
Yes. So 2 questions. Sir, on the greenfield, alternately, basically I mean the customer volumes and we can't -- we can't double as the customer. We are seeing clearly there has been a very solid growth quarter after quarter. So we'll have to be in line with that. We do a factoring of volumes of each customer. But then we are still clearly seeing a growth. And as I said, part of it is customer driven, part of it is our own intent to integrate backwards, so kind of reduce our cost base. So greenfield is a mix of both. The other part on the new product or I would take it on a larger level, it is inorganic growth. So yes, we are -- as we speak, in discussions on, I would say, a couple of projects. But obviously, I cannot share as of now because they are still in discussions. .
For new product, I meant more from [indiscernible] . I think there are some other products we were evaluating now.
Yes. So the product we are evaluating, again, we've done the complete detailed study. So we had even applied for the [ PLI ] benefits there. So that is one -- one of the commodities. So the detailed scanning is done in terms of who are all the players who can give us technology. But yes, it is still early stages.
[Operator Instructions] Our next question is from the line of [ Deep Shah ] from Yes Securities.
A couple of questions. First is on the market share days, which you have mentioned in the PPT for [indiscernible] segment. It was at about 2% if I'm not wrong sequentially to 32%. And similarly for CVs also is at about 4%. So first of all, what explains this and whether these are sustainable expansions? .
[indiscernible] they are definitely sustainable because we have made some -- as I said, in the EV space is helping us. I mean their volumes are increasing as usual month-on-month, and the growth is 300%. It only keeps going up. So there, we will continue to increase our market share totally. Having said that, yes maintaining this kind of share of business in EV will not be easy. Certainly, there will be other people vying for this space as well as OEMs should be looking at alternatives. So that will go on as a process. But on trend line, yes, this market share improvement can continue even with legacy customers, let's say, previously grew our market share with HMSI.
It has improved marginally, but with the introduction of this new motorcycle, which they are planning where we have got 100% share of business. So it's a first motorcycle entry actually. So this will improve our share of business with HMSI further. Similarly, if you see on PC side, Maruti Suzuki, they're gaining more and more models. Atara Motors, we have got one model, and we are just last week, we have got a transformation for another model, so where our presence was quite low. So that's why it's significant. So we are gaining there also. And I mentioned on Volkswagen, we were under development. Now all the products are developed and cleared and we will be -- we already started production. But every model will start getting product size now. With all this, clearly I see the market share improvement will surely continue.
Okay. Sure. And second question was on this backward integration CapEx, which you have been talking about. So if you can talk more on how things will shape up, let's say on the cost savings front because we are talking about localizing the components from China? So on sustaining basis, do you see this would add at least 40 to 50 basis points to our margins?
That's an interesting question. See, there are multipurpose reasons as to why we've done the localization and why we continue to do sort of some amount of enforcing rather than actually buying. A couple of things. One is largely also driven by the customer requirement or some of the strategic processes to be ready now. The order is obviously to streamline the supply chain and reduce the dependency because it's the highly kind that we have seen. [indiscernible] with regards to cost. Cost is something that we obviously would we take the decision, it's beneficial to us and a project like [ Nestec ], that's what we mentioned in the capacity and in the CapEx side as well is significantly going to help us in terms of improving our raw material costs.
But over a long period of time, these initiatives are largely driven to maintaining a traditional supply to the customer and also to reduce dependencies where their processes are critical to the product. So in terms of benefit overall, when -- the way we look at it from there in one way or other, there will be ever compensation for this, so not very clear to comment on the [ 0.5 ] at this moment. But the end of it is definitely for each of these projects to ensure that there is a reasonable payback and the [indiscernible] of IR is also taken care of.
Sir, just to follow up. What is the absolute CapEx amount for this particular stuff from that [indiscernible]?
Well, we keep adding. We have done almost -- if you ask me, we have done almost INR 20 crores already in terms of [indiscernible] using or adding furnaces and machining centers to -- the biggest commodity that we buy is the aluminum frontal [indiscernible] tubes from China. Now let me also tell that they are really absolutely efficient and real top quality -- it's really difficult to even find a supplier in India who can do that quality, that quantity at that price. That is why we took this decision of making it in-house.
So we have done investment. We are further increasing the capacity by adding one more furnace which got approved in yesterday's Board meeting. So we will continue to do that. So like I mentioned, and Rishi also mentioned, China is, as you all know, really competitive. So it's not that by doing that, I will -- we'll immediately take some big amount of money. It's not like the localization from Japan or the developed countries, where we have 20%, 30% margins. So that is a difference. But also let me tell you, there is an improvement. We obviously get some benefit and the bigger benefit is in terms of the flexibility. So if you know, last -- not last year, but then after COVID when there was a steep quarry, we had incurred a freight bill of almost INR 10 crores to INR 15 crores in the year [indiscernible] supply from China.
So there COVID factors, container factors being not available et cetera. But now this year, I hardly got a call from any customer during Diwali even during these high volumes, which really means that the supply chain is far more streamlined. It's a much more smoother supplies, which improves our customer goodwill, improves cost, no doubt we don't incur these costs and reduces a lot of stress -- unnecessary stress [indiscernible] .
Our next question is from the line of Chetan Gindodia from AlfAccurate Advisors.
And congratulations for great set of numbers. Sir, I have 2 questions. Firstly, if I see 2-wheeler and passenger vehicle volumes on a quarter-on-quarter basis, they have grown by 14% to 16% whereas our revenues have grown by 10% to 11% on quarter-on-quarter basis. So has there been any realization decline that we are seeing that we have passed on? And is it now entirely complete if you can explain this?
Chetan, did you say our revenues have -- probably lost you on it -- revenues are...
Revenue has grown by 10% quarter-on-quarter.
Yes. Yes, 11%, yes, that's right and?
What is EV and 2-wheeler industry in [indiscernible] quarter-on-quarter basis. So is there a realization decline?
No, I wouldn't think so. In fact if you -- the figures that we have in terms of volumes of the industry, let's say, in passenger car or CV or 2-wheeler, 3-wheeler customers. We clearly see -- I mean, our growth has been ahead of the industry. So maybe we need to...
Got it, got it, sir. And secondly...
But we'll come back to you on that.
Okay. Sir, secondly, we have multiple new models. We are part of a multiple new models in the PV site and also increasing our share of business with Maruti. So when can we see our market share improvement in the passenger vehicle side, similar to what we are seeing on the 2-wheeler side?
Yes. So as I mentioned, we have already seen an improvement from 21% to 23% in passenger cars. I mean, same presentation last year versus this year. Now in 2-wheelers, I mean the good point of the blessing that we had was the EV, the change in the dynamics of the market because of the EV players and many of them being nontraditional, not aligned to any particular [indiscernible] maker.
That played to our advantage, where they wanted a definitely a good, reliable brand name with a lot of flexibility in development. That's where we could win business. That happened in 2-wheelers and 3-wheelers. But in Passenger car in the EV space that -- we are not seeing that kind of a huge volume. So obviously, while our market share will improve from 23% to -- I mean, we definitely target it higher than that, much higher than that. But it won't be in the same pace as 2-wheelers due to, as I said, the dynamics in the market.
Our next question is from the line of Akshat Hariya from Multi-Act PMS.
Congratulations on record high sales numbers. I had just one question, mainly on margins. So if you look at it we've seen significant improvement in our cost structure below the gross margin one, and that is what has led to our recovery in EBITDA. However, if you look at the raw material cost or the cost above gross margin level. What we see is that the raw material cost, which used to be around 71%, 72% up until 2018, '19. Now since last few years has been in the range of about 75%, 76%. In fact, this quarter also, we've seen a sequential increase from 76.5% to 77%. So -- and at the same time, we've increased our market share. So any such indication that the increased market share is coming at the cost of lower realization or something like that? Or when do we think about going back to our historical 71%, 72% [ RMC ]?
Yes, it's a good observation. On raw materials, as you all know, the commodity cycle was continuously increasing. So that definitely increased the percentage. So once these commodities are coming down, we will see some margin correction, but honestly, going back to 72% is difficult because, again, this is the way the market is moving, and we have to compete finally. So -- but what we need to do in terms of improving our raw material percentages try to maximize in aftermarket and on exports.
So that's what we are trying to do. So it is balance out the market players. So that's why we are seeing -- you are seeing that push in terms of aftermarket, in terms of exports. So that's -- and we are getting new technology products that try to push on technology as well, where eventually, we'll be able to reset the -- not be the raw material, but overall profitability base, we'll be able to reset it at a higher level when you introduce new technology products. .
Understood, sir. And sir, overall, on the EBITDA, our target of double-digit EBITDA margins, are we on track? And what could be the timeline or a glide path towards that 10% EBITDA margin because still, we are like at almost 2.5%, 2.6% away from our target range. So the glide path would be mainly through RM cost or even further efficiencies below our gross margin level? And also, if you could give the thought process on management fee and any feedback -- the feedback which we got on the last many calls. So any thought process on that from the management side.
Yes. So EBITDA, I mean 10%, well, it's very difficult. I mean, I really cannot give guidance going forward. But we clearly are focusing towards getting to double digits. It is getting more and more difficult, to be honest. As we go along with every change in the marketplace we are seeing this is becoming all the more difficult. So we'll -- difficult to define a timeline when it will happen. But -- and we had earlier thought about 20%, 25%. COVID took over 2 years, the whole thing got reset. So we have to rework on that number getting back to 10%. Yes, that's what I think I can share on this.
Sir, any result from the Board or the management on the management fee suggestion, which we've received in last many calls?
Sir, except on the management fee, we've explained in the previous call as well, these are towards expenditures, which are incurred by the corporate towards the various services. Plus the brand for which we are able to realize the profitability from and also we've done the benchmark pricing study on the sale as well. And we have found that in line with also, as you might be aware, gets tested in the income tax in suspend as well.
So from that perspective, we are in line to the principal as well as the [ percentage ] that is being given all this. Yes, there are some thoughts and discussions of looking at the model going forward given the increase in land volume. But yes, we have to still see that volume on a budget or a strategy number for us to look at the model. So as of now, we would like to continue with the current model.
[Operator Instructions] Our next question is from the line of Dhiral Shah from PhillipCapital.
Sir, on the export side, what is our outlook compared in the global slowdown and all?
Well, Dhiral, unfortunately for us, I mean, [ DAP ] is really doing very well. They, in fact, introduced 2 models, which won the Truck of the Year Award and I'm proud to say both of which Gabriel has been supplying. So that way, DAP story is very strong. And the slowdown that we are seeing of course, is mainly on the passenger car side, which we are not currently not supplying. Commercial vehicle is still going quite strong. And the issue has said Volkswagen Russia, which I mentioned once we decide to shift it to the location, that actually will restart. So while it is a temporary setback, but going forward, I see that as an upside.
Okay. And sir, how much we are backward integrated as of now? And with the new CapEx that we are talking about how much is [indiscernible] ?
Well, in terms of animal castings, we still do buy a lot from outside sources. But we have -- close to half of it, we have already done. Plus machining as well, we have done even more powder coating also we installed. So that is -- this is the main component in 2-wheelers. Coming to passenger car side, we do the [ piston arms ] in-house with a very green and top-of-the-line technology. So that is, again, a main component. We do -- I mean, I don't have the figures as to how much of -- on overall -- because it's a mix model wise, we sometimes do a make versus buy even model rate. So at gross level, if you want me to answer what would be our backward integration or what is the buyer that we do that I don't have that figure, but we can definitely get that back to you.
Okay. Sure. And sir, lastly, on the aftermarket side, what is our strategy to [ expand ] the overall growth?
So I mean a couple of things. One is we are continuing to increase our penetration and we have done in Tier 2, Tier 3, but we take it much deeper and also trying to penetrate areas like Northeast, which we can do more. That is one. Second, we have a very successful program called the Elite Retailer program, which we do in India. So now we have launched that in Nepal as well, and we plan to do that in the subcontinent, which connects us to the retailer who actually is the main person who can make a big change as far as sales is concerned. So this is the second part.
Third part is, as I said, tires, which we see as a good potential in terms of sales that we had some -- we had our own challenges where we had to change the supplier as well based on quality reasons, quality and capacity. So we have done that, and the response has been really quite good, so with this we will increase our new product push through tires. We continue to add new products. We already done in terms of 3-wheeler [indiscernible] in terms of [indiscernible] also. Looking at dry shafts. And we're always doing the radiator coolant and the front fork oil, et cetera. So that is already in place. We also added the brake pads last 2 years back, the passenger car brake pad as well.
So with this, aftermarket should definitely improve. In addition, we have formed a task force internally to improve our time to market and to introduce more and more products in the market. So that is also falling in place. That's why you see that we have been able to actually take out quite good numbers, good growth. And as I mentioned, a sale of almost just a little less than INR 100 crores in a quarter.
So can you expect this 100 going ahead?
Sorry?
Can we expect this run rate of INR 100 crores or even more than that going ahead also?
Yes. I mean I would say yes. I also forgot to mention, we also added our dedicated export's manager in aftermarket team. So where next year, we want to push aftermarket sale as well so even that addition we have done.
Our next question is from the line of Jyoti Singh from Arihant Capital Markets.
Congratulations on good set of numbers. So sir, my question is on the EV side that how much costs we are going to expect that we will grow? And another question on the competitor side. Like we are in the smart lock and keys, so [Audio Gap] we're not now we're expecting it will grow ahead. And last thing that I'm to collect with the management for the long time but are not able to, so if you can help me in that also.
Okay. You said your name was Jyoti? .
Yes.
Okay. So you noted your last point, we'll request LG also to try to get that connect done. On the other part, we lost you and I couldn't hear you, but I'll just mention on the first part which you are about the EV and the competition and the growth. So it's growing. I mean, as you know, April, May, June, it was at 50,000 2-wheelers, which is the main segment that is moving in EV space in good numbers. That has gone to 70,000 in October. The schedules that we have got on them [indiscernible] also are good. And that growth rate will continue. I mean, obviously, the penetration of EV is still only 4% compared to the industry, but it is improving. Last year, actually, it's gone to almost 6%.
Last year, same time, I think it was about 2%. So from 2% it's gone to 6% in 2-wheelers and 3-wheelers, it is higher. So the growth rate for sure for next 2, 3 years in EV will be very strong. I don't see an issue that. In passenger cars, yes, as long as the OEMs are able to bring cost competitive models, this growth rate may not happen that quickly. Like it is happening in 2-wheelers. There is an anxiety as well. We are reading several reports on the claim range versus actual range due to terrain driving conditions is very different. So on passenger car, the growth we are seeing, but we have to be a little more watchful. But 2- and 3-wheelers for sure, it will continue to grow very well.
Yes. And also on the competition side, how we are competing in the market only like we are in the smart key and keyless segments? So there are other a number of companies either very surviving to OEM. So how we are deficient in from that and how they are competing?
Sorry. But yes, this is what I could not listen we lost you for that. But -- on the car key and smartless, we are not playing in that segment. So we don't have any offering in that segment -- in that product.
Our next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.
Congratulations on good set numbers. So my first question is in the context of PLI that we have applied for. I mean, what is the status? And can you just help me out in understanding the opportunity in the sensors, I mean, which we have applied in P&L?
Jayesh, thanks for the question. So essentially, the step towards this PLI applications we've done along with the Anand Group of companies for the purpose of being able to qualify the various criteria which were there. We have applied under the central category. This project evaluation is complete in terms of the market space study. Also the current customers and the way the supply chain as well as the current production is being done. We are looking at the domestic sensor state only at the [indiscernible] in time.
The way it currently stands is that the technology partners are being evaluated in terms of who sort of evaluate for further discussion, post which we will start looking at the numbers because, again, in sensors, there are various categories of sensors and we have to decide as to which ones we would like to [indiscernible] to eventually. So it's currently a little slower in that space. But as and when we plan to , we'll be happy to announce on that.
And sir, what is the investment that we have applied for in that PLI?
The PLI overall investment would be in the range of INR 40 crores to INR 50 crores over a period of [indiscernible]. That will all depend upon what kind of manufacturing footprint as well as [indiscernible] we acquire.
Okay. And sir, last question on the railways opportunity. I think we have got a breakthrough in one-way [indiscernible] , I guess. Can you just throw the -- throw some light on the opportunity is here? I mean what can be the sales potential and that you are looking next say for 2, 3 years?
Well, [indiscernible] wise, it still a small part. But -- the point is the [ LHP ] purchase, which we have seen is moving to this Vande Bharat. Earlier, it moved from the old bogies to LHP. From there, we are seeing a shift to the Vande Bharat train. So we are seeing an improvement, but yes, the volume will still be very muted I would say.
Our next question is from the line of [ Pankaj ] from [ Affluent Assets ].
Congrats on excellent set of numbers. Sir, just wanted to understand, are we and we have been claiming to have a successful cost containment taken over the last 3 to 4 years, but our margins are still 7-odd percent. So are we in any kind of commodity product? I mean because since I tracked some other companies or competitors of us, who are enjoying upwards of 10% margins. And in our -- in the question on by the participants, you were quite [indiscernible] in saying that it will be difficult for you to give a timeline to reach that double-digit margin mark. So just wanted to understand, since we are into right suspension quality product, why are we not able to defend our margins or claim better margins given the 7-odd percent of margins we have been charging historically?
Yes Pankaj, that's a good question. Not exactly a commodity market, but I mean, yes, there are several players in the market so that there's a fierce competition from what it was earlier. So as you know, in the last couple of years, several players are what added in the space. So that makes it that much tougher for everybody surely. It is not a commodity product because the OEMs still value this product and also give a lot of importance to the right in handling, particularly the global OEMs. So I don't think this falls in the commodity space. I mean yes, the market pressures are there.
And your question about -- your point about other players being higher margins, actually, of course, there are some in competition who are in listed space where we have the figures. They also are a group of companies. So ascribing that entire margin to this particular product, I don't think would be right. I mean we don't -- because it's competition and not -- that data is not shared. But yes, there is, for sure, room for improving margins definitely. So I think I can only share this much with you.
Despite our success in the cost saving measures just in there. Secondly, I ask about [indiscernible] you have introduced a full [ fledged ] slide on railways. So -- and do you see substantial portion of share going forward coming from railways? And are they at better margin or that would be a tender business?
Yes. So Pankaj, the margin is definitely much better than the others, no question. But the volumes are really, as I mentioned earlier with this Vande Bharat also the orders that we have is just a couple of crores. So it will take time. And even -- yes, you also mentioned it's a tender business. That's right. So it's a tender business that gets shared between 4 or 5 players. As of now, there are lesser players, but they have a policy where a new player gets a 20% order as development supplier. So yes, it is always -- I mean, you can't expect the higher share, it is distributed. Margins are good, but revenues are small. It should definitely help in the margin front, not in the top line front.
But I understand that there are orders of around 400 [indiscernible] the [ war ]rant trains. And are you not present in metro business, metro segments [indiscernible]?
No, we are not there in metro. So we have been in talks with Bombardier and [indiscernible] , so that needs a different product. But right now, yes, we are not in metro business.
And as [indiscernible] are there still 400 odd Vande Bharat trains? Are you taking on the miniscule share of the whole?
No, it's only a start now. I mean, once we get into PV, we normally operate on a 20%, 25% share.
So what is the potential that we can reach?
In terms of railways?
Yes.
Well, if you see the total revenue now that our revenue is let's say, first half, we did INR 1,500 crores. So railways would be a very minuscule portion. I mean just about a few percentage points. [indiscernible] very [indiscernible].
Right -- so what is the potential -- can we be -- can it contribute meaningfully to our share of revenues?
No. Honestly, no, because this is a completely tendered business. I mean whatever we do, even if we are in much better facilities, much better R&D. If you have to compete with a supplier who is -- I mean what you wouldn't do considering as a Tier 2 supplier. So that's -- that is the way the business is.
Our next question is from the line of Viraj from SIMPL.
Just 2 questions. What is on the CapEx for this year and next year if you can just supply it? What is the CapEx relevant to spread?
Viraj, it should be in the range of INR 120 crores to INR 150 odd crores.
So to put together or you're talking about retail revenues?
It should be both.
[indiscernible]?
[indiscernible].
Okay. Got it. And secondly, on the export piece, sir you said that despite [indiscernible] moving on the still kind of doing around INR 25-odd crores kind of [indiscernible]. With the new orders, how should one understand the export road map forward for materials?
The immediate target is, of course, crossing INR 100 crores that will be for the year. And going forward, now we are seeing some good interest, at least generated to the China factor. It's the China factor strategy to -- there are some people who are really looking at resourcing the China imports or China bike. So yes, it will take time. I mean we don't have an order, which we can say yes we've got a [indiscernible] SOP so and so. But we clearly see this materializing into good orders, let's say, from 25 [ hours ].
Okay. And last question is on the margin and especially the contribution margins. So if I look at our own state, we are at the lower end of the historical buying contribution margins. Now I understand their impact in terms of raw material pressures and other factors. But if I have to look at going forward, your communication seems to be a little close to double-digit margins, looks a little bit difficult. So is it that the new borders which we are kind of worn, are they much more impressive price points and hence, the margin [indiscernible] segments. Wouldn't you enjoy it in the future. Is that how one should understand?
Yes, Viraj, the honest answer is -- yes, the margins are under pressure. It's not only for Gabriel. This is overall set of numbers, you can actually do a check on the overall [indiscernible] .
In terms of material segment which we have one order say in case of EV [indiscernible] . I think you can particularly in new orders the base margin in that business is not moderating any is bit? Or has that been the case?
So EV, we are seeing better margins, of course as of now. But yes, once they are under market pressures, things will flow back to the suppliers. But as of now, EVs, we are getting it at relatively better margins.
Our last question is from the line of Dhiral Shah from PhillipCapital.
Sir, the content [indiscernible] EV is better than the [indiscernible] on the 2-wheeler and 3-wheeler side?
Well, this content is the same, but our realization is -- I mean realization and margins a little better. Content is pretty much -- pretty much the same.
If you can quantify how much realization better?
Sorry, I can't do that.
Okay. At least 10% sir? Not more than that?
Well, Dhiral, unfortunately the information that would be counterproductive for us. We would not like to share it.
Okay. And sir, lastly, if you can bifurcate your CapEx, how much for capacity increment as for the backbone integration and how much is for Internet when you are guiding INR 120 crores to INR 150 crores each for this year and next year?
Dhiral, we do INR 20 crores, INR 25 odd crores of maintenance CapEx. Apart from that, everything else would be largely capacity enhancement or it would be for resourcing, The exact mix would depend upon the year as well as the NOI that is going to come.
I would love to look to each management if you had an opportunity. So when you are [indiscernible] to your IR.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Kolhatkar for closing comments.
Thank you, and thank you all for your very thoughtful questions. Yes, we understand your key question continues around the margins. We have taken a good note of that. And going forward, the year, as I said, the fiscal year for the country in terms of overall automotive industry, I think, will still be good. The coming year with '23, '24 there is likely -- there will be a likely backlash from what is happening in the global market place.
We have to be a little cautious about '23, '24 in terms of the volumes. But having said that, I think the overall economy and the country is in good shape. So it'll still be definitely far better than the rest of the globe. So look forward to meeting you all again in the next call. And thank you, thank you once again for all your questions. Thank you. Bye-bye.
Thank you, Mr. Kolhatkar and members of the management team. Ladies and gentlemen, on behalf of Gabriel India Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.