Timken India Limited (522113) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 FY '22 Earnings Conference Call of Timken India Limited, hosted by Spark Capital Advisors India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mukesh Saraf from Spark Capital. Thank you, and over to you, sir.

Thank you, Marvi. Good evening. Appreciate everybody logging in. I'm very pleased to be hosting Mr. Sanjay Koul, Chairman and Managing Director of Timken India; and Mr. Avishrant Keshava, CFO and Whole Time Director of Timken India. We'll start with very brief opening remarks from Mr. Koul and follow it up with the Q&A. Over to you, sir.

Thank you, Mukesh. Good evening, everybody. Happy to be part of this telecon. We just declared the quarterly results, which are to our satisfaction, and then the whole year despite the volatility and everything which could move this way or that way -- despite the volatility, we had a pretty good year. And the overall growth in India is pretty good. And in this overall good market pricing volatility, so this kind of requires more agility which the whole team of Timken India has demonstrated and delivered a pretty much successful year. So over to you back for any specific questions, and we can start answering.

[Operator Instructions] The first question is from the line of Sandeep Tulsiyan from JM Financial.

Sanjay, I have a couple of questions. First one, if you can just start by giving us a revenue breakup for the current quarter as well as full year FY '22 between the segments you usually share? And then I can ask the second question.

So the breakup for us for the quarter, quarter 4, '21-'22 starting with rail, around 17-ish percent; mobile, 20-ish percent; distribution, again, around 20-ish percent; exports at 30%; and our process was around 13%, 14%. So that was for the quarter and almost identical for the whole year. So exports remained at 30%, process 13-odd percent, distribution same at 20-ish and mobile around 20% and rail around -- similar 18% to 20%. So pretty much quarter and the whole year almost were same. And we closed near INR 2203 crore and the previous year was, I think, INR 1410-ish crore, if I remember it correctly. So significantly over the previous whole year.

And within this mobile, how would split be between Timken and ABC?

So we are not -- it is Timken, Timken, so this kind of not a complete breakup. But majority is Timken. Majority is Timken. So there is nothing like ABC as that Bharuch plant is converted to produce more and more of Timken [indiscernible], although we are still producing ABC brand, but that is getting lesser and lesser. So we are producing more and more of supply out of the Bharuch facility, which we wouldn't call anything, we call it Bharuch facility of Timken so similar like Jamshedpur and half of the production like -- which we produced last month went for exports. So it was destined to produce more and more for export, and that is one of the reasons we have a nice jump in exports overall.

Understood. Sir, second question is on the railways part. Broadly, if you can give us a break up how the business is, broadly, between wagons, passenger coaches, locos and metros, and given the traction seems very strong, 30,000 new wagon order in addition to regular high-speed trains are getting added, new metro projects are also getting announced, so where is the total market size? Where is it split for Timken? And how do you see the growth rate? Broad overview of that, if you can share, please.

So in rail, the buy -- still the mix of buy from the railways is on wagon and in the wagon, which is the freight. In the freight, there are 2 kind of buy. One is what the railways buys themselves for their own MRO requirement or workshops. And what they tender out as wagons, which goes to the private wagon builder, they in turn buy the bearing to the specification of the RDSO. So as you know, this year, they just added almost -- they planned 90,000 wagons for about 3 years, which are roughly 30,000 for a year, so -- which is already rolling. And as we talk about the previous year, the revenues more came from the freight followed by the passenger, and passenger is both mass rapid transfer, which is the metro and the long rail and locomotive is a very small subset of that. So a major player remains freight, followed by the passenger, which is a subset of metro. And obviously, on freight, we remain a dominant player. And railways have also changed the specification and gone for -- in the normal freight wagons, forgive the -- forget the dedicated freight over the normal one. The specs has been changed to what we call is the higher freight limits. So it has gone, what is known as that high capped class yield, so -- which we are now supplying. The old class yield is already kind of phased out and dedicated freight corner, that is a different bearing. So this will remain dynamic because railway wants to carry more and more load and slowly more and more speed. So -- and Timken is a dominant player in this segment. Okay?

Okay. So if I got those numbers correct, 19,000 wagons for this year, and out of it...

No. No. No, 90,000 they have tendered for next 3 years. 90, 9-0. [Foreign Language] for next 3 years. [Foreign Language] means [Foreign Language] bearings over the next 3 years.

Over 3 years, it's looks very high. It's amazing.

[Foreign Language] if wagon builder can produce it completely, so then it is very significant. But obviously, why everybody wants to do their best. But that is what they have gone on call, which a way in public domain. We have tendered out 90,000 even, but they have not allocated the whole amount yet. So they are in the process of allocation. And it is moving, the Calcutta-based wagon builders have got their allocation. So they are already negotiating and work is in progress.

The next question is from the line of Ankur Sharma from HDFC Life Insurance.

Before I ask my questions, I have one request. If you could do these analyst calls a little more frequently, that would be great because, I guess, we do it maybe once a year. So even at maybe twice or maybe every quarter just like what some of your peers do, that would be really helpful to get a better understanding of the numbers. So that's just a request from my side. Specifically, a couple of questions. One, when I look at your margins for this quarter very, very strong, both at the gross level as also on the EBITDA margin. So what's driving that? Is it a higher export mix? Is it a -- or is it a higher mix of CV base, et cetera? So just trying to understand what's driven that very, very strong gross margins and EBITDA margins? And how sustainable do you believe are these margin share?

So obviously, if you see the Timken company globally is also leaders in the bottom-line as you must be knowing it. But other than that, coming back to Timken India Limited, volatility has been where the alloy prices have been going up relentlessly from 2020. And hopefully, now we see a little bit of softening because of this duty which they have put up on exports. So that might bring some helpful cheer to the alloy buyers, steel buyers. But 3 things. One is that passing on the price. So that has been -- as you know, better than myself that there is always the automotive customers are always very sneaky about any change. But the continuous discussion we did about passing on the prices of raw material. So that is the one. The product mix has been both domestic and export base [Foreign Language], so we have pretty much aligned. And obviously, when I'm able to use the capacity fully from both the units, so at our Jamshedpur unit and the Bharuch unit. So that kind of gives us -- when fixed cost is divided by, say, only 10 days versus 15 days, obviously, that gives you an advantage. So we've been running were pretty much a good order book in both the banks. The product mix has been better in this quarter. Now product mix is a subset of forecast, which is further subset of what our end customers are going to buy. So whether you're sustainable or non-sustainable is a question which is related to product mix to demand to the end user buy. But overall, we have always been working continuously on our continuous improvement, localization plans, passing on the price changes. I would say cost changes rather than the price changes relentlessly. And on some quarters, obviously, get, luckily, the good product mix and the last quarter was a good product mix. And as we know that our highway segment is pretty much good, rail is pretty stable, exports are pretty much good. And because of the war, 1 or 2 plants globally got closed. So that might also help us a little bit in the long run. So all that put together has given us this robust bottom-line. Now whether it will be sustainable only it will be new things in that. But the whole idea is to keep on hitting these moving targets.

Okay. Okay. That's very helpful. Sir, secondly, I know you touched upon exports and that's one piece that has actually done quite well even for some of your peers. I think, overall, you're seeing increased traction from India. If you could talk about that, how do you see that traction both this quarter, coming quarters? Obviously, ABC also contributing now. So if you could spend a little more time on the export side. And more importantly, now with talks of a global slowdown, maybe you are heading into a recession, et cetera, or even dollar for that matter, any initial signs of a slowdown that you're seeing there? Or already talking to your end customers, things are fairly okay, that side?

So obviously, we are able to supply globally, Europe, America, Africa, even China. Obviously, in between this troubled times, there was a little bit of restructure, but we are able to -- Russia as well. But -- so we are fragmented in that sense that we are not dependent to say 3 core major customers who we affect them [indiscernible] panels. So that kind of helps us on the risk mitigation piece of it. And second, obviously, the China exports to America on papers, it has a special duty structure. So India scope on that and both, there is it -- a lot of discussion on the slowdown with the interest rates and all that stuff. But we don't see that on our order book, on either in the short range for cash now -- neither in the long range for cash, see it. But these things can turn around suddenly many times, so nobody can predict that. But overall, we are in a pretty steady state. And one of the reasons of recurring capacity in 2018 in Bharuch was to actually augment our exports. So we've been exporting, as you all know, for many, many, many years. So this is not part of our new strategy. We want to have a robust mix of domestic and exports, and we've been working on that relentlessly. A lot of components, China parts, which were either importing or doing so that capacity enhancements we have done in Jamshedpur like last time we spoke on the [indiscernible] and our Bharuch facility is also producing now more and more for exports. So export is going to remain steady for us. And India, being a very good in the overall income family city India remains best cost country. So even if, God forbid, tomorrow a serious recession hits, there is a good chance that we will still need some reckoning, but it's a game of demand. So obviously, if the demand really drops and a global recession takes place, nobody can do that. But currently, while we talk India, everybody is talking about the order book does not show yet the signs. But automotive order books can [indiscernible] also we have seen that in the past.

Okay. And just one last question, if I may, would be on the process side. Even here again, the domestic process for recovery on the private CapEx, obviously, also with high utilization. Coming out of COVID, we would have seen demand for bearings et cetera pick up. So if you could just talk about that piece as well, how demand is seeing there. Is inflation may be hitting demand or starting to hit demand there as well?

My apologies, your voice broke a little. If you could repeat the question? I'm sorry.

Sir, my apologies. So I was saying on the domestic industry, that is the process industry on the domestic side, if you could talk about how is demand there from steel, cement, different industries, so given the way inflation has been and price hikes have been taken, has demand there taken any hit? Or is that also kind of continue to do well?

So I think -- generally, my 30 years of experience in the dairy market, whenever the commodity prices are up, sales of dairy is always up. So now how do you correlate these two is a science in itself, but generally always that has happened. So that is on one side. On the stationary equipment wise, whether it is energy, whether it is Infra, cement, steel robust demand, pretty robust demand. So that, I think, is going to remain like that. Obviously, steel guys getting the chance to export more opportunity cost so there's opportunity sales with better margins is attractive. But with government of India also making sure that they get amnesty for the infrastructure. And as we all know that between now and '24, the push on infra is going to remain strong in India whether it is the built of rail, the built of the infra ports, et cetera, et cetera. And -- so the process, which is going to remain pretty strong. Now the steel prices have gone up significantly in last 2 years, there is a chance that they will soften. And we see a little bit of that in India. But in Europe, we don't see the steel prices softening either. I have not yet seen that very closely in Americas, so they are not softening here yet. But the demand is remaining pretty robust, the pool is very much there.

The next question is from the line of Priya Ranjan from HDFC AMC.

So my question is related to the -- first is on your top line. So top line, how much you can attribute it to the commodity pressure in the commodity pass-through because that will be one element and there will be volume element. So how should we look at the volume and the mix, overall top line for FY '22?

Okay. So Priya Ranjan, so last time when we spoke to you, you were in a different company, so congratulation on joining HDFC. So next is that -- see, the overall -- if you see our mix, our mix in this has been -- margin-wise might be a little bit skewed towards it. But overall, the mix is 0 to 8 inch mix, which is pretty much -- sometimes it moves a little bit on the 4 to 8 inch, which are a little bit more costly bearing. So that mix is going to remain healthy. As far as commodity prices are there, we have not been perceived by -- if the -- if you take 100 kg of steel, the finished bearing conversion of steel is not 100kg. Of course, so it is -- maybe it's a bit different then. And then whether we have been able to pass it completely to the customer, I would say we have been significantly into the game, but still not 100%. So we got, certainly, I would say, a small percentage in our top line. The mix will remain healthy in the sense that as we see the demand forecast for the off-highway, demand forecast of the related distribution as well, previously the question asked on the process side, and the export is always, anyway, towards -- tilted over towards the heavy side of the 0 to 8 inch because there is normally companies supplying in more integral and differentiated application. So I would say that certainly, there is an element of the pricing going up, so there is that little element of that. And there is certainly an element of richer product mix which, on YTD, washes out. When you look at the whole year unit, quarter-to-quarter, they might kind of -- some quarters more [indiscernible], some quarters, less. But overall, year-on-year -- Y-o-Y, you see then they kind of wash out. Yes, they have a role, and that role is not hugely significant, but certainly a role is there.

Understood, sir. Understood. And sir, secondly, on your -- how has been the wind industry or the wind supply panned out this year? And if you can help us, what is the percentage of sales now in terms of wind?

So wind is for us, Timken India Limited sells bearing to the wind market in India. So our sales are to sell in within India. Wind market, overall, is pretty good. China was slow, definitely China was slow. But the gearbox manufacturing in India for exports was pretty much good. And we certainly, if you see that our process -- the wind goes into the process, which is the stationary increment, our revenues almost doubled between the whole year of '20-'21 to '21-'22, they almost doubled. So I would say that the wind growth is certainly pretty much there, and this will keep on growing as more and more companies start making more gearboxes in India. And the indication from the global gearboxes is that they want to use India more and more, so which is good news. They want to make more and more these gearboxes in India. And as you know, this wind used to be some megawatt, then they move on to 2 megawatts and, obviously, the megawatt changes, platforms are getting -- they get redundant. And they move to 4 and things like that. So that evolution is also happening because a lot of countries don't use the smaller windmills like India. We're using also for a time like 0.5 megawatt and 250 kilos. That all and just 2 megawatts or so on. So these are graduating and becoming bigger and bigger up. But the India, as I said does not have a very strong wind [ tunnel ]. We still have to install many windmills in India, but the market is going to be gearbox exports out of India, which is going to grow. You've got 9 Chinese gearbox right now coming to India and if you go to go shop in Chennai, you've got a web of established lenders, who've all established, who want to make more and more gearboxes out of India. But this is a cutthroat market and this is as tough as automotive, or even tougher.

Understood, sir. Understood. And sir, in terms of the defense and aerospace -- because I mean now the government is also lot of focus on the defense localization, et cetera, so what kind of opportunity -- because I see in your global presentation, defense and aerospace is kind of a decent top line contributor. So how should we look at that business going forward in, say, next 3 years, 4 years?

So, you're absolutely right defense globally -- for Timken globally is a pretty strong segment like U.S. Navy, completely all the refurbishment of all their naval carriers are actually with Philadelphia Gear which is part of the Timken Company. And then on helicopters, et cetera, et cetera or on the landing gears, Timken is pretty much significant globally. In India, still, I think the defense is going to be certainly a strong segment in times to come because not only India wants to localize, India also wants to export. So obviously, the bearings are used in narrow ships, coastguard ships, submarines through the gearboxes. They are used in the engines for aircraft, they are used in the landing gear, but they are not used in [indiscernible] machines and things like that. But certainly, we are used in tank turrets. When the tank turrets move, it's like a bearing down there. So this market is growing. Timken, luckily, has an advantage in the sense that if the platforms are going to be Russia, then they use a very unique size, which is only unique to Russia. But as we all know, everything is moving towards the American platforms more and more, Lockheed Martin and Boeing and all these for aircraft. So we are certainly supplying to small companies, whether it is [indiscernible] or it is to HAL or to some of the ordinance factories. So we are certainly watching this with a lot of interest as this market grows. We will keep on supplying through import, but as this market get this critical mass then it is going to be pretty significant. And now we also see a shift in defense buying. Many times, I have seen -- many years back, I would go to the Command -- like I had go to Northern Command. Many years back, I used to go to Northern Command to the port and they had a lot of trucks. And they are drive, so to say, Indian design or equivalent. So they were generally using the equivalent resource through the N1 route. So I was getting many times worried when the [Foreign Language] would happen, [Foreign Language]. So now they are getting more tech sales. We want to use the best of the technology. But it still does not have a big critical mass, though we have started to receive a lot more guns, bullet-proof vests and things like that. But we -- obviously, the Boeing is working with the Government of India, Ministry of Home and all that, Defense. So slowly and steadily, as it gets critical mass, certainly, this is a high-tech area. And you now just imagine that an aircraft, which has to have 0 defect on the landing gear is not going to be [Foreign Language] segment. So we have to kind of keep on watching it. It is going to come, but it is not -- I mean, now. It is still slow and steady. Sorry for the long answer.

Sure, sir. And lastly, sir, on your capacity utilization and any plan for increasing capacity because now even ABC is contributing significantly to exports. So do we see expansion capacity required going forward?

As we speak, our capacities are fully loaded in both our plants and if there is a need to put in more capacity, we remain debt-free, and we remain having cash. So we can have the speed to investment, but it all depends on -- and we have been always careful so now as we all know, there is this talk going on about depression and recession around the corner et cetera, et cetera. But I'm in your camp, we have to be optimistic. India is on a growth path. We are close to $3 trillion going on to $4 trillion economy and manufacturing is going to become more and more significant. India is destined to become a strong exporter. So we will obviously not shy away from enhancing our capacity. And we still do not produce mechanical roller bearings in India. So we are working in that segment keenly. And we are evaluating every quarter what and how and why we should invest more.

The next question is from the line of Hardik Doshi from White Whale Partners, LLP.

And I just wanted to reiterate, I think, a comment from another participant, that it will be great if you can have these calls more frequently, maybe at least half yearly. So just on the export side, I think a couple of years ago, maybe there was a comment made by management that they targeted export to reach 50% of overall revenues. So is that -- do you think that's still feasible? And what kind of time line would you be looking to kind of get there?

I would not comment on the percentage, but if you see our own capacity minus the Bharuch capacity. So then it is significant numbers. But if you take the Bharuch capacity, now the capacity has become more double, so it is 30% if the capacity would have been single then it would be a significant part going 60% by that math. But we are going to remain a focused domestic player and a focused export player because of the fact that we have -- Timken India, when we rolled out, 30 years has been instrumental in developing a global supply chain out of India, localizing this whole supply chain, investing in child parts and continuous expansion and enhancement of technology. If you walk in our plants and you would see -- and if anybody has walked into the plants, say, 15 years back, and now would walk in, would see how much more robotics is being used. Process automation is -- so this all is focused to become -- remain a good significant global player. And we want to sell more and more. We want to produce more and more. As Priya was just asking, would you invest more? If the market is good, we will invest more. So the pie will become bigger and bigger, and we will keep on exporting. So the -- whether it is 50%, 30%, 40%, depending on how much more capacity we are able to put and how the demand moves. But one thing is sure that we will remain a good export partner for our other sister companies out of India.

Okay. Just a follow-up to that is, I mean, are you -- for your sister companies around the world, are you seeing a lot of substitution of orders where you're taking over orders that maybe would have been coming out of China?

Well, I can see -- if you see symptoms in China is more on the -- heavily on the industrial side and our capacity here more on the smaller sides. So they certainly do not have that kind of relationship. But this trend would -- every customer in the global automotive segment or off-highway segment -- it has been -- by catalog globally is doing well. Everybody is increasing their production. And everybody is selling more and more. So that is setting up. Now if the question is that is it [ sinking ] China supply or they replacing the answer in this segment of zero clearance if want to simplify it, that is not there. But Timken keeps on winning penetration -- so globally, we are winning penetration. And we might be using penetration globally. Some of the segments, I don't know, but penetration, obviously, we, as a company, want to do more than what the market growth is that the margin growth, 1 year to 1.5, for example. So that is happening. And China is not able to export papers to America is one thing. China are now raising under the issue of their own COVID. Obviously, there is a play in that. So all this kind of mix, global companies think more and more to derisk themselves. So I think all this put together, whether war in Ukraine and its impact, all that kind of is helping India. And I think the Indian stance has been pretty wise and well appreciated. So all these global things are going to only help India, India as a country, then India as a manufacturing base and then the global comps.

Got it. Got it. Okay. My last question is on the railway side. You mentioned the 90,000 wagons in to it, and I mean it seems like a big opportunity. But historically, we've also seen that the railway CapEx seems to be kind of lumpy and on and off, and there's no real directional impetus out here. So is -- do you think anything is changing, let's say, in the next 3 years versus last 3 years, which would make you believe that the opportunity from railways in terms of revenue will actually fructify and to be a significant growth driver for you? What...

Yes. It is a tough question. Certainly, the railway is Government of India and moments keep on changing, and then their focus keeps on changing. But if we just take a snapshot of the current, say, last 24-odd months, the railway is becoming more professional in India because maybe it is because of the rail ministers and what if, all the focus of government of India on that. But -- if I go regression wise, Indian Railway has held almost 300,000 wagons or maybe 350,000 wagons. And many of them are aging, so they need to replace. And then the freight -- they certainly have an advantage on the freight cost versus the road costs given the fossil fuel cost and with pollution and all that, so railway has an opportunity. So now these 90,000 wagons for 3 years, high chance they will happen. But there's always a chance that there might be something which might come in between. But given all what we see, what we hear, what is happening, this wagon bid is going to happen unless there is something which was drastic. So this should happen certainly. But then railways government and sometimes they can take -- all of a sudden, they can take a call on doing something different. But generally, I think they should be able to do it. But at the same time, we can take the example of dedicated freight corridor, there's a huge opportunity. It is moving but moving very slow. So it has to kind of catch up. Similarly, on the passenger side, the will is to change to faster trains, better models, grade 18s and one-way and all that. It is happening, certainly happening, which certainly happening at a better speed than the previous year. But still would need a much more push. So I would say we have to remain optimistic, but we -- when we do our own business plan, and we remain a little bit outsiders. But as a market outlook, we want to remain optimistic and we don't want to fade. And at least wagon build, I will see the market, it is galloping. So it might not be 90,000, it might be 80,000, or thereabout, but this is happening pretty well and they also need this built.

Got it. I'm just going to squeeze one more question in on the margin front. We used to be in margins, which were in the mid-teens and then we moved towards like in the low 20s. And now this quarter, we had 26% in terms of the margin. So -- just -- I don't need the exact numbers, but directionally, I mean, do you think these kind of margins are really sustainable going forward given the mix of exports and the kind of product orders that you're seeing going forward?

So obviously, we certainly want to keep the exports going, that certainly is going to happen. We are going to remain very focused on that. And then we are continuously -- more volume needs more optimization. So if less volume needs obviously less optimization, is a hit on a little bit of the fixed cost. While this quantum leap is pretty nice and good, but we will have to keep on working hard to keep maintaining it, and a little bit of luck also, so all that put together. But we are going to remain focused on it, remain focused on export, remain focused on continuous improvement, optimization. But if tomorrow the demand really goes down, then obviously -- then it has a relation to the bottom-line for sure.

Sure. But I mean, from a gross margin perspective, at least, do you think consisting around these levels?

I can't say this loan or that loan, the whole focus is to have robust gross margins.

The next question is from the line of Sameer Dosani from ICICI Prudential AMC.

If -- my question is if we are to dissect the FY '22 growth of 56%, what part would have come from volume growth and what would have been because of the pricing actions that you have taken during the year? That's my first question.

So if I could get your question right, so this leap on the top line, 2 major contributors certainly. One is our process industry which is heavy industry and the wind, and the second is export. So these are the 2 major -- we got, obviously, double-digit growth everywhere, but these 2 are significant growth. And export, as I see the order book currently is going to remain pretty much okay. We are focused on a smooth order book, book is pretty solid. So that would remain there. Process industry. In India, as I was earlier saying that the many gearbox companies are wanting to produce more gearboxes out of India. And we also want to mitigate China, which means some production will be getting rationalized between these wind gearboxes to India, which means more supplies. And then on steel, as we see steel is getting consumed, infra push is very much there and all that will let keep the process industry also align. So rail will remain -- as we spoke that the rail business is going to go up. It's already going up 30,000 wagons per year, 90,000 divided by 3. 30,000 wagons is almost too like 40,000 bearings and we will get a significant piece of that for sure. And the passenger is also coming up pretty well. So -- if you ask just the plain question, it is the exports and the stationary, which is the captain and the vice-captain of the pipe.

So my question was more about out of 56% growth that we are seeing, what is the kind of volume growth overall level that we would have seen. And what part of the growth would have come from pricing actions, the price increases because of the steel prices that you would have taken?

So I asked -- you're right. So I asked you -- I also answer the same question. So the change in commodity pricing does play a role, but it's not significant. Volume mix is significant because we have been able to use in the last quarter and last year, the capacities of our Bharuch and also our complete capacity utilization of our Jamshedpur plant. So the volumes are up. Certainly, we are up because of the...

Any ballpark number that you think would be the price increase. Any idea on that? Overall level?

Yes. I would say percentage-wise, the volume on our -- between these 2 plants in the last quarter would be up by 40-odd percent.

Okay. For the year FY '22, 40% volume growth overall level?

Yes, roughly 30% to 40%. I don't have the -- but...

Sure, sir. No problem. No problem around there. Also, when you look at -- you answered earlier participant that Q4 utilization, you are already fully loaded. So what would sort of utilize -- what will be the utilization for Q4? And then obviously, we want to grow from here, is there a CapEx would be required from here on? And I just want to understand what is the kind of top line you can do from the current capacity that you have overall level.

So our capacities on -- last quarter, our capacity is on our both the plants where we always do not utilize capacities. We don't plan more than utilization of 80%, 82% because of the predictive maintenance, health of the assets and the quality which we have to produce. We have been hitting in that range. So which means that we can always produce more using the 7 day of the week by having a rotation on this. But our rail capacity utilization was lower. So there is a chance to move more capacity there. Having said this, we are already putting some little bit of more capacity in our Bharuch plant, which is a very specific line, which we use for maybe small-sized bearings. So we want to -- looking at the market, looking at our export potential and our dedication towards that, we are not going to be shy of putting more CapEx. But the question remains that is there a global recession around the corner? So obviously, we don't want to be stuck with any depreciation all of a sudden without producing any bearings. So there is a chance that we can put in more CapEx if the demand remains robust, and we look at that. So certainly, we need to produce more for sure, for further growth. And we still have to kind of -- I would say that Bharuch where the capacity utilization is in that range, but the efficiency has to go up. So like our Jamshedpur plant is highly efficient. This plant, we are investing more and more into those assets. We are modernizing those assets. We are upgrading technology in that. So same assets have the chance to produce more. So we are working on that. But before we put any actual lines, we want to make sure that the capacity utilization result is the knowledge we have comes to task.

Right. So just to get it clear, 80%, 82% is the highest you can go. Currently, you have 70%, 75% kind of level and maybe you can just go a little bit higher and improve the efficiency. Is that correct?

Yes, roughly correct.

Yes. So third question is we are sitting on 40 -- roughly around the highest gross margins that we have seen around -- in last 7,8 quarters. I mean, obviously, mix has helped our automation and efficiencies and everything has helped. But overall, where do we see this margin long term? I think, I'm just continuing the earlier participant's question. But what do you think would be the sustainable kind of a gross margin that you see?

As I said earlier, also the focus of the whole team needs to make better margins to produce more with less, to do capacity utilization, to spend less and do more volumes. So that all is dependent and corresponding to the volume. So volume plays a role. Passing on the cost increases to the customer and using technology to get a delta over your peer group is another area. So I would say that our focus has been margins, and that is why you see regression of last, say, 10 quarters. So there is certainly a shift in the published numbers, as you can see. So whether now it can be up 20s or low 20s depending on all these new items, but we certainly -- our focus to deliver better gross margins. We are focused to deliver more return on investment for sure. So whether it is sustainable not sustainable, towards sustainable depends on many things, but the focus is clearly on that.

The next question is from the line of Neelesh Dhamnaskar from Invesco Mutual Fund.

So this is a kind of question on margins. So just wanted to clarify, is there any one-off during this quarter? Maybe any previous -- I mean, previous quarter compensation -- the cumulative compensation, if you got any other thing?

No.

So it's all normal. Fair enough. That's good to know. And the second one is in terms of lead time, you said that you have the capability and whenever you see the usual capacity, we will put it. But what would be the lead time for you to -- once you put up on the decision making to the operational aspect -- to operationalizing the capacity?

Yes. So in order to put in capacity, say, for example, if you have to build the capacity from scratch, so it will take you 12 to 24 months. But for us, we have a very mature supply chain. So that gives us lead to the market. We also have assets available globally, which we can buy from our sister companies or use them. So our speed to the market can be fast, but it is still at the maturity level of what we have in India, globally supply chain. Still it's a 6-month game if you are really a winner. And if you are to put up a complete greenfield and you don't know the whole game engine, it will take you 2 years. But for us, putting in capacity, it generally takes 5 to 6 months.

All right. So 5 to 6 months is the brownfield and if you get aid from the global operations that way, right?

Yes.

The next question is from the line of Mukesh Saraf from Spark Capital Advisors.

Okay. When Mukesh asks the question, that means that is the last question. Okay, Mukesh.

Not really. I have a few questions, I just wanted to ask a couple of questions that I had. Sanjay, if you could -- I think in the past, you have mentioned that in terms of chronology of margins, export is amongst your highest, so is there any change in that? Could you kind of give us some sense on how the pecking order is across your segments on margins?

So I won't speak about the -- where we are getting the margin but generally, the upper -- between the segments, the upper control limit or the upper limit and the lower limit are pretty much tight. So they are pretty tight, but the exports are obviously attractive. But overall, our margin gain has been -- demand has been pretty tight.

Right, right. Understood that. And secondly, if I look at the global company, Timken globally, you have expanded a lot in the power transmission. It's now 30% of revenues. We, at India also, have had that exposure but it's quite small. And I think globally now, we've also acquired a company robotic automation. So I mean, how are we looking at some of these things for the Indian entity, sir?

So obviously the global companies, which Timken has acquired over the last some years, has companies like Rollon, which are into linear motion; we have companies like BEKA, which is into lubrication; and Groeneveld, again in lubrication; then this robotics company. Unfortunately, all these companies are mostly Europe based, so their sales is also in Europe. But you can understand that, say, for example, our competitors are making seals in India, they are making lubrication in India, and India is a very attractive distribution. I forgot about Carlstar Belts, which is the world leader in industrial belts, part of Timken company. So India has the scope of making these on certainly at a better value proportion. So we can lead you to lubrication. When you have this technology available in Europe, the nuts and bolts can be done in EMEA, getting the technology here. So these are all very, very interesting M&As which Timken company has done. We are very much focused on robotics. We are focused on power transmission. We definitely as part of our plan at some point of time that how can we be part of the board, the top line, and part of the supply chain in the sense that if lubrication systems can really easily be manufactured in India and sold in India, exported to these guys. So this is a very interesting area and also interesting for Timken India Limited. Interesting for Timken also because India can produce it at a very good cost. And then if not globally, easily sellable in Asia. And like BEKA and Groeneveld are pretty much experts in revenue generation, this is high-price, high-margin area. Lubrication on the metros is another area. We are -- we just sold 1 system to one of the metros in India. So this is a very interesting area actually. And also, it can use significant growth to Timken India. Now issue is timing, when should we do, how should we do it, can this be in greenfields, should we do it, or should we test the market. All that work and deliberation we are continuously doing. But certainly, these technologies are available in India -- I mean, the Timken company and can be used with Timken India Limited. So time will obviously besides which way we'll go, but they are very interesting M&As, which will be technology available. India has limited market but India has the potential to export these at a...

Sure. Sure. And just one very quick one, last one from my side is any change you've seen in the transfer pricing between Timken India and the parent company?

No. My [indiscernible], no.

Okay. Okay. Great. Marvi, we can go to the next question.

Okay. We can take the last question. We've got 4 minutes left, so I think we can answer one more question if there is.

The next question is from the line of Chetan Gindodia from AlfAccurate Advisors. Sorry to interrupt you, Chetan. May I request you to come on the handset mode? I believe you're on speaker, and the audio is not very clear.

Okay. Is it good now?

Yes.

Sanjay sir, so I wanted to understand -- so export numbers this year would be around INR 620 crores, if I'm not wrong, which has grown nearly 80% from last year. Is my number correct or I'm getting something wrong here?

No. It's INR 670 crores. So you are almost close. INR 670 crores is the number.

Okay. Okay. Got it, sir. And secondly, you said that we have -- railway is now looking for 90,000 wagons for next 3 years. Does this also include the DFC class bearings wagon or it will be the regular wagon only?

The regular wagons. 90,000 is regular wagons. And on top of that, they will do the DFC, which is not -- it is going to be okay, but not a significant number. These 90,000 are dedicated for the high-capacity Class C, which is the normal wagon.

Okay, okay. And when do you see the DFC opportunity panning out for us? And can it be significant going ahead?

It is going to be a nice comp in the whole set of the -- DFC has to crisscross India. It will keep on happening and keep on getting more wagons onto the circuit. But it's not going to be a huge jump overnight. It is going to be a nice, slow, steady augmentation. That is my read.

Okay. Okay. And just lastly, sir, I wanted to understand, so within our mobility cement, I guess we supply to the commercial vehicle segment here. And so if you can explain to us what would be our average content per MHCV and what is our market share here? And how do you see the growth of this segment?

So on commercial vehicles, heavy commercial vehicles, bearings are used, the kind of bearings we meant are used in the [indiscernible]. We are used to the differential in the premium. Premium and differential are the high-tech priorities and we then commoditized market. So we supply all the 3, but we are leaders in the Differential Pinion. So we have the majority of that you see a heavy haul truck on the road, 9 out of 10, the premium would be a Timken bearing. We made -- our penetration is okay, but it's not significant. We do supply [indiscernible] to Tata Motors for many, many years. And similarly, to our Timken circle of global companies. But our focus is Differential Pinion and offering Differential Pinion technology is moving and all that is happening. So we are working closely with our customers, both the Indian and the technology partners. So the content, you can calculate the fixed bearings on the differential bearing, 4 bearings or the 10, 11 bearings depending on how many axles and all that because there would be multi-axle vehicles and not non multi-axle vehicles. But our leadership is on the Differential Pinion.

We have taken the suggestion that we should do 2, so we will try to do at least 2.

I think, I unfortunately, have all this time. So it is fine. Anything, Mukesh, you want to say before we close it?

And if you have any closing remarks, that's all sir.

No, my closing remark, we'll try to do 2. So I think we'll organize 2.

Sure. Sure. Thank you.

Thank you. Thank you. God bless you all. Thanks a lot for your time today.

Thank you. On behalf of Spark Capital Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.