Good morning. A warm welcome to the 1Q FY 2020 conference call of Tube Investments. First off, our heartiest congratulations to the management team for a stellar set of Q1 results amidst challenging times. Today, from the management team, we have Mr. Vellayan Subbiah, Managing Director, Mr. Mahendra Kumar, CFO. Without further ado, I shall hand over the floor to Mr. Vellayan for his opening remarks, post which we'll open the floor for Q&A. Over to you, sir.
Thanks, Aditya. Thank you. Thanks. Good morning, everybody. Thanks, Aditya, for the kinds. Basically, just want to give you a quick update on the quarter. Overall, we've had a fairly good quarter. The revenue, though, has dropped versus Q1 of last year. That's predominantly been driven because of degrowth in the auto industry. However, in terms of PBT performance, we've still maintained a fairly strong performance. Our PBT before exceptional items stands at INR 107 crores, which is a growth of 36% over the same quarter last year. This is excluding the gain of INR 19 crores. Basically, we had a gain of INR 19 crores because we surrendered Shanthi Gears shares in the buyback, just before Nirmala Sitharaman kind of put in her good buyback tax. Basically, our PBT including the exceptional items, is actually at INR 126 crores. Overall, that performance has been fairly good.
In terms of ROCE, we basically improved to 23% from 18% in the quarter of the previous year. All the numbers, percentages we report are excluding the exceptional items. They don't include the INR 19 crore in additional income from the Shanthi Gears buyback. Our free cash flow to PAT was at 120% for the quarter. TI's revenue for the quarter, like we said, was slightly lower. The PAT basically at a standalone level was at INR 88 crore versus INR 54 crore in the same quarter last year. In terms of the individual businesses, the revenue for engineering was at INR 657 crore versus INR 717 crore. The PBIT for that business was INR 67 crore as against INR 65 crore in the same quarter last year, a growth of 3%. The ROCE for that business is at 40%.
Cycles and accessories had a revenue drop of 23% compared with the same quarter last year. We had lower institutional volumes and kind of degrowth in the trade market as well. However, the PBIT for the quarter was at INR 12 crore. This is again INR 7 crore, and this is basically because some of the cost control measures we started taking in that business. The ROCE was at 22% for that business. Finally, metal form parts. Revenue was at INR 350 crore compared to INR 312 crore in the same quarter last year, a growth of 12%. PBIT at INR 34 crore versus INR 26 crore. We've had growth in both railways, industrial chains, and fine blanking products. The ROCE of that division is at 29%. At a consolidated basis, we basically had INR 1,384 crore in revenue and a PAT of INR 79 crore.
Shanthi Gears basically had a revenue of INR 72 crore versus INR 62 crore in the same quarter last year. Our PAT at Shanthi was at INR 9.5 crore versus INR 8.5 crore. I will stop with that and turn it over to you for questions and any discussions.
Thank you.
Thank you.
Should we open the floor for question and answer session?
Yes, absolutely.
Thank you.
Thank you.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder, you may press star and one to ask the question. The first question is from the line of Meet Jain from Prithvi Finmart. Please go ahead.
Good morning, sir.
Good morning.
Congratulations on the good set of numbers. I have a couple of questions. First, regarding the cycle business. Our revenue has gone down by 23% and our profitability has improved. Going forward, our main focus will be on cost rationalization or to increase our revenue first?
Yeah. Sorry, Meet, which organization are you with?
Prithvi Finmart.
Oh, Prithvi. Okay. Yeah. Meet, thanks for the question. Definitely the focus is not going to be on significant revenue increase because basically the market is not growing at a very fast rate. If we get into a revenue increase game, basically it'll end up being a bit of a price war, and that's kind of not our interest. basically, our focus is just going to be on maintaining good profitability or getting to good profitability in that business.
As you mentioned the last con call that we are developing more suppliers from forged and less from the outside market, mostly from China. That part has been looked into this quarter. Have we got more suppliers for our steels for our cycle business?
No. That is not for the cycle business. The suppliers discussion that we had last quarter was around steel suppliers.
Right.
That is for the tubes business, the PPI.
Okay.
Yeah. It's not for the cycles business.
Okay. On the engineering business, the auto sectors are not doing well right now. What is your take on this outlook regarding the auto sector?
I always, my standard response to this is there's no point in me giving an outlook. My outlook has about a 50% chance of being right. You might as well flip a coin and decide what the next quarter is going to look like, because we have no idea. I don't think anybody has any idea. Everybody is just flipping coins. Our focus is, if the market, if we're not at the peak of our demand, our focus is basically on how we can improve internal performance. Our focus now is turning more towards how we improve on productivity and quality. When the market picks up, we'll be ready to take and kind of grow with it whenever it does. I have no prediction as to when it's going to turn around or what is going to happen to it.
Okay. Great.
I don't think there's any point in any prediction.
Right. On the large diameter pipes, can you tell me the volume sales and growth?
I don't know how we're doing the questions in the queue, but usually what we do is one question, and then it goes back into the queue.
Okay.
I don't know, the moderator is kind of how we're doing it.
Sure. No problem.
You can come back into the queue, Meet, and ask the question. We'll be happy to answer.
Sure.
Thank you very much. A reminder to all the participants, you may press star and one to ask the question. The next question is from the line of Shalu Asija from Invest Researcher. Please go ahead.
Hello. Good morning.
Hi, Shalu. Yeah. Morning.
Thank you for taking my question. Sir, I want to know the debt position as of today, after this quarter, what is the debt position?
Net debt is at about INR 387 crores.
INR 300 and?
INR 87 crores. Net debt.
Okay.
Net debt. Okay? Basically, we're kind of offsetting. We have some NCDs, which we can't pay back. We are offsetting that with the investments we have. Net debt is at INR 387.
Five actually. Okay, sir. What is the CapEx during this year? What will be the CapEx?
The planned CapEx, I think will be in the range of about between INR 250 and INR 290 crores.
It will be dividing which segment or it is total?
That's the total CapEx.
Okay. Thank you.
Thank you.
Thank you. A reminder to all the participants, please restrict one question per participant. The next question is from the line of Niket Shah from Motilal Oswal Securities. Please go ahead.
Hi, this is Niket here from Motilal Oswal Asset Management. I have just one question. Just wanted to understand in this quarter, the margin expansion that we've seen in some of the businesses. How much role has the product mix to do with that? Because I presume in certain businesses, like automotive chains, we have slightly lower margin, and in fact, closer to one or two % kind of margin. If that would have de-grown, automatically the margin profile would have looked slightly better. Just a sense on mix versus the margin.
Yeah, you are right. Obviously, there is some effect of mix. Basically, there are a couple of businesses where we're trying to focus on a higher mix profile in general, and that includes both the fine blanking business and the auto chains business as well. The big challenge on the tubes business, this quarter, we've done a good job of basically keeping the mix at a fairly profitable situation. There, there is pricing pressure as everybody has supply available. In general, I would say, there's obviously three factors that have driven performance for the quarter. It's been a combination of mix, some of the costs and the productivity actions that we've taken, and the third is being able to manage our sourcing fairly effectively so that we didn't have to take hits at that end.
Sure. If I may squeeze one more question. If you can just highlight some of the new initiatives or new businesses that you plan to do in an asset-light model, how have those started? If you can just highlight a few of them that you would like to get into, that'll be very helpful. Thanks.
Yeah. I think the two businesses that we've talked about and kind of have launched, one has been the TMT business, where we've got into TMT bars. The second business is the truck body business. I always get questions on these new businesses. What you have to realize is you have to think of them as startups. I don't want to get into the habit of saying every quarter, what has the performance been? We have to give these things a little while to grow up. They're tracking, and what we will likely do is, when we're ready to discuss them performance-wise, we will get back to you, but we don't want to start getting into discussing those businesses and growth in those businesses quarter on quarter.
The one area we've started to look at, obviously, because everybody's looking at it, is the whole space of electric and what we can do there. It's still early days for us, so once we evolve something there, we'll discuss it with you as well.
Great. Thank you so much. I'll come back.
Thank you.
Thank you.
The next question is from the line of Sagar Parekh from Deep Finance. Please go ahead.
Yeah. Good morning, sir. Congratulations for incredible numbers in challenging times.
Thank you.
Firstly, the cycle business, the margins have improved from 2% to 4%. Just wanted to get a sense from you as to how much. In spite of decline in top line, you grew so well in margins. In terms of sustainability of these margins going forward, are they sustainable or there was an element of one-off?
No, it's definitely sustainable in our minds.
Okay. 4%-5% EBIT margins is definitely sustainable in spite of this kind of top-line run rate going forward as well.
Yes.
Okay. Secondly, on this electric vehicles, you mentioned that you're looking at it closely now in terms of new businesses, but is there, apart from, let's say, auto chains, in our old businesses, is there any risk to any of our products going forward if electric vehicle kick-starts?
No, the predominant thing is auto chains, and besides the auto chains, all of the other businesses are fairly safe in an electric world.
Sure. How big is auto chains as a percentage of our total sales?
We don't discuss that as segmental revenue. Obviously, the overall, first off, the OE and the aftermarket businesses will behave very differently there because the install base is fairly huge. The aftermarket is growing at a fairly good clip.
Okay.
If anything, depending on the rate of penetration, the OE business is what will get hit. The OE business in auto chains is less than, I'd say, it's definitely less than 10% of our overall revenue, but perhaps a bit less than that as well.
Got it. You mentioned about this pricing pressure seen in tubes business because of, obviously, the industry not doing well. Any risk to our margins going forward because of this?
Like I said, what the market kind of presents going forward, nobody knows right now, right?
Right.
A lot of people are saying second half is going to get better. Now people are saying second half is not going to get better. Honestly, that is not what we're getting into, right? All we're saying is if there's pricing pressure, then I've got to do something to basically ensure that we deliver you PBT growth, right? The only thing you can do is improve on the productivity side, improve on the quality side, improve sourcing, improve all the other things if we are under pricing pressure. We have to be ready to do both. We have to be ready to take growth when growth is available, and we have to be ready to basically manage and improve our margins if growth is not available. That's really how we're trying to shift focus internally. Will we get it perfectly the first time around?
Probably not. We are trying to learn that and practice that in everything we do.
Sure, sir. Great and all the best going forward.
Thank you. Thank you so much.
Thank you very much. A reminder to all the participants, you may press star and one to ask the question. The next question is from the line of Mr. Aditya Bagul from Axis Capital. Please go ahead.
Thank you. Mr. Vellayan, just a couple of questions from my end. Firstly, broadly on the auto sector and our key customers. Almost 50% of our total revenues come from or are somewhere linked to the auto sector. Have the initial conversations begun with regards to BS6 implementations, and what all changes could we implement to ensure that we gain there? That's question number 1. Question number 2 is, sir, if you can talk a little on the export opportunities and how the export segment has performed in the engineering segment, both from a European and the Asian context. Thank you.
Yeah. I think if you think of first BS6, right? There are two sets. Obviously, BS6, most guys are readying for April 2020, and we've been working. In a lot of cases, our key components, like the front fork tubes, are not seeing significant change in that product. A lot of it tends to be in the drivetrain and other components that are changing. There's less impact there for us. The other area, obviously, is if we look at, you were asking in terms of export, and sorry, Aditya, I missed the question. In terms of export, you're saying is that an opportunity? Is that your question, or?
No. What I was wondering is the last few quarters, we've seen a healthy growth in exports.
Yeah.
Just wanted to get your view on how we are looking at this, both from a European point of view, where we have some key customers, and last quarter you talked about some customers in Asia as well.
Yeah. Definitely exports is still our biggest focus area. We have to start developing new products that we can start exporting, both in the tubes business and in the chains business, and in our fine blanking business as well. All of the businesses have a huge export thrust, and that's what we're putting significant effort against, both on product development, because that's the first thing. Though it won't result in immediate kind of growth, we're starting with product development so that we can then get sustainable growth in the future. And like I said, in the Asia market, we've had good penetration, because the two-wheeler penetration is there in Asia as well. We're also pushing heavily into Europe. Both of those thrusts continue, and I would say that that's by far the biggest focus right now for the company.
Sure, sir. If I may just squeeze in one more question. Can you share some outlook in terms of what is happening with the railway segment in the metal form?
Railways is doing very well, actually. We're seeing a lot of good growth on that segment. It looks like, with the new regime, or should I say the continuing regime, they've really kind of come back and really want to push that business at a very rapid pace. We're quite bullish on that business and the growth opportunities it presents. It has been doing quite well for us the last quarter, and we think that this will sustain. As a matter of fact, basically, one of the biggest things that have helped offset and helped us grow from a growth perspective has been improved performance from railways and industrial chains, fine blanking, and all of the non-auto businesses that we have. We're definitely looking at seeing how we can start growing those businesses more aggressively.
Great, sir. That's very helpful. Best of luck.
Thanks, Aditya. Thank you so much.
Thank you. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund. Please go ahead.
Hello, sir. A very good morning, and congratulations on excellent performance during the quarter, despite very challenging circumstances. Sir, on the metal forming division, we have seen growth this quarter, despite, I would presume the OE chains on the auto side should have seen a strong decline. Which sub-segments, you did talk about railways. Other than that, on the door frames business also, has there been a good pickup from Hyundai? If you can just give some color on the sub-segments that have driven this growth.
Yeah. There are basically three sub-segments, actually, that have contributed the largest. Like I told you in the note, it's been railways, industrial chains, and fine blanking. Industrial chains is growing significantly both domestically and overseas. We see that as a continuing good opportunity going forward. Fine blanking, we're getting more customers, and our existing customers are growing very well with us. That's seen significant growth compared to last year as well. Honestly, those three are the three largest growth areas in metal forming. Hyundai has always been consistent with us, as have been our other door frame customers. That business continues, and it's a very good relationship that we would like to continue to develop as things go forward.
Right. Sir, on the industrial chains business, just continuing on the prior thing. On the industrial chain business, are you seeing good growth because of better utilization at the factories? What is contributing to this, sir?
It's new product.
Aftermarket.
It's new products.
Okay.
There are all kinds of new products in that business that are growing fairly well.
Okay. This will largely be aftermarket. Yes, sir?
No, it depends on the kind of application. It can be OEM as well.
Okay.
Some of them are OEM applications, and some of them are aftermarket.
Okay. Understood, sir. Sir, broadly on the aftermarket business between industrial and auto, you did mention auto continues to grow well, but if you can just give some numbers. Is it like 10%-12% growth on the aftermarket chains business of both auto and industrial?
Let me check. We'll try and see if we can get you growth numbers. Yeah, you just give us a minute. We'll check.
Sure, sir.
Yeah, in combination it'll be 10%.
Okay. Industrial would have grown better. Is that a better way?
Okay. We won't get to that level of granularity.
Okay. No problem, sir.
Thank you.
Sir, on fine blanking side also, auto constitutes a good portion of that business. You did mention that that business has seen good growth. Is it new customer addition or new products that have contributed to the growth, sir?
Yeah, it's been both. Obviously we have got new products and new customers, and like I said, there's also growth with our existing products and customers, because some of it, though, is dependent on auto domestically, some of it is also dependent on auto exports.
We also created additional capacity recently. That's also in here.
Okay. Understood, sir.
Sorry to interrupt you.
Yeah, I'll come back to the question.
Thank you. A reminder to all the participants, please restrict to questions per participant. The next question is from the line of Abhishek Ghosh from DSP Mutual Fund. Please go ahead.
Yeah, hi. Thanks for the opportunity, sir. Sir, just wanted to understand one thing, how are you looking at your CapEx, given the overall slowdown and other things? Is there any rationalization into that?
No, I think always it is an overall slowdown, that's the right time to spend.
Our plan for the year, Abhishek, we will stay intact. Like I guided, it will be somewhere between INR 250 and INR 290. I don't think we'll slow that down because I honestly feel kind of where it's focused, right? There's an earlier question on auto chains and stuff like that, right?
It's not like we're spending capacity. We're not putting new capacity in the ground in auto chains and things like that, right?
Basically, our focus has been on how we can get into businesses that are, in our minds, going to grow with us in the future. Right?
Sure.
Those businesses we want to invest in, so we won't slow down on those businesses in terms of investment.
Okay. In the metal form division, fourth quarter, we had seen some amount of margin drop, and again, we are kind of growing back. It's a function of repricing with OEMs, or it's a function of more of aftermarket coming through. How should we look at it?
Let me-
It's actually the mix of segments also.
Okay.
The mix of segments is differing this time. Some of these growth segments, like our MDS plant, they have started growing well in the current quarter.
Okay. Just one thing, everybody's been talking about adversities because of auto and other things, but I think adversity also at times bring in a lot of opportunities. From your segment, particularly maybe from engineering because of lighter tubes and other things, do you think EV can also come out as an opportunity for you guys?
Definitely, yeah. I think there's no shortage of opportunities right now. Definitely, I think EV is an opportunity.
Okay.
A huge opportunity.
Sure. If you can just lastly help me with the exports growth for the quarter.
We'll get you that number.
On the whole, it was about 24%.
Okay. Yeah. Thank you so much, and all the best.
Thank you. The next question is from the line of Chetan Ginoria from Alpha Kurian Advisors. Please go ahead.
Hello, sir. Just one question. I wanted to ask what has led to the decline in our other expenses, or our other expenses have declined both in absolute terms, both compared to the June 2018 quarter and the previous quarter. What is the factor that has led to this decline? Thank you.
Basically, that is part of the focus we've also had on cost reduction. Both manpower costs and fixed costs have come down. Our logistics costs as well. We talked about some of those initiatives we were driving last time. Those three have all begun to kick in, and we have managed some of our manpower costs as well.
Okay. Is this likely to be the trend rate going ahead? Like this cost savings, we'll keep having-
Yeah.
Okay.
Yes, it is.
Chetan, do you have any follow-up question?
No.
Thank you. The next question is from the line of Agastya Dave from CAO Capital. Please go ahead.
Thank you for the opportunity, sir, and congratulations. Sir, most of my questions have been answered. I had one broad question. In autos and in railways, can you describe a bit about the range of products you already have and what you plan on introducing? Sir, to the extent you are comfortable. I just need to understand what are the sensitivities we have to, let's say, OEM sales versus aftermarket, and also two-wheelers, four-wheelers series, and off-highway vehicles, and also a similar breakup in railways. If you're not comfortable sharing the actual product range, if you could give some indications how you are, I mean, where you are aligned more, comparatively, in which vertical?
Yeah, obviously that's fairly granular. I think to give you a broad sense, in auto chains, we do drive chains and cam chains, then we do industrial chains. The industrial chains obviously has nothing to do with the auto business. On the tube side, one business is a tubular front fork business, which goes into two-wheelers. There are a lot of other businesses in tubes
Report our annual report also.
Yeah. Actually, our annual report has a pretty decent listing of what you're talking about. I think that's probably the best source versus me go through it on the call.
I was more thinking about quantification, but perfect, sir. I'll just stick with that.
We won't quantify that.
Okay.
We won't quantify that for now.
Okay. Sir, for railways, any new areas that you're looking to enter? You sounded positive on it, any other expansion?
Definitely, we're doing more and more product. Previously, we were focused just on ICF here. We set up a new facility that is close to MCF in Bareilly, and we started supplying them, and that facility just started off in this quarter. We feel fairly bullish about that facility continuing to scale as well.
Okay. Sir, thank you very much.
We're also supplying components for the metro business now, and that's beginning to pick up well too.
Okay. Sir, if I can squeeze one last question. Sir, last quarter you were mentioning something about a target growth rate of around 17% for this year. Obviously, it is not under your control because external environment is so bad. I agree it is unpredictable. Sir, you also guided towards a pathway towards 10% margins. Is that dependent on volumes more or value more? Can you throw some light there? As you said, your cost-saving exercises won't stop. Your new product addition exercises won't stop. Your CapEx is clearly not stopping. How much of that 10% right path is at risk, if at all?
Yeah. I think I've articulated this. We talked about it a bit on the last call as well. Broadly, the point is this, like you yourself articulated, some of the sales growth will be in our control, some of the sales growth will not be in our control. Right? We can launch new businesses, and we do believe that between the new businesses and growth in the existing businesses, we can hit those growth rates. Clearly, it is dependent on markets, right? What we are first focused on is kind of delivering year-on-year profitability growth. Right? Our profit, our bottom line has to grow year-on-year. That plan is intact. Right? That plan has to happen whether the market grows or the market doesn't grow. Right?
I've always articulated that in the in-years, that means for the next couple of years, we're going to get more of a kicker from improving our PBT to sales margin. In the out years, we'll get more of a kicker from increasing our sales. That thesis remains intact, and that's what we're focused on.
Perfect, sir. Thank you very much, sir. Thank you for your time, sir. Congratulations.
Thank you.
Thank you.
Thanks again.
Thank you. The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thanks again for the opportunity. Sir, on the export side, we are continuing to see very good growth. If you can highlight some of the drivers that are leading to this? I understand it is mostly from the engineering side, the tubes business. If you can just elaborate on the export strategy that you're following now, and where do we want to be in terms of an export perspective?
Like I said, our first target is, definitely our intent over time is to bring exports to kind of north of 30% of sales, but that will take a while given that exports are so small for us right now. Right? The two businesses right now that we export in are our engineering business and our industrial chains business. Both have seen good growth compared to the last year. Both we're heavily investing in exports, and like I told you earlier, a lot of that investment is going into new kinds of products that we're developing. Right? These are products that we've never done before, but which are large globally, but not so present in India.
There are lots of applications in both industrial chains and engineering, we're investing significantly in that product development because we know that there are some products out there that are like tubular front fork, for example, on a global basis. Our intent really is to get into products like that and kind of try and get a global market share that's similar to what we have in some of these products in India. Our belief is that we will be able to get there, so that's why we're investing in the product development. Every year, ideally, we like to see kind of north of this 24% growth. Part of the reason for the 24% growth only in exports this year is because the exports markets are also down. We think that this will pick up as we go forward.
Right, sir. On the export side, are we displacing local suppliers, or how does it work, sir? I would presume anyway there will be a good pricing differential. Are we displacing local suppliers there, and is that reason how we are growing and gaining share of business?
Yes. It is. The Chinese are there, but luckily for us, the Chinese are not there in these two spaces as much. When we get to the smaller chains, the Chinese are there, but the larger industrial chains, we don't see the Chinese as much. Similarly, in our engineering business, we don't see the Chinese as much.
Right, sir. Do we have a separate business development team in terms of the-
Yeah
Our organization structure, we have a separate team that looks after this?
Yeah, it's a whole different business unit. I think, Shyam, like I discussed the last time, we've broken down into 18 business units. Exports is a separate business unit. They have an office in Belgium for Europe. We cover Asia, basically it's a separate BU that's only 100% focused on that.
Okay, understood, sir. Sir, if I may squeeze one more question on the utilization front between capacity utilization across the different business units, some broad ballpark numbers if you can please share?
Yeah. We've got enough capacity right now. That's not the challenge in this year.
Correct. No, I understand, sir.
Yeah. There's enough headroom there.
No, I'm not saying capacity constraints, sir. I would presume there would have been a fall in the utilization levels. How is it between the change?
70%-75%.
On the chains business?
Yeah, and engineering.
Okay. Understood. Thank you.
Thank you.
A reminder to all the participants, you may press star and one to ask the question. The next question is from the line of Raghavi from BNK Securities. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, I've got just one question. Out of the 220 basis points gross margin expansion in the current quarter, how much of the portion is sustainable going forward, sir? In the sense, how much you have got from the steel price decrease, and what is the sustainable portion?
First off, we don't discuss at that level of granularity. I think in our minds, we have to sustain at least this much, right? If your question is, are we going to be able to sustain into the next quarter? In our minds, we have to. I think there are too many factors that move every quarter to talk about what is sustainable and what is not, right? What you have to be able to do is be able to sustain a bottom-line growth number, which is what we're focused on now.
Okay, sir. Yeah. Thanks.
Thank you.
Thank you. The next question is from the line of Jigar Shroff from Financial Research Technologies Private Limited. Please go ahead.
Congratulations, sir, on an excellent set of numbers.
Thank you.
Would you like to shed some light on another new division, sir, that you're looking at the automotive vision and other vision systems, sir?
Yeah, like we said, we started construction of that facility. It's going to take at least till the end of the year to get that facility up. We started construction.
Got it. It'll reflect more so in FY 2021, and maybe you'll throw some light in the quarters going ahead, sir, regarding the opportunity, et cetera?
Absolutely. First let's start making something and selling something, and then we can talk about it.
Okay, sir. Thank you so much. All the best.
Thank you.
Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Aditya Bagul for closing comments.
Thank you. A big thank you to the management team for taking the time out. Mr. Velan, just one question from my end, if I may.
You've talked about some inorganic growth, maybe in distant future. Can you maybe discuss some key attributes of the targets that you might have? What is it that you would look for in a key target?
Yeah, that's a good question. See, basically what we said is first we have to bring down our leverage. We're not fully de-leveraged yet. We are at INR 387 crore and net working capital is about INR 325. First we have to bring down our leverage to under net working capital. Once we're there, then, and by the way, kind of in general, we've been opportunistically just looking around. What I think will make sense is distressed deals that offer kind of a turnaround opportunity. One of the things we feel we are decent at is taking an entity and improving its profitability. If we have a strong balance sheet, then we'll basically take a look at distressed deals where we can improve its profitability. That is one segment.
Then obviously the second segment is something that can offer us the opportunity to get into export markets or markets that fit the criterion we talked about earlier. Which is B2C versus B2B, exports, import substitution, and fairly asset light. In both ways, it's not like we're in any rush. I've always said, it's like you guys in investing. You have to be patient, and we are patient, but if a good distressed opportunity or something else like that presents itself, we're definitely open to it.
Great, sir. On behalf of Axis Capital, thank you for taking the time out, sir. Would you have some closing comments?
No, Aditya, I think that's great. Like we've always articulated, our focus is going to be on how we continue to improve the bottom line for this company. We have to show that we can compound profit growth on an ongoing basis. That thesis for us remains as intact as ever, and we continue to remain very confident about being able to deliver that thesis to the markets as we go forward.
Great, sir. Thank you so much.
Thanks, Aditya. Thanks so much for having us.
Thank you very much.