Sona BLW Precision Forgings Ltd

NSE:SONACOMS

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Sona Comstar Q4 FY '24 Earnings Group Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] Some of the statements by the management team in today's conference call may be forward-looking in nature, and we request you to refer to the disclaimer in the earnings presentation for further details.

The management will also not be taking any specific customer-related questions or confirm or deny any customer names or 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]

Good day, everyone, to take us to Q4 FY '24 results. And to answer your questions, we have the management team of Sona Comstar. We have Mr. Vivek Vikram Singh, MD and Group CEO; Mr. Kiran Deshmukh, Group CTO; Mr. Sat Mohan Gupta, CEO of Motor Business; Mr. Vikram Verma, CEO, Driveline business. Mr. Amit Mishra, Head, Investor Relations; and Mr. Pratik Sachan, GM, Corporate Strategy and Investor Relations.

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

[Vivek Singh, executive]

Thank you, Kapil, and welcome to the earnings call of our best quarter ever in terms of revenue, EBITDA, net profit, BEV revenue and BEV revenue share. But we'll begin, as we do usually, with challenges. So first, off-highway market in India and the U.S. has been weak and production declined further in the last quarter.

Tractor sales in both of these markets in the last quarter were the lowest since Q1 CY '20 or the COVID quarter. So given our high market share in this segment, this has affected the sales of our differential gears and differential assemblies to this particular segment.

Second, the electric 2-wheeler market in India faces uncertainty regarding the FAME subsidies. This is impacting the sales of our traction motors. We expect this to continue for a few more months till there is some more policy certainty. Third, the Red Sea crisis continues. And this, combined with higher oil prices has led to a sharp increase in freight rates. It has impacted our margins last quarter and remains a continuing challenge, at least for the near term.

Now the good news, and as is usually the case, it far outweighs the bad. We achieved our highest-ever revenue, EBITDA and net profit. BEV revenue, as has been the case, continues to drive our overall growth and its share in revenue increased to the highest ever at 32%. In terms of markets, Europe has strongly recovered and FY '24 was also positive for the U.S. and things continue to look good for both of these markets.

The Indian market has been mixed and will likely remain volatile, at least for the first half of this fiscal year. Given the strong growth in EV penetration and the and the decline in internal combustion engines in China, what we've decided is that we will repurpose our plant there in China, where we will stop making starter motors and focus on making other motors like traction motors and suspension motors.

Coming to NOVELIC, we are pivoting that business from being an engineering services-led business to a product and semiconductor chip design business. To achieve this, we have allocated several billing or billable resources to R&D or to new product development projects, for which we expect to generate revenue in the medium term. As a result, NOVELIC's profitability may be impacted over the next couple of quarters.

Now we are a product engineering company. So new product development is vital to our growth strategy. In FY '25, we are also increasing our spending on R&D by over 100 basis points. Our teams are working on several exciting high-potential projects across the 3 business divisions. And we are certain that higher R&D spending is going to help in expediting all the existing projects and also allow our teams to work on additional new products.

Now before we discuss our performance in detail, we have an important announcement to make. Our group CTO, Mr. Kiran Deshmukh, turned 70 earlier this year and has informed us of his decision to retire. On our request, he has agreed to continue till 31st October and guide us through the transition period of succession. Mr. Deshmukh has been integral to our Sona family for nearly 4 decades now. And he's been with Sona Comstar for the last 8 of them.

His impact on our technological advancements on our quality focus and our strategic direction is immeasurable to say the least. As we bid farewell to Mr. Deshmukh, we are happy to announce the appointment of Praveen Chakrapani Rao as our new Group CTO. This will be effective 1st November 2024. Praveen is currently the President and Head of the Motor business R&D and has been groomed for the CTO role by Mr. Deshmukh for the last 2 years. Praveen has been associated with the company for 24 years. And while stepping into Mr. Deshmukh's shoes is nearly impossible, we have every confidence in Praveen's ability to not just to not just transition into this role, but also put his own stamp on our technology roadmap.

Now we proceed to more prosaic matters like numbers. So in Q4, our revenue grew by 19%, while EBITDA and net profit increased by 23% and 24%, respectively. Our margins improved due to operational efficiencies and product mix, despite considerably higher freight costs. BEV revenue was the main driver, which grew by 34% in absolute terms to the highest ever INR 273 crores, while the BEV revenue share increased to an all-time high of 32%.

For the full year, like we do every year, we would like to report our performance scorecard as managers to you on our 5 key areas, financials, electrification, business development, diversification and new product development. So I'll start with the financials where we continue to do well on all 3 indicators. Growth, margins and returns. Our revenue, EBITDA and PAT are up by 19%, 30% and 31%, respectively.

Another year of strong operating performance has also ensured that ROCE and ROE improved to 31% and 28.5%, respectively. And one metric that we don't usually speak about much, but we have done very strongly on this year is our free cash flows, which Amit will talk about in a section in more detail. Now because our IPO was 3 years ago and 3 years also happens to be the period of our planning cycle, our product and our business development cycle. So as stewards of this business, we'll be grateful if our shareholders better understand the nature of our business and our management philosophy and see us in the same 3-year cycles that we see ourselves in our business. So please indulge me in a thought experiment, if you will.

So imagine that you're a time traveler who met us during our IPO process, and now we have jumped 3 years forward in time to today. And you noticed that we have more than doubled on most metrics that we spoke of them as being important to us. Our revenue and EBITDA have doubled, while PAT is 2.4x higher. We have achieved this by doing both, increasing our market share in existing products and by adding new products consistently.

Our battery electric vehicle revenue has grown by 4.3x in absolute terms because we've managed to [ revel ] the number of EV customers from 10 to 30, and EV programs have increased a remarkable 3.6x from 15 to 54. What that means is while we were very concentrated on EV exposure to a few customers and programs. Today, our BEV exposure is truly diversified across customers, programs, products and geographies.

We've also introduced 8 new products in just these 3 years, which have added more than INR 100 billion to our net order book, which has grown to INR 226 billion from INR 140 billion at that time. What this shows is our effectiveness in not just making new products, but getting them to commercial technology readiness and converting them to revenue.

Now because you're a time traveler and you only see these nice results, you'd be excused in thinking that the past 3 years have been extremely favorable for the industry and the company has faced 0 concerns. But in reality, most of you are not time travelers. And if you have observed us over the last 3 years, you would note that our growth has varied significantly from quarter-to-quarter and we have achieved this performance despite facing multiple headwinds and multiple concerns, some of them bigger, some of them small.

We've seen concerns about the COVID pandemic. We've seen concerns about chip shortages, Russia-Ukraine conflict, the UAW strike, which all did affect us and were meaningful in that time, but they were all temporary and eventually, the result, over this time. Similarly, there are current concerns such as Red Sea crisis, uncertainty around FAME and perceived, I would say, a slowdown in EV demand, which will also likely only be resolved with time as saying anything is not going to solve them.

Since our IPO, we've been also addressing questions on margin sustainability and rising competitive intensity. This has been one of the most often asked questions, and again, I'll say the same thing over the past 25 years since our inception. And even as a listed company for the past 3 years, we have maintained an average EBITDA margin of over 26% consistently while continually gaining market share in every product category, against strong competition all over the world.

And 24 years is a pretty long period to prove a point. But I guess only time can tell whether we can maintain margins over the next 25 years as well. So I guess this is a question that, once again, only time will tell. Some have expressed concern about the impact of Blackstone's exit. And since now it has been over a year since their exit, I thought we should address it. Now this is my tenth year with this amazing company. And during these 10 years, we provided healthy exits to 3 shareholders, Mitsubishi Materials, [ GM Private Equity ] and, recently, Blackstone.

Now today, we are responsible for delivering returns to our public shareholders who have joined us during or after the IPO. My duty as the CEO and the management team's duty in their roles is to ensure that the exit of any one shareholder does not impact the business or its prospects. And I think this culture of responsibility is perhaps our most enduring management ethos and one that is going to continue regardless of who owns the shares.

Now coming back to the standard format. BEV revenue has increased from 26% in FY '23 to reach 29% in FY '24. In rupee terms, it's grown 32% to over INR 8.8 billion in FY '24. The growth in web revenue for us has been more than double the growth in non-BEV revenue. We also continued to build on our EV order book. And in Q4, we added one new EV program of size, which was to supply differential assemblies to an existing customer in North America.

Overall, in the year, we added 12 new EV programs and 4 new EV customers, which has further grown and diversified our EV order book. So at the end of FY '24, we have a total of 27 EV programs in production, of which 11 are mature and have fully ramped up and the other 16 are in various stages of ramping up. The remaining 27 programs are not yet in production and will start during this year or the following years.

Our next [ query ] business development. We added INR 51 billion worth of new orders during the year. This came from 39 new programs and 5 new customers. As you can see from the chart, this year's revenue growth came primarily by a consumption of INR 40 billion of the order book. Hence, the net addition to the order book was INR 11 billion, which obviously neatly brings me to a net order book, which at the end of FY '24, stands at INR 22,600 crores or around $2.7 billion. As visible here, almost all our sequential growth in this quarter came from the consumption of new orders, while the EV contribution to the order book remains high at 79%.

On diversification, the trend of increasing electrification and decreasing ICE dependence continues as it has for a while. This year, we've seen the ICE-dependent revenue share shrink to only 10%. The strong demand recovery in Europe means that the revenue share from hybrid and micro hybrid has been higher than the previous year. And hybrid, we continue to do well as a company on hybrids, too.

Geographically, North America remains our largest end market, as it has for many years. This contributes now 40% to our revenue. Europe was our fastest growing market and now contributes 26% of our revenue. And India remains our second-largest market and revenue share is at 28%. The fastest-growing product segments for us this year have been EV differential assemblies and EV traction motors, followed by differential gears, and this, as you can see, reflects in the change in the product mix. The weakness in off-highway demand that I spoke about earlier has resulted in the share of nonautomotive revenue declining from 12% last year to just 10% this year.

With this, I come to the end of my part, and I invite our group CTO, Mr. Deshmukh, to update us on technology. Over to you, sir.

[Kiran Deshmukh, executive]

Good evening, ladies and gentlemen. This slide shows our technology roadmap revamp this year to reflect our strategic intentions of addressing the E.P.I.C. evolution. This year, we launched a breakthrough product and integrated motor controller that is compact, more efficient and easy to install. It offers additional benefits such as more efficient fleet management, advanced communication capabilities and reduced winding and connectivity -- wiring and connectivity issues.

This quarter, we have added the steering bevel gearbox, encircled in a dotted white circle, to our technology roadmap as a product we intend to commercialize. These bevel gears are required for commercial vehicles, where an intermediate shop cannot directly connect the steering column to the steering gear. There are constraints in that arrangement. Our high-precision bevel gears and low friction [ sprock ] of the gearbox will provide exceptional steering accuracy, driver comfort and ease of installation on the vehicle.

Together with these 2 new products, we have added 8 groundbreaking products to our technology roadmap this year. The entry of robotic gears, light-weight differential assemblies, motors for non-auto applications, radars for zone monitoring, 360-degree short-range applications and in-cabin sensing.

This year, we completed NOVELIC's acquisition and launched our third business vertical, focusing on sensors and software. Our radar technology, capable of detecting life presence and optimizing safety applications, places us at the forefront of the E.P.I.C. revolution. This move has diversified our portfolio, emphasizing our commitment to advancing more intelligent, connected and personalized mobility.

Friends, after serving the automotive industry for 49 years and a few months, I will superannuate on the 31st of October. While I prepared to end my tenure, I feel a mix of nostalgia and gratitude for this challenging yet fulfilling journey. 38 years ago, when I joined the legendary Dr. Surinder Kapur to set up a budding steering systems making company, little did I imagine that the seeds of excellence we were sowing would grow into what is today a company that is helping define the future of mobility. This was possible only because of Dr. Kapur's vision, Mr. Sanjay Kapur's, steadfast commitment to that vision and the team's tenacity, hard work and allegiance.

As I say goodbye, I'm happy to pass the baton to an able, competent and passionate person. My successor, Praveen Chakrapani Rao, has over 30 years of experience in the automotive industry. He has held leadership positions in business development, product strategy, sales and marketing, product development and engineering. He has worked with global product development teams and has led the setting up of our 3 SME plants outside India.

He was responsible for building Sona Comstar's R&D into a 250-plus strong team, delivering cutting-edge EV products to our discerning customers. I'm confident that Praveen will carry forward our legacy of innovation and leadership. Together, we will ensure a seamless transition, upholding our mission and vision for the future. With that introduction, I am pleased to present Mr. Praveen Chakrapani Rao. Praveen?

[Praveen Chakrapani Rao, executive]

Thank you, Mr. Deshmukh, for your engagement, motivation and guidance throughout these years. Good evening, ladies and gentlemen. It gives me immense pleasure to be here. I thank the management of Sona Comstar for considering me for this critical position and for giving me an enhanced budget, R&D budget and a much bigger canvas of mobility.

The mobility space is going through a transformation with E.P.I.C. technologies defining the future. By embracing these technologies, we are at the forefront of shaping the next generation of automotive technology. This opportunity is indeed an honor to deliver on the vision of Sona Comstar. I look forward to working with Mr. Deshmukh in ensuring a seamless transition.

With that, I hand it to Amit to cover the financial update. Thank you.

[Amit Mishra, executive]

Very good day to you all. Rohit is on leave due to a family exigency. So I will take you through our fourth quarter and full year financials. In fourth quarter, we clocked our highest-ever revenue, EBITDA and net profit. Our BEV revenue grew 34% to INR 273 crores, and our BEV revenue share was 32%, highest ever for any quarter.

Overall revenue growth of 19% was significantly higher than the underlying light vehicle sales growth in our key markets, India, U.S. and Europe. EBITDA adjusted for ease of expenses grew 27% to INR 256 crores. EBITDA margin improved about 180 basis points, primarily led by better product mix, operational efficiency gains and lower input costs. Similarly, adjusted PAT was up 26% to INR 155 crores.

For the full year, revenue grew 19% to INR 31,850 crores. It was -- overall growth was more than double of the underlying volume growth in light vehicle sales in key markets. Our BEV revenue grew 32% to INR [ 8,860 ] crores and BEV revenue share improved to 29%. Adjusted [ call ] ESOP expenses of about INR 14.7 crores. Our EBITDA grew 31% to INR 917 crores. EBITDA margin expanded by 270 basis points over last year due to better product mix, operational efficiency gains and lower input cost.

Profit after tax adjusted for ESOP expenses and other exceptional expenses grew 34% to INR 535 crores, again, entirely led by higher operating profits. During the year, we generated cash from operations of about INR 693 crores and free cash flow of INR 374 crores. In his slides, I think Vivek presented our strong performance over the last 3 years on our most of the financial metrics, but this is the one metric where we have done even better than those.

Free cash flow 2 years back was INR 100 crores, which doubled to INR 200 crores last year. And this year, we have improved it to INR 374 crores. This helped us meet our CapEx spending of INR 319 crores. Our investment in NOVELIC of INR 211 crores and dividend payout of INR 179 crores, all met through internal accruals.

This brings us to our slide on key ratios. Our value addition to employee cost continues to be strong, about 6x, though it dipped slightly in last year due to higher ESOP expenses. Net debt-to-EBITDA continues to be negative. Our working capital turnover has improved further to 4.6x. Fixed asset turnover, however, dropped to 3.6x due to full year impact of Pune plant capitalization. These, combined with very strong profit growth, have resulted in our return ratios, ROCE and ROE, improving to 31% and 28.5%, respectively.

With this, we have come to the end of our presentation, and I will now hand over proceedings back to the Nomura team for Q&A.

[Operator]

[Operator Instructions] The first question comes from Jay Kale.

[Jay Kale, analyst]

Am I audible?

[Vivek Singh, executive]

Jay Kale, not Jay Kale. Look, kale, very healthy, but…

[Jay Kale, analyst]

Congratulations for a great set of numbers in a challenging environment. My first question, of course, we've seen in the last 3 years, you have kind of diversified your BEV customer base countries, added new clients. Going forward, as we see, a lot of the Chinese OEMs are trying to expand globally, of course, contingent to the political environment and probably thinking of putting up capacities also outside China, how are we looking at that client base? And are they open to suppliers like us if they put up factories outside of China? Because that could be a good leg of growth going forward.

[Vivek Singh, executive]

So good question, Jay. So how does the BEV environment shake up. It's actually the broader question, I would say. I would think North America and India would continue to have local or, well, global competitor non-China OEMs. I think the geopolitics is shaping up that there will be restrictions. Europe is the interesting one where I think Chinese EVs are making quite an impact right now. Although I hear that as we speak, Brussels is thinking of putting a 50% tax on Chinese EV imports into Europe.

So we don't really know how it will shake up. So this is what our strategy or plan is. It's very simple. Trying to get as many customers as possible. It doesn't matter where they make it. It doesn't matter what their nationality is. You try to get in and try to sell them as many of your products as you can. That's it. We try to keep it simple. We're not trying to worry about things we can't solve or we don't really know about. We're not experts at these things.

There is a different amount of receptivity to our products in different geographies, as you can tell. Some of them have trade barriers, some of them don't. We have the flexibility also to manufacture in different locations to cater to that. But we are on it. I can't say much more because things will -- only time will tell, as I said in my thing, how this pans out, but we will continue to diversify.

In automotive, in general, putting all your eggs with one customer, is a surefire way to either lose growth or lose margins. 100%, that's literally guaranteed that one of the 2 will happen. We will not allow that to happen to us. Our top 5 for 5 years ago has changed so much, and it will continue to evolve like this. So I know I can't give too many specifics, but just this quarter's results should have shown you some of that already, that some of that has already happened, which is already in the numbers. But because we don't talk about specific customers, I can't really say more than that.

[Jay Kale, analyst]

Great. And just one more question. And of course, this would have been asked for quite a lot of times. But we've seen a lot of talk of the EV slowdown globally, et cetera. I understand you've spoken earlier that these new technologies are supposed to be looked at from a long-term perspective. There comes a time of consolidation in terms of any new technology adoption and then eventually it moves ahead at a faster pace.

But just from the next 12 to 18 months perspective, the way we see your order book, are you seeing any delayed order ramp-up? Because in the next 12 months, as per your order book, a lot of new programs are expected to start. So it's all contingent on the plans being on track. And if there are any customers who are delaying that? Any flavor that you can throw on that?

[Vivek Singh, executive]

So 12 to 18 months, no real delays that we have heard of apart from a couple in the EV 2-wheeler space, which is not a very large part of revenue, but those are the only areas. And I guess that's more to do with policy uncertainty. In other things, while the media may talk about the EV slowdown, we have not seen any sign of that from our customers. Our customers are putting more and more pressure on us to improve our [ NPD ] times, actually. So it is the other way around.

I would say -- I mean, just the fact that we have closed our starter motor line in China plant, and we are going away from it should tell you how the world is actually moving, not what they are saying, what they're doing. I think that's always true for anything. Look at what people do, not what they say. That kind of gives more clue of what has actually happened.

Secondly, on hybrid, because a lot of people don't get -- like, some people are saying it's hybrid versus EV, et cetera, et cetera. I don't think people understand the word hybrid, because hybrid ranges from this end, which is a completely ICE engine car with a small motor, which does some help or engine assist, to the extreme other end, which is basically an electric vehicle, which has a small internal combustion engine to be used in emergencies. All of them can be called hybrid, right? And people are using that green-esque to obfuscate matters for the very short-term gains, I would say.

Now hybrid, if you ask me, from a perspective of our company, in a total pure cynical commercial point of view, it would be this plug-in hybrid is absolutely the best vehicle for us. We are able to sell our high-torque differential assemblies, and they're usually 4-wheel driven. We are able to sell starter models for the agents, and we have a shop that's selling traction motors to that vehicle. That vehicle is potentially the highest revenue I can ever get.

But when I answer you guys, I try to do it candidly as an engineer and as someone who have studied the automotive industry. So as a student, hybrid solutions in any industry do not last for too long. They are bridges to one or the other technology will win. Having 2 powertrains and to develop 2 separate engineering systems and try to optimize for them both is quite inefficient, and over time, people will see that.

Kodak, before it went down, launched a hybrid camera. It had both film and screen. Obviously, it didn't last too long. There are lessons from other industries also where hybrid solutions where proposed for some time, which is why we feel BEV will be the absolute future. Although if everything goes plug-in hybrid, we will not complain, from a financial perspective. So that's why we stand on the EV changes.

[Jay Kale, analyst]

Great. And congratulations, Mr. Kiran Deshmukh, sir, and all the best for your future endeavors. And welcome, Mr. Praveen Chakrapani.

[Kapil Singh, analyst]

I had a question on the R&D spend that we talked about. Could you elaborate a bit what was the R&D spend, as a percentage of sales for FY '24? And what is the target there? And also, just in terms of your vision when you are increasing this, if you could share more details, what are you thinking about areas like semiconductor design in the medium term? What exactly are you thinking about? And what is the play for your company in this area?

[Vivek Singh, executive]

Interesting. So it's between, I think, 2.5% to 3% is what we did this year or somewhere around 2.4%, 2.5%, which is slightly lower than we should be spending, a company of our nature. And here, again, I can only reflect that the last year, we -- our margins dipped. And maybe we'll try to say that none of this gets to us, but maybe it did get to us subconsciously, and our R&D budgets had shut a little bit.

Obviously, with our improved margins, we saw what is the root cause, and we realized that, that is not the way if we have to continue building a company for the long term. So I think we are looking at 3.2%, 3.3% this year or 3.4%. It's a 1% above. I wish Rohit was here, otherwise, I would have put it to him. He's had a family issue, so he's not able to answer that.

But areas -- so obviously, the same philosophy that we have, that most of R&D, I'd say it's 70%-20%, 10% -- I think -- 70% will be for existing product areas and adjacencies. So adjacencies around our driveline products and motor products. 70% goes there. 20% is for absolutely new areas. And 10% is for what we call well, moonshots. Those we don't talk about because the probability of their success is usually lower.

But I can talk about the 20%, so you identified it, right? Semiconductors is a big area. And again, we are not looking at high CapEx items like fabs or linking or -- those kind of investments. We are looking at what we are good at. We are an engineering company, we will do in engineering related things. So can we do more in chip design. Can we do more in doing various kind of signal processing because we already have NOVELIC, so radar chips gather a lot of intelligence, and they have to process it and, on that processing, compute our results.

Now as you would know, that a lot of the functions now today do not actually reside on the wafer. And a lot of it is driven just by the software. How much of a role can we play on the software that enables the chip. So those are the areas that we are looking at. Other areas, as you can see, in the white area of the drone motors, motors for eVTOL, a lot of those kind of things.

The future is going to be far more intelligent in every single component and system of the way. And that intelligence will require logic circuits. It'll require memory circuits, and it will require decision-making. What role can we play in that, broadly, is the theme, which means we obviously are doing a lot at NOVELIC. That's why we've increased our R&D budget there. We are literally pulling people off revenue or billing projects and putting them on things that will do things in the medium term, I'd say, 18 to 24 months. Because, as I've said many times, our job is to balance growth margin and return and not to max out on 1 or 2 on the cost of the other.

And I think we have done fairly well on all financial metrics. It's time to reinvest back in the core. And even if it means that for some time, you give up on some financial return. It's not like we'll certainly start losing money, but it just said, yes, you were going to make 29% or 30% EBITDA margin. Can we make 28% and invest that back into making a better future, that's the thought process.

[Kapil Singh, analyst]

Okay. Great. Just if I can clarify. So would you also be looking at areas like AI when you're talking of data processing that is being connected by radars, et cetera?

[Vivek Singh, executive]

I'm so afraid of using buzzwords because sometimes the investor community takes it and runs with it and then we get asked questions on, oh you didn't deliver. It's such a big word there, Kapil. I mean, if you look at specific general intelligence, right, and the definition is so broad that people use it very loosely again, just like I said, for hybrid.

We are already using AI for a lot of our internal processes. We will use also for some things in our products. But again, too early, and I would refrain from using buzzwords because it can sometimes create false expectations. But just to answer, yes, of course, there is no business that can be run without AI today. If you don't use AI in your business, most likely, in 10 years, we will be run out of business by a competitor who used it well. It is a guaranteed thing, this outcome. So all of us are, but again, we don't want to, like, sound like a salesman right now. We don't want to use it.

[Kapil Singh, analyst]

Okay. And just as a second question, how are you thinking about growth for next year? Because 80% of our order book is ultimately coming from EVs and there are concerns expressed by various OEMs that the growth may be tapered or may not be there in BEV. In fact, if you could also talk about the fact that this quarter as well, we've delivered very strong growth in BEV revenues despite the global weakness we have seen. So just some thoughts on growth for next year, or whatever you can share and also profitability.

[Vivek Singh, executive]

So you know we don't give guidance. That's number one. Number two, I did 2 whole slides to OE justice. I don't know. I mean, look, we have -- all the ways of the roads, so much more than the industry, right? If we were either that large or that fixed in our business model, our product are fixed, our customers are fixed, then yes, it's a very valid question. Let's say, we are 65% of the industry or a market segment, market share is 65%. We do only one product. 100% it's a valid question.

Now after knowing us for 12 quarters, it really is not. You know that it's not. I mean, this quarter, we should have not grown at all by that logic, right? It is that we will continue to increase our market share. We will continue to increase our share of volume within our customers. We will also continue to keep making new products, which will then sell.

Like just example, we talked about a new product, Mr. Deshmukh talked about. That has an $800 million broad addressable market, just by 1 product. If we can get even 5% of it, that's a $40 million. That's 10% growth on our base by something that has got nothing to do with the industry. It has got nothing to do with what we are doing today. So there are 2 aspects to managing a business, right, doing today better and doing new things.

Now doing today better, of course, it gets impacted by macro factors and industry factors, et cetera. But doing new things is not. That's where we add value as a management team. Otherwise, AI can run the company also. Industry was down by 5%, you also were down by 5%, done. So I would be that concerned. And again, like I said, I spent so much time trying to talk about management philosophy that it is -- if you look at these 3 years, so many things went wrong, but it didn't really affect that end outcome that much. Yes, maybe instead of 2x, we could have been 2.5x.

It doesn't -- it affects the magnitude, but not the direction. The momentum may be a little slower, but it will eventually get there. And once again, I keep telling all of you, guys. In 2035, 2036 most of the world will be battery electric. You can do whatever. It doesn't matter what happens in the middle. If you know that outlook, like, literally that time traveler analogy.

You have come back from '36 and you're telling everyone, world is going electric. and people are like, no, no, slowdowns are happening. Some guys are selling hybrid now. I mean, you have to take it with that seriousness that if you know something is inevitable 11, 12 years, then you still persist in believing things that last 6, 12 months, that's not our way at least.

[Operator]

We'll go to Jinesh Gandhi. Please go ahead with your 2 questions.

[Jinesh Gandhi, analyst]

Congrats, team Sona, for delivering yet another strong performance. My first question pertains to how are your OEM customers now looking at their supply chain, given that scale is slowly rising for the BD side? Are they demanding more localized supply internally to put a plant closer to their factory. That is question #1.

Question #2 is on NOVELIC. Clearly, there's additional area of focus for NOVELIC. It's a step in the right direction from a long-term perspective. But how is their sensor business shaping up given that itself was quite exciting in the overall scheme of things? So are we seeing material accretion to their business or order book there, if there's any update on that?

And lastly, if you can indicate what kind of investments which will have to do CapEx over the next couple of years. So those are the 3 questions and one clarification on what was the impact of freight on margins in this quarter?

[Vivek Singh, executive]

That's a lot of questions, Jinesh. Okay. I didn't -- no way I'll remember all of them. So I'll start with the one I do remember. NOVELIC, we are seeing very good traction in the product side. That's why I mentioned both, that -- let's give it some time, because like I said, we just pivoted now. We should see something good happening soon. I don't want to, again, jinx it by talking about it too early, but we should see something good happen soon on the product side. So that's on this part.

What else did you say? Freight exact amount, I don't know. Rohit would have been able to answer it. Like I had said, unfortunately, he's had a family issue. He's not here, but it would be in a few basis points. Amit, would you know? Impact of freight, Amit?

[Amit Mishra, executive]

I will revert to you on this. I'll try to revert before the end of the call.

[Vivek Singh, executive]

On the other things on question, I guess your question about localization was more driven by our -- why we have set up the new Mexico plant. Because if that is the thing, I'll answer that and Vikram is here. He can speak more. It is more an offensive strategy and a defensive strategy as will be the case with us most of the time. So Vikram, over to you. The question is, as I'll state it. Why have we set up a plant in North America.

[Vikram Singh, executive]

Why Mexico, okay.

[Vivek Singh, executive]

Why Mexico, yes.

[Vikram Singh, executive]

There are -- one is, as is -- as customers expect, near to them but at the price of India, which is a challenge, while the customer also have a different challenge called USMCA compliant, which is -- so for that reason, we are trying to work out a hybrid model to make Mexico as a point where it will be still competitive. So that's how -- why Mexico we have thought of. And there are many customers in Mexico now.

[Vivek Singh, executive]

Correct.

[Vikram Singh, executive]

And the EV programs are coming in Mexico itself.

[Vivek Singh, executive]

So Jinesh, this -- to add to what Vikram said, this helps us in adding more customers who we would not have otherwise caught. We're not shifting anything. This is not to address a segment that may have gone untapped for us. Otherwise, not that many changes. I mean, yes, there is a bit of a move away from China movement, but that's been happening also 3 years. It's not new, really. I'm sure I missed a couple of your questions because -- now what -- which was the other?

[Jinesh Gandhi, analyst]

Investment in next 2 to 3 years was one more question.

[Vivek Singh, executive]

CapEx for the next 2, 3 years, let's say, between INR 1,000 crores to INR 1,200 crores, I guess.

[Amit Mishra, executive]

Yes, it will be in 3 years, as such. Right. Jinesh, the impact of higher freight rate this quarter was about 35 to 40 basis points in that range.

[Operator]

Now we will move on to the next question coming from Gunjan Prithyani.

[Gunjan Prithyani, analyst]

I just had a couple of follow-ups. Firstly, I'm not sure -- I missed the initial bit of the call. Can we just talk about the PLI certifications that we have received? Any clarity in terms of what is the sort of -- what is the incentive that we're expecting? And you did talk about reinvestment in the business to look at growth in the upcoming years. So how should we just think about this PLI incentives being reinvested in the business? Or does it add to the margin? Some thoughts around that

[Vivek Singh, executive]

For PLI, our answer is that exactly same for the last 7 quarters, it will be the same now. We have no idea how much we will achieve. Nobody does. Because, again, and I'll explain it, nobody knows the denominator. We all know what is the first day and what is the budget outlay from the government. We don't know how many people will be certified and for what products and what will be the total application claims. We are expecting then, there will be some kind of pro-rata distribution.

So no, PLI is something that will be an added bonus. Great when it comes. And when it comes, actually, is when we will recognize it as early. Again, our funds have never changed. We have got PLI certifications on 2 of our largest volume traction motors, so most of our traction motors are covered. Other applications are in process.

And also, Gunjan, even if you have not missed the initial part, we didn't talk about it. We don't talk about PLI usually. And we are not using PLI money. [Foreign Language] gods been kind. We have decent cash flows of our own. We covered our cash flows in detail. We will manage every single investment that we have, including investments in R&D through internal approvals.

Last year, NOVELIC acquisition, CapEx plus dividend, it was all managed through internal accruals. That's our way. We don't really need that money for that investment.

[Gunjan Prithyani, analyst]

Okay. Got it. My second question, Vik, is on the non-BEV business, while BEV has been discussed a lot. I mean, 70% of our revenues are still coming from non-BEV being hybrid, power source neutral. Now underlying markets here have certainly seen some slowdown, right? I mean India, in particular, has been both on commercial vehicles and tractors. And even on the global production side, a lot of that recouping of loss of volumes is done now. It boils down to some low single-digit growth on global production. So how should we think about the growth in the non-BEV revenues?

[Vivek Singh, executive]

So good question, Gunjan, I actually started with that when I started my comment. So off-highway in particular, is looking not good at all. Last quarter was the worst quarter since Q1 CY '20, which had COVID by the way, for U.S. and India, this is not just 1 market, and this is also peculiar. Usually, off-highway markets are very local and have nothing to do with any kind of structural thing.

Right now, I'm seeing even Europe, off-highway is lower but not as much as U.S. and India. U.S. and India, like, doing very badly. CV is also not doing well in India. So that's an India-specific thing. Actually, U.S. PV, Europe PV and India PV are the only 3 segments doing well. That was not blockbuster-well, they're doing well. That's what the industry status is. So yes, some more time that we have to sell on our own steam on our own motorboat. Industry is not really -- off-highway, you can also know better than, I would say, I do. You -- Kapil, you just track it. I don't think first half is looking good. I read your reports. So I'm sure that's what it's looking like to everyone.

[Gunjan Prithyani, analyst]

And anything you'd like to add on the 2-wheeler electric business? Because, of course, there's a lot of subsidy uncertainty, and you spoke about it in the initial remarks. But I mean, you engage with customers a lot, right? How should we think about the EV penetration now within 2-wheelers, putting 2 facts together that you do have subsidies being rationalized. But at the other end, there is also a lot of competitive intensity increasing. So what really happens in terms of your revenue ramp up in that part of the business based on your customer discussions?

[Vivek Singh, executive]

So I'd say competitive intensity in the traction motor space has actually lessened a bit. Also as getting PLI has put us in a different category, because even if that PLI incentive is not for someone who's not a customer, obviously, because that program can't be approved, but they know that we will get there. We are more likely than party X, let's say, to get that because, obviously, our systems processes and our domestic value addition is very high. That's what PLI certification process is about.

So yes, I'd say competitive intensity for main motors has gone out and a lot of non-serious players who just randomly came and spoke about traction motors have disappeared in the last few quarters. But the competitive positioning within the OEM space has gotten, I would say, it's gray right now. It's very hard to say what is actual market share. There is some temporary aberrations, I would call them. There is a lot of discounting by a few players, which has made it a little hard to figure out what is the medium-term actual market share of people.

And I think that's the same sense that our customers also have. The wiser ones are saying let some of this madness end, and we will not -- why do you burn cash just for -- within 3, 4 months period. FAME, though, is a big one in there. Gunjan, your guess is as good as mine, and I think our customers don't do anymore of what is -- what or even if there is FAME tree. And what does it include, which segments, how much per kilowatt. I don't think anybody has answers to these questions.

[Operator]

We will now go to [ Satish Supani ]. Sorry, he's -- we go to the next person, Rahul Jindal.

[Unknown Analyst]

[ I'm I audible ]?

[Vivek Singh, executive]

Yes, Rahul, you are.

[Operator]

Yes.

[Unknown Analyst]

This is Rahul Jindal from [ Summer Wealth ]. My first question is, could you update us on the progress and customer reception of the new integrated motor controller for electric motorcycles introduced last quarter?

[Vivek Singh, executive]

Yes. So that's for -- I mean, we've already got the order when the -- and I think we disclosed the details of SOP on that thing. When SOP happens, it will hit the market. So it's already an approved and -- we already have a purchase order for it.

[Unknown Analyst]

And my second question is how has the company managed the supply challenges mentioned last quarter, especially those related to Red Sea crisis? And what impact have these add-on operations?

[Vivek Singh, executive]

I think Amit mentioned that we lost about 35 to 40 basis points of profit, which is okay. I think the more of it was the logistical and operational stuff, because it's not just money, right? It's ensuring that you get the containers. Ensuring that they reach on time, so which has meant that, for example, Vikram and Sat had to produce a lot in January to ensure that they reach by -- because you're adding now 10, 15 days of shipping time.

So suddenly inventories that looked adequate were low. So it has obviously meant that it was operationally challenging time. But once again, we have great operational leaders like Vikram and Sat, all in a day's work for them, I guess. Cost-wise, 35% to 40% hit, but a lot of, I would say, a lot of work. It has added a lot of work.

[Unknown Analyst]

Okay. And sir, my last question is you said that your order book, at the end of quarter 4 FY '24, is INR 226 billion. And I wanted to know how much percentage is this from EV percentage.

[Vivek Singh, executive]

Right. So it's on the slide, but it's 79%.

[Operator]

We'll go next to Rishi Vora.

[Rishi Vora, analyst]

Yes. Just one question from my end. We had announced various partnerships with -- on the motor side, with C-Motive, IRP, even if Equipmake, Enedym. So yes, any update on whether we have been able to create any products for 2-wheelers or any other segments? Any insights on that would be helpful.

[Vivek Singh, executive]

Sure. C-Motive, as you know, was an investment, not a partnership for what I said is a moonshot even at that time, that it was for a electrostatic motor, which is a very different type. Whatever progress has been, has been but not in areas of mobility. So it is -- whatever progress has been made, the product, et cetera, is there. They're testing protos, but it is more suited to industrial applications, let's put it there. So that's where that one is good.

Enedym, Equipmake work is on full well. Equipmake, if you'll recall, was more for bus motors. So the plan -- and I think we've answered that a couple of times and we don't expect anything this year, this fiscal year also, '25. Because to go up to technology readiness level 9, which is to commercialize is when I think it's fair to give an update, given we'll give an update.

Enedym, we have made good progress again. And I would invite Mr. Deshmukh, you or Praveen, who should take this question? You want to take it? Or should we start, Praveen, into the deep…

[Sat Mohan Gupta, executive]

Don't worry, I'll take it today, Enedym. Enedym, I mean, right now, we are working on 2 motors. One of the motor is validated and…

[Kiran Deshmukh, executive]

Could you speak louder, Sat?

[Sat Mohan Gupta, executive]

Okay. One of the motor, we have -- we are in the process of validation. The performance parameter and the torque parameters are on expected lines. And we will start doing the vehicle level validation in next -- by next quarter or so. So Enedym is progressing very well. and we are hopeful that the technology would be a great success.

[Vivek Singh, executive]

Yes. The one that is not doing so well, let me also do -- be the bearer of bad news is the IRP one. Because as you know, in our business, it is not just to get a product out and get a press release on that, because we have to sell products. It has to not just deliver power density, it has to deliver very good power density per dollar, like it has to do well on that ratio. And I think commercial viability is where we have a problem. So Sat or Mr. Deshmukh, if you'd like to add on that one.

[Kiran Deshmukh, executive]

Yes. So IRP, the basic concept of a motor without magnet using inductive method, excellent, and the prototype has been made. It has been tested successfully. However, when we come to the cost of the BOM, it is far higher than expected. And at that cost, it cannot become viable. And therefore, we are looking at ways of tackling that issue. So therefore, there is a big problem as far as that technology development so far is concerned.

[Vivek Singh, executive]

The good point is, Enedym give us that option of -- because Enedym also is magnet-less. So though, I mean, we have challenges on IRP, but Enedym is looking much, much better.

[Kiran Deshmukh, executive]

So when we started this looking out for a solution of magnet-less motor, there are several technologies available. And therefore, we tied up with IRP for one type of technology, Enedym with another type of technology. Because when you do R&D, you're never sure about what will succeed and what will not succeed. And success means, not only the particular idea working, but also working efficiently and cost effectively.

[Vivek Singh, executive]

So yes, we thank you for asking that question. It actually allowed us to give an update on all 4. But 3 of them, C-Motive, Enedym and IRP were all to solve one problem, which is to make a magnet-less motor. And frankly, I mean, we knew in our mind that only one of them was actually going to be the preferred one, which would give us the highest power density upon dollar. So now we know that one of them has got commercially very viable. One of them is more suited to industrial applications at low RPA. And Enedym is the one that we are pursuing most on and spending most time on. So that's the summary question.

[Operator]

The next question, [indiscernible]

[Unknown Analyst]

[indiscernible] here from [ Bajaj AMF ] So we have a few questions from my side. One is -- so this is probably in the last many quarters, first time that we haven't flagged any specific large order wins despite almost INR 12 billion crores of order inflow. Anything you want to highlight? Or was it like very small, small order inflows this quarter?

[Vivek Singh, executive]

No, we did actually. I did mention one large differential assembly order from an existing customer in North America. But I mentioned it in my commentary. We didn't make the commentary live because -- also, if you know, end of year, we do the summary of all business development. And we don't typically put a new one win because that's the time we do the annual year round up also. This has been the format for 3 years.

[Unknown Analyst]

Sorry, then I must have missed it. What is the kind of value that this order is having?

[Vivek Singh, executive]

Fairly decent. I mean, INR 12 billion is not just that one alone. So let me try to find that slide. Pratik, can you go to that slide? And then I'll remember the exact numbers I had said. So I think I talked about -- well, new -- actually, that is for the year, 12 new EV programs. We added one new EV program this quarter, but we also added a lot of non-EV programs, right? Pratik, would you know the answer to this? I didn't expect.

[Pratik Sachan, executive]

Yes. So this EV differential program will be between INR 9 billion to INR 10 billion.

[Vivek Singh, executive]

Yes. And the remaining INR 3-odd billion is from different non-EV programs. correct?

[Pratik Sachan, executive]

Correct.

[Unknown Analyst]

Okay. Got it. And this is existing EV customers, you said?

[Vivek Singh, executive]

Yes.

[Unknown Analyst]

What would be the SOP?

[Vivek Singh, executive]

SOP is in the future. It says in the future that it may be -- it won't be in the immediate term. [Foreign Language]

[Pratik Sachan, executive]

26, probably.

[Vivek Singh, executive]

26, probably, yes. That, also, I don't know. I mean, it's not absolutely clear.

[Unknown Analyst]

Got it. Got it. Got it. I move to just a clarification from -- or confirmation from your side. So a lot of the programs that we have won in the past were supposed to go live this quarter, almost 4 or 5, maybe more than that. And after listening to your commentary on the weakness on off-highway and the subsidy uncertainty of e-2-wheeler market in India, there were, I think, specific 2 programs where one was with hub-wheel traction motor, electric 2-wheeler Indian OEM; and one was with, I think, mid-drive traction motor and control system for -- again, the off-highway Indian OEM that were supposed to go live this quarter. Just wanted to know, has there been any delays? Or they have gone live?

[Vivek Singh, executive]

One, my compliments. This, I think you follow us pretty closely, at least I can say that. So I did mention that one of them has -- both of them actually electric 2-wheeler programs are the only one seeing delays. And I think the delay is for 2 reasons: one, the, I would say, extreme discounting at this moment, makes it perhaps not the best plan to launch a new vehicle because the pricing will then be disappointing. And if you're disappointing at a launch, that has a fairly bad knock-on effect.

And second is also the FAME bit. People are not certain what the FAME subsidy eventually will be, hence, they don't know how to price it. So a couple of those are delayed. But again, even in this environment with off-highway trucks actually dragging us back quite a bit. We have managed to do fairly well because of actually the driveline programs came in and some of them did start and some of them have ramped up faster than we thought, so 3 or 4 things above. But electric 2-wheelers, as I mentioned in my opening remarks, I think at least 3 months, we would need, any of us, to know which direction we are heading.

[Unknown Analyst]

Right. So I'm assuming that the other programs might have compensated for the delays. Like, you had, I think, once [ pull-year ] for e-SUV that was supposed to commence and probably one for Class 4 electric CV North American OEM. Probably those have compensated. Is that a fair assumption?

[Vivek Singh, executive]

I won't comment on specific programs, but it is a fair assumption that other programs have compensated. I don't want to go into the specific one. That's why I said some have ramped up more than we thought. Some volumes have been higher than we had assumed in our order book. Which is why conservative assumptions sometimes help you in situations like this.

[Unknown Analyst]

Fair enough. And lastly, last quarter, Q3, there was, I believe, a INR 25 crore kind of a revenue loss because of the UAW strikes that was there in October. And you mentioned some of it will -- probably you guys will be able to recoup. Has there been any success on that?

[Vivek Singh, executive]

I mean, even if you look through the numbers, U.S. market share increasing, U.S. passenger vehicle increasing. All of that is because of that. So yes, that's now moderated. I think inventory levels are back to normal for almost all customers. Because of that UAW thing, suddenly, there was that gap and now it's come back to business as usual.

[Operator]

Do you want to take over?

[Kapil Singh, analyst]

Yes. I think from the chat box, most of the questions are answered. It's not directly related, but still in case you want to mention something, please let us know the impact of new government EV import policy. Anything you want to comment on this?

[Vivek Singh, executive]

No, I don't want.

[Kapil Singh, analyst]

All right. I think that's all.

[Vivek Singh, executive]

We should leave the government to comment on government policies and not ask companies these questions.

[Kapil Singh, analyst]

Yes. So that was the last question, everyone. Thank you very much for joining this call. I thank the management of Sona Comstar for giving us this opportunity. And Dana, back to you. Close this call.

[Operator]

Thank you for joining today's session, you may drop off the line. Have a good evening.

[Vivek Singh, executive]

Thank you, everyone.