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Suprajit Engineering Ltd
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Ladies and gentlemen, good day, and welcome to the Suprajit Engineering Q2 FY '25 Results Conference Call hosted by Anand Rathi Share and Stock Brokers. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mumuksh Mandlesha from Anand Rathi Share and Stock Brokers. Thank you, and over to you, sir. Mr. Mumuksh, your line has been unmuted. Please proceed.
Sorry. Thanks, Tanmeya. So on behalf of Anand Rathi Shares and Stock Brokers, I welcome all you to Suprajit Engineering Q2 FY '25 Conference Call. I thank the management for taking time out for this call.
From the management side, we have Mr. Ajith Kumar Rai, the Founder and Chairman; Mr. N.S Mohan, MD and Group CEO; Mr. Akhilesh Rai, Director and Chief Strategy Officer; and Mr. Medappa Gowda J, CFO and Company Secretary. With this, Ajith sir and team to give an introduction review about the results, and then we can follow up with the Q&A session. Over to you, sir.
Yes. Good morning, Mumuksh and all the participants. Thank you for joining the call. And thanks to Anand Rathi for hosting our Q2 con call, as usual. As usual, we will start with our brief. Mohan will give you an overall view, Akhilesh will touch a little bit more on our SCS transaction, and Medappa a little bit about the financial numbers, and then we'll open the floor for questions. So I will let Mohan to start. Mohan?
Thank you. Very good morning, everybody. As usual, what I'll do is I'll give you a general market update, and then later give you an update about our business divisions. Let me start with the U.S. market or the Americas, as we call it.
It's still struggling with the interest rates, poor demand uptake. It's not doing well, both on the nonautomotive and automotive front. But there is a silver lining on the cloud with the recent elections. There is a clear political stability. And the directions are clear. That's very important for any business like the MAGA or Make America Great Again, tariffs, border controls, immigration. But significantly, for automotive industries, renewable energy takes a backseat. Therefore, our expectation is that ICE and therefore, U.S. car makers will get back and they will have an advantage. The impact and the fallout of all these things are being debated widely in public, and I would not like to get into details.
Moving on to Europe. Europe continues with its own struggles, primarily with the Chinese cars being dumped in, what I generally call it a Chinese invasion. European carmakers are beating the retreat, and Volkswagen has made quite many announcements, and we are all knowing about it. Large economies like Germany and France, they are struggling. So there is a general fear in the market and also in the economy in Europe.
China, if I move on to would be continuing on its own battles, primarily inside. But they are having aggressive market expansion and right now targeting that at Europe. Apart from these geographical, I would say, territorial issues or opportunities, as we call it, the Red Sea and Panama Canal issue is still there. It continues. Therefore, our shipment times are still pretty high. Shortage of containers, therefore, it has pushed up our freight costs.
But despite all these uncertainties and headwinds, I would say that our Suprajit Controls division between SCD, which is operating outside of India, has performed reasonably well with a very good 3% revenue growth and also very importantly the EBITDA has shown a strong northward march.
SAL, the EOU here in India and SEU, the Europe -- Suprajit Europe, Hungary, Wescon, China Lone Star, they're all doing fine, and we are all clocking new business wins there, which is pretty good for us. Matamoros continues with the 2 key challenges that we have, that being the tariff issue, which we have talked about earlier, and also the employee cost. I was there in Matamoros about a month back, and we have launched aggressive restructuring exercise to consolidate, synergize and very importantly, repurpose our management talent within Americas. This exercise will be stretched probably over the next 2 to 3 quarters.
Moving on to our domestic cable division. It has kept its razor sharp focus on growing profitably. Very important is it has bounced back on its profitability, and it is also expanding very well into what we call it as beyond cable strategy, specifically into the braking products.
Moving on to the Electronics division. It has started looking for business beyond India and beyond the EV. As a first step, we have started supplies to our own overseas subsidiaries, who are buying certain electronic PCBs locally. STC or our technology center continues its efforts in developing and commercializing new products and adding them to the Suprajit's table.
And very importantly, I would say that we have planned to have our own infrastructure for STC at the place that we started in 1985, that means literally our birth place. This signifies that we want to demonstrate technology as our powerhouse for profitable growth as we expand and diversify.
So with this, I would like to hand over to Akhilesh to talk about SCS. Thank you.
Thank you, Mohan, and good morning, everyone. Coming to SCS, as you know, it was acquired out of insolvency. It is Stage 1 of a 2-stage process. In Q2 at SCS, there was an incredible amount of work that went into just stabilizing the SCS entities and bringing them back to normalcy.
We have had to air drop multiple teams into Europe and Morocco. We have had to create parallel tap instances to run 2 legal entities in 1 location. We had to shut down the Poland plant, et cetera, multiple things, which, of course, brings multiple complications and also led to certain one-off costs that had to be made in this quarter.
Further, the SCS operational EBITDA being negative for the water was not unexpected considering this is a complex insolvency situation. But let me highlight 5 key reasons for the negative operational numbers.
Firstly, there's been a significant top line drop in -- due to the market in Europe, which Mohan also mentioned. And also because lot of customers have built significant safety stock in case SCS had gone insolvent, you can imagine that this would cause significant disruption for them. So they had built an in-house stock, which they would consume in the case that SCS went insolvent, which, of course, we took it over. But to exhaust those old stock, they also reduced the offtake from SCS, dropping the top line at SCS and pickup from us.
During this quarter, we also had a lot of expedited freight. As you know, we were shutting down the Poland location. We're ramping up the Moroccan plant, which require a lot of expedited trades with a very complex supply chain. The way that SCS was structured was that all European purchases was first going to Germany, then it was warehoused in Germany, then sent to Morocco. And in Morocco, then send it back to Germany and then to the customer.
The first thing that we have done as we have taken over is to simplify this and make sure all the suppliers are supplying directly to Morocco, so it doesn't come to this German warehouse. This change has almost been completed by our team in Morocco. We've also had multiple quality costs and sorting costs in Europe due to this ramp-up in Morocco, we've gone from 0 to 800 people in 2 years, a huge deep in the automotive world. And that has led to certain production-related quality issues, which ended up with much higher than normal cost in Europe to sort and replace parts.
We see that in the most recent months that these quality costs are -- have dropped, and we are positive that they'll be able to continue this and hope that they will. These -- our numbers also include certain Poland wages, extra people in Germany for which we had a planned severance and some of that severance is done. Some will be completed over the next 2 quarters.
There are also other operational costs included in this operating -- in these operational numbers like legal, IT, accounting and other related projects. Some parts of these costs will continue and some will win stock. We faced various nonoperational one-off costs more related to the transaction and, of course, the insolvency situation -- for example, one significant cost was the severance cost in Poland. Most of this has been done, but there will be some further severance in Germany as well.
We also had certain one-off legal accounting and IT consultancy related costs to implement these new systems and also to manage the complexities of the insolvency. These are all completed in this quarter.
So with that, I hope this gives you some color about what happened at SCS and quarter 1. With that, I'll hand it over to Medappa. Medappa, you can go ahead.
Yes. Thank you, Akhilesh. Good morning to all. Yes.
This consolidated revenue, excluding SCS for the half year ended September 30, 2024, was INR 1,508 crores against INR 1,389 crores for the corresponding in the previous year, recording a growth of 9%. The consolidated operational EBITDA for the half year end September 30, 2024, was INR 184 crores as against INR 144 crores for the corresponding previous year, a growth of 28%.
The stand-alone revenue for the half year ended September 30, 2024, was INR 827 crores as against INR 719 crores for the corresponding previous year, with a growth of 15%. The stand-alone operational EBITDA for the half year ended September 30, 2024, was INR 145 crores as against INR 125 crores for the corresponding previous year, recording a growth of 15%.
The total debt level was INR 717 crores as on September 30, 2024. The surplus balance was -- the cash balance was INR 325 crores as on September 30, 2024, invested in mutual funds and bonds. For further queries, if any, you can approach me even after the call. Thank you. Thank you very much.
Thank you, all. Just a quick brief from me. I think there are 2 parts for the quarter. One is, I would say, is a very good operational performance of all our 4 divisions, which is actually improved in this quarter pretty well, including the Controls division.
Our medium-term target was to achieve an 8% EBITDA level, which is what has been achieved consistently in 2 quarters. So I think that has been -- overall, divisionally, we have done well. What has been the real focus for us and also probably for people, investors is that what's happening at SCS. The SCS was a case which we have taken up from an insolvency and as Akhilesh has explained, there have been multiple challenges in reviving an insolvent company. But what's interesting is that we now understand what is happening in this insolvent entities. If you look forward, say, by April, the way it will work is that we will have 1 major operational plant of Morocco, which will service Europe.
We will have a lean and mean German operations, which will be only engineering and business development. We will have an Hungarian lower-cost warehouse for the Suprajit Controls division, which will be managed by CFO, our existing plant. And a complete shutdown of Poland. So this is an overall restructuring, which will lead us eventually to offer to our customers globally.
And of course, by the time, the Canada and the China part of the deal will also be done. What we are going to offer, just for the benefit of all the business, is that out of China, we will have 1 plant supplying to the domestic market, 1 plant exporting. Of course, India will be a strong export base. For Europe, if the customer wants nearshore, Morocco will be the big operational advantage. They're quite efficient in terms of overall expenditure compared to Europe.
And if somebody wants locally made, we have a Hungarian plant with a very good operating capabilities in terms of warehousing out of our -- out of this new warehouse as well as our copper warehouse out of Slovenia.
When it comes to U.S., we have 2-pronged approach. One is from Canada to deliver to U.S., and one is from Mexico to deliver to U.S., apart from our operations, which will be in Wescon as well as, of course, our engineering center.
So if you look at the macro perspective, in about 6 or 8 months or 9 months' time, we will have an operational footprint, which will probably be unmatched by our competition. I think that is what the real thing that is happening in the underlying operational numbers that you see that I just wanted to bring to your notice.
With that, I'll open it for questions from anybody who want to ask. So over to the moderator, please.
[Operator Instructions] The first question is from the line of Viraj from SiMPL.
Sir, just a couple of questions on the operations. One is would it be right to say that there was an additional cost of roughly around INR 30 crores due to mix of restructuring at SCS and SCD and other acquisition and trade-related impact? And if that's the case, can you just give some breakup in terms of major components? And going forward, you said there will be other some type of charges. So would the intensity go in a similar manner? I mean, just if you can provide more deeper perspective.
Yes, Viraj. I don't know how you got the number, but I think very interesting. Yes, I think if you really compile all the restructuring and acquisition of this insolvent SCS entity, the ballpark number is around INR 25 crores. So that includes multiple things. It also includes certain restructuring at Controls division as well. And all these expenses relating to acquisition in Europe, all the lawyers and advisers fees, et cetera, et cetera, as well as few other expenses in terms of some of the write-offs, severance costs, et cetera, et cetera.
So you're right, that is the number. So if you put that back into our consolidated number at the profit before tax expenses, I think you will see actually it is better than last year's number. But is it every quarter that hit?
No, I am not saying that at all. I think going forward, there will be still some costs relating to this acquisition because the China part is being done. It will be done sometime hopefully in the early part of January. So that cost will be there.
And some more of these -- we'll continue to have some restructuring costs in the SCD outside of SCS. So that will also be there. But the numbers will not give these numbers.
Yes.
Okay. Just a follow-up. You also talked about restructuring at SCD, right? Post the restructuring and Matamoros, would that largely negate the kind of hit on duty and paid inflation in Mexico we have been incurring in our books? And how are we kind of incorporating this learning when we're kind of bidding for new wins?
Yes. I think it's very difficult to answer the question, first of all, because restructuring is an ongoing process. We are just making Matamoros, particularly, which is coming from the LDC entities, that is the one which requires probably the most attention because they were both external and internal factors. The internal factors in terms of operational efficiency, team efficiency, et cetera. That is what one side of the restructuring costs that we are incurring.
Will it fully offset the wage price increase? As I said, in 2 years, we have something like 40%, 50% increase. That cannot be fully offset, I think. But it will make it a lot more efficient. But I think what we also need to see is how Suprajit Controls division is performing from an overall perspective. There will be individual pieces that we need to address, you are right, Matamoros is the one that we're addressing. As Mohan said, quite a bit of the other pieces have been performing very well.
So what is the SCD performance? I think in the global auto component industry, if you do between 6% to 10%, it is a reasonable EBITDA margins. 6% is okay, 8% is good, 10% plus is exceptional. So from the 3%, 4%, what we have, if you see our business update, we are now at 8%. So I think we had a very good journey so far. We have reached our midterm targets.
But of course, that definitely continues and as we do more and more these kind of further operational efficiency improvements and minor restructuring, which is ongoing, particularly at Matamoros, I think these numbers should continue to be in those ways.
No, I think it's commendable, especially with the way the demand has played out in North America on a nonautomotive and the impact it would have on Wescon profitability. We've kind of done a fairly good job there. So congratulations to you and the team.
Just 2 more follow-up questions. For SCS, we -- the deal value was pegged at roughly an EV of $13.5 million.
Sorry, I missed your question. Sorry, I couldn't...
So for SCS, when we acquired, the deal volume was pegged at an EV of $13.5 million on a no debt, no cash basis. And within this also, there was an adjustment towards net working capital and any other social liabilities or statutory dues.
So if I look at the Phase I, we incurred a spend of around INR 94 in acquisition, which is what mentioned in the notes. So is there any revision upwards in terms of the acquisition value? And what will drive this?
There is no change in the EV as such. I don't know exactly the -- yes, it is INR 13.5 million was the EV. But please understand, when we took an insolvent company, they didn't have any working capital. So we had to pump more money into it.
So there has been an ongoing support to make sure that it stabilizes. So overall, there is no change in the enterprise value calculation, but the allocation of the enterprise value between the first phase and second phase is what probably would be the one that is being changed in the process. But otherwise, there's no change.
So the last question. So in terms of investment or CapEx, we would need to do to bring it on par in terms of operational performance. What is the kind of investment in CapEx? And just one more is there are news of plant closure in Europe by major OEMs. So is there any risk to the business at SCS or largely the order books, which we have been winning?
I think within the SCD, there is an internally allocated CapEx, which we don't really disclose the market, but comes within the INR 180 crores that we have mentioned, I think, in the last quarter.
So all the SCD entities would have -- would work within those CapEx. For this particularly any major CapEx in the next 3, 6 months, and we are not actually foreseeing anything, or at least it has not come to our notice. So I don't see -- but certainly, when there is a negative cash flow, as you can see in the first quarter, a support is required and also plus the working capital that is required to manage it.
As I think Akhilesh mentioned, the China, Canada part of it is actually a profitable part of it. So when you look at the SCS together in, let's say, 2, 3 quarters down the line, I think the picture will be significantly different.
Second point to answer your second question on market demand. It is very difficult to say anything because, let's say, the new president in U.S. works out a deal with Mr. Putin and the war ends in Europe, I think the whole scene will change.
But right now, yes, we are all aware what Volkswagen has announced and others are talking about. For us, what all we need to do is to internally we need to be very efficient and optimal operating in it. Like us, others also will suffer if the volumes drop. We should be the one with the least suffering.
So when the tide turns, I think we'll be in the best place to capitalize. That's all I can say because the market is very difficult to assess at this moment.
The next question is from the line of Amit Hiranandani from SMIFS Limited.
Sir, could you please explain what exactly we are doing regarding this restructuring of SCD?
Yes, okay. Mohan, will you answer on some -- touch upon on the restructuring of SCD?
Sure. Let me just break it down into majorly 2 portions or 2.5 portions, if you can call it.
First, I'll talk about the Americas. In Americas, you have these 2 entities in Mexico. One is Juarez and another is Matamoros. So we are looking at what and how we can kind of synergize between these 2, and who are the common customers, et cetera.
Then second thing is these were all bolt-ons. That means we bought Wescon, then we got LDC. So these were all bolt-ons. When they were bolted on from one piece to another piece, basically, the management -- there were overlaps in management. Therefore, we can do a managerial shakeup and bring in certain amount of consolidation and management. Therefore, it brings in what I call it as unity in command and unity in direction. So that is another part that we are doing.
So -- and I think I had talked about this in the last time or so. We have kicked off what's called us MAX Teams. These MAX Teams are working already with each other to bring in synergies. Therefore, from a restructuring perspective, it's going to be management structure that we are looking at. Therefore, we would be shedding some overheads.
I think in addition to what Mohan has said, let me also add that in this quarter, I mean, the quarter gone by in Matamoros, we have done certain, let go off people to tighten the belt. I think there will be some more work that we are going to do in that direction in this next quarter. So that's one.
Secondly, I think there's also another interesting part, which probably we have touched upon, but not elaborated, is our ability to do in-house manufacturing. For example, we are buying a lot of plastic parts in the U.S. from outside, whereas Matamoros has got a large plastic molding facilities. So we have brought a lot of them -- or bringing a lot of them to in-house. So that is one part.
Secondly, for example, we are buying electronic components, I think we have made a comment in our business update that we are in-sourcing to our Suprajit Electronics division. The Electronics division is starting shipment of these electronics components to our U.S. operations. So like I'll give you some examples. There are a lot of these in-house restructuring of manufacturing in place and what makes it a better strategic fit for us. So that is the other side of the restructuring in terms of operation.
Right. So sir, is this restructuring of SCD is aiming to achieve double-digit EBITDA margin, if yes, then possibly by when we can achieve this?
Amit, I've said this just now. I think in global -- you guys track global auto component companies as well, between 6% to 10% is good. We started below 6%, I think, 3%, 4% at one point. We are at 8%. I think it's a good progress.
Of course, our ambition is much higher. But they're all part of this journey. So yes, we want to improve it further, but we don't want to give a number. But obviously, we have our internal target.
All right. So sir, considering the poor global situation at the moment, when do you think SCS will achieve the EBITDA breakeven?
Honestly, I think I'll be in a position to say in 2 quarters. Hopefully, by the time, if you have completed the SCS Canada and China part, which, as I said, is profitable happens, it happens. And when you combine those 2 together, hopefully, it is EBITDA positive.
But unless it is completely done, it's maybe premature for us to say that. But let me say this, what is more important is what we see so far in the numbers. If we see, for example, the numbers of material costs at 50% to 55%, that we know as a cable manufacturer is a good number to be considering our multi-geographical number.
Now the rest of the cost, you have to bring it under control. I think that is the challenge for the operations team. And as we have done, even in Wescon, with the lower volume -- with the lower sales, our EBITDA is double digit. So we know how to do it. So I think knowing that our material cost is under control, I think the rest of it will fall into place over the next 2, 3 quarters.
Right. Sir, 2 bookkeeping question. There was some taxes paid despite the lower profits, and debt level has also increased by 23% on a Q-on-Q basis. So I wanted to understand these 2 things, please.
Yes. I think the taxes for the -- as you know, we have done hardly any borrowing for the transaction per se. But for the overall transaction, we have -- sorry, am I on? Am I Audible?
Yes, sir, yes.
Okay, sorry. So in terms of the taxes, as you know, for both our buybacks and our acquisition, we have redeemed our mutual funds, which were all long term in nature.
So obviously, that had a -- as you see in our mutual fund, numbers have come down, it's all done for these 2 purposes. So that has to be -- the tax provision has been made for that. I think that's why you're seeing a higher tax number there.
In terms of debt, no, I think -- for our Indian CapEx, I think we have borrowed some amount, maybe INR 25 crores. But basically on our working capital, we have utilized a little more for our overall operations. So that's basically why it is.
So debt level, basically, just wanted to understand what is the annual repayment schedule going forward for this?
I think you can take the top line with a bit of pie. We can provide those data.
The next question is from the line of Priya Ranjan from HDFC AMC.
My question is on basically on the -- if I look at the standalone, so standalone is around INR 4,500 crores and consol number is around INR 8,300 crores in terms of top line. So I mean standalone, there has been hardly any change. I mean it has been mostly in terms of profitability. So if I look at your subsidiary revenue, I mean, it's roughly around INR 400-odd crores. So INR 400-odd crores, what is the sustainable margin, I mean, do you think can happen? Maybe, I mean, once all the restructuring, et cetera, is done at the EBITDA and PBT level?
Yes. The aim is to go to double digits. As I said, right now, I think -- it basically is the controls division, I think. So typically, the margins that is outside of India is between 6% to 10%. We were at 3%, 4%. We crossed 6% last year, and I think now we are at about 8%. Of course, the aspiration is to go to 10%. I think that is what we would like to do over a period of time on SCD. But with the SCS happening, it will be probably delayed by another few quarters because SCS restructuring itself is a separate operation.
Okay. And secondly, with the SCS acquisition. So how much additional top line is going to come from the -- if those 2 plants happens probably the Canada...
Yes. From the next year, yes.
Yes.
For the next, I think, full financial year because this will be a little bit bolt-on pieces this quarter and next quarter. So I think for the next full year, we should be between USD 40 million to USD 45 million, will be the top line addition.
Okay. USD 40 million to USD 45 million additional from what we are doing currently.
Correct. Exactly, yes.
Yes. And this year, it will be 3 months for the German and the European operation for the SCS.
It will be for 3 quarters. And if Canada happens, I mean, which we are expecting in Q4, whatever number of months that will be there, it will be little again piecemeal. But it will be full fledged from 1st of April as we speak.
Sure. And do you think -- I mean we -- in terms of acquisition, we have gone a little aggressive. We are actually battling too many fronts at the same time, while we have been trying to stabilize the LDC last acquisition or should we grow slow in acquisition? What is your thought on, the opportunity was such that you could just can't avoid it.
Yes. I think this was more an opportunistic thing that came on the table, Priyaranjan. It's not that we -- it came, and I thought it fit -- we all felt that it was a good fit for us in terms of our overall global footprint.
Just as I said, both onshoring, close shoring, low-cost options, we are now providing the full capabilities to customers. And I think that is the real background why we were interested in serious about the SCS. Now we have done that. I don't think we have any plans to do any such cable asset acquisition because I think our footprint is complete in most sense. So that is one part of it.
But on the LDC, I think excepting Matamoros, which was partly outside of our influence, all the entities have stabilized. As I said, the SCD today is generating 8% EBITDA without -- which is considered decent in international number.
So we are already there. Of course, once Matamoros does even better that number without SCS will probably can even improve further. But that is where we are. So on an overall point of view, it was an opportunistic buy and I don't think we have any more plans. And I think our bandwidth at this moment to deal with it is pretty strong, so we can certainly do it in the next couple of quarters.
Sure. And just on the -- we talked about 10% double-digit EBITDA margin. So on the PBT level, what should we consider for subsidiaries?
I have no answer. I'll have to do some back of the envelope calculation, I think. But we could probably have another call to see whether we can get certain data on this.
The next question is from the line of Mumuksh Mandlesha from Anand Rathi Share and Stock Brokers.
Just on continuing on the SCD. When we see last year number at PAT level, there was still a loss at a 6% EBIT margin. And obviously, the major challenge is the tariff issue. So I just wanted, fair chance, any update on the tariff part. We had the legal -- there also legal -- we're trying to solve that issue. Because from the PAT, I think that would be key for the margins. So any update on that, sir?
Mohan, will you answer that on the legal issue?
Sure. I have had discussions with the lawyers there. Basically, the stage that we are in is what is called as discovery phase. In discovery phase, basically, we provide all the documentation to show evidence that this has been substantially transformed.
Therefore, at the parent level, it may not have to be taxed as though it has come from China. Now this evidence, we have given it to the government authorities. And it is now pending with them post which we will either get an out-of-court understanding with them, and therefore, they will back off on that, and we will get it back or if they decide to pursue and they have to give their line of defense, then we will go to what is called as a bench in the court.
And that's where we'll have to go to the court itself.
So this is the way it is. I've had these discussions with the lawyer. The way I look at it by around March, April, we should be having some sort of an understanding where we are, hopefully. But whether courts in India, courts in U.S., they all behave the same.
Understood. Sir, coming -- Mohan sir to you only. Coming to non-auto part, it's another drag for the last 2 to 3 quarters. Just on the recovery part, how do you see that playing out in the coming quarters, sir?
Is the question to me?
Go ahead, Mohan, you can answer that, yes.
Okay. See, let me split that into 2 portion. One is called as, what we call it as a green season, another is called as a white season, okay? So these are generally how we classify it.
So green season basically talks about all these lawnmowers and those kind of stuff, whereas white season is all about snow. So that is where these 2 factors come in. Now what has happened is all this big -- what -- if you look at the supply chain, there are what are called as big boxers in the U.S. These big boxers go and order on the OEMs, and the OEM then pull the parts from us. That's how it happens.
Last year, there was a huge amount of overstocking in the big boxers, and it did move. And what happens is we always closely watch what is called the new home market, the real estate market. So more there is an uptick on it, people buy these houses, then they will go and start picking up all these equipments. So that is going to be, again, dependent in the interest rates. So that's how the linkage comes in. So for us, what we look at as a lead indicator is inflation, followed by interest rates, followed by the real estate and therefore big boxers stocking and OEM producing. This is the kind of supply chain.
So if I look at it, I would say this year, it's not going to be great. I was there in the U.S. and I was discussing with quite many customers like John Deere, et cetera. So I haven't heard anything very, very positive and encouraging there. Therefore, it is going to be a bit tepid for some more time in my opinion.
Just to add, as I said earlier, I think despite the lower sales, we are doing better EBITDA margins compared to last year at our Wescon and at our Unit 9 operations. So that shows that operationally, we are very lean. But of course, the business is what it is. There is no top line growth.
One of the -- I would just add also that with the changing political situation, especially things like the -- what tariffis Trump might have decided to put a lot of Chinese imports of complete products. For example, there's a big problem of huge imports of golf carts from China into the U.S., a large tariff on something like that will completely change the situation because then they will do a lot more golf carts in Mexico or in the U.S. Mainland, where a lot of our key customers are.
So things could very quickly change, very positive for us depending on the political situation. And either way, we don't get affected because we can supply out of Mexico or Morocco or out of India, which -- of course, the U.S. Mainland also where we have onshore operations.
Just any first half, sir, how much fall would be there in the non-auto, sir?
Sorry, I can't hear that.
In the first half, how was the fall in the non-auto, sir?
How much is fall, is it? I think if you see our pie chart, I think it shows compared to last year when we had, I think, something like 19%, I think, was nonautomotive. In the first half year number, it's only 16%. So our top line has grown by almost 10% on a consolidated basis. But our market as an individual pie chart share, it's only 16% of that compared to 19% last year, yes.
Sir, lastly, on the Electronic division, we're seeing some growth there, sir. I just want to understand how do you see the next 2-year ramp-up? And which are key products that are expected to do well, sir?
I think there is -- I think, Mohan, will you answer. I mean I will also give a point later on.
Yes. In the Electronics division, our first focus was on penetrating the market and this -- the EV players because EV players are much more understanding. They are also start-ups, by and large. And technically, we were also a start-up in the electronics industry.
Therefore, it made kind of a good compatibility between the process. Now from here, our focus has been to move forward and strive to get into the non-EV segment and also beyond what we call it a beyond EV is what we are looking at. So this is going to be a tough nut to crack because -- but very important is we have now some history, some background, if somebody comes and audits us, somebody checks our SMT lines, our processes, we stand a very good chance in the, I would say, established world.
So right now, we have had multiple customers visiting us, but this has to translate into business. But we are pretty upbeat about. If you are asking me for a specific number, I would not like to give that because there are too many moving pieces.
One moving piece is the EV itself. There is a shakeup in the EV. Some people, whom we have as a customer are kind of falling off. Some people are doing okay. Some people are not doing okay. And we are also gaining some new business within EV itself. But more importantly, non-EV portion is where we are looking at how to increase it because that's going to be stable business.
And to add to what Mohan said. I think one of our first big customer for Electronics division is no longer buying for us because they're not operating. So the whole thing has changed. Of course, in the process, we have also had to write off some of those receivables.
But we have been only -- last year, at this time, we are only from the Electronics division supplying to EV guys. But today, one major ICE OEM has become second largest customer to us for the Electronics division. And another large OEM ICE manufacturer is becoming a customer, and we are starting to do delivery sometimes, too. So what I'm saying that the whole thing is changing. But I can also say this. I think Electronics division will continue to be our fastest-growing division.
The next question is from the line of Gokul Maheshwari from Awriga Capital.
My one question is just, sir, when you are able to complete the acquisition of SCS and you are able to offer nearshore, onshore and offshore. And you are putting all the equation together, what growth can you actually achieve on a sustainable basis over a 2, 3-year frame?
Well, it's -- there are so many moving parts in this, Gokul. But the way I would answer is that we would look at the global automotive growth. I think currently, ex India, it's almost 0. Let's assume that the global automotive growth is, say, 2%, 3%, 4%. Our -- we will be not successful unless we do a 5% to 10% on top of that. I think that would be the target that can be done only through acquisition of market share from the competition through our model that we just described. So that's the way we are looking at business.
Okay. And what is happening in Europe? Do you see that as an opportunity or a challenge for us more from -- again from [ growth ] perspective?
I think there are both sides to it. I think the challenge is simple. I mean the volumes are not there. So we need to be lot more efficient and try to manage our cash and manage our profitability. That is the challenging part of it.
But that challenge is even more tougher for the competition because who are probably not making money anyway in the first place, and they don't have a reasonably deep pocket to survive the operational cost requirement and the cash requirement. So that is actually the opportunity for us. I think I've said this before, there will be a lot of consolidation of the industry, which you have seen at least in our industry, it has happened, we ourselves have done multiple acquisitions, it's going to be more such consolidations either through complete shutdowns, insolvency, restructuring, whatever, in the process, I think customers will look at people having the supply chain footprint that we just described.
So that is our true opportunity. The confidence that we have that we will outperform global automotive industry growth is purely because of the kind of model of business that we are able to offer to our customers.
Okay. And lastly, just on your domestic cable business, the margins year-over-year has come off a bit. Is there something you would just want to call out something over there?
Yes. I think we mentioned in our last business update, we didn't repeat in this. Please note that the domestic cable division also, in the way it has been grouped, maybe next year, we'll see whether we need to separately do it, is that it also looks -- takes care of the cost of Suprajit Technology Center and corporate. In both, in corporate, of course, we had done some extra people hiring considering our global multiple things in IT, in strategy, in accounts to do all the global requirements of the company. So the corporate cost has gone up.
And the STC from the last year, I think maybe we are 40, 50 people. Today, we are 120 people. So that cost is all sitting on DCD. So that number is -- if you take those numbers out, actually, DCD is doing exceptionally well.
The next question is from the line of Aditya from Securities Investment Management.
My question is on Phoenix Lamps. So the margin improvement, we are seeing, how much of this is due to lower raw material prices? Or it is more to do with scale -- increased scale and cost measures we have undertaken in this division?
Mohan, will you answer that?
Yes. It is not attributable to only one item. It is both what we call as the material cost portion. And again, material cost portion has got 2 subdivisions into it. One is the consumption itself. That means a reduction of scrap, better consumption, better formulation, et cetera.
Second thing is what we call as the -- the basic price itself. So as you would have seen that earlier at one point in time, a couple of years back, everything had gone literally through the roof. At that point in time, we had got some price increases. And at the same time, we had gone on aggressive, I would say, material conservation efforts. I think that's all paying off now.
Other than that, when I come to the other productivity portion, primarily, we bought this company from Osram in Chennai. That did a great job. The productivity improvement there has been phenomenal under our management. we did a big turnaround, I would say that. And the kind of targets that I set to them, I wasn't sure whether they can meet it.
But they wonderfully did it, and I'm very proud of the team in fact. So I would say that it is productivity improvement and also material cost.
Understood, sir. And sir, given where the raw material prices are and considering our position as last mile strategy, so focus from here on would be on maximizing volume scale or towards -- more towards margin sustenance?
Mohan?
Yes. It's a double-edged game because people know that this is going to be -- the question is, is your vendor base also believing in last mile strategy because there are some people, for example, there is one glass supplier who said, I'm going to shut down because I don't think it's going to go forward any much.
Therefore, then, we'll have to scurry around, look for another source somewhere other part of the world. So it's kind of a double-edged sword. It gives you a scaled up advantage and definitely, we take advantage of that. But at the same time, on certain areas, there could be a possibility that a vendor might not look at this as a strategic way forward, therefore, we might have to take some harsh calls or difficult calls on it. So it's a mixed bag. There's nothing black and white about it.
Understood. And just one more question. Now coming to this Suprajit Electronics division, there was some moderation in margins. So what has led to a...
Sorry, which division?
Suprajit Electronics. So there was some moderation in margins. So what was the reason for this here?
I think you know -- I'll give a general answer. One is, of course, this division is -- has partly also has our mechanical gauges, the old mechanical instrument or speedometers that we make, that is a pretty low margin business. It is a small part of our overall business. But for the division, it's a fairly significant part of the business. So that is a low-margin part of it, whereas the electronics part of it.
Also, I just sort of mentioned in passing that there has been a lot of turbulence in the EV space. Some of our customers either have gone bust or some of them have not paid up. So we also had to do some write-offs during the quarter or even the previous quarter. There has been a great experience to learn the business, but some of them haven't survived. So there has been some of those effects also in that number. I think that's the reason why it looks a little lower than what it was earlier.
The next question is from Gokul Maheshwari from Awriga Capital.
After this, we'll take one more question moderator, after Gokul's question because it's already 12:00.
Sure, sir.
This is Jinal here, sir. So I mean, you've answered most of the questions, just a couple of them. Today, when we look at -- sorry, I think that question just slipped out of my mind . I'll take the second question first.
So you did mention that the INR 25 crore hit off due to the SCS and extraordinary and one-offs that are there. So when we look at the press release and mention what the actual EBITDA growth of the core operations at the consol level was, that number comes to around INR 25 crores. But fine, if you are mentioning INR 25 crores, the point -- the question that I have is that, could you quantify the -- in the coming quarters, if that number is going to be far lower than what it is in this quarter? Is that possible?
I think I did mention, I think, in the earlier question itself that this one-off of INR 25 crores is not going to be continuing every quarter. No, it isn't.
Okay. Fair. And okay. And coming back to my first question. So in our past conversation, when we've -- we've always consistently mentioned that, look ultimately being the lowest cost across the globe and what is happening to our peers?
And when we hear about Volkswagen and the likes of them, isn't that a situation there is actually an opportunity for us because today, they are also really looking out for suppliers who are sustainable and they have a cost advantage. So in a difficult environment, actually, that's an opportunity for us to gain share. I mean...
Absolutely. There's no question about. In fact, we have been making remarks in every business update of ours every quarter that we are winning significant new contracts. That's all at the cost of the competition. Why we are saying that we will grow 5% or 10% higher than the global automotive growth is purely because of these new contracts.
So that means to say is what, somebody else is losing. So somebody else is bleeding. So that's the reason why we feel that our model has been so well accepted.
So to your point, what you're trying to, in fact, say that currently, what our growth is and when the industry does pick up, obviously, and obviously, adding to the point that we've had a lot of new order wins that growth differential versus the industry should be far larger. Correct?
Yes. Man, that is -- that's all building a building without knowing the fact side. I don't know. So if it is true let's assume automotive industry grows by 10% next year globally, which I don't think is going to happen, then we should also grow by 15% to 20%. But I don't think it's going to happen.
Okay. And I mean, I do commend the way you guys have handled this entire SCS acquisition the way you guys have made comments on the same, I mean, good luck to you guys on this.
Thank you. Last question, moderator, if any.
The next question is from the line of Senthil Manikandan from iThought PMS.
Sir, in one of your presentation in last month, so the strategy of developing locally and disrupting globally. And you mentioned the product like actuators and braking and digital clusters. So are you planning to take this product global -- to the global OEMs? And so if you can share some insights on this?
Akhilesh, will you answer that? It's more towards the STC products and our plans and strategy, I guess.
Yes. So I think this is one of the important growth areas for us. Just like for -- we have a great footprint for control cables. We also have a great footprint for our other products, which we are fully developing ourselves here in our technology center in Bangalore.
So the key areas where we are developing is one is, of course, braking system, which is focused on off-highway and 2-wheeler segment. Then we have actuators, which is focused on all the segments, including automotive, where we are already doing significant number of actuators for our U.S. customer. But we have a lot of opportunities to grow those actuators to our European customers, which have been our bread and butter customers in the past.
So this is an easy synergistic type of win to start supporting European operations with actuator products. And lastly, is the electronics and the digital clusters. This -- of course, right now, you can see most of the growth is in India with our key customers in India. But there's certainly a lot of potential for our global business to buy electronics and work with our customers on their electronics needs because we work so closely with both OEMs and Tier 1. So there's a lot of good potential for the new products we are bringing in at STC.
And second question is with respect to the domestic cable solution. So sir, if you can just share how is the 2-wheeler industry growth trends. Is it that -- so the premium part of the 2-wheeler segment continues to outperform? Are there any change in trends?
Sorry, I don't think I caught your question properly.
Sir, with respect to the domestic cable division, how is the industry trend? So in some of the earlier calls...
Yes, industry trend -- well, right now, the industry trend so far, of course, it has been all sort of attributed to no big growth in the rural development. And hence, the non 100 cc, 125 cc seems to have been doing much better than the 100 cc segment.
But of late, the talk is that the rural economy is picking up, there are green shoots. This is what we are hearing. And hence, again, there is some traction in the 100 cc, in the lower end of the cc range.
Overall, there has been, of course, a better growth. If you look at it historically, I think the 150 plus or 125, 150 plus range has been the one that has been growing faster than the 100 cc segment. So that is the market scenario for us. It does not matter because we are in that entire spectrum. So as we speak, I think there seems to be some recovery in the rural demand. So overall market seems to be good.
But I think I must bring to the notice of all the listening investors is that since we are talking Q1, Q2 data, up to September, the industry has grown -- I'm talking about the entire segment of automotive, right, from 2-wheelers to passenger vehicles and LCV HCV. The OEMs have dispatched something like 12% or something like that number, whereas the industry, I mean, there is the FADA data says that the actual number of vehicles have actually been registered or sold in the marketplace is grown only by 2%.
Of course, there's an export part of the whole business. That seems to say that there is a large number that's still in the market. So that needs to be sold. Yes, October was the good month. So I hope a lot of these stocks have been deplenished -- so depleted so that we are all in a good wicket.
Otherwise, there is a bit of a challenge because this time, October had both Dasara Navaratri and Diwali, whereas last year, it was in October and November, both the months have been good. So we are also looking in November, how it will be. So there is still some amount of uncertainty, but I have said this in the before that Indian automotive across the berth will probably grow only in a single digit. So we'll have to wait and see whether that remains the case.
With that, I would like to say thank you all for your continued interest in Suprajit. I hope we have given you all enough insights into what's happening in our 4 core divisions of operations as well as our recent acquisitions. If there's any further inquiry or questions you have, we can contact Medappa and try to get additional information as you need.
So thank you all, and thank you also to Anand Rathi and Mumuksh for organizing this call and as well as to the moderator. Thank you so much. So that's all from our side. Thank you.
Thank you so much, sir. On behalf of Anand Rathi Share and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.