APAR Industries Limited (APARINDS) Earnings Call Transcript & Summary

Good afternoon, everyone. On behalf of Four-S Services, I welcome all the participants to the Apar Industries Q4 FY '20 Earnings Conference Call. Today on the conference we have Mr. Kushal Desai, Chairman and Managing Director; Mr. Chaitanya Desai, Managing Director; and Mr. V. C. Diwadkar, CFO, Apar Industries. I would now like to hand over the call to Mr. Desai for his opening remarks. Over to you, sir.

Yes. Thank you. Good afternoon, everyone, and a very warm welcome to the Q4 FY '20 Earnings Call of APAR Industries. These are really unprecedented times. We are all sitting here far away from each other, maintaining very safe distances and yet remain united in our efforts to move forward despite all the pressures of this pandemic. Wherever you are logging in from, we really appreciate having you with us today, and we wish you the best of health. Let me start this call with a quick industry update. Then I will cover an overview of the performance of the company and then a more detailed version of the segmental performances. After which we can throw open the floor for questions. We had a [ sunkade ] in March 2020. And in fact, it hurts us and -- Apar and the 3 businesses because several of our product lines actually need inspections before delivery. It is really the busiest part of the year. And with the suddenness of the lockdown, several hundreds of crores worth of potential sales was missed. In our B2C business, we lost the entire year-end invoicing and collection cycle. In spite of that, we've reported consolidated revenues of approximately INR 1,814 crores. which is a decline of about 26% year-on-year and an EBITDA of INR 103 crores, which is a decline of 25% year-on-year and a profit after tax of INR 23 crores, which is a decline of 47% year-on-year. However, for the full year, Apar delivered a performance with consolidated revenues at INR 7,465 crores, which is a decline of 6% year-on-year basis. Our reported EBITDA is INR 468 crores, which is marginally lower by 1.5% compared to the previous year. And profit after tax came in at INR 135 crores, which is in line with what was posted in FY '19. This is after making provisions for doubtful debt in the year of INR 29 crores versus INR 5 crores in the previous year. We've been a little more aggressive in making these provisions taking into account various customers who we have been pursuing and are now in NCLT. And given the current circumstances which exist today, we thought it was prudent to be more aggressive in making provisions. I will now cover a few highlights in the T&D sector as such. As per CRISIL's estimate, the pandemic will cause DISCOM cash flows -- cash losses actually to almost INR 58,000 crores in FY '21, mainly due to lower industrial demand, which has been there in the current quarter and commercial demand. INR 90,000 crores bailout package has been announced in the month of May for the stressed DISCOMs as part of the Atmanirbhar Bharat Abhiyan to tide over the COVID-19 pandemic. We expect this to provide some short-term relief. Much awaited second phase of the power sector reforms saw some traction with the Ministry of Power issuing draft proposals for amendment to the Electricity Act 2003 in the month of May. FY '20 actually saw some good traction in TBCB transmission projects, with an award of 11 LOIs carrying an aggregate value of over INR 13,500 crores in 10 projects. There are 20 more transmission projects which are under bidding for an estimated cost of INR 23,400 crores. In FY '20, India added 11,664 circuit kilometers of AC transmission line, which is down 48% over the previous year, 65,230 MVA of AC substations transformation capacity was added, which is down 10% year-on-year and 3,000 megawatts of interregional transmission capacity was added, which is down about 76% year-on-year. Similarly, execution in the railway electrification has been slower than anticipated. In FY '20, 2,606 railway kilometers has been electrified by the key agency, which is the Central Organization for Railway Electrification against its target of 7,000 railway kilometers. Essentially, the pace of execution on the ground is clearly not keeping pace with the target that has been set. And so our estimation is that the projects will still be completed, but would take a longer period of time. The 100% plan of electrification is to be completed by 2024, but it may exceed that by a year or 2. Power grid last year executed a CapEx of INR 15,313 crores in FY '20 and their FY '21 CapEx plan is for INR 10,500 crores. One thing is clear that the way forward for additional power generation globally, not just in India, but all over the world, is renewable nonhydrocarbon sources. Each of these sites, including the new projects and tenders, including those of hybrid 24 hours power delivery, which include a combination of solar, wind and hydro with battery storage are being set up away from existing thermal power plants. And hence, there is a need for brand-new transmission networks to connect into the grid. This phenomena is happening all over the world. And hence, we see the demand for our conductors, cables and transformer oil to continue to remain over the years to come. There will be new export opportunities that open up in countries, where there were no projects being announced previously, like in Australia and in Europe. As part of the economic revival packages, many countries are actually accelerating their infrastructure spend. In India, we expect execution challenges to continue in this quarter, which is ending, which is Q1. Activities are likely to pick up in Q2, but we don't expect them to fully normalize. This is due to a lack of manpower shortage, disruptions from the COVID spreading and then teams getting disrupted or sites getting stopped for a few days, and of course, the lack of access to funds from EPC players. We are much more optimistic about Q3 and Q4 and expect to have a much higher level of activity during those periods. There are also periods which are very conducive to outdoor work, which is post the monsoons, and generally, with the climatic conditions also improving. I will now brief you on each of the segment's performance. So the conductor business posted revenues of INR 3,624 crores in FY '20 compared to INR 3,915 crores in FY '19. Exports contributed 40% to the revenues. Volumes decreased 14% year-on-year to reach 1,58,104 metric tons. The share of higher value-added products in the revenues has increased to 38% from 25% in FY '19. Of this, the high-efficiency conductor revenue increased by 96% year-on-year with better execution, and its contribution to revenues was up at 18% compared to 9% in FY '19. Copper conductor for railways revenue grew 26% year-on-year, contributing 20% of the revenues versus 16% in FY '19. We also launched the new product, which is the CTC for transformer industry in the year. However, traction was a lot slower than expected in this product line due to the market conditions that prevailed in the transformer industry. And it has taken longer for them to actually get approvals to us for utilization of our CTC conductors. Additionally, the order execution for a new -- for another line, which we had launched the previous year, which is OPGW, which is an optical fiber ground wireline. That also was relatively low. These are conductors which actually have fiber optic cord for data transmission. However, given the order book which we're already carrying as well as the prospects that we see in FY '21, both of these product lines should do significantly better. So EBITDA per metric ton post ForEx adjustment improved 20% year-on-year to INR 10,790, with an increased share of the higher value business. Our order book at the end of March 2020 stood at INR 2,004 crores, which is down 34% year-on-year. New order intake was INR 2,617 crores, down 52% year-on-year due to a slower tendering in the railways and strict sales focus on orders with good payments and margin. The high-efficiency conductors and copper conductors contributed towards 15% and 11% of the order inflows, respectively. In Q4 FY '20 conductors revenue was down 37% year-on-year at INR 838 crores, mainly due to the COVID-19 repercussions. Volumes were down 42% year-on-year to 36,444 metric tons. Orders for conventional conductors were available, but required delivery in Q4 itself, for which the capacity was not available. EBITDA per metric ton post ForEx adjustment came in at INR 11,206 per tonne, which is 68% higher than in the same period previous year. Coming to the specialty oils segment, the revenue came in at INR 2,323 crores which is down 12% year-on-year due to the lower demand, particularly of transformer oils. And then, of course, the lockdown which knocked off almost 2/3 of the sale of the month of March. Volumes came in at 4,03,626 KL, which is 6% lower. The Hamriyah plant's utilization was up at 68% in FY '20 versus 62% in FY '19. And export revenues continue to be quite stable. The auto lubes and industrial oils contributed 23% of the revenues. We made provisions for doubtful debts in this segment of INR 18.5 crores versus INR 6.5 crores for FY '19. And this has had a significant impact of about INR 12 crores in the quarter itself. Given the current financial situation, we thought it's prudent to more aggressively provide as revival for these companies that have closed down or are facing NCLP proceedings would be challenging in the current environment. So EBITDA per KL post adjustment came in at INR 2,990 per KL, which is similar to the figure of FY '19. If you look at just the fourth quarter of FY '20, oil revenues closed at INR 545 crores, which is down 22%. Volumes were down 16% year-on-year to reach 96,921 KL. EBITDA per KL post adjustment came in at INR 2,030, which was lower. And the bad debt write-off worth INR 9.76 crores was taken just in this period, which accounted for about INR 1,004 per KL. So excluding the bad debt provision, it would have been at INR 3,034 per KL. During March and then especially in April and May, when the world went into lockdown, the price of crude and gas oil had a precipitous fall. We couldn't really benefit from this fall as our storage tanks were relatively full. And most of the base oil refineries were also carrying products prior to the lockdowns, which were at higher costs. Demand globally, of course, fell drastically during this time. Only a few traders were able to pick up distressed cargoes, and they will disrupt the market in the short term. However, we see that, as we get into Q2, we should get into fairly normalized margins. During the India lockdown, our Hamriyah plant actually operated throughout the period, and we benefited from this risk mitigation strategy of having manufacturing in more than 1 country. They benefited from a number of orders, which were rolled over on our India operations to the UAE as well as external customers who shifted orders from other Indian manufacturers, meaning other Indian suppliers to our Hamriyah facility. Coming to the cable side. The revenues declined 5% year-on-year to INR 1,601 crores in FY '20. The strategic focus on exports and copper cables helped us amid a slower optics on the renewables and the telecom sector. Export revenues grew by about 60% year-on-year. And they contributed 17% of the total cable revenues versus 10% in the previous year. We launched a new range of medium voltage covered conductors in this year. These increase safety of transmission lines closer to the last mile, particularly in densely populated areas and in areas which have dense forest and vegetation. The EBITDA margin was sustained at about 11.1% versus 11.3% in FY '19. If you come to the fourth quarter of FY '20, the cable business reported revenues of INR 447 crores, which is down 12% over the previous year. EBITDA, however, declined 39% to INR 43 crores with a margin of 9.5% compared to 13.7% in the fourth quarter of FY '19. FY '21 has had obviously a very disruptive start. We expect in the first quarter to do approximately 50% of the revenues of a normal quarter, given that it was almost negligible in April grew to about 50% of what it should have been in May and about 75% in this month of June. The demand will take some time to revive with an expected delay in tendering and lower execution from the customer's end, particularly due to migratory labor issues, which are slowly getting reinstated. Our Rabale plant has been permitted to operate with 50% staff strength as it is located in the Mumbai metropolitan region. However, all the other plants have no manpower restrictions as of now and are operating to the extent that we have ordered with commensurately acceptable commercial terms. Employee safety has obviously been of paramount to us. As an organization, we quickly adapted to the new normal way of working, with sanitization, working from home and all the other requisite measures. We maintain a low leverage and are focused on restoring our cash flow level, with a highly increased focus on collections and also aligning more closely our production to the immediate demand that exists. We intend to complete the WIP projects, which are -- which have already been started. And we'll review the situation in H2 before we look at undertaking any further CapEx projects. In any case, the original CapEx plan for FY '21 was significantly lower than in the previous 3 years. So with this, I come to the end of my comments, I would like to thank all of you for joining us on this conference call, pray that you all remain safe. And we can take questions at this stage. Thank you.

[Operator Instructions] The first question is from the line of Saurabh Patwa from HDFC Mutual Fund.

Hope, you're able to hear me.

Just if you can speak a little louder, Saurabh, that would be good.

So now you can hear me properly, sir?

Yes, yes.

Yes, sir. Sir, just wanted to have your thoughts on the working capital side. So with lower revenue and raw material prices falling in most of our segments, in fact, actually, all our segments, how do you see working capital shaping in next 1 year or maybe -- or at least in the next 6 months? And with your focus on collection, as you said -- as you already mentioned, how do you think that on impacting on our cash flow?

So we expect actually that, obviously, working capital requirements will come down because of 2 reasons. One is that, as you rightly pointed out, the commodity prices themselves are lower. Second thing is that we are tightening payment terms to whatever extent we can as well as aligning production to the orders that we have in execution. So trying to work on a reduced order to execution cycle. And finally, we are walking away from business where customers want extended payment terms, because at this stage with the cash flow being relatively tight, our focus is to want to actually make sure that the whole interest cycle and the whole -- the total amount of money used in working capital is reduced. Also with the lower interest rates, you will see, obviously, a benefit that comes in the business in terms of lower interest outgo.

Okay. And sir, what would be your LC outstanding as of year-end?

LC outstanding. Saurabh, our LC outstanding, ForEx is INR 1,075 crores, interest-bearing, and domestic is INR 700 crores. So total is INR 1,775 crores.

It is down significantly from last year, right?

No, no, it has not increased, actually. In the last quarter, actually...

No. It's down. It's down. No. I'm saying compared to last year, it's down, right?

A little bit actually. Correct. It is hovering around -- if you talk about last year, it is okay actually. But last quarter, it was about INR 1,650 or around that number, actually.

So it is broadly the same.

Correct. Correct.

Just 1 last question, sir. I think I missed out the number which you had mentioned for provision hire -- the provisions which you did for -- in the conductor side of the business. Is this...

We actually -- we made a provision overall at INR 29 crores versus the previous year, which was at about INR 5 crores. So this INR 24 crores of additional provisions, which were made in the year, the largest portion of that was actually in the oil division, where we made the provisions in the last quarter -- we made total provisions of INR 18.5 crores in the year of which INR 9.73 crores was in the last quarter. So essentially, all the companies where they were either trying to do a restructuring with the banks or had actually gone into NCLT. We have pretty much provided for most of that.

Okay. So now you're almost -- so you don't expect any further provisioning required? If at all, there would be recoveries, but no further provision.

The provision should not be that significant anymore. We just did it more aggressively because given this challenging period, I'm not sure whether -- I think the prudent thing for us to do would be to actually make provisions. So that's why we actually were a little bit more aggressive in making it. And so we've kind of cleaned up the books in that sense. Even more so than what was -- was the norm that the company was following before.

Right. So based on what you're saying, sir, our provisioning would have actually -- ex of this, if you would have normalized the provisioning, we would have made -- on an operating wise, we would have made a significantly higher profit.

Correct. Correct.

In this, my understanding is correct, right?

Yes.

Our profit could have grown by around 20%.

Almost 20%.

Correct.

Yes. So which is 20 -- more than 20% of -- 25%, actually, of what we already reported for the full year.

Yes.

Correct.

The next question is from the line of Gaurav Agarwal from Bowhead Investment.

Sir, just couple of questions. In good times, let's say, 3, 4 years back, we used to make 9%, 10% kind of EBITDA margin. Sir, when do we expect these kind of scenarios to come, maybe 2 years, 3 years? And maybe we are in the down cycle, so it is difficult to kind of see those scenarios now. But if you were to take a guess and give your knowledge, what kind of time period we should wait for seeing that kind -- those kind of figures?

So well, I mean, this year is already difficult to be able to predict in terms of which way it goes. But as you can see, the direction of the various businesses and the new product lines that have been added, all of them actually carry a higher margin profile. So even in the conductor side with such a drastic reduction in demand in the domestic market, we managed to actually grow our profitability in the business. And there are 2 product lines which are relatively quite high value added, which is your CTC conductors which -- that's used inside the core of our transformer as well as this OPGW because data is a new oil. So every transmission line now is being looked at with OPGW in the -- I wouldn't say every but significant number of those lines. So both of these product lines actually will really have much higher numbers and sales in FY '21. So we've picked up a large amount of the cost of -- the fixed costs, depreciation, all that in the last 2 years OPGW and 1 year for CTC. The benefits of that will come in FY '21. Last year was a little bit slow for the transformer industry as such. They had so many problems that they had to overcome, that qualifying a new supplier was not the highest priority item on their list. Now having said that, we've made a lot of progress in the year. So the order execution of many of the projects where our CTC can be used in the core of the transformers will come up for execution in FY '21. So you'll see that margin profile definitely changing over there. If you look at our specialty oil side, we've been constantly growing our automotive and industrial portion of the sales. So it's now reached 22% by volume. That's almost 30% by value. So that's been a significant growth on that front. The retail side of the business should do well in this year because the retail prices don't come down commensurate with the cost of the raw material, et cetera. So we should see a definite improvement on that front. And also last year, if you see, if you don't -- if you exclude the EBITDA portion, if you see what has really hurt our profit after tax has been the higher incidence of interest. So now going forward, there are 2 benefits. One is the interest rate itself will go down. And secondly, the plan which we've made for this coming year, and our focus is to work on customers and projects where the number of days involved should be lower. So at least that's the plan as we go forward. And if it means lower revenue than so be it, but we want to concentrate on improving the cash flow and return on equity.

Okay. Okay. But sir, do you have any internal targets, let's say, for FY '22 or FY '23, these are the broad branded margins you would like to have? Let's say, currently, we have done, I think, 6% something.

So our idea is for conductors to get to INR 12,000 plus per tonne. The last quarter was at about INR 11,206. But with this margin -- with the mix profile, we are quite clear that we'll get there in this -- in the next -- FY '21 will be a little bit fractured, but...

Yes. So that's why I'm asking FY '22, FY '21 anyways...

We will clearly be on that. We'll probably have 50% of our revenues coming from the nonconventional conductor side at the rate at which we are going. It is already 38. This year it should be higher. And by '22, we should be at 50% in those levels. On a specialty oil side also, our Hamriyah plant has actually received a lot of new approvals during the course of last year, including the highest standard of what you get an FDA for good manufacturing practice license. That's opening up us to be able to start supplying to more and more pharmaceutical companies, and more than that cosmetic companies which are located outside of India. So that side of the business also is starting to show signs of increasing. We also got permission and approvals for the Hamriyah plant from some of the utilities that are there in the region, which actually takes 2 to 3 years. So those culminated towards the end of the last financial year. So this year, you will see increased business of some of those naphthenic oils and higher performance-based oils coming out of the Hamriyah facility also. So our sense is that as we get into -- as we end FY '21 and look at FY '22, both of these areas will be having higher-value products. On the cable side, we've become a part 1 supplier last year on the cable harnesses. And we've also moved up on the solar side by supplying most of the solar companies not just cables but a cable harness. So we do the harnessing at our facility at Khatalwad. And so that's also like a step -- like a forward integration step. We've also got approval besides doing coach harness to do locomotive harness. So the whole wire and cable tray which goes into the locomotive engines, so those approvals also have come through towards the end of last year. So these are all higher value-added products.

Yes. Okay.

So our objective has been to move in that -- clearly in that direction. And it's taken longer than we would have liked but we can clearly see light at the end of the tunnel as far as that is concerned.

Sure. Sure. Then just lastly -- last question, if I could squeeze in. I think that you have given in your notes to accounts that you have launched some logistics company. So what is that rational? And where do you see that?

On the logistics side, we've just actually taken -- ring-fenced all the logistics-related activities which are being done for the B2C side of our business, including providing services to some of the auto OEMs. So now -- we used to actually manufacture auto OEM lubricants and just supply it to them centrally. But we now, in the case of some of them, actually, stock and distribute that directly to their service stations, authorized service setups. So in order to do that, it's really a cost center more than anything else. But it just allows us to more transparently track the cost of logistics. So I wouldn't see us getting into third-party logistics business. This is more for ring fencing our logistics costs and combining multiple divisions logistics activity.

The next question is from the line of Anuj Upadhyay form Emkay Global.

I have many questions, sir, starting with one point which you have mentioned in the opening remarks. You mentioned about the composition of the HEC and some other high-margin business in our new order book. Could you just repeat that, sir, what portion does the HEC constitute? I guess you mentioned is 15% and 11% was by?

Anuj, copper is 20%.

Copper conductor, sir?

Copper conductor is 20% and HEC is 18%. So total is 38%. This is for the full year.

But from -- this is -- I'm talking about the new order intake, which we had. You mentioned about -- of the new order intake, what composition does the high-margin business -- product, like HEC or copper conductor constitute?

That is 15% and 11%.

15% is HEC?

The -- that is the -- out of the orders which have come in during the year, 15% is HEC conductor and 11% is copper conductor. That is inflow of orders.

Okay. Okay. And of our current order book, can...

Current order book is INR 2,004 crores. Out of that, INR 765 crores is domestic and balance is export. And in the current order book of INR 2,004 crore, HTLS is 18% and copper is 10%.

Copper is 10%. Okay, sir. So this INR 2,004 crores of order intake, this is as on March, sir, or as on Jan?

This is order pending, this is not order intake, actually. INR 2,004 crores is order pending.

Order pending.

And that is 92,508 metric tons, and it will last us for 7 months, roughly 7 months.

7 to 8 months.

Yes. Yes, correct.

Okay. Okay. So in this year, accounted for the current lockdown period as well, like Q1 as such largely....

Current lockdown period means March lockdown period we have accounted for.

Okay. And as on -- if I talk about, sir, post March, say April, May or June. So has there been any activity in the new orders inflow or situation as of now remains stable, I mean like no activities?

As far as April is concerned, we have done close to about 25% of the normal...

No, no. I think, Diwadkar, he is talking about order inflow.

He's talking about order inflow.

Yes, order inflow. Yes, order inflow.

Order inflow. During the quarter in the conductor division, we got orders of about INR 517 crores.

Okay. You also mentioned about -- we had a very high inventory in the oil segment, and we couldn't actually take the entire benefit of the fall in the base oil price or something. And during the Q1, I believe there was not much of a fuel supply. I mean, the speciality oil supply to our customer. Then what gives us the confidence that, like Q2, our margin across all segments would improve which I would compare to Q4 of last year.

What has happened is in the first quarter, we've executed 50 -- we will end up executing about 50% of the normal business that would be there. So we had relatively full tanks just before the lockdown was announced. So that inventory, we are pretty much running through in the first quarter. So what we will start executing in the second quarter is going to really be products that got loaded during the months of May and June, which is when the crude prices and all were at a relatively lower level. So that will come into Q2, and the general market prices will increase in Q2, because as you can see, crude is back up and -- so essentially, you'll have a much worse Q1, but you'll have a much better Q2. And if you look at the whole first half on an aggregate, we should be performing at least as much as what we did last year in spite of the lockdown and stuff on a per -- EBITDA per KL basis.

This is for a full year?

For the first half year.

For the first half?

Yes.

Secondly, sir, on the Atmanirbhar scheme, I guess there's no direct benefit to us on this INR 90,000 crores of onetime loan which the government is giving to the DISCOM because I believe it's specifically towards outstanding which the DISCOMs had towards the telcos.

Yes.

And not direct benefit to us. Am I right, sir?

That is correct. The indirect benefit has only been that the rest of the money which they had -- have available, they have available then for paying their debtors or the debtors part. So we have actually managed to -- particularly in -- towards the end of May after the lockdown started getting lifted, and in the month -- so in the first quarter, we've collected a reasonable amount of money from the DISCOMs.

Okay.

Much better than what we thought we would do in a period like this. And what has helped is that since this INR 90,000 crores, they have diverted towards paying a lot of the liabilities on the generation side, the monies which they have collected otherwise have been available to clear off other debtors that they have.

Other debtors.

Yes. So there has been an indirect benefit in that.

Got it, sir. Sir, on the cable segment, I believe we have been taking the competition from the Chinese parties in the cable segment. Or if you talk -- okay, yes, on the cable segment. But now with the government planning to impose ban on the specific Chinese products, would there be any benefit to indigenous players like us or is this something which will continue?

So we don't really face competition directly from the Chinese companies in India on cables. We have faced competition from Chinese companies for both cables and conductors in the overseas markets. Now where the Chinese call over the Indians in many parts of the world is that China had negotiated much more favorable treaties, where the custom duties for Chinese products were lower than for Indian products. Frankly, India governments, whether it's the Modi government or previous to that, even the 2 terms of the Congress government, India has done a pretty poor job of negotiating these sort of special treaties on custom duty, at least in the markets where the conductors were going. The benefit which we are likely to see as we go forward is that some of these treaties with China being -- or could be renegotiated, in which case, we would end up having a more level-playing field. But the biggest driver that we see going forward is actually this nonconventional energy being added. And there are many countries where they have taken targets of 75%, 80% conversion to nonconventional energy in the next few years, by 2024, 2025. So there's a lot of work going on in these areas, and they all lead to a good quantity of consumption of conductors and cables. And I think our conductor business will stand to gain quite substantially being -- us being one of the largest conductor manufacturers in the world, we automatically would be in a position to participate in a lot of these opportunities, and then try to win some of them in terms of business.

Okay. And sir, lastly, on your balance sheet, sir, your investment has gone down to 0. I know it's a very small quantum, but could you just provide some detail on that front?

See, investment, actually, this is short term, actually. The short-term extra funds were there.

Okay. Got it. Got it.

So it is not really investment, actually. These are usual for 10, 15 days, 8 days like that we keep in mutual funds actually, liquid funds.

Got it. Got it.

So that has gone -- that is not available now, actually.

The next question is from the line of Alok Deora from Yes Securities.

So just one question I had regarding, have you seen any delays from the client side? Or do you see that linked to some delays in giving out the supplies where clients can go -- ask you to go slow on -- clients go slow on the execution. So have you witnessed any sort of...

We've had such issues. What we've done through this period is to be extremely closely examining the execution cycle of clients. And then we've quickly tried to realign our manufacturing. As I mentioned in my comments, we've realigned the manufacturing to what the actual demand is out there, so that the cycle of supplies and inventory is reduced. So we've definitely done that. In the case of our oil business, we, to a large extent, produced -- all our B2B products are produced almost just in time. So that -- there is no problem in that alignment. The cable and conductor business have realigned. So I'd also mention that we are theoretically capable of producing at 100% capacity in our plants. But we are producing only to the extent where the live orders are there, which deliveries can take place to site, et cetera. So what has happened is that some of the supplies that have come in from the last quarter are still sitting at the sites. Some of these sites have now get reenergized, they started stringing conductors and laying cables from whatever inventories that they held. And because cash flow is at a bit of a premium right now, some of these deliveries have been pushed back. But from June onwards, we have started seeing better offtake taking place. And it will be further better in Q2. And then I think we should get close to normalized levels in Q3 and Q4.

Okay.

But we haven't seen any projects getting canceled because of it.

Sure. Sure. No, so actually I was just trying to assess like in first quarter, you mentioned that 50% of the business would have been lost because of the COVID-related shutdown. And then in the remaining 3 quarters, if there is any sort of client delays, client-side delays and plus our own issues of labor, et cetera, then net-net, we could be just doing around, say, 80% of what we would do in a normal 9-month time frame from July to March?

Yes. No. I think we'll do better than that in the July to -- in short, we'll be 50% in the first quarter, is a very high level. 50% in the first quarter, about 75%, 80% in the second quarter. And then come back to what we would have otherwise planned to do in Q3 and Q4. So there execution will be then just basically limited by the orders that you have and the kind of financial arrangements people make. Even today, we have adequate manpower at our end, the years that we've built in terms of investing in relationships with not only our employees but even contract workers who have worked for extended periods of time in the company, we didn't have a big issue with this whole migrant labor running away, et cetera. So our capability to produce is very much there.

Okay.

And I think we may end up getting a few orders with shorter delivery periods also going out into Q2, Q3, et cetera, if other people fail. We saw a big improvement in supply from our Hamriyah facility even through the lockdown, simply because a lot of orders rolled over there, which were -- we rolled over a few ourselves and then orders got canceled of our competitors because execution from India was really a challenge, and we were able to execute that from our facility in the UAE.

The next question is from the line of [ Praveen Agarwal ], individual investor.

Quick question. You mentioned about the new product around -- in conductor division, CTC conductors and OPGW. So typically, whatever business we do, we are among the top 3 in those products and industries. Would you want to give your thoughts on how -- on these products, where we stand vis-à-vis competition? And how it's going to shape up in the next 2, 3, 4 years?

So on the -- yes, OPGW, there are couple of parties who have been ahead of us. But at the same time, there are certain synergies that we have because of already the OFC production that we had in the cable side. So -- and also on the transmission side, where the OPGW goes, the conductor business has good relationships with the clients. So we see over period of time that we'll be able to grow quite a bit on that side. On the CTC, there was -- there are some players before us again here. But at the same time, one of them we understand was not performing so well. So -- and also a few years ago, there was one other company which had -- for its own internal reasons, had financial difficulty and shutdown. So we saw that this is a vacuum which is there in the marketplace, and there is a potential for another player to come in. So this is the background. And we see that with the transformer oil relationships, with the transformer manufacturers, the CTC also is being sort of sold to the same transformer manufacturers, where the good relations are there in place?

So Praveen, just to add to what Pam has said here, both of these products will see increased demand worldwide over the years to come. So what happens with CTC is that it improves productivity and repeatability of the kind of core that you make in a transformer. So you need less manpower to deliver the job in a shorter period of time, and you can deliver a job more consistently. So it will play a very critical role as you start getting into some of the larger solar installation because you have much more standardization of the transformers that are there, unlike an electrical grid where there is a lot of customization which takes place. And in the case of OPGW, because today, as data is the new oil, wherever -- this is used -- this is all fiber-based and it's for long-term transmission of data. So the way data is transmitted across countries is essentially through this OPGW route because you don't need any right of way, you don't need any such thing. It's just in the middle of the core that is used to wrap a conductor around. So the -- we selected these products because; a, they had a future going forward; b, as Chaitanya mentioned, we had some benefit either on the manufacturing side or on the -- and on the client side.

Okay. Fair enough.

We will get to being amongst the leaders in this space. The products are very new. OPGW started only 2 years ago. And last year was not a very good year to do with anything to do with telecom infrastructure. But this year, we already have a reasonably good order book or a pipeline of orders that are likely to come in on the OPGW side. And as I mentioned in my comments on the CTC, you need, again, a 2-stage approval. You need the transformer OEM to accept your CTC for the record. And very often, they need to get no objection from the final utility, saying, okay, we can use Apar's CTC to execute their orders. So both of these actually are 2 steps, and it takes a little bit of time to get this through. Given the relationships that we've had with both the utilities as well as with the transformer OEMs, we've been one by one getting the approvals for this. So this year, you'll see a significant increase in CTC volumes compared to -- last year was like really the baby steps taken to just get started.

Who would be the #1 player in either product in the country?

In the case of OPGW, it is Sterlite Technologies. And there is -- in the case of the CTC, there is a company called Precision Wire.

Yes. Okay. One more question. We talked about that our focus going forward would be on ROE. So is there an internal target where this is the level of ROE, which we want to achieve in say 2, 3 or a steady-state basis, that this is the ROE -- if -- when we're planning a project that if we get below this level of threshold ROE, we will not go ahead and do that project?

So our target is to get to 18% to 20%, which is what 5, 7 years ago, we used to be in that range. Before the acquisition -- 10 years ago, before the acquisition of the cable business and trying to end up growing it. So it's going to be aided by really 2 major areas. One is focus on products where the margin profile will be a bit higher. Secondly, the investment which we have to make is going to drastically fall off. So all the CapEx investment. So there are 2 investments we have gone in. One is CapEx and the other one is a lot of invisibles where we've actually developed these products and written off all the development costs. We've not capitalized these development costs. And the last thing is that the biggest beneficiary that we can have in this Atmanirbhar program is really our cable division. Because we are the leading supplier to defense, of cables. And there is still a huge amount of cables which are being -- which were being imported. And there is a clear sense of urgency now of -- there's a lot of more work which went in, in the last 2, 3 years. But right now, there is like clear instruction saying you've got to stop buying from overseas. And it's got to be here. So already during the lockdown period itself, we've had numerous interactions and work that has started on various development projects. So these again lend itself to a much higher -- they're very specialized products. So they give you a better margin profile. So even if it reaches 5% of your revenues, it can have a meaningful impact on the overall bottom line.

That's very good to hear. So one more question. I've been an investor for over a decade with you guys. I just wanted to check, in 2008, '09, we had massive inventory losses because of the crash in crude oil prices. Now would we see this in next quarter also or not because our hedging policy will not be able to -- will not see that.

There's really no hedging mechanism available for the oil. But we won't see that sort of a loss that we saw in the -- see, in the case of 2008 end, moving into 2009, we had crude falling from $140 to $32 or $35. So it was just a -- it was just too huge compression. In this particular case, what's happened is that we've had -- we didn't have very high inventory, but our tanks were relatively full because whatever was coming in kept sitting in the tank. We couldn't dispatch it out for almost the first 40-odd days, almost nothing moved. You won't see anything in that range in terms of -- so when you look at the half year, the working will not look too bad.

Understood. One final question and this something which I've been wondering for a while. I mean, I -- can somebody just explain how does LC -- interest-bearing LC interest evolves with an example, is this on your -- on the performance, which you do, where instead of paying immediately, you issue an LC and you have to pay interest on it? How does that work? Why do you have to pay so much interest on it?

Praveen, I will explain to you, actual. It's like this, actually. Let's say, like with our -- where we procure our base oil from refineries outside India, so these refineries typically give us 30 or 45 days clean credit. And the balance period, actually, about 135 days, actually, they will give credit with interest. So we open a letter of credit stating that 45 days interest-free and thereafter with interest. So this is how it works, actually. And we are required to take this credit because on the other side, actually, our cycle is much longer because we have to extend credit as far as our parties are concerned.

So basically the transformer side is the one which actually has a very long credit cycle. When you look at the wide oil or automotive and industrial [Foreign Language] those cycles are actually shorter. So if you take the total number of debtors, we have...

82 days, 82 days.

Yes.

The oil -- the debtors are 82 days actually. But for 82 days also, if we don't -- if you have credit-only 30 days, then the managing will be difficult, actually. For that -- and then we also have inventory, actually, because the supply chain is longer, actually. It takes time. So the total -- we always have inventory of 60 days sitting at our refinery as well as which is in the pipeline.

In transit. Yes, in transit.

In transit.

So about 30-odd days in the plant and about 30 days on the water.

So on the oil side, which we do B2B in the power side. So we are our main clients. We would be -- I would imagine DISCOMs largely?

So they are -- DISCOMs are in -- no, our largest clients are actually transformer OEM. And we have a very strong presence on the transmission side, on the transformers that go ahead. We obviously have a presence in the distribution side also because just the sheer size of our business. But don't directly deal with the DISCOMs so much? Diwadkar, you can give a figure of approximately how much is our direct business.

Our interaction with DISCOM is hardly 10%, less than 10%. All others are OEMs only, mainly GE, T&D, ABB, Bharat Heavy Electricals, Bharat Bijlee, like that. All big transformer manufactured, Toshiba, big and small. I have given you big names, actually, but there are a lot of small transformer manufacturers also.

Understood. So my correlated question to that is that working capital cycle is so stretched. I would imagine, between you and one another player, you control 90% of the transformer oil market. Now I mean -- since both of you should have so much bargaining power, and I would imagine transformer oil would cost so little of the overall scheme of things for these guys, but cost of failure will be so high, that you can demand that I need to be paid on time. And if both of you decide to ask the same, then essentially, these guys have to pay you on time. Would that understanding be correct? Or am I missing something?

So the concentration is not as high. It's not as high as 90%. Our market share is in the 40s and the second largest player is close 28% to 30% in terms of this thing. But a lot of the players, everybody asked for extended credit. In the last 4 or 5 years, the working capital cycles have become -- come under a lot of pressure. So even the ABBs and the GEs of the world, Toshibas, they all ask for 150, 180 days terms in that standard. And not only now they've been moving to that not only in India but even in other parts of the world. In many cases, there are discounting schemes and things in place. But they are all interest-bearing. But that's the way the -- it's a long delivery cycle in terms of making the transformer, getting inspected, delivering it, et cetera, depend on nature of the beast.

And there -- our customers are dealing with discounts. So for them, actually to get payment also is a problem actually. So that is why the sector is stressed actually. So that's the reason that...

The transmission companies is not an issue. But there, the actual delivery cycle is longer because the transformers are very large, and there are multiple stages of inspection happen before you deliver a transformer, including at mid-stage, you have to send it out to a third-party facility for testing, short-circuit testing and things like that. So the -- just the cycle of building it and delivering it is longer. But the payments are relatively good on the transmission side. On the distribution side, the transformers are much more standardized and easy to deliver, but the payment is a bit more stretched.

Okay. And once this transformer gets installed, how frequently these oils needs to get changed? So do they come directly to you guys? Or they -- again, the ABBs of the world do that as part of their maintenance contract?

No. It goes into the utilities. The utilities end up actually floating tenders for the replacement.

And does that happen what? Once a year or...

5% a year is the top up. And the life of the oil, depending on how the utility has managed to maintain the transformers, it can be anywhere between 15 and 30 years. The distribution side normally is much shorter because they overload the transformers. But on the transmission side, 15 years is quite common.

So this is not like an auto lubricant, which we need to constantly replace and change. So you're saying that transformer is like the [ OEM ], once every new machine gets installed and that's when you need that oil along.

Yes. It's not such a high consumption item as in the case of an automotive lubricant or an industry lubricant. Maybee Praveen, go to somebody else and you can join back then if you don't mind.

The next question is from the line of Maulik Patel from Equirus Securities.

Just 2 questions. One is bookkeeping. What kind of CapEx we did in FY '20? And what we intend to do in FY '21?

We have done a CapEx of INR 138 crores. And as far as the -- going forward, actually, we are reviewing all the CapEx actually, in view of the COVID situation and the demand situation and all those things expand, actually. And then by September, we'll take a call actually. But as Kushal bhai explained earlier, actually, the additive, there was not much CapEx, which was there for FY '20.

Sure. And I think this [ 130 ], a large part was for the cable, right?

No. We've spent -- there's a certain amount which we spend even in our loop lending side, where we've come up with a full -- with a new generation blending system for the automotive industrial lubricants at our -- to the Hamriyah facility, including upgrading the automation, blending, filling all of that. But that is largely completed. So the ongoing CapEx anyway was planned to be significantly lower. We were not expecting to improve our CapEx, which exceeded like INR 40-odd crores, but that also we will sit and review now in September. Anyway, because of the current COVID situation, we don't want any construction guys on our site until this -- until the new cases coming up are drastically reduced. And so we'll review it in the -- towards the end of the second quarter and then decide whether we want to go ahead with this or just postpone it further.

Okay. Got it. And second and the last question is on the conductor side. Do you see more business action happening outside of India or compared to what we have seen in India? Because I think one of the comment you mentioned that nonrenewable -- nonconventional energy will require lot of transformer. I couldn't get that particular point. I mean how that will be linked with maybe conductor demand?

So what we were are saying is that with the renewable energy, which is at different places, depending on where it makes sense for solar and wind, that needs to be connected to the grid. So that generates the additional demand for the transmission line. Then also the -- yes, the nature of the generation, where a part of the day, the generation is -- the flow of power is one way. And night hours, it may be the other way. So that also means that there is an additional requirement for transmission system.

What is actually starting to happen is that, as Chaitanya said, you have a problem in terms of the time of the day. And you have an issue with respect to a season. Like wind power in India is more seasonal. And when wind is generated, solar is very low. And when solar is generated more, then the wind is less. So now the new type of projects that are coming up in India, just taking a cue from other parts of the world is to having integrated hybrid projects. So they combine solar and wind and in some cases, even hydro because they have to meet a certain level of power to be delivered continuous. And the fourth leg is actually a whole battery set up. So when excess power is generated, it's stored in the battery for taking care of the different time of the day that is being generated. So we started the system in India, fourth set of bids actually went in during the lockdown period. ReNew Energy (sic) [ ReNew Power ] has won something, Adani has done something. But these are the type of projects which are running in many other countries in the world, and in some of these places, what happens is the wind is in a different location and the solar is in a different location. So from each of these locations, you need a transmission line to come into a grid. So -- because it's the hub-and-spoke type of arrangement, there's a lot of more demand for conductors that is coming up. They're smaller in size, but much more in terms of volume. And the number of kilometers to be covered because a typical summer plant ran into thousands of megawatts at a particular location. They have a larger solar and a lesser wind, in some cases, a larger wind and a smaller solar. So a lot of variety is there.

Maulik, one more point is that some of the countries, where there was no work, transmission work going on because they were already having transmission lines. But because now they are changing to renewables, they were on thermal or some other thing actually. And now they are...

Nuclear.

Correct, no?

Nuclear.

Nuclear, nuclear, thermal and nuclear. So now they are changing to renewable. That's why that demand has come up, like what Kushal bhai explained is Australia and Europe, Germany, et cetera. So there, there was no demand earlier for our products actually. But now because of this changeover, now the new transmission lines will be required.

So in a nutshell, the distributed power gene ration compared with the earlier concept, which was there prevalent 10 years back was in a single location power station is much more beneficial for you in terms of...

Absolutely.

Demand and everything.

Absolutely.

Next question is from the line of Pratiksha Daftari from Aequitas.

So most of our questions are asked answered. I just wanted to know this non -- the no transmission opportunity that you see because of the new grid required for renewables, are there any specific markets that we are targeting or any specific geographical clusters where we are seeing more demand coming from?

So this is a global phenomena. And basically, we are already supplying conductors to almost all the different major markets, whether it is the Americas or the -- Africa, Europe and Asia side. So we are not really specifically concentrating on anything, but definitely, wherever the opportunities are coming up, then we are very much in that market.

There's a lot of work coming up in Europe because in Europe, Australia, in Scandinavia, we've got like Germany, Spain, France. Many of these places, they have set a very aggressive time line. And what we have given to understand by some of the larger EPC players that exist in these geographies is that part of these COVID stimulus packages is being spent in infrastructure buildup because that directly gives local employment as you build this infrastructure. So we will start seeing those kind of tenders or those kind of opportunities coming up. So we've heard that from Spanish contractors, from German contractors, et cetera. In Australia there, actually, Australia has a very favorable treaty with China. But as you can see in the newspapers, already a little bit of a spat happening between those 2 countries. So if that -- of course they have a 5% advantage over Indian products. So if that gets reduced or flattened, then we can really go in, in a big way. We already started supplying cable -- solar cables into Australia. And we are the second largest supplier of transformer oil in Australia. So all of those have seen a little bit of a resurgence. You will see in our numbers for last year, even in our transformer oil business, our overseas business has grown. And some of it is being driven by demand for transformers that are coming up against these new generation sources.

So yes, so going forward, actually, demand will continue to remain steady. That is the main point which we wanted to make because there's a new normal coming up after this COVID. Fortunately, the way we look at it is that our products are actually not going to be affected. In fact, the demand for them may in fact grow.

Okay. Understood. So Hamriyah, you mentioned that the capacity utilization has improved because there has been some switching of orders from Indian facilities to their own and also peers. So for the year ahead, what kind of steady state capacity utilization can we expect, which is not at probably the cost of our Indian plants?

So we last year did 68% capacity utilization in our Hamriyah facility. So this year, I guess, in spite of lockdowns, COVID, all these things, we should probably be upwards of 75%, and there are some lower -- some trading type business and all, which was being done there, which we want to defocus. We want to concentrate much more on our -- as we started getting more and more utility approvals, we want to concentrate on what that plant is really one of the best plants in the world build for, which is to deliver high-quality transformer oil, high-quality pharmaceutical and white oils, et cetera. So the volume will go up there and the profitability also will go up there.

Okay. Then you mentioned 75%, sir, upwards of 70%?

75%. It would be upwards of 75% this year.

Okay. And sir, you mentioned something around those defense cables that you said that we have been aggressively supplying in this sector, and you see some opportunity coming with the whole push on self reliance in defense. So if you could just quantify as what's the market size that we are looking at here? And what could be our potential share? And what kind of infrastructure do you think...

We have a reasonably good share of what is produced domestically. There are only a couple of suppliers that are very active in this area. The market size is not yet known to us because many of these products in the defense is a very secretive sort of segment. But what we are seeing is that there are a number of new projects, which are starting to come to us and some of the proof of concepts which we had done earlier, they are now getting more rapidly commercialize. So if someone is pushing you to commercialize a prototype that you made 2 years ago during the lockdown period, it seems that they are pretty serious on taking it forward.

Right, right.

So that will start accelerating. Already, there's -- but I'm just saying, the question really was that what are the benefits that we will get with this whole Atma Nirbhar program. So one of the areas of benefit is going to be in the design side. And here it's not really the value because each project is -- has -- carries very high margins. And the reason for it is that you have to invest in the technology, you have to invest in the prototyping, and you have to invest your time in terms of the testing, et cetera, whether it's in the pilot phase. So you actually end up investing all this with 0 visibility, whether you will get even INR 1 worth of business. So when the business comes in, it's a highly specialized product, which carries them commensurately a very good margin profile.

Right. Okay. And sir, lastly, sir, on the conductor side and -- like in general, when do you expect the tendering process to normalize? Like we've seen some reduced traction from railways off late, and overall, the trending has been on a hold. So how are things on ground? Do we expect tendering to begin and get back to normal levels, say, by Q2? Or what kind of outlook could you give on those lines?

On the transmission side, we see in Q2, a fair amount of tendering, which will be going out at the developer stage. And then by the time those businesses come to us for execution, it may get into Q3 and Q4. On the railway side, also, there will be some tendering happening. It got delayed because of this entire lockdown situation. So that also will come through maybe in Q2, Q3 time frame, and things should get normalized, I think, by Q4 as though everything goes normal.

Also there were overordering earlier which has happened in some of the railway case in the sense that they had certain deadlines, say, okay, supply of this month will happen. And then the laying of that will take place in X amount of time. So the physical laying of the lines is taking longer than what had originally been envisaged by them. So that is also one of the reasons why the speed with which the ordering has been or tendering has been slowed down until the backlog is being cleared.

Okay. And sir, collection with railways, is that a concern? Or the collection with railways is relatively better?

Railway collection generally is okay, except that during this lockdown period, some of the offices of the various railway agencies were not working. So that was causing some delays in the whole system. But in -- I think in the middle of June onwards, things have improved.

The next question is from the line of Saurabh Patwa from HDFC Mutual Fund.

Can you hear me, sir?

Yes, yes.

Yes, yes.

Yes. Sir, just wanted to understand, say, like last few years, we have seen a decent uptick in our EBITDA margin, but the same has not been -- not been converted to the bottom line because of the growing interest cost. So what's your thought on that? And like any strategy to -- because it is largely basically because of the credit LCE charges, which we've been paying, right? But won't it be prudent to increase the debt in that case? Now we are almost debt free, right?

See, there is -- no doubt there is a stress in the sector, actually. See, our close to 82% is coming from the power sector. 80% is coming from power sector, and power sector is stressed actually. Although we are not directly dealing with these discounts and all these parties, actually, but our customers are dealing with them, and they are taking some extended credit terms. So we have seen some increase in the number of days across all the businesses, actually. But as Kushal bhai says, now actually, we will tighten all these things actually. And we'll try and see that we reduce this interest cost. Other thing is that with the commodity prices going down and interest rates also going down, we should be able to see some reduction in the interest cost. Of course, if -- for -- during this COVID period, there will be some additional interest, actually. We have taken some moratorium for COVID actually because the cash flow was very slow in April, actually, April and May. Some increase will be there because of COVID actually. But otherwise, overall, we feel that the interest cost should go down for the same level of business.

Okay. And another question was on -- more on the macro level. As in like will we -- with this [ screening ] with India-China relationship, do you see any impact on the OF supply, which is largely from China and Japan getting impacted to India?

On the optical fiber, you said?

Yes, sir. Optical fiber side.

So there's a huge surplus of optical fiber in the world, huge. And we have no dependence really on any of the Chinese optical fiber guys. We buy something locally from India, and we also buy from Japan. The Japanese fiber is extremely high-quality fiber. So depending on the nature of the projects and the specification, so we really don't see any problem on the -- in fact the biggest problem on the fiber optic side is actually the demand at the moment.

But with this increasing -- as you mentioned, that is OPGW and all. So over time, the demand should come back?

So the -- there is actually a need for a lot of more optical fiber to be laid just for the network itself. There's still too much dependence on mobile and stuff, and you can't really get to the speeds which are required unless you have physically fiber. But the other demand will come up from this FTTH, fiber to the home. So we've invested in some of the -- capacity converted line to FTTH line. And this year, we will start supplying the FTTH fiber also, going fiber to the home. Because the demand from BSNL and BBNL and all that, I think, with the current financial situations that they are in is very, very poor. But OPGW is definitely going to grow. It's the intensity of fiber and that is not so high. If you look at the bill of materials, fiber is an important because it's the heart of it. But value-wise, other materials are also quite expensive.

The next question is from the line of Sachin Shah from Emkay Investment Managers.

Sir, just wanted to understand, in our cables division, our margins were down on a Q-o-Q and a Y-o-Y basis. So any specific reason for that?

Yes. The main problem we faced was that cables which went to the railways, defense, all these places, they require inspection prior to dispatch. And that hold thing from 15th of March onwards itself, there were some of the larger states had starting to look at lockdowns. In Maharashtra -- Andhra Pradesh, Maharashtra and Punjab, they all went to lockdowns before the national lockdown. So all these inspections, which were going on, they all froze. In fact, some of them are just getting completed in the month of June. And some of them will even push into July by the time the test results are out. So that was really the -- otherwise, we were expecting a very good month and a relatively good quarter across our businesses in the month of March.

So basically, the revenues -- we couldn't book the revenues, but we had to incur the costs?

Correct, correct.

Correct. So we have incurred the entire cost practically other than power not being utilized, everything else was utilized on -- was absorbed on a lower sale, which otherwise was -- a profitable sales that would have happened.

So by Q2, we -- can we expect stabilized margins in the cables business?

We should. On the cable side, the demand is actually something -- of all the 3 product lines, the power cable side, the demand maybe the most affected because of the position of the discount. So we'll take it as it comes. But definitely, the offtake will increase. The other thing, of course, is that there's a lot of growth, which is supposed to be happening in FY '21 in the solar side and wind side and with the recent announcements of wanting to put in custom duties on panels and things, those maybe considered on a little bit high note. So our sense is that Q3, Q4 [ will be fairly strong ]. Q2 will still require a bit of stabilization.

Okay. And sir, another thing was, do we foresee for the next 2 to 3 years our export mix going up substantially?

Absolutely. Absolutely. As we mentioned earlier, the -- some of these developed countries and new geographies are opening up with new infrastructure requirement. So -- and it's across the board. The transformer is going in, so transformer oil requirements increasing in terms of conductors, of course, and even cables like solar cables and other cables, et cetera, for evacuation or connecting things up at the different sites. So our sense is that over the next few years, our export as a percentage of the total will go up compared to the domestic.

The next question is from the line of Abhishek Gupta from Goldman Sachs.

First of all, sir, I remember last quarter, we had some trouble in dispatching some of the railway order on the conductor front. Just wanted to make sure, have we been able to dispatch in this quarter? Or are there still something pending on that front?

I think the last quarter is in the Q4, you're talking about?

Q3. Q3, I think there were some order issues because already you had piled up inventory because of which we couldn't dispatch our HEC conductors. So if you can update on that?

The railways are not using HEC. They're using the copper conductors, but they had postponed their requirements. So definitely, there was a big pickup in Q4. And we had actually all the intentions to dispatch out the full quantity as per the requirement in March. But even the March supply got disrupted because of the lockdown situation, so that is what the situation is. But yes, there was a good amount of tendering that happened and that is why there was a pickup in demand in Q4 for the railway conductors.

Okay. Okay. Another question is, I think we were talking about this on cable front that E-beam capacity was supposed to be kind of running at almost full capacity utilization factor, we were looking at it that ways, and there were some plans to expand capacity in that area. So now given you're saying that most of the CapEx is under review, does that mean that this E-beam capacity, given the demand situation is at least sufficient for the current year? And an extension of that is, how long would it take for you to incrementally set up E-beam capacity whenever you decide on it?

So we've already -- the new machine has already been ordered physically at our site. And all the civil work and everything is done up. But the hookups and stuff, we are not able to do because the foreign engineers need to come in. Otherwise, we were going to start the installation work in the month of March, itself. And just when the work was to start the lockdowns started taking place. So most of that CapEx has already been incurred. The payment of the machine is still balance because that's linked into the installation happening, but the civil work everything is all done.

And what capacity can you say it to, to our existing capacity?

So it will increase our capacity by 33%. We have 2 machines, this is the third one coming in. And it's been selected in such a fashion that we can synergize the operation of all the 3 given the kind of mix that can be met across.

Sure, sure.

So our sense is that once travel opens up, then it will take 3 months to complete the installation and then 1.5 months to be -- to do the final machine setting. About 4.5 months once the engineers are able to come in after. Right now because the requirements also have been a little bit subdued. We don't see a problem in terms of servicing current demand until all this happens. So we should hopefully have capacity -- additional capacity available in Q4.

Got it. Got it. Another question is more from an accounting perspective. So did we kind of take any write-down in terms of an inventory? This is more specific to oil in the current quarter given the kind of again fluctuation we have seen on the price side.

It was not required actually. We checked up actually the cost or realizable value, whichever is lower. So it was not required, actually.

Okay. So not...

What will really happen is that the value addition that would be available in Q1 would be extremely low. So it's not that finished product will be sold lower than raw material costs, like that happened in 2008, 2009. It will be sold at a value which is equal to higher than selling price. But the value addition will be -- or the gross margin will be very small. Not enough to cover all the other overheads and things and especially because the volume is much lower in that first quarter. So there will be a loss which will be there in the business. Having said that, there should be a good margin expansion in Q2 because you have the benefit of slightly cheaper oil and the recovery in the prices of crude and gas oil and all other things.

This is an extension of the comment which you made earlier on the call when you said H1 profitability on the oil business should be similar to what we clocked in the gone back fiscal of FY '20. Now if I look at the H1...

This H1? First half.

H1 one, yes, yes. So first off, if I look at the EBITDA or other rupees per kl, you were ballparked at about INR 2.7 per liter kind of a profitability in that segment on the overall volume in H1. So do you believe after almost assuming a flattish year -- quarter, you will be able to have a much higher recovery in margins in Q2 to justify H1 being equal to the H1 of FY '20?

Yes. Absolutely.

Okay. Okay. And just 1 last question from my side. What was the ForEx impact which was taken in P&L this year because some of the cash flow statement shows that's on a INR 23 crore loss gain there was a INR 40 crore loss. Is it something which is already passed into P&L?

See, there is close to about INR 51 crores is there, actually, which is the applicable exchange, which is there. And out of that, INR 31 crores is the open period ForEx, actually, which we -- for investor purpose, actually, we captured in the EBITDA. We adjusted the EBITDA, and balance INR 20 crores is the forward cover cost, which is there.

So you're saying there was a INR 31 crores ForEx impact...

INR 31 crores open period ForEx impact and INR 20 crores forward cover cost. So total INR 51 crore. So out of INR 51 crore, INR 31 crores for investor purpose, we adjust in EBITDA. If you see for all our businesses, it is before ForEx and EBITDA after ForEx. So if you take the delta of these EBITDAs, you will find that INR 31 crores has been captured there.

No. I understand that, sir. And clearly, that's when we do a segmental reporting, you clearly mentioned our EBITDA margins accordingly. Then when I look at the P&L overall, right, that cost is already sitting in your other expense line. And hence, if I say my EBITDA margin year-on-year basis has moved up by 30 bps, which was after incorporating this incremental impact of ForEx. If this ForEx impact was not there, then your margin should have been much higher.

Correct, correct. INR 31 crores -- so INR 31 crores has been adjusted in EBITDA, actually. INR 31 crores was not adjusted and EBITDA would have increased to that extent.

What was the same number, largely, just to understand the delta...

INR 15 crores. Last year was INR 15 crores, same number.

But last year must have been gain because at least the cash flow is showing a delta gain to losses.

The cash flow is different and accounting is different.

Yes. So just clarifying. So you're saying incremental delta...

Yes. What numbers I'm giving you is the accounting number actually. The accounting number is INR 31 crores for this year. And INR 15 crores for last year, which we have captured in EBITDA for investor purpose.

The next question is from the line of Lalaram Singh from Vibrant Securities.

Sir, my first question is the base oil split which you have given for the finance cost for the full year is to INR 228 crores. So based on the split, which we have given for open bid, ForEx and forward cable cost, the interest on loan comes to INR 177-odd crores.

Forward cover cost, we take it as interest-only actually because we are borrowing in -- their LIBOR-based borrowing is done. So you are required to take forward cover, whatever necessary forward cover.

Yes.

But it should be as interest. So from INR 227 crores, you need to remove this INR 31 crores. So the -- and then there is a INR 5 crores of interest income is there, which statutorily we are required to show in the income line, actually. But we -- for investor purpose, actually, while explaining to you people, actually, we adjust it.

Understood, sir. Sir, may I know March ending figures gross debt, including short term, long-term and current maturity of debt, all combined?

I will give you, actually. The total debt was INR 317 crores, out of that INR 94 crore was short term, INR 223 crore was long term. And then the LC liabilities, earlier number I have given interest-bearing LCs. So ForEx interest-bearing LCs was INR 1,075 crores and domestic interest-bearing LCs was INR 700 crores, so that totals up to INR 1,775 crores.

Got it, sir. My second question is to Mr. Kushal and also Chaitanya. In -- overall, when you say in light of COVID, have you seen any fundamental changes in the dynamics for any of the business segments? In terms of, one, this competition going away, or number two, in terms of on capital, trade rules are -- in terms of -- are they extending because they're saying that we are trying to reduce [ disable ] days. So in which areas do you see that opportunity arising? Because at the end of the day, if the dynamics remain the same, I don't think that maybe a practical -- I don't know how far that will be practical to do. So your comments on post-COVID, is there fundamental changes in any of the business segments?

So in the post-COVID situation, actually, we don't see any fundamental changes as such. You will see some amount, as I said, this nonconventional energy thing is there. Part of the stimulus package is going to be -- to accelerate the investments in that area. So those are some of the drivers, which are there. On the fiber optics side, we are putting this FTTH in place which is fiber to the home. I'm sure that working from home is going to be a new norm. So yes, there could be an increase in demand coming in of fiber coming in. Still a lot of people work from home on dongles. And ultimately, if you want to work from home, you've got to work from -- on a fiber line. So some of those products, the demands will automatically fall in place. We are not really seeing any of our product lines where demand is going to disappear. Our focus on working capital and -- is that we want to get more and more selective in terms of -- we don't want to be a bank to our customers. And we're making it very clear to them saying, yes, certain products require a certain cycle. We are ready to support to that extent. But to win business by giving additional credit to your customers, that's not what we want to do going forward. So with that discipline that comes in, there may be a drop in revenue, but we believe that our return on capital employed will improve, return on equity will improve. All these other metrics will start improving. And then the third thing is when you're focusing on some of these value-added products, which are like CPC for copper and some of the automotive lubricants and things like that, export markets, there the collection cycles are also a little bit better than the domestic. So putting all this together, the focus is really that we want to release more cash out of the working capital cycle.

Got it. And sir, this year we saw a drastic reduction in the cash from operations, driven by, I think, the payables, which reduced significantly. So -- and also COVID has happened. So this year, do we see any -- in terms of dividend payout, any reduction, which the management is thinking?

You say in FY '21?

Yes.

It's just too early to -- in the year -- we don't know how this year is going to actually pan itself out. And this, by the way, part of the interest being higher in the last 2 years was unplanned interest being higher, in the sense that you had marquee names who in the past had been relatively very good in terms of managing their finances, managing their payments, et cetera, that had -- that went completely haywire, the most vulnerable names in the country. So those were all unexpected kind of funding, which we had to do. And in some cases, if the payment terms required a payment, say on January 1, you didn't get paid until April, 3 months, 4 months. So a lot of that has got cleaned up to a very large extent, and the -- we started this effort before this whole COVID problem. But we've done a lot of that cleanup, and we are making sure that we don't get into that same mistake with those same customers again. So part of the whole thing is in terms of housekeeping, being far stricter in terms of what you want to get after and not get after because that's the choice that's entirely in our hands. So you will see more financial discipline coming in clearly as we go forward.

And one is on the segment-wise profitability, if I remember correctly, conductor is actually giving you a negative ROE over the past 2 quarters on the con call, I think Diwadkar ji was mentioning. So for 3 year, can you please give us a sort of pretax ROE for the 3 segments?

Little bit change in ROE working as far as the common expenses are concerned. That is after discussion with the management, actually, what we have done. So the whole year ROE for the company as a whole is 11%: for oil division, it is 10%, [indiscernible] it is 9% and cable, it is 15%. I agree with you. Earlier, I had computed a lower ROE because more -- I was allocating more common expenses to conductor based on the turnover actually. But then we reworked the numbers, actually, across all the 3 businesses, actually. And these are the numbers and you can go with these numbers now.

So sir, with these numbers in hand and with the long-term target of, say, high double-digit ROE, which segments do you think will drive that? So if conductor fundamentally a 18% ROE business, or is oil -- or is that cable is a much higher ROE business overall average will come 18%?

Major improvement will be there in oil and conductor actually, and cable will also improve actually. With -- as Kushal bhai has earlier explained, actually, we are going for some products actually which are having better margins actually, even in cable, the defense opportunity, et cetera.

Sir in conductors, we already gained a lot of ground in this year in terms of EBITDA per tonne. I think we are now very close to 12,000. So I don't -- so in terms of margins, I'm not sure because that is the driver. So what would drive that?

On the conductor side, you will see a drop taking place in financial costs and all these other things, which we've cleaned up. As I mentioned in the last couple of years, there were some big time misses in terms of what we had planned to collect and what the client actually ended up paying. So for that quite a bit of it has got caught up now. We are making sure that we don't make those mistakes. Again, going forward, just looking at the brand name or whatever of the client or the history that the client has had prior to the last couple of years. You'll see a lot of more discipline coming in on that front. And that will then automatically drive some of these numbers. Our target is to at least is to get to as I said, 18%, 20% in the next 3 years from where it is today, which is at 11%. So to add 2%, 3% every year over the next 3 years.

And say, in the oil business, where do you see the scope? So it's 10% ROE as of now. I understand that's a bit [indiscernible] you were targeting around 4,000. So will that be enough or we also need to reduce the capital employed...

So the years in which we've actually delivered 4,000, the ROE has been in the 20% range. 20% to 30% range.

And there also, the capital employed needs to be reduced, actually, as far as the [ date of days ] are concerned to the transformer industry.

We've taken a conscious decision there that even some of the big players who want 180 days and things, we've already walked out of that business. If somebody else wants to give you 180 days standard, let them. We are not going to do it. So this is disciplined thing. We have to see how it progresses over the next 9 months. But there is a very clear determination to work on -- to improve these financial metrics, final one of which is your EPS and your ROE.

The next question is from the line of Sachin Shah from Emkay Investment Managers.

You mentioned about the value addition that you're doing in each of your business lines, and that's very well appreciated. And that will definitely help us improve our profitability. But what I wanted to understand was that, as you mentioned in your opening remarks, that the power grid is actually going to spend much less this year and maybe even a little later. You also mentioned about the kind of the infrastructure spending that's going to happen in the foreign market. But the kind of the spending that we need to see probably in the domestic economy particularly in your sector, which in the power sector, which is where the 80% of demand comes for you. How do you see that going forward? And if that doesn't -- because that has not really played out too well in the last 2, 3 years? Or if I'm wrong, please correct me there. And if the situation remains same, do we still expect the top line growth to be there for us?

Okay. So let me answer this in 2 parts. One is in terms of the basic demand. So the goalposts are changing. So there was a huge dependence on power grid, that's no longer there. You have work that's spread out. This whole -- the railway electrification work didn't exist 2 years ago. This whole nonconventional energy at the level at which it is at didn't exist 3 years ago. So these are all new areas which are there. The areas coming up for us outside India has also grown substantially or the addressable market. So you will start seeing demand moving around power grid will always be a large and relevant customer for us. But the kind of dependence which we had in the past on power grid is not going to come again in the foreseeable future. In terms of top line, our focus is actually not to focus on our top line. We are happy if we contain our revenues in INR 7,000 crore range. We are now just concentrating in terms of dropping products where the profitability is not falling in line, as we gain more and more traction in the products, which are more profitable products. We couldn't do that in the past unless you reached a critical mass on some of these. For example, you take CTC or OPGW, we've been working very hard in terms of establishing those products. But the critical mass of that will start showing up only in FY '21 and FY '22, as we get more and more qualification requirements to bid down more tenders and that business starts picking up. In the case of CTC, approvals have started coming in from OEMs and utilities. So the business will automatically grow. So we can do INR 350 crores of revenues in CTC. We did only INR 22 crore last year. This year, we hope to do maybe close to INR 100 crores. Then next year, get to INR 200 crores, then get to INR 300 crores. So as the revenue of these product lines grow, if the profitability coming in from conventional conductors and some of these other products are not commensurate, it's much easier to take a decision to drop them or to reduce the volume there. So the focus that we will -- similarly, there are things on the oil side of the business, where as your automotive and industrial grows, as you transformer oil export business grows, as your processor business grows, you probably drop some of your commodity white oil which are there. So the idea is to -- I mean, if the opportunities are good and profitable, we will get after them without a doubt. But we don't want to just focus on our top line. We've done a very good job on our top line over the last few years. But the focus on the bottom line and the ROE needs to now be much sharper.

Right. But this...

And there are opportunities. We are positioned to do that. We have the products to do that. We are reaching the critical mass in terms of being able to execute in those areas. So then based on that, we'll do the balance.

Okay. And in the foreign -- so basically, what I understand is that the base business was like -- was a compulsory thing for us to do earlier. But now that the value-added products are also becoming fairly large in our pipe, we can afford to drop some of the base business and the value-added products will take care of the overall profitability.

Correct.

And on the foreign market, do we expect because of -- the foreign markets also will require some longer term working capital cycles in terms of maintaining higher inventories or sometimes even the more in-transit stuff. So will that impact then because as you said that our exports will grow faster than the domestic business?

So the big advantage in the export side is that you can -- for the same number of days of outstanding, the interest rate is substantially lower because you can get LIBOR-based funding for it. Also, the -- you've got lines of credit that are available. And a lot of the overseas customers don't necessarily demand the same number of days of option. But even if they do on a like-to-like basis, the interest rate is much lower. I think you're looking at sub-3% versus 8.5% in the domestic rupee scene. So for doing the same amount of business, the interest cost is a lot lower. And it's not necessary that your EBITDA is a lot lower on that.

Okay. And some ballpark range would you like to suggest that over a period of next 3 years, what would our domestic exports mix be like?

See, it's hard to tell. It all depends in terms of -- we are currently at about 33% of our revenues coming from overseas business, 66% to 67% coming from domestic. So that 33% could easily go up by another 10 percentage points.

Okay. Okay. Right. And generally speaking, exports would be a little better margin or it's neutral towards domestic margin?

Exports are better margin.

Actually, it also depends on the product...

Financing is also cheaper in case of exports because you get the natural hedge, you are not required to do forward cover also. You can import the material for export and keep your liabilities also open because you're going to get dollar to dollar, you can set up dollars.

And the logistics cost from India actually relative to other geographies is now improving. Like 3 years ago, it would be far more expensive to ship from our factory. So like, for example, if you take our plant in Silvassa, today, you have a choice of 3 places where you can load your container. You can actually go to a place called ICD Tumb, which didn't exist before, which is hardly 40 kilometers from our facility. And it's a very well operated internal container depot. Or you can go to Hazira port, which is equal distant to Nava Sheva port. These sort of things in India has actually improved substantially over the last few years, giving more choice, being able to give better levels of service, things like that. So the export side, the logistics costs and things have definitely improved relative to what they were a few years back. Now the profitability also depends on the product line and the kind of margins that, that product can afford. But like-to-like, as Mr. Diwadkar says, the -- even if the EBITDA is the same on the 2 businesses, the interest is 1/3 almost on the export compared to domestic as things stand today. So it carries more into the bottom line.

The next question is from the line of Anuj Upadhyay from Emkay Global.

Two things, sir. It's a follow-up question to what Mr. Patwa was asking. The improvement at the EBITDA margin level is not getting fully transported or flown to the earlier level. So is it -- I mean, like if I assume it, will I be correct that the current interest which we are paying on the profitability of the base oil is not being fully recovered from our customers, largely because of the higher requirement. Is it correct, sir? Or it's something which I...

So we've had -- look, the biggest problem has been the number of days which have gone up that were unplanned for from customers because they were not able to pay in time. And in many cases, it actually stretched for a significantly longer period. So as I've mentioned earlier, we are in the process of cleaning that up. We have done a substantial amount of cleanup in the last few months. But going forward, we are much more circumspect in terms of how we will handle that. So the interest as a component of EBITDA should we fall as we go into the future.

Okay. But don't we charge any penalties like this kind of a penalty...

Not at all. It's not -- these industry dynamics are such that we can't. But the choice that we have is to then go back to the client for new business with different terms.

Got it, sir. And lastly, sir, you mentioned in the opening remarks related to some 20-odd of transmission projects [indiscernible] [ INR 23,400 crores ] to be bidded out. Any time line, sir, when we expect this tender to be floated?

Chaitanya, you want to take that?

Actually, I got disconnected. So I've just got reconnected just now. So I don't know what question is...

I'll repeat, sir. In the opening remarks, sir has mentioned about the 20-odd transmission projects worth INR 23,400 crores to be bidded out. So any time line when we expect this tender to be floated?

Yes. Those may come up sometime in August time frame and may get finalized by September.

Okay. And are these specifically for the renewable projects? Or it's a mixture of both?

So these are mostly the tariff-based competitive bidding, and part of that is the RE grid...

Renewable energy.

And some of them also cost-plus basis of power grid. But most of them are tariff-based competitive bidding. And yes, it is mainly driven, as we discussed earlier, because of the renewable energy coming in India in a big way. So that's why this demand is getting generated.

And sir, for now, we don't have any one in the queue.

Yes. So maybe we can then wrap up the call?

Sure. Would you like to add any closing comments?

Well, just in terms of, as I mentioned during the initial opening remarks, our sense is that Q2 will still have a number of challenge...

The line for Mr. Desai got disconnected. [Technical Difficulty]

I got disconnected for a second. We see Q3 -- Q2 still having a few challenges. I expect the business levels to come up to about 75% to 80% level, if there are no more lockdown and stoppages. We see a much brighter Q3 and Q4. We also see our addressable markets growing outside of India, as we mentioned. And we are quite pleased with the product portfolio that we have. And the progress that we have made in terms of reaching critical mass in terms of those products. So we are hoping that in FY '21, you will see a higher percentage of that business taking place. Even though the overall business may be a bit lower because of the pandemic and then a full effect of that happening in '22. So with that, I'd like to thank you all very much for being on the call. And hope that all of you stay healthy and safe. Thank you very much.