Balkrishna Industries Limited (502355) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Balkrishna Industries Limited Q3 FY '20 Earnings Conference Call hosted by SBICAP Securities. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Jain from SBICAP Securities. Thank you, and over to you, sir.

Thank you, Raymond. On behalf of SBICAP Securities, I welcome you all to the Q3 FY '20 Earnings Conference Call of Balkrishna Industries Limited. We have with us today, Mr. Rajiv Poddar, Joint Managing Director; and Mr. B.K. Bansal, Director of Finance, representing the company. We request the management for the opening remarks, post which we will open the floor for Q&A. Over to you, Mr. Bansal.

Thank you, Chirag. And good afternoon to everyone. I welcome you all to the Q3 earning call of our company. I am joined by Mr. Rajiv Poddar and [ Shobhan ]. To begin with the performance update, I would like to say that the market continues to remain challenging. However, we are looking at better growth prospects in FY '21 compared to current year on account of improving global macroeconomic situation and expectation of better weather condition in our major markets. During last quarter earning call, we had guided for a better volume performance in H2 FY '20 over H1 FY '20 and we remain confident on the same. We expect to end FY '20 with minor degrowth on sales volume and are confident to cross 2 lakh sales volume mark. With our growing focus on improving our product portfolio, consistent product quality, efficient service levels, better brand recognition with end customers, we believe we will continue to gain market share across segments in the years to come. Now let me update you on the CapEx. The CapEx for the Carbon Black Plant Phase 1 with a capacity of 60,000 metric tons was commercialized during Q2 FY '20. The second phase of 80,000 metric tons is progressing as per schedule, and we expect commercialization in FY '21. All other CapEx in India are progressing as per schedule. We expect them to complete in FY '21. All the ongoing CapEx, therefore, are likely to start contributing from FY '22. With this, I will now move on to performance highlights. Our sales volume for the quarter was 47,321 metric tons, showing a growth of around 5% Q-on-Q and 1% Y-o-Y. For 9 months, sales volume stood at 143,794 metric tons, showing a degrowth of around 8% Y-o-Y. Our stand-alone revenue for the quarter stood at INR 1,183 crore, showing a degrowth of 1% year-on-year, whereas showing growth of around 7% Q-on-Q. This includes realized gain on foreign exchange pertaining to sales of INR 23 crore. For the 9-month FY '20, stand-alone revenue for the quarter stood at INR 3,508 crore, which includes realized gain on foreign exchange pertaining to sales of INR 83 crore. On the EBITDA front, for the presentation purpose, we have shown the interest income from investment and unrealized gain/loss below the EBITDA, while realized foreign exchange items have been shown above EBITDA. Accordingly, the stand-alone EBITDA for the quarter was at INR 369 crore with a margin of 31.2%, and the stand-alone EBITDA for the 9-month was at INR 974 crore with a margin of 27.8%. Other income for the quarter stood at INR 30 crore, which includes net gain on foreign exchange to the tune of INR 6 crore and other income from investment of INR 24 crore. For the 9-month, other income stood at INR 182 crore, which includes net gain on foreign exchange to the tune of INR 103 crore, and other income from the investment of INR 80 crore. Coming to the net ForEx items. For the quarter, we incurred a net ForEx gain of INR 6 crore, which includes realized gain of INR 28 crore and unrealized loss of INR 22 crore. For 9 month, we incurred a net ForEx gain of INR 103 crore, which includes realized gain of INR 97 crore and unrealized gain of INR 6 crore. Profit after tax stood for the quarter was at INR 221 crore showing a growth of 52% on a year-on-year basis, while for the 9-month, it was recorded at INR 668 crore showing a growth of 15% on a year-on-year basis. The profit after tax has been higher on account of reduced taxation rate pursuant to change in corporate tax rate as well as remeasuring of cumulative deferred tax liability. We are a zero long-term debt company. Our cash and cash equivalent were INR 1,204 crore, implying a net cash position, not only on long-term basis, but otherwise on short-term basis also. The Board of Directors have declared a third interim dividend of INR 16 per share in addition to INR 4 per share paid for H1 FY '20. That's all from my side. And now I leave the floor open for question and answers. Thank you.

[Operator Instructions] The first question is from the line of Siddhartha Bera from Nomura.

Congrats on a great set of results. Sir, on the volume growth side, we have reported around 1% volume growth. So I was expecting the growth will be slightly higher, given the trends in the export data which we have seen. So anything here, which we are missing here?

No, nothing you are missing. Actually, it started in the -- from the month of December. So you will see what you are looking for in the next quarter.

Okay. So next quarter, we might see a stronger volume growth?

Yes, correct.

And any outlook or guidance, if you can give for FY '21? Where is the improvement in demand coming from? And any outlook, if you can give?

See, outlook definitely is better. However, we will give the guidance when we assemble for the next earnings call. But overall, demand looks better.

Okay, sir. Got it. And lastly, sir, on the commodity side, we have seen quite a healthy benefit on the gross margin side in Q3. Can you broadly indicate the key reason because commodity prices, which we track, have not actually come down materially in Q3. But currently, I think crude prices are much lower and there are much -- some more benefits we are seeing in Q4. So if you can highlight if this factors in most of the benefits or you expect some more benefits for...

No. We are expecting some more benefit from the crude, particularly the crude derivatives. So definitely, that benefit would be visible in the next quarter.

The next question is from the line of Vimal Gohil from Union Mutual Fund.

Sir, I just had a question on your gross margin improvement. So how much of the gross margin improvement in this particular quarter has come from raw materials? And of course, your backward integration of your Carbon Black would also have contributed. Just give us some broad indication as to how much has both -- how much have both these variables contributed to that?

So largely, it is on account of raw material correction. And definitely, the Carbon Black has also contributed, which is around 125 basis points on the sales. So roughly, you can say INR 15 crore.

Okay. And sir, what would you say is your sustainable gross margins on a, let's say, a medium-term basis for the next couple of years? How much -- would you want to give some number over there because this is a very strong performance, I agree? But would this be sustainable on the gross margin front?

So there is a good visibility for this kind of margin in the near to medium term. Long term, it is difficult to predict because there are so many factors, which impact the margin.

Wouldn't you want to share some of your gains to your customers? Or have you had any conversations?

No, no, no.

Okay, okay. And sir, lastly, if you could just give us your breakup between volumes for Europe, U.S., ROW, India? The revenue breakup, sir.

The revenue breakup, I would not have. I can give you the volume breakup.

Yes, sure. I mean, yes, of course, volume breakup.

Europe is around 48%, and America is around 20%, India is 21%, and balance is the rest of the world.

And, sir, agri, OTR?

Agri is around 60%, OTR is around 36%, and 4% are other ATV and lawn and garden.

Okay. And lastly, OEM and replacement, sir?

OEM is around 24% -- 25%, and replacement is 75%.

The next question is from the line of Hitesh Goel from Kotak Securities.

Congratulations on very good results. Sir, just wanted to get some sense on the realization improvement, which has improved by 2% Q-on-Q. This is purely mix, because last quarter, you had highlighted there's some pricing pressures in the market. So how is the pricing panning out in the market and some sense on how realization should be...

So no pricing action was taken during third quarter, and this is on account of product mix as well as some currency benefit.

Okay, okay. Because -- okay, so hedging has been -- hedging rate has been much higher in the quarter?

Yes, right, yes.

Okay. And this raw material cost benefit, were you sitting with some low-cost inventory in this quarter because of which Q-on-Q costs have come down?

Yes, obviously.

So going forward will the...

Going forward also the raw material prices are benign only. So overall, raw material costs should remain lower only.

The next question is from the line of Arvind Sharma from Citigroup.

Sir, just on the EBITDA part. Sir, EBITDA per ton, it has been a really strong performance. Now how is the competition in the overall industry? Would it be prudent to think that going forward, if you keep on getting in terms of realizations, and cost pressures are low, so you would -- what is the sustained EBITDA per ton level beyond which you would want to perhaps gain market share instead of gaining on the profitability part?

See, our prices are already lower by 10%, 15% and which is helping us to gain the market share. So there is no such strategy or thought process to share it with the customer.

I think in terms of competition and across the globe, your prices would be lower than like your top end? Or in terms of spectrum, where would you be on a blended basis? Just trying to find out if such strong margins can be...

So yes, so this [ competition ] is from the Tier 1 player.

Okay. Any other players importing out of Asia or other countries, which could be competitive?

So basically, if you look at it, our strategies, we have a new a lot of money in building our brand. So we don't want to reduce the price and compete with Tier 2, Tier 3, Tier 4 level players. Hence, there is no plan as of now to reduce the price further to gain market share. What we're trying to do is make sure we are balancing it out with the Tier 1 players. And as Mr. Bansal said, we should be 10% to 15% lower than them, which we are working towards, and at the same time, building our brand. So that's our strategy. So going long term, we look to compete and gain market share from these players.

Great, sir. So these margins should sustain with a sustainable market share?

We hope.

The next question is from the line of Ashutosh Tiwari from Equirus.

Congrats on a strong set of numbers. Sir, firstly, I think there was some decline in the India volumes as well in the second quarter. So how was the trend in the third quarter?

Third quarter, it has increased.

Roughly what growth you saw in India volumes?

It has increased by almost 12%, 13%.

Okay, got it. Secondly, see, the Chinese players also have decent share in some of the geographies with the U.S., maybe Europe as well. So -- and because all these issues, virus-related issues means supply from their side might be impacted. So are you seeing a trend that distributors strictly are willing or want to have stock more of, say, your -- basically, your tires and all because they might see some supply issues from China. Is that thing happening as of now or it's not visible?

It's too early to say. I think everybody is waiting and watching what -- how long it will take China to recover. So fingers crossed, we are looking at the scenario, and we are hopeful. But it's too early to say any trend or any impact to be seen.

But definitely, logical -- going by logic, people will definitely like to develop alternate sources for their supply, so that their business is not impacted. So it is somehow helping us.

Okay, okay. And in our pickup that you're seeing in the market right now, is it -- I mean, is it both Europe and U.S. are improving similar? Or U.S. is slightly better than the Europe?

Yes, I think it is across geography. Everywhere, it is -- the trend is very encouraging.

Okay. And sir, lastly, what was the hedge rate for the quarter? And what is the...

INR 80 and some odd paisa.

Sorry, I missed.

INR 80 and some odd paisa. Around INR 80, you can say.

Okay. And going ahead, is this similar only?

Yes.

The next question is from the line of Anuj Jain from ValueQuest Capital.

What is the update on CapEx at Bhuj plant for large size tires?

Yes. So that is in progress, and it will be commissioned during next financial year. So the commercial production should start in FY '22.

Okay. And sir, the tire, which we are manufacturing of 51-inch diameter, is it all-steel radial tire?

We have both. We have both the regular ones, the bias as well as all-steel radial.

Okay. So I understand that it has been a year now that we are manufacturing 51-inch diameter tire. So it would be great if you can throw some light on the response for this particular product and any sort of OEM wins for this product?

So as of now, the tires are being sent to various geographies for testing. And it is -- we are monitoring them on a continuous basis. We are waiting for 1 full cycle to be completed before we can really comment on how it will progress. So it will take us some more time before we can get into technically -- like a full-fledged commercial production. So it's yet under technical evaluation.

The next question is from the line of Basudeb Banerjee from AMBIT Capital.

Congrats, sir, for a good set of numbers. Yes, just wanted to understand, sir, in the opening commentary, you said that since Q2 results, macros have improved for your demand and outlook is improving. So if you can highlight few of the drivers, which you think are worthwhile changing or improving the outlook per se, which are seen till last one quarter?

The overall trend had changed, particularly with the resolution of the trade war, the sentiment has improved. And those who were on the sideline have started taking active participation in the market. So that has increased the prospects. Secondly, the commodity prices has also improved, and that has also created good demand for the OTR product, and the prospects of Rabi season are also looking good, so that has helped the agriculture segment.

Sure. And second thing, like, sir, you were producing larger tire, more radial products out of Bhuj. So down the line in next 2, 3 years, do you see any major new thing coming in your portfolio, which will change your product mix significantly? Or it will largely remain similar?

It will largely remain the same. Of course, every day we add -- keep on adding few sizes, few segments to fill up the pocket, but largely, it will remain the same.

It will change gradually. [Foreign Language] In a short span of time, it will not change significantly.

Sure. And last thing, sir, if I see, your other expenses are down for the third consecutive quarter. And I remember last year when you were spending more on trade exhibitions and expanding into newer markets, so 2 things, how are you seeing demand from those new markets where you were investing? And how one should look at the quarterly other expense, in general, because that coming down from INR 300 crore to INR 260-odd crore is also significantly adding to your margin?

Actually, one should not look at the absolute number in other expenditures because it mainly consist of various variable expenditure on account of power, freight, repairs and maintenance, stores, et cetera. And only some portion is fixed in nature. So it all depends. Now, if volume increases, then definitely the quantum of other expenditures will also increase, but I think it has been around 21%, 22% of the top line. So it should remain at the same level.

Sure, sir. But any quantification of the new markets where you have been trying, how they are progressing?

So markets, we are present at almost all our major potential market. Now we are just harnessing those markets more and going for deeper penetration into those markets, and that is how we are increasing our sales. So that way, no important market is left behind from addressing point of view.

The next question is from the line of Bharat Gianani from Sharekhan.

Congratulations on a great set of numbers. My question is related to the Carbon Black project. So this, basically, 60,000 MT is sufficient for our current level of production. So I just wanted to get a sense that the 80,000 MT that would come up in probably FY '22, so will that be purely outside sales? Or any assessment or something of that portion would be still realized for the capital purposes? And could you highlight what is the kind of realizations you expect, if you sell it in the outside market? So that would be my first question.

So as far as realization is concerned, it will be in line with what is being sold in the market. So currently, it is at around INR 70 or so. So accordingly -- and whenever it changes, we will also be changing it. Now coming to your first question about how the entire production will be utilized, so basically, the total capacity we will have of 140,000 metric tons, and out of which we will get actual production of 125,000 metric tons. At the full capacity of our tire plant, we will have a requirement of around 85,000 to 90,000 metric tons. So balance, we will be selling in the market.

Okay, okay. And sir, the second phase that you pointed out, when will be -- when will the actual production commence? Like what's the timing for that?

Which production? We have already commenced the production...

No, no. Sorry, the second phase. When the commercial production will start?

In the...

In the next financial year.

In the next financial year.

Okay. So in the second half?

Yes.

First half of the next financial year.

First half of the next financial year. Okay, fair enough. And sir, last question is on this 85,000 to 90,000 metric tons, that capital that you pointed out, that is on the utilization of 3 lakh units, right?

Yes, yes. Correct, correct, correct. So till it reaches that level, whatever we will -- surplus we will have, that we will sell in the market.

Okay, okay, okay. And sir, lastly, what is the kind of margins that you will make, if you sell it to the outside market, just a range? I mean, because I think the margins would be fairly less than what we are currently making. So any comments you would like to share on that, would be helpful?

So margins definitely would be better for us. And on the overall basis, we are seeing EBITDA margin of around 25% on the Carbon Black business.

Okay. So I mean, if you sell it in the outside market, you still will make 25% margin. Is it what you're saying?

Yes.

The next question is from the line of Ronak Sarda from Systematix.

Congrats on a good set of numbers. Sir, you usually share the cost per kg for natural rubber and synthetic rubber. Can you share what was the cost...

No. It is unfortunately not available with me right now. You can take it from me later on.

Okay. But sequentially, so the drop which we see in per kg terms, is that the kind of drop that largely occur on raw materials? Or it is mainly coming in natural rubber or crude-related?

No, no, no. It is in the all raw materials, natural rubber as well as the other crude derivatives.

Okay. And sir, second question on the volume side. So in terms of -- when you say Q4, you'll -- full year, you'll see marginal decline. What are you estimating for the quarter 4? I mean, are you expecting the volumes to reach around 210,000 units or tonnage in terms of 210,000 or less than that? Because I mean, your wording is Q4 you'll -- overall, you'll see a marginal decline in FY '20.

So I said we will be crossing 2 lakh marks. So it should be...

2 lakh, you'll cross 2 lakh, okay.

Yes, yes. So it should be around somewhere between 2 lakh to 205,000.

Okay. Sure, sir. And the trend has been similar in this 1.5 months, which we have seen?

Yes, yes, yes.

The next question is from the line of Pramod Amthe from CGS-CIMB.

Congrats on good set of numbers. 2 things, one, if you look at your user industry, there, the confidence is still not there for them to give any strong guidance, either from the Europe or U.S. So the -- as compared to the performance, which you are looking or the improvement you are expecting in the coming quarters, so is it driven initially by the inventory stocking up at your dealer's end? Or it's a genuine, you feel, the recovery of the demand?

It is a mixture of both. So there is a good demand at the end consumer level and also at the dealer's level.

Okay. And second, with regard to your Carbon Black, if I am understand rightly, you're already selling -- even though you are not at your peak production, you're already selling your Carbon Black into the open market. Can you give a broader, why you are selling as you could have consumed, is there a quality difference better than the thing and hence your realizations are superior there?

No. Since we will have surplus capacity going forward, so we are developing the market simultaneously.

Okay. So sir, in that sense, what is the mix now? How much you consume versus how much you sell off out of this whatever 60...

Mostly, we consume it out. Only some portion, we are selling in the market. I do not have an exact number how much we are consuming and how much we are selling in the market.

The next question is from the line of Joseph George from IIFL.

Congratulations on good numbers. The first question that I had was, could you give us a sense of how much do the Chinese have in terms of market share in your key European and American markets in your relevant segment?

It's difficult to give an exact number for Chinese production. But -- so it's -- we could say the Asian players would be -- manufacturers from Asia would be probably having a tune of about 20%, 25% of the market.

Okay. So that is Asia, excluding yourself or including yourself?

Including ourselves.

Okay, understood. So the second question I had was, could you refresh the CapEx guidance for this year and next year?

It will be around INR 700 crore to INR 750 crore during the current year. Next year, I think, around remaining amount of INR 500 crore.

So these numbers that you're quoting are including the maintenance CapEx or excluding?

No, no, including maintenance CapEx.

Okay, sir. And the last question that I had was, now that demand has revived, at some point -- I know it's still early days, but at some point, you'll have to start thinking about the next expansion CapEx from the 300,000 that you have right now. Maybe it's early, but what do you think is the real lead time in terms of once you decide on expanding the numbers beyond the 3 lakh number and actually getting or commencing production, so the lead time between the 2, and hence, that will tell us when you should start thinking about it?

18 to 24 months.

Okay. So at this point, you haven't really started thinking about it, right?

No, no, no.

The next question is from the line of Abhishek Jain from Dolat Capital.

Sir, during this quarter, realization has gone up sequentially while RM cost has gone down significantly. Is it because of the change in the product mix and the currency benefit?

Yes, yes, yes.

Sir, whether this benefit will continue in quarter 4?

Yes, it should continue.

Okay. And sir, what is the current channel inventory right now? How much?

We don't do that.

That is very difficult to give. We do not fact that. So we will not know what is the channel inventory.

Sir, I just wanted to understand, is it at normal level? Or you have enough space to feel that channel inventory in the coming quarters?

No, I think it is below normal level. There should be some fill up in the channel inventory also.

Okay. And what would be the tax rate for FY '20, sir?

FY '20, that normal tax rate is 25%, which is applicable as per the new tax rule. But actual rate would be lower because of realignment of our deferred tax liabilities.

The next question is from the line of [ Adit Joshi from Newberry Capital ].

I have a question regarding investment part of noncurrent assets. When I was looking to investment part of noncurrent assets, I came to know the company has been investing in AIFs. I would like to know what cost to change from investing in gilt funds or bonds to a AIF? And second part is, what is the criteria when selecting a particular AIF?

We invested very little amount in the AIF. Otherwise, major amount is into the debt instrument only. So it was one of...

Okay. But what caused to, say, invest in AIF? What is the reason that we have started investing in AIF?

It is just to improve the overall yield on the investment.

Yes. And what is the criteria while selecting the particular AIF?

So we can discuss it offline.

The next question is from the line of Raj Kumar from Green Portfolio.

Sir, my question is related to, sir, if this second phase of Carbon Black Plant is completed, at 100% capacity utilization level, how much margin expansion we...

So margin expansion in the tire business should be around 125 basis points.

Okay. Sir, as we know that there is a coronavirus impact in China, and we see that the China also continues to OHT market. So, if the coronavirus impact continues for 1 or 2 months, do you see more demand to BKT?

Yes, I mean, logically, yes, because there is a lot of supply chain disruption from the China side. So naturally, the buyer would like to develop alternate source and BKT stands the direct beneficiary to it.

So are we able to cater to that market?

No. We are not growing into China market. But wherever China is supplying, those markets would be our incremental market.

Okay. So just trying to know are we able to cater to that market?

Yes. I mean, it is in our existing market only. So whatever is being supplied from China, that has been curtailed and it is coming to us.

Okay. Sir, could you explain something about the opportunity in terms of numbers?

No, no. Very difficult to quantify numbers.

The next question is from the line of Nishant Vass from ICICI Securities.

Congratulations on the results. Sir, the first question is on India. I just wanted to get a sense about, you've seen a lot of success in terms of the last 4, 5 years in terms of India market. So just, obviously, the channel checks that we do with your customers suggest that you've improved in quality. So can you just give us a sense of what have you done right to kind of be successful in the market where there were a lot of established players? First on that.

So I think, basically, as you rightly -- we -- as you rightly said, we -- our biggest winner is our performance of the tire. And that is what we have always focused on. Along with that, we focused on our policy of and strong relations with our distributors, dealers, and also looking at branding very strongly. So these are the 3 or 4 key things that we have done.

And sir, do you think that -- [Foreign Language] what is your assessment as to if, I would say, aspirationally, where do you think you've reached from an India market perspective? If you've, like, targeted 5 years back, where do you think you have reached?

Yes. So I think we are going on course to what our direction of 10% market share within the Indian off high-way space. So we are working towards that, and we are quite hopeful in the next couple of years or next few years, we will get there.

Sir, my second question is, considering that you are doing so well in terms of profit structure and cash generation, so any thoughts on how you would look to kind of give the cash back to shareholders, if any? Any thoughts on the management side on that?

We have already given now...

I know. I see the change, but I'm just trying to get a sense of, Poddarji, if this is like the sustainable structure or how you would be thinking about it?

I think we look at it quarter-on-quarter basically every quarter.

Basically, it is the Board's discretion. So Board besides considering the availability of cash and the future requirement of the cash how much to be disbursed. But ultimately, it is shareholders' money. So in one way or another way, it will reach to them.

The next question is from the line of Vimal Gohil from Union Mutual Fund.

Could you give me your -- what's your market share in -- as of December, what would be your market share in the agri and the rest of -- the OTR segment as of December?

So on overall basis, we are at around 5% of the total OHT market. And agri, we would be around 8%, 9%.

Roughly about 8%, 9%, but it will be driven -- I don't know the exact number on that, and especially if we're talking globally, we would be unable to put a number. But overall, we are about 5%, 5.5% of the OHT market. And our target is to be 10%. So that's what we are working towards.

Right. The reason why I was asking is probably some of your global peers are still slightly negative on the OHT market. And which is why maybe I thought you've gained some market share, probably in the last couple of quarters. Would that be a right -- correct assessment?

Not couple of quarters. For years together, we have grown by gaining the market share. And I think it should continue to play in our favor in the future also.

So what would be your agri market share in the same quarter last year?

Quarter-on-quarter, very difficult. But on overall basis, it is around 8% to 9% in agri.

On a year-on-year basis, how much would that...

I'm saying, as of today, it is around 8% to 9% in agri. And OTR, it would be around 2.5% -- 2% to 2.5%.

Sir, just missed your hedge rate this quarter, how much was it? And versus previous quarter -- versus last year, how much was it?

So last year, it was around INR 79. This year, it is around INR 80.

Okay, okay, okay. So just INR 1 differential has really led to the realization improvement.

Yes, yes, yes.

The next question is from the line of Venkatesh Sanjeevi from Pictet.

This is slightly on a longer-term basis. Your margins -- EBITDA margins are already at a very high level now and going forward with the Carbon Black facility coming on stream, there could be further expansion. And if volume growth does pick up from the way you're thinking and where you're guiding, there could be more sort of operating leverage benefits. So internally, is there a way you think of you're happy with a certain level of margins? And beyond that, you would start reducing the prices even more because that's -- you're already at a 15% or so discount to your peers. So how do you think about what level of margins you're comfortable with?

We have not set any such benchmark for ourselves. We take the call on pricing and other things, depending on the competition, market condition, et cetera. So both are that way, independent things. And what we earn is outcome of our various efforts on the business. So there are no such benchmark. And by reducing the prices, it really does not help us in gaining the market share because we are already at a discount and which is good enough to grow our market share.

Right. So internally, you're comfortable even if margin goes beyond 35% or so with the...

Why we should not be comfortable.

Okay. Yes, that was my question. And then on dividends, is there any change in thought process after the tax changes recently? Or what's your thought there?

See, we had a good amount of cash. And the Board thought -- considering the current situation, the Board thought it's appropriate to disperse it to this extent. That's what I would like to say.

Okay. It's not an outcome of any -- going forward, with the dividend distribution tax changing, would it have any impact on the way you distribute?

As we said, the Board will decide on every quarter what is their base looking at the current quarter and the future. And whatever is their decision, they will decide and then they take it forward.

The next question is from the line of Siddhartha Bera from Nomura.

Sir, my -- on the CapEx side, I had few queries. What will be the CapEx till -- in the 9 months of this year?

Around INR 600 crore.

INR 600 crore. Okay. And just trying to understand, I mean, if we get a double-digit type of volume growth, say, for the next 2 years, we will be touching more than 80% utilization levels probably by FY '22. So I just wanted to understand now with Waluj getting shifted to a newer place, incrementally, how much will be the cost to expand capacity, if you can just broadly give some numbers?

Actually, it is very subjective, depend on the product mix.

And also, we have not yet put any thoughts, so it's too early to comment on that. Once we think of something, we'll -- via the Board, we'll definitely put it upfront...

Share with you, yes.

Share it.

Any ballpark number, sir, say, for every 10,000 or 20,000 tons of...

No, no, it depends on the -- there is no -- I mean, it all depends on where we go, what we are planning to do. So it's a lot of ifs and buts at this stage. To give you any number, it would not be a correct -- we would not be close to -- anywhere close to factual. So please wait, and we'll share with you as and when we plan of something.

The next question is from the line of Basudeb Banerjee from AMBIT Capital.

Just a couple of questions more. One, if I look at the 2 lakh to 205,000 ton for Q4, so roughly, it will last for...

Not for Q4, for the whole year.

Not Q4, for the whole year.

Yes, for the whole year, it will last for roughly 60,000 in Q4, as such, it will be a all-time high. So do you think one should look at as a seasonally high number or it can be sustainable in FY '21, going by the strong demand cues you were seeing?

No. I mean, it's too early to comment on next year. As we said, in the next quarter, once we have more visibility, we will share with you. As of now, what we can share is the number that we expect for this quarter, and where we are and what we -- as you rightly put it that, we are talking about that. We will be close to 200,000, 205,000 between that. So for next quarter, we'll come back to you in the next financial year.

Sure. And the second question, sir, as the previous person asked about the replacement cost of brownfield, but from paper stage 2 getting on stream, how much time gap will it be today for a brownfield expansion at Bhuj?

Brownfield at Bhuj would be 12 months to 18 months and greenfield would be 18 to 24 months.

The next question is from the line of Bharat Gianani from Sharekhan.

Just one clarification. You said the tax rate in this 9-month period was due to the write-back of deferred tax liability. So what is the sustainable tax rate in FY '21? Will it be 25% or will it be low?

Yes, obviously, 25% only.

Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

So thank you, everybody, for sparing their valuable time and joining our conference call, and have a good evening.

Thank you.

Thank you very much. On behalf of SBICAP Securities, that concludes the conference. Thank you for joining us, ladies and gentlemen, you may now disconnect your lines.