EV space has got to evolve; one or two odd failures are part of a learning process: Ramesh Gehaney, Endurance Technologies

You are being seen as a proxy play to India’s two-wheeler industry nowadays, but we all know that this segment is quite far from its peak sales in the previous years. How do you think FY23 will be for the two-wheeler industry at large and the recovery that it is set to make in the domestic markets?
We must refer to the previous years. In FY19 we saw 24.42 million vehicles being sold by the two-wheeler industry. Last year, we did around 17.9 million which indicates that there is a gap of approximately seven million vehicles. These seven million vehicles must come back because the market is there for consuming so many vehicles. So an upside is coming in the coming years and this gap is going to fill up. The shortage of semiconductors has been another prime reason for high-end vehicles not getting on to the road. The pent up demand for high-end vehicles or vehicles where PCUs and semiconductors are playing a major role, will come back as soon as this semiconductor supply conditions improve.

You are being seen as the leader in a lot of categories with emerging features like ABS, disc brakes etc. With the latest foray into EV battery management system after the acquisition of Maxwell can you now lead the way when it comes to EVs too?

It is based on our earlier strategies. We always wanted to be in the EV space, we started a bit late, but we wanted to be in that space, and we were looking at the best possible opportunity coming our way. Maxwell is a very strategic business partnership that we have had and BMS being a very prime product for any EV, takes us into the space where we always wanted to be. Maxwell is leading on embedded electronics and BMS is their flagship product. We want to increase our business with the OEMs and engage with all the OEMs to acquire new orders in this space also.

You have also taken a long-term position I would imagine because when talking about two-wheelers EVs these days, one just automatically thinks of fires?

I cannot be commenting on fires because it is the OEMs who would probably be commenting on that, but I have been saying earlier that EV space has got to evolve, these vehicle configurations have got to evolve. One or two odd failures in the field are practically a learning process because Indian road conditions, and Indian weather conditions are pretty adverse to any kind of new introductions that we have on vehicles where thermal management and other things are going to be very carefully taken out. I do not think it is a major issue, it is one of the odd events which are coming forward and it is the weather conditions which are playing an important role. I am sure as soon as the thermal management for the BMS or other reasoning for these failures are addressed, there should not be any major concern.

Just looking at the fine print in the earnings that were declared ,we see the margins did contract to 13.2% in FY22. Should the street expect margins to contract in the new financial year as well?

There is arithmetic which plays into the margins when you sum up all the numbers. The commodity prices went up sharply, close to around 23% last year and more than 25% in steel. The moment the RMC goes up or the commodity prices go up, that factors into the revenue part. The RMC goes up and the arithmetic plays a role in that because the higher the RMC, the more contracts on the margins as a percentage but if you remove the commodity indexing then we are probably at a very good level of margins.

This is what we have been trying to explain: when the volumes are not there, or the industry is being hurt by semiconductors or a series of disruptions of the past and volumes are not to the extent that the capacities have been built for, some kind of margin errors would be there. I would suppose that 13.2% looking forward we would be improving on this rather than staying stable at this level.

What is the outlook when it comes to your European business because there are a lot of headwinds, there are energy prices, the slowdown in PV sales as well as the uncertainty. Is the short-term pressure likely to continue?
Yes, the short-term pressure is likely to continue. As we know that there is a war like situation, the war is continuing, till the time the entire industry or the people around or the countries recalibrate themselves to the impacts of war. Near to flat revenues or growth would remain. But even on the energy part which you said, energy going up three-four times has an impact on the margins and even at Endurance, we paid approximately 6.4 million Euros, just on energy which did have an impact on the margins. Nevertheless, now the OEMs and everyone realise that this is a cost which is getting embedded into the cost structure so the OEMs would surely be addressing this in the days to come.

I would like to understand the outlook when it comes to your overall growth because the growth of aftermarket sales has been rather convincing. If we are looking at FY15 to FY21, there was a CAGR of about 11% and one of the growth agenda is going to be increased presence via expansion. What can we expect in terms of the growth target for FY23 and what is going to fuel that growth for Endurance?

Normally, I do not give any forward-looking numbers. The kind of uncertainties which we are confronted with these days makes it difficult to put forward numbers. But yes, our strategies are very clear, our business models are clear that we graduate by acquiring new businesses which are an integral part of our business.

For example, getting into ABS was a natural progression towards our hydraulic brake systems and today we have already reached the level of close to 20,000 ABS modulators being supplied every month and this is going to be increasing further and further. High-end suspension, brakes and other things are the drivers for growth to come ahead and some kind of backward integration has also helped us.

As far as growth is concerned, I am very positive, I am very optimistic that all the vehicles that we are talking about which I said close to seven million vehicles are missing from the system or lower from the peaks, all these are going to come back and one can expect some growth numbers coming up this year hoping that the semiconductor issues would be resolved soon.