Sona BLW Precision Forgings Ltd

NSE:SONACOMS

Earnings Call Analysis

Revenue and Profits Surge, Margins Hold Steady

The company reported robust financial performance with revenue increasing by 20% and further growth across important metrics, as EBITDA and net profit rose by 35% and 34%, respectively. Product mix enhancing and operating leverage contributed to improved margins. Battery Electric Vehicle (BEV) revenues reached an all-time high, growing by 58% and making up 27% of total revenue. For the first half of the fiscal year, revenues, EBITDA, and PAT respectively jumped by 22%, 38%, and 40%. Despite such strong growth, the company aims to maintain EBITDA margins within the target range of 25% to 27% for the medium term.

Strategic Vision Update and Record Financial Performance

The company announced a significant change to its vision statement, aiming to become one of the most respected and valuable mobility technology companies. This expanded ambition reflects in a roadmap revamped for a broader scope, including mobility which extends beyond automotive to all transportation devices. In parallel to this strategic pivot, the company reported its highest ever quarterly revenue, EBITDA, and net profit, citing the fruit of compounding technology and knowledge as well as network iterations.

Solid Year-on-Year Growth

On a year-over-year basis, the company saw a 20% increase in revenue while EBITDA grew by 35%, and net profit rose by 34%. These figures exemplify the company's growth trajectory and its continued success in scaling its operations in the competitive mobility technology landscape.

Acquisition Progress and Strike Impact

A recently acquired business is progressing well, although it may be too soon to integrate into the company's reporting metrics. Despite a current strike affecting some of their customers' plants, the company remains largely unaffected in its financials and considers the strike's impact as temporary and not significant in the long term. Recognizing such disruptions as par for the course, the company maintains a focus on longer-term objectives over short-term fluctuations.

Profitability Targets and Cost Management

The company aims to maintain an EBITDA margin in the range of 25% to 27% for the medium term. While occasionally exceeding this target would be positive, the stated range represents the company's profitability goal as it scales and manages costs across its operations.

Traction Motor Ramp-Up and Revenue Insights

The quarter saw an impressive increase in a traction motor program, contributing to the overall growth. Specifying the manufacturing and development agreement with Equipmake, they highlighted a licensing partnership where Equipmake has been winning orders and disclosed a recent North American off-highway customer win. The company is manufacturing motors for Equipmake and developing new products tailored to Indian and Southeast Asian markets, with a targeted product launch in the last quarter of calendar year 2025 or the first quarter of calendar year 2026.

Government Incentives and Business Resilience

The executive team discussed Product-Linked Incentive (PLI) applications with the government, indicating they are in the process of obtaining approvals for various products and will inform shareholders once completed. Expressing resilience in the face of industry downturns, they elaborated on strategies to sustain growth independently of industry tailwinds, advocating for a strong, self-reliant approach to business expansion.

Earnings Call Transcript 2024-Q2

[Operator]

Okay. Welcome, everyone, ladies and gentlemen. Good day, and welcome to Sona Comstar Q2 FY '24 Earnings Group Conference Call. [Operator Instructions] Please note that this call is being recorded. [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 also not be taking any specific customer-related questions, or confirm or deny any customer names or relationships due to confidentiality reason. Please refrain from naming any customer in your questions, please.

Now I'll hand over the floor to Mr. Kapil Singh, Head of Consumer and Digital Commerce Research India and Lead Autos analyst at Nomura. Kapil, please go ahead. Thank you very much.

[Kapil Singh, analyst]

Good day, everyone. To take us through the Q2 FY '24 results and to answer your questions, we have the management team of Sona Comstar. Mr. Vivek Vikram Singh, MD and CEO; Mr. Kiran Deshmukh, Group CTO; Mr. Sat Mohan Gupta, CEO of Motor Business; Mr. Vikram Verma, CEO of Driveline Business; Mr. Rohit Nanda, Group CFO; Mr. Amit Mishra, Head of Investor Relations; and Mr. Pratik Sachan, DGM, Corporate Strategy and Investor Relations.

I will now hand over the call to Vivek for his opening remarks and presentation. Over to you, Vivek.

[Vivek Singh, executive]

Thank you, Kapil, and welcome, everyone, to the earnings call of what has once again been our highest ever quarterly revenue, EBITDA and net profit. But before discussing our results further, I wanted to share an important strategic update. We've made a significant change to our vision statement, and this expanded ambition will now start reflecting in all our decisions going forward. This begins with our product and technology road map. So our vision is to become one of the world's most respected and valuable mobility technology companies for our customers, employees and shareholders. We believe mobility is a higher level of abstraction, which includes not just automotive, which is where we mostly play today, but all vehicles or devices that help transport humans and goods from one point to another.

This expanded scope and expanded ambit demonstrates our growing ambitions and desire to use our technical progress in either product or application adjacency. I will encourage all of you to look at our product slides, which are in the appendix of this presentation. That should give you a detailed mapping of our products across automotive and nonautomotive segments as it stands today. And hopefully, we can keep adding to this mapping as we move along.

As I mentioned, in line with this changed vision, we have completely revamped and redone our product and technology road map. This has taken months of effort and what we have tried to do is, in addition to the electrification megatrend that we've been addressing for a bit, we are now developing products and thought processes to capture opportunities in the other 3 areas of the EPIC future as well, which is personalized, intelligent and connected. We further added products that we intend to develop for the wider mobility landscape beyond automotive. This is easily the most extensive and elaborate product portfolio region we have ever done in the history of our company.

We've added 7 new products to our road map this time, 2 each in the driveline business and the motor business, and 3 in the newly acquired sensors business. We've also transformed how we represent our road map. So this diagram, I think, mirrors the reality of our product journey so far. Each product tree begins with one initial legacy product, which serves as the route for each of these business verticals. That's where we began. And from that route, have emerged live and evolving linear branches which show how by organically moving only one logical step at a time, we have branched out into creating so many new products.

This also has helped us add optionality to create many more products because the product tree can keep branching forward or sideways at every [indiscernible]. And this creates evermore possibilities and opportunities for us as a product-driven engineering income. This truly is the part of compounding of technology and knowledge and innumerable iteration network.

Now I invite our group CTO, Mr. Deshmukh, to explain these changes and -- better than I could and also the 7 new exciting products that we have added in more detail. Over to you, sir.

[Kiran Deshmukh, executive]

Thank you, Vivek, and a great day to all of you. Since this is the first time we are sharing the technology road map's new format, let me explain its structure to you. As you would have noticed, we have revamped the road map that depicts the EPIC revolution's 4 zones. The zones overlap. So although we have shown the electric mobility in blue color, there are no fixed lines between the zones. The boundaries between them are indistinct and blurred. Let me begin with the Driveline Division and its legacy product, the net formed differential bevel gears.

Several years ago, we moved up the value chain and developed the differential subassembly for our off-highway customers. Recognizing the unique strength of our forming technology and design capabilities, we developed the final drive differential assembly for electric passenger vehicles and began supplying them in 2018.

This new product opened up new opportunities for us in the EV space, and we developed 3 cutting-edge products, the spool gear, the electronic differential lock and the epicyclic gear train. We also moved further up the value chain from the final drive assembly and developed the intermediate gear and the rotor shaft. While the former branch shows how we spent up -- went up the value chain in the drive train of the electric vehicles, another branch evolved from the straight bevel gears on the back of our technology, consolidating our knowledge and competencies in net forming, straight bevel gears, our R&D-developed spiral bevel gears by extending those capabilities.

Let me now move to the Motor Divisions legacy product, the starter motor. This product knowledge and the manufacturing know-how of the starter motor led us to develop the drive motor for electric vehicles. The first drive motor we developed was the hub wheel motor for electric 2-wheelers. We then developed mid-mount drive motor and low voltage inverter for high-power two-wheelers and three-wheelers. We, after that leverage the strengths of the Driveline and the Motor Divisions and develop the EXL for 3-wheelers.

The competency that helped us develop the drive motor and the inverter that controls the motor, led us to develop a product for intelligent and personalized mobility, and integrated motor controller for active suspension. This should explain how the evaluation of new branches from a node of the 3 has helped us create more unique groundbreaking products for the market. All the products depicted in this chart, which are in blue colored circles, are the products that are commercialized, is attested and validated products, most of which are being supplied in series production and some we will begin delivering soon, for which there are commercial purchase orders.

The product road map tree is further extended to include our future products shown in white circles. These products are under development in our R&D centers in Gurgaon and Chennai. In the earlier technology road map, we used to show them in a white semi-circle. You can see the logic of the new way of showing the road map. The chart clearly shows how the new products are related to the products we are already making, and how they contribute to the EPIC revolution.

This quarter, we are adding 7 new products to our road map. The manufacturing -- manufacturers of electric vehicles are always looking for ways of reducing the vehicle weight to extend the vehicle's range. We are developing a lightweight differential with fewer parts and special alloys that are lighter in weight, without compromising performance and durability. Our R&D engineers in the motor division are busy developing a compact cost-effective inverter that is integrated with the motor, which takes less space and it's easy to assemble on the vehicle.

These efforts aim to make products that bring customers higher value and added convenience. In alignment with our new region focused on mobility in general and not just auto, we are developing drive motors for nonautomotive mobility solutions, such as AGVs, bots, marine, et cetera. Taking our gear geometry and manufacturing competencies to the next level, we are developing very accurate, exceptionally precise and highly efficient non-involute gears for industrial robots. These efforts will help us enter the non-automotive mobility sector.

As you know, we have added the third business vertical, the Sensors and Software Division. Our core technology here is radar sensing and perception. Our competences include semiconductor chip design that are sensor design, signal processing perception and sensor fusion software. Our radar technology detects life presence, child presence and seat occupancy through vital signs, such as heart rate and respiration sensing. This technology will also be used for other applications such as optimized deployment of airbags, deliver driver monitoring and is to control human machine interface. The technology when applied outside a vehicle can carry out low-speed ADAS functions such as autonomous parking, 360-degree short-range awareness and pedestrian and bicycle detection.

The core technology of radar sensing and perception also has other nonautomotive use cases. It can detect motion and presence for home, office and factory automation. It can monitor the safety of workers around moving automatic equipment such as robots, and can help avoid collision while providing guiding functions for autonomous industrial vehicles. The new restructured technology road map reflects our efforts in addressing the megatrends of EPIC, leveraging the competencies built by us over the years. We will now use this framework to decide our way forward and communicate our intentions.

With that, I will hand over back to Vivek.

[Vivek Singh, executive]

Thank you, sir. Masterful as always. Now back to the usual format of reporting our numbers. This has, as I mentioned at the start, with our highest ever quarterly revenue, EBITDA and most importantly, net profit. On a Y-o-Y basis, our revenue grew by 20%, while EBITDA grew by 35%, and net profit increased by 34%. Margins have improved due to mostly product mix and also a little bit of operating leverage.

BEV revenue grew by a solid 58% to an all-time high of INR 207 crores, and the BEV revenue share was at 27%. For H1, we continue to perform well on all 3 financial indicators: growth, margins and returns. Our revenue, EBITDA and PAT are up by 22%, 38% and 40%, respectively.

Interestingly, our net profit in the first half of FY '24 is higher than the full year of FY '21. We've achieved this in the last 2.5 years of being publicly listed despite COVID chip shortages, extreme inflation, high interest rate, geopolitical conflicts and more things that one could imagine. And while this may be surprising for some of you who have not been following us that closely, we have more than doubled our revenues every 3 years since FY '16. So FY '19 over '16, '20 over '17, '21 over '18 and so forth, and this resolute performance despite any external events, is because of our tremendous, tremendous team. I'm the face of it, but it's the team that is behind us that helps us do this.

And another thing I would add is the unrelenting focus on technology and innovation and on what is next, what will we be solving for 3 years later, we try and do it today. I think that mindset is the reason. On to our biggest strategic priority, electrification. Our BEV revenue continues to grow, and we continue to build on our EV order book. In Q2, 2 programs have gone into production, both in the Driveline Business. So taking our active number of programs to 25, 10 fully ramped up and 15 in the ramping up stage. We've also added 2 new EV programs in this quarter to our order book and 1 new EV customer. One program is from a new North American EV customer and another from an Indian OEM for traction motors for electric 3-wheelers. We will elaborate upon both of these in the next slide.

So first, the order we won from a new customer, this is a North American new-age OEM of high-end electric cars. We will supply what we are calling rotor-embedded differential subassemblies for the customer's high-performance electric vehicles. This drivetrain is extremely compact because the differential has been directly integrated inside the rotor of the motor. It is and was a complex problem statement to solve. But I'm immensely proud of our engineering team for having sorted this.

The second one is the traction motor program for electric 3-wheelers that we have won from one of the largest OEMs in India. They are an existing customer for the Driveline Business, and we are happy to now have them as customers for our Motor Business as well. This program is for their upcoming electric 3-wheelers and this further reaffirms our leadership position in the traction motors in the Indian market. Both these programs, as you can see on your screen, will -- should begin serial production in FY '25.

Now this slide is, as always, a good visual summary of the reach and diversity of our electrification mission. This quarter, we added one new customer in North America while adding one program each in North America and India, taking us to 48 EV programs across 28 unique customers, which brings us to our order book with the addition of INR 6 billion worth of new orders at the end of Q2. Our net order book has expanded to INR 221 billion and the EV portion is 78% of that order book.

Our fourth gear is diversification, and this trend of increasing electrification and decreasing ICE dependence continues unchecked. In the last 2 years, we've seen the ICE-dependent revenue, frankly, shrink to only about 11%. So graphically, revenue mix largely similar to the last financial year. North America remains our largest end market, contributing 40% to our revenue in H1. The European light vehicle market continues to recover strongly, which has contributed now 23% to our revenue, and India was our fastest growing market last quarter, and its revenue share has increased to 30% in the first half.

In the product mix, we've added a new segment, Sensors and Software. We completed in the first week of September, the Novelic acquisition. So we expect this segment's revenue share to increase rapidly over the medium term. Last quarter, if you remember, I said that traction motors would be our fastest growing product segment despite the reduction and noise around the same subsidy. And I'm happy to revert that revenue share from taxi motors for electric 2- and 3-wheelers has doubled from 2.5% in Q1 to 5% in H1, which means Q2 was obviously very, very good.

New programs have started and are ramping up, which was always going to be the case, and it has now started coming in. Those of you again who have been following us, this at the time of our IPO was 0%. And one thing I wanted to add before I hand over to Rohit is, integrity is our first and primary core value. And as some of you may have noticed, we always share even the smallest bit of negative news and risks upfront. We did that for the FAME subsidy impact last quarter. We did that with the UAW strike impact announcement we made last month. What we would urge and request is that these announcements are received in the same spirit that they are made.

Having said that, I turn this to our group CFO, Mr. Rohit Nanda, to update us on our financials. So over to you, Rohit.

[Rohit Nanda, executive]

Thank you, Vivek. A very good day to you all. It's my pleasure to share our second quarter and first half results with you. Second quarter was our best quarter yet as we clocked our highest ever revenue, EBITDA and PAT at INR 791 crores, INR 223 crores and INR 124 crores, respectively. Our revenue has grown by 20% year-on-year, whereas light vehicle sales in our key markets of North America, India and Europe grew by only 14%. Our BEV revenue grew by 58% to INR 207 crores and was 27% of our total sales.

Against revenue growth of 20%, our EBITDA has grown by 35%, mainly on account of better product mix. Our adjusted PAT grew by 39% to INR 128 crores, primarily due to higher EBITDA. The PAT adjustment here is for exceptional expenses that we've incurred for Novelic acquisition. This quarter's consolidated results include Novelic financials for one month only as we completed acquisition of 54% stake in Novelic towards the beginning of September.

Coming to the first half results, our H1 revenue was INR 1,523 crores, a growth of 22% against 15% growth in the underlying markets of North America, India and Europe. Our BEV revenue grew by 33%, and it now constitutes 27% of total sales in the first half. Against 22% revenue growth, our EBITDA grew by 38% to INR 427 crores, mainly due to better product mix. Our adjusted PAT grew by 44% to INR 242 crores. That's also mainly due to higher EBITDA. The adjustment to PAT here also is related to exceptional expenses that we've incurred for Novelic acquisition.

Moving on to our cash flows for the first half. During this period, we have generated INR 300 crores of cash from operations out of which we spent INR 141 crores for CapEx, and therefore, our free cash flow generation for this period was nearly INR 160 crores. The other large cash outflows during this period were primarily novelly consideration of about INR 210 crores and dividend payment of INR [90 crores].

Next one, please. The last slide is on key ratios, and I'll only talk about the notable changes here. The first one pertains to our net debt to EBITDA ratio, which, as you would notice, has turned positive after Novelic acquisition-related payment, although it continues to be extremely low. Besides this, we've seen an improvement in our return ratios compared to the last year.

With this now, we have come to the end of our Q2 earnings presentation, and I'll now hand the proceedings back to the Nomura team. Kapil?

[Kapil Singh, analyst]

Yes, can we make the announcement for Q&A?

[Operator]

[Operator Instructions] We do receive a question coming from online. The first question is coming from Investor, Jinesh.

[Unknown Attendee]

Can you hear me?

[Vivek Singh, executive]

Yes.

[Unknown Analyst]

Congrats on great performance. So a couple of questions from my side. One is on Novelic given the acquisition is complete, can you give us an update on how business has progressed since we first talked about it and how their order book has shaped up over last almost 9 months since we acquired them? Initially, we talked about it.

[Vivek Singh, executive]

Yes, our business is progressing well. I mean, it's been one month since we acquired it. Next quarter, I would say, I know capital markets are not very long-term focused, but one month too small to give you update. At the end of next quarter, when we completed one full quarter, we will try and integrate that into our -- how we -- in our order book and other reporting metrics.

[Unknown Attendee]

Okay. Okay. Okay. I was referring to when we had originally announced about the acquisition earlier during this calendar year versus now how it has progressed, we will take update next quarter.

[Vivek Singh, executive]

Even at that point, I doubt we would have shared order book or revenue forecast.

[Unknown Attendee]

No, we had not. We had not and hence be needed if we can -- but no, the rest will wait for next quarter when the complete quarter is behind us. Secondly, on the impact of strike of UAW in the U.S. So any sense on what percentage of our revenues are impacted by this strike in U.S.?

[Vivek Singh, executive]

So hard to say because, as you know, this isn't a general strike where all of the customers are impacted, right? So it's plant by plant, and every day it changes. Like yesterday, I think 2 more plants have been struck. I doubt -- and that even Ford or GM could answer this question, as of today, that what it will be. What it was for the last quarter is already reflected in our numbers. Let's see, I doubt that next quarter there will be too much discussion on this. Most likely, this strike should resolve itself by now.

We did a little bit of reading, like I'm sure you would have done. The longest strike is 113 days @ years ago and the most recent one is 45 days. We are on day 40 of the strike. So I would say, we are closer to the end of this strike than the beginning. When we were at the beginning, we did issue a statement and put it up on the exchange that people will be aware. But till now, as you can see in the results, the impact is not very high.

Yes, we would have perhaps been over [indiscernible] crores, we're not, but that's okay. We can take it. And again, like I said about the long-term versus short-term, regardless of what happened, right, even if the strike goes on for another month, there may be some financial hit, but it will be just for this quarter. It is a very temporary thing to have. I mean, we are not spending that much time as a management team on this.

[Unknown Attendee]

Got it. Got it. And lastly, with respect to our EBITDA margin trajectory, so now we have crossed 28%. From current levels on structural parameters basis, what are the push and pull factors you're looking at from an EBITDA margin perspective?

[Vivek Singh, executive]

Yes, Jinesh, on that, we will stick with the same answer I have given even since we went public. We will like to remain in the range of 25% to 27% for the medium term. That's our target range. Anything more is great, but that's our target range.

[Operator]

Next question is coming from Gunjan.

[Gunjan Prithyani, analyst]

I had 2 questions. Firstly, on the technology road map. Now these 7 products, can you give us some sense on what are the sort of ongoing customer engagements as to how soon these products are due for commercialization? I'm just asking this question because a lot of these inherently, I assume we're in work for a while, right? So is it something that I look from a next 3- to 5-year perspective? Or is it something that can convert within the next 12 to 18 months, so a little bit more color on the 7 new products that have been added and where you feel most excited about?

[Vivek Singh, executive]

Okay, again, an answer that's not going to make you happy, but you already know what the answer is. We have no way of actually knowing with certainty that whether they will convert or not also. So probability, as always, is between 0 and 100. And time lines could be as soon as the next few quarters to maybe never. And that's one of the things we are always upfront about when we develop new products that there is no guarantee for success. As you saw -- as you would have now known us, 2.5 years ago, if you go FY '21, we had only 3 products, DA, starters and differential gears. All other products combined were less than INR 50 crores.

This year in the first half, [ 10.5% ] as I shared in my presentation, have come. So about INR 160 crore in the first half itself. So if you analyze that INR 320 crores. INR 50 crores has become INR 320 from other products. But at that point, if you -- and you did ask me at that time and I didn't know, and that's the truth that we don't really know which one will succeed and by how much and how soon. All we're trying to say this is our impact, and this is our intent. And 3 to 5 years is safe, yes, that we will -- if it is not developed within -- and commercialize within 3 to 5 years, we will much earlier than that drop it, and we will publicly announce that we are dropping it and it won't happen.

And about excited, that's -- I'm excited about all of them frankly, otherwise, we will be doing them. If we do our strategy workshop, about 40, 50 new product areas are discussed by the teams, and they bring them up. My painful, painful job is to say no to many of them. So these are the 7 that made it. So these are the 7 we are truly excited about. Lightweight differential, if we can reduce the number of parts that go into a differential assembly can be a game changer, right?

I mean, no part is a good part is what is said, but obviously, then auto-component guys will go out of business. So less parts is a good part is what we're trying to do that instead of having 10, 12 moving parts, can we reduce it a lot more. That is very exciting. Very excited about, I would say, the integrated motor controller. I think it's an idea that should have been done long ago. I don't know why nobody did it that why don't we put everything into one body and sell it as one product, right? It just makes so much sense from a thermal management, from lightweighting everything perspective.

Sensors, I think there is a great opportunity in the -- in cabin, of course, we have discussed, but in the short range also. So all 3, I would say. Robotics, I would say, started earlier than the other 3 because they are more closer to where we are. The other 3 are slightly further from where we are. I don't know if I helped you at all.

[Gunjan Prithyani, analyst]

No, at least giving me these 3 where you clearly see big business case from an OEM perspective, that helps. And I'm assuming you mentioned during the integrated motor controller that the competitive landscape also here is not -- doing a product which is out there and competition is doing it in a big way. It's relatively niche. I mean, that's what I understood from your comments.

[Vivek Singh, executive]

Correct. That is the thing that it's an opportunity that we noticed and if we can get it and get it with the customer, that would be cool.

[Gunjan Prithyani, analyst]

Okay. Just the second question is on this -- on the revenue ramp-up that we've seen in this quarter on the BEVs. Is there little bit color that you can give us in respect of is it coming from an existing OEM ramp-up or the new programs that have commissioned in the last 2 quarters, including this one itself? A bit more color in the execution, have we seen any new large BEV OEMs starting to kick in?

[Vivek Singh, executive]

Rohit, you want to take this? I think only one traction motor program had ramped up. Apart from that, it's all same program, same customers.

[Rohit Nanda, executive]

Correct. It's essentially because of one large program for traction motor that has ramped up during this quarter. So Q1 [indiscernible] growth of 12.5% actually even then.

[Operator]

[Operator Instructions] The next question is coming from Arvind.

[Arvind Sharma, analyst]

Am i audible, sir?

[Operator]

Yes.

[Arvind Sharma, analyst]

You have said that product launch [indiscernible] '25. But is there any details on the -- on sort of an order or something that you can share on Equipmake?

[Vivek Singh, executive]

I didn't get the question at all actually, did somebody else?

[Arvind Sharma, analyst]

I am sorry, can you hear me, sir? Vivek, can you hear me?

[Vivek Singh, executive]

Yes, I can hear you. You don't have to call me sir, please.

[Arvind Sharma, analyst]

Okay. So this is about...

[Vivek Singh, executive]

Because I didn't understand.

[Arvind Sharma, analyst]

It's about Equipmake.

[Vivek Singh, executive]

Okay.

[Arvind Sharma, analyst]

Yes. Any details that you can share on any sort of order win or any clarity on the revenue stream? I know it's still far away, but anything that has happened over the quarter?

[Vivek Singh, executive]

So yes, sure. So it is a licensing agreement, as you know, and Equipmake has been winning orders. I think they are a public company, so have to be also like us, so they have to be careful on what they have disclosed and whatnot. But they have disclosed, I think, recently a win on motors from a customer, a North American off-highway customer, so that can be found out. But like I said, they have their own investor relations things on their website, details must be there. But on our end, so there are 2 parts of that agreement that we have signed. One is, we're manufacturing motors for them for their production. And we're also developing and selling new in India and Southeast Asia. On that, I think we had given the time lines, but it can't be before 2025. Sat, do you want to add anything to that?

[Sat Mohan Gupta, executive]

I mean, Equipmake product, I mean, our launch is sometime in last quarter, calendar year '25 or first quarter calendar year '26. And right now, as soon as the development is concerned, I mean, we are validating the design and the motors to suit the Indian conditions for our customers' expectations. So I mean, as far as the revenue for us is concerned, it will be in FY '26.

[Operator]

Next question is from Hitesh, sorry.

[Hitesh Goel, analyst]

Congratulations on a very good set of results. My first question is housekeeping actually. I just wanted to understand the other expenses on a Q-on-Q basis have come off, which has led to this margin expansion on a Q-on-Q basis. So can you explain that what is the reason? Rohit, if you can give some more color?

[Rohit Nanda, executive]

Sure. So Hitesh, like I said, this is primarily because of the product mix. So there are certain products, which we -- basically, there is an assembly part of the business. So when, let's say, revenue from the assembling part of the business goes up, then typically, the other expenses tend to go down, whereas material costs tend to go up. So it's primarily because of that.

[Hitesh Goel, analyst]

Okay. And any color on the PLI incentives? Have you started to get some color from the government of PLI because some companies have started talking about it. So I just wanted to get some color.

[Rohit Nanda, executive]

Yes. So I mean, in a way, I'd say, we are in that given the sense we are going through the process that's been outlined by the government. But we'll let you know once we have all the approvals in place. So we have put an application. And, as you may know, there is a separate application for each of the products. So it's a slightly long-drawn process. I'll say, we are in the queue. Once we have all the approvals in place, we'll inform you guys.

[Vivek Singh, executive]

After that, we talk about it once it's done, as is our usual practice.

[Hitesh Goel, analyst]

Sure, sure. And my final question is, our team is also globally writing a lot about EV adoption slowing down. I mean, it could be temporarily because the prices of battery costs went up, but the production costs are also going up globally. So anything on that front, although you are actually adding more customers and growing much faster, but any color on that, what are you seeing on the EV side?

[Vivek Singh, executive]

[indiscernible] question actually. Hitesh, this is a much longer answer and a very long discussion. And I will draw reference to at least 20 other industries, and we tried to study what happens from single-digit to 90% plus when technologies change and in a 15-year period. And there always comes this point where it seems to stagnate just before it's coming to that 10% to 15% mark, every single time. And most often or more often than not, it gets corrected in the next 18, 24 months, and then it starts with upward journey again. So it is a long discussion. There are lots of factors at play here.

Geopolitics is certainly one of them. I mean, the post-COVID geopolitical shifting is one of the reasons. This graph is not an uninterrupted straight line at a 45-degree angle, right? Second is also the new, I would say, social dynamics playing out. For example, with the UAW, et cetera, and the European unions. So yes, it's interesting times, longer discussion.

We are covered regardless because we always try and prepare for growth on our own steam, which means industry tailwind shouldn't be a primary factor of growth. And we've succeeded more often than not again. But yes, it is a very interesting discussion and perhaps we'll get some time to have it. It is going through this thing because of the battery cell cost not going down. Like if you remember, even in the solar industry, the exact same thing happened, solar panel. They went down almost like a straight line, the cost, and then it kind of straightened for a bit before starting to go down again.

I think here also the move to a better, cheaper cell technology will be what will make stats go away and again that acceleration will start. And I think it will happen. And you need a period where it seems everything is against you for this to break out, or the breakout invention to happen. And I think it will, semi-solid stake, maybe some other chemistry, maybe instead of LFP, we pick another one from the first column of the periodic table because any of those elements could theoretically do the job. So maybe sodium. We don't know. But yes, it will be interesting to see.

[Operator]

Next question is from the line Nitij.

[Nitij Mangal, analyst]

Congratulations on a great quarter. Before I actually get to my question, I just wanted to say that your new differential order win seems quite commendable that it could fit a high-speed differential inside a moving quarter must be very interesting and generating challenge. I want to ask you a bit on your customer concentration, especially on the EV differential side. What would be the share of your top customer within that? How is that moving? How is that in the order book? And on that same note, you have done very well in North American EV differentials. How do you see the road map to replicate that in Europe?

[Vivek Singh, executive]

So thank you, engineer to engineer thank you. Is it as big as -- Nitij, I think you will have to -- it's echoing. You will have to [indiscernible] I guess. So thank you, but congratulations are not to me at all. This is to Vikram and Matthew and Narender and team. These are the guys who have done it. I have not done that much on this. It is a truly, truly amazing type trade. And the more you study it, the more you learn and we learnt a lot in this project. I think more than the commercial value of it, what is the real takeaway for us is that our ability to deliver to the most exacting and different standards of leading carmakers. That's the confidence that we are working with the best and doing best things.

Coming to the concentration, I think we've already mentioned this before that there is no customer who is greater than 20%. In fact, it's slightly less only. And that's just not for EV diff, it is in general. So it's not a risk that is really worrisome. What was the third question? Sorry, you said that as we -- Europe, yes. So Europe, we should see fair amount of growth actually '25 onwards. We have 2 good programs launching with 2 big European OEMs. So we should have more geographic diversity in revenue share also coming in from '25, '26.

[Operator]

Hitesh, does that answer your question, please? Moving on to the next question, it's from [indiscernible].

[Unknown Analyst]

Am I audible?

[Operator]

Yes.

[Unknown Analyst]

So just 2 questions. One is on the Europe side. So based on the discussions that our people are having with the OEMs in Europe, so how do you see the demand outlook there? Like India is doing well last time you mentioned, and we are seeing the numbers also. But what about the sentiments in Europe? And are we seeing any kind of traction in terms of Europe plus one due to the rise in the energy prices there?

[Vivek Singh, executive]

So thank you, first. Europe, our revenue share has increased this quarter. I think we are at 23%. So that shows that Europe is doing fairly well. If you remember last year, it had fallen quite a bit. Even our discussions, and I just mentioned to Nitij that, in '25, we should see quite a lot of European DA business coming in. So it's decent. Europe plus one, this is the first time I'm hearing this phrase, so I have no idea on this one. Europe used to outsource a lot to China, and some of that is shifting elsewhere. And when I say elsewhere, it doesn't necessarily mean it's all coming to India, but it is moving away from China is something we are seeing as a trend.

[Unknown Analyst]

That's good. And secondly, you talked about your vision, like we are shifting from auto mobility technology player to a mobility technology player, as you mentioned. So can you please put some color like where we are going to, like we want to be a technology partner or a component supply to railways or aero OEMs like Boeing, et cetera? Or what is the exact perspective?

[Vivek Singh, executive]

So correctly understood, but why just railways and aero, why not drones, why not boats, why not [indiscernible] So we are saying all of it. So you are right, I'm saying add more. What it means is, our ambition -- see you start with a vision, and then from that vision comes all the decisions that you'll take and all the activities that you would do. If you look at our revenue today, nonautomotive, which I'll say is off-highway vehicles, construction equipment, farm equipment, et cetera, is 10%. We think there is a lot of scope for that 10% to grow and be much, much more. And there are many devices that may not have been invented yet, frankly, which may be transporting goods and human beings in 2035.

By changing our vision and our mindset, we are saying, from now, going forward, all of these industries are also our industries. They are not just a division between us and them auto versus nonauto. All of mobility is now our scope rather than being a subset of mobility, which was automotive. That's the point. So your understanding is correct that it is -- could be railway, it could be aerospace, it could be space, it could be bicycles, anything that moves human beings and goods is now in our scope. That's the point.

Actually, I was trying to answer your question on the Q&A chat box, but I couldn't because it is not allowing me to send the answer. So thank you.

[Operator]

Okay. I believe Nitij has some follow-up question.

[Nitij Mangal, analyst]

Sorry, I have a quick follow-up, and I was not able to unmute myself last time. But when you're talking about Europe scaling up 2025 and onwards, is that a good part of EV differentials? Or what kind of business are you looking in that scale up?

[Kapil Singh, analyst]

So Pratik, can you take us back to the slide which has the visual map of the world and the programs? So Nitij, if you look at this, we have 7 programs with 5 customers, 5 of them are for driveline. The 2 that are in traction motors are plug-in hybrid motor. So those are already running. So all the new for now in the order book is coming from passenger vehicle, electric differential assembly as a product. So that's the answer.

We have a couple of questions on the chat box. So one is, can you please gives some color on steel prices and its impact on profitability? In the last quarter, you had mentioned that steel prices have come down lately. The prices of steel alloys used in manufacturing and auto components haven't come down. So any color on that?

[Vivek Singh, executive]

Sure. So Vikram is closest to that. So I'll allow him to answer.

[Unknown Executive]

So it's just rather stable. Alloys surcharges keep going up and down, they have also come down. But there -- another increase is also expected. So I think this keeps happening every quarter. So it's pretty difficult to tell what is the future quarters is going to be.

[Vivek Singh, executive]

Correct because the price -- let's say, if you talk to steel mill guys, they'll always say, yes, we will -- we are expecting a price increase. If you talk to their customers, which are more OEMs, they will say there is no chance of that because if they're not buying, prices won't go up. And then you have the whole geopolitical angle and China and all of this. So very hard to predict, but so far from the last 6 months, they've been fairly stable. Like Vikram rightly said, some of the things like moly and chrome and nickel, they keep going up and down. So the price can go up and down a little bit, but not too much. They are reasonably stable.

[Kapil Singh, analyst]

There's one more question. Great pickup in traction motor business. But if we see the BEV revenue traction motors, the revenue has been flattish for the past few quarters. Is there some seasonality in Driveline business or something else we should be aware of?

[Vivek Singh, executive]

No seasonality that I'm aware of, at least. There shouldn't be, no. And I think a lot of times in these analysis, we overlook factors because we are assuming a very linear world. It isn't really. So last quarter, traction motors were unnaturally depressed. And this quarter, they are high because there is also a bit of makeup. So again, quarter is a not great -- I mean, it's not a big enough time period to do these comparisons, which is one of the reasons we do H1 and compare it with the whole year. That would be a better one.

But yes, Driveline revenue and EV not going up too much would be, if there is no new program and no new customer that has gone online in that quarter, you should not expect it to also increase too much. While we have said our BEV revenue year-on-year has grown by 58%, flattish is not a word I would use still. I don't know how to answer that. Actually, the problem becomes that we are comparing percentage share or proportionality in a very fast-growing company. So something that looks like, even our starter motor business, by the way, which seems like it, has shrunk so much, I think in the last 2.5 years, in absolute terms, it has gone up. Why? Because the rest of the business is growing so fast that, that growth of 20% looks very low in a business that has doubled.

So again, what I would say to people trying to understand the study of business and which is something we do internally, write down absolute numbers and look at them and also understand that things that are dependent, which is most of our growth, new progress, they grow as a step function. So if you guys recall, when we listed, we used to be doing about INR 400-odd crores of revenue per quarter. Then we jumped. We went to about INR 500 crores. From there, we went to INR 600 crores, then we went to INR 700 crores, and now we finally come close to INR 800 crores. But in the middle, there are 2, 3 quarters following that quarter, which are flat, and it grows again. But if you look at it year-on-year, I would say, the growth has been fairly decent.

[Operator]

Next question will be a follow-up question from Gunjan.

[Gunjan Prithyani, analyst]

So taking my follow-up. I just wanted to quickly check that this market share, which you annually share on differential gear and the starter motor business, is there anything incremental that is worth flagging? Are we seeing improvement in the -- on the diff gear side, given that we were looking at Europe as a market, anything on the starter motors? So just directionally how we are progressing on the market share gains that we had called -- that we were speaking about?

[Vivek Singh, executive]

It should have increased. By how much is a tough question to answer because we do this exercise once a year at the end of the calendar. So I'll ask you that question. How many vehicles sold in -- by -- till 30th September in the world, roughly? So Gunjan, I'm asking you because you would...

[Gunjan Prithyani, analyst]

Sorry. You were asking me how many have been sold in the first half of the year?

[Vivek Singh, executive]

First half, 9 months past in the calendar.

[Gunjan Prithyani, analyst]

Nine months would be close to about 62, 63, roughly around 60 million or so.

[Vivek Singh, executive]

60 million light vehicles. Let's add some -- couple of million of others, make it 63 million multiplied by 5, and I'm doing completely back of the envelope, that will be 315 million vehicles in the total world market for the first 9 months. Pratik, how many -- if he remembers, how many have we produced in the first 9 months and sold? That is the market share. I mean, I'm doing a very rough one just for you. But Pratik how many, do you know?

[Pratik Sachan, executive]

Not exactly, but it may be somewhere around 34 million, 35 million.

[Vivek Singh, executive]

Yes. So yes, the math then is fairly -- it's for 9 months, no?

[Pratik Sachan, executive]

0.15 x 25, 3.75 million we are doing every month, into 9 months is 33.75 divided by 5 is 6.75. So we are above -- we produce 60 million vehicles, then we are nearly 10% of [indiscernible].

[Vivek Singh, executive]

Yes, that sounds about right.

[Gunjan Prithyani, analyst]

Roughly around 8.5% or so. Okay. So it's better than -- I mean, on this calculation, it does seem that on this scale, you are doing. Okay. And the other question, maybe a little broader one I had was on this order book of INR 221 billion that we have. Now there's -- of course, you have lot more granularity on this in terms of how the split of new aging incumbents, what's running programs. So I just wanted to get your perspective on when we look at the landscape, there's certainly been slower movement on some of the new age companies and all this debate which Hitesh brought up that EV adoption seems to be maybe not slowing down, but it seems it's not accelerating at the pace we anticipated maybe last year.

So when you look at this composition, do you see that the risk from a conversion perspective, like where you were looking at 3 years, we should be hitting 60%, 65% conversion, that probably gets pushed out purely because it's more slower move on EVs and some new age companies seem to be struggling a bit in terms of the offtake in the market?

[Vivek Singh, executive]

Yes, that could be true. But fortunately, the new-age EV customers are not that many for us. And even in our traction motor business, most of our revenue comes from legacy solid balance sheet, solid credential OEMs. Similarly, for Driveline also, there are that many -- the percentage coming from new age group is single digits at best, and that it's not very high. That is not the risk. Risk would be that, yes, it could be slow, but I doubt, Gunjan, that the electrification of how many vehicles has happened by 2030 or 2035, that would change. So it could be that, yes, we go slow in the middle and then suddenly it picks up. So there could be periods like that, but the end result, I doubt is going to change.

[Gunjan Prithyani, analyst]

Okay.

[Vivek Singh, executive]

And also just to give comfort to other people, if a lot of the slightly less certain prospects, OEMs in EV, we don't add to our order book. We actually assign them null value until we are certain that they will survive.

[Operator]

So given in the interest of time, I pass the line to Kapil now. Kapil, please go ahead.

[Kapil Singh, analyst]

So we have a couple of questions in the chat box. One of them is, you recap on dollar CapEx needed for $1 revenue. What has been the trend historically versus the new order book? Basically trying to get a sense of how much CapEx is required to service the order book you have?

[Vivek Singh, executive]

I will let Rohit answer this.

[Rohit Nanda, executive]

That's been for every dollar of CapEx, we are able to generate $2 of revenue when it comes to Driveline Business. For Motor, the ratio is more like 1:5, 1:6 actually.

[Kapil Singh, analyst]

And the last question in Chatbox is, do suppliers, OEMs get bigger advantage? One of the gear suppliers from Taiwan is opening a plant in New Mexico. Do we plan to do any production plant in North America?

[Vivek Singh, executive]

That's kind of too specific. And as you know, we have made it a policy that we do not talk about others. So other's planes are other's plans. I think it is on the exchange, right? We announced our Mexico subsidiary and investment a couple of months ago.

[Rohit Nanda, executive]

Correct.

[Vivek Singh, executive]

So yes, we are in the process of setting up in Mexico. That is true. But that's got nothing to do with who else is doing what, et cetera. We've tried, I think, for a long time to tell you that our way is fairly organic and driven by us. The race is long, and in the end, we are running against ourselves, and that's who we're trying to beat. Who else is doing what, yes, we respect our competition and competition is a fact of life. It's a way of life. It will keep coming, and it will come from very surprising places. So we don't take anyone lightly.

But we can't let our locus of control be outside us. We cannot be driven by news and other movements. We need to have our own plan, our own direction, our own vision. And we are following that map. The time when it comes that it looks like we are slipping, of course, we will try and cost correct. But so far, I think the results are also speaking that, that is the right way.

[Kapil Singh, analyst]

Sure. Vivek, just one last question from my side. Very interesting discussion on product, EV evaluation and penetration. One of the angles there is also that as product undergoes improvement, that also these cycles come where some new innovation or product improvement happens, and that also leads to the next wave of adoption. So because you are seeing a lot of product from your lens, where are the major improvements that you're seeing coming through in the next 2, 3 years, which could help that -- consumers adopting more electric vehicles, and you can talk across segments, across geographies, whatever you are seeing from your lens?

[Vivek Singh, executive]

So I think, Hitesh, Gunjan, all of you are driving to the same point. I think there is going to be significant innovation in electric vehicles at a much lower cost, and it is the cost. It is actually the price and the cost, price to the consumer and the cost to produce it. If we go about it, doing it in the old way we were, it will not be feasible. And I think a lot of OEMs are now publicly said that, that way does not make us money. Retrofitting old vehicles with an electric powertrain is not going to be the way to success here. You have to think from 0, from first principles and build vehicles that were born to be electric. I think the drivetrain, powertrain components, even things which were structural and not looked at so far, they are being looked at now even chassis parts, even parts that -- how can you make them to make the cost lower and hence, price lower.

I think within 2 years, there would be a lot more very affordable EVs out there. And this question may not be asked. The big one that is still unanswered perhaps, and again, all of you know this well, is the battery part. Apart from that, I guarantee all of the other costs will keep going down. I mean, in our own experience, Vikram, we have see this. The same drive line is our 25% to 30% lower price and cost to us also to make than it used to be just in the last 4 years.

If every supplier, the same thing is happening. So the non-battery parts are going down in cost every time. And as economies of scale increase, unfortunately, for low-volume players, these things never have an advantage. So why you see the new-age guys struggling becomes a chicken and egg because they don't have the scale to either invest in mass manufacturing and newer manufacturing processes, which are low cost, or with their supply chain partners work towards much lower-cost products.

So the bigger guys have gotten bigger in this field. And if somebody else doesn't do those innovative things, the divide will keep increasing in fact. And that's not great, actually. I know that we benefit in that also, but it's not great for the ecosystem. For EV to reach 90% plus at 2035, it has to become a mass movement and every OEM should become good at it. So Again, very interesting discussion. My firm belief is that it will become much more affordable. And that kind of thing will be only 2, 2.5 years in the making, and it will come down.

[Kapil Singh, analyst]

Sure. Thanks. That was the last question. Ronald, can we close the call?

[Operator]

All right. Thank you very much management and all the audience on the line. So in the interest of time, we will now conclude this call. If you have any follow-up questions, please feel free to e-mail your Nomura sales rep or Corporate Access team. Thank you, everyone, for your time and you may drop off the line now. Thank you, management team.

[Kapil Singh, analyst]

Thanks, Vivek and team for giving us this opportunity to host the call. And as is always the case, it was a great discussion. Have a good evening, everyone. Thanks.

[Vivek Singh, executive]

Thank you, Kapil. Thanks, audience. So yes, thank you, everyone, for your valuable time and attention. Please let us note if there's any specific and actionable feedback. And yes, we ensure you that we'll work on it and try to improve. See you all in the next quarter. Thank you. Bye.

[Kapil Singh, analyst]

Thank you. Bye.

[Vivek Singh, executive]

Thank you very much.