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Ladies and gentlemen, good day. And welcome to the Varroc Engineering Limited Q2 FY '23 Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Kokane from Ambit Capital. Thank you, and over to you.
Yes. Thanks. Good evening, everyone. I welcome you to the Varroc Engineering 2Q FY '23 Results Conference Call. From the management, we have today Mr. Tarang Jain, Chairman and Managing Director; Mr. Arjun Jain, Full time Director; Mr. Mahendra Kumar, CFO; and Mr. Bikash Dugar, Head, Investor Relations. I'll now hand over the call to Mr. Bikash Dugar. Thanks, and over to you.
Thank you. Welcome, everyone, and thank you for joining us for the quarter end 30th September 2022 earnings call for Varroc Engineering. Please note that the results presentation and press release have been uploaded on the website and also in the stock exchange.
Before we begin the call, please note that some of the matters we will discuss on this call, including business outlook are forward-looking. These are subject to known and unknown risks -- the risk and uncertainties are included, but not limited to what we have mentioned in our prospects filled [indiscernible] and subsequent annual reports, which are available in our website.
With that said, I now hand over the call over to our Chairman Mr. Tarang Jain to begin the proceedings.
Yes. Thank you, Bikash, and thank you, Team AMBIT for hosting the call, and good evening to everyone. Before talking about the operational performance of Q2 FY '23, I would like to again inform that we have completed the divestment of our formulating business in Europe and the Americas on the sixth of October 2022.
As communicated earlier, this has resulted in an impairment due to the lower equity value we received. In our consolidated books, we have booked a loss of INR 5,709 million against the net assets of the BLS business, which we have divested. With the transaction now behind us, team in Varroc can now totally focus on the continued operations to strengthen its balance sheet and invest in identified focus areas to drive future profitable growth.
Talking about the operational performance. In India, automotive production for all the segments in Q2 FY '23 rose on a year to year-on-year basis as well as on a quarter-on-quarter basis. The main reasons are due to the lower base of last year and the early festive season. On a year-on-year basis, 2-wheeler production grew by 7.7%, 3-wheelers by 24.3% passenger vehicles by 38.1% and commercial vehicles by 36.2%.
In terms of our operations, I'm happy to inform you that we grew the revenue from continued operations by 21.2% to INR 18,399 million on a year-on-year basis. This is the highest ever revenue generated by [indiscernible] in the continued operations in any quarter. We improved our profitability on a sequential basis with improvement in the EBITDA margin by 100 basis points.
This is the second consecutive quarter when the EBITDA margin has expanded and it came in at 9.2%. The operations PBT before JV profit for continued operations has also improved sequentially by more than 2.94% in the quarter and it is INR 545 million. The reported PBT of INR 307 million was impacted negatively by net mark-to-market ForEx impact of INR 242 million, mainly on intercompany loans. We continue to have strong order wins towards new business in half 1 of FY '23 across business units, enabling our future growth.
During half 1 FY '23, lifetime revenue from new order wins is INR 25,476 million. Out of this business wins from 5 prominent EV customers is INR 8,676 million. Profitable business wins improving of the contribution margin, focusing on PBT instead of EBITDA margin, sweating of assets, inventory reduction, commercialization of our R&D efforts, control on costs, growing free cash flow, debt reduction and prudent capital allocation remains a focus of the company.
I'm now handing over the call to MK, our group CFO, who will walk you through the presentation, which is already uploaded in our website and in the Stock Exchange also.
Good evening, everybody. I think the presentation is already uploaded in the website. Let me start with the highlights. The last quarter, Q2 was an important quarter for us where we completed this transaction. Of course, we explained the highlights of the transaction in our previous call. But I'd still remind you all that we completed this on October 6 and some of the other highlights have already been explained by our Chairman, but just to highlight once again, the growth was pretty strong last quarter at 21.2% on a year-over-year basis.
And sequentially also, we grow -- we grew by close to 12%. And this quarter had the highest ever revenue for continued operations in Q2. In terms of the new orders won also, it was pretty good. We had new orders total in [indiscernible] on adding up about INR 25.5 billion including about INR 8.7 billion coming from 5 EV customers, including 2 prominent EV customers and 3 new players also.
The EBITDA margin also continues to improve. It reached 9.2% last quarter. Again, it was a good improvement from last year same quarter and also quarter-over-quarter. So with the completion of the transaction, we now have a cleaner balance sheet where we remove debt and debt-like items adding up to close to INR 34 billion which included about INR 26 billion of debt items and about INR 8 billion of debt-like items.
So that was a major cleanup, which our balance sheet had underground. And of course, we also had to pick up the impairment impact because of that. Now with all these changes with improved profitability, we are now in a better position to service and reduce the debt levels going forward. In terms of the overall, going to the next slide, in terms of the overall industry trends, Q2 again, has been pretty good for the entire industry.
Both wheeler and passenger vehicles registered significant growth. Wheeler of course, grew by close to 8%, but passenger vehicles grew by almost 38% year-over-year. Quarter-over-quarter sequential basis also the 2-wheeler market grew by about 17%, and passenger vehicles grew by 14%. Of course, there are some positives and negatives here when it comes to the industry trends. The semiconductor constraint seems to be easing now.
So that can help us -- that can help the industry in terms of volumes going forward. At the same time, we also need to see how the overall demand scenario pans out. We see some kind of softening of demand at the low end of the spectrum. So we need to see how these things pan out in the coming quarters.
Now on the next slide, of course, we expand the overall structure of Varroc now, after the divestment. As again, we explained in the previous presentations also. Now basically compares 2 geographical segments, India and rest of the world. This business is, of course, all of you can actually work through and understand.
And then coming to the next slide where we presented the consolidated financials of continued operations. You may notice that the EBITDA margin improved to 9.2% from 8.2% in previous quarter and also in Q2 of last year. And then in terms of the overall PBT margin at close to about 3% now during Q2 of FY '23. Of course, we had -- we also had to put this ForEx loss, which is what our Chairman was also explained in a speech. So with all this, the reported PBT stood at about INR 31 crores or INR 307 million.
An important point to be noted here is the tax, you might -- might have noticed a negative path here, but this is because of a couple of reasons. One is the notional exchange losses, which we had to pick up in Q2 and also in Q1 are not actually tax deductible. So because of that, there will be higher tax incident plus whatever deferred tax assets we had earlier on a similar item at global level also has to be reversed because the transaction values changed subsequently.
So because of that, you'll see a negative back. But in terms of PBT, it was at about INR 31 crores. Now in terms of the split between continued and for India operations and overseas operations, you might notice in the next slide that it's now at about 9.8% of adjusted EBITDA margin issue to is for India operations compared to 8.9% sequentially last quarter.
In terms of overseas also, the adjusted EBITDA margin was up about 3%. Of course, there was critical higher in Q1 at about 4.5%. The impact of inflation in the overseas market, particularly in the European markets had some impact here. We are hoping that going forward, it should look better. So with all this, the overall continued operations reported 9.2% of adjusted EBITDA margin.
Now an important question that we all have is, okay, what does this do to the debt position and the overall leverage. As you might notice in the next slide, the net debt is about INR 1300 crores or INR 13 billion, which is what we indicated in the last call also. Now the consolidated equity stands at about INR 900 crores or INR 899 crores [indiscernible] fee per price. An annualized adjusted EBITDA of about INR 672 crores, the ratios are now looking far more comfortable.
The net debt to equity puts out about 1.45 after the divestment as on 30th September, it was 1.75 because the transaction was closed only on 6th October, it still carries the debt which we subsequently repaid. So that's right from 1.75 came down to 1.45 after the repayment of about INR 33 million in the overseas operations.
So the net debt to equity now stands at 1.45 on a consolidated basis. Net debt to EBITDA is also close to 2x now or we can say 1.9x, just below to its about 1.9%. This is on the consolidated basis. Even on a stand-alone basis also as we see, post divestment, it now stands at 1.7 per VEL stand-alone. So that's also a comfortable ratio. We will try to improve this as we move forward.
So on the right side, on the extreme right, you might notice the 31st March scenario, which have both continued and discontinued operations. You might notice the kind of debt we had at the time of close to INR 26.5 billion. Now this is without even considering the debt-like items. If you include that also, you can understand that what happened during this Q2 divestment was a significant relief in terms of the overall divestment of overall tech [indiscernible].
And in terms of this servicability also, I think it's significantly improved. On the next slide in terms of the overall revenue breakdown. Of course, these details. I think they more or less remain the same from the earlier trends, except that the -- in terms of the product segments, 2-wheeler and 3-wheeler now add up over 68% 4-wheeler expanded to close to 28% and other about 4%.
And geographical spread, if you see close to 20% of the revenue comes from outside. This is including the overseas continued operations plus exports from India. And in terms of customer concentration, you can see that gas accounts for about 39% of the overall revenue and others about 61% or 62%. Going to the next slide, which is about the new lifetime orders, which we won in H1.
This is how the split is. The lifetime revenue from customers. If you really see the customer concentration part, the orders won from Bajaj at only 18%. The remaining orders from other customers add up to about 82%. And other interesting point here is the new orders from EV segment constitute about 34% of the total. So that puts a strong positive thing which we are looking at. And then in terms of the 2-wheeler and 4-wheeler, it is now a bit like 44% and 56%. 56% [indiscernible] and 44% from others.
Of course, on the next slide, we have given these EV opportunities, the portfolio of products which we have, which I think we shared in the previous presentations also. Same is the case with the next slide where we talk about what it means to FY '25 revenue in terms of 2-wheeler and 3-wheeler's products. So finally, coming to the future focus areas [indiscernible] this count gives a good picture of what we are planning to attempt in future. These are the 5 parameters, which will be continuously monitoring. We will definitely focus a lot on revenue growth, which would be supported by volume growth as well as in any kind of pricing. And that will be followed by strong CM improvements.
That's what we are focusing on. This will enable us to strengthen the business, make the business small robust. This should all translate into a good PBT growth. Here again, we need to have a tighter concern in fixture costs, so that the improvement in contribution margin translates into PBT growth.
Now obviously, this PBT growth should come into FCF conversion also, which is going to be a focus area for us. Now once we complete all this, we generate cash, which can be used to reduce the debt levels going forward. And once we actually bring down debt to reasonable levels, we can then think of where to invest. But going forward, our capital deployment will be based on some prudent principles so that this deployment again generates revenue growth and the cycle continues. So that's going to be a focus area for us going forward.
So with that, I'll bring this presentation to an end, of course, we have other slides are about the CSR initiatives which we have taken recently. So with this, I hand it over to you. We can take up any questions which the investors may have. Thank you.
[Operator Instructions] We have the first question from the line of Arvind Sharma from Citibank. Please go ahead.
Sir, my question is on this tax issue that you spoke about will they continue over the second half as well? And if not, and what's the expected tax rate, if yes, then how much more of these additional taxes could the company be paying?
No, these are not like additional taxes or something, like what I explained, these were the deferred tax asset kind of things which we accumulated earlier as an asset. Thinking that there will be a good consideration and good profit on sale of divestment, which did not happen, so we had to reversed it.
So that's one. Second thing was there was these exchange losses which we had booked. So that reduced the profits but reduced the reported profits earlier. But the tax month doesn't recognize this. So we still have to pay tax on that. So there's no additional tax or anything here. And going forward, we won't be having any significant -- any significant intercompany loans to these overseas entities. So we don't expect this kind of impact going forward.
So going forward, taxation should be done at the corporate tax rate, right?
Correct. Going forward, it should normalize.
Sure. My second question would be on the margins. I'm including both of them. So first, on the overseas operations we see the margins have gone down from 4.5% to 3%. Could you please explain the reasons behind that.
For the new operations, since you cited, there are some issues in terms of demand going ahead? If you could [indiscernible] upon that and the possible impact on margins, we could see in India operation, which have been fairly strong at 9.8%. But going forward, what kind of an impact could directionally we see on these margins if the demand is soft.
Sorry, your question is about the overseas operations?
Both. First overseas operations, the reason behind the 150 bps quarter-on-quarter decline. And for the India operations, the impact of a softer demand.
Yes. So as far as the overseas operations are concerned, I think I explained in my presentation also, there was this high inflationary scenario in the overseas markets, particularly in Europe.
So that had some impact on the profitability. So we should see how it behaves going forward. As far as India operations are concerned, of course, we don't want to give any guidance here, but our effort is always to improve margins from where we are.
All right, sir. So this 9.8% margin, of course, you won't give guidance, but you don't see too many headwinds to this number.
Yes. I mean we still need to see how Q3 pans out. We are just -- we are in the middle of Q3. So we should see how the demand scenario behaves in the coming 1.5 months or 2 months. So based on the [indiscernible] we can see how that's going to have an impact. But as it stands now, we don't see any kind of thing to worry about.
Sure, sir. And sir, just one final, not question but just an observation. There has been a fair bit of restructuring in the way you report numbers. So is this the way that we'll be reporting here on?
No. See, when it comes to restructuring, I don't think there is any difference in terms of segmentation. Yes, we splitted between India operations and overseas operations. Yes, that's how we are going to report in future also.
Sure, sir. Because as per your 1Q FY '23 numbers and your operations were INR 12.7 billion, but now we see INR 14.1 billion. So I mean there has been some regrouping, but this is how you'll report hereon, right?
See, the major difference is the BLS lighting business in India was not reported as part of India business earlier because this geographic segmentation is something which we bringing in only now. Yes, going forward, this is how we [indiscernible].
[Operator Instructions] We have the next question from the line of Abhishek Jain from Dolat Capital.
[indiscernible].
We can't hear you. Can you speak loudly.
Sir, my question is related to the overseas operations. So what is your road map to improve your revenue and the margin for the overseas operation for the next 2 years?
And what sort of the target do you have in your mind?
So see, basically, what has happened is that the business, which is in Europe today, other than our forging business in it, which we continue to improve operationally. We have a 2-wheeler lighting business. 2-wheeler lighting business we've had for the last 10 years and this business has got plants in Italy, Romania and in Vietnam.
So overall, I think this business is quite a steady business it has a revenue annually at about probably between EUR 45 million to EUR 50 million a year for a steady business. And this is something we have to see because we have the confidence of all the customers in the 2-wheeler business, whether it's in Southeast Asia or in Europe.
So going forward, I see in the next couple of years, we see a good traction in our Vietnam business in Southeast Asia because that's where we see where the Asian markets, I see more of a better growth potential as compared to Europe. So Europe, we'll have to see how it pans out. The country there are these headwinds because of the war.
The Ukraine war. So we have to really see what really happens in the coming months, but then the war is on, we cannot really predict how the volumes will pan out for us at least in the coming year. But I think that if -- so it also, let's say, the war is on in Europe, we still expect to grow at -- we should expect to grow in a smaller way, probably anywhere between probably 3% to 5% is what we're looking at.
But when it comes to our Vietnam facility, that's where our focus is going to be a little bit more on our 2-wheeler lighting business. And that's where we are now active at the moment working on growth opportunities over there also with the Japanese OEMs. And that's where we are looking at probably we are having our book we look at a book between 5% to 10% growth in the Southeast Asian market as we go up.
So what our 2-wheeler business is something where we see both content in Southeast Asia rather than Europe. And when it comes to our new business of electronics, which is in Romania. This business, of course, at the moment, we have a revenue of about close to EUR 25 million a year. Here, we are supplying the electronic assemblies to our plastic Omnium for the lighting business. Here is where we are now looking at future growth. I cannot say. At the moment, we're looking at a strategy for growth.
But yes, this is also a business we want to grow this thing -- this thing going forward. So at the moment, I think we'll probably be clearer in the next quarter. You know that about building on a strategy of how we want to grow our European business, both on a 2-wheeler lighting and the electronics side. But yes, there will be a growth. How much growth I do not, I'm not very clear at the moment. This is something we'll be more clear within the next quarter.
And for FY '23, it will be tough to make a margin of 5% kind of the numbers from the overseas business because there will be continued pressure because of this RN and the wage inflation?
Yes. So I think that we will definitely make a margin. We'll definitely make an EBITDA margin, it's very difficult to really predict how this inflation pans out going forward. It's really uncertain, but we are confident that we'll make a positive EBITDA for sure in this business,.
Yes, that's clear. Our reports will continue, but it's difficult to predict the macro economic scenario. So let's leave it at that.
But sir, we are seeing the impact of the RM inflation in the bottom line, but not in the top line, even the top line has gone down in this quarter despite the capacity additions in the electronics business in the Romania and plus that some ramp up in the other 2-wheelers business. So what is the reason that we are not able to do top line growth?
See top line also, to an extent, does get impacted because what we are servicing in the 2-wheeler is also on the premium side -- I mean, on the premium side and the and also the entry level. So there is some impact which is -- which has come in. And also, we have to remember that the month of August normally is a holiday in Italy.
And normally, we don't have more than one week of sales. So both our forging plant as well as our lighting plant in Italy, both have been impacted by lower sales in August. And therefore, overall, the sales has been impacted for the quarter.
Okay, sir. And sir, in India business, we have seen a [indiscernible] growth and your electronics business because you have started supply the motor and controller DC converter to the Bajaj [indiscernible].
So just wanted to know how much increase in the -- how much content per vehicle? And are we also looking to supply to other 2-wheelers brands?
Yes, we do, I mean. And in fact, we're increasing our volumes with Bajaj Auto on the motor, motor control and other products for the EV so those volumes are going up on a consistent basis. So -- and also at the same time, yes, like we have we mentioned that even for the EV powertrain.
We are in discussion with other customers. And we are hoping that we are going to be winning some businesses also where it comes to the EV powertrain and, of course, also the other products around the EVs, whether it's lighting, switches or caustics or the products.
So what kind of the growth we are looking from the electronics business for FY '23?
So I think as we are growing with we are growing with the market. And today, I think one of the -- we are one of the the early starters and I think that we have efforts, we have a focus approach to Ed now, we have [indiscernible] sales of same. And therefore, we think we will see a good momentum and good percentage. Percentage as a percentage of EVs that are growing quarter-on-quarter.
Sir, my other question is on the Lighting business. So how is the current contribution in the lighting business from 2-wheelers versus 4-wheeler side?
No, we don't comment on those individual subsegment level data.
Okay, sir. And sir, you won any new business in the 4-wheeler lighting side. So can you throw some light over there? What is the content per vehicle there and who are the key customers? And what can be the opportunity size?
See, I not mention about the content for vehicle for lighting. But today, our major customers today are Mahindra, Volkswagen and Renault Nissan. And we also supply something to Tata Motors. And we are not looking at driving sales with another couple of customers as we move forward. And we are quite confident that we will grow our lighting business in a very positive manner going forward.
And what is the current revenue from the 4-wheeler lighting business?
Again, we don't disclose that subsegment information.
Okay, sir. And my last question is related with this, your outlook for the polymer and metallic business. What sort of the road map you have to improve this business?
So the polymer business, we are both on the 2-wheeler side and the 4-wheeler side. I think in 2-wheeler side, we have got substantial good market share across all customers in India on a 2-wheeler side. More customers, I would say. And that's something probably we have a range of products. We are looking at probably cross-selling of other products other than Bajaj cross-sell with other customers.
So that's something which is already in process, and we continue to grow on that side. But I think more of our major focus is going to be on the 4-wheeler plastics, and that's where we will see that we focus a little bit better on the 4-wheeler side of plastics, and we grow that business on a prime India basis as we look forward.
That's the focus area. When it comes to metallic side, we see anyway growth a year ago for the next few years for -- or the investments we have already made. We are seeing a good growth going forward in metallic. But here, like I've said in the earlier calls, we are being very cautious because most of our metallic business is all IC engine related.
So like we do transmission parts and we do engine well, so here, we are very, very particular that we have to look at ROCs being over 20% over 22% and unless ROCs are there in this -- any new business wins, we are not really willing to invest further on the metallic side. But here also, the metallic side of focus would be a little bit more on the exports where we see better contributions towards the margins.
So as you mentioned that metallic business is not highly.
Operator here. Abhishek kindly come up in the queue again for follow-up questions. We have the next question from the line of Rishi Vora from Kotak Securities. Mr. Vora, please go ahead. It appear that this participant has left the queue. I now invite Mr. Vinay Jain from Karma Capital.
So starting with the India business.
Mr. Jain, Request to kindly come closer to the mic or of the speaker phone your audio is a bit low.
Can you hear me now?
Yes.
Does it any better? Hello?
Yes. Yes.
So I wanted to ask a question on the India business. So if I look at Barring Electrical & Electronics business, all the other business segments is actually -- if I look at it on a sequential basis, the growth is lower than the industry growth, which we have seen, be it a 2-wheeler, 4-wheeler or 3-wheeler. Any specific reason for that? Because again, for us, there would be a component of maybe a partial price increase as well coming through in the current quarter?
So what see, what I see is that we have grown both in our Electric Electronics business and the polymer business. So both, I think, sequentially, the revenues have gone up, if you really go to the details, just metallic. On the metallic side, yes, we have not really grown on the metallic side. And because metallic side also does a significant amount of exports, which has been impacted because of the situation in Europe.
Right. And lighting business, if you could comment because on a consolidated basis, the Lightning business is also down around 5% sequentially. So is it largely attributed to the overseas business?
Yes, I think -- yes, I think we're doing very well, I think, on the growth in India on our 4-wheeler lighting business. I think that's the business. I think our customers started to grow. -- over there. So I don't think it's anything to do with the local domestic market. There, I think we have continued to grow in this lighting business, even in the last quarter.
Understood. So again, on the overseas part also on the way we are reporting it now, sequentially the revenues have come off by around INR 50-odd crores and the margins also off. So what are we guiding for on the overseas business or ex-India business from a medium-term perspective. So are we still track on achieving that 8% to 10% margin over the next, say, 3 to 4 quarters?
See, we are definitely going to be striving to see the issue on Europe is the Ukraine war in inflation. That's the biggest issue. That's why it's very difficult it is very difficult to kind of predict what's going to happen on the margins. It's not that easy. And that's what the earlier participant have asked the same question. So the very difficult sort of guidance in Europe on the margin and also the volumes, I would say, considering the situation in Europe at the moment.
And how will the ramp-up for the Romanian facility coming up? So is that also getting delayed because of the situation which is happening in Europe?
No. So I think situationally at the moment, what's happening, we already have a set business where we are supplying to -- from SMT lines to plastic Omnium now on the for the lighting PCB. That business is going on. Presently, the volumes are okay there. But yes, one is impacted by inflation in that business also.
But like I said earlier, we are now strategizing with some other customers and trying to focus on more business wins going forward. So we are looking at growth. We are looking at a growth also in electronics business going forward. But presently, we are in a stable situation at the moment with the revenues we are doing at present.
So we take some more time for growth to take place on the Romania electronics side. But we are definitely working towards winning some new business, new businesses over there.
But is it now in the green.
Overseas business is just about 10% of the total.
Right. No. But in terms of profitability, is it still loss making? Or is it in the black now?
I think we already explained it earlier in the presentation. So it is not loss-making. It is making profits. We showed 3% EBITDA in a year.
Understood. And last thing, so over the years, we have accumulated losses with respect to the VLS business. And also, we have taken an impairment charge on the asset side. So do we expect any benefits to accrue on the actual tax to be paid in future years? Or are you expecting a normalized tax rate going ahead?
No. As of now, we are not expecting any benefit to come from there. That's the reason we reversed the accumulated deferred tax assets. Going forward, it should be the normal tax rate.
We have the next question from the line of Rishi Vora from Kotak Securities.
Yes. Sorry about disconnected. First question on you did allude to the fact that you want to improve the contribution margin of the [indiscernible]
Now if I just specifically talk about the polymer business, that business, even if I look at before 2019, '20 have been doing a single high single-digit EBITDA margins with a [indiscernible] less than post [indiscernible] less than like mid- to high single digit. So how -- going forward, what are the key initiatives that you will be taking in order to improve the profitability of the ROC of the business?
So firstly, you see, look, what I see today, we have already, like you said, we have made a lot of investments in the past. And today, we are still not at our full capacity utilization. So therefore, I feel there is still scope whatever the capacities we have today to improve to load more business over here. And we are growing. We are growing there as such.
And also whatever for the investments we are making, we are looking at -- we are very, very looking at a very concerned approach. I mean we are not going to go -- we will be very careful that come to capital intensity. That's something we're going to be extremely careful going forward. Other than that, already, we are very, very -- we have been working a lot, and we are very focused on basically operational efficiencies, how to drive more OEs control your variable costs, also better sourcing the growth we are taking place, how to do better sourcing from the market.
So definitely, we want to drive our contribution margins up as our CFO has mentioned in his presentation. So the focus is on improving contribution margins to better control on our manufacturing plants mainly a lot of the variable cost, including also the material costs.
And I think that's somewhere where we are actually getting, I mean, a good traction there. Also, we are also working on trying to recover what -- wherever the main increases are taking place. We try to recover it from a customer on a regular basis. So there is -- we are actually pushing the customers the composite of whatever the material cost increases including the electronic price increases, which take place.
So we kind of get up the recovery from customers also, which was not that strong, probably pre-COVID. So that's something now we've taken it in a much stronger way.
And moreover, is, say, in the last 4, 5 years, the business mix for the India operation is drastically still being -- now we have the growth coming from electrical business [indiscernible], the polymer business and aftermarket. So that next year is -- has a better profitability in the industry as compared to other businesses.
And this is what will drive the better margins going ahead. And internally also, a lot of what is being done to control costs and increase the efficiencies.
Understood. And what will be the capacity utilization in your polymer business unit currently?
I think depending, we have got a total of about 13 plants. It could be area with depending on the plant. It would be probably anywhere between 55% to 75%. It depends on which plant.
And sir, going forward, as you have also won several EV orders for EV components. Obviously, the margin profile of those components would be very different who see the asset terms would be different. So how will your margin profile in [indiscernible] So will EV components make higher margins, equivalent or lower margins than your current business?
And my sales asset terms are much higher than the current business line. So will it be margin dilutive but ROCE accretive? Or do you think of margins also to be [indiscernible]
No. So we see definitely see electronics, EV components are definitely helping us drive better ROC and better margins going forward. And that's what -- and this is the future electronics and the easy part is the future along with all 4-wheeler businesses, what we do.
And this is something where, I mean, there is a very good focus. So you are right. I mean, yes, maybe pre-COVID, we did not see that kind of ROC. But I think going forward, we have our -- we are moving towards the target of at least 22 ROC and also better double-digit margins. That's something we got to focus on.
And sir, just last question, what would be the CapEx guidance for this year?
Yes, for the remaining 6 months, it could be somewhere between INR 100 crores to INR 150 crores.
[Operator Instructions] We have the next question from the line of [indiscernible] from Propulsion Capital.
Sir, would it be possible for you to share how was the growth in the 4-wheeler business for us?
[Foreign Language]
It appears that this participant has placed the call on hold. We have the next question from the line of Basudeb Banerjee from ICICI Securities.
Just a few questions. One, just on the last question is that second half CapEx plan is INR 125 crores, how much was the CapEx in first half?
First half was about plus INR 150 crores. In India operation, it was around INR 70 crores or only.
And consol?
Consol I think it will be less than 100 crores.
Yes. Consol anyway, it's not the right way to compare now because it had discontinued operations also.
So the semi-format reported consol numbers included this [indiscernible]?
Correct, correct. Yes.
So overall, for the full year, roughly you are expecting around INR 250 crores...
Yes, I think the right way to face is just let's look forward. I think that's the right way to actually think about it. So going forward, it will be INR 100 crores to INR 150 crores in H2.
Just trying to see that now in today's presentation, this INR 1300 crores of net debt, which was expected to be net cash a few months back and your -- the trajectory of per annum free cash flow just trying to understand how much time will it take to take that to net cash levels at this level of margin where you are already at record revenues.
So what kind of sustainable CapEx to reduce that you will be looking forward to...
Yes. So like what I mentioned, of course, we have -- you know our current EBITDA margin from the current run rate in terms of revenue so you can compute it. As far as CapEx is concerned, yes, I mentioned INR 100 to INR 150 crores next 6 months.
After that also, it could be in the range of maybe INR 200 crores, INR 250 crores in the following year. So we'll be -- we'll have very tight control on CapEx going forward. So based on the fee can work out. I mean we don't want to give any guidance here.
But we are very focused on containing our CapEx, improving profitability and also improving the free cash flow situation overall and then the debt also. Yes, all that will flow into debt reduction.
And sir, like this quarter, interest outgo, which was INR 49 odd crores now after the debt reduction with on this level of debt, what will be the sustainable interest outlook?
Yes. I mean, like what I mentioned, you're not in net debt levels and the average rates right now. So I think it even compute. As we continue to generate, that will come down. But based on the current level, we can compute the interest burden for the remaining 6 months.
And the our supplying business, where the overall working capital to sales used to be almost 0 or negative. And now under this new business, do you see any chances of what cap to sales structurally changing?
Because why I am asking is already generating free cash flow and reducing debt is a fair amount, important in case working capital reverses structurally, how one should look at it?
Yes, you're right there. I think we will continue to have good control on working capital going forward. We don't want to give any kind of indications or estimates now. But that's certainly one of the focus areas in order to generate good free cash flow, we need to have working capital also under tight control. We are focusing on that.
Sir, as the earlier part when you said 3 weeks of manufacturing holidays in August for European operations. So what kind of such holidays one should expect in the Christmas month?
Christmas month again another 60 days of holidays generally [indiscernible], impact. See, there are impacts, normally, December in India is also one of the weaker months. And when it comes to Europe, obviously, the 10 to 15 days, there is no working there practically. So obviously, the month of December, you do see an impact.
So broadly holidays from a Q-on-Q perspective will broadly remain similar. So no incremental benefit or damage because of holidays on revenue?
Yes, there is no incremental debt. It is the way it has been in the past years. I'm not talking of or years, but...
Sure, sure. And last question, sir, like one we were discussing earlier that post the fire exit the new facility of 4-wheeler lighting will come up somewhere end of CY '22. What is the progress with respect to that? And what's the -- how you are improving the utilization of Chennai facility has some key OEMs are planned to get added to. Whats the status there?
So basically, where it comes to a new facility in Pune. I don't think we mentioned that we're going to be ready to '22. So we are going to be looking at SOP somewhere around April '23. That's what we're looking at. We have -- I mean, we have -- the plant is, I mean, moving at a very fast pace.
So I think we should do SOP. I think it will begin some more benefits of single piece going out there. And yes, we are looking at, of course, more business in Pune. When it comes to Chennai, Renault Nissan is the main customer we have there today other than [indiscernible] where we are exporting for bus lighting.
But Renault Nissan recently also we won another very big business of about INR 70 crores of business annually a year in this last quarter. And I think it's Chennai plant is playing along well. I would say we are growing the revenues also in Chennai. And going forward, we are in touch with also another large customer, and we are hoping that we see some good traction with this other customer also moving forward in Chennai.
Thank you. I would now like to hand it over to the manager for closing comments.
So thank you, and thanks again for joining listening and asking your questions. We continue to pursue excellence in our day-to-day life for creating value for all your stakeholders. Thank you.
Thank you. On behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.