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Tube Investments of India Ltd
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Ladies and gentlemen, good day, and welcome to the Tube Investments Q4 FY '22 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. Over to you, sir.
Thanks, Disha, and welcome, everyone, to the Fourth Quarter Conference Call for Tube Investments of India. From the management, we have Mr. Vellayan Subbiah, Executive Vice Chairman; Mr. Arun Murugappan, our Chairman; Mr. Mukesh Ahuja, who's taking over as Managing Director recently; Mr. Mahendra Kumar, EVP and CFO for the company; and Mr. K. R. Srinivasan, who heads the Metal Formed business; as well as Mr. K.K. Paul, who heads the Mobility business.
To start off the call, I'll hand over to Mr. Subbiah for the opening comment, and then we can open up for the Q&A. Over to you, sir.
Thanks, Anupam. The Board met yesterday and approved financial results for the quarter and for the year ended 31st March. And the Board also declared an interim dividend of INR 2 per share in February. And now we've recommended a final dividend of INR 1.50 per share, okay? .
The revenue for Q4 was at INR 1,735 crores compared to INR 1,480 for the same period in previous year. And revenue for the full year was INR 6,359 crores compared to INR 4,256 crores for previous year.
The PBT after exception was INR 173 crores as against INR 162 crores for the same period in the previous year. PBT for the year was INR 628 crores compared to INR 359 crores for the same period in the previous year.
ROIC, 46.5% for this year compared to 35.1%. Accumulated FCF was INR 205 crores, which is at 43% of PAT. And that was lower than the same period in previous year. This is predominantly because of the free cash flow in previous year was higher due to lower NWC level, right, in terms of how we start the year.
In terms of overall business, the Indian auto industry has continued to kind of face challenges. TII revenue for the quarter, like we said, was INR 1,735 crores. And then I'm getting to the individual segments.
Engineering revenue was at INR 1,030 crores compared to INR 854 crores. And PBIT was at INR 103 crores as against INR 92 crores in the same quarter, which is a growth of 12%. And full year revenue was INR 3,868 crores versus INR 2,337 crores (sic) [ INR 2, 317 crores ]. And the full year profit was at INR 376 crores versus INR 251 crores, a growth of 50%.
Metal Formed was at INR 336 crores compared to INR 335 crores. And PBIT was at INR 39 crores as against INR 37 crores, which is a growth of 5%. And full year revenue was INR 1,240 crores as against INR 1,032 crores. And that was basically a profit of INR 136 crores -- PBIT was INR 136 crores, which is a growth of 81%.
Mobility for the quarter was INR 249 crores versus INR 301 crores last year. The bicycle business has been down. And PBIT was at INR 13 crores compared to INR 17 crores in the previous corresponding quarter. The revenue for the full year was at INR 963 crores compared to INR 847 crores. PBIT for the full year was INR 55 crores as against INR 44 crores.
Revenue for the quarter was at INR 194 crores compared to INR 92 crores. The segment also includes trading revenue for the sale of TMT bars. And PBIT for the quarter was at INR 4 crores which was the same as in previous year. And revenue for the full year was at INR 562 crores versus INR 263 crores. And profit for the full year was at INR 36 crores versus INR 13 crores.
In terms of key development, the company has subscribed to 17.52 crores share warrants for CG Power and Industrial for INR 150 crores and has paid INR 37.5 crores, being 25% of the total warrant subscription amount. During the quarter, the company exercised 9 crore share warrant of CG Power out of the total warrants of 17.5 crores and paid INR 57.78 crores, representing the balance 75% of consideration for the warrants exercised. Right now, the company holds 58% on a fully diluted basis in CG Power. And also the corporate guarantee of INR 1,365 crores in favor of the lenders of CG Power has been released.
During the quarter, the company has incorporated a wholly owned subsidiary. TI Clean Mobility Private Limited has been corporated at [indiscernible] engage in e-mobility and electric 3-wheeler manufacturer. As part of the e-mobility business, TICMPL also acquired a 70% stake in Cellestial E-Mobility on 4th March, which is in the business of manufacturing electric tractors.
CG Power and Industrial, a subsidiary in which the company owns a 58% stake, in this year's consolidated revenue of INR 1,507 crores during the quarter as against INR 1,118 crores in the corresponding quarter of previous year. PBT for the quarter was INR 139 crores as against INR 19 crores in the corresponding quarter the previous year. Consolidated revenue for the full year was INR 5,561 crores compared with INR 2,964 crores for the previous year. The consolidated PBT is INR 528 crores as against a loss of INR 117 crores in the previous year.
Shanthi Gears registered a revenue of INR 104 crores for the quarter as against INR 72 crores. PBT for the fourth quarter was at INR 19 crores as against INR 12 crores. And the revenue for the full year was at INR 337 crores as against INR 216 crores. And PBT for the year was at INR 59 crores as against INR 26 crores.
On a consolidated basis, we have INR 3,415 crores,in revenue and PBT of INR 295 crores for the quarter. And for the full year, it was INR 12,525 crores in revenue, and the PBT was INR 1,135 crores.
Commenting on the financial results with M.A.M Arunachalam, the Chairman basically said the results for the quarter show a steady performance by the company even in the wake of challenges on account of supply constraints, lower domestic demand, increase in fuel and commodity prices, part of which also was the result of the war in Ukraine.
Exports have, however, consistently delivered good growth in Tubes and Industrial Chain businesses. The company is taking various measures to mitigate the impact of the above challenges in the business. Our new initiatives in Clean Mobility will bring diversification of existing portfolio of our business to fuel growth.
Anupam, with that, I will stop, and we'll be happy to turn it over for questions.
Sure. Disha, you can open up for the Q&A.
[Operator Instructions] We take the first question from the line of Vimal Gohil from Union AMC.
Yes. Sir, my first question is regarding your margin performance. I'm not sure if you've sort of addressed this in your opening remarks, I joined a bit late. In the Other segment, our EBIT margins have fallen quite sharply as compared to other segments, I mean, sequentially, for example, Engineering has -- Engineering margins have grown. But 6.6% EBIT in others has fallen at 2%. Just wanted to get a sense on what has transpired there and what is the outlook.
And secondly, just if you -- if we can give any update on some of the businesses that we are incubating, how are they scaling up? We've been talking about these newer businesses for about a year now. So any update over there would help?
Yes. So the other segment, like we said, the big change is how we report the TMT bars. That was causing the EBIT to drop because the TMT bars now is getting reported as a revenue item instead of just a commission item. So that's the cause for movement in that. So there's no drop in profit. It is just the denominator went up because trading revenues are reported there.
So sir, are these margins -- will these margins -- what would be the sustainable margin then in this business now going forward? Are we planning to increase our manufacturing portion there? How should we look at this?
No, the TMT bar will continue to be trading only. We won't be manufacturing them in-house. That's what you're asking.
So what should be the steady set margin there?
That's difficult to guess here. See, this segment comprised of industry chains, which is one of the most profitable businesses for us. So there the margins will continue to be in the same range. Depending upon how the TMT revenue comes up in future in terms of trading volumes, the overall margins may keep fluctuating.
Got it, sir. Sir, anything on the new businesses?
Yes. I think like we've said on the new businesses, I mean these businesses are not a material part of kind of our overall revenue yet. And these new businesses will take time to ramp. So when they do start ramping, we will basically kind of start driving more [indiscernible].
Sure, sir. Sir, and just on the overall outlook on the engineering piece, exports have done exceedingly well for us during this year. If I can just -- it's a 2-part question, I mean, what is the overall outlook here, I mean, in terms of the industry that we are serving, what are we hearing from our end users over there?
And secondly, out of the growth that we have reported this year, how much of that would have come from maybe a pure volume growth and how much of the growth would have come from the pricing that we have -- the pricing increases that we have taken to offset the commodity cost pressure, if you can break that up for me, please?
Yes Mukesh, this side. As you are aware, we have started for the exports journey, almost 4, 5 years in the good work. And our OEM approval is always been taking place. And we foresee even exports outlook is going to be strong only. But however, we see in the current quarter and next quarter because of the buildup in the inventory on the sea, there can be a little bit drop, but overall outlook looks to be strong only.
And to answer your question, 60% of the growth is coming because of the volume growth, and maybe 30%, 35% growth is coming because of the selling price increase because of the raw material.
All the very best for FY '23.
Thank you.
We take the next question from the line of Abhishek Ghosh from DSP Mutual Funds.
Sir, if you can just broadly start with effective 1st April 2022, the changes that we are seeing in terms of Mr. Mukesh has been elevated as MD and, sir, you have moved in as Executive Vice Chairman. So is there a change in role or it's status quo, if you can just broadly start with that?
Sure. So the basic intent now is that Mukesh will -- his primarily focus, so both of us will kind of -- will talk about kind of where there be [indiscernible]. But Mukesh's primary focus will be on all of the existing and what I would call kind of the [ X, Y ] businesses of the company. So kind of the Engineering business, the Mobility business, the Industrial Chain business and our Metal Formed businesses. So Mukesh will take primary charge for those businesses and the growth and all that.
And then I will start playing a broader role in terms of the newer businesses, which include E-mobility. Also, you saw that we've taken out Kalyan Paul who used to look after Mobility business to kind of to become the head of the E-mobility business. So I will be spending more time on growth and new initiatives, and Mukesh will be spending more time on existing businesses. Not to say that we're going to separate that by 100%, but that is the broad thinking because both require significant focus, and we felt like it requires separate people to be focused on each of areas. Does that provide clarity?
Yes. And sir, just if you can just broadly talk about the time lines of the EV launches both in the 3-wheeler and tractor, how should we look at it, some time lines and what are the experiences as of in terms of the product acceptance in EV market segment?
Sure. I mean the 3-wheeler is the one that we can kind of make more statements about because we're most far along that. On the 3-wheeler right now, we are planning for a launch, hopefully by about September.
And the -- we are kind of quite far along the homologation process there with the vehicle, and the plant is now pretty much ready. So I think we're in kind of -- we've had very good reception from the initial set of dealers and potential customers we've spoken to. We are quite excited about that. And like we said, kind of the plan to launch the product on the market is by September.
On tractor, I think it could take up to the -- it could -- I mean we first got to go through the homologation process. And I think we'll be able to be -- give you a more deterministic time as to when we will launch that after we finish homologation. So we're going to kind of get into homologation, submit the homologation by the end of July.
Okay. Okay. And sir, just in terms of the overall tubular business and the other parts of the business, mostly for Engineering I think it will be relevant, is the kind of price hikes that you have taken for the entire year, and is there some price hikes which has not still kind of cornered by OEM which you are kind of pushing for given the steel price increase? Some color there will be helpful.
Like you're aware, we are having a good arrangement with all the OEMs or backup for the steel price increase, whatever happen, it's a question of a little bit lag, sometimes 3 months or 6 months, we are able to recover that fully.
But however, the challenge is whatever the inflationary costs are arising on account of fuel and the yield, there, we are going through some negotiations with even the OEMs as well as we are planning cost reduction inside the company to mitigate even that impact. I hope that answers your question.
Sir, what would be the cumulative hike that you would have taken for the year that you would have got?
If we see last 2 years, I think the raw material prices has gone up by almost 100%.
You would have got a corresponding 30%, 40% kind of a hike, is that a fair thing to assume?
More than that.
Okay. Okay. So basically, the entire growth is coming because of price, on the volume front it will still be lower?
No, exports have mitigated that whatever domestic market degrowth is there, that we have mitigated by doing more exports. So overall, there is a growth in the volumes also about [indiscernible].
Okay. Great. And just one other thing is, if I look at the other expenses as a percentage of revenue in the current quarter seems to have moved up a lot, is there a freight element or is it because of the TMT bar, the way you are recognizing the revenue, what is the exact reason for that?
Which period are you comparing with, Abhishek, year-to-year or quarter to quarter?
Sequentially, sir. Sequentially.
Sequentially, meaning Q3 to Q4?
Yes.
I mean this is just the scale of operation, there's nothing extraordinary and nothing special there.
Okay. Okay. A few more questions, probably I'll come back in the queue and best of luck to the entire team.
Thank you.
[Operator Instructions] We take the next question from the line of Maitri Parikh of Pi Square Investments.
So my question regarding EV has been answered. Now I have one more question that what is the export out of the total revenue?
What is the what? Sorry, we can't hear you. Exports?
Yes, exports.
For the company as a whole, it's around 12%.
Yes, company as a whole.
Q4, it was around 12%.
Okay. And FY '22 would be around?
Maybe a little bit higher, may be around 14%, 15%.
Okay. And one more question. That we have subsidiaries in Sri Lanka as well, right? So because of the economic crisis in Sri Lanka, what is the condition and what is -- where do we stand as a part of those subsidiaries?
There's no immediate impact because the subsidiary in Sri Lanka meant only to cater to our supply chain requirements. Imports and exports are denominated in U.S. dollars, so there's no impact. There's very little which is getting added to the value added because of the local operations.
Okay. And one last question that what would be our market share in the Bicycle segment?
I think it was around 27%.
27%. Okay. That's it from my side.
We have the next question from the line of Nishit Jalan from Axis Capital.
So my question is on your share of auto business. Over the last 2 years, auto industry has been in downturn, while you have done very well in exports and probably non-autos as well. .
So just wanted to ask what would be the share of domestic auto business in your overall revenues now? And if you can give some broad color within the Engineering and Metal Formed segment, it will be very helpful.
Broadly at the company level, still in the range of 55%, 45%. 55% auto. It will be higher in Metal Formed Products, maybe around 70%, 30% there. And then Engineering also, I think it will be in the range of 55%, 45% or 60%, 40%, 70%, 30%.
So basically you are saying 55% of total revenues is domestic revenues. Did I hear that correct, sir?
At the total company level.
55%, right?
Right.
And within the segment, it's closer to -- Engineering and Metal Formed is closer to 65%, 70%?
Correct.
So that means cycles you are excluding -- you are not counting it in the part of autos, right?
Yes, yes, cycling is not part of auto. We have the other industrial businesses, all those things which are not part of auto.
Okay. Sir, just if I can get slightly more color, within the Metal Formed business, especially the automotive chains, I understand that in both tube and chain business, we are a predominant player.
So are we well spread out across all 2-wheeler EV OEMs? Or there is some gaps we are not present across certain OEMs, and that could be an opportunity for us in the next few years, both on the auto 2-wheeler chain, door frames as well as on the tube business?
Sir, can you repeat it? [indiscernible].
So basically what I'm saying is you have 3 different subsegments within autos, right? One is automotive chain in 2-wheelers; second is the door frame for cars; and third is the overall tube business where you cater to all the segments.
What I wanted to understand was are you well spread out across OEMs within segments or do you think that we will have an opportunity to penetrate into newer OEMs where we are not present currently, and we are gaining traction there, and there could be some good opportunities. If you can give some color without naming the customers also? That would be very helpful.
Just to give you an idea, whichever businesses we are in, whether it is in chains or whether it is in door frames, we are having a good spread across all the OEMs. Even in the [indiscernible] business, where our spread is towards 2-wheeler, passenger vehicle, commercial vehicle, even the 3-wheelers. We are widely spread that gives the advantage to us as a company in terms of if one segment is not doing well, another segment is doing -- like the case in this quarter, commercial Vehicle segment is doing pretty well, but 2-wheeler, there is a little bit slowdown. That helps to performance as a portfolio.
Okay. Okay. And sir, the last question is, in all the TI-2 activities that we have present currently, what is the cumulative investment that we have already done over the last 2 years?
TI-2, not much actually, maybe around INR 50 crores...
It includes TICMPL.
Yes, that was...
So including the -- total investment including the EV, the optic lens, the truck body building, all the businesses combined, what would be the total investments that we would have done so far?
It would be around INR 210 crores, INR 240 crores.
INR 160 crores of that is in electric vehicle, and INR 50 crores is in everything else.
Just one more correction on what -- on your earlier question, you're talking about the auto industry intensity in MFP, right, MFP products. So that was definitely close to 90% because the industries are...
Sorry sir, I missed your comment. Can you please repeat it?
No. To your earlier question on auto industry intensity of Metal Formed Product segment, it will be 90%, 93% if you're taking only the MFPD segment, MFPD segment alone.
Okay. Okay. And could you be able to give some color on what would be aftermarkets within that? And I would assume that railways as a business has come down, and because of which the proportion of auto business has gone up in the Metal Formed business, right? Is that correct?
No, no, we don't give that subsegment information.
We take the next question from the line of Anupam Gupta from IIFL Securities.
Sir, I have a few questions on each segment. So in the opening remarks, you mentioned that cycles has been slow and which is obviously affecting in the segment numbers.
But how should we look at it from, let's say, next couple of years' perspective? Do you think domestic will improve or will remain subdued? And how much can exports offset that, the pickup?
Paul, you will take that question. Paul, are you there? Would you take that question?
I think -- Yes, I think overall, the game plan is to see how we can keep gaining share. Even this year, if you have seen, Mahendra mentioned that the 27% market share. So we've gained about 2% market share this year in a market that has been dropping. So in relation to the market, we have definitely performed better. Although the volumes have been lower because of the absolute drop in the industry volume, we've dropped much lesser than that.
But having said that, I think the way we are wanting to progress that is to see the newer opportunities of growth particularly in exports, then in e-com, in fitness and also in e-bikes. So these present big opportunities for us, and this will offset partly the drop in the trade domestic market and would help us to secure the plans that we've been -- within making.
So a lot of action has already been initiated over the last 6 months to see how we can scale up exports. And a lot of that is in the stage of negotiation, sample submissions, customers visiting us because a number of customers could not visit us due to all this COVID,which is now slowly being relax international travels, et cetera. And we hope to report much better number in the export scenario and particularly also the e-bikes scenario in the coming quarters.
Okay. So just to get one detail, what will be the share of exports and cycles in this year, broadly?
The share of exports now will be about close to 5%. But moving forward, this figure will move up quite dramatically. If we can actuate the plans that we have made and some of the customer connect that we announced establishing, which are in different stages of maturity.
Sure. That helps. Second question is related to the Metal Formed Products business. So obviously, railways has been muted for the last couple of years. How do you see it improving, let's say, we have announcement for one day warrant trades quite a few. So how do you see that business picking up? How soon can we see that trend in our numbers?
KRS, you will take that question?
We -- as we speak, the railways is preparing a lot for -- on this one day warrant project. We see good traction. By Q2, Q3, we hope the business will see [indiscernible].
Okay. Okay. I understand. And sure. And sir, one last question on the Engineering Products business. So in Engineering Products, last quarter, you had said that you will basically be looking to increase the capacity for large dia tubes. So has anything been finalized there? Or what sort of capacitization should we expect there because it was running at a higher utilization, as I understand?
Yes, we have taken some steps to increase the capacity at large diameter, which is as of now, it's a marginal increase. However, we are studying even for the much bigger CapEx in this segment of the business and which will take a call in coming 1 or 2 quarters.
Okay. And sir, just one last question. On the share of exports in, let's say, specifically engineering products and industrial chains, what should that be?
Engineering business, it is about 20%.
Okay, and Industrial Chains?
Industrial Chain will be around 40%.
We take the next question from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.
Yes. My first question is just if we dial back around 3.5 years, you had laid out a set of 7 performance steps, areas of improvement per se, sourcing, scrap realization being one key item there [indiscernible] revenue enhancement targets, et cetera, because the auto industry is now in a slightly more gradual recovery phase.
So on the sourcing and scrap realization front, from that perspective, if you look at that RM cost as a percentage sales from F '20 to Q4, the RM costs as a percentage sales has increased by around the 800 bps mark per se. Now how are those initiatives taking in? And how do we think about the margin improvements from here?
And just added to that, how to think about the PBT margins as we -- 2 years out, per se, we have ended the year at around 10% PBT margin. Can we expect the earlier lean productivity initiatives are to continue and yield anywhere between 12% to 14% PBT margins, per se?
Yes. So the short answer is yes. Obviously, kind of where we fall in that range will depend on where raw material prices go because that affects the denominator [indiscernible]. And I think, Shyam, like you correctly said, lean and productivity will yield more, and sourcing and scrap will yield less now because those efforts kind of at least are not going to be the larger drivers at the current point in time.
Okay. Okay. Okay. Understood, sir.
It's a huge opportunity still. The lean is, I would say, we're not in kind of another quarter away there.
Okay. So which business segments will we see these lean initiatives yielding more results, sir?
Shyam, lean initiatives, we have started doing across TII, and a Japanese consultant is helping us in this direction, so all the businesses are going to go through this.
No, I was just trying to understand how amenable we -- each segment, which of those are more amenable to those initiatives, per se. We have seen some improvement on the metal forming type for sure, which you had also talked about in the few quarters back. So are there further low-hanging fruits from these initiatives that can pan out in the next 2 years? That is what I was trying to get at.
Shyam like well I have said that we are just a quarter in the journey for the full journey through in productivity improvement, so it's a work in progress. Surely, there is a good amount of scope to increase the productivity across the company.
Low hanging fruit, then [indiscernible].
I understood. Got it, sir. Got it. Got it. And the other point on the capital allocation and inorganic opportunities per se, how do we incrementally think about it going forward, sir? Is that just from a thought process per se, how do we think about on that front, per se?
Shyam [indiscernible] and we said there's a maximum negative cash -- I mean, negative cash on the balance sheet that we'll end up with negative, right? So we have to borrow, the maximum we would borrow is up to 2 years of free cash flow.
Obviously, we're not close to that yet. And -- but we've also said in terms of inorganic growth, we will be very opportunistic. So right now, with kind of the market kind of -- I mean like -- I mean where prices are per assets, we don't see as much opportunity, so we continue to kind of track a whole lot of companies.
So it's basically, it's clearly going to be when we feel like we're getting a pricing that is not basically kind of -- that is attractive for us to get into these opportunities. And in the meanwhile, we'll continue on some of the TI-2 activities.
Understood, sir. That is helpful. Sir, one last question, if I may. Cycles as a segment, we saw a very good pickup just post-COVID per se. Now there is a -- started coming off, per se. So as on a 2-year basis, should we expect this segment to continue to be declining for the industry as a whole?
Just more trying to understand the dynamics there, and so therefore, only our lean initiatives can then improve our profitability there? Is that how to think about that segment there?
Yes, so I'll say broadly the -- we don't expect any significant market pickup. So the 2 things we will focus on, one is lean, and second is how we improve market share.
We take the next question from the line of Niket Shah from Motilal Oswal Mutual Fund.
I had a few questions. So first, if you can just give us some qualitative comments on how are you seeing demand on the auto side because we saw a substantial slowdown with 2-wheeler in the last quarter. .
But whatever checks we do, we do see some pickup on the rural side again. So if you can just give us some sense -- because auto is the largest part of your business, some sense on the demand side would be very helpful to start with?
To be very frank, any predictions on the auto demand, let's say, is anybody's guess. So what we are doing is we are focusing on what is in our hand internally like lean initiative, can we do the focus on the product portfolio and exports category. This is what we [indiscernible].
But as of now, it looks like that commercial vehicle will be looking a little strong. And 2-wheeler, there is a slowdown. And EV looks to be strong. And the EV portfolio also is picking up. That's how the broad phenomenon we have it. But as I said earlier, let us focus internally. That's better rather than forecasting industry.
Sure. That's helpful. The second question was on the lenses business. When do we see capacity coming up now for the plans that we had highlighted? So should we assume that in a couple of quarters, we should see our capacity coming on stream?
KRS you will take this?
Yes. On the lens business, like we were saying earlier there is a bit of a pause mode now because of the international travel restrictions that still continues. But we hope that it will get resolved in this quarter because the things are opening up. So second and third quarter, we'll see some good plans being made for the expansion in this segment.
So if I understand it correctly, it is likely to come sometime at the end of the third quarter? Or should that...
Yes, that's right.
Okay. Got it. Got it. Sure. And any comments, again, qualitative comments on the railway side of the business? Have you started seeing some pickup on that side?
Yes, Railway side, we are seeing good pickup like we were explaining about [indiscernible]. There are a lot of plans on railways [indiscernible] this project. So we see some good demand of some -- end of Q2 and Q3 onwards. Because the plans are being made now, tenders will be opened very soon. And the action will start from the end of year..
Got it. And final question is the raw material cost has been going up over the last couple of years. So it obviously distorts a numerator denominator and hence the percentage margin.
But would it be possible for you to give us some qualitative comments on, say, EBITDA per tonne. Has it improved in FY '22 or '21 because that might be the right way to look at it?
Mahendra?
So you're talking about EBITDA per tonne?
Yes, because if the realization goes up 100%, then the percentage margin comes down, but maybe the EBITDA per tonne would have moved up as well. So just trying to understand how should one [indiscernible].
Yes, basically, we don't measure that EBITDA per tonne in our industry. We go by the PBT percentage. And as you know, the operating leverage is kicking once the volumes ramp up. So that's the only show improvement going forward.
No, the question is more because of the pricing increase [indiscernible].
Yes. I think I will answer. Actually as far as the customers are concerned, OE customers are concerned, we have [indiscernible] as well as the raw material prices [indiscernible] totally protected. Even in some of the railway tenders, the price variation process are [indiscernible] where we are now protected to a great extent. Wherever we are also having [indiscernible] also, we do quite [indiscernible]. So if you talk of EBITDA per tonne, there would be some challenges in terms of maintaining the percentage because of the denominator effect. But other than that, in absolute terms, they are fairly okay in terms of recovery of the raw material cost increase.
We take the next question from the line of Abhishek Ghosh from DSP Mutual Fund.
Yes, just a couple of things. In terms of overall utilization and if I just broadly talk about the engineering segment and the railway part of it because these are -- auto has not done well and railways has also not picked up. So what will be the broad utilization in terms of the key factories that are kind of catering to these segments. Where will you be in that operating utilization levels?
We just do the capacity calculation exercise in almost 1 or 2 years advance. But generally, we don't share the capacity utilization. But I can tell you, next 2 years, we are covered in both the divisions, railway as well as engineering, to take care of any market growth which is going to come.
Okay. So where my question was, sir, that there's a significant amount of operating leverage which will also place -- there was a cyclical recovery in auto and railway demand was to come back. Is that something also we should keep in mind?
Answer is yes.
Okay. Okay. And sir, also in terms of the export part of it, you spoke about a lot of the new countries also kind of giving you approvals. So is it -- how should we look at the export journey for tube? Is it a function of more of more geographies getting approved and you scaling up? Or is it also will be a function of more products getting approved in many more geographies? If you can just broadly just talk about it, is it like maybe you have catered to 60% of the geographies, but maybe in terms of product, it is only 20% because it's the China Plus One factor? How should one look at it? Just some broad comments there will be helpful.
So like we shared in the past, it's a function of both. Our penetration is increasing in terms of geographies as well as the product. We have already identified close to 11 to 12 product categories, where we are going geography by geography and increasing our participation. And our focus remains more on the OEM side of the business, where the continuity of business is assured for at least 5 to 7 years' time.
Okay. And today, it will be fair to assume that out of the 10 to 11 products, 2 or 3 key products will be a prominent part of that export business today?
Yes, 2 or 3 products, we can say that, even at the international level, we are getting into a good share of business. But other 8, 9 product categories, we are at a very early stage, so a lot of work has to be done in terms of geography penetration as well as the customer approval.
As you are aware of, any OEM approval takes about 2 to 3 years' time. So some has already given a result in the last financial year, and the same work continues going forward also.
And in terms of geography also, is this largely U.S. and a couple of more countries giving you this entire revenues? I'm just trying to understand from that perspective.
Yes, it is U.S., Europe and even we started participating in China. Last year, even the China also we have done a good exports. And we are still looking for new geographies like South Africa, Brazil, and we are penetrating those countries where our penetration level as of now is [ less ].
Okay. So ex China, the incremental OEMs were giving you business. Is it like earlier they were procuring from China and now they are looking to diversify, that's the reason they are opening up. Or is it like you are now up the scale and you're able to better provide them at a better cost? How should one look at it?
It is like that, we do this work by studying even what is the imports happening to that particular geography. An account that in even China, there are certain products which were getting imported, and we started participating in those import substitution program and that has helped them.
Got it. Got it. And sir, just one last thing in terms of the engineering part of the business, since you have a very high market share in 2-wheeler tubular products, have you started supplying to some of these developed products to the EV manufacturers or EV OEMs? Or does your product get somewhere consumed in the overall EV vehicle is what my question is because the penetration in 2-wheeler has been fairly high.
Yes. That's the opportunity available for us, and we are participating. We don't know which will be the winner and which will be the losers. But as now, we have taken a strategy we are participating everywhere. So let's see how the development in the EV vehicle takes place. And we are participating in all segments in India.
Okay. So your product is getting approved by the new market share guys as the new players are coming into the EV segment in 2-wheeler.
Yes. Wherever it is a safety critical and quality requirements are there, we are running that race, very, very fast.
Okay. Okay. And sir, just one last thing in terms of the overall cash flow part of it. And I think the earlier individual also kind of spoke about it. So broadly, if you look at it, this year, working capital was a little stretched. You had some amount of working capital cash outflow, and you also had investments into CG Power and other things going.
But ex of that, if you look at it, you can broadly generate INR 600 crores, INR 700 crores of pre-CapEx cash flow every year at this current run rate. It can obviously improve, but that's the broad number at this point in time assuming working capital is stable. So how should one look at it in terms of how much of that will go into new EV initiatives? Is there a number there? Or will it come as opportunities come by or with the tractor and the EV investments, is it largely done? How should one look at it?
No. So I think we -- like we said, right, like the first off, we're constrained at one hand because we won't take more debt than we [indiscernible] of free cash, right? Second is like it will depend on kind of how quickly this EV trend picks up, right? But broadly, we will look at overall capital allocation across new businesses to manage against that constraint, right, which is not kind of going more than 2 years of free cash.
So I really think that at this stage, we're more -- it's a bit indeterminate because we don't know how quickly some of these sectors are going to pick up. So that the amount of cash required, like you know, we've taken a kind of a very -- the total [ burn rate of cash ] like the 3-wheeler products to market, each of the segments, right, we don't have more than a [ total burn ] of INR 200 crores to get the product to market, right?
Now the question is kind of once the product is in market, we need to see kind of what rate the products are picking up. And that's why it's a bit indeterminate at this stage.bit [indiscernible]. And that's what we have to kind of -- we kind of -- we get back once we have a better sense of this.
Let me clarify that there was no working capital challenge or anything last year. Actually, we started last year with a negative working capital because in 2021, because of COVID, the business started ramping up only towards the end of the year. And we had extended credit period and all, which gave us the benefit, which got normalized in '21, '22.
No, absolutely, sir. Not only limited point is from here on, you'll generate that INR 600 crores, INR 700 crores of free cash every year pre-CapEx, so that should be at normalized. I do take your point that FY '21 was an aberration. But just to balance that just one point, the whole -- you also had a thought that you also want to diversify away from auto, right?
Your dependence on auto is -- u don't want it to be very heavy. So is there -- because of the EV adoption curve, is there a change there or one should largely stick to that purpose?
So I think our articulation has always been this, right? If you remember from the first conversation, what we actually said is that our concern was that as an auto supplier, right, we were in a tough cost base.
And if you remember, even kind of the earlier conversations in 2018 and '19, our articulation has always been that the challenges in being an auto supplier is that we've caught with kind of big guys at either end of us, right, which is basically we're selling to auto OEMs who are like 10x our size, and we're buying steel from, again, steel manufacturers who are 10x our size. So industry position-wise, it was a very bad position to be in, right?
Now the way we look at auto OEM is slightly different because then you are in actually kind of more of a B2C business. And we -- I think that's a better position to be in.
The second is the discontinuity offered by electric, I think, is a large opportunity, right, which is basically in our mind, at least it's going to create a new set of OEMs that have as much cloud as the existing OEMs have today. I don't know if that answers your question.
Yes. No, I get that. So basically, you want to have some amount of pricing power, which you didn't have it earlier maybe because of the large scale of supplier and customers you're dealing with.
It's basically a conversion.
Yes. So whether it be an auto or non-auto, it doesn't matter, but you at least want to have some pricing power, that's a broad...
Yes.
Okay. And sir, just one last thing. What is -- so you're trying to do too many things in terms of trying to get your -- grow this company at a very fast rate. What is 1 or 2 broader things that kind of worry you today, if you were to just look back at it?
Right now, I think there are a lot things. See basically, the issues are this side, which is the biggest [indiscernible] is -- again, it's not just for me, but everybody is just worried about these raw material prices and basically inflation and price of everything, right, and what that's going to do to overall demand, right? Otherwise, I would say kind of before, I mean, otherwise, I would say that we're fairly -- coming out of [ core ], we are very well poised for a lot of growth. But these 2, I would say, are the biggest kind of -- our biggest concern at this stage.
We take the next question from the line of Aman Rakisha from [indiscernible] investments.
Sir, my question is on Shanthi Gears. I joined the call late, so if it's repetitive, I will just read the transcript. Some of the questions are we saw a very good quarter in your uptake in Shanthi Gears over the last 3, 4 quarters consistently. And last quarter, we saw a very strong order inflow. So was there any [ one-off ] in this quarter, of last quarter? And how are the order pipeline looking like for the outlook for, say, for FY '23?
The order pipeline is looking okay, but generally, we prefer to restrict this call only to TII related questions.
Okay. The only thing was can we have, sir, on Shanthi Gears maybe a request would be, if you can have a con call or some analyst meet, say, half yearly about it?
Okay. We'll consider that. And I think you can also write to the Investor Relations there and they'll be happy to answer the questions you have.
We take the next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services Limited.
My questions pertains to, first, clarification on the lens business. So are we indicating that capacities will come by 3Q FY '23 or plans to put up new capacity will be finalized by 3Q FY '23?
So we will start filling existing capacity by then. We're not open to [ advance ] that business, which we will -- we will only do once we feel comfortable with, let's say, the existing business today.
Okay. Okay. So the current capacity, which is there of close to 5 million to 6 million lenses will get fulfilled by 3Q, got it. Second question pertains to the [indiscernible] opportunity. So can you indicate what would be our share of pie of that opportunity of the 30,000 [ coaches ], I mean what could be our content per [ coach ], how should we go about that?
KRS, you will take that?
Yes. See, from TI, we are participating in the fabrication portion of the [indiscernible] projects. We fabricate side wall, end walls, roofs and all that. Separate designs are being made by [indiscernible], and we have already developed the prototypes. We've already got the proto order, and we've started supplying to them. So we'll continuously participate in the tenders ensuring tenders for these parts.
Okay. So any sense on what would be our content per coach there? I mean what kind of revenue per coach can we expect are there?
Pardon me, I'm not getting your question.
So per coach, what would be our revenues as such, 15,000, 30,000.
Normally, we don't share those details, I am Mahendra. But yes, we actually participate in the fabrication portion of the coaches.
We take the next question from the line of Nishit Jalan from Axis Capital.
Just 2 more questions. Firstly, on the export side, I just wanted to understand on the engineering side, are we catering to our 2-wheeler OEMs in Asian region as well? Where I'm coming from is on the Metal Formed business, your exports are very low.
And in Metal Formed business, we cater to 2-wheeler, the chain business in a major way. So I just wanted to understand whether there could be an opportunity if you have already existing relationship with 2-wheeler OEMs globally are to push more automotive scale products on the export side as well. So that is the first question.
And second question is basically what Mr. Vellayan mentioned that you want more pricing power in the businesses. So obviously, our B2C businesses are something which will give you more pricing power. So just wanted to understand what would be our share of overall revenues from the B2C businesses currently. And how should we look at it going ahead from the current Tier 1 -- TI-1 core business, not about the new businesses?
Coming to your first question regarding Engineering business for participating in 2-wheeler segments, yes, we are participating in particularly Asia, Southeast Asia countries. Whatever we do supply to Indian OEMs, that also we take care of the Asian countries.
And coming to how to better synergy between these 2, your point is good. But as of now, we give the service to Tier 1 suppliers, where the synergy is less, but we take your point how we can explore it going forward. That's about first question.
Regarding this question of what is the share in consumer-driven business, as of now, it is Cycles basically where we have a power for pricing, but our other businesses are B2B only. Going forward, like Vellayan mentioned, we are getting into EV in a big space,and which will increase our percentage of share of business for the consumer directly going forward. And when we reach a respectable level, we'll start sharing those numbers.
So I would assume that in the Metal Formed business also, aftermarket would be a good chunk of the overall revenues, which is again B2C. Am I wrong in that?
Yes, you are right. That is also the -- spare part business is also B2C.
So can you share just a rough number, not an exact number, what percentage of the segment revenue would be aftermarket?
We don't monitor as of now internally as well as don't share also those numbers.
Okay. Sir, one last question from my side. So in the current TI-1 core business that we have, any more product efficiencies that you see where you can penetrate or where you can launch more products?
What I'm trying to gather is, obviously, your business will recover with a recovery in auto industry, and exports is something where you will do well. I'm just trying to understand, in the domestic market, how can you grow at a faster pace compared to the auto industry?
So in that perspective, any scope you see of launching more adjacent products or any place you see where your content per vehicle can go up? Any color on that would be useful.
We are doing that work because, like in the opening statement, we said that industry is not growing, but our ambitions to grow in the business are higher. So we are exploring those opportunities once we form up, we'll definitely share with you whatever the new businesses we can enter it, which will be adjacencies to the current business.
We take the next question from the line of Kashyap from Broadview Research.
Sorry, I kind of dropped out in between due a bad connection. I missed your answer on working capital at a standalone level. So I mean just a broad question was that you have an EBITDA growth of close to 40% year-on-year.
But if I look at operating cash flow, that has gone down from INR 600-plus crores last year, more than 100% conversion to INR 325 crores thereabouts, which is close to 40%, 45%. So just wanted to understand in your assessment of the business, where do you see a normalized cash flow from operations at? Is this a one-off? Do you think that this will get resolved over the coming year?
Yes, that's right. What I was explaining was, see, there was no working capital constraints or challenges last year. In '21, '22, we started the year with a negative working capital because in 2021, because of Covid disruption, the operations did not happen for a few months.
And most of the ramp-up started again happening only towards the end of the year. And again, we built inventories, and then we had good credit period from the creditors. So that resulted in a favorable working capital at the end of 2021.
Because of that, at company level, we had a negative working capital which is not a realistic one or sustainable one for a large company like us. So this is a onetime correction which we had to see in '21, '22. Going forward, we think the working capital will be more or less in the current rate.
Fair enough. That's helpful. Second is just a broad question on the pricing negotiation because we do have still a reasonable amount of OEM business at a standalone level.
So I just wanted to understand, given the kind of -- we have seen in RM prices, supply chain, et cetera, how simple or tough is it to kind of go out and raise pricing? I mean what are your broad thoughts on that, that would be really helpful if you can just kind of explain us how are negotiations or discussions with customers on this subject?
We have a fair amount of transparency and the agreement with all the OEMs. But what you said it is a challenging side right because the raw material prices almost went up 100%. But as of now, as I record it, we are able to recover it fully. But however, it is a big challenging job which our teams are going through, and we'll continue to do that.
Sure. Okay. And just any progress on the Cellestial acquisition. I mean what is the time line? I mean any progress on introducing e-tractors? Where are we on that road map?
Yes. I think this part we addressed a bit earlier also. We said it's basically, so the tractors themselves, we are estimating that in the end in July timeframe, we will submit for homologation.
Homologation is like is the process is not fully in our control, so it's going to depend on how long that process takes. And then once kind of that is done, we'll be able to kind of talk about when we can go to market. And so that's the best determination we can give at this stage.
Sure. Fair enough. That's fine. Mr. Vellayan, just a bit long-term question. I mean we've had this conversation in the past as well. But how should we think about the business over a 3- to 5-year horizon?
I remember earlier, you kind of used to say that the traditional businesses will be like 5% to 7% growth, and the nonlinearities will come from TI-2, TI-3. And that's how the double-digit growth on top line will shape up. So just wanted to kind of take a recap how you think of a business from where we are right now over a 3- to 5-year horizon.
Yes. It will continue to be the same, right, which is basically that we are going to invest in kind of and grow new businesses, which is why we are also like -- I mean, like somebody asked earlier, kind of Mukesh is going to take more responsibility for existing businesses and I am going to take more responsibility for new.
The rate at which these new businesses grow such as, I would say, because they are newer and therefore kind of a bit less defined, I think it's more difficult for us to deterministically [indiscernible]. But we continue -- yes, we continue to feel confident that we will kind of grow these businesses and that we have to basically kind of be in new sectors because that's where kind of a lot of the growth is going to come from in the future.
We take the next question from the line of Prateek Poddar from Nippon Life India Mutual Fund.
Sir, just one small question. What would be your go-to-market strategy for e-3-wheelers?
What is the go-to-market strategy in e-3-wheelers, Paul, do you want to answer that?
I think a little while earlier, I think Mr. Vellayan has addressed that question. I think you're looking for a launch of the first variant of the e-3-wheeler sometimes during...
Yes, I heard that, sir, during July -- sorry, September. And you were in the -- my question was how would you want to distribute these products. Would it be the traditional route in the sense? And what would be our focus market, like when we launch it, is it a pan india launch? I was just trying to get some information over there.
We will go -- we've laid out a plan in phases. So we will be first looking at how to launch that product and get everything right in the Southern part of India, and thereby then we look at the other part in quick succession. That's the other thing.
The distribution model, how we will do, that's pretty much tied up. The distribution is also tied up, the aftersales services tied up. How we offer the after sale service, what we do with the experience, how do we data mine the data, those are new opportunities which you learn in terms of this, and how do we give the consumer a better experience and also data mine from all the information that keeps coming to us because in this form, we will get a lot more info, which will be used for your product development improvements and also improvements on your go-to-market strategies in terms of looking at that.
So currently, we've employed the sales guys, the after sales service team. And many of this has been done. The production line is getting ready, as Mr. Vellayan said. And so we are quite upbeat that we will have a good product on which we can actually make some impact in the marketplace. And based on that, then we'll be launching the other [indiscernible] that we have in plan sequentially across the later part of the year.
And if I may ask sir, when you talk about tie-ups, right? That is what I was trying to look for, who are these distributors? Are they existing auto guys? And also on the aftersales service part, you said you have tied up. Maybe if you can explain this just tied up part, that would be helpful.
So I think the after-sale service means we are looking at servicing within 24 hours, #1. #2, service on wheel ,#2. So there is a tie-up that is required there. We finished that tie-up so that we can provide. So the downtime on a productive vehicle remains the least so that the earning is not affected. .
Those minor details actually lead us to great plans in terms of seeing that we are able to get that done. And so the customer feels very confident for the adoption. There is a lot of work that's going on currently to see who are the potential set of customers. There is a big database. And how do we establish contact with them now, which we are doing through the launch. And then how do we use insurances on the ground to see that the bike is -- vehicle is experienced in terms of this. And thereafter, the adoption starts happening.
To begin with the last question, how many distributors have you tied up with? What's the distribution strength there?
Today, I think we have tied up with about 40 dealers actually, basically on the Southern side of this -- Southern part of India.
The last question is from the line of Anupam Gupta from IIFL Securities.
So just one clarification, sir. The INR 500 crore enabling resolution which you have done for borrowings, is that just the enabling resolution or is there a plan? Because you said that your cash flows are stronger, you don't have right now any inorganic opportunities visible.
Yes, it's an enabling resolution.
Sure. That's all from my side, sir. So yes, so you can -- Mr. Vellayan, if you have any closing comments, and then we can close the call.
Nothing specific from my side, Anupam. Thanks a lot, and we -- thanks for all of your support, and we continue to stay in touch to you at the next meeting.
Thanks a lot, sir. Thanks a lot, everyone, for tuning in. And thanks to the management.
Thank you so much. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. Bye-bye.