I now hand the conference over to Mr. Vishal Rangwala, CEO and Whole Time Director of the company. Thank you and over to you, sir.
Good afternoon, everyone. Thank you for joining Harsha Engineers International's quarter three FY 2022 earnings call. I would like to walk us through the results for Q3 first and talk a little bit about that and then maybe Maulik will talk a little bit more specific about numbers. To begin with, you know, we continue to see respectable top line and bottom line in quarter three results, despite very difficult market condition across Europe due to energy crisis. This has a top line impact in our Romania plant as well as, you know, supplies going from India to Europe. Further in Q3, due to, you know, strong zero COVID policy implementation in China, there was impact on China revenue as well.
Couple of other factors, which had a topline impact was one material mechanism in place, and commodity pricing, price reduction linked to steel and brass commodity pricing changing. As well as, our customers started doing a lot of year-end inventory control, resulting in overall softening of our demand as well. Q3 is definitely lower than our expectations. However, these are the significant factors which had impact on them. While we have improved our EBITDA and PAT over last year and last quarter, we are continuing to work on reducing costs and obviously partial revenue in reduction impact due to material price adjustment.
We are keeping our EBITDA margins, quite strong in impact. Considering material price change in pass-through, as well as European demand softening, the current year.
Sir, if you could just move the mic little more closer to you, as participants, have just highlighted that they are not able to hear you very clearly, sir.
Sure. I'll try that. I hope you're hearing better. Basically, we are seeing, you know, significant price changes because of material pass-through and a significant European demand softening. Overall there is a whole softening of overall market being there. In current year, we are looking at, you know, flattish top line. However, in EBITDA terms, in EBITDA and EPS terms will remain strong as well as we will grow it as a percentage this year. We are seeing some impact in the wind market, specifically in Europe, which is very weak and which has some impact on our, you know, growth in bronze bushing business as well.
We are closely monitoring the, you know, how the situation is developing, and providing or actually guiding on, you know, specific how it's gonna roll out over next few quarter looks very difficult at this point. We are extremely hopeful that we will quarter four also will improve from here. While we talk about this, you know, our, we are very bullish on medium to long term. You know, our focus there is for continued growth. The drivers for us remain the same. We continue to see new order wins, reference to China plus one strategy deployment by our customers. We are increasing, you know, focused on increasing business share with vintage.
We are actually continuing to grow with our Japan origin customer base across the globe. As well as, you know, we are seeing lot of good growth possibility in bronze bushing as well as stamping products. You know, overall that we remain very optimistic and, you know, continuing on that path. With that, I'll, you know, I'll ask Maulik to about numbers.
Sure. Thank you, Sam. Hello, everyone. Good afternoon. We have uploaded the financial numbers as well as the investor presentation on our website as well as shared with you actually. I'm sure you would have got a opportunity to go through the same. Let me quickly touch upon the major numbers. For the quarter ended December 22, for engineering business at consolidated level, we have achieved a top line of INR 297 crore.
Against the INR 318 crore in the previous quarter, as well as INR 312 crore in the same quarter last year. We have a strong de-growth of -7% and -5% respectively for that period. Against that, our profit after tax for engineering business for the December quarter is reported at the INR 2.1 crore versus previous quarter reported number of INR 27.7 crore with a growth of 16%, and INR 19.9 crore reported number of previous year quarter three, with a growth of 62%. On EBITDA front at console level for engineering and the solar business, we have achieved EBITDA of 18.1% as per the defined definition, and against the 16.50% in the previous quarter.
With this brief on the financial numbers, I hand it over to operators to take over the Q&As.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may enter star 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handsets while asking a question. Anyone who has a question may enter star 1. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Harshit Patel from Equirus Securities. Please go ahead.
Thank you very much for the opportunity, sir. My first question is on our overseas operations. If you could indicate what was the revenue growth or decline, was there in both our Romania as well as China operations on YOY and QOQ basis, and how has been the performance on the margins front over there? In your opinion, how long could it take us to get back to the historical levels of margins over there? That would be my first question.
Sure, Harshit. No issue at all. For Harsha China, our quarterly numbers has been de-growth by -15% versus Q2, while it has grown by 17% on the year quarter three. On Harsha China only our EBITDA has remained good for the last quarter. We have achieved a EBITDA percentage of 15.6% in Harsha China on the top line of 27.9%. On Harsha Romania, our top line has remained at 60.3% with a de-growth of -6% over last quarter and -28% over last year quarter three. Our EBITDA remained negative, break even or zero in this quarter versus a positive EBITDA of INR 60 lakhs in the last quarter.
Harshit, I'll address on the, you know, our overseas subsidiaries. I think we are seeing continued improvement on the margin side on EBITDA side. We did have a difficult situation. We do have difficult situation last quarter in Europe, as well as in China. As of this volume recovery happens, we are quite confident that we will be positive margins, positive bottom line, we will achieve in next few quarters, and grow from there. That's the idea.
Thank you very much for that. My second question is on our bronze bushing business. As you have mentioned in your press release as well as you also told us that there is a bit of a slowdown because exports from India are suffering, the exports to Europe. Where would we in terms of our growth trajectory in that business? Will we be able to achieve our FY 2024 guidance at least? I believe FY 2023 could be a little bit of a problem, but are we on track to do that INR 100 crore kind of sales next year?
Right now, exactly to define that becomes challenging, but overall the order win remains with us. How that market recovers, how fast that market recovers, remains, you know, a question. What we are hearing from our customer and overall wind market, the second half of calendar year 2023, will be much better for wind. Again, when how that revival happens will be dependent on that. In terms of opportunity and in terms of potential of the business, we are near that number of INR 100 crore. That how whether we are able to successfully do 100 will depend partially on the market situation.
Understood. That would be all from my side. Thank you very much for taking my questions. I will join back the question queue.
Thank you.
Thank you. Our next question is from the line of Amit Anwani from Prabhudas Lilladher. Please go ahead.
Hi, sir. Thanks for taking my question. My first question is on, you know, now, as you have already highlighted, we are facing some slowdown for exports and transmission also offtake has been lower, and maybe that will continue for one full quarter. Now, the kind of guidance which we are providing earlier on the top line growth and, you know, obviously the margin improvement. You used to talk about, you know, India margins at least improving significantly and a much higher contribution from transmission over the next two years. Are we still remember from from there on this or any change of stance which has happened?
Am I reading, Amit, your question correctly that what is the growth guidance for 2023, 2024 that we are looking at?
Yes, sir. For 2024, 2025. Any changes? Now we are seeing transmission also seeing lower offtake, and we targeted that this will be also a basic contributor.
Just as Vishal explained in his initial comments. This is Sanjay here. As Vishal explained to what is happening this year is definitely looking flat-ish in terms of the volume. Having said that, there is definitely a volume growth, though not again in absolute terms easily quantifiable, but anywhere between 7%-8% or maybe even a little higher volume growth we will definitely be experiencing this year. Next year, now what is happening, one, all the growth drivers are intact. Next year we believe that we will wait at least for this quarter, the Q4 of the current fiscal year to go before we want to actually quantify that what could be, the growth guidance for 2023, 2024.
Having said that, our target of a consistent medium to long term opportunity-wise or CAGR growth of 10%-15%, around 16% is what we are targeting, and we are very confident that that should happen. For 2023, 2024, we want to wait for one more quarter and then give sort of an indication given the fact that we are facing a lot of uncertainty and it's not exactly possible to quantify at this point in time. Let's wait for Q4. Having said that, it doesn't dilute the opportunity or the growth story in any way. That is just a medium to short term problem that we are currently facing. I think, it will be only fair to say that let's wait for one more quarter, and we'll be able to then give you a little more exact indication about 2023, 2024.
Sure. Sir, is it our customers are seeing lesser offtake or is it the overall wind market?
I think it is both. We are seeing a less offtake from our customer because maybe they are also already cautious about the impending recession, as well as the overall market is soften. Having said that, specifically we see that in Europe that is significantly impacted. Other regions is, we don't see a very significant impact, but it could come in. That's why there is a lot of uncertainty because of maybe that.
Sure, sir. On the increasing customer wallet share, we talked about Japanese customer that's where we are focusing on and obviously the outsourcing of large cages. Are we going progressively there? Is there any development there? Any contribution? Anything which has happened?
Yeah. I mean, in general we are moving in that, right direction. We are winning a lot of business with, Japan origin customer base aggressively. Their growth, 30%- 35%+ growth we are seeing, for that customer base.
In the current fiscal?
Correct. Yeah. Current year for the 19- 5. Beyond that even large size cages we are winning lot of orders. Part of it is in testing and outsourcing. We don't have a specific, you know, large order to be shared that this significantly happened, but it is a very incremental journey. We are continuing to see traction on both those fronts.
That's very significant.
Yeah.
Sure. Thanks, sir. My last question on anything on railways. We saw this has been a good focus in budget also on railway side. Any company specific benefit which you are looking in coming years on the railway side?
We have, you know, railway we are seeing a significant growth specifically, you know, to one product we have just developed, which is going into the railway. Another product which we have, actually, our customers were importing, and now we have become the substitute for that import. Where in that situation we are ramping that up, that product. We are seeing significant growth within the railway or, rather we will continue to see this year, calendar year 2023. Very hopeful. But again, those numbers are in range of, you know, 20%, 30%+ overall based on what projections we are seeing, if we are able to fully realize that import substitution. Very hopeful, very aggressive.
We're looking at that, you know.
Sure.
Thank you and all the best. Thanks. Thanks, Amit.
Thank you. We take our next question from the line of Pradyumna Choudhary from JM Financial. Please go ahead.
Yeah, hi. You've done very well in terms of EBITDA growth, absolute EBITDA growth on the engineering, consolidated side. I just wanted to understand the reason for the same.
Yeah. I think the one important thing here that, you know, I mentioned earlier that because we have a material pass-through mechanism, as Sanjay mentioned that we think that we still grew, I mean, respectably in spite of these headwinds we are facing. The absolute margin remain intact in spite of, you know, if you look at Q3, a little bit soft. That is basically leading to the EBITDA growth. Major contributor being India. India has reported a decent, very decent EBITDA.
Yes. Just to add on these points, we kind of said about the pass-through, plus we also have a good amount of exchange rate benefit in our EBITDA, which we have already realized.
Realized. Which is already realized.
Realized and closed that. It is there in our India presentation.
Sorry, I couldn't hear the second reason. One is pass-through. What's the second reason?
Maulik said that we have a good recent realized exchange rate also booked in the current quarter. What is actually realized now?
Okay. One thing I noticed was our revenue on a YOY basis, I'm talking about Q3, our revenue actually has declined by 7% I think by around 7%, whereas our COGS has cost of goods sold has declined by 17%. Is there any chance that not all of the price decrease of metal has been passed on to the customer?
We have discussed that our price pass-through has a lag. It is 3-4 months lag. Depend on customer to customer, and that may always give either a benefit to the company or a hit to the company for a quarter period, and that is being reflected there.
Having said that, this is always a constant process and there is a little bit of lag which goes on, exact mathematics is very difficult to say. That does not mean that automatically Q4 margins will be further subdued. It also means that there will be new orders where we will get better margins. Some orders we will have a little pass-through effect. On an average, at India level, a 20% around that EBITDA we are maintaining. We have explained hopefully China EBITDA will further improve this Q4. Romania, we are keeping our fingers crossed. Very honestly, we don't know. Let's assume Romania remains more or less in this territory of zero or a very marginal 1% or 2%.
That would mean that Q4 I should see more or less a similar, operating and net margins happening, which will mean that as compared to last year, there is a very different, margin growth this year, notwithstanding the fact that at the top line level we are flat. This is the sum and substance of the current year as we see.
Understood. In terms of YOY in Q3, what is the volume growth?
7%.
See, again, I'll be very honest, we have a brass, we have a steel, but it thumbnail would be maybe around 7% to 8%.
Okay.
Okay. Just one request, before I just conclude. Would it be possible, like of course we are a price pass-through company, and we get seriously impacted by, like our numbers get impacted by, the commodity price fall or rise, right? Some sort of disclosure on, I don't know how, but maybe something on the volume side, in your presentation going forward, so that we are able to better assess the business performance, would be very helpful.
No, I appreciate your point, but let's understand the difficulties that we face. We have a 7,500 SKUs, and there are so many different parables and patterns. For example, if I'm talking of brass, we have X volume, but giving a much higher average realization. When I talk of steel, we have very small 20 mm, 30 mm, 40 mm products, DG, DD, et cetera, bearing, PG where it's very high volume, but their average realization is very low. You know, I'll be very honest, we will still want you to look at us as a % EBITDA. It will be very misleading for me to say that this is a average realization per piece, because I don't want you to promise something which we can't deliver.
Absolutely fair, you know.
Yeah.
Understood. I understand that. Thank you.
Yeah. Thank you.
Thank you. Our next question is from the line of Dhananjay Majhi from, well, an individual investor. Please go ahead.
Good evening. Is Sam audible?
Yes.
Yeah. Sir, your casting products have low margin, which might be dragging your margin down. How you would be offsetting? Is that only the product that is bronze bushing?
No. I think, our casting business, we only do semi-finished business in Europe, in the out of our Romania facility. Otherwise our focus is on finished product business. The bronze bushing is actually a finished product with a respectable margin. The casting business, it is relatively lower margin only if you've seen in our Romania facility. As you rightly mentioned, we in Romania, energy prices hit us hardly last quarter, in which case it favored us.
My next question is, by any chance, if the demand for sensor embedded bearing increases or are we having any capabilities of supplying those? Let me modify the question. In short, how are we molding ourselves towards Industry 4.0?
See, there are two aspects of this. One, you know, how we are working internally, you know, we are actually aggressively implementing Industry 4.0 internally to really give us the benefit of optimization of cost, you know, efficiency, as well as, you know, just in time and all that. There is a significant in-house program which we run, linking all our machines to, you know, our central system and, you know, how we create the signal and all that, so that right maintenance, right attention can be given. That is, you know, how we do internally Industry 4.0.
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We are working with some of our customers to supply additional products within bearing type so that we can give that, you know, that molding, or plastic component which incorporates the sensor as an attachment to the bearing. That's something as a small way we are working on. As I mentioned that, you know, bearing cage, our main product remains same irrespective of, you know, whether it's a sensor bearing or not.
Okay. My third question is actually your plants were facing issues due to energy crisis in Europe. You mentioned here also. On the prior call, you have mentioned that there would be demand for some products. Have you generated any revenue or have you generated any orders from that country?
What we mentioned is that we are working to grow our demand for finished products, which is cages out of our Romania facility. Currently, considering overall, you know, demand situation in Europe that demand remains muted. However, we are continuing to work in our business, order gestation realization cycles are long, where we have to actually when someone awards us a business, we go into product development, we validate those products and only after approval, you know, we start series production. There are some wins in pipeline. We are also very hopeful that additional opportunities will come our way. We will grow that business, but I don't have any specific large order to talk about today.
Okay, no issues, sir. Thank you, sir. I'm done. Thank you.
Thank you.
Thank you. Our next question is from the line of Shirom Kapur from Prabhudas Lilladher. Please go ahead.
Yes.
Hi. Hi, thanks for the opportunity. One question. In our EBITDA, I'm understanding your disclosure, it includes other income, and other income has come significantly higher this quarter at about INR 13 crores versus only about INR two and a half crores last quarter. You know, stripping out this other income, are we still going to see EBITDA margins rising significantly? I feel it's getting a little bit skewed based on our other income entry.
If I understand your question correctly, if you are comparing other income, please understand that this year we have a portion of almost INR 5 crores, which is the realized FX. When I say realized, that means whatever is the difference between the booking of the sale and the actual realization, it has been realized during the quarter, and therefore it is in my pocket. In my humble view, as an export-oriented company, the realized foreign gain is an irrelevant part. If, for example, there is a loss. That now gets booked as other expense, and this is a part of my operating in- cost that from my other income which is realized should be a part of my operating income and not my non-operating income.
If you remove the realized gain or if you consider that, then there is no difficulty in terms of comparison of the margin at the operating level. Yes, there is a treasury income, in terms of interest. That is fine. Similarly, there are the mark-to-market currency. When I translate my closing balances at the current currency level, there is a mark-to-market translation gain which could be reversed or which could be maintained depending on how the currency is captured. That is fine. I mean, that as a part of your analysis, if you remove that is effectively okay. I think if you consider the realized gain, we are okay. There should not be any problem.
Understood. Thank you. My next question is regarding, you know, we see a higher percentage of sales and your other expenses and employee benefit expenses have increased as a percentage of sales. You know, going forward, if your realizations continue to fall and that impacts your top line, will you continue to see this percentage grow, you know? Or was it only one-off this quarter that caused your other expenses and employee benefits to increase versus last quarter?
At console level, some employee benefits expenses have grown up due to let's say in Romania being a Christmas quarter. Otherwise what we have observed is on account of the metal price reduction impacting the top line per se, value getting down. Indirectly, it increased the percentage terms. In absolute terms, if you observe, it remains more or less constant on a or a regular increase year-over-year.
Okay, got it. Last question is, you know, on your Precision Stamped Components business, do you have any updates on this? Any numbers you could share in terms of growth or margins for this?
Yeah, I think, I can share just a directional and, you know, what we are seeing. In terms of specific number it will be difficult to share. Directionally and, you know, on the ground we are seeing significant growth specifically in this business. Again, we are starting from a relatively small base. We are seeing this year, you know, about 25% plus growth in general in that business. With the order wins in the pipeline, I think we are very bullish and hopeful on that this business in general. Overall margin point of view is in general very similar or slightly lower than, you know, our average margin for, you know, standalone business. That's the general, you know, what we can share.
Specific numbers, we are not separating those out of overall.
Okay, got it. These components are primarily exported or they're sold in India? Because if there's softness in Europe, will this also get impacted?
Yeah. No, we right now the majority of business is bound for India, with some opportunity outside. Major focus is India. That's where we have growth. I mean, right now we are not seeing any impact related to Europe or anything in this business.
Okay, understood. Thanks, and all the best.
Thank you.
Thank you. Our next question is from the line of Prolin Nandu from Goldfish Capital. Please go ahead.
Yeah. Hi, Vishal. A couple of questions from my side. The first one would be, you know, even our domestic or engineering standalone business has two elements to it. One is what we supply within India and what we export out of India. How different are the margins for these two businesses, for the domestic as well as the export part?
They are fairly similar. There could be obviously pockets and things and opportunities which could, you know, create a differential. Obviously export business, if I look at historical trend, it gives us, you know, exchange rate related benefit, which probably improve just because of that inherent advantage built into it. Beyond that, you know, depends on the situation to situation. Per se, domestic or export, would not necessarily have a different margin profile.
Sure, sir. Just on this, you know, exchange benefit part to it, right? In the past call, we have mentioned that we, if I'm not wrong, we hedge 50%-60% of our currency exposure. Correct me if I'm wrong, this exchange gains that we are talking about would not have accrued had we hedged completely 100%. Is that understanding right? Back to back when we win orders, if we would have hedged 100%, we wouldn't have yet got any exchange rate benefit. Is that understanding correct?
On the forward which are settled, it will be part of our realized gain, which are not settled in the terms of forward or option gains and it is part of our other comprehensive income, and it is not there in the other income. Whenever it will actually settle, it will come there. To answer your question directly, I think yes, you are right. Yes.
Sir, I mean, what is the cost benefit? Have we historically done that analysis that why do we want to take calls on exchange rate and why not hedge 100%?
It's a, it's a very interesting question. At the, at the board level, our policy is that what is our ultimate aim? Our ultimate aim is to protect our margin. Correct? In a volatile situation, what is the safest way to ensure that, you know, remain 50-50 more or less. You hedge 50%, keep your 50% positions open. Either way, if situations change on the extreme, for example, you are right, this time it was extreme. I think we closed the exchange rate at little over 82. Correct? My normal average hedges were maybe in the region of 79, 80 or 81. Here technically and theoretically there's a loss. Now, imagine a situation where supposing the currency, I mean, this time should have strengthened and we would have closed at 78.
In that event also, I would be more or less on the benefit side, my forward would have given me a better realization, and my open positions would have incurred some marginal loss. You know, this is a volatile situation. It happens. I think this 50-50 remains a friendly beacon via media to ensure that we are either way we are okay. I think again, what we are doing, again, this hedging process is short term. It's a rolling forward. It's just on rolling, right. And our all our material pass-through mechanism also takes care of a significant chunk of the variation which happens in the on terms of cost variation, right? I think when it comes to protecting long-term margins, still the material mechanism play a significant role.
Short-term margin protection, we have just, you know, policy we are deploying. In material passing, some benefits are there, I mean.
No, that's fair, sir. I mean, you know, historically, we have seen, I mean, you know, lots of, I mean, in case if we keep unhedged, right? I mean, the currency does not move in our favor, then there is lot of volatility in the earnings. That's a limited point I wanted to make, right? In some sense, we should probably focus on our expertise in terms of, you know, converting and, you know, those kind of margins and not that. That's just an suggestion, right? In terms of, doing a cost benefit analysis of hedging the, you know, exposure completely. Just an suggestion. The question on, my question is on bushings, right?
In some sense now, we, I mean, this time we are mentioning that there has been a slowdown in the market. This bushing market, in terms of customers, they are more or less domestic customers, right? Am I correct?
Our customers, currently are primarily domestic, but, ultimately they are.
Exporting things in full.
It's a gearbox manufacturing company which are exporting gearboxes and supplying mainly to wind market.
I get your point. That's what in the last call you had mentioned that these customers who are domestic will ultimately be exporting. When it comes to this particular bushing, they are importing some component, right, in some sense. I thought that even that slowdown that we are witnessing in an overall wind market, should have, you know, this whole import substitution mechanism or whatever, you know, that trend should have cushioned that to some extent, right? Is that happening? For this gearbox manufacturer, import component is coming down and we are, our supply is going up? Is that happening at least?
That has happened actually in a significant way, and that's why last call we had expressed that, you know, even though there was already some amount of wind slowdown happening in the market, we were not experiencing because we were largely focused on becoming the import substitute. Once we hit that reasonable or a complete import substitute status, we got the direct impact of, you know, the market condition or market situation. We have actually successfully created a substitution in one case, and another case we are in process of creating that, you know, 100% substitution.
We are very hopeful that we should see improved situation because as I mentioned that another case we are working on becoming that import substitution where we are a full supplier now and we have just started series production and all that. With that, you know, we are confident that we will see some improvement going forward. Currently the demand where we have already achieved the substitution remain real challenge.
Understood. From your customer and all these, redesigning of windmills and gearbox, that you had mentioned last quarter, that is largely done, right, in some sense? Our project products have also been approved in one case and you know, in the second case we are in the process of getting that approval or, you know. On the redesigning part is pretty much done, right?
See, we see that the next gearbox is under redesign. We are working with our customer on developing those next set of products. As I think it's. My earlier conversation was about, you know, how this conversion is going on in the industry, this, you know, conversion from bearings to machines. Our guesstimate today is at about 15%-20% conversion has taken. There's a next set of conversion will continue to grow next four, five, six years in the industry. That conversion is in process of taking place.
Understood. Understood. Fair point. One last question on your international business for your Romania as well as China subsidiaries. Now, China margins quite heartening to see that they are already at 15% and much near to our overall consolidated or standalone numbers. Romania is something where, as you have mentioned last quarter that you have passed on some sort of a price increase to your customers. While slowdown would, I mean, it would be fine on the top line, that top line has declined this quarter, but I would have assumed that profitability would have gone up. But your comments suggest that last quarter we were very minor profitable, but this quarter we are more to more to break even, right, in some sense.
Could you help us understand not just this short-term profitability in Romania, but 2-3 years down the line, what is the number or what is the range of Romania's margins that we should work with?
Yeah. To answer that question or immediate short-term question, obviously in Romania there was some volume impact because of overall Europe situation. There was further increase on the energy side, last quarter, which we were in process of, we are in process of passing through to our customers. There was some impact related to energy prices. Even though if you look at, you know, we have kind of bridged the gap per se versus the previous quarters. In a long-term basis, when it comes to Romania, we are looking at EBITDA margin in for the casting business, about 6%-8% EBITDA margin, we think we can fairly sustain.
For our finished product business, about, 15%-18%, 15%-16% EBITDA margin is we think we can fairly sustain. As a combination, we are looking at about, 9% EBITDA margin, in a mid-term, coming out of Romania. You know, working towards that in terms of growing the finished product, you know, stabilizing in terms of cost and other things there, semi-finished, the casting products and all that.
Fair. Fair. One last bookkeeping question would be, we have, if I'm not wrong, our gross block is close to INR 820 odd crores. Can you help me give a breakup of how much of this is domestic and how much of this comes from two of our bigger subsidiaries in China and Romania?
I think, roughly INR 500.
INR 500 would be domestic, INR 300 would be China and Romania.
Yes. Precisely we have our reports available, annual reports.
This is very, I mean, top of the head number.
Yeah.
Great. Great. No, no, thanks a lot. Thank you for that. All the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Sandeep Tulsiyan from JM Financial. Please go ahead.
Yeah. A very good evening.
Good evening, Sandeep.
Pertaining to this, yes. Pertaining to this, 9-month sales number that we have reported, if you could broadly share the breakup between cages and scrap within that, broadly how it would look like.
Okay. Give me a moment. Give me one second. If you can move to your next question, I will give you this one.
When you share that, Maulik Jasani, within that if you could share, out of these cages, how much was exports from India. That would just give a sense to compare, you know, how that number has changed year-on-year.
Yeah, that is there in our presentation. Exports, I can tell you. Give me one second. Yeah. Export from India as of now is.
Nine months figure, huh?
48%-49%, nine months YTD.
48%- 49% of, cages sales or of total India sales?
Total sales.
Total sales. Of total sales. Okay.
Yeah. If you remove the scrap, and our scrap for the 9-month YTD is around INR 126 million.
About 16%.
Yeah. This is at the level.
This, exports, how it would have fared year-on-year, if you could give a sense broadly?
Let me repeat your question. Sorry. Nine month to nine month how the export fared? The last year our export was around 51%. 50%-51%.
That has gone down to 48%-49% now. Got it. Second question was basically when we look at the EBITDA numbers, I mean, this is you clarified that one should add back the realized gain within that. When I add back this INR 5 crore number which is realized to the EBITDA number, then that is what EBITDA growth is ideally we should look at what the company has sustained. That is the correct way to assess that, right?
Yeah. With either Sandip, that this is a consolidated number where my Romania EBITDA is 0. My China EBITDA is also, although in terms of percentage good, but because the top line is impacted in volume terms it is low. Yes, at an operating level we are very clear that we should look at about 15%-16% and slowly and steadily we want to grow it up to 18% over the next couple of years.
Right. Just to clarify, when we mention that we are hedging our forex exposure, there will be some near-term translation losses also. I mean, mark-to-mark losses also. When currency move, rate moves up, say it moved up from 79 to 82 in the current quarter. Next quarter onwards, 82 will become the base rate at which we charge the customer, so the next hedge will get set at 82, and it will become part of top line. Is that correct understanding?
Sandip, the understanding over here is, when we do the material pass-through, the benchmark numbers are itself in foreign currency, and it gets converted on the average exchange rate of the same period. Indirectly, there is a pass-through covered in the material. In the material pass-through, there is an exchange rate also gets covered, and that's why we follow the 50% hedging strategy.
Correct. Only the raw material cost. Correct. When you are forecasting for forward quarters to the customer, the billing happens in foreign currency. The benefit will essentially become part of top line, and it will move out of other income gradually, which is why.
You got it right. You got it right.
Yeah. Got it.
Yes.
Got it. Lastly, just on the Japanese customers, you briefly mentioned the growth number. I know the base is small. Is it possible to quantify for the current 9-month period, how big would that be? Or is it too small to quantify?
All the Japanese customers put together, not all, but the major three Japanese customers, our top line for nine months, is INR 49 crore, roughly.
Okay.
Which was 47 crore full year last year.
INR 47 crores full year in 2023.
Yes, sir.
INR 47 crore. Got it. All right. Thank you so much, Nitin, for taking all the questions.
Thank you. Thank you, Sandeep.
Thank you. Our next question is from the line of Dhananjay Maurya, an individual investor. Please go ahead.
Thank you for taking my question again. For a short term, there is a high inventory in your business, as it is only 5% of the total bearing cost. Your CAGR, I'm talking about the CAGR. How are you managing those things?
Can you repeat?
High inventory. We are maintaining finished goods inventory across our 20-plus warehouses across the world, which is a major component of the inventory. Raw material in terms of number of days still remains around 24-25 days. WIP and finished goods about 45- 44, 43 days. I think it's almost in terms of number of days, almost the same as you compare last year and this year. 1 or 2 days plus minus is something, you know, we can't actually control.
Okay. No issue. Sir, what is your CapEx expectation for the next quarter or the next year?
CapEx?
We have, actually, we have approved CapEx from the board, you know, for this year of about, INR 70 crore. Sorry, INR 100 crore, sorry. Right now we have actually, I think in our presentation we've shared that about INR 50 crore is what including WIP we have, spent this year so far. Immediate, CapEx short term, will depend on, you know, we are looking at the setting up the third facility in India. It depends on, you know, that investment when that happens. There is some uncertainty about it. It's a little bit of longer process to actually acquire land and execute all that.
I'm not able to accurately share that, but that's one of the biggest ticket item in next quarter or this quarter coming up. There are a few... Yes.
Hold on.
There are few other, you know, CapEx plan, but obviously we've slightly slowed down our CapEx expansion or addition because of, you know, little bit slowdown in European market and a little bit of, you know, potential of, you know, other, areas also slowing down. That's the status today. Yeah, medium to long term target remains the same as we had shared on the earlier call, about INR 300 crores in three years, INR 100 crores per year. That's what we are looking at.
Okay, sir. Sir, about your EPC business, actually that made a loss, I think. If I'm not wrong. Can you please convey some color on those things?
Our solar EPC business, this is a primarily a project business. As we had mentioned earlier that our objective in this business is to focus on a profitable projects. You know, we believe that we have successfully done this this year, even though you're correct that last quarter we have made the loss. This is a, you know, cyclical business again, driven by, you know, fourth quarter.
You know, basically, we will see, we are planning, we are looking at a significant top line growth in fourth quarter and having a fixed cost structure to this where we have a low revenue quarter, as an example, you know, last quarter where, you know, lot of projects are not in pipeline, or not on completion level, then we will see that. Overall, we are quite positive of that business. On an annual basis, be positive. I think on the 9 months basis also it's just breaking even. That's the concept and the idea. This remains again a small business for us, with not a focus of investment or significant growth. But we are very mindful of not losing money.
Okay, sir. Thank you.
Thank you.
Our next question is from the line of Shirom Kapur from Prabhudas Lilladher. Please go ahead.
Hi. Thanks. I just had one follow-up question. I noticed that you have utilized all your, the proceeds in the IPO that were earmarked for debt. Would that, you know, debt repayment have come in your long-term or short-term debt? Would you able to share that?
Sorry. My question is that we have repaid the debt.
Yeah. Was that in short term or long term?
Can you please repeat the question?
Was that repayment in your short-term or long-term, the remaining amount from in Q3 that you repaid, was that in short-term or long-term debt?
We have repaid the India debt both on short-term and long-term, which was mentioned in our prospectus. We have recently borrowed further on the working capital requirement on our EPC front in India. The debt in China and Romania remains the same because the proceeds have not been used towards the repayment of the subsidiaries money.
Okay, understood. Thanks.
Working capital.
This is export packing credit.
Export packing credit.
Yeah. Mm-hmm.
Which is very cheaper.
Okay. The working capital is primarily for your subsidiaries, not for India.
No, no. Even like India level, you know, for export business, we can borrow at a very competitive rate in foreign currency or in local currency as an export finance, and we will keep on taking it as and when required.
Okay, got it. Thank you so much.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference back to Mr. Vishal Rangwala for closing comments. Over to you, sir.
Great. Thank you everyone. Appreciate you joining this call and adhering to the update about our third quarter. Please reach out to us if there are any questions.
Yeah, yeah.
Thank you very much. Thank you for the participation.
Have a good evening. Thank you.
Thank you.
Thank you, members of the management.
Thank you.
On behalf of Harsha Engineers International Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.