Craftsman Automation Limited (CRAFTSMAN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Earnings Conference Call to discuss financial performance of Craftsman Automation Limited for the Quarter and Half Year ended 30th September 2023. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Ravi, Chairman and Managing Director of Craftsman. Thank you, and over to you, sir.

Good afternoon, everybody. It gives me immense pleasure in welcoming you all for the earnings call for the half year ended 30th September, 2023. While Q2 has been a mix of bag as far as the economy is concerned and each of the markets are concerned across all the 3 segments, the powertrain, Aluminium and Industrial & Engineering segment. We have done well as a company on the consolidated basis. I just wanted to touch upon the key numbers on the consolidated sales INR 2,217 crores has been consolidated. The breakup for that on the Powertrain has been INR 776 crores, Aluminium products INR 1,077 crores and Industrial & Engineering INR 364 crores. This means the company is getting more balanced on the segment-wise diversification, what we have done in the recent past. EBIT has been INR 325 crores against the last year EBIT of INR 223 crores. The breakup for the EBIT has been INR 161 crores for the Powertrain, INR 157 crores for the Aluminium products and for the Industrial & Engineering INR 31 crores. And unallocated is INR 24 crores. The consolidated ratios from the financial performance, I think, has been very strong. Debt equity has been 0.86% on the consolidation balance sheet. Debt-to-EBITDA is 1.49%. EBIT margin is 15% and PAT of 8%, with the ROCE pretax annualized has been 24%. Now going to the standalone, the standalone turnover has been INR 1,580 crores for H1 against INR 1,447 crores in the previous year, compromising of automotive powertrain and other INR 776 crores, Aluminium products INR 443 crores and Industrial & Engineering INR 361 crores. EBIT margin has been INR 230 crores. It is along the same line of last year, no much change there. The breakup for that is the Automotive Powertrain as INR 161 crores, Aluminium is INR 61 crores and Industrial & Engineering is INR 31 crores, respectively. Unallocated is INR 24 crores. Net CapEx done for H1 is INR 258 crores. It is a mixture of expansion of each of the segments and also technology upgradation, modernization and also automation. The key financial ratios for a standalone debt-equity is 0.81%. Debt-to-EBITDA is 1.72%. This is inclusive of the INR 375 crores outflow towards the acquisition of DR Axion. The EBIT margin has been 15%. ROCE pretax annualized has been 19%. The major subsidiary DR Axion, the turnover is INR 635 crores and EBIT has been INR 95 crores for the first half of this year. The new important information is we are going ahead with the greenfield project, very close to the mother plant in Coimbatore, which is 40 kilometers away. We have a land bank of 48 acres there and we are going to create one more premises for all the 3 segments of the business going forward for future expansion, which is a mixture of the similar set of business and also possibly backward integration in some of the segments. With this, I will leave the floor open for Q&A.

[Operator Instructions] First question is from the line of Karan Gupta from Varanium Capital.

Yes. So my first question is related to the value chain part which you mentioned a couple of times in your speech. So I just try to focus on that, as we are -- in the entire value chain from designing to production, I just wanted to know what the key differentiating activities we're performing to differentiate our value chain than our peer companies.

Okay. I understand where the question is coming from. What differentiates us from our competitors in the value chain? Have I understood you right?

Yes.

I will touch on each of the segments. On the Powertrain, while we are doing the machining activity, we don't have a foundry or we are not fully integrated on that side of the business. But we are owning the process knowledge of the machining with in-house captive manufacturing for all the special-purpose machines and when we talk about special-purpose machines, these are quite complicated equipment starting from metal cutting, nonmetal cutting machines like leak testing, washing, assembly stations and things like that. Then there's also the design of the process, the breakup of the process, how we are doing from operation 10 to operation 100 or operation 120, how we designed the process for quality as well as productivity, and we are able to adjust and accommodate the increase or decrease in volumes according to the customer requirement, and we are able to break up the small subprocesses for any incremental volume requirement of the customer. When it comes to the quality front, on the quality front, the critical processors, we are able to manage the quality processes better because we control the tooling, we control the design, we control the process of fine-tuning at our end. We are not dependent on any outside source from that. And we are one of the largest machine shops in the country. And because of our vast experience, we're also able to work very well with our foundry partners to improve the raw material or the castings front also for a mutual benefit. Now the next situation is that when the prototyping needs to be done, we have such a large general-purpose machine availability at our end that we are able to participate in the prototyping for the customer. The second important point is our vast experience in the cylinder block and head, we are doing around -- more than a million cylinder blocks now. Our capacity is now 1.2 million, 1.3 million cylinder blocks. And also, I think close to around 80,000 cylinder heads on the machining. We have come across various designs and various process-related issues. We are able to give inputs to our customers during the design of a new product or point out improvements which can be done. Also improvements which can be done for the castings -- better castability of the castings. So this explains the Powertrain. And the last bit is that whenever the project is at the end of life, we are able to reallocate the machines to new projects, even we are able to convert the special-purpose machines. Suppose we own the special-purpose machines, we are able to convert it. And if the customer owns it, we are able to convince the customer that the next project may certain equipment can be modified to be using. So we are very effective on the CapEx front also. The last point will be on general-purpose capital equipment and the general-purpose tooling. We are one of the largest consumer of these sort of machines in the country. So this gives us a large advantage on the scale and the flexibility to quickly implement the project and move it forward. So on the next segment of the business, on the Aluminium segment, our aluminium industry growth more than 20 years ago, when we started the aluminium gravity and sand-casting foundry for our export requirement. And now in the last 8, 9 years, we have also been diversified in high pressure die casting. Our tool room was making plastic dies, very critical plastic dies as well as aluminium pressure die-casting dies. Now we have stopped making plastic dies. So this tool -- we are integrated that we are able to make the mold, we are able to do the casting. In the casting process, we are across all the technologies, most of the technologies I would say, on the casting. And there's a green sand, no bake sand, gravity die casting, low pressure die casting and high pressure die casting. Now we're also getting into counter pressure casting on the aluminium. And on the machining front, we are also similarly integrated on the maching front on the aluminium business, which we are able to capture the value stream across there, all the small subsegments there. In the Industrial & Engineering, which has been the backbone of the company, which is also supporting the Powertrain business and Aluminium business, we are having contract manufacturing, where we are able to customize products for our customers for different end segment use across a wide range of industries within the country and outside the country. So we are highly flexible and highly capable. So we are manufacturing very precision small parts. Up to -- also, we're machining parts up to weighting 10 tonnes or 15 tonnes for highly complicated industrial applications. And for the Industrial & Engineering, we've got a design facility for our products, which is strength of almost 100 people which is there. I hope this differentiates us.

Yes, yes. Got it. Fair enough. So being in the entire value chain, it gives us the premium pricing or relating to the related cost, let's say, anything or being in the value chain, what the extra cost we are bearing? Because from designing, prototyping, we are into the production. So being in the entire value chain, do we have any related costs higher than the peer or we are reducing the related cost as compared to the peers?

When we want to have these -- all these facilities inside the campus, definitely our fixed cost will be higher, but that is distributed among higher manufacturing capacities, so we are having the operating leverage there. And these capabilities and facilities also are mutually beneficial for the customer, so we get the first preference as far as the production order is concerned. The pricing is not a premium pricing. Pricing, we are competitive in the market and there's a competitive pricing. I think our scale and our efficiency in operations and our knowledge to manage the process is only leading to the profitability with the larger operating leverage.

Okay. Okay. And for the raw material, if we are buying this aluminium raw material, so we are getting any benefit from the supplier side?

No, there is -- there's a market -- prepricing market strategy and what we control is only the rejection percentage and our efficiency of operations inside. And we are carefully selecting the material so that we don't have much wastage of the dross and things like that. That is where it is. And our dies maintenance will lead to lower machining allowances. And lower rejection percentage also means that consumption of material will be lesser, and continues running efficiently on the die casting machines or on gravity is also leading to energy efficiency. And the manpower productivity with some automation is also leading to higher -- lower cost and higher efficiency of output.

Next question is from the line of Senthilkumar from Joindre Capital.

For Powertrain business, I could see a decline in EBIT on sequential basis over the last 4 quarters from INR 101 crores to INR 77 crores in the Q2 FY '24. What is the reason for this?

The main reason for is we have expanded capacity on the Powertrain to a large extent. The new capacities are kicking in production on certain new segments of the business, which is still under the start-up production or in the beta stage. There are some things. Some businesses have started to mature. While this has happened, the existing capacities, mainly in the farm segment as well as to certain extent also in the commercial vehicle segment has been underutilized because of the present market condition, I think that is the reason the fixed cost has increased. And the fixed cost has a higher impact there. But our margins will come back to normal once the operating leverage improves. Our percentage of usage of the capacity is much lower as of now because we have increased capacities. The second point on the other most important factor is that we also used this period of time to refurbish some of the equipment which are 8 years and 10 years old. So we are also seeing some impact on the repair and maintenance for the last 2 quarters, which is a good thing for the future, where we'll be ready for full level of usage of this new equipment when the market requires.

And my second question is, can you give a breakup for the domestic and export revenues for this quarter?

Yes, please. Export for Q2 FY '24 has been totally INR 57 crores, in the automotive Powertrain INR 9 crores, Aluminium products around INR 13 crores, Industrial & Engineering has been INR 35 crores is the breakup. This is the direct exports what we have done where we are earning in foreign currency, but our deemed exports are much higher than this.

And lastly, sir, what is the status of the Brazil business? Even the last con call, you said like, no, we don't have a visibility on that. So what is the status of that?

Status of?

Brazil business, sir.

Yes, Brazil business, I think FY '28 to FY '29, we are well protected. Of course, there are headwinds in the market. There, the economy is not doing well. I think that is also reflected in the Q2 sales. Actually, H1 sales is around 30% lesser for our deemed exports for Brazil for Daimler. I think that will -- should pick up from Q4 of this year, that is their calendar year Q1, which is they have got additional requirements, but it's going to be depressed in Q3 also as far as our Q3 is concerned. But the business, I think, is quite well set for FY -- until FY '28.

Next question is from the line of Mahesh Bendre from LIC Mutual Fund.

Sir, is it possible to share the details...

Mahesh, sorry to interrupt you, can you please speak a little louder?

I am audible now?

A little bit better.

Yes. So I just wanted to know the breakup of our sales in terms of MHCV tractor, 2-wheeler, 4-wheeler.

Yes, I will just give it to you. I will talk about H1 and not talk about quarter-on-quarter because it may be misleading. I think it is on the Powertrain, the break up is 57% on the commercial vehicle, off-highway 18%, the tractor 14% and the SUV segment is 11% for the Powertrain.

Okay. And Aluminium casting and...

Aluminium casting for commercial vehicle is 7%. It is a standalone because DR Axion is 100% on the passenger vehicle segment. So the commercial vehicle is 7% and 2-wheeler is 66%, passenger vehicle is 7%. And we have other aluminium.

Sure. And sir, in terms of business outlook, both on domestic and export, I mean, if I had to look for next maybe 18 months, what kind of growth trajectory we see both on domestic and export?

I will go segment by segment on this to answer your question, please. On the Powertrain segment, we'll be growing at double digit -- low double digit or high single digit because the base is high, number one. Number two, we are revamping our facilities to attack one new segment of the market, which is off-highway, which has -- a lot of potential is there for export requirement. As you know, our off-highway business is very small overall. While we continue to increase our exposure to the commercial vehicle business for overseas markets, directly or indirectly, this is a segment which has got a lot of potential in view of the geopolitical situation and also the reduction of dependence on China. This is one major point. The last point is on the powertrain, there has been a lot of support from the government also for localizing the products which are getting imported. So this is throwing new opportunities, new inquiries, we are getting it very fast and rapid pace now. All this will translate into business within 2 years' time because the gestation period for approvals and the testing and the validation is a little long. And we are close to getting some very important businesses, which I cannot disclose now until we get the businesses, but that will be coming into production in FY '26 is what we look at in a big way. So this Powertrain business will continue to grow at a rapid pace from FY '26 onwards. Until then, it will be low double digit or high single digit. On the Aluminium business, I had committed, I think, 2 years ago on this matter, we are now on the ramp up stage. You'll see quarter-on-quarter increase in top line and the -- still the base is small and the aluminium usage across the country is increasing. And whatever order wins we had 2 years ago, all that is translating into -- now currently into businesses -- actually in sales revenue. In the Industrial & Engineering segment, there has been a pause on the Storage Solutions business, especially on this H1. This H1 has been lower than last year H1, but I think H2 is looking very strong. And I think there's a lot of consolidation happening in the marketplace. So we are also bullish on that. And one good thing about the storage solutions is we are more and more getting bigger value orders on the automated storage solutions overall. And today, our order book is very close to INR 100 crores on the automated storage solution itself pending order book and this is quite a complicated business, and we got even a single order, which is more than INR 20 crores, where we got 2 orders and one is close to INR 50 crores. So this means that the market is maturing and we, as a manufacturer, also are well accepted, and we are able to bid and get further projects. In the rest of the Industrial & Engineering segment, I think we are highly capable as the contract manufacturers across all 3 segments of the business. I think the CapEx cycle has and when it sets in India, Craftsman will be able to capitalize because we are not having many peers in this sort of business in India, where we are flexible manufacturing of parts or subassemblies or products which are for many end-use segments of the market.

Next question is from the line of Mukesh Saraf from Avendus Spark.

First question is, if you could provide us the outlook on CVs and tractors given that you are working closely in that industry? If you could give us some sense on how MHCV industry is looking, let's say in next 1 year and especially in tractors also.

Sorry, Mukesh, I was not able to hear clearly. Can I repeat the question myself so that I understood properly. You're asking about the potential business in commercial vehicle segment and in the farm segment going forward, is that the question?

Yes. Yes, from the customer point of view, how that industry is looking basically?

Okay. I will give a broad outlook on the commercial vehicle, just like the developed market, whether it's North America, whether it is Europe or even China, I think the bulk of the commercial vehicles are sold are the real heavy-duty commercial vehicles. These are 11 liter and above; even 9 liter, it is a crossover between medium-duty and heavy-duty; 7 liters is medium duty across these markets. In India, what is 7-liter engine with, say, 250-300 horsepower is actually mentioned as heavy duty, which is not the case in the developed markets. And the gearboxes are 1,300 newton meter, whereas we are operating at much lower level in India. But our -- with the highways improvement and with the GST in place, there is no checkpost, we are evolving as a country that we want our freights to be more faster and the tonnage of the vehicles is increasing. The mid-segment all over the world is actually a vanishing breed, I would say. It is either small LCVs or it is big heavy-duty trucks. So value-added per truck will keep increasing, but the truck segment is cyclical is agreed, but the cycle will not be as vicious as in the past because the replacement is now between 5 years, it's unlike 10 years or 10 years. The amount of average -- the vehicles run on the per day and total annual 125,000 to 150,000 kilometers that they cover every year. So I think with the 600-kilometer life with the practical overloading which is happening on the medium-duty vehicles for a heavy-duty truck, I would say. So that will lead to continuous buying. But yes, the segment will continue to grow. But I think next year, it will be a little soft, I would say. It will not be growing at a big pace, but I think that growth will come back in FY '26.

Okay. Okay. Understand. Tractors, how do you think that's going to be, sir?

So tractor, we, as a country, for both agri and nonagri-purpose, the tractor which is getting used for transport of material, I think we are very near the peak what we can sell and sustain. But India is becoming a global hub for manufacturing of diesel engines as well as for tractors. Multinationals are setting up shops here. That will lead to growth for Craftsman.

Okay. Okay. Got it. And the other question is on the export businesses within the Aluminium segment. You did mention that in the second half this year, we'll start seeing some of those lumpy orders ramping up. So how are we placed there, especially to Europe, the exports to Europe?

You're talking about Aluminium segment?

Yeah, within the standalone Aluminium business.

Standalone Aluminium business, our exports -- direct exports are negligible, I would say, as of now. It is only the -- our customers are exporting the products in a big way totally, not the end product, but the intermediate products, I would say, that is increasing.

But we had some direct exports that we were expecting, but some of the orders will start ramping up.

That is for next year. That is for next year.

Okay. Okay. And just lastly, you mentioned about this backward integration. Would that in any way help in the Powertrain segment export orders because there was -- even your annual report was talking about a lot of opportunity on the Powertrain segment exports. So how would the backward integration help, if at all?

The backward integration will be only, say, the 5% to 10% of our total requirement because we are very large in the machining segment. We are working with our erstwhile foundry partners in a very big way. Whatever they can give, we are absorbing, and we are working together for both domestic as well as exports also, either as Tier 1 exports or Tier 2 exports, both we are doing, we are open to working with them. We are augmenting that with backward integration surely. There is no more choice now on this matter because the market is so big on the potential side. And with -- the very big base on the Powertrain business, we are still going to have high double-digit growth from FY '26 onwards on the Powertrain with a combination of working with our foundry partners as well as some decent amount of backward integration happening there.

Right. So the question was largely looking at export opportunity on the Powertrain segment, sir. Is there something there that we can expect?

Yes, you can expect that. I don't want to name customers without their approval, but I think one of the biggest customers in all over the world, I think we are working together for that exports for their requirement in the Powertrain business. I don't want to again classify in which segment.

No, no. We don't need any name, sir, but any timelines? I mean, are we looking at, say, FY '25 or is it going to be something beyond FY '25?

No, it will be FY '26 because these are high -- these are bigger orders and these are higher validation cycles, which has to go through. But we are on the right path of Powertrain business. Powertrain business has got the potential to double or even triple in the coming decade.

[Operator Instructions] Next question is from the line of Jinesh Gandhi from Motilal Oswal.

Can you first share a couple of data points, one is the value add for standalone businesses as well as DR Axion for the second quarter?

You want for Q2 value add?

Yes.

Value add as a percentage has been approximately around 50% sir, total. On a consolidated basis, it has been 47% value add.

You shared that data on Business Wire, primarily rupees crores value add for Powertrain, Aluminium, Industrial, which used to share earlier.

Okay. For H1, I think on the Powertrain, it is around 62% because it's a mixture of job work and with machining. And then Aluminium, we have the industrial aluminium, and we have the auto aluminium, all as aluminium products, which is around 42%. Our Industrial & Engineering is 40%.

Okay. Industrial is 40%. Got it. And for the Storage Solution, what was the revenue for second quarter and within that how this automated storage do?

On the Storage Solutions, we have done INR 164 crores for H1.

And automated would be?

The breakup for the automated, automated has been 27%, if I'm right, 27% automated.

Got it. And now coming to the export orders, particularly on the aluminium die casting side, where are we in terms of a ramp-up for the Stellantis order which we have got? How far are we from ramp-up -- full ramp-up?

See, we have seen some numbers in Q2 is still on the ramp-up. I think the ramp-up will be complete. Every quarter, I think, is ramping up until the next 3 quarters. We expect that to peak only in the September quarter of next year. This is now mostly domestic and export has started. Export has started -- indirect export has started. Direct export of the parts have not started yet. So that will be in the next financial year, as I answered the earlier question from the earlier participant. So we are on the ramp-up side on the aluminium.

Okay. So this year, we should be able to attain 50% of our peak revenue -- peak revenue potential of this order or it will take a little longer than that or it will be a little lower than 50%?

The number what the customer has indicated is very high, but we have discounted that number saying that, okay, the market conditions in Europe are not favorable. But what we see is the -- currently, we are at a run rate in H2, the run rate is approximately INR 500 crores on the stand-alone aluminium business totally.

[Operator Instructions] Next question is from the line of Mumuksh Mandlesha from Anand Rathi.

Happy festive season to the management. Sir, this quarter, other expense have notably increased Q-on-Q. Any reason for the large increase, sir?

What expenses?

Other expenses.

Repair and maintenance? We have taken a conscious action to do repair and maintenance because some things were pending immediately. Something that was not done during COVID and post-COVID, we had a ramp-up. I think we had a little sluggish -- not a sluggish, little slow Q1, Q2. I think that is the time we have done the repair and maintenance.

And that should normalize in coming quarters?

And other things are power expenses.

And that should normalize, sir, next quarter onwards, other expenses?

Yes, it will normalize.

Okay. And sir, DR Axion had a very strong growth Q-on-Q by 40%. Can you indicate what led to such a strong growth in DR Axion?

I think the passenger vehicle market in India has done well, and DR Axion has also almost finalized the new order for Hyundai for the new Talegaon plant, which is going to be operational in FY '25, the same parts what we are supplying to their Chennai plant. So I think that will add another 10% of the -- or 5% top line growth for DR Axion, 10% of Hyundai-Kia business. Yes, Mahindra is also on the ramp-up. So all of this has helped DR Axion for the growth.

Sir, last question. On the CapEx side, we have done about INR 260 crores in the first half and full year, we expect about INR 330 crores. So should you see any higher CapEx than what we expected earlier?

The CapEx, whatever is planned, the INR 330 crores is the similar CapEx what we are -- we have envisaged for the existing plants. Now we have filed also on the stock exchange that we're going for a new plant. And there, we are going for additionally, I think, INR 150 crores, INR 160 crores CapEx in this year and maybe in FY '26, we'll go for around INR 100 crores. We have disclosed that. So this will be to -- we have filed for INR 102 crores CapEx for the year.

[Operator Instructions]

Yes, I will just complete that answer. So with this number, we will be close to INR 480 crores with a lot of capacity on -- for this greenfield project, which we are looking at housing all the 3 segments of the business, but mainly in the Powertrain and Aluminium business.

Next question is from the line of Abhishek from Dolat Capital.

Congratulations for a strong set of performance in tough time. Sir, first question on the Powertrain. Do you still intact the guidance of 15% to 20% growth in the Powertrain business in FY '24 despite the higher inventory in the tractor segment and muted growth in the first half around 7% only?

From the time of the IPO, I would -- I always said that we'll have a CAGR growth of 15% to 20% totally. So we may have grown more in certain years. We may grow less for certain years. But I think the next bigger growth will come in FY '26 is what I feel. But if you look at from FY '21 to '26, still we will be in the 15%, 20% CAGR growth on the Powertrain.

Sir, you have won the new business in OHV segment, in Powertrain segment. So when it will start to reflect in the numbers?

FY '26.

And my last question on this RM supplies issues as you are facing some issues of the iron casting side. So are we looking for the set up some foundries to sort out these issues?

We are not having any issue on the RM side. I think we are working very well with the foundry partners. But I think all of you know that the capacities of India in the casting foundries is hardly 10% of China. China is serving 50% of the global requirements. India is serving only 5% of the global requirements, that is very small. And the large foundry segment, wherever relevant capacities are required, we are not even 5% of the global requirement. We have some of the only -- we have only 10 leading foundries in India. I think there is headroom for lots. We don't have enough capacities to capture the global market requirement. This is the fact.

Next question is from the line of Basudeb Banerjee from ICICI Securities.

Most of the questions were answered. A couple of things, sir...

Basudeb, can you speak a little louder? You are sounding little distant.

Yes. So what's the current utilization in both Powertrain and Aluminium segment?

Aluminium, I think we are just touching around 80% now. I think we have -- that is a good thing and that is also leading to better profitability. The Powertrain business, we are back to in mid-70s or early 70s because of the capacity increase, what is done. The new capacities have come into operation or started production. But I think the existing capacities are not being fully utilized in H1, the way it is. So we have the average operating capacity is only around 70% on the Powertrain now.

And Aluminium, it is including DR, right?

Standalone is around 80%, but DR is slightly -- much higher. It is very close to 90%, but they're tweaking some capacity to take it 5%, 10% higher than what it has. So we'll have headroom with marginal CapEx for another 20% growth.

And under this background, you are planning a fresh CapEx which you mentioned, where PT Powertrain utilization is already impacting margin to some extent and where CVs -- domestic CVs have done exceedingly well. This will be the third year. FY '25 will be the fourth year. So high probability typical mean reversal will happen after 4 good years. Do you see expanding towards CV dedicated Powertrain business at current juncture?

As I mentioned earlier, our segment on the powertrain is not at all having much exposure on the passenger vehicle because is mostly on the heavier segments what we are talking about. So now the exposure is very minimum on the off-highway and industrial engines totally on this segment, which has got huge potential within the country and for export. So that is where we are investing. These capacities are slightly higher size of equipment, not exactly equivalent to the medium-duty or heavy-duty commercial vehicle and I think these are heavier equipment overall. We are talking about large engines for, say, power generation or for off-highway vehicles, these are different parts.

And typically, what will be the fixed asset turn of this project?

It will be the same. I think we are looking at value addition portion of it, around 0.6, 0.7 or 60% to 70% of the -- averaging 60%, 70% of the gross block because the turnover will depend on the commodity price, we are doing the presence in 2 ways. We are sometimes buying the casting, sometimes we're doing the job work, so we did not have the -- we cannot put turnover on the -- in that segment, only the value addition we can do.

Sure. And last small question, if I can put in, how much was the value addition for DRA separately this quarter or first half what you were saying?

Value addition has been in the range of 35%.

Next question is from the line of Pranay Roop Chatterjee from Burman Capital Management.

First question is regarding the Aluminium segment, so pretty good growth. The growth on DR Axion was slightly stronger. So first part to the Aluminium segment question is, was there any one-off in the Q-on-Q growth? Like, for example, it's possible that the OEM has more inventory piled up because I was seeing the wholesale numbers for Hyundai and Kia, it was not as strong as the growth that DR Axion has seen. And is the margin sustainable at 15% EBIT, which would imply, let's say, 18% to 20% EBITDA is that sustainable? The second part is, do you still maintain the 20% CAGR guidance that you had given originally on the Aluminium segment on the FY '24 basis?

I will answer the two parts. It's actually two questions you asked me. One is Hyundai and Kia, yes, the growth has been not corresponding to what DR Axion has grown. DR Axion has grown also in Mahindra and DR Axion next year will grow on, again, Hyundai and Kia when FY '25, the new Talegaon plant is going to come into operation. This will also lead to growth, which is around 110% increased capacity is what is going to happen. Coming to the -- your second part of the question on whether the margins are sustainable with the sort of operating higher operating leverage in a single plant operation, yes, we can sustain the margins. The growth at least for -- until FY '26 is very clear. And on Aluminium, it is going to continue even beyond that particular point.

I have one more clarification, it's not a question, before I'm interrupted. You had mentioned, sir, in answer to one participant's question that regarding the Stellantis order, you said INR 500 crores run rate in H2. Can you just clarify that because I thought the order was INR 200 crores?

I didn't say Stellantis is INR 500 crores. I said to the standalone Aluminium business of Craftsman is for H2 is at about a run rate of INR 500 crores for H2.

Next question is from line of Vaishnavi Deshmukh form Yashwi Securities.

So I have a question in relation to the debt side. So in the July con call, you have mentioned that debt should be coming down by at least INR 200 crores. Now I see there's an addition, a slight addition in the debt and also with the CapEx that we have already aligned. So what is the outlook for that?

There are two things which have changed, one is the INR 375 crores outflow towards the acquisition of DR Axion. And I think that we have shown the results because of that, that debt is sitting on the customer books and we have not raised any equity on this matter whatever I mean that is the reason for the debt increase currently. So we had guided for around INR 320 crores CapEx for this financial year. But now we see huge opportunity for the powertrain as well as Aluminium business going forward because of geopolitical situation and also the Make In India policy. There are various policies that government is bringing up to reduce the amount of imports on -- and they're even bringing up BA standards and other standards, I think for qualification. So there will be no dumping from other countries which are happening. So the capacities will not be sufficient. We started to prepare on that. So debt portion, I think we are -- and I had mentioned in my opening statement, I always maintained that we'll hover around 1.5x debt-to-EBITDA on this matter. And we are at the current level. I'll just read out the ratios to you. On a consolidated basis, debt-to-EBITDA, we are at 1.49% totally overall. So the absolute debt, yes, when they're going from the greenfield project, which we announced now, there will be some portion debt as in absolute number may slightly increase or come down, but I think the debt-to-EBITDA will continuously come down.

On your second question, I have this on EV penetration. In the last quarter call, you have also mentioned that it is very low right now. So are we seeing any improvement? Have we gotten any order in that front in the Aluminium segment?

I think for the 2-wheeler EV, we are a major supplier, at least for the market is concerned. But you know the size of the EV market itself is very small today. So we, having a major chunk doesn't change anything for us. It is not a significant percentage of our Aluminium business currently.

Okay. Just with the continuation of the last question one analyst has asked, about the INR 150 crores that you say the CapEx would be done. It would come around in FY '25, right?

No, it will be done in FY '24.

It will be done, but the capacities will come around and commence from FY '25 or it would be commencing in FY '24 only?

It will come in start trial production in Q2 -- of Q2, Q3 of next year, trial production. Actually, revenue is, you are right, it will come in FY '26.

[Operator Instructions] Next question is from the line of Karan Gupta from Varanium Capital.

Yes. So my question is related to the pricing terms. You mentioned in the last con call, you also mentioned something related to the dumping of the products in China or Thailand. So is it also continuing as of now in H1 or it will continue in H2 as well? Because the question I've asked because the margin is going down from 28% to 20% because of the...

I'm sorry. I'm sorry, I'm not able to understand the question at all. Audio quality is very poor.

Karan, can you please speak through the handset?

Yes, yes. Now is it audible?

It's better.

So my question is related to the pricing terms. So how we are competing on the pricing terms? As we mentioned in the last con call as well that the China and from Thailand, there's a dumping of the products, the Aluminium product.

Not from Thailand, I said must be from China only because China is the biggest manufacturer in the world. Thailand is negligible.

Okay. Okay. So now what's the situation? And how we are competing on the pricing term? Or we have anything related to any working capital side we are managing potently so we can compete better?

No, I was just put across, first of all, technology-wise, there needs to be CapEx investment done to compete with China. We are very, very small when compared to China. If you look at the foundry capacity, they are 10x bigger and relevant capacities, if we look at it, they're 15x bigger totally. So we have no comparison to China. Again, the economies of scale when we are having 10 different manufacturing plants in India, 1 manufacturing plant of China has been able to have more capacity than these 10 manufacturing plants. So this means scale of operations advantage we are not having currently. So whenever we build up on the machining side, Craftsman has got the scale of operations. Now on the Aluminium side, we are building up scale of operations. And whenever we are looking at the global market, we have to be on global size of the manufacturing. Otherwise, we cannot even cater to one customer on this matter. So it's not viable for any customer to source from us. So this is -- whether capacity comes first or whether order comes first, it's a chicken and egg story, which will continue. So we are bent upon trying to capitalize on this new situation. That's our 3 situations, which has developed. One is the old dependence on China. The second thing is the geopolitical situation. The third thing is, of course, our GDP growth will sustain for a longer period of time, growth will -- because of the inherent economy and the average age of our economy people here. The last point is that within Europe and North America, the appetite to -- for industry work is coming down. I think the skilled workforce is coming down, even semi-skilled workforce, people are not available because these are developed economies, so there will be more outsourcing in India. I think the -- getting an order a year after if we have the capacity, capability and the competitive pricing, getting an order will not be a challenge at all.

Okay. When you say the scale of operation which means providing servicing of a variety of products?

Sorry, I think, again, you are not audible, please.

So when you say scale of operations, so providing various or a variety of products to the customers? Is that we can compete with China? Obviously, on the pricing terms, we can compete as the foundries and to scale.

Somebody was telling me that from a consultant in Germany, that all the 10 foundries, top foundries put together, I think 1 foundry in China will be bigger than that. And they have 100 such foundries. This is what is the comment coming from there. So you can -- this is on public domain. On the global requirement, we are 5% of the casting supply, and I think China is 50%. But that 50% is relevant capacity and over 5% is somewhat -- some of the capacities have become obsolete on lower-end products. So I think there is a lot of headroom to grow.

Okay. Sir, that's what I'm asking. On the scale side or the pricing side, we can compete, that's okay. But anything we can do with the working capital or credit terms or the payment terms? Now, apart from pricing, what we can do to compete in domestic market and for export as well?

I think you're right. In payment terms what we get from customers from export is perfect. We are not giving any long credit or we are not giving external credit. That is very, very clear on this matter.

Next question is from the line of Bharat Sheth from Quest Investment Advisors.

Am I audible?

Yes.

Sir, on taking foundry opportunity, I mean, casting side, the opportunity -- so you said we are working with the partners. So are our partners are also expanding the capacity the way you are projecting demand?

Yes, they are also expanding capacity, and there is complementing capacity required. Some of the -- the product segment and the foundry offering is very big. It is from a tiny product of, say, 1 kilo and 2 kilos up to 10,000 kilos as everything is foundry totally. So I think wherever there is a gap in the capacity available, customer is willing to invest and take advantage of the opportunity and grow.

So which sector, I mean a smaller casting or larger casting?

Sir, I think we are working with various foundries within the country. I think there are more than a dozen foundries. And 3 or 4 foundries are really we are working very close with them on their capacities. We are aware of their plans, and we are in close touch with them. Wherever our foundry partners can supply the material for us as a Tier 1 or Tier 2 for exports, we are not really getting into the business. Wherever there is no availability of this material only, we are thinking of getting into backward integration.

Talking about backward integration, what kind -- size of capacity are we putting and what size of the foundry that we would like the casting size will be say like 200 kg, 300 kg or a smaller casting?

Sir, we were not present in the Aluminium business 8 years ago. Today, standalone Aluminium business is close to INR 900 crores in this financial year totally. And what I wish to say is we will make in steps only. We will not make 1 big leap. And what we have mentioned now is for foundry and machining at the stage 1 investment only we have done. We will see how it goes. We'll have our order book full before we make the next step. We have 50 acres of land available and site #2, where machining, Aluminium and Industry segment, all of it can grow. So we will make this capital allocation as and when required only. We will not make 1 plan and just build it. We have got a bigger plan, but we are doing the modular integration or investments.

Sir, is that clear sir, my understanding on the foundry side, we are expanding on the Aluminium side, correct?

Sir, we are expanding on Aluminium side. We are looking at backward integration on the casting side, which I have been articulating in the last 2 earnings call, totally. So we are looking at wherever we can buy castings from the foundry partners. Whereas we can work with the foundry partners as Tier 2, we are not investing for capacity. Wherever we see there's a gap in capacity available and there is an opportunity available for end use for customers within the country or for export, we are willing to invest for the foundry capacity.

Next follow-up question is from the line of Jinesh Gandhi from Motilal Oswal.

Just quickly to clarify on the CapEx of INR 480 crores which you mentioned for FY '24. INR 320 crores is for the existing CapEx which we have announced and INR 150 crores, INR 160 crores is for the Phase 1 of new greenfield plant, is that correct?

Yes, correct.

Because in the press release you've mentioned Phase 1 to cost about INR 102 crores. So what am I missing over here, INR 102 crores versus INR 106 crores?

No, what we are looking at is that we are investing at our balance facility to complement that with the existing facility at our existing plant because we don't want to start all the different segments of the business and separate operation. Wherever we can house it in the current plant that INR 50 crores, INR 60 crores, we are housing in the current plant. But after that, the plant, we cannot house anything more, the flagship plant.

Next question is from the line of [ Disha Sheth from Anvil Shares & Stock ].

Congratulations on good set of numbers. Sir, I wanted to clarify in terms of margins to overall EBITDA margins.

Disha sorry, but you're not audible at all.

Sir, in terms of margin, overall for EBITDA margin for the company...

Disha, sorry to interrupt you but there is a lot of background noise. Can I request you rejoin the queue. Next follow-up question is from the line of Vaishnavi Deshmukh from Yashwi Securities.

So I have just one question left. As you mentioned in this con call only that major growth will be coming in FY '26 from the new orders and the capacities that will be coming on stream. So want to know what would be the guidance for you in top line in both consolidated EBITDA for FY '24 and '25.

We never give any guidance on this matter. I think we'll be growing at double digit this year, but it will be lower double digit.

For this year, it would be lower double digits. And for FY '25, are you expecting of something slightly flat growth.

No, we'll be growing at high single digit or double digit surely. What I'm saying is the new opportunity, I think, suddenly, we may go beyond 20% at some particular point of time. We have seen from the past that is like that. We grow at 20%, 25%, 30%, then drop to 10%, again, come back to 15%, 20%. But the CAGR has been between 15%, 20% if you look at it for a longer period of time.

Got it. And would we be able to see any improvement in the EBITDA?

I think there are two things. One is the inflation and the second thing is the growth. If you are just growing at 5%, 10%, I think the EBITDA margins to sustain itself is very difficult because of the inflation. The second thing is, again, the EBITDA margin is a mixture of how much value addition we do. So we have to measure the EBITDA on the value addition, not on the top line, which will be misleading totally. So when we are saying that we are having a value addition of around, say, 50-odd percent. And within that, we are having a 40% EBITDA, something like that, we need to take that into cognizance, not on the top line, please.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Srinivasan Ravi for closing comments.

Thank you very much for joining. I think there are many questions I hope I have answered them to your satisfaction. But I thought I'll give a brief summary of whatever the questions have asked for the benefit of everybody on this call. I would say that on the Powertrain, as I mentioned in the last 2 earnings calls that we may hit some sort of speed breaker where we cannot grow at 20%, 30%, and that is true. And because of that, we have taken this action of strengthening our relationship with our foundry partners as well as putting the foundation for backward integration where and when it's necessary and the scale in modules, not in one big jump where it may affect our return ratios. We will be very cognizant to the fact that we need the ROCE, we need the return of equity, we need EPS, that is why we have not raised any capital also. We are not -- there is -- our capital allocation will be very, very potent. But what I wish to say is the Powertrain business can double or even triple from the current level, provided we make the right moves at the right time and we will do it in the steps. So we will see the growth trajectory on the Powertrain going, there will be a lull, that means a low double-digit or high single-digit growth for this year and next year. After that, again, it will pick up in a bigger way. Whereas when we're doing for the Powertrain business, we are sharing the facilities for the larger partitioning when we talk about 1 time, 2 time and 3 time parts. These are parts which are having a complementary action with the Industrial & Engineering segment. So we are not putting all eggs in one basket. We are having 2 baskets. The equipment and the foundry capacity as and when needed. When you put it up, we'll be serving the Industrial & Engineering as well as the Powertrain business. In the Aluminium segment, as mentioned earlier now, as an overall segment, we are more than 50% on the passenger vehicle. So our dependence on 2-wheeler has come down quite dramatically totally as a company. And now the third aspect, which I wish to say is the EBITDA number or EBIT numbers, all of them are pointing towards 40, 40, 20 sort of mix between Powertrain, Aluminium and Industrial & Engineering. I mean roughly, I'll not say exactly. It maybe less than 20. But what I'm trying to say is that the product mix has been now very good on the consolidated basis. We achieved that portion of it. Now the -- on the Powertrain business by itself, our lens on the commercial vehicle business will be coming down. While we continue to grow on the commercial vehicle business, you will see in the next, not quarters, the next few years, it will be a smaller percentage overall. We'll see that. Coming to the last important segment of the business on the Storage Solution, we see that the -- on the automated solutions, our business will be growing much faster than the static racking, but both are complementing each other, though the static racking automation cannot sustain on its own. So that will lead to a better opportunity going forward. So all the 3 segments we are well poised to continue to grow. Thank you very much and have a nice day.

Thank you very much. On behalf of Craftsman Automation Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.