CEAT Limited (CEATLTD) Q1 FY23 Earnings Concall Transcript

CEAT Limited (NSE:CEATLTD) Q1 FY23 Earnings Concall dated Jul. 21, 2022

Corporate Participants:

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Kumar Subbiah — Chief Financial Officer

Analysts:

Jay Kale — Elara Securities Private Limited — Analyst

Ashutosh Tiwari — Equirus Securities — Analyst

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Nishit Jalan — Axis Capital Limited — Analyst

Siddhartha Bera — Nomura — Analyst

Hitesh Arora — Unifi Capital Pvt. Ltd. — Analyst

Vasudev Banerjee — Ambit Capital — Analyst

Chirag Shah — Edelweiss Capital — Analyst

Karan Kokane — Ambit Capital — Analyst

Subhadeep Mishra — UTI Mutual Fund — Analyst

Richa Sheth — Anvil — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the CEAT Q1 FY23 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jay Kale from Elara Securities Private Limited. Thank you, and over to you, sir.

Jay Kale — Elara Securities Private Limited — Analyst

Thank you, and good evening, everyone. On behalf of Elara Securities Private Limited, I welcome you to the Q1 FY23 results conference call of CEAT Limited. From the management side, we have Mr. Anant Goenka, Managing Director; and Mr. Kumar Subbiah, Chief Financial Officer of CEAT Limited. I would now like to hand over the call to Mr. Anant for his opening remarks. Over to you, sir.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Thank you, Jay, and good afternoon, everyone. Very warm welcome to CEAT’s Quarter 1 FY23 earnings call and thank you, everyone for your interest in CEAT. I am Anant Goenka and we have our CFO, Kumar Subbiah with us on the call. As usual, we will start with brief remarks from me and Kumar post which, we’ll be happy to take questions and answers. For Q1 FY23 on financial performance, the quarter saw strong demand in the auto segment as some of the supply constraints eased out. As a result, we saw some strong demand uptick in the OEM segment. In the replacement segments too, we saw some good demand uptick with some improvement in the macroeconomic situation. Replacement volumes for CEAT recovered largely led by passenger segment. Most of the surface mobility trends remained above pre-COVID levels in the quarter. Tractor demand saw strong growth versus last quarter while truck and bus was flattish on a r.elatively higher base. Overall replacement volumes grew at about 8% quarter-on-quarter.

OEM demand remained strong across segments and volume grew by about 16% on a quarter-on-quarter basis. Tractor segment here too saw the highest increase, a part of which were seasonal followed by last mile and passenger car segment. Export volumes were flattish because largely on a higher base, our focus geographies of Europe and North America continued to show strong growth. Overall, our volumes grew at a healthy 7.5% on a quarter-on-quarter basis and more than 30% versus Quarter 1 last year, which was a COVID-impacted quarter.

Current demand environment remains positive with normalcy returning across most segments. Monsoon also has been satisfactory, so far, which we hope will boost rural sentiments, which has been under a little bit of pressure. Inflation has however continued to hurt our bottom line. Our raw material basket cost further increased by about 4% on a quarter-on-quarter basis, which was towards the higher end of our guidance, primarily led by crude derivative and a little bit price increase of rubber itself.

Crude has shown some signs of stability since the last few weeks; however, we will see some inflations spilling over to Quarter 2 as oil prices remained well over $110 per barrel throughout Quarter 1. We expect a further increase of about 2% to 3% in our raw material basket in Quarter 2. Due to inflation, lower effective price increases as well as some adverse market mix with higher OEM contribution, our gross margin contracted by about 1.6% over Quarter 4 levels. We continue to maintain tight controls on our operating expenses. Marketing costs went up a little bit because majority of IPL matches were held in the quarter and CEAT remain associated as a strategic timeout partner. We also got associated with the Women’s T20 challenge as the strategic timeout partner, which we signed in the last Quarter 2.

EBITDA margin for the quarter stood at about 5.9% partially aided by higher volumes. We ended the Quarter with a standalone PAT of about INR2.5 crores versus INR13 crore in Quarter 4 of last year. On capex, we are monitoring our cash flows closely. Given uptick in volumes, we maintain our growth guidance — growth capex guidance at about INR750 crores for FY23. Priority will be going to the more profitable OHT segment. Some amount of debottlenecking that is on the plans and process improvement projects. Our OHD segment is ramping up as per plan. We are currently operating at about 67 tons per day, which will go up to 80 tons per day by October in our Ambernath plant, which premix primarily reduced for off-highway tyres.

On the OEM business, our associations with OEMs continue to improve. We have started supplying to the OLA EV scooter. We also had our first EV launch in the SCV category with Tata ACE. We are working closely with all major EV OEMs and expect to benefit from higher volume growth in the segment, especially 2-wheeler EV due to our early-mover advantage.

Our operations in Sri Lanka showed commendable resilience during the quarter amidst a highly challenging environment. Volumes have declined as expected; however, our factory continues to operate profitably.

We got some notable recognition during the quarter. Maruti awarded CEAT for overall performance as tyre supplier in the last year. We were ranked 27th by Great Place to Work in India for the last year, which is an improvement of 3 places from 30th rank last year. We also got the Jamnalal Bajaj Award for fair business practices for the year in the manufacturing category.

We launched our new passenger platform for Europe called Winter Drive Sport, which is specifically designed to deliver high speed and control in snow conditions. We now have a complete range of winter tyres [Indecipherable]. We also commissioned 17 megawatts of solar capacity at Bhandup, Ambernath and Nagpur plants. Four of our plants have got enabled for biofuels for boiler operation and we are implementing this initiative at other plants as well. This substantially increases our commitment towards sustainability and a large share of our power is now coming in from renewable sources.

The automotive sector is showing green shoots of recovery after a few challenging years due to multiple headwinds on demand, as well as the supply side. On the raw material side also, we are seeing stabilization of raw material prices over the next few months along with price hikes in Q2 and some reduction in raw material prices that we expect in Quarter 3. We feel this may be the end of the worst in terms of margins for the tyre industry.

With this, I’ll hand over the call to Kumar.

Kumar Subbiah — Chief Financial Officer

Thank you, Anant and good afternoon, ladies and gentlemen, and thank you for joining us in a Quarter 1 FY23 earnings call. I’ll share some further financial data points with you all post which we can enter the Q&A session.

First on revenue, our consolidated revenue for the quarter stood at INR2,818 crores, a sequential growth of 9% and 48% year-on-year and the growth was mix of both volume and price in both the cases. The Quarter 1 of last year was also impacted by COVID Wave 2 and hence the numbers are not fully comparable.

Now coming to gross margin and the pricing hike, the momentum in the raw material inflation continued in Quarter 1 impacting our gross margins, which stood at 31.7%. Our blended raw material cost went up by around 4% versus Quarter 4 of previous year. We could take a blended price increase over 2% during the course of the quarter and the price increases were largely fitted in commercial and passenger categories — passenger car categories.

There were some price increases in exports and OEM as well neutralizing the impact of raw material costs in those categories. However the increases were not sufficient to cover RM inflation, so our gross margins declined quarter-on-quarter. The quarter saw crude oil prices largely holding around $110 to $120 and mostly on the higher end of the range impacting the prices of crude derivatives. The natural rubber prices remained range bound both in the international as well as in the local market. There has been some correction in crude oil prices in the last 2 weeks. It’s currently holding around $105 per barrel and the impact of that could be more felt in this next quarter as there is always a lag over 2 to 3 months in terms of raw material prices reflecting the moment and feedstock prices.

The rupee depreciation from around INR76 to $1 to around INR80 to $1 in the last 2 to 3 months will have some adverse impact on raw material cost, but a favorable impact on export realization. As per our current estimate, we expect our blended raw material cost to go up in the range of 2% to 2.5% in Quarter 2 versus Quarter 1. We will still need to take more price increases in the coming quarter and hope for some correction in input prices.

Now coming to debt, capex and working capital, we continue to optimize on our working capital. Our working capital came down by about INR130 crores during the quarter and we incurred a total capex of about INR250 crores, including the routine, which we largely funded through internal accruals, which is the combination of reduction in working capital and cash profit made during the quarter. Our gross debt stood at INR2,139 crores, more or less similar level as it was as of 31st March, 2012. Our project capex outlook remains at INR750 crores for the year. In addition to that, we will have a normal routine capex to the tune of about INR200 crores. We are keeping a close watch on our debt levels, which are still within our internal thresholds.

We — as regards to operational expenses, we exercised strong controls during the quarter, yielding some benefits of scale, other than higher marketing costs on account of our IPL. Increase in other costs were largely linked to higher level of activities. Despite this, our operating costs that is manpower as well as other expenses put together went up by about 7% versus the previous quarter, which was lower than our overall growth in revenue.

Coming to EBITDA, our consolidated EBITDA stood at INR171 crores, with a margin of about 6.1%, a contraction of 145 basis points over the previous quarter. Depreciation during the quarter was at similar levels. Our interest expenses declined marginally during the quarter due to lower average debt level maintained throughout the quarter. We are closely watching the debt markets situation. While we have managed the Quarter 1 without any impact on account of increase in interest rates; however, we expect our interest rate to go progressively from Quarter 2 based on the movement in interest rates.

In the Annual General Meeting held on June 28, the shareholders approved dividend of 25% and the same has been since paid in July. With this, we can now open the floor for Q&A. Thank you.

Questions and Answers:

 

Operator

Thank you very much sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah, hi. So firstly, on this disciplined growth quarter-on-quarter mentioned 8% growth is there, but truck was flat. That means that other segment would have grown at double digit. So is it that across the board, there was a double-digit growth in 2 wheelers, passenger vehicle and all?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

That’s right. So we did see very strong growth in passenger car particularly and 2 wheeler also saw strong double-digit growth.

Ashutosh Tiwari — Equirus Securities — Analyst

Okay. Secondly, if I look at exports growth in last year, there is strong growth in this year as well for us. Why I think — the PCR has done really well last year in exports and OTR, obviously you mentioned. So what we have — like said, what has happened over there. What we have done in last 2-3 years, while export growth is so strong in the PCR segment along with OTR. And secondly sort of that is that now we are seeing heat waves in Europe. Will the demand for OTR get affected from this? Any views on that?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Okay. So the main thing on the export side that was — two things happened. One is that there is anti-dumping duties that have been imposed on Chinese tyres and I think — but more than that it was our focus on exports, because for Europe or U.S., you need to develop an entire range of Tyres to supply. You cannot just have whatever you make in India and try and sell that in Europe. So you need various platforms of Tyres whether it is van Tyres or all season or winter,-summer, high-performance tyres and that takes some time and a fair amount of investment to grow. So we have been working on that for the past 5 years. CEAT is also a well-known brand in Europe, particularly Italy and Spain. So with that PCR, Europe has been a focus area for us and that has resulted in good growth primarily for us in the passenger segment.

Similarly OTR also, we have been developing tyres. So OTR, of course, we have been selling in Europe for a long period of time, but again with radial tyres coming in and range completion makes us very attractive for distributors and we’ve seen also overall good growth in the off-highway tyre segment. So with that, we have seen good traction on the exports side.

With respect to the heat heatwave, certainly hotter condition results in good demand. I’d say, difficult to say whether that will really have an additional effect because on the other side, there is also talk of recession in EU. We feel we are well positioned to grow in EU, but difficult to say what will have a larger impact in terms of recessionary impact that we are expecting, as well as the heat waves, but we are optimistic about continued growth in the next, say few quarters.

We also launched our truck radial tyres for Europe in the last quarter that also will grow over sometime.

Ashutosh Tiwari — Equirus Securities — Analyst

Sorry. I missed the last last sentence.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yeah. We also launched truck radial tyres for Europe and that will grow over time as well.

Ashutosh Tiwari — Equirus Securities — Analyst

So just lastly one thing. Somebody in the industry also mentioned as that Chinese tyres, apart from this duty have also suffered because of the higher freight cost increase in China to U.S. and other market freight rates versus India. Is that correct that if the fright rates come down, Chinese trade volumes to have an increase in these markets?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

If — sorry if freight rates come down from China to these countries?

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah, yeah. That increase is probably higher than what we’ve seen from India to these markets.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Kumar, would you like to share anything on this?

Kumar Subbiah — Chief Financial Officer

No. Generally, there has been some downward correction in freight rates, but specific question, I’m not able to get — maybe we’ll come back to this question later.

Ashutosh Tiwari — Equirus Securities — Analyst

Sure. Okay, thank you.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Thanks Ashutosh.

Operator

Thank you. Our next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services Limited. Please go ahead.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Hi, Anant. My question is on the RM cost. So while Q2 will see some impact which you indicated up 2% to 3%, but as commodity prices remain where they are today, do we expect gross margins to start improving from 3Q?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yes, we believe so that gross margins should start getting better from Quarter 3. One is stabilization and then of course there has been always a lack of price increase. So we do expect further price increases to come in in Quarter 2 and some amount, we have already taken in the month of July and we are looking at taking some more in August-September. So we expect improvement in gross margins going forward.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Okay. And what kind of price increases you have taken in July?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

In the month of July, it varies across categories. I’d say about just about 1% or so in motorcycle, scooter, a couple of percentage points in PCUV,over 10% price increase in 3 wheelers, about 2 to 3 percentage points on truck radial and last mile commercial vehicles, etc. So these are the approximate price increases we’ve taken in July and then further increases expected in August — end of the month, August onwards.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Okay. And after the August price increases, we should be largely covering the RM cost inflation that year?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yes, I think we will surely cover what would — what we are expecting in Quarter 2, some amount of Quarter 1 too that we fell short of.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Okay. Okay. Got it. Second question pertains to the demand on the replacement side. So how has been the trend on the replacement market? You indicated strong double-digit growth in 2 wheelers and PCR [Indecipherable] on Y-o-Y basis is what you are indicating on — than is on Q-o-Q basis?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yeah. So we are seeing good demand on both. So Y-o-Y of course, growth has been at much higher levels because of Quarter 1 of last year being — I think it was Wave 2 of COVID that was there. So on that, growth levels are 30% to 40% and therefore that’s not really fair to take as the base. But — and therefore, I would say Q-o-Q is more relevant at this point of time. And even on a quarter-on-quarter basis, we are seeing good growth on the replacement side. I’m talking about double-digit in PCUV, maybe 20% plus in PCUV kind of categories, 15% plus levels in 2-wheeler and as I had shared earlier about a flattish truck, bus kind of demand on the replacement side.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

All right. And the replacement in truck and bus segment primarily of bias [Phonetic], we saw declining in radial still growing or both the segments are flattish?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Sorry, could you repeat?

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

So both bias and radial, both are flattish or…?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

No. No. Bias is showing a negative trend whereas truck radial is positive.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Okay. Okay. Got it. And lastly, with respect to the — the question is for Kumar. On the debt side of the INR2,140 crores of debt which should look at, then how much of that would be fixed rate debt?

Kumar Subbiah — Chief Financial Officer

Yeah. Yeah. I’ll broadly break this debt into long-term and short-term, but nothing is fixed here except portion, which would be about INR300 crores kind of number, which is in the form of NCDs. Others get adjusted because, for example, long-term loan interest rates are linked to revision or subject to revision. So balance amount is all — will vary. In general, we have tried to keep it as 6 months kind of a reset, one year kind of a reset.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Okay.

Kumar Subbiah — Chief Financial Officer

So other than that all the others will undergo a change over a period of time.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Great rate. Right. Got it. And lastly on the INR side of the USD-INR depreciation, which you are talking off, on-net basis, it should be negative for us, right? Because imports will be relatively higher than exports. Is that the right understanding?

Kumar Subbiah — Chief Financial Officer

Yeah, you are right. Your understanding is right.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Okay. And any numbers you can share about how much are direct, indirect import content — indirect in terms of linkages to international prices?

Kumar Subbiah — Chief Financial Officer

Raw material prices is on import is linked to U.S. dollar plus local materials also sometimes benchmark or import parity prices. Okay. In terms of effect, I think 70% would be the net effect on our P&L.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Got it, got it. Okay, great, thanks. I’ll fall back in queue.

Operator

Thank you. Our next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.

Nishit Jalan — Axis Capital Limited — Analyst

Hi, sir. Thank you for the opportunity. So my question is also on the RM cost side. Historically what we have seen is some of the crude derivatives, whether it’s synthetic rubber or carbon black or nylon cord fabric, they tend to go up with a lag of up to 2 quarters, also compared to crude prices. So how is the trend that you are seeing there and when do you think — do you think that by 2Q, it will peak out given $100 kind of a crude or we might see further increase over there because given the large impact that we see? And do you have any — are there any concerns around availability of these raw materials because demand is going up? So, are we seeing any concerns on the availability side and how are we looking at the lagged impact of crude?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Kumar, would you like to?

Kumar Subbiah — Chief Financial Officer

Yeah, okay. See as of now, crude impact — direct impact on raw materials is direct with respect to carbon black where CBF versus the feedstock, largely the correlation between crude and CBF is almost 90%. So in the event that crude oil prices come down, it tends to come down because it’s an output from the refinery. So, therefore, it tends to move. But as you mentioned about other derivatives like synthetic rubber which gets produced from butadiene or nylon fabric where castral [Phonetic] has been — is an input. Okay. There could be a lag, okay, about 3 to 6 months, sometimes the demand-supply situation of those derivatives could also play a role. As crude started correcting more from the beginning of July, okay, we will keep observing the market and so we expect some correction in the prices of these derivatives in due course of time. It may not be in the same proportion in which the crude oil has corrected.

As with respect to your second question on whether there is any impact on account of increase in demand, we are not seeing any significant increase in demand of these commodities. Okay. So therefore, from that point of view, any change in prices on account of demand is unlikely to be there on these products and that is our view.

Nishit Jalan — Axis Capital Limited — Analyst

Okay, just one follow-up. So obviously raw material has been a challenge, which has been impacting our margins quite significantly. So we might stabilize or the margins of all might stabilize, but when do you think — do you think that there is enough pricing power for you guys to go back to the double-digit kind of a margin? And in the past, we had seen some time that while you were taking price increase, some of the other players were not following suit and there were some lag and and all sort of things. So are you starting to see a price increase from across the players, especially in the 2-wheeler or in the motorcycle segment? Do you think that price increases are happening at a rapid pace now? And do you think that they will pay the possibility of we going back to double-digit kind of margin? Does the industry has enough pricing power on that front?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

No, absolutely, I think we have to go up to double-digit margins. There is always a little bit of a lag that happens that we’ve seen and we will cover up for the lag going forward as raw material prices stabilize? If raw material prices continue to see the sharpness of increase going forward, which we are not seeing at this point of time, there can be continued pressure, but I think things should get better and we will move to double-digit margins going forward in the longer term, I think there is some announcements that we understand are made in the market for price increases, but we will certainly look at it from a raw material perspective, we benchmark different products with different players in the market in terms of our pricing strategy in addition to seeing how our costs are going up. So on a balanced basis, we will take a call on some price increases, but certainly, we do expect price increases to happen, particularly on the passenger space in the next month, month and half.

Nishit Jalan — Axis Capital Limited — Analyst

Okay. Got it. Just one more question. I think you are doing a very good job in terms of topline and volume growth and all. Well, there is no direct industry data which kind of comes in, what would be your sense in terms of a broad market share range that you have across the major segments now, passenger vehicle, 2-wheeler, TBR, TBV, just a broad range range? I know there is no exact data, which is available, but compared to, let’s say 2, 3 years back, where it would be now? I would assume that you would have seen a good bit of market share increase. So if you can give any color on that, that would be very useful.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yeah. So say if you were to look at the top 3 most important segments for us. I’d say 2-wheeler, we would be somewhere between 28% to 30% market share. Passenger car, we would have gained market share, we would be at about, say 14% to 15% kind of market share levels today. And on the truck side, we would be at about 8-ish percent on truck radial, maybe about 12% on truck bias kind of categories. So that’s approximately, I guess, but I agree that data is not there and difficult for us to estimate, but this is…

Nishit Jalan — Axis Capital Limited — Analyst

No, no, no,

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

I think that estimate approximately.

Nishit Jalan — Axis Capital Limited — Analyst

Just 2 small follow-ups. When you said anti-dumping duties imposed on Chinese tyres that you were talking about European market or you were talking about other markets as well? And secondly on OHT side, what would be the number of SKUs that we have ramped up to currently and how should — how do we see that going ahead?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yes, I was talking, the question was relating to Europe. So yes, it was pertaining to Europe and on number of SKUs, I can get back to you on the number of SKUs, if that’s okay.

Nishit Jalan — Axis Capital Limited — Analyst

That’s okay. No problem. Just another small question. If you look at your employee cost has been flattish now of almost 8 quarters while revenue has ramped up, volume has ramped up and you have added new capacity as well, so just wanted to understand, is it because of the VRS scheme that we have been giving or the hikes have been very low and another connected would be that once you commission the existing capacities, right, where are we in terms of utilization front or what kind of revenue run rate on an annual basis assuming the current pricing or whatever that is, we can do with the current capacity? Just wanted to understand whether we would need to invest on further capacity expansion, because the growth is very, very strong for us?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Right. So we do have enough upside on capacity. We currently have nearly about 15% to 18% upside opportunity on the passenger space, truck radial too. We just completed a debottlenecking of Halol plant. There too, we have enough capacity upside and 2-wheeler, there is only downstream investment that needs to be done and a little bit on people and training. So to that extent, we have enough upside in terms of capacities at this point of time, I would say at least for the next year and a half or so. So if we have to look at any further capacity, we don’t need to take a decision most likely for the next 6 months or so on any of the categories except off-highway tyres, which we are continuing to expand at this point of time.

On employee cost, our increment cycles start from July onwards. So there can be a small prices — small increase in employee cost from July onwards — on employee cost and yes, we do keep doing VRS’ on a regular basis that keeps the cost of our older plants a little bit in check, but growth and inflation to a certain extent has been high. And to that extent, employee cost has not gone up. So as a percentage of sale at least, employee cost has been under better control in the last year, year-and-a-half’s time.

Nishit Jalan — Axis Capital Limited — Analyst

Okay. So if I understand correctly…

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Our number of SKUs, we would be at about 750 number of SKUs in off-highway tyre space.

Nishit Jalan — Axis Capital Limited — Analyst

Okay. So if I understand you correctly on the capacity front, you said that roughly between 20% to 25% increase can be possible. So if you were at about INR2,800 crores topline in this quarter, so maybe you can go towards the INR3,500 crores kind of a quarterly top line. Obviously it will matter depend also on the price increases, but at a ballpark number, that is the kind of — so INR14,000 odd crores kind of top line you can do based on your current plans and current capacity. Once you start approaching towards 90% inflation number, you will have to go for another capex, right? Is that understanding correct?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Approximately. I would say about 15% to 20% upside in volume terms.

Nishit Jalan — Axis Capital Limited — Analyst

Correct, correct. Got it. Thank you.

Operator

Thank you. Our next question is from the line of Siddhartha Bera from Nomura. Please go ahead.

Siddhartha Bera — Nomura — Analyst

Yeah, hi, sir. Thanks for the opportunity. Sir, my first question is on the demand side, you have said like this past quarter, we have seen a very good recovery in the passenger vehicle and 2-wheeler segment. So how do you see the trends going ahead in the current quarter at all because some of — so just wanted to understand whether this is — there is some seasonal element to the recovery or this is more sustainable type of volume trends, we are — we continue to see for the year?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

No. We are seeing overall positive demand environment at this point of time. There is a little bit of seasonal, usually summer months are higher selling months for us, monsoon months are a little bit on the lower side, but at an overall level, if you look year-on-year kind of or standardized kind of levels, Quarter 2 versus Quarter 2, I think growth will continue to be strong going forward. There is a little bit of pressure on the rural side. Rural demand hasn’t picked up to that extent fully, but I think we are in a state — a good position on PCUV, on 2-wheeler as well.

Siddhartha Bera — Nomura — Analyst

So in 2-wheeler, for example, we have continued to see very sort of service growth in the past and that is the — also has not happened in the past. So do you think that has changed now? Two-wheeler demand is looking much more resilient current trend, you are more confident of taking price hikes? Because OE, if I look at, there has not much of a growth. So just wanted to understand where — from where, this improvement is coming from the replacement?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Right. No so– yes, 2-wheeler demand, I’d say that Quarter 3 and Quarter 4 of last year was quite a bit lower. If you look at numbers before that, we’re a little bit better. We’ve seen some shrinkage in the overall market over the last few years on 2-wheeler side. I think this is beginning bit again and we are hopeful for things to continue to be positive going forward now. With positive monsoon also, I think that should result in better uptick of 2-wheeler demand.

Siddhartha Bera — Nomura — Analyst

Got it, got it. And second thing is on the pricing again, so we have been sort of having supplying to most of the new launches, which are getting — which are happening in more on the both the 2 wheelers as well as cars. So I just wanted to understand in terms of margins or pricing, will it be at par at the current models, which we are supplying or because these are new launches, we decide to lower?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

So with respect to price increase in the replacement segment, we do hope to see price increases coming in. On the OEM side, it varies from — so since these are new launches, each pricing has their own respective strategy. I’ll not be able to share much details with you. But most of them, I’d say 70% to 80% of our relationships are linked to raw material price shifts. So if there is the price increase — raw material increase or decrease that gets passed on to the customers as that.

Siddhartha Bera — Nomura — Analyst

Got it. Got it. And some hosting questions on the cost side, sir. Basically in the current quarter as you said that you had this IPL cost. How much will it be for the current Quarter one?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

So it would be about 15% higher in Quarter one. Our marketing cost for Quarter 1 will be 15% or so higher than our normal standard months.

Siddhartha Bera — Nomura — Analyst

Okay. But on an annual basis, do you think you will be, I mean closer to maybe the levels of 2% to 2.5%, which you have done in the past or can it go higher?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

No, we will maintain our ratio of revenue to marketing expense, approximately the same over the course of the year. There can be a little bit on a quarter-on-quarter, some differences because of events or certain sponsorships etc. that are there. But beyond that, we want to maintain it as a percentage of sales.

Siddhartha Bera — Nomura — Analyst

Okay, got it. And last question is on the interest rate side, like you said it will get reset for because the rates are rising. So what will be your blended interest rate on the debt currently?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Kumar, would you like to take that?

Kumar Subbiah — Chief Financial Officer

Yeah. Currently, our average interest rate is around 6.5% as of now, covering both short-term as well as long-term.

Siddhartha Bera — Nomura — Analyst

Okay, got it. Okay, sir. Thanks. I will come back in the queue.

Operator

Thank you. Our next question is from the line of Hitesh Arora from Unifi Capital. Please go ahead.

Hitesh Arora — Unifi Capital Pvt. Ltd. — Analyst

Yeah. Could you just remind me of what is the — on a weighted average basis, what is the price hike you’ve taken in July? What was that number?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

I will not have the exact number, but I would say approximately, it would be 1% to 2% on average.

Hitesh Arora — Unifi Capital Pvt. Ltd. — Analyst

And how much you are planning to take in August-September, you said?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

We’ve not yet announced anything. We still have to take a decision internally. I think there will be price increases, but that still has to be decided. In my view, it can be, maybe 4% plus levels.

Hitesh Arora — Unifi Capital Pvt. Ltd. — Analyst

Oh, that means like significant number compared to what you’ve taken on regular intervals, I think. In the past, you’ve taken in the range of 1% to 2% and now that you’re looking at something like 4%. Okay.

Kumar Subbiah — Chief Financial Officer

It would vary quite a lot from a category to category level once again.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yeah, yeah, of course, but on a weighted average closer to 4%. Yeah, we don’t know — that number, I would say that we still have to take a call internally.

Hitesh Arora — Unifi Capital Pvt. Ltd. — Analyst

Sure. Just one more thing. See, under the sports side, we benefited from this whole China plus one thing, but the Western World, we are seeing a lot of inflation and for politicians, inflation is very sensitive, but they have been talking down of bringing tariffs what they had put in. So tariffs against another — talking of bringing it down, and they’ve done it in some categories already. So how do you see that as impacting your side of the business? Will you gain from that — those status in the past, but once those come off given inflation can found in the West. You probably have any business impact, any thoughts there?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

No, I’m very confident of maintaining margins even if tariffs come off. I think we’ve established ourselves as a good quality brand offered at very attractive prices as well and there is a certain segment positioning that say we would be standing at, So at a — from a competitive perspective, you have certainly the Tier 1 players at a certain level, the Michelin and Pirelli etc., followed by Koreans and Indian players and then the Chinese at the lowest level. So to that extent, I feel quite confident that margins — that we will be able to maintain market share irrespective of tax impact.

Hitesh Arora — Unifi Capital Pvt. Ltd. — Analyst

Fair enough. Thank you. Thanks a lot for the color.

Operator

Thank you. Our next question is from the line of Manish S from Nirmal Bang. Please go ahead. Manish, your line has been unmuted. If you have a question, please go ahead. I’m sorry. As this participant is not responding to us, we will move to the next question, which is from the line of Vasudev Banerjee. Please go ahead.

Vasudev Banerjee — Ambit Capital — Analyst

Thanks. So I have few questions. One, the 2% to 3% raw material basket increase for Q2 with currency adjusted, what you mentioned in the beginning of the quarter?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yes.

Vasudev Banerjee — Ambit Capital — Analyst

Sure. Second thing, sir. As you said replacement and OEM volume growth sequentially of roughly 7.5% to 8%, 9% revenue growth, which means price increase or mix change of 1.5-odd percent in 1Q and as against raw material increase in last Q of around 4%. So typically if you look at the raw mat to sales being 70% odd, so which means price hike required would have been 3% and it came in at 1.5% and one of the reason of the gross margin decline is that. So just wanted to understand what has changed post 1Q where such muted price hikes against deep raw mat increase whereas vice versa was in Q2 onwards, raw mat increase is now normalizing and your price hike has accelerated. So subjectively how to look at that? What is driving that higher price hike now?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Okay. I think one is that volume has been overall better for us at least, so growth is looking attractive. I think we’re in a position to take better price increases. Besides that, I would say, nothing has had really changed, I think price increases — further price increases have been quite a bit overdue. We have had lower margins for quite some time. So to that extent, we just need to cover up the lag. That’s all.

Vasudev Banerjee — Ambit Capital — Analyst

Sure. That’s great. And last thing in Q1, was there any major shift towards the OEM mix? How much was the shift, revenue wise.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yes, there was a shift towards OEM mix. The OEM segment grew the fastest amongst all categories. In terms of mix, I think OEM would have been about 30% and replacement just a little bit over 50% and then the balance is international business.

Vasudev Banerjee — Ambit Capital — Analyst

And this OEM mix would have increased how much sir sequentially?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

I think a couple of about 2 percentage points.

Vasudev Banerjee — Ambit Capital — Analyst

Sure. And one more question if I can chip in from Kumar, sir. Sir in 1Q, where working capital reversal of INR130 crores helped to take care of the INR250 crore capex and for the full year, as you said project plus maintenance together is INR952 crores to INR1,000 crores. If I look at the EBITDA margin reaching some double-digit figure, then only quarterly PAT moves ahead of INR100 crores levels in general. So at fixed rate plus gross margin level, depreciation of INR110 crores a quarter, still INR250 crores of cash flow per quarter looks pretty high. So any debt level you are seeing end of fiscal ’23 till which it is fine from your side, sir?

Kumar Subbiah — Chief Financial Officer

No, I think, going by what you said and as per our working also, during the course of the year, our debt level will move up because our free cash flow would be negative, okay and our operating cash flow would not be adequate to take care of the capex part of it, but generally overall our threshold is in case of debt equity would be below 1 and debt-EBITDA, we try to keep it around 3. Okay. So therefore, whenever we have some challenges around that, that is when we try to use other levers, which includes even relooking at our capex. Okay. So therefore we would like to keep our debt level in line with that. In the event there is any shortfall in EBITDA, okay, we would review our capex.

Vasudev Banerjee — Ambit Capital — Analyst

Yeah. So net debt equity of 1 is very much so within control. So that wouldn’t be an issue at all. Sure. Thanks sir.

Kumar Subbiah — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Chirag Shah from Edelweiss. Please go ahead.

Chirag Shah — Edelweiss Capital — Analyst

Yeah, hi. Thanks for the opportunity. 2-3 questions I have. One is a broader question that you have indicated that gross margins should improve from Q3 onwards. My question is internally, how do you look at the business? Do you look at gross profit per ton or you like to focus on gross margins? That’s the first question that I have and related to that is historically versus the historical gross profit per ton benchmark, do we expect those numbers to inch up significantly, given that our revenue per ton would have seen significant improvement over the last 2 years given that the prices have gone up?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Okay. So we look at gross margin percentage at least internally when we discuss. We don’t look at gross margin per ton and that is what we would like to ideally work towards maintaining or improving.

Chirag Shah — Edelweiss Capital — Analyst

Okay. Second question is I need the impact on this net currency, impact that Kumar sir was indicating, net of import, export and debt. He had indicated as just and if he can refigure it, it will be helpful.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yeah. Sure. Kumar?

Kumar Subbiah — Chief Financial Officer

Yeah, no, when we indicated, the RM, raw material cost, okay, we have assumed the impact of currency, but needless to mention whenever we did place orders on import, we do hedge them. Okay. So therefore, whatever is going to be the cost based on whatever import orders that we have hedged and very likely to be bought from the local market, we have taken into consideration. So therefore that estimated considers the impact of currency, as far as Quarter 2 is concerned.

Chirag Shah — Edelweiss Capital — Analyst

Yeah, this is helpful. In last year, the 2-wheeler demand, most OEM and replacement, what are the initial fixed timing you are getting? Is it improving or it is largely the base effect which is making numbers looking good?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

So on the 2-wheeler side, I mean, one is of course you can’t compare on a year-on-year basis, because last year was very, very low. So against that we are talking about growth levels of 40% plus kind of levels, but even on a quarter-on-quarter basis both on OEM and replacement, we are seeing volume and value growth both. So to that extent, that indication certainly is more positive. To a certain extent, of course, we had a lot of challenges every quarter here and there with Omicron and various kind of closures that happened. All of that seems to have stabilized and come to an end. This quarter was also a little bit of the marriage season, now monsoon kind of getting stabilized and better in the last 20-30 days all across the country. I think these are some positive signs. And then the entire inflationary impact on 2-wheelers that had happened in the last, I’d say year, year and a half because of increased safety norms etc. that also would have possibly stabilized and now people would be looking at buying 2 wheelers once again.

Chirag Shah — Edelweiss Capital — Analyst

Would it right — would it be right to say that versus initial expectations, the volume outlook is actually better than what you’re are initially looking at? That would be a right statement? Over last 2, 3 months, vis-a-vis the right way of looking at 2-wheeler demand?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yes, I’d say that the demand has been better than we expected, especially looking at what Quarter 3, If I remember right, December, Jan, Feb were pretty challenging with respect to overall industry growth perspective, but things have been better at this point of time.

Chirag Shah — Edelweiss Capital — Analyst

And this would be both for OEM and replacement both, right? This broader directional commentary?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

That’s right. Higher in the replacement side, slower on the — relatively lesser on the OEM side.

Chirag Shah — Edelweiss Capital — Analyst

Really helpful. Thank you very much.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

It’s all about double-digit growth on replacement, single-digit, high single-digits in OEM.

Chirag Shah — Edelweiss Capital — Analyst

Yeah. Thank you very much. And all the best.

Operator

Thank you. Our next question is from the line of Karan Kokane from Ambit Capital. Please go ahead.

Karan Kokane — Ambit Capital — Analyst

Yeah, hi, sir. Thanks for the opportunity. I just had a few questions. So first was on the growth and exports. So obviously, we’ve seen very good growth in exports. In FY21, the mix was 14%; ’22, it has moved up to 20% and even now we are seeing good growth. So do you have any medium term aspirations in terms of export mix.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

So I think export mix at least in the near term is looking to be stable because of good growth on replacement and OEM as well at this point of time. Also global recession impact may be higher in international markets than what we are seeing in India. India may feel some of these pressures of interest rates and GDP growth impact relatively lesser than maybe Europe and than U.S. and other countries over time. So I think from a mix perspective, we expect to maintain our mix on the OEM side. It will not grow at least in the near — I mean I feel in the near term, in next 6 months or so. After that — but in terms of our focus, our focus on exports continues to be high. It is relatively good margin category for us. OHT business is something which we are very optimistic about and going to grow in. Even passenger car and trucks, our areas of growth for us on exports, but the momentum that we are seeing domestically, when you ask about mix, I think the mix will be steady.

Karan Kokane — Ambit Capital — Analyst

Understood sir. And second question is on capex. So obviously this year, you said that project capex will be around INR750 crores and INR200 crores of maintenance capex. I wanted some clarity on FY24 capex. So once this expansion is done in Chennai, so will we see a significant drop in capex for say FY24? How are you looking at capex for FY24?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

So at this point, we had at one time announced expansion of truck radial tyres of 2 phases. We have postponed or scrapped phase — the second phase at this point of time. Phase 1, we had delayed to October, which we may further delay a little bit because we still have enough capacity in our Halol plant. Besides that, we have no further capex that we have planned, except for some amount of off-highway tyres. So to that extent, there — I think truck radial is still to be — a decision still to be taken based on demand situation and we can update you possibly in the next quarter call.

Besides that we have, off-highway tyres and then the routine capex that will happen. This is what we have at this point of time, which is an overall maybe some drop next year from this year.

Kumar anything you’d like to add here?

Kumar Subbiah — Chief Financial Officer

No. Anant largely covered the — we would be completing the first — this one specialty, our Ambernath radial capacity expansion by first half of next year with their cost base will be over, but as you mentioned that we don’t have any big capex plans, unless we — the current plans as far as OTR would be radial is concerned. Truck and bus radial, we will update, maybe in the next call. You have covered it well, Anant.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yeah.

Kumar Subbiah — Chief Financial Officer

I think more there.

Karan Kokane — Ambit Capital — Analyst

Okay, sir. Thanks, sir. That’s all from my side. I’ll fall back in the queue.

Operator

Thank you. Our next question is from the line of Subhadeep Mishra from UTI Mutual Fund. Please go ahead.

Subhadeep Mishra — UTI Mutual Fund — Analyst

Yeah, hi, sir. If I heard you correctly, you guided for a debt to EBITDA of 3x. But if I look at your credit rating report from CARE Ratings and India Ratings, they have given a negative triggered at 2.5x to 2.6x. So is there, I mean, can we expect some rating downgrade — credit rating downgrade or something like that, because they are guiding for 2.5x, 2.6x whereas you guided for 3x?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Kumar, anything here, you would like to?

Kumar Subbiah — Chief Financial Officer

No. See in all our engagements and interactions with credit rating agencies, okay, and also in our projections, we have kept — when we said 3, that is kind of threshold beyond which we don’t want to cross. And sometimes the revenue generation happens after you complete the capex, which is evident even in the last few quarters in terms of revenue growth. We don’t expect any downgrading to happen as far as credit rating is concerned and we will be happy to engage with the credit rating agencies and which we do it on a once a quarter with them. So we are not expecting any downgrades as far as credit rating is concerned.

Last year, we ended at 2.9. Okay. And this year, we are still keeping threshold upper limit as a 3 and in the event our operating performance improves in the balance quarters of the year, we don’t have to even cross the threshold. So that’s the way we are looking at it.

Subhadeep Mishra — UTI Mutual Fund — Analyst

Sure sir. Thanks. That’s all from my side.

Operator

Thank you. Our next question is from the line of Richa Sheth from Anvil. Please go ahead.

Richa Sheth — Anvil — Analyst

Hello.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yes. Hi, Richa.

Richa Sheth — Anvil — Analyst

Yeah, hi, sir. Sir wanted to ask that when you are saying that you are expecting good volume outlook going forward even in Q2, so the mix is skewed towards OEM or replacement as we are seeing more growth in OEM? And the second question, if you can tell, even in the mix of truck and bus, passenger, 2-wheeler, where is the more growth and volume growth coming from?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Right. So in Quarter one, we saw OEM clearly has the highest growth and that trend is looking to continue, particularly as chip shortage is easing out and so to that extent, I think OEM, we expect to grow the fastest followed by replacement and then international business. And in terms of category level growth, we are seeing higher growth in PCUV, on 2- wheelers, and then third on the truck side and then overall across category level.

Richa Sheth — Anvil — Analyst

Okay. And, sir, so more of OEM mix may impact our margins. Am I getting it right?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yes, it can have a temporary impact, I mean in terms of our mix margin, but hopefully we’ll be able to take that — I mean, that will have a positive impact in the longer term. So we will continue to invest on in terms of OEM growth. We are fine with that. I think that we have enough capacities as well. So at an absolute level, we expect to see to be no negative impact on profitability. It has overall helped plant utilization levels and efficiency as well.

Richa Sheth — Anvil — Analyst

So over a course of 3 years, we expect the mix to remain same, right or you want to make a higher mix of OEM or 30-50-20?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

No, no, no. That is not a long-term view. So I’d say that, of course, this is how we are seeing OEM growth at this point of time because of the chip shortage easing off, we have seen strong earned on CV versus last year or continued growth on the CV side. So all categories are kind of doing relatively better on OEM side and therefore that’s resulting in growth, but this will of course at some point of time stabilize at a certain level and other categories will see higher growth over time. So I don’t see long-term mix undergoing any change.

Richa Sheth — Anvil — Analyst

Okay. Okay, sir. And sir, when you said that we are in — overall price hike was 1.9 this quarter and volume was 8%. There was no mix impact, right?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

So there would have been a minor adverse mixed impact on net realization because of OEM being a little bit higher, but if I recollect that would have been net off inflation impact. The number that we would have shared would have been net.

Richa Sheth — Anvil — Analyst

Okay. And sir, an overall scheme of things, since our OHT is also increasing with the capacity coming in and OHT has a higher margin than other tyres. So that will also have a positive impact. How much can be the OHT share going forward since we are expanding only in that segment?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

So OHT share, we are today at about approximately 65 tons to 70 tons per day to day production. This is for the month, but that is continuously growing up. It will go up to about 80 tons per day by November or so. And then there is some shifts that we are doing in our older plants also towards bias tires. So, yes, there will be a shift towards off-highway. Beyond that as we fully utilize 80 tons per day, we will look at further expansion going forward. So that mix will shift.

Today, I would say the overall mix of tractor and OTR would be somewhere around 15% of our sales. This is not all high margin. So for example, domestic tractor is not high margin, but approximately that 15% should further go up. It was maybe closer to 14% — 13%-14% last quarter, maybe 15% this quarter. So some improvement will come in going forward.

Richa Sheth — Anvil — Analyst

Okay. Thanks so much for the detail explanation.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yeah. Thank you.

Operator

Thank you. Our next question is from the line of Ashutosh Tiwari from Equirus Securities, please go ahead.

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah, hi. Firstly, we had got a INR156 crores of CD last year from state governments in grants and all versus INR31 crores in FY21. So, are we seeing the same run rate continuing this quarter as well, like say INR160 crores, INR40 crores per quarter is continuing?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Yeah Kumar, would you like to take that?

Kumar Subbiah — Chief Financial Officer

Okay. Last year Chennai being the second year of operations. So a lot of incentives and there is also some backlog in other factories where fiscal benefit was more received in the last year. We don’t expect fiscal benefit to sustain at that level. Okay. So it had benefits relating to earlier period that we received. Some portion of it, we received in the last year.

Ashutosh Tiwari — Equirus Securities — Analyst

So at what level it will probably settle in this year, any range?

Kumar Subbiah — Chief Financial Officer

Okay. See, currently we are conservative with respect to accrual of that income in our books. Okay. So only after we get certain confirmation or approval, we do recognize them in our books. We — it could be around half of what we have taken, what you said just now, but it depends on the timely receipt of approvals for us to accrue the benefit.

Ashutosh Tiwari — Equirus Securities — Analyst

So that is — that income is not good in this quarter or good to some extent?

Kumar Subbiah — Chief Financial Officer

Sorry.

Ashutosh Tiwari — Equirus Securities — Analyst

So that the CD amount — joint amount is booked in this quarter or not, any amount is accredited?

Kumar Subbiah — Chief Financial Officer

Yeah, some portion. Wherever there is a certainty, our accounting policy is that if that benefit comes only after approval, we accrue them on approval. But if there is any certainty where the approval is not required, we recognize it — some in the quarter that went by in Quarter 1, small portion of the fiscal benefit is accrued.

Ashutosh Tiwari — Equirus Securities — Analyst

And we — even that would have contributed some kind of your margin compression quarter-on-quarter. The previous quarter, you recorded higher subsidy, this quarter low subsidy, right?

Kumar Subbiah — Chief Financial Officer

It’s not that the amount, the total amount that you mentioned was received in the previous quarter, it was received in the previous year.

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah, yeah.

Kumar Subbiah — Chief Financial Officer

Yeah.

Ashutosh Tiwari — Equirus Securities — Analyst

So I feel that Q4 would have been higher amount than what we received in Q1, right, so that would have also contributed to some kind of margin compression quarter-on-quarter.

Kumar Subbiah — Chief Financial Officer

True. It is part of our gross margin. So therefore to that extent, it is also true that Quarter 1 accrual was lower than Quarter 4 accrual. So therefore that also played to some extent in the gross margin.

Ashutosh Tiwari — Equirus Securities — Analyst

Okay. And secondly, we mentioned that in TBR segment [Indecipherable] may increase your capacity. So what kind of an increase has happened? Now, what is the capacity of TBR overall versus earlier?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

So today, we are at about 140,000 tyres per month approximately capacity. Really producible capacity maybe 130,000 to 135,000, but as our people get trained, we could take it up to 140,000 and maybe over time maybe between 140,000 and 150,000 depending on how much we are able to stretch the capacity.

Ashutosh Tiwari — Equirus Securities — Analyst

Okay, thanks. That’s all from my side. And just lastly what is the present levels of capacity? How much we are upgrading it, this TBR capacity?

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

By 115,000 tyres approximately. Kumar, do you like?

Kumar Subbiah — Chief Financial Officer

Yeah, yeah. Yes, yes. Approximately.

Ashutosh Tiwari — Equirus Securities — Analyst

Okay, thanks. Thanks a lot. That’s all from my side.

Operator

Thank you. Our next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services Limited. Please go ahead.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Hi, just one clarification. Kumar, the debt which you mentioned and how much of that would be for foreign currency debt?

Kumar Subbiah — Chief Financial Officer

No. All are Indian currency debt only. We don’t have any foreign currency debt in our books.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Okay, so then the 6.5% average cost of debt seems to be quite low. So based on what we had — based on what comes to P&L or our actual cash cost?

Kumar Subbiah — Chief Financial Officer

See. This is a combination of both short-term as well as long-term. Okay. And so, short-term interest rates are 5.5% at this point in time. Okay. Longer-term interest rates are around 7.5%. Not all of that has come in as of now because in case the one-year reset, the rate of interest revision will happen. So the average rate of interest for the quarter is approximately 6.5%.

Got it. Okay. This is helpful. Thank you.

Operator

Thank you very much. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.

Anant Vardhan Goenka — Managing Director and Chief Executive Officer

Thank you very much for your interest in CEAT and look forward to catching up once again next quarter same time. Thank you.

Operator

Thank you very much members of the management team. [Operator Closing Remarks]