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Craftsman Automation Ltd
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Ladies and gentlemen, good day, and welcome to the investor call to discuss the financial performance of Craftsman Automation Limited for the quarter ended 30th June 2022. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Srinivasan Ravi, Chairman and Managing Director of Craftsman Automation Limited. Thank you. And over to you, Mr. Ravi.
Good afternoon, everyone. It gives me immense pleasure in welcoming you all for the earnings call for Q1 FY '23. We are happy to announce that recently, the credit rating of our company got upgraded with A+ stable outlook. It was improved from A with stable outlook.
We would like to also bring the attention of all the shareholders and all the people on the call that we have integrated the industrial aluminum business with the auto aluminum, and now we call this segment as Aluminum Product segment. This gives better focus on the aluminum business as a whole. It also gives a lot of synergy and operating leverage on the business under the marketing and other resources within the company and outside also, I think it's a coordinated effect. I think this will improve the profitability of the division going forward. It is already implemented now.
I just want to touch upon the industry situation now. Last year, Q1 is strictly not comparable with this year Q1 because of the pandemic. So I will refrain from comparing year-on-year Q1, rather than that I will do the Q4 with this Q1 comparison in my talk today. Yes, there are a lot of headwinds across the world, the geopolitical situation, the Ukraine situation, the inflation, all that is all known to you. But fairly, I think we had a decent first quarter as a company. So I'll just run you through the headlines of the Q1. The auto powertrain business in Q1 was INR 348 crores. In comparison of Q4, it was INR 338 crores, a 3% growth. And in the aluminum products, we had INR 171 crores. And the Q4 was INR 167 crores. Again, a 3% growth. On the industrial engineering front, we had INR 157 crores vis-a-vis INR 150 crore, a 4% growth. So as a whole, we are at INR 676 crores. Comparably on Q4, we were at INR 654 crores, a 3% growth.
The segment-wise EBIT on Q1 was INR 95 crores. On the auto powertrain vis-a-vis INR 86 crore on the Q4. And auto aluminum was INR 20 crores vis-a-vis INR 11 crores. Industrial engineering was INR 11 crores, slightly lower, of course lower than Q4 which was INR 20 crore. So totally, our EBIT stands at INR [ 112 ] crores vis-a-vis Q4 of INR 105 crores.
So thank you very much, and I will just leave the floor open for questions.
[Operator Instructions]
The first question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
First of all, can you share the value-add numbers for auto powertrain and aluminum business?
Yes. I can share with you the value add for -- the auto powertrain has been INR 223 crores. The aluminum products has been INR 71 crores, and industrial engineering was INR 58 crores.
INR 58 crores. Okay. Secondly, with respect to the RM cost -- when I look at the blended RM cost, it has seen a reduction on QoQ basis as a percentage of sales. So is that a reflection of our stability in commodity prices and the cost pass-through coming through and hence, that's a reduction, or there is something more to that?
No, it is a combination of many factors. One is the raw material price has been steadily coming down, even as we speak, it is coming down. So it is a weighted average, which is happening. And the pass-through is also more or less in line with the current situation, which is not -- we don't have too much spice on that. And the product mix also, we are conscious to make more products with more value-add as we speak. That is another important point. All 3 have contributed to the production of [ construction material ].
Right. That is also reflecting the margin improvement for powertrain business on QoQ basis. That is...
Well, there's only very marginal improvement from Q4 to Q1. That is also slightly due to the better operating leverage. The top line has also gone up a little.
Yes. So the powertrain business seems to have seen almost 200 basis point increase on PBIT margins. So that would be predominantly a reflection of the drivers which led to RM cost reduction. Is that correct?
No. I would say that in a different way that we have a mixture on the auto powertrain of commercial vehicles, farm sector, construction machinery, industrial engines and also some passenger vehicles and others. So there is some shift that the farm sector was still not picking up in Q1 overall. So we had higher value add on certain of the machinery products in the commercial vehicle segment. So I think the product mix has slightly changed in Q1. There is always a seasonal effect, I would say.
Okay. Okay. Understood. And lastly, we have seen increase on the staff cost side. So is that -- I mean what we have seen in this quarter is a sustainable number? Or were there any one-offs?
No, we have been consciously adjusting the upwards, the cost of the employees because you know very well there is an inflation, totally. So you're talking about that or...
Yes, I'm talking of the staff cost inflation from the -- QoQ increase, which has happened.
That was -- I think, on -- the bonus adjustment would have been there on the last year and also in the Q1.
Bonus provision, we have made this time in Q1 itself. Normally, it will be in the Q3. So now we have made it in the Q1, some provision has been missed.
Yes. The 2 things are contributing. As clarified by Mr. C.B. Chandrasekar, CFO, that we have -- we are confident about the profitability. So we started providing on bonus at Q1 itself now. On top of it, we've given some salary increase to the employees. Yes.
Got it. Got it. And lastly, can you indicate the net debt as of June '22?
There has been overall debt increase of INR 50 crores, but I would say that there has been a reduction of INR 30 crores in the long-term loans and INR 80 crore increase in the short-term loans.
Next question is on the line of Chetan Gindodia from AlfaAccurate.
Sir, I wanted to understand on the margins of our powertrain business. So during Q3, Q4, from what I understand is that due to the fall in tractor volumes, we had seen a reduction in our margin also for the segment. Given that now this quarter, tractor has seen a very sharp rebound, at least on a quarter-on-quarter basis. So the reflection in margin improvement is not there in the powertrain segment. So am I missing something? Or can you explain about this?
Overall, if you look at it, the farm sector has been -- last 2 months, it has been doing well, but it's not in April. No, there was no rebound. Commercial vehicle wise, in some of the -- our customers have not increased sales in Q1, which is normally a weak quarter. We also have [indiscernible] exports on the commercial vehicle segment in a big way, totally. So it is a blended average, I think plant-wise capacity utilization, each of the plants. There is not one single plant for -- looking at better operating leverage, we have 7, 8 plants located across the country closer to the customer. So some of the plants have been suboptimal, some of the plants have been optimal. So that was one of the reasons for the change. That will constantly fluctuate. Even among the product mix also, there are subsegments in the product. We have high value-added products and normal value-added points.
Okay. Okay. And within the storage and engineering segment, can you give breakup between -- now what is the breakup between storage and engineering? And...
Yes. I will give the -- in the -- for the Q1, the sales has been INR 157 crores as a whole. The subsegment sales of storage solutions has been INR 88 crore out of the INR 157 crores.
Okay. Okay. Got it. And the storage solution would be earning lower margin right now?
No, we cannot say lower margin. Material content is nominally lower. It has got a very good ROC, but the point will be that since it is material intensive, the EBITDA number will be lower, but EBIT numbers, I think, is reasonable overall. But I think if we look at percentage of EBITDA, yes, it is lower.
Next question is from the line of Nishit Jalan from Axis Capital.
Yes. Sir, congratulations on good set of numbers. Sir, my first question is more on the industry. Especially in Europe, there is a power crisis that we are all seeing. Have you started to see more inquiries from some of the OEMs or customers in Europe to source more casting products from India? Anything on that front? Are you hearing -- can India be a beneficiary of some shift in casting business from the developed markets to India?
Mr. Nishit Jalan, I have to say yes and no. Not from the auto sector, I have a very clear explanation for that. There is a lot of support from the OEMs to their tier 1 suppliers within Europe. They are showing, I think, really an united front in fighting this problem. So the minute they are giving the compensation -- the OEMs are giving compensation for the power or the gas or fuel, whatever is the crisis which is happening there. So the tier 1 suppliers -- the key tier 1 suppliers are fully compensated. So they are not shifting business at all in that -- and it doesn't -- it's not easy to shift business also. Shipping business will be shooting on their own food because of the -- then the tier 1 suppliers in Europe will collapse in the shipping business. And shifting business takes years to happen.
So I don't see that happening. But whereas in other pockets, not in the auto sector, the auto OEMs are quite big, large and also they are coated with cash, I would say. But I would say that the normal segment of the engineering business and all, there is a thought process to shift some of the production to other countries. There is also a derisking policy for the geopolitical situation, which everybody is aware, for our Asian neighbor, I think which is also a very key supplier to Europe. They are looking at sourcing from India as an additional source, I would say, [indiscernible] coming up that is not for the automotive sector as of now.
Okay. Okay. But I understand that typically, it takes a long time, and it's a strategic decision to change your sourcing in terms of geography. But do you think over a period of time, it can pick up and we, as a company, can benefit out of it, either by exporting directly or those -- or some of the tier 1 companies setting up plant or starting to source more from India, in that sense. Is it -- do you think it is something which can play out in the next 3, 4 years? Or do you think that it might not play out, but in the non-auto segment, it will still play out?
No, it will play out in the auto segment as well as the non-auto segment. We are still too small in the manufacturing capacity when compared to our Asian neighbor, they are, I think, 12x more or 10x more. I'll not -- exactly say that number. But even a small shift, I think we have to -- India should gear up. So we will benefit as a country, I think we'll see a growing trend towards exports. That is very sure.
Okay. And within the industrial segment, will it be possible for you to give some color as to which kind of industrial businesses you are seeing more traction? Or this is, in general, a more generic phenomena, which is starting to play out?
So our -- I mean the other Asian giant was the manufacturing hub for the entire world, but now the policy of the multinational seems to be that the market there is sufficient or [ too ] very big enough to absorb the capacity. So for rest of the world, they are looking at other sources like India to -- also to reduce the geopolitical risk. So there, we are seeing a lot of opportunity.
Okay. Got it. And sir, a couple of [indiscernible] questions. One, what was the overall Daimler revenues that we saw in this quarter? And based on the order wins and company's plans, how much can it ramp up further going ahead? And secondly, obviously, you are showing a better growth in -- better top line growth. Does that bring any changes to the CapEx assumptions or the CapEx guidance that you had given previously?
Pardon me, but I don't want to give exact customer-wise sales. But for Brazil Daimler, we have got the cylinder head order. We just started last month to start -- starting to supply. That will be adding to our Daimler business, which is currently only in the center block for Brazil. So that is going to grow. The -- what was your second question, please?
My second question was on CapEx. You are growing at a faster pace. Does that require a change in your CapEx guidance? I think last quarter, you had talked about INR 220 crores, INR 230 crores. So any change that you envisage on the CapEx front?
We have guided for, I think, 20% growth on the top line as well as an absolute EBITDA number growth. For that, [indiscernible] the INR 225 crores CapEx is good enough. It may go beyond that and maybe marginal CapEx may go up maybe for capacity balancing or debottlenecking.
Next question is from the line of Abhishek Jain from Dolat Capital.
Congrats for strong set of numbers, sir. And my first question is related with powertrain business, where that in this quarter, tractor volume was very strong, and that's reflected in the top line and the margin both. So going ahead, as the inventory is quite high in the tractor segment now, so production will be hit. So how is the outlook ahead for this powertrain business?
Q2, we don't see big upsurge, but it's going on similar lines for Q1 as far as Craftsman is concerned. But we are only 15 days into the month now. So I would say that -- I mean, sorry, 3 weeks into the month. So we have -- we made it more traction in the coming months. But as of now, I think Q2 looks on similar lines to Q1.
Okay. And for the second half of FY '23, sir?
Q4 is normally very strong across all segments. Q3 depends on various factors.
Okay. And how is the outlook for the margin side? As that you -- most of the time you just pass on all cost to the clients. So as the RM price has gone down, so most probably you will pass on the cost to the clients as this -- from the next quarter onwards. So how will be the impact on both the top line and the margin side?
I think we are having a very decent, I think, fair pass-through on the RM across all the segments of the business. I don't see any issue. And RM is also stabilizing or even coming down now. So I don't see that being in spoiler for any profitability going forward. When you asked about demand, yes, if the demand increases, our operating leverage will improve, and that may improve our margins. But at this level, I think we are at a stable level.
Okay. And in the nonauto segment, we have seen a sharp correction in the metal prices -- sharp correction in the margin despite the correction in the metal prices, especially in the steel and aluminum both. So how is the -- what is the reason of such sharp fall in the margin side? And how is the outlook ahead?
If you look at the storage solution, we have grown from, say, INR 65 crores in Q4 to INR 88 crores, whereas the total segment of the business has grown from INR 150 crores to INR 157 crores because the aluminum portion has been removed and added to the aluminum products. So the other high-end subassemblies, there has been a little drop in the sales, 15% drop. So this is one of the reasons the product mix changing led to more raw material consumption in the storage solution.
So it looks artificially that the margin has come down. Margin is stable across the subsegments of the products. But as a segment, I agree that the margin has come down.
So [indiscernible] business will also benefit from the fall in the prices of steel. So how is the outlook ahead? And what kind of the volume -- what kind of the volume and the margin guidance for the nonautomatic segment?
For the industrial engineering, better operating leverage will improve our margins going forward. And in storage solutions, the automated solutions is increasing for quarter -- I mean in the coming quarters, that will also yield better margins compared to the static racking business.
Okay. And my last question is on the aluminum casting side. So how has the contribution from two-wheelers versus the four-wheelers in the first quarter? And how [ four-wheelers ] is going ahead FY '23?
Our basic purpose of merging the auto aluminum and industrial aluminum also because it was the overlap that was becoming larger. We are getting more business from the gravity die casting, low pressure casting from the auto which was predominantly more used for the industrial engineering segment. So by merging these segments, we are having a very good operating leverage, shared costs and also flexibility to ramp up faster. So now -- with these 2 segments now, the new business is -- everything coming to the -- mainly from the passenger vehicle segment. So in the next few quarters, our dependence on four-wheelers has already started coming down. I mean -- but in the next few quarters, I think it will be significantly down, the dependence on four-wheeler.
How about the mix in the first quarter, two-wheeler versus the four-wheeler?
No, I don't want to state those numbers exactly because we're in a transition stage, but at least last month, I can tell you that the passenger vehicle segment and the commercial vehicle segment that the numbers have increased. Please wait for 1 more quarter, things will be transparent -- more transparent to give the correct number because we are in a transition stage now.
Okay, sir. And sir, how do you see the impact of the top line [indiscernible] Daimler [indiscernible] coming -- in the near term, I mean to FY '23 and '24?
Sorry, I think clarity in the question -- I was not able to hear you properly. Could you repeat the question, please?
Sir, how much impact do you see in revenue from Daimler India in the powertrain business for the near term due to the [indiscernible] coming? I mean to say for FY '23 and '24.
Okay. For us, if we take Daimler business as a whole, there are 3 components to the Daimler business or you can even say 4 components with Daimler business. The biggest component, which is around 70% of our turnover, 70% of our turnover is coming from Daimler Brazil. There, the transition from, say, Euro-VI or BS-VI equivalent to the next level of norms is going to take place at the end of the decade only. Still they are at BS-V stage. They have not implemented BS-VI at all. So only next year, they're implementing BS-VI. And from BS-V to BS-VI, they have taken, I think, some 8 years for a transition. So what is expected is 2028 or '29, they will move to the next level, possibly. That time they may adopt a lot of the Cummins engine. So our business -- 80% of the business or 70% business is fully protected until 2028.
Daimler India has got 2 components -- or 3 components, I would say, what we are talking about, 2 components, one is the medium-duty vehicle or the upper [indiscernible] range of vehicles, which they have got a good share of the export market also. There, the Cummins engine is not planned to be implemented as of now. There's no -- and the heavy-duty truck, yes, they -- by 2024, 2025, around that range, they will introduce the Cummins engine. For the rest of the world, where, again, they are using the Daimler engine for the other emission countries. I think they will continue to use the Daimler engine. So we'll have -- in the Daimler portfolio, we'll lose around 15% of the Daimler portfolio by 2024.
Okay. [indiscernible] 15% of the value additions or total value addition?
The value addition of the Daimler portfolio.
And in terms of the revenue, how much that would be?
So I would not like to speak about customer revenue, but it will be in very low single digit as far as powertrain is concerned itself for whatever we're going to lose because we are growing on the powertrain as a whole. We will continue to grow even after 2024 on the powertrain business because the new business kicking in. And because the heavy-duty segment of Daimler, the numbers are in public domain. So only that will get affected in 2024.
Next question is from the line of Vishal from Svan Investments.
Congratulations for a good set of numbers. Sir, my first question is regarding the new reorganization scheme, which you have stated. Your IE business, industrial engineering business, has seen sharp drop in the EBIT margin. So as you said, there was some mix change also. But on a sustainable basis, what kind of margins you are targeting? That is my first question, sir.
To your first question, it will be somewhere in between the Q4 margins and the Q1 margins is what is sustainable going forward. And when the operating leverage improves, I think we can do better than the Q4 margins. Now what you see is that the -- there's a disproportionate increase in the storage solutions business as a composition of the industrial engineering business. That will start to change in the coming quarters because we have got additional new businesses in the machining area, also in the industrial engineering business, plus the automated solutions business is growing now with the new order inflow. So we'll be very close to restoring the IND margins in similar lines with Q4 by this year Q4.
Okay. So last quarter was somewhere around 13.7%, and this quarter was around 7.8%. So you are targeting somewhere around 10%, 11% margins going forward on a sustainable basis for the year.
Yes. Q4, I think -- by Q4, we'll be restoring the margins equivalent to the last year Q4 with the product mix.
Okay. Okay. Sir, in terms of auto aluminum business, as per the new organization scheme, the PV casting business will also fall in this business, which I presume is high-margin business. And -- plus, as the demand in the two-wheeler industry also increased, what kind of scope you are expecting for the margin improvement for this business?
Now I would first answer this very important question holistically, then I will drill down to details. The -- we have high pressure die casting. We have low pressure die casting. We have gravity casting, we have sand casting. In sand casting, we have green sand casting and also chemically bonded two-part sand. I will start with the high pressure die casting. High pressure die casting [indiscernible] most of the products are, of course, the automotive parts only. Industrial engineering parts, we have a few. We have the biggest, of course, as of today is the two-wheeler, but followed by -- now the passenger vehicle segment will kick in next year with the cylinders business. Then we're also having the commercial vehicle business for the high pressure die casting. And we also started to get the farm sector business of the high pressure die casting.
Now on the low pressure die casting, it is both automotive and nonautomotive, industry engineering business was also there in the low pressure die casting. In gravity, today, predominantly, we are having mostly almost 50-50 split between industrial engineering and auto. And in there, we are getting more and more business from the auto in the gravity die casting for 2 reasons. One reason is because of the move towards EV. These alloys are structural parts and more aligned with the industrial engineering and aluminum portion of our business, what we see. Because these are not traditionally high pressure die casting part. This alloy cannot be high pressure die cast also. So with this sort of growth happening on the gravity die casting, our margins will improve as a whole apart from the operating leverage by merging these divisions.
Okay. Okay. Sir, any ballpark expectation if you can share? That will be great, sir.
The margins are not -- I mean so there can be small changes quarter-to-quarter, I cannot say because of the product mix, which is changing. But by this operating leverage...
On a yearly basis, what kind of margin would you like to complete the year?
We'll be on the similar lines of Q1 for the year. But with -- if the operating leverage further improves with more order portion, I think it may improve also.
Okay. Okay. Fair enough. Sir, just one more small question in terms of data. What would be the capacity utilization levels across the businesses?
It is slightly improved. I think -- yes, we are closing to 70%. Up to 90%, we can go. Beyond 85%, I think, we need to be very careful because some segments, we will run out of capacity. It cannot be uniformly across all the plants and across all the lines of business, we can be uniformly 85%. So that means when, I mean, today, we are comfortable, I would say. There's still a lot of headroom. And we may end up in -- if not in Q2, at least 1 month in Q3, we may end up utilizing capacity up to 80% is what we see going forward. So we are -- our performance in Q1 is -- I would say that it's a realistic situation today of the company's performance.
Okay. Okay. Sir, what is the kind of CapEx you are expecting for the year?
We have looked at -- for this year growth, we have guided for 20% growth on top line and 20% absolute value of the EBITDA number. For that, maintenance CapEx and growth CapEx or new lines of CapEx, all put together, we estimated INR 225 crores. We know that our depreciation is around INR 205 crores, INR 208 crores. So even the INR 205 crores, bulk of it, INR 150 crores is actually maintenance CapEx only. So if you see any opportunity which is going beyond the 20%, 25% growth, which we have planned, then we may look at revising marginally the number in Q4, which I don't foresee as of now, as of today.
Okay, sir. Sir, my last question is regarding the overall -- any plans of debt reduction? Because with this increase in the debt for this quarter, our debt will be closely touching to INR 800-odd crores, overall debt.
No, overall debt is INR 780, I think.
Absolutely. So yes...
INR 760 crores overall debt. So overall, our debt has increased by INR 50 crores, yes, but INR 80 crores debt has increased in short term for working capital. Our long-term debt has already reduced by INR 30 crores. There are 2 reasons for the short-term debt. We are holding more inventory days like [indiscernible], but our turnover has also increased, plus raw material prices are still high, but was high, and now it is coming down. With all these things, our debt will reduce. We expect to reduce debt from this particular point around INR 100 crores in Q4.
Okay. Sir, total debt, you are expecting around INR 100 crores reduction from these levels?
Yes. And to put the record straight, our -- I will not talk about debt equity, but I'll talk debt to EBITDA. The Q1 number if you are extrapolating for the full year, debt-to-EBITDA is -- 1:1.17, which is improvement from 1.33 for the last year, totally. So I think that is a good matrix. And another good matrix for the performance, the debt is yielding result or not, we have reduced the creditor number of days and we have taken cash discounts. That is also reflecting in the ROCE. The ROCE is showing annualized basis, 26% pretax vis-a-vis 20% for the full year last year. So I think the increased turnover, the number of days of inventory has slightly increased, but the -- only. But I think the turnover itself has increased totally.
The second point is, of course, the raw material cost portion and the reduction of -- substantial reduction of INR 70-odd crores, I think so -- the creditor. So that is giving us a lot of -- because we have been -- our credit rating has improved, our borrowing percentage cost is much lower now compared to some of our suppliers. So we are getting some discounts, which is adding to our margins.
Next question is from the line of T.S. Vijay Sarthy from Anand Rathi.
Just wanted to understand, sir, you said gravity die casting is more preferred. So do you expect that proportion of business to be higher than that of HPDC, LPDC, number one? Does it mean that profitability is higher because there is lesser tooling cost? And how should one look at this? And I want to understand, even the CapEx is also very less and you do more gravity die casting than LPDC? Please help me on that.
Yes. Your last question, the -- there is CapEx on gravity also, but it's substantially lesser than high pressure die casting, yes. The value additional gravity when compared to the high pressure die casting, which is an automated process is much higher on gravity. The complexity of the parts -- some of the parts on the alloy chemistry is much higher, yes. And we are used to using sand cores on our industrial engineering business, which is helping us in the new scheme of things in the auto powertrain. Because auto powertrain business has changed dramatically now over world and the entire country was operating on -- I mean, aluminum products means it's high pressure die casting normally. But now the trend is changing towards -- also gravity is growing. Gravity is growing at a much faster rate than high pressure die casting, the way it is.
So tooling cost, all of that will come down, right? Am I right?
The tooling cost is part of customer cost. It's not part of our cost.
Okay. Okay. Okay. And you said that some of the aluminum business in IE, the industrial side has moved to aluminum. I'm sorry, I missed that point. Are those high margin business, and that is high margin products. That's the reason we see sequential margin expansion in aluminum. Is that the understanding, right?
No. Partially, there is some high margin. But I think we have more increased our margin because of the operating leverage when merging these two divisions along.
Could you tell me what proportion of that IE is aluminum, which got transferred to that shipment, sir? What is that number?
I think the percentage is quite small. I don't have the numbers steadily here. We'll take it up later.
Next question is from the line of Jitin Arora from Axis Mutual Fund.
Sorry, just one clarification on this Daimler engine thing, which will be done by Cummins going forward. You said the impact for us is about high single digit. First question is, you're talking about high single digit when the engine gets phased out completely by FY '28? Because my understanding was Daimler -- though you don't share the client revenue, but it's quite high percentage. So for '24, is that the number quite higher? And that number which you're saying is high single digit is more towards ending the program?
The -- in FY '24, I think it will be single digit only for us, the impact, overall. So yes, it will be double digit in -- by '28. But I think it will be around -- not high double digit, but it will be double digit. That is clear. It will be not in the teens also because our overall thing is growing faster now on the auto powertrain.
Okay. Because when the -- I mean what Daimler is saying globally on the emission is to start rolling out the program itself from FY '26. So I was wondering why FY '28 came, so...
So FY '28 is when Brazil is likely to move to Cummins engine.
Next question is on the line of Jay Shah from Jay Shah PMS.
Congratulations for a good set of numbers. Sir, I just wanted you to ask -- can you throw some light on how the storage solutions and equipment business is picking up, and in terms of -- are they incumbents also going for the automation? Or is this a new warehouses/logistics sectors that are coming up? Are they going for the automated solutions that you offer?
The warehouses are still going with a conventional method, not automated as of now. But the manufacturing fraternity is going for automated solutions. Both are our customers.
Okay. So there is a shift right now from the incumbent in the logistics to go for the automation?
No. We have got -- we have won -- today, our order book is quite healthy. We have now -- on automated solutions, we are fully booked for next 6 months, the way it is.
Next question is from the line of Shyam Garg from Niveshaay.
My first question is in respect to the machine casting, are we machine casting? And if we are, then what basically is machine casting? Can you give some -- throw some light on that?
This is a little difficult for me to explain very quickly. But the casting is a process where molten metal is to poured into a mold and that is a near net shape profile has brought over. Then after that, it has to be finished in machining and further process like including honing if it's a cylinder block. I would -- in generic terms, we have put across -- the casting is like the, say cloth, and we are doing the tailoring to finish it. And we put in very simple strict terms. So we do the value addition and finish the product by machining.
So when we say that the customized casting with respect to the particular needs of the customer [indiscernible] machine casting according to the shape and size?
The foundries made the castings. In the auto powertrain business, we do not have any foundry at Craftsman. So we are doing only the higher value-added stream, which is we're doing. In the aluminum business, we are catching the -- we're doing an entire process of die-making, casting-making and also the machining.
Next question is from the line of Deepak Poddar from Sapphire Capital.
Just wanted to reconfirm if you mentioned about INR 100 crores debt reduction in this year, right, in FY '23?
Yes.
Okay. Fair enough. And sir, regarding your 20% growth in top line and absolute EBITDA, isn't that a little conservative given the low base of first quarter last year? So automatically, the growth in this year is quite exorbitant, right? So on an annual basis, 20% growth looks a little conservative.
Yes, it is conservative. I agree. It is conservative. Hopefully, we'll do much, much better.
Okay. Okay. Fair enough. And what's the vision for us for next 2 to 3 years in terms of maybe our growth CAGR or anything on those lines?
Yes. Growth CAGR for the next 3, 4 years, we'll have a 20%. From year-to-year, it may change a little, yes, agreed. But we are very confident about a 20% CAGR.
Confident about 20%. And ideally -- because you're speaking about operating leverage advantage. So ideally, your bottom line should grow faster than your top line, right?
No. All of it will grow on similar lines. If it's the same -- we are also seeing some inflation, right? So some of the operating leverage portion we may lose out a little of it to the inflation. So in spite of that, I think the -- you're right, little maybe our -- when the growth is faster, the bottom line may grow faster, yes.
Next question is from the line of Pranay Roop Chatterjee from Burman Capital Management.
Am I audible?
Yes. Yes.
So my question is more business related. So if you think about seasonality from Q1, Q2, Q3 and then Q4 and then back to Q1 of next year. In normalized situation, right, in terms of macro factors remaining normal, what kind of a trend can we see, seasonally? And given the seasonality and the new orders that would kick in over the next 2 to 3 quarters, what kind of Q-on-Q growth on the top line can we expect across the divisions till Q4, essentially?
Normally, if in the past there's an indicator of what it is, it's a 40% split between H1 and 60% to H2. That is normal. But we have seen slightly different trends going, slight changes are happening. But surely, Q4 will be the strongest. That is -- we are very confident about that. So Q3, normally, there is a correction if the market is having some headwinds. So we saw that last time where when we had a good run in Q2, we anticipated that there may be a drop in Q3. It happened like that. But this year, the Q2 is not going on a runaway sort of system. So it is accelerating, but it is accelerating moderately. So we are confident that Q3 also will be quite steady.
Got it. So just to confirm then, you had mentioned a 3% Q-on-Q growth from Q4 last year. And you have said that Q4 is the strongest usually. So despite the seasonal impact, it's a 3% growth Q-on-Q. So usually -- because if we look at the last -- historical last 2 years, both of the Q1s are actually impacted. So it's difficult to understand the usual Q4 to Q1 performance. So is this a normalized number? Or have you performed over and above the seasonal impact?
I would first make a disclaimer. I mean how our customers perform and what products we supply to the customer. And those parts are doing well in the market. I think we will be growing faster. On the passenger vehicle segment, we have negligible exposure on the auto powertrain. Hardly 18% of our auto powertrain business itself is passenger vehicles totally. And passenger vehicles, we are doing for 2 customers mainly. One is the major customer. And you know the product launches, which has happened in the recent past. So that was not there in that significant portion earlier. But we are seeing continuous product launches happening, so that segment is growing for us.
So when you ask about Q4 of the next -- this financial year, definitely, it will be better than this Q1, what we have closed. And if I may say so, this Q2 also is looking similar line like Q1. It's a very good sign.
Got it. Got it. Okay. And more from our tracking perspective, we know that in your Powertrain segment, roughly half is from MHCVs, and over there Tata Cummins and Daimler are the main clients. So again, I'm not looking for exact data points, but the sense we have is that you have a major wallet share with Tata Cummins, who in turn have a major share with Tata Motors. Would that be a fair statement?
I'll answer it holistically. See, we are having -- you mentioned 2 customers' names here. Tata Cummins also supplies outside India. There are products which we are supplying to them, [indiscernible] of them. The second point is Daimler is both domestic as well as export that I already have clarified earlier. We are also a tier 2 supplier to 2 customers in India who are exporting to North America and to Europe on the commercial vehicle business. So that way, we are well diversified on the commercial vehicle business itself. So our -- and we are growing on the tier 2 exports, on the commercial vehicle business also.
Got it. Okay. And lastly, on the farm sector, which contributes roughly 20% again, and Escorts and John Deere are some of your clients there. Again, not looking for exact numbers, but would Escorts be a material portion of the revenue, roughly 50-50? Or is it different?
We supply to almost all the tractor manufacturers except ITL. So it is fairly distributed, I would say. We don't have too much customer concentration in any single customer, including the market leader. So it is fairly spread.
Got it. Okay. And lastly, data...
I'll name customer because it's already mentioned in the DRHP. We have -- the top 3 or top 4 customers are very close to each other, I would say, totally. We have, of course, Mahindra. We have the Tafe and Simpson Group. Simpson is the engine manufacturer. And then we have John Deere. We have CNH. All of that, we are substantial. The smaller customers are, of course -- for us are Escorts. And a little to -- now we have started supplying to Yanmar who is supplying also to the other tractor manufacturers. But I think except ITL, we are supplying to everybody.
Understood. And lastly, a data-related question. You gave the value-added numbers for Q1 this time. The numbers being for the auto aluminum segment. I understand that would be including the industrial aluminum portion also, right?
Yes.
So to be -- could you please give the comparable number value-added for aluminum products and I&E based on the new classification for the last quarter as well, for the Q4.
For Q4, you want.
Yes.
Yes. I would -- for Q4 FY '22, the aluminum products and the new classification value add was INR 57.5 crores. And for Q1 FY '23, it was INR 71 crores.
And what would it be for the I&E segment?
For the I&E segment, the value add was for Q4, INR 63 crores. And for Q1, now it has been INR 58 crores.
Next question is from the line of Pritesh Chheda from Lucky Investment.
Sir, just one question. Why have the numbers were restated in segmental? And what goes in and goes out between aluminum and industrial?
So we are doing aluminum castings for the industrial sector, for the electrical switchgear and other gear boxes, medical equipment, everything we are doing in the industrial aluminum. But the new scheme of things in the -- especially in the EV sector, most of the parts fitted to the industrial aluminum segment of our business, the new parts coming in. So we start then classifying that, and missing this is a problem. Anyway, both additions have started to work together. So we just merged the divisions. That's all.
So a part of the aluminum casting, which was sitting in industrial and engineering moved to aluminum products. That's how it is, right?
Yes, yes. That is a smaller portion [indiscernible] has moved to.
And now industrial engineering will only consist of engineering and storage solution products?
Yes.
There is no auto...
There will be no auto or aluminum products there. It will be...
There will be no auto and there is no aluminum products now.
Yes. Nonauto, non-aluminum will be our industrial engineering business.
Okay. And aluminum products will be all auto and aluminum.
I think aluminum -- and please give me a minute, please. See this aluminum, there is also -- predominantly, it was auto aluminum and industrial engineering aluminum. But we are also getting other commodity aluminums, which are also critical, I would say, in consumer durables and everything, the inquiries are coming. So there's no point in trying to say this is industrial aluminum, this is auto aluminum. The facilities are same. So we'll be also processing that. And still it's not coming to our kitty, but it is going to come.
Okay. And the second division for us, if you could just give some idea how much would be pass cars for aluminum? What would be business coming from pass car and two-wheelers and other areas?
I would just give an approximate number for this financial year, when we close this year. Our -- I think the traction with -- the two-wheeler segment will be around 50%. Next year, two-wheeler segment will be only at 30%, 40% is what we see in our total...
And the balance -- the other is pass car, right?
Balance will be mostly pass car and little of -- of course, industrial aluminum already is there, and we'll be adding some even white goods, durables, everything we'll be adding there.
No. So then that will be part of durables, and white goods also to be part of aluminum products? Or it'll be part of...
No. Aluminum, we'll be adding it there only. So far, we are not doing it, but we are seeing potential there.
Okay. As of now, it's not there. So as of now, it is two-wheeler and pass cars.
So as of now, it is -- yes. We are -- I wish to clarify. Today, we don't have anything in the white goods area, but we are seeing possibilities in the future, which will come up in the aluminum products.
Next question is from the line of Jyoti Singh from Arihant Capital Markets Limited.
I just wanted to know what are the margin levers that we have going forward? And second question on the EV segment. As we are seeing more transition from the ICE to EV, so what kind of benefit we are seeing the [indiscernible] and overall, what are the benefits for the company?
First, I will talk about auto powertrain. Our exposure to passenger vehicle segment is negligible in the auto powertrain. It is hardly 10% of our auto powertrain as a segment. And as a company, it's only 5% totally. So there, we are having very strong product launches from our key customers, and we see a lot of traction in the auto powertrain, in the passenger vehicle segment, which is, of course, not EV, it is the IC engine. We feel that the business will go on for 5, 7 years in that segment. But again, we should repeat. 10% of our auto powertrain and 5% of our -- Craftsman Automation as a company is exposed to passenger vehicle segment totally. So with auto -- I mean the EV coming into the picture, there are structural parts. There are battery-related parts, which are -- we are getting inquiries, both from the four-wheeler segment as well as the two-wheeler segment. We are working on that.
Okay. And sir, on the margin lever side, if you can throw some light.
Pardon. Margin?
Margin lever, what we have going forward.
Margin levers. Okay. Margin lever is the operating leverage with better capacity utilization. Still, we are -- as mentioned, we are around 70%. And hopefully, capacity utilization in this Q2 or Q3, we will see some good traction going forward. And when that happens, our margins will improve surely. The last point is the new products, which our customers are launching, where we are one of the key suppliers there, I think that is also we will add to the margins because these are new products at new pricing.
Next question is on the line of Jeetendra Khatri from Tata Mutual Fund.
Sir, have you seen Rhino 5536? It's an electric truck from IPLTECH? Am I audible?
Yes. Audible. I think it is from the Delhi region, right?
Yes. Yes. So my question is, do you see this as an opportunity or a threat? I mean, I don't know because, see, your aluminum intensity in the electric goes up, it might be a big opportunity. So not particularly this product, but this product is just an example of a heavy duty electric plus, so just taking this product as an example. So would you see this as an opportunity or a threat?
No. We see that there's a small segment of the market where there are settled runs of around 200 kilometer, 250 kilometer radius where there are milk runs like happening on the heavy-duty commercial vehicle itself, which will move to EV, which is a very small segment of the market. But I will come from the three-wheeler. Three-wheeler is most likely to move to EV, most of it. That is very sure. And sub 1-ton vehicle also will move to EV, most of it, again. The -- above 1 ton is a trade-off between CNG and EV because I think -- it is -- today -- CNG will be winning for the next few years. I do not know after that.
Coming to the next higher segment, I think still it will be predominantly IC engine. Now the whole world is working on hydrogen also and hydrogen is very difficult to transport. But there's a lot of work going on in the international market with mixing up with ammonia and they call it green ammonia. But there is a lot of work to be done like ports and the terminals have to be built, barges, tankers have to be built to handle this green ammonia. Once that happens, sir, we will also see that hydrogen also will be coming into the commercial vehicle segment. But yes, it is going to happen.
Okay. And the segments which are electrifying, so do you see opportunity of aluminum out there for you guys?
Aluminum content on even electrical buses or electrical trucks, if it happens, is very less. And that by itself is a smaller segment. Today, we see CNG as the way going forward on this matter because of the battery weight, battery cost. The mightier -- let us look at the hierarchy, I'll just give 1 example, what the mobile phone manufacturers, whether it's iPhone or anybody else, they -- what they can pay for a chip and what a passenger car manufacturer can pay for a chip, what they can pay for a battery, what can they pay for a battery -- I mean, for a truck.
I think the mobile phone manufacturer can pay more for a battery because the product is sold at a premium cost whereas the truck cannot pay so much for a premium. These are all [indiscernible]. So there can be price pressures coming for larger battery subjects. I think we have to wait for the solid-state batteries, then only we could be able to take a decision, how much penetration will be there in the commercial vehicle segment.
Okay. Okay. And lastly, sir, in the industrial business. So I see it as a whole, whether it's -- or rather is nonauto, Nonautomotive powertrain or -- so it will have aluminum casting plus your investment in engineering. So what is the long-term growth that you see there? I know it's a deep cycle business, but -- and the growth rate will not be comparable to automotive powertrain. But what is one long-term growth you keep in mind? And which sectors will have the largest exposure there in that business?
In the industrial sector after we removed the aluminum portion and merged it with [indiscernible] products as a whole, we will still see a CAGR of 20% going forward across all, including the critical subassemblies, what we are doing or critical conference machining we are doing in the industrial business, but along with our storage solution, mainly the automated storage solution products. So we are seeing traction all over.
Sorry to interrupt. Sir, this is because you're providing [indiscernible] to your clients?
Yes. Even one of our clients has put something in LinkedIn where we are doing for green power. We are machining some -- we are going to machine some gearbox housings for them for wind turbines. So yes, they themselves -- the customers themselves have disclosed. We just received the open orders, I would say, but we are -- we've got some agreements there in place. We will be developing those parts of them. So we see that as the GDP grows, we will grow there also.
Next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Can you share the value adds for [indiscernible] including the revised classification?
Can you rephrase the question, please? Or repeat the question, if you don't mind?
The value add for 1Q FY '22?
1Q. Okay. For which division?
All the 3.
All the 3. Okay. Auto powertrain, INR 157 crores. Aluminum products, INR 42 crores, and industrial engineering INR [ 59 ] crores.
Aluminum, you said INR 52 crores.
Aluminum, I said is INR 42 crores.
As there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Srinivasan Ravi for closing comments.
Thank you very much to all of you to join this meeting today, and thank you for asking very interesting questions which will also help the company to think on the way forward.
At the same time, I would like to reiterate that our order position is quite strong, and we are looking at a strong performance in this year. Thank you very much.
Thank you. On behalf of Craftsman Automation Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.