SJS Enterprises Ltd

NSE:SJS

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to SJS Enterprises Q2 FY '24 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ronak Mehta from JM Financial. Thank you, and over to you, Mr. Mehta.

[Ronak Mehta, analyst]

Thanks, Nita. Good morning, everyone. On behalf of JM Financial Institutional Securities, I welcome you to 2Q FY '24 earnings call of SJS Enterprises. From the management team, we have with us today: Mr. K. A. Joseph, Managing Director and Co-Founder; Mr. Sanjay Thapar, CEO and Executive Director; Mr. Mahendra Naredi, Chief Financial Officer; and Ms. Devanshi Dhruva, Head, Investor Relations.

So as we do always, we'll start the call with a brief opening remarks from the management followed by Q&A session. So with that, over to you, Devanshi.

[Devanshi Dhruva, executive]

Thank you, Ronak. Good morning, ladies and gentlemen, and thank you for being with us over the call today. We appreciate it. Moving on this is how we intend to take today's conference call forward. I will pass on the dice to Mr. Joseph, our MD and Co-Founder, who will make the opening remarks; then he will hand it over to Mr. Sanjay Thapar, our CEO and Executive Director, who will take you through some of the slides of our presentation that have been uploaded on the stock exchange as well as on our website. Sanjay will take you all through the industry view, our business performance and also give a strategic outlook for the future growth of the company at the end. And Mr. Mahendra Naredi, our CFO, will update you all on our financial highlights, post which we will open it up for Q&A.

The duration of this call will be around 60 minutes, and we will try to wrap up our comments in about 20 minutes so that we leave enough time for you guys to ask questions. If time is not enough, please feel free to reach out to us through e-mail, and I may try to answer all your questions to the best of my abilities.

Thank you once again, and I will now hand it over to Mr. Joseph to make his opening comments. Over to you, Joe.

[Kannampadathil Joseph, executive]

Yes. Thank you, Devanshi, for the introduction. Hello, and good morning, everyone. I trust you would have had a chance to look at our investor presentation and the results publicly yesterday.

While Sanjay and Mahendra will take you through all through the presentation later, I would like to quickly share some updates with you all. Number one, this will be our first quarter where Walter Pack India, our recent acquisition has been consolidated. And hence, all consolidated numbers will be including both Exotech and Water Pack, along with SJS financials. Please note that for the full year FY '24, only 9 months financials of Walter Pack will be consolidated with SJS numbers.

Secondly, in August '23, Amazon Capital sold 29.53% of their equity stake in SJS in the secondary market. We would like to take this opportunity to welcome all the new investors who have shown faith and confidence in us and have now become shareholders of our company.

After the same sale transaction, Amazon equity holding in the company is now 4.63%. Consequently, both their nominee Directors, Mr. Vishal Sharma and Taman have stepped down from our Board. However, on the work front, nothing has changed, and it is business as usual with me and Sanjay hitting it along with our professional management team.

Now coming to Q2 FY '24 updates. As you all know, Walter Pack acquisition has opened up a letter of new opportunities for us. This acquisition has enabled us to penetrate deeper in the asset vehicle and consumer business, thereby further reducing our 2-wheeler concentration.

As for Q2 FY '24 consolidated performance, including Walter Pack, 39% of our revenue contribution is from 2 wheels, 33% from passenger vehicles, 38% from consumer and other businesses. Both Exotech and Walter Pack acquisitions have helped us to balance our portfolio well between the automotive 2-wheeler passenger vehicles and consumer business.

Since this is the first quarter post acquisition of Walter Pack, and I believe we may take 2 to 3 quarters to understand the business better and to integrate the systems and processes in line with SJS. I'm looking forward to seeing how growth pans out in the future with all the synergies and cross-selling opportunities on back of these acquisitions and new product additions.

With that said, I would like to now hand over to Mr. Sanjay to take you all through some of the businesses and industry highlights for the quarter. Thank you. Over to you, Sanjay.

[Sanjay Thapar, executive]

Thank you, Joe. Hello, and good morning, everyone. Starting with our Q2 highlights. We have yet again outperformed the automotive industry for the 16th consecutive quarter. Auto industry, 2-wheeler plus passenger vehicle production volumes have grown by 0.3% in Q2. Our consolidated revenue that is SJS, Exotech plus Walter Pack grew by 39.5% Y-o-Y during this quarter, primarily on the back of the Walter Pack addition from Q2 onwards this year.

Strong 25.2% Y-o-Y growth in the automotive business that is 2-wheelers and passenger vacant combined as compared to 0.3% Y-o-Y growth in the industry help us navigate this quarter. Automotive business has grown well for us, both in the domestic markets at 25.4% Y-o-Y and exports market at 20.2% Y-o-Y.

Q2 FY '24 post the completion of our Walter Pack acquisition, our net debt stood at INR 599.4 million, and our cash and cash equivalents were INR 238.5 million as of 30th September '23. We added marquee customers like Lear Corporation and also some OEMs like Neolync and GDN and also Foxconn Technologies who supply the telecom segment.

Despite muted performance of the auto industry in Q2, SJS has consistently outperformed and this growth was no different for this quarter. In Q2, the 2-wheeler industry production grew 15% while SJS consolidated 2-wheeler sales grew by 8.4% on a Y-o-Y basis. The company businessed PV growth of 51.3% year-on-year while the industry production volumes grew by 5.6% during the same period.

Automotive, 2-wheeler and passenger vehicle industry production grew by 0.3% Y-o-Y, while SJS witnessed a robust growth of 25.2% year-on-year, on account of this Walter Pack acquisition and increasing our business in the Automotive segment. Overall, consolidated SJS sales grew by 39.5% year-on-year while organic auto growth stood at 6.3%, and we performed better than the underlying industry.

Q2 organic growth was impacted due to flattish performance of the underlying industries. Simultaneously, for the first half of this year, automotive industry, 2-wheeler, passenger vehicles put together grew by 1% year-on-year, while SJS consolidated automotive revenues grew by 22.2% Y-o-Y, and organic growth of 23.9% year-on-year.

We are seeing some improvements in the export market as it witnessed a growth of 25.6% year-on-year for the quarter. New business wins were partially offset by the slow base recovery in certain pockets of exports like Europe and Brazil. Overall, for H1 FY '24, we saw a robust growth of 54.1% in exports to INR 232 million.

Q2 FY '24 exports constituted roughly 7% of our total consolidated sales. Both Exotech and Walter Pack are primarily domestic businesses, and hence, exports as a percentage of consolidated sales is 7% while exports is 12% of the SJS stand-alone sales.

Apart from adding new customers like VR and OEMs who supply to telecom segment. We continue to expand the share of wallet by getting new businesses for our key customers like Mahindra, Stellantis, Foxconn, Maruti Suzuki, Bajaj Auto, John Deere, Geberit, Ota and many others.

I would like to share one more update with you. I'm delighted to mention that the Screen Printing Association of India and the Federation of European Screen Filters Associations has awarded Joe a lifetime achievement award and depreciation of this human service entered in the industry with visionary leadership and extraordinary achievements. Congratulations, Joe.

Lastly, on the CSR front, we've been fashionably supporting certain social posts and we are seeing a visible impact. Some of these initiatives are pedia Bangalore-based NGO that provides daily meals to the poor and my people at open centers, road, railway stations, old age homes, et cetera.

Continuously, we support a Paralympic athlete, Mr. Manikantan for the past 6 years to compete on global platforms. He recently won a branch metal at the IFC Paralympic world Para planting world championship in Switzerland in August 23. Once again making the country proud.

Supporting Humarastitute of Gramalote we provide free cost education books, et cetera, to several children of migrant labors. Apart from this, towards average cleanup initiative, we've helped an improving lines of business by providing them clean and hygienic environment to give. Our coverage has been expected to aid more wages this quarter, taking the total down to 20 nearby wages. It is satisfying to note that these initiatives are helping improve lives of thousands of people in a positive manner.

I would now like to hand over the call to Mahendra, our CFO, to update you on the SJS financial performance before I talk about future growth. Over to you, Mahendra.

[Mahendra Naredi, executive]

Thank you, Mr. Thapar. Good morning, everyone. Before I talk about our Q2 FY '24 results, I would like to briefly explain the accounting treatment of Walter Pack acquisition for everyone's benefit. As communicated we have acquired 90.1% stake in Walter Pack for INR 2,390 million. And independent valuer has ascertain net equity value INR 43 million on acquisition date, which is 1st of July 2023, and incentives to INR 853 million majorly for acquired customer relations, known compete, excess.

And therefore, lability on intangible assets has been created for INR 220 million. With some of that, the total value of the company has been arrived at INR 1,043 million on 100% valuation. After adjustment of 9.9% of minority interest, SJS required a stated total of INR 940 million, representing 9.1% stake in the total NAND Walter Pack India. The remaining amount of INR 1,445 million, which is acquisition price minus 90% is taken to our company valuation was accounted as goodwill.

As per accounting standard, 103 and 110, we will consolidate 100% in assets and 9.9% of minority interest, we will be showing under the liability side.

On P&L side, the sales and EBITDA will be consolidated. Each line item by where PAT will be back into SJS and the minority effectively, Walter Pack India as to the extent of 90.1% will be added to PAT in consolidated SJS financials. The assets intangible asset portion of INR 853 million will be depreciated and invested from the consolidated pack. We anticipate an impact of approximately INR 28.9 million pretax and INR 21.5 million cost at on going forward.

These findings has been open through an independent valuation company, which we have currently relied upon and by our auditor. However, according to standards, a time frame of 1 month is available for validation of all junctions. And if any change down, it will be adjusted in the further periods.

Now coming back to Quarter 2 FY '24 financial update. Referring to Slide 12 and 13 in our earnings presentation shows that quarterly financial in nats. Slide 12 shows the organic business performance of SJS and Exotech, and Slide 13 shows the consolidated picture, including Walter Pack India.

Moving to Slide 14, 15, which talks about our financial corporate in detail. Consolidated revenue for Quarter 2 stood at INR 1,632 million, a growth of 39.5% Y-o-Y, primarily on back of Walter Pack addition. Organic basis, the revenue growth of 6.3%. Our adjusted computed EBITDA, which is reported EBITDA led by a onetime acquisition cost of INR 21.5 million stood at INR 98.7 million grew 19.4% Y-o-Y on a margin of 24.2%.

EBITDA margin in Q2 was largely impacted on account of Walter Pack India's performance, where EBITDA margin stood at 12.5% to 13%. Walter Pack India margins were impacted due to lower automotive revenue during this Quarter 2. As one of our largest PV customers was undergone model upgradation for 3 of their models and the existing Walter Pack volume were tapered down before the launch of new models, which led to the lower auto component sales for Walter Pack India.

Also, Walter Pack India sales for Q2 included a large proportion of tooling sales for the new models, which is at a much lower margin than the regular component sales. However, these models are now launched, and we are getting volume back in the auto business. We expect the sale switch to stabilize in H2 FY '24.

Excluding Walter Pack organic adjusted EBITDA, that is for SJS and Exotech was INR 349.2 million on a healthy margin of 7.7%, witnessing a growth of 4.6% Y-o-Y. Again, this EBITDA excludes onetime expense of acquisition costs to the tune of INR 21.5 million, which we have incurred for Walter Pack.

Adjusted consolidated PAT has released INR 208.1 million grew 4.3% Y-o-Y and PAT margin stood at 12.8%. Adjusted bad margin has largely been impacted due to lower other income, which was INR 23.5 million in Q2 FY '24 and INR 16.8 million this quarter. Higher interest costs to the tune of INR 11.1 million on account of debt taken to acquire Walter Pack India, higher amortization cost on intangibles, which I called in before to a tune of INR 28.9 million and lower margin at Walter Pack due to lower component sales and temporary change in product mix in this quarter.

Ordinary adjusted PAT growth has been 5.1% to INR 29.7 million on a healthy margin of INR 16.9 million. Profitability was impacted on account of lower other income as prior to Walter Pack acquisition the company has surplus fund and generate an interest income of INR 25 million to INR 30 million every quarter as well as higher amortization cost for intangible post acquisition to the tune of INR 28.9 million.

Our consolidated ROC during this quarter stand at 17.9% and term equity at 13.7%. ROE was lower due to Walter Pack India acquisition. This will improve gradually over the next 1 or 2 years with greater utilization of investment. As Mr. Thapar mentioned earlier, our car and cash equivalent were INR 238.5 million at the end of September '23. For Walter Pack India acquisition, our net debt has increased to INR 99.4 million.

Of the total that INR 120 million has been repaid during October 20. We have strong conviction in Walter Pack business and are confident of achieving our growth targets in the medium term on back of stabilization of portal sales mix, various cross-selling opportunity, synergies between all the 3 business and growing economic loss cases.

I would now like to hand over the call back to Mr. Thapar to talk about our future plans and growth outlook. Over to you, Mr. Thapar.

[Sanjay Thapar, executive]

Yes. Thank you, Mahendra. Considering the underlying industry performance for H1, whereas the automotive industry production volumes are flattish year-on-year, we are confident that we will outperform the industry significantly on the back of our presence in multiple industry segments, our global presence and also the diversified product portfolio and strong customer base.

On Exotech capacity front, we would like to update that we've partnered with the completing manufacturer and book their capacity for Exotech orders. We have started working with them since October '23 and are very closely standardizing, working to standardize processes and quality standards. We believe this will help us in overcoming any capacity challenges that we have, and Exotech will be able to maintain its growth trajectory for the near term.

Simultaneously, our team is working on finalizing the rise capacity expansion plan of Exotech and Walter Pack together that we expect to complete in the calendar year '24 and end year. As a company, we've always focused on the introduction of new premium products and technologies that will market significantly. As we aim to be a one-stop solution provider for all aesthetic products.

You all know by now that we are working on this journey of diversification and accelerating our efforts to increase our quick value in 2 years, passenger vehicles and the consumer businesses with the addition of new premium products to organic and inorganic routes. We see this increase in kit value playing out with the basis of prompted part to Exotech, IML, IMD and IML pass through the recent Walter Pack acquisition.

Just to give you all some more color on this increasing kit value and how it will play out for SJS growth. I will talk about a live example, wherein currency, we are supplying several parts directly, directly from all these 3 companies to a leading TV OEM for a specific model. At the start of the year, SJS was supplying only INR 250 to INR 300 per vehicle worth of local to this PDN.

However, now, SJS stand-alone supplies INR 750 crores to INR 800 vehicle worth of aesthetic parts like steering wheel eliminated logos than application. Through Exotech and Walter Pack, combined, we supply an additional INR 1,500 to INR 1,600 per vehicle worth of products like logos fully automatic temperature controller parts, deco parts, we caps, et cetera, to this OEM. Hence, the total kit value supplied has increased, not just 2x within SJS stand-alone itself, but overall, it has increased over 7x to 8x already with the cross-selling capacities that we are paying out in favor of the consolidated.

We are excited about this and look forward to seeing how we can execute a similar strategy for other OEM customers as well. Similarly, we also are in discussions with some OEMs to get approvals for cameras that will be a complete game changer for us. Apart from that, we are working closing some OEMs to introduce innovative premium products like IML, we caps and complex IML, IMD part for consumer companies.

It gives us great transaction to see our organic inorganic strategies playing out well. Our potential content per vehicle for PV has over the past 2 years increased by 0.4x. And today, we are a mainstream supplier for passenger vehicle segment as well. It is because of the way we plan, strategize and execute idea of consistently trending towards premiumization, we believe we will continue to outperform the industry in the future.

Now we'll talk of the outlook for FY '24. At the beginning of the year, we expected the underlying markets to grow by 8% to 10% and has guided to a top line growth of 50% year-on-year for FY '24. However, despite the muted performance of the industry in H1 FY '24, we still expect to deliver annual revenue growth of close to 45% year-on-year on a consolidated basis, and organic growth for FY '24 might be closer to 20%.

Accordingly, our PAT growth is likely to be 20% -- about 20% on a Y-o-Y basis. This 30% growth will be excluding the higher amortization cost of INR 28.9 million each quarter due to this intangible asset amortization and onetime acquisition cost of INR 21.5 million occurred during Q2.

PAT guidance is lower mainly because of the impact on Walter Pack India profitability in Q2 on account of disruption and slow ramp-up of the model by the customer. And this, we believe, is one of. Unlike SGS in the interior plastic business, model changes happen once in 6 or 7 years. So we hope that in the next few quarters, you will see a much improved performance from Walter Pack India.

In fact, in the last 3 months, we won new businesses at Walter Pack that give us great confidence of a strong order book, and top line growth for FY '25 at what quarter back. We are confident that this Walter Pack acquisition will be rightful for SJS and will help us drive both growth and profitability in the long term.

With that said, I come to an end of my quarterly updates. Thank you, and now we are open to answer questions.

[Operator]

[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment Managers.

[Pritesh Chheda, analyst]

Sir, just some clarifications on the way numbers played out. So you mentioned about INR 2.9 crores is per quarter extra amortization which has now flowed in from Quarter 2. Is that correct?

[Sanjay Thapar, executive]

Yes, absolutely right.

[Pritesh Chheda, analyst]

Okay. Second thing now on the Walter Pack, we -- I couldn't still comprehend -- what is this model change? And what is this sudden impact on the GM of that business where the last conference call would have happened in the month of August, where you would be halfway through your quarter and nothing was called out at that time and certainly in this number, everything is being called out. And you have done the acquisition in Quarter 4 of last year at some 30% EBITDA margin, which now you're telling that it will take the next 2 quarters to ramp up. So I am unable to complete what you want to exactly say.

[Sanjay Thapar, executive]

Yes. Mr. Chheda, just correct you. We are not saying it will take 4 months to ramp up. This is a one-off event that we were taken by surprise. Let me explain the situation to you. I will not. Yes, Walter Pack was doing robust sales. In fact, we are the only suppliers to this company for this category of parts. And they had reported a 30% EBITDA margin for the Quarter 1 of the operations.

We acquired this company in July. And they were forecast by the OEMs that they will launch new models and the SOP for the new model was planned for the month of July. And in fact, it is so keen to do this that we airfreighted in June, closed about 11 tons of cooling to expedite and support them with this launch. Unfortunately, for Walter Pack and for us, the ramp-up of volumes that OEMs did not take place. And we are not talking about just 1 model, we are talking about 3 main models which are supplying or product for these models that supplied by Walter Pack this customer on an exclusive basis.

So since this customer launch was delayed, volumes were impacted very dramatically in the month of August and September. September, the vehicle volumes at the OEMs stabilized, and in the month of October, they have come back in a large manner. So recovery is going to be much faster than what you understood. So already, we see that these volumes are coming back, all the launch issues at the OEM are behind them, and we expect these margins to come in very strongly.

I will now hand over to Mahendra to explain to you the delta between how has this impacted the margin at Walter Pack for this quarter. Might have just go to that breakup, please.

[Pritesh Chheda, analyst]

Sir, just before that, I want to ask from what you mentioned the revenue for older is still INR 35 crores in this quarter. The run rate, which was mentioned the time of acquisition was 130. So 130 is still 35 for this quarter. Whatever is the number for this quarter.

[Mahendra Naredi, executive]

Yes, ballpark of traction.

[Pritesh Chheda, analyst]

So there is no deviation versus the run rate. And what you mentioned is incremental. So incrementally, there was supposed to be a particular model, which was supposed to be ramped up and was supposed to generate that growth. How can there be a certain erosion than in the base business which you're doing at whatever this INR 50 crores?

[Sanjay Thapar, executive]

Yes. Let me take a moment to explain, I think it's a very important point. Everybody would be keen to know this. So we are the only suppliers to this OEM for 3 main models that they make. Now all these 3 models underwent a generation change. So they have completely changed to a much premium, higher quality in more form part. So that business is out and tooling for this was developed.

This tooling cost was close to about INR 11 crores, which the company built in this quarter. So the overall annual sales number, the INR 7, INR 29 crore sales that you see comprised of almost INR 10 crores to INR 11 crores of tooling costs that we have built. Now tooling cost margins are far lower than the component margins that we have. And that has been -- that is what we say when we -- mean when we say the production mix or the product mix got tool. My component sales, which is 2/3 of the sales of this company.

So before we acquire Walter Pack for Quarter 1, 2/3 sales came from component sales and 1/3 sales came from their consumer business. Now the most profitable business there is the automotive business. The automotive sales because of this production issue at the OEM in this launch phase in August and September made the sales volume for automotive products declined to just 1/3 of the overall sales that this company did in that quarter.

So after that, INR 39 crores, just 1/3 came from component sales, which is high profit margin business for us. And on the top line, apparently it appears that because of that 10%, INR 10 crores, INR 11 crores of tooling sales that was done, the top line doesn't seem to have changed much visibly on the outside. But there's a big difference in terms of margins that we had are cooling. So this is a new generation, new category of parts. It's a very, very complex part being layed for the first time in India.

And the OEM had issues with this. There were some modifications that were done. So the margins on these toolings are negligible. So that put together constituted a significant drop in the margins for Walter Pack for this quarter.

Having said that, in the month of October, sales have come back. So the models are now ramping up, and we are extremely positive in our outlook for Q3 and Q4 at Walter Pack, where we think that this will come back to normal. So this was just a one-off case which took us by surprise, nobody can anticipate that OEM will delay the launch by 2 months, and they had actually taken up model changes for 3 new cars at the same time. So it was a very challenging time for us, but we have come out of it now. I hope that answers your question, Mr. Chheda.

[Pritesh Chheda, analyst]

Yes. Just a follow-up on the outlook that you shared at 30%. If it is supposed to adjust by 1 quarter, that should not some INR 3 crores, INR 4 crores of EBITDA impact for this quarter, INR 4 crores a impact. I'm just wondering why for the full year then, the profit growth number that you guys have estimated is 30% because then the only deviation remains in the extra amortization number for which you need to make a clarification as well. Why this amortization number certainly increase within 1 quarter's time?

[Sanjay Thapar, executive]

So I'll ask Mahendra to take this and explain to you in detail about the amortization. Just coming back on the guidance for PAT. So as I said at the beginning of the year, we expected that the automotive industry, 2-wheeler, 4-wheeler with got about 8% to 10%, and we had figured in our numbers basis that. And Walter Pack was growing very, very strongly. In fact, the order intake for Walter Pack has been far higher than what we imagined. So we are going to really deliver great numbers starting from -- by the end of this year, we should be -- those models should be those new parts also should be in production.

So the outlook is bright. But the overall industry volume has been muted. So we are just guiding that for the balance part of the year. So for the first 6 months, as we've said, the industry has degrown. So there is a very muted growth in the multi against that 7% to 8% that we end. So this is a factor of both, Walter Pack margins impacted Q2 one-off event. Certainly, we will come back, and the industry growth that we said. So even our organic growth that we talked of about 20% to 25% will be closer to about 20% because of this muted industry growth.

So our intrinsic business is extremely strong, healthy. Our margins are normal and sustained. This is only an event, which is because of the pickup in...

[Pritesh Chheda, analyst]

Is the as definition.

[Sanjay Thapar, executive]

Sorry?

[Pritesh Chheda, analyst]

Sorry, sorry, sir. Please continue.

[Sanjay Thapar, executive]

Yes. So by and large, finish. So I hope that clarifies the matter.

[Mahendra Naredi, executive]

And regarding -- addressing your query on the depreciation, this depreciation is on the ascertain intangible, which is done by an independent value work, and that is immediately blogs to the noncompete with the Walter Pack plus acquired customer relations in the Walter Pack India.

And this amount is intangible and depreciable over a period of time and that depreciation, INR 28.9 million, it will continue from this quarter for a couple of years.

[Operator]

Next question is from an Shirish Gude from HDFC Bank Insurance.

[Unknown Analyst]

Yes. I just want to understand just continuing on the same Walter Pack. So how has the kit value changed between the models when the model change has happened? If you could explain what has been the change in terms of Catalin the...

[Sanjay Thapar, executive]

So we will not be able to give you the exact answer for confidentiality purposes, but the new models are close to about 40% higher market value in the new model is about 40% higher than the old models. So what forecast was given by the customer was their SOP was to be in July for new models, and it was -- for the other model, it was end of July. And this got deferred.

So even though the volumes tend to ramp up in the workings that what the Walter Pack team had done prior to what acquisition we did, they did not sure it because they had assumed that these new models will compensate for the decline in phasing out of the old models. Decline in revenue due to phasing out of the old model.

So on the overall sales plan per month, that was provided to us at the time of this acquisition, I will not gain Walter Pack team as well because it was something that is on account of the customer delay because it was a new model launch and many other they had issues in many parts. So they could not launch it on time and there was a 2 to about 2, 2.5 months delay in terms of ramping up the volume for that model, which has happened and opportunity for us. It happened in just 1 month after acquisition. So we have to limit it, but we examine that and we see this volume will come back in Q3 and largely in Q3 and Q4, it will be absolutely normal.

[Unknown Analyst]

Okay. And sir, also the Enwave launched, they have launched the lighting, et cetera, the content is going up that we see -- so like Walter Pack are supposed to be doing that also for them.

[Operator]

Shirish, sorry to interrupt you, but your voice is not coming clear.

[Unknown Analyst]

Okay. Is it audible?

[Sanjay Thapar, executive]

Yes. Yes, please.

[Unknown Analyst]

I just want to understand, in the industry, there is a trend of higher interior lighting content that is going from there are a few new opens that we do there are on sharing, et cetera. So is that what kind of work which waterskiing or...

[Sanjay Thapar, executive]

Absolutely. So this is a new generation of cockpit launched for the first time. So this was new for the customer, new for Walter Pack. Walter Pack Spain was involved in developing these tools we were developed in Europe. Fundamentally to get light to come through through a dashboard, and you said, you need what is called a 2K molding. The substrate is okay but light comes through a part where -- which is transparent. So you basically in the world inject category of 2 plastics. One is a transparent plastic, which is the light guide material and the other is the substrate that matches with the other parts of the NPL.

So this is what the product is. And that has been lighting. So yes, the products will have bit lighting built into the IMS part.

[Unknown Analyst]

Sure. And sir, any other ones potentially that you see should be far smoother sailing?

[Sanjay Thapar, executive]

Sorry, I didn't get that question. Any other...

[Unknown Analyst]

For the next few weeks, right?

[Sanjay Thapar, executive]

Yes, you repeat that question.

[Unknown Analyst]

Are you seeing any other potential issues that might crop up or it should be a smoother sailing.

[Sanjay Thapar, executive]

No, no, we don't see any potential issues, as I said earlier, moderate changes in especially interior part, we are very expensive pooling and the customers don't change as they carry forward to the other models. So strategically, it is a great acquisition of business by us and the Walter Pack team, and this will continue, I think, for the lifetime is close to about 7 years. So I don't foresee that there will be a hiccup or another 1 issue because we are not going to change our part for the next 6, 7 years. That's what the ideas. You understood guided us.

[Operator]

Next question is from the line of Fredrik from Sundram Mutual Fund.

[Unknown Analyst]

Sir, you mentioned that tooling margins are low and therefore, the margins were impacted. How much of the rolling margins here?

[Sanjay Thapar, executive]

Unfortunately, I cannot share that with you because there are customers on this call, maybe all I can share with you is that this is a new generation tool that was launched. It weighs about 11 tons and we effected this huge tool, and this was done oxide most of the tools because this is a new generation tool. So it was developed overseas, so the margins are quite low, and there were some design changes that happened by the OEM. And so they were retimers, et cetera. So that is my -- what I mentioned is that the margins are very low because this was a technology that was being implemented for the first time in India, not just by Walter Pack, but no OEM in India has this capability or this technology in their vehicles. So it was first first time totally outsourced to, therefore, low margin.

[Unknown Analyst]

Okay, sir, understood. Sir, if I remember, you mentioned that tooling was about INR 11 crores out of that INR 10 crores and remaining is 28. So if I do a math, it's roughly turn crores, 20% sequential decline. And to your point of 3 models, then it is exactly at on a sequential basis, those 3 models which you mentioned. So how much is this customer contributing to alter. It seems to be about 90% of share of business is coming from this 1 customer.

[Mahendra Naredi, executive]

If I add here, this customer -- I mean, the auto sales is adding 2/3 of our total sales. So this turnover almost has on...

[Unknown Analyst]

Remove tooling for this quarter, the business coming from this particular OE.

[Sanjay Thapar, executive]

Yes, sorry. continue. So for the year, just to let me give you a perspective. So for the year, this is close to about 40% of sales of this company, not 90%. Just to give you a bottom yet.

[Unknown Analyst]

So the OEs contributing 40% of sales.

[Sanjay Thapar, executive]

Largely, yes. Largely.

[Unknown Analyst]

Okay. And you're saying that this kind of scenario happens more like whenever the model is refreshed?

[Sanjay Thapar, executive]

Not just moderate challenge work that we can all the 3 models and they ramp up to use not just -- not with our part, but with other partners there to -- I mean Ultimately, there are customers who we need to live with it. But it is behind us. So we see October and November, October recovering, November is good. We see volumes growing in. So therefore, we are seeing that the margins will come back.

So in Q3, we don't 80% of what overall, we expected in terms of revenues. And by Q4, we will be at 100%. That's our expectation.

[Unknown Analyst]

Okay. So that's very reassuring. The second question, sir, is on the amortization. The increase in goodwill I see in the balance sheet is about INR 14 crores. So that is on the acquisition of INR 239 crores, sir. Is that the right understanding?

[Mahendra Naredi, executive]

Yes. That is part of INR 239 crores of acquisition. And when we acquired the net tangible book value of the Walter Pack was INR 42 crores. So the remaining amount is being assessed by an independent valuer who are expert into valuation of this topic. And they came out INR 85 crores, intangible in the form of customer relations and noncompete and that is going to be depleted over a period of time.

[Unknown Analyst]

So INR 85 crores -- INR 2 crores, roughly third quarter is around 100 at the core.

[Mahendra Naredi, executive]

So on API2 crores, INR 2.8 crores and on the PAT level, INR 2.1 crores.

[Unknown Analyst]

Understood, sir. Sir, the third question is on operating cash flows. I see a muted number due to increase in receivables. Is it your tooling as well for the quarter, for the stop?

[Mahendra Naredi, executive]

On the operating cash flow, this quarter is something that's confusing to everybody because Walter Pack is going to be added first time and all working capital is added first time in the tooling working capital. And so you are seeing a decline number. If I remove it, then we have a very good amount of numbers.

Yes. our receivable has gone up because of the higher sales and higher exports. But we are -- this is this quarter, especially for the Walter Pack for signed consolidation of branches.

[Operator]

Next question is from the line of Rajesh Kothari, Citigroup. [Operator Instructions] Due to no response, next question is from line of Meta from June.

[Unknown Analyst]

I will -- so I actually wanted to understand a bit about the context in which the Walter Pack acquisition was done. I'm not sure if you have explained this in your prior call, but would still like to understand, right, what was the sequence of events that led to the earlier promoter selling that company? And what was the process by which you acquired this? And as a correlate, perhaps you can tell us a bit about the management team of that company have been stayed on with you? And if so at what rules?

[Sanjay Thapar, executive]

Okay. So let me answer that. Yes, we've explained at length in previous calls of the rational acquisition of Walter Pack India. So I'll just repeat for your sake. So Walter Pack is going to be leaders in the in-mold formed business. So their main play is in the automotive interior business. They supply to all the Western European OEMs. They are headquartered in Spain, and they have expansion also ongoing in Mexico.

So -- and they have, of course, this plant in India. Now we, as a company, SJS, wanted -- we were predominantly a 2-wheeler focused company, close to 70% of our sales in FY '19 used to come from 2-wheelers and we wanted to democratize our sales mix and reduce dependence on 1 customer, 1 segment, 1 product line. So the Walter Pack product portfolio was very interesting for us because it gave us access to automotive interiors and the 2-wheeler business, which we were missing.

So thanks to this acquisition, our share of business for the 4-wheeler has increased to close to about 33% now, and the 2-wheeler business has come down to 37%. So we have achieved an objective of becoming a mainstream player for the 4-wheeler business, which we were missing.

Now to give you a larger context in terms of TAM, the global market for aesthetic parts, 68% comes from 4-wheelers and we were, let's say, a very small player because all that we had to offer for 4-wheelers were dials for cars. And recently, 2 years ago, we acquired a coating plastic printing company, Exotech. So that supplies about INR 1,100-odd parts or INR 1,100 crores to INR 1,500 parts in the content they supply to a year -- but with Waterpik, this value, we have added an incremental INR 3,000 to INR 4,000 at an average in a car because of this interior aesthetic part that Walter Pack does.

So these are form films, which are then injection-molded and you have a discrete component that adds to the aesthetics of the interior of the car. So that was the rationale for acquiring it. And why did Walter Pack Spain, because of this war in Europe post-COVID were challenges both in terms of energy costs and in terms of financing costs rising in Europe, and they were already committed to an expansion in Mexico. So to raise funds, they had no option, but to sell the Lantern Walter Pack India. We were keeping close depth on this company, and that's how we acquired it. So it was a good acquisition, we believe, which is force multiplier for SJS and lays the ground for us to cross-sell these parts to our range of customers.

Walter Pack, for example, does not supply to consumer appliances companies. Now with this technology, we are locking on the roles of the global consumer appliance companies, which are already long-time customer for SJS to grow our business and address this huge TAM that has opened up for us. So that will is what is the rationale for this action.

[Unknown Analyst]

So that if I may ask you a small follow-up, right? So the business that Walter Pack India does, right, so could you talk a bit about the clients that Walter Pack India has, right? And how are those clients managed? And the reason I'm asking that is because I would imagine that given Walter Pack is a European company, is it where these relationships managed globally?

[Sanjay Thapar, executive]

So let me just butt in here. So no. So Walter Pack had an employee that they took on in India, a gentleman called Roy Matthew. He has been with this company from day 1. Now for almost 13 years he's been with the company. He was instrumental in managing these relationships and growing the India business and Walter Pack. So Roy owns stake in the company, and he is now part of the SJS them. So this cash is about 5% of its equity, 10% or 9.9% of the equity sale of the company. So we owe company acquired management bad and ensured continuity by having grown at as a part of this team coming to customers of these companies were I said earlier, data order is a big customer for this company.

And so is Maruti Suzuki. So these are 2 large customers that we added our portfolio, and we are now a major interior supplier to these 2 companies. In addition to this, they have many other customers, but then -- yes. So largely, that is what the answer to your question is.

[Operator]

Nilesh, I'm sorry to try request you come back for a follow-up question. Next question is from the line of Ronak Mehta from JM Financial.

[Ronak Mehta, analyst]

I just have 1 question on the capacity utilization for SBA loan back end Walter Pack, and what is the CapEx plan for this year or next year or?

[Kannampadathil Joseph, executive]

Yes. Okay. In terms of capacity utilization for SKS, we are in the range of around 65% to 70% as of now. Whereas Exotech, we are close to 95%. As you know that we have almost tripled our sales in the last 3 years. So that is almost 100% -- close to 100% utilization of capacity in company. Of course, we also have some additional capacity for painted parts in Exotech.

And regarding the Walter Pack, so we have had some capital inclusion to the extent of close to about INR 20 crores. And with this new thing, new expansion, we would be still around, I think, about 65% to 70%, yes. 75% utilization.

[Ronak Mehta, analyst]

Okay. So what is the CapEx plan for FY '24, given that you are at about 70% given the strong order book you will look to add the capacity. So if you can just indicate some key pigments for next year?

[Mahendra Naredi, executive]

So Ronak, yes. So on the CapEx side, we estimate that this year we would be somewhere INR 40 crores to INR 50 crores. And out of this, we have acquired on land for Exotech expansion, which I communicated in our earlier calls, remaining, we now place more amount for Walter Pack for a big growth we are anticipating. License loss of INR 20 crores, we are pleasing for Walter Pack acquisition and Walter Pack expansion. As we -- so this year, we would be somewhere INR 40 crores, INR 50 crores.

Now we're talking about in next year, we will be in the same range, but like our plan for expansion for Exotech is going on. And we earlier thought now since we acquired the Walter Pack, we will make a frugal decision that how can we make a better investment considering the expansion -- further expansion of Walter Pack. So another CapEx of around INR 80 crores will come into the next year. Yes.

[Operator]

Next question is from the line of Tushar Kurana, a retail investor.

[Unknown Shareholder]

I just have 1 question. You did mention about the cover glass that you are discussing with the OEMs?

[Operator]

We can't hear your audio.

[Unknown Shareholder]

Can you hear me now?

[Operator]

Yes.

[Unknown Shareholder]

Yes. So I would request you to please talk more about the power class opportunity and how it can help us in increasing the cash value.

[Sanjay Thapar, executive]

Okay. So as you know, there's a trend towards premiumization, a lot of customers who buy cars do online research before they step into a showroom. And Mahindra, Mahindra was the game changer in this business with where they launched the digital compete with a very large cover glass. This was supplied by one of the key customers for SJS. And this customer we've been working with for the past more than 15 years. And we are today addressing RFQs for this cover glass for multiple models.

So this is an aesthetic part. This is glass, which is then printed, which is 4 SJS. We have more than 35 years of precision printing experience, and we have good trust by the customer. And then this requires some special coatings of anti-reflection, antiglare and the fingerprint depending on the model. So cars today use more and more of these clusters, which are electronic and digital. And most of these require a cover glass, which sits on top of the TMB screen that there is. So our scope of supply is the printed cover glass with all these coatings and these are very high-value parts. So an average tower class costs about INR 4,000, INR 5,000 for a product like 700 for smaller cars or smaller displays, it could be about INR 1,000 or INR 1,500 again depending on the size of the display.

But I firm believe that in the next 4 to 5 years, more than 50% of the cars in India are likely to have cover glass and a larger and signs will tend to be bigger and bigger. So with this addition, we will increase our TAM. It's a new category of product. And I think SJS is an early mover in this. We've been engaging with customers for more than 3 years, giving prototypes, marketing ourselves. So this opens up a great opportunity for us in terms of expanding growth at SJS.

[Unknown Shareholder]

And where is this correctly sourced from? This cover glass?

[Sanjay Thapar, executive]

Currently, the entire display is imported by these customers. They come out of countries like Japan. But the companies would like to localize in India, people after COVID understanding the virtues of a supply chain, which is grow. And especially since we have the credibility to the customer in terms of managing new technology products, they are very keen to develop with us.

So when they localize this in India, instead of buying, we complete display as a CBU or a completely built unit. They will do what is called CK assembly, they will buy parts separately. So the DFT screen could continue to be imported but the cover glass could be localized, and we will try that come with us. And then this assembly is done by the OEM by the Tier 1 supplier himself at their line.

So one of the key players in this business is Visteon. They've already invested 1.5 years before in the locating line, which is to assemble the display in India. So the intention of the customer is clear. And so that is a great opportunity for us to add this to our product portfolio and add close to about INR 4,000 as average kit price -- addition to our kit price of what products we offer to a car.

[Unknown Shareholder]

Okay. And if I may ask in one more question, please. If you could update on the Foxconn where you're going to be supplying the aesthetics to 2-wheeler GVs.

[Sanjay Thapar, executive]

On the Foxconn -- me the question, I could not hear so well. So what was it about Foxconn, you wanted to know?

[Unknown Shareholder]

So first, will be supplying the aesthetics that goes into the 2-wheeler EV very constraint. So I just want some update on that front?

[Sanjay Thapar, executive]

So we supply to them again, like car explained, in the dealer also, there are displays and companies are now localizing these 2-wheeler display also. So in this 2-wheeler displays, there is a cover glass that goes on to the 2-wheeler display also. So that is what Foxconn is developing with us for one of their customers and those products are under development as of now. And we started supplies of some pilot dots. And so this is on the production now.

[Operator]

[Operator Instructions] As there are no further questions, I will now hand the conference over to the management for closing comments.

[Devanshi Dhruva, executive]

Thank you, everyone, for joining us on this call. I hope we were able to answer all your questions. If you have any further questions, please feel free to reach out to us, and we'll answer to the best of our ability. Thank you, everyone.

[Operator]

Thank you very much. On behalf of JM Financial, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank

you.