Ladies and gentlemen, good day, and welcome to the Tube Investments Q1 FY 2021 earnings conference call hosted by Axis Capital. 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, please signal an operator by pressing star and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kashyap Pujara from Axis Capital. Thank you. Over to you, sir.
Thanks, Inba. Good morning, everyone, and thank you so much for standing by. I hope all of you are doing safe and families are indoors. It's a great pleasure to have with us the top management of Tube Investments of India to discuss the Q1 FY 2021 earnings. From the management side, we are represented by Mr. Subbiah Vellayan, who is the Managing Director, Mr. Mahendra Kumar, who is the CFO, and we also have the key business heads with us today on this call, Mr. Mukesh Ahuja, Mr. K.K. Paul, and Mr. Srinivasan. The entire top management team of Tube Investments is present on the call today. Mr. Vellayan, I would now like to hand over the floor to you, sir.
Thank you, Kashyap, and good morning, everybody. I'll just go through a quick press release and then be happy to turn it over to you for questions. Obviously, due to COVID, we've had a pretty crazy quarter this last quarter. Pretty much from March 23rd onwards, operations have been shut down in a lot of locations. We resumed some operations in a very small level at the end of April. May also, capacity utilization was extremely low across the system. In June, we've been able to get to about 50% capacity utilization. We obviously will have to see what, and we can talk a bit about what we think going forward. Obviously this has had a significant impact on both operational and financial parameters. Revenue at a standalone level was INR 379 crores for the quarter, compared to INR 1,252 in the same quarter last year.
We reported a loss before exceptional items of INR 69 crores compared to a profit of INR 107 crores in Q1 last year. During the quarter, we also had put in a VRS. This was not put in during or after COVID. We'd already planned for it in February, this is getting implemented now. That cost us INR 8 crores, and that's considered an exceptional item. The net loss before tax, INR 77 crores. Not used to saying loss before tax. I think it's also the first quarter in my professional history that anything has run at a loss. It's quite a dramatic situation for us. The net debt of the company was reduced to INR 101 crores as compared to INR 149 crores as of March 31st, 2020. Some of the individual businesses have done a great job of now managing working capital.
Engineering business was at a revenue of INR 164 crore compared to INR 657 crore, so about 20%-23% of their corresponding quarter. Their loss was INR 27 crore as against a profit of INR 67 crore in the same quarter last year. Cycles was at INR 100 crore compared to INR 290 crore, they had a loss of INR 6 crore versus a profit of INR 12 crore. Metal Formed had a revenue of INR 127 crore compared to INR 350 crore, they had a loss of INR 38 crore versus a profit of INR 34 crore.
At the consolidated level, revenue was INR 457 crore as against INR 1,385 crore, loss of INR 77 crore as against INR 120 crore. Shanthi Gears also had a revenue of INR 25 crore as against INR 71 crore, a loss of INR 5 crore as against a profit of INR 13 crore. That was the net results. Obviously not a great quarter for us given the environment.
The only positive things I would say is that actually, usually we don't share the data, but June was a breakeven to slightly positive month for us. I think that's the only silver lining here. Obviously, my belief is that it will get better than it has been. That's the silver lining, and that's the good news. Let me stop with that, and I'll be happy to turn it over to all of you and take questions, and we will respond accordingly. Thank you.
Thank you very much, sir. Ladies and gentlemen, we'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who has a question may press star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Ashutosh Tiwari from Equirus. Please go ahead.
Yeah, hello sir. We are now seeing some pickup in terms of commentary from different auto OEMs in two-wheeler side in June and July.
Ashutosh, you're not very clear yet.
Just a minute. Is it okay now? Better now?
Yeah, better.
Yeah. My question is that, if we look at commentary from different OEMs in recent, like last one month, there's some pickup happening in two-wheeler, four-wheeler side both, more so in two-wheelers. How you think that trend basically in July? I want to understand more on industrial side, how are you seeing the trend in June and July?
I think, Mukesh, do you want to take the two-wheeler question and then I'll come back?
Yeah, boss, I'll take it. Regarding two-wheeler side, maybe like you rightly said, there is a momentum which is visible maybe from June onwards, and June was maybe operating at around 50%-55% level. We expect that at least July should close somewhere around 65% of the pre-COVID levels. As of now, I think in the two-wheeler side, demand is maybe really picking up because of this personal mobility push after COVID scenario. Supply chain has to cope up, what has been given to understand with the various OEM interactions. It looks like, Clearly, the things are picking up in two-wheeler segment very well, and followed by the small car business which is in CV. I think CV will take some time to catch up with what is the trend going forward.
Okay.
Yeah. Over to you, Subbiah.
Yeah. I think in terms of industrial in general, definitely we're seeing, like Mukesh is seeing on the two-wheeler side, we're seeing July being better than June. That's our kind of quick take. Honestly, we don't want to make any commentary for what the future's going to look like and all that. The positive thing is that I do see July being better, and if that trend continues, it's a good thing.
Okay. Sir, secondly, how are the things shaping up in the aftermarket in chain business? Is that picking up more fast?
Yeah. K.R.S., would you like to respond?
Hello, everyone. Hello, Ashutosh. Because of this COVID situation, the aftermarket is really looking better. Even before the OEM started their manufacturing, aftermarket has picked up. As far as we are concerned, we could engage with our channel partners, and we could really do some good business in the first quarter. Aftermarket, we really look very positively right through the year.
Is it like going back to the normal levels now in July?
I can tell you we have more or less reached the pre-COVID level in the aftermarket. Yeah.
Sir, lastly, if I may ask, on the railway side, is there also the tendering, everything is getting delayed, or there things are better than other segments basically?
Railways is getting significantly delayed. Again, K.R.S., why don't you talk to that?
Yeah. Railways is getting delayed because they are finding it difficult to run the operations within the coach factories because of the current pandemic scenario. Even the allocations from the central pools again to the respective coach factories are getting delayed, and also are not in the same level as they used to be. There is a significant delay in railways. We are expecting at least things are postponed by about three months.
Okay.
Yeah.
Okay, sir. Thanks a lot. I'll join back this week.
Yeah.
Thank you.
Thank you.
A reminder to our participants, if you wish to ask a question, you may enter star and one. Our next question is from the line of Shyam Su ndar Sriram. I'm sorry, Shyam Sundar Sriram from Sundaram Mutual Fund. Please go ahead.
Yeah. Hi, sir. Good morning. Thanks for the opportunity. Sir, just a couple of questions on the Metal Forming division. Yesterday in AGM, you highlighted the auto aftermarket revenues doubled in FY 2020. Did I hear it right? I mean, from 20% of the Metal Forming it has now become 40%? Firstly, just housekeeping there. Metal Forming as a division, if you see the EBIT margins from FY 2016 to FY 2020 has not really improved much. We have even in annual report, we have spoken about increasing opportunities on the industrial chain, auto aftermarket being good, 50% growth in railways. What are some segments within Metal Forming that are proving challenging in terms of being margin accretive? Just an addendum to that, from a railway perspective, are acquisitions necessary to grow in railways? We are hearing some bidding for an industrial, from engineering company.
Just to understand, are acquisitions necessary to grow in railway? These are the questions from the Metal Forming side.
Thanks, Shyam. Let me just answer the question on acquisition. Like we've told you, definitely we think that railways is an area where acquisitions are appropriate because it does take a long time to basically get approval. The railways tends to be fairly loyal to their supplier base. We do see it as a good area from an acquisition perspective. To your earlier questions on Metal Forming, again, I'll let K.R.S. respond to that. K.R.S.?
Yeah. You asked about EBIT margin. Metal Forming has a set of businesses which are dependent on two-wheeler, four-wheeler, and railways, and industrial chains. It's a combination of all these businesses. What you see is only an aggregated EBIT. At the individual level, if you see, there have been strains on the EBIT margins on the four-wheeler, actually. That's basically because the market went down last year on the four-wheeler, as you know, about -13%, -14%, which actually affected our overall top line. To that extent, the fixed cost absorptions were not as much. As far as two-wheelers are concerned, that division has done pretty well. In fact, we have improved our EBIT margins and the PBT as well. As far as railways are concerned, we are really very positive, and we are looking ahead for a good growth in railways.
Understood, sir. Did the auto aftermarket earnings double like you mentioned in the AGM, or did I hear it somewhere wrong? That is just a housekeeping there.
No. The pie has doubled. That's what Sri was trying to explain. Earlier, we used to do more focus on OEM. Now, the focus has been on the aftermarket. Actually, the pie has doubled.
Basically, the 20%- 40%, part of that has happened, Shyam, because the OEM levels dropped significantly in the last year.
Yeah. Okay. Got it, sir. Got it.
And that caused that to move up.
Understood. Just one question. In the annual report, we have highlighted a lot of import substitution opportunities in the engineering segment and a very strong export order book in Metal Forming. Exports have always been a focus for us in terms of the overall business. We've spoken about it in the past. If you can highlight what are the import substitution opportunities in the engineering and the export opportunities from the Metal Forming, slightly more perspective on that will be very helpful, sir. Therefore, how does exports look from a three-year perspective? Thank you.
The Metal Forming exports is predominantly industrial chains. Now we're beginning to explore auto chains as well. Your question on import substitution for engineering, I'll let Mukesh answer that again.
Yeah. Engineering division, basically import substitution, we made some CapEx in the last year, maybe to upgrade our capability where maybe we find there is opportunity available. A lot of cold rolled strips are getting imported in the industry, and we are focused maybe let's say customer wise, and maybe developments are really progressing. This quarter also, we could maybe find out some new product development, and we align with some four to five customers. We see going forward, maybe let's say it will be growth area for us.
Okay. Understood.
Yes. Thank you.
Thank you, sir. I'll call back in the Q&A.
Yeah.
Thank you. We'll take the next question from the line of Prateek Poddar from Nippon India. Please go ahead.
Yeah. Hi, sir. Sir, could you just talk a bit about how are you thinking of the break-even points, and is there scope to further reduce it? From your commentary, it looked like that break-even points for us would be closer to 50%. Are there any thoughts about post-COVID? Obviously, we have done a great job in terms of improving on break-even points, but is there more scope or more juice to build on that?
Yeah. I think that's a good question, Mr. Poddar. Obviously, I think nothing has made us look at break-even points as keenly as this whole incident of COVID.
I'd say the encouraging thing for us is that we're seeing the engineering segment has actually kind of done the most work on it, and has been able to push their break-even point significantly. Metal Formed, we still see some opportunity there. We're going to work on that fairly keenly over the next six to nine months. I'm highly encouraged because a number that was north of 70% two years ago, we've been able to push it down to a point where at 50%, 52%, we've been able to kind of push a slight profit. That in itself is encouraging to me. To your question on is there more juice, I would say definitely, we see opportunity in the Metal Formed business. We're going to focus there to try and see how we can get more from that.
To see how we can push the break-even point further down in that business.
And sir-
Cycles also have made good improvement. There also there will be significant reduction on the break-even level.
Okay. Understood. Sir, second question is post-COVID, one of the growth strategies for TI, as highlighted by you, is acquisition. Post-COVID, will that leg see acceleration now? Are you seeing more opportunities in terms of acquisitions? Could you talk a bit about?
I think we've had at least two more kind of opportunities get added to the mix in terms of what we're evaluating. Definitely, I think that is going to be the case, that there will be more opportunities that offer themselves up.
The pipeline is fairly healthy, if I can think of it that way, that post-COVID, the pipeline has increased.
Absolutely.
Okay. Thank you so much, sir, and all the best.
Thank you.
Thank you. Our next question is from the line of Mr. Kashyap Pujara. Please go ahead.
Yeah, hi, Mr. Vellayan. Actually, I have a question as an extension of what Prateek just asked, and that was mainly that, post-COVID, how do you see the landscape changing? Mainly on not just break-even points, but how are you thinking directionally on costs? Earlier, I remember, even before COVID, you had alluded to achieving 10% PBT margin sustainably, and even potentially taking that figure up to 12%-15% over time on the core business categories that we currently operate in. Now that COVID has actually struck, do you think that certain costs are being re-thought about in a way where structurally the cost trajectory might look different and certain costs can be eliminated completely, and hence, the margin trajectory, given normalcy in top line, whenever it happens, the overall margin trajectory should be definitely better. One is, how are you thinking on those fronts?
Second would be on the overall strategy post-COVID. Do you think the way we were thinking about our business before COVID in terms of extensions or adjacencies and acquisitions and certain focused markets within the current opportunity set? Has any of those elements gone through a change, and are we dropping some of the earlier plans or redrawing new plans? How do you articulate these softer aspects?
Yeah. First, Kashyap, your first question, in terms of what changes do we see there. You were talking predominantly about, do we see our ability to change our cost structure a bit more drastically?
Yes.
There, the only thing I'd say is, to us, it's a combination of three things, right? It's a combination of industry structure, conduct, and performance, right? What you were talking about is just more performance-oriented, which is, do you see people shaving off their, or getting more aggressive on their cost structures? Also what we're beginning to see is changes in conduct and changes in the way some of the supply side conduct themselves, and there will be changes from the demand side as well. What's beginning to happen a bit on the supply side is that the weaker suppliers, obviously, are in more of a cash crunch situation, right? Where they might have been willing to be more flexible in the past, some of them are less capable of being more flexible, because they don't have the balance sheets to support it.
That, I think, will either lead to a change in industry structure over time or what it will lead to is a situation where the amount of pricing aggression or the amount of pricing competition goes down a bit. Right. Because these guys can't afford longer working capital cycles or thinner margins. I think the industry structure changes that come out post-COVID and industry conduct changes are going to far outweigh industry performance changes. Right. I think that that's gonna play to our advantage because luckily we have a stronger balance sheet, we have more staying power, and we basically are playing a much longer game, right. That is to the first question. To your second question, Kashyap, in terms of whether the strategy is changing, I think, like I said earlier, what we see is that this market will offer up more opportunity.
We just have to be patient and be able to make the right calls when it comes to that opportunity and how we capture it. I just think it's coming back to a question of the level of just how calm we can be and make sure that we make the right choices when we pick what we go after.
Sure. Okay.
Yeah. Hope that answers.
Thanks.
Thank you.
Thank you. We will take the next question from the line of Abhishek Ghosh from DSP Mutual Fund. Please go ahead.
Yeah, hi, sir. Thank you for the opportunity. Sir, just continuing with the earlier point that you mentioned, that there are changes that you're seeing in the way the business is being done. Now, a couple of other sector players tell us that suddenly a lot of the businesses had turned into cash, whatever earlier you were having, channel financing, other things. Suddenly the entire channel has, or the entire business has turned into cash. Is that you're also seeing in your set of businesses?
Now, when you say on a cash basis, as you know, we deal with very large customers and very large suppliers, right?
For example, our largest buy is steel, right? From the likes of JSW and Tata Steel. Our customers are also very large, right? Like all the two-wheeler, four-wheeler, and CV manufacturers. If you're asking if those guys on either end are moving to cash basis, the answer is no. I don't think that they're moving. I don't know if that answers your question or you had another element to it.
No, I think maybe since yours is more B2B, probably I think that'll be a difficult element to pursue with that kind of business model maybe.
Correct.
Okay. Also, if you look at on a quarter-on-quarter basis, and this question may not be so much relevant on a Y-O-Y basis, we see a deterioration in the gross margin. Is it because of higher proportion of revenue coming in from cycles? The cycle has obviously declined a lot lesser, proportion of cycle business is a lot higher. Is that the reason for the gross margin deterioration?
On the gross margin.
Maybe let me answer that. Yeah, that's one of the reason. That's not the only reason. We need to see this as a portfolio of businesses also. Some of the high margin businesses in the total mix also are yet to show that kind of performance. We should not draw conclusions based on Q1 because it's a truncated quarter and the restricted operations. If you really look at the overall structure of business, nothing has changed in terms of gross margins compared to the earlier years. This is one of the midst of businesses which is playing the role.
Sure. FY 2020 had an employee cost of almost about INR 450 odd crores because of whatever VRS they're implementing. What should it look like? Obviously, there could be lot many changes, but only because of the VRS impact, what can be the employee cost reduction like going forward?
The VRS, only part of it is implemented. The remaining part is yet to come. Like what we mentioned in the earlier calls, we are typically looking at a payback of four to five years for the VRS spending which we are making. You can calculate based on that.
Okay, fair enough. Just one last question. In your annual report, you mentioned that if you look at the industry of cycle, it's almost about 79%-80% of the industry is controlled by top four, five players, and you almost have a 24%-25% market share. Still, the profitability is fairly low. How should we look at that part of the business? Because there are very few businesses where market will deliver 24%-25% market share. Either is a product demand issue or how should one look at it, if you can just help us understand that.
We do believe that there is opportunity to improve the margin in that business. Kalyan Paul, K.K. Paul, and his team have done a great job in actually turning that business around to where it is today. For the first time last quarter, that business has gone to negative net working capital. Let me ask Paul to talk about the opportunities he sees to increase the margin in that business going forward. Paul?
Hello, good morning. Hello?
Yeah, Paul, you're on the line. You can talk.
Yeah. Okay. I think even in the first quarter, I think we have improved our margins over last year first quarter. As we are moving forward, I think we are concentrating on certain specific segments that will allow us to keep our margins, not improve dramatically, because last year we improved a lot, but keep it at that level. We are actually going in for a share gain phenomena over the next two or three quarters because the market, we believe, overall is not going to grow. Hence, therefore, we have to take this opportunity to do that. There will be an overall improvement in terms of what kind of results we will show in the coming quarters. That's distinctly drawn up as far as we are concerned.
Whatever new opportunities that are coming through in terms of exports, et cetera, will allow us to shore up the top line and ensure some stability in the business. That's the way we are going to proceed in the next three quarters. Trust I've answered.
Yes. Thank you so much.
Just to add to what Paul said, I think the first thing is that this used to be a 0% PBT to sales business. Our first step will be to get it to, I would say, like about 6% PBT to sales. Right? I'm talking about PBT, not PBIT. That will be our first step. Just in that step, some of the basic things that have been done is, Paul's done a great job of rationalizing the entire logistics infrastructure. We've eliminated 12 warehouses. We're down to two warehouses across the country now in addition to the factories. We've also done a lot of work in terms of now channel development to basically improve our relationships with the channels. We've done a lot of work on new product development to ensure that our products are very competitive in the market out there.
Fourthly, in terms of looking at both manufacturing and sourcing rationalization to improve the overall margins in the business. We shifted a large chunk of the production up to our northern factory, which is closer to the raw material suppliers. I think that some of these steps have begun to pay off where we've got a higher PBT to sales, like Paul said, than last year. Definitely, there is going to be more headroom for improvement on that, which we will see playing out over the next 12 months or so.
Sure. Thanks. Sir, just one last question. In terms of, we're also hearing a lot on railways in terms of privatization of passenger trains. Is that something that you're looking as an opportunity for you guys from the listing or it's going to be a regular.
Honestly, currently, no, because that's a very different business. We see ourselves much more as an industrials and manufacturing player. That is much more a consumer play. From that perspective, we're not looking at that right now.
Okay. Thank you so much for answering my questions and all the best with it.
Thank you.
Thank you. Our next question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund. Please go ahead.
Yeah.
Hi, Bhagyesh.
Hi.
Sir, regarding the electric scooters and three-wheelers, at least in the two-wheeler, government has become very firm that in next two to three years, at least 2 or 3 million EV two-wheeler should be there. Outside India also, governments have hardened their stance. They are not bothered about whether crude goes down or up, essentially. In view of that, what are the challenges for us? One is the China issue or the Korean components and the Japanese components. How do you see the path forward for next three to five years? What are the initiatives?
Yeah. Bhagyesh, it's a good question. See, first off, we've looked at the space, and we're seeing three-wheelers and two-wheelers quite differently.
Right now we're seeing that there seems to be a massive crowding going on the two-wheeler side.
With almost 35 new entrants. If I say between existing players or 35, I'd say, new companies with products coming out there, right? Whether it's a new company or an existing company with an electric product.
Seem to be a whole plethora of them. Honestly, I think that we are trying to see what is going to happen, how that industry is going to conduct itself in the near term, right?
It's unclear. Basically what we're saying is, in two-wheelers, we are continuing to evaluate how we will go to market.
We're standing back a bit because we see a massive rush right now.
Yes
Much crowding that we don't feel like going in as a 36th player makes sense.
Right. On the three-wheeler side, we're getting a bit more aggressive with our plan.
There, we're doing some development. We're just trying to establish now how long it will take to get a product to market in that space.
We are keen on that space. Right?
Yeah.
We think that the two-wheeler space will go through, first off, massive price competition.
A lot of players will get burned. I don't know if it makes sense at this stage to go into a massively crowded market, though we are evaluating the space and seeing if there are potential empty areas that we can go in and compete. It just looks very crowded right now.
Okay. Three-wheeler, we are more serious now.
Yeah.
It doesn't have too much competition, actually, at the moment.
Correct.
Okay. Yeah. That's a good strategy. Thanks, sir.
Yeah. Thank you, Bhagyesh.
Thank you. Our next question is from the line of Anupam Gupta from IIFL. Please go ahead.
Good morning, sir. Just three questions. Firstly, continuing with Bhagyesh's question, let's say in terms of the market size for you, if we move from the internal combustion engine-based vehicles to electric vehicles across, let's say, two-wheeler, three-wheeler, and four-wheeler, what sort of market size change happens for you in terms of what products you can offer to the OEM?
Yeah, again, we're not looking at offering products to the OEMs, right?
Okay
Being the OEM.
Okay. In that sense, what you're saying, let's say if I take the example of two-wheeler where you say front fork is a large product for you'll keep supplying that to OEMs or will that not be a part of the strategy? Just as an example.
See, the front fork basically, by the way, obviously exists in both an IC two-wheeler and an electric two-wheeler.
Right.
We will continue to obviously supply the front fork to both IC two-wheelers and electric two-wheelers.
Okay. Basically, the way I understand is you're saying whatever the existing portfolio continues, if it has a market in electric vehicles, and along with that, you'll also be wanting to be an OEM in the electric side.
Absolutely. That's correct.
Okay. Understood. In the call, earlier you mentioned change in the conduct of OEMs and suppliers and your peers. One thing if you see, at least on the supplier side to you is that a lot of metal companies, even though they are large, they are also focusing a lot on the working capital side. I would assume on the auto OEM side, they will also want to be focused on the working capital and other terms. Are you seeing pressures from those sides or are you able to take advantage of that in terms of getting lower cost of products or lower cost of the items which you buy? What sort of dynamics are you seeing there?
Yeah. Obviously there is more pressure from the OEMs. There always is. Like I said, if you have a stronger balance sheet than your peers, then you're able to handle that better than some of your peers are able to.
Right. Basically what you're saying is, given the pressures, you'll be stronger and maybe take advantage of this effectively. That's what?
Exactly
The key message is.
Correct.
Okay. Thirdly, on acquisitions, so you have highlighted that you are obviously keen on acquisitions in certain products. Let's say if you look at it from the balance sheet perspective, what size of acquisitions, whether single or multiple, would you be comfortable doing, going by the existing balance sheet and the cash flows which you see over the next couple of years?
Yeah. Obviously, we had said that what we would put out there is about three times cash flow, and that would help determine it. Now, obviously, we can't get very deterministic about the size of the acquisition. It'll depend on the opportunity and whether we feel like it's a good opportunity for us to grab or not. That's the indicated range that we have given, I believe, in the past, and we'll continue to stick with that.
Okay. Railways you mentioned obviously needs an acquisition there, which other segments? Let's say engineering will be the key focus. Would it be domestic or whether it will be exports? If you can just elaborate a bit on that.
Yeah. Obviously we like the idea of having a strong domestic base because our fundamental premise is that to be good at exports, it's always useful to have a strong domestic base. Definitely on the engineering side, having a strong domestic base we see as an advantage. If there are any great export, just fully export-based opportunities that come up, in a sense with manufacturing in India, that part we're very clear about. Manufacturing has to be here.
Right.
As long as the manufacturing is here, we will evaluate such opportunities.
Okay, understand that. Thanks a lot for the time, sir. Thank you.
Thank you.
Thank you. Our next question is from the line of Shashank Kanodia from ICICI Securities. Please go ahead.
Yes, sir. Good morning, sir, and thanks for the opportunity. Sir, my question pertain to the bicycle division that we have. Initial news item mentions about bicycle as a segment gaining traction in the world both for fitness as well as social distancing norms. Obviously, this quarter, there was a supply side issue. On the demand side, have we witnessed any green shoots or some initial color on that front?
Yeah, I think that's a great question. Again, I'll turn it over to Paul, who runs that business, to answer because he's got a closer perspective on it, and I'll be happy to supplement if needed. Hello, Paul?
Sir, could you please unmute your line? I guess, Mr. Paul, you have muted your phone. There seems to be no response. Maybe I'll disconnect and call him back, sir.
Okay. I'll take the question, and if Paul joins back in, then he'll answer that. To your question, yes, we are beginning to see more domestic demand. The demand in the month of June was quite strong. We do feel like that demand will sustain coming in for the next couple of months. Our visibility beyond that is a bit tough, but we are seeing a lot of encouragement, where people are looking at this as more of a lifestyle issue and a lot of demand both in slightly more premium bikes and in the high range as well. Yes, we are seeing green shoots there, and it is quite positive.
Okay. Sir, secondly, sometime back, there was also a news item mentioning Atlas Cycles closing their shop. Is it a permanent thing, and does it give us some meaningful gains?
Yeah. Definitely, they are pretty much out of the market right now. Whether it's permanent or not, we can't tell, but they're out of the market right now. That is definitely helping us increase share. Basically, there are a couple of people who are benefiting from it, and we are one of them.
Okay. Sir, were they mentioned more on the institutional side or more on the premium cycles front?
They were there on institution. I think basically, where it's helping is on the trade. On the trade side, there's a standard, which is where Atlas was larger, so it's definitely helping us there. Atlas was smaller on the specials. There's some benefit on the specials, but more of it is on the standard.
Okay. Sir, lastly, on the overall business perspective, if you could share your share of revenues between auto and non-auto, and within auto, if you can share some segmental between two-wheelers, PV, and CV segments?
Broadly, we've indicated these numbers in the past. Mahendra, do you want to just give broad indications on these?
Yeah. Q1 may give a misleading picture, but generally, if you see the full year of last year, it was about 60% auto and 40% non-auto.
Okay. Sir, within auto, how much between two-wheelers, PV or probably CV segments?
More or less 50/50, you can say.
50% two-wheelers and 50% CV.
Two wheelers and 50% four-wheelers.
Four-wheelers. Right. Sir, within two-wheelers, we do supply to the likes of Hero and Bajaj, right? Or we are more towards CVs?
Yeah. Our products go into almost every two-wheeler.
Okay.
We supply to many OEMs.
Thanks. Thank you, sir. Wish you all the best.
Thank you. Before we take our next question, we would like to remind participants to ask a question, you may enter star and one. We would also request participants to please limit their question to one per party. Time permitting, you may come back in the queue for a follow-up question. Our next question is from the line of Nemish Shah from Emkay Investment Managers. Please go ahead.
Yes, sir. Thanks for the opportunity. Just a couple of questions, data point questions. What was the export mix for the quarter?
Mahendra?
Sorry, what was the question?
Export mix for the quarter.
Yeah. Export mix. Okay, one minute.
Okay, we'll look at that. What's the next question?
Yeah. On an FY 2020 basis, if you can share what was the mix of railways for the full year or number?
Railways is very small. Actually, we don't release this specific data, but I would say it's maybe five. Yeah, somewhere within 5% and 10% of the overall, 5% and 7% of the overall.
Exports were about 14% during Q1.
Okay. Sir, one last question is, sir, the new products that you are planning to launch, are they on track or is there some delay on that front?
Sorry, I couldn't hear what you said.
Mr. Shah, your voice is breaking up, sir. If you're on a handset, could you please switch it to handset?
Hello, can you hear me now?
Yeah.
Yeah, sir. I was asking in terms of new products, are they on track or is there some delay in terms of the launch?
There have been delays, especially like, for example, for the lens business, we haven't been able to get it fully up because of the challenges we've been having. The equipment is coming in from Korea and though the equipment is here, it's been a problem getting their experts to install it because they're all Korean. Things like that have been delaying some of the products. I would say most of it is seeing at least a three to four-month delay as a result of this.
Okay, sir. That's it from my end. Thank you and all the best.
Thank you.
Thank you. Our next question is from the line of Darshan Engineer from Alchemy Capital. Please go ahead.
Yeah. Good morning, sir. This is Darshan here. Sir, I wanted to know one bookkeeping question from FY 2020. The export of diameter tubes, what would have been the degrowth in FY 2020?
For large dia tubes, you're saying?
Yes.
Okay. Mukesh, do you want to take that?
Yeah. Large diameter tubes basically is associated with the commercial vehicle, and like you witnessed, maybe commercial vehicles were down close to about 35% last year. We have seen similar kind of downturn in our numbers also.
Okay. Also, sir, going ahead, what kind of growth outlook do we expect for this particular line of segment, considering that there were trade restrictions imposed by U.S., and anti-dumping duties on this diameter tubes?
Irrespective of that, what has happened, you rightly said that maybe U.S. has put some anti-dumping duties and all these things. We started this work maybe around two, three years back itself to develop alternate market, and we are progressing well to what is the alternate markets, in case this U.S. anti-dumping is not working it out. We are well prepared to handle that.
Okay. sir, secondly, on this new business initiative, like TMT bars and the truck bodybuilding business, my longer-term structural question is that, why do we plan to enter into these businesses? This is because these are fairly commoditized businesses, I would say, therefore, what would be our right to win in this particular two business lines? Therefore generate this 20% + ROCs in this kind of businesses also.
Yeah. Obviously, the answers are different. See, truck body, for example, it is a commoditized play today, but it's a play that we see shifting significantly from unorganized to organized. The average truck body guy makes three bodies a month, right? The quality is very suspect. We're already seeing that a lot of these guys now are shutting shop because it's just a tough working capital business, and it's not ideal to be in the unorganized state that it's in. We believe that India is going to have a shift to quality, and some of these unorganized businesses will shift to more organized. That's where we basically see the opportunity in both truck. First, definitely much more in truck, and I think the truck is less of a commoditized play than TMT.
Even in the TMT space, basically what happens is that it's pretty much an unorganized business today, and there are huge premiums associated with the brand, right? When you call TMT bars commoditized, you should also see that there's almost like more than a 15% spread between pricing. In some cases, more than 20% spread between pricing of like Tata, JSW TMT bars and other TMT bars. There definitely is value for a brand. We don't see the space as commoditized as it's kind of sometimes made out to be.
Okay. Sorry, one last question. We can expect that similar level of ROCs in these two businesses also in a steady state environment?
That is correct, right? Because we're very conscious as to how much capital we employ in those businesses as well.
Okay. Sir, one last question from my side. You have done a great work in terms of improving gross margins and reducing working capital cycle across all businesses. At the same time, we are planning to enter into railways in a big way, as well as enter into some of this other business lines, which again, I would say, railways we know, because it's government-oriented, the working capital cycle would be quite elongated. How do we plan to resolve this dichotomy? On one hand, we want to reduce and improve our ROCs and everything, and on the other hand, despite being a very strong, lucrative business, the capital employed in such businesses are quite high.
Yeah.
What are your thoughts on resolving this dichotomy?
Honestly, this is the mixed challenge that you've got to constantly keep juggling. Somebody asked a question on cycles, saying, "Hey, listen, how will you make 10% PBT to sales?" It's a valid question. Cycles now have got a negative net working capital. Some other business might help push PBT to sales up, but might take a bit more working capital. Basically what I'm explaining is that this is the constant portfolio decisions that basically, as a management committee, we need to constantly make to play these trade-offs. To ensure that if we take all of our businesses as government business, obviously that will kill us. All I'm saying is that this balance is the constant portfolio balance that the management committee continuously needs to evolve and ensure that we are delivering the right results to you, our owners.
Thank you. We'll take the next question from the line of Ashutosh Tiwari from Equirus. Please go ahead.
Yeah, hello sir. Sir, we had a CapEx plan of almost INR 200 crore in this year, and a large part on the new product. Is that intact or in the current scenario, we cut back on the CapEx plan?
There are a couple of components that are intact, like there's an adverse BYD mill for the engineering business that's intact. We'd also talked about a particular kind of stressed asset that was available in China that we were evaluating. Now we can't push forward with that right now. We're just evaluating the geopolitical situation as well, because we don't feel like it's the right time to do some of those things. I'd say there are chunks of it that are still intact, but some of it is going to depend on the environment. I'd say 50% is certain. The other 50% will depend on the environment.
Okay. Sir, secondly, we talked about that tubular product for export market on engineering side. Because of the China issue, are you seeing more such opportunities, like say, more opportunity in terms of doing some product in export market, or it is too early to say?
Well, Mukesh, why don't you answer from a tubular products perspective, and then others can give their perspective as well. Perhaps Paul is back on the line.
Like our MD mentioned, particularly whatever CapEx we are investing it in that particular direction. We already started the work with all the OEMs. It is a global product, what we are developing it, and we are in the stage of sample submitting and all those things. Hopefully by the time our CapEx is in place, maybe our customer approvals and all those things should also progress simultaneously, and this is the approach we are following as well.
Are we getting more opportunity or looking at more opportunity in terms of China substitution in export market as well, or domestic?
Yes. Maybe let's say this is looking like a opportunity going forward and maybe we are in touch with, because we have already a good customer base for our exports market, so we are in touch with customers. It looks like to be opportunity, and we are evaluating that and maybe, like you are aware in exports market, maybe it takes time to get the approval cycle and all those things. Those processes have started, and let's see how it goes forward.
Okay.
Thank you. Our next question is from the line of Jigar Shroff from Financial Research. Please go ahead.
Thank you. My questions have been answered.
Thank you. Our next question is from the line of Anand Balakrishnan from Spark Fund. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity.
Hi.
I have two questions. When I look at your numbers of FY 2020, because I think they are more representative than looking at Q1 numbers. What proportion of your metal formed products business is comprised by your auto chain business?
I don't think we gave individual components, but Mahendra, you can give a directional number. What is it, about 1/3 ?
Yeah, we don't give the segmental information, actually.
About 1/3 , to give you
One third. Okay. Fair enough, sir. Will it be again fair to assume that is again split equally between OE and replacement?
Sorry, you said between OEM and?
Replacement.
Replacement.
Yeah, that's fair.
My second question essentially, sir, is again, looking at this number in the context of the thrust on EVs. How do you see the OE piece of your auto chain business? Of course, the replacement piece will continue to remain, but is that something that you see as a business that is being overtaken, the OE piece of your auto chain business?
Yeah, definitely in our planning, we see that will go away.
It will go away? Okay. What is your assessment in terms of timeline by which this will happen?
Yeah, your guess is as good as ours. All I'm saying is that, we're not going to put more capital into that business because we see it going away.
Okay.
We'll have to keep looking at it and seeing how it evolves over time, but it's not going to take our capital investment.
There is some distinction between drive chains and cam chains. Cam chains will first go away. Drive chains are expected to continue.
Okay. No, that's it, sir. Thanks for your time.
Thank you. Our next question is from the line of Sreemant Dudhoria from Unifi Capital. Please go ahead.
Good morning. Thanks for the opportunity. Sir, few questions. Firstly, you highlighted about the three-year growth opportunity in the seating solutions business yesterday in the AGM. Just wanted to understand how big could be this by-
What solution?
The seating solutions.
Oh, you mean tubular?
Oh, seats. You're talking about-.
We were highlighting in the annual report.
Fine blanking. Okay. Recliners and stuff. Okay.
Yeah. You talked about the growth in this business from a three-year perspective. Just want to know on an absolute basis, could this be a big opportunity?
Yeah. Obviously, we see it as a big opportunity. In that business, we see that as the biggest growth line.
Okay. Secondly, what kind of asset turns we are looking from our investment in the bus body building solutions, in the truck body building solutions?
There, it's not asset-intensive. I think you had asked the question earlier yesterday, and I said the total capital outlay will not exceed INR 9 crores.
Yeah.
Basically, obviously, the asset turns are very high from that perspective. Fixed asset turns, at least.
Okay.
We believe that we can turn around a lot from that, because it's not dependent on just these four locations. We also use partners to help build the bodies for us.
Right. Okay, sure. Thank you.
Thank you.
Thank you. Our next question is from the line of Anupam Gupta from IIFL. Please go ahead.
Thanks for the follow-up, sir. Exports has seen significant growth for you except maybe last year. Let's say, in terms of, can you give me some idea on what is the sort of OEM addition which you have seen over the years, and in terms of your development team which you have put in, how has that expanded to grow the export business?
Mukesh, do you want to take that for tubes and then.
Yeah, on export side, maybe like we discussed in the previous call, we see that maybe, let's say, opportunities also coming from the China, let's say, alternate solution also. Also maybe we are working since last two years with the selected OEMs, maybe to take our exports growth forward. In fact, maybe, let's say, day before yesterday itself, we have signed one, maybe, let's say, contract for, let's say, exports to China and all these things, which is going to give a good growth to us in the coming quarters.
Okay. In terms of OEMs, what sort of addition, if you can, let's say, if you put it in a number sort of way, what sort of customer addition we have seen over the years?
Actually, maybe, let's say, the concept remains same only. Maybe, let's say, we are, because in India also, we are strong in the supplies to the automobile market. Maybe, let's say, here, maybe the concept is we are going to supply to the auto OEMs Tier 1s. Like maybe, let's say, something to do with propeller shafts, something to do with steering systems, something to do with tie rods and front forks, even in the South Asian markets. These are our product focus areas.
Okay. Understood. That's all. Thank you very much.
Thank you. We'll take a last question from the line of Rohit Ohri from Progressive Shares. Please go ahead. Mr. Rohit Ohri, please go ahead with your question.
Yes, can you hear me now?
Yeah.
These questions are related to Shanthi Gears. We seldom talk about them. If you can just give a broad outline as to what is the order book for Shanthi Gears, the CapEx in terms of growth CapEx that they have done. New products, if Shanthi is launching any, because I read somewhere that they're looking at some robotic processing as well. I know the exports of Shanthi Gears should be around 4% or 5%, is what I remember from the previous con calls. In the next three years down the line, what do you think that Shanthi can take the exports to? The parent company, TI, also speaks about sales and services. If I'm not wrong, Shanthi Gears can play a very major role over here. If you can just.
Sorry, parent company said about, talked about?
The sales and services, after-sales, aftermarket.
Aftermarket.
Yeah.
The aftermarket for the parent company is predominantly in the auto chain area.
Okay.
Whereas Shanthi's applications are mainly industrial.
Okay.
Their service business, which is a growth area for Shanthi, doesn't help too much the aftermarket chain business.
Okay.
Aftermarket chain is predominantly talking about auto chain, like two-wheelers and stuff like that.
Okay.
That was your first. Your second questions were the CapEx for Shanthi, I believe it is in the range of about INR 15-20 crores. INR 20 crores is my guess. You had a couple of other questions on Shanthi, right? Sorry.
These are the growth CapEx, would be what, and what would be the maintenance CapEx out of these INR 15 crore-INR 20 crore?
It's all growth CapEx really.
Okay. I was asking about the order backlog and the new products in terms of the robotic processing that they were working on.
I don't know if we've talked about it in public. See, basically, we're constantly evaluating new products, and so we are looking at things in the robotic space, but they're fairly complex gears to produce.
Okay.
It is still very early in the evaluation stage.
Okay, the export expectations from next three years or so?
Yeah. We're trying to push that number up, and like you said, it's about 5%-7% right now. We're trying to push that number up to double digits.
Okay, sir. That would be great. Thank you. Thanks a lot.
Thank you. Thank you so much.
Thank you. I now hand the floor back to Mr. Kashyap Pujara from Axis Capital for closing comments. Over to you, sir.
Yeah. Thanks everyone for being on the call, and all the best to the management of Tube Investments to continue delivering on investor expectations consistently over the next three to five years.
Thank you, Kashyap.
Thank you very much. Ladies and gentlemen, on behalf of Axis Capital, that concludes this conference. Thank you for joining us.