Cummins India Limited (500480) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Cummins India Limited Q3 FY '22 Earnings Conference Call. We hope you all are keeping safe and healthy. [Operator Instructions] I will now hand the conference over to Mr. Ashwath Ram, MD, Cummins India Limited. Thank you, and over to you, sir.

Good morning, ladies and gentlemen. My name is Ashwath Ram. I'm the Managing Director of Cummins India Limited. I hope you and your families are all doing well and staying safe. Joining me on today's call is our CFO, Mr. Ajay Patil. Thank you for joining us for the CIL financial results call for Q3 2021-'22. Cummins is navigating this period of uncertainty from a position of strength, and I'm happy to inform you that Q3 was a record quarter for CIL in terms of revenue, EBIT. Our distribution, industrial and our associate JV companies, that is CGT and BPL, all recorded their best-ever sales. This record quarter was possible due to the strong demand from our key end markets like data centers, health care, infrastructure, commercial real estate and manufacturing. Gradual improvement in supply chain is another factor which helped in meeting demand for the quarter. While we do see some improvement in the supply chain, there is still quite a bit of uncertainty and constraints on semiconductors, electronic parts and quite a few other commodity-linked items. As we share our organization growth through another wave of COVID-19, our top priority will remain the safety and wellbeing of our employees and communities. Now I would like to share the financial results of Q3 FY '22 through this call. For the quarter ended December 31, 2021, with respect to the last year same quarter, our sales at INR 1,701 crores were higher by 21% compared to INR 1,200 crores recorded in the same quarter last year. Domestic sales at INR 1,261 crores, increased by 23%. Export at INR 440 crores increased by 18%. Profit before tax and exceptional items at INR 320 crores is 5% higher as compared to INR 304 crores recorded in the same quarter last year. For the quarter ended December 31, 2021, with respect to sequential or last quarter, our sales at INR 1,701 crores, higher by 1% compared to INR 1,689 crores recorded in the last quarter. Domestic sales at INR 1,261 crores, increased by 1%. Exports at INR 440 crores was obtained at the same level. Profit before tax and exceptional items at INR 320 crores increased by 9% compared to INR 290 crores recorded in the last quarter. Segment-wise breakup for the quarter ended December 31, 2021. The sales breakup segment-wise are in the domestic market, Power Generation domestic sales were INR 501 crores, 21% increase over last year and 21% decrease over last quarter. Distribution business sales were INR 450 crores, 23% increase over last year as well as 23% increase over last quarter. Industrial domestic business sales were INR 291 crores, 22% increase over last year and 27% higher than last quarter. Export, high of par export sales were INR 193 crores, 4% decrease over last year and 20% decrease over last quarter. Low horsepower export sales were INR 216 crores, 48% increase over last year and 23% increase over last quarter. As far as Cummins India financial guidance is concerned, the company expects the current trend of sustained growth across industries and segments. Demand from various markets and -- end markets continues to be positive. The impact of the third wave of COVID-19 is still under scrutiny. The company continues to work on stabilizing supply chains and part supply. Considering the uncertainty surrounding the business environment and the supply chain, the company will not be providing the FY '22 forecast. With this, I now open the session for questions. Thank you.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from Ravi Swaminathan from Spark Capital.

Sir, if you can give the breakup once again for this quarter, it will be great, sir. So, basically, I missed a couple of numbers. So power gain you told INR 501 crores. And then in the distribution business, you told INR 250 crores?

The distribution business is INR 450 crores.

INR 250 crores? So compared to last year was...

INR 450 crores, 4-5-0.

450, okay. And the industrial was INR 291 crores.

That's correct.

And exports is 409 crores total. I mean...

Exports is INR 440 crores.

INR 440 crores, okay. Got it. And sir, if you can give some thoughts on what kind of price increase that we have taken since the first price increase that we have taken last year on a blended basis? And how much more price increase is needed going forward?

So I won't give you exact numbers on price increases. All I can say is that we have tried to keep up price increases along with commodity increases. But typically, this lag behind us. I would say lag behind about quarter and a half in a catch-up kind of basis. So we do see some impact on the commodities on the margin, but we continue to increase prices to offset the commodity increases.

Okay. But the past 12 to 18 months, we would have taken high single-digit price increase, that's something near that. So I mean in the sense of...

It depends on the market segment. So I can't give you one exact number, but we are trying to keep up with the commodity. That's the best thing we can look at it, because some segments are very heavily impacted by commodities. Some are not as much. So it depends on which segment and which market. We don't really do like a peanut butter price increase across everything. We go to it based on which market, which segment and how much impact we've had from a cost perspective.

Okay. Okay. Sir, and with respect to the power gen business, we have seen good growth. So how much of it will be driven by key sectors like data center, if you can give any segmental share across different end sectors, it will be really great sir in the power gen business, data center?

As of now we don't give segment share because it's very difficult to get that information from the market in a line kind of basis. But I can tell you that the sectors I mentioned, data centers, manufacturing, pharma, healthcare, commercial LD, all of these have started to pick up pretty strongly. And we are starting to see some signs of bounce-back even in infrastructure and some areas of residential reality as well.

Got it, sir. And with respect to exports, my final question. So I mean, which geographies are in -- are they seeing any pick-up, any geographies that you are seeing good traction, oil at $90, Middle East Africa, how the traction is, if you can throw some [ light ]?

Yes. So just to give you a little bit of the -- of which markets are doing better, in the last quarter of the calendar year, typically, most markets actually slowed down a little bit as they shut down for Christmas and then they ramped up a little bit slowly in the January month as they come back from Christmas vacation. So Latin America was a little bit slower than the previous quarter. Asia Pac continued to pick up and start to bounce back. Europe has been picking up quite well and has done better than the previous quarter. Middle East continues to pick up as we have attributed as their funds increased with the oil price going up, that business there is picking up. Africa is a market which has been very subdued. And I think they have felt the biggest impact in the global terms from all of these forward prices. So we continue to, I would say, languish a little bit.

Our next question is from Renu Baid from IIFL.

Congratulations for the strong performance this quarter. Sir my first question is, if you look at the export part of the business, despite the seasonality in terms of slowdown, you've managed sequentially flat numbers in revenue terms. So can you highlight us on which applications, earlier you had spoken about telecom as one of the key sectors driving growth. But in terms of end-market applications, which are the sectors you think can help us recover exporting same double-digit levels? And do you perceive any risk to volume or offtake to Europe amidst the recent U.K., Ukraine and Russia standoff?

Certainly, all of those factors have a little bit of impact, but we are recovering from multiyear lows in the low horsepower business. So that continues to perform well for us. And as we had previously told you, we have launched quite a few new products, which are fixed or market products in the global markets. And so we are starting to see some dividend payoff in those markets. So that's why low horsepower continues to do well and some of the newer products that we have launched, all of those continue to do well. I'm not sure how much impact the Ukraine crisis is going to have on the overall demand, we have the wait and watch. Certainly, some of our products go into those kinds of regions as well. But Europe is also beginning to recover and has opened up a lot more from a business perspective. So could that offset each other, we've got to wait and watch. So we're -- we'd like to be a little bit cautious because still many variables are unknown still at this time. But overall, as of now, the order growth will look reasonably strong and confident.

Sure. Sir, the second question is Industrial segment after quite a few quarters is now back to -- on a very strong footing. So how are we seeing the growth outlook across the key markets, construction, rail, marine and if you can share numbers. Along with this construction equipment in specific where we had new emission norms being implemented 2 quarters back. So how is that market panning with respect to acceptance of new price hikes and demand uptake?

So this -- we got off a little slow in the -- after the monsoon. So the -- if you look at the spend of infrastructure by the government on road building, et cetera, after the monsoon, it didn't pick up as much. So it started off a little bit slowly. And so -- but it has picked up, which means this quarter, we had sales of INR 95 crores in construction, which was better than the previous quarter, but it's not yet back -- it's not yet going all out. So we have optimism that it will -- as the year progresses, they will continue to pick up. We still think in this quarter, it may not recover as strongly because there are elections going on in -- election plans going on in multiple states, the big states, some of them. And so construction has not yet picked up as strongly. But the outlook is positive. The products are doing well, and we continue to be extremely bullish about the prospects of construction on a multiyear growth kind of perspective. Rail was the segment which had taken the biggest [ stake ] in the whole -- nearly 2 years of COVID and it is starting to slowly return back. We did about INR 83 crores in this quarter, which is an improvement versus the previous couple of quarters. Compression continues to remain steady at about INR 39 crores. Again, activities that compressor are very widely driven by the government allowing drilling for water for farmers, et cetera. So when some of those activities are impacted, then quarter-on-quarter, you see some trends, which are a little difficult to predict. But when you look at it on a year-on-year basis, we remain optimistic that we continue to grow in those. And the smaller segments, like mining and marine, they continue to remain strong and keep doing better quarter-on-quarter.

Sure. One last question, if I can ask here. Our cash on books has remained pretty steady and now stronger or sequential basis as well. So how do we plan to utilize this cash, you've announced interim dividend, what else would be on cards in terms of using the cash [ here ]?

Certainly, with the CPCB-4+ kind of launch happening pretty soon now, some of those investments are going in product development. And we are looking at -- most of the growth ideas are all focused on trying to bring in new products, trying to upgrade the technologies in some of the products, get some of our facilities upgraded to do future products as some of the older ones get obsolete. So that's the way we are thinking of utilizing some of the cash. And then if we see some interesting options and interesting ideas on where we can move quickly, certainly, we are open and looking for some kind of ideas to get faster growth.

Any investment plan for clean energy or hydrogen in the near term?

We have bid for quite a few tenders. So if you got to win some of those tenders and those investments are likely to come in. But yes, we are -- we remain optimistic that we should be able to win a few orders in this calendar year and make a breakthrough there. So if we were to win some of these orders, subsequent investments will be coming in.

Our next question is from Parikshit Kandpal from HDFC Securities.

Congratulations on a great set of numbers. So my first question is that inflation has been surging globally. We have seen parent reporting under lower gross margins in the power gen segment, and we continue to still remain -- report very robust numbers there. So I just wanted to check, would you this, are we pleased better in terms of price competitiveness to supply to the export market? So if you can give some sense there?

I didn't get your question very, very clearly, but I'll try to answer it to what I think I understood. Certainly, exports is better for us as compared to the domestic market. We get much better price realization than we export. So that's one part of it. Second is as the market leader in India in power generation, we do see significantly better margins in power generation as compared to others. And which is why there is -- as we hold or gain market share, there is always cost pressure from the India market. But we continue to not only target growth, but also growth in profitability. So we will continue to remain focused to make sure that not only are we growing, but not just buying market share for the sake of market share, but market share with decent profitability is our -- is the way we think about it. So we will continue the actions necessary to win on both counts to win with product to win with market share and to win with better profitability.

Okay. My second question was on the hydrogen strategy. So we have seen some of the larger players like Reliance, Larsen and there is Adani, specifically their hydrogen strategy, clean energy strategy and then on some CapEx plan. So you touched upon the hydrogen part earlier, but do you have a buy-in from the global parent on this? Do you think significant capital outlays being made over next few years on localizing this technology producing in India? So if can you give some sense on that -- how will the clean energy portfolio emerge for us in India or more on the localization side of it?

Yes. So Cummins, in India, we have been in India for nearly 60 years now. And our experience tells us that we are never successful in India under the localized. So it's never going to be a strategy for Cummins to just import something and just sell it here. If there is sustained demand, of course, we do that in the short-term when we don't have enough demand or when there are economies of scale, somewhere else. But in the long-term, India is moving towards the hydrogen economy. Cummins is heavily invested in India, and we will continue to invest in the hydrogen economy. Some of the names you mentioned, those and many others are big consumers of the product. We are the technology suppliers. So certainly, we would want to talk to them and many others to bring our products into the country and help the country meet its objective on becoming a carbon-neutral kind of country.

Just one thing, on this EGM announcement, sir, there's a point to which is the transaction in ordinary course of business Cummins Technologies India Private Limited. So if you can just elaborate on what is this item? Can you give some more granularity there?

Yes, it's more a compliance-related matter related to related party transaction where the authorized -- when a certain person -- when you do a related party transaction greater than a certain percentage, then you need to have it approved by the shareholders. And because business has been better, we have had to do that, and the EGM is just to normalize that.

So lastly, sir, any plans on the merger, any updates there, if you can share?

Nothing I can share at this time. So I'll leave my comments with that.

Our next question is from the line of Rajesh Kothari from AlfAccurate.

Congratulations for really good set of number in an otherwise challenging macro conditions. So sir, my question is last time you gave a very detailed, your view on the Minister notification that you are closely working with government. Any further thought progress from that perspective in last 3, 4 months, how do you think that can evolve?

It's moving forward, just we had forecasted, and there is nothing new to report in this quarter, but it's moving forward exactly as was discussed earlier and the dates that were confirmed by the ministries, they are going to hold to it.

So basically, what is the date now as per the revised one? Because earlier it was April, with a transfer -- shift to extending, right?

Yes. The date continues to remain July '23 as was previously announced.

Okay. Okay. And also from the overall that 0-emission footprint-related, that notification not to use diesels and DG set for all that stuff. Any further clarity on that?

Yes, the Ministry has issued a clarification. And I think Cummins has been very clear that, Cummins as a company is committed to get to a carbon-neutral position by 2050. India itself has committed to get to a carbon-neutral position only by 2070. So we are all for -- all means and methods necessary to get there. But there is a short-term plan, a medium-term plan and a long-term plan. In the short-term plan, the best way to help the environment is by tightening emissions by introducing biofuels, fuels like ethanol, et cetera, and blending them with diesel, so that you get a benefit with the infrastructure you already have invested in. And then as we move forward, to move to alternate energies like LNG, CNG, et cetera. We even have talked about technologies that we have with -- we are leaders in like introducing hydrogen in internal combustion engines. And then in the long-term moving to a hydrogen kind of economy, which is more in the 25-, 30-year kind of time frame. So we had -- we have had these kinds of conversations with the relevant ministries, and they are pretty aligned that this is the best strategy for the country.

Great. And my second question is with reference to the margins, do you think that once the inflation is probably, you [ pass-through ] the entire -- the individual commodity. Do you think the operating leverage and the product mix will finally lead to probably longer term better margins compared to what we have seen in last 2, 3 years?

Yes, we are striving for that. As you must have seen from what similar kinds of companies likes ours, even globally are going through, the commodity inflation has been so significant and so severe that we have done significant work on cost management and getting leverage in the operational space, in the cost sales, in the people sale. But the question of whether we will be able to improve margins once commodities stabilize, the answer is we really think so. And we have demonstrated that in the past, and we are continuously striving to keep improving our operational efficiencies and get better margins. So my answer is yes, I think so, and we are pretty focused towards continuing to improve our margins.

Our next question is from [ Mayur Liman ] from Profitmart Securities.

I just want to ask what is the outlook for the next quarter? How do you see the quarter 4 now? And what is the plan for the CapEx? That is the 2 questions from my side.

Yes. So the -- on the outlook, typically Q4 is from a domestic market perspective, are the second weakest quarter in the year, mainly because what happens is all the big government tenders, all the big OEMs, etc., they start to wrap up the year and shut down on inventory sometime by early March. So they start to taper down their buying and then they start buying again in the month of April. So this quarter is typically weaker. And also you get the double whammy that the global export market because they shut down for Christmas, they begin work only at the end of the first week of January. So you do almost 2 weeks in January as those guys begin to start to ramp up. So, typically, historically, we have seen that this quarter, you start off the gate a little bit slow and then you start picking up. And we are still constrained with quite a few supply chain problems. On the domestic side, we -- our order boards are very strong, but we continue to remain constrained by supply chain. So, I'm kind of forecasting a slightly weaker quarter as compared to the previous quarter. But it's a difficult comparison because the previous quarter was the best quarter we've ever had in history. So, relatively, it's going to be slightly weaker.

And second question is what is the plan for the CapEx?

It's nothing significant. Most of the investment in CapEx is either sustenance CapEx and some continued CapEx from a growth perspective. No major capital expenditures are planned in this quarter.

Our next question is from [ Rajesh from ITI Limited ].

My question is around our medium-term and long-term plans, which you just mentioned answering your previous question. See, the thing is most of our plans for future are around hydrogen economy and hydrogen technology, which is slightly behind in terms -- or the timeline is slightly more extended. What is more imminent is electrification in storage as well as for vehicles. So, how exactly are we preparing for that? Because most of our product segments and end users -- end-user industries rather, they are looking at this sort of shift towards electrified economy. So, do you think we are at a risk where there's an interim period when hydrogen is still evolving, but our end users or end markets are taking the brunt of shift to electrification. So, do we have any plan on what are basically our thoughts, first of all, on the risk from that and on the mitigation?

Yes. So, we have always considered ourselves a fuel-agnostic kind of company. And over the last 10 years, Cummins has been making significant investments in the EV economy. We own quite a few battery companies. We own battery integration to vehicle and powertrain kind of companies. We own some of the largest companies making hydrogen-based products. So we keep continuing to evolve in the new energy technology spaces. We have won quite a few orders in these spaces. We have set up capacities in North America, in Europe, in China, the areas where the biggest amount of money currently is available for some of these investments. We already have large subsides and we are continuing to evolve the technology, including those of battery as well as electrically-driven powertrains. So we think the transition is -- as I mentioned, is a 3-stage transition. The short term where we will continue to see diesel actually increase for the next 4 or 5 years before it start to decrease a little bit. And in that time frame, we will start to see the emergence of other fuels like blended fuels like ethanol, methanol, LNG and then CNG all coming in. Once that -- those are still fossil-based fuels or plant-based fuels when come there, we will migrate to what we call a partially hybrid economy where there will be some amount of electrification, coupled with some of these older technologies. And then there will be a gradual migration to either full electrical vehicles or -- and fuel cell-based applications. From an India perspective, when we look at it, India doesn't have any much of lithium deposits or some of these rarer [indiscernible] metals, etc., in our city. So if we were to take a very aggressive battery-based strategy, it would only benefit our most aggressive neighbor. So, for our economy and hydrogen-based economy is a better strategy from a long-term perspective. And Cummins is very well positioned to take advantage of that situation and introduce some of the leading products that we have into these markets, and that's exactly what we're trying to do.

And just one small doubt, sir, when you said diesel will initially increase for a few years. Where does this -- how exactly when you arrived at this particular observation or a conclusion...

Yes. So, this is what we are seeing around the world. So, as countries get more affluent as the economies get bigger and stronger, there is a huge spend of infrastructure, there is spend on building roads, highways and then the average vehicle speeds, etc., go up. And right now, the only available technology to be able to do that in the short term is the diesel. So, there's a likelihood for diesel demand. We're seeing demand for diesel -- existing diesel products around the world at an all-time high. And so this trend is likely to continue. The second thing that is happening is there is consolidation happening around the world, which means the smaller players or OEMs who used to also make some of their own engines, etc., are focusing their capital investment and their energy on some of the newer technologies. So, they're not able to continue to make investments in these cleaner diesel technology, which has -- we are going to [indiscernible]. They are not able to keep up with those investments. So, players like Cummins who continue to invest heavily in this space are seeing the effect of consolidation. And so our demand actually is increasing. So that's where we are seeing that diesel demand is likely to increase for the next few years before the move to alternate energies happen.

And just one follow-up question, if I may. Sir, similarly in the way you explained on the Indian side, other day, gas oil engine, how are the thing placed and what's the outlook on the digiset side because that -- for them, the competing thing will be energy storage where actually much cheaper electrification options or the chemistries are available and they are being explored. So, do you think that digiset is a segment which can get disrupted faster by electrification? And how are we prepared on that side?

It will get disrupted, but at the lowest end of the range below 10 kb where Cummins has a very, very low part to play in right now. But Cummins has battery technologies and electrification technology. So, as a strategy, we could put those into play and actually enter into some of those segments where currently we do not have -- we do not have business today. So, if that happens at a faster rate, we will be quite happy for that and we will then be ready with technologies to enter into those markets.

Our next question is from Abhishek Basumallick from Intelsense.

So I have a couple of questions. One is if you could share some insights on how your data center business is shaping up? That's the first question. And the second one is what are the actual kinds of projects that you are participating in when you say we are bidding for hydrogen technology projects? So what are the types of projects that you're doing? What are the typical size in terms of orders for those projects? And how do you see the near-term outlook for hydrogen for Cummins?

Sure. So data center outlook is very positive. There is -- as the demand for 5G and storage of data, people are using more computers, people are working out of home more. People are -- OTT is increasing, more people are watching movies on Netflix and so many other things, the amount of bandwidth required, the amount of storage required, the amount of local storage required to serve content to millions of subscribers, all that means is that you need bigger and more data centers around the country. And when you look at the big players around the world, they are adding significant capacities into India. So we think the next 5 years, we are going to see more than double-digit growth in this market. And typically, these are all big gensets and for Cummins it's an advantage because we have localized most of those products in India. And so that's a big advantage for us to be able to supply this. And we also have experience supporting data centers, some of the biggest data centers in the world are run with Cummins genset. So we have a great experience to run these in India. So that's why we are so bullish about that.

And what is your market share in Indian data centers as of now, approximately?

I won't give you exact numbers, but I will say we are the largest player.

But is it like 10%, 15%, 20%, 30%?

You are again asking me about numbers. You need to draw some conclusion...

I'm not asking you for exact numbers, but a rough sense.

Yes. So, you can say we are significantly the largest player. So I'll jump to your next question. So on hydrogen, the kind of projects we are bidding for it's in 2 spaces. One is in the automotive space and here, we are bidding for -- these are just prototype projects. So, there will be -- there's projects in Leh or Ladakh where somebody wants to run just 5 buses on hydrogen with -- have a small electrolyzer unit and then run it with hydrogen fuel cells. Those are the smaller kinds of projects. Then there are some demonstration projects on electrolyzers where for some applications like small steel plants, etc., people are still trying to prove out the model that hydrogen generated from electrolyzers, how fast effective that is. So those kind of projects we continue to bid for. And then we are also bidding for bigger projects, like we are bidding for a train which is run on hydrogen fuel cell for the railways. So those are much bigger-scale projects. Again, the first bids are all for -- to build a couple of protos, make sure they are running well. But when you loot at our portfolio of what we are doing in places, like in Europe, we have now got like 100 trains running. So if we were to win some of these orders in India, we could start off quite aggressively here. And as the business model is getting proven out more and more, demand is slowly starting to increase. As of now, the cost of hydrogen is something like $1.07 per kg and folks like Reliance and many others around the world, their ambition is to get to $1 per kg. So, there's still quite some work to be done, quite a way to go there. And we are on that path.

Our next question is from Pulkit Patni from Goldman Sachs.

Ashwath, you mentioned in one of your remarks that Q3 tends to be relatively weak for exports. But if I look at your history, every year, it is Q3 where you've typically done the highest export within that particular year. Now with that context, given that you've done about INR 440 crores this quarter, which I would expect would have an element of price increase also. From a volume growth perspective, could you give us a sense if we can sustain this number? Or can we actually grow this number into the next few years in a meaningful way? That would be my question number one.

So, the answer is, certainly, we can grow because as of now, we are dealing with a constrained situation as far as supply chain is concerned. So, we are not really meeting our demand and not all the markets have recovered yet. So, certainly, we want to do more, we are putting to do more, and I think we will do more. So I guess that's my answer towards, is it sustainable, yes, it's sustainable and we should do better.

My second question is on services or distribution where clearly we've done really well in the quarter. I remember it was maybe a couple of years back again in one quarter that we have clocked over INR 400 crores. Can you just help us understand how should we look at this segment going forward? Because it tends to be pretty volatile. So any sense on that?

So there are parts of it which are volatile. If you look at the composition of what we do in our distribution business, we do service, which is not really volatile. It's a very steady kind of business. And as we keep improving our level of service, we are launching new programs of comprehensive service coverage. We are increasing warranty terms. We are doing more recon engines. We are doing many things to keep more customers and forward and bring it out of old customers. So the combination of this will mean that the service revenue, which is a more -- it's almost like an annuity, it keeps increasing and it keeps -- it's pretty steady. The next portion of our distribution business is the spare parts and that is where, historically, what at least we inside Cummins management have felt that we have underperformed as far as our own feeling of what our entitlement is. And so there are many concentrated efforts that the distribution team has been working on. And we are seeing some results of that. And I think we are just scratching the purpose we should -- over the next few years, we should continue to do better there. The third part is what is most lumpy and that is where the win engines orders and repower orders, et cetera, for new markets, smaller OEMs, things which our mainline business does not do and that tends to be lumpy. It tends to be tender base. It tends to be depending on which specialized opportunities keep coming up. And that is the area where -- with our improved product range with more variety of products to sell with this global consolidation happening in capacities. We think there too in the long-term, we'll be able to show some growth. So that's the way I would look at the way we are looking at the distribution business.

Sure. And I guess there is an element of that one-off in this quarter, that's by INR 450 crores.

No. This quarter is driven by a very, very strong aftermarket performance and very strong service performance.

Okay. Great. Great. And just one last question. See, Power Gen last quarter, you had mentioned that you had a one-off data center order and that's why $20 million additional revenue you did. Now given your outlook on power data centers, and I guess we are seeing it across the board. I mean, should we not expect something like that to come every few quarters? Would that be like an aggressive assumption or you would classify the larger...

It's not an aggressive assumption. It's a very fair assumption. And yes, we hope to get some of these happen every couple of quarters. We want it every quarter, but the way these projects go, it doesn't really happen and it's lumpy. But yes, it is not surprising at all if we should get some of these every couple of quarters.

Okay. Great. Can I ask one more question, if time permits. Okay. So again, this is on hydrogen as people were asking. I mean this entire tie-up that Cummins has done with Sinopec in China, clearly, it's going to be something of a very large scale, and we know scale is really critical for the price of electrolyzer to come down. So would it still be fair to assume that, that Cummins will do something in India as well because would it not be just ideal to import it from China when we are doing something on a large scale there?

I mean, we are doing equal scale in Spain as well and we have done even bigger scale in Mississauga in Canada. It doesn't work. It doesn't work to buy things from other countries and bring it into a country. You may bring in a few elements. But the overall system unless you build them locally, you don't get that real kind of advantage in cost. So our strategy has always been to -- Cummins has 3 big manufacturing locations around the world, North America, China and India. So pretty much almost everything that we produce, we like to produce in these markets.

Our next question is from Sandeep Tulsiyan from JM Financial.

First question is pertaining to -- if you can share data on your market share across different nodes in Power Gen and also given turbulence in the market, what we have seen have eroded profitability in a much more severe way for the smaller players. So for Cummins India as a strategy, given the cash results we have, would be to consolidate some of the smaller players under our hold? Or would you rather wait for a slow debt for these smaller companies and grow organically in that way? What would be your strategy? That's the first question.

I think the way it has worked in other markets is that people start to collaborate with each other and not produce everything. So you start producing some products or even though you consider your competitors. And in that way, you consolidate your capacity and keep growing the business. But if there are any really attractive opportunities that come up our way, we're not going to be blind to those, and certainly, we'll be open to look at those inorganic opportunities as well. But if they're doing that, it will just be a share, not for technology because we really have all the technology, all the leading technology in some of these spaces. So it's a combination view, Sandeep, I will say exactly one way, but we -- what our preference would be that as these transitions are happening that we work with some of our competitors and be like the engine inside for the genset because that's the heart of the technology and we have made a lot of investments in that.

And the market share, if you can share across different nodes in power gen?

I think we've been holding and doing pretty well in market share. These shares are typically, we give this information a couple of times a year. And the last time I looked at it, I didn't see any significant shift. We continue to hold, if not do better in some of our bigger nodes.

So that's what you give it periodically. So if you can share some data points here, that would help.

Not today, Sandeep, but in the future, I'll make sure that I take this request and we share some directional data at least.

Okay. And sir, other question is on railways. You have highlighted in the past that the power car market has sunk 50%, electrification pace is going to improve, if not now, maybe at least going into '23 and '24. So -- but despite that, our railways portfolio has been doing very well if I go by the current quarter's numbers. So how would you foresee growth in this market? How much of that would grow from existing products? How are some of the new products that you have launched are doing? If you can share some more detailed color on this segment?

Yes. So this is a very exciting segment for us. So there are certain parts of that -- of the rail, which are mainly the equipment which goes into building the infrastructure, those will not get electrified. Those will continue to remain in diesel, and we will continue to -- that business will continue in a steady manner. The part, which are the TETCs and all of those, those will gradually keep moving into electrification, and we are building node converters and many different electrification products working individually and as part of consortiums to enter into those markets. So we have made great number of products. We have entered into tenders where they're already bidding for orders in those markets. I don't have anything to announce today, but I'm pretty confident that pretty soon in the next few quarters, we would have things to announce there, which will then absolutely clarify the path moving forward for us in the rail business. We remain bullish that this will be a good business for us in the future.

Got it. And last question on CapEx. You did mention that the initial part of the call, that you utilize the cash balance to build infra for new emission norms, attesting facilities as well as your capacity on that front. While we also mentioned the CapEx is not going to be material. So if you can guide in terms of numbers what will be the absolute CapEx this year, of course, it will be minimal, but for FY '23 and '24, what kind of investments are you planning to make?

Like I said, like I mentioned before, the big CapEx investments we did in the past on building buildings and new facilities, et cetera, those are all behind us. All our CapEx is now going into either growth projects, sustenance projects, upgradation projects, et cetera. And we don't see that level of investment unless, of course, some exciting things happen in hydrogen and we win some tenders in some of the areas and then we build some new capacity then at that time, there will be some lumpy investments coming in. But overall, we see some pretty steady investments over the next couple of years.

Sir, absolute numbers, if you can share because our CapEx has gone down from an average of INR 300 crores to INR 350 crores to almost INR 100 crores to INR 50 crores. That's a significant decline in the last 2, 3 years. So anything from spending...

It won't be as low as it was this year, but it will go up a little bit as we continue to do more, but it won't go back to that 350 level. So you can -- if you want a really ballpark kind of number, it will be somewhere in the middle is where I can say.

We'll be taking our last question, that is from the line of Deepesh Agarwal from UTI AMC.

Congrats for good set of numbers. Most of my questions have been answered. Can you clarify the hydrogen-related tenders where you have participated, were everything from the listed Cummins India entity or anything from the unlisted entity?

All the tenders have been participated from the Cummins India listed entity.

Okay. Okay. And sir, secondly, you mentioned commodity price impact in there. Can you quantify what will be the extent of commodity price on the bottom line?

No, we cannot clarify that at this time, but it's pretty -- I would say it's the largest component of our bottom line decrease is due to commodity.

Okay. Okay. And supply chain issues still haunt us. So what would be the extent of impact of the chip shortage on our top line?

I would say somewhere about 10% is where I would -- I guess. It varies by market segment, but I would say the order boards that we are holding compared to what we are shipping out, I would say something like somewhere in the range of 10% to 15% is there, I would put that.

Okay. So that would be roughly INR 170 crores, INR 180 crores could -- have been a higher revenue chip shortage with [ market ]?

Possibly.

Okay. That's it from my side.

Thank you. Ladies and gentlemen, this has been a good interaction. Thanks for participating. And I now hand the conference over to Mr. Ashwath Ram for his closing comments. Thank you, and over to you, sir.

So I want to thank all of you for attending this call. We continue to work really hard to do the things that we've been saying that we will do continue to get growth, continue to work on improving our bottom line, continuing to manage and watch our costs really closely. We are quite optimistic about the growth of India as well as our place in the export market. So we are -- while we are going through these turbulent times where it's difficult to predict what's going to happen quarter-on-quarter based on so many uncertain deals around the world. Overall, when I look at a macro kind of trend, I remain bullish and optimistic about our prospects for the future. And I really urge all of you to stay safe, and please keep talking to us if you need any clarification. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of Cummins India Limited and the leadership team, we would like to thank you for joining us today and making it an engaging session. We are ending this conference now, and you may now disconnect your lines. Thank you.