Refused to commit on order book composition fy26.

You mentioned something around some of your peers, direct competitors in Europe, are facing financial difficulties, and you have seen an improvement in inquiries. So, these players were currently supplying to some of your potential customers from Europe, and it is now possible that these customers may want to look out for sourcing from India. Is that how we should understand it?

Yes. But that's a very short answer, so I'll elaborate. You are right. So, I anticipated that this would happen, as you know, with the thin margins they have, and Europe's been affected also by the loss of the export opportunity in the US, so they double whammed in this space. So they're not just in financial difficulties. I think 3 of them have filed for insolvency proceedings. One is now the court has adjudicated that it should be liquidated. The other one is also heading that way. Third one, we don't know. But when so much uncertainty arises in the supply chain, let's say one of our suppliers filed for insolvency, I would be on top of that and telling our procurement team to diversify away immediately and get me somebody who can do those parts as soon as possible. And these all three are driveline players. So, they are all either differential assembly or differential gear makers. And there aren't that many to begin with, so there aren't that many choices. So yeah, that's why the inquiries and that's why the urgency.

You always bring up the headwinds right up front. I also wanted to hear your thoughts on two specific issues: the Nexperia chips issue, how big is that risk, and the aluminum plant fire at the Novelis plant. Are these risks from the next 3 to 6 months' perspective for our customers?

So, excellent question, Gunjan, because these are both risks that have suddenly cropped up recently and did not affect us in the last quarter. We are still evaluating now. The Nexperia one is limited because, as you know, European customers' exposure, especially in the passenger vehicle segment, where this is there, is lower for us. Nexperia chips are used widely, but Europe seems to be far more affected than other geographies. We also in-house use some Nexperia chips, so our purchase team has been on it. However, the larger issue, as you know, always is if our customers cannot resource; whatever we can do at our end does not really help because a 99% car has no value. Every part should be there. So, we are monitoring it. For us, I would say it is not that big a risk because of the way we are exposed to and the kind of customers we're exposed to. Novelis Fire is impacting the F-series truck for Ford Motor Company. There is definitely the production level that has gone down for all the models. We are primarily supplying for a series, which is a diesel series, and it's 250, 350, and F 650. So there is some impact, but it's not a major impact. Yeah, so good that both of these are low risk for us, given our exposure to what kind of customers, what kind of models, etc., but we are monitoring them actively.

On the suspension system - if you can share a little bit more on how we should see this business revenue building up, from one customer to now being nominated to a couple of more customers. Also just a clarification, why do you call it nomination and not an order?

Ok, because ClearMotion is our customer, and this is an order that ClearMotion has received, so the quantity has increased, hence that term, because it is not a direct order to us, right? ClearMotion has to supply. We supply to ClearMotion. So that's the nomenclature, not much to differentiate between direct and indirect. I think that revenue buildup will still take time. When you introduce a brand-new product that changes how old technology works, right? You have early adopters, you have one guy who actually sticks their neck out, develops it to ClearMotion. We have been working on this for 4 years, and the customer who did it first, Nio. Then it starts with other people, after it is commercially launched, only then can they actually try to replicate. So, it's heartening that we have one more from Nio itself and then one new customer. But it will be gradual, and it will take time to go from that upper end niche EV vehicles to a more mass thing. It all changes when the first large volume customer comes, so it's kind of binary Gunjan, you know, when anybody who makes more than 1 or 2 million cars picks it up, that's when it genuinely starts taking off. So we don't know is what we can say at this point, but the day that happens, that's when the takeoff is almost vertical.

Question from Jinesh: What is the visibility for ramp up of the Mexico plant? Do you plan to shift some programs from India to Mexico? And what is the revenue potential from this plant?

Well, when we started, it was for a large OEM customer, originally; that was how it was perceived, conceived, that project. Then we shifted some business because the customer wanted it. This is again the recreational vehicle which Vivek spoke about. So we are in the present stage of productionizing those, which is the business transferred from here. But, however, Mexico in itself is able to win business, and this is again coming from the same customer, but we see traction of many customers in North America and Mexico that they would like to develop from that plant. So that plant has a lot of potential to expand. There is currently no plan to shift anything. Equations, as you know, on the final tariff outcome, what will be USMCA, will USMCA be respected? All those things are still unclear. But it is a good optionality to have this. If at low cost you can build an option that, if a really bad scenario emerges, can you shift in a pitch? Yes, we can. So that option we'll retake, but that's not the primary objective. The primary objective is for this to be a revenue and business generating unit of its own.

Updates on NOVELIC product commercialization, and new product pipeline and roadmap for railways.

Sure. So NOVELIC, as you know, we have won an order. I think productionization should start in a couple of quarters that we will start to supply. So productionization, if any investor wants to visit us in our new SMT line in Chennai, we'll be very happy to show them how the production is happening. But the SOP of the customer has to start for serial production to start. New product pipeline and roadmap for railways: we have spent about 5 months in the business. We are very optimistic about the potential that the business presents from a medium-term perspective. As of now, we are working on meeting the demand, as you can see from the order book as well, there is order book, which is higher than what the business run rate is. So we have to scale up to meet the demand, which is quite strong. Over the medium term, we have to add new products. We are working on our existing product, adding new varieties of brakes, couplers, suspension, and then we have identified new areas where we'll enter from the next 3 to 5 year perspective. So we do see a strong growth potential and we have mapped out the new products, which will be a key driver of growth over the next 5 years. This is our playbook: whenever we do an acquisition, if we don't bring value in building it into something more than it was, then why have we purchased it? So that's exactly the same thing we did with the motor business when we did Comstar. Take a single product with this and try to make it multi-product, because that is all that we know.

On the railway business: you have 13 billion worth of orders in hand. Can you talk about the potential, because you are enhancing your capacity as well there. And on profitability - at the time of the acquisition, we were very clear that there's a lot of inefficiencies at the plant and scope for improvement in margins. Can you throw some light on that?

All the things you stated are correct. There are some low-hanging fruit in terms of the ability to improve margins. We are working on those. There is a larger opportunity to improve cash conversion cycles because I wouldn't call it inefficiencies, but the way automotive works and the way railways production works are different. We are trying to bring that rigor, that TQM approach, that theory of constraints type reviews so that we can improve every week a little better than we were before. And there are enough areas that there is, I mean, there is enough juice left that we can squeeze out of this on the margin front. Growth should be robust. I think this is some of the constraints for achieving this growth are 100% in our country. And actually, that's a really heartening thing because in a lot of the other verticals we are, mostly we are affected by macros that we can just sit and worry about, but can do nothing about. I can't go sell cars on behalf of my customer. I can't change global trade policies. But here, demand's not as big a constraint as it is in other spaces.

On overall profitability - you stated that one of your largest EV customers, which was 23%, came down below 7%. EV revenues in the first half declined very drastically. Despite that, your overall profitability margins are very steady at 25% plus. How should one think about these profitability aspects?

Sure, so pressure is a privilege, man. Like, pressure is only on people who are capable, and you expect things from them, right? If there are low expectations or low capability, there is very low pressure, and you can live a more peaceful life. So it takes a lot of doing. So if you see a duck in a pond, it seems as if it's gliding effortlessly, same margins all the time, but, you know, it's paddling furiously under the surface. There is a lot of work that goes into it. In every single process, there is some room to improve. Even after 25 years of doing the same thing over and over again, we are finding new areas where we can lower costs. Prices, you can't really manage, right? Prices are set by your competitors. What you can do is manage your house better. And that is a continual process. Every week, every day, every year, you have to keep getting better. I mean, 8th April, heavy rare earths got banned. We shifted to light within 3 months. Now lights may have a problem. We have shifted to ferrite. So it is basically that zeal that if you know how to do every step of it yourself, you can move much faster.

If we are deducting 2,600 crores from order book due to low visibility, then we may also debit some orders quantity in future also.

Of course. The future is always unknowable, but we have done a review. This, I think, one needs to do every 3 years or so. But can it happen after 3 years again? Sure, it can. For the first 10 years of my career, almost never we had the opportunity to correct or, any reason to correct because almost always things used to happen in automotive is fairly predictable. This last few months, and some of those models have been exceptional events, which is why we have done it. But can something like this happen in the future? Of course, there is literally no guarantee of nothing adverse ever happening in the future. So it can, of course.

Many OEMs in India and globally are talking about hybrids. Why is the company not talking about hybrid motors it used to show?

So we are, I mean, it's in our mix. Hybrid is one of our bigger mixes. Hybrid's good for us, I think. In a plug-in hybrid, our value content per vehicle is the highest. We would be very happy if more hybrids come into place. IC is where we make less money. Hybrid is actually most because it also has a starter as well as a traction motor, and the differential assembly is primed to the highest torque drivetrain. So it will be more primed towards the electric side of it. But it is a decent part of our revenue even now. We have 24% revenue share of automotive products from hybrids.

On the margins - they are on a downward trajectory. Want to understand what is the baseline to expect with impetus on growing India and the Eastern markets.

Are they on a downward trajectory though? I think, I think they're on an upward trajectory, but Ok, I think this is a question that, see, when you take, this is just a mathematical thing. This is the first quarter with railway integration. If you take a 26-27% EBITDA business, and that is 80% of revenue, and you add 20% of a EBITDA business, which is 20% of revenue, the margins will go down, in percentage terms. So we have added a full quarter of the railway business which is obviously lower margin. So the margin profile will shift downward. I think the question, the more likely question should have been, how is it still above 25% rather than how is it on a downward trend, because it isn't. I think last quarter, I had said, I had answered this question that where do you expect it to be? And I think I'd said in the range of 23 to 25. And in just this quarter, we've actually done higher than that. But I would say that is the range, 24-25%, and that is our target. Even when we listed, we used to say that between 25 to 27 is our target. Post this acquisition, I'd say between 24 to 26 is what we try to do.

On the suspension motor business - if you can just speak a little bit about whether there are any conversations with ICE customers. You've mentioned about auto wins with electric PVs, but are ICE customers also actively looking at it?

Excellent question, Jay. Actually, suspension has nothing to do with the powertrain, right? So, both kinds of customers are engaged. However, what is happening is most people's new launches, which are coming, let's say one year later or two years later, happen to be EV because even now, EV growth was still pretty high. I think it was 38%. Europe is again going quite fast towards electrification. So what is happening is that if you want to integrate a new suspension in a vehicle platform, you would not like to do it on an existing thing because you don't want to change the assembly stations, etc. So you would want to do it in a new model. And new models are invariably electric for a lot of people, which is the reason. So it's not like we're not engaged with ICE customers. The orders or inquiries we get are for EV, but it has zero bearing on the nature of the product.

On Humanoid Robots - the supply chain is still getting developed. When do you see the J-curve hitting and maybe in 5 years down the line, how big an opportunity do you see in terms of contribution to revenues?

So Jay, I would say let's broaden the definition just to humanoid. Humanoid is the shiny, human-looking face of the robotics movement, but the real volumes are in cobots and industrial robots. By cobots, I mean cognitive robots like robots assisting people in surgeries, people on floors, so many areas. That number is actually much higher. For us, it's both because almost everything that we do, we do motors, we do gears, and we do sensors. Together they form the core of almost every joint and joint in movement. I would still say, I don't think one should try to, whenever an investor is looking to make a business case, add too much of it in 3 to 4 years. It will take a lot. I mean, if you just go by my own lived example of 2016, we started investing and doing things with EV drivetrains. We really made money five years later in 2021 for the first time, and even then it wasn't much. Now is when we really make money. So first 3-4 years, you'll make almost nothing. Suspension motor, another example. In 2021, we started developing first samples, etc. In 25, we started making decent money, but in 28-30 is when you make really big money. That starts becoming a category in your pie chart instead of just going and sitting in others. So, 0 to 5 to get to good or some revenue, and 5 to 10 to go to massive revenue. That's usually the scale. I believe humanoids plus cobots as an industry in 2040 might be bigger than the entire automotive sector put together.

On the ferrite-assisted synchronous reluctance motor development - are there limitations of ferrite-assisted synchronous motors behind us, or are we still in the development curve? Because if it was so easy, it could have, should have been developed earlier as well.

So, in general, you're right, the rare earth magnets have a higher power density, and therefore, it can give you torque density as well. But when we look at ferrite, it has an inherent advantage in that the temperature-related degradation is not there, like you see in the rare earth magnet motors. So, that advantage we have been able to leverage to take care of the power density and therefore the disadvantage in terms of weight increase, which Vivek talked about. So barring the, you know, overall weight increase, we have been able to more or less compensate the disadvantage that we would have moving from PMSM with the rare earth to a ferrite assisted synchronous machine. So overall, you know, in most applications, you can offer this as a comparable product, and therefore, it can be a good replacement. The cost is lower. And, that accounts for a lot. Its lower cost can make up for a lot of things.