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CG Power and Industrial Solutions Ltd
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Ladies and gentlemen, good day, and welcome to the CG Power and Industrial Solutions Limited Q4 FY '22 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Bhoomika Nair from DAM Capital. Thank you, and over to you, ma'am.
Thanks, Cezanne. Good afternoon, everyone, and a warm welcome to the CG Power and Industrial Solutions 4Q FY '22 earnings call. We have the management today being represented by Mr. S. Vellayan, Chairman; Mr. N. Srinivasan, Managing Director; Mr. Susheel Todi, CFO; Mr. Ramesh Kumar, President - Industrial Systems; Mr. Mukul Srivastava, President - Power Systems; Mr. Ranjan Singh, Executive Vice President - Railways.
I'll now hand over the call to Mr. N. Srinivasan for his opening remarks, post which we'll open up the floor for Q&A. Over to you, sir.
Yes. Thank you, Bhoomika. Good afternoon, ladies and gentlemen. Let me extend a warm welcome to you for the Q4 and FY '22 annual earnings call. I am Natarajan Srinivasan, Managing Director of the company. I would like to briefly introduce my colleagues who are with me on this call. Our Chairman, Mr. Vellayan Subbiah is on the call. He needs no introduction. Ramesh Kumar, President - Industrial Division. He's a CG veteran and has been with the company for more than 31 years and has held various senior positions in the company. He takes care of Motors and Drives business. Mukul Srivastava, President - Power Systems. He is also a CG veteran having spent about 30 years with the company. He is taking care of Transformer and Switchgear business. Mr. Ranjan Singh is the Business Head for the Railway business. Ranjan is also a CG veteran with 28 years of service to the company. Susheel Todi, CFO, has been with the company for more than 17 years. That's a brief introduction for you.
Company performance. We have issued a press release on the Q4 and FY '21-'22 annual performance. In the press release, we have given corresponding last year data. However, these are not comparable since the company was under serious financial stress last year. It will take a few more quarters to build up a corresponding comparable data as we normalize our operations moving forward.
Q4 performance. Sales improved by -- year-on-year by about 38% and operating PBT by 366%. All the businesses of the company continued their good performance in Q4, and the results for the financial year 2021-'22 constituted the best ever in recent times. Aggregate sales for the quarter were higher at INR 1,407 crores, recording a growth of 38% year-on-year, while 3% lower quarter-on-quarter. PBT before exceptional items was INR 131 crores, constituting 9.3% of sales as against INR 28 crores, 2.8% of sales during previous year sale period. Free cash flow generated for the quarter was INR 86 crores. Sequentially, margins were lower due to product mix, cost push, execution of firm price orders, and one-off warranty provisions in Power segment.
FY '21-'22 performance. Aggregate sales for the year were higher at INR 5,159 crores, recording a growth of 104% year-on-year. Profit before exceptional items was at INR 502 crores, 9.7% of sales in FY '22 as against a loss of INR 91 crores in FY '21. Free cash flow generated for the year was INR 392 crores. During the quarter, Tube Investments of India exercised its option to subscribe to 9 crore equity shares by paying a warrant subscription money of INR 58 crores. The company prepaid its term debt of INR 235 crores using the internal accruals.
Now I'll move to segment-wise performance, Industrial Systems Q4 performance. Aggregate sales for the quarter were higher at INR 960 crores, recording a growth of 30% year-on-year and lower by 6% quarter-on-quarter. PBIT for the quarter was higher at INR 135 crores with a growth of 67% year-on-year and lower by 7% quarter-on-quarter. Unexecuted order book as at March 2022 was at INR 2,122 crores, which grew by 27% compared to INR 1,673 crores as at March 2021.
Financial year '21-'22 performance. Aggregate sales for the year were higher at INR 3,644 crores, recording a growth of 103% year-on-year. PBIT for the year was higher at INR 464 crores with a growth of 125% year-on-year. Power Systems Q4 performance. Aggregate sales for the quarter were higher at INR 448 crores, recording a growth of 59% year-on-year and 4% quarter-on-quarter. PBIT for the quarter was higher at INR 27 crores, recording a growth of 190% year-on-year and lower by about 47% quarter-on-quarter. Sequentially, PBIT margin was lower due to change in product mix, execution of firm price orders and warranty provisions. Unexecuted order book at the end of March 2022 was at INR 1,564 crores, which grew by about 48% compared to INR 1,057 crores as at March 2021. FY '22 performance. Aggregate sales for the year were higher at INR 1,516 crores, recording a growth of 107% year-on-year. PBIT for the year was higher at INR 145 crores, a substantial growth of 250% year-on-year.
Financial results consolidated. Consolidated results include the performance of the operating subsidiaries at USA, namely QEI Inc. and in Sweden, Germany, and Netherlands, which are collectively referred to as Drives and Automation Europe. And other nonoperating and holding subsidiaries quarter 4 performance. Sales for the quarter were at INR 1,507 crores as against INR 1,118 crores in Q4 of FY 2021. And PBT before exceptional items was at INR 139 crores as against PBT of INR 19 crores in Q4 of FY 2021.
Financial year '21-'22 performance. Sales for the year were at INR 5,561 crores as against INR 2,964 crores last year. And the PBT before exceptional items was at INR 528 crores as against loss of INR 117 crores in FY '21. Summary, this company, CG Power and Industrial Solutions was acquired by 2 businessmen of India on 26 November 2020 and FY 2021-'22 was the first full year of operations under the new management. The financial year has been a defining year seeing the complete operational and financial turnaround of the company. All the businesses bounced back and performed to its potential, regaining the confidence of customers and vendors.
Several landmarks were achieved by the business during the year. Highest-ever sales by Motor division, highest-ever sales by Railway division, highest-ever order book -- order booking for the Transformer division. Order book at the end of the year stood at INR 3,686 crores. During the year, several legacy issues were resolved leading to improved financials and financial rating of the company. The company completed the recasting of and audit of accounts for the 5 years from 2014-;15 to 2018-'19. To give effective recasting, the company undertook voluntary revision of accounts for '19-'20 and '20-'21. Post the recast an audited recast accounts, the auditors of the company issued an unmodified clean audit report on the accounts of the company.
Number two, the company completed the long-pending sale of the land at Kanjurmarg during quarter 3 of FY '21-'22 and the entire sale proceeds amounting to INR 402 crores were received. The company paid off the debt relating to CG House where its corporate house is located and got back the property free of encumbrances. The company prepaid an aggregate net debt of INR 650 crores, including CG House debt, during the year, applying the sale proceeds of the property and internal cash accruals. As on March 31, 2022, the company has a debt of INR 302 crores and a cash and cash equivalents of INR 452 crores. The company also secured the obligations pertaining to guarantees issued by the company to additionally secure the loans granted to its subsidiaries abroad. These loss-making subsidiaries have been closed or under closure. Financial statements with detailed notes are available as part of stock exchange filing and the company's website www.cgglobal.com. Between myself and my colleagues, we'll be happy to answer questions. Thank you.
[Operator Instructions] First question is from the line of Renu Baid from IIFL.
Congratulations for a good turnaround that you have seen for this fiscal. I have 2 questions. So my first question is on the Railway part of the business. If you can help us understand how has the company been able to scale up its portfolio in this business, both in terms of capabilities and the addressable segments in which its present. Recently, it was also given a trial order or, I would say, developmental order from railways for a propulsion system [indiscernible] electrics. So what are the plans and the roadmap to scale up the business -- the Railway business for us? And any synergies to play for larger PPP projects along with Tube in this segment?
So I will ask Mr. Ranjan Singh to speak to you -- to speak on the portion relating to Railways. So Ranjan?
Yes, sir?
You got the question? Can you answer it?
Yes. The question is that how have we been able to scale up from the levels of last year to this year. So basically that we have been in the segment of rail transportation and railway signaling and since both of them are required for the infrastructure boost of railways and since we have the products available for locomotives, electrification as well as railway signaling, we could grab the orders and execute it within the time schedule and hence we have been able to reach the levels that was there, which we achieved in about '18-'19 as well. Going forward, as we have rightly said that we have got the trial order for the train set -- 1 set. We would be taking up all its development through ourselves, self-development as well as through partnerships. And we will look forward to more opportunities like this in the space of transportation as well as signaling going forward for our growth.
So, Ramesh, could you say a few words about how the motors you have expanded in current year?
Yes. Actually, we had [ allotment ] of the capacity. And this year, we have scaled up our capacity to almost close to 85% to 90% in some plants. And then the market was also good, except for the quarter 4 where we had a little bit of trouble in the market because of the COVID that is in January and February. Otherwise, factories also had a little bit impact. That is about 50% of the manpower not coming to the work. So other than that, the demand was good, but some of the products where we had a less demand because of external problems like agriculture demand could not take off because of the unexpected rains continued till November and December. So other than that, the market was good last year. And of course, the pressure was there for the margins also because of the commodity price.
Sir, my second question is more pertinent and related to the fourth quarter performance. Two things. Usually, sequentially, we see 4Q tends to be stronger both in terms of execution for Industrial and Rail. But in this quarter, if we see, partially, you did highlight impact from COVID 3.0, but in addition, if you can throw some qualitative inputs in terms of how was the overall demand environment across key segments and the slowdown that you -- signs of slowdown that you witnessed at the onset of the quarter, have they eased now starting April-May, or you think the commodities-linked inflation will be hurting demand as we move ahead as well? And if you can also help quantify what was the quantum of provision that we did in the Power Systems business this quarter.
See, I partially answered your question earlier. Just to give you a little more. The unprecedented price increase the market could not take, okay? So unfortunately, if you see, generally, the price revision for Industrial products happens once or maximum twice in a year. But unfortunately, last year, we have revised our prices by almost 4 to 5 time, so which market could not absorb. So this happened basically after September. And generally, after Diwali, that is from November-December onwards, most of the product demand picks up. That is how the quarter 4 is always slightly better than the quarter 3. But unfortunately, this year, because of the commodity price and also the COVID and the third thing is the rainy season extended up to December, so these are 3 things which have slightly impacted for the quarter 4 performance. But the -- we are only just 3% less than quarter 3. That we could manage only because from March onwards, the market started picking up. So now it is much better than the January-February I can tell you. Power provisions.
So, Renu, you were asking about the Power provisions. So in terms of that, it's a one-off warranty provision, which actually in the quarter 4, the amount is not very significant, but it is coming up to around INR 6 crores to INR 7 crores.
Okay. So the reason I highlighted was despite this provision, actually, the other expenses have declined sequentially. So was there any material item to be highlighted or it's more of a mix impact that we've seen?
So it is more about the mix impact. And also you look at there is some reduction in the sales as well compared to the quarter 3. So that's why that the overall cost also has come down to that extent.
The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance.
Just going back to the Industrial Systems business where we've seen this 30% growth for the quarter, fair to assume that most of this would have been price led and very little volume increase? Because if I remember right, in the Q3 call, you had mentioned that you would have taken price hike in the range of 35%-odd, right? So fair to assume, therefore, Q4 largely price led?
Not only price rise, but even in the quantity also, this year, overall demand, both the inflation as well as the quantity was good. If I had to give you some numbers with respect to IEEMA declared numbers up to January we have, the quantity growth is almost about 42%. We have grown by 59% which is over and above the inflation.
Fair. That's YTD, right? That is January, okay. But I was talking only for this specific quarter, okay.
Yes. But they give all cumulative, so we have -- they don't give the entire quarter. Entire quarter will take some more time because by the end of the quarter, figures will come. But even the quarter quantity growth is also consistently good right from the quarter 1.
Okay. And if you could also talk about your CapEx plans for '22-'24, where are you looking at investing? I think Transformers I guess would be one area where you would be looking at setting up capacity. Even on the Motor side, I think you said you're touching high capacity utilization of 90%. So if you could just spend some time on quantum of capital next 2 years and which areas is -- are you looking at?
See, I think we are evaluating various options to increase the capacity by normal course by way of debottlenecking expansion. So we have not firmed up anything to talk like that. So certainly, we'll sit on drawing board. As and when we finalize, we will be able to share with you. But certainly, we are looking at increasing capacity in Motor and as well as in Transformer. But as far as Railways is concerned, it has got its own -- depending upon the projects in which we won the tender and then we participate accordingly, CapEx will be incurred. So we -- there is nothing very specific. We are evaluating various options.
Okay. And one last one would be on the fans and the pump businesses. Can you quantify the sales for FY '22 for each of these end segments? I don't know if you can share margin details, I'll leave that to you, whatever little you can share with us for FY '22?
So we can't share those information as of now.
The next question is from the line of Niket Shah from Motilal Oswal Mutual Funds.
I have 2, 3 questions. So one is this Vande Bharat Train opportunity, if you can help us understand what kind of size of opportunity this can be for CG and what all work can we do within the Vande Bharat Train opportunity. Second question was on the R&D side. What would be our R&D spend for the year? And how should one think about that going for the next 2, 3 years? And last question is on the export side of the business. If you can give us some light in terms of when can we start seeing some traction on the export side? And how large is it in FY '22?
So, Mr. Ranjan, could you talk about Vande Bharat?
Yes, sir. So as I said last time that we have got a development order of Vande Bharat in which we will be developing part of it ourselves and part of it through associated partners, and this will be just a development order as of now. Going forward, when we establish our credentials, we will be ready and fit for participating in the tender after 2 years of time, then we could be in a position to fight against all the competitors who are the major players like Alstom or Medha and Siemens.
Yes. With respect to your other questions, first is on the exports. So exports are -- exports in 2 of our businesses exports are possible. Already Transformer and Switchgears, they are exporting and Motors is doing it in a small way. But until such time, there is a huge amount of domestic demand to be fulfilled. Unless we are able to have -- build enough capacity, after meeting the domestic demand, then only the exports will come. Therefore, we are -- anyway, the exports is on our agenda. It depends on how we are able to ramp up the capacity and what kind of demand that can happen in India. So this is regarding the second question.
Third is actually each business -- every business is actually looking at building up its R&D capabilities. Earlier when the first transformer unit was there, there was a large R&D base. It used to be there in Kanjurmarg. Post sale that all has vanished now. Going forward from this year onwards, we are recruiting people to beef up our R&D. And then correspondingly, depending upon the projects we take, R&D spend is being allocated.
Got it, sir. And sir, one last question, if I may squeeze in, if you can help us understand how much is your fixed-price contract, just to get a sense of margins, because if you take a new order at this point in time and the commodity kind of cools off in the next 3, 6 months or 1 year, do you get a significant margin traction at that time if it's impacting you right now? Or how should one think about that?
So we cannot share this information of how much is fixed-price contracts, how much got price because each business has got its own dynamics. So Railways business, for example, some of the orders have got price variation clause. Transformer business and Switchgear business, some large orders they have built in price variation clause. Some we also take care to book the commodity prices. We take care of them to procure or book enough quantities. So cumulatively, we are trying to see how we can manage if there is a negative impact. Beyond this, we will not be able to share any information.
Sure. And any guidance you want to give on margins given the fact that it's an extremely volatile environment from an external standpoint perspective with too many moving parts? So any thoughts if you can give us over the next 2 to 3 years?
We have answered the question. We've answered the -- we have given the answer for your question. Extremely volatile, too many moving parts, how do we -- is it not possible? Definitely not possible for anyone to comment on any margin. Even in Q3 quarter, I said this is a one-off kind. This margin cannot be sustained. However, our efforts to maintain margin, improve margins will not lack. We'll always be good at it, definitely. But the environment, you know what is happening outside.
The next question is from the line of Charanjit Singh from DSP Mutual Fund.
Okay. So one is, sir, on the Industrial Motors market, if you can highlight what is the growth expectation going forward? And in terms of maybe if you can split it also in terms of low-tension, high-tension motor, how the trend is shaping up from various end markets' perspective? That's my first question, sir.
Yes. So Ramesh, would you like to answer?
Yes. See, generally, this motor industry, apart from the last year, that is because of the last year huge COVID issues, last year quantity demand was slightly more. Otherwise, the general assumption is that it is 2 to 3x of the GDP growth.
Okay. And sir, in terms of, if you have to look at our market share in high-tension and low-tension motors, are there any major changes there, if you can highlight over the last financial year?
Last financial year, we have regained our market share to the extent -- almost to the extent of '18-'19, which was our best market share.
Okay, sir. Sir, the other thing is like on the Railways front, earlier the tendering had been slow. And how do you expect the tendering from the Railways going forward in FY '23? And any products which you are introducing from Railways' perspective? Also, if you can touch upon the power electronics side, which used to be an important area for CG Power earlier, how we are scaling up the power electronics segments basically?
Ranjan.
See, from the tendering side, the tender cycle has already been on the upside from the Railway side. And going forward, also, it is good. We have a decent backlog for -- at the start of the year. So we don't see any issues in the current year, that is FY '23 going forward. As far as maybe the new products that are going into the electronic side is concerned, we are developing the electrics for MEMU, which is called the Mainline Electric Multiple Unit. And this year, we have planned for the prototype to be offered wherein its mix of complete items like the power electronics, traction machines, transformer, and [ bought-out ] items, which go into the railway vehicle. And this is the area that we would like to pursue more and more. The opportunity of passenger transit is going into that direction.
Sir, just if I can squeeze one more question on the Power Systems side, specifically. So on the domestic Power Systems, basically the outlook from power grid or from the state transmission companies' perspective, so how is the demand outlook for the power transformer segment? And on the distribution transformers, are you seeing a change in the procurement from the DISCOMS? Any thoughts there? That's my last question.
Mukul, you may answer this question.
As regards to this demand on the power transformer and distribution transformer, the demand was good, both in Q3 and Q4. There are a lot of projects, as you know, that the government utilities had to complete the projects by the end of Q4 to close their accounts. So at both the places, the demand was very good.
Sir, my question was more towards the next year's demand outlook from the central utilities as well the state utilities, how you are seeing the market growth outlook? And in terms of, again, the power transformer space, any major market share changes which we have seen versus the competitors?
Right. As you know that we came from a very low base of FY '21. So in FY '22, we gained a lot of market share. And going forward also, the demand of power transformer and distribution transformer both is looking to be good as we witnessed in this month also, there has been shortage -- virtually shortage of power availability in the market. So therefore, going forward, at both the places, the demand seems to be growing. And since we are now back with most of the utilities, our past issues are over, and we are able to approach and supply the products in time. So we should be gaining a good amount of market share in the coming year also.
[Operator Instructions] The next question is from the line of [ Kirti Jain ] from Canara HSBC Life.
Sir, my question was with regard to new product initiatives and exports, how has the export moved for the company and what are the initiatives we are taking to improve the exports?
So I think I answered this question a little bit earlier. So in our products suites, actually, the Transformers, Switchgears have some exports, and Motor will have exports opportunity. Railways actually we do whatever -- we work for the Indian Railways here. So as far as Motors is concerned, our exports are not very significant because there is a huge amount of domestic demand, which we have to meet. And then, as you know, we had -- Mr. Ramesh Kumar earlier had also mentioned that we have increased our market share to 35%, 36% this year. So going forward, we need to first expand our capacity. After meeting the domestic market, then we'll have to focus on exports. So the exports is definitely on the agenda, but it will take over a period of time, you have to identify which markets, which customers you have to sell. You also know what is happening in Europe right now. The same is the case with the Transformer. We have lost a bit of capacity on the sale of the first unit. So we are looking at -- this is very much on the agenda, but it will take some time.
Sir, secondly, on electric vehicle mobility, anything you can highlight there?
So on the electric vehicle mobility, we are talking to some existing players and see how we can develop motors for the electric vehicles. We are talking to a lot of people. We are also doing some development work. Beyond that, there is nothing concrete that has come to disclose on top actually. This is certainly a priority area for us. We continue to work to see how we can meet the requirements of the electric vehicles.
The next question is from the line of Mayur Patel from IIFL AMC.
We saw 230 bps decline in gross margins Q-o-Q and year-on-year. So I understand commodity prices, but just wanted if you can guide us going forward into the subsequent quarter, do we see much more pressure on the gross margins? Or are there any levers or any price hikes or any mix-related factors which can help us restrict this decline in gross margins?
So actually, as you know, it's very difficult to answer this question because we ourselves have no idea. While we are taking all steps to address margin concerns, and I mentioned earlier how we are trying to protect the increase in commodity prices by covering by -- 3 or 4 steps which we are taking. The market being so dynamic, so it's very difficult to say how things will pan out, how much price you can pass on, how much cost you can -- increase in cost you can pass on. So I cannot make any statement on this. Hope you can understand.
No, no, I understand it's very difficult to predict the commodity trajectory -- price trajectory. But at current commodity prices, is it possible to guide us some path that the decline is largely done? Or should we expect some more sequential decline in gross margins at the current prices?
So as I said, it's not possible, sir. Actually, we don't know -- for example, steel prices or copper prices will go up or not, we have no control, no?
No, no, I'm saying at current steel price and current copper price, as you see, how is your gross margin likely to remain going forward, assuming there's no further movement?
Everything is constant, then I think current markets can be maintained. There's no problem.
Okay. And just one more question from my side. Any color can you give on the order pipeline across segments, qualitative or quantitative, whatever is possible?
Order book -- pending order book you mean?
Yes. Going forward, the pipeline for new orders, if you can share any insights, it would be great.
Not possible, sir. It's a very general question. So many products, so many orders, how we can say predict. So it's not possible to give answer to this question.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
Sir, just one clarification. You said with respect to Vande railway order, you are at least 2 years away from here in terms of capability and qualification. Is that the right understanding?
Yes. That is the right understanding. We have to first do the prototype and then the speed trial will be there and then only we will be in a position to yes.
Got it. sir, second, I'm sorry, I'm again harping on the demand side, the end customer of yours. We've seen a lot of industries slowing post -- even before the COVID starting going down, whether it's the auto and the other industries or the FMCG. I'm talking about the third wave, which you have mentioned, has impacted to a number of days would be lesser than the other COVID waves. But generally, going forward, because you said in the commentary, the price rise looking difficult for some consumers, the end industry to take. Has there been some slowdown you're seeing across the industry because of this high inflation part? Or if you can help us understand what's the growth you're looking at from these industries. So the question is more from the demand side. Is the price hike getting you difficult to pass on to a consumer. Is it more to do with their output going down is what I wanted to understand?
So I think Ramesh briefly mentioned this earlier. So I think some of the orders which are linked to projects and projects there, their position will be different. Stopping the project in between is generally unlikely. They will move on. They will go ahead. Whatever the increase in cost they will take. So as far as the retail is concerned, there was a little bit slowdown experienced earlier. But Ramesh did mention that post March I think things have -- even in last week of -- middle of March and then from there onwards, things are looking better. So as of now, we are not seeing that kind of a slowdown which would impact demand.
Got it. And sir, lastly, I'm sure you must be doing this exercise being a thin margin business we are in. What's the percentage of order book, which is fixed price? I understand you passed on a comment we are having a very different order, very different products, but I think that's a part you must be playing being a 10%, 11% margin company. If you can help us understand what's the total overall number in terms of percentage, which is fixed price, if you can? That's my last question.
So I think in the Motor business, whatever price at which we accept orders, at that price we have to deliver. So our options are to protect how the cost can be hedged or covered. In Transformer and Railways, there are some contracts which gives us price variation clause. So to that extent, we are protected. Rest of it your call, how do you want to take the order, how do you want to plan. So other than that, I said earlier, it's not possible for us to share this much percentage are covered by price variation, this much is not covered. That data we will not be able to set or we don't have.
The next question is from the line of Dhruv Maheshwari from Premji Invest.
Is this slightly medium- to long-term, our parent Tube evaluates its performance on certain parameters like revenue growth, free cash flow to PAT, ROCEs and PBT margins. Given that now we've been in CG for almost 1.5 years, are there benchmarks from a medium- to long-term perspective that we set for ourselves? And maybe margin may not be the right sort of thing because of the reasons that you explained. It will be helpful directionally on how to think about this.
Susheel.
Since our all parameters what we are asking in terms of the parent company, we are in line with that. And definitely, our objective is to remain all these 4 parameters where we are working on. So that's our -- going forward will be the target, no doubt about that.
Sir, if I can just jump in. In terms of margins, generally, there is certain long-term guidance from a Tube perspective. For CG, if you can just share the long-term targets will be very, very helpful whenever possible.
So since we have not really worked on any long-term what are -- what should be the long-term targets, et cetera, we are not in a position to [indiscernible] at this point of time.
The next question is from the line of Mayank Chaturvedi from Equirus Securities.
I have a couple of questions on the Transformers business. So first would be, you said that you are looking for capacity increase on the Transformers business as well. So is this capacity increase besides the relocation of the Kanjurmarg facility that we are looking at?
Mukul.
Yes, sir. See, we have the 2 Transformer facilities, one in Bhopal for power transformer and one in Gwalior for distribution transformer. We are looking for capacity expansion in both these plants.
Sorry, sir, your voice broke a little there. I did not hear what you said at the last.
Can you repeat the answer, please?
Sir, I mentioned that we have transformer capacity at Bhopal as well as Gwalior, one for power transformer, one for distribution transformer. We are looking for capacity expansion in both the places.
So would that capacity expansion be a function of relocation of the Kanjurmarg facility that we are yet to relocate is what my question is?
Yes, partly.
Okay. Okay. And on the product development side for the Transformers, now that we are seeing a lot of HVDC projects coming up maybe for the -- 3-4 in the pipeline for the next 3, 4 years. So are we looking at any product developments on the Transformers side to participate in that opportunity because as per preliminary analysis, we do lag a bit there from our peers? So any product developments going on there?
Can you please repeat your question? I was not able to hear it correctly.
So I was asking, we do lag our peers on the HVDC opportunity that is coming up. So are we looking for any product developments on the Transformers or on the Switchgears side to participate in the same?
So I will take that actually. So I think nothing has been decided yet. So it would not be correct for us to say anything like positively. We have not -- we're evaluating options. No decision has been taken on all these whatever you are mentioning. So we can't say anything as positively yes or no.
Okay. Sure. No problem, sir. Sir, one last question from my side. On the -- broadly on the working capital cycle of the company. So now that we are largely booking short-cycle orders, sir, what according to you would be the optimal working capital cycle level? Would the trend maybe in the negative range in that as a percentage of sales? How do you think the optimal working capital cycle for the company would be?
I think that each business has a different working capital cycle. So what we have today in the, Motor, Railway in the Power and Switchgears -- Transformer, power transformer and the Switchgears. So it depends on that every business, the working capital cycle will be there. But definitely, yes, we don't want anything -- any overdue creditors with us and any overdue debtors. So we want to be really intact on our working capital side. So what we have today largely will be the same working capital at the company level.
[Operator Instructions] The next question is from the line of Ravi Swaminathan from Spark Capital.
My first question is with respect to the price increase that we would have taken in the Motors business. On a blended basis, over the past 12 to 18 months, what kind of price increase you have taken?
Close to 40%.
40% in price increase. Okay, sir. And with respect to the top 3, 4 demand drivers for LT and HT motors, if you can just give a broad sense and what is the kind of -- how are both the segments growing? Is LT growing faster than HT or the other way around if you can give a broad idea that will be great? And your volume growth outlook for LT and HT Motors next 1, 2 years?
So actually, I said this earlier. See, generally, we don't have any such data that how much growth. But generally, what we do is 2 to 3x of the GDP growth is what happens in the Motors, whether it is the LT or HT. But your first -- with respect to your first question, currently water and wastewater, cement, steel, all these core industries are doing very well, even the pharma is doing very well. So that -- those are the growth drivers because whatever expansions they have planned, as Mr. Srinivasan said that they are not stopping irrespective of the inflation is so high, they are not starting their projects in between. So that is giving us a good growth.
Got it, sir. So basically, the HT motors are consumed more in the large projects. Steel, et cetera, they do they consume only HT motors or even LT motors are consumed? If you can give a broad thought process on that, water and...
If you go by kilowatt, water and wastewater, more is HT motors because it's large projects. And the other industry, generally, if you go by kilowatt, both are almost equal. If you go by the numbers, the LT motor will be obviously more.
Okay. And the headroom for market share gains in this particular business. So basically, we have 36%, 37% market share. Is there a possibility or do you see scope for it to get -- to increase to more than 40% market share? Is that kind of scope is there in the Motors business?
See, generally, what happens is when the technology increases -- the technology norms, like the efficiency norms comes into the picture, so the major players will be there. So when the small players goes, you have an opportunity to take their market share.
Got it, sir. And is that shift from, IE2 to IE3 to IE4, is it happening? Is it happening at a rapid pace or at a slow pace? Any sense on that?
Yes, yes, it is definitely happening. IE3 is taking good growth and IE4 is still there, but definitely it will be the future, these 2 are the future.
Got it, sir. And with respect to the Railway segment, so basically with respect to the Vande Bharat order, so you had mentioned that it will take a couple of years -- correct my understanding right, it will take us a couple of years to prove ourselves in that particular segment. Is my understanding right?
So Ranjan? I think he is, I don't know, he is not on the line. Your is understanding correct.
Yes, his understanding is right.
Okay. So -- but these Vande Bharat Trains would be awarded in the next 3 years is what the government is telling. So basically, the last 1 year opportunity is the ones we will be able to see? I mean, is my understanding right with respect to that?
See, Indian Railways is not going to stop making these trains. Indian Railways is going to grow and expand. The network is going to expand. They will try to take the -- not just the passenger transit, they are also going for Vande Bharat in the goods as well. So this model of distributed traction is going to be the norm now. It's so that we are able to see the trains that are being announced currently are, say, around 200 numbers, which will be -- have to be made in the next 2, 3 years' time. It is not going to end here. There will be more and more trains that will come with more and more economy booming up and people more and more traveling into the airconditioned trains with better features, I believe that there would be more and more demand. And by that time, we would be ready with our products and be able to fight it out in the market.
[Operator Instructions]. The next question is from the line of Gunjan Kabra from Niveshaay.
The first question was on the motor replacement program that is -- that was outlaid 2, 3 years back, so with the change in the energy norms, which is advisable to put a IE2 or IE3 motors, so are we getting more of the replacement demand also? What would be the market size of this replacement demand? And how does the program work?
Yes. As of now, as per the norms, it is only IE2. IE3 and IE4 is depending on the customer. Say, for example, the process industries, they are looking at more into IE3 and some of them are IE4. So it is rapidly increasing -- the share of E3 and E4 is increasing because it is not declared exactly in the IEEMA statement that how much percentage of IE2 and IE3 are being sold. So it will be very difficult. But definitely, the growth is there, rapid growth is there for IE3 and IE4 will be the next in line to grow.
Sir, but what I understand is that if there are new plants, then that new plant would be installing IE3, but when the existing plants such as, IE1 or less than that also, so are they replacing their motors with IE3 because the lifespan of the motors is around 10 to 15 years. So on that side of the business, are we seeing any replacement demand?
Yes. Replace demand is also there, but not everybody can afford to invest so much CapEx. So it is mostly at the new plants. But there is no norm from the government that it is only the personal interest that people want to reduce their energy cost, people are working on the -- what is the number of months the payback. Based on that, they are replacing it. Replacement business is also there.
Okay. Sir, in terms of market composition for electric motors, sir how much is -- if I say in India, is it like more imported also apart from sourcing it domestically? What would be the domestically sourced and imported, if you could highlight, in the industry?
See, imported, it is not a -- standalone motor import is much less, but there are motors which come along with the equipment. So overall, there is no exact figures available, but what we know is almost about 15% to 20% is imported. That basically comes along with the equipment and standalone motor import is very less now.
Okay. Okay. And sir, what is your sense on the CapEx activity in this inflationary environment? Are we seeing more traction, or is it like a wait-and-watch kind of a scenario by the end user industry?
Sorry, I didn't get you actually. You're talking about traction, which -- you're talking about Railways?
In the electric motor or the transformer business, sir, what's your sense on the CapEx activity in the inflationary environment right now that we're seeing? Are we seeing more traction in the business, or is it more like a wait-and-watch scenario by the end user industries?
So I can take the question. See, actually, for example, railways have come out with [indiscernible] railways and government-related projects, they've already made announcements and made budget provisions and they are going ahead, which means notwithstanding the inflation in the environment, they are going ahead with the projects. Therefore, the demand will be sustained. In private sector, they might take a call because of the cost escalation, et cetera, is it worthwhile to go ahead or not worthwhile to go ahead. Then some emergency, important CapEx which needs to be done that will happen. This is how this is being decided. I don't know whether I've answered your question.
Okay. Okay. Got it quite a bit. Sir, what would be...
Ms. Kabra, may we request that you return to the question queue for follow-up question. The next question is from the line of Renu Baid from IIFL.
Couple of bookkeeping questions. First, if you can share with us what has been the average capacity utilization levels across the 3 key segments at the end of FY '22?
So maybe you can take this question offline, Renu. We'll try to give section-wise separation.
Second is, if you see the order inflow trend, especially in the Power System business, it was on an average INR 450 crores. So while last quarter, the inflows did see a big jump, again, in the current quarter, we have seen inflow trend tapering down to that INR 450 crores, INR 500 crore level. So any read-through in terms of the near-term order pipeline from key segments or end markets? Any slowdown or delay decision making because of the sharp jump in commodity prices? Or it's more of just a timing issue and order inflow outlook should be strong yet again for next year?
See, you know that both for Railways, Transformers, Switchgears, generally these are tender-driven businesses. We are given -- as per the position as on 31st March, after that [ happens ], when tenders get finalized, we respond, and then finally, we get the order, then only we can say -- we have just discussed this on what basis CapEx has been planned. I think the government orders and projects which are already up and running or which have been initiated for kickoff, I think our understanding is that they will get completed.
Okay. Sure. And also on the M&A side, if you see in the previous quarter, management did highlight that they would want to do M&A in new areas to build capability. But if you see some of the existing segments and categories where we're short of capacity, say, exports for power transformers or maybe to some extent [indiscernible], will we be also exploring M&As in these segments or it would be only concentrated towards the new age businesses or new technologies only?
So I think every opportunity is to be evaluated. Experience has taught me that but has to be valuated. So unless and until something is concrete, we can't discuss that, otherwise -- certainly in the existing business products, any opportunity comes, we are value buyers. Certainly, if there is something valuable and what we value, certainly, we'll look at it.
Sure. And one last question. Last year we had mentioned that from -- beginning this calendar, you have kickstarted the cost initiatives and cost -- as in -- hello?
Yes, see -- so what do you -- so we can't say that we are going to reduce 5%. It's an ongoing thing. When we plan our budget itself, we take cost initiatives. But these are not for public consumption. Then we can't say how much cost percentage we are trying to reduce. So it's internal -- purely internal. It's an ongoing thing. Certainly, we are looking at every aspect.
Yes. Sir, my question was broadly the kind of unprecedented second wave of cost inflation that we have seen beginning March, do you think that we'll be broadly be able to offset that inflationary pressure driven by various internal initiatives that are already underway? So will that help us in the current fiscal to tide through this inflationary environment to a good extent, or do you think there could be certain other business strategies on the cost or the mix side of the business?
We can't say what is the -- without knowing what is the kind of -- supposing 20% rate hike is there, I don't think I can offset by our internal measures. So we can't give a definite answer to this.
All the best.
The next question is from the line of [ Krishna Kumar from Lynn Capital ].
Congrats on all the improved performance and the cleanup that's happened post-acquisition. Sir, just a question on the electric vehicle business, broadly speaking, part of the group, but from a CG Power perspective, do you see any synergies in terms of supplies or any products joined to market with some of the new EV initiatives, whether it is supplying into the Hyderabad company, which makes EV tractors and batteries or into any other group entity? Any synergies that you could talk about, if at all?
So to the EV, I think as far as CG is concerned, CG is capable of manufacturing motors per the requirement of electric vehicles, whether it be group or non-group. So we are trying to -- we are working on that, as I said earlier. So this is one area, as of now, we see that we have some capability, which we can probably leverage to meet the market requirements. So I hope I have answered your question.
Sir, just on the battery side, we've heard a lot of negative press on that. Is that something an area where CG Power may have interest, or is it an area of not of any interest towards it, broadly speaking?
So as of now, we have not thought about this or we're not making any efforts to enter the segment.
The next question is from the line of Gautami Desai from Chanakya Capital.
Sir, actually, we are very long-term investors, and we have 2 sources of information, one is from the company and the other is when we speak to the dealers and the suppliers, which goes on, on a continuous basis. So our information from the dealers for this particular quarter has been that CG Motors has given maximum discounts in the long time of their own history. The figures that we have is that the discount in Motors has gone up to 67%. And also, they have said that there has been such kind of discounts even in motors like flame-proof motors, where CP Power doesn't have much of a competition. So, sir, one side, when we are struggling with margins with the input cost and the various reasons that you have given us, we would want -- we would like to know the strategy that CG Power has adopted in giving these kind of discounts in this particular quarter.
Actually, discounts has no meaning because it is ultimately what is the landing price to the customer or dealer, okay? So because all the competitors price lists are different, if you see Siemens and all must have gone up to 82%. So there is no comparison between any competition and CG, okay, because of their prices are different. And we cannot compare with 1 or 2 stray cases here and there. It may be a strategic decision of the company, what is the price where we need to give because it may be depending on the customer or maybe a strategic industry where we wanted to be, we don't want to lose our market share. So we take care on an overall basis. It is not possible to have one on each and every other evaluation of the margins and all.
No, sir, actually, we did that. You're very right, and we have done that comparative analysis. We have taken the price list of various companies, and then we have compared the Motors and the price, which you have been giving. And the information that we have collected is that the other companies, they have not sold at the kind of prices that CG Power has? If they cannot afford in this inflationary environment, how come we have afforded and that is shown in the margin?
If you can share this information with me, then I think we can go into and then we can have a call with you. Why don't you share the information, then we can...
Fine. Sire, where do I share this information?
You can send to my mail or CFO's mail.
Okay. So your mail means sorry, can you give me your name, please, sir?
So you tell me your phone number, then we'll send you the mail.
Okay. So the number, how do give you my number, sir?
No, you reach out to -- otherwise you reach out to Bhoomika Nair, then we will get the number from her, if that is okay.
Bhoomika Nair, right. Okay. And sir, just one more thing. You've been very, very categoric -- I mean, you've been very clear about this and also your annual report doesn't show, but still just wanted to make sure, do you anticipate any kind of contingent liabilities left towards any of your subsidiaries or any such thing?
So in this annual accounts, we'll be uploading -- already has been uploaded on the website. Whatever is disclosed there are the contingent liabilities. Other than that, nothing we are aware of. Whatever we are aware of, we have already disclosed it. So beyond this, we are not expecting any contingent liabilities to come.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Ms. Bhoomika Nair for closing comments. Thank you, and over to you, ma'am.
Yes. I would just like to thank everyone and especially the management for giving us an opportunity and taking time out. Sir, any closing remarks from your end?
So nothing. For this -- the lady who asked for our email address, we can share our email address perhaps so that she can send the details. Otherwise, I would like to thank everyone who participated in the call. It will be our honest endeavor to improve our performance day by day, quarter on quarter, month on month. If nothing else is there, I think I would like -- we can close the meeting.
Great, sir. Thank you so much for giving us an opportunity, and thank you to all the participants for being there.
Thank you.
Thank you. Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.