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Sharda Motor Industries Ltd
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Ladies and gentlemen, good day, and welcome to Sharda Motor Industries Limited Q1 FY '24 Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs and 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. Puru Aggarwal, President and Group Chief Financial Officer. Thank you, and over to you, sir.
Thank you. Good evening to all. A very warm welcome to all the participants on this call. On the call, I'm joined by Mr. Aashim Relan, our CEO; and our Investor Relations advisers, SGA. I hope that you have seen our results and our investor presentation by now. The presentation is also uploaded on the stock exchange as well as at the company's website for reference.
Before touching up on company's financials, I would like to provide an overview of some key highlights in the industry. Buoyed by surge in domestic demand, the automobile component industry is poised to undergo a resilient upswing in revenue throughout the fiscal year 2024. This surge is emphasized by the notable trend of vehicle premiumization, focus on local manufacturing and strides in enhancing exports and regulatory standards.
Supplies within the automotive component sector are anticipated to showcase growth over the medium to long-term horizon. The forthcoming fiscal year 2024, which anticipated to witness capital expenditures, primarily channel towards the introduction of innovative products, the advancement of existing product portfolios tailored for specialized platforms and the driving force behind the development of cutting-edge technologies and components for electric vehicles.
In addition, the industry's growth trajectory is substantiated by a consistent and stable demand for replacements attributed to increased mobility and upswing in economic activity and the strong moment of freight. These factors collectively serve as catalyst, propelling the industry's expansion.
On the passenger vehicle segment, this segment grew by around 9% year-on-year in Q1 FY '24 largely driven by utility vehicle subsegment growth. The growth can be attributed to a blend of elements, including increased production for high-demand models with substantial order backlogs, enhanced semiconductor supplies, the introduction of fresh models to the market and a favorable outlook from both customers and the economic standpoint.
A favorable monsoon conditions have resulted in increased farm income, leading to notable improvement in rural demand. All these factors have played a pivotal role in continuous expansion of PV sales solidifying the PV segments position as a dominant catalyst for growth within the automotive industry.
Coming to the Commercial Vehicle segment. In Q1 FY 2024, there was a 3% decrease in sales compared to the previous year. This decline can be attributed to several fleet operators opting to accelerate their purchases in March '23 due to impending transition to BS-VI Phase II regulations with an associated price increase. Despite this contraction, the prospects for the commercial vehicle market remain optimistic with growth trajectory projected to persist. This positivity is underpinned by ongoing infrastructure expansion and sustained economic activity.
Furthermore, improved e-commerce and advancements in last mile connectivity are poised to strengthen the commercial vehicles, supporting their demand moving forward. 2-wheeler segment sales volume increased by 11% in Q1 FY '24 compared to Q1 FY '23. Although sales figures have not yet fully returned to pre-COVID levels, there are promising indicators of a resurge in rural demand aided by availability of more accessible financing options, the introduction of new vehicles, particularly in the premium category and a robust replacement demand.
The key catalyst driving recent momentum in electric vehicle segment was the [ FAME ] subsidy, which resulted in a substantial surge in consumer purchases during May 2023. With the subsidy taken away, it temporarily impacted the demand for E-2-wheelers in June '23. Despite this, the overall prospects for the EV 2-wheeler segment remain optimistic given the favorable policy measures, technological advancements and the ongoing introduction of novel models.
Having shared my thoughts on the industry, I will now move to operational and financial performance of the company. On the consolidated basis, we registered a revenue growth of INR 654.1 crores in Q1 FY '24, which is a growth of 4.2% as compared to Q1 FY '23. Our EBITDA for Q1 FY '24 is INR 68.2 crores as compared to INR 60.8 crores in Q1 FY '23, which is a growth of 12% on a Y-o-Y basis.
The EBITDA margin for the quarter grew by 75 basis points from 9.7% in Q1 FY '23 to 10.4% in Q1 FY '24. Our PBT for the quarter was INR 74.1 crores after accounting for shares in profits in JV and its associates.
Our JV reported a profit of INR 0.28 crores in Q1 FY '24 as compared to a profit of INR 0.52 crores in Q1 FY '23. Our PBT grew by 23% compared to Q1 FY '23. The PAT for Q1 FY '24 was INR 55.2 crores, which registered a growth of 22% as compared to Q1 FY '23. On a full year basis, our revenue, EBITDA and PAT grew by 20%, 24% and 40% to INR 2,700 crores, INR 282 crores and INR 208 crores, respectively.
On the balance sheet front, we continue to maintain a healthy liquidity position for more than INR 572 crores in cash and cash equivalents, including investments and bank balances by June 30, 2023.
With this, we can open the floor for Q&A.
[Operator Instructions]. The first question comes from the line of Rahul Agarwal from [ 91 Capital. ]
My name is Gaurav. So just a couple of questions. One is on this latest SUV from Honda. Are we present in that model?
I cannot hear you clearly. If you can just repeat the question, please?
There is a new SUV, which is getting launched in the month of September from Honda. The model name is Elevate. So are we present in that particular model?
Okay. So we do not give customer or model specific details. There's no disclosure like that so it's the general kind. So I can't comment on specific models and customers.
Okay. And sir, on this INR 550 crore cash balance which we have, have we decided or looked at any other inorganic opportunities are we pursuing? Any guidance you do want to give on that front?
Yes. So for our cash surplus, the preference is always utilizing it for M&A opportunities in powertrain agnostic products. But we don't keep any fixed time line as we want to be very careful with the deal and the valuation specifically because we are on the conservative side. And we want to ensure that it would create long-term wealth and value for the company as well as shareholders.
We all -- often are having many talks, interactions, but nothing has materialized. There could be some possibilities, but as we know more, we'll keep you updated. And further to that, we've established a robust dividend policy. In fact, last financial year was the high dividend fee that were declared by a significant margin. And we'll continue to return back additional surpluses to shareholders via dividends and other options as they come. So that is on the cash balance side.
The next question comes from the line of Sonaal from Bowhead.
Congratulations on good numbers. I have a couple of questions. First, on the employee count seems to have moved quite significantly Q-on-Q. Can you throw some light on what is the reason for it? And whether there's any one-off? Or this is a substantial number? And then I will ask you with the remaining questions later.
Good evening, and thank you. For employee cost, our increment cycle has started from the financial year. So I think the increment cycle has been adjusted to match the financial year, so that would have a quarter-to-quarter impact. In addition to that, we are hiring in quite a decent way due to upcoming expansion. So I think across all departments, we've been hiring as we're expecting good growth and expansion plans coming with regulation shifts and as well as foray into the international market.
So this includes hiring for your tractor business possibilities? Or is that also a decent part of the reason why there's a jump?
Yes, yes, yes. So we are expecting a good growth, and we are just building the team across the domain, right? So for all the growth aspects, and one of them definitely is tractors as well. And there's RDE export expansion and so on. So we are building the team and strengthening it for the future expansion.
Secondly, the benefit of RDE norm started accruing because there was no call last quarter, started happening to the company fully in Q4 itself? Or was it largely in Q1? And how has been the experience so far?
Sure. So RDE got implemented from this quarter. There has been a gradual ramp-up, and we've established new lines for some of the products. In general, there has been some benefit in Q1, but of course, there are things like the start-up costs and the products maturing. As the production lines mature through the year and next year, there will be further improvement that we'll see from RDE. And also for the new RDE products, we are implementing the policy where we will do the value addition part, we will not procure the catalyst, so that does full transparency. So we've applied that as well. And in general, I think we will see some benefit this financial year, for sure, from the RDE norms kicking in.
So if I understood you correctly, very little benefit of RDE norms is reflected in the numbers reported so far because of the start-up costs and other costs and some cost related to that. Is my understanding correct?
Yes. Your understanding is correct, that has just started and new lines are there. So as they mature, the benefits will improve. And that, of course, will be caveat that the overall business environment, passenger cars, LCVs, et cetera, continue to remain the same. But given that, definitely that we are expecting improvement as these lines are mature. They just started this quarter, early this quarter.
This would be like what Q3, Q4 or beyond that?
No, hopefully, we will -- if you look at it on a FY '24 basis, hopefully, you will see some tailwinds that are coming from RDE and that could improve as we move forward. And we're already seeing some improvement, and we expect it will keep improving as things mature.
Great. Two more questions with your permission. Firstly, on the expansion side, you had mentioned that we have got aggressive expansion plans. So whatever is possible for you to tell us whether it's international market or new customers or when you see expansion, are you referring broadly to the same customer, same models? Or it seems from your language that you're talking about some aggressive expansion. So some light on that considering -- and then on the dividend policy, is there any specific dividend policy? You mentioned about some dividend policy, you announced or you meant in general? You have been increasing dividend while there may not be any specific payout policy as of now.
Sure. So first, I'll take the point on the expansion plan. And second, I will come to the dividend policy. So talking about the expansion plan. Number one, we want to maintain or increase our market share also in the LCV segment as well as the PV domestic exhaust. And with RDE coming in next further become a good market, and we want to increase the market share here itself.
Then our next goal is to attain market leadership in the domestic tractor market, which will become very, I would say, large as soon as TREM5 kicks in. And we are working very hard with our teams across to ensure that we have our leadership position when it comes to market share in tractors.
Then we have also built a vertical, which is nascent stage, but people have been added for the export of subcomponents as well as emission systems for tractors, gensets on the smaller side and that is our play on the China Plus One. And that is also that we are now preparing a little bit more to build 1 or 2 verticals which we already have internally or buy on the powertrain diagnostics side. The vertical that we already do have is our suspension vertical, but it is not as mature as our emissions vertical, but we are adding people there as well as other possibilities on some adjacencies that we see in powertrain agnostic products. And this is largely on the expansion side.
In terms of dividend policy, we do have a policy that is set out to have a payout ratio of between 10% to 30%, I think. And we would try to maintain on the high side of that dividend policy as we go forward.
You have a very valuable piece of land, which has -- must have appreciated very significantly in the last 1, 2 years. I mean I heard crazy stories about land parcels in that part in the last 6 months maybe in last 1, 2 years. Would you look at unlocking value consistently if you've seen a boom and the appreciation in the new land parcel you have to shore up your cash for further future acquisitions because the prices have really gone through the roof. And yes, first question is this.
Sure. So yes, we do have 2 pieces of land in the NCR region, which have been there non-operational plant state land for some time and that's why the land prices have really gone up in that region. We don't have an estimate right now on what they are, but that is part of our, let's say, excess capacity for creating shareholder value. Of course, we may be a bit conservative on the M&A front. But with the right opportunity and specifically at the right valuation, we would be more than happy to deploy that part also, if required. And if for some time, we do not see any attractive opportunity, then we would unconditionally unlock the value of the land at the right price and then have a plan on giving back more to our shareholders.
My last question, any clarity on PLI policy and when you start seeing benefits of PLI. And what is your CapEx plan for this year as well as next year?
Sure. So the PLI policy, a lot of changes in terms of how to calculate and guideline shifts that have happened. So we are working along with our internal team as well as an external consultant to align to all the guidelines. It's still too early to say what the benefit of PLI will be. We are not considering any benefit as of now for PLI in our results. But of course, anything that could come from that would likely to be additional.
And when we look at the CapEx plan, we have a moderate CapEx plan for the year, but it could get enhanced a little bit in case we see the kickoff start for the off-highway industry, so we would be in approximately in the range of INR 40 crores -- INR 45 crores, INR 50 crores in case it is just a standard here, but in case off-highway market kicks in, I think we call it a tooling kit as -- if we received then there could be an additional INR 30 crores that goes into that INR 30 crores, INR 35 crores.
And anything planned already for next year?
Similar range that we are planning for next year also and it would really be -- and when the norms kick in, it would be linked to that. So it could either be next year or this year, but a very similar pattern is what we are planning.
What will be the cash and cash equivalent as on day, 30th June?
The Cash and cash equivalents as on 30th June? I don't have the number. Maybe I think Puru-san mentioned in the opening, maybe it's around INR 572 crores in cash and cash equivalents.
On 31st March or 30th June?
I -- Puru-san, if could just see the exact number?
On 30 June, we have INR 572 crores.
[Operator Instructions] The next question comes from the line of Chirag Shah from White Pine.
Sir, I have multiple questions. First question is on the presentation side. Sir, can you indicate what is the volume growth? Can you indicate what is the volume growth on a consistent basis in your presentation, sir? Because it's very difficult to figure out how much is the volume growth for you and how much is the pricing growth, point one. So that is the first question.
And also the presentation needs some changes because it's a very standard presentation without any additional information even on a quarterly basis. So if you can look into that side. So that is the first question on the volume side, if you can give us what was the volume growth for the quarter versus 4% revenue growth that you had.
Sure. So thanks for the question. On the first part, before the part also, thanks for the feedback and we'll definitely take that on the presentation and maybe connect off-line for more detailed feedback so that we can incorporate back into the quarterly presentation.
Regarding volume growth, we don't per say disclose volume growth. But the way the movement happens in our mix as well as our component, all the catalyst. In general, our volume growth has been higher than 4%, but it's just indicative on catalyst prices, et cetera. But it will definitely be on the double-digit side when it comes to volume growth.
So sir, if you can make us understand what -- versus the 4% revenue growth and a double-digit volume growth. So how does the mix change for you? If you can make us understand, it would be helpful. Because you indicated that there could be certain changes in the mix, which would have an impact on the volume growth.
Okay. So our products are first cross-used across platforms, and they are also cross-used across industries, right? So our products are used in pass cars, the same product might be used in an LCV. And now we are seeing that the same product is now being used in minivans as well as now it's going into off-highway and it is an engine-based product. So it is a little bit difficult to curtail in terms of -- or correlate, sorry, in terms of volume to the market, right?
And we also have a component called a catalyst, which we -- which is mostly a pass-through kind of an item, which we buy for some of the customers. And for some, we do not. And that kind of also distorts in terms of correlating with volumes.
We've been working with our customers to either disclose the catalyst or to make it free of cost. So as a positive move towards it, we've reached an agreement with key customers to minimize the buying of these catalysts and go towards the FOC model so that it's more apple-to-apple. And all our new products which have come in this year or which will be coming in also, again, really without this will become clearer as we move forward. And that is probably the best way that we can look at for the time being, but volume stand-alone, that's something that we don't share.
Sir, does it mean you are looking to go back to the earlier way of disclosures where your revenue -- your margins will be significantly higher because the bought out goes out?
No. So earlier, that was not the case. We have always been in the same way only. But earlier...
No. Sir, I'm referring to that before the transition, we used to have a double-digit margin and half the revenue, right? And then the transition of emission has happened where you had to increase the bought out component to make it as an assembly and where revenue doubled and your margins kind of half in a very crude form I'm just referring to.
Sure. So before the regulation change also it used to be the same thing only. But at that time, the bought-out component, the catalyst was much cheaper. So as a percentage of overall sales, it used to be much lesser, right? But it was the exact same way. In fact, previously, we were buying more of it, right? Because we didn't have agreements with all our customers that are at least more than half or even larger than that we don't buy it for. So the change that you saw pre-regulation change are now is only that catalyst prices shot up because what's required in BS-VI is a much more expensive catalyst, and that's why it appears to be a higher part. And optically, that's why our margins look at, whatever, 10%, 11%, but of course, they're much higher if you remove that part.
Okay. But sir, if they -- or if you can indicate in the presentation, what is the bought-out component revenue and what is the normal revenue and gives you volumes? It would be helpful for us to understand how is the value curve moving in the existing product also. Otherwise, it becomes very difficult to understand your quarterly results, sir.
Absolutely. And the point is well taken. And in general, we've tried to do that, but because of customer confidentiality, we've not been able to disclose in that pattern. Best is to look at our results more on a long-term basis and there it correlates very well. And in general, now, as a policy going forward, we are not taking many products with catalysts, right? And this, very shortly will be fully transparent as a result because legacy products, our customers want us to continue the model, but new models are being on a value-added sales basis. So then it will become clearer. But we are working on the same and we will definitely go towards that.
Sir, second question was on the dividend policy that you had. In fact, the question before that I wanted to understand when you are looking for M&A, one, what is the sweet spot of revenue that you are looking to acquire? And what are the capabilities that you are looking to acquire, either product capabilities or business capabilities and the sweet spot that you have in your mind to acquire.
Yes. So we have a range, right? And we don't have a disclosure on the range for it, but maybe to help you understand better, we want to utilize it for powertrain agnostic products, right? So we are really looking at products which do not shift with changes in powertrain. And also companies which either have a strong presence in India or are likely to have a strong presence in India as we moved forward. And the range is something which is without sharing numbers, which is big enough for it to be valuable to spend the management bandwidth as well in it, yet not too big as we are not very well versed with M&A yet, given that the company has never acquired a company before. And so we would, of course, want to start with a medium scale, but this is just a change bound kind of look that we're having on M&A.
Sir, why I'm asking is because your cash pile is just increasing given the business that you have and the trend that you have. So if you have a particular amount in mind, maybe 20% of your current revenue or something like that, you -- the excess cash could be returned back in terms of buyback or dividend, right? So because every year, you're going to have a significant cash pile, you already have 20% -- more than 20% of your market cap in terms of cash. So -- and given our conservatism, I'm pretty sure that you are not going to go out and spend, write a check of INR 1,000 crores or something like that, unless it's very, very, very lucrative kind of a thing.
So without commenting on the number there, we said there's no number as such in terms of what could an M&A look like. But the philosophy which you just mentioned is well recognized, right? I think there's no doubt that we recognize that this is a very significant cash build up, and we do need to have a more straightforward policy on it. And we also do need to cap it. And we also do need to in case above a certain limit, return back to shareholders in the formations that you spoke about. So I think the philosophy we are completely aligned with, but don't want to state an exact number or exact kind of range also. But the direction is exactly what you mentioned that you are thinking and actions would also be made on that direction only.
The next question comes from the line of Karthi Keyan from Suyash Advisors.
So first is, of course, I'm going to deliver the same point that Chirag made, which is I would appreciate if you can be slightly more proactive with the communication, especially under exceptional circumstances. The break has been a longish one and there has been no communication, you can consider that as an input that will be helpful.
The second, of course, is a long pending request for some kind of an index for volumes. The sooner you do the better. Otherwise, your presentation is like reading the same novel a third time. There's nothing really in terms of details in the results. So kindly think about that. The PPT can be slightly more context you're making. Otherwise, the table is anyway shared with the exchanges. Maybe just by way of feedback, it helps because I think the value here is too great for people not to be left in the dark or so. That's the point I make you clear.
Sure. The point is well taken and the feedback is well taken.
So first question. One is, can you talk in terms of what specifically is the letter and spirit of this change that you have communicated with reference to the gains?
This is regarding the ETPL JV, right?
I'm talking about the Eberspaecher JV trend.
So the JV scope is only amended for simplification. So the language has been changed on the scope of the JV making it engine focused now rather than category focused. As mentioned before that, OEMs have started using the same engine in commercial vehicle, gensets, construction equipment, tractors. So it's very tough to now bifurcate in terms of category or segments. So we thought it's much better to do it in terms of India, right? So because then there is no gray area and this will become very important. Now we wanted to be proactive about it because as we know that the construction equipment market in India is becoming the mission and gensets will require products, tractors will require. And then it was very important not to have any kind of ambiguity there. And we are also approaching international markets. So we wanted to be clear on the scope side of it. So it's simply to make the language simpler and crystal clear in terms of changes.
So just to clarify, when you say that it is Indian focused versus category focused, does that mean that they would also be addressing some of the categories that you were earlier addressing as the parent company? How should one think about that? Or do you still say anything above 3 liters, we will do on anything below 3 liters will do irrespective of category. Is that a way to understand?
Yes. So it is the literage might not be exactly 3, it's higher than that. But the way to look at it would be that it would basically be status quo as of now, right? But all the changes that are coming into the market that products will be required and [indiscernible] there'll be no overlap, right? So our addressable market remains the same. It becomes slightly larger. And there was one category probably which we could not have addressed before, which is a niche category of higher engines in the segment of gensets, marine and things like that where we didn't have the technology, but now with the simplification, if the opportunity presents itself and we can also utilize the technology for those kind of applications also.
So the parent entity are rather the listed entity can use the technology to address that opportunity?
No, that will go into the JV in case we're going to very, very large kind of engines and all. It's like a very niche technology which we don't have, additional partner has. So from looking at it as a stand-alone entity, there is virtually no change apart from just making it engine focused and also clearing out any ambiguity for the emission changes that will be coming domestically and also giving a clean slate for looking at international opportunities via exports.
And the Chairman and the CEO to be appointed, is that a time-bound thing? Or how exactly would that be appointment by Eberspaecher on the JV?
Yes. So I think all other terms are exactly the same that management control remains with them. And that's why we don't consolidate. So everything else remains the same. It was a very simple distinct to the scope only which I just mentioned, nothing else has changed in the JV agreement.
Sure. And while we are on the topic, can you just update on the performance of the joint venture? Has there been any improvement in volumes at all?
Yes. So this quarter, in fact, has been very slow. And I think in general, the CV industry, we've seen has been slow. And even when we look at it on a Q-on-Q basis, Q1 is a slow quarter for CV, but even on Q-on-Q, I think the industry has not done very well. So the sales have not been great for the quarter. But nevertheless, we still remain profitable. And our capacity utilization remains to be around 50%. We have taken the initiative to make some of the products to be cross used across engines, right? And that could become important maybe a year later because then whenever the opportunity presents itself, it would be slightly faster. And we are working with the customers to increase share of business and get into some of the [ hire on ] products. But goal was to stabilize, that's what we have been able to stabilize the business quite well, and that's indicative that even in a low volume quarter, we remain to be profitable. But of course, a lot of work has to be done in terms of increasing market share.
Do you want to give us some kind of a timeline for when we can see meaningfully upside?
I think it's totally dependent on the CV industry and also the customers' preferences on how they're going to move. So it's very difficult to give any timeline on this kind of a thing. And CV in general is very concentrated volumes on just a couple of engines, right? So the market share shift when it happens, it won't be incremental, a little bit dramatic, right? So if we were to even get one engine, you could see a substantial increase, right? But of course, given that it's so concentrated in engines, the competition also defends it as eagerly. So we are in that, and we are working towards that, but tough to give a timeline given that there are only, I think, 3, 4 engines in the entire market that are really out there, right? When you look at it from a value perspective.
On the parent entity, earlier you referred to listed entity, can you give -- one question would be on the sourcing part. So in what time frame do you believe the old model should have completely say being phased out and business would be entirely based on the newer model? I'm just trying to understand in what time frame would manufacturing be 100% of your revenues -- reported revenues?
There's no time frame because we don't know when models would exactly expire. And either way, it has absolutely no impact on EBITDA, on profitability and overall performance and numbers. It's only the optical change that would happen and that's it, right? So the only change that would happen is literally optical on the sales number and then it would be correlated. But in terms of...
But there is some benefit of cash flows is what I understood. Would that be correct or no?
No, there is no benefit as such on cash flow side also, right? Because it's neutral, right? And that working capital anyway shifts here and there based on other things also. But regarding this change, the change will largely be optical in nature from the sales perspective, but the benefit is then it will be much more correlated, I guess, on basis to industry and all that. But still, I don't think quarterly, it can be correlated, but definitely annually, it's something that will be much simpler to correlate there.
Sure, sure. And one quick question on the breakup of other income that would help, potential number this quarter.
Yes, I don't have that offhand, but we will share it with you off-line on the other income side. Noted, I will share that.
Right. And then one last thing and then I'll let you go. Can we need some time please just to engage you a bit more in detail, that would be useful.
Sure. We'll definitely set something up and we will get it.
The next question comes from the line of Ankur from Quasar Capital.
Sir, like I was just trying to join the dots on your comments about volume growth. You mentioned that it was a double-digit volume growth. And considering the RDE norm setting in where the minimum expectation of content per vehicle is will go up by 10% or 25%, depending on the engine which it applies to. So sir, like I'm not able to join the dots on the revenue growth of 4%. Can you just help me understand that?
Sure. So the RDE norms have just been implemented. There is a gradual ramp-up in this quarter. New lines have been established, right? And as indicated before that the gasoline content per car is going to be a 10% increase, diesel would be 20%. And then there are, of course, other parts of the business also that come into the sales numbers. So on a blended basis, we'll have a tailwind of roughly 10% plus for the overall deals given that everything else goes well. So that is the guidance when it comes to RDE.
No. So exactly the question, sir, that why didn't it happen during the quarter? Like during the quarter, you're saying that there are many cars, which were still manufacturing without the new RDE norms.
So we actually supply in terms of engines, right? And the ramp-up was gradual on this basis, right? And RDE norms have an impact on mostly the hot end of the car. We also manufacture the cold end of the car. We also manufacture other parts of the car. So it's more like a blended impact that we'll see and I think more will come in Q2 onwards.
Okay. Sir, then second question is, again, slightly linked to the cash generation and the business language you have. So considering that we have been hearing from you about the M&A part, which you rightfully explained that we want the right mix. And since it's the first time you don't want to aggressive, that is understandable. But like from a business perspective, why don't we try and start something on our own and depend on M&A to go through? So like you have the customer connects, you can just go and ask them that what is the requirement and we can do from R&D. I'm just thinking out loud from a business angle because we have been waiting for this since a long time, and the cash is piling up, and it is going to pile up by INR 200 crores every year. So just your thoughts on this will be very helpful.
Sure. So first, we, as a company, have grown substantially in the last couple of years, and a lot of bandwidth got consumed in terms of where the [ RDE ] emissions industry also, right? So it was not a very easy task to take market leadership position in India for BS-VI and now for BS-VI RDE and then we have a few more emission legislations that are coming in. So we definitely wanted to focus on the core, right? And we are talking about the organic side of it. And then now that maybe 1, 2 emission norms are there, definitely a similar philosophy to what you are mentioning is what we are charting to it. But we are on the conservative front. We rather not do an M&A then do an M&A at a valuation that will not create the best, right? And we -- I just want to be careful on that front.
And we have also very recently only come up with a dividend policy. And it would be on the higher side only that we would move forward on which would ensure that there is a good return also coming back to shareholders and not a very excessive pile up in terms of cash earnings. But point well taken. And the philosophy is exactly what you've mentioned on the organic side as well as on the inorganic side.
Sure, sir. And sir, last question, just a follow-up because there was no follow-up announcement on the rates. So is that matter settled or there is some litigation is pending with regards to that?
So it is as per what we disclosed that it was a search and survey, right? Business operations are continuing as per normal. And there is no update beyond that, right? And we are -- it's just these kind of matters are routine and they take time. So there's no litigation per say.
The next question comes from the line of [ Nirvana Laha ], an Individual Investor.
A couple of feedback points also from my side. One was echoing the same thing that the last gentleman said about a meeting request. So we've been reaching out to your IR quite a number of times. So if you can probably give us some time to maybe multiple shareholders to meet face to face that would be really nice.
Sure, absolutely, point well taken, and we are fully consumed with this RDE implementation personally but now that the RDE products are implemented, I will definitely adding the time out and to meet in person.
Sure. We'll look forward to that. Another thing is often when financial questions were asked on the call, for example, the other income question that the gentleman asked. We don't seem to be ready with the answers, but Aashim to be honest, these are standard questions where shareholders only get a once-in-a-quarter opportunity to clarify them. So since the CFO is also on the call, I would request you if possible from the next quarter to be ready with the numbers so that these are the inputs that we can get during the year. Otherwise, we have to wait for the annual report, right? So if you can please take that suggestion onboard.
Sure. Absolutely. To the best of our ability, we'll try to be ready and unconditionally you can always reach out to the IR advisers for specific points.
Sure. Okay. So coming to the question, so there was a INR 330 crore increase in other financial assets during H2 during the second half of the financial year. Could you comment on what this was exactly? What were the asset?
I think this would be part of the overall investments in cash, cash surplus, but maybe Puru-san, if you are aware of this number, is this just a reconfiguration of the cash investment?
So this detail is not handy. We would be happy to supply this information off-line.
Okay. All right. The next question is on -- in March, I think you commissioned a new plant for emission systems with a 5.25 lakh capacity. So 2 questions, what kind of capacity increase would this 5.25 lakh constitute? And towards what purpose is this exactly? Is it targeted towards one particular segment of your emissions business? Or is it generic?
Okay. So we have expanded capacity in the West for a couple of reasons. One, we did some existing, let's say, space for RDE. Then we are expecting a few of our customers who will be adding capacity as well in the western region. So that's in the new. So we are preparing for that and as well as some TREMs were kicked in as well as TREM5 will also be -- west region will be a pivotal part of it. So we'll be utilizing this capacity over the next couple of years.
Okay. And as a percentage of your existing capacity before this came online, what percentage increase would this be roughly?
Yes. So we continue to augment our capacity because it gets augmented fairly easy on a CapEx-light model. So I don't have the percentage number but in general, whatever that you mentioned, the capacity we would have in cumulative products, right? So this is hot end as well as cold end.
Okay. All right. And on your Eberspaecher JV, would you be able to tell us what the Q1 revenue was? And on a -- suppose we get into one of the engine program that you just mentioned while answering to somebody else. What kind of revenue -- what kind of maximum revenue potential could we be looking at? Because this -- we understand that COVID was there, and there was a lot of disruption. And since then it seems like you're ready with the product but waiting with the OEMs. So just for us to get a sense of how this could ramp up in terms of a number, what could be a potential yearly number if things work out favorably? Like would it be as large as our SDV or would it be much smaller than that? Some idea would be helpful.
Sure, sure. So in terms of revenue, we roughly in this quarter did between INR 80 crores to INR 90 crores, and that is including catalyst. In terms of increase, it could be substantial. So you could imagine a double, or tippling in case you get 1 or 2 [ foot ] inches. But nevertheless, it would not be as big as the stand-alone entity. I think we address a much larger market in the stand-alone entity. So for the time being, it would be significant, but not like anything that you can compare with the stand-alone entity.
Okay. So this INR 80 crores to INR 90 crores, am I misremembering or it used to be INR 40 crores till about 2, 3 quarters back? Or was that without...
I think that was without catalyst, which we had mentioned. This is with catalyst.
So without catalyst number would still be trending at the same INR 40 crores, INR 45 crores...
On a Q-on-Q basis, it is roughly the same. I think there has been a decline of 5%, 7% on a Q-on-Q, if you look at the quarter-on-quarter results, but it would be the same number, very similar number.
Okay. Got it. On TREM5, any more visibility, is April 2025 looking the likely timeline? Any update from the -- either from the government or what you're picking up from the tractor industry?
So the tractor industry is preparing fully for it. There is some delay expected. It was originally, I think, planned for April 2024. But if we look at the trend that we saw in TREM4, there is some delay expected, but not too much. There's been no formal notification of it. But preparation by all the tractor makers is on full stream and prototype development, testing, et cetera, is happening as per normal. But it's up to when the notification comes. So some delay could be expected.
Okay. All right. And a final question on the -- your battery JV. So what is happening here? So the last time that I asked you this question, you explained how this was more going to be a BMS family, low value-add initially where you would be learning first, understanding the ecosystem, also changing regulatory needs, et cetera, you had explained the full go-slow approach. So have we seen any revenue from this JV in the last quarter and this quarter? And where are we right now? Has our thinking changed at all on this? Are we speeding up? Or how is it going?
Yes. So the last time when we spoke, we are largely same in terms of the philosophy that we will be very cautious and we'll go slow. What the updates probably are that we have built our prototypes and the first phase of testing has been completed for them and we are applying with the [indiscernible] for approval, which is required on the battery site. And this is again battery assembly front.
We, of course, want to be 100% sure of these products because there's a very high field quality risk that batteries, especially in this segment have as well as warranty and servicing. So being very careful. And of course, these subsidies have been reduced, that has increased the cost pressure quite substantially in the market. So we are making some changes in the configuration to be more competitive on the cost side and also these AIS amendments also which came in. While the batteries are compliant to it, they have become more expensive. So we are reconfiguring that. In terms of revenues, there is no revenue, substantial revenue from this. And we don't project, we will be going very cautious and slowly in this segment.
Right. So your presentation still says that the plant is under consideration. So what I would like to understand it is what milestones do you have to hit for the plant to be sort of a green lit? That would be helpful to understand.
Sure. So the batteries prototypes to be approved by the agency and to be within the cost target range of the customers.
Due to time constraints, that was the last question. I would now like to hand the conference over to Mr. Puru Aggarwal for closing comments.
We thank you for your participation in our earnings call today. We hope we have been able to address all your queries. However, if you have any other further questions, you can get in touch with our IR advisers, Strategic Growth Advisors. Thank you, and have a good evening.
On behalf of Sharda Motor Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.