Balkrishna Industries Limited (502355) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Balkrishna Industries Limited Q4 FY '20 earnings conference call hosted by Axis Capital. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on 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, this conference is being recorded. I now hand the conference over to Mr. Nishit Jalan from Axis Capital Limited. Thank you, and over to you, sir.

Thank you, Vikram. Good afternoon, everyone. Welcome to Q4 FY '20 Results Conference Call of Balkrishna Industries. From the management team, we have Mr. Rajiv Poddar, Joint Managing Director; and Mr. B.K. Bansal, Director of Finance. I'll hand over the call to the management for his opening remarks, post which we can move to Q&A. Over to you, Mr. Bansal.

Yes. Thank you, Nishit. Good afternoon, everyone. I welcome you all to the Q4 financial Year '20 earnings call of our company. I'm joined by Mr. Rajiv Poddar and Mr. Shogun Jain from SGA. Let me begin with update on the performance of the company. During the last earning call in Feb 2020, we had indicated that we should be able to cross 2 lakh metric ton sales volume for FY '20. I'm happy to inform you that we have crossed this benchmark and have achieved sales volume of 201,760 metric tons for FY '20. This is despite shutdown of manufacturing operations and dispatches across all our plants for 8 (sic) [ 7 ] days in the month of March '20 due to lockdown on account of COVID-19. The COVID-19 situation led to lockdown of entire country, and as a result, our manufacturing activity as well as dispatches remain suspended on March 22 and then from March 25 to later part of April 2020 when lockdown was lifted gradually by the respective state governments. We have undertaken safety measures across all our plants and followed increased protocol to ensure safety and wellbeing of our staff and workers as well as outsiders interacting with our staff and workers. After resumption of manufacturing activities and dispatches, we were gradually able to ramp up our activity and are happy to inform you that we have gradually gained normalcy in our manufacturing activity as well as dispatches to a large extent. Our diversified product portfolio, strong presence across the globe, multiple sourcing bases of raw materials and strong balance sheet with no long-term debt makes our company resilient to face any challenges and to maintain competitive edge in the global market. Our Carbon Black project is also running smoothly, and we are able to ramp up our production continuously. Let me now update you on the CapEx front. As you know, the first phase of Carbon Black project is already up and running, the second phase of the project with a capacity of 80,000 metric tons per annum was commissioned on March 12, 2020, much ahead of its schedule date of completion. Now we have a total capacity of 140,000 metric tons and are self-reliant in terms of our Carbon Black requirements. The third-party sale of the Carbon Black was well accepted in the market on the strength of our quality. The remaining CapEx program of the company are broadly on track. However, the completion will depend on the COVID-19 situation, which is changing rapidly. I now move on to performance highlights. Our sales volume for the quarter was 57,966 metric tons, showing a growth of 5% Y-o-Y, and around 22% quarter-on-quarter. For FY '20, sales volume stood at 201,760 metric tons, showing a degrowth of 4% Y-o-Y. Our stand-alone revenue for the quarter stood at INR 1,389 crores, showing a growth of 3% on a year-on-year basis. This includes realized gain on foreign exchange pertaining to sales of INR 32 crores. For FY '20, stand-alone revenue stood at INR 4,898 crores, which includes realized gain on foreign exchange pertaining to sales of INR 115 crores. On the EBITDA front, for 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 standalone EBITDA for the quarter was at INR 407 crores with a margin of around 29.3%. The stand-alone EBITDA for FY '20 was at INR 1,381 crores with a margin of 28.2%. Other income for the quarter stood at INR 66 crores, which includes net gain on foreign exchange to the tune of INR 29 crores and other income from investment of INR 38 crores. For FY '20, other income stood at INR 249 crores, which includes net gain on foreign exchange to the tune of INR 131 crores and other income from investment of INR 117 crore. Coming to the net ForEx items. For the quarter, we incurred a net ForEx gain of INR 29 crores, which includes realized gain of INR 35 crore and unrealized loss of INR 6 crores. For FY '20, we incurred net foreign exchange gain of INR 131 crore, which includes realized gain of INR 132 crores and marginal unrealized loss of INR 45 lakhs. Profit after tax stood for the quarter was at INR 257 crores, showing a growth of 39% on a year-on-year basis, while for FY '20, it was recorded at INR 945 crores showing a growth of 21% on a year-on-year basis. The profit after tax has been higher on account of reduced taxation rate pursuant to changes in the corporate tax rate during the year as well as remeasuring of cumulative deferred tax liability. We continue to be a 0 long-term debt company. Our cash and cash equivalents were INR 1,086 crores implying net cash position on the long-term side. For FY '20, we incurred a CapEx spend of INR 761 crores, and we expect to spend another INR 600 crores during current financial year, largely towards the ongoing CapEx program as well as routine maintenance CapEx. Since the current environment is very dynamic, it is difficult to estimate the level of operations which may -- which we may achieve in the current year, and that is why we are refraining ourselves from giving guidance for the current financial year. However, if everything remains what it is as of today, we should be able to maintain the similar level of performance what we have achieved during last financial year. We will keep updating going forward with all the changes, which may have a major impact on our business operations. With this, I conclude my opening remarks and leave the floor open for question and answers. Thank you.

[Operator Instructions] We have our first question from the line of Ashutosh Tiwari from Equirus.

Yes sir, congrats on those set of numbers, especially on the volume. Yes. Sir, firstly, can you share the geography-wise mix for the year and for the quarter?

So Europe for the quarter was around 58%, and India was around 17%, 18%. America was around 15% and balance was rest of the world. And for the year, the Europe is around 51%. America is around 17%. India is at 20% and balance is the rest of the world.

Okay. So India was higher for the full year. Okay. And so how you're seeing the improvement, I mean, over the last 2 months, across geographies, including India as well as across segments like agri, construction, mining and all that?

Yes. So it is quite encouraging across geographies, and across product segments and more particularly into agriculture segment the response is very good.

Okay. So is it like -- at least in terms of retail, are things back to normal like pre-COVID level?

Yes, it looks like. It looks like. Because initially, we were also [Technical Difficulty]. Yes. Yes. So now the -- based on our last 2 months experience, we can say that now it is very stable kind of demand.

Okay. And construction segment, construction is -- how is demand shaping up?

Yes. It is shaping up pretty well.

Okay. There also things are good?

Yes, yes.

And sir, lastly, with this Phase 2 of Carbon Black, will you be selling Carbon Black outside also because I think we have more than what we require now?

Yes, yes, yes.

So roughly what quantities can you consume at 2 lakh production level?

So at 2 lakh metric tons, we would need around 55,000 to 56,000 metric tons.

Okay. So remaining we can sell outside?

So remaining, we can sell to outsiders.

We have next question from the line of Gaurav Khandelwal from Mirae Asset.

Congratulations on good set of results.

Thank you, Gaurav.

And I hope that things are safe at your end and at your team's end. Sir, I have a couple of questions. Sir, firstly, if you look at the demand side, although India started to shutdown at around 22nd, 23rd of March, I think Italy started to shutdown at 7th of March and then progressively other European geographies where we have 56 -- 58% of the sales, like you mentioned, started to shut down even earlier. So on demand side there would have been higher pressure. So are you indicating that it's not just the 7 days of production shutdown in India, it's 25 days or maybe 28 days of shutdown that has impacted your sales, and your volumes would have been much higher if not for the 28 days of shutdown in Europe?

See, Europe did not have a complete shutdown. They have shutdown, but it was a partial shutdown. So their agriculture activities and other type of activities were not going on. So when we had a shutdown, they had inventory and they took care of their sales from that.

Okay. So basically, from your warehouses in Europe, you were able to still...

Not only from our warehouses, but even our distributors, generally they keep inventory of 2 to 3 months. So during this period of lockdown, they were able to take care of their customers' requirement.

Okay. Okay. Understood. And then, sir, on your raw materials front, I think on a per ton basis, if I do a quick calculation it has increased by around 3% to 4-odd percent, while the crude, I think, which is the main cost element, and its derivative. But I think on -- if I take a -- like calculate it from a lag also, I think there was a decline. So can you give us color on what happened on that front?

So basically the raw material cost per se has come down. If I see my raw material cost for both the quarters, December quarter as well as March quarter, it has come down from INR 101 to INR 98 per kg while it is looking at elevated level because of the inventory adjustment. So during this particular quarter, there has been a decrease of high-value stock, which came for consumption. So that is why the full impact was not seen during this quarter.

Okay. Okay. And sir, just last question from my side. On your commentary, the number of days of shutdown in the -- in FY '21 will be higher than FY '20. But still you expect that you'll be able to maintain the volumes in FY '21. So -- and also I think there will be some impact on the construction segment and OE segment, but still, your commentary looks very bullish. So can you provide further color on that?

So basically, the demand in agriculture sector has been very robust. For last 2 years, the agriculture demand in Europe was not good because of the failure of rabi season. But that season has been good. So overall, the agriculture demand in the Europe region as well as in the U.S. has been very good. And in India also, the last -- for last 2 years, monsoon was good, this year also, it is expected to be good. So the demand of agriculture tire will be very good. And for OTR segment, I would say it would be very stable.

Okay. So it's basically -- you expect agriculture segment to pull up the volumes for...

Yes, yes. This is what was seen in the third -- fourth quarter also.

We have next question from the line of Bhaskar Bukrediwala from ASK Investment Managers.

Just wanted to, sir, understand on the realization front, our utilization on a Q-on-Q basis is down from INR 250-odd to around INR 239 to INR 240. So why is that? And how do we look at the realization going forward?

So this is on account of 2 things. One is product mix, which is always the case. So that is why the price realization is not same across the quarter. And secondly, some price reduction or whether, I would say, discount, et cetera, we offer in the Europe market. So that is why it is down. Going forward, I think the realization should be anywhere between INR 240 to INR 245 per kg. For the full year, our realization has been INR 243. So next year also, I'm seeing around INR 245.

Okay. Okay. Okay, sure. And sir, just one question on the -- your CapEx side. So how much is currently pending on Bhuj plus Waluj put together? And of that, if you could give us a schedule, how much would be done in '22? And how much will probably spill over if at all to '23?

Basically, now 2 projects are left. One is Waluj and another one is Bhuj. The residual CapEx on both the sites would be around INR 500 crores that we spend during the current financial year. We are trying our best to complete it in the current financial year, but with the caveat of a delay of one quarter, maximum.

Okay. Okay. So INR 500 crores is what is left for both put together?

Yes, for both put together.

And on this asset base currently, what you have, just a couple of questions. What would be your run rate of maintenance CapEx going forward, including this year?

I think it should be around INR 150 crores.

INR 150 crore of maintenance CapEx. Okay. Okay.

We have next question from the line of Sanjay Bembalkar from Canara Robeco AMC.

Good performance. Sir, 3 cost items, I wanted some clarity on. One is our advertisement -- hello?

Yes, yes. Please go ahead, I can listen you.

Sir, on the advertising expense, considering most of our advertisement spends are happening on the sport leagues in Europe and U.S. I wanted some clarity on that for FY '21, '22. And the second was on the ocean freight and third was effective tax rate for '21, '22.

So effective tax rate would be 25.17%. Hello? Yes. And coming to the next question ocean freight. Ocean freight is around 6% to 7% of the export. So it would be in the similar range. And as far as advertisements, publicity and sales promotion, this would be around -- in the range of INR 75 crores to say INR 85 crores, INR 90 crores.

This is for the full year. So considering...

Full year, full year.

Last year, we had spent INR 280 crores odd on the advertisement and promotion, that will come down to INR 75 crores, INR 90 crore. Is that understanding...

No, no, no. Advertisement, publicity and sales promotion...

I think what Mr. Bansal is saying is what you were asking, sir, about the sporting activities, so that is the breakup that Mr. Bansal is giving, the promotion activities for those. And that will continue in this same year -- in this year also. So we'll be in the same range as this year. The other things were including all other promotions and branding activities, which will continue.

We have next question from the line of Vimal Gohil from Union AMC.

Yes, sir, if you can just provide me your breakup between agri, OTR and other segment sales of volume? And OEM, replacement as well?

Yes. So agri is 65%. And OTR is around 31%, 32%. And remaining 3-and-odd percent is on account of ATV and lawn and garden. Now coming to channels, so OEM for the full year is around 25%. Replacement is 71% and offtake is around 4%, 4% to 5%.

Sir, this agri, OTR and others that you provided was for the full year?

So agri -- no, it was for the quarter, but full year, agri is 61%, and OTR is 35% and remaining is ATV and lawn and garden.

Sir, I just missed your effective tax rate for FY '21. So can you just highlight that?

25.17%.

For FY '21?

Yes, FY '21.

Okay. Okay. Okay. And sir, secondly, sir, your -- if I were to look at the commentary of some of your customers that has been sort of slightly downbeat and -- or probably even they have refrained from giving guidance. So just wanted to understand, once again, what is leading us to be sort of positive about our volume outlook in FY '21?

Yes. Yes. Basically, as I said, in the last 2 months, we have seen a good demand in agriculture segment across geographies. And we continue to see that this demand will be maintained. Last 2 years has been very challenging in Europe because of the drought and heat waves, and fortunately, this year, this is not the situation. So overall agriculture activities in Europe are very robust. And so is the case in U.S. because U.S. last year was impacted because of the trade war between U.S. and China. Now with some variation, the demand of the agriculture products from U.S. is also good. And on India front also, it is very good. So basically, agriculture is driving the whole demand. And on OTR front, while new CapEx, et cetera, may be delayed, but since we are gaining the market share, so we will continue to maintain our share, and we will have a stable demand.

Right. Right. And sir, ad and promotion expenses for this year should be around INR 85 crores to INR 100-odd crores, right?

No, no, no. That was some particular -- see. Now when we say -- talk about advertisement, et cetera, there are promotional items. We have sponsored various sports activities. So including that, the amount will be similar to what it was last year.

Which is?

This should be around that number...

So basically, while Mr. Bansal is finding the exact number, the range will -- the spend range will be similar in the percentage basis as what we've been doing in the last few years, so that will be continuing.

And sir, last question from my end. How should we think about gross margins? I mean you're sitting on life high gross margins right now. How should we think about gross margins from a longer-term perspective?

I think you should take it at around 58% to 60%.

58% to 60%?

Yes.

Okay. Okay. Fair enough. And this incremental gross margin would be driven by your Carbon Black...

Carbon Black and lower raw material cost and some better realization on account of better currency realization.

[Operator Instructions] We have next question from the line of Bharat Shah from ASK Investment Managers.

What is our exposure to China in terms of raw material? And is there any kind of a dependence wage, but for them, we can't fulfill?

I'll answer that question. So as of now the -- I'll answer it in 2 parts. First is the dependence of China, that without that, we cannot do. So there is no such raw material as of now that we have to -- we don't have alternates to. So in fact, over the last few years, we have been looking at various options from across the globe. So there is a very little part, which is coming currently from China. And that is also just to -- as a backup. So there is nothing that we would need for our raw materials to depend fully on China. And as of today some very small percentage is coming from here.

How much is it?

Exact breakup, I would not have, but it would be around 10%, 10% to 12%.

So what I understand is current percentage itself is low. And if push comes to shove, we can substitute by any other substitutable vendors or source?

Yes, yes.

It is not as if China playing funny can stop our operations.

No, not today. Because we have developed alternate vendors over the last few years, and from different parts of the world. So there is no dependence on any particular geographical region. So we believe in the raw material sourcing in that sense.

We have next question from the line of Siddhartha Bera from Nomura.

And congrats on the good set of results. Sir, can you give us some more color on how the trend has been on the agricultural side for May and June? Are we seeing growth? And like as you have said that some sales have also happened from the inventory where it is around 2 to 3 months. That means that, I mean, there will be -- I mean, how much scope will be there to again refill the inventory and drive sales from it?

So as Bansalji said earlier, basically, if you see in the last few months, there has been a good demand coming in from the agriculture sector. This has mainly been because the -- everybody -- the cycle of agricultural dry is coming. And also last year, there was a weather issue, which is not here this year. So keeping all those factors into mind, there's been a good demand, which is coming. And we are geared up to supply that. And you can see the -- what we demonstrated in the first quarter of -- sorry, last quarter of this financial year, which is visible, had it not been lockdown it would have -- we would have hit plus what we were expecting to, also there has been a good demand, and we expect things to be similar, subject to no other sort of a scenario like COVID extensions, say, wave 2 or -- if no other factors come in, these factors come in, then we should look at hitting numbers what we've hit this year.

Okay. And on the commodity side, I mean, when you indicated that average cost will be around INR 98 per kg in fourth quarter. So can you indicate what are the trends as of now? I mean, this quarter, how much benefit can we -- more benefit can we look at given the way how commodities have moved?

So commodity prices, if you see the trend, it has been declining, whether it is natural rubber or whether they are crude derivatives. So a similar trend is being maintained. There is no fresh development on the raw material side, which can lead to any increase in their prices.

Okay. Okay. Okay. So any blended number, can you share? I mean, how much will be the cost?

It's difficult to say that, but I can give the directional view that it is on the declining mode.

Okay. And lastly, sir, on the CapEx side, we have indicated INR 600 crores CapEx for FY '21. So with this now, most of our greenfield projects are over. So I mean, how -- what is the sustainable number to look at from FY '22 onwards? Any broad color?

From FY '22 onwards, there will be maintenance CapEx which will be around INR 150 crores across all the 4 plants.

We have next question from the line of Puneet Gulati from HSBC.

Yes. Sorry, I joined late, so I might have missed. I have 2 questions. What is the plan to do with the extra cash that you would have post this CapEx?

See we -- as of now, there are no plans so that would remain as an investment. And this -- the level of operation increases then 2 years down the line we may have requirement of the further CapEx. So as of now, there are no plans.

Okay. Okay. And what about the Carbon Black, which will also be surplus now that you have full 140,000 commissioned, how are you planning to sell it as a business?

So we have contacted ... Yes, Rajiv.

Yes, sorry, Bansalji. So yes, basically, our Carbon Black has been well accepted in the marketplace. And lot of the leading rubber and tire manufacturers are already -- we've gone through the phase of testing with them, and then we got approvals. So we are already supplying to leading companies in India at the moment. So we are quite confident that the extra capacity, which we have will be easily sold and our capacities will be occupied.

Okay. Okay. So can you give some sense of what kind of realization you're getting? And what is it costing you to produce the same?

Those numbers are readily not available, but I can say that the -- it is giving us a good margin, what we had indicated earlier it was better than that.

We have next question from the line of Bharat Gianani from Sharekhan.

Yes, congratulations on a good set of numbers in a challenging scenario. Sir, 2 questions from my side. And if I take your overall raw material basket, then how much of it is the natural rubber and how much of it is group-based derivatives? Just a rough indication will be fine.

Yes. So natural rubber is 35% and then there is 3% of lead wire. So other than that, so remaining around 60%, 62% are crude derivatives.

Okay. Okay. Okay. And sir, next question from my side is in FY '20 we achieved -- approximately 201,000 of finished goods of sales in metric tons. So my question is that how much of the -- because 60,000 MT was the capacity that we achieved towards the end of the year. So my question is that in FY '21, how much was the Carbon Black that we could actually use? Or was it that full was utilized in FY '20? So that was my question.

No, full was not utilized. So in FY '21, the internal consumption would be around 55,000 and balance we would try to sell in the open market.

Okay. No, no. Sir, I'm talking of FY '20. So FY '20, we would have required 54,000. So were we able to source the entire 54,000 from inside or we had to source from outside, that was my question, for FY '20.

FY '20, since the time we started our manufacturing, we have been sourcing internally only. So we've been able to do fully from inside, in-house. Because, I mean, basically, I'll reclarify that. So the hard line on the Phase I, which was there, started off in June or July last year, since then the hard category, we stopped importing, buying from outside. And the soft, which we just started. So we've just stopped that. And going forward, the full impact will come in this financial year. But we will be 100% in-house self-sufficient from this year for all the grades.

Okay. No. But for FY '20, how much was -- how much we were self-sufficient that was my question?

So from the time we started our hard line, we were fully self-sufficient on hard grade. Soft grade, we just started a few weeks back -- a few weeks before year-end. So that's why that impact would not have come in that year. But from the time we've restarted, we are fully self-sufficient. We are getting everything in-house. So because there are 2 different grades now, hard grade and soft grades. So we didn't earlier make this upgrade, so which we had to keep on procuring from outside. We started our plant and overall there was a lockdown in the factory. So that's why we could not utilize that. And once we've restarted, everything, but that was in this financial year, everything, both hard and soft, both have been self-sufficient in-house.

So just let me put it this way, then what is incremental margin benefit that we are expecting from Carbon Black this year in FY '21?

Around 100 basis -- 100 to 150 basis points.

We have next question from the line of Nishant Vass from ICICI Securities.

I hope everybody is well at the company. Sir, first question is more in European agri market. I think, Poddar sir, if you could shed some light in terms of some of the countries which have outperformed, as export data indicates, France has been quite a big outperformer. So have we also gained market share there? Is something on that side happening?

Yes. Rajivji, can you answer this?

Sorry, we lost the question. We lost connectivity a little bit. Can you just repeat the question?

Yes, yes, sorry. Sorry for that. I just -- I was saying in agri Europe, you have been -- you're saying that there has been a strong traction. So the data that we see from exports indicate that France is doing extremely well. So I was just trying to understand, is that also one of our strong markets? Have we gained some overall market share in the European region last year on the agri front?

Yes. So basically, France has been one where we've actively been doing branding and sponsorship with the title sponsorship of the Coupe de la Ligue football. So we are seeing the impact coming in through that. There has been a good pull for us intheFrench market also. So it's sort of giving a payback on that now with the brand recognition going up, so it's gone up nearly 10 to 20 basis points from where we started off. So you're seeing that in the numbers coming up. And France has been a good traction point for us.

Okay. So basically, the A&P spend that we have been doing are basically now starting to reflect on our market share side. That's how we should think about that?

Yes.

Yes.

Okay. And you would assume this would be also replicable in other markets that you have been targeting in similar fashion, right? Australia, Latin America and Italy, some of these other markets. Is that also how we should think about it?

Yes. Overall, there will be a good traction, yes.

Okay. And sir, for the full year, was there any big market share change on the way you indicate market share globally? Any change?

No, not...

Year-on-year there is nothing because that way it has been very stable. But in the last quarter, as I said, the agriculture has been very good. And that is because of the increased share in all the major European markets.

Okay. And sir, my second question is on the pricing. Obviously, I heard Bansalji, you made a comment about you provided a little bit of discount. So is there any -- what drove that strategy? Just trying to figure out. Is it a market softness driven action or you were trying to grab more, let's say, market share or some -- what is the overall environment like on pricing?

Yes. I think it was just a pass on of the reduction in the raw material cost. Nothing else. So there was nothing like strategy, it is a routine kind of pass on, which we generally do, and this time also it was done.

But this would be market-driven, right? Because we maintain a differential between us and the leaders so that differential would be remaining the same, right?

Correct. Correct.

We have next question from the line of Abhishek Jain from Dolat Capital.

My question is related with the production side, what are the key challenges right now? And what is the current capacity utilization?

So basically, the current challenges as we all are seeing is, there is exodus of labor, so we have to manage the labor, to retain the labor is one of the challenges which we are facing. I mean, we are managing it, but it is a challenge on a daily basis. And of course, with the new guidelines of social distancing and making sure that the plant hygiene is kept upfront and everything, so these are the 2 big challenges, which are there. As far as the capacity utilization Bansalji, if you just put...

Yes. So it is around 70%.

Okay, sir. Okay. So can we expect that the employee cost will move up in the coming quarter because of the labor issues?

Not significantly, not significantly, marginally. So already we took good care of them during this lockdown period and thereafter also, so we were fortunate to retain them. And we did not experience any kind of big migration from our locations.

Okay, sir. Sir, my next question is related with the competitive intensity. So do you see a shift in the business from Chinese player to BKT in Europe and the U.S.? So -- and at what extent does BKT benefit in terms of the incremental volume end markets there?

As we have been telling always that Chinese are not present in this segment in a big way. They are mainly present into PV and CV segment. Ours is a very customized kind of business segment, so their presence is very limited. So we have not seen any kind of major benefit coming on that front.

So who are the key competitors where you are finding a lot of the competitions?

So there is nothing like we are finding any major competition. We have been competing with companies like Michelin, Bridgestone, Goodyear, Continental, Yokohama. These are the players which have been there in the market for quite some time.

We have next question from the line of Samir Palod from AUM Fund Advisors.

So I had 2 questions with the current CapEx that we are doing, what kind of capacity increment or change in SKUs will we be having?

So one of the changes, as we have mentioned, is that it will be -- we will be getting into the extra -- ultra-large giant OTR tires. So we have capacity up to 51-inch currently on these giant OTRs, we will be going up to 57 and 60 inch range.

In Waluj, basically we are just developing a greenfield project. So it will be replacing our existing plant. So on capacity-wise, there will not be any significant addition into the capacity. Our existing capacity is 2 lakh tons. And with the addition of 5 lakh on account of large OTR tires, the overall capacity will increase to 205,000.

Okay. Okay. And the second I had was with the current agri customer situation in Europe, are we seeing any change in terms of for farmers to buy newer tractors? Or are we still seeing the replacement demand growing more and more basically?

Yes. So we think that the replacement cycle will -- in this current period, the replacement cycle will be driven much more than the OE. So we are pushing on that.

Okay. So you -- so basically, no one will buy newer tractors with the current liquidity position and the current situation, people will just reutilize their tires or change the tires itself. That's it.

This possibility will be more than the OE -- buying a new tractor. So that's what we are seeing -- I mean we are thinking will happen.

We have next question from the line of [ Dhawal Doshi ] from [ Pinpoint Asset ].

My questions have been answered. Great set of numbers, congratulations.

We have next question from the line of Viraj Kacharia from Securities Investment Management.

Most of my questions have been answered. Just have 2 more, one is for the India market, you said the demand is equally strong in farm. So is it possible for you to just give some color in terms of how the demand from OE and replacement has been, how the trend has been in farm and what is our market share now. The idea -- or our thought process was to focus on India as well for increasing your share? So that is one. And second, for us, the overall reliance on raw material is relatively lesser, but when it comes to other peers in the industry, especially in India, when -- does that put us in a very significant advantageous position in terms of gaining share in India?

So on the -- sorry. So on India front, if you can see, our numbers have been constantly growing. So earlier what used to be about 6% is today roughly about 20% of the enhanced growth. And we've seen a good acceptance of our product. And the quality is good, people are now recognizing the brand with the various activities that we are doing with our brand ambassador Sunny Deol and other activities, and in the sporting activities and overall branding that we're doing, there has been a good pickup of the brand, and good recollect and good connect at the farming level with the end users. Our market share would -- in India would be per se in the last 3 years that we've been actively pursuing this market, would be close to about 5% to 6% in the Indian market. And going forward, you see -- sorry, go ahead.

No, no, sorry, go ahead.

And we see a good demand for us in India, and we expect this to continue. As the brand gets more and more accepted in the replacement market, we will see a pull in the OE also -- OE market because our distribution network is now fully covering pan India. And with that, service is also possible. So OE should also come in, we are foreseeing, as we've said, India is one of our focused markets, we foresee that to happen.

So this 5% to 6% market share is largely in the replacement, right? Not here in the OE?

No, we are there with OEs, but OE is a very small percentage, yes, this is mainly focused on replacement. And then slowly in the coming years, now we'll focus on the OE in India as well.

Okay. How would be the industry OE replacement mix? Just to get a perspective in terms of what that opportunity could be for us.

So OE would be around 45% to 50% and the replacement would be 50% to 55%.

Okay. And given the kind of RM environment we are seeing right now, have you taken any price cuts in India as well?

In India, I think -- I don't think we have taken any price cuts.

No, nothing.

We have next question from the line of Pravin Yeolekar from CGS-CIMB.

Sir, my question was on the ForEx. What was the hedging rate for the last quarter for us?

INR 80.

INR 80?

Yes.

Okay. And how much are we hedged for the next year? And what is your hedging rate going forward?

So for the next year, the rate should be somewhere between INR 82 to INR 83.

Okay. And almost 65% we are already hit?

Yes.

We have next question from the line of Ankit Kanodia from Smart Sync Services.

First of all, I had one follow-up question related to one of the participants, the replacement and OEM mix, which we were talking about, it was on India basis, right?

No, no, it is globally. This is globally.

So globally, we will be having around -- roughly around 55% replacement and 45% OEM?

So replacement, 55% yes. No, no, 50% to 55% is -- or roughly, you can say 50-50 replacement and OE mix across the globe.

Okay. Okay. And what would be in India?

India, I think it should be similar. We do not have accurate data.

Yes. In India it should be roughly 50%, 55% for OE and about 45%, 50% for replacement in India.

Yes.

Okay. Okay. Another question would be the off-highway tire market globally has been declining, if you take a long-term trend last 2, 3 years. So -- and we saw a huge jump in our volumes in the last quarter. So is it only company-specific? Or have you seen anything improvement in the market as well as a whole?

So Mr. Ankit, I think those numbers have been increasing steadily for the market size also, so we have not seen a decline per se in the overall off-highway tire market business. But yes, we are growing faster than the market is growing because we are taking market share and gaining places. So it's -- that is the reason why our numbers are growing higher than the market pace growing, but market is growing constantly.

But in FY '20, the first 9 months, I think the market was declining, right?

Yes, that is because of the challenges in agriculture segment in Europe, on account of weather -- unfavorable weather environment.

So my question was regarding that only. So did that improve in the last quarter? Or it was more?

Yes. Yes. Yes, it has improved. It has improved.

Okay. And one last question regarding our improving EBITDA margin. It is predominantly due to better -- lower raw material and better realization or something else regarding that?

Yes. It will be a mixture of 2, 3 things like increased share of Carbon Black utilization and lower raw material costs, better currency.

In the previous calls, we have guided for about 25% to 26% as the EBITDA margin we can forecast for the future as well. So would you maintain that? Or you think that, that could increase going forward?

Which 25% to 26%? For the tire business?

Yes, EBITDA margin.

No, no, no. EBITDA margin is currently around 29%, 30%. Based on the current situation, there will a good visibility of 30%-plus kind of EBITDA margin.

Yes. So I think in the quarter -- in the last quarter, it was around 25%, 26%. And you guided in the last quarter that the long-term is -- 25%, 26% is only maintainable in the long-term.

Yes. Then somebody asked me the question, what is the long-term sustainable margin. So that time, I say, 25% to 26%. So that is for a horizon of 5 to 7 years. But now we are talking of the current financial year, so this is the number.

Okay. So for FY '21, you think that 28% to 30% can be maintained, as EBITDA margin that is what you guided?

Yes.

We have next question from the line of Ronak Sarda from Systematix Group.

Congrats on good set of numbers. Sir, first question, would you be able to highlight what was the production for Q4 and full year FY '20 last year, basically?

So production for the full -- last quarter was 51,000. And for the full year, 194,000.

Okay. Sure. Sure. And you highlighted there's some discounts or the price pass has happened due to lower commodity cost. So what would be that number? So if I look at...

2%, 3%.

2%, 3%, okay. And have you taken any more cut in Q1 as well? Or this was more or less Q4 number?

No, no. Yes, yes.

And sir, I missed the current year euro hedge rate, is it INR 85 or?

82 -- no, INR 82 to INR 83 for FY '21.

Okay. But this is increasing, right?

Yes, yes. Last year it was INR 80, so now it has increased.

Okay. No, I meant the current spot rates are around INR 85.

Yes. But this is the rate as of today, but we do not hedge everything on day -- on particular day, we keep hedging on different rates. So we do not get similar rates comparable to the current rate.

So basically, maybe FY '22 hedges rates will be around that?

Yes, around INR 85.

And the last question on balance sheet side, if I look at your betas and inventory days, those have changed substantially on a Y-o-Y basis for March numbers, betas have increased and inventory days have come down. Is it more of a year-end adjustment due to the entire shutdown? Or this is something?

No, no, there is no adjustment. It is a routine thing, which happens in the normal course of business, so inventory levels have actually come down.

Inventory levels have come down and betas have increased.

Betas, not significantly 568 to 640. So what happens, the transit time is on our side. If there is any delay in the shipment of the goods, so to that extent, our receivable days increases. Otherwise, from the strategy point of view, there is no change.

Okay. Okay. And on the raw material side, the inventory number would be the usual 45 to 60 days, right? There's no...

Yes, basically, we cover our raw material requirement for around 75 to 90 days. So any change in the raw material is basically reflected after the quarter.

We have next question from the line of Basudeb Banerjee from AMBIT Capital.

Congrats sir for good set of numbers. 2 questions. One very basic question. Our 3 lakh capacity, is that for achievable capacity or total because...

Achievable capacity.

Achievable. So basically, even if your 2 lakh ton grows by 10% for 3, 4 years, you don't need capacity addition, even if you have a 12-month of lag period for doing brownfield?

Correct. Correct. Correct.

Second question, sir, in FY '20, your Carbon Black first phase ended and just at the fag end of the year the soft capacity also came on. So now for FY '21, as you directed, the volume remains around the 2 lakh tons, you will require some 55,000, 60,000. And if I assume your Carbon Black facility runs at full, so just for broader calculation, so residual, 80,000 tons, how much EBITDA per kg, one can factor in which you will get from external market?

Overall EBITDA margin would be around 25% plus. So I would not be able to tell you what would be the realized EBITDA margin per kg but overall, the EBITDA margin range would be around 25% plus.

For the external sales?

Yes.

Okay. And last question, sir, as you've mentioned, distributors in Europe had almost 3 months of inventory and 57,000 fabulous tons of wholesaling this quarter, so how much was the global retailing this quarter, sir?

Those data actually, we do not have. It's hardly available to us.

I am just trying to understand because inventory was getting absorbed, and your supply was also on the higher side. So how to look at Q1?

No, I would answer this question in this way that based on the order flow or order pattern, we can say that there is a good demand at the retail level also, at the consumer, yes.

Okay. And surely. And last question, sir, which I was trying to understand, which you earlier mentioned that your branding, marketing, other expenses, we should look it from an absolute inflationary angle or more from a percentage of sales angle sir?

I think percentage to sales and the inflation element will not be very high.

No. Because with volume increase, your revenue increasing, that also continues to increase. So if I keep percentage to sales remaining same, ideally, that should help operating leverage. But that typically does not happen?

See, you will have to take range because most of the other expenditure are variables, and some portion is fixed. So if you see the range, it is around 27% to 30%. Generally it remains into that range.

Okay. So basically, irrespective of volume and irrespective of raw mat basket, one can broadly take that should be the range overall down the line?

Yes. Until unless there is a significant or exceptional movement. Otherwise, you can take this as a range, yes, yes.

Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Yes. So thank you, everyone, for taking out the time to attend our call. And in this tough environment, I would say that please stay safe and take care of yourself. Thank you.

Thank you very much, sir. Ladies and gentlemen, on behalf of Axis Capital that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.