Good morning, ladies and gentlemen. Welcome to Ramkrishna Forgings Q4 FY 2022 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 the 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. Basudeb Banerjee from ICICI Securities. Thank you, and over to you, sir.
Thanks, Nizam. Good morning, all participants, and thanks to Ramkrishna Forgings management for giving us the opportunity to host the call. We have the management represented by Mr. Naresh Jalan, our Managing Director, Mr. Chaitanya Jalan, Whole-time Director, Mr. Lalit Khetan, ED and CFO, and Mr. Rajesh Mundhra, Company Secretary and Senior General Manager, Finance. Now over to you, Jalan sir.
Good morning. This is Lalit Khetan. 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, Chaitanya Jalan, Whole-time Director, Mr. Rajesh Mundhra, Company Secretary, and SGA, our investor liaison 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 the company website. We had a good fiscal year with revenue increasing by 77% over FY 2021 due to a strong recovery in the CV industry from the impact of COVID-19 and efficient order executions. We were also able to sign new businesses across segments and geographies, keeping our order book healthy.
Our EBITDA margin increased by 521 basis points over FY 2021 due to improved capacity utilization, various cost-cutting initiatives, increasing automation, and incorporating latest technology into our manufacturing process. We also completed our expansion plans, and we are ready with a capacity of 187,100 tons. During the year, our capacity utilization was about 77%, which we believe will improve in next couple of years, resulting in operating leverage benefit. When compared to FY 2021, our export sales increased by 96% and domestic sales have increased by 66%. As we penetrate deeper into the customers by increasing content per vehicle. We have introduced new products, added new customers, expanded into new geographies. As the economy improved, we resumed sales to South American markets, allowing us to expand our export business.
We also saw strong demand for Europe, which led to de-risk our export plans from the United States. In Q4 FY 2022, we managed to bag three new contracts aggregating INR 144 crores, and during the entire year we bagged new businesses worth INR 984 crores from 18 contracts. We received PPAP clearance and confirmation from a European OEM for a multi-year order. Our new Jamshedpur fabrication facility was approved by one of the leading European OEMs in the mining and automotive industry, resulting in the start of serial production. This facility has also enabled us to expand our presence in the railway sector, which is an important component of our diversification strategy. We have commissioned our warm forging plant and we began shipping product samples, and this will enable us to add new products to our baskets.
Furthermore, to expand our global reach and strengthen customer relationship, we have opened new offices in various geographies. These new sales offices, which will be added to our existing offices in United States, Mexico, and Turkey, will allow us to pursue our aggressive strategy of increasing our export business even further. While talking about the industry dynamics, despite fuel inflation, chip shortage, and geopolitical concerns, the commercial vehicle industry remains optimistic about its growth prospects due to favorable growth drivers. Aside from the e-commerce boom, increased activity in road construction, mining, and improved infrastructure spending by the central and state government aided the CV industry growth in 2021, 2022. Medium and heavy commercial vehicle sales increased by double digits as a result of increased fleet utilization levels caused by increased economic and infrastructure activity. The semiconductor shortage is likely to persist for some time.
The industry has been coping by implementing alternative measures which we expect to resolve in coming quarters. However, the central government's increased emphasis on infrastructure and rural development is likely to drive demand in the CV industry. We also see good demand coming from railway and oil and gas segment during the coming period. We are continuously working to de-risk our business by diversifying across segments, customers, and geographies. We will continue to focus on debt reduction by utilizing a major portion of net operating cash flow towards debt payment. PwC has been engaged in the integration and implementation of ESG, which will be environmentally sustainable and socially responsible, and will be supported by a strong corporate governance roadmap. That's all from my side. We can now open the floor for Q&A. Thanks.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your 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. The first question is from the line of Mumuksh Mandlesha from Emkay Global. Please go ahead.
Thank you so much, sir, for the opportunity. Revenues from EV is expected to grow strongly over the next few years. Can you share which products company is targeting, any order book size, and what are plans to reach the target?
I think we cannot name the product because of the policy of the company. Actually in our presentation, if you see, we are already putting the geographies. We are already working on the programs which are going to result into volumes as predicted in the market in terms of total CapEx equipment sales. Accordingly, we have budgeted the total volumes which we are going to clock in next couple of years.
If possible, which, like, if it's for CV segment or PV segment?
It is basically for mix of three-wheelers and PV.
Okay. Sir, company is targeting to increase the addressable content per vehicle to 84% by FY 2027. Which are the products company is targeting, and what is the plan to reach the target?
No, I think if you see our presentation, you will be able to visualize that we, when we started our journey in the auto, we started at the back of the vehicle, and now we are almost at the entire vehicle. When we are targeting, we are looking at reaching the entire platform of the whole vehicle. That is the way we are targeting. We were one of the biggest suppliers for rear axle. Now we have got into front axle, and we are looking at complete value add, fully built front axle. That is our target by 2027.
Okay, thank you. Sir, on non-auto, which contribute about 19% of revenue in FY 2022. Out of which 10% comes from railways, mining, construction, oil and gas. Can you share what are the other 9% of the revenues?
They are a mix of industrial components, different industries. It may be from steel, it may be from cement. There are a lot of industries where we do a small portion of activities which result in higher value but not volume. In total together, this is unlike power sector, these are the places where we cannot exactly plot the percentage, but it is. We have kept it as others, basically.
Sir, what will be the outlook for FY 2023 for the industrial segment, sir?
We are looking to maintain the same volumes and same revenue.
Next year you say the mix should be similar compared to FY 2022.
Similar, yes.
Sir, the last question. Has there been any change in the outlook by overseas CV players on account of chip shortage and slow freight rates?
No, I think, if you see our exports, while these problems are there since about three quarters now, we have been constantly able to maintain our exports because of the breakup in the geographical segments. We believe that, with addition of new segments such as South America, Thailand and, other places, I think we will be able to maintain the same, growth. Maybe some, country specific, it goes, further down, but we as RKFL do not believe that our overall portfolio is going to decline in terms of exports.
Also basically there's no change has happened recently, right, in terms of a demand outlook by OEMs?
No, there has been demand, but changes by the OEMs. We cannot reflect on a particular OEM who has changed. Overall, if you see, country specific or our journey in exports, we have been able to grow or maintain the same levels despite these challenges already being there.
Okay. Sir, you mentioned that there will be some inventory correction over next few quarters. What kind of impact would be there, sir?
No, I don't. We do not foresee any impact due to any of this. We, as projected, we will continue to grow. We have never said that there is going to be inventory correction. Because the build rate is so slow, I don't think there is any buildup of inventory at the export platform.
Okay. Thank you so much, sir.
Thank you. The next question is from the line of Agastya Dave from CAO Capital. Please go ahead.
Thank you very much for the opportunity, sir. I must congratulate you. Some of the cost-cutting measures that I can see in the line items, they are really impressive. I was expecting quite a bit of hit on your P&L, but you guys have managed the costs very well. Sir, my first two questions are on costs themselves. Sir, is there any component of the RM pricing which has not been given as a pass-through by your clients and which we can expect going forward? And what would be the impact on gross margins because of that? And a related question is on fuel. Can we expect these prices as a percentage of revenues to be constant going forward or get slightly better? Is this the peak fuel cost that we have seen?
I think in terms of peak fuel, we are trying to make some changes in terms of our usage. Converting a lot of our internal capacities, moving out from usage of gas and furnace oil or LDO to electricity. I think you will be able to see in this year a lot of these things happening by which it may not happen in the next quarter itself, but over the whole year, you will see that a lot of actual fuel usage going down and electricity usage increasing, by which I think we will be able to save huge both on cost in terms of fuel as well as we'll be saving RM because of the heat loss.
Okay. Brilliant, sir. Sir, on RM costs, is there any component of the normal pass-through mechanism which has not been paid because of the lag?
I would not be able to comment on this because I am not exactly aware of the terms because this is being dealt by marketing, but as we know, we have most of the RM, a contractual obligation with all our OEMs to pass on RM with one quarter lag or one month lag.
Okay.
This happens on a cyclic basis, so I think as far as balance sheet is concerned, 99% of the RM has been captured in terms of pass-through.
Yes.
If it happens in due course, so company P&L will never get hit because of non-pass-through. It may happen with one lag, quarter lag.
Right.
It is not that it is going to have a P&L effect.
Right. Sir, in terms of additional freight that we have paid because of extraordinary rates as of now, can you quantify that number? And what are you seeing on the freight side? Because at least as far as U.S. shipments are concerned, there are like some reports which are coming out that situation is improving. It is not as bad as it was earlier. First of all, can you quantify the additional extraordinary freight costs that you have incurred during the year? And what is the situation as of now?
I think quantum of exact freight, I think Lalit will be able to answer this question. In terms of availability of containers right now, yes, situation is better than what it was in the month of December. Post this war again, things have started becoming difficult because of the crude oil prices. The cost, what we thought will come down, we are not seeing the same happening.
Right.
Yes, in terms of availability has improved, but it is at a cost. It is not without a cost.
Right. Sir. Yes, sir. Sorry.
Mr. Lalit Khetan, can you answer the quantum of freight cost we have incurred extra?
The freight cost has risen in all the geographies, and it's steepest in North America. It has gone to almost 4x , 4x- 4.5x up from the rates what we are paying in the last year.
Right. Even now, sir, as of now? Or are you saying for the entire year as an average?
Yeah, yeah. It's almost five times right now, more than 5x . On the average, it's 4.5x .
Okay. That is hitting you primarily on the export side?
Yes. That has eaten up some part of our margin. We have been able to recover some part of it from the customers, but entirely it cannot.
Sir, could you quantify that part, how much you have been able to recover?
I think in the full year we have been able to recover around 6% from the customer on account of freight.
Sorry, sir, how much?
INR 60 crore.
INR 64 crore?
INR60 crore, INR 60 crore.
INR 60 crore.
60%. Right.
Crore. 60-
Oh, crores. As an absolute number. Okay. Sir, one final question. This is on the nature of the cost we incur when we ramp up. So you mentioned that in the guidance that you have said, that next year we expect the turnover to go up by 20%-25%. I'm assuming that is mostly volume. If you actually achieve that kind of volume growth, can—like, is the operating leverage as linear as it appears on the P&L, especially during this year when our utilization went up by so much, our margins expanded by 500 basis points. Can we expect a similar trajectory going forward, or will it be more of a diminution, a diminishing return kind of situation?
No, I think you will be able to see still growth both in terms of top line and bottom line, but the amount of inflection which has happened of 500 basis points, it may not happen as that much, but yes, you will be able to see continuous growth in terms of overall margins, which we feel that is going to continue for at least six to eight quarters.
Sir, at peak utilization, what kind of ROEs can you generate, and what kind of margins? Is there a cap to it? Let's say, can you cross a 25% or 27% margins, EBITDA margins and, probably 20% ROEs? Is there a cap to the number, or you can actually, the more efficient you become, you get to keep the efficiency gains that you generate?
More efficient we become, more ROE is going to happen. We are looking somewhere in this year, you will be able to see a 20+ ROE. I think we are very extremely positive on it. I think going forward within this year only you'll be able to see those kind of ROEs.
Great.
We can easily say that as we ride up the value add chain and as we improve our internal efficiencies, I think you will see much better ROEs going forward.
Excellent, sir. One final question, which the previous participant also asked, about any order cancellations, especially in North America, because the freight rates there are slightly wobbly as of now. Are you seeing anything from the OEM side? I'm specifically asking for North America, sir, not for your export markets.
I will not, I can only tell you it's a big no. We have had no order cancellations, whether it is North America, whether it is Europe or anywhere in the world. My contracts with my customers are strong, and it will be till FY 2024 end.
Excellent, sir. Thank you very much, sir. Great performance. One request, sir. If you can improve the quality of the P&L that you publish on BSE and NSE. The presentation is amazing, but the actual result document, the line items are not very clear. It's very hard to read. That is my only request, sir. All the best, sir.
We will take your suggestion on board, and we will surely try and implement whatever.
Thank you very much, sir. Your disclosures have improved dramatically. Your presentations are very, very useful, sir. All the best, sir. Thank you very much, sir.
Thank you. Thank you.
Thank you. The next question is from the line of Abhishek Jain from Dolat Capital. Please go ahead.
Thanks for the opportunity, and congrats for a strong set of numbers, sir. Sir, going ahead, domestic revenue mix will improve, so how it will impact the overall gross profit margin of the company?
Can you please repeat the question, and can you use the handset for.
Hello.
You have a background noise. I think we are not able to hear your question.
Hello. Yes, sir. Are you able to hear me?
Yes.
Sir, my question was related with the.
Hello? Hello?
Hello.
Mr. Abhishek Jain, we are not able to hear you. There's a lot of disturbance from your line.
Hello?
Yes, sir. Please proceed.
Yes, sir. My question was related with the gross margin. Basically, going ahead, the domestic revenue mix will improve, so how it will impact the overall gross margin of the company?
I think gross margin is going to remain strong. I think right now we are at a threshold wherein as our capacity utilization improves, we will continue to improve on the margin side.
Going ahead, we are expecting that domestic revenue will outperform the export revenue. In that case, can we expect that margin will go down slightly?
I think in terms of our revenue mix, we still believe that we will be able to sustain 50/50 or 45/50. I don't think there is going to be much change in the mix in terms of export and domestic volumes going forward also. I think in terms of margins, the capacity utilization ultimately is going to decide how better we perform on our gross margins.
Abhishek, I would like to add here, because if you look at the result from the Q4, we added INR 421 crore of domestic sales and INR 260 crore of export sales. Revenue mix is already towards domestically heavy, but we have been able to post a decent margin in the quarter also.
Okay, sir. Sir, in the last quarter, you had mentioned that there was a high inventory lying at your warehouses. This quarter's also production is higher than the sales. If you see the trend, production versus sales, in last year, production was 35, 32,000 metric ton higher than the sales. In that case, what is the outlook for the margin, especially when inventory buildup is high for the exports?
I think inventory is not high at exports. Because the shipping time earlier. If last year you see, the shipping time was 45 days from plant to warehouse. Now shipping time is almost 85 days-90 days. That's the reason material inflow have increased. And that is we have to do because we need we are committed to maintain JIT at customer end. Obviously we will need to build in those shipping time in terms of our inventory is concerned.
Sir, during this quarter we have also seen the export realization has gone down, but while the domestic realization has gone up. Is it because of the correction of the international freight rate that export realization is going down?
No, it's nothing to do with the correction in international freight rate. It may be minorly due, and I don't think it has gone down drastically. It is just a minor small.
No, no. Basically increase by INR 5 per kg in the quarter. It has not gone down much.
That is also because of premix. I think if you are comparing it with the domestic, it is only because of the premix changes and all. I don't think there is any realization change across the board.
Okay, sir. Sir, you are looking at a strong revenue on the CV side, especially from the Russian regions also. How do you see business ahead, given the ongoing war in the European region?
I think Russia was never a very big order book. It was a small order book, and I think we would not like to comment right now on that. We would like matters to settle down in Russia before we would like to comment on that.
What is the current outlook for the European business for the FY 2022?
In Europe, we've continued to grow, and we, as in my earlier answer also, I said, our exports are having robust growth with new order wins, new components getting added to the segment. We continue to maintain that next couple of years in exports look to be bright with those additions.
Okay, sir. My last question is related with the current order book in this non-auto segment.
Hello?
Hello. Sir, my last question is how much is the current order book in the non-auto segment?
No, we will not be able to put any number to it. As a percentage, we have already shown it in our presentation, and we believe that we will be able to grow further on the non-auto segment. From 18%, I think we will see further non-auto segment to grow further in coming years in terms of absolute percentage over the revenue.
What mix change can we expect going ahead? Right now it is 18%-19%. Can we expect 25%-30% in next 2 years-3 years on target?
We are targeting the same. I think by next 3 years to 4 years, we should be looking at close to around 75%, 25%.
Okay, thanks. That's all from my side.
Thank you. The next question is from the line of Amyn Pirani from J.P.Morgan. Please go ahead.
Yes. Hi, sir. Thanks for the opportunity. My question was mainly on the cost side. You know, in terms, obviously your industry is a big consumer of power. Are we seeing any risks in terms of power availability or in terms of an increase in power costs, given the kind of crisis that we're seeing in the country right now?
No. I think, we are not experiencing any power shortage right now, as well as, we have a systematic revision system, which we have already built in the cost, while calculating. I don't see any steep hike going forward uninformed.
Okay. There are no, you know, an increase in any power availability or power cuts, flowing.
No. We are not experiencing any power outage.
Understood. That's helpful, sir. Sir, on the domestic side, given that commercial vehicles continue to be good, you know, you have also mentioned that obviously we are seeing an improvement in volumes. Again, in terms of pass-through of raw materials, you mentioned that, you know, it's generally a one month to a one quarter lag. Has that changed, you know, given the kind of price hikes we've seen in commodities? Like, are customers as willing as they were in the past, or there is some slightly more delay than we are used to, you know, in the past?
No, I think, for us, commodity is not a cost, which we discuss directly with the suppliers. It is the OEM who directly discusses the price increases with the suppliers, and they fix up the price increases and the date. Accordingly, whenever they fix up, they inform us, and accordingly we pass it on. It is basically we don't negotiate, so we don't get affected also with that.
Understood. That's helpful, sir. I'll come back in the queue.
Thank you. The next question is from the line of Subrata Sarkar from Mount Intra Finance. Please go ahead.
Yes, sir. Hello? Yeah. Am I audible, sir?
Yes, you're audible.
Yeah. My questions are more on the like cash flow, like, cash flow side. If we see like, even if this year, like whatever cash flow we have, means, whatever profit we have generated, but like, our profit is around INR 250 crore PPT. That is, in terms of cash from operation, it boils down to INR 42 crore only. I can understand because of using that we are growing, we have invested heavily on CapEx as well, means, it has got used in inventory as well as like on trade receivables. My bigger question is, sir, from now onwards, since you have already disclosed in your PPT that your objective is to debt reduction.
What kind of debt reduction can we expect in next one year, sir? This is my main query.
First question. I think, we, Mr. Subrata Sarkar, we have mentioned very clearly the capital allocation. My finance team has very clearly defined the capital allocation policy for next three years. I think, that is, in line with what company feels going forwards.
Yes, sir. Sir, like historically, we have not really concentrated on, like repaying a lot of, loans basically. That's why, my question is rather. Like now onwards, sir, let's say.
I think you need to see historically how the company has grown. Obviously, growth cannot come without CapEx. No, obviously sir, growth cannot come without CapEx, sir.
What I mean to say, since we have now disclosed that, historically we have not repaid a lot of loans, sir.
Till now we have not given any capital allocation policy. Now when we have given a capital allocation policy very clearly defined on the presentation, obviously company has something in mind which company want to stick to.
Okay. In that respect, sir, can we expect like, there is, I mean, we have seen in last year, few years historically and what is our current policy, there is some change on that because historically we have not really repaid back a lot of loans, but now we are talking about repay back, repaying back of, debt?
No, I think, obviously we have repaid debt. That's the reason we have been able to get new debt. Obviously I am not able to.
No, I'm talking about your net debt, sir.
Historically, the debt has not been repaid. I'm not able to understand that.
No, I'm talking about actually net debt, sir. That's my obviously. I'm talking about reduction in net debt, sir. It has not really, like, not like whenever we have repaid loans, we have taken a loan against that also. I'm talking about net debt, sir. I will check debt figure with you.
Hello?
Hello, sir. No, that's what I was saying. That's not my only point here.
Further questions from you.
No, this is primary question, sir.
Sir, I think I have properly explained. I think, Lalit, can you please answer to what exactly he needs.
No. See, we have already clearly defined that whatever we are generating cash surplus in the upcoming years, we will deploy 50%-60% of that to the reduction of debt or payment of debt. About 30%-40% will be deployed to our CapEx and working capital. Yeah, if there is a higher price increase and there may be some other requirement, it may change little bit. My policy now we have clearly stated it will be towards debt only, and we will stick to that.
Okay, sir. Thanks, sir. That clarity was like I was looking for that clarity, sir. That's the only question from my side. Thank you.
Thank you. The next question is on the line of Akhil from VP Capital. Please go ahead. Akhil, your line is on the talk mode. Please go ahead.
Yeah. Hello. I'm audible?
Yes, sir, you're audible. Please go ahead.
Yeah. Hi, sir. Congratulations on a great set of numbers. My question is a little more broad-based. I want to understand how you are thinking from the Indian CV point of view, because we talked to some fleet operators and they said that their margins are higher. They are extremely bullish on the CV cycle for the next two years. Internally, what is the sort of projection you're having? What sort of capacity do you plan to ramp up maybe in the future? I just want your understanding on that. Thank you.
In terms of CV, we are also in the overall segment in domestic segment, we are extremely bullish with the amount of infrastructure spending which the Government of India projects and we are CapEx ready in terms of utilizing this opportunity to grow the company.
Akhil, are you done with your questions?
Yeah, yeah. I'm done. Thank you.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is on the line of Aditya Makharia from HDFC Securities. Please go ahead.
Yeah. Hi, sir. Just wanted your thoughts on the U.S. Class 8 cycle. You know, on the one hand, you've been saying that there is a chip shortage, so the orders are really not that strong because there's a long waiting period. On the other hand, we heard that the U.S. infrastructure bill is getting delayed in the U.S. and also manufacturing is slowing down there. What do you expect the Class 8 sales to be this year? And can you just separate the noise from the facts for us? Thanks.
Aditya, I think, I am not the right person or we are not the right person to define what is happening with the Class eight. In terms of overall in the U.S. market, whatever we hear is that the build rate is slow because of non-availability of chips and few other components because of the pig iron shortage, because of the Russian war right now. In terms of backlogs, yes, there is a huge backlog in the system which may cover almost 8 months-10 months of the build rate at a full volume. Whatever we hear from the OEM, things are stabilizing.
If everything is okay, if you want to know, I don't think we'll be able to comment, but I think we are seeing mild green shoots in U.S. build rate right now, and I think we will continue to see in next couple of quarters with the build rate, with the backlogs which are already there in the system.
Okay. How much is U.S. as a percentage of sales for you?
I think right now I don't remember, but that's on the presentation completely there, U.S. sales, what is there. We have defined geographies very clearly.
Got it.
Now, I just said it's a significant portion for us, so it sort of moves the needle materially if the Class 8 sales pick up, you know.
No, we are not only in Class 8 right now. As we speak, we are across all segments except passenger vehicle in US. Be it LCV, Class 8, Class 5, Class 7, all the classes we are there.
Okay. Okay, thank you.
Thank you. The next question is on the line of Raghun andan NL from Emkay Global. Please go ahead.
Thank you, sir, for the opportunity. Congratulations on stellar numbers. Firstly, sir, my question was on the revenue side. Thank you for providing the revenue growth outlook at 20%-25%. Can you indicate how much revenue could approximately get added in FY 2023 because of new orders? Also on the fabrication business, what was the revenue in FY 2022, and how do you see it increasing in FY 2023? Would it be roughly around INR 100 crore in 2022?
No, fabrication business revenue is not because we only started facility in the months of October only.
Mm-hmm.
For FY 2022, it was only on the fabrication. The turnover was in the range of around INR 10 crore only.
Okay.
Certainly in FY 2023, we are looking it to jump multifold.
Thank you, sir. Approximately how much could be the addition because of the new orders?
Raghu, I think.
Exactly, we have not.
Exactly, to quantify the new orders because most of the orders are in sample stage or field trial stage, so we will wait till each order starts moving into the larger platform. We exactly cannot predict when each component comes out of field trial and gets into larger production.
Understood, sir. Sir, is it right to assume that with the current capacity we can go up to a revenue potential of INR 3,500 crore-INR 4,000 crore? Can you kindly indicate what could be the CapEx plan for FY 2023?
I think, Raghu, our capital allocation is very clear. In terms of specifically for FY 2023, we would not like to indicate anything, but overall what we have said is whatever is our cash flow from operations, from that 60%, 50%-60% will be paid as debt and balance. 40% around we will be utilizing for CapEx for next three years. The CapEx mainly will be on the value add side, not on the net forging capacity increase. Most of the CapEx will be only on the value add side.
Thank you, Lalit, sir. The capital allocation strategies slide is very helpful. On my last question. On the cash conversion cycle days, can you indicate the strategy for improving it, going forward?
See, Raghu, the cash conversion. See what is happening on the day-to-day, it can't help. On the inventory side, I think, we have this inventory level due to the continuous increase in the prices, commodity prices. If it remains at that level, it will be optimized and there will be an improvement in the cycle. Only cash conversion can be helped if we are able to improve on the inventory and top line view. We have to see over the period of time whether how it evolves and how the prices remains. On that it will depend.
Got it, sir. Thank you very much, and all the best.
Thank you. The next question is on the line for Abhishek Jain from Dolat Capital. Please go ahead.
Sir, as ring rolling and forging capacity is overutilized and demand is strong, immediate CapEx is required there. How much CapEx you are looking in that, in this business?
No, we are not. We are looking at zero CapEx in this region right now. We are not adding any capacity. We are doing Kaizens to improve productivity, but there is no budget right now to add capacity in ring rolling or the forging section.
Capacity utilization is already 110% in this segment.
I think it is good to have a good capacity utilization. It does not predict that we need to add capacities over there.
Okay. Sir, your baseline capacity utilization is still low, around 65%. How much growth you are looking there?
This year we are expecting this capacity utilization to move to 80%+ .
Okay. That's why can we expect some improvement in the realization?
We are already expecting top line to grow and bottom line to grow, so obviously realization has to grow.
Okay.
Realization is not all about. It is all about how much value add we are able to bring into the system. Parts and the production grows up in press line, part and realization does not go up. Part and realization only goes up because of either commodity increase or because of value add increase.
Okay. Sir, how much revenue, right now, from the LCV segment?
To give a number to it extremely difficult, sir. I think our dependence on only heavy vehicle has decreased dramatically over last couple of quarters. I think 8-10 quarters. To give a number to EV, it is extremely difficult.
Sir, the company has signed an MOU with the U.S. company, and you are developing also e-axle product. What revenue, incremental revenue can we expect from this product?
No, we have never said where we are developing e-axle with any company. We have already given our EV strategy going forward and the growth, and we are expecting in terms of volume in EV for next three years or four years. That is all we would like to comment on that. We would not like to be component specific or geographic specific in terms of EV.
Okay. My last question is related with this non-auto segment. In last couple of quarters, we have seen that growth is not coming in the railway segment. What is the outlook going ahead in this segment?
No, I think if you see last quarter railway has grown very well over last three quarters. I think last quarter we have performed one of the best in railways, and I think with the railways running up in full swing, you will see this year we will do excellently well in railways.
What is your revenue target in the railway in FY 2022?
Number is extremely difficult. I will not be able to give any numbers to this sector.
Okay. Sir, the company has commissioned one forging plant this in this quarter. After completion of this plant, how much would be the total capacity?
We already have given the one forging plant already commissioned, and the capacity right now stands at 187,000 tons. Apart from that, we have a fabrication facility for the component of automotive, mining and railway industry.
Okay, it is already included in your INR 187,000.
Yes.
Okay. Thank you. That's all from my side.
Thank you. The next question is from the line of Vignesh Iyer, an individual investor. Please go ahead.
Yeah, my question is not answered. Anyways, congratulations on maintaining EBITDA margins in such a tough environment. Thank you.
Thank you. The next question is from the line of Dhiral from PhillipCapital. Please go ahead.
Yeah, good morning, sir. Congratulations on the good set of numbers. What is the capacity utilization for the larger press line tons, like 12,100 tons or 6,300 tons?
No, I think we don't track individual presses. I think as a whole press, we have given a capacity that close to our 60% is our utilization, the press plant. I think we don't track individual presses, basically.
Okay. Sir, our order book, just for clarification, it is around INR 984 crore, right?
That's the new order win in last one year. Not that's the order book.
That would be.
That's the new product, on the new product. There are many products which we continue to flow into.
This will be, you know, annual orders or order run rate?
No, no. This is the order we need to execute some orders maybe in two years, some maybe in three to four years, some maybe in one year. It's depending upon the order, contract entered with the customer. Total orders are INR 984 crore.
Okay. Sir, lastly, what is the machining revenue mix in the overall sales?
We have, I think, almost reached above 75%-80% right now in terms of revenue mix in overall sales.
Machining. That is machining.
Yes.
Okay. Thank you so much, sir.
Thank you. The next question is from the line of Shashank Kanodia from ICICI Securities. Please go ahead.
Yeah, good morning, sir, and congratulations on the superlative P&L performance. Sir, I have a small query on the balance sheet trend. There's a slight elongation of the working capital cycle in terms of number of days. Is it just primarily because of this increasing shipping time, or is there some color to the quality of debtors if you can highlight?
No, basically it is only because of the shipping time, because right now we cannot take any chances because of the market and our commitment as per contract to supply on JIT basis. We have some extra material in the port so that we don't end up doing air shipments.
Okay, understood. Sir, secondly, if you can help me the gross debt numbers as of FY 2022 end.
Gross debt number as per the balance sheet is about INR 1,500-odd crore, but month-end is INR 1,336 crore. Shashank just one more thing. The working capital cycle is little bit elongated because we have huge domestic sales and the major chunk goes to Tata Motors. The sales to Tata Motors, the DMI, because it is being well discounted and added in the data. Actually, that is not the data. That's why it is looking like that. Otherwise, there is not much elongation also on the working capital cycle. Month-end, as on 31st March, it stood at INR 1,336 crore, Shashank.
Sure, sir. Thank you so much.
Thank you. The next question is from the line of Agastya Dave from CAO Capital. Please go ahead.
Thank you for allowing the follow-up, sir. Sir, just a few follow-ups. For the guidance that you've given for next year, 20%-25%, are you giving a volume guidance as well? Or are we just sticking to an overall revenue guidance?
We are sticking to overall revenue guidance.
Right. Sir, like, at our current gross block level, what would be our peak revenue potential? Because various facilities are at very different capacity utilizations. Can you give
Yeah.
Roughly, we can say that we should be somewhere anywhere between INR 3,600 crores-INR 4,000 crores.
Great, sir. Thank you. For the next two years you said that domestic is looking good and exports is also looking good. Is there one particular geography and/or one particular product or product segment which is critical for this, for the coming two years? Or have you been able to well diversify your entire product basket?
Adarsh Dave, we are able to well diversify our product portfolio, and I can safely say that we are doing extremely well in all geographies right now.
Right.
Building in new customers as well as new products. It is not all about only one customer, it is all about new customers as well as new products. Both taken together, we are doing extremely, and that's the reason we are not much concerned on this chip shortage and oil inflation right now.
Right.
We are looking at doing much better than what we have been doing, and the last quarter result has already proved that, and it will continue to prove when our couple of quarters more results are going to come.
Sir, the growth that we are talking about, should we just pay attention to a yearly number for the full next 12 months, you'll be doing 20%-25%? Or are we going to-
I think you should look at every quarter now.
Right.
You will be able to see every quarter things are improving on quarter-on-quarter basis.
That's very impressive, sir. Sir, thank you very much, sir, and all the best.
Thank you.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is on the line of Nithyanand , an individual investor. Please go ahead.
Yeah. Hello. Am I audible?
Yes, you're audible.
Yes, sir.
Yeah. I just wanted to ask, beyond 2023, what is your growth expectation you are having?
As we speak, whatever market feedback or market we know, we can predict only for next two years, and beyond that, I think it is extremely difficult right now, we cannot comment on beyond that. It will be extremely volatile if I start commenting on three years or four years.
Okay. Next question is with the current capacities, how much growth is possible? What do you think?
I've already answered the last question from the last investor that with the current gross block what we have or work in progress, we are safe to say around INR 36 crore-INR 4,000 crore we can achieve in next three years.
Okay. That's it from my side. Thank you.
Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.
Thank you. I take this opportunity to thank everyone for joining this call. I hope we have been able to address all your queries. If you require any further information, you can get in touch with us or our investor relation advisors, Strategic Growth Advisors. Thank you and have a good day.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.