Minda Corporation Ltd

NSE:MINDACORP

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Minda Corporation Limited Q4 FY '20 Earnings Conference Call, hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this being recorded.I now hand the conference over to Mr. Priya Ranjan from Antique Stockbroking Limited. Thank you, and over to you, sir.

[Priya Ranjan, Vice President]

Thanks, Neerav. It's our pleasure to host 4Q Result Con Call for Minda Corporation, as most of you have -- must have seen the result already. And now I would like to introduce the management team. From management side, we have Mr. Ashok Minda, Chairman and Group CEO; Mr. R. Laxman, Executive Director and Group CFO; and Mr. Neerav -- Neeraj Mahajan, Group Marketing Head.Now I would like to hand over the call to Mr. Ashok Minda, who can give the brief overview and then we can take it forward. Over to you, sir.

[Ashok Minda, Chairman & Group CEO]

Thank you. Good afternoon, ladies and gentlemen. I welcome you all to the fourth quarter and full year 2019/'20 earnings conference call of Minda Corporation. I would like to thank you all for joining us during the ongoing health crisis caused by COVID-19, and hope you and your loved ones are doing well and keeping safe.Financial year '19/'20 was a challenging year. Economic growth was sluggish, and auto industry was going through a major slowdown. The situation was further aggravated in the fourth quarter due to spread of COVID-19 pandemic. And to contain the outbreak, the government announced complete lockdown, which brought economy and businesses to a standstill.Despite all challenges, Minda Corporation reported revenue of INR 2,813 crores, a decline of 9% on year-on-year basis as compared to an industry decline of approximately 15%.During the year, the EBITDA margin was 8.9%. The company's strict control on working capital and CapEx has resulted in the net debt-to-equity ratio improving to 0.06x in financial year '20 as compared to 0.26x in financial year '19. Further, both the rating agencies, which is CRISIL and India Rating have reaffirmed the rating of the company.As you are aware, the Board of Minda Corporation Limited decided not to undertake further financial exposure in Minda KTSN and advised that capital be allocated for growth and profitable business opportunities. Thereafter, Minda KTSN filed for insolvency in Germany on June 9, 2020.We expect a positive outcome for all our stakeholders in the long run despite the insolvency filing. We are focusing on channelizing our precious and capital towards tremendous business opportunity of profitable growth with the view of enhancing EBITDA margins and ROCE. The move is expected to enhance Minda Corporation EBITDA by 2% and ROCE by 5%.Though we reassumed -- we resumed operation in our plant from 20th April in a staggered manner as per guidelines issued by state and local administrations, the pandemic and subsequent lockdown has impacted production and demand drastically, and its mix impact will be visible in the upcoming quarter.Now we shall begin the discussion of the detailed financial overviews and insight on operational performance.With this, I hand over the call to Mr. Laxman, our group CFO. Over to you, Laxman.

[Laxman Ramnarayan, Group CFO & Executive Director]

Thank you, Mr. Minda, and good evening, ladies and gentlemen. I would straightaway jump into the presentation. I will be using the presentation that we have uploaded on to the website. I'll be -- I'm right now referring to Slide #3 of the presentation.This is our overview slide. Our revenue for financial year 2020 on a consolidated basis has been INR 2,813 crores. Our business verticals are: Mechatronics, Information and Connected Systems, Plastics & Interiors and Aftermarket. Our greatest strength, which is our key customers, continue to remain the who is who in the auto OEM in India as well as overseas.Currently, now we have about 30 manufacturing facilities. And our R&D capabilities remain centered around SMIT, which is our nerve center of R&D in Pune. The market capitalization on 31st March was INR 1,300 crores.On the right-hand side of the slide, which is Slide #3, we have broken up the sales revenue for FY '20 by end market, geography and business vertical. If you look at the end market slide, the pie chart, about 28% came from passenger vehicles, where 42% came from 2- and 3-wheelers; 19% came from commercial vehicles; and 10% from aftermarket.By geography, 67% of our revenue came from India, 28% came from Europe and North America. This also includes exports of our products into Europe and North America. Southeast Asia contributed about 4.8%.By business vertical, the Mechatronics and Aftermarket together is about 43%, which is about 33% plus 10%. The Information and Connected Systems is about 36%; and the Plastics & Interiors contributed 21%. The inner ring of the pie chart shows the numbers in FY '19.Moving on to Slide #4. As Mr. Minda had indicated, you will see that the auto industry has gone through very, very difficult times in FY '20, and the industry fell by 14.7%. However, the biggest hit was commercial vehicles, which fell by 32.4%, followed by tractors at 15.2% and passenger vehicles at 14.8%. The fall was, however, more accentuated in commercial vehicles in quarter 4, where the commercial vehicle production fell by 47.8%.Moving to Slide #5. The financial performance of the consolidated company in Q4 FY '20, we had an operating revenue of INR 697 crores and with an EBITDA of INR 38.5 crores, resulting in an EBITDA margin of 5.5%. If we compare that with the same quarter in the previous year, where the revenue was INR 771 crores, it resulted in a 9.5% dip in revenue. And EBITDA margin has dipped from 10.6% to 5.5%.In the full year, you'll see that our revenue has -- is INR 2,813 crores, which is a 9% dip overall between the 2 years, and EBITDA margin is at INR 249 crores for the full year, which is 8.9%. Therefore, the profit before tax and before exceptional items for the quarter was INR 8 crores, and for the full year, was INR 138 crores.We had an exceptional item by way of impairment of our European subsidiary, which was Minda KTSN. The impact on the consolidated financials was INR 293 crores. The same impact is being carried in quarter 4 as well as in the full year. As a result of that, the profit before tax in Q4 on a consol basis was negative INR 284 crores, and on a full year basis, was a negative INR 154 crores. And ultimately, on a profit after tax, the Q4 number was INR 299.8 crores, and the full year number of profit after tax was INR 199.8 crores negative.Moving to the next slide, which is Slide #6. It's a more description of how a quarter went by. You'll notice that the EBITDA margin decrease of 510 basis points or 5.5% is primarily because of: one, a higher loss at Minda KTSN for the quarter; second, it was because of higher costs on ramping up in BS-VI, also unfavorable product mix; and in the last about 8 to 9 days, we also got severely impacted by COVID where there was 0 production and a full standing cost for all the businesses. So that's the quick summary of Q4. If you look at the full year number on Slide #7, again, the EBITDA margin decrease is 60 basis points. The reasons are similar, which is ramping up of BS-VI and unfavorable product mix as well as COVID. Our exceptional loss of INR 293 crores is also impacting our profit after tax, which is ultimately at a negative of INR 199 crores. As compared to the exceptional loss of INR 293 crores in the current year, in the previous year, we had an exceptional gain of INR 17.5 crores, which was mainly the sale of our stake in Furukawa Minda.I'd like to draw your attention to Slide #8, where we have put together the stand-alone performance of Q4 and FY 2020. The stand-alone performance effectively in pro forma, we are largely speaking, reflects the entire business without the KTSN part. Of course, it also excludes our ASEAN operations. So there, we have a revenue of INR 512 crores for Q4, and that's a 15% drop as compared to the same period last year. And we have an EBITDA margin in Q4 at 8.4%, which is at INR 42.9 crores. That's a drop from 12.9% drop in the EBITDA margin.Our profit before exceptional items was INR 24 crores. In the stand-alone, the loss we took in the exceptional item because of KTSN is much higher because of accounting treatment at INR 366 crores, and the profit after tax of stand-alone for the quarter stood at INR 351 crores.If you look at the full year, we have posted on a stand-alone basis, INR 2,130 crores and an EBITDA margin of 11.2%, which is a dip from 11.8% or 60 basis points, and EBITDA stood at INR 231 crores. After the exceptional item, the stand-alone profit after tax as a loss stood at a negative, which is of INR 241 crores.So if you look at the full year -- if you look at our quarter, there has been a 450 basis point dip in EBITDA margin. Most of this has come from -- a large part of it has come from the ramp-up costs we have taken in -- because of the BS-VI, and this is largely a onetime kind of a number. And we don't -- we expect this to go away the moment we have some traction in terms of sales from customers, which we expect to happen in the next 2 to 3 quarters.I'd like to quickly jump to Slide #11 of the presentation, which is our consolidated leverage position. You'll see that the net worth is -- stands at 900 -- on a consolidated basis stands at INR 974 crores, which is after taking into impact the impairment of Minda KTSN. The gross debt as on 31st March stood at INR 532 crores. And we have a cash equivalent of -- cash and cash FDs of INR 472 crores. Hence, the net debt stood at INR 59.6 crores. Our net debt-to-net worth stood at 0.06x. Our capital employed stood at about INR 1,034 crores, and our ROCE was about 15.4%.I'm happy to share with you that post our Minda KTSN impairment, the rating agencies, both India Ratings and Research and CRISIL, have reaffirmed their rating for our long-term and short-term instruments. So India Rating rates us an AA minus stable, and CRISIL rates us at IND A1 plus for the commercial paper and CRISIL A plus for our long-term borrowings.While the industry and the economy as well as the volumes, et cetera, have not been in our favor, on the cash flow position, we have managed to do some fair amount of work, and that is reflecting in Slide 12 of our presentation. You'll see that we started with an opening cash of about INR 367 crores. On a consolidated basis, the profit after tax before exceptional items, which was a noncash item, stood at INR 93 crores. We had a depreciation of INR 117 crores, and we added INR 229 crores by way of better working capital management. If we reduce our share in -- of profits in our joint ventures, and we reduce the CapEx of INR 146 crores we spent on a consolidated basis for the full year, it leaves us with a free cash flow of INR 282 crores. Out of this INR 282 crores, we spent about INR 157 crores in repayment of term loans and -- repayment of loans and about INR 19.9 crores by payment of dividend. And that left us with an increased closing cash balance of INR 472 crores.Therefore, to recap, our gross debt reduced from INR 680 crores to INR 532 crores, and our cash balance increased from INR 367 crores to INR 472 crores. Therefore, overall, our net debt-to-net worth reduced from 0.26x to 0.06x.On Slide #13, we have given a quick overview of Aftermarket. I'll not be spending too much time on it, except that we have a robust INR 293 crores sales in the Aftermarket. The EBITDA margin of this business is 150 basis points better than the overall EBITDA margins of the company. The key segments we focus on is our own products that we make and our locks contribute one of the largest in the pie chart of sales by product range.We currently sell about 77% of the turnover as part of our group products, and there are about 23% of turnover that comes from products that we get manufactured or bought out -- from outside. However, we sell it under our brand, our quality, and our post-buying assurances.Slide 14 has details of our joint venture companies, basically with Stoneridge, VAST and Furukawa. Just to quickly touch upon each of these, Minda Stoneridge, where we hold a 51% stake, posted a revenue of INR 381 crores for the whole year with about 11.1% EBITDA margin.Minda Vast, where we hold 50% ownership, posted a INR 162 crore turnover, with a negative EBITDA. That is a little bit of a concern for us. However, we think that this company will do better in FY '21.Furukawa Minda, which is the joint venture with Furukawa of Japan. In FY '20, the company posted a revenue of INR 397 crores with a 9.9% EBITDA margin. All of these on a respective shareholding basis and consolidated basis is already included in our consolidated results.On Page #15, the COVID has impacted the entire industry, and it has not spared anyone and that includes us. However, the moment the administration and the government gave us permission to open our factories, we bounced back with now almost all our factories open and working, and we have put in very, very strong protocols for people as well as the plants and offices where the people are. It includes standard measures like thermal screening, work area hygiene and absolute reduction in physical meetings. We have reduced the payload at each of our buses that we use for our employees. Social distancing at the time of entry, at lunch. Almost in all locations, we are not allowing any outside visitors other than extremely necessary, you say, by an OEM for liaison and Aarogya Setu download, et cetera, has always been made compulsory. This is, in fact, just in about 10 days, it impacted our revenue by about INR 80 crores. And our EBITDA got impacted by about INR 15 crores, which would amount to close to 1% of the overall annual EBITDA, but a much larger impact for the quarter.If you see the measures to reduce the financial impact, of course, plants have started operating at all locations. We have seen improved utilization levels at all plants month-on-month. Enhancing customer engagement and supplier engagement has been very, very strong. We have actually taken a huge focus on cost reduction, with a greater focus on working capital management, elimination of discrete spending, rationalizing CapEx for the year only with a specific rationale that it should have a positive impact on the business that we are doing currently. We've had fairly big salary cuts across the organization on a temporary basis. And we hope that once we ramp up the whole thing, we will be able to remove the salary cuts. But this has also gone a long way in reducing our fixed cost, at least till the time as the crisis remains. We have created a task force to reduce fixed costs across.Slide #16 and 17 and 18 covers the impact of what happens when Minda KTSN -- what happened at Minda KTSN and what is the pro forma impact of that in our consolidated results, had we seen the numbers without Minda KTSN.On Slide #16, I'd like to say that it was 9th June when the Board took a call not to support Minda KTSN in the future because of the current and future cash flow requirements; inevitability of the COVID pandemic, which has caused untold damage for our business in Europe; and the capital allocation into -- for growth and for profitable businesses in the entire group. Because of that, Minda KTSN filed for insolvency. It's important to mention here that because of the losses, it has been pulling down Minda Corporation's EBITDA by about 2% and ROCE by approximately about 5% over the last few years.If you look at Slide #17, the number on the first column, which is consolidated financials pro forma without Minda KTSN, our operating revenue would have stood at INR 2,222 crores. However, our EBITDA margin would have been 11.1%. And the profit before tax would have been INR 184 crores. As against that, we reported INR 138 crores of profit before tax because of Minda KTSN.So the line-by-line consolidation impact, the PBT was reduced by INR 46 crores because of our operations in Minda KTSN, just for the year FY '20. And of course, we had to book an exceptional loss of INR 293 crores. That's the impact on our P&L. And that same impact gets translated to the balance sheet.In the subsequent balance sheet, all the assets and liabilities will be removed, and gross debt will further reduce by INR 110 crores when we report our balance sheet the next time of the year. Because insolvency happened after the finalization of the accounting period, this INR 110 crores is not yet removed from my consolidated debt.And to give a pie chart, as we saw earlier, the revenue breakdown, excluding KTSN on Slide #18, if you see the right-hand-side box, that is the new box, which is by end market, we are about now, we will be 53% on 2- and 3-wheelers, about 10% on passenger vehicles, 23% on commercial vehicles and 13.6% in aftermarket. Mechatronics will now contribute about 60% of our turnover, which is about 50% in Mechatronics and another 10% in Aftermarket, and Connected and Security Systems will be about 40%. And we also have a robust India plastics business, which we are nurturing and growing, which we expect this to make a significant impact in this pie chart in the coming years. By geography, now 85% of our market will remain in India.In terms of -- that completes my financial slide. I would now request Mr. Neeraj Mahajan, our Group Chief Marketing Officer, to talk to us about the market, the business performance and order book, and you could refer to Slide #19 for the same.Over to you, Mr. Neeraj Mahajan.

[Neeraj Mahajan, Group President of Marketing]

Thank you, Laxman. I appreciate your covering the larger context of the presentation. I have the business environment, as Mr. Minda mentioned, and you have also covered the remaining challenging, and I would assume that the market for the next 2 quarters would remain subdued.I would touch upon but the healthy side of our business where we have good order book situation, which we have done in quarter 4 as well for the YTD '19/ '20, which is going to give comfort that our pipeline is pretty steady and healthy.So in terms of Mechatronics, if I look at it, which is our Lockset, Door Handles and also in terms of our Security System businesses, we have been getting favor from our 2-wheeler customers, where we are -- they are finding our, let's say, the Lockset business very attractive. The first order in overall term, if I look at quarter 4, we did about 23 -- INR 269 crores order booking for the lifetime order, with annualized basis, about INR 2,311 crores, which is very healthy from the standpoint where we are today. During this COVID time also, we did book these good numbers.So if I just go line-by-line item for understanding in terms of what order booking for the Lockset. A leading OEM has placed confidence in a very large business order for INR 980 million or INR 98 crores is being placed on a lifetime basis. Another 2-wheeler OEM for the ASEAN region has placed another massive order of INR 113 crores on us, which is for the important business line. We also have awarded business of Die-Cast. I think this is one of our business, which is constantly giving us opportunity for strengthening our position, both in domestic and export, with a 2-wheeler and passenger vehicle order book with -- for the domestic supplies coming in at INR 330 million for the year F '20.We also got -- MVAST has been one of the concerns for us in terms of -- we have mentioned about its utilization. But I'm sure the way we are now focusing on MVAST facility and the businesses, we got the order for door handles from a global PV player, which is very exciting for about INR 120 million.In terms of our BV-2, which we call connected mobility or systems, we got lifetime order in quarter 4 for 400 -- INR 524 crores with YTD full year was about INR 1,824 crores, a healthy pipeline.Business awarded for the wire harness for a leading CV OEM is a big order, which has come in through at a value of about INR 353 crores, and we also won wire harness for 2-wheeler OEM with a good revenue opportunity for INR 482 million in this case.We also got instrument cluster order for another large OEM or combination of OEMs, in this case, for about INR 80 crores in the Q4 numbers, if we look at.Now in terms of our third business line, which is Plastics & Interiors, which was earlier dependent on KTSN, we saw that customers showing confidence in our Indian operation already. And we have won 288 million order for -- in Q3, which is lifetime order worth of INR 113 crores to -- which was finalized. I'm happy to announce that as well.In terms of breakdown on this, one of the key commercial vehicles, Tier 1, we won the oil pan order, which is running into about INR 28 crores. And we are happy to share in terms of the export side also, we have been extremely active. Just for reference purposes, we grew from INR 70 crore last year export to INR 95 crore in terms of growth for export, which is almost 35%, if we look at, which is healthy and also comes with a little better profit compared to domestic business. We also got 2-wheeler EV space business in this case for a European leading player. This is something which is -- we are very excited about. It is 100 million order, which is going to get started in this financial year itself, F '21/'22 -- F '20/'21. So we also got the wire harness export order in this case for off-highway vehicle, which is also a good confidence shown in our product line out of India. The one area which is not covered in this is, is that we have very recently being preferred by the largest 2-wheeler OEMs for a new business product, which we have introduced at Shark Fin Antenna, and I'm happy to state that about INR 60 crore worth of order has been received, lifetime order, from the OEM. This is going to get into next year of our SOP 2, which is very, very exciting development from our side in this case.On the customer side, if I may just touch upon, we have been pretty engaged as, Laxman, you have mentioned, during these COVID times, because we realize that customer at this point of time is also going to look at either ramping up or from the -- looking at how they can improve their pipeline of supplies in the least affected way because most of the areas have got one concern or the other. But I'm happy to share that most of our customers today are relying on our single supplier programs also with ease. And our production team, thanks to their effort, has been doing an exceptional job in taking care of the COVID precautions, but to produce what is needed. So this is from the marketing side, and we can take forward any questions later. Thank you.

[Laxman Ramnarayan, Group CFO & Executive Director]

Thanks. Thanks, Neeraj.

[Ashok Minda, Chairman & Group CEO]

Laxman, I think, now we can go over to the question and answers.

[Laxman Ramnarayan, Group CFO & Executive Director]

Yes, sir. Neerav, can you just take the Q&A.

[Operator]

[Operator Instructions] First question is from the line of Pritesh Chheda from Lucky Investment Managers.

[Pritesh Chheda, Analyst]

Sir, my question is on the Slide 19, where we were discussing the order book. How much of these orders that we have received in value terms would be executable in FY '21 and in FY '22?

[Laxman Ramnarayan, Group CFO & Executive Director]

So typically, these would take about -- see, the overall lifetime order will be about, what, 3 to 4 years. But in this specific instance, and we have been saying that this will take 3 to 4 years, and it will normally evenly spread out. In this particular case, I would expect that it'll be more skewed towards year 2, year 3 and year 4 and less towards year 1 because of the slow ramping up of new models by OEMs. And I'll request Neeraj to add to this, please.

[Neeraj Mahajan, Group President of Marketing]

Thank you, Laxman. I think the key issue today among most of the OEMs now is that they are relooking at their program timings for introduction. So we have come across situations where programs are likely being postponed between 3 to 6 months' time. So I would say that among the INR 4,300 crore order book at this point of time, I would see major hit coming in -- major revenue conversion coming in from a year plus and year 2, 3 and 4.

[Pritesh Chheda, Analyst]

Okay. My second question is, you guys gave the post Minda KTSN revenue mix in terms of the vehicle type. So just wanted to understand what would be the wiring harness component of 2-wheeler as a percentage of total revenue? And what has been the ramp-up in 2-wheelers supply of production side with respect to this 2-wheeler wiring harness, and generally, the production schedules for 2-wheelers in June, July, August, if you could give some flavor there as well?

[Laxman Ramnarayan, Group CFO & Executive Director]

Laxman, here. So effectively, there are 2 parts to your question. One is what percentage is wiring harness, and second is because of BS-VI, how it has changed. Am I right?

[Pritesh Chheda, Analyst]

Yes. So that are 2 questions. The third is what is generally the 2-wheeler production schedules now with component manufacturer like us?

[Laxman Ramnarayan, Group CFO & Executive Director]

Okay. Perfect. So I will ask -- I will request Neeraj to answer the third question subsequently. The point #1 is, after KTSN exit, still our 2-wheeler wiring harness should be about INR 400 crores, INR 450-odd crores, which I would say, if you take the benchmark of FY '20 as the benchmark, it will be about 20% of sales, point #1.Point #2, the 2-wheeler wiring harness kit value, which we have mentioned that it will double that has actually taken shape. And there has been a -- we are seeing positive traction in that, where actually the volumes in spite of industry going down, the wiring harness value has gone up. So that's the second question.And the third one, I'll request Neeraj to answer.

[Neeraj Mahajan, Group President of Marketing]

Yes. So I think I am seeing the traction for, especially the July month at the highest peak right now. In fact, we are under stress on account of producing the required 2-wheeler components, especially the wire harness because it's a very -- as you may know, the labor-intensive operation. But if you look at it from the customer pull point of view, they are pre-COVID between 60% to 80% level, clearly, the demands which they have put in, and it is likely to go up because it is -- most of the studies, and we have tried to understand, they have conveyed that entry-level 4-wheeler for middle class and rural and semi-urban segment is pulling 2-wheeler requirement to avoid being in the public transport space. So that's where the 2-wheeler demand seems to be first product line, which is on a recovery side. On a -- I would say -- some are saying V-shape recovery, but in our personal opinion, possibly, it may have some pulling down more towards October, November. But, yes, right now they are pulling as much they can -- we can produce.

[Pritesh Chheda, Analyst]

The 60% to 80% is volume terms, right?

[Neeraj Mahajan, Group President of Marketing]

I'm sorry, come again?

[Pritesh Chheda, Analyst]

60% to 80% what you're referring is volume terms, right, in July? So with the schedules improving, so let's say, August is better than July, September is better than August. That's how the production schedules look like?

[Neeraj Mahajan, Group President of Marketing]

So we are trying to ramp-up in that regard. And my production colleagues are trying to get support from every possible place for getting the human resource for producing that. So we are looking at how best we can produce more in this regard at this point of time, but that's surely a challenge.

[Pritesh Chheda, Analyst]

And my last question is Slide 17, where you have given adjusted for Minda KTSN FY '20 PBT. Now with KTSN not being there, what is the tax rate we should assume?

[Laxman Ramnarayan, Group CFO & Executive Director]

So roughly, the tax rate on a consol basis without KTSN will come to about 25%.

[Operator]

Next question is from the line of Ronak Sarda from Systematix Group.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Laxman, first question on the cash flow. I mean, it's a tremendous improvement. We have the best working capital in last 10 or 11 years. So just wanted to understand, I mean, is this sustainable or this had some COVID-led receivables which came in earlier and -- for FY '20? How should I look at the working capital cycle now?

[Laxman Ramnarayan, Group CFO & Executive Director]

So I would say the improvements that we did over the last 1, 1.5 years, Ronak, ago that we've been talking about has definitely borne fruit. However, I will not go to the extent of saying that all of this is fully sustainable, because in some cases, the working capital has been, in at least in the month of March, looked positive because of COVID in some cases. However, I would say a large part of this trend, though may not in this velocity, will continue for 2021 also. And the reason for that is not because of COVID, but because we have really tightened our working capital management, and we have actually reduced our CapEx to the extent of at least, in my opinion, 40% to 50% to ensure that we only do relevant capital spending. So therefore, the cash flow impact should continue to remain positive.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Okay. Okay. And coming to Slide 17, the financials without KTSN. So I mean, could you help us understand on the balance sheet side, what has moved from FY '19 to FY '20, where have the major changes been? So I can look at INR 192 crores in current assets, which are -- which I think pertains to the -- but if you can just help us understand on the major heads, so like how much does the figures set going to reduce from '19 to '20 without KTSN, I would say? Current assets or whatever, I mean, you can -- quantifiable one, the large ones?

[Laxman Ramnarayan, Group CFO & Executive Director]

So current assets, current liabilities, actually, I'll tell you -- Ronak, I'll be able to give you a clearer picture in our next balance sheet. And the reason is because in 31st March, it is completely blended into our consolidated numbers because the insolvency happened on 9th of June. However, what I can tell you is, in terms of our net worth, you will see that our net worth has actually changed from INR 1,195 crores to...

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

INR 975 crores.

[Laxman Ramnarayan, Group CFO & Executive Director]

INR 974 crores, yes?

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Yes.

[Laxman Ramnarayan, Group CFO & Executive Director]

So it started with -- if you want to have a walk, it started with INR 1,149 crores, okay, on a -- net worth on a consol basis. And then we had exceptional item of INR 145 crores profit -- sorry, a profit of INR 145 crores. And we had a KTSN loss for the year of INR 52 crores, and we had this INR 293 crores of impairment. So all this after reducing and then adjusting for dividend, we came out with INR 974 crores on a consol basis. So the asset -- current assets and current liability adjustment, I'll provide this to you in September.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Okay. Because, I mean, I see that on the liability side, so you think gross debt also will come down by INR 110 crores. Net worth has already come down. In terms of investment, if I look at it, that has actually gone up. So this includes the impairment hit, and this is mainly the cash balance which has gone up, right?

[Laxman Ramnarayan, Group CFO & Executive Director]

Yes. Impairment hit, we have fully taken in our balance sheet.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Okay. So the KTSN investment...

[Laxman Ramnarayan, Group CFO & Executive Director]

Now, the only -- is gone, is gone.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Okay. And then there is some reduction in your goodwill and asset as well. So that is also largely KTSN led in 31st March FY '20 or this is different?

[Laxman Ramnarayan, Group CFO & Executive Director]

It is largely KTSN led. And the investments now that will reflect will be pertaining to our joint ventures and -- in Indonesia, that's it.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Perfect. And so now slightly a long-term question. I mean, without KTSN, the management bandwidth, can you just highlight few areas where is the focus, I mean, obviously, SMIT is one, but in terms of new products, which are, let's say, the 3 or 5 products, which you think can become a pretty large part for us over the next 5 years. What's the focus now?

[Laxman Ramnarayan, Group CFO & Executive Director]

I will request Mr. Minda to take this question, and then Mr. Neeraj Mahajan and myself can add if necessary. But over to you, Mr. Minda, the question in terms of where we see ourselves going forward in terms of product as well as bandwidth, of course.

[Ashok Minda, Chairman & Group CEO]

Yes. First of all, that at least this year, this is a year how we have discussed about the volume. The most important is how we should take care and reduce the cost and reduce the expenses and reduce our breakeven point is the major focus area for at least this year. So -- and at least for next few months, we are using our maximum bandwidth in these things that how to improve -- how to come out with that situation, which is going on. Second part is that, as we have already -- Neeraj has already explained that we have got the business of shark fin antenna which is -- new things which OEM is going to use and we are working for such type of products, which is either from the logistically or from us. As I've already explained you earlier. So -- but now most of the products have started coming in production partly in this year and partly in the next year. As Laxman explained, we are going to also focus on Indian plastic business as well as the export business, which we feel that is -- more margin is going to -- is there so we should focus on the export as well as the new product segment, which is going to come. Neeraj, if you wanted to add something?

[Neeraj Mahajan, Group President of Marketing]

Thank you very much. I think I would like to highlight very important thing right now. We felt clearly that whatever effort we may put in during this time shall be something which we cannot fight the market. So internally, we have started to put many things at place. For example, we are looking at the fundamentals of how we are doing business to bring in productivity, efficiency, improvement of our teams. We are looking at constant request coming in from customer in the past when the ride was good, which we were not able to focus upon, for example, value engineering, value addition ideas. I have very exciting new colleagues coming in, Arvind Chandra coming in with huge amount of experience as business vertical one. He has -- we got new engineering heads coming in who are looking at RMC reengineering valuations to check that where are the competitiveness of our products standing today. We are doing benchmarkings today for almost every possible product to understand where we can win over the businesses in the next 12 to 18 months' time, because these are the times when we have to do our housecleaning. So we have taken up, again, further challenges with cost increase, recoveries coming in and discussing with the customers. Management bandwidth is used right now to train, motivate the teams which are there to understand that these are one of the challenging times. I mean, gentlemen, most of you, those who are in the call, I assume are above 35 or 40 years of age. But imagine that younger lot, those who have not seen '08, for them, this is the first time in their career they are seeing such situation, which is RBI Governor himself says once in the century situation.So we are ducking low, keeping our subject in check while doing the housekeeping, looking at every possible area, including programs, which we were doing, for example, as a package program on where we were kind of losing or not making as much money as we should make to contribute in the profitability. Everything is being put on the table, and we are using the bandwidth to review that. So these are some of the initiatives, if I may just summarize to say. Laxman has mentioned about the cost reduction initiatives. We are talking about [ VEVA ] ideas, discussed with the customer because engagement at this point of time is important with them. Redesigning or evaluating, lightweighting is in discussion. We are talking about profit corrections for the loss-making programs or the not-so-profitable programs. We are talking about recoveries on account of the COVID impact or obsolescence which has come into play, manpower quality effort is being added.And I think one of the important stress, which entire management, and I would say, especially coming in from strategy team, which is now having added time available with Aakash and Laxman after KTSN decision, is to how to make ourselves as a system supplier. So we want to be seen more in next 3 to 5 years as a system supplier rather being that journey which we have traveled so far from build-to-print to moving towards technology supplier. If we can come into that area, as you know, we have invested tremendous amount of resources in SMIT. These are some of our initiatives, which we are very, very clearly focusing upon.

[Ronak Sarda, Vice President of Auto, Auto Ancillary]

Laxman, last question on SMIT, if you can just help us understand how the strength has increased, if it has, in FY '20. And are we curtailing CapEx or OpEx expenditure at SMIT as well this year?

[Laxman Ramnarayan, Group CFO & Executive Director]

In fact, no, not curtailing, point #1. Point #2, though the traction with respect to new product launches would have been a little slow with respect to OEMs, the engagement with OEMs has not reduced, nor has the intensity of engagement with OEMs reduced, for 2 reasons: one, higher amount of localization as compared to probably parts from other countries; and second, the urge to outsource it to -- outsource work to more cost-effective countries like India. The case in point is we are getting a lot of traction on engineering services also from SMIT. And in this, our joint venture partners have been playing a very significant role.So as far as we are concerned, no, investments in SMIT project -- specific project-related activities of SMIT will not go down. As well as there is a positive encouragement for us from engineering services. And Mr. Minda, if you would like to add anything with respect to your vision on SMIT and how you're looking at it, that will be useful.

[Ashok Minda, Chairman & Group CEO]

See, in SMIT, we rather not considering any reduction in this because lot of various projects is already going on. Yes, there is an impact of the COVID, but there are so many other areas other than SMIT or I would say, to reduce the cost for our future establishment, we are not doing that. Rather we are getting the advantage of -- getting the support or getting the business from the joint venture partner also for their support. But there, we are very clear that we have to see our future, as I mentioned you, for the electronic things. There are a lot of things we are doing it. So there, we are not -- and we are very committed because -- to protect our future. Otherwise, it should not be shock and surprise and how to absolutely -- our own products. So there we are continuously giving focus and not reducing any expenditures.

[Operator]

Next question is from the line of Sachin Kasera from Svan Investment.

[Sachin Kasera]

Sir, you have shared the numbers pro forma. So from what I can see, there's almost INR 60 crores, INR 65 crores of interest and depreciation on account of KTSN. Is that understanding correct?

[Laxman Ramnarayan, Group CFO & Executive Director]

Yes.

[Sachin Kasera]

So will you able to give us the breakup how much of that is interest and how much is depreciation on the INR 65 crores?

[Laxman Ramnarayan, Group CFO & Executive Director]

You're talking about for KTSN?

[Sachin Kasera]

Yes, KTSN FY '20. From what you've seen, the EBITDA is the same, but the PBT hit is to the tune of almost INR 60 crores. So that I think would primarily all be because of interest and depreciation.

[Laxman Ramnarayan, Group CFO & Executive Director]

About INR 35 crores is depreciation, and the rest will largely be interest.

[Sachin Kasera]

Okay. So how much is the debt on the books of KTSN?

[Laxman Ramnarayan, Group CFO & Executive Director]

See -- okay, let me rewind. Point #1, the total debt in the books of KTSN was greater than about INR 200 crores.

[Sachin Kasera]

Oh, okay, okay. Got it. Got it.

[Laxman Ramnarayan, Group CFO & Executive Director]

Okay? And -- yes, so out of that, about INR 85-odd crores is which we had guaranteed, which we have repaid. And the balance is KTSN's debt.

[Sachin Kasera]

Sure.

[Laxman Ramnarayan, Group CFO & Executive Director]

So the INR 110 crores -- that's what I said, INR 110 crores will further reduce, from this gross debt of [ mine ] as per audited FY March '20, by about INR 110 crores. It's currently standing at INR 532 crores, that will go down by INR 110 crores.

[Sachin Kasera]

So basically, if we were to just restrict the balance sheet pro forma, from what you have shown, this INR 192 crores of current asset of property, plant and equity will go away, some of your receivables and inventories and correspondingly debt and some current trade payables. And the net effect of that would be reduction of around INR 110 crores in terms of the debt -- net debt?

[Laxman Ramnarayan, Group CFO & Executive Director]

Absolutely.

[Sachin Kasera]

Got it. Got it. Second question was, sir, you mentioned that the kit value has, as you expected, almost doubled. So basically, hypothetically, if the 2-wheeler production was going to be same as last year, this INR 450 crores revenue should have been INR 900 crores. Correct understanding no, sir?

[Laxman Ramnarayan, Group CFO & Executive Director]

Yes.

[Sachin Kasera]

Okay. Secondly, sir, while we understand that this year the volumes could be impacted because of COVID, could you share something in terms of how we -- are we looking at our market share with the key customers? And do we see any major increase in terms of the content per vehicle, excluding the benefit obviously of the 2-wheeler wiring harness?

[Laxman Ramnarayan, Group CFO & Executive Director]

Yes. So I will let Mr. Minda take this question. Over to you Mr. Minda in terms of how we look at customers and in terms of any change in share. And then Mr. Mahajan, you can also add.

[Ashok Minda, Chairman & Group CEO]

See, from the customer perspective, I think that the 4-wheeler -- sorry, the SUV is going to be very much impacted in this year also. And the 2-wheeler will not that much of impact at the end of the year. So from the share of -- and subsequently, tractor is not going to be impacted much in this year also. So from the share of business perspective, we have a different product, different share of business. And similarly in -- other than wiring harness, the -- as I explained earlier also in the past that the security system is going to be changed over a period from mechanical keysets to the electronic keysets, where, again, the content per vehicle is going to increase by double. So that is a matter of time. So we are seeing there the share -- percentage of share will be the same, but the volume will increase substantially. The new product with the customer, the shark fin antenna, which we have mentioned, those -- as well as the interior plastic in India, those will add the share of business at customer end. Neeraj, you want to add further?

[Neeraj Mahajan, Group President of Marketing]

I think -- yes, I think -- Mr. Minda, I think it will be safe to say for the time being, the best of economists are not able to read the market in terms of how it is going to pan out. Everybody is still doing the scenario building, and we have also done the same to see that if we can, let's say, factor what we should produce versus what my customer demand is. When I say that, that means, for example, if I can produce, in my limited capacity, a profitable product or rather a better profitable product than the other one, we are looking at those balances. But how market is likely to pan out, I think Mr. Minda is touching that -- touched that point well by saying 2-wheeler, for sure, due to rural and semi-urban demand for everyone to ride their own vehicle to go to offices or workplace, is going to jump up. But can that be sustained? This is something which OEMs are also studying at this point of time. And my discussion with most of the leadership level at OEM states that they still don't see that hitting the last year number. That means the pent-up demand and certain immediate catching up with the requirements of liquidation of stock from the dealership is being filled up. That will be the 2-wheeler situation. But surely, among all segments, 2-wheeler will be the major recovery segment, and our presence in that is decent. So we should be able to do that. We are only looking at making more profitable products rather making the volume-only and not making that much money. Tractor industry, as Mr. Minda also mentioned, is likely to be the second -- the best-performing segment, and passenger vehicle, 3-wheeler and commercial vehicle in the last. Commercial vehicle, there is an estimation when we speak with some of the OEMs. Somebody is giving an estimation related -- close to about 45% last year fall averaging between one to another, I mean, last quarter, especially, sorry, so 47%, 46%. It is likely that if it falls another between 30% to 40%, it should not be a surprise. So this is commercial vehicle segment. I assure you that we are going to maintain our positions from our customers in terms of this because we are constantly engaging with the customer to ensure that there is no disconnect on account of what they are looking for and what we should be producing. However, segment growth is still very, very unclear situation in our opinion for next 2 quarters.

[Operator]

[Operator Instructions] Next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

[Shyam Sundar Sriram, Research Analyst]

Sir, in the wiring harness, how -- what is the outstanding lifetime orders for 2-wheeler wiring harness? And how much of that order book has actually started execution? I mean, I understand this will take, say, 4, 5 years, considering the current slowdown in this year. But what is the total amount of outstanding 2-wheeler wiring harness order book? And how much of that order book has started execution?

[Laxman Ramnarayan, Group CFO & Executive Director]

Can I request you to just repeat the question a little -- sorry, I lost the contact.

[Shyam Sundar Sriram, Research Analyst]

Yes, sir. So I was asking what is the outstanding 2-wheeler wiring harness order book, lifetime orders. And how much of that order book has started execution already, because all the 2-wheeler OEMs have commenced their BS-VI vehicle production even from the month of February to March. So how much of the 2-wheeler wiring harness order book has already commenced production?

[Laxman Ramnarayan, Group CFO & Executive Director]

I need to check this specific, and I can come back to you on this subject. Just give me some time.

[Shyam Sundar Sriram, Research Analyst]

Sure, sir.

[Ashok Minda, Chairman & Group CEO]

Just otherwise, as a -- otherwise, wherever we were supplying the same percentage of the -- share of business is the same, only the product has changed from BS-IV to BS-VI.

[Shyam Sundar Sriram, Research Analyst]

Okay.

[Ashok Minda, Chairman & Group CEO]

So if you will see the share of business, there is not going to be the impact, but the new business, whatever the customer is making the new vehicle in the same ratio, we are getting our share of business. And as and when they will introduce the vehicle, we have to -- because some customer is delaying their launch, but that will be the same. However, as that number and this, Laxman, you will get back to them.

[Shyam Sundar Sriram, Research Analyst]

Right, sir. Sir, one more question on this EBITDA margin impact. You did mention that BS-VI start-up costs were there. So if you can just help us understand where -- which line items where the cost items embedded? And so I mean, from this quarter or from the second quarter, once the production comes to more of 60%, 60% plus in the 2-wheeler side, will the gross profit or the EBITDA per unit will be the same as what it was BS-IV?

[Ashok Minda, Chairman & Group CEO]

So basically, if you see all our products category, the major changes of BS-IV to BS-VI is in wiring harness. And that is why the impact in the last quarter because most of the customer has switched over the wiring harness from quarter -- from January to March as much because they have to implement the fulfilled logisticals. And customer was very -- not very much clear that do they produce BS-IV, do they produce BS-VI because during this period, the demand was fluctuating very high between BS-IV and BS-VI. So particularly in the last quarter, which the wiring harness has impacted in the last quarter the EBITDA margin, so I'm not very concerned because of the fluctuation. Reason of that is the premium freight, reason of that is overuses of wages cost and so on. And most of the things, whatever we have spent, as Neeraj has explained, we have -- we are going to recover most of those things, which, because of COVID, we could not take it up. So I think, definitely, this is only for that quarter. Laxman and Neeraj, if they wanted to add for this.

[Laxman Ramnarayan, Group CFO & Executive Director]

Yes. Thank you, Mr. Minda. I would like to add that, one is for sure, this is not a permanent scenario. It is only a transition scenario. However, having said that, the time taken to correct this will be a couple of quarters as volumes ramp up. So therefore, in another 1 or 2 quarters, we should expect the wiring harness business to stabilize back to EBITDA numbers that it has seen in the past.

[Shyam Sundar Sriram, Research Analyst]

So sir, when you say a couple of quarters for EBITDA numbers to stabilize, you mean in terms of percentage margin? Or are you talking in terms of absolute EBITDA? Say for example, INR 100 of wiring harness before and vis-à-vis INR 100. Yes...

[Laxman Ramnarayan, Group CFO & Executive Director]

No, no, no. I'm talking about percentage because the quantum is, as I said -- as we all collectively said, is not in our hands precisely, but...

[Shyam Sundar Sriram, Research Analyst]

Correct. Correct. Correct.

[Neeraj Mahajan, Group President of Marketing]

The value is -- this is Neeraj here. The value of the wire harness has -- the constitution of it has very dramatically changed because of the safety and regulation requirements from BS-IV to BS-VI. So the value per wire harness is not going to go down anyway. It is only that we are trying to come back to the same EBITDA margin. So which, in other words, if we achieved the same volume as last year, for example, we should be making net value higher in that case

[Shyam Sundar Sriram, Research Analyst]

Okay. Understood, sir.

[Neeraj Mahajan, Group President of Marketing]

Even by getting the same percentage.

[Operator]

Next question is from the line of Chirag Shah from Edelweiss Securities.

[Chirag Shah, Research Analyst]

Sir, 2 questions. One, sir, for Q4 is there anything one-off or nonrepeatable cost item in other expenses, because it seems to be high?

[Laxman Ramnarayan, Group CFO & Executive Director]

Sorry, sorry. Could you repeat. Sorry.

[Chirag Shah, Research Analyst]

Is there any one-off -- in the Q4 results, the other expense line item seems to be reasonably higher than the normal run rate. Is there anything one-off, which is -- can you quantify that? How much is that?

[Laxman Ramnarayan, Group CFO & Executive Director]

So one-off items, some of the -- there will be little bit of items related to transaction expenses with respect to our European operations impairment and winding down. But yes, nothing which will be exceptionally to highlight about.

[Chirag Shah, Research Analyst]

Okay. But, sir, you have mentioned some BS-VI transition costs and some COVID-related expenditures. So I presume that this could be a lumpy impact, right? And is it possible to quantify that?

[Laxman Ramnarayan, Group CFO & Executive Director]

Just a minute, please. So the total amount you're referring to is INR 10 crores, right?

[Chirag Shah, Research Analyst]

No. The INR 104 crores. INR 104 crores...

[Ashok Minda, Chairman & Group CEO]

We have not understood your question. Can you please...

[Chirag Shah, Research Analyst]

Sir, the -- in Q4, in other expenditure, we have INR 104 crores as expenditure line items, under the heading other expenditure.

[Laxman Ramnarayan, Group CFO & Executive Director]

So last year, I think it was similar number, for FY '19.

[Chirag Shah, Research Analyst]

Yes, but, sir, our revenue this time in volume terms is definitely lower than last year, right?

[Laxman Ramnarayan, Group CFO & Executive Director]

Yes, yes.

[Chirag Shah, Research Analyst]

And you have mentioned one-off costs on COVID support, COVID expenditure. And I presume all that is in the other expenditure rather than raw material, and some BS-VI transition costs also you've highlighted.

[Laxman Ramnarayan, Group CFO & Executive Director]

So there is only some amount -- see, some amount of specific expenses because of COVID and some amount of expenses with respect to our European operational expenses because of impairment. That will be more -- to me in the extent of about INR 10-odd crores. So the rest of the part is normal expenses, yes. That's the break down.

[Ashok Minda, Chairman & Group CEO]

And if you see the last 10, 12 days of -- 10 days of closure in March that we have not done any sale whereas we have paid all the expenditure till 31st of March. So the impact of that amount is also there. So there are something from -- because of the COVID, there are -- the amount which is ramp-up for the -- mainly for the wiring harness and rest what Laxman explained.

[Chirag Shah, Research Analyst]

The second question, in wiring harness, what is the component that we will be buying out while the content is going through, right. How much of that would be components that -- which will be -- which is buyout components.

[Ashok Minda, Chairman & Group CEO]

See, in the wiring harness, there are majority content is of the wire as well as the component which we are also producing, we are importing. So those are the major contribution. And the connection -- earlier, the connection was about in -- particularly in 2-wheeler is from 20 to 25 to -- it has reached -- gone to 40 connection to 45. So connection means the terminals and connectors has increased substantially and that either we are importing that or we have to localize that also in -- over a period because it is a process, so that will further improve our EBITDA in a little longer term.

[Operator]

Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to Mr. Priya for closing comments.

[Priya Ranjan, Vice President]

Okay. Thanks for the management team and thanks to all the participants for joining the call during such a situation. So thank you all. We wish you all the best.

[Ashok Minda, Chairman & Group CEO]

So I would also like to give a closing statement before I conclude this call. I would like to say that please be safe and make sure your families are safe by ensuring proper health and safety precaution against COVID-19. And for the year 2021 -- for financial year 2021 will be really challenging year. But the Minda Corporation is well prepared to tackle the situation and has embarked on the drastic cost-cutting measure as well as tightening CapEx spend and working capital management. We have started a clear strategy to augment business growth, and with our strong balance sheet, we remain fully confident of coming out stronger and better. With this, I thank you, everyone, for joining on the call. Thank you.

[Operator]

Thank you very much. On behalf of Antique Stock Broking Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.