Time Technoplast Limited (TIMETECHNO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Time Technoplast Limited Q1 FY '21 Earnings Conference Call, hosted by ICICI Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Jigar Shah from ICICI Securities Limited. Thank you, and over to you, sir.

Thanks, Faizan. On behalf of ICICI Securities, I welcome all to the conference call of Time Technoplast to discuss the Q1 FY '21 results. From the management, we have with us today, Mr. Anil Jain, MD and CEO; Mr. Bharat Vageria, Director Finance; Mr. Sandip Modi, Senior VP, Accounts and Corporate Planning; and Mr. Hemant Soni, Head Legal and Company Secretary of Time Group. I would now request Mr. Anil Jain to start the call with his opening remarks, and then we can proceed with Q&A session. Over to you, sir.

Thank you very much. Yes. Good evening to all of you. My team has already been introduced. We are here essentially to talk about our results for Q1 FY '21 and outlook for the rest of the year. The results have already been announced, but I would still like to walk you through quickly on some of the financials. I may say that this -- these are by far, the worst results we have ever declared. But then, of course, you know the reasons why it was so. But I would just put it in a word of caution here that these numbers are not comparable, however, with the corresponding period last year as we only could work part of Q1 and therefore, there are a steep decline in overall turnover. So during Q1 FY '21, the net sales on a consolidated level was INR 475 crores as against INR 868 crores. EBITDA was at INR 54 crores as against INR 127 crores, PAT was minus INR 12 crores as against plus INR 44 crores, and cash profit of INR 26 crores as against INR 84 crores. Of course, we know the reason it was essentially because of COVID-19 pandemic during the quarter, the results of Q1, like I said, '21 are not quite comparable. So we saw a overall de-growth in the turnover at about 35%. The volume decreased by 43%. Balance is just surprised by raw material. EBITDA decreased by 57%. The EBITDA margins were at 11.4% as it is 14.58%. So there was a double whammy that we had a lesser turnover and lesser percentage of EBITDA. And due to low volume and fixed overhead cost cut, salaries and wages, rent, insurance, et cetera, the performance was affected. You would say that the performance, both our established products and value-added products were affected. The value-added products value decreased by 42% as compared to the previous quarter. This is lower than de-growth in established products, which was at 46%. The share of value-added product has been 21% of the total sale in Q1 '21 as against 20% in Q1 FY '20. India and overseas business, where we had the Indian business at 59% as against 41% -- what is it?

India 59% and overseas 41% as against 70% and 30%.

Yes. So we are 59% India and 41% overseas as against 70% and 30%. Essentially, the overseas business we are consolidating for the month of January through March. So there were -- so that was relatively in that COVID period closed early 1 month. But in India, we had longer COVID period effect. EBITDA margins, of course, have been more or less the same, both for domestic and overseas business. Segment-wise, of course, we will answer as we have the questions. But probably, the worst effected is our PE pipe business, which any case was not the best period for it because it is affected by the monsoon. And on top of it, we have the government -- state governments who would finance despite that water projects, there are virtually no funds available with them. So we have to be very careful about whom do we supply these pipes to. So the total debt of the company was about INR 816 crores as against INR 832 crores. And with this, I would like to answer the questions, please. Thank you.

[Operator Instructions] The first question is from the line of Keshav Garg from Counter Cyclical Investments.

Sir, our share price is about -- sir, is lower than what it was in 2007, so 13 years back, whereas our net worth has increased multiple during this period and so have our profits and our debt-to-equity is totally under control. Sir, so -- and sir, on the other hand, our return on equity, sir, this, I'm talking about FY '20, I'm not even talking about first quarter. Sir, and our return on equity is like just above 10%, sir. So basically, sir, if we do a share buyback -- if the company does a share buyback, then, sir, I mean, it will be the best option for shareholders and the return on equity will also increase. Sir, so what do you think about that?

So we are aware of the fact that ROC is low. I think we have been doing well until the last year. And then we had this problem. In the last year, of course, we did not really improve a great deal on ROC. But this year, we were expecting, in fact, as you see our turnover in June is increasing, the profit is also increasing. Let us hope, we should -- I don't know about this year because nobody can predict as to how things are going to look at towards the end of this year. But I'm sure we should see some positive results coming in from the next year onwards, especially because we have now a new product, which is fairly high margin. And the value-add businesses will also have a larger share. Bharat?

Yes. In March '20 -- sorry, my name is Bharat Vageria. In fact, ROC in March '20 was 13.5%. In spite of that, 20 days was COVID period. You are aware in the last quarter Q4, there was the shortfall in the revenue because 10th March onwards, the business was not -- customers not allowing to send the consignment. In spite of that, 13.5% ROC was there in March '20 as against 16% was in 2019 -- 2000 -- March '19. So as Mr. Jain has mentioned to you, apart from this current financial year, that original ROC will come back in the previous period ahead.

But sir, what I'm saying, sir, I'm talking about return on equity, sir, which is basically profit divided by network multiplied by 100. Sir, so for example, our net worth is over INR 1,800 crores. And in FY '20, our profit was INR 170 crores. Sir, so basically, what is the return that shareholders are getting on the net worth? Basically, the net worth belongs to the shareholder and the profit belongs to the shareholder. So profit by net worth. Sir, so you will see that it is less than 10%. And sir, so I mean what is the point of running such a big company, putting so much effort when we are barely earning the cost of capital. I mean, if shareholders would put this money in some fixed income also, they can generate around 10% returns. Sir, so that is the basic point.

It used to be very good, but this has come down.

Yes. Yes, in the period because the company has done the expansion in the last 3, 4 years, which yet to give the generation of the revenue. So it will improve the balance period ahead only.

Sir, and so what is the capacity utilization overall right now as we speak?

So it's around the 60%. In India, it is 60%, overseas it is around 65% to 70%.

65% to 70%.

Sir, so -- and how much can we go provided demand is there? Can we operate at full capacity? Or it is like lower than that?

Yes. Sorry.

We did about INR 3,500 crores last year. We are planning to see a growth of about 10%, 12%, but we were not really looking for any major capacity expansion. And I would like to bring that we can go up to INR 4,500 crores or thereabout.

INR 4,500 crores or thereabout.

Okay, sir. With our present...

With our present capacities. There could be some small debottlenecking required. But otherwise, with that capacity, we can go to that level.

And sir, are we also, sir, exiting some of the old products where margin has decreased or we are carrying on with them also because of this ROE is falling?

We have now been recommended that some of the businesses we will be exiting. Of course, we've been trying -- we've been trying it for a while. One is our battery business. That is a business we'll exit. Also, we have some business for medical products, syringes and masks, et cetera. Fortunately, there is a good demand for such companies. So we will exit that business also. And then we have a legacy business that is molded furniture. We have been -- we have decided to exit from that business also. These are, of course, small businesses, not a great deal. But we, of course, is the largest one. So these are the businesses that we'll be exiting that we have identified already.

And sir, on the working capital side, also, sir, can something be done to reduce working capital? Sir, so I can see that our debtor days in FY '15 was 69 days, and now it has increased to 84 days. And sir, similarly, inventory turnover, which used to be 4x is now nearer to 3x. Sir, so I think on multiple fronts, we need to work sir, including increasing utilization, increasing high-value products and decreasing working capital. Sir, so do you see that happening?

Yes, we do see that happening. As a matter of fact, if you look at the old period and the new one, one thing that has happened is that we have added a business of PE pipes. Now that is a business which is -- which has a long working capital cycle. Secondly, in the former time, we were in -- getting the fixed price for polymers from our suppliers, right, for 3 months period. So we didn't have to carry physical inventory at that point in time. But now these people have changed the price on a weekly or a fortnightly basis. And considering the fact that we gave a fixed price to our customers for a 3 months period, it becomes imperative for us to carry the physical inventories we do not want to get surprised by the raw materials. So that's the reason why you would find that the working capital has actually gone up. Bharat?

Yes. In fact, I would like to add further as far as working capital part is concerned, you are aware that in 2018, RBI has earlier large saving was available, that had been stopped. So creditors levels have reduced. In fact, we were trying our best to increase the vertical cycle. But apart from this current year, I think it should improve from the next year onwards. Because this year, you all are aware that as far as return margin is concerned, we are trying our best to recover. As far as considering our product is essential, we are assuring that there will not be any provision account on the bad debt because all customers are the sound and the relationships were more than 20 years, which is of the customers.

So that has -- but your question is as to how we can reduce the working capital. And one point that we need to underline is that our value-add products, which we are working on, are all shorter working capital, mostly your cash and carry. So therefore, as the percentage of these value-add products goes up, you will find proportionately, the working capital will not increase.

Okay, sir. And sir, for this year, what kind of CapEx are we looking at? And also for the near future, I mean, maybe next year also?

I mean, you know that we have planned a fairly large CapEx this year. But after this COVID has come in, we have slashed it down. And I can say that we will not exceed the capital expenditure more than INR 100 crores. We will be within that. As you know, almost INR 85 crores or so is our on maintenance CapEx, et cetera. So virtually, we have put complete break on capital expenditures.

Sir, and since you are exiting the low-margin products and you're increasing value-added products. So the proportion of value-added products, which is around 1/5 of our turnover, sir, by when do you foresee this exceeding 50% or even exceeding 1/3 of our turnover?

Interesting question. Probably, you saw our declaration or announcement with regard to the composite cylinders for CNG, right? Now that is a business, and that was basically for cascades. And we are also getting the approval for CNG -- Type-IV CNG cylinder for vehicles, onboard application as we see it. Those 2 businesses have not only a large business potential, but also have a good margin to operate it on. And I'm sure they will -- they should ramp up quickly enough. Let's say, for example, cascades, which we already have got the approval, even today, there is -- there are a few tenders for mobile refueling stations. There is a policy in front of me, Government of India Policy, whereby they would be seen for cascade itself, close to about 600,000 cylinders in the next 4 years -- 3 years' time. And the value of that is almost INR 3,000 crores. So let us see even if we get 30% of that, that we should really be in a sweet spot. But I would like to think that cascade, the cylinders are on onboard application, which is buses, trucks, certain cars, especially Maruti Suzuki, there are several big cars which run on CNG. May I remind you that for the cascades Type-IV cylinder, we are the only company who has been given approval for locally-made cylinders. And when it comes to onboard applications where we have cleared almost about 85% of the test, only one test is remaining, for which we are waiting for a rig to come in. So by end of this year, even onboard cylinders will be available. And I did not tell you that the demand for the cylinders is going to be fairly large. If you remember the statement that Chairman of Maruti has said that in 2023, '24, they would be making some 4 million vehicles and at least 25% of them are going to be on CNG. So it's already talked about 1 million cylinders at that time. So again -- and this has been done with the 3 or 4 years of hard work that has been put in without any technical support from outside. So it's been done within the company, and we not only have met the standards, the international standards, but we have exceeded them. So it's -- these businesses take off. It will provide us the growth on one end and of course, the margins on the other one. And most of these businesses are on cash-and-carry basis.

Sir, I understand the Supreme Industries is also manufacturing the same kind of composite cylinders that we are manufacturing. Sir, so I mean, sir, how is the competition over there?

No. We are right now making composite cylinders for LPG. And the new one that we are trying is CNG. Just to give an idea to you that the LPG cylinder can burst at a pressure of 67 bar, when it comes to the cascade cylinder, it has to withstand burst pressure of 750 bar. So it's a different product altogether. But I don't know really, even in LPG cylinder, we don't see Supreme in very many places. So I have no idea what's happening. But we are right now doing LPG cylinders and doing pretty well on that one. But LPG and CNG are 2 different product groups.

And sir, with OEMs like Maruti, et cetera, sir, I mean -- sir, are you sure that we can maintain this cash-and-carry format and also some origins because auto OEMs, so they are known to squeeze their suppliers?

Yes, they do squeeze their suppliers when they have the other supplier available to them. So there is nobody else who'll manufactures it in India. And if they have to import these cylinders from outside, a, the approval itself will be quite long and probably it will cost them about 1.5x of what we would be offering them for.

Okay, sir. And sir -- also, sir, in your -- most of your products, sir, is there some import-based competition?

For CNG cylinders, we have 2 people that we know. One is in Norway and other is in South Korea. But in LPG cylinders, there are about 3 or 4 manufacturers worldwide. But it looks like from the data which we have, we are #2 already in the worldwide, and that market is being expanded. Just to give an idea, we are now exporting our cylinders to more than 33 countries. Of course, India is still an exception, but we don't sell anything in India. But we are expanding the market. And every time our customers are coming back with the bigger requirements. So they start with one container load, then they go to 2, 3 and then this is how our numbers increase.

[Operator Instructions] The next question is from the line of Jigar Shah from ICICI Securities.

I wanted to know what is the ground situation currently in July and -- I mean, what was the situation in July and August? And how it is going to be in September, October in India specifically? And another question would be on MOX Film. How did you do it in MOX Film in Q1, in India?

Okay. I'll answer the first question first. You see in the first quarter, we had almost 1 month of complete lockdown and then we gradually started moving up. In some cases, we could have production and some other places, we still had a local lockdown, et cetera. So it was pretty uncertain. And that situation continued partly for the month of July. And from August, we started seeing things improving. Fortunately now, the local lockdowns have been prohibited. But then, we were -- we are faced with another problem that is availability of labor. We virtually locked out the entire migrant labor, and they have still not returned. So we had to recruit fresh people and then engage in training them up. I would expect that in Q2, we should see vis-à-vis Q1 both, that should not be the bases but vis-à-vis Q1, we should see an improvement of about 25% to 30%.

25% to 30%.

You see, though our customers have started the openings, but they also have the same problem that we have that do not have enough labor. So they are not running it with the full capacities. And there is a supply line situation, where we are now getting some of our inputs. So I think things are settling down. I would expect that from September onwards, things should improve. If you ask me Q3, we should come close to our last year, if -- but subject to the conditions that we have, the COVID vaccine, and we get our customers coming back in full force. But we certainly are -- we are certain about Q4 because by that time, things would get settled, and probably the vaccine would also be there. Because right now, our workers are hesitant to come over for the reason that the number for COVID patients are increasing by the day. Even internally, we also have situations sometimes that we have workers coming into factory. And then it was found that they were COVID positive despite of we all are taking full precautions, and the local authorities to take the lockdown for 2 or 3 days depending upon where we are. So right now, things are still moving towards normal, but Q3 part and Q4, we expect things to come back. Interestingly, however, and it's something that we have been reading in the newspaper and watching it on the TV, there are lots of companies who want to move out of China and not because they have any problem in China, but it is because their customers are not willing to buy things from China, especially in chemical industry. And we are now finding that these chemical companies are moving out of China to some of these Asian countries. Of course, India, the multinationals are increasing their capacity or bringing in some products, which otherwise are being manufactured in China. But the new companies in India are still hesitant to come. I believe they still are not able to get over these processes and formalities that need to be completed despite of ease of doing business. But we are seeing a good number of companies coming into Indonesia. Also, we are seeing some in Thailand, Malaysia and Vietnam. So few of the countries where we are seeing that the companies from China are moving in. Of course, the owners are the Chinese, but they have a local name and the local partner and they think this way, they would be able to export their products as was being done. In India, we expect the growth, especially in chemicals, automotive also should come back to normal in Q4. So right now, it's a bit of a mixed bag, but this problem will, in the long run, support us. Because if companies migrate out of China to some of these Asian countries, we are present in all the places. So we will benefit it because of our presence and market leaderships in those geographies.

Okay. And sir, MOX Films in India, how did you think in...

Yes. MOX Films. Sorry, I completely forgot. Yes. So we have done...

Last year, this was -- Yes, last year, in fact, MOX Film, we did -- we had did the business of around INR 120 crores. And this year, in the Q1, we did around INR 25 crores. I think this is because of COVID, otherwise, it would have much better than this.

Okay. So have you seen recovery in July, August, September or something like that?

Yes. MOX Film, we did some -- because the rains have been prolonged, so mercifully what we lost in Q1 probably partly will be recovered in Q2.

Okay, okay. And sir, in terms of composite cylinder, are you seeing Bangladesh again opening up and our moment happening?

I really think -- I think they have opened up. Their land border was closed. And Saudi has started supplying. In fact, I'm pleased to tell you that in the last month itself, we have supplied 100,000 cylinders to Bangladesh. Even the customers there were not ready because they had no people in the factories. And also they have started seeing them back to us. We have a good order book position for composite cylinders. And I guess it will not be possible to have the same numbers as last year because the 3 months having gone, but I think we should be closer to that.

Okay. Okay. And sir, in composite cylinders, you mentioned last quarter that you have got some new customers from Europe. So what is the situation over there?

We are supplying them, like I said, they start with a small quantity, a container or 2 containers. In fact, we have now got a new order, which is for yachts, the CNG cylinders. But let's say, the tone changes from 1 day to another, they take their own time and gradually. But the fact that we are present in 33 countries, that itself is quite remarkable that our product is available in these so many markets and then therefore -- so even we supply to 1 customer and it launches that in the market, so everybody in that country becomes aware of the composite cylinders, and then we'll start getting the inquiries from there as well. So that is something which helps us a great deal.

Sir, my next question would be on CNG cascade for which you've got approval recently. You said that there is a potential of 600,000 cylinders in next 3 years, and the market size would be INR 3,000 crores. And you can do almost 30% of the same. So currently, what would be the capacity of -- and -- with you? And how much of the revenue you're expecting from this segment in next 2, 3 years or something like that?

Okay. Let me tell you, we right now have the capacity to build cylinders from LPG.

Correct.

So what we have done is, we have improvised on a couple of our machines so that we could make CNG cylinder, right? So the idea was very simple. We made the cylinders from a lot of existing machines and get the approval because the approvals took almost about 2 years or more. So we didn't want to make a investment at that stage and make it -- keep it idle until the approval was to come in. So right now, you can say we have a combined capacity, which is LPG and CNG all put together. I guess, in the next year, we will -- I know it is not only that we would just like to do, but we will have to curtail some of our LPG business and allow the CNG business to grow and come to a stage where we are ready to set up a auspicious facility for making CNG cylinders. And that we expect to do in 2 stages. So we will start with about, how much we'll said? 80,000 cylinders?

Yes, 80,000.

So about 80,000 cylinders. So first phase, we'll do about 40,000 and then we do another 40,000 cylinders. This is -- the total CapEx on such deposits will be close to about INR 80 crores. Completion will be about 6 months, and we should be able to generate the revenue of more than INR 300 crores from that capacity.

Okay. From 40,000 cylinders or 80,000 cylinders?

80,000 cylinders.

80,000. Okay. And that will be completed by end of FY '22 or mid-FY '22?

So we expect that the full potential, we will be able to tap it in...

'23, '24.

2023, '24.

Okay. '23, '24.

So that is a conservative number. I mean, even if we want to hold it back, there would be a very strong pressure from the customers. As you'll already have started seeing it, right now, Mahanagar CNG vessels, I don't know what's the name...

Gas.

No, no, not Mahanagar.

Mahanagar.

Mahanagar. They have got a tender out in the market, which is for mobile refueling stations. And in that, they are specified Type-III and Type-IV cylinders because they're safer. And maybe now they want to increase the reach of CNG. So they are making mobile refueling stations, where the cascade could be put onto the truck and the truck will move around for fueling the vehicles. So they would require the cascades. And then like I said -- as I said Type-III and Type-IV. So we -- Type-IV, of course, is the best in terms of fuel economy and all. So they are very keen that we should participate in that tender.

So sir, do you expect this segment to score higher EBITDA margin than LPG? And that's why you are ready to curtail the LPG cylinder or something like that?

No, we will be required to curtail because if the pressure of CNG comes, right, we will have to let some of LPG business go and start CNG. And then once we have an exclusive facility for CNG, at that time, we can build back LPG again.

Okay. Okay, sir. And lastly, on IBCs, you recently started the USA facility. So how is the response over there?

Over there, it is very good. We just started in August. We earlier had 2 facilities in Chicago and Houston. So we did pretty well there, still are doing very well. But this is effective in Iowa and we just started it. For that market, we developed a very special product in consultation with the potential users there. And we made first few supplies and looks like the customers have liked it quite a lot. So we just started. I think we should be in a position to say as to how quickly we can build up the volumes probably by end of this year, we would know. But until, initial response has been pretty good.

The next question is from the line of Ms. Rhea from Kitara Capital.

Sir, I have a follow-up question on the facility in U.S. that you just started. One is that if you will be able to quantify what is the kind of market size you're looking at in the United States? And what is the kind of turnover that you would expect from these greenfields capacities that you started there?

Yes -- you see, I will just give you the background. Worldwide, there are 4 large industrial packaging companies, namely Greif, Mauser and Schutz and Technoplast comes the fourth. So these 3 big companies are in USA already, and we are the fourth one who have come in. There are not very many other companies. So there are total of 4 companies. The market size is, I mean, I have not converted that into value. But it should be in excess of about $2.5 billion, right? So we go as a fourth company. Somehow the other -- these big players, they had different way of treating their customers. Their deliveries were not on time or probably there were some quality issues, et cetera, which were not being addressed because they are virtually, I won't say, monopoly but between the 3 of them, they have divided the customers. As we come in, our customers have recognized that we can offer them better products and can be more responsive. Now I would like to again underlying the point, that when we are in the Asia, we are servicing almost all the multinational companies. Let's say, for example, BASF, Clariant or Dow. And those are the companies who have experienced our products and services in Asia, not only in India, but in Thailand, Malaysia, Indonesia, et cetera. So when we went into USA, it was that much easier for us because we took them directly from Asia to their counterparts in USA and have started getting some business from them. So that really helped.

In the extension of the inventories.

Right. So this is basically an extension of our relationship. Right now with the total capacity that we have put up, we can go maximum for about $30 million?

We can go.

We can go up to $30 million.

$30 million to $35 million.

$30 million or $35 million in terms of revenue.

Okay. And sir, what is the capacity that you mentioned?

The capacity is in numbers will be a little bit complicated.

Because there is a complicated...

But at the full capacity, we should be able to do close to about $30 million -- to, sorry, $40 million.

$35 million to $40 million...

About $40 million we can do with the full capacity utilization.

With an investment of $50 million.

The next question is from the line of Mahendra Jain from Way2Wealth.

Anilji, Mahendra Jain [Foreign Language] Sir, my question is regarding Agility. Sir, they have launched a bus in around December 2019 with Indraprastha. So how they are doing any report regarding that, sir? What is the response of that or any order to them? Because they are having international partners even Mahindra & Mahindra with them like. And sir, with Indraprastha Gas and so many like a gas distribution company also. So we are on that same path. And as you -- last time you say, okay, we are at least doing a 40% -- 30% cost less than that. How there is possible?

You are right. Agility is bringing money, right? And they are completely unchecked. So all these companies for the buses, et cetera, they have imported the cylinder. And I can tell you, by comparison, the Agility cylinders is landing up in India, with all costs included, it's about INR 12,000 to INR 20,000. We are targeting at about INR 80,000 to INR 85,000. So there will be a substantial savings. And in terms of product quality, we are as good or even better. So they have come out with Type-IV. But there also is a company, Indraprastha, they have been importing cylinders from South Korea, which are Type-III cylinders, where you have inliner of aluminum, and they also are pretty expensive. So we will be actually coming in with Type-IV. When I talked about Agility, actually, that was the one that I said Norway because that one is in Norway. Hexagon is the company's name. So Hexagon has bought Agility and they are offering Type-IV cylinders. And we will be doing it in India. And if we go by what our Prime Minister says, Atmanirbhar Bharat, I see no reason why we should not get accepted by them.

So they are having a huge order book [Foreign Language]? Do you have any idea about that? I have not heard...

They have suppliers. The potential demand is fairly high. As you know, Supreme Court has given instructions that all public transports have to be CNG operated. Now what they did was, they had taken the steel cylinders. The problem is that we have 6 or 7 cylinders cascade of that on top of the bus, the weight is so high that's the center of gravity of bus goes up. So when a bus takes the sharp turn, it can actually upturn. Then they did it on the bottom. With the road conditions with India, those cylinders used to get hit by the road and they would start leaking. So the only solution is that you put the cylinders on the top and minimize the weight. So for the same capacity cylinders as they are giving in steel, our weight is only 22% to 23%. So that is a kind of a weight saving we are able to bring it up. So I've no -- now, I'm very optimistic that for buses, school buses, et cetera, they would like to use the Type-IV CNG cylinders because another aspect of this is -- that it is completely explosion proof. So you would not see any explosion, so they are much, much safer.

Okay, okay. So sir, when we are looking for -- I mean, in this field, I mean, a big order or something, we are planning to tie up with some gas company or something like that? Any payment on that?

So they will tell only after COVID from Type-IV, that was a prerequisite. So we have now started participating. Like I said, right now, we are very much engaged with the Mahanagar Gas, who want to have a lot of cascades. But we have sent out messages to all the companies that we have got a cylinder. Incidentally, the cylinder which goes on the top of the bus or mobile, that is a cylinder, which we call as onboard application. That onboard application approval, we are expecting it by the end of this year. So right now, the cylinders that we have is for cascade.

Correct. Correct. Okay. The second question is regarding, sir, this drum in international market, how we are competing with the steel drums and all this like cost wise like minimum comparability? Are we having advantage or something like disadvantage? And how we are overcoming that, right?

You see, price-wise, steel cylinder and plastics -- the polymer cylinders -- sorry, my apologies, drums more or less are at the same price. But one advantage of plastic drum is that there are no corrosion, no rusting, no paint peeling off, no dent.

That is a lightweight. Yes.

And lightweight and long shelf life for the product because you have no rusting . So I think this is on these merits, we are able to offer our plastic drum. Unfortunately, for us, the new valve industry in India and overseas, they still stay with steel drums. So that is a very big market, which we have not been able to tap till date. But we are trying, in some countries, we've been able to get some success. And steel cylinders are used mostly -- so, for example, Balmer Lawrie is doing close to about 3.2 million cylinders a year -- sorry, drums a year, which is basically for all companies, but we don't get that demand for plastics.

The next question is from the line of Hitesh Taunk from ICICIdirect.

Sir, my question pertains to the earlier participant's question on the recovery phase. So as I understood, is it mean like we are seeing a Q-on-Q improvement in the demand? And by the end of the year FY '21, we will be closing almost flat of last year's revenue? Is it the right understanding?

No. This is not what I'm saying. In Q4, we will be able to compare well with the last year's Q4. But the negative impact in Q1 and partly in Q2, that will still be there as a hangover. Let us see how quickly we can recover. So it is very difficult for us to say as to how the whole year would look. But I would like to think that we should be closer to about at least 75% to 80% of last year's.

Okay, great. Now my second question pertains to the PE piping business, sir. Sir, as you mentioned like around it is -- we have order book of around INR 325 crores for this business. So what is your best assessment for the current year revenue from this segment?

Can you imagine, in the first quarter, we have done virtually nothing. And in Q2 also, the rains are persisting, so the pipeline cannot be laid. But I would like to think that we should touch about INR 200 crores because we have the order book and as the situation improves, we will start supplying it. Only question would be about the ability of EPC contractors to make payment because they have to get the payment from the state governments. And I have reasons to believe that the state governments are in not pluses money. So some of these projects, they might probably postponed, that's the reason why I said INR 200 crores as against our order book of INR 325 crores.

Okay. Okay. Great, sir. Sir, now my question pertains to our -- the gross margin front. During the quarter, our gross margin has improved on a Y-on-Y also, on a Q-on-Q also. So obviously, that is a change of mix also and a bit of -- benefit of lower raw material prices also. So just wanted to know your assessment for the year on the gross margin front. Do you think with the recovery in the piping business or, say, low-margin business, our gross margin would a bit consolidate? Or do you think this kind of gross margin would remain sustained for the year as a whole?

See, you are right in saying that if our low-value addition business is -- has a lesser share of business, our group gross margin will appear to be higher, right? But I'm afraid that pipe business will have to catch up at some point in time. But we don't have to worry so much about that because those pipe business is lower in EBITDA margin, but you would find that our effective turnover in pipe business is very, very favorable. So in terms of the overall returns, pipe business is not too bad. Yes, systematically, it looks a little challenging. But I would like to think that gross margins will be maintained or around maintained because we will have the value-add businesses also kicking in, who should really be able to make up for what pipe business will bring down.

Okay. Okay. And sir, my other questions on our other expenditure front. Now we have seen a significant saving in the cost front from the other expenditure, which was down by around 40% on a Y-o-Y basis. So how much of this saving would remain with us for the rest of the year, sir? As a percentage of sales, if you could throw some light in terms of savings, where we are planning to save, which heads are you planning to save like?

Hitesh, as I think I had discussed on our telephone also that we have an 80% variable cost and 20% is fixed cost and fixed cost, as is referenced to the salary, wages, insurance and rents put together. So I think on the gross margin, as we say generally explained to you, last year, in '20, it was around 14%. And I think due to that fixed expenses and utilization of percentage is the lower and the business revenue is also around 70% to 80%, therefore, there will be the variations of the 1.5% to 2% in the expenditure.

Okay. Okay. I mean, you mean to say like around 2 percentage base -- 2 percentage points of savings in the other expenditure, is it a right estimate?

Yes. Absolutely.

Okay. Okay. Okay. And sir, our -- the other thing pertains to our CapEx. You mentioned around INR 100 crores of CapEx for the rest of the year. So it is a kind of a greenfield, anything -- any capacity addition or it is largely maintenance?

No, this is largely maintenance and some debottlenecking at some places, right? So for example, we might have to add a component, equipment, et cetera, just to have to optimize the capacity or doing some automation because that has been something that we've been doing over the years that we try and automate the processes so that the labor requirement is not as high. But no new product CapEx has been taken into account.

So you mentioned earlier like for INR 80 crores for CNG cylinders -- CNG cascades, it's not for the current year, right?

No, it is not in the current year. No, no, no. We will -- like I said, we will build up the business, our CNG cylinders by diverting some of our LPG cylinder capacity and stabilize the business. Once you see the demand coming in, there's a time when we will quickly move into this business. But if for some reasons, the demand comes in -- and by the way, the gestation period is about 6 months. So we don't have to start investing purely in anticipation of the demand, we can do it around the same time and we see the demand coming in.

Okay. Okay. Also sir, one more thing for that cascade -- CNG cascade front only. Is -- that INR 600 crores of industry size, what you have mentioned in your press note. Sir, is it a kind of a largely imported business? And/or anybody -- anyone is manufacturing that kind of cylinder in India?

I don't know whether you had a chance to see the truck moving in the city, which have a steel frame and lots of cylinder on top of it, it's a metal cylinders. That is the cascade. Because when you go to the gas station for getting CNG, there's always the truck standing by the slides from where the CNG is filled into your vehicle. So right now, they are made out of steel. So there are companies in India who are making steel cylinders for the cascade applications.

So INR 600 crores is for that steel cylinder size, right?

That is right. That is the total demand. But as a matter of fact, as we are now interacting, the demand actually looks to be half. I mean, like I said, the total demand in next 4 years, it's about INR 3,000 crores. So we -- that is the market size that we can participate in. And let us see how much we can tap. But that demand continues. In fact, I wonder if you have a chance to look at the Government of India's -- just take it care and give it to -- send it to them.

Yes, Hitesh, we'll arrange to send you because we have 1 government report is available on account of these cascade uses.

Okay, sir. That's fine, sir. That's...

And that's the advantage of this composite CNG cylinder is the lightweight, all advantages are there, which are available in the LPG composite cylinder.

Just to give an idea, actually, when you have a cascade made out of composite cylinder and compare it with steel cylinder cascade, you can take almost 2.2x CNG in our cascades with the same truck. So that would mean your transportation cost reduces dramatically. And then the life is very long and safe and whatever. And that is the reason why you find that these gas -- CNG distribution company have -- in the tenders preferred Type-III and Type-IV cylinders.

The next question is from the line of Anurag Patil from Roha Asset Managers.

Sir, when you said $35 million to $40 million revenue potential from this greenfield expansion in U.S., does it mean all 3 greenfield CapEx included, including this Iowa?

Yes, that's included. Yes, please.

And sir, what would be the total CapEx that we have done for all these 3 facilities?

From -- in USA, our total investment is about $15 million.

$15 million. And the margin profile, would it be similar to current or would be higher?

Arguably better than this one, actually. We will be talking about the EBITDA margins about 16%, 17% there.

Ladies and gentlemen, due to time constraints, we'll take that as the last question. I would now like to hand the conference over to the management for closing comments.

Thank you very much. I think it's a very interesting discussion. And quite clearly value-add businesses are getting our investors excited. I'm sure this composite cylinders for cascade and onboard application will be something to watch. And I'm very proud that we are amongst the 2 or 3 companies worldwide who have been able to develop this product. And it has a great future. I thank all our investors for their continued support. Thank you.

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