Cummins India Limited (500480) Earnings Call Transcript & Summary

Good morning, everyone. I'm Harpreet Kapoor, the moderator of this call. Thank you for standing by, and welcome to the Cummins India Limited analyst call for quarter 1 2020/'21. Today on this call, we have with us our leadership team, Mr. Ashwath Ram, Managing Director, Cummins India; Mr. Ajay Patil, Chief Financial Officer, Cummins India; and Mr. Anubhav Kapoor, Legal and Secretarial Head. Cummins India. I have the pleasure in handing over the floor to Mr. Ashwath Ram. Thank you, and over to you, sir.

Good morning, ladies and gentlemen. I'm Ashwath Ram, the Managing Director of Cummins India Limited. Hope all of you and your families are doing well and are healthy. Also joining me on today's call is our CFO, Ajay Patil. I want to thank all of you for joining us on this call. I would like to share the financial results of the quarter ended June 30, 2020 through this call. Here are the financial results. For the quarter ended June 30, 2020, with respect to the sequential quarter, our total net sales stood at INR 484 crores, which declined by 53% compared to INR 1,032 crores recorded in the preceding quarter. Domestic sales stood at INR 358 crores, which declined by 54%. Exports stood at INR 126 crores and declined by 51%. Profit before tax and exceptional items were at INR 70 crores, which declined by 42% compared to INR 121 crores recorded in the preceding quarter. For the quarter ended June 30 -- with respect to the quarter ended June 30, 2019, our total net sales stood at INR 484 crores, declined by 63% compared to INR 1,316 crores recorded in the same quarter last year. Domestic sales stood at INR 358 crores, which declined by 64%. Exports at INR 126 crores, declined by 61%. Profit before tax and exceptional items at INR 70 crores is 64% lower as compared to INR 194 crores recorded in the same quarter last year. The segment-wise breakup for quarter ended March 31, 2020, to give you a sense of the sales-wise -- sales breakup per segment, our domestic -- industrial domestic business sales were at INR 80 crores, which is a 68% drop over last year. Power Generation domestic sales were at INR 96 crores, which is a 75% drop over last year. And the distribution business sales were at INR 183 crores, which is a 47% drop over last year. High Horsepower export sales were INR 57 crores, which is a 67% drop over last year. Low Horsepower export sales were INR 55 crores, which is a 58% drop over last year. As far as Cummins India financial guidance is concerned, the company expects gradual recovery of demand in coming months. However, there remains significant uncertainty about how COVID will impact market demand as well as customer and supplier operations. Due to this uncertainty, the company is not providing a full year revenue guidance for financial year 2021. With this, I would like to open the session for questions. Thank you.

[Operator Instructions] First question of the day, we have from Ravi Swaminathan from Spark Capital.

My first question is with respect to the Powergen business. If you could give a broad flavor as to how the demand scenario currently is in terms of commercial buildings, hotels, hospitals, IT offices, data centers, et cetera. So if you can spend on each subsegment and some time would be great. So what percentage of the usual normal at which these are?

Right. So first, I'll tell you a little bit in that, the demand is coming back, but it is coming back in an asymmetrical manner. In the sense that certain segments such as rental, data center and health care are leading as far as demand recovery is concerned. And the other segments, such as hospitality, segments such as commercial real estate, and even residential realty is coming back. Some areas of manufacturing is all coming back at a lot more gradual rate, and you can understand the reasons why they would be coming back at that rate. But certain segments are coming back quickly and certain others are going to take a longer time to recover.

Will it be, say, all this hospitality, commercial, real estate, will be 50% of normal or it will be higher than that? And how those data centers, are they flattish compared to last year? Or how is it?

I can tell you that data center has brought up to last year. And in some areas, is even doing better. Whereas, hospitality, et cetera, is in pretty bad shape, and it's going to take quite some time to recover. It's very badly effective. Yes. Go ahead.

Yes. My second question is with respect to the other income. This quarter, it was on the higher side. And is this the breakup of the other income and the corresponding other income in the previous quarter and in 1Q FY '20?

Yes. I think the biggest positive impact on other income is we have received an income tax refund from an earlier time, which had a close to INR 35 crores positive impact. And because our rental income continued in spite of these difficult times, it has also had a positive impact.

Got it. Impact in the Q4 mostly.

Sure. Thank you.

Next, we have Sandeep Tulsiyan from JM Financial.

Sir, firstly, if you could provide us with a breakup of the industrial segment sales. And also related question to that is, you have mentioned in the annual report that the power car market demand is likely to fall by 50% given the electrification drive by the railways. But some part of it will be made by this diesel electric power cars. So if you could share some data points on that. How big is power car market sales for Cummins India right now? And going forward, how much of it can be made up of diesel electric power cars? And how much would the actual loss in terms of income? That's my first question.

Yes. So power cars is a pretty big portion of the rail business for us. And we are pretty confident that we will -- whatever business gets converted to other forms of usage, that we have alternate strategies and ideas by which we can make up pretty much all of that in terms of -- I'm not too worried about that income. But in this period, we are certainly seeing that because most of the places where power cars are used are in the passenger rail portion of the business and this passenger rails have been all down since March. And they are expected to come back only gradually. So the recovery of that segment within the rail segment is also expected to be a little bit more gradual. There is -- we are not worried about our ability to make up for those sales when there is -- when the potential conversion to electrification happens, that itself is a gradual part over the next few years. But even in spite of those kinds of scenarios, it's going to come out of this recessionary tendency a little more gradually.

Okay. And the breakup for the segment?

Yes. So if you look at our sales in the industrial business, we had about INR 80 crores of sales this quarter. And just to clarify, this quarter, we are talking about the April to June quarter, and we were pretty much on track for 2 months of that quarter. And so this -- you can take this as -- we had a 1-month quarter, basically. And we had about INR 12 crores of compressor sales, INR 8 crores of construction sales, INR 15 crores of mining, INR 35 crores of rail, INR 4 crores of marine and INR 6 crores of others. So we -- so it's not a difficult kind of quarter.

Got it. And the second question is, you did mention about some of the new products that you're introducing in the distribution segment. Maybe the [ coolants ] diesel electric [indiscernible] for BS VI vehicles as well as batteries for [ emissions ]. If you could just help us what is the procurement arrangement. Which are the group companies or external parties? What kind of margin can you clock? What can it scope of this entire market size? Some more color, if you can throw on this entire business segment.

Yes. So as you know, we have a joint venture subsidiary called Valvoline and they are involved in this business. And we are just using our distribution channels to sell some of those products. So I can't share the exact margin information, et cetera, on that. But I can assure you, it's a good business. It's complementary to everything. It utilizes our chain, which is already set up and established over many years. It utilizes a lot more effectively. And it brings more top line and bottom line to our business. So it's a good business for us, and we are pushing aggressively to expand that.

Sir, any data you can share like what should be the growth, which should form like 10% of your distribution [indiscernible]?

I can't share that right now because, first of all, it's very difficult to correlate and say how quickly some of those markets are going to recover. That's one reason. And all I can tell you is that we are excited about that segment, and we expect it to pay -- play an important part in our growth.

Next, we have Renjith Sivaram from ICICI Securities.

Yes. And congrats on a good margin. Gross margins have been better than expectations. So in that context, I just wanted to understand that, is that largely due to that higher mix of the distribution where the margins are higher that we were able to show a better [indiscernible]? Or was there any other element also in that better-than-expected gross margins?

You're certainly right that mix had a big part to play in better margin. But -- and you are also right that our distribution business decline was lower. But then we also had some favorable mix impact on high horsepower versus low horsepower, which contributed to that. We had some material cost advantages with cost reduction, which also helped. And we had some onetime [ E&O ] kind of benefits compared to the previous quarter results will help us -- for previous year, which also helped us. So it's a combination of those 3 factors. But certainly, the positive mix between DBU and the other businesses as well as within power generation, a higher shift towards the high horsepower helped us in this time.

Okay. And what was the -- if you can quantify the onetime benefit of the [indiscernible]

Yes. The [ E&O ] -- we had some [ E&O ] in the previous year, which we did not have this year. So it impacted us positively.

Okay. And sir, if you can just give us the breakup of the Powergen in terms of HHP, MHP, high and low.

Sure. So as far as the domestic business is concerned. About -- we had sales of INR 96 crores. Out of that, we had nearly INR 50 crores of high horsepower sales. We had INR 24 crores of medium horsepower sales, and INR 13 crores of low horsepower sales.

Okay. In terms of mid-range?

So when you look at it as that classification, we had INR 21 crores of mid-range sales and INR 13 crores of heavy-duty sales.

Okay. And sir, what should be the material cost [indiscernible]? Will they -- are you seeing a clear trend that we will be able to contain that from the previous high? What's the kind of run rate, which you think that will be a sustainable material cost to sales or gross margins for us?

I don't see major change in this. Things will come back to a normal level as the volume ramps back up and the mix normalizes between the different factors I spoke about earlier. So I don't see a very significant change in material margins. Certainly, many of the cost-improvement initiatives that we are driving should help in improving that a little bit, but not very, very significant.

Okay. And sir, lastly, on the exports, if you can explain which geographies did relatively better. And where do you see the demand coming back from which geography?

Yes. So what I can say is that the -- it is not because of lack of demand that the numbers are so much lower in this quarter. It is mainly because they only ship products for 1 month out of 3. So it's pretty uniform when I see the shipments across the different geographies. So we will know by -- we will know only by this quarter, whether the geographies are covering at a different rate as compared to -- compared to how we are doing, and if there are some relative advantages in some other markets. Certainly, we know for a fact that China and North America are recovering at a faster rate compared to other geographies. But as of now, like I said, since the main reason why our sales are lower is because we did not ship. We will know only in the next quarter the real impact of the geographical spread.

Next, we have Renu Baid from IIFL.

I have a couple of questions. My first question is, what could be the update with respect to the implementation of emission norms, both for the industrial engines as well as CPCB4 which was proposed? And how are we, with respect to your progress, on both the design engineering as well as the [indiscernible] side?

Okay. So let me first answer that question. First, let me talk about the industrial side. The first emission that was going to be implemented was CEV-BSIV, and that has already -- there's notification that, that has been pushed out by 3 quarters, and that notification has already come out. We expect similar -- as of now, there is no notification for CPCB-4+, but we are expecting a similar kind of push out in that emissions norm as well. And we are just waiting for the notification, but the industry bodies have all guided that, that would be better for the different businesses going into the development. We continue to work very aggressively in the development of these products. We have made great progress on the development of these products. And we are -- we continue to remain optimistic that, that will help us win market share and grow the business, and we are seeing a lot of more opportunities open up for us as we upgrade the technology.

And specifically on the industrial engine side, should that help us in terms of the margins and the growth that we see? Or are there some changes in this segment as well?

As we have always seen in markets around the world, as we transition from pure mechanical engines to electronic engines with after treatment, that are -- both our top line and bottom line improves in the process.

Okay. Sure. Sir, second question would be to understand across business segments. You mentioned last time as well, the distribution would be the order to recover followed by industrial exports and Powergen's [ re-lag. ] So based on -- and it's a pretty short time line, but based in the last 30, 45 days of further inquiries that you're seeing through [indiscernible] in terms of pillars of recovery across all these segments, or they're normalizing that to 100% levels, what could be the possible time line then? Or if there's interest from your side?

They are bouncing back is what I can tell you. And obviously, they are going to move at different rates in different segments, as I mentioned in one of the -- at the earlier questions. We see data centers and our telecommunications and those kinds of industries, rental, those kinds of industries ramp up pretty quickly and may even do better than what they were doing in previous years. We see some segments like hospitality and residential realty as well as commercial realty status where their core business is impacted like manufacturing to defer CapEx and the large equipment until they get their base businesses under control to take a slightly longer time to recover. I don't think we will fully recover and come back to previous levels in a very, very short time. It will be graduated over a slightly longer period is our feeling at this stage. But this quarter which we are working on, the July to September quarter, will give us a better indication of how quickly things will bounce back.

Okay. And the last question would be, you mentioned last time that there could be some possibility of renegotiations on the rental income side for our office building complex side. So has there been any change in terms of the rental income expected from there? Or they're broadly intact as of now? That's the last question from my side.

So far, they are still intact.

Next, we have [indiscernible].

Just to get a sense of where we are in terms of our demand. I understand that in any ways would be working with some form of an order book at any given point of time. So could you just tell us how does [indiscernible] like at this point to compare to what it is in -- or let's say, last year, looking the time, probably like 30% of normal, 50% normal. So that would probably help us understand where we are and how probably that has changed over the last month.

Yes. So our order books are pretty strong right now. And I would say that's mainly because in the last quarter, we shipped only for 1 month, which means there is a lot of pending demand, which we are now trying to fulfill and catch up on. How does realty [indiscernible] into real market demand? We will have clarity on that only by the end of this quarter. And so it's very, very difficult to say how strongly it will recover. But all I can tell you at this stage is that, as of now, we are -- we have got a pretty strong order board as of today.

That's helpful. My second question is on the Powergen side. I wanted to understand commercial realty, this could be things like shopping mall, office complexes, et cetera. In a normal year, how big would that be as a percentage of your domestic Powergen sales? And the reason I'm asking that is I'm not sure if that is an area, which possibly would take much -- would probably see some challenges in the medium to long term. So just wanted to understand that.

Yes. It's an important segment. I couldn't tell you the exact percentage in previous years versus this year, but I can tell you that it's a pretty important segment for us because those offices and those kinds of trading complexes buy a lot of large gen sets. And certainly, when we are not building those complexes or those complexes are idle, those companies don't tend to buy new equipment until their situation has improved. So I can say that certainly, that will have an impact on us. And we are working on alternate segments, which are doing better to try to make up some of that -- those losses.

Next, we have Priyankar Biswas from Nomura.

Priyankar from Nomura. So my question is, like, as of today, like if you can quantify. So what would be your current utilization levels? Let's say, versus -- let's say, compared to pre-COVID levels, before the COVID outbreak broke out, I mean, at present.

I would say we are somewhere close to 65% to 70% kind of utilization level.

Okay. And the second part is, sir, what I understand is this shift towards mechanical to electronic engines and the lower emissions, so does this open up opportunities even in, let's say, the more developed geographies? Because what I understand is the emission norms that we will be having now is actually comparable to, let's say, the U.S. or even Japan, for example. So is there something that is there in the pipeline like product approvals or anything that can give us some visibility on the export markets ahead?

Yes. Certainly, it opens up the doors for export markets. As I have explained in the past, Cummins has a manufacturing strategy, where we have 3 main hubs around the world. The first one, of course, is in the home country of the company, which is in the United States. The second is in the largest growing market for the company, which is in China. And the third, the biggest manufacturing base for the company is in India, and that continues. India continues to be a major hub for manufacturing for Cummins for utilization around the world. Certainly, the opportunities for more products opened up the difference in the levels of emissions are all nullified and they all become equal around the world. And the way those opportunities typically play out is if we are better than others in the world in terms of cost, quality, delivery, efficiency, then certainly, more opportunities have opened up in the past for India and will continue to open up in the future as well.

So can you throw something on the pipeline? Like, let's say, like for these things to happen, I think maybe you would require, let's say, some product approvals in those geographies probably, I mean, to ship it from India. So anything on works in that? So something on that side.

Yes. So most of the -- if you look at the way products get developed, like, for example, in India, we are developing CPCB-4+ products. The CPCB-4+ products are equivalent to EPA Tier 4 kind of emission norms. And so once those products are developed, then they go for testing in multiple countries, and they get approval certification in multiple countries. We have already done that for many geographies in Europe and in America with our CPCB II products. And similar kind of part will be followed for CPCB-4+ products as they become -- as they get developed. So there's a well-documented product that will be able to do all of these, and those are all being followed.

Okay, sir. And sir, just one question, if I may just squeeze that in. So I see that sequentially, you have half your other expenses broadly. So I think, of course, one factor would be that your sales were down, so that explains a part of it. But still, even then it seems to have half the -- it seems to have been cut down significantly. So if you can elaborate like of this other expenses that you have, what would be probably the fixed component? I mean more like the fixed cost that cannot really be cut out in under any circumstances. And what can be the sustainable level? What do you see this going forward?

Yes. So it's very difficult to give you that kind of clarity in a company which has been in existence for 58 years. But all I can tell you is that, as I had mentioned even in my call last quarter, we have been taking various actions to reduce costs. And what we have committed is that you will see the impact of many of those actions in subsequent quarters. So certainly, we are seeing the impact of some of those actions. And if I were to classify in the broad areas where we've seen improvement, certainly, we've had improvement due to the volume. In cost, we have -- all our cost production activities on discretionary spending has gone down. Our products have performed better in the market and so our warranty costs are lower. So just about every part of cost management has gone into getting there, and we are watching it. We are continuously watching what is variables, what is fixed and can be converted into partially variable, is the kind of exercise we are going through. We call that exercise rings of defense, and we have been -- I have been talking about it, and we have been going through it for the last 6 months, and we will continue to keep working on that.

Abhishek Puri from Axis Capital.

So 2 things. First, in terms of your product approvals that you mentioned in annual report, like the hazardous material approval for LHP products to be marketed in Europe as well as the high horsepower production on the MENA region. How big that market can be? And how soon can we start with those projects with the products that have been approved recently?

So we have already started some of those. We have started gradually. Usually, the way this works in the global system is once we have completed those approvals, we start getting trial orders. And then based on the success of how well they work in those markets, then more orders show up. I can't give you the exact break up or exactly how much we will be able to get out of that. But I can tell you that the reason those projects got approved is because they have a good business case, which has a good internal rate of return, et cetera, and good [ NPV ]. So yes, these are positive steps for the company, and we will continue to move forward with that.

Could that really improve our -- the LHP and HSP, I mean, in the coming year or maybe a year later? Has that got potential to double anything of that sort or these will be more incremental?

I would say they will be incremental. And most of these kinds of ideas are incremental. And -- but incremental, little by little is how we got to be a large business. So one can discount that, as you start exporting more and start playing in more and more niche segments, more opportunities keep opening up.

Okay. Sir, secondly, on the railway business, I think you mentioned that [ HLB ] based systems will reduce the requirements for locos by half as a backup arrangement only in future. So any other product segments, which can compensate for that loss?

Yes. We have -- we are working on quite a few products and projects on that. I won't comment into the exact detail until we have launched those products, until we are successful in getting those orders. All I can tell you is we are in final stages of quite a few exciting projects, which will take us forward for the next few decades with replacing whatever business will go away eventually.

So would you say that the INR 400 crores approximate revenues that we had in railway business last year, would that remain? Or would that reduce or increase? [indiscernible]

Yes. Our aim is to try to keep increasing that business. So we are not in the business of trying to lose business or trying to reduce our share in any segment. So certainly, we are pushing aggressively to try to keep growing rail. Rail is an important segment for Cummins in India and around the globe. And we think we have some exciting products to continue to operate the success we've had in rail and grow on that further.

Great. Okay. And if I may squeeze one more, sir. Employee and cost overheads have been commendable that they have reduced for both -- at both the cost level. So is there any one off there? Or your efforts have been there for many years, but this quarter has been the results. So should we consider that as sustainable numbers? Or should we consider that as one off?

See, employee costs will always be going up. So it's going to be a constant fight and a battle to keep improving efficiency, keep improving your cost structure, keep improving the way your per employee output keeps improving. So one does not build a successful company at the cost of underpaying employees or just taking employee actions. So certainly, we focus on that. We are a top employer of the nation. And so certainly we have to worry about what we do with our people cost. But we are focused on that, and we are pretty optimistic that we will keep delivering better value to the shareholders.

Next is Deepesh Agarwal from UTI Mutual Fund.

So my first question is, the way we understand Cummins India in FY '19, was it was a 16% to 17% EBITDA margin company. Last 2 quarters that understanding has been shaken. So what are the factors in the medium to long-term that need to fall in place for you to go back to the previous margin level? Or is it that gross margins are [ out of fashion ] in this industry?

I don't -- I honestly believe that we can certainly get to those margin levels that you mentioned. And the big levers for us usually are improving sales and improving our utilization and our fixed cost absorption better and continuing to focus on our cost structure to make sure that it is aligned to our profit ambition. So we are very focused on making sure that our -- all our stakeholders get the kind of margin we have delivered in the past, and we are working on getting back to those levels.

Okay. And on the export front, can you help us understand the size of low to medium [ cases ] in that market across the geographies and Cummins India's market share out there?

It's a very, very complex question, Deepesh, and I don't really have a good answer, other than to say that Cummins is probably in the top 2 in terms of global Powergen as far as the global players is concerned. And the fact that we are growing, and India plays a significant part in Cummins' global manufacturing and footprint strategy. So I can't tell you more than that. All I can tell you is this is a very important market for Cummins. It's a very cyclical market, which is why you see large ups and downs here. But Cummins is focused on this market, and we are trying to improve our position and thereby, India's export potential as well.

Okay. And lastly, sir, as I understand on the earlier question, as you move in CPCB-4, the potential for Cummins may increase in some of the geographies like North America, LATAM. [indiscernible] But how difficult it is the full entity [ outlet ] in U.S. to put out the local production and [ post it from ] given that we are giving it at a cheaper cost?

Yes. It's very difficult to do that unless you provide significant value in terms of, like I mentioned, cost, quality and delivery. But we have done that in the past. We do supply products to every major European, Asian and North American market based on being able to deliver that kind of advantage. Certainly, when that advantage is not enough to cover their fixed costs or their [ fund cost], certainly they will not be open to buy those products. But that's the way the [ debt ] is paid. Unless you can prove value to any customer or market, there's no free entitlement to just be able to ship products.

Next is from Ajinkya Bhat from Macquarie.

Sir, two questions from my side. The first question is on the employee cost. You had mentioned earlier that you had [ VRAs ] and other employee salary-related actions that are supposed to impact 15% of the workforce and would start showing benefits from April. So whatever else have [ cost ] reported this quarter, can we take it as a new quarterly run rate? Or are there any actions pending or could there be certain one-off additions in the rest of the year, like, let's say, performance-linked incentives that you might have deferred, but could be restored in the latter part of the year. Your comment on that? That's the first question.

Yes. So certainly, there are -- when you do employee actions or payroll actions, we have built up [ bringing value to ] multiple components. There are things you do with salaries, where -- which are of temporary nature, which have been done during the recessionary period. There are things which we have done on a more permanent basis such as headcount reduction and [ ERP ] et cetera. Those certainly continue, the impact and benefits of that continue. And there are some things we have done in terms of deferring merits or deferring some settlements, et cetera, and those are likely to come back. And we are evaluating the situation, and we are focused on our profit objectives, and we are trying to figure out from a medium to long-term perspective, what is the best strategy for us. So we will continue to take more adjustment actions as appropriate for the business as it picks up.

Okay, okay. And sir, second question is, in the last quarterly update, you had mentioned that there were about INR 1.9 billion worth of shipment that were deferred in the last quarter. Basically, the products were ready, but could not be shipped out, it could be due to the [ nationwide ] lockdown. Has it all been dispatched and revenues booked in this particular quarter? Essentially, what I'm trying to understand is that mathematically, we can see that if there was 2 months of lockdown, so your revenues are 53% down Y-o-Y. But if this already includes INR 1.9 billion of deferred shipments, then your actual execution and shipments in this particular quarter, excluding that deferred portion, then it would show a decline of more than 75%. So is that a significant demand business that you have seen?

A very complex question, but I'll try to answer it in the best way. Certainly, it is true that we were shut down for 2 months. So mathematically, you can say that only 33% of what we shipped. And certain segments have had a deeper fall than that, as I mentioned. Power Generation, for example, has fallen by more than 75%. So yes, so it is true that some segments have fallen more. We have shipped some of those backlogs, which we could not ship. We have tried to catch up. But our [ outer wall ] is still looking pretty strong. So we get a much better understanding of full year impact by the end of this coming quarter, the July to September quarter, we'll get much more clarity on where we are likely to end up.

Sir, any number of -- around what portion of that $1.9 billion has been shipped out this quarter?

I think all of it has been shipped out because it was all packed and ready to ship. And so the first thing that would have [ done ], it could have been that.

Next, we have Bhavin from SBI Mutual Fund.

Yes, if you could just take the [ capacity and ] segment, and it would be useful if you could just give a brief view of the outlook of the sector, maybe shortly compressors, construction equipment, railways, mining. What are new opportunities that you could see in the longer run?

Yes. So as you know, we have -- we are a major player in the compressor segment, and that segment was going through a cyclical direction. But because of good rains and good, strong agricultural output, that segment is not expected to be impacted that strongly. Construction is the segment which was not impacted quite deeply mainly because infrastructure spending has not happened. But the government has proclaimed even recently that the prime minister himself is going to aggressively push infrastructure development. And our business is directly correlated to money spent on infrastructure development, so that has the potential to bounce back very strongly. We again have very exciting products in that segment. So when that segment bounces back, we always do well in those segments. We have amazing customers there, and so that helps us in terms of -- and good market share, so that helps us grow. Mining, we have made an entry into larger horsepower products. And with all this talk about Bharat and more business coming to Indian companies like Bharat Earth Movers, who are our big customers, we expect to move strongly in that area. Marine, again, is -- a lot of the spend is dependent on defense, the navy and many of those kinds of applications. And those have been lagging in this year because of lack of spend or lack of release of money in the past 4 to 5 months. But with the kind of crisis faced by our country, we expect the spending there to start increasing. And so we are positive that, that segment will continue to grow. On rail, I mentioned earlier that we have lots of new exciting products coming up there to replace some of the business, which is likely to get obsolete. But while it is not obsolete, while the old technologies will continue, we continue to have extremely well working products with being the preferred supplier to the government, and we will continue to maintain our strong market share in those areas. So overall, by the short-term is not extremely bullish for the overall industrial segment. But medium to long-term is extremely optimistic and bullish as far as those segments are concerned.

So can we say our medium to longer term, a 20% compounded growth is achievable in this segment?

We don't give that kind of growth estimate or analysis, but you have to just look at the past trends of that segment. And there are periods where we have done even better than 20%, there are periods when we have not. So we think that we will do well in these segments. As the technologies get more sophisticated, more complicated, we at Cummins have always done well in these segments around the world, and we are expecting to do the same in India.

Sure. A question on margins. Pardon me, I joined in late. What could be the sustainable material margins that we could look for? And employee cost historically used to be in the range of 6% to 7% of revenues. Can we get back to that number as the growth resumes to normalcy and the optimization that we have done on the cost front?

Yes, it's going to take some time, but certainly, we are working towards those kinds of numbers. And bring back material margins to historical levels. So Bhavin to -- yes, we are working very diligently to bring back our profit margin levels to the levels we have historically delivered. And that's the biggest effort going on. And I think we are confident that we will get there.

[Operator Instructions] Next is Atul Tiwari from Citigroup.

Sir, just one question. How much is the CapEx spend that we are seeing this year?

We continue to spend on CapEx. So we are cutting back a bit on anything which is nonessential. We are trying to cut back on our deferred CapEx spend, but we continue to invest very strongly in areas which are related to R&D and new product development, which is -- which impacts our future. So we continue to invest there. And that actually is a great advantage to Cummins. Because we have seen around the world that in these stressful times, when other companies cannot invest so heavily in some of these technologies, they then become more dependent on that. I wouldn't say more dependent. They rely on Cummins and on the ready technology, which is already developed to use in their platform. So customers we have not had in the past or areas where people have made their own investments, we find that in these stressful times, continuing to make investments in critical technology helps us in the long term.

But any rough number for this year that you would have finalized or would you have in mind?

No, I won't, at this time, give you that kind of granularity. But all I can tell you is CapEx continues at Cummins India in a pretty aggressive manner as compared to other companies in our space.

Next we have Amish from Bank of America.

Just a couple of bookkeeping questions from my side. I'm sorry if they have been answered already, my call got disconnected twice. Sir, can you please give the breakup of exports into low horsepower, high horsepower, midrange, heavy-duty players, et cetera?

Sure. So exports is -- we had about -- sorry, one second. I'm just pulling up my data. Yes. So in exports, we had a total of INR 126 crores, out of which low horsepower was INR 21 crores, mid-range was INR 36 crores, heavy-duty was INR 14 crores and high horsepower was INR 41 crores and spare parts was INR 14 crores.

And sir, similarly, if you could give the breakup for the domestic [ segment ] and for similar categories?

Sure. As far as the domestic segment is concerned, we had INR 4 crores of LHP, INR 21 crores of midrange, INR 13 crores of heavy duty, INR 59 crores of high horsepower.

Next is Aditya Mongia from Kotak Securities.

The first question which I had was related to the [ huge norms ] change. As we improve on our product offering, could you let us know what kind of opportunity for export opens up for us? And the opportunity [ in ] something that Cummins global [indiscernible] [ potential sale ] which could be the potential size of what we can do eventually.

Sure. So I can't give you the exact potential size. But what I can tell you is that currently, India is in what is called CPCB II as far as these products are in BSIII as far as the [ our pilot ] products is concerned. As the technology moves up, it goes to what is called CPCB-4+, which is equivalent to EPA Tier 4, which is the current standard, which is being used in the United States or it is equivalent to Euro Stage 6, which is what is the standard being utilized in Europe and those markets. So when we go to these technologies, it brings us on par with all of those markets. Currently, we are only exporting what I call lagging emission products. And this opens up the door to also export leading emission products. Of course, like I said, there are many, many variables between just being able to -- we had the same emission levels and actually getting orders and being able to export and to fulfill demand in those markets. So while it opens the doors wide open for us to many more opportunities and markets, which the company has been exploring, and because India is a region from which a lot of products are sourced around the world, it opens the doors for us to do even more.

Fair. The second question which I had, somewhat related was that you obviously talked about cost and delivery [quality ] [indiscernible] [ expense ] that could be taken into account. Could you provide us with a subjective comparison of Indian products versus Chinese products from a Cummins perspective? And how India would fare on the -- just as [ subject comment to ], can you get a sense of what are the strength of the manufacturing from India versus China for Cummins?

As far as Cummins is concerned and I cannot answer for other industries, I can tell you, Cummins India has the best cost structure as compared to any geography in the world. So this is why many of those geographies, including some of the ones you mentioned, import products from India. So I can tell you that our overall cost structure, our quality, is really among the better in the world. So that's why we get those opportunities.

Sure. The last question from my side was that in your annual report, otherwise, we've been speaking about increasing competitive exports portfolio. I wanted to get a sense from you who are the key competitors? Would it be the companies exporting from India on the LHP front? I just want to get a sense of competition from your side on the export side and how things are shaping up over there?

Yes, different in different geographies. So for example, in continents like Africa and Latin America, it is the Chinese products. In Europe and Middle East, it is some products which are made by American and European manufacturers, which compete with us. And in the nearby geographies like Bangladesh, Sri Lanka, Nepal, et cetera, are local Indian manufacturers. So that's the way probably I would answer that question. It's different for different regions.

Next, we have Rahul from IIFL Securities (sic) [ IIFL Research ].

Sir, I had a question on the industrial business. And I think you did give a very good outlook on each element of the industrial business. Could you give us a breakup of the revenue of the industrial business compared to construction, mining, railway marine, et cetera?

Yes. I think I did that, and I'll do it again. Out of the INR 80 crores that we had in the last quarter, INR 12 crores was in compressor, INR 8 crores was in construction, INR 15 crores was in mining, INR 35 crores was in rail, INR 4 crores was in marine and INR 6 crores was in other segments.

Okay. And do you have the numbers for the fourth quarter handy?

Sure. It was INR 2.5 crores in that quarter, and it was INR 33 crores in compressor, INR 83 crores in construction, INR 26 crores in mining, INR 92 crores in rail, INR 1 crore in marine and INR 10 crores in others.

Next, we have [ Amar ] from [ MT Global ].

I had a couple other questions. First is [indiscernible].

Sorry, [ Amar ], your voice is very low.

Sir, the question was you have a lingering spend on the preparedness for CPCB-4+ for quite some time. Now even though you mentioned about 3 quarter likely pushback in CPCB-4+, you also mentioned about the export opportunity that this could open up. So is it possible that even though the domestic implementation of CPCB-4+ is getting pushed out, but your export opportunity could takeoff since you are already ready on this? Or is it that the economies of scale will only allow you to do this when the domestic market also opens up?

I think you partially answered the question by -- see, you will scale up before you become cost competitive to be able to meet all the market requirements. And also the development is an ongoing process. So even though the push out is by 3 quarters, products don't get fully developed that much ahead of time. While we are making great progress, we have got products on test, et cetera, there's still quite a bit of time to go. But certainly, as products become ready and as opportunities open up around the world, we are not waiting for CPCB4 to get more products from India. So there could be some opportunities which open up even before that.

All right. Sir, the second question that I had was business. You mentioned about -- you answered someone about the likely delay in commercial real estate business picking up and hospitality and all those things picking up and which is why there could be an extended impact on the Powergen business. But at the same time, the impact, in my view, would mostly be on the new launches in these businesses. But the deliveries for Commercial Realty, for example, might still continue for [ whenever it already ] been launched. So in that sense, do you -- would you agree that the real impact will only start showing up 2, 3 years down the line?

Yes. In principle, yes, I do agree with you. But what happens is people who have not yet completed projects, what they sometimes do is they don't finish off the projects. And equipment like gensets are pretty much dropped in at the last moment. So they defer buying it till they get their financials and that demand before the sale actually happens. So yes, those people who are already almost complete and those people who will just finish up and move on. So yes, certain portions of that business could come back. You're absolutely right in that. Thank you, everyone.

We have no questions.

Yes. So thank you, everyone. So thank you, everyone. These were really good questions. We are -- we continue to remain positive and optimistic about the future of this business. Our company is coming out well out of this crisis. And we are pretty confident that over a period of time, we will recover and make up for all of these bad impacts and bad quarters that we are having because of many of these global events. But again, I want to reiterate that we continue to be a market leader in every segment that we serve. And we are optimistic that we will continue to maintain those positions and increase our lead. Thank you.

Thank you so much, sir, for addressing this session and to participants for joining in. That does conclude our conference call for today. You may all disconnect now. Thank you. Have a pleasant day.