JTEKT India Limited (520057) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the JTEKT Limited Q4 FY '23 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I'll now hand the conference over to Mr. Amar Kant Gaur from Axis Capital Limited. Thank you, and over to you.

Thanks, Ryan. Good afternoon, everyone, and welcome to the Q4 and fiscal year '23 earnings conference call of JTEKT India Limited. From the management team, we have with us today Mr. Hitoshi Mogi, Chairman and Managing Director; Mr. Rajiv Chanana, Executive Director and CFO; and other members of the team. I'll now hand over the call over to management for opening remarks, post which we can start the Q&A. Over to you, Mr. Mogi.

Okay. Good afternoon everyone and welcome to the JTEKT India Limited quarterly earnings call. I'm Hitoshi Mogi. I'm the Chairman and Managing Director of this company. And I'd like to thank all participants for joining this call and . First of all, the Indian passenger vehicle market has been impressive for financial year of 2022 to '23 with annual sales of million units, posting a year-over-year growth of 25,000, the highest ever annual growth in more than a decade in the previous peak was achieved in financial year 2018 to '19 at 4.05 million units. This could be attributed to the healthy replacement demands relatively sustainable semiconductor suppliers and pre-buying period to the second phase of RDE on April 1, 2023. At the time of our previous interaction, I will inform you about the completion of the investment of more than INR 850 million in setting up the manufacturing facility for drive shaft with the constant velocity joint with a capacity of 4.5 lakh units. And then in this year, we increased our production capacity for manufacture of the upper shaft, which is an important component of the CEPS at the Dharuhera facility and adding additional capacity of 60,000 units at the total outlay of the 70 million. Our CapEx plan for the next year includes the expansion of the capacity of MS gear and the CEPS by adding one production line for each product. In addition to that, we are planning to increase the capacity of digesting by adding additional 850 tonne machine. We shall also adding an additional production line to manufacture warm housing, which is an important part of CEPS. Our capital expenditure for next year -- next few years is likely to exceed to million per annual. And now I would like to discuss with you the company's results and open also for questions. The financial results for Q4 2023 are now available with you. from operation at INR 5.4 billion for a quarter 4 shows a healthy growth of -- starting against revenue of INR 4.8 million achieved during the compare quarter of previous year. Post that's INR 237 million in quarter 4 showed an improvement of more than of the INR 125 million reported in the quarter of the previous year. For the financial year 2023, the revenue from operations at INR 20 billion shows a healthy growth of 28% against the revenue of the INR 16 billion achieved during 2022. This improved from the 6.9% to 8%. Profit after tax at INR 792 million in 2023 shows an improvement of more than 140% compared with PAT of the 331 before it in the 2022. PAT improved with the improvement in sales as well as a strict control of the fixed cost. Lastly, I would like to inform that awaiting to the merger of a subsidiary company, JTEKT Fuji Kiko Automotive India Limited with JTEKT India Limited is progressing. We achieved the consent of shareholders and a great task at the NCLT meeting on 20th of May. We are now moving ahead with the second motor of application to NCLT. With this, I would like to thank you for your participation and opening the conference for your questions. Thank you...

[Operator Instructions] Our first question is from Aman, Carnelian Capital.

Sir, thank you for the opportunity and congrats on a good set of numbers. My first question was on gross margin. Like this quarter, we have seen around 100 basis points kind of sequential improvement in gross margins, but still it is lower than the kind of gross margins we have done over the last 2 years. Like since the raw material costing might be over by now. Do we expect some improvement in gross margin going forward?

Aman, thank you so much for this question. If you look at the gross margins, EBITDA, this has improved to a level of 8.5% on a entity on a stand-alone basis from 7.7%. However, you have seen my presentation, which we uploaded on to stock exchanges. Can you hear me, Aman?

Yes.

Okay. So if you have seen the presentation, which we uploaded on the stock exchange, there is certain one-time expenses, which we had to book it, one, which is a very huge expense of INR 56.4 million, which we have booked in this quarter is actually the provision for contingency. Why provision for contingency? Because there has been a recent by the Supreme Court on a GST matter pertaining to settlement of employees. This is a Supreme Court judgment. So there has been discussion around it at auditor's level and they advised us that even though the company has got very good chances to fight it out, in case at any point of time, the litigation starts on this subject. Yes, because there has been a judgment on of Supreme Court. It is better that you make a provision in line with what industry practice. So this is a one-time provision for contingency, which has been created, no cash outflow. And we do not expect also that this will become a loss at some point of time. We have very good arguments for justifying this element, of course. So this is an additional expense, which was booked in quarter 4. Another is said one-time settlement, the manufacturing rationalization activity, which the company has done over the last 1 year. So total expenses, one-time expenses, which we have done on manufacturing rationalization was around INR 17.7 million. In this quarter, it was about INR 7.7 million. So if I adjust that in my EBITDA margin. So EBITDA improved from INR 459 million to INR 523 million as it improves to 9.7%. Now I'll come to the consolidated results. You are aware that we are in the process of merging JTEKT Fuji Kiko Automotive India Limited, which is a subsidiary company of JTEKT India Limited and is captive supplier to JTEKT India. You are aware that all the production of JTEKT Fuji Kiko is utilized for internal production of electric power steering at JTEKT India Limited. So if you look at the consolidated numbers, which we have published, it shows an EBITDA margin of 9.1%. However, if we make this small adjustment of one-time expenses, it comes to above 9.5% and on a full year basis. And if you look at the quarter for consolidated, it touched 10.6%. So which means there has been a significant improvement in EBITDA from a level of 7.7%. At a consolidated level, we can even touch 10 points, we already touched 10.6%. Going back to the history, if I look at the EBITDA margins over the last 5 years, I think in F '18, 2018, we touched an EBITDA margin of around this level, slightly lower than, but at F '20 onwards, you are aware the stress, which the company has faced, not only because of the declining sales, plus other details also. However, having said that, we are still committed to further improve the EBITDA margins. And you must have seen the way we are controlling the different costs. One cost, which I would like to mention here is the significant change in the employee cost from a very high level of around 13.5% to a single digit now. So all these efforts, which the company -- plus if you had seen the other expenses, even those have come down. So considering the effort, which the management is doing and considering the growth in sales, which the company has achieved and we expect that the market continued to grow at the same pace in the future years also. We expect that EBITDA margins will improve further. Can you ask any other question?

Yes. My second question was on preparations, like a lot of our OEMs, client partners we had started already preparing for the EV launches over the next 2, 3 years. So like are we in discussions with our OEM's partners and have we gotten orders for the models will be launching 2, 3 years down the line because anything on that, sir?

We cannot disclose this information. We are -- this is a regular process. We continue to process because the development phase starts almost 2 years before the vehicle is actually launched or 1.5 years before the vehicle is actually launched. So yes, we are in discussion with all our OEMs. We are regular partner for them whether it is Maruti Suzuki or Toyota or any other OEM. We are actually work with them on a regular basis. There are -- we keep demonstrating to all our OEMs, our new products, which we are -- our new capability. So this is a regular process and yes, we are working with our various OEMs and for the new launches in future, including working on the electric vehicles also and electric SUV vehicle also. So I think we will keep on giving you good news as we keep on winning more business from our OEMs.

Another question, if I can squeeze in. It was on CBG. We have done around INR 20 crores of revenue this year. So how is the outlook looking for next year? Like do we intend to utilize our plan to maximum like since you can do around INR 120 crores of revenue in this business. So like in next year, do we expect that business to ramp up fully and we were in discussions with new clients like Mahindra and all for supplying CBG to them. So any wins on that side or anything you can update?

Yes. So introduction of CBG in Indian market is actually a step towards company's aspiration to increase its product portfolio. So we are very serious about it and this is to gain an important driveline segment of the auto component market. You are aware that company has set up machining and assembly line at its existing Dharuhera facility, and we spent more than INR 800 million on that. The total capacity of this is 4.5 lakh units. So we are aware that this goes . So when every vehicle will be using 2 drive shops. So the total capacity in terms of sales is 2.25 lakhs and with an expected turnover of INR 120 crores. So last year, we launched this product in the month of September. So the INR 20 crore thing, which you are saying is over a period of -- it has grown over a period of time, but currently, if we look at the current volumes, we are currently supplying CBG to Maruti Suzuki for his Grand Vitara model and for the Toyota Hyryder. So these are the 2 models for which we are supplying CBG. And currently, more than 50% of our capacity is utilized. If I look at on month-on-month basis, starting from the last quarter till up to this point of time, we are using more than 50% of our capacity. Now what we are doing, we are currently working for developing a new product. This is an electric SUV for which we are working with other OEMs and the likely start date for this particular model is October 2024. So with this, we will be 100% utilizing our capacity of the CBG line, which has been setup between the entire INR 120 crores of business will be with us within this financial year, which means that we have to start looking at how to expand this capacity. So maybe in the near future, we will be informing you about further expanding this capacity. Currently, if you look at our market share is just about 6% in our own CBG segment, and we'll not restrict ourselves to 5%. Our idea will be actually to grow very fast in this area of business. And we are, as you rightly said, yes, we are taking to other OEMs, including Indian OEMs, Tata and Mahindra. We have done our regularly talking to them, explained them the capability of CBG, which we already have set up. It's actually excellent product with a very good quality, which we have introduced, and there has been absolutely no complaints about any quality-related issues so far, and we are pretty optimistic and there will not be any in future also. So we are hopeful that CBG business will flourish and we'll be expanding our market share very fast.

Understood, sir. Just if you can tell me like, if you are present with Maruti for CEPS in Jimny or Fronx they are launching soon.

Maruti CEPS, say again?

Are we present in the Jimny or Fronx the 2 models that Maruti will be launching this year.

We are supplying manual gear for that. Yes. We are present in that. And the Jimny model, which will be the new launch, we will be supplying both gear as well as CEPS. Both steering system will be supplying for Jimny.

Our next question comes from Sailesh Raja with B&K Securities.

Yes. Pre-COVID time, our exports used to be 6% to 8% of total sales that is more than INR 100 crores. So at that juncture, you used to guide us that the company starts getting 15 percentage of the total sales. And now the exports is just 3.5%. So what led to this fall? And what is our plan to increase the export sales back to that 6% to 8% and eventually increase to 15%, sir?

Okay. Yes. First, I would like to explain you our efforts, and then I will come to answer you the question. So exports to our customer in U.S., there are 2 main customers, which we have in U.S., E-Z-Go and Club Car and the volumes are increasing with them. In respect of E-Z-Go, our sales increased by 13%. This was a level of INR 417 million in 2021 to '22 and we touched the level of INR 472 million in 2022 to '23. Also, we are working with E-Z-Go for developing a new vehicle model and the expected SOP of this particular model is December 2023. So we will -- we are working with them, and we'll continue to work with this customer in the future to increase our export volume. And this is a very, very stable business, the U.S. business, which we have. And under the INR 47 crores is business from -- existing business from one customer plus the new models, which we are planning to introduce. So having said that, you are also aware that we lost John Deere business in the past, which was a major contributor to our overall sales, that number which you are referring to. Unfortunately, we are not supplying that part at this point of time, but the other businesses have been continuing. So now the next step is that we need to explore opportunities for supplies to our overseas group entities. We are working on that. COVID put a bank gear to all these discussions. Yes, that's the reality, but we are now in discussion on the various studies, which are happening with our parent company and we are actually participating in that. But at this point of time, I would like to reiterate. We mentioned this point at our -- in our previous meeting in the last -- in the first half meeting also. The first and foremost requirement of exports to overseas entity is to manage supplies without disoptions. The main condition to achieve this objective is to have a very strong and stable supply chain. So we are working towards this direction and hope that expand our export business, but this is a precondition. It is -- today, it's very difficult for us to estimate the future target number at this point of time, but we would like to confirm our investors is that these discussions are in active stages and we are regularly discussing this topic.

Sir, any supply is expected to group companies?

Look, there are the 2, 3 -- actually until the time you get any confirm business, we cannot disclose you know that. But just to answer your question, yes, there are 2 discussions, which are at a very active level. Maybe at our next meeting or even before that, we should be able to communicate this.

Okay. So my second question, could you please talk about the opportunity site in the aftermarket for the CBG product, that unlike other products, we will be targeting this constrained in the aftermarket segment. So what is our plan and how quickly we can ramp up the sales and who are all the competitors. Can you give some color on this?

So frankly speaking, the first target for the JTEKT India Limited or JTEKT operation worldwide is to establish itself as a good quality supplier for the main product. So this product we launched only this year. We will first like to explore our OEM business as early as possible, reach to a sizable portion and then possibly, we will start looking at the aftermarket thing. It is not that aftermarket is profitable. We know that aftermarket has got good profit opportunity for us, but we first like to establish ourself with our OEMs. We are talking to almost all OEMs at this point of time. We would first like to establish ourselves and expand our capacities and then maybe start looking at the aftermarket. It may take maybe a year or so to give a concrete plan on that. Today frankly speaking, we do not have a concrete plan on this particular aspect.

So we invested closer to INR 80 crores, INR 90 crores. What is the payback you are looking for in this product ?

Say again 18...

INR 80 crores, INR 90 crores, we have invested in CBG. What is the payback period you're expecting in this product?

So at this point of time, you can look at my return on capital employed on an overall business in FY '23, this is 14.5%. This is improving because there are several factors, which goes into it, the manpower, all the facilities which you have and high depreciation to begin with. So EBITDA margins will continue to be almost same as our normal business. It will not be different. Yes, but yes, we expect that the next business, which we are targeting for an electric SUV the profitability or better compared to what we have achieved in our past. So currently, this is a developing business and we have not put any targets on that but having said that, the profitability will not be lower than our current existing steering business. Target for any entity is to achieve a 14% return on capital employed. We achieved that in FY '23 and we hope that we'll continue to achieve the same number with mix of product. It may not be 1 product, may be doing little bad also at some point of time because we may be expanding in that category. So that's why whenever you introduce a new product, you are aware that the depreciation cost in the first few years will be very high. But yes, it is a part of the game, yes.

Sir, just a follow-up of what Mr. Aman asked. For the last 5, 6 years, as you said, you have reduced our fixed costs and conversion costs significantly. I highly appreciate your team for bringing down that cost. My question is, from here on the only scope to improve the operating margin other than the scale benefit is to improve the gross margins. So gross margins used to be around 34%. And currently, it's at 29%. So if you add back that GST, the write-back, then it is around 400 bps drop from what we used to report in FY '15 to '19 levels actually. I understand there is a lot of pressure from competitors and also finding difficulty in passing on cost inflation to the customer at rising commodity environment. Now the commodity has corrected from peak levels -- so can we expect good improvement in gross margins? So if yes. What percentage you are targeting, sir, in the next 2 years?

So like it's a very interesting question. I don't know whether he can explain the mathematics part of it. First, to give you the numbers. So F '19, we had EBITDA margins of 10.5%. As I explained on a consolidated basis, which is a reality because we are going to merge our subsidiary, we will touch the same levels. So we have brought our EBITDA back to the same old levels. This is first point. And this is mainly because of controlling our costs, which we have actually been able to achieve it. Now coming to material costs, it's a very difficult thing to explain that. First thing is that it's a reality that whenever you go and acquire a new business, initially, the cost is high because then it starts the process of cost rationalization through several areas like VAV localization and as well as many other activities. So those activities will start immediately after the product goes into SOP and we start looking at and how to reduce that. Second aspect is -- which you have rightly said is a huge change in the raw material prices over the year -- over the last 2, 3 years post this corona and post this geopolitical crisis, there has been a rise in steel and almonium prices, which are the main raw material for our components. And as a result, both -- and you're also aware that our RM is fully compensated. So for the existing products, we have a back-to-back arrangement with our OEMs. Any change in delta on steel and almonium is compensated to us. Now looking at this scenario, where I'm getting all the compensation. What's happening is that my numerator and denominator is changing, a equal amount, but that results in increasing the percentage. So that percentage actually is normal. We should not go much into it as to why this has gone up by 1% because that may not be actual increase actually. So I would like to see that you look at my profit margins, if I'm making more than INR 100 crores of cash, which means I will be able to fund my capital -- all CapEx expansion for my own sources. Look at the way we have reduced our borrowing is practically 0, which means we are not paying any interest, which means we are making more PAT for our shareholders. I think please look at from that perspective, please do not narrow your vision only on the metal cost. That's my request.

Okay. Okay, sir. Sir, are we supplying to any of the Kia models, sir. For the Seltos, we were having discussions with Kia team and base period of the production by importing the steering products, we couldn't be able to supply because of time constraints. And now they have 4, 5 models. So any of the models we are supplying, sir?

Surely, Hyundai -- Mando is the main supplier for Hyundai and they belong to the same Korean family looks like. So currently, Mando is supplying to them. Having said that, we are open, but let's see if we get this breakthrough with the Korean, otherwise, we are happy. We have a sizable business from Maruti Suzuki. We got almost 100% business of Toyota and we got almost 80%, 90% business of . We are happy with that even if we do not get that part of the -- that pie of the business, it's okay. But yes, currently, we do not have that business. It's mainly controlled by Mando.

Okay. And my one last question, any reason why we have reduced our dividend payout, our cash generation...

We have not reduced dividend. From 40%, we have increased to 50% this year.

No, sir, if you see in FY '19, we reported INR 3 earnings. And the year we have INR 0.8 as a dividend. And this time we have given only INR 0.5.

Look, we look at the dividend history -- if you look at the dividend history, we have been paying 50% and then we had to reduce it to 30%. Then last year, we increased it to 40% of the share capital. I'm talking about the share capital, the par value of share. So this year, we have increased to 50%. Yes, we are happy to share our profit with our esteem shareholders, we are happy with that. And however we also need to continue to keep an eye on future expansion, which will add value for our shareholders. So you are aware that even JTEKT operation in Japan and Maruti Suzuki, the 2 promoters hold 75% equity of the company. And so we -- this decision of restricting it to 50%, increasing it from 40% to 50% and not increasing further is taken in the interest of the company to fund our capital expenditure for next year. So we will be needing some cash, which will go into further expanding the business of the company and we eventually will be benefiting our shareholders.

Our next question comes from Dhruv Bhatia with Bank of India Investment Managers.

Sir, my first question is, if you could just provide just the bookkeeping question, the customer mix for FY '23?

Yes, sure. So FY '23, Maruti Suzuki is 56%, Toyota 6%, Honda 6%, Mahindra and Mahindra 9%, Tata 4%. Then in the export category, it's around 3%, Renault-Nissan 4%, and rest is all others peers and small OEMs of the market et cetera.

Okay. And sir, if I look at there was a related party release, which you had put because Maruti is a promoter or a shareholder of the company, this -- when I was looking at this time, it seemed like about 70% of the half yearly sales goes to Maruti, but for the full year, it's just 56% is the customer makes from Maruti ?

Actually related party transactions are something different. There, we had purchased, sales, expenses, everything. So that number may not be comparable actually. This is purely sales and without GST. There you may even the GST portion gets covered.

Okay, okay. Second is on the CBG business, the segment -- my understanding was that for the full year, you were expecting somewhere about INR 50 crores, INR 60 crores of sales on a half yearly basis, but it seems like on the full year -- you've done about INR 20 crores sales. So has there been a delay in terms of supply to the customers? Or there has been a delay in terms of the model has not done well for the customer?

Pickup started from September, but it was slightly -- however, in the second quarter -- sorry, in the last quarter, it picked up to the right levels. Currently, if we calculate my capacity equation is exactly the same number. Initially it was a little lower.

You are currently you're saying on a monthly basis, you're running at a 50% capacity?

Yes, slightly higher than 50%, yes.

Okay. And at these levels, are you breaking even at EBITDA level?

My breakeven point is anything between -- at PBT level, my breakeven point is around 70% -- 72% to 75%; at PBT level not at the EBITDA level, but PBT level.

Understood. And sir, I mean, in the opening remarks, if you could just reiterate the CapEx of INR 100 crores planned for each of the 2 years of that 100, does the CBG expansion, which probably you plan post the capacity utilization reaching peak in FY '24 for CBG, -- is that including in the -- included in the INR 100 crores?

So what Borgeson pointed out is that we will be now planning our capital expenditure in 3 or 4 areas. We will be expanding our manual gear capacity. We'll be expanding our CEPS capacity. We'll be expanding our PDC capacity. And then CBG. CBG will come once our line is fully utilized, we'll immediately start working for the next level of expansion. Dhruv, please understand, we -- when you get an order from a customer, you got time. While you are developing -- now you can develop your products on the existing line and with taking help from your Japan technical facilities. And while the vehicle is being develop, during the same time, you can expand your capacity also.

And sir, on the -- you've elaborated a lot on the cost aspect. I mean employee cost as a percentage of sales is obviously in this quarter almost come below the 10% mark, and this is expected to continue going forward? Is this a steady state number now?

Yes. We have strict targets for that. People are very aligned at all the unit levels. Yes, we have a target insight, yes, to take further.

Understood. And sir, just the last thing, Sudhirji was earlier consultant until May 2023. Is that -- his term expires? Or is it renewed, if you could just give us some idea there.

Sudhir Chopra for the last 1 year has been working with us as a senior adviser and his main responsibility was to assist the company on the legal matters as well as the current merger transaction. So merger is almost on the walls of completion, I think there are a few formalities left. So his tenure will now be over from May 2023 onwards.

Our next question comes from Radha B&K Securities.

Congratulations on good results. Sir, I wanted to understand on the LCV side, previously, you had in the 2Q FY '23 call, you mentioned some of the new product wins in the LCV segment for the columns and gears. So what would that be as a percentage of total sales in FY '23? And any new product wins or any new models that we are targeting in this segment...

I think there is no change as such in the products, which we are supplying. So if we look at -- we won the business of Tata Ace, which was a new version that in the last 1.5, 2 years, they started the new business, which was one and then there was the other model, which is called Yodha, is a carry vehicle. These are the 2 businesses, which we have won and other than that, we already continuously working with other models of Tata Ace. We are working with Tata on the world truck, which is Prima. These are the products, which you're already supplying mainly column, which we're supplying except that for a model, which is called Super Ace, we are supplying HPS also, as there are some models from Mahindra also for which we are supplying steering columns and manual gear.

Okay. And would it be as a percentage of total revenue, would it be 2% to 3% of sales from the LCV?

Yes, it should around that level. I have not actually calculated it. Maybe I will be separately sharing that number or it should be around that level.

Okay. I just wanted to understand the CBG product better. So does it have application in the LCV segment and the rear-wheel-drive passenger cars.

This product is used in both segments that you have asked.

Okay. Sir, who would be the prime suppliers for the CBG product in the LCV segment ?

The market is currently controlled by GKN at this point of time. So when we look at our growth of Indian market, around 45% is currently controlled by GKN. And then we have players like MTN, we have player like NexGen. NexGen is the second largest provider of CBG in the domestic market. Yes, these are the main players.

So given that we are already present with some models in the LCV with columns like we just spoke about, would be after targeting the PV OEMs in the CBG segment? Will we be planning to target CBG for the LCV segment, at least in the current models that we are present.

Currently, we are just about 3% of the total market. So we have an ocean to explore. So we'll be exploring every nook and cornet. You can trust us that our sales and marketing and technical team are already talking to all major OEMs, and they will do their level best to see that we expand this business. And we have grown into the market. We have tried to take the leadership position for CEPS, MS and HPS. We'll also definitely drive for the same for CBG as well.

[Operator Instructions] Our next question comes from Aman, Carnelian Capital.

Just one more question from my side. Like we have around 4% of revenue mix with Tata and Tata currently is around 14% market share in the domestic passenger vehicle industry. Like any plans to increase our wallet share? And like if you can give me what is our current wallet share with Tata?

So our few experiments with TATA has been very succesful. For example, we started supplying HPS for TATA Harrier and TATA Safari. So these -- both the products have done well, and this has actually helped us to increase our share of -- our sales with TATA from an earlier level of 2% to 4% now. We are actively supplying certain models driveline case differential for various models like Tiago, Tigor, Altroz, Punch. We are present in several models. However, yes, we still have a very small business with TATA. We'll continue to explore that. It's like opportunity you get, we will definitely explore that.

Our next question comes from Nirali Gopani with Unique PMS.

our existing capacity, what kind of peak revenue can we achieve?

Are you are asking about the current capacity utilization?

Yes. So roughly at the company what kind of revenue can we achieve.

So like we are currently at around 75% kind of utilization levels. So the -- there is a possibility to expand further with the existing set of years, it can be -- the volumes can be increased. But yes, we are also planning to increase our capacity as we explained at the inaugural speech.

Right. So just to confirm, you mentioned that we talk about INR 100 crores for FY '24 and INR 100 crores for FY '25?

Yes, it will be upward of INR 100 crores. What we are trying to get as per the requirement as to the market growth, we'll be planning about capacity. As you win a new business, we start planning for a capacity expansion. So that's what we'll be doing for as we'll be winning more businesses, we will keep on expanding our capacity. So we believe that there will be a requirement with the current capacity utilization as we get new businesses, we will have to spend some money towards new manufacturing line. So we are planning for that at this point of time.

Okay. And sir, just to clarify that in that the current utilization is at about 75%. So what is the optimal level that you can go up to?

This is -- we work with these capacities on a double shift basis. So in case of why we'll not do that, but there is a chance that you can even go to the trippership but that is not something, which is advisable from a prudential setup because then you need -- you need to continuously maintain your plant and machine, 85%, -- when we look at 85% to 90% on a double 2-shift basis, that's what we normally aim for.

In fact, we can go up to 100%. So when we say capacity tolerated factors the efficiency. Again, on ship basis, we can go up to 100%.

So clearly the capacity of the Northeast for us to grow in the coming years.

We can always expand we got existing facilities available. We can always expand our capacities also that will not be any problem. Getting a good business, getting profitable business, and we can expand...

In our case, I think the lead time for expanding as well as developing a product more or less get opportunity to expand -- and we have a third shift in it to like...

Temporarily meet the requirements, yes.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Hitoshi Mogi for closing comments.

Okay. Thank you very much for today. And also I really appreciate for asking your question about your activity as well as future activities. And actually, so currently the automotive sector is booming and also will be expected. And we are positively making an investment for our future growth as well as the company growth and contribute to improvement of the profitability as well. Thank you very much for today.

Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.