So now there has been a few months to what has been the discussion with the customer in terms of, you know, our ability to pass on or absorb and how are we placed ver sus our peers, global as well as domestic and while related to this announcement, are we considering scaling up of our facility in Mexico and attached to that any differential in costing you can indicate on India versus Mexico, two questions I understand on tariffs but that would be the first question.
Sure, Aditya. So, tariffs for automotive and auto components have been 25% from I think 5th or 6th April itself. So, we've had a full quarter of it. We understand the impact better, but our assessment is the same as before. We have nothing actually further to add from what we said last quarter that we see 3 to 4% of revenue impact could be there possibly, but as you know well, you' ve covered our sector for long enough to know that it happens in 12 to 18 months, even if it does happen, so hasn't yet happened. The plans for Mexico have been the same as they were before because they were for specific parts, so if you know the entire PPAP process and the process to go from planning to SOP is one that takes a lot of time , so there are no other changes. This new tariff that was announced a few days ago is relevant , but relevant only to the categories of auto components that are not already covered in the sectoral tariff , because this is the reciprocal tariff. So that impact we will know when those customers reach out. So far as you know , and I think I really said that the importers pay tariffs, not the exporters, so if you are exporting, it's not on you. We haven't seen much change so far, how it is being absorbed is an answer better given by customers but I believe there has been a, there is a scheme for the next 2 years for automotive OEMs in the US that the gov ernment will support them in absorbing these extra costs. So , the same situation as when you asked me this question a quarter ago, not much has changed, actually.
Any you know, sense you can give us on NOVELIC business development in terms of any order wins, geographic color, OEM, EV versus ICE, any sense on NOVELIC?
Sure. So, I think we updated a few quarters back. Next year, the sensor production will start actually, so the hardware parts will start rolling out , and there'll be the first product supply starting. We are well on track. The product line will be in Chennai. We have a new SMT line set up where I will actually invite you guys to come visit. It is genuinely, genuinely world-class; you should come visit. The program is actually an in-cabin sensing, so it's agnostic to powertrain because this is an interior system product for sensing, but the first customer indeed is an electric vehicle customer, but that is not to do with the nature of the product. It happens to be an EV customer.
And again for the light rare magnet availability, are there risks to that also, or because it's quite commendable that you're already back to April levels, which is great, so, or now it's a steady state from here or even on the light rare earth magnets, there could be some challenges in the foreseeable future.
I hope not, man, but these days, you know, every day I think this is the last challenge that I'll have. Next day is a new one, so I hope they don't because the ban is specifically for HRE magnets, because even the light rare earth magnets, the source is China, so I hope they don't now come after this. I hope they go the other way. I like, you know, start giving out export licenses for heavy rare earth magnets that will solve a lot, but there is a constraint. See, we are back also because we had new orders also. Bigger motors are still a challenge. It is only our fortune that most of our business is a two-wheeler, and even in two-wheelers, less than 5 kilowatt motors, which has been helpful. As you go up, it gets harder and harder. That's basically the situation.
On the China JV, so first of all, congratulations, you know, on that. Is there any broad idea that you can provide as to, you know, what is the order book, because obviously right now it's a JV you're just starting off, and you said that you'll be supplying EV and non-EV? I'm not sure if you can name the customer or customers, and I guess that would be difficult, but any broad sense of what the order book is, which is there that you've started supplying?
It's a good question. It's a brownfield. We wanted to move with agility. Agility, as you know, is one of our core values, which is perhaps the reason that in 3 months we've been able to come back and bounce back in EV traction motor production. So it woul d have taken a long time to do this greenfield. Second, China's supply chain, while it is one of the most diverse and widespread supply chains, is hard to navigate on your own, which is why you need a partner. So it serves both purpose s. That's why we went into it. We have not yet started adding the order book, nor will we guide on it. I'll tell you the reason because right now it's a term sheet. Till we sign all the binding documents and all the stuff is done, we don't want to start adding to our order book. The day we do it, we will start adding.
On this if I may ask, how far are we from the peak revenues that we are projecting, and how is this ramping up?
We are still in a launch phase , Kapil, and we just launched the product. It's too early. Vivek Vikram Singh: I think this quarter was literally the, or last March was the first, yes, so we are still in the early days. We will see.
Can you talk about the potential revenues from the China investment, the China JV investment? Would the Chinese opt to end to end manufacturing, or would there be supplies from India? How would be the margin profile of this JV on full ramp up?
So we can't, as you well know, we just signed a term sheet, till an acquisition is complete, it's too premature to start talking about the revenue addition or orderbook, right? Like, if you realize railway order books, we announced it in September or October. We closed it now, and for the first time, we've added something to the order book because it's premature to do those things. We will once it is final and everything is done. The modality, I think I've already, when Aditya asked me, I think I explained that first, it will do mostly machined housings and some other parts. In the second phase, we will try to do full differential assembly, but I will invite Vikram if he wants to add anything non-number to this. V Vikram Verma: No, I think you answered it with the very idea of getting a good casting supplier and one who has a good connection with customers already is where we targeted, and that's why this brownfield. Vivek Vikram Singh: On the margin profile, it is not going to be the margin profile of our business. That, that I can guarantee you, China is a very, very competitive market. It will be lower, but it is a large market, and as you all know, we are not obsessed with margin as a percentage; absolute profit growth is what we want, and that's what we will change. For the largest EV market in the world, even if you get a small market share, it can be a significant one.
Is our company participating in the development of humanoids by Tesla?
We never comment on customer-specific questions as usual.
So the second question , Vivek, is on the China JV, so congratulations on the JV. So initially, will it be a situation where we will be exporting differential gears from India to China and then we will over a period of time, as the volume scales up, we will, you know, shift the manufacturing of the differential gears to China. Is that the thought process?
No, we will not manufacture the differential gears in China, so that is pretty certain. What we will start off with is supplying differential housings and other parts. We will, at the next phase, which is not yet part of the financial planning right now, but we will in the next phase export gears from here and assemble the final assembly there. If it does come with a final gear, we can do the final gear there, but differential gears will not be produced, at least in the next few years that we can see anywhere outside India.
I think both railways as well as the traction motor business. I think railways is now under your fold, so you know, it didn't really see much revenu e growth last year, which is fiscal 25. If you can just sort of share a roadmap on how we should think about the growth of this business, both as you know, from Indian railways, as well as some of the new products that you, you know, you briefly touched upon. So what sort of growth we should be thinking from this business and secondly, again traction motor, you know, while you touched upon the shortages on the rare earth side, I mean, you also have won a new program there, right, which is a little perplexing to me because we've seen a lot of delays in new launches coming through on the e-scooter side, so you know, is it that we are seeing the resolution to rare earth that the new launch es finally will start coming through in the second half of this fiscal so some color on how should we think about the business ramp up both on railways as well as traction motor.
Thank you, Gunjan and thank you for the condolences. Also, I think we take your question literally every quarter, so you don't need to thank me for that. I will answer the traction motor question first. So the rare earth magnet shortage is real. It is an issue because the existing motor architectures that we have been supplying were all using heavy rare earth magnets. Now the heavy rare earth magnets are NdFeB magnets, but with a decent amount of Dysprosium (Dy) and terbium (Tb) that makes them heavy rare earth. Neodymium is a light rare earth. Can you substitute a heavy rare earth magnet with light rare earth magnet and develop a new kind of motor? It is possible there are some efficiencies/cost tradeoffs, but with increasing copper content, increasing the size of the light rare earth magnets, it is achievable, especially if it's, I would say, less than 15 kilowatts, it is achievable technically. The problem with the disruption was because it was so sudden. To have a new motor developed, you have to test it, validate it, homologate it, and only then can you launch it in a vehicle. Which is why th is has been time taking, but you'll be happy to know that in July , we are back to our run rate of where we were in April, pre this crisis. There are still some motors that are being, that are troublesome to me, like I said, anything above 10 – 15 kW, as the power increases, the physics problem becomes more fundamental in nature and hence impossible to solve, but it is being resolved because let's say a new launch, which is coming in 2 - 3 quarters will be actually done with those kind of motors, righ t? So that's one. Second, there are alternative suppliers of light rare earth magnets in other countries who have developed magnets which are not very far in strength from HRE magnets. So we have explored those too, and we are starting to get those from other countries. Both of those tracks are on, so engineering solutions to a trade problem. But I will compliment Sat and his team on his agility in being able to solve it, and Sat, if you want to add some more color, please feel free. Sat Mohan Gupta: No, Vivek, I think you covered very well. We are addressing all the possible solutions, working on design, HRE free magnets and different sources, so we are the only options available and we're exploring all those options and we're working on all those options. Vivek Vikram Singh: Yeah, for the railway question, let me invite our new Railway Business CEO, Mr. Amit Mishra and kind of throw it to him rather than trying to answer it on his behalf, so Amit, over to you. Amit Mishra: So in the R ailway Business, as we have discussed earlier, we are market leaders in brake systems in India. O ther product areas that we have are couplers and suspension systems. All of them are complex and technology -intensive products with strong entry barriers. So while we are starting with this position, we have identified opportunities to add products within these three core segments as well. We can go further deep into these segments and add more products. At the same time, as Vivek explained in the Technology Roadmap, we are working on several new products as well, which are at different stages of development. So these products will come into production over the next few years. So we have a roadmap for the next 5 years where new brake systems as well as the new products that we are working on should come into revenue. In terms of end market, if you have tracked rolling stock production projections by the government, I think there is growth projected for the next few years, which should be a tailwind for the business. At the same time, we are actively working on increasing our presence in the metro segment and also in selected export markets. So yeah, we do expect the business to grow well over the next few years, but as you know, we don't give any further guidance in terms of revenue, etc. , but w e do expect growth given what we are doing on the products as well as tailwinds in the industry.
Just, you know, just a clarification on the rare earth comment that you made. So, you mentioned that in July, you know, we are already back to the April level so are you saying that this is because of the, you know, the light rare earth magnet, because of that we have been able to do that or we have been able to figure out some solutions to the availability of the heavy rare magnets.
No, mostly it's light rare earth magnets and so we do not have any HRE magnets supply since 8 April. Zero.
Can you talk about the driver of increasing revenue share from China?
Yeah, suspension motors, that was the fastest growing product, as you well know, there, that is literally the one product in which the customer is also publicly known, so that is the Chinese EV customer, Nio, and that's where the growth came from.
Is the existing customer base part of the order book from the JV?
That's interesting. Yeah, I guess there will be some customers that would be our customers existing, but the orders would obviously be different because the product would be different , and the supply location would be different. Yeah, some customers will be common, but automotive, if you take all the OEMs and all the major driveline tier -1s, it's not that large a number ; you will always have the same customers everywhere. And all the large OEMs and all the large Tier-1s are already there in China.
Are we planning to start commercializing Equipmake in 2025 as per plan, considering rare earth magnet capacity?
No, that big a motor without magnets, no chance. I mean, I was talking about 10 kilowatt, talking about 350 kilowatt without heavy rare earth, no, next to impossible to solve that problem.
What will be your new EBIDTA and PAT margin guidance after incorporating the new divisions?
Good question. So, let's just do the math. Our range earlier was 25 to 27% was the range we've reiterated many times. How much as a percentage, Amit, would we expect the railway to be? Since you're the CEO, you should tell me. Amit Mishra: So, if we look at last year, full year numbers, Railways would be about 18 to 20% of consolidated. Vivek Vikram Singh: Good. So 20% is at 18% EBIDTA , and 80% is in the 25 to 27 range. So if you do the math, you will get your answer, which is 23.6% and 27 into 80 is. So 24.6. So yeah, 24 to 25 or 23.5 to 25 will be the new EBIDTA rate , but it's just mathematically, just do the arithmetic, we'll get to the numbers.
Could you provide some insight into the succession planning following the unfortunate passing away of Sanjay.
Whose succession planning, mine? What is the question towards because Sanjay was a non-executive chairman. He has already been succeeded by Jeff Overly, who is our lead independent director, so he is now the non-executive chairman. If it's about the management or executive role, I can answer because that is my purview. I don't choose board successors, so that's not a question I can answer.
Who is having the ownership of the company?
So, the ownership of the company as a publicly listed company, I think it should be clear that the public is the owner. 72% of the company is held by our public shareholders, various FIIs, large domestic mutual funds, and a small bit even with retail shareholders. I don't know the exact percentage, but 5 to 6%. 28% is held by a promoter entity called Aureus Private Limited. That is a fact since our IPO, which has also not changed. Yeah, who owns Aureus, according to the documents that have been filed with the exchanges, with the registrar of companies, it was held by RK Family Trust, of which there was one single beneficiary, which was Sanjay Kapoor. We have not had any information after that from Aureus, but there was no direct shareholding of anybody else in the company from any promoter entity.
On the EV industry globally and particularly in the US market, you know, we are seeing some pullback of subsidies and, you know, some changes in regulations as well. At the same time, you know, there are markets like China where probably there may not have been that much support, but still, you know, electrification is growing quite rapidly. So do you think, you know, that kind of move will come in markets like the US, Europe, and India, is there a line of sight now to that?
So, Kapil, good question. My opinion, as you know, has not changed for the last 10 years. I think electrification is inevitable. The pace and things in the interim, where it kind of goes slow, are almost impossible to predict. There is a lot of policy play here. This is the same thing when it happened with renewable energy. Remember, it used to be a million dollars per megawatt back in the day , and nobody would put up a solar farm, and it was only regulation that was pushing it. And then it changed as production increased, the cell cost came down. I'll take the same analogy, same analogy for cell phones also, by the way. When cellphones first came out, people were like, who will buy it, it's too expensive, batteries are too expensive, and it's almost always battery cells, which is the problem or the bottleneck of the whole growth area. I think battery prices will keep coming down. We are already at a stage where China has overcapacity and wil l have no other option but to start exporting this overcapacity into other markets, making batteries smaller. The second trend that we are seeing is that battery packs themselves are becoming smaller. Actually, range anxiety is fading quite fast. I was having this, and this is anecdotal. I was having this conversation with a friend of mine who just bought a battery electric car. So I asked him which model d id you go for? He went for the lowest range model , and I asked him why. He said the lowest range is 400. When have I ever driven 400 kilometers in a day? I don't need it. I anyway put it to charge at night. If they made one with 250, I would go with that. This, if you were to take as analogous to the small engine revolution that came in the 1960s, 1970s with the Japanese cars, suddenly the auto market grew manyfold because people could buy much cheaper cars with much smaller engines when people realized everybody doesn't need a massive engine with 70 - 80 L in the tank at all times because you don't actually use it. Asset utilization of passenger vehicles historically has been about 8 - 9%. As this trend increases and customer awareness increases, I think EVs will become cheaper and cheaper to a point, and I think we covered it last quarter. They will be cheaper to manufacture , service, and support than ICE vehicles. At that point, economics will start playing its part, and then, subsidy, no subsidy, nothing will make any difference. China has already passed that point of no return. I think it's going to go 100% even. Europe will follow, and America will be last because of maybe 4 years of policy, direction change, but it will inevitably come.
And what about the Indian market? What, what are you seeing there?
India's obviously going to be slower. Our views of, I mean , we've answered this many times. We always believe three-wheelers, buses, 2 wheelers, followed by passenger cars. That's the order of electrification. There is a significant challenge because of the way our country is. Urban density is a challenge. Actually, we have a first-mile mobility problem, rather than a last-mile mobility problem, and the first mile is actually the hardest to electrify. So I would still say it would be the slowest, but I think all of us can say we are impressed by how fast two-wheeler, three-wheeler, and buses have grown.
We have quite a bit of order book for a very large percentage of the order book coming from electric vehicles. Now, in between, we've had this problem , which seems to be resolving to a large extent. Do you see a much stronger launch pipeline happening in India? And even maybe the global market now disparity is coming maybe ex of US, but how do you see the launch pipeline?
I see the launch pipeline is pretty good. The magnet issue may delay it by 2 to 3 months in this calendar year, but in 2026, 27, and 28, these three years, we have a lot of new launches in and not small ones, actually, all of them are massive ones. There will be a lot of small ones in the interim, but the big ones, they are over the next three years, there should be quite a few , which are genuinely that size , 200-300 crore per year type of sizes for each program. There are quite a few of those coming in the next 3 years. Like I keep saying, the battery cost is going down every year , and the battery pack size constraints are going down. The problem was always only solvable if you had cars between $20,000 $25,000, which are required to make electrification truly mass. China has been able to do it because of that price -point car. Same thing will happen for the US and Europe. India, too, will follow.
Some of the major order ramp-ups this year, when do you see that, which quarter this year, you would start to see that happening?
I would say Q4 would be the one in which it will happen because a lot of them for this year were more around motors, where there is a month or two of delay already, now there may be a little bit more delay because of that.