Automotive Axles Limited (505010) Earnings Call Transcript & Summary

Good morning, everybody, and thank you for joining us for Automotive Axles Limited Third Quarter of FY '22 Earnings Conference Call. So during this call, from the management side, we'll be hearing from Mr. Thimmaiah, MD and CEO of Meritor India; and Mr. Muthukumar, Whole Time Director of Automotive Axles; and Mr. Ranganathan, CFO, Automotive Axles. I would now like to turn the call to Mr. Thimmaiah for the opening remarks, followed by [indiscernible]. Sir, you may begin the call.

Yes. Okay. Good morning, all of you, and thank you very much, Mr. Sailesh Raja for the opportunity. And we'll let Muthu do all the -- go through the presentation, and then we will -- I'll come back around with him for the question-and-answer session, please. Muthu, over to you.

Thank you, Thimmaiah. And ladies and gentlemen, good morning to everyone, and I wish you a very, very happy new year, a little late, but at the same time, I hope all you and your family members are safe. For the FY '21 revenue, I think you all know that we have done about INR913 crore revenue with an EBITDA of about 8% and PBT of 3.3%. For those of the people who are joining for the first time, Automotive Axles has 4 manufacturing locations in India. We have Mysore, which is the mother plant, we have Jamshedpur, Pantnagar and in Hosur. This -- your company has an equity share of Meritor Incorporated in the U.S.A., about 35.5%, and Kalyani Group from India on 35.5% and the rest is in the public. We have more than 2,000-plus dedicated employees who make all these products, touch the products and ensure that the product is good for the customers. And in India, we have all major customers in the commercial vehicle segment, specialty and defense OEMs. For those of you who want to learn, we have our products like axles, brakes and suspensions in the commercial vehicle segment. As an independent axle manufacturer in India, we are holding the #1 position as an independent axle manufacturer. And in terms of the brakes, we are #2 in terms of the share [indiscernible]. Just want to give an update to COVID in our company. All the people, 99.5% of the people are vaccinated, both the doses, including all affiliate people and anyone who is getting into the campus. People who walk into the campus are also vaccinated, continues to keep awareness for people and sensitizing the employees and their families on COVID appropriate behavior. Our leadership team continues to keep the regular communication to the people on adherence to protocols and also make sure they seriously follow the protocols outside [ office ]. We have a shift pattern -- alternate working pattern created so that all the employees have got rotational working from office. Continuous sanitization is put in throughout the plant and office areas. And of course, we have initiated various things in our canteen like disposable plates, cups, spoons to ensure that we follow COVID appropriate behavior. The company also spent a lot of time in making sure that we take it to the society and ensure that the entire society is also educated and we also worked with the government to help them in vaccination. We have a diverse end market for major customers. And if you see, we are present in truck, trailer, bus, off-highway, military and aftermarket. Meritor and Automotive Axles provides, thus, an excellent aftermarket solution. The major customers in India, just to name a few, we have Ashok Leyland, we have Tata, Mahindra, Daimler, Volvo Eicher Commercial, and Bharat Forge and Kalyani Group, Caterpillar, Volvo Thailand, to name a few. Your company has an extensive range of axles and brakes. We start -- we can actually call it 10X, which is a fixed ton axle and up to hub direction axles, which is about 55 ton to 60 ton, which is an extra heavy vehicle. Similarly, for the entire range of vehicles in the commercial vehicle segment from 6 ton to 60 ton, we have the brakes also in applicable groups that's available and thereby every customer at the end of the day feels that Meritor is a solution provider for the entire requirement of their business segments in terms of axles and brakes. Your company has invested a lot during the year '18, '19 and the latest MS assembly plant coming just in the next slide is completely [indiscernible]. It's using the technologies of artificial intelligence and Industry 4.0. Our local teams in the factory and group of engineers working with external people have created this. Currently, the entire plant of new assembly plant, which is a silent area where before it goes to the customer, we're working on smart manufacturing system. I take this opportunity to request you maybe if the travel permits during the next time, maybe during the AGM, and if you are able to have it in physical form, we request all of you to visit the plants and see them. We also have a digital assembly line, which is being set up similar to the final assembly line. And these are the next set up recently come and we have a very clear visibility in plans to take this organization to -- by FY '25, the entire 33-year old plant will become Industry 4.0 compliant. A lot of technology initiatives, during the last 2 years of COVID, the company's team of innovation team -- innovative team has identified in terms of the welding, in terms of the machining, in terms of the gear manufacturing, in terms of the assembly, to keep continuously cost at check and make sure that the company is always competitive and in terms of delivering the best of best quality delivery to the customer, which is really [indiscernible] to increase the business. Some of the key actions to manage the business successfully, we are having a growth strategy. I think Thimmaiah presented in the earlier sessions on our Mission 25. Ranga will talk about our Mission 25 objective later, the new business and opportunities in the pipeline. Most of the new product development work our engineering team launches is full of reliability and at a competitive price, which makes us to get into the business. We are driving eMobility business into the system, even though it is at a very nascent stage today. I think we are getting ourselves prepared for eMobility business in days to come. And digitalization and implementation of 4.0 is one of the key for us to be more competitive and reliable in the days to come and geared up to the capacity to cater to rising market demand in the years to come. In terms of the cost controls, much actions have been taken in terms of cost control measure in place of conversion cost value thereby reducing the material cost and of course, have control on the manpower cost to make it more and more efficient. While the company is working on productivities of new products, the same amount of productivity improvement or a value-added improvement is done on the management side also to ensure that we're optimizing cost. There's a huge commodity price that is going up, which is giving continued pressure in the organization, and without this cost reduction, we would have been in a very, very challenging state. At least today, some of the initiatives that we have taken is really helping us to keep progressing. Our continuous focus on the overall cost optimization and significant savings is expected during our Vision '22 timeframe. The company continues to follow the safety practices of regular and continuous audits. Multi-shift operation continues across locations, and as I earlier indicated, 99% of the people are vaccinated and we are continuing COVID protocols. You all know that while we are in the automotive business, and we are focusing on our productivity things, sustainability is one of the key. And I think 2 meeting earlier, which as Thimmaiah touched upon our initiatives, [ we'll talk to you ], maybe this is one thing that we want to do. Currently, at 25% to 27% of our power consumption, what we are using in the plant, is solar power with some suppliers who are dedicated solar companies you have. Your company is planning to take it -- by FY '27 to take it to 90% of the power consumption will be with solar power. That means that amount of carbon emissions will be brought down substantially, and that is going to be a key initiative for us in terms of sustainability. The same thing, we are using LPG now far less and we're going to migrate to LNGs which is again going to be another initiative for making our carbonization reduction. You have seen our initiatives way back in terms of groundwater level. We continue to focus on this [indiscernible] recharge facility and we continue to focus on harvesting water, and you can see our groundwater facilities is coming up. We're also not only looking at getting the power from sustainable things, also focusing on how the outbound logistics or inbound logistics is working efficiently. From the truckload, we know, axles is component, which accommodate volume but not the value. And one of the factors that we are working on truck loading efficiency is to take it from 76% to 85% is the project that we're working. Digitalization and paperless office is going to be the drive, which I have earlier indicated to you on Internet of Things in interviews. The team will continue to work and ensure that we become a paperless office by 2025. Any organization depends on the society, and it is our responsibility to give back to the society. There are a lot of programs that we are working with local administration, local management in terms of environment and road safety, education to underprivileged, healthcare infrastructure. I think what we are [indiscernible] it has benefited the local populace a lot, of course, making clean water and lake renovation as set of projects. We are working on ISO 26000 certification for our CSR assurance in the year '23. Corporate governance continue to be our focus in terms of stakeholder management, total employee engagement, gender equity and reduced attrition by 2023 and excellence in corporate. Many of the things which we talked post-COVID, the challenges on the people engagement and also reducing attrition is going to be key...

Sorry to interrupt your line. Dr. Muthukumar, your line is not clear.

Can you hear now?

Yes. It's better now. And Mr. S Ranganathan is also connected now.

Thank you very much. Thanks for connecting Ranganathan. I think he has come in right on time. I have to change it to next slide. Gender equity and reduced attrition, and I'm just very happy to see that we have a very good engagement of the people. And we did lot of initiatives during the time for keeping the people not only physically strong, but physically, mentally and keeping our people strong and excellence in corporate governance. With those slides, I think Mr. Ranga has joined now, I'm handing over to Mr. Ranganathan, our CFO, for taking you through the financial results of this quarter and our growth through Mission 25 strategy. Over to you, Ranga.

Thank you, Muthu. Very good morning to all of you. A little bit of connection issue, I joined little late. I'll quickly take you through the financial results for this quarter. For the Q3 '21-'22, we have achieved about INR376 crores as the revenue. As compared to the previous year, we are up by 37%. As far as the EBITDA is concerned, we are at 9.7% as compared to 9.9% last year, the same quarter. As far as overall PBT, we have reached about 7.1% which was 6.3% last year, the same quarter. So for EBITDA level, the little bit of drop, what you can see is basically the 2 factors, I just wanted to bring the attention of the investors. One is about 2021 and '22 we absorbed huge amount of commodity increases as all of you know commodity increases, the customers only reimburse you the cost. So we had a huge base impact, which we observed in the current financial year as well as in the last financial year with COVID, a lot of discrete expenditures we have substantially reduced to sustain the level of operation last year, which is little normal this year. The 2 are the factors which is really influencing the EBITDA percentage for the current quarter. Nevertheless, a lot of efforts have gone in, in terms of the continuous [indiscernible]. Especially the material cost performance and the conversion cost performances has significantly contributed to bring the performance for this quarter to the same level of the last year in spite of the high impact of the commodity price increases. So that's one of the point. As far as the cash flow is concerned, the cash flow for the quarter and for the 9 months ended was quite positive and the continuous focus on the inventories in the fluctuating business scenario make sure that we control the inventory to the type of volumes, what we see in the market so that we're doing the better cash flow for this year. So we continue our focus on NPD, operational excellence and cost optimization as part of our M 25 strategy. The last slide is about -- basically gives a glimpse between 2014 and as of now, how the MHCV market is growing and how is other revenue growth within the market. As all of you see, we continue to focus and make sure that we perform better than the market and even in the downturn adoption, so that we are ahead of the market and make sure that we are trying to be little ahead of the market. So largely, the 5 M 25 focus areas is: grow revenue; enhance profitability; new business wins; operations excellence; and customer value. All the initiatives are led by internal team leaders and most of the initiative is going as per the track, as per the strategy goals. So the 2021- '22, if you could see, the last 3 years you could see the MHCV market, 2019-'20, roughly around 250,000 vehicle levels and 2020-'21, it came to 197,000 vehicle levels. 2021-'22, we are estimating around 270,000 to 280,000 vehicle levels. So definitely, we will be working closely with all the OEMs and ensure that we bring that vehicle revenue share and profitability for this coming financial year so that we bring the better results at the end of March. So with that, the presentation is over. So I get back to the investor team for the question and answer.

[Operator Instructions] We have first question from the line of Mr. Nishit Jalan from Axis Capital.

Sir, my first question is on the MHCV industry. You talked about that you expect a recovery. So just wanted to understand, are you seeing a recovery more broad-based going ahead? We have seen that demand for tractor trailers and all is relatively slow, while there is good demand for tippers. So how are you seeing this recovery being playing out across the segment? And what will be the actual driver of the recovery? Will it be more like a replacement demand picking up? Or do you think that fleet uplift before also starting to look for additional fleets in the light of better fleet demand? So that was the first question. And second question is, on the commodity costs, can you share some numbers of what kind of price hikes you have already got from the CV companies because of higher commodity prices and how much of under-assembly is still left till Q3 levels?

Muthu, you want to answer?

Okay, Thimmaiah. Thank you, Thimmaiah. Thanks, Nishit Jalan, for this question. We are seeing definitely a recovery in the commercial vehicle fleet point, not only from the OEM production, but also in the registration what is happening. You asked a specific question also you don't see much on the tractor trailer. You are right. The market this time, post-COVID, what is happening with the ICV and the tippers are going, even multi-axle vehicles were not better in last quarter. And this quarter, we see a good demand of multi-axle vehicles, which means that the truck utilization is good and most of the fleet operators are buying their truck now. So with the government positive budget and the infrastructure that's going to happen, [indiscernible] is going to happen, the ICV for last-mile connectivity of the e-com business is going to grow. The tipper business is going to grow. But I'm sure that the truck utilization going up post reduction of legal riders, most of the fleet operators are showing some intent to do. But if you ask us whether the sentiment is good and it's going to grow full, we need to wait and watch for the next 2 quarters, but there is definitely a demand for trucks and [indiscernible], this is a positive trend. That's for the first question. On second question on commodity, yes, it is a very, very challenging moment that one side, raw material suppliers are increasing the price, on the other side, OEMs are doing. While I can't say that how much we are recovering or not there, but your company is continuing to putting pressure on both the side balancing to see that our customers are competitive, at the same time, it doesn't impact our financials. Thimmaiah, if you want to add anything on this, you can add to that.

No. Maybe a quick one on the first one. We are seeing -- okay, as you have rightly said that segment-wise in commercial vehicle, if you see, the segments always shifts depending upon what is key for those quarters or those years. But I think with e-commerce picking up, the light commercial vehicle or the medium commercial vehicle as well as tipper demand is going up. And now with the infrastructure and economical activity starts picking up, even the tractor trailer and other haulage will also start, we'll see that pick up. One thing is we are seeing other than some blips in a month or 2 because of the COVID, we are seeing month-on-month good improvements in the overall sales and registration of the vehicles in the marketplace. Every quarter, if we see that there is a good growth is happening, and we expect that this will continue for next many quarters.

Got it, sir. So just one last question. You had, in the past, talked about multiple new growth opportunities for Automotive Axles, exports plus new axle launches that you are targeting different applications on military, defense and all those sort of things. And so just wanted to understand how is the progress on that. Because of weaker industry, have we delayed our new product launches or they are on track to be launched? Some color on that. And a related part is, Tata Motors still does a lot of in-house axle manufacturing. Any change in that? Are you seeing increased share of business coming in from Tala Motors as well?

No, in terms of the new products, we have not stopped anything. We continue to develop the new products, and we are penetrating. And I think you don't see much of those reflecting on the revenue mainly because of the overall market is still in a recovery mode. So we are -- continues to focus on the new product development and which is happening. And we have won few businesses, which is getting launched. There is just slow ramp-ups are happening and that we are very upbeat about all the new things what we are trying to do. Coming back on the Tata Motors, I think this is -- again, we continue to work, but we have not seen any breakthrough at this point of time, but it is a very long drawn process, and still they are making everything in-house. Very small uptake, which is happening from us, but our endeavor to continue to drive is happening.

Before taking next question from the line of Mr. Sunil Kothari from Unique AMC LLP. [Operator Instructions]

Mr. Thimmaiah and team, really great job you people are doing, sir. Sir, what's our -- out of this 9 months revenue, what's the revenue from exports maybe direct only -- in direct, if percentage or absolute whatever you would like to disclose?

We don't give a segment-wise breakup, those, but Ranga, you want to -- high level, you can talk, is it increased, didn't increase because we don't give the split to the outside market in our segment mix. So -- but high level, I think Muthu or Ranga, you can just talk about what's happening in the export front.

Yes. Just one word, Muthu can add it. The export probably is more or else consistent irrespective of the domestic demand fluctuations. And what they have been serving, there is no [ inflection ] in the demand, so quite consistent. That percentage share, it depends on the domestic market share, but the volume what we serve with the customers like Unitruck or our Meritor entities outside India, that's quite consistent all this time. So the percentage is quite volatile because last year, 2021, the domestic market had substantially fallen down and is improving now. So it is, as Thimmaiah said, we don't want to give a kind of specific statistics on the share of exports. But nevertheless, that's quite consistent and did well. On the perspective of the exports, Muthu can add that.

Thank you, Ranga. If you see the market globally, the North American market and the South American markets are really going up, whereas rest of the markets like China is also set to go up. We are doing 2 types of export. One is we are giving it to Indian customers. [indiscernible] and Tata Motors are issued. Those -- all the companies which are in India, when it comes to the customer exports, they take Meritor axles because they know the reliability of the product. Even Ashok Leyland does more than -- whatever the export that they are doing, they use our axles. As far as the standalone export commerce, I think I -- like what we said, we don't normally give the numbers, but we are -- I can say that we have a slight growth this year with the market growing. But I also wanted to tell you, exports is quite challenging with the commodity prices going up locally. And at the same time, the cost of transportation has become horrendously high. So that's another challenge that we are facing on exports in recovering from the customers or making them confirm. Nobody is willing talk to confirm at this point of time. That is all the challenging moments in export currently most of the Indian manufacturers are going through.

Sir, my next question is on the defense, which we always talk about as an opportunity. And looking at the current government's stress on localization, import subsidization, some exports also, do you think this can be a really respectable size of our business maybe over the next 3, 5 [indiscernible]?

Thanks for the question. I think defense is one of the great opportunity that we're going to have. I think we should definitely appreciate the effort that government is going to put it up. And in this budget, they have even gone up to 68%. Good amount of support is coming. We have doubled it more than above that, 12 to 13 different platforms for exports, giving it to the customers and maybe at the various stages of proto development approval and all. One thing is government has not really released for the purchasing of these vehicle and whatever little going, we supply in full to the OEMs, various OEMs and doing. So I strongly believe that the amount of development activities and the amount of investment that we are doing in the exports will definitely help us by '25, '26 when the real volume is going to be released by the government. I think last 2 years, we also need to appreciate the government that they've diverted a lot of funds to COVID-related things, and they are really not able to do for the buying of the equipment. But now things are getting changed. I think a lot amount of money will get released is what we believe. So don't worry, we have enough products in the pipeline, which is going to definitely grow this business.

We have next question from the line of Mr. Mitesh Shah from Motilal Oswal Asset Management Company.

Sir, just couple of questions from my side. One is if you can highlight us what is the utilization rate in this quarter. I don't know if you answered that earlier. But what's your current capacity that you've added? What was your previous capacity? And what have you expanded in 2018 -'19? And what can be your peak revenues?

So okay, let me answer that. We have invested into capacity during the peak year, 2018-'19, '19-'20, we completed all the capacity expansion, et cetera, because we know that our market is a cyclical market, and we cannot really time it. So we always want to keep some excess capacity because when -- during the upturn we can capitalize on that. At this point of time, still we are, capacity utilization wise, we are at around 60%, 65% level. So if the market comes back, which we are all expecting in the coming months and quarters, our capacity utilization will go up and that will significantly boost our financials. And because we are still operating at around 60%, 65%, we don't intend to add capacity at least for another 2 years.

Got the point, sir. And sir, how much of our revenues now will come from below 16 tonner and how much will be above 16-tonner? Any broad number if you can share? And also, if you can highlight that above 16 tonner will be higher margin versus below 16 tonner slightly lower margin?

Again, we do not give those specific details. Only thing is, you know our range is 7.5 tonner and above. And in -- as earlier I was just saying that there are always a monthly, quarterly segment fluctuation will keep happening depending upon the OEMs. Last few months, the CNGs, [indiscernible] a lot of sales are happening in medium-duty vehicle and intermediate commercial vehicles, ICVs and CVs, et cetera. So I think it's -- because we have a complete product range from 7.5, these shifts will keep happening, and we are very well covered. Exactly the split, we will not be able to provide.

But directionally, can you tell, sir -- I mean, I'm just trying to understand within your product mix, what sales will you make more margin and what sales will you make lower margin, directionally, without commenting on numbers. Would that be possible for you to just give us a directional view that if defense does very well or off-highway does very well versus CV will do better, within CV, higher tonnage will do better with higher margin versus lower tonnages lower margin? If you can give us some clarity around that will be very helpful.

Yes. Maybe if you do more tipper, it's a good news for us from the financial angle.

Okay. And what about the other segments like defense and all will be higher margin than CVs?

Yes. Definitely, yes.

Okay. Got it. And final question is on the EV part of the business. How do you look at that opportunity? And globally, we do understand Meritor has some products on the EV side. So just some comments on that, if you can highlight that. Will the product be different? Or is it going to be the same product? Or how will be the difference in realization? Some comments on that will be very helpful.

No, I think if you see from the marketplace, there are so much of EV activities are happening in the marketplace. A lot of new people are coming into the market, the old people are trying to develop the product. My personal belief and also we believe in our company, it is just a matter of time, whether the time is 5 years or 10 years, only time will tell. EV penetration is going to increase significantly over the next 7 to 10 years for sure, even in commercial vehicles. Whether that's a pure battery electric or it's in hydrogen fuel cell vehicle, we need to see. Mostly after the EVs, the hydrogen fuel cell vehicle will take over, and they will really do well. This is what our prediction is. And that's one. Coming back in terms of product, I think Meritor, globally, we have a really good product for the electrical vehicle, including the fuel cell vehicle. And the product is very different. Even though it's called an e-axle, it looks and feels maybe same in terms of the wheel and the housing, et cetera. Our e-axle is the integrated axle, the motor sits inside the axle itself. And then you just connect it to the battery for the drive. So we have our product. We are in the process of giving the samples to few OEMs. And then it has got very good future for sure.

Sure. And sir, if I may squeeze in one more question on the brake part of the business, which is again a lower margin business for us, and we are #2 and not #1 unlike axles. So what steps are we taking to improve margins there?

Muthu?

Not only on brakes, every product, the company continues to do the value engineering and improve the product. Over a period of time, if you know, when our overall profitability goes up, it is growing in every segment that we work with. The Mission 25 objective, what Mr. Ranga talked about, launching the new product and making sure that these new products makes it great at reliability at the same time, less on weight, less on cost is the objective of this. And [indiscernible] the brakes, on the -- if you take it under standalone, the profitability is going up mostly to the customers. That is the main reason why our company has invested sufficiently in [indiscernible] in Pantnagar so that the local sourcing, local manufacturing, obviously, reduces the logistics cost. You all know that the logistics cost is one of the key, which we are all working closely with the customer. Definitely, we're going to bring and add to our bottom line. But the other thing, the challenges are there, whenever you do value engineering, whenever you go closer to the customer, the customer also expects the profitability may not reflect in bottom line directly to us, but it also need to be shared with customers because he also does equal amount of activities to support this initiative. So I'll not say that it will not come 100% towards whatever the savings we do, but we have a very, very transparent mechanism to work with customers so that it becomes a win-win for both we and our customers in the long term. Thank you.

No, that's helpful. Actually, another related question to this. So if I have to look at your brakes business, given that it's a low-single-digit margin business and I'm sure that from a return on capital employed perspective, it wouldn't make a lot of sense to work at that margin over a medium to longer-term period. And if I have to look at your competitors, they have also been -- historically, their margins were very high and they have also come off, right, which is in public domain in terms of financials. I'm just trying to understand, is it going to be a situation where the leader doesn't allow you to take price increase because he also doesn't want to give market share and hence it becomes a situation where 2 players will fight, essentially no one makes money at the end of the day. So just trying to understand, do you think that kind of situation prevails in the marketplace? Or do you think there's a rationalization where the leader is also focused now on margins and allowing you to take price increase along with them taking pricing?

I think I cannot comment on the leader, but we continue -- sorry, go ahead.

Muthu, I'll just take this. One is we can't comment on our competitors on what their strategy is. The only thing I can tell is they have a wider range of products in the brakes side, unlike us. We are only a commercial vehicle player in terms of the brake. Brake is a very complicated product. And also, a lot of people are trying to enter into the brake market. The only way probably we will be there in the game is continue to work on improvising the brake performance and then someday the brake will also transition into e-axle, the brakes would be different. And then it's also a volume game. Now today, the volumes are very low. When the volume comes back, we will probably do a 1 million brake kind of a thing, then I think absorption will increase, and we will improve. But we are also working -- as Muthu was saying earlier, we are also working continuously on improving our margin. Whether we want to get out of the brake business because it's not -- we have never told that the brake business is a low profit margin business. This is probably your intelligence. But I'm just saying that our endeavor is to make more margin in every product line we are working on. And will we be there in brake business? Definitely, yes. We are trying to increase our penetration in the brake and also bringing new products in the brake, and we will be a serious player now in medium term and long term.

Before taking next question from the line of Mr. Jash Shah from Val-Q Investment Advisory Private Limited [Operator Instructions].

My questions have been answered.

So we have next question from the line of Mr. Pritesh Chheda from Lucky Investment.

Sir, one clarification, to one of the participants, you mentioned about the capacity utilization figure at 65%. Now in FY '19, we did INR1,900 crore of revenues and lot of our capacity has got created after that. Then I was a little bit confused with this 65% capacity utilization. Did you mean for a shift basis or there is some other logic to it because if you added a lot of CapEx after '19, then ideally, your capacity utilization should be much lower than this 65%.

Yes and no. The one reason I'll tell you, in '18-'19, when we were in INR1,900 crores and the capacity infusion was happening during that period also. It is not that we -- the capacity got created after the '18-'19 upturn. We invested a lot of capacity...

Sir, I'll just intervene here because what we see is that your assets got capitalized in FY '20 only, it didn't get capitalized in FY '19.

Yes, possibly because the asset capitalization happens once all the...

Can I add something?

Yes, please go ahead.

Just for clarity, what you've asked about it, see, when we are increasing the capacity -- when we are investing the capacity [ at 2000 ], one is towards automation and second, towards really increasing the capacity. Thimmaiah can continue after this, but what I'm -- what we're...

Mr. Ranganathan, sorry to interrupt, your voice is not clear.

Speak up, Ranga.

Are you able to hear me now?

I can hear you, sir. You can go ahead.

Yes, sir, it's clear now.

Overall CapEx is one towards automating the manufacturing side and definitely other towards increasing the -- specifically towards increasing the capacity [indiscernible] happened. So what Thimmaiah is trying to say is that there are some larger capital probably got capitalized in the year of '19-'20. I do agree with that point. But given there are lot of leverages in '18-'19 also, we did in terms of -- to aligning with the market demand. So '18-'19, definitely as a additional point -- probably one point we make today is, we'll work more or less [indiscernible] our entire year in 3 shifts, and all the days including Sundays and also the [indiscernible] hours. So it is really not a sustainable model, but we did it, our team did it to make sure that we meet the market demand. We don't want to let the customer down. So that is not a sustainable model. So we have actually put on more than 10%, 15% more efforts that we can normally can produce it. And that's not a healthy sign for the manufacturing systems. Definitely yes, but a lot of things we have capitalized due to the regional assets, but some amount of capital infusion also happened for capacity meeting. But largely in '19-'20 [indiscernible]. So that's one clarity, I just wanted to give it and Thimmaiah can add a bit more.

Actually, Ranga, you answered very well. Also during peak years, when you don't have capacity and the demand is there, you'll end up running the lines during lunch times, have more people and then make sure that lines don't stop at all. And as he was mentioning, all Sundays we used to work or public holidays, we used to work.

So this INR400 crore block on ground now, what kind of revenue or asset turn this INR400 crore can generate?

Ranga, you want to answer? So maybe, as I'm saying that currently the capacity utilization is 60%, 65% level, say, for example, in a sustainable model, the capacity utilization can go up to 90% level. That is an incremental revenue we can generate out of this existing capacity.

So basically, it can go to INR2,400 crore, INR2,500 crore only. If your quarterly run rate today is about INR400 crores -- INR374 crores at 65%, which means INR575 crore on a quarterly basis into 4, so about INR2,400 crore, INR2,500 crore. Is that the way one should look at it?

Yes, you could look into that way, yes.

Okay. And my second clarification is on the presentation. So when you were mentioning this volume number at the end of the presentation, MHCV. So here what you have considered, you have considered 6 tonner and above as the volume number?

7.5 tonne and above.

And that's largely our product line? Or do we sell anything in the LCV side also?

7.5 tonne and above is our product line. We don't sell anything lesser than that.

We have a question from the line of Mr. Mitesh Shah from Motilal Oswal Asset Management.

Sir, I had the same question. Slightly confused here, so if I have to just look at your gross block breakup, you had INR160 crore worth of plant and machinery, which is amount to INR330 crores. So logically, doubling our plant and machinery. And I do agree there's some land and obviously some tax spend that you would have done. So essentially, shouldn't the revenue be double of what was your peak cycle revenues from INR1,900 crores to INR3,800 crores? If everything would have doubled up, why shouldn't the revenues also not double? Anything has changed from a mix perspective or something that we should be knowing about?

No. If you see the capital infusion, what we have done and what we continue to do, a lot of money, we also -- in just not capacity enhancement. The money we also spend in automation, we spend in IoT, upgrading our lines, quality purposes. There are a lot of capital need to be infused to ensure that we become a world-class manufacturing and not just a capacity increase.

We have next question from the line of Mr. Sagar Parekh from Deep Finance.

My question is on the same -- continuing with the same conversation. So in the last 9 months, we would have significantly increased the prices because of the commodities, which is like this is a pass-through. So this INR375 crores of topline also includes some price increases. So if I adjust then -- if I adjust that, then this INR1,900 crores peak topline going to INR2,400 crores, INR2,500 crores just doesn't make sense because 20%, 25% price increases, if I reduce that, then you're probably at the same level. So I'm just confused here.

Ranga, you want to answer?

No, I don't know where you're getting 25% commodity increase and how do you get it. [indiscernible] is my opinion. Probably we're not giving a share what is the commodity increase and commodity increase has played a role in revenue [indiscernible]. More or less, what Thimmaiah has said about INR2,500 crores, you can add plus or minus [ 10% ]. But I don't think 25% is the right number at the current revenue level to be the impact of the commodity, which is not -- it's not that high. Definitely, it's a significant draw in the revenue, no doubt about that. But it is not 25%.

Okay. Got it. And my next question was on the new product introduction. So if you can give some more qualitative picture on the newer products that we have launched in the last one year, how are these new products shaping up in terms of acceptance from customers, let's say, large-dia plus even the slipper-type suspension that we are talking about? If you can give some more qualitative color. And what are the new products which are in the pipeline? If you can also help -- I mean, give some qualitative color on that, it would be helpful.

Muthu, you want to talk about 185 and also the 15I?

Sure, Thimmaiah. See, in the last 2 years, I think we launched 6 platforms with new products mainly to either improve the reliability or to reduce the cost. For example, we launched for the first time in India, the largest [ ground wheel type ] called 185, which launched with Mahindra, used in their 55 tonne tractor trailer and subsequently, it is going to be used with various other OEMs. We have upgraded our product, what we traditionally call the 1497 [indiscernible]...

Sorry, I can't hear you clearly, sir.

Can you hear me now?

Yes.

We launched a product called 185, which is the largest axle that is available in India to Mahindra for the their 55 tonne tractor trailer and it is running very well now. The same product is being applicable with various other customers. The second product is traditionally, we have been making a product called 1497, which we migrated to a product called 15I, which is 30% more reliable than the existing one, maybe at the same cost price of manufacturing, which is really going to -- helping us in terms of penetrating into the share, sustaining into the long-term business. We launched 2 more platforms called the [ 160E ] and all mainly for reliability improvement and value engineering. In terms of slipper and suspension, yes, we are working with customers on slipper and suspension, and limited trials is going on. But what happened is, when the axle load rating changes happens, the slipper and suspension needs to be a much more higher load. So we are developing the -- we have gone in for an upgrade of the product and doing the limited trial, but maybe we'll get back to you in the next 6 months about the status of the product. How well it is going to help the end customers. See, India, as we all know that, commodity and slipper and suspension is a very, very -- a product which is used in most of the industrial countries with the standard systems of overloading and all. So that is one of the challenges, and we are -- our engineering is working on developing a product for an Indian-specific application in slipper and suspension.

Also Muthu, 185 for Mahindra, you can talk about the launch.

I told about that in the first. I think we launched the [ 490 ground wheel ], which is the largest axle. The single axle can take 55 tonne truck or trailer load and also other applications we have launched. We're running successfully for the last 9 months. The product launch has been done 9 months before. Now all other OEMs are taking this axle.

Yes. In terms of new product pipeline, any color on that, apart from the 6 platforms that you spoke about?

We have 4 other platforms that we are working on at this point in time for the niche market like [indiscernible], those type of products. Maybe every quarter, you will hear when we are launching the product and look into this. Meritor and Automotive Axles will always continue to invest on new product development in the new launches. And many times, we also make our own product by giving a better product to the customer. That is the only way for us to keep ahead on our competition and also making sure that our share of business. So we will continue to invest on that part for the launches of the new products.

Next question is from Mr. Nikhil Rungta from Nippon India Mutual Fund.

Sir, you mentioned that you are seeing recovery in the CV, multi-axle vehicle demand is also healthy. Tipper is also good, except tractors and trailers is weak as of now. But utilization is -- feedback is also healthy and capacity utilization is also moving to 60%, 65%-odd. So sir, in terms of numbers, do you think by FY '25, we would be in a position to move to, say, INR2,500-plus odd crores of revenue and in terms of EBITDA, we would be -- I mean, we can move back to our older margin of 12%-odd?

Okay. I -- we cannot give you the exact number, but I can give you a little bit of high-level indications. What we are assuming is, you can see the way the market is behaving. '18-'19, the peak -- we call peak market MHCV was around 480,000 vehicle market. We are assuming by 2025, the market would come to that level or maybe a little lower than even that level, the market side. So currently, we are operating at around 480,000 level, we were at around INR1,900 crores, for example. And today, if you see that the market is at around 280,000, significantly lower, but if you see our revenue, much, much higher compared to the drop in market proportionately, if you do the linearity. So I think we can't give you the number. We will do better than the market year-over-year. Even in that level, we'll do much, much better than the market for sure. And obviously, one of our key parameter is to drive EBITDA growth, even though we have so much of headwind because of the commodity and inflation, et cetera, we will continue to grow our EBITDA margin.

Okay. So we would be in a position to reach to 11% to 12%-odd level by FY '25?

Again, I can't give you the exact number. You can do the math.

Next question is from Mr. Vipul Sanghvi from Systematix Shares and Stocks.

Sir, largely the questions are answered. Just one extrapolation of the previous question from Nikhil is that there is going to be interplay of the full pass-on of the commodity cost, supply chain using your capacity utilization goes up and your investment in automation, all this would ideally -- should help you improve your margin, right? So are you sensing that there is enough headroom for us for margin to go up even beyond 12%, if I take a 3-, 4-, 5-year view, kind of?

We, as management team are working towards it, I can say that.

Next question is from [ Mr. Vishal Srivastav from Plan Investment ].

Sir, most of my question has been answered. Just one question from industry side. Sir, do you see in FY '22, although you see overall MHCV volume has increased from a lower base, but the tonnage-wise growth has been lower than the volume-led growth. So what is your expectation of tonnage growth for FY '23 and in this cycle, which is coming ahead?

No. I think the tonnage-wise growth, yes, I would say that compared to the vehicle-wise growth, the tonnage-wise growth has reduced because most of these vehicle growths are coming from the medium-duty commercial vehicle versus during the good years, most of those are coming from heavy-duty vehicles. But I think vehicles are also getting improved because of the axle load capacity rating, et cetera, tonnage per vehicle is also getting increased. I think it is safe to assume that even though tonnage growth also will increase per vehicle basis, the overall number terms also the market would come back to the peak level by '24, '25 timeframe for sure. Because I'll give you one small indication, this quarter, say, for example, January, February, March quarter, on the good years, it used to be around 120,000, 130,000 levels. We're expecting this quarter to be at around 90%, 95% level which is not bad at all compared to where we were a year or 2 year back and now where are we. And if you see the first quarter of this year was some 45,000, 50,000 units or something like that. From there, it is around 95,000 units is what probably we are expecting this quarter to be. And also, we see a good indication from even April onwards. So I think even the vehicle number-wise also the market should come back strongly, unless some major disruption happens, the market should come back.

Next question is from Mr. Jay Kale from Elara Capital.

Sir, 2 questions. First one on your new products. You had mentioned that from the transition to BS IV to BS VI in the initial years, in the initial months of the BS VI, OEMs who are not really adopting new products because they were transitioning on the BS-VI side, So how is that -- has that now accelerated with the market that is down and BS VI settling down? That is the first. And second, just on a clarification on the numbers of the industry that you had given. You mentioned 280,000 units in FY '22 versus 197,000 in FY '21. Now if we see our -- the numbers that we get, which is the CR numbers, the FY '21 numbers that we have, which is greater than 7.5-tonne category is around 1,81,000. So is it fair to assume that the balance is Bharat Benz because the CR numbers don't give Bharat Benz's numbers and you probably might be including Bharat Benz's numbers in your numbers? And to that extent, if I just back-calculate with those calculations, Q4 of FY '22 would largely be similar as last year of Q4 of FY '21. Is that a fair assumption that you're getting in the Q4 of this year?

Yes. I think you could assume that. Last year Q4 and this year Q4 could be more or less similar.

Understood. And you include Bharat Benz, right? Okay. And also on the first question on your new products, how they are ramping up post the BS VI, which initially they were not ramping up as much?

Muthu, you want to answer that?

Yes, sir, I think, see, in terms of this ramp-up, I think you asked a question whether it is a BS IV or BS VI. There are certain customers still buying the BS IV from us for their export vehicles. So whether in terms of the BS VI or in terms of the new product launches, we -- in terms of the volume, we don't pick between BS IV and BS VI in our production and supplies. We continue to track in overall numbers, and we are updated on all the products.

Sir, what I meant was in the industry transition to BS VI, the OEMs are not really incorporating the new products that you all were offering because they were grappling with their own price increases, et cetera, in the market. Now with that settling down, is there more incorporation of your new products from them?

Our new products is taking care of both BS IV and BS VI. So we have upgraded the product and launched it. While industry is trying to pass on their money to them or something, we have been presenting all the actions from day one.

There are no further questions now. I hand over to Mr. Thimmaiah Napanda. Any closing remarks, sir?

No, I think -- thank you very much. I think whenever you people have asked these questions, it's also a learning for us and also to push us back to our boardroom to really see and enhance and meet your expectations. We will, as I told our management team, I'm sorry that we can't give you exact figures of what our internal targets are for the future. But we, as a management team, we are committed to our goal on improvising our financials, our company in the future. We will continue to work towards that. Yes, there are headwinds will keep happening. But we are very happy and successful, at least I can say that even during the peak pandemic downturn years, the quarters, we are able to sustain and not taken major cost actions, which is detrimental for the long-term business perspective, we are not done. So we will continue to focus on our topline as well as bottom line to improvise compared to -- obviously, nobody is going to be happy that in 2018- '19, we achieved some 12% and okay, if you achieve 12% people are not going to be happy about it. So our endeavor is to continue to improve on that. With that, we'll conclude. Thank you very much. Over to you, Sailesh.

Thank you sir and thanks for your time and to your entire team. Thank you. We can close now.

Thank you, ladies and gentlemen. This concludes your conference call for today. We thank you for your participation and for using iJunxion Conference Service. You may disconnect your lines now, and have a great day ahead. Thank you.