Gabriel India Limited (505714) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Gabriel India Limited Q1 FY '21 Earnings Conference. 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. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Kolhatkar, Managing Director of Gabriel India. Thank you, and over to you, sir.

Thank you. And good morning, everybody, and a very warm welcome to everyone present on the call. Along with me, I have Rishi, who is our CFO; Nilesh Jain, our Company Secretary; and Jayant who works with me in my office. So I hope you all had the time to go through the results and presentation, which are posted on the stock exchange in the last week. And firstly, before I start, I hope and sincerely pray that all of you and your near and dear ones are safe and healthy in this -- in the wake of this unforeseen and unprecedented pandemic that we are all facing in the world today. Just to give you a brief on the industry, it has definitely bore the brunt for the months of April and May when there was a complete lockdown, we know that. But the good part is it's showing good traction with most of OEMs. In fact, I would say, all OEMs, except the commercial vehicle industry, showing a good recovery in the month of July, and it's going on in the month of August as well. As you all know, the operation started somewhere in the second week of May, that too partially, when the lockdowns were open and industries were clear as to they can operate with limited number of people. So the utilization, obviously, in May was quite low. So in June, the demand did pick up, but it was still low. So broadly, at the outset, the first quarter is being like -- not only for Gabriel or not only for auto industry, in fact, in general, for all industries, it's been quite a washout. So we'll have to look at the results in that perspective. But as I said, in the month of July, we are already seeing very strong order book, and we are -- I mean, generally, I would say, not only for Gabriel, if I even talk about the overall ANAND Group, the companies within our group fold, we are seeing anywhere from 70% to 80%, 85% demand coming back. So that's a very healthy sign. The inventory levels also at the dealers are healthy. They are not bloated, so -- which also augurs well for a good future demand as well. Coming to 2-wheelers, that has shown the strongest recovery. I mean, as was expected with this COVID pandemic, people definitely would want to move to personal mobility and their own transport and not use the public transport. In addition to that, the monsoon has been good. The crop has been good. So -- and also, we have seen in the budget as well, it's been a lot of focus on the rural economy. So this -- all this put together has definitely ensured that the 2-wheeler ticks the most play among the lot, I mean, amongst all the 3 segments in that. As you know, Hero is really doing well. Their July sale was only about 4% to 5% lesser than what was their July sale in 2019, which is really good. Even if you see TVS, it was about 10% lesser. The others are about in the range of 20%, 25% lesser than what they were in July last year. So it's a strong recovery, and I can see that -- I mean, those demands are actually coming back to a reasonably healthy level. All will be in the range of, in my view, 10% to 15% in the month of August. Passenger vehicles. Again, another kind of a benefactor in terms of personal mobility, [ exited ] the entry segment cars, where Gabriel does play a lot. And our main customer Maruti also has a lot of models to offer in the A entry cars. So that has also been good. The recovery of that segment also has been good. In fact, Maruti and Hyundai in the month of July were almost the same. In fact, just about 2% down compared to last July, which is a really good sign. So passenger vehicles also are reviving very fast. Yes, as I mentioned, commercial vehicle is really struggling and that I don't think will recover very soon. The demands are about 50-plus percent less than what we are seeing in last July, and I don't think that will change very much going forward because reasons are, we all know, one is the gross overcapacity when the axle load norms got changed. And in addition, the turnaround times have improved and the demand is definitely less. The investment also is kind of taken a little back seat. So all this put together, commercial vehicle is going to continue to face headwinds, much more -- much, much more than the other 2 segments. Tractors. Of course, we do not play in that segment. Tractors do not have sharper levels, but since I'm speaking on the industry tractors, again, have shown a very, very robust increase. In fact, their demand has actually gone up compared to the last year. 3-wheelers, which we serve, of course, a small portion, but 3-wheelers has taken a big hit, again, due to the same factor of personal mobility, which is helping us in 2-wheelers and passenger cars. It's actually working negative in the 3-wheelers. However, I'm sure this will go. But again, talking about exports, this demand is still good, and we do cater to the export models, both in terms of TVS and Bajaj in 3-wheelers. So that pool has been quite healthy. Now with this brief introduction, I'll move to the presentation. So I'll request you to look at the Slide 3, which is the COVID-19, an update as to what are the actions that the company has been taking because this is very, very important. One, it guarantees the health of the employee. It helps in employee motivation. And of course, ensures that our production continues without any hindrance. So this is -- that's why we thought we'll as well share. Last time, I had shared some pictures of the various actions that we have taken. So that was very clear. So at Gabriel and at ANAND Group, we have been very, very particular. And in fact, we have been quoted in several industry forums as among the leaders in this aspect in terms of following all the practices and guidelines issued by the government. So just if you see on the next slide, in terms of our response to COVID, we -- our employee strength is about 2,800. And out of this, we have had only 4 plus, even if I add -- the latest updated is 4, so total 8 employees have been identified as COVID positive. And I can share with you that all have been -- all have recovered and all are discharged and actually either back or almost going to join back duties. So that's the good part. We do a daily monitoring of the health status at the group level and it's a review which we, during the peak times, used to do on daily basis. Now we do on a weekly basis of each and every company, not only Gabriel, where the response rate -- we have made a google form, where there are several set of questions, very detailed, it is to be filled every day by 100% of the employees. And the response rate has been 90% plus so it's a very, very wide and deep coverage of all employees. We also have the Aarogya Setu app, which has been recommended by the government. We also implemented a new way of monitoring, which is COVID Monitoring Officers. So we have appointed in each plant COVID Monitoring Officer, whose role is to see that we do not slip on any front as far as COVID precautions are concerned. Because -- I mean, one is the health part, and we all know that any negligence can quite disastrous as far as the company, the employee safety is concerned. So we have to be very, very careful. And we don't mind even -- I mean, turning on the side of being overcautious in this regard. That is the stand and approach that we have taken. Disinfection of -- and sanitation of workplace that happens absolutely regularly. Masks have been provided to each and every employee and they're replaced at a regular frequency. And continuous training is being given, so that nobody forgets or takes a short cut or whatever. So this is what I would want to assure all of you on this front. The Slide 5 shows the statistics. So you can see the kind of statistics that we are monitoring at the company level. I mean this is captured, as I said, on a daily basis. We have left absolutely nothing to chance. And I already mentioned that all the employees who have been -- the few employees who have been found as positive are healthy and safe and back. If you see the serial number nine, which is production loss due to health concern, has been 0 hours. So that is really very encouraging for all of us that we have lost -- we have not lost a single hour of production because of health concerns. Yes, we are facing some challenges, which you can see in the serial number seven, where we have had to quarantine some cases as a precaution for those who have been in contact with the person either in the company or with, let's say, the roommates or friends outside. So this is now -- this number is 69 people. Again, in terms of total of 2,800, 69 is not a big number. But yes, in some plants, it does put pressure on the man power planning. But I think you can only take confidence and tremendous faith that we are doing this absolutely very, very stringently. Now moving on to the quarter update, Slide #8, the financial highlights. Revenue was, as I mentioned, really very low INR 123 crores. You all are aware that normally, our hit rate per month is almost INR 160 crore plus. So -- but this is for the full quarter, we did only INR 123 crores. Most of it happened in the month of June, actually. So I really -- I don't think it's right for us to compare with the previous quarter or year and a quarter. We all know it's not the right comparison. So I'll not spend much time on that. Obviously, EBITDA did take a hit. So -- I mean similarly the PBT as well has taken a hit due to lower operating leverage and lower absorption of fixed overheads. But having said that, again, we have at the company launched really very aggressive cost-reduction and cost-control program. And we are trying to flex all the cost to the extent possible, so that we mitigate the loss of profit. That is the action that we have taken. And I can only share that it is working very well. We have launched this under the name of the initiative, launched in the name of Core 90, which, if you remember, I had shared in the last year, somewhere in Q2, which was cost reduction in 90 days. So that initiative really worked well, and you all must have seen the improvement that we saw in the Q4 in terms of -- despite being the lower sale quarter, we had a very -- we recovered on the EBITDA front. So that initiative bore us some very good fruits. So we are continuing that with even more focus and aggression and across all plants. So that Core 90 initiative continues for us. If you come to Slide 9, the key point here is the balance sheet, the net cash position of INR 151 crores despite whatever has -- despite hardly no sale and no -- obviously, no production happening. So we have focused a lot on receivables. We're continuously working on reducing our inventories. So this has helped us have this healthy position of net cash of INR 151 crores. The CapEx in this quarter, we incurred about INR 12 crore, mainly on R&D. I mean, we are coming up with a new tech center in Japan for the passenger car, commercial vehicle and railway. We already have a tech center of 2- and 3-wheelers in Hosur. So we are now building -- the building is ready. And as again shared earlier, we are not going to cut back on any expense, which is around technology, around productivity, around quality or safety. So that will continue. We are not taking any short-term measure on that front. So this is -- the CapEx incurred is mainly on technology and automation. In terms of Slide #10, we -- I would rather draw your attention to the Q-o-Q, which is comparison to the last quarter, that is Q4 of FY '20, where we improved the gross margin by 1.2%. This is mainly on account of, of course, improved efforts on raw material plus also a change in the mix of the products that we sell. So this is what has contributed. So again, we have maintained high liquidity, strengthened the network continuously. Working capital efficiency, I have already spoken. That is really being attacked very, very well. The P&L statement, as I've mentioned earlier, I mean, this quarter, I would -- it's not much to be compared. All I can say is these numbers could have been -- the EBITDA numbers and profitability numbers could have been worse, but thanks to the efforts of the team, we have really attacked each and every item of cost even in the smallest denomination to ensure that we contain and mitigate the loss of profit. That is what we have done and which you can partly make out based on the performance, based on the significant 76% drop in revenue. Slide #12 is on cash flows from operations. Again, healthy cash flows. I already mentioned, we were able to generate healthy cash due to our efforts on working capital. Slide #13 is revenue mix. Here, the segment mix is more or less unchanged. Commercial vehicle, obviously lesser. But if you look at channel mix, you'll obviously see that the replacement is higher because in these times, this is where are our being -- our playing in aftermarket helps. We are -- we did 25% from the aftermarket segment. And that segment, we were able to not only sell but also do a good amount of collection. So we did not -- we also did not have any issues on the cash front in this segment as well. So the recoveries were also very healthy and robust. So this is what helped us in this quarter. Coming to Slide 14, which is -- from here on, it is, of course, segment-wise. Again, not much to be shared in terms of -- the market share continues to be 25%, but I'll only share the new program. We continue winning new programs. TVS, some key new programs we have won, 3 are listed here. Bajaj, the new 3-wheeler, I mean, which is actually a refresh and replacement that we have already working on the implementation now. In terms of electric vehicles, our engagement remains strong. And we are a supplier to Ather. And as you all know, now Hero has acquired almost 34% stake in Ather. So we are almost a single source to Ather. Moving on to passenger car. Again, the new program, which is S-Presso, which is already launched last year, that is doing well. And as mentioned, the passenger car entry level segment is showing good recovery. So that is the good part. And we are working on new programs of Mahindra, 2 new programs, the Thar refresh and the Xylo refresh both -- not Xylo, sorry, the XUV500 refresh, both are with us, and we are working on -- they are in various stages of development or even close to start of production. As you know, Thar is going to be launched shortly. Volkswagen also the new program is being worked upon. PSA is being worked upon. And Tata Motors, we also have won a small business, I mean, in terms of reentry in the passenger segment. So we are working on the Tata Motors Tigor new business start of production as well. Here, I would like to share some good news in a sense, we have also a new platform of Maruti, which is basically going to be a replacement of Alto going forward. This SOP will be in the year -- in the next financial year, not -- definitely not in this year. But it's a big program and also strengthens our relationship with Maruti. Moving on commercial vehicles. Not much to say here. We'll have to wait for the industry unless there is a scrappage policy, which we have been discussing, we've been hearing, we've been reading for quite a few days. It's yet to get announced by the government. I really don't know when is the date. But unless that happens, I don't see -- virtually, I don't see a great recovery happening in commercial vehicles for year 2021. Aftermarket, a good story, which is -- as I have mentioned already, I think we have been able to sell well. I think the moment has been well. I mean, obviously, people are looking at possibly more of used cars, and that is, to some extent, helping. And collection also has been very strong. Here, I -- again, I want to share a good development, which is that we have launched the break pads. We have launched break pads for all the vehicle ranges in India. So this is a very, very fast-moving commodity and this gives a lot of -- our dealers have been particularly happy with this because this gives entire range with them. And now Gabriel is able to offer the entire, as you call, around the wheel or the corner module. We are able to offer all the products in that key module of car. This gives a lot of traction for them. And in their words, they say that Gabriel has become almost a one-stop shop. So this is -- this was one of the products that we have been working on for some time, but we were to identify a good source, and we have found an excellent source, absolutely top-quality with very good development capabilities. And it's a majority export supplier. So they have the entire range with them and supplying to the best levels in the world. So this is what we have now launched and I'm pretty hopeful this should help in improving after market shares going forward. And on the exports, which is on Slide 18, which has been a question from all of you, yes, our exports have been low. But yes, what we have been waiting for in terms of the order from DAF Netherlands, that start of production or the start of supplies will happen in Q2, which is in this quarter. And the other order of Volkswagen Russia, it's the passenger car, we have got the order for the rear suspension. So that will happen in Q3. So both these are now going to start. And this -- we are ensuring that we'll have a flawless and smooth launch of both these products so that this will build -- this will help us build our export story going forward. So I think this is what I had to share. As far as the presentation is concerned, the slides ahead are the regular slides of the corporate overview. So just to conclude, challenging times, yes. But the positives that I draw is -- we all have become very, very focused on cost, and we have really become lean and agile as a company. And the other good aspect is we have followed all the safety norms, and we have been able to not only be a great place to work, which Gabriel is for so many years now, we are also trying to be the safest place to work and that has gone very well with all our employees and their families, and we will continue our efforts in this aspect. So thanks, once again, for patiently listening to my address. I would now hand it over back to the moderator, and I suppose keenly await the questions and queries that you would have. Thank you.

[Operator Instructions] The first question is from the line of Priya Ranjan from Antique Stockbroking.

It's great to hear a lot of cost-reduction efforts and all. But can you just throw some light on, I mean, where we are seeing in terms of 2-wheeler market share going forward with the new programs, et cetera? And any thoughts on the front fork suspension and share in the business going forward?

Yes. Thanks, Priya Ranjan. Nice to hear from you. So just to share that our -- the 2-wheeler volumes, as I said, the recovery has been the fastest and the best, in fact, in the month of August and now onwards, as you know, the festive season starts. July actually is a little lean month normally, June and July. And then from here on, August, September, October are always the best months and Diwali this time is in November. So we'll see really strong growth. And I mean, if I look at all the factors, I don't see why it should not hit even the same levels as last year as far as 2-wheeler is concerned. Our order book for August, as I mentioned, is really strong in terms of 2-wheelers and -- 2-wheelers, it's close to 80% plus definitely, in fact, even higher. So that is on the part of 2-wheelers. Second, in terms of market share, it continues to be the same. These new products will, of course, not get launched immediately. They will get launched over the year. As you know, last year, all the OEMs were actually focusing on the BS-IV to BS-VI transition. So they had actually deferred a lot of their new products this year. So this year, we're seeing a huge influx of new product development in passenger cars and -- in 2-wheelers, even in 3-wheelers, for that matter. So what we see is our market share going forward, obviously, whatever we do or we are looking at improving our market share. Electric vehicles, we are there very well entrance. So we see that the electric vehicles should start playing, I mean, in a bigger way going forward, let's say, from next year onwards. So that should help in addition to what we are doing on existing products as well.

And any thoughts on front fork, I mean -- because that is one of the key focus areas?

So one action which we had -- as mentioned, Sanand plant, which was set up solely to meet to the demands of Honda Motorcycle, Honda Activa front fork, so that is fully on stream. It got commissioned in the Q1 of last year. In fact, we just started kind of hitting the peak volumes in February and then the lockdown happened. So certainly, that is going to help. And based on that, yes, we are looking at improving that share further even in other models of HMSI.

Sure. And sir, you mentioned about the Maruti's new Alto program. So will it -- I mean, it will be more of a replacement of your existing business or…

Yes, it will be a replacement. Yes, that's right.

And any thought on new program that Maruti when you look at to enter possibly?

Yes. So there are other programs which we are discussing. This is one that we have -- I mean, okay, not almost obviously awarded, but there are others that we are working as well. I really cannot comment. But we are -- I must say, we are in the positive territory as fall as the new -- other new products are concerned.

And any thoughts on Railways side?

Railways continues the good pull that we saw in the last year. Last year, we had the best -- almost 100% growth in Railways, of course, on a small base. This year also that hit rate at least is continuing despite the COVID. So it's fairly healthy. Though it may -- I mean, because of April and May and June wash out, we may see the overall number go down. But I must say per month, Railways is pulling decently. And we have also won the proto order for the fastest train, Train 18. So that is also going on. We are also working on some other -- we are trying to also address the metro. So we have taken a focused approach on addressing the metro. That will -- this is mainly for the -- more on the replacement side. So we have got our expertise list from Bombardier. So we're working on that as well.

Okay. So last year -- I mean, on the Railways side, can we see significant change in share, say, 3-year or 4-year down the line with the efforts you are taking?

Priya Ranjan, so the share, unfortunately, Railways is a tendering business. So I don't think we'll see a big change because even if whatever I do, there's a process they follow. So we cannot look at additional share. That's why we are working on development of, as I said, the metro and the locomotive shock absorbers. So both -- we are trying to expand our reach into other products, so that we are able to work on this limitation of tendering business.

The next question is from the line of Viraj Kacharia from Securities Investment Managers.

Just I have 3, 4 questions. First, you talked about Core 90 program and us looking to accelerate that particular program in terms of getting more cost savings. So can you help us understand the benefits we have been able to attain from these initiatives so far? And as we move towards normalization, how much of this will sustainable?

Viraj, so the Core 90 is -- I mean, it's -- see, we were always doing this cost-reduction program, which was not -- which was done in different pockets separately. So what we thought is it's time for us to integrate the whole effort and start driving it at our level. In fact, we -- let me share with you the methodology, every Tuesday religiously for the past year, now it's -- yes, now it's almost 1 year, July 15 last year we launched. So for the past 1 year, every Tuesday, all of us, including me; Rishi, my CFO; my CXOs, we all on the call where we review this -- the progress of this program. So that, clearly, like I mentioned, in Q4, you were able to see the results of that. I cannot share the results specifically for, of course, during the year. But I can say that we are trying to address, let's say, electricity, freight, the PPs, the consumables, the direct headcount, the travel costs, the repair maintenance costs, of course, and the big-ticket items like the raw material cost, the fixed overhead, variable overhead. So each and everything, including, of course, even looking at can we look at footprint rationalization. We had -- just to share, we had an office in China, which, fortunately, we shut it down in the month of December. In fact, by 31st December, all our employees also were back in India. So we shut down our office in China. We are also looking at any other opportunity in terms of can we look at rationalization of the footprint in terms of the smaller warehouses that we have. So those -- so we are not basically leaving anything. Each [ entity ] cost is being addressed. And I can only share that even during the quarter and during the month of this year, we are looking at a good reduction. We have a project upper of 1,623 projects. This is 1,623 projects which are being handled by each and every team across plants, which we review. So that is the amount of detailing that has gone into this. So I mean, that's all that I can share on Core 90 with you at this moment.

Just one more to just understand in a different way, compared to the past the breakeven was at a certain point, how would have that move after these programs are kind of completed?

The breakeven has reduced for sure, is all I can say. I can't share the number, but you can actually do the math and point it out for the first quarter. But yes, in second quarter, it will be a bit more clear, I'm sure. But yes, it has reduced -- breakeven has definitely reduced. That's the whole idea. It is right. That's the whole idea.

Okay. Second question is, you mentioned in the annual report that you've graduated from a product manufacturing to a complete end to end. And that before apart from few shock absorbers companies and that we are among the few shock absorbers companies that have developed an end-to-end, know-how and design and manufacturing. So we also talked about designs and fabricating the capital equipment. So would you please kind of elaborate on the capital equipment part? What do you mean by it? And does it reduce the time for the customer or benefit us in terms of low capital cost versus competition?

Yes, certainly. So Viraj, a very good point you brought about because earlier, you should see from our history when the capital equipment, there are a lot of manufacturers, but the capabilities were not so good. Today, we have excellent capabilities available in the market. People can design, develop and manufacture machines for you. But to meet the specific requirement of what we need, we need our own talent and our own knowledge bank to work on these concepts. So what we do is we don't manufacture them in-house, but we have a complete team of design engineers who design the concept, develop the concept and work along with these suppliers, again, selected set of suppliers, mainly -- I would say, mainly in the range of -- in the region of Bangalore and Pune, and we develop our own machines, so that they are best suited for our needs. So we get the best out of them. Coming to cost advantage, just to share with you one particular machine, which is a very critical process, which we were looking at imports, and we had scanned the globe and taken the quotations. We were able to develop the same machine in our -- as we call our Gabriel Technology Park, which is in Hosur. We were able to develop the same machines at 30% of the cost, what we were getting from overseas, 30% of the cost. And secondly, based on our competence and our know-how and the product that we were able to demonstrate, year before last, we were able to sell one machine to Gabriel, South Africa at a decent margin, obviously. But we were able to sell our product to one of our partners in South Africa. So these are the advantages that we get. So we get them what you call -- I mean, made to our -- made to suit our needs. So it is the best advantage that we can get in terms of productivity.

Okay. And last question was on the aftermarket part of the business. We've been focusing on launching more products other than shock absorber. So if you can just provide some split between the 2 in terms of shock absorber and other business contribution in the aftermarket? And I'm assuming other than shock absorber, bulk of these are on an outsource basis. So would it be margin dilutive to the overall corporate margin? Or it will add to your overall corporate margin? Just trying to understand on that.

Okay. Viraj, I think good question. So if you see Slide #17 in the presentation pack, the aftermarket part, you try to show that shocks and struts will continue to be our core, which is 82%, but others now constitute 18%. This 18%, we can definitely take it higher with this launch of brake pads, as I said, and other products. We obviously are looking at a bigger pie. So this is the split between shock struts and nonshock struts products. Secondly, in terms of traded products, I will -- again, while you may not have asked, I would again repeat what I mentioned all along is that we select our suppliers very, very carefully. And we apply the most stringent OE standards. We do not at all dilute on that front because it's finally the brand that we want to preserve. So we select these suppliers after a lot of thorough research, and they undergo the same rigor of selecting an OE source. And then we develop the source, and then we get into the trade of these parts. And the traded parts margins, naturally, traded part margin might be a little lesser than the shocks and struts. But if you see the return on capital, I mean, there's no investment. So that's the best that you can get. So we balance it out. But having said that, they are not at low margins either. The focus is that if we can at least come close to what we do otherwise, that is the plan that we have. And lastly, we also select the products carefully as to which ones to enter. We don't want to address everything. That's very clear.

So are there more avenues in terms of more product coverage? Or you kind of hit the avenues…

Yes, there are more avenues that we're looking at, yes.

The next question is from the line of Rajat Setiya from VRDDHI Capital.

Am I audible?

Yes. Yes. Please go ahead, Rajat.

Sir, on Maruti side within, is it the old model that we were settling to and now we have got the order for the new platform?

Yes, yes, that's right. But in the old model, the Alto -- one of the models of Alto, we did not have the rear shock absorber. So with this, the entire Alto is with us, that is a good development.

And when will the supply begins?

As I said in the later part of next financial year, if I remember rightly, from like January '22.

Okay. And with this, what is the market share that you see we will achieve after the launch of this model?

Certainly, with this, of course, the current S-Presso, and we are on this part, the current market share, which is 15%, we definitely want to take it to 20% range, with other products as well, like I mentioned, Mahindra new launches, Volkswagen new launch, the PSA, all this put together and kind of reentry into Tata Motors passenger car. With this, we definitely would want to go back to 20% range.

And with Maruti, what kind of market share with just Maruti?

Pardon?

With Maruti's requirement, like market share of Maruti's requirement -- sorry, I mean, our contribution, our supplies through Maruti's requirement. I think it used to be 40%, 45% some years back, what will it be?

Yes. Well, in terms of the exact number, I can't share, but all I can say is we are the #2 source in Maruti. I mean, basically, the #1 source in terms of their market share is Tenneco, who is a global -- among the global leader as well. And the #2 clearly is Gabriel.

And sir, if you have to share some of the learnings or some of the things that went wrong for us in terms of -- in this segment where we continued using market share, so what really went wrong? And what were learnings? And how are we going to correct them?

Yes. So one thing is with more and more global companies, we have to look at it from a global level. So we obviously have to strengthen relationship with our partner, which is KYB. So that is what we have worked upon over the last couple of years. And we are continuously strengthening our relations with them so that we tend to get more business, by pitching it well along with them. So that is the change that we have to do. Whereas, let's say, for Indian OEMs, we are able to address their needs reasonably well. So this is how we'll have to work upon. And as I said, one important factor was improving our technological capability. So one, we have really done very well in terms of our right-tuning capabilities, which is now appreciated. In fact, they are now okay with right-tuning being done by Gabriel independently. They don't want any expertise now. So that is already done. The second part is the tech center, which I've mentioned, the tech center is coming up in -- it should be ready in Q3 of -- by December of this year, I mean, December '20, the tech center will be ready and operational. So that should improve our positioning with respect to passenger cars more certainly.

Sir, like you lost WagonR platform sometime back, so is this -- have we -- has such a thing happened before also that we lost our platform to a competitor?

No, that keeps happening. See, again, these are global decisions. So WagonR is not decided in India, right? So they get decided for a global launch for, let's say, for WagonR, do we launch in India, Indonesia, Vietnam, together. So there, we have to rely on the partner. So there, obviously, our partner also lost the business. So actually, we also had to, what you call, forgo that business. So this happens. I mean, we do lose some business at global level. But we also keep gaining a few.

And so moving on to the 2- and 3-wheeler segments, we make DAF as well as hydraulic shock absorbers, what could be the revenue mix between the 2 products?

Sorry, Rajat, can you repeat? I couldn't hear it clearly.

We make -- for 2-wheelers and 3-wheelers, we make DAF as well as hydraulic shock absorbers, so what could be the business mix between the 2?

See, in 2 wheelers, it's mainly -- I mean, hydraulic, of course, all shock absorbers are hydraulic only. I mean, gas is added for comfort. So we'll place only -- it's in the rear shock absorber in the canister type where we add the gas. So I don't have the split. But yes, the canister does offer better comfort. It looks -- it also improves the aesthetics to that extent people are moving, but yes, it also costs higher, but I don't have the mix between the 2. Maybe we can revert back to you later.

Sure. No problem. And sir, in terms of the new products that we would have launched in the aftermarket segment over the last few years, anything that you can share the contribution from those new products would be? What kind of contribution those new products would be making?

No, Rajat, sorry I really cannot share that. But yes, we have -- as you know, we have been launching very good products being received very well by our customers in market, improving our traction with them, improving the brand image of Gabriel in the market. And the result of that, you saw in this tough quarter, aftermarket was able to help us to some extent. So that is what -- that is how it helps. It's difficult to say how much -- I mean how much of value comes out of that, that we don't share. Not only that, in fact, some of our export customers who are traditionally being buying shocks from us, they are also very open. And in fact, they place repeated orders on these products as well to address their markets, so it surely helps.

Sure. And sir, on the export side, what would you share were the reasons that we could not grow despite having a good focus there from last many years? And how are we changing things now?

Yes. Rajat, so yes, we've been focusing, like -- again, I had mentioned this on export. It was also a particular hard realization that we had that the lead time to get an order is really, really long. There, the export OEMs are very, very finicky about the suspension as a product category. They are very, very particular. And switching over a suspension is call for a huge amount of cost and testing and validation from their side. So that's what we won, at least the confidence is there. We had won an order in Volkswagen Russia last year -- 2 years back, small order. Based on that, now we got a bigger order. So this is what we are looking at. Now we are looking at improving on this, building on this further. Commercial vehicles. We started our export journey, an order from ISUZU. Unfortunately, the ISUZU volumes are very low. But that helped us in at least showcasing our product to the globe. Now DAF is interested, that would open the doors in Europe. And now as we discussed with DAF, we are already getting inquiry from -- other than DAF Netherlands, their group companies, which is Leyland of U.K., PACCAR of U.S. So that's how it will happen. So exports is a rather slow journey is what we have realized. So that we'll have to wait and build on our success. The important thing is to deliver these flawlessly.

Rajat, we would request you to please come back in the question queue for any follow-up questions, as we have several participants waiting for their turn. The next question is from the line of Shashank Kanodia from ICICI Securities.

Sir, I just wanted to check regarding break pads. So what exactly is the positive size for us? And what kind of quantum of revenues are we posting in next 2, 3 years? And are they manufacturing themselves? Or are we trading into that?

Shashank, thanks for the question. So we are not manufacturing. As I said we are trading in these products. And as mentioned, we have selected the source after thorough screening and testing validation. It's a very, very good source supplying to the entire globe to the best of labels impact. And we are -- I'm glad to share that we are actually going to even cater to the premium luxury models through this product because they have the expertise and they are even doing it today -- even today in global markets. That is on the part of whether it's traded and how do we manage this traded commodity. And in terms of market size, this is a reasonably fast-moving item, where average life of a brake pad is anything from 30,000, 40,000 and as you go higher in terms of engine capacity and power and torque, this is replaced even more quickly. So we are -- right now, I mean, in terms of the size, I would say, I can't share the figure, but definitely, it can develop into double-digit growth, I mean, in terms of 10 crore plus in 3 years' time.

Sir, I heard double-digit crores?

Yes, yes.

Okay. And sir, the margin profile is similar to our base business? Or how is it?

It's fairly -- a little less, yes.

Okay. And sir, secondly, in the last con call, you were of the [indiscernible] that your domestic tour industry might decline 30% plus this year. So any refresh on this, sir?

Yes. I mean, 30% -- see that. I mean, what I said is for the full year. So April, May has anyway gone, right? So 2 months have gone, which is clearly, let's say, 16%, 17% gone from the market. That will never come back. It's the demand that has gone forever. So the balance of the year, again, you're saying, if you see June, July, it's nowhere near 100% -- sorry, July and August, it's still not 100%. So overall, I told 30%, but that -- I mean certainly looking at the pull now, it can be better. Those numbers can -- I mean, at least for the 2 wheelers. If there is no second wave -- so there are too many ifs and buts, but -- and nobody is able to get that right now. But if this continues, we can look at a better figure than 30%, more towards 20%, 25%. But again, it's only a -- Shashank, it's only a guess. So right now, it's very difficult. We literally have take each month as it comes.

Right. Right. And sir, thirdly, just one thing, sir, can you break into it EBITDA any time? Or is it impossible at all?

No, no, I don't think it's impossible. Just to share, we are in advance discussions. And for the new plant, I mean we have not gotten the business. No, definitely not. But we are in advanced discussions. And we moved definitely much better than what we had discussed, let's say, 4 years back. So the discussions were at much senior levels as well. Then yes, the volume last year onwards started. As you know, last year, volumes were very low, 2-wheelers in the entire year -- the entire industry was in a downturn and then followed by COVID. So right now, all plants are kind of on hold. We'll have to wait, but I'm not telling that it is impossible, no, not at all.

Okay. Sir, just one last thing. Sir, on the vision statement that you intend to be into top 5 shock absorber companies. Sir, any progress on the inorganic front? Or any other color that you'd like to share?

Yes, we are continuously scanning. In fact, there were some opportunities, which we did even have some discussions as well. But yes, again, not to sound that we are giving a reason, but COVID has made everything really difficult in terms of engaging with people. And obviously, they are not able to give their own estimates for the balance year. So we will be taking a little bit of a, I must say, pause. But our scanning continues. So we have definitely looked at a few opportunities. We'll have to wait for the right one.

Shashank, we request you to please come back in the question queue for any follow-up questions. [Operator Instructions] The next question is from the line of [ Adit Shah ] from [ Biogen Securities ].

I wanted to ask, over the years, I've been seeing that your legal and professional fees has been your highest expense other than employees. Could you please explain -- clarify that item? That I'm not able to understand.

Yes. I think [Technical Difficulty] that we've been speaking about in the last call as well. The legal and professional fees that he has management service fee incorporated into it, and that's why you see that number to be higher in terms of -- compared to the other ones. We don't have much of royalty and as I said we have a technical fee. And there's a lot of services and support that we drive apart and including from brand Gabriel that we take from ANAND corporate. So that's the composition of legal and professional. Other than that, the amounts are really small.

The next question is from the line of Abhishek Maheshwari from Wallfort Financial Services.

Sir, I just wanted to know if there is an impact on raw material availability and the price right now as compared to previous year?

Well, when you talk about raw material, in terms of availability, we are not seeing any issue with the raw material availability. Yes, there are some challenges in terms of supply chain and logistics sometimes. But in terms of pricing, yes, steel, we are seeing a bit of firming up on the prices. That is happening. And second, if I -- if you talk about raw material in the sense of other Tier 2 manufacturers, certainly, there are challenges that we are facing from them in terms of their manpower availability. You all must have read on the migrant labor, and most of these companies do rely a lot on this migrant labor. The problem is reducing, and we have not -- Gabriel has not yet caused any supply disruption to any of our OEMs, and we'll continue to do so. But yes. I mean, going forward, it is only going to get more and more challenging. Again, it's not only particularly for Gabriel, this is for the entire industry. It may take a couple of maybe -- I don't see it going beyond 1 more month. I think by September, things should stabilize.

Okay. And sir, my second question is, since the steel prices are firming up now, are you able to pass on that cost to the end customer? Or we are facing the…

Yes. Steel is almost entirely indexed to the customer.

The next question is from the line of Viraj Kacharia from Securities Investment Managers.

I just had one more question on the rail side of the business. We have seen a lot of new players, they are looking at Railways as a growth segment, so which could affect your pricing in a tender-based environment. So how competitive are these versus these other players? And would this be the highest margin segment for us?

Viraj, yes, we are quite competitive on this segment. We have been winning tenders continuously. I don't see an issue there. And if it comes to that, we -- in fact, proactively, we have also launched a program under Core 90 to ensure that we remain competitive in Railways. And yes, that is amongst our highest margin segment.

Okay. And you talked about the export part of the business that has been quite a slow joining. Now typically, what we understand and it takes at least 3 to 5 years or even slightly longer or in terms of getting that approved and validation from OEs and being involved in the new programs. Since we've been kind of interacting with a lot of OEs and in certain cases, we're seeing that scale up, where are we in that whole evolution in earning? So is it that in next 1 or 2 years, we may see a significant step-up in terms of our exports this year? Or you think that it's still a more long stretch in terms of how long is the business steel can be?

Yes. So it was, of course, a question of getting those first breakthrough orders. So in commercial vehicle, we got a marquee customer. In passenger car also, we have now got a good customer. So this should definitely open up doors, I mean, in terms of -- the first question is whom are you supplying to. That is one. Second is with this strategy of everybody after whatever developments have happened in terms of everybody's view on China, they are now talking of what they call China plus -- China plus 1 or china plus alternate. That is the strategy that all global OEMs are looking at. So in this, I hope -- do certainly hope that we may get some opportunity, particularly in the commercial vehicle space. But it's not going to happen in, let's say, in a year or 2 years, definitely more than 3 to 5 years' event.

Okay. And with the acquisition, would that be largely be overseas for us -- is that [Technical Difficulty] new opportunities for us given the kind of time line it takes? So is that something [Technical Difficulty] business?

Sorry, your voice was breaking a bit, Viraj, so I couldn't get that.

Yes. So I was talking about, you talked about us also scanning new opportunities in terms of [indiscernible]. So is this largely in the domestic market? Or we are focused more on the export or the international part of the...

No, it's actually both. And if -- sorry, the moderator, I'll have to log off at 12 because I've got a meeting lined up at -- already, I'm a bit late, so if that is okay.

Sure sir. Sir, shall we take one last question?

Yes. Please go ahead.

The last question is from line of [ Jeetu Panjabi ] from [ EM Capital Advisors ].

Yes, Manoj, I know you've got a run, but I'll just make a quick one. We're seeing this upsurge that you talked about right in the opening, and you've seen also, I believe the inventory in most system is pretty low, which is what is driving demand at the wholesale level. The question is where do you see the sustainability coming from? You're not seeing full pass-through sales. You're seeing pass-through sales slowdown. So are you kind of banking on the Diwali season demand to take us through? What is your analytics for the next 6 or 12 months for the market?

Yes. Jeetu, nice to hear from you. So as I said, currently, all of us are really at a loss to take a guess on what would happen, how would the market react. Because I mentioned we have to take each month as it comes. It's really difficult to even project a quarter. That's the kind of difficulty. We never thought it will bounce back so soon. Now we are seeing the pendulum swinging the other way completely. We actually -- and it's not only me or Gabriel, if you talk to -- you must have talked to other industry people also. The revival has been -- upsurge has been really, really very good, much better than expectation. Now some of it is pent-up demand, certainly. But at least on the 2-wheeler front, I'm quite confident that this should sustain because, again, it's mainly a rural-driven segment. So that is doing well. That should contain. And personal mobility should definitely sustain this demand. I don't see an issue with 2-wheelers happening. Commercial vehicle, I have already told outlook is not rosy at all. Commercial vehicle may -- will -- not may, will certainly struggle for the full year right up to March end is what my guess is. Unless there is scrappage policy announced, which we don't know. It's been coming every month for the past, I don't know, 50 months. We don't know when it will finally come. Passenger car, again, entry-level segments, I see a good demand going up to festive season, most certainly. And after that, the last quarter, Jan, Feb, March, we all expect that the pandemic to at least settle down to whatever extent. People will be able to either live with the new normal or there is a discovery of a vaccine. Again, it's a big guess. So Q4 should be okay. Till that time, this festive demand should take us through. So again, on passenger car as well, I see it's sustaining. So overall, I must say, it looks okay.

I would now like to hand the conference over to Mr. Manoj Kolhatkar for closing comments.

Okay. Thank you. So thank you all, and sorry to cut it short a bit because as a calendar at 12, I had -- we have a customer review meeting, which I'll have to attend. One thing that this lockdown has definitely taught us is how to use digital media. And we are actually -- we are all realizing we are more busy than what we were earlier in terms of continuously attending the calls and on Teams or on Skype or on Zoom, whatever. So this has made -- in a way, it's good. In a way, it only means that business is strong and things will sustain. Like I mentioned, we are now a little more optimistic than what we were earlier in the last call because things have kind of become a bit clearer. But yes, you cannot entirely dismiss a second wave and the actions of the government, if there is a second wave. I mean, they would have obviously work in the best interest of the nation. So we really can't take a guess on that. But yes, our outlook is a little better than what it was earlier. So I hope we enter a good festive season now. And I wish all of you a very, very happy, healthy and safe festive season and pray for all of our health, safety, including our near and dear ones. So thank you once again, and look forward to meeting you next time. Thank you, and bye-bye.

Thank you. On behalf of Gabriel India, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.