Action Construction Equipment Limited (ACE) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon, and welcome to Q4 FY '21 Earnings Action Construction Equipment Limited Call organized by Batlivala & Karani Securities India Pvt. Ltd. [Operator Instructions] Please note that this conference is recorded. I would now like to turn the conference over to Mr. Kunal Sheth. Thank you, and over to you, sir.

Sure. Thank you, Maury, and I would like to welcome the management of Action Construction Equipment on the call, and thank you for giving us this opportunity. From the management, we have Mr. Sorab Agarwal, Executive Director; Mr. Rajan Luthra, Chief Financial Officer; and Mr. Vyom Agarwal, Head, Investor Relations. Now I'll request Sorab, sir, to give us some opening remarks, post which we will open the floor for any Q&A. Over to you, sir.

Yes. Good afternoon, and welcome, everybody, to this earnings conference call for the fourth quarter and financial results for the year ended March '21. I do hope that you and your loved ones are safe and keeping well in these especially trying times. On behalf of ACE, I would like to express our gratitude to all our frontline heroes, who are fighting tirelessly to help keep others safe. I would also like to thank every member of ACE team for their relentless commitment and dedication in these trying times. Along with me in today's earnings call, we have our CFO, Mr. Rajan Luthra; and our Head of Investor Relations, Mr. Vyom Agarwal. I hope you all have had an opportunity to look at the company's financial statements and the earnings presentation, which have been circulated and uploaded at the stock exchanges. Financial year '21 was an extremely challenging year for India. We have [ hence ] adapted and [ considered ] to the global crisis to fortify our balance sheet and deliver a healthy financial performance, which gives me immense pleasure to inform you that the fourth quarter of FY '21 was our best quarterly performance in the history of the company. We registered our highest quarterly numbers, EBITDA and net profit. On a yearly basis, we have achieved our best margins ever at EBITDA and net profit levels. To brief you on the financial performance of the fourth quarter, the operational revenue grew by [ 49.7% ] on a year-on-year basis to INR 467 crores, with an EBITDA margin of 12.4%. The EBITDA during the quarter increased to INR 57.5 crores in comparison to INR 26 crores on a yearly basis, which is a growth of around 121%. The PBT grew by 181% and the net profit grew by 183% year-on-year to INR 51 crores and INR 39 crores, respectively, while the PAT margin stood at 8.4%. Further, I would like to state that although the first quarter FY '21 was a washout, and for the first time ever, we did suffer a quarterly loss in quarter 1 of FY '21, but the company was able to recover well, and thereafter, we were able to generate strong sequential growth with every passing quarter. For the financial year ended March 21, we have been able to grow our revenue by 6% to INR 1,227 crores, with approximately 11% EBITDA, 8.8% PBT and 6.5% PAT margin. We were able to increase our EBITDA from INR 96 crores in FY '20 to INR 135 crores in the last year. Similarly, our PBT increased from INR 68 crores to INR 108 crores, and PAT increased from INR 53 crores to INR 80 crores for the last year. It will not be out of place to mention that owing to certain supply chain constraints, which continued even in the last quarter, we were not able to fully customize our potential of revenue increase and were less wanting for further improvement in top line and bottom line in the last quarter. In FY '21, the company's growth was driven mainly by revival in construction and infrastructure activities in the last 3 quarters. And also, strong growth was witnessed in the industrial and manufacturing sector. We were able to grow our revenue business by around 40% in the last year, with whole year EBITDA margin commissioned at 12%. Similarly, were able to achieve 33% growth in our construction equipment segment, with betterment and stabilization of EBITDA margin; and 23% growth in our material handling segment, with increase in EBITDA margins to more than 12%. Unfortunately, the cranes segment, where our company is the market leader, we did suffer a 4.5% degrowth due to reduction in overall size of our market, owing to a washout during quarter 1 of last year. But our company was able to focus its resilience by maintaining the EBITDA margin above 11% in this segment despite relentless inflationary pressures due to sudden and drastic [ change ] in commodity prices in the last 2 quarters of FY '21. Further, in our pursuit to offer world-class products with center-leading technologies, in the last quarter of FY '21, we introduced new models of tractors and backhoe loaders, especially focused for the export market. In the quarter gone by, we also upgraded and achieved certification for our cranes and construction equipment model to BS-IV CEV emission norms, which was set to have taken from 31st of April 2021. The growth and momentum at the company has started to perform and quarterly to pursue [ term ] in the latter half of April '21, as COVID-19 start again with a more virulent and [ deadlier ] form in the second wave, bringing most parts of the country for [indiscernible]. Most of our lives and companies have been affected in some form by the second wave of COVID-19. The mobility restrictions will, of course, have an impact on economic growth in the short term, and May '21 is yet to be around 60% to 65% slower month as compared to our average period during the last quarter. Unfortunately, southern and eastern parts of the country are still living under the COVID influence. However, we are hopeful this would be short-lived, with coordinated action and support from all the relevant authorities. And by the second half of June, we should expect better [indiscernible] with respect to our business operations. Looking at the resilience and spirit in our -- '20 -- and our experience after the first COVID wave last year, we feel that business would start to normalize from second quarter onwards, and we are looking forward to actually a 10% to 15% growth in business revenue for the current year, with a sustained EBITDA margin between 11% to 12%. We are expecting a growth of 10% to 15% in our cranes segment for the current year and a 25% growth across other 3 business segments, that is construction equipment, metal handling and agriculture. We hope we are in position to revise these projections by end of second quarter, which will predominantly depend on how the economic scenario pans out post the second wave. Further, we remain optimistic about the medium- to long-term prospects of the company and believe that our building blocks are firmly in place. In the last 2 years, we have taken concrete actions towards strengthening the business towards around purposes and tools and operations. This, along with our focus on execution, has enabled us to continue on the path of sustainable growth in all the 4 segments where we operate, leading to expansion in top line, bottom line and margins of the company. With this, I would like to open the call for question and answer session. Thanks. Thank you.

[Operator Instructions] We have first question from the line of Mr. Raj Mehta from Raj Mehta & Associates.

Congratulations for a great set of numbers. Sir, my first question was with respect to your agri business. That is when significant turnround, which has happened this year, and your losses were made in previous financial year. So what is your growth outlook? And can you sustain this momentum in agri business?

Yes. See, with respect to our core segments, and right now actually certainly for agri segment. I think even in the current year, we are looking at INR 25 crores across these 3 segments, that is the agri as well as construction equipment and metal handling. And the cranes might be a little slower, maybe 10% to 15%. But really by second half, we'll be in a better position to answer this question perfectly. Perfectly, first quarter is again going to be slow but definitely faster than what it was last year. Last year, we degrew by around 70% in the first quarter. This year, I think the degrowth will be limited to 40% to 50%.

Okay. And will you be able to maintain the EBITDA margin?

Yes, I'm very sure. The steel prices have been going up, and we are about to take a steel price hike in the next 1 month by end of June. We have delayed it primarily because the markets were in turmoil as it is and looking that for slowdown somewhat in the last 1, 1.5 months. So just to give a breather to [ German buyers ]. So by end of June, we are again looking at a price increase about [indiscernible] of our margins. And then, I guess, we're looking at 10% to 15% increase in our revenue in the current year. So that will also aid in maintaining or increasing our margin.

Sir, you currently made a price hike in Jan 2021 only, no?

Unfortunately, your voice is a little not so audible. Basically, repeat that question or if...

Sir, can you hear me now?

Yes, yes.

Yes. Sir, I was asking that current year, in Jan 2021, you made a price hike. So if you go again for a price hike, then will the customers will be able to digest that price hike?

See, no customers ever like or is able to digest the price hike. And as we want the fee companies, along with other commodities, but I would say, fee it's an increase by 90% now as compared to July, August last year. So we have benefited. There is no other way. So the customers will have to digest it. There is no other way.

Okay, okay. Sir, my second question is with respect to your capital utilization. What is the current utilization? And/or can you give me that capital utilization for all -- for segment?

You're talking of capital utilization or capacity utilization?

Capacity utilization.

Capacity utilization. In the last quarter, just a second, let me pull out development page. With respect to cranes, in the last quarter, obviously, it was 58% to 70%; construction equipment, 50%; metal handling, 75%; and agri equipment, 40%. But yes, in the current quarter, obviously, it is much more reduced than this because, like I said, we are expecting at least about a 40% slowdown as compared to last quarter, maybe 40%, 45%. So capacity utilization is obviously running nearly half of this as of now, what I said for the quarter 4.

Okay. And sir, my last question is with respect to your working capital. Currently, our working capital has been at the higher end. So have you decided to come back to the normal levels?

Yes. Also, see, unfortunately, what has happened -- primarily happened because of 2 factors: one, because of increase in inventory; and second, because increase in our debtors or receivable. Inventory, because even though with our best planning and keeping in mind the supply chain constraints, we are still continuing. So there is mismatch, and the inventory is a little broken up. And secondly, because post the COVID scenario last year, the finance companies, where disbursement of payments as a cycle have been delayed by about 15 days. So that has led to increase in our debtor cycle. But only in the month of March, we were discussing with them to bring it back to normalization, and it was to happen. And now it will happen only in the second quarter. So from second quarter onwards, I think the working capital utilization would have improved.

Okay. So for next 1 year or 2 years, we'll be back to the normal levels.

Yes, hopefully, within this year, I mean, if third wave, fourth wave doesn't come.

No, because even the COVID has impacted you this year, so your inventory levels will be at the higher end [ or high ] in this year.

I know, but I think we should be able to manage because we had already discussed actually with respect to our receivables, and most of the leading NBFCs were in sync with our shops. So I really don't see a problem. Receivables, we might -- we should be able to start to improve from quarter 2 onwards.

From quarter 2? Okay.

There might be problem because of supply chain. But receivables, we are hopeful that it should start to improve. For working capital, I'm [ sure ] that quarter 2 onwards will start to look better.

Okay. But last year, the same thing has happened, that after quarter 2, there was a surge in demand, and that led to your decrease in inventory levels. But the same thing can happen this year also, no then?

Yes, inventory will automatically be put back in place, and we are actively working on our receivables. So the working capital cycle will fall in place.

Next, we have question from the line of [ Mr. Sandesh Aswadi ] from [ Ampersand ].

Sir, congratulations on a good set of results. I just want to understand a couple of things, like your segment-wise performance that you have reported. I just noticed that while most segments have seen very significant improvement quarter-on-quarter, your tractor and farm implement have seen some 25%, 30% decline, which was not the case for the industry actually and -- any particular reason for that?

Yes. Our agri business quarter-on-quarter has gone down by about 21.7%. See, the main reason was that we do sell a reasonable number of our farm equipment in the eastern part of the country. And with elections that we invest in [indiscernible], that did affect our sales, apart from certain supply chain issues that we were not able to control in the month of March. So that led to some production loss. And another main reason, see, you have to understand that in our agriculture, we have tractors as well as the [indiscernible] combined, which are primarily used for private use. So that combined is seasonal. And January onwards, the season was finishing. So for the [indiscernible] segment, within the agri segment, also reduced in quarter 4. So coupled with less sales in the eastern region because of election and coupled with this harvested sale going down, which is seasonal, so it again starts to go up from June, July onwards, and obviously from production losses. So that is the reason but also [indiscernible].

And what could be the outlook? Because actually, you have a very small market share in that -- in those. So the expectation is that it should -- your growth should not be dictated by industry but rather your market share gain. So what really is the outlook there?

See, again, like I said in our agri segment, we have tractors and we have the harvester business. So tractor business, here, our market share is very [ limited ], so we will not be affected in our tractor sales even if the market declines or goes down, yes. In our harvester segment, we are already #2 in the track combines in the country, so which I said is seasonal. And on the whole, we are very confident that in this year, we should be able to grow at least at [ 25% ] again in the agri segment, combined.

Understood. And the second segment where you have been seeing significant improvement, but on a quarter-on-quarter basis it has kind of become flat, is this backhoe loader. So any particular reason? Or it is just that measure of the business?

See, with respect to our backhoe loader or construction equipment, our agri as well as construction equipment has started delivering in the last 1 or 2 years. And on quarter-on-quarter basis, again, we witnessed a growth of 19% in our backhoe loader segment or construction equipment because backhoe loader is the main product there. This would have been much more. Unfortunately, one of our key suppliers of transmissions and axles, which is actually an Italian company making in India, they were totally constrained in their supply chain because of one particular component. Otherwise, the growth there, instead of 19%, could have really been 30%, 35% quarter-on-quarter. That was one of the main reasons why construction equipment, we could have done even a better growth [indiscernible]. So hopefully, it will trickle in now. Obviously, not in the quarter 1 because there, things are already quite slow and most of the markets where we sell are [ sleeping ], and obviously, most of the supply chain has been affected here and there. And we were severely affected because of the oxygen supply, because oxygen was banned for industry use in the second half of April. And we very swiftly moved most of our vendor base, including ourselves, because we do most of our fabrication -- so doing fabrication without oxygen, so we were allowed to do plasma cutting and portable plasma cutting and LCD heating instead of oxygen heating. So we have taken care of things, and hopefully, in construction equipment remains [ that way ]. And again, on a whole year basis, especially for construction equipment, we're looking at, at least a [ 25%, 30% ] growth again.

And then is that including of exports? Because you have also talked about exports for your backhoe loader.

Once we are talking about a segment, that includes the domestic as well as export area.

Okay. Okay. And of course, you mentioned that your receivables, which have gone off, will improve probably by quarter 2. And then also, you have given some segment-wise kind of growth guidance. But apart from the fact that your own activity in terms of production and supply chain is affected, but most of your users are not really restricted by lockdown, like building construction, road construction and all these things are really going on. So what really is -- I mean, to that extent, one should expect that the moment you will be able to produce, you should be able to sell. But your guidance doesn't really reflecting this kind of a sentiment.

That's why in my opening address also, I said very clearly that the best time to give a guidance would be second quarter and not this quarter because there will be certain uncertainties which will be less. And even if you talk about construction, if you talk about road construction, yes, they are also affected a bit. We are working at about 75%, 80% of the manpower and not 100%. Building construction is affected even a little more. They are working about 60%, 65% manpower, because most of that is happening within cities. So let -- I mean, we have to let the things unfold. This is -- COVID is something which is beyond us. We can't do really anything about it. And unfortunately, in this particular wave, I would say that more or less, everybody was affected in some form or the other because of COVID. And luckily, situation is getting better. North and West India is coming out of it more or less, and we have become so better. Our weekly average cases are up as compared to the peak of about 20, 25 days back. So things are coming back on track. And luckily, with the experience of last time, when the unlocking started happening and things are further more delayed, because we've seen the businesses and customers have really become a little uncertain. So hopefully, this time, that uncertainty would be short-lived or would not be there in most of the places. And that's what we have realized also in the last 1 week, that as the things have started to look better in North and West, the inquiry levels and the conversion levels has all of the sudden started increasing in the last 1 week [indiscernible]. So things have to pan out. I mean, 10% to 15% growth, what we are projecting, is on a conservative side. It can definitely be more than that. God forbid, if something -- if the COVID scenario pans out, a third wave comes, it might be lower than that. So these are unpredictable times. So whatever best possible guideline we can give looking at the scenario is what we are presenting.

Understood. So last thing that I want to take...

[ Mr. Aswadi ], sorry to interrupt, can you please come back in queue?

Okay.

[Operator Instructions] We have next question from the line of Mr. Rajesh Seth from Seers Fund Management Pvt. Ltd.

I just want to give great congratulations for the excellent results. I just wanted to get some input on the tractor and the backhoe loader launched by you dedicated for the export market. I think that's PhanTom 4x4, the former tractor. What are the different features vis-à-vis the tractors of the local market? And how much is the price differential in both the categories?

See -- well, let's see our further price differential first because primarily, what happened, most of the pricing for the export market is really 5% to 10% better than domestic market. In some cases, even higher. So I would say, put on an average, 5% to 10% better than the domestic market. So that is first thing. Second thing, both these products, whether the Forma range of tractors, or the PhanTom backhoe loaders, are equipped with certain features and characteristics in the machine, which the export market like and are willing to pay for it. So those particular features as well as refinements have been added in these machines when we have made them specific for the export market. And also, keeping in mind something so simple as even a color combination or the aesthetics, the export markets like. So all that has been kept in mind. And definitely, 5% to 10% additional price benefit is there in the export market.

I think it would be too early to ask, but any good positive response can be seen by you? I think you launched in the March only.

Yes. We've launched in March only, and to be very frank with you, the backhoe loader PhanTom, we had envisaged keeping in mind especially the Eastern European CIS country and Middle Asia. So -- and then for basically done on request of some of our seller partners, which we had established in these parts or we are within the process of establishing. So obviously, the return will be postponed only in the quarter 2, quarter 3. Now we see [indiscernible] and then the machines have been received, and now they will be delivered and will work. You understand how the cycle works. So maybe over the next 1 or 2 quarters, the scenario will be even much more clearer.

We have next question from the line of [ Rita Batra ] from [indiscernible].

My question was on backhoe loader. If you can give some sense on geographical sales and the growth in especially the second half of last year and your outlook.

Geographical, unfortunately, I don't think we're carrying the data as of now, yes, right now. But it is more or less easily spread out throughout the country, and that's what we had planned for. Our initial seeding, posting of the machines has been done. The machine has been very well received. The financials are supporting us very well in the last 1 or 2 years, ever since we have seen the performance and working with our upgraded machines. And obviously, the quarter 3, quarter 4, we're able to do good numbers. In both the quarters, we could have done 30%, 40% numbers more. We were constrained because of our actual supply, actual transmission supplies coming from the company in Maharashtra. And otherwise, things would have been better even in the quarter 3, quarter 4 for construction equipment segment, especially backhoe loader. And going forward in this year, even though the first quarter is going to be slow, we still expect that 25% to 30% growth here in this segment. It can be faster I'm sure, and I hope that once the impact of -- after quarter 2, we are able to further increase these projections. But as of now, I think we'll stick to 25% to 30%.

And which geography you're seeing a higher sales of construction activity? At [indiscernible] or...

I think with north, southeast, see, work is happening in our country everywhere. So we are seeing...

Okay, but which are the faster geographies?

We talk of cranes have the fastest geography, because the cranes are main construction equipment in a way. That was not -- followed by [ cloud ], followed by that. So obviously, the trend for backhoe loaders would also be similar. But again, our market share is miniscule in backhoe loaders. So any geography or market size is not big issue. I mean, we have to -- I mean, our business are increasing our penetration, increasing our acceptability of the product against the market leaders. And that is what is in process. We got good results in the last year. I'm very hopeful that the thing that we are continuing to do, we will get even better results in this year. So that's how the thing is. So the geography is really not bothering us at all with respect to backhoe loaders or tractor also as of now because of the market share.

Okay. And can you give some sense on your debt and interest expenses and also depreciation for coming years? Would they be more or less the same as -- if you were to extrapolate your Q4 numbers, would that be a fair estimate?

Yes. See, we were able to bring our borrowings to a level where we were the year before, about INR 54 crores. And hopefully, this year, we could be able to bring it down to INR 20 crores to INR 30 crores at least, if not significant to revenue. And that's regarding the borrowings. What was the second part of your question? Depreciation? Depreciation, that will...

And interest.

The depreciation will be more or less right now -- yes, yes, the depreciation for the current year and FY '22 will be more or less similar to what we have this year. And definitely, there will be a reduction in the interest expenses on a full year basis as compared to FY '21. Because we are in the process of reducing debt, and debt is -- will also significantly go down in the current as [indiscernible] before.

Okay, okay. And your trade payables, they seemed huge, and they are in excess of borrowings quite substantially. So what are these? And are they interest-bearing? And how do you expect this to move? About INR 330 crores -- your trade payables, they are INR 330.6 crores as on March '21. Are they interest-bearing?

For the revenue cycle that you see, we did our peak revenue in quarter 4. And accordingly, our creditors have increased because normally, with vendors, there is a 15-day, 30-day, 60-day credit terms, with most of them, not leaving also some of the bigger ones. So accordingly, as the production has gone up, as the material inflow gone up, the trade payables are better than gone up. Right, [indiscernible]?

Okay.

And they're -- most of them are not interest-bearing, so we don't pay any interest for -- from a vendor.

Okay, okay. And you expect -- you don't expect any reduction in the -- you'll be able to get these kind of creditor days flowing forward as well?

This is the normal flow of cycle. See, we buy more material, the credit increases. We buy less material, the credit decreases. So maybe in the first quarter, we might find a reduction.

Okay. Broadly, these will be how many days of your raw materials? Is it a quarter?

On average, we are looking at 70 to 80 days.

[Operator Instructions] We have next question from the line of Mr. Raj Mehta from Raj Mehta & Associates. We have next question from the line of Ms. [ Sheetal Kapoor ] from [ Capital Insight ].

Sir, if you can highlight the, like, investments and CapEx plan for this year. And how much was the raw material prices impacted the margins?

See, let me answer the raw material price first. The raw material prices did go up like crazy starting October, November last year. It did increase in September, but there was a very consistent increase. And still, in the month of April, especially steel, which is one of main commodity that we use, has again gone at about 8%, 10% within the month of April itself. So it did affect us in the last year tremendously, and accordingly, we had to take our price increases. If not for this abrupt steel increase prices, our margins would have been better by maybe about 1.5% to 2% even in the last year. But nevertheless, like I said, again, they are increasing in the month of April, so we are planning to increase our prices by end of June, again, to compensate for that. And hopefully, when the fee pressures start to come down, then we should be able to get some additional advantage with respect to our margins. Because we might not have to pass on those benefits once the steel prices are to cool off. And luckily, in the last week, 10 days, steel prices have started cooling off in the international markets. So hopefully or very soon, there should be some effect on the Indian prices as well. Let's see. The second part of your question was with regards to CapEx. So see, we -- apart from some maintenance CapEx, we didn't really have any effects in this year apart from [indiscernible], which we have been planning. If you talk about some 1.5 years, it's already planned, but not been able to put [indiscernible] because again, COVID happened. So that INR 20 crores, INR 25 crores of CapEx given there, that is what we're planning this year. Nothing more than that. We are very, very [ tight ] there because we enough capacity. So even if we talk about quarter 4 revenue, which was INR 450, and if you multiply it by 4, so that becomes INR 1,800 crores, we do have capacities in place to do a, say, total of about INR 2,500 crores. So we really don't read any incremental CapEx, maybe what we envisaged around that. So we don't have any planned CapEx in this year, apart from utilizing our capacities as soon as this wave goes down quarter 2 onwards.

[Operator Instructions] We have questions from the line of Mr. Raj Mehta, Raj Mehta & Associates.

I think Mr. Mehta was not there even last time. So maybe we can take any other questions.

Okay. So we'll take the next question from the line of [ Mr. Sandesh Aswadi ] from [ Ampersand ].

I can ask this question. Basically, in fiscal '21 after the first wave got over, when the demand jumped up as you have pointed out that you had a lot of supply chain issues, so we could not really produce in good quantity. And so have you kind of taken any kind of initiative which will ensure that you will not have same supply chain issues yet again?

Yes. We have taken care of most of the things. And unlike -- then like last time, where it was a complete lockdown and some states and things opened, even got locked down in April, but only opened and started to normalize in the month of June or July. This time, the lockdown has been very different. I think apart from Delhi, most of the states, the industry has been allowed to operate. So most of our supplier base and vendor base was not shut down completely. And we still have -- we still had -- we did a lot of reviews on them to deliver. That's different then because of they're further constrained in supply chain ahead in there and obviously, manpower constraints. And like I said, everybody was personally affected by COVID here and there. Because the supplies have not been forthcoming, but there was not a total lockdown on suppliers, or the system didn't stop, or we did stop producing in May. So this gives us a lot of confidence that this time when we come out, the system will not have to start from 0. It is already at 40%, 50%, 60% level. So to ramp up from there and getting moving will be much easier this time.

And then last question, sir, is that -- so you see that you have like really huge product range for the size of your organization and the total top line. And you have -- you're starting to see some success in backhoe loaders, et cetera. So what really will be 1 or 2 big products which you will clearly be pushing and making a big dent in terms of market share and positioning yourself for the -- in the relatively bigger league? What really will be those products? And will you really be looking at your company from a point of view of targeting products with increased product, increased focus or you will continue to be in so many products?

See, like you said, we have a vast product range. So you can very well visualize impact. In train, we are already market leaders. And with respect to construction equipment, which primarily consists of backhoe loaders and some [ road machines ], and our agri will consist of tractors and harvesters. In train, we are already market leader, right? We have already started delivering with respect to our construction equipment and agri business. Now both of these segments have potential to become huge, bigger than trains over the next 3 to 5 years, and that is where our entire focus is. So that what I can envisage or predict is that maybe 3 to 5 years from now, the train business, obviously, with the country growing in [indiscernible] industry increasing will continue to grow. But the agri as well as construction equipment businesses would be similar size in terms of revenue contribution. So our entire focus right now is on increasing our market shares and our numbers in both agri as well as construction equipment because there is a huge potential. About INR 2,000 crores to INR 3,000 crores of revenue can be unlocked easily over the next 3 to 4 years, if not more out of these 2 segments.

Sir, as we understand that most of the equipment -- most of the components, let's say, in the many things you would really depend -- you basically outsource. So to improve your market share, will it be more of expanding your reach and distribution? Or it will be some kind of improvement in your own product quality and product features or product -- something related to like the value add that you are doing, what really will drive market share?

See, it has to be a combination of all the assets that you mentioned and some more. Already the products, the performance, the reliability and the acceptability which we have to create in the market. Price is a very big driver, and good service supports therefore availability and uptime of [ initiative ]. So every aspect of this has to be worked down, whether it is the price at which we are selling, which is a primary driver, apart from a good reliable product which is acceptable in the market. So [ accessibility is the thing ], the numbers start to grow. And we are nearly on the threshold of that accessibility with respect to our construction equipment and tractors. Harvester got accepted in the market 2 years back, and we already become #2 there. So we are more under the annual or, let's say, at an inflection point from here onwards. I mentioned 25%, and I think can be much faster than that. Unfortunately, COVID happened [ and affected our projections ], if you [ don't have half amount ] the same projections in first half of April, they would have looked very much different. So we are working on all the aspects, especially to answer your question with respect to engines. See, for our tractors, primarily, we make our own engines. And apart from that, we have started to use those engines in some models of our trains even in the model of backhoe loader and even our forklifts. So we are spreading with our own engines into our other equipments team of our contractors. That has started to happen in the last 1, 1.5 years.

Understood. And your management base is very much there or do you have -- you are looking over there?

[Operator Instructions]

I'll answer that question because he's [ done ] asking it. Yes, our management platform is very much in place to get safe through this. Maybe in our investor presentation, which we will upload now or the one which was done in March, you can have a look at the key personnel, and you can reflect on that. So to drive all our businesses, we have good people aligned with the company name and the direction. And I think we are working hard, and it is shown in the last 1 year in our results, even though now, we were able to pull out our construction equipment, do better in our agri, maintain our numbers and trains, introduce the company's profitability. Forklifts, again, we've been able to grow our business. So everything is aligned, moving in the right direction. We don't need any more hiccups. [ So if it costs come, that's beyond us ]. So we are moving towards -- I think still we are on track, like what I was saying last year that in the next 3 years, we could be able to double up our revenue. I think we are still on that track and [ finish probably more than that ].

We have next question from the line of Mr. [ Vanke Subramanian ] from [ Organic Capital ].

Our vision for agri has always been there for the last 3 years. And admittedly, I think it's been quite delayed. And there's been some management changes as well there in terms of people who [ are going to hit that ], et cetera. What would you say have been the reasons? And how quickly do you think you can [ actually get ] your vision and expectation on that?

See, last year for our agri business was a transition year, wherein alignment and [ derankings ] was done, not only at the management or operation level, but even in the field with respect to distribution and even in the product. So what needs to be upgraded or what needs to be just not done. So all -- the transition part of it, most of it has finished in the last year. And during that, we have seen growth which has happened, which let me just quantify that for you in percentage. If you look at the last quarter, we have been able to grow the agri business by about 78%. And on a whole year basis, we've been able to grow the agri business at 40%. So -- and this was when the transition was happening. So now most of that has happened, things are in place, alignments are right. So hopefully, we will grow again in this year. I'm projecting 25%, it can be much faster that. Maybe in quarter 2, we are able to give you a better number on that. So things are in place. And I would say that our immediate and urgent vision on this segment is to take the INR 2,000 crores as soon as possible.

Very nice to hear. The second is on export opportunity, both on a China plus 1 kind of level and India's stand-alone manufacturing prowess. There's been some movement that we see selectively in some segments. What's your take on this? Are you seeing something on the ground with respect to this? And how quickly do you think we can be beneficial of this?

The export traditionally was contributing only 1% to 2% of our revenue. And in the last 2 to 3 years with some proactive efforts, we were able to take it to more than 6%, and we were actually targeting 8% to 10% revenue share from exports in the last year, because of COVID and whatever happened, we're not able to do it. So hopefully, this year, we could be taking somewhere close to 7%, 8% with respect to our increased revenue [ as we're doing this year ]. As far as China goes, see, you have to understand, our main [indiscernible] product is we can carry grains where China does not compete. China competes primarily in the bigger cranes, truck cranes and the bigger tower cranes. Yes, I will agree that they are -- pricing is much more competitive than what we're able to do in India. But things are changing fast, because with the commodity prices increasing and then China's own manpower cost, which has increased so much in the last 2, 3 years and it continues to increase. And the shipping costs increasing by close to 8 to 10x out of China. Our container which was costing $300 to $700 are now costing nearly $3,500 to $4,000. So all this gradually will make China uncompetitive. And we might be able to compete in the bigger cranes and the bigger tower cranes and the bigger truck cranes with China outside India. And -- but with respect to trains, and with respect to the construction equipment segment, especially backhoe loaders. And the tractor segment, I think India is much more competitive as compared to China, for smaller cranes, for tractors and for backhoe loaders. So there, definitely, traction more will come towards India in time to come.

Next, we have questions from the line of Mr. Raj Mehta for Raj Mehta & Associates.

Sorry for the disruption, sir. So my question is with respect to construction equipment segment. Their EBIT margin is around 5% to 6%. And our crane segment, we have EBIT around 10% to 10.5%. So if you grow construction equipment, the profitability will be at a much lower pace. So are you expecting the EBIT to be at company's level maybe around 10%, 10.5% in next 3 to 4 years in construction equipment segment? And whether we have been able to capture the market share in this segment.

See, with respect to the company, we are already around 12% EBIT level, Luthra?

To answer, really what we -- as you said, we are definitely confident that the construction equipment margin will also be...

[ Luthra, just answer my question. ]

Yes. Yes, sure.

But at EBIT level in the company, we are already at 11.5%, 12%, right?

Yes, that's right.

Okay. And in the cranes segment, EBITDA in the last quarter, we were 12.9% and on a whole year basis, we were 11%. And see, for the time, that construction equipment has started to come up in the last 1, 1.5 years, correct? That's why '20, it was a breakeven business. There was particularly no profitability looking at the numbers you were doing. We continue to grow our revenue half year by 30%, 35%. We have now got a 5% EBIT level margin in this business. And in the last quarter, it was close to 7%. So as our numbers double up from here, the revenue added has put us about INR 60 crores, INR 65 crores over the coming quarters, being quarter 3, quarter 4. So the profitability will start to fall in place in into the 11%, 12% levels at EBIT level for the company.

This profitability level will come because of the operating leverage you have?

Yes. Because the fixed cost will start to [indiscernible]. So right now, obviously, there are various -- there is much more fixed costs than the revenue that is coming. And as soon as the revenue increases, operating leverage will start to play in and we'll be at about 11% to 12% level [ confidently ]. We've seen that happen in tractors. We've seen that happen in metal handling, and I'm sure it will happen here as well.

So when can it happen? It can happen in the next 2 years?

It can start to happen in quarter 3, quarter 4 this year, start to happen. If we're really unlucky, then next year, it will definitely happen.

Okay. That's great. And sir, my next question is with respect to your export. Now currently, what is the percentage? It's 7%, 8% now?

At about 6% approximately currently.

And you are aiming to increase it to 7%, 8% in next year? This year?

In the current year, it should go up to 8%. And -- but internally, we have targeted to take it to 15%, 20% of our increased revenue base over the next 3 years. [indiscernible] is not in that direction, and that was the main reason we launched those specific model for the export market [ 2 months prior ].

But sir, how is the margin shaping in export? Whether it has been able to -- we are able to capture higher margin as compared to domestic?

Like I said, the selling prices are currently 5% to 10% higher in the export market. So accordingly, definitely, the margins are 5% to 7% better than the export market, yes.

Okay. So that the export margin will be much higher than the company's margin? And if you grow your export sales, then basically, PAT margin will also increase.

Yes. Our margin profile will start to improve by about 50 to 100 basis points as soon as our export revenue starts to improve.

Okay. Okay. And sir, in construction equipment, right now, the current market size is around INR 7,000 to INR 8,000 crores. And what will be your market share in construction equipment segment? Can you have that number?

The market share is minuscule because last year, we did a revenue of only INR 133 crores out of the INR 8,000 to INR 9,000 crores. So -- and that is the potential we have to increase and where we are working on. And that's why I always believe that, if the second wave won't have happened, I would have been saying 70%, 80% growth there in this segment. But nevertheless, we grew at least by 25%, 30%. And if everything goes well, we would be able to upgrade that in quarter 2.

Okay. And sir, one more question, sorry. Sir, in agri segment, we do compete with players, well established players like Escorts. So how do you think about growing that share? Because right now, we are not -- what are the products which we are offering, which the listed company with a dominant like Escorts have not been able to deliver to their customers?

See, our agri business consists of tractors and [indiscernible] harvesters. [indiscernible] combined, in the last 2 years, we've already attained a #2 position with respect to our product and market acceptability and market share gain. Now with respect to traction, it's a huge market and all possible big players are there and competing. And as a customer that would look for products, price, service, digital barriers are product accessibility and finance problem. So product accessibility and finance, I think we are more or less at the threshold of breaking both those barriers. We've already attained enough headroom there. So going forward, our product is [ far off ] better, our price is definitely better, service and support is equally good, if not better, and the initial variance which we have taken care of in the last 2 years. So hopefully, that gives us a lot of confidence that going ahead, we would be able to increase our numbers. And in any case, we are not projecting 100%, 400%, 300% increase in our numbers. [ We can only ] project it can only be faster than that. Even last year, we had projected 25% growth in agri, but we'll be able to do [ only 14% ]. And I will say, as soon as we got to start, as soon as the facility was in place, we became #2 or #4 or #5. It's a long way to go in the agri business.

Okay. So basically, you are gaining market share from the listed dominant players because of your product profile, because the customers are more attracted to your product and services, which they maybe -- they might lag in giving to the customers.

See, only 1 in 10 [indiscernible] are very good enough for us. Our [ transactions ] have become very big and the industry is trying to cope.

Next, we have questions from the line of [ Mr. Agastya Dave ] from [ CAO Capital ].

Sir, I have one request to make. Your quarterly revenue...

A bit louder, please?

Yes, can you hear me now?

Yes, slightly better. Yes.

Sir, I have one request. Your -- when you release the quarterly numbers, the individual line items don't really match with the line items we see in the annual reports. So it is very difficult to compare especially the year-end numbers. There is a reclassification, which happens within the cost of materials and the other expenses. So can you please make it uniform across quarterly reporting and annual reports? Otherwise, it becomes slightly difficult to understand how the various costs are moving. That is one small request, sir. Second, can you please repeat the growth numbers? I missed your -- the crane numbers I get, the guidance given for the crane business. But for the other segments, can you please repeat the growth numbers again?

Okay. With respect to the reporting part, the second part of your question, on cranes, we are looking at least a 10% growth in this year. Can it be passed? Time will tell because unfortunately, the first quarter will even be slow. And for others, we are looking at agri at 25% growth; construction equipment around 25%, 30%; metal handling, 25%: and agri 25%. And Luthra, can you take that question regarding reporting? For the [indiscernible] annual report.

I think the -- let's connect separately because I don't think we are -- there's any change in the format because format of the reporting is provided by the SEBI so the format is constant. It's consistent for years. I don't know -- I'm not able to understand what...

If you look at the quarterly numbers, sir, if you look at your consolidated other expenses and you...

If you could just drop a mail to Mr. Luthra...

I'll do that, sir. I'll do that.

Or [indiscernible] if there is any problem, we can solve it.

No, there is no problem as such. It is just...

Comparative [indiscernible], I understand, yes.

There is no problem whatsoever, okay? Just 2 different formats, one we use in the quarterly reporting, the other that we use in annual reports. It's perfectly okay. I will [ get that through Rajan ].

[indiscernible] observation, and I'm sure you will take care of that.

I'll do that, sir. I'll do that. Next, sir, can you give some macro commentary on what's happening on the mining and metallurgy sales? Because government has been talking a lot about reforming mining sector, especially Coal India, but nothing seems to be happening. So can you give some macro commentary on that?

See, we really don't work in the mining space. We do supply cranes and some machines to all the Coal India subsidiaries, whether it is WCL or CCL or even [indiscernible] or [ Mahanadi ]. But I think they need mainly bigger excavators, [indiscernible], [indiscernible] and that's not our line. But from what I know and understand, yes, the government is trying very hard and things are happening. And even a lot of -- even coal mining, leases have started to work out that Tata is going to be a big beneficiary [indiscernible]. But like I said, it really does not make us at a target level.

Is it something that you are exploring? Because globally, mining sector is a very profitable business for all the equipment manufacturers. So I was just wondering from that angle, government is seeing a lot of things. So then I will say...

I think I did mention it earlier somewhere, as soon as we start to do 2,000 backhoe loaders in a year, which we are anticipating we will do by end of FY '23, we are anticipating. So as soon as we start to do 2,000 backhoe loaders in a year, I think our next step would be into bigger excavators. But I think we are still 1.5, 2 years away from that because we have to [indiscernible]. So be acceptable, okay in the smaller machine and then you go to the bigger machines with respect to that segment. So definitely 1.5, 2 years away.

Right. Sir, one final question. This is again an industry-level question because all the company-level questions you have already addressed. So if I look at the broader trend in the capital goods industry, 2018 was the most recent high point. And since then, every segment and subsegment of capital goods has been suffering for one reason only...

If you could please [ use ] handset, it will be much more better.

Sir, [ I don't have another line from this ].

Okay. So there's something wrong with the connection. Yes, yes, please go ahead.

I apologize, sir. I apologize. I apologize, I don't have a handset here, sir. That's the only problem. Sir, so for the last 3 years, sir, growth has been suffering for the entire industry for one reason or the other. So I was just wondering, sir, when you have a prolonged down cycle where 3, 4 years are lost, what kind of pent-up demand do we see then in [ your financial data ]? So when the rebound happens, how much further can we grow from the previous peak?

So Rajan, were you able to figure out that question?

So basically, what I could gather the question was because in the last 4, 5 years, we have seen a lot of growth disruptions in the economy. So there is a lot of pent-up demand. So what happens is this pent-up demand, it generally snowballs into higher peaks in our sales. So we want to have a view on the fact that how the pent-up demand goes up.

I saw, Rajan, our -- what you're saying is right because in the last 4, 5 years, something [indiscernible] has been happening. And we've always seen pent-up demand being there and a rebound coming in very quickly. So whatever has happened in April, May and maybe it will continue into June this year. So pent-up demand not only now but even in future, I think, India is already at a level that the country will have to grow, the country will have to develop its infrastructures. And with this [indiscernible] but not really after, I would say that the substitution of the global supply chains towards India, I think, a lot of things are happening, are going to happen coupled with some pent-up demand, which gives a sudden thrust like what we saw in quarter 2, quarter 3 last year also. So things are looking good in that sense. And like for the last 4, 5 years, a lot of companies and prospects have really not been able to grow in the way they wanted to grow, the key main thrust especially in industrial side. So as soon as the COVID scenario is behind us, in totality, because we are -- [indiscernible] feeling very happy that we're going to vaccinate 12 crore people monthly from June onwards. So I'm sure it's going to be a blast. But obviously, there are some [indiscernible] for India over the last 5, 6 years, something we -- either our own creation or external sites.

We have our next question from Vibha Batra from FairConnect.

I have two questions. The first question is on other income. For the year, INR 15.3 crores, and for the quarter, it was INR 7.58 crores. What is this income? And what's your outlook for next year? And also on your employee expenses, they dropped in FY '21. So how would they move going forward?

The employee expenses I will answer, and the other income, I think, Luthra will answer. So I think employee expenses did drop because we did actually work towards controlling our cost wherever possible. And we'll continue to do things. So you can see it in a similar trend again this year with respect to percentages, maybe a 20, 30, 40 basis points here and there. And Luthra will take the other question with respect to other income. Luthra?

So in other income, see, in the current year, definitely, there has been some onetime income as we have sold one of our office because we were trying to control expenses and [ consolidate our ] operations. So we have sold 1 office. We have a onetime gain of about INR 6 crore profit. Otherwise, all the expenses are merely to be recurring nature, and we will continue to have a pay-off period because they are investment for more [ SMB ] and the investment that we have made on our other income. So we can expect that for the FY '22 and going forward, at least we will have other income of recurring nature of INR 8 crores to INR 10 crores every year. Only onetime expenses of this year, we only 1 property which we have 1 office which we've sold, where we have a gain, which maybe will not happen again [ of INR 7 crores ], otherwise, that's our normal.

Sir, the line got disconnected. I'll take the next caller from [ Mr. Anurag Jain ] from [indiscernible] Ventures.

Sir, if you can highlight how much revenue do we derive from leasing of construction equipment? I believe it would be a very small number, but if you can just help with the number? And how has it moved over the years? And any view on this going forward?

Luthra, I think the revenue should be between about what, INR 25 crores to INR 30 crores from equipment rental?

Rental business is about INR 20 crores.

Right, I think about INR 20 crore revenue is coming from equipment rental and leasing. And going forward, we are reasonably keen on increasing this revenue rate, but unfortunately, we end up competing with most of our retail segment that's actually the bigger hiring company. So on a case-to-case basis, we are increasing our equipment fleet if we are actually not competing with any of our customers on the other end. So that's why it's probably been growing too fast.

The dynamics of this business, I mean, how does it work if you can just speak a bit on that?

How much -- how does what work?

How does the transaction move? And what are the costs that we are responsible for and...

No, I'm not able to figure out the transaction and cost regarding to rental business.

There are no more questions. I would like to hand over the call to you for closing remarks. Over to you, sir.

Yes. I think we've discussed most of the outlook for the coming years. It was very unfortunate that COVID struck us again and very hard. And this quarter, we are expecting to grow at 40%, 45% lower as compared to quarter 4. Hopefully, things will get [indiscernible] gains, [indiscernible] and things start to improve quarter 2 onwards. We are still very confident that we'll do a 10% to 15% increase in our revenue, and we'll be able to maintain or increase our margin profile. And again, just to add on that, that we are very hopeful that by end of quarter 2, we should be in a position to upgrade our projections. That's if nothing adverse happens any further, and that's it. Thanks a lot. Thanks a lot, everybody.

Thank you, everyone.

Ladies and gentlemen, this does conclude your conference for today. We thank you for your participation and for using [indiscernible] conference service. You may please disconnect your lines now. Thank you, and have a great day.