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

Ladies and gentlemen, good day and welcome to Tube Investments' 2Q 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. Urvil Bhatt from IIFL Securities. Thank you, and over to you, sir.

Thanks, Aman. Good morning, and welcome to everyone for the Tube Investments 2Q FY '22 Results Conference Call. We have the entire management team of Tube Investments with us for this call, including Mr. Vellayan Subbiah, Mr. Arun Murugappan, Mr. Mahendra Kumar and all the chiefs of businesses, including Mr. Mukesh Ahuja, Mr. K.K. Paul and Mr. K. R. Srinivasan. For the opening remarks, I will now hand it over to Mr. Vellayan, post which we can take the Q&A session. Over to you, sir.

Thank you. Thank you and good morning, everybody. So just a quick summary on the quarter that just got done. Basically, our stand-alone Q2 PBT before exceptional items for TI was INR 164 crores. Revenue was at INR 1,667 crores compared with INR 1,087 crores in the same period in the previous year. And ROIC annualized was at 48% for the quarter compared with 43% in the same year -- previous same year period. And free cash flow for the quarter was INR 147 crores due to basically improved net working capital levels from the first quarter. The Engineering business revenue for the quarter was INR 1,027 crores compared with INR 565 crores in the corresponding quarter of the previous year. Profit -- PBIT was INR 102 crores against INR 84 crores. And Metal Formed revenue was INR 328 crores compared to INR 285 crores in the corresponding quarter of the previous year. PBIT was INR 39 crores versus INR 33 crores in the corresponding quarter. And Mobility has INR 262 crores in revenue, and that was compared to INR 212 crores in the corresponding quarter. And PBIT was INR 20 crores compared to INR 18 crores in the same quarter previous year. All our other businesses, revenue was INR 119 crores compared with INR 68 crores in the corresponding quarter previous year. And PBIT was at INR 12 crores compared to INR 6 crores. Consolidated revenue for the quarter were INR 3,262 crores as against INR 1,193 crores in the corresponding quarter of the previous year. This is because we had a full quarter of CG performance as well. And the PBT for the quarter was at INR 287 crores consolidated -- INR 287 crores as against INR 136 crores in the corresponding quarter of the previous year. CG Power, which is now a subsidiary company where we have a 52.6% stake, had consolidated revenue of INR 1,454 crores during the quarter as against INR 664 crores in the corresponding quarter of the previous year. And our PBT in CG was INR 144 crores as against a loss of INR 37 crores in the corresponding quarter of the previous year. Shanthi Gears, in which we own 70%, had a revenue of INR 72 crores during the quarter as against INR 54 crores in the same quarter last year. And PBT was INR 11 crores as against INR 8 crores. Commenting on the financial results, Mr. M.A.M Arunachalam, that the results for the quarter are testimony of the resilience shown by the company by bouncing back strongly with healthy performance, with most of its businesses reaching or surpassing pre-COVID levels. Engineering and Metal Formed Products division has witnessed good demand, and export performance has also significantly improved. I'm also pleased to state that post TII's acquisition of CG Power, the company is on a recovery path with very encouraging performance in all of its businesses. With the impact of COVID receding, our businesses have started full operations. However, the company is taking adequate measures to monitor and control this to ensure steady operations. So thank you. I'll stop with that, and we will turn it over to you for questions. Thanks again.

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

Sir, just wanted to understand one thing around -- hello? Am I audible? Hello?

Yes, yes, we can hear you.

So sir, just wanted to understand in terms of the gross margin erosion that one has seen, if you can just help us understand 2 things: a, is that -- how much of that price increase -- RM price increase have you been able to pass on? And will it kind of normalize going forward? Second is also the increase in steel prices, so what will happen is if you make 10 on 100 and if you make the same 10 on 120 because of the increase in steel prices, the gross margins appear lower, but you're still making on a unit basis the same thing. So is it also because of that the gross margins are appearing lower? If you can just help us understand these 2 things.

Yes. Right, Abhishek, you're absolutely right. That's what happens when it comes to gross margins, whenever there is a significant increase in the raw material prices, which is what has happened in the last 1 year. So that's why if you are comparing with Q2 of last year, you will see that impact to be quite significant. But it's not the erosion of margins, it is just numerator- and denominator-related stuff.

Okay. And are there some more price hikes which you are kind of negotiating with the OEMs because of steel price increase have been on a continuous basis? So going forward, do you see some impact of better negotiations and renegotiations of the contract? Or is it largely price hikes?

Yes. See, most of the price increase we are able to recover right up to Q1. But for Q2, we have to recover in certain segments of the business, which will be happening in the coming quarters.

Okay. Sir, the other thing is, if I look at the Engineering numbers, which has a lot of dependence on 2-wheelers, if you look at the industry, 2-wheeler numbers are fairly tepid and moderated. But if you look at your Engineering segment, you have shown a very strong improvement and growth there both on a 2-year CAGR basis and both on a Y-o-Y basis. So how should one look at it? If you can just probably bridge this. Is it because of higher steel price being passed on? Or is it because of higher exports? If you can just help us understand, it will be helpful.

Yes. Mukesh [ here ]. So your observation is right. It is a combination of 3 factors. First factor is the raw material prices have gone up. And second, our export book is pretty strong. And the -- going forward also, we see that same momentum to continue. And also, we have gained some market share when the market is not doing well. So it's a combination of our 3 reflecting in the performance. And the non-auto business, which is the hydraulic business, that is also exports as well as domestic market, both are doing pretty well.

What is the exports as an overall for us now?

For Engineering business, it's around 20% now in Q2. For the company as a whole, you see, it's around 15%.

And this 20% used to be sub-10% [ in the year 2015 ]?

Last quarter, it was around 12%.

Okay. I have a few more questions. I'll probably come back.

[Operator Instructions] Next question is from the line of [ Amit Kaushik ] from [ Shivla Research ].

[Foreign Language]

[Foreign Language]

[Operator Instructions] The next question is from the line of Anupam Gupta from IIFL Securities.

So a couple of questions. Firstly, on the Mobility side, cycles basically slightly volatile in terms of growth and margins. But let's say, if you were to extrapolate what you are seeing right now in the market, how do you see the growth panning out over the next 1 year assuming it doesn't revert back to what it was before COVID? So how do you see that business panning out? And in the same vein, you had earlier mentioned that exports there you plan to double in this quarter last year. So is that plan on track as of now?

Yes. Both for Mobility, so I think, Paul, can you answer that -- the question both are for Mobility, I believe. Okay. Paul, are you there? Sorry. Okay. Sorry. So Paul is not there. So I think the first question was how do we see the market playing out for the rest of the year. So I think kind of if you see it overall, the market has been down versus last year. And we think that a similar trend will continue even for the next couple of quarters where we don't see a massive revival. Usually, like April, May, June is the biggest season, but I would say for the next 2 quarters as well, it'll probably be kind of single-digit down compared to last year would be kind of our estimates. And then the second question was exports and cycles versus last year. Do you have that data?

Not very significant this time.

We see growth, but it's not been significant yet, right, is the answer to that question.

Okay. So have you -- to continue there, so have you gained market share? And will that -- do you see that continue to grow faster than the market domestically?

Yes. So we have gained market share. About 1% we have gained domestic market share.

Okay. Okay. And second question was for the Metal Formed Products business. So as you -- railways hasn't picked up yet there. So what has actually driven the uptick -- if I look at sequentially, there's a healthy growth which you see in Metal Formed Products. Even Y-o-Y also, that growth is better. So what has driven that part of growth there in that segment?

Srinivasan here. The Metal Formed Products, the growth was mainly driven by the chains business, both automotive chains and industry chains. Also, we have been supplying to 4-wheelers, [ fine blanks ] and BIW parts, so frame parts. These 2 BUs also have shown good traction. So railways was down. The other businesses have kicked in, and that is how we see the growth.

Okay. Okay. And any traction which you see in the railway so far? Or still continue to remain muted?

Yes, we see definitely improvement in railways in the coming quarters. They've started increasing their operating level. In Q3 and Q4, we'll see progressive increases in our revenues and profits.

Okay. Okay. Understood. That's all from my side for the time being, sir.

The next question is from the line of Rahul Ranade from Goldman Sachs Asset Management.

Yes. Just a couple of questions on the Metal Formed side of the business. So just curious to know why don't we see a similar growth in terms of the top line for the Metal Formed business like the Engineering business, where even the Metal Formed business would also have that bit of a commodity impact which would drive the top line growth. And on -- in the similar light, like if you look at it on a Y-o-Y basis, the margins obviously have declined for the Engineering segment because of the denominator effect. But why don't we see the same in the Metal Formed business also?

Yes, Rahul, that's a very good question. See, in Metal Formed business, the export content is relatively nice. That is the reason the growth has not been as you compare with the Engineering business. So that is the answer to your first question. So what was your second question?

That why don't we see the denominator effect of the commodity in the margins in the Metal Formed if we are seeing that in the Engineering segment.

Okay. Our contribution margins are fairly higher in Metal Formed Products. That is the reason the effect of raw material increase has not significantly affected the ratio.

Okay. But in fact, actually, the margins have gone up instead of down for the Metal Formed business, if I'm not wrong. So like if the commodity prices actually kind of pull off, then would the margins be even better than what they are right now, that would be a fair understanding there?

You're right, Rahul. And there are 2 factors to that. One is the Metal Formed Products division, we have quite a good amount of aftermarket sales, right, aftermarket sales in Metal Formed Products division.

Sure. Sure. Yes. Even on a longer-term basis, if I were to kind of look at it, we have kind of structurally been able to improve Metal Formed Products segment margins from, let's say, 7%, 8% to now, let's say, in the range of 10%, 11%. So what would have gone into these efforts? Is it some low-margin business we have kind of given away? Or is it just improvements on our part that we've been able to improve the margin?

In all the business units of Metal Formed Products division, we have worked on efficiency improvement internally for bringing down the breakeven levels. That has actually contributed to the improvement in the bottom line. That is the improvement you are seeing in percentages compared to the [indiscernible].

And also the mix of business also plays there all year. So as KRS explained, the high profitable businesses like auto chains have done well. So that mix advantage is also [ helping ].

Sure, sure. So probably the mix more in favor of the chains instead of kind of railway contribution, which would be a little lower margin business. Is that the way to understand?

Yes.

Yes. That is also another factor.

The next question is from the line of Sundar S. from Spark Capital.

My first question is on the Engineering business, specific to the export. The ballpark indication, are the margins in the export business for Engineering better than the domestic one?

Yes, yes, that's true.

Okay. So this quarter, when it's largely only the numerator and denominator part [indiscernible] lower the margin [indiscernible] better mix. Is my understanding right?

Yes. Like Mahendra explained already, there's a numerator-denominator effect on this.

All right. Perfect. And I also like to ask Mr. Vellayan in terms of how is the demand outlook stand out in terms of the OEM demand, what are we seeing in terms of the order book.

So it looks like there is mix reaction will be there. Like commercial vehicle industry and the infrastructure related are expected to do pretty well. And as you're already aware, the chip shortage is impacting to some extent 2-wheeler as well as passenger vehicles. And export demand looks to be pretty strong even going forward.

Okay. And any update on that one particular facility that you were supposed to launch in Chennai for a critical safety component that is due sometime this year?

Yes, that we have commissioned in month of September, and the trials are on. And we are expected to ramp up the facility by December.

Yes. And one last question. Any update on the optic lens facility?

On the optics...

Optic lens, as you know, the plant has been commissioned. The production is going on. There is some [ run ] in terms of demand because of the chip shortage for all the camera module and its component. That is temporary, we suppose. And once that is over, the demand is likely to pick up.

The next question is from the line of Vimal Gohil from Union AMC.

I had 2 questions. One is on the Others segment. I think the Others segment also one that you introduced very recently in your disclosure and where you house your newer initiatives that we're taking. So over a period of time, I noticed a very, very good ramp-up. We are now very close to INR 120 crores per quarter. If you could just highlight maybe where -- in which segments in this Others space are we seeing growth coming from. That is point number one. The second point is just a clarification on the cycle -- or the Mobility business, which probably has maturity cycles as of now. Mr. Vellayan, you mentioned that the market is sort of not doing well right now. If my -- I'm not sure if I heard that right. But if you could just sort of reiterate your outlook on the industry as well as your performance in that segment.

Yes. So as far as the first question is concerned, the Others segment mainly comprises of industrial chain, which is what we [indiscernible] from last quarter. Plus, of course, it has these other new businesses, which are just ramping up. We have just come out of lockdown, and they are just ramping up. Maybe after a couple of years, I think we'll be in a position to talk about those volumes. But right now it's predominantly industrial chain.

So if that is the case then, your Metal Formed Products would largely be auto and railways, right?

Correct.

Or domestic and export.

Correct.

Fair enough. And sir, if you could just help me clarify the comments made in the cycle space, the industry as well as the company performance, because clearly, we've done very well. We are way above what we were in FY '20 as well. So just help me understand that.

So there was a specific question on -- there was a specific question in terms of what the market was doing. So what I said was the market is down versus last year, right? So compared to last year, the market is down almost 12%. We -- so that was the specific question. So like you said, we have changed our whole model there. We have gone with a very lean operating model. And we are actually seeing good results from that as a result. And that's why you're seeing stronger performance from TII. So it's 2 separate points. Kind of one is what's happening to the market, one is what's happening to TI.

Right. So market being 12%, I mean, 12%, I'm assuming it will be in value terms versus our -- I mean, in the first half, we've grown almost 40%. So that's...

So that's why I said, I mean, like our performance is different from kind of where the market is. One of the reasons, like I said, is we've also gained market share, and we've also shifted our mix significantly towards higher-value products. So basically, on both counts, on a volume count and a value count, we've done better. And overall, profitability has also improved in that business. So the business continues to get stronger. But the specific question I was responding to was the fact that the market is softer than the market was last year. And we expect that softness in the overall market to continue. That's [indiscernible] from our performance, which has been sound.

Got it. Got it. Sir, and in cycles, how much would be your domestic piece, sir, today? In the first half to first half, if you can just give me the number, how much would be domestic-export mix?

Domestic is predominant. I think it's 97% or something. 97% domestic.

Got it. Got it. Got it. And last question is you said that in the Engineering piece, exports have gone from being 10% to 20% in the first half to first half period. And the exports piece has better margins is what you mentioned, right?

Yes. Comparing to Q2. Q1, it was around 12%. It went up to around 20% this time.

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

Sir, a few questions in terms of what will be the broad factory utilizations in each of these segments or at a consol level? Just to understand that when we should see the acceleration in CapEx in the next round.

So I would say like, obviously, in cycles, we have enough capacity available because we have both plants, right? So Mobility, we're not short of capacity. But I'll let the other 2 divisions' -- the division heads to answer.

In Metal Formed Products, we use about 80% of the overall capacity, all our units put together. So we have still room for about 15% to 20% more products that can be made in [indiscernible].

And in the Engineering division, we are already close to 90% of capacity utilization. And also our capacity expansion, like what you mentioned, for the safety critical part is already commissioned in September. And we are also expanding in Rajpura. So with both, again, we will be covered up for next 2 years' growth [indiscernible].

Broadly, should we look at about INR 200 crores of CapEx annual, broadly just given the current [indiscernible].

Yes. This year, it could be slightly higher, somewhere between INR 200 crores and INR 250 crores we may end up spending. So we have this EV project also, 3-wheeler EV project.

Okay. Great. And sir, the other thing is export is a segment which is doing very well for you. But when we hear from a lot of the companies who are exporting, there are issues of freight rate increasing container shortages. So just to understand, this 20% exports which you spoke about, would that have been 25% if the freight rates are normalized, container things were normalized? Any thoughts around that and your [ position ] given the freight rate increases?

Maybe we will give one answer. Mukesh will give you a perspective, okay? We said I think part of what you have to understand is like, honestly, nobody understands fully what's going on in the world right now. There are too many things that are going crazy. And obviously, the one advantage we haven't seen is that kind of the raw material costs in India right now still seem to be advantaged especially versus the U.S., which is basically seeing steel raw material costs at a much higher price. Therefore, we export kind of -- yes, right, despite the fact that typically container costs have gone up like crazy and all of that, the export market is still sound right now, right? Now this is dependent on various dynamics, right? And I would say, like everything else in -- like nowadays, China seems to be at the center of what's going to happen with it. So right now, it looks like the stances that are being taken, so both by China and domestically in terms of [ starting ] down steel capacity, therefore, steel prices kind of varying. Honestly, I don't think steel prices have varied so much by geography. Historically, I've never seen such spreads, right? So the steel price spreads, combined with everything else, is what kind of defining this, right? So to your question on kind of will the margins improve if container prices come down, I think more than container prices, the bigger question is going to be what happens to everything else, right? And what happens to the steel price spread, what happens to the -- on America's outlook towards China. So those will be the 2 biggest factors, I would say, that would drive what happens more than the container prices. Obviously, container prices coming down will help us. But then these other 2 factors, if those spreads continue to kind of remain as high, then that will be a larger driver than the container.

So India, in terms of exporting, is kind of favorable because of the steel price spread despite container prices moving up. That's the way to look at it.

Absolutely. That's a single -- I mean that gap kind of far outweighs the other gaps right now. What is the -- Mukesh, right now, how much is -- like the domestic price of steel in the U.S. is running what?

Currently, in India, it is running around $1,000, and U.S. market is clocking around $1,700.

So that's the spread you're seeing right now, Abhishek. Then -- so that far outweighs the cost to transport a tonne, right? What is the 20-tonne thing to the U.S. right now?

Those costs have gone up...

I know. How much would the 20-tonne container cost to the U.S. right now?

It is almost about now clocking at $150 or so.

Per tonne?

Per tonne.

So basically, you're seeing the swing in container prices would have been almost like $100, right, more than $100. Whereas the swing right now in raw material prices, like you can see, the gap is almost $700. So that should help you with your math, obviously. So all I'm saying is like if container prices come down, that's not going to -- I mean it depends on what that other spread is also sitting at.

Yes. And sir, just one more thing in terms of -- if you look at the journey of you in the last 3.5, 4 years since the time we've kind of taken over, the first...

Please check your audio, very close, sir.

Is this better now? Is this better?

Yes.

So just taking a step back, looking at our journey over the last 3, 4 years, first was the cost efficiency margin improvement program, which you kind of achieved, then was getting into an acquisition, which you have just done about 12 months back. And while the benefits are still to kind of come through, the larger benefit, at least that seems to be stabilizing the way we are seeing it. So what's the now most -- the way we should look forward in terms of capital allocation, you're generating almost INR 600 crores of cash flow every year, INR 200 crores goes into the CapEx. But how should one look at the company the next way forward? Or there is still time around when you kind of decide on that? Just your thoughts on that.

Yes. I think we've articulated a bit, Abhishek, and that story is not changing so much, right? Like we said, the way we look at it, like with that INR 200 crores to INR 250 crores CapEx, TI-1 will continue to be able to grow at between 6% to 10% a year, right? So that is the core. And so that is what's going to generate that free cash flow, like you said. It won't be INR 600 crores, but it will be kind of maybe north of like INR 400 crores, INR 450 crores or so. So yes, but you're right because basically kind of that's the cash flow being generated after the CapEx sort of 6% to 10%, right? So TI-1 will continue to grow at 6% to 10%. There's still more work to be done on lean there. We're starting on that lean efficiency initiative -- not actual call a lean efficiency, but it's a lean initiative, that's basically starting next month. This month? Next month?

Next month.

Next month. So that will start then kind of we need to kind of look at the next level of opportunity in terms of margin improvement in the core businesses. So that is step number one, right? So that's what's going to spin off the cash. The cash, like we have said before, will be used for TI-2 and TI-3, right? The idea with TI-2 is to build these new platforms, but these platforms won't be what generates the revenue or the bottom line for us now. We're investing in those platforms. So 5 to 7 years down the line, it can keep our compounding rate at the same level, right? And TI-3 will be kind of much lumpier, and we'll continue to look for opportunities there. Like we said, kind of the key thing was that we had to be kind of debt-free. Like you said also, CG is looking much more positive now. So as we get more confident that the 2 companies are kind of getting to that debt-free position, we will start looking at other opportunities on that front as well. So the path remains kind of the same, right? I mean the long-term objective, Abhishek, like we said, is, over time, we want to build 10 business platforms, each of which can basically have multiple divisions and each of which is basically focused on their own line of business. Towards that end, I'd say we have like maybe 4 business platforms now, and then we have to kind of grow out the rest over time, right? So that's basically why we're seeding TI-2 and TI-3. But each of these will then become scalable engines unto themselves, right? So over time, we've talked about this whole compounding story. Internally, we have mass in terms of how they work. But basically, that is what -- I mean the focus of it all is like a compounding cash flow engine that continues to compound, while may not be at the rate we've done for the last 2, 3 years but definitely kind of at a 25%-plus rate over a long period, right? I mean our design is to try and kind of let it -- get it to compound -- at that rate over a 10-year period.

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

Just a couple of questions. One is on the Engineering part of the business. While Abhishek did ask the question about the numerator, denominator on the raw material side, was there any role played by any product mix to bring margins to slightly lower levels?

No. Like we said earlier, there is no margin erosion. It's the numerator and denominator.

Got it. And apart from the cycles business, are there any other businesses within -- specifically within Engineering business and the Metal Formed business which are lower than the company average margins?

Right now, the railway -- it's traditionally not been, but right now, the railways business is because the volumes are so low over there.

Okay. Got it. And we should start seeing some traction from the third quarter at least on the railway side.

Yes.

Got it. And just one final question, if you can highlight on the optic lenses side of the business, although it might be very smaller today, what would be the margins that one can really think of assuming the plans on the full utilization?

See, what we have said, Niket, is that this -- all we did with this was just to be able to prove that we can actually make these things, right? Instead it will have like -- our belief is like 15% margins. But that's not going to happen with this facility. The facility is too small for that. We spent only INR 30 crores on it. So all we were trying to do is kind of ensure that we can get the quality. So once we feel comfortable that customers are satisfied and the quality is there is when we'll really invest to build that business at scale. The current version won't have those kinds of market.

Got it. And is it safe to assume that given the numerator, denominator, broadly, the margins would have bottomed out at current level, then we should only see improvement from here on? It might be gradual, but obviously, there are a lot of moving parts on raw material side, but assuming raw material where it is today, we should see margin only improving from current levels but not declining.

Yes. So obviously, there are initiatives going on to improve the margins, right? But I think like -- obviously, this was a huge move on the denominator, right? Basically, denominator moved for almost...

70%.

70%, yes. So actually, to kind of maintain a close to 10% when the denominator has moved 70%, you can kind of back -- you can reverse the math and see what you've actually gone to as the denominator was the same as before, right? So I think -- yes, but obviously, kind of the initiative is going to be to improve margins. So it gives us kind of an opportunity now to kind of -- to work more at it, which anyway the teams are working on right now.

Perfect. Perfect. But that would have some benefit -- while it was obviously a negative benefit on margins because of numerator, denominator, but there's also some positive benefit on the top line. So if we kind of converge both sides, then the raw material comes of it, kind of converging both sides, right?

Right. So the commodity [indiscernible] at these levels, it's a crazy situation, yes, Niket, right? It's top line, but like the top line is vanity statement, right? So that's the danger with this, right, which is like the real growth we look at and measure internally is whether tonnage is moving up. And so that's -- it will continue to be our focus, right.

Our next question is from the line of Nishit Jalan from Axis Capital.

My question, basically, I just wanted to hear your thoughts and strategy on the PIC business. I know you have outlined it very well in the past. I had some specific questions. Firstly, how do you decide -- or what are the key criteria which you use to decide which businesses to enter? Is it ROCE? Is it customer-driven? And this question is also from the perspective that in the earlier con calls, you highlighted that as a company, you would want to diversify away from autos, right, because it's very high CapEx intensive and very cyclical. But if I look at the 3 big businesses on the TI side that we are seeing, right, the optic lens, the truck body building and the EV 3-wheeler, all are pertaining to autos, right? So just wanted to hear incrementally from here on, should we assume that you would look at more in the non-auto businesses? And from a top-down perspective, do we have any target in terms of what kind of investments on a cumulative basis we will be looking into TI-2 over the next 5 years? So entire free cash flow generation from the core business will go into this or you would try to maintain some dividend policy as well, and basically that would take out some cash and the remaining would go into these businesses.

Yes. So first, yes, we will -- dividend policy, I think that is kind of -- will continue in its current form, right? So we will continue our dividend. So we won't stop that. So that's the first thing. But obviously, as the cash flow improves, it gives us a fair amount of free cash, even after the dividend policy and CapEx for existing businesses. If I had to estimate, once growth starts kicking in, I would say that we would be spending at least INR 200 crores a year on TI-2 like opportunities going forward. The -- your third question was are we going to diversify. So by the way, this one statement I've made also on the auto side is that we didn't kind of -- we want to kind of move away from auto component supplier, right? So EV 3-wheeler, we see as an opportunity because the OEM business in India in auto has definitely been better than the component business. So we continue to see that as an opportunity and, hence, EV 3-wheeler. Now coming to how do we select, right? We've talked about our criteria in the past. I think it's kind of well documented in calls. We basically said for TI-2, I'm talking about lower capital intensity, looking at kind of the right mix of kind of B2C and B2B, looking at unorganized to organized as a trend and then playing off of what we see as a megatrend, right, kind of electric vehicles, obviously, in ADAS were one. We've talked about kind of -- like our interest in medical comes from the fact that India continues to spend more on medical. And I think India is -- health care as a percentage of GDP is about 2.5% to 3% versus the U.S., which is almost 20% if you take payer and provider. So there are segmented kind of shifts that we see because of megatrends that we see driving some of the areas we're looking at. We actually are working with some consultants also in terms of identifying opportunity areas to get to. And so that's helping us basically identify what we see as areas of greatest potential. And like I said, I mean, there are a whole bunch of megatrends that we look at, including most lately the whole area of China Plus One, right, where people are beginning to look at India as a second source in some businesses. So I would say that it's a combination of those factors that's kind of allowing us to develop filters and decide which businesses we get into. And as we kind of get into a new platform, obviously, we do communicate it with you and we'll continue to do that going forward.

Sir, just some small follow-up. This optic lens, I think we have set up about 6 million capacity on an annual basis. Just wanted to understand what is the revenue potential from the current capacity that we have set up. Just wanted to understand the asset turns in this business.

It's tiny. You can look at it at about $0.50 to $0.60 a lens, right? So it's $0.50 a lens, we're talking just about $3 million. So it's a very small facility.

Okay. So does that mean that the asset turns in this business are less than 1 because we have invested INR 30 crores? Or basically -- or maybe a lot of CapEx has gone initially into land and building, which will not recur. So what kind of asset turns can we see in this business once we scale up this into a much, much bigger plant?

When you really scale up a site to turnover, maybe investment turnover ratio will be better. It's only a pilot investment. Otherwise [indiscernible] about 1 to 1.5.

You're saying sales will be 1.5x?

Yes, sir.

The sales will be 1.5x investment.

The next question is from the line of V.P. Rajesh from Banyan Capital.

As you were talking about the growth of 25% over the next 10 years, I was just wondering how much of that growth comes from the current platforms that you talked about, 4 of them. And should we expect some newer platforms, whether they are currently in incubation period or something that you may do inorganically.

So like we said, right, 6% to 9% is the revenue -- and by the way, we were talking about bottom line growth, not top line. So the revenue growth is 6% to 9% in the existing businesses. So you average that, like I said, 7.5%, and you have some margin expansion on top of that, you'll only get 8% to past 10% coming from the existing businesses. So the remaining 15% to 17% has to come from new businesses. And I'm then talking again about bottom line growth. In some cases, it will be lumpy like the CG acquisition, in which case kind of you get a lumpy chunk coming in from that. And that's why we said that TI-3 has to be able to seed it in the in-years. And in the out-years, basically, it will be driven by TI-2 opportunities.

Understood. And on the cycles business, given the growth you have seen, the question is that, clearly, you're gaining market share. Is it because of, one, you said product mix, but is it also because the competitive intensity has gone down? If you can just give some commentary around the competitive intensity there.

I'll put it in a different way. I would say that our competitive intensity has gone up, right? So basically, on a relative basis is what we have to look at these things. And I just say -- I would say that we are competing a lot more aggressively in that business. Paul I don't think is on the call, but Paul and team are basically doing a great job there.

Sure. If I may just ask one more there. Are you saying that it's -- you are discounting or you are being more aggressive to take market share, and new competitors -- the number of competitors, let's say, in the business is still the same than it was, let's say, a year ago?

No. See, first off, I mean, we're not discounting. You can see that, basically, our margins have gone up as well, right? So it's not like we're discounting and kind of dropping margins to basically gain market share. You can see that, right? So basically -- so that is why I'm trying to explain to you. The way we compete is what we've changed, right? It's basically, they've gotten a lot more leaner in the way we compete, right? We're able to kind of respond to kind of the channels much more efficiently. We're able to basically service the channels and work with the channels a lot more effectively and create product that is much more relevant to the end consumer. So in terms of NPD, in terms of supply chain, in terms of overall efficiency, even in terms of cost, that's how we've basically been driving new competition.

And my last question for the time being, on Shanthi Gears business, what is the capacity utilization? And when do you see the prospects going forward? Do you see the industrial growth coming back because as we saw, let's say, the last 55 years? So just curious about your thoughts on that business.

Yes. So capacity utilization is not that high at Shanthi. I'd say it's at about 70% overall. And in terms of prospects, I mean it's -- I mean, definitely, with capital goods coming back in a fairly big way, at least we think that infrastructure and capital goods are going to come back in a fairly big way, that is something that will help the Shanthi business.

Our next question is from the line of Maitri Parikh from Pi Square Investments.

You said that you have gained 1% of market share. So how much is the market share currently, domestic?

Sorry, I -- did you understand?

Can you please repeat it?

So you said that you had gained 1% of market share this quarter. So how much is the total market share?

How much is the total market share. Our market share around 25%.

25%. Our market share is about 25%.

Our next question is from the line of Vimal Gohil from Union AMC.

Just a question again on the optic lens business. I'm sure you must have done some sort of an industry pricing exercise but obviously sort of deployed capital. Just wanted -- so if you could help us, give us some numbers as to what would be the size of the industry in India for the optic lens. And any market share numbers that you were targeting over there?

Yes. So this business was not focused on India at all. Even what we're making today, nothing we sell in India. We export everything, okay? So it's 100% focused on exports because there are only 3 countries in the world where this is getting produced right now, maybe 4 if we include Taiwan. So China, Taiwan, Korea and Japan. It's getting increasingly uncompetitive to make it in Japan and Korea. So we're making it in India and exporting it. So we're not focused on the local market. The global market for lenses right now is about $4 billion to $5 billion.

Right. And the end market that you're targeting is majorly auto?

Yes. Yes. Only auto right now.

And the $4 billion to $5 billion is the end market auto optic cameras -- auto...

These are different lenses, right? Once you get the cameras [indiscernible].

[Operator Instructions] The next question is from the line of [ Aman Rakesh ] from GT Investments.

Sir, my question is on subsidiary Shanthi Gears. Part of it you answered in the earlier question. My main question is we see good revenue order booking over the last 3 quarters there. Should we see that flow through the revenue profile over the coming quarters? And the second part to this is the composition of order book should also lead us to the similar gross profit margin that we are earning right now?

Yes. See, I'll tell you that business is a business that's slightly challenged right now because the whole supply chain has been hit, right, which is basically kind of even getting steel right now in that business because it basically uses forged steel, totally different process, is a challenge in that business right now. So our challenge in that business I would say right now is not as much with demand as it is with kind of the supply chain and our ability to meet that demand. So that's why I'm kind of more wary about giving any potential outlook on what we will hit over the next couple of quarters. But I hope that answers your question.

Yes. So also, we have ample land available, if I'm not wrong, at Shanthi Gears. How do we plan to use that land, which is, I think, line items or something?

No. So obviously, we will look at it -- as our businesses expand, we'll look at it. We'll obviously look at that as one of the alternatives if it appears that Coimbatore is the right place to put in some of those businesses. Beyond that, we have no plans right now.

Right. Sure, sure. Sir, and lastly, there is more composition change at Shanthi Gears. Would you put some light or any reason for that or just a technical thing that was required for the change?

Yes. So it is driven by multiple things. I mean as I look at kind of -- I think you're asking why I got off the Board. And I think that the reason for that was basically because as I look at my overall responsibility and basically kind of whilst I continue to have oversight over Shanthi in my role as MD of TI, I want to pass some of those responsibilities. Every year, we've said the same thing, right, which is the only way the company can scale is that if I keep passing some of my responsibilities over to my direct report. And from that perspective, what has happened in Shanthi, that Mukesh was one of my direct reports right now at TI has kind of taken over my responsibilities at Shanthi. I continue to have responsibility and oversight over the company as the MD of TI.

Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for the closing comments. Thank you, and over to you.

I think nothing else from my side. Hopefully, we've answered all of your questions, and I'll turn it over to IIFL.

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

Thank you.

Thank you.

Thank you.