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Gabriel India Ltd
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Ladies and gentlemen, good day, and welcome to Gabriel India Limited Q4 and FY '22 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 of Gabriel India Limited. Thank you, and over to you, sir.
Thank you. Good morning, and a very warm welcome to everybody who's joined the call. I'm Manoj Kolhatkar. Joining me today is Rishi, our company CFO; and Nilesh Jain, our company Secretary; and of course, SGA, our Investor Relations advisors. So we have uploaded our results and investor presentation for the quarter and the year ended on the stock exchange yesterday after we had a Board meeting. I hope each one you had a chance to go through the same.
So before I get into the numbers and run you through the presentation, I'll just give a brief on the overall outlook of the industry and where are we. Of course, most of you are aware of all the challenges that are continuing to kind of hit the industry for several quarters now. And then I will just dwell upon -- you know this is mainly my perspective.
So coming to the industry, I mean, last year, I'm talking of '21, '22, when I referred to last year it will be '21, '22, the industry was a mixed bag. Yes, I mean, all the results, we will compare with 2021, which is actually not the right year to compare because it was a COVID year. Nevertheless, '21, 22 for passenger cars, and it was a good year. In terms of domestic sales, there was an increase compared to 2021. And in fact, the good part is in passenger cars, there was an increase compared to even '19, '20 on the domestic sales figures. So if you see the total domestic exports, there was almost a 17% increase compared to 2021. Of course, the industry was faced with a lot of challenges, mainly the semiconductor shortages. These numbers could have been more -- as we all know, there's a huge waiting list for any car that you want to buy from the market, which is a good thing because that clearly signals a robust demand pipeline for the passenger car. However, coming to 2-wheelers, the story is different, and unfortunately, it continues to be under severe stress for several years now.
The 2-wheeler volumes were actually down by 3%. If you take the domestic and export, both put together, but if you look at only domestic, in fact, the figures are even more adverse, it is almost down by 9% compared to last year. Exports did very well that -- I mean, basically, Bajaj and TVS continued to export very good volumes all through the last year. So that helped us as well. And the reasons for 2-wheelers, of course, is first and foremost is the COVID second wave, which hit in April, June. It almost kind of devastated the rural segment. That really shook their confidence, and then immediately, if there were any signs of revival, it was again hit by the Omicron wave. So there's a lot of uncertainty in the minds of the people.
Adding to this, yes, of course, there is the EV. So that's mainly on the metro side, I would say, that people are waiting for the EV, EV thing to pan out. So to some extent, wait and watch. And of course, the demand is also low because many are still operating from home. The schools are still not entirely operating. So obviously, this affects schools and colleges. So this affects 2-wheeler and 3 wheeler demand both. So it's still, I mean, say, I must say challenging days for 2 wheelers. And it is, of course -- I mean, it might last. So of course, we did hear from the largest player in the country, Hero MotoCorp that they are optimistic about arrival as far as the 2-wheel is concerned after this monsoon.
Commercial vehicle was, of course, a very good recovery. And commercial vehicle volumes grew by almost 30%. And the trend continues into the year, which we expect to continue the same growth rate, maybe about 20% in the year '22, '23 as well.
Tractor, of course, Gabriel does not play in this segment. But yes, tractors, there was again a drop of 1%. Of course, we had an excellent sale in the month of -- in the year of 2021. And then last year was a little correction to that.
ICRA's recent survey on auto dealership to understand current demand and supply trends across various segments, indicated that demand may remain weaker than last year. But again, as I said, we'll have to wait and watch. There are supply challenges, which continue -- adding to the semiconductors was this Ukraine war. So that has even further aggravated the situation. And of course, the rising commodity prices also are [indiscernible], I mean, of course, all of us are appeared to see the impact of the recent government intervention on the steel prices just a couple of days back. It's early days. But hopefully, that should that should see a change in the commodity trend for the main commodity, which is steel for all of us.
During the last quarter, the demand for PV, as I said remained very, very healthy. So it's -- as I said, we are very optimistic about the passenger car particularly. Coming to electric vehicles, they are becoming more and more visible, and the usage is increasing across all segments. So the 2-wheeler story, we all know, I mean, in the month of January, February, March, we had sales of 50,000 in a month, which is -- if you see the entire last year, the growth for EV has been almost -- for 2-wheelers has almost been 400% even -- I mean, if you take the full year for last year in terms of registered vehicles, I'm not talking about unregistered -- unregistered is a similar 50%. It's a 50/50 market. There's a -- the last year, '21, '22, we sold about 231,000 2-wheelers, and now the hit rate per month is almost 50,000. So you can see, clearly, in '22, '23, very likely that this figure might actually go close to 1 million mark as well if all things go well. The way each EV maker is indicating their schedules, we are quite hopeful that we should see a continued huge growth in 2-wheeler segment especially the scooters, of course.
Passenger cars still are a very small number, but nevertheless, catching a lot of traction. Tata Motors Nexon is selling almost 3,000 a month. MG has come up with a new model that is also doing well and [indiscernible] as well getting into the fray. Yes, there are lots of announcements from Mahindra now. They'll be -- they'll be introducing the concept sometime in the second quarter, on the Born Electric vehicles, as they say, clean sheet electric vehicle platform. So a lot of action that is bound to happen in passenger car space as well.
Three-wheelers, I mean, yes, of course, the adoption there has been has been the highest and the conversion will be the highest. So easily, we can see more and more 3-wheelers getting converted to EVs. So this is, in short, just what the industry did look like last year and, of course, also to some extent, I did indicate as to how it will pan out in this year as well in terms of '22, '23.
Now moving to the numbers, I'll take you through the slides quickly. I mean if you -- we, of course, have to start with the COVID because COVID while we say it is behind us, we all hope it will be behind us, but there is, again, a prediction of a fourth wave. Hopefully, it will be mild and people are going for the third shot, booster shot. We in our group also decided to extend the booster shot for employees. So hopefully, I mean, we should not see any adverse impact of COVID. Nevertheless, just to mention that our precautions continue. We being very -- I mean conscious company and a group -- we continue to take all the precautions as regards to COVID appropriate behavior.
Now moving on in terms of the results. We had an excellent quarter in Q4, the best ever, actually. So we did a sale of INR 684 crores, which is highest by a long margin. Yes, this does have the commodity impact to some extent. But even if you discount that, it still has been the best sales as regards to Gabriel's best quarter ever. And in terms of EBITDA, we did 37 crores, which is 5.5%. Yes, we had -- we continue to have challenges in the commodity. That is just not easy, we all know the steel price hike that happened in March and April was really something unforeseen. I mean, none of the industry expected that to happen. So yes, the government intervention was actually imminent, which thankfully has happened. So we'll have to see the -- as I have said -- we'll have to see the impact. But in terms of PBT, we have been able to maintain 5.5%, which is 37 crores for the quarter.
Going to Slide 8, just the highlights. Revenue for the year, again, the highest sale year ever INR 2,332 crores, which is compared to last year, of course, the COVID year, the growth is almost 38%. EBITDA for the full year is 6.3%. So again, if you see the growth over FY '21, it is 42.3%. Yes, I have to again mention that this year, I mean, in '21, '22, we had a month of COVID impact, actually, almost 2 months of COVID impact in the month of May and to some extent in June as well. So, it was not -- the year was not completely, I must say, free from COVID. But yes, despite that, I think the company did manage really good sales for the year.
PBT was INR 126 crores, 5.4%. Again, a growth of 62.3% compared to FY '21. Our balance sheet net cash position of almost INR 280 crores of cash flow from operations to a tune of INR 96 crores compared to the higher inflow last year of INR 204 crores. In the year, we incurred CapEx of almost INR 67 crores.
Going to Slide 9. These are again the same numbers. I'm not [indiscernible] that -- we move to Slide 10. In the trend yes, the EBITDA trends have been under pressure, mainly while we have got the raw material compensation from the customers, the impact because it has happened, this increase has happened quarter after quarter after quarter with no abatement in sight. Obviously, this plays even on a simple arithmetic -- even [indiscernible] get 100% compensation, there is an impact on the margins.
Coming to -- I mean, this Slide 12 is again the trend. So if you see on the full year basis, EBITDA has, I mean, started moving up. EBITDA, PAT, and ROC. Both have started moving up from the down trend in the last year, 2021. The net working capital days also has reduced to 17 days. The rest are key ratios, I'll just spend maybe on the Slide 14, which is the segment mix. So yes, I mean, the passenger car sales did quite well last year. And even CV, as I said, have started doing very good volumes. So you will see a shift to that extent slightly.
In terms of aftermarket, we have 12%. Exports of course, was a good year for exports. We crossed 100 crores of exports in the year. But yes, unfortunately, I must also say that we have been hit by the Russia war because part of our exports was to Volkswagen of Russia. So we'll have to take those volumes to start back.
Coming to the next slide, which is on 2-wheelers, 3-wheelers, which is 66% of our sales. Market share continues to be 25%. Our engagement with all OEMs remains as strong as it was. We continue to get awards. We got an award from Honda Motorcycles for new product development, which is a very, very key category of awards, especially being a global company and a world leader in 2-wheelers. So that's a very prestigious award that we have got. We also got an award from TVS Motors for quality, cost and delivery. So we have, in fact, strengthened our relationships based on solid performance of the products and the programs that OEMs have asked from us.
Coming to the passenger car, many of the programs that we had started have started getting to SOP. Some in that many of them are doing a new program, which you can see here on Slide 16. Maruti Suzuki code name Y0M, YWD and YFG. All these programs are going to start in this year, some in August, some in December. So this will add to the volumes further. The Stellantis of the PSA, Peugeot and Citroen has already started. Volumes are very low. But the important thing is this is a global company, which is looking at sourcing opportunities from India. So we are very strongly engaged with them. They have been very satisfied with all the work that we have done so far. And I mean, there has been a very good engagement at all levels as far as Stellantis is concerned.
Coming to commercial vehicles, yes, I think you all know we have a huge market share here. So we continue to have that confidence from the OEMs. Our export program, DAF, we have got 2 more programs. We had started DAF exports last year. We won the award for the best new supplier. So this is a global award from DAF of Netherlands. And in addition, just a couple of weeks back, we won the Paccar, Paccar is the holding group of DAF. So from Paccar we got the 10 ppm award, which is awarded to only select suppliers globally. So we got that award as well. So the engagement with DAF is again very strong. We have already been extended for the Brazil products as well. So that is an addition that has happened last year. Volumes are small, but the good part is their confidence in us is growing.
Aftermarket was -- I mean a terrific year last year. We did excellent sales of 331 crores, again, the highest ever of course, and that growth already continues. So we expect to build on this further going forward.
Exports, I already mentioned, this is Slide #19, shows exports. Yes, there is a setback, which is temporary. Volkswagen is also working out alternatives to the production in Russia. But we'll have to wait and watch for some time.
Balance sheet. Again, CapEx for I just mentioned the CapEx we did as said, 68 crores for the last year. And the main CapEx was the tech center. I mean, we have started our new tech center, 4-wheeler tech center. It is a really beautiful building. And also, we have our own small test track for noise testing alongside tech center. And we have all the latest equipment with provisioning for additional seats in terms of engineering design. We also expanded in our casting plant to reduce our dependence on China. So that already happened. I mean the tonnage has almost gone double as far as our casting capacity is concerned, it's almost close to 300 tonnes a month now.
In Dewas plant, we are expanding to have a new paint line to improve the quality and of course, to improve productivity and efficiency of the whole paint line. So these are the key CapEx for '22 -- year '21, '22. And these are the cash flows, et cetera. So I'll not spend time on this. But I'd rather leave the floor open for questions from you.
Just one point that the dividend, yesterday, we declared a final event of INR 1 in addition to the already declared, INR 0.55. So the total dividend stands at INR 1.55 per share.
So now I would actually leave it open to questions and keen to hear your queries, your clarifications, your suggestions.
[Operator Instructions] First question is from the line of Viraj from Securities Investment Management.
Congratulations on a good set of numbers in such a challenging environment. Just a couple of questions. First is, [indiscernible] we kind of mentioned about our performance in all end segments. So if you can just provide how the growth has come from existing customers as against new wins. And really the question is in terms of share of EV sales, how much would that be, say, in Q4 or FY '22, and how should we see this scaling up in coming year? So that is one.
So yes, our share with the existing customers with some of the customers is actually increasing for sure, with Royal Enfield, with TVS, with Maruti Suzuki, with Tata Motors, I can say top of the mind this, and yes, of course, the Honda Motorcycles because we -- as I mentioned last year, we won the new motorcycle award from Honda Motors. Those numbers are yet to come, but that will further increase our SOP with HMSI. Now talking about electric, we already have over 50% market share. So that has been a very solid story. So, we are engaged, as you know, until now we are engaged with Okinawa, Ampere, Ather, TVS, and of course, Ola. Ola has started doing good numbers now. In fact, just a couple of days back, I did meet Mr. Bhavish Aggarwal. So I mean and they've expressed great satisfaction on the partnership that we have extended to them in terms of supplying the parts. So Ola volumes are doing well. So this share of business in EV will only increase as Ola volumes go higher and higher. Now the only player that we did not have in the 2-wheeler EV segment was Hero Electric, which is the market leader as you know. So I'm glad to share that we have won the LOI from Hero Electric for a new model, which will start -- SOP they should start in Q2 of this year, Q2 or early Q3. This is a model where the volumes that they have indicated in year '26, '27 are likely to go to 1 million. So this is a huge order. I mean the order size itself is over INR 250 crores. So this is one very good development. So we now have in terms of EV 2-wheelers, where the conversion is happening extremely fast. In fact, there are some cities where the penetration of EVs is already hit 17%. In 2022, which is really very encouraging. In fact, what they said was the penetration will go to 20% by 2025 was the general prediction. We are seeing 17% penetration already in a couple of cities in India. So now with this addition of Hero, our entrenchment in EV two-wheelers becomes even more stronger with Ola volumes going up this 50%, we'll immediately see an increase to maybe 55%, 60%. So yes, the EV 2-wheeler story is really quite strong.
And this INR 250 crore order which you say from Hero Electric that is over lifecycle or that is annual volume you are talking about?
That's the annual volume I am talking about. I am talking about the peak annual volume. As per numbers they have indicated, yes, the numbers -- I mean, obviously, we have to -- we don't know how the vehicle will perform in the market, but just going purely by the numbers, they indicated that is a volume size. So if you see the program life, it will be much more.
So this will be a couple of models, right, not just 1 model?
This is just one model.
Okay, second question is on the margin front, you mentioned that on the RM, we got the price increases, but is the large part of the inflation now in the books? Or do we expect any further cost inflation? And related to that, how should we understand margins moving forward, say on '23. Have you got any further price increase because the mix has been quite favorable and based on the indications the mix will be even more favorable in '23, especially with CV, aftermarket and it will be coming up on...
Sorry, your voice is not entirely clear, but I'll try to answer that. I hope I got what you're asking. In terms of our RM compensation, raw material composition, we get almost, I would say, 95% back to back with OEMs. And so if you look at basically steel, aluminum, rubber and oil, I mean these are the key components that go in our shock absorber, or front strut or front fork. So we get from all OEMs back-to-back arrangement. Yes, maybe with a lag. It depends I said 3 months or 6 months, but we are moving everybody to a 3-month cycle now mainly. The commercial vehicle is a longer cycle. But let's say 2-wheeler and passenger car, which is a much higher volume again, there, we have a back-to-back arrangement. So we have been able to do that. Yes, I mean, there have been other increases, mainly as you know, increases in freight, increase in packaging, increases in every commodity that we speak currently. Some which are not direct materials, that do not get covered. So we are not -- I mean, of course, have been requesting OEMs to support on that front as well. Yes, hopefully, something of that should materialize in '22, '23. So yes, I mean, we see -- we are pushing this very hard. We have taken a focused effort and a focused excise in the company to get compensation beyond raw material compensation
Just one more question, if I can squeeze in...
One point to share, if you are on a speaker mode, switch to handset and speak please.
Just in the last call, we briefly talked about the parent and our participation in PLI. So since the list is now finally announced, if you can just provide some plans, anything if you can provide in detail our plans, what segments we'll be looking at? What is the CapEx on the investment [Technical Difficulty].
Yes. So we are actually -- we have zeroed down on a particular product category. So we are right now doing market research on that particular product. So it's early days. I'm not able to share more with you at this stage.
Okay. So it will be outside of the traditional ride control products?
Yes.
[Operator Instructions] Next question is from the line of Laxmi Narayan from ICICI Prudential.
A couple of questions. Now over the last couple of years, we have done a good job in reducing the conversion cycle where you see that we have actually reduced the inventory levels, et cetera, right? So what is the plan forward can we make at these levels? Or do you think that it will normalize to the pre-2018 levels?
Laxmi, if you're talking of our working capital efficiency or our efficiency of inventory turns, I think that we can improve even further. This is certainly is not end. I think there is still scope for improvement, and there are very clear efforts going on and in some initiatives going on in terms of leveraging SAP to a much larger extent to give us better efficiencies in terms of inventory and scheduling.
And what kind of CapEx do you intend to do for FY '23?
FY '23 will be mainly about -- it will be over INR 100 crores. It would be in the range of, I would say, INR 120 crores.
And can you split between maintenance CapEx and growth CapEx?
Yes, so Laxmi, give and take, we do roughly INR 20 to INR 30-odd crores of maintenance CapEx every year, and the remaining would be for strategic projects or for debottlenecking of the capacity.
And you touched upon freight expenses in detail, right? So there is a bit of an increase in freight expenses. So last year, if you look at it, we incurred close to [Technical Difficulty] this year.
Yes. You mean what has been the freight expense this year?
Yes, yes. Last year, we incurred 29.7 crores in other expenses.
Well, I don't have a figure offhand but maybe we can come back to you. I'll just refer, Rishi is just referring to that. But yes, I mean just to say that freight has been increasing, I mean, especially exports, both inbound and outbound in imports and exports outbounds have been going up by 4x and 5x. But the good part is the cycle is changing. We are seeing a bit of easing in the freight rates as well. We've seen almost $500 per container reduction already. So we are hopeful that the freight rate should start easing off. The fuel price also used the latest government intervention. With that, it should it ease up. Rishi you have the figure? So the figure is INR 42 crores for this year.
Okay. So INR 30 crores to INR 42 crores.
Last year, we did INR 1700 crores, and this year we did INR 2,300 crores.
Now [Technical Difficulty] margin over a period of time. This is at 32% odd, right? And it was -- we exited last year at around 25%. So there has been a drop in material margin. So what is -- I mean, how fast we can claw back to at least 25% material margin?
Laxmi, I think for sure, once the commodity trend starts reversing, we will see that happening. So difficult to say. I mean, as I said, all -- I mean it's not only me, but the entire industry expected price corrections start in April '21, which never happened. But the only thing is if you see the early signs now and also, there was an article some time back about the future of steel which is expected to come back to the earlier rates by the end of this year, and the latest government intervention that happened a couple of days back, the fuel price reduction, container freight reduction. So we hope that things -- the cycle should start turning. I really cannot guess that it will happen in Q1, Q2, very difficult. But the margins will surely come back from them. Second -- that is the market side, right? Now second is what can we do internally? So again, we have we just had our annual goal setting workshop in the month of April, where each of the team has been tasked with a clear focus on margin improvement, both on the sales and marketing side plus also on the raw material or production teams to improve efficiencies. So we will certainly see margins improving from this quarter itself.
And Laxmi, just to add to what has been spoken, even if we have 100% recovery of every single commodity increase that we give it to the vendors, with that calculation also, there would be a 2% impact on the gross margin owing the numerical impact, the mathematical or the denominator as we call it. So that also has to be factored into, this is an amount that can reverse when we work only when we see a downward cycle.
I mean I didn't get that part. Can you just elaborate a bit?
It's like this, if let's say, my price is INR 100 and my raw material is 70%, and the raw material goes up from INR 70 to INR 80, okay. So my RMC, and I get a INR 10 -- with INR 10 increase, I get a compensation of it. So my price becomes 110. So 70% -- 72.7%. Even if I get our compensation.
Got it.
That effect that is playing out. Again, as I said, it's not only for us, it's for the industry. And yes, the OEMs are themselves under pressure. They have passed on several price increases. It will start turning unpredictable -- the demand side if it goes on like that. So we'll have to of course, this year, we have decided that we should pursue this in a focused manner.
One strategic question. So if you look at 5 years back, 4 years back, and you thought the organization and you plan for a few things, sitting in FY '17, what are the things which are actually positively surprised you and you've actually gone ahead of your expectations? And what -- which are the ones which did not meet your expectations? And leaving the COVID aside, right? For the last 5 years, how we have strengthened the company better? And what is the plan forward now?
Okay. So there are several points on that. One is, clearly, our quality offering to the customer has improved significantly. As I said, while we keep sharing awards, award is a manifestation of the confidence of the customer in us. So that's why we keep sharing the awards with all of you. So the quality image, the quality perception has for sure improved, which is so very important in the auto component industry. That is one. Second, our technology capability has improved in 2-wheelers and in 4-wheelers also it has significantly improved now. That's how we see more and more business pipeline coming through. The third is exports. We have unlocked some key marquee customers, which should help unlock many more. We took a lot of time in unlocking that. But now with these marquee customers in our kitty, we should, for sure, improve that even further.
So then the other point is the overall customer relationship aspect, both from the company side and the group side has also improved significantly at least with the key customers. That has been another good story. Our focus on cash management has also, I would say, been improving. Yes, we can never forget the COVID year. But even in COVID year, I think we are not so badly placed compared to the rest of the industry. So these are some of the good points. If you ask me, even the -- I mean, of course, the EV sales, EV market share in 2-wheelers is for sure a success story. That is one more thing. So if you ask me, I mean these are some of the things that were on top of the mind which I would thought I can share as the positives.
And if you look at the EBITDA margin, that has actually declined gradually from 9.3% to 6%, right? Now do you think this will claw back to some better level whether if you 1 year, 2 years? Because I mean how do you plan for the next 5 years?
Yes, so like you asked the question, what has been a positive surprise, the negative surprise has been this commodity, which has really, really hit, again, all of us, completely unforeseen kind of situation. So it will take some time for us to claw back to that. Our target remains double digit. We are taking excises internally to still push towards double digit. Time frame is, honestly Laxmi, difficult answer.
Just one last observation from my side. See, what has happened is as a group, we take 2% fee on our revenues. Now, from an inflation point of view, what happens is that the parent keeps getting higher share, right? And that actually has a double impact for shareholders because the EBITDA margin is going down, and the inflation is actually hitting, right? So from a number point of view, if you look at it, the B2B parent has actually gone up 14% to the last 4 years from FY '19 to FY '22. The absolute dividend payout to minority shareholders has gone up by 3.3% on a cumulative basis, right? How do you address this? Because it is actually creating difficulty for shareholders? And the inflation is good for the parent. Have you thought about it? And what is -- how you -- have you discussed with the Board and any views on that?
Well, Laxmi, it is difficult for me to take this on the call, but I noted your point. But I can tell you that in terms of the group, there has been like the Hero order that I just mentioned, I would say it has mostly come from our group support. Similarly, there are several other business connections that we make, the improvement in share in Maruti is also, while the company has performed. But there are so many players there, there are 4 players we have. So this is where the group support for sure counts, even in terms...
Yes. I mean, I completely agree on the group thing because that group has to be compensated. The only thing is that instead as a percentage of revenue, if you can actually think about percentage of the PPP, then the interests are much better aligned.
Laxmi, I noted your point.
[Operator Instructions] The next question is from the line of Priya Ranjan from HDFC Asset Management.
So my question is, I mean, in terms of the price recovery or in terms of the inflation, how much we have got the inflation benefit in terms of top line and how much is under recovery in terms of commodity pass-through, is it still in the numbers?
For the full year, [88.5%] is on account of the commodity and the remaining would be volume. On account of recovery percentage, we are upwards of 85%, including all the segments.
Okay. But recovery -- can recovery go beyond 90%? Or it is mostly it's fixed, gets set around 90% level?
The answer to you is, yes, it can go up. One part of the business, which is 13% is aftermarket. There such kind of commodity indexation is difficult because it is also dependent upon what the competition is doing with regards to the price. Second is with regards to some of the segments which have got a longer settlement cycles, we -- we cannot accrue in the books, the impact, which we will -- get in the next quarter or in some cases, in the next half year. In case of export also the settlement cycles are longer than 6 months. So there also, there is a timing lag. So, that considering if I remove the lag part of it, certainly, it can go over 90%.
And coming back to the growth aspect. So, I mean, this year was also, as you mentioned, I mean, Manoj mentioned about 2 months of impact in terms of COVID and our higher market share in 2-wheeler EV part. So how should we look at the growth? Because the last year growth was also pretty decent even if I remove the commodity benefit in the top line. And secondly, on the -- what will be the impact of Russia in terms of our export growth, will our export be broadly flattish this year? Or how should we look at it?
Growth for this year, I can only tell you in terms of the industry side, we are looking at the passenger car growth of almost 10% and commercial EV growth of almost 20%, 25% is what we're looking at. But 2-wheelers, it's a flat kind of scenario. We are kind of factoring in I think while as I said, there were some optimism, but I'm still a little doubtful about whether the demand will improve. 2-wheeler -- I mean lets take 2-wheelers, yes, the growth story I did already share. I mean we had a 400% growth last year. I don't see why it should not be the same this year, where our market share is better. So that is what -- that is where it stands. Aftermarket is quite strong. And I think the growth there will should definitely continue in the 20% region. Exports, unfortunately, it will actually be a degrowth because we had a good order book from Volkswagen Russia. And to be honest, I don't see that changing for at least Q1 and Q2.
And in terms of our market share in 4-wheeler, I mean we have got many new wins in last, say, 1, 2 years. So how should we look at market share in the 4-wheeler in the passenger car side?
We were hovering around 20% earlier. Now, it has already gone to 23%. And I think we can definitely get this up to in the next 3 to 4 years, this can definitely go more towards 28%.
And lately, we have seen a lot of movement in the railway side. So in terms of wagon procurement, new types of wagon, et cetera. So I mean, as I think as market share even in railways is very pretty significant. So what is our sense in that segment growth, maybe for the next 1 or 2 years?
Yes, the tenders are yet to come. But yes, I mean, there has been news that they're adding 4,300 coaches of LHB, et cetera. So I mean, last 2 years have been pretty bad for railways. I mean figures have been flat actually or negative. So this year, if those plans actually convert into tenders, we will certainly see a growth in railways. We'll have to wait and watch for that.
And in terms of -- lastly, on the -- in terms of localization, I think last 2, 3 years, part of the CapEx has been going in terms of localization. So -- but still, we are not able to see that benefit in terms of the gross margin. Why do you think -- I mean, is it something -- there is a lead lag impact on that? Or what's your sense on that?
Looking first project of localization, which we classify under the Core 90 program on a year basis has given us the results that we have desired. Having said that, there are other factors which have also contributed in terms of increasing the RMC percentage. To give you a ballpark number, 0.5% to 0.9% has been the benefit which we have derived out of these programs.
[Operator Instructions] Our next question is from the line of Aniket Mhatre from HDFC Securities.
Just on the 2-wheeler EV outlook. I just wanted to check with you, while we have seen a lot of news flow around the capacity ramp up from players. We are also hearing they are facing chip shortage which are hindering the ramp-up per se? And also the recent fire incident could have sort of hampered the momentum. So if you could talk about how you are seeing this growth rate in 2-wheeler EVs going forward, that would be useful. Of course, for you and for the industry both.
Yes. So I mean, yes, there have been these fire incidents that have happened. But if you see even in the last month, let's say, April and even with the way May is going, I think people have kind of accepted that and moved on. I don't think -- because the proposal of EV is very compulsive. The payback is really solid especially if the fuel price is going higher. You recover your initial higher vehicle costs. If you look at the total cost of ownership in, I think, 2.5 years at the current fuel rates. So I mean it's very compulsive to switch over to EV. Any new thing is going to have issues. So we are seeing those fires, some of these are being blown, I must say, a bit out of proportion as well. So I don't see that impact. But yes, the positive is that the 2-wheeler EV makers have taken this and improved their quality. They're working on improving the quality and technology. So that's the positive. I don't see that affecting in a big way. I still believe -- I mean, the 50,000 per month can easily go to 100,000 per month in this year itself for sure. So by the end of the year, 2-wheelers will be close to -- in the range of 8 lakh to 10 lakh, I mean, close to 1 million two-wheelers. I'm talking registered, unregistered is something, which we don't have the figures. So -- but approximately, the ratio is -- now there are more registered so ratio is, I would say, 50/50 for both. And as regards to Gabriel, I already told you, our engagement is going stronger from, let's say, Ather, Ola, Okinawa, Ampere, I mean, all these players, the indications that we have for the future months is quite good and increasing. So all the reasons to believe that this 400% growth last year will get repeated this year as well.
So basically, you're not seeing any chip shortages per se as far as...
About chip shortages, chip shortages are heating up, but they have -- I mean, they have so far managed, I think they should -- and the chip issue also is getting -- I mean it's not behind us, for sure, but it's getting eased to some extent. So I don't see chip shortages affecting them in a big way because the overall volumes are still not very big Aniket. All that we say, even if I say 400% growth is 1 million compared to 15, 16 million for IC engines. So I don't see a major issue there.
Understood. And on the PV ramp-up part, again, we have been hearing a lot of order book backlog again because of chip shortages. How are you seeing the industry cope up with the chip shortage issue at the moment?
Yes, as per industry, it says that it will go on for the first half of this year, for sure. But I mean, there will be no degrowth. As I said, the 10% increase in the EV market is what is the expectation of the industry. I think we remain firm on that.
Understood. And coming to the new order wins in Maruti specifically, you talked about 3 new platforms. Now, are these new platforms -- these are upgrades because we have typically not seen Maruti launch 3 products in 1 year per se before this. So, and would these be -- and could you specify any specific categories? Would this all be in utility vehicles?
Right. So one is a new platform, which is YWD, Maruti Jimny, which is doing quite well overseas. So this is completely new. You can always say that it's replacing Gypsy, but Gypsy is long gone, a new platform completely. Then the Y0M, other 2 are replacements, yes. One is the new Brezza and the other is a new Alto.
The new Alto?
Yes.
Understood. And just on -- finally, on the 2-wheeler part when you talked about a flat growth, so again, given that we have seen 3 years of a decline in 2-wheelers, -- and even last year, if you recall, we -- as you rightly pointed out, we had a COVID-hit month. So the base was also pretty low. Despite that, you still think it will only be a flattish kind of a growth even this year.
Yes, because some of it is going to get going to flow into the EV segment. The EV segment is, as I said, the growth is -- number is small but the growth is pretty high. So that the metro scooter demand will get shifted here. We are seeing it play out in the rural segment as well. But overall, I still see a flattish kind of figure. Monsoon, as you know I mean the early indications are not very good, while its projected to be normal, but pre monsoon is already deficient. So we'll have to wait and watch. Difficult to get, but I would say flat is a better guess to have.
[Operator Instructions] Next question is from the line of [Sreemant Vidoria] an individual investor.
[Technical Difficulty]
A couple of questions. Firstly, with the investments that were done in the last financial year '22 and that have been planned in '23, what would be the capacity increase that we are looking across segments? That's the first question.
Okay, so the capacity increase which we have done, as I said, we have got these new orders from Maruti Suzuki. Some of it is already done last year, and some will be done in this '22, '23. This will take care of that additional volume that we have got for Maruti Suzuki. In 2-wheeler side, I mean mainly the EV plus the new Hero order electric order that I already mentioned. The Ola as far as I know pushing that number. So that will -- obviously, we are already invested. But yes, we may have to do a bit of debottlenecking additionally. But in addition to capacity, of course, one important thing that we've done is investing in technology. So -- which is not directly capacity, but in terms of our capability. So we have invested in R&D center, we are investing in developing our own electronic suspension. That program is already underway.
But the investments that has been done, is there a number which you could share, say, x units. What's the capacity, say, last year and this would become, say, so much at the end of next financial year.
Okay, I don't have an answer right now for that. But maybe we'll revert back to you on that. It's roughly 40 million. But in terms of exact, with these additional investments, we'll have to get back to you.
Okay. In this context, I wanted to understand at present, what utilization levels we are running at.
Yes. So it's different across segments. Look at 2-wheelers, that figure would be -- yes, for 2-wheeler it's about 65% [indiscernible] both put together, it would be same way, 65%. Commercial vehicle would be a little higher, more at 70%.
Okay. So the 2-wheeler 65% includes the electric vehicles?
Yes, yes. So there's a mix in terms of, let's say, one plant is running at actually 80%, 80% plus. There's one plant which is running at 50%, so I'm talking on a mixed basis.
Lastly, if you could also share while the top line includes an impact of the inflation in the commodity, so what would be the volume that was sold in, say, the full year FY '22 -- and how does it compare with '20 and '21, if you have that number?
Sreemant, as I said on the volumes, we will revert back to you. But if you look at the growth, like Rishi had mentioned, there's about 8% to 9% of commodity increase in the top line. So you just have to knock off 8% to 9%, the rest is volume growth more or less.
Our next question is from the line of Shashank Kanodia from ICICI Securities.
Sir, there were some recent media articles mentioning Anand Group looking at [Technical Difficulty]. Yes. Sir, recently there were some media articles mentioning Anand Group planning investments of $100 million to $150 million for EV component. So [indiscernible] have been told to pay in that way?
This is mainly through the motor. I mean we have formed a JV with Mando, but it's Anand majority on JV. Currently, they are into 2-wheeler motors, which they will extend to even 4-wheeler motors, motors and controllers. So that's already started. They started supplying SOP. There are some additional products also in terms of the HMI or the human machine interface, the clusters for 2-wheelers, chargers for 2-wheelers. So we are exploring, in fact, even charging infrastructure as part of it. So it's being explored at the group level. And as of now, while Gabriel is not a part of it, but we can't -- I mean -- I mean we can't dismiss it either.
Mando is the same venture from where we supply the shock absorbers to the Korean OEMs right, the Hyundai and Kia?
That's right. So Mando is mainly a brake and electronic -- electric power steering supplier, and also they supply ADAS to most of the OEMs in India. So yes, they do supply shock absorbers to Hyundai and Kia.
And they make [indiscernible].
Yes, yes.
And secondly, we would also raise a similar concern regarding the royalty and the legacy that we pay to the group level. So it might be roughly 2% on top line, but if you consider the PAT level, it is roughly half the PAT of what you were plotting annually. I think we have raised a similar cost with the IR team, but I'm not very sure whether it has reached to you or not, but I think [Technical Difficulty].
Yes, Shashank, we noted that.
Even Maruti, if you might have noticed the royalty fees are on a decline like -- so the Maruti doesn't pay the same royalty on [Technical Difficulty] which was launched 20 years back. So I think there is a strong case for you to [Technical Difficulty].
Yes.
Lastly, sir, on the vision 20/20, any innovative aspirations that you have observed or any prize or any color you can share to be in the top line?
Yes. So that, Shashank, we are pushing. In fact, we did -- in fact, we did visit one company as well, but unfortunately, the company was, let's say, not up to the mark in terms of compliance standards, and we have a certain way we do business, and we won't compromise on certain aspects. So we had to reject the target. But we are, at the moment, also evaluating a couple of other opportunities. So it goes on, I think the effort is definitely on.
But [Technical Difficulty].
Yes, yes. If you translate that into numbers, it should be around that.
Thank you. Our next question is a follow-up from the line of Priya Ranjan from HDFC Asset Management.
Just 1 thing. I mean, in terms of our top line or even within the 2-wheeler segment, how much is the revenue now coming from the electric side?
Overall 2-wheelers, whichever way you want to -- Priya Ranjan the number is still small, but I can just give you approximate in terms of percentage or the volume, it should be -- it is 2% to 3%. It's still very low.
And just another thing is on the tax rate. I mean, why we are paying still higher tax rate? Are we not moving to 25% tax rate?
I'll take that question. So basically, we have moved into the regime of 25%. Once we have look into financials, you can see that tax working into it. So what happened is that there was an impact of a deferred revenue from the previous year to a close of INR 41 million, which has resulted into the current tax rate being higher both as compared to the previous year as well as 25% that we have an effective price rate for it.
And just, I mean, we are also one of the large shareholders, so we would also like to have the same concern as our royalty part, which is because the commodity benefit is actually getting transferred in terms of a higher royalty. So, I would request you to consider and have detailed discussion on that within the group.
Our next question is from the line of Laxmi Narayan from ICICI Prudential.
So when you look at some of the clients in the EV space, their balance sheets are not good. I mean they are in the mode of funding, right? So how do you ensure that when you set up a capacity, you don't risk yourself by committing more? And whether it is interoperable that what you supply for the electric vehicle, in case, for some reason, they just go kaput, whether you can actually use it for others. And how are you thinking about this particular risk?
Yes. So what it points to what we do in terms of -- we have an elaborate process because there are as -- I mean there are about 300 plus or in fact even 400 registered EV companies, EV 2-wheeler companies, mainly 2-wheeler and 3-wheeler. So many of them will finally, like you said, go kaput. So we have a process by which we -- before we quote or before we engage with the customer, we do a kind of a due diligence internally to see what is the reputation? What is the pedigree, what is the funding pattern. So we do that. And second is sometimes we actually regret not going ahead with them. The second point is we recover the development cost and the engineering costs from these people, so that at least on cost front, if things don't go well, we have recurred our cost, which we spent on developing and developing the product. And also, we do take any specific investments as a compensation from them. And in case -- in the worst case, if they don't -- if they fold up or something. Fortunately, these lines and these investments are completely fungible, other than the specific tooling that I need for the casting, which is compensated from the customer, I can use practically everything to get it to some other customers. So, just to say that the risk is quite low on that as far as we are concerned.
Ladies and gentlemen, that was the last question. I would now like to hand the conference back to the management for closing comments. Over to you, sir.
Thank you. So once again, thank you all. Clearly, I could see a lot of interest in terms of, of course, how do we get back our margins, which clearly is on the top of our agenda. And yes, a lot of interest on the EV side. And I can only say with this new additional new electric order, our position has been strengthened further, and we will continue to push on this front. While not ever removing our focus on our existing legacy customers. So that remains.
Yes, let's hope this year is free from COVID and that all of us are safe. And we don't have any setbacks on that front and hoping that the commodity cycle also starts turning the other way so that we have some better numbers going forward. It is because that we will continue pushing our efficiencies, and thanks for all your inputs and suggestions. On some cases, we have to revert back to you, which we will. So thank you, and all the very best and stay safe.
Thank you, members of the management. On behalf of Gabriel India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.