Automotive Axles Limited (505010) Earnings Call Transcript & Summary

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Thanks,[ Genavi ]. Hello, everyone. On behalf of B&K Securities, we welcome you all to Automotive Axles 1Q FY '21 Earnings Call. From the management side, we have with us Mr. Thimmaiah, MD and CEO of Meritor India; and Mr. Kumaradevan, Senior Vice President and the Whole Time Director of Automotive Axles; and Mr. Ranganathan, CFO, Automotive Axles. The 1Q company presentation is already shared by the company yesterday. And I now, I would like to hand over the call to Mr. Thimmaiah for the opening remarks. Yes, over to you, sir.

Yes. Thank you very much, Sailesh. Good afternoon to all of you and welcome to Automotive Axles earnings call. We are just going through the presentation. I have 2 of my colleagues, Ranganathan, the CFO of Automotive Axles; and Kumaradevan, the Whole Time Director for Automotive Axles on the call. I will -- only thing I want to add here is the company -- we are taking all precautionary measures to ensure that the employees are safe during this pandemic, and we are doing everything possible. And as you all know, last quarter was almost a wash for most of the automotive companies, and we were also not an exception. April and May, production was almost 0 because of the various lockdowns. In June, we had a very small production when the unlock was -- started happening. With that, I will let Kumaradevan and Ranganathan to run the presentation, and I will be available for question and answer, please. Over to you, Kumar.

Yes. Thanks, Thimmaiah. So good afternoon, everyone. I would welcome once again, all of you on behalf of Automotive Axles Limited. Let me start with a brief enough snapshot about the company and the financial year '20. As you all know, Automotive Axle is a joint venture between Meritor and Kalyani Group, each having 35.5% share and a public share contributing to 29%. We have 4 manufacturing locations, Mysore, Jamshedpur, Pantnagar and Hosur. We have a total workforce of about 2,000 in all the 4 locations put together. Our customers include all the major commercial vehicle manufacturers and also the manufacturers of specialty and defense OEMs. Our products include axles, include brakes, and we also have suspension systems in our product range. In terms of market position, we are #1 in axles, in independent axles and #2 in brakes. And as far as financial year '20 is concerned, we had a revenue of INR 960 crore. We recorded an EBITDA of INR 101 crore, which is about 10.5%. And PBT of about INR 59.9 crore, which is equivalent to 6.2%. Talking about the markets. I think we have diverse end markets, including truck, trailer, bus applications, off-highway applications, military vehicles and equipments and also various aftermarket requirements. And our major customers include Ashok Leyland, Tata Motor, Mahindra, Daimler, Volvo, Caterpillar, et cetera. So all the leading commercial vehicle manufacturers on the globe, they are -- we are catering to them. And in terms of our product range, our axles now cover a wide variety of segments, starting from 10x, up to 600 -- up to 19x requirement, covering various vehicle segments. And also in terms of brakes, we have a wide variety of break products available, with the diameter ranging from 310 to 410. Now as Thimmaiah mentioned, I think the entire country is reeling under COVID-19 pandemic. From Automotive Axles' side, we have taken all the necessary precautions. As you all know from March 26 the country got into a lockdown. And we started our operations after the initial lockdown of about 6 weeks on May 4. And all our manufacturing sites and offices resume operations from that first week of May onwards. And though we started our operations with all the safety percussions, OEMs, no production started late. So therefore, our month -- our production in the month of May was also very negligible. And as far as supply chain is concerned, we had a few hiccups here and there. Some of our supplies were very much impacted because of the COVID-19. I think the availability of manpower was an issue for some of them. So we had a few issues in terms of supply chain. But in a big way, we are able to manage to meet the customer requirement for the first quarter. Some of the changes -- some of the precautions, [indiscernible] we have taken in Automotive Axles includes: we have done a thorough heat map, reviewing the lines of Automotive Axles each and every day and ensure that sufficient social distancing is maintained in our manpower deployment. So therefore, we reorganized our shift operations. Wherever, we had only 1 shift or 2 shift, we reorganized into 2 shift and 3 shift operations, respectively. And we maintain a minimum of 30 minutes gap between 2 shifts, which will ensure that the employees do not get into contact to each other when they come for shifts. And every single employee or any visitor who enter into the Automotive Axles premises has to go through the temperature checks, hand sanitization. Wearing of mask and social distancing is extremely compulsory. And visitors are restricted. Very few visitors who are extremely important are allowed. And they also go through full protocol. They need to give a declaration from. They also have to go to our occupational health center, where they are completely checked up before we allow them to get into the meetings, et cetera. We also monitor the containment zones. Many of employees coming from containment zones or quarantine zones are advised to stay at home. And we keep track of their attendance and ensure that they don't have to, no persons on duty, whoever is coming from those zones. We have completely stopped our travels. We have come -- all our meetings today are online digitally. So we are extensively using our digital platforms to conduct our internal meetings and also the meetings with external customers, suppliers, et cetera. And as we mentioned earlier, the communication and awareness is continuously done. We have continuous communication going in the form of e-mail, Whatsapp messages, direct communication, shop floor, walkathons, all these things are all done almost on a daily and weekly basis to create awareness amongst the employees of our organization. So these are the various measures we have taken. I think we continue to drive all these measures in order to ensure that all our employees are safe as much as possible. So we'll get into the financials. Rangan?

Yes. Very good afternoon, all, once again. On the financial side, first, I thought I'd touch upon the last year. Last year, we had done about INR 959 crores as compared to INR 1,942 crores the prior year. Due to the market, we are down by 51%. And however, EBITDA continued to go strong with 10.5%, also volume reduction of 15%, the drop is not as significant. That's largely due to our efforts in the cost control and measures. The major element, I say, the impacts coming from depreciation. So it was 9.5% in 2018, '19, which was at 8 -- 6.2% in '19, '20. As far as the last quarter is concerned, we -- I think as mentioned already about the COVID impact, we are able to generate overall revenue of INR 41.1 crores as compared to INR 419 crores in the prior year, close to [indiscernible] only we could be able to in [indiscernible]. EBITDA, we were 9 -- 11.9% last year same quarter. This quarter, we are at minus 28%. So the PBT's concern is, the drop is significant largely because of depreciation, which is 60.3% minus this quarter compared to 9.2% the same quarter last year. And the next slide is about key highlights. Just to get an upside, as all of you know, that Q1 is washed out because of COVID. Q2, definitely we're going to improve as compared to the Q1. And, of course, if we really compare with the prior year the same quarter, we would be -- Q2 would be -- just estimated to be 25% to 30% lower. We are making our efforts to see how to maximize the revenue for this quarter. And overall, '21 revenue at this moment of time, we are -- our estimate -- [indiscernible] today, we will continue to be 25% to 30% lower than last year. Still a lot of information, not clear indications or not from the market. So we will probably know some clear picture maybe after September. EBITDA for the Q2 will be around -- close to around 8.5% to 9%, with estimated revenue what we have in mind. And of course, the EBITDA, we haven't got the impact of depreciation, only that will definitely bring down the [indiscernible] collaboration, but definitely will be much, much better than the last year -- as early last quarter. Our focus is continue to be on, significantly on the revenue improvement, both in terms of the [indiscernible] business with customers as much as we would like was it, as well as to make sure that we are delivering our performances because of both delivery and quality so that we try to get the maximum revenue as much as possible in the difficult times. Our focus is mostly on operational excellence through cost reduction is a very important one. We are driving it across both variable and fixed costs. And also new product development is one of the key focus areas if not one of the major pillars of our long-term Mission 25 strategy. So new product is basically towards making the market recruitment as well as for the value creation with the customers. That are 2 major objectives of driving the NPDs, but actually, we are working very seriously on this. There's some other things that in the long term will pay us a better position in the market. But the last but not the least, the focus continuing in cost control and significantly improving the process improvements. There are 2 major focus areas at the operations side we are working on today, to make sure that these difficult times will bring some sustainable change in our processes and controls. So that the market comes back, we can able to maintain the cost and improve the performance of some of the major processes. With this updation, I'll give the last slide to touch upon the cost reduction product on process optimization and automation highlights as our Kumaradevan will [indiscernible] to bring it up, some insights.

Yes. I think as Ranganathan mentioned, our top 3 priority areas for the year '21 remain the same exactly as our financial year '20. We want to focus on cost reduction, significantly reducing our cost and reorganizing our cost structure, so that we are able to sustain in the current market conditions. So our cost reduction strategy covers all the key elements which includes our material cost, covering the value engineering, value analysis, both in terms of material as well as processes. We are also looking at our in-house manufacturing cost reduction. Looking at every single opportunity to reduce our power, repair and maintenance tools and things like that. Our efforts also include no productivity improvement, covering both blue-collar as well as white collar. For every single area, we have both direct and indirect, we keep looking at opportunities to make the improvements in the respective places. Secondly, we are now looking at the external requirements. So product development remains as a key focus area for the company. So we are fully ready for all the BS-VI requirements of our customers. All the variants and changes which are required in our products, we have done, successfully completed in complete collaboration with all our customers, so we are fully ready. Apart from that, we are also working on other product platforms and new product variants to meet various segments of our customer requirement, which will enable us to increase our market share and increase our customer commitment. The third area include process optimization and automation, through which, we are continuously looking at opportunities to keep improving our manufacturing processes, which will increase the quality and reliability of our products, which will, in turn, add value to our customers. So constantly, we are looking at opportunities even in this lean period, we are looking at ways of making our products and processes a lot more robust, a lot more stronger, which will give better value proportion to our customers. So automation, mainly digital automation, implementing IoT measures in many of our lines significantly contribute towards optimization of all of our operations. So these 3 top -- these 3 areas will remain as top strategic areas for the company for the year '21 as well. So with that, we have completed the presentations. I think now the floor is open for question-and-answer session.

[Operator Instructions] We have first questions from Mr. [ Gokul Maheshwari ] from [indiscernible] Capital.

So if you could give a perspective on the overall market in terms of the axles, what part of the market is still being manufactured by OEs themselves and your market share within the overall as well as the ones which are being sourced?

Yes. I think -- this is Thimmaiah. I will take the question. So, Gokul, our market is linked into the -- ultimately in the end market of commercial vehicle, industrial and military applications. So as you all know, the market -- commercial vehicle market goes through a cyclical process. And we had a very big downturn last year. On top of it this year, we have the COVID pandemic situation. So today, if you see that even all the OEMs, whether it is the customers, the OEM, they are struggling to produce because of the supply chain issues and the market demand is also not come back. There are some demands in the marketplace, but they're not able to cater because of the various issues, supply chain issues they have. As we have told repeatedly earlier and also now, we are the #1 independent axle manufacturer in India, also the #2 in brakes. And we are getting into the new areas like suspension and also various other products we are working on. And our focus is to how do we increase our penetration year-over-year and how do we get into the new adjacencies and improve our overall revenue and in turn, profitability. We do not -- I can only say that as an independent axle manufacturer, we are the largest. That said, yes, there are a few OEMs who make their own axles. That, percentage-wise, that will continue for a while, unless the OEMs decides strategically not to make. But we don't see any major shift happening, either the OEMs going -- not to make or the volumes who are not making, they want to make. We don't see that shift happening. But we continuously work with the OEMs who make in-house to see that why it is important for them to give it to people like us who are experts in that particular field versus they investing resource and R&D in developing the axles, which will be only for the cap to consumption.

Could you also speak about Mission 25? What exactly this means? What are you trying to do from a 3- to 5-year perspective?

So if you see, last time, we have been telling this, our Mission 25 strategy has got 6 pillars: Number one is grow revenue. It continues to work on growing our revenue by acquiring new customers, increasing our penetration with the existing customers, getting into new adjacencies, et cetera; the number two is enhance our profitability. That's where Kumaradevan spoke. We -- our cost-conscious -- we are a very highly cost-conscious company. And we continue to work on reducing our cost across all work streams, whether it is engineering, sourcing, manufacturing, supply chain, and logistics; and third pillar is customer satisfaction. Our primary focus is to ensure that how can we deliver to our customers on time and 100% ride quality and provide them the [indiscernible] products that also provide them the field service; the fourth one is product strategy. We -- always, whether it is a downturn or upturn, we don't reduce our investment and resource into product development activity. We continuous -- to invest into new products. What we are doing last year also, we have done significant investment into the new product development. This year also, we are investing into the new product development. Because we believe that in the long-term perspective, you need to keep upgrading your products and coming up with the new products. So that's our fourth pillar. Fifth is operational excellence, mainly in terms of footprint consolidation, digital manufacturing, world-class manufacturing processes, et cetera; and the sixth one is highly engaged people. How can we make our workplace be one of the best workplace in terms of key leadership development, organization culture, best place to work for and how can we be responsive to each other [indiscernible]. These are the 6 pillars of our Mission 25. We have definitive targets and initiatives around this. Dedicated people are working on it. We do not -- we have an internal target for each one of the numbers. We will not be able to provide our Mission 25 revenue and profitability target at this point of time. Our focus is to ensure that how can we grow the business and all other 5 pillars can we go into the next level.

Sure. That was helpful. And lastly, on the exports, you had lot of breakthrough with exporting to [indiscernible]. If you could speak about this business in terms of how global supply chains are changing? Is there an opportunity to step up on the exports business?

Yes. There are 3 type of exports we do: The number one is we supply to systems and subsystems to our Meritor sister concerns across the world. We supply parts, systems to Brazil, Europe, U.S., China, et cetera; the second one is we do the full-fledged assemblies to our end customers, what you mentioned was Volvo Thailand. We are exploring to see that if we can get more and more such opportunities across the world, and we want to serve them. Third one is also we are exploring now if we can supply the system supplies -- systems and subsystems apply to the end customers directly. So we are working with a few OEMs. There a lot of inquiries are in the pipeline. Unfortunately, there are some back seat because of the COVID situation. But otherwise, we'll continue to work with our end customers to see that if we can get either a subsyste [indiscernible].

We have a next question from Mr. Abhishek Shah from Valcore Capital.

Yes. Sir, you mentioned the cost-cutting drive that you've done in the last quarter. I'm sure these are exceptional signs. But -- so just wanted to understand what sort of cost would you expect to stay, maybe a year or 2 later on in the next cycle when things really get better for us? What I'm trying to understand out here is in the last cycle, at -- in good volumes, we did a 12% margin, operating margin. Do you expect the next round to be about 15%? Or maybe if you can give me quantitative or qualitative aspects on this perhaps?

Yes. We are -- the cost reduction mainly has got 2 segment to enter it. Number one, the cost which we continues to work to take it out from the system so that it won't come back in the near future. The second one is we have taken a lot of onetime cost actions. We have done -- a lot of senior management people have taken salary cuts during the pandemic. And also, a lot of -- like travel is, anyway is not happening because of the restriction, et cetera. So a lot of onetime cost-cutting we have done, which will not be sustainable, which will come back. But also, there is -- I would say that at least 50% of the cost reduction initiatives, what we are working on is going to be midterm and long term, which will give us long-term benefits. So just to give you a very high-level approach, we -- at the good times, I think we have done around INR 1,900 crores revenue with, around as you rightly said, around 12% EBITDA. And I think our aim is to hit at least the 12% level with a significant reduction in top line. We don't see that kind of a top line happening in at least next 2 years unless the market comes back significantly higher. But we want to bring back our EBITDA percentage to closer to our peak level as quickly as possible.

Got it. Got it. Second is -- sorry, I missed the opening remarks. Second is, is it possible to give me the monthly production of axles? I think that was the number that you used to share earlier. So maybe the June and July numbers, that ones?

So we -- normally, we don't share the actual production volumes, Abhishek.

Okay. Fair enough. So maybe capacity utilization, perhaps, like what…

Yes, capacity utilization rates, yes. We -- as you probably know that it is very low now, we are still at around 20% capacity utilization capital, so...

Got it. Sir, this quarter, even the production schedule seem to be weak itself, [indiscernible]

Yes. It's reasonably okay this quarter now.

[Operator Instructions] We now -- next question from Viraj [indiscernible] from Securities Investment Management.

I just have 3 questions. First, you talked about demand in Q2 being lower by 25% to 30% on year-on-year terms. Is this largely due to still supply chain concerns or it also the fact that the demand itself remains to -- continues to be weak? So what is the -- what exactly are we seeing [indiscernible]? Second is, you found about us seeing a lot of inquiries. But if there's [indiscernible] supply of full systems to [indiscernible] customers. Now typically, in exports to any [indiscernible] globally, it's usually a 3- to 5-year [indiscernible] in terms of the whole process validation and being on it on improvement? So for us, when exactly, we will be in that journey? Or given the fact that we are already a part of Meritor, we should see that actually processed being much shorter for us? So that is second. And third, also on the export side as well. Given the kind of supply chain dynamics happening globally, are we seeing more and more attraction or opportunity to cater to Meritor's global requirement? Are you seeing any of those happening for us?

Okay. The first question, the market, as you can -- as you see, from various reports and analysis, this year, people are expecting the commercial vehicle market to go down by around 20% to 25% compared to last year. Last year was also -- it was a significant lower, but on top of it, we are going to the [indiscernible]. And you've seen that Q1 was almost like a wash for the entire OEMs and the entire business. So that said, around 20%, 25%. And yes, there are some constraint in terms of supply chain. Also, the demand is not what pre-COVID period still. So the demand needs to come back. Overall economic activity need to improve, the trucks has to start plying and the drivers availability need to be there. The infrastructure projects should start kicking in. This entire economy has to come back to normalcy to see significant growth happening in commercial vehicle. Until that happens, I think the demand would be lower. I think a lot of -- our estimation is that it will complete medium and heavy commercial vehicle business, the market would be lower by around 20%, 25% this year. The second question, in terms of export. Our -- we don't see -- because when we give a subsystem, we will give it to the existing product lines. It's not the new product, the OEMs are launching. So the cycle time, what we see would be around 12 months to 18 months time frame, not 3 to 5 years, that could be true via new product. But what we are working on is probably between 1 year to 2 year, I would say. So any business we are working and talking to the OEMs, that should materialize within that peak time period. The third one on, Meritor's -- export to Meritor. At this point of time, everybody has got excess capacity. The entire world is probably at around 25%, 30% capacity utilization. So this is not -- and also this is an abrasion, right? Because of the last year, I can understand this was a market downturn, but this year is going to be an operation because of the pandemic. So I think we should not consider this as normal. Maybe another 1 or 2 quarters when things comes back to normalcy, my view is everything will get back on track.

Okay. And just 1 follow-up on the export side. You said that it's largely supplies for existing customers for existing products. So compared to the potential in terms of wallet share, where will we exactly do it right now?

We are maintaining our share as of now, but our endeavor to improve the share, which we have a plan and we are working on it.

So what kind of opportunity one should be looking for your export opportunities or having customers?

I can't put in number and tell you, but this is our -- I can only say this: We had put in the Mission 25 strategy around 1, 1.5 year back. I'm -- we are still confident that we will more or less hit the -- whatever that number we have considered in the Mission 25 strategy by 2025. So we are still confident, even though we had a downturn and a pandemic, another 3, 4 years, the market would come back. And all the actions we are taking, we are still confident that we will hit whatever the target we have taken for '25, we should do that. Unless the market doesn't come back to the peak even in 2025, '26, then there may be a significant problem. Otherwise, we are expecting that the market will come back to '18, '19 the peak level by '26 -- '25, '26 time frame.

We have the next question from Mr. Ashwin Reddy from Samatva Investments.

So firstly, can you talk about the new products in Russia, which you said right about the suspension and other products? I'm just curious because at this point, what would be your range in other products, that would enable you to take market share from competition in the future? Because I guess and I understand you said your market leaders, but in suspension and beyond. So what is your game plan there in this period?

We have launched a new variety of suspension called slipper suspension, that is going on the multi-axle rigid trucks. So we have a customer, Ashok Leyland is one of the prominent customer for us for that. And that is being launched in a major way in the BS-VI onwards. That has got significant benefit for the end market, that has got very low maintenance compared to the -- otherwise, we call it Bellcrank suspension. The maintenance is significantly lowers. I just give you a comparison, the traditional suspension has around 26 lube points, this has got just 2 lube points. Then the recent alignment -- the wheel alignment [indiscernible] can be done with our suspension, so that the tire wear can be reduced. And we have seen significant improvement into tire life, and also the fuel economy improvement to some extent. So it's not -- this is very new product in the market. It's getting seated, it's getting supplied. Once the end customers are seeing these in the field, I think we will start seeing more and more pull happening from the market.

Okay. So this product is presenting in their new platform, the [indiscernible] platform is on, is it there in that platform as well?

Yes, it is there in their AVTR platform, yes.

Okay. Understood. Understood. And secondly, coming to the -- okay, I know [indiscernible] , in terms of the overall contribution of the non-axle part of the portfolio right now, where does it stand today with the entire [indiscernible] portfolio put together in the overall sales numbers, approximately?

Yes, we don't give that breakup, actually.

But and -- okay. And how about the -- any progress on the EV action that you talked about in the past? Any thoughts on that?

Yes. I think we are continuing to work with all the electrical vehicle manufacturers. There are -- I don't know, there are many of them. There are -- all the old existing OEMs are working on electrical vehicles. And there are 10 and 20, [indiscernible] working on that. New people are working on the electrical vehicles, either it is commercial trucks or on the Muslim people are working on the bus side. We are in touch with each one of them, and we are working on providing them the solution. There are 2 types of program they are working on, either we supply them an electrical axle [indiscernible] and that will suit into the electric vehicle. So we are very well positioned.

Okay, understood. And in terms of the margins, one question on the near term, one question about the run. In near term, you mentioned that Q2 is approximately 25% to 30% in [indiscernible] last year. Hello? Hello? Can you hear me?

Yes, yes.

Yes. So the margins in Q2, I was just curious, [indiscernible] at a debut here sale get of 25% to 30%, what would -- would you be breaking even? Or what would be the profit margin that we expect in Q2?

Yes. I think at this point of time, we will definitely break even with this kind of volume.

Okay, okay. Got it. And the longer answer because the levers that you have are quite a few, right, the export levers and also the cost-cutting, whatever you've taken, some parts, it will not come back. So why should you, again, be only repaid 12% and why not the higher [indiscernible] ? So are you being conservative in terms of the guidance? Or do you think you'll have to pass on the margin back to your customers and then -- so how does one think about -- around this point?

First of all, I'm not giving the guidance. I'm just saying that even at a lower -- if you see, even at a lower revenue level, we will be able to hit the 12% margin. And if the revenue goes to the peak level, definitely, our margin will be more than what we have done.

[Operator Instructions] We have next in queue Mr. Sunil Kothari from Unique Investments Consultancy.

Congratulation, Mr. Thimmaiah and [indiscernible] for such a very -- in a tough time, doing a very good job, sir. Sir, my question is larger a little bit. You have seen many cycles of this heavy vehicles industry, commercial vehicles up and down. But normally, 3 to 4 years is a normal up time it takes. But this time, things are worsening very speedily. And officially, this pandemic has sped up more. So what's your view? Because you are saying that you are going to target to achieve your Mission 2025. So [indiscernible]. Sorry?

I think somebody need to put the phone on mute. There is a lot of background noise and disturbance.

Yes. So just broadly, sir, why I wanted to understand is, you have seen many cycles this -- of our industry. So what is your view? At which stage normally of the total number of trucks on the road or is the life, when you -- what time it takes and what type of situation you foresee? Another 3, 5 years? Or where do you see the industry overall are your customers?

See, I think my personal view based on -- I have almost around 30 years' experience in mainly commercial vehicle industry. So my view is, in all the time, if we look back 20, 25 years, the downturn every 4 years, commercial vehicle goes through the downturn. And then it comes -- it takes around 4 to 5 years to come back to the next peak. And always, we have seen the new peak is higher than the old peak. So which means, say, for example, 2018/'19 was the new peak with a 460,000 vehicle market. The next peak could be 2015/'16 with the -- it could be much better than the 460,000. I think that's what has happened historically. But unfortunately, this pandemic, nobody has seen it, right? This is one in 100 years kind of a thing. What impact it will have on the overall economy? It will take an additional 2 years? We need to see how the market picks up once this entire pandemic subsides. That is the key. Until then, we really don't know what impact it really had on the economy. So -- but to answer very shortly, I think 5 -- this year -- this cycle, probably 1 year, 2 years longer, but then the market will come back to the next peak. Because if you really see the -- whether it is a bus or a truck, number of trucks required for the population, normally, it is termed as in the -- whether it is Europe or a U.S. or a China, is normally termed as 1 truck per 1,000 people, something like that. So if you see that way, for Indian population, we need a market of around 1 million trucks. So we have reached up to around 450,000, 500,000 level. So definitely, 600,000, 700,000 should be required for India, but it's only the matter of time when that will happen.

Very useful. Sir, my next question is, we have done a lot of work on our product improvement. We are readying it with now, BS-VI excels. We are [indiscernible] vehicles actually, also. So what if you had [indiscernible] from [indiscernible] per customers product, which is truck, really improve substantially? Or it will remain in the, maybe a range on which is at current, whatever realized [indiscernible]?

More or less same. And maybe a small improvement will happen, that's because of all the action, new product action and cost actions we take. But the c-axle is one we are banking on, but we really need to see that how the penetration will happen, that would give definitely an [indiscernible] area of this.

Okay. And then my last question is, we have done at think INR 1,900 crores revenue. With existing capability and product rationalization and whatever work we have done during this tough time, what is the ability to generate revenue without any major CapEx?

Yes. I think we can definitely do much, much more than that without any additional capacity-related CapEx. Okay, we need to probably invest into sustenance, small amount. And also on the new product development capital we need to invest. But in terms of capacity, I don't think we need to invest anything for next 4, 5 years.

We have next question from Mr. Saurabh Shroff from QRC Investment.

Sir, on the new product initiatives that you mentioned, suspension, and maybe if you can help us understand which other products that are being worked on? I just wanted to understand breakeven and sort of margin profile? How do you see that building up as the new products ramp up? Like how then do they get to company level margins?

No. I think our endeavor is any new product, maybe the scale will need to come. But our approach is, at least, it should make the threshold margin.

So when you say threshold margin, meaning you mean that it should not be dilutive to your existing products?

Exactly. Correct.

And at what sort of scale -- so at what sort of utilization levels do you think you get these products being accretive to our overall profitability? And what is the time line on that?

No. I think our approach is any business, which new product we do, at least second year, it should not dilute our overall profitability.

And with regards to suspension, even in this environment, you think we are on track for that?

Yes. I would say, yes, but I want to be -- also caution all of you. This is a very abnormal situation, very [indiscernible] situation. So we need to see how this pans out and has an impact. But otherwise, I think once it is out of our way, we should be doing good, I guess.

Okay. And sir, any other products that you would like to flag that are already being launched or anything that you can speak about other than suspension?

No. We are working on many products. I can't talk about it at this point of time because of the sensitivity. We will let you know where and when it can be announced.

Sure. And sir, secondly, with our top 3 or 5 customers, what do we think our penetration or market share is with them? If you could maybe help us understand that so that we can better appreciate how much room you have for penetration and sort of increasing share of volume with them?

Yes. I, we -- normally, we don't view the penetration data in detail because of -- it is very sensitive and competitive in nature. But that is one of the focus area for us, I can say that much.

And do you have significant headroom available that you could grow this penetration with each of your existing customers?

I don't say significant, but definitely, yes, we are 1 of the key suppliers for all the OEMs, and we have very high capability in terms of our engineering and manufacturing. So yes. That's our core initiative.

Okay. And sir, I just want to clarify. You mentioned that we are currently running at 20% utilization, right, as in the month of July or August? Is that -- my understanding is correct on that?

Yes, that's right.

And that is our breakeven -- and you think we could break even -- EBITDA breakeven at that level of production?

I think so. Rangan, you're we would, right? If this level, we should be, I think.

Yes, we should.

Yes, -- yes, I think probably -- I think June and July, we had 20%, but August is slightly looking better. Maybe the utilization will be slightly better, around 23%, 24%. At this level, I think we should break even.

Okay. So between 20% to 25% of utilization, we can safely break even on EBITDA?

That is true. Correct.

We have next question from Mr. Ashwin Reddy from Samatva Investment.

Sir, I was just looking at the annual report in which you mentioned the portion of new [indiscernible] some breaks. So in the other part that you mentioned there, is there any other [indiscernible] there? Or that's not a part of the component and give more suspension in other products?

No, sorry, I couldn't understand. Can you please repeat?

In the annual report, you mentioned the breakup of revenue between the rear-drive items and brakes. And the other part, which is mentioned as 20.09%. So does this include any other type of [indiscernible] there? Or is it more suspension kind of a product?

That's suspension, spare parts and those kind of products.

Okay. Understood. Understood. And the entire -- and the remaining new product, which you said you are in the pipeline, but at this point of time, you cannot share the details. So are all these also technology -- is the technology sourced from Meritor? Are there any products which you're working on indigenously, yes?

No, suspension, for example, we developed locally. And locally, we developed suspension. And otherwise, it depends. We take help from the -- our global engineering community, but most of the product we develop locally for the local market.

Okay. Understood. And sir, and would this also, the new products we're addressing beyond the commercial vehicle and the segment where you are in right now, primarily? Or is it targeted mainly at the CV space, CV and the off-roading space? [indiscernible]

Commercial vehicle, industrial, which is all the off-road and those kind, and military. Defense is going to be one of our segments which we are very aggressively working on.

Defense?

Yes.

We have next in queue Mr. Abhishek Shah from Valcore Capital.

Just a quick follow-up. So just wanted to check on -- so obviously, these are uncertain times, but say, in normal circumstances, the BS-VI actions that we're making now, I think you mentioned realizations are similar. But on the margin front also would be similar? Or would it be much higher or at least on the higher side?

It is similar.

We have next in queue Mr. Daylynn Pinto from IDFC Mutual Fund.

Just a clarification. You mentioned that with the 20%, 25% capacity utilization, you could break even at EBITDA level. But in your presentation, your EBITDA guidance is 8.5% to 9% for Q2. So I was not able to tally the numbers. Could you please explain?

Yes. When we said that we can break on, that was a very conservative approach. But yes, Q2, we -- at this current outlook, we could be at that level.

Okay. Sir, and just from a demand perspective, a couple of your customers have already declared their results, and they have shared some sort of guidance, where volumes seem to be at least a 5 to 6x higher, if not more, than Q1 levels on an average. Would you subscribe to that kind of view in terms of how the industry is picking up quarter-on-quarter?

Yes, I would say. But Q1 is very -- we can't say...

Yes, absolutely. Absolutely.

So let me -- otherwise, yes. Otherwise, it will be that much for sure. If you compare, definitely price [indiscernible], because Q1 is almost nothing, actually. So -- and one thing is, what I hear from the market is every month and month, there would be an improvement in market sales.

Perfect. Perfect. Sir, my third question was on the Mission 25, you talked about new products and you also talked about exports. I mean, I know you don't want to give what your Mission 25 revenue number is. But could you give us some sense of how much, if, let's say, the revenue number is 100, what proportion could be exports out of that? And what proportion could be new product introductions that you are now working on? Is there some kind of sense that you can give us? And how does that compare with where we are today or as of FY '20, if you could share?

No. I think that breakup also, we can't. We generally don't provide our segment breakups.

Okay. Okay. No, I mean, could -- like out of INR 100, could INR 20 be exports and could INR 20 be contributed by new products? I mean, something of that sort? Any guidance as such, not a number, per se, just?

No, we can't -- that's what -- we can't give that.

Okay. Yes. And just on the -- you have mentioned that you should hit your peak EBITDA margin at a much lower revenue run rate. So would that mean that on an average, as a company, our breakeven would have come down by maybe 20% or 25%, so that for this to happen, so to speak, would that be fair, as an assessment?

Yes. I don't say 20%, 25%, but breakeven has come down, for sure, yes, because of the cost actions.

Okay. Sir, my last question is on the domestic market. So when we look at axles, for example, we know the largest [indiscernible] manufacturer has their own in-house axle manufacturing. And you did mention we are trying to work with them to kind of increase share. So are -- is there any change in the stance by some of these -- by these manufacturers? And second is with BS-VI, has there been any content increase for any of our product lines? And will that show up?

No. There is no content increase for us. But again, during this time, nobody will take a major strategic shift like OEMs on offloading their own axle. So we are continuous to work with them. Just -- we need to -- we'll see how the overall shift in the market happens with electrical vehicle coming in, all those things will play in the overall strategy for them as well. So we need to just maybe wait for another couple of quarters once this big issue is out of our way, then probably things should look more clearer.

Okay. And as a company, is there a chance for us to go lower down the curve in terms of axles, because I think we start at a healthy level. So I'm assuming at 3 ton or 5 ton plus. So any chance to go low down the curve? Or that's not something that...

That is a positive. Within commercial vehicle space, yes, that is one of the possibilities we are exploring.

Okay. Okay. That's great. And sir, last question, sorry, I said this before, but really, this is the last question. On the defense side, so this new 101 item that has been banned and among them, I think are armored vehicles, if I'm not mistaken. Can you throw some kind of sense on what the opportunity here is? And -- or even from a replacement basis, if our armored vehicles are currently importing axles or breaks or something, which could be substituted by companies like ours who are make in India. Any guidance can you give on this?

Yes. I think today, majority of the high end vehicles are being imported. If that vehicles are made in India, obviously, all the OEMs like Ashok Leyland, Tata, Mahindra, they will get benefit. Obviously, we, into axle, we will supply the axle, we will get benefited, number one. Number two, until now, a majority of our military vehicles are -- they still used to use the normal vehicle as a military vehicle. The 4x2, not very high end vehicle. So I think that is also going to change. They would require independent suspension, multi-axle, multi-drive vehicle and that would significantly increase our content. Say, for example, today, say military is using one of the normal truck for their operation that has got only 1-drive axle. Instead of that, if they use 6x6, what we call 8x8, 10x10, kind of a big all-wheel drive vehicle, that will have 5 -- if it is a 6x6, it will have 6-drive axle. So significantly, instead of 1, it will have 6. So it is a significant content increase opportunity for us, for the OEMs. And one is import subscription. Second thing is upgradation of the vehicle. Both will benefit people like us. I think we have a hard stop at 3:30, right?

Yes. I will hand over the call to Mr. Raja for closing comments.

Yes. Yes, I would like to thank you all for participating in this call. Thank you, all of you. Then sir, would you like to make any closing comments?

No, I think we have a good question-and-answer session. I am good. And I would just want to say thank you for all the people who show interest in our company.

Okay. Thank you. We can close now.

Thank you.

Thanks.