Gabriel India Limited (505714) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 and FY '21 earnings conference call of Gabriel India 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 of the 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 Limited. Thank you, and over to you, sir.

Thank you. Yes. So good evening, everybody on the call, and a very warm welcome. I firstly -- I sincerely hope and pray that all of you and your loved ones are in the best of health and safe in the confines of your home or in a safe bubble. We all know the second wave of pandemic has actually wreaked quite some havoc particularly in Mumbai, Pune to start with, but yes, thankfully, as we all know, it seems to be coming under control, while it definitely has not gone away. Joining me today on the call is Rishi, who is our CFO; Nilesh, our Company Secretary; and SGA our Investor Relations Advisors. Thanks to them for joining. I hope you had time to go through the results and the presentation, which we -- which was rather short this time because we just finished our Board meeting pretty late today. But I hope you did still have some time to go through them. Before we get into the numbers, I hope I'm audible because I'm wearing a mask. So pardon me if I'm not fully clear, we are all sitting in the same office in our -- in my office, in fact. I'll try to be loud, okay? So I hope -- before we get into the numbers, let me provide you with an update on how the current environment is shaping up. We did see a very solid quarter in terms of Q4 of last fiscal 2021. And since then, in fact, even April was shaping up well, and then we had the second day of pandemic. Unlike the first wave, second wave have seen deeper and wider penetration and now actually, we are seeing the penetration going to the rural areas and the villages. And one more feature, which is a little different in this second wave was we had localized lockdowns and restrictions imposed by various states at various different times. So that added another challenge to us in terms of our operations because we have interdependencies on plants and supply, I mean, in terms of the supply chain, whereas last year, it was an entire nationwide lockdown. So we could actually shut the plants at all locations. This time, we did not shut any plant, except maybe Nashik plant because the government had mandated for a period of 1 week, we had to shut that. Otherwise, all our plants have been running through the lockdown, may not be on full capacity, but yes, because customers were running. So this was a little different in terms of the lockdown scenario this -- in the second wave. However, with this vaccination program, which is now open to all above 18, we hope that there'll be immunity developed among the population and our economic activities will bounce back to previous levels. Well, I really cannot take a guess as to when, but we generally as a company, as an industry, we are hoping that things should start picking up in the month of July. June also might see effects of the second wave, while numbers are down, we all are seeing that. But still, states are not opened up, the retail outlets are still closed. So it will take some time for people to get back to normal levels. At Gabriel and ANAND Group, we believe that we have been better prepared this time in terms of COVID-19. Yes, we did have impact. We unfortunately did have -- I'm very, very sorry to share that we did have even the sad demise of 2 of our colleagues in Gabriel. And even in ANAND Group, we had almost 10 succumbing to this devastating virus. But we did ensure very solid protocol to ensure and guarantee the safety of employees who are coming to work despite this COVID challenge. So firstly, I would like to also put on record the fantastic work being done by each coming to the shop floor every day and working with all commitment to deliver the products. We currently have -- across all our 7 plants, we have about 52 active cases. So it is quite, I must say, a good number because this number was much higher in the month of April. It has gradually come down. And it's -- the trend is definitely going down. We, at Gabriel and ANAND Group, we believe safety of our employees is of utmost importance. So safety is first and then comes everything else. So we have introduced lots of policies, we have amended many policies to help the employees, also to give them some mental comfort. That's very, very important in these times because we're all seeing that people are really extremely stressed. One is the vaccination policy. We have started a group vaccination policy to ensure all are vaccinated. All the eligible employees above the age of 45 are vaccinated 100%, we've done that. Now since above 18, a lot of our workforce are young diploma holders, we are waiting for the vaccinations to actually start being available, and then we will be -- we are entitled for doing the same. In addition, as I mentioned on the mental front, in terms of the minds of people, we have launched what we call a wellness initiative called Positive Pulse, where we are providing access to all employees for personal online counseling, 24/7. And so that employees can reach out to people, talk to them, get some assurance, get some counseling, which is very, very important in this current time. For the people who have unfortunately passed away, we have also amended our policy to ensure that the families are taken care of, their children education is taken care of to the best possible extent. So these are some of the things we have done at Gabriel and ANAND Group in these very tough times. Although broad uncertainty remains in the near term, we believe our ability to manage the situation during the first wave provides us adequate comfort that the inherent strength of our business model will allow us to successfully navigate near-term challenges and drive a gradual and sustainable uptick in performance when things start returning to normalcy. I'm delighted to share that the Board of Directors have recommended a dividend of INR 0.70 -- final dividend of INR 0.70, which means the total will be INR 0.90 per share of INR 1.00. Interim was already INR 0.20, as you know. So in addition to the INR 0.20, INR 0.70 has been added. So it is a total of INR 0.90. Now moving to the numbers. We -- I mean, we have delivered reasonably good performance, I presume, in FY '21 despite the serious challenges, as you all know. Post the partial lockdowns and easing of restrictions, we witnessed a very sharp recovery. And we were able to deliver a top line of almost INR 1,700 crores, which is, I must say, in the current scheme of things, was really better than even what we expected, thanks to the auto OEMs who really picked up speed very well. EBITDA at INR 107.6 crores, and PAT came in at INR 60.3 crores in FY '21. We delivered revenue growth of 37% in the quarter, coming to the quarter, 37%, INR 580 crore revenue, which is, in fact, our highest ever quarter in terms of revenues. This comes back on the back of strong growth in all segments. Of course, we really cannot compare the Q4 of previous year because we all know from March 23 last year, there was a 10-day lockdown, so it was a complete loss of the last 10 days of '19, '20. The automobile industry also maintained a decent month-on-month growth, led by gradual improvement in urban markets and continued positive traction in rural markets. Within the CV segment, LCV volumes witnessed a decent improvement with high growth in March '21. M&HCV also started witnessing strong growth in the quarter. However, we are seeing that growth again, slip up in this -- in the current month. For the first time after a year, 3-wheeler segment started recording volume improvement both on month and year-on-year basis in Q4 '21, which is good news because we are a dominant player in 3-wheeler market. We recorded a 49% year-on-year growth in EBITDA in Q4 to INR 49.3 crores. Margin stood at 8.5%, up 0.7% year-on-year. As all of you are aware, the significant increase in commodity prices has continued this quarter. In fact, we continue to keep getting and hearing of further commodity price increases, especially steel. But thanks to our initiative of Core 90, which I did elaborate in the last several calls, which is cost reduction in 90 days. This has helped us offset that impact to some extent. And that's how you see the improvement in EBITDA margins. Moving on to the balance sheet and cash flows. We continue to maintain a robust balance sheet with net cash of almost INR 270 crores for the year-end. Again, you have to look at it in view of the challenging year that we've had. We've maintained our thrust on collections and continuously working on reducing our inventories. This led to a healthy cash flow from operations to the tune of INR 204 crores for FY '21 as compared to only INR 120 crores in FY '20. Our net working capital days stands at 19 as compared to 33 of March '20. We will continue to make capital investments in R&D, automation, line balancing to be prepared for the future because we believe these are somethings that we should not be moving away from. CapEx incurred for FY '21 stood at INR 47 crores, which included the Sanand plant expansion, the tech center at Chakan, which is now completely ready for the 4-wheeler and commercial vehicle and railways. And the Hosur expansion -- Hosur and expansion in the casting plant as a part of our backward integration to reduce import contract, which again I shared in the last call. We have planned the CapEx in the range of INR 80 crores to INR 100 crores for '22, of which INR 50 crores to INR 60 crores will be spent towards, of course, plant and maintenance -- plant and equipment maintenance of all the 7 plants that we have. And we'll have INR 20 crores in the backward integration in terms of the casting facility for the front fork outer tube for the 2-wheeler front fork suspension. Our aim clearly is to reduce the import content in the raw material cost in this year. Coming to segment-wise performance, we saw very good traction in 2 wheelers. We continue to maintain a very high level of engagement with our customers and are focusing on enhancing our market share and that has been seen in the results. As you're aware, EV trend is accelerating, especially the first to adopt will be the 2-wheelers and 3-wheelers, again, as you all know. And we have the formal LoI from Ola Electric, and we have given them a new technology front fork and rare shock absorber, and they've been very satisfied with the product development that we have done. And now we are looking forward to the ramp-up. In fact, just yesterday, we also got their ramp-up plan indication. As you may have read or seen the video, it is available on their site, Ola Electric, they're really going very aggressively on the plant, I mean, setting up the plant with full speed. We are also glad to report sequential upticks in our passenger car segment, which has not been as good as 2-wheelers in past years. But here, we have really filled up our business pipeline also very well and we already have the S-Presso. The Brezza is doing very well, the Maruti Brezza. And also, Brezza gets as a Toyota Urban Cruiser as well. So that also is doing reasonably well. So this is something in addition. And based on the flawless execution of the last few models that we did with Maruti, we have already won the new Maruti Jimny, this is going to be produced in India. And probably, this might be the base for exports as well for Maruti Jimny. In addition to this, we also have won another order from Maruti, another 2 orders from Maruti, one of which is a replacement. With Mahindra, we have already -- we are already on the new Thar, which is doing quite well. And we are on the new XUV, which is going to be launched shortly. The development of this has been -- has gone very well with really almost customer -- delight being shown by the customer on this new technology that we have introduced for their suspension, which will be increasing on the suspension. The Volkswagen program also is going on. We also have got nominated for the Tata Motors Tiago and Tigor. The initial supplies have get started in the month of April, and this should definitely catch up in the next quarters. Going to the CV space. As I said, sales did pick up. And our -- I mean, dominant position continues in the market, but the industry is still facing turbulent times, and with this second wave, it's even gone completely backwards. Aftermarket continues to be a strong story. We did almost INR 257 crores in FY '21. And aftermarket impact contributed to almost 15% of our revenue in '21. We are leveraging Gabriel brand name successfully by launching new product lines. We are focusing on the core segment as well to try to increase the sales in our basic suspension and commodity in absolutely all interiors of India as well. Exports has also been a good story. Our exports have started doing very well. We had a growth of 163% year-on-year if you see for the quarter -- I mean, Q4 FY '21. I mean, our exports went to 20 -- almost INR 21 crores in this quarter. We are seeing really good traction in exports, the journey, which we started quite some time back. And some more orders are being right now under development, which we should start supplying very soon. So on the whole, we did start this year very -- on a very, very positive note. As I said, I mean, after the -- especially Q3 and Q4 of last year. It will also went well. But yes, the second wave has got all of us, I mean the entire nation, unaware and we are still grappling with it. There are talks of a third wave as well. People -- I mean, I'm not an expert, but people say this might happen in the period of October -- October, November, which is, again, sensitive for all of us. We really don't know what will be its impact, how rampant and how infectious and how severe it will be because second wave really has shaken all of us, I'm sure. So we'll have to see. I mean we -- so what we have decided is we are just embarking on some scenario planning. It's difficult for us to even project any kind of figures, but we are -- what we said is we'll do a couple of scenarios that our action plans are ready to take care of different scenarios. So that's all -- I mean, that's all that I had to share with all of you, and I once again sincerely pray that all of us remain healthy, and we very quickly recover and start seeing good days at very, very earlier. But till then, please stay safe, please get vaccinated. And yes, I mean, do not let your guard down. This is all I can request everybody. So thank you. And over to you.

[Operator Instructions] The first question is from the line of Nikhil from SiMPL.

Am I audible?

Yes, Nikhil. You're good.

Congratulations on a great set of numbers. And not only for the quarter, but managing the full year financials in a very strong way. So great work to the team. Sir, I have 2 questions. One is on export. I think the scale-up has been pretty good. But just to understand how both the models, the VW model in Russia and DAF, how are they performing in the end market? And do you think that this INR 20 crores of run rate, which we've been maintaining, can we sustain as a base case and build upon this, which you mentioned that some more orders might be executed over a period of time? So if one is on how the models are doing in the end market? And secondly, how do you see the buildup for this INR 20 crores quarterly run rate or INR 80 crores annual run rate?

Thanks, Nikhil, for the compliment. And on the exports, we definitely see it sustaining, not only sustaining, we see it growing as well. Just to share with you, DAF Netherlands have increased the order they have placed on us with respect to the original plan. It's, of course, a small increase, but nevertheless, an increase. And why I'm telling it will not only sustain but increase because a couple of other models are under -- and a couple of other [indiscernible] are under development, which we should start in the next quarter. So definitely, they should sustain. And Volkswagen has been steadily picking up. We're doing almost 5 contents a week. So that's been going very steady. Even that there had already been an increase. This was supposed to be a little lesser. We already got that increase, and we're delivering that. And it's quite a robust model and a very well accepted model in Russia. I don't see that going down in any way. In addition, we are also looking at -- this is the OE part. Even our aftermarket exports last year, I mean, in fact, we posted a growth on aftermarket exports compared to '19/'20. Despite the COVID year, we actually grew our -- on a small base. But the encouraging part is we actually grew in aftermarket exports. So those efforts continue. So I'm pretty sure that -- I mean, we'll not only sustain, but we'll, in fact, improve this going forward, unless, of course, currently the only if is these COVID waves in those respective countries. But as we know, the vaccinations have been done in those geographies, and I don't think we should fear much on that front.

Okay. Just 1 follow-up, sir. You mentioned -- I think in the last call, you had mentioned that the order pipeline in terms of new orders, which we were getting were also looking good. So if you can share anything other than the 2 existing customer, how is the order pipeline looking at in terms of from other OEMs or anything which could be -- which you think is worth sharing on?

You mean domestic?

No. On the export side.

Export side, well, we have some -- we are very advantageous to, if I can say, at least 2 big OEMs currently. But these things take time, whether it will click or no, I really don't know. Well, the China Plus One strategy, we are seeing that play to some extent. So I certainly see a window of opportunity. It's very difficult for me to right now because these orders are the ones which you are delivering today took almost 3 to 4 years for us to continuously follow, chase and practical finally.

Sure. And just one last question. Sir, if you look at like -- if I'm not wrong, in the CV side, MHCV and LCV, our market share is pretty significant, I think 80%, 85%, if I'm not wrong.

Yes.

And last 2 years, 3 years, if you look, CV had seen a really bad dip in terms of sales and everything. Now as what the industry is expecting that from a low base, probably we will see some growth. So do you think there is some operating leverage as a CV sales start picking up that can play out for us? Or would that be a wrong -- would -- or would it be a different conclusion? So how should we understand if the CV cycle does improve even from a low base of 10%, 20% growth, I think there should be operating leverage for us as well. So how do you see it?

Yes. So, certainly, there will be operating leverage. In fact, Nikhil, in the last quarter, we had started seeing those CV numbers really start going up very well. And just to share with you, we have a union in our CV plant, and we signed a very, very good agreement both benefiting -- it is a complete genuine agreement, and they started delivering higher numbers as well, responded very well. And volumes had started increasing significantly. And we were seeing an operating leverage happening during those times. So yes, I think certainly, when volumes come back -- and just to share, we had thought that CV will grow by a minimum of 50% in this financial year. The figures ranging from 40% to 90% in the industry. I'm talking about the OEMs themselves, sharing 40% to 90%. We said 50% will definitely happen. Well, we'll have to see. It will come back for sure, but I don't see that happening in even the first 2 quarters, exactly.

[Operator Instructions] The next question is from the line of [ Dhiral Shah ] from [ Edelweiss ].

Sir, 2 questions. Question number one, on the passenger vehicle side, the models that you mentioned. So are we the primary supplier? And what would be your share of business? That is the one question. And second question is, if you have to look at over the next 3 years or next 4 years, how big passenger vehicle can be in overall scheme of things for us?

Okay. Yes, [ Dhiral ]. So firstly, in passenger car, like I mentioned earlier, normally, it is a 100% share. There is no share of business. Meaning, if I get a particular model, is we get it entirely. So what are models that I did mention in terms of Maruti or Mahindra or -- well, Tata, we are sharing, yes. But the other models is completely, 100% with Gabriel. That is one. And second, in terms of passenger car, we definitely want to grow this percentage much more than what it was. It's only, let's say, 20-odd percent to total sale, we would want to take it at least 30%. We are building that pipeline. Thankfully, we are -- as I said, we are getting some good orders, good pipeline buildup from all the key customers, Maruti being the main one. So our target would be that year.

And sir, 1 question, if I can squeeze in is, on the import content, so you said your aim is to reduce imports. How much is import for us in the raw material? A ballpark number also would be fine. And how are we going about reducing, and by then, we can see those efforts sustainable?

We made a very elaborate plan of reducing our imports. And that's why, as I said, we invested almost 20 -- I mean INR 25 crores in backward integration, which was the biggest commodity that we are importing in terms of casting, that is formally in place. But -- and also we are developing some suppliers global, where we had to actually -- also handle them to some extent so that they develop very well with all our quality requirements. So our imports for 2021 would be in the range of, let's say, 11% of our total that this year we'll definitely want to bring it down by at least 3%.

11% of the raw material basket, right?

Yes. Yes.

And in '22, '23, I mean, we definitely want to see this figure come down to as low as possible.

[Operator Instructions] The next question is from the line of Shashank Kanodia from ICICI Securities.

Sir, first and foremost, I wanted to understand what is the bigger opportunity with Ola Electric? So are we the sole supply to Ola Electric? And do we have sufficient capacity to [indiscernible] with them because the company is talking about 1 million units next year sometime, right? So if you can share what are the ramp-up plans that they have shared with you some other color on that front?

Yes, Shashank. Yes, Ola is talking of really, very big volumes. He has very ambitious plans of 2 million, 2 millions units in a year. And ramp up also what they indicated is quite aggressive. Yes. But being a completely new player for them to even develop the distribution network it will take some time. It won't be such a quick ramp-up. So right now, we are obviously investing -- going to invest in terms of machine -- additional machines, additional lines. A little bit of enhancing capacity in powder coating, et cetera. No building as such, but definitely in terms of only machines. So that we'll be doing to meet the immediate requirement. However, if it really goes to 1 million plus, we may have to see -- we may have to look at ways of finding space within our existing setup.

Right. So sir, this content per vehicle remains almost same as [indiscernible], right, from INR 1,200 to INR 1,500 is per 2 million unit, right?

Well, content per vehicle is much higher than that, what you just mentioned that figure as far as Ola is concerned. And we are the sole source.

Sir, but you mentioned in your opening remarks that you received some ramp-up plans. So if you could share something like 3 months to 6 months down the line, what is your quantum of supply? Are we expected to supply to them?

Yes. Unfortunately, I can't share the plan because we have signed confidentiality with the customer. So as of now, I can't share the plan. But all I can say is they are really aggressive. They want -- I mean Bhavish Aggarwal wants to change the landscape of EV in India. So he has -- I mean, really very ambitious and very passionate about it, I will say.

So sir, if we were to expand our capacities meaningfully, so in what positions are we to really expand in? And will it be a brownfield expansion or greenfield expansion or any color on that?

Well, as of such -- as it is, we are only adding to the current location in Hosur, where we are able to accommodate these machines and additional lines that we will need for Ola. So that we'll manage to do. But if it goes really to 1 million plus, then we will have to look at a greenfield.

Okay. And what time does it take sir, please, for a Greenfield to really come up?

Greenfield, well, max of 9 months.

Sir, the point that I'm trying to do, so we're not going slow for us to [indiscernible] bus, right? So that is what we want to ascertain?

Yes, no. We have -- I mean we know and that ramp up cannot happen so, but we have adequate -- in, let's say, in a world as we can always add on to the space, but renting space and shelter.

And sir, my second question is the [indiscernible]. In the opening remarks you mentioned that there is a pressure on raw material prices, especially steel. Sir, sequentially, our gross margin has really expanded. So is it because of a product exchange or if you can throw some light there?

You're talking about RM percentage increase?

Yes, RM, still decreasing sequentially for us quarter-on-quarter from Q3 to Q4.

Okay. Decreasing from Q3 to Q4, right?

Yes. Yes. But adversely, there was increasing raw material costs across the basket for all OEMs as well as ancillaries.

Yes. So on the -- Shashank on this -- basically, on the commodity side, we've been saying already that we are indexed with the customers. So there may be some timing differences that may cause an impact in 1 quarter, whereas the reversal can happen in the next quarter. That being one. Second also is with regard to the product mix that can change the landscape of the RMC percentage. So in this quarter, if you were comparing with Q3 versus Q4, then there is both the price [ ramp ] as well as the [indiscernible].

[Operator Instructions] The next question is from the line of Amyn Pirani from CLSA.

Sir, my question is again on your -- well, you mentioned that you have won orders from quite a few electric 2-wheeler companies, not just Ola, but there are some other names as well. What I wanted to understand was that is the -- are the capacities that you are setting up are they dedicated capacities for these guys? Or are these fungible with your existing company because if anyone or collectively, they are able to do 1 million or 2 million in a year I'm getting that not all of it will come from market expansion. A lot of it will also come from lower volumes for the other existing companies. So are your capacities fungible? Or you will have to set up dedicated capacity only and you will -- how will it work?

So, it's -- I would say to a large extent fungible. Except to the extent of casting, obviously, we'll have to have dedicated dies, then we might have dedicated jigs and fixtures, but these are not I mean big expenses. The big expense is mainly let's say, the machining centers that we need, all the powder coating, which is -- for which we don't need any, what you call it's not dedicated to a part. It is fungible.

The next question is from the line of Darshan Gangar from Axis Securities Limited.

Sir, can you please throw some light on the cost reduction initiatives taken? And like what are we targeting? And how much are we planning to the COVID-19 program?

Yes, thanks for asking that question. So cost reduction initiatives actually have now become a culture, and we have been running this for the third year now. And this year as well, we are targeting in terms of managing as well as reducing the current cost levels. We've already described it last time that every single item in the P&L that you see as well as the working capital management is a part of this. And we -- one is, of course, to ensure that the budgeted numbers and the savings that we have considered in the budget, that is achieved. Second is also there is a stretch target that is being taken over and above that under this program.

Sure, sir.

Yes, and the good part is what we saw this government, I mean, we have, I think, shared a few the slides as well in the pack, so we have kind of like Rishi rightly said, we're trying to make it as a culture, so when people open their laptops or PC screens. This is what they'll see on the screen. So it's continuous reinforcement and hampering that costs are really very, very important in the current scheme of things, especially when volumes are unpredictable. This is what will help us save the day. And the other thing is when we did -- last time when the wave -- first wave hit, we undertook cost reduction exercises. And obviously, it was -- it went very well. We had some very, very good ideas. And we, in the sense, the team thought that we are at the end of the ideas now, but when we reenergized for this year, we are all really surprised pleasantly to see that well, there are more ideas now. So it's -- the towel is not dry, as they say.

Next question is from the line of Jeetu Panjabi from EM Capital Advisors. [Operator Instructions] Due to no response, we'll move to the next question, which is from the line of [ Shailesh Naik ], an individual investor.

Yes. Am I audible?

Yes, sir, you are.

Yes. Yes. Basically, my question was on that electrical vehicle. As I understand that now with Ola, we are exclusive, right? That is one. Second is, are we just supplying hardware? Or are we having some like sensors and then software for that, so that there's a suspension, optimizing system, et cetera? Or it's only hardware? That's my question. First question.

Thanks. Interesting question. It is only hardware. I mean, right now, because India is a very cost-sensitive country. So none of the products offer an electronic suspension as yet. While we have developed one, and we are testing it out. But that becomes very expensive. And it -- even globally, it's only there on very high end bikes. Even if you buy, let's say, you go and buy a bike for in the range of INR 10 lakhs to INR 15 lakhs, let's say, Harley or a Triumph or a Honda 650 or a Kawasaki, whatever. They also do not offer electronic suspension as yet. It is only present in literally 1,000-plus cc.

Okay. And similarly, last time in the con call, you had mentioned that there is a challenge to get into the premium passenger vehicles because the volumes are very small or because of their international tie-ups. So what is the way forward in that? Because unless we crack the higher end technology this thing, in long term, we will never get into that segment. Is there a way we can move through export or what is the plan for that segment of -- which might be high-margin suspensions?

Yes. So yes, what you said is right. One is in terms of exports. So exports, one adds to your brand equity, it also helps us in understanding global customers, understanding global quality levels, which we have done able to plow it back into our products that we are selling. So certainly, that will help. And we -- while premium products, because the volumes are small, what I had mentioned last time was that the OEMs do not localize them because it's a huge cost and effort for that. So they don't localize the premium products. So till we get the volumes I mean till the OEM gets the volumes, we will not -- I mean, obviously, we will not get any business. So most of these are [ TKD ] part.

But we have capability to do -- address it if there's a volume?

Yes, yes. We certainly have. I mean just to share with you, we -- well, I've got RFPs for even Audi globally. So it's not that we cannot address, only the electronic suspension part, which we have developed on our own, but we are nowhere in a shape to give, I mean, let's say, production supplies. It's more in a prototype phase. But the other products, we are very well in a position to supply to global OEMs. Just to share with you, I mean, we supply to even the Indian OEMs and their products are being exported in a big, big way, right? So that gives us confidence that we -- yes, we definitely can meet any demand.

Just one final question. In case, I just want for the entire shock absorber as a global industry, what is seen as a possible disruption that might happen? Is there a danger of consolidation or -- I mean, what are the different risks, which you see in the overall global shock absorber or suspension industry?

You're talking of the industry and not the product right?

Yes, as an industry. Yes. Yes. As an industry.

I mean consolidation is still not happened. I mean the -- I'm not seeing that particular trend. Well, there have been -- yes, they have changed hands, some suspension players have changed hands over the years. But in terms of consolidation, I have not seen much in that space. Typically, suspension industry is I mean, specialized and it continues to be so.

[Operator Instructions] The next question is from the line of Navin Matta from Mahindra Manulife.

Yes. Sir, I missed your initial comments. So I just wanted to know with regards to your order with -- from OLA electric, whether if you have mentioned the size of the order and what is the SOP?

Well, Navin, thanks for your question. But well, I cannot mention the size of the order, but we are a single source. And the SOP is what they've indicated for -- to us is from the month of August.

The next question is from the line of Jeetu Panjabi from EM Capital Advisors.

Can you hear me this time?

Yes, we can hear you, sir.

Yes. Yes.

So thanks so much for the whole -- all the insights that you gave. Now I just wanted to understand next 12, 15 months and obviously COVID dependent, but if you were to look at what you think intuitively would be the industry growth that's relevant to you? Would a 15%, 20% number sound reasonable? Or would that be out of line?

Are you talking of growth or are you talking of drop?

Growth. No, no. Well, I'm assuming that COVID fades out in the next few months.

See -- yes, yes, all I can say currently -- I mean, all -- in fact, we had gone with the budget and then suddenly the second wave happens and all the budget goes out of the window. So it is very difficult for anyone to take a guess. Now they're talking about third wave, so we are equally clueless. So we are also trying to gather from the industry what they say this year could be overall in the same -- a little better than last year, but more or less in the same range. What we had originally thought is it will be a very good growth, but the good part, Jeetu, is that the demand on ground is solid. Okay. I don't think the demand has gone anywhere. Yes? In fact, I mean, my view would be we are currently, as, let's say, human beings and social animals, we are like social beings, we are actually caged animals. The moment we find a good remedy to this, and we find we are confident to get out of this COVID, all hell will break lose in terms of demand. It will be completely the other picture. So my view is demand is really there, solid. The rest of the fundamentals like crop, like monsoon, like I mean India's growth plans, everything is intact. So I don't see that going anywhere, but if you ask me to take a guess, whether it will happen this year, next year, it's really difficult. However, based on the latest that we have, we are assuming that after third year, Q4 will be very strong. I mean, assuming there's a third wave.

Yes. Yes. So yes. I'm -- look, I think we're on the same page, that we don't know when it happens. Or whenever it happens, it will be very strong and the template for that would be what's happening in some of the developed world countries. Where you've seen an explosion in pockets of demand in lot of areas and lot of people getting cost shocks. Which was leading me to the second point that assuming there's a point where demand is not very strong for various reasons, including dealership, shop and stuff. Would you, at some point, produce to inventory rather than produce to sales and keep inventory handy so that whenever that demand comes in you are caught short on production, you can use that inventory to neutralize that?

Yes, yes. Actually, Jeetu, we are exactly doing that currently. We have used this time because last year, the recovery was so strong that we had to incur a huge amount of premium fit, as you all know. This year, we have consciously used this time to build up our finished goods inventory. And idea would be to try to sustain that inventory so that we get out of this premium fit completely. And second, we are able to service the customer much better, and we are able to reduce a lot of inefficiencies, which happen because of inventory not being there. So we certainly are working towards that what you exactly told in terms of building inventories.

Okay. Okay. And finally, this OLA discussion came up a few times. Now I'm just saying, it's not like India is going to get a brand-new market of 2 million vehicles of Ola really gets to 1 million or 2 million then someone's got to be losing it, and you've got your production to a lot of different guys around. So the point is that the aggregate demand for the 2-wheeler will still be a reasonable number if OLA were to -- even if OLA were to take off. Is that a fair base case? Or is that -- am I off on that?

Well, Jeetu, if I'm understanding, you're telling that there will be a cannibalization of demand, right?

Yes. So someone else will get cannibalized in the process?

Yes. I mean that is bound to happen. I mean, certainly. But in terms of, let's say, the electric 2-wheeler user is going to be mainly an intra-city user, not an intercity. To the extent of intercity usage and rural market usage, and let's say, pleasure biking and that category, that will be -- I would say still insulated. But in the rest, it would be a cannibalization of demand, certainly.

The next question is from the line of Amar Kant Gaur from PhillipCapital.

Most of my questions have been answered. Just a couple of clarifications, if you can. Sir, we have gotten, I mean, 100% business from OLA as far as the 2-wheelers are concerned, right? So -- and they have also planned an electric 4-wheeler. So have you started having any conversations with them on that?

Well, they are planning electric 4-wheeler is what at least in my discussions with Bhavish, he did mention that eventually, they are planning a 4-wheeler as well, but right now, they're going to focus on 2-wheeler only, so I don't think they are even in a discussion mode for 4-wheelers as of now. But the good part is, I think we have established a good relationship our product has been well received, what we delivered to them in terms of the first few samples. And if we deliver them well and flawlessly in terms of all volumes, et cetera, QCD, I don't think there should be any reason for him to look anywhere else for a suspension.

Okay, sir, that's encouraging. And sir, one on the product bit, a little bit on the product side. So we are providing products from the range of, say, S-Presso, Brezza, Ather and even XUV700. So is there a difference in the product, but I'm hoping the -- the higher the model is the better will be the profitability for us. But in terms of technology, the product is more of the same or technologically, the product is also different when we move from S-Presso to, say, for example, Ather or a XUV700?

Yes, the product is different, like XUV700 will be a new technology product. So it's a higher technology product definitely.

The next question is from the line of Aniket Mhatre from Haitong Securities.

Just quickly, coming back to this electric vehicles thing. First question was on OLA Electric, you indicated the content would be higher so I mean what kind of suspensions will you be supplying to them? Why would the content be higher? Could you elaborate a bit on that?

Sorry, Aniket, your voice cracked a bit. So we could not get the question. Can you repeat it?

Yes. Is it better now, sir?

Yes. Yes.

Yes. Sir, you mentioned that in electric vehicles, the content would be higher. I just wanted to understand why would that be so? Is it a general trend that EV's content would be typically higher?

No, no, I did not mention the content is higher. I was only telling the figure that we told in terms of content that's what we are delivering to OLA specifically is definitely higher. But while on the subject, we are delivering new technology, both in front fork and rear shock absorbers to OLA. So to that extent it's a higher technology product as well.

Understood. And directionally if we were to understand for EVs, when we supply, the margins should be similar to our core business or higher or lower? Any sense you could give us on that?

Well, too early for me to say because we still have to -- we are -- this is the first mass EV product that we are making. On paper, it looks good as of now. But as we go along, the changes happen and then how things shape we will have to -- I will have to pass my comments as of now for this.

Sure. Understood. And moving on to the passenger vehicle segment, the new order that you talked about for Maruti, any indication from them as to when they would start the general production?

Yes. We have a clear SOP dates for all those products. However, even at their end, because of this COVID second wave, some dates have got shifted. They had shared some dates, but even in those, we are seeing -- they've told us that these dates will likely to change. So we may see a shift of dates. In terms of specific for YWD, as I said, with the customer, we have a agreement that we are not supposed to share the date with you so yes, unable to share that with you.

Okay. Understood, sir. And just finally, one last question on -- you mentioned that you are at the moment using this opportunity to produce more at the moment. So basically, we understand that most of the dealerships today are closed, right? So most of your production would be going into building up inventory. So would that mean June might be a slower production for you guys if demand doesn't take up because we understand that June might not again be equivalent to a full ramp up, right? So what kind of inventory levels would you have right now? And how do you plan forward?

So just to clarify, even in the month of May, while we are trying to build up inventory, the production levels have been lower essentially because there is supply, there is a challenge on -- I mean, from getting material from the suppliers. And even next month, this is bound to happen. So the production level itself is low. But yes, we are still trying to see if we -- within this, we are able to get our production a little higher, so that we can do some early stocking, it will not be very significant. Yes, to the extent of raw material inventory, we are currently little -- with a little high inventory because obviously, you can't change your -- the second wave happened a bit too suddenly, so. Yes.

Sure. Sure. Understood. Sir, just final thing on the recent OEM, I mean what the ramp-up plans you are getting from 2-wheeler, 4-wheeler, CV OEMs for June, if you could help us understand. I mean, would that be 50% of normal levels, 30% of normal levels? Any sense that you could give us so as to gauge the ramp-up that we can expect?

Yes. As of now, we have got some very robust schedules. I must say they are almost 80% of -- 80% to 90% of normal levels. Those are the indications that we have, but I'm myself very thoughtful of them. Even the OEs have qualified those schedules with rider I think that we'll have to carefully observe as each week passes because, to be honest, it's really, really impossible for anybody to guess right now. The only thing is what we believe June will be better than May.

Surely, of course. Yes. Sure. Got that, great sir. Thank you so much and all the best for the future.

The next question is from the line of Nishant Vass from ICICI Securities.

Yes. So sir, I -- first a couple of questions on the 2-wheeler side. We have mentioned, obviously, multiple times asked on the electric side. I think the question more is you mentioned in brief remarks initially in your statement about market share gains in 2-wheelers. So what are your strategies to gain market share on the ICE side with existing and larger OEMs? Do you have any action plan on that? And are you see any success in order win player? And second on the industry, just wanted to understand it, you said the new product that you're developing, what is like the localization of the import content in that product?

Which product?

The new suspension that you're supplying to Ola Electric.

Okay. Okay. Understood. So I'll start with the second question. So there's hardly any import content in that product. It's almost negligible, I can say. So that's on the Ola Electric suspension. On your second, in terms of market share, see we have continuously been working on improving our market share in 2-wheelers, especially by focusing on -- I'm talking of the ICE, like you said, not the EV side. EV, again, we have a focused strategy to address each and every EV player. But on the ICE side, we have tried to increase our share, particularly in the front fork of the OEs. And we have been, I must say, successful, you can see our growth has been a little ahead of the industry over the past year. And we are, let's say, compared to industry, we are about 3% better. So we see we are gaining some market share. So the strategies are engaging with them more -- much more deeply, you're right, from the development stage. That is what we certainly are doing, offering new technologies. We have a tech center in Hosur with our own small test track. So we are able to do some quick and dirty testing as well. We are able to offer good products at a reasonably good price to the customer. And yes, I mean, in terms of our service, response, presence close to OEM locations, that, of course, is well-known. So all this put together, we are able to continuously keep on increasing our market share with the customers.

Okay. And second question on the 4-wheeler side, you mentioned about the new order win. So from a product mix basis, do you think these new order wins are likely to be slightly better profitability vis-à-vis previous cycles of passenger vehicles or from a cost structure and profitability, they aren't significantly different from previous generation of others?

Okay. You're talking about new business pipeline that we won for PC, right?

Yes, yes. Exactly.

Yes. I mean it is pretty much in the same range. Well, a couple of places where we are able to introduce something new that is slightly higher, but otherwise, they are all pretty much in the same range.

The next question is a follow-up from the line of Shashank Kanodia from ICICI Securities.

Yes. Sir, on the margin front, just wanted to check. So this quarter, we are probably 8.5% margins, which is a quarter high. So going forward is double digit EBITDA margin on the horizon for us over the next 2 years, let's say by FY '23?

Can you repeat this, Shashank. You said double-digit.

EBITDA margins.

Yes.

So is that something on the Horizon for us, given the cost saving initiative you have?

In fact, we were quite enthused by the last quarter, and we had all plans of inching forward on that this year as well. But yes, I mean, this COVID second wave has really derailed the plans. Because you have to understand that once the volumes go, and I mean, many of the costs are kind of fixed. So it's very difficult for us to shave off cost.

But sir then 9.5%, 10% is possible I think FY '23, when things normalize and we'll have prices demand...

Yes, yes, it all depends on volumes. But yes, it's a volume game for us. I mean, because we have 7 plants with fairly well established capacities. So it's a volume game, yes, certainly. And if volumes hit, why not, yes, absolutely.

Okay. I think sir on the tax rate, there seems to be some adjustment in the previous quarter's tax order book as well plus this quarter it was 32%. So any guidance or any take on that, sir?

Shashank, are you talking about previous year or are you talking about the previous quarter?

Previous quarter. Sir, I think last part was INR 8.1 crore as reported tax but this time, you have readjusted that figures, right? Yes.

Well, can you please repeat the question?

I was asking about, is there any adjustment in the tax rate that you have accounted for because last quarter, you have reported INR 8.1 crore of tax outgo. This time year you have readjusted that to INR 9.3 crores and the full year tax rate comes to 32% for you. 30-odd percent was is so?

No, the average tax rate for us remains at 25%, 25.5%. And the adjustment that you are mentioning about is on account of some returns that have come for the previous year.

And sir, any reason for very high -- substantial high interest outgo for this quarter because this amount has never been the case for us, some frequency in our group.

Interest outgo for us is on account of 2 lines. One is the MSME interest that we provide for. And the other is on account of the releasing the interest portion on the releasing. And there is no debt for us, there is no real interest that we accrue.

Right. Sir, but normally, it's been on the range of INR 1 crores, INR 1.2 crores per quarter, right? This quarter, it came at INR 3.7 crores.

The change in the MSME act we had to provide for the additional outflow towards the MSME, which in this current year, we will sort out with the payment terms.

Okay. And sir 1 last thing, you aspire to be on the top 5 global shock absorber or suspension solution provider so any update on that front in terms of inorganic acquisitions? Or how do you see that pitching being attained in time frame?

Yes. So Shashank, I mean, we definitely -- 1 is domestic growth. Second is the exports that was -- I had shared that plan, so exports also has started picking up. And yes, I mean, M&A definitely is part of the strategy. Like I mentioned, we were evaluating a couple of options. However due to COVID, it took a little back seat. So we -- all I can say is, we are still in the stage of evaluation.

As there are no further questions, I now hand the conference over to Mr. Manoj Kolhatkar for closing comments.

Thank you. So thank you, once again. Thanks, everybody, for all those questions, which help us also accurately prospect and think and reflect on what we can do better going forward. So we assured that we have taken all those inputs. And only thing I can say right now is we all have to take adequate precautions to ensure that we are safe. And our families are safe, and I just wish all of you the best, the very best of health. This quarter, again, unfortunately, the Q1 for this year, again, looks in, of course, in little trouble because of all this that is happening. Let's all only hope that July onwards, again, we see the same strong recovery that we have seen in the last year. So thanks. Thanks, everybody, and well take care. Thank you.

Thank you. On behalf of Gabriel India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.