Elgi Equipments Limited (ELGIEQUIP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Elgi Equipment hosted by Asian Market Securities Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ from such expectations, projections, et cetera, whether expect or implied. Participants are requested to exercise caution while referring to such statements and remarks. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kamlesh Kotak from Asian Market Securities. Thank you, and over to you, sir.

Thanks, Margaret. Good evening, everyone. On behalf of Asian Markets, we welcome you all to the 3Q FY '22 Earnings Conference Call of Elgi Equipments Limited. We have with us today Mr. Jairam Varadaraj, Managing Director, representing the company. I request Mr. Jairam to take us through an overview of the quarterly and 9 months results, and then we shall begin the Q&A session. Over to you, sir. Thank you.

Thank you very much, Kamlesh. Good evening, ladies and gentlemen. Thank you for taking the time to be with us this evening. As is normal, I will take you through the sales numbers as they happen across the world and then go to the profitability and a bit on the cash flow. And then share with you our general impressions about the market and then open it up for questions and answers. Sales, as you could -- as you have seen from the numbers, that's been a pretty robust performance for us. Compared to previous year Q3, we grew by almost 20%. And you must keep in mind that last year's third quarter was quite a resurgence from the COVID first wave of April. So it has been a good sales performance. So starting from Australia, which was one of the bad markets for us during this period. Besides lockdown in a lot of the states of Australia, we also had some challenges in some of our project business in Australia. But things are coming back. It was a temporary thing that we faced for 2 quarters. We are coming back slowly. And with the opening up of the country, we are quite confident that things will come back to normal in Australia. Just for you to remember, during 2021, Australia really did well for us. In Southeast Asia, again, was quite a challenging period because of COVID in most of the countries. So it has been muted. So we grew in some of the key markets in Southeast Asia. Overall, it was nowhere near the performance compared to the rest of the world. Moving into India. India had a pretty strong performance in Q3. We had a little bit of oxygen business, but very, very little. The bulk of Q3 compared to Q2 has been the regular normal cadence of business other than the O2 business, which is quite strong in -- especially in the second quarter. All the verticals in India have done well. So I can't single one out and say it's been exceptional. All of them have done pretty well. Moving on to Middle East. Challenge in Saudi Arabia because of, again, COVID conditions. But UAE, where we have our own go-to-market direct sales and service organization, they've done well. They've grown well. But overall, as geography, Middle East has been challenging. Africa was better than last year, but nothing significant, but it's been good. Europe continues to do well for us. We are ahead of our sales plan, the strategic plan that we made for Europe where we expect we're going [ penetrate ] in organic growth through losses for a period of time. The losses have been lower than planned, and the sales has been higher than planned. So it's been -- quite a positive performance in Europe, continues to be there. North America also was strong. Profitability took a hit because of all kinds of chaos with freight and raw material price increases. I will touch upon that in -- while talking about the profits of the business. Brazil also did exceedingly well for us. And our automotive equipment business, which had a very bad first quarter, came back -- has come back very strongly and has done well in the third quarter. So overall, sales has been positive all around the world, resulting in about 20% growth compared to last year's Q3. Going into profitability. Assuming we -- the good thing about the Q3 is we were able to move our contribution margin at material cost levels. We were able to move it back to prior-year levels. We had flipped in the earlier quarter by virtue of the fact that there was a volatile increases, frequent increases in raw material, and we just could not catch up with it. But we took a very strong call in the middle of Q2 that we're going to push forward with prices, which we did. But it is coming in with a lag. And in the -- in Q3, we were able to catch up with Q3 of the previous year. So if we had maintained that -- considering the increase in sales and the maintenance of our margin at material cost level as same as last year, our EBITDA should have been about INR 110 crores, but we did about INR 720 crores. And bulk of the -- one big chunk of the reason is the mix. There's a change in the mix of -- and because of which, there have been changes in our variable costs. Employee costs, of course, compared to the previous quarter has gone up because last year, we went through without any increments for our people. And this year, there's been an increment. And that's getting reflected in this quarter as well as it did in the prior quarter. And some increases in fixed costs as business started coming back to normal, we have had some increases, I think. During the COVID period, especially in the second, third and fourth quarter of what I call the COVID year of 2021, I think we all got spoiled by virtue the fact that fixed cost became very low, and it set a benchmark for what -- of a very attractive P&L. But I think that's a little illusionary because quite a bit of cost both -- and the customers were quite happy to do business without the suppliers incurring those costs. But now increasingly, customers want us to be in front of them. They are talking about visits so these costs are going up and that's part of the cost, and there's nothing to be concerned about. So overall, while EBITDA performed very well, costs have come in, which are normal, and there is nothing abnormal to report. The people cost increases, part of it, like I explained to you, is increment. And if you look at it, there has been -- even compared to Q2, there has been an increase in people cost. That's because of the increase in certain cost of people in Europe, which is well within our plan, which we had deferred earlier, waiting to see how business progresses -- progressed. And as it has progressed, we are continuing to invest. So you get these kind of lumpy increases as we complete our plan in Europe. So if you come to the revenue mix, in Q3, we are back to the almost 50-50 India, and the rest of the world. It -- Q2, there was a shift by virtue of the business that came from oxygen, but it's back to 50-50 and it's hovering around that period. In fact, compared to last year, it is actually skewed in favor of the rest of the world. So we are growing consistently in India, but we are also growing proportionately higher to keep that ratio, that mix constant. As far as CapEx is concerned, we have -- I have said that our refreshment will be in the range of INR 30 crores to INR 35 crores. We are well within that. Nothing significant to report. We have made certain investments, not as advances. We have not yet got the equipment in our -- in increasing some of our manufacturing capacity, but nothing of significance to report. Segueing down to the net debt position. Our net debt position in December was almost the same as the -- in March. We had a net debt position of around INR 95 crores. It's about INR 93 crores in March. I think this is a good performance considering that during this period, we had to overinvest in inventory because of all the supply chain challenges. In spite of those increases in inventory, we were able to compensate by better management of our receivables. And as a consequence, our debt levels remained relatively flat. Going beyond Q3 into where we are right now, there has been a further increase in debt, nothing of significance, about INR 78 crores, but these are all temporary corrections that we are going through in our inventory, so there's nothing to be worried about. We're quite on the way to releasing quite a bit of cash across all our regions. Except for Europe, which is consuming cash, all the other regions and businesses have actually generated cash during this period. So it's a good situation as far as cash flow is concerned. So this is really what I wanted to summarize on the financials. From a business point of view, the inquiry levels, the interest, conversion seem to be still there. So there is a bit of sluggishness in terms of time frame for conversion. It used to be a lot faster. We're beginning to see, maybe, customers taking a little longer. And the second factor we are seeing, maybe not so much in India, but in some parts of the world, there's a certain sluggish in payment. Customers are delaying payment. So we'll have to wait and see and watch the delay carefully and manage our cash flow. As far as -- everywhere the inquiries are good, business is good. But if some were to ask me why is this so, I'm not able to give a coherent answer. It's a multiplicity of many things. China plus 1 strategy, in certain segments in India, seem to be paying, and they're playing consistently, textiles as an example. But that can't explain the buoyancy in demand in India across all sectors. I mean we -- I cannot single out 1 sector which says that we are very strong. Across the board, we are seeing activity. So I'm not able to -- the China plus 1 strategy doesn't seem to explain across the board why there is buoyancy in India. So it's a little -- and while government spending has been talked about, it's still not -- in infrastructure projects, it has happened in roads and dams and all that. But we don't see that kind of a thing trickling into industrial. We will get to see -- the PLI teams have announced. We are very strongly engaged in -- with customers who have been registered for these programs, but investments are yet to happen. So we are not able to explain the points in the market in India, but we are well placed to ride it. Similarly, in Europe and America, it's -- business is still strong. We'll have to wait and see with the Federal Reserve cutting back on the stimulus as well as the increasing the interest rates. We'll have to wait and see what happens to the business. But like we have -- I have -- we have maintained always that our market share in all these markets is so small that our headroom for growth is so high that the turbulence at the surface of the water is not as relevant because we're so far at the bottom of the ocean, so I think we will continue to grow. So I don't see a problem there. So we continue to manage the business on such principles and I think we are in good -- as of now, we are in a good [ bridge here ]. So thank you very much. I'll now wait for your questions. Thank you.

[Operator Instructions] The first question is from the line of Ravi Swaminathan from Spark Capital.

Congrats on a good set of numbers. Sir my first question is with respect -- if you can give some more flavor on the kind of growth which is being seen across sectors in India. I mean, which are the 2, 3 sectors which are going above average? Which are growing below average? You told textile, part from that, what about the big ticket projects, like, steel-based, cement-based plants? How the growth is from those kind of sectors, if you can give that sense, it'll be great. And what kind of volume growth that probably with the past 9 months we might have seen in India and what kind of growth we can see over the next 1, 2 years, given the fact that demand scenarios seem to be strong in India?

Yes, well, the large project-based sectors like cement and steel have been muted, Ravi, that is -- that -- but it doesn't mean that there are no inquiries. There's still a lot of activity but it'll -- just taking a little longer. Cement was very buoyant last year, if you remember in the -- even during the COVID quarter, first quarter, it was very, very strong, unprecedented. It continued on and then it kind of softened. But I think with real estate coming back, I think we will start seeing a strong thing, but it just took a temporary step back and then expecting it grow. So as that happens, I think we will start seeing great, more finalization in this sector. But other than these large, like, infrastructure-related sectors, we -- I can't say that here is one that is disproportionately high. All of them have grown. There has been growth across all of the sectors, so I can't say that these are the top 3. I -- it'd be very difficult to say that. As far as volume growth, unfortunately, I didn't prepare the numbers for this quarter because bulk of our price increases we did last quarter and therefore, I had projected and I'd given our numbers, how much was volume and how much was price. I will come back to you, we can take it offline. As far as growth is concerned, I -- like I explained to you, I'm not able to give a coherent answer for why there is growth now in our business, right, because we are in the capital goods business. That means we are -- we contribute to capacity, right? And we are what I would call small CapEx because we come at the fag end of a project, right? We are not big CapEx. And we are continuing to see people investing in our type of CapEx. Not able to ascertain why, right? In some sectors, like I said, textiles, there is a better explanation, but many sectors, there seems to be a buoyancy, there is a demand. Like, why is copper going up, going like there is no tomorrow, like, it's going out of fashion? I mean, there is not enough copper in the world, there is not enough aluminum in the world, so there is that volume. So there are some inexplicable things that are happening, maybe somebody has got an explanation, but it's not visible to me. So under these circumstances, it'll be very difficult to predict what our growth is going to be. But we had declared our strategic business plan where we said we are going to be on a trajectory of more than $60 million '25. '26. I think we are quite comfortably along that trajectory, right? Probably I'm more comfortable than we were before. So that's the best I can say.

Got it, sir. And in terms of profitability, yes. Well, totally, I mean, in terms of gross margins, et cetera, we are kind of fairly stable, it looks like. So we would have passed on much of the price increase that would -- input cost increase, would have passed it on to end customers. So do we need further any price increases going forward? And can we maintain the same 11% consolidated margins going forward? Or is there scope for improvement? Or can it go down so basically? I mean, given the fact that inflationary pressure across the board is high, so that's why I'm asking.

As far as price realization is concerned, I don't think Q3 reflects all -- takes in all of it, yes? So we will continue to see marginal improvement in price realization in the fourth quarter. That's my expectation, right? Because there's always a lag, yes?

Okay.

As far as will we have to increase prices again, if commodity prices continue to behave the way they are and there are, again, indications that they're going to go up, then we have to react. I mean there's no other choice, right? The mistake we made the first time around was waiting. We thought this was an aberration, right? And we waited too long. And by the time we reacted, our reaction was inadequate because the frequency of change was very high, right? So then we reacted again and again and again, multiple times, right? So at every time you react, there is always a time lag by which you realize the gain, right? So this time around, we are trying to increase our agility by which we respond to these kinds of changes, right? It is clear in our mind that if there are commodity price related price changes, we're going to pass it on, right? Because it's not a matter of a competitive inability, because it's something that affects all the players in the market, so we will pass it on. So there may be a lag of a few weeks or maybe a month in terms of realizing it. But it's clear to us, as a team, that we will pass it on if these violent changes happen, right? Now as far as where you're talking about EBITDA at 11%, right?

That's correct.

Now I see a possibility for -- there is -- obviously, there is a volume-based growth. There is a leverage that we will get. Certainly, that'll will come to the bottom line, right? That, we are very confident of. In addition, we had -- I had talked about, I think, in the Q3 thing, about a very comprehensive cost -- variable cost reduction program. That project is going along nicely. We are quite confident that we will hit our target. So those things should come in. And -- but I expect that the full extent of that project's value will be more towards the third quarter of next year.

[Operator Instructions] The next question is from the line of Renjith Sivaram from Mahindra Manulife Mutual Fund.

Am I audible?

Yes, Renjith, you have audio.

Yes. Good, sir. Sir, one thing which I wanted to check with you is that now this Gardner Denver acquisition has gone through, and we hear that they have become a bit aggressive in terms of introducing new product and...

Renjith, there's a lot of background noise in your -- I'm not able to hear you very well.

Yes. Mr. Sivaram, can you please move to a quieter area? There's a lot of noise in your background, sir.

Okay. Okay. Sure. Just wanted to check with you the integration of Gardner then with Ingersoll Rand is almost done. And we hear from the market, at least, that their activities have increased in terms of dealers and in terms of accretion. So are you also seeing such kind of pressure in terms of market share from -- and also, we also hear that Kirloskar Pneumatics is also getting more aggressive in this crew compressor segment, where they were previously not that big. So given these 2 scenarios, how do you -- what will be your strategy?

Well, certainly, Ingersoll Rand and the new incarnation of Ingersoll Rand, they are more lively and they are more energized. Of course, I mean, and we see that in the market. And we also see, not only Kirloskar, but quite a few players who are trying to get a share of the market. Now this is -- all this is, when the market is great, everybody looks like a hero, right? The real challenge comes when the market starts slowing down, and then we need to see who are the ones that are standing, right? Now because of the growth in the market and because of our own certain initiatives in the market, we have done well, right? In terms of even growth, we've done well, I believe, with respect to peers, because I -- but I can't make any comments because I don't have the numbers from the peers, but these are all hearsay in the market. So there is -- we can never aspire to have 100%. That's not possible and it's not healthy either. So we have our own segments. We have our own customers, like everybody does. And we will play to our strength. The goal is to improve the value of your sales rather than trying to just do a top line. So I -- right now, everyone's having a good time, yes? So we'll have to wait and see when markets slow down, who are the ones who really do well.

Okay. And one more thing I want to project, sir, there is a lot of CapEx, which is expected to happen in the mobile electronics front, where they require oil-free compressors. So in that, Ingersoll Rand has -- and Atlas Copco has some advantage because we still don't have that completely oil-free compressor. We don't have the kind of presence or kind of nodes that they have. So if the CapEx in those kind of segments will happen more in the future, will we be tempted to look at some of those segments? Or it's better to leave that for those who -- are we looking at these kind of things that are happening in the market? Because we are seeing a lot of CapEx happening in such kind of area where you require a lot more of oil-free compressors.

So I don't know where you got this information that we don't have. We have as good a range as any of the manufacturers in the oil-free segment, right? And oil-free has been a strategic priority in our company over the last 5 years. And we have done with some very smart increases in our share of the market in India, not just in India, but all over the world. And to give you an example, in electronics, we've got some very significant orders from some of the leading semiconductor manufacturers in Southeast Asia, so we are well-pledged. And in PLI, there is quite a bit of emphasis given to electronics and semiconductor, and we're watching that very carefully. We're already in touch with many of the companies who have got their schemes approved. And yes, so we are well placed. We have a full range. I don't know where you got the information that we don't.

So our oil-free is more of a filter, right? It's not completely oil-free, right? We use that filter...

Absolutely not.

So that works fine?

It's completely oil-free.

Okay. As good as what those companies offer?

Absolutely. We are ISO-rated class 0, just like everybody else. No oil in the compression chamber.

And one more area, which I wanted to check in, sir, because of this textile and also in future steel going to come, there will be a requirement of large centrifugal air compressors. So in that market, Ingersoll is kind of currently...

They are quite strong in that market. The market is not big yet, right? And we do have a product that we are selling, it's Hanwah. It's a Korean product, a good product. We've got some reasonable share of the market, right? So we have some plans which, at the appropriate time, we will make them public, yes?

Okay, okay. Because we are seeing a lot more CapEx in the steel and textile, so -- where large textile and steel would require such kind of solutions. So that's why I thought I'll get that with you. And we'll be completely out of cash though, whatever lucrative measures gone, [ Indus India ] comes, we won't even look at that segment?

Which one, gas?

Yes, shipping, gas, distribution and all these segments...

No, no, no. Oil and gas is not a segment that we are -- we would be interested in, no.

Okay. And lastly, like you also mentioned this increase, expected increase in interest rate in U.S.. So for Patton's, how did they perform? And are they completely out of the woods? Or you see some risk with this risk of this slowdown in U.S.? Or you feel that they are so small player to be impacted with anything of this kind of a slowdown?

Overall, North America, we have such a small player. There is a lot of headroom for us to be [ growing ]. So I don't think that we can provide that as a reason for any dislocated performance or whatever in the future. So that's not an acceptable thing. We need to come up with strategies to overcome that. As far as Patton's is concerned, they are in the 5 Southeastern states. The market opportunity there is significant. We are working, reorganizing. We've got a new leader at Patton's. We are building a new strategy. So things look only positive for Patton's in the future.

Okay. And our Europe strategy, instead, going as per what we have planned? Or you see some -- is there something positive or negative, whatever you can share in the Europe segment?

So like I said during my narration, we are -- losses in Europe are lower than our planned losses, and our revenue in Europe is higher than our planned revenue. So we are doing far better than what we had planned. So we are in the third year of a 5-year plan, right? So we plan to make losses in 4 out of the 5 years, and we are doing less loss than what we had planned so.

The next question is from the line of Harshit Patel from Equirus Securities.

Sir, my first question is on our distribution post print overseas. You have explained in the previous calls that in North America, I mean, we are the distributors or we have 50-50 JV. I mean we own the distribution channel. On the other hand, in Europe, we have a different strategy, wherein we appoint multi-brand distributors. So sir, what I wanted to understand was that what was our distribution footprint in both of these markets 5 years ago versus what it is today? So for example, in Europe, how many distributors did we have probably 4, 5 years ago? And now, where we are right now? Similar with North American market as well.

So to answer your first question, distributors on their relationship with customers, not just in Europe but also in North America. So our strategy in both these countries has been to get into being considered by some of the strong distributors in both these geographies. Now our acquisition of partners in Michigan Air were strategic in the sense that when we don't -- we are not able to get a distributor for organic growth or we are not able to incubate a distributor like they have done in 5 locations in the U.S, then we need to -- then we look at an acquisition. And that too, if it is in the top market, geographical markets, some regions of the country that we'll look at. So the strategy is the same. But since we have deployed so much funding into Europe, we will not be looking at acquisitions until such time we recover whatever we have invested into Europe. So the plan is consistently the same between Europe and America. There's no difference. I can't -- I don't have the numbers of the -- the actual numbers of distributors in Europe. The number's obviously available. It's not readily available with me. And it's also not a number that I would like to share in a public forum because competitors get to listen to what I'm saying as well. But I can tell you it is, in Europe, 5 years ago to now, probably the distribution the growth is 100x. If you look at North America, it's probably 30x. So that's the kind of scale that we have done in terms of distributed development.

Sure. Understood, sir. Sir, my second question would be on our services business. Sir, could you explain how we conduct that business in different markets? I mean what are the markets where we would directly do that business? What are the markets where we would go through our dealers and distribution? And what kind of margins do we earn when we do it ourselves versus when we will have to route it through our distribution channel? So if you could explain this bit, it will be very helpful, sir.

So our aftermarket business is predominantly spare parts. The only country where we do direct service is in India. Of course, wherever we own distributors like Patton's or Michigan Air or Pulford's, that service is a big chunk of their business. But in the larger scheme of the consolidated size of the business, they're small. So bulk of our service is rendered for our customers by our distributors. Our aftermarket business is primarily spare parts.

Sure. And sir, as a percentage of overall our sales, I mean, usually, globally, the benchmark is that almost -- at last con call, Ingersoll Rand they are almost 1/3 of the revenues from this aftermarket, both services less tax. So where have we reached in this journey? I mean how many years it might take us to reach that 1/3 of the sales-type milestone? So could you give some flavor on that? And what would be our share of aftermarket, both in India as well as in overseas geography? So I understand, in the global market, I think it would be very less because of our, I would say, lower installed base, we service what it is in India. Would it be possible for you to throw some light on that? That would be my last question.

So I don't want to give specific percentages. But as far as India is concerned, our aftermarket business as a size of our -- as a percentage of our total India business is very comparable to the benchmarks that you talked about, yes? As far as international, like you have pointed out, we need to increase our install base. So internationally, our aftermarket is probably around 12%, 13%, right? So that's really where we need to grow. Now what is the timing of this growth is a function of how quickly we are able to increase our install base. So it's very difficult for me to give you a mathematical kind of a trajectory, right?

[Operator Instructions] The next question is from the line of Manish Goyal from Enam Holdings.

Yes. Sir, a couple of things. One is on the comment you made that the full benefit of price hike realization would also be felt in Q4. So -- and we have already seen that sequentially, material cost has -- like, gross margins have improved. So going forward, we -- can we expect further improvement in gross margin and then probably reflecting that at the EBITDA level, sir?

Absolutely. It may not be as significant as we have done from what we have done in Q2 to Q3 or Q3 of last year to Q3 of this year, the kind of corrections that we have done. It may not jump at that same level. But 1.5 percentage is definitely what I expect -- there will be an improvement in the fourth quarter.

At gross margin level or EBITDA, sir?

Well, I expect at a sale level, which means hopefully, we won't eat it up and then we go to the bottom line, yes?

Okay, okay, okay. And also, like in last call, you had mentioned that we had taken price hike probably a little late in the international market and towards the end of Q2. So did we see benefit of that in Q3? Or so when you meant that we see improvement in Q4, it will be largely driven by the -- this international price hikes?

No, it's multiple levels. There were prices in India that were on rate contracts, right? That could not be realized quickly. There were some oxygen supplies that were on old prices that will come -- that were not collected. International takes a -- there is always a lag. And distributors have a backlog of orders. And because of logistics issues, we had a backlog, and therefore, deliveries had to be deferred. So which means all those deliveries had to happen at old prices, right? So multiplicity of factors that caused a gap between a price correction on paper and a price realization in reality, yes?

Sure. On challenges related to supply chain, you did -- alluded to that in the quarter, at least the U.S. market, the challenges for the supply chain. So just want to get your perspective going forward, what is, like, in terms of -- still, are there challenges on supply chain? Are you facing any challenges on semiconductor shortages related to which may impact our business and material availability and things like that?

Semiconductor, unfortunately, for us, we are not a big consumer. But -- so we had to overstock in relation to these challenges. But it's -- each of them add up, right? So supply chain, in terms of availability and certain types of parts, continue to be there. Supply chain in terms of freight, delayed -- freight uncertainties and freight pricing continue to be there, right? So the uncertainty has -- while it has reduced, it has not gone away.

Okay, okay, okay. And in Q2 call, sir, you had, like, we're expecting that probably Q3 might see some sequential decline in revenues, but somehow we have more or less maintained our revenue. So what could have changed? And how do we see going forward, sir?

So like I said, Manish, that I'm not able to decipher this demand, right? Certain segmental demand, I can decipher. But general buoyancy in the market, I'm unable to decipher. Different people have different theories towards it. Not all of them add to it. There are 100 blind men touching the elephant and explaining it. And so there are different explanations that are coming. So one, when you don't understand something, you have to be cautious, right, even if the results are positive, right? So that's where we are at. We are not being conservative. We have been very aggressive in terms of making use of all the market opportunities. But at the same time, we are cautious when it comes to deploying cash. We are cautious in terms of saying -- any big moves that we need to move, we are all watching them, yes.

And sir, on capacity, like, in past, you have always maintained that we would not require significantly large CapEx going forward. But looking at the growth momentum, do you expect that we should probably look for some capacity enhancement? And will it entail a fair bit of CapEx going forward?

We are continuing to keep -- continuing to invest in increasing our capacity wherever it is relevant, right? So whether it is machine tools, we keep investing. Like I've explained in the past, we are not a process industry where there is a linear link to capacity and investment. We are like a step function, right? We keep in -- we have multiplicity of machines with multiplicity of capacities. Not all of them are finally balanced. It's not possible. So sometimes, we will overinvest in one machine because that's the size of the machine. So that machine will be carrying a lot of capacity. And another machine may not have. So we will invest. So that's all -- those investments are all part of this INR 30 crores, INR 35 crores that we keep doing every year, right? Now the next big investment is going to come when we move our city factory to our new campus, right? That will involve investing in building and which we have to. I mean we'll probably do that over the next couple of years, right? We have to do it because we are running out of space in the city factory, yes? So those are what I call as non-return investment, because [ it's an ] investment in the building, right? And those kinds of investments will be, like I said, like -- if you look at our MD&A, we -- I've said that those kinds of investments which are not based on specific returns will be done with equity and our own cash rather than debt. So that's the way we are going to do it, yes.

[Operator Instructions] The next question is from the line of Renjith Sivaram from Mahindra Manulife Mutual Fund.

I just wanted to check with you, like, how much will the textile asset percentage of compressors? Because that segment, we are at least seeing next 2, 3 years in a high-growth phase. So will that become a substantial portion of our revenue?

I don't want to talk about specific percentages of each sector. That is too competitive an information, Renjith. We are a very strong player in textile. We will continue to be a strong player. And we will grow from strength to strength because we have also these new products that have come in, which are -- which will help us and which will help the -- as a value proposition to the textile industry. So we're quite confident of that.

So is compressor more relevant in CapEx? Or more relevant in the [ garmenting ] or made up, sir, the other portion?

In terms of -- garmenting has the least requirement. The maximum would be in an air jet weaving facility. And spinning, of course, with 25,000 spin wheels. Maybe we'll need about 30-horsepower or 50-horsepower machine. So the highest is in air jet weaving.

Okay. And there are certain requirements for air jet spinning machines also. That also comes for a lot of...

Air jet spinning is not -- still not a big percentage of the yarn industry.

Okay, okay, okay. And in terms of this electronics also, motions this electronic PLI for mobile and all the -- the electronic PLI in terms of semiconductors, in terms of mobile, in terms of consumable [ orders ] that also requires a lot of compressed air in terms of cleaning and other operations.

Yes.

Okay, okay. Just wanted to get some idea around the future growth potential.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Jairam, sir, you may go ahead with your closing comments.

Thank you very much, ladies and gentlemen, for joining us. I don't have anything specific to add. I think the questions pretty much covered the points that I did not cover in my monologue at the beginning. So again, things are looking positive. We'll have to wait and see to get a coherent explanation for what's happening in the economies around the world. We are pushing ahead, taking advantage of every opportunity without any limit. So we -- I think the fourth quarter, as far as the top line is concerned, would be roughly similar to the third quarter. And profitability, we are hoping will be marginally better.

Thanks, Jai. So on behalf of Asian Markets, a special thanks to Mr. Jai for providing the insights about the company's call. And thank you, everyone, for joining for the call. With that, we conclude the call. Thank you, and have a good day.

Thank you. On behalf of Asian Market Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.