Sona BLW Precision Forgings Ltd

NSE:SONACOMS

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day and welcome to Sona Comstar Q1 FY '24 Earnings Conference Call. [Operator Instructions].Some of the statements by the management team in today's conference call may be forward-looking in nature and we request you to refer to the disclaimer in the earnings presentation for further details. The management will not be taking any specific customer-related questions or confirm or deny any customer names or relationships due to confidentiality reasons. Please refrain from naming any customer in your question.Now I will hand over the floor to Mr. Kapil Singh, Head of Consumer and Digital Commerce Research India and Lead Auto analyst at Nomura. Kapil, please go ahead.

[Kapil Singh, analyst]

Good day, everyone. To take us through 1Q FY '24 results and to answer your questions, we have the entire senior management team of Sona Comstar. We have Mr. Vivek Vikram Singh, MD and Group CEO; Mr. Kiran Deshmukh, Group CTO; Mr. Sat Mohan Gupta, CEO, Motor Business; Mr. Vikram Verma, CEO, Driveline Business; Mr. Rohit Nanda, Group CFO; Mr. Amit Mishra, Head, Investor Relations; and Mr. Pratik Sachan, DGM, Corporate Strategy and Investor Relations.I will hand over the call to Mr. Vivek for his opening remarks, followed by the presentation. Over to you, Vivek.

[Vivek Singh, executive]

Thank you, Kapil, and welcome everyone to the earnings call of what has once again been a highest-ever quarterly EBITDA. But first, as is our practice, when talking to our shareholders we let bad news take the elevator, while good news takes the stairs.As highlighted in the last earnings call as well, the EV 2-wheeler industry continues to face issues around FAME-II subsidy reduction and the related fallout on pricing and demand. This has meant an almost INR 25 crore negative impact on our sales this quarter from what would have been. We estimate that for the full year we should see INR 100 crore to INR 120 crore negative impact on the budgeted revenue from this category.However, having said that, we still expect traction motors to be our fastest-growing product segment, because this will happen on the back of new programs and new customer additions. EV 2-wheeler motors have relatively lower margins than our other products. So the corresponding impact on EBITDA and profit should be small.Now I come to the good news part of it, which far outweighs the bad. In financial terms, we achieved our highest-ever EBITDA in Q1 FY '24. This is despite marginally lower sequential revenue. We've also begun FY '24 with some meaningful new wins in both motor and driveline businesses. That give us the confidence that we are moving swiftly on our long-term strategy. 3 of the new programs won, also mark our entry into 3 distinct new market segments that we had not been addressing before. We have additionally made substantial progress on our technology roadmap by partnering with the road-tested technology partner in Equipmake and this is to enter the high-voltage motor and inverter space.The macro view of the markets we serve also remains positive, with light vehicle sales in both U.S. and Europe growing by double-digits on a year-on-year basis in Q1. Growth continues to look robust in most of our markets. The Indian market also did well in passenger cars and was, I would say, flattish in CV and off-highway. So overall continues to look positive.Now coming to the numbers on a year-on-year basis, our revenue grew by 24% while EBITDA and net profit increased by 43% and 48%, respectively. This happened because the margins have improved due to product mix as well as operating leverage. Battery electric vehicle revenue grew by 13% and the BEV revenue share was at 36%. Both these metrics should have been higher, if not for the subsidy reduction impact on the EV 2-wheeler segment, which we believe should ease out going into the next few quarters.Now we move to an update on our biggest strategic priority, which is electrification. Our BEV revenue continues to grow and we continue to build on our EV order book. In Q1, 3 programs have gone into production, 2 in the motor business and 1 in driveline and this takes the number of programs which are active to 23. We have also added 4 new EV programs and one new EV customer to the order book in the last quarter. One program is for EV differential gears for a North American customer and the remaining 3 program wins are substantial enough that we would like to elaborate upon them in the next slide.We wanted to emphasize these wins as they are meaningful for the future of both businesses, financially as well as directionally. The first one is a differential assembly program for the Class 5 electric truck for a new North American customer. This customer is a new-age OEM of commercial vehicles. Last quarter, if you recall, we had won our first-ever order for commercial vehicle differential assemblies and by following up on that with the second order and that too with a new customer, we can see that the electric truck market, especially in North America is becoming a meaningful addition to our future revenue.The second one is the large volume traction motor program that we have won from an established Indian 2-wheeler OEM, who is an existing customer. This program is for their upcoming electric scooter model, which is expected to target the more, let's say, affordable market segment. This program is slated to become serial production in this financial year itself. And your repeat business win from the same customer are always special because if you win a business again for a new model that a customer is introducing, it proves our merit of being the first choice supplier or the first supplier, and it shows the faith the customer has in the quality and delivery of our product.The third new EV program win is an interesting one once again. It's a mid-drive traction motor, as well as the motor controller for this and this is for electric tractor application. Like the second program, this too comes from an existing customer, where we currently supply motors for their electric 3-wheelers. And apart from the obvious show of faith, this win is also important, as it is a first traction motor to order for tractors and this goes to show our journey and the progress we are making on it.So 2 quarters ago, if you remember, in Q3 of last year, we had presented to all of you this slide on what is our approach to electrification and how we intend to cover both passenger as well as commercial vehicle applications and all the segments of that. It gives us great pride in reporting that only in 6 months, we have secured new orders, that enable us to address almost all the market segments in the driveline business, only 1 remains, 40 to 100 kilowatt in commercial. In the motor business, we continue our steady journey moving up on both the capability access of power as well as voltage.When we did our first earnings call nearly 2 years ago, our driveline business used to cater only to passenger vehicles in the electric vehicle space. Our motor business on the other hand had barely begun in EV, and we had a couple of EV programs contributing literally next to 0 revenue. The progress we've made in only 2 years is quite remarkable, I mean, sometimes even to ourselves. And I think this is -- this mindset and approach, one of continual addition of new products and new market segments has been and will remain the reason we grow much faster than our industry.This slide I think is a good visual summary of this section and it shows the reach and diversity of our electrification mission. This quarter, as you can see, we added 1 new customer in North America while adding 2 programs each in North America and India. This brings us to our net order book, with the addition of INR 13 billion worth of new orders last quarter at the end of Q1 FY '24, net order book had expanded to INR 220 billion. 2 interesting things; the EV portion of this has now reached 78% and if you notice the other side of it, which non-EV, in that, passenger vehicle is only 6%. So if we do believe that commercial vehicles and off-highway are less -- are going to electrify, let's say, later, the business at risk is very, very low for us in the order book.And of course, in addition to the 4 new EV programs that we discussed, we have also added 10 new programs for non-EV applications, out of which we would like to highlight 1 new win, although it is non-EV. So we wanted to emphasize this well as it is our first differential assembly program for recreational off-highway vehicles. This order is from a new global customer and apart from signaling entry into yet another new market, it is quite material from a revenue perspective as well. But most importantly, from a strategic perspective, this category of vehicles in our humble and limited opinion, would be the least and last to be affected by electrification, which makes it a very good business development target for our starter motor business as well, and that's what we would hope that we would like to target this for that segment and try to get more traction here.Our fourth gear is diversification and on this slide, you can see that the trend of increasing electrification and decreasing ICE dependence continues unhindered. And in the last 2 years, we've seen the ICE-dependent revenue shrink to only about 11%. Geographically, the revenue mix is largely similar to the last financial year. North America remained steady at 43% of our revenue in Q1, which is quite robust growth because we have increased by 24% and to maintain that in such a large market means it's a very good time for North America.Second, after dropping to nearly 11% revenue share in Q1 last year, the European market has also recovered quite strongly and it has come back to 23% of our revenue, which suggests a return to, I would say, normal demand.Coming to product mix or vehicle segment mix, the most glaring changes, the reduction in revenue share from traction motors for electric 2-wheeler and 3-wheeler segment, and this is due to the reasons I've already covered earlier. The other change would be the exceptional growth in the differential gears business this quarter and the lack of the similar rate of growth or relative growth in conventional starter business.Having said this, we expect the traction motor business to gain relative revenue share this year and be the fastest-growing product segment for us, as there are several new programs that have either already begun or will begin in the next few months.So with that, I turn to our Group CTO, Mr. Deshmukh to update us on technology. Over to you, sir.

[Kiran Deshmukh, executive]

Thank you, Vivek. Good evening, ladies and gentlemen. This is our technology roadmap that we share with you every quarter. This quarter, I would like to highlight some important products, which are about to move from the white area to the blue zone, which is high voltage traction motors and matching liquid cooled inverters.We expect to commercialize these products in year 2025, thanks to our recently concluded partnership agreement with Equipmake of the U.K. Equipmake's next-generation electric motors differ from the conventional permanent magnet machines, due to their unique and patented spoke architecture. Here the magnets are arranged like the spokes of a wheel, allowing the best use of the magnetic flux and achieving the highest torque density.You need to use the most powerful magnets to get the most power-dense electric motor, but those magnets don't like getting very hot, so they must be kept cool. With the spoke architecture, we can have the cooling liquid very close to the base of the magnets, which is impossible in the conventional, internal magnetic machines. As a result of which, we can get very highly effective heat extraction. This efficient cooling system means we can run spoke motor harder and for longer. These motors are around half the size and about 18% of the mass of the equivalent conventional interior permanent magnet motors. They are among the best in the world in power density.Equipmake's very high torque, high power motors, high power density motors meet the needs of a growing electric bus and commercial vehicle market. The technology has been tested, proven and Equipmake has delivered these motors to several customers worldwide. Our agreement with Equipmake covers the EV drivetrains consisting of the inverters and the motors in the 100-kilowatt and 440-kilowatt, 100 to 440 kilowatt range for electric passenger cars, buses, commercial vehicles, and off-highway vehicles, including tractors.We will have the exclusive rights to sell Equipmake's motors and inverters in the licensed territory, which is India, Thailand, and select South Asian markets. We will manufacture these products in India and supply them obviously to our customers in licensed territory, but also to Equipmake's other markets. In other words, our partnership with Equipmake will help us add high-voltage traction motors and inverters to our product offerings.With that, I hand over to Rohit to cover the financial update.

[Rohit Nanda, executive]

A very good day to you all. It's my pleasure to share the key highlights of our first quarter numbers. Our revenue during the quarter grew by 24% to INR 732 crore. Our BEV revenue grew by 13% to INR 184 crores and as Vivek has already mentioned, it was affected adversely by a loss of sales in India, the electric 2-wheeler, 3-wheeler market due to reduction in FAME-II subsidy. Non-BEV revenue grew by a robust 28% to INR 548 crore, a growth of nearly 2 times the underlying growth in our key markets of North America, Europe and India.During the quarter, our EBITDA grew by 43% to the highest ever number of INR 203 crores. There was a recovery of about 3.6% in EBITDA margin to 27.8%, primarily due to better product mix and operating leverage. Our PAT grew by 48% to INR 112 crores, reflecting the improvement in our EBITDA margin. PAT adjusted for exceptional expense on account of ongoing acquisition-related diligence work grew by 51% to INR 114 crores.Next one, please. Coming on to the key ratios which is the last slide in the presentation. Our value addition to employee cost was stable at 6.4 times this quarter. Our return ratios of capital employed and return on equity continue to be strong with some improvements. ROCE was at 31.4% and ROE was 27.1% due to higher year-on-year growth in the profits.Our net debt to EBITDA continues to be below 0, as net debt number is negative. Working capital turnover ratio has further improved to 4.4 times, due to higher last 12-month revenue, and fixed asset turnover ratio was slightly lower at 3.8 times, primarily due to new capitalization done during the quarter.With this, we have come to the end of the presentation and I will now hand the proceedings back to the Nomura team for Q&A.

[Operator]

[Operator Instructions] We will start off with Mr. Gunjan. One second. Your line is unmute. Mr. Gunjan, please go ahead. Mr. Gunjan Prithyani, are you able to speak up? Okay. So if you can't speak up, just submit your question in the chat box.We will now go to the second participant, Mr. Jinesh Gandhi. Please go ahead with your 2 questions.

[Jinesh Gandhi, analyst]

A couple of questions from my side. One is, can you talk about drivers of gross margin improvement in 1Q? We have seen a very sharp improvement in gross margin. So, is it just the product mix or there are also additional benefits of commodity, which came in? And similarly, other expenses have gone up quite substantially on Q-o-Q basis. So if you can clarify on these 2 P&L items? And then I have 1 more question on the business.

[Vivek Singh, executive]

So, Jinesh, on the margin improvement side, there is no commodity benefit, which is there in this quarter. So, it's purely on account of improvement in the product mix and operating leverage. Sorry, what was your second question?

[Jinesh Gandhi, analyst]

Other expenses have gone up on Q-o-Q basis. So any one-offs there?

[Vivek Singh, executive]

No, there won't be one-offs actually. Other expenses will also have manufacturing expenses which is also a function of change in the mix. There are no exceptional expenses in this quarter. I mean, except for what is separately disclosed as exceptional expense which is a small [indiscernible].

[Rohit Nanda, executive]

Just to help Jinesh understand, in the driveline business, raw material expenses are relatively low, but manufacturing expenses are much higher because we -- there we start from steel and build everything in-house. In the motor business, raw material expenses are higher because there are also lot of bought-out items in it's assembly. The manufacturing expenses are relatively lower. So as the product mix shifts between motor and driveline, these numbers change, but there is nothing exceptional.

[Jinesh Gandhi, analyst]

Right. Okay. Second question pertains to the order book which we have, and as the revenue ramp up over next 2 to 3 years, as this order book comes into P&L. What are the factors you're looking from margin perspective in terms of push and pull, given that we are already at about 27.5%, 28% margin? How do you see margin evolution based on the order book coming into P&L over next 2 to 3 years?

[Vivek Singh, executive]

So Jinesh, the answer is the same as it has always been. I mean, this is our ninth earnings call and I think we've answered it 9 times. We expect our margins to remain in the range of 25% to 27% over the medium term and it shouldn't change that much. And if we look at every year, yes, there could be quarters where it could go very out of this range, but it -- on an annual basis, it always remains in that and that is what we have seen for the last, I would say, 15 years. And that's where we expect it to remain also even going forward.

[Operator]

Let's go back to Ms. Gunjan Prithyani.

[Gunjan Prithyani, analyst]

Okay, sorry about earlier. I don't know what happened really. Really impressive wins this quarter. Good to see the way the portfolio is expanding. I just wanted to get a bit more color on this Equipmake because this is absolutely new product category. What I really want to understand is, what is this arrangement, particularly, is it, we going to be manufacturing for them in India? Is it sort of outsourcing? And the business development that you sort of referred to in the release, that business development, how big is the opportunity size, because if I think about it, e-buses is something which is already seeing huge traction? So is that something that we can cater to or is my understanding correct on that front? So maybe little bit cover that, because I haven't heard much about it in terms of the arrangement as well as the economics.

[Vivek Singh, executive]

Sure. So, Gunjan, as usual, you are more right than wrong. You are very close to the [ thing ]. India and Southeast Asia, Thailand, these countries and as you know, India is the second largest bus market in the world. This is where Sona Comstar takes the lead. And that's the business development, selling et cetera and Equipmake is paid a royalty, which is say X percent of gross margin. When Equipmake does marketing in Europe, U.S., U.K., and wins an order, that's where Sona Comstar's role will be to manufacture those motors for them.There were 2 motor categories that were presented. One is very suitable for buses and that's where if you saw the power density is almost twice the competing motors, that is for the bus category. The other one, which is more, I would say, suitable for cars, it is quite good and compares with the best, but it isn't so much relative outperformance. So I would say bus is where the primary focus is. If we get any other applications, of course, great, but that's the focus market.Mr. Deshmukh sir, if you can add anything more on the arrangement, it will be nice.

[Kiran Deshmukh, executive]

You are right. The arrangement is exactly what Vivek mentioned, is that we will have the manufacturing facility in India. And since our market, India and the Southeast Asia is the largest, which is the licensed territory, so whatever we make here will be to serve that market, but Equipmake gets any business from outside this territory, which is Europe, U.K., U.S., et cetera, then we will be -- it will be like subcontracting. So they will use our facilities. Our facilities will be mainly setup for our market, which is India and Thailand and Southeast Asia. So that's the arrangement.

[Sat Mohan Gupta, executive]

And just to add to Vivek's and Mr. Deshmukh comments, the APM 200 will also be a very good product for the LCV segment in India because that would be catering between 80 kilowatts to 150 kilowatt. And it's a very, very light and it's a very efficient motor design. So LCV is the segment where we can use in APM 200.

[Vivek Singh, executive]

Correct. My bad, Sat. I forgot that one. Actually electric CV market, which if you saw that strategic approach is the right next to where we [ restart ]. We generally believe that is a market that should electrify very fast and should electrify completely in India. And it's the large LCV players, they seem to be very serious also. I think there is a good scope for that motor to succeed; because compared to the competition that is there in that segment, this motor will perform quite well. And power density upon dollar is what we have to deliver to customers, and that's our objective.

[Gunjan Prithyani, analyst]

Anything you can put in terms of the opportunity size? I mean, target I get is small commercial vehicles, e-buses in India. But if I have to think about the opportunity size in terms of what is really -- how much -- let me put it, what is the cost of broad range if you can share? And the e-buses that we see from HTU orders, is that something which is also the relevant target market?

[Vivek Singh, executive]

Yes. So the answer -- in a more prosaic sense is this that, if you take the bus market and the LCV market, how much of that will electrify, that's a call you can take and then make that assumption. But the entire electric CV market, entire electric bus market and frankly even the tractor market.Now, what percentage will electrify, let's say, by 2030, 2035 that we leave to you. We don't do that analysis. As you know and I think I explained to you before, if we think the market is large enough and if we think we have a product that puts us in the best 3 or 4 in the world, we go for that market because if you read Clayton Christensen's Innovator's Dilemma, large companies often fail to address new and emerging markets, when they rely too much on TAM and what is the market size. We try not to fall in that trap. Whenever we think the market opportunity is big enough for our scale and it's interesting enough to do and we have the right product, we tend to go for it. Assumptions on electrification is the only thing that would vary amongst different people who try to size this market, but it is significant, because even if you take 100 buses, right, and you calculate the motor inverter cost, it is actually a decent enough number for us to stake our claim there.

[Gunjan Prithyani, analyst]

Okay, got it. I mean, I was trying to understand the value opportunity, but maybe I'll maybe take it later. Just extending this forward on the traction motor, clearly this is now, like you called out, it will be a big growth area. It goes beyond the 2-wheelers and 3-wheelers. So if I have to think about the contribution that can come through -- from this sub-segment, is that something that you can call out how big can this become in next like 3 years or so in terms of the contribution to the revenue?

[Vivek Singh, executive]

Not really, no. So that -- I'll be completely honest, we don't know. We know it will be higher than what it is today and that is good enough for us to continue. How fast depends on so many factors, including government policy, government support, et cetera that we don't want to get into that bit. It's meaningful, and it's a high growth rate and that's good enough for us to proceed.

[Gunjan Prithyani, analyst]

Okay. Just last question on the differential assembly. How does the cost or the value differ from a PV differential assembly to a CV or truck differential assembly that you've been winning for last 2 quarters?

[Vivek Singh, executive]

By a lot.

[Gunjan Prithyani, analyst]

Any number?

[Vivek Singh, executive]

It differs from customer to customer, Class III, Class IV, Class V, Class VIII. I mean, it's -- I can't really give it that straight an answer. But it is many times -- I think we gave the range last time, that here we are talking about from $150 to $750 per vehicle. So $150 for the lower class trucks and $750 for the higher, I would say, Class V, Class VI. So, yes it's much higher than that.

[Operator]

Thank you very much. Just a reminder to all participants, please keep your question to 2 maximum. If you have any further questions, you can join back the queue.We'll now go to Rishi Vora. Your line is unmute.

[Rishi Vora, analyst]

I think that acquisition has been delayed. So when should we expect that acquisition to go through and also if you could give some business update about NOVELIC as well, how it has done over the last one, 2 quarters?

[Vivek Singh, executive]

Hi. Rishi. I supposes you were asking about the NOVELIC transaction. I'll let Rohit answer this one.

[Rohit Nanda, executive]

So Rishi, it is indeed delayed. We are expecting to close this next month. That's the answer to your question. And the second is, performance of NOVELIC, is that the second question? So, I would say, this year it's been largely in line with the plan that they had shared with us initially, but for us, I mean, the real performance will start kicking in when we start consolidating and that's after closure on the transaction as you know.

[Rishi Vora, analyst]

Right. Thanks for that. And just a follow-up on Equipmake. Are we -- like when should we start expecting the company to manufacture this product? Because Equipmake is already going to supply [ as 1 order ]. So when should we expect the manufacturing to start off the products and have you also started discussing with the domestic OEMs? So, any color on the product feedback or whatever you could share at this point in time would be helpful.

[Vivek Singh, executive]

Thank you, Rishi. So I will invite Sat to shed more light on that.

[Sat Mohan Gupta, executive]

So, Rishi, I mean, from the production point of view, we are targeting 2025 to start our commercial production. We are validating these products. These are already used products in the U.K. and other territories. So we are working on to do the validation of these products and the technologies to suit the Indian conditions and the roads. So we are targeting to complete that by this year and we will start working with OEMs post those validations. So our plan is to launch sometime in 2025.

[Rishi Vora, analyst]

Understood. And just last bit on Equipmake. How should we look at the margins of this product vis-a-vis our business margins, as we will be paying a royalty, some part will also be more like, we will just be supplying motors to -- traction motors to Equipmake? Will it be lower than the business margins, or like any sense around that?

[Vivek Singh, executive]

Well, it will be lower than 27% for sure. How much lower, even we will find out once we start doing it. Yes, there will be a royalty element. There will -- also in the pace that we will be doing manufacturing and then some margin will be taken by Equipmake for doing the marketing et cetera, there obviously will be lower. So, yeah, expect it to be lower. How much lower, again, we don't know today.

[Operator]

We go on to the next participant, Basudeb Banerjee.

[Basudeb Banerjee, analyst]

Yes, couple of questions. One is with respect to the last year, those tie-ups with C-Motive and IRP Nexus, Israel, those news came out. So, any update on those tieups, products when they are getting commercialized or business coming from those 2 tie-ups? That's the first question, sir.

[Vivek Singh, executive]

So Basudeb, I will answer that. And I think we've mentioned it very clearly even in the earnings call at that time. Those were product development partnerships and if you were to look at the transcript, I think I had written that -- somebody asked what is the probability of success and I had said between 0 and 100 which is what it remains. See, Equipmake is a commercial partnership for a proven product. Those 3 were to develop products when they do get developed and product development is a thing that one can't predict day 1 that this will happen. And then it will happen at a cost that we can sell it out and then the third, which is how many will we sell. I think that's too early when -- if any of those do get developed into commercially viable products, we will certainly inform you all.

[Basudeb Banerjee, analyst]

Sure. Second thing, sir, any update on PLI-related inventory et cetera?

[Vivek Singh, executive]

So, we are moving on that application. It has been -- and I'll choose my words very carefully, it has been a slow process. It isn't as simple as it appears. I think for the last year, from what we know from people in ACMA et cetera, no auto component company has been approved. So we are working on our application. And, yeah, we will let you know when we know more. I mean, even I feel bad -- I wish I knew more. We don't.

[Basudeb Banerjee, analyst]

Sure. And last if I can chip in, like in the initial comments you said around INR 130 crore revenue missed because of the FAME subsidy reduction, am I right, sir?

[Vivek Singh, executive]

INR 100 crore to INR 120 crore is our estimate. See, this quarter, we lost about INR 25 crores from what we had budgeted from our electric traction motor customers. So, we did an analysis of what we think will be the whole year impact and INR 100 crore is the best case according to us and INR 120 crore is the worst case. So, that's what we are seeing.

[Basudeb Banerjee, analyst]

And the analysis was based on June retails or more holistic picture? Because in July despite that reduction in subsidy retails have started to improve?

[Vivek Singh, executive]

Yes. So I mean, if [Technical Difficulty] first week of June, it would be far worse. So no, slightly more [indiscernible] after the first 15 days of July. Basudeb, I get what you're saying. We could be positively surprised, but this is what it looked like on 15, 16 July, and that's where we kept it. Let's see what happens.

[Basudeb Banerjee, analyst]

Sure.

[Operator]

We go to the next participant, Sonal Gupta. Your line is unmute. Please go ahead. Hi, Sonal, your line is unmute. Are you able to speak up. Yeah, I think we can't hear you. Would you like to submit your question in the Q&A chat box, please?

[Vivek Singh, executive]

Is it the problem at our end that, I mean, 3 or 4 people, I think, they are not being able to speak. Hi, Sonal, is that you?

[Sonal Gupta, analyst]

Yes, hi. Sorry, I hope I am clear now?

[Vivek Singh, executive]

Yes, you are.

[Sonal Gupta, analyst]

Okay, great. Just a couple of questions. One, I mean, on the conventional motor side, right, both the mild hybrid as well as the conventional electric starter motors, we are seeing a very -- lot of quarterly volatility, so just trying to understand what is happening there. Is it because of customer production issues or what is driving this quarterly volatility?

[Vivek Singh, executive]

Sorry, I didn't get that.

[Sonal Gupta, analyst]

Sorry. I'll repeat it again. I don't know if you -- so just on the conventional motors, I was just trying to understand, there's a lot of quarterly volatility in terms of the revenues. So just trying to understand what is the reason for that and how do you see this segment, is this more like a flattish segment or what's happening there?

[Vivek Singh, executive]

So I'll let Sat answer it, but, I mean, look, if you were to look at the long-term, starter motors as a product would decline to 0, right. Now is that date in 2032, 2033 or is it 2038, we don't know yet. So we prepare for the worst-case scenario. Only starter motors for, I would say, off-highway and maybe some segment of commercial vehicles might survive. Commercial vehicles, we are not there, off-highway we want to get into, but not in the tractor segment, in more construction equipment or recreational vehicle segment. We'll see that.But long term it's going to decline. In the short term, yes, there has been volatility because this business has been focused mostly on North America and Europe, right, very few, little bit sales we do in India. And, yes, last 5 or 6 quarters because of supply chain risk, the Russia-Ukraine situation, there has been a lot of fluctuation in those 2 markets. Apart from that, nothing exceptional has actually happened. And if you look at absolute revenue from 3 years ago to now, you -- it might not actually be very different. So it is a long-term downward trending product. It hasn't shown up yet, but it will at some point.

[Sonal Gupta, analyst]

Got it. So no, I understand there's a lot of shift like in Europe, more than 20% BEVs are there, so -- now. So just trying -- I mean, so are we actively seeking new business in these areas or we are sort of completely focusing on the traction motor for EV side?

[Vivek Singh, executive]

I'd say both, Sonal. So while it is a market that eventually is going to decline and traction motors is the future. If one looks at it, in 3 years out, traction motors will be a larger business for us than starter motors, on revenue. There is still focus on point to point niches, in which starter motors will remain. It is very little focus on trying to maximize within segments we know we are not going to be in. So I think I mentioned that recreational vehicle category. Similar categories if we find, we will keep trying to make that investment last as long as possible for us.

[Sonal Gupta, analyst]

Got it. And just my second question was on the order book size, on the new order wins that we are giving. I mean, like how do you -- is this based on customer projections of volumes or how does this work, I mean, like how do you estimate that? I mean because -- why I'm asking is that you are signing up these new age OEMs, who do not have a very long history, right, so...

[Vivek Singh, executive]

Always tricky. Always tricky when you deal with customers who you don't have a history of their forecast accuracy. So let's start to answer it more, because we dealt with -- from my side, I think just by being very conservative, that's just the safest way to do this. But Sat, you can add.

[Sat Mohan Gupta, executive]

Yes, generally, I mean, it's based on what the customer has projected or based on the pricing agreed with the customers, but we take a little bit conservative view when we put it in our order book. But the data we get is from the customer and on which base we have taken the pricing.

[Operator]

We will go now to Hitesh Goel.

[Hitesh Goel, analyst]

So my question first is on the Europe part. Can you give us some sense on the BEV parts, BEV revenue. Actually how much is Europe in this right now, because there is -- you have said that one customer program has ramped up and 6 is yet to come through. So I just wanted to get the Europe revenue out of the -- in the BEV revenues?

[Vivek Singh, executive]

Hi, Hitesh. This will require some work. I mean, I don't think we have that ready because we don't segment it internally also with that many cuts. I mean, when we do it even internally, we have the geography and then divide it by categories. So India PV, India off-highway, India CV, Europe PV, CV, off-highway, this is how we do it. We don't sub-segment into battery electric or not. So we'll have to kind of get back to you on this one.

[Hitesh Goel, analyst]

No, problem. No, because I was asking because it's an important part from ramp up phase for the electric programs, right, Europe? So I was just trying to...

[Vivek Singh, executive]

So there is a program that has started and that has picked up quite well actually. But I wouldn't know the exact percentage.

[Hitesh Goel, analyst]

Okay. And my second question is on the BEV. Can you give us what is the e-motor revenue out of that? Just to get a sense that how will that...

[Vivek Singh, executive]

Yes. That we gave, 2.5% was this quarter. Last quarter it was 4%. So that if you go to product mix, Pratik? Yes. So in this, we give this one -- yes, that's right. So you can see, traction motors, 2.5%. This used to be 4%. Traction motors is all BEV only.

[Operator]

We will go to Chirag. Chirag, your line is unmute.

[Chirag Shah, analyst]

Sir, quickly 2 questions. One, can you indicate something on your cross-selling opportunities that you are looking at, given that the product book had now very well binded? So can you talk a little bit about it? And secondly, coming back to Equipmake, what was the driver of this arrangement? What is the product gap that you were looking at in your portfolio, or something else and how should we look at the further product opportunities?

[Vivek Singh, executive]

Sure. So the second one, I'll take up first and then Mr. Deshmukh can add on it. It was a product/capability gap, because if you look at the bus market, not only is the power much higher, it is also the voltage is also much higher up the system. As you know, we have been progressing quite well organically on our own path, but to get there, it would have taken a fair bit of time and we would have missed the first wave. If you miss the first wave, you only come in the second wave as a second supplier. Second suppliers traditionally compete only on cost, right? You have to be better at cost. So this, we didn't want to take that role. Hence, to accelerate that we -- that is the biggest driver, but I'll let Sat and Mr. Deshmukh add to that.

[Kiran Deshmukh, executive]

One, of course, is that electrification. We have seen that it's happened first in 2-wheelers, 3-wheelers and next electrification is going to happen in buses and commercial vehicles. So that market segment is quite clearly -- needs to be addressed. And we didn't have the technology for these high-voltage applications. And as Vivek just now mentioned, to get there internally would take time and we may miss the bus, right? So that's why we were looking at partners who could offer products in that market.With Equipmake, 2 distinct advantages. One is that this particular patented design, which is spoke design makes these motors extremely compact. So as you've seen, especially for the bus application, they are almost 2 times in terms of power density. So much compact and much less weight, so easy to package. And so, therefore, that is a unique thing that we are in a position to offer with these motors.Second is, of course, as earlier mentioned is the high voltage and bus application. These motors have been used. They are proven, they have been running for several years now in U.K., in London. So there is a proof of pudding. It's a product which is already proven. So these were the 2 things which drove us to get to have this partnership with Equipmake.Sat, maybe you want to add something?

[Sat Mohan Gupta, executive]

No sir, I think you have covered pretty well, sir. Thanks.

[Vivek Singh, executive]

What was the first question that Chirag had asked? Chirag, you'll have to help us out here.

[Chirag Shah, analyst]

Hello, am I audible?

[Vivek Singh, executive]

Yes.

[Chirag Shah, analyst]

Yes. Sorry, for this. The first question was about cross-sell opportunities. You have been looking at that since last two, 3 years, and now that the basket has been widened for you, the product basket and hopefully you add more on that, so are there increasing interactions and acceptance, and are you able to leverage your -- this -- because when we look at your revenue growth, we are -- given the strong growth that we're seeing, you have been seeing even in the past. As an outsider, I am not able to figure out whether the growth is driven by single product businesses or more of a cross-sell driven businesses. So where are we in that journey? And just before you answer that, just a clarification on the earlier question. Are you looking at acquiring Equipmake kind of businesses if you get the opportunity or you are happy with this kind of arrangement? You don't want to go for acquisitions? Just a clarification on that.

[Vivek Singh, executive]

Sure. So I'll answer the first one. I mean, cross-sell, I don't know if it's a word in our business. Every product has to win on its own merit, it doesn't matter. This is one company, so there is no -- I mean, I'm not sure what that means. Are there places where we supply motor products as well as driveline products to the same vehicle? Yes, there are actually quite a few of those already, but it doesn't actually matter, because when you are speaking to the team of one product who has to select one product or one engineering team, they only care about that. It isn't like -- see, this would work if you're selling something which is a commodity product or a commodity service, in which what you're trying to piggyback is on a relationship, that I have a relationship and let me sell more.What we do is highly engineered and customized products, which stand on their own merit and there isn't -- like if I'm going to discuss, let's say, a final drive differential assembly with a customer, they are not going to discuss the traction motor with me in that meeting. So with the same customer, do we have it? Yes. But both teams have independence and both teams do their own selling. Growth has been good because of that. Because relationship-dependent growth will always have a finite shelf life. If your product is better and it offers better economic value, it should be selective and it should win on its own merit, that's the way we run our business.On the second one, on Equipmake on acquisitions in general, yes, we would also -- I mean, we would be open to acquisitions in general. However, if the acquisition threshold for a company to qualify on is a far more stringent threshold than a collaboration, because not just the company has to be very good technically for us to have a collaboration. For us to actually acquire it, it has to be not just good technically, it has to be also amazing commercially, which means it can deliver growth while delivering very high returns. That's not usual. And we want both. We don't want just 1 of 2, which is why we are fairly, I'd say, selective in our acquisitions. I don't know if that answered, but that's to understand and share how we think about this.

[Chirag Shah, analyst]

No, no, it fairly answers -- it very well answers it.

[Operator]

We'll now go next to the next participant. [indiscernible]

[Unknown Analyst]

I just wanted to ask about the 2 new products or 3 new products, which we have added to your basket, right, the liquid cooled inverter, high voltage inverter, maybe you could just talk a bit about the size of opportunities/applications in which they would be implemented?

[Vivek Singh, executive]

So, Prateek, those products are the result of the Equipmake partnership.

[Unknown Analyst]

Okay.

[Vivek Singh, executive]

Yes, this is what we are getting from this partnership is the IP and the technological capability to build.

[Operator]

We will now go to the next participant, Sid Bera.

[Siddhartha Bera, analyst]

Sir, my first question is basically on this power source neutral segment. If you see in terms of share and even in terms of absolute revenues, I think it has grown quite well. I would assume predominantly maybe because of the gear export business. So can you just help us understand about what is happening here? How much -- any order book or how much growth or which customers are driving this?

[Vivek Singh, executive]

It's a good question, Siddharth, as usual. It is driven by North American customers in general, and you're right, it's a differential gear segment in North American customers. I've been driving this more than any other geography. But it is literally everyone in North America. If we look at -- yes, everyone. It's quite well spread, but it is North American passenger vehicle segment, that's driving this growth.

[Siddhartha Bera, analyst]

Okay. Any particular, I mean, market share -- would you have an analysis about how much would you have in that region and based on the orders, I mean, how should we expect that it can go up? Just to understand the growth potential.

[Vivek Singh, executive]

The last we looked at it was in calendar year '22, and I think if you looked at it, because see we do this once a year, right, this market share analysis that we [indiscernible] to carry out for us. In '22, I think of North American market, we were early double digits as market share. I think there is a lot of room to grow there, a lot. So, yeah, that is one of -- I would say, one of the tailwinds that we anticipate. In the next 2 to 3 years, it should grow quite strongly.

[Siddhartha Bera, analyst]

Okay, got it. And the value of these products can range between what numbers? Like you have said per [indiscernible] can you just guide us about this product how -- what is the value generally it ranges between?

[Vivek Singh, executive]

So Siddharth, differential gear pricing is so -- it depends so much on the size and the vehicle category and the torque that it has to deliver. I think once I mentioned that the lowest price gear we ever made is INR 45 and the highest at INR 4,500. So that's why I think Gunjan also asked me what is the value -- the thing is that the values are very divergent depending on what size of vehicle? Because if you take a 800 CC small commercial vehicle and you take a 18-wheel truck, it will be very different. That's why it's very hard. I can give you average, but their average will hide more than it will show. But value in North America in general is higher, Siddhartha, because it tends towards bigger SUVs and pickup trucks et cetera. Larger the vehicle and the larger the weight of the vehicle and higher the acceleration, the higher would be the torque and hence the higher the value of the differential system.

[Operator]

Thank you. We'll now go to the next participant, Garvit Goyal.

[Garvit Goyal, analyst]

Congratulations for good set of numbers. Sir, my question -- lot of questions have been already answered, but the thing is, you mentioned that several programs that enter in -- likely to enter into production in next few months. And in your press release also, few programs likely to commence from quarter 4 '24 onwards. So, sir, what percentage of order book is likely to be executed in the next 3 to 4 years, sir?

[Vivek Singh, executive]

Tough one. Again, I don't think we analyze these things that way, but I would say the order book is always heavier to the front and in the middle, than the back. So if I were to take to the first -- let's say, 5 years, which is what you actually wrote in the Q&A chat box, how much of it will come in the next 5 years, I would say -- and Pratik and Amit help me out here. I'd say 65%, 2/3, 1/3? First half 2/3, second half 1/3?

[Pratik Sachan, executive]

First half is close to 60%

[Vivek Singh, executive]

Okay. I wasn't that off, right. And Pratik is the man who has all the excel sheet and all the data, so he knows [indiscernible].

[Operator]

Thank you very much. We'll go now to Dhaval Shah. Dhaval, your line is unmute.

[Dhaval Shah, analyst]

Yes, just one very small question. The PCB assembly project which you have announced, so was this outsourced before or is it more of a backward integration strategy for us?

[Vivek Singh, executive]

It was outsourced, also because we didn't have enough production of motor controllers. As one motor controller production increases, we want to control every step of the manufacturing. If you've been looking at how we operate even in both businesses, we'd like to keep everything in-house. We believe that gives us far greater control of the technology and the final output and that's why we want to keep it. It is a fairly integral part of it. I mean, if you're getting into power electronics, the board is important.

[Dhaval Shah, analyst]

Yes.

[Vivek Singh, executive]

And we want to do -- and more and more of these controller opportunities are coming. So we want to have our own assembly line. Sat, do you want to add to the rationale?

[Sat Mohan Gupta, executive]

No, I think this is the strategy and we are on the right path.

[Operator]

I'll hand over to Kapil. Kapil, you like to go ahead with your question, Kapil?

[Kapil Singh, analyst]

Yes. So, Vivek, just one question. If you can comment on the customer concentration that you have, where are we today on that? And specifically, on EVs, I know you don't comment on customers, but just your general thought on how do you see this diversifying, because we have not seen so much success of a lot of players -- products, right? So in which -- at least in which geographies do you see other players succeeding beyond your top customers?

[Vivek Singh, executive]

See, it's a fair question and I think let me address it because quite often people think the concentration -- customer concentration is much higher than it is because we don't comment on it. It is actually I would say one of the best in the industry. There is no customer greater than 20% for us, not even a single one. Even in EV, I would say the biggest customer is -- I don't know the exact one, but between 70% to 75%, not more. Yes, it is true that 1% in 75% of the EV revenue is very high, but that is for this quarter where a lot of our 2-wheeler revenue went away. Over time, this will start coming down.Our top 5 -- and I think I've mentioned it in the shareholder letter this time, that this is a constant thing that we keep looking at. I think it's about -- it's less than 60%, top 5. It's fairly healthy. And if you look now, let's just do an equivalence. No company can be in a world, different from the industry itself. Let's look at the automotive industry. Let's say, Volkswagen, Toyota, Hyundai-Kia, Renault Nissan, and Stellantis, these 5, how much of the world market do the top 5 automakers control? It will be greater than our top 5 customer concentration.The reality is -- and we -- this is one of the things I have seen that when you're in a public market, people compare you even to industries that you are not in. And it doesn't reflect that reality. We are in an industry that is heavily concentrated at the top, the top 5 automakers are I think 60%, top 10 are 80%. We are less than 80% for top 10 and less 60% for top 5, so if you're doing better than your industry, you are okay. Customer concentration is not that big an issue.But, yes, we actively monitor this. This is something that is a KPI for us that we always keep looking at. In EV, I think there will be a lot more people doing well. One of the things that does not let us proceed on this, was also a project offer. As we add more products that can address more market segments, I think this diversification will increase. But yeah, it is not the problem that it is the number of customers. We actually have a lot of number of customers. What we can't solve for, is making or helping our customers sell more vehicles. That's something they have to do on their own and that's basically where our limitation lies.

[Kapil Singh, analyst]

Sure. And just one more question, just so that we understand, how you are positioning the growth for the company? You mentioned about KPI. So I am just wanting to hear, what are the KPIs for the management? Just some broad top 2, 3 sort of things that you are very focused on.

[Vivek Singh, executive]

Sure. I think we disclosed them. [indiscernible] by the way, cam be someone at AMCA like which -- we are a very public and transparent company. The first KPI is EBIT for the company. We look at new order intake very, very seriously, because we are a growth company. To deliver that growth, new order intake becomes a very important metric, as important as the current year's profitability or if not more.Third is EV order intake, specifically as a -- not just as a subset, so if you do that you actually score on 2 KPIs. Fourth would be around technology. As progress on our technology roadmap, every year we choose a number that these many products we must deliver. Safety is -- we are in manufacturing after all. This is one of those KPIs where the target is always zero. You can only underperform on that KPI, but that is important, because if we don't put our people first and make the workplace safe, we fail. That is our first charge here as managers, is to ensure that the working environment is safe for our people.There are others that go -- once they go below me, there are lots of them on quality, on delivery, on cost. So yes, I mean, I think when we passed the resolution and Rohit, you can help me out here, for the ESOP program, we did put out a lot of the management KPIs, right, with -- along with that document?

[Rohit Nanda, executive]

[ It's a self explanatory ] statement actually.

[Vivek Singh, executive]

Yes, that we have more exhaustive ones.

[Kapil Singh, analyst]

Okay. Thank you so much the entire team from Sona Comstar. That was the last question we had. And Vivek, I'll hand over to you, in case you have any closing remarks.

[Vivek Singh, executive]

Nothing. Just thank you everyone for coming here. Your questions obviously make us better at running our business. We hope we have been able to answer all questions. There are some questions we can't answer, because I know we don't think that way and hence I have never actually tried to answer those questions or because we don't know and we will try to do better if it's a second category. If it's the first category, hopefully we can continue being ourselves and not being driven by external questions alone. So, yeah, that's it. Thank you for attending and have a great day.

[Kapil Singh, analyst]

Thank you everyone for joining this call. Deanna, we can close the call now. Have a good day.

[Operator]

Thank you again to all participants. Thank you for joining today's conference call and you may drop off the line. Have a good evening.