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Tube Investments of India Ltd
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Ladies and gentlemen, good day, and welcome to the Tube Investments of India Limited Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Anupam Gupta from IIFL Securities Limited. Thank you, and over to you, sir.
Thanks, Rohan. And welcome, everyone, for TI's first quarter FY '24 results conference call. From the management, we have Mr. Vellayan Subbiah, Executive Vice Chairman at TI; Mr. M A M Arunachalam, Chairman for TI; Mr. Mukesh Ahuja, Managing Director; Mr. K R Srinivasan, President and Whole-Time Director for the Metal Formed Products Business; Mr. Murali, Senior VP and Head of the TPI or the Engineering Product business; Mr. Govindarajan, the CEO for 3xper Innoventure, which is the CDMO venture for TI; Mr. Meyyappan, the Chief Financial Officer; and Mr. K. K. Paul would be joining us in some time, who head the TI Clean Mobility Business.I'll hand over to Mr. Vellayan for the opening remarks, post which we can have the Q&A. Over to you, sir.
Thank you. Thank you so much, and good morning, everybody. So the Board met yesterday and approved the financial results for the quarter ended June 30, 2023. The revenue for Q1 was at INR 1,780 crores compared with INR 1,957 crores for the same period last year. PBT was at INR 198 crores for the quarter as against INR 180 crores in the same period previous year. And ROIC annualized was at 56% compared with 51%. Free cash flow for the quarter was INR 97 crores.I'll go through the businesses. The Engineering business basically had a revenue of INR 1,142 crores, compared with INR 1,244 crores. This was more because of pricing of steel as the predominant factor for that. PBIT for the quarter was INR 135 crores as against INR 118 crores in the corresponding quarter last year. The Metal Formed Products had revenue of INR 342 crores compared with INR 335 crores and PBIT was at INR 44 crores as against INR 38 crores. The weakness -- we've had a weakness in the cycles business, which had a revenue of INR 187 crores compared to INR 246 crores in the corresponding quarter and their PBIT was at INR 2 crores versus INR 9 crores in the corresponding quarter in the last year. And other businesses' revenue was INR 178 crores compared to INR 223 crores, PBIT was at INR 16 crores versus INR 17 crores in the same quarter last year.On a consolidated basis, revenue was at INR 3,898 crores as against INR 3,776 crores in the corresponding quarter last year and the profit before share of profit of an associate, joint venture, exceptional items and tax for the quarter was at INR 396 crores as against INR 336 crores in the corresponding quarter of the previous year. CG Power had a consolidated revenue of INR 1,874 crores as against INR 1,643 crores, and PBIT was at INR 263 crores as against INR 167 crores -- sorry, PBT. And Shanthi Gears had a revenue of INR 121 crores versus INR 99 crores and the PBT was at INR 24 crores as against INR 18 crores.And commenting on the financial results, Mr. M A M Arunachalam, Chairman said, the company has witnessed a steady performance during the quarter. Though the Mobility division was affected by a sluggish market, Engineering and Metal Formed registered good profit driven by good growth in the auto industry and the performance of our subsidiaries CG Power and Shanthi has been very encouraging with strong top line and bottom line growth. Our electrical vehicle business is making steady progress and we expect revenues to pick up in the coming quarters. We have now partnered with Jayem and incorporated a new subsidiary to foray into electric small commercial vehicles. With this, the company will be equipped to serve the full spectrum of manufacturing electric vehicles for commercial use.So let me stop with that and be happy to turn it over to all of you for questions. Thank you.
[Operator Instructions] The first question is from the line of Abhishek from DSP.
Sir, just a couple of questions. Just wanted to understand around the margin element. If you see on a quarter-on-quarter basis, you have seen some deterioration in gross margin and if you look at the Engineering division, there is some margin deterioration on a sequential basis. Is it related to product mix or price hikes not being able to pass on if you can just help us understand the reason for that?
So if you're talking about Engineering -- please, go ahead.
Yes, Engineering division margin has not been -- revenue is there because...
No, he's saying on a sequential basis. So compared to Q4 number, Meyyappan, can you just provide?
Yes, actually, for the Q4, INR 1,000 crore is the turnover and INR 131 crore is the PBIT. And for the current quarter, it is INR 1,141 crore is the sales and INR 134 crore is the segment, that is profit, PBIT.
Yes. So there is a slight margin drop on Engineering, yes.
Maybe because of minor mix issue, but it's...
Yes, there is no -- yes, it could be -- some of it could be mix, but there is no major kind of indication that there is any kind of drop on the margin side.
Okay. I was just trying to understand that is it related to exports being lower because that typically will be better margin, some of those elements. I just was trying to understand on that aspect. And how has been exports overall? Because that is something one has seen the weakness overall as for I think -- because the demand conditions in the overseas market has not been great. So how has exports done for us in the Engineering part of the division?
Exports has improved over previous quarter. Previous quarter, we were at 13% of exports overall for TI and now we are at 15%. But, however, maybe in the industrial chains business, particularly for Europe, there is some weakness we are observing there. But overall at TI level, we feel we'll be able to grow exports for entire...
Okay. And sir, if you can just talk about the EV where are we in terms of the timelines? How are you seeing the traction? You've reported marginal revenue in the current quarter. If you can just help us with an update on that, that will be helpful.
The EV, again right, I mean, one of the things that we don't want to do, I mean -- and I have told -- I've said this before also. I think EV is going to take a little bit of time to pick up. We don't want to get into this quarterly cycle because it's going to be very difficult to kind of present -- expectations will build up kind of unrealistically. I do think, like we've said it before, it will take time to pick up. So our only request is that, if you can kind of give us that time, so we can -- because it's building 4 new businesses, right? And so, kind of that process will take some time. So our only request is, if you can give us a little bit of time on that. The new businesses, it's very difficult. We put them on quarterly pressure too quickly, right? And I don't want to get into that habit of focus.
Sure. Sir, just one last --. Sure. I appreciate that. That is very fair. Sir, just in terms of the railways part of the business, that is something we were expecting that part of the business to pick up having being lull for some time. Any improvement are you seeing there in terms of tendering or ordering? Just an update there will be helpful.
KRS, do you want to...
Yes. K. R. Srinivasan here. Railways, the tenders have started coming last month end onwards. And we hope to get orders end of Q2, we hope to get orders and schedules from railways.
Okay. And just one thing on the Engineering part of the division, the decline that one has seen on the top line, sir, you mentioned in your opening remarks, it is because of steel prices. So if you can just broadly help us understand what would have been the volume growth because that will just help us kind of better understand the segment.
The revenue growth is almost around 6%.
No, volume...
Volume growth is around 6%.
Volume growth 6%.
Okay. So, all of the decline has come in from about 14%, 15% of realization term.
[Operator Instructions] The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Couple of questions from my side. One is on the exports. Are we now seeing some stability in broader exports? Because that's one area, not just for Tube, but for broader Engineering exports were impacted. So, are we seeing some stability now coming? Or we are still in the inventory destocking more for -- on the export side?
Yes. We expect this year will be better for exports, that's our estimation as on now.
But this quarter, has it been...
This quarter is also better, and next quarter also, we feel it will be better than the previous quarters.
Right. And when we say exports has improved from 13% to 15%, this is Y-o-Y, right, or Q-o-Q?
That's right. 13% to 15%, it has improved.
Is it Y-o-Y or Q-o-Q?
Q-o-Q.
Q-o-Q. Got it. So clearly, we are back on that side. And second question pertains to the electric 3-wheeler and truck business. We are now in process of rolling it out, and I think the new facility for truck is also ready. So are we -- have we started to take orders on commercial basis now? And [ this year, ] that could be the traction in the order book look like?
Yes. So, I mean, we just started on the 3-wheeler. And Jinesh, this is again kind of where -- even the previous question was there on electric. The thing I would continue to request is that, that you give us a little time to build those businesses because getting on a quarterly mindset for new businesses is very difficult, right, and getting unpredictable quarter-on-quarter performance. But we do have orders on the 3-wheeler. And we just started taking orders. We've got over 1,000 orders on that product. But it is -- like I said, it's still very early days on both products. So -- and so, we have also started taking orders. I mean, we've just started doing -- giving the truck to customers on trial. So I think most of this quarter will just be -- will go on us getting customers to trial the heavy trucks. So I just -- that's why I want to be very cautious on revenue guidance in that business.
Sure. And the new plant is up and ready, right, the 1,000 units per annum for truck is up and running?
Yes. It's more like -- it will be more like 3,000 units per annum. 3,000 to 3,600 units an annum and yes, that plant is now ready.
[Operator Instructions] The next question is from the line of Vipulkumar A Shah from Sumangal Investments.
Sir, just wanted your views on our diversification in CDMO and surgical space when there is a lot of headroom for us to grow in Engineering space. So what is the rationale? Just trying to know your view, sir.
Yes. So I think we've kind of articulated this perspective of TI-1, TI-2, and TI-3 now for at least 3 years plus. The -- what we actually see is, I mean -- and again, the perspective we took is, we derived a bunch of set of filters that allowed us to look at businesses that we think are going to have secular growth in India over the next, at least 20 to 25 years, right, and have a sustained growth over that period of time.Now, if you see India, there are set of white spaces that have not been filled, right? And those spaces, as you probably know, kind of manufacturing forms about 14% of India's GDP. It's a bit under -- manufacturing is a bit under $400 billion. And everybody has been in a traditional set of sectors, right? And those are the sectors that will continue to grow at a particular organic rate. But everybody, if you look at what is happening to India, that a set of new sectors that are beginning to open up, which are beginning to grow at and will be required for India's growth in the future, right? So the surgical is more focused on the domestic market to start with and then export. So we have a set of businesses where we're focused -- most of our businesses, I would say, are focused on first getting an established position in the domestic market, and then following that up with export opportunities as they arise, with the exception of CDMO, which I'll kind of talk to in a minute.So when you take the surgicals business, one of the things we've stated for a while is that, both medical devices and consumables are predominantly imported into India. And we think that there is going to be more indigenization in the manufacture of these products. So we see that as a significant opportunity. The largest players are still foreign brands, and we see an opportunity for more and more indigenization.The second thing is that, health care as a percentage of GDP is definitely going to go up, right? So from a manufacturing company perspective, obviously, it makes more sense for us to manufacture consumables and devices versus thinking of it as a services play. So health care -- as health care expand, we do believe that -- so there's going to be an opportunity in this whole business like surgicals to both expand market share of domestic players like ourselves, and also play into a market that is growing much faster than our traditional engineering businesses. So that is the logic for surgicals.The logic for CDMO, again, we see this space in a very nascent position right now that all -- the Western world will continue to kind of send a lot of this business. There was a lot of it going to China and kind of then the Indian space is just beginning to pick up. So we see it as kind of a growth industry, as we look out the next 20 to 25 years. And so, we see that as a significant opportunity for us. In addition to that, in that business, China, those -- most of it was going to China and the Western world is increasingly growing weary of sending that business to China because of concerns around intellectual property protection. So this whole China Plus One strategy is a strategy that we see playing into that business well -- as well.Govind is also on the line, I believe and Govind, I don't know if you want to add any commentary in terms of what you prospectively see for the CDMO business. But that -- from a vertical selection perspective, that's the logic, sir. And Govind, perhaps if you'd like to add something on the vertical [ we have ].
No, no, you already covered it, sir. In case if there are further queries, I'll specifically take it. Already you've covered it well.
Sure. Hope that answers your questions.
Yes, sir. So a related question. So we have this electric -- 3-wheeler electric trucks, CDMO, then surgical. So what will be our peak debt? Because these all are -- these all businesses will take time to scale up and to -- come to profitability. So should we expect a sharp jump in debt over next 2, 3 years, sir?
Sir, this also we've articulated several times that the peak debt that we will allow is 2x annual free cash flow, okay? Right now, we're still running at debt less than net working capital. The good thing is that, at least kind of from -- I mean, from our perspective. And so -- and just to give you a sense, sir, obviously, kind of the way we look at it is, we're very focused on both capital allocation and capital efficiencies, which is why for the surgicals business, we basically partnered up with Premji to kind of reduce the capital outlay for us. And for the electric vehicle business also, we've partnered up and taken INR 1,200 crores of multiple, again, to basically reduce the potential capital burden on us. So we're very conscious of that. And like I said again, I mean, we have stated several times, and we will adhere to that, that the peak debt will never exceed -- will not exceed 2x annual free cash flow.
The next question is from the line of Vimal Jamnadas Gohil from Alchemy Capital Management.
The question is regarding Engineering business, sir, you mentioned that we have taken our pricing corrections. So are most of the pricing corrections done here? Or is there some pass-through left, which can be probably seen in the subsequent quarters?
No. SO, I just want to be clear, right, I mean, pricing corrections is the wrong language to use. In general, kind of what we do in the Engineering business is more of a conversion business, where there is basically automatically, therefore, correction for steel pricing. This is a -- so it's not like we are trying to kind of correct our price. It's basically -- it ends up being kind of a structure that we've always had with the OEMs in that business.
So yes, I should have used the word -- so I should have used my words better. Apologies. But sir, is -- are there -- do we see more -- do we see the volume growth and pricing growth getting normalized going forward is what I meant?
So, again, right, so the volume, as we look, so we're running close to capacity, but we are expanding capacity. So as our capacity expands, we will continue to see volume growth in that business, right? We see very good demand, especially in the large diameter business. And exports are beginning to pick up. So -- and on the domestic business. So, as we expand capacity, volumes and business will continue to grow.As far as pricing is concerned, pricing is always kind of negotiated between the OEMs and us. And it's only the steel price that is basically kind of in effect kind of a pass-through.
The next question is from the line of Anika Mittal from Nvest Analytics.
Sir, my first question is, what is the growth outlook for the next 3 years?
What is the growth outlook for the next 3 years?
Yes, sir.
Okay. Yes. So, ma'am, I think broadly in terms of the TI-1, the current businesses, we believe we'll be kind of getting closer to 15% kind of in the TI-1 current businesses.
Okay. And sir, how much CapEx company has incurred in the quarter 1 of the financial year '24?
INR 70 crores is the amount for the quarter.
For all the businesses like EV business and all other main business of the company?
These are the TI-1 businesses, ma'am.
And for EV business, sir?
So for EV, the -- do we have the specific CapEx of how much?
This quarter, we have spent only INR 20 crores during the quarter. Till last year, we have spent and remaining CapEx and [ OpEx ].
The next question is from the line of Anupam Gupta from IIFL Securities.
So, I have questions on the 2 ventures which you announced in this quarter with Jayem Auto. So firstly, if you can talk slightly on the current and longer-term plan for eHCV business? And what will Jayem play a role in that? And similarly on the R&D sort of joint venture, which we have done, is that -- how will that benefit in terms of the backward integration, which is targeted, if you can just maybe talk about that?
Sure. So, Jayem has predominantly been an R&D shop, and I'd say they are probably -- they are the leading R&D shop in India for automotive. So they have already developed a prototype for us on the small commercial vehicle. And that prototype, we are going to go into homologation hopefully by the December, January timeframe. And by first quarter next year -- maybe late first quarter next year, we hope to basically go to market with that product. So we want to kind of -- as we kind of grow our presence in EV, we need significant R&D and therefore, we see them as a good partner in that journey from an R&D perspective. They are also keen in specifically kind of participating on the production and go-to-market journey in the small commercial vehicle. So for -- that's why we have the TIVOLT subsidiary, which basically they have a 20% share in and we have an 80% share. So I hope it -- that gives you some color in terms of the nature of relationship on both of those.
Sure. But is it more towards, let's say, if I were to talk about, you had earlier talked about the BMS part looking at integrating BMS in-house and other things in-house, is that where this R&D JV is?
Absolutely. So one of the areas definitely we will start focusing on with them is what I would call kind of just the [ E&E ] integration, right? So kind of to start with, I think, like we've said, India is going to import and we will -- or import or kind of work with foreign technology for most of it. But we do see the opportunity to first get into just the [ E&E ] integration components, but then later at a later stage, get into the components themselves. And yes, that's definitely part of the intent as we move forward with Jayem as well.
Sure. And one other question, now that you have almost the entire gamut of products, or will have the entire gamut of products on the productive side of EV, how do you see this helping you in the distribution side of it? So is it possible that a single distribution channel for everything? Or how do you look at that aspect over the, let's say, medium term, how do you develop that?
Yes. So no, there definitely won't be a single distribution channel for everything. I think the truck business, we're starting off in a direct model. So without dealers and distributors, with a lot of the sales are heavily kind of B2B versus B2C and it requires a significant transformation in terms of thinking in the way the business is approached. So I would think, Anupam, it'll come down to kind of 3 sets, right, kind of one which will be kind of more retail and which is starting with urban and suburban, which will be for the 3-wheeler and the small commercial vehicles, though, they will both develop independent dealerships. The tractor side is going to be more rural by nature, and therefore, will also have dealers and the direct -- the 55-tonne side, the truck side will be direct.
Understand. Okay. And one small question, although not directly -- so basically for the CDMO side of it, there was one small announcement, which had come in, not from you, but from the customer side of it in terms of partnership for some supply of technology. Was that something meaningful? Or if you can maybe give a picture on that?
Yes. So maybe Govind can talk to that.
Yes. So this is for -- I think you are talking about the announcement from Anupam Rasayan?
Yes.
That was related to continuous process of flow chemistry and we have created that because we have successfully established the flow chemistry and continuous process and agrochemical. And now we are collaborating with them to get that technology into pharma products also, and that is, whichever pharma products. We are working with them that to be exclusive to us and it will be used both for generic, as well as for CDMO business for the [ innovation ] and the emerging pharma companies.
The next question is from the line of Nishit Jalan from Axis Capital.
My question is on the stand-alone mobility business on the Tube and the chains business. Just wanted to understand, is there any scope of gaining market share with any of the OEMs, where we are not present to the extent we would desire to be there? Just wanted to understand how will we do in the core business relative to the industry growth. So what is the scope in terms of new product addition? Or in terms of gaining market share with certain customers or basically adding new customers all together, where we don't have any presence? If you can share some thoughts around that, it will be very helpful.
Yes. So on the -- like -- I think there was a question earlier. What we've indicated is that, TI-1 will grow at about 15% a year, right? Now, obviously, the question is, what is driving that growth? It's predominantly kind of the tubes in the Engineering business because that's over 50% of the -- and then that's for -- and followed by the Metal Formed Product division. The -- in far -- as far Engineering, to your question, see, one of the things that we're developing is, first, we had developed a kind of a North-South split where we had -- where we added capacity in the North and that allowed us to serve the customers in the North. Now, we're adding more geographic presence over time on the West as well, and we think that kind of adding geographic presence -- because this doesn't -- it doesn't travel so easily, it's expensive from a logistics perspective. So we do believe that just kind of getting more into the individual kind of zones will help increase market share in each of the individual areas, but also increasing the number of products, right? So kind of as we go more into large diameter, we're increasing our range there, that allows us to serve a fuller range of product to our existing customers. We're increasing service levels by providing cut lens product to customers whenever we can, that's also increasing our value addition in the mix. And obviously, exports is continuing to increase. So across those 4 dimensions, basically, is allowing us to increase at what we would call above-market growth rate levels.I don't know that answer -- hopefully, that answers your question.
Yes. That answers. So, Vellayan, just one clarification. When you talk about 15% growth, what is the underlying industry growth that you are kind of assuming? I'm just trying to understand what is the outperformance that you can do in the core business compared to the industry growth.
Yes. I mean, see, it's tough to predict kind of what the underlying industry growth is. What we do is [Technical Difficulty]
Ladies and gentlemen, the line for the management seems to have disconnected. Please stay with us while we reconnect with the management.[Audio Gap]Ladies and gentlemen, we thank you for your patience. We have reconnected with the management. Sir, you may proceed.
Yes. Sorry about that. So what we were talking about in terms of growth in kind of in -- we said it's difficult to predict kind of what the market growth is. How -- I mean, we are very committed to delivering this 15% growth. And so -- and I talked about the Engineering business with tubes, the answers are similar with Metal Formed Products as well, where we're expanding our market share in those businesses. So it's an approach we're taking systematically to expand market share wherever we are.
Sure, sir. Just one follow-up. Few -- in the past con calls, you have talked about that the TI-1 business will grow at high single-digit CAGR, but now you seem to be a little bit more confident of growing at mid-teens. So, is it just the low base of the industry that is giving you confidence? Or do you think that you have introduced some products or you are looking at exports in a much bigger way or some other plants have come up because of which you think that you can grow at a much higher pace compared to what you were thinking maybe a year or so back?
No. Honestly, I think in each of the businesses, we have kind of revisited why there is not enough opportunity for growth, right? And so, each of our businesses are constantly looking at that. And it's one of those classic approaches where when you take a set of businesses and say, what is the opportunity to kind of really grow them. You can take a broader view to market share -- I mean, a broader view then allows you to say that you don't have as much market share as you thought you did. By basically saying that we can get into more products, more geographies and more customers, right? That's effectively what we've done in each of our businesses. It's very similar to kind of this Danaher approach and what we're doing is, taking a more expansive view of where we can go in each business. And, yes, you're right, that is allowing us to kind of go more bullish in terms of what we think can be achieved in the existing businesses we've got.
[Operator Instructions]
Anupam, if there are no further questions, we can close.
Sir, we have one participant who has joined the queue.
Okay.
Yes. The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Sir, any update on the optic lens business? Are we -- where are we in terms of the -- in terms of ramp up? Are we closing the pilot step soon and evaluating commercial investments there?
In this business, we are -- we -- just from the development side of this, we are setting right our processes and even customer is helping us in that and hopefully, we'll see going forward, we will ramp up the production here.
Yes. So, Jinesh, again, the answer is that, it is still in development, like Mukesh said. It's clearly kind of -- it requires customer support in helping us bring it up, right, because the technology is fairly complex. So it's tougher to kind of give a determinate answer this time, but the customer is helping us in the process. So we're kind of fairly bullish because of that.
Okay. And the second question is on the railway business. So given so much of our focus of government to modernize railways and the Vande Bharat program, which is there, how do you see our railway business to ramp up over next 2 to 3 years or maybe even 3- to 5-year period? How big can be the opportunity for us?
So, Jinesh, I think kind of the answer is, obviously, different for CG and TI to a certain extent, right, because CG is a lot more in the propulsion and in the loco and TI is much more in the bodies for the coaches. The CG business, so I think we've already talked about on the CG call, the significant opportunity we see there. On the TI side, we do see opportunity, but the first step that has to happen is that, the railway that's a start kind of releasing these orders, which we -- like we said, we expect to start happening at the end of this quarter. There's definitely, looks like a lot of demand in terms of what they have to build. We're just not seeing that demand hit the ground yet in terms of -- so that's basically been the challenge that we are still waiting for at this stage.
Okay. But like our other TI businesses, are we looking at additional revenues to grow? Is there scope in TI from the railways sector look beyond body, are we looking at additional components or technologies in TI as well for railways?
KRS, do you want to answer that?
There are 2 areas in which we operate in TI. One is for the fabrication assemblies in coaches, and the other one is the structurals for wagons. Now, wagons are also looking up in the next 2 or 3 years. We also see some upside in the wagons' structurals going forward.
Okay. Got it. And lastly to clarify on the Engineering business, you talked about expanding capacity. So is it beyond large diameter tubes where we're doubling capacity? Or you are referring to large diameter tubes only?
So, we are adding in all 3 verticals capacity in Engineering, which is cold rolled strips, tubes, as well as for exports business in large diameter.
The next question is from the line of Sundar S. from Avendus Spark.
Sir, a couple of questions. The first one is on Lotus Surgicals. I just wanted to get your sense in terms of how should we look at this business. Because from a couple of years ago or in terms of FY '22 and '23 numbers that we've seen from the MCA filings to what we have today, the business doesn't seem to have really grown from the Lotus Surgicals perspective. So what is the kind of opportunity size? I understand there is an import substitution opportunity here. But what's the size that you are looking at and what clearly the vision for this business is, sir?
Yes. So we -- I mean, we feel confident that we can deliver more than 20% revenue growth on that business year-on-year and we can expand margins in that business. So this first year, like you said, you've got data from MCA filings, it has been flat a bit historically. But this is what we definitely believe we can deliver from the business. So you will start seeing that data. The -- for the quarter, do we have the growth numbers?
Yes. See, for this quarter, the Lotus has done INR 39 crores of sales as against the INR 35 crores in the previous year same quarter. With respect to the PBT, they have done INR 6 crores as against INR 5 crores in the previous year, 20% up from the PBT level.
Right, sir. So, sir, from a longer-term perspective, if I were to look at this business, the opportunity is going to be mainly import substitution, would that assumption be right, sir?
But we also see exports as an opportunity after that. So -- and then it's a base business for us. So we would see kind of wound care more broadly. And so, we'll have to start thinking of other products we can add. See, we've basically in developing a foundation on each of these other businesses that we can keep building upon, right? So it's not like we would just stay just with the current products as we kind of go forward, right? Sutures, we'll then expand into other wound care products and into other products in the medical space as well.
Truth be told, I think from our earlier stance, 20% is sort of a disappointing number that I look at, given that there is so much of non-linearity opportunity that can emerge from there. That's would be a last point.
Yes. Again, I mean, I do think that -- I mean -- so hopefully we will deliver better than 20% numbers. So when we initially gave guidance, I just want to be conservative because every quarter, you'll be asking me how much we did, worried about that. So, obviously, we wouldn't also get into it. We see 15% growth in our base business and only saw 20% and this we won't get into it now. So we, obviously, see it from that perspective as well. So yes, are we going to see some non-linear growth? Yes, we definitely believe if that's the case. The -- so our perspective is that, like I said, I mean, part of the challenge is, it just kind of entered kind of -- we just got into it like literally 2 months ago, right? So I don't want to put -- start putting so much near-term pressure saying, let's just say, I commit like 30% to you or is it whatever. So I don't resent next quarter and then the question is going to be why didn't you grow 30%, right? I mean, I'm just saying we need a little time for some of the new businesses, right?
Sir, in the second part of it again towards TI-2, as we would call it is in terms of electronics. This is something that a couple of years ago into AGM, we assigned that this would be the -- this is where we are looking at acquisitions a lot. This is where we will start having non-linearity coming in from. But apart from Moshine, there's nothing that's happened there. Sir, any updates from that side?
Yes. We continue to explore the sector. It's a sector that we want to be kind of very careful about because whatever first that we take, we want it to be a bet that works, right? I mean, it's the same thing even with medical consumables, it took us a while. I mean, it took us like over 2 years to kind of get to the first kind of bet that we made. And so, even if it was something -- so I'll tell you, kind of like, now, we're kind of going more down this space of, it might be JV or greenfield versus kind of doing something like an acquisition in electronics. So it takes a while to identify the right sector, identify within that business. Electronics in itself is a huge ocean, right? And so, we want to be kind of very clear on the right things we do. So, we continue to kind of explore it fairly intensely. But I just think that we're not going to get pressured into doing it at any particular point in time. We continue to kind of -- we think there's a lot of growth and when we do it, we want it to be researched and have it be the right thing to kind of to get into.
Right, sir. And one last one is that, I'll just shift that question the other way around to see if I can get more insight. But should we look at debt repatriation this year, given the cash flows that we generate on the stand-alone business?
Debt?
Repayment this year?
Debt repayment?
Yes.
No, because like we've said, I mean, they'll -- between kind of the TI-2 businesses is enough to kind of -- and the growth in TI-1, right? Now, we are guiding 15% growth in TI-1 top line -- I mean, again, I want to be careful on saying top line because it depends a lot on steel prices. There is enough to kind of to -- enough good uses of capital for us.
So what is the underlying CapEx that we've drawn for the next 2 years, '24, '25?
So, again, I can't be deterministic about it. That's why -- I mean, like we've given broad guidance, I said debt will be less than 2x free cash flow, right? So now you can set a limit as to what the maximum CapEx can be there. So -- but the way I've always looked at it is this is going to be opportunity driven, right? If I -- if we -- see, what we've been able to see is, is there significant opportunity? See, what we have to recognize as we kind of look out for the next decade actually is that, India is going to be capital short for what it needs to do. The number of sectors that have to grow in this country. Right now, there's not enough capital to kind of fund the [Technical Difficulty]. But we are very careful about it saying like I don't want to be so burdened with debt that it makes me uncomfortable in the operating business. So, which is why the approach we've taken with EV, or with the medical...
Lotus.
Yes, is that we will work with partners, right? I mean, there is capital available, right? There are good partners. We want to partner with good people. So where -- I'm -- we're centrally kind of driven by what we see as growth opportunities, right? And again, they don't have to be growth opportunities that have to deliver next year or next quarter, right? And there is a continuous thing -- I'm continuing to say, we have to look at what are the sectors that are going to form a majority of GDP as we look over the next like 15 to 20 years. We want to start planting seeds in those sectors, right? Like you know, I mean, like if you plant a seed it takes time for the seed. That's what we're focused on at this stage, right, what are the sectors we want to plant seeds in. So that is why I'm saying that, can we tell how much, right? We can't tell, right? But that's why we think kind of this broad guidance should give you some level of comfort saying that we won't take more than 2x debt -- I mean, 2x net cash flow as the total debt on to our balance sheet, right?
Right. And then my question on CapEx, which is very specific to TI-1.
So, that's what I'm saying. TI-1 team continues to generate cash. Every year, it generated cash. It continues to generate cash even after the CapEx that's required for TI-1s growth, right? Whether that cash kind of drops to the balance sheet, depends on what we do on TI-2.
The next question is from the line of Vipulkumar A Shah from Sumangal Investments.
Sir, can you share the capacity on the electric 3-wheeler, electric commercial vehicle side and truck side? And what will be our CapEx for each of these products cumulatively?
So electric 3-wheeler, we have capacity for about 70,000 per year, okay? And the heavy commercial vehicle, we have capacity like we've said, let's say, between 3,000 and 3,600 a year. And on the tractor side, we've now built up capacity for 25,000 a year.
And what will be the cumulative CapEx for each of these products, sir?
I would roughly put it in the range of about INR 300 crores to INR 350 crores per product, take the 3, combine it at about INR 1,000 crores.
And that will be spent over the next 2, 3 years, right, sir?
No, this is what's already been spent for the most part, right? So I would say that half of this only -- maybe INR 200 crores has to be spent, all the rest has already been spent.
Oh, INR 700 crores, INR 800 crores is already spent?
Yes, sir.
Okay. And likewise on CDMO and surgical side, what should be our CapEx, sir, if it is possible to share?
Surgicals is an acquisition, sir, it already has capacity We're not going to spend more on that right now. It's very minimal what we'll spend. And CDMO, we've outlined INR 300 crores right now.
The next question is from the line of Prateek Poddar from Nippon India Mutual Fund.
Vellayan, just one small question. The way you've built up capacities on your electric mobility side from a BOM cost perspective, localizing cells, is that something which is a big opportunity or can be a big opportunity for you? Or you're not thinking about it given that itself will be a big runway of growth, right?
So, Prateek, what we've been very clear on is in terms of cells, we will buy. We will not kind of make our own cells, right? We do see that localizing is going to happen because there are several large players that are setting up capacity. And we will buy from those large players once they've established this capacity and stable capacity in India. So we definitely see that as an opportunity. We also think that that will help reduce prices. One of the things I'm always bullish about is when Reliance gets into a business, prices drop. So we do believe that prices for cells will come down over time.
And you are okay buying cells from domestic players as long as that [indiscernible] with your product?
As long as -- once -- that's what I'm saying. See, the entire supply chain will come to India, but it just takes time, right? And so, that process, we have to give it right? So I don't know when the local suppliers will be there with cells that are as safe and as good as imported cells. But I have absolute belief that it will happen, Prateek.
The next question is from the line of Siddhant Dand from Goodwill.
Could you just give us an idea on the 2-wheeler automotive chain business like what's our market share there, OEM versus aftermarket? And how much growth are we expecting here? And what's the EV risk that we face over here?
So like you are aware, 2-wheeler industry in the Q1 has not done good. But -- so we -- the OEM, our shares are intact and we are working on aftermarket share as of now to continue the growth momentum. But, however, given the conditions of 2-wheeler not doing well, that's why you're seeing that.To answering to your question on EV, we don't see next 7 to 10 years because the kind of vehicles that are available on the road, this itself will consume huge aftermarket volume going forward. So we don't see that. But, however, OEM side, penetration on 2-wheeler is expected to be around 30%. And there also, there are some inquiries coming, how we can develop the change on the business, which are too early stage to comment on that. We are working on it.
Just to clarify, I mean, I think one of the questions was what market share do we have in OEM and [ aftermarket ]. Okay. We don't share kind of specific market share data...
Yes. Just a rough idea.
Yes. I mean, so just to think of it, OEMs is predominant -- for 2-wheelers, it's predominantly, what 3 suppliers are there?
Three suppliers are there.
Yes. So 3 suppliers kind of cover most of the market. And on SPD also kind of between the spare parts divisions of the -- again, I would say, 3 players, which is a spare parts divisions of the OEMs, and then 2 aftermarket players have the larger shares, right?
Including some Chinese imports.
Yes, on SPD and -- but to the other question on EV, yes, obviously, OEM demand will drop as they start shifting a bit more to EV. But like Mukesh said, anybody that's moving away from a hub motor, some of those players are also beginning to look at chains, if you move to a frame-mounted motor?
Okay. So there is potential for chains also in -- over here, not just belts in non-hub motors?
Actually, there are chains getting supplied right now.
Correct. I'm aware in some bikes, but how about scooters?
Yes. That's what I'm saying, it's a smaller number. And therefore, that is why we've always said that EV is a threat to this chain business.
The next question is from the line of Anupam Gupta from IIFL Securities.
Just a small question on the TI-1 side. You said you are very high utilization. So currently, so let's say, in terms of capacity expansion, when do you think the fine blanking, large dia and the general tube capacity will come in and what sort of expansion are we looking at?
So, Anupam, by end of this year, capacity expansion, almost 70% will be over, some part will spill over to the Q1 of next year. But we expect entire capacity expansion [Technical Difficulty].
And what sort of addition are you looking at in terms of, let's say, percentages?
You can say about 30% incremental capacity.
Okay. And that should basically be good for next couple of years ideally in terms of growth?
Next 2 years should be good to go.
And I think we don't have any further questions. I'll hand over to you, Mr. Vellayan for any closing comments.
Yes. Nothing else, Anupam. But I think like I said, the broader opportunity I think in India, I'm just getting more bullish on as we begin to look at the number of changes. I mean, also what we see constantly is the government is very supportive of bringing more and more manufacturing back to India, whether it's electronics or other industries. And so, that's also kind of extremely encouraging because I think -- and so what we have to really look at is this constant balance between kind of growth in existing segments and the opportunities that are being -- are presenting themselves in the new segment, which is what we'll continue to stay focused on and we continue to be very bullish on this as we go forward.
Sure. Thanks a lot. That's all for the time, sir. This was helpful. Rohan, we can close the call now.
Thank you very much, sir. On behalf of IIFL Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you.
Thanks, sir. Thank you.