CEAT Limited (500878) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CEAT Limited Q4 FY '20 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh from Kotak Securities Limited. Thank you, and over to you, sir.

Thank you, Steven. I welcome you all for the Fourth Quarter FY '20 Results Conference Call of CEAT Limited. From CEAT Limited, we have the management with us, represented by Mr. Anant Goenka, who is the Managing Director of the company; Mr. Kumar Subbiah, who is the Chief Financial Officer; and the IR team led by Pulkit, [ Sonali ] and Shubham. I'll hand over the call to Anant for his opening remarks, and then we'll open it up for Q&A. Over to you, Anant.

Thank you. Good afternoon, everyone. A very warm welcome to CEAT's Quarter 4 FY '20 Earnings Call. I'm Anant Goenka, and I have with me on the call, CFO of CEAT, Kumar Subbiah. First of all, I hope you and your families are all safe and healthy in these challenging times. This is really an unprecedented situation where no industry let alone company could have prepared for such a scenario. And I think everyone is really trying to manage people, business as best as they can. At CEAT, our first and foremost priority has been the safety of all our people, whether it's our employees, our customers, our suppliers, channel partners, et cetera. Post the government announcement of the lockdown, we too went ahead and shut all our production facility and our employees have largely moved to a work-from-home model. During these times, we have been also continuously engaging with our customers, suppliers and the community. And this has really helped us strengthen our relationships further. We have been contributing very actively on the CSR front, under the RPG Foundation umbrella by providing personal protection equipment, distribution meals to the needy, truck sanitization, et cetera, amongst many other initiatives. To share with you a little bit about quarter 4, the year gone by, a little bit of outlook as well. I would say that for the last quarter, I'd say, March is a very critical month for most businesses and it's not only a quarter end, but also the year-end. The lockdown had an impact of more than INR 200 crores on our revenues because of closure in the last week of March. On a stand-alone basis, our revenue for the quarter stood at INR 1,524 crore and sequential as well as year-on-year decline of 11%. The entire revenue decline was on account of volumes. Our gross margin for the quarter expanded by 180 basis points sequentially. This was on account of [ decline ] in raw material cost, which on a per kg basis came up by about 2.4% sequentially and higher inventory levels at the end of the quarter. Our stand-alone EBITDA was at about INR 190 crores at a 12.5% margin, an expansion of 280 basis points on account of higher gross margin and lower other expenses. Our PAT for the quarter was at INR 56 crores. Going on to the entire year's financial performance. On a stand-alone basis, our full year revenue was at INR 6,581 crore, a decline of 3.7%. Our full year volume was down by about 4.8%. However, it was partially set off by an improved product mix. We've been putting a fair amount of efforts into expanding our footprint in the PC/UV category, and this is largely led by high-quality product offerings and improved presence with OEM. And because of this, our passenger car segment grew by 6.6% in volume terms. Post our TBR plant commissioning in alone in February of last year, the category has seen over 20% growth in volume terms. While this year has been especially challenging for the 2-wheeler industry, we saw growth on the replacement side led by scooters. . Our gross margin expanded by over 200 basis points on account of favorable raw material cycle and product mix. This, coupled with lower expenses, led to 138 basis points expansion in our full year EBITDA margin, which stood at 10.7% for the year, and our PAT for the year was at INR 271 crore. Our Chennai greenfield facility was inaugurated in this quarter in February by the honorable Chief Minister of Tamil Nadu. Though due to current conditions, the ramp-up will take longer than earlier projected. At full scale, this facility will add 28,500 passenger car radials per day and 2,500 motorcycle radials per day to CEAT's capacity. On the distribution front, commercial vehicle category has also been an area where we have begun focusing on. We have been setting up truck service hubs. They are located on highways and transit hubs and act as a one-stop shop of all CV-related services for our fleet partners and truckers. During the current quarter, we also entered into new models on the OEM front, such as Hero Glammer Refresh, Mahindra Jeeto Z Series, Tata Intra, Daimler BSVI version compliant truck, the Piaggio scooter, et cetera. We will continue to focus a lot on our people. And as a result, we were ranked amongst the top 20 -- top 30 manufacturing companies in India to work for by Great Place to Work. I'm also proud to see that our people across the organization have shown great resilience and agility during these trying times. We are making concerted effort towards everyone's safety and to be in a state of readiness as demand picks up. We have resumed operations at most of our factories while following all safety standards and protocol. With the ease in restrictions in lockdown, we are gradually seeing a pickup in demand as well. However, I believe it will take some time on demand to return to pre-COVID level. We will continue to focus and monitor on our costs, our cash flows and balance sheet tied over this challenging period. With this, I will hand over the call to Kumar.

Thank you, Anant. Good evening, ladies and gentlemen. Thank you for joining our quarter 4 2020 earnings call. I'll share some further financial data points with which -- post which we can take Q&A. First, I'll cover revenue. Consolidated revenue for the year -- for the quarter stood at INR 1,573 crore, a decline of about 11%, both sequentially as well as year-on-year basis. The revenue decline was largely on account of lower volumes. And for the full year, our consolidated revenue was INR 6,779 crores, a decline of about 3%. Now gross margins. Our gross margin for the quarter was 45.6% at a consolidated level and about 44.6% on a stand-alone basis. The gross margin expanded by about 180 basis points during the quarter versus previous quarter, largely on account of lower raw material prices and increase in finished goods also had a minor impact on the expansion of gross margins during the quarter. The net price realization remained more or less constant during the quarter. Now for the full year, on a consolidated basis, our gross margin stood at 42.2%, an expansion of about 210 basis points over the previous year. During the quarter, we exercised tight control over our operating expenses for the post-COVID-19 lockdown. Our production and supply chain came to a halt. As a result, our outsourcing costs, our distribution costs dropped proportionately, and we also kept tight control on advertisement costs, leading to other expenses declining by about 20% over the previous quarter. I'll now give you an update on EBITDA. Improved gross margin I just now touched upon and lower operational expenses led to sequential EBITDA margin expansion of about 220 basis points for the quarter. Our consolidated EBITDA for the quarter stood at 12.9%, highest in the recent period, and our consolidated EBITDA in absolute value was about INR 203 crore for the quarter. As far as full year is concerned, our EBITDA was about INR 741 crores. And full year EBITDA margin in terms of percentage was 10.9%. As Anant mentioned, we commissioned our Chennai greenfield facility during the quarter. And we also ramped up our Halol factory, truck and bus radial facility further during the quarter. As a result, our depreciation for the quarter went up by about 5.6%. For the full year, our depreciation on a consolidated basis stood at about INR 277 crore, an increase of 43% over last year. The increase also includes some changes in the accounting standards, Ind AS, leading to reporting of depreciation relating to our leasing activities. During the quarter, we also had exceptional cost of about INR 28 crores, largely relating to PRS for our employees in one of our factories and about INR 16 crores of expenses we had provided relating to COVID. The COVID expenses is largely relating to sudden shutdown of our plants leading to some rejection of our stocks in the manufacturing process. Now taxes. Post valuation of the recent changes and amendments of income tax, our view is that we will continue with the old tax regime, and our tax rate for the year reflects the same. Our ETR, that is effective tax rate, for the quarter was 14.4% as we had considered benefit of some of the R&D costs and also the impact of true-up relating to finding of income tax return for the previous year. Now let me give you some update on working capital. We continued our focus on improving our efficiencies in working capital during the year and also during the quarter just to increase the internal accruals to fund our capital expansion -- capacity expansion could run. Our multiple initiatives helped us to bring our working capital at a consolidated level by about INR 294 crores. It would -- the amount would have been higher if without the impact of COVID as we ended up with a little higher raw material and finished goods inventory and also receivables during the end of the financial year. Our consolidated capital expenditure for the quarter was about INR 205 crores. During the year, we also declared an interim dividend of 120% in the month of March, and that led to cash outflow of about INR 58 crores. And during the quarter, our debt moved up by about INR 39 crores. We can say that yes, this INR 39 crores takes into consideration our capital expenditure and also the dividend. We ended the year with a consolidated debt of INR 1,929 crores and with a healthy debt-to-equity ratio of 0.66, and our stand-alone debt-to-equity stood at 0.55. Our consolidated project capital expenditure for the year has been at INR 105 crores level. Out of our total planned CapEx of about INR 3,500 crores for CEAT stand-alone and another INR 500 crores planned for our specialty business. Against the INR 3,500 crores, till date we have spent approximately about INR 2,100 crores. Owing to current environment, we are working on reducing our CapEx plans for the year 2020, '21. Our current estimate of capital expenditure for the -- project capital expenditure for the year 2020, '21 is in the range of INR 550 crores. I just want to give you an update on in terms of what we are doing post-COVID for the business. Cash has become primary commodity to ensure business sustenance. We are monitoring our cash position every day very closely and regularly. Our top priority is to ensure timely clearance of payments to MSMEs, our employee costs, all contractual obligations and various vendors. We have been managing our cash needs efficiently, and this has provided us elbow room in terms of unutilized bank lines to draw in case of any exigencies. This is expected to stretch our working capital position in the near term. We are working on ensuring that there is enough liquidity through working capital and long-term arrangements with banks. Our focus is on rationalizing costs and deferring capital expenditure in order to preserve cash, while also securing additional funding lines to ensure adequate liquidity in the system, considering the uncertainties. We are also happy to share with you we were -- during the quarter, we were confirmed AA rating for long term and A1 plus for short term with a stable outlook by the credit rating agencies. And during the period, in the month of March, as well as in subsequent months, we didn't avail the benefits of moratorium, and we discharged all our debt-related obligations as well as start related obligations. With this, I end my initial briefing. I now leave it for Q&A. Thank you.

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

Congrats on decent margin performance and also cost cut initiatives. My first question is on A&P expenses. If you look at over the last few years, our A&P expenses have been -- probably its percentage is quite higher than the other players. And now probably over the last 2-month period, whatever we have looked into, we have cut this cost. So is there any thought process that actually without that kind of A&P also, we can manage going ahead as well and then probably structurally, your A&P cost can go lower after -- even after full -- things normalize over time?

No. I think our A&P expenses, we continue to invest in the brand. There is no plan to curtail it. Yes, we were to take a period of the next few quarters where sales may be are lower. On the lower side, we may bring it down to the same level as a percentage of sales. But in general, we will continue to invest in the brand, and we don't plan to cut A&P as a percentage of sales in the longer term as well.

Okay. And secondly, I mean, over the last 1 month when things were opening up slowly, how do you -- how you're seeing the demand panning out? And probably the segments are doing better and what level of earlier sales you've mark-to-market?

Yes. So we are finding a good uptake on the farm side, particularly. This is one segment because of good crops, we are finding that farm is seeing very strong year in something. The other segments that are generally doing better that out of the market we cater to, replacement is the strongest. OE has barely begun to even pick up at this point of time. It is at dismally low levels, largely, I think, because of the supply chain challenges that they have faced. And I would say, amongst the other category of tires, passenger has been relatively weak with commercial vehicle being somewhere a little bit better. Passenger largely weak because as the lockdowns have opened up, I think, very often, the dealer counters physically have not all opened. And they have been opening over a period of some time. So as they kind of open up, people will start coming in for passenger tires. But I'd say that in terms of order, I'd say farm followed by commercial vehicle and then the last has been passenger vehicle segment.

Sir, is 2-wheeler is better than CV?

Yes. 2-wheeler has also been quite positive. In fact, I would say after farm -- I was sharing that. But after farm, maybe the 2-wheeler would be the next highest segment. So -- 2-wheeler has been quite positive. Also, I think with personal mobility now growing because of social distancing coming in, 2-wheeler has relatively better potential versus other categories.

Okay. And sir -- lastly, sir, if I look at subsidiary EBITDA, like consolidated minus stand-alone EBITDA, which was almost at INR 10 crores. And over the last 6, 5 quarters, that number was not there, but it was quite low. And sales also have not increased much quarter-on-quarter. It has declined quarter-on-quarter. So is there any one-off over there? Why was it so high?

No. We're not seeing any one-off there. I think there, the CSTL or our specialty tire business has seen some uptick in my view. Here, we are seeing -- we've seen highest ever sales on the specialty side. And that -- the losses that specialty tire business is incurring has come down. I think that is one big change that we are seeing in our subsidiaries. Kumar, would you like to add anything to this?

No. Predominantly that's because the consolidated EBITDA also has few other subsidiaries. One more element that plays a role is that the amount of finished goods that you carry with subsidiaries. And when -- and the profit element is normally removed while doing a consolidation, okay? So lower raw material prices, relatively better performance in CSTL and some movement in finished goods inventory, all 3 contributed to this. And even at the PAT level also, you would see the gap between consolidated and stand-alone has come down in the current quarter versus the previous quarter, so that EBITDA is also flowing into PAT.

Sir, it is quite on the higher side. I'll take up maybe with the IR team later on.

[Operator Instructions] Next question is from the line of Joseph George from IIFL.

I had 2 or 3 questions. One was, Anant you mentioned that CV is actually doing pretty well, and maybe in the top 2 or 3 in terms of doing well. But how do you think about it from a full year basis? The reason I'm asking is because the headlines that we are seeing is that 70% of the trucks are idling. And even after the gradual lifting of the lockdown, I suspect that the total freight generation in the economy and hence, the capacity utilization of the fleet may not ramp up immediately. So from that perspective, how do you think of CV replacement demand through the course of the year?

Yes. My view is that in the long term, CV will be most hit. So while right now it is there because during the opening up period, very often, if a dealer wants -- a customer wants the tires, the dealer will go open his shutter or organize directly from the company delivery of truck tires. Whereas in the case of passenger vehicles, you will generally have a situation where somebody will go and drive to the retail outlet and if it is closed, they will drive away or they will make a call and if somebody doesn't pick up, they will not go ahead and buy. But CV has been hit quite badly. It moves directly or more proportionate to GDP. It is -- the beta levels in a way are higher with respect to CV. And therefore, I do believe that the commercial -- the passenger segment should outperform. And in my view, it will be farm, 2-wheeler, passenger and then CV for -- overall for the year. But clearly, this month, maybe even the next month, there is -- we are seeing there's a fair gap between passenger vehicle and CV for now shorter term.

Understood. The second question that I had was in relation to how you see input costs going ahead. We saw good benefit as far as the RM line is concerned this quarter. And given that crude prices, et cetera, has fallen substantially, how do you see it going maybe into June quarter and the September quarter? June quarter, I can understand you might have old inventory, but maybe going into the September quarter, how much more can RM fall?

Yes. I think there will be a drop in RM going forward. I -- as you said, I think this quarter, whatever has to be purchased has been purchased. Uptake anyways is very low. And therefore, to that extent, the material -- old raw material will be utilized for a longer period of time, maybe going on to July as well. But going forward, there will be a drop. We've seen -- approximate basket, I would say, is about 35% or so. I mean, natural rubber about 60% plus will be crude derivative products and the balance is the steel and other products. So rubber has come down from about INR 130, INR 135 per kg pre-COVID to about INR 115, INR 117 per kg now. Crude, we all know, has come down from $60 down to $30, and then it went substantially further down. But generally, it's been hovering around $25 or so. So to that extent, we expect to see some drop. While on the other hand, we've also seen some amount of rupee depreciation. So -- but net of all of that, we think raw material prices will come down.

Got it. And then last question I had was for Kumar. Given the...

Sir, for any follow-up question, rejoin the queue, please.

No problem.

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

Sir, first question is for [indiscernible]. Can you please quantify, sir, what is the impact of this inventory on your margins in this quarter? That's my first question. And second question would be basically on the dealers and retailers. If Anant, can you please give us some sense? Are they facing any challenges on the working capital plan from funding perspective because the MSMEs are quite challenged right now. So just wanted to get a perspective from your side on the distribution side what's happening?

Kumar, would you like to start?

Okay. See -- I think earlier also we had explained in our calls -- investor calls, gross margin is nothing but selling price minus raw material cost, okay? And when you arrive at raw material costs, any movement in finished goods value between closing stock and opening stock, okay, is adjusted in the raw material total cost of consumed, okay? And accordingly, gross margin is arrived at. But when you arrive at the difference between closing and opening finished goods value, it has non-raw material element also, okay? So therefore, in general, whenever the finished books inventory goes up, okay, it will have a cost. Assuming the costs remain the same, opening and closing, it will have a positive impact on gross margin and the reverse is also true. And the finished goods inventory is down, okay? So approximately, I would say about 40, 45 basis points would be the impact of the finished goods inventory on the margins versus previous quarter, 40 basis approximately.

Okay. With respect to my question on dealer margins and viability, we haven't seen any dealers going under in any way. There may be some financial steps that they are undergoing. But in the tire sector, we don't see the kind of stress what you hear in the auto sector that a lot of them are closing down. They're in need of special help in any way. They -- I think they should -- we will not be affected as a result of this. And they will also be quite okay in my view. We've not had this challenge or we've not heard of this yet. Most of their sales -- for at least the non-CV side is on cash. On CV is, to a certain extent, on credit, but we've not had any challenges that we're hearing from them.

The next question is from the line of Amyn Pirani from CLSA.

So my first question was, I think you mentioned that there was some INR 200 crore of revenue loss due to the lockdown. Is that correct?

That's right. Only for the last week of March.

Okay. Okay. So if I were to adjust for that, then on a Y-o-Y basis, your revenues would have been largely flat, so -- which -- I mean, which is a very good outcome. So is that a correct way to look at it? Or am I missing something here?

No. I'd say until middle of March, we were at a growth level of between 5% and 10% kind of growth. So on a year-on-year growth for quarter 4, we would have been on a relatively good positive trajectory. In fact, I would say our quarter 4 performance was quite a bit better than the previous quarters, which was under some stress because of the entire auto slowdown, et cetera. So this was a pretty dramatic turnaround of events that happened in the last quarter as a result -- last week.

So excluding COVID, given that the OEMs were continuing to do -- to be weak anyway in the fourth quarter, where was this growth coming from, entirely from replacement or you were gaining some market share on the OEM side?

So on the passenger vehicle side, with OEMS, we have grown very well despite COVID because we've entered into new segments and we've grown as well. So I think that is one area. Farm segment saw some positive traction. Scooter has been doing well. Even the last mile category, which is Tata Ace type vehicles have generally been doing better. Commercial vehicle also has been good. This is all in the replacement side, relatively quite a bit better. If you take out the COVID impact, they would have all been maybe 10% kind of growth rate ex COVID kind of impact on the replacement side.

Okay. Okay.

And even the export segment showed strong -- relatively stronger numbers were it not for the COVID impact again.

Understood. Understood. And my second question is on the working capital. Over the last 2 years, you've actually shown significant improvement, and I think a large part of it has come from the improvement in the trade payables. You -- I think you've managed to increase your payment schedule. So given the COVID scenario and everything, just wanted to get a sense that any of it changed? Can you still continue to have these better terms with suppliers or are some of these changing? Are they in a weaker position than you? Are bigger than you? If you can give some color, it will be quite helpful.

Yes. Kumar, I think you can speak on that?

Yes. See, if you look at it -- we've also -- our raw material inventory, we looked at all elements of working capital, so -- while bringing in some efficiency. So you will see reduction even in engineering stores, many other items, okay? So post 31st of March, what normally happens when you have -- your payables is higher than receivables, okay, and so -- and when at the subdued level of operations, payables will come down faster than receivables, so which means it will be adverse in terms of working capital since such time the normalcy returns. So we expect our working capital to move up in quarter 1, during the period when our operations are at a lower level. And then once the normalcy comes, then you work towards recouping it back, okay? So we don't expect any significant changes on our credit terms. However, during the period when -- like whole of April, we didn't buy any materials, okay? But, however, you will continue making payments for materials that you bought earlier. So in that situation, it will have an adverse impact.

The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

I have 2 questions. First is with respect to CSTL merger. What's the time line and what's the kind of accumulated losses it has? And the second question pertains to -- if you can share the volume growth for FY '20 for various segments for you?

Kumar, can you take the first one?

Yes. See, CSTL merger, NCLT has passed an order, okay, and the final hearing happened in the month of March. We were hoping to get that physical copy of the order for us to reflect the merger in the reported financial statements. However, only 2 days back on 25th evening for the time that we were -- we got visibility to the order, but the signed copy is required and the formalities and extra formalities that we have to go and file with the ROC to complete the merger process, okay? So therefore -- that is the time line. Normally, it takes about 30 days. We still await the physical copy -- certified copy of the order, okay? And so the second part, once the merger comes into effect, we will have it consolidated in financial books. The effective date would still same -- would be some, 1st of April, 2019, okay? And whereas you get it in the subsequent quarter and report it, but it's what we are planning to do. I don't have exact number in terms of accumulated losses. Maybe I'll take it later. Over to you, Anant.

Okay. So our volume was for the year-on-year basis on a stand-alone was at about negative 4.8%. And on a value basis, it was at -- I think we had about 3.7% stand-alone.

Right. But would it be having segmental breakup, how bias help TBR there, so on and so forth?

No. We don't share the category wise overall breakup.

Okay. Okay. No problem.

But just to give you approximate numbers because across all markets, farm has seen a very challenging year. So that is one area which has seen slower growth. Whereas the passenger car, the 2-wheeler segment has seen relatively better growth. And within the truck segment, as I said, truck radial saw 20% plus growth kind of numbers. However, overall truck was in negative territory because of lower bias group.

The next question is from the line of Jay Kale from Elara Capital.

My first question was regarding the CapEx part. So you have cut down on CapEx in FY '21. If you could just give us a broad breakup of where you have cut it and how would your capacities for different segments shape up over the next 1 or 2 years?

So we have largely cut our CapEx by about INR 250 crore or so for the current year. We have planned about INR 750 crores. We brought that down to around INR 500 crores kind of levels. It will not have any impact on our performance for the year because demand itself we expect to be relatively muted. So if we are expecting, say, approximately some kind of negative growth, then anyways we are talking about enough capacity. And then we have some plants that came on stream, which were the truck radial, 2-wheeler and passenger car. So we have enough capacity for the coming year as well as, say, for the next 15, 18 months is what we see. So no impact as such on business that will come in. The only business in which there can be investments that will happen will be in the tractor -- sorry, in the CSTL business. There we are seeing good traction relative to other businesses. Even now post-COVID time period, our products have been very good -- largely talking about the lower base. So there, we will be doing investment on a kind of milestone basis. So as we reach certain capacity utilization levels, we will look at further investments. And there, we have marked about INR 400 crore, INR 500 crores over a period of time.

Okay. Sure. So your capacity ramp-up phases that you had alluded earlier, that will continue you're saying -- maybe to just.

No. We have enough capacity in place. The question is ramp-up will happen based on demand. We will be ready to ramp up if demand picks up. But that is big question.

Sure. And any scope of further reduction over year or this is like the bare minimum that you will have to do in the current year?

No. This is what we will need to do. About INR 500 crore in the year. Maybe -- and if something comes up on the CSTL side. But approximately INR 500 crore is what I would say.

Sure. And last is, how would you see the truck tire replacement market going forward, specifically split between, say, radials and bias. Given the current situation, do you see any change in growth rates between bias and radials, say, bias outperforming radial just purely because of the economic situation? Or how are you seeing the customer behavior at least in the initial months?

No. It's too early to say. It's been barely 20 days since lockdown has opened up. I don't see a major change yet. I think I'm not seeing any data or shift in mix between bias and radial yet. I mean, one hypothesis without data is that will people down trade towards a lower cost bias. But I'd say it's too early to say yet on that. It's tough to say. But I do believe commercial vehicle market will be under fair amount of stress for the year.

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

Sir, first, just a clarification. So the CapEx which you talked about of close to INR 550 crores, this is for the stand-alone or the consolidated entity?

Kumar, would you like to elaborate that?

Yes. Yes, it is on a consolidated basis. But what Anant just now mentioned that we may have to spend additional CapEx, that additional part has not been factored. On -- based on our current plan, this includes that. But it's a very small portion of outsourcing has been considered here.

Okay. So basically, out of INR 4,000 crores, we have done INR 2,500 crores. This is another INR 550 crores, so broadly INR 3,000 crore of CapEx is done. The rest INR 1,000 crores will happen over the next 2 years, depending upon the demand. Am I correct in my understanding?

Let me just break this up for you. We -- against 4,000 tonnes (sic) [ INR 4,000 crores, ] we have done -- INR 3,500 crores is for CEAT stand-alone and INR 500 crores is for CEAT specialties business. Against INR 3,500 crores, approximately about INR 2,100 crores we have already spent for CEAT stand-alone. And another INR 100-odd crores we have spent for CEAT specialty. If you recall, in the last quarter, Anant had shared saying about -- out of the INR 3,500 crores, about INR 500 crores we would be spending beyond FY '22. That's what we had shared. Now -- so against the balance of INR 3,000 crores, maybe about INR 500 crores -- INR 400-odd crores this year and balance subsequently. In that, the INR 500-odd crores, about INR 50 crores, INR 60 crores is what we have as of now included in the specialty business, something more will be spent if the business achieves a certain milestone, which is already articulated.

Okay. Great. That clarifies. And what would be our general maintenance CapEx? Is that included in this or is that separate?

No. That is separate. Approximately, we spent about INR 150 crores. In the current conditions, we may spend much less.

Okay. But after capacity, general INR 150 crores is maintenance CapEx, which we will do.

Yes. And that range is what we normally expect.

Okay. Okay. Sir, lastly, just on the RM side, I think some -- I mean, more clarification. If we see, for example, our peers' results, some of the companies did not see that much of benefit. I mean, if you see the commodity costs, also natural labor and crude prices, where on a Q-o-Q basis have not corrected that much. So is it -- what has led to this sharp correction in commodity -- fix commodity, can you -- if you can highlight?

Are you referring to quarter 4?

Yes, sir, quarter 4.

No. Quarter 4 -- the reduction -- if you look at gross margin, expansion is approximately about 200 basis points, okay? And that's what we have said. And that a large part of that expansion has come from lower raw material costs. Again, some impact is also on account of finished goods inventory movement is what is it. So that is the impact on the raw material costs. Approximately 40 basis points is the impact on account of finished goods movement. Balance has come through lower raw material costs.

[Operator Instructions] The next question is from the line of Nishant Vass from ICICI Securities.

I just want a question [indiscernible]. So I wanted to check on the industry competitive structure. So you alluded to the fact that CV would be probably lagging in the rebound cycle, right? And looking at the industry structure in terms of incremental capacity addition plus looking at some of your peers which are not as comfortable on the balance sheet side as you are probably, what do you think will the competition eventually look like? Do you think there will be a situation on pricing being more better? Or you think probability it will change capacity utilization when you could see an increase on that side? And probably also think about imports and kind of your thoughts around how that could play out?

I think very difficult to give an answer to that. I think the competitive intensity is likely to remain similar in that sense. I -- in my view, import is unlikely to go up. I think countries are getting a little bit more and more protective. We have seen duties being imposed across categories, including tires over the last 2, 3 years. So I don't see an increased competition from imports coming in. With respect to domestic, I don't see any new players coming in or -- in that sense. With respect to pricing behavior, I -- there's no way -- I mean, there's no way to predict what will happen. Clearly, we do believe raw material prices will come down in quarter 3 or quarter 2, but I can't say what will happen to pricing.

But are you seeing any trends on the present market, initial trends of pass-throughs happening?

No, not at this point of time in the replacement side. On the OEM side, it is anyways, a lot of the contracts are formula-driven. So to that extent, the OEM prices will adjust automatically with a lag.

The next question is from the line of Sonal Gupta from UBS Securities.

Just -- I mean just -- I wanted to -- could you give us a sense of, one, I mean, like broadly, what is the TBR portion in your revenues? And secondly, in terms of, again, CV capacity now -- I mean TBR and TBB capacity now and what is the current level of utilization? I mean current level as in FY '20.

So the truck radial capacity utilization would be at about 70% ish -- 65% to 70% level because we just set up a new capacity and that takes some time to kind of ramp up. As a percentage of our sales, truck radial would be at about 15% or so of our sales today.

Sorry. And what's the total TBR capacity?

Total truck radial capacity -- 1 minute, we did an investment initially of about 80 tonnes per day. It will be about 120,000 tires at full capacity.

Manually -- monthly.

Per month, yes.

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

I just wanted to understand, as Kumar Sir said, INR 3,500 crore CapEx was stand-alone, plus INR 500 crores. So out of INR 4,000 crores, roughly INR 2,200 crore has been done right, sir?

Yes.

So residual INR 1,800 crores, so you are planning to do INR 500 crores in FY '21. So beyond that, INR 1,300 crores will be left. And as Anant sir said that, that will be taken as per demand outlook because you have enough capacity. So it might be wrong to assume full residual INR 1,300 crores CapEx in FY '22. Will that be right, sir?

Yes.

And second thing, I'm trying to understand that a significant part of various types of rubbers and other input commodities are also imported typically. So under current circumstances, are you facing any challenges or any cost distillation because of imports of raw mat?

Kumar, would you like to elaborate on it?

No. See, we are not facing any challenges. The only challenge that we faced was when the lockdown was announced, we were not sure in terms of what to do with the scheduling of materials. But otherwise -- and we also faced some challenges in terms of clearing materials from the ports because ports after a point in time became very congested. But no other challenges that we are facing with respect to any additional costs.

Sure. And last thing, sir, I just missed you perhaps mentioned. Overall, approx, what was the volume growth in this quarter and fiscal '20 as a whole?

Volume growth was at about minus 10% approximately for the quarter. Let me just get back to you on the number. So maybe minus 11%.

For the year?

For the year, approximately 3%. For the year, volume was down by about 4.8%.

4.8%?

4.8%.

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

First question is on the supply chain side. I mean, in terms of capability -- production capability, where would we be right now? And when do we feel we'll return to the pre-lockdown levels if there is demand? I mean, are we facing any issues from the vendor end or from the labor side?

What's your first question, sorry?

So on the supply chain side, I mean, in terms of our production capability, when can we reach the pre-lockdown level if there is demand in that place? Are we facing any challenges on the vendor side or on the labor side?

Yes. So on the supply chain side, we are not facing any challenges. Supply chain means from the raw material network, we are not facing any constraints. With respect to our own plants, yes, there are some initial challenges that we are facing. For example, in some cases, we have families not comfortable to let their children kind of go out and going out in a large people environment. Sometimes landlords are not allowing it. Sometimes there are -- they're living in containment zones, our people in the factory. And so they cannot travel. There are also sometimes challenges with respect to e-passes. Sometimes when you're crossing districts, particularly in Maharashtra, you need to have an e-pass to show that you're medically fit for work. And procuring those are challenges. So there are challenges. We are not having a migrant labor issue where people have gone back home, but these are natural issues that we are facing at this point of time to get our own permanent workers into the factory. We've also been paying our contract workers. So these things will take some initial time for the fear to settle down. And we feel confident that this will go up -- this will improve over time. Because I think people will begin to get comfortable. Right now, there's a fair amount of hype. But that's a constraint that we are facing in our factory side. For us to go to pre-lockdown levels, I think this is a big guess. I think this year, all year is going to be extremely uncertain. We never know how the virus will react. And therefore, if cases go up, will there be further lockdown? How frequent? Will it be restricted to containment zones only or red zones, as we say? So each -- I think it's so unpredictable that it's really difficult to predict. But if I were to highlight, I guess, I think for things to go back to normal, it will take time.

The next question is from the line of Chirag Shah from Edelweiss Securities.

Congrats for good set of numbers. One clarification on the CapEx. So is it right to make a statement that bulky nature of CapEx is behind and incrementally your CapEx and cash flow largely would be increased. Because last 2 years, our CapEx was far higher than our annual cash flow -- operating cash flow. Is this statement correct? The nature of CapEx is also changing while...

I would -- yes, Kumar, would you like to answer that?

Okay. No. See, if you look at our operating cash flow, okay, and if you divide that into 2, cash profit, okay, and then cash that you generate from working capital movements. Broadly, if you were to divide into 2, there has been equal amount of contribution from both. So -- and so -- and therefore, last 2, 3 years, that has been happening. And so out of -- almost 2/3 of the CapEx we have spent on a stand-alone basis, almost -- not 2/3, maybe a little less than the 2/3 of the amount. So if your question is that -- I did not understand your question.

So what I'm saying is when you look at the cash flow -- cash flow from operations and when you look at the CapEx amount, it's used to purpose-fixed effect. That amount has always been reasonably higher than your operating cash flow. Going ahead, can you make an assumption that the incremental CapEx we will do will not be that bulky in nature or there is still amount of CapEx which is less as a result of which your free cash flow can be negative, the way it has been in year F '19.

Yes. So I think we are not setting up any new plants at this point of time. Whatever had to be setup has been setup. Now it is about further expansion. The kind of capacity that we had projected was quite high. And therefore, even the latter half of the plant, which means, say, the downstream machinery, et cetera, that had to come, was still relatively expensive and high value. So that is still -- in a way, we need to spend to reach that capacity that we had planned. The advantages that some of it can be deferred if demand is relatively low. But yes, I agree with you that we will not go into very large. But broadly, our plan is still to look at spending the kind of numbers we have projected. It may take a little bit more time.

Okay. That's helpful. And just one last thing on the margin outlook or the EBITDA percent or gross profit percent outlook. Would it be right to assume that given the ramp-up on the radial front and as well as some of the new capacities, the demand would be more towards replacement for you and hence, profitability would be reasonably good versus the -- versus last 2 years?

I think that could be there. But on the other hand, my view is that -- I agree that the mix -- market mix should improve because replacement would be higher, but I think capacity utilization will be a challenge. So let's see how demand picks up. So overall, if you're talking about negative kind of demand situation, your cost base also is going to be a little bit on the higher side. So while value addition may grow, you are still incurring the costs which you were at a higher sale level.

The next question is from the line of Pritesh Chheda from Lucky Investment.

Sir, I have 2 questions. One, any changes that you see probably in the replacement life cycle behavior, If any? And also, if you could drill down on CVs within that. And there are a few reports which also tend to mention that nonusage of cars and 2-wheelers for a longer time actually harden the tires. So there are 2 contradictory information which we're getting. So any color which you can throw on the replacement behavior change, better or not better, whichever way you think it will pan out?

No. I think the replacement behavior change, as I see, there'll be segmental changes to a certain extent, where people will say, for example, for autos, they would kind of down trade their brand. So they were buying a higher level car because they're going for maybe the next level because of wealth erosion. 2-wheelers, as I said, will do better because of social distancing. With respect to buying behavior, there will certainly be certain behaviors in terms of the retail experience, maybe that you are talking about say no-touch billing, how will hygiene, cleanliness, maybe home delivery. Some of these things can pick up over time for at least the passenger retail segment. So these are some changes that we see. I think on hardness of tires, see, one is that the lockdown is fairly big. I mean, it's been 60 days. To that extent, I don't see any change or impact on tires as such happening. There can be a delay in purchase of tires at this point of time. Again, as people try and protect their wealth to a certain extent and delay any purchases that -- discretionary purchases that they wouldn't like to do. On the commercial vehicle side, I think demand itself is low. There are a lot of challenges that truckers are facing. One of them, when I've spoken to a lot of fleets, is the availability of drivers. There's a lot of drivers that rushed home and -- I mean in the longer term, will they come back to the profession itself is a big question mark. So I'd say that, that is fundamentally the biggest problem. The other challenge that truckers face was, during the sudden lockdown, a lot of trucks were left stranded in locations outside of a base location for them. So either the drivers have just left the trucks where they were and kind of gone away. And retrieval of trucks, et cetera, was another challenge that they faced at this point of time. Utilization levels of fleets are -- look, about 15 days ago when I was speaking to customers, would be anywhere between 15% to 30% levels at this point of time. So to that extent, there movement of goods, et cetera, also has been very low. But I think people were relatively optimistic that things will get better. And I think since everyone was in the same boat, people were kind of trying to tie it over this. So that's a little bit of what I can share. I'm not sure if I've answered all your questions.

The next question is from the line of Nitin Agarwala from JM Financial.

So can you elaborate maybe more on what are we doing to rationalize the fixed cost, including the staff cost? And how sensitive are we towards the operating deleverage due to the lower utilization?

Kumar, would you like to take this?

See, we've taken up multiple initiatives, okay? And we have not -- while fixed cost is fixed in absolute value, variable cost is fixed per kg of production. So therefore -- but we are not taking any of them at face value. So we have initiated multiple initiatives in bringing down all key costs. So we have taken up initiatives to renegotiate some of our fixed cost. We are questioning every element of cost and taking a 0-based approach to bring down costs. So we are questioning whether we really need so many CFAs, DCs. We are questioning whether we need to undertake travel. Discretionary costs, we've kept it to a barest minimum. We are questioning every cost relating to consulting and OpEx-related expenses. As an organization team, we have put together some cross-functional teams. We identified some areas to bring in efficiencies, to bring -- reduce poor quality and also to -- and also leveraging current opportunities to reduce various costs. So internally, we are working on plan to reduce fixed cost at certain numbers, so that our breakeven point comes down. We have launched a new scheme to identify new opportunities through cross-functional teams. So many of them -- we've got some update on from the functional teams. So we are working on it. it's not that we started only in the month of April. If you really observe, even in quarter 4, you would have seen some drop in our operating expenses. So that exercise is going on -- taking -- getting the momentum now, and we hope to keep our costs under check during the balance part of the year.

The next question is from the line of Bhaskar Bukrediwala from ASK Investment.

Sir, you mentioned that the CV demand has been fairly good, and we have seen good traction. I just wanted to understand on the replacement side of CV, how are you seeing things happening, both at the industry level and what sort of traction are you seeing for yourself?

So CV demand has been strong for us for last year. As I said, in the month of May, it has been relatively worse because post-lockdown, it is largely -- the farm segment and commercial vehicle that has done a little bit better. So just to clarify that last year, CV was a little bit better, led by higher growth on the OEM side. Replacement also was relatively good for us because of new products that we have launched. And we've been continuing to focus on our brand, on our distribution. So to that extent, passenger car radial has also been positive, if you take out the COVID effect. Post-COVID, everything kind of moves into a challenging situation for it.

So in terms of outlook, I mean, would -- given that the lockdown is more -- still prevailing in metros and larger cities where the CVs are more prevalent, do you think that CV replacement will take far longer to kind of recover?

I mean very -- I think it's difficult to give a prediction on this. I mean to say that whether it will take more time. I think it will take -- I think May was particularly weak because of just lockdown opening up at this point of time. I'd say that -- but I think the uptrend that we will see will be better in CV over time. So I do agree with that comment. But yes, difficult to give numbers. But I would say, yes, we are seeing, say, CV at a higher level, I think, in a couple of months' time. Passenger vehicle should catch up and maybe exceed the growth rate of CV.

Sure. I guess one last question on the same -- similar fact. In terms of your market share in the CV replacement, would you have gained market share last year as per your understanding of this mix?

Yes, we believe so. We would have gained to a certain extent. We were a little bit short on capacity until end of December. It was in February that actually, unfortunately, that we -- our plant just came up before the lockdown, which would have unlocked some amount of capacity for us. But yes, we are certainly on a positive market share growth trajectory in the passengers we could have.

And if you could just -- I mean what sort of market share do you believe you are currently at and what is your aspiration, let's say, 2, 3 years down the line?

So we would be at about close to -- between 10%, 11% kind of market share. We would certainly be looking at -- this is going to be core for us because we believe distribution and brand are our strength. So at least 5%, 7% kind of growth over a period of time is what we are looking at focusing on.

Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Anant Goenka for closing comments.

Thank you all very much for your interest in CEAT and your time as well. I hope you all continue to stay safe and well and healthy and your families as well. And look forward to catching up with you once again next quarter.

Ladies and gentlemen, on behalf of Kotak Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.