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

Ladies and gentlemen, good day, and welcome to Tube Investments Q1 FY '22 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anupam Gupta. Thank you, and over to you, sir.

[indiscernible] welcome you to the conference call for Tube Investments.

Sorry, Anupam, your line is breaking.

Yes. So welcome, everyone, for the Tube Investments first quarter conference call. We have the entire management team for Tube Investments with us for the call, including Mr. Vellayan Subbiah; Mr. Arun Murugappan; the CFO, Mr. Mahendra Kumar; and all the 3 business heads, including Mr. Mukesh Ahuja, Mr. K. K. Paul and Mr. K. R. Srinivasan. For the opening remakrs, I'll hand it over to Mr. Vellayan Subbiah, after which we can take the Q&A. Over to you, sir.

Thank you, Anupam, and good morning, everybody. We -- just to go through, we basically -- the Board met on June 30, 2021. I'll just quickly take you through the stand-alone results for the quarter and then we can talk about individual businesses. The revenue for the first quarter was INR 1,257 crores. There's no point in actually comparing with the same quarter last year because of that COVID quarter. Even this time, we got hit by COVID, and it did affect us significantly in April and May, so which is why the numbers are obviously -- can have a bit lower than what we would have expected them to be. PBT before exceptional items was at INR 130 crores. ROIC was at -- the annualized ROIC was at 41%. And free cash flow actually for the quarter was negative at INR 134 crores basically because inventory levels went up significantly due to unexpected lockdown conditions in May and the creditors had to be paid per the agreed terms. NWC should improve this quarter. So in the -- in terms of reportable segments, now we're following with IND AS 108 here. Engineering, this segment comprises of cold rolled steel strips and precision steel tubes, CDW and ERW both. The revenue was at INR 815 crores for the quarter, and PBIT was at INR 83 crores. Metal Formed Products is -- comprises automotive chains, fine blanking, stamped products, roll-formed car doorframes and cold rolled formed sections for railways and passenger coaches. Revenues here was INR 245 crores, and PBIT was INR 26 crores. Mobility which is a standard bicycles; special bicycles, including alloy bikes; fitness equipment and the 3-wheeler electric vehicles when we start [ meeting ] that, that division had a revenue of INR 172 crores, and PBIT was at INR 7 crores. The Others segment comprises of industrial chains and new businesses. Here, the revenue was at INR 88 crores, and the PBIT was at INR 10 crores. In terms of consol results, which obviously includes both Shanthi Gears and CG Power now, revenue was INR 2,437 crores, and PBT was at INR 185 crores. CG, where we have a 53% stake, has a consolidated revenue of INR 1,050 crores, and PBT for the quarter was at INR 75 crores. Shanthi Gears, we had revenue of INR 67 crores, and PBT for the quarter was at INR 12 crores. Commenting on the financial results, Mr. M.A.M Arunachalam, Chairman, TII, said, "TII has delivered healthy performance for the quarter despite partial disruption in the operations in some of the businesses of the company due to the impact of second wave of the COVID pandemic. The company witnessed good demand in the Engineering and Metal Formed Products business. The signs of exports are encouraging with the opening of overseas markets. With revival of the operations, we expect momentum to pick up in coming months." So that's a quick take on numbers for the quarter and results. So we'd be happy to turn it over, Anupam, to the audience for questions, and we've got the whole team here, like you said. Thank you.

[Operator Instructions] First question is from the line of Abhishek Ghosh from DSP Mutual Funds.

Sir, just wanted to understand, in terms of this quarter, how many days we had the impact of shutdown because of the lockdown because of the Southern unit?

I'd say we lost -- I mean, in terms of -- actually this time, a lot of the companies are much better prepared for lockdown than last year. But if you see what is happening, I would say, kind of also in some cases, like anywhere between like 20 to 40 days is what the total loss was.

Okay, okay. Is this coming from -- sir, is that despite that, if I look at the Engineering division kind of revenues, right, on a 2-year CAGR basis, not on a Y-o-Y because it's not comparable, you've still done a very good job. You're still growing at about 10%, 11% CAGR. On a 3-year basis also, there's a strong growth. While predominantly your key sector, which is auto, is still not back to those levels. So is it because of inflation? Is it because of market share gains, exports, new products? If you can just help us understand that aspect.

Yes. I'll let Mukesh talk more. Definitely, kind of exports has been the biggest focus area and biggest growth area in the first quarter. A lot of the loss in demand from auto has been pushed towards exports. There was also good demand from auto. But that is the quick thing, but I'll let kind of Mukesh talk more as well.

Yes. Thank you, sir. Likely explains, sir, this growth Engineering division is coming with a mixture of exports, which we are participating and working it almost now from last 3 to 5 years' time, which has started giving the results. Exports is a key growth driver and which will remain the driver going farther growth. And in the domestic market also, we have gained shares in this COVID period. And third is a little bit part what you rightly mentioned is coming out of the inflation. Even the inflation is to get factored fully in the revenues, but a small portion has got it even [indiscernible] which [indiscernible], but [ around 80 ] is coming from exports and gaining market share.

Okay. And what would be exports as a part of the revenue study of Engineering division?

This quarter, it is high. It is close to 18%.

Okay, okay. And just one more question from my side. If we see gross margins in last 2 quarters obviously has seen some moderation because of the inflation, and you would have to kind of negotiate with the customers and pass it on. So where do you see that path of that gross margins kind of coming back? And how should we kind of look at it? If you can just help us understand with that.

Yes. So like we mentioned in the earlier calls, it may not be appropriate to see gross margins quarter-by-quarter because there will be some timing difference between the steel price increases and the timing of [indiscernible]. So we should rather see it on a long-term basis, maybe on an annual basis.

So the one way to look at it is if commodity prices stick with where they are now, right, then the current levels will be more indicative, right? Obviously, we will work on improvements to kind of basically push that number further. But that would be kind of the broadest thing, right? So current levels plus I mean, if steel prices stick, because otherwise, the denominator effect on that was huge in the fact that the prices went up so much. So I just think it's driven by that. But obviously, we are working more to kind of work on the efficiency side and all that a lot more. But that aside, I think that kind of the current levels are indicative, but they might go up a bit.

Okay. Very helpful. And just one last question from the annual report. The flavor of the report was that there's a lot of focus in which you've been mentioning -- a lot of focus on export of Russia, U.S., Europe, you seem to add a lot of customers plus the IRS certification for railway opportunity. So is -- will you also have to incur out of CapEx now kind of see those markets and the certification that you have got to be able to grow those markets? If you can just help us with that. And how big are those opportunities?

Yes. So I don't think that there's significant, I mean, CapEx. So for example, if you see what the Engineering folks did on the stabilized [indiscernible] mill, hopefully, we will commission in this quarter. And so that is a CapEx that has been incurred and will allow us to kind of significantly improve our export capability on that side. Even Mobility, for example, is beginning to look at exports in a pretty big way. And that doesn't -- it doesn't require huge CapExs, but there are some smaller CapExs there. So I don't think it's CapEx intensive because a lot of the capacity is there. It's more kind of enhancing the capacity for certain kinds of products. So at this stage, it's not requiring kind of totally new greenfield production facilities to drive that. But definitely, that focus is there for us and will continue over the next couple of years.

[Operator Instructions] The next question is from the line of Suraj Nawandhar from Sampada Investments.

Sir, my question was more of related to the CG Power. So how are we seeing demand on the ground after the second wave of the COVID?

Yes. Again, broadly, like we've indicated before, we don't want too many CG Power questions here. We've already said that after that October time frame, CG Power will start having its own investable. But to your question, there has been tremendous demand on kind of in all of the businesses. So they have seen good demand growth, whether it's the motors business, switchgear and transformers. I think the switchgear transformers, the demand for CG is driven both by supply and demand issues, right, because other supply has gotten reduced and the railway business as well. So all the businesses are seeing good demand.

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

Congratulations on a good set of numbers. The first question was, if you can just give us some sense of when do you think your optic lense business will go live. I think [indiscernible] already highlighted the plant is up and ready. So when can we see the plant going live? And what kind of revenue should one be to think of in the next 2 years?

Yes. So basically, all of the -- I mean, so the lens facility is live now. There's only one production process that's still kind of been piloted. All the other processes are live. But like we told you, this was kind of more of a like a pilot project, right? So the revenue from this is fairly small because the other capacity will be 0.5 million lenses a month, which would only get us to 6 million lenses a year, so that's fairly small. Now what we're doing is readying kind of the plan for expansion, which is what will give us kind of more capacity. That plan is what is kind of -- it's getting worked on now. So I'd say at the current levels, it would not have a significant impact on revenue or numbers. This is more to prove out that we can, in fact, make these lenses instead, which we're getting no confidence on at this moment.

Understood, sir. Understood. The second question was the -- again, if I have to look at your annual report, you've highlighted that a lot of these applications with the Engineering business on the driveline, drive control, suspension applications. Also within metal formed business, you've launched engine oil. So if you can just help us understand that. Obviously, deal might be very, very smaller in terms of revenues. But what is the contribution today coming from these new product launches? And what is the thought process here within each of these segments?

Yes. See, like we've said before, right, what you are seeing and what you have to see on an aggregate level is that, again, if we take it back to TI-1, TI-2, TI-3, what you're talking about is the new areas that are getting introduced by TI-1 itself, right? So for example, in TI-1, if engineering decides to get in to stabilizer bar or is kind of the order change distribution guys [indiscernible], again, the engine oil. That's their call that the individual business unit is taking, right? Why are the business units taking that call? Because they're basically seeing what can they do to basically improve their revenue growth rates to get to their target, right? So actually, you see the encouraging sign there is if we take a business like auto chains, because of the shift to aftermarket case and through some of these new products, that business has seen significant growth, right? And it's been seen both revenue growth and margin growth. And it's gone from, I would say, kind of almost 0% to close to 10% in terms of both revenue and margin growth. And the -- so I think that, that is where it's encouraging. Those numbers don't show up in any kind of aggregated fashion. I mean, in the sense that those numbers show up in the individual view count, so why do we count separately, what happened with that new initiative, right? Stabilizer bar, it's not pulled out separately [indiscernible]. So that's how we view those. And it's absolutely fairly decent to think of their own individual organic growth than other things. So those aren't things that we kind of either monitor at an aggregated level, see how much should they add for the overall count.

Got it. Got it. And one final question on the EV 3-wheeler venture that we have planned. So where are we in terms of our capacity? And when do we see the plan going live?

Why don't I let Paul, who's also on the call, answer that.

I think we're working around that. And in the first quarter of next year, we should see the launch of the product. In terms of this COVID has put 1 or 2 months -- has put us behind a month or 2, but we are working around that. And hopefully, by the first quarter of next year, we should be in a position to launch the product.

And sir, would it be possible for you to quantify the capacity or something?

So capacity, we are looking at short-term loan, so we are building up debt capacity. But to answer your question really, the plans that we have made, capacity should not be an issue. That's the way that we have planned the capacity on the first phase.

Got it. And sir, just one more clarification on the Engineering part of business. There was this antidumping duty in the U.S. which you have presented. So is there clarity that now it's completely off and we can do export to U.S. without any CVD or ADD?

Yes, it is. It is almost clarified on the -- they have got a favorable verdict on that. So that's why we are going to see some kind of significant growth in U.S. exports also going forward.

[Operator Instructions] The next question is from the line of Vimal Gohil from Union AMC.

Congratulations on a very good set of numbers. Sir, my question was on the optic lens business. I just wanted one clarity. So basically, when you say the [indiscernible], which industries are we sort of take on to? What is the end-user base? What does the end-user base look like over there?

This is predominantly for the automotive industry, so they're going to automotive cameras.

Automotive cameras, got it. Got it. Got it. And sir, what are the market size, like overall market size would you be able to sort of highlight that?

KRS, do you have an answer for that?

Yes. See, the ADAS space is quite expanding and progressing. So it is actually a huge market globally for these ventures, though it has not significantly increased in India. What we are targeting is the express market particularly in Korea and Japan. But what we have capped is really a pilot project maybe in the quarters to come, we need to invest in expansion and then look at the bigger numbers.

Fair enough, sir. If I may try my luck, if you can just highlight some -- what -- or give us some quantification on how much money are we sort of looking to invest in this venture. Would that be possible, sir?

Not determined yet. Not determined yet.

Fair enough. Fair enough. And sir, my second question was just I missed out on your clarification on gross margin. So we were a tad above 40%, 41%, 42% in our peak. So I guess you gave some clarification there, but do we -- my question was, do we sort of post -- assuming that commodity cycles will sort of normalize or reverse, do we expect to sort of get back to -- and I'm talking standalone, do we expect to sort of get back to those 40%, 41% flat levels going forward?

Yes, yes, correct. Hopefully, slight improvement from where we are right now that [indiscernible] as well was explaining.

No. So what I was asking is, do we get back to our historical levels, assuming that commodities, sort of the pace has [indiscernible]?

Yes.

Okay, okay. Fair enough. Fair enough. And you also said that -- if I'm not mistaken, you said that the working capital was slightly high this quarter and should normalize going forward, right?

Correct, correct. We are already [indiscernible] in Q2, but yes, Q2 should see improvement.

[Operator Instructions] Our next question is from the line of Anupam Gupta.

Yes. A few questions on -- into the segment. So firstly, on the Metal Formed Products, have you seen any improvement on the railway side yet? Or is it still very, very muted?

KRS?

Yes, sir. So railway, predominantly, we supply to the coach factories. So coach factories, because of lockdown, first quarter was affected. They did not increase the production. They're going slowly. The second quarter looks better, and we hope our teams would streamline by third quarter.

Okay. And just continuing on that question, do we have pass-throughs for raw material for railway coach as well, the sections that you supply there of raw materials?

Sorry, your line is breaking. Can you please repeat the question, please?

Yes. So what I was asking is for the railway supplies also, do we have a pass-through for the raw materials which -- where we have seen price increases?

No, there are -- there is no raw material availability concerns. The price increase concerns are there for raw material in railways also, because predominantly, we use [ clean lifting ] for railway. So there is a concern on price increases. But otherwise, most of the orders are covered by price variation process, so there may not be a big concern in recovery of raw material price.

Okay, okay. I understand, sir. The second question is related to the Engineering products segment. In the annual report and in the call starting, you said that you have seen some market share gains. So which product areas has this market share gains happened? And if you can just give some color there.

Mukesh?

Yes. Like we shared in the earlier call, we say we generally don't discuss on the market share segmentation part testing, but you see prudently, we are nevertheless, say, present in the auto sector. And particularly in auto sector, the combination of your 2-wheelers, PV and CV. Across the segments, we are seeing there is again interest.

Okay, okay. And just continuing there, sir, I think the near-term outlook at least for auto domestically, specifically 2-wheelers is not very, very great given the inventory levels which are there. So how do you see in terms of, let's say, next few quarters for the auto, the Engineering product segment going to the 2-wheeler side?

[indiscernible] but the festival season is nearing it out, and the projections being given is shortly, we're going to be much better than as compared to Q1.

Okay, okay. And just, sir, one last question on the cycles business. So this quarter, obviously, there was some slowdown versus fourth quarter. I think there was some impact of the lockdown. But as of now, what do you see there the growth should remain elevated for the next few, let's say, at least for the near term and then normalize? Or how are you kind of -- cycles, sir?

Paul?

Yes. I think in the first quarter, as rightly pointed out, we have issues of lockdown and the closure of market, and that is reflected in our revenue that we had in the first quarter. But moving forward, the trends that we have made for Q2 and Q3 should be at least better than Q1 based on the markets opening up, situation even a little stable. As well as we move forward, there are various kinds of measures on stage 3 of COVID, and therefore, we don't really know about the market opening and different closures. But the internal plans that we have gone up is to look at how we can gain share during the market remains flat and what are the various steps that we have to do through product interventions, through market interventions, through distribution interventions, through digital interventions and so on and so forth. So we're quite upbeat about the next 2 quarters in terms of moving forward for ourselves, while the market will not overall show very big pickup based on the demand that we are currently seeing.

Okay, okay. And sir, just one question continuing there. In the annual report, you mentioned that export share within cycles is close to about 11% in FY '21. Over the medium term, let's say, how high are you targeting this to go? And apart from the China Plus One factor in terms of sorting, what else will drive that gain in that market -- gain in export share overall?

I think there are 2, 3 factors that will drive. One is building our internal capability to compete in different markets of exports, which we are doing. That's point number one. Point number two is we will drive this export further up based on what we do and how the customers respond. We should be enhancing our exports in the overall part. This is what I can tell you at the moment. Lots of plans have been made in terms of the [ sterilization ] of products that are happening. There's a lot more foray into -- we are, ourselves, getting into some of these initiatives so that we can manage the supply chain portion of the business. And with that, I think we hopefully will give a much better account of ourselves as we move forward on exports.

Our next question is from the line of [ Kashyap ] from Sterling Partners.

Just one question, sir, and slightly high level in terms of thought process. How do you see the trajectory of businesses under TI-1 over a 3- to 5-year time frame? Would you kind of -- we've discussed this trajectory earlier. Do you think that incrementally going forward, you see the trajectory going upwards? Or do you think we would be at the same point where we used to originally think about that?

[ Kashyap ], thanks. Thanks for the question. So I think if you ask us that right now, see, right now, the world seems to be in a very optimistic mood, okay, at least as far as we can tell, right? So if you see what's happening in our engineering kind of has a new kind of very promising product line and is seeing very good demand from the exports, which we see can be sustained due to both China Plus One and global steel price level, but also, the fact that there's new product capability. So for different markets, there are different kind of approaches that the Engineering team has taken. So that in itself can lead to good growth numbers in that business. In Metal Formed Products business, like we said, the individual areas are looking at new avenues for growth. And then in Mobility, again, there appears to be a lot of export-led growth opportunity for that business, and that's what Paul was just alluding to earlier to that question. If you look at those 3 things combined, then actually what you would hope for is that the TI-1 growth number, revenue growth number would actually be higher than what we thought what it was historically are going to be, right? So that's our current take on the business, and that's our current thesis, right? So that's where we are.

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

Yes. This is Shyam from Sundaram Mutual. Just a couple of questions [indiscernible]. What would be the average utilization in Engineering and metal forming in this quarter Q1 as compared to Q4? Just trying to understand how are we placed from a utilization perspective in Q1.

See, we had lockdown affected. But again, Mukesh and KRS can give the answers.

So KRS here. Let me answer that. Shyam, see, there was an effect because of lockdown. But notwithstanding that, the OEMs have really shown some promise, both 2-wheeler and 4-wheeler, in terms of pushing up their numbers. I would say we are sort of utilized to about 75% to 80% of our capacity. It will be later part of the quarter.

Okay, okay, okay. Understood. Understood. Okay, that is fine. That is fine. So we still have a 20% gap room in terms of the -- to improve the utilization before the [indiscernible] CapEx context? That is a fair assumption here?

Yes, you're right. You're right. We have capacity to take care of the increase in demand in the coming quarters.

Okay, okay, okay. Sir, here, what would be the [ best ] utilization we can reach in the Engineering segment and metal forming, sir? Any ballpark numbers you can share? Can we go to 90%, 95%? Or is 90% part of the [ significant ] utilization [indiscernible]?

Shyam, regarding Engineering business, we have a good advantage because over a period of time, we have created plants in all the regions like North, West and South as well as [indiscernible]. And the way we have [indiscernible] or part of strategy 3 years back what we shared in the investor call, we are trying to build the common capabilities across the plants. That gives us a good headroom [indiscernible]. At that time, sometimes not -- will not be doing well, the rest is doing well. So interchangeability of the plant is really becoming handy for us prove this cater to the different market needs. And barring, let's say, whatever the 10, 20 days we lost in month of May, apart from that, we are operating it a ballpark number around 85%. And we also have a fairly robust process. We look forward for next 2 years, and we take the actions [ according ] how demand projections are there. We have a fair, robust process on that, and we take the appropriate call on the capacity expansion or whatever is required pretty much in advance. So at any point of time, to cater to even fluctuation in the demand by 20% plus or minus, we all are [ scaled ] up to handle that.

Understood. Understood. Understood. So just a follow up on that. So we had indicated a CapEx of close to INR 250-odd crores for this fiscal year. And the OpEx, you have said the bulk of this [indiscernible] maybe 3-wheelers, electric vehicles, there is -- any change in terms of CapEx numbers for this year? Or any [ CapEx ] that you can share on -- other than the EV 3-wheelers division where anywhere else, we have -- we would want to look [indiscernible]?

Yes. The total level will be around that only INR 250 crores only. In addition to the EV projects, we'll also be spending some amount to expand capacities in tubes and also in auto chains.

Okay. Understood. Understood. Sir, just one last question. Metal forming, from a margin perspective, has held up -- EBIT margin has held up pretty well despite the drop in volume per se. Is that due to the mix within the division, the railways going down? Or is there any initiatives that we have taken that has contributed to this margins being slightly resilient as than what one would have expected per se in the performance?

Yes. One is, of course, the actions which we are taking for margin improvements have started yielding results. But the second thing is there are also certain price recoveries for inflation during Q1.

Okay, okay, okay. Understood. Understood. Understood. Sir, this Others segment that includes industrial chains because that segment seems to have improved sequentially. So the chains are part of this business? Or that lens -- the pilot project has started playing out into the overall sequential improvement in the Others segment revenue?

No. It's mainly because the industrial chains is now grouped under Others. We have taken it out of Metal Formed Products and grouped it under Others, along with the new business. So it's mainly about industrial chains.

Next question is from the line of Sundar from Spark Capital.

My first question is with regards to a couple of resolutions that were passed yesterday in the -- or in the week, Friday, around the AGM. One was to do with the investment of about INR 2 crores into Watson Infrabuild. The other was at INR 25 crores of innovative research. So first, we start with the INR 25 crores of innovative research. So what does this pertain to? Is it -- are we talking normal business course? So what are we looking here, sir?

So Sundar, thanks. So broadly, like we've articulated, this will be for TI-2 investment. TI-2, the approach we've taken, we said that this would be more like VC style investments. And what we've been looking at is kind of several different platforms that we think can be growth platforms for TI in the future. Amongst those kind of where we are studying and we are working to study, I would say, 4 platforms that we see as interesting. And one of those is this whole area of kind of environment and sustainability. So the idea with the INR 25 crores is that we will make smaller bets in companies and take a percentage of an existing company with the intent of then being involved with that company's growth where we can bring some value to the table, but also help the entrepreneurs basically drive their business. These are, of course, riskier bets and with more like VCs like style payoffs versus having kind of a very fixed kind of payoff schedule. But the intent is that we use this, from TI's perspective, to get into some of these areas in which we don't have capability sets right now. Because clearly, developing capability sets in an organic fashion will be more difficult.

And then when will you be able to further elaborate? And what are those 4 areas -- that 4 platforms that looking beyond environment and sustainability [ broadly ] just if you can?

Basically medical devices and it's this optics and electronics. Those are the areas that we've looked at kind of initially. That doesn't mean those are the only 4. We will let you know.

And you will be spearheading this project?

Sorry?

You will be heading this project?

No, no, no. I'm not heading anything. I don't do any work over here. Okay. Now what we do is kind of different people get involved. Like I said, in one situation, we are using our consulting firm to help us, but different people get involved. And then usually, the division head will take ownership of the projects fairly early.

Fair enough. And then the second question I would have is that I know you're not getting into CG Power, you don't want to answer much out of it. But from the time you took over in last December to now, there are 3 parameters to be drawn, one in terms of revenue; the two in terms of supplier relationships; three, in terms of the net liability. How have we progressed? And what do you think we should look at going forward?

Well, like I said, Sundar, let's not get too much into this thing, yes? You can see where it's tracking in terms of the overall numbers. And obviously, there are a lot of disclosures. So you actually just kind of read all of the disclosures both that was there in the annual report -- I mean, at the TI consol level but also now even in our quarterly statements, there are a lot of disclosures. If you just read, you get a sense of how each of the situations is revolving along those 3 lines. The revenue side, you can definitely see the traction basically in terms of the quarterly numbers itself. So I think most of that data is out there. So rather than kind of get into it on this call, it's better when we started doing the quarterly calls there. Post the total quarter, that will be a better time to do it.

Our next question is a follow-up question from the line of Vimal Gohil from Union AMC.

Great. So just wanted to get a sense on how much out of our total product basket specifically for automotives. How much of it would be sort of engine agnostic? And how much of it will be sort of directly dependent on ICE, which will get impacted especially in electric 2-wheelers -- post the proliferation of electric 2-wheelers going forward?

Yes. The total level, it's not going to be a significant shift for us. There are certain businesses which will be impacted more. For instance, you see the auto chains segment, we have drive chains and cam chains. Cam chains will have some kind of impact because of EV. Drive chains are expected to continue. Similarly, in the Engineering business also, there may be some minor impact, but at the total level, it's not going to be significant.

Right. And chains -- the chains that you mentioned, the cam chains, those are not a very good portion of your total overall chains -- automotive chain portfolio. Would that understanding be right?

Yes. Not very significant, yes. But in any case, aftermarket will continue for much longer.

Next question is a follow-up question from the line of Abhishek Ghosh from DSP Mutual Fund.

Yes. So [indiscernible].

Abhishek, your voice is breaking. Abhishek, we're not able to hear you clearly.

Is it better now?

Slightly better, but still there's a break. I request you to please come in a network area.

Okay. Just allow me a minute. Am I audible now?

Yes.

Okay. So sir, if we just go through the annual report, again, we see a lot of newer segments like metro rail as a new opportunity, seating solutions, new products like the safety critical products, the cranes and the hoist, all these things which are part of TI-1 itself. So you think all these newer products, newer opportunities which have got -- what added in TI, from the last cycle of FY '19, is it fair to assume that you've added a new opportunity size of another $1 billion over this newer products? And how should one look at the overall opportunity size that has got added into TI-1 because of these new products?

It's a slightly difficult number to estimate.

We're already there, so we...

Yes, yes. See, basically, the things -- there's things like stabilizer bar, for example. It's a significant opportunity that occurred globally. And as you -- we go segment by segment, right, there are definitely things that kind of are significant if we look at the opportunity globally, including the kinds of cycles now that Paul is making and kind of beginning to export. But I don't think we've ever gone through the exercise. So I guess, the quick answer is I don't know that. All I'm saying is kind of it does push the growth rate of those businesses from that organic level that we thought would be 5% to 7%. It can push it up from there. But the quick answer to your question is I don't know.

Okay, okay. Fair enough. And sir, the other question is also now in the 2-wheeler space, at least the expected shift to EV is much faster there. So how are you kind of engaging with probably the newer OEMs and the products for the same? Any thoughts around that, if you can share?

Yes. So it's still early days. We're exploring it kind of. There are 2 schools out there, right, kind of I think now everything is [ bullish ] and all that, and it's going to accelerate. Then everybody is getting the new [indiscernible] and things with all the IC 2-wheelers will be gone. Interesting, I don't know, even I think with this level of [ subsidies ] over time and the fact that -- see, the bigger question is this, right, which is both Ola and [indiscernible] seemed to be losing a lot of money on their 2-wheelers and will be losing. It's estimated that Ola will be losing some fairly significant numbers per 2-wheeler sold. So broadly, we don't know, right? I mean, it's what we're kind of hearing in terms of what we hear from like other guys who are suppliers and competitors. Now if that's the case, we need to see, right, which is we don't want to get into an industry that has a big revenue pool and no product pool. So we need to figure out kind of -- and that's what we're exploring. Paul and his team are exploring it actively. We're basically exploring whether -- because for us, the revenue pool only makes sense if it comes with a good profit pool. Otherwise, we're not going to get VC funded and raise $1 billion to kind of fund something like this. So we need to explore that. If we get to a solution where we think that there's a profit pool, then we will jump into it.

Okay, okay. And sir, just one last question from my side. In the earlier articulation, you obviously had a PBT margin target of that 10% and which you are kind of comfortably consistently doing much above that even with the negative operating leverage. So how are you thinking about it now? Is there a change? And obviously, with this new product addition, the growth will be much better. So how should one look at it? Any thoughts there?

Correct, we should increase it. And [indiscernible] increase it to [ 14% ] in 3 years.

The next question is from the line of Janakiraman from Franklin Templeton.

One question on the cycle spike -- yes. So one question on the cycle exports. So you've been saying that the cost handicap versus the Chinese and the Taiwanese exporters has got -- is holding you back. What is the reason for this cost position? Is it the labor cost, productivity or something else? And how do you propose to overcome this?

Paul, can you take it?

Yes. So the only way we can explain this is that we, in past years, have done a significant amount of import substitution. We do not have -- depends on global pandemic, et cetera, but we said that we have to make our supply chain much more robust on the [ retail activity ]. So we started a lot of indigenization in [indiscernible]. And I'm happy to say that we have substantially improved that score when it comes out. So today, if you are looking at from a normal trend, [ working ] is not as the same level of -- continue then. Bulk of that is [ going to ] engineering. That's point one. Point two, it also talks about premiumization of the products in terms of aluminum, et cetera, which we are all at there in terms of moving forward. We put our own capacity [indiscernible]. And we'll be dealing with that internally in the Phase 1 as we proceed in a venture for exports. Third is that we also have a plant in Sri Lanka actually, which we are leaning much more towards exports in terms of getting to countries to different [indiscernible]. So the risk is part of the business. I see different domestic demand and export demand therefore. So it's very important quantum of capability building, which we're now doing to the practice of [indiscernible], that's number one. And number two is also taking on some of the product to export with quality. So the fact that we're used to manufacturing these kind of bikes, there's very large tax, too. As far as the packaging is concerned, we [indiscernible] 2 plants we have capacity. We have [indiscernible] the capability and capacity, which we are at the current moment [indiscernible]. So all this put together on a phase-wise rule, we are [indiscernible] as well to be able to give the necessary trust in a continuous manner in its course. I hope I've answered your question.

Sure. And when do you hope to reach cost parity with the Chinese and Taiwanese [ exports ]?

The cost strategy is -- mainly depends on which markets are you looking at and each product material. What we are looking at, we look at products that allow us a sustained amount of margin where we are not getting boxed between Taiwan and much more from [ March ]. Also bear in mind that there are a lot of antidumping duties on China and different markets. So would that allow us an opportunity as a new entrant in terms of making inroads in those markets. There are also an additional opportunity that is popping up in the China Plus One strategy that Mr. Vellayan talked about earlier. So the [indiscernible] in terms of the [indiscernible] of China. So that also gives the opportunity to all the customers there in India in terms of the way that they plan, the way that they show their intent [indiscernible] after the export market. There is also a lot of talks going on to [ government ] and the industry now in terms of looking at how to do this [indiscernible] capability in India, which clearly [indiscernible] of recessions that are going on, who are not currently [indiscernible] but in automotive business, et cetera, to manufacture some of these components and count the global leaders in some of the components do [ likely ] to manufacture sort of a manufacturing base in India with government, health and all. So there's a lot of real things from the various end to look at this sector in terms of doing a [indiscernible] export, so premium bikes for export. The other opportunity that has come through is the e-bikes, that is bikes that are electrified in some sense. So we just launched our first product in the domestic market. Just to do that, we have to [ muster ] that response. And there, we are working around different markets that could make a big trust in e-bikes.

Sure. And Sir Vellayan, I have one question for you. I heard your description of the electric 2-wheeler market in terms of our profits. Do we think the 2-wheeler market will be a bit different with a reasonably attractive traction?

Yes, that is definitely our belief. And even on the 2-wheeler market, all I said is we're studying it. But definitely, we do think that 3-wheeler is going to be better. The -- but even 2-wheeler, we're still starting it at this stage.

And where exactly the 3-wheelers product development for? Is it for specs design, prototype for the program?

So that, obviously, we won't share too much now. We just have to wait till the market kind of -- the product kind of gets out, which like Paul gave you the time line earlier. So we just have to wait for that.

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

A few questions related to Shanthi Gears. The pending order book of Shanthi Gears has been swelling up, which is around 42% on the upside at around INR 235-odd crores or so. So can you help us understand that what percentage of the order book is for manufacturing, and what percentage is for the services business?

It will predominantly be manufacturing. Maybe predominantly manufacturing, but Mahendra can get you that split, but a large chunk of it will be manufacturing.

Okay. And if I were to break the order book into short, medium and long cycles, short being less than 6, medium being 6 to 12 and long being more than 12, what would be the -- if it [indiscernible] with that, if you can share the ratios for that?

Yes. We generally don't give that kind of breakup to the external world. But yes -- but in terms of filling the lines, it's not an issue at all. We are reasonably covered in terms of sales for the near term.

Okay. So by end of FY '22, will you be able to kind of clear this pending order book that you have?

Yes, I mean, there'll be [indiscernible] out, yes. But gradually, yes, we'll come pretty close to that.

Okay. And on the margin front, I know you don't like to give guidance, but will you try to reach the pre-pandemic level? If I can be lucky over there.

Yes. I mean, ideally, yes. Why not?

Okay. Sir, this order book and if we try to understand that the synergies that might come. And if the management thinks that you'll be able to blend in the synergies between to Shanthi and CG Power, do you think that the pending order book can swell by another 30%, 40-odd percent?

It's difficult to put a number to it, but they are under the discussion. They are being explored. We're going to have some good clarity on that. We'll give you those details.

Okay, sir. Sir, any new product or product launches in pipeline which you'd like to share for Shanthi Gears?

I think they're doing their segment reviews that they've talked about and they don't kind of -- they continue to look at other things. But some of the areas -- similar to what we've talked about in the past kind of in terms of the areas we look.

We continue to look at new industry segments, but may not be so different in terms of new products.

Okay, okay. And sir, if I were to ask one more, in terms of the raw material prices and the fluctuations, how does it happen with Shanthi? I mean, like the revision of prices, how -- does it take it on a quarterly basis or half yearly or 1 yearly contract basis?

Yes. See, normally, the way it happens is when the [indiscernible] is submitted, a reasonable factor towards inflation is already baked in. On top of that, wherever possible, the price variation clause will also help. But maybe a certain percentage where it may not be possible to do so. So that's how -- that's what will absorb through our efficiencies.

And in recent times, are you able to take any price hikes?

I mean, this a custom-built gears business, right, so it varies from order to order. There's no general norm which is applicable here. It depends upon case to case.

Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Anupam Gupta for closing comments.

So thanks, Anand. But then if I -- if allowed, I just wanted to ask one small question. On your TI-2, you have invested in quite a few already and you are willing to put up more in the -- a few start-ups. So in the medium to long term, how big do you see this compared to TI-1 and TI-3? Or would it be, let's say, small at least for a foreseeable future and overall contribution sort of this?

So we've always said that it's not going to have any significant effect on the short-term results. It's more building platforms for the medium and long term. So I'd say that you have to start thinking at least 5 years plus when you start thinking about TI-2. And only at that point will the numbers start getting material in any way. But we just think about this as tiering the next set of businesses that can be significant businesses for TI in the future. It's not a near-term or short-term thing.

Right. That sounds reasonable. So thanks a lot, and I'll hand it back to you for any closing comments that you might have.

Okay. I think that's very good. Thank you. We continue to be encouraged overall by the environment. And so thanks, everybody, for joining and look forward to catching up with you again next quarter. Thank you.

Thank you also.

Thanks all. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.