Rico Auto Industries Limited (520008) Earnings Call Transcript & Summary

Ladies and gentleman, good day, and welcome to Rico Auto Industries Limited Q1 FY '21 Earnings Conference Call hosted by S-Ancial Technologies Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Bhave from S-Ancial Technologies Private Limited. Thank you, and over to you, sir.

Thank you. Good evening, everyone. Welcome to Rico Auto's Q1 FY '21 Earnings Conference Call. On behalf of S-Ancial Technologies, I'm welcoming you all. From the management, we have Mr. Arvind Kapur, chairman, CEO and MD; Mr. O. P. Aggarwal, Chief Adviser, Finance and Accounts; Mr. Surendra Singh, President and COO; Mr. Rakesh Sharma, Chief Financial Officer; Mr. Sandeep Rajpal, Vice President, Marketing; and Mr. B. M. Jhamb, Company Secretary. Now may I request Mr. Arvind Kapur to take us through his initial remarks, subsequent to which we can open up the floor for the Q&A session. Thank you, and over to you, sir.

Good evening. This is Arvind Kapur, and my colleagues are also there. We are all on different locations, and -- but I'd like to go forward. The first quarter was very eventful in the sense that we had lockdowns and all the issues that one can actually think of. And -- but when the market opened and the lockdowns opened up, there was -- we were surprised to see that the way the market actually reacted and the way the pull for our vehicles in the two-wheeler industry as well as the four-wheeler industry suddenly started picking up. And we thought there would be a lot of stocks of -- because a lot of material was sold at the last days of -- the BS-IV materials or stock was sold, we thought that overselling must have taken place and there will not be a pull in the market for BS-VI vehicles, and also because the BS-VI vehicles are obviously more expensive than the BS-IV vehicles. So we were expecting the market to be slow. But to our pleasant surprise, there was a sudden pull. A lot of challenges actually came up because we all had to do a lot of monitoring as far as the COVID was concerned, the temperature checking was concerned, a lot of standard operating procedures were defined by the Ministry of Home Affairs as well our local district administration. Besides that, Maruti, Hero and all of us, we have actually put a standard operating procedure together so that we -- all the companies actually follow the same system. So we all -- in the first month of May, that's when we started opening, we had to do a lot of preparation for the tunnels and for checks at every point and also recording, et cetera. And so it was challenging. But then the other challenge was that a lot of labor that actually works in the plants, be it in Haryana or be it in Chennai or be in our other places, there's a lot of migrant labor which is there. And because of the uncertainty, many people have actually gone back. And so when we opened, we opened with about 65% -- average 65% people. But then gradually, we did call some of our old people back and also we hired new people too and started training them. And challenge was more mainly because the customers were demanding more and they wanted to -- because there was a pull in the market. And we had a couple of conference calls with the customers where even the dealers were there. And -- so there was a lot of pressure from the dealers that we are -- the customers are demanding. Despite the fact all of India -- all over India, all the places are not opened. There was only partial opening and gradually -- but then over time, there were areas which are, again, declared on lockdown. And so this happened on -- kept on taking place quite a while. And so this actually impacted the production that could take place in the month of May and in the month of June, primarily because -- for -- if I take example of Hero or Maruti, we are suppliers, supplying to them from all over the country, centrally located around Gurgaon for the Gurgaon facility. But for the other facilities, like in Gujarat, there would be many in Gujarat, but there would be many who are supplying from Chennai or Pune to the Gurgaon plant or Haridwar plant, so that, the cross supply takes place. So that's the way our supply chain works. And so -- but because of the lockdown that is taking place in various cities, that actually impacted the production. Otherwise, we could have actually produced more in the first month itself. So it was a combination of various things which happened. But the good problem that we had was that the demand was more than whatever we were supplying. So that was a good problem to have. And for the month of May, it was okay. And month of May, there's a turnover of about INR 45 crores. And month of June, we did a turnover of about INR 99 crores. And July, fortunately, has been better. And in fact, for the month of July, we've actually -- now that's the next quarter coming in, we've actually crossed whatever we had done last year, FY -- what we had done in FY '20. In FY '21, we've actually already crossed whatever we had done. We are still behind the FY '18 figures, but just by about close to 6%. And -- but I think in the month of August, we should exceed those figures as well. That is '18 and '19 figures, both we should cross. So fortunately, the market has been good. In the two-wheeler side, there's a lot of pull in the market. In the car side, Maruti is under pressure to make more and under all the constraints that we have for social distancing and also quarantining a lot of people in case there is anybody who's found with COVID, and also, if he's got temperature. So despite that, there is -- productions are getting more stable now, and there is a pull. And [Audio Gap] the unfortunate side is the commercial vehicle. Commercial vehicle is really down and the three-wheeler is absolutely -- almost dead. There is no demand for the three-wheeler at the moment. And if you look at our portfolio, we are -- bulk of it is two-wheelers and four-wheelers and commercial vehicles is less than 6%, 7%. And the three-wheelers, we just started making the engine components for Greaves. And so at the moment, the total contribution by -- for the three-wheelers was nearly about 0. And -- but this year, I think we had put in about 0.5% or 1% contribution from the three-wheeler side also. And the tractor market is doing good. At the moment, we are not supplying to tractors, but we are negotiating with various companies for supply of the tractor components. Now coming to the export side. What really amazed us was the way the market picked up for the exports. The -- whatever stocks we had, we normally maintain 4 weeks stocks in our warehouses in Germany, England and in the U.S., there are 2 warehouses there. And the stocks really started getting depleted very soon. And why the demand came up? We were -- there are various possibilities. One is that there was change in models primarily because certain components were probably not available for various countries and also various suppliers because of the lockdowns in Spain and France and other places, and we filled in that gap, and -- so much so that the customer -- some of the customers actually started airlifting the material to their warehouses. So we are fortunate that the exports are good. The commercial vehicle, the Tata Cummins, where we supply for the engine parts, that is the market which is actually down. Otherwise, I think things are shaping up well. And the month of July -- month of August, we should cross whatever we did in 2018. And after that, I think we will be much beyond whatever we had done in 2018. So what we are targeting is that -- say, our turnover, we expect that as per our budget, the turnover would be about INR 1,417 crores. That's what we had targeted for this year. And we hope to achieve this because there are a lot of new orders which have also come in. Last time, I did mention that we have got the total order book for the program value. The new order book is close to INR 5,900 crores, out of which INR 4,400 crores was new business. That's the program life I'm talking of. Program life normally will take 5 to 6 years depending on who we're supplying to. The replacement of the current components is about INR 1,500 crores. So it will -- when that turn into an annualized basis, it comes to about INR 965 crores for the new components and INR 355 crores for the replacement components. It's about INR 1,320 crores for annualized business, but the increase in turnover would be INR 965 crores. And this would be in the peak year. And the peak year, the previous orders, I had mentioned, those would be -- some would peak next year, some would go the year after that. Now in the -- there would be some components which would also go into '22, '23. And ever since the opening up of this -- this is up to -- what I mentioned was up to 31st of March. Now after 31st of March, we've been fortunate to get further orders. These are all new orders that we've got from our customers. And Sandeep, you'd -- you can fill up wherever I'm missing out anything. And those orders are to the extent of about INR 409 crores new orders that we have got, Sandeep?

Sir, the program value for the new orders is INR 1,500 crores.

Yes. But annualized comes to?

Annualized comes to INR 310 crores.

INR 310 crores, that's the annualized. Now these -- some of them would start -- we will start delivering this year itself. That is the aluminum deal that -- the order we got from Hero family. And there would be some components that would start by beginning of next year. And some would start in '21, some in '22 and some would also start in '23. But the peaking by and large will be '22, '23. That's what we estimate. And we hope the market remains the way it is. And we should be able to achieve the targets that we have given. On the CapEx side, we had mentioned earlier also, this year, we've done a lot of CapEx in the last 2, 3 years. And that CapEx is actually helping us to increase our turnover now because the customers have -- the new customers that we have put in, the PSA and Kia, they are doing fairly well, and we are also taking the advantage of that. This year, the CapEx that we expect is -- it'll be less than the total depreciation. We are expecting around INR 40 crores, INR 41 crores of -- that sort of -- that would be the expenditure on the CapEx. That would also include the maintenance CapEx that we would do. The exports is turning out well. We've got new customers also. And in the new customers that we have -- one is the wheel business we got from Hero. That's the old customer, but new component. Then Atlas business has also gone up. And earlier, we were supplying to 100 and 110cc. Now we're also supplying for 125cc motorcycles. And soon, we would also get into the other motorcycles. And the new customer we've added is Knorr-Bremse. This is mainly for exports, and that should be another good market that we would develop. Sandeep, would you like to add anything?

No, I think you've said -- the main thing is the peaking of these new orders, new customer addition of Knorr-Bremse that we have done. And these are export orders for America. And this is just the starting for this business, and there is a huge availability that is possible or opportunity that is there for adding many more similar product lines from Knorr-Bremse. We are also trying to tap into the tractor market also. And our company, Rico Fluidtronics, they are also bidding for a lot of new water pump and oil pump business, and the new Hero business from the alloy wheels, there is a huge potential with company looking at import substitution. So I think all this augurs very well for us.

Okay. So the import substitution of the wheel that we're talking of is primarily from China. Like China, there is -- China would -- was actually supplying almost, I think, about 50% to 60% of the total aluminum wheels which are required for the two-wheeler industry in India. And now I think everybody is under pressure to actually replace that and be more Atmanirbhar -- produce it in India rather than import from China. So that -- we are fortunate that we have those capacities, and those -- and we were making those components. These are safety components. And it is -- it really takes a long time to really penetrate a customer. It has taken us more than 3, 4 years trying to get into Hero. But fortunately, we have finally got them. I think we can open it for questioning if...

[Operator Instructions] The first question is from the line of Chandra Govind from Ashmore.

Mr. Kapur, this is Ashwini here. Hope all of you are well and keeping good health, and these are challenging times. A couple of questions. Sir, if you look at the March '21, you mentioned the number INR 1,400-something crore is the budget for this year. I didn't get the number. Is it INR 1,470 crores or INR 1,417 crores?

INR 1,417 crores.

Okay. INR 1,417 crores is your revenue budget for fiscal '21?

Yes, yes. We will exceed this. That's for sure.

And how much would be exports out of this in the current year given the kind of strength?

Yes. Yes. At the moment, what is -- the business that we are talking of is -- now this is a direct export, I'm talking of. I'm not talking about indirect export, which takes place through Renault Nissan and through the other customers. The direct export that we are doing today is -- earlier, the direct export was in the region of between -- it varies between 25% to 30%. That's the variation that we used to have, direct. And indirect, all put together, we were 35% to 37% that we would end up. Now this direct has actually gone up to 32%, but that was partly because there was a heavy demand for exports, and that export demand is going up further and the domestic demand is much for Hero and Maruti and Kia, and PSA. The other people are down. And so if the other market also starts going up, I think we would be still in the region -- we would remain in the region of 32% plus/minus 1%. I think that's what we think for this year. This is the direct export I'm talking of.

And your margins in the direct export business are much better than what you get from your domestic component supplier?

Yes, yes, yes. Certainly, certainly. And -- but in this, we've had some issue as far as the logistics are concerned. Now because of the COVID, the shipping lines, et cetera, et cetera, they've had -- normally, it takes about 4 weeks for our materials from warehouse to warehouse from India to Europe, and about 6 weeks from here to U.S. It's taking almost double the time because ships are missing ports and skipping ports, and some countries are not allowing their ships to come in. So all that we are grappling with. So as a result, we'll end up doing a lot of premium freight because we can't stop the customer lines. Now doing the customer -- now it becomes a separate side with the customer or separate that who's going to bear that cost. And should -- actually, they should bear the cost because this is force majeure, it is not our fault that the ship that miss -- or they were not allowed to [Audio Gap] or dock-in in a certain part of U.S. So all that is happening. But fortunately, we have not -- we've not stopped the lines of our customers, and we are meeting the demand whichever way we get the material there. Despite -- even the air flights are restricted diesel but we are managing to get us up there. So now it's getting better, and we are shipping both by sea and air, and balancing it out so that we build up stocks there and -- but our fight with the customer carries on that they need to bear the cost of the airfreight because this is force majeure.

Because last year, your margins took a big hit because of your component supply to -- for the export market, where you were forced to airlift some shipments because of production sort of bottleneck at your end.

Last year, there were some production constrains but this year, fortunately, we've done away with those production constraints. And now we were very excited that our margins are going to improve this year. And -- but for this -- but we will get over this also. I think by the end of this month, end of September, we'll get over this also. And we would have settled with our customers also as far as these freights are concerned. Last year was our fault. So we took a hit on that. But this year, it's force majeure. That's what the discussion is.

Right. And sir, these new programs that you spoke about, out of which INR 4,400 crores of new orders, plus INR 1,500 crores of component orders resulting in annualized new sales of INR 1,320 crores. Now some of this would actually be in lieu of sales that you're already making, right?

No, no, no. Let me correct that. INR 4,400 crores is the new component. So this is -- and INR 1,500 crores is the replacement components. Replacement are replacing the current components that we manufacture for the -- for different models. So annualized, it comes to INR 965 crores as new components and INR 355 crores as replacement components. So the value which adds up to the balance sheet is INR 965 crores.

Okay. So to put it in a simple way, by March 23, if nothing happens, no new orders come in, March 23, your revenue should be somewhere in the region of INR 2,500 crores?

Yes. INR 2,500 crores plus, because there are other components, which -- now this is what I mentioned in March. After March, we've got further orders, and some of them were taken this year, some in next year and some in '21, '22. So this INR 965 crores new order that I'm talking of is -- was based on 31st of March.

So yes. Because after that, you've mentioned that there is another INR 310 crores of annualized sales based on orders received post March?

Yes.

So that adds up to roughly about almost INR 1,300 crores, if I add the two together?

Yes, yes, absolutely.

So INR 1,300 crores plus INR 1,400 crores, so INR 2,700 crores, INR 2,800 crores by March -- partly in March '22 and partly in March '23?

Yes. We have the dates planned out, and we can be more accurate. And...

Sir, I'd like to add here. See, this peak of various programs will happen at different time zones. It is not possible to put it all in '23. Even there are some programs, which we have already been nominated, which we started end of '23 and they will ramp up to peak in '25. So it's a mix. Plus, in the next 2, 3 years, some of the current programs will also die down. So when we talk about new business and we talk about replacement, replacement is directly you can replace with -- as the running programs go down, it goes up. They start the ramp-up. But new has a development cycle and has a launch cycle, start of production and ramp up. So I just would like to clarify that as we're talking and the numbers that you are speaking that in '23 will be, current year, INR 1,400-plus crores, it's not going to happen like that. Yes, there will be already some of the programs, which will start to produce and start picking up, but exactly the numbers will not match.

But -- and in the process, we do pick up new orders also. And then we also have opportunities where -- like to Hero, the volume goes up, we are trying to increase our share of business. That is not factored in these.

Sure, sure. Sir, how much more CapEx would you need to put into ground to realize these programs? Or all this CapEx is already done?

See, there are -- in some cases -- the replacement ones, by and large, there would be, I think, just balancing equipment that might come in for the replacement, the ones which are -- and -- but there would be some balancing in the gauging and dies and molds and those sort of things would be required in any case for all new components if they are replacement and/or if they are absolutely new additions. That would happen in any case. But on the new component front, we are working out the data with -- each individual project, we do have a project detail. But we've not consolidated to see what would be the total thing, but we can come out with a figure on that.

The next question is from the line of Sandhya Jain (sic) [ Sanidhya Jain ] from KRChoksey.

Sir, this is Sanidhya. I hope everything is fine. It's good to hear from you that things are getting back to normal.

Thank god, they're getting better.

Yes, sir. Sir, I just wanted to ask, with respect to our investments in Metalart, what are our key business objectives basically driving this decision?

Okay. Let me tell you about Metalart, okay. It's a very -- okay. We were partners -- we have a joint venture with FCC Japan. We had a joint venture, which we separated a couple of years back. Guptaji, which year did we separate?

In the year 2014/'15 itself.

Yes, 2014/'15, we separated, because we were together for almost a span of 29 years with FCC for making clutches. So in that arrangement, we were making clutches, certain class of clutches and whatever new clutches came into the market for two-wheelers, they were taking the orders. And we were 50-50 partner, so all went well till -- now FCC is a Honda company. And Honda had -- after separation from Hero, a couple of weeks later, they started putting pressure on all their technical supplier -- the technology givers to move out of local joint ventures and start setting -- and be 100% independent. So they took over in 2014/'15. There was a moratorium for 2 years that we were not supposed to manufacture -- okay, add on new clutches. We were producing clutches, one class of clutches, but beyond that, we were not allowed to do it. When that period got over, and then we started doing. We spent a lot of R&D. I think we spent about close to INR 20 crores on R&D. And we also hired some technical people from Japan, and we started designing big clutches ourselves here. Now all this while, we have friction materials that we were getting orders from FCC, and they were supplying the material. And once we separated, they increased the prices. So there was a lot of pressure that they would put on us, and the customer would not give us that price increase. So all that started happening. And so we started developing this friction materials separately, and we kept it totally under wraps without talking to anybody. We made the investments, but we caught hold of a small company which was actually making friction materials. Now those guys are making asbestos-based friction materials which was not acceptable to us. It is a banned item and -- but in the open market, people are producing that. So we had to convert the total plant into non-asbestos and get a new recipe with the help of our partners, with our technology suppliers. It took us almost 2.5, 3 years to develop that, to prove it because every time you change the recipe, we've tried -- the test is about 10,000 kilometers on the road. Then for the live test, we run it for about 30,000, 40,000 kilometers to see how well the friction material does. And then the testing is also done by the customers. So it's taken us over 2 to 3 years to actually redesign the clutches with the new friction materials that we -- now this is to protect ourselves because what is happening is they would -- FCC would increase the rates whenever they wanted. And to Hero, when they supplying directly, they would reduce the rates. So I mean, like, that, I think anybody would do that. And so just to protect ourselves, we had to get into this. And so we did it very secretly. And now finally, after our approval has taken place, and for the first 2 years, we -- 2 or 3 years, we actually supplied it to the aftermarket and also got a feedback. But we did -- we had -- we bought, I mean, 10 new motorcycles. We had people running up and down, driving 10,000 kilometers in all the terrains possible to make sure that what we have -- product we have is as good, if not better than whatever we were buying from FCC. So -- and clutch is the heart of the motorcycle. And the efficiency of the clutch -- efficiency of the motorcycle actually depends on the clutch. And so it took us a long time to do it. And now the friction material is -- the main thing is the design of the clutch, of course, but the friction material plays a very, very important role. For that reason, we had to make this investment very secretly. And now, of course, we need to protect ourselves, we need to take over the company. And so this is what we have in plan.

Yes, sir, and that's great. That's great, sir. And also I would like to know any developments on the alloy wheel side. So what can be the upside which we can see in the coming 3 to 4 years? Because we already made a lot of investments for the alloy wheels. So can we see something around INR 1,000 crores in somewhere down the line, 5 years down the line from...

No, no, no. One minute. Let me just do some calculations. The investment we did was to increase the capacity to -- the main things are -- in an alloy wheel, there are 2 main things. One is the paint shop which requires a huge -- we require a huge capacity; one is the heat treatment shaft and heat treatment of the continuous furnace. So there, we increased our capacities to close to 4 million. And because we were expecting the orders from, of course, to increase from Bajaj Auto and also from Honda and from Hero. But Hero took longer than they -- before they released the orders. So we created the capacity. And today, at the moment, we are producing about 1.2 million, 1.3 million. That's what we were utilizing at the moment. Now it immediately doubles to about 2.5 million to 3 million in any case with Hero order coming in. And we are confident that we will now touch the limit of 4 million that the capacity we have built up. And once we cross 3 million, then we would have to buy new furnaces, et cetera. And on this capacity that we have, I think we can be close to about INR 450 crores to INR 500 crores, and that's what we are estimating. But seeing the demand for the wheels, we will have to expand capacity and you will find this project independently doing about INR 1,000 crores.

Okay. But we already have the space and the plant ready for the expansions if required?

For 4 million, we have the capacity. Up to 5 million, we'll be able to produce in the same facility. And -- but for further expansion, I think we'll have to think differently and set up another plant. And also closer to the customer because wheel, it takes a lot of space, and so there's a lot of logistic costs also. So the customers, to save the logistic cost, they want us to be closer to the plant, so we'll probably do that also.

Okay. That's great, sir. So sir, you've mentioned that the three-wheelers were contributing approximately 1%. So what will be the bifurcation...

No, no. Earlier, it was 0. Earlier, we were not supplying to three-wheeler at all. And now -- Sandeep, what would be the value that we had factored for Greaves? Sandeep?

Yes, sir.

What is the value we had factored for Greaves this year?

Wheels?

Sorry, sorry, sorry.

Greaves?

Greaves, yes.

Greaves, in terms of the overall business turnover?

Yes. For this year and next year?

This year, we had originally targeted around INR 18 crores to INR 20 crores, sir.

INR 20 crores. And next year?

Next year, almost similar, but we are in discussion with some new programs. So once they materialize, this will go up.

Okay. Now -- but this year, we will -- see -- what do you think with the three-wheeler market trend that is there? So actually, this is around 1.2% or 1.5% or whatever we are talking of our turnover.

Yes. So this year, if the market is contracting by 30%, 40%, so it will directly impact us also on the same line, sir.

So say about -- I would say that we would be, say, 50%?

Yes, around, I think, INR 10 crores, INR 11 crores, INR 12 crores, we should be there.

Yes, yes, yes. So that is the impact that would be there in this total. But we would compensate that with the two-wheeler program that we have and -- by taking a larger share of the business.

So sir, what will be the bifurcation between two-wheelers? So suppose say, 40%, 50% will be our contribution from two-wheelers? Can we say that?

No. It would be -- at the moment, because the two-wheeler picked up much faster than the car, because the car people were slower in starting off the production. Maruti was very slow, and Kia was also a little slow because the opening and the safeties and others that they were doing. Hero was the fastest. They ramped up the production very far. So it is going to keep on varying from month-to-month. At the moment, we might be at about 40%. But I think, average would be about -- we should be -- 35%, 37%, I think, we'll remain.

And that will be like 90%, 100% from Hero itself?

Heros and Bajaj and Honda, so that's...

Okay, okay. Sir, my last question will be, approximately how much are we planning to do the CapEx? So the additional CapEx and the maintenance CapEx, what is the...

The total CapEx -- see, the total CapEx we will be under -- less than the total depreciation that we have, which is about INR 60 crores. But I think we should be in the range of about INR 40 crores. But that also includes a lot of dyes and all, dyes and fixtures for our newer portfolio et cetera where we would be investing. So I -- we are, I think, hopefully, around INR 40 crores, INR 45 crores. That's where we will be, including the maintenance CapEx.

The next question is from the line of Jehan Bhadha from Nirmal Bang.

Based on the current gross block and our capacity, what is the maximum sales that the company can do? Now the -- if we ignore the dates of future orders, et cetera, just based on, like theoretical capacity, what is the kind of top line we can do?

The -- it depends on the type of component we produce. There are some components which give us larger value. And there are other components which give lesser value. And we had estimated that it could be in the region of about INR 2,000 crores, plus/minus INR 200 crores. That would be depending on the type of component that we put in, if we don't make any investments.

Right, right. Okay. And at this peak utilization, what can be the margins?

Then the margins go up dramatically. It's above 15%.

Okay. Because, sir, historically, we have not witnessed this kind of margin, right, like in the past cycle, FY '18/'19?

No, no, we have not seen that. But this COVID period, one thing that has taught us is that there's a lot of cost cutting that has taken place, there's a lot of efficiency improvements that have taken place. The mood is entirely different at the moment. So it's a different ballgame. You'll see a lot of changes that will come about. Even in the next -- this current quarter, you will see the change.

Okay. Great. Okay. And so who would be your top most customer? And what will be the mix of revenue from that customer?

Single customer is Hero undoubtedly. And then, of course, we have various customers...

So in terms of percentage of revenue, how much would Hero be?

32%, 33%. I don't -- it'll keep on varying month to month...

Right, right. And that's fine, sir. Okay. And #2 will be?

This quarter is an exception. And this current quarter, I think, would be more stable and will be closer to whatever the reality is.

Right, right. No. Okay. It's like even in FY '20 terms, so Hero would be around 30-plus percent, and the #2 would be?

#2 would be like BMW, Renault Nissan, GKN, there are a pool of customers like that. And these are export customers and these are all prestigious export customers. PSA, so these are the large customers that we have.

Okay. And sir, last question. In terms of electric vehicles, is there any threat to any of our products?

See, if government mandates electric vehicles to be produced from tomorrow onwards and ban these vehicles, then of course, we are -- we will be in trouble because all the components change. But having said that, we -- this year, I think our turnover in the electric would be quite substantial for the component of electric vehicles. And this is mainly for BMW and PSA. And next year, you'll find it doubling again. We are deep into -- because there are special alloys which are required for the electric vehicles. And we are already supplying -- we are a single-source supplier to BMW and PSA for these components, and also Renault for some of the components that they make for electric vehicles. So we are deep into it. And -- but having said that, it will take about 15 to 20 years before there's a complete switch of the -- even more. And -- but we will also see that by 2030 or 2035, there will be a general growth of the -- in the auto industry. Today -- okay, the best we have done is about 3.6 million or something. I'm talking of the cars alone. And we expect that by 2030, we should be in the region of about -- people were estimating 12 million, but I'm estimating at 8 million. And even if 25% of the cars are electric, which is going to be -- which is very unlikely, the demand for the IC engines should have gone up even further. So this will carry on. And there will be a gradual shift that will take place to the electric vehicles if at all the electric vehicles click. But there are other technologies which are coming in and -- which might also impact electric vehicles. So we are also in those. And so we are playing our cards very safely. We cannot stop investing for the IC engine mainly because the demand is actually going up. And for the electric vehicles, all this is done as a priority for us. Whenever we make an investment, that is a priority.

The next question is from the line of Vaibhav Sanghavi, an individual investor.

Sir, I have a quick question. You mentioned that your Q2 numbers, right, the Q2, July, August is panning out very well, and you expect that to either match or surpass the sales of Q2 2018, right?

Yes.

So in September 2018, your operating margins were also pretty good, like, it's 11%, 12%, right? Do you expect that level of margins now? Or margins will be still subdued?

No, no, margin would be -- you see the -- like, I mentioned that because of the COVID, we did face a lot of changes in our systems, et cetera, and a lot of possibles that we try to bring about. You see, we will be around that figure only, and we want to see those figures, and you will see the change coming about.

Got it. But at the same time, right, in the COVID-impact notes, which you have uploaded, it also says that due to the premium fade, right, which you are experiencing currently, the cost of shipping is quite sort of higher right now. And you also mentioned somewhere in the call today earlier that you are still negotiating with the customers to bear the cost. So right now, we are bearing the cost, but the negotiation is happening with the customers so that, that can be offloaded to them. Is that true?

Yes. Yes. But you know the COVID -- the first target is to satisfy the customer. Being a single source, we can't stop the line. So that we -- reputation we built up with them over the last 12, 14 years of our dealing with them, be it BMW; be it GKN; be it Cummins, overseas; and Detroit Diesel or be it Caterpillar. So that is a commitment that we've always stood by. And so having said that and -- so many times, the situation comes where they pick up both material or there's a shipment delay or there is some issue that comes out, and we've always negotiated with the customer and they are very fair. So -- because this is a long-term relation that we are talking of. So with that confidence, we actually take the plunge of doing it. Otherwise, if they were not fair, we would have said, "Boss, that will -- and then we will be ashamed." So that case doesn't come because they are very fair people that way.

Sure. So when you're talking about better margins for Q2 onwards, you are already taking into account that this cost will be beared by the customers?

We've taken partly being borne by the customers, not fully borne by the customers See, the worst situation is partly borne. And -- but if he totally bears it, then of course the margins will improve even better.

Okay. So it will -- it can be even better than 11%, 12%?

Yes. Yes. You'll see the impact this quarter and more so in the next quarter.

Understood. Quickly, one more thing. On the Dharuhera plant, right, there were, what, 3 retirements, et cetera, were given to the employees. Is that all done? And I think there was also cost associated with that exercise. Is that cost still going on in the Q1 and the Q2?

No, no, no. Yes, let me tell you. In Baroda, we cleared the accounts in July for 118 people, and the total cost for VRS there was 541 -- INR 5.41 crores.

Sorry, INR 5.41 crores?

Yes.

That was in which quarter?

July. July.

Okay. And it's all done now or still something pending?

It's all done now. And now there are still about 100-odd people there, and that, we've got some production going on there, and soon, I think those will also be settled. But we hope to use the plant for -- that's a large capacity plant. And say, without making investment, we would like to use that plant for -- hopefully, for the project which are coming up now.

Okay. Sir, could you -- lastly, could you just give some color in terms of the export demand improvement in terms of the month-on-month improvement in Q1?

April was dead in any case, but we still had export of about INR 4 crores or something like that. And Sandeep, would you fill in?

Yes, see if we talk about our key export customers like PSA, Jatco, BMW, Cummins. So for April, almost everybody was completely shut. May, some of the customers started in a small way, like a single shift. But GKN also, being one of our key customers, was almost closed for the full month of May also. PSA also started towards the last -- in May. Cummins was running at slow pace in -- started in May, but the ramp-up has been very gradual. So overall... [Technical Difficulty]

Sandeep, we can't hear.

Period. But June onwards...

Sandeep, Sandeep, Sandeep, last sentence is a missout. We couldn't hear you.

Sir, basically also, apart from the quality, you can also give some kind of numbers that -- as you said, in April was INR 4 crores, can you give numbers for May and June?

Numbers-wise, I don't have offhand numbers for these...

Approximately [Foreign Language].

Yes, approximately around INR 10 crores per month going forward for GKN and BMW.

[Foreign Language] not individuals, just give total.

Okay. We will be around INR 30 crores in July and similar numbers in August, slightly better than that in August.

These are only the direct exports, and we're not talking of the indirect exports.

Indirect ones, yes.

The next question is from the line of Chandra Govind from Ashmore.

Sir, if I look at the depreciation for the quarter, right, at INR 14 crore versus last quarter of INR 20 crore, was there any accounting change? Or is it any structural change that we're...

No, no. See, thing is, while we never used our plant, we've taken on one-shift basis.

So from next quarter onwards, it should reach back to...

If we run the plant full scale, we'll take it [ fiscal ] basis.

Okay. Okay. And how many people took VRS claim in Dharuhera? I missed that number?

118.

118. And another 100 people are left as of now?

100 are there, but they are still being used for production.

Okay. They will continue, in that case.

At the moment, that is what the plan is, but we'll see what shapes up.

No, I'm just trying to analyze what would be the incremental cost for the VRS?

[Foreign Language] By and large, we've incurred the heavy coats.

The next question is from the line of Aditi Aggarwal from Kotak Mahindra Bank.

Sir, I wanted to know broadly if you could share the breakup or segment-wise for the sales value from INR 15,000 crores that we expect for FY '21?

Can you repeat your question again, please?

Sir, like, we expect sales upon INR 1,470 crores for this year. So if you could probably share segment-wise breakup, as in terms of what percentage approximately would be from, say, PV, what upon some 2-wheelers and so on?

2-wheeler would be -- Sandeep, what, 40% this year?

Yes. 2-wheeler will be close to, I think, 35%.

No, including the wheels?

Yes. Including the wheels, it may go up slightly, you can say, around 37%, 38%; and fast cars, would probably over 50%; and CVs will be less than 10%, that is for sure. CV and 3-wheeler included will be less than 3% -- less than 10%.

CV, in any case, for us is about less than 7%, so it...

Yes.

Okay. And what are our margin expectations for this fiscal in terms of operating margins?

We are targeting 12.5% for this year, despite the first quarter being slow, and so we have a lot to recover. And -- but I think our people are determined to little bit now. We have all the branded players. We've cost cutting, et cetera, is in place. And we are seeing levels of -- we are trying to use more from less, with less number of people and also lesser number of machines to be added and improving the efficiency. But there are a lot of changes actually happened. And then some automation that took place last year, we are actually getting the impact of it this year.

Okay. That's great, sir. And lastly, if you could please share what is the debt outstanding as on date, broadly?

Long term is INR 235 crores and short term is INR 174 crores.

[Operator Instructions] The next question is from the line of Bhaskar D, an individual investor.

My question is around actually defense related because now Government of India actually is ramping up -- they are actually giving orders to Indian companies. So how we are looking at the defense side? And also, is there any ramp up moving to railways also as we actually -- as you mentioned in, like, 2 quarters back, like, you are also looking at the railway side, also?

See, we have been -- we have a separate company by the name of AAN, A-A-N, which is looking after only defense, and we have been on it for the last, almost 5 years, and we keep on doing work here and there. But let me tell you, atmanirbhar is very important, but atmavishwas is also more important for the people who missed this year. And it takes -- it's so slow, so slow despite the fact the government is putting everybody under pressures to come into start manufacturing here. They know that we have the capability of doing this, but they need to trust us to actually do it. And so, it's so slow -- now to give you an example, we filled up a tender for CSR, and now they have withdrawn the tender. And for same lame reason, they are withdrawing the tender. And why are they doing it now? So I was like, for 3 years, you -- it's a very fairly large tender. Total value is about INR 1,000 crores a year for 10 years. That is the period that they would lock you in, but now they have just withdrawn the tender. And we had a bank guarantee of INR 105 crores. And you would say, "What the hell is happening?" So those guys need to have that atmavishwas that they can start producing in India. And they need to process, I think -- but it is happening, and the government is pushing, but the people making decisions, there, it's late. Now 3 years and no valid reason, and we are fighting for it. Let's see, what happens. We are in defense. We are doing it, but very slow process.

Okay. One last question from my side is how much will be the improvement on year-on-year basis of electric-vehicle component? Because in U.K., I see, like, a lot of people actually stopped buying diesel or petrol, more of -- more people are moving to electric vehicles. Within 5 years, like, it will be more electric vehicles than any conventional diesel and petrol vehicles, at least, in Europe side. So in that sense, like, how you are improving or -- the electric-vehicle components in our company?

See, the -- if you look at the sale of electric vehicles in Europe, there is a lot of compensation that the governments are giving and -- to the extent of EUR 4,000, EUR 5,000, EUR 7,000. That's the compensation that they have given to the electrical-vehicle owners. And rightly so, in case they want to promote this, I think that sort of compensation will start coming up. And we -- and at the moment, of course, also the battery cost, the cost of the vehicle was higher, and that is probably the reason that this was being factored into the whole thing. And so the success of the electric vehicles is globally, wherever they have been sold well, it's primarily because of the subsidy that the governments are giving. And in India, the subsidy is so low, that is one; number two, in Europe, they have also looked into the CAFE norm. CAFE normal -- that what is total carbon monoxide and other pollutants that one company generates in its total portfolio. And they have given them a very tough target to reduce it or there will be penalties in billions of dollars. So that is the other thing which is driving the electric vehicles in Europe at the moment. And so people would like to have at least 10% of their or 15% of their -- they go up to 20% of their total portfolio in electric vehicles, they are being subsidized at the moment, but also with a threat that the CAFE norms would impose a lot of penalty on these makers. So they are under pressure to actually produce more. And so that's how the electric -- in India, they do come up with individual policies, like, Delhi has come up with a policy, Maharashtra and other places are coming out. But the fact is the infrastructure is not so great at the moment. It will build up. It will take some time, but it will -- Indians -- we are a reactor society [Foreign Language], then we react and start producing sale. That will happen. That is okay. And -- but we are already in the electric vehicles. So we are supplying to BMW, which is a global company, and Renault and PSA for the electric vehicles, and we'll see continue to spend. So we are okay. And -- but the IC engine is also expanding, by the way.

The next question is from the line of Sandeep Patel from Sandip V Patel & Co.

I think -- my main question is, who are our main competitors from India?

See, we -- in our portfolio, we -- in our various plants put together, we make about 500 different types of components. So 500 types of components and -- now one company making so many components is rare. So we have maybe about 50 or 60 different competitors who are actually competing with us in various fields. So -- like, in the engine blocks, we are the largest in the country. And -- but we have, [indiscernible], which is a Brazilian company, which set up a small shop in Chennai, which is our competitor. Then there is one competition. We have a competitor in Pune also. And -- but we are producing almost about 50% of the blocks which are required in India, the aluminum blocks. And we are also in negotiations with other customers who supply the blocks. So we have competition. And in the smaller -- if I come to -- if I talk to, in particular, the allogen and die casting components. The smaller weight components, we have many mom-and-pop shops, which also compete with us. And -- but in the larger machines, then the numbers reduce. There will be 2 or 3 people who are competing with us. So that sort of a competition we have.

No. But if the total market valuation is taken, what is our percentage of share in that, I mean, approximately? I understand because of the...

It's very, very difficult to judge. And -- see, the aluminum market will keep on growing. And see, the engine block that I referred to, earlier, those were made of cast iron; and now they are still made of cast iron, but many companies have been -- new companies, the Bharat Stage -- BS VI that we are talking of, they all are going into the aluminum component, aluminum block. So there's a shift that is taking place. And also for the management of the fuel norm, the -- you need to light weight the industry. So there are more and more aluminum components, which are coming up, and so -- it's a very interesting time to be in the industry. And in many cases, we also help them to convert from the iron to aluminum components. So this is a continuous process, which is carrying on. And in -- on portfolio, if you look at Rico's portfolio, our ratio of aluminum to iron is about 75-25 now, including the aluminum deals I'm talking of. So 25 is iron and 75 is aluminum. Earlier, there was a time, which was 50:50. So this is a mix that keeps on taking place, and -- but the bigger vehicles, commercial vehicles, they are still on iron side. So there, their requirements are entirely different. So it is very difficult to judge what is the total that we -- what percentage do we control.

The next question is from the line of Vaibhav Sanghvi, an individual investor.

Sir, you mentioned, the overall target about INR 1,417 crores this year, right? In the last quarter, we have done about INR 146 crores, which means for the next of the 3 quarters, we need to do at the run rate of almost INR 425 crore. Is that something really doable?

No, no. We will exceed it, that's for sure.

Okay. And I missed, sir. I think someone -- some participant asked the question about the EBITDA margin which you target for this year. I missed the answer. So what was that?

Despite the first quarter being slower, we are still targeting 12% to 12.5% this year.

For the entire year? Okay.

Yes.

Understand. Sir, the Dharuhera VRS, which has been taken, I think, overall, I understand, last year, the total cost was some INR 20 crore, INR 25 crore around, right? And then in Q1, we have...

Yes. One minute. VRS was not that. That was -- INR 25 crores was the loss that we had in Dharuhera last year.

Sorry, it was what? Loss?

That was a loss that we had there. But VRS for 118 people that we had given in the month of July, that is INR 5.41 crores.

Sir, what about the last year? This is only in this July, right? But what about the overall cost so far?

We have declared those figures, but...

Okay. No issues.

No, 1 minute. Let me see if we can get this. Rakesh, would you have the figures?

Yes, sir, 1 second.

VRS in last year?

Yes, yes.

In Dharuhera?

Yes. Yes. You can continue with the talks. I'll just give you figures in 1 minute.

Sure sir. My question was that...

[indiscernible] something that we had done in Gurgaon.

Yes, that was my actually follow-up question, because I think last time you had mentioned that we are also planning to do something around Gurgaon plant, so...

Yes. We had done that also. So we'll give you the total figure in case you followed us just now, okay, otherwise, we can...

Sir, total VRS last year was INR 6.8 crores for the group, as a whole.

Okay.

Okay. And this year is all -- right now is 5-point something, but then you expect some more by end of this year.

But I think major has already been done, and there would be some here and there and that, of course, always carries on.

Got it. And sir, against this, what is the savings or the advantage you're going to get?

From Dharuhera?

Because of -- because -- yes, yes. Because of the shutdown of the Dharuhera as well as the employee cost, which we will be saving, could you give me some idea that what will be the overall savings this year as well as next year?

There is -- I'll tell you. Last year, there was a lot of airfreight and premium freights that we have incurred. And this year, there would be some, but it will be lesser. Besides that, the loss of about INR 25 crores that we used to incur in Dharuhera, this year we feel that it would come down to maybe 1/4 or about 1/3. And so that would be saving. [Foreign Language] Hello?

Yes, sir. You may please proceed.

Okay. Those are the savings that -- those are direct savings. Besides that, what has happened is that we are producing more from less. The number of people that we are engaging at the moment, they are producing more than whatever before. This is primarily because of the migrations that took place, so hiring new people, so new methods and new things have been done. So a lot of savings there also. So you will see an over pictural -- pictorial change. You will see from this quarter itself -- this quarter that we are working in and also the next quarter you will see the changes there.

The next question is from the line of Aditi Aggarwal from Kotak Mahindra Bank.

Sir, I wanted to know about the company, Metalart Friction Private Limited, wherein, we have invested INR 5 crores, right, in the last...

No, no, no. We've not invested INR 5 crores. We have requested the Board to clear INR 5 crores in that site, which would be done probably in 2 or 3 years, but at the moment, they -- that is not the requirement. And they -- I had explained the total -- the lead that was necessary, that is the new friction element that we had developed. If you want, I can repeat the whole thing or I can send you a note on that separately. And this is to protect that flush business, which is close to INR 100 crores a year. And we were being put under pressure by the supplier, which is a Japanese company, which is -- which has almost 70% share with the global 2-wheeler market. And now we have developed a friction material which is as good and it is asbestos free, and -- which we would be selling to Hero and the other customers as well. And along with it, there is another material which is required to be developed, which is a paper type. One is cog base and one is a paper-type friction material. Now we were taking this clearance for the next 2, 3 years, because in that, we will have to have a paper plant also, a small paper plant we had to -- of capacity about 2.5, 3x. But at the moment, we are trying to defer that and trying to see whether we can get that paper to our specification layer from outside. If that comes up, then we don't need to spend. I don't think we need to spend over INR 1 crores on this thing. But this expenditure is going to preside over INR 100 crores, INR 150 crores of business that we are doing on clutches. I'll send you a complete note on this.

The next question is from the line of Siddharth [indiscernible] from Anvil Wealth.

Yes, I just wanted to know one thing. Basically, in terms of components for electric vehicles -- hello? Am I audible?

Yes, yes, very clear.

Yes, yes, yes. Basically, in terms of components for electric vehicles, where are we in terms of number of components that we are sort of offering to clients versus where can we reach? So how many more electric components can we be present in with our clients?

Sandeep, what would be our electric-vehicle component turnover this year?

This year, overall, it should be over INR 75 crores, INR 80 crores, sir.

And that's this year? And last year was under 1%?

And last -- so this year, it will be, you can say, close to 5% approximately, 5%, 6%.

Yes. Yes. And so that's the way we are growing in the electric-vehicle component, and we will keep on expanding as far as electric vehicle is concerned. But you must remember one thing, electric vehicles means lightweighting. You need a vehicle which is light because it's running on electric power, and we are in aluminum. So wherever there is an opportunity, we will be the first one to actually do it. So unfortunately, in India, what we were doing is that the people are importing everything from China, assembling, and then selling in the market, which -- this is the 2-wheeler industry I'm talking of. And -- but because of charging facility and the subsidies which are very difficult to get from the government, it is not getting so popular so far. It will get popular once there is a facility for charging, et cetera, and the prices come down. And as the numbers go up, we will be there. We will certainly be there. And like, for the export components, we are a single source of light to these large companies for electric-vehicle components.

Okay. Okay. So also, I wanted to understand the same aspect from a product portfolio perspective. So if, for example, you can do 10 products, and you are doing 5 as of now, there are 5 more products where you can sort of be present with your existing customers. So what is that opportunity in terms of product portfolio expansion?

Now since we are not into electrical vehicles, we are setting the whole thing. Every company has got their own different class and type of components that we are doing. But the main motor and the engine and the main transmission that the electrical vehicle has, we are making the housing and everything for that in any case, and we will further expand it. Now there are further components like the battery compartments, et cetera, which are large, huge components, which we will also do. Only thing is that since they require a lot of -- they -- when you are shipping, you are shipping a lot of air. There the buyer would be close to the -- where the vehicle maker is. At the moment, in India, there is none. There is -- okay, not to scale. So it's very difficult at the moment. But we are looking at various possibilities to see what combinations can be made.

Correct. So basically, that product development is happening at our end, and that will be offered to customers over a period of time?

I would say, product identification is happening.

Identification. Okay. Okay. And what -- how big could that overall opportunity be? As in, how many components we can do? What is, let's say, the overall value of what we can do and offer at a certain market share?

See, there are a lot of changes which are happening in the electric vehicles. First the battery compartment itself was made of plastic. And now they have gone into aluminum. Now similarly, if you look at the wheels, et cetera, they are all getting into aluminum. The breaking system also you're getting aluminum, then the knuckle, et cetera. There's a lot of things which are getting into aluminum. So all these are happening. And there are very special alloys which have been developed. And we are actually in those components studying them at the moment. You must realize one thing, when we started exports, the first person that would ask -- our customers overseas would ask us is, "Are you supplying to somebody in India?" So by then, of course, we were supplying IC engine components to customers like Hero and Honda and Maruti, et cetera -- and Cummins in India. So for us to sell components for IC engine overseas became easy after we started selling in India. Now the electric-vehicle components, we got in primarily because of our reputation with our customers, because we have dealt with them for the last 15 years or 20 years. We've been dealing with them, like BMW. They have been our costumers since 2007, '08, and we've been consistently expanding our capacities and portfolio with them. And -- so they have the confidence and they actually gave us the order. Then for the other people, we were dealing them in India, Renault, so they accepted our electric portfolio. So it is not easy to sell if you are not selling in India. India, if there are no customers, what do we do for the electric vehicle. But still we are on it, and we do manage to -- our teams are very, very passionate about it, and they manage to convince the customers.

Okay. Okay. Great. Finally, I just also wanted to understand this from a strategy perspective. In terms of diversification out of the auto comp industry, are we looking at that aspect as well?

See, we keep on looking at that, but it's going to be primarily into manufacturing of some engineering products. And we are looking at, like defense, I had mentioned, which has been a very, very, very slow process and we have been working for the last 5 years. And that's -- in any case, we know that it's a 5 to 10 years cycle before the defense actually comes in. And now with the pressure, once the government do the -- people took place orders locally, I think that would -- let's hope that gets in time. So I hope they get atmaviswas to place the orders in India. So everybody works in it, yes. And to be honest with you, auto industry is one industry which is a true representative of localization. The localization, the way it took place in the auto industry in India, was amazing. And that was because the government had rejected the imports. And we have done it, and we have -- now we have global players, we supply to the world. And same thing would happen in the defense one day. The only thing is that sticks [indiscernible] will take care.

Correct. Correct. And any inroads in the general engineering sector or the other ex defense non-auto?

We do lot of things in plant. Like, our die-making is a very big activity. It's very, very big. We are probably the largest producer of dies in the country. And we are looking at the possibility of having dies in India and overseas. And then we make very special machines, very -- okay, like 18-axial, 16-axial CNC machine, which are for high volume and very accurate machines. At the moment, we make, for example, for ourself only, for our customers, like, BMW and GKN, those sort of customers. And we are looking at the possibility of why not make these very special. They don't like the regular CNC machines. We are talking about this 16 axial and 18 axial CNC machines. So we keep on looking -- expanding the portfolio. But the first thing is to satisfy our own sales and then look at the outside market.

Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.

Thank you so much. And yes, right -- is there a question?

No, sir.

Okay. Okay. Well, I thank everybody. Thank you so much for taking out time. And despite the fact the first quarter was a very challenging quarter, but a lot to learn and a lot of things got exposed and a lot of things actually happened. And I think a lot of learning for us, and you will see the changes even in the next quarter. And hopefully, I -- we only hope that the shutdowns don't happen again and again. Otherwise, the market seems to be good. But if at all the government decides to shutdown again and again, which always is a possibility because of the numbers that we are detecting on a daily basis. If that happens, that could actually bring down the market. Otherwise, we think that we will exceed -- far exceed whatever our budget is for this year and exceed whatever we had done in 2018. So hopefully this year goes on smoothly and people remain healthy, and we find a vaccine for this -- for COVID soon. Thank you so much, everyone. And you're free to write to us. We will always answer, get back to you on anything that -- any questions you would have. Thank you.

Ladies and gentlemen, on behalf of S-Ancial Technologies Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.