Balkrishna Industries Limited (502355) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '22 Earnings Conference Call of Balkrishna Industries hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. I would now like to hand the conference over to Mr. Jinesh Gandhi from Motilal Oswal Financial Services. Thank you, and over to you, sir.

Thank you, Janice. Good morning, everyone. On behalf of Motilal Oswal Financial Services, I would like to welcome you all to 1Q FY '22 post results conference call of Balkrishna Industries. Balkrishna Industries is represented by Mr. Rajiv Poddar, Managing Director, and the senior management team of Balkrishna Industries. We'd like to thank the management for taking time out for this call. I will now hand over the call to Mr. Poddar for his opening remarks. Over to you, sir.

Thank you, Jinesh. Good morning, everyone. I welcome you all to the Q1 FY '22 earnings call of Balkrishna Industries Limited. Hope all of you, along with your near and dear ones, are safe and healthy. Along with me, I have Mr. Bajaj, President, Commercial and CFO; and SGA, our Investor Relationship Advisor. Let me begin with performance updates. We continue to witness strong demands across geographies and segments. This is visible in our sales volume numbers where we have clocked 68,608 metric ton for the quarter 1 of the financial year '22. This is our highest quarterly sales volumes. We expect this momentum to continue as economic activity is in an upward trend and the government's worldwide are creating infrastructure. Further, end prices of commodities and agricultural produce continues to be robust, thereby giving strong support to our sector. While on the demand front, we remain positive, the raw material scenario is very challenging. All raw material prices are on an upward trend, and this will impact our margin profile for the next few months. Further, the logistic costs have gone up significantly across all routes, and we believe it could continue to be at similar levels throughout the financial year. In view of these cost pressures, we have been taking price increase of our products in the end markets on a quarterly basis. We are confident that we will be able to maintain a 28% to 30% annual EBITDA margin on a long-term sustainable basis. At BKT, we continue to serve the society during these challenging times. We have, during the second wave, vaccinated over 12,000 people in addition to supporting lives through various other initiatives through our WE CARE foundation. Let me now give you an update on our ongoing and new CapEx program, greenfield tire plant at Waluj. As mentioned in the previous quarter call, the greenfield tire project is expected to be completed by 30th September '21. All the new CapEx announced recently is progressing as per schedule. We envisage the entire new CapEx of INR 1,900 crores to be funded by internal accruals and some debt, if needed, in the financial year '22 and '23. With this, I now move to the operational highlights. Our sales volume for the quarter was 68,608 metric tons, a growth of 80% year-on-year. Our stand-alone revenue for the quarter stood at INR 1,828 crores, which includes realized gain on foreign exchange pertaining to sales of INR 15 crores. For the quarter 1 of this financial year, 53% of the sales came from Europe, 19% from India, 16% from Americas and the balance from the rest of the world. In terms of channel contribution, 72% was contributed from replacement segment, while OEM contributed to 26%, with the balance coming from offtake. In terms of category, agricultural segment contributed to 66%, while OTR contributed to 31%. The balance came from other segments. The stand-alone EBITDA for the quarter was at INR 535 crores with a margin of 29.2%. Other income for the quarter stood at INR 40 crores, while unrealized gain stood at INR 17 crores. Coming to the net ForEx items. For the quarter, we incurred a net ForEx gain of INR 38 crores. This includes realized gains of INR 22 crores and unrealized gains of INR 17 crores. Profit after tax stood for the quarter at INR 331 crores, with a margin of 18.1%. The contingent liability as of 31st March '21 was INR 65.4 crores as disclosed in our annual report. In the first quarter of this financial year, certain tax assessment has been completed and the liability has been crystallized at INR 35.7 crores, which has been included in the tax expenses. In quarter 1 of financial year '22, as income tax of earlier years, the balance amount will get crystallized in coming quarters and will be accordingly included in tax expenses. Our gross debt stood at INR 1,076 crores. Our cash and cash equivalents were INR 1,557 crores, implying a net cash position. For Q1 of this financial year, we incurred a total CapEx of INR 366 crores. Of this, approximately INR 200 crores has been spent on the new CapEx program of INR 1,900 crores. For the first quarter of financial year '22, the euro hedge rate was INR 87.53, and the forward hedge rate currently stands at around INR 90. The Board of Directors has recommended an interim dividend of INR 4 per equity share. As mentioned in my last quarter, we remain optimistic for the financial year '22. And accordingly, have been guiding for 250,000 to 265,000 metric tons of sales volume. We are confident of improving the brand equity of BKT in the end market. With this, I conclude my opening remarks and leave the floor open for questions and answers. Thank you.

[Operator Instructions] We take the first question from the line of Ashutosh Tiwari from Equirus Securities.

Congrats on the strong performance. Firstly in terms of R&D costs and ocean freight costs, how do you see things moving in this quarter versus Q1? Will the ocean freight cost will also increase in Q1 -- Q2 versus Q1?

So the ocean cost has already started to go up, and we see this will be continuing for the rest of the financial year.

So -- but will we see a further increase in Q2? Or will it remains under Q1 levels?

No, we see some marginal increase in Q2.

Okay. And RM cost?

RM cost, we believe that we have reached the highs, and it should sustain at these levels, the new levels that we are talking about.

Okay. And how much price you have taken in July?

2% to 3%.

Okay. So I mean, if the only ocean freight cost will increase quarter-on-quarter, RM [ relatively ] also will. That means that margins are low in Q2 versus Q1.

No. So we believe that it will sustain itself between the guidance that we are talking about, between 28% and 30%, and we are quite confident of hitting those numbers.

And sir, secondly, on this Waluj expansion. So after that [ plant ] comes in, will we still operate the old plant as required in the demand or we cannot do that?

We'll see once the ramp-up and the production is shifted what is the condition we'll do on assessment, and then we will take a call on what to do with the old one -- old plant.

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

Sir, my first question is on the demand side. I mean, clearly, we are seeing a very strong commodity and cycle -- crop cycle, and I mean, based on your achievement this will be probably the second year when we are seeing such a strong demand for us. So in terms of the outlook, can you indicate how to look at FY '23. Can we again grow? Because ultimately, these generally follow a cyclical pattern. So any thoughts on how to look at 23% growth over the strong growth this year. And second is on the [ finance ] also, I mean continue to guide about [ 265,000 ] which implies only [ 65 ] per quarter in the next 2 quarters. But given the strong demand, I think it can be higher. So some thoughts on that, why are we being so conservative.

So as we said last quarter also and now also, we are repeating that the times -- current times are unprecedented, and there is a lot of uncertainty around the world. Whether the new wave hits, the new variants get mutated. So that's why we are saying that we are confident of hitting these numbers. The demand is strong as of now. But looking at the uncertainty around us, we cannot predict what will be the exact number. We will review it in the end of next quarter in that call, then by that time, we will have more visibility towards the last 2 quarters. So we can look at those numbers more accurately at that time.

Okay. And sir, on the outlook for next year, if you have any visibility on that, how do you look at this cycle sustaining?

So it's too early to give a number for next year. But overall, if you can see that with the CapEx coming up and the expansion program that we have lined up, we see that the demand should remain strong and sustain itself or in the coming years. So that's why we are taking ahead this program of expansion. So it should -- it looks good. But difficult to give you exact number for the next year or the period for -- exact numbers for the next year, what will be there, what will not be there.

Okay. And on the CapEx side, sir, I mean, what is the maximum capacity of production we can do in next 2 quarters? And will there be possible to prepone the second phase of [ good ] plant if the demand is strong?

So we are working strongly towards the new project, which is there. And as I mentioned in my opening remarks that the progress is already there and is going on in schedule. So we are looking to see how best we can do. As far as the capacity that we are currently operating, it looks difficult to get numbers very significantly higher than what we have right now. So as we've said, our current capacity is at 285,000 metric tons, and that's the maximum we can do till the new project comes on board.

The next question is from the line of Pramod from InCred Capital.

Wanted to know any of the subsegments you feel are surprising you on the demand front or the demand side?

Sorry, can you repeat your question? Your voice is very inaudible.

Can you hear me now?

Yes, better.

Yes. So basically, I was saying within your subsegment, anywhere you see the demand being better than what you thought at the start of the year or 6 months back?

So in all the segments, we are seeing a good positive trend, whether it is in the agriculture side or industrial construction side. Everywhere, we are seeing some good uptake coming up and good tailwinds in all sectors. So it's very difficult to say one subsegment or the other. Overall, there is a good tailwind.

And in that context, where are your system inventories in the sense the stockyard inventories or the transit inventory, how they stand? Are they still at normal levels? Or you think they have substantially gone below, considering the demand is strong?

So the inventory, it's a part of the cycle. So it's going on. We are managing that well and looking to sustain those -- keeping in mind the existing levels of sales which are there.

You don't feel they are understocked or any of that?

No, no, no.

And sir, are they -- considering the commodity prices have been pretty strong, are there any strong wins in that segment or in the U.S. market for you to reach your medium-term goals in both these segments or market share? Have you seen that traction coming in the recent quarters because of the demand?

So yes, you can see, during my opening remarks, Americas, the sales percentage has gone up marginally. So that indicates that we are pushing on those sectors. Even if you see in the channel contribution of segment contribution of agri of the OTR that has also gone up to 31%. So that -- those things are continuously being monitored and being pushed towards, and that growth is coming up.

The next question is from the line of Ankit Kanodia from Smart Sync Services.

If you take a long-term view in the -- if you see the trajectory in which if you compare our tires and prices of our competitors in the other geographies, so there was a huge gap earlier, somewhere in 2005, '06, '07, then the gap is slowly narrowing down over the years. So right now, if I'm correct, it is somewhere between 15% to 20%, right?

Correct. Yes.

And if we take a, say, 5- to 7-year view from here, it may further reduce. So how do we stay relevant? And main one question is towards the brand initiatives, as to how much that will come into play, or we still be focused more on becoming a lowest cost player. If you can throw some color there.

So I think -- yes, so I think if you see the initiatives, keeping in mind that we would like to bridge the gap to the top level, we have already started initiatives a few years back. And if you see our sponsorship program, brand building awareness programs have been going on across all geographies. And we are spending quite a significant amount of money towards that. So that is what we see. Of course, we will reach a point where we will be closer to the top, but we will not be at the top, we will not be at the top competitor level. But there will always be some gap, but the gap will continue to narrow for the time being.

And so if we again look at the last cycle when the whole travel -- the OTR market was basically stagnant during the period of, say, 2013 to 2018, '19. So we experienced really good volume growth even in that period. Now when we see all around the world, the demand coming back, which is also reflecting in our quarterly volume numbers also. So is it fair to assume that over a long-term period, say to 5 years, we will have a higher growth directly in terms of volumes?

So as of today, the demand looks positive. We see some strong tailwinds behind us, whereby we should be able to achieve the short-term vision that we have set up then the guidance that we're giving you for a year, we should be able to do that. And it's a process that we are building for the long term with the new capacities coming up and new plants coming on board. So that will give us additional weapon in our armory to go out in the marketplace and compete.

And anything about the competitive scenario over here, as in how do we look at the competition, specifically in India when we are now getting inroads in the Indian market?

So I don't see any change in the competitive scenario across the globe, and we continue to be where we were. So we are looking at it on a macro level and micro-monitoring it. So we should continue doing that.

We take your next question from the line of Arjun K from Kotak Mutual Fund.

Congratulations for a good set of numbers. My first question is just a clarification, sir. In inventory levels, you stated inventory levels have normalized. Are we talking of our inventory levels or at the dealer level or at the OEM levels?

At the dealer levels.

Sure. Because earlier we referred to then be slightly lower than normal in terms of inventory. So you believe that with this volumes, inventories have now normalized?

Yes. For the moment, they are normalized. But they get on the lower side of where they were, but they are much better than earlier. So that's why we say they are normalized.

Sure. Just in terms of number of days or in terms of quantity, how would that be different from what probably we have seen as a base level across our dealerships?

So normally, we used to have about -- maybe about 40 days, 40, 45 days, which is now close to 35, 40 days, which had gone down to about 20, 25 days. Now it's up to about 35, 40 days approximately.

No, this is helpful. Secondly, sir, you talked about taking price hikes across on a quarterly basis. So while we have given a long-term guidance of 28% to 30%, does this cost increase accounts for the increase in freight expenses or you believe that since it being transient that is not something probably we'll be able to pass on, given that our competitors are more local-based versus raw material which impacts even equally?

So I mean, the last price increase which we have done in July should offset some of the operational cost of logistics, which are there. So we -- that's why I say that we should be able to sustain these numbers. So that's why the guidance is a volume of 28% to 30%, and we should sustain at those levels.

Sure. Fair enough. Lastly, in terms of just the product profile by side. So we hear a lot of incremental environmental-conscious company shifting maybe towards EVs for mining operations. So do we have specific tires for the same? Is there a different compound used, maybe more silica versus carbon black? Maybe if you could just talk about that, our R&D efforts, et cetera. So while we have come with higher-range tires, if you could just talk about how R&D will evolve our future technology?

Yes. So if you see, we have been doing that in the past. And the reason I refer to past is because there is something in the works on this front. But it's too early to mention or disclose, so we will get back to you once we have more concrete details to share. But if you see historically, we have always been amongst the top players to bring out and be -- along with the curve on innovation. So even in the agri side, when you spoke about low soil compaction and all, BKT was amongst the top 4 companies across the globe to launch those -- launch in those segments. So we are working on these segments and these EV tires, et cetera, but too early to disclose anything.

Sure. Fair enough. Just as the last part of the first question. In terms of peak, so what is the peak inventory level that we have seen being with dealers? If you could just help me with that number?

Sorry, what is the...

So you mentioned the average is roughly 45 days in the bottom, we saw it going down to 20, 25 days. So in peak, what's the peak inventory that we are seeing with dealers?

The peak inventory should be around 45 days.

We take the next question from the line of from [ Ramdish Prasad ] from [indiscernible].

Okay. I just had one question. Like we reported the highest quarterly sales volume this quarter, but it didn't translate into higher like sales number. So what could be like the guidance going forward? And what was the main reason that you can translate to the revenue this quarter?

Sorry, your voice is very inaudible.

Can you hear me?

Yes.

Okay. My first question was that this quarter, we had the highest quarterly sales volume. It didn't translate into like higher revenue numbers and terms. So what was the reason behind it? And what could be like it could be looking forward in the next quarters ahead? Like will it be seeing the revenue numbers improving per se. And as you said that the sales volume will remain approximately the same versus [indiscernible], so expecting some comments on that.

So revenue was also the highest, no?

Like INR 18 crores, INR 28 crores, something like that.

Yes, so that is our highest revenue.

Okay. Fair enough.

So I'm -- that why I'm confused with your questions because the highest quarterly number and highest revenues are there.

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

Congratulations on the results. Sir, my first question is just to understand your 1Q -- basically 4Q to 1Q impact, can you quantify the raw material impact as well as the freight cost impact quarter-on-quarter?

So basically, if you see overall the expenses for the other expenses has gone up by about 90 basis points. And significantly, this is attributed from the logistics cost, which has gone up from June of '21.

So you're saying largely the 90 basis point is a function of...

Yes. Yes, yes. And the raw material costs have already been factored into the first half of this year, and we've taken those price increases to map those. And we believe the raw materials should now stabilize at these levels. And for the -- your logistics cost increase, which is where we are taking some price increase in July, which should offset partially the cost of those, which will take 2% to 3% in July.

Okay. Sir, just to understand how the contracts were, because obviously, freight costs have gone up since last December significantly globally. So just to understand, how does it -- how do we cover the FOB prices with our distributors? Is everything covered by us? Or is there a part contract which get covered by the buyers? How does that work?

So it's a mix and match, the different customers have different geographies, different customers have different understanding. So some of -- on CIF basis, some on FOB basis. So the CIF ones is where we take care of the freight and the rest is where the customer takes care of the freight. So wherever it was FOB, that gets factored in separately. But the CIF one is where we are seeing the cost increase, and that's why we are taking this price increase to match those.

So if I had to broadly ask you not an exact number, broadly, how much of your export revenue would be under CIF and FOB, any broad sense on that?

If -- I don't have the numbers handy with me at this moment.

No worries. So sir, my second question is on the E&P expenses. Obviously, we've been carrying on brand-building exercises for multiple years now. So how are you thinking about that this year as you're coming out of the pandemic? Are you looking at expenses in terms of in line with revenue growth or your thinking of percentage likely to remain same at 6%? How are you thinking around that?

Yes. So I think on an aggregate level, we are spending through the tune of INR 120 crores, and which we see will continue at these levels for the time being at least.

Okay. So this is just from pure marketing you mean, not commission terms? Okay.

This is in regards to promotion and marketing spend, marketing, basically brand-building activities, what I'm talking about. And...

And is there an incremental new program?

No, not at this stage. But as the business grows, we constantly review this and then continue to monitor whether it needs to be increased or go up or go down.

Okay. Okay. And sir, my last question, if you can help us. You mentioned about your euro hedge rate. What was the dollar pricing for this quarter, dollar hedge rate, whatever you realize?

Dollar, 78.

Sorry, sir.

78.

78, okay.

The next question is from the line of Sanjaya Satapathy from Ampersand.

Yes. So one question is that your revenue mix was 23% for India last year and it has come down to something like 18%, 19% this Q1. Was it because of some lockdown-related issues or your lost market shares?

No, it is -- if you see in the first couple of months of this year -- of this financial year, most of India was under lockdown, though we didn't have a central lockdown like last year. But at state levels, a lot of them were under lockdown. So we're seeing that effect come in.

So will that kind of -- is that improving now and we will see better numbers from India going forward?

We are hoping for that, yes.

And you are not seeing any signals yet?

No, I mean, basically, the demand is robust in India. India overall situation is good. So we expect it to come back to those levels.

Okay. And there is no seasonality or there is like same monsoon or some extra factors?

Yes, of course, agricultural has a seasonality. So August -- July, August are also marginally weak. But there is a buildup, which was there because of the lockdown. So we don't expect this year the seasonality to come back, I mean, to affect the agricultural sales. Overall, also, if you see the monsoon has been good in India, so which is also a good factor for the season to come, the farming season. So we expect it to be good.

And sir, just what was the capacity utilization in Q1 for you overall, considering that you had highest-ever quarterly sales? And is capacity becoming a bit of a constraint for you to really give a better guidance despite a strong number in Q1?

So yes, I mean, we are operating at near peak levels. So this is definitely becoming in -- we are reaching our peak level. So it would definitely come to become a bottleneck. And that's why we have taken up the CapEx program in the season -- already, we had started that a couple of quarters back. So we have already made -- we have already processed in that -- we have already proceeded in that, and that should come up as per schedule.

Understood. Sir, my last question is that you are the lowest-cost producer globally, and you are facing kind of capacity constraints. So doesn't that make the industry more attractive in terms of pricing power point of view because you were the one who could really destabilize the pricing, right?

I mean this is all a lot of factors come in, the demand has to be there, the consumption has to be there. So all those factors also have an impact. It's difficult to say that you are the...

I mean you have already taken care of that by saying that demand continues to be fairly strong and you are facing capacity constraints. Of course, you have taken several price hikes and you are also saying that the costs have kind of peaked. But I'm just trying to see is that the strategy of pricing from here on is more about having a long-term relation which -- and you are bringing in better -- bigger capacity and new products next year. So is your pricing strategy more to do with your long-term targets? Or it is purely a function of what the current market conditions are?

Well, all these businesses are done with a long-term view. It's not easy to take that call, but keeping the long-term view in mind, and as you said business are coming up, so you can take the short-term, right, but then you don't build businesses for long term. So we would always continue to look at the long-term view and base our strategy on those purposes. Also, if you see our long-term vision is to go to 10% in the next 4 to 5 years of market share versus the current level of 5 and -- 5.5%, 6%. So keeping those views in mind, our strategy will always be long term.

Understood. Sir, if I can just ask the last question that you are undertaking several initiatives, both modernization as well as new products as well as backward integration. So doesn't this mean that your overall cost competitiveness as well as product mix is, over the next 2, 3 years, will be far better or different compared to what it is today?

That is what we are trying to do, and that is why we have taken up the various programs we have right from carbon black to product mix. So we are quite hopeful on that.

So, sir, can we just ask that despite the cyclicality of the industry globally and considering that you are at 5% to 6% market share, the company can be relatively consistent in terms of delivering 12%, 15% kind of volume growth over the next couple of years?

It's difficult to put a number that way. But I mean if you see that's our vision and long-term use to hit that 10%, so if you -- in the next 4 to 5 years, if you put the math together, you will hit those -- we'll have to hit similar numbers to get there.

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

Sir, demand in the key markets of Europe, like Germany, U.K., France and Italy were quite strong and which contributed more than 40% of the Europe's volume. So how is the outlook given the heavy flood situation in the main countries like Germany, which is the main market of you?

So we see that the -- yes, there was flooding in parts of Europe, but we don't think that will affect the business so strongly. So we are getting robust on the demand. We are expecting robust demands from them.

And as you're trying to expand your presence in the South America, Africa and Australia where the opportunity size is big, especially for the OTR segment, so how is the current contribution from these markets? And what is your plan to expand in these markets?

So I think what we -- I mean, basically, if you see our product mix is being tried out and being well accepted, we are getting positive responses from the products which were out for trial and now repeat orders are coming. So it is going good and they should progress.

So can you throw some light on the current situation of this South American and Australia market?

So Australia, you're talking particularly with reference to the OTR business?

So both business, OTR and agriculture side.

Yes. So I think overall demand for -- is also strong here, and we are seeing the good order booking coming from these segments -- these regions across both our segments. So that is there.

And what would be the current contribution from this market?

About 12%.

South America and Australia, both?

The whole South America, Australasia, Asia put together, Middle East.

Okay. Sir, my last question is related to the other income which has gone up significantly in this quarter because of the ForEx gain. And you have also invested a good money in mutual fund in FY '21. So just wanted to know what would be the fair run rate for the other income for the coming quarter?

What would be the?

Fair run rate for the other income for coming quarters.

It should be the same as these quarter's -- this quarter.

INR 70 crores to INR 80 crores, kind of this...

Yes, similar to this quarter.

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

Congrats, sir, for a continued good set of numbers. So where the volumes and margins on ROCE, balance sheet, everything is excellent, so how to look at things beyond the continuity of this? So any thoughts on global M&A to enhance your scale close towards $7 billion market cap you're targeting?

So on M&A and all those are constantly what we keep on watching out for. While we grow organically and do everything at the grassroot level, we always watch out for any opportunity which comes on in the global level for inorganic growth. So far, we have not found anything worthwhile, and hence, we have not done. But we continue to watch for this. If there is anything -- any opportunity that is there, we will definitely evaluate it. We are not looking to get any assets internationally. And hence, that restricts our opportunities drastically. But we continue to monitor this space on a quarterly basis.

So why not the [ interest ] in assets since you won't be buying any manufacturing capacity out of India?

We are not actively looking at it. And then as I said, whatever the opportunity presents, we evaluate it, how big it is, how it contributes, how traditional it is, and then we take a call. But yes, we are not very keen on getting assets internationally, and that's why our opportunities are restrictive.

And second question, sir, like for the last many years, the marketing activities in markets like Australia in all [indiscernible]. So how's the end result in terms of demand picking up from those initiatives in those markets, basically beyond Europe and U.S. and India [indiscernible].

Basically, if you see across the globe, if you look at historical numbers, Europe used to contribute roughly about 65%, 70%. And on an enhanced number, that has gone down to about 53%, 55%. So you can see that the other regions are contributing. India, where we didn't have much sales, is now up to about -- whether 20%, 21% last quarter or 19% because of the lockdown. You can see on the enhance number, these are becoming important. Similarly, rest of the world has also gone up to 12% from the -- on the enhanced number. So these initiatives that we are taking are giving -- are resulting in fruitful conversation into orders and sales.

Can you highlight specifically how much Australia and Russia are contributing?

I don't have the breakup of that handy at this moment for individual territories. We always club it in the rest of the world. And then Russia is a part of Europe, so it gets clubbed into Europe.

And last question, sir, like how is the global market growing and what's the size of market as of now?

So as I said, we are at about 5%, 5.5% of the global market, so that should give you size indication. And so we have 94%, 95% available to us to go ahead and grow. And the market seems to be growing at an average pace of around 3% to 5% in both [ agri ] and tire space.

Basically, agri plus industrial commodity?

And OTR, yes, everything put together.

[Operator Instructions] The next question is from the line of Ashutosh Tiwari from Equirus Securities.

Obviously, the agri-commodity prices remain strong and even limited commodity prices that is impacting demand positively. But is there an element of pent-up demand? As we know, last year COVID hit the market in the pre-period. So is there an element of that in this year's demand?

No. I think that has been covered in the last Q2 and Q3. Now we feel that the demand is genuine and is strong because of the commodity prices and overall governments are spending on infrastructure, et cetera. So we see this is as not -- no longer pent up, but we feel it is genuine demand.

Okay. And secondly, you mentioned this CapEx is around INR 366 crores, what will the full year [ be ]?

Roughly between INR 900 crores to INR 1,000 crores.

So the CapEx number going ahead will be lower than this quarter and the preceding quarter?

It should -- I mean it's difficult to give a quarterly breakup in that sense. But overall, we are going to be between INR 900 crores, INR 1,000 crores for the whole year.

The next question is from the line of Nishit Jalan from Axis Capital.

Congratulations on some very, very strong set of numbers. Sir, my first question is on the volume growth target that you have given. So we have an actual capacity of about 280,000 tons and you've already done 69,000 tons in this quarter. So in that context, our volume guidance of 250,000 to 265,000 seems be on the lower side, especially given that this quarter is normally the seasonally best quarter in the year, right? So are we trying to be conservative there because this industry is very volatile and not sure how it pans out?

Yes. So I think as I mentioned earlier in my remarks also in a couple of questions, that yes, there is -- because we are in unprecedented times and there's a lot of uncertainty over COVID with people are talking about new mutations, we have wave 3, wave 4, so we don't know what peaks will come, what parts will go into lockdown, et cetera. So keeping that in mind, we give -- took a number at the start of the year. And we are reviewing that -- normally, we review it at the end of half year, so we'll take it from there. And we are confident of these numbers. If there is any revision, we'll do it at the end of Q2 or in the next call as and when we feel that we need to revise it. So we revisited in the guidance in the next quarters.

Sir, secondly, we are expanding our capacity at 50,000 tons in Bhuj, But given the kind of growth we are seeing, obviously, we will start running all of that capacity also in maybe 1, 1.5 years' time. So are we already starting to think about the big incremental capacity that you will need to set up? And on that context, I just wanted to understand, what is the scope of brownfield expansion in the existing plant that we have and whether we will need to go for a greenfield plant or not?

So the brownfield we can do at Bhuj, that is there. And whatever we have announced, the 50,000 that is ongoing, we have already taken that up, as I said in my opening remarks, that is progressing well also. Anything beyond that, we will evaluate and we'll take it on the drawing board, and we shall inform once it is anything materializes or credit gets crystallized after the Board approval.

Sir, just a follow-up. What is the further capacity that would be -- you can expand in Bhuj given the kind of land and all you have available? Just wanted to understand what is the scope of brownfield expansions in terms of capacity and beyond which we will need to be [indiscernible].

So we are yet working on those numbers to see what can be done, what cannot be done. And -- but we have enough land at Bhuj as of now, so -- to do brownfield expansions there. But once we have anything more crystallize or materialize, I'll keep you posted.

Sure. And just last question. You talked about the 5% to 6% global market share. Sir, any idea what would be the China contribution in global market because that is the market where we are not present. So if I exclude China, then our market share would already be closer to 9% to 10% globally?

No. I think even if you -- my estimate is even if you exclude China, it would be about 7% to 8%.

We take the next question from the line of [ Devansh Sampat ] from [ BS Securities ].

I have 2 questions. So given the capacity constraints, is there a possibility of a strategy that we have of capping prices or possibly narrowing the gap between us and the payers to keep the revenue momentum going into FY '22, the time of new capacity come on stream?

So I mean, if you see, we work for more on a long-term view, so we don't want to gain short term because this will impact our long-term view. Even when the demand was low, we did not break our prices, we constantly maintained our prices. So even now when there is some uptick in demand and capacity concern, we don't want to hit out to our dealers and distributors by upping the price. So we will maintain that for the long-term business view.

Okay. Okay. And can you give a sense of what has been the pricing action by the competition? Like is the gap maintained? Or has it widened? Or is it -- I mean how...

It's similar. It's similar to what it was.

Okay. Okay. And the last question, can you give a sense on what -- how is the pricing strategy of BKT versus the domestic -- in the domestic market versus other brands? Are we at -- if you can give a sense on how we are priced versus competition.

So in India, we are priced at a premium and priced at par with the top manufacturers. So we are at par with them towards to a little bit of a premium. So we are on the upper end of the market in India.

Next question Lokesh Manik from Vallum Capital.

My question is more on the distribution network. So have we been able to expand the distribution network in the last 1 year? And we -- the growth that we are seeing in this quarter, is it more driven by the existing distribution network or from the new additions?

So there has been very little additional distribution network that has been added in the last year. We evaluate where the gaps are and then try and fill that, but that is even. But majority of the chunk of this volume growth has come from the existing distribution.

Okay. And just one more clarification, Rajiv. In the last 1 year, given this dynamic scenario, didn't see any disruption in terms of lockdowns because, the world over, I think agri was insulated from the effects of pandemic.

So yes, I mean, if you look at a macro level, yes, it was insulated. But when you go down to operational levels across the globe, especially last year during the lockdown one, they were not locked out. But it was difficult operating conditions because all the farmers were not up there, nobody was coming to buy, logistically for them to transfer the tires are a problem. So all the other issues were there, which had an effect, but that was all last year.

So these are the supply chain impacts that...

Yes.

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

Sir, just a question on the employee cost this year and this quarter, is there any bonus payouts or some trailing costs that are there which is -- would it have increased quarter-on-quarter? Just to understand on the employee costs, sir.

No. It is not -- no bonus or anything, just -- there's a marginal increase, but that is just because some additional people for the new plants and new -- that those have started coming in and that's why this increase you can see.

So this should be a stable run rate for the year? Or do you think there will be further increase?

No, this should -- I mean, marginal increase should be there, but by and large, stable.

The next question is from the line of Nishit Jalan from Axis Capital.

Just one follow-up and housekeeping question. If you can share some details on the carbon black, especially the external sales, what percentage of revenues was from carbon black. And in terms of our backward integration there are, what percentage are you sourcing in-house there?

So in-house, we are sourcing 100% from our own manufacturing. As far as third-party sales, it is less than 30% of our overall sales. And as per the capacity of carbon black percent there, roughly about 25% to 30% is sold in the open market.

The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

This is Shyam. My first question is you just spoke about China's contribution in the overall agri-OTR market is about 7% to 8%. Is there any China Plus One strategy that is being sort out by either the OEMs or by the countries themselves to diversify their dependence away from China per se? Are there any non-tariff barriers, such as labeling norms or anything of that sort, that's coming up that can impede us or even from an India's -- from our perspective as well? Is there any other challenges coming up?

No. So we don't see any non-barrier tariffs being moved by any top manufacturers of the global world. So we don't see that.

And China Plus One, sir, is there any thought process to diversify away from China, either by any of these geographies or by the OEMs, your customers per se?

No, no, no.

The next question is from the line of [ Disha Sheth ] from [ Anvil ].

Sir, I just wanted to ask...

Your voice is -- are you on a speaker? We request you to come on the non-speaker.

Sir, I wanted to [ check ] when we achieve the full capacity of 335,000 tons, so what is the peak in revenue can we achieve on the current capacity? And coming from the point of view that the demand is [ tough ] going forward for agriculture and OTR, so in coming 2 years, what can be achieved on current capacity?

So I mean, our capacity is -- peak capacity is 280,000 tons -- 285,000, so if you hit that with -- this we should do. But we don't usually discuss these numbers in crores. We normally talk on tonnage basis. So we -- because everything can be fluctuated on the pricing, what is the current pricing, et cetera. So normally, we talk on the tonnage terms, which is 280,000 and 285,000, and then 335,000.

Okay. So okay, okay. And sir, this can apply in 2 years, right?

Yes, in -- as per the schedule that we have mentioned.

Okay. And sir, the margins [Indiscernible], you were also seeing the [indiscernible]. So I was asking in spite of the [Indiscernible] margin, [ is this other product mix then ]?

So as we've always said that our margin on a long-term annualized sustainable basis will be between 28% to 30%, and that is what we maintain, and that we are confident of achieving those numbers and that will continue then.

Ladies and gentlemen, that was the last question today. I now like to hand the conference back to the management for closing comments.

So we thank everybody for taking all the time and coming on this call. And we hope that you and your near and dear will continue to remain safe in these unprecedented times. And please take care. Thank you.

Thank you. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you all for joining. You may now disconnect your lines.