Varroc Engineering Limited (VARROC) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Q1FY27 VAROC Engineering Limited Post-Result Conference Call hosted by Aquarius Securities. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing start, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mihir Vohra from EQG Securities. Thank you, and over to you, sir.

Thank you, Asarba. Good evening, everyone. We are pleased to invite you to the Q1 FY27 Post Results Conference School of FIROC Engineering. The management team will be represented by Mr. Taranjayan, Chairman and Managing Director. Mr. Arjun Jain, whole-time director and CEO, business unit 1. Mr. Dhru Jain, whole-time director and CEO, business unit 2. Mr. Mahendra Kumar, group CFO. Mr. Bikar Duggar, head IR. And Vishal Rawal, head finance controller. So, without further ado, I now hand over the call to Bikas for the disclaimer. Bikas, over to you.

Thank you, Mihir. Thank you, Aquiras. Today's disclaimer. Forward-looking statement. All statements that address expectation or projection about the future, including but not limited to statement about the strategy for growth, business development, market position, expenditures, and financial results are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events and involves known and unknown risk uncertainties. And other factors, the actual result, performance or achievement could differ materially from those spoken in any such forward-looking statement. No obligation is assumed by the company on forward-looking statement. With this, I hand over the call to our Chairman, Mr. Tarang Jain.

Thank you, Vikash. And thank you, Mihir and Team Equirus for hosting the call. I am Tarang Jain here, and good evening to everyone. India's economy has remained resilient in Q1 of F527, April-June 2026, supported by a strong domestic consumption, improving rural demand, healthy infrastructure spending, and accommodative financing conditions. These macroeconomic tailwinds translated into one of the strongest quarters for the Indian automotive sector, with passenger vehicle sales reaching record levels. and broad-based growth across two-wheelers, commercial vehicles, tractors, and exports. Improved affordability, rising consumer confidence, robust freight activity, and accelerating EV adoption supported demand, while rural recovery particularly benefited two-wheelers and farm equipment. For the auto-component industry, the positive environment led to higher production schedules, Improved capacity utilization and stronger opportunities in electronics, EV systems, lighting, and advanced vehicle technologies. Despite the ongoing risk from commodity price volatility and global geopolitical uncertainties, the overall outlook for Financial Year 27 remains positive, with India continuing to be one of the fastest-growing automotive markets globally. In quarter one of financial year 27, we saw Strong growth across all the automotive segments on a year-on-year basis. On a year-on-year basis, two-wheelers grew by 22.8%. Three-wheelers grew by 39.1%. Passenger vehicles grew by 16.8%. And commercial vehicles grew by 15.2%. The EV two-wheeler volume on a year-on-year basis grew by 91%. Despite seasonality effect on a quarter-on-quarter basis, We still saw a growth on two- and three-wheelers. Two-wheelers grew by 2.7%. Three-wheelers grew by 3.4%. Passenger vehicles de-grew by 7.5%. And commercial vehicles de-grew by 16.9%. In quarter one of financial year 27, the company registered a very strong growth of 29.9% and a consolidated revenue reported is Rs. 26.3 billion. The growth was supported by both India operations which saw a growth of 28.6% and also overseas railway revenue growth. The momentum of growth in the overseas business which started in quarter 4 of Financially 26 and gathered further pace in quarter 1 of Financially 27, registering a 45.6% growth on a year-on-year basis. As emphasized in our last learning call, Our foremost priority remains accelerating revenue growth across both India and the international markets. Our EBITDA for the quarter was around 8.5% as compared to 9.5% during the similar period last year. Our PVT before joint venture and exceptional items for quarter 1 FY27 came in at 4.3% of revenue, an improvement of 20 basis points on a year-on-year basis. The profitability in this quarter was adversely impacted by higher commodity prices due to war-related costs, higher tooling sales, and the business mix. Despite that, the Indian operations reported a 10.6% EBITDA margin and around a 7% PBT margin. The revenue from supplying to electric vehicles in this quarter was around 15.8% of revenue and grew by 87% on a year-on-year basis. In the overseas electronics and lighting business, we have further won some business, notably for our lighting operations in Thailand. Sequentially, the losses from the overseas operations as well as from overseas R&D is reducing. We hope to maintain this momentum of increasing revenue and hence the profitability here. We continue to invest not only in technology but also in people and strengthening our capability. Recently, we have appointed Mr. Eric Hammond as a Chief Technology Officer for our Business Unit 1. He comes in with 25 years of global automotive technology and engineering leadership experience with deep expertise in electrification, software-defined vehicles, connected systems, embedded software, functional safety, and cyber security. He has successfully led large-scale global R&D organizations, developed. Next-generation mobility technologies and partnered with leading automotive OEMs to deliver innovative and safety-critical solutions. As I emphasized earlier, in India, we continue to leverage our strong customer relationships, technology capabilities, and expanding product portfolio to capitalize on opportunities emerging from electrification and the premiumization trends. In our overseas markets, we are strengthening our presence through deeper to deep customer engagement, enhanced engineering capabilities, and focused business wins, positioning ourselves as a reliable global partner. In quarter one of financial year 27, our net new business wins with an annualized peak revenues of Rs. 5,991 million. The net debt of the company in quarter one of F5, financial 27, is... Rupees 5,268 million, which is an increase of Rupees 316 million from the last quarter, mainly due to the increase in net working capital of Rupees 441 million due to higher revenues. The net debt to equity is very comfortable at 0.28. The average ROC of the company is around 24% in quarter 1 of financial year 27. In this volatile, new, normal environment, we continue to strengthen our company for long-term growth and performance by taking appropriate decisions and meticulously executing them. Our endeavor remains to improve the contribution margin, control the fixed costs, generate free cash flow, and improve on the return on capital from all the business segments in which we operate. With this, I will now ask M.K. Group CFO to walk you through the presentation and give more insights into the financial performance. We have uploaded the investor presentation to the stock exchanges as well as on the website. Over to you.

Thank you, Zaran. Good evening, everyone. Let me take you to slide number seven in the presentation, which is on the highlights for Q1. As our CMD explained, Q1 revenue was at 2634 crores, which meant a growth of almost 30% year over year. But out of this, if you eliminate the inflation-related impact, it could be a 4% difference. Within this, 30%, Indian operations registered close to 29% growth, and OSIS operations by growth of close to 46%. Thank you. Now, you may recall that last quarter, Q4 also we registered significant growth in the overseas operations. So that is continuing now also. So more than the percentage, it's the direction which is important here. And then revenue from EV models in Q1 was at 16% of total revenue, which again was a phenomenal growth of 87% year over year. Coming to PBT during Q1, it was at 4.3% versus 4.1% shown last year. EBITDA came in at 8.5% compared to 9.5% last year. But this was largely impacted by the war-related impact. Basically, the war-related impact at EBITDA level was totally coming to about 0.75%. This has two parts, actually. The genuine under-recovery impacted us to the extent of half a percent. The remaining 0.25% at EBITDA level or PBT level was driven more by the numerator genomic impact. Then coming to net debt, net debt was at 527 crores compared to 495 crores. This was largely because of the front loading of capex, which we explained in the previous calls also. Regarding the Ardra Wings, in terms of the new business annual peak revenue, it was close to 600 crores. Prominent wings were related to the four wheeler lighting business then for our Thailand operations from the prominent customer. We also restated the e-mobility volumes in India based on the recent trends, so that also increased the overall peak revenue potential. Another significant improvement in terms of the capital efficiency metrics is relating to ROCE, ROE, and of course the even EPS improvement also. So if you take out the exceptional items in Q1 of last year, which was basically relating to the accounting adjustment, which we had to do after the exit from China JV. If you compare the ROCE, last year, same time, we were at 23.6. It went up to 24.6 now. A significant improvement in return on equity also from 11% to 16.4% this time. And in terms of EPS also, last time it was 11.5 rupees on annualized basis, which is now 20.3 on annualized basis. So that's a significant improvement compared to last time. Coming to the other points, of course, the patents filed continues to be strong at 135 plus patents. Going to slide number eight. This is about the industry performance. As all of you know, automotive industry continues the good run which started during the GST simplification exercise. Q1 also, the two-wheeler grew by almost 23%, three-wheeler by 39%, passenger vehicle by 17%, and commercial vehicle by 15%. All these are year-over-year growth numbers. Within this, the EV two-wheeler volume registered a growth of 91% year-over-year, and on sequential quarter-on-quarter basis, two-wheeler had a marginal growth of 2.7% and three-wheeler by 3.4. Passenger vehicle had a degrowth of close to 7.5%. So next slide, slide number 9. So basically EBITDA came in at 8.5% versus 9.5% last year. If you compare with the previous quarter also, it was 9.7, now it is 8.5. But if you really look at the reasons for this, we also had a significant tooling sale in Q1 at a lower margin. Which is more like a significant one-timer. Of course, there will be some tooling sales every quarter to a small extent, but this was a large number. So, that impacted close to 0.8%. And other major reason was the R-related inflationary impact, which I spoke about. So, that was about 0.3%. So that was the performance during this quarter. And if you really look at PACT, if you take out the exceptional items in Q1, it was almost a 70% growth year over year in Q1. The next slide, we updated this information where you can see what happened in terms of geographical segmentation in India and overseas. India, if you really see, it was like 29% year-over-year growth and 10% sequential growth. In terms of EBITDA also, year-over-year growth was 22% and PBT was like 41%. Overseas business also, we can see a continuing improving trend from the earlier quarters. The last boss relates to the R&D investment, which we started largely from Q2 of last year. That's why it was significant to lower in Q1 of last year. But here again, we see improvement compared to the previous quarter. Coming to the next slide, which is about reduction in net debt. There was a marginal increase in net debt this quarter compared to the Marchand number. But like how I explained, this was largely driven by the CapEx front-loading, which this year is going to be a CapEx severe year, as we explained in the previous calls also. This was needed to support the growth. But even with this increase also, the net day to E2T was below 0.3, it was at 0.28, and net day to EBITDA was below 0.6. The next slide is about the revenue breakdown and the customer breakdown, which is more for information. Slide number 13, we again gave the order book status. So we started with 3,509 crores at the beginning of the year. Current quarter, we added close to 500 crores. Out of that, close to 500 crores has been taken to start-up production already. All this is in terms of annual peak revenue potential, not actual numbers for this year. So, in terms of mix also, if you really see the Bajaj, non-Bajaj mix shows Bajaj mix of 58% in the annual peak revenue, and two-wheeler and three-wheeler at 75%. So, let me stop here. I will be happy to take your questions. Thank you.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone 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'll wait for a moment while the question queue assembles.

The first question comes from the line of Shubham from Investec.

Please go ahead.

Hi, thanks for the opportunity. Congrats on a great set of numbers. First question, you had reported an order winner of about 600 crores this quarter. Can you please provide the split between the four-wheeler lighting order and the e-mobility one?

The bulk is e-mobility, which is a volume expansion on our existing running programs. I would imagine, I think, two-thirds is e-mobility. And then the balance is a combination of four-wheeler lighting. I would say the most significant portion of the balance is the four-wheeler lighting business win. And then I would say, you know, different smaller business wins across product.

Okay, okay. And for your overseas order book, now there have been some reports of expected delay in launches by some overseas OEMs. So do you foresee a situation wherein you would, you know, face a delay in your order book execution?

Yes. So just to answer this question, we have reported some wins in past quarters, and it's really across multiple customers and multiple programs. So just to answer your question, we're not expecting a shift in – our main message so far has been that we will be continuing to increase our revenue in our overseas locations. This will certainly still take place because we're not dependent on any one customer here.

Okay, okay. Also, for your traction motor business, you had earlier indicated that you are in advanced discussions with an OEM ex-Pajaj. When should we expect that order win to flow in?

So, we've already announced one business win, which we expect is going to begin imminently, I would imagine, in fact, in quarter two. And then there is two further customers where, you know, We're in fairly advanced discussion, where also I would expect...

Okay, okay. And also, given the strong demand momentum that you're seeing across the automotive industry, and more so for the EV industry, where we have a much higher content, you know, how should we think about, you know, growth for Bajaj, for the domestic business for this year, if you can put a number around it?

Honestly, it's difficult to predict a forward number, especially if we're talking about a forward number for one particular customer. But, of course, EV penetration continues to grow at the rate at which it has been growing. I would definitely imagine that our e-mobility business would gain further significance in our overall revenue. And as a natural result of that, Bajaj would also become more salient than it is today in the overall revenue. But having said that, from an EV perspective, like we've just talked about, there is further customers also that we expect will come on board.

Okay. Also, the last one on margins, you mentioned about 50 pips of under-recovery this quarter. Now, how much of that you expect to recover from your customers going ahead, and how should we think about margins for the full year?

Yeah, so the efforts are already underway, so we should be getting it between this quarter and next quarter, most of it.

Okay. Okay. Thank you. That's it for myself. Thank you.

Thank you. The next question comes from the line of Arvind Sharma from Citi Group. Please go ahead.

Yeah. Thank you so much for taking my question. The first question, which you again indicated a bit already, is on the e-mobility segment. Based on the order book that you have, how sustainable do you think the growth is? Because this quarter was a very strong quarter.

So, I would say the order book is fundamentally strong, right? We are a primary supplier to essentially the market leader when you combine two-wheeler and three-wheeler. So, from that perspective, I think growth fundamentally depends also on EV penetration, which is something that we see gaining momentum rather than reducing in momentum. Further to that, like we talked about, we have incremental customer gains also. Which, in my mind, coupled with the fact that the content in an EV that we have is so high, I would imagine that that growth really continues to take place.

And just to add to that, see, looking at the situation globally now, due to this Iran war, We do see a very positive, maybe you can call it structurally, a shift also in the consumer mindset to move towards EVs at least in a two- and three-wheeler space. And, of course, the moment, I mean, you see the main volumes are today more in the scooter segment, which is 20 to 30% of the market. But now we're looking at, you know, OEMs, also looking at motorcycles now. As we move forward, we do expect that even the motorcycle segment will see EV penetration as we move forward. And we, being one of the very significant players in this EV powertrain segment, I think we stand to gain from it going forward.

Thank you so much.

The other question would be on the electronics Romania segment. You have given a separate slide on it. Please share the key customer segment. We don't have a previous quarter or previous period revenue. How is the revenue trending there? What are the key drivers? The electronics Romania segment.

Just to pick up this side. Yeah, so because this side Arvind, so earlier our Romania location used to support was the captive for lighting business. So that was clubbed under the lighting revenue. But now since we are doing more related to e-architecture, so that's why and the business which we have worked. It's towards those only. So that's why we have segregated that. And the growth in that Romania business is going to grow. So because of that, we are showing how the, we are showing that the flights.

Prakash, who would be the key customers out there? We haven't...

Segment.

Segment. Yes, no, no, so maybe I'll try to answer this one. So, basically, our Romania electronics plant is focused on passenger vehicle electronics. And, you know, as Prakash mentioned, the focus is on a variety of low-voltage and high-voltage electronics, and we've already announced some... Some order wins in past quarters, and we believe this will continue.

Thank you so much. I have a very small data query. When I look at the revenue breakdown that you have in slide 13, I believe the overseas forging, which is 3.3%, that is a part of the ICE powertrain business when we move down and you have the actual numbers? Yes. That's right. That's correct. Okay. Thank you so much. That's all from my side. Thanks a lot.

Thank you. The next question comes from the line of Rahul Kumar from Vicaria Fund. Please go ahead.

Yeah, hi. You briefly discussed about this, but can you tell us the progress on the, you know, top three EV player discussion?

I would say there is a top three in two-wheeler and also the top three in three-wheeler. We are engaged in terms of business relationship with each of the three. In fact, from an e-power training perspective, one we already have significant business with and one more, when I say there are two that we are further engaged with. We've also been able to win business, not necessarily for ePowerTrain, but for other product lines with another one of these top three players. So really, I think, you know, across the board, I think the engagement with the market leaders here has been extremely strong, and we expect that that will convert into more significant revenue, like I said, you know, through the financial year.

Okay. I meant, I think, in the last con call, actually, we had discussed about, you know, the progress on the two-wheeler EV side for the EV powertrain products. So, you know, on that, we had mentioned that we are in advanced stage with one of the top three. So, do we understand that, you know, we are now in discussion with both the top three players, experts?

Yes. So, again, I will repeat, right? With one of them, we are in discussion for the e-powertrain. With another one of them, we have already one business for another technology product. Okay.

Okay. Okay. Okay. Understood. Understood. And the SOP, which is starting in Q2, this is with another EV player, right? Am I right in this time?

Yes. But it's another EV player with investment from an extremely significant global OEM.

Okay, I understand. The second question is on the overseas, actually. I think there was one project which was expected to start from H2 of this fiscal. So, you know, I'll be on track for that. And given the second question on the overseas, again, given the robust business we have done so far, you know, the progress which we have done. So, do we expect a break-even for the overseas earlier versus the previous guidance of Q4 exit?

So maybe just to clarify the second question, so the second question, I believe that our message stays the same, so we're not changing our message from the past. And regarding the first question in terms of the launch that you're mentioning in, you know, mid-year this year, so we've already had a few new launches. This year in our Romania Electronics location, I believe that's the one that you are referring to. And this is also why we are seeing an increase in revenue quarter and quarter in our business overseas. And this will continue to increase in subsequent quarters. So basically it's progressing well.

Okay. I understand. Thank you.

Thank you. The next question comes from the line of Siddhant Tundh from Goodwill. Please go ahead.

Yeah, hi. Our largest customer has taken over a global OEM KTM. So, is there any potential for business over there that we have gotten in inquiries?

Yeah, of course. So, you know, we already do, you know, even prior to this, we did a fair amount of direct business with KTM. Thank you. More complete takeover. There is incremental opportunities that arise in line with the strategy that Bajajato follows with KTM now. So, yes, there are definitely a couple of immediate opportunities, and we hope over time this translates to more.

Okay, perfect. Could you quantify them or too early?

Right, it's too early to quantify because, you know. KTM is a brand with a very high SKU mix, so you go at this.

Understood. Perfect. Thank you.

Thank you.

The next question comes from the line of Naman Maheshwari from Shanghavi Family Office. Please go ahead.

Hi, sir. I hope I am audible. Great. So many congratulations on a very robust set of numbers, and I hope this trend continues sustainably. Just a quick question, more from a forward-looking point of view, you know, we onboard Mr. Eric. So now, how does the strategy change with him coming on board? Are there some new avenues that we are looking to come in, basically into e-access, or would it focus more on ADAS? And if you could show some light at what sort of a market are we trying to chase, you know, and how to look at customer wins happen. I know it's not going to happen overnight, but how do you see that, you know, from a structural point of view for the company? I think it's a very important and a very good appointment. So how does it move, you know, the needle or help your growth? So that's one question.

Yeah, so I would say the strategy does not necessarily change. I feel Eric comes on board and I think really complements with his experience the path that we have set out for ourselves. You know, Eric has a vast experience with e-powertrain, and this is also where, when it comes to two- and three-wheeler EV, we are, I would say, really very e-powertrain market leader. So, from that perspective, I think strengthening our position in this core segment, which, as we see also, is an extremely high-growth segment, I would say is a critical priority. Of course, as a part of the roadmap, we look to expand this capability into other market segments. And, you know, I would say Eric would definitely, you know, Eric would definitely, you know, Eric definitely comes with the experience to really lend to that. So whether it is in terms of addressing higher voltage systems, whether it is in terms of addressing, let's say, you know, really more X-in-one kind of concepts, we believe this is where the market is moving towards. We believe we have the core capabilities required to execute it. And I think with Eric, I think we also achieved the experience of having seen and done that. So, yeah, you know, like you, we are also very excited by the appointment. So, yeah.

Yeah, no, sir. Very good. And so just one more part onto, you know, the order wins, right? We see a good traction coming on. So how do we, you know, how do we look at, you know, new engagements that are taking place, right? Like, there are some new OEMs which have set up their shop in India, you know, in the EV system, like Winfast and everyone. So, you see that incrementally we can, you know, get in that supply chain also, and they are also having a very large expansion plan, so we could be part of it. So, just wanted some thoughts on that.

Yes, of course, and with, let's say, the customers you name and also the customers you allude to, we are already engaged, and we would expect to see some action in those spaces.

Okay, okay. Many congrats, sir. Keep delivering all the best. Thank you.

Thank you.

Thank you.

Thank you. Before we take the next question, a reminder to all the participants, to ask a question, please press star and 1. I repeat, to ask a question, please press star and 1. The next question comes from the line of Jyoti Singh from Hightong. Please go ahead.

Hi, thank you for the opportunity. And so, congrats on the big beat on the revenue side. So, first question on the revenue as well, like it's nearly 2x that we have delivered and we have guided mid to high teens for 27. So, this is the first quarter we have delivered this kind of growth. So, what kind of expectation we can build going forward?

No, I think that this year seems to be very strong for us. Though we have grown 30% this quarter, we do believe that probably for the whole year, we could be achieving about at least between a 20% to 25% growth in this financial year, looking at how things are moving at the moment. So that would be our expectation, because the second half last year was fairly good, you know, so considering that, I think 20% to 25% would be the right. What level of growth we would be achieving this year?

We don't take it as a guidance, but more like our ambition.

Okay, understood. And sir, also, like earlier, participant was asking question around WinFast and other players. So, can you guide us any new client that we have impaneled or any other that it is in the pipeline so that we are seeing the visibility for even FY28?

Yeah, so I think most, I think especially in any new customer engagement, I think we generally We cannot talk about that before. There is actual factification of SOP. But having said that, right, I think it is clear there is entrance. It is clear there are people entering the market. It is clear also that existing incumbents in the market are looking to build more vehicles also for export. So wherever those opportunities are, we will look to participate.

We have already won some new customers also in this year, but the thing is that we are We cannot disclose the names at the moment, but we are engaged and definitely one of the objectives is to get in new customers also, not just rely on existing customers who are very important to us, but yes, we are expanding our customer base also in India as well as abroad.

Great, sir. So, sir, going forward, we are targeting diversification of the customer, and some certain percentage that we are targeting from each customer, or Bajaj will we keep continue major customer for VAROC?

You know, we said this before, but I would say our path is not necessarily a customer diversification strategy. Do you think... Our path forward is really a product line in competence driven strategy. So, there is clear product lines where we look to drive growth and where we look to drive focus. And as those materialize, I think it really depends on how the end customers also perform in the market, which determines the customer mix for us.

The point here is that, like we have said before, that Bajaj Auto continues to remain a very important customer for us and will be, always. But having said that, I think we are actually kind of also kind of growing with quite a few other customers, you know. However, you will see that increased revenues coming in from many other customers.

Last question, on the order box side, like this time we have a major customer around 72% from the EV side versus ISO 28%. So we are going to see this kind of revenue shift. On the segmental side, keep getting, like, I understand we are 95% power drain agnostic. So we are seeing much demand from the EV side and as well as on ICE, or how it is going on.

So, I think there's a few different questions in there. Firstly, I would say we are not 95% power drain agnostic. We're, I think, only around 70% powertrain agnostic. The balance comes from our ICE powertrain, e-powertrain business. But yes, I think, like we said earlier also during this call, we expect the balance to move more towards EV product, really driven by the fact that EV penetration is increasing. So this does not mean that ICE is declining in absolute terms. It means that in terms of the percentage of our growth, Thank you, sir.

Thank you. Ladies and gentlemen, you are requested to restrict your questions to two questions per participant. I repeat, you are requested to restrict your questions to two questions per participant. The next question comes from the line of Ankur Pardar from Swan Investments. Please go ahead.

Hi, sir. Congrats on a good set of numbers. My question is regarding our overseas business. Firstly, can you let us draw some light on how the order wins or do we see going forward? And secondly, on our margins, we see that the losses have come down. So by when do we expect to break even in terms of EBITDA as well as on PBT? And what do we see steady state margins going forward?

Yes, so to the first question regarding our, regarding, you know, what we're projecting in the future as order wins. So I'll just say again that when it comes to the past year, I believe we have mentioned certain significant order wins, and certainly we are expecting to see this also in the future. So in subsequent quarters, we believe we will be, you know, we will be mentioning.

So, as far as the margins are concerned, previously also we explained, in two-wheeler, we already make money, we are on the positive side already, two-wheeler overseas. Only in Romania, we have been having challenges. So, earlier also we explained that by end of this year or by Q4, In Romania, we will reach a bit of break-even. Coming to the overall guidance, we generally go by PBT targets or long-term strategies to take it to 10% PBT in the next three to four years.

Okay, thank you.

Thank you. The next question comes from the line of Mihir Vora from Iguiri Securities. Please go ahead.

Yeah, hi. So, sir, my question was basically on the EV power train products. Here, if we see the revenue has grew around 56 odd percent on a year-on-year basis, but if you see the industry volume growth has been in the range of 80 to 90 odd percent kind of a range. So, sir, just breaking it into what kind of ASP decline are we seeing because of the scales increasing and, you know, throw some light here whether what is happening in terms of volume growth and ASP growth.

Yeah, so I would say a couple of things here. I think one, definitely I think ASPs have declined, but I would say this is really driven by improvement in the product composition. Honestly, I don't know the exact number or the top of my head versus the comparable period, but I would imagine maybe high single digit kind of decline in ASPs. The second topic also that we have here is, especially through the early part of the quarter, due to labor challenges both in our own plants and also in our supply chain, we were definitely challenged for April and also maybe a little bit of May. But that is now really fully recovered. So I think that has also probably contributed a slightly lower number.

Right, sir. And just to follow up here, sir, that going ahead, we know EV volumes are expected to grow at a good 30-35% kind of a Kegel for next five years. But here, given the volumes increasing, what kind of, you know, ASP because of product engineering or, you know, because OEMs also will be pressurizing you in terms of, you know, reducing the cost or some sort of stuff. So, in terms of this, what could be, you know, a sort of a trajectory year wherein, you know, I definitely think revenue growth will not align with the volume, but some color on how these OEM contracts happen. And whether in terms of the costing of the product.

So, I mean, you ask me, I don't think, I don't think OEMs anymore are really insecure about what is the cost of their product. I think there's a fair amount of work that has gone in over the last five years to really bring product to a far more cost optimal level. Now, of course, there will be, there is always hope for improvement and opportunities for improvement, and I think that will continue to happen. But I don't expect, I mean, I won't expect some very material change in terms of what, or when I say material, I mean, I won't expect double-digit changes in ASPs that will take place. In fact, I think potentially the opportunity for us is really come through, let's say, more integration of components into smaller boxes. And that is actually an ASP increase opportunity. So, you know, I think the end answer will be a balance in between both some ways. So, to cut it short, there's a few different trends running, but I won't expect significant ASP decreases taking place.

Okay, all right. Sir, and lastly, given the speed at which the electric vehicle growth is increasing right now, so what would be the CAPEX strategy here? Are we, you know, increasing the allocation here, some color on that?

Yeah, so... This year, we'll definitely see higher CAPEX expenditure than what we've seen over the last two, three years, and a large portion of that is, yes, in terms of our e-mobility capacity expansion and also capacity expansion to service the EV models that we're supplying to even with our engine agnostic product.

That's the reason we front-loaded also the CAPEX.

All right. So, Sukh, can you quantify the CAPEX guidance for this year and next year?

It will be 500 to 550 crores in that range. This includes both India and overseas also.

Okay, okay, sir. Thank you.

Thank you. The next question comes from the line of Aditya Dhavar from Invested. Please go ahead.

Yeah, hi. Thanks for the opportunity and congrats on a great pair of numbers. My first question is, you know, on our customer's flip. So, while we understand that Bajaj volume has grown, the content in Bajaj has also grown for us, how should we assess our progress in other OEMs? In the past, you had mentioned that there is a possibility of, you know, further acquisition of land to support Japanese OEM and Southern South India-based OEM. How should we assess our progress, both in ICE as well as, you know, EV power trading products in non-Bajaj customers?

So, there is definitely, you know, I think if you look at the progression of our order book, there is definitely a very large amount of... Outside of Baja Jotto, business wins that have taken place. Even today, we see, I think, also given the fact that the market is growing, even today, we see significant demand for product lines across our product categories taking place outside of Baja Jotto as well. Having said that, having said that, I would definitely say given the content we have in EBs and given the fact that we are a primary source at Baja Jotto for EB. And the growth rate of EV, I would expect that the absolute revenue there also would continue to grow and grow fairly quickly. So, you know, where we end up as a percentage, honestly, it's hard to predict past a point. But, yeah, I mean, the expectation is that we grow, whether with Baja Joto, whether outside of Baja Joto also.

That's helpful, Anjan, but if you can help us understand that, say, X number of products you are supplying to Japanese OEMs, and there the share of business of their work went from A to B, some quantification and, you know, is there a necessity

of setting up a manufacturing facility in southern India for supporting these? So any, you know, quantification you can do in terms of number of products

or how we have grown in few OEMs, whether Japanese or, you know, the South India or the new OEMs that we have entered, some quantification would be helpful.

I think the simplest quantification I could probably give you right now is in terms of maybe what we've done in Q1, right, where if we look at our India business, we've grown, let's say, I think 30%, and we've seen the phenomenal growth in e-mobility, but I would not say that our customer mix percentage has really changed too dramatically, right. So I think the easiest way to put it is, you know, we're growing fast, but we're growing fast. I'm going to leave you alone, but I'm going to leave you alone, and I'm going to leave you alone.

Sure. My second question is on, you know, margin. Now, when we look at, you know, EV business, it has come to a scale where possibly we can assume, or you can correct me, that the margin could be sustainable. So, how different are EV margins versus ICE margins? And considering you have a strong line of sight with customers, you know, considering the pricing dynamics that are expected to play out when customers come down the pricing curve on EVs. How should we expect, you know, the margin trajectory to change?

Thank you very much. The only way to look at is not necessarily EBITDA, because EBITDA, even within different product lines we do for ICE, is very different based on the capital intention. Can you hear me? Otherwise, how do you drive capacity increases in a growing market?

Final question for Taran. Taran, you know, looking at a balance sheet that has, you know, significantly improved over a period of time. Now, clearly, you know, possibly we can become net cash next year. So keeping that in backdrop, are we, you know, considering expanding into new or great growth avenues, looking at inorganic opportunities? What are the areas that we are considering to expand inorganically?

See, inorganically, honestly, we would be more keen on either it could be electronics or e-powertrain, these areas, and also in the area of aftermarket. Aftermarket also, we are experiencing a strong growth. So, and I would say more on the four-wheeler or the exports front. So aftermarket, we are more keen over there if we get an opportunity with the right company. And otherwise, we are very keen, of course, of any acquisition opportunity or a joint venture when it comes to e-Powertrain. Or the kind of electronics, you know, which could be for e-electronics or it could be also other electronics where we are playing even for the ICE engine. So it all depends where there could be some customer acquisition also. And yes, exports focus is definitely there, you know, where we're making an acquisition. We should be able to get also into some export markets. So, this would be critical for us, but that is only, I mean, that's something we are very open to, you know, whether JB is in India, or it could be some acquisition where there's an export opportunity in these areas, but what we see also is a lot of opportunities on, you know, organic growth, whether it's in India or our plants abroad, you know, so we'll be focusing on, because nowadays it's pretty expensive also to go in for acquisitions. It's pretty expensive, you know. When you're already looking at a 20-25% growth organically, then, you know, we have to like see whether, you know, inorganic makes sense, you know. So, we'll have to weigh in, we'll have to have a balancing approach. We'll only go for something inorganic if it makes sense financially, where we can see that exponentially grow that already existing business into a good level. So, unless that is there, you know, we will not go into any inorganic. Organic, definitely, there is a strong focus to grow strongly year on year.

Yeah, yeah. And largely, acquisitions would be in India?

Yeah, yeah. We are interested largely in acquisitions in India.

Yeah. Final question to NK. Sir, you used to give us, you know, some PPP margin kind of a number that we can expect by end of the year. Any chance you can give on that one?

Yeah, Jabbar, you know, we don't give that kind of guidance, but we have this medium term target of touching 10% soon. So that one holds good. Anyway, you can expect on the correct performance.

Sure, sure. Medium term would be two years.

That's a wish.

Yes, yes, yes. Yes, yes. Yeah, thank you so much. All the best.

Thank you. Thank you. Thank you. The next question comes from the line of Neha Garg from GenFlow Finance. Please go ahead.

Yeah. Hello, sir. Good evening. Thanks for taking up my question. Hello. I'm audible.

Yeah, please.

Yeah. Okay, so now question is on the working capital, like you have mentioned that it has increased. So, has there any change in the receivable days from OEM customers or it's mainly from the inventory side?

Yeah, no, there's no change in the inventory, sorry, receivable days. Yes, inventory went up to some extent, largely in preparation to the pieces which is coming up. Second thing is these war-related recoveries, which we just spoke about. So they need to be now converted into invoices and they need to be collected. So it's a temporary increase which we see because of that.

And so, like, earlier you have guided that the companies went to achieve a zero debt in FY28, I mean, so with the debt increase, so is the target being still, I mean, can you see that it will still be pushed a little further?

We will stay with that for now, but, yeah, we will always try to do it as soon as possible.

Oh, okay, okay. And so, can you please just specify on what, I mean, if you can, how much, like, 350 CR that you have spent so far. So, can you just split, like, where have you spent, like, new capacities or any, like, new EV lines? Can you please just specify?

350, you're talking about last year or?

No, no, the capex, the debt that has been increased due to capex, 316 crs.

No, no, no, yeah, it's not entirely because of, I mean, capex spending. So, capex spending during quarter one was about 160 crores. Most of it went into the capacity increases.

And that number is in million, not in crores. The debt increase?

Oh, oh, okay, okay, sorry, so I'll, okay, thank you very much.

Thank you. The next question comes from the line of Aapurva Mehta from AM Investment. Please go ahead.

Congratulations on a good set of numbers. Just wanted to... Hello?

Yeah, please go ahead.

Yeah, just wanted to... You know, next 2-3 years of overseas... You know, how do you leak overseas turnover and... Can you just split the margins of how can the margins directionally be in, you know, Romania kind of thing and the two-wheeler which we are profitable, but on the Thailand four-wheeler, I think. And where do we see this journey happening in next two, three years? What kind of orders, you know, we are bidding, it's our larger orders we are bidding going ahead or, you know, just, you know, we can get some sense how big this overseas business can become.

Yes, so I'll try to answer your question. So if you compare to last year, we believe that this year, our revenue in the overseas business can be, and here I'm referring to the overseas electronics and lighting business, this can be double. So this is something that we can say. In terms of, let's say, if you talk about, let's say, margins, here I believe our CFO already mentioned that in three to four years, yes, we are targeting also to get to a 10% PBT number in our overseas business. So, that's what we can say as of right now. In terms of what our strategy is for overseas, here, of course, the focus is on electronics, particularly on the passenger vehicle side. And also on lighting, this would be both for passenger cars as well as for two-wheelers. And where we're expecting the biggest growth is going to be when it comes to passenger car electronics and passenger car lighting. In terms of why do we feel this will happen, it's mainly because in passenger car electronics today, there is a big change in the, or there is a lot of evolution in the electronics architecture. There's a lot more electronic content in vehicles, both when it comes to high-voltage parts, you know, more to do with, of course, the electric power trim, or low-voltage parts, such as body controllers, ADAS, infotainment, etc. This is the space that we are trying to play in. We've already announced certain large orders in past quarters, and we believe this will continue. So, yes, we're not giving you an exact number right now in terms of, you know, how big this business can become in the next three to four years, but certainly we're expecting to grow significantly compared to where we are today.

But what kind of aspiration we have by, you know, F530, this number can be, you know, can be close to 3,000, 4,000 crore kind of thing or, you know, just a ballpark number.

I think our CMD also explained earlier that by FY31, our intention is to double our overall revenue to 20,000 crores from around 10,000 crores that we do this year.

Yeah, but in that, overseas would be how much?

Yeah, I'm coming to that. Out of that, maybe around 25 to 30 percent could be the overseas part.

20 percent, I would say.

Yeah.

20 percent would be overseas, 80 percent would be here.

Okay, okay. And this quarter, we had tooling revenues, which we were, you know, what was the revenue, tooling revenues this quarter?

That's about 70 crores.

And that impacted 0.8% of your margins?

Correct.

Oh, that means the, it's, it's, how, how does it, means 0.8 is, is on that, that means there is a loss on the tooling revenues.

No, no, no, 0.8 percent on the overall impact. See, compared to the normal business, there is a significant lower margin which we make on tools because this is basically to generate part revenue in the future. So, these are like one-time things which come every now and then in one or two quarters.

Okay. Okay. But ballpark, the 12% margin which normally we do in the India business, is likely that Q2 we can see that coming?

Yeah, it has basically a couple of parts. The one-timers like tools and all, of course, should not come to this extent in the subsequent quarters, or at least in Q2. But there are things like the inflation recovery, which is more like an arithmetical impact because the same number goes up in numerator and denominator. So to recover that disadvantage, it may take maybe one or two quarters. But otherwise, the other impacts, we should be able to see a recovery in Q2, most of it in Q2.

Sir, one request is there, why can't we provide, you know, a breakup of number of clients, which we are only showing Bajaj and rest of Bajaj. Is there anything which most of the photo ancillaries, if you see, they would be showing us, you know, the kind of client breakup is there. And this would help us to know that how the pie is moving, you know. This becomes very difficult for us to judge that where the pie is moving now. Which client we are concentrating, which client we are gaining market share or something like that.

We'll look into that. We understood.

Thanks a lot and I wish you all the best.

Thank you.

Thank you. The next question comes from the line of Naman Maheshwari from Sangvi Family Office. Please go ahead.

Hi. So, just came back into the queue. This time, the balance sheet was, the annual report was very well articulated, right? It definitely gives the direction of a 20,000 crore fallback revenue, right, in FY31. That number, just want to explain clarification, that is solely based on the current product profile and the organic business growth, correct? Any inorganic would be on top of this. Is that the right understanding?

No, there will be about maybe 10% of that which will come from inorganic root also.

Okay.

And maybe a few, maybe something from Nanato's.

Okay. And so, if I understand, just join the connect the dots together. So, 10% PBT at a 20,000 crore revenue, FI 31, is probably, The, the management vision to go, grow, right? In action. Okay, okay, okay. And, and we invest on it for, for preparing for FI 31 revenue, the order book has to get built probably say by FI 28, FI 29, right? Is that the right understanding? A large extent. So, that means that we are, we are working in that direction to fill up the. Fill up, and we are that close to the customers that we will be able to fill up and deliver on this guide. So, in a nutshell, what I'm trying to imply is that there is a very solid customer relationship that's getting built right now, and we are getting the right traction from the targeted clientele. Is that the right implication of all of these things?

Yeah, that's true. But it also includes the organic growth on the existing business also. So, which is already better. Plus the inorganic thing, yes, client. Yeah. But you're right. Yeah. That's the intention.

Fantastic. Fantastic. Congratulations, sir. Right. And we'll talk again probably next quarter. Thank you so much.

Thank you.

Thank you. The next question comes from the line of Rahul Kumar from Vicaria Funds. Please go ahead.

Yeah, I think just a data-keeping question, but out of this EV revenue of 16%, you know, which we had disclosed, how much is that from Bajaj? And how much is that from non-Bajaj? And what was it last quarter?

Yeah, so I would imagine three quarters would be from Baja Jogtuya. And honestly, last quarter, I will not know off the top of my head, but I would imagine a similar-ish kind of pattern, right, few percentage points here and there.

Thank you. Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Thank you, and over to you.

Thank you, everyone. I would like to again reiterate that the journey ahead is filled with opportunity, backed by strong capabilities, strategic clarity, and the passion of a people we are confident of achieving our aspirations while creating lasting value for every stakeholder. Thanks again for joining the call and for your continuing support. Thank you.

Thank you. On behalf of Equator Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.