Balkrishna Industries Ltd
NSE:BALKRISIND
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Balkrishna Industries Ltd
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Good morning, ladies and gentlemen. Welcome to the Q2 FY '23 Earnings Conference Call of Balkrishna Industries Limited, hosted by PhillipCapital India Private Limited.
This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the 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. [ Amarkandh ] Gorr from Phillip Capital India Private Limited. Thank you, and over to you, sir.
Thanks, Lizan. Good day, everyone. On behalf of Philip Capital India Private Limited, I welcome you to Q2 FY '21 earnings conference call of Balkrishna Industries. I would also like to thank the management for taking out time for this call. Balkrishna Industries represented by Mr. Rajiv Poddar, Joint Managing Director and the senior management team. As usual, we will start with a review of the quarter by Mr. Poddar, then we support that and then follow it up with Q&A. Over to you, Mr. Poddar.
Thank you, Amar. Good morning, everyone, and thank you for joining us today. Along with me, I have Mr. Bajaj, Senior President, Commercial and CFO and also SGA, our Investor Relations adviser.
Let me begin with performance updates. Looking at the current geopolitical challenges across the globe, especially in Europe, which is also our biggest market. There are strong headwinds. Despite the challenges during the quarter, the company could deliver a good performance and registered a sales volume of 78,872 metric tons during the quarter. The current situation in Europe continues to be challenging and thereby may have an effect on our performance in the second half of this financial year. The demand pattern has been relatively better in Northern America. However, recession fears may also have an impact on the growth rates over there. India continues to be stable, supported by better economic environment backed by good monsoons. The global economic weakening coupled with sharp uptick in interest rates has also led into a reduction in order placements by dealers and distributors.
During this challenging macro environment, we are unable to guide for annual sales volume for this financial year. The recent price correction in raw materials and logistics logistic costs more well for our profit margin. However, as guided, the benefits are expected to kick in from early Q4.
Let me update you on the Waluj plant. The Board had earlier intended to replace the old plant by a newly commissioned greenfield plant. But given the subsequent business outlook, it was decided to continue operations at both the plants along with modernization of the old plant. The Board has now decided to revert to its earlier decision of seizing operations at the old plant. The earlier approved CapEx of INR 350 crores for modernization of the old plant will now be utilized at the new plant site to bring in economies of scale. This will be done as a brownfield project. It is expected to be completed in the first half of the next financial year. The Waluj location will accordingly have an overall capacity of 55,000 tons per annum at a single site.
Accordingly, the current achievable capacity will stand reduced to 335,000 metric tons per annum and will increase back to the original number of 360,000 metric tons by the end of first half of second -- of the next financial year, post commissioning of the Waluj brownfield project.
We have also completed the modernization, automation and technology upgradation CapEx at Rajasthan and Bhuj plant. We expect better productivity to kick in gradually, resulting in margin uptick. The CapEx for Carbon Black continues to be on track and we expect the commissioning of the 55,000 metric ton per annum Carbon Black project along with power plant during December. The Advanced Carbon Black project of 30,000 metric tons will be commissioned during the Q4 of this financial year.
With this, I now move on to the operational highlights. Our sales volume for the quarter was 78,872 metric tons, a growth of 8% year-on-year. For the first half of sales volume, stood at 162,025 metric tons, a growth of 15% year-on-year. Our stand-alone revenue for the quarter stood at INR 2,806 crores which includes realized gain on foreign exchange pertaining to sales of INR 102 crores. For first half of the year, revenue stood at INR 5,533 crore, which includes realized gain on foreign exchange pertaining to the sales of INR 182 crores.
For the first half of this year, financial year, 49.6% of the sales came from Europe, 19.9% came from India and 20.3% came from Americas, whilst the balance came from the rest of the world. In terms of channel contribution, 69.8% was contributed from the replacement segment, while OEM contributed to 27.6% with the balance coming from uptake. In terms of category, agricultural segment contributed to 64%, while OTR industrial and construction contributed to 32.9%, and the balance came from other segments. The stand-alone EBITDA for the quarter was at INR 564 crores with a margin of 20.1%, while for the first half of this year, it was recorded at INR 1,111 crores translating to a margin of 20.1%. The EBITDA for the quarter has been impacted by the higher raw material costs. Other income for the quarter stood at INR 58 crores, while unrealized gains stood at INR 49 crores. The other income loss on M2M basis suffered in Q1 on the investment book reversed in Q2. Other income for H1 stood at INR 43 crores, while unrealized gains stood at INR 75 crores.
Coming to the net ForEx items. For the quarter, we had a net ForEx gain of INR 168 crores which includes a realized gain of INR 120 crores and unrealized gain of INR 49 crores. For the first half of this year, we had a net foreign exchange gain of INR 286 crores, which includes realized gain of INR 211 crores and an unrealized gain of INR 75 crores. Profit after tax stood for the quarter at INR 404 crores versus -- while for the first half of the financial year, it stood at INR 724 crores. Our gross debt stood at INR 3,090 crores at the end of 30th September '22, of which about INR 2,253 crores is relating to working capital debt. Our cash and cash equivalent were INR 2,078 crore.
We keep -- all the CapEx programs bearing Carbon Black are over. For the quarter 2 of the financial year, the euro hedge rate was 85. Forward hedge rate currently stands at around 85 levels for the rest of the financial year. The Board of Directors have declared a second interim dividend of INR 4 per share. This is in addition to an earlier interim revenue of INR 4 per share also for the Q1.
With this, I conclude my opening remarks and leave the floor open for question and answer.
[Operator Instructions]
The first question is from the line of Siddhartha Bera from Nomura.
Sir, my first question is slightly delving deeper into your volume outlook on the year. Some of the challenges which you have indicated like Europe peak demand and inflation and pressures in North America. I look at largely similar to what you have guided probably a couple of months back also. So what changed so much and despite that, we have seen a very decent volume in the current quarter as well in Q2.
So just wanted to slightly understand more in the 3 months, what has changed so much that we are now not sort of indicating the volume outlook for the year? Is it something more in terms of the near-term maintenance which you are seeing? Or you believe that the issues may prolong slightly longer than what you are expecting, so slightly more clarity here.
Thank you for the question. So basically, the geopolitical scenario has gone on for longer than expected in Europe. I mean there is no visible end or way out. So that is one. Also, the -- a lot of it is also dependent on the weather, how severe it is in Europe because of the geopolitical scenario, they may -- if the weather -- if they have a severe winter, it may have a different impact on the overall financial of Europe, whereas the winter is milder, it may safeguard some of the financial stress in Europe. So the -- those things have given -- are not giving a lot of confidence at the end user level. So everybody is waiting and watching. So that's why we are unable to give guidance in the near future, what is happening. The geopolitical scenario needs to really be played out before we can comment on volumes.
And in the last quarter also, we have highlighted that there has been some bit of channel restocking by dealers and distributors. So on that perspective, in the current quarter, you have seen further sort of destocking and where are the channel levels, if you can broadly indicate as well?
Yes. So we have seen further destocking. So all these things coming together is what is making us unable to comment on the outlook for the guidance.
And lastly, sir, if you can comment on the price increase. If you see the ASPs, they have gone up very sharply by about 9% quarter-on-quarter. And what I recollect last time, we said there has been no significant price hikes in the quarter. So can you just highlight what led to the sharp jump in the ASPs?
Yes. So yes, you rightly pointed that out. So there are 3 main factors which have contributed to this. One is the overall product mix has been better. So over the period, we have been upgrading our equipment, and we have been saying that we are moving to higher technology tires. So that has contributed to the ASP. Also the dollar movement, which has gone up sharply has impacted in the ASP and also the higher contribution from Northern America sales. So these 3 factors have contributed to the ASP.
The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Just continuing on the ASP part. So you indicated there is some contribution from North America. So the higher ASP in North America is just because of higher share of MTM versus agri. Is that the reason ASPs are better there.
Yes. And also they use a larger diameter tire, which contributes to a better product mix.
Okay. Okay. Got it. Second question pertains to the European market. So any sense on what percentage of demand is met through local production and based on that, do we expect some bit of further market share gains because of cost inflation seen in Europe.
No, we don't have those numbers with us.
Okay, okay. And lastly, if you can talk about how did the RM cost increase in this quarter and based on the current prices, what kind of savings do we expect both on RM and logistic cost, rate cost.
So both are coming -- softening. Raw material cost is also coming down and see freight is also coming down. So in the coming quarters, you will see the impact of those.
Okay. And what kind of impact was there of RM cost?
Sorry.
In second quarter, what was the impact of RM costs? Indicated there was impact of RM cost, any sense on the magnitude.
So 200 points increase because of the dollar price. And in the coming quarters, we will see that it is softening, so it will come -- it should come down.
The next question is from the line of Ashutosh Tiwari from Equirus Securities.
Sir, firstly, how are the inventories in.
[Technical Difficulty]
Sir, we can not hear you clearly.
Yes. Yes. So sir, firstly, what kind of inventory levels are there with DRA disputes right now and how it compares with normal.
We can't hear you -- sorry, your question is very muffled.
[Technical Difficulty]
Yes, my question is that like you said that inventory levels -- the dealers are basically deferring the purchase and all. So how is the inventory levels with dealers right now and how that compares to normal inventory.
So they are slowly steadily destocking, and we are seeing that impact come in.
Okay. But how is the level, I think, normal was 3 to 4 months? Is it in line with that right now?
So currently, I mean, eventually, they will reduce it to 2 months as the target is to get there to 2 months.
And currently they are around how much?
Maybe around 3 months.
Okay. And this is across Europe and this is more like a euro situation.
Europe and all over Europe and U.S. both.
Okay. Okay. Okay. And at retail level, we all -- like we've already seen the demand impact in Europe? Or this is just an expectation that [indiscernible] demand is all going ahead.
Your voice is muffled. We can't hear your question still.
Sir, I'm saying that are we already seeing the demand impact retail level in Europe? Or the expectation is that going ahead in second half demand will now taper off?
We can't comment on that, but we are seeing challenges, which way we feel may create headwinds for us.
And lastly, sir, on the CapEx side, we already have done INR 900 crore CapEx in the first half. So how do we see CapEx for full year and also next year as any guidance?
Around another INR 300 crores on this point.
And next year, any guidance.
Not yet. We'll come back to you in a bit.
The next question is from the line of Pramod Amthe from Incred Capital.
I wanted to know, based on your long experience in handling the export market, how different is the macro environment now per se? And basically, what tools you feel you can use it from your end to handle the situation based on your experience of the past.
So basically, if you go to see these are unprecedented times, we've not had a situation in a lot of years when there is a backdrop of a war-like scenario in Europe. So that is having an impact. People have boycotted Russia and USSR. So that has an impact on their ability to save that their people by buying gas, et cetera. So those scenarios are unprecedented and out of our control.
But what we are doing is we are continuing to service the market better. We are going from our ability to do the product mix to service them better. We are doing that. We are going following it up with our end users, with our distributors for promotion, we are not stopping anything. Also the brand building exercise, which we have started, we are continuing all those things. So we are doing things which are under our control. And we are hoping that -- I mean, we are quite hopeful that with these activities that we are doing in the long term, we will sustain and outgrow the market. Even under these challenging times, despite the challenges in Europe, we have outgrown a lot of the pace of the market.
And related to that, sir, how are -- are there any smaller players who are struggling, you feel will go out in the marketplace. How is the response of other complicators, especially smaller ones, if there are?
We never -- we don't comment on our competitors. We've never done it. We will stick to not commenting on them.
And the last one is with regard to the last question on inventory. As you said, they have gone up to 3 months versus a comfort of 2 months. Is it more because of the demand collapse and the absolute numbers, which they are carrying is the same, but the base denominator of the demand has changed and hence that 2 months, 3 months variation is happening? Or what is the -- are the over book or building in that sense?
So there are 2 things to write. The demand has slightly tapered off because of the geopolitical scenario, so that is a contributor. Also, the shipping duration is eased or because of the availability of shipping. So the shipping time is reduced. So these 2 factors put together is having a contribution towards getting them to have reduced their inventory.
The next question is from the line of Sonal Gupta from L&T Mutual Fund.
Sir, just going back to Siddharth's question in the beginning, trying to just understand, one, the ASP jump because -- I mean, like what you're saying that Europe, the higher contribution of North America, I mean, like quarter-on-quarter, there is no change. And even in the Agri OTR mix also, there's no change on a quarter-on-quarter basis. So just trying to understand like is there some delayed impact of the price increases that you took in Q1 or something of that sort or...
So there is no delay impact of the pricing. Basically, as I said, one is the dollar movement, which happened in this quarter, we were at about 76-odd, it's gone to about 80, 81. So that has had an impact. And in the U.S., as we said, it is a higher contributor. And within the product mix, we have been able to achieve a product mix of a higher value, large diameter sales within the -- even within the agri sector or within the OTR sector. We have been able to get sales of higher value diameter tires. So the larger tires, more technology driven. And that has had an impact on the product mix positively. If you recollect my commentary from about a year back, we had said that we are actively pursuing to upgrade our equipment, which is -- which we've just said is over, has had us to create a higher capacity for these larger times and you are seeing the impact of that.
Got it. So I mean -- okay. So got it. And just on the RM cost also, right, like on a quarter-on-quarter basis, it's up almost $200 per ton. So is that what is driving that?
The dollar sort of market as the raw material prices have softened, but when we are converting it back from dollar, the impact of the higher dollar has made it go up.
Sir, I'm looking at it in dollar terms only. So I'm just trying to understand the -- I mean, so what is driving that even in dollar terms, it seems to have got.
Now prices are going down. Last quarter because all the inventory and metal [indiscernible] transaction, price impact -- raw material prices were almost stagnant or slightly plus. So about impacting of the dollar increase, and this is 200 [ times ]. Now in the coming quarters, you will shopping off the pricing.
Got it. And any visibility we have on the freight rates coming down, right, like because first -- I mean first half, like you mentioned earlier, you were tied into the higher freight rates. So do you have any visibility and what sort of reduction we see in the second half?
So freights are continuously going down. The impact of that should start coming from December onwards.
Some more in Q4, you're saying?
Yes, if you heard my commentary during my speech, I said that both the raw material and the lower logistic costs should start kicking in from early Q4.
The next question is from the line of Chirag Shah from Nuvama.
Sir, I have 3 questions actually. Sir, 1 on the FX side, if you can help us understand the ForEx gain that we have realized, realized ForEx in the depreciating INR scenario, if we have hedges, the gain should have been lower, right? So how does this. Because. On a net basis, we have a higher realized gain and lower unrealized losses.
U.S. dollar, we are not hedging. We are hedging only euro, U.S. dollar, we are keeping open for our raw material payment and machine purchase.
Because there's a natural hedge there. So we leave that open. And the balance then we procure on the spot. Thereby, it is impacted in a gain.
So how to look at this INR 102 crores of gain that we have seen and which has been going up, how should we look at this number? How should we think about this number going ahead?
So our hedge rates we've given you our average hedge rates. For euro, it was at 85%. Now going forward, we can't comment on what the euro and dollar will go to. We can tell you what we are hedging it.
Okay. So our hedge rates. So when I say 85, is it right to assume that for the next 12 months, it is in this range INR 85 plus/minus 2?
For this financial year, it is at 85. For the next 12 months, I don't have the number, but it is in that range.
It is me. This is helpful, sir. Sir, second question was in general, if you look at your commentary your guidance on volume, the way you have indicated is really very worrisome. But when you -- in your commentary, it doesn't appear to be that worrisome. So why such a big conservatism in your volume guidance, one. What I'm highlighting is because if there are cost pressures coming up in, say, Europe, for example, you have a natural advantage of low-cost manufacturing base, and you can use that lever to gain volume market share without impacting the profitability significantly.
So we are seeing -- I mean, as I mentioned is, we are seeing volatility in the marketplace. We are seeing -- we don't know how the geopolitical scenario will play out. So those things are worrisome. It is not that there are cost pressures on those manufacturers there, and we are able to use. It is -- today, we don't know how the -- in the backdrop of the war, how the scenario will play out, what happens, who does what.
So those things are what are at a macro level can have a big impact in the -- as I mentioned, if the winter is severe, then it will have a financial implication of all the countries there. That may result in having lower there may be a higher burden on the people with taxations or what -- so we don't know. So those are the issues which are creating worrisome factor. It is not that there is a cost pressure only on the local manufacturer, but also on the end users. There will be a cost implication on everybody.
But sir, if you can help us understand 1 small thing that versus a European plant who manufactured in Europe and sells in Europe and someone like bulk ratio who manufactures in India, the cost advantage would have gone up by how much? Is it possible? Would it have gone up by 5, 7 percentage points.
I can't give you the breakup of how much we have got advantage of because those -- we can't disclose those.
Relatively versus what it was before this war...
Let me tell you 1 thing. If you look at the numbers, if you see in my commentary, I said despite these challenges, in the last quarter, our performance registered sales volume of 78,000 tons, which is more than the marketplace, which is more than what the people are doing there, which is what -- so that itself is an indication that we are growing and taking out market share more than the market pace is growing. So that is an indication that we are already taking up market from market share.
Sir, lastly, the shift towards bigger tires that you indicated, the driver of your ASP in the quarter, 1 of the reasons. Is this the new base because some of the efforts that you've been putting over the last 1, 1.5 years has started playing out. So can we assume that the kind of ASP or the mix that you have seen in the quarter, can stay as a base or there were some specific orders that you won because of which the biggest tire was sold in larger quantity.
No. So firstly, the product mix can change depending on the order scenario at that particular thing. We don't have a control over that. What we have now is the ability to do a higher capacity of the higher larger diameter tires, which can improve my product mix. But if the order comes in the other one, I don't use this as a base. I have only demonstrated that over the last 1, 1.5 years, whatever investment we have done towards creating this capacity has played out. Now the product mix, order product mix continues to be this, I can continue to service in this category. If the product mix changes, we can continue to service better to the other ones. So we are here to demonstrate whatever the end user needs we can manufacture. Those are under my control. We can do that. But I can't tell you that whether this will be a base or not that I cannot comment on because markets are not -- the demand is controlled by the end user.
Yes. But at least for next 3, 6 months, can we assume that the order book or the indication that you have is for better utilization of this bigger tire facility.
No, I cannot comment on the future because we are uncertain of what's going to happen. We can comment on what we are doing. We are doing all the things that we have been telling you all about and some of them you are seeing the benefits of that, but we cannot comment on the market outlook because we see a lot of volatility due to uncertainty in the geopolitical scenario.
The next question is from the line of Basudeb Banerjee from ICICI Securities.
Sir, just continuing on the same topic as Chirag was discussing. Just trying to understand from a different perspective that, as you said, such good volume in [indiscernible] where peak of the geopolitical tensions were there are in fact, some kind of softening in the geopolitical situation that is coming. Also the power cost and all other adversities were at their peak in such a situation where inventory destocking happens, such good volumes, record gross profit per kg records all good things you delivered.
In such a backdrop incrementally, you are taking the decision of removing guidance just because of a temporary volatility and uncertainty. And 1 look at from a perspective that too much of guidance-related expectation, if you don't need to 2 months of [indiscernible] just to avoid that you are taking a clean set or you are genuinely concerned about incremental demand debit? That will be if you can explain.
So we are -- firstly, thank you, sir, for summing it up very well for me. Thank you for that. So I think there are -- it's a mix of both. There is a genuine concern because we don't know how the political scenario will play out over there in Europe. We are uncertain of that. And again, that backdrop, it is very difficult to comment on a number because we don't want to misguide people either upward or downward and being a conservative approach. We have always out beaten our numbers. So it's a mix of both, but it's under current circumstances, it is too difficult to put any number because we don't know tomorrow, you wake up and what the political scenario plays out over there. So under those backdrop is extremely volatile to give a number. But so yes, you're absolutely right. It's a mix of both. There is a genuine concern and there is also trying to use translate so that we don't miscommunicate on misguide the market as to where the number will.
Sure. Second question, sir, again, on the similar lines that record ASP sustainability is a function of multiple things, a few of them are beyond your control also. But if I look at gross profit per kg, which is about INR 180, another record level, which is largely a thing which you can control through product mix and cost management, where we are almost at the higher end of the market. So any comment about sustainability or further improvement in scope of gross profit per kg.
So on the ASP, what we said is we may not be able to sustain these numbers because if the shipping costs start going down, we may have to pass it on to the end users, so which we are -- we see there's a lot of multiple things that have been built into that. Also the -- if the dollar softness, that will also have an impact on the ASP because these are things which are the dollar movement, et cetera, has factored into the upward trend when the dollar and it's at its peak today. If the dollar softens, we may have to soften that as well. Regarding the gross margin, as I said, we are estimating some raw material correction, which has already come in and the logistic costs, which have started to go down, this should help us in our margins. And we have seen the benefit of that to start kicking in from the Q4 of this year.
So then last question, sir, in the presentation, there are some comments about Waluj plant CapEx plan. So if you can explain that?
So basically, if you go back when we had taken up the idea of setting up a greenfield project, we have said that the Aurangabad or the Waluj plant is being our oldest plant, and the machinery, the building, et cetera, is becoming redundant. We had decided to make a new Greenfield project, which was supposed to replace new the old plant. When the new plant got commissioned, the business outlook was then very strong and positive. So we had said that we will continue both to cater to the demand as opposed to shutdown capacity which you can yet produce.
Now we have -- and for doing that, we were going to spend roughly the board approved approximately INR 350 crores for modernization of the whole plant. Now due under the current circumstances, we believe that rather than spending the money there, it may be either to spend it in the newer site where we have space to create a new brownfield and add this capacity over there so that in the long term, both the plants are new and also under 1 location. So your cost on economies of scale should kick in, in that 1 plant as opposed to running 2 plants.
So this INR 350 crores, which you are going to spend in the old plant or modernization will be used in the new location and create similar capacity. So at the end of the day, in the second half of next year onwards, as I have mentioned, our capacity will go back to 360,000 with 55,000 coming at a single location at Aurangabad as opposed to having 2 plants.
And the older plant machinery, those things will be...?
Some of them will be shifted and the rest, we will see what to do. We have not yet taken a call on the old plant in line [indiscernible].
So basically [ 3,60,000 ] will remain with a modernized plant rather than using old Waluj plant.
Yes, yes. Absolutely correct. Temporarily, our capacity will go down to[ 3,35,000 ] for the next 6 months. And in that much time, the new plant will be ready and shipping should happen and it should go back to [ 360,000 ].
The next question is from the line of Rakesh from Axis Capital.
This is Nishit here from Axis Capital. Sir, I have 2 follow-ups. One, still trying to understand the ASP issue. Just 2 points here. One, the reason we don't hedge our dollar-INR is because we have a natural hedge through RM imports in dollar terms. So is it fair to assume that whatever higher realization we get because of dollar appreciation versus INR, similar impact we will have on RM cost per kg, so it will not be incrementally negative or positive for the gross profit because in this quarter, we have seen a good INR 21, INR 22 increase in cost per kg. Is this a right understanding or we should understand it differently?
Absolutely correct.
So basically, when this dollar appreciation part is not impacting the EBITDA or the gross profit per kg thing, right?
Yes.
Second part is, just wanted to understand how is our Carbon Black plant ramping up? And has the contribution of Carbon Black to our total revenues increased over the last 1 year, which is also adding ASPs?
Yes. So our Carbon Black sales is approximately 5% of our turnover now for the last quarter, which used to be about 3%, it is now going to 5%.
Okay. Not that big a change.
No.
So because I was still understanding last year, same quarter, your ASP was INR 286 per kg. This time, it's around INR 356 per kg. Our euro INR rate has broadly remained stable. There may be some benefit from a dollar INR budget, it has got offset from RM cost per kg. Apart from that, is mix very, very big impact, which is benefiting our ASPs? Or it's a relatively smaller part within the overall scheme of things?
No, it's a good contribution.
Okay. And now going ahead, ASPs will moderate a bit because of freight cost, whatever special hikes you had got from your customer, that will get removed from the ASPs as well, right?
Absolutely. So freight costs would also happen. The dollar movement will -- may also contribute if it goes down. So that will also soften the ASP. So these 2 factors will -- may affect our ASP.
Okay. So last question is on the CapEx and the debt levels. I can see that your net debt level is closer to INR 1,000 crores now. I mean they're almost net debt free. So just wanted to understand what is the CapEx that you are looking for this year and next year? And is there an abnormal increase in working capital because of its debt levels have gone up? Or is it more of a normalization that has happened?
So it's -- so the working capital has gone up because the turnover has increased and also the working cycle has gone up because of the extended freight rates and -- I mean, freight shipping duration. So that was impacting. So that should now start normalizing as the schedules start reducing the shipping time reduces. So that should start normalizing. The working capital, the long-term borrowing that we had done was towards project. And as we said that we have about INR 300 crores, INR 400 crores of project left for this year and the balance for next year. and of similar levels. And that is the CapEx that was already planned and approved. There is no new CapEx that we are in messaging for the moment.
Okay. Okay. Sir, 1 last thing, if I can squeeze in. In Europe, the kind of uncertainty you are seeing. Is it impacting more retail demand on the agri side? Or is it also on the OHT segment? Why I was asking this is, if I look at 1 of your larger peers Michelin. Are they reported a couple of weeks back, and they are still talking about agri market to be flattish in demand, but we are being a little cautious. So I just wanted to understand, is it that agri is more under pressure? Or you are seeing OHT also -- OHT basically OTR tires also getting impacted in Europe?
We are seeing both, both being impacted.
The next question is from the line of Ankit Kanodia from Smart Sync Services.
And I would say, impressive set of volume and given the guidance we gave last quarter, the cautious market. So I have 2 questions. One is if you go back and look at the past recessionary period, if you can share with your experience, how do you see the OEM and replacement mix changing? Because with my limited understanding, I would assume that if Europe is going through a recession, probably, say, a farmer would be using. Would be using a reuse tires more, right? So maybe the replacement market would do better than the OEMs. So is it fair to assume that the replacement mix would increase during this period?
Yes. I mean we are here to cater both the replacement as well. We have the ability to cater to both. We have already got a good name in the OE sector. So that is all working. Also on the replacement side, the brand promotions and all that we have been doing has had an impact, and we've been able to create a brand for us. So if the replacement cycle works, we are already there, but also roughly 70% of our channel is the replacement segment. So we are geared up to be it comes to it.
And regarding market share, again, during recessionary period, I would assume even though absolute volumes may not increase only probably be flattish, but it would be a good time for you to have market share gain. If you look at history again, how it has happened in the past slowdown period?
Yes, that is what our working is towards to increase our market gain, I mean, to gain more market in these times. That is what we are working towards.
And my second question was related to CapEx. So regarding our Waluj plant, we have been back and forth a year, we wanted to do the greenfield expansion and then there was a very good demand. So we stopped that. And now that we see that we have a lot of time. So the only thing which I see over here is that we would -- it would take about a year from now to maybe 12 months from now to get that complete capacity up and running. So the only risk could be if the market recovers or it doesn't fall the way we are anticipating because Q1 also, we were mentioning that market, we are very cautious, and we have also different from now given the guidance. But what if the market goes up and we get the demand back. So do you think that, that is a risk maybe in Q4 and Q1 of the next year?
Yes, there is a short-term risk, but in the long term, it will have a better impact. And if you don't do these activities during times when you are not -- when there is a volume, there is no volume pressure, then you can never do it. But if you see in the long term, this will have a much better and positive outlook on the costing structure for the Waluj plant. So at some stage, you have to do it. So you can't do these when there is pressure from the market to supply more. You can only take these challenges and do it when there is not a challenge from the market, there is no pressure from the market. So we don't foresee big pressure from the market in the next 2 quarters. And that's when we decided to go ahead and -- so the long term, you will see a benefit.
The next question is from the line of Abhishek Jain from Dolat Capital.
Sir, how was the logistic cost pattern in second quarter? And how is the outlook as for the third quarter?
Logistic cost is marginally going down.
So how much was logistic cost for second quarter.
I mean if you go to see the logistics cost per se starting to go down. However, because of the marginal higher contribution from U.S. per tonne sales is higher, first tonne cost is higher. But we are seeing the cost to -- has gone down quite a lot. So you will see the impacts of those coming down in the next few quarters when starting from this quarter and the main benefit will start from early of next quarter.
So can we expect a 25% to 30% fall in the logistic costs in the coming quarters?
We are hopeful.
And sir, what is the current RM basket prices like synthetic rubber, rubber and Carbon Black and [indiscernible] in the second quarter? And what would be the impact of the fall in the RM prices in the third quarter and fourth quarter in your margin?
So third quarter, you will see, but major impact will come in the fourth quarter already. Third quarter, there will be softening of the prices because of the inventory it will be the mix of both. In the third quarter, you will see the real impact.
So what was the price in the natural rubber in the second quarter, synthetic rubber and [indiscernible].
So second quarter was -- natural rubber was about INR 150, but this quarter, it was INR 157 and synthetic rubber was INR 165 versus INR 178 for this quarter. But the next quarter, we can see rubber, natural about INR 157 to INR 150 and synthetic rubber INR 178 to INR 145, INR 150.
The next question is from the line of Garvith Goel from Invest Research.
Sir, in quarter 2 financial year 49% of complete revenue came from the Europe and 20% came from the America. That geopolitical problems going on, say, like energy prices in Europe and recession in U.S. It will be very useful if you can share the industry data regarding export of tire to the Europe and the U.S. market in quarter 2 financial year '23 means how much export impacted because of all this scenario at the industry level?
We don't have that number.
The next question is from the line of Disha Said from Anvil.
[Technical Difficulty]
Sir, I wanted to say that -- going forward, since the dollar rate and the rate is coming down, have you taken any price decrease in the near future right now on the dollar?
Not at this moment.
Okay. And sir, I just missed the answer when you said that we have increased it in this quarter because of 3 reasons. What is that?
The dollar movement upward, higher contribution of higher value large diameter tires and higher contribution from U.S. sales.
The next question is from the line of Chirag Shah from Nuvama.
Sir, again, hopping back on the earlier question that given the cost advance increasing the cost advantage that we may have versus some of the local manufacturers over there. Do we intend to use that to gain volumes? Or you are looking to maintain margins at least for next 1 or 2 quarters. How do you look at given the answer that you have indicated, the primary focus would be on utilization of asset or would be on per unit metrics, how would you look at it?
So historically, we have always shown that we never compromise on our margins. That said, we will continue that. But we will draw a balance between both of these factors of utilizing the capacity available as well as maintaining margins. So we will strive towards what is the best call it will be on an individual basis. It's very difficult to give a generic statement for that.
And sir, 1 last thing is if at a different point in time, if you can indicate that what kind of SKU mix has changed for you in terms of bigger tires either in terms of proportion to your capacity or in some form, it would be helpful. You have done a lot of things over the last few years to improve your capabilities. If you can get a more slightly broader breakup of that, it would be helpful to understand the changes that you have done internally?
We can connect offline to give share those numbers.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.
Thank you, everyone, for taking time out to join us. See you next quarter.
Thank you. Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.