Elecon Engineering Company Ltd (ELECON) Q2 FY23 Earnings Concall Transcript

Elecon Engineering Company Ltd (NSE:ELECON) Q2 FY23 Earnings Concall dated Nov. 04, 2022

Corporate Participants:

Prayasvin B. Patel — Chairman & Managing Director

Kamlesh Shah — Group Chief Financial Officer

Analysts:

 Himanshu Yadav — Edelweiss Wealth Research — Analyst

Shubham Agarwal — Aequitas — Analyst

Gunjan Kabra — Niveshaay — Analyst

Abhishek Poddar — HDFC Mutual — Analyst

Ankit Babel — Subhkam Ventures — Analyst

Pratik Kothari — Unique Portfolio Managers — Analyst

Pritesh Chheda — Lucky Investment Managers — Analyst

Sanket — Kedia Securities — Analyst

Mahesh Bendre — LIC — Analyst

Prateek Kedia — Kedia Securities — Analyst

Niraj Mansingka — White Pine Investment — Analyst

Nitin Bharucha — Joindre Capital — Analyst

Shirom Kapur — Prabhudas Lilladher — Analyst

Karthi — — Analyst

Nisar Parekh — Native Capital — Analyst

Krishna Kansara — Molecule Ventures BMS — Analyst

Ashutosh Garud — Ambit PMS — Analyst

Sanjay Kumar — IthoughtPMS — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Elecon Engineering Company Limited Q2 FY’23 Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Himanshu Yadav. Thank you, and over to you sir.

Himanshu Yadav — Edelweiss Wealth Research — Analyst

Thanks, Mike. Good morning, everyone. On behalf of Edelweiss Wealth Research, I welcome you all to Q2 FY’23 con call of Elecon Engineering. We have known that results have been mailed out to you and you can also access the same on company website as well as on the exchanges.

Before we proceed, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors, it must be viewed in conjunction with business risks that could cause our future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements.

To take us through the results of this quarter and answer your questions, we have with us the management of Elecon with us the management of Elecon represented by Mr. Prayasvin Patel, CMD; Mr. Kamlesh Shah, Group CFO; and Mr. Narasimhan, CFO. Mr. Prayasvin will give a brief overview of the quarter gone past and then we will open the floor for Q&A session. With that said, I would now hand over the call to Mr. Prayasvin. Over to you, sir.

Prayasvin B. Patel — Chairman & Managing Director

Thank you. Good morning, everyone. Ladies and gentlemen, a warm welcome to our Q2 and H1 FY2023 conference call. We are pleased to report yet another quarter of strong financial performance, as we continue to deliver consistent improvement in our results over the last several quarters. Discussing the results at the standalone level, the total operating income increased by 27.7% year-on-year to INR305 crores compared to INR238.8 crores in the corresponding quarter of the previous year.

The EBITDA on absolute basis increased by 47.6% year-on-year to INR75.2 crores as compared to INR50.9 crores during the corresponding period of the previous year. This translates to EBITDA margin of 24.6% in Q2 FY’23 compared to 21.3% in Q2 FY’22. We close this quarter with a net profit of INR47.6 crores as compared to INR23.1 crores during the corresponding period of the previous year, reflecting an increase of 106.1%.

Let me highlight some key points related to the results. The gear business witnessed strong demand. The MHE business continued to witness consistent improvement and is expected to keep up the positive momentum going-forward. Our relentless focus on bringing down receivables has led to decline in working capital days.

Coming to the consolidated financials of Q2 FY’23, the operating revenues increased by 23.7% year-on year to INR388.6 crores as compared to INR314 crores in Q2 FY’22. EBITDA increased by 38.9% year-on year to INR92.6 crores versus INR66.7 crores in Q2 FY’22. The EBITDA margin stood at 23.8% in Q2 FY’23 as against 21.2% in Q2 FY’22. The consolidated profit after taxes increased by 82.3% to INR64.5 crores for Q2 FY’23 as compared to INR35.4 crores in the corresponding period of the previous year.

Return on equity increased to 18% in H1 FY’23 compared to 14% in FY’22, while return on capital employed increased to 21% in H1 FY’23 compared to 18% in FY’22. The current ratio improved to 2.1 in H1 FY’23 compared to 1.6 in FY’22. Debt equity has come down to zero, while working capital cycle has reduced to 88 days. We would like to inform you that the outstanding retention amount stood at INR68 crores as of 30 September ’22. Also there are favorable developments related to arbitration evolves of INR60 plus crores during Q2 FY’23. Despite challenging macro environment, demand across our end user industries continues to be robust resulting in significant ramp-up in the order booking with orders worth INR744 crores booked in the gear business and orders worth INR94 crores in the material handling business, during the half year at the consolidated level. As on 30 September 2022 orders on-hand in the gear business is INR602 crores and in material handling business, the orders on-hand is INR112 crores at the consolidated level. In line with our pursuit for growth, we continue to explore relevant opportunities in the defense space.

Elecon is currently the leader in the segment of customized and complex gear manufacturer for defense. Indian Navy in India, which is a matter of great pride and stands testimony to our extraordinary manufacturing excellence. As you are aware, we have successfully supplied India’s first indigenously built aircraft carrier INS Vikrant by delivering customized COGAG, Combined Gas Turbine and Gas Turbine type gearboxes. The company also successfully delivered 14 CODOG Combined Diesel or Gas turbine type gearboxes stealth frigates to the Indian Navy in record delivery time despite the challenging pandemic induced in large.

Under our new product development initiatives, we are pleased to share that we have designed and manufactured planetary gear boxes employing the latest technology. We have successfully manufactured and supplied vertical roller mill drive for India’s leading cement manufacturer. The world economy continues to face headwinds on the back of soaring cost and rising interest rates. The company is monitoring the impact of inflation and slowdown in the global economy and is taking necessary measures to mitigate the impact of the same. IMF has recently cut India’s FY’23 GDP forecast by 60 basis points to 6.8% and also reduced U.S. GDP growth rate for the year to 1.6% on the back of high inflation, rising interest rates and subdued external demand against a backdrop of ongoing war between Russia and Ukraine. Despite these external challenges, we retain our standalone and consolidated revenue target of INR1,500 crores and INR2,000 crores respectively for FY’24.

We strive to sustain our leadership position by focusing on new product development and enhancing value in our existing products. We continue to expand our global footprint, invest in brand building and undertake various marketing initiatives to increase our overseas revenue and to take these overseas and export revenue to 50% of the overall consolidated revenue by FY’30.

ESG continuous to play an imperative role in our business and in-line with our focus on renewable energy, we are happy to share that 70% of energy consumption are sourced from renewable energy. We, at Elecon Engineering, are conscious of providing equal opportunities and pride ourselves in creating a gender diverse workforce promoting women empowerment. We are happy to share that the company is recognized as a great place to work. We remain committed towards the safety, health and empowerment of all our stakeholders and society we operate at. And have been organizing various events from time-to-time to support social conscience.

We have also put in-place stringent corporate governance norms to build a responsible and professionally run organization committed towards sustained — sustainable growth.

Please note that the Company has uploaded investors’ presentation on our website www.elecon.com and stock exchanges. With that, I thank you all for listening-in and we will be happy to address your specific queries about the business going forward.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have the first question from the line of Shubham Agarwal with Aequitas. Please go ahead.

Shubham Agarwal — Aequitas — Analyst

Yeah, thank you for the opportunity, and first of all congratulation on a very good set of numbers, sir. Sir, my first question is related to the new product development that we have mentioned in our presentation, planetary gear and we have also mentioned that this will help in improve substitution. So I just wanted to understand, what is the market size and what are the application of such products and how much [Technical Issues] bring in in terms of revenue?

Prayasvin B. Patel — Chairman & Managing Director

Planetary gear which are used in practically all kinds of industries. We specialize in or we develop these gears especially in the larger sizes, which go into cement plants. They go into windmills. They go into coal handling plants, sugar and all kinds of sectors. You would be proud to know that apart from developing this special type of planetary gear unit for the cement. We have also developed very many applications and in some of the cases, we have even come up with a fourth generation optimized gears, which are extremely competitive, lightweight and are able to do the work in very extraordinary fashion, even having a fairly safe mechanism.

Shubham Agarwal — Aequitas — Analyst

Right. And if anything in terms of how big this market size would be or how much can we get revenue from such products?

Prayasvin B. Patel — Chairman & Managing Director

Right now, it is very difficult to ascertain, because the potential is tremendous. I mean, it is going to — from a few INR100 crores to INR1,000 crores, because you can utilize these type of gears in just about any type of applications. Okay, so the potential is very high. Okay. If you bringing it down sector wise, I won’t total up to at least about INR300 crores to INR500 crores on an annualized basis.

Shubham Agarwal — Aequitas — Analyst

That’s good to hear. Secondly sir, my question was around the current global scenario. So I wanted your view in terms of our subsidiaries how they’re performing? What is the outlook and also export out of India and what would be the credit cost trending compared to last few quarters?

Prayasvin B. Patel — Chairman & Managing Director

Our export entities are doing quite well compared to what they were doing in the past. They have reorganized themselves and in spite of the fact that there was COVID and after COVID, post-COVID, you have the European energy crisis, plus high level of inflation and so forth. We believe that they are poised for growth. And the reason is that we are trying to put in more investments out there especially in the manpower sector, which is the HR human resource sector, whereby we would be able to further improve our sales. Okay, and apart from this, we are focusing on global branding and substantial marketing initiatives in Europe and in United States. We believe that that should give us very good results going into the future. That is more exports from here, because that is where our focus lies.

Shubham Agarwal — Aequitas — Analyst

Right. And sir, freight cost was one of the main concerns in the last few quarters, so has that kind of gone down for us.

Prayasvin B. Patel — Chairman & Managing Director

Sorry, can you please repeat? I’m sorry, I didn’t get it.

Shubham Agarwal — Aequitas — Analyst

Freight cost?

Prayasvin B. Patel — Chairman & Managing Director

Yes. Freight costs from here have rationalized unfortunately the increase in time of the receipt of material has not reduced. The freight costs have reduced slightly rationalized. And the world is accepting that the cost of freight has increased globally. But we are also being hit by longer lead times in transportation.

Shubham Agarwal — Aequitas — Analyst

Okay. Okay. And sir lastly on the order book, so we have mentioned INR452 crores as order book in results and in presentation, INR602 crores in the gear division. So is this — the difference is the order book of subsidiaries around INR150 crores?

Prayasvin B. Patel — Chairman & Managing Director

Yes.

Shubham Agarwal — Aequitas — Analyst

Okay. Okay. And finally on the MHE division, are we expected to improve the performance of this division going forward or they will maintain given the guidance.

Prayasvin B. Patel — Chairman & Managing Director

No, absolutely because for two reasons, we want to also increase the turnover going forward. Apart from that there are other measures that we are taking whereby the performance would further improve.

Shubham Agarwal — Aequitas — Analyst

Okay. Good to hear that. Thank you for answering my question.

Operator

Thank you. We have the next question from the line of Gunjan Kabra from Niveshaay. Please go ahead.

Gunjan Kabra — Niveshaay — Analyst

Sir congratulations for a very, very good set of numbers.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Gunjan Kabra — Niveshaay — Analyst

My first question is that, sir, how much was the recent topline contributed at change in product mix. I mean, is both better, how much was contributed by large gear market of in this quarter particularly?

Prayasvin B. Patel — Chairman & Managing Director

Large gear, the quantum of turnover from large gear boxes and small gearboxes.

Gunjan Kabra — Niveshaay — Analyst

Yes.

Prayasvin B. Patel — Chairman & Managing Director

I would say, 60% towards come from small-to-medium. And 40% would be coming from the large gearboxes. Okay, this is volume wise may not be the turnover wise.

Gunjan Kabra — Niveshaay — Analyst

Sir, what will be turnover then?

Prayasvin B. Patel — Chairman & Managing Director

I would constitute almost 70%, 30%. 70% coming from the larger units and 30% from the smaller units — small to medium gear units.

Gunjan Kabra — Niveshaay — Analyst

Okay. Sir, also when we say that our days order book stands at INR602 crores this quarter and the same was around INR515 crores in the previous quarter. So if you can split how much fortunately from this sector, are we receiving orders right now? And secondly if you can split how much is for defense and marine in this order book of INR602 crores and how much is for other sectors, like in terms of I wanted to understand how much is the long-term orders that we want to execute and how much is the short-term orders that will be executing?

Prayasvin B. Patel — Chairman & Managing Director

The defense orders right now on-hand are about approximately INR80 crores.

Gunjan Kabra — Niveshaay — Analyst

Okay. [Technical Issues] for this sector, are we receiving orders from — right now in this quarter from this sector do we receive orders?

Prayasvin B. Patel — Chairman & Managing Director

Right now, we have — there are a few projects which are going to be recently announced by the Indian Navy, where we would be quoting for it. But by the time, we receive the orders in case we are probably most competitive, it would take some time.

Gunjan Kabra — Niveshaay — Analyst

This is for the future. I’m asking for like the order book stood at INR500 crores in the previous quarter. This time is INR600 crores. I was asking which sector — from which sector, are we receiving more orders?

Prayasvin B. Patel — Chairman & Managing Director

This is particularly from steel, cement, power. These are the main sectors now which are there and sugar, because some part of the sugar we already exhibited by H1 ’23 balance [indecipherable] that will executed now. But these are main sector, which we’re getting the orders, which are on hand.

Gunjan Kabra — Niveshaay — Analyst

Okay. Got it. So another thing is Shanthi Gears is also entering into making of differential gears for electric vehicles. So are we also like thinking on this side because it’s a new segment altogether. So is there any technicality difference in the manufacturing process? Like what we already manufactured? And likewise, are we planning to supply in the renewable space also?

Prayasvin B. Patel — Chairman & Managing Director

We are exploring the possibility of getting into the electric vehicle sector. The processes would vary from comp, it cannot be manufacturer of automobile or from the two-wheelers. The processes would vary, but they would not be substantially different from what we are producing right now. So I would say, there is a potential to it and the quantities would be reasonably large in large multiples and therefore it would be recently attractive for any gearbox company to get into it, gear manufacturer to get into it.

Gunjan Kabra — Niveshaay — Analyst

Okay. And also in the last quarter, you guided there was a little wait and watch kind of a scenario regarding capex activity. There was a decrease in steel price. So how does that look now for you?

Prayasvin B. Patel — Chairman & Managing Director

See, we are committed to INR100 crores of capex, which is from our internal cash generation, and out of which a sizeable amount is going towards solar installation — solar plant installation, which shall generate electricity for us. And we are confident that we will be generating 70% requirement from renewable energy.

Gunjan Kabra — Niveshaay — Analyst

So I was asking on the perspective of capex activity in the economy. So last time, there was a decrease in steel prices, so there was a wait and watch kind of a scenario is, what you also guided. So how is that scenario playing out right now in terms of order action and capex activity?

Prayasvin B. Patel — Chairman & Managing Director

Sorry, can you repeat that please? I didn’t get it properly.

Gunjan Kabra — Niveshaay — Analyst

Sir, I was asking that how is the capex — like in the last quarter you guided that, there’s a wait and watch kind of a scenario in the capex activity happening in the economy, because there was a decrease in raw material prices, steel prices, So everybody, like different industries were waiting, what — there was a muted face kind of a thing in the capex environment. So because of that, the demand is linked to that sector. I was asking how is that playing out right now in terms of building up our order book in terms of our traction?

Prayasvin B. Patel — Chairman & Managing Director

As of now we are not seeing much of change. But we believe that normally after Diwali, the economy normally picks up, especially if the rains have been or the monsoon has been sufficiently good. So we are expecting that whatever the projects which are running a bit slow will get accelerated after Diwali. And we are reasonably hopeful that it is not going to have a significant impact on the demand.

Gunjan Kabra — Niveshaay — Analyst

Okay.

Prayasvin B. Patel — Chairman & Managing Director

As you know, the RBI has increased the interest rates going forward. We need to wait and watch it, see the situation, how it pans out, especially for the projects which are on that. But I believe that basically people who have announced and who are committed to projects, they may just consider a slight increase in cost because of the higher interest rates, but it should not have an impact.

Gunjan Kabra — Niveshaay — Analyst

Okay. Sir, also once we scale up the MHE division, our margins are continuously increasing. We like very good efforts in that. So once we scale up, what kind of margins can we expect to stabilize in this technique?

Prayasvin B. Patel — Chairman & Managing Director

We are expected to improve our margins to about 15% to 17% going forward, especially as we increase our turnover in that area to approximately INR400 crores.

Gunjan Kabra — Niveshaay — Analyst

At INR400 crores, okay. Also so last quarter, the gross margin stood at around 50%, like if we exclude that INR7 crores of settlement with a vendor, which happened last quarter. So why is the — why is this that when the raw materials prices have decreased our gross margin, this quarter has decreased because I understand that, there’s a short term cycle project where we take a hike or decrease in price easily. It’s not like a very big thing for us. So why has the gross margin and will — how will it play out in this quarter?

Prayasvin B. Patel — Chairman & Managing Director

See the margins are varying because of the product mix. And going forward, you looking at the situation I believe, we should be able to sustain or slightly improve our margins by [indecipherable].

Gunjan Kabra — Niveshaay — Analyst

Okay. And sir, last quarter employee —

Operator

I request you kindly come back in queue and follow-up questions.

Gunjan Kabra — Niveshaay — Analyst

Okay. Thank you so much, sir and good luck to the team and to you.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question on the line of Abhishek Poddar from HDFC Mutual. Please go ahead.

Abhishek Poddar — HDFC Mutual — Analyst

Thanks for taking my question and congratulations on good numbers, sir. Sir, regarding the target — yeah, sir, regarding this target for the exports being 50% in 2030 trying to understand what was the number in 1H and how do you see like next two to three years, how the ramp up would happen there? And also some indication of initiatives you’re taking and how confident you are there?

Prayasvin B. Patel — Chairman & Managing Director

See, as I had mentioned earlier, we are trying to increase our resources, deploy more resources, especially manpower in the marketing area. We are trying to pursue OEMs as well as projects in these countries, especially where we are strategically located right now. And we have also started moving into South America from United States and into Canada. And we are intending to put up at robust dealership network even in South America as well as in Canada, which would further enhance us. So there is a complete strategy, which has been deployed and it would help us emphasize on the global branding, especially because we have three brands right now. Okay. So we would emphasize on the global branding as well as these marketing initiatives will bring in good results.

Abhishek Poddar — HDFC Mutual — Analyst

Yeah. So where are we today compared to 50% the target that we have and how do we see ’24, ’25 moving?

Prayasvin B. Patel — Chairman & Managing Director

See, we are right now at 12%, 10% to 12% depending on which year it is, and slowly and gradually we are going to ramp up. Okay, there will be a time when it would be accelerated and it would jump substantially, but as of now it is difficult to say then would that happen.

Abhishek Poddar — HDFC Mutual — Analyst

Understood. And sir, are you commentary on the demand outlook is quite positive and obviously that’s some mix of domestic and export demand. So in the western world, we are seeing some financial conditions tightening as well as there is an energy issue. Are you seeing some industry outlook being divergent in export market versus in Indian market?

Prayasvin B. Patel — Chairman & Managing Director

See, as far as I’m concerned there are two segments that we pursue. One is replacement and the other one is new requirements. And what we see is that we worked be pursuing with OEMs and today what is happening is because of the higher cost and in the foreign countries, especially because the energy costs have increased, there are a lot of companies who are looking for alternative suppliers who are competitive as well as who will bring in more competition for the existing players which are already there supplying to these clients. And that is where we believe we would be able to score.

Abhishek Poddar — HDFC Mutual — Analyst

Understood, sir. And sir, the margins were supported also by an improvement in MHE business where you reported 14%. Should we think that this is the normal margin now or how should this movement happen?

Prayasvin B. Patel — Chairman & Managing Director

We are expected to do 15% to 17% going forward, especially as we increase our turnover in that sector. So I would say that at least minimum we will maintain what we have right now, conservatively speaking.

Abhishek Poddar — HDFC Mutual — Analyst

Understood. So that will help the margin improvement, but the transmission at 24% that looks like a steady number or that could also improve, sir.

Prayasvin B. Patel — Chairman & Managing Director

That looks like a steady number as of now.

Abhishek Poddar — HDFC Mutual — Analyst

Understood.

Prayasvin B. Patel — Chairman & Managing Director

However, we are always in pursuit to improve that.

Abhishek Poddar — HDFC Mutual — Analyst

Okay. But other than more lever where you think that you could tap those and improve margins further beyond these?

Prayasvin B. Patel — Chairman & Managing Director

No, it also depends on the product mix. See, as we try to take initiatives to further improve the margins, but it substantially depends on the product mix. And as of now what we have seen is considering the average, which is going on right now, we believe that we should be able to maintain them and if possible we will try to implement that.

Abhishek Poddar — HDFC Mutual — Analyst

Okay. Okay. Thank you, sir. All the best to you.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have the next line from Ankit Babel with Subhkam Ventures. Please go ahead.

Ankit Babel — Subhkam Ventures — Analyst

Yeah, sir. Good morning and congrats for good set of numbers. Sir, my first question is not to achieve this INR2000 crores of revenue, I mean the growth is as highest weighted 85%. So just wanted to understand, would you be becoming aggressive in taking orders by cutting your price to achieve that kind of a growth?

Prayasvin B. Patel — Chairman & Managing Director

No. We are interested in the bottom line and not the top line.

Ankit Babel — Subhkam Ventures — Analyst

Okay.

Prayasvin B. Patel — Chairman & Managing Director

Okay. And which is if you realize in material handling, we have actually reduced our turnover to see to it that we become more profitable and going forward that is what we would do. But I have to also tell you that because we have one of the widest product ranges in the market and in the world, we have an advantage over the competition because we can sell what wherever — there is a demand for a particular kind of application. So that is where we score over the others and that that is how we believe we should be able to sustain our margins going forward.

Ankit Babel — Subhkam Ventures — Analyst

So the question was there only just a follow-up. So going forward the share of exports is expected to increase, which is typically a high margin business. Your utilization level will also increase, which would be giving you a good operating leverage and you’re not taking price cuts as you mentioned. So I mean, this year you are given a guidance of around 22% consolidated operating margins. So on INR2,000 crores, what kind of consolidated operating margins you people are aspiring for?

Prayasvin B. Patel — Chairman & Managing Director

We will sustain those margins.

Ankit Babel — Subhkam Ventures — Analyst

I mean, my question was that only? I mean, why not improvement when you have so many of levers to improve it?

Prayasvin B. Patel — Chairman & Managing Director

See, as I told you, it would depend on the product mix that we ultimately are able to sell out, okay, so it is very difficult to tell you what — there is a constant monitoring which goes on to see to it that we do not go below the margins that we have today. Okay. So there is a lot of balancing factor that we do. However, if the margins improve, we are not going to let go of that opportunity.

Ankit Babel — Subhkam Ventures — Analyst

Okay. Okay. And sir, my second question is this planetary gear box, which you have developed where you see the opportunity at around INR300 crores to INR500 crores of revenue per annum. Now will it be additional to your current product line or will it cannibalize your existing products?

Prayasvin B. Patel — Chairman & Managing Director

See, planetary gear boxes is a general term for those type of gear boxes. Today we are already a manufacturing those. What we have mentioned is that there is a particular specialized application that we developed for the cement mill and which was extremely challenging because as of now practically it was being imported. So that is, where it lies those challenges, those kind of applications would not be to the tune of INR200 crores to INR400 crores or INR500 crores. That would be the overall planetary type of gear boxes. These type of applications, I would say, would be far and few, but they are like a feather in the cap, like what we develop the gear box for the air different ship or the aircraft settings.

Ankit Babel — Subhkam Ventures — Analyst

Okay. Okay. And sir, my last question is this retention money of INR60 crores, when you feel it could be fully realized, and with the cash, cash flows coming in, what will be your dividend payouts going forward?

Prayasvin B. Patel — Chairman & Managing Director

So for returns is concerned, so few are under dispute COVID arbitration award is in favor of the company and there are several developments also in this quarter. However, because it’s subdue, we cannot commit when it get release, because the customer has further applied to the hardware. But yeah, we are expect even somewhere we are getting the positive response or we can any amicable settlement also, but we also stick to our expectation of the settlement. That is where we are.

Ankit Babel — Subhkam Ventures — Analyst

So since this is a disputed amount, have you people made any provisions for it till date?

Prayasvin B. Patel — Chairman & Managing Director

So far it distributors — arbitration award is already in favor of the company and with the arbitration award for the customers for which we bought this, I would say, those are also at least sound in terms of the liquidity and profitability. So we don’t expect that that provision is acquired to region.

Ankit Babel — Subhkam Ventures — Analyst

Okay. So lastly, dividend payouts going forward?

Prayasvin B. Patel — Chairman & Managing Director

Sorry.

Ankit Babel — Subhkam Ventures — Analyst

Sir, dividend payout, will you increase your dividend payout considering that now you are debt free and the cash flows would be robots going forward? Assuming that working capital and everything remains intact?

Prayasvin B. Patel — Chairman & Managing Director

I would not be able to comment on it because the decision of dividend, they would depend on the entire board. So it depends on the wisdom of the board to decide on it. Okay. However, my personal opinion would be that if the company does well, we need to take care of our shareholders and our stakeholders.

Ankit Babel — Subhkam Ventures — Analyst

Okay, that’s it, sir, Thank you so much, sir.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We are the next question line of Pratik Kothari from Unique Portfolio Managers. Please go ahead.

Pratik Kothari — Unique Portfolio Managers — Analyst

Hi, good morning. Congratulations on such a strong execution.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Pratik Kothari — Unique Portfolio Managers — Analyst

So my first question is on the capex that we have announced on INR100 crores. You mentioned in the presentation this is given the strong revenue growth that we see and the long lead times of machinery. Just to clarify? Is this over and about IINR100 crores that we have announced earlier for solar plant?

Prayasvin B. Patel — Chairman & Managing Director

Sorry, the INR100 crores that we have announced for —

Pratik Kothari — Unique Portfolio Managers — Analyst

Solar, for renewable, that we are announced a couple of quarters back.

Prayasvin B. Patel — Chairman & Managing Director

No, it is all inclusive, INR100 crores, out of which a sizeable amount is going towards solar and the balance is going towards balancing equipment that we require in the plug. Capex for solar is INR15 crore approximately.

Pratik Kothari — Unique Portfolio Managers — Analyst

INR15 crore, one-five?

Prayasvin B. Patel — Chairman & Managing Director

Yes, one-five.

Pratik Kothari — Unique Portfolio Managers — Analyst

Okay, got it. Thanks. And sir, second question is, I think you even mentioned in the call today that we expect to double our MHE two, three years out. Our stands used to be in — like we only to products and maybe some spares and services etc. So to go from this INR200 crore, revenue to INR400 crores, INR500 crores in two, three years, what would drive this growth?

Prayasvin B. Patel — Chairman & Managing Director

The products has great potential because today we, in material handling also we have one of the widest product range. Apart from that, there are other opportunities which come up where new projects are coming up on a regular basis, especially for developments and so forth. So there are good potential and based on the way we are seeing the market progressing, we believe that for us to reach INR400 crores, INR400 crores to INR500 crores would not be a problem. However, we have all the intentions of adding a few more products from other industries that would help us further improve our total invoicing in material.

Pratik Kothari — Unique Portfolio Managers — Analyst

Okay. And, and this other industry is the railway or equipment manufacturers for those in — we had spoken about earlier?

Prayasvin B. Patel — Chairman & Managing Director

Yes. And there are also other areas especially in the construction business.

Pratik Kothari — Unique Portfolio Managers — Analyst

Okay. So we have already developed this product or our existing products can be used there?

Prayasvin B. Patel — Chairman & Managing Director

No. We would have to develop those products. Okay, we are exploding those possibilities and then we would be getting into them.

Pratik Kothari — Unique Portfolio Managers — Analyst

Okay. Fair enough. Thank you, sir and all the best.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of from Pritesh Chheda from Lucky Investment Managers. Please go ahead.

Pritesh Chheda — Lucky Investment Managers — Analyst

Yeah. Hello sir. Sir, any tax have you booked in this quarter by any chance? And any scope for rise back on your retentions or any because earlier to [Technical Issues] either in this quarter or half yearly? Just to get a more clearer picture on the margin?

Prayasvin B. Patel — Chairman & Managing Director

No, there is no raise back or any kind of one-time trend of any raise back or other income of it, in this quarter or even in the half year.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. Okay. And did you give out INR2,000 crore revenue number for FY’24 or in just a expiration on that number?

Prayasvin B. Patel — Chairman & Managing Director

No, we already gave all that number that is our guidance, so we are working towards the same.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay, so it’s INR1,500 crores for ’23 and INR2,000 crores for ’24 at 22% margin.

Prayasvin B. Patel — Chairman & Managing Director

Yeah.

Pritesh Chheda — Lucky Investment Managers — Analyst

Sir, in this the gear business has seen about 24% margin, which is the highest which we have seen initially our margin move between 18% and 21% in that are we seeing in the product mix, this quarter, which needs to be highlighted for or this kind of margins are won [Technical Issues].

Prayasvin B. Patel — Chairman & Managing Director

No, a bit of margin will continue. Because we are continuously focusing on our supply chain management improvement through which it is [indecipherable] for us to sustain this market and we also have given that guidance for FY ’23, there will be sustain the 22% margin on standalone businesses.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. And lastly, sir, what needs you [Technical Issues] pulling out of INR400 crore revenue, any input that you could share on that part of the business?

Prayasvin B. Patel — Chairman & Managing Director

No, basically based on the way the inquiry levels are coming through, we believe that reaching those kind of numbers would not be difficult. Okay. And today we have been in this business for the last 70 odd years and therefore we have a reputation for our products. They are known to be extremely reliable and robust. And therefore the clients quite often insist on customers insist that whoever supplies the entire plant, but the product should coming from Elecon.

Pritesh Chheda — Lucky Investment Managers — Analyst

And I hope you’ll be just an equipment supplier in this cycle and you will not in projects.

Prayasvin B. Patel — Chairman & Managing Director

We have liquidated the entire division, which was doing projects and we have no intentions of reviving it again, it is only products, products and products that we would be selling.

Pritesh Chheda — Lucky Investment Managers — Analyst

The dependent on this is on segment is on steel, cement, mining and [Technical Issues] which sector is more linked to which on the more cycle?

Prayasvin B. Patel — Chairman & Managing Director

Fertilizer can also be added to this, but basically it would be these sectors, especially steel and power are normally dominant. But fertilizer also after normally three to four years, there is a cycle whereby they also consume material handling products.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. Done. Thank you and all the best to you, sir. Thank you.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Pritesh Chheda — Lucky Investment Managers — Analyst

No problem. Thank you.

Operator

Thank you. We have the next question for the line of Sanket from Kedia Securities. Please go ahead.

Sanket — Kedia Securities — Analyst

Okay. Good morning, sir. Congratulations on good set of numbers.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Sanket — Kedia Securities — Analyst

So if the presentation in Slide 23, we have mentioned about open order book on upwards of INR700 crore, so just wanted to understand open order that what do you mean?

Prayasvin B. Patel — Chairman & Managing Director

Open orders mean as a pending order for exhibition. We got the order, which are under execution. That is what we meant.

Sanket — Kedia Securities — Analyst

Okay, understood. And in terms of our utilization, wanted to understand the way, we are seeing the demand progressing, would we be able to cater to the excess demand or we would’ve to select projects on which we want to deliver and some projects we let go, since our capacity would be almost be full?

Prayasvin B. Patel — Chairman & Managing Director

No, we, as I told you earlier also, that we are operating at about close to 60%, 65% of our capacity utilization. And this is without hardly doing any subcontracting work. If we further subcontract are possibility of a higher turnover beyond I would say, INR2,000 crore to INR3,000 crore would also be possible. I would say that you can now considering a minimum capex, we should be able to do that and maintain our margins also going forward. So that is the advantage we have over the competition because today we have one of the fastest deliveries in the market today, and customers are saying that if you want reliable deliveries go to Elecon.

Sanket — Kedia Securities — Analyst

Understood. And sir, on the R&D side, just wanted to understand, are there any more gear boxes on we talking on, especially for the different side, like where we are seeing the demand coming in for the shipping sector? Are there any particular products, which we are working on or we are seeing any potential area where we can get increased orders from?

Prayasvin B. Patel — Chairman & Managing Director

See, there is a continuous endeavor by the management to look at opportunities, whereby we are able to widen our product range. Recently, we developed gear boxes for high speed application for a very special client. Similarly even in the Navy and in the marine sector, we are always exploring those possibilities as and when the design team of the Indian Navy approaches us for new applications, we always help them give a proposal, a technical proposal to meet the requirements.

Sanket — Kedia Securities — Analyst

And earlier in the call, you had also mentioned about the potential from the EV sector. So if you can elaborate a little more on it on how gear boxes will work over there and what kind of potential are you looking at?

Prayasvin B. Patel — Chairman & Managing Director

Sorry, can you again repeat the question? Repeat the question because quite often the microphone is giving an issue. So can you repeat it please?

Sanket — Kedia Securities — Analyst

Yes. So earlier on the call you had mentioned about the EV opportunity, which potentially gets gear box manufacturer. So if you can elaborate a little more on what kind of opportunity and what is the scope?

Prayasvin B. Patel — Chairman & Managing Director

Yes. See, normally if you look at diesel or petrol vehicle, the gear box is a very complex gear box. Okay. It has got many speeds and therefore there is the whole transmission becomes very complicated as long as EVs are concerned. The whole transmission becomes very complicated. As long as EVs are concerned, the gearbox is a very simple device, okay? And it does not have very many complications. However. I believe that the requirements would be longer or a higher life as compared to that of a diesel or a petrol vehicles, and therefore it exactly fits into our requirements of manufacturing. Because we have the desired equipments in manufacturing to pursue this kind of owners. So we won’t be taking it up activity especially that the Indian manufacturers of electric vehicles and pursue this further.

Sanket — Kedia Securities — Analyst

So are we in talks with anyone for this from the domestic market side or any potential development going on? Or to materialize this opportunity?

Prayasvin B. Patel — Chairman & Managing Director

I would say up till now that let’s put it this way that as and when something comes up, which we thereby we sign an agreement with them or explore the possibilities, that time we would be making any of the announcements.

Sanket — Kedia Securities — Analyst

Sure understood thank you for answering all the questions and best of luck.

Prayasvin B. Patel — Chairman & Managing Director

Most welcome. Thank you.

Operator

Yeah. the next question is from the line of Mahesh Bendre from LIC. Please go-ahead.

Mahesh Bendre — LIC — Analyst

Thank you, sir. So you mentioned that the current utilization of our factories around 65%. So to what extent we can go we can? We can go up to 85%, 90% utilization feasible?

Prayasvin B. Patel — Chairman & Managing Director

See normally in an industrial check that I would say it would be peaking at anywhere between 80% to 85%.

Mahesh Bendre — LIC — Analyst

And this is based on single shift basis. Right sir?

Prayasvin B. Patel — Chairman & Managing Director

No it is based on three shift basis.

Mahesh Bendre — LIC — Analyst

Okay. So on three shift basis you are working on 65% utilization?

Prayasvin B. Patel — Chairman & Managing Director

Yes, between 60% and 65%.

Mahesh Bendre — LIC — Analyst

Sure. And sir, you mentioned that we are planning to develop — looking into development of planetary gear. So the differential gearbox comes into that domain or is it something different?

Prayasvin B. Patel — Chairman & Managing Director

No it does not come into that. Differential box is where it’s a very complex gear unit, and that is not what this is. This is where you have the arrangement of the gears is such that it forms like solar system where you have a sun gear and then you have planets and they are moving around in an orbit. That is why it is called planetary gearbox.

Mahesh Bendre — LIC — Analyst

So we do, not have any plans of going to differential gearbox, is it…

Prayasvin B. Patel — Chairman & Managing Director

No, we don’t, because that is a very specialized fee. Normally, the auto sector especially where will make axles is where this kind of a differential gearbox goes.

Mahesh Bendre — LIC — Analyst

Sure, sure. And sir, when we talk about the new CapEx, new facilities sitting, what kind of asset turnover ratio we see in the new manufacturing setup?

Prayasvin B. Patel — Chairman & Managing Director

Our asset turnover wil be nearly 0.8% to 1.1%.

Mahesh Bendre — LIC — Analyst

Sure, sure. Thank you. Thank you so much sir.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Prateek Kedia from Kedia Securities. Please go ahead.

Prateek Kedia — Kedia Securities — Analyst

Hi, Hi thank you so much for taking my question. Sir, I see that the defense industry is waking up and is turn that Sunrise industry in India. Is the opportunity for Elecon equally in-line with this particular site, like is it equally big? How big can this be in the revenue terms for us in the next five years?

Prayasvin B. Patel — Chairman & Managing Director

I would put it this way that we have — within the grid we have put in a team of people who are exploring not only from the marine side but also from the Army and the Air Force. Apart from that, we are also looking at auxiliary equipment which are being provided to the defense sector. And we are exploring these possibilities. We are keen that the look into niche areas, thereby there are equipments or component suppliers which are highly-specialized because we have very high precision machine tools in the entire group. So we are looking for that kind of work and which I am sure that If we find the right kind of company, we should be able to do that very easily. And that’s what we are pursuing.

Prateek Kedia — Kedia Securities — Analyst

Okay, okay. Are we getting any inquiries or getting some indications for the sector?

Prayasvin B. Patel — Chairman & Managing Director

We are becoming more proactive because where we see a potential, as I told you, we have a cell within the entire group which is exploring all the possibilities as and when there are announcements inthe newspaper about any large company coming in. Say for example, recently there was an announcement that Airbus is going to put up a manufacturing plant in Baroda. So we will now pursue those and ensure that if there is any potential to supply, we will explore that. So we are becoming more proactive and not waiting for inquiries to come up on our table, rather than that we are trying to approach companies and the defense sector as to where we play a part in it.

Prateek Kedia — Kedia Securities — Analyst

Right, right. And capacity wise, I believe that we are prepared in case of such queries come in?

Prayasvin B. Patel — Chairman & Managing Director

Yes. Not only that. We can give a holistic solution within the Group. That is our intention, which means that if because we have different levels of expertise within the group, including hydraulics, pneumatics, IT, which means programing in electronics and therefore we can give a holistic solution to the customer.

Prateek Kedia — Kedia Securities — Analyst

Perfect sir, perfect. That’s all from my side, sir. Thank you so much for taking my question.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Niraj Mansingka from White Pine Investment. Please go ahead.

Niraj Mansingka — White Pine Investment — Analyst

Thank you for the opportunity.

Operator

Mr. Niraj, we request you to kindly come on the handset mode, we cannot hear you well. Can you hear us Mr. Niraj

Niraj Mansingka — White Pine Investment — Analyst

Sorry, sorry. I was on off. What is the export revenues for the quarter.

Prayasvin B. Patel — Chairman & Managing Director

It has been INR32 crores.

Niraj Mansingka — White Pine Investment — Analyst

The export revenues have not yet picked-up, but when you are seeing cash-in that side, can you shed some more color on how you’re seeing with export scaling up in the next few quarters or the inquiries in.

Prayasvin B. Patel — Chairman & Managing Director

We have large inquiries on-hand especially in the UK, United States. However, because of the war that came in as well as the finance, the countries are going through, let’s say a high-level of inflation and and the interest rates have gone up. The customers have become a bit slow in placing orders and we believe in the — just after Christmas they would be a lot of orders would get finalized.

Niraj Mansingka — White Pine Investment — Analyst

Okay, sir. And looking in the past you had said that the export margins are only 5% higher than the domestic. Does that still stand or is it changed?

Prayasvin B. Patel — Chairman & Managing Director

Normally. I would not have said it is 5%.It is higher than the domestic market and that continues to be better.

Niraj Mansingka — White Pine Investment — Analyst

And sir in the past also you had talked about the operating leverage of the company laying out for gear margins. Do you see that happening. I think you have the [Indecipherable] if the revenue growth was 2,000 crores. So would the margins of the gear business remain at 24% or will go to higher number?

Prayasvin B. Patel — Chairman & Managing Director

It would tend to go to a higher number because of the higher utilization of the assets. Because as you know in the gear business the fixed costs are very high. If you look at it, between the fixed-cost and variable cost, the fixed-cost side very. Because of the extensive infrastructure that one needs to have, especially the machine tools and all that. And therefore as soon as your utilization keeps on increasing, you will generate higher margins.

Niraj Mansingka — White Pine Investment — Analyst

Okay. And the last question. In the television you talked about defense orders being out in the long-term. So can you give some color on what type of orders can come to you, say in five or six years from now, so that we can understand how the different business can scale up for you.

Prayasvin B. Patel — Chairman & Managing Director

See first of all, the business that we are already in, which is the Navy business, that will continue at the way it is going, which means that we are one of the preferred suppliers to the Indian Navy. The reason being that the technology that we have, the kind of infrastructure that we have, and the kind of support that we have been able to give to the Navy, there is a lot of appreciation from the Indian Navy towards this. So we would be considered as one of the preferred suppliers to the Indian Navy.

A far as the other sectors are concerned, we are still in the exploratory stage. And we believe that we should get into niche area. There the margins are high and the level of accuracy and sophistication is reasonably high so that we are able to compete well and get good margins. So this is what we are trying to pursue, okay? It may take some time, but we will have to see to it that we get into an area where, as I told you, the high precision is where we would be able to get the margins.

Niraj Mansingka — White Pine Investment — Analyst

Got it, sir. Thank you very much.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question on the line of Nitin Bharucha from Joindre. Please go ahead.

Nitin Bharucha — Joindre Capital — Analyst

Hello thank you for the opportunity. sir. Most of my questions have been answered. I have only two questions left. So you mentioned we are operating at 60%, 65% and if we take a contract projects it can further add to our revenues. So are we looking — do we have any plans to do such kind of business?

Prayasvin B. Patel — Chairman & Managing Director

See, what I said was that our utilization of the existing plant is close to 60% 65% on a three shift basis, and there is the potential to go up to almost 80%, 85%. Apart from that, there is a possibility of subcontracting certain components, thereby put further cadence. Does that answer your query or…

Nitin Bharucha — Joindre Capital — Analyst

Yes, yes, yes. That answers. Yes, thank you. And sir my second question is you mentioned we are looking for the revenues in MHE segment, so what kind of internal measures we are taking to like reach this INR400 crores kind of revenue. Can you throw some color on that?

Prayasvin B. Patel — Chairman & Managing Director

See, as I told you, our intention is basically to sell products and not to go into projects. Because the reason is very simple. The projects would mean higher general sales and higher topline, but on the other hand we realize that it doesn’t materialize into higher profits. So our intention is only to sell products. And based on the demand that is there, apart from that, the company is also and looking at the possibility of adding more products which are non-material handling products, whereby we would be able to further increase the term. So considering that and considering the calculations that we have made, we believe that INR400 crores to INR500 crores would be possible with that.

Nitin Bharucha — Joindre Capital — Analyst

INR400 to INR500 crores in next two to three years, right sir?

Prayasvin B. Patel — Chairman & Managing Director

Yes.

Nitin Bharucha — Joindre Capital — Analyst

Okay, okay, yeah. That’s all from my side. Thank you.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Shirom Kapur from Prabhudas Lilladher. Please go ahead.

Shirom Kapur — Prabhudas Lilladher — Analyst

Hi, thank you for the opportunity [Indecipherable] So I have two questions. One is going back to defense again. Do you have a breakdown of how much the Defense segment contributes to your topline and where you see this rising over the next three four years?

Prayasvin B. Patel — Chairman & Managing Director

See, in the defense sector, especially the marine, Indian Navy is our largest customer. Apart from that, we have Coast Guard. They send us inquiries for a particular project which is a fleet of ships which could be two, three, four, five six. So based on that, we quote and if we are found competitive, we get an order. So it is very project oriented. Up till now there were times when the demand would come in every three, four, five years. Which means you would have a turnover coming in from the marine sector and then it would go down to zero levels and then after two, three, four, five years it will again come up for another requirement.

Now considering that the Indian Navy has a very ambitious plan of building more ships, and there are lot of projects in the pipeline which are today on the drawing board of the design team of the Indian Navy, and therefore we are reasonably confident that you know this would pan-out over the next five to seven years, okay? So we — I would say conservatively you can expect about INR100 crores to INR200 crores coming in from the Marine sector, especially the Indian Navy and Coast Guard in the future.

Shirom Kapur — Prabhudas Lilladher — Analyst

This will be INR100 crores, INR200 annual or you’re saying overall in prices?

Prayasvin B. Patel — Chairman & Managing Director

This is a very generalized statement. Because you know these go into development stage and quite often they can scrapped, then there is a new development that takes place. So it’s very difficult to generalize because this is what we believe could happen.

Shirom Kapur — Prabhudas Lilladher — Analyst

Okay, understood. Thank you.

Prayasvin B. Patel — Chairman & Managing Director

Only on an annualized basis, that is the potential. I would put it this way.

Shirom Kapur — Prabhudas Lilladher — Analyst

Oka,y understood. Thank you — thank you so much. And my next question is on the that — so I’m kind I’ve just started looking at this space and I want to understand that from FY’19 till now you had a significant reduction in your manufacturing expenses especially in the erection charges in subcontracting costs. So what is the main reason for that? Is that as a result of liquidity of EPC business or what weer the main drivers behind that?

Kamlesh Shah — Group Chief Financial Officer

This is mainly because we came out of that business. So whatever pending orders are there, that was only executed and now there are no more EPC contracts. So that’s why the manufacturing cost is lower and that is particular in energy division.

Shirom Kapur — Prabhudas Lilladher — Analyst

Okay, so now going-forward the current level of your manufacturing expenses, that should be your sustainable kind of level.

Kamlesh Shah — Group Chief Financial Officer

Yeah, yeaah.

Shirom Kapur — Prabhudas Lilladher — Analyst

Okay, great. Understood. Thank you so much.

Operator

We have the next question from the line of Kirti from [Indecipherable] Advisors. Please go ahead.

Karthi — — Analyst

Sir, good afternoon. Congratulations on a very interesting set of numbers. Two, three questions I would like inputs on these. One is in terms of input costs. What has been the extent of correction and to what extent does that reflect in your order backlog currently?

Kamlesh Shah — Group Chief Financial Officer

What’s input cost for the raw materials will be in the same ranger where we are presently in Q2. So that is how we are, because I’m monitoring our Input cost of raw material. In last there to six months, whatever order we got and due to — there are some correction in the input cost, particularly steel price. There maybe some some improvement will be there. But considering the product mix, no it will be difficult to spell out how what the cost estimated will burn out because the orders have to be in next three to six months.

Karthi — — Analyst

So you have INR2,000 crore?

Prayasvin B. Patel — Chairman & Managing Director

I would put in ina very different fashion. While the to the customers, we make sure that our iInput costs are estimated to be at a certain level, and we make sure that we are able to get those kinds of prices, whereby these margins are properly sustained, and which is the reason why we are able to sustain an EBITDA level which today has become reasonably consistent.

Karthi — — Analyst

So, therefore your INR2,000 crore rough guidelinewould be irrespective of the input cost, and I’m assuming that is something you will talk about.

Prayasvin B. Patel — Chairman & Managing Director

Yes.

Kamlesh Shah — Group Chief Financial Officer

It will go towards an estimation. So based on that estimation, we are considering that EBITDA margin will be.

Karthi — — Analyst

Sure, sure. So the other question is on your international business, you just spoke about several OEMs approaching you. Whom would they be comparing you with sir?. I mean, who would be incumbent supplier be and therefore what would be advantage you would have on a non-technical side compared to them?

Prayasvin B. Patel — Chairman & Managing Director

See, normally we are being compared with the international players especially who are operating in that country. Okay? There are international players like FLENDER, Niche is there from Germany who are an international players, then there is ACW who is also a German company. Then if you go to and Brazil, there ould be [Indecipherable] So it varies from country-to-country. But I wouldn’t say that because we have a local — if we have a local arm, we have an advantage because the customer feels more comfortable with the localized manpower. Apart from that, we have three brands to pursue, one is Benzlers, the other one is Radicon, and the 3rd one is Elecom. So based on what is the requirement in that particular country and where the customer feels comfortable with that brand, we offered those kind of brands in that country.

Karthi — — Analyst

So if I may push you to answer sir, would you have, say 20%, 30% cost advantage over these entities?

Prayasvin B. Patel — Chairman & Managing Director

I would say so a full range around 20%.

Karthi — — Analyst

Aand if you look at your current mix, including the exports from India as well as the international entities revenues, what would be the mix of OEM supplies, replacement sales, as well as project sales.

Kamlesh Shah — Group Chief Financial Officer

We — presently I don’t have the numbers, but I will forward the same in due course of time to address.

Karthi — — Analyst

If you can share it to Dinesh sir that would help sir.

Kamlesh Shah — Group Chief Financial Officer

Yeah, I will do.

Karthi — — Analyst

Thank you so much and best wishes, sir.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question from Nisar Parekh from Native Capital. Please go ahead.

Nisar Parekh — Native Capital — Analyst

Yeah, hi. Thank you for my question. My first one is, can you help with mix between customised and standard gearboxes in this first-half and alsow what is the mix between gearboxes both the new plant sources, replacement of some of your old gearboxes.

Kamlesh Shah — Group Chief Financial Officer

The customer care we understand as engineering product is consisting of 35% to 40% [Indecipherable] and balance is catalogue product which is called the standard product.

Nisar Parekh — Native Capital — Analyst

And between new and replacement?

Kamlesh Shah — Group Chief Financial Officer

Presently, I don’t have a figure amount of new and replacement which I have to work it out. Is it okay, I can forward this to head office.

Nisar Parekh — Native Capital — Analyst

Yes sure, thank you. And the second question is — and my second question is in the past you mentioned with regard to your exports business that you are looking, you are exploring some front-end acquisitions to kind of get you closer to the customer as well. So as of now what is the status of that? Are you looking at any acquisition or would you go with exports bill, mostly through organic route only?

Kamlesh Shah — Group Chief Financial Officer

Presently I think that no such law what are yet to work out, but we continue with our existing operations that we are in a phase-out. That will continue. So at appropriate time as and when it will work-out, we can definitely announce the see.

Prayasvin B. Patel — Chairman & Managing Director

See, I would put it this way that we are keeping our eyes open as and when right kind of opportunity comes our way, we will pursue that and hopefully that would mean a successful acquisition at that stage.

Nisar Parekh — Native Capital — Analyst

And last question is you know when we look at our order book, which is around INR700 odd crores and given the revenue run-rate we have, how do you think about the order book visibility because some of the — some larger engineering companies, etc., they have order books which at least maybe key for five quarters of revenue in the book. Are this relatively to that extent smaller if we take FY’24 target of INR2,000 crores and we are — this is next-generation 700. So if you can just explain what is the general time duration of booking the order and after that how much time does it take to execute, how should we think about the cycle?

Prayasvin B. Patel — Chairman & Managing Director

We have a very product mix, okay. The catalog gears are practically the longest deliveries that we have would be two to three weeks. As long as the engineered products are concerned, the maximum delivery would be four to six months. Considering all that factor, this is a robust backlog that we have today. The reason why I’m saying is that, if you remember when the steel prices increased and then it further decreased, we were not affected by it. And one of the reasons is because we have a very short cycle. It’s a very short cycle of execution, which is extremely good because then you can be very dynamic in the market. And that is where we specialize because our competitors have a much longer manufacturing cycles compared to us.

Nisar Parekh — Native Capital — Analyst

Got it. Okay. Thank you so much.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Krishna Kansara from Molecule Ventures BMS. Please go ahead.

Krishna Kansara — Molecule Ventures BMS — Analyst

So my question is regarding the inqiry level. If you could provide a number as to what kind of increase we have seen in inquiry levels, say as compared to previous year.

Kamlesh Shah — Group Chief Financial Officer

Inquiry level in the sense. Can you just elaborate on that. What do you mean by inqujiry level?

Krishna Kansara — Molecule Ventures BMS — Analyst

The kind of inquires that we are getting. Let’s say last year we were making X number of inquiries versus this year we are getting Y number of inquires. So what kind of increase we are seeing?

Kamlesh Shah — Group Chief Financial Officer

Generally, we don’t work out the number of inquires. Generally, his kind of information is already with our marketing department becasue sometimes how to spell the inquiry, what do we mean by inqiry. That’s what we are just compelling ourself to the work order number, the purchse oder and other forms. If you are asking about what is the conversion ratio from inquiry to order, so we are having our conversion ratio, I think more than 70% we can consider from inquiry to order.

Krishna Kansara — Molecule Ventures BMS — Analyst

Okay, more than 70%. Thank you, sir. The questions has been answered. Thank you.

Operator

We have the next question from the line of Ashutosh Garud from Ambit PMS. Please go ahead.

Ashutosh Garud — Ambit PMS — Analyst

Hello. Am I audible?

Operator

Mr. Ashutosh if you will come the handset mode once.

Ashutosh Garud — Ambit PMS — Analyst

I am on the handset mode. So I just want — most of my questions have been answered. I just wanted your — how is the domestic competition shaping up? I mean you are growing at a pretty healthy pace. So just wanted to know what share of market share gain is present in these kind of growth rates for us on domestic front. On exports front you have elaborated enough on how you are competitive and you would be gaining market share, but I wanted your views on the domestic market share gains.

Kamlesh Shah — Group Chief Financial Officer

So our domestic market share in the organized sector. We are monitoring the organized sector whigh is rending at 34% to 36% That is where we are in the domestic market. And so far how we are placing oust consider the numbers because our technology, our infrastructure and continued improvement on our existing product through engineering process and our R&D facilities. These our key domain through we are positioning ourself.

Prayasvin B. Patel — Chairman & Managing Director

The other thing is that we have the largest market share and we are continuously monitoring to see to it that we don’t lose market share. On the other hand, we would not like to gain market share at the cost of reducing our prices.

Ashutosh Garud — Ambit PMS — Analyst

Sure my question was more on having Having the strategy is great that we are not gaining market-share at the cost of profitability, but I am saying is there discussions with clients where they are actually willing to give more orders to you as compared to some of the other domestic competitors, wherein obviously our profitability is also not sacrificed and yet it is contributing to our growth, that is what I’m trying to understand.

Prayasvin B. Patel — Chairman & Managing Director

Yes. I will give you an answer in a different way. First of all, 70% of our clients are repetitive and we forge a relationships with it. And there is a situation where the client says that no we want only Elecon due to various reasons. With every client it’s a different situation because they find a level of comfort whether it is because of our deliveries, whether it is because of technology, weather it is because of the relationship that we have forged with them they trust us, etc., etc. So there are various reasons for it. But this is where we score over the competition. And apart from that we have to realize that we have one of the widest range of product line in the gear business in India as well as a number of order even considering the foreign countries, because no one has a product line which is despite and reaches all active and we’re whereby the scope. Because we are also able to give an optimal solution to the client based on their requirement. Does that answer your question?

Ashutosh Garud — Ambit PMS — Analyst

Yeah sure, to some extent yes. I was actually more keen on being more-and-more customers even when you’re saying 70% is repetitive and let’s say 30% not as repetitive from ordering perspective, but is share even going further because of the quality which you are offering and more-and-more clients are interested in having a more sustained businesses on a qualitative trend I wanted to understand.

Prayasvin B. Patel — Chairman & Managing Director

Can I answer it a bit differently also. We are continuously evaluating ourselves how can we be more conducive to the bank, okay? And not by commercial terms on by pricing but by services. Whether it is technology, Whether it is after-sales, the way we respond to our clients, the way we give them information on what is happening to that project. The gearbox supplies, equipment which are operating at site and so forth. So we, and we want to additionally further focus on after-sales. So all this put together we want to see to it that holistically the score over the competition, not only in India, but also abroad because that is the way to go, okay? Unless we do that, we will not be able to capture additional market-share in the future.

Ashutosh Garud — Ambit PMS — Analyst

That is helpful. Thank you and all the best.

Prayasvin B. Patel — Chairman & Managing Director

Okay and there is a continuous endeavor to continously keep this in mind.

Ashutosh Garud — Ambit PMS — Analyst

Thanks, sir. Thank you.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Sanjay Kumar from IthoughtPMS. Please go ahead.

Sanjay Kumar — IthoughtPMS — Analyst

Hello sir. Thank you for the opportunity. First question. So recently the government came out with a draft policy for repowering old and low-performing wind turbines. So we do supply gearboxes for wind turbines. So who are our clients for these gearboxes?

Prayasvin B. Patel — Chairman & Managing Director

See we have been supplying gearboxes for the wind turbine in the past. However, we have slowly and gradually exited that sector especially because of the fact that it is an area which goes through wide fluctuations of demand based on incentives provided by the government. So we have exited that. However, our service centers that we have are taking up this and are able to refurbish gear boxes of the competition as well as our own which have been supplied in the past. And that is where we score because our service centers are more or less closely located where the wind is very conduce. And there are large number of windmills operating.

Sanjay Kumar — IthoughtPMS — Analyst

But given this new draft policy which after tailwinds from sector, so are we planning to get into it again or we’ll continue to stay away?

Prayasvin B. Patel — Chairman & Managing Director

We are by supplying to OEs. So what we would be doing is we would be looking at servicing the old gear boxes and supplying components as and when required in those gears.

Sanjay Kumar — IthoughtPMS — Analyst

Okay, sir. Second on — so other gear manufacturers supply to compressor manufacturers and even for the metro rail applications. So do we have products in these two segments?

Prayasvin B. Patel — Chairman & Managing Director

Yes, we have product lines which on the supply components to the Metro as well as to the Railways. Railways we supply not only in India but also abroad.

Sanjay Kumar — IthoughtPMS — Analyst

Okay, and compressors, sir.

Prayasvin B. Patel — Chairman & Managing Director

Compressor as of now no. But as we have always been exploring that possibility of supplying to them and then there is a strong possibility it would happen in the future.

Sanjay Kumar — IthoughtPMS — Analyst

Okay, okay. And finally on the exports. So when you spoke to another south-based manufacturers, they said that the India has lost the race in terms of the technology needed for gearboxes to Italian and German manufacturers. So wanted to get your thoughts on what would be Elecon right to win in global markets? Will it be purely on price perspective? Or do we have a better technology? Where are we on that?

Prayasvin B. Patel — Chairman & Managing Director

First of all, the names that you mentioned are company’s which are into catalog products. Which means they are standard units which they produce in mass scale and supply, especially the Italian Bonfiglioli, Rossi, you mentioned Rossi if I’m not mistaken. Flender is into both. But we come across them especially in the catalog sector, which is high volume sector. Now there our — we have been continuously enhancing and coming up with new series of gear units which become more competitive and have better performance than in the past. As we talk, there is a new series which we are developing also, okay. which has a great potential and all our marketing people are very excited about it, okay? That would give us an edge over even the competition.

Now as long as technology is concerned, I can assure you one thing that we are second to none. It is not that the German or the European have a better technology than us, okay. We have in the past about 15 to 20 years ago we had bought technologies from them and we have continuously improved upon it. And today after that we will come up with our own series of catalog gearboxes in a big way. As long as engineered products are concerned, which means customs. We have seen to it that we are able to optimize and learn a lot and I am very proud to tell you that our technology is not only is second to none but we have our unique features which score over the competition in lot of applications. And lot of customers give us credit for that.

Sanjay Kumar — IthoughtPMS — Analyst

Okay and does it translate into, say OEM relationships, because say when I buy a Coke industry machine, it will come in pre-installed with Rossi or a Bonfiglioli. So let’s say, 2015 I had 100 OEMs, now I have 150 OEMs. Can you give some number on that figure how many OEMs we cater to help me on that lines?

Prayasvin B. Patel — Chairman & Managing Director

Difficult to say. To tell you honestly, I also don’t know because we have so many countries, so many areas that we look into. So every one would — every marketing person would have those figures which we need to accumulate, but what I can tell you is that the Germans have been dominant because, let’s say if you are talking about a bottling plant, then you know the manufacturers of the bottling plant is German, the gearbox manufacturer is German. So German to German the contacts and very strong. So similarly, but we are making inroads. For the Indian supplies, quite often we are able to score because if they give us an opportunity, we are able to substitute those gears with ours and become an OE suppliers. So those are kind of opportunities that we have taken up in the past and are doing so even today. And we will continue do do so.

Sanjay Kumar — IthoughtPMS — Analyst

Okay, and just one last question. Are we trying to recruit any top guys from any of these Europe companies to develop our business — for business development purposes for us to increase our exports. Wont that be a key requirement, right, to have a local guy talking to local OEM, so will we need such top guys from other gear manufacturers?

Prayasvin B. Patel — Chairman & Managing Director

We have operations in very many countries as you know. We already have people out there who are the localites who are working out there and who are grabbing these opportunites. Now while as I told you we are trying to grow the business in those areas an increase our exports, we are looking at these opportunites, like you rightly said, we are looking for employees who are specialized in application engineering and who are top guys. Quite often even coming from the competition so that we are able to create that impression with the customers and back them by solid supplies coming in from India. So that is the ultimate goal and that is what we do anything to do this. Does that answer your question?

Sanjay Kumar — IthoughtPMS — Analyst

Yes sir. Thank you. Thanks for your time.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Gunjan Kabra from Niveshaay. Please go ahead.

Gunjan Kabra — Niveshaay — Analyst

Thank you for the opportunity again. One thing I wanted to understand. According to the industry working. So if there is a CapEx announced by X, Y, Z company in September 2022, say September 2022. Suppose the plant commences in — is expected to commence in September ’24. So in this time period, where does Elecon receives the order. So wanted to judgment in which time period the company receives orders since the time spent on the CapEx announced by any user company is usually like two to three years.

Prayasvin B. Patel — Chairman & Managing Director

It will depend on industries, which industry it is going to and it will also depend upon the kind of product that they order on us. As I told you, our catalog gears, we are able to deliver within highest or the longest delivery would be four to six weeks. For Engineered products, it would be anywhere ranging from four to eight months. So depending upon the convenience of the customer as to when he needs it, how he it, whether his site is ready to receive the gearboxes, okay? When is he going to be in a position to pay us. Based on all this, he places an order on us and we supply. So it is very difficult for us to give you that answer.

Gunjan Kabra — Niveshaay — Analyst

Very helpful, sir. Sir also in the beginning you told that the defense order book is around INR80 crores this time of the total order book and in the last quarter it was around INR130 crores we received orders from defense. So have we executed the defense amount.

Prayasvin B. Patel — Chairman & Managing Director

Because there was a project which was going on, so partially it must ave been executed. As of now, it ranges around that figure.

Gunjan Kabra — Niveshaay — Analyst

Okay, okay. And sir one more thing, that last quarter employee cost increased on account of business development and R&D expense. This quarter the same expense on the basis of quarter-on-quarter it decreased. So how does that caused parameter work in every quarter?

Kamlesh Shah — Group Chief Financial Officer

Generally employee cost, it depends a lot on surveys, there are other factors are also there which are going to have — it’s up to that, maybe later to the incentive bonus or other factors also.

Prayasvin B. Patel — Chairman & Managing Director

See, we try to rationalize great quarter-on-quarter. However, there are certain incentives that are provided to the employees with which are performance-related. So as and when they get evaluated and are distributed, they come into the financials.

Gunjan Kabra — Niveshaay — Analyst

Okay, okay.

Prayasvin B. Patel — Chairman & Managing Director

Quite often it is difficult to estimate, otherwise then there is a provision which has also being made.

Gunjan Kabra — Niveshaay — Analyst

Perfect, perfect. Thank you so much and very good luck.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. In the interest of time, we requist participants to kindly limit your question to one. We have the next question from the line of Ankit Babel from Subhkam Ventures. Please go ahead.

Ankit Babel — Subhkam Ventures — Analyst

Sir just a bookkeeping question. Sir, have you factored in this INR200 crores kind of revenue from the Navy in your FY 24 guidance of INR2,000 crores?

Prayasvin B. Patel — Chairman & Managing Director

No.

Ankit Babel — Subhkam Ventures — Analyst

Okay. And in your order inflows, do you include sales of your standard or the catalog gears also which are basically the off-the-shelf kind of products?

When you give yout order inflow numbers.

Prayasvin B. Patel — Chairman & Managing Director

Of course, yeah.

Ankit Babel — Subhkam Ventures — Analyst

Okay. And lastly, can you repeat your market-share number, sir.

Kamlesh Shah — Group Chief Financial Officer

Oour market share in the organized sector is ranging 34% to 36%.

Ankit Babel — Subhkam Ventures — Analyst

And what is the — I mean the share of organized market to the overall market?

Kamlesh Shah — Group Chief Financial Officer

Nearly INR2,000 crore.

Ankit Babel — Subhkam Ventures — Analyst

No INR2,000 crore is the organized market, right?

Kamlesh Shah — Group Chief Financial Officer

Yeah, yeah, organist.

Ankit Babel — Subhkam Ventures — Analyst

And what is the size of the total industry, sir, including unorganized?

Kamlesh Shah — Group Chief Financial Officer

Unorganized, the figures are not available, but with rough idea, maybe INR2,500 crore to INR3,000 crores.

Prayasvin B. Patel — Chairman & Managing Director

I would say more close to INR3,000 crores.

Ankit Babel — Subhkam Ventures — Analyst

Okay, sir, mostly it is organized only.

Prayasvin B. Patel — Chairman & Managing Director

Yes.

Ankit Babel — Subhkam Ventures — Analyst

Okay. Thank you so much.

Prayasvin B. Patel — Chairman & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Shirom Kapur from Prabhudas Lilladher. Please go ahead.

Shirom Kapur — Prabhudas Lilladher — Analyst

My questions have been answered. Thanks.

Operator

Thank you. That was the last question. I would now like to hand it over to the management for closing comments.

Prayasvin B. Patel — Chairman & Managing Director

Thank you all for showing so much of interest in the company. I would say that we have been performing consistently. This particular quarter also our results have been fairly robust and strong and we are seeing that we will be able to perform on this basis from a convenient basis even by the end-of-the year and going next. So this is where we are feeling differently confident and I would say that our endeavor is always to continuously improve our performance, which we are trying to do on a sustainability. Thank you all for showing this interest. And if there are any other queries that you have, do not hesitate to contact us. Thank you.

Operator

[Operator Closing Remarks]