Nelcast Limited (NSE: NELCAST) Q2 2025 Earnings Call dated Nov. 08, 2024
Corporate Participants:
P. Deepak — Managing Director and Chief Executive Officer
Analysts:
Abhishek Bhatt — Analyst
Saket Kapoor — Analyst
Vidit Shah — Analyst
Priyam Shah — Analyst
Rakesh Kumar — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Nelcast Limited Q2 and H1 FY ’25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]
I now hand the conference over to Mr. Abhishek Bhatt from E&Y Investor Relations. Thank you, and over to you, sir.
Abhishek Bhatt — Analyst
Thank you. Good morning, everyone. On behalf of Nelcast Limited, I welcome you all to the Company’s quarter two and H1 FY ’25 earnings conference call. You would have already received the results and investor presentation, which is also available in our filings with exchange. To discuss the Company’s business performance during the quarter and outlook, we have with us today Mr. P. Deepak, Managing Director and Chief Executive Officer; and Mr. S.K. Sivakumar, Chief Financial Officer of Nelcast.
Before we proceed with the call, a disclaimer. Please do note that anything said on this call during the course of the interaction and in our collaterals, which reflects the outlook towards the future or which should be construed as a certain forward-looking statement must be viewed in conjunction with the risks the Company faces and may not be updated from time-to-time. More details are provided at the end of the investor presentation and other filings that can be found on our website, www.nelcast.com. Should you have any queries or need any further information at the end of this call, you can reach out to us at the email address mentioned in the Company collaterals.
With that, I would like to hand over the call to Mr. Deepak. Thank you, and over to you, sir.
P. Deepak — Managing Director and Chief Executive Officer
Thank you, Abhishek. Good morning, everyone. Thank you for joining us today. As we review the performance of Nelcast for the second quarter of financial year 2025, I would like to provide you with a comprehensive overview of our current position and our outlook for the future. The Q2 FY ’25 results have been modest, primarily due to a contraction in domestic commercial vehicle demand and a slowdown in export demand, particularly from the United States, which is a key market for us and is currently navigating through its election period. This has inevitably affected both our sales volumes and price realizations during the quarter. Additionally, the domestic tractor market has shown a flat trend, which has also influenced our performance metrics. Despite these challenges, I’m pleased to report that the development of our new products is progressing as planned. We are confident in our ability to secure many more new orders over the next two to three quarters, which is a testament to our team’s dedication and innovative spirit that drives our Company.
Looking ahead, we are optimistic about the prospects for the coming financial year. We anticipate a resurgence in demand as the election phase in the U.S. concludes and new emission norms come into effect in calendar year 2027. We expect this to stimulate the market, especially in 2026. Furthermore, we are actively exploring new export markets that promise to contribute to our growth trajectory. We are actively pursuing efforts to boost our export share from the present 36%, up to 50% in the future.
FY ’25 has been a year of strategic consolidation. We have focused on strengthening our core competencies, optimizing our operations, and laying the groundwork for future growth. As we move forward, we are poised to capitalize on the opportunities that lie ahead and are excited about the potential for robust growth in the coming years. I want to express my sincere gratitude to our dedicated employees, loyal customers, and steadfast shareholders for your continued support. Together, we will navigate the challenges and embrace the opportunities to ensure that Nelcast remains a leader in our industry. Thank you, and I look forward to the continuing success.
Lastly, commenting on the financials. The total income for Q2 was INR335 crores compared with INR362.6 crores in Q2 of FY ’24. The total income for H1 of FY ’25 stood at INR637.4 crores compared to INR659 crores in H1 of FY ’24. Exports stood at INR227 crores compared to INR219.9 crores in H1, so it’s just a modest growth of 3.5% year-over-year. The EBITDA for Q2 of FY ’25 was INR26 crores compared to INR36 crores last year and the EBITDA for the half year stood at INR48.4 crores compared to INR59 crores in H1 of FY ’24. So this resulted in our PAT for the quarter being INR9.8 crores and INR17.8 crores for the half.
The equity as on September 2024 stood at INR536 crores compared to INR521 crores in March 2024. Long-term borrowings came down in September and the total debt-to-equity came down to 0.57 times from 0.63 times.
So I thank you. And I now open the floor to any questions you may have. We can now open the floor for questions and be happy to address any queries.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have first question from the line of Saket Kapoor from Kapoor & Co. Please go ahead.
Saket Kapoor
Yeah, Namaskar, Deepakji. Namaskar, Siva sir, and thank you for this opportunity. Sir, firstly, I just referred to your commenting on the results press release part, wherein, sir, I just quote you have mentioned that despite the short-term obstacles, we remain steadfast in our long-term vision. The new product development is progressing as anticipated, aligned with our strategic goals. So if you could just dwell further sir, where are we in terms of — when you are alluding to the fact of aligned with our strategic goals? And sir, do we have the material that growth — the growth is nearing, or are you building on a hope story going ahead? In your remarks also, you have mentioned that export has also flattened for the first time. So your comment on the same, sir.
P. Deepak
So Saket, I think when we’re talking about the challenging environment, I think that there is obviously the three biggest sectors that we are part of, right, which is the domestic heavy commercial vehicle, the tractor segment domestically as well as the export market, right? So I’ll just…
Saket Kapoor
Hello?
Operator
Sorry for the interruption. Participants, the line for management has been disconnected. Please stay connected while I reconnect the management. Ladies and gentlemen, we have management online back with us.
P. Deepak
Yeah. Hi, sorry. Sorry about that. It looks like there was some technical issue and a call drop. I’ll elaborate on the question that you have asked, Saket. So when we talk about challenges, primarily the three segments that we cater to are the domestic heavy commercial vehicle, tractors, and exports. So on the heavy commercial vehicle side, we are not seeing a very positive trend for the first half in terms of de-growth in sales. So that is definitely a negative impact. In fact, we were expecting that perhaps by September or October that we would expect to see a pickup post the elections and post the monsoon. We are now starting to see signs of that in November, but we were anticipating to start seeing that in the month of September. So, we are cautiously optimistic on that as of now, but that’s something that we are — it has a little bit more to do with the market.
In terms of the tractor segment, I think we’re seeing a relatively flat segment in the tractor, even though we have managed to grow in that segment. I think the overall sector appears to be flat completely, right? And in terms of exports, the challenge has been that if you look at the industry, there is a huge de-growth that’s happening in the commercial vehicle space, especially in the U.S. market. We believe that this is temporary, driven by two factors. One, the election that has just concluded. And two, the potential for interest rate cuts. We believe that there was a little bit of wait-and-watch to see how that’s going to progress. I think part of it is also people don’t want to take a loan if they believe that the interest rates are coming down. So there is a little bit of that that’s happening. We’re quite confident that that will turn around.
In terms of the new products under development, we have several new products that are under development in various stages. We’ve got a good chunk of these will be for the export market actually. And so, we do believe that we will see this translate depending on various testing cycles and all of that in the next year or so that the products that are currently under development will translate into actual sales.
Saket Kapoor
So, sir, when we look at the H1 export number of closer to INR228 crores, can you outline where we will land for this year, how should H2 be and what kind of growth can we expect? Secondly, sir, a lot of protective — protectionism from the — now the new government is also expected. So how are we insulated from any change in rupee — changes or tariff imposition if any on the segments where we operate?
P. Deepak
Yeah. So I think that’s — I think it might be a little premature to speculate on the tariffs. It does appear though that the tariffs will significantly be higher on China. I think publicly what was said during the campaigns that Trump had said was about 60% tariff on China from the 25% that’s there today. If that is the case then that could certainly benefit Indian manufacturers.
The other challenge that’s there for them is, I don’t believe capacities exist for them to even shift away, right? So I think in a lot of industries, the capacity in the U.S. or in North America in general doesn’t really exist for them to kind of try to bring back in any significant manner any business. So we don’t believe that tariffs will have a significant impact. Certainly, we’ll have to other than perhaps impacting inflation and other things. But for us specifically, we don’t believe that we expect to see any such effect.
Saket Kapoor
And on the export part sir, how should H2…
P. Deepak
Yeah. So I mean, I think right now it’s a little difficult to project H2 because we’re still seeing a lot of volatility. We expect to see a softness in the current quarter in terms of export, which will be a — which at this point, we are anticipating will actually be a little lower than Q2 and Q3, but Q4, we expect to pick-up and be quite strong. So that is our forecast as of now. But like I said, there’s a lot of volatility. But our anticipation is that we will see — on a quarter-on-quarter basis, we will see a dip in Q3 compared to Q2, but a pickup in Q4. So a little difficult to estimate at this moment.
Saket Kapoor
Sir, on the tonnage front, can you provide some…
Operator
Sorry for interrupting, Saket sir. I would request you to join the queue.
Saket Kapoor
Yes, ma’am. I will join the queue. Sir, tonnage was not mentioned in the presentation. So if you could just give the tonnage for the first half and second quarter[Phonetic].
P. Deepak
Sure. The tonnage for the first half was overall, 41,801 tons.
Saket Kapoor
And for the quarter two?
P. Deepak
Quarter two was 21,824 tons.
Saket Kapoor
Okay. And what should we end the year sir, H2 [Foreign Speech]?
P. Deepak
Let’s just wait-and-watch a little bit, but it looks to be largely perhaps in line with last year, right, as it stands today.
Saket Kapoor
Sir, I’ll join the queue, sir, for my follow-up and two more — two, three submissions also.
P. Deepak
Sure.
Saket Kapoor
I’ll wait.
Operator
Thank you so much. We have next question from the line of Vidit Shah from Spark Private Wealth Management. Please go ahead, sir.
Vidit Shah
Hi. Good morning, and thanks for taking my questions. So my first question was on the EBITDA margins or EBITDA per tons. We’ve maintained what we did last year about INR11.8[Phonetic], but this is largely driven by the other income increase from INR2.2 to INR4.6[Phonetic], right? So if I exclude this other income, we’ve actually seen a drop in the EBITDA per ton despite a higher share of exports this quarter. So could you please help explain how margins are trending for us and how they expect it to trend going forward?
P. Deepak
Yeah. So the other income that we are — that we’re talking about here is largely also related to export benefits and deposits on EV and things like that, right? So this is also — we consider that is part of operations, right? So it’s not necessarily I think, so that’s why we combine it into the EBITDA numbers that we talk about. So I — otherwise, I don’t think that there’s anything substantially different.
Vidit Shah
So even then, like so we’ve seen the share of exports increase from 33% to 39% sequentially. But even despite of that, the margins have been about flat at about INR11.8 a kilo. So I would imagine given that exports come at a higher margin, this number to start inching up, but it hasn’t. So is there any pressure in –on the margin front that we are facing in exports?
P. Deepak
Not — specifically, I think if you look at margin, one of the things that did happen in the last quarter was that the freight costs have gone up for the export. So in terms of our recovery cycle for the customers, there’s usually — there’s a little bit of a lag, right? So that freight cost recovery is something that will happen at a lag. So that’s something that it did impact margins.
Vidit Shah
Understood. And you mentioned that we start seeing a pickup in the heavy commercial vehicle sales in the domestic market. Could you please elaborate on whether we are expecting a quick recovery, or is going to be a slow and steady recovery through the second half or do we expect 4Q to sort of bounce back to what it was in the previous year?
P. Deepak
So I think what we know at this point is only that it’s going to be a volatile recovery, right? I think it’s going to be a — it doesn’t look like it will be smooth, right? So it may go up, it may come down. And I’m saying this probably with a little bit of a recency bias, right? If you were to ask me what is the production plans look like for the month of November if you had asked a week ago, I would have said, oh, not looking so good. If you ask me today, I’d say it’s looking very good, right? So that’s quite a shift in a period of three or four days that has happened. So I’m — so what we do know is that there is going to be volatility. We — the signs that we see in November are very encouraging. The numbers that we saw in October were not, right?
So this is — so it’s a little harder for us to project. What we are aiming for is to make sure that we’re there to capitalize on it. What we are seeing also is that a big chunk of this, whatever we’re seeing in November, the increases seems to be driven by the tipper segment, right? So we are seeing more of the heavy-duty trucks in the month — in terms of kind of the improvement that we are seeing of November versus October and perhaps that has to do with the infra spend picking up. I think there’s been a lot that’s been written about the government lagging behind on infra spends. Perhaps they’re trying to turn it around. I’m speculating a little bit on it, but that’s the only thing that makes — it would make sense to see the kind of improvement we’re seeing in the heavy commercial side, especially on the tipper type of vehicles.
Vidit Shah
Okay. Thanks for that. And just last one for me is on the sale of this land that we’ve been accruing over the last three, four quarters. How much land have we — do we still have that we are looking to sell? And if you could just help us with the cash flows estimated from this?
P. Deepak
Yeah. So the — so the — we had entered into a deal a year ago and a big chunk of it was sold. And then there were a few bids that was of that land that was still pending for sale, which had happened in subsequent quarters, including the last quarter. With that, we have completed the sale of land, right? It was approximately about 50 acres of land that was sold.
Vidit Shah
Okay. So now that we — there is no more land that will be sold anymore, right?
P. Deepak
No, there is nothing on the anvil here.
Vidit Shah
Okay. Thanks so much for answering this. I’ll get back in queue and all the best.
Operator
Thank you very much. [Operator Instructions] We have next question from the line of Priyam Shah from IND Capital. Please go ahead.
Priyam Shah
Hello.
P. Deepak
Hello.
Priyam Shah
Yes, sir. Sir, good afternoon. So there are some set of questions from my side. Sir, first one, which is pertaining to EBITDA per kg. So this quarter, we understand that it was at INR11.8 per kg, near about INR12 per kg. And however, the same EBITDA was I think we did close to INR15 per kg last quarter. So just wanted to know like what impacted this thing and how do we see this EBITDA per kg moving forward.
P. Deepak
So if you — I think you’re referring to the same quarter last year where the EBITDA per kg was higher, right, close to about INR15[Phonetic].
Priyam Shah
Correct.
P. Deepak
That is INR11.8 per kg that we’re at now. So if you look at the last year, one of the things where we did benefit on that particular quarter is specifically because there was a reduction in raw material prices and there was obviously a lag in passing that on as we had seen in the past. So I think that was one of the major factors also that helped us in that specific quarter last year. But I think excluding that, if you were to look at the whole year last year, we were at roughly around INR12 per kg, right, INR12.5 per kg[Phonetic] for last year. So this year, I think we are at about INR11.38 per kg[Phonetic] is the current number that we are at. And I think we’ve said this publicly as well is that our goal in kind of the medium-term is to try to push this towards a INR15 per kg number, but that is based on an improvement in our capacity utilization where we will start to see some of the operational efficiencies kick in.
Priyam Shah
Okay. So just wanted to reconfirm INR15 per kg is the target that we would be looking forward in the coming years. Am I right?
P. Deepak
Yeah. So I think as we’re looking at our pipeline of new products and all of that, so it looks like it will be about a couple of years away in terms of getting to those number — capacity utilizations where the operational leverage will really kick into that level.
Priyam Shah
Okay. And would there be any change in the capacity utilization, for example, what is current, and what would be going forward that you’re aiming for to achieve this EBITDA per kg?
P. Deepak
Yeah. So currently, if you were to look at our capacity utilization, we are roughly at about 55% or so is our capacity utilization right now. And for us to get to that level, I believe the number that we need to be at would be around 75% capacity utilization.
Priyam Shah
Okay. And again, little — and then my follow-up question relating to this increase in EBITDA per kg. So for example, if we see, would this be led by higher export volumes? Hello?
Operator
Sorry for the inconvenience. The line for management has been disconnected. Please stay connected while I reconnect.
Priyam Shah
Okay.
Operator
Participant, please stay connected while I reconnect the management. He has provided an alternate number. I’ll call with him.
Priyam Shah
I actually don’t have this. I just have this number only…
Operator
Participant, we have the management online with us.
P. Deepak
Yeah. Sorry about that.
Priyam Shah
Should I repeat my question or you got it?
P. Deepak
Yeah. I think — so we are — we do believe a major chunk of the growth is going to be driven by export. But we are — there are some specific programs that we are working on even on a domestic side that will — that we believe can also yield the growth here. So — but to your point though, I think significant amount of the growth will come from export.
Priyam Shah
Okay. And like have — like do we have sign — have we onboarded any new customers or any talks with regards to that which we see fructifying in the coming quarters?
P. Deepak
Yeah. I mean we’ve got, I guess, two new customers that have been onboarded over the last year. Our business is yet to start on those, but there is significant really strong potential. And there are some serious discussions that are happening, right? So I’m — which is where my confidence comes from in terms of where the growth would be. But there are some incredibly serious conversations that are happening that we hope will fructify into new business wins within the next six months or so.
Priyam Shah
Okay. So can we consider FY — the current financial year as a year of consolidation? And could you just give us the time frame when we see things getting better and state a couple of growth drivers?
P. Deepak
Yeah. So I think there’s a couple of things that are there. One is certainly in terms of the commercial vehicle market, we’re hopeful that whatever signs that we’re seeing in November will continue until April. That’s the case. We hope that we should see our improvement in our domestic volumes happen. On the commercial vehicle side is that. And then I think tractor seems to be relatively flat. We’re not really seeing — I think we see relatively modest growth only even in the long term. But I think as I said in terms of export between the market recovery happening because we’ve seen almost, I would say, in terms of demand, we’ve seen almost on the same product year-over-year, we’ve seen a 30% kind of a drop of the demand. We believe that that’s temporary that it will bounce back from January.
And there will be a real ramp-up probably starting in the middle of next year and we expect calendar year ’26 to kind of be a peak year for the industry there, right? So there is — this is I think what our outlook is that we are seeing in that market. I think I’ve mentioned this in previous calls as well. We’re also anticipating a good number of orders to come from Europe. Six months ago, really, I think we started to get the first RFQs in. Now we are in some very serious discussions. A lot is happening. And we believe that the — this will fructify into a lot of new business in the next couple of quarters. And given the timeline of the development of the new product, the testing and approval and then getting into production, it would roughly be a 12 months to 24 months kind of a period that would actually be required in order to actually start seeing those new orders impact revenues.
Priyam Shah
I think that was very helpful and thanks for answering my question very patiently. I wish you all the best.
P. Deepak
Thank you.
Operator
Thank you very much. We have next question from the line of Vidit Shah from Spark Private Wealth Management. You may proceed, sir.
Vidit Shah
Hi. Thanks for the follow-up. My question was around the European orders that you’re talking about. Any specifics in terms of the customers that you’re talking with and the quantum of volumes that we’re expecting to do over the next year or two years?
P. Deepak
So the customers that we’re talking to and having good conversations are all the commercial vehicle OEs, right? I don’t want to name specific names, but — and a few of those are, I would say, extremely serious conversations. Things are little premature to put numbers, right? The conversations we’re having are very big numbers, but how much will fructify, what will fructify is still a little bit fuzzy. But I expect that it should be hopefully something significant, right? But I think maybe a little premature. I think we’ll have clear picture sometime in the next six months or so.
Vidit Shah
Okay, but is there potential to get to what North America does over the next two to three years in terms of the market opportunity in Europe?
P. Deepak
Yes. That is the opportunity that we’re working for.
Vidit Shah
Okay. Got it. And we had a big order on the delivery vans, right, a few year — quarters back, which was a bit delayed between started up — started production there. Can you just share any update in terms of what sort of volumes we are doing for those delivery vans and how much are we ramped up from — of that order that we had won?
P. Deepak
Yeah. So those vehicles have been launched. They are being produced. We are supplying parts for those vehicles, the electric vans that we’re talking about. But I’d say volumes today are perhaps about a third of what was envisaged in terms of the number of vehicles per month kind of thing. So it’s still, I would say, in the ramp-up stage. Again, there’s a lot happening, especially in U.S. politics, so we’ll have to see how that impacts electrification especially. But I think at least now that it appears that there’s a certain direction that will be constant for the next four years. I think people who were a little bit will have a clear direction and move forward.
Vidit Shah
Okay. But like we we’d expect a ramp-up from these[Phonetic] levels only once the industry headwind subside, or could we expect a faster ramp-up from this order than the rest of the industry?
P. Deepak
No, I think this one should hopefully ramp-up. It’s a relatively new product, right, that was just launched in the U.S. market. So I think some of the people who would have placed the initial orders will probably still want to do a little wait-and-watch before placing subsequent orders to evaluate performance. So I think at this point, we don’t have any more information than that. I think the forecast that we’re seeing for the next couple of months seems to be that it will continue to be at this level. But hopefully, I think beyond that it will go up.
Vidit Shah
Okay. Thank you. So that’s all from me. All the best.
Operator
Thank you very much. We have next question from the line of Rakesh Kumar, who is an individual investor. Please proceed with your question, sir.
Rakesh Kumar
Yeah. Thank you for the opportunity. I just have one question. So what products are we currently developing at Pedapariya plant? And do we anticipate that these new launches will provide us with competitive advantages in the market?
P. Deepak
Yeah. So I think Pedapariya, a lot of the product what we are doing are the larger products, especially the cast axles. We are — so there is some new product development that’s happening with a couple of customers on those type of products. There’s also a lot of other products also that are well-suited for that line being a very unique line in terms of its size. So there’s a few more that I think there’s good potential that we will win the business on. And we are fairly confident that in the kind of medium to long term that we will have a pretty good growth there.
Rakesh Kumar
Okay. Thank you. That’s it from my side and all the best for H2.
P. Deepak
Thank you.
Operator
Thank you very much. [Operator Instructions] We have next question from the line of Saket Kapoor from Kapoor & Company. Please go ahead.
Saket Kapoor
Yeah. Thank you for the opportunity again, sir. Deepak sir, you were mentioning about some recency bias and you mentioned about what October deliverables were and how November is shaping up. Can you — I missed your point at that point. If you could just dwell more on the same, sir, what are you trying to explain?
P. Deepak
So what I was trying to talk about a little bit more was the kind of volatility that we’re seeing in the market. If you look at the medium and heavy commercial vehicle space, we were anticipating that perhaps September and October, we would start to see a recovery — we would see a strong recovery because we are now done with the elections, we’ve been done with the monsoon and all of that. However, that recovery did not happen in October and we didn’t see signs of it happening in November either, right, until about a week ago, and suddenly we’ve seen the OEs increase their production plans and all of that for the month of November.
So I think I was just highlighting that if asked me a week ago, November looked like an — looked only like a so-so kind of an okay month, whereas if you look at it today, November is looking a lot stronger, right? So I was just highlighting the volatility that is there and the fact that we are actually seeing numbers in November that we expected to see, even though October numbers we didn’t see in terms of demand from the OEs. So we’re just hopeful that this November, this trend continues and December, Jan, Feb, March continue to be strong and I think the potential for H2 looks quite good.
Saket Kapoor
Okay. Sir, but are these orders of very short-term delivery schedules means for — if they are — if they — were the orders in the pipeline and only the delivery schedules were changed? I only wanted to understand that things in October were very different and you got to know about better order placement in November. So the delivery schedules will happen in a month’s time in that shorter notice or how do these MHCV’s order execution plan out, sir?
P. Deepak
Yeah. I mean it is a relatively short notice on which we have to ramp-up and ramp down, right? I think this is a call that’s taken by the OEMs based on their sales data, their incoming orders and their process, so — and their decision to build stock or reduce stock or whatever it may be, but it looks like compared to their build schedule, whatever they produced in October, the sales were better than what they had forecasted and therefore, they believe with the order position now in November that they need to produce more. So that’s — and we respond fairly quickly to such kind of fluctuations in order.
Saket Kapoor
Okay. Sir, can you give me the tonnage for last September quarter, sir? What was that tonnage?
P. Deepak
Yeah. So for the last September quarter was 22,953 tons.
Saket Kapoor
And this time, it was sub-20,000 tons?
P. Deepak
This September quarter was 21,824 tons.
Saket Kapoor
So this was 21,824 tons. Last was 22,000 tons[Phonetic]. I missed the number.
P. Deepak
22,953 tons last year second quarter.
Saket Kapoor
22,953 tons?
P. Deepak
Yeah.
Saket Kapoor
Okay. And sir, and the tonnage for H2, sir, what would be the likelihood? What was the last year H2 tonnage, sir?
P. Deepak
Last year’s H2 tonnage was approximately about 42,300 tons.
Saket Kapoor
Okay. So on tonnage…
P. Deepak
This year, it will be a little harder to figure out because we are seeing a lot more volatility right now. But I mean, I think at this point, we think it will largely be along the same lines. We don’t expect drastically in either direction.
Saket Kapoor
Okay. But sir, when we look at the cost of raw material consumption also, how are these raw material baskets shaping up? And taking into account the EBITDA per kg, if even factoring into the volatility, is it — it is prudent to take into account that we would be in the range of to INR12.50 for H2, or is it too early to comment on the EBITDA per kg, taking into account how the raw material baskets have been moving for the first half?
P. Deepak
The raw-material basket has been relatively flat. I think the most have been relatively benign, right? I mean, up a kilo, up a rupee, down a rupee kind of thing. So it’s been a relatively a flat movement in terms of raw materials now, right? Let’s see what happens I think now with the new U.S. foreign policy potentially, I mean, hopefully, maybe I’m being a little too optimistic, but maybe some ramp-down in the wars happening in the world and all of that, we don’t know how that’s going to impact inflation and raw materials.
Saket Kapoor
Sir, what should be the trajectory then, sir? Relatively upward of INR12.50 that is what should we expect in taking into account how you are getting the order from…
P. Deepak
I think relatively stable is what we expect, right? I think…
Saket Kapoor
Okay. Sir, on the efficiency and on the cost optimization, sir, what steps are we taking currently and how are we going to benefit from the same? And sir, you have been very categorical in your first call also when you very well mentioned that this will be a year of consolidation and this is what the quarter two numbers do say — speaks about. So again, taking into account the comment which you mentioned that we are into this strong growth path that we’d expect from quarter one of the next financial year. If you could just give us some more color and the probability of those events maturing, that would give us some more understanding of what gives you the confidence and the likelihood of that happening, sir?
P. Deepak
Okay. So I mean, I think the positivity that I’m talking about and new products maturing and all of that. A lot of that, I think has to do with a lot of the conversations that we are having with customers in terms of RFQs we’ve received, the courts we’ve submitted and the serious discussions that we’re having, right? The challenge on some of these is the customer tells you he wants to finalize it by next week and two months later, you’re still having a discussion on this and you know that is there, right? So it’s little difficult to actually project when it’s going to happen. But I think the conversations and the sense of urgency that they have also in order to find our find suppliers and want to move forward on some of these projects with us is very encouraging, right? So that’s why I think we’re feeling very optimistic about it. And I think I had mentioned this on the last call, right, the volume of RFQs for Europe especially that we have received so far this year has been higher than probably the last four years combined, right? And we continue to receive at a very good pace, some new RFQs for new customers as well.
Saket Kapoor
Right, sir. And can you give some color on the tonnage part also just to understand what kind of utilization levels can we expect once these RQ — RFQs will mature or materialize going ahead? How will the utilization levels or the tonnages would shape up going ahead?
P. Deepak
See, a little bit of that is we have to speculate a little bit on what the hit ratio is going to be, right? If I — if we win all of the business, then we’ll be out of capacity, right? But that’s kind of — we’ll be at 75%, 80% capacity utilization, which is — which I would say is very good for the industry, right? So if you win all of it, then we’re already going to exceed that territory. So again, I don’t want to speculate on what the hit ratio is, but I have generally positive feeling and a good feeling about that it will be a pretty decent hit ratio.
Saket Kapoor
Okay. And then you will have more to speak by quarter four on the same, sir, this European part of the story where you are mentioning?
P. Deepak
I certainly hope so. I would certainly hope that we’ll be able to talk in more detail on what that pipeline looks like in — during — by Q4. But like I said, right, sometimes customer tells you he is looking to finalize within the next week and you’re still talking about it two months down the line, right? So I just — please keep that in mind and don’t hold me to these words.
Saket Kapoor
Right, sir. Correct. Only just to end the conversion here, sir, it also depends upon what the customer requirements are. It may be deferred, but — it may be delayed, but not deferred for permanently. So even if that discussion does not materialize in few days or few months, it may culminate in, say, six months down the line, but it all depends upon what the nature of the requirement is, that is what my point is. So that — if you could give us some color on the basis of the discussion you are having with them that how will things shape up going ahead?
P. Deepak
Yeah. So I think that — see there are two different types of orders that we could possibly win, right? One, they’re already sourcing this part from somebody or two, it’s a completely new product that’s being developed, right? In the second case, where it’s a completely new product that’s being developed, we generally they will have a timeline for when they intend to award, when they intend to start. There may be delays in the project, based maybe they have to go back and do engineering again — re-engineer the product based on testing results and all of that stuff, right? So there is some smaller possibilities of delay over there.
In the case where they are looking to resource from an existing supplier, in such cases, I think it’s more about them feeling confident in terms of capabilities as well as cost, right? So obviously, there’s got to be a cost advantage that they’re looking at or a risk mitigation that they are looking at, right? So in such scenarios, I think there is a lot of fluctuation that can happen, right? So for example, I already have a supplier, I’m just looking to save costs. I need to get all of these approvals in order for it to work. Sometimes the approvals will take longer and people ask questions, they try to renegotiate with the existing supplier. All these things sometimes take a little bit of time.
Saket Kapoor
Thank you, sir. We look forward — we look forward for responses from you, sir. And all the best to the team. Shubh Deepavali.
P. Deepak
Thank you, Saket.
Operator
Thank you very much. As there are no further questions, I would like to hand over the call to Deepak sir for closing comments.
P. Deepak
Thank you, Shifa. In closing, I just want to reiterate our commitment to excellence and the focus on delivering long-term value to all of our stakeholders. The resilience that we have shown in the face of market fluctuations is a clear indication of strength and stability of our business model. We are just navigating through a temporary dip in demand. We are actively preparing for a future filled with promise and potential. Thank you all very much.
Operator
[Operator Closing Remarks]