Sona BLW Precision Forgings Ltd

NSE:SONACOMS

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to Sona Comstar's Q3 FY '23 Earnings Call. [Operator Instructions] Please note that this call is being recorded. [Operator Instructions] We will now go to the disclaimer. 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 reasons. Please refrain from naming any customer in your questions. Now I'll hand over the floor to Mr. Kapil Singh. Head of Customer and Digital Commerce Research India and Lead Autos Analyst at Nomura. Kapil, please go ahead. Thank you.

[Kapil Singh, analyst]

Good day, everyone. To take us through the Q3 FY '23 results. We have Mr. Vivek Vikram Singh, MD and Group CEO; Mr. Kiran Manohar Deshmukh, Group CTO. Mr. Sat Mohan Gupta, CEO of Motor business; Mr. Vikram Varma, CEO of Driveline Business; Mr. Rohit Nanda, Group CFO; Mr. Amit Mishra, Head Investor Relations; and Mr. Pratik Sachant, DGM Corporate Strategy and IR. I will now hand over the call to Vivek for his opening remarks and the presentation. Over to you, Vivek, please.

[Vivek Singh, executive]

Thank you, Kapil, and welcome everyone, to the earnings call of what has been our best quarter ever in almost every aspect of our business. But first, as is our policy when talking to shareholders, we will begin with the challenges. Due to the new battery standards, most of our EV 2-wheeler customers had to get their vehicles homologated again, which meant we saw very little production in October and November which has negatively affected Q3's traction motor sales. The production run rate has normalized since December and things are back on track, and we are back to our old run rate.

On the cost side, as you would have seen in other companies and industries, raw material prices have continued to come down, but our largest purchase commodity, which is alloy steel remains at elevated prices. To be perfectly frank for the first time in almost 4 quarters, there's very little challenges to talk about and the lead indicators are frankly good. So I'll move on quickly to the positives. So in financial terms, we've achieved our highest revenue, highest EBITDA and highest net profit. We also won the biggest single new order in our history which is an EV driveline program, which is a big step for us in both business development terms as well as technology because this is also a new product for us, called an electronically locking differential or EDL. This win demonstrates our ability to keep adding new and higher-value products for our customers. And hence, new revenue streams with higher per unit prices for ourselves.

We also signed our first acquisition since 2019 with NOVELIC in this quarter. And we are adding a third pillar to our business, which is of Sensors and Software. We hope that we can close this deal by the end of this quarter, the current one. And from Q1 FY '24 onwards, we should see that also further adding to our numbers. Last but not the least, on the ESG front, we released our first sustainability report, and I'd encourage all of you to please go check it out. We've taken quite ambitious targets for us and in the company.

Now before I go on to the numbers, we don't consider ourselves to be macro experts actually probably in the opposite. But we inevitably get asked questions about the markets we serve. So to kind of preempt that here are a few highlights. Q3 was positive on a year-on-year basis for the U.S. market and things continue looking good. Indian market did well across all the 3 categories that we serve, passenger vehicle, commercial vehicle and off-highway and also continue to be strong. Asia is quite volatile with the COVID situation in China, and we have to wait and watch before we can take a medium-term cost. Q3 was also positive for a change on a y-o-y basis for Europe light vehicle sales. And we believe that after 5 quarters of weakness, going forward, the Europe market appears to be slowly turning around. So to the numbers, we've had good sequential growth. And more importantly, on a y-o-y basis, our revenues grew by 39% while EBITDA and net profit have grown by 43% and 45%, respectively. This is because of consistent margin improvement. BEV revenue in absolute terms grew by 29% to its highest ever number of over INR 173 crores, while the BEV revenue share for the quarter was 26%.

Now this is the first time we've actually crossed INR 100 crores in quarterly net profit on an organic basis. And please forgive me for a bit of nostalgia. But I still remember when we cross INR 10 crore PAT for the first time, it was Q4 of FY 2016.That was my first year at Sona, obviously, for Vikram and Mr. Deshmuk, it was much -- many years. But my first year. And to have grown over our quarterly profits by about 10x less than 7 years is a really proud and, I'd say, meaningful milestone for all of us here in the team. Coming to 9-month figures. Revenue, EBITDA and PAT are up by 22%, 17% and 18%, respectively. I'd also like to point out that due to a strong Q3. Our EBITDA and PAT margins have both returned to a usual long range of 25% to 27% and 14% to 16%. I think given how the product mix and geography mix look like going forward for the next, I'd say, at least 4, 5 quarters. I think it's safe to say that we can sustain the new 27% and 15% margin ranges.

Now since calendar year 2022 has ended, we also got a global market shares calculated by Ricardo. So again, first, not so good news. Our start about global market share has declined from 4.6% to 4.1%. Now this is not because we lost any business, but mainly because the highest startup or market shares are in Europe, followed by U.S. Both of these declined as a percentage of world auto market. While Asia, where we have lower penetration grew its share in CY '22. Hopefully, as both Europe and U.S. look like they're picking up, we should see recovery on this fronting calendar year '23. Our market share in differential gears on the other hand, continues to grow rapidly and has reached 7.2% of global volumes. Despite this relative shift of U.S. and Europe going down, this is what underlines our ability to grow on the strength of new orders alone. Coming to EV. Our battery electric vehicle revenue share has increased from 23% in 9 month FY '22 to 25%, and BEV revenue in absolute terms has grown by 31% to over INR 4.6 billion in the first 9 months of the year. We continue to build on our EV order book. And in Q3, we have added 4 new EV programs and 2 new EV customers. So there are 2 new driveline program indices, both for existing customers and targeted at the North American market on which I'll elaborate on the next slide. There are also 2 new motor program wins, both for electric 2-wheeler makers in India. And while one is for a new entrant, the other is for a currently top [ 50 ] East motor vehicle. With this, we have now reached 41 EV programs across 25 different customers. Exactly a year ago, this metric was 24 across 14 customers. which means we have added 70 new programs and 11 new customers in just 12 months. These displays our growing EV presence globally and the pace at which we are growing. In fact, we did an internal analysis based on a J.P. Morgan report and found that in the next 3 years, 98 new EV car models are going to be launched in U.S., Europe and India. And our driveline products will be present in 21 of them.

Now coming to our proudest and perhaps the single most significant achievement this quarter. We have won a new order for electronically locking differential assemblies on EDS, which is the single largest new order win in the history of our company. This is for an existing EV customer and is our most advanced and highest value driveline product. If you happen to visit us at Auto expo, you may have seen this on display. This win has come after a lot of effort, a lot of joint hard work between our customers and our own engineering teams. In addition, we've also won another differential assembly program for electric cars for the U.S. market from a different existing customer. And what is remarkable in both is that both programs must start in less than 12 months, which shows 2 things. One, the urgency of people to launch EV models and also how much our customers rely on our agility in going from design to production quickly.

Like we are showing agility in product development, we're trying to also show agility in dynamically changing our strategic approach. So we had shown this about 1.5 years ago when we did our first call. We have changed this a little to cover both passenger and commercial vehicle applications.

Now in Driveline, it is on the left-hand side, you can see that we already cover most segment on both sides. And this is a point i wanted to make, because oftentimes we get asked on things like content per vehicle and how much is a differential assembly. Well, the thing is it depends on the application and the torque. So differential assembly value, alone per vehicle can range from $30 at the bottom to almost $300 at the top on the passenger vehicle side. And on the commercial vehicle side, it can range through just about $20 to almost $900 going to the top of the deck. So our strategy is to cover the whole spectrum for sure. But focus more on maximizing our penetration in the top 3 segments of both PV and CV. EV, we are already fairly significant. I think CV also we intend to increase our penetration. While also being present in and benefiting from the higher volumes on the lower power sector. In motors, on the other hand, we cover only the lower end of the power range today, which is high volume, but medium margin. I mean we produced 120,000 traction motors in 2022. And given that only around 630,000 E 2-wheelers were sold in India in that time, that should comfortably put us among the top players, if not the single largest player in India. But that's not the end goal for us. It never was. That is only the beginning, and we intend to cover all vehicles. The focus in the next 3 years at least will be a light passenger like commercial vehicles, and electric buses. That's going to be our focus. And in time, we hope to advance to larger passenger vehicles in commercial vehicle, but not in this current phase. So that's the strategy on electrification. With that we come to our net order book, which has increased on the back of these 4 new EV programs and 5 new non-EV programs. Those are mostly in the timeline products for commercial vehicles. This increases by 35% year-on-year, and our order book increases 60% over just last quarter. And we reached finally INR 238 billion at the end of Q3. Now the large size of the EV program where we have also increased the proportion of EV in this order book and now it's 73%. We've also updated our customer reach metrics at the end of 2022 and are exceptionally honored that today, we serve 7 of the world's top 10 passenger vehicle OEMs. These are 3 of the top 10 truck makers and 7 of the top 10 tractor makers of the world. We're also privileged to supply to 4 of the top 15 electric 2-wheeler makers in India and 5 of the top 15 electric car makers in the world. This reach ensures that we are well diversified and a part of a structural growth trend as electrification increases and not just dependent on 1 or 2 customers. With this, we neatly got to diversification. The weakness in Europe in the first 9 months means that the revenue share from hybrid and micro hybrid has been lower as compared to previous years. On a longer-term track, the increasing share of BEV and decreasing proportion from [ ICE ] seems to be continued.

Geographically, things have been far more interesting. As you can see, Europe and Asia, which used to constitute around 40% of our revenue last year were reduced to only 25% for the first half. Now despite that, our exceptionally strong growth in the U.S. backed by new programs and new order wins and the strengthening of the Indian market have more than made up by increasing to 45% and 29%, respectively. Now relative market shares can be tricky, like I said, I think, last time also, especially in the times of big growth. So when analyzing these numbers also look at the absolute loans, like how our Europe revenue has in fact increased on a y-o-y basis in Q3. There is little change in product mix or vehicle segment mix from the last quarter. So not too much to add here. So with this, 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. Like in the past, I am sharing our technology road map with you. Every time a new product under development is commercialized. We move it from the white area to the blue zone. Last quarter, for example, our breakthrough [ net ] ship, we will gear set move to the blue semi-circle reflecting its commercial launch. This quarter, our newly developed electronically locking differential assembly or the EDL debuts for the high-end electric SUV for the North American market. The EDL is an advanced technology using high-performance and off-road vehicles to enhance stability, traction and safety. And EDL is a type of differential that uses electronic actuators to log the wheels on the left and right sides of the vehicle together. This allows the wheels to rotate at the same speed providing maximum traction and stability. The differential is controlled by a computer that receives input from various sensors such as a vehicle speed, steering angle and yaw rate. The computer than uses this information to determine the -- when the differential should be locked or when it should be unlocked based on the driving conditions and the drivers in [indiscernible]. The technology enables better performance in off-road and inclement poor weather conditions. The EDL, as you would have seen from what I said before, is a critical component of the car. And must integrate seamlessly with the rest of the vehicle systems. So this development required a significant amount of engineering and testing to ensure that the EDL performance effectively while minimizing the impact on vehicles, energy efficiency and meeting regulatory requirements.

In this particular case, the customer's launch schedule was highly aggressive and our engineers work closely with the customers' team to make this happen. This demonstrates our engineers' abilities to work collaboratively in quickly developing a highly engineered product and the customers trust in their capabilities to do so. On that note, I hand it over to Rohit to cover financial update.

[Rohit Nanda, executive]

Thank you, Mr. Deshmukh. A very good day to you all. It's my pleasure to share our third quarter and 9 months results for our financial year '23 with you. Q3 was our best quarter in all 3 parameters of revenue, EBITDA and PAT at INR 685 crores in revenue, INR 186 crores in EBITDA and INR 107 crores PAT. Our BEV revenue grew by 29% this quarter, whereas our non-BEV revenue grew by a robust 42%, which is more than 2x of the underlying market growth of 18%. Our EBITDA margin has improved to back above 27%, and it was 80 basis points better than comparable quarter last year, primarily due to better product mix. Absolute EBITDA has grown by 43% compared to revenue growth of 39%.

On a sequential basis, EBITDA margin is up by 200 basis points, mainly due to better product mix. Profit after tax at INR 107 crores is higher by 45% compared to adjusted PAT reported for the third quarter during last year. Next. During the 9 months of the year, our revenue grew by 22% to INR 1,932 crores. Our BEV revenue grew by 31% to INR 467 crores and constituted 25% of our total sales. Our non-BEV revenue grew by 20%, while light vehicle market in our 3 largest markets of North America, India and Europe grew by only 1% over the same period. For 9 months, our EBITDA grew by 17% to INR 494 crores. EBITDA margin percentage was lower by 120 basis points, largely due to arithmetic effect from increase in RM prices in spite of the [indiscernible] past year.

The PAT for the first 9 months grew by 18% to INR 276 crores compared to adjusted PAT of INR 234 crores for the same period last year. Margin transmission between EBITDA to PAT is better due to lower finance cost as compared to the previous year. This brings me to the slide on the key ratios. Our value addition to employee cost ratio continues to improve further, and it is now 6.4x, showing that the rate of marginal growth in the value addition is higher than the growth in employee cost of the company. Our return ratios of ROCE and ROE continue to be strong, above 25%, though these are a bit lower from the past 2 year levels. primarily due to higher working capital and ongoing capital expenditure for revenue to be generated in the future. Return on equity also had a base effect due to primary equity raised in the IPO during the last financial year. Our net debt continues to be negative, reflecting the balance sheet strength to raise debt in order to support future growth. Working capital turnover ratio has improved to 4.1x, whereas fixed asset turnover ratio has come down a little bit to 3.9x, mainly on account of new capitalization done during the year.

Last but not the least, we are glad to share that our first sustainability report has been published in December. This can be accessed on our website. But now I'll just briefly touch on the key ESG goals that we have set for ourselves. Our environmental goals include providing solutions for low-carbon mobility by increasing revenue from products in for electric vehicles to 45% of our revenue by 2026. Besides this, improving resource efficiency in our operations through a reduction of specific energy consumption by 4% by year 2025, and 8% by year 2030. Besides this, we have also taken targets for reduction in Scope 1 and Scope 2 emissions. Apart from environmental growth, we've also set other ESG growth like social and governance growth, which include maintaining highest levels of quality and health and safety environment for the employees, be an equal opportunity, employer create a meaningful impact through our CSR programs and ensure highest level of corporate governance through zero tolerance for corruption and noncompliance. I will encourage you all to access our sustainability report on our website. And with this, we have now come to the end of our Q3 earnings presentation, and I'll now hand the proceedings back to the Nomura team for Q&A.

[Operator]

[Operator Instructions] We will take -- the first question is from Gunjan.

[Gunjan Prithyani, analyst]

Two questions from my side. Firstly, on the order backlog, clearly, this is impressive, we are adding new programs. We're adding new customers. What I'm just trying to get more color on is -- Slide 9, where you give your programs, which are under serial production. Now those -- that number has been sort of at 10 last couple of quarters. If you can give us some color on when do we see some of the new commissioning. The new wins that you spoke about today, you do mention that is towards the end -- something which flows through in the next couple of quarters? And what segments would that be. So some color on how we should see the order book translating into revenues over the next 3, 4 quarters? That will be the first question.

[Vivek Singh, executive]

Second, you know our business is long term in nature. It's a long-term game we're playing with long-term plans. 3 quarters, 2 quarters is not the way to look at programs, even if a program and you covered auto. for a while. So 10 means, this 10 is not just in season production, it is at its maximum. So it is at a fully ramped up thing. No program can go from start to fully ramped up in just 3 quarters. So it doesn't happen. So it'll be hard for me to comment on that. We will keep looking at it every quarter, and we should see. But in the next 4 or 5 quarters, we should see a lot of programs becoming active even if they are not fully ramped up. I mean if you look at our BEV revenue, right? That should give you some indication that they are obviously ramping up, which is why numbers keep going up.

[Gunjan Prithyani, analyst]

Okay. But you do expect a few of these, which are in the order book start commission or start contributing? I understand that ramp-up will take time. But is that visibility from the next 3, 4 quarters perspective?

[Vivek Singh, executive]

Even in this quarter, there are 4 or 5 that have started, but they have not come to a stage where it's fully ramped-up. And that, how much time it takes that One, that's not in our hands, right? That's in the customer's hands. And that can take a while. But yes, a lot of them are starting. Actually this quarter, a lot of them are starting.

[Gunjan Prithyani, analyst]

Okay. Got it. And Vivek, the second question is on this whole -- the EV competitive landscape that's been changing globally, right? I mean we all saw the way the EV makers are looking at price cuts and aggressively pricing the model. And in that context, when you're looking at your opportunity. Any -- how do -- how are we approaching this now because -- does this mean there is more cost pressure as a supplier given the pricing from the OEMs is getting more aggressive. And I don't want to name the customers or OEMs here, but I mean, clearly, there has been very aggressive pricing. And does this aggressive pricing mean that the market shift could accelerate? So how are you guys approaching this change in the narrative on the EVs?

[Vivek Singh, executive]

So there is a lot of noise out there and not enough signal. With most of our customers, we worked, and I know who you're talking about, but we have worked the most of them for decades. Behavior between customer and supplier long-term relationship doesn't shift overnight. Market new shifts overnight yes, capital markets react overnight, but relationships don't change that much, like business models don't change that. We have -- we do not see any significant impact on that front, to be honest, at all. Acceleration in electrification, yes, look, if people cut prices, of course, it can be accelerated. However, the biggest shift will come when battery prices actually go to the level they should be which is much lower than today. Actually, last couple of years is when the battery prices have plateaued. That's what has kind of made electrification, penetration slower in the last couple of quarters than it was. That is the big one that I would ask you to look at. I mean I can understand in your role, you come across news every day, and you have to see that changing. We -- let's say, we win a new order, right? We've been working on this for the last 2 years. On the pricing and on the product development, it doesn't suddenly change overnight just because the news eye took comes. So nothing -- I mean, you know our numbers for the last 22 years. We get asked this question a lot, but do you think auto was ever a market in which customers were like, no, no, increase your margins a lot. We don't care about cost. I mean when was auto not cost competitive. It hasn't got to do with the EV world. It was always this way, which is perhaps why we are rare in meeting the kind of margins we do.

[Gunjan Prithyani, analyst]

Okay. Got it. Just last clarification on the joint back. The [indiscernible] EDL product that we showcased at auto component expo. And if you can give some color on how the cost of this product is different from the disassembly that we've been doing so far? I mean, just broad number -- approximate numbers would help.

[Vivek Singh, executive]

Cost of price...

[Gunjan Prithyani, analyst]

I mean -- content value. Let me put it very simply for you because we obsess over content value. So how would it be different from the conventional diff assembly that you were doing?

[Vivek Singh, executive]

It is at the highest end of the range I indicated to you. In my commentary, I had indicated that differential assemblies can go from 30 per vehicle it to 300 in passenger vehicle side. So it is towards the highest time of that rate.

[Operator]

We have next question from [ Pirag ].

[Pirag, analyst]

Just following up on the [ DBL ] thing once again. Okay. Vivek, can you just talk about the how many -- like what is your competition in this EDL and how much time did you take to make this product? So what are the additional components that you're going to making this compared to a standard differential assembly that you do. And in terms of future retention of this product as well, where all can be applicable in future.

[Vivek Singh, executive]

So I'll let Vikram answer this because, to be honest, it is his achievement, not mine. And second, again, we should not look at each product and say, how much can we multiply by. The thing is, at any range we can do and the higher end is what we will try to service. We won't even stop at India, right? We are going to do the whole transmission eventually. So everything that you see to try to predict how our future will look in a year or 2, it will not work because if you did the same exercise 2 years ago, you would have taken taxi dollar differential then multiplied by a large number. If you've taken at 4 years before that, you would have taken $18, $20 per gear set and try to multiply by that number. Every 3 years, who we are as a business and what we can do in capability terms, itself will change? Vikram, talk about...

[Vikram Singh, executive]

Yes, I understood. I understand your question. I think the present differential, which can have 6 to 7 main parts can go up til 15-plus parts to make an EDL. So the content within the differential actually goes up twice. That's one. And of course, the complexity of making is quite different than the normal differentials, which we are making all EV vehicle for [ pass car ], a low-end [ pass car ] application to a very high-end pass car, which is user EDL. Off-roading application, it is required. So as I said, it will be twice in numbers of parts going in. That I think was your question?

[Vivek Singh, executive]

So competition Vikram. And what is unique about our EDL, I think, for the design.

[Vikram Singh, executive]

From a design perspective, I think the EDL, which we have made is quite different than what competitors have been making for ICE. And so from that angle, it is very different. I can't explain you in terms of how it functions end function is same, but the construction is very much different. So that's the uniqueness of what we have made in collaboration with customer.

[Vivek Singh, executive]

Yes. And this was done jointly with the customer because EDLs existed in the ice world, but they didn't really in the EV world. So to make it with the customer was a challenge we've done well. The traditional competitors were [ GK ] and Dana, I think these were the 2 who were known for EDLs in the past. But this is different because it's made only for -- like they say, born electric, this is a born electric EDL. So in a way, it's a different product. And again, we are trying to be one step ahead of global competition. I mean if we have to make a mark globally, we have to always be doing different things. So that's the goal of this.

[Pirag, analyst]

Yes. And how much time will it take us to read this?

[Vivek Singh, executive]

From beginning to now.

[Pirag, analyst]

Yes.

[Vivek Singh, executive]

Yes. While -- Vikram.

[Vikram Singh, executive]

I think we have been working for the last 2 years.

[Pirag, analyst]

Okay. Got it. And we also have another order for differential assembly for electric cars. So could you talk about it as well that is this a product? And also the question that I was asking on EDL was also the same that -- not so much from numbers prediction, but just to understand the applicability of EDLs, will it be -- will the future high-end electric cars also be using EDLs according to you? Is that a requirement?

[Vivek Singh, executive]

Big SUVs and pickup trucks.

[Pirag, analyst]

Okay. So most of the electric SUVs and pickups will be using it. All right. And the...

[Vivek Singh, executive]

There is no way than doing what I would deem the company was trying to do with the quad motor configuration. This is a better way to achieve the same end result.

[Pirag, analyst]

Okay. And does it have any software components as well?

[Vivek Singh, executive]

No.

[Vikram Singh, executive]

No.

[Vivek Singh, executive]

Software is at the OEM end. We just have the electronic actuator. I think I showed you at the auto expo what that does, but not software.

[Pirag, analyst]

And this will be over what period this order is the order book that we have assumed is over what period.

[Vivek Singh, executive]

So the order books end is 10 years, as you know, I mean, we only give for 10 years. So obviously, it is less than 10 years because it begins in -- yes, but this is an open order. So as long as the vehicle.

[Pirag, analyst]

And when can we hit the peak revenues here?

[Vivek Singh, executive]

That's a good question. And...

[Vikram Singh, executive]

I think it kicks off from the end of this year and should grow over the next 2 years, 2026, probably it will be...

[Vivek Singh, executive]

Calendar '20 -- calendar '25 or '26 calendar should be peak.

[Operator]

Next question is from Chirag.

[Chirag Shah, analyst]

I had a question on a follow-up. Actually you answered some of my questions on EDL. My basic question was how and why an OEM would adopt EDL over a differential assembly? One, deep pass car or commercial vehicle, that is a broad question. And second, is there a relative cruise ship required for you to achieve those -- the penetration of EDL.

[Vivek Singh, executive]

Okay. So I'll let [indiscernible] answer it. But EDL is a differential assembly. What name is electronically locking differential assembly...

[Chirag Shah, analyst]

The reason I'm asking you was the price or the cost earth value difference as you indicated from $30 to $300 it is the top end of the spectrum -- means it involves good amount of value content jump from an OEM perspective also. OEM who is paying $30 may not be going to spend $300. So what will drive then you partly answered SUVs and pickups. But why and how we transition to even lower vehicles or cars or commercial and [indiscernible] required for this -- faster penetration?

[Vivek Singh, executive]

No, Okay. So I'll answer that. I think you're trying to ask the new product, they will go in everything. No, it won't. So EDL is required. If you have a 4-wheel drive as the beginning. $30 versus $300 is also how many drivel axles, right?

First, you have to say it's actually $30 to $150 in that sense. In that case, it is the class of vehicles. So if you don't have an off-roading 4-wheel drive requirement, you don't need like you don't need an EDL for a city car -- which is why I said, SUV and pickup truck is the target segment, which is why in that if you look at the highest segment, you'll see the [ Indiscernible ] also says that.

[Chirag Shah, analyst]

And I presume more regulatory pushing required for an option, it's a natural progression, the way it happens in ICE.

[Vivek Singh, executive]

Not really. This is more an OEM's desire to give you better handling of the vehicle. If it gets locked in, you can back up to the other one. How do you [indiscernible] it is all, I'd say, reputable and global SUVs, and I'm taking global definition of the SUV not the [indiscernible] SUV where crossover is also coming in [indiscernible] almost all of them, if they're SUVs, it'll be 4-wheel drive even now. So it's an ICE product also.

[Chirag Shah, analyst]

Yes. And just last extension, are you looking to enter into ICE market also, given that you have a EDL now and will be requirement in ICE market -- or you are not looking at ICE market at all.

[Vivek Singh, executive]

Not at all because, look, we started making differentials in 2016 for EV. There is no reason to go supply to a market that will start shrinking. So opportunity just doesn't make strategic sense.

[Chirag Shah, analyst]

Yes. My second question was on this market share data that you shared for differential and motors. Is it possible to indicate what is the global denominator in that because it would be hell to ask for us to understand what happen to recover as the global seem like? Given that there have been so many appeals last year, if you can share that number according to the -- what was the industry volume that were calculated?

[Vivek Singh, executive]

Sorry, Chirag, your voice actually is slightly -- I understand, I got like you said, market shared numbers...

[Chirag Shah, analyst]

Okay. Am I audible now? So what I'm saying is if you can share the industry data that record was on the industry volumes to calculate the market share for the full year?

[Vivek Singh, executive]

No, That's widely available. I mean, 80 million vehicles sold last year, CY '22 and I think it -- one is [indiscernible] that should be I mean we'll send it to you, but I think that's enough like in -- you can Google on it.

[Chirag Shah, analyst]

[indiscernible] more focus on what [indiscernible] I'll take it offline. I'll take it offline.

[Vivek Singh, executive]

Yes. Chirag [indiscernible] from [indiscernible] like they don't get it from [indiscernible] Data source eventually [Foreign Language].

[Operator]

We have next question from the Hitesh Goel.

[Hitesh Goel, analyst]

Vivek. Team. So my question is more on the PLI scheme. So can you give us some sense on what is happening on the PLI or you were already applying to the government on the incentive that you're getting. But as far as I understand, is not coming into the PLI. So when do we expect that? How is it getting calculated? Because somewhere I read the government is looking at value-add to really compute that rather than revenue, which was the first draft, which we saw in the PLI scheme. And whether you will be passing on to the OEMs because that will be a competitive advantage, especially for Indian automakers suppliers, right? So whether some part of that is passed on or you have sufficient pricing power to hold out with that gains?

[Vivek Singh, executive]

So I'll let Rohit answer it. Our accounting treatment policy, et cetera, is clear till we get it, we are not accounting for it. So we haven't made any provision or any adjustment for PLI. But Rohit.

[Rohit Nanda, executive]

Yes. So Hitesh, to the best of our understanding, the scheme continues to be linked to the revenue. So value addition criteria is basically the qualifying criteria, the domestic value addition. So to the best of our understanding, so far, we have not -- I mean we were called by the ministry also recently to have a meeting and all, but we've not heard about any changes from them. And like Vivek already clarified, we don't intend to start taking the credit in our books till the time we actually get it which will be in the next financial year. So when the next financial year is also something that we don't know as of now, we'll probably keep everybody informed as and when we get more information from the government, but this is where we are.

[Hitesh Goel, analyst]

And just to be clear, what is the average incentive on revenue that you're looking at, I mean, on your portfolio?

[Rohit Nanda, executive]

So, there are 2 factors there. One is that it will be limited to the products which qualify under the scheme that I'm sure you understand. The percentage also is graded depending upon the turnover we achieved I think my sense is that at the peak over the years because, one, there is an EV sort of pop up that we are likely to get. Overall, over 5 years, I think the peak rate that will hit will be, I think, around 15%. We may start at around, I think, 11% or so.

[Hitesh Goel, analyst]

And is there a necessity to pass on this to the OEMs? Or you have -- because your supply...

[Vivek Singh, executive]

Who exactly Hitesh? Because you know who our customers are. There is no customer in I mean, there is only 1 customer who's above 5%. Most of the customers in India are less than 2% of our revenue. So bargaining power is not the same as it is everywhere. Second, or most of our Indian customers, they're not getting any incentive. I mean, 2-wheeler there's alone. Not much there.

[Operator]

We have next question from Amyn Pirani.

[Amyn Pirani, analyst]

Yes. Can you hear me? Congratulations on the order win on the EDL. Some clarification on that. So, a, this order -- so basically, is this for an entirely new product? Or are you like replacing someone? Or are you giving a better product to something that you are already supplying. So some color there would be helpful.

[Vivek Singh, executive]

So new products for this customer. Obviously, the product exists in ICE vehicles of different carmakers, but not for them. For them, this is the first EDL vehicle.

[Amyn Pirani, analyst]

Okay. Okay. And the other order that you declared today, obviously, the amount is significantly lower. Is it because -- is it for a significantly lower tenure? Or is it just because it is a relatively lower value-add product compared to the EDL. So I just wanted to understand that.

[Vivek Singh, executive]

So Amyn, correct. So it is lower value, lower volume and lower tenure. All 3. Small car, I mean see, you're saying in an ordinary quarter, that would have been a highlight win, but cards. And that's the point I've been trying to make to a lot of people that you win a big SUV with a big value. You get -- in money terms, you get way more than you get in volume terms. Here even the volume is decent. The values so little and axle driven. So it's not a big car, so you don't get that much money.

[Operator]

We have next question from Jinesh Gandhi.

[Jinesh Gandhi, analyst]

Yes. Am I audible?

[Vivek Singh, executive]

Yes, Jinesh, very much [indiscernible].

[Jinesh Gandhi, analyst]

Comments on the EDL order. So can you indicate what's the share of business? Would it be 100%? Are we single source supplier for that product for that particular model or it's a share business?

[Vivek Singh, executive]

No, yes. So yes, single source.

[Jinesh Gandhi, analyst]

Okay, That's great. Secondly, when I look at our Asia Pacific ex India revenue, that market has been under tremendous pressure if I've to put. So in terms of share has been falling partly because other markets are doing well. But on absolute basis, also that geography seems to be coming down. So what is happening there? Why are we seeing decline in that geography, particularly, I mean, I presume that's China.

[Vivek Singh, executive]

Correct. China plus Southeast Asia, but the decline mainly on the ICE side was, we are startup motors as a percentage of vehicles sold is getting out. So that will -- that if you have only 1 product, and that is what the plant in China does, right? That's the startup motor plan. So yes, there is a time where we'll have to figure that out that what is the point of continuing in a particular market that's electrifying fast. So that was bound to happen. And China is electrifying far faster than India. So India, your startup motor business or even in U.S. can continue for 15 years. But in China, maybe 5 years, 6 years, it may be all electric.

[Jinesh Gandhi, analyst]

Okay. Okay. And are we seeing increased penetration of our driveline products in China or that is difficult...?

[Vivek Singh, executive]

No. I think we mentioned this even right from the IPO time that our strategy is North America, Europe and India to retain because we already have very, very high market share and grow in U.S. and Europe. Now this time by our market share increases, we grew quite a lot in North America. Europe is still very underpenetrated. I would say low single digits is what would be a differential amount. Asia, especially the biggest problem is there is a duty in it. So if I export, there is a duty. And if I want to go set up there, we have -- we don't see that as a better choice. And right now, if you have a lot of room to grow in North America and Europe, like a lot -- it is also [indiscernible] market.

[Jinesh Gandhi, analyst]

Right. Got it. And lastly, on the [ PNI ] part, I mean, given that only a few of our products would be qualifying for that. Can you talk about what percentage of our current revenues would be eligible for PLA scheme in the sense in terms of the portfolio mix would be eligible for PLA scheme? And similarly, if you can do it at the order book level that will give us some indication of how we stand in terms of our qualification for PLA.

[Vivek Singh, executive]

So I do think that's a true assumption that only a few of our products are qualified. Will we be qualifying is not the thing because the list is out. So all EV differential assemblies, all EV traction motors. And Rohit, [ IMC ] will also qualify, right?

[Rohit Nanda, executive]

That we are getting clarification. But right now, our EV revenue largely would be a good indicator as of now.

[Vivek Singh, executive]

Jinesh, that's a very good one. EV revenue. So whatever is EV, is pretty much automatically qualified.

[Kapil Singh, analyst]

We have a couple of questions in the Q&A box as well. So some of them is from Pragyasha. You have added a lot of new products in the last year. Have we seen any new customers or existing customers ordering these new products apart from first initial customer for whom you have initially built these products? The reason is to understand ROCE on these products.

[Vivek Singh, executive]

Yes, Rohit you can take this.

[Rohit Nanda, executive]

So I think the number of customers and the products, actually, we disclose every quarter. So if you see the number of customers and number of orders, they've been going up. So there are repeat -- I shouldn't say repeat, but there are different customers buying same or similar products. And what was the second part of the question?

[Kapil Singh, analyst]

So basically, if there are -- the question here implies that if there are more people ordering the same new product, then maybe the ROCE on the product will be better. So is that how it works? How do the ROCE on the new products were, is it...

[Vivek Singh, executive]

Back to that philosophy, number one, I think if your product doesn't make in the first batch itself, it doesn't start making good money and return, you shouldn't do it. So we don't follow or subscribe to that philosophy. If we have a single order also, it will be ROCE positive, and it will be in the range that we have been doing business. That is the discipline with which we do anything anyway. We don't price -- actually it's a -- as you guys would have also found out in other companies, that thing of let's first introduce a low price and then when volumes increase, we will get higher price does not work in whatever is the price you set, it can only go down from here. I can never go up from here. And economies of scale, yes, they come in, but not that much. However, if you just add -- look at the latest order that we I mean traction motors is a new product category. We went from no customers to 7, 8 customers in almost 2 years. If you take any of the ones, but you have to go at least 2, 3 years because for a product to go from -- when we announced it to SOP is 1 year from SOP to other customers see it and acquiring and then trying to build that would be another year minimum. So 2 to 3 years is how much time it takes. But anyway, I mean, economic value wise, it should start working out from product one.

[Kapil Singh, analyst]

Yes. And then the last question from my side, Rohit, you talked about the fact or Vivek you also that we should be able to hold on to the margins around these levels. So if you could just talk us through in the context of EV revenue mix will be going up? And what do you -- what are you seeing on the raw material costs? And also the motor business mix will also be going up. So when you -- would these 3 variables to go -- what are you seeing?

[Vivek Singh, executive]

There's 3, there are more. So there are many more, but I won't confuse you, which is why I'd say very simply at least for the next 4, 5 quarters, we see 27% and 15% at sustainable levels. If nothing changes drastically in alloy steel does not go up further. Or aluminum can go up further. However, I think there is also potential for good news, which is equal, which is a alloy steel can come down, which it should. Geographic mix and product mix, we kind of have a idea of what the next 4 quarters are. It looks like it should hold at this level. There are other variables also, by the way, but I'm not confusing the better. I'm just trying to give a straight and simple answer. Then it should be continuing. Nothing else. I mean, interest, et cetera, doesn't really affect us that much. So I don't think there are other variables at play.

[Kapil Singh, analyst]

Okay. Great. Julia, I'll hand you back for the closing remarks.

[Operator]

Okay. Thank you very much. We will now conclude this call. If you have any follow-up questions, please feel free to e-mail your Nomura sales representative or Corporate Access. Thank you, everyone, for your time. Over to the management for the closing remarks.

[Vivek Singh, executive]

Thank you, Julia. Thank you, Kapil. Thank you, everyone, for attending. I'm sure you have other places to be, so I won't take long. Thank you.

[Kapil Singh, analyst]

Thank you. On behalf of Nomura [indiscernible] management as well as all the investors for joining us. Thank you very much, and we can close it now. Thanks, Julia.

[Operator]

Thank you.