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

Ladies and gentlemen, good day, and welcome to the Action Construction Equipment Limited FY '22 Earnings Conference Call, hosted by Edelweiss Broking limited. [Operator Instructions] Further, this conference is being recorded. I would now like to hand the conference over to Mr. Himanshu Yadav from Edelweiss Broking Limited. Thank you. And over to you, sir.

Thank you. Good afternoon, everyone. On behalf of Edelweiss, I welcome you all to the call. From the management, we are joined by Mr. Sorab Agarwal, Executive Director; Mr. Rajan Luthra, CFO; and Mr. Vyom Agarwal, Head, Investor Relations. We will have opening remarks by the management followed by a Q&A session. Thank you. And over to you, sir.

Yes. Good afternoon, everybody. I'm Sorab Agarwal from ACE. And welcome to the earnings conference call for discussing the results for the quarter and 9 months ended 31st December '21. We hope that you're all staying safe and healthy. 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 that all of you have had a chance to look at the company's financial statements and earnings presentation, which have been circulated and uploaded at the stock exchange. To brief you on the financial performance for the third quarter of FY '22, the operational revenue grew by 9% on a year-on-year basis to INR 437 crores, which is our best-ever quarter 3 revenue so far, with an EBITDA of INR 44.5 crores. EBITDA margin stood at 10.2%, given in the wake of unabated and unprecedented inflationary pressures and lackluster festive season, coupled with Omicron scare November onwards. The profit before tax stood at 8.5%, that is around INR 37 crores. And PAT margin was at 6.3%, around INR 27.5 crores. In the backdrop of continued input cost inflation, we have dynamically managed the business to deliver margins in a consistent range over a period of time. For the 9 months ended FY '22, the operational revenue grew by 45% as compared to similar period of FY '21 and stood at INR 1,119 crores, with EBITDA of INR 114 crores, which is 48% growth on a year-on-year basis and PAT of INR 70 crores, which is 69% growth on a year-on-year basis. The EBITDA margin of 10.2% and net profit margins of 6.2% are also better as compared to last year's 9-month results. Now let me give you a sequential perspective. For the first quarter FY '22, the operational revenue grew by 21% on quarter-on-quarter basis. The EBITDA during the quarter increased by 20% on quarter-on-quarter basis, and PBT and PAT numbers registered a growth of 24% and 20%, respectively. In the crane segment, during the quarter gone by, we reiterated our dominant market leadership position and registered a revenue of INR 269 crores, with margins of 11.75%. The Construction Equipment segment dropped revenue of INR 47 crores to register a 5.45%. Material handling segment recorded revenue of INR 43 crores, with margins at 11.76%. And the agri division registered a revenue of INR 77 crores, while maintaining margins at 8.26%, thereby registering growth in all of our 4 segments. In the last quarter, the company further expanded its business in the defense sector by getting an order for supply of special mobile train to defense R&D organizations and also received an order for supply of special truck mounted and multifunction cranes from prominent [indiscernible]. Our regular innovations and persistent R&D efforts make us capable to deliver 30% under the Atmanirbhar's Bharat Initiative of the government. On the operational side, the commodity inflation continues to be a significant headwind for the industry. The prices for many commodities continued to be at multiyear high. Steel, metal, crude, rubber and alike product prices continue to be at elevated levels. So in summary, while the operating environment improved, it has remained challenging. Further, we expect that inflation this trend will continue in the current quarter also, and it may lead to some pressure on margin profile in the near term. In these challenging times, we are confident that a clear and compelling strategy, together with our growth fundamentals and operational excellence will hold us in good stead. We remain focused to deliver on our growth agenda, growth that is consistent, competitive and profitable. We will try and continue to manage the delicate balance of ensuring competitiveness of our brand and keeping our EBITDA margins in a healthy range. The past 2 years were tough for the nation and the economy. Appearance of Omicron variant even before the economy has completely recovered from the shocks of previous 2 waves has made the environment more challenging. COVID cases have risen again in January, and it is a reminder for all of us that the pandemic is not over yet. In these challenging circumstances, your company has emerged stronger, thanks to our team members who kept their focus on serving our customers. Looking ahead, we raised our revenue growth guidance to at least 23%, 24% in the current year against our last guidance of 15%, 20% growth, with sustained EBITDA margin. Further, our honorable finance minister has presented in the union budget with a focus -- has presented the union budget with a focus on digitization, infrastructure spend and ease of doing business. The budget is in line with the vision of our Prime Minister to make India Atmanirbhar and digital joint. Capital expenditure outlays will be stepped up to 35.4% from INR 5.54 lakh crores to INR 7.5 lakh crores in this coming year. Also, the effective capital expenditure of the government is estimated at INR 10.68 lakh crores in FY '23, equivalent to 4.1% of GDP. Allocation towards capital expenditure and infrastructure layout, including the PM Gati Shakti initiatives test out realistic and inclusive vision for the nation. This makes us believe that the demand scenario should be further strengthened and will provide our company strong growth momentum in the medium-to-long term. With this, I would like to open the call for a question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Suraj Deora from Paladin Capital.

Your results actually were very strong relative to what we're seeing in the industry in terms of volume growth sequentially as well as year-on-year. Could you give us some insight as to how you manage to -- whether you're taking share or what you are seeing on the ground in terms of demand and activity?

See last quarter, we were expecting a good festive season. But somehow, it was up to our expectation, but even then in base of that like I mentioned in my address as well. We were able to put together, so our customers, our orders, and we're able to deliver a decent set of numbers. Whereas for most of our competition in similar industry, has degrown. And especially with respect to the Construction Equipment segment, the entire industry in the last quarter has degrown by around 33%, whereas we were still able to make headways and increase our revenue on quarter-on-quarter and year-on-year basis. And that is primarily because I would say that our base is small. And there is a lot to be done for us in the construction equipment space. So that was one of the prime factors in backhoe loaders and other things we are able to increase. And yes, with respect to Cranes, which is our core book of about 60%, 65% of the country's business, in any case we are very aggressive and are currently on the lookout to increase market share. And I'm sure we've been able to manage some extra market share there. Exact quantum will be very difficult to quantify at this juncture, but yes definitely 100% game there looks evident. But I think again, we've done a strong show, and we hope to continue that. As we -- definitely, quarter 3 is generally good for us and that has happened again. And then like I said, infrastructure equipment and in agri also, our market share, our base is small. So -- and then like I've always said in the past for us to be able to grow there, it should not be very difficult and that is what we are focused on. Thank you.

Right. So it seems like a lot of the industry peers have declined about 30%, and you've been able to grow your volumes. So is it because your offering more lenient credit terms? Or you are offering better pricing? Because what we're hearing is that the demand environment has slowed down because there's a lot of slowness in the tendering of orders, so the contractors are not in a position to come up and pay for the equipment.

See like I've always said in the past, the sales or a customer decision to buy, it is primarily dependent on obviously the right product, the right price at the right service point -- level. So I think -- and that has been our focus throughout to able to provide a product which is competitively or technically, I would say, much superior in terms of parameters, functions or abilities and the liability as well. So I'm sure that has also played a role. Apart from that, yes, the prices are generally complicated. But it is -- but in November, again, we've raised our prices, increased our prices to be able to capture the steel price increases happening in October and November. So I think it is a right mix of right product, right price and right customer support and customer friendliness.

Got it. And just 2 quick questions. One is could you give us the receivables number for this quarter?

Which number? Can you repeat it?

Accounts receivables on the balance sheet?

Accounts receivables? Rajan, can you take it?

Yes. in terms of DSOs, receivables are slightly better compared to previous quarter to 40, 50 days as compared to 52 of the last year.

Sir, can you repeat?

It is -- DSO is 40, 50 days as compared to 52 of the last year -- corresponding last year and 48 for the March ending. And in terms of value, it is 200 and -- nearly INR 200 crores.

Okay. And lastly, any update on the M&A plan for which you have done with IT?

Yes. We had raised money for inorganic growth. And we are already working on 2 smaller options, consolidate the market. And we have already -- basic understanding is in place. And hopefully, within this quarter, we should be able to inform the exchanges regarding the activities that have taken place.

[Operator Instructions] The next question is from the line of Vineet Mehta from Sameeksha Capital.

My first question was regarding the end user market. As the previous questioner asked that there is a slowdown in the industry, so I wanted to understand, from the end user point of industry, where have you seen the demand coming from, whether it's from the infra space or the real estate space? Could you give more color on that?

Yes. See, I feel that the demand at the end user space has not decreased. Please mark by words. The demand at the end user has not decreased. Only thing is because of so much interest increase and inflation. Coupled with that, most of the industry moved to BS IV engine, that their engines and the machine cost further increased because of the BS IV engines. For rental segment, which caters to the end users also, they're little slow and little wary because the prices have really gone up for most of the cranes and different type of construction. And that is the main reason. But the market generally, the whole has been a little less subdued, but end user demand remains. And specifically with respect to sectors that we talk of only in the infra side, especially after monsoon. And real estate has picked up very well, especially November onwards with respect to our tower cranes. And on the whole, even industrial and manufacturing side of our business has been doing reasonably okay.

Okay. That was helpful. And my second question was regarding agri sales. So what is their constituent of the agri segment sales? And the margins in the agri equipment are increasing, but are still lower than our other segments. So when can you expect the margins of the agri business to reach to our normal average of 10%, 12%?

See, the consequence for our agri business are our tractor business and harvester business and also some amount of these rotovators/rotary tillers, which is a very, very small quantum. Primarily, it is tractors. And just with respect to margins, we -- unfortunately, because of all the input cost pressures and whatever we could pass on to the customers, they seemed to be on a more slightly reduced level or scope of improvement. So I think going forward, now that most of the inflation and part has happened, hopefully. And yes, with our numbers further increasing and operating leverage further kicking in going forward into the next year, I'm sure we'll be able to bring these margins about 10% with the 12%, 13% levels. So we are very confident of that.

Okay. And could you give the split of the agri equipment business between tractors and other segments?

So sir, in percentage, it would give an idea of the revenue spread between harvesters and tractors. I think off the top what is lying in front of you for the last quarter, we've done about INR 43 crores of tractors approximately.

Roughly 60% is tractor as well as in harvester.

Okay. Okay. And my next question, one bookkeeping question. What would be the total working requirement, last quarter versus this quarter?

The total working capital of the last quarter was roughly about 62 days.

So sir, you're saying it's the opposite. I think what the data that I have is for the last quarter was 76 days, and this quarter, it is 62 days.

By current quarter is 72 and the last quarter was 76. So we have improved on that.

[Operator Instructions] The next question is from the line of Puneet Anand from Emkay Global.

So Sorabji told that the year probably will end with a 23%, 24% focus on sales growth. If I look into 9 months number, which we have done around INR 1,120-odd crores, so this means that 4Q will priorly be a 10% decline over last 4Q. Is that understanding right?

So I don't think that will not be the scenario. If I'm not wrong, we did pay with about INR 450 crores or INR 460 crores in Q4 last year. I don't have that in front of me, but I think it was around INR 460 crores.

So I think last quarter -- March '21, we did INR 457 crores. Most probably, in the current quarter, we will be similar to that number...

Even though lot better, yes...

This has already declined, but the base was slightly very higher in last March '21, yes.

Okay. They're down. Because the 23% that you said, I think just...

It will be more than that, Puneet, to answer your question in short.

Yes, yes. Sure.

Yes, if that does not happen, then you will only ask why it didn't happen.

No, no, no. I was just -- I got -- I thought it would be better than what you were saying. That is the reason I said it.

Okay, it will be better.

Yes, yes. Secondly, sir, if you can just highlight, that since last year, what has been the increase in RM? And how much have we been able to pass on the price hike side?

You can very well see in our balance sheet, it's about close to 2%. We were very hopeful when this year began that we could be at 11%, 12% EBITDA levels, and we are staggering at about 10%. The difference in our sales price realizations and the RM input project has gone up, is close to about 1.5%, 2%, which we have not been able to capture. This is on top of that, we have actually increased our -- even I have forgotten myself because we keep on increasing them so much, in the last 6 months, 1 year, but I think 20%, 25% cost, our selling prices have gone up. So even with that and [Foreign Language], still about 1.5%, 2% leads to either increase in the RM or leads to increase in our sales price to bring us to a 12% EBITDA level in the company, first thing. And hopefully, going forward, we are expecting a robust next year. So that should, in any case, even without the sales price going up any further because as it is, it is pretty elevated. And given that, the input costs remain similar if it does not go down. So with operating leverage further keeping it with our revenue increasing in the next year as we feel it will happen. So that would definitely give us leverage to improve our margins further going into next year.

And I understand it's slightly early. But any broader number where one can look into F '23? What could be a sales growth number?

It would be middle, end of March. Looking at the current scenario, I mean of the trough, I can say that doing a 15%, 20% should be easy. But you know when I put the numbers together and look at the momentum and look at the overall amount of infrastructure/real estate activity happening, including manufacturing and 3 of our main segments cater to these very things that won't be in the infra, real estate, manufacturing. So it can definitely be much faster than that. I think sometime around middle, end March or, let's say, early April will be the best time. But I think the 15%, 20% is what we can easily assume. We would love to take around 25%, 30% or more.

And sir, lastly, on the backhoe loader side, I mean, you guys have been putting a lot of effort to increase the overall share. If you can just shed some light, how has these 9 months been in terms of the -- how backhoe loader as an industry has moved and how we have been able to do?

If we talk of the industry, till September end, even the BS III machines, which were in stock, they were allowed to be sold, but we transitioned to BS IV in April. So that means we were selling our machine which were more expensive as compared to the biggest of the competition there for first 5, 6 months of the year, and we did a reasonable job. But unfortunately, post September, when the actual price effect, I don't know what's gone wrong with the market. The backhoe loader market really started to squeeze from October, November onwards and November primarily because of the Omicron scare and the financials are also getting a little difficult. And unfortunately, that subdued well into January because January is also nearly finished. So there is something wrong with the road construction equipment and the backhoe loader market as a whole in the country. And as I mentioned, that it did go down by 23% year-on-year numbers with respect to similar machines in the last year, that is the data we have from my side now, which is our -- their situation of technical manufacturing in India. So backhoe loader industry, in the last quarter, yes, it was squeezed or something. But like I said, our base is small, and then our intention is to grow, so we have been able to do that. Maybe the pace of growth might not be what we were looking at in this year. It might be slightly lower than that because of, like I said, price increases and the market squeezes. But definitely, we are on the growth track. So maybe we will start this year. Next year, we will show brilliant color there as well.

And when you say this 23% degrowth in the industry, these you are saying for the entire fee, which includes all our portfolio, right?

That basically includes more or less everything because certain assets have maintained or grown like cranes or even the concrete and crushing machine. Personal footprint has maintained our growth. But on the whole, it has gone down by 23%. I'm sure we can dig out data from that report how much exactly backhoe loader has gone down, so I don't remember it.

And as you rightly said, I think you told the participant that while demand remains and demand remains robust, but it's largely the input cost and along with that the BS-IV transition of the engines that has impacted the rental segment.

Yes.

And rental segment is like 50% of the market? And how much would be, sir?

It's 50% or more, very difficult to quantify precisely because keeps on fluctuating, but more than 50%. And the rental industry is small, big, organized, unorganized, have still not come to terms with the costing of new machines vis-à-vis the rentals they are getting. So I think it is a catch 22 type of situation or a cat and mouse type of thing that as soon as now obviously, you're right, the demand is pretty robust. And we are seeing -- we've seen a very strong January. And going forward, we see a very healthy February. I'm sure March would be good. Now that Omicron is also more than behind us, India is getting more than more -- less than 1 lakh cases. So I think all in all, put together, as soon as certain rate revisions start happening profit-wise or area wise within the country with respect to the rentals on a monthly basis for the construction equipment, the demand is only going to go down further.

[Operator Instructions] The next question is from the line of Chandrika Siddharth from Rica Enterprises.

I have a few questions. My first question is, we did not have a good quarter, primarily because we did not sell enough crane. Cranes, which is our main segment, did not do well. The construction industry did well. Only we didn't do well in crane. What is the reason for this? And what is your outlook for the cranes equipment for the next one year -- crane segment for the next one year?

I would like to answer that. I think you are -- whatever you are saying is totally contrary to what we have just spoken about. Yes, we have not done blockbuster in our crane business. But yes, we have grown our crane business. And if you talk in terms of percentage, yes, we have been able to grow our crane business, if you talk, sequentially about 11.5%, 12%, and around 4.5%, 5% on a yearly basis. That's not a blockbuster growth, but yes that's better in a especially downturn scenario. The second part, what you said, construction equipment has done well, no, sir. I totally disagree. I just mentioned it has degrown by 23%, whereas we are still growing. No, I think your question is totally contrary to the times.

My second question is backhoe loaders grew by around 25% year-on-year this quarter. We were expecting 40% to 50%. What's happened? Why didn't backhoe loaders grow faster? And is our strategy of cross-selling backhoe loaders to our crane customers working out well or not? Finally, are we still on target to reach the sales of INR 500 crores for backhoe loaders, INR 500 crores per year from backhoe loaders within the next 2 years?

Here I would like to say that on a quarterly basis, sequential basis, we have grown 19% revenue in the construction equipment space and within our company and the segment and year-on-year basis 22%, whereas we had projected 25%. And we were expecting that really faster than that. Yes, we've not been able to attain that, primarily because, like I mentioned, most of the construction equipment industry has slowed down. But we've been able to grow. But by saying this, I would still like to say that our target to do INR 500 crores by FY '24 end still holds, and we are reasonably confident we will attain it, where this last quarter has been icon. We are easily confident that we'll be somewhere around INR 500 crores in our construction equipment by FY '24. There was another question within your question about cross selling, yes, we are already selling our up backhoe loaders within our crane segment customer, and we are seeing good results.

[Operator Instructions] The next question is from the line of Saarthak, an individual investor.

Congratulations on a good growth on the revenue front. Just wanted some detailed explanation about all the products that we have launched for the export market as well as the multi-activity trends that we have. So there's no revenue breakup for those multi-activity cranes and how they are performing currently. So could you please throw some light on that as well as the export front? Like how are we performing with the new backhoe loaders that we have launched as well as the tractors?

Yes. The export initiative has definitely taken up well, and we are doing pretty okay there. But very, very unfortunately, the container freights out of the country have also become double or triple in the -- in quarter 2 and quarter 3, which has seriously affected our export numbers. I mean, we've done well, but we could have done even better. And that is primarily because of the container freights from $1,500, $2,000, for example too far a destination, they become $6,000, $7,000. So there is a lot of delay which has happened in our existing orders being shipped and then getting debate and obviously negotiation for fresh orders. And our backhoe as well as our new tractor vein for export market, otherwise have picked up well. Our multi-activity crane, especially our NX 360 or NXT models have picked up well and today they are working with most of the leading manufacturing companies. Already, there have been industries, 1 or 2 machines here and there, and also in most of the prestigious metro projects, whether it is Delhi or Bombay or Kanpur or Patna or Bangalore, so yes, I would say a good beginning for these things have happened, and they have been inducted in most of the leading projects and we would further expect that the numbers will now further start to deliver.

Okay. And could you please put a number for those multi-activity cranes? Like how much of the cranes revenue we are getting from that, if at all possible? Estimate?

We have it in the breakup available with us right now. But let's see how, maybe you can just drop us a small e-mail and then we'll revert back on that.

[Operator Instructions] The next question is from the line of Puneet Anand from Emkay Global.

The engine cost in the overall crane cost, what could that be, sir?

With the BS IV now, it is -- BS IV, again, there are 2 categories, but less than 74 horsepower, one is more than 101 horsepower. So the engine cost now is approximately -- for a machine bigger than 101 horsepower, I would say, approximately around 11%, 12% or more. I would say, 11% to 13%, 13.5% for engines bigger than 75 horsepower. For engines between 50 and 75 horsepower, it is say about 10% approximately.

Okay. Okay. And between the BS III and IV, that increase would be around 20%, right?

I think a little more than that. So between BS III and BS IV, for between 70 and 74-horsepower, our price increase has been, so that you know, approximately 60%, 65%.

The engine cost, 65% .

The engine costs have gone up. See but it's not only the engine cost. Apart from the 60%, 65% increase in the cost of the engine, a lot of further electronics also gets added into -- because engines are few base engines, and they also require these chips and shortages which we are talking about, if you get it from the controller unit. So they also require a lot of further probes in electronics and other things. And then the entire electrical hardness of the machine to become more electronic with the cluster becoming electronic. So they are in addition about INR 40,000, INR 45,000, apart from the cost of engine a piece.

So from a -- if I have to -- let's assume a 75 hp crane, which was earlier BS III, and now with -- from September, BS III...

Only because of engine and electronics, the cost will go up by around INR 1.5 lakhs, approximately.

Okay. And in terms -- percentage terms, what number it is?

So again, it depends. See these engines are using machines, which are INR 16 lakhs, INR 17 lakhs for cost earlier and also in machines which are about INR 24 lakhs, INR 25 lakhs. So on INR 16 lakh, INR 17 lakh machine, if you add, the percentage would appear to be more. And on a INR 24 lakh machine, if you add this cost, the percentage would be less, so the range would be anywhere from 6% to 10%.

Okay. Okay. So I mean this is obviously, deterring the demand in some sense.

This is there, but the main factor is steel.

Yes. And steel is almost like 60 -- 50%, 60%.

Yes. Steel is about directly, indirectly, about 60% of our input cost, yes.

And one, just trying to understand, sir, the interest rates have been quite soft for some time. And we -- a lot of people feel that there could be hardening in that. That could add as another deterrent in demand, right? Because the renter guy actually must not be buying on some interest. And for him, the cost increases. So passing out to the end customers again become slightly more difficult. Is that understanding right or?

No. I would slightly differ on that because the interest really -- has really softened by a reasonable percentages here and there. So even if it goes up nominally 0.5%, 1%, even though I don't think that will affect the margin. The interest cost generally does not -- in the past experience that we have seen, generally does not hamper demand in the rental segment. But yes, this time, it is the sudden and massive increase in their purchasing costs that has affected the rent and that's what I am sure over like 3, 4, 5 months, 6 months, they'll come to terms. And definitely, in some quarters, in terms of the certain segment of customers and end users, we have seen a rental increase by about 5%, 10% in the last 2, 3 months, 4 months. But yes, the demand is for at least about 15%, 20% increase in rentals. So as soon as that happens, then everything will start to flow again. And without that also, it started to flow because if the end users need the frames and if they are not getting them, then they have to buy it. So whether it's opening up of further rental, this is the only way to increase.

The next question is from the line of Mayur from Profit Mark Securities.

I just want to ask what is the outlook for our next quarter? And how do you see quarter 4 now? Can you share your thoughts, please?

I'm sure it is definitely going to be better than December quarter. And if we talk on a year-on-year basis, it could be similar or better than our last year numbers. That is what appears to be as of now, but a little hiccup here or there. In the month of March, we really can't guarantee. But as of now, it appears to be similar or better than our last year's performance, definitely better than our Q3 performance.

The next question is from the line of Vipul Sanghvi from Systematix Shares.

One question. And basically, if you can share your read across on the agri equipment segment. While -- what we hear from some of the plays, on the say, plastic pipes who created the agri market, they are seeing demand being tepid. But as I see, we seem to have done reasonably okay as far as agri equipment. So your sense on this particular segment of the market, if you can share some thoughts.

Definitely, agri segment in the country has degrown in the last quarter because there were abnormal numbers, in say, which are happening for 1.5 years before that. And -- but like I mentioned earlier, our numbers are small, our base is small and from here we intend to go with business for them. So in that record of ours, I think we have been able to sustain and we are able to increase our numbers on this thing. So that is the main thing. And I'm sure we'll continue to do that because for us to grow, it is only by increasing our numbers and a small percentage point in terms of our market share because it's a huge market. So that's our intention.

Fair point. Fair point. And how are you seeing the first, say, January and February till date on that particular market? Like usually, we are expecting that February and March to be better months because demand...

With respect to agri?

Yes.

I'm sure we should be able to post a reasonable growth in this quarter. That's what like [indiscernible] with respect to our business.

Sure. And sir, second question on -- if you can throw some light on how has our working capital behaved in quarter 3, receivables and inventory?

From receivable perspective, at year-on-year basis, it was about 44 days, which is now at about 62 days. And in September, it was 76 days. So it has improved sequentially, but if you talk of year-on-year definitely, there is a need to improve it further. And it is primarily given that we are, as and at first, like I mentioned, that we were expecting good -- much better sales during the festive season, but somehow the overall scenario remained a little different. And we are carrying a little excess inventories in our system. So last year, December, we were having about INR 220 crores of inventory, which is now about INR 317 crores, which I'm sure would rationalize by end of March, so working capital would again fall in place hopefully about 45 days by end of March? Right, Luthra, sir?

That's right, sir.

It is a bit late as of now, especially because of the inventory.

So the present number is at 45 days. That's the number? Working capital?

At present, December and November is 62 days.

62 days, okay. So I'm referring to the Page 15 of the presentation, which says our FY '21 number was at 29 days. That has gone to 62 days and should come down as we draw down our inventory by March.

Yes, that's right. That's particularly on the -- sorry. And we have been supporting our vendors in this tough times. We have been [indiscernible] repaying them early also.

So Luthra, sir, Luthra, sir, end of March, the data that I had in my hand, it says 39 days of our working capital days.

39 days, yes, so 39 days.

But the gentlemen is mentioning 29 days, that's what I'm wondering.

I'll just expedite it to 39 days for the year.

I'm referring to -- if you can look at the Page 15, FY '21, that is March '21 working capital days are at 29.

I will just recheck and confirm to you.

This is the current earnings presentation?

Yes, yes.

Vyom, please check if by mistake, something wrong has been mentioned.

Sure, sir. I will check it up.

It is 39 days. I can confirm that, which is end of March and end of December last year '20 was 44 days. End of December '21, it is 62 days, and we are very hopeful it should be around 45 days by end of March. Correcting what Mr. Luthra was mentioning, end of March, our capital days was around 330 -- sorry, not days, INR 330 crores was the [indiscernible] amount. Today, it is INR 282 crores. So we have reason or hope to put it right in the next 1 or 2 months.

The next question is from the line of Suraj Deora from Paladin Capital.

I'm just trying to understand what's happening on the demand side. So you mentioned a few times that post Diwali, the demand has just cooled off. And I'm trying to understand if that is due to high prices or if that is due to some weakness that the contractors or the rentals who buy from you, whoever is using the product, are they seeing weakness in their usage of those products because tenders are not being put out or there is some other issue? Or there's no credit in the market if they're not able to access credit and that's why they cannot buy the equipment?

Oh, I don't think so. That is not the reason. There is a definite demand, a good demand in the infra and the construction side, with the contractors and the end users even in the manufacturing side. And December, we saw our order books selling up again. November was slow because that Omicron thing has internationally globally has started to this thing and the financials became a little tight in terms of leaving out finance. So November was a little not so good. December was -- the order booking was very good. Even execution was reasonably okay. January has been very strong, and we have entered with a strong this thing in February. So the demand is definitely there. It's just that it can be further increased or improved as soon as the -- most of the rental segment, either comes in terms with the current machine pricing vis-à-vis the rental or if say the rentals end up increasing a little bit more, which I am sure will happen, then the free flow will start again. So the demand at the end ever is reasonably okay. I really don't see that we've seen so much success ordering from end users, contractors. And real estate is growing very strong.

Right. And of the total sales, what percent -- you don't rent anything at all, right, you might be selling to rentals, but you don't rent anything yourself?

A very few we do have a rental division, where we get tower cranes, which are predominantly for the real estate segment. We have a fleet of tower cranes for rentals for this thing, which contributes about, so I think about INR 10 crores, INR 12 crores to revenue every year, right, Luthra?

That's right, sir. In 9 months, we have done about INR 10.5 crores.

Yes, it was INR 14 crores, INR 15 crores on a year basis. And we have a small fleet of road construction machinery, which was initially created as demo machines and to be supplied to the projects on a rental basis. So that's proved the worth of the machines. So we still carry that fleet about 20-odd, a 2-point plus/minus in our rental business.

So it's safe to say that a vast majority of the sales, 90% plus, 95% plus of outside sale. And those out of that 90%, 95%, how much is going to renters versus people who are using it, actual users?

You will have to repeat your question. I was not able to figure that out, sorry.

No, sir, I am saying around 95% of your sales, which is outside sale. What percentage of buyers are renters versus actual users?

Okay. So not 95%, I would say 99% of our sales because if you talk or look at the turnover vis-à-vis is the rental turnover, 99% of our sales is the actual sales to end users, I mean to customers. And I would say more than 50% or approximately plus/minus goes to rental and balance goes to end users directly.

Okay. And what is the financing arrangement that these buyers we have? How much do they pay from their own pocket versus model?

See all the leading NBFCs and banks are funding our equipment. And again, depending on the customer's profile, the margin requirement would be anywhere between 5%, 10%, going up to 30%, 35%, depending on the customer profile. So customers get financing, even they get 100% financing. Some bigger customers can get 100%, but I would say there's a 5%, 10%, upfront margin, going up to 30%, 35%. There are flats. Somewhere, LTV is around 70%, 75%, 85%, depending on the strength of the balance sheet of the individual customers.

Okay. And the availability of credit, in your opinion, is not a reason why there's any issue or there's no challenge you are seeing on that front?

More than issue in the second half of November going into still about, I would say, mid of December. For that 1-month interim period, mid-November to mid-December, they were definitely a credit squeeze by the NBFC, they were scared what will happen because of Omicron or whatever, whatever. But I think by end of December, we saw things were sort of streamlined, yes.

The next question is from the line of Ashwani Sharma from Anand Rathi.

Sir, my first question is on the defense. So what is the kind of tender pipeline do you see on the defense side?

See we have, in the last 3, 4 months bagged some good orders that multipurpose, 4x4, tractors and then the DRDO orders with respect to the special cranes, which are going to be modeled on the side lounge chairs. Then certain other cranes for again missile testing that are for the bigger missiles that we produce in our country. And then again, some DRDO orders are signed. So that is what we have been able to do in the last 3, 4 months, but all of this was based on the hard work every 1.5 to 2 years. So in the pipeline, we have further reasonable amount of 3, 4 bigger inquiries or, let's say, requirements which have also been worked upon simultaneously. So if everything goes well, in the first half of next year, we should see a couple of them reasonably bigger ones maturing and 1 or 2 still left for the second half of the next year, yes.

So if I've to see the contribution from defense, let's say in '23, '24, what number would you like to give, sir?

Can you just repeat your question, please?

Sir, in terms of the revenue contribution, let's say from defense in '23 or '24, what number would you like to put?

See just a second -- I will have to take 20, 30 seconds to do that for you. Just a second. In FY '23, we should be doing anywhere between INR 100 crores to INR 150 crores in defense, if not more. The possibility is that this INR 100 crores to INR 150 crores can be executed in effect.

Sir, that's helpful. Sir, my second question is on the price hike. If you can help me with the price hike, which we will have kicked in Q3 and also on a 9-month basis?

See like I said, even on confusion as for that. We took a price hike in November last year. Then we took a price hike in January. Then we took a price hike in March. Then we took a price hike in June. And then finally, we took a price hike again in November. I am myself a little confused on the total quantum, but should be somewhere between 20% to 26%. 26%. So I am myself confused about the percentages, so many has happened.

Sir, this was the predominantly in the crane?

This was -- what I'm talking about is with respect to cranes, and obviously, something similar little here and there has happened with respect to other machines.

Sir, can we expect a number around of price hike in current quarter as well?

No, we don't want to do any. Luckily, fleet prices did cool off a little end of December, so I don't think so. We cannot support to have another price increase. It will be very detrimental for the market. Yes, but if the need be, if the inflation continues unabated and things further go, then we will be left with no other option, but we have no intention of increasing our prices at the current juncture further. Just for example with respect to backhoe loader and growth, the Construction Equipment segment, we had a price increases on 1st of January also again after November. But yes, as of now, whatever we wanted to do has been put in place, and now we just want to increase our numbers and then just hope that the commodity remains the way it is or further slides down, so that we get the benefit in our selling.

Right, sir. One last question to Mr. Luthra. So what will be the cash on book end of quarter, end of Q3 quarter?

We had nearly about INR 185 crores.

INR 185 crores.

[Operator Instructions] The next question is from the line of Saarthak, an individual investor.

Yes. I'm sorry again, sir. So first of all, I just wanted to ask what are the capacity utilizations for segment individually? And like if you could throw light on what type of capacity utilization we are expecting in the next year as well as because our operating leverage will kick in and we will have a better margin upfront. So that's the main reason I wanted to know about this.

See, in Cranes, we are currently working at about 50% to 60%. So we have enough room to further be able to produce more. In construction, it would be close to about 35%. Material handling, we are about 80%. And we are already planning that we need to tie something quickly to take it to the next year. And in agri again, we are working at about 35%.

So this is like basically, we are expecting margins to increase when this goes to around 50%, 55% in construction, equipment and agri as well, right?

Yes.

Like are we planning to remain on the same margins to increase the market share?

See margins all across, even in cranes and construction equipment and agri will further increase with increase in utilization. For sure, operating leverage will kick in. Assets which have got to use, totally will get utilized. And obviously, fixed costs remaining similar to what they are. Definitely operating leverage will come in and improving utilizations, the margin profile will start changing the segments. And that's how in cranes we are already about 11%, 12%. So we might go to 13%, 14%. These segments will come to 10%, 12%, will on the whole we will be easily around 12% or 11.5%, 12% is easily possible.

So by 2025, the target that we have of INR 2,500 crores with around 14% to 15% margin, so that is on track currently, right?

I think so, but it is not up to '25, it is FY '24. So in the next 2, 2.5 years, our target is doing 2,500 and 13% to 14%, I do not know, 14%, 15% is possible, but yes 13% to 14% is what we think should be realistically possible.

The next question is from of Taarika Kushashya, an individual investor.

If you can elaborate, we seem to have added some capacities during the quarter, under this segment would that be?

No, we have not added any capacity during this quarter. We can produce 800 cranes per month. We can produce 150 construction equipment per month. We have the capacity to produce 175 material handling per month and about 600 agri per month. We have not added any capacity for quarter.

Okay. So the CapEx which actually has been planned for the year has been -- have we already sent some or?

So I couldn't figure out the question.

Okay. So probably eager to undertake some INR 40 crores, INR 50 crores of CapEx during the year.

Yes, yes. That's for something different, yes. That was at the paint shop -- and ordering is well underway as of now. So it has got slightly delayed. So we are planning to set up a world-class paint shop keeping in mind our product quality in India as well as for the export. So that is under planning and execution as of now. So some part of it might come in quarter 4, but most of it will go into the next year.

Okay. And at what point would you be comfortable significant CapEx taking into account the budget and the continuous ongoing...

We are looking at only in FY '24.

FY '24?

Once we are on track to add INR 3,500 crores, then we might need to add capacity.

The next question is from the line of Ashok, an individual investor.

Yes. So first of all, congratulations to the entire team for the good result. So a couple of questions. First one is on the side of market share. So how do you see the market share panning for material handling products per year?

We are close to at about 25% right now. And going forward, I think it is 24%, 25%, yes. And going forward, I think in the next 1, 2 years, we should be somewhere around 28%, 30% with respect to market share for material handling. In mobile cranes, we are already about 62%, 63%, maybe a percentage more within this quarter, which cannot be verified as of now. And we are hopeful that in the next year, we should be crossing 65%, 66% there as well, with respect to backhoe loaders and agri obviously our base is small. And there, we are not really looking at market share because it's not worth mentioning, but we are looking at increasing our revenues every year by at least 25%, 50% if not more, that's our target there.

Sure. And as I understand that the capacity utilization is still sub-50% level, how is the demand side pull from the market, so that we can ramp up the utilization capacity. I understand operating leverage will kick in, but unless there is a demand from the market, we may not be able to get much of an benefit from there. So how do you see the operation demand side?

Demand side from middle of December has picked up very well. And January, we saw really good demand going well into February. We are already on 7th today. So the demand seems to be robust. Yes, in the Construction Equipment segment and agri, there is a little slowness. But like I said, in these 2 segments, our base is small, so we're really not worried.

And the last one on the strategic side, since one of your competitors who is in the cranes business is not doing financially well, so are you also seeing that the eastern part of market is also getting good for his now?

Which part of the market?

Eastern part of India, because one of the competitors is not doing well financially. So I understand that there can be an opportunity for his to grab that market share as well from the competition, yes.

With respect to our bigger cranes and crawler cranes and truck cranes, where we compete with them, definitely we are seeing better traction.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Yes, thank you. Like I mentioned that we are very hopeful that our Q4 should be similar or slightly better as compared to our last Q4. And we are very hopeful and bullish for the next year. With most of the growth drivers in place and the things seem to be sorted out for us, and we are looking at incremental growth with respect to especially our construction and agri business. And yes cranes and material handling are also, we feel that will contribute in a significant way in quarter 4 and obviously going forward into the next year. So all in all, things look good. And then we are very hopeful that we should be able to do even better in the coming year and also in this quarter. Yes, thanks a lot. Thank you.

Thank you, everybody.

Yes, thank you.

Thank you very much. On behalf of Edelweiss Broking Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.