Good morning, ladies and gentlemen, and welcome to the Q2 FY 2023 earnings conference call of Tube Investments hosted by IIFL Securities Limited. 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 touch-tone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. Anupam Gupta from IIFL Securities Limited. Thank you, and over to you, Mr. Gupta.
Thanks, Michelle, and welcome everyone to Tube Investments 2Q 2023 conference call. From the management, we'll have Mr. Vellayan Subbiah, the Executive Vice Chairman. Mr. M.M. Murugappan will join us in a bit, who is the Chairman. Mr. Mukesh Ahuja, the Managing Director, he's already connected. Mr. A.N. Meyyappan, who has taken over as the CFO for the company, Mr. K.R. Srinivasan, who heads the Metal Formed business, and Mr. K.K. Paul heading the TI Cycles business. We also have Mr. Murali who heads the Tube Engineering business for TI, and a few other members. I'll hand over to the Management for the opening comments, post which we can have Q&A. Over to you, the management.
Thank you, Anupam. Good morning, everybody. Mukesh Ahuja this side. Just to share the commentary of Q2. The board of directors of Tube Investments of India Limited met on 4th November and approved the financial results as follows. Standalone result for the quarter, revenue in Q2 was at INR 1,906 crores compared to INR 1,667 crore of the same period previous year. PBT after exceptional item was at INR 202 crore as against INR 164 crore in the same period previous year. Exceptional item of INR 23.45 crore represents impairment provision in respect of investments made in Sri Lankan subsidiaries due to the current market condition and ongoing economic crisis.
ROIC annualized at 56% for the quarter ended 30th September 2022 compared with 48% in the previous year same period. Free cash flow for the quarter was at INR 119 crores. Details of the businesses. Engineering, the revenue for the quarter was at INR 1,192 crores compared with INR 1,027 crore in the corresponding quarter of the previous year. Profit before interest and tax for the quarter was at INR 165 crore against INR 102 crore in the corresponding quarter of the previous year.
Metal Formed Products, the revenue for the quarter was at INR 371 crore compared with INR 328 crore in the corresponding quarter of the previous year. Profit before interest and tax for the quarter was at INR 48 crore against INR 39 crore in the corresponding quarter of the previous year. Mobility division, the division has a registered revenue of INR 226 crore during the quarter compared with INR 262 crore in the corresponding quarter of the previous year.
Profit before interest and tax for the quarter was at INR 10 crore compared to INR 20 crore in the corresponding quarter of the previous year. In other businesses, the revenue for the quarter was at INR 188 crores compared to INR 120 crore in the corresponding quarter of the previous year. Profit before interest and tax for the quarter was at INR 8 crores against INR 12 crores in the corresponding quarter of the previous year.
During the quarter, the company acquired a 76% equity stake in Moshine Electronics Private Limited on 23rd September 2022. Moshine is a company engaged in the manufacturing of camera modules for mobile phones. As a part of its strategy to pursue opportunities in clean mobility, the company subsidiary, TI Clean Mobility Private Limited, acquired a 65.2% equity stake in IPLT on 21st September 2023. IPLT is a manufacturer of electric heavy commercial vehicles.
Consolidated results. TI's consolidated revenue for the quarter was INR 3,789 crore as against INR 3,263 crore in the corresponding quarter of the previous year. Profit before at associate joint venture exceptional items and tax for the quarter was at INR 439 crore as against INR 294 crore in the corresponding quarter of the previous year.
CG Power and Industrial Solutions, a subsidiary where company holds 58.05% stake, so a steady consolidated revenue of INR 1,707 crore during the quarter as against INR 1,469 crore in the corresponding quarter of the previous year. Profit before tax for the quarter was at INR 241 crore as against INR 144 crore in the corresponding quarter of the previous year.
Shanthi Gears, a subsidiary company in gears business in which company holds 77.47% stake, registered revenue of INR 109 crore during the quarter as against INR 72 crore in the corresponding quarter of the previous year. Profit before tax for the quarter was INR 23 crore as against INR 7 crore in the corresponding quarter of the previous year.
Commenting on the financial results, Mr. M.A.M. Arunachalam, known as, Mr. M. M. Murugappan, Chairman, Tube Investments of India Limited, the results of the company reflect the stability of its businesses, delivering strong results in the wake of continuing economic challenges with high inflation and looming recession globally. Engineering, metal forming products and industrial chain division performed very well in the domestic market but faced challenges in its exports business. Mobility division has lower profit due to shrinkage in volume in the industry.
The company expanded its footprint in the clean mobility ventures through acquisition of IPLT, a manufacturer of electric heavy commercial vehicle trucks. Through TI Clean Mobility Private Limited, the quarter was witnessed a commercial launch of the electric three-wheeler in September 2022. The performance of the subsidiary CG Power and Industrial Solutions and Shanthi Gears is consistent, delivering strong performance and profitability across the segments. Thank you.
Yes. With that, we'll be happy to turn it over and take Q&A.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may please press star and one on their touchtone phone. 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 Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Hi, sir. Hi. Couple of questions from my side. One is on the Engineering business. Are we seeing any moderation trend on the export side, like many of our peers are witnessing or exports continue to do very well?
Yeah. Murali, would like to take this question?
On the export side, because of subdued demand and the stock pileup, it is all the customers are trying to liquidate the stock, and they are correcting the stock. We hope in the coming quarters the demand will pick up and revive back once the stock has come to a normal level.
Okay, also at a Broader Engineering and Metal Formed business, have we started to see moderation in commodity prices for us and in turn pass through of that happening to customers or that is, we are yet to see that phenomenon?
Mukesh, you would like to answer?
Yeah. Commodity like you rightly said, commodity prices are softening. As you are already aware, we have arrangement with all the customers on the increase as well as decrease. We have fair amount of agreements in place, so that will be concluded accordingly.
Okay. This quarter we would have seen some moderation in growth also because of commodity prices pass through, right?
Those commodity prices softening trend has just started. Maybe we have yet to see the phenomena of price reductions taking place. I am sure maybe coming quarters, we'll see that and then we'll settle it with the customers as well as suppliers accordingly.
Thirdly, with respect to the export business, given that rupee has been depreciating, are we seeing benefit of that and that is the reason why our margins in engineering business and metal form business have expanded materially? Is that the only or the major driver of margin expansion?
Margin expansion in engineering businesses, there was pending settlement with the customers as well as suppliers. One time settlement has happened for this quarter, and we see that maybe margins has gone up in the Engineering business as well as MFPD. On steady state basis, whatever margins we are taking, that will continue to in future also.
Okay. Was there any benefit of currency as well in this quarter or that will again in coming quarters?
We couldn't hear you, Jinesh.
Sorry. Was there any benefit of weaker rupee in this quarter or do you expect that to come in coming quarter?
That is surely going to, like Murali said that, weakening rupee is going to support exports going forward. We are also in discussion with all the OEMs and distributors in the exports business. Going forward, we expect the businesses should improve in exports.
Got it. Thanks. I'll fall back in queue.
Thank you. We have the next question from the line of Abhishek Ghosh from DSP Mutual Fund. Please go ahead.
Yeah. Hi, Sir. Thanks for the opportunity. Just couple of question. Is the entire gross margin improvement that one has seen in the current quarter is due to that one-time settlement or is there some amount of as steel prices have corrected, there's some benefit of that as well?
It's a combination of one- time settlement as well as we improved the share of business as well as the weakening rupee. It's a combination of all and we are confident maybe steady state, whatever we are maintaining it, that will continue.
Okay. Sir, the other thing is, you know, steel price we have seen much sharper decline while the commensurate revenues have been in, if one looks at on a sequential basis, very marginal decline. So if you can help us with volume growth, that will be helpful, Sir.
It is about we have about maybe let's say volume growth of about 20% in Engineering division and about 12% in MFPD. The cycle business there is a decline in the volume. This is majority of the share.
Just one last question. In terms of if you look at the overall cash flow as far as consolidated is concerned, standalone, you are clocking almost about INR 500-600 crores of cash flow at this point in time. On a consolidated basis, the cash flow is in excess of INR 1,000-odd crores. How should we look at the capital allocation perspective from here on, given the cash flow generation is very strong and given that all those adversities in terms of crisis and other things seems to be behind? How should we look at, you know, going forward when there is so much of cash flow generation, how should one look at the capital allocation, if you can help us with that? Thanks.
Abhishek, you know, I think kind of directionally we've been steering and kind of been indicating how we're kind of using this, and nothing is changing with that approach, right? See, broadly, when you look at the consolidated cash flow, I don't like, basically, the cash flow, you should still treat TI and CG as two independent entities.
Obviously, there will... I mean, I don't want to make any forward-looking statements, but, you know, kind of both companies have a dividend policy. The way to look at TI is that TI has TI's own cash flow, plus any dividends received from CG, right? Then, you know, what we've kind of articulated in CG is that CG, sorry, dividends received from CG and Shanthi.
What we've articulated is that CG might start pursuing its own CG one, CG two, CG three at some point in time, right? Then you have an amount that comes to TI, which is basically TI's own free cash, plus the dividends it receives from those two entities. Using that, we've articulated about how we're deploying that free cash, and that is to kind of drive the growth in the new ventures, either be it. I mean, now it's shifted a bit more to TI-2, you know, whether it's kind of the. We've kind of like, you know, we've been kind of fairly active in the electric vehicle space. We've announced two or three sectors that we're quite interested in. That's where most of the capital will continue to get deployed.
The principles kind of continue to be the same principles that we've articulated for at least the last three years, right? In terms of how we will deploy that capital and kind of, you know, and the amount of debt we'll be willing to take and all of that. Nothing's changing from that perspective.
Okay. Sir, just one thing.
We deploy the capital basically towards these new businesses and the growth in the new businesses.
Fair. Sir, as we have seen, you know, large part of the capital, at least in the TI-2, has now gone into EV in last one year or so. You also made some small, you know, acquisitions in electronics and medical. Incrementally from here on, should we expect the, you know, the thrust to move towards those two new sectors as well? Is that a right understanding? Just looking at the opportunities available.
Yeah, I think that is fair. Yeah, I think that's fair. That's fair.
Okay. Okay, sir. I have a few more questions. I'll come back in the queue. Thank you so much.
Okay. Thanks, Abhishek.
Thank you. We have the next question from the line of Anika Mittal from NVest Research. Please go ahead.
Sir, is there any update regarding acquisition for foray into Medical Device segment?
Yeah. Like we said, we'll only kind of discuss it. I mean, there are potential kind of targets in the pipeline in that business. We'll only discuss it once we have something definitive to talk about.
Okay, Sir. Thank you.
We have the next question from the line of Nishit Jalan from Axis Capital. Please go ahead.
Yeah. Hi, Sir. Thank you for the opportunity. I have two questions.
Hi.
Firstly, on the new EV businesses, if you can give us an update in terms of the timeline of launches that we are looking at, especially on the tractor and the truck side. What kind of response you have got for three-wheelers, electric three-wheelers that you have launched, and any details in terms of distribution network that you have set up, capacity or the monthly production that you are looking at. First question is a broader question on the EV portfolio that we are looking to create. Second question is a follow-up. On the Engineering segment, you mentioned that there was a one-time settlement which was done. Just wanted to understand .
There will be a lot of amounts which will pertain to the previous quarters, price increases that would have come in this quarter also. Just wanted to understand what is that number so that we can understand what is the underlying profitability for this quarter, which may be more sustainable. Thank you so much.
Okay. First on EV. Just to give you a sense, like, the response in three-wheeler has been very positive, you know, good feedback, you know, both on traditional and on social media channels. You know, I think the proof of the pudding is really kind of you know, what's going to happen in sales and profitability. That we will start, you know, in December, basically, we will start selling vehicles in the market. Your question on distribution, we've started off with 40 dealers. That is, we want to keep it tight in the beginning. We've had tremendous interest in potential new dealerships.
We're basically going to keep it tight in the beginning, kind of drive our sales through 40 dealerships, and then look at, you know, a broader expansion based on, you know, the success and in ensuring that we get the model right, with the first 40 dealerships. That is on three-wheeler. The second launch will actually be on the heavy commercial vehicles, where basically we will start selling, you know, a limited number of trucks, right?
Maybe like 30 a month or so. You know, in the next, I would say actually starting again in December, we should start selling about, you know, between 30 and 50 trucks a month. There also there's been tremendous response in terms of, the interest in the product. There it looks like we will be a bit more supply constrained initially.
We are working on a new facility that we hope to be ready in the first quarter of 2024, I mean, financial year 2024, I mean. Therefore, we might have a more formal launch in the final quarter of this year, once we know that we're going to be able to produce this at higher volumes. That is for this thing. Tractor, we're really anticipating kind of a launch either, in the last quarter this year.... of the smallest tractor, right? Kind of, you know, we'll basically start off with what I would think of as a very small tractor, which has very niche use cases, right?
That might launch, you know, either, in the last quarter of- I mean, it might push to first quarter of 2024 again. That's when kind of, we're basically looking at launches for these three products. Financial year 2024, right? Which would basically mean April, May, June, it might be before that. You know, so that's basically kind of what we're looking at for timeline. That was on Electric. You also had a question on Engineering, the question.
I think we already answered that.
Yeah, we already answered that question, basically. I think you're asking more specifically for what is an amount that you can use as PBT to sales for engineering. I don't think we'll give guidance to that specific level. In general, like we've told you, we've told you where we are going on each of the businesses, right? Which is like, you know, we want to push them over a three-year timeframe to a higher number than we are today. Some of that evidence you're seeing playing out, but there's still more work to be done there.
Sir, I was not asking for a specific guidance. I was just asking for this quarter, what?
Yeah, you're asking exactly how much is distributable, attributable to the one-time settlement, which is in a sense asking the same thing, right? That's why I was saying we're not going to give kind of exact numbers saying, yes, how much is kind of due to the one-time settlement.
Also, we mentioned that it is not a function of only customer and supplier settlement. It is a combination of maybe, let's say, it's rupee weakening, and we gained some share of business and some mix improvement.
Yeah.
It's a combination of three, four things which has resulted to this, just we updated in the last quarter.
Thank you. Ladies and gentlemen, as the line of the current participant has got disconnected, we move on to the next participant. The question is from the line of Raj Rishi from DCPL. Please go ahead. Mr. Raj Rishi, I have unmuted your line. Kindly proceed with your question.
[inaudible]
Mr. Raj Rishi, we are not able to hear you. Kindly use your handset. As the current participant is not answering, we move on to the next participant. We have the line of Mr. Nishit Jalan, again connected. Mr. Jalan, please proceed with your question.
Yeah. Sorry, I got disconnected. I don't know if you answered the question. My only point I was trying to ask was, what was the number in this quarter in terms of price increases that we got from previous quarters? I was not asking for any forward guidance, so that is the only point I was asking if you can answer. Secondly, I have a follow-up on electric three-wheeler launch. Like you talked about electric trucks, we are looking at 30-50 units per month. Any such target or what kind of numbers would you be looking at, electric three-wheelers? I would assume that initially you are starting with the southern states, so all the dealers, 40 dealers are pertaining to southern states. Is that understanding correct?
Again, we won't give specific guidance on what we're looking at for electric three-wheelers. You know, basically this is going to be a very, it's a very different product from the trucks. It's going to depend on what kind of consumer demand we see. Your question on which states, I think you asked was the second part of your question, Nishit. Paul, can you just kind of answer which states we're going to initially?
I think initially we are going for around the three southern states, Tamil Nadu, Kerala, AP, and Telangana. These are the four states that we are planning. Gradually, you know, as we move into the first quarter of next year, you know, then we will be looking at different other states as we move forward.
Nishit, hopefully that answers both your questions.
Yes. Thank you, Sir.
Okay. Thank you.
Thank you. A reminder to all the participants, anyone who wishes to ask a question may please press star and one on their touch-tone phone. The next question is from the line of Armaan Agarwal from Carnelian Capital. Please go ahead.
Good morning, sir. Thanks for the opportunity. Just one question from my side. On this, if I see this Mobility segment, between a Standalone and Consolidated segment statement, there is a charge of INR 24 crore. Just wanted to understand what this is relating to. Is it relating to our EV initiatives which we are spending right now? Just an idea, like how this could move in future.
Yeah. We talked about that. That is for the Sri Lankan subsidiaries.
Sir, I'm not talking about the extraordinary charge. I'm talking about the EBIT of the Mobility business.
Mobility. Are you talking about Clean Mobility or are you talking about-
Sir, if I see a standalone statement, you have.
Okay. Yeah. Okay, one second. Meyyappan will answer you.
Yeah. This is Meyyappan . See, actually, I think you are asking about the Clean Mobility segment profitability in [inaudible] and the consolidated, why it is different. Okay. That includes the TI Clean Mobility also, TI Clean Mobility. TI Clean Mobility has incurred a loss in this quarter. That's why that got adjusted in this mobility segment. That's the difference between them, nothing else.
Okay. This is relating to the three-wheeler business, right? The consolidated charts.
Okay, I'll tell you what. I think I understand where your confusion is coming from, Arman. What we will look at is we'll look at kind of whether we separate out Mobility and Clean Mobility into two kinds of separate kind of tracks, right? Because that might create confusion in the system. I think that's fair. We'll kind of think through that in our report.
Yeah. Sure, Sir. Thank you for that. This was my question. Thank you.
Thank you. We have the next question from the line of Jeetendra Khatri from Tata AMC. Please go ahead.
Yeah. Can you hear me?
Please proceed.
Yeah, yeah. Thank you. I wanted to know what would be your possible market share in some of the key, you know, large divisions of business, i f you can share that? like tube products or auto chains or fine blanking.
Yeah. We've not shared kind of specific market share data in anything. I mean, like, we have fairly good market share positions in our businesses, but we've not shared specific numbers in anything.
Okay. Thank you.
Yeah. Thank you. Yeah.
Thank you. We have the next question from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead.
Yeah. Hi, good morning, and thanks for taking my question. Just wanted to understand in terms of the EV, on the EV side, I mean, given that we've seen a very sharp spike in battery commodity prices, and they seem to be still going up. I mean, how are you looking at the sourcing and procurement process? Overall, does that change the equation in economics for you?
Yeah, I think that's a great question, right? You know, basically EV, you know, battery that used to be 40% is now 50% of kind of the cost of these, you know, vehicles pretty much. That's actually where we've been spending a fair amount of time. Right now, like you probably know, most of the cell's kind of end up coming from China. You know, though there are more expensive manufacturers in Japan and Korea as well. What we're kind of thinking through there is more of a longer-term strategy on battery, whether we can, you know, whether we have to. Clearly, the cells is not a business that we're kind of interested in.
You know, I think the track for cells is going to be that, you know, currently all the cells are getting imported in India. With the PLI that's gotten announced and, you know, Reliance and a bunch of others have won that PLI, it looks like there will be cell manufacturing capacity that comes to India in the long term. We're beginning to kind of work with some of those, partners as well, so that they can be long-term suppliers of cells for us. Beyond the cells, you've got packing and the BMS. Those are areas where, you know, currently we are outsourcing, but we do believe that we will need to develop capabilities over time.
That's something that we've started investing in from an R&D perspective, so that we understand what's the capability to do to bring some of that. Definitely that's going to drive. I think as far as, you know, like you correctly said, a lot of whether guys win an EV or not is going to be driven by their battery strategy, right? Because battery is 50% of the cost and it drives huge competitive advantage. If you break down the Battery strategy, as far as we're concerned, it's how effectively can we source the cell, which is one area we're very focused on, both, you know, basically by developing a lot more capability for it in China and currently in China, and then obviously kind of that has to transition to India over the medium term.
Then kind of working on the technology, which we currently outsource for packing and for BMS. Whether we bring those two in-house, I think is a valid question that we will be able to answer more articulately for each of the product lines within the next three to six months.
Got it. What I was trying to understand is that, given that initially, I mean, I do understand that, I mean, like, getting into cell manufacturing is a completely different ballgame. Anyway, that was not my question. I'm just trying to understand, like, given the increasing price of cells, do we, I mean, like, is that changing your business plan a bit or you still see the TCO is sort of very favorable?
No, there's no change in business plan because commodity prices are increasing. I think that will continue to kind of happen through the cycle. If you actually look at it, in the same point that commodity prices are increasing, kind of, you know, fuel prices are increasing as well, right? So actually, when you begin to look at these things from a TCO perspective, there's not too much of a difference in the math.
You know, if you were planning on kind of doing something at, you know, a cost of diesel of INR 80 and now it's INR 100. Obviously, kind of, that kind of changes your benefit that you get from a transition to EV as well. I would say that it's, you can't just look at commodity prices for batteries in isolation. As a result, it doesn't mean kind of any significant changes in our plan.
Got it. Just related to that, sorry, I'm not sure if there is any FAME subsidy for, like, heavy commercial vehicles or tractors, et cetera.
Yeah.
So, uh, uh, um, so to that-
I know. Basically, these are conversations we have started with the government. You know, it's kind of curious to us also why there's no FAME for heavy commercial vehicles. We're in active conversations with the government on this, right? Because obviously the government also kind of agrees that I shouldn't say the government agrees with us, that's, like, a very broad-brush statement. I'm just saying kind of theirs general openness to discussion on, you know, whether there should be FAME for heavy commercial vehicles and tractors. Both of those are conversations that we are in with the government or we're having with the government right now.
Got it. On the three-wheelers, you'll be, I'm not sure, you will be compliant and you will get some FAME subsidy, right?
Yes. For three-wheeler, we will get FAME subsidy.
That's about 15,000 per kW. I mean, that's for the three-wheeler, so actually 10,000.
Do you know what it is per kW?
Yeah. Yeah.
I thought it was INR 10,000 per kW.
10, yeah.
I know it's INR 10,000. Is it now INR 15,000 per kW?
No, no, that's for two-wheeler. Sorry, my bad.
Yeah, it's INR 10,000 per kW.
Got it. Great. Thank you so much.
Mm-hmm.
Yeah. Thank you.
All right. Super.
We have the next question from the line of Vinod Malviya from Union Mutual Fund. Please go ahead.
Thank you for taking my question, Sir. I just had one question. You have given a very good roadmap for your four-wheeler electric vehicle side. Can you also give I mean, what kind of capital commitment you are planning to make on the three-wheeler Electric side, the trucks and the tractor side over the next one year?
Yeah. I think the capital commitments, we've kind of articulated what the first go around was, right? For three-wheeler, let's say quite a bit of the capital has already been incurred. You know, I think on specific numbers, we might give better guidance, you know, in the next three months. A large part of the capital has already gotten incurred, so for both three-wheeler and for tractor. There is factory build out, some of it is required for tractor. For three-wheeler, the factory build out obviously is complete, and we're starting production kind of very quickly. But we'll give you more specific numbers in the next earnings call.
Okay. On the truck side?
That's what I'm saying. The truck, the factory build out. There's a first factory we're building out. We'll articulate a clearer strategy in terms of what we're doing with the first factory, how much capacity we're going to build there, and how that capacity build is going to look over time in the next earnings call.
Okay.
Mm-hmm.
Thank you, sir. That's all from my end. Thank you.
Thank you. We have the next question from the line of Abhishek Ghosh from DSP Mutual Fund. That would be a follow-up question. Please go ahead.
Hey, Abhishek.
Yeah. Hi, Sir. Thank you so much for the opportunity again. Sir, just couple of things just read through from the annual report. You've mentioned that, you know, you're looking at products for import substitution and expansion of geography. Just was curious to understand this import substitution you're referring to, you know, the auto segment itself, or is it like across multiple, you know, sectors? How should one look at it? Just to understand the market size opportunity from that perspective.
Basically, import substitution we are looking for engineering division in the tubes as well as CRS business, because we have studied and we find that lot of special strips as well as some Tube segments are getting still imported in the country. We are working on how to substitute that particularly in TI.
The broader thing on import substitution has also been. Most of the TI-2 strategy is driven by that, right?
Yeah.
We take medicals, we take electronics, all of these things. That whole strategy is driven by these kinds of things only.
Correct. Yes, I was trying to understand, is it only related to that or is it beyond that also? Is it more related to the current imports that you already do in TI-1? That's helpful. Sir, the other-
Yeah, that's why. Like Mukesh said, it is TI-1 also. Everybody is bringing in the same for the same thing.
Correct. That's clear. Sir, the other thing is, if you look at broadly again in the annual report, broadly what we understand is you have put broadly three to four newer factories, both in engineering division and the mobility division. You know, TI-1 seems to be coming back in terms of overall volume growth now, things having stabilized. Engineering division is already at 20% of exports. So, you think at some point the TI-1 CapEx will also have to be ramped up significantly? Is that a thought or strategy in mind?
Abhishek, I don't know if it's a problem with us, but we seem to be kind of muted. Yeah.
We lost you.
I think it's a problem, yeah.
Sorry. Hello. Am I not audible? Hello.
We lost the last part of your question, please.
We lost the last part.
Can you please-
Okay, sir. Where I was coming from, sir, that, you know, you have put about I think three to four newer factories or in both in terms of Brownfield and Greenfield in the last one, 1.5 years. And that should drive some amount of growth. Now I think the TI-1 seems to be stabilizing well because auto numbers are coming up well. Your export piece is doing well. Engineering, you're almost doing 20% of exports now, which was, you know, sub-10% few years back. You think the TI-1 CapEx also needs to be increased from here on, was my question. Till now we were more focused on-
Yeah. Abhishek, yes, TI-1 CapEx is going up. When we think of the free cash we're generating, that free cash is after TI-1 has incurred its CapEx, right? We always think of the free cash at a company level. We put away the fact that, you know, this much is required to drive the growth in TI-1 itself, and that is already included in kind of the cash flows the company has to generate. Engineering, for example, has to generate that free cash after investing in the CapEx that's required for its own growth.
You don't think there is a substantial whatever they will generate, extra cash flow will keep flowing back into the business. That's the way you're looking at each SBU.
Correct.
Okay. Just one last thing, if you can help us understand with the status of the, you know, the LEAP program which you have started, have you already started to see benefits of that in the numbers or going forward? Just some thoughts there will be helpful, sir. Thanks.
Yes, we started the journey about maybe let's say nine months back, and we are able to see initial benefits getting popping up. We feel as a company it's a long way to go because it's an exercise which is maybe a three-year exercise, which is basically a cultural change in how we push down the responsibility at the last level in the organization by becoming more and more lean in terms of the way we operate. The journey is continuing, but initial benefit has already started flowing in, which is reflected in the results also.
Great. Thank you so much for answering my questions, and wish you all the best.
Thanks, Abhishek.
Thank you.
Thank you.
We have the next question from the line of Niket from Motilal Oswal Inc . Please go ahead.
Thanks for the opportunity. I just joined a bit late. Hi, Vellayan. Just two, three questions. One is if you can just talk a bit on the financing part for the EV vehicles. How will that ecosystem really work for all the three verticals, which is tractor-
Yeah. Okay, Niket. Thanks for the question. Sorry, did you have more to the question, Niket?
Sorry to inform you, Sir. The line has got disconnected for Mr. Niket. If he gets connected again, I'll take him in the queue, sir.
Yeah.
We'll move on to the next participant. The name is Mr. Prithvi from Unifi Capital. Please go ahead.
Sir, I just have a couple of questions. The first question on the EV side, at what revenue level, you know, will the company reach breakeven?
I would think of it as kind of, you know, each of the individual businesses will start breaking even at different points in time. I would think that we've got to get to. Obviously, kind of, you know, I think the tractor is a bit kind of difficult to predict right now. Trucks, I would think that it will be in just a bit over kind of, you know, INR 1,000 crore a year is where trucks would break even. For the three-wheelers, yeah, I think the number could be similar kind of, you know, I think somewhere in the INR 1,000 crore a year.
Okay, that's helpful. Just on your new segments, you know, electronic devices or medical equipment that the company's planning to enter. You know, let's take a five-year view. Any rough guidance on how much these new segments can be at consolidated revenue level?
No, I don't really. I think it's too. It doesn't make sense to give projections kind of, you know, a five-year view. First, let's start the businesses. We don't want to put undue pressure on those businesses also to kind of build an expectation like that. We have some ingoing hypothesis, but we don't want to give any guidance on what that could be. First, let the businesses start, then we'll look at it.
Okay, Sir. Thanks. Thanks a lot.
Thank you.
Thank you. We have the next question from the line of Anupam Gupta from IIFL Securities Limited. Please go ahead.
Hi, Anupam.
Yeah. Hi, Vellayan. Just a few questions.
I'm sorry to interrupt, Mr. Gupta. You're sounding too distant.
Yeah. I hope this is better.
Yes. Yes.
Yeah. Firstly, if I see Engineering and Metal Formed products business in this quarter, Engineering saw a Q-on-Q decline, whereas metal formed saw a Q-on-Q improvement, and I think there was some PV obviously which played a role. Have you seen railways kicking in in this quarter? Or is there still some time that railways will come up for you in Metal Formed?
Anupam, is yet to kick in. Your observation is right. In coming quarters, we are expecting that will kick in.
Okay. Understand. Secondly, Vellayan, can you talk about what's happening on the optics lens business? What's the progress there, and what sort of results have come out from the initial testing which you were doing?
Yeah. I would still say it's slow, Anupam. Slower than we expected. You know, we have started basically, you know, now we're working on with a first customer that we basically kind of have started production. We've got, I would say four out of, you know, six processes validated. So, we're still kind of validating a couple more processes before we can start scaling out any production with them. Clearly the learning curve in the business is higher than what we expected it to be. But, you know, we're still on it. I would say that, you know, my sense is it's taking more time than we expected for sure.
Okay. Just continuing there, is there any way that this can be integrated with the Moshine thing which you have acquired? Is any sort of integration possible there?
In a sense, you know, like management and leadership wise, yes, there will be integration. In terms of the operations, I mean, like basically it's two very different things, right? Kind of, these are glass lenses. Moshine predominantly is for the mobile phone, so they use plastic lenses. So that's the first thing, right? Kind of it's not like this product. The output of this product goes into Moshine, right? That's not the case. These are glass and that's plastic. And the second is that, you know, over time there can be integration that will kind of happen. I don't think that that's kind of anything in the near term. Next like year or two, that's not going to happen.
Understood. Just one last question on the heavy commercial vehicles. Since you will be very close to launching, how does your product compare with a similar ICE product, let's say in terms of tonnages basically, how will it compare in terms of pricing and other features? Secondly, do you see significant competition also coming in the EV side? Are you seeing some sort of testing already at homologation stage or by other players?
In terms of the second question, as far as our understanding is, there does not seem to be too much that's at homologation stage right now, especially on very heavy trucks, right? We can't see too much of that there. Your second question in terms of. See, basically you'll have to look at this as a TCO, you know, from a TCO perspective, right? Because the math is going to be, we're obviously going to be much more expensive than the ICE trucks of similar tonnages.
But the math is all going to be driven by TCO. I would just say from TCO, the math is fairly compelling as far as we can see. Initial conversations with customers also, they seem to agree. It's going to be driven more by TCO discussion. I don't want to get into kind of what will the product pricing be at this stage, but obviously it's just kind of suffice it to say that it's going to be significantly higher than the ICE price.
Sure. Okay. Okay, that's helpful. That's all from my side. Thank you.
Yeah. Thank you. Thanks.
Thank you. We have the next question from the line of Vipul Kumar Shah from Sumangal Investments. Please go ahead.
Hi, Sir. In the Truck business, we'll be mostly in the medium and heavy trucks only, or we'll be introducing entire range of ICV and LCV also?
The stated strategy at this point is that we're in medium and heavy commercial vehicles.
Okay. Okay, Sir. Thank you.
Thank you.
Thank you. We have a follow-up question from the line of Raj Rishi from DCPL. Please go ahead.
Yeah. Hello? Hello?
Yeah, we're here.
Am I audible?
Please proceed, Mr. Raj Rishi.
Yeah. Hi. Just wanted to ask, you've done a fantastic job with the acquisition of CG Power and the kind of opportunities which is perceived in, you know, electronics, mobiles and medical devices, et cetera, which you have also elaborated about. Like what I understand is you issued, you know, shares to, investors. You did a placement and, that was funding the acquisition of CG Power. You have anything of that in, you know, as a strategy?
No. I think that we've discussed this in previous earnings calls, right? Basically, what happened was CG Power happened at the point of COVID, and I didn't want to put TI's balance sheet at any significant risk.
Okay.
We basically raised, you know, a small amount of capital at that point to offset the expense that came with CG Power because it was in the middle of COVID and the environment was quite uncertain, right? Otherwise, you know, kind of I think that's the only time in TI's history that we've ever kind of raised money.
Okay.
It's not our stated intent to kind of raise at the parent company level, you know, and use that as a mechanism for driving this growth at this point in time. We do believe that between the free cash and kind of other cash flow generation, we should be able to generate enough cash to drive that growth.
Okay. Mr. Vellayan, this kind of news articles which we read about Apple shifting significant production to India and, you know, India emerging as electronics hub, and you have also elaborated in the previous con call that 95% of the components in mobile, et cetera, is imported from China. You think over the next decade that kind of, you know, ecosystem will be created here. That presents a like unprecedented opportunity, and that's how I understand it. Can you just elaborate your view?
Yeah, I agree. It's an unprecedented opportunity, so it's silly for us not to be very actively involved in. It's an area that we're spending a lot of time on beginning to think of how we can get involved. You know, the only thing is that I mean, like, our whole approach to some of these things is to kind of patient because we're looking at kind of you know, how we build it out over the next 10 to 15 years. We're not that concerned about, you know, like doing something immediately tomorrow. It's an area we're spending significant time on, and I do feel like it will begin to yield results over time.
Okay. Just another thing, like there's talk about Tata's tying up with Wistron, et cetera, for production of Apple phones. You would be interested. Like, your focus is what? Components or something like mobile manufacturer itself? If you can
See, at this stage, our larger interest is components. I mean, if something significant on the assembly side offers itself. See, our concern with assembly is that we didn't want to get into kind of caught in a very low margin business, right?
Okay.
I think asset assembly will depend on the nature of the opportunity in that segment, right? Unless it kind of gave us some understanding or path that will allow us to kind of improve the margins of the business.
Okay.
That's where we see something that requires more intellectual property, you know, and R&D, which would be more on the component side.
Okay.
Will therefore kind of be able to afford a higher margin business, and that's what kind of our initial focus continues to be.
Okay. Thanks a lot. Thank you.
Yeah, thank you.
Thank you. Before we take the next question, a reminder to all the participants, anyone who wishes to ask a question may please press star and one on their touch-tone phone. We have the line of Mr. Niket connected again from Motilal Oswal AMC. Please go ahead, Mr. Niket.
Thanks. Just one question. If you can just highlight how are you looking at the financing part for all the three EV verticals that we have?
Obviously, the financing strategy will be different. In three-wheeler, we've got three tie-ups right now with three financiers already, and we're looking at developing a couple more. That includes banks and NBFCs. On the truck side, we have one tie-up in place and we're looking at developing two more. Trucks we're thinking will be more driven by banks, though, you know, some NBFCs are active because of the rates at which some of these trucks go. It's more driven by the larger fleets are all catered to by banks. Tractor also we've started talking. I think we have two relationships in place. Again, it'll be a combination of banks and NBFCs because both are fairly active in the tractor market.
Got it. How much benefit does it bring to our EV business of having multiple businesses in-house? Like for example, you do door panels in-house, you also have industrial chains, you know, auto chains, and then you also have Chola, then you have EV Motors. How much benefit on cost does it bring to vis-à-vis a competitor trying to make a similar product?
Yes, I would say that there is some benefit. I don't know how much of that benefit is a cost benefit, Niket. It's being able to take product to market more quickly is the way I would look at it. Okay. The way you have to really look at electric is the whole first generation of electric product we're doing, we're basically outsourcing obviously everything, right? Because a lot of the capabilities we don't have in-house, right? Even if you see motors, everything has been outsourced in the first generation of what we do.
What we have to begin to look at over time, and that's where, you know, now we're kind of significantly upping our R&D spend, is to see what we start developing more specific capability on, so that for gen two of all the electric products, there is more of, you know, what we have introduced into the mix, right? I would say the more of what we have can fall into different categories, some of which is product, but some of which is capabilities we don't have today. Somebody asked about battery, right? We'll have to look at that, right? I mean, another huge area is just software, right? There's more and more software going to vehicles. You know, how we develop more capabilities on that.
All of those kinds of things are all going to be part of gen two of the vehicles. Gen one, I would say the advantage from some of these things is still a bit more limited at this stage. We definitely see it as something that will help our competitiveness one, once we go forward.
Got it. One last question, if I may squeeze in. Would you be also open to look at some of the tie-ups? Because as you rightly said on the battery side, some of these are very critical elements of the EVs. So, say someone like a BYD or any other company within China or anywhere in the world, which doesn't have, you know, tie-up in spaces that you are present, will you be open to that? Or you think that the outsourcing model works relatively better rather than having, like a joint venture kind of a model?
No, I mean, we are definitely open to it, right? Short answer, Niket, is that we are open to that. Right. I don't know if BYD is the right answer because BYD kind of makes their own product as well, right, and is looking at kind of p otentially coming in. The second thing is that, you know, and I guess it appears that as the government is fairly clear that they don't want majority Chinese ownership in a lot of these things. Right.
Right. No, fair point. Perfect, Sir. Thank you and best of luck, and congrats on a good quarter.
Thank you.
Thank you. We have the next question from the line of Raj Shah from Marcellus Investment Managers. Please go ahead.
Yeah.
Hey, Raj.
Am I audible? Yeah. Hi. Am I audible?
Yes.
Yeah.
As you mentioned, Sir, about the optical lens business, that learning curve has been steep and longer than expected. I just wanted to know your view on the TMT bars business. How has been the journey, and what are the learnings from this kind of businesses?
Yeah. TMT bars is another one where basically, you know, I think the basic focus has been kind of what it would take to differentiate in a commodity product, right? Because if a product kind of sticks predominantly as commodity, it's more difficult for us to participate in that business in the long term. That's where I'd say the biggest learning curve has been, right?
Which is that, though there are real product differences we can create, the ability to get the market to understand those product differences is a bit more challenging. Right? That's, I would say, kind of our biggest learning from that business, where we continue to kind of invest in getting the market to value that differentiate, that differentiation. The reality of what the market is absorbing is different.
The line of the participant has got disconnected. Ladies and gentlemen, that was the last question that the management could answer. I would now like to hand the conference over to the management for closing comments.
There's nothing specific from our side. I will hand back to you.
Thank you.
Mm-hmm.
On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. Thanks so much.
Thank you.
Thank you.
Thank you.
Thank you.
Thank you. Thank you.