Rane Holdings Ltd
NSE:RANEHOLDIN
Rane Holdings Ltd
NSE:RANEHOLDIN
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Earnings Call Transcript
Transcript
Other Earnings Calls
Good day, ladies and gentlemen, and welcome to the Q2 FY '23 earnings conference call of Rane Group. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from Ernst & Young. Thank you, and over to you, Mr. Pingle.
Thank you, Michelle. Good afternoon, friends. Welcome to the Q2 and H1 FY '23 earnings call of Rane Group. To take you through the results and answer your questions today, we have the management team from Rane Group, represented by Mr. L. Ganesh, Chairman and Managing Director, Rane Holdings Limited; and Mr. Harish Lakshman, Vice Chairman, Rane Holdings Limited; Mr. P. Padmanabhan, President, Finance and Group CFO; Mr. Siva Chandrasekaran, Executive Vice President, Secretary, Legal Services; and Mr. M. A. P. Sridhar Kumar, Senior Vice President, Finance and CFO of Rane Holdings Limited.
Please note that we sent you in the press release and also the presentation link of the deck. In case any of you have not received the presentation it is available on the website or in the BSE site of Rane. Or you could write to us at the EY and we'd be happy to send the detailed earnings presentation over to you.
Before I start, I'd like to say that everything that is said on this call that reflects any outlook for the future or which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These uncertainties and risks are included but not limited to what we mentioned in the prospectus and subsequent to annual reports, which you can find on our website.
With that said, I'll now hand over the call to Mr. Ganesh. Over to you, sir.
Thank you, Diwakar. Good afternoon, ladies and gentlemen. I hope all of you had a good Diwali last week. Thank you for dialing in. I'd like to welcome you all to this teleconference. You have seen our H1 FY '23 performance highlights posted on our website. I'd like to provide a few comments on the industry before we move to the company performance. The demand environment in the auto industry remained favorable in H1 FY '23. We saw some easing of supply chain challenges and plateauing of some of the commodity prices in India.
However, semiconductor chip shortage seems to still be a bottleneck in Europe and U.S., where some of our customers had to adjust their production accordingly. Some commodity prices like advanced steel continue to show an upward trend. Passenger vehicle segment has reported the best ever figures in the first 6 months of this year. The share of utility vehicles, which has been increasing in the last 2 years, has now come to almost 49%, thanks to the new launches in FY '20. The commercial vehicle segment registered a good growth during this period, particularly in the M&HCV segment, the growth was very high in Q1 because of the base effect and somewhat softened in Q2. However, the increased focus on infrastructure spending and better utilization of the fleet is expected to help this segment grow for the rest of the year.
Farm tractors has reported best ever production in the first half of this fiscal. This was due to the fact that 2022 was the fourth year at a stretch that the country has had a normal or good monsoon season. 2-wheeler segment experienced good growth in India. However, the exports saw a decline. This segment, especially at the entry level, needs to be watched closely as we understand there are some signs of increase in inventory in the pipeline. The penetration of electric 2-wheelers is about 4% during this period.
The IMF growth forecast for India, though marginally reduced on a couple of occasions continues to be a healthy 6.8%. The global headwinds, however, needs to be seen for any negative impacts on our economy.
With these comments, I will hand it over to Harish for his comments and review of the H1 performance of the Rane Group. Thank you.
Thank you, Mr. Ganesh. Good afternoon, everyone. The group aggregate level, total revenue increased by 33% with strong demand across both domestic and international customers. The EBITDA margin of Rane Holdings consolidated increased by 155 bps, supported by higher volume and improved operational performance. Higher commodity prices, however, limited the profitability improvement. I will now share some details around each of our businesses.
Coming to Rane Madras, we secured or INR 105 crores per annum orders from various domestic and international customers for steering products. With the operational improvements and higher capacity utilization, we expect to achieve financial turnaround of the Light Metal Castings India business. The Light Metal Castings business in America has been able to sustain the operational performance improvements. However, the demand environment in U.S., it is challenging.
Coming to Rane Engine Valve. As we have mentioned before, Rane Engine Valve generates about 44% of its revenue from EV insulated segments and customers. We keep -- we continue to keep a close watch with the development of electrification and try and maximize our EV insulated sales. We continue to progress on the financial turnaround of the business, broadly addressing the following: higher capacity realization and new business ramp up, increasing the mix of exports and EV-insulated segment and manufacturing cost reductions. Strong growth with price recovery from customers and improved operational performance resulted in margin expansion.
Coming to Rane Brake Lining. In our OE business, RBL is the market leader in passenger vehicle segment and has dominant presence in the aftermarket, and we continue to maintain these positions. The EBITDA margin, however, got impacted marginally due to mainly the commodity prices and unfavorable product mix.
Coming to our joint venture with ZF, ZF Rane got an approval under the PLI scheme to localize both air bag inflators as well as seatbelt webbing. We continue to introduce latest technology products from our joint venture partner's portfolio. We also won orders for about INR 240 crores for our occupant safety products and INR 150 crores for steering products. Steering business benefited from the recovery of the commercial vehicle segment and especially the increased demand from the M&HCV customers. Strong offtake from both domestic and export customers continue for the occupant safety business.
Coming to Rane NSK, our manual steering column business benefited on account of the upcycle in the commercial vehicle segment. Our electric power steering business faced slower demand from Maruti mainly due to the served models having semiconductor shortage.
The adverse product mix and increase in logistics costs impacted the profitability of this business. As Mr. Ganesh said, we continue to remain cautiously optimistic about the demand environment and the opportunities ahead. The geopolitical situation and the effect of monetary tightening remains the major headwinds.
With these remarks, we will now open to any questions that you may have. Thank you.
[Operator Instructions] The first question is from the line of Viraj Mehta from Equirus Capital.
Congratulations for the set of numbers. My first question is regarding our U.S. operations. We continue to lose money in the U.S. What is the strategic thinking in terms of the Group? By what time -- and I know you have been discussing internally about it. So by what time do we think either we can break even or will pull the plug on this operation?
I think we had indicated somewhere and toward late last year that we are committed to this business for another period of 2 years. And we did see positive development in the U.S. -- our order booking as well as the U.S. economy at that point in time. And we continue to remain -- state the same. Our position is we will take stock during '23, all our strategic options, 2023. Of course, the recent challenging situation in the U.S.' economy is only complicating the situation. But having said that, there is no change. So somewhere during the course of 2023, we will take a view on what our strategic options are.
Sir, if I look at -- at least the steel prices, and I don't know about specialty steel, but prices, we have seen significant correction from the peak in terms of the prices that we see. But we do not see that kind of improvement in our margins, especially how low the margins were for some of our companies. By when do you think we will essentially get the benefit of some of these lower commodities? Will it by Q3, will it be by Q4?
I mean if you see actually, even as of today, the steel price is higher than what it was 12 months ago. So while there has been some increase, we are yet to feel the impact of the increase -- and the decrease in a significant way. We are also hopeful that the commodity prices will start coming down. So I mean, if that -- if the commodity prices continue to come down rapidly, then I think in another 1 to 2 quarters, we will start seeing the impact.
And sir, can you talk a little bit about NSK, both in terms of operational performance, we saw a much lower margins in NSK this quarter, which is very different from all the other 4 companies that we operate, which saw an improvement to some extent, NSK saw margins going down. And also, obviously, the second question is regarding, do we see any more of the write-offs that we made -- or last year was the last write-off that we saw.
Yes so the first question, I think I mentioned it in my opening remarks that unfortunately, for Rane NSK, the served models that we supply to Maruti Suzuki, those models had more semiconductor shortage. So as a result, our top line got impacted more than otherwise would have happened. So it's not in line with the market. So that was -- so as a result of that, there's been a margin squeeze. As far as the warranty issue is concerned, I think whatever provisions that was there earlier when we did the incremental provision about 6, 9 months ago, the anticipation was that will be the highest. As of today, that continues to be the situation during the year, depending on how the next 6 months progress, we will come back. But it is difficult to give a clear answer how it will continue.
And sir, we have generated around INR 88 crores of operating cash flow, assuming the run rate continues, probably we'll do INR 180-odd crores of operating cash flow. What is your CapEx for this year with that kind of cash flow?
So INR 37 crores is our CapEx plan for the year.
INR 37 crores. So is it fair to assume that the rest of the money will be used to reduce the debt?
Yes.
[Operator Instructions] The next question is from the line of Abhishek Getam from Alpha Invesco.
Sir, I just wanted to [indiscernible] sales in H1, how much was occupant safety and after that, how much was domestic occupant safety?
Yes. If you're asking for Q2 data or first 6 months.
First 6 months will be good.
Yes, 6 months is INR 436 crores is for the occupant safety and the steering is about INR 402 crores.
Okay. And out of the INR 436 crores how much was the domestic?
Yes. Out of the INR 436 crores, domestic was INR 172 crores.
And certain new orders which we are receiving on OSD and that is correct. That is mostly from domestic orders?
No combination of both, largely domestic, but some exports is also there.
Next question was NSK. So in my calculation, I think we had total provisioning made over the last 2, 3 years is almost INR 475 crores. So how much then that is too stand utilized out of the INR 475 crores provision?
The total provision, my understanding is about INR 490 crores. And so about INR 50 crores is remaining.
Sir, on the NSK, sir what -- the understanding is we've seen a revenue jump in H2. But is it mostly because of dollar appreciation or how will be then the financial we've been making in the casting business in volume, what is the volume growth compared to the value growth in NSK?
No, see, the volume growth compared to last year has been much better because last year is also a COVID year. But however, the semiconductor shortage in the U.S. market has impacted our own plan. So we are not in line with our plans because -- largely because of the semiconductor shortage. And of course, the last 1 or 2 months development of what's happening in the U.S. economy, this is adding to the concern.
And this year we on LMC. So can we breakeven at INR 200 crores LMC?
LMCI, India?
LMC, I mean the U.S., can you break in at INR 200 crores. I think the earlier guidance was, I think, the earlier guidance cited $40 million, $45 million something like that.
Yes, it has to be in that range, about close to $40 million. Of course it is also a function of the aluminum price because that plays a big role. But in today's aluminum price -- yes, it's about $40 million.
And last question...
I would request you to rejoin the please. We have the next question from the line of Akshat Hariya from Multi-Act.
So my question was with regards to our NSK JV. So if you look at the revenue growth, which we have done in the JV, is about 15%. And when we compare that to the revenue growth of our largest customer, their production volume growth for the first half has been about 34% to 35%. So could you please let us know some specific models, which have been facing the semiconductor issue because of which we are significantly lower than the customers' volume growth?
So there are certain specific models, which is Baleno, Swift and Celerio where the production was not in line with their plans, but some other vehicles where some of them which we are not there, they did higher sales.
So these models would -- like these 3 models are like 100% single source with us?
Yes.
And sir, Maruti has launched some new models, especially in the SUV segment, Brezza and Vitara, they have relaunched Breeza and launched the Grand Vitara. So how has been our wins are we present in any of these platforms?
We are happy to say that we are in those platforms.
Okay. And we are single source over here, sir?
Yes.
We have the next question from the line of Krishna Kumar Srinivasan from Lion Hill Capital.
Congrats on a set of improved numbers across the board. Sir, on NSK Rane, you just mentioned that you bought some businesses on the models that the previous person asked. But in the presentation, we don't see any order wins we mentioned in the electric power steering savings for Rane NSK, INR 75 crores for manual steering. So could you just clarify the...
Yes. So what we report when we say we won an order for INR 100 crores here, INR 200 crores there. These are purchase orders that we receive in our company. But most of these go into production either 12 to 24 months from now. So what you are seeing today the Grand Vitara and the Toyota Hyryder, we won the order more than 1.5 years ago. So we usually report that.
So since we don't have probably the old numbers with us. If you look at it on a comparative basis of the order book momentum getting better from model wins basically? Are we getting better in both Rane NSK and ZF Rane, are we getting better?
As far as Rane NSK is concerned, definitely, it is -- the order book is slightly better. I mean, for sure, it is not decreasing. It is slightly increasing. It's -- so that's how I would put it. So even in the subsequent quarters also, there are some more orders that are likely to come through. So there's no concern on the order booking of Rane NSK. And I can repeat that the warranty issue has not impacted the future business with Maruti Suzuki. As far as the ZF is concerned, yes, the order booking continues to remain quite robust, especially on the safety systems' side. And as you know, the order booking is driven not only by the continued export orders, but also by the recent legislation of the government for 6 airbags from October 23 that has resulted in order expansion.
Sir, on the American diecasting business, you're mentioning that the revenue numbers based on aluminum prices, but just to get a sense of what's the overall capacity there? And where are we in terms of run rate utilization level, sir, broadly speaking?
Yes. Approximately, on the casting side, the capacity utilization would be close to about 70% now. And machining would be closer to about 80%, 85%.
We have the next question from the line of Prashant Rishi from Cascade Capital.
Sir, in the Q2 update for Rane Brake Liner Limited, it is mentioned that the sales to OE customers grew by 25% year-on-year, while sales to aftermarket customers grew only by 1%. Just wanted to understand why such a huge difference between the growth in 2 segments?
Just hold on one second. I'm not clear what the confusion is, we grew by 36% on the OE side, and we grew aftermarket by almost 90%.
Sir, Rane Brake Lining only Q2, Q2 FY '22?
Q2 to Q2, we are looking at half. So clearly, in Q2 and aftermarket, the northern zone, north zone sales has become a little -- what do you say, the material has not moved as much as we anticipated during Q2.
So going forward, it will probably jump back to the normal levels? Or is there a significant slowdown we are seeing in the aftermarket?
Anticipation is, it should start improving.
We have the next question from the line of Sunil Kothari from Unique PMS.
Congratulations for the really changed presentation and very improved. Just I would like to suggest please introduce one slide on outlook also, which I think previously we were showing on our presentation, but this is far improved. Thanks for that. So sir, broadly, what I would like to understand from you during the last 2, 3 years, we must still drive and develop internally so many new products so many new customers, new segments. So if you can qualitatively talk on the internal efforts and development we have done without losing any customer or products, but what the scope, what type of acceptance we are getting for those new things which we are trying to develop.
So some qualitative talk on that. And second, related to that only, basically, we are hearing a lot about consolidation of supply base at global level and domestic level also. And there is a clear tilt towards the bigger supplier and capable supplier from unorganized and small player. So what we are -- I mean, observing of this last 2, 3 years trend, people are talking about China plus 1. Now people are wanting work from -- European customer want more from India rather than China. So it seems global level also changing. So some qualitative remarks and detail explanation on this will be really helpful.
Yes. Definitely, Sunil, I'll try and answer the question. So as far as the first question is concerned, I will talk about 2 companies where a lot of activities are going on. One, of course, in Rane Madras, as you are already aware, the hydraulics portfolio is steadily growing. Our penetration with the hydraulics products in the tractor segment continues to increase. And we are confident that our share will continue to rise in the coming years in the hydraulics. As you know, in the mechanical, we are already a strong #1.
We are also adding one more product line into the hydraulics range, which is in the advanced stages of trials and introduction. So I think there is a lot of activity going on in that segment. And of course, the other one is the whole China plus 1 export pipeline for Rane Madras is looking very good. Already from last year to this year, as you know, we have launched several new programs that are under production. But the RFQ pipeline and the businesses that we are winning is also very optimistic. The other company where, again, a lot of activity is going on has been ZF Rane.
I think here, also, of course, the -- on the airbag side, in addition to winning new businesses, thanks to the initiatives on our localization and fortunately, the PLI scheme launched by the government, there is going to be a lot of investment going towards localization. So which should also help our margins in the coming years because we are -- as we said, we are localizing our inflators, as well as some -- our seatbelt webbing, et cetera. So there is a lot of expansion going on towards these products.
And in terms of overall growth, I think clearly, for Rane Group, as I have articulated earlier, we do have significant plans for growth. Of course, for us, the last 3 years has not been easy at all. In addition to COVID that everyone suffered, we also had the Rane NSK warranty issue as well as our America investment, not working out, going to plan. So we are waiting to solve these 2 before we make any significant capital commitment in new areas. And also, I want to caution that in Rane Group, today, even today, 93% of our sales is EV agnostic. It doesn't matter whether the vehicle is ICE engine or electric, all our products should be there. So 93% is protected. So we don't want to be forced to take any decision. So today, 50%, 60% of our sales is coming from ICE engine, maybe we would have taken certain decisions. So we are waiting. There is a lot of work going on and adding more portfolio. It could be through more global opportunities that we pursue as well as reduced consolidation in the domestic industry. So we are evaluating all those options.
I think the way [indiscernible] opportunity seems to be really good, and we are now well prepared also due to whatever challenges we took. So sir, just message to convey you, we have lost almost a [indiscernible] American operation during the first half. And we are trying over this. But unfortunately, that is not moving in the way it should have been. And we are using our top talent, our energy and our strategic talent also. So as an investor of your long-term investor, what I would like to convey even if you want to take some strategic decision maybe in near future, maybe sell off of debt operation or closing out and taking some write off maybe $15 million, $20 million. That also we will be as an investor ready to support. So just like to convey a message to Mr. Ganesh to your Board. So please, investors are very aware about this type of situation in any organization, in any industry and any business. So please, if you feel right, please take a decision and cut it off because we have so much opportunity domestically and with Indian operations. so that's my say my request.
Definitely, Sunil, we understand your sentiments and appreciate what you expressed. I think for sure, we will take definitely the appropriate decision. Last 3, 4 years has not been easy. And obviously, we wanted to put best of efforts. But as you have correctly said, various challenges now even currently, the U.S. economy, the war was not anticipated, the impact on economy is also making it challenging. So during '23, I'm sure we will take the appropriate decision.
[Operator Instructions] The next question is from the line of Jigar Shroff from Financial Research Technologies.
Congratulations on good results. So I had 2 questions. One is, sir, in the last conference call, you mentioned that you were to negotiate with our Japanese partners regarding the warranty claims with NSK Japan. But due to the COVID situation, I mean it had got delay, you could not visit Japan. So any update on that? So that was the first question. And secondly, sir, any update you'd like to share in terms of consolidation of merging all companies and consolidation, which you said you were looking into it -- any updates on that?
So to answer the first one, yes. Japan has opened up and visits have taken place, but the matter is not yet concluded. The discussions are still going on. As I said, it's not only our joint venture partner, but discussions are also going on with our customers. So as I articulated in the past, it's a complex issue. So as and when we reach a conclusion, we will definitely share with all our investors. As far as the second subject is concerned, again, the answer is that we continue to evaluate this continuously. And at the appropriate time, when we believe we are ready, we will share our plans with the investors.
But the management is seriously looking into it, right, in terms of consolidation.
Yes, we have all -- I mean, we've been looking at it for a while now. So we continue to look at it. Yes. Absolutely. We recognize that for a group of our size, we have too many listed companies. It's something that we clearly recognize that we need to act on it.
We have the next question from the line of Viraj Mehta from Equirus Capital.
All my questions have been answered.
[Operator Instructions] The next question is from the line of [ Manish Goel ] an individual investor.
Sir, a couple of questions. First, continuing on Rane NSK. I believe in the last call, we heard at that point of time, we had used around INR 400 crores, INR 410 crores out of INR 490 crores on the provisions done and now we are just left with INR 50 crores. So maybe if you can give us a perspective as to incrementally, what are the kind of recalls we are seeing or replacements we are seeing? And going forward, what should we expect, sir?
Manish, as I indicated earlier also, yes, there is only INR 50 crores remaining. I must tell you that the warranty situation has definitely improved compared to where we were some time ago. Now however, it is difficult to predict whether this INR 50 crores will be sufficient or more will be needed. But that is also a function of the ongoing negotiation with our customer and joint venture partner, et cetera. So therefore, I'm not able to give a clear picture as to how the future will be. But as of now, in the first half, after discussing with our auditors, joint venture auditors, there is no incremental provision that is needed.
So like probably can we take it positively in terms of that probably in future, we may not see any significant provisions?
That's what -- I'm not able to say that I don't want to say there are positive or a negative units if there are too many complexities to give a clear picture at this stage. One thing is all the problems, are -- the engineering actions that we have taken and the results we are beginning to see in the field, it is reducing. So that is one definite positive.
So you had already indicated that remedial actions have been taken, and you don't see warranty requirements from the new products from the probably the corrected version of it, right.
Yes.
Sir, on -- coming back to, I just want to support what Sunil has mentioned on our U.S. subsidiary in terms of -- from our side and a lot many investors have been requesting you on that front. Maybe, say, probably 6, 8, 12 months back when you would have taken a decision as you want to probably remain committed for the business for 2 years. And at that point of time, you did see order booking improving. But after that, probably in the last 6 months or probably 8 months now that after the war has started, things have deteriorated significantly. So would it be prudent to kind of still wait for another 1, 1.5 years to probably evaluate because we don't see any significant improvement despite aluminum prices have fallen in last 3 months. So directionally, why is it that probably what is stopping you to probably take the hard decision, sir?
Right. No, no, I think Manish, exactly 1 year ago, 1.5 years ago when we informed our investors that we are going to stay committed. That was based on a certain order book that was there. And at that point in time, there was -- nobody had talked about semiconductor shortage, and nobody had also talked about the current slowing down in the U.S. economy. I think definitely, nothing has changed in the order book. Whatever orders we won, that continue to remain intact.
Some of them have gotten delayed due to the semiconductor shortage and some -- the volume has also dropped due to the semiconductor shortage. So even as I said, even this quarter, we should have done much better, but for the semiconductor shortage. So I think clearly, these unforeseen an out-of-control events of ours has again not helping improve the situation. So as I indicated, sometime during '23, we will take certain decisions, whatever decisions we take, whether we continue, whether we sell, whether we wind down, these are -- again, involves a lot of preparatory work. So unless we are clear which path we want to take and what it is, we won't be in a position to share.
Yes. I appreciate that, Harish, because as a minority shareholder of Rane Madras, we have seen significant dilution of equity in last probably 3x we have done preferential issue to support our U.S. subsidiary where we have already invested to INR 240 crores and still the ask rate is continuing. So that is how probably as a minority, we are like are suffering a lot because of this. One is equity dilution and then second is on the outlook still not clear.
Understood, Manish, understood.
And last question, sir, on the -- your strategic pillars of growth, particularly, I would want to understand on increased focus on aftermarket, what you have mentioned. So which are the companies which you will be focusing? And how do you see that revenue contribution over a period of next 3 to 4 years from aftermarket?
Yes. So as far as aftermarket is concerned, yes, there is a renewed focus. And I think one of the things that we have done in the last 12 months is to synergize the coordination between all the group companies and try to focus on more of a one Rane brand. Traditionally, in the aftermarket, Rane brake lining is seen as their own strong player, Rane Madras, in their own field, it's seen as a strong player. So Rane Engine Valve, et cetera. So now we are synergizing across the 3, including in terms of management, et cetera. So that synergizing is underway, and we are clearly beginning to see benefits of that. So I think going forward, we expect the synergy benefits to help grow the business faster, and we are also taking more aggressive targets.
Any number would you like to put on revenue contribution to the overall group sales? In exports, you already have been talking about 25% to 30%, like aftermarket any...
But today, I think we are about 11%. Is it? I think -- but no, we have not set a percentage of sales target, but we have some other internal targets of -- today, we are at a group level, I think for the year, we are close to about INR 560 crores. So we are looking at doubling that in the next 4 years.
The next question is from the line of Abhishek Getam from Alpha Invesco.
I just wanted to ask on Indian -- so out of the total revenue in Q2, how much was from stationary vehicles -- stationary engines, engine oils for Q2? Because I think this presentation we have clubbed 2-wheeler and stationary.
Your question is only regarding stationary engines or nonautomotive. Because even railways and defense certain things are nonautomotive.
Okay, sure. [indiscernible].
So it's about -- it's about 10%.
10% of the total.
Yes.
But I think historically, what you have done is we had a 28% share roughly 20%, 25%, 28% share from stationary engines, right, in engine valves?
The 10% that I talked about is only domestic. If I add export, it will be another 16%.
So 26% in total.
Yes.
Sir, in previous calls in annual report, we do talk about R&D being driven in engine valves and that's what we're focusing on in engine valves and for different fuels and ethanol or something like that. So how is that progressing or any commentary, anything to share?
Yes. No. So we are continuously working on some -- I mean, obviously, even CNG, we are already there in some of the CNG engines in the country. We are also working on the flex fuel valve prototypes, as well as even future for hydrogen is something that we have started working on. I think these -- all these capabilities are definitely incremental for Rane Valve. So we are confident that our R&D engineers and whatever budgets we are spending can develop these technologies.
So for this year, I think you make INR 10 crores per R&D engine valve.
I don't remember the exact number, but definitely, there's some CapEx towards R&D this year.
And what is the time line for capitalizing or monetizing on the R&D or in Engine Valve?
Sorry, I didn't understand your question.
What is the sort of the expectation on the R&D they are doing or the way to monetize this? Or how do you see the market for this?
No, no, that's what -- we are in addition to whatever R&D we are spending for continued increase in exports, for example, hollow valve is another technology in valves, we are investing in R&D for hollow valves. We've also got some business already. And in addition to that, all these different alternate fuels also. So this is a continuous process. Based on this, we have customers that we are targeting and sales that we're targeting. So we don't just try and say how can we monetize the R&D investment, but we look at it more to fund our growth. And hopefully, with this R&D investments that we continue to make at 10% to 12% CAGR for the Valve business is definitely a possibility.
Sorry, revenue growth of 10% to 15%?
Yes. I mean, it also depends on how much the domestic market moves. Yes.
And on this, you mentioned -- okay. So I think you mentioned there are some specific brand-wise programs also done. So is it like for special OEMs you're doing any R&D specific programs? Is it something like that also?
Yes, yes, yes. Depending on what customer requirements are, if there is a specific R&D project for a customer, we do that.
And that might end up in a mandate to production.
Correct.
We have the next question from the line of Akshat Hariya from Multi-Act.
Sir, in the previous answer, you mentioned that we are the sole supplier to these new models of Grand Vitara and Brezza. So just wanted to clarify that we'll be sole supplier for the entire steering system? Or would it be like for gears or for columns or something like that?
Yes, my comment is for the electric steering. The gear is sourced separately. So some we are there, some [ Jay Tech ] is there.
But for the electric column, we are there, 100%.
Yes.
And sir, with regards to the semiconductor shortage issue, which is having a bearing on our growth in NSK, this specific models also that we mentioned have seen a decent growth of higher than 35% in H1 versus H1, Baleno and Celerio. So would there also be an inventory lead lag impact in this or any change in share of business which we are seeing?
No. I'm not able to comment on that. Yes. See, we must also look at -- we should not only look at sales, we should look at the quantity as well as the pricing. There are also some contractual price reductions that we pass on every year to certain customers. So that, sometimes the top line growth will not be commensurate with the volume growth. So that impact is also being there.
So our volume growth would be better, but we've seen some price reductions because of the pass on, which is there in the contract.
That has also contributed a little bit, yes.
We have the next question from the line of Jyoti Singh from Arihant Capital Markets Limited.
So my question is like where you are single source for Maruti. So which are the parts that we are providing to Maruti in that single source.
So when we are single source, we have for certain platforms. Generally, in most of the cases, Maruti for one particular platform, they'll have one steering supplier and for another, another steering supplier. So I don't know if that answers your question. But if your question is for all products across the group, it's very difficult to answer because we supply engine valves, seat belts, the rack and pinion steering, brake pads, so it's very difficult to give a general answer.
No, no, that's fine. And sir, what are the margin we target going forward for FY '23 and '24?
We generally don't give forward-looking statements because it's very difficult to predict with all the changes in the environment.
And sir, what's the outlook on the chip shortage issue as we were facing that. So are we seeing issue resolving on forward?
Yes. So as far as the domestic Indian market is concerned, definitely, last quarter and this coming quarter, Q3, from -- based on what we hear from our customers is the situation has improved. But I don't think the same can be said for some of our European and American export business. There, we are still losing sales, potential sales because of the chip shortage. But what we hear from our customers is definitely 2023, things should improve.
And sir, last question on the energy cost side, as we are seeing sudden jump in the energy costs in Europe. So are we facing any issues because of that?
No, actually, the -- a lot of our plants are in Telangana and Tamil Nadu. In both these states, the government has increased the electricity charges. But having said that, we continue to use a lot of renewable power. We are big consumers of both solar and windmill, in fact at a group level we are almost 40% -- is -- 32%, sorry, 32% is renewal across the country. And so I'm not able to understand your comment on whether there's been significant increase in energy charge? Whatever is a state government related charge that definitely is there.
We have the next question from the line of Pratik Kothari from Unique Portfolio Manager.
Just one question on the U.S. subsidiary, again, the diecasting business. Given the order book that we have now, given the changes that we have made operationally over the last few years there, assuming a lot of temporary headwinds that we are facing that subside be it semiconductor, be it issues after the close of war. 6, 12 months out, how should the subsidiary look like financially and also operationally?
That is what as I said, it all depends on how much the semiconductor shortage problem goes away. If the problem is totally eliminated, there can be a substantial jump in [indiscernible]. As I said earlier, we have capacities and we have orders also in hand. Now how the customers are going to ramp up, et cetera, is uncertain. So therefore, we are not able to give a clear picture. But theoretically, if all the orders we had in hand and the customers were achieving 100% of those orders that they have given us, we should be in a much, much better position. In fact, there will be no cash loss, which is what we were hoping for 2 years ago or 1.5 years ago when we had shared with our investors.
And when you say no cash does that also mean we should be testing about $40 million of revenue.
Yes, correct. Again, I am -- with the caveat with today's aluminum prices.
We have the next question from the line of Sunil Kothari from Unique PMS.
Sir, what efforts we are internally taking to reach maybe double-digit volume. I'm not asking any time line, but Rane Engine Valve has now size is also quarterly we have crossed stand-alone INR 550 crores plus. Are you guys getting good business, new business, new developments. So would the possibility and what efforts are we doing to cross double-digit EBITDA margin for Rane Engine Valve.
Yes. So I mean there is definitely a lot of work going on, Sunil, there are 2 things. One, I mean, as everyone knows, the export profitability tends to be better compared to domestic. So without, of course, but domestic is a very important market from a technology standpoint and leadership standpoint. So without losing focus on domestic, we are continuing to enhance our export mix. So that should help the margin. Over and above that, there are many cost reduction initiatives the management takes up on an annual basis. So clearly, there is a lot of work going on to have a sustainable double-digit EBITDA margin.
And sir, same question for Rane NSK value. I mean, at least almost 1/3 -- more than 1/3 aftermarket, we are below 10%. So what is aggression or this is a temporary phase? How do you see that?
Yes. This is largely due to the commodity increases that we have not been able to recover from our customers or on our customers, for example, in the case of aftermarket, et cetera. So that is the main driver. Of course, various cost reduction measures are also underway over there. But ultimately, commodity prices, we are not able to fully offset in that business.
We have the next question from the line of [ Khush Shah ] from Electrum PMS.
My question was regarding the recent Maruti recall of around 9,900 odd units, which had a defect in the brake assembly related component. So #1, are we involved in it? And #2, how will that impact us going ahead?
Yes. We are not involved in it, so I don't know the details.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
So thank you very much, ladies and gentlemen. So we hope to continue this improvement journey and some of the issues that have been bothering the group for the last 3 years. I hope by '23, we will come to some resolution on both. And then the growth will help us to accelerate the performance of the group in terms of profitability and return to investors. I really look forward to a much better year in '23. Thank you very much for your attendance, and thank you for your participation.
Thank you. On behalf of Rane Group, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.