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Ramkrishna Forgings Ltd
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Ladies and gentlemen, good day, and welcome to the Ramkrishna Forgings Limited Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Pratit. Thank you, and over to you, sir.
Thank you, Seema. Good day. Welcome, everyone, for the Q1 FY '23 Result Conference Call for Ramkrishna Forgings. The company today is represented by Mr. Naresh Jalan, Managing Director; Mr. Chaitanya Jalan, Whole-Time Director; Mr. Lalit Khetan, Executive Director and CFO; and Mr. Rajesh Mundhra, Company Secretary and Senior GM Finance.
Now I would like to invite Mr. Lalit Khetan for his opening remarks. Over to you, sir.
Thank you, Pratit. Good evening, and a very warm welcome to everyone present on the call. We hope and pray for the safety, health and security of you and your loved ones. Along with me, I have Mr. Naresh Jalan, our Managing Director; Mr. Chaitanya Jalan, Whole-Time Director; Mr. Rajesh Mundhra, Company Secretary; and SGM, our Investor Relation advisers. I hope you all have received our investor presentation by now. For those who have not, you can view them on the stock exchange and on the company website.
We had a strong start for the financial year with the revenue increasing by 57.62% in Q1 FY '23 over Q1 FY '22. The growth was driven by both volume growth as well as value growth. During the quarter, we registered a 221 basis point improvement in capacity to 77.97% as compared to 75.6% in Q1 FY '22.
We believe that the new order wins, we will keep improving our capacity utilization, which, in turn, will lead to higher operating leverage and margin expenses. During the quarter, we won 4 new contracts totaling to INR 388 crore from Europe and North America, boosting our order book.
Further, our products have been well received and are generating a lot of interest in the international market, which has resulted in new business contracts from North America as well as Europe. And also during the quarter, we have received a new business order for differential housing case, which has enabled us to move up the value chain and diversifying our product portfolio.
In line with our capital allocation strategy, we have reduced our debt for the quarter by INR 30 crores. Whereas, on the dividend front, the Board of Directors has declared an interim dividend of INR 0.50 per equity share of face value of INR 2 each.
In terms of industry dynamics, commercial vehicle in United States increased in the June quarter when compared to previous year. Truck manufacturers are expected to increase production in the second half of the year on the back of pent-up demand for new trucks as well as fleet replacement.
In domestic market, MHCV recovery is on track as the freight rates improve and freight operators gaining financial stand. Demand in the entire CV segment remains strong, which benefits component suppliers like us. We expect Indian CV market to achieve a good grade in the upcoming years.
That's all from my side. We can have now open now the floor -- open the floor for Q&A.
[Operator Instructions] We have the first question from the line of Mumuksh Mandlesha from Emkay Global.
Congratulations on the good results, sir. Sir, first question is, can you share the outlook for CVs in North America and Europe markets? And how is the traction with the new customers there? Also led with China Plus One strategy and supply chain constraints, what kind of outsourcing opportunities are we witnessing with the customers?
Right now both in North America as well as in Europe, I think, with the chip issue getting sorted out, I think there is a good demand, and we are seeing OEMs manufacturing more and more vehicles. And demand for the full year as projected is going to be robust. And in terms of supply chain constraints, I think we are seeing a lot of supplies moving to India from other places of the world and Indian manufacturers getting benefited with this.
And sir, can you talk about the opportunity of the Railways segment for both in fabrication and the Component segment side? And also within industries, which are the subsegments witnessing growth? And can you share the outlook for them?
In Railway, company feels that we will be able to 100% grow on what we did last year. And the pipeline and the order book shows that right now, the manufacturing of new coaches as well as wagons have improved considerably and government allocation for new money into this has become extremely good. So we feel that demand from railways are going to be very high. And company expects to double, in absolute terms, the top line what we did last year and this year.
And for other industrial segments, sir, can you share which are doing well and what's the outlook there?
We don't have any figures in terms of industrial segments. We cater to as and when requirement comes. So it is extremely difficult to plug a particular industrial segment. Overall, I think demand side, you have seen good demand in the industrial segment.
We take the next question from the line of Mr. Abhishek Jain from Dolat Capital.
Congrats for a strong set of numbers, sir. Sir, we have seen a 330 bps quarter-on-quarter jump in the gross margin despite because geographic mix, product mix and the higher power cost. So what is the key reason of the gross margin expansion and will it be sustainable?
Yes, Abhishek, the gross margin, I think, is here to sustain. And I think we can expect this level to remain elevated for the full year.
But this quarter, we got the benefit -- significant benefit of the change in the inventory this quarter. So will it be sustainable, gross margin in the coming quarter?
I couldn't understand. Change in inventory means, I could not understand?
So we have seen the benefit of around INR 70 crores because of the change in the inventory in the PL.
Abhishek, that's not a benefit that's extra production over sales. So that's overall gross margin has improved in terms of as we have improved our overall gross margin by almost 200 basis points. That's why you are seeing this performance.
So sir, what is the reason for this expansion in the gross margin despite this weaker geography mix and the high power cost? Because -- is it because of the better -- increase in the turnover from the heavy [ press ] line.
No, Abhishek, I think it is a pre-mix. As new order wins is getting converted into regular production and as we move up the value-added chain, I think that's the reason gross margin is improving.
Okay. And sir, this quarter, we have seen an improvement in the business from the Europe. So currently, rising cost in Europe is a big challenge. So how is the outlook for the export in Europe for the forging company?
I cannot tell about the forging companies, what is the prospect. But as far as RKFL is concerned, we expect this full year our sales to both North America and Europe are going to be robust.
And what would be the reason for this -- although the truck sales has a slowdown right now in the Europe because of the -- many trucks are stuck because of this ongoing war in this Russia and Ukraine. So don't you see there will be impact of it in your business as well?
I am not -- I don't know about how the impact is on what it is, what you are trying to make out of it. But as far as RKFL is concerned, we project that our sales to North America and Europe are going to remain robust. The order pipeline which we have and the customer feedback, what we have is right now that we continue to write the value-added chain and continue to outperform the segments over there.
So how much growth can we expect in export, in FY '23, sir? Can you give some guidelines?
No, I cannot give you any guidelines right now. But whatever right now you are seeing it is going to -- it is a sustainable performance and you will continue to see this kind of performance going forward for the entire year.
Okay, sir. And sir, we have seen a sharp fall in the steel prices in India and globally. So what impact do you see...
In automotive steel in India, there has been no correct -- price correction yet. As of 1st April, the price remains as such as of today.
So now the steel prices has gone -- I mean, the HRC prices has gone down to INR 52,000 versus the INR 76,000...
Abhishek, I think HRC pricing is not relevant to the automobile -- automotive component industry. So I would not like to comment or I'll not be able to comment on HRC products.
Okay. Just I wanted to understand the impact on the top line and the margin side of -- because of the correction in steel prices. So what generally happens when the -- there is a correction of steel prices -- what would be the impact...
Steel prices remain unchanged as was this since 1 October 2021.
Okay. So going ahead, the realization would continue to be very strong in both domestic and the export side?
It is going to -- the current realization is going to sustain.
We take the next question from the line of Mr. Mitul Shah from Reliance Securities.
Congratulations on a very strong performance. Sir, I have two questions on the business side, though you highlighted on the Class 8 truck side and overall business performance. What is the view on the LCV segment? And what is our current status in terms of we were planning to ramp up this segment revenue?
Already LCVs, the product mix change, which I elaborated in the earlier question, is related to LCV itself. There has been a huge change in terms of our product mix, and that's already showing up in terms of our realization and in terms of our top line and that is mainly driven by volume growth in LCV segment.
And in terms of Class 8, I cannot define what Class 8 is doing because we are not a significant player only in Class 8. So overall, in terms of North America, I think we are doing extremely well, and we will -- we foresee in near future to do continuously good in North American market.
How much would be LCV contribution in this quarter, approximately?
About -- it should be closed to around 5% to 6% in the export portfolio.
5% to 6%?
Roughly.
Yes. Yes. And on the non-auto side, though you highlighted about the Railway segment, sir, oil and gas segment contribution has almost double, more than double in this quarter compared to last year. So it is a very small in terms of overall, it's just 2%. So what is your view? And can it become a significant?
Yes. Oil and gas will continue to grow. And I think probably in this quarter, you will see further growth from what we have done. We don't look at things in terms of percentage, but in absolute terms, oil and gas is going to grow further in this quarter and it will continue to grow for the entire year.
And this entirely North America, again?
Yes, it is entirely North America.
So here, sir, are we growing with the existing client or we are adding any -- we have added any major clients that's why it has increased or anything?
Our endeavor is to add and keep on growing with the existing clients also. So I would not be able to comment on exact clients, but we have already been doing a lot of press releases in terms of addition of new clients. So it can be a factor of both addition of clients as well as growing into a particular client also, existing clients also.
Sir, you have highlighted in your key initiative, EV, ESG and also can you throw some more light on what is our presence at present? And what is the...
We've already clearly mentioned in our presentation EV programs which we are running globally and where we have added. I think, in North America, we have added the programs and how many customers we have both, we have mentioned very clearly.
And EV continues to be a very small portion right now of our total business, in terms of percentage. But we feel that as the market grows, we will continue to keep on adding EV in terms of our portfolio.
Sir, the question on this presentation only. Sir, in case of realization, export realization has come down. Volume growth is there, but this mathematically it's not matching with our export revenue which has reported high growth again.
For example, export revenue growth is around 13.4%, but volume growth is just 12% and even there is a realization pick up. Volume decline is 4%, realization growth is just 12.3%. So how this revenue can be 13.4%? Basically, revenue growth tends to be slightly higher after doing this calculation of ASP as well as volumes. So anything we are missing out on this, sir?
No, no. So here, the total export includes also the freight, which I think you have to eliminate to arrive at the real value. But we have to do the adjustment for the freight realized were total export sales. This quarter, the export realization and last quarter export realization has an element of freight realized from the customer and that adjustment has been arrived at, that's why it will not exactly match.
Okay. And sir, lastly, on this, again, production in terms of tonnage as well as sales. This time also, it is 36.4% is a production, whereas sales in 30.5%. So this, as a percentage, like wastage has come down, it seems like that. So final output as a percentage of the production tonnage seems to be slightly higher this quarter compared to last year as well as the previous quarter. So any change because of the product mix or any process change or what is all or is there anything related to inventory?
Certainly, it has more to do with inventory only. We can see that there is increase in inventory.
Okay. So no major change in terms of a process or where wastage is coming down or anything.
There may be marginal numbers on that side, but major is from the inventory side only.
Sir, lastly, just thought process. In case the U.S. enters in recession next year, if at all, so based on your past experience or past 1 or 2 down cycle, then all these orders of Class 8 truck and all those, how this cancellation, or either percentage, how much do you experience cancellation goes from the peak level of orders.
I think we don't work with in case in our mind. So I would not be able to tell you what exactly will happen. But as far as projections and other feedback we have from the customer, we remain bullish on the current output and offtake by the customers. So we don't foresee any challenges right now for the next 3 quarters. And we will see as the time arises. I think right now, in case cannot be built in our business plan.
Yes, but, sir, based on past experience, you must have observed whenever any such thing happens, so what has been this percentage of as a cancellation?
No, I would not like -- I will not be able to comment on this.
We take the next question from the line of Mr. Saket Kapoor from Kapoor & Company.
Sir, firstly, sir, what are the key reasons for realizations being up for export? Is it the currency part or the product mix, particularly that gives a difference -- higher realization for the export?
It is both. It is a mix of currency as well as product change as we are -- our offtake in oil and gas has improved, the realization is better in oil and gas and as well as light vehicle has contributed higher sales in North American market. And new customers entry at a better pricing in Europe market also helped. It's a cumulative effect of both currency as well as better realization from the customer itself.
And sir, you mentioned about order intake of INR 388 crores in your release. So what is the current order book, sir, as on Q1? And what is the export and domestic mix there, if you could throw some more light?
No. We don't have any kind of order book right now. We don't maintain that. Our new order means is basically what Lalit has mentioned, it is basically an estimated annual volume uptick, which customer gives us. And based on that, we start the development process. Basically based on that, Lalit has given you a INR 388 crores order win.
But we don't have as such because automotive schedules work on basically monthly schedules. So we don't have that kind of stake that this is my order book or we do not have an approximate valuation to that.
So sir, [Foreign Language] INR 388 crore order book [Foreign Language] this is for an executable period [Foreign Language] When is it going to get executed?
It is samples and productions have -- are going to start. Executive period is going to start from next year, and it is a -- some contracts for 3 years and some contracts are 5 years. So this is what is our annualized volume, estimated annualized volume.
So this order execution will start FY '23?
Yes. No, we are already in FY '23, we [indiscernible] start in FY '24.
'24. Okay. So this is only an indication that you have given to us. Whatever business we are going to do over this period of time that is different and then what this order is giving. [Foreign Language] visibility is only for next year?
[Foreign Language] visibility -- estimated visibility for next year [Foreign Language] from the new customers.
Okay, sir. And [Foreign Language] what is the mix. Is it to totally export part or...
Entirely export. This is entirely export.
Okay. Sir, in your opening remarks, sir, you were answering one question that the railway top line is going to double from what you did last year. This is what you indicated in the railway business?
Yes. Correct. Yes.
And it is 1%, I think, in your presentation was mentioned. So what was the absolute number, sir, last year?
Last year number for the railway, you are looking at correct?
Yes, sir. Yes, sir. Revenue number.
I think last year number was somewhere in the range of INR 50 crore.
INR 50 crore. Okay. Sir, can you give the net debt number, sir, for this quarter, sir?
This quarter, net debt number is around INR 1,300 crore.
And sir, the split between the same, what is the working capital? What is the long term and the cost of borrowing?
See, the total borrowing is INR 1,300 crore is a mix -- because see, if you look at the last quarter number, it was around INR 990 crore of the long-term against short-term. Long-term debt has gone by the INR 30 crores and short-term debt remain at the same level almost, okay? And the cost of borrowing has certainly marginally gone up in this quarter by 40, 50 basis point. The full impact will not come in this quarter for that.
But blended cost of funds [Foreign Language] sir?
Blended cost of fund [Foreign Language] I think it's near to 7%.
Okay. It's at 7%. And this rating -- post this rating [Foreign Language] So we are not expecting any lowering now? Whatever hike will happen...
Yes. Interest rate is not going to go down right now. And whatever we can pay further that will have an impact on the borrowing cost.
So what should be the targeted level, sir, for this INR 990 crores for end of FY '23?
See, what we are clearly shared in our capital allocation is clearly a major amount of earnings will go for repayment of debt, and we are targeting ourselves to become net debt-free in the next 3-year time.
So we are reiterating that, and we are working on that. And you can see quarter-on-quarter reduction in debt level. So full year number, I think we still -- we should wait for 1 more quarter so -- to have a full year number on the debt side.
And basically, what we -- Lalit wants to say, from operations, we want to be debt-free in the next 3 years' time. There is no -- he's not building in any capital raising to be debt-free in the next 3 years.
Okay. Sir, and there's seasonality factor as we've built up inventory that was also evident last June. I think the last June COVID factor [Foreign Language] So is there a seasonality factor that plays out for us in our business or it is a linear quarter?
It is an ongoing process. It is an ongoing process, and we don't play basically on inventory or anything. It is an ongoing process. It's in a first in, first out basis.
Okay. So what's this inventory buildup is indicating?
The inventory buildup is not -- it may not be only at the current plant level. It may be at the warehouse in the -- at the customer end, which is our RKFL and LLC. So I would not be able to exactly say where the inventory lies right now. So there can be mix of plant inventory as well as inventory line at the customer end.
And lastly, sir, on the raw material basket, sir. What constitutes the major raw material and how are we sourcing them?
No. I think raw material prices are -- we feel that -- I would not be able to comment on what is going to be market in terms of steel pricing. But we feel that steel -- for us, steel pricing would remain stable.
The constitution of the raw material basket, what constitutes that, HR, PR, what is...
No, it is long products, basically forging quality steel.
And everything is sourced domestically only, sir? Does it depend upon the raw material...
Yes. No. 100% source raw material domestically.
And number of players from whom we are sourcing? How many players?
I think we will not be able to comment on this.
Okay, sir. So sir, as you were -- you explained to us in your opening remarks and also reiterated the fact about debt reduction and continued good numbers or maintaining these numbers. So what are the key risks to your projection, sir? [Foreign Language] so what are the key risks, God forbid that, that may play -- may not play out going forward? And...
Basically, God forbid, if we exist, organization exist, performance will come. If we don't exist, organization does not exist, results will also not be there.
[Foreign Language]
We feel that the business environment is extremely conducive and demand will remain robust. That's what we have from our customer end and that we can assure the investors that, that is what is there right now in pipeline feedback we have.
Correct. Correct. Correct. And for the CapEx part, how much goes into the maintenance CapEx currently? And any further capacity augmentation we are looking, sir?
No. Right now, if you see our full year presentation last year, we have already outlined our capital allocation policy, and we stick to that. Based on that, whatever cash flow permits we will go ahead and do CapEx -- we continue to augment capacity, create capacity and grow the company.
But everything will depend how the cash flow permits and based on cash flow permissions, post debt reduction post paying dividends to investors or whatever cash flow is there, we will plough back the cash to the company to augment capacity.
And what is the maintenance CapEx number, sir? Any numbers -- absolute number you can share?
It should be around INR 70 crores to INR 80 crores, maintenance CapEx.
INR 70 crores to INR 80 crores. And sir, with this reduction of debt and over -- quarter-on-quarter, which from the cash flow you would be reducing, as a percentage of sales, how should we look at this finance cost number also, sir? Last year, it was absolute number was INR 153 crores, so for this...
Last year, the number was INR 93 crore on the finance costs, right? And...
Sir, consolidated number...
See, if you look at the consolidated number, the last year number was 100 -- INR 96 crore was the last year consolidated number.
Yes, sir. Right. Understood.
And this year we have come INR 26 crore in the Q1. And it looks like to remain at the current level only view. And even if there will be an increase in interest cost, we will be able to save that by the paying in -- reducing our debt. So this will not go up from this level. I think we will be somewhere in the range of INR 100 crore, INR 105 crore for the full year.
We take the next question from the line of Shubhankar Sharma from Motilal Oswal Private Equity.
Sir, we do not have any response from his line. Moving to the next question. We take the next question from the line of Smita Mohta from Kredent InfoEdge.
I wanted to ask one question that is, as the management is saying that the financials are supposed to remain the same for the next year that we are expecting, which means...
Ma'am, Can you be -- ma'am, you are not audible, ma'am.
Okay. Am I audible?
Smita ma'am, your voice is very low. Could you be a little louder?
Yes. Am I audible now, ma'am? Hello, am I audible now?
Yes, yes. Better now, yes.
Yes. Okay. So I was asking, as the management is saying that the -- the financials for next year, is expected to be similar to this year's results, if I may say so. So which means that the revenue would be rising nearly around 67% and the margins at 22%. Is that what the management is meaning? Just wanted to confirm the same.
I am not able to understand the question, ma'am.
Sir, the question is that for the full year FY '23, right, so if the -- if you all are suggesting that the financials are expected to be same, so should I assume that as the revenue for the full year has risen, it will be in the similar lines for the next year also?
Ma'am, I'm not commenting on FY '24. FY '23, what we comment right now is that next 3 quarters are going to be on the expected lines, and we should outperform the expectations and what results have come out today is sustainable and it will continue to grow in this fashion throughout the year.
In terms of FY '24, we feel that market, as today, is extremely good. And if this continues, company is going to grow further from where we end FY '23 at.
Correct. So what I was suggesting, sir, is that if we look at the Y-o-Y revenue, right, it has risen by 67%, so are you commenting that the next 3 quarters also your revenue would be rising in the similar pace?
In terms of percentage, I'm not telling anything. In terms of absolute number, yes, we will be able to sustain the current revenue mix as well as the margins for the next 3 quarters.
Okay. Could you bifurcate, sir, the Class 8 truck sales order that you received from your revenue? Like what is the percentage of Class 8 truck orders?
No. No, no, we don't have any breakup in terms of Class 8.
Okay. And margins for the full year, is it expected to be at near around 22%?
We will be able to sustain the current levels of margin for the entire year.
[Operator Instructions] We take the next question from the line of Mr. Kushal from Motilal Oswal.
Regarding -- I wanted to understand regarding the realization when we say that we expect the current realization to sustain then maybe how we are expecting the railway orders to improve to 2x. Is it because of the order flows from the government or we are increasing the penetration in the segment? And the other thing was five factors [indiscernible] list which can be the most contributing to the growth over 2, 3 to 5 years?
In terms of railways, with the new fabrication ability being commissioned in the previous year, we have started getting good orders from railways, and that is showing up in our balance sheet in terms of growth in railways. And I think we will continue to grow in railways in a significant way with the current business environment in the way.
So I think for next 2 to 3 years, we can comfortably say that railway is going to be doing extremely well in terms of our overall portfolio. In terms of 3 to 4 years' growth plan, I cannot say what is going to happen next 3, 4 years. I would be able to comment on the next 3 quarters, and we expect if the economy remains as such what it is today. We can do extremely well in FY '24 also.
Sir, let's project about the external factors...
Can you be a little loud, please? We are unable to hear you either from the handset or...
Sir, I'm not telling about the external factors, but internal factors where you are considering the next leg of growth to come over 3 to 5 years, like?
No, internal, both in railways, commercial vehicle -- and we have entered the light vehicle in Indian segment also, and we are trying to penetrate in the passenger vehicle in a significant way. Right now, passenger vehicle is insignificant for us.
We are trying to grow our passenger vehicle segment, but it is still absolutely very nascent to for us to comment on a significant portion in passenger vehicle. And tractor has started doing extremely well for us. So overall, we see the domestic market will outperform in next 3 to 4 year's time.
Sir, and the realization sustainable -- sustainability, how we are expecting that?
With the current steel pricing, we are not expecting any prices to go up or go down we expect the realization to sustain at the current levels for next 3 quarters, at least.
We take the next question from the line of Harmit Singh, he's an individual investor. Due to no response, we move on to the next question.
The next question is from the line of Taral Shah from Kitara Capital.
Yes. This is -- hello? am I audible?
Yes, sir. Please, go ahead.
Yes. So this is your export order book. So the last 5, 6 quarters, your volumes has remained at around 10,000 tonnes per quarter. So when we say there is a strong demand from export market, so why these numbers are not increasing?
We are unable to hear the question even.
See, for the last 5, 6 quarters, your export volumes have remained around 10,000 per quarter, right?
Hello?
Hello? Am I audible?
Yes, you are audible right now.
So what I'm asking is for...
Hello?
Sir, Mr. Taral's line just got dropped. We're trying to reach him back. We take the next question from the line of Mr. Dipen from DS Investments.
I had a couple of questions. Firstly, on the fundraise side, we were expecting some announcements from the company about the fund raise, either by way of bonds or equity. So if you could just throw some light on what should we expect out of that? And the second question...
We have dropped our fundraising plans right now. With the current performance of the stock, we feel -- and the expected business volume for next 3 years, we don't expect any fundraising at the current moment.
Okay. Because I think yesterday, you had intimated to the stock exchange, you were going to discuss about fundraise.
Yes, we've given a press release today. I mean, that there is no resolution in terms of fundraising.
Okay, okay. And the second thing you have partly answered about the current year's growth rate. In the last couple of calls, we have heard you telling about 20%, 25% growth in the current year. The first quarter has been way beyond that. So anything further qualitative you can tell us about what we should expect for the current year?
We have already elaborated that the current performance is here to sustain, and we will be able to outperform going into next 3 quarters also.
We have Mr. Taral Shah connected in the question queue.
Got disconnected. So my question was regarding export volumes. So for last 5, 6 quarters, our volumes have remained at 10,000 tonnes per quarter. So when you say there is a strong order from the export market, then why our numbers have remained at this level?
No, I think the product mix keeps on changing. The tonnage becomes insignificant. In terms of revenue -- overall revenue, you will need to see vis-a-vis what is the market condition in the particular geography. While we continue to say that demand is robust, I do not say about what is happening in this country in terms of economy. I can say what we are doing in terms of our sustained growth in that geography. So we are not talking about the entire country or as an economy or a sector we say that we continue to maintain sustainable growth in that geography, and our demand is robust.
So my pipeline is there. And product mix in terms of tonnage LCV parts are low at oil and gas, there are low weight parts, so volumes in that are going up, that may not add volume. And other -- some sectors may not be performing so their volumes of may go down. In terms of absolute number in rupee terms, you need to see what is the growth.
Okay. So for over the next long-term, I mean 2, 3 years, export can contribute how much?
I could not understand you.
Sir, so for next 2, 3 years, when we see export is contributing around 30%-or-so of the revenue, right? So how much can increase from current level?
So we will -- the way the company is growing right now, we can safely say that we will be able to maintain this kind of premix, maybe 3% or 4% up and down, but 30% to 40% is going to be the range of exports to the top line.
Okay. So the moment your export contribution increased from current level, so working capital days will increase or reduce?
No, working capital days in exports are higher. We are not doing any bill accounting or anything. So working capital days in terms of exports are higher, and that has been mentioned in the last several calls, we have had that export debtors have at least 110 days to 125 days cycle in the minimum and it can go up to 150 days also.
It can go up to 150 days. So there is no scope for improvement from current level, right?
No. In export debtors, we don't see any improvement in terms of debtor days in exports, unless we start doing factoring or discounting of the business which is not in our current plans right now.
We take the next question from the line of Sangeeta Purushottam from Cogito.
Sir, I just wanted to understand your capital allocation policy a little bit. Now what you said is that whatever cash flow is generated will obviously go partly to pay dividend, partly for debt reduction, you will have some working capital requirements from there and the balancing factor will be CapEx. Have I understood you right?
Ma'am, we have said -- if you see my presentations for last full year, we have mentioned complete capital allocation policy. We have mentioned that part of the cash flow is going to be paid for debt and working capital and then dividend payout and whatever after dividend, post dividend payout, we plot in terms of augmenting new capacity or in the plant.
Right. So sir, my question is that if you're looking at the outlook in positive...
Your voice is breaking, ma'am.
Can you hear me?
Yes, it's audible now. Please...
Can you hear me?
Yes, ma'am, please go ahead.
Hello?
Yes, we can hear you.
Hello, can you hear me?
Ma'am, you are audible, you may go ahead, please.
Okay. So sir, my question is if that is the case, if you're looking at the business outlook, which looks quite promising for FY '23 but according to you for the next 2, 3 years as well, will you have enough funds available to fund the CapEx requirement or won't you need to borrow them to do it and therefore, debt reduction may not be that appropriate if you're looking at strong opportunities?
Ma'am, with the current business plan and scenario, what we are working on, we are working on basically debt reduction for next 3 years and that's the policy which the Board has evolved in. And whatever cash flow is left, I think that should be sufficient enough with the projections we are working with our marketing team to funnel our growth for next 3 years.
Okay. So if I may just add -- ask another question related to this, what kind of capacity expansion are you planning over the next 3 years?
Ma'am, we may not be -- in terms of tonnage, it may not be significant. I think we are not looking at augmenting a huge tonnage in capacity in terms of tonnage. We are looking at adding more capacity in augmenting automation and value-add in the products. So that -- and which will improve bottom line more significantly than the top line.
We take the next question from the line of Harmit Singh.
[indiscernible]
Mr. Harmit, can you hear me, sir?
Yes.
Sir, please go ahead with your question.
[indiscernible]
No, no, Mr. Harmit, you need to be quite louder. You are very, very low. You are very, very low. Your voice is very low.
Hello, Mr. Harmit?
[indiscernible]
Not at all. No, I'm not able to listen at all.
Sir, just give me 1 minute. Hello, Mr. Harmit?
I think can you move to the next question, please?
Sure, sir. We take the next question from the line of Mr. Mitul Shah from Reliance Securities.
Sir, just as you mentioned that there is the requirement of the tonnage capacity addition. Sir, when I look at your presentation, your ring rolling and forging has been always in the range of 100% to 115%, even 125% of utilization. So just want to understand up to what maximum utilization can we go for these 3 segments, ring rolling, forging and press, in terms of above 100% what maximum possible?
No. I think while we say that we are not in terms of adding capacity, we also have said that we are working in terms of automation and value-add. So I think that is what is the target of the company for the next 3 years. And in terms of adding capacity in ring ruling or in press, I think it's a marketing call we right now do not foresee any reason to augment fresh capacities in these places.
So we will stick to what we have right now. And in case we changed our policy or in case there is a new thought process in marketing, we will come back to the investors and inform them.
Yes, sir. But in this, for example, ring rolling last year, same quarter, we went up to 125% utilization. So what is maximum possible utilization level in case if demand is high, then can we go up to 150...
No, I think it all depends on the product mix Mitul. I think it does not depend -- if we get all the products on -- whenever we declare capacity is at the mean level. It's not at the top level. So it depends on -- if all the quantity comes at the top most weight level, it may go up to 130%, 135% also. But it all depends on the product mix we have right now, and we do not have any visibility in terms of on a monthly basis. So we cannot change that or we cannot do anything about that.
Sir, what about machining capacity right now, utilization?
I think right now, machining capacity is 100% is being utilized.
So there, any ramp-up or capacity addition required?
That is what I said that we will continue to add capacity in value add. So value-add means it's machining or something related to machining only, we will keep on adding capacity.
And sir, in your presentation, you mentioned about key focus area along with the EV and niche product, you stated we'll focus more on the high-margin segments now. So which are the high-margin segments or products or can you highlight just 2, 3, top 2, 3?
No, right now, key initiatives, what we highlighted is that we are looking at getting into more assemblies right now of the components which we are making and also EV products, which are coming into their high margins as well as oil and gas is high margin.
Sir, any plan to come out with a more subassembly type of things rather than only component?
We have already started into sub-assemblies and full complete assemblies. So the company always looks at opportunities to improve product mix. So that is an ongoing process, which we always keep on doing.
That must be high margin relatively, right?
Yes.
Sir, we have Mr. Harmit Singh.
In which type of product you are catering the EV sector...?
I think [indiscernible] line, there is some problem in the line.
With Harmit Singh, I think there's a problem. Better can you check it and then connect it, please?
Yes. Sir, I couldn't hear him, Mr. Harmit?
In which type of product you are catering in EV sector?
Mr. Harmit, we are not able to hear you. You're not audible.
Mr. Harmit, I would request if you could join back with any other alternate device because your line is not audible, sir?
Which type of product you are catering in [indiscernible]
Sir, you are breaking up, sir.
I think...
Sir, we take the last question from the line of Mr. Saket Kapoor. This is a follow-up question.
Yes, yes. What Mr. Harmit was trying to say was the product category in the EV sector?
I think product -- we are -- we cannot comment right now because EV is a very, very confidential portfolio for us. So we would not like to comment on what product portfolio we are going as in EV right now.
Okay. And out of the total order book mix or the visibility which you have, what would be the contribution from EV? It will be a very small portion only, sir?
No. I think in the last full year presentation, we have already given our growth plans in EV. I think we are looking at close to around -- in terms of percentage, if you look, I don't have it right now in front of...
No, it's 3.5% for the full year FY '23 for the turnover, we are looking in the EVs and 6% in FY '24.
Sir, about this other income part, if occurrence happens in the first quarter, what is the nature of this other income, sir?
It may be some insurance claim or a little bit -- that may be a small claims set.
Okay, sir. And sir, about the earlier participant did spoke about the utilization levels between the product, which will be again ring rolling, forging and press. Why only the press side, sir, it remains in this vicinity of, say, 50% to 65% only if you could explain? Is it -- it depends totally on the product mix that is correct. But the [Foreign Language] it is only for the numerical purpose only? And...
No, I think it is a numerical purpose only and is based on the product mix, but you will be able to see in continued quarters improvement in press utilization also.
Right, sir. Sir, and for the ForEx impact, sir, since the rupee has depreciated, how do the depreciation of rupee affects our earnings, sir?
I think we have already -- a couple of times we have said this in our calls that for rupee, we do not take a call in the ForEx side. Basically, our policy -- and we follow with the customer that every quarter, the ForEx is plus/minus 5% passed on to the customer. Whatever it may be, it may be appreciation or depreciation it's passed on to the customer.
Sir, come again, I missed your last line somehow. The ForEx rate?
ForEx is passed on every quarter to the customer plus/minus 5%. So we do not take any call on the ForEx side.
Okay. So -- and there is no liability also unhedged part generally because everything -- because you are sourcing everything domestically, so that does not play out for us?
Yes. There is no liability in terms of hedging.
Right. Sir, when we look at your last year number for March -- say, for the full year March '22, and the first quarter -- the first quarter, do the first quarter was -- June was badly affected by the COVID, so it is a noncomparable quarter, June '21?
Domestic market was bad due to COVID on that time. Export was good. Because India was impacted by the second wave of COVID. So that was having some impact on the sales on the domestic side in last year.
Because, sir, why I asked this question is because since you are saying -- you were explaining to us that for this quarter, the revenue and the bottom line which we have maintained, that's going to get -- it's going to be maintained. But when we look at the -- your number for the last year, it has improved sequentially on a larger trajectory for posting the INR 253 crores PBT number, the second, third and fourth quarter were indiscriminately very high.
But if we even extrapolate our annualized this first quarter number, the growth numbers vis-a-vis the March numbers are not looking very high. So just wanted to understand how this linearity is going to play out. We would have some big quarters during these 3 coming quarters?
We will continue to grow quarter-on-quarter. What I have said that we will -- to the question which was asked whether we will be able to sustain, yes, we will be able to sustain what we have done in this quarter. But I have never said that we will not grow from here. We will continue to grow company projects and company [ advertises ] that we continue to grow quarter-on-quarter. And -- with the current order book and plans, we are very confident to achieve higher growth for the full year.
Correct, sir. Sir, when we read your rating the analysis therein they have this high customer concentration part is mentioned, wherein Tata Motors, as you mentioned...
I would not like to comment on any particular customer on any...
This is very well documented, sir, in the rating [indiscernible] that's what I was referring to. If you allow -- I mean refer it or not then that's all for me.
No, you can refer it, but we will not -- I will not go to answer any questions related to that.
Okay. Because they have mentioned it that they accounted for your revenue of 25% and -- 27% for FY '21. So I was just looking with this improved revenue which you are guiding to us this percentage -- this [ diminishing ] factor will continue or Tata Motors business will also be equivalent -- you will have the same share of pie, but since you don't want to comment on your customer...
No, I would not be able to comment on any brokerage report or report you are referring to. And...
And I'm reading the India Rating report.
No, no. Anything on that sort, and I would not be able to comment on any particular customer.
We take the last question from the line of Karishma Makhija from Motilal Oswal.
Sir, the gross margin from Q1 '22 to '23 there has been a drop of close to 6%. What is the main reason driving this drop?
And two, on the EV segment, which is the subsegment in EV, especially from an export perspective, we feel that there will be significant growth in the coming quarters? Is, it LCV, is it tractors or trucks or what is your view, sir?
No, in EV, we are right now working with 3-wheeler, 4-wheeler and small truck markets. But I cannot comment because it is very extremely confidential. So I would not more elaborate on this portfolio.
And in terms of gross margin, I think you are seeing it vis-a-vis the last FY '21 Q1 in that domestic market due to second wave of COVID was down, and that is the reason export as a percentage of sale was more than 50%.
So that's the reason gross margins in export realizations are better. And that's the reason in absolute term realization went up or gross margins went up. But if you see -- compare it with the last quarter of FY '22, you will be able to see we have grown in gross margin on a Q-on-Q basis.
So you're saying that the export...
Hello?
Yes. So you're saying that in Q1 FY '22, the exports were higher versus domestic giving the second wave of COVID, and...
Q1 '21.
Okay. I'm looking [indiscernible] gross margin was around 60.5%.
Yes, it's Q1 '22 our gross margin was 60% because in exports, you have a value of freight also in the realization that's why raw material cost goes down, that's why operating margin looks higher as in the entire mix, the export was higher than the domestic. And in the current quarter, it's reverse.
That was the last question. I would now like to hand over the conference to Mr. Lalit Khetan for closing comments. Thank you, and over to you, sir.
Rajesh, please.
Yes. We take this opportunity to thank everyone for joining the call. I hope we have been able to address to all your queries. If you have any further queries or information, you can get in touch with us or SGA, who is our investor relationship advisors. Thank you very much for attending our call. .
On behalf of ICICI Securities, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.