Sona BLW Precision Forgings Ltd

NSE:SONACOMS

Earnings Call Analysis

Company Growth Fueled by EV Expansion

The company reported a 9% increase in net order book to a record INR 240 billion, propelled by a surge in electric vehicle (EV) orders, now comprising 79% of the total. Hybrid and micro-hybrid revenues outperformed industry ratios, while the internal combustion engine (ICE) segment shrank to 10%. North America remains the largest market; however, Europe experienced the most rapid growth, and India retained its second-place revenue position. Revenue rose by 13% to INR 777 crores, with battery electric vehicle (BEV) sales climbing 28%. EBITDA soared by 22% to INR 227 crores with a profit after tax (PAT) increase of 24%, highlighting the firm's escalating operational efficiency.

Financial Performance and Business Development – A Mix of Challenges and Milestones

Sona Comstar, a key player in the automotive component industry, faced a dynamic quarter with a blend of headwinds and robust achievements. The off-highway market in India presented challenges with a decline in production, resulting in decreased sales of differential gears and assemblies. Similarly, the 2-wheeler EV market experienced a shakeup due to aggressive discounting by certain companies leading to a temporary but tangible impact on Sona Comstar’s sales of traction motors. Global events also loomed over operations, with the potential for the ongoing Red Sea crisis to increase shipping times and costs, further complicating supply chain logistics. Despite these hurdles, the company achieved its highest-ever EBITDA and net profit due to improved operational efficiency, beneficial product mix, and reduced material costs. Encouragingly, their global market share in differential gears increased from 7.2% to 8.1% of global volumes, underscoring their competitive standing in the market.

Electrification Efforts Propel Revenue Growth

Electrification remains Sona Comstar's strategic linchpin, with BEV (Battery Electric Vehicle) revenue share jumping from 25% to 28% in FY'24 compared to the first nine months of FY'23. This leap represented a 31% growth in BEV revenue, outstripping the non-BEV segment and indicating the company’s adept positioning within the flourishing EV landscape. Their track record of adding new programs and customers, with 53 EV programs across 30 customers, attests to their agility in capturing diverse opportunities across the electric mobility spectrum. Innovations such as a distinct integrated motor controller for high-performance electric motorcycles signal the company's robust ability to develop sophisticated products aligned with evolving industry standards. This technological edge has been key to securing new orders and reinforcing their reputation as a solution provider for a range of BEV powertrains.

Operational Excellence Drives Profitability

The impressive growth in EBITDA and PAT, outpacing revenue growth, can be directly attributed to better product mix and cost efficiencies. While revenue grew by 13% to INR 777 crores, EBITDA saw a 22% increase, and PAT grew by 24%. The well-managed and balanced portfolio, coupled with cost discipline, has allowed Sona Comstar to maintain EBITDA margins above the long-term usual range of 25%-27% for five consecutive quarters, and they are anticipated to remain above 28% in the near future. This consistent performance is a reassuring indication for investors, reflecting the company’s capability to sustain profitability even amid varying market conditions.

Corporate Governance Reflects Strong ESG Alignment

The company has demonstrated solid progress toward sustainability and corporate governance, achieving a 10% reduction in the emissions intensity of their operations. With five independent directors and two women directors, the Corporate Social Responsibility (CSR) framework reflects an inclusive and progressive approach suggestive of a robust ESG profile. Such accomplishments are likely to reinforce shareholder confidence and could potentially attract investors who place a premium on sustainability and governance practices.

Fostering Long-Term Partnerships in Emerging Segments

Through collaborations with companies like Equipmake, Sona Comstar is actively involved in developing, testing, and validating new products such as bus motors and controllers tailored for Indian conditions, targeting launch dates in the last quarter of calendar year '25 or the first quarter of calendar year '26. This long-term orientation, typical of the automotive industry's 10- to 15-year life cycles for product development and partnerships, instills a sense of stability and commitment towards its growth trajectory and capacity to adapt to future market demands.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to Sona Comstar Q3 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 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.

I will now hand over the floor to Mr. Kapil Singh, Head of Consumer and Digital Commerce Research India, and Lead Auto Analyst at Nomura. Kapil, please go ahead.

[Kapil Singh, analyst]

Good evening, everyone. To take us through the Q3 FY '24 results, we have the management team of Sona Comstar: Mr. Vivek Vikram Singh, MD and Group CEO; Mr. Kiran Deshmukh, Group CTO; Mr. Sat Mohan Gupta, CEO of Motor Business; Mr. Rohit Nanda, group CFO; Mr. Vikram Verma, CEO, Driveline Business; and Amit from Investor Relations team, along with Pratik Sachan, DGM, Corporate Strategy and Investor Relations.

Now, Vivek, I'll hand over the call to you now for the presentation and opening remarks.

[Vivek Singh, executive]

So thank you, Kapil. On behalf of Sona Comstar, I welcome all of you to the earnings call of what has been our best quarter ever in terms of EBITDA, net profit, EV revenue, BEV revenue share as well as order book. But first, as is our policy, when talking to our owners, our shareholders, we'll begin with those challenges.

So first, the off-highway market, particularly in India, has been weak and production declined further in the last quarter. Given our high market share in this segment, which has affected the sales of our differential gears and differential assemblies to this market.

Second, aggressive discounting by a few EV 2-wheeler companies has temporarily disrupted the EV 2-wheeler market and its market share. This has affected some of our customers' sales thereby impacting the sales of our traction motors in Q3. We expect this to continue for few months, but we believe it is unsustainable beyond that.

Third, the Red Sea crisis. While the current impact on our operations is negligible, if the crisis continues, we expect adverse effects due to the longer shipping time, higher freight costs and increased inventories. Fourth, we lost about INR 25 crore of revenue in October due to the UAW strike impact in the United States. However, the strike is now over and this production loss will partly result in the current quarter.

The good news, as is usually the case, far outweighs the bad. So in financial terms, we achieved our highest ever EBITDA and net profit despite margin lower sequential revenue. We have also introduced a new product that should improve electric powertrains for the EV 2-wheelers and we will cover this in detail later. As the calendar year has ended, we brought [indiscernible] yesterday. And as per them, we have increased our global market share in both differentials gears as well as starter motors in 2023.

In terms of market, the European life cycle market has recovered strongly this year. 2023 was also positive on a Y-o-Y basis for the U.S. market, and things continues to look good in both of these markets. The Indian market has been mixed across the 3 segments that we serve and will likely remove volatile over the next few quarters.

On the ESG front, we continue to make progress on all of our sustainability targets, and I'm very happy to report that we reduced the emissions intensity of our operations by over 10% last year. Q3 of FY '24 was also one of our best quarters for business development. We won 5 new BEV programs and we closed our quarter with an all-time high net order book. Three of the new BEV programs, 1 out 3 innovative and unique powertrain solutions, which -- with more than anything we affirm our position as a technology leader in the products that we make.

Lastly, from where we stand today and what we see from where we are standing based on customer schedules and our strong order book. We are certain that electrification will continue to drive strong growth for us in the immediate, in the medium as well as the long term.

Now coming to the numbers. Revenue grew by 13% while EBITDA and net profit increased by 22% and 24%, respectively. This is because margins improved due to operational efficiency, better product mix and lower material costs. Our EBITDA margins have now been higher than our usual long-term range of 25% to 27% for the last 5 quarters running. So I guess I must comment on this, and I have to add that we expected to stay above 28% in the near term. I mean, the BEV revenue grew by 28% in absolute terms, to the highest that we ever had, INR 222 crores, while the BEV revenue share increased to an all-time high of 30%.

Coming to the 9-month figure, we've increased our revenue, EBITDA and PAT by 19%, 32% and 34% perspectively. As I mentioned before, since this is the end of the calendar year 2023, we've got our global market share is calculated. Our starter motor market share improved from 4.1% to 4.2% as Europe and the U.S. market where we have higher market shares have grown faster than Asia.

Our market share in differential deal has grown from 7.2% to 8.1% of the global volumes. Just to add some perspective here, this increases the equivalent of adding around 1/3 of the entire Indian car market to our market share in just 12 months.

Now our first strategic priority, electrification. In this, our BEV revenue share has increased from 25% in the first 9 months of FY '23 to 28% for the first 9 months of FY'24. Our BEV revenue is rupee terms has grown by 31% to over INR 6.1 billion in the 9-month period. The growth in BEV revenue for us has been more than double the growth in non-BEV revenue, with EV traction motors and EV differential assemblies being the fastest-growing product segment for us this year.

We continue to build on our EV order book. In Q3, we have added 5 new EV programs and 2 new EV customers. There are 3 new Driveline program additions, two of our existing customers in the North American BEV market, which I'll elaborate upon in the next slide. And one is for the domestic electric off-highway segment. There are also 2 new motor programs for us, both for electric 2-wheeler makers in India. And one is the new customer, the other is an existing top 5 e-scooter maker.

So yes, we want to highlight these 3 new EVs, where we supply 3 of our new or recently developed products. This is always one of the most key criteria for us as we move along with our journey, that's how many more branches can we open up into our revenue growth?

So the first one on the left is the EV order we won from a new customer. It's an Indian legacy OEM of ICE and electric 2-wheelers. We have developed a new product, an integrated motor controller for the customer's high-performance electric motorcycles. It's a unique design, and I'm very, very proud of our engineering team for having done that so quickly.

The second one is the spool gear. You may have heard about it in our earlier presentations as well. For electric SUVs of a global OEM of electric vehicles. This is an existing customer. We will supply these spool gears for the 3 motor architecture of the customers most advanced, and that's the highest, top SUV. This will come after a year of joint hard work between our customers and our engineering team, and it will be one of the highest stock products ever made for electric SUV in the world. This program will begin serial production in the current quarter itself. So that's a plus.

The third is the EV order we run from another existing customer, North American new age OEM of high-end electric cars. Last quarter, if you recall, we had won the order to supply rotor embedding differential subassemblies for this customer. And now we've been awarded the epicyclic gear train and rotor shaft as well. This is kind of proof of how we are growing our content in a car by developing new products in adjacent areas of our focus area.

Now these 3 then also demonstrate our capabilities to offer solutions to customers for all types of BEV powertrains. I mean if the customer is looking to renovate and have a product based differentiation, we are clearly the partner of choice for this.

And this is the advantage that I think we've been talking about for a while, because technology-led company like ours has over -- both companies who build to print for standard parts. Now with new wins, we now have 53 EV programs across 30 EV customers. Exactly about a year ago, I think this number was 41 programs across 25 different customers, which means in the last month we've added 12 new programs and 5 new customers.

As I mentioned, stage 1 Q3 was also one of our best quarters for business development. And on the back of the side, EV programs I mentioned and the 7 new non-EV programs, the net order book has increased by 9% over the previous quarter to reach an all-time high of INR 240 billion. The proportion of EVs in the order book has also grown to 79%.

With this, I come to our fourth key area, diversification. Now the strong demand recovery in Europe in the first 9 months means that the revenue share from hybrid and micro hybrid has been higher than industry ratio. This trend of increasing electrification and decreasing ICE dependent continues unabated. And this year, we've seen the ICE dependent revenue shrink to only about 10%.

Coming to geographies. North America remains our largest end market contributing to 39% of revenue, and this is besides the negative impact of the UAW strike that I spoke about earlier. The European market was the fastest growing market attributed 25% to our revenue. India remains our second largest market and its revenue share remained stable at 29%.

In the product mix, the chart changed a little after the NOVELIC acquisition. We've added a new segment called Sensors and Software, which is small at the moment, it's just about 1%, but we hope to add to this as we go along in our journey.

The fastest growth segments in products for this year have been EV traction motors and EV differential assembly, and although differential assemblies here seems to have come down by 1%. It is more the off-highway differential assembly business that has actually lagged not the EV differential assembly.

Differential gears, of course, have also grown quite strongly and this reflects in the changes in the product mix, where you see that it's gone up from 32% to 33%. In the end market or market segment mix, we've added a new segment, semiconductors and embedded software. This is to reflect the long product of the services revenue we do and develop. The weakness that I mentioned in the off-highway demand has resulted in the share of nonautomotive revenue declining from 12% rather to just 10% in the first 9 months of this year.

With having covered this, I'll turn to our group CTO, Mr. Kiran Deshmukh, to update us on the technology track. Over to you, sir.

[Kiran Deshmukh, executive]

Thank you, Vivek. Good evening, ladies and gentlemen.

We have been making the mid-mount drive motor and low voltage inverters for 2 and 3-wheelers as 2 separate products so far. This quarter, we have added a new product in our product portfolio, which is an integrated motor controller. With this development, we have come a step closer to developing an integrated drive unit, EX that we show on our technology road map.

The integrated motor controlling, this thing from a separate motor -- motor and controller setup has several key aspects. It offers our customers matchless advantages, and this slide shows some of them. Number one, our compact design. The integrated unit combines both motor and controller into a single, compact package leading to a smaller overall footprint. Two, simplified installation and maintenance because with integration, the complexities involved in connecting and configuring separator and controller units are significantly reduced. This simplification can lead to easier installation and maintenance since there are fewer connection and components to manage.

Three, improved efficiency and performance. Our integrated system is designed to optimize the interaction between the motor and the controller, leading to higher efficiency and better performance. This is due to the fact that controller is finely tuned to the specific characteristics of the motor. Four, reduced wiring and connectivity issues, since the motor and controller are contained within the same unit, the need for extensive wiring and the potential for connectivity issues is greatly reduced.

It also enhances reliability and reduces electromagnetic interference, which is EMI issues. Five, cost effectiveness, due to reduced installation time, lower maintenance cost and improved energy efficiency. The overall cost of ownership of the new product is much lower. Sixth, customization and optimization, the integrated unit can be more easily customized and optimized for specific applications. We can design these units for a particular application of the OEM ensuring that the motor and controller are perfectly matched for the requirement.

Next, aesthetic and space considerations. Our integrated unit has more streamlined and aesthetically pleasing design. It's particularly advantageous in applications where space is a premium since it occupies less room than a separate motor and controller.

Eight, thermal management, in our integrated unit, thermal management has been more efficiently addressed since the system is designed to handle the heat generated by both the motor and the controller in a unified manner. Next, communication and diagnostics. Our integrated unit comes with advanced communication capabilities allowing for better diagnostics and monitoring. This includes real-time feedback, on performance, predictive maintenance and more sophisticated control strategies.

Finally, 10, functional safety. This new product is a high integrity system that meets rigorous safety standards and follows best practices in software development processes for the automotive industry. This ensures both functional safety and quality management in its design and implementation making it reliable and suitable for critical applications.

So in conclusion, our new integrated motor controller unit offers a compact, efficient and easy to install solution with improved performance, safety and reduced wiring complexities compared to separate motor and controller systems.

On that note, I'll hand it over to Rohit to cover the financial update.

[Rohit Nanda, executive]

Thanks, Mr. Deshmukh. A very good day to you all. It's my pleasure to share our third quarter and 9 months results for FY '24 review.

In the third quarter of the year, our revenue grew to INR 777 crores, which is a year-on-year growth of 13%. Compared to this, the underlying industry growth was 11% in our key markets of North America, India and Europe. Our BEV revenue grew by 28% to INR 222 crores and it reconstituted 30% of our overall sales for the quarter.

In terms of EBITDA and PAT, it was yet again our best quarter at INR 227 crores of EBITDA and INR 133 crores of PAT showing a growth of 22% and 24% respectively. Growth in EBITDA was higher than revenue growth, primarily due to better operational efficiency and lower input costs. EBITDA adjusted from ESOP costs under the newly approved ESOP scheme of 2023 comes to INR 233 crores. And if we were to deduct adjusted EBITDA growth, it was 25% year-on-year. Similarly, adjusted PAT at INR 137 crores is higher by 28% year-on-year primarily due to higher EBITDA.

Coming to the 9 months results. On a year-to-date basis, our revenue for 9 months grew by 19% to INR 2,300 crores against 14% growth in our key markets of North America, India and Europe. Our BEV revenue grew by 31% and it now constitutes 28% of total revenue. Against 19% revenue growth, our EBITDA grew by 32% to INR 654 crores and PAT grew by 34% to INR 369 crores. Growth in EBITDA was higher than revenue growth, primarily due to better product mix, operational efficiency and lower input costs.

EBITDA adjusted for ESOP costs similar to what I have just spoken about for the quarterly results grew by 33% to INR 661 crores. Our PAT adjusted for ESOP cost and exceptional expenses in the previous quarter grew by 37% to INR 380 crores, mainly due to growth in EBITDA margin. The exceptional expenses were on account of acquisition of NOVELIC.

Coming on to our key ratios, we have seen improvement in our return ratios primarily due to improvement in our margins. Our working capital turnover ratio has also improved due to better efficiency in the working capital. Our employee cost and net debt-to-EBITDA ratios are largely similar to the March level, whereas fixed asset turnover ratio is slightly lower due to higher capitalization during the last 9 months.

This brings us to the last slide in our presentation, which is on ESG update. So this is the first time we are providing you with an ESG update. So we have recently published our second sustainability report, and it's available on our website. I would like to share the key ESG highlights for FY '23 with you. The first one means we've been rated by Sustainalytics as a low ESG risk category with a score of 14.4%, which puts us in the top 9% of more than 15,800 companies rated by them.

On the environment front, like Vivek mentioned earlier in his comments, we have improved our energy intensity, part of revenue by 10% and water intensity by 2%. Our Gurugram and Manesar plants have won silver medals in India Green Manufacturing Challenge this year.

Coming to the social aspects, we were certified as a Great Place to Work in 2023 for the first time and in fact, we've been recertified in January of this year, again as a Great Place to Work with a higher rating than last year. As part of our social initiatives, we are also integrating startup innovating for sustainability in partnership with IIT Delhi and IIM Ahmedabad. Through our other initiatives to provide sanitation and other facilities to school kids, we have positively impacted nearly 5,000 student lives.

On the governance side, the highlights include the winning of Golden Peacock Award for corporate governance in 2023. In terms of board structure also, we are going to -- not have it mandated for us. So we now have 5 independent directors and 2 women directors in a EV [indiscernible]. The promoter of the company holds the office of Chairman in a nonexecutive capacity, which is also not so common in the Indian ESG space.

So these were the 3 highlights on the ESG side. With this update, we have now come to the end of our Q3 earnings presentation, and I'll now hand the proceedings back to Nomura team for Q&A.

[Operator]

[Operator Instructions] We will now go on to the first participant [indiscernible].

[Unknown Analyst]

Congrats for a decent set of margins. My first question was on your integrated motor controller. If you can speak about how has been the journey in terms of the product approved? How much time does it take to get this kind of product approved and what is the pathway to -- you've spoken about this getting adopted in the premium motorcycle, what is the pathway to get adopted in the more mass market product going forward? If you can answer first question, I'll get back for the second.

[Vivek Singh, executive]

Mr. Deshmukh, I think you'll be best placed to take a view of that question, I just wanted to add on the side that almost 30% margins are more than decent.

[Unknown Analyst]

Can you explain margins? It was an understatement, I agree.

[Vivek Singh, executive]

Mr. Deshmukh, sir, do you want to talk about the product development process and approval element?

[Kiran Deshmukh, executive]

Yes. So this goes to -- I mean, in automotive industry, there is a process of approval, testing and validation by the customers, typically takes its own time. But in this particular case, and today, with the electric vehicles, this types of time is much shorter. But still, this is a traditional 2-wheeler manufacturer in India.

So it did take its own time. This is the work which has been going for the last almost 3 years that we started working on this. So in terms of time line, you can say this, but now having developed this product, we can quickly develop products for different applications because this is sort of a modular design that we have developed.

Having said that, to address your second question, for the mass manufacturing, again, it depends on the layout and the space constraints that the particular vehicle requires, typically mass produced 2-wheelers have hub wheel motors. This particular application is for mid-mount motor. So there are certain differences between -- or specifically applying this particular model for a mass manufacturing -- mass manufacture of 2-wheelers will not be reality because the type of motor which is used is quite difficult.

[Vivek Singh, executive]

Adding to that. And I think sir can add further. The same concept can be applied to a hub drive motor also, but the concept is that this has to be led by the customers' requirement and demand because when you're redoing the powertrain of the vehicle, you are, in a sense, redesigning the whole vehicle itself.

So you have to start from strikes and then say, what would an ideal electric 2-wheeler look like? And that's the stage that will typically get involved but first, you can shed some light on applicability of integrated motor controller, not just for mid-mount but for hub wheel as well.

[Kiran Deshmukh, executive]

Yes. I mean, it opened up a lot of opportunities to read across some of the learning what we have on mid-rise and integrated motor controller on our hub motor technology. And so -- it can be useful for a motorcycle as well as our scooter operations.

And also on the timing, one point is, I mean, it also depends how much validation and what's the development stage the OEM has and how much validation they would like to do before they go to SOP. And based on our experience, I mean, that time, it's very, very different between OEM and the amount of validation each and every OEM does to validate the product. And it's not only the validation of motor controller, it's the complete validation.

[Vivek Singh, executive]

Jay, you have a second question as well?

[Operator]

Jay, do you have your second question? No, I think he just on mute -- he just unmuted himself. And there's the question, sorry. Kapil. Can I go to you, Kapil?

[Kapil Singh, analyst]

Yes, sure. Thanks, Dina. So I also wanted to check on this margin guidance, you have changed the guidance or increased due to some extent from earlier range of 25% to 27% to 28%. If you could just talk us through the factors why we have done this?

[Vivek Singh, executive]

So as in all things, we go by data, 5 quarters if the guidance is not true, and more than what you said, you should validate that point. So that's the real reason, we don't see -- so why we said 4, 5 quarters, if you go back actually and read our transcripts, I think about 4 quarters or 5 quarters ago, I said that, I think it is going to stay above 37%. So that's kind of held true for 4, 5 quarters.

Most of the capital is material price. So we have seen enough of these cycles to know that when material prices, especially steel and copper start going up, your revenue grows much faster than your profit. And when the reverse happens, your profit grow much faster than your revenue, which is the natural cycle. So it's more a percentage thing, and we don't see any indication of steel going up to where it was in 2021, et cetera, anytime soon. This is why for the near term, we will hold to it. If it changes, of course, we will also change and especially when intelligent people are presented with the new data, they change their SME.

[Kapil Singh, analyst]

If you could you also talk about profitability profile of your business, the way things are shaping up? Is that also something that has contributed to this margin yield because we've heard some concerns that, for example, some of the motor business could be less profitable. So some of your thoughts on this would be helpful.

[Vivek Singh, executive]

Yes. So obviously, look, all products are not alike. All customers are not alike and all markets are not alike. There are low-margin products. There are low margin markets and then low-margin customers. And it is a mix. As a management team, your job is to balance it and try to solve for absolute profit growth.

The percentage is, frankly, an outcome, and that's what eventually, at the end of the quarter is what we realize that, that's what it is and when you try to explain it, we don't try to set out to do that. The solution or what we are solving for in the equation is how can we sustainably grow our absolute profit at a rate that we want while not taking any decision that affects us in the long term. Because all of these decisions have a bearing, which is very large in the 4 to 5 years deal.

So that's the goal. Because see, eventually, if you do discounting of price, you can do growth, you can optimize growth while sacrificing a little bit on margin. You can maximize margin by sacrificing growth. So it is a balance that we have to play.

I think we are fairly worse with it now, and we continue to play that. These ups and downs in market segments will happen. They are out of our control. So let's say, like this quarter, I said that there are 2 weak ones, electric 2-wheeler market is a lower profit segment market and that our customers sales are lagging so that is also a contributing factor.

[Kapil Singh, analyst]

And I have 1 more question on the bus opportunity. We have recently read a lot of news flow that the Indian government is quite keep to increase the EV bus adoption in India. And there are various kind of orders being discussed as per news flow. As far as you're concerned, you have a tie-up with Equipmake for bus motor, right?. So just in terms of how this opportunity is likely to evolve, what is your view? What kind of discussions are happening with OEMs, if at all, just some views on that would be helpful?

[Vivek Singh, executive]

Sure. So as you would seen in our presentation also for the last few years, we've always maintained that there are 2 segments that are likely to electrify fastest in India are electric 3-wheeler and electric bus. Just because of the way the industry is structured. It's an economic asset, and if you run it for more than 5 or 6 hours, the payback is far faster in an electric vehicle then a ICE vehicle. So it's just economically sensible to switch and we believe in that opportunity. Electric 3-wheeler, I would say we are moving very fast, and we've done very well. We already have a few orders. In bus, we have partnered with Equipmake to develop, test, validate and launch those products. We are still in that journey. We haven't reached that journey that we can go offer it to customers. Sat can add on where we are and when is it likely that we can start seeing some revenue from that segment.

[Sat Mohan Gupta, executive]

So, as far as the bus motor and controller is concerned from the Equipmake design, we are right now in the validation stage of those motors because we need to tune those motors for Indian conditions. And our launches in the last quarter of calendar year '25 or the first quarter of calendar year '26. So that's what we are targeting to work on it.

[Kapil Singh, analyst]

So Deanna, I'll hand back to you. I think there is a follow-up question from Jeff and then we can take some Q&A from the chat box as well.

[Operator]

Thank you, Jay. Thank you, Kapil. Jay, we are now going back to your second question.

[Unknown Analyst]

Sorry, I wasn't able to unmute earlier. So my second question is regarding, of course, in your inflationary scenario, you had mentioned about your top line getting benefited, but that was an empty sales kind of thing. And now with the deflationary scenario we've had a 13% odd revenue growth, how much of that would be because of the deflationary scenario? Or maybe if you can just split between volume and the reversal of that MTC?

[Vivek Singh, executive]

That's hard to do because we don't do it. It has very little -- since all analysis, especially for management at least, has to have some purpose. If an analysis does not lead to a specific or actionable output. It is not very meaningful. The fact that steel prices have gone down has led to price that was empty sales, as you correctly said. How much, we haven't really, I think, tried to figure out. Rohit, you may have this answer, I certainly don't.

[Rohit Nanda, executive]

So for the quarter, this impact was around 1% I would say.

[Unknown Analyst]

Okay. Understood. And just on your electric 2-wheeler side, you mentioned about pricing pressures -- sorry, volume pressures for some of your customers in the third quarter because of the pricing actions by many of the competitors. How should 1 look at the suppliers' profitability in that context going forward? I mean you did mention about this continuing for the next few months, but then reversing. But is there an incremental pressure on the pricing of suppliers because of this so-called price war? And in that context, with our cost structure and our efficiencies, does this also provide an opportunity of a little bit of market share gains, if at all, or consolidation of the traction motor market with more efficient suppliers getting larger shares with better cost structure?

[Vivek Singh, executive]

The very short answer is no, because, Jay, I think there is a lot of recency bias in the way we analyze information. This thing that has happened is only about 1.5 months, and at max it'll go on for on for 3 months. Sat just told you about how we develop products with the new customer. It took us over 3 years to develop and lunch it. These are longer items and in automotive industry, especially if you're doing critical items like the motor or any powertrain or the drivetrain part, you are playing what are essentially long-term objectives with other long-term players. These things don't happen in a haste. No 1 is coming to us and talking about pricing for motor et cetera. I think everybody knows that this is not sustainable. These actions and they will not be there for too long.

Cash burn has never been a great strategy for the automotive market. I mean, history has repeat the examples of people who tried and failed at this. But yes, we will wait and see. So far, it has affected volumes for us, but no other impact. Sat, anything you want to add to it, like what you've seen or heard. I don't think our customers have even brought this up, to be honest.

[Sat Mohan Gupta, executive]

No, it's not a discussion actually either with our customers or with our suppliers? Because I mean, most of us, I mean are in automotive business for so long so we understand these ups and downs. So it's very normal.

[Vivek Singh, executive]

Yes, none of us actually in the industry talk in quarters, right, we all talk in years and quite a long time, it's like 7 to 10 years is the conversation you have. Because let's say, you get sourced on any project. The model will always runs for 5 to 7 years, and then you have to keep spare et cetera, to supply the vehicle parts. So you are entering into almost a 10- to 15-year married type of situation with the customer. Thinking in quarters does not lend itself well to the way our industry is structured.

[Operator]

So we'll go on to the next participant, his name is Gunjan Prithyani.

[Vivek Singh, executive]

Her name is Gunjan Prithyani.

[Gunjan Prithyani, analyst]

To understand, in the next 12 to 18 months perspective, is this increasing native that EV, at least ex of China seems to be slowing down a bit. Hybrid seem to be the new sort of increasing their share within the global -- in Europe or U.S. In that context, is it something that you can comment a bit, do you see a similar trend when you're having conversations at some of these new EV model that we were hoping that would kickstart in the next 1, 2 years, get pushed out? What are we seeing on EV, and then hybrid, are we seeing that in Motor part of the business?

And also if you can cover the India outlook, there's certainly been some moderation. I'm just trying to get some color from your across segments, how are we approaching more from next 1 to 2 years' perspective?

[Vivek Singh, executive]

Sure Gunjan, thank you for the question. The EV slowdown seems to be clearly a case of narrative trumping data, but it's okay. I'll answer it. EV sales grew by 31% last year in calendar, which is not slow. And the similar question, I remember, we were asked but at that time we went public. I was asked from our Board in 2020 to 2019 was 40% or something. And then the year after that, it went up by 120%. So in a longest journey at least from tracking this for the last now 8 years, what I realized is, it is very linked with localized market dynamics of 2 things; 1 is government policy and second is new model launching.

So if you were to look at those 2 things, one, let's say, first lets start with the North American market, that's our largest EV market so we study that far more than any other. In that on these 2 data points. The first 1 is the $7,500 tax rebate that has come into effect from 1st January itself. And that is now point of sale rebate. So it's not like a tax refund that you can and get it later, you can get it immediately. So that should be a good push for EV.

For plug-in hybrid, it's $3,750, half basically of that amount. Both should do well. I don't think it is applicable or extended to other form of hybrid vehicles. Second, on new model launches, we actually did look at the program lunches of '24 and '25 across automotive. The number of EV, I don't remember the exact number, but it's 70% to 75% of the new model launch are EV. So yes, like I said, from where we stand and what we are seeing and what we are listening to our customers, and looking at the schedules that we have already received for the next couple of quarters, we are certain that electrification will continue to drive.

For us, the growth in the immediate, in the medium and the long term. For us, that's pretty clear. The second part of your question is actually far more hard to answer, which is the Indian market. It's quite mixed. So I will take it in 3 segments: passenger vehicle, the commercial vehicle as well as the off highway. So passenger, I don't know what it looks decent, I'll use Jay's word, decent. It is plus but plus not very much, right? Commercial vehicles are holding, but our past experience and from what we sense, I think it is going to decline in 2024. And then we come to off-highway, which has already been weak for the last couple of quarters, and it is weakening further. So that's the weakest of these segments.

Commercial vehicles, I mean, Gunjan, you've also been tracking this election year, just before election, it is always a bit of a tough quarter when government spending, et cetera, is highly linked to especially the bigger tippers and construction type of thing. So we'll see. India is looking in the 3 markets that we serve, the weaker of the 3 -- the weakest of the 3.

[Gunjan Prithyani, analyst]

What would be the best, North America?

[Vivek Singh, executive]

North America is best in terms of value-add volume for us. So yes, that's the best. Europe's done a fair bit of recovery, but that's happened. Some of that has played out last year. So Europe would be second and then I would say, India.

[Gunjan Prithyani, analyst]

Okay. Got it. This EV thing is good to hear from you because, I mean, it's been something that we keep hearing that it's adoption incrementally is slowing down, honestly, we are like far away from what's happening on the ground. So you see the production schedule better than us so good to hear that.

My second question is on the Motor. It clearly looks like a quite compact design. I'm just trying to understand, was it driven more from the perspective that we need to bring the cost down for the electric 2-wheelers? Or is there any -- from a performance perspective, does it change anything? I'm trying to understand what led to this sort of redesigning of the Motor powertrain?

And if it is a cost reduction, can you share what sort of cost reduction it is versus what we were doing earlier on the more high-performance Motors?

[Vivek Singh, executive]

Yes. So Gunjan, this is a new customer and a new program for a new vehicle. So there's no comparator to what other things we are doing. Cost is certainly better because we are packaging. Instead of having 2 separate item, Motor or Motor controller, you put it in 1. Mr. Deshmukh covered a lot of advantages, but I would say, if this has to be customer-led, right, because you are changing the way the motor will be placed and changing the way the entire vehicle's powertrain is designed and how it is going to interact with each other.

There are technical advantages. Technically, I would say, so yes, there are commercial advantages, but technically, the advantages are far, far greater, the biggest 1 being thermal management. So If you have both motors and motor controllers, any power electronics items also has a heating issue. All of us have experienced that, any electrical or electronic thing heats up. How quick you draw out heat from any system is directly proportionate to how efficient it is going to be. Delta -- temperature upon delta time is basically how we improve efficiency in electromechanical systems.

Now this does that far more effectively because you have combined the thermal management into just 1 unit. That's the big one. Second communication Earlier, you had all these wires connecting a controller to the motor. Now it's in one, so communication is far more compact, serviceability will be much better, lots of benefits. And in hindsight, now that we've done it with our customers, we realized that why didn't everybody think of it. Actually, this is 1 of those products that they should have always been designed like this in one unit, it make sense. But yes, I hope other people will also kind of try and do this and at least for the newer models. You can't do it in running models. It's much harder, but newer models, people should look at this.

[Gunjan Prithyani, analyst]

Okay. Got it. Just very last one I'm slipping and any update on PLI that you can share?

[Vivek Singh, executive]

Our PLI internal champion is Rohit Nanda, so.

[Rohit Nanda, executive]

There is progress, but nothing to report as of now. So like everybody else, we are also in the queue. So the approval process is on. That's all I can share with you right now.

[Operator]

We'll go to the next participant [ Sabyasachi mukherjee ].

[Unknown Analyst]

Am I audible?

[Vivek Singh, executive]

Yes, Sabyasachi, you are.

[Unknown Analyst]

So Vivek, first thing, I wanted a clarify. I joined a bit late. Did I hear you correctly that there was a INR 25 crore revenue loss in October '23 that would get deferred to Q4.

[Vivek Singh, executive]

Correct, but I said partially. I think I said some of it shall partly reverse in this quarter.

[Unknown Analyst]

Okay. Okay. Got it. Next would be, if I look at the order book and the past order wins, many of the programs are scheduled to get into production in H2 and some of them in Q4 of FY '24. And a large program of electronically locking differential for electric SUV that we won in third quarter of last financial year, that was, I think, supposed to get operation in H2. So how are we in terms of readiness, in terms of, are these on track getting into operation? So just wanted an update from you.

[Vivek Singh, executive]

Thanks Sabyasachi. Well thank you for following so closely, but yes, all of them are on track. Actually, some of them are slightly ahead of track, which is obviously making -- becomes life a little hard, that it is a lot of work. So when a lot of new program launches come at the same time, operationally, it becomes a lot of time from engineering teams, production teams. So yes, we are running 6 days, sometimes 7 days, a very little sleep, et cetera. But yes, it's all good. It's all good. This is a good problem to have, that's why.

[Unknown Analyst]

Good to hear. So probably a good reduction of your reply to that would be we should see a good ramp-up in revenues from Q4 onwards. Is it a fair understanding?

[Vivek Singh, executive]

You know we don't give forward guide, especially that near term. But also, let me just put a caveat that in these, right, when a product launches and the ramp start, if you're making 100 a week or 1,000 of week, that first 100 or first 1,000 will take far more energy than 6 months later when you doing 10,000 a week. So it has started. All of them are on track, and they are on track as per customer production schedules, that's all I can say.

[Unknown Analyst]

Okay. And lastly, if I look at your breakup of the EV programs that we are currently having 53 programs, out of that 10 is fully ramped up, 15 is in the ramp-up stage and another 28 -- [ 25 ] of course, we have got this quarter, which is yet to be kind of get into production.

So out of this, let's say, if I exclude the 10 programs, which are already fully ramped up, we have around 43 programs. In the next, let's say, 1 to 2 years, how are you foreseeing how many programs will probably get into fully ramped up stage? Any broad color on that would be helpful.

[Vivek Singh, executive]

Yes, most of them, most of them. Very few are actually as long lead as the one that we won right now. Most of them should in calendar year '24 and '25, yes, most will ramp up. Pratik, you want to add some better color or ...

[Pratik Sachan, executive]

Yes, yes, that's correct. So most of them will ramp up in '24 and '25. I think there are 1 or 2 programs which will ramp up later maybe by '26.

[Vivek Singh, executive]

Yes.

[Kapil Singh, analyst]

So we have 2 questions, yes. We have a few questions from the Q&A chatbox. I think you referred to this one, but in case there is anything more to share. Can you please talk about impact on supplies due to geopolitical tensions around the red sea. Is there anything more to add, Vivek?

[Vivek Singh, executive]

Not really. I mean, it's a little early. We are a management team that is,let's say, fairly watchful and active. So we have secured some of these things already because if we don't go on winter break and we are actually in office on 2nd January, it's easier to get containers booked, et cetera. So it's not much for now. But as I said, if it continues and it becomes like a problem for 2 months or something, then we can't even guess right now because we saw that happen in 2021. Because it doesn't go -- there is no linear logic to it.

It's suddenly will start shooting up and then availability is not there because of that, if you add routes. Yes, working capital costs will go up, shipping time can even go up from 10 to 20 to 30 days. It's very unpredictable how it will all play out. The biggest impact would be our deliveries to Europe, but even for some of the ones that go into some of the North American, they use that route, so it's hard to say, it will be negative, which is why we brought it up and shared as we challenge already if it continues. Right now it's negligible as an impact.

[Kapil Singh, analyst]

Okay. Then there is 1 more question. If you could share update on the NOVELIC business as well as the product development update with Equipmake, I think, Equipmake, you've already talked about.

[Vivek Singh, executive]

Yes, I think Equipmake, we discussed even the time lines. And NOVELIC is going well. As all of you know, when you have a smaller company integrate into a large public listed company, there are a lot of different systems and processes and setups, quarterly audits that we are doing. So we're doing 3 things. One is to ensure that the engineering services revenues continue to be stable or growth. Third is pivot this business into starting to make product and any of the product opportunities that we are chasing could be anywhere between half of their current annual revenues to 1.5x annual revenue even 1 project if you win. So that is a endeavor that's also going on in parallel. So these 3, yes, all 3 are happening, early days, first quarter, a lot of growing up to do and there are a lot of things.

And over time, I believe we will have some positives to share. But just to share, opportunity size is so immense. I mean that technology is so wonderful that anything you hit, I mean, if you look at the 4 or 5 big ones we are chasing, they are transformational at least for NOVELIC. I know in the overall scheme of things, with Sona Comstar revenue, it's might not be a big thing. But for NOVELIC will be a fairly large thing, anything that we did. So it's all going. It's been 4 months that we've been doing this, and it is a wonderful learning experience for them also, I hope. It has been wonderful for us at least.

[Kapil Singh, analyst]

And then 1 more question we have is on, we updated the vision statement in the recent quarter to valuable mobility companies. We detailed a lot of opportunities, including aerospace, et cetera. Any homework we have already started? What percentage of revenues we foresee that will come from this new areas, say, in next 2 to 3 years?

[Vivek Singh, executive]

Did we though? I don't think we detailed out. I mean I have a fairly decent memory. But yes, we just said that mobility, it could mean anything that moves. The core thought of it comes from just this simple logic that anything that has a motion or propulsion would need a motor and a gearbox, which are the 2 primary things we make. If it is an intelligent motion device, it would have also sensing as well as the intelligence to process it. So Sensors and Software will be required. That is the reason, and if you refer back and, Pratik, you can go to that slide, which has a product to market segment revenue.

So if you look at it, it already has -- I mean, automotive traditionally if you look at how ACMA or CM defines itself, it's passenger vehicles, commercial vehicles, 2-wheeler and 3-wheeler, that today is 89% of our revenue. Currently, nonautomotive, which is industrial, farm equipment, tractors and the services business is about 11% of our revenue. This will continue to grow, how fast? When will it become 20, 30? We can say. It is an endeavor. We are at a very early stage of it. We just changed it last quarter.

As I mentioned before, this is not a company or a business that changes on a quarterly basis. These are businesses that have run by long-term people for long-term objectives. So if you say oh, that we have intention to get into aerospace, unless we are an acquisitive company that just go and buy another aerospace company or something, it's not going to happen immediately. It's a statement of intent. Anything that we do take 3 to 4 years minimum.

So again, if anybody's expectations are that things will overnight change, they wouldn't. This is slow, deliberate and very, very well thought out plans that will take years of effort and dedication to execute. We are seeing some early wins, but for them to be meaningful enough to match our ambitions, they will always take time.

[Kapil Singh, analyst]

Sure, Vivek and 1 -- just 1 last question from my side. I wanted -- you talked about the outlook for India in terms of various segments, but I specifically wanted to touch upon the electric vehicle outlook for domestic segments like passenger vehicles and 3-wheeler. What kind of opportunities are coming up in those areas because it's still a very, very small segment and new models we know will be coming up in 2024 and '25. So how do you see that shaping up from Sona Comstar point of view?

[Vivek Singh, executive]

So we fundamentally believe that the 3-wheeler opportunity is almost absolute, like in 4, 5 years, all of it will become electric. And it is a decent value segment for us. We have, I think, 3 programs already. We want to be a meaningful player in the electric 3-wheeler. We also think that the electric light commercial vehicles segment. Anything below 4 ton we believe should get electrified sooner rather than later. And in the next 5 years, we see a lot of action on it, almost -- most of our existing product R&D efforts in the motor area are directed towards that because higher voltages and higher kilowatt both endeavors are on and both of them should find a very good and ready audiences. The motor one obviously is a far higher voltage architecture for the bus, so that I'll keeps separate. But 3-wheeler is immediate and actionable and it is happening as we speak. So that's argent.

Passenger cars, it's still slow. I hope it takes off. But I believe genuinely that unless something fundamentally changes in battery tech and batteries become far, far less expensive, it is hard to go to double-digit penetration anytime soon. Yes, by 2030, economies of scale, designing pure EV platform will happen. But if we wanted to happen fast, in the next 3 years or so, a lot has to happen in battery tech and the good news here is there is a lot happening in battery tech. So for those of you who follow battery technologies, and I would recommend reading this, if you can get your hands on Bergstein report on battery strategy road map 2023, and you look at what people are doing in either electrolyzed space, where gelatinous or solid or lithium metal, LFP, everybody knows about and sodium-ion, there is a huge opportunity that we could go even to $60, $70 per kilowatt, and that can change the game. I mean if you have batteries go down by 20%, 30%, which are 40% to 50% of the cost, EV suddenly becomes cheaper than ICE.

That tipping point when it will come is hard to predict as it is with any technology, but will happen in the next 5 to 6 years. That's our belief that we've been working on for almost 8 years already. There is this thing we've presented and Tony Seba have done this study by RethinkX Institute on how much time it takes for new technologies to overpower dominant technology.

And this study goes back to examples of 200 years ago. So anthracite coal vs bituminous coal, digital camera versus film, motor cars versus horse, so many examples. Once any penetration of a new technology reaches 10%, it takes usually about 15 years from that point for the dominant technology to get reduced to single digit. Now that happens for EV somewhere around 2021, that is crossed 10% for the first time. So by our calculation by 2036, EV will be 90% plus of the total market. And in which I include to Gunjan's point, plug and hybrid as well as it has a motor and a battery and a charger, for us it is the same thing.

And the battery will be the biggest change in this. I know I'm taking long on this, but this is a subject I am very passionate about. So Thomas Edison, I don't know if you know this Kapil, but in 1908, there were more electric cars in Americas than ICE cars, right? The electric car actually precedes gasoline or the internal combustion engine. And Thomas Edison in his notebook had written motors are easy to solve, running gears solvable control systems can be done, and then he wrote battery and he put a question mark.

For a very long time, almost 90 years, we could not figure battery out and this smartphone. This is actually the mother of the electric car. The lithium ion battery made it possible for electric cars to be viable again.

Now that is not stable though. That is not the final form of the battery. We've already seen it come from $200 plus to almost $100 now. The day it goes below $100, and it goes to $70, $80, that's the day this paradigm will completely shift. I think it's a near. Company -- there are lots of companies doing interesting research, QuantumScape, Nordgold. CATL is growing a lot of good work in this field. So follow that. Again, we are also reading. This is not something we do ourselves. But this is the market we keenly study.

At that point is when the Indian market turns because India will be a cost-sensitive market. In value terms, we are still only about 1% of the world auto market, if we take our passenger vehicle market. For that market to suddenly electrify, cost has to be sought. It has not been solved yet.

So a very long winded answer, but again, this is something that I've been studying from 9 years by the way, this is what I do.

[Kapil Singh, analyst]

Thanks. That was very insightful. Thank you so much to the team from Sona Comstar as usual. It's a pleasure to host you. And to the investors, we've come to the end of this call. Thank you so much, and good evening. Do you have any closing remarks to Vivek?

[Vivek Singh, executive]

No. Thank you, thank you as usual for those of you for making time. I know it's slightly late for some of you to have attended, but yes, I hope we can continue doing well, and thank you for attending.

[Kapil Singh, analyst]

Thanks, everyone. Have a good day. Deanna, we concludes todays call.