Balkrishna Industries Limited (502355) Earnings Call Transcript & Summary

Good day, and welcome to the Balkrishna Industries Limited Q4 FY '22 Earnings Conference Call hosted by ICICI Securities. [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 expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Basudeb Banerjee. Thank you, and over to you, sir.

Thanks, Mike. A very good morning to all the participants, and thanks to Balkrishna Industries management for giving us the opportunity to host the call. We have with us Mr. Rajiv Poddar, Joint Managing Director of Balkrishna Industries and Senior Management of the company. Over to you, Mr. Poddar, for your initial comments, sir.

Thank you. Thank you, Basudeb. So good morning, everyone, and thank you for joining us today. 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 also SGA, our Investor Relations advisers. Let me begin with performance updates. The geopolitical situation has aggravated supply chain problems. This has increased both the prices and availability of raw materials. Similarly, logistics and freight costs have continued to remain at elevated levels. End user markets continue to remain strong in spite of inflationary trends. With the off-highway tire industry continues to see higher offtake on account of healthy demand across mining and agricultural markets, and the BKT brand continues to gain market share. Let me now talk about our CapEx plan. During the quarter, we commissioned the 50,000 metric ton per annum brownfield tire plant at Bhuj. We expect complete ramp-up in production to be achieved in second half of financial year '23. Carbon Black, the project is on track. We expect the commissioning of the 55,000 metric tons per annum Carbon Black project, along with the power plant in the next 2, 3 months. The advanced Carbon Black project of 30,000 metric tons per annum will be commissioned in second half of financial year '23. In November '21, the Board had decided CapEx at the old Waluj plant at a cost of INR 350 crores. For simplicity, we will term the old plant as Waluj 1. However, the Board of Directors have now decided to keep this CapEx investment on hold and continue the operations of the plant in order to have unhindered production and cater to the strong demand and quicker production schedule demanded by end customer. As you are aware, the new plant in Waluj now termed as Waluj 2 was commissioned in September 21, which has a capacity of 30,000 metric tons per annum. The total achievable capacity profile is 360,000 metric tons per annum, which will be available by end of financial year '23. The Board of Directors has declared a final dividend of INR 4 per share in addition to the 3 interim dividends of INR 4 per share each and a special dividend of INR 12 per share announced earlier in financial year '22. Thus, the total dividend will be INR 28 per share. With this, I now move on to the operational highlights. Our sales volume for the quarter was 77,119 metric tons, a growth of 13% year-on-year. For financial year '22, sales volume stood at 288,795 metric ton, registering a growth of 27% year-on-year. Our stand-alone revenue for the quarter stood at INR 2,432 crores, which includes realized gain on foreign exchange pertaining to INR 58 crores. For financial year '22, revenue stood at INR 8,419 crores, which includes realized gain on foreign exchange pertaining to the sales of INR 152 crores. For financial year '22, 54% of sales came from Europe, 18% from India, 17% from Americas and the balance from rest of the world. In terms of channel contribution, 69% was contributed from the replacement segment in financial year '22, while OEM contributed to 28%, with the balance coming from offtake. In terms of category, Agricultural segment contributed 66% in the financial year '22, while OTR, industrial and construction contributed to 31% and the balance came from other segments. The stand-alone EBITDA for the quarter was at INR 576 crores with a margin of 23.7%. The EBITDA for the quarter was impacted by higher logistic costs, which has moved up almost 400 basis points quarter-on-quarter basis. In addition to this, we also saw higher power costs. For financial year EBITDA stood at INR 2,182 crores with a margin of 25.9%. Other income for the quarter stood at INR 52 crores, while unrealized loss stood at INR 21 crores. For financial year '22, other income stood at INR 185 crore, while unrealized gains stood at INR 39 crores. Coming to the net ForEx item. For the quarter, we had a net ForEx gain of INR 56 crores, which includes realized gain of INR 77 crores and unrealized loss of INR 21 crores. For the financial year '22, we had a net ForEx gain of INR 246 crores, which includes realized gain of INR 207 crores and unrealized gain of INR 39 crores. Profit after tax stood for the quarter was recorded at INR 374 crores, while for the financial year '22, profit after tax stood at INR 1,411 crores. The financial year '22 profit after tax was impacted by the crystallization of contingent liability to the tune of INR 65.4 crores, post completion of certain tax assessment, which was charged in the Q1 and Q2 of the financial year. Our gross debt stood at INR 2,443 crores at the end of 31st March 22, of which about INR 1,942 crores is relating to working capital debt. Our cash and cash equivalents were at INR 1,932 crores. For financial year '22, we incurred a total CapEx of INR 1,023 crores on new CapEx programs of the allocated INR 1,900 crore project. For Q4 financial year '22, the euro hedge rate was at INR 86.5. Forward hedge rate currently stands at around INR 85 levels. For financial year '23, we expect to clock volumes of 320,000 metric tons to 330,000 metric tons, considering the capacity enhancements from ongoing CapEx will be available towards the end of first half of the financial year. With this, I conclude my opening remarks and leave the floor open for Q&A. Thank you.

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

Congrats on good numbers. Firstly, you mentioned the hedge rate and how much for the quarter, realized rate?

INR 86.5.

INR 86.5 and INR 85 will go to subsequently.

Yes.

Secondly, on this Waluj plant, we had mentioned earlier that this plant can't be used. So is it like the plant machine is still usable or we will incur the CapEx later on?

So at the moment, it is usable. And since there is a strong demand, we are continuing to use it, and we will decide once at a later date about how to go about the planned investment.

So in that case, what is the CapEx number for '23? And '24 if you can provide?

Roughly INR 900 crores.

Okay. INR 90 crores, CapEx.

Yes, the INR 1,900 crores is the total project. I think we've done roughly just over INR 1,000 crores. So the balance will come. It's roughly INR 900 crores for next year.

And lastly, sir, if I may ask any color on like demand is strong. Any color on the inventory, the distribution channels and all. Is that normally where it stands today?

Yes, it is normal as per what -- where it was standing, it's normal.

Around 3 months or so?

Yes. Yes.

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

Sir, my first question is on the freight cost. So even if I look at quarter-on-quarter on a per ton basis, it has jumped sharply by about 50%. And if you look at the freight indexes and all, it has not jumped that sharply. So I mean, is it also a factor of availability and why it has jumped so sharply? And if you can just highlight about the outlook, should we expect these type of purchasing levels to continue? Or do you expect that there is some dip in the current quarter?

So basically, we had some old contracts, which were running in the earlier part of the year. That's why you didn't see the impact so sharply earlier. They came, and we have to renegotiate the contracts which were negotiated at the current place, which led to this kind of impact. So that is where the full cost is now -- I mean, the full picture is now captured into the costing because the new contracts have come in place.

And same is likely to continue for some more figures. Current rates are likely to stay. We don't foresee any immediate relief of it.

Okay. Got it. And second is, sir, on the demand side now. I mean, if you look at the capacity, we will already be touching close to the peak capacity in the second half on a quarterly run rate basis. So what is the plan for next year? I mean given the current capacity, I think the next year growth will be at probably low single digits at full capacity. So any plans on the capacity side, how to -- how you are looking to expand from here on going ahead?

So we are -- we have put the team to -- is on the drawing board, the whole team is working on the drawing board. As soon as we have something more specific, we will come to the Board. And once the Board approves, we will announce it. But we are on the drawing board phase of -- for future expansion.

But generally, by the time you plan it, how long will it take for the capacity to come on, say?

Between 18 to 24 months.

18 to 24 months. Okay. The last question is on the working capital side. We have seen a very sharp jump this year, specifically on the inventory and all. So next year, how do you expect this -- should affect a similar level of working capital? Or do you believe that it may come down?

No. Basically, working capital will remain at these levels. See there are 3 reasons that have contributed to that. One is the overall turnover of the company has grown. Number two, the lead times have grown because of the higher shipping periods and availability so that realization of the money is going to take that period. And thirdly, the raw material cost has also gone up, which is leading to higher purchase price. So all the 3 combinations coming together had an impact on the working capital, which we do not see a major relief on that. So we expect it to be at these levels.

Okay. Got it.

We have the next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

Can you talk about the price increases taken in fourth quarter and in 1Q so far?

So fourth quarter, we had taken a price increase towards the end of February, beginning of March, and that was to the tune of 2% to 3%, and we are planning to take another price increase in June to the extent of 3% to 4%.

Okay. Okay. So in that context, what has met to the 7% Q-o-Q increase in blended realization in the fourth quarter?

So basically, whatever price increase we have taken in Q3, the full impact of that has come in Q4.

Okay. Okay. And what was the Carbon Black sales for fourth quarter and FY '22, the external sales?

So over...

Less than 3%.

For both, fourth quarter and full year?

Yes.

Yes.

Okay. And lastly, with respect to the billing and demand environment, in case of the tightening of interest rates and money supply phase out and the commodity prices cool off. Do you expect the demand also to moderate from where we are for our product or in the past, we haven't seen much correlation?

At this stage, we see a good demand. And what we are getting to -- I mean, what we are hearing is that it should remain strong for the near Q2. So we would like to maintain that.

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

Sir, first -- firstly, on the -- some of the financial numbers. As we can highlight what was the quarter 4 cost of key raw materials, natural rubbers, synthetic rubber and the others?

So natural rubber was around INR 150 a kg. Carbon was around INR 98 to INR 100 a kg. And fabric approximately INR 375 a kg.

Okay. And now our Carbon Black consumption is largely from the captive usage or still buying from domestic?

No, 100% from captive usage.

Now 100% captive. Okay, great. Okay. So just a follow-up here. I think the domestic tire manufacturers other than yourselves, the raw material for natural rubber -- the natural rubber prices have already increased up to INR 180 and beyond. So can you explain what's helping us in this scenario?

Currently, natural rubber prices are around INR 165 to INR 170, INR 172 levels. Earlier, it was INR 180 also as you are telling. So now in the last 10, 15 days, it is -- and we are hopeful that now it should continue at the current levels for the next couple of months.

No, right. That's understandable. But for us, you think 150 was the average, natural rubber prices.

That price is including -- that price is including custom duty, et cetera. Our price, because majority we export. So our price will be in tonne -- per kg will be always lesser.

Got it. Got it. Second, more -- your thoughts on the treasury management. For the last 3 years, we have seen cash balances increasing and even short-term borrowings being at a very elevated level. In this year, we have seen now long-term borrowings also come into those. We're overall in a net debt position. So I mean how do you see this, both gross debt and a high amount of cash? What's the thought process there?

So ultimately, we will use the money for CapEx. So that is what the plan is.

Right. But I mean we already on almost INR 1,900 crores of cash. I don't think that the large CapEx plan coming through.

So if you see the debt cost is about 0.5%. So it's within the thing. So having the treasury and having the debt is not -- there is a certain arbitrage -- there is -- that difference between...

But debt cost continues to remain at such a low level right now.

Yes.

Yes, yes, yes.

Okay, sure. And finally, a follow-up on the inventory side. We understand the increase in the cost. But if we calculate on a per -- on number of days, I mean, it has gone beyond 75 days in the current year, which has largely been below -- in that 50 days range. So what would explain that given we are in a short-term capacity? Or is this -- is there some one-off item here in this...

No, no. Basically, if you see the availability of raw materials has an impact, so you have to procure and keep. Secondly, availability on outward shipment is also an issue. So that is also adding. So it's a combination of both these things, which have added to these things. So as it cools off, as availability of containers eases out and all, you will see this drop back again to those levels. But till then, it will sustain at these levels.

Okay. Got it.

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

My first question is regarding the difference in -- again, if you compare the FY '21 numbers and FY '22 numbers. So in volume terms, what we see is that earlier, our share from India market was around 22%, 23%, which has come down to 17%. And correspondingly, we have seen a rise in the share of Europe. So is it a mix of Europe doing well? And in India, you are seeing demand? Or what is the scenario? Can you just throw some light?

So there are 2 issues which have impacted this. One, there was a very strong demand from Europe. So we have -- in the export market. And secondly, in the first -- in the first half of this, there was also COVID impact in India with certain shutdowns and other issues, which have impacted. So there is no other -- nothing else which has impacted this.

So demand remains strong even in India. And what is about -- and how are we placed in terms of our distribution reach, maybe -- is it expanding compared to last...

Yes, we have a Pan-India distribution network.

Okay. One last question regarding your -- in one of your focus areas you mentioned in your presentation is penetrate America. But when we see the volume share, it remains almost at the same level what it was in the last year. So what are we actually doing? And what are our plans say, coming years in the future to increase that share?

So no, I mean, if you see the actual numbers of dispatches in percentage terms that remain same, but you are taking of a higher percentage of a higher number, no. So if you see the growth in America has been substantial in the last 2 years. But percentage value, it remain same because our base has also grown. So what base you were comparing 250 versus 280, 290. So that base 17% is that shown -- if you see the actual number, it has grown, in tonnage terms as there's a substantial increase.

Right. And anything else for -- as in any particular strategy which we are following here in America if you would like to throw some light on that, what we are doing there?

Following the old -- I mean what strategy we have put in place a couple of years back, we are seeing the benefit of that, and we'd like to continue with the same strategy.

We have the next question from the line of Amyn Pirani from JPMorgan.

Yes. So I just wanted to get some more understanding on the noncommodity cost inflation. You talked about freight costs and also power cost. So power cost has gone up for you because of the increase in power tariffs? Or is it because there have been power shutdowns and you are having to use more backup in these urgencies.

So it's a combination of all the things. So the power tariffs have also gone up. And where we have our own power plants and all. There the cost of coal is also -- coal and gas has also gone up. And in certain cases, there were power cut outs as well from the government. So we had to run our DG sets, which led to a higher cost.

And sir, going forward, given that in this quarter that coal situation has become tougher, at least that's what we hear. Are you facing more unplanned shutdowns, like does it impact production is what I'm trying to understand?

No, we have a full backup. In fact, as I said in my opening speech that the new power plant at Bhuj should also be operational in the next 2, 3 months, which will have an additional benefit of availability to us for our Bhuj production. So that should ease off some of the cost of the power for us over there.

Okay. So availability should improve, but the coal price and coal availability will continue to be a problem as it is for everyone, right? Is that a fair thing to say?

Yes. Absolutely, not fair.

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

Sir, manufacturing was expected to increase in entire east Europe because of the high energy and on RM cost, how do you see the opportunity of increasing realization of your products?

So we are working on that, and that's why we have been able to pass on this kind of price increase. And also, we are continuing to pass on the price increase because it is an increase for everybody and more so for the players in the western part of the world.

And sir, because this ongoing war you mean, where many peers have shut down their plant in the Ukraine and Russia. So how do you see the benefits of that in your business?

So I think that benefit was -- I mean the demand for BKD branded product was anyway strong, so -- and continuing to grow. So that was continuing without the thing also. So I don't think there is any impact in that sense on the demand per se because of the war. But overall, the demand has been strong anyway. So it's not because of the war that this has created. So even post the war, we see the demand to remain strong.

I'm talking about the benefit in the realization because we have seen a sharp increase in the realization. So most probably it is because of the parking freight cost, but also we have taken the price hike in this quarter?

Yes, because we've been able to pass it on to the end user. We have been passing it on... [Technical Difficulty]

Ladies and gentlemen, we have the line for the management drop in the conference. Ladies and gentlemen, we have the management connected. Sir, you may go ahead.

Yes. Sorry, the line got disconnected. Apologies for that. So yes, as I was saying that we -- it's -- the cost which has been passed on is the realization has increased because we are passing on the impact of the cost. And that has always been the case. It's not a matter of demand or supply.

Okay. Sir, so what is the gap between your price and the competitor price right now?

12% to 15% from Tier 1.

Okay. So there is a room for the increase the prices in the coming months.

Sorry?

As you mentioned.

So there is a room for the increase in the prices in the coming months for you.

So I mean that should remain at these levels. So that is -- that will continue.

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

Sir, just a long-term industry question for -- and what the relevance of PKP is -- we've seen a strong demand environment for quite some time now. I think the last downtrend that we saw was in that harsh climate conditions that we found in Europe, post that the industry has been held well -- has help up well so far. So do you think there are some structural changes that have happened in the industry so that the growth has happened? Or is it that Balkrishna has continued to update market share and going forward, the inherent cyclicality of this industry will continue, but Balkrishna will continue to gain share.

So it's a mix of both. There has been strong demand as well. And also the growth of BKT brand, the marketing and the brand building equities exercise that we were doing is now paying off, and that's why we are able to create a stronger demand for the BKT branded product, which has resulted in the Balkrishna growing at a quicker pace than the market. That means we are taking market share.

Got it. But you do believe that this industry will continue to remain cyclic in nature?

Yes. Yes.

Got it. Sir, secondly, on your margin outlook, the demand given the fact that the costs have been volatile, do you have any -- do you want to comment on the margin outlook going forward in the context of the current cost environment?

So as we have always maintained, and I always said that our endeavor will be to maintain an EBITDA of 28% to 30% on a long-term sustainable basis. Do not look at it quarter-on-quarter or in each quarter by quarter because that can fluctuate based on variable costs. However, our endeavor is to maintain an EBITDA margin of 28% to 30%, which will be on a long-term sustainable basis. That is we've always said, and we held that holdership even today on a long-term basis.

Right. Sir, last question would be on also the increase in inventory that we are seeing, some of the contribution would also have come from your Carbon Black plant tracking up. Would that be correct?

So this is basically for other raw materials and shipping costs because of availability of containers, we have to plan and keep. So it's not a matter of carbon black only. Actually, overall for the tire business.

Right. Right. So you don't have any inventory that has been kept in the Carbon Black plant?

No, there is a nominal inventory because that is all mainly -- so there is no problem of shipping availability over there. Both from a raw material perspective of the Carbon Black as well as the supply to the customers. So that is not an issue.

Got it. Fair enough, sir. All the very best for FY '23.

Thank you.

We have the next question from the line of Arvind Sharma from Citibank.

Yes. Sir, first question on the capacity buildup. If you could just enumerate how it could build up in the current capacity, I think 285 over the last year, since the Waluj 1 plant was expected to add around 25,000 metric tons that is not coming, I believe. So how -- can you please explain the capacity buildup from here on?

So basically, Waluj what we were trying to build up is yet continuing. We are not stopping to refurbish it. So the old plants will continue, and that is already being producing tires. So that will continue to produce and our endeavor is with all the projects that we have taken this year, we will see it between 320 and 330 metric tons. And eventually, by the end of it, we will be at 360,000 tonnes for the following financial year.

That 360,000 includes the 25,000 metric tons that you are planning to add?

Yes. But that is already running. So we are not stopping the plants which is running. That's why that production capacity will continue already in the system.

So I was under an impression that, that was an incremental to 25,000 tonnes. So sir, right now, capacity is 285 plus 55, right? That's the capacity right now?

So -- yes. So the 50 is -- 285 plus 50, which will be there, the 50 is being ramped up, which will come in towards -- the full production will be coming towards the end of the second half of this year -- I mean, end of the first year. So in the second half, you will see the benefit of that 50,000 coming. And the 25, which is from Waluj will continue. So we are not stopping that. So -- because there is a strong demand, we are not stopping that. So that system is -- that is already in the system, which will continue. So earlier, we had planned to stop that refurbish it and then restart it. But now we are not stopping it. So that 25 will always -- it's already in the system and will continue.

Okay. Fine. Sir, second question, sorry, I missed the gross and the net debt position and -- for FY '22 and the balance sheet has now turned out to the net debt. Balkrishna used to be a net cash company. Any targets that you have going forward in terms of balance sheet health, especially in terms of debt and cash?

So our -- basically, I will repeat my opening statement. Our gross debt stood at INR 2,443 crores at the end of 31st March '22, of which INR 1,942 crores is relating to the working capital debt and INR 500 crores is the long term towards the project. And our cash and cash equivalent is INR 1,932 crores.

Okay. So that INR 1,942 crores is likely to draw down hopefully by this year.

Yes. Yes. yes.

We have the next question from the line of Lokesh Manik from Vallum Capital.

Yes. My question was on the increase in the freight costs. So you mentioned that these are coming on with lag effects and renegotiation of new contracts. So just a question on that. Do we have volume visibility in these contracts where even the exports to risk of lower volumes and higher freight costs going forward if the customer reduces the volume of freight?

No, there is no volume-linked bonus or anything linked to the costing contracts. It is a very simple contract that this is valid for this duration. It's not related that you will get some extra bonus or extra discount if you reach a certain milestone number of containers.

They reduced the volume offtake, would that then impact us? Or would the cost then go down proportionately?

No. That is on per container basis. So whatever I check out on a -- per container basis, that is what will be charged.

Understood. Understood. Second was on the energy crisis in Europe. So are you seeing your competition face issues with production planning and maybe some volume would have been diverted to us through market share gains? Are you seeing that benefit coming in?

So no, we are not able to comment on our competitors' status.

We have the next question from the line of Joseph George from IIFL.

I have 2 questions. One is on the hedges that you have for the euro for FY '23. Could you tell us what percent of your FY '23 expected euro revenues are hedged and at what rate?

For full year, we expect the average realization of INR 85.

INR 85. And all of it is hedged at this point for FY '23.

Almost. Almost. We are gradually -- almost INR 85 for the full year.

All right. And what was the similar realization for the full year FY '22?

FY '22 was INR 87.3.

Understood. And sir, the second question that I had was in relation to your margin outlook. You mentioned that your long term is going... [Technical Difficulty]

Sorry, we can't hear your voice?

I mean, '23, given inflation, higher operating, et cetera, you think you will be able to...

Sir, your voice is coming muffled. We can't hear.

This is the operator here. Can you come closer to the mic, your voice is breaking up on the line.

Is it better now?

Yes, a bit better now.

All right. Okay. Let me go ahead. So the question was in relation to the margin guidance, you mentioned that your medium- to long-term margin guidance is 28% to 30%. But when you look at FY '23, given inflation given higher operating expenses, et cetera, do you feel you'll be able to bucket yourself in that range? Or will it be...

So it's -- there is our endeavor to be in that range. We are working towards that. But because of the volatile conditions outside of the cost, volatile -- variable cost movement is so volatile at the moment. It's difficult to comment for short term. But long term, definitely, our endeavor is to be there in that bracket.

Okay. So in other words, compared to, say, what we have -- compared to the margins that we have seen in 3Q and 4Q, which is around 24%, 25% -- pressures? Or do you think the worst in terms of margins is captured in what we have seen in the last couple of quarters?

It's difficult to say because there is so much of volatility on the variable cost. But as you can see, we have always been trying to pass on as much as we can, and we are working towards the next price increase already planned for June. So that is what is in our control, and we are trying to do that. So quite hopeful that we work towards our goal of 28% to 30%.

We have the next question from the line of Sonal Gupta from L&T Mutual Fund.

Sir, coming back to the logistics cost, right? So if I look at your Q3 commentary, you had said that costs were higher than what we passed on, but it's coming down, and therefore, we've not taken any further increases in Q4. And now you're saying that the freight cost has jumped by almost like 400 basis points Q-o-Q. So just trying to understand, I mean, what changed really speaking there?

So that was the visibility we had during the call. And after that, there are contracts which were getting over, we were negotiating. And those didn't come in place. So the cost went up after the call. And that's why we had to take a call of price increase. Just after the call also, we took a price increase in February, March. And now we are taking another one. So it was a reaction on the cost that went up.

Right. And so could you -- what was the price increase in Feb, March or in Q4 that you've taken?

2% to 3%.

2%, 3%. And this is largely like freight and surcharge sort of a thing? Or this is like an overall price increase.

Overall, overall. Overall price increase.

Okay. And sir, also on the power cost, like you mentioned, you have a new power plant coming up in Bhuj in 2 to 3 months. So could you just talk about, I mean, how much of the capacity will become -- I mean, how much would be captively been sourced and what sort of savings you will get?

So Bhuj will be fully captive through our power plant. We'll be feeding it on our own. The other plants will be depending on the grid. So that is how it will be working.

And what is the size of this, how many megawatts is this?

20 megawatts.

And this is a...

So 20 megawatt is already there and the new one will be additional 20 megawatts.

Okay. And this is coal based or what is it?

Yes. Coal based.

Okay. And just last question was on Russia. I mean would you have a sense of what percentage of like the OTR European agri market production of tires comes from Russia?

No, we don't have that number.

We have the next question from the line of Trilok from Dymon Asia.

I just wanted to obviously hear your thoughts, particularly with regards to the demand because we know that activation is there across the countries, but the cycle has been pretty longer compared to the last cycle. So have you sort of seen any impact on demand across segments? Or do you think there is enough -- the pricing is -- despite so much higher prices, the demand continues to grow and stable. That's point one. And probably you can answer that, I can go to next.

So at the moment, we see the demand to continue to remain strong. We hope it continues, and we are quite confident that it will continue to remain strong.

So, so far, what you're trying to say is all the prices that you're trying to pass on is completely absorbed and there is no visibility of any other volumes kind of moderating or stagnating.

No, no.

And when you alluded to the differential of sort of March, the pricing between you and competitors between 12% to 15% even now, do you see that gap narrowing? Or do you think it can only go -- it can go further because you guys are operating at margins which is still much better than what the others are doing?

So -- no, we'll continue to keep the gap of 12% to -- that will be 12% to 15%. We'll continue to keep that cap.

Okay. And then this -- just to reconfirm what is the capacity that you are kind of expanded will start from October? Is that a fair assumption to make?

Towards the end of first half of '20 -- of this financial year, and it will slowly ramp up, and you will see the impact of it coming full -- impact coming towards the second half of the financial year.

And how long typically it takes for the full ramp-up of the new capacity?

Three to six months.

We have the next question from the line of Chirag Shah from Edelweiss.

Sir, my first question is on Europe side. So given the recent crisis that the -- that part of the world is going through, are there any production disruptions that you have come across in your -- from ground level, which can create an opportunity either in terms of pricing or higher volumes for you? Is there anything of that sort coming across?

No, no, not at this moment. We have not come across any.

Okay. Second question is just a follow-up on the earlier one, on this capacity ramp-up. So you are saying that the new plant capacity will start flowing from H2 onwards, right? Or it will start flowing from current quarter itself and full ramp will be in H2?

Correct. You're absolutely correct. It will come from this quarter and full ramp-up will be towards the end of next quarter -- towards the middle of next quarter.

Okay. And sir, just a clarification, the price hike that you indicated. Is it possible to indicate over the last 12 months, what is the kind of price hikes that you would have taken and also your peer set? So have you maintained that 10% to 15% lower pricing?

No, I don't have the whole year's data in front of me at this stage.

But broadly, would it be around 10%, 12% or more or it would be on the lower end?

Roughly, we would have done about 15%, 16% for the whole year.

And I presume your peers had would have been slightly higher to maintain the price gap that you indicated.

The price gap is -- was same and is continuing to remain same. I'm assuming they have done similar price increases.

Similar price increases.

We have the next question from the line of Maitri Parikh from Pi Square Investments.

Yes, I wanted to ask about the Carbon Black prices. But what's the difference between our captive cost that we have? And if we go to the carbon market. So how much is the additional profit that we are making on that?

It is approximately 10%. 8% to 10%.

Okay. So that is the benefit that we are having right now of the Carbon Black? And one more question. Then what will be our market share currently? India.

3% -- less than 3% of our total turnover. So we hardly have any market share.

No, no. For carbon, you are asking?

Carbon.

No, no, no. For the overall product. Tires.

Tires.

So tires -- sorry, can you repeat your question? We've got little confusion.

About market share in India domestic, not for the carbon black, but for our product.

For the tire product, our market share would be about 4% to 5%, in India.

Okay. Okay.

For replacement market.

For replacement. Okay.

In off-highway tire business, for the products that we make.

We have the next question from the line of Ravi Naredi from Naredi Investments.

Sir, my point is when we have so much the date and CapEx plan ahead, why are you paying so much handsome dividend and why not figure money for further expansion?

So I think that is, I think the prerogative of the Board, and I think they've taken a call to give this. So not according to them, but we are -- but even after this, our reserves and everything are comfortable. So I think they have decided the Board has taken a call to give the end of dividend. But also this year, it was 60 years, we had a special dividend to celebrate our 60 years. So that may not continue for the years to come.

We have the next question from the line of Ashutosh Tiwari from Equirus Securities.

Sir, employee cost has declined on a quarter-on-quarter, was there any reason because of -- because in the real inflation scenario, hardly -- employee cost should increase. So this decline is there any reason?

Sorry, your -- we couldn't hear you, Ashutosh. What is on the decline?

Yes, employee costs declined quarter-on-quarter of INR 97 crores to INR 90 crores. So any reason behind that?

Yes. So basically, during -- in the preceding years, we were giving some additional incentives during COVID periods, which have now lapsed. So that is where the impact of that has come down.

This -- so now to sustain or maybe they will increase next year, but this is normalized employee cost for this quarter.

Yes. Yes. Absolutely correct. Absolutely correct.

And sir, obviously, our short-term debt cost has been lower because of down trend in euro and all. But with the rising yield will there be increase over there in terms of debt cost percentage?

Very marginal. Very marginal.

Okay. And lastly, on this hedge rate, you mentioned INR 85 is the hedge rate, forward hedge rate right now. But I assume that, that will be covering only 50% of our sales, like what we mentioned earlier -- or is it the full cover -- INR 85 is the full cover right now?

INR 85, we are expecting for the full year. Because we have already covered it...

So we've covered substantial amount at these levels. So the overall average would be at this level only.

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

Sir, just a quick clarification on the CapEx. As you said INR 900 crores is the project CapEx for this year? What will be the maintenance CapEx?

Which is -- it's in line, which we normally maintain about INR 200 crores, so that will continue.

So total will be about INR 1,100 crores for the year, right?

Yes, absolutely correct. Broadly INR 900 crores is what we have for our project cost and INR 200 crores is maintenance cost.

Got it. And sir, second question is on the commodity cost per ton side. For the current quarter, what will be the increase you are looking at on a per ton basis?

What was your question?

On the commodity basket, overall per ton basis, what would be the cost inflation you are looking at for the current quarter?

Maybe around 3%, we are expecting 3% to 4% cost increase to us.

Got it. So 3% to 4% cost increase, and we have taken about similar numbers, but...

Yes, yes.

Correct.

Absolutely.

We have the next question from the line of Suraj Fatehchandani from Compound Everyday Capital.

I had 2 questions. So the first one is, what is our total Carbon Black capacity?

So our total Carbon Black capacity is 140,000 metric tons.

And how much of that are we using right now? Percentage...

That is the nameplate, we will be able to -- achievable will be 115,000.

115,000. And how much of that are we using right now as in percentage terms?

We are -- how much of that are we manufacturing? The full capacity.

Yes, yes, yes. How much of that is required as per current sales?

95%. More than 95% including ourselves.

So we -- practically, we are selling about 20% of our production to third party. -- rest we are using in-house. Then that is for 100% of our requirement is coming in-house, which equates to 80% of this capacity.

Got it. And -- so secondly, sir, so a broad number on how has our revenues are -- CAGR growth being better than industry. So any number on that industry CAGR growth versus our CAGR growth?

It's by and large in line. We are a couple of points over.

Thank you. That was the last question. I now hand it over to the management for the closing comments.

Thank you. Thank you to everybody for coming on this call. We look forward to seeing you in the next quarter. Thank you.

Thank you.

Thank you.