Endurance Technologies Limited (ENDURANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Endurance Technologies Q2 FY '21 Investor Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishit Jalan from Axis Capital. Thank you, and over to you, sir.

Thank you. Good morning, everyone. Welcome to Q2 FY '21 Results Conference Call of Endurance Technologies. From the management team, we have with us Mr. Anurang Jain, our Managing Director; Mr. Ramesh Gehaney, Director and COO; Mr. Massimo Venuti, Director and CEO, Endurance Overseas; Mr. Satrajit Ray, Director and Group CFO; and Mr. Raj Mundra, Treasurer and Head of Investor Relations. I will now hand over the call to Mr. Jain for his opening remarks, post which we can get into Q&A. Over to you, Mr. Jain.

All right. Thanks a lot. Good morning to everybody. I would like to share details of how we have done in the second quarter and the first half of this financial year FY '21. In India, in the second quarter FY '21, as per the SIAM data, the 2-wheeler industry sales degrew by 2.4% compared with the previous financial year. Scooters degrew by 18.3% and motorcycles grew by 4.03%. The automotive industry in India had a degrowth of 4.1%. The sales growth in quarter 2 was driven by demand in rural and semi-urban India due to a good winter crop and due to a good monsoon. Also, we believe pent-up demand and festival demand led to higher sales growth. Also going forward, preference for personal vehicle ownership amid the COVID-19 outbreak to further boost the automotive store sales, including the 2-wheeler sales. In Europe, in quarter 1, there was a decline in 49 -- of 49.7% and in quarter 2, there was a decline of 7.2% in the European Union automotive sales. On the financials, I will briefly talk to you about the second quarter of 2021 and then the first half of FY '21. During quarter 2, as compared to previous year's same quarter, our consolidated total net income degrew by 0.3% from INR 17,827 million to INR 17,773 million. Consolidated EBITDA grew by 5.9% from INR 3,025 million to INR 3,203 million. Consolidated EBITDA margin percentage is 18%. The net profit was INR 1,672 million at 9.4%. This quarter 2 consolidated financial includes the Maharashtra state megaproject incentive of INR 537.2 million. The consolidated ROCE was at 19.2% and ROE was at 18.5%. There was no net debt and there was positive cash available of INR 212 million. During quarter 2, stand-alone total income degrew by 0.6% from INR 13,005 million to INR 12,927 million. Stand-alone EBITDA grew by 14.9% to INR 2,051 million to INR 2,357 million, with an EBITDA margin percentage of 18.2%. Stand-alone net profit was INR 1,344 million, a 10.4%. This quarter 2 stand-alone financial includes the Maharashtra state megaproject incentive of INR 537.2 million. Our stand-alone EBITDA margin percentage for quarter 2 without the megaproject incentive was 14.7% as compared to 14.2% in quarter 2 of the previous year. This is a result of our better cost control on material costs and fixed costs as well as a better product mix. In quarter 2, our stand-alone business with HMSI, or Honda 2-wheelers, grew by 18.6% compared to quarter 2 of the previous year. Also, our business with Yamaha India grew by 13.7%, Suzuki by 28.9% and Tata Motors by 38.5% as compared to quarter 2 of the previous year. In quarter 2, July, August and September '20, net income were at 71%, 104% and 123% as compared to the stand-alone India net income of the previous year. Also looking at our OEM schedules, quarter 3 in India is looking very good. October '20 recorded the best ever net income of INR 5,564 million for Endurance's stand-alone operations with a growth of 34.5% over the previous year. The stand-alone ROCE was at 24.4% and ROE at 18.8%. There was no net debt as there was positive cash available of INR 285 million. During the first half of 2021, our consolidated total net income was INR 23,930 million as compared to INR 36,986 million in the first half of FY '20. Consolidated EBITDA was INR 3,739 million as compared to INR 6,506 million in the first half of FY '20. Consolidated EBITDA margin percentage was at 15.6%. The net profit was INR 1,422 million at 5.9%. This includes the Maharashtra state megaproject incentive of INR 637.32 million. During the first half of 2020/'21, our stand-alone net total income -- total net income was INR 16,530 million as compared to INR 26,649 million in the first half of FY '20. Stand-alone EBITDA was INR 2,424 million as compared to INR 4,539 million in the first half of FY '20, with an EBITDA margin percentage of 14.7%. Stand-alone net profit was at INR 1,025 million at 6.2%. This includes the Maharashtra state megaproject incentive of INR 637.32 million. The detailed financials are available with the stock exchanges and on the Endurance website. I would like to share certain key points for the first half of this financial year. In the first half of FY '21, 69% of our consolidated total income including other income came from our Indian operations and balance 31% came from our European operations. In quarter 2 of FY '21, 73% of our consolidated net income was from Indian operations and 27% were from our European operations. During quarter 2, our factories in India and Europe did not face any mandated lockdowns since August 2020. We continue to do our best to ensure a safe workplace for our people. In India, in the first half of FY '21, INR 3,618 million of new business was won from OEMs, which did not include the Bajaj business. This business was from HMSI, TVS, Hero MotoCorp, Hyundai, Suzuki and Yamaha. This business will reach peak sales in financial year '22. I would like to mention that we have INR 12,344 million worth of request for quotes from OEMs. For our new customer, TVS, as mentioned earlier, we have been awarded INR 1,963 million of 2- and 3-wheeler brakes and suspension business. Further, INR 540 million of brakes business at INR 276 million of suspension business is being discussed. As combined braking system, business is growing with addition of TVs and HMSI new brakes business and also in order to derisk operations in our Aurangabad brake assembly plant, we are setting up a capacity of 600,000 per annum CBS brakes at our Pantnagar, Uttarakhand plant, which will start operations from January 2021. We are also setting up a cylinder head, low pressure die casting plant at Pantnagar, Uttarakhand for 720,000 numbers per annum, and operations will start in March 2021. In October 2020, in our older die casting plant at Waluj, Aurangabad, our company announced a voluntary separation scheme for 86 confirmed workmen with a onetime payout of INR 112 million. This will lead to an average wage cost saving of INR 48.7 million per annum and additional savings in canteen, workplace and insurance related to these 86 workmen. In 2021, we will also start supplies of brake assemblies, suspensions and aluminum castings, including the battery housing castings for electric scooters and 3-wheelers. I would again like to mention that Endurance is focusing on a more value-add and profitable product mix in its future business, which includes 200cc plus motorcycle brakes and clutch assemblies with the help of our acquisition of Adler and Grimeca in Italy; paper-based clutch assemblies replacing the cork-based clutch assemblies for motorcycles; continuous variable transmissions or the automatic clutch for scooters; anti-lock brake systems or the ABS for 150cc plus motorcycles; inverted front forks and adjustable rear mono shock absorbers for both domestic and export OEMs, this is through the help of our collaboration partners, KTM; and fully finished machine castings as compared to semi-finished castings for 2-, 3- and 4-wheelers. For our European operations, in the first 6 months, we have acquired EUR 10.83 million of new business from Audi, Maserati and Fiat Chrysler. This business will start from 2021 onwards. Also, the consolidation of our foundry activities from 2 plants to 1 plant in Italy, which will lead to a saving of EUR 600,000 per annum has been completed. Both the Adler and Grimeca acquisitions, which included all the know-how, patents, brand and trademarks has helped our Indian operations in getting new business for 200cc plus motorcycle plug assemblies and brakes from Indian OEMs, which will start in the year -- in the financial year '22. I would like to especially point out that Endurance is actively involved in looking out for technology-oriented and new product organic and inorganic growth opportunities. I would also like to mention that in India, Endurance is entering 2 backward integration product areas, which are import substitutes also. First is the aluminum forging axle claims required for our growing business of inverted front forks, Endurance has entered into a technical collaboration with FGM Italy and production will start at our Aurangabad plant from April 2021. The second product is wire braided hoses required for ABS brakes, which are required -- which will start operations in quarter 3 of this financial year, which is in this quarter. Both these 2 projects, both in the [Audio Gap] In the first half of FY '21, our aftermarket business in India was almost at 5.3%. The aftermarket sales were INR 883 million in the first half of FY '21 as compared to INR 1,339 million in the first half of FY '20. The aftermarket sales are growing very fast, both in India and overseas markets, and we hope to reach the average monthly 2019/'20 sales value in this quarter of this financial year. I also wanted to update you that our new plant Vallam plant in Chennai for supplying machine aluminum castings to Hyundai, Kia and Royal Enfield will start operations from next month. We're also happy to inform you that we have won INR 320 million of new business with Hyundai, which will start in October 2021 and will be supplied from this new Vallam plant. The net sales with Hyundai and Kia together are expected to reach INR 3,070 million in the year 2022. We are also at the advanced stage of testing clearance for our ABS brake assemblies. As far as the CSR activities that Endurance is concerned, we are focused on education, health and sanitation, livelihood generation and environment in the first 6 months of FY '21. We have created a sustainable change in 25 village areas and partnered with stakeholders in 5 more. We've also started the renovation process for 2 Zilla Parishad schools, constructed 23 toilets, supported 70 farmers by training them on agricultural best practices. We continued our nallah deepening and [ fill lifting ] activities and planted 4,000 trees per acre in the dense forest of 3.735 acres across Kachiner, Andhaner and Pimpri near Aurangabad. We've also started online classes for our vocational training students in English and soft skills. We started running our 81-bed COVID-19 case center in Aurangabad for asymptomatic patients and also given 5,400 food kits to the needy in Pantnagar, Chennai and Aurangabad. These food packets can sustain a family of 4 people for a month. At Endurance, it will be a continuous endeavor to grow through organic and inorganic growth with a focus on technology upgradation, quality improvement, cost and environmental health and safety. We will do our best to fulfill all our stakeholder expectations by following our 5 values of customer centricity, integrity, transparency, teamwork and innovation. With these opening remarks, I would like to invite questions from all of you.

[Operator Instructions] The first question is from the line of Ronak Sarda from Systematix.

Anurag, congrats on these set of numbers. Anurag, first question on the ABS supplies. I mean you highlighted that it is under customer approval now. How confident are we here to begin supplies in the current financial year?

See -- let me tell you, we have cleared the important test, very important test referring to about 11 types of test tracks. I mean that's the test which took us 2 years, actually. So the good news is we have cleared that. Now there will be an endurance test which will take place. And of course, we are hoping -- we have been already allotted also an ABS brake for a vehicle. I cannot mention more details here. And we hope to start, I mean, if not in quarter 4, but in the first quarter of FY '22. But the main thing is we have cleared these very important 11 tests based on the benchmark. So that's the good news. But I didn't want to speak too much. As you've asked me the question, I'm telling you that. But we are on the right the ABS.

Okay. And does this even help us, I mean, to expand our client base now? I mean are these common for when we approach this stuff for ABS product with other clients? How is that...

We are in touch with all of the clients. Once we have got clearance of 1 client and we start, everybody else will follow.

Okay. Sure. Sure. And the second question was on the profitability. I mean pretty strong EBITDA performance. How do we see, I mean, given the operating [indiscernible], how do you see that sustaining? And the VRS impact in India and Europe, both where we have closed the foundry plant as well. Are these accounted in the other expenses or they have been treated as exceptional?

You're talking about the consolidation in Italy?

Yes. Consolidated -- we had the VRS...

No, no. That will only start from this month, the gain of EUR 600,000 per annum. I don't think that's been counted. Massimo Venuti can further clear it. I think this was completed last month, from what I know. But I think he can clarify. As far as India is concerned, what is your question as far as India is concerned?

Yes. The VRS impact, I mean, what you highlighted?

Yes, yes. So the VRS impact will only come from this month onwards because it was completed on 31st October. So that impact, which I mentioned, will only come from -- which is about, I think, INR 47 million, apart from other costs, which I mentioned, which are linked to these workmen like canteen, transport, other costs like insurance. So there will be extra saving on that. So that will only start from this month onwards. So that's not included in the quarter 2 or the first half numbers.

Sir, my question was this INR 112 million payout to these employees.

That will happen in this quarter, in quarter 3.

That will happen in quarter 3. Okay. Sure. And on the Europe side, there's some -- margins there were slightly weaker than our usual trend. Any specific cost item, which has led to that impact?

Okay. I will request Mr. Venuti to answer that.

Okay. We closed the second quarter with 17.4% of EBITDA compared to 20% of the previous year. For sure, there was an impact in terms of mix of product. Because, as you know, in the last quarter, we have had in the European market, an important increase of registration in electrical vehicles. And for sure, at Endurance, we have had an impact with the reduction of the existing internal combustion engine technology. But if you analyze the profit and loss, you can see that the different mix is also affected by an important reduction of surplus. If you see there is 37.9% of cost of material compared to 31% of the previous year due to the fact that in order to save cash in this moment, we are reducing an important way the stock. In the third quarter, I believe that this situation will change because now apparently, the volumes are going up. And so we will be able to maintain or to increase again our stock. And for sure, the impact in the EBITDA will be positive.

Sure. Great. That's really helpful. And other question for Massimo. I mean we are seeing a second wave of COVID cases coming up in Europe. Any impact do you foresee on the European operations in Italy or Germany?

No. In this moment, frankly speaking, we have several problems because there are thousand and thousand people involved in the facility. And also in Endurance, we have had some cases, but we are absolutely -- the situation is absolutely under control. We are working [ 8-team ] shifts per week, and we are respecting all the requests of our customers. So in this moment, I don't see problem. The only question is that it's not so clear which other restriction the government will take place in the next week because of the situation. Not only in Italy, but in France, in Spain, in this moment, we are suffering a lot with our final plant of our OEM because sometimes they shut down, I think, in order to do sanification and this it means a reduction of productivity and reduction of turnover.

The next question is from the line of Aditya Jhawar from Investec Capital.

A follow-up question on Europe. So we see there has been a sharp contraction in gross margin. And in the past, we -- our EBITDA margin was quite volatile, considering the -- sometimes we used to outsource the manufacturing. But if you see the reduction in gross margin on a sequential basis, almost by about 8 percentage points, any specific reason? And in -- considering we have done this consolidation of plant and we have arrived at a equation of balance of outsourced manufacturing and in-house, what could be the sustainable EBITDA margin in the next couple of years?

Okay. As I told you before, in the second quarter, we have had a reduction of 3% of EBITDA compared to the previous year, but there is a different mix compared to 2019, first of all, because we have had an important increase of electrical components. And as you can imagine, these technologies, these parts -- these products started 12 months ago, 6 months ago, and we are having an important reduction of diesel and gasoline version, okay? But the impact in our EBITDA, if you analyze the single line of the profit and loss, the employee costs had a reduction compared to the previous year and is the same for the other expenses. The important increase was only in the cost of material consumed. Because if you analyze the balance sheet of the company, we have had a reduction of EUR 6 million stock. What does it mean? During the month of August, in order to optimize our production, we closed 1 week. In this week -- well, sorry, we closed 2 weeks. In these 2 weeks, we reduced the stock. And we maintain this until the end of September in order to save the cash. Only this. Regarding the sustainability of the profitability, if we will be able to come back at the same level of turnover of the previous year, I don't believe we will have a problem. For sure, there will be an impact due to the different mix compared to the previous year for the electrical component and internal combustion engine component. But I don't want to say that the electrical component has a profitability lower compared to the past. It's only a question of production. It's normal that the level of efficiency in a product that you produce until 5 years ago is different compare -- product efficiency of a product that started 6 months ago.

Absolutely. That's very helpful, Massimo. But again -- sorry to asking this question again. So this mix change that you mentioned that electric vehicle proportion could have likely electric component proportion would likely increase and diesel had come down. So that same factor could be there, could continue for the next few quarters. And that essentially means that there could be a pressure on gross margin over the next few quarters until and unless the volume ramp-up for the new products.

Frankly, speaking, I believe, yes, and I explain to you why. From my point of view, there will be a different impact in our profit and loss. I explain to you why. In the past, as you know, when we invested for transmission and engine component for internal combustion engine business, we invested a lot of money for a few period of time. What does it mean? The continuous changes in the normative, our product had the benefit for 5 years maximum, 3 years, 4 years. Now with the electric platform, we are seeing a period of life of this product of 10 and more years, 10, 12 years. And that means that the impact in terms of the investment will be less compared to the past. Because still 5 years ago, 2 years ago, we had to invest every 2, 3 years in different model of engine and transmission. Now the period of life will be higher. And this is positive from one point of view because for sure, we will invest less and we will have an impact in terms of depreciation that will be less compared to the past. But also the profitability will be different because you have to consider that when you change continuous range of products, it means that you have to invest in tooling and the customers pay part of this tooling. And so from my point of view, in terms of net results, there will be no impact. Probably, we will have a benefit due to the fact that we will optimize the saturation and also the utilization of our machine. In terms of product margin, probably. In terms of EBITDA, probably, there will be an impact. Due to the fact that this component that we are producing for the electrical vehicles are different compared to the past. They have a different period of life. Only this.

Okay. That's quite helpful. Moving on to our India business. Considering what we are hearing that the inventory level of 2-wheelers is relatively higher on the ground as compared to passenger cars, what is the outlook? Anurang, your customers would have shared with you in terms of production. Could you -- are you seeing the momentum continuing in the next few months?

Yes. See, in fact, if I see in this month, though we have -- technically, there are 22 days. There we have to work for 24 days and you won't believe that -- I mean the per day requirement, which some of the OEM is higher than even October, where we've had the highest growth of 34.5% ever, highest ever sales in India. So the -- what people are saying, of course, next month will be down. I mean the end of a calendar year is always down. But how much down? I do not know. It will be down. But I believe that 2-wheeler sales, what I'm hearing, at least from my major OEMs, are quite good from -- in the quarter 4 of this year. Quite good means lower than the specific demand of September, October. But I would say much higher than, I think, '19, '20 is what is the expectation which we have at Endurance we're hearing. But only time will tell that. But having said this, see, as far as Endurance is concerned, I would like to make it clear. Of course, industry growth is a big factor in growth. I do agree. But for us, we are taking a lot of new business. We are not only growing with Bajaj. I mentioned about low pressure die casting cylinder heads and brakes plant, which is coming in quarter 4 this year. But say to take Honda, for example. Honda, last year, we did INR 6,080 million. This year, our focus is to achieve the same in 9 months. Next month -- next year, I want to go to INR 9,000 million. Why? Because I've put additional brakes clearance. I've got the first inverted front fork business. My scooter suspension, which actually started only in January '20, will reach almost INR 3,500 million next year. So Honda at this point, we have got -- as I said, we have got 18.6% over quarter 2 last year. If I talk about Hero MotoCorp, we did INR 2,116 million last year. This year, we crossed INR 2,600 million only in 9 months. And next year, because we have got new orders for brakes, inverted front forks and the Halol plant, which we started, we'll reach from 2,300, 2,400 to 4,700 sets of front fork shockers a day. Next year, we're expecting this figure to go to INR 3,500 million with Hero. If I talk about the Yamaha. Yamaha, we did INR 2,070 million. I'm expecting INR 3,500 million next year because we have got brakes business, new alloy wheels coming up. And we make money in these projects. Then we come to fourth OEM, which is TVS. We had no sales with them last year, though we started quarter 3 with some suspension business. It was practically 0. But next year, this business will be minimum INR 1,650 million because of the brakes and front fork shocker business we have got. So point is, there is a lot of new business coming in for Endurance. It's not a question of sales growth. That, of course, is important. I mean if external factors will affect the 2-wheeler automotive growth, that's a different issue. But we are taking a lot of new business. And I've already mentioned about the aluminum new casting machine castings for 4-wheelers, which is also additional business coming up. So our progress is to get new business. That's number one. Secondly, what we are doing is we're upgrading our products. Like I mentioned in my earlier opening remarks, we are -- because of the acquisitions of Grimeca and Adler, for the first time, we'll get into the 200cc plus in a major way for our clutches and brakes business from FY '22 onwards. That's a big thing. I mean this is business we are not doing today, okay? Plus, I've already told you about slight increase in alloy wheel business both Yamaha and Bajaj, plus the [indiscernible] business. So we are taking a lot of -- these are all incremental businesses. So for me, as far as I am concerned, I've always said since IPO days, I have no control on external listing environment. I'm focusing on new business and cost controls. I mean that's my job here. And that's what we, as a team at Endurance, are trying to do.

Absolutely. My final question, if you see that performance on gross margin front has been pretty impressive. In this quarter, also, there was almost a [ INR 220 ] expansion on the stand-alone gross margin. So if you can help us understand to what extent it is driven by higher share of proprietary business? And what could be the benefit from raw material? And essentially, that will give us good understanding on sustainability of the gross margin.

Yes, see, I will not give you specifics, but that is totally related to material cost percentage decrease, something in variable cost, something in fixed cost. Fixed cost savings is almost INR 2.5 crores per month, which is not bad and sustainable. We are going to make full efforts to sustain this. Number two, like you rightly mentioned, the product mix is improving. It's improving because of upgradation and you're right, the -- I mean upgradation is mainly happening due to proprietary business and machine casting business. As you know, we started Hyundai and Kia. It's fully machined. That business is going to reach INR 3,070 million in FY '22. This business started and we are making some good money in there. So it is definitely a product mix as well as cost. It's a combination of both. And I've always said in the last 4 years, our focus is on these things. Unfortunately, lockdown, that was not good for us, first quarter was a washout where we did only 26% of last year's sales. But this has been a good opportunity for us to introspect, to focus and go into attention to detail of how to control costs. So this actually has been an opportunity, and that's why you're seeing these margins also.

The next question is from the line of Vimal Gohil from Union AMC.

Sir, you had given some more growth rate on [ did you say, ] Yamaha [ in rupees ]. If you could just help me with what has been the growth rate with Royal Enfield this quarter? Most of the other questions have been answered.

Royal Enfield, there has been actually a degrowth. No, I would say it is a small -- it's a very small degrowth, less than [indiscernible]. Just a minute. Yes. I mean we have degrown slightly -- I mean we have -- with Royal Enfield -- see, I can see that share of business of Royal Enfield decreasing overall. See, the share of business has basically decreased for Bajaj Auto in spite of the great sales and for Royal Enfield, really made up Honda, Suzuki, Yamaha, or Fiat Chrysler overseas. Can Mr. Ray or Raj, tell me the figure of degrowth of Royal Enfield? I don't seem to find it in my paper.

No. Yes. Royal Enfield sales quarter-to-quarter -- quarter 2 to quarter 2 has been lower by INR 12 crores.

INR 12 crores, but what would be the percentage?

7 point -- last year, quarter 2 was 7.7%. This year is 6.8%. And the decrease over last year is about roughly 12%.

Yes. So does it answer your question?

What was the decrease in Bajaj Auto?

Sorry?

What was the decrease in Bajaj Auto this quarter?

Yes, yes. So decrease in Bajaj Auto, overall has been -- I'll just tell you, it has gone down from -- by 3% and minus 6.5% as a value, but that's also because of 71% of sales in July. But yes, but as a share of business, the business, this 3% SOB loss of Bajaj has been made up by Honda and Yamaha and Suzuki. And Tata Motors, had done quite well, [ 8.5% ] growth.

Okay. And sir, the decline in Bajaj Auto would largely be because of there -- or because of the -- we are not present in some of the models or what?

No, no, no. In fact, if you ask me, we have grown with Bajaj, but because others have grown more, Bajaj has become less.

Can I add another perspective? Bajaj production number went down by 12% quarter-to-quarter.

Okay. Got it. Got it. And sir, just -- you said that you are putting up a TVS facility in Uttarakhand?

Yes.

I missed out the number of units, sir. That would be...

It's 600,000 per annum, and will start from January 2021.

Right. And sir, what is the total capacity that we have there?

Right now, we are not doing brakes. We're only doing some finishing operations like oil bleeding and all. But now we will start to -- make and assemble brakes in Pantnagar. It was being done in our Aurangabad plant. But like I mentioned, we got new orders from Honda and TVS. So because of that, we don't want to risk everything in 1 plant. So this will be a new order. I mean we are just taking this business from other.

[Operator Instructions] The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

Congrats on a good set of numbers in testing times. Sir, first, clarification on incentives, which you have received in India business, you indicated INR 537 million incentives for second quarter. Does this include INR 279 million for the prior period?

Yes, it does. It does. It does. Just to explain this in a little more detail. You may recall that our incentive, so -- I mean until we receive this additional INR 99 crores, we had got about INR 367 crores of eligibility for mega project incentive. So the additional inclusion due to inclusion of financial year '18, '19 was around INR 99 crores, so which made it INR 466 crores. So from this INR 99 crores for prior year of FY '19 and FY '20, we booked INR 27.9 crores. And the quarter 2 FY '21 booking is another INR 25.8 crores. So that makes it a total of INR 53.7 crores booking in quarter 2.

Right. And we'll have 1 more installment coming in 3Q, right, given the increase which has happened?

Yes. Now the number will be calibrated, Jinesh, based on -- we will be booking now based on INR 467 crores. That would be the new...

New benchmark.

That would be divided and then taken appropriately in the books of accounts.

Okay. And this INR 467 crore would be over 5 years now? Or over 7 years?

It's 7 years. It's 7 years. This will be -- but if your question is whether INR 467 crores will follow the original 7 years, it will start at the original 7 years, which is not an additional 7 years.

Okay. Got it. Got it. So secondly, another 5 years left?

Yes, correct. Correct.

Okay. Got it. Got it. Secondly, with respect to India business, we have seen increase in depreciation. Any reason why depreciation has gone up in India business?

Yes. Previous year, there's been a lot of CapEx. I mean, last year, we've seen CapEx. So that's the main reason why depreciation has gone up on capitalization.

So this would be your sustained run rate now. Okay. Coming to the European operations, there we have seen quite a sharp increase in staff cost. Is that -- is there any one-off in that? Or does it pertain anything to 1Q or this INR 950 million per quarter is the new run rate there?

I will request to Mr. Venuti to answer that.

Yes. We closed the second quarter 2020 with EUR 11 million of employee cost compared to EUR 11.8 million of the previous year. There was a reduction due to the shutdown of the plant in Grugliasco because we've had the benefit in 13 indirect people. And -- but you have to consider that in this moment, even if we are producing more or less with the level of saturation, 60% with a reduction of turnover of 10% compared to the previous year, in this moment, we are not eligible for the short-time working. What does it mean? This is the difference compared to the first quarter of 2020. We are not receiving benefit from the government. They don't pay part of this cost due to the fact that all the companies that have had a reduction less than 20% compared to the previous year are not eligible for this support. And this is the different compared to the previous quarter. But if you analyze this quarter compared to the previous quarter there was a reduction of EUR 800,000, more or less.

Right. Right. So the current quarter staff cost run rate is more a normal run rate to follow about INR 900 million, INR 950 million? Is that the right way to look at it?

No. Honestly speaking, I don't understand the figure because the total employee cost is less compared to the previous year. So I don't know.

Yes, maybe you're looking in euro terms. I'm looking in INR terms.

There, another thing to be considered that euro has appreciated by 10% quarter on -- Q2 last year versus Q2 this year.

That's a fair point. That's a fair point on. That's understandable. And yes, the last question pertains to, I mean, to Mr. Jain. We have talked about potential revenue coming from CVT. I mean that's just one product which you have been working upon. Any update on that? I mean where are we in terms of the development cycle and how far are we away from commercialization of that?

Yes. See, on the CVT, we are definitely working with 2 OEMs. And the question is this COVID-19 has pushed back because of their priorities on the final testing. And our focus is to keep continuing to try and see that these testings are cleared with both the OEMS. So the thing is it has slowed down, but the focus is fully there on the CVT business.

Okay. So would it be fair to say this is more to -- that's more likely towards FY '23 kind of opportunity and not FY '22?