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Action Construction Equipment Ltd
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Ladies and gentlemen, good day, and welcome to the Action Construction Equipment Limited Q3 FY '23 Earnings Conference Call, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.
I would now like to hand the conference over to Mr. Abhineet Anand from Emkay Global Financial Services. Thank you, and over to you, sir.
Thanks, Susan. Good afternoon, everyone. I'd first like to thank the management of Action Construction Equipment for giving Emkay this opportunity to host this call. We have with us the senior management of Action Construction, we have Mr. Sorab Agarwal, Executive Director; Mr. Rajan Luthra, CFO; and Mr. Vyom Agarwal, Head IR.
I will hand it over to Sorab sir for giving the opening remarks post which we'll open the floor for Q&A. Over to you, sir.
Yes. Thank you. Good afternoon, everybody, and welcome to this earnings conference call for discussing the results for the quarter and 9 months ended 31 December '22. I take this opportunity to wish all of you a fabulous New Year with good health and happiness. Along with me in today's earnings call, we have our CFO, Mr. Rajan Luthra; and our Head of Investor Relation, Mr. Vyom Agarwal. I hope that all of you have had an opportunity to look at the company's financial statements and the earnings presentation, which had been circulated and uploaded at the stock exchanges.
Let me start with some of the recent business highlights. To strengthen our product portfolio and showcasing our technical products, the company has recently unveiled India's first indigenously designed and developed fully electric mobile crane with breakthrough technology and zero emissions. Expanding our presence in the heavy crane segment we have also launched India's biggest indigenous crane with 180 tons lifting capacity and also showcased 35 tons 4x4 Pick-n-Carry crane, which is our biggest.
With our focus on the export market and the defense sector, the company has also launched new range of telehandlers and also India's first series of aerial work platform also popularly called as AWP's for the domestic market. This occasion of inauguration of all these new machines was graced by Mr. Nitin Gadkari, Honorable Minister of Road Transport and Highways India, amongst a gathering of industry leaders, customers, business partners and company delegates to address the emerging needs and technology requirements with the backdrop of reducing carbon footprint of our end users.
With these new launches, ACE marks India's first indigenously developed 100% electric concept vehicle and propels India's growth on the global platform of technological advancements. For this, to brief you on the financial performance of the third quarter of FY '23, the operational revenue grew by 27% on a year-on-year basis to INR 555 crores with an EBITDA of INR 67.67 crores, showcasing a growth of 58%.
The EBITDA margin stood at 12.2%. The profit before tax stood at 10.9% that is around INR 60.27 crores, and PAT margins were at 8.1%, around INR 45 crores. I'm delighted to say that these are our best ever quarterly revenue, EBITDA, PBT, PAT numbers ever. For the 9 months ended FY '23, the operational revenue grew by 38% as compared to similar period of FY '22 and stood at INR 1,545 crores with EBITDA of INR 166 crores which is 49% growth on year-on-year basis. Our PBT grew by 57% to INR 146.33 crores. The PAT stood at INR 109 crores, which is 56% growth on a year-on-year basis. And the EBITDA margin of 10.7% and net profit margin 7.1% are also better as compared to last year's 9-month results.
Now let me give you a sequential perspective. For the third quarter FY '23, the operational revenues grew by 13% on a quarter-on-quarter basis with 150 basis points improvement in EBITDA margins. The PAT during the quarter increased by 25.4% on a quarter-on-quarter basis, and PBT and EBITDA numbers registered a growth of approximately 30%, respectively. The company sustained its growth momentum across all operating segments during the quarter, driven by focus on customer centricity, execution and agility in operations.
In the crane segment during the quarter gone by, we reiterated our dominant market leadership position and registered revenue of INR 385 crores with margins of 13.5%. The Construction Equipment segment clocked revenue of INR 62.5 crores with EBITDA at 10.27%. The Material Handling segment recorded revenue of INR 44.5 crores with margins at 15.65% and Agri division registered revenue of INR 64 crores, while maintaining margins at around 3.74%.
While the construction equipment and crane divisions has led the growth, agri has shown some signs of improvement with December quarter numbers sequentially better than September, with lower inflation, strong winter crop sowing and signs of pickup in farm income it is likely that the rural slowdown is bottoming out.
Our consistent strong all-around performance is a testament to our strategic clarity, strength of our brand, our capabilities, our execution skills, along with agility in running the business, and most importantly, the determination and passion of our talented purpose-driven team members. On the operational side, the economic activity in India continued to gather momentum with sequential moderation in commodity inflation, even as core inflation remained elevated, all the major commodities still remain at an elevated level when compared to long-term averages. This is evident when you look at the inflation from medium-term perspective.
Commodities such as mild steel, alloy steel, [indiscernible] and aluminum, copper, rubber, et cetera, are seeing close to 50% inflation when compared to pre-covered levels. To summarize, commodity inflation seems to have peaked and is moderating from its unprecedented level, and that augurs well for our industry. We remain focused to deliver on our growth agenda, growth that is consistent, competitive and profitable. We will try and continue to manage the delicate balance of ensuring competitiveness of our products and keeping our margin profile in a healthy range.
Looking ahead, we would like to reiterate our previous guidance and expect a growth of 28% to 30% in the crane -- 25% to 30% in the crane segment for the current year and a 30% to 35% growth in the Construction Equipment segment. Material handling and the agri segments are expected to grow at around 10% and 15%, respectively, during this year.
On the whole, we are looking at least a 28% to 30% increase in our top line for the current year with the expansion in EBITDA margins as compared to last year. Further, our honorable Finance Minister has presented the union budget, which lays down 7 priority areas, Saptarishi that is Inclusive Development, Sabka Sath Sabka Vikas, Reaching out to the Last Mile, Infrastructure & Investment, Unleashing the Potential, Green Growth, Youth Power and finally very importantly boost to the Financial Sector.
The budget sets out realistic and inclusive vision for the nation and is in line with the vision of our Prime Minister to make India Atmanirbhar, while giving a boost to Make In India concept. Capital expenditure outlays will be stepped up by 33% for the third year in a row to INR 10 lakh crores in '23, '24. Also, the effective capital expenditure of the central government is estimated at INR 13.7 lakh crores which is equivalent to 4.5% of our GDP.
Allocation towards capital expenditure and infrastructure layout, including the setting up of new infrastructure finance secretariat will enhance opportunities for private investments in sectors like railways, roads, urban power and infra -- urban infra and power, sorry. Global manufacturers are looking beyond China with our Prime Minister Narendra Modi stepping up to seize the moment. We believe that India will be a big beneficiary as companies move forward towards China Plus One strategy. This, along with the PLI initiatives has been helping to revise the industrial CapEx cycle thereby spurring private CapEx. This makes us believe that the demand scenario could be further strengthened and will continue to provide strong growth momentum to our company in the medium to long term.
With this, I would like to open the call for question and answer session. Thank you.
[Operator Instructions] The first question is from the line of [ Paras Thakkar ] from [ Annual Wealth ].
Yes, congratulations on great set of numbers and guidance. I wanted to just to understand what is the breakup of our crane business? How much comes from real estate, how much comes from industrial CapEx? How much comes from railways, refineries, I don't know. So just wanted a segmental breakup in the cranes business.
Yes. See I don't think we have a segmental analysis available offhand with respect to the end user segment. But broadly, we can tell you that within the cranes, about 10%, 12% comes from the real estate side. And let's say, the balance, about 45% and 45% approximately would come from infra and manufacturing because cranes are used not only for infrastructure and construction at large, but also within -- for manufacturing, for lifting and shifting goods within the factories, for logistics. So about 10% would be approximately real estate. About 45%, 50% plus/minus with respect to infra, and 45%, 50% plus/minus with respect to manufacturing.
Manufacturing.
Yes.
Manufacturing may include refineries, it includes various things, right?
Everything, right from the biggest like refineries, cement plants, steel plants and obviously going down to the smallest of the factories in industrial areas, there are a lot of our cranes even in the industrial areas for loading, moving, lifting, shifting.
Correct, correct. And so how does your industry order book works. So for example, when you are guiding for 25% to 30% revenue growth and EBITDA margin improvement. EBITDA margin improvement you are guiding for what 150 bps?
See, on a whole year basis, I think last year, we did close to 10%. And this year, we have projected 10.5%, 11%. So hopefully, we should be around 11% this year.
11% for next year, FY '24?
No, sorry, FY '23.
FY '23 will be 11%. FY '24 will be 13% you have said, no?
Yes, it should be somewhere between 12% to 13%, that will unfold over the next year.
Yes, yes, correct, correct. And 25% to 30% growth is for FY '24 right over FY '23?
FY '23. You're talking about the current year, 28% to 30% growth. For the next year, we are looking at about 15% to 20% growth at least. And maybe once we have a call with the final this thing we will be able to put a precise percentage to it.
Correct. So basically, you have an order book kind of situation where you can predict the revenues for next year?
Not really. See in our industry, people want to order and take their deliveries as soon as possible, generally at stock, but generally people don't wait more than 1 or 2 months. The general momentum in our plan and the understanding of the industry also coupled with our products, new ranges, what we feel will further increase, for example, like construction equipment or material handling and let's say tower crane industry. So that's how we're able to predict what additional increment we will be able to do.
Correct. So within construction equipment space, we compete with players like JCB and all?
Yes. For our backhoe loaders we compete with JCB. They are much bigger -- much, much bigger than us, but yes, slowly...
What should be our market share in that JCB segment?
See currently I can say that our market share there is about close to a little over 3%.
Oh just 3%, okay.
But is going to move very fast now.
Okay. Okay. And your manufacturing capacities are fungible, right? So you can make construction equipment also in the same plant and you can make cranes also in the same, this thing? So suppose if demand for construction equipment, where you compete with JCB, that increases significantly.
Yes. See, it is not 100% fungible, but pretty well fungible, especially at the fabrication side. So yes, there going up and something and doing down is possible for us with great flexibility there.
And what will be the current year capacity utilization in FY '23?
See, as of now, if I talk of the last quarter on a company basis we're working at close to 68%, 70% utilization, but if we talk of cranes we are about 75%. If you talk of construction equipment, we are at 50%. If you talk of material handling we are about 65%.
Construction equipment, you are only at 50%?
Yes, as of now.
Okay. And sir, what is your CapEx for the -- what was the CapEx for '23 and what is your CapEx for '24?
See, our plan for the current year, which is ongoing, the exact number, I'm sure Mr. Luthra will provide. But we are setting up a new manufacturing facility for making bigger cranes, so spending close to about INR 35 crores. So this will enhance our capability to produce more number of bigger cranes and now that we're also launching bigger model. Apart from that, we have also initiated CapEx with respect to our regular crane production wherein we want to increase our capacity by 40%, 50%. So that will start to take shape in this quarter. And hopefully, we want to operationalize that by quarter 2 of next year FY '24, so that will again be to the tune of INR 35 crores to INR 40 crores, I would...
So what is the asset, generally, if you put up INR 35 crores, what is the revenue you expect at, say, 70% utilization?
See 35 -- let's say INR 40 crores can give us peak revenue addition of INR 700 crores, INR 800 crores, at 70% utilization INR 500 crores, INR 600 crores.
So this 10%, 11%, 12% margin?
More than that, sir. In cranes, can we are currently doing 13% and as of...
I'm saying breakeven within a year.
Yes, yes, yes. So we should be able to recover that money in 1 full year of operation.
And you have got net cash of INR 300 crores right now?
Approximately INR 290 crores, INR 300 crores, yes.
So what should be the dividend payout one can expect?
It is for the Board to decide, but I'm sure going forward it is going to increase.
[Operator Instructions] The next question is from the line of Akshay Kothari from Envision Capital.
Sir, any update on the acquisition which we had planned, which I think went into the IBC at company.
Yes, we have already committed our resolution plan to the register for questions and things seem to be moving in the right direction. So hopefully, we should have some news over the next 2, 3 months Mr. Luthra? Maybe faster than that.
Yes, in the next quarter, by March end.
By March end, so maybe by end of this quarter or early next quarter something should materialize, hopefully.
Okay. Sir, update on Ghana project, have you received that Exim Bank advance which we are awaiting?
Yes, we are still waiting for it, it is just around the corner. That is the confirmation we have. So we were actually planning and all, geared up to start execution in quarter 4 this year. But I think that will delay to quarter 1 next year when we start execution.
Okay. And sir, I just wanted to understand the incremental growth opportunity which we are seeing, the working capital would be essentially funded by borrowings only, because I think you have ...
It is natural, and I would say also very efficient management for the last 2, 2.5 years. We had let our inventory flow. And I'm very, very happy to tell you that in the last quarter we started controlling our inventories. And at the end of last financial year, our inventory days were at 104 and now they have gone to 89, our receivables are at 40 days, not they are at 30 days at the end of the quarter. And if you look at our sector, they are really similar at 105 they were earlier, 103 now. On the whole, from 39 days, if you calculate our working capital -- 39 days which was at the end of the financial year. And if we talk of December quarter, we have gone down to 17 days, and we were targeting 25, 30 days. So we were able to do a wonderful job in the last 2, 3 months. And going forward, I think we should be in a position to easily stabilize this around 20, 25 days. So our working capital required is 20, 25 days so that is our requirement to run the business, is not very high. And whatever it is, we will manage from internal approvals, that's our aim.
Sir, but during September quarter...
Sorry to interrupt Mr. Kothari, sir may we request that you return to the question queue, there are participants waiting for their turn.
Yes, okay.
The next question is from the line of Himanshu Upadhyay from o3 Capital.
Congratulation on great set of numbers, and that which we have given in the last few years, it is showing up and being able to maintain the market share is great in the cranes profile.
We will increase it sir.
I wish so, as an investor I wish so.
All across all segments we are very confident.
Okay. So the first question was in the last few years we have increased our basket of equipment, okay, both in cranes and construction machinery, okay? What is the opportunity to cross-sell, see this question I'm asking because I was doing some rural visits. What I found is people who do equipment rental business generally have both cranes and construction machinery. So that means backhoe loaders, so how focused are we in selling our backhoe loaders with our existing crane customers who rent the equipment out. And what measures have we taken so that we can cross-sell and increase our basket of products to the existing customers of ours. This is the first question.
See to answer your question, about 50% of cross-selling is possible, especially crane team doing the backhoe loader. And we use that definitely. But to be very frank with you currently to the level of 10%, 20% because what happens cranes, even there last 27 years we are established, we are leaders, we are #1. So it is very easy for any person to sell to be able to convince and get the orders and execute.
Backhoe loader because we are competitively smaller, it is a slightly tougher task. So we have a separate set of people also doing that, who are supported by the crane people, and going forward with our numbers which have started to increase now and sales may [Foreign Language]. And I'm sure over the next 1 or 2 years [Foreign Language]. So eventually, it will come to a level that it is 50% cross-sell or common market which is available, about 20%, 30%, 35% of that we will be able to attack where we are currently working at 10% level.
And the second question is, we hear a lot of progress happening on warehouses, and capacity utilization improving manufacturing and new manufacturing facilities also coming up. But on our material handling the sales is stagnating, okay? So what is the reason for that? And what are we doing to increase our market share on the forklifts and all those equipment, material handling equipment, especially.
Unfortunately, quarter 1 and quarter 2, we did suffer a little on our numbers. It's more to do with our internal problems with respect to supply chain and manufacturing and we were not able to significantly increase our numbers. And that's why even if you see in this quarter, on a yearly basis we've increased our numbers only by 3%. But yes, definitely quarter-on-quarter, we've increased by about 25%.
Sir, last question then I'll jump back in the queue. Can you give an idea of applications of this 180 tons crane what we have launched and size of the market and how fast is it growing?
Yes. I'll just finish the first answer regarding material handling. Yes, for some good/bad reason, we're not able to increase our market share and our numbers in the first half of this year. But I'm sure within quarter 4 and especially in the next year, we will surprise everybody very pleasantly about the material handling because all the orientation and alignment with respect to ensuring a good product in good numbers is in place. And I think material handling should grow faster definitely next year, even in Q4.
Regarding the 180 ton hydraulic crane which is a new introduction, we have shown our first machine at an exhibition and got it inaugurated also. We expect to commercialize this by June, July. So hopefully, quarter 2 onwards, we will start selling this bigger model of crane. And at that time, maybe another 100 ton crane, which was under development, that could also be in our kitty. So we will have the entire range of hydraulic cranes right from 40 tons, 45 tons, 55 tons, 75 tons, 80 tons, 100 tons, 160 tons or 180 tons. So by June, July, with the commencement of our new plant, which we were talking about for bigger cranes, I think we'll start these 180 ton cranes as well.
The applications and size of the market?
The size of the market and?
Applications of these cranes.
Again, bigger plants, refineries, cement plants, infrastructure projects, bridges, flyovers, bullet trains, wind mills, anything heavy, any 50, 70, 80 ton load that comes to your mind is handled by such cranes. Average price of such a crane would be close to about INR 3.5 crores. And currently, the annual size in Indian market is close to about 70, 80 such cranes every year.
The next question is from the line of Suhrid Deorah from Paladin Capital.
This is a great quarter, congratulations to you and the entire team sir. I have a question on the construction equipment side. I was just pulling up the numbers over the last 2 years and the realization seem to fluctuate a lot, so I think in quarter 4 of FY '22 the average realization was about INR 45 lakhs. This year, the first half, it was about INR 35 lakhs, 37 lakhs. And this quarter gone by, quarter 3, the realization is INR 30 lakhs. Could you help explain this? And also in line with this, how to think about the margins as far as despite the realizations going down and your margins have gone up. So what does this segment look like going forward in terms of realization, volumes?
This segment for us, the biggest product by numbers is backhoe loaders, followed by the soil compactors and motor graders and eventually piling rigs. So backhoe loader on average price is close to about INR 23 lakhs, INR 24 lakhs, soil compactors again road rollers is similar -- road vibratory rollers. Motor grader is close to about INR 65, INR 70 lakhs and piling rig is close to about INR 2 crores. So that is why the variation you are seeing.
So if you end up selling 2, 3, 4 extra piling rigs this is INR 2 crores each, the number seems to be higher or lower. And it is dynamic.
So certain things we really can't control. But I would believe that backhoe loader being one of the main this thing and going forward motor grader also contributing in a significant way for which price realization will stay in the range of INR 25 lakhs to INR 30 lakhs, a little bit, I would say, INR 30 lakhs plus minus.
And yes, if you notice in our current quarter we have actually -- I always say that once we start doing more than INR 200 crores worth of construction equipment our profitability is going to double digits. And we have done INR 62 crores of revenue in the last quarter. And our EBIT level is at 10.27%. So going forward, I believe that once we are doing 225 in this here itself, we could be doing INR 230 crores, INR 240 crores and going forward we will be doing INR 300 crores, INR 350 crores. So even the profitability will align totally with respect to our -- similar to our crane business, I would say, maybe 100 points here and there, and the going will be good, and like I said, [Foreign Language] it is just that we have to press the accelerator.
And second question was that you mentioned in your opening comments that the government itself is looking at a CapEx increase of 33%. So given that you are guiding 20% growth in FY '24, is that a reason for the difference?
I'm being very conservative.
All right.
We will keep on upgrading it as the quarters pass by, I don't want to say 35% and end up doing 25% and still be on the backside.
Yes, just want to make sure.
The next question is from the line of Gaurav Gandhi from Glorytail Capital Management.
Great set of numbers. it is great that the company has launched the electric crane and is really appreciable. But my question was regarding whether they are equal in strength with the existing cranes, which run on the oil and given the charging infrastructure is not that well in the country yet is it really the viable option for the players to buy that?
See, the electric crane. So I'll talk on 2 things, viability, and the electric charging infrastructure separately. Generally electric machines and things come at 2.5 to 3 times the cost, but we've been able to come out with a crane at about 70%, 80% higher cost than a current similar crane of 15 tons.
And as per our calculations, the viability payback is in for extra money invested by the customer or a retail hirer is about 2, 2.5 years. And after that for 1.5, 2 years it is time to replace the battery he still -- that earning is free, so he is saving an additional 15, 20 lakhs on account of fuel in the last 2 years out of the 4-year life cycle of the battery. So we believe that it's going to be -- and most importantly especially for retail hirers, the operators and all, diesel pilferage and everything happens. All that will also finish. And for the bigger companies, everybody wants to be environmentally friendly. Already the first proto machine which we have displayed one of the main contractors at Tata Steel he wants to take it straight away, we said, no wait for 2, 3 months before we launch it commercially. Already companies like Reliance, L&T, Tata and x number of people who have seen it already are already very much interested. So that's the viability side of it.
All right, that's great. The second question is that in last conference call you mentioned that you have received the export order, a big export order ...
Regarding the charging you were asking about?
Yes, yes.
Basically it comes with an onboard charger. So all you need to do is a 220 or a 440-kilowatt power point needs to be available, and this machine can charge itself anywhere.
All right. But whether the charging points will be available in the area where this crane works, maybe if something is happening at -- the construction is happening of the bullet train, let's say, where such kind of power will be available out there to...
Let's forget the bullet train. But because you have mentioned bullet train, the site is working. They have electricity power and DG set giving them 220 or 440 supply already. That is how the things are happening there. So there is no infra site where power is not available. Or there is no factory where power is not available. And if you talk of retail hirers or the hiring segment, in their offices, shops, yards, everybody has power. And you are using the same power with the onboard chargers. Problem is cars and other things do not have an onboard charger. That's why they need a charger, we have onboard chargers. So you just have to connect electricity. It is much simpler, much easier because of this.
The second question is regarding, in last conference call you mentioned that you have received some big export orders, the result of which will start giving from quarter 3 and quarter 4. So given that the current increased sale of cranes, will it be sustainable? Or is it related to that export order only?
Yes, there has been some contribution in the, let's say, cranes and in the construction equipment sector, it is very much sustainable, rather it is only going to become 2, 3x of the projections that we had from our distributors and partners. And also apart from that, we have received a good significant order from Namibia for tractor. So some execution this quarter, but most of it in the next year. So and like I said, we wanted export to be 10%, 15% of our portfolio, this year we will close more than 6%, maybe INR 120 crores, INR 130 crores, maybe slightly higher. And going forward, I believe that next year, we will hit our 10% planned target with respect to exports.
The next question is from the line of [ Jinesh Kothari ] from [ HDFC Securities ].
Sir, congratulations for having good set of numbers to you and your entire team. Sir, I just wanted to know about -- you mentioned about that we are still awaiting the letter of credit from the Exim Bank and you are hoping it to receive by Q1. So what is the revenue that we can expect in the next financial year from that project of $25 million opportunity?
See, we are expecting it within this quarter. So quarter 1 execution should start. So out of the total approximately INR 200 crores, I would believe at least 50%, 60%, if not more, we should be able to invoice and consider revenue in the next financial year.
Okay, sir. And second question was about we are receiving some of the pilot projects and orders from the defense sector as well. So do we have any defense order book number that we are currently serving and catering today?
Yes. See as of now we are executing that special multipurpose one, and Luthra sir, we have done about half of it?
Yes, half of it.
So let's say that was about 500-odd units plus minus, and we have executed half of it, so balance will be then in the next year, and apart from that the smaller MRSAM medium range sophisticated missile crane order is under execution, and it's actually slightly bigger cranes for handling. So the exact number, we don't have handy, if you could just drop us a mail or something we will provide you the exact details.
Sure, sir. And just a small question on the agricultural segment part. So upon the last quarter, we have improved on the agri margins. But there are not sufficient as we are doing in other segments. So how are we looking forward to that in coming quarters?
We have been struggling a little in our agri segment for some time now, but things are changing. You can also see some improvement and inflation in commodity price, coupled with our pricing power with respect to agri where we struggled in the last 1, 2 years. But going forward, things seem to have stabilized a little now.
Our number are also improving. So I'm sure this quarter 4 and quarter 1 numbers, quarter 4 FY '23 and quarter 1 numbers we'll see significant improvement. And we are hopeful that in the next financial year the numbers are also increasing and pricing stabilizing with respect to input cost.
We should do 8%, 10% EBIT level there even in the agri segment on a slightly increased revenue. Another thing is that just like construction equipment in agri again as we start to do a figure of INR 250 crores, INR 300 crores of revenue, that means INR 70 crores, INR 75 crores on a quarterly basis, the operating leverage and the utilization levels will help us reach our recent EBIT levels, hopefully, we are on track, and next year, we should be able to see it.
Right, sir, that is helpful. And if you please share the number of the utilization where we are having currently in the agricultural equipment segment, and is that fungible or not?
I am sorry to interrupt, sir, we're not able to hear you clearly, Mr. Kothari.
Hello? Am I audible now?
Yes.
Yes. So if you can please share the number of the utilization rate we are currently having in the agricultural equipment segment? And whether that capacity is fungible for other manufacturing units or not?
See, our current utilization with agri segment is close to 45%. And this is not fungible with others, except for that, yes, some engines and transmissions, which we do in our transmission plant is definitely fungible. But the end product facility is definitely not fungible and we are currently utilizing 45% in agri. And we expect that next year, this will also go to 60% to 65% at least.
The next question is from the line of [ Darshan Jhaveri ] from [ Crown Capital].
Congratulations on a great set of numbers. So sir, most of my questions have been answered. So I would just like to ask a bit more on the CapEx side. So we are doing around INR 70 crores CapEx in buybacks correct? So that CapEx should be online by Q2 FY '24 correct?
Yes.
And so we can expect around revenue of INR 700 crores from the INR 70 crores CapEx and that utilization could happen. How much time would it take to reach a certain level of utilization where we can expect the revenue to reach our peak revenue?
[indiscernible] -- there are 2 capacity doing it's INR 79 crores. So one is about INR 45 crores, INR 40 crores. The INR 35 crores of CapEx in bigger cranes will give us a capacity of around INR 300 crores, INR 400 crores. And we should be able to utilize that in FY '25, '26 in totality. FY '24, we will use some 30%, 40%, 50% but FY '25 and FY '26 over the next 2 to 3 years. So this is around INR 300, INR 400 crores. And the other CapEx, INR 40 crores, we are expanding our current capacity of our existing [indiscernible] by about 40%, 50% by investing about INR 40 crores in plant and machinery.
That will also become stream by quarter 2, and we should be able to utilize some of it in this year if the demand is to that fume. But I'm sure by FY '25, '26, again, that we should be able to use and that will give us revenue availability or utilization availability of close to INR 700 crores to INR 800 crores. So INR 700 crore, INR 800 crore, plus INR 300 crores to INR 400 crores is INR 1,000 crores to INR 1,200 crores is capacity utilization, we are doing that same in this INR 75 crores first thing.
Second thing, what has also asked me simultaneously is that in one of these CapEx we are setting up a new facility within our existing premises, within our existing land. So it will further free up locations for forklift and tower crane. So there again, we expect 50%, 50% increase in capacity. So let's say about INR 150 crores of forklift utilization possibility and another INR 150 crores of tower crane utilization possibility. So all in all, this will help us to do with INR 1,200 crores to INR 1,400 crores of revenue.
Okay. That helps me a lot. Sir, and all of these additions will be marginally curated, correct, sir?
Yes, yes.
Yes. So are these current Q3 margins are on a sustainable and [indiscernible] seeing additional crores. We don't have any seasonality per se, right, in the business?
We do not have what for -- I didn't get you. You will have to be a little bit clear.
Sorry, Sorry, sir. Am I audible right now?
Yes, yes, yes.
So I just wanted to ask, we don't have any seasonality per se, right, sir, in our business. Our margins with our new revenue will be keep on doing quarter-on-quarter? Or is there some element of seasonality in our business?
So, there is definitely an element. Generally, quarter 1 is definitely slower than quarter 4. And quarter 2 is definitely better than quarter 1, but still on the slower side. The second half picks up very fast quarter 3 and quarter 4. So if you look traditionally, we do about 30% to 45% of our revenue in quarter 1 and 55% to 60% of our revenue in -- sorry, in first half, sorry, 40%, 45% in the first half and 55% to 60% in the second half. And accordingly, the margins when the revenue is slightly not so great, do not rush up in the first half, but we start to improve in the second half. But that seasonality is there a little bit first half and second half.
Okay. That helps me a lot. All the best for your results. Looking forward to next quarter.
The next question is from the line of Hiten Boricha from JOINDRE CAPITAL.
Sir, my -- most of the questions have been answered. Just a follow-up question on the CapEx. You mentioned we are doing INR 35 crores CapEx for within bigger cranes, 180 tonne. And the balance, INR 40 crores, we are doing it in I didn't get that. Where are we spending this INR 40 crores?
This is, again, to increase our capacity for smaller cranes, which is our bread and butter product, to increase our capacity by 50%, 50%. So our existing plants are being -- their size and shape and form is being increased to accommodate to do more business, fabrication as well as assembly.
So by any chance, you can provide like what number of cranes we can produce per year or anything like that?
Yes. With respect to our pick and carry cranes or mobile cranes, currently, our capacity is about 8,000 to 8,500. And post this expansion, it will go to 12,000 plus. And for the crawler cranes our current capacity is about 40 units per annum.
Sorry. I didn't get you.
The crawler cranes and the truck cranes our current capacity is about 30 units per annum. This will go to 200 plus per annum.
200 plus, okay.
And simultaneously, after doing these things, our capacity, we can currently produce 175 forklifts that will go up to around -- somewhere around 275 per month. Tower crane, which we can currently do out 30, 35 in a month, that will also go to 50 units per month. So I'll put it in the annual perspective, it will be easier for you. The focus currently from about 2,000 -- the capacity that we have will be around 3,300 annually. And therefore tower crane, our capacity of currently around 350 that will go to 550, 600 annually. And everything, utilization revenue may be close to about anywhere between INR 1,200 crores to INR 1,400 crores, slightly [indiscernible] maybe even INR 1,500 crores.
Sir, any of this CapEx has already been spent? Or is it going to start from Q1 itself?
We've already spent -- I think we would have spent close to 40% of it -- approximately 40%, 45%.
Okay. Okay. And balance will be the spending in next as 6 to 8 months. Okay.
We'll take it off, we are still quarter 2 positive.
Okay. And everything will be start generating that from Q2 next year, right?
So we are trying that the bigger crane facility to operationalize that in Q1, but definitely by Q2, yes.
The next question is from the line of Sanjay Kumar from ithought PMS.
Sir first is a bookkeeping question. Can you give the exports for Q3 and the 9 months?
Export numbers for Q3 and 9 months, just a second. I think I have the revenue for 9 months, we have exported about INR 74 crores.
INR 74 crores?
Yes. And Q3, we have done about INR 50 crores.
INR 50 crores?
Yes.
Okay. Okay. And if you could share some insights on which country is driving this. I was looking at some data, it was Tanzania, some of the African and Asian countries. So what is driving this and...
[indiscernible] about 25 to 30 countries all over the world, including our immediate neighbors like even Nepal, Bangladesh. We were doing for Afghanistan, but has reduced quite a lot in the last 2 years. But apart from that, we are doing in Southeast Asia, some in Middle East Asia, in 6, 7, 8 countries within African continent where there is potential. And recently, we have started Turkey. And in the last 6, 8 months, we've also gone into the South American continent specially focused on Brazil and Argentina, some in Mexico and some as well as in CIS countries including Russia.
What is driving this because we are already seeing significant growth? Does the markets don't have the established players there, is it a relatively new market for everyone?
They have everything, and they are already buying something and utilizing. We are driving it. We are trying to foray into these markets of our easily good products maybe more lucrative, maybe more cost effective. We are trying to export till 2, 3's years back, we were not trying to export our machines in any organized fashion. So the machines which are technically similar and exceptional abroad, for example, forklifts and especially backhoe loaders and tractors. So our export team, our export division is driving this.
Okay. Will there be 10%, 20%...
Mr. Kumar, sir may we request you to return to the question queue. The next question is from the line of Gunjan Kabra from Niveshaay.
Congratulations for good set of numbers. Sir, wanted understand that you mentioned that the manufacturing sector in cranes contribute around 50% of the revenue. So [indiscernible] manufacturing sectors majorly contributes to our revenue.
I am sorry, your voice was not audible.
Sir, is it audible now?
Slightly better, yes.
Ma'am, there is a lot of echo from your line.
Just a second, just a second.
I'm so sorry. But let's say, within cranes I discussed that I've not been able to understand your question, but a little part of it. Vyom, if you have been able to understand?
No sir. There was a lot of echo from her side.
Yes. But let's say, out of -- within our crane segment, which is 70% of our revenue, 10% approximately goes into real estate, 45% goes hard core into infrastructure-related activities of any kind. So about 45%, 50% goes into manufacturing within the crane segment.
Sir, I wanted to know in the manufacturing sector, which -- in the manufacturing sector, which sector contributes to the major revenues is what I wanted to understand.
The steel sector ma'am, because finally, cranes are built to handle heavy goods and all heavy goods are made of steel. So right from the scheme of things of steel, whether it is, let's say, an iron ore mining through factories which are producing [indiscernible] or going into the final product, billet or plates because at every stage, CV is handling and then from the bigger factories or the, let's say, Steel Authority of India or Tata Steel or whichever JSW, they go to the yards. There again, handling is happening, loading, unloading, then they move to the traders, then they go to the end users, who fabricate, create some component out of it or some fabrication. Then finally, it is installed somewhere. So in the entire cycle, cranes are used for heavy goods and directly, indirectly steel sector, mainly apart from everything else, which is heavy.
The next question is from the line of Akshay Kothari from Envision Capital.
Sir, I attended one of the webinars on construction equipment industry. And one thing which came out was half of the construction equipment industry is backhoe loaders? First of all, is it really like that?
I would say 1/3, a little more than 1/3 maybe, maybe around 35%, 40% is backhoe loaders, yes. [indiscernible] equipment.
Also -- one thing also came out that backhoe loaders utility value compared to other construction equipment is much more, and it's a very useful machine. So is it right?
Yes. It's a multipurpose machine, yes.
Yes. It's a multipurpose machine. So is it somehow marching in the share of cranes as a total percentage of construction equipment or creams would always have that utility?
Cranes are totally different. See, backhoe loader is basically a machine which has loader in the front end and excavation in the rear end. So it is used for loose aggregate. Loose aggregate when I say, [Foreign Language] let's say, in a tile shop, let's say a tile factory, [Foreign Language]. So [Foreign Language]. Cranes are used for solid goods. So we can never compete with each other.
I would just like to add a little bit. Cranes are used wherever there is lifting and shifting whereas backhoe is basically for digging. So wherever you can visualize and digging and earth handling, that is where you have a backhoe, wherever you can visualize a lifting and a shifting there you would need a crane. So they are 2 different -- totally different applications to each other. And they are kind of complementary rather than supplementing each other. Yes.
Understood. Last question from my side would be sir, then are we also having any pipeline to develop electric backhoe loaders, just like what we did in claims because that would be something remarkable.
I think we can easily develop our electric backhoe loader, but it will not be commercially viable because what happens in cranes, we can afford to have the battery weight. We already need some counterweight. But in a backhoe loader if we had 1 or 2, 2.5 tons of battery weight, the self-weight of the machine goes up and the characteristic of the machine changes and even the battery consumption and the power consumption and cost versus savings -- it is usually to develop a machine. But I feel that in backhoe loader segment, it might not be that viable. With respect to backhoe loaders and going forward, maybe in the next 2, 3, 4 years, even in the crane segment, the more viable option would be hydrogen fuel cell technology, which will help us eliminate [indiscernible] for a backhoe loader or any other machine, which does not require a counterweight, it will make more sense to go in with hydrogen technology, hydrogen IC engines, hydrogen fuel cell.
The next question is from the line of Himanshu Upadhyay from O3 Capital.
See out of that 200 sales of construction equipment, what would be the number of backhoe loaders in this quarter?
Out of our construction equipment, the numbers for our backhoe loaders in this quarter just a second, Mr. Luthra, what is the number of backhoe loaders in this quarter?
184.
It is 184, you said?
Yes.
And last year, how much was it in the same quarter?
Last year in the same quarter, it was 144.
Okay. And one more thing as more and more grow, what percentage of our revenues are currently from sales and services in this quarter and 9 months? And how are those numbers moving?
Mr. Luthra, spare parts revenue to our revenue is how much again?
In 9 months we have done about INR 68 crores.
So 68 divided by...
And in these current we have on INR 27 crores as compared to corresponding quarter INR 19 crores.
So about 4%, 5% of our revenue is coming from spare parts.
That's right.
One question, sir. This business is cyclic, okay. Currently, the penetration of these equipment is very less, okay, but over next 5 years, 6 years when the penetration becomes very high, we find most construction equipment to go for the, I would say, spares and services to keep their vendors happy and also for their own profitability, okay, once the penetration increases of these equipment. So how are we focusing on? Because if we are not focusing in this period of time, when the times are good, okay, on this and then season are ready to show some money out. In tough times, trying to convince people to do a factory renewables or factory the spares and services becomes much more tougher. And being in a cyclical business, this will help play an important role for a longer-term sustainability of our numbers, our vendor. So how are you thinking now, some thoughts on that?
See we have a very well spread out network for spare parts and service. And as a matter of fact, for any construction equipment or crane -- mobile crane, for any manufacturer, it is imperative to have good availability of spare parts as well as service closer to the locations where the machines are working, and that is what we'll be able to do in India. We have spare fat from more than 100 locations available within the country. And in the last 1, 1.5 years, I would say, 1.5 years. We also booked our system on our automated BMS wherein spare parts availability and ordering with respect to our stop locations is everything is on oracle on our dealer management system.
So I think that has probably very well understand because the success of any equipment is totally based on the availability of spare parts, finally, it's a machine, something will go wrong, it will require maintenance parts. It will require everything. So that is a very, very key aspect with respect to our industry, and we are doing whatever best is required for us to cater to that. And the cyclical thing you were talking about. Yes, our business that way is cyclical because it depends on the economy. It depends on infrastructure spend, it depends on manufacturing sector doing good. And to overcome this [indiscernible] that's what we essentially decided 2, 3 years back that 5%, 10% of our portfolio, our revenue would come from defense, another 10%, 15% from export to be able to generate some countercyclability in our business if the macros go wrong in the country. So we are very well focused here as well.
See, when we have a target of growing over market share across the businesses, okay? Are we also having a team whose target is to take this aftermarket spare services to something, let's say, 10%, 12% of our revenue, we've seen double digits.
We have created a similar structure within our company only in the last 5, 6 months to take back business into the main stream from the aftermarket with respect to spare parts. And we are very actively started working on this aspect in the last 2, 3 quarters. So hopefully, going forward, the spares revenue contribution will increase a little.
And lastly, you had an aim of...
[Operator Instructions] We'll take the next question from the line of Sanjay Kumar from ithought PMS.
Sir, just one follow up on exports. Sir, do we sell directly globally or is it through a set of distributors? And you said that our products of the lucrative or cheaper, compared to global player. So shouldn't this be a bigger opportunity for us going forward with exports, please?
Yes. What you're saying is precisely true. And I am mentioning our target at 10%, 15%. That was our initial target. But I think going from over the next 3 years, 5 years, 10 years, the potential is enormous for us to make in India and the things that even our country is talking making for the world. And for the first time, we started moving in that direction. So the potential is enormous. There can be a time 5 to 10 years from now where we say that we do x revenue, but we are doing 30%, 40%, 50% in exports. That is a possibility, and we're working very hard in that direction. And to attain that, in the last 6 months, we are working very actively now on all our products, tradition. And I feel that within calendar year '23, most of our products would be very much export worthy and comparable to the European look, feel, fit, finished quality also standards. And we are working very actively in that direction. And let's just hope and pray that results follow. That was the second part of your question. What was the first part of your question, I forgot while answering.
Do you sell directly or through distributors or through any other partners?
We sell through dealers and distributors because like I said, machine fleet parts and service. So we just do not want to sell some odd units and then [indiscernible] doubled after about 1 or 2 or 3 years. [indiscernible] that some units do get exported directly to countries, which are not [indiscernible] to a distributor or a dealer. And we try to ensure that we provide them adequate spare parts along with [indiscernible].
In that case, are we building this network of dealers and distributors increasing it year-on-year?
Yes, we are today operating out of 25 countries and more than that exact number is not handy. And potential by potential, we are opening up markets like I mentioned in the last year, 3, 4 critical markets, 4, 5, which we opened one was Turkey in the current year, sorry, Turkey, Argentina, Brazil, Mexico and even Ukraine. You'll be surprised when the first [indiscernible] landed there, our containers -- the first containers of our machine was at the port last year. And even Russia, we have [indiscernible]. Apart from I'm sure for some other smaller markets.
Okay. Okay. And finally, on...
Sorry to interrupt Mr. Kumar, sir, may we request that you return to the question queue. [Operator Instructions] The next question is from the line of Vipin Taneja, an individual investor.
Sir, am I audible?
Yes, yes.
Our greetings to you on fabulous results, sir. And sir, just you mentioned about the defense sector and reading about all this in the [indiscernible] and [indiscernible] Program, I think they'll be mounted on your truck cranes only. So when we see by 2027, '28 with different itself going towards INR 1,000 crores revenue is because the opportunity says so, are we running forward for that kind of sales growth?
See it's very difficult to put a number to it. But what you are saying is possible. maybe not INR 1,000 crores, maybe INR 700 crores, INR 800 crores, it is very difficult to put a number to it but anything is possible. And another thing that our government is focused earlier, they were also in 14 cranes at 2x, 3x the cost to [indiscernible] process requirements. Just giving you an example, we are supplying some special cranes again to the Navy, which will happen -- which will be executed in the -- we received this order about 3, 4 months back which will be executed in the next years. That alone is about INR 35 crores, INR 40 crores. We will finish it in 3 months.
So things are happening, whether it is INR 100 crores, INR 200 crores of cranes or INR 800 crores, INR 1,000 crores at that time will tell, I really can't put the number to it. But yes, thinking about it, I think INR 300 crores, INR 400 crores looks easily doable, the type of pipeline that we see.
And what are the margin differential versus the normal market and defense market?
See, margins from the bottom of our heart, we are Indian and we want to work our defense forces. So we are not overcharging or anything, just sustenance. That's our intention, to serve the defense, I will be very frank on it.
Okay. And sir, I got a couple of more ... I have 2 more questions, if you can permit me, sir.
Sorry to interrupt a participants waiting for their return. We would request you to return to the queue. The next question is from the line of Pranay Khandelwal from Alpha Invesco.
Sir, can you just give us some insight on the present landscape in maybe mining, construction and road sector?
Yes. So mining, construction and road sector, what do you want to know? I couldn't figure out the question.
Like can you give us a landscape of what kind of demand we can expect from these sectors.
Okay. I think the demand is very robust all across. And with respect to any other segments, whether it is manufacturing, whether it is mining, whether it is infrastructure coming, whether it is the obligation of railway stations, boats, roads, bullet trains, steel industry. Steel prices have again started serving up a little in the last 1.5, 2 months if any of you striking steel. It is very good news because steel prices going up means the demand is going up. More cranes will be required. So I think it takes across sectors wherever we operate. [indiscernible].
The next question is from the line of Vipin Taneja, an individual investor.
Sir, I just wanted to know, I think you mentioned a lot about exports. So what would be your like $1 billion dream, are we even thinking on those lines because 40%, 50% exports. The company is totally thinking differently all together now. And that's what my assumption is.
6 months, 1 year, we started thinking differently. I didn't say that we will do 40%, 50% exports I said, that is also a possibility. So that's how efficiently we are able to create upgrade our products and sell our sales in those international markets. I think looking at the capabilities of our company and the ability to be very flexible with respect to whatever needs to be done for the end customer. This could be a reality that obviously, we can only put the efforts right and we're doing that.
And currently, what ...
And I'm just in answering that question, I just that -- and certainly most parts of the world who are using machines from China, wants to avoid that or doesn't want to do it and is looking for the alternative. So there is genuinely an opportunity to do wonders, I mean it can go any way.
Wish you all the best, sir. Because I'm interested party. All the best for the company. And sir, coming on like what would be the equipment of the cranes which you are currently very bullish on? Or maybe in terms of cranes, in terms of tunnels, like this would be the most hot sector currently and going forward maybe in the medium term and on the equipment side as well, construction, sea equipment because in [indiscernible] Expo, I think the things that you mentioned that the current -- the current size of the construction equipment industry which is INR 50,000 crores will be INR 100 crores going forward in the next 2 years, 31 December 2024, you mentioned. So both in the construction equipment and cranes, what are the like really you see you are bullish on [indiscernible].
Within Cranes, we do pick and carry cranes, which is at our main products and tower cranes where again, we are market leaders. And yes, last 3, 4 years, we've been trying to enter into the bigger crane segment. We are [indiscernible] transition an issue. I feel that I'm very bullish on pick and carry cranes. This is nothing in the numbers that are happening in the country. The way country is growing and things are happening, which will double, triple, maybe become 5x, 6x in no time, but that's my assessment.
If I talk of tower cranes, which are primarily used for building construction with per capita income increasing, the economy stabilizing, yes, presently, the interest costs are going up, but sooner or later it will start to go down. There's already a boom in the housing sector already real estate. So I'm very bullish on real estate. If you ask me that the 50 cranes a month of 600 per year, which we intend to do from next year onwards. This capacity should get utilized within the next year, maybe see even faster the way things are in order able to deliver. So all across like we talk of bigger cranes, let's say 40 tons, 50 tons and bigger. Where in the last 5, 6 years, our country has allowed China to capture the market. And Chinese, [indiscernible] really want to sell at ridiculous prices and offer 1 year credit to the end customer. That is the primary reason why a company like TIL has gone down under, Tractors India Limited.
They're going down under, right, right, right.
More or less, they are under some restructuring or some takeover or something is happening. So and the Chinese have suture that market. They're selling about 300, 400 units every year. So we need to bring that back to the country. That's why we are setting up this bigger crane factory, not only to grow our company, but as true patriot, bring it back to the country. Chinese have taken it. How can they? How has the government allowed them to?
As a matter of fact, I've always started meeting some officials and the right people even at highest level, how have they allowed this to happen? And Tractors India Limited, sorry for becoming little emotional now, Tractors India Limited are supplying to Indian defense, maybe Army [indiscernible] all high-value projects and sensitive things, and they have allowed it to go to drop. And they sees. And so this government sees. So things will happen very quickly. [Foreign Language] if they just want to turn off your [indiscernible], they can. They expect that the Chinese cranes will load the missiles and components and things or pull out wreckage when there is a war happening, it will never happen. One of the oldest Indian companies which was doing 78 cranes has been allowed to think. At the head of Chinese, what they did to the mobile sectors, I mean, the cellphones and what they're trying to do in the automotive sector, which they have been constrained already.
So they were the only one who were doing all these cranes and would we be competent...
Sir, this was the last question that we could take.
Okay. And -- so we would be competing...
I'm sorry, sir, Mr. Taneja.
That's okay. Okay.
Please, mail it to us. We'll answer, yes.
Ladies and gentlemen, due to time constraints, we may not have taken all questions. We thank you for your after participation. I now hand the conference over to the management for their closing comments.
Yes. Thank you. We've had a very good quarter. And hopefully, quarter 4 seems to be in line to be even bigger, better with margin expansion again on the elements. And going forward, I would like to say that about 2 years back, we had projected that 3 years by FY '24, we should be able to do INR 2,500 crores turnover with about 10% coming from exports. So I have a feeling that in FY '24, we should exceed both of these targets, which we had set for ourselves crossing INR 2,500 crores revenue as well as our exports doing more than 10%. And with the profit margins further increasing and stabilizing on account of better utilization, on account of operating leverage.
So -- and the country's overall scenario pretty [indiscernible] even in the face of a global recessionary news everywhere. So I see that short-term prospects are good, medium term are good, long term are very good. With that, I just hope that we are able to deliver as per the expectation of our investors. Thank you. Thanks a lot.
Thank you, everybody.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.