Sona BLW Precision Forgings Ltd

NSE:SONACOMS

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, ladies and gentlemen. Good day and welcome to Sona Comstar Q4 FY '23 Earnings Group Conference Call. [Operator Instructions]Some of the statement 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 relationship due to confidentiality reasons. Please refrain from naming any customer in your question.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]

Thank you, [ Deana ]. Good day to everyone. To take us through Q4 FY '23 results and to answer your questions, we have with us Mr. Vivek Vikram Singh, MD and Group CEO; Mr. Kiran Deshmukh, Group CTO; Mr. Sat Mohan Gupta, CEO of the Motor Business; Mr. Vikram Verma, CEO of Driveline Business; Mr. Rohit Nanda, Group CFO; Mr. Amit Mishra, Head, Investor Relations and Mr. Pratik Sachan, DGM, Corporate Strategy and Investor Relations.I will now hand over the call to Vivek for his opening remarks and the presentation. Over to you, Vivek.

[Vivek Singh, executive]

Thank you, Kapil and Deana, and welcome everyone to the earnings call of what is once again, been our best quarter ever. I think I've said it a few times, but I hope I never get tired of saying this. So best quarter ever and the best financial year ever in several aspects of our business. But first, as is our policy when talking to the companies' owners, our shareholders, we will begin with the challenges.So although inflation seems to be cooling in general, there hasn't been much change. On the cost side, on our largest purchase commodity, which is alloy steel, it remains at elevated prices. So hopefully that too shall correct soon. Apart from that, as highlighted in the previous call, the EV 2-wheeler industry, there was a requirement to get the vehicles homologated again due to the new battery standards. Also there is a challenge around lack of clarity and uncertainty on FAME-II subsidies and that too is the constraint to growth. On the positive side, I guess there is a lot more of VAT this time.In financial terms, we achieved the highest revenue EBITDA and net profit in Q4 FY '23. We closed the financial year with a strong order book with the addition of several new programs, new customers and new products. This gives us the confidence to sustain growth momentum in FY '24 and beyond over the medium term. We've also made substantial progress with our technology roadmap by developing 4 new products in FY '23 alone. We're also working on several exciting and innovative products for our customers across motor and driveline businesses. We are obviously excited to add sensors and software as the third pillar of growth and hope to close the NOVELIC transaction before the end of this quarter.On the ESG front, we've made some credible progress by developing and implementing an innovative solution in our forging plant at Gurgaon. That helps us recycle and save around 12,000 liters of water per day. This, of course, is a great achievement, and we'll talk about it at the end of our presentation. Before proceeding, I would like to add that we don't consider ourselves macro experts at all. But to preempt your questions about the markets we serve, here are a few observations. The U.S. market was positive on a year-on-year basis in Q4 and continues to look good. The Indian market did well across all 3 categories of PV, CV and off-highway, and continues to be fairly strong. Europe also had a positive quarter on a year-on-year basis, which is very gladdening to see that is continuing to improve over the recent quarters. Asia, which is our smallest market remains volatile because of the uncertainties of the post-COVID reopening in China, let's see when that recovers.So coming to the numbers, we again had good sequential growth, but more importantly, and perhaps the only important metric for us, the year-on-year basis, our revenue grew by 35%, while EBITDA and net profit increased by 49% and 54%, respectively, as we continue to improve on our margins. Battery Electric Vehicles segment revenue grew by 37%. And for the first time, we have crossed the INR200 crore mark from that segment. BEV revenue share also increased to 28%. For the full year, like every year, we would like to report our performance scorecard as managers to you on our 5 KRAs that we've consistently since our listing been talking about our financials, our progress on electrification, our progress on business development, diversification and new product development.Beginning with financials, we continue to do well on all 3 indicators: growth, margins and returns. Our revenue EBITDA impact are up by 26%, 25% and 28%, respectively. Another quarter of strong operating performance has increased our EBITDA and PAT margins to the middle of our usual rates. I think we've always communicated a range of 25% to 27% for EBITDA and 14% to 16% of PAT. And I think now we've come band in the middle of that. Returns too have been and continue to be strong. As I think I said last year too, while showing a similar slide, any company's performance is meaningful only when seen in the context of the industry it operates in. The best benchmark for us is global light vehicle sales.And relative to that, we continue to rise against the tide. We more than doubled our revenue in a market that has declined by 7% during these 3 tough years and have done this organically is a remarkable, remarkable feat for our entire team. Another aspect I want to mention or actually repeat is that while this chart shows a linear growth of over 25% each year, it doesn't mean that each quarter had 25% growth. The real world is seldom linear, and ours is a company which grows mostly through new programs. Growth comes in steps. As you may have noticed, in the 8 quarters since our IPO, our growth has been less 0% to 10% twice between 10% and 20% twice, between 20% and 50% twice and over 50% twice as well.So if you look at the data scatter, there is not much of a meaningful pattern on quarters. However, when you look at years, a meaningful pattern does emerge. And also, please forgive me for perhaps reminding everyone of the obvious, but if you look at the last 2 years that we have been publicly listed, we've grown by an incredible 70% while maintaining our margins. And this is despite, I would say, unprecedented headwinds like COVID, semiconductor chip shortages, extreme inflation and even a war in Europe. So apart from the tremendous theme that I mentioned, our unrelenting focus on technology, innovation and the lens by which we see how much value can we increase rather than just looking at your volume. I think these are the reasons for our resolute performance.Coming to our second KRA, which is on electrification. So our battery electric vehicle revenue has grown by 33% over last year in absolute terms and stands at INR670 crores, which incidentally is close to our total revenue just 4 years back. We added 12 new EV programs during the year and strengthened the EV order book further. In Q4, specifically, we added one new EV program from a new EV customer, which we'll talk about in the next slide. And here, I wanted to mention that we often ask all of you for specific and actionable feedback. And this is an actually a response to one of those that we received from Gunjan and Anuja of BofA. We updated our EV program split because they kept saying that everything seems to be in order book.So now earlier we used to only show 2 categories: fully ramped up production and in order book. What we've done this time and for the sake of more transparency is we made it in 3 categories. So one is fully ramped up mature programs. Second, started production but in ramp-up phase and last not yet in production. So if I were to do that for this at the end of FY '23, we have a total of 20 programs in production, out of which 10 are mature and completely ramped up. Other 10 are in ramp-up phase. The remaining 22 are not yet in production and will start either during this year or the following years. I hope this brings more clarity and transparency, and we hope to also continue to improve with more feedback from you.Yes, to now talk about the new order win that we just had. This was from a North American new age OEM of commercial vehicles. And we are proud of it and are highlighting it for 3 reasons. First, this order is for a bundled product offering, which includes, obviously, our highest-selling EV product, which is the final drive differential assembly and 2 completely new products, intermediate gears and input shots. All these combined complete all the major moving parts in the EV gearbox. Now this obviously has been a stated ambition of us, but I'm glad that we've got that fairly early. Second, this would be our first commercial vehicle differential assembly ever. And this marks our entry into the EV gearbox parts for a new market segment, which is electric commercial vehicles, specifically on this program for Class 4 and Class 5 trucks.Third reason is the increase in revenue potential in a vehicle. And again, I wanted to mention that point that all research we kind of read about the automotive industry, every market segment and the focus seems to be on volume of vehicles sold. We prefer as a company to look at market segments from a value perspective. And I think it is due to the strategic lens that we've been able to move step by step in the last 6, 7 years from a $15 to $20 differential gear set for an electric car to a driveline system with $600 to $900 revenue realization per vehicle in terms of an electric class for truck.Next slide. There's not much to talk about in this slide. We keep it for the sake of continuity and because it's a good visual representation of the geographic diversity of our electrification mission. The only change is the addition of a new program as well as a new customer in North America.On to our third KRA, which is business development. This year was our best year of business development. We've added INR80 billion worth of orders during the year. This came from 35 new programs and 7 new customers. Primarily, our revenue growth this year came via the consumption of INR51 billion from this order book. As I explained earlier, in an industry that is not actually growing, the only source of your growth would be your ability to get orders and then consume them fast enough in order to maintain your growth. And that's what happened. Taking that out, the net addition to the net order book was INR29 billion, which brings us neatly to our net order book, which at the end of FY '23 stands at INR [ 21,500 crores ] or around $2.4 billion.As visible here, almost all our sequential growth in this quarter came from the consumption of the new orders. While the EV contribution, and that's the second takeaway from this slide, has increased to 77% which is quite a big number. Fourth KRA is around diversification. Now again, as every time, the trend of increasing electrification and decreasing ICE dependence, continues [ allocated ] as we keep developing new EV products and benefit from this EV megatrend. Geographically, we've seen a shift in our revenue mix this year. North Americas contributed 43% of our revenue in FY '23. This shows an exceptionally strong growth backed by new programs mostly.Very heartening to see that after dropping to nearly 11% revenue share in Q1, Europe market has also recovered. And because of that, we have almost got back to the same percentage we used to be last year from Europe. And if you look at absolute revenue because this is against a fairly high growth of 26%, we have seen a Y-o-Y growth in absolute revenue from Europe. Not much change in product mix or vehicle segment mix, to be honest, from the last quarter, except that on an annual basis, the revenue share from traction motors for electric 2- and 3-wheelers has grown significantly. This revenue share that stands at 4% today, used to be almost 0 2% 2 years ago and 1.5% just last year.So with that, I come to the end of my update. I turn to our group CTO, Mr. Deshmukh to update us on our technology. Over to you, sir.

[Kiran Deshmukh, executive]

Thank you, Vivek. Good evening, ladies and gentlemen. I'm pleased to present our technology road map as we continue to break new ground in innovation. The development journey from ideation to commercialization is exciting, and we visually represent every time by transitioning a product from white area to blue on our technology road map. I'm delighted to report that we have successfully transitioned 4 groundbreaking products into the blue zone over the past year alone.In recent quarters, we have proudly commercialized the next shift Spiral Bevel Gears and the electronically controlled locking differential or the EDL. Our Spiral Bevel Gears testify to our pioneering efforts in precision forming in this product category. Meanwhile, our EDL represent the first ever complex differential specifically designed for electric vehicles. Both these are further solidifying our commitment to sustainable innovation. Building on this impressive momentum, we have added 2 more products, the input shaft and intermediate gears with the blue zone this quarter.These advanced products enhance our capabilities in precision forming and machining and bring us one step closer to developing a comprehensive EV gearbox. Consequently, we have reinforced our position as leaders in providing higher value addition for electric vehicles.With that, I invite Rohit to provide you with an update on our financial performance.

[Rohit Nanda, executive]

A very good day to you all. It's my pleasure to share our fourth quarter and full year results for FY '23 with you. Like Vivek already mentioned, Q4 was our best quarter on all 3 parameters of revenue, EBITDA and PAT being INR744 crores, INR201 crores and INR120 crores, respectively. Our BEV revenue grew by 37% this quarter, whereas our non-BEV revenue also grew by a robust 35%, which is more than 3x the underlying growth in our key markets of North America, India and Europe. Our EBITDA grew by 49% as year-on-year margin improved by 2.5% to 27.1%. EBITDA margin improvement was primarily due to operating leverage and better product mix.Our adjusted PAT quarter-quarter was INR122 crores, which is higher by 57% compared to the adjusted PAT of INR78 crores in the comparable quarter last year. There was a better margin transmission from EBITDA PAT due to lower net interest cost and depreciation combined as a percentage of revenue. This quarter, our PAT has been adjusted for exceptional expenses pertaining to acquisition-related diligence work, whereas PAT for the comparable quarter last year was adjusted for onetime tax-related impact.For the full financial year, our revenue grew by 26% to INR2,676 crores. Our BEV revenue grew by 33% to INR [ 671 crores ] and it was 26% of our total sales. Our non-BEV revenue grew by 23%, while the underlying light vehicle market grew by only 2% in our 3 largest markets of North America, India and Europe combined. For the full year, our EBITDA grew by 25% to INR696 crores. We had a positive impact on our EBITDA margin from operating leverage and product mix. On the whole, however, our margin percentage was lower by about 20 basis points because of increased direct prices despite cost pass-through due to arithmetic effect.Our adjusted PAT for the full year grew by 29% to INR398 crores compared to the adjusted PAT of INR309 crores last year. Lower net finance costs led to improved margin transmission between EBITDA and PAT for the full year as well. As I've already explained, the PAT adjustment for FY '23 pertains to diligence expenses related to acquisition, while PAT adjustment for the last year -- for the full year pertains to onetime tax-related impact and reversal of IPO expenses.We now move to the cash flows. During the full year, the company generated INR535 crores as cash from operations and INR200 crores as free cash flows. We thus managed to fund our entire CapEx spending of INR335 crores from cash generated from operations. Besides this, we also distributed a dividend of INR120 crores during the last financial year.Next one, please. With this, we come to the slide on our key ratios. The first one, there is value addition to employee cost, which has further improved from 5.7x last year to 6.4x this year, which reflects continued improvement in our marginal value addition relative to change in the total employee cost. Our return ratios of ROCE and ROE continued to be strong with ROCE, about 30% and ROE about 26%. These are somewhat lower from the last 2 year levels, primarily due to ongoing CapEx expenditure. Besides in case of return on equity, there is also an adverse base effect due to primary equity raised during the IPO.Our net debt to EBITDA continues to be below 0 as net debt number is continuing to be negative. Working capital turnover ratio has improved to 4.2x. Our fixed asset turnover ratio has declined a bit to 3.9x, which is mainly on account of the new capitalization that we did during the year.With this, I'll now hand it over to Vikram, who will be sharing an interesting ESG case study which showcases our efforts towards a better environment. Over to you, Vikram.

[Vikram Verma, executive]

Thank you, Rohit. Good evening, everyone. As you know that the driveline business is more concentrated with a forging as a process and the forging requires a lot of power and water. So in a forging process, a die lubricant is used for both lubricating the die and cooling of the die. So in the process, this -- the water evaporates and then condenses and extra water goes through into the pit that is normally disposed off through a proper channel, authorized channel. This used to be the process earlier.Now the team at the forging plant has done an exceptional job of putting a system through which we can recover water, which is around 75% of the water is now recovered and put back into the system. So this is a cycle which has been used, and this process is probably done first time and hence it should help many of the forging industry in the country. The whole idea of showing this, and we will share this to the community that how we can -- how each one can use this process for improving action in the uses of water. So that's something which we are very proud of to share with the whole community, the forging industry.I think that brings my end of this presentation, and I'll now ask Nomura team to go ahead with the next session.

[Operator]

[Operator Instructions] I'll now go to the first caller, [ Ms. Gunjan ].

[Gunjan Prithyani, analyst]

Thanks Vivek for incorporating the feed price. It's pretty useful. I have 2 questions. Firstly, a little bit generic one on the industry. Now clearly, the most topical thing has been the price aggression or the price cuts that we're seeing in the industry. And in general, there is a fear that this eventually percolates down to the suppliers as well in terms of looking at the cost structures or renegotiations. Has there been any renegotiations at your end or relook at the contract values? Or maybe if you can share some color around how should we be thinking about this change in competitive landscape that you've seen on the EVs?

[Vivek Singh, executive]

Thank you, Gunjan. I think we've answered this question in different ways over the last 3 quarters. But again, I'll answer with Hindi phrase that I've used often that [Foreign Language]. The numbers will tell you the story. If there is significant discount, it will reflect in lower margins. If it is not, then it is not, of course, there is pressure. There is -- when is not pressure there? I mean, if you're running a real business, there is always pressure. How we deal with the pressure is our job as a management team, and there is almost always renegotiation of contracts. But yes, the net result is visible. I don't think there is much to be said about that.There is almost always something or the other going on with one customer. But if you look at the net result, I don't think there is anything of concern there. And like I said, I think, 3 times in the last 3 quarters, we've answered this question. I'm very amused to see that whenever prices go up, nobody asks us this question that will you get extra money from the customer.

[Gunjan Prithyani, analyst]

Okay. Got it. Okay. Maybe just another question that I have is on your Slide 10, where you talk about the new customer. You've put out interesting how the rise -- the content value has been rising with the addition of these new products with every passing quarter. I just wanted to understand the original differential assembly that we were giving to the customers was essentially just the differential assembly. There was no intermediate here. There was no final reduction here, right? If you can just give some color how does the value enhanced by going from the basic, what you were supplying earlier to now adding this intermediate gear? And what is it that is pending for us to supply the -- like it -- so mentioned that we are one step over to supplying the final products. So what is it that is still missing in this portfolio for us to do that $700, $600, $700 differential assembly for the integrated unit. Maybe I'm just [ reasonably ] confused.

[Vivek Singh, executive]

No, no, no, it was good. I mean for a nontechnical person, it's a good enough question. The -- if you look at the parts, the bundle value, like I said, is already between $600 and $900, right? However, the thing is it's not just the value of the product. It is also for what vehicle. So differential assembly also just the differential assembly, the second item from the bottom. That can range from $30 to $600. Just that without the final year also, if you go from small hatchback car to a large Class 7, Class 8 truck. So the rate is quite -- it's not just the product. It is the product in what vehicle, which is what we've been trying to, I think, say.Even by the way, in the gears, the cheapest gear we have sold as a unit is INR45 and the most expensive INR4,500. The range is very, very wide. So it isn't just what is the cost of this product or the price of this product, it is the price for that application, for what kind of vehicle, what kind of load, what kind of torque. So that's the thing. So it is 2 factors at play. Are you going, which is why we made that slide and it will be in the appendix. What segment of the market are you addressing? And in that, how much?Second part of your question, which is far more interesting, is what is remaining. So if you look at the whole EV drive unit, what is remaining, and I'll let Vikram also add is, of course, we are not putting it together, right, even now. We are doing all the different parts of it and letting the OEM assemble it. I think the bearings we are not doing in this. And we are not doing the thermal management. So the cooling, whether it be liquid, whether it be oil based, we are not doing that. So we are still not gone to that level of system integration of the whole gearbox.Vikram, do you want to add to that?

[Vikram Verma, executive]

No, I think you've answered it. I mean, if the question is what next is the gearbox in which all these parts have to go will require bearings, require seals, the thermal management, there is a big housing and a lot of sensors going into it. Beyond that is also a product has to have motor also, an inverter also. I mean, I think in the road map, Mr. Deshmukh had shown, shows that, that was our final goal. So this is still an intermediate before we reach them.

[Vivek Singh, executive]

Correct. So Gunjan, in short, it's a long -- we just keep moving forward. And every time we move forward, we transparently share it with all our shareholders that let we move one more step. The goal is still -- there is still a lot more to do.

[Gunjan Prithyani, analyst]

The final reduction we are doing, right? Now that's not -- that's not the gap in the portfolio anymore.

[Vivek Singh, executive]

No, that we've been doing. That's actually at the third stage. Final reduction here on the differential is, I think that we've been supplying since '18, '19. So, that's been a while. The fourth one, which you see is for the tri-motor architecture, that's the single reduction at the wheels, the [ cool ] gears. EDL was what we showcased, I think, last quarter, and this is the first time intermediate gears and shops, this we've never done these products before. And this also requires actually for us to do a little bit of cold forging, knowledge and capability, which is what we are building. I think we've been often asked that what else are we adding? Well, this was always on the map. Why don't people asked us about it. But yes, this was always an obvious adjacency within the gearbox.

[Gunjan Prithyani, analyst]

Okay. Got it. Just last question, and I'll join back the queue. If you can just update us on where we are on the PLI if anything accrued in this year? And just what is it that needs to be given to the government to get the incentive?

[Vivek Singh, executive]

Yes, I'll let Rohit answer that. Just philosophically, I think for the last 2 years, maintained that we will do our business without planning for any government interventional subsidies because that is, I think, the right way to do it. If they come, they come, if they don't, they don't. We have never accounted for it. We've never given much about it. But Rohit can answer that. He is [Technical Difficulty] of these things.

[Rohit Nanda, executive]

So PLI, we like all the other players, we've also moved our application and all for the product approval. Based on the current status and all, our understanding is that for FY '23, actually, there may be no PLI okay, the year gone by I'm talking about. FY '24 onwards, it should be there. But I mean, there are many things which are yet to become clear. In fact, the government has come out with the SOP towards end of April only. So we are still studying it, trying to sort of understand the process and all. But currently, I think for everybody, it is that everyone has applied for the product approval, and that is still everybody is in the queue in terms of approvals.

[Operator]

We now go to the next caller. Vimal Gohil.

[Vimal Gohil, analyst]

Sir, my question is to Rohit. Rohit, you've seen our gross margins actually have been 60% at one point of time. Obviously, we've averaged 57%, 58%. We're currently at 54%. Is there some softening of raw material costs that we see at this point in time. So what's the outlook over there? And a question to Vikram. Sir, your outlook on the Starter Motor business, it's been paid off. So what would be our outlook over there?

[Vivek Singh, executive]

Okay. I think you [ met me ] Vivek. I'll let Sat answer the Starter Motor question since he is in charge of the motor business. But first, Rohit, the question is to you.

[Rohit Nanda, executive]

Cost, I think apart from the alloy steel, I think we've seen softening of material prices over the last 1 year, I would say. But if I were to look at the alloy steel prices, I think we are still higher than where we ended the last financial year. So I mean it's hard to predict. Generally, steel prices have come off, but not the alloy steel prices, I mean, alloy steel that we consume. So in fact, April, we saw a price increase, after that, there have been 2 decreases in July and then October. But they've been insufficient to even set up the increase that we gave in April. So in a way, we are actually -- for the full year, like I mentioned in my part of the commentary also I think the alloy steel price that we paid this year was still higher than the last year, and that's the largest commodity that we consume. In terms of outlook, it's hard for us to really say anything because logically speaking, even alloy steel prices should have come off given that general steel prices have come off significantly from their highest. No predictions as such, I would say.

[Vivek Singh, executive]

Sat, on starter motors.

[Sat Mohan Gupta, executive]

Yes, on starter motors, I mean we did a good job in the FY '23. And our volumes were quite stable, though, I mean, a little bit lower than what we projected earlier due to the U.S. and European market. Overall, it's looking still good in the year FY '24. And we will continue to do that.

[Vivek Singh, executive]

Yes. And I think beyond that, Vimal, I don't think any of us know like I think also mentioned, we humbly state that we are not experts in [Technical Difficulty]. We are not experts in predicting the future. And if anything we have learned in the last 4 years is we all need to be perhaps more humble. The world is far more dynamic and uncertain than we think it is. I think what we can do is focus on our business and we always ready and agile and move fast. But predicting the future doesn't seem to be something we are very good at, and we'll continue to not do that. We can see the bigger trends. We see how things move in, I'd say, 10 to 15 years. But 1 or 2 years is just harder to get certainty.

[Operator]

Okay. We'll go next to Kapil Singh.

[Kapil Singh, analyst]

A few questions. Firstly, on order book, we have seen INR28 billion of order book -- order book consumed this quarter. So any major product you can highlight, which has gone into production. I'm sure it will not be fully ramped up in the first quarter itself.

[Vivek Singh, executive]

No, but that will be too specific because, see, it is only 1 or 2 programs that do that. But if I answer that, that's almost answering on the behalf of another customer. So no point. But yes, you know our businesses. And I think it's a very good sign. If you see this periodic up and down because that means that the order book is not just something which we were asked, I think, earlier that it's something that is far in the future. These are things that this is how growth comes. Specific -- I mean, there is no new product in it. It's all new customers only, that's why we're not answering.

[Kapil Singh, analyst]

Okay. No, what I was trying to understand is whether this would not be fully ramped up price, right?

[Vivek Singh, executive]

No. It shouldn't.

[Kapil Singh, analyst]

So I mean, the impact on order book is larger than the impact on revenue. That's what I was trying to understand.

[Vivek Singh, executive]

It always is that -- it always is that way because what you're trying to do is take out something, and one is also one of the programs is [Technical Difficulty] or full peak. So now any additional is 0. So you take out from -- so how it works is, let's say, you were 10% off peak, but now this 10% goes out from the next 40 quarters. So there is a large value. So you take INR28 billion, you divide that by the number of quarters remaining, and you will get it. Actually, the math is fairly simple and we realize that almost all our growth is because of that. There is nothing else happening.

[Kapil Singh, analyst]

Yes, yes. And when you say something -- some orders are fully ramped up, what does this mean? If you could give -- take an example of, I'm saying any general product in the market, so that we can understand.

[Vivek Singh, executive]

Let's take any standard biggest product in differential assembly and the vehicle maker has projected and has planned to build 100,000 vehicles a year from that program. So how it started initially in the initial phases will be 10,000, let's say, for the first year, it could not be a full year. Next year, it goes up to 60, 70. My third year usually gets to 100, which is the peak. After that, it'll stay 100 and then they'll start declining. That's usually the curve any product cycle for us. So when we say fully ramped up, it means it has reached a peak volume said by the customer. Of course, they can be plus/minus 10% in this every year if suddenly a lot of demand comes. But if peak stated at beginning assumption is reached, we take that out of order book.

[Kapil Singh, analyst]

Okay. Also, on the order book, do you assume any market growth or this is just the growth of the new products, basically, which is what is reflecting here?

[Vivek Singh, executive]

We never assume market growth for anything we do. Our budgets are based on 0 basis because again -- and you know this Kapil. I was made CEO 4 years ago. I've never seen market decline.

[Kapil Singh, analyst]

In a market decline maybe...

[Vivek Singh, executive]

Yes. So we don't assume all that. We assume 0 because, again, like I said, we're not macro experts. So we don't know any better. So we just say, let's assume everything will remain the same as it is today. And then plan around that. Order book has nothing to do with the market and growth. It is customer projection and program ramp-up projection.

[Kapil Singh, analyst]

Okay. So it's -- let's say, a longer lead product like a tractor, for example, so you are a truck in those basically you're not going to assume any growth in those when you build the order book.

[Vivek Singh, executive]

Correct. So when growth does come, you will see growth actually order book, we will still not grow because you can't solve for 10 years that thing. The base will certainly go up, though. So even without consuming from the order book, your revenue can grow sequentially quite a lot. And we are fervently hoping for that day to come. It hasn't yet turn as well.

[Kapil Singh, analyst]

And just one last question on Slide 10, the new product that we have. The lead time for this is quite small, Q4 start of production. So is this -- can you throw some color because generally, we have longer lead times, our cycles are longer. Is this a new customer? And why the lead time is smaller than usual? And also, what does this mean for future other segments, for example, cars, gearbox or other segment trucks, just some color on that as well.

[Vivek Singh, executive]

Yes, development cycles are shortening. That's a fact. What does it mean is a lot more pressure on our engineering teams. And this is something we really are concerned about that every customer seems to be in a far more hurry thing, which obviously is good from a shareholders' perspective that profits and revenues come faster than they used to. But there is a lot of pressure and a lot of time pricing. I guess it will continue till this EV trend and the EV transformation stabilizes. I think we are in the midst of a large disruption in the industry.We are obviously beneficially lock it, but yes, there is a lot of hard. What does it mean for other segments and other gearboxes? We -- Kapil, we always say only what we mean. Whatever we have said is all there is to it. There is not much more to read. We have made these new products, and we have been able to secure the customer. We will always keep trying, keep striving to grow that business, keep trying to sell to more customers. And it will take a while. It will take us long. Often, we've been asked about others, and we have always commented that we don't talk about others because our races are race, our product road map is transparently shared with all of you, including with all our competitors and customers and everyone.This is what we intend to do. We are not hiding what we intend to do. Our rate, our milestones are there. If it is on our road map, we will do it. There is no question about that. I think in the last 2 years, we've demonstrated that many times. If it requires that we will be taking some things that other people have been doing, other people, other companies and so be it. We don't define ourselves by competition. We do not define ourselves by finite mindedness. It is completely transparent. Whenever there is something more, let's say, we sell it to another commercial vehicle guy, we'll share it. If we take those parts and do it for a passenger vehicle, we'll also share it.

[Operator]

And we are now going to Nitij Mangal.

[Nitij Mangal, analyst]

[Technical Difficulty]

[Vivek Singh, executive]

Nitij, I couldn't quite hear you clearly. I think what was something around magnet less motor, but I didn't get much more. Can you please repeat?

[Nitij Mangal, analyst]

Yes. How are you thinking of the ramp-up of the traction motor business in India from opportunity around the same regulations across. And then also anything incremental on the development of magnet-less motors.

[Vivek Singh, executive]

Sure. So we are obviously, like everybody else, subject to the markets we operate. If the overall demand of our customer or the production plan for customers lower, so do we get it lower. So we are not thinking too much about it. We are ready with the products. We should still see growth. But what would happen is that, that growth will come from incremental market share addition rather than growth in the industry. I'm too -- I would say I'm aware to comment on what will happen of into or what will not. So I will leave that. I believe -- and this I think we've asked this in one occasion that any industry or any business model that is dependent on government subsidies like PLI like [ PAN ] that will always be prone to far more risk than a business that exists without it.We have always kept away from that. We did not plan our business around those subsidies, even with while quoting to our customers. And that's how we will continue if the market comes, great. If it doesn't, it does. We can't control that. So it's uncontrollable. And also we, again, very humbly say we don't really know what is going to happen. So we can't answer so much. Second, on magnet-less motor, Sat you or Mr. Deshmukh can give a update, although if any of you attended Auto Expo, you would have been able to seen one of those in action. What Sat? Sat, you want to share the state on the magnet-less motors?

[Sat Mohan Gupta, executive]

Sure. On the magnet-less motor, I mean, we are working with and we have also shown one of the motor with our partner in Auto Expo. Right now, it's in development, in a validation phase, and they will come back on the status and maybe in the next year Investor Call with you guys with more strong information and the data. But right now, it's in the validation phase, and we are working on some of the options.

[Kiran Deshmukh, executive]

Just to add to what Sat just now said. We are working on several technologies for magnet-less. And currently in our technology road map, those products are in the white zone. Moment they are ready to be commercialized, they will move to the blue zone. We will share that in this forum. As any other R&D projects, these are all in the development stage and depending upon the results and rest outcome of the validation test, we will be in a position to say which technology we would go for, et cetera.

[Nitij Mangal, analyst]

And one more question. Vivek, can you see your order book flowing into revenues, that's over the next 3 years. I believe the share of this can probably get to like [ 45, 50 ]. How do you see your customer concentration within EVs, let's say, 3 years, 5 years down the line?

[Vivek Singh, executive]

See, even today, if you look at our overall customer concentrate, there is no customer who is over [indiscernible] even now, even at the stem of [Technical Difficulty] that was the same thing. 3 to 5 years later, also a similar type of things should exist. In fact, it is one of our priorities that top 2 customers, how do we bring it to a manageable level. Of course, our goal is that no customer should be hiring 15%. We're already at 20%. I think we will maintain this good practice. And 3 to 5 years, let's say, we actually see there'll be a lot more. However, dependence on which customer is not really the thing, it is which customer of us does well in the market, which is the harder part to predict.Because who sells how many cars is not something we can control, we will do our best for every single customer part, right? Then how they perform in the market is not something which is a controllable factor that we have. Our job is to get as many customers and as many programs. We are already with 26 customers. We will keep adding to this list. How they perform, yes, that's up to them. And to the end customer who's the king after all, who decides which vehicle to buy, that person, he or she decides to take of all of us.

[Operator]

We go to the next caller, [ Sonal Gupta ].

[Unknown Analyst]

Congrats on a great quarter. And I think what's more heartening to see is that every quarter, you innovate and come up with new products for which you're winning orders. So I think kudos to the team on that. That's very impressive. Just a couple of questions from my side. One, I just wanted to understand like what is the CapEx target that you're looking at over the next couple of years? And also, I mean we have the Inflation Reduction Act in the U.S. So will that sort of imply that you also look at some sort of a U.S. facility given that your largest market?

[Vivek Singh, executive]

Second part I'll answer that we are always actively considering new facilities anywhere. But the Inflation Reduction Act is not -- it's actually not as an opportunity for us to -- but the first one, CapEx, I'll let Rohit answer that question.

[Rohit Nanda, executive]

Generally we take our time getting about INR900 crores of CapEx over 3 years. I think for the next 3 years, the number would be more around INR1,000 crores to INR1,100 crores or some of the new orders and all. So that's a 3-year numbers in terms of CapEx.

[Unknown Analyst]

INR1,000 crores to INR1,100 crores. Got it. And just like I mean, any thoughts around -- like I think Nitij asked the question, like on the India traction motor side, right, like because there's been a change in regulation and some customers have been impacted as well. So how do you see that part of the business sort of moving ahead?

[Vivek Singh, executive]

So the 4% of [Technical Difficulty] right now, I hope it grows. But like I said, what will happen with Phase 2 and what will happen. That's why we are aiming to give [Technical Difficulty] that we don't know which way in the regulatory. We can't take that call. However, rest assured I mean it is the smallest market [Technical Difficulty] we have. Hopefully, we will keep trying to go in other direction in traction motors also.

[Unknown Analyst]

Got it. And just last question, I mean, just a follow-up on -- Rohit on, like on the commodity cost side, have we seen all the benefit other than the alloy steel, which -- where we have not seen any benefit, but for others like copper, et cetera, I mean like would we broadly say that all what needed to be passed on to us has been done.

[Rohit Nanda, executive]

Commodity prices with the vendors or with the customer [Technical Difficulty] cycles. It could be 3-month, 6-month settlement cycle. So [Technical Difficulty] price will automatically [Technical Difficulty].

[Vivek Singh, executive]

Yes. Sir, I don't know if Rohit wasn't clear. It wasn't really clear to me. But basically, all of these prices are through mechanisms of pretty well [Technical Difficulty] contract in nature. They are usually linked to one or the other index or have the global index like LME or the [ Gurdal ] index. So it's fairly translated. So if it happens, it comes to. There isn't much, I would say, things to worry about that. Copper have softened a little bit. So that benefit must have already come in, but not that much.Actually why this is different is because it's we buy all our alloy steel in India. Now there is geographical disparities between -- so steel may cost things in different rates. It's all very huge. Usually, it's lockstep and all commodity move in tandem, but this is a slight difference.

[Operator]

We go to the next caller, caller is [ Joti ]. I think Joti has dropped off the line. We will take Hitesh Goel.

[Hitesh Goel, analyst]

Congratulations on a very good set of results actually. My questions are basically first is with PLI incentive, which firm is one of the biggest beneficiary. So can you give us some sense, have we started getting in those incentives as yet? Or what were -- where are we on that right now?

[Vivek Singh, executive]

No. So I don't think anybody has got it, but so neither are we, but Rohit can answer that better.

[Rohit Nanda, executive]

Yes. So, Hitesh, our understanding is that nobody is going to be getting. I'm talking of only auto PLI right now for FY '23 because I believe it's some linked with the product approval and product approvals are all in the pipeline. So now it should kick in only after the products are approved. The government has recently come out with the SOP, which they had been drafting, we are also going through it. But like I said, our understanding is for FY '23, probably nobody is getting it. Going forward, once the products are approved for each of the participants, that's when you start to get it.

[Hitesh Goel, analyst]

So we hit it for the retrospective basis or only for say FY '24, if we...

[Rohit Nanda, executive]

My understanding is FY '24 onwards, but these things are still, I mean, I would say, early days, but broadly, my understanding is that it will be with a prospective effect not with retrospective effect.

[Vivek Singh, executive]

I think is just as we do in our company from the analyst perspective also take the most conservative view because I don't think it's an area we want to be optimistic, these things seldom that's out in the most optimistic passion.

[Hitesh Goel, analyst]

Great. And my second question is just a housekeeping one also on this. The other income which comes in the fourth quarter, right in stand-alone, which is -- that's why stand-alone PAT is higher than consol PAT. Can you tell me what it is, Rohit?

[Rohit Nanda, executive]

It would be intra-group dividend which Sona would have received from subsidiaries.

[Hitesh Goel, analyst]

Okay. Okay. So that comes in the fourth quarter. So that's why there is a scheme.

[Rohit Nanda, executive]

It's not necessary, but we are normally, it comes in the fourth quarter. Your observation is right.

[Operator]

Thank you very much. Ladies and gentlemen, we are now at the end of the session, and we would like to invite Mr. Vivek to do a quick closing remark.

[Vivek Singh, executive]

Sure. I hope there is nobody who's hand is raised and we have not answered. I would love to take all questions. But if there isn't, well, thank you. Thank you again for giving us your valuable time and attention. If you do have anything which is specific and actionable and can improve our performance or our communication, please do send it to us. And yes, see you all in the next quarter.

[Kapil Singh, analyst]

On behalf of Nomura, I thank you for joining this call. And I thank the management of Sona Comstar for taking out time. Diana, can close the call now. Thank you.

[Operator]

Certainly. Thank you, everyone, for participating. Have a good evening.