Vardhman Special Steels Limited (VSSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Vardhman Special Steels Limited Q4 FY '20 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Chandak of Emkay Global. Thank you, and over to you, sir.

Thank you, Raymond. Good afternoon, and welcome, everyone, to the fourth quarter of FY '20 earnings call with -- for Vardhman Special Steels Limited. We have the senior management of the company with us, Mr. Sachit Jain, Vice Chairman and Managing Director; and Mr. Sanjeev Singla, Group CFO, with us. So without a delay, I hand over to you, Sachit, sir.

Good afternoon, everybody, and thank you for joining our call. Am I audible?

Yes.

Okay. So once again, good afternoon, everybody. We just closed a very difficult year. As you all know that auto industry, which is -- our entire production goes to the auto industry. Auto industry has had a very tough year 2019-'20, with volumes down across all segments of the auto industry, whether it's 2-wheelers, cars, trucks and tractors and so on. So everywhere, the business is down. So in line with that, even auto business has been down. However, our fourth quarter has been a decent performance. Sales have been down because on the similar [Audio Gap] last year because prices have been lower. And we have had a profit in the final quarter, fourth quarter. And as a result, hopefully, we've had a profit. Last year has been very significant for 2 primary reasons: one is that we have completed, what I say, 10 years of phase 1 of my growth -- my part of the steel business. I joined the steel business in 2010, January in 2020 has completed 10 years. And I have also completed phase 1 of our business strategy, which was to get enough technical partners. We were lucky that we were able to get it Aichi Steel Corporation, which is part of the Toyota Group, to become our partner. So they have invested in our company, they have become our technical partners and their head of the steel business, Ishigami-san, has already joined our Board. So -- which strengthens the relationship that we have with them, and we have a long-term journey planned out with them. So this is the biggest development of last year. In addition to that, we have also completed our planned upgradation of the steel melting shop, which happened in the first half, but the stabilization continued into the third quarter. And so fourth quarter, really, I would say, the first quarter of full performance of the new furnace. It's performing well. The minor hiccups still remain, which hopefully get sorted out in the coming months. Overall, there is -- we were expecting a good year this year when we started 2020, '21. However, we were not expecting the huge impact, which happened with COVID-19. And with the shutdown, which happened in April, we were totally shut down. May, we had very small sales. June, a little bit more. So first quarter is going to be a very, very difficult quarter, where very low sales, all our fixed costs are present. And therefore, we will be having a major loss in this quarter. We examined our balance sheet. We look at the stress test for our balance sheet. We looked at, in April, we said if we have 0 revenue for the full year, even then can we survive as an organization? We came to the conclusion, yes, we could survive. So we took the decision of not cutting any wages or any salaries for any of our employees. Also, we said there will be no layoffs. However, what we have done is we've become more stringent on performance appraisals. And if people are not being able to pull up and add to the expectation that we put to them, we have -- we will take a couple of tough decisions where required, but we decided not to do that. What also -- what's happened is, we have used this lockdown to upgrade our organization. Of course, because of low production, we will be suffering a loss. But in this period, we have invested a lot in our people. I will take the next 2, 3 minutes -- next 4 or 5 minutes to share what we have done in this period. One, I personally connected with all our people during this period on Zoom calls or on con-calls, including our workers. We used this opportunity to train our entire workforce on the Vardhman Aichi way, Aichi is our partners, the new way of working. We trained all our people in that way of working. Second, we identified all kinds of problems anywhere in the organization, formed cross structural teams and all those teams are working on those problems. As a result, we have got some very interesting solutions coming in. Third, we have used the term, which you learn from our partners, the 3R approach, which is reduce, reuse and recycle. We have received over 2,000 suggestions under this scheme. All those suggestions are getting evaluated, and many have already got implemented once the plant had restarted. In addition to this, we've also asked people to write essays, which improves their written skills, improves their thinking skills, improve their communication skills. We've used them to write -- think if they were there 2 levels up, if they were a boss' boss, how will they think. We have used this opportunity on metallurgy training, on 3S training as well as CPN training. So we have used this time to bond for -- employees to bond with each other, to bond with the organization. And the very fact that we have not cut any wages or salaries, that has increased the motivation level of the team dramatically. Across the country, we are hearing that companies are facing shortage of people because migrant workers have left and gone back to their villages. You will be happy to note that at Vardhman Steel, we are not facing any such problem. So we are equipped to work and to serve our customers. Our partners have been strong with us. Of course, they're working on a remote basis. We sent back the 3 members, who were placed here, we sent them back moment the lockdown was announced, and they've been working on a remote basis from Japan. The kind of support we're getting from our partners is tremendous. Their approach is, one, to improve our quality that we are able to meet their requirements; two, to reduce our cost so that we can be competitive against Chinese and Korean steel; and three, we are working on our approach on safety. So I have seen in this period, the safety consciousness in our organization goes up dramatically; fourth, they are working with us to help us on our problem-solving approach, so that we don't face those same problems again and again. And they are also working on developing markets for us. So that once we reach the quality levels and we reach the cost levels, the market is ready for us, and we would be able to increase our sales in terms of exports to Southeast Asia as well as substitute imported material coming into India. On the whole, the COVID situation is going to set us back a bit. But the company is in a strong situation to be able to handle this, and we will emerge stronger from this. I will ask Singla, our CFO, to continue with some of the financials -- to clarify some of the financial issues. And after that, I'm ready to take answers -- take your questions, please.

Good afternoon, everyone. Starting with the financials on profit and loss accounts. Our revenue for the quarter 4 is at 35,715 tonnes of sales as against last year, 34,000-odd figures, there is an increase of 4%. And revenue side, in terms of rupees, it is INR 205 crores, though it is lower by about 15%, mainly because of the 2 reasons: one is because of reduction in prices; and secondly, due to some small change in the production mix from the black bar to the bright -- from the bright bar to the black bar. Then coming back to the other income side. Other income is on higher side because we have accounted interest income on FDR of INR 50 crores, which -- the funds which we have received from Aichi Steel towards participation in equity. So those funds are lying with the bank as an understanding that these funds will be used for the capital expenditure as mutually agreed between the parties. So as a result, the EBITDA margin during the quarter is INR 17.27 crores. Year-on-year increase is 54%. So mainly because of the 2, 3 reasons. One is because of the reduction in prices of stores [ at scale ] mainly electrode prices. The last year, electrode prices were ranging in the range of INR 700 or INR 800 a kg, whereas in the current quarter, it has come down to their original level of INR 150 per kg. So as a result, profit after tax, it is INR 3.57 crores. And in this quarter also, there is a deferred tax liability, which has been created. So after that, the net profit stands at INR 3.57 crores. And for the full financial year, our sales volume is 137,000 tonnes, which is a decline of 15%, mainly because of the slowdown in the automobile industry. And on sales front, it is INR 846 crores of sales as against INR 1,120 crores last year. In this, there are 2, 3 reasons. One is last year, there was INR 37 crores of traded good sales, whereas in the current year, it is only INR 4 crores. And secondly, there was a sales of raw material also, which happened during the last year, but this year, there were no sales of raw material which happened. And thirdly, it is because of a reduction in sales prices. So as a whole, for the full year, the EBITDA margin stands, including other income, INR 49 crores as against INR 69 crores -- total EBITDA, sorry, total EBITDA stands at INR 49 crores as against INR 69 crores in the last year, 29% decline. On the balance sheet side, there are 2, 3 major changes in the balance sheet. One is the equity participation by Aichi Steel Corporation, about INR 50 crores; and secondly, there is a decline in inventory level. Last year, it was INR 303 crores as against this figure. Now this year, it stands at INR 151 crores. There is a major decline in inventories because you must be knowing that last year, we were building up the inventory of [ delays ] to meet our customer requirement during the shutdown period. So this year, during the shutdown period, this inventory has been eaten up and accordingly, our inventory has declined. And with this effect, the realizations from this inventory have been utilized towards repayment of term loans, short-term borrowings and also repayment of our creditors. So as a whole, our balance sheet size, if you will see, it is INR 890 crores as on 31st March '19. Now it has come down to INR 770 crores, mainly because of liquidation of this inventory. So as a result, our debt-equity ratio has improved to 0.62 as against 0.92 as on 31st March '19. So we are quite comfortable as far as debt/equity is concerned. And post -- during lockdown also, we have been able to get good collections from our customers because OEMs were making payment to the Tier 1 and Tier 1 was making payment to us also. So our debt has further reduced. That's all from my side on the financials. So I request, in case anyone has the questions, we are open for the questions.

[Operator Instructions] We have the first question from the line of Mr. Vishal Chandak.

Yes. Sir, if you could just help us with what is your plan for the next year in terms of volumes? And how do you look at the auto industry going forward for the next year? That would be very helpful.

Thank you, Vishal. At this point, to say what are our plans for this year is very difficult. Our plan is to take any order that comes our way and service that order. So what we are hearing is that because of this COVID situation, there is likely to be a higher demand for 2-wheelers as well as lower-priced cars because people would like to move away from public transport to use their own personal transport. Since we are primarily in the lower-priced cars as well as 2-wheelers, if this segment does well, as is anticipated, the probability that we will also do better is -- that probability is higher. Because in the auto segment, we believe that heavy commercial vehicles will be the last to recover. Tractors are anyway doing well. And 2-wheelers and the cheaper cars will do better. So if that happens, we should be better than what we are anticipating. However, we need to understand that the auto companies had inventory as well as the Tier 1s have inventories of finished goods as well as steel. Therefore, first, the sales pickup will happen for the autos and then the demand for the components and then will the demand for steel come up. Already, we have seen in the month of June, the demand is better than what we were expecting in April. So clearly, there seems to be a pull. However, we are still going to be significantly lower than last year. And we are expecting -- despite this, still, first quarter, we will have a major loss. Every quarter is likely to be better than the previous quarter.

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

I had a couple of questions. So first, sir, you mentioned that, June, you are seeing a recovery, can you talk about what kind of utilization you will be running? And how -- whatever you're talking to the OEMs, how you are seeing them in the next quarter at quarter 2, any kind of dialogue with them? That is my first question near-term demand if you can just give us some understanding on that. Second, I just wanted to understand, when you're talking about this import substitution in this kind of a pandemic scenario, whatever we had earlier assumed pre-COVID whenever that import substitution had to happen, has that program got changed in any way? Or it is again subject to how market recovers, volumes come back, et cetera? Or let's assume volumes in the [ OE ] side only slowly recovers, but can we -- once we finished our processing, et cetera, can we get some kind of import substitution orders, et cetera?

So first of all, we don't declare monthly utilization numbers. But the first quarter is very low. April was almost 0. May is little better, and June is a little better. Still, despite being little better, we are below 50 -- we will be below 50% utilization for the first quarter. Second quarter is likely to be better than this because the indication we're getting from our customers is that, yes, the schedules for July onwards are a little better. So I hope in the second quarter, we should be able to be around 50% or cross 50%. There's a chance we can cross 50% utilization in the second half -- second quarter. As regard the import substitution, I don't think the COVID impacts the import substitution part. That all depends on reaching the right quality levels and getting the approval from the OEMs. So any process of substitution takes 1.5 to 2 years. So it's not a question of months that in 2 months, 3 months, you'll get the order. It's a long process. The advantage of being a long process in a sticky business is once you enter, it is equally difficult to dislodge you. The advantage that we have is the OEM, in this case, for all the substitution is keen for the substitution; and two, the amount of sales they have with our partners is very high. So these 2 factors work in our advantage, and we believe that in a couple of years, we stand to have a huge advantage. The problem we are having just now is all the technical fees that we are paying to our partners, all gets captured in the current cost. Some benefits are coming, but more of the benefits are really long-term benefits. So the benefits will come in over time where the cost is coming in immediately. I hope that answers your question or is there something...

Sir, just at what utilization do we breakeven?

See, I'm just saying don't repeat -- we don't report utilization figures in advance of what is expected. So -- but the first quarter is going to be below 50%, clearly, and even June is going to be below 50%, though each month is better than the previous month. And second quarter, we expect to cross 50%.

The next question is from the line of Vineet Maloo from Birla Sun Life.

My question is about -- clearly, if you are running very low utilization, your fixed cost absorption will be poor. And as you highlighted, some of the technical fees are hitting the P&L. But let's say, if I just focus on the variable cost side, so -- and if you were to compare your contribution margins versus what they were, maybe 3 months or 6 months or 12 months ago, if you could give us some sense how they have moved in the current -- as you stand today, that will be useful?

So you see variable costs or so are not strictly variable, they are semi-variable. So for example, manpower cost is -- wage cost is actually a variable cost as strict costing. But if we decide that we are not going to lay out any workers, it's actually a fixed cost. Similarly, power cost is a semi-variable cost. Oil costs are semi-variable costs. So strictly speaking, all those costs, the contributions are going to be definitely lower than what they were because at these low levels of volume, your power cost per tonne is going to be higher, the oil cost per tonne is going to be higher because there are -- we are starting our furnace, shutting it down. We are starting our heating furnace, shutting it down. We don't have long runs. So all costs are higher than what they should be.

Okay. And obviously, you're not getting corresponding prices for them?

Oh, no way. In fact, we were expecting a price -- we were scheduled for a price increase from April. We had written to our OEMs in February for a price increase. But in this current time when OEMs are bleed -- everyone is having a tough time, so it's difficult to get that price increase. So this is indeed a very, very tough time. But I expect that by the time we move into second half, we should be far more comfortable than what we are going to be in the first half. But still, this is -- overall, this year is going to be a very tough year unless the recovery is a very, very sharp recovery.

And you don't have export as an outlet to increase your utilization?

No. It's difficult. So we are working on that with our partners, but that will take time. So clearly, another 2, 3 years' time, we will have -- we should have a much better export business. We have some export business even now. But that is still very small. But to reach into substantial exports, we have -- because our partners are the key suppliers to Toyota, and they have their own forging, so their own forging company is in Southeast Asia, they have a forging companies in Philippines, in Thailand, in Indonesia. All are waiting to use our material once we reach the quality levels as well as the cost levels. All that will take maybe a couple of years to reach.

Okay. Okay. And if I were to strictly comparing your movement of your raw material prices versus, let's say, the final product prices, have they moved in tandem or is there a discrepancy there also?

No, I said that we were...

Not your other input costs, let's say, like steel scrap, et cetera.

Sorry?

I mean not your other consumables, oil, et cetera, I mean only, let's say, steel, scrap, et cetera?

Yes. So I'm saying that based on raw material costs, we should have -- we were expecting price increases from April. However, because of this current situation and there's overcapacity everywhere, so -- and the OEMs themselves are having a tough time. So in this situation, to ask for a price increase, even if it is due becomes very difficult. So let us see how things shape up. But as of now, it seems that there's going to be a squeeze on that account.

And do you work on quarterly pricing? Is that how it works?

6 months. 6-month only.

6 months’ pricing. Okay. Understood.

So discussions are still going on with OEMs, nothing is concluded. But it looks difficult that we will get the price increase or even if you get the price increase, it will be lower than what is due to us.

Okay. Okay. And raw material prices typically move on regular spot basis, right? That's how we procure, is that a fair understanding?

That's right. Spot basis. Yes. Let me also share that what we have done is over the last few months, we have shifted more and more to domestic scrap. So we have reduced our dependence on imports, which means it reduces the riskiness of our long-term booking because imported scrap, normally, we book about 100 -- we have got 100 days of coverage in terms of goods covered and lying at the shedders, goods on ship, goods at port, goods in transit local and goods in the factory premises. So the riskiness of imported scrap is much higher than local scrap. So over the last few months, we have reduced our dependence on imported scrap and shifted more to local engineering scrap, and that has given us an advantage.

[Operator Instructions] The next question is from the line of Mr. Anil Kumar Sharma.

I'm Anil Sharma from Chandigarh. Sir, what do you think about this whole year? Actually, my question was regarding export that has already been covered. But what about this whole year, any estimation will be at par or some loss will be there or some profit, total? What do you expect, though it is very difficult?

It's a difficult question to answer. But as of now, we are expecting a loss for the full year. However, in April, we were expecting a much bigger loss and in June, we are expecting a lesser -- smaller loss than what we were expecting in April. And the way the volumes are increasing, I think the quantum of loss may keep coming down and maybe we may move into 0 situation, near-0 situation or something like that. But all depends on volumes. As I said earlier that we have retained our entire workforce. We have not cut any wages or salaries. We are paying all our interest. In fact, we've prepaid some loans. So we are comfortable in cash and as far as I'm concerned, what I'm selling all our people, and this is a strategy for us. This year, the strategy is survival and having cash and not having a problem with cash. So profitability is not the objective for this year. If we are able to reach a profit situation or a 0-profit situation, we will be very, very happy.

Right. Sir, one more. Sir, what about -- what is the percentage of supply to the 2-wheelers?

I'm sorry, can you repeat that? Supply to 2-wheelers is about 30-odd percent, around 30% -- a little over 30%.

The next question is from Anita Gandhi from Arihant Capital.

Sir, I appreciate your efforts during the challenging times that all of us are facing, especially for retaining jobs of so many employees. One of my question has already got answered. I just joined the call after it started, so I want to know something about inventory sale that you mentioned?

No. We had -- when we started last year, we had a very high inventory because we had a shutdown coming to replace our furnace. And since we are in the auto business, we cannot afford loss of sales because for many of the customers, we are the only supplier. So we cannot afford a disruption in supply. So we had very high inventories in the beginning of the year. So over the year, after the furnaces got established -- installed, established and stabilized. In this period, the excess inventory has got eaten away. So that's what's happened. However, on 31 March, 2020, the inventory that we had was assuming sales of about 13,000 tonnes a month and suddenly, the sales have dropped. And -- so we -- even now, we have excess inventory compared to what we expect the sales to be for this year. But every month, the inventory will keep dropping. And -- which is why we have enough cash to handle any exigencies as the inventories and the outstanding gets liquidated.

[Operator Instructions] The next question is from Mr. Vishal Chandak.

Sir, could you please help us with the net debt and net cash numbers, debt and cash numbers for the year-end?

Yes, Singla?

Cash numbers, sorry?

Net debt. Gross debt, net debt.

Total debt as on 31st March is INR 260 crores, as on 31 March, 2020, which is lower than the last -- the previous year, 31 March '19, it was INR 333 crores.

This is the gross debt number, right, sir?

Sorry?

INR 260 crores is the gross debt or net debt?

This is a total debt.

Total debt. And what would be the net debt, sir?

Because we don't have any investment as of 31 March '20. There is one FDR of INR 50 crores that has not been subtracted, so net debt will be INR 209 crores as on 31 March, 2020.

This amount is primarily the investment made by Aichi to be used for a specific purpose?

This is the investment of the funds, which we have received from Aichi towards participation in the equity. So as per the understanding between both the parties, these funds have been kept in FDRs, which will be utilized for capital expenditure as which we agreed between the parties.

Right. Sir, just a strategic question. Once your quality ramps up to the international standards, would you be barred from exporting into countries where Aichi already has a presence? Is there kind of an agreement to this effect?

No such agreement. In fact, the whole purpose of Aichi is to develop us as a source to service the Southeast Asian market. So the strategy is to be able to compete in Southeast Asia against the Chinese and Koreans.

Fantastic, sir. That is good to hear because...

And we see a good potential. In fact, yesterday, they -- Aichi gave us a presentation on our Board meeting and shared the potential of business provided with -- I mean, provisions are provided we reach the quality level and provided we reach the cost level, the business potential is pretty big. We are quite excited -- all of us are very excited with this opportunity.

Great. Because generally, in such investments, the investee is not allowed. So that is very good to hear.

Yes. And let me also share just now that working with Aichi now, we've spent 6 months as of 31 March. And as we speak today, we've spent 8 months working together. I must share here publicly that the first 8 months of working with them has been fantastic. The understanding of each other has been very good. In this period, we have had a visit from their Chairman, we have had visit from their President, a visit from their Head of Marketing and of course, the main technical people who are working with us. And there is a strong level of positivity and a strong level of trust between the teams. Our people are learning Japanese and the Japanese people are trying to learn some Hindi. The kind of culture integration that is happening is positive. So I'm very excited with the way things are going. Of course, as I said, the results of this will take -- will start setting in about 2 years' time as far as business is concerned, but in the areas of cost and quality improvement, which will in fact -- which will impact our domestic business also, we have already seen results coming even now. So results have already started coming in terms of improvement that we are seeing in our production process.

The next question is from the line of [ Venkat Raman ] from Ortem Securities.

I want to know what is the status of the mega project policy incentive, which...

Your voice is too soft. Can you please speak a little louder?

Yes. I wanted to know what is the status of the mega project policy incentive from the state government which was expected?

Yes. So we have already received INR 4.8 crores in last year. Some more is expected in this year as part of the phase 1. The phase 2, we should start getting towards the end of this year, we should start getting that. So we already applied for those, it's under process.

How much is the approximate amount?

It all will be depending upon the volumes, but the benefit in the new policy is 100% exemption from the [ electricity ] duty and also 25% -- in our case, it will be about 25% exemption from the payment of net GST, including IGST, CGST and SGST. So it all depends upon the volume because as of now, it is difficult to calculate the volume.

Okay. Okay. Second question was we have brought down our inventory levels to INR 160 crores on 31 March. And I believe, subsequently in April and May, the raw material prices have come down, which means when you calculate the price revision for the next -- maybe next revision with OEMs, will we be taking hit on -- in terms of the price realizations?

We have no idea what will happen in October. In fact, if -- we are asking our OEM customers that in case we are supporting in the first half, you have to support it in the second half. So all that is a subject of discussion and negotiations. At this point, we can't share what's going to come. And there isn't a significant decrease in raw material costs anyway.

The next question is from the line of Abhijith Vara from Sundaram Mutual Fund.

Sir, thank you for elaborate comments on the current situation, we appreciate the transparency. Just a couple of questions from my side. First one is the incentive which you have just mentioned, megaproject policy. For how many years is it eligible?

In the earlier policy of 2013, we are eligible for 8 years starting from January '16 to December '23. So it is for the 8 years. And in the new policy, we will be entitled up for benefits for 7 years, maybe starting from the current -- sorry, starting from the last -- mid of -- mid-financial year to then 7 years.

Sure, sure. And second, if you could please help us understand the raw material pricing trends? You did mention something about scrap, electrodes and pig iron. If you can mention what you are seeing in the near term, next 6 months at a say in terms of the pricing trends for the raw materials?

So graphite electrodes are going to be below INR 150 a kilo and other raw material is going to be stable or marginally rising or marginal -- so it's going to be stable. We are not seeing any major changes. Of course, shredded scrap seems to have gone up a little bit in the last couple of days.

Graphite will be about 5%, 10% of the raw material cost?

I'm sorry, can you repeat that question?

Graphite electrodes will be about 5% to 10% of the raw material costs?

No, no, no. Graphite electrode is not part of raw material, it comes as consumable.

It's the consumable -- as of now, at current prices, it will be approximately close to 1% of the total cost. Earlier, it has gone up to 5% to 6% last year. But this year, it is in the range of 1%, 1.2% of the total cost.

Right. Right. Okay. Just one more question. In the current situation where many companies are unable to arrange for working capital, can Vardhman Special Steels grab some market share in the industry? Is it possible, but even if the industry is declining much higher, you can gain some market share and show some lower volume decline, is it possible?

So we are going aggressively to grab business wherever it is possible. And you are right, since we are financially comfortable, cash -- we have no problem of cash. So we are able to capture customers in terms of extending credit where required. So yes, we are definitely doing better than what we were anticipating 1.5 months ago.

Okay. But will it be visible, sir, in the current year itself or if we take some -- few quarters?

So we are still expecting a decline from last year. So I don't know whether what -- it's very difficulty to say what is visible.

Right. Sure. Let us say once you...

Yes. Go ahead.

Once you are able to, let us say, improve your market share, will that be sustainable or will it again depend on pricing, credit trends and all those things will come back once things stabilize? How sustainable will the market share then be?

One thing is that we are making good progress on our capacity enhancement. So we are reasonably confident that by the time next -- this financial year ends, we should have got the approval to increase our capacity. So once we get the approval to increase capacity, we are clear, whatever business we have taken, we are not going to be in a hurry to let it go. So as our regular business comes up, we will retain this business what we get, so -- which means our utilization should be better once full volumes come back.

Okay. Okay. Sure, sir. So the new CapEx details you'll share later during the year, once it's finalized?

I'm sorry?

The new CapEx details, you'll share it once the plan is finalized?

Yes. So first of all, for increasing the capacity, we don't require too much of CapEx. As you would recall that we made the change in the furnace and we've made the furnace able to increase the production. So the increased CapEx to increase the capacity will not be too much. However, with Aichi, they may need other CapEx to come in for quality reasons and maybe to increase capacity further. So the new CapEx plan is going to be finalized with our partners and will be declared, I hope, by the end of first half. So maybe in the November Board meeting, we may be announcing the new next CapEx plan.

Right. Just one last question, sir, if I can squeeze, what portion of your credit limits, bank line limits are unutilized? Are we comfortable? I just wanted to understand, in liquidity, how comfortable you are utilized?

We have very comfortable liquidity. As I said, we prepaid certain loans. So -- and we are also negotiating with certain banks where we are not happy with the interest rates. We are going to prepay those interest rates -- those loans. So on liquidity front, the company is careful and comfortable. And CRISIL has retained our AA rating, though -- albeit it was a negative outlook that has still been retained.

The next question is from the line of [ Neha Jain ] from [indiscernible].

After our tie-up with Aichi, have you been approached by any of the OEMs, which might indicate as to how the players are viewing our tie-up?

I -- they don't need to approach if it's a mutual thing. But what I'm seeing is India is still dominated by Japanese OEMs as well as Southeast Asia is dominated by Japanese. And we have seen very clearly that the -- because in our opinion, I see it is probably the best automotive steel producer in the world and they are part of Toyota Group. So the kind of access that I have seen after they joined us, I have not seen that kind of access anytime before. So I am very, very excited with leading up to the highest level, highest decision-making levels, where the decisions are going to be taken about using our steel. So I would say we are in a pretty strong position. Once we reach the quality levels and the cost levels, the targets that are set, we should see good impact on better quality business. Not only business will increase, but I would say a better quality business will come up.

Okay. Sir, one more question. Do we have an update on any scrappage policy as to -- have you been in touch with any of the players, which might be planning to get into scrapping business?

Yes. We are in touch with people there, and we are in touch with the government. I'm also the Co-Chair of the CII Steel Committee. We are constantly talking to the government that you need to come out of this scrappage policy. So once that comes in, I think that will be a big, big positive for our company.

The next question is from the line of [ Rohan Mehta ], who's an individual investor.

Sir, I just wanted to ask you regarding -- you had mentioned earlier that 2-wheelers and small cars are likely to pick up momentum gradually as more and more people would avoid public transport. But if that is in the shorter or medium term, more in the long term, do you feel that a more conservative discretionary spending might be a trend that might affect our market because, especially with a lot of industries and sectors like IT having encouraging work from home, if in the longer term, people are tighter with their pockets in terms of spending on transport-related things, would that affect us?

So [ Rohan ], first of all, what I said was, this is what I have heard, okay? So I'm not an expert in this forecasting. And this is what I'm repeating to you is what about I read in the newspapers and what I hear from some experts. So frankly, for us, the key is that we have got our partner. Their partner feels as part of their strategy to be able to sell steel in Southeast Asia. So over the next 1 to 2 years, once -- the moment we reach that quality levels, our biggest focus is going to be on selling steel to the markets in Southeast Asia, one; and two, working on import substitution of high-quality specialized steels coming into the country, still getting imported in the country. So those 2 are going to be our areas. So even if there's been increase in 2-wheeler or et cetera, eventually comes down, by that time, we would have picked up the other business. What we need to note is rural India is doing very well. The crop of -- the winter crop has been very good, and tractor sales are good. So the demand from the rural area is going to be strong. So the indication we are getting, at least from the 2-wheeler suppliers is, manufacturers is that they are looking at reasonable volumes going ahead, as a combination of rural sales as well as the urban sales. And there's also the other area of railways. We are also looking at diversifying away from waters into railways. So that's the other area we have started in this past 1 year. And we hope to develop this business further.

That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Okay. Ladies and gentlemen, I know we are -- we've had a disappointing last year, and this year turns out to be even worse. But I think in this cloud, I see a lot of silver lining of hope. I believe this lockdown period has made our company much stronger than what it was. And we have covered up 1 year's worth of work in the last 1.5 months in terms of getting the teams closer and aligned to what we want to do. So I am pretty positive that once the economy reaches back to the normal levels, we will have a disproportionate gain from that opportunity. And by that time, we hope to see the benefits coming from our partners. So I'm very excited about the long term. But next year -- this year is going to be a very tough year. Thank you so much.

Thank you very much. On behalf of Emkay Global, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.