Uniparts India Ltd
NSE:UNIPARTS
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Ladies and gentlemen, good day, and welcome to the Q2 FY '25 Earnings Conference Call of Uniparts India Limited hosted by Go India Advisors. [Operator Instructions]. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Monail [indiscernible] India Advisors. Thank you, and over to you, ma'am.
Thank you, Rami. Good evening, everyone, and welcome to Q2 FY '25 Earnings Call of Uniparts India Limited. We have on the call Mr. Gurdeep Soni, Chairman and Managing Director; Mr. Paramjit Soni, Promoter Executive Director and Vice Chairman; Mr. Rohit Maheshwari, Group Chief Financial Officer; and Mr. Vivek Maheshwari, Vice President, Financial Planning and Analysis and Investor Relations.
We must remind you that the discussion on today's call may include certain forward-looking statements and must be [indiscernible] you in conjunction with the risk that company cases. I will now request Mr. Soni to take us through the financials and the business updates subsequent to which we will open the floor to questions to answer. Thank you, and over to you, sir.
Yes. Good evening, ladies and gentlemen, and welcome to the second quarter earnings call for the financial year '25 Uniparts India Limited. [indiscernible] all of you are doing very well.
Prior to getting into the summary of the reported quarter, I would like to reiterate that the core of our organizational company is driven by the principles of fashion, innovation, integrity, excellence and teamwork. Our wonderful team of committed professionals has enabled Uniparts to be a partner of [ point ] for the global of highway vehicle market.
We actually believe that by leveraging our engineering competencies and the global delivery model, we are proudly partaking in what we call a building the world and feeding in people. The Uniparts team is navigating the challenging business environment [indiscernible] and creatively, while continuing its unwavering emphasis on core sales of the organization business model.
So initially inclusive venting medium-term growth, both organic and inorganic are being pursued with great rigor without taking the focus of the balancing [ act ] in terms of projecting core margins and profitability. The company's business continues to be financially strong providing requisite strength to propel future growth ambitions.
With this above background, let me spend next few minutes sharing costs with respect to the current operating environment and the business highlights. To start with in the construction end markets, we have seen a healthy rise in business relationships with the global leader in construction equipment and this is helping and offsetting the overall business in North American end market.
This particular account is growing approximately 65% to 70% for Uniparts on a year-on-year basis. The largest global customers is ever [ businessing ] mid-double-digit decline in this segment. This impact on our sales to them is [indiscernible] that due to some of the impacts of segmentary destocking. So net impact of end market business and increased business with a couple of key clients is about a low double-digit about 10% decline year-on-year for Uniparts [indiscernible].
As indicated in earlier 2 quarters, the slowdown in large [indiscernible] in U.S. and Europe, is having overall short-term demand with some element of inventory correction. However, this is also throwing some new opportunities this Uniparts is working on. Our relationship with the leading [indiscernible] OEM is growing tragedy, and we have got some new business with them.
This is helping open the overall business in European end market to some extent. The global small [indiscernible] markets witnessing some further business in the short term, leading to a low re-digit about 50% decline for Uniparts in this segment year-on-year.
Coming to the [ auto ] market, the [indiscernible] sites to be over for now, and that part [indiscernible] normalizing over coming quarters. This impact this segment is likely to grow 25% to 30% year-on-year in this fiscal. Addition of the new customer [indiscernible] fiscal who is the second largest crop of retail stores in North America is helping the growth and has more room to grow.
In the reported Q2 revenue number, approximately 2.5% additional adverse impact was due to inability to ship from our company in Augusta, Georgia USA facility during September. In the month due to the Hurricane Helene in the United States.
The Q3 on the online [ discount ] could be sequentially lower while Q4 is expected to be have the highest run rate of the fiscal. Overall, the second half of fiscal could be flattish over the first half. The company's balance sheet continues to be net with group net cash position at about INR 173 crores.
Business continued to witness healthy free cash flow at [ 19% ] of revenue from operations during the reported quarter. The new award pipeline remains encouraging with added traction in all product verticals, including PMT, large agricultural footprint assemblies, agricultural machinery in India and the high linkage as well as further geographical expansion in below 70 horsepower tractors is also gaining traction.
The end market softness may have some bearing on the implementation time line. The evaluation of strategy for starting of business in Mexico is at advanced stage. The company has already been awarded business of approximately USD 6.5 billion annually by a prominent OEM customer for [indiscernible] supplies in Mexico to start from the fourth quarter of FY '26.
This awarded value is a mix of some existing business and in business. But this practically adds to nearshoring agents to our overall global strategy. Active evaluation and engagement towards inorganic growth options also continued. Our focus on safety, quality, delivery and [indiscernible] and we continue investing for long-term growth. With this, I would like to hand over to Vivek Maheshwari to discuss the details of our financial performance during this reported quarter as an [indiscernible].
Thank you, sir. Good evening, all. I would like to share the following financial and business highlights of the quarter ending 30th September 2024. Revenues from operations for Q2 came in at INR 241 crores, which is a quarter-on-quarter change of minus 7.6% and a year-on-year change of minus 17.8%.
Reported EBITDA for Q2 was INR 41.9 crores, which is a quarter-on-quarter change of minus 8.8% and a year-on-year change of minus 33.3% while reported EBITDA margin was at 17.4% for the quarter. Operating cash flow in [indiscernible] for the quarter was approximately INR 56 crores. The net working capital, comprising of big elements of inventory, accounts receivable and account basis as a number of days of trailing 12 months revenue from operations stood at approximately 151 basis [indiscernible] September 2024.
Net working capital during the quarter decreased by approximately INR 19 crores. Uniparts' balance sheet continues to be net debt free with group net cash position at approximately INR 173 crores at the end of FY 2024. Cash out move towards CapEx commitments during the quarter has been approximately INR 6 crores.
Total new business awards valued during trailing 12 months has been approximately [ INR 170 crores], which is typically the annualized potential value of underlying pages. With the backdrop of revenue degrowth, operations team has been closely working on commensurate cost rationalization and optimization measures. Inflationary pressure on operating cost remains in the medium term to be partially mitigated through operating efficiency. Macro concerns over global economic slowdown, geopolitical uncertainties --
Participants the line of the management has been disconnected. Please wait while we rejoin them.
[Technical Difficulty]
The line for the management has been reconnected. Sir, you may go ahead.
Sir, we can't hear you.
Participants the line to the management has been reconnected. Excuse me, sir. You are not audible.
We are here. So the opening address is completed. So we can start with the question and answer.
[Operator Instructions]. The first question is from the line of [ Raj Shan], Individual Investor.
[indiscernible] integrity, excellence and [ tenor ] [indiscernible] quarter 2 sequentially flat [indiscernible] the key quarter 2 results [indiscernible] with the drastically reduced to [indiscernible] [ 45x category].
Hello. Sir, you there?
Yes, I can hear it. So Rajesh, this is Paramjit here. Rajesh, I think that we had given an indication that Q2 will be also weak in Q3 also will be weak, and I think that is continuing with the end market. [ Rate key ] here is if you look at how much our largest customer is declining versus how much we are declining, I think we are outperforming the market that the market -- the whole business model was designed.
It's a cyclical industry, both [ ag ] and construction and the whole business model was designed to be [indiscernible] from have equal volumes in both different industries. But this is the first time I've ever seen that both industries over here are almost in decline together. So essentially, what we are doing at this stage is to make sure that we are outperforming the market. We're controlling the margins, and we're getting new business awards, but at the same time, we're keeping our strategic position and adding to the global delivery model by adding the near-shoring solution in Mexico.
So if you recall our earlier strategy had been with the global shoring and take the risk out. And with that, we had to also manufacturing also [indiscernible] with the new opportunity in Mexico with reassuring I think we continue to focus on making our business model stronger.
It historically, whenever we face the downturn projects, history has been that we buckle ourselves in the downturn. We still outperform the market. And when the upturn comes, we significantly outperformed the market.
That is the way we've been managing our business historically. And while I understand that we invested some time ago and from a timing perspective, it's working out to be an issue. But I think the light at the end of the tunnel should be around that. [indiscernible] is a likely the interest rates changing in the U.S. now.
And second half of next year is where customers are indicating really a small factor and maybe the small construction equipment will start coming out. The aftermarket has already come back like we indicated earlier. So that's already growing 27% already this year. So -- it's a timing issue, Rajesh, nothing is wrong with the business model and the strategy is all I can say.
So Paramjit, can you explain some of our competitors' [indiscernible]? So I took whether the people are also reducing their business net profit and income margin also?
Again, Rajesh.
Paramjit can you explain your -- some of your competitors names is to compare our company's business with them with their financials?
We don't have any direct competitors that you can directly compare our competitors in every field but nobody is a real leader for us. We have competition like, for example, in [ Freeport ] linkage in the higher horsepower segment out of Europe and America, they're not even based in India.
If I look at competition for the [ Freeport ] linkage in India, then they are locally at only servicing the India market and not the export market. So you will not find a mimic of this, and none of them have a global delivery model. I think the key for you to look is look at our largest customers, look at [ John Deere], look at Caterpillar and see how they are performing. And if you look at their performance versus our performance with respect to them, I think we're outperforming the market there.
Okay. And last thing -- we have started our [indiscernible] later. And in [indiscernible], we have 2x the core [indiscernible].
I think I deeply appreciate your concerns. I'm not happy about it either.
All right. The next question is from the line of [ Rushabh Shah ] from [ KR Cokers Securities].
So in our business cyclicality will always be there. But what measures are you going to take to derisk the business further [indiscernible] get [ go ] from further platforms and also adding more strategic elements to our business.
So if you look at the business, like I said, let's talk about derisking, that historically, strategically being done today, I mean, from a business which used to be 100% in agriculture is now almost 35% in construction and 65% in agriculture. We've also done geographically at one time, we were 100% in America today about 52% sales in America and Asia is forming 22.5% and so is Europe at 22.5%. So we kind of -- we've continuously been doing it.
So moving from to [indiscernible] try our product strategy, our strategy has always been to stay within this space. However, the strategy has been to extend our system boundaries. And what do I mean by that? We basically know that the number of vehicles in the ag and construction equipment are limited or not like the automobile. Having said that, our goal was to increase value per vehicle. And hence, we looked at where our system goes currently and what's the next system attached to it and then we would add that on.
We all defined power take of hydraulics and fabrication of attachment systems as the synergetic areas, and we're actively pursuing these. When we look at our inorganic strategy, these are the 3 areas on which we are focused to do something inorganic, and hopefully, we'll have something coming soon or something like that.
And -- so essentially, there are 2 product platforms, I do expect the third product platform should be coming in inorganically once we succeed with our endeavors. And as soon as that is done, I think you will see a way more deli business, not just for [indiscernible], but also region-wise and even currency wise in a different way. So that's something that I look at all the time.
So you're in the third product platform. In the past, we have stated that we'll be working on the PTO hydraulic kind of fabrication platform. So what is the progress on that? Are we waiting for the segments in which we are operating to stabilize or no?
Absolutely still looking in that, and we are making good progress there. So I think we -- we are working on projects internally, but I can't announce them just now.
Okay. And my last question is, sir, I'm more interested in the optimistic part of the business. So how big could it do in the next 4 to 5 years? And are we focusing on it?
Yes. If you look at it aftermarket, a [indiscernible] mentioned earlier, at least that part of the business is doing well this year. So the aftermarket at one time was 16%, 17% that it went down with the inventory de cycle. It became like last year, it became only 14.5% to 15% of our business.
This year, because of the nice growth in that and some of the fact that the [indiscernible] it's already 20% of our business is forecasted to be 20% of our business this year. So [ dev ] also mentioned to you in the call that we added the second largest retail store in the U.S., and that has successfully implemented. So we continue to make good progress over there.
We have a leadership position, and I think we're adding more products into it as well. So I think that market grows nicely. In fact, [indiscernible] this downturn with the OEMs, that part of the business is really, really helped us.
[Operator Instructions] The next question is from the line of Madhur Rathi from Counter Cyclical PMS.
Sir, when we look at your longer bound guidance of [ INR 160 crores ] that will come from industry growing price exposure and the remaining will be from new adjacencies. But sir, when I look at the last 3 DRHP for the decade that we have tried to do an IPO for. Sir, the market has not grown similarly for our market share has not grown. We are told that we will go into adjusted [indiscernible] as well. We have highlighted hydraulics as well as other segment, but we have growth.
So maybe there are both segments a [indiscernible] as well as the precision machinery parts. There, our market share has been stage plus minus 4% that we haven't grown a lot? Sir, I'm trying to understand what gives us right now the confidence to give this number? And how do we plan on achieving this?
And the next part would be, sir, we are guiding that we have mentioned that there is a total addressable market of $10 million that we are trying to work on or increase of wallet share, but sir that [ high in 5 years]. So the [indiscernible] line, sir, why do we have the confidence to grow from this -- like the stagnant revenue for the like 5 decade and why do you think that will grow going forward?
So thanks, Madhur. So the way -- let's go back to the 2013 since you brought that out. If you look at that, that's a good period to start because the last slowdown was also in the 2014, '15 period, there was a slowdown. So if you look at that cycle also, during that slowdown, if you compare the numbers, you will realize that as the top line -- how much the market came down and how much we came down, which outperformed at that side. And what we achieved from 2013 to 2018 was a complete transformation of the business.
The business used to be at 12% -- 11%, 12% EBITDA business in 2013. And we completely remade ourselves and took it up to a 20% EBITDA. Right now, we're seeing a slightly lower number in the 17%, but that's only because of operating deleverage and our robust our margin control and everything still as good. So that sale was actually literally very, very highly focused on bottom line.
And that frankly changed our complete return on capital employed and ratios as well as the trace the fact that every down cycle that I go through, so this down cycle that we've been through, we've actually gone through with reasonably decent margins and a very strong cash position.
So each time we go through a downturn, I think we are coming out much more stronger at the other side of it. Talking about the growth, it remains I think [indiscernible] mentioned to you that the trailing 12 months, we see new work of [ INR 177 crores]. So if you're looking at that itself -- the run rate for the new award is running at the 16%, 17% just now.
I think we will basically stuck at this stage at a time with where I said the cyclical later, you bought into the ag business and then you said, "Oh, this is cyclical, let's get into the construction side, it's a similar side, and that will be the business." Unfortunately, we think back-to-back cycle. We add large ag cycle actually should have take about 2 years ago, and it got pushed out because of the Ukraine war and it's happening now.
So the construction cycle which is now going in is interest rate impacted. And as soon as it came was, think we'll see the growth over there. So the key here is look at how we are outperforming for the market, look at the new award run rate, look at the strategy, fixing where we came with the dual sharing model with one of our large customers kind of [indiscernible] and that worked nicely.
We said, "Hey, we are almost going this year, we're growing 50%, 60%, then despite the market being down." Now look at what we are doing for the Mexico strategy in nearshoring and [indiscernible] got awards starting in quarter 4 of FY '26.
So clearly, all these pieces are working. And in terms of the -- the product portfolios fabrication, PP and hydraulics, definitely, you will see something where we ever come out as becoming a platform soon. So to me, it's a matter of time that anyway, it is something that we are working very strongly internally. I understand your skepticism, just give it some more time. We are very strongly working on things.
Sir, I think I understand like the operational [indiscernible] mentioned. But sir, when I look see are a much smaller player than the overall areas as the construction industry. Sir, similarly in the main product line at the company, so market share having grown a lot so [indiscernible], it has been in the high teens to kind of in [indiscernible] for this year.
So when you speak that we have done [indiscernible], but sure our market share having increased [indiscernible] has an increase. So -- when we say that we have INR 177 crore awards in the new business can you expect this to become more than [ tenet ] from here can become [ INR 2,000 crores ] additional market over the next 5 years for our business?
I think it will happen both organically and inorganically. And the answer to that is yes.
So this can scale up to a better higher award business from [indiscernible] the next 5 years.
Absolutely because that is this, which you're also going to see from organic coming and once we have the next platform in, I think then you'll see those come from 3 platforms instead of 2 platforms.
And sir, because the OEMs are looking for new windows for the current sourcing [indiscernible]? Or is it because the OEMs are getting [indiscernible] of China. And we already have the capability, they are giving us orders.
I think [indiscernible] continues to play. If you look at what -- if you look at what we are doing this year with the large [indiscernible] that Caterpillar where we said we're going with a dual [indiscernible] manufacturing with something we had on 1.5 years ago, so you're seeing the growth today. I'm already saying to you today, we are doing the near-shoring partner in Mexico that also on China plus one and now if you look at what's happening in the U.S. in any case now with the current election situation, I guess actually, you get a situation where the tariffs on China go up significantly more then the implications of that are huge.
So -- but definitely time will tell what happens there. But clearly, the direction is headed in that direction only. So China plus one continues to strengthen, and I think Uniparts is positioned nicely for it. So we built -- at the end of the day, global sourcing, everybody suffered with China. Our model was based on take-over part of global sourcing.
We had redundant manufacturing in U.S. We built the dual shore manufacturing. Now which means we could do some onshoring here if needed. And at the same time, now we've added the near shoring. So strategically, we positioned ourself [indiscernible] for China plus one. I can't think of any other company in our space, which is doing this.
Okay. So that makes sense. Sir, just a final question on the margin trend, our margin in -- like the FY '19 were around 13 [indiscernible] in 11 to 13. [indiscernible] our warehousing part [indiscernible] that was for margin entity. But still, there is a -- the trend been, I just sold the 13% to 20% due at margin. There is additional margin detention. So why has that margin come or [indiscernible]?
So here is the situation. I think we -- and this [indiscernible] things that we have done on pre-IPO only [indiscernible]. We have [indiscernible] very clearly taken -- we have divided our business into the different delivery models and -- we produced in India, [indiscernible] India, we produce in U.S.A. [indiscernible], which is what we call our local delivery models.
So these were historically the lower margin around the 9%, 10% EBITDA margin businesses. And then we had a direct export, which was produced in Indian ship globally. That used to be a much higher margin business is almost 20%. And the way the housing was even significantly more at the highest part.
So what are -- how to you've taken [ 1 rig ] of it. Well, the other part is we had at that stage, if you go to 2013, a lot of our domestic manufacturing was being produced in our border locations took that out and we [indiscernible], all that, a lot of maneuver to take some cost reductions there and improve the margins on the domestic side.
We also [indiscernible] a lot of business in our U.S. portfolio. And we said we're very systematically sliced and diced it and clearly said, this is where we make money. This is where we don't make money. And clearly, wherever we were not making money, we either figured how to make money on that by moving it to India or changing prices with customers or getting rid of our business.
So I was willing to sacrifice top line growth as it wasn't going to make money. I much rather do lesser business but at a better margin. So we dropped that, that rate so I started that whole exercise thinking will go from 13% to 18% in my EBITDA. But because we dropped negative margin business, we actually went to 20%. And so these are structural changes that we made to the business.
So for question if these are structural changes to stay. And I think -- and if you look at what we had said 2 years ago, when we were talking about the warehousing businesses, 42%, 43% of our business, we expect to go to 48%, 49%. Well, guess what? I thought that was going in for us. It already happened.
So that -- so the entire business model where the customers are going towards the warehouse solution despite a slightly different price, I think that still maintained because of the key factor of you take the risk out of global sourcing. So to me, this is not a game of chasing price to the bottom. This is a [indiscernible] of being a strategic partner to a customer and how you participate managing the global supply chain, which I think is increasingly more and more important.
So to me, onshore manufacturing, dual or manufacturing near shoring, if we do not do these strategic things, then you can't blow the margin gain that you're talking about. The margin years only if you do this. Does that make sense?
[Operator Instructions] The next question is from the line of [indiscernible] Capital.
The current participant is not answering. The next question is from the line of [ Sharma from Facil Capital Investments].
Yes, hello. I have a question regarding your Mexico operations. Will the margins be the same as the current company margins? And what will be the investment that's required for this?
So we are doing this in 2 steps. Step 1 is actually just similar as transferring from warehousing there. And it will be like our warehousing margins, okay? Which means product is still produced in India, it comes to Mexico and it's sold to -- because one of our customers are moving their manufacturing lines to Mexico. We're going to service them locally.
Step -- so -- and then the first is, that's what you're going to see. So first award, the business are there. We've already had traction with 3 large clients on this. I talked about one, I think it has already been said that there was a 6.5 million annualized one.
There's another customer who's going to move another 2.5 million there and other customers have orders another 800,000. So as I'm getting into in calendar year '26, we're already looking at a base case of close to 9 million to 10 million of starting from there. That gives me enough to take care of any overheads over there and to maintain my margin.
Phase 2 of Mexico is going to be to be able to produce in Mexico, what makes sense in Mexico. Our markets have traditionally used to be -- if I go back 20 years ago, it's a very low-cost country model, produced in India, right? We then kind of [indiscernible] now taking the rest kind of global sourcing is more important and the -- everything [indiscernible] produce well in the low-cost country. So let's produce what makes sense in the U.S., we produce in the U.S. and what makes sense in India will produce in India.
And hence, we shifted to what [indiscernible] model. Adding Mexico to it is simply an extension of my best cost country. There are things that will make sense to produce in Mexico. And hence, we will do that. We will produce in Mexico what makes sense there. We will produce in India, what makes sense there, and we will produce in USA what makes sense there.
And we'll use our global logistics and delivery chain to handle our last mile with the customers and our relationship to make sure that they are growing with us and to make sure that we are doing healthily with them. So our strategy from Mexico to answer the first question, no margin erosion over there.
First stage, hardly any CapEx without [indiscernible] and it's just a way housing start up there, right? The second phase is probably our CapEx, even if it comes, it will interest be a couple of million dollars.
[Operator Instructions] The next question is from the line of Apurva Sharma from Alios Capital.
One other question, sir, I had was can you throw some color on the wallet share that you would have with the top customers? [Indiscernible] different competitors for [indiscernible] products. But if you could give some sense on that? And then I have another question.
So you mean how much share of how much business we do with each customer?
What are you going to say if that you supply suppose 3P and how much -- is it that you and your competitors have that share in that [indiscernible] at a particular customer? Wallet share -- I mean you are 50%, 70%, 30% for different [indiscernible], I don't want specific factors.
So it's going to be a slide because we are a bit diversified. I think it's going to be a little bit slightly smoother -- longer answer to that. So if I look at the below 70-horsepower tractor for 3-point linkage, okay? If I look at the United States, I think we have a very high wallet share because the major factors are done by [indiscernible] and both are my customers and over there, there's not that much that they take from anybody else.
So we would be very, very high on our wallet share sales. When I say very high, I'm talking about 80%, 85%, okay? If you go for the same product now in India on the [indiscernible], we have domestic competition there. And I think our wallet shares in India could be in the region of 28%, 29% for the Indian market. So that's geographically whether it's [ Mahindra], whether the deal will be higher and [ TAF ] will be high. So clearly, you have it different with different customers, right? But I'm just giving you geographically, [indiscernible] otherwise, it becomes a very, very elongated answer.
Similarly, when you go into the higher cost on linkage, we said we don't have that much market share and we were working mostly in Europe on this. And if you look, some of our new awards are coming from there, so that's the area where we really try to grow our market share. That's the investments we have done.
And in India, there is frankly nobody producing greater than 70-horsepower attractive models out of India and doing anything. So my competition is only in Europe and frankly, only in Europe, it's all produced in Western Europe and Italy and in Germany.
[So clearly, that's where we have room to grow. If I take the same thing in Japan, they only have a small [indiscernible]. And there, Japan and Korea, South Korea, both are markets where we are working with all the major -- and I think there's a market share may be more like in the 30%, 40% of the wallet share and some are local Japanese customers. The Japanese will always have some local loyalty. It's working locally over there as well. So there is a certain thing you will do there.
If I go into the construction equipment, again on the small construction [indiscernible] specifically to let's say spitter loader then we have a high share. If I go to a mining equipment, then I have a low share. So it's a little bit complicated to answer that question. And -- so what we've got as a strategy is essentially to say, hey, we know this is where our market share exists. This is where we can grow geographically. This is where, in this segment, our market share is lower and hence, we can grow it.
So all that market mapping is done in very high detail at our end and our marketing kind of focus is based on that. But if you take the overall [indiscernible] linkage, then I think we are one of the top 3 over there, if you look at below 70-horsepower tractors in the world, and we are the largest in the world for 3 [indiscernible].
These are both ex China, obviously, right, or how -- these will be both largest lower ex of China, right?
I said below 70-horsepower 3, yes, we would be the largest over there. And that has to be not because India is the largest producer and if you have a nice share in India and the rest is distributed out. And then in the U.S., you have a large share, the [indiscernible] you have a share, then obviously, you become the largest, right?
Europe doesn't produce too many of those below 70 horsepower. So clearly, I think there, we have a large share. But if you look at [ 3, 4 linkage ] as a whole, then we are amongst the top 3 globally. And the other 2 are sitting in Europe. And then frankly, one of them is my customer. So an interesting position where [indiscernible] better or is a customer [indiscernible].
And just -- I mean 2 questions on this. One is that [ Kubota in India], right? I mean how the relationships would, I think, obviously transfer to India as well [indiscernible] already there. So what do you see that as going forward?
We are gaining the things that we bought in India as well. So that continues the relationship with [ Chipata ] in India before also. I think that the effort on is we had some internal ones also over there. So there will be somebody else as well, but I think we are participating in the growth there as well. And so [indiscernible], think globally, we are doing pretty well. We're doing well in Japan. We're doing well with them in Germany. We're doing well with them in the U.S. So I think we try do them all across. So it's a very strategic relationship.
One last from my side. Just when you work on new programs, right, I mean other [indiscernible] but in the medium to long term, what is the return on capital that you look at in terms of the mix of margin and asset turnover. But overall, then how do you -- what do you look at our target internally for me?
I definitely have to be north of the 25%, but when I start quoting I'm looking at north of 30%.
Yes. I mean, I maintain the operations stabilize right [indiscernible].
Yes. But if you look at -- before the downturn, we had reached a 30%, 31% number on ROCE, right? Now is because of the downturn and some lower leveraging will be slightly lower. But clearly, long term, I don't want to be 25% very clearly. So as soon as you're out of this downturn and the deleveraging effect if you take out, it will be back to our numbers.
So -- and what is the capacity utilization roughly, I mean, of the 2 major programs that we would have [indiscernible]?
At this stage, obviously, we have a lot of capacity, which is why the CapEx is not much, right, because of the -- we have 2 downturns back to back, right? So we're -- I think they don't have an exact number with it, but my gut sense is it's not more than -- it's got to be in the high 50s or low 60s.
Mid to high 50s.
Mid- to high 50s, Vivek, Okay. So I wasn't too far off there.
[Operator Instructions] The next question is from the line of [ Jana Mittal from Ratna Capital].
So I just want some color on the segment-wise performance. You mentioned that the small IT segment in the H1 witnessed like a 50% odd degrowth. So what could be the share of this more likely small agri segment. And I also wanted to know about the P&P segment, like what is the share in what is the performance in the first half?
Yes. Vivek, you can take that question? Or do you want me to do it? And you may have more specific direct numbers in front of you, Vivek.
Yes. So help me understand the [indiscernible] it is better. You're asking what [indiscernible] in construction and ag and all that stuff. We do in these segments, correct?
Yes, right. And what has the growth been like in the first half in the growth [indiscernible], like, what is the cadence seen like in the first half?
So in construction, it is around 37% to 38% currently of our revenue. Small I can last that together [indiscernible] 46% to 47%. Out of this small agri concern is slightly higher, which is about 27% and largely, we can still [ is ] around 20%. And currently, I'm talking about this year number, were a little different a year or 2 years ago because obviously, there wasn't this downturn. And hence, agriculture number were higher back, right?
And then aftermarket is in high teens and probably those are the big things. Its a little bit [indiscernible].
Understood. And on the precision manufacturing part, what is the cadence? Like are we -- is it flattish? Is it in the degrowth? Or what is that like?
[indiscernible] side is coming mostly from the construction equipment side and the construction equipment, I think, is looking negative at about 10% to 12%. And some of it is in the large ag, which I think is taking a bigger hit.
Right. And the large --
The [indiscernible] not at the larger driver for you in PMP construction.
Right. And the [ 3 large part], that part of the business, is that also -- is that recovering a bit? Or is it still like [indiscernible]?
No. The large one is -- so far, not, frankly, that's the one which is driving a lot of the problem, even though formally [ 30% ] business, the reductions that our customers are seeing on that are very, very large and where you are also seeing the [indiscernible] of the inventory reduction at the same time. So that's what's driving the larger drop in the whole business.
It's not some much the construction, but it's a large [indiscernible]. Smart because while the business is going down as far as the total end market, but there's a lot of the inventory down cycling, the channel inventory down cycling is more or less behind. So that's at a different age asset of this one, on it [indiscernible] will be the fourth and that will come back out [indiscernible]. Larger, I actually think it's going to take about a year to come back.
Small [indiscernible] as I think we're looking at mid next year. And construction outcome in next year because I think on the homebuilding and everything with this change in [indiscernible], we should look at a change coming down. Aftermarket is actually -- the problem with aftermarket, 1.5 years ago when they were reducing the inventory and cutting things down and all the inventories that are piled up because people with all the logistics issues, people had overstocked.
And I think now you're seeing this year already like we're seeing between 25% to 30% growth in that segment. So that's I said, the aftermarket, which used to be traditionally was 16%, 17% of our business went down to maybe about 14% last year, and now it's back up to like we said to maybe about 19% or so.
Understood. So in the aftermarket, we're expecting 30% odd growth. Is that correct?
We don't do anything in the India aftermarket. All my aftermarket is coming from exports. It's from mostly America and Europe.
No, I was just asking that the growth -- that outlook for aftermarket is something around that range and that's largely from the new customer addition that we have done from the existing customers also, are we seeing some is only maybe 5%, 7%?
We are growing about 25% to 30% because we've added customers [indiscernible]. So you can address some of that from gaining more [indiscernible].
I wish to correct one number, which I just mentioned. For large agriculture, the current year is around 17%. 20%, which I mentioned earlier was more last year. So and that's why it dropped from 20% to 16% And similarly, what you see the significant shift last year, aftermarket was like 14% of that shifted to '19. So that kind of tells you the story of how the large ag is causing the bigger issue even though it was just 20% of our business, but -- so -- but it's been compensated a lot by the aftermarket.
[Operator Instructions] Next question is from the line of [ Adit Tasha from Require Advisory Services].
Sir, I have 3 questions. The first question is regarding when do we expect this downturn cycle to end? And would we be back to growth? The second question is that in your experience of last 30, 35 years or more in this industry, how many times do you see these kind of downturn cycles come like what is the period of the downturn cycle? Do they come every 10 years, 5 years, 4 years, something like that? And the third question is the third segment that we are adding to our business. By when can it contribute around 20%, 25% of revenue?
Okay. So let's start with the downturn when I think some of that I answered while I was answering the previous question. So let me -- because that answer you segmentally. If you look at the construction. I actually think on the small construction equipment with the homebuilding segment. I think you will see -- most customers are telling me grow second half next year, okay?
If you take a very large mining equipment and all, I'm not sure that will do as much because the commodities and stuff like that because that's driven by some commodity prices and whether mining and all that is going to happen and it's not China driven, okay. But we don't do very much in it. And then business comes from the small equipment at this time. So the relevant one for me is second half next year for the construction.
The second when you say is [indiscernible] calendar year or our financial?
I'm talking calendar at this time because that's what customers are telling me, okay? Customers are telling me second half next calendar year. All right for construction.
For small ag, again, it's a similar story. It's driven by interest rates. I think next year, we will see a slight increase, but not a significant one because even if it comes in the second half, first half, you won't see. Second half is where you'll see bulk of it.
Large ag, I don't think you'll see the downturn end in next year. I think what you'll see is the slide [indiscernible] too because this year, we are seeing the impact of inventory reduction next year, probably that is not coming in. So that may have -- when it looks -- when you look at it over that base, it looks different. The aftermarket is already doing reasonably well and growing.
So 2 of the big on construction and small lag, I think second half next year is what you're looking. And large [Audio Gap] maybe it goes to the calendar year I cover in '27, right? So '26, sorry, '26. And to answer your second question on cycles.
Typically, the ag and construction cycles are 4, 5-year cycles. So -- and -- but what you have to -- if you analyze [indiscernible] is people realize that each time you come out from one cycle, the peak of the next cycle is higher than the previous peak.
Absolutely.
So clearly, you will see the 4, 5 year cycles, and you'll see the peak flow up. And I think, like I mentioned in maybe the earlier part of my call, I said, ag cycle would have finished. The peak should have finished maybe 2 years ago, it got delayed because of the Ukraine problem and all the commodity, high commodity prices are high, so equipment sales were still going on.
And that's a completely outside thing which affected the cycle and not really the normal thing, right, okay? And because of that [indiscernible] should have been a bad cycle for you because the [indiscernible] cycle is hitting me today. Construction, which should have seen that cycle coming now and the up and come [indiscernible] also parallel happening because the infrastructure spending kind of went through and now we're waiting for the interest rate in that cycle on the housing.
So if you see the interest rates come down, I think you should see that change. The small [ lab ] typically in the U.S., which is the largest market for this. Here it's completely -- it's obviously not used for farming that tractor. It's a utility tractor and it's a large property owner tractor. So it's more as a consumer product here rather than a farming product and hence, it's more interest rate driven.
And -- but India factor is [indiscernible]. So India is the only hit we took in -- most of the traffic that India export, they contain our 350 vintage. So while somebody was asking you share while we do as maybe 30% share in India. But if you take only the 4 [indiscernible] out of India, we may have like 80%, 90% share the [indiscernible] because literally, they don't trust some of the other competition quality for the export markets.
And so for us, obviously, since we are exposed more to the export in from India as well, that gives us a little bit. But overall, India is doing all right. And Japan also, I think, will be fine. But [indiscernible] is only 4%, 5% of our market, so at this stage. And so plenty of room to grow.
Correct. So to answer your [indiscernible]. Largely from -- a year from now. So largely 1 year I think your second half or 2 segments, large ag later but the big from 1 year from now.
No, but the bigger deals keep and view the new awards. because while you're looking -- this is a cycle and the market will do what the market will do, right? If you look at the run rate of the new awards, I think that's the key because the new business that we are awarding it as that [ productionize], I think that's what's going to make us outbeat the market. The key is to outperform the market, and that's how we'll do it. Okay.
Like I said earlier a couple of times in this call, I think we're working very hard on it, and we're working on something this now. It's a little too early for me to announce, but my goal is to have this platform actually come to us within the next year or so. So that as a successful over there, then yes, you will see something come from there pretty soon.
[Operator Instructions] The next question is from the line of Madhur Rathi from Counter Cyclical PMS.
What I'm trying to understand that -- sir, if I recall correctly, sir, in the fourth quarter of last year, sir, we were doing some pilot projects of some TV. So is there any progress on that front?
Yes. We launched the project and so it was a test pilot was launched on it in about 230 stores. And now they're assimilating the results of that, and we are redefining the advertising platform for it. So it's running a little slower than what we anticipated, but we are continuously working on it. So it was launched and the product is good, it comments are coming out there.
But I think we need to do some more advertising and marketing on that because it's getting into a consumer market there.
So I mean, we should not expect to scale up or one big revenue from that segment?
You will continue to see revenue come up but not very big. You will see a few million come from there. But is it going to suddenly give you $5 million? No, that's not going to happen.
Okay. since you mentioned that our capacity utilization is [indiscernible], how -- any update that we [indiscernible] provided demand is there? Or is the nature of the industry itself that we can only reach 80% or thereabouts of our insured capacity?
So the way it operates is we are not like an automobile where even in manufacturing and you have dedicated capacity. We have more discrete manufacturing and our capacity is a little bit more fungible. So for example, I don't see treatment or [indiscernible] lines, these are these are not specific to product and even our machining, a lot of it is discrete. So our ability to do export price quite high.
And so yes, the moment I reached about 85% utilization level, frankly, [indiscernible] 80% utilization level I start investing more significantly because it takes 6 months to 1 year to set it up. And if you're seeing that, then you don't want to be left behind, right? And -- but I don't -- at 85%, 88% is about the most you'll go up, okay?
So by and large, since we almost did INR 1,366 crores in FY '23. So safe to say that roughly INR 2,000 crores top line we can achieve from our current installed capacity pro demand is there.
I want to say more like INR 1,600 crores, INR 1,700 crores at this stage? But each year, we keep doing balancing CapEx a little bit. Like this year also, I think we -- normal CapEx when we typically is 2%, 2.5% of sales. So we are not very high CapEx intensive. And even at this stage, even if I'm doing 1%, 1.5% as CapEx to sales, then we should be okay to maintain these levels. So I'm not investing into significant capacity [indiscernible] just now.
I'm sitting on it, but CapEx is not going to be a bigger issue. I think -- the key for us is to make sure that Mexico gets up and running and some of where we are spending money is on the greater than 70-horsepower where we're getting new projects awarded this, obviously, we need some different equipment, so we're investing in those.
Sir, since you alluded to the fact that the style for 5 years. So basically, we [indiscernible] '23. So does that mean that 2, 3 more years are there to go roughly for SPC or revival?
No. When I say 4 years it took peak to peak, right? So you will see a decline and then you will see the upcycle also come. So to me, the bottom -- the large ag, you just -- the down cycle has just started, okay? So you're still on the down cycle, and I'm saying the down cycle will continue for another year.
And then maybe in 2016, you will start seeing the return come from there. Small ag and construction, I'm already telling you small [indiscernible] has already been down 2 years. I'm telling you give it another 6, 8 months and second half of next year, it should be turnaround. Construction, on the small one, you've seen the decline because of the interest rates. Now that the interest rate regime is changing, we should see still an increase come in the second half of the next year. Okay?
Sir, and also saying 60% of our revenue is coming from tracks. So I understand there must be some strong correlation with food prices with basically agricommodity prices and [indiscernible]. So if we see the food price index, which sees at around [ 144 ] in FY '22 calendar year. And sir, our revenues [indiscernible] -- and sir, since the it is bottomed out in January of 2024. And so now it is at 127 versus 144 peak in FY '22 [indiscernible].
So basically, should we wait for this FAO index to reach the 2022 levels of previous high for us to basically see revival?
That's a very interesting question. Internally, we don't track [indiscernible]. We do [indiscernible] a commodity prices. So we look at prices of wheat, soybeans and [indiscernible] so we track those. I internally have never tracked this index that you're referring to. But if this index is represented among the commodities, and I think it may be a good index to refer to. I can't answer that question because I don't know -- I don't track that [indiscernible] this now.
But I can answer your question that yes, as commodity prices on food if they're up, then definitely, the farmer has more money and this balance sheet is stronger. And right now, at this stage, [indiscernible] the soybean prices down and wheat prices down, I think it's -- the farmer doesn't have the [indiscernible] many farmer is going to be tight just under capital expenditure spend.
So that's why I'm not saying that -- I'm clearly saying large like even if the decline has started, I don't see the end of it. So you see the problem all the way to next year and '26 is when you see that change.
So lastly again, you never know if you see what happened when the Ukraine prices happen, prices shot to the roof. And that's what shifted that pricing on commodities. If you have some severe weather globally and you have some bad crops, then commodity prices will go up. And so it's a little hard to predict that, right?
Like even in India, if you look at it, I think you have infractors sales are related to the monsoon, right? At the end of the day, it's the monsoon which is driving that over there. In this part of the world, that doesn't happen. But having said that, the global events are more critical. I don't know what Trump will do with China trade tariffs and if that causes any disruption on exports of agricultural commodities to China or to other places and if that changes even more supply chains on the agricultural side. I think that's a little uncertain this number.
Right, sir. [indiscernible] you mentioned in the [ con ] call that whatever gets attached to a tractor or to a concession equipment, do you want to be there? So in that case, sir, is there any application or products in the defense sector? Because, sir, I understand there are many equipment, I mean, moving -- I mean, basically heavy vehicles, what BML, et cetera, make which also has some kind of similar attachment which we do with [indiscernible]. So is there any application over there?
I'm pretty certain there would be. We haven't [indiscernible] actually, but I'm pretty certain where it would be, but that would be done by the construction equipment makers, and we would be selling parts to them. So I think if our supplies happen [indiscernible] happen to the primary vehicle maker, right? It won't be very directly to the [indiscernible].
Right. BML, et cetera, would be our customers. Are they [indiscernible]?
Absolutely. Not just now, but there's another project I'm working on, which will bring all this into our fold. So it's an area we are looking at. And obviously, India, frankly, India as a construction growth market, I think, is -- so far, we only formed 15% of our revenues. And when we are strategically looking at this, we believe that the kind of growth that India is going to see, we need to have a higher presence in India. So clearly, some of the next strategies we are taking in product course are focusing on some of the India growth story as well.
The next question is from the line of [indiscernible] Capital.
Just one question. So in Q4 FY '24,we had mentioned that we had some new order wins of about INR 200-odd crores. So I just wanted to know where are we on that? Like has -- are these new orders already flowing in? Or like what is the status like in that aspect?
I think those projects are predominantly on track and which is why Q4 you will see sequentially to be our highest quarter.
So those orders will flow in, in the second half year in the current quarter?
No, no, no. So Q3 in the current quarter, Q3 is still going to be weak. Q4 is where you will see the growth come in. And Q3 traditionally has been [indiscernible] because of Thanksgiving, Christmas breaks of few days it's lesser here. It's a little hard to do construction activity of farming winter snow on the ground. So that's typically our low season.
I think when you get into Q4, you are going to see the impact of [indiscernible] the seasonal impact as well as some new business flowing in over there.
As there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Thanks a lot. So [indiscernible], we continue to focus on our core brands and we build a stronger business franchise strategically partnering with our customers in their journey and success. Our focus and efforts are aligned towards achieving the targeted growth in the coming years. With this, I would like to thank you all for taking out the time to be in the call, and I apologize for the little late start of the call, but I'm sure that would not happen again. Thank you very much.
Thank you. On behalf of Go India Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.