Tube Investments of India Limited (TIINDIA) Earnings Call Transcript & Summary

Good morning, everyone, and a warm welcome to the Q3 FY '20 Earnings Call of Tube Investments. From the management, we have Mr. S. Vellayan, Managing Director; and Mr. Mahendra Kumar, Chief Financial Officer. I shall hand over the call to Mr. Vellayan for his opening comments, post which, we shall open the floor for Q&A. Thank you, and over to you, sir.

Thanks, Aditya, and good morning, everybody. The -- for the quarter ended 31st December, I think I'll just go through the quick highlights. Basically, given the overall environment, we've been hit on the revenue front. Our revenue basically was at INR 976 crores for the quarter, which is a drop of 27% over Q3 of last year, mainly because of de-growth in the auto industry. PBT, however, before exceptional items, was at INR 95 crores. Our PBT last year for the same period was INR 93 crores, excluding the special dividend of INR 29 crores that we received from Shanti Gears. So on a PBT basis, like-to-like PBT basis, actually, we've been slightly better off than we were last year. That's predominantly driven due to kind of the efficiency drives and focus we've had -- the bottom line focus we've had as a company over the past 2 years. The ROCE basically was at 21%, that's just moved up from 20% in the corresponding period last year. And free cash flow was at INR 341 crores, which was 133% to PAT. So basically, we've also taken the lower tax rate of 22% and we're taking that result in benefit, recognizing that over 3 quarters, that gives us a benefit on the PAT side as well. The -- in terms of individual businesses, Engineering revenue was at INR 502 crores compared with INR 747 crores in the same period last year. So that business has been the most hit. The PBIT for that business was at INR 60 crores for this quarter as against INR 59 crores for the same quarter last year. And ROCE for the division was at 41% as against 36% for the same quarter last year. Cycles, basically, our revenue was at INR 146 crores compared to INR 298 crores in the same quarter last year, predominantly due to our exit from the institutional business. The PBIT for the quarter was at INR 1 crore as against INR 6 crores in the corresponding quarter in the previous year, again, driven by institution. And then for -- ROCE for the division improved to 17% as it's 8% for this quarter last year, and that was driven by -- predominantly by our work on reducing working capital and therefore, the overall capital employed. Metal forming has basically had a growth of 5%. This is the Metal Formed Products and railways business. So revenue for the quarter was at INR 370 crores versus INR 353 crores in the same quarter last year. PBIT was at 33 as against 35 in the corresponding quarter in the previous year. And we have growth in railways, industrial chains and in fine blanking, which basically helped compensate for some of the degrowth in auto in that segment. ROCE for the segment is 31% as against 28% in the same year last year. Consolidated revenue was 1,087 against 1,458, and PAT was at 82 as against 65 and Shanti Gear has also had a lower quarter at INR 58 crores versus INR 62 crores in the same quarter last year. And PBT for Shanti Gears is INR 8 crores versus INR 12 crores in the same quarter last year. So that's a quick summary of kind of our current position, and we'll stop now and be happy to take questions from the audience.

[Operator Instructions] The first question is from the line of Ashutosh Tiwari from Equirus.

Yes. Congratulations on strong ROCE performance over the last 1 year. Firstly, I wanted to understand that definitely we're cutting down in the institutional sales in Cycles. But if I look at the engineering business also, there was a sharp decline over the last 2 quarters. Obviously industry was doing very badly in 2Q, but there was some recovery in third quarter. So is it that we're also cutting down on the low-margin business in engineering as well? Or this is more to do with our mix or OEM that we are servicing?

Yes. So it's more driven by mix. The -- there has been -- so basically, like we have a higher dependence. And we have a 2-wheeler, which is a basically kind of a very large dependence for us as well. But we are seeing quite a bit of a mix change. The second thing also in that business is that you are right, which is we are not dropping price significantly. And that has led to a little bit of loss in market share. But basically, the way we see it is that it will come back to us over time, right, because guys who are just dropping price. Again, share has been our preferred strategy not to do that. And so those are the 2 factors that are driving it there.

And is it also that, like, say, steel would be mean raw material in this segment. And I think over the last 20 years, preparing last 2, 3 months, there was a steep drop in steel prices. Obviously your pricing also in terms of pass-through of steel prices would have also impacted the variations a bit. Is that correct?

Correct. Correct.

Okay. Sir, secondly, in this engineering segment, I mean, going ahead, what were the key drivers for this -- apart from industry revival? We had talked about -- like we entered this large diameter tools as well. So just some picture on going ahead, how do you think the witness will grow?

Yes. So basically, right now, right, if you take the mix of businesses we've got our Tubular Front Fork business, which is a fairly large business for us, which is quite linked to the 2-wheeler segment in India, right? Now the good news with that is that as some of the new products move to -- with BS-VI, we're seeing some of the new products and even scooter products move to tubular front fork. So that will help us grow in that segment, okay? So tubular front fork, I think will grow in India. It's -- what we're seeing now is kind of a near-term blip and that segment will come back. What we're focused on heavily is kind of developing a couple of new products that we think can be like tubular front fork for us going forward, right? We've ordered a mill for one specific product like that. And just so -- kind of delivery times for these things are like in a 9-month so we've placed the orders for that. But we see that the new products that we can get into are at least as large as the tubular front fork business, if not larger. And then the second thing, like you correctly pointed out, is that large diameter tubes are also down right now, both in India and globally. But we do see that, that will also come back when the demand comes back, either globally or in India, and we're kind of open to demand coming back in either space. We don't know when it's going to come back. But when demand picks up in either of the geographies, we're ready for that as well. So basically, 3 sets of opportunities. One is existing for growth in the existing products and that's happening by new products like scooters and all that coming in with BS-VI. The second is totally new products and the third is large diameter.

Okay. Can I just mention roughly what's the content in a scooter of this front forks for you in terms of some -- some color on that?

No. I don't think we discussed kind of it because then basically, we've got one product, we'll be giving you effectively the pricing on that product.

No issues, no issues. I think the -- recently Activas moved to front [indiscernible] . So maybe that -- what you're referring to?

Yes. That will definitely help us because that's a large product. And we've already kind of -- we've got a large share in that product already.

Okay. Okay. And sir, lastly, on this cycle side, I mean, will the revenue rate, will it like similar to what we've seen in the current quarter in terms of going ahead or there could be variation?

No. We -- I would say there'll be a slight -- no, there will be a pickup from this.

[Operator Instructions] The next question is from the line of Sachin Shah from Emkay Investment.

And really nice to know that in spite of such large top line variations, we've been able to maintain a profitability. So very, very heartening to know that. What I would like to understand is that on this large diameter pipes in your Engineering business, you did say that the demand, both domestic and globally, seems to be subdued at this point in time. But what exactly are the demand drivers for this product? And what should we really be looking at where we will get some sense that this business is now about to -- is going to gain some traction for the next few couple of 2, 3, 4 years?

You're talking about large diameter specific?

Yes, yes. Something like that. Yes.

So large dia, basically, is there are 2 things. One is as we offer a broader range, right? So basically, we export that product, and we sell it domestically, largest applications are in a lot of these dippers and earthmoving equipment, right? And so obviously kind of some of that is linked to what's going on in the overall industry where both CVs and tippers are significantly down, right? And it's linked to -- we also export that product to China, and we exported to some parts of Europe as well. But what we're seeing is that those markets are also down, right? The Chinese market has been down significantly this year. And so as a result of that, basically, what we are linked to is the return of that whole construction equipment space and tipper segment. And when that segment comes back, we will -- large dia will grow with that when it comes back.

Okay. Okay. Got it. And on the Metal Formed Products, we have this decent amount of business coming from the door frames in the auto. How is the outlook there? Because I think we've been present where a couple of -- these companies and their models are actually doing quite well in the market. So is that helping?

Right. Yes. So actually, just to give you a sense, I mean, I would say that we've seen less decline in that segment versus the others. But even our customers have seen a decline in that segment. And it's the first time that kind of -- some of them have dropped. And so that is the challenge, right, which is -- but the decline has been less than others.

Right. Okay. And the other thing is that we've been hearing or talking to a few large companies on the auto side, on the domestic business. The sense that we get is that at this point in time, most of them are optimistic in terms of a high single-digit volume growth or so, say, for the next 12 months, right? Any sense that you are getting in terms from -- because you are some of the key suppliers. So what is their outlook that they're giving it to you? And you have some sense for the next 12 months? What do you see the domestic auto volume growth?

Honestly, we don't want to develop too much of a sense because like everybody is kind of -- like we've often said on calls before, kind of crystal ball gazing is not kind of what we get, what we do or do well, right? But our general belief is that even if growth did not come back into the market next year, we will deliver the next 12 months with a better performance, with quite a bit better performance than we've delivered this year. That's what we have confidence that we can do.

And when -- and can you elaborate a little bit 2, 3 drivers, which will do this for you?

So basically, like you know, in existing businesses, we started -- we've done a lot of work to turn around and start strengthening cycles. So those cycles revenue will be down. We are convinced that cycles will deliver better numbers for our bottom line numbers for us next year. By the way, I'm talking about bottom line. I mean I can't predict top line. So I'm saying bottom line-wise, Cycles will deliver stronger numbers than it will this year, right? Second is that auto change, we made a significant change in strategy and started focusing on the aftermarket. That as a strategy is beginning to pay off, and we're getting better margins from that business so that will begin to pick up as well. In our fine blanking businesses, we've started turning towards external customers, which are nonauto. But -- or basically, I should say, export customers that are nondriven by the Indian auto environment. So that will also help us on the growth side. Railways as a business will continue to grow. Industrial chains will continue to grow. And on our existing businesses, where there's no growth, we're still focused on a lot of the efficiency drivers that we've been talking about for the last 2 years. So that will continue to yield results. So as a combination of those things, we feel quite convinced that we will deliver a stronger year next year, even if there's no market growth.

Okay. And this is really heartening to know that in spite of not taking top line growth into consideration, you will be able to manage your costs and efficiency so well that we will not be hurt on the bottom line, which is very heartening. Congratulations.

The next question is from the line of Aditya Bagul from Axis Capital.

Yes. So 2 questions from my end. Firstly, Mr. Vellayan, if you can talk about how is our capacity utilization moving towards in terms of the first 2 segments, your Engineering and your Metal Formed Product, what was it in maybe FY '19, and what is it today?

Yes. So in both, I would say, you're talking about Engineering and Metals Formed, right?

Yes.

So I would say, definitely, the good thing is that in engineering, we do have capacity, plus we added some more capacity in [ Rajapuram ] as well. So now not only do we have capacity as ever better geographically balanced as well. So now over 80% of north's demand has been satisfied by northern production this year, which again helps with our efficiencies because we're spending less on transporting tubes from the south to the north, right? And we've got adequate capacity in the north to handle growth of our northern clients as well. That number from 80% will go to north of 90% next year. So pretty much all northern demand will be catered for the north. That then gives us excess capacity in the south to push into export markets as well. And south, our plants because they're on the coast in Chennai are well-positioned to basically export. So I would say kind of across large dia and in the south, north and west geographies, in all areas, we've got adequate capacity for the next 2 years growth. And then in addition to that, we've ordered a new mill for the -- for a new product that we're basically going to get into on the tube side. That mill will come onstream as well in the next financial year, towards the end of it because it takes 9 months for them to kind of get the mill to us. So that will also help us on capacities on the Engineering segment. On Metal Formed obviously kind of we've got to break that down a bit. Auto changes are adequately capacitized, kind of given the current environment. The -- as far as railways is concerned, we continue to add capacity for various products there. And we're seeing growth. So there, the capacity utilization is high, but we are continuing to add capacity. And then, fine blanking, I'd say that we have kind of -- and are kind of unleashing more capacity with productivity improvement as well. And finally, on the door frame side. Right now because -- so I would say we've got adequate capacity across all of our products, cater to the customers. We're currently serving in doorframe.

Right. So that's very helpful and quite encouraging as well that you've got sufficient capacity to fuel growth as and when that comes in. Sir, my next question is actually on the newer growth opportunities that we've talked about previously, the TMT bars and the truck body parts, et cetera. So if you can just delve a little more as to what are the new developments that have happened over the last 3, 4 months. What is the size of the opportunity? And which are the customers that we are targeting?

So like I've said, right, I mean, basically, those businesses is best because they're kind of more like venture capital size of businesses at this stage, they're not going to move either our top line or our bottom line in the near term, right? So the main question is kind of when are those businesses starting and kind of -- but I don't think they're going to have any significant impact on top line or bottom line for even the next financial year, right? There are some -- so the -- if you take, for example, we've talked about this business and the optic space. That facility, we think that in the current quarter or early next quarter, we should start getting output from there. But again, in these early years, the revenue that comes from these businesses is going to be fairly small, right? So I wouldn't kind of factor that into models right now. We have started talking about how we need to drive growth. And what we see kind of potentially coming up if the environment continues like this, is we see opportunities for inorganic growth coming up, right? So as I said, it's clearly one of our advantages, this is with a stronger balance sheet is, like you know, basically, our net debt is down to a INR 103 crores at the end of last quarter, and we continue to pay down net debt. So we should have a fairly strong balance sheet by the end -- by -- in the next 2 quarters, I would say, potentially, we can also go debt-free. And in a -- if the environment continues to be very tough, as a matter of fact, quite a few based on kind of early discussions, there are also -- I mean, we've been approached with a couple of few opportunities for inorganic growth as well. So that's not an option we will rule out as a potential avenue for growth for us going forward.

Perfect, sir. Sir, and just digging a little deeper into this inorganic opportunity. What are the key attributes that you would look for in a target, right? Would you go for a geography? Or would you look for a product niche or?

Yes. So very clear that we want to focus it on acquisitions in India only. So we don't want to look for manufacturing assets that are outside of India right now. The second is that we are also very clear that we don't want to get into the auto supply, right, so kind of Tier 1 or Tier 2 auto supply. Unless there's kind of a tremendously compelling reason to do that, kind of our preference is to kind of move to -- I mean, there are kind of some key themes that we're working on, right? One is kind of looking at more B2C businesses, or B2 small B businesses versus B2B, our current B2B businesses, our customers are much larger than we are. So we'd like to kind of look at businesses where our customers are either consumers or small businesses. That's 1 axis that we're looking at. The second is that we're looking at definitely, like I said, kind of nonauto is the current thinking at this point in time. And the second that we're clearly interested in is if people manufacture here for export markets, right? So we're quite keen to kind of grow our exports business, and we see kind of businesses that manufacture for export markets working on developing that. And the third also that we said is that we don't want to go out and pay top dollar for our business. So our preference is to kind of acquire a business where, similar to what we've done in TI for the last 2 years, there's an opportunity to improve performance characteristics like PBT, free cash flow in the inherent business itself.

The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

Yes. Wonderful performance on the margin front. Many congratulations on that.

Thanks, Shyam.

Yes, sir. Sir, just on this engineering business, you have spoken about it. But if you look at on a year-on-year basis, there has been a 33% kind of a decline, how would you split between the volume and the values? Any color on that? Just trying to -- you did talk about the steel price being cut. But if you can -- if it will be possible to quantify, that would be helpful.

Yes. So basically, yes, the volume drop has been significant for us. Just last quarter, at the same time, was our peak quarter, right? So basically, volume is off almost -- it's like close to between 25% and 27%, right, is the volume drop. And we do believe that this is a combination of -- because basically, export volumes, domestic volumes all got hit in the last quarter. Now as the JFM, we're beginning to kind -- I mean, like there will be some pickup because export markets will begin to kind of get a bit better. In the last quarter, in generally kind of -- it can kind of sometimes be a down quarter for export market, the last quarter of the calendar year. And the second thing is that not -- even if we see a little pickup from domestic market, we see these numbers coming back. The second thing obviously is the -- some base effect because when you take that last quarter, the comparable quarter last year was a strong quarter versus then is when kind of things started to go off a bit. So that's also going to change things going forward. So that's it kind of a quick take on that, Shyam.

Sure, sir. Sir, you could talk about some market share loss, is it on the 2-wheeler side? Is that where we have lost some market share [indiscernible] ?

No. No, all I was saying is, all I was saying is that we weren't dropping price, but it's not been on the 2-wheeler side. It's not been on the tubular side development. Like we said, we see some opportunities in tubular front fork because products are now our -- in BS-VI, there are products like somebody mentioned, there were scooters, which are now adding tubular front forks. So that's a good opportunity for us.

Correct, sir. Correct, sir. Sir, on the end up, broadly, on the export side, you have spoken about export being weak. So sequentially obviously as you mentioned, December will be weak. Any outlook on the exports, sir, exporters will be around 8%, 9% over consolidated sales and are you seeing that improving going forward, either because of our actions or the market picking up? Anything on that?

Yes. Exports, you're right, they are considered about 8% to 9% of our total sales. And we just seeing that it could pick up coming in the coming quarter. On top of that, we are also introducing certain new products, which will take some time. It won't happen immediately, but in the next 12-months period, that's another uptick, which we can expect to see.

Okay. Sir, and on the new products in to -- that you spoke about in engineering that you ordered a mill also for that, that is on the 2-wheeler side itself, sir or is it on the non-auto side?

It is auto, but not 2-wheeler.

Okay. It's auto. Okay. Understood, sir.

[indiscernible]

Okay. Okay. Understood, sir, I understood. Okay. And this will be more like a structural part, per se, in that -- for the vehicle?

Testing critical part.

Yes. It's a safety critical part, and it's basically -- it's a good opportunity for us because it exists in -- actually, there, we're going to take a different strategy where we're going to focus on export markets first and then bring the product to India. So initially, all the production from that will be exported.

Okay, okay, okay. Understood, sir. Understood. Understood. Sir, on the metal forming side, on the railways, I believe railways contribute roughly 25% of the metal forming. Has what been the kind of and the opportunities that we are seeing there? Sir, we have spoken about that, anything you can talk about on the railway side?

We had, what, 60% growth from last year on railways.

Yes.

Yes, we had about 60% growth from last year on railways, Shyam.

Okay. So is there a shift from some weaker players to us, sir? Is that what is driving this or?

No. Basically, we're adding new products because we are adding, for example, metro that we weren't in before. And within the railway itself, we're adding new product offerings to our current customers. So it's not a shift in share, but it's basically new products that are causing. Also, by the way, also, railways as volumes are picking up. So though our share remains the same, we're getting increase, further increase in the railways volumes as well.

Okay, Okay. Understood, sir. Understood. Sir, and one thing on the margin front, we have seen very good improvement in the gross margins, [indiscernible] on a sequential basis or on a year-on-year basis. Is it more because of a function of a mix as the cycles going down? Is that one of the reasons for the gross margin improvement in that sense? Or has it something what to do with the supplier changes that you have spoken about in the past? If you can comment on that, please.

So I think the biggest drivers are some of the efficiency things that we've been working on for the past couple of years, right? And that is the biggest driver of the margin.

Okay, okay, okay. Understood, sir. Understood. Sir, and cycles has completely exited from the institutional business. Institutional business earlier would have been around INR 400 crores per year now, which is completely 0. Is that how to look at it?

There will be a few which are left out, which are being supplied this year also. So it won't be 0. It also, it wasn't INR 400 crores , it was about maybe INR 250 crores to INR 300 crores.

The next question is from the line of Sreemant Dudhoria from Unifi Capital.

So firstly, on the aftermarket business. You highlighted there is a shift in the strategy, and there's a lot of focus on that. So what initiatives have been taken in the aftermarket segment? Is there a kind of a new product launch in the aftermarket? Or there's a change in distribution? Can you please highlight, sir, what is happening there?

Yes. Yes, Sreemant, good, good question. And I think both of those things are true, which is, first off, we're significantly deepening our distribution, right? So when we looked at that as a country, there was almost, like almost, I'd say, 40% to 50% of the country where we did not have deep enough distribution. So we're definitely deepening our distribution, and that will continue, I'd say, over the next 2 years, right, where we can -- we will focus on getting much stronger on the distribution side. And then second, yes, we have been -- we have -- we started with new product launches, several new product launches, both catering to the higher end of the market, catering to higher-cc bikes and totally new products, right, including kind of new types of chains that we're introducing to the market as well. So all three. It's a combination of both.

Is it possible to share which products you're launching, sir, in the aftermarket?

No. I think we prefer not to, at a specific level, but I think that a lot of that information will be out there instead of go out to the market, you can kind of see it.

Okay. And on an absolute level, for the 9 months, what's been the contribution from the aftermarket? And where do you see this number going?

Again, we don't share contribution at that level of granularity. Obviously like you know, it's kind of high -- much higher contribution for us than our year ended.

Okay. Okay, sure. And secondly, on the new product launch, which you talked about, the optics. I just wanted to understand a bit more on this. Is it for the automobile sector or it's non-Auto product?

Yes. It's for the auto sector, but it's 100% export. So initially, we won't focus it on the Indian market. So I'd say for the first year, capacity is already -- actually, I'd say, even the first 2 years, capacity is fully bought out at this stage. In a sense, it's already contracted for but definitely, is there a demand for it in India? Yes. And so we will basically bring it to India also at the right point in time.

And what kind of investment are we making to this specific product?

See, initially, it's smaller. It's a sub -- it's smaller. But basically, the way we see it is if we can start producing this product successfully and our export customers like it, we'll start investing more into that product or in the near future. But right now, kind of, it's a sub-INR 50 crore investment.

[Operator Instructions] The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Just a couple of questions. In terms of the sharp revenue decline that is also because the OEM, the channels, the auto and for the BSP preparation that whether higher?

Sorry, Abhishek. Abhishek, but -- so is your question saying, is the magnitude a drop higher because of destocking?

Yes.

Okay. No. So definitely, I think, yes, we saw a lot of production days that were basically kind of cut. So though we didn't see it in retail sales, our belief is that production in that quarter was even worse than what -- than the sales number dropped in the quarter, right? And that, I think, is beginning to kind of pick up a bit. I don't think it will be kind of as bad anymore. But whether that was in turn kind of globe destocking kind of, which caused what I wouldn't actually kind of -- I'm not in a good position to comment on that.

Okay. And you also mentioned that in the BS-VI now, you'll have also a lot of these products now. So will there be inherently better margin products? Or would you continue to have similar margins on those BS-VI products as well?

Similar margins.

Similar margins. Okay. And lastly, in the -- so while your gross margins have improved sequentially, which is a very positive sign, but if I look at your -- so your margins have been constant just largely because of negative operating leverage. But what I see in the Metal Formed division is quarter-on-quarter, your margins have declined on an EBIT level. So should one read onto it because there, you have seen some amount of revenue growth as well. So how should one read into it?

Yes. So I think that is -- so the way I look at it is that there are a couple of businesses within there that got a bit more hit, right? Predominantly kind of our auto and our time blanking businesses. The -- like I said, that is driven because of kind of significant volume drops in those businesses. And the other businesses have seen margin -- either margins being steady or margin growth, right? So if we take the chains business, industrial chain and auto chain, railways, all of those have grown. So these 2 got hit. And our belief is that as some volumes begin to come back in those businesses, those margins will pick back up again.

Sure. Okay. And just last one, in terms of -- if you look at the free cash that you've generated, implied free cash generation for the quarter is almost about close to INR 200-odd crores. Would that be a correct number?

No. It's more than that. It's about INR 341 crores -- oh, sorry [indiscernible].

[indiscernible] for the quarter, this arose INR 178 crores or INR 200-odd crores.

One second. We'll give you that one, we'll give you this. If you have any other questions, ask us, we'll get that number for you. If I kind of --

Sir, one more question is in terms of the -- now we have seen a reversal in the steel prices. What was a declining one is now started to move up?

[indiscernible] Yes. No, sorry, we were saying it's INR 186 crores for the quarter, Q3.

Yes. But -- so a large part of it also driven by working capital B because your tax depreciation is only 120?

Correct. Yes, definitely. We've been working a lot on working capital. No pun intended.

More than INR 100 crores working capital.

Okay. And just last one, the scale price, what you were seeing a downtrend has not reversed quite sharply at least in the last 1 month or so. So in terms of you see -- do you think some amount of efficiency gain that was there can go there or we'll have to go to the customer to get your pricing reset again?

Yes. We'll have to go to the customer for that. We have a lot of our customers, that will have to be the pattern. I mean, that is the pattern we've usually followed, and that's what we will continue to follow.

The next question is from the line of [ Karthik Bodar ] from ICICI Prudential.

This is [ Prateep Uda ] from Nippon India Mutual Fund. Sorry, sir, just one small question. We have seen a substantial improvement in the gross margins. And you alluded to -- this was efficiency gain. Is it fair to say that this is sustainable and going forward, whenever growth comes back, we will look to build upon these margins? I'm talking about company as a whole or...

Yes. [indiscernible] Sorry, Prateep. Yes, yes. So the answer is yes, definitely. I do believe that if volume comes up -- comes back, we will be able to hold on to this and gain on that.

Okay. Great. So just one last clarification. Mix has nothing to do with these in the sense, if I were to -- if like in your commentary also you talked about cycles coming back strongly next year. Would mix have an impact? Or this is purely efficiency gains that you have seen and there's nothing to do with mix?

Yes. So the gain that we've seen have very little to do in mix, right? If things like cycles come back, like cycles has traditionally been a low-margin business for us, right? So if we can improve the margins in those business, that's why in my earlier commentary, I do feel confident that we will be able to deliver a better year next year than we've done this year.

The next question is from the line of Nemish Shah from Emkay Investment.

I just wanted a few data points from you. So what will be the non-auto mix in the engineering segment?

About 25%.

Okay. And this non-auto mix is largely large dia tubes or?

Yes. Large dia and regular tubes also.

We also do boiler tubes and things like that.

Okay. And so the boil. So what else -- so apart from off-road vehicles, so where else will this be used?

Used in refineries, boilers.

Okay. And in the Metal Formed Division, the mix for railways and non-auto will be this quarter?

Metal Formed Product?

You want percentages?

Yes.

We want non-auto. We just give non-auto versus auto.

We have about 80%.

Sorry?

We'll give you that numbers. We're looking at our numbers. We'll get it to you.

So any other questions?

No. That's it.

Okay. We will give you that number. Just give us a minute. We'll get back to you with that number.

With about 85% auto, 15% non-auto.

No, no, no. He is asking the whole metal form, what is a percentage that is non-auto?

50%.

I see a [indiscernible]. Yes. That's more than 15% .

And if you could give railways mix as well, please?

No. We don't discuss railway specifically, but given non-auto.

That will be about 75% to 80%. If you take our entire Metal Formed Products.

75% to 80% will be non-auto?

Correct.

Okay.

No, no. 75% to 80% is non-auto. Hold on. We'll get you that number, sorry. We'll get you that number, in a minute. We'll get you that number.

The next question is from the line of Ashutosh Tiwari from Equirus.

Sir, you talked about entry in a bigger way in the auto chains aftermarket. Can you throw some light on aftermarket size, percent? What is our current share, roughly?

The -- our belief is that we have auto -- aftermarket size for auto change. Do we have a sense of the share that we have? Our share is -- in our estimate, about 15%, right? Yes, somewhere between 10% and 15%.

And market size, roughly?

Okay. We'll try and get you that number, yes. Sorry, what is -- we don't get it on the call, we can get it to you after this. So what is your name again? I missed that.

Ashutosh.

Ashutosh.

Ashutosh, okay.

It is 70-30, total Meal Formed Products.

No, no. Okay. Wait, wait. He is answering a different question, I just -- yes. So to your point, on the market sizing, we'll try and get you an answer. If we don't get it during the call, we get it to you after the call.

Sure. But also I want to understand key roughly in this aftermarket, what would be share of unorganized players roughly?

So the unorganized guys are actually -- I mean, yes, so if you take the unorganized guys in our segment chains, maybe like 10%, 15%, most of it is organized.

Okay. So when you talk about taking more share, basically, the major really come from the competitors only?

That's correct.

Okay. And what would be the CapEx number that looking for FY '21? Also, how much we spent in this year and what the plan for full year?

This year, so far, we spent about INR 140 crores. Next year, it could be in the range of about INR 200 crores.

And out of this INR 140 crores, what would be on the new product development, roughly?

And then most of it is for new products only. I accept the capacity expansion, which we did in Rajapuram.

Which was how much?

It is about -- this year, about INR 30 crores.

So INR 110 crores is new.

So I mean the [indiscernible] this year, maybe in future or next 1 or 2 years?

Yes. That will really come in next year.

Okay. And sir, I mean, we obviously have done very well in terms of cost-cutting and ROCE improvement. But if you look at further going ahead over the next 1 or 2 years, do you think there are still opportunities to cut costs and which will be main areas?

See. I think, like the answer to the earlier question. Obviously kind of now, we have the advantages. Some of it, we've improved efficiencies but our utilizations are still bandwidth for growth, right? So obviously kind of our utilizations go up, then that will benefit our margins kind of significantly in those businesses, right? So that is the first thing. And -- but second kind of now, I would say that clearly, as leadership, our focus is now turning to how we deliver revenue growth. And so that is kind of the bigger -- that's basically what we're beginning to spend more time on. Because off of the 4 parameters that we had kind of defined earlier, that is the one that we have not -- definitely not delivered on this year. So we need to basically kind of figure that out, and we definitely see that one of the challenges in delivering it is our current business mix, is a huge auto dependency. That's why I talked about some of those approaches earlier to start focusing on the revenue growth, which is now what we're moving our attention to. I mean we started almost like 6, 9 months ago, but it takes a little while to do that.

Okay. And sir, in the large diameter tubes, which will be the key export market that we are looking at or do we have currently?

Yes. So there, we're looking -- we serve like 3 geographies. Right now, we serve Europe, China, and -- not U.S. but North America, I mean, like basically, some spots in Latin America.

Okay. So is the China big over there or ...

China is a big export market for us. Yes. So I think to the earlier question, Mahendra had an answer, it is 70% is what?

Auto, 30% --

70% is auto and 30% is non-auto.

The next question is from the line of [ Preeti Aras ] from [ UTI ] Investment.

Congrats on great numbers in a challenging environment. So I have 2 questions. One on the Cycles business. So last time, we did talk about some asset rationalization to happen since both the plants are operating at suboptimal utilizations. So any update on that topic?

No. I think we didn't -- basically, we said that this is something that we would evaluate over time, right? It's nothing that we've basically taken a specific call on at this point in time. We already have one facility that is not being used, which is on our [indiscernible] facility. But we've not kind of done anything beyond nor are we kind of committing to do anything on the specific assets within kind of a name, time frame. But broadly, we see that we have to kind of address the issue of low asset utilization across those 2 things. One of the ways we might do it, Preeti, is use some of the assets for other things as well, new growth.

Got it. Sir, second question is on the Door Frames business. I want to broadly understand who are the customers and what will be a broad market share because I'm under the impression that some of this is actually made in-house at OEMs or this product is actually optional in some of the models. Correct me if I'm wrong?

No. I mean obviously door frames are needed in all the models. It's only a question of kind of how they're done, right, which is you can either have them roll formed or you can have them pressed, right? So some customers choose to press them, in which case obviously kind of don't use or some customers choose to roll formed. And -- but obviously it's a required product. And if customers choose to press them, we try to convince them that, that our technology is better. And that takes development cycles, which we're obviously focused on with some of the larger customers as well. And in terms of market shares and all that, we don't discuss specific market shares with individual customers.

But do we supply to the largest OEM, Maruti?

So Maruti presses, their door frames.

Okay. So we are in the role formed part of the business?

Correct. Correct.

As there are no further questions, I now hand the conference over to Mr. Aditya for closing comments.

So thank you so much, everyone, for participating on the call. Before we close the call, Mr. Vellayan, if you could just share your outlook over the near-term and possibly over the next 3 to 5 years, where do you see you going?

Aditya, thanks. I think I alluded to some of it during the conversation itself. I mean we -- it's definitely tough in this market to predict where the overall market is growing. And so the broad commentary I made is that even if we do not see the market growing next year, we feel fairly confident that we will be able to deliver better bottom line results, and we will deliver this year -- in this financial year. And I think that's kind of something that we have a good level of confidence on. So that is the first comment. Obviously over the 3 to 5 years, I continue to remain significantly bullish both for kind of the country and for the company. I think that there's a lot of opportunity for TI, given the mix of businesses it's in and some of the businesses that we want to get TI into in the future as well. Growth will have to come from both organic and potentially inorganic means over that time period. And like I said, we're staying focused on a set of businesses that should hopefully kind of reduce our dependence on the auto sector, and therefore, kind of reduce some of the cyclicality that we're seeing in terms of the performance that we're delivering from year-to-year, in terms of top line performance, right? But overall, kind of our story remains intact, which is we want to deliver a company. We're committed to within 3 years kind of articulating a player card to deliver a company that will be able to give us 17% revenue growth, move our PBD to sales to double digit. We've committed to that within a 3- year period as well, and we're getting pretty close to there, deliver free cash flow to PAT of 85%. That will then allow us to pay down our debt and strengthen our balance sheet and push the ROCE to above 30%, right? So that kind of continues to be our focus, and we feel convinced that we can do that and continue to deliver an engine that does that over a 3 to 5-year period.

Perfect, sir. Thank you so much for taking all the time in answering all our questions. Thank you to all the participants.

Yes. Thanks, Aditya. Thanks a lot.

Thank you.