Menon Bearings Ltd (MENONBE) Q4 FY23 Earnings Concall Transcript

Menon Bearings Ltd (NSE:MENONBE) Q4 FY23 Earnings Concall dated May. 02, 2023.

Corporate Participants:

Arun Aradhye — Whole Time Director and Chief Financial Officer

Analysts:

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Nirali Gopani — Unique Asset Management LLP — Analyst

Ankit Gupta — Bamboo Capital — Analyst

Pritesh Vora — Mission Street India Private Limited — Analyst

Nikhil Upadhyay — SIMPL — Analyst

Alisha Mahawla — Envision Capital Services Private Limited — Analyst

Chirag Shah — White Pine Capital — Analyst

Anuj Sharma — M3 Investment — Analyst

Unidentified Participant — — Analyst

Varun Bang — — Analyst

Darshil Pandya — Finterest Capital — Analyst

Ankur Kumar — Alpha Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Q4 FY23 earnings conference call of Menon Bearings Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company and it may involve risks and uncertainties that are difficult to predict.

[Operator Instructions] I now hand the conference over to Mr. Arun Aradhye, Whole Time Director and CFO. Thank you, and over to you sir.

Arun Aradhye — Whole Time Director and Chief Financial Officer

All right. Good afternoon, and warm welcome to everyone on the first earnings call of Menon Bearings Limited. Along with me, our Investor Relations Advisors SGA are also present on the call.

To begin with. I will explain the background and business of the company, it journey so far, broad industry updates and strategies going forward. This will be followed by our operational and financial highlights for the quarter and year ending FY23. After the said details we can open the floor for question-and-answer. We have also uploaded our latest investor presentation on exchange website and I hope. Everybody had a chance to go through the same.

We are the manufacturers and exporters of bi-metal components, aluminum casted products, and have recently ventured into a new segment of brakes. Our company was started in 1994 and is based out of Kolhapur, Maharashtra. We have three manufacturing plants all located at Kolhapur and one warehouse in USA. Within the bi-metals category we make bearing, bushes and Thrust Washers. These are high end critical moving engine components that are operating in high temperature and pressure insides with high [Indecipherable].

In the aluminum casting segment, which we refer to as Alkop we manufacture critical aluminum alloy parts both auto and non-auto usage. In the brake segment we have set up plant and machinery to manufacture brake lining and brake shoes, which are more anti-friction asbestos free materials. Our products are used in light and heavy commercial vehicle engines, industrial and tractor engines in the auto sector. And in the non-auto sectors we supply to compressors for refrigerators’ firms, oil and gas pipeline and other customized products to companies like Cummins. Honeywell, John Deere, Concentric Pumps et cetera.

We export to over 24 plus countries and have a robust network of 1,000 dealers and distributors across country, with products present in 1,000 plus retail outlets across the nation. We have a resilient customer-base as the company enjoys long standing relationship with some of the biggest OEMs and no single customer contributes more than 10% of the revenue. Not only we have rigorous quality check procedures implemented, but we also have an in-house machine building capacity, which result in significant savings in cost.

This tooling capability gives us an edge over our peers and helps to provide complete engineering solutions at competitive prices. We are also among the few companies having facilities to produce next-generation BW material so as to produce parts which can cater to future emissions norms.. Our products have long and highly collaborate development cycle and hence rigorous — require rigorous testing and validation before they assembled in the part. As the products are critical in nature and there is a high gestation period for supply approvals it is a high entry barrier in the industry with a limited number of players.

The domestic market size for bearing is INR1,000 crores, aluminum casting products market size is INR6,000 crores and brake segment INR2,000 crores. We have a healthy market share of 20% to 25% for the bi-metal segment and in the brake [indecipherable] with the OEM aftermarket STVs having an existing supply network and strong relationship with the OEMs. We aim to be one of the leading suppliers and exporters in this segment.

The commercial production for brakes has started in Q1 FY24 and we will update you on developments in this segment in the coming quarters. By FY23 our capacity is for 86 lakh units for bi-metal products and 1,440 metric ton per annum for Alkop at utilization levels of around 70%. We have put up four lines for bi-metal product this year and hence our capacity has increased by 13 [Phonetic] lakh units per annual in FY23. The total installed capacity for brakes 15 lakh units per annum for brake lines or brake liners, and 2.4 lakhs units per annum for brake shoes.

We turn a CapEx of INR8 crores for the brake machinery on that segment and the total CapEx of around INR30 crores we plan for two existing segments, which will be done in a staggered manner by FY25 and mainly being funded through internal accruals. The Indian tractor industry has achieved couple of records in FY23; over a million units for the first time ever and also achieving their highest level of domestic sales.

Tractor sales in India were up 12% year — year-on-year, which can be attributed to an increase in the minimum support prices thus boosting farm income coupled with another year of above normal monsoon. Realized [Phonetic] streams in auto and auto component will drive manufacturing. In addition to this the policy initiatives in infrastructure and scrapping policy of vehicles above 15 years will boost the demand for CV and construction equipment. These synergies will play to push growth for our supply sectors and hence will open more opportunities for us.

Our strategy is to do additional CapEx in bi-metal and Alkop segments within the next two years, so that we cannot only cater to the surged demand from auto sector, but will also add more share of our revenue from the non-auto sector as well. We have capabilities of manufacturing wide range of product which are complementary to our current product segments and the company will always be open to new margins accretive opportunities to clear future growth.

Now we will take you through the operational and financial highlights for Q4 and FY23. For revenue, revenue from operation for ’23, FY23, stood at INR53.8 crore as compared to INR51.6 crores in Q4 FY22, a growth of 4.4% on year-on-year basis. For FY23 revenue jumped by 11% year-on-year and stood at INR216.9 crores.

Revenue bifurcation for the quarter was INR159.5 crores for bi-metal and INR57.3 crores from Alkop. Both product shipments grew domestically with export showing slight slowdown, as it reduced by 4.6% from FY22 to FY23. Total capacity for bi-metal segment stands at INR485 lakhs per annum as on FY23, with utilization levels of around 68%. For Alkop the capacity at 4,914 [phonetic] metric tons per annum with utilizations levels of 70%.

Gross profit. Gross profit was at INR25 crore in Q4 FY23 and INR94 crores for the entire year. Gross profit margin for the quarter at 46.6% as compared to 41.3% last quarter, a jump of just 627 bps on quarterly basis. For the full year margin was 43.4% in FY23 as compared to 40.5% in FY22. Gross profit increased on the back of better product mix and manufacturing capacity. EBITDA stood at INR13.7 crore in Q4 FY23 as compared to INR10.9 crores for FY22 a growth of 25.1%.

EBITDA for the year ending FY23 stood at INR50.4 crore with margins of 23.2%. The same for FY22 was INR40 crore with margin of 20.5%. With cost rationalization measures and operating leverage we were able to expand our margins. PAT came at INR9.1 crore in Q4 FY23, up by 35.4% from 6.7 crore in Q4 FY22. PAT for the year ending FY23 is at INR32.6 crore with margins of 15%. The same for FY22 was INR24.5 crore with margins of 12.6%.

Even though volumes for exports have slice down, we expect bearing sales to Japan could recover in the coming quarters. As the international inflationary environment is fading away our demand will bounce back. Growth in coming quarters will be fueled not just by brakes segment but also by Alkop growth as it is premium margin segment and has more scope due to customization needs.

With strong OEM sales in FY23 and secure customer relationships we have the confidence to continuously deliver better results. Thank you very much. With this I would like to open the floor for question-and-answers. Thank you.

Questions and Answers:

Operator

Thank you very much [Operator Instructions]. The first question is from the line of Himanshu Upadhyay from o3 BMS. Please go ahead.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Yeah, hi. Congratulations on good set of numbers. On the margins front, okay, the first question was, in case of Alkop for last year, the revenue growth is around 29%, okay versus the volume growth of 6%. So can you give an idea of is it because of rise in metal prices and how much would be because of higher-value addition and what led to such — nearly 23% difference between the volume growth versus value growth?

Arun Aradhye — Whole Time Director and Chief Financial Officer

See, mainly it is because of new develop parts which the valuation or value addition were — is better. And mainly the value addition, what we are looking, and

The component we’re accepting are typical ones, which the volumes are comparatively less, but the value is more. So more value added products have been included during this year, which has really contributed to the margins, better margins or improved margins, we can say.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Okay, okay. And can you give an idea of between Alkop and bi-metal bearing which will have a higher proportion of business from automobiles and from industrial segments, which would have a higher revenue contribution?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Certainly, in bi-metal division, auto sector is a prominent one. You can say almost 80% is automobile.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Okay. And in the other business, aluminum casting?

Arun Aradhye — Whole Time Director and Chief Financial Officer

In aluminum casting business, that is almost 50%.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Okay, so aluminium caters to more industrial side of the business.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, variety of products, you can say.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Okay and more on this side only, we are seeing high growth for capital goods, both in India and outside India. How is the outlook for both the businesses, means we have OEMs for compressor manufacturer, generators, construction equipment, et cetera. And can we expect the Alkop business to do better than even — or continue to do better than bi-metal bearings in the near future, because of capital goods being much better than auto companies currently?

Arun Aradhye — Whole Time Director and Chief Financial Officer

See during the last quarter there were so many foreign delegations particularly from USA and Korea, they have visited our plants and aluminum as well as in bi-metal division. So they are impressed with the performance so far as you can say. For example, [Indecipherable] is concerned. Our CPM is very late. We have been awarded the recognition. We have been awarded with recognition so far as quality is concerned, timely delivery is concerned.

So [indecipherable] is a global company. So they are varied divisions in the USA also. So all of them are coming so just like a China 1 policy, Europe 1 policy is in existence for this. So many more people are approaching us so far as bi-metal is concerned, and so far as aluminum division is also concerned. So many people are coming and approaching and we are achieving so many RFP from all of them.

So what I’ve seen, so far as upcountry is concerned, so globally India can be a future base for all these companies for manufacturing.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Okay, okay, and one thing, in case of bi-metal bearings the volume growth, can we assume that the volume growth was in double-digits for exports? And again, on page 7, and in the concall also recently, means currently, you stated that because of slowdown in Japan the exports for bi-metal bearing fell. So is Japan a very large market for us outside India or can we say that it is the largest market for bi-metal bearings outside India for us.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Well, that is not the largest, but we can say the major player. So that Japan their companies are facing slowdown in their industries. So because of that there has been slight reduction in the exports to Japan, which has certainly affected our exports in totality.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Okay. Because see, if we see the 13% value de-growth has happened, okay in the bi-metal bearing, okay. It seems that the volume de-growth would be at least high-single digits?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, yes.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

And will it be across the geographies for exports or it is particular to one geography only?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Particularly in Japan only. Not in USA, business is growing.

Himanshu Upadhyay — o3 Wealth & Asset Management` — Analyst

Okay. Thank you. I’ll join back in the queue for further queries.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay, thank you.

Operator

Thank you. The next question is from the line of Nirali Gopani from Unique BMS. Please proceed.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay.

Nirali Gopani — Unique Asset Management LLP — Analyst

Yeah, hi, sir.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Hello, Nirali, how are you? Fine.

Nirali Gopani — Unique Asset Management LLP — Analyst

Fine, fine sir. How about you?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yeah, okay. Please let me know.

Operator

Ms. Gopani, we are not able to hear you. Please unmute your line if muted.

Nirali Gopani — Unique Asset Management LLP — Analyst

Hello?

Operator

Yeah.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, Nirali, please.

Nirali Gopani — Unique Asset Management LLP — Analyst

Yes, sir. Can you hear me now?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, yes.

Operator

Please use the handset mode.

Nirali Gopani — Unique Asset Management LLP — Analyst

So sir, my question was on the EBITDA margin. So we were far higher than our competitors earlier also. But when we look at the last two quarters, we have reached an EBITDA margin of 25%. Now you are saying that it was because of customization or high value products. Like how do we think, how sustainable these margins are?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Sorry?

Nirali Gopani — Unique Asset Management LLP — Analyst

How sustainable these EBITDA margins are of 25%?

Arun Aradhye — Whole Time Director and Chief Financial Officer

See it is 24%, 25%, we have been checking in for not only for this year, earlier also the margins were better. Now they are improving further because of more and exports, exports orders have being received where margins are slightly higher than what we get in OEMs and domestic market. That is one of the reasons that is more value-added products are being introduced, in the total gamut. That is one of the major reasons along with operational efficiency that have in place.

And then again not only exports products, products which are being exported, having high value addition. But the domestic products which we have introduced mainly in aluminum division particularly, those are all having a better value addition. And honestly that we have been pursuing every now and then considering that — and the total value and the weightage of the products what we see in that we will not only sustain the margins, but it is likely to increase to some extent.

Nirali Gopani — Unique Asset Management LLP — Analyst

Okay, sir. Okay. Sir, the brakes will be a little lower margin, right, if I’m not wrong?

Arun Aradhye — Whole Time Director and Chief Financial Officer

As compared to bearing and aluminum it could be low margin business relatively.

Nirali Gopani — Unique Asset Management LLP — Analyst

And 17%, 18%.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, yes.

Nirali Gopani — Unique Asset Management LLP — Analyst

Okay.

Arun Aradhye — Whole Time Director and Chief Financial Officer

18% plus.

Nirali Gopani — Unique Asset Management LLP — Analyst

Okay, okay. And this INR8 crore of CapEx that we have done for brakes what kind of revenue that will generate for us in FY24?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Sorry.

Nirali Gopani — Unique Asset Management LLP — Analyst

The brakes we have done CapEx of INR8 crores, right that you mentioned the machinery?

Arun Aradhye — Whole Time Director and Chief Financial Officer

INR8 crore plus.

Nirali Gopani — Unique Asset Management LLP — Analyst

So what kind of revenue will it generate for us?

Arun Aradhye — Whole Time Director and Chief Financial Officer

See, we have already given all these figures. So these are future forecast and estimates, but what I think that we will start at least with INR25 crores, INR27 crores this year and the year-on-year increase of our 30% to 40% we have baked in.

Nirali Gopani — Unique Asset Management LLP — Analyst

Okay, okay. And sir, the last question is on the revenue growth. So obviously, we were expecting a little higher revenue growth, which you explained that largely impacted due to exports. So we see this pressure on the export easing out in FY24?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Certainly, it is going to ease in the next quarter, from next quarter itself. So I think it will be eased from second quarter. And basically there were little slowdown within the last year in Alkop segment, which has been normalized now. So we feel that the year-on year growth year after will be 20% in both segments.

Nirali Gopani — Unique Asset Management LLP — Analyst

Great sir. Sir, thanks a lot.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, thank you.

Nirali Gopani — Unique Asset Management LLP — Analyst

Thank you.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Thank you. The next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Ankit Gupta — Bamboo Capital — Analyst

Hello. Thanks for the opportunity. Sir, on the volume growth side, how do you see the volume growth in the bi-metal Is and Alkop segment for FY24? FY24 what we have seen we should be growing at around 20% plus. Okay, on the volume side or revenue side?

Arun Aradhye — Whole Time Director and Chief Financial Officer

That is revenue. I am talking about revenue. We’re going I’m talking of revenue.

Ankit Gupta — Bamboo Capital — Analyst

Sure, sure. And on the brake lining and brake shoe segment, the new segment that we’ve entered.

Arun Aradhye — Whole Time Director and Chief Financial Officer

That is starting actually we have started commercial products from now from that.

Ankit Gupta — Bamboo Capital — Analyst

Sure.

Arun Aradhye — Whole Time Director and Chief Financial Officer

So we will be expanding our aftermarket, Once we settle in the aftermarket, we will look for OEM, sir.

Ankit Gupta — Bamboo Capital — Analyst

Okay.

Arun Aradhye — Whole Time Director and Chief Financial Officer

This being the first year we cannot estimate much about that. But what I feel that our capacity is INR25 crores, and we will try to see that it would be utilized.

Ankit Gupta — Bamboo Capital — Analyst

Sure, and what can be the ballpark margins in this segment?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Here in brakes?

Ankit Gupta — Bamboo Capital — Analyst

In brakes, yes.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, yes. It will be about 18% to 19% EBITDA margin.

Ankit Gupta — Bamboo Capital — Analyst

Okay, so. It’s like almost like Alkop kind of margins that we’ll have in that segment.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Right.

Ankit Gupta — Bamboo Capital — Analyst

Okay. And sir. You were talking about increase the traction in the export side. So is it more on the Alkop side or on — in the bi-metal side also you are seeing–?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Alkop, major, major will be due to Alkop.

Ankit Gupta — Bamboo Capital — Analyst

Sure, sure. And Alkop we are currently at 60%, 70% capacity utilization. So any plans for further expansion on the Alkop side?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Further function, we have already given that INR30 crores of CapEx, we have planned for next few years, of which 60% will go to aluminum division. We are going to build one infrastructure factory shed of around 65,000 square feet there.

Ankit Gupta — Bamboo Capital — Analyst

Okay.

Arun Aradhye — Whole Time Director and Chief Financial Officer

And 40,000 square feet in diameter.

Ankit Gupta — Bamboo Capital — Analyst

Sure, sure. And out of that 60% will in Alkop segment, yeah.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Right.

Ankit Gupta — Bamboo Capital — Analyst

Okay, thank you. And wish you all the best.

Operator

Thank you. The next question is from the line of Pritesh from Mission Street India Private Limited. Please go ahead.

Pritesh Vora — Mission Street India Private Limited — Analyst

Sir, many congratulations on a good set of numbers. So there was a revenue miss. I’m sure [Multiple Speakers] that bottom line has increased. My question is, sir, you mentioned about some INR30 crores CapEx. And also you did some INR8 crore of the CapEx last year. So if I want to count the asset turnover ratio, what could be the optimum revenue level, we can see, when the facility is fully utilized? What kind of asset turnover ratio we can see out of this? And this INR30 crore, I assume is on the brake–

Arun Aradhye — Whole Time Director and Chief Financial Officer

Assuming the existing capacities, in addition of INR30 crores, in addition of brakes, put together what we see during ’24-’25 or ’25-’26 rather you can say, the capacity utilization which there is, which is almost 100%, it will be about INR400 crore.

Pritesh Vora — Mission Street India Private Limited — Analyst

Okay, at 100% it can be INR400 crore of revenue.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yeah, it is about INR500 crores you can say. On the capacity.

Pritesh Vora — Mission Street India Private Limited — Analyst

Right, right. It may come or may not come, that depends upon the business and —

Arun Aradhye — Whole Time Director and Chief Financial Officer

Markets, that depends upon the market. But we presume that we will make all endeavors to see that we fully utilize the capacity.

Pritesh Vora — Mission Street India Private Limited — Analyst

Right, right. Understood. And that can come in ’25 or ’26basically.

Arun Aradhye — Whole Time Director and Chief Financial Officer

It is ’23-’24, ’24-’25 by the end of ’25 you can say the capacity will be totally built, all that we build this.

Pritesh Vora — Mission Street India Private Limited — Analyst

Okay, and sir my second question was little bit your margin has decreased, like say what we were seeing 25%, 26%, in ’18-’19. Now we are at 21% or this year we are at 23%. So do you think our margin will decrease from here because our brakes which we are introducing, which will come at lower margins. So if I consider INR400 crore of turnover, my margin will reduce from the present 23% to say 20% or so. How do we view that?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, your question is right. It should have an effect on the total margins as such. It will contribute to some extent, but at the same time our business in aluminum and bearing is increasing to such an extent, there is a growth of almost 20% what we feel it can be. So considering that increased business on value addition, better value addition, we hope that these margins in both the businesses should increase to some extent to compensate this reduction in margin so far as brakes is concerned. So I feel that whatever the margin that we are doing now are sustainable even if brakes business comes into picture.

Pritesh Vora — Mission Street India Private Limited — Analyst

Understood, understood. And can you talk about like this brake which you’re saying you are selling to aftermarket. Does generally is it OEM supported or this is just sold into wider distribution channel? And irrespective of what OEM is, they generally supply this brake. How does this work?

Arun Aradhye — Whole Time Director and Chief Financial Officer

It is no way related to OEMs. The market segment is totally different. My after market is around INR900 crores, because it’s a consumer variety. Though a safety item is very safety item, it is. But at the same time, it is consumable. So It has to be replaced after every 40,000 kilometers or in hilly area or in mining area it has to be replaced after every 15,000 to 20,000 to 25,000. So it’s a fast consumable item. And the potential of which in aftermarket alone is about INR900 crores. So even if we get 15% of it, it will be huge business for us.

Pritesh Vora — Mission Street India Private Limited — Analyst

You are saying you will get 50% of the aftermarket you are saying?

Arun Aradhye — Whole Time Director and Chief Financial Officer

15%, one-five.

Pritesh Vora — Mission Street India Private Limited — Analyst

One-five. Okay, okay, understood.

Arun Aradhye — Whole Time Director and Chief Financial Officer

So and because competitors are not too many for that. At the same time as a bearing business we are having all-India pan-India network already in place. So we can utilize that, which can be advantage for us also, settle in to the aftermarket very fast, apart from the transport undertakings, where the requirement is also high.

Pritesh Vora — Mission Street India Private Limited — Analyst

Understood. And, sir, one more question was around your some businesses — like. I mean what next. I mean you’ve expanded directly into the brakes, but still we will be around INR400 crore businesses. What kind of businesses or adjacency you’re talking about to say like three, four five years down the line, the company can do INR1,000 crore revenue or that is not possible.

Arun Aradhye — Whole Time Director and Chief Financial Officer

See I should not be talking about INR1,000 crores and all these things. We don’t know the future. So many more products like brakes can come into play over a period of time. We cannot tell anything about that just now. But what I have seen that few years down the line we should be — why we should not reach INR500 crores. How in India, it would be seen that how we can reach INR500 crores?

Ankit Gupta — Bamboo Capital — Analyst

No, but sir. If you can talk about product adjacency or how you plan to expand because still even if you reach INR500 crores you will still be a very small company for a institutional investor, somebody to take an interest into it.

Arun Aradhye — Whole Time Director and Chief Financial Officer

I understand fully. But at the same time you see there are companies — there are so many companies making INR500 crores or INR700 crores of turnover, but their margins, PAT margins are just 3%, 4%, 5%, 6%, 7% and that’s all. You have to look at the bottom line also. You see our bottom line that is robust, according to via my opinion, if you consider the total industry as such these are very good margins.

Operator

Thank you. Mr. Pritesh, may we request that you return to the question queue for follow-up questions. [Operator Instructions]. The next question is from the line of Nikhil from SIMPL. Please go ahead.

Nikhil Upadhyay — SIMPL — Analyst

Yeah, hi, good afternoon. I hope I’m audible.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yeah, good afternoon. Yes, you are audible, yes.

Nikhil Upadhyay — SIMPL — Analyst

And congratulations on good set of numbers and significant margin recovery. Sir. I have two questions. One is, during the year when we had met the customer audits and everything was still there, and it was very strong pipeline which we were looking at. If we have to understand today, because our export business has not grown significantly during the year, even though the audits and all were happening. So is it like we are audited by most of the customers and have been accepted by the customers, but there was no volume flow-through which has happened. As a result, the demand or the revenue growth was a miss? How do we understand where are we?

Arun Aradhye — Whole Time Director and Chief Financial Officer

I will let you know. So maybe in aluminum or maybe our bearing division, So many more audits which are in place, like more than INR100 crores of audits, these are in place. There is a high entry barrier. All the material has to undergo rigorous testing and validation. So after receipt of RFP, then we send samples and commercials are finalized. They come for audits, then samples are prepared, samples are sent. Then they will be — they will go for testing.

So the entire process requires about 9 to 10 months from receipt of RFP to actual start of business. So considering that, that all business is in pipeline. That’s will be converted into the active business over a period of time. There is no doubt, nothing, no problem at all.

Nikhil Upadhyay — SIMPL — Analyst

Okay, and if we have to understand the hit ratio in terms of the RFQs being received and which getting converted into commercial business, would you say it is like 70%, 80% or where are we in that conversion rate?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Conversion, conversion rate. So such from receipt of RFP to start our business and commercial production, so the ratio of conversion is about 80% to 85%.

Nikhil Upadhyay — SIMPL — Analyst

Okay. And lastly, the CapEx which we are doing of INR60,000 square feet in Alkop division and similar, a little less in bi-metal, what kind of volume visibility you have? Is it like there is visibility from the customer in terms of take up of the product? As a result, we believe that 40% 50% utilization can be achieved in year 1 or is it like we’ll put the capacity than the market development. How — just to understand this utilization of CapEx?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay. So unless the business is on the horizon, we will not go into that additional CapEx. We make an additional CapEx and planning thereof when we see the business on the horizon. As then we will go with putting of the infrastructure in place. So it will not go waste, and we will not have to wait for the business there also.

So the business is pipeline and considering that we are going to have an expansion.

Nikhil Upadhyay — SIMPL — Analyst

Okay, fine. Thanks. I’ll come back in the queue.

Operator

Thank you. Pardon sir, I’m sorry to interrupt you, but the audio is slightly unclear from your line. I would request you to use the handset mode.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay.

Operator

Yeah. Thank you. We’ll take the next question from the line of Alisha Mahawla from Envision Capital. Please go ahead.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay.

Alisha Mahawla — Envision Capital Services Private Limited — Analyst

Hi sir, good afternoon. Thank you for taking my question. Sir, just wanted to understand, you mentioned that we’re targeting for 20% growth on — both on the bi-metal and Alkop side. What will this growth be driven by? Are we adding new clients or are we seeing that there will be faster growth on the non-OEM side. Or are we increasing wallet share with our clients? What is going to drive this growth?

Arun Aradhye — Whole Time Director and Chief Financial Officer

We have seen the pipeline already there of RFQs. We are seeing conversion ratio is 80% and more than INR100 crore of RFQs are in-place. In lieu of that–

Operator

Arun sir, the audio is unclear from your line.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Hello, can you hear me now properly?

Operator

Now it is better. Thank you.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay, okay. So madam considering the RFP which are in hand, that is both OEM and exports in both the segments. So we are having those RFQs in place to the extent of around INR100 crores of business is in pipeline and conversion ratio being 80% we are 100% sure that why we should not be growing at rate of 20%. It can be even more than that, if including the brakes business.

Alisha Mahawla — Envision Capital Services Private Limited — Analyst

Understood. And on the export side, the slowdown that you are witnessing is on the bi-metal side or the aluminum casting side?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Bi-metal.

Alisha Mahawla — Envision Capital Services Private Limited — Analyst

On the bi-metal side. And the same if we take the average of the two quarters for these two?

Arun Aradhye — Whole Time Director and Chief Financial Officer

That is purchased already in Japan. Other businesses are growing.

Alisha Mahawla — Envision Capital Services Private Limited — Analyst

Understood and for brakes we have done INR8 crores of CapEx. What is the peak revenue in the brakes segment that we will be able to do on INR8 crores of CapEx?

Arun Aradhye — Whole Time Director and Chief Financial Officer

I will let you know that asset turnover will be around 3.

Alisha Mahawla — Envision Capital Services Private Limited — Analyst

Sir then we should reach the peak revenue of INR25 crore within this year only. Then you are saying that after that 20%, 30% growth that we’re targeting every year will require incremental CapEx?

Arun Aradhye — Whole Time Director and Chief Financial Officer

So that will be nominal because we have all infrastructure in place, now we just have to add the lines only. So OEMs will be once we are complete in the aftermarket, OEM will be also in place. For that we be have to go on adding additional lines only, which cost around INR1.5 crores to INR2 crores only. That is not much.

Alisha Mahawla — Envision Capital Services Private Limited — Analyst

Okay. Sure. And Just one last question, this INR30 crore CapEx that we’re talking of doing, this will be funded completely through internal accruals?

Arun Aradhye — Whole Time Director and Chief Financial Officer

As of now, we have decided to fund it through internal accruals mainly. And there will be a nominal funding from the bank, because this year you can see, we are almost debt free. Our debt and cash and bank balance is almost equal.

Alisha Mahawla — Envision Capital Services Private Limited — Analyst

Okay, great, thank you so much. I’ll join back-in the queue.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Great.

Operator

Thank you. The next question is from the line of Chirag Shah from White Pine. Please go ahead.

Chirag Shah — White Pine Capital — Analyst

Yeah, sir. Thanks for the opportunity. Sir, one question, rather two questions, one on the domestic side, in the auto, can you give a broad breakup of end-customer segment is it?

Arun Aradhye — Whole Time Director and Chief Financial Officer

I could not understand the question. Can you repeat it?

Chirag Shah — White Pine Capital — Analyst

For the domestic auto business, okay which is like 3% [phonetic] for us — if I if my understanding is correct what are the end segments breakups of PFS, vehicle tractor, CVs two-wheelers??

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay, okay. Can you write it down? I will tell you. For tractor, it is 30%. Okay. HCV 20%, okay. Brakes it is 16% to 17%. okay. Transmission it is 8% to 10%, okay. Replacement market, about 8%, okay. Raw material and strip supplies about 12% to 15%, okay. And electrical and other material that is 3%. Okay.

Chirag Shah — White Pine Capital — Analyst

So we are say8ing tractor and HCVs is 50% for us.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes.

Chirag Shah — White Pine Capital — Analyst

Tractors and commercial. And when you say brakes and transmission, it goes to which segments sir.

Arun Aradhye — Whole Time Director and Chief Financial Officer

We don’t know. We are supplying to Brakes India, or Automotive XL.

Chirag Shah — White Pine Capital — Analyst

Okay, like that.

Arun Aradhye — Whole Time Director and Chief Financial Officer

To whom they are selling we don’t know.

Chirag Shah — White Pine Capital — Analyst

Fair point. And on the export side, the broad breakup of export revenue for us?

Arun Aradhye — Whole Time Director and Chief Financial Officer

That is all entirely auto, HCV, LCV.

Chirag Shah — White Pine Capital — Analyst

Okay, exports is HCV, LCV for us. And I presume this is more US dominated rather than Europe dominated.

Arun Aradhye — Whole Time Director and Chief Financial Officer

US dominated as well as Japan is also there and then African countries through Dubai.

Chirag Shah — White Pine Capital — Analyst

Okay. Okay. This is helpful. Sir, second question is you indicated that you have won lot of RFQs and that gives you confidence. Based on your past experience is there a lead-lag which happened which is much bigger than your estimation. If there is —

Arun Aradhye — Whole Time Director and Chief Financial Officer

What I have told you that out of the RFQ our past experiences that the conversion ratio is around 80% to 85%.

Chirag Shah — White Pine Capital — Analyst

No, I’m not saying about conversion ratio. Conversion ratio is 80% to 85%, but once you are approved supplier is that happens that the suddenly the demand gets postponed because of variety of reasons or once you win the order the supply begins. So you are not linked to the economic cycles as such.

Arun Aradhye — Whole Time Director and Chief Financial Officer

No, no, not at all, because you see, once we given the vendor code, after audit and all approvals, then we go get on a continuous solid founding [Phonetic].

Chirag Shah — White Pine Capital — Analyst

Okay, so for the new RFQs, generally, the risk of delay is minimum. That is the way to understand?

Arun Aradhye — Whole Time Director and Chief Financial Officer

That is right, very less.

Chirag Shah — White Pine Capital — Analyst

Yeah, so when you indicated 9 to 10 months, the entire process, broadly it could be even 12 months depending upon product. And last year, you have — you were participating in lot of audits and RFQs et cetera. So reasonable to assume that will flow through this year.

Arun Aradhye — Whole Time Director and Chief Financial Officer

See what happens, so far as bearings are of concern and aluminum products are concerned, it has to be tested every time. Every new part it has to be tested, because that directly goes into use. We stated and we take such a longer time.

Chirag Shah — White Pine Capital — Analyst

Okay, sir, thank you very much and all the best.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay, thank you.

Operator

Thank you. The next question is from the line of Anuj Sharma from M3 Investment. Please go ahead.

Anuj Sharma — M3 Investment — Analyst

Yeah, thank you. I have two questions. One is who will be your key competitors in the brakes segment.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Our key competencies are Rane Brakes.

Anuj Sharma — M3 Investment — Analyst

Okay, okay, that’s the only one?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Rane Brakes and Hindustan Composites.

Anuj Sharma — M3 Investment — Analyst

Okay, okay. And my second question is on the export market and bi-metal segment, what is the addressable market we are we are targeting?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Sorry, can you repeat?

Anuj Sharma — M3 Investment — Analyst

What is the size of market –?

Operator

Mr. Sharma, please use the handset mode sir. The audio is unclear.

Anuj Sharma — M3 Investment — Analyst

Yeah, sorry. Sir, I was just trying to understand what is the addressable opportunity in the exports segment for bi-metal bearings. So what is the total–?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Actually what is the overall is we don’t know exactly how much it is. But according to the knowledge we have, export market potential is around INR3,000 [Phonetic] crore.

Anuj Sharma — M3 Investment — Analyst

Okay, okay.

Arun Aradhye — Whole Time Director and Chief Financial Officer

There is a huge market. We had to tap so many countries. So there is a try we are taking one by one, one by one, we are expanding the market and countries we are covering. So this is a huge market, maybe Argentina, maybe European countries still are there. We’re into GSA, Japan, Korea, Mexico, Netherlands, and different countries. Still Europe and Russia are vacant.

Anuj Sharma — M3 Investment — Analyst

All right, all right. All right, that’s helpful. Thank you.

Operator

Thank you. The next question is from the line of Dhruv Jhaveri from Seven Island BMS [Phonetic].

Unidentified Participant — — Analyst

Hello, hi sir, good afternoon.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yeah, good afternoon.

Unidentified Participant — — Analyst

Sir. I just had a simple question, on the exports front, what are our margins?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Margins we cannot tell you. That is secret, business secret. We cannot tell the margins. But you can see the overall, if you see the overall margins, it will be. Maybe about 3% to 4% more in the exports.

Anuj Sharma — M3 Investment — Analyst

Okay, sir. Thank you. Thank you very much.

Operator

Thank you. The next question is from the line of Varun Bang from Brian Fin [Phonetic] Investments. Please go ahead.

Varun Bang — — Analyst

Am I audible.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, yes,

Varun Bang — — Analyst

Sir, congratulations on good set of performance. Just couple of questions. Sir firstly in your opinion, what would be the gestation period in the brakes segment and so I’m just trying to understand, how long will it take for us to sort of reach desired set of distribution network and also achieve our target set of profitability? So how long will it take to develop markets?

Arun Aradhye — Whole Time Director and Chief Financial Officer

It may take six months.

Varun Bang — — Analyst

It will happen in six months.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yeah.

Varun Bang — — Analyst

And basis of your long term targets. So I’m just trying to understand what should be your near to medium term goals and target for this division. And what are your focus areas for next one year for this distribution?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Our target for the next — within next three years, we should — why we should not reach INR100 crore, that is our target. That is all estimate. Of course that is all estimate. That is not commitment. Our endeavor will be to change that how we can reach INR500 crore business in the — within three years.

Varun Bang — — Analyst

No sir, I’m just trying to understand your focus areas for this division over medium — near-to-medium term and also –?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Immediate business that we are expanding into aftermarket, we are already registered with 50 plus distributors now, all over India. So aftermarket. Then state transport undertakings, then all transporters, private transporters and then OEMs.

Varun Bang — — Analyst

Okay, okay, got it. And sir, we’ve performed very well in FY23 and the growth has been highly profitable compared to what we see is the dividend payout has been lower than last year. And I think we’ve talked about maintaining dividend payout between 45% to 50%, but it is below 35% for this year. So any specific reasons that you would like to highlight and how should we look at our dividend payout policy going-forward?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Overall policy as such, we have made a policy to declare. 40% of the PAT as a dividend. But it will be around 200% something that we have paid last year. Maybe this year also the Board will make the decision to distribute dividend to the extent of 35%, 40%, similar.

Varun Bang — — Analyst

Okay and I was just saying that the growth has been good for this year, but the payout ratio has been lower than last year. So I’m just trying to understand. From that perspective.

Arun Aradhye — Whole Time Director and Chief Financial Officer

But that is entirely the Board decision, and your decision. You will have approve that.

Varun Bang — — Analyst

Okay, no problem. Thank you.

Operator

Thank you. The next question is from the line of Darshil Pandya from Finterest Capital. Please go ahead.

Darshil Pandya — Finterest Capital — Analyst

Hello sir, good afternoon. Yeah, good afternoon. Majority of the questions are asked. Sir, I just wanted to understand one thing. If. I heard it right, the market size for the brakes is INR900 crores. Is that right?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Market size, yes, INR900 crore aftermarket.

Darshil Pandya — Finterest Capital — Analyst

For the aftermarket. So what is the total market size of this of brake lining and brake shoes?

Arun Aradhye — Whole Time Director and Chief Financial Officer

Total aftermarket as such it is INR4,000 crores. But that is put together for the car, HCV, LCV, tractor and three wheelers.

Darshil Pandya — Finterest Capital — Analyst

And as you said, it is also for — you cater to OE aftermarket and even railways. So I just wanted to understand how railways can be — how will you — what’s your view on this specific thing.

Arun Aradhye — Whole Time Director and Chief Financial Officer

I could not understand what you need to ask me.

Darshil Pandya — Finterest Capital — Analyst

Yes, so I’ll revisit. So. I just wanted to understand, you in the presentation, it says that it will cater to railways as well. So. I just wanted to understand what is the management — how is it expecting to cater to the railways going forward.

Arun Aradhye — Whole Time Director and Chief Financial Officer

That will be the last program or last client, you can say. After we complete aftermarket, STUs, transport operators, OEMs and then we will contact railways.

Darshil Pandya — Finterest Capital — Analyst

Okay, so any specific year or something that you have targeted to get into this?

Arun Aradhye — Whole Time Director and Chief Financial Officer

You see that being a government organization, we don’t go on to get into so many rate [indecipherable]. That will be the last resort, you can say.

Darshil Pandya — Finterest Capital — Analyst

Got it. And one last thing. You said about doing a CapEx of INR30 crores and so on. I just wanted to understand, is there a fundraising, in your mind to get to first, you said that you will not be going up more with the debt.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Mostly we will be funding through internal accruals. Maybe a marginal debt can be there, but not much.

Darshil Pandya — Finterest Capital — Analyst

Got it, Thank you so much. This was it from my side.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Thank you

Operator

Thank you. Ladies and gentlemen, we’ll take the last question from the line of Ankur Kumar from Alpha Capital. Please go ahead.

Ankur Kumar — Alpha Capital — Analyst

Hello. Congrats for a good set of numbers. Thank you for doing the concall.

Operator

Yes. Thank you.

Ankur Kumar — Alpha Capital — Analyst

A question regarding–

Operator

The audio is breaking. From your line, sir.

Ankur Kumar — Alpha Capital — Analyst

Is it better?

Operator

No, it is still breaking. Please be in a network area.

Ankur Kumar — Alpha Capital — Analyst

Sorry, is it better now?

Operator

No sir. The audio is still breaking from your line.

Ankur Kumar — Alpha Capital — Analyst

Better now.

Operator

Yes.

Ankur Kumar — Alpha Capital — Analyst

Okay. Sir my question is regarding the tractor is largest share of 30%, but now in this year there is some worries on the monsoon front also. So the tractor demand may not be that great for this year, is the expectation. So given this thing are we still confident of 20% of growth in both the segments?

Arun Aradhye — Whole Time Director and Chief Financial Officer

100% because we’re already having so many RFQs in hand. And that is in pipeline and samples, so many samples have been already manufactured and sent for inspection and trials. So we don’t think any problem in achieving 20% year-on-year. Not at all. And I can say there are certain predictions made by revise the meteorological department. But according to the local Panchang our traditional system, I have got the information that there would be enough and appropriate monsoon. And should not be any problem this year also. This is what is the prediction also. We don’t know what happens later.

Ankur Kumar — Alpha Capital — Analyst

Okay sir. And sir on the brake side, you said INR25 crore is the potential that can come this year. So basically–

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yes, yes. So maybe a maybe a little less, because we have started commercial production this month. It will require some time to settle into the market, but yearly target as such it should be INR25 crores.

Ankur Kumar — Alpha Capital — Analyst

So sir, can we say bi-metal, as well Alkop will grow 20% for this year and the brakes will be extra or total consol we are expecting 20%?

Arun Aradhye — Whole Time Director and Chief Financial Officer

So consolidated it will be 20% plus actually for this year.

Ankur Kumar — Alpha Capital — Analyst

Sure sir. Thank you and all the best.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Thank you. Thank you all.

Operator

Thank you. Ladies and gentlemen due to time constraint we will take that as the last question. I would now like to hand the conference over to the management for closing comments.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Yeah. I would like to thank you all for the encouraging response to our first earnings call. We’ll keep updating the investor community on regular basis for incremental update from the company. I hope we were able to address all your queries. For any further information kindly get in touch with Strategic Growth Advisors, our Investor Relations Advisors. Thank you once again. Thank you.

Operator

Thank you very much, sir. Ladies and gentlemen, on behalf of Menon Bearings Limited that concludes this conference call. Thank you for joining us and you may now disconnect your lines.

Arun Aradhye — Whole Time Director and Chief Financial Officer

Okay, thank you everybody.

Operator

Thank you.