Wheels India Limited ($WHEELS)

Ladies and gentlemen, good day, and welcome to Wheels India Limited's Q4 FY '26 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] I now hand the conference over to Mr. Ronak Mehta from ICICI Securities. Thank you, and over to you, Mr. Mehta.

Good afternoon, everyone. On behalf of ICICI Securities, we would like to welcome you all to Wheels India Q4 and FY '26 Earnings Conference Call. Today, we have with us from the management team, Mr. Srivats Ram, Managing Director; Mr. P. Ramesh and Chief Financial Officer. We'll start the call with a brief opening remarks from the management team, and then we'll proceed with the Q&A session. Thank you, and over to you, sir. Thank you.

Yes. Good afternoon, everyone, and welcome to Wheels India's Q4 and full year earnings call. We have a presentation. I hope you can all see it. As an overview, we are part of the TSF Group. The TSF Group was formed as part of the out of the family arrangement of the TVS Group. We are about $3.2 billion in terms of consolidated turnover for FY '25. The group is basically in auto components, dealership and distribution and financial services. We have strong global connects across supply chains, and we believe in long-term partnership customer for connect and focus and work and have very strong corporate governance and sustainability for business. An idea of the companies in the group. On the manufacturing side, we have Brakes India, Wheels India, Turbo Energy Axles India, Sundaram Dynacast, and Sundaram Composites. In distribution, we have Sundar Motors, Madras Auto Service and India Motor Parts and Accessories. And in Financial Services, we have the Sundaram Finance Group. Wheels India was established in 1960, and we're part of the TSF Group, we are a listed company where the promoters have 58.31% of equity, and our value systems are relationships, integrity, customer centricity and excellence, gives you some overhead of the products that we make, tractor and earthmover wheels, aluminum and stick for cars and trucks, windmill related components, as suspension system, fabrications and hydraulic cylinders. We also have a joint venture with [ Topi ] for making passenger car steels for multinational car companies. We have 10 manufacturing units, 8,400 people. And our turnover in the last -- 540 million is our current turnover on the value [indiscernible] with 141 million of exports, and we are preferred [indiscernible]. This gives you some idea of the time frame in which we've entered various businesses. If you look at it, actually after 2020, we have entered into quite a few businesses. And it's also -- we are also consistent in terms of our job. We're also consistent in terms of our strategy over the last few years. This gives you an idea of the products that we make. We have currently 10 manufacturing plants. And these are our key customers, both in the domestic market and in the global markets. We have been accredited not only by customers, but also EcoVadis, I think currently, the rating is gold. This is the previous rating of silver. On sustainability, we are quite strong. We have a gold certification from CI GreenCo as well and we've continuously win awards in these areas. Of course, our customers' -- acknowledgment from customers is most important. This gives you an idea of some of the customer awards that we have won in recent years. And of course, these are some other both from customers as well as from the government and the industry bar. So briefly speaking, we have told the way the company is organized. We have 2 segments. One is car, truck tractor wheels. Construction wins. And then you have fabrications, hydraulic cylinders. And for the windmill sector, we make both fabricated and machine parts as well as making -- doing machining of large castings. The pension division is earlier around trucks and buses. A few other points. We are one of the largest manufacturers that we for construction equipment and agriculture tractors in the world with about 20% market share in both. And our subsidiary, as I mentioned, is for steel wheel for light passenger vehicles. So if you look at Q4, we had a fairly strong growth of about 23% growth with [ INR 1,471.49 crores ] of sales and INR 400 crores of export. And if I look at the full year, we've crossed INR 5,000 crores for the first time, about 16% growth compared to last year, takes us to INR 5,124 crores with INR 1,342 crores of exports. This gives you some sense of the improvement. Revenue improvement in Q4 was 23% with a 45% improvement in PAT. Number of factors, if I can just comment briefly, a number of factors resulted in this performance in Q4 and also for the financial year, if you look at it, as I said, almost 16% improvement in sales and our PAT has improved by around 31%. Few factors to explain what has happened last year, Europe 2 halves, GST 2.0, turbocharge the domestic industry and almost all the segments, car, truck, tractor, even our suspension business, not a big boost from that. Fortunately, our exports have also been doing reasonably well, and that also saw growth. So we actually had a lot of favorable tailwinds behind us last year. Added to that fairly stable commodity prices and relative lowering of interest rates over the 12-month period. On the consolidated basis, if you look at it, both on the quarterly side on the quarterly side for the first time, our consolidated part has exceeded INR 50 crores, we did INR 58.1 crores or INR 1,573 crores of sales. in the consolidation, let me just explain major elements that are consolidated to the stand-alone or our subsidiary [ Wheelcardwave ], which is a passenger car steel-wheel manufacturer supplying the Indian auto market. And also Axles India oil associated company, which makes access housings for the commercial vehicle segment. So really, if you look at the consol improvement over and above the Wheels India improvement, the other major change was the subsidiary, which 2 years back was loss making turned around last year and showed a good improvement in the current year. On the segmental reporting, our Industrial Component division where the growth in top line as 12%. The EBIT improvement was 91%, largely due to the fact that last year, both the hydraulic cylinder, the fab division were loss-making. But in the fourth quarter of this year, both of them were positive. So basically, that's which resulted in a disproportionate increase in EBIT. And on a consolidated basis for the year, if you look at it, it is more even keel. But clearly, the fourth quarter was strong in that area. In terms of CapEx, last year, we basically spent about INR 261 crores towards CapEx which is both in terms of investment towards the windmill business, aluminum business and a little bit of the off-road businesses and some routine CapEx and cost savings totaling INR 261 crores. And we expect in the current year, it will be between INR 280 crores to INR 300 crores of CapEx. Our debt has been stable to declining. Debt equity has improved. Debt-to-EBITDA has improved and free cash flows are reasonably strong, especially when you compare it to the [ 4-week ] period in media post. Here are some metrics that give you an idea of how we've worked together. On a consolidated basis, also the free cash flows have remained reasonably good. Our strategies and every time we make a presentation, it's essentially the same because we do believe we need to focus on strategy for at least 5 years before we look at reviewing it. We want to grow export, our needs for construction equipment and agriculture tractors. We have made investments towards that. We are making progress, good progress on construction started making progress on agriculture tractor wheel export. We've ramped up made investments last year was ramping up machining of large casting or [indiscernible] that should occupy in terms of business this year. And we also stepped up both capacity and volumes for abrogated structure for wind mills, including the offshore wind mills. Hydraulic Side business is a business that we will continue to look at growing. The Aluminum Wheel business is a business that we are ramping up. And the Base suspension is a business which has grown well last year, and we'll continue to grow and we'll continue to invest. Above and beyond that, actually, what we have done reasonably well over the last few years is look at working capital management. We have substantially reduced our inventory and our debtors and we have managed it in a reasonable way so that we enable free cash flows, which allow us to make the investments that are required for our growth. So largely, we've gone based on internal approvals, holding debt at around the same level and continuously work on cost optimization. As you can see, the results bear out in both the rose as well as the return on network. Now that is briefly the presentation. So I'm open to any questions that any of you may have look forward to the interaction.

[Operator Instructions] The first question is from the line of Vivek Gautam from GS Investment.

Yes. Basically, I wanted to know what happened to this company, such an old company and sort of was out of the radar for quite some time. What have been the trigger and what is the story behind the recent improvement and the numbers? And are these numbers sustainable? And basically, a few background about the promoters also because visibility about our company is slightly on the lower side somehow?

Sure. So I'll first tackle the first part of the question, Mr. Gautam. The promoters, the initial promoters of the company was TVS Group. Now following the family arrangement, the promoters are the TSF Group. But essentially, we are we are from the [indiscernible] well TVS Group. And the promoters, the shareholders, it's pretty much a promoter managed company with active involvement in the management of the company. If you ask me what has happened in the recent past, basically post COVID, we came out to the strategy as is there on the slide in front of you, we basically worked on free cash flows, and we identified certain areas that we believe that we can grow faster than the market because these are areas which we are relatively small or relatively new in and where we see the largest scope for growth. Because otherwise, we are very much car truck tractor business, and we will only grow as much as the industry grows. So we wanted to identify some segments that we can grow faster than market, and that's how we came up with this strategy. And really, what you're seeing over the last, I would say, last 2 to 3 years, 2 years really because we -- it took us some time to come out of pooling. The last 2 years, consistently, we are sticking to our strategy. And we have been fortunate also that fairly benign commodity prices over the last year. And despite all the chaos, which is around tariffs and all that stuff, we've been able to perform reasonably well. I hope that answers your question.

Yes, a few questions about this new second-generation promoter is also taking more interest, Mr. [indiscernible] or sort of that has been [indiscernible].

I'm -- so I've been in the company for more than 30 years. So I'm hardly a new web thank you. you are in the minority, along with my mother, who doesn't classifies middle-aged, I do appreciate that. But yes, I've been in the business for 30 years. And so very much part and parcel of the business. And I've been the Managing Director from maybe 15-odd years. So very much in the seat. But yes, we refocused on strategy, and that is probably the reason why we are doing well.

Sir, any impact of Middle East crisis and rising commodities, crude prices and also on the tariff impact, the U.S. [indiscernible] and EU FTA signing positive for us, sir?

Yes. FTA is too early to call. West Asia prices, of course, we are like everybody else in India, we are affected. The effect is basically ones fuel costs have gone up. Industrial fuel costs went up far ahead of what has happened in the -- for the citizens of the country. So we had increases even as far back as March. So we had fuel cost increase. Fuel availability was an issue. Fortunately, now it is only inflation that's an issue, not so much fuel cost. Aluminum, we were buying major quantities from the Middle East. So we had to resource and also aluminum prices have gone up. So basically, all commodities, steel, aluminum for us, steel, aluminum, paint, cutting tools, fuel, freight, and manpower. All elements have gone up. Some of them like material costs are normally there's a pass-through to the customer. The others will be negotiated. But given the reasonably high inflationary level of some of the factors of production, there will be some amount of pass-through that will happen.

Okay, sir. And sir, just a few words about the opportunity size before us and the expected growth rate in time to come and our differentiators, if you can highlight because visibility also of our company needs to increase.

Yes. See, essentially, as I say, we manage the company based on the values, relationship customer centricity, integrity, and whatever you do, do the best that you can. Essentially, this is what drives decision-making. And we are driven by our customers to make improvements. And we are just doing that and following the strategy. The opportunities were huge. Honestly, we did not have West Asia crisis, I would have be more confident talking about projections and things like that. But currently, if you ask me, the visibility is about 1 month. Merchants, we do make budgets for our boards and things like that. The visibility right now is fairly low because of the continuously changing environment. We are really a derived demand with our demand coming from the automotive truck tractor and construction segments. We can't throw any numbers in terms of growth. All we can say is that we are on the same trajectory. We are a small board in a big river and it depends on how high the time goes or how low the type goes. So we will trade along with the economy as it happens.

Opportunity in size over 2 to 3 years remains large and expected growth rate can be 15%, 20% over a longer time period, sir. So these crisis are temporary. Hopefully, some solution will come.

Yes. I feel the effect of this may be there for a year, at least, that's what at least experts are seeing. But yes, without that, if you look at it, supposing there's no West Asia crisis. We have a lot of opportunities just riding on the points which we have here in front of us. So just these segments alone, I think, will give us enough of growth opportunity where we can definitely do double-digit type of growth success [indiscernible]. So looking at a 5-year period, we are definitely that's something that we will look at.

Yes, I believe, sir, you need to meet more companies than at least participate in the analyst conferences also, so that's such a good company of us visibility, unfortunately, in front of analysts is sort of low. If you can, that would really help us.

I appreciate it. We are -- I do recognize the fact that we are normally a bit low key, but yes, your point is duly noted, sir. Thank you, sir.

The next question is from Sudhir Kedia from Value Wise. Sir, I would request you to kindly check your connectivity and rejoin the queue. We'll move on to the next question from [ Serve Suraj Arma Charli ], an Individual Investor.

Yes, yes. Congratulations on good set of numbers. My question is regarding the hydraulic cylinders, sir. This is [indiscernible] procuring from anybody else, sir?

No. By and large, the design is worked on by us along with our customers. So customers basically have requirements, and we basically look at designing cylinders to meet their requirements. In some cases, the design comes from the customer. In some cases, we design it ourselves. So we have both because if you look at the -- on the global side of things, very often, we are coming in as a second source or third source or something like that. So there is an existing design. But with our domestic customers, we design the cylinder ourselves.

In general, hydraulic cylinder, sir...

If I can just we also have a technical agreement with the Korean cylinder manufacturer called -- and sometimes we get business also through them and they [Technical Difficulty].

Sorry, sir you are unaudible.

We are waiting for the investor to ask the question. I answered the question.

Yes, yes. I thought you are continuing, sir. Sorry, sir. My another question is actually the seal kit is very critical part of the cylinder. Where from your getting, sir, are you manufacturing or outsourcing these components, sir?

So it varies, sir. Actually, no, we are not manufacturing seal kits. In some cases, we are we are buying from the authorized supplier for the OEM. So the vehicle -- the equipment manufacturer will specify the seal kit. In some cases, like where we are working with our Korean partner, we get the seal kits from them. So typically, it depends on the customer. the customer very often also specifies the [indiscernible].

We'll take the next question from [ Sudhir Kedia ] from Value Wise. [Operator Instructions] We'll take the next question from [indiscernible], an Individual Investor.

So my question is around [indiscernible] increased your stake in Axles India, where you all also have some synergies in the business. But at the same time, there is a lot of -- not a lot but reducing amount of debt on the Wheels India balance sheet. So what is the reason for using -- instead of reducing debt using money to increase the stake in Axles? So what is the capital allocation decision? Just wanted to know more about that. And how the future value unlocking can happen for investors?

Yes. So essentially, when Axles India was promoted by Wheels India, when it was started, there was capital from Wheels India, Sundaram Finance at that time and then it in cooperation. These were the founding promoter companies was [indiscernible] then became [ Dana ]. Sundaram Finance became TSF investments. Wheels India to reduce their stake in Axles India because Wheels India got a joint venture partner who was not necessarily friendly to outside investments. So that is the reason why our stake in Axis India came down. Subsequently, after COVID, we bought out our joint venture partner in is India, and Axles India has also subsequently bought of joint venture partner. So the idea was that if Wheels India can get improved its stake. So we're looking at maybe something like 15%, maybe slightly higher 20%, 25% over a period of time. But yes, there are synergies between the company. So it's not unreasonable to say that at some point or the other, there may be a way of making the companies closer together.

Okay. One more question that you were guiding for double-digit EBITDA at some point in the future. But with the headwinds that you mentioned, do you still think it's a realistic number for maybe the next 2 years?

Yes. With headwinds, you have to put your head on and move forward. So I guess we'll have to do that. But at the same time, we do feel that the strategy -- actually, the double-digit part of it will happen from strategy and from businesses which are losing money to become positive. So I think as and when that happens, I think we're probably 2 years away, 1 or 2 years away from double-digit EBITDA. I don't think it should take longer than that.

The next question is from [ Raj Kumavedenathan ] from RK Invest.

Just a few questions. So the first one, just extending the question from the previous participant. You mentioned that we are looking at double-digit EBITDA. So currently, you're at about, I think, 8.5% if I'm correct.

So north of 8% for the whole year.

Yes. So that's a big leap, right? If you're looking at a double-digit number. So you said it's -- you're looking at it in the next 2 years. Is that what you mentioned?

Yes. I think in the next couple of years because it also depends on how this -- how the economy is affected by this West Asia crisis, how long it lasts and all that. But barring that 2 years is probably what it should take.

Okay. So in other words, you are saying if volumes happen, then the operating levels will help you to post better EBIT numbers. Is that -- my understanding is correct?

Correct.

Okay. Okay. Got it, sir. And this slide that you're showing on ROCE and ROW, that's a good slide, sir. So -- and it's very interesting to see that you have already hit the return on net worth of more than 15%, kind of asked in the previous call. So -- and mentioning the slide that these are expected to improve. So can you give some more color as to how much you are expecting this [indiscernible]?

Yes. It's very, very difficult to call out a number, but I would look at our ROS being 18 plus, I would look at our return on equity to be 15-plus. The estimate is -- it's not like -- no, no, it's not like we're working towards the target that we're working towards a target in terms of where we want the company to be what we want the profitability to be. And these are more byproducts. These are more ratios which are byproducts of that. But yes, we are very close to what we would call as a comfortable area. But there are headwinds. So we will have to do a significant amount of work to find the inflation in the current year. And also judging by the investor calls of our customers, who are also known to our community, they are not super positive about the immediate future. So we also need to be slightly cautious, bearing in mind that we supply to them. And so their forecast is more relevant to those.

Okay. Okay. So you would expect to maintain this return on equity of almost -- we already hit 15.5 in '25, '26. So you would probably kind of be in this level for a couple of years before you kind of improve further?

We hope God willing -- a lot of it is dependent also on how the external factors play. Assuming nothing too adverse, -- and assuming that the Indian economy continues to move at a reasonable rate of growth, I think that's a reasonable assumption.

Okay. Got it, sir. And lastly, one housekeeping question. So in the cash flow, I see almost INR 26 crores of line item against provision for bad debts. We save almost INR 2 crores, INR 3 crores for the previous year. So any reason for the spike in the current year?

It's [indiscernible] of provision for the bad debt, INR 26 crores.

Mr. Raj Kumar? Yes. So can you just say it again?

I mean there is nothing like a provision of INR 26 crores for bad debts. In the cash flow, if you see provision for inventory and doubtful debts 26.16. Okay. The inventory provisions are higher, okay, though it is grouped bitter. And inventory provisions are higher because company has adopted a more stringent room for provisioning as a consequence the provisioning for inventory has been higher in this quarter as well as for the whole year. We followed a principle we look at [indiscernible] similar to an ECL applied to invent [indiscernible] we currently have a policy where after 3 years, the inventory is completely provided for, but we follow something where after 6 months after 1 year, after 1.5 years, there's a gradual phased provisioning. So this is a policy that we're kind of in, and that is kind of what is reflecting in this. A lot of it will add inventory into sales value. It will reflect in the profitability. It's a conservative view that we have taken in terms of inventory management, largely driven by the fact that we also want to improve our cash flows. And to signal the businesses that they need to control the annuity, we have introduced this.

And sorry, I have one more question. Can I -- can I ask?

Yes, please.

Okay. So the question is this, we saw a significant rupee depreciation this quarter. So I just want to know how much upside we got due to that? And also on the steel prices also it kind of increased in the last quarter. So any timing difference on that, you would have held, I mean you must have had a low-cost inventory. Is that helping you in terms of better margin in this quarter?

[indiscernible] only wish that is too unclear that the steel people are a lot smarter than us, so they don't allow us to run off my inventories ahead of the increases. So we don't really get a benefit from that. By and large, if there's a significant increase in steel price, normally, there will be some impact in the immediate quarter. But we don't think that over the longer term, we are able to get a complete pass-through on material cost. I don't think that's an issue. On the currency side, while you may get immediate benefit of any sudden devaluation of the rupee. There is also a process of sharing currency gains with customers over a longer term, there is a lag effect in terms of that. So we don't actually will get any sustainable advantage from devaluation.

Okay. So this quarter, since we saw a significant deposition. So is it fair to assume that some margin upside we are seeing give that as well?

See, the devaluation of rupee had an impact marginally on the overall profitability. But we also import and we also have some forward progress because we don't know which side -- which direction the rupee would go. So it is not the entire devaluation would come as a bottom line thing. So, yes. So we -- in the current quarter, we had a drop of about INR 4 crores as a net feel on the ForEx. And for the whole year, it is about close to INR 10 crores as the [indiscernible].

The next question is from the line of Dave Mehta from [indiscernible].

So I just wanted to check whether we have a noncore land bank with us.

Yes, we don't have a noncore land bank. Do we have a land bank which we are currently not occupying? Yes. But is there a plan to occupy it in the medium term? Yes. So we don't have any spare land as to say that we have land that we don't know what we want to do with. There's nothing to do.

Fair enough. So -- but we don't have any plans to monetize that, right?

No, [ neutral ]. No.

Okay. And sir, with respect to export as a split of our total top line, what are we going to see in FY '27 or FY '28? Any direction on that?

Yes. Our exports, we expect will continue to grow. So if you look at last year, it was 26% of our sales. Last year, we had very strong domestic growth. So despite the strong domestic loan, we were able to grow our export. 25% to 26%. So I would say that there will be growth in FY '27, but probably more growth in FY '28.[indiscernible] geopolitics and all that is happening. So our customers are affected by that. But as of now, it looks reasonably okay unless things deteriorate.

Fair enough. And sir, if you can just quantify the acres of that noncore land and also maybe current market value per acre?

I don't know the market was of the land, but the land is about 30 acres on the [indiscernible] revenue.

The next question is from [ Gaetan Falke ] from Dalton Capital.

Yes. So over the last 3 years, we have done CapEx in various diligence like wind machining, even our #2 plant and everything. So with this CapEx falling in place, what is the optimum revenue potential of the company? Let's assume what we utilize our existing assets to its fullest.

Yes, you need to make some incremental investments. But I think I answered this question in the last investor call. I don't recall exactly, but I think INR 6,500 crores or so is what we said. But we will continue to invest. So I would probably say about INR 6,000 crores to INR 6,500 crores. Some of the areas like notably castings, we need to add more equipment so that we maximize on certain like pain plant and utilities and things like that. But yes, I think something like that is clearly visible out of existing investments in existing plants. No new plant. That is no new site.

Okay. And sir, with respect to our expansion in global markets or exports per se, a lot of these European or Japanese companies are looking for Indian partners or JV partners, either to enter India, manufacture from India and then support their global operations or either help them manufacture globally as well. So any of such opportunities which are opening for us? Or what's happening on that front? If you can just...

We are actually already in that. For example, if you take the windmill industry, most of our suppliers go to European manufacturers who have module assemblies in India, which are exported. We also supply to Europe directly. We, as a matter of fact, do an assembly in Denmark to supply some of the customers there. So it is -- especially for the windmill business, Europe is a big part of it. We have European customers also on the automotive side. So it is definitely something that is part of our strategy. And I do believe that we have some amount of alignment with some of those customers going forward as well.

Okay. Okay. Because last year, I think we formed a subsidiary -- a German subsidiary. So I was just wondering, I mean, if you can just help us understand what's happening there? Or what are the thoughts on that front.

Yes. So currently, it is more sales marketing and support type of functions, which are coming out of the sub -- we also have a subsidiary in U.S. and U.S. also recently, we are appointing a country manager, and we believe that having a local presence, we can also generate more business. So that will be probably -- going forward, the way we would be initially doing that. But there is pressure also to have, as they call it, India plus one manufacturing strategy. And we are contemplating whether it's possible to, in a cost-effective way, add capacity in those geographies, more to answer derisking questions that the sourcing guys ask us. In some cases, we are collaborating with other manufacturers in other countries where we are each other's derisking source. But in some cases, we may have to set up a CapEx at some point of time overseas. It is not part of the CapEx that I mentioned here. But at some point, we may have to do that. And if we do that, we will do it in a cost-effective way so that it makes financial sense for us.

Okay. Okay. And sir, if you can talk about a bit on our cost controls or changes in cost structure going forward, any relocation of manufacturing facilities from high cost to low-cost locations or anything because most of the margin expansion from what I hear is going to come from the volume growth or revenue growth. But anything on the cost side that will also contribute to this margin expansion?

Yes. We are looking at consolidating a number of plants. We have this -- so for example, in the Suspension business, we had 2 plants. We bought some land next to one of the existing plants and moved the second plant into this plant so that we get savings. Otherwise, we are paying rent in that [indiscernible]. We are open and are looking at opportunities where we can move out of rented facilities into own facilities. And by and large, we will look at consolidation of plants to the extent possible. Unless there is a cost, there is a site which improves our cost structure and opportunities by being in that site. Either it is customer-facing. And so you get additional business because of it and/or you get cost savings in terms of freight cost per being.

The next question is from Ankur Agrawal from RC Business House Private Limited.

Sir, as you said, double-digit margins within the next 2 years, so what was the top line in that time frame? How much top line?

Top line will depend on how you see top line will depend on 2 things. One, it will depend on commodity prices because if the steel price and aluminum price goes up, our price also goes up and that pushes up top line. Second thing is it depends on how the Indian economy grows. So we've been very fortunate that the last 2 years, we've had almost a 7-plus percent growth in the Indian economy. Fairly strong growth both in India vis-a-vis the rest of the world. Now with the West Asia crisis, how much growth will actually happen this year in India and how will it be next year will actually determine how we grow because we have very much a derived demand. Our customers depend on the economy growing for them to grow. So we will grow as and when the economy grows. So it's very difficult to put a time line because I don't -- I think even projection for India's growth every month there's a different number, which is being thrown up by the experts.

Okay. And sir, your top line growth from the -- for March quarter is [ 15% ] but other expenses grown by 40%? Can you throw some light on that?

Yes. So other expenses growth is really our other colleague, Mr. [indiscernible] had asked this question. We've actually made a very fairly aggressive provisioning on inventory, where we are doing a kind of phased inventory provisioning, where inventory, which is more than 6 months is a certain amount of provision, more than 1 year provisioning is so much, more than 1.5 years, more than 2 years. So we have a phase provisioning. It is more a onetime provisioning. It is not as if on this is bad inventory. But as and when those get converted, it will add to the profit of the company. But we want to actually drive inventory reduction within the company, and that is actually the reason why we have this aggressive inventory provision.

That will -- next quarter that other expenses will not like that?

Yes. Yes, please.

See, I'm Ramesh here. See, apart from this, there are other reasons for the other expenses increased because from 1st January, [indiscernible] was introduced in Europe. So one of our products which we export to Europe as a [indiscernible] bank tax liability, which is provided, and it is grouped under other expenses. And the other thing is that we also have an assessment of the fixed assets and some obsolescence have to be provided, which is again a onetime impact, which has also provided talking about other exports. So these are some of the major thing, and we have also provided for certain warranty expenses. For the -- our Windmill business in Europe, so which are -- some of these are one-off and some of this could be coming in the subsequent quarters to a lesser extent. Like CBAM will continue because as and when we make exports to Europe, we have to make the provision for CBAM.

Okay. SP1 And can you share the breakup industry-wise, how much sale from personal retail and from commercial retail and tractor industry?

Sure, we can do that. Would you like it for fourth quarter, you want for full year?

Fourth quarter.

So fourth quarter, CV is 22%. Tractor is 16%. Passenger car, if I include 11 -- yes, 14% to 15% is passenger car. Construction wheels is 17%. The fabrication is about 14%. Cylinders, 5%. Suspension, is 10%.

Okay. Then where we see the growth from which industry more?

It depends on which industry grows because honestly, last year, even in the first half, we never expected industry to grow in the second half. the government intervened with GST 2.0 and suddenly everything took off. So -- and even our customers now, if you look at data or minus who have both been in the news recently, they've been very guarded about the growth in the coming year. So we'll be kind of governed by what they do. So as they grow, we will also grow.

We'll take the next question from Shubham Jain from [indiscernible].

I had 2 questions. My first question was on the windmill business for which we've invested about 90 [ CR ] in terms of CapEx. Just wanted to understand how big can this business be for us in the next couple of years? What's the kind of tailwinds we are seeing in terms of outsourcing more to India in this piece of the business specifically?

Yes. So there are 2 parts of it. If you look at the DC investment, first of all, you have to understand, sir, that the investment made like last year, will come into play only this year. There's a lag because [indiscernible] all fairly huge, as I mentioned during the last week. So it takes about 12 months really for the equipment to come. And with commissioning maybe 12 to 15 months. So we do feel that in the machining side of the business, there is a lot of opportunity which is there. We are co-located with a large casting manufacturer. So we are working along with them to, of course, with the windmill customers, but also looking at other segments which require such large machine castings. And we believe that company is currently doing about, say, [ 3,500 ] tons a month, and they believe that over a 3- to 4-year period, there are more to 10,000 tons a month. It's a conversion business. So the profit is much better than the beans India profit because it's on conversion. Sales value will be less because conversion, not [indiscernible], yes.

Understood. Understood. So just a follow-up on this. The company that you mentioned, which we co-located with has done a massive expansion in December '25. So I'd like to mention in this 3-, 4-year period, they will go to 3,500 to 10,000. Are we the sole supplier for the machining part of it?

About -- let me say, about 85% to 90% is us.

[Technical Difficulty].

Sir, I would request you to kindly rejoin the queue. Mr. Jain, please rejoin the queue. We'll take the next question from [ Ketan Falke ] from [indiscernible] Capital.

Sri, just mentioned that we have some excess land on Chennai Bangalore Highway. We don't have any plans to monetize it and get that. But just one small query. Is it an urban land? And is it viable for manufacturing in the future, if at all?

No. No, it is. It is. And we are a lot of rented premises. So the long-term plan is to reduce our engagement in rented facilities and move into an own facility and consolidate operations from a number of different sites to one site so that we get both scale and efficiencies. So that is kind of what that land parcel is kind of [indiscernible]. We're not planning to do it this year. And even if it happens, it will happen in a phased manner as they are ongoing sites that have to be relocated here.

Okay. So this will be more for internal adjustments or internal use? This particular land base.

Correct.

Okay. Okay. Okay. And sir, I think amongst our many manufacturing locations, the Chennai party locations from what I understand is at older high-cost location. Any plans were there for that relocation of that facility?

Not at the moment.

Sir, can we take one more last question for today?

Yes, definitely.

Ladies and gentlemen, this will be the last question for today from Raj Kumar [indiscernible] from RK Investment.

Just 2 questions. So I just want to -- what is the CapEx plan for financial year '26, '27? And what is the guidance on the finance cost these numbers?

On the finance cost, as an interest rate or what -- I didn't understand the second part.

[indiscernible] absolutely well. I think your finance guys almost straight line compared to last year. It's more or less same number.

So 2 things. One is the CapEx approach to the Board is about INR 280 crores at the moment. And on the finance cost, maybe, Ramesh, you can answer, but one of the things it will also depend on what happens to the RBA interest cost. They have not made any change at the moment given the inflation, we have to see what happens. So that's just a caution on the interest cost. But Ramesh, you can go ahead and answer.

See, the present interest cost is around INR 26 crores, INR 27 crores a quarter, totaling about INR 110 crores for the whole year. And I mean, we -- our operations are expanding, and we are able to hold the interest cost broadly at the same level that was an inflation of about less than 2%. But you see the recent news, there is a lot of people who say that on the June [indiscernible] meeting, MPC meeting, there could be a report rate increase. So if there is a report increase, then probably to that extent, it will have an impact. But I mean, at least, I don't see that as a major impact, but it would marginally kind of push up our interest cost from the present level of INR 110 crores, it will marginally go up.

Okay. No, but it is nice to see that the finance cost is kind of remaining steady state despite good increase in your turnover. So is it due to better working capital management? Or what is driving this?

Yes, we've reduced all elements. We've reduced the inventory, I think, from 76 to 56. Yes. Yes. Just one second, at. Let me give you actually correct numbers. So we've reduced our inventory from 76 days to 63 days. We reduced our debtor days from 61 to 54. And the creditor is pretty much the same.

Okay. Yes, that explains. It's really nice to see all the cylinders of firing, sir. Very nice.

Sir, we have few text questions. I'll just read out then you can quickly answer them as well. We'll take 2 to 3 tax questions. The first question is from [indiscernible] from Nirzar Enterprises. And the question is considering good cash flows and multiple tailwinds in the industry like GST 2.0. Are we considering any inorganic or organic expansion in our business?

Our organic expansion is the CapEx that we're doing. On the inorganic expansion, not immediately, but I did mention that if we are looking at overseas look, if we are looking at an overseas location in the medium term, we would either look at greenfield or we'll be open to brownfield as well, which would be in the acquisition. [indiscernible].

We'll be taking the last next question from Nishit Katri from [indiscernible] Capital. And the question is, what is our current capacity and steel and aluminum wheels? And what can be the capacity going forward?

So on -- it varies from segment to segment. So let me give you a sense of the way we count it. So we take passenger cost, steel wheels between us and our subsidiary, if I look at it combined, I think Wheels India has got a capacity of about 4 million and the subsidiary has got a capacity of about 7 million. So about 11 million to 12 million is the capacity. We are adding capacity in the subsidiaries who would go to maybe 13.5 million to 14 million. So there's ARM expansion there. We are trying to also add capacity in a way where it's flexible to make multiple products because we don't know which industry will go up, which does industries will come down. So to that degree, I think even on the tractor sector take the tractor industry, if you count it in terms of the larger wheels as opposed to the smaller wins, we have a capacity of 50,000 a month. And we'll probably increase that by maybe 10%, 15%, but largely through productivity improvement and things like that. On commercial vehicle space, if you look at it, we have a capacity, including the light commercial vehicle, if we look at it, we have about 250,000 capacity. And we probably look at increasing that to 300,000 capacity. In aluminum is the -- in aluminum, we currently have a capacity of about INR 42,000 per month. We are increasing it almost in a couple of few months, we're increasing to 60 and then by half year will increase it to 80 . And we are contemplating whether we need to increase it to 100 to 120 in the next year. So broadly -- and on construction wheels, we have a capacity on the medium to heavy duty. We have a capacity of about 16,000 wheels. We will not really add capacity but digital productivity improvement. In the light construction means we have a capacity of about 25,000 to 30,000 depending on the mix. This broadly covers our capacity.

Thank you, sir, for answering all the questions. Ladies and gentlemen, as that was the last question for today, I would now like to hand the conference back to the management for closing comments. Thank you, and over to you, sir.

Thank you. Thank you all for joining the call. We have personally learned a lot through our interactions with you, and it is something that we look forward to. Of course, this time, we had good results. So it made for a decent interaction, but we always look forward to feedback from investors who can probably guide us and highlight areas for improvement that we haven't thought of already. We are fairly consistent in the way that we work, and we will continue to make investments so that we can grow our company. At the same time, work on our core competencies to see how we can take it forward on the constant strategy that we have spend in front of us. Thank you very much and look forward to our continued interactions. Thank you.

Thank you, sir. Thank you, members of the management. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may exit the meeting now. Thank you.