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

Ladies and gentlemen, good day, and welcome to Tube Investments Q4 FY '21 Conference Call hosted by IIFL Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anupam Gupta from IIFL Capital Limited. Thank you, and over to you, sir.

Thanks, Aisha. Good morning, everyone, and welcome to the post results conference call for Tube Investments. It's my pleasure to have the leadership team from Tube Investments joining us for the call, including Mr. Vellayan Subbiah, the Managing Director; Mr. Murugappan, the Chairman; and Mr. Mukesh Ahuja, who heads the Tube business; Mr. Srinivasan, who heads the Metal Forming business; Mr. K. K Paul, heading the Cycles business; and Mr. Mahendra Kumar, who is the CFO, along with his finance team. So I'll hand it over to Mr. Vellayan for the opening comments and the Q&A thereafter. Over to you, sir.

Thanks, Anupam, thanks a lot, and good morning, everybody. Overall, basically, the Board met yesterday and approved the financial results for the quarter and year-end 31st March 2021. This year, it took us a bit longer. Usually we kind of close the quarter earlier, but this year it took us a bit longer because we had to wait for the CG to complete their results. And so we had CG last week and we're just finishing here now. The Board also declared an interim dividend of INR 2 per share in the same -- was paid to shareholders in March 2021. Now we recommended a final dividend of INR 1.50 per share for the financial year 2020-'21. Revenue in the fourth quarter was at INR 1,480 crores compared with INR 935 crores in the same period last year. The revenue for the year was at INR 4,256 crores, which is almost at the same levels as the previous year despite the pandemic during Q1 -- pandemic impact during Q1. PBT for Q4 was at INR 175 crores, a growth of 62% over the Q4 last year. And PBT before exceptional items for the year was INR 381 crores, which is lower than -- lower by 9.5% versus the previous year. The ROIC before tax was at 31.5% compared with 29% in the same -- previous year same period. And free cash flow was at INR 533 crores, which is 195% of PAT. Now that's not obviously kind of a normal and sustainable number, but our net debt was reduced from INR 149 crores in the previous year to a surplus of INR 10 crores in cash for the current year. Obviously, there are 2 significant transactions around the free cash flow and net debt. The net debt number also has the impact of both our capital raise and the expenses around the CG acquisition, which was INR 687.5 crores is what our outlook was. In terms of standalone results, we talked about kind of most of the numbers, so we've covered that. In terms of the individual businesses, revenue for Engineering was at INR 854 crores in the quarter versus INR 545 crores in the corresponding quarter previous year. The PBIT was INR 92 crores as against INR 75 crores, that was a growth 22%. Revenue for the full year was INR 2,317 crores versus INR 2,258 crores in the previous year. And PBIT was at INR 251 crores versus INR 264 crores in the previous year. For the year ended March 2021, ROCE for the business was at 43% as against 40% in the previous year. Cycles and Accessories, the division, registered revenue of INR 301 crores during the quarter compared to INR 129 crores in the corresponding quarter of the previous year. PBIT was at INR 17 crores compared to INR 6 crores in the corresponding quarter of the previous year. Revenue for the full year was at INR 847 crores versus INR 781 crores in the previous year and PBIT was at INR 44 crores as against INR 26 crores in the previous year. For the year March -- ended March 2021, the ROCE of the division improved to 62% compared to 15% in the previous year. The revenue for the quarter in Metal Formed Products was at INR 401 crores compared to INR 301 crores in the corresponding quarter. PBT was at INR 40 crores compared to INR 16 crores in the corresponding quarter of previous year. Full year for Metal Formed was INR 1,274 crores compared to INR 1,399 crores, and PBIT was at INR 87 crores versus INR 123 crores. So for the year ended March 2021, ROCE was at 22% versus 27% in the previous year. Obviously, our consolidated numbers will include the 4-month period from CG. So for the quarter -- for the quarter consolidated -- we have a full quarter of consolidation with CG as well. So for the quarter numbers, TII's consolidated revenue was INR 2,733 crores as against INR 1,031 crores in the corresponding quarter, and PBT was INR 237 crores as against INR 89 crores in the previous quarter -- in the corresponding quarter previous year. And for the whole year, revenues were INR 6,083 crores as against INR 4,750 crores, and the PBT was at INR 454 crores versus INR 425 crores. As we discussed before, the company has acquired a controlling stake in CG Power and Industrial, we currently hold 53% and with the option to subscribe up -- we will kind of subscribe to -- we've got warrants, which will basically will subscribe to within the next [ 18 months ]. So Shanthi Gears basically registered a revenue of INR 75 crores as against INR 43 crores in the corresponding quarter of the previous year. PBT for the quarter was as INR 12 crores as against INR 0.5 crore in the corresponding quarter. Revenue for the full year was INR 224 crores versus INR 249 crores. PBT for the year was at INR 26 crores as against INR 33 crores in the previous year. Commenting on the financial results with M.A.M Arunachalam, also known as Mr. Arun Murugappan, who's the Chairman of TII, said, "TII has closed year with a healthy performance post revival of the economy from the first wave of the COVID-19 pandemic. The results are encouraging, considering the company had lost almost 1 full quarter of operations. We are hopeful that with the government's constant endeavor in controlling the spread of the COVID-19 pandemic and efforts towards maintaining the momentum in economic activity, the impetus in our operations is likely to continue." So thank you. I will talk to that, Anupam, and happy to kind of turn it over for questions.

[Operator Instructions] The first question is from the line of Vimal Gohil from Union Asset Management.

Yes. Congratulations, sir, on very good set of numbers despite challenging conditions. Sir, my question is, firstly, I just missed on your comments on the working capital in the standalone business. We've seen the receivables sort of increase quite sharply. So just wanted to check if is a sustainable level, that's question number one. And the second one would be will we be able to sort of pass on the commodity impact that we've seen this quarter in the next couple of quarters? So wanted to get an update there. And thirdly, I have some questions on the CG Power, if you wish to take one on this call.

Yes. So first, I think, obviously, kind of our preference is we don't want to make this into a CG call. The -- at the right sign when some institutional coverage and other things start, we will start separate calls for CG. So that's a quick take on kind of CG rather than not because, otherwise, what tends to happen is all the questions become CG questions in TI call and that can make things a bit confusing. So on -- first, on your question in terms of the working capital number, I think we've -- like I've mentioned briefly, this is not a sustainable level. We will kind of go back into positive working capital overall for the company. And so what happened at the end of last quarter was a convergence of kind of several different phenomenon that basically led to this kind of -- to a negative working capital number. To your second question on passing on the steel price increases, yes, our belief is that for a majority of plans, we should be able to pass on, I would say, kind of majority of the steel price increases. So we continue to stay concerned that it is inflating at too high levels and will definitely have other effects. The -- also kind of -- so that's kind of -- we continue to kind of be quite concerned about the levels at which commodity prices are at today.

So would it be fair to say that maybe a couple of quarters down the line, if at all, commodities sort of stop rallying here, in a hypothetical situation, you will be able to sort of recoup your gross margins? This for the standalone business.

Yes, that is our belief.

And sir, if you could just comment on some of your newer initiatives like [ related ] business or maybe your 2-wheeler, 3-wheeler electric vehicle initiatives that you took last quarter. Any sort of update there would be welcome.

Yes. Like we have said, progress continues on those fronts, right? And we -- obviously, things have been slightly delayed due to COVID. Our initial plan was to try and launch it in the fourth quarter of this financial year. We're still working towards those targets, but it might get pushed out because we've had several delays due to COVID in this last quarter.

The next question is from the line of [ Kashok ] from [indiscernible]

My congratulations for a good set of numbers in challenging times.

Thanks, [ Kashok ]. Thank you.

Just a couple of questions. Firstly, we've seen very good growth in the Cycles division, and historically, it seemed to be a division where the growth aspirations on the management side itself were like 5% to 7%, which would include maybe 2% price growth and 5%, 6% volume growth. And obviously, we've seen quite a [ heady ] number this time. So just -- and I remember you citing in an earlier call that the dividend head of Cycles had an aspiration to be the best performing division, and we are already seeing some of those things panning out. So just wanted to check with you whether this -- the growth expectations here going forward, should we kind of look at it differently versus the way this division has panned out in the past?

So [ Kashok ] obviously, like we've said, I mean, it is kind of -- we do see a lot of potential in it. But like you said, I'm going to ask -- I'm going to let the division head of Cycles kind of answer this, K. K Paul is on the line, so let him answer it. I think there is nothing like getting it from him directly. So Paul, can you just answer that question?

Yes. I think we work on a set of strategies that help us to get some sustainable competitive advantage, and that is what we are trying to build through our efforts. Some of the efforts we've executed and some are under execution. That is one part. The other part also is the opportunities that are opening up with exports in the bicycle arena are also quite large. And therefore, we are looking at that in a far more concerted and aggressive fashion than what we've done in the past. We believe that will traditionally give us good growth opportunities and balance the domestic growth, the vagaries of the domestic growth. So all in all, in a nutshell, I think you will see sustainable kind of performance in terms of trying to see how we can get up the volumes. Yes, there's a lot of work in process that we've acted. Thank you.

So Paul, just to extend that question was that what you can share qualitatively, what exactly are we doing in terms of is there a product mix change? Is it exports? What exactly is kind of causing this kind of growth?

There is lots of those initiatives. I think the first think we did is we aligned our cost structure to the activity level. So therefore, that brought down the breakeven substantially. So that gave us the leverage -- that improved our competitive ability in the marketplace. So that's point number one. Point number two is we also now are embarking on looking at how to get the manufacturing piece on make-to-order phenomena just as what you see in [ Tata ] production system and other places. And that's the work that we are currently doing, so that we are able to respond much faster to the marketplace. Third was that we re-jigged the organization, gave [ enlarged ] responsibilities, worked around building capabilities of people. And the fourth was that we build an export structure and started focusing on different markets that we will do, build a long-term plan for exports and giving shape to that. So there were these set of initiatives, and now we are working around with tenders to realign the supply chain towards this made-to-order principle because they have to get aligned at the backward end. And the fifth portion here is we're looking aggressively into the weaknesses that we historically had in our distribution system and correcting that and seeing that we are adequately represented both in depth, that means the number of dealers we have and their participation with defined depth. And breadth is obviously very simple, the kind of coverage that we have geographically versus the universe of dealers available, so on and so forth. The other piece which you are working on is a Track and Trail that is our retail outlet franchisees that we have. In terms of revising them from a service point of view, from an activity point of view and from an ROI point of view, I think these are basically the things that we've done. Along the way, we also looked at what our brand stands for. We do some brand rationalization, bringing on a new brand purpose, engaging in the social milieu a lot now and building conversations around our brand, are looking at e-comm in a far larger way and succeeding in that effort in terms of taking up e-comm sales and not conflicting it with the trade sales by having different product lines. So briefly, I think this is all the work that we've done qualitatively and some part of that is what you are seeing as the result. Of course, with COVID coming in, we had a first quarter washout, but the other quarters, we were helped because the demand was much better and so that also helped us to -- propelled us to do better.

Sorry, just last question from me, sir. While steel prices definitely a bit of a concern, but at the same time wouldn't that be opportunity from an export standpoint because Indian pricing is still at a discount to global pricing as far as steel is concerned. So when it comes to engineering exports, would it kind of open up the competitiveness further towards our favor? And will we be able to scale up exports much more than what we were thinking about earlier?

Yes. So [ Kashok ], that's a good question and I will let Mukesh answer that. And to summarize, [ Kashok ], on your last question, right -- just to summarize what Paul said. Basically, the first step that Paul's really done is kind of make the place extremely competitive, right? So we made ourselves a lot more competitive by improving on the QCD dimensions like he talked about. And we're still going to continue to invest in a lot more to kind of make ourselves even much more competitive here like we told you with the Japanese and kind of -- so a lot more investment to be done there. So given that, in Cycles, we talked about 4 growth vectors. One is increasing domestic market share. The second is looking at mix, right? The third is export markets. And the fourth is new products and categories, right? So those are the 4 growth vectors that we are looking at. And that's why I think kind of Paul is beginning to look at the business in a lot -- in a significantly different way that offers us kind of more avenues for growth, right? So that structure summarize the question on Cycles. The second question on Engineering and exports, I'm going to ask Mukesh to answer that. Mukesh, can you take over?

Yes, [ Kashok ] , your observation is right. Being the commodity price is still lower than the global commodity prices, India has a edge over it and which will definitely lead to the more export revenues going forward than what we have planned. But we need to also check it up whether it is sustainable. So it is more important that we do not only depend on this, our earlier work on product-specific categories, development is continuing. So that's our participation level in the different geographies and the different product segments globally and increase leveraging our domestic experience.

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

Team, congratulations on a really great set of numbers. Sir, my first question is in terms of our Engineering business and Metal Formed. Just can you help us understand what are the interactions that you're having with OEMs and other suppliers to OEMs, Tier 1 suppliers? With regards to FY '22, how do they see volume growth in that segment? And as a consequence, the above effect on us . If you can just give us some high-level view or understanding of that.

Yes. Aditya, thanks for the questions. So I honestly say that things are slightly kind of mixed right now. Like we said, kind of the outlook that they have is a bit unclear. People are, kind of at one level, very bullish. But the second level kind of -- there seems to be quite a bit of apprehension in terms of what's going to happen. So honestly, I'd say, it's like -- it's a very -- it's difficult right now to kind of predict what is actually going to happen domestically because both schools seem to be prevalent at the same point in time, which is why like Mukesh said on the Engineering side, we've been a bit more focused on the export front. But there is enough domestic demand also to drive the business right now. And what we're also seeing in this environment is that the smaller players are having a tougher time to manage their supply chain. Basically, because you're seeing commodity prices go up, people aren't sure how much inventory to hold because it's also what's going to happen to pricing, getting supply from the steel guys is still kind of a challenge. So there are a whole bunch of facets that is actually making it more difficult for the smaller guys to compete and their working capital cycles are also getting locked up. And I think that, that's also helping us both in terms of Engineering and in terms of Metal products. But honestly, I don't think that the OEMs have kind of a crystal ball or the capability to do that at this stage and time.

Fair enough. Sir, my second question is with regards to our Q4 numbers. I mean we've been more than positively surprised with the growth that we've seen. Obviously, in Cycles that [ Kashok ] highlighted, but in Engineering and Metal Formed as well. Sir, just can you help us understand if you were to decompose this, how much of this would be purely on account of the commodity cost? And how much would be the inherent volume growth relative to that?

Yes. So Aditya, the commodity cost passing on to the customers, as you know, it will take some time. There's always a lag of about 3 to 6 months. So that piece is just to come into Q4 numbers. So most probably, it will come late in the quarter. So not entirely, but most part of it.

So Aditya, coming back to your question, a larger portion is driven by volume because part of what happened in Q4 is that everybody was running flat out, right? And so now kind of obviously, again, then we had kind of the same impact of a slowdown in -- especially in April and May. But in Q4, last year, everybody was running flat out. So that basically helped us significantly on the volume front as well.

Okay. And as highlighted, I think what we are going to see is the impact of commodity costs coming in, in Q1 and Q2.

Correct.

Correct.

Fair enough. Sir, I understand that you don't want to discuss too much in terms of CG, but I had 1 data point to ask. With regards to our exceptional number, right, in terms of exceptional items, there is a divergence. We've got INR 22 crores-odd in our consolidated numbers for Tube. But when I look at CG's numbers, that number is quite high. I think it's closer to INR 280 crores. Can you just help me understand what is the divergence in that?

Sorry, come again?

Say, our exceptional items is INR 22 crores. So our exceptional items in TI's number the stand-alone exceptional item is driven by the voluntary retirement scheme.

That is correct. No, sir. Even in the consolidated numbers...

So now you are asking for the exceptional items in CG's numbers, which are at INR 280 crores, which has a whole variety of items in it. So I think Aditya's question is why hasn't that INR 280 crores shown up in TI's consol number?

Yes. We're concerned only from December onwards.

Once again. So Ramanujam is going to answer the question.

Shall I say when we consolidated CG just for 4 months starting December to March, so the entire exceptional item of CG will not flow in here because the 8-month gets excluded. So for the 4 months, the exceptional item is roughly around -- if you take Q3, we are roughly around INR 80-odd crores. That's the reason.

Because that shows up in the exceptional on the overall.

Yes, yes.

Aditya, I don't know if that answers your question.

Maybe I can take it up with Mr. Ramanujam off-line after the call.

Sure, sure.

The next question is from the line of [indiscernible] from [ First Investment ].

Yes. My question is related to TIDC India. So can you shed some light on the TIDC India, how is the transmission chain business is doing for us, as well as if you could help us bifurcate the 2-wheeler and the industrial chain division?

Yes, so obviously, we don't give -- we don't report kind of performance data at the business unit level. But a broad indication I'll let Mr. K.R Srinivasan, who heads that division, give you some broad guidance on how the businesses are doing. In short, both those businesses have been doing well, but I'll let KRS kind of talk a bit more about it.

Yes. It's K. Srinivasan here. As far as chains of concern, automotive transmission chains, we have different kinds of demand fluctuations right through the year 2021. The first quarter last year was affected by pandemic, and then we had some good traction in the aftermarket demand in the remaining quarters basically driven by the consumption at the vehicle maintenance business in the market. So that really helped us to improve our -- in our market -- in the aftermarket. And the OEMs were actually following the demand curve, the lockdown and then market opens up and then lockdown. So they were actually managing the pipeline inventory right through the year. That is how the productions are going up and down. So we need to dovetail our operational level for OEMs suitable to their demand, which continues this year as well. And coming to the industrial chain, industrial chains have done pretty well. Of course, they were affected in the domestic demand initially because of pandemic and then this division came back very strongly post pandemic. And then we did some impressive sales in the domestic demand. Exports have done pretty well, though the export markets are affected because of logistics and also other demand fluctuation issues. Overall, the division came back very strongly, and we see that traction continuing this year as well.

Sure. That's helpful. Just to follow up on the automotive chain segment. Would it be possible to share that -- how much of the revenues come from 2-wheeler or from the passenger vehicle or the other segment?

Mahendra?

Yes. We don't usually share data that granular unless [indiscernible]

Okay. And also if you could give the outlook on the automotive chain segment. Like if the EV transition takes in, then how do we plan to navigate through this EV scenario?

Yes. That is a very good question. Actually, like always, we don't have a crystal ball to project the future. But however, we are preparing ourselves to face the EV because EV will have some impact, but not immediately. Maybe a few years down the line, we'll have some impact. So we are preparing ourselves with suitable alternate strategies within the division for -- facing that.

Sure. But that would be -- we would be much more focused on the aftermarket side, right? If the...

Yes, yes. You are right. The aftermarket would continue for 30 more years. Even though the OEMs EV -- because of EV demand the IC engine demand comes down, the aftermarket would continue for many more years.

Yes. Sustainability for up to 10 years after the demand.

Correct.

But currently, we don't have any product for the EV as such.

As such, currently, we don't have any products on the EV.

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

This is Shyam from Sundaram Mutual. Sir, my first question is on the Metal Forming division. While all other divisions have done very well during the year, we see the Metal Forming division in terms of the revenue lagging a little bit. Obviously, the year has been quite tough. If you can give some perspective within the Metal Forming, this subsegment have sort of -- have pulled down the performance of the overall division? That is my first question. And secondly, on the Engineering side, you just talked about the [ overall ] segment facing challenges, et cetera, both on the Engineering as well as the Metal Forming. So put together, have you gained market share in any subsegment per se? The reason I'm asking is because Engineering is doing extremely well from a revenue growth perspective on that front. So are there any share gains in any subsegment within that? If you can give some perspective on that as well.

Your first question, the challenge actually has been on the railway front. That's where we've kind of seen the biggest challenge from Metal Formed perspective because railway has kind of got extremely sluggish last year. They really never came out of the whole COVID situation. And then your second question on Engineering, Mukesh, why don't you answer that.

Yes. Thanks for your question. Just to share with you, growth is led by almost all 3 verticals. One is like your observation is right, we have gained market share in the domestic market in the last year to a good margin. And also, maybe focus on exports as well as our large diameter plant has also led to the growth. So growth is a function of all these 3 areas. In domestic market, yes, we have improved shares.

And on the -- so when you're talking about it on the new mill that was supposed to start in Q4, what is the status there? And overall, on the nonauto hydraulic cylinder pickup, how is this happening? And if you could, one housekeeping question. On the export revenue, if you can share how much of export revenue in F '21, sir.

Okay. Going one by one. Our new mill which was getting commissioned, maybe, unfortunately, because of COVID is running by a little delay. And we hope this after second wave we are going to finish that exercise. And coming to export, like Vellayan mentioned, we don't share the revenue breakup of domestic and exports [indiscernible] division that's how we classify. And on the large diameter side, yes, growth is coming good because of the government spend on buying infrastructure and all these things, that's showing good momentum.

Understood, sir. And one last question, on the CapEx side, what are we planning in terms of the capital expenditure? F '21, we had around INR 139 crores of CapEx. How are we looking at capital spend in F '22 and '23? Broadly some perspective there. And where are we trying to spend that, if you can I can share on this.

Yes, Shyam, so this year, the CapEx could be in the range of INR 200 crores to INR 250 crores. A major part of that will be towards the EV project which we are working on. Plus there are a few expansion plans which we have in chains business and also in Engineering business.

Sir, sorry, which project are you working on, sir? I missed that.

EV, the electric vehicle project.

Okay. The 3-wheeler project. Okay, okay. Understood, understood, understood.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

So I had a few questions. First, the Cycle division, when we are looking at the export opportunity, will it be in the form of B2C or B2B format? Or will it be a mix of both?

So it's a -- I mean, are you saying are we going to go direct and kind of try to sell the customers with our own brand in the foreign market? The answer is no. This is B2B.

Okay, okay. And while we have seen a sharp improvement in the revenues of Cycle division, on a quarter-on-quarter basis, up to that INR 300 crores, the corresponding margins have not come in. But I thought since it's more a B2C business, gross margin should have been stable. So how should one look at the margin profile of the Cycle business? More from a medium-term perspective, is more like a 5%, 6% margin business? Or is it like a double-digit kind of a margin business? How should one look at it?

So Mahendra, if you want to take the end of that?

So you're talking about full year numbers? Or what are you comparing this? Full year or Q4?

I'm looking at full year because 1Q was an aberration. If I look at more like an exit number of 300 crores kind of a revenue that you've done for the quarter with corresponding 5.5% margins, I'm just trying to see that in the medium term, given the competitive intensity that one has seen in the domestic market, that has kind of come off because of a large player going off, the demand pull that is coming plus the export opportunity. So more from a medium-term perspective, is the Cycle business at -- is it like a double-digit margin business for you all? Or is it more or less a [ 7% ] margin. Just wanted to get that aspect from a medium term perspective?

It may not be a double-digit margin, but there may be some opportunities for further improvement, but it won't be a double-digit margin.

Broadly, I would say, Paul and team are looking to improve margins. Paul, do you want to comment? Paul and team are looking to improve margins more, but they've already improved margins significantly from what the numbers used to be.

Compared to last year, there was already a significant...

Already a significant improvement.

Yes. And sir, the other thing is now you have this portfolio, Shanthi Gears, CG Power, Tube. And there are a lot of commonalities between industrial gears. CG also does a lot of business with railways. Tube also does a lot of business with railways. So are the teams already kind of interacting with each other? Is there some kind of synergies that are happening? Or do you just want to consolidate CG and then probably get into those kind of initiatives? How should one look at it?

Yes. So I'd say that this year is more of a year of consolidation to each of the individual businesses. Just to give you a sense, even in railways, kind of -- in CG, their interaction has predominantly been with the powertrain, right, with the engine side. And TI's interaction has mainly been [ rail side ] on the coach side. And so the two, they're mainly totally separate kind of facilities, so on and so forth. So at the first stage, kind of our focus is just consolidating the existing business. And then in the second stage, we will move to integration between the 2 businesses.

Okay, okay. And just coming to one element also, do you believe that railways would be weak in FY '22 as well because of the similar trends continuing as of FY '21. So the Metal Formed division could see a drag in FY '22 results because the railway is not doing well?

KRS, you want to provide your perspective on railway?

Yes. See, right through last year, the coach factories were having challenges in continuing the operations. Even now we see that because of the lockdowns in all the zones wherever the coach factories are situated, both south and north. But slowly, they are opening up. The allocation from the ministry need to improve. But our interactions with the railway authorities is really promising. They see that maybe third quarter of this year things would come back to normal is what is their guess. We need to wait and watch. Maybe next quarter, we'll throw more light on this. But definitely, government has committed to spending more in railways, both in coach and other areas, in the safety areas. So as far as potential in railways is concerned on a long-term perspective, it is definitely.

Okay. Great. And sir, just one last question from my side. In the cash flow statement, there was 1 -- there small amount related to the corporate guarantee provided to CG Power. So just want to know where the amount is based. But just to understand your -- this thing in terms of how much have you lent to as a corporate guarantee to CG Power? And what's the policy going forward around that?

Yes, we issued these corporate guarantees to secure the loans, which we have taken to refinance the CG acquisition. So this is a notional entry. It's not actually a cash flow entry. It will get offset elsewhere. So this is a notional entry, which we have to pass based on [ interest ].

The next question is from the line of Anupam Gupta.

Sir, a couple of questions. Firstly, on the Cycle business, while the period after COVID has been very strong, but do you expect the domestic market to keep growing at this healthy pace? Or should it revert back to the older pace, which you are thinking before the COVID struck?

Somebody asked this question earlier in kind of what's the outlook. I think like we said, at this point in time, it's very difficult to kind of say what is the outlook going to be, right? And so I think we just have to wait and see because it's very difficulty to predict the outlook. Obviously, there is a school that says, hey, demand is going to pick up, but we don't want to kind of make that assumption right now. Like both kind and Mukesh and Paul said, there's an increasing focus on exports as well. And so we're hoping that, that will also help us because we are seeing good export demand.

Okay. And since you discussed -- you said about exports, so what -- so given the export -- so the suppliers in China and Taiwan who are the largest suppliers, we obviously have much better economies of scale there. So what advantage do we have versus them in terms of cost if we are primarily focusing on B2B?

I think 2 sets of things, right. One is that like we've seen after the pandemic, there are several buyers in the U.S. who are clearly saying that they do not want 100% dependence on a Chinese supply chain anymore. And we see that as a definite advantage. And the second is that I think in terms of some products like [indiscernible], right, there is basically antidumping against some of the Chinese players. There have been problems -- challenges with China -- with India also, but we do see opportunity beginning to pick up for us again.

Okay. Understand. And just one question on the Engineering segment. So you have been working on growing the export pipe for the Engineering segment as well. So how is the traction on the product, which you are developing? And any further products, which we have in the pipeline, which can come through?

I think Mukesh answered that. Mukesh, you want to answer that? You mentioned some of it before, but you can answer it again.

Like we shared earlier, we don't discuss in this call which product category specifically we are focusing on. Just to give you broader your answer is, we are going to increase our participation at the geography level. We are going to do that. And we are also participating in the new product segments, even for this CapEx is also under completion. So we'll be taking that forward, to answer your question.

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

Congratulations on a very good set of numbers, sir. Just 2, 3 questions. So first, I think you've taken a INR 200 crore fundraise-enabling resolution. Is it largely for working capital in terms of it or is it for something else? That was the first question. The second question was while we've done M&A of CG Power and we did guide at that and that we will look at multiple M&As in the future as well, given the turnaround that we've seen in CG Power already, when do we -- I mean, is it safe to assume that over the next 12 months, we will look at another acquisition given the stressed environment that we are under?

Yes. I'll answer the second question first. I mean, obviously, we will start looking but we're not going to kind of set ourselves a time limit under which we have to do a deal. It's going to be very opportunistic for us as far as the M&A part of concerns. And in terms of the INR 200 crores...

It's more like an enabling resolution. Not for any specific requirement as of now.

Okay. And just one more question, if I may squeeze in, sir. While you had guided earlier during the CG Power call that you had a guidance of 10% PBT margin, and if you just look at the numbers on an adjusted basis, you already would cross about 12% if I adjust the raw material cost inflation, which at some point of time will converge. So would you like to give us a higher level guidance again on that number because it also impacts, to some extent, Tube valuation. So would you like to give that guidance again -- a revised guidance on that?

No. I think let's see because there's a mix of businesses there, right? Some businesses might be higher, some businesses might be lower, right? So I would say that it's still a business that we need to learn, right. So I don't want to give any guidance on -- any increased guidance on that. Give us a couple of quarters, give us 3, 4 quarters to learn that business. And I think after that, we can start discussing them.

The next question is from the line of [ Avin Joshi ] from [indiscernible]

I just had a small request to make. Sir, in the last call, you had mentioned that you'll probably be doing a separate conference call for CG Power. Now you're stating unless there's adequate coverage, we'll get into it. It's becoming like a chicken and egg story. Why don't we preempt the coverage by giving some more details discussed in these kind of calls or do a start -- doing a separate call, sir? That's just a request, sir.

Okay. All right. Okay. So it's not like we will have to wait for coverage. We'll have a discussion -- yes. So we'll make a call ahead fairly quickly, okay?

Next question is from the line of [indiscernible] from [ Quest Investment ].

A small question. I mean, not -- on CG Power, not financially, but business-wise qualitatively. In CG Power, we all -- I understand we have a smaller motor business also. And with the GST coming in and this COVID, there is a lot of consolidation is happening. So if you can share some color. And are we working, I mean, for this small motor business for EV vehicles?

So like we said, we'll start doing separate CG calls. I think basically, we are looking at motors for EV, but it's still in early days. I'm not sure what you mean by small models, but kind of obviously the -- there is a broad spectrum that kind of CG kind of plays in. We don't get into the very small models if that is your question. But our intent is to obviously kind of broaden that spectrum over time. But we don't see getting into the very small fully automated manufactured model.

Okay, okay. So we will discuss more when we hold the CG Power call.

The next question is from the line of Rohit Ohri from Progressive Shares.

Two questions related to Shanthi Gears. Just wanted some clarity on the growth CapEx. In Q1 FY '21, the team mentioned that Shanthi was going to go for about INR 15-odd crores, INR 20-odd crores of growth CapEx. In Q3, Mahendra and his team mentioned that there will be a deferral and that, in the future, in Q4 and then Q3 of the next year to be spread over the next 4 quarters. So just wanted to understand what exactly is happening on the CapEx front for Shanthi.

Yes. So your question is what are we likely to spend this year or...

What have you spent and what do we intend to spend in this, yes?

What we intend to spend could be in the range of around INR 20 crores to INR 25 crores.

Okay. And that is for the growth CapEx, is it?

Correct. To get into new segments or projects.

Sorry. I didn't get that.

To get into new opportunities and new segments in this year.

If you wish to elaborate a bit on the new segments or is it too early to speak about that?

We don't want to reveal it exactly, but just to hear in the next call.

So apart from these new segments, any other propellers for growth, which the long-term shareholders or investors should look at for Shanthi?

I think like how we explained earlier, service business continues to be a growth opportunity. There is significant potential there still, which is remaining untapped. We continue to focus on that.

So the service business will be like, what, 15% of the total turnover today?

Yes. It should be around that, yes.

And you intend to pull it up to in terms of percentage?

In terms of growth for potential, it should be, I would say, maybe a double-digit growth every year.

[Operator Instructions] The next question is from the line of Yogesh Soni from Sky Investment. From the line of V.P. Rajesh from Banyan Capital.

Most of my questions have been answered. Just a couple of points on Shanthi Gears. What is the capacity utilization in that business? And secondly, what is the growth prospects you see over the next 2, 3 years given government's thrust on manufacturing and infrastructure.

Yes. So capacity utilization, obviously, is kind of done at an individual product level at Shanthi, right, because some of the products kind of go through -- are the much larger products, some of the products are kind of, how to say, heavy duties and the medium, the kind of -- so capacity utilization, in general, I would say, is about 65% to 70% right now. In terms of growth prospects, I think we talked about it kind of basically the avenues we see are service revenues, new products in the existing segment itself. Export continues to kind of be an opportunity. And we're also looking at now what to do from a technology perspective, basically broadly beginning to see IoT work if we can kind of stick some of that into the year because that's increasingly becoming a demand from the customer side as well. So all 4 tend to be kind of good growth opportunities for the business. So there's definitely significant growth opportunities. We'll have to kind of wait and see how this thing kind of plays out, but we are bullish kind of broadly in terms of where -- on the business.

Sure. I was just trying to understand if there was more -- if there were more opportunities in the domestic market because spend that government is pushing in the infrastructure or that will not be the case. I just want to get your...

Definitely, there are several trends that are positive, right? I mean, [ sugar ], for example, is going to be kind of a positive trend if people start spending more in that business. Infrastructure, infrastructure picks up definitely. Any of the big areas, right? I mean, cement basically helps us. Any infrastructure areas kind of help us. So definitely, there is more of an infrastructure spend and push there. We will see growth from that.

Is it too early to comment on that?

Yes. It's too early, right. Like I said, we don't want to kind of say anything before the thing starts.

The next question is from the line of [ Tanoj Vongarde ], an individual investor.

My question is with regards to our acquisition of CGP. In the total corporation outstanding warrants that we had possessed, is there any data that we have as to how much of it has already been utilized and converted to shareholding? And what is an approximate timeline as to when you guys is going to utilize all of their warrants and convert them into shares?

So I think the issue, we have 18 months from the date of issue. The date of issue was October and November -- November 2020. So within 18 months, we're basically fully subscribed. On a fully subscribed basis, I think our total shareholding goes up to 58% -- 58.06%. Yes. our total shareholding goes up in that range, somewhere between 58% and 59%. Does that answer your question?

Yes. That does. Thank you.

Thank you. That was the last question. I would now like to hand the conference over to Mr. Anupam Gupta.

Yes, thanks, Aisha. So just had 1 small question, if it's okay. In the Engineering products segment, we obviously have significant exposure to 2-wheelers. And the electric 2-wheelers there are making slightly faster inroads than in the passenger vehicles actually in India. So have we started picking our products there? Or have you seen any traction there? Or do you see that still to be some time away?

Yes. It's a good question. So I think, Mukesh, the question is on whether electric will affect our [ DFS ] business. So if you can just talk to that.

Actually, they're going to increase the growth opportunity because if we go through the segments, the scooters are taking the priority for the electrification in the 2-wheeler segment. And the [ DFS ] segment is going to increase by introduction of EV. So we see the opportunity -- I mean, let's say we don't foresee any impact on the business on the negative side as of now, but there is the opportunity size, yes, there are opportunities, which we are to participate and grow our business.

So far have you seen any traction there or is it too early?

It's too early.

Okay. I understand. Thanks a lot, sir. That all answers my questions. And thanks a lot for giving us the opportunity. If you have any closing comments, Vellayan, please go ahead with that.

I think that's -- I think specific from our perspective like -- we have said, our ability and our focus continues on the key areas, including kind of lean as an opportunity for performance improvement, EQM, all of those efforts continue. And we do see more performance improvement opportunities just from those itself in addition to kind of some of the new areas of growth that we're looking at. So with that, kind of, we'll also close our commentary. Thank you, and look forward to interacting with you next quarter. Thank you.

Thanks a lot. Thank you.

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