Craftsman Automation Ltd
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NSE:CRAFTSMAN
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Earnings Call Transcript

Earnings Call Transcript
2023-Q2

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Operator

Ladies and gentlemen, good day, and welcome to Q2 FY '23 Conference Call of Craftsman Automation Limited.

[Operator Instructions]

Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Ravi, Chairman and Managing Director from Craftsman Automation Limited. Thank you, and over to you, sir.

S
Srinivasan Ravi
executive

Good afternoon, ladies and gentlemen. Thank you very much for joining this earnings call. It gives me a lot of pleasure to address you again after 1 quarter. We have had a reasonable performance in Q2 in spite of the large headwinds we had regarding the war as well as the tuning recession in Europe and U.S. We have, as a company, performed reasonably well because of our broad-based strategy about -- and a good product mix and a reasonable execution. I'll just run you through the headlines and the highlights of this quarter and leave more time for the Q&A.

We have clocked the sales of INR 1,447 crores vis-a-vis INR 1,000 crore on H1 last year. PBT of INR 180 crores comparable which is 52% higher than last year H1. PAT of INR 116 crores, which is 61% higher, EBITDA of INR 337 crores, which is 34% higher than H1 of last year.

I will just run you through the ratios, the financial ratios. Debt equity has improved to 0.58. Debt-to-EBITDA is 1.08. EBITDA margins is slightly reduced from 24% to 23%. EBITDA has increased from 15% to 16%. PBT has improved from 11% to 12%. I'm comparing with the last financial year. PAT has improved from 7% to 8% now, current ratio is 1.16. Return on capital employed pretax annualized for H1 as 24%, for last year it was 20%. ROE annualized is 20%, for last year it was 15%.

So I will also give the headline numbers for the segment-wise revenue. Auto powertrain has clocked a revenue of INR 726 crores vis-a-vis INR 524 crores over H1 last year. Aluminium products INR 368 crores over to INR 242 crores last year, plus H1. Industry Engineering INR 353 crores comparable H1 for last year was INR 234 crores.

The EBIT margins have shown some fluctuations, but I will explain that later. Auto powertrain, the EBIT has been INR 188 crores in comparable H1 was INR 148 crores last year. Aluminium products has INR 35 crore EBIT comparable INR 19 crores last year. Industrial Engineering INR 35 crore, H1 last year was INR 6 crores. So overall, our EBIT is INR 229 crores for H1 comparable to H1 of last year was INR 151 crores.

With this, I will leave the floor open to question and answer.

Operator

[Operator Instructions]

We have our first question from the line of Joseph George from IIFL.

J
Joseph George
analyst

So you mentioned in your opening remarks about the fluctuations in the EBIT margin, if you can spend maybe a couple of minutes explaining the fall in EBIT margin in both the Powertrain and the aluminium segment? That is the first question.

And the second question is your guidance of CapEx for the full year because if I recall correctly in the 4Q call of last year and the 1Q call of this year, you had indicated a number of about INR 225 crores or so whereas in the first half itself, I think the company has clocked our CapEx of about INR 170 crores INR 180 crores. So what is the guidance renewed guidance for the full year? These are the two questions.

S
Srinivasan Ravi
executive

Thank you, Joseph. Regarding the EBIT margins on the Auto Powertrain, we have grown, but it was a slightly disproportionate growth on the big material business and the other emission charges business. So I think there is some small margin drop, which is optical. In the aluminium business, on Q2, we had a sequential month-on-month drop in the raw material prices and normally, we carry an inventory of 8 to 10 weeks, 12 weeks with the raw material in case goods, all put together. So we had to take a hit on the raw materials a little and so that we increase the costs and that depress the EBIT margins.

But overall, I think overhead absorption has been very good on the industrial engineering business, plus also the steel prices being more stable, the bulk of the revenue, which is the growth has also come from the storage solutions. So we have seen margin expansion on the industry engineering. So it has been a mixed bag. Overall, as a company, I think we are in line with the margins, whatever we had in the previous quarters.

Coming to the CapEx. Last year, we grew by 40% and now the growth also, it is almost more than 40%. So we had to do some little capacity balancing CapEx. And we had guided, yes, INR 225 crores, INR 250 crores in the region for the CapEx, we have come -- already done INR 150 crores. In April of this year, we received quite a sizable order for aluminium in the business, which we didn't expect to be done in this particular financial year. But customer needs the production to start in this financial year itself at the end of Q4.

So we had an additional CapEx of INR 70 crores, which is underway. So we will -- we are trying to control the CapEx in spite of the unplanned CapEx of INR 75 crores to INR 275 crores. So we'll be around INR 275 crores this year. I think this is -- CapEx will be indicated by the situation that we had 2 years, 40% CAGR growth year-on-year.

And we'll leave some headroom for further growth if it happens in Q4.

J
Joseph George
analyst

Just one follow-up. So for this year, if you're bidding INR 275, should we look at lower CapEx next year?

S
Srinivasan Ravi
executive

No. As it is, the plan is around the same level only. Provided -- we have guided the market for 20% Asia. So in spite of the 40% of what we are clocking now, we are hoping to clock 20% next year totally, but the base has become absolutely high because we'll be very close to around INR 2,900 crores this year. And then we are looking at a 20% -- more than 20% growth. Then we need to understand that there will be some CapEx. But we are -- if we grow at 20%, we will be still continuing the CapEx in the region of INR 250 crores.

And I want to also remind that the -- our depreciation is covering around INR 210 crores to or INR 220 crores this region. So the net block will not be increasing or the capital employed also will not be increasing. Even the working capital, we have -- despite of the top line growth, we are able to manage the working capital situation. So overall debt also is under control.

Operator

We have our next question from the line of Abhishek Jain from Dolat Capital.

A
Abhishek Jain
analyst

Sir, can you give value addition feature of each segment in Q2?

S
Srinivasan Ravi
executive

Yes, I will give it. For Q2 of this year, value addition for auto powertrain INR 232 crores, aluminium product INR 68 crores, industry engineering is INR 76 crores.

A
Abhishek Jain
analyst

Sir, in the powertrain business more customers are now asking to buy material this time. So floor machining or the value addition will go down in the coming quarter. So this will impact your margin going ahead?

S
Srinivasan Ravi
executive

No, this will not impact margins going ahead. There are products which are casting intensive, there are certain products which are machining intensive. Cylinders blocks fully finished our machining intensive.So there, I don't think there's any change there. But the tractor segment where structural parts, the casting to machining prices are totally very much skewed. So there, it may change there. But overall, I think our value addition as a segment of the business has increased quarter-on-quarter also. But it is not equal. So that's what I wanted to mention.

A
Abhishek Jain
analyst

Sir, first half capital production was strong, but going ahead, it will be muted in the second half. So how do we see the impact on the power train business margin? Will it be continued to be at lower side?

S
Srinivasan Ravi
executive

We already muted in Q2 because we are impacted a little earlier than the numbers, which has actually sold in retail or by the OEMs. So even in Q2 itself, we are highly impacted on the tractor. I don't see that number dropping very much in Q3. It is already at a very low level in Q2.

A
Abhishek Jain
analyst

There are a couple of questions from the aluminium casting [indiscernible], in aluminium business, now margin has gone down too despite a strong growth in the top line. As you mentioned that this is because of the inventory -- old inventory. So going ahead, what sort of the margin do you see? And what would be the growth driver for the market?

S
Srinivasan Ravi
executive

I would clarify that inventory. Inventory is not old inventory for any company to work, we need 8 weeks to 10 weeks inventory because of the different product segments and to different locations for manufacturing plus also [indiscernible] is there, some finished goods for customers will be there. So we are around -- between around 8 weeks -- it may be plus finance, depending on the particular quarter, inventory there.

So the pricing now in mechanism is more straightforward, where it is fair to customer as far as supplier. It is moving very smoothly. So it is not a delayed impact that when the price goes down, we get a benefit in the current quarter because we are building at higher rate. And next quarter, it will be down. It's not like that. It is happening more in the live situation. So we had -- we have reduced the selling price to our customers in line with the market price drop in aluminium, which has dropped by around a 10% approximately in the retail. We look at the LME prices or in the product prices, input raw materials drop by 10%. So that impact us slowly has affected us on the costs a little. So it looks a little optically that we have not performed. But I think as a company, as a division, it is going in the same line as Q1.

A
Abhishek Jain
analyst

So now in aluminium casting business, 80% revenue comes from the 2-wheeler only which is only casting products, not a machining . As you will move into the more passenger vehicles and CVs, your margin will see sharp expansion. So just wanted to understand what is the current mix? And how do you see the mix in aluminium products?

S
Srinivasan Ravi
executive

I wish to clarify, 95% of our casting, we machine it, whether it is 2-wheeler, 4-wheeler commercial vehicle or industry aluminium, 90% -- more than 95% if machined. And the product segment today, the 2-wheeler business as a segment has come down totally. 2-Wheeler is approximately in the aluminium business is 68%. Passenger vehicles is around very low, I think the 2%. Commercial vehicle is around 9%, and non-auto aluminium products is around 15%.

A
Abhishek Jain
analyst

So despite the improvement in the mix for the passenger vehicles, CVs and nonautomotive parts, your margin has not expanded. And going ahead, we're also looking for the good orders on the sport side, especially for the battery, motor housing and all these things. So what would be the margin visibility going ahead and the top line growth.

S
Srinivasan Ravi
executive

The margin -- the aluminium price, we had to take an impact of 10% because this is a steep drop of aluminium prices, which if you look at the trend, it is quarter-on-quarter, there's a drop of 10% because of we had to take the brunt, the margin looks depressed. Actually, the margins have been in line with the Q1, the operational margins at least.

Operator

We have our next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

J
Jinesh Gandhi
analyst

Continuing on the aluminium business margin, so what you are indicating is that we have to give the 10% price reduction because of the change in aluminium pricing revenue. However, we did not get the benefit in our actual shifting. That's the reason why margins are impacted?

S
Srinivasan Ravi
executive

See the 10% is not on one single draw operators one-on-month drop. So overall, I think we have been impacted around 5% because of the pipeline inventory, what we had. So the 5% is on the raw material means is around 4% on the top line totally.

J
Jinesh Gandhi
analyst

So mainly the difference between the -- the timing difference between the when you realize the benefit versus when you passed on the benefit to customers because of its marginal impact.

S
Srinivasan Ravi
executive

It is around 3% to 4%, it is impacted on the top line.

J
Jinesh Gandhi
analyst

And secondly, can you share the value add data for 2Q FY '22 as well across three segments?

S
Srinivasan Ravi
executive

Can you come again, you asked for the value addition for Q2 or H2, H1. I didn't understand?

J
Jinesh Gandhi
analyst

Same quarter last year?

S
Srinivasan Ravi
executive

Q2 FY '22 okay. Value addition on Q2 FY '22 was on auto powertrain was INR 88 crores. Aluminium products was INR 79 crores -- sorry, INR 80 crores and industry engineering was INR 94 crores.

J
Jinesh Gandhi
analyst

And this INR 94 crores is including -- I mean after excluding aluminium in Industrial segment right?

S
Srinivasan Ravi
executive

No, it is reclassified already. So apple-to-apple to Q2 to Q2 FY '22 to Q2 FY '23, I read the numbers in sequence. The FY '22 auto powertrain was 88% and Q2 FY '23 was 146%. Aluminium products Q2 FY '22 was INR 80 crores. Q2 FY'23 was 128. Sorry, I'm reading the wrong numbers.

I was reading the comps, I'll read the value addition. Q2, on the value addition portion for auto powertrain has been INR 203 crores, and Q2 for this year is 232, aluminium products was INR 61 crores last year. This year, Q2 has been INR 68 crores. Industrial engineering was INR 42 crores, and this year, it is INR 76 crores.

J
Jinesh Gandhi
analyst

And would you be having storage solution revenue for this year and last year?

S
Srinivasan Ravi
executive

Yes. We have the -- you want the quarter-on-quarter or you would like to have H1 over H1?

J
Jinesh Gandhi
analyst

2Q FY '23 versus 2Q FY '22.

S
Srinivasan Ravi
executive

Q2 FY '22, I will not have it. I will read H1 and last year and H1 this year. Storage Solutions for FY '22 as a whole was INR 253 crores and Q1 FY '23 was INR 88 crores. And Q2 FY '23 was INR 111 crores. And if you compare H1 and H2, H1 in FY '22 was INR 134 crores. And this year, H1 FY '23 has been INR 199 crores.

J
Jinesh Gandhi
analyst

And are we see increase in sales of automotive storage in this number or that is yet to see a material ramp up.

S
Srinivasan Ravi
executive

Sorry, I think the line is not so clear or I think that it is echoing. I'm not sure, I'm not able to hear you.

J
Jinesh Gandhi
analyst

So are we seeing increasing salience of automotive storage in this number?

S
Srinivasan Ravi
executive

Automotive storage no. It is general storage solutions across all segments in new segments without automotive storage. Storage is negligible percentage.

J
Jinesh Gandhi
analyst

And lastly, would you comment on any new order wins in current quarter and until October, have you seen any major new orders in either powertrain or aluminium side?

S
Srinivasan Ravi
executive

We are getting a continuous inflow of new customers and new orders. At the same time, there is some attrition, which is happening at the other end, the older products are going out. So overall net debt, I think we are having traction for growth. The time line for each of these projects are different and it is linked to certain -- sometimes it is emissions. Sometimes it's a new model launch. It is also related to strategy. So I don't want to -- I mean talk about customers. Now we have taken for the company when we are looking at 20% growth next year. We are more looking at as a strategy that what is real still going to come.

We have to -- cannot add up all the numbers of the customer projections and project it to our investors that will be giving a wrong picture. I think there will be some failures from customer side or there may be some delay in projects. So overall, I think the traction is good enough for a 20% growth.

J
Jinesh Gandhi
analyst

And just the aluminium order which we got in April '22 for which we are putting up this CapEx, how big would be the annual revenues from this order?

S
Srinivasan Ravi
executive

We can expect for FY '24 at INR 150 crores revenue. FY '23 will be a transition period.

J
Jinesh Gandhi
analyst

Fair point. INR 150 crores on full year.

S
Srinivasan Ravi
executive

Sorry, FY '25 will be INR 150 crores FY '24 will be ramp up period.

Operator

[Operator Instructions]

We have our next question from the line of T.S. Vijay Sarthy from Anand Rathi.

V
Vijay Sarthy T.S.
analyst

So just want to understand, so you said it's because of which metal did the margin sequentially has fallen. I just want to understand what kind of products that we actually source material and make it grow and then sell it out -- or is it within the cylinder block and cylinder head as there is some customer specification, some clarity on that? Because this is we've experienced both in the first quarter as well as second quarter. Both on a Y-o-Y basis and sequential basis?

S
Srinivasan Ravi
executive

This is related to only aluminium product. aluminium is the basic raw material we have to buy. So there, the prices have dropped. So that has impacted all the aluminium products.

V
Vijay Sarthy T.S.
analyst

In terms of the Powertrain division where there has been more -- less of machining and more of [indiscernible] metal. Just wanted to understand, is there any different product category apart from cylinder and cylinder block?

S
Srinivasan Ravi
executive

No, we have a lot of parts. We have transmission parts, gearbox parts. We have other also structural parts are also there, everything. And also what you need to take into account is the commodity prices have gone up. So that itself will achieve in depress in the numbers. EBITDA numbers. Only the top line will go up.

V
Vijay Sarthy T.S.
analyst

Okay. So this we witnessed both in Q1 and Q2 on a Y-o-Y basis? Or does the situation continue even going forward?

S
Srinivasan Ravi
executive

Yes it will continue because commodity prices has settled at a higher level now.

V
Vijay Sarthy T.S.
analyst

And with respect to aluminium business, so this INR 125 crores that you said in FY '25, this is over and above a peak revenue of INR 650 crores that you would reach based on your existing capacity am I right, or is this is included?

S
Srinivasan Ravi
executive

Already, the run rate on the aluminium products as a whole, we have clocked INR 196 crore revenue in the last quarter. So we're already at a run rate of around INR 800 crores.

Operator

We have our next question from the line of Sandeep Agarwal from Melody Investment. Please go ahead.

U
Unknown Analyst

Sir, what is our net debt and the cost of borrowing and what is the plan to reduce it?

S
Srinivasan Ravi
executive

The cost of borrowing is, I think, very, very competitively we are borrowing thanks to our lenders, bankers and also financial institutions. Whatever you call, we look at this financial cost is also the other as per Ind AS standards, the lease rentals what we are paying is classified as depreciation and financial cost as per accounting standards. That is why the financial cost looks high. I would say 70% is actual financial cost, 30% is related to interest and depreciation classified in Ind AS. And borrowings -- we look at it sequentially quarter-on-quarter, the borrowings is same.

U
Unknown Analyst

I want to say that if you share any presentation, investor presentation or such, so it will be more beneficial for us to understand and can be better.

S
Srinivasan Ravi
executive

I think the borrowings are quite straightforward. I think there is a term borrowing, and there is short-term borrowing. Overall, I think it is sometimes changing a little. But overall, it is around the INR 720 crores now.

Operator

We have our next question from the line of Dhaval Shah from Girik Capital.

D
Dhaval Shah
analyst

A couple of questions from my side. Sir, firstly, if you can spend some time on the high-end efficient products, what sort of traction are you seeing, this goes to -- a lot goes to the capital goods industry. So what traction do you see there?

S
Srinivasan Ravi
executive

The traction has not picked up to the extent what we expected because of the current headwinds in the global economy, we would have seen it going better. But overall, the current set of customers, current set of products, everything is doing well. We are hiring more product portfolio there also. There will be some time delay between that. The gestation period will be there before we can scale up. So overall, we're seeing good traction in the Industrial Engineering segment. Overall, in inclusive of the precision for the complete products in the contract construction side.

D
Dhaval Shah
analyst

So here are almost everything are we exporting in this?

S
Srinivasan Ravi
executive

Mostly we are exporting, yes.

D
Dhaval Shah
analyst

And if you could tell which would be your top three or top five products, what is the breakup of this INR 90 crore quarterly revenue? Help us better understand the number.

S
Srinivasan Ravi
executive

Export, I think per quarter is we are clocking around INR 40 crores, something like this. INR 40 crores. INR 40 crores on the industry segment, right?

D
Dhaval Shah
analyst

So INR 40 crores out of INR 90 crores is exports?

S
Srinivasan Ravi
executive

Yes.

D
Dhaval Shah
analyst

What are we exporting in that, what is the product in that INR 40 crores?

S
Srinivasan Ravi
executive

We are exporting major to North America to Europe and to also Japan. Each of the customers are different and the usage is different. Somebody is in wall manufacturing, some gearbox manufacturing one is in oil and gas, the other is in printing the other carton box manufacturing. So it is quite a diversified requirement. As a contract manufacturer, we are making products to their design. And also, we are making fully finished missions also tested here and we ship it to the end customer. So it is too diverse.

D
Dhaval Shah
analyst

But the level of the engineering and the details which we go into within our strength. Is that the same or it's a little low end working high-end in this business?

S
Srinivasan Ravi
executive

No, the entry barrier is extremely high. And there, we are not having any competition here from the Indian market and our diverse engineering impairment capability, design capability and our manufacturing infrastructure is required to do this sort of high-end assemblies. We need to have the know-how also. So when we are making this equipment and shipping across the world, we don't have much competitors anywhere in the world.

D
Dhaval Shah
analyst

On visibility would you have say, over next FY '23, half and '24, what should be the size of the business?

S
Srinivasan Ravi
executive

Business has been steady. It has not been growing especially as you could have seen from our export revenue overall. We have not been adding customers aggressively there. But now I think there are some chances of adding customers now. But there will be a time gap between product development and to actual revenue. We may see a gap of 1 year.

D
Dhaval Shah
analyst

And sir, my question on the aluminium side. So we had these orders from Peugeot motors. So -- so have they started the [indiscernible] and then ramp up in '24-'25. So how is that going?

S
Srinivasan Ravi
executive

It is product development is going on time. intrastate is getting set up. We'll be giving samples in Q4. The customer requires 4, 5 months for testing the product. I think production will start by Q3, if not in Q2 of next financial year. And we will get, I think 30%, 40% of the revenues we should be able to clock in the next financial year, subject to approval.

D
Dhaval Shah
analyst

Because we were supposed to do some INR 50 crores, INR 60 crores revenue in the FY '23 out of this order? So that's the...

S
Srinivasan Ravi
executive

FY '23, we were thinking that they will not go through the full product testing cycle, but I think the customer is cautious, even though the product has been tested when it's coming from a different source, they want to go through that. So they are asking for 4 to 5 months testing period. So we cannot actually really do, we're ready. We will be ready in Q4.

D
Dhaval Shah
analyst

Now lastly, the entire -- the demand distraction.

Operator

Mr. Shah, Sorry you are inaudible.

D
Dhaval Shah
analyst

Yes. Okay. So last question is that the demand discussion which we expect in the -- so are we experiencing anything right now in so you mentioned your high-end precision, there is that the momentum of order is not very high. But in the regimen component and powertrain, do you see impact of this problem?

S
Srinivasan Ravi
executive

Sorry, maybe not sent the right message. When some of the segments are growing in H1 at 40%, I have -- in the relative terms, the export order is not growing at that level. That's what I meant on the momentum side totally. So it is -- the storage business is from carrying the bulk of the momentum in the industry engineering business is what I wanted to mention, but we are growing even on the export side we're growing.

Operator

We have our next question from the line of Mukesh Saraf from Spark Capital. Please go ahead.

M
Mukesh Saraf
analyst

Firstly, sir, on the Powertrain segment, can you just remind us of the revenue mix there. How it will be probably this quarter or the first half? -- between CV factors, construction equipment et cetera.

S
Srinivasan Ravi
executive

Yes. I will talk for H1 that maybe better, we will give a better number instead of having that. This INR 385 crores for commercial vehicle, Off-highway a is INR 150 crores, farm sector INR 125 sector, passenger vehicle is INR 66 crores.

M
Mukesh Saraf
analyst

And secondly, the power costs in Tamil Nadu have gone up. So given that we do -- we are recently power intensive. How is that expected to impact us or how much has it already impacted this quarter because we do have a [indiscernible].

S
Srinivasan Ravi
executive

Maybe we can reroute the power cost as a company or we may not be able to give it in for Tamil Nadu. I think 60% of the power we consume is -- more than 60% is in Tamil Nadu, you're right, 40% is rest of India. We'll dig it out in some time. I think -- you can ask next question meanwhile.

M
Mukesh Saraf
analyst

No. I mean even if the number is not readily available, I just want to understand the impact of the heightened power tariff in Tamil Nadu. So I mean is there an impact? Or are we having same mitigation efforts such as sourcing via renewable, et cetera. So anything like that?

S
Srinivasan Ravi
executive

Sourcing via renewable, we are bringing the options. Yes, we are thinking whether to go for captive or whether to go for third party because the wheeling charges and other cross subsidy, everything all put together. I think it is becoming uneconomical and governments are changing policies regarding cross subsidy. So it might not be viable for us to take a long-term contract with any of the service providers and getting into these third-party or purchase agreements for the future might not be viable because carbon credit, we will not get it, that may be getting valuable also in the future.

So power and fuel when compared to the whole of last financial year, where we were -- at the company level we were at INR 112 crore, we are at INR 70 crore for this first half of this year. So I think efficiencies of scale, I think pro rata, we are still keeping the almost the same percentage as we look at it.

M
Mukesh Saraf
analyst

And just lastly, sir, in the past, you have mentioned about the EV segment within 2-wheelers for the aluminium business that we have. You had mentioned about kind of looking at that and probably looking to enter that segment. So how are we placed there given that a lot of the OEMs are spending capacities such as TVS, for example. So how are we looking at the aluminium business for EV two wheelers.

S
Srinivasan Ravi
executive

Early this year, we got orders from new start-up EV, we have got orders. Yes, some more reports under development, some are already in trial production now. But overall, the numbers are a little -- not very appealing for financial results. So it's a long way off for a minimum economic scale of this business to be fruitful as a company. So whatever revenue we have seen this INR 190-odd crore in Q2 on aluminium business doesn't carry any EV portion of it. So we have factored in EV sales only next year, even though we are going to start from Q3 onwards.

M
Mukesh Saraf
analyst

So we are not adversely looking to expand into that segment because of -- we have made that in the display in the past as well as to how volumes might not...

S
Srinivasan Ravi
executive

I would say that we are aggressive to take critical parts. We don't want to take simple parts on commodity pricing. And plus, the -- at automotive pricing, we need automotive numbers, so volumes. And if it is -- the volumes are getting split up with 10 to 20 players and at the same automotive price, we stand to lose. So we have to pick out the winners. We have to pick out the volumes. We have to get the pricing also right which may be much higher than the -- which we need to be -- it needs to be higher because of the lower volumes.

So there is a challenge there. So we don't want them to get a big development cycle. We are developing a lot of EV parts. But all parts put together looking at the volume, it doesn't change the top line too much. So we are very careful about how much focus we are giving towards the current state. And models also are evolving because these models have been designed in a way in the beginning. And now when it comes to cost, many models are getting redesigned or cost of it units by the startups.

I think is the mature companies will do very good design to start with itself. You can see the cautious approach, which I really appreciate. And I think that the market will mature in the coming years.

Operator

We have a next question from the line of Yash Agarwal from IIFL Securities.

Y
Yash Agarwal
analyst

Just a couple of questions. For FY '23, we factor in a tax rate of 35% on account of the MAT implication. So from the next financial year, I assume that we fall back into the 25%, 26% bracket. Am I correct on that?

S
Srinivasan Ravi
executive

We -- you're correct is absolutely correct. Still we are having some MAT credit even post Q2. But in Q3, we may change our situation or we may take a change in Q4 to write-off the MAT credit, which will have no impact on the P&L. But we may go to a new tax structure. So we are weighing the cash outflow versus the total benefit to what we have. And today, all pointers are that we are likely to move to the new tax structure in the current financial year results.

Y
Yash Agarwal
analyst

Secondly, on your guidance of 20% revenue growth in FY '24, is that on a value-added basis or a reported basis?

S
Srinivasan Ravi
executive

Yes. I would always say 20% on a value-add basis because top line can be different with the product mix what we have and the commodity prices. I've been always advocating the value-add personally.

Operator

We have our next question from the line of Chetan Gindodia from AlfAccurate. Please go ahead.

C
Chetan Gindodia
analyst

Sir, with respect to aluminium segment, so while the aluminium price was going up consistently during last 1.5 years, we were impacted because of -- in terms of taking a hit on the margins -- but now that the aluminium price is coming down, so we had assumed that we would be benefiting at least for some period in terms of margin expansion because there is generally a lag in passing on to the customer, but you are seeing exactly the opposite. So we have been impacted both on the rising commodity on the falling commodity also -- so can you explain a bit on this?

S
Srinivasan Ravi
executive

Thanks for this question. I think this is -- needs to be explained role before we I'll clarify this. Last year, last financial year, I would say. -- it was with some of the customers on a trailing quarter. The trailing quarter aluminium prices were applied only next quarter. So when the prices were continuously increasing, we were getting a lower selling price than compared to what we are buying.

So we managed to -- and also the customers and entire market change to a real-time pricing. That is the average of the current quarter or the monthly quarter monthly correction on pricing, both are the same, fundamentally both are the same. So that is the real-time situation where we do not have big changes from -- for a long time.

Suppose the prices have has gone down in this quarter, whatever inventory we are carrying only is having an effect. It's not having an residual effect in the -- going into the next quarter, totally. But this average is the big problem, totally overall. So I think the aluminium prices are at a level which it was, I think, 3 years ago or 2.5 years ago. I think the -- now we going to increase. We made some little benefit in 1 quarter, maybe as a very partial benefit, which will -- again, like this, we may have some positive operations than a negative operation.

But last time, it was -- to give you a number -- I'll add a number to it, from INR 180 a kilo, the alloy price went up all the way to INR 285 within a year's time. And every quarter, we are -- we face the music.

C
Chetan Gindodia
analyst

Sir, secondly, with respect to aluminuim segment. So now that 2-wheeler contribution in the mix is declined to 68% and non auto is increasing to 15%. So what would be the difference in margin that we earn on 2-wheeler versus the non 2-wheeler side?

S
Srinivasan Ravi
executive

No, it is a mixed bag. It will be different from product to product. And there are a lot of synergies there between -- there are rate parts of teas parts in all the three segments in the industrial alluminium business in the passenger vehicle, commercial vehicle as well as in the 2-wheeler business. So we have a common overhead and we are managing. But calculation wise, it is doing the same. The -- predominantly, the high-pressure air casting is being used for 2-wheeler and very little of gravity in local casting. But the margins are more or less same.

C
Chetan Gindodia
analyst

And lastly, the INR 70 crores CapEx that we are planning to commission for the new order on the aluminium side. So can you share some light on what is the nature of the customer or the segment? Is it a 2-wheeler or an export order domestic -- any kind of details if you can share?

S
Srinivasan Ravi
executive

No. Sorry, I cannot share that, but because we had done some CapEx in the previous years, which we have now diverted for this particular customer order. The additional CapEx, what we are doing is only INR 70 crores. We are not saying INR 70 crores os the CapEx, we are using the current building. We are diverted many things from various other projects, and we have done it, apart from the new CapEx, whatever we have planned. So I would not like to share competitive information in the general platform. Sorry, I have to abstain myself here.

Operator

We have our next question from the line of Pranay Roop Chatterjee from BCMPL.

U
Unknown Analyst

Firstly, I'll just go segment-wise one question for each segment. Powertrain, it was not entirely clear in the first part reason for a Q-on-Q drop in margins. So one reason could be that -- let me -- correct me if I'm wrong, that the tractors have actually gone down in the mix versus other, the tractor is supposed to be high in machining. So that could be one of the reasons. But you actually mentioned a couple of other reasons, some charges, and you mentioned commodity prices are at a higher level. So given commodity prices have decreased Q-on-Q, steel, especially and aluminium. How would you break down this Q-on-Q drop in powertrain? And should we expect it to come back to normal in the next 1 or 2 quarters?

S
Srinivasan Ravi
executive

There has not been any dramatic change in the value addition between Q1 and Q2. It is -- the value addition has been INR 223 crores going up to INR 232 crores. Practically, there's only INR 9 crores has been the increase in the total value addition in the order auto powertrain.There has been, of course, inflation all over, whether it is salary, whether it's power or water maybe plus on certain segment of the business where we had a little more profitable sunken capacity, which is available, the capacity utilization was slow because the farm sector went down some of the plants were suboptimal utilization. So it had impacted a little.

But overall, I think the EBIT margins on the -- we are maintained, I think from the drop from, say, a INR 95 crore to INR 92 crore. So overall, it is not any significant drop in capacity inflation, which is 1 year apart. Sorry, this is 3 months apart, where we had implemented also the salary increases for our employees.

U
Unknown Analyst

Next is trying to understand something on the aluminium segment. So how I track this is basically, I see how much the aluminium price, the average aluminium price has moved Q-on-Q, then I see your overall revenue Q-on-Q. And then I see our value addition on Q-on-Q. And usually, it is additive in nature. But what I've seen this quarter is that aluminium prices LME, average prices have actually gone down about...

S
Srinivasan Ravi
executive

We were billing at a lower price because the price drop, we are billing at a lower price to the customer. That is the reason for the depression and value addition in aluminium.

U
Unknown Analyst

No, so that is not my question. My question is that the overall revenue has gone up by double-digit percentage. Despite the value addition and aluminium prices Q-on-Q dropping. So which would imply that the non-value-added portion products have increased in the mix. Is that a correct understanding?

S
Srinivasan Ravi
executive

Non value-added products means what you mean the non-value-added products?

U
Unknown Analyst

So just to simplify again, the aluminium price quarter-on-quarter has dropped -- so part of your portfolio is very directly passed on the aluminium price. So that portion, the top line should have dropped. Then the other question is the value-added portion, which is also Q-on-Q, there is a slight drop. From INR 71 crore last quarter to INR 68 crore in this quarter. So -- but overall, on the revenue, we see that there is a double-digit growth quarter-on-quarter. So I'm just trying to tie how it is working out.

S
Srinivasan Ravi
executive

The revenue quarter-on-quarter has grown by 10%, right, totally. It should have grown by 20% if the prices had been stable. That is the explanation.

U
Unknown Analyst

And quickly on the margins, aluminium margin. So you mentioned that your inventory hit was the reason that is well understood. My question is, if the inventory hit had not happened, whether the aluminium price would have been seen given the product mix this quarter, would the margins still have come at around 11%, 12%. And should we expect it to go back to 11%, 12% in the next few quarters? Or would there still be a pressure on margins because of prices?

S
Srinivasan Ravi
executive

Thanks for the question. Now on the aluminium products, as I mentioned, the top line revenue has moved from INR 171 crores to INR 196 crores. If the aluminium prices have not dropped this INR 196 crores would have been approximately INR 205 crores. The INR 205 crores would have resulted in other INR 10 crore increase in value addition instead of INR 68 crores it would have been INR 78 crore. So the entire, say, around INR 10 crores would have flowed through to the EBITDA level, and that means the margins would have been normalized.

U
Unknown Analyst

And the last question is on basically the Stellantis order. Again, it was not entirely clear at my end. Did you mention that the order around 40% to 50% would be booked in FY '24 instead of the entire revenue being booked as was previously stated.

S
Srinivasan Ravi
executive

Here, I will take a little back step now I stop talking about customers and names. So these customer numbers do not add up, you could see that without Stellantis anything being here, we are talking INR 200 crores on the business quarter and we are continuing to grow. I think putting a customer projection here, their project delays or their product strategies or whatever is happening in Europe is impacting us.

So we'll take it as it comes. So now, production is supposed to start next year, yes. But how much is starting, how much will be the sale, I will not like to put a number to it now, but we can commit as a company that our aluminium business will grow by 20% next year compared to this year.

U
Unknown Analyst

And if I could slip in one more on revenue for FY '23, would you expect the second half to be materially stronger than the first half?

S
Srinivasan Ravi
executive

So here, it is -- for FY '23 or FY '24?

U
Unknown Analyst

FY '23 this year.

S
Srinivasan Ravi
executive

If the quarter 3 is always a challenge for inventory correction for customers end of the year, multinational companies within the country closing down their plants for 2 weeks plus also the automotive December production, keeping it low for a year of manufactured reasons, all that and the post festive season inventory correction. So all put together, we always see a challenge on Q3, it is difficult to even replicate the current Q2 and Q3 -- but compared to last year, Q3, I think will be far, far better in this Q3.

Yes, Q4, if there is no further big new headwinds coming in the way of international ratio go financial issues. Also, we are still facing a huge inflation of not only for the industries but for the common man. This continues for more time we may see some depressed retail offtake, there, there may be some challenges. But we even factoring that in, I think Q4 will be a good number because of our diverse portfolio. Q1 cylinder is not kicking in, not doing well. I think we will do better on something else. So we are still very confident about Q4, not about Q3.

Operator

We have our next question from the line of Jeetendra Khatri from Tata Mutual Fund. Please go ahead. There's a lot of disturbance, sir.

U
Unknown Analyst

Sir, my question was, how much of light-weighting is the aluminium division provide in automotive. So would there be a range which you can provide like a 15% to 20%? Or what is the range of light-weighting?

S
Srinivasan Ravi
executive

Light-weighting still it is not very effectively happening in India. So we are ready to see any significant change there.

U
Unknown Analyst

Okay. So is it that the aluminium division, the product credit making it a structurally, it is always -- it has always been made in aluminium or related to the industry shifting to aluminium, like the housing and all those things which you make in aluminium for automotive?

S
Srinivasan Ravi
executive

Currently, what we are doing is traditionally has been in aluminium always. So we are not seeing the benefit of the industry moving to aluminium so far, which has to happen in the future, but it still has not happened.

U
Unknown Analyst

Any reason that it has traditionally been in aluminium?

S
Srinivasan Ravi
executive

It was more suitable for aluminium from the very beginning, either it's a cost performance or it is the strength and durability requirements and it is the near-net-shape requirement of the casting, which is done on high pressure die casting. So there was a big advantage of doing it in aluminium, which continues. But for the reason for light-weighting. With the new aluminium prices, I think there can be a shift which may happen. But the earlier last year, it was around INR 280 a kilo now it's come to INR 180.

So that range, I mean, approximately. So they may again look at it. But also the requests a fundamental model design change or new platforms to come in on the vehicles accounted this new standards. Yes, safety standards testing has to be done. So whenever a new platform comes only, it is going to happen.

U
Unknown Analyst

And sir, would you have any international benchmark in the auto to aluminium division, like some European player or someone whom you can encourage. Competitor or let's say the guy who has been there for a very long time?...

S
Srinivasan Ravi
executive

Are you talking about the size of the aluminium business or you're talking about...

U
Unknown Analyst

I'm talking about any competition in the auto aluminium division. Any major competitor or any major benchmark company, which you might be following?

S
Srinivasan Ravi
executive

We have three big companies in Japan, but I would put the names to you. One is Ryobi, next is [ Hiroshima Die Casters ] third is [ RST ] all of them are in the range of $1.3 billion to $1.5 billion, $1.7 billion in the top line, only in the aluminium business. They're quite wholly integrated, some are with machining, and most of them are with the making the dies also. But in Europe, you know very well, Linamar of Canada, Nemak of Mexico, they acquired a lot of companies in North America as well as in Europe.

They are dominating the space. Including Georg Fisher, I think, has been acquired. Then we have Martinrea honsel, we have Rheinmetall. We have Euro Castings. There are players of more than EUR 1 billion, EUR 1 billion to around EUR 3 billion. There are on 7, 8 players in Europe, either on the stand-alone in Europe or maybe owned by companies from like Linamar of Canada or it may be Nemak of Mexico. This is a well-known fact. I'm really using the names because they are market leaders. And Magna is also a very big name in North America. But all of them are more than $1 billion. That is very, very clear. Maybe $2 billion, $3 billion or so.

U
Unknown Analyst

So the scale is very big.

Operator

We have our next question from the line of Dharshil Jhaveri from Crown Capital. Please go ahead.

U
Unknown Analyst

I'm new to the company. So sorry if my questions are a bit basic, I just got a bit confused when you were referring to 20% growth on value-added and on reported terms so could you just help me figure that out? 20% growth we're talking about the revenue that we just did about INR 170 crores, right? Or how does that all factor in?

S
Srinivasan Ravi
executive

We have been advocating in the past that top line minus COGS is the value addition, and that is the real work the company does. Otherwise, it is a commodity price fluctuation, which is either inflating the top line or depressing the top line accordingly, which is not an apple-to-apple comparison when you look at year-on-year with this sort of large movements in the commodity prices, which we have witnessed in the last 2, 3 years. So our margin comes from the work we do, and that is we call it the top line minus the cost. It is a value addition or some of the calculations, some of the way of noting that is the gross profit totally.

So we say, when we say growth, we say normally that growth in gross profit or growth in value addition.

U
Unknown Analyst

And other thing I just wanted to ask about our margin we just said about aluminium and have understood about that. So now that 10% drop has come. So going forward, we will have similar margins that we had previous quarters, right?

S
Srinivasan Ravi
executive

If the operating leverage remains the same as the top line is getting depressed because of demand, then our overhead absorption will not be sufficient enough.

Operator

We have a next question from the line of Jyoti Singh from Arihant Capital Markets Limited. Please go ahead.

U
Unknown Analyst

Sir, I want to understand your view on the energy cost as is a current cycle -- so how we are seeing the impact on our company overall -- are you on the...

S
Srinivasan Ravi
executive

We are not an energy intensive usage company as a whole. If you look at the top line for H1, the power and fuel has been INR 70 crores on a top line of INR 1,446 crores okay.

U
Unknown Analyst

So we don't have any impact because of the increased energy costs in Europe.

S
Srinivasan Ravi
executive

No, there is impact globally because of the energy cost of the fuel, which has increased and also in India power cost also is increasing. As I mentioned that today, on our top line, it's around 5%. So it may go up to 6%, 7%, if there is a big growth. There is an impact. It's an impact for everybody. It is on public domain, whatever is there. From state to state, it varies on the power cost, but at least the diesel or the gas of CNG or LPG gas also be used for minuting, there has been a little bit different from state to state. There has been an increase all over.

Operator

As there are no further questions, I would now like to hand the conference over to Mr. Srinivasan Ravi for closing comments. Over to you, sir.

S
Srinivasan Ravi
executive

Thank you, everybody, for the active participation and also the detailed questions, which also helps us to do some thinking again whether we are on the right track. Yes, we are confident about the company. And we have demonstrated that over the last 6 quarters, we are a very versatile company and we have which took the different ups and downs in the industry which has happened and still managed to grow. We'll keep that spirit up going forward, and thank you for all your support.

Operator

On behalf of Craftsman Automation Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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