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

Ladies and gentlemen, good day, and welcome to the Tube Investments Q1 FY '21 Earnings Conference Call hosted by Axis Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kashyap Pujara from Axis Capital. Thank you, and over to you, sir.

Thanks, Inba. Good morning, everyone, and thank you so much for standing by. I hope all of you all are doing safe and our -- and families are indoors. It's a great pleasure to have with us the top management of Tube Investments of India to discuss the Q1 FY '21 earnings. From the management side, we are represented by Mr. S. Vellayan, who is the Managing Director; Mr. Mahendra Kumar, who is the CFO. And we also have the key business heads with us today on this call; Mr. Mukesh Ahuja, Mr. K. Paul and Mr. Srinivasan. So the entire team -- top management team of Tube Investments is present on the call today. Mr. Vellayan, I would now like to hand over the floor to you, sir.

Thank you, Kashyap, and good morning, everybody. The -- I'll just go through a quick press release, and then be happy to turn it over to you for questions. Obviously kind of due to COVID, we've had a pretty crazy quarter this last quarter. The -- pretty much from March 23rd onwards we have -- operations have been shut down in a lot of locations. We resumed some operations in a very small level at the end of April, and May also, capacity utilization was extremely low across the system. In June, we've been able to get to about 50% capacity utilization. We obviously will have to see what -- and talk a bit about what we think kind of going forward. But obviously, this has had a significant impact on both operational and financial parameters. Revenue at a standalone level was INR 379 crores for the quarter compared to INR 1,252 crores in the same quarter last year. And we reported a loss before exceptional items of INR 69 crores compared to a profit of INR 107 crores in Q1 last year. During the quarter, basically, we also had put in a VRS. This was not put in during or after COVID. We've already planned for it in February, so this is getting implemented now. And that cost us INR 8 crores. And that's considered as an exceptional item. So the net profit before -- I mean, loss before tax of INR 77 crores. Not used to saying loss before tax, I think it's also the first quarter in my professional history that anything has run at a loss. So it's quite a dramatic situation for us. The net debt of the company was actually reduced to INR 101 crores as compared to INR 149 crores as of March 31, 2020. The -- and some of the individual businesses have done a great job of managing working capital. Engineering business was at a revenue of INR 164 crores compared to INR 657 crores, so about 20% -- 20% to 23% of their corresponding quarter. And their loss was INR 27 crores as against a profit of INR 67 crores in the same quarter last year. Cycles was 100 -- at INR 100 crore compared to INR 290 crore. And they had a loss of INR 6 crore versus a profit of INR 12 crore. Metal formed had a revenue of INR 127 crore compared to INR 350 crore, and they had a loss of INR 38 crore versus a profit of INR 34 crore. At the consolidated level, revenue was INR 457 crore as against INR 1,385 crore and loss of INR 77 crore as against INR 120 crore. So Shanthi Gears also had a revenue of INR 25 crore as against INR 71 crore and a loss of INR 5 crores as against a profit of INR 13 crore. So that was the net results, obviously, kind of not a great quarter for us given the environment. The only positive thing I would say is that actually, usually, we don't share the data, but June was a breakeven to slightly positive month for us. So I think that's the only silver lining here. And obviously, my belief is that it will get better than it has been. So that's the silver lining, and that's the good news. So let me stop with that, and I'll be happy to turn it over to all of you and take questions, and we will respond accordingly. Thank you.

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

Yes, sir. So we are now seeing some pickup in terms of commentary from different auto OEMs in 2-wheeler and 4-wheeler side in June and July.

Ashutosh, you are not very clear.

Sir, just a minute. Is it okay now? Better now?

Yes, better.

Yes. So my question is that if we look at commentaries on different OEMs in recent -- like last 1 month, there's some pickup happening in 2-wheeler, 4-wheeler side, both, more so in 2 wheelers. So how are you seeing that trend basically in July? And also, I want to understand more on industrial side, how are you seeing the trend in June and July?

So I think, Mukesh, you want to take the 2-wheeler question, and then I'll come back.

Yes, boss, I'll take it. Regarding 2-wheeler side, maybe like you rightly said, there is a momentum which is visible, maybe from June onwards. And June was maybe operating at around 50% to 55% level. And we expect that at least July should close somewhere around our 65% of the pre-COVID levels. And as of now, I think in the 2-wheeler side, demand is maybe really picking up because of this personal mobility push after COVID scenario. And supply chain has to cope up, what has been given to understand with the various OEM interactions. So it looks like clearly, the things are picking up in 2-wheeler segment very, very well, and followed by the small car business, which is in CV, and I think CV will take some time to catch up, is what is the trends point out. Yes. Yes, over to you SV.

Yes. And I think in terms of industrial in general, definitely, we're seeing -- like Mukesh is seeing on the 2-wheeler side, we're seeing July being better than June. So that is the -- that's a kind of big tick. Honestly, we don't want to make any commentary for kind of what the future is going to look like and all that. But the positive thing is that I do see July being better, and if that trend continues, it's a good thing.

Okay. And sir, secondly, how are the things shaping up in the aftermarket in chains business? Is that picking up more fast?

Yes. KRS, would you like to respond?

Yes. See, because of this COVID situation, the aftermarket is really looking better. Even before the OEM started their manufacturing, aftermarket has picked up. And as far as we are concerned, we could engage with our channel partners, and we could really do some good business in the first quarter. Aftermarket, we really look very positively right through the year. Yes, sir?

Is it like going back to the normal levels now in July?

We -- I mean, I can tell you, we are more or less reached the pre-COVID level in the aftermarket, yes.

And sir, lastly, if I may ask, on the railway side, is there also like the tendering, everything is getting delayed or there things are more better than other segments, basically?

Railways is getting significantly delayed. Again, KRS, why don't you talk to that?

Railway is getting delayed. Because they are finding it difficult to run the operations within the coach factories because of the current pandemic scenario. Even the allocations on the central pools again to the respective coach factories are getting delayed and also are not in the same level as they used to be. So there is a significant delay in railways. We are expecting at least things are postponed by about 3 months.

[Operator Instructions] Our next question is from line of Shyam Sundar Sriram from Sundaram Mutual Fund.

Sir, just a couple of questions on the metal forming division. Yesterday in AGM, you highlighted the auto aftermarket revenues doubled in FY '20. Did I hear it right? I mean some 20% of the metal forming, it has now become 40%, firstly, or is it just a housekeeping there? And metal forming as a division, if you see the EBIT margins from FY '16 to '20 has not really improved much as we have -- even in our annual report, we have spoken about improving or increasing opportunities on the industrial chains, auto aftermarket being good, 50% growth in railways so what are some segments, let's say, metal forming that are proving challenging in terms of being margin accretive? And just an addendum to that, are -- from a railways perspective, are acquisitions necessary to grow in railways? We are hearing some bidding on the -- for an -- of an industrial, of an engineering company. So just to understand, are acquisition necessary to grow in railways? So these are the regular questions on the other metal forming side.

Thanks, Shyam. So let me just answer the question on acquisitions. I mean like we've told you, kind of -- definitely, we think that railways is an area where acquisitions are appropriate because it does take a long time to basically get approval. And the railways tends to be kind of fairly loyal to their supplier base. So we do see it as a good area, kind of, from an acquisition perspective. To your earlier questions on metal forming, again, I'll let KRS respond to that.

Yes. Yes. See you asked about EBIT margin. See, metal forming has a set of businesses which are dependent on 2-wheeler, 4-wheeler and railways and industrial chains. It's a combination of all these businesses. So what you see was an aggregated EBIT. At the individual level, if you see, there have been strains on the EBIT margins on the 4-wheeler, actually. That's basically because the market went down last year under 4-wheeler, as you know, about minus 13%, minus 14%, which actually affected our overall topline. To that extent, the fixed cost absorptions were not as much. As far as our 2-wheelers were concerned, that division had done pretty well. In fact, we have improved our EBIT margins and the PBT as well. As far as railways are concerned, we are really very positive, and we are looking ahead for a good growth in railways.

Understood, sir. And whether after -- auto aftermarket revenues doubled, like you mentioned in the AGM? Or did I hear it somewhere wrong? That is -- just the housekeeping there, sir.

No. The pie has doubled. That's what he was trying to explain. Earlier we used to more focus on OEM. Now we shifted -- the focus has been on the aftermarket. Actually, the pie has doubled.

So basically, the 20% or 40%, part of that has happened, Shyam, because the OEM levels dropped significantly last year.

Yes.

Okay. Okay. Got it. Got it, sir. Got it. Sir, just one...

Combination of change in that that caused that removal.

Understood. Understood. Just one question. In the annual report, you have highlighted a lot of import substitution opportunities in the engineering segment and a very strong export order book in metal forming. Now exports have always been a focus for us in terms of the overall business, you have spoken about it in the past. So if you can highlight what are the import substitution opportunities in the engineering and the export opportunities from the metal forming, slightly more perspective on that will be very helpful. And therefore, how does exports look from a 3-year perspective?

The metal forming exports is basically -- metal forming exports is predominantly industrial chain. Now we're beginning to explore auto chains as well, but to your question on import substitution for engineering, I'll let Mukesh answer that again.

Yes. In engineering division basically import substitution, we made some CapEx in the last year, maybe to upgrade our capability, where maybe we find there is opportunity available. Lot of cold-rolled strips are getting imported from -- in the industry. And we are focused, maybe, let's say, customer wise and maybe developments are very -- really progressing. And this quarter also, we could maybe find out some new product development, and we aligned with some 4 to 5 customers. And we'll see going forward, but let's say, it will be a growth area for us.

We'll take our next question from the line of Prateek Poddar from Nippon India.

Sir, could you just talk a bit about how are you thinking of the breakeven point? And is there scope to further reduce it? From your commentary, it looked like that breakeven points for us would be closer to 50%. Are there any thoughts about post-COVID? Obviously, we have done a great job in terms of improving on breakeven points. But is there more scope or more juice to build on that?

Yes. So I think that's a good question, Mr. Poddar. So obviously, I think nothing has made us look at breakeven points as cleanly as this whole incident, right, of COVID. I'd say the encouraging thing for us is that we've seen -- I mean, the engineering segment has actually kind of done the most work on it and has been able to kind of push their breakeven points significantly. Metal formed, we still see some opportunity there. And so we're going to work on that kind of fairly keenly over the next 6 to 9 months. But I'm highly encouraged because a number that was north of 70% 2 years ago, we've been able to push it down to a point, where at 50%, 52% we've been able to kind of push a slight profit. So that in itself is encouraging to me. To your question on, is there no juice? I would say kind of definitely we see opportunity in the metal formed business, and so we're going to focus there to kind of try and see how we can get more from that -- to see how we can push the breakeven down going further down in that business.

Cycles also made a good improvement. There also, there was a significant reduction in the breakeven level.

Okay. Okay. So -- okay, understood. And sir, second question is post-COVID, one of the growth strategies for TII as highlighted by you as acquisition. Post-COVID, will that leg see acceleration now? Are you seeing more opportunity in terms of acquisitions? Could you talk a bit about it?

I think we've had at least 2 more kind of opportunities get added to the mix in terms of what we're evaluating. And definitely, I think that, that is going to be the case. So there will be more opportunities that offer themselves.

Sir, the pipeline is fairly healthy, if I may. If I can think of it that way, that post-COVID, the pipeline has increased?

Absolutely.

Our next question is from the line of Mr. Kashyap Pujara.

Mr. Vellayan, actually, I have a question in as an extension of what Prateek just asked. And that was mainly that post-COVID how do you see the landscape changing mainly on not just breakeven points, but how are you thinking directionally on costs? Earlier, I remember, even before COVID, you had kind of alluded to achieving 10% PBT margin sustainably, which -- and potentially taking that figure up to 12% to 15% over time on the core business categories that we currently operate in. And now that COVID has actually struck, do you think that certain costs are being rethought about in a way where structurally the cost trajectory might look different and certain costs can be eliminated completely? And hence, the margin trajectory, given normalcy in top line, whenever it happens, the overall margin trajectory should be definitely better. So one is, how are you thinking on those fronts? And second would be on the overall strategy post-COVID. Do you think the way we were thinking about our business before COVID in terms of extensions or adjacencies and acquisitions and certain focused markets within the current opportunity set that we -- has any of those elements gone through change? And are we dropping some of the earlier plans or redrawing new plans? How do you kind of articulate these softer aspects?

Yes. So first -- Kashyap, to your first question, right, in terms of what changes do we see there. You were talking predominantly about kind of do we see our ability to change our cost structure a bit more drastically. And there, the only thing I'd say is kind of to us, it's a combination of 3 things, right? It's a combination of kind of industry, structure, conduct and performance, right? And what you were talking about is kind of just more performance-oriented, which is do you see people kind of sharing of that or getting more aggressive on their cost structure. But also what we're beginning to see is kind of changes in conduct, and changes in the way kind of some of the supply side conducts themselves, and there will be changes on the demand side as well. So because what's beginning to happen a bit on the supply side is that the weaker suppliers, obviously, are in more of a cash crunch situation, right? And so where they might have been willing to kind of be more flexible in the past, some of them are less capable of being more flexible because they don't have the balance sheet to support it. And then -- so that, I think, will either lead to a change in industry structure over time or what it will lead to a -- is a situation where the amount of pricing aggression or the amount of pricing competition kind of goes down a bit, right, because these guys can't afford longer working capital cycles or kind of thinner margins. So I think the industry structure changes that come out post-COVID and industry conduct changes are going to far outweigh industry performance changes, right? And I think that, that's going to play to our advantage because luckily, we have a stronger balance sheet, we have more staying power, and we basically are playing a much, much longer game, right? So that is to the first question. To your second question, Kashyap, in terms of whether the strategy is changing. I think like I said earlier, what we see is that this market will offer more opportunity. And we just have to be patient and be able to kind of make the right calls when it comes to that opportunity and how we capture it. So I just think it's kind of -- it's coming back to a question of the level of -- just like how kind of calm we can be and make sure that we make the right choices when we kind of pick what we go after. I hope that answers?

We'll take our next question from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, just continuing with the earlier point that you mentioned that there are changes that you are seeing in the way the business is being done, now a couple of other sector players tells us that suddenly a lot of the businesses have turned into cash, whatever earlier you were having, channel financing, other things. Suddenly, the entire channel has -- or the entire business has turned into cashes. Is that you're also seeing in your set of businesses?

Now when you say kind of on a cash basis, I mean -- as you know, we deal with very large customers and very large suppliers, right? So for example, our largest buy is steel, right, and from the likes of JSW and Tata Steel. And our customers are also very large, right, like all the 2-wheeler, 3-wheeler -- I mean, 2-wheeler, 4-wheeler, and CV manufacturers. So if you're asking if those guys on either end are moving to cash basis, the answer is no, no. I mean because I don't think that they're moving. So I don't know if that answers your question or you had another kind of element to it?

No, no, I think that kind of sensing in your study, since your is more B2B, probably I think that will be a difficult element to kind of pursue with that kind of business model, okay?

Correct, correct.

Also, if you look at on a quarter-on-quarter basis, and this question may not be so much relevant on a Y-o-Y basis, we see a deterioration in the gross margin. Is it because of higher proportion of revenue coming in from Cycles? So Cycles has obviously declined a lot lesser. So proportion of Cycle business is a lot higher. Is that the reason for the gross margin deterioration?

On the gross margin...

Yes. That's -- maybe let me answer that. Yes, that's one of the reasons. That's not the only reason. So we need to see this as a portfolio of businesses also. So some of the high-margin businesses in the total mix also for it to see -- show that kind of performance. So we should not draw conclusions based on Q1 because it's a truncated quarter and the restricted operations. So if you really look at the overall structure of business, nothing had changed in terms of gross margins compared to the earlier year. It is only the mix of businesses, which is playing the role.

Sure. And FY '20 had an employee cost of almost about INR 450-odd crores because of whatever VRS you're kind of implementing, what should it look like? Obviously, there could be lot many changes, but only because of the VRS impact, what can be the employee cost reduction like going forward?

Yes. So the VRS, only part of it is implemented. The remaining part is yet to come. Like what we mentioned in the earlier calls, we are typically looking at a payback of 4 to 5 years for the VRS spending which we are making. So you can calculate based on that.

Okay. Fair enough. And just one last question. In your annual report, you've mentioned that if you look at the industry of cycle, it's almost about 79%, 80% of the industry is controlled by top 4, 5 players, and you almost have a 25 -- 24%, 25% market share and still where the profitability is fairly low. So how should we look at that part of the business because a very few businesses where marketing deliver 24%, 25% market share, so either is it product demand issue? Or how should one look at it? Can you just help us understand that?

So we do believe that there is opportunity to improve the margin in that business. And Kalyan Paul, K.K. Paul and his team have done a great job in actually turning that business around to where it is today. Also, for the first time, last quarter, that business has gone to negative net working capital. But let me ask Paul to talk about the opportunities he sees to increase the margin in that business going forward. Paul?

Hello?

Yes, Paul. You're on the line. You can talk.

Yes. Okay. I think even in the first quarter, I think we have improved our margins over last year first quarter. And as we are moving forward, I think we are concentrating on certain specific segment that will allow us to keep our margins, not improve dramatically because last year we improved a lot, but keep it at that level. We are actually going in for a share gain phenomena over the next 2 or 3 quarters because the market, we believe, overall, is not going to grow. And hence, therefore, we have to take this opportunity to do that. But there will be an overall improvement in terms of what kind of results we will show in the coming quarters. So that's distinctly drawn up as far as we are concerned. And whatever new opportunities that are coming through in terms of exports, et cetera, will allow us to shore up the top line and ensure some stability in the business. And that's the way we are going to proceed in the next 3 quarters. Trust I've answered?

Yes.

So just to add to what Paul said, right? So I think the first thing is that this used to be a 0% PBT to sales business. Our first step will be to get it to, I would say, like about 6% PBT to sales, right? I am talking about PBT, not PBIT. That will be our first step, and just in that step, kind of some of the basic things that have been done is, Paul has done a great job of kind of rationalizing the entire logistics infrastructure. We've eliminated 12 warehouses. We're down to kind of 2 warehouses across the country now in addition to the factories. We've also done a lot of work in terms of now channel development to basically improve our relationships with the channel. Done a lot of work on new product development to ensure that our products are very competitive in the market out there. And fourthly, kind of in terms of looking at both manufacturing and sourcing rationalization to improve the overall margins in the business. We shifted a large chunk of the production up to our northern factory, which is closer to the raw material suppliers. So I think that some of these steps have begun to pay off, where we've got a higher PBT to sales like Paul said than last year. But definitely, there is going to be more headroom for improvement on that, which we will see playing out over the next 12 months or so.

Sure. Sir, just one last question. Just one last question. In terms of -- we are also hearing a lot on railways in terms of privatization of passenger trains. Is that something that you're looking as an opportunity for you guys from the -- this thing? Or it's going to be regular...

Honestly, it's -- currently, no, because that's a very different business. We see ourselves much more as an industrials and manufacturing player. And that is much more a consumer play. So for that -- from that perspective, we're not looking at that right now.

Our next question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.

Sir, regarding the electric scooters and 3-wheelers, at least in the 2-wheelers government has become very firm that in next 2 to 3 years, at least 2 million or 3 million of EV 2-wheeler should be there. And then outside India, also governments have hardened their stance. They are not bothered about whether crude goes down or up essentially. So in view of that, what are the challenges for us? One is the China issue or the Korean components and the Japanese components. And how do you see the path forward for the next 3 to 5 years? What are the initiatives?

Yes. So Bhagyesh, it's a good question. See, first off, we've looked at this space, and we're seeing 3-wheelers and 2-wheelers quite differently. The -- right now, we're seeing that there seems to be a massive crowding going on, on the 2-wheeler side, with almost 35 new entrants. And if I say, between kind of existing players or 35 or say kind of new companies with products coming out there, right, whether it's a new company or an existing company with an electric product. It seems to be kind of a whole plethora of them. And honestly, I think that we are trying to see what is going to happen, how that industry kind of is going to conduct itself in the near term, right? So it's unclear. So basically, what we're saying is in 2-wheelers, we are continuing to evaluate kind of how we will go to market. So being a bit more -- we're standing back a bit because we see a massive rush right now and so much crowding that we don't feel like going in as a 36th player makes sense, right? On the 3-wheeler side, we're getting a bit more kind of aggressive with our plan. So there, we're kind of doing some development. But -- so we're just trying to establish now how long it will take to get a product to market in that space. But we are keen on that space, right? We think that the 2-wheeler space will go through, first off, massive kind of price competition. And then a lot of players will get burned. So I don't know if it kind of -- and I don't know if it makes sense at this stage to go in to a massively crowded market, though we are evaluating kind of the space and seeing if there are potential kind of empty areas that we can go in and compete. But it just looks very crowded right now.

3-wheelers we are more serious now? It doesn't have too much competition, actually, as of now.

Correct.

Okay. Yes. That's a good strategy.

Our next question is from the line of Anupam Gupta from IIFL.

So just 3 questions. Firstly, continuing with Bhagyesh's question. Let's say, in terms of the market size for you, if we move from the internal commercial engine-based vehicles to electric vehicles across, let's say, 2-wheeler, 3-wheeler and 4-wheeler, what sort of market size change happens for you in terms of what products you can offer to the OEMs?

Yes. So again, there we're not looking at offering products to the OEMs, right? We're looking at being the OEM.

Okay. Okay. So in that sense what you're saying, let's say, if I take the example of 2-wheeler, where you say front fork is a large product for you, you will keep supplying that to OEMs? Or you'll -- will that not be a part of the strategy? Just as an example.

See we will -- I mean, the front fork basically -- by the way, obviously, exists in both an IC 2-wheeler and an electric 2-wheeler. And we have -- we will continue to obviously supply the front fork to both IC 2-wheelers and electric 2-wheelers.

Okay. So basically, the way I understand is you're saying whatever the existing portfolio continues if it has a market in electric vehicles. And along with that, you'll also be wanting to be an OEM in the electric side?

Absolutely. That's correct.

Okay. Understand. Secondly, in the call, earlier, you mentioned change in the conduct of OEMs and suppliers and your peers. So one thing if you see on -- at least on the supplier side, to you is that a lot of metal companies here, and so they are large, they are also focusing a lot on the working capital side. Similarly, I would assume on the auto OEM side, they will also want to be focused on the working capital and other terms. So are you seeing pressures on those side? Or are you able to take advantage of that in terms of getting lower cost of products, lower cost of the items which you buy? What sort of dynamics are you seeing there?

Yes. So obviously, there is more pressure from the OEMs, there always is. But like I said, I mean, if you have a stronger balance sheet than your peers, then you are able to handle that better than some of your peers are able to.

Right. So basically, what you're saying is given the pressures, you will be stronger and maybe take advantage of this effectively. That's what is the message is.

Correct.

Okay. And thirdly, on acquisitions, so you have highlighted that you are obviously keen on acquisitions in certain products. But let's say, if you look at it from the balance sheet perspective, what size of acquisitions, whether single or multiple, would you want -- would you be comfortable doing going at existing balance sheet and the cash flows, which you see over the next couple of years?

Yes. So obviously, kind of we had said that what we would put kind of outside is about 3x cash flow. And that would kind of help determine it. Now obviously, we can't get very deterministic about the size of the acquisition. It will depend on the opportunity and whether we feel like it's a good opportunity for us to grab or not. But that's the indicative range that we have given, I believe, in the past, and we'll continue to stick with that.

Okay. Okay. And railways, you mentioned is obviously -- needs an acquisition there, but which other segments, so let's say engineering will be the key focus? Would it be domestic or whether it will be exports, if you can just elaborate a bit on that?

Yes. So obviously, we like the idea of having a strong domestic base because our fundamental premise is that to be good at exports, it's always useful to have a strong domestic base. So definitely, on the engineering side, having a strong domestic base, we see as an advantage. But if there are any great export -- just fully export-based opportunities that come up, in the sense, with manufacturing in India, that part we're very clear about, right? Manufacturing has to be here. So as long as the manufacturing is here, we will evaluate that opportunity.

Our next question is from the line of Shashank Kanodia from ICICI Securities.

Sir, my question is pertained to the bicycle division that we have. So initial news item mentions about bicycle is a segment gaining traction in developers, both for fitness as well as social distancing norms. Obviously, this quarter, there was a supply side issue. But on a demand side, have we witnessed any green shoots or some initial color on that front?

Yes, I think that's a great question. Again, I'll turn it over to Paul, who runs that business to answer because he's got a closer perspective on it. Or I'll be happy to supplement if needed. Hello, Paul?

Sir, could you please unmute your line? I guess, Mr. Paul, you have muted your phone. [Operator Instructions]

Okay. Okay. So I'll take the question. And if Paul joins back in, then he'll answer that. So to your question, yes, we are beginning to see more domestic demand. And the demand in the month of June was quite strong. And we do feel like that demand will sustain coming in for the next couple of months. Our visibility beyond that is a bit tough, but we are seeing a lot of encouragement where people are looking at this as more of a lifestyle issue. And a lot of demand, both in kind of the slightly more premium bikes and in the high range as well. So yes, we are seeing kind of green shoots there, and it is quite positive.

Okay. And sir, secondly, some time back, there was also a new item mentioning Atlas Cycles being closing their shops. So is it a permanent thing? And does it give some mindful hint?

Yes. So definitely, they are pretty much out of the market right now. Whether it's permanent or not, we can't tell, but they're out of the market right now. And that is definitely helping kind of us increase share. I mean basically, there are a couple of people who are benefiting from it, and we are one of them.

Okay. Sir, were they mentioned both on the institutional side or more the premium cycles point of view?

They were more on the -- I mean, they were there on institution. But I think, basically, where it's helping is on the trade. On the trade side, there are -- I mean there's a standard, which is where Atlas was larger. So it's definitely helping us there. And Atlas was smaller on the specials. So there's some benefit in the specials, but more of it is on the standard.

Okay. And sir, lastly, on the overall business perspective, you could share -- your share of revenues between auto and nonauto. And within auto, if you can share some segmental between 2-wheelers, PV and CV segments?

Broadly, we've indicated these numbers in the past. Mahendra, do you want to just give broad indications on these?

Yes. So Q1 may give a misleading picture. But generally, if you see the full year of last year, it was about 60% auto and 40% nonauto.

Okay. And sir, within auto, how much between 2-wheelers, PV or probably CV segments?

It's more or less 50-50, you can say.

So 50% 2-wheelers and 50% PVs.

2-wheelers and 50% 4-wheelers.

4-wheelers, right? And sir, within 2-wheelers, you do supply to the likes of Hero and Bajaj, right? Or we are more towards PVs, cycles?

Yes. In fact our products go into almost every 2-wheeler. We supply to many, many OEMs.

[Operator Instructions] Our next question is from the line of Nemish Shah from Emkay Investment Managers.

Just a couple of questions, data point question. What was the export mix for the quarter?

Mahendra?

Sorry, what was the question?

Export mix for the quarter.

For the -- yes.

Export mix. Okay. 1 minute.

Okay. We'll look at that. What's the next question?

Yes. Another one, so on an FY '20 basis, if you can share what was the rail -- mix of railways for the full year numbers...

Railways is very small. Actually, we don't release kind of specific data, but I would say it's maybe 5 -- yes, somewhere between 5% and 10% of the overall -- 5% and 7% of the overall.

So exports were about 14% during Q1.

Okay. And sir, one last question is, sir, the new products that you are planning to launch. So the -- are they on track? Or is there some delay on that front?

Sorry, we can't -- I couldn't hear.

[Operator Instructions]

Hello, can you hear me now?

Yes.

Yes. Sir, so I was asking in terms of our new products, is there -- are they on track? Or is there some delay in terms of the launch?

There have been delays, especially like, for example, for the lens business, we haven't been able to kind of get it fully up because of the challenges we've been having. It's all -- the equipment is coming in from Korea. And though the equipment is here, it's been a problem getting the experts to install it because they're all Korean. So things like that have been delaying some of the products. So I would say most of it is seeing at least a 3- to 4-month delay as a result of this.

Our next question is from the line of Darshan Engineer from Alchemy Capital.

This is Darshan here. Sir, I wanted to know -- one bookkeeping question from FY '20. The export of diameter tubes, what would have been the degrowth in FY '20?

So large dia tubes you are saying?

Yes. Yes.

Yes. Mukesh, do you want to take that?

Yes. Large diameter tubes basically, they are associated with the commercial vehicle. And like you witnessed, maybe commercial vehicles were down close to about 35% last year. So we have seen similar kind of downturn in our numbers also.

Okay. Okay. And also, sir, going ahead, what kind of growth outlook do we expect for this particular line of segment, considering that there were trade restrictions imposed by U.S. and antidumping duties on this diameter tubes?

Irrespective of that, what has happened, you rightly said that maybe U.S. has put some antidumping duties and all these things. We started this work maybe around 2, 3 years back itself to develop alternate market. And we are progressing well to what is that alternate markets in case this U.S. antidumping is not working it out, and we are well prepared to handle that.

Okay. And sir, secondly, on this new business initiatives like TMT bars and the truck body building business. My longer-term structural question is that why do we plan to enter into these business? This is because these are fairly commoditized business, I would say. And therefore, I mean, what would be our right to win in this particular 2 business lines? And therefore, generates a lot of this 20% plus ROCs in this kind of business also?

Yes. So obviously, kind of the answers are different. See, truck body, for example, it is a commoditized play today. But it's a play that we see shifting significantly from an unorganized to organized. The average truck body guy makes like 3 bodies a month, right? And the quality is very suspect. And we're already seeing that a lot of these guys now are shutting shop because it's just a tough working capital business, and it's not ideal to be in the unorganized state that it's in. We believe that India is going to have a shift to quality. And some of these unorganized businesses will shift to more organized. And that's where we basically see the opportunity in both truck -- first definitely, much more in truck. And I think the truck is less of a commoditized player than TMT. But even in the TMT space, basically, what happens is that it's pretty much an unorganized business today. And there are huge premiums associated with the brand, right? So if it -- when you call TMT bars commoditized, you should also see that there's almost like more than a 15% spread between pricing, in some cases, more than 20% spread between pricing of like Tata, JSW TMT bars and other TMT bars. So there definitely is value for a brand. And so we don't see the space as commoditized, as it's kind of sometimes made out to be.

Okay. So we can expect that -- sorry, one last question. So we can expect that similar level of ROCs in these 2 businesses also in a steady-state environment?

That is correct, right? Because we're very conscious as to how much capital we employ in these businesses as well.

Okay. And sir, one last question from my side. I mean you have done a great work in terms of improving gross margins and reducing working capital cycle across all businesses. At the same time, we are planning to enter into railways in a big way as well as enter into some of these other business lines, which, again, I mean, I would say -- I mean, railways, we know -- I mean, because it's government-oriented, the working capital cycle would be quite elongated. So how do we plan to resolve this dichotomy? On one hand, we want to reduce and improve our ROCs and everything, and on the other hand, despite being a very strong lucrative business, the capital employed in such businesses are quite high. So what are your thoughts on resolving this dichotomy?

Yes. See, honestly, this is the mixed challenge that you've got to constantly keep juggling, right? Somebody asked a question on cycles, right, saying, "Hey, listen, how will you make 10% PBT to sales," right? It's a valid question, right? But cycles now has got a negative net working capital, right? Now some other business might help kind of push PBD to sales up, but might take so much -- a bit more working capital, right? So basically, what I'm explaining is that this is the constant portfolio decision that basically as a management committee, we need to constantly make to play these trade-offs, right, to ensure that if we take all of our businesses, government business, obviously, that will kill us, right? But all of our -- I mean, so all I'm saying is that this balance is the constant portfolio balance that the management committee continuously needs to evolve and ensure that we are delivering the right results to you, our owners.

We'll take our next question from the line of Ashutosh Tiwari from Equirus.

Sir, on the -- we had a CapEx plan of almost INR 200 crores in this year and a large part on the new products. So is that intact? Or in the current scenario, we've cut back on the CapEx plan?

See, the -- there are a couple of components that are intact. The -- which are the -- like there's an [ BYD ] mill for the engineering business that's intact. But we've also talked about a particular kind of stressed asset that was available in China that we were evaluating. Now we are kind of -- we have -- we can't kind of push forward with that, right? I mean we're just evaluating the geopolitical situation as well because we don't feel like it's the right time to do some of those things. So I'd say kind of -- there are chunks of it that are still intact, but some of it is going to depend on the environment. So I'd say 50% is certain. The other 50% will depend on the environment.

Okay. And sir, secondly, I mean, we've talked about that product of -- tubular products for export market from engineering side. So like because of the China issue, are we seeing more such opportunities, like say, I mean, more opportunity in terms of doing some product in export market? Or it is too early to say?

Well, Mukesh, why don't you answer from a tubular product's perspective, and then others can give their perspective as well? Perhaps, Paul, will be back on cycles.

Like our MD mentioned, particularly whatever CapEx we are investing it in that particular direction, we already started the work with all the OEMs, and it is a global product what we are developing it. And we are in the stage of sample submitting and all this thing. And hopefully, by the time our CapEx is in place, maybe our customer approvals and all this thing should also progress simultaneously. And maybe, let's say, and this is an approach what we are following as of now.

But are we getting more opportunity in terms of -- or looking at more opportunity in terms of China substitution in export you look at as well as domestic?

Yes, yes. I mean, let's say, this is looking like the opportunity going forward, and maybe we are in touch with, maybe let's say -- because we have a -- already, maybe let's say good customer base for our exports market. So we are in touch with customers. It looks like to be opportunity, and we are evaluating that. And maybe -- like you are aware in exports market, maybe it takes time to get the approval cycle and all these things. So those processes have started, and let's see how it goes forward.

Our next question is from the line of Jigar Shroff from Financial Research.

My questions have been answered.

Our next question is from the line of Nath Balakrishnan from Spark Fund.

I have 2 questions. So when I look at your numbers of FY '20 because I think they are more representative than looking at Q1 numbers. So what proportion of your metal formed products business is comprised by your auto chains business?

I don't think we gave individual components, but Mahendra, you can give a directional number. What is it about 1/3?

Yes, we don't give the segmental information actually for metal formed products.

About 1/3 to give you.

1/3. Okay. Fair enough, sir. And will it be, again, fair to assume that, that is again split equally between OE and replacement?

Sorry, you said between OE and?

Replacement.

Replacement.

Yes, that's fair.

Okay. So my question -- my second question, essentially, sir, is, again, looking at this number in the context of the thrust on EV, now how do you see the OE piece of your auto chains business in the -- of course, the replacement piece will continue to remain. But is that something that you see as a business that is being overtaken, the OE piece of your chains business?

Yes. I mean, definitely, in our planning, we see that, that will go away.

It will go away? Okay. And what is your time line in -- your assessment in terms of time line by which this will happen?

Yes, your guess is as good as ours. All I'm saying is that we're not going to put more capital into that business because we see it going away, right? We'll have to keep kind of looking at it and seeing how it kind of evolves over time. But it's not going to take our capital investment.

Yes. There is some distinction between drive chains and cam chains. Cam chains will first go away. Drive chains are expected to continue.

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

Sir, a few questions. Firstly, you highlighted about the -- your 3-year growth opportunity in the seating solutions business yesterday in the AGM. Just wanted to understand how big be this...

What solution?

The seating solutions.

Do you mean tubular? CV, you're talking about the fine blanking, okay. Recliners and stuff. Okay.

Yes. Yes, yes. So you talked about the growth in this business from a 3-year perspective. Just want to know, on absolute basis, could this be a big opportunity?

Yes. Obviously, we see it as a big opportunity. In that business, we see that as the biggest growth line.

Okay. Okay. And secondly, what kind of asset turns we are looking from a investment in the bus body building solutions -- in the truck body building solutions?

So there it's not asset-intensive, right? Like I think you had asked the question early yesterday, and I said the total capital outlay will not exceed INR 9 crores. So basically, obviously, kind of the asset turns are very high from that perspective -- fixed asset turns, at least. So we believe that we can turn around a lot from that because it's not dependent on just these 4 locations. We also use partners to help build the bodies for us.

Our next question is from the line of Anupam Gupta from IIFL.

I just want to get an idea on the export side. So exports have seen significant growth for you except maybe last year. But let's say, in terms of -- can you give me some idea on what is the sort of OEM addition which you have seen over the years and in terms of your development team, which you have put in? How has that expanded to grow the export business?

So Mukesh, do you want to take that for tubes and then...

Yes, on the export side, maybe like we discussed in the previous call, we see that maybe, let's say, opportunity is also coming from the China, let's say, alternate solution also. And also, maybe we are working since last 2 years with the selected OEMs, maybe to take our exports growth forward. And in fact, maybe let's say, day before yesterday, itself we have signed one, maybe, let's say, contract for, let's say, exports to China and all these things, and which is going to give a good growth to us in the coming quarters.

Okay. But in terms of OEMs, what sort of addition, if you can, let's say, if you put it in a number, sort of -- what sort of customer addition we have seen over the year?

Actually, maybe let's say, the concept remains same only, maybe, let's say, we are -- because in India, also we are strong in the supplies to the automobile market. So maybe, let's say, here, maybe the concept is we are going to supply to the auto OEMs Tier 1, like maybe, let's say, something to do with propeller shafts, something with the steering systems, something to do with tie rods and front forks, even in the South Asian markets. So these are our product focus areas.

We'll take the last question from the line of Rohit Ohri from Progressive Shares.

Can you hear me now?

Yes.

Sir, these questions are related to Shanthi Gears. We saw them talk about them. So if you can just give a broad outline as to what is the order book for Shanthi Gears, the CapEx in terms of growth CapEx that they have done? New products if Shanthi is launching any because I read somewhere that they are looking at some robotic processing as well. And I know the exports of Shanthi Gears should be around 4% or 5% is what I remember from the previous con calls. So in the next 3 years down the line, what do you think that Shanthi can take the exports to? And the parent company, TII also speaks about sales and services. If I'm not wrong, Shanthi Gears can play a very major role over here. So if you can just...

Sorry, parent company said about -- talked about?

The sales and services, aftersales, aftermarket.

Aftermarket?

Yes.

So the aftermarket for the parents is predominant -- parent company is predominantly in the auto chains area, whereas Shanthi's applications are mainly industrial, right? So the service business, which is a growth area for Shanthi doesn't help too much the aftermarket chains business. Because aftermarket chains is predominantly talking about auto chains, like 2-wheelers and stuff like that. So that was your first -- your second question was the CapEx for Shanthi, I believe, this year in the range of about INR 15 crores to INR 20 crores. INR 20 crores is my guess. You had a couple of other questions on Shanthi, right? Sorry.

So these are -- the growth CapEx would be what? And what would be the maintenance CapEx out of this INR 15 crores, INR 20 crores?

So it's all growth CapEx.

Okay. I was asking about the order backlog and the new products in terms of the robotic processing that they were working on because I read...

I don't know if we've talked about it in public. We are looking -- see, basically, we're constantly evaluating new products. And so we are looking at things in the robotics space, but it's a fairly complex gears to produce. So it's still very early, still very early in the evaluation stage.

Okay. And the export expectations from next 3 years or so?

Yes. So we're trying to push that number up. And like you said, it's about 5% to 7% right now. We're trying to push that number up to double digits.

I now hand the floor back to Mr. Kashyap Pujara from Axis Capital for closing comments. Over to you, sir.

Thanks, everyone, for being on the call. And all the best to the management of Tube Investments to continue delivering on investor expectations consistently over the next 3 to 5 years.

Thank you. Thank you, Kashyap.

Thank you.

Thank you very much. Ladies and gentlemen, on behalf of Axis Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.