Pricol Limited (PRICOLLTD) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I am Ruthika, moderator for this conference. Welcome to the conference call of Pricol Limited, arranged by Concept Investor Relations to discuss its Q4 and FY '21 results. We have with us today Mr. Vikram Mohan, Managing Director; Mr. Krishnamoorthy Pattabhiraman, Chief Financial Officer; Mr. P. M. Ganesh, Chief Marketing Officer; and Mr. Siddharth Manoharan, Head Strategy and Special Projects. [Operator Instructions] Please note that this conference is being recorded. Now I would like to hand over the call to Mr. Vikram Mohan, Managing Director. Thank you, and over to you, sir.

Thank you, Ruthika. A very good evening [ to all ] and my colleagues as well. I do hope that all of you are safe and sound and your families are secure in these difficult times. I'd like to welcome you for the presentation on our results for the last quarter and the financial year that has just ended on March 31, 2021. Our presentation has been uploaded, and I do hope that all of you had a chance to go through the presentation. At the end of the presentation, we will have a question-and-answer session, where my colleagues and I would be happy to take your questions. Prior to getting into the presentation, I'd like to share a few words about our performance in the last quarter, and more importantly on the year gone by. The last quarter from January to March of 2021 did see some headwinds as the company is very dependent on import of electronics, and there has been a global electronic shortage and shortage of [ stray ] parts like IC on account of the global demand and supply scenario. In fact, it has been extremely acute. And we could have realized at least about between INR 25 crores to INR 30 crores higher sales for the quarter gone by, and also our EBITDA could have been about 1% higher for the quarter gone by, if not for this shortage and huge surge pricing in the price of IC. Whilst we have been able to recover a large majority of this price increase from our customers, the overall shortage has resulted in loss of production, not just for us, but for the OEMs in the industry. Prices of essential commodities have also reached record highs and it continue -- it is expected to continue to remain at these levels. These do not have a significant impact on the company, because these are indexed and as part of our indexation policy, and with the time lag, these monies will come back to the company. In the first quarter of FY '21, as all of you know, in the first wave of corona and the lockdown, the company had very minimal output and lost more than 2 months of production. And the full year operation results for FY '21 essentially represents about 9.5 months of operation and not really a 12-month operation. Furthermore, we expect these disruptions to continue and remain, and supply shortages all the way going until September 2022. And this is going to be the order of the day, compounded by the lockdowns happening in different parts of the country, which are going to also affect production and offtake from OEMs, because of closure of dealerships in different parts of the states. Overall, we are happy to announce that our company has performed much better than the market. This has been primarily enabled by introduction of new products, product lines, introduction of new capacities and increased share of business from our customers and overall market share increase. This has also been compounded by prudent cost control and productivity management and selective automation, which has helped us improve our earnings overall as a company and improve our EBITDA. I would like to jump to the slide, which shows the quarterly highlights from a stand-alone basis. The revenue from operations has been indicated in the slide, quarter wise. Similarly, the operational EBITDA and the profit before tax and the profit after tax. Specifically referring to the profit after tax for Q4 of FY '21, I'm sure many of you will have questions as to why the profit after tax for the quarter that has just gone by is extremely low. I would request at the end of my talk for our CFO to specifically dwell on this subject and explain to you as it is a noncash item and is not cash depleting. Similarly, on the yearly highlights, the revenue from operations has grown from INR 100 -- INR 1,139 crores to INR 1,336 crores albeit on a 9.5 months of operation. The EBITDA has sharply jumped from INR 98 crores to INR 178 crores, and we are very confident of maintaining such EBITDA levels in the months to come once stability comes back to the industry come September 2022. The profit before tax, we have gone back into the black as we have divested all of our loss-making subsidiaries and have a much cleaner balance sheet. The profit after tax figure is fairly low, which again, our CFO will be explaining in detail. Our revenue from operations compared to Q4 of '20 has grown by about 59%, because Q4 of '20 also saw selective shutdowns because of COVID. And for the entire year, compared to FY '20, we have grown at around 17.3%, whereas the market has degrown. The next slide talks about the profit and loss from operations, which has been graphically depicted earlier. And an important point to be noted is the EBITDA that has accrued from operations. It is about INR 133 crores versus INR 113 crores in the prior period for the entire year. From a cash profit and free cash flow, which is what I would like to dwell on, we have made a cash profit of INR 137.66 crores in the year gone by, as against about INR 69.64 crores in the prior year, which is FY '20. And our free cash flow generation has -- after CapEx, has gone up substantially to about INR 108 crores versus INR 16 crores in the prior period. As I mentioned in the earlier calls, we are going to be CapEx-light mode for FY '22 also as we have incurred significant CapEx in the prior years, FY '18 and '19, to enable all the new business, and we will be CapEx-light and be able to generate a decent amount of free cash. This free cash has helped us also pare down our debt and control our working capital, which is giving us a lot of resilience in this particular quarter when there are a lot of lockdowns and shutdowns of the industry. I hope all of you are clear about the balance sheet, both for the stand-alone and the consolidated. Our CFO will be able to answer questions specifically if you all may have on that. With regard to the long-term borrowings of the company, on account of free cash generation, we have been able to pare down our borrowings overall from INR 343 crores to about INR 229 crores, including working capital borrowings. The consolidated borrowings, including the subsidiary companies, which is Pricol Indonesia and Pricol Wiping Systems India, stands at around INR 247 crores, which gives us a comfortable debt equity ratio and comfortable debt PSCRs as well. The overall total income, and specifically, we are using the term continued operations here, because as you're all aware, in the month of August 2020, we divested our operations in the Czech Republic and that -- this reflects only the operations which are continuing and non-divested. So from a total revenue standpoint, we -- these figures represent our operations in India, Indonesia and the Wiping Systems subsidiary in India. With regard to the EBITDA from the continuing operations, we have generated an EBITDA of about INR 135.89 crores for this -- sorry -- pardon me, we have generated a revenue of INR 1,359.94 crores (sic) [ INR 1,358.94 crores ] with an EBITDA of 13.68%. Going into some key parameters like the quarterly sales. In the January to March quarter, the vehicle production, which is given by SIAM and ACMA data, various sectors of the business have grown quarter-to-quarter. We are talking of Q4 FY '21 versus Q4 FY '20. The 2-wheeler and 3-wheeler industry by 26.59%, whereas Pricol's growth was about 63.34%. The 4-wheeler industry grew by 22.96%. We grew by 42.21%. This is also because we started from a low base and the 2 wheeler, our growth is higher because of the introduction of the new products, namely the SBF. Commercial vehicles grew by 48.73%, whereas Pricol has grown by 203%. This is because we are becoming an increasingly important player in the commercial vehicle business, and we will have a very large share of business going forward in the years to come as we have won a significant amount of business away from competition. In the off-road vehicle business, which is a small number, the industry grew at 39.32%, and we have grown by 50.57%. And in tractors, we have more or less grown in par with the industry. Overall, we have grown at around 70% vis-a-vis about 27.9% growth in the industry. Specifically on exports, our actual growth was to the tune of about 23%. But because of the disruption and the Suez Canal blockages in the month of March, we were forced to revert a lot of bill of ladings though the material had been shipped, and that will get reflected in this quarter. So the actual growth was 23%. But because of the reversal of bill of lading, we landed up with a 2% figure. Exports will continue to be an area of growth, and we have subsequently also won a lot of new business in the export arena. Segment-wise, we are still predominantly a 2-wheeler and 3-wheeler dependent company. And going forward, the numbers of the 2-wheelers will reduce and the numbers of the commercial vehicles and the 4-wheelers will increase, as we have increased our business on those segments. And on the product-wise segmentation, about 65% comes from the driver information system. This number also will go down as we increase our business on the pumps and mechanical products vertical, primarily on the exports and the fuel pump module. On a yearly sales basis, year-on-year comparison, overall, the industry de-grew by about 12.48% on account of the pandemic and the lockdowns in the first wave, whereas we have managed a growth of about 17.3%. Again, the next slide gives you the segment-wise sales, the sectors versus the product-wise breakup. The next slide is specifically reflecting on month-on-month comparison for the same months in FY '20 versus FY '21. And if you notice, from the month of April and May were very negligible months, and we started catching up from the month of July. And from thereafter, we have had significant growth over the prior year. I would like to congratulate our business development and technology teams. Our company continues to invest very heavily in technology, which has helped us win a lot of new business. And some of the new electronic digital cluster businesses that we have won across various 2-wheeler customers are given in this slide. The next slide talks about some of the LCD, TFT and electronic vehicle clusters that have also been productionalized in this quarter. And this is going to see a lot of traction going forward. The next slide shows our passenger vehicle and CV clusters. We will have a 70% share of business from the Tata Motors Group going forward, and this will help increase our 4-wheeler portfolio business. We have also added a few other 4-wheeler portfolio customers, which I will request our Chief of Marketing, Mr. Ganesh, to dwell upon. We have also increased our share of business in the commercial vehicle space with Volvo Eicher, Ashok Leyland and Tata Motors and Force Motors, and some of them are electronic clusters as well. The fuel pump module, which has added significant turnover for us this year, for which 2 plants have also got added in the south and the north are shown in the next slide, what we are doing for TVS and for Hero Motorcorp. And we are also developing a new range of pumps for Bajaj and few other customers. This vertical today has a significant amount of import dependence from China, and the company is actively working. And over the next 12 months, we will be able to localize a lot of the key import parts, thereby excusing our ForEx outflow. One of the new and prestigious expert launches is for the Peugeot Citroen Group in Morocco, which is also an electronic instrument cluster for a city commuter vehicle that we have won. And some export launches for JCB and New Holland for Turkey and U.K. markets. We have consciously grown our export business on the Pumps division, on the very heavy-duty pumps. And some of the pumps that we have developed for Polaris and Generac are shown in the next slide. These are going to significantly contribute to export revenue. The next slide shows pumps that we have developed for Caterpillar, very, very large pumps even weighing to the tune of about 80 kilos per pump, quite complex pumps. And Caterpillar business has kicked off, and the volumes will grow in the next 2 to 3 years, which will see significant growth in the exports revenue. And some of the other products developed for Harley-Davidson, Ducati in Italy and BMW in Germany. These leisure segments and high-performance bikes will continue to be powered by conventional IC engines in the foreseeable future as performance bikes before they get converted to EV. So we do not expect to see any business disruption in these sectors. Some of the sensors that we have developed for export customers for Volvo and CLAAS. And the next is the domestic launch for the Peugeot Citroen Group, the 2-liter water pump and the Gerotor oil pump 2 liter. These have been -- a lot of these pumps we have been able to develop, thanks to our investment in Brazil many years ago, which helped us imbibe all the technology. And all, whilst we lost a lot of money and we were luckily able to divest the business last year, all the learnings and the technology from there have been used to develop all the business in the last few slides that you have seen. Some of the domestic launches and very new technology pump is also the variable displacement vane type oil pump, which is a very complex new generation pump, which has also been developed in-house. I'm very proud to say that all the other developments that you have seen have been completely developed in-house with indigenous technology with no technical support or technical collaboration whatsoever from any other agency. And that reflects why a significant portion of our spend continues to be on technology and process development, which helps us develop these products at a very cost-effective manner, including cost-effective processes, helping us maintain EBITDA and the lead in the market. The next slide reflects on the automotive industry, and the source is the ICRA report published in May. This report did not take into account the effects of the second wave of COVID, which, as all of you know, has been far more disruptive than the first wave of COVID. We are happy to report whilst we have had a lot of COVID cases across the various employees and plants of the company, we have not had a single fatality, and we have a COVID relief cell working to help the employees constantly and continuous immunization drives, where over 50% of the employees have been completed for vaccination. And we do hope with a little more availability of vaccinations that by the month of July, we will be able to complete the vaccinations across all our employees, across all our plants. We assumed that the disruption in the industry is going to be not so heavy, but considering the quantum of the second wave, the disruption has been very, very brutal. And we have seen loss of sales from April. May and June months will be rather bad as most of the OEMs have huge shutdowns and most dealer points are closed, and we do expect a recovery in the industry from July. The Tractor segment also is expected to be a little slow this year, because of the domestic -- the -- in spite of good monsoons, there is an agriculture output slump, because there's been no offtake because of the lockdowns and the industry reports that the tractor industry may grow only 3.5%. Some of the other factors that will continue to plague the automotive industry this year are the shortage of semiconductors, steel pricing, steel and commodity prices seeing an all-time high. These will not have a significant impact on the earnings of the company, but the semiconductor shortage will not have a significant impact on the earnings of the company, but would have an impact on the sales of the company as the lead times have increased to 32 weeks for the supply, which will result in higher inventories and some supply dynamics. Overall, industry experts predict a hockey stick recovery like what happened after the first lockdown. So we do sincerely hope, and we are fully geared up to meet that sort of demand when the industry revives from July and goes back to some degree of stability after September. The next slide talks about the estimates for the 2-wheeler segment. Of course, this slide was prepared with data compiled as of March and released in May, not taking into account the second wave of COVID, but these are the recent reports we have, and we expect the growth to be a little slower than this on account of the second wave, similarly, on the passenger vehicle and the commercial vehicle sector. Only think the hockey stick recovery will be delayed by a few months compared to what this report has to say. Coming to the tractor segment, they are predicting a very low growth. Again, because of the challenges because of the pandemic. We do hope that all of you have gone through the presentation, and we are happy to take questions, but prior to taking questions, I will request Mr. Krishnamoorthy, our CFO, to explain specifically on the higher -- on the lower profit after tax for Q1 of FY '21, and how it is a noncash item. Krishnamoorthy, over to you, please. After Krishnamoorthy finishes, I will also request Ganesh to give a 5-minute presentation on the business prospects for the company and the outlook for the industry on the whole. After which, we will move on to questions. Thank you for your patient hearing.

Thank you, Mr. Vikram. This is Krishnamoorthy. As our MD, Mr. Vikram mentioned, the profit after tax for the year is substantially low. And if I talk in terms of numbers, for our profit before tax of INR 46 crores, we have made a provision of close to INR 32 crores in terms of tax. This is substantially high. And the obvious reason is our taxable profit is much lower than what the book profit, which we've disclosed in our financials. Then 2 -- there are 2 major reasons for that. One is the -- our IT depreciation is much lower than the book depreciation, because our IT depreciation follows the gross block concept as per income tax rules and under the [ written down ] value method. This is close to INR 33 crores of the impact, because of this. And the second reason is a one-off [ diesel ] loans, which we have consciously taken with respect to certain expenditures for our overseas subsidiaries, which we -- on a conservative basis, we thought it may be a point of contention with the income tax authorities. And therefore, we have taken it as a nontaxable item and provided for tax in this. As a result of this, our taxable profit has gone up to close to INR 96 crores, for which we had to make a provision for tax. But looking at these 2 major impacts, the depreciation is a temporarily impact, timing difference, because as we go along and we start making investments, our depreciation tax utilization will also go up and it will not continue in the future years. And the other one is a conscious decision which we have taken so that we do not get the impact with the [ taxpayers that are affected ] in the future. But we propose to take a professional view on this before we file the return and take a conscious call as to whether we can claim it as a taxable expenditure also. But looking at the total provision of close to INR 33 crores, which we have made in the books, none of this, in fact, will be a cash outflow item, because the entire value will get adjusted against the MAT Credit, which we already are carrying in our books, based on the book profits we made in the past years, for which we have already paid the tax. So although we made a provision of INR 33 crores in the books for the tax, there are cash outflow on account of tax for the current year will be nil. And you will see the impact in our cash profit and cash generation also, which continues to be healthy as a -- which you will see as part of the presentations made by Mr. Vikram. I hope I made the point here. Now over to Mr. Ganesh to make his presentation.

Good evening. Good evening to all, and our Managing Director has already explained in detail about the business scenario and the new business wins. I will only touch upon certain key areas in the presentation, which would be of interest. Pricol has been working on the connected vehicle solutions since the last 3 years. In fact, the first connected vehicle solution was launched by Pricol for TVS Motor in the year 2018 for the Ntorq model. Thereupon, Pricol has been working with a number of connected vehicle solutions across various segments. And what you see is specifically in all of these slides, where we have just launched the connected vehicle solution with Suzuki for their entire scooter models. These instrument clusters are BS-VI also EV ready. It means that we are future ready. And also, you can see on the right-hand side, where we have launched the next-generation of instrument cluster, which is the TFT cluster, which is going to be the future technology on the instrument cluster or driver information systems, where we have launched 2 TFT clusters for TVS. One is for their first-ever electric scooter, which was launched during last year at Bengaluru, which has Pricol TFT cluster. You can bring a number of dynamic displays, which has won lots of acclaim during last year. And also on the left bottom, you could see the Apache RR 310 racing motorcycle of TVS, which has been built on the TVS BMW platform launched with the next-generation TFT clusters. I would also like to highlight on the export wins, where we have made some significant inroads into some of the export customers like the PSA, where we have launched our first instrument cluster, which is used for the EV vehicle application, which we have started to export to PSA Morocco. As we speak, we have become a global supplier to PSA for both the driver information system instruments and also for the oil and water pumps. Again, JCB, where we have shown the next-generation TFT clusters, which we have started exporting to JCB to their headquarters in U.K. We are a global supplier again to JCB for the next-generation instrument clusters. I'll also briefly touch upon Caterpillar. Caterpillar, as you may know, is the largest in the world for making off-road vehicles and construction equipment. We have won a major business with Caterpillar for the heavy-duty water pumps. Like our Managing Director explained, these are very uniquely manufactured water pumps and they are weighing more than 80 kilograms. There are number of oil and water pump programs that we are working with Caterpillar. The Harley-Davidson, again, is a global business that we have won, and we have started manufacturing the oil and water pumps for Harley Global from our facility in Indonesia. This facility would cater to the ASEAN manufacturing center of Harley and also to the U.S. You can also see that some of the leisure motorcycles like Ducati and BMW, we have made major inroads in the oil pump and water pump. That is why our Managing Director was explaining that the percentage of the pump and mechanical products would grow when compared to the instrument cluster as a percentage. I will last touch up on the PSA business, a breakthrough business, which we have won into the passenger car after we have become a global supplier to Renault Nissan during the year 2016. This is a very major breakthrough for Pricol to manufacture, both the existing technology and also the next-generation technology, which is the variable displacement pump, which would be produced in India by PSA and the majority of the engines would be exported back to global countries. So our variable displacement pump will be used for the global market by PSA. About the sector review, our Managing Director has already explained about the headwinds that are expected to be there. We have started seeing that the sales have been disrupted starting from April, because of closure of number of OEMs and also the dealer points also have been closed. So we expect muted sales to continue to happen in June also. So we have to wait and see how the recovery is going to happen from July onwards. Thank you, once again.

[Operator Instructions] The first question is from the line of [ Rajkumar V. ], an individual investor.

Yes. Am I audible?

Yes, please. Mr. Raj Kumar, if you can be a little louder, we'd appreciate it.

Yes. Can you hear me now?

Yes, please.

Okay. Sir, 2 questions. So one of the slides, you have mentioned about the telematics solutions. I just want to know what is the contribution that you are getting from telematics? And given that there are a lot of software companies also into this domain, I want to know what niche Pricol has on this segment.

Mr. [ Rajkumar ], telematic is a growing business. And at this point of time, the slice of the pie is quite small, though we are the lead player in this industry. We primarily play on the hardware side. Having said that, we have also have about 72 software engineers in the company as we speak and growing a number that will see 100-plus people mark in the -- before the end of this financial year. Having said that, we also intend buying a strategic stake in an automotive software company, not just for the telematics solutions, but also for the instrument clusters or the driver information systems, which is increasingly being software driven. In fact, many of the clusters that were shown in the presentation are all driven by software. We are primarily a hardware company with software capabilities. So that way, we are able to offer an integrated solution. And we believe the telematics and the instrument cluster is going to become an integrated device going forward as an asset management tool.

Yes. Yes, I agree with you, sir. I mean, if you also see that the software content in a vehicle...

Next question is from the line of Shashank Kanodia from ICICI Securities.

Sir, so you mentioned in initial remarks regarding winning substantial share of business from Tata Motors from competition. So could you please elaborate a little bit more on it? As in why did competition really exit Tata Motors? And what were the USPs that we could offer to Tata Motors?

Okay. I'll have to dial back in history a little bit. Many years ago, we had joint ventures with DENSO and joint ventures with Johnson Control, primarily to cater to the 4-wheeler and in the instrument cluster space. When Johnson Controls got sold to Visteon, we were forced to exit that joint venture. And when we exited that joint venture, we had a 5-year non-compete clause. Similarly, when we -- the joint venture with DENSO elapsed, we had a 5-year non-compete clause. At the end of the 5-year clause, we made a comeback with frugal engineering. Again, it is our investment in engineering and technology that helped us be cost competitive. And after the non-compete clause was over, we made a comeback in Tata Motors and now PSA, and we are hoping to add a few more customers. I hope that answers your question, Mr. Kanodia.

The next question is from the line of Vipul Shah from Sumangal Investments.

Sir, I just want to know the margins for the 2-wheeler business and margins for the 4-wheeler business. Are they different? I mean logically, margins in the 4-wheeler business should be higher. And as you have commented that part of business will grow over the next 2, 3 years. So your comments, please.

Yes, the 2-wheeler business, the mechanical clusters and the electronic cluster -- and the electronic entry-level clusters have got commoditized and have single-digit margins, followed by increased margins. The next level of margins are contributed by the TFT and the next-gen clusters, followed by the 4-wheeler clusters, which are not yet commoditized and software, which -- and the commercial vehicle clusters, which have higher margins and followed by the highest margins given by our exports business where we are having cost economies of scale and the businesses that are going to grow, especially the businesses like Caterpillar, Ducati, et cetera, which Ganesh was pointing out in his presentation and also in my presentation.

So what should be percentage wise -- or what should be the...

[ General ] percentage, because it's customer wise basis volumes, which plant it is manufactured under. Certain plants are lower cost for the company, the newer plants where there's more automation, some of the older plants, especially the plants in Coimbatore, which have historical costs of higher cost of labor, et cetera, and older plants contribute to lower margin. So then I'll have to go into segment-wise, plant-wise, customer-wise profitability, which is, of course, something at an executive level we do analyze. But overall, as a company, this is starting from a 6% to 7% margin for electronic clusters going up to as high as 22% for the export pumps.

The next question is from the line of [ Ramanath ], an individual investor.

I congratulate you and your team for excellent results this year. Now my question is that regarding this other operating revenue, we have been consistently showing some other operating revenue to the tune of approximately around INR 54 crores. Can you please elaborate on that?

Thank you very much for the kind words, Mr. [ Ramanath ], and we do hope that we'll always continue to outperform the market. The other operating revenues, primarily from the sales of fuel -- from our fuel station located in Coimbatore, which is one of the highest selling fuel stations in the Coimbatore district. And that is classified per the auditors as other operating revenue, which was about INR 60 crores in the year FY '20 and about INR 52.76 crores in FY '21. And some -- the other are small amounts of export incentives that we get, but the bulk of it is from the fuel sales of the fuel station.

The next question is from the line of [ Mukesh Sheth ], an individual investor.

I just wanted to understand in this second wave that has hit us in terms of COVID, what is the number of production days that we have lost? I mean for how long or what has the impact been in terms of production days?

As of now, it's hovering at around nearly 45%, Mr. [ Sheth ]. But seeing the situation in Coimbatore, which is one of the worst affected in the country as we stand today, and the situation is yet to peak, we expect June also to -- southern plants to get disrupted badly, but our northern plants and western plants are recovering. But we have planned for a similar situation like May, where the northern and western plants were affected and southern plants lesser affected. But at the very least, in the months of May and June, 50% would be a realistic estimate. Not just because of -- it's 3 reasons, again, I'd like to elaborate here. One is shutdown of OEMs, thereby resulting in sudden change in demand. Second is shutdown of our own plants, because of employees contracting COVID. And third is shutdown of our key suppliers, either because of COVID or because of lockdowns. So all are interconnected, but I believe that a reasonable estimate would be we would be losing not less than 50% in May and June.

The next question is from the line of Nilesh Shah from Envision Capital.

Congratulations on a good performance. I just want to basically understand that the year gone by, you said you were operational only for 9.5 months, and it's quite possible that FY '22 could end up being a similar year in terms of the effective months of operation. Knowing the situation today, what's the outlook for FY '22? Do you think that we've had a great FY '21? Do you think FY '22 would end up being kind of a similar year, both in terms of our overall revenues and margins? And the second question I want to understand also is that we now have a different margin trajectory versus previous years and past...

One minute, Mr. Shah. Can I just take your question one at a time, please? So let me answer the first question.

Yes, sure. Please.

I wish I had clarity or my team had clarity. In fact, I've been constantly talking to my colleagues in the industry, and the situation is a little uncertain. Both COVID and a new problem that we did not have last year or for the vast majority of last year, the shortage of ICs, especially affecting companies like ourselves and Bosch, Lumax, a couple of companies that have a lot more electronic content compared to the metal forming companies. Now the lead times for select ICs have gone up to 32 weeks, and we are unable to predict a 32-week supply and demand situation. The industry is hoping that by July, we would have a much better understanding of what the industry is going to hold out for the rest of the year. And hopefully, the third wave, which is predicted in October, will not be as disruptive as the second wave. In fact, if you ask me, the second wave perhaps has been the most disruptive for industry even compared to the first wave. This is going to have 2 impacts. Inventory and strain on working capital is going to be there because of the long lead time and stock -- forcing us to have stock of items and then suddenly losing sales because of change in demand, a. And b, the overall price impact of cargo and freight and the shortage of ICs resulting in premium prices. While we are able to recover about 85% of it from the customer, on a goodwill basis, we are also absorbing some of it. This will definitely have an impact on the margin by anywhere between 150 to 200 basis points is our estimate. One advantage that we had last year is there were no salary increases to any of the employees, which normally is done in July of every year. Last year, because of the lockdown, and we had a discussion with our employees, and we decided that we will not give any salary increases. But there has been a lot of personal disruptions for people also in the second wave of COVID. So to keep the employee morale up and especially when the company is growing at a fast clip, and we have also won a lot more new businesses, which are getting productionized this year, we have gone ahead with the salary increases in the month of April, which will impact the employee cost if the sales base is slow. Having said all of this, the delta new business that we have added will definitely see us doing a significantly higher number this year compared to FY '22 compared to FY '21, albeit with anywhere up to 150 to 200 points or 1.5% to 2% EBITDA impact because of these disruptions, and increased costs, which may not be recoverable. I'm saying may not be recoverable, because a lot of the OEMs are also limping back, and I think we'll have a lot more clarity only in the month of July.

The next question is from the line of [ Raj Kumar ], an individual investor. Mr. [ Raj Kumar ], please go ahead with questions.

Hello. Can you hear me?

Yes, Mr. [ Raj Kumar ].

Yes. Sir, this question is for the CFO. Sir, your explanation of this tax decrease, I mean you were talking about some income tax depreciation, book depreciation and all that. So I thought all those should get offset with your deferred tax. So I think you kind of really look at and give a better explanation offline. I can send you an e-mail, but it will be really helpful. Because this charge is too high, and it cannot be due to even change in your book depreciation and IT depreciation. It should be primarily on account of some expense here, which you are taking a call that it only may not be a [ little less ] reduction from a tax standpoint.

Can I request our CFO, Mr. Krishnamoorthy, to respond to this, please?

Yes, Mr. [ Raj Kumar ], the deferred tax adjustment -- after considering the deferred tax adjustment, only there is an actual type of tax provision, which is higher by this amount. And as I said, there are 2 reasons. One is tax, the other one is a specific -- just a loan, which you have taken on a consolidated basis. Both these things account for this difference. And the real -- this is on the current tax provision after adjusting the deferred tax adjustment. So if you -- that's right, you can -- you and I can get into an off-line discussion, and I can explain it more in detail if you want an explanation.

Okay, sir. I will do that. I don't want to waste all of our time in this call [ publicly explaining ].

Thank you, Mr. [ Raj Kumar ]. You can send an e-mail to our company secretary, who will forward it to our CFO, and he will directly take it up with you.

The next question from the line of Shashank Kanodia from ICICI Securities.

Yes, sir, could you please let us understand what is the gross debt on books as of March ending FY '21? And what will the trajectory going forward over the next 2 to 3 years?

We are hoping to be -- neutralize our debt, provided without these lockdowns and other things, we were hoping by FY '23. But with the way things are standing and the lockdown, I'm not able to clearly predict, because we don't know when this wave is going to lift. And is there going to be a third wave and disruptions, because there are even questions saying that -- if things were normal, and we know that business is going to be the way it is with normal growth rates, we can project. But the gross debt on the books as it stands today forms part of the presentation, but I will also request Mr. Krishnamoorthy to give out the figures. Krishnamoorthy, over to you.

The gross -- we're talking about the gross debt, right?

Yes. Yes.

Yes. So the gross debt is something around INR 235 crores at the end of March 31. And we have started bringing it down and it is already down to INR 230 crores as of now. As we go along, our prime focus is to generate enough cash and to repay as much as possible, first, targeting the high-cost debts and then the rest of the loans. But our working capital borrowings will still continue. Currently, we are at -- for the working capital, as at the end of March, we are -- we have brought it down almost to 0. But as the cash generation requirements go up during the current year, partly caused -- because of the pandemic, we may slightly go up on that. So working capital borrowing has already been brought down. And the long-term borrowings in a phased manner will be brought down in the current year. Our prime focus is to use our cash generation to repay the debts in the current year.

Sir, in the base case, we should be retaining around INR 250 crores of gross debt, right, over the next FY '22, '23. Is this a minimum assumption that we can work with?

That would be very comfortable. That would be extremely comfortable. Our internal targets are higher.

Because, sir, in one of the media interactions you have...

And also, I would like to state that our CapEx is going to be pretty light in this financial year. So the cash generation will go down to paring down debt.

Right. And sir, one last thing. Sir, are we presenting to Ola Electric? Or any thought process since you already have EV-enabled instrument clusters?

We are in talks and developing products for almost all the top 5 EV players in the country, nonconventional OEM EV players in the country.

But sir, any breakthrough with Ola, because these guys are really talking big in terms of numbers...

Mr. Kanodia, may I request you to please rejoin the queue.

I will take that question. No breakthrough as yet, because their first clusters are not coming out of any conventional manufacturer, but we are in discussion. And their programs are also delayed, I'm given to understand. I may be wrong.

The next question is from the line of Manish Srivastava from Amala Management.

Thanks a lot for the call and for a good set of numbers. Just wanted to understand this asset write-off in the last quarter that's quite a bulky item. I can see in the cash flow statement, almost INR 10.5 crores of asset write off. What was the reason for this sudden number? And -- but this INR 10.5 crores does not add up on the taxable profit, like the gap between the taxable profit that you suggested of INR 96 crores versus the INR 48.5 crores of PBT in the book account. That INR 48 crores is a very large gap to explain from the book and tax depreciation and this asset write-off of subsidiaries. So can you explain that?

We will answer that question in 2 parts, Mr. Srivastava. The first part on the asset write-off, I will take, and the second part, I will request our CFO to answer the question. On the asset write off, we had got into multiple new programs a few years ago. And one of them was the oxygen sensor, which didn't go through. We were not successful. So we took a call to stop that program and all the assets and the lines and the tools that were developed for that program, and we have terminated the arrangement with Kerdea Technologies, the technology house that we were collaborating with for this program. So all the lines and tools and other assets, which were utilized towards this program contributes to almost 85% of this write off. And the other things are routine small write-offs of certain tools, et cetera. So it is because we took a strategic decision not to -- in any company, we invest in multiple verticals hoping for success. For example, the FPM worked very well for us and has given us INR 200 crores, INR 300 crores of sales for the variable flow pump. And the oxygen sensor was one that didn't yield us the results. And we took a call at a Board-level and at an operating level to bring that program to a stop and cut our losses on that. So that is the -- forms bulk of the write-off of that INR 10-point-odd crores. The second half of the question, I will request Krishnamoorthy, our CFO, to answer.

Yes. I will take this, Mr. Vikram. Looking at the book profit versus taxable profit, the amount that add up to is this INR 33 crores of difference between the IT depreciation and the book depreciation. And the second one is the INR 14 crores of write-off of assets. As you know the -- only the sale value is getting depreciated from this lot of asset value and not the entire value that has been provided for the asset rate of this tax reduction. That's almost another INR 14 crores. And the third one, is the [indiscernible] our conscious decision of the interest, which is taken for our overseas investments, which we have a doubt whether it will be allowable in terms of a tax deduction. And therefore, we have taken a conservative call, and this amounts to INR 26 crores. So our -- all these things put together take our taxable profit from the book profit. A part of it goes to taxable profit of close to INR 120 crores. And after adjusting for the deferred tax, the net -- well, deferred tax and also the brought forward the depreciation, the net current tax comes to around INR 33 crores. The deferred tax adjustment which has been done is to the extent of INR 6 crores, that is a gross current tax [ at the next ] netting of this deferred tax impact.

So these are onetime [ products, tax and there ]...

Yes, yes. All these things are onetime, except the IT depreciation difference, which may go up over a period of time as we start increasing our investments.

The next question is from the line of Sunil Jain from Nirmal Bang Securities.

Yes. Congratulations to the management for outperforming the industry. My question relates to [ that only ], if, suppose, in the next year, industry grew by, say, X percentage. So at what rate higher we can grow as compared to industry?

Our conservative estimate is at least a delta 10%, sir.

Delta 10% in the -- since -- I suppose, industry grew by 10%, you can grow by 20%?

Yes. Because of the new business that we have added and the export businesses that we have added.

So that is something very great to hear from you. And can I go for another question?

If there are -- I think there are already a few -- can I just request you to rejoin the queue, please? So that the other participants also get a chance, please.

The next question is from the line of Nilesh Shah from Envision Capital.

So you mentioned about acquiring a software business to add to the capabilities. I just want to understand what could be the size of that acquisition? What are the kind of capabilities that we're looking for? And what could be the potential outlay for that?

Not more than INR 10 crores, Mr. Shah, because we are looking at a strategic stake, not an outright acquisition. We are looking at acquiring a strategic stake and not a majority stake in a boutique software firm. We are evaluating a few right now. It's gone a little slow, because of the current situation, and this could potentially happen only towards the back end of this financial year. This is only to strengthen our technology abilities to serve our customers better as our products, especially on the DIS and telematics are becoming more software rich. So this is not to add turnover directly to the company or anything. This is only to bolster our own in-house technology capabilities, and it will be a strategic and not a controlling stake. That's what we're envisaging at this point in time.

The next question is from the line of Vipul Shah from Sumangal Investment.

Where do you see this contribution of these new initiatives like Caterpillar reaching as a percentage of turnover over next 2, 3 years?

We are -- I mean, it's not just Caterpillar. Are you referring to new initiatives? Because we have launched a lot of products on the -- like the FPM where we are increasing, which has gone from almost 0 to 200 today, which will go, again, by another INR 200 crores, INR 250 crores, including the exports business, et cetera, over the next 2 years. Ganesh, pardon, correct me if I'm wrong, what FPM business and export business, we have added delta about INR 200 crores today, will grow to about INR 400 crores to INR 450 crores over the next 2 years, correct me if I'm wrong.

That's right. That's right. You're right, Vikram.

The next question is from the line of Jaimin Desai from ICICI Direct.

You've already spoken about some of the headwinds for margins going forward, like the chip shortage or the production losses. So my question is, how do you think about, say, some of the more supportive factors, it may be increased localization or better product mix going forward? And will we be able to maintain at least the current level of margins over the next couple of years?

As I mentioned, we are confident of these levels of margins, but not for this year, because of the chip shortage and the uncertainties and increase in packing costs, freight cost, many input costs. We are recovering a significant amount, but some of it is also not going to be recovered based on customer relationships. So there will be a hardening of margins or reduction in margins that I'm expecting for FY '22 by anywhere between 150 to 200 basis points between 1.5% to 2% EBITDA.

The next question is from the line of Sunil Jain from Nirmal Bang Securities.

My question relate to semiconductor. So you said that the supply can come back to some extent from September of this year?

Yes. That's what industry experts are predicting that there will be some degree of normalcy coming back by September. I'm not saying full normalcy, some degree of normalcy, lead times going from 32 weeks back to reasonable time frames, which is why there is going to be -- continue to be an impact on that for, I think -- I personally think and our operating team thinks it's going to be the end of this financial year before complete normalcy comes back.

Okay. So if that resumes well, then second half would be a bit normal as compared -- as against the first half?

Provided there is no third wave, which the whole country is now talking about and selective lockdowns. And we are estimating that the chip shortages and the resultant cost impacts will continue, maybe not until September, but even until March. I'm being a little more pessimistic outlook there, frankly.

Okay. And sir, last question is, what could be the tax rate for the whole year next year?

I will request our CFO to take that question, please?

Yes. We should go back to a normal percentage of around 36% to 37%, but for some timing differences because of the depreciation. So close to around 40%, 42% will be the tax rate, because the other differences are all onetime, and they are not going to repeat in the future.

Okay. Tax rate of 40%, 42% seems a bit higher.

Yes. That's because I'm assuming that the difference between the book depreciation and tax depreciation will continue. So that will increase our -- but we are also evaluating other options to move to the lower tax bracket. That evaluation is being done now. So depending on our profit generation in the future years, we may decide to move to the lower tax bracket. But once that is done, this may come down slightly a bit low. I'm only talking about the current normal tax rate at this point of time.

The next question is from the line of [ Ramanath ], an individual investor.

Yes, sir, this is regarding the assets. You have financial assets where you made investments to the tune of INR 59.47 crores. Can you please elaborate on that? What kind of investments go into it?

I'll request our CFO to take that question.

This reflects our investment in our subsidiary companies, mainly Pricol Wiping Systems, where we invested to the extent of INR 14 crores. This is only -- and also in our overseas subsidiary in Indonesia.

The next question is from the line of [ Rajkumar V. ], an individual investor.

Yes. Sir, you mentioned that there will be 150 to 200 basis points reduction in EBITDA for the upcoming year, '21-'22. Just wanted to know, will you be able to -- from a value standpoint, will you be able to offset that by way of increase in top line, given that your export markets must be firing enough very well now? So just want to know, will you be able to mitigate the absolute reduction by way of increased exports?

Frankly, we are in an unknown territory right now, Mr. [ Rajkumar ]. We never expected our Coimbatore plant to be shut down for so long or our northern plants to be shut down for so long. And we don't know what is going to be the effect -- the prolonged effect of this COVID and how much more of this impact is going to be there. If we -- the COVID impact doesn't linger, yes, the business is going to be higher and the EBITDA contribution should be, from a rupee perspective, higher. But this is subject to this wave of COVID being brought under control, which, the way things are spreading, I have my serious doubts.

Okay, sir. And...

Because it's not just us, a lot of our suppliers have got affected also. So even if we want to operate, we are having supply chain disruptions and/or customer disruptions. We are willing to operate, customer is disrupted. So it's a very, very dynamic situation. It's quite an uncertain situation where we are unable to predict, unfortunately.

The next question is from the line of Manish Srivastava from Amala Management.

Again, troubling on the tax issue itself. So the losses that we had booked in last 2 years, significant losses, they won't give us any tax shield for future?

Those losses will be capital losses, and it will not -- it will be adjustable only against capital gains. So they can't adjust against business losses.

So they're all -- all of them are complete capital losses only, there was no business loss there?

That's right.

No, this was investment made in overseas subsidiaries, which was written off and are -- we had actually impaired our investments and taken it down. Our -- it is not a business loss that we incurred. It was a capital loss. And in fact, last year, we had impaired investments.

Okay. And in your cash flow statement, on discontinued business, you actually have a negative hit on the -- from discontinued business. How is that arising still like...

Sorry, come again.

About INR 10 crores of negative hit on your cash -- in your cash flow from discontinued businesses. How is that happening?

No, we had partial operations coming in the last year, and we completely closed on the product for those losses only in the year 2021. The year before that we...

We sold those businesses only in August 2020. So in this financial year, there are the operating months of April, May, June, July and August of those businesses, prior to today.

So there is about INR 12 crores, INR 13 crores of cash loss in your consolidated accounts on that term?

Yes. For funding prior to the disinvestment for this financial year.

[Operator Instructions]

I think now that we have -- sorry, sorry, please go ahead.

The next question is from the line of Shashank Kanodia from ICICI Securities.

Yes. So sir, as you outrightly mentioned that we have done a good amount of CapEx in the past. So what is the peak revenues that we can realize on the current gross growth?

About INR 2,400 crores -- between INR 2,200 crores to INR 2,400 crores versus the product mix.

So in foreseeable future, like 3 years, you should be quite CapEx light. So it's roughly in the range of 20...

No. Next 2 years, after which we will go in for another round of CapEx, because we are developing a certain set of products for the EV vehicles, which are other than the instrument cluster, which we would like to productionalize in FY '24. So that -- we expect a round of CapEx to go in at that point of time to keep this level of growth going.

Right. So the CapEx spending '23 and '22 would be around about what quantum?

We will be INR 30 crores, INR 40 crores sustenance CapEx. This is for constant replenishment of tools and also for productivity improvements and automation. I mean it's going to be just around that number or even slightly lower.

Thank you. That was the last question for the day. I would now like to hand the conference over to Mr. Vikram Mohan, Managing Director, for closing comments.

Thank you very much for all your questions and for your support to the company. And I would like to thank, first and foremost, all our employees, who have stood with us through this difficult time. And in spite of enormous personal hardships, have been making it to the factories and offices to continue operations, and I would like to express my gratitude to them. And I do hope that this wave of COVID will pass and normalcy may return, and may everyone stay safe, healthy. Thank you very much. God bless.

Thank you. On behalf [Audio Gap].