Elecon Engineering Company Ltd
NSE:ELECON
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Elecon Engineering Company Ltd
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Ladies and gentlemen, good day, and welcome to Elecon Engineering Co. Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from Ernst & Young, LLP. Thank you, and over to you, sir.
Thank you, Vivian. Good day to all the participants on the call, and thanks for joining this Q4 and full year FY '23 earnings call for Elecon Engineering.
Please note that we have mailed out the results and presentation, and you can also see the results on our website as well as it has been uploaded in the stock exchanges. In case if you have not received the same, you can write to us, and we'll be happy to send this thing over to you.
Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risks that could cause future results performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements.
To take us through the results of this quarter and answer your questions, we have with us the management of Elecon Engineering, represented by Mr. Prayasvin Patel, CMD; Mr. Aayush Shah, Non-Executive Director; Mr. Kamlesh Shah, Group CFO; Mr. Narasimhan Raghunathan, CFO; Mr. M.M. Nanda, head of Gear Division; Mr. P.K. Bhasin, Head of MHE division; and Mr. Basal Sagaria, Head of R&D Department.
We'll have the management give a brief overview of the quarter gone past and then we'll open the floor to Q&A session.
With that said, I'll now hand over the call to Mr. Prayasvin Patel. Over to you, sir.
Thank you. Good evening, everyone. A very warm welcome to our Q4 and full year FY 2023 conference call. I hope all of you have had a chance to go through our results and presentation.
We are pleased to report that we have achieved another quarter of strong financial performance, driven by our team's dedication and hard work, and we expect the growth momentum to sustain in the coming years.
As we look forward towards the future, the global economy continues to face some uncertainties and challenges in the form of inflation and supply chain disruptions. However, we remain confident in our ability to navigate these challenges and continue to deliver value to our customers and investors.
Looking specifically at India, we are optimistic about the country's economic growth prospects for FY '24. According to RBI estimates, India's GDP is expected to grow at 6.5% driven by favorable government policies, strong domestic demand, huge spending in infrastructure spent out in recent budget, better tax collection and a rebound in exports.
We are well positioned to capitalize on these opportunities and are committed to drive in long-term sustainable growth for our stakeholders and retain our consolidated revenue target of INR 2,000 crores with EBITDA at 22% for FY '24.
Now coming to our new product development initiatives. Our primary objective is to generate innovative ideas that satisfy our customers' needs while optimizing cost and enhancing product performance.
In FY '23, we made significant strides in new product development and upgradation, introducing 6 products that include high-speed gear boxes, central dry planetary gearboxes, roller press gearboxes, vertical roller mill gearboxes, dual tandem gearbox and sugar planetary gearboxes.
Our efforts have been met with satisfaction, and we are proud to continue pushing the boundaries of innovation.
We recently launched the second generation of EON Series, which is designed for the use in a range of industries, including steel, power, chemical, oil and gas, rubber and plastics, material and mining, paper and pulp, industrial cranes and water treatment. This EON series will be beneficial for our customers considering operational cost optimization and for the company considering inventory optimization due to standardization faster deliveries to cater to exports and urgent need of customers.
The government's growing attention towards infrastructure is expected to stimulate the CapEx cycle in cement and steel sectors, thus benefiting our company. Our focus moving forward is to maintain engagement with OEMs in the western countries market, particularly focused on European market and establish ourselves as their preferred supplier.
Inflation and supply chain issues in the European market is posing serious challenge and sustainability issues to the local players, and it puts us in an advantageous position to capitalize on this opportunity.
Elecon is proud to be a leader in customized and complex gear manufacturing segment for defense, particularly for the Indian navy. This is a testament of our technological and manufacturing progress. With our expertise in working with high precision machine tools, we are actively seeking out niche areas that demand specialized equipment or components.
The strategic initiatives undertaken by our company have led to a remarkable turnaround in the Material Handling business, resulting in profitability after struggling for over 5 years.
The strong order inquiries have translated into robust order book for the division, driven by replacement and upgradation requirements as well as new orders from power and other end user industries.
Our extensive product range is one of the widest in the market, and we plan to introduce a few more products to cater to industries where we are not currently present. Given the visibility and momentum of new projects, we believe that there is a significant potential for growth in the division while maintaining healthy margins.
Last but not the least, our unwavering dedication to ESG continues to be our top priority as we strive to make a positive impact on all our stakeholders. ESG initiatives remain at the forefront of our company's agenda, and we remain committed to engaging in sustainable business practices that benefit not only the environment but also our communities and employees.
Thank you for your continued support as we work towards a better tomorrow. Thank you.
Sir, should we begin the question-and-answer session?
Yes, please.
[Operator Instructions] The question is from the line of Ankit Babel from Subhkam Ventures.
A couple of questions. Sir, you guys had been under discussion since the last several months overseas OEMs for approval of the product. What is the current status? And by when can we expect one or 2 such approvals to come in?
Let me put it this way, that approvals for products in the foreign market is a constant thing because you are always looking for new customers. And for these new customers, you have to get a various approvals. Normally, they look at your references and your past experiences before April 1. And quite often, they send also the team to come and have a look at the manufacturing facilities and capabilities of the company. This is an ongoing thing.
We've got many approvals apart from this because of our wide experience in India as well as above. It is very easy for us to normally get approvals of this kind with the customers. So those approvals come in quite easily. Okay. And normally, it takes hardly 15 to 20 days maximum to get those approvals.
No Sir, my question was any major approval wherein we know the revenue visibility from a particular customer goes to say around INR 50 crores, INR 100 crores kind of a potential -- those kind of approvals have received?
Yes. Recently, we've had significant approval from one of the large paper and pulp machinery manufacturer who is one of the largest in the world. So that approval has come through from Europe. But apart from that, we are also supplying them equipment from India for their plants in the Asian region.
Okay. Sir, my second question is, was there any one-off expenses or any one-off income in your Q4 numbers?
Yes. We have that. I think I'll just -- in regard to raw material costs, we have a one-off kind of things related to GST input credit of our other states other than Gujarat, where our utilization is very slow and which is going to take some time. So as a conservative approach, we have made a provision for INR 7.28 crores plus we were having nearly INR 2.5 crores of inventory, which were required for the service and after-sales service requirement. So those inventories are having more than 2 years. So as a conservative approach, considering the visibility, we have made a provision of INR 2.5 crores for that. So that is the 2 things which is there for the raw material consumption.
And in case of the manufacturing cost, we had some high-cost consumption of materials, Which are of -- which are having its own cycle like oil, base print, those kind of expenses. because incurred in Q4 this time, which will have its own cycle of replacement.
Okay. And any one-off income?
We have the income in case of the write-back, which is there just to the tune of it is INR 2.6 crores, which was related to the liability of earlier period, which was not required. Then we were having another income in the form of a contractual obligation. As we -- as you know, we have closed all our old projects in MHE division. And for where we were having certain contract obligation provision we made as a convert approach. That does not require any more. And plus some warranty was there, that also user know to be completed warranty period. So both put together is coming to nearly INR 8 crores plus.
Okay. So net to net, INR 10 crores of one-off expenses and INR 8 crores of one-off income. So net of INR 2 crores of one-off expenses. Is the right way to look at it?
Yes. And one more thing that we have made -- we have had a one-off kind of bad debt of nearly INR 4.28 crores, which year this is a part of our settlement agreement with one of the customers, which we have send to deal in Q4. So that is INR 4.38 crores.
So INR 4.38 crores is bad debts?
Bad debt. One of the bad debt is as part of the settlement agreement with the customer.
Okay. So INR 6.5 crores net is the one-off expenses.
Correct.
The next question is from the line of Gunjan Kabra from Niveshaay.
Congratulations for a good set of numbers. But I had one question in the presentation. You have guided around revenue guidance, which is INR 1,700 crores. And in the [indiscernible] is INR 2,000 crores of revenue that we're targeting in FY '24. So what kind of revenue like in the last 3 quarter we were of the very firm belief that we'll be touching INR 2,000 crores? So are we seeing any kind of slow growth rate?
No. I think if you defer that presentation, presentation speaks about the gear for INR 1,700 crores. And INR 300 crores is MHE. So if you report in our presentation on the left-hand side of the gear time is there, MHE is above all -- on the top. So MHE is different and gear is different. So INR 1,700 crores, what you talked about is gear only.
So INR 1,700 crores plus INR 300 crores turns out INR 2,000 crores.
So we are still maintaining our growth guidance of INR 2,000 crores.
Yes.
Sir, also, one thing is that in the beginning of the right line, the beginning of the presentation, you cited as our export had been due to the pricing disruption. But in the recent interview that you did yesterday, so there you guided, the export percentage is expected to increase to 40%. So are we planning to gain any share or how is it? I mean how are we seeing the demand there?
what we are trying to say is that the Europeans are having these challenges while we don't have these challenges. So we are likely to grow while they are likely to remain stagnant. So we have an opportunity, we are going to grow from 30% to 40% while we see opportunity situation in Europe.
And if I just further add to this. So that -- if you see our presentation, we are talking about two things. Our overseas business plus export, both put together is 29%. So that is how we speak about our overseas business and exports. So when we talk about export is our export from India as well as our overseas business, which is there.
The next question is from the line of Pratik Kothari from Unique PMS.
My first question on the 6 new products, which we have upgraded or release. As a layman, if you can just help us understand how does this new products help our clients, help our customers? How does it help Elecon? I mean some technical and market potential for this product, please.
So Mr, Head of our R&D Mr. [indiscernible], he will just answer the question.
Yes. Just on producing the new product, introducing the new products in the market, we are constantly looking for the market requirement as well as the from the customer point of view. So nowadays, the efficiency is more important from the customer point of view. So we are optimizing our product. We are always boosting the -- or providing the high-efficiency product and the high-quality products. So we are upgrading our product as well as we are introducing the product to generate the new revenue.
Can I answer this in a different way? First of all, there are products which meet the requirements of the customer. And then there are new developments that take place because the processes of the plants go through a change. There are improvements in the process to bring in efficiency overall in manufacturing, let's say, cement, steel, et cetera. And for that, there are new applications that get generated. There also, we get involved in new developments, which then are transferred to other customers in similar kind of businesses.
So these all products that have been developed recently will give additional opportunities to us in bringing down the cost in manufacturing for us as well as meeting the requirements of the customer. Optimizing is the way to go in this.
Fair enough. Good to know, sir. Sir, my second question is on the MHE. And I'm asking this in the context of recently Tyson Group announcing or guiding for some 25% growth in the coming year. Indian Railway is talking about adding more value deploys to their pipeline. Coal India wants to increase its production by 50% over the next 2, 3 years. So can this be a dark horse, which -- and which can maybe surprise us on the upstages your outlook on MHE? And given the bad experience that we have had for the last 5, 10 years, are we prepared if such opportunity comes in for us to capture?
Definitely. As a matter of fact, we are sharpening our claws to make a [ chim ]. So we are definitely looking at these opportunities. While we sell our products, we want to make sure that we don't let any opportunities go by where we can manufacture and deliver things where we can make profits.
The next question is from the line of Shikha from Equitree Capital.
I had a few questions. I had a few bookkeeping questions, sir. One is a follow-up to what you already said about the one-off expenses on the gross profit side. So is that the only reason for an increase in the cost of goods? Or is there any other reason because quarter-on-quarter, it's gone from 44% to around 50%?
Yes. That is only cost for this year when you see the reduction in the gross margin.
So that is the only reason for the reduction of the gross?
Yes. Yes.
Sir, on the employee cost, is there anything specific why our employee costs have come down substantially quarter-on-quarter and year-on-year?
Yes. The reason is because when we are making a provision on a quarter-on-quarter basis for gratuity and leave encashment that we are doing the estimate based on the previous year and whatever the increment of the appraisal process taken care for the current year. But while we did the actual valuation at the end of the year, then we find that instead of having the liability, we are [indiscernible] set for a gratuity and leave encashment. So if you could refer our balance sheet, in that the provision for gratuity last year, it was there this year instead of having a provision or liability, it is an asset for us. That is a one of the reasons which is both put together is coming to nearly INR 1.787 crores. And then we generally are doing the provision for the performance bonus on a quarter-on-quarter basis. But when we have worked out at the end of the year, so that was not worked out to that level. And that is also having the impact of nearly INR 1 crores for that. So both put together is coming to near INR 2.87 crores rounding off INR 3 crores for the quarter.
Okay. Understood. And sir, if I could just push in one another question. Can you give me your utilization levels on the MHE and on the Gear business currently for the year?
So our utilization for Gear is 70% plus capacity utilization. MHE, We have the ample space available for the category to do utilize. So that, I think, presently considering our strategy, so we are at least present our utilization is nearly 30% to 40%.
Okay, sir. But so without any major CapEx coming this year, how do you expect to be 70% on the gear side?
So far as the CapEx is concerned, we have to build some of the machines because all the machines do not have the same capacity of manufacturing. So those in an order to go major CapEx, but somewhere we have to shrink the gap for the machine capacity or pooling capacity. So if we are -- if you have heard in our earlier calls, this year, we are planning to have the CapEx of nearly INR 100 crores and our -- that is what we have planned over the period of 2 years. Based on the revenue visibility and other processes, we are just do the execution of this CapEx plan.
But sir, the INR 100 crore, CapEx will come FY '25 onwards, right? Or will that start showing up in FY '24 itself?
It will be there in this year also. That is the new year to 2023, '24 also.
Okay. Okay. So maybe -- so how much will be visible in FY '24?
'24, we are estimating back CapEx of nearly INR 50 crores to INR 60 crores.
Okay. And this will be again utilized in FY '24?
No, it will get utilized from FY '25 because in FY '24, we will install the market, but the full utilization will be in the next year, FY '25.
Okay. Okay. And on a current machinery, we can utilize how much capacity, max?
We can -- generally, we can grow up to 85% to 90%. Not beyond that because something will not be active always -- we can ask for the maximize, but we can optimize up to 85%.
Okay. And on that capacity, so around 90% capacity, how much revenue does it turn out to be?
We can generate [ff ]. Today, we are at INR 1,000 crores, then we can additionally generate another INR 300 crores for that. And if you do some more optimism by outsourcing some of the activities, we can go up to INR 1,400 crores to INR 1,500 crores.
Okay. But your Gear business the same range of INR 1,700 crores. So the balance will come from there, then overseas? Or how will that be?
Pardon, I can't get to your question, please?
So on our current capacity, you said by outsourcing and certainly bottlenecking or whatever we can be at around INR 1,500 crores . So the balance INR 200 crores that we're expecting on our gear business from where will that come?
That will come actually our work is our self sufficient to do the assembly work and other ways.
Okay. So INR 200 crores or INR 300 crores on the gear business, we're expecting overseas, right?
That INR 1,500 crores , what we are talking that we are talking about gear.
Today's question is from the line of Sunil Kothari from Unique PMS.
Sir, my question [indiscernible] is during the last 2, 3, 4 years, we -- whatever problem we are facing during the last one decade, we successfully and very, very successfully completed all the achievements and goals we were having like loss-making projects removed, debt has been reduced or almost we are cash positive. So what is your overall objective for next 1, 2, 3 years? Where you feel internally you can improve or where you feel your time you will be [indiscernible] for Elecon Engineering? Where you feel -- it's prepared for maybe next 5, 7 years.
It's a very good question because I wouldn't have expected this from at least investors who are planning to be with us on a long-term basis.
The interesting part is that now that we have achieved more or less all our goals, our intention would be to develop certain products, which today, we are not there. Though we have one of the widest range of products in the gear industry, there are a few products which are missing, which I believe we should develop them. That is one.
The other one would be to look for opportunities abroad for further growing our businesses because we should not be a domestic player. We now need to be a global player, a global player who has presence in very many countries because that is the way to grow, and that is the way to hedge against a decession , which could be limited to a particular contract. So the intention would be that you expand or grow in countries where you see high potential.
I would say that Europe and the United States are areas where we need to look for other opportunities and grow our business. So look for acquisitions, look for strategic tie-ups and so forth because we would like to grow and grow at a reasonably good rate. Sunil, does answer your question?
Yes. Sir, so where you feel for preparing for those opportunities? What we required to do internally, maybe in sort of R&D division, design department, assets, software side, other side. Which are the areas where you feel you require to invest and increase those capabilities?
Basically, I would put it this way that as long as R&D is concerned, we are very well equipped. As a matter of fact, technologically, we are so advanced that we can sell technology to other countries even in Europe and United States. Okay. So competency wise, we are, I would say, second to none. As long as the challenges that we would come across would be manpower of our own, which would be at the senior level as well as competent people in manufacturing and in financial services.
Focus area of ours.
Yes. And those are the areas where we are trying to develop a team, which would be ready in case there are opportunities that would arise, then we will deploy them in the international arena, wherever there is a need.
The next question is from the line of Naysar Parikh from Native Capital.
So first question is on the replacement market or the aftermarket on the aftermarket side. So what percentage would be aftermarket for you? And secondly, when you look at your year, how much of that is actually new customer, new installations versus actual replacement of some of the older gears?
No. Normally, our replacement market constitutes anywhere between 20% to 30%. Okay.
The new customers, I would put it this way that almost 70% of our customers are replicated. But there is always a hunt to look for new opportunities, new customers to bring them in our fold even to bring the competitors' customers into our fold so that we can grow our business.
Got it. Understood. And on the replacement side, do you track, sort of, if we sold 100 gears and 100 are getting repriced with your -- out of that, how much actually came to you versus how much went to competition? Then What percentage is your repeat trade or something or things that are getting replaced?
Normally, 90% of the customers who have additionally bought the gearbox from Elecon would come back to Elecon. Okay. Maybe more than 90%, 95% of them will be coming back to the same manufacturer because there are peculiarities, and therefore, the customer if the installation is very critical, he will not take any chances.
It is the same as in automobile, you normally go back to the manufacturer to buy those papers. Something similar to that.
Got it. and last question, just on the -- you have mentioned on the marine side as well as the EV side that obviously discussions are going on and things like that. So any update on those 2 verticals?
Yes, on the marine side, we've had some opportunities that we have been able to harness in Europe where there are companies who want to get their products manufactured by us. We've developed a few models for them, and they seem to be highly pleased and the opportunities look to be promising. However, on the domestic front also, we see a good opportunity coming our way, okay? And even on the defense side, the Indian Navy intends to reorder certain ships identical or similar to the months that have been supplied in the past where we would become the preferred gearbox supplier. So the opportunity seemed to be quite high.
As long as the commercial ships are concerned, as I told you, it is getting materialized. As long as navy is concerned, it may take some time before it actually comes up.
Got it, anything on EV?
Okay. Sorry. I'm sorry, can you please repeat that sentence?
Sorry, are seeing anything on the EV side?
EV side, not really because though we have been trying to make in those, the sizes seem to be a bit smaller for us considering that again, they want to manufacture them in [ mass skill ]. The size we normally produce much larger diameter of gears compared to what they would require.
The next question is from the line of Mahesh Bendre from LIC Mutual Fund's.
So this year, we have done revenue of around INR 1,500 crores. And next year, we are talking about INR 2,000 crores. So incrementally INR 500 crores of revenue, I mean, from where we plan to add this, is it domestic market, international market? So just to draw a view.
The -- naturally, it is going to come from both, okay? The domestic market is where we see that the sector would give us reasonably good orders because there are new requirements that have come up -- project orders, which would help us boost our turnover to a large extent as well as exports would also give us a big cost in the foreign markets further.
So these orders are in hand or probably we think we will get these orders in this quarter or next quarter?
These orders are not in hand, but we are a preferred supplier to the clients who have got these orders, which means the companies who have got these orders. For them, we are one of the preferred suppliers, and we have supplied them similar kind of gearboxes in the past, and they seem to be extremely happy with our delivery and performance of the gear units. And therefore, we feel very strongly that they would be finalized in our favor.
The next question is from the line of Girish Mehta from [indiscernible].
So I just wanted to understand, since we have launched 6 new products. So we have 2 categories of products like catalog division also in an [indiscernible] division also [indiscernible] division is around 55% to 60% of our overall sales and which are high-margin products. So sir, can you help us to understand that these 6 new products falls into which category?
They fall into both categories. The EON Series is the catalog products, while all the others fall into the specialized product category.
Okay. And sir, one more thing I wanted to understand. Since we are entering into all these new products. So our competitors like Shanthi Gears or Flender, SEW, Premier all these companies, they are already there into these categories. We are going into completely a different new set of products.
Unfortunately, as I told you earlier, we have one of the widest range. Yes, they are all into catalog gears for sure, but we have a high level of specialization like the vertical roller, mill gearboxes. We are only competing with Flender, then the dual tandem gearboxs, we only compete with Flender. So there are planetary gearboxes, we only compete with Premium. So though we are there in each and every type and variety. Our competition quite often is limited to 1 or 2, and they need not be the same party all the time. So -- and we also are focusing a lot on the import substitution, and we make gearboxes, which quite often are not possible for the other manufacturers to manufacture.
Okay. So that falls into the engineered products. So what we are looking to the OEM tied in the overseas market, that would be mainly into the engineered products still?
Yes.
Okay. Okay. And sir, one last question. Can you help me to understand the sector-wise sales in this last quarter? So how you have [indiscernible] terms of power, cement to the...
So last quarter, we don't have to see the sector-wise sales, but I think I'll keep a note of that going forward through [indiscernible] quarters for this.
For the whole year. So can you unit, that also that's fine.
Yes. At the consol level, if you see in the gear, our -- one of the major contributor was steel from where we got a 13.8% sales. From sugar, 6.8%; cement, 9.7% power, 8.1%, Material handling equipment, 7%. And marine -- and the mining was at 3.7%.
We will send you a pie chart if required by e-mail. It is there the presentation also.
Okay. The next question is from the line of Sonali Shah from Emkay Investment Managers.
So first question is our order book in to the Gears division has been flat since the last 3 quarters or so. Is there some kind of challenge in getting new orders, incremental orders over here? And what seems to be giving us the confidence since the order book is not growing? What is giving us the confidence of achieving INR 1,700 crores of top line for gears in FY '24?
I don't understand how you are saying it is flat because if the orders are not there, how are we going to produce so much? So...
In the perspective that our closing book at F '23 INR 570 crores for Gear division. And at the beginning of the year around, we're also around INR 500-odd crores.
The reason is normally the spillover -- see, we have a very fast turnaround. So the float that we see of INR 500 crores, INR 569 crores is a very healthy shoot because you don't want too many because in the prices of steel keep on bearing, then you have a risk of increasing your COGS.
On the other hand, you don't want less number of orders, so because then you can't plan your production properly. So this is an ideal set and which suits [indiscernible].
So in our catalog product, please, Mr. Nanda is our head, our gearing.
Catalog product, we are able to deliver within 2 weeks' time, basically. That also is a major change which has really brought in our catalog area, basically. So that has a turnaround very fast now. So that's why you are looking at these numbers, wavering on that. That's all it is. But as the Chairman has mentioned, our order book position at the end of the year is very healthy. And going forward, we should -- we'll continue on the same line.
All right, sir. Fair enough. And second is actually more of a clarification. If I was to nearly back calculate the numbers of INR 2,000 crores. So for our Gear division in the domestic business ex of exports, are we expecting only INR 900 crores of top line for F '24 which is nearly a 3% Y-o-Y growth?
No. How you calculate, I don't know from where you got a number? Our [indiscernible]
[indiscernible]...
Is INR 1,700 crores.
Yes, INR 1,700 crores would be included by overseas subsidiary for gears as well as my exports, right?
Yes, correct.
So if I recollect correctly, you had mentioned in a few quarters back in one of the con calls that we are doing around INR 1500 crores of top line in the stand-alone level at '24 and INR 500 crores at a consol level -- sorry, so that totals INR 2,000 crores.
Yes, that INR 1,500 crores includes MHE division also.
Yes. So if I was to strip away the MHE division.
Then it is INR 1200 crores.
Yes. And then if I account for -- because you also mentioned that exports plus overseas will end up going to around 40% in F '24. So if I strip that area, I'll end up with only INR 900 crores of top line for the domestic gear division.
For this year or next year you're talking about?
For FY '24.
No, FY '24, we are going to end up our gear at INR 1,200 crores on a standalone basis -- on standalone.
That's exports plus [indiscernible] domestic in India business, correct?
Yes. Correct. Correct.
The next question is from the line of Mohit Kumar from ICICI Securities.
44.
Congratulations on a very good quarter and a fantastic year.
Mr. Kumar, sorry to interrupt sir. Can't hear you clearly.
Am I audible?
Yes, that's better.
Am I audible now?
Yes. Yes, I can hear you.
Is there any opportunity in the adjacent product segment or to enter into a new customer segment, we should -- and the later question is, do you think the win and power segment will pick up in FY '24 and FY '25 materially for you?
Power segment, yes. In the wind segment, we had purposely exited from that area, and the reason being that it is a very risky business. Therefore, after indulging into it, we ultimately decided that we wanted to exit that business, and we have been able to do so without getting ourselves hurt.
I'm asking this question because when you support likely to make an impact, like likely to pick up going forward. So I'm trying to figure out whether this is a very large opportunity? Or do you like to reenter the segment?
We would not like to reenter the segment. The reason being that, first of all, as you know, wind is subsidized by the government, okay? Because on its own, it is not able to hold grounds unless it is subsidized, and it depends on the government policies. Apart from that, we have seen wide fluctuations in demand, which causes a lot of issues.
Understood. Sir, my second question, what was the total market size for the year in FY '23? And what are the market share? And the related question is that how much is the import of gear in the domestic market, if you have that number, maybe?
Can we send it to you by e-mail.
Sure, sure, -- those are my two questions.
All I can say is that we have 34% of the organized market in India. Okay. So if you extrapolate, you will know that how much is the overall organized market in India. And the import figures, we do not have handy, but one can always pull them out and send it to you.
Sir, is it possible to substitute this entirely in this country? Or do you think that import as a large part will still be imported?
I wouldn't say that a very large part is being imported. Majority of the parts which are being -- are under the gearboxes, which are being imported are the wind turbine gearboxes as well as extremely large cement gear units, which are being [indiscernible].
The next question is from the line of Ankit Kumar from Alpha Capital.
Sir, my first question is on the capital allocation plan. So we are now debt free. We are making great cash flow from operations. We don't have much CapEx plans also for the next 2 years. So -- but this year, we haven't given much dividends. So any thoughts on do you want to increase dividend or we look for some M&A for the growth in exports?
I thought that we gave good dividends. 100% is not a good dividend? Sir.
I mean, in terms of dividend payout ratio, so compare to EPS.
That's good. See, I would put it this way that though me being one of the largest shareholders, we believe in being a bit conservative because what we believe is that if the company retains cash, then if there are other opportunities that come their way, then we would be able to deploy them whether it is any type of requirements in an urgency or on a normal level. So that is the reason why we are going a bit slow. But I'm sure that we will fall in line and improve our dividend payout ratio over a period of time.
Sure, sir. That's great to know. And sir, second question is on the guidance of INR 2,000 crores revenue. This basically means INR 500 crores per quarter. But in this year, we haven't done INR 500 crores in any of the quarters, even not in our best quarter. So do we think this INR 500 crores can be for the next year? Or do you think this will be too heavy and that things will faster in H2?
It will catch momentum over a period of time. So I believe that you will start seeing the improvements after the first or after 1.5 quarters.
Because, sir, in general, you were saying that Q2 and Q4 are heavy. So that is like will continue in FY '24 also?
Yes. Normally, it is like the IPL always the last few overs that are very critical.
Sure, sir. And sir, on margin, can we make some improvements? Or do you think this 22% will sustain? Or can we improve because now things are looking up?
Margins will hover around 22%. I mean, they increase -- they will increase by 1 or 2 points maximum, okay? The reason being that while you keep on trying to improve your top line, the utilization benefits have already been derived, plus it will also depend on the product mix.
The other thing is we -- sorry, .
The next question is from the line of Vikram Datwani from Nama Wealth Management.
I have two questions. First one is a data point with a follow-up. Could you please share the subsidiary order inflow number for the quarter. As in the last quarter, we mentioned due to the holiday period, we saw lesser order bookings than we would have liked. So has that situation improved?
Yes. Our overseas order pending order portion and March 31, it is INR 80 crores we got up.
Okay. Okay. And my second question is on the margins in the subsidiary business. So if I look at the margins in this quarter, it seems like they took a slight dip. So how should we look at this going forward? Was there any onetime costs related to ramping up of operations that impacted margins this quarter?
No, it is not because of any onetime cost in the overseas market. There is nothing such kind of things. But if you have heard that in overseas market, the inflation has gone up. So certain cost has also gone up in the process, which is very minimal. And at the same time, there was a challenge in the European countries. So considering that, we were having this.
And further, we had some business development costs also over there. And we have put some marketing team. We have started now building marketing team in the overseas. So that is just driving the impact overseas.
So do we see this margin normalizing going forward that what percent would you say.
Next year, our guidance is 22% because we are now going for -- on a business development and the marketing strategy in what is where we are able to stand. We also have to depute some key employees over there to in a certain new opportunities and new markets. So we are also from costs related to the employees in current year for FY '23, '24 for that. So going forward, definitely once we get stabilized in terms of our efforts for marketing, we can expect that improvement in the margin.
However, because we are looking for the OEM supplies going forward. So OEM will not have the same margin worth generally we are looking for in the replacement market. So it will not have that kind of the improvement based on the improvement in the field. That's what was [indiscernible].
The next question is from the line of Riya from AEQUITAS INVESTMENT.
My first question is in regards to the current pipeline. What is the order backlog in [indiscernible] right now?
Order backlog as at 31st March 2023 is INR 714 crores on the consol level.
And for subsidiary?
For subsidiary, it is INR 80 crores, 8-0.
And order inflow for the quarter?
Order inflow for the quarter or consol level, it is INR 419 crore.
INR 419 crores. And this is majorly could you help me with this sector this order book of prices of apart from I think steel and power being the major contributor, what sector?
Sugar is one of them.
So I don't know that this complete breakup, but I can give that the major order from the steel, cement, sugar, material handling, these are in power. These are the 5 sectors where it is there. But what I can just follow that ordering impact for Q4 on a factor-wise also, I can forward that.
And on the pipeline, are you seeing it from the same sector or any newer tax [indiscernible]?
It should continue. The same trend should continue the way scenario is emerging, the order inflow will be coming from these sectors only which has been mentioned here.
But on quarter-on-quarter basis, there may be a fluctuation will be based on how the cyclical of the industry trend it is.
The next question is from the line of Devang Patel from Samita Capital.
Sir, on margin, you mentioned some improvement can happen on the working capital also. If you can talk about how much improvement we can see we've seen some improvement this year. Over the next 2, 3 years, what kind of improvement can we see in the cash flows in cycle?
So for the working capital is concerned, we can conserve between 70 to 80 days, hovering about that, considering the quarter-on-quarter basis. But I think consider engineering industry in which we are there, another factor that 70 is an ideal thing which can do, but at least optimizing if you are to optimize by that way, we can be between 70 to 80, anywhere.
Okay. And in the INR 2,000 crore consolidated revenue, how much is the revenue being generated from our overseas subsidiaries?
So over year, INR 1,500 crores, we have given it a guidance of INR 1,500 crores as a standalone and INR 500 crores on the overseas.
So that will imply a steel jump in revenue from very next year?
Yes, we are looking to some traction also in the overseas. We are the way in which we are putting our efforts on the marketing side and business development side. We are looking for the good traction in the western countries.
Okay. And you mentioned you're getting OEM orders, so this will be supplied from our India business or from the overseas subsidiaries?
All manufacturer will be taken care from India. And they may -- we may supply or it may be in the peak form where they will do the assembly over there and then supply to the customer, depending upon what the requirement of the customer it is. We are requested both for end out.
The next question is from the line of Anish jobalia from Garik Capital.
So my question is around the tax rate. So our tax rate has been in the range of 20%, 21%. So I just want to understand like going forward with the increase in revenue from the international market, et cetera. How do you see the tax rate moving going forward? Or will it continue to be in this range?
That one project because if you see in U.K., rate taxes increased from 19% to 25%. So that will depend. It will be ranging between 21% to 25% at the consol level. But at the standalone level, it will be 25% because we are in the new tax regime.
The next question is from the line of [indiscernible] from Praj Financial.
Sir, I just wanted to know what's our current capacity in gears division? And how do we plan to take forward from here because as we mentioned, we are already at around 70% utilization. And at peak, we will be doing around 80%, 85% -- 85% to 90%. So how is the plan in gears division? How will we be expanding the capacity and what are our current capacity?
We normally have not explored to a large extent subcontracting. Subcontracting would give us additional capacities that would be available. There might be a requirement of certain key equipment, machine tools to be further invested in, in the near future as and when the requirement comes up. But I'm sure that with a minimum of investment, we would be able to up the capacity if we want.
What would be your current capacity in gear division again, sir?
Right now, as you said, it is at 70% utilization. And we may require some bridging the equipments or machine tools, which we are planning to invest INR 100 crores in the next 2 years, which would help us further enhance our capacities. But I would say the maximum we can go is 85% in-house, and with subcontracting, it will be sizable increase that would be possible.
The next question is from the line of Karthi from [indiscernible] Advisers.
Very interesting commentary. I would like to engage you a bit on the comment you made about the pulp and paper machinery manufacturers whom you are in talks with. Just trying to understand the scope of this sort of an association. One is typically this would be the OEM himself? Or would this be the EEC engineer, for instance? And how exactly would this increment to -- some clarity on that would help?
Typically, we would be supplying to OEMs who would supply an entire plant -- come from plant for manufacturing paper from pulp.
Right. And which would mean -- what would be the scope that say 2%, 3% of our project cost could accrue to you? Effectively, I'm trying to understand the number of years that could go and score different types of years that could grow?
It is difficult to say because it will depend on what kind of plant, what type of paper, et cetera. So it is difficult to comprehend. But we would be the sole supplier of gear in that plant.
Thank you. The next question is from the line of Niraj from White Pine Investment.
Just two questions, one on the Europe market. Can you give me some color on your marketing efforts in Europe and how they are picking up?
I'm sorry, can you repeat the question? I didn't hear.
Sir, can you give some color on the marketing efforts that you are doing on the Europe side, and how do you see it picking up and approval process, et cetera?
Basically, what we are trying to do is we are trying to deploy more people in the marketing as well as we are also putting in a lot of effort to reenergize our websites, do digital marketing, do trade shows, et cetera so that there is a big trust, awareness. And as I said, we are continuously knocking those of OEMs and other customers from where we can get more business.
But your estimates are showing that we'll have a reasonable traction in the export. Also in the past year said that export does take 15 to 20 months of low the traction to start. So is it fair to say that you have a reasonable understanding of how much say, maybe 6 months we'll start getting orders from the Europe side?
See this is based on estimates. It is very difficult to comprehend as to when you will get the breakthrough from a customer. Depends on various opportunities which are there, the orders that he has on hand his requirements, how successful has been your competition in supplying equipment to them, et cetera, et cetera. So it's very difficult to comprehend. The intention of ours is to keep on pursuing till we find success.
Okay. And then a question on the defense side. Can you give some color on when you see the order flow to start and when can large order for the Indian defense come to you? Or when can the government start deciding on the large orders that may flow to you in future?
Well, as soon as China shakes us up, there will be more orders coming through. What I'm trying to say is it is very difficult. The defense sector or the defense ministry has its own processes. However, what we have found with this present government is that they are more dynamic and faster than the previous governments in ordering equipment. And therefore, we are hopeful that very soon we will end up with a reasonable amount of orders. And of course, Make in India is something that is making us very proud of the present government.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Well, thank you for showing great interest in our company. We have been trying to do our best. All I can say is that the economy is right now favoring us. We believe that the economy will grow at 6.5%, which will give us great opportunities for the gear sector as well as the material handling sector. And right now, we are fully organized to encash the opportunities that come our way. On the other hand, the company is trying very hard to put the trust in exports because that is where the future lies. And if the company has to grow and grow in a large way, we will have to go for additional exports. And that is where I would say the company needs to focus on, but not to neglect the domestic market. So this is what the strategy is.
On the other hand, Elecon with a very strong R&D team has been able to develop various products and continuously is trying to upgrade it strategy, upgrade its products, upgrade its manufacturing setup to be at the edge of technology.
We are second to none. Today, we are at a point where we can sell technology to the rest of the world. But this has happened because we've had a lot of experience, which has come our way because we are in a country where the population is very high, and there are great opportunities that come in various fields of cement, steel, power. All this has given us a great amount of experience, great amount of visibility. And I'm sure that going forward, we will be able to do much better, not only in the domestic market but also in the international market. So thank you all for being with us, and we hope to see you on the next con call also. Thank you.
Thank you. On behalf of Elecon Engineering Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.