On the four-wheeler value opportunity - what would be the value if you were to share a range?
Can't, yeah, because then people can read this and then negotiate against me. Some have already started, this quarter some more programs will start, so it is coming in faster than anticipated. And obviously, the big boy piece, which is the four-wheeler bit, is something that we are working on, and hopefully, we can share something in the times to come. All plug-in hybrids also have traction motors. If you add that total volume and combine, multiply that by the value of the motor and controller, the addressable market is humongous.
Continuing on profitability of this RFQ opportunity - we used to be a 27% margin company when North America was big. How do you think about profitability movement as these orders come? Second, India is becoming big - your outlook on commercial vehicle which has been growing 20%+ in last 3 months after several false starts?
On CV - we have a good insight because we are above 80-85% of CV industries are our differential gears. It is always wise to wait for 3 months before you take any judgment call on whether a CV cycle started or not. We have seen 5 false starts in the last 5 years. I hope this one sticks. India has done well because of traction motors, trucks, tractors, and train brakes - all 4 T's. On margin, same answer I gave when you asked in April-May 2021 before our IPO. After we acquired the railway business, I said it will be between 24 to 26. I don't think it will change. These are the projects we are talking about, if I take their total value, may be 2 to 3 times our revenue size. We can't possibly do all of them. So we will try to be prudent and choose opportunities that are more commercial vehicles, bigger vehicles, SUVs, pickup trucks where torque is high, and value addition naturally is high. Empty growth type programs we will almost always reject unless there is a high strategic reason. On India piece, hopefully EU-India FTA should happen. I'm also keeping fingers crossed for an India-US trade deal. We do not seek that India should become 80%, because what is the meaning of diversification then?
Are there discussions with Europe OEMs at an advanced stage for orders relating to driveline parts due to bankruptcy of three competitors? Would total railway revenue be 357 crores this quarter?
We don't report segment wise or BU wise revenue. We are trying to take this away from this almost Excel sheet-oriented approach. Our job is not to help build better models. Our job is to run a business. These 3 things are product lines. Our job is to ensure that on a consolidated level, we as a company continue to do well. What contributes is an internal MIS metric. We have always been very transparent on that. We have not ever changed or gone back on how much we report, but more than that, sometimes becomes analysis for no real outcome.
Update on partnerships - Enedym, C-Motive, Equipmake - in terms of product development? Also when you talked about four-wheeler traction motor - is it for cars or other commercial vehicle segments?
We are working on it doesn't mean we have a purchase order yet, otherwise we would have put that out. We are working. For all segments, whatever they may be for 4 wheels and above. Hopefully, in 6-7 months time, we will have a meaningful update for you.
Earlier some question marks on light rare earths as well. Is that fine, or is there any risk there as well?
It's fine so far. Don't scare people.
What's the status of products proposed to be developed under the Neura robotics MOU? What is the ballpark TAM you're looking for in robotics and humanoids as this is a very nascent stage?
Do not ask for 5 years. Now, we are much wiser after being public for 5 years. Please do not ask. This is something we are doing. I had explained at length that 0 to 5 years, you spend money, but don't make money. 5 years, you start making some money, 5 to 10, you make money. When we announced our suspension motor, we were met with skepticism and scoffing in 21. Until 24, it was right. We did not make even a single dollar. 25 when we made the first dollar 26 will be when we'll make millions, and hopefully 28, 29 is when we go into tens and hundreds of millions. This is the usual product development cycle. So if this is for making decisions on the near term basis, please do not consider it at all. We make 15-year plans. We don't do this for the short term, and we never will.
What are the tariffs for Sona in the US and EU? Who is paying the tariffs?
I'm not gonna answer this question, otherwise somebody big might get very, very unhappy. Very fundamentally, the tariff is paid by an importer, not by an exporter, because that is how tariffs work. If you import something, you have to pay a tax that is what it is. It's not like Sona has some special arrangement with any country or government. Everybody has the exact same tariff rates if they're from a certain country, or if their products fall under a certain HS code. So, it is defined by HSN codes, and you pay that tariff accordingly.
You have consolidated the railway business during the year, and some investors were trying to assess the performance excluding the railway business. How should we think about this? What is the right framework to evaluate this?
We don't think excluding railways or any business that is a BU now is a way to assess management or company performance. Acquiring the railway business was a strategic capital allocation decision. The key test for us is whether it has added to EPS or has it not. There are 2 years that we've done meaningful acquisitions of size: the motor business in FY20 and the railway business in FY26. Both times we were able to time the acquisitions right and at a return-accretive price. After 7 months, all 3 businesses of ours are long-term sustainable cash flow machines. What matters to us is whether capital has been deployed at the right price and the right time, in a way that improves both earnings quality as well as earnings stability, rather than how growth appears on ex-railway or ex-motor basis. Going forward, very high probability that we will add another BU. We are keeping our powder dry with a strong balance sheet and 1,000 or 1,100 crores of cash.
On the new products that we have showcased, more on the ADAS opportunity. Are we going to supply only the radars, or are we going to be system integrators? What is the value proposition and competitive advantage compared to what is available in the market today? What could be the TAM?
TAM's pretty big, but we will focus only on the radar module. We can either be Tier-1 to other large system integrators who are bigger Tier-1s or supply directly to OEMs who are willing to integrate the radar modules themselves. Praveen can talk about the cost as well as the technical advantages.
Follow-up on ADAS - can you give more detail on advantages, manufacturing readiness and replacement of ultrasonics/corner radars?
Both, in-cabin as well as exterior, there are several advantages of our in-cabin - it is basically one product which can do all of these functions. The ADAS regulation mandates a few of these functions today like occupant detection, child present detection, driver monitoring systems, but our product can do several other value-added features. We are perhaps one of the early ones to set up a facility in India for the radar product. We will be launching production with our first product pretty soon, which means we'll be able to support all OEM programs anytime FY27 onwards. Exterior product can replace ultrasonics and corner radars - it's almost like half of what they would be spending today. Calendar year 27 is when at different points in time for existing as well as new vehicles, it will be mandated and we are ready to support.
Traction motor solid growth - is this market share gains in the industry given EV adoption in two-wheelers isn't growing as much? How does market share stand and how big is the three-wheeler opportunity?
EV penetration as a percentage of two-wheelers may not have changed meaningfully, but our new programs have started kicking in. We are also expanding the share of wallet with existing customers. Our agility in shifting from heavy rare earth to heavy rare earth-free magnets, that actually helped quite a lot. Capable people with a strong engineering background in these periods of supply chain disruption are usually the one to gain share of wallet and market share. Market share calculation within is harder to give you as a percentage. But I would say comfortably, we would be the largest, in this space, even if you take other vehicle categories. Three-wheelers' opportunity is big and it's actually growing, one of the fastest, and hopefully in the next couple of quarters, you will see the growth being even more solid. As the power and voltage go up, the value goes up nonlinearly. I would expect traction motors and controllers to be our highest growth segment, by far, I think.
On the surge in inquiries similar to post-COVID supply chain disruption - what sort of inquiries are you seeing? Supply chain diversification? Product capabilities? And the Europe opportunity from last call - at what stage are we?
In the driveline, what we're seeing is that about 400 million to 500 million euros worth of revenue companies might just fold, and all that they do will have to be redistributed across the supply chain. When this kind of event happens, the most likely people to inherit this business are China and India, and for political or whatever reasons, for North America, that choice will not be China. So it then becomes India. This is basically redrawing of supply chain maps itself. There was a time in 22, 23, you used to ask me about China plus one - at that time I said it is not as real as people claim it to be, because there wasn't really an imperative to do so. Now there is a financial imperative to do so, so there is a hardcore urgency behind this. As far as conversion goes, almost all of them are what we call stage 3 or stage 4 of our pipeline - product demonstrated, developed, samples approved. Now negotiating commercials. For starters, some of the 5 or 6 large global players are looking at vacating the starter motor field. They may look to shut plants, and that capacity would have to shift somewhere. We are probably 6 or 7 in the world in starters, so one of the top 3-4.
Question from Amyn - how should we think about the recurring impact of labor codes on employee costs going forward?
Our current estimate is it should be around 4 crores a year. The rules and all are yet to be notified, so our understanding will improve as we go along, but should be ballpark around 4 crore per annum.
There is an improvement in gross margins QoQ. What has led to this increase?
So Q on Q, it has to be product mix only.
What is the potential of a hydraulic motor controller?
It has wide applications in the farm sector. In farm sector, you have a lot of agricultural implements which are used for towing, plowing, sowing, PTO operation - all of that runs on hydraulics in most cases. To run the hydraulic pump, you need a hydraulic motor. Application is widespread, in the farm sector. We have just begun with one program, but the opportunity is immense, especially with electrification happening in tractor segment.
In the past you said passenger vehicle is not a focus segment because of high competitive intensity. Is there a change in thought process?
What I'd said was that we will start with 2 wheelers, then move on to 3 wheelers, and then the toughest to compete is in 4 wheelers. So we will go to it in the end when we are certain of the capability of our product. If we are not able to do it ourselves, we'll figure out a way to collaborate, partner, do something, but it is a segment that we will come to in the end. We will surely be one of the at least the 2nd largest in volume terms. I doubt if we're not the largest in 2-wheelers. In 3-wheelers, we have made a meaningful dent. On partnerships - now with the hindsight advantage, I think in public markets, purely R&D types of partnerships should not be announced. All three were trying to develop rare earth free motors. For 200+ years, motors have been made using magnets. To challenge that, you need breakthrough innovation and almost inventive leap. And that does take a much longer time frame. We continue to work with Equipmake, Enedym as well as C-Motive.
Refresh on commodity contracts because aluminum and copper prices have gone up sharply. Is it a pass-through in all our subsegments?
Steel is a pass-through for driveline business, for motor business, copper and aluminum is a pass-through. Steel is not a pass through in all the contracts. It's only a pass through in some of the contracts.
How is the situation on rare earth supply panning out?
I think I addressed that in my opening comment, no supply from China on heavy rare earth magnets. We are still restricted as a country.
On differential assembly - is the EV plug-in hybrid a new program or ramp up of existing programs?
Ramp up of existing programs. There has been no material big program that has started. Any program that started recently would be small ones.
Do you see macroeconomic policies worldwide conducive for EVs? Most of our orderbook is from EVs - is there a risk because of policy changes?
The policy changes that were to happen have happened. When the worst has happened, you can actually breathe a sigh of relief because you're already through it. All EV subsidies or credits that were being given in the US have been scrapped already. This performance is despite all of that - 45% negative growth sequentially for the North America EV market. As battery prices continue to come down, economically, the EV is making more sense. Once the world has seen that happening in China, they realized that even without any incentives, the EV is the better way to go. I think you will see that at least in India and Europe, you will see a very, very high tailwind for EV.
On rare earth free motors - how do they compare in terms of usage or output to rare earth motors, comparison with heavy rare earth or light rare earth which are less efficient?
Between heavy rare earth and light rare earth, the difference is not major. It impacts two things - the performance, which is in terms of the efficiency of the machine and the thermal handling. Between HRE and LRE, we work on different parameters to meet application requirements - copper, size of the motors. There is not a big change between HRE and LRE application requirement. When it comes to ferrite, Ferrite is more thermal-friendly, but power of ferrite is lower than HRE and LRE. The efficiency factor comes down drastically, and even after working on the design with more copper and other components, still it lacks and it increases the weight of the vehicle. The good fit is to replace HRE with LRE, which is without impacting the application and customer requirements. Ferrite is a good option to manage supply chain more effectively, but it comes with a little bit of challenge on efficiency as well as weight.
Regarding the strong RFQ pipeline, how long does it take for the order book to translate to revenue? Or first translate to the order book?
Once you get a purchase order, anywhere between 12 to 18 months is what it takes for revenue to flow and sometimes even longer, it can even go up to 24 to 30 months. Depends on how early that OEM has moved. What we're talking about are also special situations in which it is what is called a running change, that you have a supplier and you're switching midstream. Those typically are shorter time cycles. So, the answer is, very sadly, that it depends. It depends from program to program, context to context, as swiftly as 8-9 months, and as long as 30 months, from start to revenue.
Employee cost has increased 14% QoQ. Can you indicate the reason for the increase and whether further increase is expected in the near term?
No, so we don't expect an increase in the near term. Of course, some part of the employee cost is also linked to the revenue. But the staff cost, there's an annual increment cycle which we have, which is from October to October and that's the reason why you see an increase in the employee cost here. So in the near term, it should not go up.