Time Technoplast Limited (TIMETECHNO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Time Technoplast Limited Q4 FY '21 Results Conference Call, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jigar Shah from ICICI Securities. Thank you, and over to you, sir.

Thank you, Bilal. On behalf of ICICI Securities, I welcome all to the conference call of Time Technoplast to discuss Q4 FY '21 and FY '21 results. From the management, we have with us today, Mr. Anil Jain, Managing Director; Mr. Bharat Vageria, Director Finance; Mr. Raghupathy Thyagarajan, Director, Marketing; Mr. Sandip Modi, Senior VP Officer, Corporate; and Mr. Hemant Soni, Head Legal and Company Secretary of Time Technoplast. 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, Jigar. Good afternoon, friends. And I do hope you all are well and your families are well from the COVID. Unfortunately, for us, it has not been -- it's been a terrible second wave. We lost our Head of Engineering, Electrical and also we lost a very valuable colleague who was heading our plants in Silvassa. So we had 2 casualties. And of course, there have been several other employees who lost their loved ones during this wave. I must admit that we, as a company, tried everything impossible to support them. And in the last Board meeting, we have approved a team, whereby those people who have suffered due to COVID, for example, earning member who's gone away or there are medical expenses, et cetera, the company and employees have got together to formulate a scheme so that those who have gone away, the families get duly compensated for a certain period of time, their next of kin can get unemployment, their medical expenses are met out and several of the things that we could do. It's a small little thing that we can do for excellent service those people have rendered and they love and affection that they actually have commanded from people. I hope things will improve from here on. There are early signs, but I must admit it is only in the big cities. But if you go down to our factory sites, et cetera, there are still very severe restrictions which are there. The movement is not open. Our vendors are suffering because they're not able to resume their operations normally and therefore, the supply line or supply chain is still severely affected. The biggest problem, of course, is the migrant labor who, this time around, were extra cautious. So the moment this -- the COVID rate coming in, they decided to leave from home -- for homes. In any case, this is a time every year that they go for their annual vacations to be with their families. So I believe they would use up that period and would only return in next 1, 1.5 months, depending upon how the situation would be. So right now, the challenges have reduced a little bit, but they are far from over. We are here today generally, to discuss about our Q4 results and the full year results for the last year. I will just read the highlights, and then we will go to question and answer. So we are pleased to report that quarter-on-quarter improvement in the consolidated performance of the company. The net sales business, a growth of 14% in Q4 as compared to Q3, where the turnover went up to INR 953 crores against INR 835 crores in Q3 FY '21. EBITDA in Q4 increased to INR 131 crores as compared to INR 113 crores in the previous quarter, Q3. EBITDA as a percentage -- in percentage terms grew to 13.8% in Q4 as compared to 13.5% in Q3. And profit after tax increased to INR 52 crores in Q4 as against INR 38 crores in Q3. Cash profit that way was INR 90 crores as against INR 78 crores in the third quarter. Please note that the full year FY '21 results are not comparable to the previous year due to a COVID-19 impact. Also, the results are in line with the management's expectations for full year considering the impact of COVID-19. If you recall, during one of those quarterly reviews or discussions with our investors, I said we'll be very lucky if we are able to do 85% of what we did in FY '20. I think we have done a little bit better than that but obviously, we could not be compared with the same period last year. During the year ended 31st March, 2021, the net sales stood at INR 3,009 crores against INR 3,580 crores. EBITDA is at INR 391 crores as against INR 501 crores and the profit is INR 103 crores as against INR 169 crores. The cash profit was INR 257 crores as against INR 331 crores. So we have seen a decline in the net sales in the volume, EBITDA and the cash profit for the whole year. So like I said, if you compare Q3 and Q4, we could see improvement, and we had hoped that, that improvement will continue well into the current financial year. Though, of course, this year has started at a rather unhappy note with a lot of lockdowns, et cetera. So we will wait for things to clear up in next quarter before we are in a position to indicate as to how would we stand at the end of this year. So we are right now holding back our projections for the whole of current year. Of course, there are all kinds of things that are being talked about. We would expect that if it is only Q1, which is getting affected, probably the rest of the 3 quarters might, to some extent, compensate. But if the second or the third wave, where people are talking about also becomes a reality, God only knows where it would be. For the full year, FY '21, the EBITDA margin stood at 13% as against 14% over the last year. So there's been a reduction. And that is a net effect of the sales dropping down and the fixed expenses remaining what they were. So at one lever what we did was and that is more under our control. We curtailed our CapEx. We have kept our CapEx more to about INR 104 crores as against INR 145 crores in the previous year. And that took -- the CapEx has about regular CapEx that we do every year and also part of this CapEx has also been used for our CNG cylinders, and I will talk to you more significantly on our CNG cylinders, which is going to be something that will change the complexion of our business in the current financial year and the years thereafter. In so far as dividend is concerned, we focused on the payout. We have improved the payout ratio to be 20% of the profit of FY '21 as against 15.3%. However, as a percentage -- in the percentage term, the dividend had to be revised to 70% as against 90 -- 95% in the previous year. But also the thought was that comes of our sources in view of substantial growth that we will be seeing in the current financial year and also not knowing how things are going to pan out in the future. I would like to seek the permission of people attending this conference to make a short presentation on our CNG cylinders before I go over to question and answer, there've been requests from some of our investors that we should talk in a little more structured way about CNG cylinder business, for which we have been making some important announcement in the last few months. So that our investors could have an idea as to where that business is going to take us in the current year and like I said, in the years ahead. Now CNG is the talk of the town these days. As you would know that CNG is being promoted by the government of India as an alternate fuel and especially in the context of energy dependence, government certainly wants a lot of CNG to be used and also to be focused on electrical vehicles, considering the fact that electrical vehicles are far too expensive and not everybody will be able to afford them, I think the easiest way to meet our energy independent it would be CNG, therefore there had been a major thrust in this area. Unfortunately, for us, the number of CNG stations or dispensing gas stations was very, very limited in the country. As a result of which, not many people wanted to buy CNG vehicles. And most CNG vehicles that were sold for dual fuel because one would not know if you have to go 400 miles inside or from the main city, then we may not get CNG. However, you would like to have a diesel vehicle what CNG has now in fuel. That is not a very pleasant situation because in that case, the cost of the vehicle also goes up. The government realized this, and then with that, we would like to go whole hog for spreading the footprint for CNG. Now just to give an idea, in the first 8 rounds of CNG distribution, we had a total of 2,100 gas stations where CNG was being dispensed with. Now CNG is brought for the distribution from their main compressor stations to the dispensing stations by way of cascades where the piped natural gas is converted into CNG. And then you see the battery of cylinders mounted on a vehicle on a train, like this is called cascade, and they are used to bring CNG from the compressor stations to the dispensing stations where the vehicles can come and take CNG. Normally, for every CNG station -- dispensing station, you need 2 cascades, mostly 3 but 2 cascades. 2 cascade would mean there are 2 cascades and 2 vehicles on which 1 cascade is mounted each. So therefore, you have to have 2 trucks, 2 cascades or 3 trucks and 3 cascades, which bring CNG to the gas station. And when one is dispensing the other one goes to fetch the next round. That's a very cumbersome process. As a result of that, the CNG was not very popular and there were long queues. Government of India has now -- which round is this? 4,200?

It was till the 8 round.

Right. So till the 8 rounds, we had another 4,200 gas stations, and they were beating their own cascades. So the total value of cascades therefore -- right. So therefore, there were about 4,200 cascades, which was mostly type 1 cascades. When I say type 1, type 1 is all steel. So you see the steel cylinders in the form of a cascade and they were mounted on trucks. However, in the ninth and the tenth round, which was announced early last year, 2 years before, there were another 8,181 gas stations that were allocated. Now these gas stations are being rolled out because there's a time line and if they don't roll it out within the 5 years' time, then that allocation is taken away. So a lot of private parties and also AMCs have participated in it. And they are in the rollout state, I think some extension has been given to them for COVID, but government is very strict about it, that it has to be done in a certain time frame. If you take another 2 cascades for first station, it would require a total of 16,362 cascades. Now typically, one cascade would mean about INR 70 lakhs, right? So that amounts to about a business of INR 11,453 crores to weed out the requirement of these 8,181 gas stations. And of course, the previous one which have already increased. Though admittedly, even for the previous ones, the full cascade rollout has still not taken place and people are buying cascades for them as well. And government has also announced that the tenth round it will take place sometime later this year or early next year, which will allocate another 14,393 -- sorry, 3,000 to 5,000 cascades -- sorry, gas stations, which would require another 7,000 cascades, right, so the value of business for the cascade for those tenth rounds gas stations is going to be about INR 7,000 crores. Now on top of it, the government is also rolling out biogas gas stations, about 300 of them, which will also generate about INR 210 crores of business. So the total business for the cascade alone, between the present arrangement, the ninth and tenth round and also in the tenth and 11th round is going to be about INR 32,500 crores. May I remind you that right now, the cascades are all with type 1 steel cylinders. Now we have come out with Type-IV composite cylinders. Type 1 cylinder is that the weight is reduced by almost 75 -- 70% to 75%. The problem in a cascade normally is that you can bring in a very limited quantity of CNG to the gas station because the truck has a certain payload and the cylinders been so heavy that the weight available for the gas to come in is extremely limited. However, in Type-IV cylinders, as we are able to reduce the weight of the cylinder, the payload available for the truck can actually be use more for bringing in CNG and not carry the dead weight of the cylinders. As the result of which, 1 cascade and 1 truck is good enough to bring CNG equivalent to Type 1 2 cascades and 2 trucks. So you can bring all the quantity of CNG in Type-IV cylinders as compared to Type 1. And therefore even if Type 1 (sic) [ Type-IV ] cylinder cascades are more expensive than the Type 1 cylinder cascade, it still is comparable because you cut down 1 cascade and 1 truck. And secondly, the operating cost is reduced dramatically. Now in India, as you would recall we as a company, started making LPG cylinders -- the composite LPG cylinders a couple of years ago and few million composite cylinders have already gone in about 58 countries all across the world. We then, decided to move into CNG because -- and develop the technology for it, and we use the carbon fiber instead of glass fiber and make CNG cylinders, which could withstand a pressure. Say for example, LPG cylinder has to withstand the burst pressure of only about 80 to 90 bars whereas in the case of CNG cascade, it is required to withstand a burst pressure of 750 bars. So we have developed these cylinders. We have put them through a thorough testing. And finally, we submitted those samples for approval of PESO, the formerly CCOE. We announced, I think, 4 months ago, that our cylinders have been approved by PESO, and we are allowed to use Type-IV composite cylinder for the first time in the country for CNG cascades. Now in this short period of time, let me recheck, we have got orders worth about -- so we have spent a few cascades already, which are in operation. We have orders worth about INR 50 crores of cascades which are under execution, and we have participated in RSU order tenders, which for the cascades, which are valued at INR 214 crores. So -- and all of these will probably get finalized in next few months because of the time line that has been set out for the rollout. We are pretty hopeful because of the merits of our product and the advantages that it brings to the CNG distributor. It would actually be preferred. And we are already seeing that those customers who have already started using Type-IV cylinder cascades are actually asking for more or probably have decided that this time around, they would not go for Type 1, but will go for Type-IV cylinder cascades, right? So do I do for the onboard also? Or onboard you'll cover up?

Yes. No, you can say since everybody got it so...

Right. So after this one, we also got approval for CNG cylinders or onboard applications. Now you -- when we talk about onboard applications, we are talking about buses, we're talking to highly commercial vehicles, we are talking about LCV, we are also talking about passenger cars. Typically, if you look at bus, the bus has to be in operation all through the day. It is supposed to be traveling something like 800 to 1,000 kilometers in a day and it requires minimum 8 cylinders of 156 liters capacity to be able to meet out the daily requirement. Now these cylinders are normally to mount it on the top of the bus. The Type 1 cylinder will be, let's say, in the case of 156 liters, will be about 90 kg or even more, whereas it will be about 18 or 19 kg in the case of Type-IV. So what happens is, if you put Type 1 cylinder on the top of the bus, the center of gravity goes up and it will both takes a sharp turn, it is clear that it might overturn. Secondly, the payload, the number of passengers allowed in such a bus are reduced because the total payload has to remain the same and part of it is eaten away by the deadweight of steel cylinders. So anybody who's operating a bus with Type-IV cylinder where the weight is reduced dramatically, has a great advantage of having additional payload and therefore the extra cost of these Type-IV cylinder is paid off by the advantage that approved. Likewise, for the commercial vehicles, they require 8 to 10 cylinders, which are mounted on chassis. They add to the weight of the vehicle. As a result of that, their payload gets reduced. If they us Type-IV composite cylinder where the weight is reduced by 75% to 80%, therefore they can carry more load and get the freight for that. So the buses and commercial vehicle also the LCVs whichever is applicable for them as well. That's the great advantage. On top of it, the passenger vehicles also prefer to have lightweight cylinders as the fuel efficiency improves. Secondly, the additional deadweight as far as their suspension and the brakes very often. Therefore when we talked about -- we talked to the passenger vehicle manufacturers, they showed tremendous interest in finding -- in using lightweight cylinders for CNG. Incidentally, in the last year itself, about 170,000 cars have been sold fitted with CNG cylinders by the OEMs, right? And that could be the potential user for onboard CNG cylinder. We have got cylinders that in 60 liters and 156-liters denomination to meet the requirement of small vehicles and the large vehicles or we can use them in combination. We are expecting that on onboard application, the business will grow tremendously as the rollout of CNG takes place, and more CNG will be available all on the routes. So people will then prefer to buy a CNG vehicle which they do not do right now. In the next 5 years' time, we expect that onboard CNG cylinder business will grow to about INR 500 crores per year. So imagine we talked about a total of -- for the cascade is about INR 1,250 crores per year. And then we talk about onboard, which could be about INR 500 crores per year. We are not even talking about retrofit business where people convert their cars or vehicles from diesel or petrol to CNG. In which case, they would prefer Type-IV cylinders rather than Type 1. So we are pretty upbeat about the potential of Type-IV composite cylinder. Right now, we are the only manufacturer of these cylinders in the country. And we are covered under -- we are promoting them under Atmanirbhar Bharat initiative. If you look at other manufacturers worldwide, there are just a few. We have got a company called Agility, which does Type-IV cylinders. Indoruss, who together with Teekay , which again, in South Korea. We have one Luxfer and another one is Quantum. And there are Type-3 cylinders where the in-liner is made out of aluminum, and then you have carbon fiber on top. We have the 3 people, Worthington, Luxfer and Catalina, all of them are from U.S.A. And the other one that I talked about are from Europe in Type-IV. So we have the advantage of being the first one in the country. We have got PESO approval, so nobody can displace us in a hurry because PESO takes anywhere between 2 to 3 years to approve cylinders. And we are building up the references, our cascades are in place. We are already talking to OEMs for onboard application. So I think that lead we have taken already will stay with us and help us grow our business. Can we then now go to the question and answers, please?

[Operator Instructions] We have a first question from the line of Harsh Shah from Dimensional Securities Private Limited .

Sir, on the composite cylinder part, sir, you mentioned the size of the business, the size of the opportunity. So do we also envisage any opportunity in the overseas market as well? That's number one. And number two, what is replacement value of this business? I mean, I would presume that these cylinders would be long lasting. So once we -- once an OEM buys these 3 cylinders from us, then what will be the replacement value few years down the line?

So replacement that you said, right?

Yes. Yes.

Let me start from there. The life of this cylinder is minimum 20 years. We actually get them tested for 20 years life. So you don't require to replace it for the next 20 years, whereas the steel cylinder Type 1 cylinders, you have inspect them every 3 or 5 years. And I think they don't really last for more than 10 or 15 years because of rustic and corrosion that take place regularly. Overseas market is very exciting. Like I said, there are only limited number of manufacturers worldwide. But we have decided to first we will test them out, use them in India, which is the most difficult geography from operations and handling point of view. And then we will take them overseas. But I have no doubt in my mind that overseas also, there is a huge demand for composite cylinder for CNG.

Okay. And when you say that the business for onboard application could be as high as INR 500 crores. So for how many years do you expect this business to sustain at that level?

So, Harsh Shah, as long as the cars are being made and the buses are being made and the commercial vehicles are being made, they will require it every year because you need to have fuel for that. And if companies decide or the buyer decides to have a CNG vehicle, you need to have a composite cylinder on the vehicle. So it is not really limited to 1, 2 or 5 years because every vehicle will require those many number of cylinders.

Understood. And can you throw some light on your pipe business. So there has been some traction in the infrastructure award. And so what kind of order book are you looking at? And what is the road map there?

You see, you talked about the pipe business. As a matter of fact, it has been rather disappointing in FY '21. Our pipe business was extremely slow throughout the year, we have seen it coming in the middle of the year itself. But the reason being because of COVID, the layout of the pipeline, et cetera, was curtailed. Number two, we had a situation where state governments do not have enough resources to be able to buy pipes or to pay for the pipe projects, et cetera, to the EPC companies. And also, there have been lesser allocations from the central government. So the order book is very strong. I think we have order book of over -- more than INR 200 crores, but the clearances have not been forthcoming because the rollout was not taking place, the pipelines are not being laid and the state governments were not able to pay to their contractors.

And since how long have these orders being with us -- have been with us?

They've been there for about 1 year, 1.5 years.

And you're not been -- none of these orders are getting executed?

No, they are getting executed. That's the reason why we still did about INR 170 crores FY '21. But we could have done a lot more if things had been normal. But only thing is where we could have supplied, let's say, INR 20 crores worth of pipe, we ended up doing a INR 3 crores, INR 4 crores or INR 5 crores.

Okay. Okay. Understood. And sir, on the raw material side, what kind of situation are you looking at because the commodities -- the prices of commodities have been rising significantly. So how are you placed then?

The raw material prices have been up, but they're not getting moderated, right? I think there's been a demand restriction for the polymers worldwide. The capacity supply -- demand-supply gap is now getting bridged, and we are seeing that the price of polymers are getting moderated. What we would like to think is that these prices when they went up, that was more of an exception. Otherwise, now the prices are coming to the regular price levels that we have been seeing in the previous years.

Okay. So you are not expecting any major disruption on the cost side?

No. supplies are being maintained. Of course, there are certain delays because of nonavailability of shipping containers, right? Or as you know, there's a worldwide shortage of shipping containers. And so to that extent, there have been some delays in between. But otherwise, we expect the supply to continue.

[Operator Instructions] We have a next question from the line of Vikram Vilas Suryavanshi from PhillipCapital.

Can you share or give a breakup of revenue for established products and value-added products? Like what was the revenue serve from IBC, composite and [ bulk ] in value-added?

Yes. So we have -- the regular products, we have done INR 2,400 crores or thereabout. And the value-add businesses have been about INR 590 crores.

And IBC was how much broadly?

In the previous year?

Yes, in '21.

IBC. IBC, we did about INR 326 crores.

Okay. And just last, from the revenue from packaging the [indiscernible]?

INR 2,240 crores.

INR 2,240 crores.

We have the next question from the line of [ Nikhil from Kriis Portfolio ].

Sir, I just wanted to understand, we have been working on the new development products like cylinders for a pretty long period of time now. So -- and we keep on introducing, like recently, in the current presentation, I'm seeing oxygen cylinder has been introduced. So I wanted to understand your strategy like what type of company are we trying to be? Whether we want -- your strategy is very clear that you want to increase value added. But I'm just trying to understand the products and the synergies that we have in our production capacities that they get. And what are the expected time lines? I understand these are -- like probably the approval takes a long period of time. But what are the bottom line that we are facing that we are not able to scale composite cylinders like beyond a, say, INR 600 crores or INR 700 crores because we have introduced these products for a pretty long period of time.

No, that is not correct actually. We did not introduce that for a long period of time. As a matter of fact, we just got approval for CNG cylinders 3 months ago and for cascade application and for onboard application, we just got it less than one month ago. And we could not have manufactured or even giving samples to the prospective buyers until we have the approvals in place. What you're talking about is the LPG cylinders Type-IV.

All right, all right. Yes, right. LPG Cylinders.

For which we are already doing a good amount of business consistently years after years. You asked a very interesting question, what kind of a company are we going to be? We had been and continue to be a polymer product company with a focus on industrial packaging. And that continues to be our main stay. But as you very rightly said, the company is now focusing on value-add businesses where we have developed confidence over a period of time. And composites is the area where we are now feeling we've confident enough to introduce some interesting products, which have huge business potential going forward. So our going into CNG cylinders, therefore cascade and onboard application is a part of the same process. You talked about the oxygen cylinder. Please understand that cylinder is a cylinder is a cylinder, right? Now the concept is the same. You have an in-liner, you have reinforcement by way of either glass fiber or carbon fiber and the cylinder is able to withstand a very high pressure in size. Now this one time, we saw there is a great opportunity for oxygen cylinders. And by the way, if you think we are through with oxygen that is not true, as we get to know from the doctors. Lot of people who have recovered from COVID will still require oxygen support at homes for a prolonged period of time, especially senior citizens. So you would require a personal oxygen cylinder at home, which could be used intermittently or in few cases regularly, right, to maintain your oxygen level. So we thought it as a huge prospect. Again, the same reason you have got a steel cylinder of 10-liters oxygen, which is about 18 kgs in weight. We could develop that in 6 kgs. So we see that for the user, that'll be a huge advantage. So there's going to be a requirement. We have the technology, and we have been able to develop a product, which can meet the requirement of the customer. I'm sure that is just natural progression of what we are doing already.

Sir, so if my understanding is correct, the incremental CapEx over the years will definitely be towards more towards cylinders. Like probably say 60%, 70% as probably will be incurring lesser towards -- over the polymer production as in the regular product, right?

Yes and no. Of course, the polymer products also are having a lot of opportunities. And wherever, we require we are able to -- we will be doing CapEx there. But you're right, absolutely. There will be -- a large part of our CapEx is going to be in these areas where we have such large business potential that we just talked about, both in cascades and on onboard application and oxygen, right? So we will judiciously allocate capital expenditure to the areas where we will have a better ROC or higher EBITDA or better returns.

[Operator Instructions] We have the next question from the line of [ Ujwal Kumar from Green Portfolio ].

So my question is regarding, again, composite cylinder is definitely looking like a very good prospect. I'm just trying to understand what's the difference between the pricing of the metal cylinder versus the composite cylinder? And so that's first question in terms of the cost difference. Second question, have you sort of received any orders from OEMs like Maruti, Hyundai, for the onboard business as of today?

Second question first. We got the approval for onboard applications just about a month ago. Only after we got the approval, we can start sending the samples to discuss with these OEMs before that they did not even want to discuss the possibilities. So we are already in discussions with OEMs. Firstly, we are going to the people like Tata Motors, Ashok Leyland, Eicher, Mahindras and all, where you have got a lot of buses. Now the Supreme court order, the buses -- the school buses and the buses inside the cities have to be run on CNG, right? So this is low hanging fruit, and we are talking to these companies who are making buses. Then the next would be we will go for heavy commercial vehicles. If you ask me personally, passenger car will be at the end of our priority list because the process for them is a very long one and probably they negotiate a great deals. So let us remain focused on the area where the customer is in dire need of a lightweight composite cylinder on top of the bus or on the commercial vehicle. By the way, Maruti has made an announcement that in the next 3 years' time, they will be making about 4 million cars in a year. And out of that 1 million cars are going to be run on CNG. So you can imagine the kind of business potential that exists even for passenger cars.

Understood. And if you could just a little talk about the cost difference between composite and...

Depending upon the area of application. So for example, in the case of cascades, the price of our composite cylinder could be something like -- no cylinder to cylinder. Okay, let me give you an idea about the cascade price. Type 1 steel cylinder casket will be about INR 23 lakhs. However, Type-IV composite cylinder cascade will be about INR 70 lakhs. But incidentally, for the same capacity as Type-IV cylinder cascade, we require only one cascade in a truck. In the case of type 1, it will require 2 cascades in 2 trucks. So the total CapEx is always comparable. And that of a little difference is there. The payback is less than 1 year because of the operating cost being half.

Understood. Just one question, like on the CNG side -- on the LPG side, sorry. So FY '20, you did an overall business of INR 179 crores globally. And you have claimed that you are the second largest manufacturer of composite cylinders on the LPG side. So I'm trying to understand what is the global market size here? And how fast is this growing?

You see, the cylinder business part is growing very rapidly because a lot of countries are now switching over from the regular fuel to LPG, especially in Africa, Far East, et cetera right? So the LPG business could be growing at about 10% to 11% when I'm talking about LPG cylinder business. The Type-IV, the composite cylinder is only 2% of the total population of LPG cylinders. All the rest is steel cylinders, right? So the composite cylinders are gradually eating into the steel cylinder market and also the incremental demand that is coming in because of the changeover from fossil fuel to the LPG, we are partaking in that one. If you ask me, the total market for Type-IV composite cylinder worldwide could be about 4 million cylinders in a year. We are talking about less than -- about 1 million cylinder a year. So we're looking at 25% of the total composites cylinder business market.

Understood. And what was the number for this year, for FY '21, what was the size of the LPG business, composite cylinder?

INR 170 crores. 1-7-0.

We have the next question from the line of Aniket from Trivikram Consultant.

So you mentioned that we are expecting a INR 500 crore revenue per year the next 5 years from onboard application of CNG. So what is the opportunity that we are expecting the cascade part?

Actually, I said 20% of the demand that will be coming up for onboard application cylinders. And the rest, 80%, I'm still giving it to the steel cylinder people. So the opportunity is much higher. The 20% of that is INR 500 crores, which is what we are trying to tap.

And sir, like the opportunity in case of cascades?

You mean about cascades. The cascade opportunity is like I said, is close to about INR 22,500 crores in the next 8 years because this rollout has to take place on and before 2030, right? So that is close to about INR 1250 crores a year. I'm telling you, in the case of cascade, we are expecting a much larger share because we are not only bringing in operating advantages, but even CapEx is quite comparable.

Right, sir, right. But -- and sir, my other question would be looking at the current scenario, what is the impact that you are expecting in our top line in the first quarter FY '22?

FY '22 is difficult nut to crack. We -- allow us to talk about our projections for '22 in the next quarterly review that we have because there are too many moving pieces. Believe in me -- if you were sitting in my position, you'd go bonkers because you can't even predict what would happen in the evening, far less 1 month or quarter later from now. So let's get things under control, things stabilize, we'll then know where third wave is going to come or not, come and how it's going to impact people, attendants, availability of or the, I would say, the supply chain, et cetera. And then probably we can -- let me tell you there is no dead of demand, by the way. We are experiencing a good demand from our customers, right? So of course, admittedly, even that is a little [indiscernible] because some of the challenges that we have, they also have the same challenges, not having enough people, not getting the supply chain fully mobilized. But Inshallah, I think as things go forward, they will put their act together, and we will be able to solve them as per the requirements.

Got it, sir. Sir, if I can squeeze in one more question. So is there any revenue that we received from cascades in FY '21?

What is that? About FY'21? Zero, zilch.

We have the next question from the line of Hitesh from ICICIdirect.

Sir, any update on asset held for sales, sir?

Asset held for sale?

Update, we have identified as I think you know that we were talking this last 1 year about the e-invite suggestion and this about the what case study was ongoing faster. So getting this CNY report almost 90% we have suggested. And based on that, we have identified certain assets will be getting classified as for sales as the situation normalize. Most of the things are relating to land and building and some of our related assets business, while I can say, some kind of the medical division assets which we have identified in assets put up on the sale, And the unit division item also, it is there because most of the injection vending machine, which we can use for alternate business development in clinical plans and that. But these are the things and some of the business assets identified, which is valued approximately INR 60 crores.

Okay.

This is -- that is probably the most opportune time to improve the liquidation of these assets, as COVID get stabilized, I'm sure there are going to be people looking for these assets as they are very valuable. And I think we should be able to see them done by end of this financial year.

Okay. Sir, my next question pertains to our order book on composite cylinder LP. Can you share to what is the order book in that, sir, at present?

So we have a order book of 1.2 million cylinders. If you want to know how much is it in value, 1.2 multiplied by -- that's about INR 250 crores -- INR 260 crores to be precise.

Okay. And this will be executed in FY '22?

Yes. This is a rolling thing. It keeps happening. So we'll get the new orders, and these orders get executed.

Okay. And sir my next question from the -- from overseas business. Is it -- I mean, on 2 quarters' back when we were in call, you had indicated kind of, we had 15 million kind of investment in our lower plant in U.S., and we were expecting kind of 2x of projection in that -- from that plant. So are we on track on that?

Yes. The U.S., we have got 3 units which are already up and running Chicago, Houston and Nashville in Iowa, right? And the sale has been rather good. I mean, as you know, U.S. economy is booming. Everything you produced gets sold out in the same day or the next day. So we are very happy with those investments. And we have been able to make an entry in the market, which holds a huge potential going forward.

So sir, let's say, our overseas revenue is around 33% of our overall top line. Now being the domestic business impacted by second COVID wave, so the second wave of COVID. Now if I assume correctly, 33% or 35% of our revenue will grow by double digit going forward? Or because of...

Sure. No question about that. No questions about that. Ours business has less of challenges, though admittedly, there -- the second wave hit hard a bit late, but it looks like they have a better control of the situation. They don't panic, people are still available to us and the companies are working to the full potential.

Okay. Okay. So will that mean the quarter rate on debt reduction from here on?

Hitesh, I think I recall our discussion last when you mentioned, that the '21, '22 business will be the size of the '19, '20 business, which one quarter of time, '19, '20, which is INR 3,600 crore business. Last year, it was 80% of that business and this year we'll be going to come back that rolling of business. So that reduction, maybe INR 10 crores, INR 20 crores here and there. That is depending on the again prices of the products and the investment plan of the company. So still we have not -- we can't say the debt reduction part is controlled, but we are sure our GAAP to EBITDA definitely will be more than 4x that is there.

Hitesh, talking about this, we talked about composite cylinders, the CNG cylinders, et cetera. Right now, we have not made any allocation for the CapEx for creating the capacity to tap the market potential at a gist, right? We are going to do it through incremental CapEx and kind of debottlenecking some of our capacities, otherwise for LPG, and we are diverting that into CNG space. But I don't know if this market really picks up the way we are expecting it to and we have to come -- we may have to consider making some CapEx. Though admittedly, we will not do it until we clearly see that the CapEx can start contributing almost immediately after we have made the investments.

Okay. And sir, my last question pertains to a near-term point. You discussed about the impact of COVID, which is certainly on our supply chain or the labor prices. But do you think that this is the -- this quarter impact will be higher or say will be in line with last quarter where we had a kind of 40 days of lockdown? Or will it be better than last quarter '21 -- FY '20?

April has passed, if we try and compare because last time, you were right, like you said that, it was about 50 days of lockdown. That provides the 30 days of month of April -- the month of May -- sorry, April and May, right? We should be better off than the last year.

We have the next question from the line of [ Dipesh from Manya Finance ].

Congratulations, sir, for the excellent set of results. Just my -- most of my questions have been answered previously. But just wanted to know what is the current capacity of the CNG cascade cylinders are we having because most of the production was taken. I remember in the last phone call, you said that most of the production was taken from the LPG cylinders.

Dipesh, you're absolutely right. We have 2 parts for the cascades. One is making the cylinder and the other one is making the cascades because those cylinders have to be fixed inside of a frame with a certain piping and fittings, et cetera, to make it as one single unit. So we have been able to build the capacity for making -- converting those cylinders into a cascade. Cylinder manufacturing is done on the same kind of equipment, which are used for LPG cylinders. Of course, we had to add some testing equipment and other equipment because of different testing requirements. So I think for the time being, what we are projecting or looking at for the current financial year, we should be able to manage with the capacity that we have. Of course, there might be some marginal investment required in some testing equipment, et cetera, but no significant CapEx, if you are asking that.

So when are we expecting a significant CapEx to come in -- I mean, since you have already INR 260 crore of order book for CNG cascades. And I mean, you have been so bullish and even for the product, I think it's really an excellent product. So when are we looking at CapEx?

Dipesh, we don't have the order book. The order book is only INR 50 crores. So INR 210 crores cascade is where we have participated and we're expecting the orders to come in next month or so, right? So once we have those orders in hand, I'm sure we will then have a look at our capacity in us to how -- because let's face it, I don't want to kill too much of my LPG cylinder capacity as the business is growing, and we have worked so hard to develop the market for LPG cylinders. So at some stage, you will have to ask us that question, whether we should keep diverting our capacity from LPG to CNG or which as you rightly ask the question, make separate investment for manufacturer of CNG cylinders.

And most of the supply is to OEM only. We're not planning any replacement market for onboard -- I mean, onboard CNG cylinders?

So you're talking now about onboard application. Onboard application, most of the requirement is going to be to the OEMs on that. Secondly, in many cases, OEMs don't put the cylinder on the vehicle on their own as they call it specifity so they have their own associates who provide them the conversion kits along with the cylinder. So we work with those kit suppliers who can then offer to the OEMs, the complete fuel system, including our cylinders. So in some cases, it will be OEM directly. And in 2 cases, it will be through these fuel system suppliers.

Are we in talks with anyone?

All those companies. In fact, they are also in talk with us because they would like to increase the value of their fuel system by offering a Type-IV composite cylinder instead of type 1.

Okay. And just the last question about your oxygen cylinders. Are you planning for any industrial oxygen supply also? I mean, there's ones which require a larger capacity maybe from [ Linde ], when they take. Are we looking at that market as well?

No. We are not looking for the industrial oxygen cylinders because the steel cylinders seem to serve them well. And the price-wise, they're much lower. But we are looking for featherweight ultra clean oxygen cylinders. For example, typical steel cylinder has a lot of rusting and corrosion and including the black fungus, right? And then when you force oxygen from those cylinders into the patients that you actually create another monster. So we are looking at only for the individual news of oxygen by people who need to have a very lightweight, absolutely clean for high-purity oxygen.

Okay. And when are we planning to make these? I mean...

We have made the prototypes. Now it will all depend upon PESO, how quickly they give us approval. We have started the process already.

We have the next question from the line of Mr. [ Irani ], an individual investor.

My number one question is how long have the operations being down for this April to June quarter? Which divisions were affected and closed? And what percentage of the business was closed? And what impact will it have on revenue and profit numbers?

Well, like I said, we will answer this question more intelligently as we go for the next quarter reviews. But just to give you an idea, we did not have to close down any of our units. So for example, it is a different matter. We may not be -- we may not have been able to run all the 3 shifts in some of the places or the number of people who are coming to work were less. But we didn't have to close down the unit. They've been running regularly with truncated capacity.

So how much, what is the percentage of output that was affected?

Mr. Irani, I think one person, gentlemen has asked us the question as this Q1 business, how is affected, Mr. Jain has already replied. This Q1 of '22 will be better than the last year Q1 because it is less affect than the last year.

No. No. I'm talking about volume output, so how much has been affected, 20% affected, 40% affected, percentage-wise?

No, no, percentage wise, every business segment has a different percentage. In terms of the overall percent you can say 15% business affected.

Okay. Only 15% business affected. Okay, that's for quarter 1 for now? Okay. Now, my other question you answered what your current PNG production capacity, is just 1 or 2 cascades per day or 1 or 2 cascades per month?

We can do 1 cascade every alternate day, right? But like I said, that is for the manufacturing of cascade. But the cylinder is a different matter altogether. So we will be able to -- that will depend upon which side -- size of the cylinder, for what application, whether it's a cascade or it's for onboard application. But the numbers that we have projected for the current year or where we are expecting the business to come in, I think we'll have enough capacity to meet out that requirement.

We have the next question from the line of Jigar Shah from ICICI Securities.

Sir, my first question is that steel price have gone up through the roof and our immediate competitors are steel cylinders. So what do you suggest going forward, whether we will gain the profit share in this -- against steel cylinders across the world and in our polymer drums, especially?

I think your question is not clear, you have to speak little loud.

Can you speak up a little louder, please? I couldn't get it clearly.

Yes, sir. So my question was that steel prices have gone up through the roof. So do you expect that polymers drum will gain the market share as against steel drums across the world?

Absolutely right. One is that we can get more market share. Secondly, we can get a better price for our polymer drums. I think we will prefer later because we have a fairly significant market share. As you know, 50% is steel drums and the 50% is polymer drums. So I think that is more or less given. But within the same customer, since the steel price have gone up, customers are willing to pay a bit better for polymer drums now rather than comparing with the steel drum prices. The steel drum are not being replaced in certain areas. For example, lubricating oils or some chemicals, which cannot be filled in plastic drums. So that cannot be changed because of the chemical characteristic of the polymers. But yes, you're right, the steel price is staying up, certainly gives us a possibility to penetrate on into the customers who are better pay masters.

And so do you expect since the polymer prices we have much have already passed on the higher prices. So do you expect our EBITDA margins to go up in FY '22?

As a matter of fact, if you look at the history also, whenever there has been an increase in the price of polymer, we have been able to pass it on to our customers. We have a very transparent process. However, if the prices are coming down, which is -- or moderating, and we are duty bound to pass it on to our customers, too. There's a time gap of a little bit. So to some extent, there might be a difference in a shorter period but in the long period, it gets passed off.

Okay. And sir, my next question would be on CapEx front. What kind of CapEx are we advertising for FY '22?

Well, I can tell you it will be -- minimum will be what we have done in FY '21 because we have done only about INR 100 crores, out of it's about 70 to 80 is on maintenance and other things. But we will take a call on the CapEx, like I said, depending upon how our market for CNG cylinders pan out, whether we are able to meet the requirement of the customer by diverting our capacity from LPG cylinder to CNG or we need to add more equipment.

So currently, how much revenue will you be able to generate with the current capacity, both LPG and CNG?

We do -- can do about INR 50 crores to INR 60 crores.

Incremental?

From the existing capacity, that's right.

So currently, you did around INR 170 crores in FY '21 and...

That is LPG cylinder, I'm talking about cylinder -- I can do about INR 50 crores to INR 60 crores without affecting my LPG cylinder business.

Okay. And incrementally, if you want to do CapEx, then how much CapEx you will be incurring approximately and how much revenue will be just getting from that?

So just to be honest with you, we don't have to do CapEx at one go. So even if you do that, we'll be doing it incrementally, right? And there's a brownfield expansion because it will be an extension of our LPG cylinder capacity. So some of the -- can actually are [indiscernible] . It's very difficult for us to say. I think everything will depend upon how the CNG cylinder business pans out and what are the kind of time lines that we have to work with. But important thing is, we are keeping the powder dry that if the demand goes up, we should be able to create that capacity in a jiffy.

Okay. That's great to hear, sir. So that means a couple of years of only INR 100 crores to INR 150 crores of CapEx in -- you are better off in -- better cash flow and so on?

For sure. We required too much of a CapEx, actually.

Due to time constraint, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Okay. So I hope we have been able to answer some of the questions. I wish things were a little bit more clear for us as well. So that we could give some more definite answers. But I'm sure when we meet 3 months from now, things would be clearer, and we will be able to answer the questions more intelligently. I thank investors for their continued interest and the support to the company. Thank you very much.

Thank you, sir. Thank you very much. Thank you all my good investors. Thank you.

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