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Sandhar Technologies Ltd
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Ladies and gentlemen, good day, and welcome to the Sandhar Technologies Limited Q1 FY '23 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Abhishek Jain from Dolat Capital. Thank you, and over to you, sir.
Thanks, Andrew. Good morning, everyone. On behalf of Dolat Capital, I welcome you all in first quarter FY '23 conference call of Sandhar Technologies. From the management side, we have with us Mr. Jayant Davar, Co-Chairman and Managing Director; and Mr. Yashpal Jain, CFO of the company. We thank the management for providing us the opportunity to host the call.
Now, I hand over the call to the management for their opening remarks, followed by the question-and-answer session. Over to you, Jayant, sir.
All right. Thank you, Abhishek, and a big thank you to Dolat Capital, and a big thank you to all the participants for today.
Let me begin by, first of all, giving you what the current situation is or the good news as to where we stand. I think -- I believe that the manufacturing is back to almost pre-COVID levels or -- and growing from there as we step into where we are today, especially the second quarter. The good news is also that the commodity prices have started to stabilize rather than a downward trend in a large perspective, the Indian currency has stood firm and has been stable after an initial depreciation. The oil prices again are kind of stabilizing. We've had adequate monsoon and the expectation of rural demand drive is quite affirmative. COVID is no longer a concern. So I think these are some of the good news that we have as we are in the second quarter.
The concerns obviously stay with inflation around the world in terms of regular consumer goods as well as perishables and nonperishables. There is stabilization, but the overall impact of inflation around the world will be there for everybody to witness and watch as to what is going to come of it. The concern obviously stays on the Ukraine war, which is not abating at yet, although it's been factored in by the rest of the world. But I think it's still a matter of geopolitical importance. And let's see where that leads us.
In terms of the market, as we are today, the CVs continue to do okay. The tractors are down compared to what it was. But the message that we get is that there is a likelihood of this to go up now. 2-wheelers remain a concern to a certain degree. We still haven't reached the levels of pre-COVID. But where this quarter, the current quarter is concerned where we are today, there seems to be bullishness on account of the festival season. That is now fast approaching. The off-highway and construction equipment is also stable. There is a small drop that typically happens during the monsoon season. It's also been affected by the BS Phase 2 issues, but it is not a great matter of concern as we sit here today. The good news, again, is the PVs are doing well and growing. The exports continue. So I think those are good factors where the market demand is kind of concerned.
So I think I'm going to stop there and wait for questions and respond accordingly. Me and Yashpal ji, will try and take all the questions and hopefully, give you answers that satisfy you.
[Operator Instructions] The first question comes from the line of Abhishek Gaoshinde from Infina Finance (sic) [ Sunidhi Securities & Finance Ltd. ].
Sir, if you can throw some light on the -- what kind of RM cost pressure we are looking going forward or we are looking for some sizeable...
A little louder.
Am I audible, sir?
Yes, better now.
Sir, just one question on the RM cost side that what kind of outlook you're sharing for the RM cost trend going forward?
RM costs, raw materials, right? Yes. Yes. So, Abhishek, just to answer your question, if you look at the results of the last quarter, we have been deeply impacted on account of raw material costs. And if you got a chance to see the presentation, you would see that we've been affected by almost 3.8% of our margin because of raw material costs on a stand-alone basis. And my understanding is 6.8% on a consolidated basis. Now, while all other factors and all our other costs are under control, not just under control but better off. The raw material impact and the manpower costs are the only 2 factors which have had an effect. At this point of time, where we sit, they have started stabilizing, and we will get the impact of the raw material change. We get it on a prospective basis. So that has started to arrive, and we are very hopeful that we will go back to neutral levels soon enough.
Okay. So is it fair to assume that the double-digit kind of margin expectation we have built up earlier would be made by the end of the year?
Absolutely. There's no question. That is our normal operating margin. And I see no reason why that should not be there. So if we were to look at the impact and put it together on a neutral working basis, we haven't lost that margin at all.
Next question comes from the line of Yash Agarwal from JM Financial.
And congrats on a decent set of numbers. My first question is, so what sort of residual CapEx is left for FY '23? And is it primarily in the India business or the overall business? And what is the peak turnover which you can do after completion of all the CapEx, maybe not this year, but in the next 1 to 2 years? That is my first question.
CapEx side -- sir, can I answer?
Yes, please.
Yes. So as of now, as we have given in the presentation, we are executing total 8 new projects, right, which has a total CapEx of INR 549 crores as per our revised plan. Out of that INR 250 crores has already been spent on there. So INR 300 crores is the residual CapEx to finish up all these 8 projects so they are into the commercial production. We plan to spend another INR 300 crores in the same financial, I think this financial year itself, so that the plans are through the as per the schedule in the production. So INR 300 crores is our residual CapEx as of now.
And what could be the turnover after this peak turnover after this...
Well, typically, we look at asset terms of about 3 to 4x, yes. So that's the potential that we are looking at.
So basically, the INR 500 crores could give you INR 150 crores to INR 200 crores jump in revenues, that's the right question.
INR 270 crores plus.
Right.
Got it. My second question is on the JV losses. So last year, we had about INR 9 crores, INR 10 crores of losses on the JV. In the first quarter it's continuing like INR 200 crores, INR 225-odd crores or something. Now, where do you expect this to turn around? And when do you expect this to turn around by? Is it going to be in the foreseeable future?
Yes, absolutely. So we have to understand that the JVs were a little fragile. You mentioned yourself that the losses are similar to what they were. But we only have to keep into mind that these losses are despite the commodity price increase. Has that not been the case, the margins would have shown a very good improving trend. As we said today, I'm very happy to say that more than 60% of these joint ventures have already turned around, and we are working very hard. The focus of the company is to set matters right where the JVs are concerned. JVs were babies [ when problems start ]. And obviously, they were affected much more. But now is a focus on, we expect a turnaround very, very quickly, and you'll be able to see that soon enough.
Got it. Also, lastly, on Spain subsidiary, so it is a decent size subsidiary for you. How is the situation there given the fact that there is volatility around the gas prices and the demand situation also? So are we expecting some bit of muted performance in the near term from the Spain subsidiary? Or do you feel that it's well placed to sort of get through these challenges?
No, you're absolutely right, Yash, in the fact that energy and gas prices have been impacted majorly there. To give you an example, gas prices have gone up by 8x, and energy prices have gone up anywhere between 4 to 6x. We have been lucky in the sense that we've been able to tie up the cost on a long-term contract with power and with gas and power suppliers. So we've been impacted to a much lower basis, and we will continue to be impacted on a much lower basis. However, our business demand there is very, very solid as we speak.
So whether it is Europe or whether it is North America or other places that we export to, the demand for our products, not only the ones that were existing, but the new ones that have come in is also very solid. And you would appreciate and understand when new products are concerned, there, if the pipeline is big on newer products, then the pricing that is done for those products is done at the current levels of power and gas as well. So while you will see some muting in terms of margins. But overall, for the annual purpose and for future growth, which will also now include Romania new plant, which goes into production in a couple of months, I think the outlook is extremely, extremely encouraging.
Got it. And last question from my side. So do we stick to the 40% revenue -- annual revenue growth guidance that you gave in the last quarter for this financial year FY '23?
Well, the thing is it might vary here or there depending on commodity prices and where it is. You know that when commodity prices start to fall, the overall revenues also drop down to a certain extent, although the margins go up. But I would say I would continue to say that we are very close to what we were. It was also on the implementation of new projects. That seem to be going unabated maybe a delay of a month or 2. So for our side, I don't think we've made much modification in our forecast. Our forecast is probably variable to an extent of about 5% or so.
Yashpal ji, do you want to come in and say something?
No, sir. I mean, we are well on the track. And we are expecting the new projects to be as per schedule just a delay of around 1 to 2 months depending on the customer schedule. We'll be able to achieve.
[Operator Instructions] Next question comes from the line of Kumar Saurabh from Scientific Investing.
Hello, sir. Am I audible?
Yes, you are.
Sir, in the latest presentation, I think this is Slide #12. So you have given the expected target of new EV products, which includes your motor controller, and DC controller and all. So one question I have is, what we have seen is usually players who are already ready with this kind of kit. They had almost 2% kind of R&D cost they have filed for multiple patents, where our R&D...
A little louder, Kumar.
Yes. So sir, this is regarding Slide 12 regarding our EV preparedness with products like motor controller, DC controller. What we have seen is players who are already in the market with these offerings, they have spent around 1.5% to 2% on R&D filed out of patents, whereas our R&D cost has been less than 1%. So how have we prepared for this? And what is the total kit value we are expecting out of these products? So let's say, the EV bike price or scooter price is INR 1 lakh. What is the kind of revenue we are expecting from this product line in terms of that INR 1 lakh bike value?
Yes. So, Kumar, obviously, the market expects that the prices of Indian componentry one will be close to what the Chinese imports [ today ]. That's the kind of target pricing that's been there, right? So we have been very careful to pick up product lines which need that particular criteria. Now, if you look at hub motor, mid-drive motor, motor controller, DC controller, EV chargers and -- charger and the battery management system, each one of them is priced differently. And in many cases, the prices of these depend on the size or the vehicle that's been produced. That depends on the configuration of the vehicle where it's going to go. So there is a lot of variation.
If you were to pick up, let's say, a motor controller or a battery management system, depending on the -- let's say, if you're looking at a 2-wheeler, for example, which is the early pick fruit, there it could range from anywhere between INR 3,000 to INR 8,000 depending on whether it is a high-speed vehicle, whether it is a low-speed vehicle, the kind of power it will have and so on and so forth. So I will not be able to give you individual tasks. The only thing that we've done is, we have managed to create these from a perspective of performance validation done for medium range. Now medium range means that we can pick it up to low range or we can pick it up to a higher range or drop it down to a lower range. So these are -- the individual pricing depending on the product line will be very, very difficult for me to give you.
And sir, have we developed it in terms of some kind of JV or partnership? Because our R&D cost has not been so high. So...
We have done it. A lot of it has been done in-house. Our Sandhar Centre of Innovation and Development plays a huge part, and we started working on this going back almost 5 or 6 years. It was gradual, and it's been built up to this particular stage. We also have some partners, some in the line of technology suppliers and some possible joint ventures in case they were to come through. But largely from an overall perspective, even if there were to be joint ventures, they would fall in the Sandhar domain of having the control and the pricing impact that needs to be there.
And sir, 2 more questions. So our core products like sheet metal and all. So if the commodity price decreases, what is your view? Do you see any kind of margin improvement now happening in the next 3 to 6 months? That is one. And given you mentioned about the new CapEx, which will be coming, so should we expect more increase in debt in coming quarters?
We have said this in the past, and I continue to repeat myself that we have an operating margin of our business several times have been asked this question, is the margin that should be between 12% to 13%. Okay? Now, it has obviously suffered on account of commodity prices, on account of whatever has happened in terms of cost [ this time ] and the other. But as prices start to stabilize now, we are starting to see the green shoots of that reversal happening because of the delay in the passing on of these commodity prices to us as well as for stabilization. I think we are at a stage now where the reversal has already happened. How long will this take, whether it will take 3 months or 6 months is anybody's guess. But suffice to say that the motion has turned already. And we expect that we will start going back towards our aim and our proven margin goals that we always used to have.
One last question. So because we have a good amount of exposure to Hero. And I also listened to the Hero conference calls, and they have been quite bullish that the numbers will improve. But somehow with all the FADA number coming and even the July November came, it looks like the monthly volume numbers of Hero have not improved. So any idea because that -- ultimately that is going to benefit us. So what is hampering Hero's growth if you can throw some light?
Well, it's very difficult for me to speak on behalf of the OEM. What is truly happening and the way we look at it is a little differently. It is that the parts and the models that Hero is coming out are becoming more high-value in a sense. And I think that turns positive for companies that are moving up the value chain in terms of the componentry supply. So while volumes, of course, remain a matter of concern, and there are changes that are happening to the schedules. The good news, like I said is for most of our components that we supply or most of the products or the basket that we supply that basket itself is going up. You are aware that we started a new project in Gujarat, for example. That for us is a wallet growth rather than a volume growth in some sense. So we, as a company, will see higher revenues coming from Hero than we have done in the past. And because they are high-value products, comparatively, our margins will be better. So that's what I can talk about our company. I cannot obviously talk about what is pulling and what is not pulling Hero in a particular direction at this point of time.
Sure. Best wishes for the coming quarters.
It is bullish for everyone.
Next question comes from the line of Abhishek Jain.
First of all, congrats for decent set of numbers in tough time. Sir, my first question is related with your existing capacity. So how much peak revenue can we generate from your existing capacity? And what is the current capacity utilization?
Abhishek, that's a very difficult question to answer because you are aware that we are in several different product categories. And within those product categories, again, there is components that go into a different scenario. So while I can answer that if you were to look at our capacity in terms of aluminum casting, for example, or plastic, for example, where it's your commodity run and you can do the calculations in terms of tonnages. There, it is easy to do. But for most part, we are a proprietary product manufacturer and supplier, which means it's logs, or it mirrors and stuff like that, or sensors and electronics now. There, the capacity is never a constraint. So if I was to say, well, I get orders of another 30% of the same thing, it takes me hardly any time is just putting up a small assembly line, and that's where it is because the entry barrier is the technology that we already have.
So if you are looking at the case scenario, then I think the best would be to calculate it on the basis of our capital employed and -- or do an asset turn in terms of the CapEx that has been employed so far. And typically, like I said, we work on 3.5 to 4x of that number. That should give you an overall potential of the revenue that we can generate. And I answered that question even earlier on the new CapEx that's been done. The new CapEx again, that's been done is largely being done from new product lines altogether.
I don't know if that answers your question.
Yes, sir. So in past quarters, you had indicated that you can generate a revenue of around INR 4,000 crores from your existing capacity. And thereafter, you have done a capacity of around INR 500 crores to INR 600 crores, including the FY '23 numbers, and the capacity utilization and this asset turnover is 3 to 4x. That means you are able to do a INR 5,000 crores of the numbers...
Yes. That's the number. Absolutely, maybe even higher.
Okay. So that means that your capacity utilization at the current level would be around 60% only?
Yes. If you were to do that hybrid mix and an easy way of calculation, yes, you are correct.
Okay, sir. And sir, second question on related with the margin side. As you indicated that you are looking for the double-digit margin. So just wanted to know what is the road map to achieve double-digit margin on a sustainable basis? Well, power and logistic cost is still high. And so, how much benefit are you expecting from the fall in the RM prices and how much benefiting from the operating leases and the change in mix?
Yes. So typically, what happens is with the OEMs, Abhishek, I'm sure you know from the others as well, while commodity prices are calculated and adjusted as what is called a pass-through by the OEMs, there is a lag of 3 to 6 months for that to happen. But it happens. On the flip side, the other costs, which are manpower costs, which are power and fuel cost and other operating costs, those are calculated or those are adjusted either at the time of new product lines or new part numbers or when new models come out or else, in some cases, they are done on a basis of when it grows over a certain number. So if the costs go up beyond 5% to 10%, then that's the time when the suppliers go to the OEMs and starts. So, in fact, we just closed one particular case, which has been pending for 3 years for some of these costs with one particular customer. So while it's an ongoing thing, I would say that the other costs are still very difficult to bring into the system, but commodity prices, in any case, get adjusted on their own.
Now, what has happened in the last few quarters, obviously, the commodities haven't abated and they continue to rise to levels which we have never seen before. In some cases, they went up by over 100% and so on and so forth. So -- and the lag effect of that is still continuing. However, like I said, now with the reversal happening, these will start coming into our system, and we will get the changes that are required in a prospective basis for some periods of the retrospective periods as well. So you will see that margins will begin to improve and the double-digit margin that you spoke about is something that is not far away [ according to ].
So what is the margin outlook for the second and -- second quarter and the second half of FY '23? So as...
I will not be able to give you directly that answer as a future outlook. All I'm saying is, we are headed there. And it will depend again on the speed of the OEMs to give our -- all I'm saying is that just raw material itself has impacted us by 3.8% on a stand-alone basis and 6.8% on a consolidated basis. Am I correct Yashpal ji?
Right, sir.
So if you were to add those numbers, you are at double digits and more. So that should answer your question, Abhishek. All we need is these calculations to be brought in and that pass-through to happen, which, like I said, has started to happen. But it's not -- that happens one day and that's it. It's a continuous process that keeps happening depending on when the raw material was bought and when the supplies were done. So if they were done in a particular month, it would go on to that corresponding period in the next quarter or so on and so forth.
So what are the -- your 3 raw materials where you are able to pass on the prices to the OEM. And what are the key other raw materials where you are unable to pass on?
Yes. Zinc, brass, nickel. These are the majorities which have had a huge impact. And of course, there is steel. You can't take that away. But besides this, all the other things also that were based on this have been impacted. For example, for us, because we do electronics, that could even be something like copper wires. There could be solders, which, again, are a possible composite of some of the raw materials that we buy. So yes, there is an impact that has come in because we get affected in our proprietary goods. We use almost all materials that you can think of.
Okay. And sir, in the Cabin & Fabrication business, it is showing a very impressive growth. So Cabin & Fabrication business is showing impressive growth. So how is the current capacity utilization? And how is the margin improvement as the steel prices have gone down, what kind of the margin you are looking from this business?
Again, that was a business in growth, and that has stabilized now to high capacity utilization. We are very, very fortunate that some of the OEMs that were still left out from our system of supplies have now been added to the portfolio. You are aware that exports have started to happen from that particular unit. So as we speak now, we have almost everybody who operates in the country as our customers. Our margins there obviously also have suffered on account of the steel price increase and other things, but they've started the reverse.
So I would expect that barring one thing or the other. For example, there was a change in 2 months for JCB's manufacturing more out of Faridabad then out of Jaipur and things like that, which are temporary in nature. But if you were to look at the cost and our margins, our margins will run up to the same level as the rest of the business. We are looking at a potential double-digit margin as coming there as well as we go forward.
And sir, in aluminum die casting business, most of the companies have started to show improvement in the margin because of the fall in aluminum prices. So your revenue growth is also very impressive from the last 2 years. So just wanted to understand what is your revenue guidance for the ADC segment, including your foreign business as well as what is the margin outlook going ahead?
Again, Abhishek, what we are trying to do now is to make a hybrid of this. So if you look at our new projects, for example, the 8 of them, 2 of them have to do with the machining portion of aluminum. So we will be doing -- and I think it's in the public domain that within the first year of its operation, we expect a revenue of INR 77 crores that's coming only from machining, which is job work.
Now as it is job work, obviously, we -- the margins there are more than double of our regular operating margin. So as a hybrid, you will see margins going up, you will see revenue growing up. And that is something for all times in the future. We want to get into areas. Internationally, we do operate on very high technology and precision castings and machine. And that's what we are trying to do here as well. So you will see that these margins will continue to grow. I mean, typically, if you look at European companies, you will not see the margins that we operate on in the aluminum business because we do very, very precision parts. And I think our precision parts will carry better margins than what's the normal commodity aluminum casters typically do.
Sir, what is the machining mix right now in the ADC segment?
Right now, we deliver full component, right, where machining is actually limited compared to what we are getting in for now. I mean, in these 2 plants that are being set up, we will have close to about 300 to 400 machining centers, all automated, all robotized. So it's a new concept altogether that's been brought in, into our operation of business. And we -- because this is an area which also has a huge potential for exports and growth.
Okay, sir. And because of the change in the mix in the ADC segment, it is expected that the margin will improve by the 30%, 40% from here on because of the better mix in the material side?
Again, Abhishek, you're tying me on to numbers. I don't want to give you numbers exactly where it is, but suffice to say that we are in our calculations. And again, in a public domain, we expect margins to be at least double of the margins that we currently have in the business coming out of the machining element of this entire category.
Next question comes from the line of Mohit Khanna from Banyan Capital Advisors.
Hello? Am I audible?
Yes.
Sir, I just wanted to understand the way our contract works with the OEMs. And how does the cost pass on thing works? So did you receive any cost pass-throughs in this quarter, first of all?
We did, but it was very limited because there wasn't too much of -- it was on a continuously growing basis, right? The commodities were going up. So when the commodities are going up, even if I get settlements of the last quarter, let me give you an example. I think that should be able to suffice. If I am supplying at INR 100 a kilo. And I'm buying at, let's say, INR 120 a kilo, from next quarter, my buying price goes up to INR 140, but the OEM has settled at INR 120. So for 3 months, I am buying at INR 140, but selling at INR 120, [ even ] which entire pattern reversals. When the pattern reverses, then what happens is, then I'm buying at INR 100, but I'm supplying at INR 140 in the subsequent quarter.
Sir, that what I was coming at. Sir, there would be a situation, if I get this correctly, maybe 1 or 2 quarters down the line when the raw material prices have come down, wherein you would see a marked bump up in the margins and it would stabilize at those levels, expecting everything remains at those limits, right?
Yes.
That's how it's accounted. Right.
See, the only thing is, in a long-term, Mohit, what happens is, if you calculate over a period of 10 years, 15 years, 20 years, commodity prices typically are always on the way up.
Right.
Yes. So let's say, steel, for example, going back 10 years ago, used to be INR 30 a kilo. Right? And over these 10 years, even if it stabilizes today at INR 60 or INR 55, there is that inflation element, which is always there, right? Now, for us, if you look at the industry, it suffers from that paradigm for the existing components. Of course, when the model is over and we are on to the next part of new components, at that time, the new prices are taken into impact.
Got it.
And so placed in both sides. But in scenarios like what has happened in the last year, we will stabilize and go back into our neutral territories. And you are right, we will get the thumbs up.
Right. Sir, one more thing, in the overall ForEx basket, when we shifted to BS-VI in the 2-wheeler side, how much has the import content increased?
For us?
Yes.
For us, we don't do any components, we hardly do any components which have anything to do with the powertrain.
So, I mean, on the raw material side, how much -- how has the import has increased if it has increased?
No, we haven't increased any imports. Our imports are typically for some componentry or some electronic componentries that used to be there from Japan or Taiwan or [ Russia ]. That continues. But BS-VI has not had any impact on us. In fact, a positive impact because some of the models when they were changed by the OEMs, they went into a higher value add and to justify that price increase, they added some high-value components other than the ones that have to do with the powertrain. So for example, we were told, you need to use a better kind of locks which had a higher value. So otherwise, as a company, Sandhar doesn't do too much work in the category of powertrain. And even within that, the stuff that we do are more commodity linked than anything. So -- and no imports -- so we are not really impacted by any of that.
Fair enough. And sir, last question, if I may just squeeze in here. You did mention that the industry production volumes have started to improve now and after the last quarter, especially on the 2-wheeler side, right? And what is your sense? I mean, if the improvement has started after the decline that we saw, what is the sense on the whole industry part that -- is it -- will this improvement have legs? Or you think that maybe by next year, we might be a little bit more subdued level or it might take some time to come back to the pre-COVID levels?
Mohit, you are asking me to play astrologer here, which I don't think I can.
No, you are much closer to the market or on the ground operational realities than what we are, and that's what we are trying to get a sense, sir.
You have a very valid question. I wish I knew the exact answer to that. But maybe you're right, in being in the industry, one is seeing green shoots of some revival of demand even in the 2-wheeler segment. Like I said, but for us, the more important thing is that, for Sandhar, the contribution per vehicle is going up. If I used to supply them 7 components to one company, now I'm supplying them 9 or 10 different parts. So for me, the pocket share, the wallet share is growing, right? So irrespective, if you look at our numbers, and I think that's a part of the presentation, if I'm not mistaken, we saw that what happened with the industry and you compare it with how we've done, you will see that difference.
Yashpal ji, just want to give us the numbers of how the industry grew and how we grew?
Yes, sure, sir. I'll just give them. So like on an overall basis, while the industrial growth has been around 38%, we have grown by 65%.
Industrial growth, 38% when you say that, sir, you are incorporating what other -- what segments?
We are incorporating a 2-wheeler, 4-wheeler, commercial vehicles and off-highway vehicles.
Sorry, commercial vehicles and EVs?
Off-highway vehicles.
Off-highway vehicles, fair enough.
Yes.
All segments actually.
Yes. Great.
So that gives you a feel as to how we have kind of grown compared to the industry. And why that happened is because we've added more product lines. And because -- product lines, you understand where it's coming from. So our job is to make sure that we grow faster than the industry.
[Operator Instructions] Next question comes from the line of Shashank Kanodia from ICICI Securities.
Just, sir, technically focus on last question. So sequentially, we...
A little louder, please, Shashank.
Yes. So sir, sequentially, we've seen dip in revenues, right? So given the fact that you are increasing your wallet share with existing clients, you had new clients on board in terms of HMSI. Shouldn't be your top line growth higher for this quarter itself on a sequential basis?
Sequential basis, what has happened is, of course, the demand kind of fell on account of a lot of confusion in the market, Shashank. And that happened -- if you look at what happened was because of commodity price increases and a large part also because of semiconductor shortages. So there was semiconductor shortages, the sentiment was low, Ukraine war was happening, the rupee, and there was a lot of dilemmas that happened in the last quarter. And I think while that has stabilized towards the end of that quarter, the new horizon has kind of opened from the current quarter that we are in. So you will see a dramatic change happening now.
Yes, there has been a little drop in the revenue. And of course, like I said, the bottom line was hit largely on account of continuing commodity price. All these have only stabilized in the last month or so. So I think those are the reasons. And the kicking off that you are talking about is happening very gradually. So while it will take shape and our new projects will start ramping up from now on, although we did start some of the units in the last months or a couple of months, the ramping up and the initial teasing issues are always there in terms of supply and OEM compatibility. And that has started to open.
Sir, secondly, on one of the opening slides you mentioned underperforming the 4-wheeler industry on Y-on-Y basis. So could you please specify what...
A little louder, please. Sorry.
Yes. Sir, on one of your slides in the presentation, you mentioned underperforming the 4-wheeler part, right, on a Y-on-Y basis, maybe 21% and the rest was growth was 38%. So did we lose any client or any...
We did not lose. I repeat, we did not lose. Unfortunately, for some of the Japanese OEMs, including Honda, which is a large customer for us, their sales dropped because of their diversion of semiconductors to some of their other global facilities where they felt this was more important to do. And therefore, if you look at numbers of Honda, for example, that will tell you that the drop that they've had is much larger than the drop that we had.
Okay.
In that particular quarter.
Fine, sir. And sir, lastly, on the margin front, sir, do you foresee Q2 is still hitting a double-digit mark? Or you see Q3 probably will hit the double-digit margins...
Again, Shashank, what are you saying, sorry?
On the margins front, do you see Q2 itself be hitting a double-digit mark or Q3 be hitting a double-digit one because...
Shashank, I am not allowed to give you any forward-looking statements. But suffice to say that this is on an improving trend and quick improving trends.
Sir, that is true, but you always kind of overpromise and underdelivered on the margin front, right? So we'll be maintaining a 30% kind of target, but sequentially, decline...
No, no, I'm not trying to argue here. All I'm saying is it is improving. And therefore, I'm not giving you a margin call. I am saying, I have given you the basic as to how we have suffered on the basis of a commodity price increase. And I've given you percentages there, exact percentages there in 3.8% and 6.8%. Now, how much improvement is happening is for all of us to see, calculate and decipher. According to us, they have started stabilizing and the bump up that somebody spoke about earlier in regards to OEM compensating us will bring a better margin call.
Now what exactly that call is going to be? And maybe like you said, I've given overpromise. So I don't want to overpromise anything, Shashank. I would rather say let's go with the flow, it is improving as we see. And it is very, very difficult for me to be able to predict some of the histological reasons as to our buying today. Our buying is, of course, at lower levels today. But what happens if it goes up in the next month, that's difficult call for me to take.
Next question comes from the line of Nikhil Kale from Axis Bank.
So just one question on the slide that you've given in the presentation where you talked about the products that are under development. Just wanted to understand...
Nikhil, which slide is it?
Slide #12, which the expected target for new EV products.
Okay.
Yes. So just wanted to understand, I mean, we are developing quite a few products here, specifically on motor control or BMS. I mean, are we getting comfort on the new orders from the existing incumbent OEMs? Or is this more from the new age OEMs? The reason I ask this is we are getting kind of a mixed feedback wherein there are certain OEMs who are saying that they want to have these components and have control of these components, whereas some of the new age OEMs are open to outsourcing.
No, we are looking at the incumbent ones who are already present. At this point of time, a large part of all of this is being imported, Nikhil, as you are aware. And everybody is in a rush to kind of localize it and localize it without the import of any sub-componentry that goes into it. And that's what we managed to largely do. And like you say, most of them are in proto readiness now, and we expect the validation to get over in the coming months. Yes, we are in talk with the incumbent ones, all the ones that all of us know about.
Okay. Got it. And then secondly, on our JV, I just wanted to understand, I mean, the JV performance has been impacted because of certain industry-related issues. There have been certain internal issues with some of the JVs as well. But just, I mean, on some of these JVs, is there any thought that, okay, there is some, say, you want to maybe try it out for maybe a year or 2 and then take a call that you want to continue or shut down those businesses? Just some thought process on the strategy there.
We, obviously, Nikhil would understand that you're right, it is a mixed bag in some sense. There are some where we see a long-term potential and we continue to follow them. And we are focusing on them so that their numbers are improving by the day. There are some in which because of the COVID land, we are in touch with our joint venture partners to see whether either product lines or some of these could be diverted to other places as exports or what is the best way forward for some of these to have a long-term growth potential for both us and our joint venture partner. So these conversations are growing. I am sure that within the next quarter or 2, we will have complete clarity on how we are running forward with these JVs because you are right, I mean, these JVs have been a burden on us in some. And it's time for those JVs to either start producing or they are diverting.
By quarter 3, we will have a definite clarity with the JVs, how they are going to perform by quarter 3.
Yes. I think, Yashpal ji is giving you a direct picture now.
The next question comes from the line of [ Navneet Bhaiya ], an individual investor.
My question is regarding a couple of your OEs. So the volumes of these OEs are below their peak level for a reasonable period of time. And maybe if we can take names of Hero and Honda cars over here. What happens to your surplus capacities? Because you've been supplying to them at their peak as well, and their volumes are like well below their peak right now. So can you use your surplus capacities for some other OE? Or do you just wait for them to get back to their peak?
Yes, Navneet, that's a good question. So I think one of the good news that I forgot to give you is that, by the way, we've got the complete orders for all Suzuki Motorcycles, including the introduction of our Smart Locks. So that's something that we can happily announce that's in the public domain now. And that is a large order for us, and we break into the territory of Smart Locks, which I don't know what the number is, but if I'm not mistaken, the lock sets now go up to a price of something like INR 3,000. And that has been a big breakthrough, which will be the first ones to be launched in India, both the strategy and otherwise, I think the volumes that we've been given as projected again in the public domain or 7 lakhs for the [indiscernible] system and which basically is a potential revenue of something like INR 500 crores in its full run. So that is something a good news that I wanted to share.
Coming back to your Hero and Honda, again, our interest something largely is that our business with them should be on a growth track. So irrespective of whether they grow or are stable or even have a little bit of a detrimental sales volume, our pocket share, our wallet share is going up. So the number of components that we supply or the amounts that we supply. So if you go back and see, at one point of time, we used to supply them something like INR 1,500 worth per motorcycle. Today in many models, that's crossed the level of INR 7,000, INR 8,000 and even in the case of TVS probably INR 10,000 or INR 11,000. So our job is to make sure that we keep adding it of revenue from yield [Technical difficulty]. So for Hero, for example, will grow irrespective. And that is a number that you saw when the industry [ grown ] by something like 38%, we grew by about 60-odd percent.
Okay. And in the case of Honda, how does it work? Because I believe their volumes is also like 40-odd percent below from the peak that they used to do at one point of time?
That's right. So they've been consolidating their product profile and line. We have tie-ups with them and we've tied up with them for the future models, which have just been locked in. They are now also looking at India to be a hub for supplies into Southeast Asian and so on and so forth. So some of the componentry that we are doing will add to volume. They've had a difficult 3 to 4 years, but I do see revival happening. And in the meantime, to be able to cut costs and to be able to add more value to us, we added some of the parts that used to be imported into our city. So, for example, if you look at our project profile, the new products and new projects being set up, one of them is the SMT, which is a PCB manufacturing as well. So for us, that's going to be another value-add that comes to us. So we are trying to determine wherever we fit in, but each focus and everything is based on how much better value-add and profitability we can build into these product lines and to these OEMs irrespective whether they are growing in volumes or not. The thing is that, we supply to almost everyone today. And we supply to almost everyone today, the entire industry can also go down. But we as a company must make sure that we grow.
Right. No. So the clarification I wanted like the manufacturing unit in, I think, Gurgaon where you supply locks to Honda cars. So now that their volumes are low. So for locks, are you underutilized to that extent? Or can you divert that capacity to some other product or some other OE? Or you just have to wait for their volumes to pick up?
Yes. So 2 things there, one, like I said in the beginning, the assembly process itself is limited to very small spaces where capacity really is of no constraint, either up or down, where a large portion doesn't go in there. What goes into capital expenditure is paint shops, for example, or magnesium casting, for example, where we've already diverted our thing to the electric cycles that are being made by, let's say, Hero electric or Hero bicycles that is being done in Europe. So we are using those capacities for other customers in any case. And in case Honda or others who were to come back with larger capacities, we will still have margins to be able to do that in terms of assemblies and so on.
Okay. So you're not sitting on unusually large spare capacities...
No, we don't do that at all.
Okay. Got it. And my second and last question is for the 4-wheeler segment, the supplies that you do to Autoliv, TRW and Bosch, are these again for particular cars? Or these are OE agnostic? How does it work as in...
Yes. So like I said, most of the parts that we deliver and supply are agnostic to the kind of powertrain that there is. And in fact, a lot of these are now going into the EV models as well. So for us, the changeover of our powertrain is not going to have an impact in tax. EV growth is going to be very positive for us because these are new componentries that have come in. So for example, we are world's largest producer of seat belt spools. Now, irrespective of what the powertrain is, the seat belts still continue to in every vehicle. That is not going to change. We make couple of [ fiber ] motor boxes. So that is never going to change.
Okay. Got it. So seat belts, I would presume you would be supplying to Autoliv. So my question was that if Autoliv is applying to a particular OE, was the volumes of that OE be relevant? Or are you OE-agnostic because Autoliv might have multiple OEs and they can divert if VW is not doing well, maybe they can divert to BMW, I'm just taking examples over here.
Okay. So let me put it in another way. We supply to 30% of all the seat belts that are manufactured in the worldwide horizon, okay? And irrespective of whether it is Autolive or whether it is TRW or whether it is the Japanese manufacturer, we supply to all these. So we are largely dependent on the overall size of the world market rather than saying which one is pushing that. So if TRW loses an order and Autoliv wins an order, for us, it remains neutral in that system.
As there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you, Dolat, for putting this together. In terms of -- I've already spoken about where we are headed, things look a little better than what they were in the last quarter. Some of the concerns have kind of gone. Some of the long-term pivotal impact of inflation continue, and we will have to fight all of that. We, in ourselves, are trying to rationalize and optimize cost to their best possible scenarios. We are very, very happy with the new order wins that have come in into the system, not only for the coming short term, but also for the long term. We are very, very excited with the new 8 projects that are going on stream. And this will, not only build capacities, but new relationships and new wallet share gains that will come to us. And suffice to say, that the company keeps itself on a very, very prudent basis. And while we haven't been able to deliver the kind of returns that our investors and shareholders expected us to, we are very, very positive and focused on bringing a smile to their faces.
Thank you very much.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.