Suprajit Engineering Limited (SUPRAJIT) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Suprajip Engineering Q2F527 earnings call, hosted by Anand Thrati, Shares and Stockbrokers Limited. As a reminder, all participant lines will be in the lesson only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference call over to Mr. Mumuksh Mandulesha from Anand Rathi Shares. Thank you, Vanuverti Uso.

Thanks, Ikra. Happy Fetchly Greetings. On behalf of Anand Rathi Shares and Strong Brokers, I welcome you all to the Superjet Engineering Q2 FY27 Results Conference Call. I thank the management for taking time out for this call. From the management side, we have Mr. Ajit Kumar Rai, the founder and chairman, Mr. N.S. Mohan, MD and group CEO, Mr. Akhilish Rai, director and chief strategy officer, and Mr. Medapa Gowda, J, CFO and company secretary. Request Ajit, sir, and team to give an introduction review about the results, and then we can follow up with the Q&A session. Over to you, sir.

Thank you, Mumuksh. Good morning and festive greetings to everyone. I first of all would like to thank Anandrathi and Mumuksh for organizing this call. Welcome to our Q2FY27 call. As you all know, I think I'll give a very short brief and then ask our team to make a brief statement, and then we'll go to Q&A. But as you know, the uncertainty globally, it continues to be there. Markets have, automotive markets have subdued in this quarter beyond India due to all the conflicts and inflation and commodity prices and shipping issues, etc. Indian automotive industry was in a bright spot. As you all know, the sector grew at 20 plus percent thanks to the lower GST regime as compared to last year's same period. However, the second half would be not as exciting, I think, because the lower GST was introduced in September last year, so there will be a higher base effect of the last year for the second half. Having said that, I think Suprajit had a solid quarter. The consolidated revenue grew by about 20-plus percent. And the EBITDA grew by about 27 percent, with the EBITDA margin at 12.2 percent. In the Q1, we had informed that there has been certain pricing pressure, both at ICM and PLE. I think we have also said that in Q2, Q3, this will get normalized. And you can see easily that in this quarter, just for the Q2, both ICM and PLE had very good recovery in margins. I think this will continue to gather momentum as we go forward. Mohan and Achillesh will brief more about the individual, some of the division's performances. I'll probably give a closing comment before opening the floor for questions. With this, I hand over to Medapa for the numbers, followed by Mohan and Achillesh, as usual, for their updates. Medapa?

Yes. Thank you, sir. The consolidated revenue for the half-year ended 30th September 2020 was 2,205 crores as against 1,804 crores for the corresponding previous year, recording a growth of 22%. The consolidated operation Libita was for the half-year ended 30th September 2020 was 267 crores as against 191 crores for the corresponding previous year, recording a growth of 40%. The stand-alone revenue for the half-year ended September 2026 was 1034 crores, as against 177 crores for the corresponding previous year, recording a growth of 18%. The stand-alone operational EBITDA for the half-year ended September 2026 was 149 crores, as against 145 crores for the corresponding previous year.

I am so sorry to interrupt you, sir. Can you please try using your headset mode?

Yes. The standalone operational EBITDA for the half-year ended 30th September 2026 was 149 crores as against 114.5 crores for the corresponding previous year, recording a growth of 3%. The net debt level was reduced to 371 crores as on 30th September 2026.

Thank you. Thank you, Chairman.

Thanks, Mr. Puff, for the update. Very good morning, everybody. Let me just take you through our business divisions. I'll start with the global business. Before moving on specifically to our GCM or Global Cables and Metatronics, which includes ACS, I'll just give you a brief as to what's happening or what I see is happening around the world. I'm just back from about one and a half months business trip spanning both Europe and Americas and visited quite many customers. Well, the global business turmoil, I would say, continues. And America will hopefully look better going forward for obvious reasons. We all have to keep our fingers crossed still, I would say. But Europe is a cause for worry. With Germany in particular not looking good, you know, things we should wait and watch and see how it pans out. And China remains an enigma for all of us. But we will remain upbeat about China for now. As far as our global business goes, our GCM revenues grew by around 24%, and EBITDA grew by 69%. The margins moved from 7.4% to 10 plus percent, and for the first half year, EBITDA has more than doubled. I would say that the restructuring at GCM is behind us, and I would say that is... Primarily, the story behind these numbers. In the past few years, whatever wins we have started getting has started flowing into the operations. And very importantly, our consolidation of warehouse in Europe remains on track. And that is one part of the jigsaw puzzle that we will have to now neatly fit in. Having said that, we'll keep our eyes open to the developments in Europe, and we'll take action if needed. GCM continues to face inflationary pressures, with commodity prices going up, rates still being high. However, having said that, we have multiple projects going on to reduce and manage our costs of materials, and also, I would say, logistics. In terms of growth, it's going well, both at U.S. and Chinese OEMs, and our business in Europe is holding steady, despite all these kind of economic headwinds that I talked about. Very important as we grow our exports, our SAL, or Superjet Automotive Limited, the export wing, is setting up a greenfield cable plant in Chennai as a part of our expansion. Moving on to the Indian business, India business looks ever more promising. However, again, the inflationary trend is a cause for worry. As we all know, the wholesale price index is shooting above the CPI levels, which means that it is showing limited ability of the manufacturers to pass on the cost increases to the consumer. Specifically moving into our divisions, let me start with the ICM of India Cable and Electronics. Here, the revenue grew by around close to 14% with OEM and beyond cable business growing above 20%. Aftermarket growth was modest and that's normal because once the OEM demand is strong, you know, people don't take it out for servicing and all of a sudden they will try to replace it. So that's a normal cycle that we have seen even before. More importantly, the margins came back to 15.3% from 12.8% in Q1. I think we had talked about it earlier, and we expect some amount of bettering these numbers in Q3 too. Moving on to our Phoenix lamps and electricals division, the revenue grew by around close to 15% and EBITDA by around 30%. With margin at around 14.4% as against 6.7% in Q1. For half year, both growth and margin are back in the double digits. That's the good news. However, having said that, Trifa remains soft. But our ramp-up with the largest U.S. retailer is going well. And now with a major allergen supplier going insolvent. I think our last man standing strategy is playing out well. With this, I would love to hand it over to Akhilesh. Akhilesh, over to you for ACD and STC, please.

Thank you, Mohan. Good morning, everyone, and happy Diwali to all. I'll start with the electronics division, SCD, which covers sensors, electronics, and displays. It had a very strong growth, probably far higher than we had expected, at 50.4% in this quarter, year and year. It was led by a strong growth in digital clusters and electronic throttles. We also, this quarter, launched one of our most complex TFT clusters, which was jointly developed with Ultraviolet, which is India's fastest electric bike. This cluster was, you know, powered by one of the most leading-edge Qualcomm chips, has dual cameras, dual antennas, has radar. A real, I would say, a frontier TFT cluster within the industry in the two-wheeler space. We're very happy to develop this jointly with Ultraviolet and also with the support of Qualcomm and QuickTel. Margin is a challenge at SED. This is primarily because of significant component cost increases. Probably higher than what we had forecasted also means that some of the costs of things like shipping, logistics, has also weighed down on the margins. Considering the growth of SCD and, you know, we see a further pipeline of growth which is strong, we are planning to increase the size of the facility. Today, we have already moved to a rented facility or part of our plan. And the remaining part of the plant, which has now been vacated, has now started, we're starting construction there to build a much larger facility and give LCD. Our team of R&D engineers is continuing to support these great cluster projects, but also other projects on throttle actuators and sensors, which will come up both at all our divisions going forward. The new STC building will be completed this quarter, as planned. We have also signed a technology tie-up with a Japanese company for gear shifters. This pairs well with our ongoing shifter cable partnership. You might be aware that we announced a partnership on shifter cables. At the end of the shifter cable comes a gear shifter, and this pairs nicely together that we can offer shifter cables separately or a shifter cable and shifter system together. So this is the reasoning behind it. When it comes to general updates, I think we've seen in our investor presentation some good accolades that we won from customers. ACMA, Star Performing Customer for TPM for our electronic division. Electronic division also got an Operational Resilience Award from River Rider, which is one of the strong EV companies down in the south. And we also got best delivery performance from TES, as they have been ramping up their supplies, their production in India. To summarize the outlook for H2 across all our divisions, I think we are expecting them to all continue to perform well. But they're all fueled by different factors, as again, this is given in the presentation. GCM is ramping up the wins that they have won across the global footprint. ICM is going to follow the India industry growth. We'll be seeing in the coming quarter. PLE, demand is ramping up with the U.S. retailer, and we see similar kind of traction with other export projects at PLE, so that is also looking positive. And SED, of course, with the projects will continue to ramp up in the coming quarter, and we see further traction on new projects and the EV industry as a whole. So SGD is going to be benefiting from that. So, with that summary, over to you, Chairman.

Thank you, Akhilish. All in all, I think we had a strong first half despite the global environment. There is a clear road ahead for the H2. We expect a good H2 as well. The H1 margin at 12.1, which is well within our 12 to 13.5 percent that we have guided for this year. I'm expecting that H2 may be slightly better than H1 in terms of margins. Of course, this all depends upon how the commodities, prices, Middle East conflict and all really pan out in the next few months. That's not in our hands, but for that, I think we are looking at a good second half. With this, I will let the moderator take over and let the questions come from all of you. We're happy to answer them. Over to moderator, please. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Gokul Maheshwari from Avrika Capital Advisors. Please go ahead.

Yeah, thank you for the opportunity. Just, you know, given this business is on strong footing with strong margins, can you just give an overview of your capital allocation while you've mentioned that you're putting up a greenfield facility in Chennai for the cables business? But you also carry some amount of debt. So over the next two years, how do you see e-cash flows being used? One is for capex and how much is for payouts as well as debt reduction?

Hi, Gokul. You know, we have said that this year our capex will be around 200 crores. I think maybe we are done with about half of that by around now, just after the half year. The green field, or rather the new project, one, of course, is the green field for S.C. Suprajit Automotive. And the second one is the electronics division, you know, where we are going to put up an additional larger facility within the complex. So, I think they are the two major, of course, STC completion would also get over other CAPEX on the Greenfield side. But I think, you know, if you look at the next two years, I mean, in terms of the cash generation and utilization, I think we have given the guidance that in terms of the payouts we are talking about between 30% to 40%, the balance will, of course, some of that will go for these CAPEX. I think it's 200 crores this year. What it will be next year, it is not really clear. We will probably give a budgetary expectation towards the end of the year. But, you know, we are a growing company, so there will be some capex required, let's say, 3-4 percent of our, you know, revenue could be utilized for such a person, which will be probably similar to 200 crores or so on an annualized basis. So, with that, the rest will obviously will go to, you know, it will obviously reduce the debt. I think that's, in short, I think, my answer to you.

So, there will be, despite all these investments, you will be paying down some amount of the debt?

Yeah, you do. I mean, obviously, it looks to me at the moment that there's a good cash generation, and it will obviously bring our debts down. To that extent.

My second question was just on the GCM business. On the GCM business, the global cable business, there was a Q on Q dip in the margins from 12 odd percent to 10 odd percent. Is this some amount of seasonality or it is just broadly within your range of your expected margins?

Yeah. Fair point. I think you must understand that we just came out of a major restructuring. There is always going to be a little bit of blitz here and there on that. I think one is the product mix, maybe to some extent functionality. And secondly, also, to some extent, you know, some of these fast-tracking of freight and incoming and outgoing material that requires due to, you know, constraints that we have in the global supply chain issues. So there are multiple reasons. I think it is not a trend. I can say that. I think our guidance of between 10% to 12% is very much intact, and I don't expect any change in that.

Great. Great. Thank you and all the best.

Yeah. Thank you.

Thank you. Next question is from Viraj Kacharya from Pimple. Please go ahead.

Yeah, thanks for the opportunity, and which you and your team are very happy, Diwali, and New Year. Just a couple of questions. First, on the GCN, can you give some more color or granularity in terms of which regions or markets you are seeing a very healthy demand occurring to you? And just a follow-up to that is, see, traditionally we have had a very good exposure to the European market, and there the market structure is... We are changing very rapidly towards, you know, shared gain by the Chinese only, somewhere where we have a relatively less or stronger portfolio. So in that perspective, you know, any color you can give, how should we understand this growth, which we saw in Q2? And was there any element of, you know, bunching up of orders, given the kind of issues and freight shipping we are seeing?

Yeah. As we said in our press release also, I think U.S. and China is where we see decent and good growth. U.S. because I think we are basically replacing, not because U.S. underlying market is growing anything great, it's still 1 or 2%, but we have been able to win quite a few new contracts, basically taking it away from the competition. So we see a fairly good traction on the U.S. market. China traction is also very strong because, as we said, the largest EV maker is ramping up his off-take from us. That will give you a good traction and visibility in China. You are right about Europe. I think Akhleesh also mentioned earlier. I think Mohan has mentioned earlier. I think that Europe is a bit enigmatic in terms of how the demand scenario is. But I think, you know, the Chinese OEM or the EV OEM, who is expanding very aggressively in Europe, I think one of the strategic reasons why they started buying from us from China is, I think, eventually, we hopefully and very certainly, we expect to be in their supply chain in Europe as well. Yeah, European business is a bit challenging, but what I'm saying is that it gets easily off-take. We have a strong growth for the coming years.

And was there any element of, you know, us bunching up the supply for exports in Q2, given the freight shipping issues? So was there any of those elements?

I think it's a little difficult to say it's possible that customers have pulled more business during the first half, considering basic, you know, a lot of, you know, what I would call as free delays, maybe, you know, defensive mechanism. But what we see is that maybe the second half may not be 22-24%, but we still see a strong double digit growth based on the current, you know, commitments that we see from the customer in their fat portals, etc., etc.

Okay, just one more question on the GCN. So, Europe, you know, either supplying direct to the traditional OEMs in Europe or through the Chinese OEM who supplied Europe, would Europe as an overall sales would be flattish for us or it's on a declining spree?

I would say even Europe will grow for us because, again, as I said, again, another problem, Viraj, is that, you know, if you look at the overall order position in an auto-component company like us, there are some contracts they will go off the table after six, seven, eight years of running life, and then some of the new ones come on top of that. So the growth is the net of it, the delta that I am talking about. But what happens is that sometimes the existing orders continue for another quarter or another one year, whereas the new business don't take off as planned. They probably delay the project. So these kind of dynamics are working. It is very difficult to say what would be the next impact. But I am saying that delta is certainly positive for us at least, although the underlying market is challenging.

Okay, just one more question and I'll come back to you. For the suprajeet electronics revision, we have seen a very strong growth, you know, we did something like 62 growth of quarterly runway in Q2. Any color you can give, you know, in terms of the order book or order pipeline and how broad-based this growth is, either in terms of customer-based or modern mix?

I think Akilej talked about electronics, so I'll let Akilej answer this question.

Yeah, so, I mean, firstly, on order book, we don't disclose any specific order book, but I would say that the kind of businesses that the SED have won and they're looking at, you know, continuing this growth. Definitely through this year, and I don't know if we'll be able to sustain 50% growth. I think that would be quite ambitious, but definitely there will be a strong growth going into next year. And those wings have been broad-based across multiple OEMs, both in India, two-wheelers, and also for exports. So it is quite a broad base. There is no single OEM that is really driving this. And then their wins across. I mean, you know, there was two years ago, you know, there were a lot of questions about whether throttles will gain strength and, you know, why it was not growing. But today it is one of their key products. They are adding a lot of, you know, additional products within that. So, you know, the throttle goes with certain switches. That is also a kind of product we're launching in this. I think, you know, there's a very broad-based growth across customers, across products, and geographies, and SCD will, you know, have a strong future ahead of it going forward. Just to add, thank you.

And just to add what Akhil said, you know, one of the reasons that we are expanding the capacity at our, you know, SED is because that we see a clear path for a significant growth. And I think that's why we are adding capacities to the division within three years or so of the launch because the feedback, I mean, we just talked about the ultraviolet launch. I mean, each one of those displays are significantly higher priced than, you know, the normal, you know, digital display that you see on a two-wheeler. So, those kind of things are coming up. In fact, we are also working with another earth-moving or crane type of, you know, manufacturer whose central console is, you know, designed and developed by us. So, those kind of things will add, you know, the numbers will be less, but each piece may be, you know, 20,000 bucks or 25,000 rupees. I mean, that's the kind of numbers we're talking for each display for some of these bigger customers. I mean, small volume, but, you know, different applications. So, as you said, we are in a very diverse range. So, I think that's what gives us the comfort that we'll be able to grow the business well.

Thank you.

Thank you. Next question is from the line of Shiraksha from Whitevine Investments. Please go ahead.

Thank you for the opportunity.

Sir, I have a few questions. One, sir, can you just update on the new products, product development, like Bray, like Twitter, and so forth, there are four or five products at different stages. So, where are we in development or in approval process, etc.? And as well as some of the new projects that you have been indicating, how should we look at the customer or revenue ramp-up, if you want to give us a ballpark, understand if it would be helpful.

On the projects that you spoke about, I mean, they all expected to be launched in this year. Ultraviolet has already launched their bike recently. What the display that we see, very high end is ours. But the ramp up, you know, it's very difficult to say. It all depends upon what the market responses are. So it's as good as the market will accept it. So we'll have to wait and see some of these projects, how they will shape up in the market. In terms of the product range of STC, where we are focused, I'll probably let Mohan to chip in on some of our product offerings that we are planning and currently the status we are in.

Mohan? Sorry, this is regarding?

This is regarding the new products and launch time, time, etc. from STC. He is talking about the STC products. From STC.

Yeah, the brake or throttle, actuators, you know, a lot of outside cables that we are trying to develop or we are trying to...

Yeah, correct. Let me classify it into different portions. First, let me talk about what we call an ETC, electronic throttle control. And here, we have got a very good traction. We have been able to get multiple businesses, and we are setting up multiple lines for that, including the end-of-line testers, etc. Therefore, that is one product which is really, I would say, taking off well. Another product that is kind of it goes along with that is the switch cube project. And this is going Probably, it will get into production stream in another few months, and this is our big foray into the switch cube. With this, what will happen is we will be, we are trying to own the real estate in a two-wheeler. That means the handlebar with grip, with throttle control, with switch cube, and instrument cluster. And then also dress it up with the levers, the brake lever, clutch lever, and we have already been supplying the cables, but to go along with that, what we can do in brakes. So now that brings us to the next portion, the brakes. In brakes, we, on the CBS, the combi brake system, again, we have been able to get good traction in the market. We have been able to set up multiple lines there to start, some of them are already supplying, some of them will start supplying. Therefore, that is another product which is going into stream very well, I would say. In terms of the entire... Assembly of hydraulic brakes that we want to get into as an entry. There is good amount of, I would say, R&D work which has been done. There has been substantial investment in terms of the link dynamometer, etc. We have also set up the line. Now we are in the process of demonstrating this capability both in terms of design and also in terms of manufacturing to, I would say, customers. Having said that, we are in discussion with one of the brake caliper manufacturer and through, along with them, approaching the OEMs. Therefore, hopefully that's going to kind of yield results as we go forward, but it is in the advanced stage. So these are, I would say, the critical areas. Other than electronics, it is the display systems. It is the electronic throttle controls, ETC, as we call it, and the switch tube. These are the three, you know, summary points that I can talk about. In terms of brakes, it is the CBS, which has really taken off very well. Now, we are getting into the other portions of brake, including the brake lever, and in terms of getting into the hydraulic brake system, making calipers, assembling calipers, etc. So, that is going to take time, because we know it is a long gestation product, And we are ready to wait for it and convince the customers. Have I answered your question? Sir, would it?

Yes, sir. Only one clarification or one part of the question, would it be right to make an assumption that FY29 is the year when we will see major traction because approvals, proof of concept, testing, validation, etc. So this year, 27 and last part of 28 will go in that. And then 29 onwards, we will see traction on some of this. Is this the right way to think?

I would say you need to look at it in the perspective that we started STC about close to five years back now, right? Therefore, we started off with only one person in our electronics R&D, and from there we have grown so very well. So it has taken us, I would say, at least three years for us to get into the saddle and start working on it. So, if I take the same kind of a scenario, I would say that anywhere between three to, depending upon the complexity of the product, two, I would say five years would be a range. Five years would be the outer, and I don't think we would be having that amount of patients. I would say it would be much lesser than that. So we have a product pipeline or like you talked about the POCs, etc. Yes, we do have a pipeline, both in terms of a completely new product, which is completely generated out of STC. Other than that, I would say it is a modified product or a product which we co-develop with the customer ourselves. A classic example would be what we did with Ultraviolet for a multi-layered board of a UE cluster.

Great.

I would just add to that that this quarter, actually, we are going into production for our first drum brake system for a key EV two-wheeler in Bangalore, and we're also supplying our first export market for a parking brake, disc parking brake that we designed and developed. And, you know, all the die-casting, machining, assembling of these parts are all being done in-house, including the friction material, in fact. We also have our own friction material team. So this is a very highly integrated engineering-first product, and, you know, there are multiple launches coming. But like Mohan said, hydraulic brake system, I think that is under-testing, and hopefully next year we'll have positive news on that.

Yes, this is helpful. And just basic housekeeping questions. There are two questions. One, in the SED business in general and overall as a business, which part of the business has a higher element of bought-out component? One. And second, in your pass-through arrangements with VM, what costs are a formula-based pass-through, for example, raw material, and what part of the cost sheet is where you really need to negotiate with them? So these are the two housekeeping questions which you can ask because it will help us to understand the margin volatility that we have been seeing in the business. That's it.

I can only give you a general answer for this. The way we work with our customers, depending upon the customers, we have a discussion opportunity either once in six months, once in a year. That's typically the circ cycle. We typically can go back to the customer only at that time, showing what happened in the previous, let us say, six months, and get some kind of a price increase or reduction. It works both ways. So now when coming to the specific question of an electronics division, I think the fluctuations have been more than what I would say normal. So we have been able to convince the customer there is a reason to discuss even earlier than that. Those discussions are ongoing, so I am not able to comment on that. One of the reasons is that some of those discussions had not finalized. That's why you are seeing some kind of a dip in the margin in the Q2 for electronics division. But I think once we get those, you know, pricing are in place, again, we'll back into double digit. The electronics division is undergoing a lot of fluctuations, so it is a little difficult to judge what the customer will give. It is a negotiation. It is not a pass-through, because we are not a process industry where we are only using steel. When there is a variation, it is very clear. This is the steel input in the product, so this is the price increase. Ours is a combination of multiple components with multiple suppliers from across the world. So that discussion is across the board, and I think it takes a little time.

And would it have a higher bought-out component also, and that could also be an impacting margin?

There is, of course, there is a, you know, a lot of, none of the electronic components are made in India, right? So, on the electronics division, a lot of that is imported, obviously, yes.

Yeah, so that will also be affecting margin. Thank you. Thank you.

Thank you. Next question is from the line of Yashagarwal from Nirmal Pong Securities. Please go ahead.

Hi, sir. Thank you for the opportunity. My first question is on ICM division. Revenue grew around 13.7% versus 20% growth in OEM cables and non-cable products. So what did aftermarket and OEM aftermarket grow by and when do you expect a recovery?

Okay.

I think this is an important point. I think you have raised yes. I think if you look at ICM as a business, there are three segments, I would say broadly, of course, three broad segments. One is the OEM deliveries. Second one is the OEM staff deliveries. Third one is our own aftermarket. Now, when you put the OEM, I think we are at a, I'm giving a thumb rule number, maybe we're at about 50-55% is with the OEM, and the balance, 45% or so, is sort of divided between OE spares and aftermarket. Now, this has been historically the case, I mean, I've been in this industry for 40 years, whenever the OEMs are doing greatly well. That means the, you know, two-wheeler sales are booming in the marketplace, which is what has been happening in the last one year, since the GST regime has come down in the two-wheeler segment. The people who are having an existing bike, they are probably debating whether to buy a new bike or continue with the old one. As the demand is going up and people are starting buying newer and newer bikes. The guys who are owning the current bike will not go for a regular servicing. He will think that, okay, next three months I am going to change, or next six months I am going to change. So let me just manage what is absolutely required. You know, suppose if the cable fails, he will come and replace, but won't go for a general maintenance where if the service guy says that you have a clutch, it is a little hard, change it. He will not change. So, when there's an OEM boom, the aftermarket is a little bit deep. I think that's what we have seen. The growth in the aftermarket has been in single digits through this year. If you compare both the OEM spares and our own aftermarket, I think our aftermarket is slightly better than OE spares, actually. But I think together, they are in single digits, whereas the OEM direct sales is in 20 plus percent. That's what I think Akhilish was explaining. I hope that answers your question. Yes, sir.

And my second question is breaking division. Basically in ICM, you said in Q1, CBS grew by 110%. Sorry, which one grew by 110%? This is CBS. Basically, you said in last quarter, they grew by more than 100%.

Which one has grown by 100%? I am still trying to understand what you're saying. Yes, I didn't access from CBS. Sorry, I couldn't hear that.

So, he's saying that in the Q1 announcement, the CBS has grown by 100+.

Ah, okay, okay. Akilesh, you know that part, I think, yeah.

Yeah, I'll just wait for him to finish the questions.

Yeah, okay. So, what growth rate for Q2 and what's the breaking share of total ICM revenue?

For the CBS, I think, Akilesh, you have an answer for that? I think, you know, breaking is a very small segment for us right now. It is not a large part of ICM as a percentage. So, you know, that's why it's also growing on a very small base. Once it is becoming a sizable part, I mean, I think we will, you know, separate it out and give you that information. But right now, it is a very small, small part of the overall business.

Okay, sir. And my second question is on the GCM division. Basically, how far has been the ramp-up with China's OEM progress? Like, what is the share of GCM revenue now come from China?

Ah, GCM shares from China operations are still on an overall basis. I think between, I think the two plants we do about maybe 25 million a year, so it's still pretty small, but their growth is pretty strong. So, yes, they ramp up with the EVOEM, I think we have nearly 20, 22 projects that have been awarded. I think about eight to nine projects are now started into, got into commercial production. Another 10, 12 of them will be going into production over the next one year. So it's a ramp of product project after project. So that will continue to give a good tailwind for us in the China market. I mean, there are other customers also who are growing, but this stands out, for example.

And the last question is basically on the PLE division. This quarter we had the margin around 14.4%. So is this margin level sustainable going forward in H2 as well?

I think 14.4% is probably not sustainable. We have said that last time that, you know, there have been some strategic decisions made not to, let's say, increase the prices in the aftermarket and certain delays from customer pricing. And this 14.4% probably also had some amount of, you know, you know. I would say you have to look at Q2 and Q1 together. I think that is a sustainable margin.

Okay. And just one bookkeeping question on the other income. Basically, other income was around $40 in Q2 versus $350, around $350 last year. So, like, do we expect the other income to remain at this level in H2?

Yeah, quite a bit of it is relating to forex, as I understand. I think last year there has been a significant deterioration of Indian rupee versus dollar. And now, of course, rupee has started appreciating. So the other income, which is a significant part of it, is forex. It's not just rupee, dollar. It's also yuan, dollar, euro, rupee, euro, dollar. There are multiple currency things, which was favorable last year, which is not... Not favorable, it's neutral this year. So this year there is no other income that has sort of boosted our profits for the first half, whereas last year it did. So you should actually look at, by taking those out, to give a more fair comparison, which shows that the underlying growth of margins have been significant in H1 compared to H1 of last year.

Okay. And also the effective tax rate guidance you gave for EVA 27 was around 27-28%, but in Edge 1 it was around 34.5%. So what is the reason of relatively higher effective tax rate?

I think it is basically the deferred tax part of it. If you look at it, we have a fairly significant deferred tax assets lying there. I think… That, I think, will change with the time when things are much more streamlined overseas. I think that will get released. So it's more a deferred tax that is affecting the effective tax rate. So I think that will all get normalized over a period of time.

Okay, sir. Thank you very much.

Thank you. Next question is from Ravi Purohit from Securities Investment Management. Please go ahead.

Yeah, hi. Thanks for taking my question.

I just wanted to kind of go back in time a little bit on LDC, right, when we had acquired LDC. And I think we've discussed this in the last couple of calls as well on the product refresh that we were taking. And that actuation system part was supposed to be one of the major levers for increasing time for us, right, on two-wheelers and four-wheelers particularly. So, once the product refreshes, then can you just kind of give us some update as to, you know, where are we on the journey on actually supplying actuation systems to, you know, OEMs, both India and overseas. So, if you could just help us understand, it would be great.

Mohan will you take that question? Sure.

Let's break it down into two portions. First is the four-wheeler, which is basically what we got from LDC acquisition and how we are leveraging it. First things first, one good news is that we recently won an order from one of the marquee seating manufacturers who did supply. to US OEM. We had, you know, you have three rows, you know, in a, in a, in a pickup, so you have the front row, middle row and the back row. We already had one of the rows. Now we won the other row also. So now we control two rows over there. So that's good. So that means there is some amount of goodwill which has been built up over this time. We are also showcasing that to the Indian customers, Indian OEMs. And I think I don't need to name them. And we have had tech shows there and demonstrated our capabilities. And that has evinced interest in terms of the technology play. And this, again, we are doing along with the tier one, who is, again, a very strong seating supplier. So, this is what is happening on the global front, particularly in passenger car vehicles. Now, as a back end, what we are doing is we are also generating our own technology base because we just cannot sit back and relax on what we acquired. What we acquired is what we acquired, but what we are going to do with it is very important. That's where the STC team comes into picture, and we have got a dedicated team which is working on reducing the NVH level, the noise level, harshness level, and we are going into linear actuators. These are some of the areas that we are very strongly working on. Once those products come online, we will be demonstrating our technical capability and convert them into products. Now, moving on to the two-wheelers, two-wheelers is where we just thought there should be a rub-off from this, and we started working on it, and there, again, we have got, I would say, a good amount of leverage by showcasing our technology, and including, let us say, the EVs that we are talking about, even including Royal Enfield, the Flying Flea, we have our actuators in them. Therefore, I would say the play is working out well. Both in terms of being a global platform and also being, you know, touted as a technology player, having this access to this technology and developing this technology for the Indian market.

Okay. Okay. Great. Thanks. Thanks for that.

And second was, you know, I think we've been working with quite a few of Chinese OEMs over the years, and I think you just alluded a few questions back about working on some 20-odd projects with a Chinese OEM. So if you could just kind of share your perspective or experience of, you know, working with Chinese OEMs so closely in terms of how cost-competitive are we vis-à-vis other Chinese suppliers within, how competitive is that market, and what does it mean for us to be kind of working on, let's say, you know, 20-odd projects with a Chinese OEM, you know, in their market. So if you could just share some of the experiences or anecdotes of that will be very helpful for us.

Yeah. First of all, I think, you know, we are competing with the Chinese suppliers of cables also in the global markets. And as you have seen, how strong our ramp-ups have been and how we have been able to get businesses from the competition or win new businesses. So, we have been competing with Chinese in the global market all these years, so we understand what their cost base are, what their advantages are. Now, coming to China itself, now we have gone to their own, you know, playing field and trying to compete in their own field. I think what we are able to showcase to some of these big automotive guys is that our global footprint is what is the winner for us, unlike any other Chinese cable makers. There are hardly, or rather I would say there is no one who has got any kind of global footprint that even matches what we have. So, when the Chinese EV or other manufacturers want to grow global and have to have certain decent local content, I think they have to, first of all, look beyond China and at a global player who has that capability. Now, the pricing is the issue, yes, but today we have developed this particular EV, I mean, today is the number one in the world, is that it is with the local competition, and we have been able to compete with the current supplier and get those businesses as they feel that we are a better supplier for their global markets. So, we are fighting with them. The prices are great. Well, you know, we have a reasonable margin. Is it a great margin? I would always like to have a much higher margin, but if you look at the total basket, we are still fine to deliver what we are committing to ourselves and to our investors. So, it is a competitive market, I think, but, you know, we are there, we are playing that game, and we are winning businesses.

Okay. And last question, sir. I think you, you know, at the beginning of the call, you mentioned that we feel that the second half will be better in terms of margins. So what gives you confidence on the margin outlook for the second half? Is it the product mix or is it the cost takeouts that we had done over the last one, one and a half year? And, you know, so is it basically cost-led or is it like new business-led?

I think, you know, again to, yeah, one is, of course, it's also to some extent new business led because some of the old contracts, which we didn't have a reasonable margin, you know, we discussed this about the LDC business, etc. in the past. I think that is, you know, going off the table and some new business were coming in. That is one part of why we think our margins will sustain. At the same time, you are right. The commodity markets are still very, very volatile. But what is happening is that we are able to now, you know, after the H1, we are now able to get some insight into what customers' response to such volatilities, and that has been, I would say, reasonably fair. Yes, we are not getting 100% of what we want. Maybe we are getting 80% or 90%, but we, you know, get going in life. So, looking at all that, I think the margin guidance we have given is there in the, you know, our earlier press brief also. So, currently, we are probably at a little bit lower end of that. I mean, for example, GCM at, you know, whatever, 10 plus percent. Whereas, we have said 10 to 12 percent. So, our aspiration is to go higher up on that chain. That is more than, you know, 50 percent of our business. And ICM has gone through the first quarter pain. Second quarter, we have seen how it is recovered. And we expect that to continue. That is another comfort that we have. Similarly, on Phoenix lands also, now that we have been able to reprice our products in the marketplace and the largest retailers, the pricing is fairly decent, so that is ramping up. So we are continuing to be comfortable that that will also develop the double-digit margin. And the electronics division is probably going to the biggest challenge now because of the huge volatility in electronic component prices. So that is taking a little more time to convince the customers. So, we are in that debate with them. So, looking at an overall point of view, we expect the H2 margins to be better than H1 margins in terms of percentage, but then, you know, we don't know how the markets will again pan out in the next two, three months, but looking at the current point, I think that's what we think.

Okay, great. Thanks a lot. I'll get back in the queue. Thank you.

Thank you. Next question is from Saket Kapoor from Kapoor & Company. Please go ahead.

Yeah, Namaskar, sir. Namaskar. Hello. Yes, Namaskar.

Yes, sir. Yeah, thank you, sir. Sir, firstly, taking this actuator point ahead, taking into account the type of work that we are currently in the process, what should be the percentage contribution from the product going ahead, and what kind of capacity build-up have we done? And in condition to that, this is the same product where we are competing with the likes of Egrassi Motors?

No, the answer is no for that. But I'll ask Akhilash to answer this, you know, our various product development on H-Actuator platform, maybe. Akhilash?

So, you know, most of our actuators right now are coming with a cable attached to it. So, you know, it's a motor plus plastic housing plus a PCB and some software to control the actuator. And a control cable, our mechanical cable at the end of it, which usually pulls a seat or a headrest or an armrest. So, we don't look at this as something separate from our cable business. This is part of our cable business, and whatever businesses that come into it, you know, are kind of a premiumization of our cable business. So, we don't look at it separately as a separate type of product. It is an additional to the cable product, and you talked about Igarashi, and, you know, Igarashi mainly makes the motor. So we use motor manufacturers like Igarashi. There are three, four, you know, there's Igarashi and Johnson Electric in India, and then there are a couple of others outside India. China has many. These are the small motor makers that we source motors from, and those motors are then, you know, incorporated into these actuator systems, which we then supply to both seat makers or in India to, you know, Two-wheel makers or to the charging gun manufacturers, wherever these actuators and solenoid and motor-based actuators are needed. So, I hope that answers both the questions.

And to add to what Achillesh said, I think I should also say that, you know, earlier somebody else also asked this question. When we acquired LDC, we get their actuation portfolio. But what we realized that, you know, the NVH levels of these actuators were at a much higher level. I mean, it is acceptable. It's even acceptable today. But we found that the customers, particularly the EV-connected customers, expecting a lot less noisy actuation. So our team has worked on these LDC products and come out, or at least the new launch, Mohan talked about a third row, you know, multi, you know, fold and tumble systems that we are developing is with these new actuators that we are developing, whose NVH levels, noise levels are much, much lower than what we originally inherited from LDC. I think that the development STC has done. Similarly, what we are doing is that we are developing multiple platforms of actuation, maybe one with the 100-Newton capacity, one with the 200-Newton, and one maybe the 400- or 500-Newton actuation, so that these actuators can be used for different applications. One may be requiring a high force, one may be requiring a low force. These are all the variations we are providing to the customers now, which is a significant advance from what we acquired when the LDC had to offer us one type of actuator. So there is a significant development. There is one vertical within STC who is working only on actuation technologies. So I think that's what you will see in the next one to two years, these technologies getting adopted and delivered to customers, as Mohan was alluding earlier.

Just to add to the opening remark, wherein particularly the European geography and particularly Germany was mentioned by sir that we are seeing some weakness from those customers there. So can you elaborate, sir, what exactly for the geography of Germany you wanted to pinpoint to? And second point was that the capital work-in-progress closing balance on the consolidated level is closer to 50 crore. So what kind of volume additions do we expect post-capitalization, or is it mainly particular to the STC completion? I think that is also in the end.

Yeah, I think it's mostly STC consolidation only when the product is completed. I think that's the major capital work-in-progress as we see it. And then we see something, you know, ongoing. What was your first part of the question? I'm sorry, I missed it.

The first part of the question was the Germany part.

Ah, the German part, okay. No, yes, German market or European market in general, it's not necessarily Germany, is pretty slow and weak. But you must realize what has happened with us is that we have won significant businesses from all these marquee customers out of Europe. The point is they are getting deployed now, but the volumes, if they offer a set which is 500,000 sets per year, that has probably become 300,000 or 400,000 sets in terms of cars. So that is okay with us. Our European business is still growing because we have won new contracts over and above our existing contracts. So although the underlying market is weak, as I said earlier, I think we will continue to grow even in Europe.

And, sir, firstly, I also want to congratulate the team, sir. When we take the net off of the other income part, we have done a very good job in terms of posting higher profits for the quarter in terms of this challenging market. And I'm coming to my question that what other steps are in the annual for creating your shareholder value set? That has also, I think a lot of restructuring has gone through. We are now reaping the benefits of the same in terms of the volatility. All other aspects aside, when will the valuation part of which is equitable to you as also as to your binary shareholders will come into play? What will be the inflection point that the investors should need to keep in mind? And second point is pertaining to our advanced tax payments, how much have we paid for the first half?

I don't have the data on tax. We can come offline. I think it's a public knowledge because it has been given to the government tax department. I don't know. It will be slightly higher, certainly higher than last year, but I don't know the number, frankly. Coming to the question of investor thing, I think, you know, I'm not a market expert, so I cannot comment on how the market will behave. But all I could say is that, you know, 25-26 were the years where we have consolidated our two major acquisitions. Both were highly challenging, multi-geographical, multicultural acquisitions. I think all I would say... With a little bit of humility is that I think very few people have been able to do multi-geography, multi-unit, you know, acquisitions and assimilate it nicely without going into too much of trouble. We did go through a little bit of margin grip last year because of that, and we have made it very clear that we are going through it and that we will come out of it. And if you look at the last two quarters, we will know that we have done what we have said we will do. I think that's all we can do. We'll continue to perform well. I think the second half, we have said the margins are expected to be better than the first half. That's the best we can say in terms of the guidelines. I mean, how the market behaves to what we say is difficult for us to, you know, estimate. So, I leave it to you guys to decide where our pricing should be.

Thank you. Next question is from Nikhil Ra from iThought PMS. Please go ahead.

Yeah, thanks for the opportunity. So, I have a couple of questions on breaking. So, how do you read the proposed performance-based norms? Like, what kind of hardware do you expect OEMs to use to meet these stopping distance targets on EV scooters? Like, is it going to be a mechanical, enhanced mechanical CBS, or are they moving towards the hydraulic CBS with a front disc and caliper? Could you provide some insight on this? Akhilesh?

Yeah, I mean, you know, I think there is no real specific, you know, there are multiple ways an OEM can improve their stopping distances. They don't have to go into a hydraulic brake system. You know, there is motor-based braking, there is ABS, there is CBS. You can also use, you know, better friction materials to achieve a better braking distance. So, you know, I don't see any specific, let's say, trend from the OEMs. I think there is a general trend towards hydraulic, but that is not from an improved braking distance point of view, but more from, you know, there is a consumer perception of the disc brake system being a better option than a drum brake system. So, I think that perception is there, which there is a general trend towards having more hydraulic brakes, but in terms of performance-wise, you know, it doesn't have to be hydraulic brakes or CVS is not specifically a solution. I see different OEMs taking different routes with your cost. Braking, if you are looking at going to a more premium vehicle, then you look towards hydraulic brake systems and ADS and CDS. So, you know, there's no single answer for this.

Okay, got it, got it. So, regardless of the tech, you still are going to have the full suite of products to be able to cater to that, right? Correct.

I think it is 12.07. We will probably take one more question. It's more than an hour now.

All right, sir. Thank you. We will take the next question from Nipan Sharma from VLS Finance. Please go ahead.

Can I have an article?

Yes.

Okay. So I just wanted to know about the margin guidance that you provided for the upcoming two to three years. Apologies if you have answered this question or getting this phone call or if you have mentioned this in any form. I have joined this phone call a little late. So if you could provide a margin as well as a revenue guidance for a medium term, that will be very much helpful.

So I think what we have, we are just standing by the, you know, margin that, you know, guidance we were given in the beginning of the year, when the year ended last year, where the consolidated margins we said will be between 12 to 13.5 percent. And on the global cables and mechatronics, it will be between 10 and 12 percent. And basically, between the ICM, PLD, and SCD, we said that it will be a comfortable double-digit, more or less in line with the previous year. These are the guidance we have given. Between these divisions, there will be some minor ups and downs, but together, the guidance between the console as well as the global cables and mechatronics, I think they will be the guiding force for the general guidance. We have also said that, you know, the margin, the growth has been very strong in the first half and that we are expecting to continue to maintain our growth projections as well with probably slightly positive trend towards for the overall year at a higher level than what we have guided in the beginning of the year. And we have also said that in the second half, the margins are likely to be slightly better than the first half, and that these margins, you know, on the GCN as well as on the consolidated, we are likely to slightly move up a little bit, which is what we have guided earlier in the day.

Okay. Just one last question, if I could squeeze it? Please, go ahead. Yes, okay. And what is the diagram for PLE? I mean, considering the TFA sales have been subdued for, I guess, two to three quarters, if I'm not wrong. So, what is the outlook for it?

Yeah, I think the finished line, also, we have said that due to this significant ramp up from the world's largest retailer happening as we speak, and that the margin in that business is fairly decent. And that, you know, we are continuing to, we have been able to pass on the price increases to customers and the aftermarket. We have seen that the Q2 margin has nicely popped up. So we have continued to set that for the year, the margin will be more or less, or an average will be similar to what it was last year. So that will be in double digit.

Okay. Thank you very much, sir. That's just from my side. And that's what I say to you today. Thank you very much.

Thank you, sir.

Is there more questions?

Sir, we are taking that as the last question for today.

Yeah, okay. Fair enough. That's good. So thank you very much. I appreciate all of you for joining this quarterly call and appreciate your continued interest in Superdeep. Thank you very much, and thank you, Anandrachi, and the moderator for organizing this call.

Thank you very much, sir. On behalf of Anand Rathi, Shares and Stockbrokes Ltd., that concludes this conference call. Thank you all for joining us today and you may now disconnect your lines.