Ador Welding Limited (517041) Earnings Call Transcript & Summary

Okay. All right. Okay. So good afternoon, everyone. We're going to get started to give with a short presentation, and we'll leave it open to questions. There's some technical issues we are facing today, in case if there are any, please go to the text box or reach out and then we will sort out accordingly. Okay. Great. Let's get started, please can you upload the presentation. Okay. Good afternoon, everyone. Thank you for taking the time to attend our investor presentation today. [indiscernible] with you like we did every time on status of where we are. Okay. Now that's -- all right. Business Overview. So there's 6 people in the waiting room. So I think someone needs to accept the people pending in the waiting rooms. So can you please have that done wherever it is [indiscernible]. This is -- so we recorded Q4 sales of INR 235 crores, as you all would have seen, what we announced and the quarter 4 PBT figure is at 12.4% and they're fortunate not to have market condition to [indiscernible] allow to have our best ever quarterly performance and this compared to earlier were 10.2%. As we discussed before, market remains very strong in its demand as well as the resilient economic growth, especially in the sectors in which we are focused in. As a company, internally, the things that we are focusing on right now are capacity enhancement in specific product lines, the product mix of the type of products we are selling, the markets in which we're selling them in and try to get better realization as well as volumes. Internal, the digitization program, especially that are focused on our B2B supply chains and distributor supply chains. And in the international business, exploring new markets as well. The Ador International business we are talking about sometimes is very important and growing business sector for us. And we have fortunately done well last year for various factors that are not only internal changes that have been made in the leadership team doing well, but also related to global factors that are more encouraging for Ador do well in the Middle East, Americas and Africa. Data that you are all aware of, the PBT and return of capital employed data that we track by [ QC ] going forward. Working capital data as well. We expect this year on the ROCE level, we expect this year the ROCE level to go as planned to be flat, the ROCE level. We expect the borrowing figure to be also flat, little bit because of the projects and stuff that are coming up, we expect a little bit of growth to happen on that and the debt-to-equity ratio will accordingly move into the [indiscernible]. Our segment performance, Consumables, which is a very strong -- our strongest segment. As such, we've done well. We're seeing some benefits of scale and product mix. The Equipment has actually been doing well where we are today in the Indian welding market, approximately 80% of welding equipments imported, out of the balance, 20%, almost 50% to 60%, 60% to 65% of that is manufactured by Ador. Our volumes have done well. There have been certain supply chain issues that have led to a little bit of margins sort of being lower than expected. Plus, we also had automation division, which had a few things that needed to be cleaned out over the course of last year which is why we've seen slightly lower margin than we expect, and we expect this to improve over the course of this year. [ Fluxes ] across this cable division, we talk about it a lot, a lot of changes that are happening. We have [ rural ] project plus a few other projects that are going forward and turning the cone over here is stuck by well in Q4. Again, this year, rural project -- in the second half of the year will be the larger part of the billing or the first half of the year will be a little more subdued, and then it will lead into the second half of the year entirely. We have some ESG initiatives, which are new, which is related to the environmental changes that have been made, where there's stopping the use of thermocol, the reduction in plastic consumption by 30% of all our plants. And the most important thing is to reduce the water usage, which we will tackle very closely which is 50% less at one of our plants and 20% less at the other plants. The merger application is submitted by NCLT, convene the shareholders' meeting at [indiscernible] of 10th of August. I don't want [indiscernible] 11th of August, we will expect that this merger process will be completed by the financial year '24. Can we stop sharing this presentation. And now we go over to questions.

You can start typing your name in the chat box and the moderator will unmute your volume.

Good evening, everyone. I'm your moderator for today's Q&A session. Our first speaker for today is Mr. Ankit Gupta.

Congratulations to Aditya and the entire team for wonderful set of numbers, not just in Q4, but the entire year has been pretty good for us. So in Consumables, if you can talk about what has been the volume growth for Q4 as well as for the entire year. And the subsequent question on Consumable is the kind of margin improvement we have seen over the past 2 quarters. How sustainable is this going forward, 15%, 16% kind of EBIT margins on the Consumables side. So if you can talk about that?

Yes, sure. So last year, if you remember, we had done this, I think we've had 2 meetings since then. If you remember, Q1 was very, very quiet last year in terms of [ volume ] because of over the commodity prices and supply chain issues that -- inflationary factors that were taking place. So the overall volume, I think for last year was pretty much almost flat. For Q4, we had a growth of above -- sorry, we had growth of exactly -- about 4% -- so about 4%, 5%, we had volume growth versus in Q4 versus the year before. Now remember, Q4 the year before, there was tremendous volume push because prices were moving up. So you're comparing versus that period of time. In terms of volume growth going forward this year, we expect volume growth to be in the region of 10%. I think that should be fair in terms of volumes, and that's what we were planning throughout. In terms of margin, what you've seen in HY2, what you've seen in [ HY2 ] is pretty much on the lines of what we continue to focus on. I hope that answers your question.

Yes, yes. I'm able to hear.

So just to clarify, we expect to have 10% -- we expect at least a 10% volume growth in the Consumables segment over the course of this year, and we expect our margins to be in line with what was in HY2.

On the equipment side, Aditya, margins have remained subdued for past almost 2 years now. We have been facing some supply chains issue that you have highlighted in earlier calls. Although revenue growth has been decent, but margins have remained under pressure. And on our calls, we have stated that the equipment margins can also touch 14%, 15% kind of EBIT when things normalize and our margins improve. So what is the outlook on the margin as well as growth on the equipment front, if you can talk about that?

So the equipment, I expect there to be a similar level of growth as you can see in the Consumables in terms of quantities going forward. One thing that we keep talking about, it's a very [indiscernible] decision by Ador is that we want to do the Make in India part. And the Make in India part allows us certain benefits for the same times at a slightly lower margin than I expect leading players who are importing in very large bulk of [indiscernible] sourcing we'll do. So that's sort of the conscientious [indiscernible] that we take. Having said that, I think the margins are still a little lower than we would have done and there is room for improvement. It will take over the course of the year. It will not change drastically in a quarter. But we are doing things related to supply chain, better rationalization of manufacturing, better sourcing, product mix issues over the course of the year. Then we will see changes happen over the course of this year, closer to what we indicated. I don't think I'm able to hit that number this year, but definitely closer to that.

Thank you, Mr. Gupta. Our next speaker today is Mr. Vera [indiscernible].

My first question is regarding the flares division. You said the majority -- I mean, a significant portion of our flares project business that we got would come in the second half. The kind of margin profile that you would have expected or that you accepted this business at, can you tell us what will be your rough expectation of the business -- of flares business in terms of margins?

Grossly, we are expecting at least 18% to 20%.

18% to 20% on a gross level basis is how we look at it. And that's pretty much in line with how the project is going at the moment. The project, it's a 24-month execution on that project. And the bulk of the -- as we started, for the bulk of the execution we'll start in HY2 and run through until HY1 of next year, for Q3 to Q4 next year. But we look along those levels, we're tracking it very closely and we seem to be in line with that expectation of those figures.

Okay. And so in terms of just the cash flows, we see a significant or reasonable jump both in terms of receivables going up from INR 93 crores to INR 125-odd crores and even inventory is going up from INR 90 crores to INR 116 crores, which is hurting our working -- or it's increasing our working capital, I won't say hurting. But -- so do you think these are normalized numbers? Or there was some one-off in these working capital numbers?

So good, good question, and it's very important. So one part is I think on the inventory. These are not normalized levels, there were certain high levels that we had and we very spending a lot of time and effort over the course of this year to reduce that. I think last year, we were just -- there was so many supply chain in [indiscernible] to have normalized a lot now, more comfortable when we were at any point over the last one year that now I think will be the position we start getting our inventory a little more in a better position. We definitely agree with you that, that was a little slightly bigger position than we wanted, and we would improve on that. On the receivables front, there are 2, 3 elements to it. Our end user business in the domestic welding business will increase the likes of very large contractors and companies. So some part of that will happen, which is happening, is reflecting already, and that's okay. And we will ensure that rotates quite well and everything like that and that's part of the nature of doing business that we have to do that. There's a certain part of the international business that also happened is we increase, but most of that is very, very secure, but we're not concerned about that at all. And last part is, of course, with the flares business coming in, we'll have a little bit of that as well. So it's not like we're not tracking it. I think a certain amount of ballooning will happen and you will see a more normalized receivables putting an [indiscernible] towards this year. But as far as inventory goes, there is definitely room for improvement.

Sure, sure. And just my last question is regarding -- when you said 20%, 20% gross margin, I mean, would it entail the cost at the site and all of that, so which will mean the EBITDA margin would -- so then if I don't include the [ HO ] cost, then that would roughly mean that entire 20% flows to our bottom line. That's a fair understanding?

No, no, we are talking the direct cost, directly related to the project. So there are certain fixed cost.

Our next speaker today is Mr. Dhwanil Desai.

So my first question is, if I looked at our consumable business, we grew our revenue by 15%, but you said that the volume were flattish. So is it largely coming because of the higher steel prices or it's the product mix? And to tie in with this, you say that next year, we're expecting around 10% volume growth. So with the product mix changes and steel prices being lower, how do you look at the revenue calculations?

I think -- look, it's -- you have to keep in mind we had a very odd first 6 months of last year, that sort of masks and changes the entire profile of what last year was. We are pushing on volumes. We are definitely pushing on volumes. And volumes to the extent in Q3, Q4, have been fairly good at much percent of the utilization that we're looking at. We're adding more product lines in capacities for a diverse product lines and we expect to build out capacities as well. Look, we're a steel intermediary. You can't [ build in on ] the input price, right? So you basically have to [ pool ] with what you play with. But we definitely want to increase with pushing volumes while insuring that minimum margin level is maintained and that in the market is there for [ this ]. I think, look, if you look at last year, it's very hard to keep looking at that data last year for the HY1 because it's not indicative of a normal growth period. So that's why I'm very -- and the quarter before that, Q4 of the year before is where people were picking up very large volumes that were just being stopped. So I feel like there's a 9-month period that is very hard to look as a historical factor. So I think you have to look more from October onwards and then start seeing how does that accurately reflect demand, supply scenarios.

Okay. Okay. And second question, Aditya, is -- so in consumables side, I understand that it's a very decent gross margin business. And with the volume growth coming in, generally, the operating leverage plays out, but you are guiding for a very similar margin profile. So are we looking at any cost line items going up other than the normal inflationary part?

Basically, are you saying any of our variable costs will increase?

Yes.

We will have a few small increases. They wouldn't be very, very significant because I told you that -- I may not explain this in detail but -- once again, I think from a business development perspective when it comes to the international market, [ exhibitors ], when it comes to the Indian market, in terms of new product lines being added, driving [ our ] technical costs -- technical development costs, people costs, a little bit of all of that, I think investing in the future will be there this year. However, I think the upside, not only overtime, but I think this year itself, the potential is there to be able to absorb them within the margin levels we need. So I'm not too stretched about it. We are making investments in it because at the end of the day, we have to go the brand accordingly and we have to keep looking at the future, so yes, we are taking on costs that we wouldn't normally in any year. But given the economic scenario and the potential for where we want to go, I think it's worth taking on.

Okay. And last question from my side. So I think from whatever that we are hearing from other people on [indiscernible] side and infra side, things are very robust in -- on the ground. And also, we are trying to increase our business on the export side. So putting both this together, can we do more than 10% volume growth because the entire environment is very favorable and we are trying hard to grow.

I'll go in agreement with you, and we have some of our sales heads on this call, and they all know that 10% is a very -- is a conservative estimate that we're working with. It's just that I'd like to not get into anything more than, yes.

Our next speaker for today is Mr. [ Mehul ].

I had one question because I'm following this company very recently. So what is the rationale for merging the 2 companies, Ador Welding and Ador Fontech?

Sure. So just to give a very quick synopsis is they both basically started off as one. And they're both the legacy from the Oerlikon before 1951 when we had a joint venture with Oerlikon where basically these 2 companies, one is in the fabrication welding business, one is in the repair and [indiscernible] business, primarily related to welding but also in other parts in diversified and [indiscernible] from that portfolio onwards. We then decided about a year ago and then we were evaluating for some time before that not only us but many large players globally have started consolidating these businesses because they see a lot of benefits from the back end to consolidating and manufacturing and various other costs while ensuring that the distribution and the sales remain fairly separate in the front end. And we also saw it's a good opportunity to increase the value of the company. So we decided to do that. [indiscernible].

Sorry, I have one other question. I'm sure I don't know the exact number of years, but Ador Welding has been operational for more than 20 years now.

70 years -- 71 years.

Sir, just in your presentation, you mentioned that almost 80% of the services in this industry is from outside -- by foreign companies, and 20% is by Indian companies. Was that a correct...

If we take welding and equipment business line, welding equipment, welding power source business line, as per the data we get from the import/export data, approximately 80% of welding equipments in India that are sold have been imported. Yes.

Okay. So my question is more from a legacy standpoint. Since the company has been operating for 70-plus years, so still the company has no competition, which is I mean, is it a correct understanding, we don't have any competition for our company so far?

No, no. We have a lot of competition. We have a lot of competition, right, we do have. It's just that our competitors in that specific product line are more imports than necessarily domestic manufacturers. However, they're domestic players, and they are very well structured large companies also.

Sir, actually, I was trying to say that no domestic competition, is that correct?

No, that's not correct. What -- their brand, these people, these companies -- first of all, we have a lot of competition, and we have a lot of competition that is not only large Tier 1 -- Tier 1, Tier 2, Tier 3 type of competition that exists. We have a lot of players in the welding equipment space, which is fine, there's nothing so big in it, import their product and sell an imported product under their own brand name. And we have a domestically manufactured product in our brand name for the bulk of our suppliers. That's the only difference we're talking about.

Okay. Got it. And sir, one question or you can throw some light on how do you see the company because it was a surprise to me that the company has been existing for 70-plus years. So how do you see the company in the next 10 -- in the next decade, after a decade or so? Because you have the pedigree, you have the experience as a house.

Yes. So it's a good question, and there's a lot of thoughts that go into it, but I think I'll give you a very -- I think vague answer, I don't think I'll give you a precise answer because I don't think that would be fair. But look, we believe that we should come out as a very, very strong player at the end of this CapEx cycle at the top. And that's what all the efforts that we're putting in. I don't want to put a number to it. But in terms of the product lines that we operate in or the services we operate in or the segments we operate in, we want to be #1 or #2 by a very significant margin in those, and we're working towards that. I'd like not to quantify, even though [indiscernible], I prefer to quantify here but that's the philosophy that's driving us to that.

Our next speaker for today is Mr. [ Harshil ].

I just want to understand is after the ONGC order, do we have any such kind of big orders in the pipeline or in the bidding stage as of now?

Yes, we do have inquiries at a very advanced level and we are working on a few of them and try to convert them, the team is try to convert those so we keep the order book churning throughout and we keep the shop floor busy and everything like that. Yes, very much and there's a lot of work going on in that.

Okay. And will it be of kind of the same size or any...

Similar type of size, similar type of product profile, similar sort of work like that. Yes, very similar.

Okay. Sir, secondly, what I want to understand is if someone -- if a player buys an equipment from you, what would be the life cycle of the equipment and when does he change the equipment or...

So [indiscernible], there's a tremendous variation in that because you can buy very cheap, easy to -- sorry, quick use, at site use and dump type of machines that could be INR 9,000, INR 10,000, INR 15,000, that we could lose really fast there. There could be applications, for example, where you run it through 3, 4 years out, I would presume most people, the bulk of it would run it through a 3, 4, 5-year cycle. And then there are equipments which we know are in the field for 30 years, and 25, 30 years as well, the [indiscernible] is continuous. I think it varies a lot. But if you're talking about the general large contractors who buy for sites, they try and depreciate the value of the machine over the course of that project. That's the way they look at it.

Okay. But then too, they might be using the same equipment that some other site of [ gas ] -- or some other project.

Yes. All those things are the correct.

Okay. Sir, thirdly, I want to understand, you said that in the international business, we are investing heavily in all exhibitions and to create a presence in all these markets. So what tenure do you see that these investments might continue after which we might see a respectable or reasonable margin?

You should see the margin this year itself. I don't think we're going to allow the margin to get compromised. But we will see, I think, this year is slightly more [ vindictive ] numbers spend. This is -- we don't have it chalked out over 3, 4 [ years ]. I think this year, it is going to be good because of that -- but I don't see a tremendous impact on the margins.

So you might see some kind of a gradual increase from Q1 to Q4?

Some sort of a -- gradual increase in? In [indiscernible] sales or margins?

Margins, margins.

For Q1 to Q4? I don't want to answer that question right now. I just answer your perspective of FY -- I just spoke the last [indiscernible] perspective. So yes, it should be okay. I can't comment on it anymore right now.

My last question was on optimizing our working capital cycle. You said that the inventory levels might come back in a reasonable range. But looking at the receivables and payables, what kind of improvements can we do? Or is it just because of the ONGC order, which we've started executing with -- which has led to an increased working capital cycle?

It's not a very large increase just because of the ONGC. It's a slight increase on the ONGC, it's a slight increase on the international business brand. It's a slight increase, like I said, on the end user front, which we keep monitoring and keeping track of, and we look at the ratios overall as a percentage of total sale. On the inventory front, I think there's a larger scope. As far as ratios go of the receivables is slightly okay. Other than the ratio, they're more or less okay. I think the inventory ratios were something we were not happy with at the end of the year. So that's something we're definitely looking at how do we see a lot of that.

Okay. Sir, one last question is with the current plan, what kind of -- [ peak ] kind of asset turnovers can we do and are we envisaging any CapEx going ahead?

We have a significant CapEx going ahead this year in terms of new product lines and stuff like that. Normally, the ROI is 22% to 25% is what we look at. We have a significant ROI which I'm talking about to some time in various meetings, whether it's the AGM or whether it's investor meet. ROI -- our CapEx last year was fairly flat with a little spillover effect that comes into this year. And we're looking at some -- I keep saying product lines and stuff like that.

Okay. So what would be the CapEx number for this year? Any budgeted figure?

We have CapEx figure, would be -- have we decided fully? or closed it up fully?

[indiscernible] carried over from last year.

You can look at some addition of the possibility [ 30 ].

INR 30-odd crores would be the CapEx this year?

I think that's what we're trying to push towards because we have [ levers ] to go, and we expected it to be about [ 24, 25 ] last year, we ended up [ 15 ], seeing that spillover effect from there, you're carrying that through as well. So I think we're trying very hard to -- we had a project that I wanted to execute last year -- it's getting executed this year itself. So a little bit like that. So I assume we get [ 30 ] to get a little more [indiscernible] of what we want.

Okay. And sir, do we see any product gaps in our portfolio that we have still not presented and can be filled going ahead?

There are few small, small pockets. So it's there. We have to fight for the SKUs. There's always some little small, small, small -- there's no very large product gap, except for I think in the automation space, we are even lagging behind where we should be, it's a large gap. Everything else is sort of incrementally small product gaps that we keep plugging with our technical [indiscernible].

Okay. Can you just brief a little bit on the automation product gap, on the cost.

It's more to do which is still the comprehensive execution that we can do in terms of projects and stuff like that. It's not a specific product line or anything like that which is in terms of our capability to execute larger and larger, and more sophisticated projects.

Our next speaker for today is Mr. [ Kush ].

Yes. So my first question was on the Consumables. What would be our capacity utilization or what can be the turnover that we can do from our current capacity?

On average, depending on product line. The product line on average will be somewhere in the region of 80% right now. 75%, I'd say, right now, 75% to 80%.

Okay. And my understanding was that we were about to do a big cost rationalization program, and we had a lot of areas where we could reduce our cost. Current margins, I feel are -- have increased more to do with the operating leverage. So can you still help me understand that is the most part of the cost rationalization program pending and there is a lot of scope further to increase the margins?

There is scope, I think, it's going to -- like I say, it's a quarterly thing. I've always said this in every meeting quarter-on-quarter we keep studying and analyzing how we can make small incremental improvements in margins and we keep doing that as we continue. And there are some quarters where raw material input might hurt us versus something else. But in general, when it comes to just the way we operate, we keep quarter-on-quarter understanding how we can be more efficient in doing work. So there is definitely an upside but it's not going to happen tomorrow morning. It's a long story and we keep playing itself out.

In terms of cost rationalization, I thought we had 6, 7 factories and we were rationalizing to 1 or 2 factories. Has that been done or...

We do not have 6 or 7 factories sir, We have 3 factories and we are in the process of exploring different options as we go forward from there. And that is also to do with the merger being approved and everything and at that time we will be in a position to analyze things a little bit more. But you're right that rationalization could be this year [indiscernible] how we can be more efficient in our costs, but no, it doesn't stop. And it happens on the manufacturing space for many years, yes.

Okay, okay. And in the equipment side, if you can help me understand, we did sales of INR 166 crores in FY '17. Our sales in FY '23 are around INR 115 crores, what went wrong? And why...

Equipment was under grouping until FY 2021 we used to book the welding equipment and the Flares & Process Equipment division as one and after that we separated the 2 out. So if we look at the historical data prior to that to compare it will be a little bit difficult. We had our highest level of welding equipment sale last year by far.

Okay. Okay. And our expectations for exports and -- in FY '24 and what was the export figure in FY '23?

In FY '23, we closed exports at about INR 58 crores, INR 59 crores -- INR 61 crores we closed that and we would expect to do anywhere in the region of approximately -- more than that, I think we're looking at 30% growth, so we should be looking at, at least 30%, 35% growth is what we are aiming for at the very minimum.

Okay. Okay. And in terms of our blended margins, so consumables margins have recovered to kind of earlier levels or the best levels. There is scope in terms of Equipment and Flares also. So do you feel that in 1 year or 2, all this together, including Ador Fontech, which has 18%, 20% margins. So our blended margins can -- maybe increase to 13%, 15% kind of range? Or is that possible directionally?

It is what we are working to as -- that is what we are working to.

Our next speaker for today is Mr. Akshay Kothari.

Sir, what was the volume growth in the Equipment division?

Almost 30% plus.

Okay. And is this number sustainable going forward?

Look, I don't give a forecast of where we can go forward. I think right now, the economic conditions is what you have to keep looking at. I think right now, it's fairly feasible given the economic conditions but we won't comment on where we see the economy going beyond that.

Understood. Sir, and regarding the distribution network, has there been any expansion of distribution network on the domestic side?

We do little bit -- when we do expansion in the domestic welding network, it's all about where regions are, whether you want [indiscernible] change. Do you want to work with a different partner? Or is it some other reason that we are needing the large or the end user that requires it. Otherwise, in general, we have a very strong base that's there and it's sort of incremental change to other side.

Okay. And sir, there are these start-ups which are coming up. There is a B2B place called as [ Zetwerk ]. So do we have any tie-up with these startups or places?

We do. Depending on the start-up and the requirement, we do, in fact, we supply to Zetwerk and some like that. Yes, so it varies on case to case basis but yes, there is. There's a lot of B2B stuff coming on in which we participate in some and we don't participate in some, but yes there is a little more of that happened.

Our next speaker today is [ Ms. Nitiksha ].

Sir, I would like to ask that going forward in FY '24, from which particular sector are we expecting growth kind of, like, infrastructure or heavy engineering or automobile. So which particular sector do we think will be strong and will be beneficial to our company?

So I think the railway sector, whether it's the wagon manufacturing or the infrastructure in terms of heavy infrastructure that takes place around railway lines or stuff like that. It seems to be at the moment, a very big [ talk ] that we are seeing it on the ground. General heavy engineering and contractors and stuff like that, that are doing EPC kind of work, heavy engineering projects, that's the second biggest that we're seeing. We're seeing a little -- lot of work in sort of cement expansion also taking place, that's another third line that's also coming up. Oil and gas is a mixed bag depending on certain product lines at certain places. But I think these are the top 3 sectors on our radar in terms of big level growth.

And, Sir, one more thing, that is there any margin differential when we supply to different sectors, I mean, as per the product mix?

Yes, it's there. It does happen. There are certain products that are -- look, it depends where you supply those kind product lines. If you go into auto on very large volumes but then automatically your margins slightly on the backfoot. On the railways, it's a mix again. In some segments, larger volumes, so smaller margins. In some segments, you can get a bit of a mix. Oil and gas, heavy engineering all of that even has a slightly better margin mix for us. As I said, we keep balancing that as we move.

Our next speaker for today is Mr. Chetan.

This is Chetan from Alpha Invesco. First of all, I mean, congratulations for a great set of numbers and the remarkable work done by you and your team over the last 2, 3 years. So the number -- the quantitative numbers are pretty much visible. But, Aditya, if you can talk about the qualitative changes or some structural changes within the organization that we have initiated since you have taken over. I mean for example, let's say, if you have incentivized the way, if you have changed the way we are incentivizing our sales team, our cost structures or, let's say, how our product mix has changed from a certain type of products to newer type of products. If you can just throw more light on that?

Yes. Sure. Why not. I can give you some view on a few things, I may not cover it all but on a few things. So one of the things we have -- okay since you brought up HR that's a very interesting subject [indiscernible]. We now have a system whereby a minimum of 10% of anyone's package in the company including -- a minimum of 10% anyone's package, anyone, whatever level you are, minimum 10% of your take home, 35% for the bosses, for all senior managers is variable, which definitely used to be the case earlier. Of that, a minimum of your variable package or minimum of anywhere between 15% to 40% is linked to the profit of the company. So that's one big change we've made, and we're kind of seeing the benefit of it. And we're seeing a lot of people more clearly aligning towards that, that's one. I think one big thing we're doing is we've been trying very hard to create more and more ownership in the company. As I keep saying, it's a 70-year-old company, it has its own -- it's a big ship and if you want to turn it, it doesn't turn just because one person says turn it, it has to require all of the stakeholders to buy in and I think we've been working a lot of time and effort with all the bosses, all the mid-managers to take more and more ownership. So I think that's a very big part of what we're trying to drive. And I can't quantify that, but that's solidarity where we spend a lot of time and effort on. We are investing in people that can add technical expertise or business-development expertise, I think we are doing lot of those 2 elements in everything we're looking at. So that's with the HR perspective. We -- from a product line perspective, improving the product mix, getting -- taking gambles in service of areas there are more imports sort of picking in that maybe more in terms of domestically and stuff like that, invest in a bigger way and take those chances over there. So that's a big part of what we do. And yes, I think that comes in. There's a lot more we do it on a volume price and all those details, but that's pretty much along the line in essence of what philosophically we try and drive towards on that front. I hope that helps in some way.

Yes, yes. So I mean, when I look at our product realizations, so if you compare it with, let's say, our -- the largest player in the Indian market, so realizations are around 15%, 20% lower ballpark compared to them. So is it because of the product mix or the pricing or the way our distribution is managed. I mean, what is it that is leading the...

Look, I don't like to comment on an another company [indiscernible] I think globally, they are very, very strong and so are we strong in India. And we're not that far away from them, especially in the market where we fight is not that far away. There are 2, elements to their numbers, and I don't have the details of, so I can't comment, but they have a fairly large service business, which is servicing their own group international companies, like, [ acknowledge or x ] this is what I read about, this is what I heard. There is a fair amount of that business that's there, where they're basically doing engineering [indiscernible] or something like that. I don't know what the margins are, what the sale is, I don't know anything on that. But I presume that's different to the normal -- typical margin we won on the supply product. Second thing is they do have some products where they made some acquisitions globally where they have those products lines that are in the specialized metals and stuff like that. So that's also there for them. And thirdly, I think, they have a little bit of global sourcing benefits as well that come. So -- and that's it. And I think it's a slightly different game in that sense. Having said that, look it's not that we can't bridge that gap. It's just a question of moving and acting [indiscernible] certain areas of getting it done. But I think we are an MNC that has a couple of [ billion ] dollars where we are, who we are. So you have to pick and choose your fights and figure out how you can, where you can improve and where you sort of -- where it does not make sense to take that -- but that's where we are, but I think that gap will be bridged more and more. That's definitely a must.

Okay. Okay. So there is a room to improve our realizations and processes.

Yes, For sure. It's just not going to happen overnight, it's going to be a little play out of time for sure. That's it.

Okay. So let's say, through this cycle, can we expect significant gross margin expansion? I mean not asking for any particular number and neither...

I can't give you a number on that, but...

Okay. Okay. So secondly, on our exports, what are our export volumes versus the domestic volumes?

Export volumes last year -- this year on average we must have done somewhere in the region of 3,000, 4,000 tonnes -- may be last year 3000, 4000 tonnes last year we have done probably. And that will grow this year.

Okay. Okay. Aditya, I think, on one of your earlier calls, you had mentioned that our exports in 2021, 2022 were less than the exports which we were doing in -- way back in 2002, '03. So my question...

We were way better in '06-'07 that I remember than we were now. No, no, we caught off that, and we bridged that gap by the way. We closed that gap and gone beyond that already.

Yes. So my question is what is leading to this revival in exports? Is it because of the demand from North Africa or Middle East markets or is it that we have set up some offices overseas and that is leading to this change?

I think it's very simply 2 or 3 things. The first is we've made massive management changes that are beginning to pay off and have done well. I think the second thing is that we've restructured the tier we may set up in those markets than we have been from the management perspective. The third is definitely without a doubt is globally, the supply chain is in a very different position than it was vis-a-vis our global competitors have more capability. I think that is giving the benefits as well. And lastly, in the Middle East, in certain other markets in Africa, Ador is a very strong brand that was under sold, always set as under sole brand and now we will be aggressive in actually converting to sales. So I think we're utilizing our brand power much more effectively and the opportunity to grow there is even more. So I think it's most of the factors that are playing in our favor. It's a keep working hard and smart value opportunity to keep coming.

Okay. What would be the opportunity size for us, let's say, in Middle East and North Africa, if you can quantify it in volumes?

North Africa is not that big by the way. The Middle East is pretty close. Saudi, UAE, Oman, those are critical aspects of the Middle East. North Africa is a little bit. Now I think the Americas are getting a little more aggressive over there and try to see opportunities over there as well. But the market size is that it's huge. I don't think it's a market size, the question is what is the addressable market size if you can look at, and that's a couple x of where we are today here.

Okay. Okay. But we can export to Europe and U.S. as well. Logistics is not a major...

Of course, not a major issue it depends on product line. There are some kind of approvals, certifications, there's a whole bunch of stuff that we're looking at. I'm not -- I wouldn't say that EU is our priority at the moment. I'd say that Middle East -- the oil and the gas companies of the Middle East, the North African part of that, the Americas are a little more priority at the moment.

Okay. So over the next 5, 6 years, let's say, can exports become, let's say, more than 20% of our sales?

In the next 5 years, [indiscernible] yes, you can get close to that, definitely you can get close to that, why not?

Okay. Okay. So my last question is, sir, I was just looking at some North American and European markets. In those markets, they're using very less number of, let's say, stick electrodes and primarily they use [ GSAW ] welding and flux-cored welding those products. So why there is a difference between the consumption pattern of these electrodes, let's say, in India versus the other markets? And can India also transition towards, let's say, [ GSAW ] welding going forward? And what are the implications for our product portfolio and margins?

So the transition happens. It's happened globally, it's happening for a long time. Transition is primarily related to the cost of labor and productivity. And what we are talking about is GMAW and SAW which are basically more tedious welding processes where the deposition of metal happens on a continuous basis and for a longer period of time. It can be done through semi-automatic and automatic processes stuff like that rather than handheld and there are certain applications we cannot escape handheld globally and it happens in India. So I think the broad -- I think in developed economies, I think the ratio is around 55% on the continuous side and 45% of the noncontinuous sort of segment whereas India it's at 70-30. 70% is on the continuous and the non-continuous is 30% but that ratio has changed drastically over the last 10 years. It used to be 90-10, it has now become 70-30. think in some in the region of -- India will be some in the region of 65-35, 60-40 given at the end of this CapEx. I don't think you're going to see it jump very drastically from that angle. However, as also labor increases job increases as the automation comes in that's why I'm quite [indiscernible] automation portfolio. Over the next 10 years, this will keep transitioning. There is no doubt [indiscernible] application.

Okay. But if we have the product portfolio and we are present in both the segments. So it will not really disrupt the...

We always have the potential to implement [indiscernible].

Okay. Okay. And sir, my last question is what is the CapEx plan for the next 2, 3 years, if you can quantify it and for which products?

I think over the next 2 years, you're looking at -- you have in the region of approximately [ 40, 45 ] over the next 2 years is what I have to give indicative benefit. And this year, it's slightly higher part of that. That's what I think it is earlier as well. And most of this product line is related to the welding business just welding consumables [indiscernible].

Our next question is a follow-up question from Mr. Ankit Gupta.

Aditya, if you can give some broad views on how are things shaping up on Fontech? How has been performance last year? And how do you think FY '24 will shape up for the company?

Very few changes in Fontech from HY2 onwards we've seen, better and better results, I think, little bit just start below could have been in terms of our sales base in FY '23 Q4. There's also been production changes. There are product lines that are related to the plasma cutting and all of that where the base effectors are little bit. We may kind of do small changes over there through the course of this year. It will be interestingly to see [indiscernible] quite in line with the industry expectations, we are not in a position to do better than that.

So can we expect 10% kind of volume growth over there or it will be lesser?

In Fontech, we don't discuss volume growth as much as we do in welding. In Fontech it's all about value growth that we keep looking at because the product is designed. So it's more on that side. I don't want to comment on the value growth specifically, but the engineering of that company is more value growth-oriented than volume growth-oriented.

Sure, sure. And secondly, on the consumable part. If you look at our revenue growth, we have grown by almost 15% with hardly any volume growth in FY '23. So there will be a big element of realization increase and also some product mix improvement. So if you can specifically talk about product mix improvement, which has happened in last year and what are our plans for product improvement for FY '24 as well.

Product mix improvement is an incremental thing. It happens in small, small stages as we keep entering more and more specific segments and more and more high specialized [ metalized ] technique. [indiscernible] incrementally in a very large pace and neither can it happens completely in any of the company. So that's gradually. A lot of what you see is the HY1 inflationary impact in that 15%, that's a very big part of it. So you have to keep that in mind. The product mix is certainly going through small, small changes, but at the end of the day, the steel intermediary, the price the steel companies pay that is so much we can do. So you're putting around that aspect as well.

Sure. So last year's growth was largely driven by realization increase, the inflationary thing on steel price?

Not in HY2 so much, more in HY1yes.

First half was because of the inflation. Second half was [indiscernible].

And product mix in second half was better than...

We have another follow-up question from Mr. Dhwanil Desai.

So, sir, the first question is on the export side and slightly looking 3, 5 years out. So I wanted to understand from you that we are tapping the Middle East market I understand because we were there driven and the low hanging fruit. But how difficult it is to tap into large markets like North America? And are we thinking in terms of tapping that larger market in terms of bandwidth in terms of capability to compete with guys like Lincoln and [ ESAB ]in their own in their hometown.

So it's definitely a slightly different ballgame to enter the America, Central America and South America it's a different ballgame, no doubt. However, this is where the global headwinds towards tapering an Indian supply chain come a little bit in your favor. So I think that's -- there are a lot of people who are looking at India as an alternative supply source and that's currently this conversation to happen. So you're seeing a much more open door policy towards this. And I think that's helping a lot. So I think it will happen over time. It will take time, this is another over the next 2, 3 years you'll see results. I still think that when it comes to value, mix and brand and margin pull in the Middle East, and the oil and gas markets in the Middle East have a larger potential but as we grow the entire all together, we meet the volumes that will solely come out of those markets in the Americas as well.

Okay. So let me put it differently. So in our aspiration to get 20% out of exports, whatever, 3, 4, 5 years out if Middle East and the current markets are good enough to reach that aspiration?

The markets we intend to establish this year that I keep repeating this, Americas and then the Middle East and North Africa. These 3 markets have the potential to give us that number, yes. Not that every year, we need to go and create new, new geographies which are very far away. This is pretty much the road map over the next 2, 3 years, establishing the road map this year, a lot of it testing will help a lot to get that number, yes.

Understood and second question is on the Flares. I think this year, we did around INR 45 crore, INR 50 crore, Flares business. And ONGC order 60%, 70% will get executed probably more tilted towards H2, but in FY '24. So this base business of INR 45 crores, INR 50 crores on top of that the Flares from ONGC that is how we should look at it? Or this will get replaced by ONGC order?

According to census over there, that...

So should we add that 60% from ONGC into the current business of INR 45 crores, INR 50 crores?

No, no, no. Yes, it's not like that.

Okay. Okay. So it's more split of ONGC for Flares this year?

Most of the revenue this year, yes, it is related to the ONGC project, correct, yes, right.

Our next question is also a follow-up question from Mr. [ Harshit ].

Sir, I have a few questions on the Ador Fontech business. So firstly, what I want to understand when you said it's more of a value business, so currently, what kind of value addition do we see over the next 2 or 3 years, like will it be something major that we are doing in terms of it or there will be any lower hanging fruits [indiscernible] just explain.

I'm not going towards excess detail on Ador Fontech because it's a separate sort of thing and until the merger is through I don't want to, but so what I call I have to wait to give you an overview on that. They do solution-oriented selling to enhance the life of more industrialized product. So the question is the product mix, that applications you're talking of, how you sell the applications, the customers you're talking to, the reach you do. All of that and the way you sell, will allow you to be keep enhancing your value mix to be discharged. So you can keep adding to it and doing it. I think it's again a question of at least, I feel, the same story is that I feel this is an undersold brand even in that market. I think the team -- the sales team has the potential to utilize the brand power and its application power, grow the value or the mix of the volume, either of which you keep winning. The application is tremendous over this. So I think that's where [indiscernible]. And I think we are we're working on it. We're trying every quarter-on-quarter to keep improving that. There's a lot of work we are going to do. And this is services business by the way. We do a services business as well. A lot of it are in our [indiscernible] all that, which is also -- we are assessing a month -- a year sort of order book building.

Okay. So is it okay if I add a few questions on Ador Fontech business just...

I think one more question because I think it wouldn't be fair to answer too much on Ador Fontech. I think one more question on Ador Fontech.

So the same question that I asked for the welding business. Are we seeing any kind of product gaps that have been filled up in the Fontech business, which are kind of your low-hanging fruits going ahead? Or do we have a full product profile in the Fontech business, and we just have to go and sell in the market?

Sorry, we have -- we don't have massive product gaps. We are implementing product gaps that can be added and we took a little bit to do it. We have one specific area actually is related to sort of application of spray technologies that we're kind of looking at. But in general, there's no massive product gap that exists in terms of the portfolio we book.

We have 4 or 5 questions left, can we take 2 more?

We can take 2 more or 3 more very quickly, whatever is there 3 more questions if you don't mind and then we'll close this out. Thank you very much for your time and I appreciate everyone. But let's go on very quickly if you don't mind with the 3 next questions.

Our next follow-up question is from [ Ms. Nitiksha ].

Yes, sir, my one more question is regarding the -- basically the -- our customers. So do we even supply to shipbuilding because...

Yes. We do supply to shipbuilding definitely and in fact, over the coming next cycle I think that's going to be a very interesting play. I think the vertical shipbuilding [indiscernible] definitely.

Yes, because a lot of defense orders are going to the Mazagon Docks and Cochin Shipyards...

So we are involved in some part of it, we are not involved in some part of it. There's a whole mix and stuff that happens over there. It's not only the defense sales and there's even the commercial element from boat parts. I think yes, right -- there is -- I think the cycle for that is in fact about to start picking up the way we view it. Let's see how it pans out, yes.

And power plant, sir?

Sorry?

Power plants?

Power plants, we are involved whenever there are...

Contract or certainly capacity expansion and some work like that, yes, we're involved over there.

Okay. And sir when there is an increase in raw material cost, we pass it on to our customer. So when there is a cooling off, do we kind of reduce the prices or...

We must have to look is pretty much open inflation and like I keep saying [indiscernible] also what you could pay with it's only a 1-month lag from both sides is what we play around with.

Okay. And sir, regarding our competitiveness, so how do we kind of try to bridge our gap between the largest player and ourselves, like, in what direction do we try to compete with them and be better, I mean, increase the market share?

It's not always a head-on battle. I don't think it's always a battle. It's -- from the public markets, it's easier to do that because they do in the larger public market companies in this space. I think we have also marked that we sort of started out in terms of where we want to go. And there's a big opportunity to bridge the gap, but it doesn't mean that it's always head on with them, no, not at all. There are many different dynamics that we keep looking at.

That was the last question for today over to Aditya sir.

Okay. Thank you very much for your time, and appreciate everyone logging in. Thank you very much. [indiscernible] at the end of next quarter, next quarter goes like. All right. Thank you very, very much.

Bye. Thank you.