Ladies and gentlemen, good day, and welcome to the Tube Investments of India Q1 FY 2023 earnings conference call hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen-only mode. 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 zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anupam Gupta from IIFL Securities Limited. Thank you, and over to you, sir.
Thanks, Anju, and welcome everyone to Tube's 1Q23 conference call results. From the management we have Mr. Vellayan Subbiah, Executive Vice Chairman, Mr. Arun Murugappan, Chairman, Mr. Mukesh Ahuja, who is the Managing Director, Mr. Mahendra Kumar , Chief Financial Officer, Mr. K.R. Srinivasan, who heads the metal formed products business, Mr. Kalyan Kumar Paul from the BSA & Hercules cycles business, and a few other members from the team. I'll hand over to Mr. Vellayan for the opening comments, and after that we can take questions. Over to you, sir.
Anupam, thanks, and good morning, everybody. You know, basically we had a good quarter with a PBT before exceptional of INR 180 crore. Revenue for the quarter was at INR 1,957 crore compared to INR 1,257 crore for the same period previous year. Obviously, as you all know, last year we had the COVID situation, so the numbers are gonna look a bit dark. PBT was at INR 180 crore as against INR 130 crore in the same period previous year. ROIC was at 48% for the quarter, compared to 41% in the previous same year period. Free cash flow for the quarter was at INR 139 crore. With that, we'll just get into each of the individual businesses.
Free cash flow is also back to, you know, to its kind of its higher and strong levels. The engineering business revenue for the quarter was at INR 1,244 crore compared with INR 815 crore in the corresponding quarter. PBIT for that business was INR 118 crore as against INR 83 crore from the corresponding quarter. Metal Formed had revenues of INR 335 crore versus INR 245 crore in the corresponding quarter, and PBIT was at INR 38 crore versus INR 26 crore in the same quarter last year. The cycles division had revenue of INR 246 crore during the quarter compared with INR 172 crore in the corresponding quarter. Profit was at INR 9 crore versus INR 7 crore for the same quarter last year.
The other businesses had revenues of INR 223 crores compared to INR 88 crores, and PBIT was at INR 17 crores as against INR 10 crores in the corresponding quarter for the previous year. At a consolidated level, revenue for the quarter was at INR 3,799 crores as against INR 2,437 crores in the corresponding quarter. Profit after share of profit of associates and joint ventures, exceptional items and tax for the quarter was at INR 342 crores as against INR 192 crores in the corresponding quarter in the previous year. CG Power and Industrial Solutions, a subsidiary company in which we hold a 58.05% stake, registered consolidated revenue of INR 1,665 crores as against INR 1,050 crores.
Its PBT was at INR 172 crore as against INR 71 crore in the corresponding quarter last year. Shanthi, which is also a subsidiary, and we hold a 70.47% stake there, had revenues of INR 99 crore during the quarter, as against INR 67 crore, and PBT for the quarter was at INR 18 crore versus INR 12 crore. Commenting on the financial results, Mr. M.M., our Executive Chairman, said despite the continuing challenges in supply chain constraints, fuel and commodity prices, the company has witnessed steady performance during the quarter. Growth was higher in the domestic market in engineering, metal formed products and industrial chains. The previous year was also affected, partially due to COVID. The company is also making steady progress on its launch of its EV three-wheeler and tractor product.
The performance of our subsidiaries, CG Power and Shanthi Gears, have been very encouraging. We are having strong growth and profitability across all segments. Anupam, that's a quick kind of summary of quarter performance. With that, you know, we'll be happy to take questions. Thank you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touchtone cell phone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Jinesh Gandhi from MOFSL. Please go ahead, sir.
Hi, sir. Can you talk about the export? How was the growth in this quarter? Which segment of exports are doing well?
Yeah. I think that's a good question. Actually engineering, you know, there's still too much inventory at dealerships just in the European market, especially for growth in the engineering business. The industrial chains business is at great support. You know, for commentary on the engineering exports, I mean, we really think it's gonna pick up in the third and fourth quarters. On specific numbers, if you'd like, you know, Mukesh or Mudlik, any of you guys can just jump in. That's great.
In a particular quarter we see because the inventories are climbing up and there is a lot of fluctuation in the commodity prices. The steel prices also come down. It's going to utilize in another one quarter and after we see demand is strong and particularly in OEM side, engineering has done a good job by taking customer approvals, on the OEM side, and it will continue to drive the growth for exports going forward.
Last year, Q1 we had some pent-up demand also. In comparison that can also be affected.
Honestly, I mean, yeah, we do see a strong second half from an export perspective right now, especially with what's going on in the Ukraine, Russia thing. I think second half will be very strong.
Sure. Can you share what was the percentage of revenue, standalone revenue? What was the decline in exports or growth in exports in mind?
For company as a whole, it was around 16%. If it's engineering alone, it's 21%.
Okay. Second question is on the railway business. Are we starting to see some traction in terms of order coming through, because some of your peers not necessarily in the same segment of railways has started to see substantial traction in order coming from railways. Have you also seen the similar traction there?
K. R. Srinivasan, do you want to take that? Oh, K. R. Srinivasan is not on the call.
Yeah, K.R. Srinivasan is there on call. I'll take this question. Yes, you are right. Railways, there is a traction which is improving compared to the previous quarters and new tenders have started getting released and that is getting released with even the better price points from tenders. Commodity prices are also softening it. Going forward we'll see the railway business starting next quarter.
Okay. Lastly, can you talk about your approach to investments in GI-2 , given that in one two itself or around the first four months you have already invested close to INR 250 crore. There will be investment in other investments in INR 3 billion and since that way. How should we look at GI-2 investments? You talked about the base investments of at least INR 200 crore per annum, but how do you approach given so much happening on that side of the business?
Yeah. Jinesh, I think there's two trends happening, right? One is that, you know, like we said, we don't see that much. I mean, though we have, you know, still a pipeline in GI-3 , we don't see that much activity on GI-3 right now just because a lot of the assets we feel are, you know, fully valued, right? And so we're a bit concerned about kind of going into an asset on that right now. And given that, we also see we're seeing a lot more opportunity on the GI two side right now. Obviously, kind of the biggest area of spend has been on electric vehicles, and we think that will continue to be our biggest area of spend.
You know, over time, our vision is to kind of get into at least four platforms. We've already announced, you know, right now we've announced a three-wheeler. We've announced tractor. We've announced the heavy commercial vehicles. I mean, tractor and heavy commercial vehicles were through acquisitions. We do see a fourth platform as well. We see that as consuming kind of a large chunk of our GI-2 capital. We continue to hold the same prudence, right? Which is basically we've said that we will not exceed 2x free cash, right? You know, as kind of our debt. I think capital efficiency wise, we continue to kind of maintain that.
We definitely see a lot of opportunity in electric and we are going to invest in that. Our sense is to take each of these platforms to market. We're talking about roughly about INR 250 crore each, which means an INR 1,000 crore outlay to get four product platforms to market. We'll see how those platforms scale and then accordingly basically see where we need to double down and invest more.
Right. When you're talking about fourth platform, that's the two-wheeler side, right?
Sorry. Two-wheeler?
The fourth platform in TI side.
No, no. We can also say that we're not doing two-wheeler.
Okay.
We see the two-wheeler space is too crowded, right? I mean, we've always said that we're more interested in the productive side of the spectrum than the consumptive side. We see the two-wheeler side as too crowded, and we don't see profit pools in that sector, you know, for the foreseeable future because, you know, there's just too much venture capital money going in. You know, we just, I mean, debated with these guys are kind of losing money. Jinesh Gandhi, that's not the kind of business we think in. We're still kind of old school. We still have to make money. You know, that's kind of the way we look at it.
That makes sense. That's more sustainable way of getting into the space. There are a few more questions I'll call back to you. Thanks.
Sure. Thanks, Jinesh.
Thank you. Next question is from the line of Aman Agarwal from Carnelian Capital. Please go ahead.
Good morning, sir, and thanks for the opportunity. My question was on GI-2 initiatives and, just from a medium to long term point of view. If I see at non-TI businesses like, the truck business or other pieces of business. Well, the opportunity for the truck CV and tractor is smaller, but looking good in terms of ROC kind of profile. The optical lens business looks very scalable. Like, how are we thinking about this business in terms of strategy? Like, are we focusing on better returns or do we think of this as, very large businesses to create and contribute meaningfully in terms of the bottom line of the company going forward?
Yeah. No, I think it's a good question. See, honestly, I would say two things, right? One is that, you know, these businesses did get derailed quite a bit due to COVID, right? I would say we lost almost kind of two years of kind of all of the businesses due to COVID. The second is that we're seeing kind of differential levels of scalability, like you correctly pointed out, between the three businesses. Of the three, the optical lens business is the most scalable. The challenges we've had with optical lenses is basically, you know, like we said, kind of, it's all imported equipment. Nobody else makes these things in India. So basically, we're very dependent on, you know, on basically either Koreans or, you know, the very few people.
All the equipment was Korean. We're very dependent on those people coming in and setting up and getting the factory going. There's been a massive reluctance on a lot of these guys to travel. That is what has delayed that project significantly. I mean, in the sense, like the factory is up, but we're not able to get it to full production. I do believe that business is gonna be immensely scalable, but, it is delayed, right? With the other businesses, also they got kind of quite derailed due to the whole COVID scenario because obviously, kind of, you know, with truck consumption coming down, with a lot of things coming down, basically, those businesses got quite derailed as well. I would say that now is the time to kind of rebuild.
I don't think the other two businesses are gonna be as scalable as the optical lens business. Of the three, I would say the optical lens is gonna be the most scalable.
Thank you for the answer. That was really helpful. My second question was on our EV business. Like, now we are into three-wheeler tractors in the CV segment. Like, what is our strategy in terms of EV? Like, do we want to become a very major player? Do we want to initially just focus on south region, which is our dominant region, and later, if we are good with the product, expand it nationally? Also, in terms of tractor and MFC, in this EV penetration is expected to be slower. Given the product is not even at scale even at global level, basically we'll need to spend more on R&D and other expenditure on tractor and MFC segment going forward.
Like, apart from the already 670+ we have already invested.
Definitely these businesses are gonna require R&D investment. Second, in terms of you asked what do we wanna be in these businesses. Our belief generally is that, you know, the future is gonna. I mean, we are at a significant stage of kind of disruption in the industry. If you look at what's happening globally also, you are gonna see new global majors get defined in new categories of space. You know, just like, I mean, everybody kind of only talks about Tesla, but if you category by category, you see what's happening in India now. Category by category, people are basically. There are new companies that are beginning to acquire significant market share.
Our objective with which we're going in is definitely to be, you know, a very, you know, at scale relevant player. You know, there is no other way we're looking at it, right? Saying that, you know, we see an opportunity where, you know, there's gonna be a redefinition in terms of who the largest players in the country are in the whole, you know, commercial vehicle segment. We see definite opportunities there for ourselves, right? Does it require. Your second questions were, you know, in some of these areas, there's not been global penetration in terms of tractor and heavies.
I definitely think that, you know, like what happened with some of the other technologies, including kind of mobile telephony, I think India is gonna start playing a significant lead role in electric vehicle if we look at the next 10 years. One of the reasons why we believe that is because in business categories like tractor, I don't think there's gonna be another natural leader that basically kind of comes out. India is the most logical. We sell the most tractors globally. Therefore, you know, for India to lead makes the most sense, right? You know, even with heavy commercial vehicles, the kinds of use cases, right? Because basically what happens in the West in general, heavies run really long distances at very high speeds, and therefore, battery consumption tends to be extremely high.
There are a lot of use cases, especially even in India, where these heavies run point to point, right? You have them running, you know, 150 kilometer routes, from a steel factory to a port. They're just kind of running across these points, right? That makes it more feasible to convert certain categories first and then other categories later, especially to heavies, I mean, to electric, more easily. We are quite keen on being a leader in a lot of these categories. Does that mean it's gonna require R&D? Yes, definitely. We will have to invest on that to kind of make it happen.
That was really useful. Just one final question. Since we are getting into this OEM business now and being an auto ancillary cater to most of the players in two-wheeler and other segments. Players like Bajaj, who is already in the two-wheeler, but is also in three-wheeler, where we are getting into the business and again players like Tata Motors and M&M, they're getting into the CV side. Do you see any chances of them taking business away from us from the auto business?
Yeah. I think that's a valid question. If you look at kind of what I mean, I just look at the way the world is evolving globally, and I think that, you know, the example I like to use the most is that of Samsung, right? Which is if you take an Apple iPhone, you know, the largest supplier for the Apple iPhone, and I still believe that that's the case, though I'm not sure now. But a significant supplier to the Apple iPhone of components is Samsung, right? And yet kind of iPhone's biggest competitor on, in terms of, you know, kind of competitive OEM phones is also Samsung, right? I think the way the world is evolving now, everybody's has to cooperate with people in some way, has to compete with people in some way, right?
I think that is the way the world will continue to evolve because of the way technologies are going, right? I mean, a lot of technologies are becoming very platform oriented. Honestly, right now, you know, we have no scale compared to any of those guys, right? Kind of I don't think, you know, right now, you know, would even see ourselves as a kind of a credible threat in that kind of a ecosystem.
Understood, sir. That was really helpful understanding that question. Thank you.
Yeah. Thank you.
Thank you. Next question is from the line of Jeetendra Khatri from Tata Mutual Fund. Please go ahead.
Yeah, hello. Sir, are you doing something on the light commercial vehicle side? Because Bosch is trying to do something on electric out there.
Mm-hmm.
Yeah.
There's nothing specific that we've announced or talked about on the light side.
On the heavy commercial vehicles, let's say if Ashok Leyland and Tata Motors ramp up their effort, how do you plan to compete in the future?
Yeah, I think that it's similar to the question that just kind of.
Okay.
was asked, right? In the sense like, you know, basically everybody will be getting into it, you know, and different people will take different approaches, right?
Yeah.
Which segment they choose? We've chosen a particular segment of trucks and heavies to start.
Okay.
You know, starting with the 55-ton truck. You know, we will see how those segments evolve over time.
Sure.
It is gonna be a market where you're gonna have new entrants compete against incumbents. That's the way a lot of these markets have been globally.
Just in case, hydrogen and fuel cells, et cetera, they manage to make inroads.
Yeah.
Are you ready for the technology in the 5.31 segment?
Yeah. I mean, the good thing is with Hydrogen Fuel Cell come about, right?
Okay.
The entire drivetrain. Usually, basically what you're gonna have is you're gonna replace a very large battery, say, with a hydrogen fuel cell, I mean, in heavies I think there'll still be a battery because you won't be able to get enough supercapacitors in there, unless supercapacitor prices come down. I think basically more of what will happen is you'll replace a very large battery with a hydrogen fuel cell and some kind of storage, which will be a smaller battery. Right? From that perspective, the fundamental design stays the same even if we go into hydrogen fuel cell. As you know, I mean, the belief is that hydrogen fuel cell is still at least about five years out, especially, you know, because of the infrastructure required to kind of get that going.
Okay. Lastly, sir, what's your internal gestation period which you keep as a benchmark for GI-2 for a new business?
I'll tell you, we're also learning in that process, right? Now when we get into any one of these new platforms, we've said that, you know, within six to nine months we'd like that platform to generate revenue.
Right.
What we're kind of seeing on the truck, I mean, on the whole vehicle side is, you know, the homologation process has its own timeline.
Yeah.
You know, and you can't get a market, a product to market till you have it homologated, right? The good thing with the 55-ton truck is that we already have a homologated truck, right?
Okay.
Tractor is not homologated yet, right? Tractor will take longer because of the homologation cycle. I think that is the constraint function. I think it can take up to a year after acquisition to basically get a product to market.
Yeah. Okay. I was asking actually more broadly for your entire GI-2 and your, for example, your Optics, et cetera.
Yeah.
Broadly, what is the gestation period you have in an internal target?
I don't think we can take gestation period, right? Because anyway, I mean, if you ask, you want to get it going, you know, as quickly as possible or within three months, right? Did you see what happened with Optics? I mean, honestly, kind of there was a real misfortune in terms of timing, right? Which is.
Okay.
You know, just after all the equipment started coming in, you know.
Yeah.
COVID hit, right? Then we just had no way of even starting up these machines because nobody even understands these machines in India, right? Nobody else makes them.
Yeah.
Right. I mean, so this thing is kind of, it's gotten hit by over like two years just in that process. Honestly, I mean, I think kind of there is a gestation period we would like, but I mean, I don't think that that's gonna happen on a lot of these products.
Thank you very much.
Thank you.
Thank you. Next question is from the line of Dhruv Maheshwari from Premji Invest. Please go ahead.
Hi, Kim. Thank you so much for the opportunity. My first question to the team, generally what are the capabilities and the end game that we would have thought of? Just a follow-up on this one is, when we acquire company, do we try and keep the promoters on board to run the business or what's the thought process, and then I have another question. Thanks.
I think the first question is what is the logic and the capability in Moshine and in IPLT, right?
Yes. Yes.
Okay. IPLT, I think we just talked about it. They basically have a homologated 55-ton, okay? They have an older version of that truck, which was a retrofit that is already kind of in the market, and so it's been running for close to two years. About 20 trucks are out there. Our intent is to basically now manufacture this homologated truck, and sell it to basically customers who have these point-to-point applications, right? Basically, you know, the ideal targets are, you know, basically steel, cement. A lot of them have this point-to-point application. For the point-to-point application, the economic benefit of an electric truck is already real and present. Right? There is real economics in getting this product out to customers immediately.
In parallel, we would basically start developing other products that we think will be ready in a 12-18 month timeframe from now. Right? Is that clear on IPLT?
Yes. Yes. That's clear.
On Moshain, basically they have the capacity to make the small, I mean, the lower end mobile camera modules. The intent there is to become a camera module provider to start at the lower end and then work our way up the chain. That is the intent with Moshain. Yeah. They already have a manufacturing facility in India making these lower end camera modules. We will continue with existing customers and then build up on that.
Is it fair to say that this could be complementary to what you were trying out with lens or this is going to be a separate product?
No, you're right in the sense that, you know, basically now we will go full spectrum on lenses, because basically those are glass lenses, these are plastic. This gives us the opportunity to go full spectrum on lenses.
Just in terms of running these businesses, will the existing set of promoters continue to run them or?
It's a valid question. I mean, obviously kind of the existing promoters will continue to have a role, and in some cases will continue to run. It depends fully on kind of on the capability of the existing promoters and their kind of, you know. They will continue to have a role. In some cases they will run, in some cases they will be part of the team.
Understood. Thanks. Just one on the EV bit. You talked about the four platforms that you're planning to launch. It's still early days, but are we looking at a sort of common distribution network? Of course, now that we're moving from an ancillary to an OEM market, challenges that we're sort of preparing for our distribution, if you could share your thoughts there, it'd be helpful. Thanks.
Yeah. Obviously kind of will it be a common distribution network? I mean, these are very different products, so for the most part, kind of, they will be separate distribution networks as well. I think the second question was a bit unclear. You're saying kind of will there be challenges heading up the distribution network?
Yeah. Are you facing any challenges like we would have started off three years, what is the?
The experience has been fantastic to date. I mean, it's been a very good experience.
Got it. Thanks. Thanks a lot.
Yeah.
Thank you. Next question is from the line of Niket Shah from Motilal Oswal AMC. Please go ahead.
Yeah. Thanks for the opportunity.
Oswal is dominating over here, man.
You know, the previous one my side. Just one question on IPLT. Just to understand, you highlighted most of the points, so largely it's covered. Just wanted to get a sense on order book. The product is very well known and whatever you've done, I think you have a very healthy order book, but there are issues on production. Are you gonna invest more to ramp up production capacity?
Yeah, absolutely. That's the first thing we will do. We're already looking at a production facility that we can get ready in about the 8-9 month timeframe. Volumes will remain muted till we can get that production facility up. Obviously, we'll continue to keep you updated as we kind of get that, you know, our second facility up, which will still be kind of smaller than a full assembly facility, but it will ramp up the capacity significantly from current.
Yeah. Will it be possible for us to share what's the order book for that?
We're not sharing yet. I think, maybe give us a little bit more time. I think, maybe next quarter we'll share a more comprehensive order book.
Sure. The second question was on margin. Just having broadly this quarter, safe to assume that margins would have boosted and the benefit of the Lean program that you've been doing should incrementally start flowing in the next quarter, as well as the numerator and denominator impact actually.
Yeah, I mean, I think kind of, Mukesh. I'll let Mukesh answer that.
Regarding lean, these are the early days. Like you rightly said, benefits have started flowing, but we have a long way to go on this, and there's a good headroom available leveraging the lean journey to improve the margin side of the story. Rightly said, the commodity prices is creating some issues on numerator and denominator. That depends on the external environment, how the commodity price goes up. We are making sure that absolute margins are always protected or it is improved year on year.
If I want to look at it, that's only improved, but then that is the right metric based on the numerator and denominator. Based on the last two years would have been improved.
Yeah. For Niket, this is Mahendra here. We have a different mix of products, so EBITDA per ton may not really apply to our industry. It may work for a commodity industry like cement or steel. We have different types of products, different types of valuation on products also. That may not be the right metric.
Sure. Got it. The other question was on the medical devices part of the business annual report. Will it be possible to give some flavor on where you are going in terms of hire and,
See, basically, I mean, we're going to drive that through kind of acquisition to begin with, because we don't have any capability internally. We don't really wanna comment on it till we first get a specific transaction that we're gonna close on. We're still looking.
Okay. Got it. One more question, if possible, please. On the two-wheeler side, what's the share because that is one category which doesn't seem to grow, and at least that part of the revenue will continue to see maybe lower growth. Is there some game plan that we have to maybe add customers or find, or increase the market within customers to ensure that.
I don't think we discuss kind of revenue. I mean, the market share at a product level, and we prefer not to. I think we have a decent market share. Obviously in all of the products which we are, we always are looking at opportunities to expand the market share.
Sure. Specifically itself, will it be possible to quantify what is the percentage of solution coming from two-wheeler?
Sorry, what is the percentage?
The percentage of revenue.
How much of our revenue comes from two-wheeler?
Yeah, yeah.
Is that your question?
Yeah.
Mahendra, have you shared that before?
I can answer that. If you look at the total TI revenue, roughly about 58% comes from auto. Within auto it is like roughly 50-50, but keeps varying from quarter to quarter. In Q1 it was like 55% two-wheeler and 45% four-wheeler.
Okay. Have you started taking orders, Mukesh, for electric three-wheeler? Has that already started booking electric three-wheeler?
For electric TI?
Electric three-wheeler.
Oh, electric three-wheeler.
Three-wheeler. Yeah. Montra.
Yeah. Either Paul or Sushant can answer that. Okay. I don't know if Paul or Sushant are not on the line. To your question, we've appointed dealerships. We haven't started taking orders yet. I think we will likely start taking orders in the September timeframe.
Okay. Thank you so much, and I'll
Thank you. Next question is from the line of Mr. Nishit Jalan from Axis Capital. Please go ahead.
Thank you. Thank you, sir. Thanks for the opportunity. Most of my questions have been answered. Just one on engineering segment. That segment we have seen very, very strong growth, both on a year-over-year and quarter-over-quarter basis. You just highlighted that export is something which was not very, very strong in this quarter. We do get auto industry volumes from industry body, and we haven't seen industry-wide growth very strong. Just wanted to understand what is the volume value growth in this segment. Are we basically have we introduced some more products or are we gaining disproportionately in large OEM for any sub-segments within engineering? Because obviously we are growing at a much, much faster pace compared to auto industry growth.
Mukesh.
Like we said earlier, there is some amount of gaining shares in the domestic market that's reflecting in the total overall revenue increase. Also because of the commodity prices, turnover is going up. It's a mixture of two. Like we started talking about engineering business two years back with regional balancing story. We start producing closer to the customers to optimize our cost structure and improve the delivery and the quality which is closer to the customers. There is a yielding result with the combination of commodity prices going up as well as gaining share of business.
Sir, would you be able to share a breakdown between volume and value in the engineering segment on a Y-o-Y basis or Q-o-Q basis, whatever you are comfortable with?
Generally, we don't share those break-up. To indicate to you directionally, it's a combination of two.
Sir, if I can squeeze in one more question, which has been asked multiple times in one way or the other. It's on IPLT on the truck side. We basically just wanted to understand. IPLT hasn't done much fundraising in the past, yet they have come up and developed the specific as well as retrofit. What is core advantage competitiveness that IPLT has built? Have they kind of mastered any of the specific technical components or is there any technology partner? Basically how have we gone in terms of building capability that's across different components or vehicle design process?
Yes, I think it's actually. You're right, they have done it with very little capital. I think that's what you're gonna see happening in India, right? Which is, I think. I mean, at least from what we can tell, the brilliance in the IPLT product is that it's very catered towards Indian use cases, right? Especially kind of starting with these point-to-point use cases, right? Because if you had a product, for example, that you try to sell in Europe or the US, which had like a 180 kilometer range, a heavy-duty truck with a 180 kilometer range, there won't be massive demand for it.
The second thing is even getting to a 180 kilometers range, you know, how you get there. I mean, the bottom line is, because in India there's so much more braking on the highways, there's a capability to get a lot more regen. The third component I actually think is that though there is no specific IP, for example, it is like, you know, there's no IP in terms of a component that is very specific. The way the components have been stitched together, you know, we think is very intelligent, right?
Because they've been extremely able to do that using kind of, you know, sets of Indian components, sets of imported components, and bringing it all together in a fashion that I think is economically and, you know, economically kind of, you know, and just from a physics perspective and from a market perspective, the right product for India. I think that is what is possible. I mean, a lot of people call it frugal engineering or what have you, but I think that's what is possible to do in India. That's what a lot of the new players are gonna start doing, right? That's what we think is kind of good with the way IPLT is managing. That's where we see the opportunity.
Thank you. Sir, just one follow-up and sorry for harping on this. Just especially if IPLT, obviously, their team would be very good if they can do such innovation with such small amount of capital. Do you think there are enough entry barriers in place in these kind of products? If not, don't you see that, don't you think that, even this segment can get crowded over a period of time and the profit pool may not be big enough? Because it's incredible that they have done such a good work with small amount of capital, but if there's no IP or no major technology advantage, then would entry barriers not be low in this segment?
See, the point is this, right? I mean, if you look at kinda what's happened is that, you know, there are I mean, you've got to recognize that, you know, if you take the two-wheeler space, for example, I don't know how many two-wheelers there are, electric two-wheelers, but, you know, when we last did a sweep, I think there were over 80 products that were out there. In heavy-duty trucks right now, there's only one that's homologated, right? Are there gonna be other guys? I think at least market potentially, yes, there will be other people. But we're also seeing right now what's happening is the whole, like, capital space is also drying up, right? So there aren't that many guys who just want to experiment with nothing.
In our minds, it takes at least like, you know, three years to get this product right, which is how long IPLT spent on it, right? I mean, IPLT actually spent more closer to five years on this, right? In our minds, it takes that long to get the product right. It's not gonna be that easy for somebody to just come in and say, like, "Listen, I'll put together kind of a motor, a controller, a BMS, battery, and kind of, you know, I'll get this thing going." So you know, we feel like the segments we're getting into have higher barriers to entry than kind of, you know, the two-wheeler or the passenger car, which tends to be, you know, globally led. Therefore, you know, that's our belief.
I mean, there's no telling that, you know, we're 100% right on this.
Thank you. Thank you so much. I have some more related questions on this, but I'll probably take it offline now. Thank you so much for your time.
Thank you. Thanks so much.
Thank you. Next question is on the line of Senthil Manikandan from Kresha Financial Services . Please go ahead, sir.
Hi. Good morning and thanks for attending. My team is interested EV tractor side. If you can just give an overview about what is the total addressable market over the next three to 10 years. Currently, like, annually, the tractor market size is around 9 lakh units. Just overview on the volume and how the market will recover from the EV side. Thanks.
See, I think none of these questions can be answered deterministically, right? Because I mean, if I knew how the market was gonna progress, you know, very few people know, you know. Like, I don't think anybody knows how the market is gonna progress or what the actual rate of adoption is going to be. Obviously in our minds, it's dependent on how good a product you can get out and which segments you can cover. You know, there are in our minds kind of four product ranges that have to be got out there, you know. The initial product range may not cover as much of the market.
You know, the largest is gonna be, you know, that 30-40 horsepower segment and then, you know, a 45 kind of or a 40-50 horsepower. You know, there are. There's 1 product that is the closest to homologation right now, and then there are two more that we will submit within the next six months. The rate of evolution of the market, I don't think we can kind of state deterministically right now, nor do we want to say, you know, here's how much, you know, our market share is gonna be. You know, we just wanna focus on kind of being the first to market with the product and ensuring that it's a good product and then capturing the proportionate market share for the products we get into market with.
We're gonna start with the lower horsepower products and then kind of work our way up.
Okay. Yeah. Thank you.
Thank you.
Thank you. Next question is from the line of Sunil Kothari from Unita Investments.
Yeah. Thanks for the opportunity. Are you getting my voice, sir?
Yeah. How are you?
Yeah. Thank you. Fine, sir. Sir, my question is a little bit longer term and macro. Since you turnaround Chola, and Murugappa Group has proven their capability internally in terms of engineering services, exports and everything. I want to understand the two trends, which we are hearing is China Plus One, Europe Plus One, manufacturing base from, say, India. Whatever what products you manufacture, whether it's a chemical or pharma or engineering, lot things we are hearing. Second trend we are hearing is people want local manufacturing more. People want to depend on so much disruption of the supply chain which we faced during last three to five years. With your vantage point, can you elaborate on this opportunity for Murugappa Group from exports point of view?
Yeah. I mean, I think if you see our articulation of vertical selections and the niches we're getting into, they are also kind of driven by these kind of trends. I mean, basically, we obviously think that the whole electric vehicle market and a lot of categories, including the ones we're getting into, are going to become kind of a fully Indian supply chain over the next five to six years.
Mm-hmm.
That's why, you know, in TI we want to kind of understand, you know, how can we make motors and controllers. You know, all of these are things, areas where India has kind of capability today.
Correct.
Similarly, we talk about the reasons we're getting to electronics and medical. It's the same thing, right? China Plus One. Everybody is very keen on, you know, so even if it takes something like more time, you know, everybody wants Indian supply for mobile phones. Right now, almost all of the mobile phone components are imported from China, right? I'd say in excess of 95% of mobile phone components come from China. Over the next decade, that entire supply chain has to be developed in India. You know, we need to think of how that's gonna happen. Similar with electric vehicles. The entire supply chain needs to develop in India. Indian OEMs need to emerge. How is that gonna happen? And even with medical, though there's gonna be a large Indian market.
All these 3 products, you know, we are convinced that if we develop the Indian market, that will form a strong base for allowing us to get into, you know, other markets, say Europe, European markets and American markets especially. That's very similar to what we've done with tubes and engineering, where we developed for the Indian market first and now we're beginning to push 20% exports, and then we'll push to 40%-60% exports over the next five to six years, right?
Basically it's a very similar story, and we've identified, you know, a set of verticals which we think at least over the next 15 years gives us significant opportunity first to establish a base in the domestic market and then use that base as a mechanism of getting out, along this kind of what we think is gonna be a very, very broad China Plus One trend over the next 15 years as well.
Sir, basically within your internal capability which already we have grown, you see external tailwind is also helping us in terms of this manufacturing products, say mechanical products, engineering products, bigger parts. There is a good tailwind for.
Undoubtedly. I think that this tailwind is really gonna be very significant in India for the next decade.
Great, sir. You are doing commendable job. Wish you good luck. Thanks a lot.
Thank you.
Thank you. Next question is from the line of Vikal Samar Anupam Shah from Sumanth Investments Pvt. Ltd.
Hi, sir. Congratulations for great sales numbers. My question is on the heavy truck side. Will be launching only one model of 55-ton, or we'll have entire range starting from 10 tons to 55 tons?
Right now there's only one model that's homologated in the 55-ton, so we'll be focused on getting that to market first. So that's our focus right now. Then over time we will have to develop, right? There's only one model that's homologated.
Can you comment on the cost advantage in terms of percentage?
What we've seen is a payback time of two and a half years on this truck, for the use cases that we're looking at right now. More than that, we don't wanna share. We're seeing a payback time of two and a half years.
Two and a half years of payback?
Yeah.
Okay. Thank you, sir. Thank you and all the best.
Thank you.
Thank you. Next question is on the line of Abhishek Singhal from Kotak Investments. Please go ahead.
Good morning, sir. Before asking question, I have a small question. You would give investor presentation with your result, then it will be for small investor like us?
Sorry, I couldn't hear it.
If you give the
If you give the-
With your result, then it will be for a small investor like us.
Okay.
The first question, year-over-year margin in mobility and power business has decreased. What would be the margin in FY 2023? Second question is, how much the turnover will be from electric vehicles and electric tractors in BPF and have started producing them?
Okay. Your first question was on. Let me answer your second question. We don't wanna give any. The numbers from electric vehicle sales in this financial year are not gonna be so significant, so we don't wanna give any numbers at this point in time. We see revenue numbers ramping up only from next year, the 18-month timeframe. We will have some revenues this year. It's not gonna be significant. Your first question, if you could just repeat, sir.
Year-over-year margin in mobility and power business has decreased.
Power business? You're talking about CG.
CG, yeah. What will be the margin in FY 2023 if, as of June 2022, your Q4 last year?
Okay. I think power you can actually kind of look at as the same revenue now, I mean, same margin numbers that we kind of reported in the first quarter. It might improve a bit, but not significantly. Mobility, Mukesh do you wanna give a perspective? The question is on margins. I think margins also will remain similar to what they've been in the first quarter, right? Improve a bit, but not much.
Okay.
Thank you.
Thank you. Next question is on the line of Vinod Malviya from Union Mutual Fund. Please go ahead.
Yeah. Thank you for taking my question. I'm extremely sorry for hopping again on EV segment. I have a quick question on EV segment. First, I mean, you know, as you rightly said that this business has been there in the market for last two years, and whatever reviews even we came across on the social networks is very good. Just, I just wanted to understand both from company's point of view and even from the use case point of view, what are the current challenges which is there? Is it like, you know, the total cost of ownership is very high over here compared to the existing CNGs? Or the
Even from an operations point of view with the existing, I mean, old promoters, what were the challenges and why is there completely exited? I mean, almost two-thirds have been sold to you. Just I'm gonna want you to understand the thought process over there.
Yeah. So first off, the promoters are not completely exited. They are still there with a significant kind of portion of the shares. You know, so that is. They are integral to kind of the future of this company, so they're with us in this entire process. You know, Subodh is basically leading the company and kind of going forward. Your question was, you know, kind of all of the reviews are positive, what are the challenges is what you're asking. I think kind of, you know, there are two things. It basically is working capital and then capital required to kind of set up a new facility. It was very tough from a working capital perspective to be able to produce these trucks which were expensive.
The company did require capital to set up a new facility, which we will be kind of putting in as well.
As per a use case concern, when we do a comparison between a normal commercial vehicle and an electric commercial vehicle, there's actually no disadvantage for electric. That is a normal feedback which we are getting on this product.
Yeah. We don't see any. I mean, obviously, kind of, you will lose some of the payload because of the weight of the battery, right? That's the only thing sometimes.
Okay. Just clarification on the last. So you plan to expand the capacity to three. Are you one, giving the number, like what kind of capacity addition will happen in the next one and a half years? Or what kind of investment do you-
We don't want to state that yet, right? It's still early days, so we don't want to state that yet.
Okay. Yeah. Thanks. Thanks for that. That's okay.
Thank you. Next question is on the line of Ankur from Future Investments Private Limited. Please go ahead, sir. Mr. Ankur, please go ahead with your question.
Yes. Thanks for the opportunity. Can you please share some guidance on the revenue, and the margin side, for the next three to five years?
Sorry, you just want broad guidance on revenue and margins for the next three to five years?
Yes. Yes. Right.
Yeah, I don't think we just give any broad terms like that. I think broadly what we've articulated around the four metrics, you know, continue to kind of hold, right? Which is the revenue. Okay, again, revenue growth we've always said, you know, you have to look at that now on a consolidated level. Broadly on those four items we continue to hold with what we've articulated from the beginning.
Do we see the margins going up?
Sorry?
Do we see the margins going up?
We've said that also, no? Which is in the next three to four years, yes, we will expand margins as well.
Okay, great. Market shares, are we acquiring some factors for five years in EV?
In EV? Yeah, I think it's very difficult to tell at this stage. Nobody even knows how many products are gonna be out, what percentage of conversion to EV is gonna be. It's a very difficult number to give right now.
Okay. Thank you so much. Have a normal day.
Thank you. Due to time constraints, we have reached the end of question and answer session. I would now like to hand the conference over to the management for closing comments.
Yeah. I mean, I, Anupam Gupta, nothing specific from our side here. Thanks. I think hopefully we've answered most of the questions. We continue to be, you know, quite very optimistic about the long term. I think quite a few questions were, you know, specifically on how quickly we'll be able to kind of or what market shares we'll be able to get in some of these new segments. That's a bit more difficult to state deterministically right now. You know, our focus is on building for the long term, and we continue to be very bullish from that perspective.
Yeah. Thanks. Thanks a lot.
Yeah. Thank you. Thank you so much.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.