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Ramkrishna Forgings Ltd
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Ladies and gentlemen, good day and welcome to the Q4 and FY '23 earnings conference call of Ramkrishna Forgings, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Chirag Jain from Emkay Global Financial Services. Thank you and over to you, sir.
Thank you, Darwin. Good evening, everyone. On behalf of Emkay Global, I would like to welcome you all to this earnings call of Ramkrishna Forgings Limited. Today we have with us…
Mr. Jain? Ladies and gentlemen, the line for the management and Mr. Chirag Jain seems to have disconnected. Please stay with us while we reconnect with them.Thank you for your patience, ladies and gentlemen. We have reconnected with the management. Over to you, Mr. Jain.
Thank you, Darwin. Apologies for this inconvenience. The line got disconnected.Good evening, everyone. On behalf of Emkay Global, I would like to welcome you all to this earnings call of Ramkrishna Forgings Limited. Today we have with us from the management team, Mr. Naresh Jalan, Managing Director; Mr. Lalit Khetan, WholeTime Director and Chief Financial Officer; and Mr. Rajesh Mundhra, Company Secretary and Vice President, Finance.I shall now hand over the call to Mr. Lalit Khetan for his opening remarks, post which we will open the floor for Q&A session. Over to you, sir.
Thank you, Chirag. Good evening, ladies and gentlemen. On behalf of Ramkrishna Forgings, I would like to extend a warm welcome to everyone. We are pleased to report that despite the ongoing challenges in the global economy, we have delivered strong results in Q4 FY '23, creating sustainable value for all our stakeholders.India's commercial vehicle segment has witnessed a remarkable growth in recent times. With the increase in economic activity and infrastructure development, the demand has surged. In addition, the government's focus on boosting the manufacturing sector and implementing various initiatives, such as Make in India and Atmanirbhar Bharat has also given a significant impetus to the sector. The commercial vehicle segment in India is poised for further growth in the coming years, driven by economic expansion, infrastructure development, and adoption of cleaner technology. We are excited to say that Ramkrishna Forgings and Titagarh Wagons consortium has received LOA for manufacturing and supply of forged wheels for Indian Railways, which is a significant milestone for our company. The order size is INR 12,226 crores, and it is a long-term contract of 20 years, which adds to our strong revenue visibility for the coming years.Additionally, we have renewed a long-term contract with an overseas Tier 1 customer based in North America, which included an additional new product range. This contract renewal and additions bring the total number of contracts to 8 during the year, totaling INR 774.70 crores from various geographies and business verticals, excluding the long-term order from the Indian Railways.Ramkrishna Forgings has also taken a step forward to our sustainability by planning to set up a 7.82 megawatt roof-top solar power plant, which will help reduce our carbon footprint and contribute to greener future. The total cost of project is estimated to be around INR 35 crores. This investment reflects our commitment to responsible business practices and our dedication to reducing our carbon footprint.We are pleased to see an increase in demand for our products, which has led to significant revenue and product growth -- profit growth. In Q4 FY '23, we have recorded a revenue of INR 835 crores, representing an year-on-year growth of 22%. And for the full year FY '23, we recorded a revenue of INR 3,001 crore, representing a year-on-year growth of 31%.EBITDA margin for Q4 FY '23 is 22.52%, expanded by 42 basis points sequentially, and we are confident of sustaining the margins and endeavor is to improve upon the same. Our net profit after tax was INR 67 crores versus INR 86 crores for the previous year-on-year. But however, that was due to the deferred tax reversal in the previous year. If you correct the tax impact, the profit after tax will increase by 25% from the previous year in Q4.We are also pleased to announce that our long-term rating has been upgraded by ICRA and India Ratings to A+, with stable outlook. This reflects the confidence of rating agencies in our company's financial state and growth prospects. Thank you all for your continued support. That's all from my side.
[Operator Instructions] The first question is from the line of Mumuksh Mandlesha from Anand Rathi.
Sir, can you share some light on the railway project? What kind of a CapEx plan, and how do you see the revenue flow from FY '26? And some light on the profitability side, sir?
Total project outlay on this -- cost on this project will be close to INR 1,200 plus crores. And the LOA which we have received from railways is close to around INR 12,500 crores for 20-year, starting FY '27 onwards. That's the reason we have mentioned also in our presentation that we expect to start production from last quarter of FY '26. And we are setting up, while railway requirement and confirmed guarantees for 80,000 wheels per year, we are setting up this capacity for 2 lakh plus wheels. And we expect to do business of close to around INR 28,000 crores over next 20 years from this project. And profitability right now is being worked out. I think we can safely say that the current margins which we are doing in stand-alone basis in RKFL, we are aiming for similar margins in the joint venture.
Sir, but the additional capacity which you are planning for the field, is it going to be for export market or what kind of opportunity you are seeing, sir?
I think the 80,000 is for railway self-consumption for OE application. And plus I think there is a huge market within India for wear and tear as well as the wagon builders and as well as the privatization of railways which are happening in Vande Bharat. Right now they are importing wheels, so those also will be required. And as well as export market is huge. And there is right now very limited capacity globally post the Ukraine war. So we are already in touch with lot of OEMs globally who buy wheels. And I think before the plant commences production, we will have a long-term contract with these OEMs also.
Sir, can you share an outlook for the overseas CV market for next one year, sir?
I think the overall global market right now in export is strong and we expect it to remain strong over the year.
Sir, can you provide timeline for the completion of the JMT Auto and ACIL acquisition, sir? And post acquisition, what would be the CapEx plan for both the companies, sir?
I think JMT Auto and ACIL both are from our side, whatever we could have done, we have done. It is right now at Indian legal system. So we are hopeful of having this as fast as possible. But I think legal process takes its own time. So we would not like to comment on exactly the timelines of it.In terms of CapEx, I think both taken together to modernize the plant and bring it up to the shape, we expect, closed on including both, close to INR 200 crores of CapEx will be required to get 100% result from both the plants.
The next question is from the line of Abhishek from Dolat Capital.
And congrats for a great set of numbers, sir. Sir, you have won the new orders from the railway for supplying 2 lakhs -- for supplying huge wheels and the total wheels production would be around 2 lakhs per annum. So what would be the total project cost and what would be your sharing for that?
I think this JV is at a 51%, 49% model. And the similar, we will share the -- share of finances also will be similar and we expect a CapEx of close to around approximately INR 1,200 crores plus/minus 5% at the current levels of market.
And so the revenue won't be added in your top line. It will come into your bottom line?
No, revenue will be added in my consol as well as the profitability will be also added in my consol.
Okay. So it won't be shown as a JV profit?
But I think we -- at a 51%, 49% we will need to have a consolidated balance, we will need to bring that 51% of the revenue into my consol.
Okay. And sir, in domestic market, basically the BSVI number was -- because of BSVI Phase 2, the number was quite strong in the 4Q. But there is an expectation that FY '24 number would be muted. So can you give some color on how the outlook would be for the domestic market in MHCV segment?
I cannot comment on the exact market shape. I can only comment on what RKFL is and we are extremely confident of our strong performance in FY '24. And given the global scenario, given the domestic market and given the order book we right now have and the visibility we have from all our customers, we expect to continue our growth trajectory and we produced strong results.
So in earlier quarters, in quarter third you had mentioned that you are looking for 15% to 20% kind of that growth in the top line in tonnage segment. So your guidance is intact despite this strong base in the Q4 number?
I think my Q4 numbers already are visible in terms of tonnage growth. And I think we will continue to have similar growth, or as I say that we expect to have a very strong year FY '24.
So in the last 2 years, sir, the CapEx was very strong and you have done a great number in your top line as well. Going ahead, you are coming with 2, 3 acquisitions and plus that we are going to set up a plant for this forged wheels site. So what would be your next 2 years CapEx target, FY '24 and '25?
Standalone basis, RKFL will continue to grow and continue to deploy cash in terms of whatever we earn. We have already defined our capital allocation policy. We will be strictly following those capital allocation policy in terms of our debt reduction, as well as allocating capital for the growth of RKFL on standalone basis. Acquisition, we will see as and when it comes. I think right now, till we complete the legal process, I would not like to comment on those. But in standalone basis RKFL, we can very clearly say that we have a defined capital allocation policy and we will follow those policies strictly in terms of debt reduction, dividend, and whatever is left over cash, we'll deploy it back into the growth of the capacities within RKFL.
But your most of the acquisitions on the consolidated basis, so if you can throw some more light on that, how much CapEx you are looking in the ACIL, JMT, as well as your other plants, like fourth plant? And what is your debt repayment plant?
JMT, ACIL, already my acquisition cost has already been in the market domain. So unless it comes right now, I will not be able to say anything when and how it will happen. So we will wait till the court order comes through, and then only we will be able to comment on them and we will surely keep investors updated as and when the acquisition gets cleared through the legal process.And in terms of the wheel project, my responsibility is for 51% of the CapEx spend and part will be funded through debt and equity. So equity is the portion which RKFL will bring into that SPV. So we are working out, I think we are not yet freezed on the numbers. And as an I think it will be -- by first quarter we will give you the numbers, what RKFL intends to get an equity in that company, and what is the debt going to be in that company. But that is over the next 3 years which is going to happen.
And what is the ROCE of this business, forged wheels business?
I think right now we will need to wait because I think we are still at a 40% capacity, or not even 40% capacity has been sold. So we will need to wait for the rest of the contracts and other things to get closer. And closer to the I think FY '25 we should be speaking on what is going to be the ROCE. Right now when we have quoted for the project, we have quoted on an ROCE of close to around 5-5.5 years.
The next question is from the line of Balasubramanian from Arihant Capital.
So my first question on the wheel set side, like we are going to sell FY '26 Q4 onwards. Sir, what would be the average realizations for these wheels? And because we are going to supply for the next 20 years, what kind of price escalation class we have with Indian Railways? These are my first questions.
I think the price realization right now, we share it with the market is --
Sir could you please repeat, I am not getting it.
INR 190 per kg, close to INR 190 per kg addition right now. And the price escalation clause is very clear that it is as determined by every quarterly in the RBA Index of steel and inflation.
Sir, my second question, on the wheel set side, how many wheels we have to sell for breakeven in that project?
We will breakeven at 40,000 wheels per annum.
40,000 wheels. Sir, I just want to understand about the wheel sets market overall in global like in that wheel sets cost, it can be forged wheel sets, it comes anywhere between INR 2.5 lakhs to INR 2.8 lakhs. So could you please break down what are the components are available?
I think it is not a relevant question right now and it is very difficult for us to answer right now. It is just a project which has been taken up and we are working on it and it is right now very clumsy to give all this information.
[Operator Instructions] The next question is from the line of Pratik Banthia from Girik Capital.
Yes. Sir, my question is related to the Slide 20, where you are mentioning about warm forging capability. So if you could just tell us about the new capability which you are adding to our portfolio. And you've mentioned under product families about differential gears and differential pinions. So how many other players are there in India in this and which customer segment we will be targeting? Yes, that's my first question.
In warm forging, we have already -- since last 2 quarters, we have already started supplies to domestic and overseas customers. And primary right now we are catering to the commercial vehicle market. And with the new installation which is getting completed in next couple of months, we are going to target the light vehicle market also. And for which we have already got some contracts and we are in process of getting some contracts globally and within India.To answer your second question, I think the biggest player within the Indian market in this segment is Sona Comstar. And I think we are just starting part of this and we will gradually grow in this business. And I think we look to make significant progress over next 2 years. And this is the first step to make entire differential assembly as one of our product platforms.
Interesting. Sir, after -- with this product coming in, now our average EBITDA per ton, how will that move? Like for the -- under warm forging, what sort of profitability is there in the product?
I think right now in the last 2 quarters, we were not -- we are not a very significant player right now. So we will continue to work on margins in this. And with the installation of and modernization which is taking up right now, which is going to get completed and I think in the next 6 months time, we are looking at least 100 to 150 days more than what we are on an average doing in our traditional forging setup in warm forging.
And sir, now on this question on the balance sheet and cash flow side, in the current setup and the current in our organic way which we are going by expansion, over next 2 years or by 3 years, we will have a significant cash flow coming in. So how will our debt on books be? And we also have this JMT, ACIL, where you'll be investing INR 1,200 crores and plus railway project also. So how will the -- over next 3 years, how the cash flows will be used? Because you seem to be fairly confident about the growth from the existing setup. So how will this cash flow be used?
See, our cash flow in the future, whatever we have in the cash flow and we have the future growth plans, our future cash flow will be enough to take care of our acquisitions also and working capital requirements. So overall, we are not anticipating to increase on debt, rather every year the debt will go down. Even if you look at the standalone basis, it will be at least INR 200 crores we will go down. And on the consol basis also the overall debt will not increase.
So this INR 1,200 crore debt which is there as on March 31, 2023. So over next 3-year period, this absolute number will keep coming down?
Yes. It will keep coming down with the growth also and acquisitions also. And on a standalone basis, it will continue to go down by at least INR 150 crores to INR 200 crores per annum.
And as well as also INR 1,200 crores is the gross debt. At the net level, if you see minus the bill discounting, INR 1,093 crores is only the net debt. And we expect the net debt to be on the downside going forward with the cash flows which come out of the operations.
Perfect. Correct, correct. And how much will be our contribution towards this railway project?
That will be INR 180 crores of equity will go and that will also go over a period of 3 years.
Over 3 years, okay. So it won't be too stressful for us in terms of cash. Got it. And sir, we have just removed the INR 5,000 crore figure from the presentation. Any specific reason?
Basically, we do not want to put a number right now. We are looking at an extremely strong growth in the next 2 years and 3 years with the kind of plans and the vision we have. So we did not want to put a number to it. The number may exceed expectations. So we don't want anybody to judge the company based on those numbers.
Correct, correct. Got it.
The next question is from the line of Mitul Shah from Reliance Securities.
Sir one clarification of previous question on debt. So we said that standalone debt will keep coming down and consol debt will not go up. Can we assume that consol debt for some time would remain at current level or it will also come down?
Mitul, it depends upon a lot of things when the acquisitions are overcome and when we need to deploy the CapEx. So see, and the CapEx will be done also in a calibrated manner. And those companies will have their own earnings also with that CapEx. So everything will pan out in a span of time. But right now, that's very clear and the vision of the company is very clear that on standalone debt, we are going to reduce. And on consol debt also, our endeavor is to not increase the debt rather reduce the debt. So that will continue because whatever cash flow available, we will try to grow from that only.
Okay. The second question on raw material side. In fourth quarter, RM by sales, raw material as a percentage of sales has gone up by 200 basis, Y-o-Y as well as Q-o-Q. So now it is coming almost 8 quarter highest at 50.2%. Whereas, actual raw material price movement is very limited during the quarter. So any specific reason, any delay in compensation from the vendor or what could be the reason behind this?
That's basically, that happens due to the product mix because we sell the product of different categories. And that's why the function of sales realized versus raw material consumed. So that's why there is a 100-200 basis point plus/minus quarter-on-quarter. And that has nothing to do with the right now price movement or any discount from the vendor.
Okay. So there is nothing related to delay or lag effect of passing cost escalation to vendor or anything like that. Yes. And so, at the same time, other expense also came down significantly Q-o-Q despite our revenues and volumes going up. So here any specific reasons?
Of course, that expense has gone down due to the reduction in freight, ocean freight basically and shipping costs.
And sir --
Sorry to interrupt. If you have any further questions, we request you to please rejoin the queue[Operator Instructions] The next question is from the line of Pritesh Chadha from Lucky Investment Managers. Mr. Pritesh Chheda, the line for you is unmuted.Ladies and gentlemen, we will proceed with the next question from the line of Chirag Shah from White Pine Investment Management Private Limited.
So congrats on good set of results. So first, before I ask my question, a clarification on this JV. So is this a completely ground-up plant or some part would be done by RK Forgings in stand-alone like a basic forging and machining would be done at the JV level? Or it is a completely ground-up plant?
It is a completely greenfield project.
Okay. So everything would be done over there. Okay. Sir, my question pertains to EU and U.S. customers. So in the past, you have been indicating that you are in discussion with a few customers and you are very hopeful of adding some of them. So any update if you can share on that, it would be helpful. Any new customers you may have added?
Lalit has already updated close to INR 700 plus crores of order wins in this year. It is basically on whatever we have been able to complete in terms of our customer acquisition is concerned. And in terms of revenue, if you see, already Europe is growing. In absolute numbers, if you see, Europe is close to 15% now of our total revenue. Starting from a base of 0 and within 2 years, we have reached a revenue of close to 15% from Europe. So I think that substantiates our statement what I have said that we are working on customers and it takes time but customers are getting converted as we move up.
I was more referring to number of customers because I understand that customer breakthrough could happen immediately or could take number of years. It depends upon when and how they want to ramp it up. So is there any breakthrough being made where a new customer has given some trial orders or we have got some approval?
Yes, that is the answer to it that we have already converted a lot of customers wherein we were doing trials and that is the reason this kind of revenue we were able to achieve in this sluggish market also. And with the strong growth what we see is basically the marketing activity which we have done over the years from where we are still having a visibility of a very strong year going forward.
And sir, this breakthrough is largely in U.S. or it's more Europe-driven?
It is globally. I cannot put a particular geography to it, but we are overall in terms of overall performance, we expect strong growth and we are extremely happy with the customer response globally.
And sir, last question on cold and warm forging. So it was supposed to start in Q1, right, operationalization of that effect? That incremental --
I think last 2 quarters already we have started doing warm forging and the latest new equipment which is entrant, we are in process of starting that equipment. I think from second quarter onwards, we have already very clearly mentioned all this CapEx of addition of 56,000 tons will get completed on or before September '23. And we have already given an entire roadmap by first quarter what is going to get completed and by second quarter what is going to get completed.
But sir, my question was how should we look at ramp up of this plant?
So this is basically ramp up plan. CapEx, if it is getting completed and commissioned and start up, so we have immediate order book to ramp it up. So we have given guidelines based on ramp up plan itself that first quarter and we will be able to see the tonnage mentioned. The ramp-up will happen from second quarter, and the second quarter the part which is getting completed. From third quarter we will see the ramp up on those.
So basically once you start the asset over next 12 months, we can achieve optimal utilization level or it may take slightly longer time?
No, once we -- within 12 months, 6 to 8 months, we can see optimum levels. With the order book we have, we are very confident to achieve that.
And is there any addition of customer for this facility? We already have 1 or 2 customers because you were in active discussion with more customers.
We already have a complete order book and production capacity is almost sold.
Almost sold. Okay.
The next question is from the line of Deepak Jain from A&M Asset Management.
Sir, can you talk about working capital, how it is poised for the next year given that you are expecting a strong growth? On an absolute terms, will it remain there or it will expand? What is your view on that?
Working capital, Deepak is right now at around 108 days and our endeavor is to bring down by another 8 to 10 days. So our target working capital is to remain at 100 days going forward.
Sir, can you share your outlook on Class 8 demand from the industry level?
No, I don't think I would be able to comment on Class 8. But overall, we see the commercial vehicle market overall in North America is doing extremely well in terms of production. I don't see as an order book. We have the production, all OEMs are sold out and offtake of material is extremely good.
The next question is from the line of Ankur Kumar from Alpha Capital.
Sir, congrats for a good set of numbers. So a couple of questions. First question is on the growth side, you are saying that next 2 years will be very good. But can you quantify as in this year we did 20% volume growth. So can the coming years be similar or can they be better than this also?
First of all, I have never said for 2 years. I am saying for FY '24 we are expecting strong growth and we stick to that statement. We would not like to put a number to it. In terms of previous quarter, we have given a tonnage guidance of 15% to 20% growth. We would like to stick to that. I think we are expecting continued volume growth and revenue growth in this year, and we feel that the performance we have been able to achieve, we will continue with a strong performance in FY '24 also.
Sure, sir. Next question is on the margin. Gross margin has come down this year compared to the last. So any reasons and what is our expectation on that front?
Gross margin from last year it has improved. If you look at EBITDA per ton, it has improved by INR 2,500 per ton.
Sir, I was asking in terms of gross margin percentage.
Percentage, yes. Percentage wise, certainly, there was a cost pressure this year. That's why the margin -- EBITDA margin has gone down by 100 basis points from the last year. But from here on, it will sustain at this level or improve from this level.
Sure, sir. And for tax rate, will it be 23% or 25% next year?
Next year, we will be moving to 25% tax rate. 22% plus surcharge.
The next question is from the line of Pritesh Chadha from Lucky Investment Managers.
Yes, sir, I have 3 questions. The first question is in Europe and North America, what would be our CV dependence in terms of business? My second question is if you could give the tonnage growth outlook for Europe, U.S. and Asia separately if possible. And is there any deflation element in FY '24, whereby there can be any price reduction or any for us to understand the top line?
I think first of all, in terms of Europe and North America or maybe India as an overall order book, 70% of my order book is from automotive sales. And this entire automotive sales is from different type of commercial vehicles only. M&HCV or CV or LCV. We are not into PVs and I have been -- I have clarified that in earlier quarters also. We are in only commercial vehicle market across the globe in automotive segment.In North America or Europe, we also cater to the off-highway industry, oil and gas and long-haul trailer bodies as well as we have just entered the oil and gas in the Dubai and Abu Dhabi Gulf countries. So that is also a market which we are looking to grow considerably.In terms of deflation, all our contracts are tied up. In terms of inflation, we are not affected.
So my question here is, as on today, whatever you understand, will there be deflation in your realization next year driven by steel price?
I think steel price quarterly is a reset. In case there is a reduction in steel price, the top line may go down. In case there is an increase in steel price, the top line will go up. But my margins and other things are not dependent on basically steel pricing.
Sir, do you have volume growth outlook for tonnage growth in Europe, U.S. and Asia?
We don't have a bifurcated tonnage as of now. But surely we can ask our CFO to you can have a one-on-one call with him to get what you require.
And my last question is, there is a working capital improvement for a certain extent driven by better payables. Can you explain the rise in the payables, what kind of credit and where are we getting?
See, rise in payable is basically due to the higher volumes also and there is no such rise in the data commensurate to that. That's why it's there. If you look at my payable from last year, this year it is up by 35% and my volume, my top line growth is also 31%. So there is no significant rise in payable that way. And if you look at my data, data has not grown that significantly and that's why there is an improvement in overall working capital cycle.
The next question is from the line of Koushik Mohan from Ashika Stock Broking.
Congratulations for the good set of numbers. Sir, I just wanted to understand some guidance, not on the exact number-wise, what would be your revenue mix on the railway and oil and gas?
I think we are looking at almost doubling our sales to railways in this year. So I think whatever percentage, right now, we are representing 3% right now. We are looking at 5% plus this year from railways. And in oil and gas also, we expect at least 100-150 basis points increase in share of business from oil and gas.
Sir, another question. How is the railway payment happening, sir? If you bill it today, how long will it take to put cash in the banks?
From the date of dispatch from my plant, the payment is received in my bank account within 25-26 working days.
I have another question. Can I ask or should I come back on the line?
Please continue.
Sir, I just wanted to understand another thing. You have a partnership with Titagarh for wheels. Sir, how much percent of that entire project will be your revenue?
51%.
51%. And what will be the cost and how is the production going to happen? And what's the plan on that?
I think CapEx plan is close to 1,200 plus crores. And production is going to start. We expect the production to start from last quarter of FY '26.
FY '26 last quarter. Okay. And how is your EBITDA margins over there, sir?
Right now, I think it's pretty nascent to speak on the EBITDA margins. We will work on it and come back basically in FY '25 for that.
[Operator Instructions] The next question is from the line of Vignesh Iyer from Sequent Investments.
Congratulations, sir, on good set of numbers. I have 2 questions from my side. The first one is, I just want to know the tax rate as of now, we're paying somewhere around 30% plus, 31%-32%. That is probably one of the reason being deferred tax coming in. I just want to know, are we going to continue in the same slab for the FY '24? Or we are going to switch to a 25% slab like many other companies in manufacturing are doing?
We are going to shift to 25% tax rate in the next financial year.
Okay. Right. Yes. And my second question is, just to understand from just a purely a utilization point of view, are prices running almost like on 94% and forging has been consistently doing above 100%. I just want to understand from where would the next leg of growth come?
I mean, 56,000 tons of production is getting, tonnage is going to get added in next 6 months time. Within this quarter, I think, close to 20,000 tons is going to get added. Start production and balance is going to, total 53,000 tons is going to get completed within first 6 months. And as well as the utilization level, 94%, which is being shown, I think we will revise those percentages also in next 6 months time. So overall, we see that things are going to be much better in this year.
Plus, there is a lot of capacity left in our fabrication plant ramp-up where we are doing the production for railways, where we have a lot of capacity left out for growing railway segment. So that is not added internationally.
That is separate, okay. Right.
The next question is from the line of Navin Matta from Mahindra Manulife.
Yes. Sir, I think the question, I think we are all trying to grapple with is that we are, next year, potentially, some of the industry bodies in the U.S. are saying that Class 8 might see a decline. So just one way of trying to understand this is in case, assuming that the market is flat, how much can we outgrow based on our order book or market share gains that we are looking at?
Well, first of all, I have not heard that any OEMs have come out and said that they are going to see market degrowth next year or this year. No OEMs have come out and said that. And second is that we are not into alone Class 8 in the North American market. We are across all platforms of commercial vehicles. Class 8 forms one of the part. And with our past experience in the current order book, we are extremely confident that the way we have improved our content per vehicle, we will be extremely doing well and we are confident of outperforming the market. But we cannot put a percentage of how much we will be able to outperform the market.
Understood, sir. And just based on our product mix improvement, do we see scope for further margin improvement from current levels?
We expect to retain and improve both. You will see continued outperformance in terms of margins. I think we continue to work on improvements in terms of our structure of working and I think this will result in continued improvement in the bottom line of the company.
So it should be kind of more cost controlled, OpEx cost control is what we are trying to indicate that we can kind of improve margins from that side. Is that understanding right?
Yes.
We have the next question from the line of Mitul Shah from Reliance Securities.
Sir, I have a question on this railway business in new JV. It will be forging and machining everything in-house, sir?
Yes, everything has to be in-house.
Okay. And second question, sir, on the EV strategy. Can you give what is our current revenue contribution and for next 2 years? Already EV is now becoming sizable in the Indian market, particularly in the 2 wheelers and PVs. So we are anyway entering into these 2 wheelers and PVs also?
Mitul, we are not entering 2 wheelers, we are entering PV. And I think right now we are not in PV, so we are not affected with this EV strategy right now. But EV continues to be a big focus for us and we have already updated in our presentation where we are in EV and what is the future for us, how we look at EV going forward for RKFL.
Sir, on the same this EV, this new investment 51% for TSUYO, INR 500 crore we are planning to invest over next 5 years -- sorry, INR 100 crore we are planning to invest with a revenue potential of INR 500 crore. So would that be in a paced manner or you expect in the last 1 or 2 years it will pace through --
I think we are expecting, TSUYO has done close to INR 12-plus crores already in the last financial year. And I think this year also we expect at least threefold jump in the top line from TSUYO. And gradually we are putting in money and our 100 crore investment is based on some assumptions and CapEx plans at TSUYO to graduate from only motor suppliers for a complete solution of e-axle and transmission in next 5 years from TSUYO. But TSUYO will form a formidable arm for RKFL. As we continue our investment in TSUYO till the tune of 51%, it will become one of the significant arms of RKFL in terms of our EV portfolio and EV visibility is concerned.
Sir, lastly on this, what would be breakeven revenue for this TSUYO?
TSUYO is already breakeven.
We are in profit, already in profit. With INR 12 crore turnover also we are making profit.
The next question is from the line of Rahul Shah from [ PK Capital ].
I just want to ask regarding this North American customer where you have an LTA. Can you just give me the broad contours of that deal in terms of, is there going to be a price revision with steel compensation or manufacturing costs increasing in India?
I think we have -- all our global contracts are backed by steel and inflationary changes. Steel is every quarter and inflationary changes every once a year. Steel and inflation and energy is every once a year.
Okay. And second question is on, you have installed some solar capacity in the plant. Is there any impact on this on the bottom line, like what percentage of energy costs are taken care of by solar now?
Solar, we have just placed the order and I think we expect the installation to get completed in 9 months' time. Once that happens, to that tune our cost of electricity and energy is going to come down.
The next question is from the line of Chirag Shah from White Pine Investment Management.
Sir, just one clarification. You indicated that the press line capacity is likely to get restated, right? Is it right? Because -- is it -- did I understood…
Yes.
So basically your operating efficiency is improving over that, and hence the same effect is generating more --
Not only operating efficiency which is improving, we are improving in terms of automations which we are putting in. We will improve the efficiency. We are right now working and gauging exactly to what tune the capacity can be revised at. And accordingly, in coming quarters, the capacity will be revised.
So is it possible to indicate by when do you expect to come to a conclusion on this? Because this would be an additional lever on your operating leverage side.
I think you can safely say that, at least in my press plant, capacity is going to go up by 8% to 10%. But by August, this entire exercise is going to get completed. Second quarter should at least see 10 to 15% jump in capacity from the press plant.
And similarly on the ring rolling side, how much you can stretch it more?
No, I think we are working in ring rolling at the optimum.
Any thought of adding more capacity for ring rolling?
No, No.
Not required. Okay.
[Operator Instructions] The next question is from the line of Abhishek from Dolat Capital.
Sir, you have mentioned that your interest cost has gone -- your debt has gone down. But if you see the numbers like interest cost, that has gone up quarter-on-quarter basis and Y-on-Y basis. So is it the impact of the increase in the yield or is that last minute of change in the working capital, that's why it has gone down?
See, Abhishek, if you look at our all 4 quarter performance, the debt has not gone down in the last minute and it has gone down each quarter if you look at all the 4 quarter numbers. And the interest cost has only gone up due to the increase in rate. And it includes bank charges also that increases due to the higher utilization of limits or non-fund based limits.
With the increase in top line, Abhishek, we have to use more LCs to get raw material. So LC usage, bank charges are also included in the interest rate. As well as, while we are reducing our debt, we are not reducing our limits. Limits stay intact and to get renewal of those limits, we need to pay commitment cost to the banks. So those charges are also built into that.
So how much increase in the interest cost in the last one year because of the change in the interest cost -- increase in the interest cost?
It is almost 30%, Abhishek. It has gone up from 6% to around 8%.
Okay. Got it. And, sir, as you mentioned that steel and energy contracts are renewed on a yearly basis. So this year many contracts would be revised, I think.
We are still working with the OEMs. I think it will take another 1 or 2 months, we will have clear visibility. Because different countries have different mechanisms for energy and electricity and inflation. So we are working with the OEMs. I think we should be clear in next month or so.
But in other cases, it is based on the indexation and it is renewed on every 3 to 6 months. It is not with you?
Can you repeat your question, please?
Sir, in most of the cases, these prices are revised based on the indexation and that is renewed on every 3 to 6 months.
That is for raw material, basically. And for inflation and energy, it is dependent country-specific. So we need to produce our own invoices and the increases which has happened in India in gas, electricity and other denominators. And they are verified and then they are worked on. So it takes its own time.
[Operator Instructions] The next question is from the line of Akshay Karwa from Anand Rathi.
Just a question on CapEx. So what's the CapEx for -- can you please guide it for FY '24 and FY '25?
FY '24, like we have said, whatever post-dividend and debt, we are looking at debt reduction of INR 100 to INR 150 crores. Post-debt reduction and dividend payout, whatever cash is there, we will deploy this cash back into the system to grow the capacities, both in terms of forging as well as in terms of evaluating.
As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you all. I take this opportunity to thank everyone for joining us. I hope we have been able to answer all your queries and questions. For further inquiries and information, you can get in touch with us or with our investor relationship advisors. Thank you and have a pleasant weekend.
Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines.