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Good evening, everyone. I am Tarang Jain, and I want to thank you for joining the Q3 FY '21 earnings call of Varroc Engineering Limited. Let me start with the India business. The Q3 FY '21 witnessed a robust growth in the 2-wheeler and the passenger vehicle volumes in India. The Indian 2-wheeler volumes in Q3 were higher by almost 18% year-on-year, and the passenger vehicle were higher by 23%. Our revenue in India grew by 29% year-on-year. Our EBITDA in India grew by 49% year-on-year, and our margins continue to be strong at 13.3%. I will now move to our global lighting business. The passenger vehicle volumes across major markets, including Europe and North America, were almost flat year-on-year. The Chinese passenger vehicle market grew 3% year-on-year. As against this, our global lighting business revenue grew by 9% in euro terms. However, the EBITDA margins in the lighting business declined sharply in the quarter due to a number of factors. Most of the car manufacturers in Europe scaled up their production schedules significantly after the summer break, leading to a very high demand in the third quarter. At the same time, the COVID second wave generated high absenteeism rates of close to 25%, mainly in our Czech plants. Several of our suppliers were also similarly impacted, resulting in disruption in supplies. The combination of labor and material shortages resulted in a delivery backlog to OEM customers, leading to a high overtime and premium freight costs. We have started discussions with customers and suppliers to recover at least a part of these extra costs. We also took advantage of the Christmas break in Europe to continue to run the plants and rebuild the pipeline of components and finished goods. Consequently, from Jan '21 onwards, we managed to reduce the overtime and premium freight costs significantly. We have also started to bring operators from Ukraine to our Czech plants to create a stable reservoir of labor. Absenteeism has now decreased to a manageable level of between 11% and 14%. The other challenge in the global lighting business is a slower ramp-up in the volumes at the new plants in Poland and Morocco, leading to delays in achieving breakeven. In Morocco, the ramp-up of a few key projects was delayed by one of the customers, along with certain supply chain issues. We expect the situation to start improving in the coming quarters. In Poland, the localization of key processes was delayed by COVID and impacted plant efficiencies. We are now restarting the transfer and localization of [ VMC ] and projector assemblies. This, along with the expected ramp-up in volumes, is likely to help our financial performance going forward. On a consolidated level, our EBITDA for the quarter was at INR 2,456 million, which is a year-on-year decline of 8.8%. Depreciation and amortization costs were higher by 16% as compared to Q3 FY '20, largely due to higher asset base. Finance costs have started to reduce, quarter-on-quarter decline of 14% as we were able to reduce the debt level due to free cash flow generation. The consolidated profit before tax was slightly negative at INR 51 million. The overall tax expenses were disproportionately higher than consolidated PBT due to the losses in the new plants, on which we're not eligible to recognize deferred tax assets. VLS Czech is entitled to certain tax credits against eligible capital expenditures under the capital investment incentive scheme agreed with the Czech government. We have reevaluated the probability of utilization of these accrued INR 1,078 million in tax credits in VLS Czech Republic, which are due to expire by March 2024, taking into account the ongoing COVID impact. On a conservative basis, we have derecognized these tax credits due to the uncertainty associated with utilization, and the same has been disclosed as an exceptional item. I would like to mention that the derecognition does not impact the right of Varroc to avail the tax credits if there is a sufficient taxable profit prior to their expiry. We're also in the process of representing to relevant high authorities in the Czech Republic for extension of the time period to claim such tax benefits. On order booking, I'm happy to inform you that our India business has been able to secure overall net business wins of INR 10 billion equivalent annual revenue, and 83% of these orders are new business wins. Our VLS business has also been able to secure orders worth EUR 152 million overall so far. After full acquisition of our electronics JV, we are now accelerating the ramp-up of electronic plant in Romania. With this, we are happy to take your questions now. Thank you.
[Operator Instructions] The first question is from the line of Basudeb Banerjee from AMBIT Capital.
A few things I wanted to understand. In terms of euro VLS revenue, I can see EUR 258 million is like a record number, which you last replicated in 4Q FY '19. So as in the initial comments, you said that the higher revenue is an after effect of some delay from previous quarter. So how to look at the sustainable run rate post 4Q? Ideally, 4Q is a seasonally strong quarter for you, I believe. So how to look at the sustainable revenue run rate without any such after effect of lower production in previous quarter? And if you can elaborate on the -- I'm late to the presentation, but if you can elaborate how to look at the recovery of the freight costs from the clients, as you said, and the absenteeism normalizing. So have these [ elevated ] revenue where ideally your margins on VLS should have been much better? So how to look at it in coming quarters [indiscernible]?
Yes. No, thank you for the question. See, basically, what is -- like I mentioned, in Q3 what has happened is that we have had major problems in 2/3 of our revenues of VLS, which are in Europe. There are 2 existing plants in the Czech, and there are 2 new plants in Morocco and Poland. So basically, the issue has been, I would say, more in Poland and Morocco, where we have not realized the level of sales revenue which we had expected. And coupled with that, of course, the higher -- because of input materials not being on time, we have had to incur the premium freight cost in these 2 plants. And in Czech Republic, we have had sufficient revenues, in fact very high level of revenues. But there, we were impacted by high premium freight and overtime costs because of -- because of high absenteeism and also input materials because some of our suppliers also had COVID issues. Now going into Q4, I think there is no real -- the level of revenues will remain strong. Only thing is that there is some drop in January, mainly because of the semiconductor issue. It has to do with electronics, not because of COVID. And from this month and from January onwards, we do not have much of an absenteeism issue or that much of an issue in input materials except on the electronics side. So we don't expect much of any overtime costs or much of that way, premium freight costs going forward. But on the sales side, we have to wait and see. We could have probably about a reduction of maybe 7%, 8% to the revenues, which we are doing in -- which we have done in quarter 3 in VLS, which could be only because of the semiconductor shortage at our OE or at a customer end -- not because of us. It's not that we will have any issues. We are somehow able to hand-to-mouth manage our electronics supplies to the customer, and they are very much aware. So we could have some impact, not a big impact, but there would be some impact at the level of this thing to kind of meet the same level of sales we showed in the Q3 and also in Q4 in the VLS business. But yes, the impact of premium freight and overtime should be very, very less in this Q4.
So if I need to standardize that, sir, are you saying that the impact will be very less? So if you can roughly quantify how much was the impact this quarter from those 2 parameters.
I think those 2 parameters, if I'm not mistaken, I don't think it should be more than probably 10% to 15% of what we have incurred. And also we are still not -- we are still kind of discussing with a couple of customers on sharing some of these premium freight costs, which have been incurred by us right from September onwards. So we're in discussion a couple of -- for recovery on the same.
So you mean 10%, 15% other expenses line item got inflated? That's the way to look at it?
So other expenses in the column, other expenses is what we had a 30% jump. And that was significantly higher, and that was only because of overtime costs and premium freight costs, and basically in the European plants -- Czech Republic, Morocco and Poland. And that's where, for January, we don't see that much of a cost related to premium freight and overtime, to the extent that to whatever we have incurred, that cost, we see to the extent of only 10% to 15% or could be maybe maximum up to 20% because there will be some issues of semiconductor and all shortages are there. So -- but it will be substantially reduced of what we've been incurring in the last quarter.
Understood. So almost INR 120 crore Q-o-Q increase. Out of that, one can assume 10%, 20% to sustain, so almost 80% reduction in that incremental INR 120 crores.
Over these 2 costs. I don't know how much are these 2 costs in their overall other expenses, but these 2 were the major impacts in VLS in Q3.
The second question, sir, like there has been a substantial raw material inflation of almost all major commodities. So how are you facing that? And how easy is it from a [ pass-through ] perspective now?
So where it comes to India, I mean there's not really a concern. I think we are very much kind of aligned with all our customers, and they recognize this issue very well. When it comes to our VLS business, we do have long-term contracts on material. There, I think the issue would be more, I mean, to do with some electronics and some resins going forward. So that's something, for sure, which is something we're evaluating. That is something we will have to take back to our customers and ask for the increase. Maybe, Stephane, would you like to kind of add to this point?
Yes. About the raw material, first, we still have -- we have long-term contracts also with our resin makers. So we are not immediately impacted when the raw material like the resin are going up. So this gives us the time to approach the customers. Roughly with 50% of the customers we have a mechanism to integrate the raw material situation up or down. And with the other [ half, ] this is always part of the annual negotiation that we have with them. With the resin, we've been starting an activity of VA/VE to revalidate some of the products where we have, let's say, richer resin, when we have, i.e., a comparative resin, when we can use lower comparative resin. In parallel to this, we have started a strong focus in the last 6 months on electronics purchasing. So we used to purchase our electronic only directly to the EMS supplier. So that means the LED, PCB assembly suppliers, for example. Now we have reinforced our purchasing team. We have added another 10 people, specialists in electronic components in our central purchasing quarter in Poland in Krakow. We are able to negotiate at the component level. So we are going down in the raw material chain, if you want, in the bill of materials, and we are able to generate saving -- identify savings that are helping us to negotiate better conditions on the electronics. So these are the main activities, the main actions we are doing to mitigate any further or potential increase in raw material, but mainly to take advantage of the raw materials and generate service savings.
Sure, sure. And last question, any [ boost ] to your CapEx plans from previous quarters as per your guidance of consolidated CapEx of almost INR 600-odd crore -- [ anything else ] to that?
Yes. So I think it is within that only and I think controlling -- so CapEx will be within that level only of INR 600 crores, it won't be crossing that on new CapEx. And going forward also, there's going to be a great control CapEx, I mean, within those numbers. And I think controlling CapEx is what has resulted in our net debt levels going down and are generating the fee -- I mean free cash flows. So in spite of the lower-than-expected results in VLS, we are still able to generate cash, which is helping us in kind of reducing our debt.
And how much was the net debt figure after Q3?
So Q3, our net debt figure was INR 2,730 crores. It was down from, I think, around INR 3,050 crores in the end of Q2. And we have given a guidance to be down to INR 2,600 crores net debt by March that's something which we feel we will achieve.
The next question is from the line of Abhishek Jain from Dolat Capital.
Sir, what is the margin guidance for the VLS in the fourth quarter and first quarter FY '21 when the things do normalize and have you -- are you looking for taking any price hike to pass the commodity costs in the coming quarter?
Yes. So see, I mean the guidance, what I can say is, definitely, the margin is going to be better than what it is for -- I can't give you an exact number for Q4, but it will be better than, obviously, what we have achieved in Q3. And regarding the material resin cost, anything which is extraordinary in nature is definitely -- if you're talking about VLS, it's something we'll definitely going to go back to the customers and ask for it, whether it is to do with resins -- like what Stephane mentioned, with 50% of our customers, there's a pass-through of anything which is exceptional in nature, we get that -- whether the exchange rate or resins, we are getting that back. With other 50%, if it's something exceptional in nature, we will go and request for the same, from the customers, because this is a little bit exceptional in nature. So that is one part. In India, anyway, we are quite well aligned to our India business, getting the back to back, whether the -- I mean also exceptional increase in steel or aluminum or resins or whatever, that's something we are confident of getting back.
Okay, sir. Sir, during this quarter, revenue has gone up -- VLS revenue has gone up by 22% in INR terms. So I just wanted to know how much revenue growth in Europe and the North America in third quarter. And how is the revenue breakup for the North America versus Europe in 9 months FY '21?
I think the exact percentage, I would not get some...
In euro terms, revenue in Europe increased by about 3.5%. And Americas saw double digit. 17%. 17%.
India was 19%.
India was 19% year-on-year, because we also started production from the new [indiscernible].
That is in euro terms we're talking for VLS.
Okay. So in euro terms, there's a 3% growth in Europe.
3.5% in Europe, 17% in America.
So it is for the 9...?
This is the -- this is you're talking about for the 3 months, right?
Yes.
So for Q3 -- Q3 in FY '20.
Okay. And sir, what was the revenue breakup for the North America versus Europe for the 9 months?
For the 9 months, I don't know, is that a meaningful [indiscernible] but yes, they are to...
Say, in percentage terms?
Yes. Quarter-to-quarter, I mean, you can say Europe is -- about 60%, 65% of the VLS revenues continue to come from Europe. That's the largest one. And 20% from Americas. That's roughly the split. The rest is all coming from the small land 2-wheelers, like, business in India and...
China.
And China, yes.
Okay. And in second quarter?
Similar. The percentage mix is not changing that much. Roughly 20% from Americas, about 60% from Europe. That's roughly the breakup from here.
Okay. And what was the contribution of the electric vehicles in overall revenue in the last 9 months? And what is the outlook ahead from this business?
Contribution of what?
Electric vehicles.
Electrical -- are you saying the lighting business, right?
Yes, in lighting business.
Stephane, would you be knowing basically what percentage of our overall lamps revenue would be towards electric vehicle?
I would say we should be in the range of 15% to 20%. I think we [ can't ] give you precise figures, but we have been growing a lot in the electric field. As you know, historically, we have always been a strong partner to Tesla with the Model S, the Model X, the Model 3, now the Model Y, where we are producing fascia and small lighting and stop lamps. We have expanded also with pure EV manufacturer like Rivian, where we are launching the R1S and the R1T. And recently, we won this big platform of the Volkswagen group. So the all-electric platform when you find the ID.3, the ID.4. So these are the vehicles that we are producing. We started in Europe, and now we are expanding, soon starting in China, and then the next step will be for North America. In addition to this, we recently also won the full electric platform for Ford Motor Company in North America. They call it [ 316 BEV ]. We launched also the Mustang Mach-E, the first time the Mustang is electrified. So we have the [ rear lamp ] on this. So we have a very interesting exposure to the electric vehicle industry, and we continue to increase our share there.
Yes. And in addition to this, the premier -- the ID.3 and ID.4 program of VW both in Europe and in China, these electrical programs are with us, because they are big volume programs. So they're also with us in -- whether the EU, China, North America, we are in the premier VW programs. And for Renault also, we're already in the ZOE. And we also are doing the Twingo, Logan. So we are in most of the -- in a lot of the EV programs with all the global customers. We are -- in many of the programs, we are a part of it.
Okay, sir. My next question is related with this India business. So how much incremental revenue is coming from the new products you have launched in India business?
So I think if you talk about new products, I would say, more like the BS-VI products, which we have been talking about, whether it's your magnet -- the new Magneto, Catalyst, the electronic fuel injection, the electronic carburetor. These kind of products and some of the other electronics associated with the BS-VI, I think almost probably around INR 200 crores, probably, because it's something which we have probably achieved in -- up to now in this -- in the first 9 months towards, I think the BS-VI product. These are the new products, I would say, to do with BS-VI. Otherwise, okay, there has been a growth for traditional products with various customers. We have increased our volume with Hero for lighting or Magneto for TVS or otherwise. So we have been growing fairly well, I would say. But when you say about new products, I would basically mean the BS-VI products, that is INR 200 crores. And now we have started also for next year working on our electric vehicle portfolio, which is the motor controller -- the motor and the motor controller and also the other electronics like the DC-DC converter, the onboard chargers and also the battery management system, where we have some tie up with the foreign companies. So that is something also which will come into play in the next year, maybe in Q2 or maybe Q3, depending on when it is launched by the customer. So that's what we're looking forward to -- definitely the other new products which we will be doing on the EV side. Otherwise, we are cross-selling and anyway growing with various customers with a traditional portfolio of various 2-wheeler products. And also on the 4-wheeler side, of course, we have just now launched on the plastic interiors. We have launched for the new, this thing, Nissan Magnite, our part of plastic interiors and also for the new -- this new Kiger of Renault. So for Nissan and Renault, the new programs, we have just now launched in a significant way our plastic interiors. And also in the engines, as you know, we continue to grow with various customers. So India side, I think the 4-wheeler space and, I would say, 2-wheeler space, I think we are growing quite well, winning a lot of new business. Like in India, we've already won so far wins and some rewins of almost INR 10 billion, which is INR 1,000 crores considering that the first 3 months, there was no real win. So in the last 6 months, we were able to generate that kind of new -- I mean new business wins in India.
So what is your revenue guidance for the next year for the India business, and the margin guidance as well?
So there will be definitely a good level of growth, but that's not something I can really share with you. It's still under process, but there will be a good level of growth next year to the level of revenue this year. There will be a growth, but we are expecting a decent -- definitely a good double-digit growth in the next financial year.
The next question is from the line of Aditya Jhawar from Investec Capital.
Yes. Now remember, in the India business, the performance was pretty good, especially considering the margin profile and the salary reinstatement. One question for the India business, considering our relationship with Hyundai in the Turkey business, are there some talks for some incremental business in the Korea OEMs for the Indian business?
Yes. So we are, I think, making an attempt. We are actually in discussions with Hyundai, both for lighting as well as for the plastic interiors for India. That is something -- we have still not been able to close any business. We also talk to Kia, by the way. So we have somebody helping us out also here to see that whether we can realize some business going forward. Things have been a little slow in this year because of the COVID situation. And a lot of the new model launches are not really happening at the moment, as you know. I mean what have been launched is something which has already started a couple of years back, and that also has got postponed in India, in the Indian market, some of the new launches. So that's what we are with. But we are definitely kind of trying our best to win some business, at least on the plastic interior side and the lighting side with Hyundai, Kia going forward. That's something where the efforts are still ongoing from our side.
Okay. [Technical Difficulty].
Participant, your voice is breaking.
Yes. [Technical Difficulty].
Sorry to interrupt again, sir. Mr. Jhawar, may we request you to come in the coverage area, please? Your voice is breaking.
[Technical Difficulty] Now?
Still breaking, sir.
So going back in the queue.
Next question is from the line of [ Anurag Jain ] from [ Green Lantern Capital. ]
Two questions from my side. One is on the new order wins in Europe, so this EUR 152 million, how should we read it? Is it spread over a number of years? So what would be the annual number?
This is the annual number. This is the annual number. It's not the lifetime revenue. It's an annual number, but -- yes.
They relate to...
But it takes about 1.5 to 2 years to realize.
So FY '24 is when we'll see a EUR 100 million, EUR 152 million kind of a number.
Correct, correct. I think, Stephane, would you be able to clarify, because a lot of the business wins are with Ford? And kind of -- so what is the timing of this?
Exactly. So -- and what we -- the way we calculate is we calculate the net new business wins. So if we happen to lose a business for which we are an incumbent, we deduct it also from the number. Like Tarang and Srini mentioned, this annualized number of full year revenue. We -- between the time we win the project and the time we start in SOP, there is an average of, let's say, 2 years of when we start to see the impact. For this year, most of the new business win has been won in North America. This is a very important aspect of our strategy. We want to rebalance the business, have a more globally balanced business, between Europe, that is very strong for us right now, we want to grow North America, and we want to grow Asia to have a better balanced business. So this year has been really a strong focus in North America. We won marquee projects like the Ford Explorer, for example, one of the main SUV platform in North America, where we won the rear lamp. And in the past months, we won also the stop lamp for all the truck -- the pickup truck platforms of Ford Motor Company. So that means, if you are familiar with their lineup, it's the F-150, F-250, F-350. So this is the highest volume platform in North America but also in the world when you look at the volumes. So in North America, we want to grow. In North America, we are focusing on the segments of trucks and SUV. This is where we think we need to be.
Got it. Got it. So the other questions were on profitability in VLS really. So by when do we see the margins revert back to the previous levels?
See the point we will start reverting it from Q4, I don't know to what extent, but it will start reverting. But the main -- our main distinct concern is that we need the revenues to come back in to really reach a certain level in Morocco and Poland. That's where we have more of a pain area. So that's where we need to kind of get the revenues up. That's something which we have not yet seen in January. That's why we are hoping that to see higher level of -- probably in February, March. I think once that comes in, we will start seeing better. I think in the Czech Republic anyway, with the premium freight and the other thing going down, premium freight and absenteeism over time going down, we will start seeing better results in the Czech region, which is anyway more than 40%, 45% -- 40% of our revenues globally, so there doing well is very important. But when you say going back means that we need to achieve at least a 10% EBITDA. So that's something which we are anyway striving for. And even in the next year, it's something -- that is something which we do want to strive for to achieve. So that's what we're working on at the moment. But we do need some help in the sales in the 2 plants, and that's something which we -- as other -- the other regions, I think we are doing fairly well as per expectations. But this is where we need to focus more in the European region with these 4 plants to get our profitability up. That's where our focus is.
Got it. Got it. So on the Moroccan and Poland plant, is it just the delay, or we need to win orders? Or the orders are there, just taking some time to come? How is the visibility?
No, so orders, the orders are there, orders to the level of, at least, we have one to level of at least about 120 million in each [ distinct. ] 150 million probably we have already won, but some of the programs have got delayed because of COVID probably by a year, but we have done enough business, the issues, but that 150 million to come in, I don't think which was supposed to have been probably by next year. Probably will get postponed by another at least 1 year...
'24.
Because -- maybe by FY '24 will be when we achieve that kind of a thing. But the way things are, things are a little bit slow in these new plants, where we have made substantial investments already. So we do need to see the sales growth. But at the same time, yes, we do have -- we are also taking some more internal actions also at our end to boost profitability. In Poland, more -- especially more in Poland, to see that we can get our profitability up even if the sales are not realized to that level. So there are some internal actions also. And then, yes, we are obviously hoping for sales to return in these 2 plants where we have already invested by some time then.
So have we also received any incentives in the Euro region? Many of the countries have given incentives just to keep the plant running...
We have not been able to -- I mean we have got a lot of incentives, but the issue is that because of this -- one is because of the lower sales in this year. Secondly, also because of the -- since September, because when the sales have returned in the European region, there, because of this high premium freight costs and overtime costs, obviously, the results have got spoiled. So to avail the tax credit...
Sorry, my question is yes. Sorry, my question was more from the COVID front. Have you got anything from the government?
So that, so that we already got it. We've not got anything now for the second wave because it has not really impacted the sales that way. In the first 3, 4 months, we got it from the Czech, because that time people were -- I mean, the plants were closed. Now the plants are not closed, nor are the customers closed, though there's a second COVID wave, causing a disruption in activities where people are falling sick or remaining absent, which is affecting supplies as well as production. But it's not that the sales have kind of gone down in this period. We are supplying at extra costs.
Got it. Got it. Got it. So one last question from my side, which is on bringing down the Promoter's holding. What's the time line? And what's the plan there?
So the time line is that we have up to July 6, and we have already started a process of dilution. And we have already also appointed the bankers to the issue. So yes, so we will be probably trying in this quarter to kind of go in for the dilution.
Board has approved the 10% dilution last month, which was permitting...
Yes, that I have seen, yes. So this is not an OFS, right? This will be a new issuance?
It will be a combination.
It will be a combination of both.
The next question is from the line of Bharat Sheth from Quest Investments.
On the VLS side, see on this Morocco and Poland, currently, we are incurring loss. And currently, our revenue run rate is around 5 million per month. And last time, you also indicated that we have taken some internal measures to improve the profitability on VLS side, which will be seen from the Q1. Now what level of really revenue required, I mean, to break even at EBITDA level in Morocco and Poland?
See, frankly speaking, the results have really been also quite bad in both these places because of a lot of premium freight costs. It has been a lot of premium freight cost, which has spoiled the results. Otherwise, I mean, the results should not have been so bad even if with a EUR 5 million revenue, we should have been definitely much better off. Some of the excess costs related to input material not coming in, and we're doing premium freight and also some of the stronger suppliers not able -- not taking the supply charge back in the past, so, is the reason why we have had to have such a bad result even with a EUR 5 million revenue. But yes, to answer your question, I think we do need at least a minimum revenue, to be kind of EBITDA positive, at least, we need at least EUR 6.5 million to EUR 7 million in Morocco. And at least to the level of -- in Poland, we need it a little bit higher. We would have to go to about EUR 8 million, EUR 9 million, at least, of sustained revenue to be actually kind of EBITDA neutral.
Okay. In normal circumstances?
In normal circumstances, not paying this excess cost, because these excess costs are not small. I mean, they're substantial. And we've had to supply to the customers. I mean it's a different thing that we're discussing with them on them sharing in this cost. But definitely, it's not that we could afford to stop the supplies. So we've done it at our cost.
Okay. And you also, last call, we said about, I mean, a lot of restructuring and so to bring down the breakeven level. So whole, I mean, VLS business now, sales normalizing from, say, Q1 onward or probably FY '22 Q1. So what kind of a run rate will VLS really require, I mean, to improve the -- see a significant, I mean, improvement in the profitability?
So see, we are definitely -- see, we have to do at least about EUR 90 million of production revenue. We do EUR 10 million of tooling revenue a month, which is not very relevant because we don't make any money, much of money in the tooling side. We need a sustained level on average of EUR 90 million. Which means that some months we have to be EUR 95 million, because December and July, August, sometimes there will be lower sales, so we need -- and that's something which we do see going forward.I think after 2 years, probably we will see, because since October '18 there has been a downturn in the market. We suffered because of that. We didn't get a level of revenue. And then of course, COVID year, we didn't get a level of revenue. Next year, we do see a fairly decent level of revenue what we expect for the full year, and that's when it's a year that we have to perform. We have to achieve those kind of results which we expect. And hopefully, we don't have this COVID kind of a situation to continue -- things are getting better. And because that is something also we don't want to -- so we are talking about a situation which was normal pre-COVID. Pre-COVID, the normal situation, normal level of cost is what we need, I'm saying at a former level. Because anyway, we have taken very strong steps on the fixed cost, where we have brought it down. Also on engineering cost, we have brought it down. Also on the CapEx, we have brought it down. And some of these -- and that's why the breakeven, the breakeven definitely has gone down. The fixed costs are not going to go up to that level again going forward. We're not going to be crossing a level of maybe more than 3% of revenues on the overall revenues on the fixed cost, which used to be more than 4-point-odd percent earlier. So we've brought that down. And so that is a -- that is something which is permanent in nature. That's not going to go up again. And CapEx also, we're not going to spend it. So that is something which is definitely controlled. The issue is on the forward performance, which is the plant level performance, and that is also only in Europe in these 4 plants. That's where the focus is, and that's where 65% of revenues come from. And we may be doing very well in the 35%, but the 65% has to do well. And that's where we have not done well in Q3. And this is where our focus is to see that we do whatever it takes at customer end, supplier end and plant end to see that we are able to achieve a certain level of results going forward.
Yes, I do agree. Now second challenge, which is coming on in the semiconductor, which is affecting globally to European as well as American auto manufacturer also. So how do you see, I mean, in medium term that really will play out? Because, again, in that case, extra expenses may not be there, but our -- we may remiss our revenue also. So really, what exactly we are doing? And second, in the initial comment you said that we have already commissioned this Romania plant. So what extent it will really benefit in EBITDA perspective?
No. See, you're right that -- so definitely, there's a effect of almost -- for the EUR 90 million revenue we expect. There definitely a 7%, 8% revenue drop because of this semiconductor issue, is because the OEMs are ordering less. We're hoping that maybe February and March that that drop becomes maybe not more than 5%, 6%, but that is something we'll see with eventual pickup. But see, having said that, we have to internally kind of work on seeing that what more can we drive on cost mitigation and other aspects, whether -- that's a continuous process. That's something we anyway keep working on to see that, okay -- because, see, we cannot -- the sales -- I mean we have the business wins, but the point is that we can't really do much if the customers are not placing those orders because of semiconductor issues more than anything else. So that was one thing. Secondly, regarding the Romania plant, we have just started the Romania plant. I think we have only one SMT line now. That will reach a full production capacity in March. So whatever we do in the Romania plant on the electronics, you can say we have a 10% saving vis-à-vis -- to the company vis-à-vis what we kind of buy from a supplier of PCBs. Once you do PCBs inside, there's a 10% saving. That's something which is there. So we've already started in a smaller way. The first line will be fully -- I think, at a full capacity probably by March. That's what we are trying to do, and then we're ordering the second line also now in this quarter. And then we have a focus to order 3, 4, 5. 3 lines if we can in FY '23, because we want to accelerate that process to kind of order more SMT lines because whatever more we order will give us savings in our bill of materials.So at the moment, that's the plan. So we have a plan for 6 lines, but within the next -- we already have one line, one line we're ordering now for next year, and then we will see how to kind of this thing -- plant at 3 more lines because we're just trying to see which businesses are put in -- some of the future businesses are put in these 3 lines. And then we go ahead with what -- this is not a very high CapEx kind of investment also, but it gives you tremendous amount of savings.
Okay. And now coming to this India business, we have reported a very good -- I mean, on the EBITDA front. So what kind of a sustainable number do we really look? That is one part. And second thing, we have been, I mean, hearing that a lot of high-end 2-wheelers are -- I mean, imported 2-wheelers are going to, like whether Benelli or Triumph. So do we have any kind of, I mean, win from them in future?
So with Benelli, we have tried to make -- to touch Benelli being out there. But I think that we're already kind of this thing -- see, all the -- whether it's Triumph or Husqvarna or KTM or Ducati, all these kind of high-end customers or even, let's say, the high-end Dominar and all of Bajaj, all these people, we are a supplier to all of them. And we have got a significant amount of lighting revenue with all these OEMs, 2-wheeler OEMS, on the high-end LED lighting.
Okay. And in 4-wheeler also -- so if one has to put -- what is the current -- or LED business in India 4-wheeler and 2-wheeler put together? And how do we see over next 3 years?
Okay. So this is Arjun. So if I go back to your previous question or also around the higher cc bikes, I think both in terms of our positioning with the Bajaj and the Bajaj brands, of KTM, Husqvarna and going forward, Triumph as well, we already supply the -- all the high-end headlamps. We also have certain other products sale also across our polymer business, electrical business and metallic business. Royal Enfield, which is the other major volume player in this space, also we have a significant amount of revenue with them on the new platform as well. So I think Meteor was the first product that launched on their platform, also we have a significant amount of content. On the 4-wheeler side also from a lighting perspective, I think we've always played in, let's say, the higher technology lamps historically with Mahindra. Today, we supply the lighting to both the Magnite and the Kiger, which Renault/Nissan has launched with, I think, a fantastic response. And I think those are the first real full-LED headlamps in that category of car, and we're making both of them.
So approximately -- I mean, FY '21, what would be the -- that revenue will be? And how do we see, say, in next 3 years, some kind of aspirational, I mean our ballpark, I mean, or growth that we are looking?
So for the India number on the LED content, I will work with this and then get back to you on that number. Going forward, however, I think we see a lot more LED headlamp programs coming across multiple customers. We see -- even on the 2-wheeler side, we see some -- we see mass volume platforms moving towards the LED. We can't reveal those yet because we're under NDA with our customers as well. So for sure, I think it is -- LED, in general, given our global capability and strength, given our first-mover advantage in India as well, we launched the first LED headlamp in India or locally produced in India on the Dominar and then the second also on the KTM DUKE, so I think we're very well positioned to gain a lot of the growth and gain a lot of that conversion from bulb to LED.
Can it be a -- Arjun, thanks for a very elaborate answer. But just, I mean, can it be a meaningful business in 3 years, I mean, for domestic business and, Tarang, on this sustainable EBITDA margin?
So on the LED, I mean, okay, it depends a little bit on what you mean by meaningful business. I think today, it's already a meaningful business. We have a plant in Chennai that will -- for whom -- I mean, that plant, every lamp they are making will be an LED headlamp. Our plant in Takve also for 2-wheeler, we make LED headlamps for the local market. We also export to customers like Ducati also out of there and to KTM also out of there. So today, I would say it is already a meaningful business. And going forward, of course, it's hard to predict a number, especially when we're thinking 3 years down the line, but we feel that we are very well positioned to capture most of the growth that comes from the conversion to LED headlamps.
About sustainable margin part for India, you're talking about for India business, right?
Yes.
So because there's been a very high spike in raw material costs, so what happens is that -- because when the raw material costs are down, your EBITDA number maybe kind of looking better. But I think that with this huge spike, which has been in steel prices and aluminium and resin and all that stuff, I think I would say that, going forward, if we are able -- we will definitely be able to achieve at least about a 12%-plus kind of a number in the India side going forward. That is also because of the high impact of material cost to sales.
Okay. So that is on the higher revenue. You mean to say that because of...
It is going up because of higher material costs also. There's a back to back. We're not losing on the material cost, but then that impacts the EBITDA percentage to some extent. Like, say, we're doing 13% or 13.3%. There'll be some impact of it, also, let's say, if you're making the same quantum of profit on a similar sale.
And our Pune plant, which was -- I mean we lost in a fire, which was mainly for LED lamp only, so has it come back, I mean, to normal? I mean...
So that we have shifted to Chakan now. We will no -- in a new location in Chakan, we are much closer to our customers. That's where the automotive hub is also. So now we're going to be permanent -- we're not going to go back to the Hinjewadi plant that -- we are going to be in this new plant over here. And here, what is happening is that we have started all the assembly operations for the last -- we've been doing it for the last many months in Chakan, last more than 1 year. But then we had ordered a lot of our new machines. Until now -- until recently, we've been outsourcing a lot of the molding and metalizing and all. But now slowly by March end, I think we'll be fully self-sufficient. And from April, we can expect like, say, a total normal working off of 4-wheeler, those lamps which we are making in Hinjewadi earlier; and obviously with Chakan, we will see normalcy return from April 1 of next year -- financial year.
Last question, sorry. I mean, see, out of this INR 2,700 crore total debt, net debt, how much is in euro and how much is in India?
Yes. Out of that, roughly INR 600 crores would be in India. The balance would be in current currency between both euros and dollars [indiscernible].
The next question is from the line of Sachin Kasera from Svan Investments.
Can you give us some sense on -- this year, we have seen a good reduction in terms of debt. How are things looking for FY '22? You will also have some, I think, help from QIP. So both on CapEx and debt, how are we looking FY '22?
So CapEx, we are trying to limit it to INR 600 crores for FY '22. That's not going to change. And where it comes to debt, I mean this thing, see, today, let's say, we have said INR 2,600 crores. Definitely, our target will be to reduce it by at least about INR 900 crores, INR 1,000 crores in the next 1 year. It's going to be a target of debt reduction.
And can you give us some sense from medium-term perspective on the LED trend in both 4-wheeler and 2-wheeler? And how are we positioned there?
I think -- see, 4-wheeler, I think probably Stephane can also answer, but now any new RFQs are LED only, whether it's rear lamps or headlamps. Maybe, Stephane, maybe you can answer that question. But on the 2-wheeler side, all high-end vehicles are all now LED, all high-end vehicles. See, the more commuter vehicle, which is a larger volume, is that for it to become LED, in the real sense, will take some more time because it's all about affordability. And that may still take some time in India, I'm talking about, for it to become kind of LED. They may do some partial LED or something, but we'll wait and watch. We don't see that commuter vehicles are going to have a full LED kind of a concept soon. But all high end, I mean, probably 180 cc and above, maybe 200 -- maybe more than 200, 250 cc is what we see more of LED at the moment, full LED. But that premium vehicle market is anyway going up also. It's not that it's going down. So that is, anyway, a good market for us, and we are also benefiting through that market. On the 4-wheelers...
Two-wheeler, I'll just add one thing.
Two-wheeler, one more thing Arjun will add.
Yes. So even on the commuter segment, like CMD said, even if the headlamps does not go full LED, due to regulation, we see a lot of incremental LED content in terms of things like DRLs, position lamps, et cetera. And this is really where we are very strong, given the fact that we have a global level of technology that we bring to the market, and also we are completely vertically integrated with the electronics and also the assembly. So -- and even when I say DRL and position lamps, sometimes they are quite possibly the same cost as a regular bulb headlamp. So there is definitely significant opportunity as we move forward, especially as regulation around emission control becomes even tighter. So those are the opportunities we hope to leverage.
On the 4-wheeler LED side, I think probably, Stephane, you would like to add something?
Yes, yes. So on the 4-wheeler LED side, if we look at the signaling functions, which is the rear lighting, we are today current almost at 85% already of content. And every new RFQ now is including full LED. We have a few exceptions in emerging countries where we need to provide very, very low-cost solutions. On the front, on the projection functions, we are today between 50% and 55%, but all new RFQs are clearly showing a clear trend towards LED. I think part of our value proposition at Varroc is to develop some low-cost LED solutions to replace halogen. So we are one of the main actor in the market to replace halogen technology. And I believe in the next few years, halogen will just be history. But beyond LED right now, the main trend on the 4-wheeler side is more ADB, more matrix lighting so that we can have safe high-beam driving, if you want, so that we don't glare the oncoming traffic. If you look at our recent launches, the ID.3, ID.4, these vehicle -- these electric vehicles for Volkswagen, these are matrix technologies from Varroc that we have fully developed ourselves. And this is the next one that is coming. So beyond LED now, we are into pixelization, digitalization of the light. The megatrend that we see is, obviously, we remain on safety, comfort, style. That's more and more. The advantage of LED is mainly the efficiency. You need much less power to drive lighting that is LED-based rather than halogen-based. So for electric vehicles, this is very important. Every electric vehicle manufacturer is going to LED. I think in previous calls, I also mentioned Ford in Europe. In order to reduce the CO2 emission on their even low entry-level vehicles like the Ford Fiesta, the Ford Focus, they are switching everything to LED. So this vehicle historically that had for the A segment, B segment, some strong halogen content, now we are switching everything 100% to LED. Another important trend that we see in our business right now is, more and more, we will be using lights for communication. So we have already some applications. We are able to project logos. We are able to project lines on the road to indicate to the driver if, in case of roadwork for example, if you have enough space to pass through these tiny spaces. So there is still a big evolution in terms of technology, and every additional function that we are entering is an additional revenue stream that we can develop in the future. So we are really excited with this trend in terms of technology.
And do we think that we can have some market share gains the next 3, 4 years in LED lighting both -- in India both in 4-wheeler as well as 2-wheeler?
Sorry. Sorry. I didn't get it.
I didn't hear the question.
I'm saying are we looking at some market share gains in terms of are we competitively positioned that our market share in the LED business, both in 4-wheeler and 2-wheeler, in the next 3 or 4 years may be much higher than what it is today.
Absolutely. In India, absolutely. I think Arjun explained it very well. Historically, the customers, when they wanted an LED light, they went to Varroc anyway. And this has been our experience with Mahindra. This interesting vehicle for Renault/Nissan that is really the rebirth or the relaunch of Renault/Nissan in India market are really going with us and with the global technology that we are able to offer to this global customer. So that's clearly a clear trend that we see in India with a strong penetration of LED content.
Yes. And I would add also on the 2-wheeler side, I think today, we are -- I mean market share, I don't know our exact position, but I would be surprised if we're anywhere lower than #2 in terms of LED market share. I think where we would expect to gain is in overall lighting market share in the 2-wheeler as the 2-wheeler moves more and more towards LED.
Another trend that we see also related to technology is we see the real estate of lighting expanding outside of the 4 corners of the car. In the past, we saw a lot of chrome around the car. Now the OEMs, the trend to replace chrome by light. In -- for electric vehicles, you don't need the grill anymore to cool down the ICE engine because you have your batteries. You don't have ICE engine. So now we see a strong trend to use the grill to integrate more lighting features. For the ID.4 of Volkswagen in China, we are supplying, for example, LED logo. So there is a Volkswagen logo in the front of the car that is lit, so we have an LED system with the electronics that goes with it. So that's, I think, an interesting new trend that's developing right now.
The next question is from the line of Chirag Shah from Edelweiss.
Two questions. Question one, so sequentially, your RM to sales ratio both in India as well as in Europe has gone as well. So is it because of commodity prices? Or it is because of product mix? Or what is it?
I think it is -- I think sometimes it is a combination of both. It's a combination of both. So in some cases, yes, I mean, in our VLS business to be competitive, because nowadays -- I mean, people see one is the LED -- when you go to LED lamps, the content is more of LED. The material costs are not the same of the percentage as halogen lamps are. Halogen lamps, the content was actually lower as a percentage compared to the LED electronics, which is more expensive. And so that is one reason why, as you move more towards LED, the material content as a percentage, I mean, does go up. And anyway, I mean, the market is also more and more competitive. And the other thing in the recent times is that -- but that is like a cyclical nature, depending on a period of time, that at the moment, of course, I mean the material costs have gone up, so that percentage will show will be higher. Because of the global demand, all the material costs have gone up. So to that extent, it will be up, and then tomorrow, if things normalize, again, the material cost would go down. So that is a cyclical thing. But yes, as LED content goes up, the percentage of material content does -- I mean does rise to the selling price.
And in India, is it again because of mix?
So in India, it's -- I would say, in India, also, if you're doing more of LED, the percentage -- raw material percentage will be higher anyway. Also in 4-wheeler or whether it's in -- in 2-wheeler, I would say that we are able to still manage a little bit of a similar price to halogen because the volumes of high-end are not so high. So there, we are able to manage a better pricing. When it comes to mass volume like, say, in passenger car, it is not -- there it is -- that is not easy to be able to get that kind of a profit margin like we are able to get in the case of the LED lamps for lighting. So the volumes are very less there per program.
Just for clarification, sequentially, mostly India as well as in VLS, the contribution of LED would not have gone up meaningfully, right?
I think -- I don't know. See, the level of sales, let's see -- because what has happened is that I think the level of sales have gone up from September in the VLS business. And the sales have gone up in a lot of these EV vehicles also otherwise, and that has got a lot of LED content. So definitely, I would probably say that, yes, it has had an impact. There's more of LED consumption happening in the third quarter than before because of a lot of the high volume -- like VW, for example. Their major programs are electric, the ID.3, ID.4, which are very high-volume programs, and that is for LED. So there, I mean, that would definitely contribute in a big way to the bill of material cost percentage to sales compared to earlier. Yes.
And for India, when you indicated that LED share is going up, is it largely because of daylight running? Or is it the entire LED system as such, or more of daylight running on the halogen content or LED content?
It'll be a combination of all, right. I mean, ultimately, the level of content is defined by the OEM and what is the styling that they're really looking to pursue. Right. So like we were talking about earlier, a little bit of -- it depends on how the different segments in the market grow, right? So now for example, if the 250 cc and above segment really grows at a significant pace, you would expect -- I mean we would expect to sell more LED -- more full LED systems, right? If the market is more, let's say, in the 100 cc space, or that is really where growth takes place, you would expect to see more DRL and position lamp type of content, and I would say, even LED taillamp type of content, right? So it really depends -- if you ask me, the content really depends on the segment of vehicle we're selling into.
Okay. And on PVs, is it the same, that up to INR 12 lakh is more LED now? Because earlier that was not the case.
I mean, at the outset, I would say now, even at INR 6 lakh, we are seeing that there is significant LED content, like on the Nissan Magnite.
So it is full LED, right? It's an entire LED system rather than DRL.
Yes, it's a full LED system, with the DRL which is also LED and with a taillamp also that is LED.
The next question is from the line of Aditya Jhawar from Investec Capital.
Just I wanted to understand the swings in margin and VLS on a sequential basis from 7.6% to 1% -- 4.1%. Now if you can help us understand the swing in gross margin and what is the element of extra freight cost as a percentage of sales that we incurred in this quarter, because what we understand that on a sequential basis, there would have also been benefit of positive operating leverage. So if we can understand the bridge, it will be helpful.
See, premium freight is about 2%, the premium freight impact.
On the VLS margin.
On the VLS margin would be 2%. And there would also be an element of the overtime coming out of the Czech Republic. Czech Republic is also about 45% of the overall revenues. So overtime also would be -- for that plant would at least be about 1.5%. So maybe as a whole, 0.7%. So maybe 2.7% would come out of these costs.
Okay. And Tarang, do you expect that sequentially that this cost will substantially come down?
Yes. I think that this cost will substantially come down in Q4 related to this, I'm talking about overtime and the premium freight.
Okay. But at the same time, Tarang, you mentioned that in Q4, because of the supply side issues, the production could be lower, but will it be lower as compared to December quarter? Or it is hard to say at this stage?
See, like -- see, January was definitely lower than this thing because of semiconductor; I think, probably 7%, 8% lower. And February, we will see. We're hoping that it is similar, but we don't know. Let's see where we end up. March is looking strong, but the issue what happens is that we're expecting a strong month, but then the pickup is not there because they have not got their electronics, the OEMs. So they may not give you a schedule the following week. They may cancel kind of a thing, the earlier week for the next week. So we have to wait and watch, but definitely, there's an impact in the sales because of the semiconductor shortage there in VLS whether it's in North America and also in Europe.
Okay. Okay. And moving to China, we saw a significant regional sequential decline in profitability. And there is a -- seasonally, that should be a relatively stronger quarter because of the Chinese New Year. So what transpired in China?
So China, actually, frankly, the profitability actually was very good, but we had to take some charge on the customer for the tooling of customer in this quarter, which was probably more like a onetime that we had to take a charge because of which this EBITDA went down and PAT went down. Otherwise, our sales were very strong in the last quarter. So some of that has played out in the last quarter in China.
[indiscernible] to quantify...?
So the amount is about [ 750,000 ].
So the amount is about 750,000 of customer-funded tooling, which we had to probably kind of give back to the customer.
The next question is from the line of Apurva Mehta from A M Investments.
Yes, sir, just wanted to ask you, which is our guidance for next year was close to INR 14,000 crore to INR 15,000 crore of turnover and double digits-plus margin. Can we achieve that seeing the scenario and the kind of headwinds we have? Can we achieve that? The possibility is there?
Yes, the possibility is there for sure. We are working on our budgets at the moment because we have still not got overall volumes from our customers. We have made some estimate, and seeing that, definitely, it is possible on that INR 14,000 crore, INR 15,000 crore of revenue.
And double-digit margin.
Yes. And double-digit margin.
Okay. And another thing, what will be our lighting contribution in India business currently?
Lighting contribution, see, what happens is that the 4-wheeler lighting actually rolls into the VLS entity, the lighting entity, the 4-wheeler. But otherwise, in the India side, I think the lighting business would be about 6% to 7% of our revenues would be out of 2-wheeler lighting...
[indiscernible]
No, no, no. Overall, 6% to 7% of, let's say, our revenues would be the lighting, whether it's halogen or LED.
Mr. Mehta, do you have any further questions?
Yes, just one. I mean, overall, if we say it's INR 800 crores of quarterly turnover from India business, you would want to say that 8% is the lighting business on that?
No, no, we are not doing INR 800 crores. We are doing -- about INR 1,200 crores is what we are doing presently. On INR 1,200 crores a quarter, we are doing -- about 6.5% to 7% is our 2-wheeler lighting business.
And overall, what will be the lighting business, overall, if we say 2-wheeler -- in India, India, India.
So on India put together, lighting is 6.5%, 7%. But India, we only count 2-wheeler lighting. 4-wheeler lighting is a part of the global lighting business in India.
The next question is from the line of Giriraj Daga from K M Visaria Family Trust.
A couple of questions and one clarification. You had mentioned in one of the calls that you are looking at a double-digit growth in India in FY '22. But when I look at your 9-month numbers, we are down like 18%; and possibly, we might end the year just at 12%, 13% or 10% kind of a downside for FY '21. So you're talking about FY '22 10% growth on FY '21 base or FY '20 base?
No, no. We will be -- see, so we will definitely be -- I'm just saying that we'll be significantly higher than the FY '21 base. FY '21 base is a COVID year. We have lost the first quarter anyway of FY '21 and [ we should ] definitely grow...
Would you be able to do better than FY '20 also?
We will be better than FY '20, and it will be a double digit over FY '20 also.
Okay. Okay. Understood.
There's a double-digit growth in India over FY '20 India sales.
Okay. Understood.
For sure.
My first question is like related to the CapEx number. You mentioned INR 600 crores. So I believe somewhere about EUR 9 million to EUR 10 million will be spent on Poland and Morocco in FY '22. So what will be the maintenance CapEx in VLS in India?
So India, I think, let's say that we do about INR 150 crores, INR 160 crores of CapEx. Out of that, the maintenance CapEx is normally about probably 10% to 15%, would be the maintenance CapEx. I think should be similar also, I mean in VLS also, business. Stephane, do you want to confirm what it is going to be? I mean, roughly, is it 10%, 15%, the maintenance CapEx? Or is it higher?
Yes. That's correct for the ballpark. In this new facility, most of the equipment is brand new. So it's lower in, let's say, older facilities. Like in Mexico, we are more in the 15% to 17% range. But in average, I think we are at around 13%.
Okay. My second question is related to Morocco and Poland. And one of the presentation slides, Slide #7, we are mentioning the Poland potential about 150 -- EUR 145 million of equivalent revenue annually, and Morocco about EUR 150 million. These are the potential revenues this plant can achieve, right?
These are -- yes, these are the revenues we have to achieve, and -- but this revenue, we're looking at achieving in these 2 plants not before, I think, FY '24.
Yes, I agree. I'm not asking for the year. But these are the peak revenue we can achieve from this one? Or that number can go higher from this also?
So peak revenue will be probably more, let's say, EUR 180 million or something.
EUR 180 million in Morocco and about EUR 200 million in Poland.
Okay.
It's what we have said earlier also in the past year.
This is on the back of orders already won basically. So whatever they have ordered so far we have won, we can touch a revenue of about EUR 145 million in Poland and about EUR 150 million in Morocco based on current orders, whatever we have won basically in the last couple of years.
This is on one business. And then, of course, we will win some more business, so that will take it up to EUR 180 million and EUR 200 million, respectively, in Morocco and Poland.
Okay. My last question is related to our CapEx number -- or debt number. So we had mentioned about the INR 900 crores to INR 1,000 crores reduction in debt. Any -- are you assuming any part to be coming from the working capital optimization in this number?
So yes, definitely, I mean, there will be -- see, on the debt side, there will be some working capital optimization also. But yes, I mean...
That portion has already been realized.
Yes, yes, yes. So a lot of the things we have already addressed or we're addressing now. But I think that the main thing is that we have to -- we want -- I mean we want to reduce our debt number to a normal level, which we are quite confident of doing. We're also going in for this dilution of 10%, and plus we have some other options also. And plus, of course, we're looking at a superior operational performance so that we can target that we are down -- from December end to maybe March end, we are down by about INR 900 crores, INR 1,000 crores in this period. That we -- I think we feel fairly confident of doing.
No. Just a follow-up there. My idea was that since our business will go up, I was thinking we'll have to deploy more on working capital. And if we are guiding about INR 1,000 crores or INR 900 crores kind of reduction, ultimately, we have to work out EBITDA somewhere about INR 1,800 crores to achieve this kind of a number.
Yes. Within in this side, if you see, I think, end of first quarter of financial year '21, we had working capital cycle disturbance basically. So the answer which I had given earlier was pertaining to that disturbance. So most of the working capital disturbance has now been restored to a normal level. Going forward, obviously, there will be some incremental needs towards the new business which we will be doing in future years. Part of that, I think, will be sort of coming from working capital optimization from the existing level, a part we'll have to fund.
So you're right that, to some extent, yes, but we don't see some big number there emerging. So I'm talking on a net basis that we feel confident of reducing our debt by that much by March [ '22 ].
[Operator Instructions] The next question is from the line of Apurva Mehta from A M Investments.
Yes. Sir, wanted to ask about the content per vehicle going forward, because Stephane was telling that a lot of LEDs, which chrome will be replaced by these LEDs. So going forward, this content per vehicle should substantially go up on that side, we can [ assume ]?
Stephane?
Yes. So clearly, this is depending from the segment of the vehicle. This is depending from the OEMs. This is depending from the regions, but yes, our play is to increase our content per vehicle. So when we go from one generation to the other, we try to supply more to the same vehicle. So obviously, the front lighting, the rear lighting, we want also to add this -- what we call the small lighting with the stop lamp, the fog lamps, the rear reflect. And now as we want to expand our footprint around the car, if there is a logo lamp, if there is something that goes in the grill, if there is something that goes in the, for example, the small projection of logo when you open the car door, this is something we are doing in our Turkish facility right now. So these are the content increase per car that we are pushing for. And then just as a reminder, you know that you have this entry level for each of the vehicles. So there is an entry level, a mid-level and high level. So the high level is always a way to push for the new technology. So right now, we are really pushing towards ADB. It's not anymore is there going to be LED or not; it's more is there going to be ADB technology, matrix technology or not in the new vehicles. So that's all we are pushing for the content.
And last question on the backward integration. How are we positioned on the backward integration side? Are we where we are and where we want to be by in next 2, 3 years?
So I think that we have to -- yes, yes, please go on.
Yes. No, I just wanted to remind to everyone that we decided to take 100% of the share of our electronic manufacturing joint venture. We completed this just a few months ago, and this is giving us really a free hand to right now accelerate. And as Tarang mentioned earlier, now we want to boost the growth in this -- with this level of technology increasing in our product, the content of electronics is increasing. So we believe this is key for us to do our own electronics. So we have one SMT line. By September, we'll have the second one, and then we have an ambitious plan to go up very fast to this 6 SMT lines that we are targeting for this location. We have, by the way, reserved for a space that could accommodate even the double of this. Right now, our plan is 6 SMT lines, but we may want to even increase in the future.
Ladies and gentlemen, we'll take the last question from the line of Basudeb Banerjee from AMBIT Capital.
And just a quick clarification, as in the call, you have been saying target is to reduce net debt by INR 900-odd crore in next fiscal. That is purely on free cash flow generation or that includes element of any fundraised [ as such ]?
No, no, it is also part will come from fundraise.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Tarang Jain for closing comments.
Yes. Thank you, everyone, for being for this call. And yes, the numbers, especially in VLS, have been disappointing and disappointed in the Q3, but that's something -- and I think the main issue still lies in Europe. But it's not that, as a company, we've not been in control of that. It's just that the circumstances in the Czech and in other European new plants have been such -- either low volumes in Morocco, Poland, or we have had these issues of absenteeism and input materials coming in. I mean we have had it -- we have found it tough to kind of manage in this kind of a COVID situation in this quarter. So obviously the result is significantly lower than what we would like to actually definitely do. And of course, our objective is that in VLS that we have to kind of reach the double digit sooner than later. That's what we're going to strive for. We do have a level of sales now, level of business wins, level of customer confidence, that is quite strong in our case. It's just that, yes, we have to kind of, in this environment, we do need to see that we perform better. And therefore, we are actually listening with our customers, listening with our suppliers or also internally looking at solutions, how to improve the EBITDA margins in VLS. And that's something we are striving, and we are confident that we'll be able to achieve it soon. On the India side, anyway, we are going strong, and we will get stronger. We are looking at -- in FY '20, we are looking at a strong sales number of INR 14,000 crores to INR 15,000 crores in both VLS and India. Sales are there. How we convert that to profitability in a meaningful way is something what we are focusing on. So with this, I just want to thank all of you for this call, and see you the next time. Bye.
Thank you very much, sir.