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Action Construction Equipment Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call for Action Construction Equipment Limited, hosted by PhillipCapital India Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of 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. Vikram Suryavanshi from PhillipCapital India Private Limited. Thank you, and over to you, sir.
Thank you, Faizan. Good afternoon, and very warm welcome to everyone. Thank you for being on the call of Action Construction Equipment Limited. We are happy to have management with us here today for question-and-answer session with the investment community.
Management is represented by Mr. Sorab Agarwal, Executive Director; Mr. Rajan Luthra, Chief Financial Officer; and Mr. Vyom Agarwal, Head, Investor Relations. Before we start with the question-and-answer session, we'll have opening comments from the management.
Now I hand over the call to Mr. Sorab Agarwal for opening comments. Over to you, sir.
Yes. Good afternoon, and welcome, everyone, to this earnings conference call for discussing the results for the quarter ended June '22. Along with me in today's earnings call, we have our CFO, Mr. Rajan Luthra, and our Head of Investor Relations, Mr. Vyom Agarwal. I hope all of you have had an opportunity to look at the company's financial statements and the earnings presentation, which have been circulated and uploaded at the stock exchanges. In the current quarter gone by, the external signals were mixed.
We entered the quarter with strong demand, but due to higher-than-expected inflation and the macroeconomic headwinds, there was a moderation in demand as the quarter went by. We at ACE took the uncertainty as opportunities and have moved forward with the intent, which reflects in our best ever quarter 1 performance in terms of revenue and profits.
To brief you on the financial performance of the first quarter of financial year '23, on a yearly stand-alone basis, the operational revenue grew by 55% approximately to INR 501 crores with an EBITDA margin of 9.3%. The EBITDA during the quarter increased by 42% to INR 46.23 crores. The profit before tax grew by 51% to INR 39.51 crores and PAT grew by 49% to INR 28.85 crores as compared to last year's corresponding quarter. The PAT margins now stand at 5.8% for the quarter on a stand-alone basis. Due to onetime exceptional income of about INR 19.8 crores, the consolidated profitability numbers have increased to 12.55% at EBITDA level, totaling to INR 65.6 crores and 8.67% at PAT level, totaling to INR 45 crores.
Moving on to the segmental business performance. For the quarter gone by, our Cranes business has registered a growth of 58% year-on-year. This is on a low base of last year, especially of April-May '21 and a large part of the country was severely impacted due to COVD-19 second wave. In this segment, we have sustained our margins at around 11%.
Further as compared to the last corresponding quarter, the Construction Equipment segment clocked a growth of 42%, and we did a revenue of INR 52 crores with margins of around 4.5%. The Material Handling segment recorded revenue growth of 15% and stood at INR 38 crores with margins at 11%. The Agri division registered revenue of INR 59 crores, while recording margins at 2.5%. With the expectations of a good monsoon and a likely record Kharif crop yield, we expect tractor industry to perform better in the current year as compared to last fiscal.
As anticipated and conveyed earlier, inflation worsens during the last quarter, and prices of many commodities went through their all-time highs during the quarter. Despite this, we have been able to hold EBITDA margins at a reasonable level due to our clear focus on fundamentals of investing in our products and giving better value to customers and we continue to calibrate our pricing actions.
And the most important thing, to drive savings harder and optimize all costs through approval mindset and growth leverage. On the operational side, in the last quarter, the company was awarded with a contract to set up a state-of-the-art assembly plant for manufacturing of tractors, backhoe loaders and fabrication of agricultural implements for the Government of the Republic of Ghana. Against the consideration of USD 24.98 million, which is approximately INR 200 crores.
The said contract is secured through a credit agreement between the Government of Ghana and the Export-Import Bank of India. The project will be owned and operated by the Government of Ghana. The project involves designing, engineering, commissioning of assembly supply lines and supply of plant and machinery for the manufacturing in addition to transferring the technical know-how, establishing best-in-class manufacturing processes and quality control systems, along with the training of engineers and technicians from the Republic of Ghana for future operations. The manufacturing unit will be designed for an installed capacity of 4,500 tractors, 600 backhoes, 600 agricultural equipments -- implements, rather, and 300 tipping tailors annually.
The contract also includes the supply of an initial pilot lot of tractors, backhoes and agriculture implement in CKD form for the assembly lines for manufacturing. Subsequently, after commissioning of the plant, the prices of CKD kits shall be applicable as per the prevailing market rate at the time of supply.
On completion, the project will play a vital role in opening up of export markets in Western African region for our products and augmenting the company's export efforts. Further in our endeavor to work closely and effectively the Ministry of Defense in the last quarter, we got a breakthrough order for supply of about 40 backhoe loaders for order load organization, Ministry of Defense, and the same shall be supplied during the current quarter.
In addition to that, we continued executing the pilot order of 4x4 multipurpose tractors, along with special attachments, which was specifically designed for the Indian Army. Going forward, inflation continues to be a significant challenge.
As you can see, market prices of most of the commodities have increased sequentially in June quarter and were at very high levels. But the recent softening of commodities, especially steel due to policy decisions, augers well for us. And if this sale, it will positively impact our sequential margins from quarter 2 onwards.
Needless to say, we will continue to extensively drive productivity improvements in our business and take calibrated pricing actions. Further, the Board of the company has approved appointment of KPMG as the statutory auditors subject to shareholders' approval.
With the current focus of government towards infrastructure development and efforts to strengthen the manufacturing sector, we expect a growth of 15% to 20% in Crane and Agri segments for the current year and a 30%, 35% and 20%, 25% growth across our other 2 business segments, that is Construction Equipment and Material Handling. On the whole, we are looking at least 15% to 20% increase in our top line for the current year, with better EBITDA margins.
We hope that we are in a position to revise these projections by end of second quarter, which will predominantly depend on how the macroeconomic and inflation scenarios pan out. We remain optimistic about the medium- to long-term prospects of the company and believe that our building blocks are firmly in place and are on part of sustainable growth in all the 4 segments where we operate, leading to expansion in top line, bottom line and margins of the company.
With this, I would like to request the moderator to open the call for question-and-answers session. Thank you.
[Operator Instructions] The first question is from the line of Himanshu Upadhyay from O3 Securities.
Am I audible?
Yes, yes.
Yes. Congrats on a good set of numbers. My first question was on acquisition, okay? Is there any probability that those acquisitions which you were targeting will happen? Or it is now a low probability event looking at the situation and the market conditions what they are?
We -- recently, we have concluded 2 aspects -- 2 things rather. One, we have taken over a new start-up crane company to operate in the price-sensitive zone, the lower zone of the market. So that activity has been completed and the operations has been taken over totally.
And secondly, another company, a much smaller company operating, in the Pick-n-Carry cranes and the Powertrain segment, especially. We have also taken over that company and it is operating under our fold as of now. These 2 things have happened in the last 1 to 2 months.
So have we bought these companies or we will be running these companies?
No. For the first company, we have taken over the entire shareholding of the company, and it is a 100% subsidiary of ACE, nearly 100%, I think 99.99. And obviously, we'll be running that company in the -- at the bottom most pace of pricing with respect to offerings pace. And for the second company, we have taken over their business and their plant, not plant, business and assets and has started operating that at a different location, yes.
So both these companies are manufacturing companies?
Yes. Both of them are manufacturing company, yes, operating in the crane space.
Okay. But the price points would be lower and...
Yes. Alternate brands at slightly lower prices. So basically, out of the 3, 4 fringe players, 2 have been, in a way, eliminated as competition for us, and they will take care of the balance 1 or 2, which operates in the market at a lower price point.
And generally, what is the price discount between us and these lower players or the lower end of the markets where we want to cater to?
It can be anywhere between 5% to 10%, in some cases, even more.
And they will be a separate brand, means they will not be...
Separate brand. Totally separate brand. Not ACE brand at all.
And the distribution structure would be what for these companies, means...
That is not going to be pan India. These companies are on regional levels. So our area levels. So distribution is generally through some company staff and some small dealerships. So they will continue to operate the way they were operating.
Okay. So what would be the synergies which we bring to the table in these 2 companies?
See, I would say nearly half of the lower end of the market is with us now. And with the help of these companies, we will also take up the balance half. So over a period of next 6 months to 1 year and going forward, this will be able -- this will help us in improving our pricing capability in the market with respect to the current cost of our operations as well as inflation, which is very jittery as of now. This will give us pricing power going forward.
But in terms of cost of operations, would they also reduce because many of the parts we are already manufacturing, okay? But the supply chain...
That is also one of the main reasons that these companies will be able to reduce their costs and would eventually start making profits even the smaller companies, yes.
And what is the size of these businesses in terms of revenue?
As in INR 10 crores, INR 15 crores. INR 10 crores, INR 15 crores each. One of them -- sorry, 1 of them would be, it will reach about INR 25 crores, INR 30 crores and 1 of them would be INR 10 crores, INR 15 crores.
Okay. Okay. And one thing, I was just looking at the Foundry Movers results, okay. And we have seen that a lot of crane rental companies have started going for CapEx, okay? We are also giving in the market to buy more cranes and these also given a projection of 9 to 10 pick-and-carry cranes, okay? So are we seeing the crane rentals starting to buy or become more aggressive for the CapEx in the market. Is the inquiry level significantly higher than what we would have seen in last few years?
See, inquiry levels have been higher in the last 1.5, 2 years. And I would say, especially between December, January to April this year, the situation was very bullish, but due to this unprecedented inflation and interest rate hikes and overall sentiment in the economy, the inquiries and order conversion did dip in the month of May and June and even in July, I would say.
But it looks like that things are back on track. And definitely, with Europe, the growth in infrastructure, which is happening all around and also coupled with the growth in manufacturing sectors, leading to establishment of new factories and expansions and whatever, whatever. So we see that these rental companies their requirements because about 50% of our business is indirectly to rental company. So all of that is definitely increasing and will increase further as the sentiment and the overall economic outlook further improves from here.
Look, I have few more queries, I'll join back in the queue.
Yes, okay.
[Operator Instructions] The next question is from the line of Devesh Kasliwal from Antique Stock Broking.
Yes. Actually, I had a query regarding the exceptional gain, the other income gain that we had by selling the land for around INR 19.8 crores. So if you exclude that, we see an EBITDA margin of around 9.1% to 9.2%. So is this a drop, like, it's around 100 bps drop like year-on-year. So is this because of the commodity prices increasing or is there something else to be concerned about?
Yes. Our EBITDA margins at around 9.3% for this quarter as compared to 10.1% on a year-on-year basis, drop of around 80 basis points, primarily due to inflation and commodity prices because it was havoc last quarter. It started to ease in June, and as a matter of fact, anticipating with havoc, which had actually started in March, we did increase our prices on 1st of April for most of our products in the range of 3% to 4%, which did help us offset some of this. But yes, it is primarily because of totally unprecedented inflation that we saw in the last quarter.
So for the entire year, we are expecting the margins to be near like double digits only, but then not as per what it was last year or it might even cross the last year's margins?
In the quarter 2 itself, we should see double digits. And on a last full year basis, we did about close to 10.2%, 10.3%, the last year margin with the commodities now eventually cooling off. But here I would like to add that, unfortunately, yes, steel prices have cooled off pretty well, about 15%, 20%. But in steel prices, this is mainly to do with plates. Long products have gone down only by 10%, 12%. And unfortunately, castings and alloy steel, there has hardly been any price reductions.
So within steel, there are segments we're seeing the price reduction and where we are seeing less price reduction and hardly any price reduction. But on the whole, I can say, yes, it has gone down by at least 10%, 12% with respect to the steel spectrum of different things that we use.
Okay. Okay. And another thing that I wanted to ask, like, I don't know if the ICMI has yet released the report. But like last year, you had given the overall industry marketable size -- the addressable marketable size for us, like for the Crane segment, it was around INR 1,300 crores, INR 1,400 crores. So do you have the data with like the total market, what it was for FY '22 overall?
Not as of now, but we can definitely provide that data to you what happened -- but FY '22, we have our numbers for as of now, what we did.
Yes. Okay, okay. So you have the market share overall, like...
Yes, yes, yes. We are -- see, we keep on revolving as of now between 63% to 65% market share. And I'm sure even in the last quarter, we were at about 64%, 65% market share with respect to pick-and-carry crane and even higher than 65% with respect to tower cranes.
Okay. Okay. Okay. Not a problem, sir. Congratulations on good set of numbers.
Thank you.
[Operator Instructions] The next question is from the line of Chandrika Venkatesh from Rica Enterprises.
I have 2 questions. One is you've set a target of INR 2,500 crores of sale by FY '24. Is that target still valid or are you going to take more time to reach there?
Sir, can you repeat your question? Target of how much for what?
Repeat the question? Okay. You have set a target of INR 2,500 crores of sales by financial year '24. If the target still -- if that guidance still valid or are we going to take more time to reach that target?
I think with cooling off of commodities and slight inflation coming under control and sentiment being neutral, we are very much on target to achieve INR 2,500 crores sales by FY '24, which we had set for ourselves. As of now, it appears we are totally and very much on the target to achieve it.
Okay. My second question is, we have not been very successful in backhoe loaders, despite our optimism about the same. Our Construction Equipment sales are only around INR 200 crores per year. You have given a guidance of INR 500 crores by FY '24, why are we not so successful in backhoe loaders despite having the advantage of cross-selling, and we reach the target of INR 500 crores of sale by FY '24 or will it take longer?
See, some of it has been very unfortunate. Even in the last year, the overall backhoe industry degrew by 28% to 30% in number terms. And unfortunately, again, in the first quarter of this year, the backhoe loader industry is down more than 30%. I don't have the exact number, it should be somewhere between 30% to 40% year-on-year basis.
So looking at that, we were really not able to grow in the last year on backhoe. And our -- last year, our segment revenue was at INR 176 crores. But we are very hopeful that we'll grow this segment by 30%, 35% in this year, looking at our order inflow backlogs or whatever. So that will take us through anywhere between INR 225 crores to INR 250 crores. Yes, there is a question mark that we might not be able to attain INR 500 crores by FY '24, but -- and we might get stuck somewhere between INR 300 crores to INR 400 crores by FY '24.
We'll move on to the next question from the line of Suhrid Deorah from Paladin Capital.
I have 2 questions. One is just on the backhoe loader, you mentioned that the market is down 30% to 40%. What is the reason for that?
See, what has happened last year, April, when BS-IV kicked in. So September, you were allowed to sell the stock which you had in March, so people made extra -- mostly everybody made extra machines and the pricing effect because of BS-IV totally did not trickle in for the first half of last year.
But then with the prices increasing drastically because of BS-IV engine transition, obviously, coupled with other inflation, whether in steel, whatever. So the price liability of the machines with the rentals hardly going up is a question mark. So I think that is 1 of the main reasons that backhoe has been suffering for -- the entire market rather.
We definitely increased our numbers last year. We will increase our numbers significantly this year also because we have a much smaller base. But overall, as an industry, it has been suffering on account of exceptional price increases because of BS-IV and commodities vis-à-vis the rental revenue and about 75%, 80% of the backhoe loader market is based on rentals and retail.
So I think that is the main reason that the business viability is slightly suffering. But yes, the continued increase in activity sooner or later, will come a state that the rentals will have to increase because the market there is definitely a requirement of backhoe loaders. So as soon as the rentals further increase by 10%, 20%, 25% from here, the viability will be back again and then the ball should start rolling. So I expect that it would start to happen Q3, Q4 onwards this year.
Okay. And the second question was that in exactly a year ago, I think in September last year, you were done with QIP for INR 120-odd crores, and I thought the purpose of that QIP was to make acquisitions. But it sounds like the acquisitions that you made are substantially smaller than the amount of money raised. So could you share your thoughts on that?
Yes. Currently, we spend close to anywhere between I think INR 12 crores to INR 15 crores as of now. And 2, 3 other things are on the anvil. They are taking time, so which are definitely bigger than this, reasonably bigger than this. So that's all I can tell you that we have created our watches for these acquisitions, which would help us significantly in our bottom line. And hopefully, I really can't say 3, 4 months, 6 months, 7 months. But yes, we are on track. Things are happening.
And those acquisitions are getting delayed because of pricing negotiations or some other reasons?
So everything put together because the situation is so jittery and the -- even less the balance sheet and numbers of -- it is very difficult to negotiate in a scenario when your results are changing so quickly with respect to what you want to acquire. Obviously, coupled with certain other regulatory things, see I really can't discuss in the -- much in detail, but I'm sure at least 1 of them should go through in this year.
And when you think about your INR 2,500 crore turnover target, what part of that will come from inorganic growth?
Nothing. That has been calculated without this.
So INR 2,500 crore is your organic growth target from the level that you are today, so if you make an acquisition, let's just think could be sizable. And by sizable I'm guessing at least INR 200 crores, INR 300 crores of revenue, so that will be over and above INR 2,500 crores?
You can say that. But I think one of the acquisitions is backward integration. So that will affect us more in the bottom line than on the top line. So it could be INR 80 crores, INR 100 crores on the top line and definitely benefit on the bottom line.
The next question is from the line of Himanshu Upadhyay from O3 Securities.
Yes. See, this construction equipment, we have seen -- means, for us, at least Y-o-Y, some growth is there and even Q-on-Q. So what percentage of this would be from backhoe loaders or they are stagnant for us? Can you just elaborate on, how much of this is backhoe loader and what...
20% -- at least 15%, 20% would be from backhoe loaders. And I'm sure in this quarter, you'll see a backhoe loaders contributing much more this quarter 2 and quarter 2 further or 15%, 20% of this growth would be from backhoe loaders.
Okay. So it is moving? The product is moving at a slower pace than what we expected?
Yes. Unfortunately, because of the overall backhoe loader market size. Although we are a smaller player, but when the market contracts by 25%, 30%, everything gets affected. And that's the reason. But we still -- last year also, we were able to grow. And I'm sure this year, again, we'll be able to grow at least 30%, 35%. But we would have thought the pace of growth should have been faster.
Okay. And one of the challenges what we faced a few years back in agricultural equipment was the dealers were not profitable when the cycle turned, okay, and that impacted us very negatively. But for the -- what is the situation now for Agricultural Equipment and even Construction Equipment? Are there...
Construction Equipment, there is no real problem as such because 60%, 70% of the dealer network is common with cranes and also common with Material Handling. So their basic liability is definitely in place. And for agriculture, yes, the cycle turns and things happen some dealerships do get knocked out. But as of now, the number of dealers that we have and operate with are financially sound reasonably good diversions. And going forward, obviously addition of the dealerships are also happening. So I'm sure even the agriculture segment will turn around soon.
Okay. And one last thing. On the material handling equipment, okay. So what we hear is a lot of manufacturing activity getting started, okay? Or new factories getting put, okay? Are we seeing those sentiments being positive on the material handling equipment or the inquiry levels? Or you don't see something of that on because the numbers have been flattish or downward, okay, Y-o-Y and Q-on-Q both in the material handling. Can you elaborate what is happening in the market on that side?
The industrial segment and the manufacturing segment, whenever the overall economic outlook is a little weak, are the first to react. And that is what you see. So on a year-on-year basis, we've been able to grow only 14% there and nearly flattish on a quarter-on-quarter basis.
But if you look at our last year, FY '22 whole year, vis-à-vis FY '21, you will see a growth of around 47%, 48%. So I'm sure with the economic sentiment improving, quarter 3, quarter 4 would be pretty good, including maybe even quarter 2, but especially quarter 3, quarter 4 for Material Handling. So that sentiment and the buying decisions and everything just gets suspended. That's what happened in the last 3, 4 months.
And one last thing. On the defense side, we had given thought that we should be in triple digits for this year, okay, FY '23. So we continue to maintain that, and it will reach that number?
In this year, yes.
And anything else other than what orders we have got backhoe loaders for defense. Anything else we can do specialize in the market where the entry barriers are high and we can get better value addition? And any thoughts on that?
Yes. In the last 2 years -- 3 years, we've been working very closely with Indian Defense. And as a matter of fact, one of the orders, rather 2 of the orders which are under execution as of now. Our special purpose, especially built cranes for missile handling system. One of them is called MRSAM, medium-range surface-to-air missile systems, wherein these cranes were earlier only imported into our country. And we have developed these cranes have already started supplies to Tata Defense Systems and L&T Defense. Tata Advanced Systems and L&T Defense and also DRDO.
And also a very specific type of crane, which has gone to the Orrisa missile firing ranges, I cannot give you more details, for the bigger missiles for loading-unloading activity. So all these special type of machines being required. Rather, I think in the last quarter, we announced that we got an order of around 482 multi-purpose 4x4 tractors.
So these are purpose build 4x4 tractors, not standard 4x4 tractors of a slightly higher horsepower, I think 74, 75 horsepower, with 3, 4 specialized attachments only for the Army application. So yes, we do continue to work with them on specialized machines and requirements.
The next question is from the line of Tanuj Khiyani from Kamayakya Wealth Management.
I just had 1 question regarding the contract with the Republic of Ghana. How much could the revenue potential be?
See, in FY '23 and FY '24 put together, the initial revenue would be to the tune of INR 200 crores, maybe 20%, 30% coming in this year and the balance about 70%, 80% going into the next year. That is the initial potential.
And post that, we do have a revenue potential of anywhere between, I can say, INR 150 crores, INR 200 crores to INR 400 crores on a yearly basis on account of supply of CKDs and FKDs for the machines which are going to be manufactured there. So that is the potential currently.
The next question is from the line of Devesh Kasliwal from Antique Stock Broking.
Actually, I had a question regarding the export potential that we had like because of the Russia-Ukraine...
Sorry to interrupt you, Mr. Kasliwal, please use the handset mode. The audio is not clear from your line.
Okay. Sorry. Just a second. Yes, is it clear right now?
Much better.
Yes. So I was just asking about the export potential. Like last year, we had an order from Bangladesh for the export -- on the export side. And we launched 2 separate types of products, one was the Forma range of tractors as well as the Phantom, the backhoe loaders. So we actually could not do what we expected because of the Russia-Ukraine crisis.
So what I was asking here is like this year, what is the overall potential that we have from the export segment, like as a percentage of revenue as well as because it's a higher margin, like we gained a lot of margin on this more than what we do in the domestic field. Is there a potential that overall, our margins might look better with this in place?
See, in FY '21, we did INR 64 crores of exports. In FY '22, we did INR 75 crores of exports. And I'm very hopeful that in the current year, we should be able to exceed INR 100 crores sales. So it is on the growing trajectory and things seem to be moving on track.
And both the products that you have launched have been getting a good response?
Yes. The machines are doing well. Things seem to be on track. We are also opening up some more geographies and focusing on the ones which we had opened in the last 3 years. So unfortunately, everything got slowed down because of COVID and a lot of international travel and things and even demand scenario, everything was swapped. But going forward, I think with COVID stabilizing globally, our export business should only look upwards.
Okay. So as a percentage of revenues can go up to around 10-odd percent?
See, internally, we have targeted 10% to 15%. On the minimum side 10% and on the higher side 15%, and then we wanted to do that by FY '24. But I'm sure we'll reach 10%. That's what it appears to be.
[Operator Instructions] The next question is from the line of Deepak Mehta, Retail Investor.
Good set of numbers. Sir, my question is what is the utilization of our...
Sorry to interrupt you Mr. Mehta, the audio is not clear from your line. Please use the handset mode.
Hello?
Yes, much better. Yes.
Yes. Sir, I wanted to ask what is the current utilization?
See, in the Crane segment, currently, we are working at 65% to 70%. Construction Equipment, we are working at around 35%. Material Handling was about 35% utilization in Construction Equipment. Material Handling we're working at about 65%.
Okay. And what's your outlook for this financial year?
Outlook with respect to our revenue growth and...
No, sir. For utilizations, I'm asking.
I think going forward, Q3, Q4, Cranes should reach about 75%, 80% utilization. Construction Equipment should also reach about 50%, 60% utilization. Material Handling earlier, we were doing 75%, 80% utilization. So I'm sure in Q3, Q4, we should be touching that. And I agree, we are doing about 40%, 45% currently. So going forward, I think we should be touching 50% utilization there also in this year.
The next question is from the line of Rajesh Jain from NB Investments.
My question is you have given a very ambitious group's target for...
Mr. Jain, sorry to interrupt you. Please use the handset mode. The audio is not clear from you.
I'm in the handset mode only.
Okay, then you'll have to be a bit louder, please. Thank you.
Okay. Is it okay, sir, now?
Not really. But yes, please go ahead, yes, maybe.
No, sir, what I just wanted to know is with the increase in inflation and also a rise of interest rate, do you think that demand will get subdued since most of the customers buy the machine on credit or loan from the bank?
See with inflation, definitely, we would have thought demand would get subdued. But luckily, inflation in our type of machinery started to go away that is steel. So I think the sentiment is, again, turning towards a little positivity. And you see 0.5%, 1% interest cycle here and there, really does not bother our business or the retail or rental segment.
So I think both these aspects, the first 1 is definitely more troublesome that is inflations, which seems to be coming under control. And because of the interest rates, I really do not see anything negative happening.
Okay. That is very helpful, sir. My second question is regarding the Construction segment. As and when we have around 5 products, as for the growth target that you have kept for yourself, do we have to introduce any more new machines in this segment?
See, in this segment, obviously, the biggest product is the backhoe loader where the potential to increase our numbers are enormous and where we are definitely trying to work. And like I did mention that it has been slightly unfortunate that for the last nearly 1.5 years or 1 year, let's say, 15 months, the market has been very much subdued. But over the next 6 months to 9 months, we are evolving a couple of other products and one of them is not made in our country and is currently being imported into the country and has a good amount of potential and much better margins because as of now, our country relies only on import of that. So these 2 product segments, we should be introducing probably by Q4, if not Q1 of next year.
Okay. Sir, my third question is regarding the Ghana project wherein you have said that the revenue potential is for a period of 2 years is around INR 200 crores, out of which this financial year, we are expected to do around INR 30 crores to INR 40 crores. So my question is after this FY '24, what would be the revenue potential from there? That is one. And second question is, what is the margin expected from this business, sir?
See, once the plant is set up, which is expected to be finished by FY '24. So FY '25 onwards, like I mentioned, our revenue potential is anywhere between INR 150 crores, INR 200 crores to INR 400 crores. And that is the capacity that has been set up. So I would say that the averagely the potential should be around at least INR 150 crores, INR 200 crores, if not more, but the potential is up to INR 400 crores, looking at the capacity that has been set up there first thing. And definitely, the margins there would be at least, I would say, 5% to 6% better than our current company level margins.
So that means at the company level, we are doing around 10%-or-so, so it will be to the 15% approximately?
Yes. It should be at least.
And what you said is this is expected to commercial next year. So that means there will be no revenues from this during the current and next financial year?
In the current and next financial year, we will get revenues from setting up of this factory because we are getting paid INR 200 crores to do this activity. So that revenue will come this year and next year. And from FY '25 onwards, we can expect a steady stream of INR 150 crores to INR 200 crores at least.
Okay. Got it, sir. Sir, my last question is about the Agri segment. Most of the players have shown good sales after post May or so, but somehow we have not got good sales in this segment. So how is this -- the rest of the year is going to be?
If you look at our year-on-year sales, we have increased 98% on a yearly basis, if you look at revenue from INR 29 crores, INR 30 crores going to INR 58 crores. But on a whole year basis, we are -- see last year, we finished with about INR 200 crores of revenue approximately. So I think by the end of this year, we should be somewhere around INR 240 crores, INR 250 crores, at least a 20% growth here and there.
The next question is from the line of Jaspreet Walia from Clockwise Capital.
Sir, this EPC contract that you have taken from Ghana Government, how do you -- so is it a fixed price contract, hence, the risk of commodity prices or any other products going up is on you? Is that the right understanding?
Yes. But while quoting -- and it is not purely an EPC, yes, you can call it EPC because we are setting up a plant to manufacture this machine, but it is also coupled with training them and also providing the entire technical knowhow of these products. And obviously, the main component in aggregates and fabrication being supplied from India.
So yes, the risk is on us. But all of that was put in place when we were quoting because the prices have already started estimating quite a lot in the second half of FY '20. So luckily, we did price in a reasonable amount of inflation at that time.
Got it, sir. Got it. And sir...
I said I just want to add that when we quoted the dollar price is also much lower. Not we had -- dollar is at nearly INR 80. And when we did the costing, the dollar was around INR 70, INR 72 only. So that advantage we're also getting on the price.
There is additional buffer because of our currency devaluing a little. Yes.
Got it. So the pricing of CKD kits that you would be -- the price that you quoted for this plant is in dollars?
Yes.
Got it. And the pricing of the CKD kits that you will be supplying will be decided after 2 years or has it been already kind of finalized?
If I'm not wrong, initial pilot lot of 30, 40 or 50 kits, I don't remember. Luthra Saab, do you have any -- do you remember?
Okay. The initial pilot lots were very small lots 30, 40, 50 units is already included in this INR 200 crores. But for the balance, the pricing will happen in FY '24 once we commission the plant. Because to that effect -- and obviously, inflation and standard yearly increase has to be built in. So we are already supplying some kits with the initial plan set of activity.
Got it, sir. Got it. And sir, the currently, the market of Ghana is being supplied to imports in the product segments that you are setting up in this plant?
You see that was the main reason. Ghana has some agriculture or mining whatever. They hardly have any manufacturing and everything is being set through imports, which are also expensive western imports. So the government wanted to create and evolve manufacturing. So they are doing it in different aspects of the recovery. And they wanted to set up a tractor and Construction Equipment, backhoe loader manufacturing plant because these machines are used there in reasonable numbers. And that is main reason everything started and it shaped up like this. And apart from that, they are also reasonably keen on making them in Ghana and supplying to their neighboring countries also.
Got it. And sir, on a ballpark basis, the pricing of these products is intended to be at what discount to imports?
The pricing of these products are intended to be?
Sir, this would be supplied at a discount to the current import price, right? So I was just wondering at what kind of discounts would...
There should hardly be any discounts because generally, as of now, we do not export any CKDs or SKDs. We only export complete machines.
No, sir, in the Ghana market, what would be the positioning -- price positioning of the product that would be manufactured from this plant?
It will be much better than what it has been currently sold, maybe 30%, 40% lower than the current pricing point at which they are sold and are made there because that benefit we are getting from buying the kits from India at Indian prices and competing with the westerner that completely built machines there.
The next question is from the line of Aman Shah from Jeetay Investments.
Congratulations on good set of numbers, especially in the maintenance of margins in this environment.
Yes. Thank you. It was a very, very difficult balancing act.
Yes. I agree, sir, completely. Hopefully, I think on margins since we start from Q2 onwards, with softening of commodity and the marginal players that we have acquired, we should see -- though you have guided for a double-digit margin, but we should see a strong support to our margins from here on?
Yes. I think quarter 2 onwards, second half of quarter 2 onwards because a lot of inventories were still there in the beginning of the quarter. The margin profile will start to improve. We should see that benefit in quarter 2 and slightly magnified benefit in quarter 3 and quarter 4.
And because of this acquisition, structurally, our margins would also, means, be positively impacted by some basis points?
Yes. See what was happening about 10% to 15% of our sales in the Crane segment was getting affected by these marginal players. But like I said, still some of them are existing. So they will be taken care of in the next 6 months, 1 year, 1.5 years. But definitely, we'll start to see improvement in our margins because of what we have done in our tower cranes business also in our pick-and-carry business also.
Okay. Okay. Great. Second question was, sir, on Construction Equipment. If I heard you right, like year-on-year growth, which has been some 40% -- 40%, 41%, out of that 15% to 20% is attributed to backhoe loaders?
Yes. Yes. Yes, approximately, yes.
Okay. Okay. What would be the things that you feel would be required to keep bring this on a high growth part because we have good positioning of the product quality, our brand name is good and pricing of our product is much better than the leading competitor?
And I suppose we are going more of a centralized means, more of a concentrated distribution in region specific area. Is there any change required or what will it take to bring this in a high growth part because we are still a very small player compared to the market size, yet because of the market swings, our sales are being affected?
See, to be very frank with you [Foreign Language] our product is right, our price is right, our service is right, our accessibility has been created, financials are in place, our brand is good, we're the largest in cranes. And confidently, this is what we were discussing internally also a few days back. But we don't know why it is not on that path. Yes, in the last 1, 1.5 years, we can definitely attribute it because overall, there is not such good momentum around this product category in the entire country. But I think we are ready, geared up and all fired up, it's a matter of time, we can very, very pleasantly surprised even ourselves very soon. [Foreign Language].
So we are on the right track. We have done everything right. And whatever was possible to be done has been done in the last 1.5, 2 years, whatever was possible or any shortcoming, fall back or change in approach or whatever you can think of. So I think it's -- so it's a -- I do not know, we define luck as when preparedness meets opportunities. We are prepared, opportunity is definitely there. So it's -- luck is going to happen, I'm sure.
No, no, it should happen when our product quality and the pricing is better.
It will happen. Our product pricing is -- even in the current rental prices, there is definitely a liability for the buyers. So I think we are just around the corner. And I think I do not know which powers are natural, supernatural, I do not know stopping us, but it's a matter of time.
I was just wondering, is there something which is non-pricing related decision, maybe, say, repairs and spare parts available of the leading competitor every time?
Nothing. We have taken care of everything. We are similar or better in every possible aspect, better off time. And we are putting all our hard work determination in it and 70%, 80% of the rate we have already run, so we have put in our back in the resume the balance part of it to become successful because there's a very thin line between success and failure. So I'm sure he will be successful. We are still trying very hard, and we are on it.
Yes, yes. How much proportion of Construction Equipment is backhoe loaders?
Slightly tricky question to answer all of a sudden. But in numbers, it is the biggest. So for about, let's say, 80,000, 90,000 Construction Equipment, about 40,000, 45,000 nearly 50% is backhoe loaders and another 20,000, 25,000 are excavators, plus 2,000, 3,000, 2,000, 3,000 are some concrete machinery, whatever, whatever. So about 50% of the total Construction Equipment market in numbers is backhoe loaders today in the country. I'm not counting cranes in this.
Actually, I mean to say from our division so that even in...
I think the overall market size, you can easily multiply it by INR 25 lakhs, INR 26 lakhs into INR 40,000, INR 45,000, so it's about INR 10,000 crores, INR 12,000 crores market.
No, no, sir, from our division of this INR 52 crore sales in this quarter, Construction Equipment, backhoe loaders, how much would that be?
Backhoe loaders would be about -- I would say about 60%, 70% of this.
The next question is from the line of Jaspreet Walia from Clockwise Capital.
Sir, with -- these both are taking over Escorts, have you seen a difference in the way they prove pricing for their various products in the market? Or it's too early to be looking at those kind of things as of now?
Their approach towards pricing was reasonably logical and rigid in the first half of this year, to be very frank with you. And that is the way it should be because unfortunately, this division Construction Equipment division or Cranes division really does not make any profits there. So they were reasonably firm on their pricing and a lot of inflation happening.
But I think in the last 1.5, 2 months, we have again started to slip back on their pricing just to retain their market share or whatever. So something which we've been seeing in the past, because I think it is being handled by a similar set of people, and I really don't know Kubota being primarily an agriculture company. So I do not know what is the strategy there. But yes, they are -- they were rigid. And things are going in the right direction. They have not rigid again. That's what I understand in the last 1, 1.5 months.
Next question is from the line of Deepak Mehta, Retail Investor.
Sir, my question is around government is pushing for infra and the state real estate is also picking up. So in the -- yes, in the best case scenario, what can be our utilizations of crane or assets? And what can be the turnover, asset turnover?
See, ideally, we should have been the way things were in the second half of FY '21. And again, pre this war, I would say, in the end of Q3 and Q4 of last year, I would have thought we should have been nearly a 90%, 100% utilization for cranes and about 70%, 80% for Construction Equipment.
But after the war, the sentiment did go off a little April onwards, May onwards. And I'm going to start to build up again. And if you look at our utilization and going to full board, I think we can easily add about INR 1,000 crores of revenue from here onwards also by utilizing ourselves. So to reach a turnover of around INR 2,500 crores, INR 2,600 crores, we really do not need to do any significant CapEx.
Okay. Yes. And best wishes for your hard work and continuous focus. Yes, really appreciate it.
Thank you. Thank you.
As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
I think we have discussed most of everything. And I would just like to finish the call by reiterating that we are looking at a 15% to 20% growth in our revenue this year with at least double digit, if not slightly more with respect to our margins.
And definitely, with the inflation cooling off and especially steel, which is one of our main commodities. So we should expect at least 1.5%, 2%, maybe slightly more expansion in our margins on a quarterly basis, especially quarter 3 onwards, but there has definitely been some benefit in quarter 2 also.
On the whole, our government is very much focused on developing infrastructure and infrastructure assets and also increasing manufacturing in the country. And we are definitely seeing positive effects of that all around. So going by that, I think we are ourselves very much bullish on the medium to long-term prospects of our company with increasing revenues as well as increasing margins.
Yes, I think that's it. Thanks a lot, everybody. Good evening.
Thank you, everybody.
Thank you. Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.