Sterling Tools Ltd
NSE:STERTOOLS
Earnings Call Analysis
Q3-2024 Analysis
Sterling Tools Ltd
The company faced a challenging quarter with a 6% decline in stand-alone revenue compared to the previous year. Despite solid performance within the two-wheeler and EV industry segments, sales to the commercial vehicle and farm equipment sectors faced significant headwinds. These challenges were acknowledged alongside a forecast for a stronger performance in the subsequent quarter and financial year, with particular emphasis on the contribution of the EV business, which now constitutes 33% of overall revenues, up from 21% in FY '23.
Total income on a stand-alone basis reached INR 142.7 crores for the quarter, with a nine-month achievement of INR 446.7 crores. EBITDA margins for the quarter stood at INR 21.3 crores, accumulating to INR 65 crores over nine months. Notably, on a consolidated level, the total income increased to INR 234 crores compared to INR 208 crores during the same quarter last year, demonstrating overall income growth despite individual sector challenges.
The company reported an EBITDA margin of 12% for the quarter and a margin of 12.3% over the nine-month period. The after-tax profit was INR 39.1 crores over nine months. A focus on strengthening market positions and launching new products is expected to support future growth, particularly in light of the first export order from SGEM.
Management expressed confidence in the continued growth of the EV industry, anticipating strong double-digit growth figures that should align with the company's trajectory. Efforts are underway to expand product offerings and improve margins on existing products, aiming to reach low double-digit margins in the medium term.
The majority of sales come from OEMs (87%), with passenger vehicles, two-wheelers, commercial vehicles, and farm equipment making up the composition of segment-wise revenue. The executive team anticipates the last quarter of the year to be one of the strongest, significantly boosting financial performance in an otherwise challenging year.
While the fastener business remains strong among OEMs in India, the growth opportunities are smaller when compared to the burgeoning EV segment. Management is focused on expanding into new customer portfolios and expects some growth in the coming year, even though a dramatic shift in FY '25 remains unlikely.
Although operating margins in the stand-alone business remain low at 14.9%, the company has implemented cost-saving initiatives and maintains vigilance on cost centers. They expect that Q4 will bring stronger margin structures due to anticipated revenue growth. Looking at the long-term perspective, despite significant revenue growth since 2018, absolute operating profits have remained relatively flat, pinpointing the necessity for a focus on not only cost but also significant revenue growth to improve profit levels.
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Ladies and gentlemen, good day, and welcome to Sterling Tools Limited Q3 and 9 Months FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of the future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Pankaj Gupta, Group CFO, Sterling Tools Limited. Thank you, and over to you, sir.
Well, thank you. Good afternoon, everyone. On behalf of STL Group, I extend a very warm welcome to our quarter 3 and 9 months FY '24 earnings call. I'm joined on this call by Mr. Atul Aggarwal, our whole-time Director; Mr. Jaideep Wadhwa, Director and SGA, our Investor Relations adviser. We uploaded our results presentation on the exchanges, and I hope you had a chance to go through them. I will now request Mr. Atul Aggarwal for his opening remark. Thank you.
Good afternoon, everybody. Welcome to the call. I'm going to dive down directly to more company results, performances. You guys get a lot of industry overview. So you're probably more aware than I am, what's happening in the industry. So let me just dive down broadly as to where we were in the last 3 months and the last 9 months for this financial year. During the quarter, Q3 for FY '24, stand-alone numbers of revenue have declined by 6%. If you look at our fasteners vertical from a segment-wise perspective, the business operations cater to two-wheeler and EV industry have performed very well, whereas our sales to commercial vehicle and farm equipment sector witness headwinds causing us to stress in our revenue growth.
We also have some issues in our customer portfolio. We'll get into it in more detail in the Q&A. Having said that, we expect to mitigate these concerns and risks with a stronger performance in Q4 and the next financial year. Our EV business under SGEM, it has contributed to 33% of our overall revenues versus 21% in FY '23. So that vertical is showing tremendous growth, and there's a lot of momentum in that business. We have also completed the localization of the MCU for our LCV category, which indicates our commitment towards working on new products in the EV ecosystem. SGEM gives us a great trust on technology and in line with our vision. The company has embarked on a ESOP implementation as well. We're excited to inform that SGEM has booked its first export order, a testament to our efforts as a team and product quality.
Finally, a couple of large other strategic developments. We are pleased to announce to strengthen the Sterling Tool leadership team at the Board level with induction of Ms. Rashmi Urdhwareshe and Anish Agarwal, the profiles have already been uploaded on the exchange and the part of the deck as well. They will bring in unparalleled experience to drive innovation and success. Their extensive expertise is poised to fortify the company's strategic objectives, ensuring continued success in this sector. Their visionary leadership seamlessly aligned with our commitment to innovation, reinforcing our readiness for sustained growth in automotive ecosystem. I'm going to hand back to Pankaj, who will give you more insights on our financial numbers.
Thank you, sir. So I'll give the financial highlights for quarter 3 and 9 months FY '24. Total income on a stand-alone stood at INR 142.7 crores and 9 months, we achieved INR 446.7 crores. EBITDA margin for the quarter was INR 21.3 crores, aggregating to INR 65 crores in 9 months. EBITDA margin stood at [ 41.9% ] and we had a profit after tax of INR 36.2 crores in 9 months. On consolidated level, the total income increased to INR 234 crores in quarter 3 as compared to INR 208 crores in quarter 3 last year. Our EBITDA margin stood -- planned EBITDA margin stood at 12% in quarter 3 and 9 months EBITDA margin stood at 12.3%. Profit after tax aggregating to INR 39.1 crores in 9 months. Thank you, everyone, and we can begin now the question-and-answer session.
[Operator Instructions]
We have a first question from the line of the Deepan Sankara from TrustLine PMS.
So firstly, from my side, so what are the drivers for such strong performance of EV business in the current quarter? If I put together Ola and MCU volumes for the current quarter, the growth is coming only around 23%. So the higher growth in volumes, how is that possible? Is it due to new customer additions or higher volumes from the LCV business?
I have to say that currently, while our confirmed orders have -- we have now got 20 customers that we have confirmed orders from. I don't believe that the LCV or HCV businesses today make a significant impact on our revenue numbers because these are -- these productions are -- the customer programs are still to really take -- get traction in the market.
Our performance is based on our existing customers and their growth. It cannot be -- it's not easy, and I think we've discussed this in the past also that it's not easy to match exactly the numbers on a -- even on a quarter basis because there is obviously some stock building or stock depletion that takes place with various customers. So we continue to do well with the customers that we have. We continue to be 100% suppliers to them -- sole suppliers to them. But the LCV and HCV businesses are -- have yet to really get traction because our customers have not launched these products in the market fully as yet.
Okay. Got it. So that means to say even the other 2 customers, Swaraj and JCB also could have performed the -- well in terms of volumes?
So all across -- I mean, we've got a number of customers. So the -- all these customers have done reasonably well. We have done slightly better than -- if you look at the overall market for high-speed scooters, which is our biggest play, we have outgrown the market, but that's really to do with how our customers in this market have done vis-a-vis their competitors.
Okay. And also, could you please throw some light on our strategies on increasing revenue content from non-Mono type of customers and also non scooters business in the areas of LCV, PV and MSCV over the medium term?
Yes. So we've -- LCVs is something which we are very excited about because we've got contracts from mainly -- for most of the LCV manufacturers in the country. There is -- our revenue numbers don't give the same or don't reflect the success we've had because there are huge delays in homologation of these vehicles. And therefore, they are not -- our customers are still buying these in the 10s rather than in the hundreds or thousands. But I think we are the best placed in the LCV segment and our market share in this segment will be again in high double digits as we are with the high-speed two-wheelers. So that's one big focus area for us. And also in the HCV space, we are making inroads with some of the customers on products that are going into heavy commercial vehicles. Volumes are low, but we have the early mover advantage, and we continue to strengthen our position there. Beyond that, we -- as I mentioned in the past, we look at adding it -- we are looking at adding additional products, which will give us a higher share of wallet from these different customers.
Okay. Great to know that, sir. And lastly, are we discussing with any of these top players as a second supplier? We need two-wheelers scooters system?
So we are in discussion. And I guess when you say top players, you're talking about the incumbents. Yes. So we are talking -- we're in discussions with nearly all of them. Each of these companies has a very healthy pipeline of innovation and new product launches, and we are in discussions with them for some of these new products. So I'm just making -- it's a very [ fractal ] difference, but I'm just clarifying. It's not that we are looking to -- we are in negotiations to be a second source for an existing model. We are in negotiations to be supplying products for new models that they are launching. And as you know, they've got a number of models in the pipeline.
We have our next question from the line of Abhishek from Dolat Capital.
And congrats for a strong set of numbers in EV's business. This year, in MCU business most probably will cost that $3 billion revenue. So just wanted to understand what is the guidance for the next year for FY '25 for MCU business?
Okay. I always get -- I don't know how to answer such questions because we -- it's very difficult for us to give forward-looking statements. I think the only guidance I can give is that the industry -- the EV industry is set to grow in healthy 2-digit numbers or in the healthy 2-digit margin, even despite all the issues with FAME-II and so on and so forth. We're still -- I'm very confident that the industry will grow in strong double-digit numbers. And our growth should be in line with industry growth thereabouts.
And on the margin side, the current margin for the MCU business has gone up to 7.5% which is quite decent. So going ahead, if you want to achieve the 10% kind of the margin and what kind of the peak revenue you need to achieve?
So I'm glad you said that because I'm going to take that and give that to my Board because they don't think it's a good margin. But -- so we -- as we've stated in the past also that we believe that the long-term margin potential for this business is low double digits, and that's what we want to move towards through expansion of our product -- through both margin improvement actions on existing products as well as getting greater volume leverage and in the future, also making -- bringing in-house additional operations. So we do -- I can't say that it will be next year, but we do hope to be able to be in the low double digits in the medium term.
And a few questions from the stand-alone business. In the 9-month FY '24, how was the segment-wide contribution in the revenue in passenger vehicles, EVs, two-wheelers and tractor?
You want to take that?
Yes. So give me a second, Abhishek. Abhishek, the mix in this 9 months have been -- we had 87% sales coming from OEM and 11% coming from the retail. And segment-wise, we have passenger vehicles contributing, 28%; two-wheelers, 24%; commercial vehicles, 32%; farm equipment, 13%; and retail, 11%.
So that is for the stand-alone business, right, sir?
That's right.
Okay. And in a fastener business, as you mentioned that quarter 4 will be strong because of the increase in the production of the OEMs. But do you have also mentioned that there will be a strong growth in FY '25? So what are the key growth drivers in FY '25 revenue growth, sir?
So if we analyze our first 9 months of this financial year and you look at the industry, the industry has grown in passenger vehicles by about 5% or 6% is growth of -- in two-wheeler segment, there's -- I think there's also margin to -- in commercial vehicles. Farm equipment is one sector which is negative, substantially double-digit negative for various reasons. So -- and if you see our customer portfolio in two-wheelers, we work with market leaders, Honda Motors and scooters and we've added Hero Motor Corp years ago. And in passenger vehicles, we work with Maruti Suzuki primarily and in the automotive division. So in these 2 segments, I think if you look at the names of the customer we have mentioned, the customers have grown marginally as themselves, HMSI and Maruti. But a lot of the growth in these segments have come in the same passenger vehicle, Hyundai Kia and Tata. Tata PCBU has grown dramatically. Unfortunately, they do not form up -- part for -- they're not part of our customer portfolio, which is what we're trying to address. We -- even in two-wheelers, we are working with HMSI. There's been a marked growth in HMSI. Bulk of the growth in 2 other segment has come with TVS and Bajaj Auto in these areas. So it's -- like I said in my opening statement, the issue is on our customer portfolio, which we are trying to address in these customers by being more aggressive with customers like Hero Motor Corp. And we've already got LOIs from Hyundai as a business, but the revenue is built or other meaningful material revenues will come over the next couple of years. So you won't find a dramatic shift happening in FY '25 on this thing. But last quarter, for the -- since you mentioned about last quarter, we are hopeful that last quarter will be a strong quarter, probably one of the highest quarters we'll get in this financial year. There will be substantial revenue growth we expect in Q4 over the other quarters we've had. And I don't want to give a strong guidance. All I can say is that in a partner business, we have a strong supplier to all OEMs in India, #2 in revenue terms compared to our competition. So there are opportunities. But unfortunately, the opportunities are not as large as our EV business. Our EV business is growing dramatically. The potential for growth there is much more dramatic going forward as well. So when we compare the partner vertical with other product lines on the EV side, it does not look very attractive. But still, there will be some growth coming in next year.
Okay, sir. And my last question on the operating margin side on the standalone business. It is still quite low at 14% versus historical high of 18% to 20% despite the benign commodity prices.
In this case, what are the plans for the expand margin to the 16%, 17% in the stand-alone side? So I think firstly, I think we have addressed this issue. One issue -- one particular factor in this issue on numerator denominator effects that the steel prices went up dramatically.
They're still -- they may be soft, but they have not -- they're not corrected. They were created marginally, not to really impact that equation. So I think that impact of that numerator, denominator is closer to the 0.5%. But having said that, this quarter, we are showing an operating margin of 14.9% despite a muted revenue number for the quarter. It's on function of softer steel and other cost saving initiatives on the shop floor. The main concern is not from a cost perspective. Our main concern is from a revenue growth perspective. So we are addressing that. It's a combination of addressing the revenue growth concern and also keeping an eye on our cost center as well. We expect Q4 to be a stronger margin structure because of revenue growth coming in. But for a full year, it'd be hovering, I think, very similar to what we have shown right now.
[Operator Instructions]
We have a next question from the line of Himanshu Upadhyay from Bajaj Rock PMS.
My question is on the standalone business and looking at a longer-term perspective. So if I look at 2018, okay, we -- our revenue has grown quite significantly, okay? But from INR 450 crores, we'll be doing nearly INR 600 crores and what we did last year also, okay. But if I look at my absolute operating profits, okay, which was INR 90 crores has remained flattish, okay? So despite 30%, 35% growth and what we have also stated that you have added many new customers within last few years, okay? So what -- so how much would the volume be higher than 2018? And where are the stuck up is? I'm not talking about percentage, I understand because of steel prices and all those things varies but I am more interested in the absolute operating profit, which we did of INR 91 crores where we are still there. Yes.
So good question. Let me try and give you -- try and give you a big-picture perspective. I don't want to drive around. There are too many numbers here, but it give you a sense why the numbers are where they are. Our Bangalore facility went online a couple of years ago. And investment in that facility is close to INR 200 crores. It's about INR 180-odd crores right now. But I think before we are fully optimized it current, we'll probably be at a INR 200 crore level. So a lot of CapEx went into it, which also meant from pure operating cost perspective, OpEx perspective, there's obviously a certain amount of cost we carry in manpower and operations vis-a-vis FY '18-'19. That's one factor which is impacting the cost crunches. Second impact would be FY '18/'19, the steel prices were not a factor at all. The steel was soft this year, this economy was strong, steel was soft. Customers were very aggressive as well. We were able to get good prices, hold our prices, et cetera. I think both the reasons compensated. Now if you look at the overall industry numbers vis-a-vis '18, '19 and you do segment-wise analysis, the only segment which has really grown over '18, '19 is the passenger vehicles. two-wheeler segment is still negative of financial year '18, '19. I think we're looking at what $18-odd million this year. We're at a peak level of $22 million in that particular financial year. Commercial vehicles also saw a peak in FY '18, '19, and I think that commercial vehicle number is still coming close to that. So the growth has only come in the passenger vehicle segment vis-a-vis '18-'19. On our Sterling-specific level, I mentioned 2 particular reasons. One, the Bangalore facility went up, which has added to our cost structure, which we get optimized and rationalized. It takes -- we believe it takes us 5 years to optimize and rationalize the full facility and bring all costs in alignment with our revenue numbers, et cetera. So we are on track with that. And secondly, I said steel was also a little softer in that particular year. I wanted to address your question.
Yes. Okay. So the economies of scale has yet to play out in the Bangalore facility that would be the -- my understanding?
That's correct.
That has to pay out. Okay. And the second question was in our May 2022 call, okay, you said that there is an opportunity of AC drive it, which -- AC drives -- and you said that the [ GP ] was I think a relationship in India and was supplying a lot. That relationship is no longer there. And over a longer period of time, it can be an opportunity for us. And in past calls, we have also stated that we want to grow more into electric vehicles and newer product introductions. What is the opportunity in that AC drives business for auto? And did we proceed on that space or give some of your thoughts? And if more than why not is the focus?
So the AC drives is a purely industrial product. I mean this -- an AC drive could be used in solar plants, could be used in any manufacturing operation, where they want to drive energy efficiency. Now we -- obviously, there are opportunities while the technology is very similar between an AC drive and motor control unit, in fact, motor control units have been derived from the AC drives per se. But we feel that there's so much opportunity in the EV space that we are really focusing more on the EV space right now and not as much on the industrial aspect of it. So while there is probably an opportunity there, it's not something that we're looking at in the short term. For us, the short term, we have to have a laser focus on the automotive industry and the electric and even within that, the electrification of the automotive industry.
And one last thing. Can you give an idea of Sterling [ SABRE ] India means, why could your debt scale up that when we had that JV agreement, not JV but understanding and everything. What is the future there?
Okay. So I'll just take that for ease, just for convenience, I'll address that, Atul, if that's okay with you. So that -- the business of supply chain management has a couple of complexities. One, of course, is that you -- a lot of what you do is buy out from other suppliers. A lot of these relationships are global relationships or long-term relationships. And I think that we were not able over that period to manage this as effectively.
I mean, there is not -- this is not a large market in India, the market of the supply chain management. And because the industrial -- the scale of the industrial companies that typically our customers for this is not what it is in more -- in other geographies. So maybe the timing of the -- the timing of our venture into this, our competitive positioning was not what it should have been.
Atul, anything you'd like to add further, talking about [ SABRE ] and the liquidity -- why we were not successful?
So we -- you know that business, I think I don't have the exact number and exact time. And broadly, we think onto a JV agreement with them in 2010, give or take a year or 2, I'm not really at -- it's not on the top of my head. The basic premise of that business was like the rest wherein we do C class products, the variety of SKUs run into thousands of components. Auto OEMs or non-auto OEMs companies, let's say, when I say non-auto OEMs would be companies like Siemens, Alcatel, Atlas Copco, from a multinational perspective, or companies in Indian perspective like L&T, et cetera. When they buy C-class parts, they don't want to go in manufacture. They want to work with supply chain companies and who basically do warehousing, stock management, inventory management, carbon system, basically take over their in-house purchasing teams, where they don't have to have in-house processing team for those products. They don't have to hold inventory in-house. And that entire operations are outsourced to a supply chain company, which is what we were trying to be. From the customer perspective, it brings down that total cost of ownership, TCO, as they call it. Unfortunately, this business model has not succeeded in India. The customers want to work in manufacture directly. They do not -- our current business practices do not favor addressing TCO issues. It's a very complex calculation. They're not able to understand that, culturally, they're happy working with manufacturers and not with consolidators or supply chain companies, which is what we were trying to do in the JV with [ SABRE ]. So we tried that for over almost 10 years, I think. And eventually, we start with a partner and said it's not working out, no point spending more man hours and capital behind it. So we decided to liquidate that operation and shut that operation.
[Operator Instructions]
We have our next question from the line of Hardik Doshi from White Whale Partners.
Just 2 questions. One is on the stand-alone part for the quarter and for the full year, the trends have been quite muted. Can you just talk a bit about that? And the second question is, there's an article recently talking about how Ola Electric as it's going public are looking to in-house more and more of the parts, there's a mention of motors, lower green [indiscernible] MCU. But any commentary on the risk that we have of moving some of it in-house?
So let me take the first part of the question. I think Jaideep will get into that MCU business. On a stand-alone fastener business, we've been around -- like I said, we are #2 fastener maker in India, working with a lot of -- almost all the OEMs. We've been around for 40-plus years now. We will still grow this year, maybe albeit marginally, and our growth going forward will also be there. But like I said, it may not be as dramatic as our EV businesses. But we are -- we have some weakness in our customer portfolio, like I mentioned earlier, which we're trying to address and which is also going to play out over short to medium term. So we are -- from a margin structure perspective, we are quite comfortable. There are stresses on it, but that's the nature of any business. That's the nature of the auto com day one business we are in. We are comfortable with that in that space. We know we are on top of things. We'll be able to handle that. So now, from a big-picture perspective, our stand-alone business, there are stresses like I said in our customer portfolio, which we are addressing. But from a long-term growth perspective, we're also comfortable knowing the size of the market, knowing where we are currently and how we can grow in that business. But yes, that's the nature of the business we are in today. It's -- I'm going to hand over to Jaideep to talk about the MCU.
Just a clarification on that, even you're seeing that stress in the customer, is it our orders with the customer because overall two-wheeler volumes and even passenger -- I mean, pretty much across the board, volumes have been good, right?
Yes. So I don't think that there is stress in our customers at all. I'm just saying we are working with market leaders in each segment, let's say, namely let's say, Maruti Suzuki, Maruti is already at a 42% market share in India in the passenger vehicle segment. Bulk of the growth, if you see in the last 2, 3 years has come from Hyundai Kia and Tata PCBU and Mahindra ADD. So it's a customer mix we need to improve, but there's no stress with our existing customers there. We are growing faster than they are growing. This means we're adding more products with them. Like Maruti, I think the Maruti growth is probably more like 4% this year. Unlike Tata PCBU or Mahindra ADD, Mahindra ADD is up 27%. Tata PCBU has done -- is doing very well. We don't have them in the customer portfolio. So they are customer portfolio issues. They are not customer-specific issue in our case.
Understood. So the model that you probably supply to our...
I'm not even saying the model. I'm saying the customer, like I mentioned, the passenger vehicle segment. We are growing with Maruti. Maruti is growing 4%. We are up 7%, 8%, 9% with them this year. But the issue is not Maruti Suzuki and the customer with us. Issue is -- if we want to -- the passenger vehicle segment is growing on the back of growth of Hyundai, Kia, Tata passenger vehicle segment and Mahindra ADD. Maruti is growing slower than their own passenger vehicle industry. So in other words, their market share is shrinking. But they still lead the -- they still have the market share. So it's not a model issue, it's we need to add more customers in that passenger vehicle segment. That's an issue.
Okay. To address your question regarding Ola. Going back, I want to say 6, 8 months ago, Ola released a video of a motor and controller that they had developed. But until today, 100% of the vehicles use our controllers. So I think what we are -- what we believe we have to do is we have to give our customers a better product and a better price so that in the make-by decision, they always look at buying from us -- or not always, but they look at buying from us rather than trying to make it themselves. There is a chance that for some models, Ola could decide to go in-house. And that's something that our only way of countering that is to continue to give, like I said, better product, better price so that it's in their interest to source from us. The industry is still very young. I think we've had this discussion several times in the past. There is -- a number of customers believe that they can -- they should make products in-house.
If you follow what's happened with the internal combustion engine, everything started in-house and then everything moved out into -- initially into companies like Delphi and Visteon and Magneti Marelli and then those companies are finally spun out.
So one believes that there will be -- at any given time, there will be some companies that we manufactured in-house. And there will be some companies that prefer to work with partners. Companies that are very agile and have plans of a number of product launches will -- I believe prefer to work with external partners because that -- they can then focus on developing vehicles and not have to worry about making components.
But it's something we'll have to wait and watch our strategy, like I said, is focused on making sure that the customer has a good reason to stay with us and to look at diversifying the customer portfolio to the greatest extent possible so that we have more than one big customer to count on.
[Operator Instructions]
We have our next question from the line of [ Kevin Shah from Finame ] Growth Funds.
In your recent quarterly PPT that you released, in one of the slides, you mentioned that the company is working to launch additional power electronics and electrical products to capture higher EV wallet share. So could you please give some color or throw some light on which products we are building?
So as you're very familiar, in an EV, there are very few components that are there. You essentially got a charger, a battery pack, motor control unit, a motor and a DC/DC. And so that's pretty much the entire architecture of an EV. On top of that, of course, you have a vehicle control unit, you have cooling and you have the connectors and the wiring harnesses, et cetera.
Our ambition is to play in all of the electronics, so we are evaluating opportunities in the charging space as well as in the DC/DC space, both of which use very similar technologies to what we use in the motor control unit. But I cannot confirm that we will be -- what products exactly we'll be doing because that depends on the partnerships that we finalize and the business plans that get finalized thereafter.
Okay. And just one question on the proprietary model of the MCU that we are building for the two-wheeler space, in the previous calls, you had mentioned that will be available for commercialization by the end of FY '25. So are we still on track with our internal process for that?
Yes.
[Operator Instructions]
We have a next question from the line of [ Aditi Sawant from AMD Capital ].
Can you give us some light on the details of the export order received in the SGEM entity?
Okay. So I am -- so first of all, let me explain that this is a contract manufacturing opportunity, where we are manufacturing for someone else. Due to confidentiality reasons, I cannot provide details of who the customer is, but it is in the EV space. And it's not necessarily in -- and also -- the only other hint I can give you that it's not necessarily a motor control unit, but it's an allied product. The other detail I can give you is that the revenue potential is about INR 1.5 crores to INR 2 crores in the short term. So it's a small business to start with, but we are excited about it because it opens a door that we believe leads us to good opportunities in the future.
Okay. And what is the amount of the order and timely -- I mean, time lines to meet the order or which country we are going to be shipping this?
So as I mentioned, the order is for about INR 1.5 crores to INR 2 crores to be shipped in the first quarter of -- before the first quarter of FY '25. It is to a country in Europe.
Okay. Got it. And sir, can you elaborate on the localization of MCU for LCV category? I mean how was it structured earlier at -- compared to now?
So this is just, I guess, sometimes when we write this out, we'll be getting into a little bit of a technical detail. So the important -- when we start a product typically, we import complete units from China and supply them to customers and they test them out, et cetera. Once the product is proven then they give us a formal order. And based on that formal order, we make a business plan and make the investments on the assembly lines and testing and so on and so forth. And then once we make the product in India then the customer, and we have to retest it to make sure that what the product that's made in India performs to exactly the same specifications as the product that we had imported in the past. So while we had got these businesses and the complexity on all this is that this is all to do with the same subsidy and the government because of the misuse of the subsidy that happened in -- with some OEMs in recent times, the government has a tremendous scrutiny on what is done. And this is really to say that we have passed the government's audits, et cetera, to say that this is now a localized product and our customers who are using this for their production can get the subsidy.
So -- and that's what I was talking about earlier about the traction in the light commercial vehicle space that the customers have -- can now get the subsidy that they're looking for, but some of them have not got approval for their vehicles from ARAI or ICAT. And until this is done, they cannot start selling them, and they're limited to testing them and using them in a very controlled environment. And therefore, we don't get the volumes that we have projected until this happens. So this is really an acknowledgment of the fact that we've crossed that hurdle for this motor control unit for light commercial vehicles.
[Operator Instructions]
We have next question from the line of [indiscernible] Sharma from M3 Investments.
Two questions both on fasteners. One is, as per my understanding, even today 15% to 20% of the fasteners market is imported. Just out from there, is it something which we can replicate in-house? Or that's technical capabilities we don't have or it's just the stickiness of external customers or the international customer -- international suppliers? And the second is, what is the outlook of smaller players? Some of the smaller players in the industries, Lakshmi Precision were out of the industry, how is the competitive scenario now with other players?
So on the first part, government has come up with a quality control or a QCO and they are posting the OEMs to buy from BIS-certified manufacturers for fasteners. Sterling Tools has been able to certify all the facility for BIS under the QCO. There's a large -- the import of fasteners is happening on -- from companies like Suzuki -- Maruti Suzuki, Hyundai, Volkswagen, or Toyota, et cetera. Now these companies are being forced to localize its components to faster makers like us. So I think this is a phased-out program over 3 years, which will happen. One needs to have certain technical capabilities. Fortunately for us at Sterling, we have them. And hopefully, we'll be able to crystallize some business under this program of BIS and QCO. But the opportunity is primarily with Maruti Suzuki, Hyundai and Toyota. Tata, Mahindra are pretty much localized already. So they don't have any import component for fasteners. So yes, there will be opportunities coming our way for that. To the second part, on the competitive landscape, I think Lakshmi Precision probably shut down by 6 years ago. And Syndrome is leading in terms of market share in the OEM side of the business. We are #2 in that segment. There are other players who have grown as well in the last few years. Some are out of Nashik and Punjab region. They all have seen growth. But I -- but we believe in the segment we are in, in the kind of products we do, Syndrome and Sterling still have -- are competing against each other on these product categories. So in the short term, we don't see much threat in that.
We have our next question from the line of [ Amit Kumar from Determine Investment ].
On the MCU business, one sort of point rather point on the EV industry. So we understand that the existing subsidy regime is only to 31st of March '24. And just wondered any clarity. I mean, are we sort of seeing any sort of explanation to that? Or I mean, any sort of way forward on that side basically?
So we were hoping that we would hear some announcements from the finance minister, but that didn't happen. So I think we should assume that the subsidy will be removed come 31st March. But I don't -- but I believe that the industry will continue without more than a big hiccup. The big reduction in subsidy already took place last May. And the amount of subsidy left is now not that significant. The industry has already adapted. And I'm speaking specifically about the two-wheeler industry, the industry has already adapted, they're bringing out new models, which are more economical essentially by looking at the -- reducing the size of the [indiscernible] and making it more viable than some of the products that were there at the beginning of last year. And I think that the industry has -- with the quality of products that have now been -- that are now available, the rationale for buying EVs is there. I mean there -- people believe that there is a benefit to buying EVs. There is -- the EV experience is such that the customers are willing to pay a little bit of a premium for that. So I think that despite the reduction or elimination of the duties come 31st March, you will see -- continue to see growth in the two-wheeler segment.
Just one sort of point on this. Any sort of sense you had of industry growth. I understand your business could be very sort of OEM-specific. So how the OEMs deliver will be a function of that. But what sort of industry growth in terms of volumes should we expect, let's say, this year or at least in the near term over a 2-, 3-year period, what is -- what are the assumptions that you are working on? That would be reasonable.
So I -- if you look at -- I mean, and there are hundreds of reports out there that forecast the industry growth over a period of time. They talk about penetration of EVs across various categories, going from -- obviously, the lowest penetration will be in passenger vehicles. The highest penetration will be in three-wheelers and LCVs and two-wheeler. Especially two-wheeler scooters, we'll also see -- is expected to see about 30% penetration. Now I believe all of these forecasts or projections account for the fact that the subsidy is going to go away. And so -- and if you look at those kind of numbers, you're looking at very healthy growth rates. I mean I would say that if I had to do an average of most of the reports I've read, I would say the EV industry is going to grow. I would say that they would say -- they would indicate that the EV industry is going to grow by about 40% a year over the next 5 years. Now is that actually going to be 40%? Or is it going to be 20%, 30%? But like I said earlier, when talking about our growth, I believe that whatever the case may be, it's going to be in the high double digits, for sure.
[Operator Instructions]
As there are no further questions, I would now like to hand the conference over to Mr. Atul Aggarwal for closing comments.
Thank you, everybody, for participating today. I think we -- I hope this was able to give you more insight into our businesses and the way forward. We'll be interacting with you again very soon, some of you individually and probably at our annual accounts call sometime in April this year. Thank you once again.
On behalf of Sterling Tools Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.