Ramkrishna Forgings Limited (RKFORGE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Ramkrishna Forgings Limited Results Conference Call for Fourth Quarter and Year Ended FY '21. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratit Vajani from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Faizan. Good morning, everyone. Welcome to the Q4 conference call of Ramkrishna Forgings Limited. We are here represented by the management, Mr. Naresh Jalan, Managing Director; Mr. Chaitanya Jalan, Whole-time Director; Mr. Lalit Khetan, Executive Director and CFO; and Mr. Rajesh Mundhra, Company Secretary. Now I request Mr. Lalit Khetan to initiate the opening comments. Thank you, sir.

Thank you, Pratit, and a very good morning to everyone. We welcome you to con call hosted by our company for the quarter and year ended 31st March 2021. I have with me Mr. Naresh Jalan, Managing Director; Mr. Chaitanya Jalan; and Mr. Rajesh Mundhra on this con call today. The total operational revenues for this quarter has been INR 517.88 crores as compared to INR 226.46 crores in the corresponding quarter. The total operational revenues for the year has been INR 1,288.37 crores as compared to INR 1,117.83 crores in the corresponding period. The company achieved an EBITDA net of other income of INR 107.67 crores for this quarter against INR 36.76 crores for the corresponding quarter. The EBITDA net of other income for the year ended 31st March '21 has been INR 229.92 crores against INR 203.72 crores in the corresponding period. The EBITDA margins net of other income stood at 17.85% for the year ended 31st March 2021 compared to 18.32% in the corresponding period. Net debt adds on 31st March 2021 is about INR 1,070 crores. That is after adjusting bill discounting finance in respect of TATA Motors bills of about INR 68.50 crores and cash and bank balances of INR 66.58 crores from the gross debt. Out of INR 1,070 crores, we have a long-term date of INR 663 crores and working capital borrowing of INR 313 crores, and INR 94 crores is the current maturity of long-term borrowings. Again, due to softer containers and concession imports, the company has to incur additional cost of about INR 8.5 crores on export logistics during the quarter. Otherwise, EBITDA margin in this quarter could have been higher by 170 basis points. We have achieved a total capacity utilization of about 92.95% in this quarter against 82.9% in the sequential quarter. We have achieved a domestic sales tonnage of 21,217 tons for this quarter against 17,366 tons in sequential quarter. We have achieved an export sales tonnage of 9,693 tons for this quarter against 8,048 tons in the sequential quarter. The export sales for the quarter had been INR 189.79 crores against INR 155.80 crores in the subsequential quarter. The company has uploaded an investor presentation providing [ requisite ] details. We request to the investors not to raise any customer-specific queries during the con call. Thank you. Pratit, now it's over to you.

Should we start the questions and answer?

Yes.

Yes.

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

Congrats for a strong set of numbers. Sir, if you could throw some light on the domestic demand and production side, what sort of the hardest MHCV industry is facing post second wave of COVID? And what are supply and production side headwinds?

I think as of now, post the COVID surge, second surge, I think most of the dealers right now are closed. And the OEMs have gone for block closure because they are not able to get the parts from across India, and they are unable to assemble the vehicle, while the underlying demand remains strong in MHCV, mostly on the taper vehicle side. But as of now, in last 1 month, we have seen tonnage and sales decline. But we feel once the COVID surge settles down and most of the dealership opens as well as the manufacturing opens across India, pan-India, we will see demand again flowing back because the underlying demand is not soft.

So most probably that demand will bounce back from the second half onwards because, usually, monsoon is [indiscernible] for the MHCV?

No, I don't think monsoon is going to play much of the issue because the demand side is pretty strong. So we feel immediately once it opens up, maybe with a lag of fortnight, demand is going to come back.

Okay, sir. And sir, my second question on the margin front, as RM prices has gone up significantly, are you able to pass it to the customer, especially in the export side? As we see realization growth in export just 1% quarter-on-quarter, so how much price hikes have you taken in Q4? And how much RM inflation impact do you see in our first quarter FY '22?

RM basically 100% pass-on for us both in exports and domestic market. But as rightly pointed out, in the last quarter, we have not been able to pass on the price hike of the raw material because international price is -- took a turn in the mid of the quarter. And we have been able to pass on the hike from 1st April 2021 onwards.

So what sort of the realized in jump can we see in the first quarter FY '22?

Whatever raw material pricing has gone up, same has been passed on with effect from 1st April '21.

Okay, sir. Sir, in past 3 years, your CapEx is around INR 700 crores, but your capacity addition looks just around 2,550 metric ton for the baseline. So sir, please, can you throw some light on your maintenance CapEx and the growth CapEx in the last 3 years, so we can get a better visibility on the CapEx side?

Abhishek, we have bid about INR 237 crores of CapEx in the last year. And out of that, maintenance CapEx was around INR 15 crores to INR 20 crores. Rest is going to the project. We have added all of spender line in the last quarter of this financial year and which is having capacity of 10,200 tons, but 2,550 we have returned before only 1 -- we have added 1 quarter for also pro rata calculation. So 10,200 tons capacity has gone up. And also, we have started the [indiscernible] line and railway facility in the month of April also. So that also gives us an additional 17,000 tons production capacity. Another 10,000 tons capacity will be there of the addition of baseline within next 3 to 4 months. So entire 37,000 capacity, what we envisaged, will be in place before August 2021.

So the total capacity would be around 1 lakh 87,000? So...

Yes, yes, yes.

And how much more CapEx is required to complete all these?

See, almost we have done almost out of INR 354 crores what we plan, we have almost incurred INR 300 crores till 31st March. In the current year, it will be around INR 54 crores further we need to spend to complete this CapEx, entire CapEx, to achieve 187,000 ton capacity. Plus another INR 15 crores, INR 20 crores will go in the maintenance CapEx in this year. So another INR 67 crores -- INR 70 crores we consider is required total in the CapEx for the year FY '22.

Okay, sir. And sir, so how much is the revenue mix for the MHCVs and LCVs for the domestic side in the FY '21? And you are also looking to expand your capacity in the passenger vehicle. So you have added the passenger vehicle capacity just now? Or you have already added in the past?

No. First of all, in the overall, we do not have any benchmark in terms of domestic. Overall, in terms of the total top line, close to around 20% is LCV and 80% is MHCV in auto sales. And the passenger vehicle capacity is going to come, like Lalit has said, is by August '21, it is going to get completed.

Okay. Sir, my last question is related with the working capital. The data days has gone up significantly in FY '21 and now stands around 159 days. Even in the last quarter, it was 190 days. Is the render inventories higher in export side, which is putting pressure on the working capital? Or what is the reason?

No, no, no. Abhishek, if you look at carefully the numbers, if you are looking at full year number, that it is looking higher. If you look at the 3-month number, if you compare it from the last year, it is actually lower. If you look at the 3-month number, because performance has come in last 6 months and we are calculating on the 12-month basis, so if we look at 3-month number, INR 570 crores top line and INR 559 crores of data, so it's only around 98 days. And in this also, we have added the TATA Motors bill discounting of INR 68 crores, which was not there last year. If we reduce that, it will come down to 86 days basically data.

Okay, okay. So for full year FY '22, we can assume that the data day, which is we are able to see around 159 days, that will come to the around 90 to 100 days?

Yes, yes, certainly. It will be around 90 days.

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

Yes, sir, congratulations for very strong performance. So again, follow-up on this working capital side only. Our net debt has gone up sequentially as well as Y-o-Y despite our net working capital that has come down, sir. So what is the -- can you give some detail on this? And what is our repayment planning on debt?

See, net debt has gone down one-off only due to the CapEx we've got. I earlier explained that we have added about INR 235 crores on the committed CapEx this year. And still, my -- debt has gone up by only INR 120 crores this year despite the first 2 quarters being bad and company making a profit in the last 2 quarters. So my debt number, even after CapEx addition of INR 235 crore CapEx has gone up only by INR 120 crores. And working capitalization has also gone up in the last 2 quarters. So if you look at the last 2 quarter numbers, in absolute number, net working capital -- working capitalization has also not gone down in absolute numbers. In number of days, it may have gone down, but absolute numbers, it has not gone. So there is -- and there is a plan of repayment. We have an obligation of about repayment of INR 95 crores in the next financial year.

So our target is this INR 95 crore repayment. So next 2, 3 years, where do you see debt to come down?

From here on, every year, we intend to reduce the CapEx a bit only. And whatever be the cash flow of the company, at least 1/3 of that, minimum 1/3 of that will be deployed towards reduction of debt only.

Sir, my second question is on -- in our presentation, on Page #8, we have given that witnessed -- in second point, witnessed encouraging new business wins and client engagement across categories. So sir, can you throw some more light, in this quarter, which are the new business wins and new clients we added?

We will not be able to name the clients, but we have in terms of -- in Europe, we have made some significant inroads. As well as in North America, we have made considerable inroads in light vehicle segments.

Sir, can you -- though you will not give names, but can you quantify that with -- what would be the quantum of these new orders on an annual basis?

Annualized basis from the year FY '23, it will be close to around $25 million.

Okay. And sir, lastly, again, on the light vehicle, also, we have mentioned that we have made significant inroads in North America and top line, bottom line will start getting reflected in FY '23, '24. So what would be this quantum in '22? And more details on this light vehicle side, is there anything [indiscernible]?

Out of this $25 million business which we have been able to get, I think close to around -- and the entire volume is from light vehicles. And this year, full year will go into making of samples and [indiscernible] lots. Next year, the entire money will come into the bottom line -- top line. And because of light vehicle volumes and consistent volumes, we'll be able to make better margins in terms of realization.

Sir, just a follow-up on this. Anything sizable from the domestic side on LV, light vehicle side?

No. I think it is entirely export-driven.

So similar geographical contribution from the passenger vehicle side?

No. I think the passenger vehicle, we are -- here, capacity setup is yet to get completed. I think it will take another 2 or 3 months' time before the capacity is in place. After that, only we will start booking orders. Right now, we are not booking orders right now based on -- we would like to see the samples and the things before we start booking orders on those.

But sir, when we'll target Indian customer or will be global mainly?

We are targeting any and every customer. So we have not made any details in terms of which customer. We are already in talks with a lot of customers in domestic market as well as on the international market.

Lastly, sir, on the margin side, this quarter revenue, geography-wise as well as everything was quite favorable. So still, do you think any further scope for margin improvement in '22 to '23? And what would be the driver for that?

I think as the capacity utilization improves, I think there will be significant improvement in terms of margins. We are already with the capacity, so capacity is going to get replaced as the market -- in domestic market, we are just waiting for the market to open. And I think we are fortnight away from things to stabilize and open up.

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

Congratulations for a wonderful set of numbers. Yes, yes, so 2, 3 questions from my side is that when I look at your realization, last year, domestic realization was 1 lakh, 50,000 rupees a ton. This year is also 1 lakh, 50,000 rupees a ton. Any reason why it is on year-on -- on a Y-o-Y then? And that's also in the case of export market, there is no change. So if nothing else has changed that should the higher raw material cost got reflected in the realization per ton, higher realization per ton?

I think, Sanjay, Probably, I think quarter-on-quarter, if you see the realization in domestic has improved considerably. And export side, like in the previous question, I've explained we have not been able to pass on the raw material price hike in the month of January to March because in export indexes, which we follow in terms of contract, all the increases came in January, February and March. So we have been able to pass on...

Sir, in Y-o-Y, it's static.

No, no. I think basically, it is a question of product mix also. So basically, raw material price hike, we have been able to pass on from 1st April. So you will be able to see export realization going up significantly in this quarter.

Sure, sure. So domestically, you don't expect a change?

No. I think raw material prices have been stable from 1st April. I think OEMs have not yet decided on the price increase because of the COVID right now and because April and May has not been very good for the domestic OEMs. And I think steel price has not yet been discussed at all. I think probably when everything opens up, we will see some marveling going on. And if that really goes through, then that will -- that hike will come into place. But anything, whatever happens will happen only after 1st July.

Sure, sure. When I look at our export revenues, FY '20, we're at INR 438 crores; FY '21, we did INR 525 crores. So in the last quarter of FY '21, you did INR 190 crores. So when I look at FY '22 and '23, '23, you did mention some new orders that you won. I presume they would be incremental over what we already announced, as mentioned earlier, a few calls. So where does -- so this INR 190 crores, is it safe to kind of extrapolate it, or it doesn't happen that way?

No, it happens that way only. I think INR 190 crores is a benchmark which we have set. I think full year, I think we should look at close to INR 800 crores of exports -- minimum exports from -- for this year.

Right, right, right. And in FY '23, would it be -- with this, then should you reach INR 1,000 crores odd?

I think this $25 million which we have won, this entirely is going to come into effect in next year. And we are -- our entire thrust in the new capacities which we have built is giving a lot of thrust to us in terms of exports and to new geographies also. So I think like we are very, very bullish for next 2 years in terms of exports.

Right, right, right. And I wish you all the best on that. The other question was that if I look at the export incentive, you all are still booking some export incentive. So I thought that the new norms are yet to come in. So is it that part which is not dependent on that RoDTEP? It is the other part which is -- which will continue, we will continue to get?

No, no. The other part, we have certainly accounted for duty drawback. And on the RoDTEP part, we have won very conservatively. We have just accounted for 0.5% of exports against 3% of MEIS. So that's a very conservative part of RoDTEP because RoDTEP numbers are still not out. Once the actual RoDTEP rates are out, then we will account as for the actual numbers.

So this INR 4.5 crores is pretty safe to assume?

Yes, yes, this is very conservative.

Right, right, right. And so you did -- you gave us some very good sense on where exports are headed. So far as domestic is concerned, in a normalized situation, given your capacity, so basically, if I saw your presentation, you were almost at a 92% utilization. So where are we headed from here? I mean, you don't have too much of headroom so far as utilization is concerned. So what will drive...

Sanjay, I think it is a very hypothetical question right now because of the current month, if you see current 2 months, it has been a complete washout with the domestic...

So that's fine. I'm not talking about that. That is fine. You can't do anything about it any which ways.

But actually, as we say, the demand side is very strong. Whenever we speak to the OEMs and other places right now, demand side is still very strong. And because of this oxygen shortages and all the OEMs closing down as well as the ancillaries, they are short of a lot of parts, so they are not making vehicles. And as soon as this opens up, I think you will be able to see numbers again clocking up and strong numbers clocking up. This year, we expect one of the best years to happen in MHCV sectors in domestic market. And to answer to your question in terms of capacity, I think we are well prepared with both domestic and exports market strengthening. I think we will -- we are looking at further improving our capacity utilization as well as like you -- 92%, which Lalit has said in his opening remarks. Basically, these are numbers which we derive from the tooled-up capacity. But there are always Kaizen and other things which we continue to do in the plant, which it goes unrecorded. And these are places wherein we exceed whatever we feel that the capacity is there. So we have much headroom left still for improving our top line with the domestic industry as well as the export industry, which is going strong.

The next question is from the line of Kaushik Poddar from KB Capital Markets.

Yes. In the presentation, you have talked about more per car. So just to understand your philosophy as to how you look for the next 5 years, I mean, how you are going about it? I mean...

Can you repeat your question? I think your question -- the voice is breaking.

Okay. Just if you can elaborate on the more per car part of this?

It's basically content part of it.

Yes. I mean, how has it worked out over the past years? And how do you see it 3 to 5 years down the line?

No. As a company, our continuous endeavor is to improve the content per vehicle, and this has been always our work. Post the COVID, we have learned from what we did in the past. And we right now are looking at not in terms of increasing particular component in terms of number of vehicles, we are looking at content per vehicle. So I think we have developed a lot of new parts in last -- over the last 12 months in terms of engine components, steering components and as well as actual components, wherein we have improved our content per vehicle. And this is going to be a continuous affair as long as -- because we feel that there is a lot of availability in the market in terms of improving contents from -- going from forging to machines and then to assemblies. So we are following that system of getting into more value-add products with the customers.

Okay. And do you see things changing with the electric vehicles coming? Will electric vehicles be using as much of your products?

Yes, we don't see any major supply disruption because of electric vehicles because any electric vehicle will be requiring steerings or axles. Only the engine is going to, and we do not have a major contributor in terms of engine.

As of now, what is your contribution from engine?

I think it's only about 2 components we supply for engines, the crank shafts and connecting rods. So they are not major contributors to us. And that also we are supplying only to LCV segment, so it's a very insignificant portion. I think maybe to hardly put a number, maybe 2% to 3% of the total revenue.

The next question is from the line of Aditya Makharia from HDFC Securities.

Yes. Sir, just wanted to know what is the outlook for Class 8 trucks in the U.S. because some commentary suggests that truckers are running short of inventory. I mean, they're running short of capacity, but yet the production isn't being ramped up.

Aditya, Class 8 trucks for -- till FY '23, we can safely say -- I mean, calendar year '23, not FY '23. Calendar year '23, we can safely say the market is going to be extremely strong, whatever we got feedbacks from the OEs over there. And basically, right now, the OEs are not able to ramp up because of the shortage of chips because of -- you may be aware that there has been a major shutdown in the Japanese chip manufacturing facility. I think that's the reason they have not been able to ramp up. But last week, we got the information that the plant is back in production. And I think in next 2 quarters, the chip production is going to match the required numbers. So we expect by December the things to normalize in the Class 8 segment in U.S.

So sir, CY '22, can they do 2 lakh, 50,000 units, the [ industry ]?

I think CY '22, I think, 3 lakh, 30,000 is the figure which they talk about right now, not even 2.5.

Well, so CY '21 must be 2.5?

Yes.

Okay. Got you. And sir, secondly, just one follow-up question is any update on the acquisition we were pursuing under NCLT, there was one company.

On the ACIL, it's still pending in the NCLT. And the courts are right now under COVID. They are just giving date and not taking it on priority. And we are just trying to push it, and we hope to get a positive decision in the next 3 to 4 months time on this.

Okay. And just one housekeeping question. In your presentation, you break up the capacity into forgings and presses. So I was just wondering what's the difference.

Forging is basically traditional forging that is a plant one that's the oldest plant. And the press is basically the latest plants which have been set up across last 3 years.

So this is a 16,000 ton press, is it?

12,500 ton press.

12,500, okay. So basically, your new forging capacity, you're classifying it as press because that is more for high-end work?

Yes, yes.

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

Congratulations for the great set of numbers. So my question is pertaining to the non-auto side, particularly railway and oil and gas, if you can share the detailed -- revenue details for FY '21.

I think, Dhiral, all the oil and gas industry is still going through a limbo. I think we do not see any major thrust right now from the oil and gas industry. In railways, last year, we did close to around INR 28 crores to INR 30 crores of revenue only because a major part of the year, the railways has shut. And this year also, we don't expect very big numbers from railways, while we expect railways to open up from October onwards in full-fledged phase -- way. But we don't see -- but we are very, very optimistic on railways in FY '23.

Sir, I remember very earlier, you were guiding around INR 300 crores kind of revenue from railway, right, for FY '23?

Yes. Capacity is already in place. Capacity is up and running. Samples have been approved by railways. Whatever samples we made has been approved. [indiscernible] also have been approved. So now we are just waiting for business to pick up on the railway side. Capacity for achieving a INR 300 crores top line from railways is already in place.

Okay. But you still believe that we can achieve this mark by FY '23 end?

Yes.

Okay. And sir, overall capacity, if you see, which is currently 90%, and you are guiding railway INR 300 crores, you are also one order from LCV segment. So you feel existing capacity would help us to deliver this kind of revenue growth?

The total capacity which has been mentioned is not including railways. Railways is basically fabrication capacity, which does not have any tonnage basically. So that number is not included in the tonnage side of it. And in terms of the new business win is basically for light vehicle, which whatever we have won and whatever we are in process of completing it, I think that has been included in the CapEx and which is going to get completed by August this year. And like Lalit in his opening call has already mentioned that around INR 50 crores CapEx, which is left to be completed, will be completed within this money. And we will be ready with the capacities for completion of going in terms of completing those orders.

So this INR 50 crores would be for PV, right?

No, LCV and PV.

Okay, okay. And overall capacity will be around 1 lakh, 87,000 by August?

Yes, yes.

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

A couple of things. One is, can you talk about the competitive dynamics? Also how you -- who were the competition against if you won these $25 million of orders?

No, I don't think we will be able to mention any competitor's name. It's customer's call ultimately. We will not be able to -- because in the international business, we don't come to know who -- because it's such a brand, globe, entire people compete to get these businesses. So we do not basically know who is the competitor in the business.

But what determines the success? How do you win? That's really what I'm trying to understand.

Basically, that's the commercial part of it and both technical part of it. We have been able to present ourselves in the way the customer likes what we are trying to do and what commercially we are -- have been able to show them, that is the only way we are winning the business.

Right. And this $25 million, can you split up between Europe and North America?

It's close to around $17 million to $18 million from North America and $17 million around in Europe.

Yes. And how many customers would you currently have in Europe?

We have, I think all -- as of today, when we speak after these order wins, we have all the customers who make commercial vehicles.

Right, right. And is there a strong visibility for growth in these? I see that it's only 8% of revenue currently. So could you get to say [ 5% ], sir, in 3 years' time?

No, I don't want to put a number to it, but we -- our marketing people are already on the job. Like North America has grown for us. Now our thrust is in Europe and South America. And both places, our marketing team is working aggressively to increase our visibility in both the markets.

Okay. Right. Great. One last thing on the financial side. Can you comment on the sustainability of the payables numbers? A fairly large number, so...

Yes, payable number -- or at this level of operations, payable will be like this only. To give you a word on -- you can see the number has gone up with the -- and there may be a little moderation, but it will be quite like this only.

So you will be able to sustain these levels?

Yes, yes, yes.

The next question is from the line of [ Subrata Sarkar ] from Mount Intra Finance.

Yes. Sir, my question is very specific on the capacity side. So we are already 92%. For FY '22, like what will be the capacity addition or like how much can we ramp up given the normalcy returns back into the like demand situation? If you can share the exact number in terms of tonnage and all this thing.

I think we'll not be able to share the exact numbers, but like Lalit has already clarified in earlier questions.

No, I'm talking only about, sir, additional capacity so that we can have...

Capacity, we have -- by August 37,000 tons will be addition in capacity total, roughly. So we will be at 1 lakh, 87,000 tons of the available capacity in -- by August.

Okay. So in the FY '22, this is -- this will be the total capacity addition? Or there is some other scope in terms of capacity addition?

No, this is the total capacity addition, which is going to be there by end of FY '22, 1 lakh, 87,000 tons is going to be the total capacity.

Okay. And sir, in terms of capacity utilization, if there is an adequate demand, like how much can we ramp up? Like we can go to 100% or something?

No, we -- hypothetically, I think with the demand and with the product mix, we can go to 100%, but I have never seen it happening.

Yes, so realistic number?

Realistic to 90% to 92%, we can go if the market resumes and we are able to clock the entire market cost.

Okay. So now sir, in last quarter, we are at 92%. So in that sense, we are actually right now with our existing capacity, we have operated at optimal capacity in last quarter?

No, 30,000 tons which you see -- if you stipulate in the full year, it is only 1 lakh, 20,000 tons. It all depends on the full basically product mix also at the time of demand. So we are looking at 90% of the capacity. But ultimately, everything depends on how the demand shapes up and what is the product mix at that period of time.

Yes, sir, that is we will. I'm talking about if there is no demand constraint. I'm talking about under...

If there's no demand constraints, we can go up to 1 lakh, 50,000 to 1 lakh, 60,000 tons in this year.

The next question is from the line of Abhishek Jain from Dolat Capital.

Sir, employee expenses has gone down significantly. It's just 4.6% of the sales in Q4. Is there any layoff employed in the past quarter? And I just wanted to understand, is this run rate will be sustainable in the coming year?

I think, Abhishek, there have been no layoffs because if you see the demand side, there is no layoff in last quarter. And what this number -- if the capacity utilization improves, this number is going to remain stable or go down. But we are expecting some wage hikes this year because we are not given any wage hikes in last 2 years. So this year, there is going to be some wage hike in absolute number. But in terms of percentage, if our volume traction goes up and volume in terms of demand goes up, in terms of percentage, I think it will still lower side.

Okay. And sir, what is the region of the sharp jump in other expenses? Or is it because of the higher freight charges? And will it be continued for the next quarter as well?

Yes, the sharp jump is due to only higher freight charges on the export side. And right now, it is continuing.

So for next 2 quarters, can we assume that other expenses will be higher side?

It looks so, looks so.

And sir, what is your machining capacity out of that total capacity what you have told around 1 lakh, 87,000?

Close to around 70% is machining capacity.

Okay, sir. And my last question is related with the defense business. Are you looking some opportunity there?

No, we are not looking at any defense opportunities.

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

So 2 questions. You talked about the U.S. Class 8 looking good till the end of '23, okay? Can you give us what color you're seeing in the European side? Are you seeing European demand turning up and hopefully break-ins from our side into that and that resulting in better numbers coming out of Europe?

I think the Europe demand is pretty stable or on the upward trajectory only. I think we will need to wait for the complete Europe. I think while they are commenting that by July, they are going to completely open up post vaccination, I think we'll need to wait for more clarity post that. But as of now, it's a stable. And demand side, it's very stable, and it's looking upwards only. But in terms of numbers, I think it's very difficult to give you numbers as of now looking into the current situation.

Okay. Second question is this whole steel price hike all over the -- throughout the world, how much of that is dampened demand for our products globally, in India and the U.S.?

I don't think, I think, with the OEMs are able to pass on some of the price increases of steel to the end consumer. And with the demand looking so strong, as of now, we don't feel there is any going to be effect of steel price increases in the demand side. We need see how this shapes up in next couple of quarters before we can really comment on it.

Okay. And last question from my side is when the senior management, top 5 of you all, get together to discuss the business side, outside looking matters, what are the 1 or 2 things that is taking most of your attention and time?

Basically, right now, most of the time is being taken with the COVID management only. Top management is setting how -- and second is we are looking at considerable reduction in terms of our debt. These are the 2 things which are in focus right now when the top management discusses how the demand is going to be in the domestic industry with this COVID surge and how long this COVID surge is going to continue. It is the welfare of the employees, also all our employees so that they and their families stay safe. And second is how to reduce the debt if the market continues as such in this year.

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

Sir, I have a question again on order win. You highlighted new orders from the LV side primarily. Anything similar on the MHCV side either from India or from North America or any new client addition on the MHCV side?

No, I think there is no something significant to inform to the investors right now on MHCV side.

And secondly, sir, on the new order wins again, I'm not asking about the exact number, but directionally, in terms of margins, where do you see this new order wins margins side, that would either be at par or slightly better?

I think this is going to be slightly better in terms -- because it's entirely exports and it's our first entry -- major entry into this segment. So the margins and the volume looks pretty good for us.

So despite [indiscernible].

Mr. Mitul, sorry to interrupt you. This is the operator. The audio is breaking from your line, sir.

Yes. Am I audible now?

Yes, sir.

So despite your lower ramp-up initially, you don't see any margin dilution?

No, we don't see any margin dilution going forward.

Sir, lastly, on this non-auto side, apart from railway, anything meaningful we are expecting from the non-auto side in next 2, 3 years?

The non-auto side, actually, we are doing a lot of activities right now with the tractor and earthmoving equipment, but we are treating that into auto sector itself. So I don't think anything significant is going to come in non-auto except these 2.

The next question is from the line of Prabhat Anantharaman from B&K Securities.

So you did mention that the underlying demand is looking strong with the domestic MHCV segment and that in the next 15 days or fortnight, you will see things stabilize in the domestic markets. My question was, sir, could you share some thoughts on what is the current -- the inventory level in the system? Because that would give a fair idea of how it would get consumed and the new production starts coming into the market.

I think it's extremely -- basically, we are also working on presumptions. Basically, to say very clearly that fortnight, it is extremely difficult. We are not trying to say any number. We think that in next fortnight, the market, with the COVID numbers, what we see in the previous week and reported and how things are going pan-India, we feel that in next -- by this month end -- and we at least look at the dealership to open up and the manufacturing facilities of the OEM as well as the ancillaries to open up and the oxygen demand to stabilize, wherein we can use -- start using oxygen. That will give an impetus to the new vehicles. In terms of what is the vehicle inventory at the dealer or the factory, and I think it's extremely difficult right now to give a number to it because it's extremely volatile right now.

But directionally, could you give a guidance on is it higher than the normal average or lower than that?

No, I think because most of the ancillaries are closed, so a lot of vehicles are standing in at the OEM side because of nonavailability of few parts. So it's extremely difficult to give what is the pipeline inventory of ready vehicle, ready to ship to the year end. It's extremely difficult to give those numbers.

Right, so bulk of the inventory is currently in the WIP stage and in the finished good stage?

Yes, yes, probably. We feel so.

The next question is from the line of [indiscernible] from [indiscernible] Securities.

Quick question, really. Is there a possibility of the semiconductor shortage situation dragging out for the longest period of time and the possible impact of that on closing out your existing orders?

Semiconductor shortage, I think, is not at playing an active role in terms of MHCV. But while, yes, there is a difficult situation right now in Europe as well as U.S., but what we heard from OEMs that the manufacturing facility in Japan which was not able to produce has come back to production. And in next 3 to 4 months, things should stabilize for them. And probably, that is the reason I said the third quarter onwards, we should see much better numbers in Class 8 trucks and both in Europe and U.S.

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

Would really, really appreciate if we could get some color on the receivables and payables days between March 31, '20 and March 31, '21. The payable days have really gone up a lot, so if we could get some specifically some color on the payables, that would help us in really understanding the sustainability of the working capital.

See, Sanjay, on the payable side, certainly, we have been able to stretch a little bit from the creators on the payable. But again, raw material side, it's always 90 days payment terms, so it remains like that. If you look -- see, if you compare year-to-year, it is not like apple-to-apple because the -- again, I earlier also said the turnover has gone up in the last 2 quarters. And if you look at the last year, it is consistently around INR 250 crores, INR 270 crore kind of things throughout the year. So numbers are looking high in terms of if you compare full year. If you compare last quarter only, then it looks -- it will be a little down.

So, so far as the receivables minus payables day is concerned, how should we look at it, sir? Your inventory is pretty okay. I mean, there is...

In the data, it's also pretty okay. Sorry, I got -- data, if you look at the INR 559 crores, last year number, it was -- there was no TATA Motors bill discounting their number in the last year because all the money from the TATA Motors is gone due to lockdown. There was no outstanding in data. This year, it was already INR 68 crores. So if you look at the last year total data, it was INR 302 crores, and that was around more than 3 months of data. This -- if you look at this quarter also, it's around the 3 months of data only.

Right, right. And the payables, how should we look at it? How should we look at the thing from the payable?

The payable are right to be -- there may be a little bit moderation from hereon. But if you'll be looking at this kind of number, you look at the payable. If you look at the INR 400 crores kind of outstanding, you can look at -- remain at the payable side also at this level of operation.

INR 400 crores, right?

Yes, yes.

The next question is from the line of Basudeb Banerjee from AMBIT Capital.

I just wanted to understand, sir, like many competitors are showing their capability in terms of differential gears or differential gear assembly also. So yourself being anyhow through forging product, making and focusing on parts per vehicle, as you said, so any capabilities in terms of differential gear and differential gear assembly for you, sir?

Mr. Banerjee, I think we will not be able to specifically say the component or particular assembly. But like I have said already, we are looking at first started from forgings gradually to machining and now to assemblies. We are also gradually improving in terms of going up the value chain in terms of getting into assemblies.

And any progress -- as a few quarters back, you were highlighting that you are also focusing on passenger car forgings as such. So railways, you highlighted. So can you highlight the focus in terms of passenger?

Yes, we have a major thrust in passenger vehicles, and I think our capacity is going to be in place by August '21. And you will be able to see the numbers in passenger vehicles from third quarter onwards.

And both exports and domestic focused or any specific?

Both export and domestic focused.

The next question is from the line of [ Rishabh Makhija ], individual investor.

Congratulations on the good set of numbers. Sir, just one small question on the new order win that you highlighted, which will come in, in FY '23. This $25 million of revenue which you guided, will this be on an annualized basis over -- like would it continue for the next 3 years after FY '23 or 5 years? Or is it just a onetime contract? If you could give...

No, it is a 5-year contract annualized $25 million business. It's a 5-year contract.

And do you expect this to continue even after the 5 years? Do you expect to keep getting orders to the similar [ tier ]?

I cannot comment beyond 5 years right now. Whatever contracts we have got is for FY '23 starting and for 5 years. And beyond that, we will need to see as we approach those things. We have not yet spoken on with the customer, so we cannot say right now because it's a 5-year contract right now.

The next question is from the line of Kush Joshi from Kitara Capital.

Sir, I just want to understand that how much capacity we'll be adding for passenger vehicles in tonnage terms?

No, I think we have not, Kush, any specific -- marketed the number capacity. In terms of capability, yes, we will be able to make passenger vehicle components going forward from August onwards. What we have not earmarked any capacity, we will look at whatever options we get from customers. We are looking at all options and to engage our capacity. Whether it is MHCV, CV or LCV or passenger vehicle, whatever business is lucrative and we get to occupy our equipments, we will go ahead and do those.

Okay. My second question is with respect to a couple of quarters back, we've entered South American markets. So how the market is looking like? And when we start getting orders from that particular market?

We have already started shipping our material from last 2 quarters to the South American market. And I think market is doing well. But as India is struck with COVID second wave, you are aware that Brazil is also affected by COVID wave. So we presume that demand -- underlying demand is very strong, and we will continue to be on the upward trajectory in the Brazil market.

So once the situation eases, then you can see good traction in that segment?

Yes.

And my last question is with respect to debt levels. So now we have highlighted that we start repaying every quarter some amount for repayment of debt as a part of the strategy.

We have not -- Kush, we have not said anything in terms of part or every quarter. But overall, in the year, we are looking to deploy 1/3 of the cash whatever we earn to repay the debts.

Annually?

Annually.

Okay, okay. So -- okay. So our working capital cycle will be in the similar lines. It won't get stretched further even if we get more the export business.

No.

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

Thank you. Thank you for that handover. We -- on behalf of the management, we would have provide a word of thanks to all the participants who have participated in the call today for Ramkrishna Forgings Limited. We wish you a good week. Thank you very much.

Thank you. Thank you, everyone.

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