Ramkrishna Forgings Limited (RKFORGE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Ramkrishna Forgings Limited Q1 FY '21 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Divya Purohit from ICICI Securities Limited. Thank you, and over to you, ma'am.

Thank you, Faizan. Welcome, everyone. Today from Ramkrishna Forgings, we have Mr. Naresh Jalan, Managing Director; Mr. Lalit Khetan, Chief Financial Officer; and Mr. Rajesh Mundhra, Company Secretary and Senior General Manager of Finance. I now hand over the call to Mr. Lalit Khetan for opening remarks. Mr. Khetan, over to you, sir.

Thank you, and good morning to everyone. We welcome you to the con call hosted by our company for the quarter ended June 30, 2020. I have with me Mr. Naresh Jalan, Managing Director of the company; and Mr. Rajesh Mundhra, Company Secretary, on this con call today. The total operational revenues for this quarter has been INR 115.84 crores as compared to INR 379.25 crores in the corresponding quarter. The EBITDA net of other income is negative INR 1.49 crores for this quarter as against positive EBITDA of INR 72.16 crores for the corresponding quarter. Capacity utilization during this quarter was around 20% due to nationwide lockdown imposed and phase-wise restart of production at all plants. At present, our all plants are fully operational. We have achieved a total tonnage of 7,900 tons in this quarter as compared to 16,089 tons in the sequential quarter. The lower tonnage is mainly due to lockdown imposed due to breakout of COVID-19. We have achieved a domestic tonnage of 3,943 tons for this quarter as against 10,284 tons in the sequential quarter. We have achieved an export tonnage of 3,967 tons for this quarter as against 5,805 tons in the sequential quarter. The exports revenue for this quarter has been INR 66.15 crores against INR 92.68 crores in the sequential quarter. The company has uploaded earnings update providing requisite details. We request to the investor not to raise any customer-specific queries during the con call. Thank you. Over to Divya.

[Operator Instructions] The first question is from the line of Sanjay Dam from Old Bridge Capital.

I had 1 question regarding how we have been doing in the domestic market. We seem to have ended first quarter at around 20% utilization. But the bigger question is that if you could take us through how we have fared on the market share point of view, have we seen any market share moves? That would be really useful.

Thanks, Sanjay. In terms of market share, I think in the first quarter, probably, it was very difficult to evaluate the same. As because of COVID-19 lockdown, OEMs had opened in a staggered manner and production in OEMs' location were extremely difficult to gauge how we fared in terms of market share gain. But probably, from this quarter onwards, we are seeing traction both in domestic and in exports. And like Lalit has stated in his opening remarks, all our plants are up and running, and we are almost at 60% plus utilization in all the plants.

And so if I look at the sales that we have done in the fourth quarter and the first quarter, or how things you are seeing in the second quarter as well, would you think that our execution in terms of tonnage in the domestic market would be in line, we would be able to maintain our market share? So that's a very -- that's the only thing that occupies our mind. I mean there's not much you can do about the external environment. But as long as we are...

I think -- just to answer your question, I think probably in the second quarter, both in terms of market share and in terms of content in BS-VI, we have drastically gone up. And that's the reason, while the commercial vehicle market in India has not improved considerably, we are looking at 60%-plus capacity utilization and with every going days, capacity utilization is further increasing. So what we feel, we are extremely now confident and bullish that worst is behind us. And I think going forward, we are going to -- on a quarter-on-quarter basis, every quarter is going to show a significant improvement.

And between the last time that you spoke on the export opportunities, the ordering, et cetera, the time line of that, has there been any change from the last time?

No, I think exports, we are doing considerably well. I think in this quarter, we are -- if you see the last quarter, whatever has been the saving grace, probably what we did was only on terms of exports. And this quarter also, exports is doing considerably well. And only what has happened because of COVID-19, Europe being on lockdown, things have moved by a month or 45 days. There has not been any considerable change in terms of overall time lines of the projects or allocation of the project cost, the OEMs have not changed that. So things are moving as planned.

So I mean if I look at our export tonnage, I mean we probably were doing about -- we did a peak tonnage of about 10,000 -- near about 10,000 tons at some point in time. Could you give us a relative sense of how you -- when you see things moving...

I think we should be in exports by third quarter, reach those kind of tonnage.

[Operator Instructions] The next question is from the line of Abhishek Jain from Dolat Capital.

As you mentioned that there's an increase in content per vehicle in the domestic market because of the BS-VI, so while if we see the net realization during this quarter, that has gone down by 10% on the domestic market, so can you throw some light on it?

I think last quarter cannot be collaborated with the fall in terms of realization, as I told in my last answer also, that last quarter was one-off incident. And those one-off incidents cannot be taken as precedents. In terms of this quarter what it goes, we will -- we are really looking up in terms of domestic market with what we have gathered in terms of BS-VI content. So I think this quarter will throw more light into it in terms of realization per ton.

So can you throw some light what all contents you have added in your portfolio because of change in the BS-IV to BS-VI?

I would not like to tell you in terms of -- component-wise, it is extremely difficult to -- for me to elaborate. But in overall terms, there are a lot of new components which have been added, and a lot of components have shifted in terms of from forging to machining. So all this taken together -- as well as we have a lot of added chassis components. We have entered the LV segment of the domestic commercial vehicle market instead of only commercial vehicle. So all these changes taken together, domestic market is looking up for us.

So it means as you have mentioned that you have already entered into LV segment. So that means you are entering into the passenger vehicle as well because they are below 2-liter cars, right?

No, no, no. It is -- passenger vehicle is a different segment. I'm talking about light commercial vehicle, LCV.

LCV. LCVs. Okay. And sir, my next question is related with your mounting debt. Your debt-to-EBITDA is around 6x. Interest coverage ratio is almost 0.2x. And you are going to take further debt of around INR 150 crores. So just wanted to know your plans to improve your equity or reduction in the debt in the coming quarters?

The liquidity of the company is quite good. The INR 150 crore debt is not going to increase net debt of the company. That will be parked in the working capital and reduce the working capital utilization. So overall debt will remain at the same level only. And certainly, these ratios, what you are talking, will improve considerably in Q2. You will see that.

So these are the short-term debts you are taking, and it will be...

It's a long-term debt we have taken. We are taking a long-term debt of 7 years, and it will be parked in working capital, so our working capital utilization will go down.

Okay. Sir, my next question is related to the Class 8 trucks. So what is the outlook for the Class 8 trucks going ahead? How do you see the recent short-term recovery in order booking and any guidance for the export volume in the coming quarter?

No. As of now, Class 8 trucks, we are definitely not alone in Class 8 trucks. We are in the overall North American truck market, whether it is light vehicle also and -- as well as in the heavy vehicles. So overall, Class 8 trucks do not dominate the only top line of the company in terms of exports. Like I said in my earlier question and answer, that we have a robust order book in terms of exports, and we feel that we will be able to reach our peak by third quarter in terms of exports.

So any guidance for the export volume for FY '21?

No, I would not like to put any guidance into it. But yes, like in earlier question I have replied that we will reach our peak volumes which we have done. We are extremely confident to reach that by third quarter.

Okay. Sir, my last question is related with the scrappage policy. So as the government has announced, they will come up with the scrappage policy in September. So would it be able to drive the CV volumes significantly, when most of the small fleet operators are under stress and capacity utilization for trucks are quite low? So what is your thought process, which all incentives should be attached with these policies to make it [ better? ]

I think scrappage policy, what government is going to come up with, I would like to go into the details before commenting on it. Obviously, we are extremely happy if any scrappage policy comes through. Not only CV market, the entire auto industry is going to benefit out of it.

And suppose if the government make it the mandatory for scrappage of 15-years-old trucks, and they also take up some cut in the GST. So what sort of the potential recovery do you see?

No, I would not like to comment on it before we see the final details. Actually, we have been hearing scrappage policy since last 2 years. So as of now, company has not budgeted or company has not looked at the scrappage policy in terms of volume. What we are rightly concentrating right now is whatever volumes are made right now, we are looking at content and improving our participation into whatever is being manufactured rather than looking at what is going to come. We will see when it comes, and then we can comment on it.

[Operator Instructions] Next question is from the line of Mitul Shah from Reliance Securities.

Congratulations for a reasonably strong performance despite tough business environment. Sir, I have a question on your pricing movement over the last 6 months in domestic as well as in export in context of increasing benefit from the favorable exchange rate, whether we are passing it completely or retaining in various geographies like North America and Europe? And secondly, how is our contracts with the customer in terms of pass on of the raw material either benefit or increase, whether it is 1 or 2-month kind of lag effect, 1 quarter or 6-monthly contracts?

Most of our contracts are 1 quarter lag, and currency is passed on, whether it is increasing trend or decreasing trend. So company does not make much of the money in terms of exchange -- foreign exchange rate fluctuations.

Any hedging we follow, sir?

No, we keep it blanket. In terms of -- we take PCFCs as and when we export material out of the plant.

And any pricing action taken in any of the market, either given some discounts in current situation of slow demand?

No, I don't think the auto industry works -- maybe I don't know about anybody else, but we don't work on that way, on a piecemeal basis. Our all contracts are 5 to 7 years contracts and prices change as and when the contract is renewed. So contracts are -- as of now, company has no new contracts. All old contracts are continuing till 2024. And we don't expect any price changes between this period.

So even in BS-VI new products, we are maintaining more or less pricing level?

BS-VI is a domestic market. And I think prices have gone up because of BS-VI, not -- prices have not gone down.

For our parts also?

Yes, for our parts also.

And in terms of broadly, directionally, margin profile, BS-IV versus BS-VI?

I think we would like to comment that only after a quarter of -- full quarter of working. I think this is the first quarter. Last quarter was insignificant. So probably we will be able to comment on margin and other things. But I think with the current input prices, we should be in a very stable position going forward in terms of margins.

Okay. So in terms of North America business, as Class 8, these orders started improving and those -- some visibility is there. But in terms of Europe business, what is your feedback with this initial communication with your clients? When they expect it to improve? And when do you see more or less normalized volume?

I think overall export volumes have gone up. Overall, all the export market, whether it is Europe or North America, both have started doing well. We see traction in both the market, and we are extremely, like I've said in earlier answers also, that we are extremely confident to achieve high-growth trajectory as well as retain what we had earlier achieved by third quarter of this year.

Sir, how is the progress on non-auto side?

Oil and gas is not doing well, and we are not in a big way present in the Industrial segment. Railways is doing well for us. We -- like guided in our earlier calls, we should have a significant progress in terms of Indian railways in the next 2 quarters.

And lastly, sir, on this more detail, if you can give on this Amtek acquisition related?

ACIL?

Yes.

ACIL, we have already filed application for calling CoC for just modifying resolution plan taking -- to have the impact of COVID built in the plan. So that hearing is pending with NCLT, and we hope it will -- we [ Foreign Language] -- we understand it will take at least 3 to 4 months to reach to the modified resolution plan.

With your initial discussion with all these parties and based on the situation, do you expect there would be a downward revision to the original pricing or it's difficult in this...

It's very difficult to say right now because once the CoC is called, and then we will discuss and decide mutually.

The next question is from the line of Kush Joshi from Kitara Capital. [Operator Instructions]

Sir, just can you highlight what is the share of machine component in our overall product mix?

Close to around 70%.

Okay. And the orders, I think you mentioned, but just for one more clarification that -- so orders what we have received in the past in Europe and U.S. So those are all on stream, right? We will start executing in coming quarters, right?

Right.

Okay. And what about the expansion plan now, which was stalled because of this COVID. So any thought process on that side?

No. We have -- during this COVID also, we have not stalled. Like I've said, railway project is almost complete. And I think within a month or so, we will start production for railway components for which partial CapEx was done.

Right. And balance, the other products?

Incremental revenue from that coming in next 6 months' time.

That is fine. But the other product lines also we're proposing some CapEx plan. So any thought process on that?

No, we have partially cut CapEx plans. But whatever CapEx equipments which we had come, like for forging expansion, we had a 7,000-ton press coming in. That is going to start in October end. So all -- partial CapEx, we have almost completed. I think we don't have any major CapEx plan. So all these are going to get completed in the next 2 months' time.

So that will add how much to our capacity total?

I think by December 2020, we should be around 2 lakh tons.

Okay. Okay. Fair enough. And as far as railways is concerned, the supply will commence in the subsequent quarters -- coming quarters and -- from the new lines?

Yes, from the new lines.

Okay. And sir, just as I think we are now going more into LCV as well, so overall, how much LCV will be forming part of our total volumes? Any number to that?

FY '22, I think, close to around 15% LCV will be towards the volumes. Including export and domestic, total volumes are going to be close to around 15% from LCV market.

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

Sir, my question is regarding the railway side. How big is the market opportunity for us?

We are looking at close to around INR 250 crores to INR 300 crores revenue by FY '22 end.

And sir, what is the current run rate for the year FY '20? How much we did, sir?

We did INR 45 crores.

So next 2 years, you are targeting INR 300 crores?

Yes.

Okay. Okay. And sir, regarding the export side, sir, how much contribution is from the Europe market and how much is from the North America?

In total exports, close to around 70% is North America, 20% is Europe and 10% is other geographies like South America, Turkey and other locations.

Okay. And sir, lastly, when you talk about railway, INR 250 crores to INR 300 crores, do we have a separate capacity for railway? Or does it include in our tools?

That is the capacity which we have just augmented and will be completed by October end.

How much capacity, sorry, sir? For that, how much capacity we have?

That's not a forging capacity which we have put. That is basically a fabrication capacity we have put.

Okay. And sir, lastly, the margin is same when we supply to the non-auto side also or margins are higher?

Margins are higher.

The next question is from the line of Sanjay Dam from Old Bridge Capital.

So in domestic tonnage, if you could help us understand how we should view this going forward. Is it -- would it be fair to kind of say that whatever volume recovery happens at the CV end, your tonnage should increase by that much, your domestic tonnage?

3x the CV volume, whatever goes up, 3x the tonnage will increase because of the content improvement.

[Operator Instructions] The next question is from the line of Siddarth Mohta from Principal India.

Sir, you have already mentioned that you have increased the capacity in the railway side as far as forging is concerned. And in your annual report, you've also mentioned that Indian railways is expected to replace around 45,000 conventional coaches with LHB coaches in 5 to 7 years. And also the replacement cycle for conventional coaches has been reduced from 25 years to 20 years. So how we are going to participate in LHB coaches? And you have also mentioned that railway is the one segment, which is going to be the growth driver for 3 to 5 years.

Like I said in my earlier question that we have augmented a fabrication capacity for railways, and we are going to fabricate a lot of new components for LHB coaches. That is apart from the forging requirements for railways, and that will give us additional new components. And almost close to around 70% of the new coaches, we will be able to improve in terms of content with the addition of fabrication capacity. So this is going to [ improve ] the incremental quantity.

Okay. Sir, so the approval process, it has already in place, and we have already started supplying. Are we seeing any tendered or tenders getting converted into orders?

We have not yet started supplying, while we have already made samples and started getting approvals. I think by October end, we should have the approvals in place and supply, already we have started participating in the tenders. We will see development orders coming in this next 2 to 3 months and supplies to start from November onwards.

Okay. Sir. So you're saying that might be from quarter 4 and might be then from FY '22, the growth momentum can be very strong?

That's the reason FY '22, we have projected a number close to around INR 250 crores to INR 300 crores from only Indian railways.

Only from the railways. Correct, correct. Sir, second thing, sir, again, you have mentioned in your annual report that company has taken various steps to increase the product basket with the existing customer and also developing the new client. You have mentioned in the forging and machining new product, which has been developed, in case of ring rolling line, in case of press facility. So especially in case of like press facility, you have mentioned that 65 new products during the year, of which 29 products they are machined. So if I could just quantify some of the efforts that we have taken in the last 10 to 12 months, so what does it mean actually in terms of existing client penetration or developing new client or new geography? If you can throw some light. And at the same time, in the quarter 4 call, you have mentioned that we have won 2 European contracts. So are such contracts there in the pipeline and can we hear the same quantum of when order might be in a quarter or so?

Yes. Order wins are a continuous process. So exactly to give you a quantum on that, it's difficult. But overall, in terms of entry into new market, we have just entered into South American market in this -- during this COVID time and our supplies to the South American markets in agricultural component starts from quarter 3 of this year, means October onwards. Samples and other things have been approved. So this is an ongoing process of the company. And in terms of new opportunities, we are always in lookout for new opportunities.

Okay. Okay. Anything, sir, worth sharing actually, like we have won 2 contracts in the last quarter, and we have announced around of INR 250 crores, INR 260 crores, something like that is also there in the pipeline? Whether it materializes or not that is different thing, but something to look forward?

I think we have always had new contracts, new geographies, all these are always in pipeline. So I cannot put a quantum to that. But obviously, company is always scouting for new opportunities. So it is always -- as an ongoing process.

Okay. Sir, in this quarter, if I have to just look at your number in spite of 70% fall, we are more or less -- we have -- our EBITDA, we have managed it quite well. And at the same time, company has been focusing a lot on the cost curtailment, continuous yield improvement through design process modification, which helps to reduce raw material cost. And also, we have made some process change, which would utilize our assets. So again, if you can put a range bound number, some of the structural -- the cost savings, that it may happen, might be, once the volume, it is back in FY '22, might be like INR 20 crores, INR 25 crores, it is more of a permanent saving in spite of the increase in the volume...

I think close to around INR 25 crores or more, I think, in first quarter, if you see, we have reduced our processing cost by INR 6 crores. Basically, these are people who have gone out of the system and will never be able to come back. So all this taken together, we feel that close to around INR 25 crores to INR 30 crores cost reductions have been done in -- overall in last 6 months' time and which is going to result in improvement of the bottom line of the company in going quarters.

Okay. So one can say that around INR 25 crores or near about, that is more of a permanent decline in the fixed cost.

Yes.

Okay. Okay. That is heartening to know. And sir, my last question, is that you have mentioned that as per the expert report for the U.S. market, the Class 8 truck will grow by 15% in the calendar year '21 and 30% in calendar year '22. So are we seeing -- are we still holding those numbers? I know it's not your number, but it is from the export -- from some of the expert. But are we seeing that much of visibility, at least, for calendar year '21?

Like I said, U.S. market has [ turned. It's not that ] overall market has turned around and is doing considerably well. So [ we feel ] that the market is continuously in track to grow into those numbers.

[Audio Gap] question. Over the last 2 to -- yes, sir. Yes. Yes, sir. Sir, final question. Sir, in the last 2 to 3 years, company has been trying [ to graduate ] from manufacturing component to subassemblies, which improves value addition. So if you can just tell what that value addition we are doing as of now? And what it can be after -- might be after a year because a lot of order, it is new orders we are winning in the overseas market, and railway, it is a new segment, which is emerging very strong for us. So whether the proportion of value addition, it will increase?

Portion of value addition will improve, but throwing a profitable number -- profitability number is not what I would like to do right now. I would like to go on quarter-on-quarter basis. I think as capacity utilization improves, you will see both bottom line and top line improving going forward.

Okay, sir. And sir, final question, if it is possible, if you can just tell me the range, that is also okay. So what would be the margin difference between just manufacturing a particular component and -- versus if we do the subassembly, which is more of a value addition. So is there any range like 3% to 4% difference in...

I would not like to comment on that.

The next question is from the line of Mitul Shah from Reliance Securities.

Sir, one clarification. On this INR 25 crores saving you told over the last 6 months, so how we should consider it as -- is there is a 6-monthly number we should take or quarterly or on a yearly basis, how much would be permanent saving according to you from that process change?

No. First of all, I've not said INR 25 crores on a 6-monthly basis. I have said close to around INR 6 crores processing cost has gone down, and this will -- if we will put it in the full year, it is going to be close to around INR 25 crores approximately savings, which is going to remain forever with the company.

Okay, sir. And secondly, on this non-auto side again, it is roughly, I guess, around 8% to 10% is our non-auto from overall revenue perspective, right, sir? From FY '20 numbers I'm taking from your annual report. So when we are expecting such a high number for railway segment in FY '22, so according to you, what would be approximate range for overall non-auto within our revenue pies in the next 2 years?

So close to around 15%.

And then definitely, it would push up our margins also, right, as you said, non-auto margins are relatively better compared to auto? Or with the increasing volume, margin may not change much?

No. I think with the increasing volume, margins will improve. But in terms of non-auto and auto, we are expecting improvements in margin from non-auto participation. And that is our expectation. And accordingly, we are working on it.

And sir, last question is on the export side. In this situation, or in general, also, directionally, which one is better. Export margins are better or domestic? Export, we are all -- totally auto right? We don't have anything non-auto?

No, in exports, we have some on non-auto, but that is practically insignificant.

So how these margins roughly, sir, in direction wise?

Export margins are a little bit better, but overall we look at overall margins from the entire manufacturing. We don't look at individual customers or individual margins in terms of sectors.

The next question is from the line of Dhiral Shah from PhillipCapital.

Sir, when you say you're going to borrow a 7-year long-term loan, so is this to replace any high cost borrowing?

No, no, no. This is just additional liquidity we are putting it in the system.

And sir, this is -- so any quantum, how much is that?

No. This INR 150 crore is the loan we have tied up. That's all.

Okay. And sir, what would be the cost of borrowing, sir?

It is about 9.5%.

9.5%. And sir, any CapEx for FY '21?

No. We are doing the regular CapEx, and there is no significant CapEx is left. Whatever is the plant CapEx, we're certainly doing that.

Okay. And sir, let's say, government announces favorable scrappage policy, and if there is a sudden spurt in demand, so then we have -- do we have that kind of a sufficient capacity to cater to that demand, sir?

Yes, we have sufficient capacities. Like in my earlier answer, we have said, we have already augmented additional 50,000 tons of forging capacity. We have moved from 1.5 lakh to 2 lakh tons, and that project is almost complete. So we have enough capacities.

That's the next question is from the line of Kush Joshi from Kitara Capital.

Sir, just can you confirm on the non-auto side, how is the mining business for us? And how -- what is the outlook for that?

Mining business is close to around 5% of -- for us in the domestic market and is doing well right now.

And any plans to increase that business?

We are always wanting to increase content per customer. So that's an ongoing process. So we're looking at every time new opportunities. So that can...

That will also grow at a steady state rate, that business?

That should grow at a steady state.

Okay. Okay. And second, sir, when we will you look at the oil and gas business revive for us?

I think it all depends on how the crude prices move.

Okay. Okay. Fair enough. And lastly, as and when defense is concerned, are we exploring any opportunities right now or still...

No, we are not exploring as of now any new opportunities.

Okay. And this, the NCD loan, which you have taken, INR 150 crores at 9.5%. So what is that -- so it's a long-term loan, what I understand. And what are the existing loans, the finance cost for that compared to this 9.5% working capital long-term loan?

All rupee long-term loan are around 9.5% on the existing also.

Okay. So this is incremental loan, right? This is not replacing any existing loan.

No. No.

As I said earlier, this is long-term loans to be utilized for liquidating for short-term loans. So it will not increase the loan portfolio per se. We are taking a long-term loan, which will be utilized for liquidating the short-term loans that we are presently having.

So it will replace that, right, technically?

Yes. The short-term loans is come down.

This will be parked in our working capital and working capital realization will go down. Okay? At that time, it will be also available to us.

The next question is from the line of Karthi Keyan from Suyash Advisors.

Just wanted to understand 2 things. One is a clarification. Did you say that non-CV business would be 15% in FY '22, sir? I missed that number.

Yes. You're correct.

Okay. Right. That includes railways and the other segments, right?

Yes.

Right. So from a strategic perspective, some thoughts over a, say, 3 to 4-year period, how should we think about the geography mix of the business? Any particular preferences and some thoughts behind that?

No particular preferences. As a supplier, we are looking at every geography. As customer requirements are there, we participate in all the geographies across the globe.

Right. And how do you see the development cycle as such, as in any, say, let's say, whatever customers you have won in the last 1 year, how -- what has been the development cycle like? And...

It's almost 6 to 9 months' time for development and -- in terms of number of the components. And after we developed, slowly penetration increases in terms of number of components.

The next question is from the line of Sanjay Dam from Old Bridge Capital.

Sir, in the previous 2 years when we were doing reasonably good amount of exports, so we had about INR 24 crores of export incentive in FY '19 and about INR 20-odd crores in FY '20. Could you give us some sense of what is your understanding of this MEIS proposals? What impact it would have on us?

I think we would like to wait for that comment. I think government is coming up with a new proposal or new scheme, which is going to come by December or maybe earlier to that from January 1 onwards. So after looking at that only, we would like to comment on that. As of now, I think that it is extremely difficult for us to comment seeing whatever is going on right now. I think we will...

Is there any part of this in terms of duty drawback? Or it's entirely MEIS.

MEIS.

I'm not aware of what the government -- I think MEIS license we get and we sell those off. But as of now, in terms of new scheme, which government is coming up with, we are clueless about that.

No, that's fine. That's fine, I saw. So basically, this INR 19 crores, INR 19.5 crores that we had last year, entirely, it's MEIS, there's no duty drawback in it.

Yes. No, no, no.

Perfect. Perfect. Perfect. And just a clarification, again, just so that we don't carry any wrong takeaway from the call. Sir, when you said railway is 15% of your revenue by FY '22, you meant the domestic revenue, is it? Or overall revenue?

Overall revenue. And 15%, I have not said only railways, I have said non-auto.

Non-auto, non-auto. Okay, sir. That's fine. And sir, this 60% utilization, you said you are currently running on, would that be nearer to whatever you have done for this quarter? Or this is a very recent phenomenon?

This is a recent phenomenon. I think every month, it is improving. In August, we did close to around 40%, 45%. And then in July, we did close to around 40%. And in this month, we have done close to 50%. This is an ongoing phenomenon for the quarter that every month, things are on an improving side.

Perfect. Perfect. That's very helpful, sir. And when you say that volumes -- so I had earlier asked you that whenever we see the CV volumes from the CV guys because they give out monthly numbers, you report a quarter. So to get a sense of the progress that's happening at your end, you said that 3x the tonnage will go up. Could you just again come back what you said? I mean, how we should look at it?

Basically, I think with the content improving, whatever -- what I said was that whatever is the incremental vehicle sales, 3x that tonnage is going to go up.

[Operator Instructions] The next question is from the line of Siddarth Mohta from Principal India.

Yes, sir. Sir, my question is on the working capital. Sir, I met with you a couple of years back, where you were trying to reduce the working capital. But if I look at FY '19, nothing much has happened so is in FY '20. So is there any way forward for it? Or the nature of the business going forward would be such that the working capital will continue to be at around 130, 140 days?

See, what happened in this industry. Right now, the operational level has gone down in last 2 years, and we cannot reduce the stock level. So once the top line improves, the working capital will automatically come down in terms of number of days because the stock will also not increase proportionately. And so you will see a very efficient utilization once we reach that kind of number.

Sir, assuming that we reach that particular number in mid of FY '22. So there will be a reduction in debtors and the inventories? Or what it is or what...

There will be not a reduction in debtors because we are doing exports. So debtors cannot be reduced. The debtor will increase marginally, but inventory will not increase proportionately. So overall, working capital realization will go down.

Okay. So what it will be around, sir, like -- which is currently at 148 days. So one can say, a range of around 100 to 110 days, something...

Very difficult to comment right now. Very difficult to comment right now. So I would not like to comment on that, but certainly, it will improve.

Okay, sir. Sir, my second question is on our upcoming capacity. It will be coming in a month or so. And it will be catering to some of the new segments, which is like PV or the LCV. So are we seeing any approval from those clients? And what can be the revenue expectation in year 1, which is like FY '21 and might be FY '22 and '23, sir?

Segment right now, basically passenger car. I think approvals are going to start only, or we are going to apply for approvals only after the equipments are up and running. I think by October onwards the equipments will be up and running and after that we will submit the documents.

Okay. Hello? Yes, sir, your voice, it was not that -- can you please repeat the sentence?

It will -- by October, the capacity will be up and running. So only after that, we can submit samples and looking for approval to [ happen ]. So until then, we would not like to comment on what we're going do with the offtake.

No. Because in the last quarter, sir, you have mentioned the numbers actually. So I was just confirming whether we are sticking to those number or not?

See I think we are 3 months delayed as of now. So I think earlier, we had expected the components or the samples to have been submitted by now. But I think we are delayed right now. In October and November, we see that we will submit the samples, and I think then we can expect approvals and the supplies to start.

Okay. Sir, then might be in the next quarter, I will just check on those numbers.

[Operator Instructions] Next question is from the line of Dhiral Shah from PhillipCapital.

Sir, just one clarification. You said that because of BS-VI, our requirement content per vehicle has gone up by 3x?

No, no. I've never said that BS-VI has increased by 3x. I think to my -- to the earlier question, I think somebody when he asked me, what is going to be the increase when he sees the number increasing in terms of commercial vehicle sales. So the fact is I have said, our tonnage is going to increase 3x vis-à-vis the total number of sales going up.

Okay. Okay. Okay. So as and when your number, one, if my understanding is correct then maybe the number of vehicle -- hello?

Yes. Hello? Hello? [Technical Difficulty]

[Operator Instructions] We'll take the next question from the line of Sanjay Dam from Old Bridge Capital.

Sir, this will be the last question from my end. So there is an item of -- in other expenses in the P&L. This is I am talking from our annual report. There's an item of export expenses. So roughly around INR 42-odd crore per annum. Is there -- is this more of a fixed nature? Or this is variable in nature? Would it be...

This is variable in nature.

It will be variable in nature. Okay. Okay. And the other thing is that you spoke about the INR 25 crores cost savings annually from some process changes. Apart from that, so in this quarter, whatever cost structure we have seen in our P&L, is there any scope for further reduction in fixed costs? Or you think we are at optimum levels so far as costs are concerned?

No. As a manufacturing unit, we never think that we are at the optimum level. Cost reduction or cost improvements is always an ongoing initiative. But whatever we have been able to do until now, that is reflected in the balance sheet, but it's an ongoing process and it's a process which is being driven from the top in the company, and it is a continuous. Changes are happening and it will continue to happen.

Sure. But by and large, should we be expecting anything significant in the short- to medium-term? Because at some point, anyways, the volumes will recover. So for now, whatever you could save on the fixed cost end is, by and large, reflected? Would that be a correct assessment?

Yes, that's a correct assessment.

The next question is from the line of Vijay Sarthy from Anand Rathi Institutional Securities.

Again, from the annual report, we find that the carriage outward expense has substantially come down in FY '20 vis-à-vis '19, almost from INR 11 crores odd to INR 7 crores -- sorry, yes. So can you help me understand what is that? Second part of the question is a little deep, yes.

Yes. The carriage outward is basically due to the reduction in volume. It's a variable cost, and it moves in proportion to the volumes.

But the same is not reflected in the historical years when volume had dropped.

It depends upon the price movement also. So...

Okay. And finally, sir, if you look at -- for last 5 years, if you look at your cost structure, your fixed costs on an average has gone up by something like 20 -- north of 20%, whereas your breakeven volume has gone up by 18%, 19%. I understand that you've done a lot of CapEx and not done completely yet in terms of recovery. What in your assessment would be in terms of number of years that you'll really take to recover all these cash out, assuming that you're seeing growth from FY '22?

See if we start seeing growth from FY '22, I think maybe in 3 years, we'll be able to recover the cost.

By FY '25, you're saying the growth in the breakeven volume or breakeven revenue would be much lower than what it is now. Am I right in that assessment?

Yes.

The next question is from the line of [ Prateek Choudhary from Samarthya Capital ]. [Operator Instructions] We'll take the next question from the line of Siddarth Mohta from Principal India.

Sir, like Indian Railways, sir, where we are seeing our efforts being converted into orders and the revenue, sir, is there a similar opportunity in the Metro segment, where, again, a lot of CapEx, it is happening; a lot of project, it has been announced?

No. I think in metro, most of the coaches, as of now, are imported. I think we would have to look at it as and when the indigenization starts. As of now, except one order which has gone to Titagarh Steel, there is no indigenization here until now, in terms of metro coaches. All are basically bought on [ secretive ] basis and assembled in India and are being run.

Okay. Okay. And sir, one more question is on our Dana contract. So that has been renewed. If it is, if you can just tell us the time line and the order that we are going to book per annum?

I think we would not like to answer customer-specific queries in this call.

Okay. But if it is convenient and comfortable to you, but that has been renewed? It's something that isn't telling the amount and all? And the amount is more or less -- okay. Okay.

Yes. Contract is renewed. So I would not like to go into amount and all.

The next question is from the line of [ Prateek Choudhary from Samarthya Capital ].

Sir, with regards to your previous comments, could you give a rough estimate of percentage increase in the content per vehicle post BS-VI?

Close to around 30% increase in content per vehicle in terms of forging supplies per customer is, approximate number, I could throw up. I don't have the exact numbers, but approximate number is close to around 30%.

Okay. And what was your comment in relation to regarding when you said that whatever incremental volumes will be there, our tonnage will go up by 3x.

Our sales revenue. Basically, I meant that in terms of sales revenue of the component, will increase by 3x. Basically, content, when I say 30% has gone up, so obviously whatever incremental sales we are going to get with the number of increase is going to be 3x, close to around that.

Okay. And what's the quantum of non-auto business you're seeing in FY '22 in absolute? Railways, you said is around INR 250 crores to INR 300 crores you're expecting. And in total, what's the non-auto business looking like in FY '22?

We have already said that number. It's going to be close to be around 15%.

The next question is from the line of Arjun Khanna from Kotak Mutual Fund.

Just in terms of machining, so while you talk of higher content in BS-VI, what are machining levels going to be in BS-VI?

So I think I've already said. I think we are close to around 70% in terms of machining, overall machining in terms of total volumes what we make. And I think we...

That's only for domestic, right?

No. I don't have the exact number with spread over domestic and exports. So overall volumes, whatever we make right now, 70% of that is close to -- approx 70% is close to what we said in machine condition.

Sure. And in terms of exports, while we've been talking about the LCV opportunity, could you help us -- would that be fully machined or will be initially just selling plain forging?

In exports, 90% of our components are in ready-to-use conditions.

Okay. Sure, sure. That helps. And given the way the situation is in terms of net debt, what level do we expect to end FY '21 at?

See FY '21, we should end up around INR 1,000 crore.

INR 1,000 crore. And do you expect that to be the peak level because we are expecting a better FY '22?

A little bit here and there, yes, a little bit here and there, but it should be around that only.

As there are no further questions, I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.

Thank you very much. We appreciate the time all have taken to attend our con call. On behalf of the management, we give a sincere thanks to all the participants, who have attended our con call. Thank you.

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