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Ladies and gentlemen, good day, and welcome to Varroc Engineering Limited Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Basudeb Banerjee from ICICI. Thank you, and over to you, sir.
Thanks, Ryan. Good evening, everyone. Thanks to Varroc Engineering management for giving us the opportunity to host the Q4 FY '22 result con call. We have with us Dr. Tarang Jain, Chairman and Managing Director; Mr. Christian Päschel, CEO of Varroc Global Lighting; Mr. Arjun Jain, Whole-Time Director, Varroc Engineering; Mr. T.R. Srinivasan, Group CFO, and Mr. Bikash Dugar, Head of Investor Relations.
I'd like to hand over the call to Mr. Tarang Jain for his initial comments. Post that, then we'll coordinate for the Q&A session. Over to you, sir.
Yes. So thank you, Mr. Basudeb Banerjee for hosting the call, and good evening to everyone. I would like to thank you for joining the Q4 FY '22 earnings call of Varroc Engineering Limited.
Looking at the past year, while we were all anticipating a rapid recovery in volumes, the second wave of the COVID-19 pandemic struck, impacting both the supply and the demand side. Just as we were coming out of the second wave, we saw a worsening of the supply side challenges, particularly the semiconductor shortages, which is continuing and might take to the end of FY '23 to get normalized.
The higher fuel prices, commodity inflation and tightening of financing has resulted in higher cost of ownership of vehicles impacting demand. We're also witnessing geopolitical issues like the Russia-Ukraine conflict impacting the global economic recovery. All this has made the operating environment for the business very challenging, impacting the profitability of the operations significantly.
In the background of these challenges, the company took the decision to divest its 4-wheeler lighting business in Europe and the Americas and signed an SPA with Plastic Omnium for an enterprise value of EUR 600 million in April '22. The transaction will take 4 to 5 months to get completed as we need approval from our shareholders, the regulatory bodies in various geographies and also from our lenders.
This divestment will help the company strengthen its balance sheet and invest in identified focus areas to drive future growth. In our financials, the business which we are divesting is now accounted for as discontinued operations and only the profit and loss from discontinued operations is shown as a one-line item in the income statement as per the accounting standards.
In India, the auto production for 2-wheelers in FY '22 fell by 3.5% despite a lower base of last year due to the weak rural demand and the higher cost of ownership. Passenger vehicles in India rose by 19.2% due to the preference for personal mobility. Commercial vehicles and 3-wheelers also witnessed growth due to the lower base and overall economic recovery.
On the backdrop of all this, the revenue from continued operations for FY '22 has grown by 33.6% to INR 58,442 million as against INR 43,739 million in FY '21, outperforming the industry production numbers. The EBITDA margin for FY '22 was 6.1% as against 7.7% in FY '21 for the continued operations. The margins were impacted by higher commodity prices, ForEx losses on intercompany loans and a lower operating utilization in some of the geographies.
The revenue for Q4 FY '22 from continued operations came in at INR 16,520 million which increased 11% quarter-on-quarter and 9.8% year-on-year, again outperforming the industry production numbers. The EBITDA margin improved on Q-on-Q basis by 150 basis points and came in at 6.5%. The margins for the quarter are still impacted by higher raw material prices.
The focus of the company remains to pursue its strategy which is a combination of growth and margin improvement for our various business units. We have growth opportunities due to the mega trends and some of our businesses -- business units like electrical-electronics in India, our polymer business in India, the electronics business in Romania are geared up to capitalize on specific growth opportunities.
We are looking to improve the profitability of some of the business units like IMES, forging plant in Italy and our metallics business in India, the 4-wheeler lighting business in India and our 2-wheeler global lighting business by a mix of improving internal efficiencies, higher capacity utilization, and in some cases, price increases from our customers.
Strong order wins for new businesses in FY '22 across business units will enable us to continue to outtop the industry growth and will also help us in improving the profitability. During FY '22, lifetime revenue from new order wins is at INR 35,059 million. And out of that, the business win from the EV customers is INR 10,451 million. To capture the growth from megatrends, we're happy to announce that the government has approved our application for product linked incentives, and we will be investing around INR 2,800 million over the next 5 years under the scheme.
I'm now handing over the call to Mr. Srinivasan, our group CFO, so that he can run through the presentation, which is already uploaded in our website and in the stock exchange also. Thank you.
Thank you, Tarang, and thank you, Basudeb for hosting us today. We had uploaded our presentation a short while back. I will just quickly touch upon the highlights from the presentation, focusing on the financial part. Then we will leave the field open for questions.
Starting with the highlights of the last quarter and year, so the biggest highlight, obviously, was securities purchase agreement we signed with Plastic Omnium in April, which you are already aware of, and we had a separate call on that as well a few weeks back.
The second is about our application for the -- under the PLI scheme under the auto components sector, which has been approved by the central government. So we'll be investing close to INR 280 crores over a 5-year period. And the other highlights is that from a revenue perspective, both in the quarter and year-to-year, we have grown. Part of the growth was related to commodity price inflation and part of it is due to better capacity utilization and additional orders we are able to get from customers.
And also sequentially, we have been able to improve our EBITDA margins for the continuing operations. So from -- you might have seen from the financials that the business, the lighting business in Europe and North America that we are planning to dispose off have been reported in a separate line in the P&L and our discontinued operations and rest of the P&L reflects the results of the continuing operations we have.
Then during the year, we also won a new business, which will contribute lifetime revenues of around INR 3,500 crores overall, out of which revenue relatable to the 2-wheeler EV segment will be in the region of about more than INR 1,000 crores.
So these are the major highlights. From -- we have included a slide on the overview of the continuing operation, just to give a better idea to the investors on what are the businesses remaining within the company after the planned divestment. So in the VEL stand-alone entity, we have 2 business units, electronic -- electrical and electronics business unit in India as well as metallic in addition to the aftermarket division that we have seen significant growth and the 4-wheeler lighting business, which will remain in India, which will remain with us. We have a number of subsidiaries in India, which are mainly in the polymer business, Varroc Polymers then the metallic business and the Durovalves.
And coming to the overseas business, we have a joint venture in China, like you know, which is into 4-wheeler lighting. And we also have a metal forging business in Italy under IMES, a global 2-wheeler lighting business, which has operations in Italy, Romania and Vietnam and the electronics business in Romania, which we are retaining.
So if you look at the overall revenue composition, little more than INR 5,000 crore revenue will come out of the businesses we have in India. And something like INR 1,400 crores will be the revenue generated from operations outside India, including the -- our share of the 50% share of the revenue from the China JV. So all put together at a gross level, we are talking about revenues of around INR 6,500 crores last year, including the China JV revenue.
I'm not spending much time in terms on the leadership team and product lines in different businesses, I think many of you would be familiar with that. We have also added additional information on each business unit in terms of the products, the core strength as well as the focus areas going forward for those -- each of those businesses to give you a good idea of how we plan to address these businesses and how we plan to grow.
And this time, we have also included on our slide, which highlights the aftermarket business we have and a large number of products in this are -- a number of products are traded, some are manufactured internally. This aftermarket business itself contributes -- last year contributed at close to INR 600 -- INR 500 crore revenue in last year. This year, it should grow further. And that has a very attractive margin profile. So we do EBITDA close to 15% in that business.
And out of that, half of the revenues come from domestic and half of it is coming from exports. We have distributors in a number of countries, also in India as well. So you'll see the revenue breakdown per segment. So 2-wheeler contributes the maximum followed by 4-wheelers, it's about almost 70/30 kind of a share. And we have a very balanced portfolio between different regions in India as well as in exports. And this is one thing which will be key to our efforts to improve margins in the coming years.
Coming to the financial performance, starting with the overall industry volumes. In Q4 last year, the 2-wheeler segment in India volumes declined by 21%, 3-wheeler by about 2%, while there was marginal growth in passenger vehicle and commercial vehicle. On a full year basis, 2-wheeler declined by 3.5% while there was growth in the other segments. But for us a substantial part of our revenue comes from 2-wheeler -- 2-wheeler and 3-wheeler, which was a challenge for us.
But in spite of that, we were able to -- when you look at the financial performance, quarter-on-quarter we were able to grow the revenue by 11% sequentially and year-on-year by about 10%. And of course, large part of year-on-year increases contributed also by commodity inflation, which we were able to pass-on with a lag of 1 or 2 quarters, but that has also had some impacts in the margin. So if you look at the margin development over a period of time, all the continuing operations together have EBITDA margin of about 6.5% in Q4, which sequentially has improved. And compared to full year also it is a better number.
Going -- and if we had to split up this business between India, the remaining lighting business and other business, which is in Slide #18. You will see that India margin -- India continues to deliver close to double-digit EBITDA margins almost -- in spite of an exchange loss we needed to book this year because of the exchange rate fluctuation on intercompany loans to the VLS business. So in spite of that, we are tracking at close to 10% EBITDA margin, which is quite encouraging. And in spite of the commodity price increases and the delay we pass-through. And once the commodity price has kind of settled down and stabilized, this margin should improve further and go close to around 11% or so. That's what we expect.
The remaining VLS business, which is a combination of our electronics operations in Romania, the 4-wheeler lighting in India and the global 2-wheeler lighting itself together are almost at breakeven margins right now because of capacity utilization is still not at the desired level, which is impacting the margins. But going forward, we expect the margins to improve in the coming year. And others, which is mainly our forging business in Italy continues to be loss-making, and we are looking at strategic options for that business as well in the longer term.
But recently, we have been able to win some -- get some price increases from customers to compensate for the commodity increase as well as energy cost increase in Europe. And that going forward, should put us in better margin for the IMES business as well. So at total basis, the margin is in the region of around, say, 6.5% in the latest quarter. But with all the improvement plan growth is expected during next year, we'll try to move towards a double-digit kind of an EBITDA margin. That's what we are targeting to deliver as on the remaining business.
And the results from the discontinued operations have been shown separately. So you will see that [indiscernible] business continues to incur significant losses, which will continue to be on the P&L and the balance sheet for the next quarter or two till we complete the closing. And so -- so like we communicated after the SPA signing. So we expect the proceeds from the divestment will help us to pay off the loans we have abroad and also reduce the debt on the books of the parent company. And on a net debt basis, to become, let's say, a zero debt company on a net basis, that's what we're expecting to closing. This will significantly strengthen the balance sheet and enable us to invest in the remaining segments of business where we plan to grow quite aggressively.
We have also given the revenue breakdown for the continuing operations in Slide 17, just to give you an idea of which business it's coming from. So you will see that polymer from a business unit perspective, polymer contributes almost 1/3 followed by lighting and electrical-electronics business units and metallic and so on. 2-wheeler motorcycle still contributes, let's say, 60% of the revenue, followed by 4-wheelers and then 2-wheeler scooter and 3-wheeler. India is roughly, let's say, close to 80% of the revenue, with 20% coming from outside. And while from a customer perspective, Bajaj contributes -- will be more than 40% overall with non-Bajaj customers to the rev contributing close to 60% or so.
And you will see that overall, about, let's say, our revenues from the 2-wheeler scooter, which is where the EV penetration is happening initially at a high pace. So our reliance on that is not very high, so our exposure to -- so our portfolio in the short to medium term is fairly protected against the transition to EV. But you also know that we have a large number of products, which have -- to address the EV sector -- EV segment, which we will be able to leverage on that once the volumes start picking up on that.
So this is broadly on the financial performance. On the EV business, I mentioned the 1 new business with lifetime revenues of more than INR 1,500 crores. So this is between 4 different OEMs, both Indian-related orders as well as non-Indian-related components. So a combination of that. That will continue to be a focus area to bring new business in this segment in future.
And talking briefly about our product portfolio and the kit value. On Slide #26 we try to give you kind of kit value of the components we supply for different segments. So you will see that we have quantified the amount for different product segments ranging from around 5,300 or so to up to 100 -- 110 cc segment going up to 12,300 for more than 300 cc segment in 2-wheeler. But as against that, the EV segment, we expect the kit value to be around 30,000 per vehicle. So that's the kind of value we are expecting from this segment. And in other segments like 2-wheeler and the other one we will look in the next slide is in 3-wheeler EV, the kit value will be as much as 43,500 per vehicle. So that's kind of a growth area for us with the product portfolio we have.
So -- in Slide 28, we have also given -- tried to give you a breakdown of the new order wins across different segments, annual revenues as well as lifetime revenues. And simply out of the INR 3,500 crores revenue, INR 1,000 crores plus will come from EV and the balance INR 2,500 crores from ICE vehicles. Bajaj is about 1/3, non-Bajaj customers will contribute 2/3. So the share of non-Bajaj will continue to grow.
And 2-wheelers -- 2 and 3-wheelers contributed about INR 2,230 crores against INR 1,270 crores for 4-wheelers. So the 4-wheeler segment is another where we are seeing a lot of traction in terms of revenue growth, which also has a better margin profile overall compared to 2-wheeler components.
So I think -- then there are certain [indiscernible] information on environment and awards and so on, which I'm not talking about that much in detail at the moment. And the detailed P&L [ et cetera ] is next to the appendix on the go through. And the rationale for the divestment which we shared earlier this month is also available for you to look at. And the summary of the discontinued operations in the last slide, where you can see the negative impact of that on the business that continues to be significant, which will be probably a drag for another 1 or 2 quarters till the closing.
So that's quickly a summary of the, let's say, the highlights of the quarter and the year, and from a financial and business perspective, so now we are happy to take questions.
[Operator Instructions] Our first question comes from the line of Arvind Sharma with Citigroup.
Sir, 2 questions from my side. First, on the continuing operations in India. This EV share of around INR 902 million that you've highlighted that broadly remained -- INR 902 crores has remained constant since the last -- since the last time you highlighted this number, I'm talking about Slide 23. Any comments on that, sir? The expected revenue?
So the EV -- see, the EV segment, we are saying the lifetime revenues. Are you talking about the lifetime revenues, which we have showcased of INR 1,045 crores.
No, sir. I'm talking about the expected revenue in FY '25 for the current business based on SOB and industry price. That's Slide 23.
One second.
INR 902 crores, sir.
Yes. So this is basically -- this is a showcasing, this is the revenue which we expect, and this is from all, whether it's related to the electric -- the EV powertrain products or the other than the EV powertrain products. So overall, that's the kind of revenue we are expecting from the EV segment by FY '25.
Sure, sir. Sir, second question is mostly accounting related that continued plus discontinued operations for the third quarter, which is the profit which is to near all almost a loss of INR 2,959 million. Is it any different from what was reported in the December quarter? So is there something apart from just a discontinued operation, which is impacting these numbers? I'm talking about the like-to-like numbers. Third quarter reported continued plus discontinued loss versus what was reported in December. Just want to understand the dynamics of this new presentation because it's the first time we are seeing this.
Yes, yes. So actually, what we tried to do this time because -- so now that we have announced the sale of the business and the sale of the business is not exactly the entire VLS as we were reporting earlier. It is, let's say, certain components of VLS, which we are selling and certain components like the electronics 2-wheeler lighting -- global 2-wheeler lighting and the India 4-wheeler lighting and China we are retaining. So that's why we try to break up the financials between continued and discontinued.
Right, sir. Sir, but shouldn't the sum of discontinued and continued operation be similar? Or is there some interparty transaction there as well? I'm just comparing the 2 numbers, which right now has been as negative INR 296 crores versus what was given at negative INR 265 crores when you reported in December.
So you will see the statement that -- financial statement that there is -- the Q3 was restated. So there was an inventory valuation error in our Morocco plant, which is a part of the discontinued operation. So that impact has been taken in Q3 now, that Q3 went up by the equivalent amount, the difference you see, which is about EUR 3 million roughly, EUR 3.4 million, if I remember correctly. And that is the amount which has been added to the Q3 numbers, which were reported last time.
Sure, sir, that explains it.
Our next question comes from the line of Joseph George with IIFL.
Is the audio clear?
Yes, it's clear.
I just have 1 question. What will be the effective date of the transaction. What I need to say is you mentioned in the call that the closure will happen 5 to 6 months down the line. What I want to understand was in this period of 5 to 6 months, if there are cash losses in the VLS business, whose account will it fall into, your account or the acquirer?
No. So one is that we are looking at a closure by September of this financial year. That's our target. But to answer your question, see, till we close the transaction, whatever are the profits or the losses in this discounted operations will be a part of our consolidated results till that time. So we still own up to the results, whether negative or positive till the time we close the transaction.
So is it possible that you would have -- I mean, you may have to infuse some capital into VLS if the operational losses continue?
Yes. So in case we see that there is a need for the cash because presently, what's happening is that there's not only the chip shortages which continue in the discontinued operations that is one reason for lower revenues. But also this Ukraine-Russia issue also has impacted volumes because of higher commodity prices and inflation and there is a certain kind of an impact on the demand. So therefore, there will be a likely possibility that we will have to infuse some amount as per need till the time we close.
Our next question comes from the line of Shiv Lal with Unique Investments.
Hello. Can you hear me?
Yes, I can hear you.
I just wanted to know the quantum of ForEx loss you have booked in intercorporate transactions and will it be for onetime only or it will be a recurring feature in the future?
You were saying for the year last year, for the year?
For this quarter 4, ForEx loss also you have accounted for intercorporate loans.
Yes. ForEx loss, we are accounting in EBITDA now for all the 3 years. So for the full year, it was INR 28 crores net, in the last quarter, actually, Q4, it was a small profit of about INR 4 crores.
But it will be a continued in the future? The loan will be repaid.
It will be a function of -- I mean, little -- it's really a function of the exchange rate movement in this another intercompany loan since our mark-to-market. At closing, this will all get squared off. So -- but certainly, it can move in either direction. And we are also looking at ways of hedging it to the extent possible.
And my another question is that how much will be the interest burden for the next year, '22, '23 after this disposal of the lighting division?
After the disposal, the borrowings will come down significantly. Like I mentioned, on a net debt basis, we should become -- net basis, we should become debt-free. It doesn't mean that there will not be any debt in the books at all. We'll still have some borrowings outstanding. So maybe out of the 26 [ severance ] gross borrowings, we have about close to I think INR 3,000 crores or that about. We will probably end up repaying somewhere between 22 -- INR 2,200 crores, INR 2,300 crores of revenue -- of debt, sorry. The balance is what will remain.
So you'll see a big reduction in the interest cost, for sure. But it's a function of how exactly we are able to, let's say, negotiate and settle those loans and because that also will have an impact on the credit rating post closing. So I won't say I'll able to pay off the debt -- last part of the debt, which will reduce the interest cost rate per se and so on. So it's a combination of all that. So yes, but I can just say that post closing you can see a significant reduction in the interest cost maybe, I don't know, maybe 1/3 of the level we have now or even less could be. But it's a bit difficult to put an exact number to that at the moment.
No, I think that for last year, to give you a kind of a number for the continued operation. I'm not talking about discontinued operations. On the continued operations, I think we have incurred about INR 150 crores of interest costs. And I think post this sale, probably we would not be more than 1/3 of this as an interest cost to us post the closing of this transaction, because lot of the debt here also will get reduced, which is in the continuing operations.
But this will happen by FY '23?
Yes. So we are expecting to...
During Q3, you should...
Yes. So from Q3 onwards, you will see that annual impact, but for the first 6 months, until we close.
Yes, that I understood.
[indiscernible] months of FY '23, till we close, obviously, we have to absorb the overall interest cost. But once we close the transaction, then you will see that what I'm talking is about the continuing operations, interest cost on an annualized basis.
[Operator Instructions] Our next question comes from the line of Noel Vaz with Asian Market Securities.
Hello, can I be heard?
Yes.
Yes. So I just had 1 question. So right now, as per the slide on Slide 18, you're saying that Bajaj is about 42% of revenues for FY '22, right? So I just wanted to know exactly since we are getting some 4-wheeler wins as well as some other win from the EV segment. So the portion of Bajaj to non-Bajaj, how should we see it changing over FY '23 or '24?
So FY '23, I don't know whether it will really change. But if you talk over the next 3 to 5 years, once we also are focusing in India on the four-wheeler side of the business, and we are also winning customers for EV products also in a bigger way and also driving more of our global business in Europe, you will see that the Bajaj this percentage will go down. I don't know by how much but it will go down to maybe it could be 1/3, because Bajaj for us is a significant customer also on the EV side.
And whatever numbers you saw for 2 and 3 wheelers, whether it's a full content of EV powertrain there, plus, of course, the other parts like plastics or switches or LED lamps. I mean, they are our bigger consumer of all our parts for the EV vehicle. So it will go down, but I would say next 3 years to -- next 3 to 5 years, I think probably Bajaj should be 1/3 and non-Bajaj should be 2/3. That's the way I would -- I mean look at it.
Okay. My second question is actually related to your EV portfolio. So I think on an -- yes, so I think DC to DC-DC converter and Tata Motors, right, if I'm not mistaken...
The traction motor.
Traction motor. So the thing is I see there are a lot of other players who are coming out with or are trying to compete in similar products. So I just wanted to know exactly, so how should we see this competition within these particular products going forward? Are we going to see a situation where there's going to be only 3 or 4 players competing within India within those same segments? Or is it going to be still a little bit more fragmented than that?
This is Arjun. I'll take the question. In general, I think across the EV product lines, I think they will continue to evolve over for at least the next 3 to 5 years, right? For us, I think the way we look at it is the technology that we have -- the technology that we've looked to develop, we have -- and that we have developed, we feel it's a clear differentiator for it. So there will definitely be segments. So the segment of the market that we are very clearly targeting really is the kind of vehicle that will [indiscernible], right?
However, in general, right, if you look at the EV marketplace, it's still relatively fragmented even by performance of vehicle. So you could expect that there will be a level of fragmentation for some more time. However, of course, I think over time, as let's say the market starts to mature, I would expect the -- I would expect the component supplies would also start to mature. And again, from a Varroc perspective, we are very confident that the portfolio we have chosen is really the most differentiated and has higher value add.
Our next question comes from the line of Rikin Shah with Omkara Capital.
Am I audible?
Yes. Yes, you're audible, not very clearly, but we can get it.
Okay. So I just wanted to understand regarding [indiscernible] patent infringement cases, while it might not be quantifiable, but what is generally the liability in cases like these similar?
Can you please repeat? It's not so clear.
So presently, you see what -- so the way it works is that there are -- [indiscernible] has raised a number of infringements against us a couple of years ago. And mainly it's in the German courts. And the way the German courts work is that there's a separate court which identifies if there's an infringement of any kind, the smallest infringement they will say it's an infringement. And then there's another court, which kind of hears out your nullification process.
So the first process is -- with the first set of courts would be -- in Germany would be okay, whether they've infringed or not. And then, okay, there could be some interim, some liability and -- but then according to us, all these patents are actually quite frivolous in our view. And they will not stand when it comes to nullification, it will not stand on its feet.
But the only thing is that between the infringement which is granted by the court and nullification, the gap is more than a year. So till then, it's something which you need to kind of deal with. So what they're also apparently trying is they're trying to see that whether we can reach some kind of a reasonable understanding with value in this regard so that we don't really have to earnestly kind of spend more on -- in legal expenses and other things and also settle the case from a -- I mean, forever.
So we are also discussing -- we are also in discussion with [indiscernible] to see whether we can settle and come to a reasonable number, which would be in a single-digit kind of in million euros, it would be in single digit. So let's see how that goes. So of course, the court proceedings are going on. But at the same time currently we're looking at some kind of a settlement also with [indiscernible]. Let's see what works out. If it's something reasonable, we will settle.
[Operator Instructions] Our next question comes from the line of Deepak Pawar with Vasuki India Fund. Gentlemen, the caller has kept the line on hold. I will be taking the next question. The next question comes from the line of Abhishek Jain with Dolat Capital.
Sir, how much is the total debt if we include the discontinued and continued operations?
On a net basis, so we are at about INR 2,600 crores. On a gross basis it's close to INR 3,000 crores.
INR 2,900 crores on a gross basis and INR 2,600 crores on a net basis, INR 2,650 crores on a net basis.
And continued operations, total debt is around INR 1,500 crores, right?
Continued operations, see, when you say continued operations, you need to see India plus overseas, that is about, let's say, INR 1,300 crores, INR 1,400 crores. But that also -- part of the debt was taken to finance the lighting system business. So in that sense, it's not going up in discontinued operation, but it is really to fund the lighting system business.
So if you look at purely funding for the continuing operations, that what we said will be much lower. So maybe range of about INR 600 crores, INR 700 crores may be all put together. So -- that's why once we have the closing and the sales process coming in, you will see this figure coming down sharply.
So the majority is for the discounted operations, whether it is in any entity, whether it's in India or it's in overseas continued operation, but largely a lot of the debt has been taken to fund the VLS operations over the last couple of years. So I would -- so what we are saying is that out of this INR 2,900 crores of gross debt, about INR 2,200 crores, INR 2,300 crores at least would be towards the VLS kind of business. And the balance would be more for the India and a little bit of maybe other businesses abroad.
So you have raised around INR 4,700 crores from this deal and your total debt is around INR 2,600 crores, INR 2,700 crores. Thus, there is some adjustment because of the working capital. So most probably, you should become like a cash company after this deal, but you are talking about that debt will continue to be there around INR 8 billion to INR 9 billion in the books. So can you explain it entirely, sir?
Yes. On a net basis, we will be cash positive, on a net debt basis, but that doesn't necessarily mean that we will repay 100% of the existing borrowings. Some of the existing working capital financing, et cetera, which is at a lower costs we'll continue, and we will prefer to preserve some liquidity to be able to fund our investments in the growth areas we have identified, both EV related and otherwise.
So if we consider the cash and cash equivalent, then what would be the position in [ FY '20 ] year end about our cash on the net bases.
On a net basis at closing we should become surplus. That's what we have communicated. So beyond that, we expect to maintain that status going forward. So it's not been materially changed. So parallelly, we are also working on the long-term strategy for the India business or on other parts of the business. So if as a follow-up of that, if we decide to make any significant investments, at that time we will update in terms of anything, but we don't see -- we still expect to end the current financial year on net cash basis.
Okay. And what would be the CapEx for the next 2 years because the order book is quite strong. And as you said that around INR 1,000 crores order is from the EV side. So in that case, you need to use CapEx going ahead. So can you throw some light on the CapEx plan for the next 2 years in the continued operations.
So we would say that because -- see India side, I think we have made a quite a bit of CapEx in the past. But still, I think we will need to make CapEx of at least around INR 200 crores here. And then for the other businesses, the other, whether it's their 2-wheeler global lighting or the electronics business unit abroad or for the India 4-wheeler weighting. Overall, I think probably we will be looking at another probably INR 100 crores of investments.
So you can say, let's say, for the next couple of years, I would say, for the continued operations, we would look to invest about INR 300 crores each year to kind of have this kind of growth, which we are aspiring for, which is at least about 8% to 10% more than the market growth.
And what would be the asset turnover of this CapEx?
Particularly the asset turnover for us, depending on the segment, ranges from 2.5 to 3.5. So that's typically the kind of -- so on average, you can take maybe around 3.
So on the existing business, I'm talking about on the continued operation, what would be the peak revenue? And what is the capacity utilization only from the continued operations?
On the continued operation, you are talking about capacity utilization?
What is the current capacity utilization? And how much [indiscernible] revenue can be achieved from the existing capacity only?
You're talking about for the full continued operations?
Yes, yes.
I think that we could -- I mean, on -- if everything goes well in the market is kind of good. We could be looking at at least about INR 8,000 crores of revenue from the continued operations.
Despite that, you are doing the CapEx of around INR 300 crores each year, I mean the INR 900 crores in the next 3 years?
Yes. So I think that's an investment we will make. But I think initially, the investments are a little bit higher, I would say, for the business other than our India business of INR 200 crores. For the next 2 years, it could be INR 100 crores. But then we don't have to invest so much going forward even for a double-digit kind of growth in those markets. But yes, the next couple of years, it would be INR 200 crores plus INR 100 crores.
Okay. Got it. And sir, out of the INR 5,800 crores kind of the revenue, what was the revenue contribution from the 2-wheeler international business and the India lighting business, 4-wheeler lighting business?
I think that we have shown it in that initial slide to you. Can you just go there? The initial slide you have shown in the beginning. Yes. So basically, as a -- [ we've done INR 1500 crores ], so a lighting business, which was basically the -- what is it, I can't read the...
21%, it's a combination of global 2-wheeler lighting plus India 4-wheeler lighting.
So the global -- so the way we have shown it, if you see Slide 8 we have shown that the India 4-wheeler lighting and the global 2-wheeler lighting business is 21.4%. That includes also the India 2-wheeler Lighting. And then you have the polymer business, which is at about 33%, and you have your electrical and electronics business in India, which is about close to 20%, you have the metallic business, which is all your engine valves, gears all the IC related, mostly, that's about 12%. And you have that is that IMES forging plant in Italy, which is 5.1% and your aftermarket is at about 8.5%.
So what would be the part of the VLS revenue and total revenue. If I talk about the earlier 2-wheeler lighting was the part of the VLS, the India 4-wheeler was also part of the VLS, which has not been [ sold yet ]. So if I talk about the only that revenue, what is the quantum?
So that is the one which I said was 21 -- the lighting itself as a whole would be 21.4%. That's what we are showing.
Okay. So it is more than the INR 1,000 crores kind of revenue?
Yes, yes, it will be more than 1,000.
Okay, sir. And so what kind of the margin your -- expansion you're looking from overall business under the continued operations for the next 2 years?
See, we have to -- I mean, we are going to be striving to achieve in the next couple of years, an EBITDA margin of closer to 11.5% to 12%. And that is something we are very confident about, especially -- so India is something in the next 2 years, we would like to achieve a 12% EBITDA. That's what we are striving for because we have a lot of business already and with a bit of market support, I think we can achieve that 12%. And in the other businesses, I think everything else, I think we can look at about -- we would like to strive for closer to 10% EBITDA, a double-digit EBITDA. That is going to be what we are going to be looking at.
But India is going to be probably 80% of our revenues. And the balance would be about 20% of our revenues. So that's the way we're looking at it in the next 2 years, that this is something we need to achieve, that we will achieve.
But as you mentioned that around more than INR 1,000 crores is coming from the international business -- international lighting business from [ 2-wheelers ], and that is the low-margin business. Thus, there is an incremental revenue from the 2-wheelers around INR 1,000 crores. This is also a low-margin business. In that case, EBITDA margin expands of around 500 bps, 600 bps if possible? And what would be the key growth drivers?
See, basically, the way I see it is the foreign businesses, whether it's an electronics business unit, which has just started and the revenues we'll really see in the coming year in the -- I am talking about the Romania business. And that's going to be a double-digit EBITDA in the coming year. We're also looking at our overall global 2-wheeler lighting business to be at about 10%. Then our India, 4-wheeler lighting business. I think this year, we can expect 8% and then going to the next year, 10%. And our India business that are -- I mean, the major business, here we expect it to be, I mean, 11.5% in this year and probably 12% in the next year.
Our next question comes from the line of Pawan Parakh with Renaissance Investment Managers Private Limited.
Sir, just 1 question. What is going to be the cash burn in discontinued operations until we consummate the deal?
So frankly, we are not really expecting too much of a cash burn over here. We are looking at kind of seeing that how we can really mitigate this kind of a cash loss. So we are taking already a lot of measures of our project raise, which is continuing kind of aspect. We are also -- which means basically streamlining the operations, the scrap and all, especially in the new plant with the current plants we don't have any issue as such.
But yes, the -- but yes, there could be some cash burn. We don't know the estimate because it's month-to-month. We have to see really based on the volumes because of the chip shortages and also the Ukraine issue largely more in Europe. I would say the European perimeter, which is a major perimeter. Here, it is very difficult to really predict what is going to be your cash burn. But I think whatever is a question of another few months, that's something we will finance. But we would expect it to be some kind of a major cash burn over here. There could be a small cash burn. That's something we will finance.
Okay. So what was the cash burn in Q4?
Q4 cash burn was how much about?
Have been in the region of EUR 10 million to EUR 15 million.
About EUR 10 million to EUR 15 million.
Okay. Okay. So basically, when you say small cash flow means like EUR 10 million to EUR 15 million for 2 quarters, which means like...
No, no, we are talking about...
Going forward, what we are seeing is that the revenue sequentially is improving quarter-on-quarter, because the main issue so far has been on the revenue side because of semiconductor supply shortage situation, we were not able to -- capacity utilization was an issue. Now that issue is improving like sequentially, we are improving the revenues.
So we expect this quarter and next quarter to have -- this will not be fully normalizing, but still coming to reasonable level of capacity utilization, which is why operationally, we expect the cash flow to come close to breakeven level. So it could be a [indiscernible]. We have also getting price increases from customers to compensate for the commodity cost increases and the energy cost increases we have had in the last few quarters.
The combination of that, we expect the business to be operationally come close to kind of breakeven free cash flow. That would be -- and the main financing requirement will be related to certain loan repayments, which are coming due between, let's say, in the next few months. That will be in the range of EUR 15 million to EUR 20 million between now and, let's say, closing September or so, which we had financed from the parent company and a little bit of incremental operational funding depending on how the revenue is.
Yes, a few more million euros probably may be required if we are to achieve that. But it's not something like significant what we have seen in the past, we don't expect that to happen.
Our next question comes from the line of Basudeb Banerjee with ICICI Securities.
A couple of questions. One, to continue with the previous question, like 6 months from April to September is not a small time, it's almost half year. So on a general basis for VLS for full year CapEx used to be almost INR 700 crores, INR 800 crores. So in this 6-month period, what is the CapEx VLS will be doing? Is that subdued significantly or it is normal that will also define the quantum of cash burn? So from that angle, if you can highlight?
Yes. I don't think that -- I think presently, we are not really spending more on CapEx because we already have a lot of investments in place. We are -- we are underutilized on our investments and -- so the moment we are not really doing much of a new CapEx, presently for the last, I would say, from January onwards, our CapEx has been only towards fast payments. We have not been investing in new CapEx for the moment.
Sure. And second question, if I look at your presentation, Slide 17, where you have highlighted segmental profitability, which is very useful, where roughly I see FY '21 and '22, both the years, VLS remaining operational, operated hardly at 1%. And similarly, IMES Italy is minus 9% in both the years. So broadly, one can see that the loss of IMES might get balanced out by either EBITDA profit of VLS remaining and residual EBITDA is only from India operations. So 1% moving to almost 9%, 10%, as you mentioned, and minus 8%, 9% moving to plus 5%, 6%. If you can explain the journey. Nor is the IMES [indiscernible] also up in the grabs sooner than later because double-digit EBITDA loss-making entity taking away a significant part of your residual EBITDA?
See, the way I see, frankly, for FY '23, the EBITDA margins, I expect in India would be closer to 11.5%. That's my expectation. And on the VLS remaining operations, I would expect it to be closer to 10% in the coming year. And IMES would be in the range of probably from a minus 8.7%, I would say, in the range of 4% -- 4% to 5%. This is what I'm looking at for FY '23. IMES why some of the profitability is because recently, we have got the price increases from our customers in this business toward gas prices as well as towards raw material price increases and general price increase also. So therefore, I think we'll be better off also in our other operations in IMES side also in this coming year.
And sir, VLS India 4-wheeler lighting operations, how is the profitability?
That will be around 8% in this year, but the next year, we are targeting 10%.
And similar to the gas price and other raw material contract changes what you mentioned for IMES, how one should look at if we were looking remaining operations margin moving from 1% to 10%?
Yes. So I think this VLS remaining of this 1% has got a lot of noise around it in the last year. I don't want to get into it. But the business -- see, if you see the VLS remaining operations largely -- I told you about the India operations, where we expect it to be at about 8%. The other 2 main businesses are the 2-wheeler lighting businesses, where we have got plants in Italy, Romania and in Vietnam. Now Vietnam is doing very well with a high level of EBITDA because it's got the revenues. And it's already doing a very good double-digit EBITDA.
When it comes to Italy and Romania, the issue today is the capacity utilization. So that's something where we're looking to see that we're able to in that region at least touch about 7%, 8% for [indiscernible] overall, I think we will be at a 10% level for our 2-wheeler lighting business at least.
And in the EBU, now we see the sales coming in, we've not really had any sales, the Romanian Electronics business unit. So there also, we see revenues coming in at about EUR 25 million, EUR 30 million in this year-end, and we're looking at double-digit EBITDA also in our Romania Electronics business because this year, at the moment, we're supplying all these PCBs lighting PCBs to VLS which will then [indiscernible]. So therefore, overall, we are quite confident that because we have the businesses, the business have been taken at good prices. So it's a question of better utilization in some of these plants like Italy and Romania. And I think with a better utilization, you will see a double-digit EBITDA in this business. It's not really a problem.
So sir, like from a previous question regarding that inventory adjustment for Morocco plant which got accounted later on. So like initially if [indiscernible] VLS was going to get hived off or [indiscernible]. So why is these partial operations till you are keeping up, you have kept them on visibility of major turnaround and capability or Plastic Omnium didn't want those operations?
See, what we have kept out of VLS is our 2-wheeler global lighting business, which is anyway our core business. So that's something which you would not sell. And nobody interested because they're not in the 2-wheeler line anyway and we would also not sell. So that is very clear.
On the electronics business unit, we have kept it not only for supply of the lighting PCBs. We have also developed our own future technologies on the light engines or the light controlled units which we can supply to a lot of the other lighting players independently, and that's a future technology. And also, we are developing at the moment the internal-external cameras, which are the ADAS products, which has got a very good market, especially in China and India, other than Europe.
So we are focusing -- so the electronics business unit is also something which is core to us. And electronics as a business unit is not lighting. This is a high ROCE business, a good margin and a high ROCE business. And this is -- and electronic is something which we have chosen to be for us as a such growth item other than the 2-wheeler LED lighting and EV products.
So this is also going to be a core business for us moving forward, the EBU, which is in Romania, other than a 2-wheeler lighting also. So we are -- and here, the margins are good. So we are not too concerned about margins going forward. The margins are -- have been impacted more because of capacity utilization, I would say, in these plants. So Romania is a new plant, our Italy plant has been challenged by some of the capacity utilization. With a better capitalization at 60%, 70% is a PAT-positive plant. I mean, the Italy plant.
These 2 businesses anyway, we want to keep. India, 4-wheeler lighting market is our market. We want to keep the India 4-wheeler lighting business. Of course, the market we understand -- I mean, here, whether they are global 4-wheeler lighting company, 4-wheeler companies OEMs or they're Indian OEMs. We have a good relationship. We do other parts also like plastic parts or some of the other engine parts. So I mean we have old customers here. And we are very comfortable in doing business in India being our market.
So we wanted to keep this. It was our choice to keep this business. And here, we have a non-compete arrangement with Plastic Omnium for 5 years and which would also continue further. And we have [indiscernible] technology agreement also. So whatever the [indiscernible] technology which come in also will be there for India.
When it comes to China. China, frankly, did not get sold because it's a JV. Because it's a JV is something which the companies [indiscernible]. They were not interested because they are JVs. Going forward, once we have a solution for China, we will see what to do. But presently, [indiscernible] wasn't interested in actually buying into a JV kind of a thing. They want to be independent.
Our next question comes from the line of Deepak Pawar with Vasuki India Fund.
Am I audible?
Yes.
My question would be on the electronic components or packets on 2-wheelers and 3-wheelers, which you are expecting INR 30,000 on 2-wheelers and INR 43,000 on 3-wheelers. So what would be the EBITDA margin that you expect -- any ballpark figure on these kits?
So I think it would be anyway, it will be double digit, depending on the product because some of the more expensive products like motors, which are at least INR 8,000 to INR 10,000. Some of the bigger components you could have probably a lower EBITDA, maybe 10%, but comes to the smaller products. So it could be anywhere between 10% to 15% is what we look at a range for -- depending on which EV product we're talking about. But that's something our EBITDA margin, one anybody needs to have for the kind of investments we have making in this business, not only on capacity, not only on CapEx but even on the engineering side. There's a lot of money invested here.
Our next question comes from the line of Arvind Sharma with Citigroup.
Sir, just a quick clarification on the revenue guidance that you gave of INR 8,000 crores. What's the time line for this?
So the INR 8,000 crores is what we can do in the continued operation, that's our capacity. That's a minimum we can do, but it all depends on the market conditions. But what I'm saying here is that if you have -- we had done about INR 1,500 crores last year in the continued operations. We will do always 8% to 10% more than any market growth that we are very confident of doing. So the 8% to 10% -- I don't want to put a number there, but it will be 8% to 10% more than what is -- if the market grows at 1%, we will grow at 10% to 11%. If they grow at 5%, we will grow at 14%, 15%. So that's what I'm saying. That what we're very confident of with our own product portfolio, which we possess.
Sure, sir. And I believe that includes the new -- the new EV orders as well.
Yes, yes.
And sir, just to rehash the margin numbers. The consol business margin aspirations are 10%, which includes 11.5% for India and 10% for the remaining part of VLS. Is that the right number, sir?
Yes. So like I said, we would like to have 11.5% for India. But in India, the [indiscernible] business, we're not looking at more than 8%. And then the other businesses we're looking at 10% abroad.
Sure. Right, right, sir. Sir, just -- I know it's -- you clarified on this, but just to be very sure, when you talk about the India operations revenue and the group performance, India and VLS remaining, India operations revenue include EBU, MBU, but do they also include the 4-wheeler lighting business in India, which was earlier a part of VLS?
No, no. 4-wheeler lighting at the moment comes in the...
VLS remaining.
VLS remaining.
As there are no further questions, I would now like to hand the conference over to our management for closing comments.
Thank You. I just want to just thank everyone again for joining us, listening to us and asking your various questions and queries. The trust and faith of all our stakeholders is what we -- what motivates us to pursue excellence in our day-to-day life. And thank you very much in showing confidence in us over these last few years, especially. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.