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

Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of Tube Investments hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kashyap Pujara from Axis Capital Limited. Thank you, and over to you, sir.

Good morning, everyone, and thank you so much for standing by. It's a great pleasure to have with us the senior management of Tube Investments to discuss the Q2 FY '21 earnings. From the management side, we are represented by Mr. Vellayan, who's the Managing Director; Mr. Mahendra Kumar, who's the CFO; and we also have the business head, Mr. Mukesh, on the call. Without much ado, I hand over the floor to Mr. Vellayan. Mr. Vellayan, many congrats for a fantastic set of numbers. I think we've matched up on Q2 top line last year, we've shown cost cuts and taken margin higher. And I think I've not seen this kind of working capital levels that we are at over so many years of me covering to you. So over to you, and leave the floor to you, sir.

Thank you, Kashyap, and good morning, everybody. The -- welcome to the TII earnings call. I'll just go through a quick commentary, as usual, and then be happy to turn it over to you for questions. Our stand-alone Q2 PBT was at INR 129 crores, which is a growth of 17% over the same period last year. Revenues were at INR 1,033 crores in the quarter compared to INR 1,056 crores in Q2 last year. PBT was at INR 129 crores, like I said, and that's before exceptional items. Our ROCE is now at 26% for the quarter compared to 24%. And we generated free cash flow of INR 246 crores for the quarter, which is 256% of that. The PAT for the quarter was at INR 96 crores as against INR 90 crores in the corresponding quarter of the previous year. In terms of individual businesses, revenue for Engineering was at INR 565 crores compared to INR 554 crores in the same quarter last year. And PBIT for that business was at INR 84 crores as against INR 63 crores in the same quarter last year. Cycles and Accessories did revenue of INR 212 crores compared to INR 217 crores in the same quarter last year. And PBIT was at INR 18 crores compared to INR 6 crores in corresponding quarter of the previous year. The Cycles team has done a great job of basically improving efficiencies and bringing down the overall cost and the cost structure, and therefore, kind of making ourselves much more competitive. For Metal Formed Products, revenue was at INR 353 crores against INR 379 crores. The difference in the delta is predominantly driven by lower railways revenues, because railways business has been slower in starting up. We do believe those in the rest of the year, we should be okay. And PBIT for this business was INR 38 crores against INR 40 crores for the same quarter last year. On a consolidated basis, we are INR 1,146 crores versus INR 1,191 crores and PAT was at INR 101 crores versus INR 93 crores. And Shanthi had revenues of INR 54 crores against INR 71 crores. That is quite a bit of a drop, but PAT was at INR 7 crores versus INR 8 crores. I would just like to say that the team has done a phenomenal job in coming back from COVID as with the entire company. That's really kind of, I would say kind of it's been a Herculean effort, given the toughness of bringing back our supply chains to normal. And everybody on the team, including kind of the leadership which we have with us, has really gone above and beyond the call of duty to get back to normal. And not only that, kind of, most of the senior management team has basically been double hatting as we kind of also try and get an impending acquisition to closure as well. So I would really say that this whole quarter is just dedicated to the people who just put in such an incredible effort from the -- on all fronts to kind of make what happened over this quarter. And let me stop with that commentary and turn it over to all of you for any questions that you might have. Thank you.

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

Yes, Vellayan. So just a couple of questions. If you look at the individual segmental margins, your Engineering division has moved up to something like a 15% margin profile. But if I look at your quarterly revenues, you're still down about good 20%, 25% from what peak revenues you had done in 3, 4 quarters of FY '19. So I'm saying whenever and -- so because of the operating leverage factor, do you believe you can be at 17%, 18% margin business whenever you reach to this peak utilization? Just wanted to get some understanding around.

No, actually kind of -- obviously, there have been -- there are several things that happened kind of because of these COVID-like swings, right, when you go to shutdowns, kind of there are something in terms of like price realization on steel that got adjusted. There is kind of -- basically, there are several things I would say that are there in a particular quarter. If you're asking me in the long term, can we get to those kinds of margins? Our belief is that, yes, but it requires much more work on these. And we're still doing a lot of things, basically on the -- like we've said, on the quality front, productivity front, kind of the shift to lean. All of those initiatives continue. But I would say that definitely, if volumes were to go back, see, in different businesses, we're in different positions, but if volumes in all of our businesses were to go to kind of peak '18/'19 levels, yes, definitely, our margins would be kind of a bit healthier than where we are today.

Okay. Okay. And just coming to the Cycles division as well. For the same revenues, you moved up to that 8.5%, 9% kind of a margin profile now. So obviously, cost efficiencies, you mentioned in your opening remarks. But is there a pricing improvement because of competition? One of the key players shutting down their operations and exiting the market, has that helped? And is the overall demand scenario kind of helping on the pricing front?

Yes. So pricing has been driven a bit by overall demand, right? Overall demand definitely is up. And there seems to be, at least from what we can tell, a structural shift where we're seeing a lot more people want to kind of consume in that area, which I think is good for the market not just in the short term and the medium term. And just to give you a sense, that trend is not just domestic. That trend is a fairly global trend. And so what the Cycles seen now is gearing itself up to two, no pun intended. It's basically that we're also looking -- they're beginning to look at exports in a big way. And I think that, that will also be something that's encouraging in the medium term, right? So honestly, the challenge we've given, which is we wanted kind of all of our businesses to be 10% PBT. And there were some businesses that if you'd ask me kind of 2 years ago, I said maybe they won't make it, right? But I think that kind of the teams are just showing us how resilient they are. And some of what we're seeing from a performance perspective is just demonstrating that. So I'm extremely bullish as a result of that.

Sure. Sir, next question is in the -- can you mention it always has a little drag in [Technical Difficulty] revenues percent?

Yes, Abhishek, we can't hear you.

Hello, can you hear me now?

Yes, that's better.

Yes. So in the Metal Formed division, you mentioned in your opening remarks that the railways has pulled down the overall revenues and what we see about a 7% kind of a decline. So is railways slowing down on their CapEx? Or is it more of a temporary phenomenon? If you can just help us understand that.

The -- yes. So no, I'll tell you, KRS is on the call or...

Yes, I'm here, sir.

Hey, KRS, why don't you answer.

See, the railways, our finding is it's difficult to ramp up operations in their plan. That is the reason the top line has not grown in the division. And as we speak, they are ramping up the operation. And Q3 and Q4 are likely to be better than -- much better than Q2. That's how we see the quarters.

Okay. Okay. Okay. That's extremely helpful. And congrats to the entire team and wish you all the best.

Thank you. Thanks so much.

The next question -- so sorry, [Operator Instructions] The next question is from the line of Manoj Bahety from Carnelian Asset Management.

Sir, I have a couple of questions. First one is like recently, the kind of shift which is happening from China to China Plus One, and across our various divisions, mainly Engineering and Metal Forming. And also, I think you have aspiration to grow export proportion of your sales. So in this scenario, how are you seeing this opportunity? And are you also planning to have accelerated buildup of capacity CapEx going forward on this? So this is my first question, sir.

Yes. So I think that definitely, we see opportunity from the China Plus One strategy, right? And if you ask, yes, everybody is beginning to kind of see that right? That there is opportunity and we have to kind of go after it. So the broad answer to your question is, yes, we are seeing that opportunity. And yes, we will start ramping up capacity. Where we ramp-up capacity will change because, obviously, in certain businesses, we are seeing that opportunity be more rampant than others. And therefore, our focus will be on businesses where we see more opportunities. Specific examples include the bicycle business, industrial chain. And like, for example, in Engineering, we are gearing -- developing a new product for which we're getting new capacity, we're investing in that capacity as well, right in the Q3. So to say across now, we do see that opportunity. And yes, we are focused on it.

And sir, if I look at your business verticals across like -- it ranges from cycle chains to like engineering where you are also pioneering into some of the products which will contribute to your margins. So on this, if you can give us some broad level transformation which is happening, from, let's say, to low-margin products to high-margin products, where the entry barrier for, I think you will be better placed in terms of competitive landscape.

Yes. I think we have articulated this in our prior calls as well, right? I mean, that's the reason for some of the shifts to optics and kind of going further up to the value chain in the businesses we're in. But broadly, that is the approach we're taking, right? Because each of the businesses understand where they need to be in. Therefore, it starts altering both their product mixes and their business strategy to support that. And I think each of the business teams has articulated their approach towards this, as we have on prior calls as well, right? So I think kind of this is in line with how we are approaching it overall. I don't know if we're looking for specific commentary on a particular business, but that's in line with how we're approaching it overall.

That's good. Sir, particularly your -- this -- Metal Formed business, where I think you are targeting some new products, especially the door frames of cars where like, means it will make some kind of headrooms into a few of the OEMs on that. And also, you have spoken about like truck building capabilities, which you are building across where you are targeting large and organized market. So on those 2 parameters, if you can comment?

Yes. So KRS, do you want to comment on the Metal Formed part of it?

See we are a very dominant player in the revenues for the door frames to almost all the 4 wheelers in the country. Continue to enjoy a very big -- major share in the segment, and we will -- like -- that are you actually comfortable? Yes, we are [Technical Difficulty] profitability spend. [Technical Difficulty]

Sir, your voice is not audible.

Sorry to interrupt. Mr. Srinivasan, your audio is not clear. It's breaking in between.

Okay. Now is it better?

Yes, sir.

Yes. This is better.

Yes. So in the PRW space, we are a dominant player, and we continue to enjoy a large market share, major market share in that segment. And we'll continue to grow that. We are a major player with Hyundai, and we are trying to expand our offerings to customers so that for the same level of investments and fixed overheads, if we get more business from the same customer, naturally, your profitability will increase. That is the approach we are taking as far as door frames are concerned. Does that answer your question?

Yes. Yes. That's right. And on truck building opportunities, if you can comment on that also.

Sorry to interrupt, sir. May we request you to return to the question queue for the following question. The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

Yes. Very strong delivery despite a very tough situation that we have been seeing for the last 6 months. Many congratulations on that. My first question is on the Cycles, we have seen a very strong margin -- EBIT margin and ROCE improvement barrel for the first time in February quarters. Both of these metrics have gone through the -- let me try to put it that way. So how -- is this -- are these metrics sustainable going forward from an ROCE perspective as well as the margin perspective? If you can give some color on that?

So you are talking about Cycles and which other business?

Cycles, sir. Cycles, Cycles.

Yes. So Cycles, our belief is that we are going to get more and more competitive. So in general, the release here is, yes, that the team will be able to kind of sustain better numbers than we have in the past. Now obviously, this is dependent a bit on the demand side. The demand side is strong now. To hedge on domestic demand, we're also developing capabilities for export. But as long as the demand side holds up, Shyam, that answer would be yes. But it's not -- KKP is not on the line? As for this call, he's not available today, otherwise, he is a regular participant.

Mr. Srinivasan, line got disconnected, we are connecting him.

But to your point, Shyam, I believe that the demand is fixed at the current level, yet we will be able to hold up.

Understood. Understood. Building team and management system.

No, we'll hedge on that.

Understood. Understood. Sir, the second question is on the sustainability of the cost levels on the -- especially on the commodity prices, we are seeing a very sharp increase in the base metal prices per se. So I believe these price negotiations would have happened for the second half. So going forward, as we look into the second half, how are we looking at the commodity costs trending for our business across various businesses therein. So if you can give some perspective, are we -- can we maintain these levels of the RM cost as percentage of sales given the -- after we passed on these cost to the customers. Is that something that we are looking at?

Understood, Shyam. So I think, actually, Mukesh is on the call, and his is the largest business that is affected by that. So, I mean, so KRS also is to an extent. But I'll let Mukesh answer that question.

Yes, Shyam, thank you for the question. You are right, maybe, let's say, the commodity prices are really going up. The steel prices, particularly, maybe we see from the last 2, 3 months is going substantially up. But, let's say, we have our arrangement with all the customers, with the OEMs as well as customers, and we are fairly confident we'll be able to recover that going forward.

Okay. But there could be 1 quarter or lag in that sense?

But that's what we told. We have a prevailing arrangement with all the customers, maybe whether it is a reduction or whether it's increase, there'll be -- some lag will be there, but maybe let's say that is as per the usual practice. And we are confident that maybe, let's say, in this difficult environment also, we'll be able to recover it fully.

Sure. Sure. One last question, sir, on the non-auto business, both from Engineering and Metal Forming, Metal Forming you did allude to the railway business being weaker now which will pick up later. But from an Engineering side, on the non-auto side and from Metal Forming industrial change, et cetera, what is the outlook that we are looking at as we look forward now? And secondly, on the export side, other than the new products that you talked about because of moving away from China, what is the existing business exports looking like?

Actually, that both are our actually focus area in the Engineering business, particularly. As we -- going forward, the margin improvement and maybe even the market growth is going to come from the exports market which we are putting even in CapEx for the new product development also because we always want to invest in area which is the new or maybe, let's say, not existing in the country and participating in the exports market. And coming to the non-auto hydraulic cylinders part of the business, which is taking, I think, some time to catch up because of the commercial vehicle and off-road vehicle industry. We are hopeful that Q4 onwards, that business will also start moving going forward.

Okay. Okay. Understood. Understood. So then aftermarket has been holding up pretty well, sir, is that a fair understanding? Generally, do you have any sense there?

Yes, maybe let's say from Engineering business, we generally give it to OEMs and they do the aftermarket business. But aftermarkets right now is very strong, and we are -- whatever maybe let's say, material we provide for aftermarket, maybe we see the good quantum of growth is happening on those areas.

Even, I mean, I was more referring to the Metal Forming chains business, et cetera. Is that also holding up very strongly, sir, I mean, has that compared to the price...

Maybe KRS -- I'll request KRS to answer this.

Yes. I will answer that Mukesh. KRS here, I will answer that. Yes, you are right. Aftermarket is very strong today. Last 2, 3, 4 months have been very good, and it continues to be promising going forward.

Okay, sir. Understood, sir. Understood. All the very best.

Thank you.

[Operator Instructions] The next question is from the line of Mr. Kashyap Pujara from Axis Capital.

Vellayan, just a couple of questions. If I look at the working capital of you, this time around, at least in the mid year, we are seeing close to about INR 30 crores or INR 40-odd crores of working capital net, if I was to just look at the cash conversion purely. And this is lowest because normally, we were having INR 200 crores or INR 300 crores of working capital -- net working capital on say for INR 5,000 crores of sales. And this time around, the working capital has really gone down because of payables kind of moving up. Also, I can see capital employed of Cycles, which is at less than INR 50 crores, which was similar to 2010/'11 levels and this is despite new capacity having come on board. So the question is that would these levels be sustainable? Or do you think that they will normalize and these are one-offs?

Yes. So I do believe the working capital that you are seeing here is like an all-time low. So it will go up a bit, and then we think it will go up from its current level. So -- and we should kind of plan for that. What level we kind of can fix that? See, honestly, what the Cycles guys have done is kind of cleared a massive structural correction. And we are currently operating a negative working capital, which I think is fantastic. And my belief is that they will continue to kind of operate like that. Engineering and Metal Forming have also improved their working capital position significantly. But they are running lower than -- at lower levels than what I think that will have to be -- we take over the Cycles. Because what happened with COVID also is that everybody's inventory is basically kind of got drawn down fairly. So what I think will happen is that we will get back to a level of above where we're at, but obviously not kind of close to where we were at before.

Okay.

See also, Kashyap, it is not entirely driven by increase in payables alone, even inventory and debtors also are lower level. Some of that will get corrected in Q3.

Yes. I mean generally, the channel checks that I'm doing across many industries, especially smaller companies, I'm seeing a trend of debtor tightening incrementally. So while the earlier cycle might be having higher debtor days, but incrementally, most of the B2B businesses also are kind of tightening their requirements of receivable days. And the incremental business that is being done across many B2B businesses is on lower receivable days compared to what was historically seen earlier. Would that be a fair assessment that you would have also come across?

Yes. I mean, definitely, we see that happening, Kashyap. And I think that, yes, your assessment is correct.

Yes. And lastly, and I will not hold back the queue any longer. Is the Cycles business, I remember earlier, the earlier Managing Director, have always kind of said that this is like a 5% margin business and 7%, 8% growth, 5% sustainable margins broadly as a trend line trajectory. And we have seen very healthy margin improvements in Cycles business now at close to 8%, 9%. And also incrementally, the trend that I'm seeing at least maybe post-COVID is that people are taking more to health and fitness. And since gyms are shut, most of them are kind of taking Cycles. And in fact, in Mumbai, I must put it to record that there is a shortage of quality bicycles like Montra. There is no inventory available across most of the stores. So do you see that you might be in -- or for a growth spot here compared to what was historically seen for us earlier? So maybe the growth and margins both have room for scale up from here?

Well, so let me put it this way, right? The segment that you're talking about is kind of -- definitely, we see that there is opportunity, and I agree that -- so when it takes the high-performance segment, which is Montra now, that is a fairly small percentage of overall sales, okay? But in general, everybody across our segments especially in kind of the -- in both kind of the recreation, the NPV and in our performance side, we are seeing a shortage, right? Because demand has picked up, continues to be at a quite an elevated level. So I do think that, that's encouraging. And honestly, that's why I said. I mean, I think it's too early to say whether kind of it's a structural change and whether it will continue. But I definitely do think that it's a good position right now. And so it is fairly encouraging kind of from that perspective.

The next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund.

Just a couple of questions. You and the team have done a phenomenal job in the last couple of years in improving the profitability, the metrics you guys talked about. If you go to crystal ball gaze for the next couple of years, what are the things probably we would like to include from thereon? A fair bit of profitability across divisions have been done there. For the first time, we saw the de novo model which you have always spoken about in U.S. with CG Power coming in. So if you were to crystal ball gaze for the next couple of years, what shape and form will the company look like, one? And in this journey, what are the challenges you are facing now, which probably could be a headwind from a company perspective for the next couple of years? So that will be my 2 questions.

Thanks, Pankaj. So I would say that, first off, right, the good thing, like you said, is the different elements are kind of beginning to play out, right? The -- like we said, the first part is kind of what earns us a right to do anything, I think, it's improving our profitability. And honestly, like I said, there's still a lot of way to go there. And I'll come back to, like, so you'd asked, what do we need to do? I will still say that we're only like we're less than -- we've not even got to 50% of TQM. And in terms of lean, I'd say we're about 20%. Lean and TPS, I'd say were like 20%, 25%, and TQM, maybe we're at 50%, right? The significant part on that part of the journey that needs to kind of do -- that we need to continue. The -- so that's 1 element of it, right? The second is, it is to say where will TI be? I think, kind of first, like it's a continuous kind of engine that we're trying to build, right. And I have always, I think, from the first meeting, we've talked about this concept of engine design, right, what are you designing the engine to do, right? And from TI's perspective, we have to have an engine that's a free cash flow generator that then free cash generated can be deployed to TI 2 and TI 3. And then each of those entities then has to become free cash flow generators over time, right? So we still have to prove that TI 2 and TI 3 can become their own free cash flow generators. So that's something that we have to prove over the next 2 years. And that's an imperative for us because I think we've proved, and hopefully this will -- and I'm confident given kind of my knowledge of the team and what it's done, that TI 1 will continue to sustain as a free cash flow generator. So -- and if the team has managed to do that in this environment, I have full confidence they will be able to do it in most environments, right? So I think that basically, that's what we're trying to build, right? We're trying to build a core free cash flow engine that keeps getting enlarged over time to build more and more capacity to allow the company to scale at the levels that we've set out, right, which is basically, we have to bring back the number we've not delivered consistently, that 17% revenue growth number. And we are sure we can deliver that also aided by TI 2 and TI 3 and hence kind of the acquisition approach. And then now the second thing to prove is that each of those entries in TI 2 and TI 3 can become their own free cash flow engines as well. So that part is still unproven. Like I said, the second part that's unproven is that -- I mean, it's not unproven. The second part that we're still early in our journey is on lean/TPS and TQM. And then the third part really that we're starting to kind of think more and more about, Pankaj, is talent. Basically, if we've got 20 BUs today, and we want to be at 100 BUs in the near future, we need more BU head right? And how do we start booming that talent, right? And honestly, I hear again that we've articulated the approach, right, which is broadly that I do in the -- one, the team has to do in year 2. I mean, my direct reports need to do in year 2. And then 1 level down from them needs to do in year 3. That's something that we're constantly striving to do, right? As a matter of fact, even with kind of whether it's -- if we -- I mean, like I said, the transactions do not close yet. But a lot of the integration work, a lot of the work that has to be done post that will be driven by the team, not by me, right. So constantly, we're looking at how do we push that envelope and push -- and so I would say the biggest question is talent and talent development. And that leadership development is where we're going to move our attention front end center, hopefully, in the near future years.

Okay. Great. Great. All the best, Vellayan.

Thank you. Thanks, Pankaj.

The next question is from the line of Vikas Khemani from Carnelian Capital.

Congratulations on a great set of numbers and performance. I have 2 questions on CG Power. If you could share some thoughts of plant fulfillment around [indiscernible]?

I'm sorry, Mr. Khemani, but your voice is breaking. Can you please check?

Hello? Check, is it better now?

Yes.

So I have 2 questions on CG. One is that if you can just share some broad thoughts on how you plan to sort of turn that around over the next couple of years? And second, specifically on that, how do you plan to sort of fund that? Would you have some sort of capital to raise in TI at some point in time to capitalize that CG Power?

So I'd say specifically, we're not having any conversations on CG. First, that transaction hasn't closed. And so we are unable to basically kind of have conversations on that. And right now, it's own entity. So we really pass commentary on that after we close the transaction and once we've had a chance.

What's the time line of that or any broad sense you have on that?

It should happen in this quarter.

In this quarter. Okay.

The next question is from the line of Niket Shah from Motilal Oswal.

Congratulations on a good set of numbers. Couple of questions, sir. First, on the margin side of it. I think it's been a phenomenal journey from where the margins were earlier and where we are at now, almost at 11.5%. How much room do we have and where are we in this journey because our top line has not grown in the last few quarters, and yet we have seen efficiency gains coming in. So do we think that incrementally from year on, we will see a situation where top line will also start going up and that will kind of kick in an incremental more margin expansion? So that's the first question. The second question was on the breakeven point of the plant. During COVID, how much have you brought it down? And do you think some of the cost initiatives that you would have saved because of bringing down the breakeven point are sustainable? Those 2 were my questions.

So I'll say, I'll tell you, let me just have both Mukesh and KRS answer those questions for you because they can talk about from the individuals -- their individual perspectives in their businesses. And then if need be, I can add some overall color. But Mukesh and KRS, can you answer those 2 questions?

Can I take that, first, Mukesh?

Yes, KRS. Please go ahead.

Yes, I'm KRS here, I take care of Metal Formed Product division. Your question is valid. In fact, we are looking at top line growth in the coming years which will further push up the profitability because of contributions kicking in with disproportionately lesser. So the coming year, also, we are looking at some good top line growth in various verticals. Of all the Metal Formed Products and all the business units. And about your question on breakeven, yes, we have brought down the breakeven significantly in this year, in these 2 quarters using the disruptive situation. And we would like to sustain it going forward, though there would be some small corrections when the operations scale up. Yes, Mukesh?

Yes. Thanks. I mean, let's say, like KRS mentioned, there's good headroom of labor today, let's say, in the top line, maybe let's say -- we have already invested in our Rajpura plant, and we see that maybe, let's say, those capacities are also catching up. Given the automobile industry has maybe at almost bottom line, maybe which can go only up. And also our focus on the exports market, as well we are doing some CapEx on the new product development. Which are the growth levers we are going to apply it going forward? We are pretty confident that growth is going to follow, which we could not do it in last 2 or 3 quarters because of the environment extra. And going forward too, maybe, let's say, breakeven. We have done a good quantum of work in maybe last 1, 1.5 years' time and by bringing the breakevens down. And there is a reason maybe let's say, our performance was visible in current quarter irrespective of the difficult environment. But still, like Vellayan mentioned, a lot of work is still pending on the journey of TQM in the journey of the lean. Even the working capital front, we have done a great work, but still we feel there is a good headroom available going forward by bringing the lean approach and improving on the quality. So make sure of these quality and the lean approach is also going to give us further headroom to be more sustainable, even grow margins going forward?

Yes. Just one more point, I'll expand here. Just like how Vellayan explained at the beginning of the call, there are also certain raw material price negotiations, which got finalized during the quarter. That also gave some encouragement to the margin. Having said that, yes, like how Mukesh and KRS explained, there are also certain actions which are in place or which are in progress to improve margins further.

Sure. So sir, on the margin side, just to complete the loop, is it safe to assume that we are halfway through and going to 14%, 15% PBT margin is a possibility?

See, you can get direct commitments from Mukesh and KRS. Obviously that's our aspiration. But again, right, I mean, I think we should set that as kind of -- yes, we would like to get there over a 3-year -- 3- to 4-year period.

Sure. And the second question was on CG Power and obviously, I'm not asking specific questions on CG Power. But just wanted to understand on the funding side of it. Is it safe to assume that at a future date, we might look at a capital raise to keep our balance sheet tight?

See, we don't want to provide any commentary on things that we have to stay silent on. And so like I said, we won't kind of discuss any of those matters. And -- so yes, I guess kind of that's my short answer here.

The next question is from the line of Ratish Varier from Sundaram Mutual Fund.

So just a couple of questions in terms of the Cycles business. Understand what should be your market share in the Cycle division, that is one. And second, one of the earlier participants, Kashyap, asked you, Vellayan, if there is a demand, and you don't know whether it is mix, whether it is sustained for next 2, 3 years. If that's sustained, how is our ramp-up plans there in terms of investment, guidance, the distribution segment or do we have that distribution segment ramp it up if the demand sustains here? And 1 more question in terms of margins here. Looking at where the steel prices have moved up, are these margins sustainable? Or can the pricing be passed on at current environment?

So your first question, Cycles market share, I believe we're somewhere at about 25%, 25% of growth over that, currently. Second question was, so do we need to ramp up, both on manufacturing and distribution, I think, so distribution, we have been ramping up, that's been helping kind of our growth, and we'll continue to ramp up on Cycles distribution. And manufacturing, we've got adequate capacity because we've also got the Rajpura plant there. So I would say we're not have been using kind of more than 60%, 65% et cetera, whilst capacity right now -- right, assembly capacity. The challenge with the market supply right now is because some component shortages are there, which we're also working to correct. So that we have more capacity to ramp up even bigger there. And then you had another question, no? What was the other question?

Yes. In terms of margin sustainability in this business. So steel prices are moving up. So can it be passed down?

Sir, we answered the margin sustainability question, right. So Mukesh you can, I mean, you can answer it again.

Like we mentioned earlier, we will be able to pass on the steel price increases to -- with our customers, with the prevailing agreements, whatever we have with all customers. So we are pretty confident there will be no effect on margins because of the steel price.

Okay. And just one more thing on this. In the Cycle business, product mix, can this -- when you're saying 25% market share, so when you talk about the base cycle, premium cycles, can this product segment anywhere, compositions or anything can change where that can even more benefit our margins, our realizations, et cetera?

We'll see. I think what we're seeing is that the team is kind of doing the right things, right? The team is focused both on supply side and demand side and is doing the right thing. So obviously, one of the things that we have started altering is product mix. And we will continue to kind of look at that and kind of keep altering that. So if your question is, have we done everything we can? The answer is no.

[Operator Instructions] The next question is from the line of Hardik Doshi from White Whale Partners.

As part of your strategy, you mentioned that some of the pillars we still see, this new areas to expand into. So can you just give an update on where we stand out there in terms of the initiatives? And also given the CG Power acquisition, are we really looking at capital allocation out there or maybe over the next couple of years or so?

Yes. So I mean, I'd say like a couple of things, right? I mean, so for example, on our new growth kind of areas in TI 2 -- a couple of those have been a bit slow down because of the demand environment. And also, like for the lens business, the optics business, the challenge we had is that all the equipment was all imported. But we needed people from outside the country to come and set it up. And they have not been able to come into the countries. So we're trying to do it on teams, not the optimal way to basically kind of set up and start a new plant. But we have been kind of working on it. Now so I think it's a bit slower. But in my mind, kind of the traction is definitely kind of going to get there. So I'm not kind of too worried about it. In terms of -- I mean, I think what you've seen in terms of capital allocation, in the end, let's say that my line has always been disturbed, in the end I cover that, will we get to a stage where we feel comfortable with the debt level? So we're not going to go out and kind of do anything crazy. And so that's basically broadly to reallocate. Is there enough capital required for both kind of growth plus -- I mean, organic growth plus something like CG? Yes, there is.

Okay. But I mean, then would it be fair to say at least for the near term, i.e. the focus will remain on the main business and probably not incrementally seeing any more new businesses?

So those businesses don't take up a lot of capital. That's why I'm saying. Because I've seen it that is not taking up any massive amount of capital. So I mean, that's all part of -- in our CapEx programs, all of that's already included there. So the free cash flow you look at is basically kind of after we've incurred those kind of capital required for that.

The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management.

Fantastic performance. I just wanted to take your perspective, Vellayan, on the Cycles business, right? I'm sure 2 years ago, when you came in, there would have been a different strategic perspective on the Cycles business and the way it's kind of come back. And I remember you're telling us once on a call that they have taken -- taken it up as a challenge to prove themselves otherwise. So how are you looking at this business now? Are you going to be investing a little more at the plants changing from this business?

Yes, like I said, I mean, I think even in my earlier commentary, the first thing I kind of admitted was that it's been kind of an amazing change, right? That's really fantastic. So the thing that's encouraging for us now is that we see an opportunity to -- I mean, they themselves as a team are just kind of redefining their future, right? I mean, honestly, like I said, 2 years ago that has been a challenge. What they came back to us the way it's an unfortunately, K.K. Paul who runs our business is on the occasion -- he's been here with us. But what they have done in our business is that they basically come back and talked about and developed how they're going to become the #1 division in TI, right? Yes. Now I don't know whether Mukesh or KRS will let them. But the point is that I just think that, that's the level of confidence that they've come at it with, and they're delivering the performance to support that. Capacity is not that much of an issue for them. Both in Sri Lanka and in India, they have adequate capacity. So it's not a capacity constraint. They're just really showing the will and kind of the capability to kind of outperform, which is encouraging, right? And so I will just support that kind of, as long as they continue to deliver like this.

Right. Any expansion plans that you are pushing them towards now that they have crossed the thumb or the first challenge? I'm just trying to understand, is there a Cycle 2.0 that you could give us some clues into?

I don't push anybody in that. See I think definitely, they've come up and they've kind of actually developed a whole region for mobility. And I would basically say that it's very -- what they have shown is that they have a fairly exciting road ahead. As far as Cycles, they're beginning to explore per like -- I mean, basically, they're looking at both export markets and India markets and saying how they are going to basically push the envelope in terms of what exists. And I think a fairly exciting plan that they suggested.

Okay. Because why I'm just dwelling into this a little bit is, this is the only B2C kind of business that you have and if you can make a success out of this, then it opens up completely different avenues of growth for you.

Thank you.

The next question is from the line of Shyam Sundar Sriram from Sundaram Asset Management.

My first question is on the PLI localization schemes that have been talked about. So are there any specific large product segments that we are eyeing that can come through over a 2-year time frame apart from this localization trust of the government per se? Is there anything that you are seeing as an upcoming opportunity, which may -- maybe evolve over a 2-year period? Any such opportunities you can comment about it?

We're exploring. There's nothing specific yet, but we are exploring that area.

Okay. Okay. Okay. Which category, sir, is it on the...

We are looking at it in a few categories. So we don't want to talk specifically about that.

Okay. Sure, sure, sure. Sir, just one other question. On the export side, we were developing new tube products and even on the vision system side we were about to start the operations and then ramp up over a 2 to 3-year time frame. How are those initiatives panning out because our exports say in FY '20 was sort of a down year compared to the prior peak in FY '19. So from that perspective, going forward over the next 9 -- 12 to 15 months, how is that basically looking like some of the new products as well as the existing business? You did comment take up of the focused area but some specifics will be helpful.

Mukesh, do you want to comment on that?

Yes. Yes, Shyam, I will just say, like we shared earlier, this CapEx is progressing well, and we expect that CapEx to get over by Q4 of this financial year. And post that, we'll be starting our development process with a few customers, they'll be getting approval and taking those customer approvals and ramping up the business. And as far as the exports growth is concerned, I will say, because we are going to enter into a new segment, so it will be a market share gain at a global level. And that is going to give us a headroom going forward. And it's a very, very safety critical product where we are going to expand our business -- businesses going forward.

Okay. Okay. Okay. So we can -- one can assume that we can across the prior FY '19 exports over a next 12 to 15 months period. So that is fairly possible. Is that something that you are...

Yes. Yes. Yes.

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

Congratulations on a strong set of numbers. Sir, firstly, on the Cycles part, I have a question. So in our mix in Cycles sales, what would be, say, the share of premium cycles? And has that changed significantly over the last 2 months?

Sorry, your question is what is our share of ladies cycles and what?

No. No, premium cycle. So you have the basic cycle and the premium cycles help the related cycles. So what's the -- is the share of premium cycle increasing in the overall mix in Cycles sales?

So premium cycles is very small. And increasing? Yes, it is.

Okay. Okay. So I mean, I want to mention whether there are low-cost cycles that like entry level cycles is that share decreasing or is that also has not changed much over the last 3 months as well?

Initially, it is coming up from the -- coming out of this thing, we did lose some share. But now we are basically gaining that share back month over month. And we believe that in the third quarter, we'll be back to kind of a higher share than we were before.

Okay. And sir, secondly, on the Metal Forming side, how is the industrial changed doing right now, let's say, where we are with the peak of it now?

The industrial change is doing very well both export and domestic. We are back to pre-COVID levels and profitability is higher than what we were before.

Okay. And lastly, any opportunity that we see in terms of relating the thing which come from China in our business and in Cycles that is happening or not right now.

Sorry, I didn't understand the question.

So I'm asking that, are we seeing any opportunity in terms of replacing some of the product related to our...

To answer that question earlier, definitely, definitely, yes, we do see that opportunity. And so -- and we are seeing -- we are exploring that in all of our businesses, the channels.

[Operator Instructions] The next question is from the line of Devesh Kayal from Carnelian Capital.

Sir, when will the plant of this opted -- the operations, because I heard, I think as earlier mentioned Q2. So...

Optics is operational now. It is not scaling out. So it's not scaled up yet.

Okay. And from these new businesses, truck body and this uptake and the other one. So what kind of revenues, is it fair to assume INR 500 crores type of revenue over next April year? What are you targeting internally?

That's what, I mean, I've always told people for these, please don't put them into your models. Sometimes I kind of always feel like the easiest thing is just not to talk to them -- not to talk about them at all. Because you have to look at this, right, I mean, kind of -- it's like these are like DC type options that we are developing for the company, right? And I don't think any of these DC guys get asked these types of questions, right? So some of these businesses you have to let them kind of grow at their own pace. And so I don't think that we're trying to -- and nowhere in our internal model, we basically build out these into our revenue models or our numbers.

The next question is from the line of [ Hiten Boricha from Sequent Investment ].

So my first question is like, like each and every segment is growing really well. We are seeing a good margin in the Cycles segment as well. And as you mentioned, like we are expecting this margin to be sustainable. So what kind of revenue growth we are seeing, like, let's say, in FY '22, FY '21? Any internal target for our growth?

You're saying revenue target?

Yes. Revenue growth, yes.

I think it's too early to comment. Nobody knows what this environment is going to be like. And the -- yes, so it's too early to target because it's too early. Nobody knows. I mean, like we don't have -- we can't -- don't have that kind of visibility. So I don't want to be -- we don't want to offer commentary on that.

The next question is from the line of Sailesh Raja from B&K Securities.

So how is the response for the new product like SSID product under large diameter, is there any plans to introduce the same in the overseas market as well? And what is the market potential in domestic and overseas market and application of this product?

Large diameter, Mukesh, do you want to take it?

Yes. We are in process of development of this particular specific category. What you talk about SSID groups, and we have maybe sent the samples to global markets, and we are awaiting the feedback. And based on the feedbacks, we'll be ramping up this segment going forward.

So what is the market potential in domestic and overseas market?

Domestic is not much here, maybe let's say, largely potentially it comes from the global market only, and it's a large market.

Thank you very much. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Kashyap Pujara for closing comments.

Thank you. Thank you, everyone, for being on the call today. And thanks to Mr. Vellayan and all the members of Tube Management to patiently answer the questions. In case if there are any unanswered questions, apologies for the same, and please feel free to write to me and -- or Aditya, and we'll kind of get questions answered through the management. Thank you.

Thank you.

Thanks so much.

Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.

Thank you.