Ladies and gentlemen, good day, and welcome to the Ramkrishna Forgings LTD earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pratit. Thank you, and over to you, sir.
Thank you, Seema. Good day. Welcome, everyone, for the Q1 FY 2023 earnings conference call for Ramkrishna Forgings. The company today is represented by Mr. Naresh Jalan, Managing Director, Mr. Chaitanya Jalan, Whole-time Director, Mr. Lalit Khetan, Executive Director and CFO, and Mr. Rajesh Mundhra, Company Secretary and Senior GM Finance. Now I would like to invite Mr. Lalit Khetan for his opening remarks. Over to you, sir.
Thank you, Pratit. Good evening, and a very warm welcome to everyone present on the call. We hope and pray for the safety, health and security of you and your loved ones. Along with me, I have Mr. Naresh Jalan, our Managing Director, Mr. Chaitanya Jalan, Whole-time Director, Mr. Rajesh Mundhra, Company Secretary, and our investor relations advisors. Hope you all have received our investor presentation by now. For those who have not, you can view them on the stock exchange and on the company website. We had a strong start for the financial year with the revenue increasing by 57.62% in Q1 FY 2023 over Q1 FY 2022. The growth was driven by both volume growth as well as value growth.
During the quarter, we registered a 221 basis point improvement in capacity to 77.97% as compared to 75.76% in Q1 FY 2022. We believe with the new order wins, we will keep improving our capacity utilization, which in turn will lead to higher operating leverage and margin expenses. During the quarter, we won four new contracts totaling INR 388 crore from Europe and North America, boosting our order book. Further, our products have been well received and are generating a lot of interest in the international market, which has resulted in new business contracts from North America as well as Europe. Also during the quarter, we have received new business order for differential housing case, which has enabled us to move up the value chain and diversifying our product portfolio.
In line with our capital allocation strategy, we have reduced our debt for the quarter by INR 30 crores. Whereas on the dividend front, the Board of Directors has declared an interim dividend of INR 0.50 per equity share of face value of INR 2 each. In terms of industry dynamics, commercial vehicles in United States increased in the June quarter when compared to previous year. Truck manufacturers are expected to increase production in second half of the year on the back of pent-up demand for new trucks as well as fleet replacement. In domestic market, MHCV recovery is on track as the freight rates improve and fleet operators gaining financial strength. Demand in the entire CV segment remains strong, which benefits component suppliers like us. We expect Indian CV market to achieve a good rate in the upcoming years.
That's all from my side. We can now open the floor for Q&A.
Thank you, sir. We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Mumuksh Mandlesha from Emkay Global. Please go ahead.
Yeah, hi. Thank you so much for the opportunity and congratulations on the good results, sir. First question is, can you share the outlook for CVs in North America and Europe markets? How is the traction with the new customers there? Also with China Plus One strategy and supply chain constraints, what kind of outsourcing opportunities are we witnessing with the customers?
Right now, both in North America as well as in Europe, I think with the chip issue getting sorted out, I think there is a good demand, and we are seeing OEMs manufacturing more and more vehicles. Demand for the full year, as predicted, is going to be robust. In terms of supply chain constraints, I think we are seeing lot of supplies moving to India from other places of the world, and Indian manufacturers getting benefited with this.
Oh, thank you. Sir, can you talk about the opportunity of the railway segment for both in the fabrication and the component segment side? Also within industrial, which are the subsegments are witnessing growth, and can you share the outlook for them?
In railway, company feels that we will be able to 100% grow on what we did last year. The pipeline and the order book shows that right now the manufacturing of new coaches as well as wagons have improved considerably and government allocation for new money into this has become e xtremely good. We feel that demand from railways are going to be very high, and company expects to double in absolute terms the top line what we did last year and this year.
For other industrial segments, sir, can you share which are doing well and what's the outlook there?
We don't have any figures in terms of inter-industrial segments. We cater to as and when requirement comes. It is extremely difficult to plug a particular industrial segment. Overall, I think demand side, we are seeing good demand in the industrial segment.
Great. Thank you so much, sir, for the opportunity.
Thank you, sir. We take the next question from the line of Mr. Abhishek Jain from Dolat Capital. Please go ahead.
Congrats for a strong set of numbers, sir. Sir, we have seen a 330 quarter-on-quarter jump in the gross margin despite the geography mix, product mix and the higher power cost. What is the key reason of the gross margin expansion and will it be sustainable? Hello?
Yes, Abhishek. The gross margin I think is here to sustain, and I think we can expect these levels to remain elevated for the full year.
This quarter we got the benefit, significant benefit of the change in the inventory, this quarter. Will it be sustainable gross margin in the coming years?
I could not understand. Change in inventory means I could not understand.
We have seen the benefit of around INR 70 crores because of the change in the inventory in the PL.
Abhishek, that's not a benefit. That's the extra production over sales.
Okay.
That's overall gross margin has improved in terms of as we have improved our overall gross margin by almost 200 basis points. That's why you are seeing this performance.
Sir, what is the reason for this expansion in the gross margin despite this weaker geographic mix and the high power cost? Is it because of the better increase in the turnover from the heavy plate line?
No, Abhishek, I think it is a premix as new order wins is getting converted into regular production. As we move up the value add chain, I think that's the reason gross margin is improving.
Okay. Sir, this quarter we have seen improvement in the business from Europe. Currently, rising cost in Europe is a big challenge. How is the outlook for the export in Europe for the forging companies?
I cannot tell about the forging companies what the prospect is, but I can. As far as RKFL is concerned, we expect this full year our sales to both North America and Europe are going to be robust.
What would be the reason for this, sir? Although the truck sales has a slowdown right now in Europe because the many trucks are stuck because of this ongoing war in Russia and Ukraine. Don't you see there will be impact of this in your business as well?
I am not. I don't know about how the impact is on what it is, what you are trying to make out of it. As far as RKFL is concerned, we predict that our sales to North America and Europe are going to remain robust. The order pipeline which we have and the customer feedback what we have is right now that we continue to ride the value add chain and continue to perform, outperform the segments over there.
How much growth can we expect in the export in FY 2023, sir? Can you give some guidelines?
No, I cannot give you any guidelines right now. Whatever right now you are seeing, it is a sustainable performance and you will continue to see this kind of performance going forward for the entire year.
Okay. Sir, we have seen a sharp fall in the steel prices in India and globally. What impact do you see?
In automotive steel in India, there has been no price correction yet. As of 1st April , the price remains as such as of today.
Now the steel prices has gone, I mean the HRC prices has gone down to INR 62,000 versus the INR 76-
Abhishek, I think HRC pricing is not relevant to the automobile, automotive component industry, so I would not like to comment or I'll not be able to comment on HRC products.
I wanted to understand the impact on the top line and the margin side because of the correction in steel prices. What generally happens when there is a correction of steel prices? What would be the impact?
Steel prices remain unchanged as it was since first October 2021.
Going ahead, the realization would continue to be very strong in both domestic and the export side?
The current realization is going to sustain.
Okay. Okay, sir. Thank you, sir. That's all from my side.
Thank you, Mr. Jain. We take the next question from the line of Mr. Mitul Shah from Reliance Securities. Please go ahead, sir.
Good evening, sir. Thank you for taking my question, and congratulations on a very strong performance. Sir, I have two questions on the business side, though you highlighted on the Class 8 truck side and overall business performance. What is the view on the LCV segment and what is our current status in terms of we were planning to ramp up this segment's revenue?
Already LCV is. The product mix change, which I elaborated in the earlier question, is related to LCV itself. There has been a huge change in terms of our product mix, and that's already showing up in terms of our realization and in terms of our top line. That is mainly driven by volume growth in LCV segment. In terms of Class 8, I cannot define what Class 8 is doing because we are not a significant player only in Class 8. Overall, in terms of North America, I think we are doing extremely well and we foresee in near future to do continuously good in North American market.
How much would be LCV contribution in this quarter, approximately?
About it should be close to 5%-6% in the export portfolio.
5%-6%.
Roughly.
On the non-auto side, though you highlighted about the railway segment. Oil and gas segment contribution has almost doubled, more than doubled in this quarter compared to last year. It is very small in terms of overall, it's just 2%. What is your view, and can it become a significant?
Yes. Oil and gas will continue to grow, and I think, probably in this quarter you'll see further growth from what we have done. We don't look at things in terms of percentage, but in absolute terms, oil and gas is going to grow further in this quarter, and it will continue to grow for the entire year.
This is entirely North America again?
Yes, it is entirely North America.
Here, sir, are we growing with the existing client or have we added any major clients, that's why it has increased or any?
Our endeavor is to add and keep on growing with the existing clients also. I would not be able to comment on exact clients. We have already been giving a lot of press releases in terms of addition of new clients. It can be a factor of both addition of clients as well as growing into particular client also, existing clients also.
Sir, you have highlighted in your key initiative, EV, ESG and all. Can you throw some more light on EV, what is our presence at present, and what is the projection?
We have already clearly mentioned in our presentation EV programs which we are running globally and where we have added. I think in North America, we have added the programs and how many customers we have, both we have mentioned very clearly. EV continues to be a very small portion right now of our total business in terms of percentage, but we feel that as the market grows, we will continue to keep on adding EV in terms of our portfolio.
Sir, two questions on this presentation only. In case of export realization, export realization has come down. Volume growth is there, but this mathematically is not matching with our export revenue, which has reported high growth again. For example, export revenue growth is around 13.4%, but volume growth is just 12%. Even there is a realization decline of 4%, realization growth is just 12.3%. How this revenue can be 13.4%? Basically, revenue growth seems to be slightly higher after doing this calculation of ASP as well as volume. Anything we are missing out on this, sir?
No. Here the total export includes also the freight, which I think you have to eliminate to arrive at the real value. We have to do the adjustment for the freight realized where total exports is. This quarter, the export realization and last quarter export realization has element of freight realized from the customer, and that adjustment has been arrived at. That's why it will not exactly match.
Okay. Sir, lastly, on this, again, production in terms of tonnage as well as sales. This time also it is 36.4 is the production, whereas sales is 30.5. This as a percentage, like, waste, wastage has come down, it seems like that. Final output as a percentage of the production tonnage seems to be slightly higher this quarter compared to last year as well as the previous quarter. Any change because of the product mix or any process change or what is overall or is there anything related to inventory?
Certainly, it is more to do with inventory only. We can see that there is increase in inventory.
No major change in terms of a process or where the wastage is coming down or anything?
There may be marginal numbers on that side, but major is from inventory side only.
Sir, lastly, just thought process. In case U.S. enters recession next year, if at all. Based on your past experience of past one or two down cycles. Then all these orders of a Class 8 truck and all those, how this cancellation or as a percentage, how much have you experienced cancellation goes from the peak level of orders?
I think we don't work with in case in our mind, so I would not be able to tell you what exactly will happen. As far as projections and other feedback we have from the customer, we remain bullish on the current output and offtake by the customer. We don't foresee any challenges right now for the next three quarters, and we will see as the time arrives. I think right now in case cannot be built in our business plan.
No, but sir, based on past experience, you must have observed whenever any such thing happens. What has been this percentage of as a cancellation?
No, I will not be able to comment on this.
Okay, sir. Thanks.
Thank you. We take the next question from the line of Mr. Saket Kapoor from Kapoor & Co. Please go ahead, sir.
Namaskar sir, and thank you for this opportunity. Sir, firstly, sir, what are the key reasons for realizations being up for export? Is it the currency part or the product mix particularly that gives a difference higher realization for the exports?
It is both. It is a mix of currency as well as product change. Our offtake in oil and gas has improved. The realization is better in oil and gas. As well as light vehicle has contributed higher sales in North American market. New customers entry at a better pricing in European market also helps us. It's a cumulative effect of both currency as well as better realization from the customer itself.
Sir, you mentioned about order intake of INR 388 crore in your release. So what is the current order book, sir, as on Q1? What is the export and domestic mix, sir, if you could throw some more light?
No. We don't have any kind of order book, right now. We don't maintain that. New order wins is basically what Lalit has mentioned. It is basically an estimated annual volume offtake which customer gives us, and based on that, we start the development process. Basically, based on that, Lalit has given you an INR 388 crores order win. We don't have as such because automotive schedules work on basically monthly schedules. We don't have that kind of safety that this is my order book or we do not have an approximate valuation to that.
Sir, the INR 388 crore order book, which is for executable period? When is it going to get executed?
It is samples and productions are going to start. Execution period is going to start from next year, and some contracts are three years or some contracts are five years.
And this is-
What is an annualized volume? Estimated annualized volume.
This order execution will start FY 2023?
Yes. No, we are alre20ady in FY 2023.
Sorry, FY 2024.
FY 2024.
2024. Okay. Sir, this is only an indication that you have given to us. The whatever business you are going to do over this period of time, that is different than what this order is giving.
This visibility, estimated visibility for next year from the new customers.
Okay, sir. In this export and domestic mix, what is the mix? Is it totally export part or?
Entirely export. This is entirely export.
Okay. Sir, in your opening remarks, sir, or you were answering one question that the railway top line is going to double from what you did last year. This is what you indicated?
Yes.
The railway business.
Yes.
Okay. It is 1%, I think, when you in your presentation mentioned. So what was the absolute number, sir, last year?
Last year number for the railway you are looking at, correct, sir?
Yes, sir. Yes. Revenue number.
I think last year number was somewhere in the range of INR 50 crore.
INR 50 crore. Okay. Sir, can you give the net debt level number, sir, for this quarter, sir?
This quarter net debt level number is around INR 1,300 crore.
Sir, the split between the same, what is the working capital, what is the long term and the cost of borrowing?
See, the total borrowing is INR 1,300 crore, a mix of long-term and short-term. If you look at the last quarter number, it was around INR 990 crore of the long-term and the rest is the short-term. Long-term debt has gone up by INR 30 crore and short-term debt remain at the same level almost. Okay. The cost of borrowing has certainly marginally gone up in this quarter by 40-50 basis points. The full impact has not come in this quarter for that.
Blended cost of fund, what will it be, sir?
Blended cost of fund, I think it's near to 7%.
It's at 7%. This rating, post this rating, interest rate hike, so we are not expecting any lowering now. Whatever hike will happen.
Yeah, interest rate is not going to go down right now. Yes.
As a percentage of-
Whatever we can pay further, that will have an impact on the borrowing cost.
Yes, sir. What should be the targeted level, sir, for this INR 990 crore for FY end of FY 2023?
See, what we are clearly stating, our capital allocation strategy, a major amount of earnings will go towards repayment of debt, and we are targeting ourselves to become net debt-free in next three years' time. We are reiterating that and we are working on that, and you can see, quarter-on-quarter reduction in debt level. Full year number, I think it's still, we should wait for one more quarter, so to have a full year number on the debt side. Basically, we from operations want to be debt free in next three years' time. Right. There is no, he's not building in any capital raising to be debt free in next three years. [audio distortion].
There is also seasonality factor as we have built up our inventory. This was also evident last June. I think the last June COVID factor.
It is an ongoing process, and we don't play basically on inventory or anything. It's first in, first out basis.
What this inventory built up is indicating.
The inventory built up is not. It may not be only at the plant, current plant level. It may be at the warehouse, at the customer end, which is our RKFL LLC. I would not be able to exactly say where the inventory lies right now. There can be mix of, plant inventory as well as, inventory lying at the customer end.
Lastly, sir, on the raw material basket, sir, what constitutes the major raw material and how are the sourcing done, sir?
No, I think raw material prices are.
Basket, sir.
We feel that.
Yeah.
I would not be able to comment on what the market is going to be in terms of steel pricing, but we feel that steel for us, steel pricing would remain stable.
The composition of the raw material basket, what constitutes, sir? HR, CR, what is?
No, we do long products, basically forging quality steel.
Everything is sourced domestically only, sir? We depend upon the raw material-
Yes. No, we 100% source raw material domestically.
Number of players from whom we are sourcing, how many players?
I think we will not be able to comment on this.
Sir, as you explained to us in your opening remarks and also reiterated the fact about debt reduction and continued good numbers or maintaining these numbers. What are the key risks to these three-year projections, sir? Like the roadmap you have made now, business plan you have made for the current year. What are the key risks, God forbid, that may play, may not play out going forward?
Basically, God forbid, if we exist.
Uh-huh.
Organization exists, performance will come. If we don't exist, organization does not exist, results will also not be there.
No, sir. I'm talking about the business environment.
Business environment, we feel that the business environment is extremely conducive and demand will remain robust. That's what we have from our customer end, and that we can assure the investors that is what is there right now in pipeline feedback we have.
Correct, sir. For the CapEx part, how much goes into the maintenance CapEx, currently, and any further capacity augmentation we are looking, sir?
No. Right now, if you see our full year presentation last year, we have already outlined our capital allocation policy, and we stick to that. Based on that, whatever cash flow permits, we will go ahead and do CapEx. We continue to augment capacity, create capacity and grow the company. Everything will depend on how the cash flow permits, and based on cash flow permitted, post debt reduction, post paying dividends to investors, whatever cash flow is there, we will plow back the cash to the company to augment capacity.
What is the maintenance CapEx number, sir? Any numbers, absolute number you can share?
It should be around INR 70-INR 80 crores, maintenance CapEx.
INR 70-INR 80 crore. Sir, with this reduction of debt and quarter-on-quarter, which from the cash flow you will be reducing, as a percentage of sales, how should we look at this finance cost number also, sir? Last year the absolute number was INR 153 crore. For this-
Last year the number was INR 93 crore on the finance cost, right?
Sir, consolidated number.
This quarter.
Consolidated number.
See, if you look at the consolidated number, yeah, the last year number was INR 100 crore. Sorry, give me the number, consolidated number. Let me come to consolidated. INR 96 crore was the last year consolidated number.
Yes, right. I missed it.
This year we have come INR 26 crore.
Uh-huh.
In Q1. It looks like to remain at the current level only, in our view, and even if there will be an increase in interest cost, we'll be able to save that by paying down reducing our debt. This will not go up from this level. I think, we will be somewhere in the range of INR 100 crore-INR 105 crore for the full year.
Thank you so much, sir, for all the elaborate answers and all the best. Namaskar.
Thank you. We take the next question from the line of Shubhankar Sharma from Motilal Oswal Private Equity. Please go ahead, sir. Mr. Sharma, your line is on talk mode, sir. Please go ahead with your question. Mr. Sharma? Sir, we do not have any response from this line. I'm moving to the next question. We take the next question from the line of [Smita Motar] from Credent [MOH]. Please go ahead.
I wanted to ask one question, that is as the management is saying, that the financials are supposed to remain the same for the next year that we are expecting the change.
Ma'am, yeah, ma'am, we are, you're not audible, ma'am.
Okay. Ma'am.
[Smita], ma'am, your voice is very low. Could you be a little louder?
Yeah. Am I audible now, ma'am? Hello? Am I audible now?
Yes, this is better now. Yeah.
Yeah. Okay. I was asking as the management is saying that even the financials for next year is expected to be similar to this year's result, if I may say so. Which means that the revenue would be rising at near around 67% and the margins at 22%. Is that what the management is meaning? I wanted to confirm the same.
I am not able to understand the question, ma'am.
Ma'am, the question is that for the full year FY 2023, right? If you are suggesting that the financials are expected to be same, should I assume that as the revenue for the full year has risen, it will be in the similar lines for the next year also?
Ma'am, I'm not commenting on FY 2024. FY 2023, what we comment right now is that next three quarters are going to be on the expected lines, and we should outperform the expectations. What results have come out today is sustainable, and it will continue to grow in this fashion throughout the year. In terms of FY 2024, we feel that market as today is extremely good, and if this continues, company is going to grow further from where we end FY 2023 at.
Correct. What I was suggesting, sir, is that if we look at the value by revenue, right, it has risen by 67%. Are you commenting that the next three quarters also your revenue would be rising in the similar pace?
In terms of percentage, I'm not telling anything. In terms of absolute number, yes. We will be able to sustain the current revenue mix as well as the margins for the next three quarters.
Okay. Could you bifurcate, sir, the Class 8 truck sales order that you received from your revenue? Like what is the percentage of Class 8 truck orders?
No, we don't have any breakup in terms of Class 8.
Okay, margins for the full year, is it expected to be at near around 22%?
We will be able to sustain the current levels of margin for the entire year.
Okay. Thanks. Thank you, sir.
Thank you, ma'am. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your question to two per participant. Thank you. We take the next question from the line of Mr. Kushal from Motilal Oswal. Please go ahead, sir.
Sir, I wanted to understand regarding the realization, when we say that we expect the current realization to sustain, then maybe can you how we are expecting the railway orders to improve two to X? Is it because of the order flows from the government, or we are increasing the penetration in the segment? The other thing was, five factors explained this, which can be the most contributing to the growth over two, three to five years.
In terms of railways, with the new fabrication facility being commissioned in the previous year, we have started getting good orders from railways, and that is showing up in our balance sheet in terms of growth in railways. I think we'll continue to grow in railways in a significant way with the current business environment in railways. I think for next two to three years, we can comfortably say that railway is going to be doing extremely well in terms of our overall portfolio. In terms of three to four years growth plan, I cannot say what is going to happen next three to four years. I would be able to comment on the next three quarters, and we expect if the economy remains as such what it is today, we can be able to do extremely well in FY 2024 also.
Sir, let's forget about the external factors, but internal.
Can you be a little louder, please? We are unable to hear you either from the handset or.
Sir, I'm not talking about the external factors, but internal factors where you are considering the next leg of growth to come over three to five years like?
Internal, both in railways, commercial vehicle, and we have entered the light vehicle in Indian segment also, and we are trying to penetrate in the passenger vehicle. Right now, passenger vehicle is insignificant for us. We are trying to grow our passenger vehicle segment, but it is still absolutely very nascent to, for us to comment on a significant portion in passenger vehicle. Tractor has started doing extremely well for us. Overall we see the domestic market will outperform in next three to four years' time.
Sir, is the realization sustainable? How are we expecting that?
With the current steel pricing, we are not expecting any prices to go up or go down. We expect the realization to sustain at the current levels for next three quarters, at least.
Sure, sir. Thank you.
Thank you. We take the next question from the line of Harmeet Singh. He's an individual investor. Please go ahead, sir. Mr. Harmeet Singh, your line is in talk mode, sir. Please go ahead with your questions. Hello, Mr. Singh. Due to no response, we move on to the next question. The next question is from the line of Taral Shah from Kitara Capital. Please go ahead.
Hello. Am I audible?
Yes, sir.
Hello.
Please go ahead. Yes, sir, you're audible. Please go ahead.
Yeah. This is your export order book. For last five, six quarters, your volumes has remained, like, around 10,000 tons per quarter. When you say there's a strong demand from export market, why these numbers are not increasing?
We are unable to hear the question even.
See, for last five, six quarters, your export volumes has remained around 10,000 per quarter, right? Hello?
Hello.
Hello, am I audible?
Yes, you are audible right now.
What I'm asking is for-
Hello.
Mr. Taral's line just got dropped. We're trying to reach him back. We'll take the next question from the line of Mr. Dipen from DS Investments. Please go ahead, sir.
Yeah. Thank you for the opportunity. I had a couple of questions. Firstly, on the fundraise side, we were expecting some announcements from the company about the fundraise, either by way of bonds or equity. If you could just, you know, throw some light on what should we expect out of that. The second question-
We have dropped our fundraising plan right now with the current performance of the stock. We feel and the expected business volume for next three years, we don't expect any fundraising at the current moment.
Oh, okay. Because I think yesterday you had intimated to the stock exchange you were going to discuss about fundraise.
Yes. We have given a press release today, and in that there is no resolution in terms of fundraising.
Okay. Okay. The second thing, you have partly answered about the current year's growth rate. In the last couple of calls, we have heard you telling about 25% growth in the current year. The first quarter has been way beyond that. Anything further qualitative you can tell us about what we should expect for the current year? Thank you very much.
We have already elaborated that the current performance is here to sustain, and we will be able to outperform going into next three quarters also.
Sure. Thank you very much, and all the best.
Thank you. We have Sir Taral Shah connected in the question queue. Sir, you may go ahead, Sir Shah.
Got disconnected. My question was regarding export volumes. For the last five to six quarters, our volumes have remained at 10,000 tons per quarter. When you say there is a strong order from the export market, then why our numbers have remained at this level?
I think the product mix keeps on changing. The tonnage becomes insignificant in terms of revenue. Overall revenue, you will need to see vis-à-vis what is the market condition in the particular geography. While we continue to say that demand is robust, I do not say about what is happening in the country in terms of economy. I can say what we are doing in terms of our sustained growth in that geography. We are not talking about the entire country or as an economy or a sector. We say that we continue to maintain sustainable growth in that geography and our demand is robust. My pipeline is there and product mix in terms of tonnage, LCV parts are low weights. Oil and gas, there are low weight parts. Volumes in that are going up, this may not add volume.
Other some sectors may not be performing, so their volumes may go down. In terms of absolute number, in rupee terms, you need to see what is the growth.
Okay. For over the next long term, I mean, two to three years, export can contribute how much?
I could not understand you.
For over next two, three years, when we see exports is contributing around 30% of your revenue, right? How much it can increase from current level?
With the way company is growing right now, we can safely say that we will be able to maintain this kind of premix, maybe 5%, 3% or 4% up and down, but 30%-40% is going to be the range of exports to the top line.
Okay. Moment your export contribution increase from current level, so working capital days will increase or reduce?
The working capital days in exports are higher. We are not doing any bill discounting or anything, so the working capital days in terms of exports are higher. That has been mentioned in last several calls we have had, that export debtors have at least 110-125 days cycle in minimum. It can go up to 150 days also.
Okay. It can go up to 150 days. There is no scope for improvement from current level, right?
No. In export debtors we don't see any improvement in terms of, debtor days in exports. Unless we start doing factoring or, discounting of the bills, which is not in our current plans right now.
Okay. Very well. Thanks. That is from me.
Thank you, sir. We take the next question from the line of Sangeeta Purushottam from Cogito. Please go ahead.
Good afternoon, and thank you for taking my question. Sir, I just wanted to understand your capital allocation policy a little bit. Now, what you said is that whatever cash flow is generated will obviously go partly to pay dividend, partly for debt reduction. You will have some working capital requirements from there, and the balancing factor will be CapEx. Have I understood you right?
Ma'am, we have said, if you have seen my presentation for last full year, we have mentioned the complete capital allocation policy. We have mentioned that part of the cash flow is going to be paid for debt and working capital, and then dividend payout and whatever after dividend, post dividend payout remains will be plowed back in terms of augmenting new capacity or in the plant.
Right. My question is that if you are looking at the outlook and-
Your voice is breaking, ma'am.
Can you hear me?
Your voice is breaking.
Ma'am, your voice is breaking. I would request you to speak a little.
Can you-
A little away from the mic.
Hello?
Yes. It's audible now. Please go ahead.
Can you hear me?
Yes, ma'am. Please go ahead.
Hello?
Ma'am, you're audible. Please go ahead.
Hello, can you hear me?
Ma'am, you're audible. You may go ahead, please.
My question is that if that is the case and you're looking at a business outlook which looks quite promising, you know, not just for FY 2023, but according to you, for the next two, three years as well, will you have enough funds available to fund the CapEx requirement or won't you need to borrow funds to do it and therefore debt reduction may not be that appropriate if you're looking at strong opportunities?
Ma'am, with the current business plan and scenario, what we are working on basically debt reduction for next three years, and that's the policy which the Board has evolved in. Whatever cash flow is left, I think that should be sufficient enough with the projections we are working with our marketing team to funnel our growth for next three years.
Okay. If I might just add, ask another question related to this, what kind of capacity expansion are you planning over the next three years?
Ma'am, we may not, in terms of tonnage, it may not be significant. I think we are not looking at augmenting a huge tonnage in capacity in terms of tonnage. We are looking at adding more capacity in augmenting automation and value add in the products. Which will improve bottom line more significantly than the top line.
Right. Okay. All right. Thank you so much.
Thank you very much, ma'am. We take the next question from the line of Harmeet Singh. Please go ahead, sir. Mr. Harmeet, you may go ahead with your question, sir. Your line is in talk mode. Mr. Harmeet, can you hear me, sir?
Yes.
Sir, please go ahead with your question.
No, no, Mr. Harmeet Singh, you need to be louder. You are very, very low. Your voice is very low.
Hello, Mr. Harmeet?
Not at all. No, I'm not able to listen at all.
Mr. Harmeet? Hello, Mr. Harmeet?
I think, can we move to the next question, please?
Sure, sir. We take the next question from the line of Mr. Mitul Shah from Reliance Securities. Please go ahead, sir.
Sir, thank you for giving opportunity again. Just as you mentioned that there will be requirement of the tonnage capacity addition. When I look at your presentation, your ring rolling and forging has been always in the range of 100%, 215%, even 125% of utilization. Just want to understand up to what maximum utilization can we go for these three segments, ring rolling, forging and press in terms of above 100%, what maximum possible?
No, I think, while we say that we are not in terms of adding capacity, we also have said that we are working in terms of automation and value add. I think that is what is the target of the company for next three years. In terms of adding capacity in ring rolling or in press, I think it's a marketing call. We right now do not foresee any reason to augment fresh capacities in these places, so we will stick to what we have right now. In case we change our policy or in case there is a new thought process in marketing, we will come back to the investors and inform them.
Yes, sir, but in this, for example, ring rolling last year, same quarter, we went up to 125% utilization. What is maximum possible utilization level in case if demand is high, then can we go up to 150%-
No, I think it all depends on the product mix. I think it does not depend. Whenever we declare capacities at the mean level, it's not at the top level. It depends on if all the quantity comes at the topmost weight level, it may go up to 130%-135% also. It all depends on the product mix we have right now, and we do not have any visibility in terms of which is on a monthly basis. We cannot change that or we cannot do anything about that.
Yes. Sir, what about machining capacity right now, utilization?
I think right now our machining capacity is 100% being utilized.
Is there any ramp up or capacity addition required?
That is what I said. We will continue to add capacity in value add. Value add means it's machining or something related to machining only. We'll keep on adding capacity.
Sir, in your presentation you mentioned about key focus area in along with the EV and niche product, which stated we'll focus more on the high margin segments now. Which are the high margin segments or products or can you highlight just two, three top, two, three?
No, right now, with key initiatives, what we highlighted is that we are looking at getting into more assemblies right now. All the components which we are making and also EV products which are coming into, they are high margins as well as oil and gas is high margin.
Sir, any plan to come out with this more sub-assembly type of thing rather than only components?
We have already started into sub-assemblies and full complete assemblies. The company always looks at opportunities to improve product mix. That is an ongoing process which we always keep on doing.
That must be high margin relatively, right?
Yes.
Thank you, sir, and all the best.
Thank you, sir. Sir, we have Mr. Harmeet Singh. Please go ahead, sir, with the question.
In which type of product you are catering in EV sector?
I think, you need to check your line. There is some problem with the line.
With Harmeet Singh I think there's a problem. Operator, can you check it and then connect it, please?
Yeah. Sir, I could hear him. Mr. Harmeet Singh?
In which type of product you are catering in EV sector?
Mr. Harmeet Singh, we are not able to hear you. You're not audible.
Mr. Harmeet Singh, I would request if you could join back with any other alternate device because your line is not audible, sir.
Which type of product you are catering in?
Sir, you're breaking up, sir.
I think-
Which type of product you are catering?
Sir, we take the last question from the line of Mr. Saket Kapoor. This is a follow-up question. Mr. Kapoor, you can go ahead.
Yeah. Thank you. What Mr. Harmeet Singh was trying to say was the product category in the EV sector.
We cannot comment right now because EV is a very, very confidential portfolio for us. We would not like to comment on what product portfolio we are going ahead in EV right now.
Out of the total order book mix or the visibility which you have, what would be the contribution from EV to this? It will be a very small portion only, sir?
No, I think in the last full year presentation, we have already given our growth plans in EV. I think we are looking at in terms of percentage if you look. I don't have it right now in front of me.
It's 3.5% for the full year, FY 2023, for the turnover we are looking in the EV.
6% in FY 2024.
All right, sir. Sir, about this other income part, its occurrence in the first quarter, what is the nature of this other income, sir?
It may be some insurance claim or little bit that may be the small claim, sir.
Okay, sir. Sir, about the earlier participant did spoke about the utilization levels between the product mix which you have been ring rolling, forging and press. Why on the press side, sir, it remains in this vicinity of, say, 50%-65% only if you could explain. Is it, I mean, it depends totally on the product mix, that is correct.
Yes.
The nameplate capacity it is only for the numerical purpose only and
No, I think it is a numerical purpose only and it based on the product mix. You will be able to see in continued quarters improvement in press utilization also.
Right, sir. For the forex impact, sir, since the rupee has depreciated, how do the depreciation of rupee affects our earnings, sir?
I think, we have already a couple of times said this in our calls. That for rupee, we do not take a call in the forex side. Basically, our policy and we follow with the customer that every quarter the forex is ±5% passed on to the customer. Whatever it may be, it may be appreciation or depreciation, it's passed on to the customer.
Come again, sir. I missed your last line somehow. The forex side.
Forex is passed on every quarter to the customer ±5%. We do not take any call on the forex side.
There is no liability also on his part generally because everything because you are sourcing everything domestically so that does not play out for us.
Yeah. There is no liability in terms of it.
Right. When we look at your last year numbers for March, for the full year, March 2022, and the first quarter. The first quarter of June was badly affected by the COVID, so it is a non-comparable quarter. June 2021.
Domestic market was bad due to COVID at that time. Export was good because India was impacted by the second wave of COVID, so that was having some impact on the sales on the domestic side in last years.
Because why I ask this question is because since you are saying you are explaining to us that for this quarter the revenue and the bottom line which we have maintained, that's going to be maintained. When we look at your numbers for the last year, it has improved sequentially on a larger trajectory. See, for posting the INR 253 crore PBT numbers, the second, third and fourth quarter were indiscriminately very high. If we even extrapolate or analyze this first quarter numbers, the growth numbers vis-à-vis the March numbers are not looking very high. Just wanted to understand how this linearity is going to play out. I mean, we will have some big quarter during these three coming quarters.
We will continue to grow quarter-over-quarter.
Correct.
What I have said that we will, to the question which was asked whether we will be able to sustain. Yes, we will be able to sustain what we have done in this quarter. I have never said that we will not grow from here. We will continue to grow. Company projects and company envisages that we continue to grow quarter-over-quarter. With the current order book and plans, we are very confident to achieve higher growths for the full year.
Correct. When we read your rating analysis, therein this high customer concentration part is mentioned. Wherein Tata Motors, as you mentioned-
I would not like to comment on any particular customer.
This is very well documented in the rating rationale. That is what I was referring. If you allow, I may refer it or if not, then that's all.
You can refer it, but I will not be able to answer any questions here.
Because they have mentioned it that they accounted for your revenue of 25% and 27% for FY 2021. I was just looking if with this improved revenue, which you are guiding to us, this percentage, this DDC factor will continue or Tata Motors business will also be equivalent. I mean, it will be. You will be having the same share of pie. Since you don't want to comment on a customer.
No. No, I would not be able to comment on any brokerage report or report you are referring to and-
I'm reading the India Ratings report.
No, anything of that sort. I would not be able to comment on any particular customers.
Okay. Thank you for all the elaborate answers.
Thank you.
All the best to the team. Namaskar.
Thank you, Mr. Kapoor. We take the last question from the line of Karishma Makhija from Motilal Oswal. Please go ahead, ma'am.
Hello, sir. The gross margin from Q1 2022 to 2023, there has been a drop of close to 6%. What is the, you know, main reason driving this drop? Two, on the EV segment, which is the sub-segment in EV, especially from an export perspective, where you feel that there will be significant growth in the coming quarters. Is it LCV? Is it tractors or trucks or what is your view, sir?
No, in EV we are right now working with three-wheeler, four-wheeler and small truck market. I cannot comment because it is very extremely confidential, so I would not more elaborate on this portfolio. In terms of gross margin, I think you are seeing it vis-à-vis the last FY 2021 Q1.
Right.
In that domestic market due to second wave of COVID was down and that's the reason export as a percentage of sale was more than 50%. That's the reason gross margins in export realizations are better and that's the reason in absolute term realization went up, gross margins went up. If you see, we compare it with the last quarter of FY 2022, you'll be able to see we have grown in gross margin on QoQ basis.
You're saying that the exports were FY-
Hello.
You're saying that in Q1 FY 2022 the exports were higher versus domestic given the second wave of COVID and.
Q1 2021.
Okay. I'm reading.
Q1 2022.
Gross margin was around 60.5%.
Yeah, it's the Q1 2022. Our gross margin was 60% because in exports you have a value of freight also in the realization. That's why raw material cost goes down. That's why operating margin looks higher, as in the entire mix, the export was higher than the domestic and in the current quarter it's reverse.
Understood.
Thank you, ma'am. That was the last question. I would now like to hand over the conference to Mr. Lalit Khetan for closing comments. Thank you and over to you, sir.
Lalit speaking.
Yeah. We take this opportunity to thank everyone for joining the call. I hope we have been able to address all your queries. If you have any further queries or information, you can get in touch with us or SGA who is our investor relations advisors. Thank you very much for attending our call.
Should we conclude?
Yeah, we can conclude.
Thank you. On behalf of ICICI Securities, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.