RAMKRISHNA FORGINGS LTD (RKFORGE) Q4 FY23 Earnings Concall Transcript

RAMKRISHNA FORGINGS LTD (NSE:RKFORGE) Q4 FY23 Earnings Concall dated Apr. 28, 2023.

Corporate Participants:

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Naresh Jalan — Managing Director

Unidentified Speaker —

Analysts:

Chirag Jain — Investor Relations with Emkay Global Financial Services

Mumuksh Mandlesha — Anand Rathi — Analyst

Abhishek Jain — Dolat Capital — Analyst

Balasubramanian A — Arihant Capital — Analyst

Dhaval Shah — Girik Capital — Analyst

Mitul Shah — Reliance Securities — Analyst

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Deepak Jain — Enam Asset Management — Analyst

Ankul Kumar — Alpha Capital — Analyst

Pritesh Chheda — Lucky Investment Managers — Analyst

Koushik Mohan — Ashika Stock Broking — Analyst

Vignesh Iyer — Sequent Investments — Analyst

Naveen Matta — Mahindra Manuel Life — Analyst

Rahul Shah — PK Capital — Analyst

Akshay Karwa — Anand Rathi — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 and FY ’23 Earnings Conference Call of Ramkrishna Forgings hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Chirag Jain from Emkay Global Financial Services. Thank you and over to you sir.

Chirag Jain — Investor Relations with Emkay Global Financial Services

Thank you. Darwin. Good evening, everyone. On behalf of Emkay Global would like to welcome you all to this earnings call of Ramkrishna Forgings Limited. Today we have with us. [Technical Issues]

Operator

Mr. Jain? Ladies and gentlemen, the line for the management and to Mr. Chirag Jain seems to have disconnected, please stay with us while we reconnect with them. Thank you for your patience ladies and gentlemen, we have reconnected with the management. Over to you Mr Jain.

Chirag Jain — Investor Relations with Emkay Global Financial Services

Thank you, Darwin. Apologies for this inconvenience, the line got disconnected. Good evening, everyone. On behalf of Emkay Global would like to welcome you all to this earnings call of Ramkrishna Forgings Limited. Today, we have with us from the management team Mr. Naresh Jalan, Managing Director; Mr. Lalit Khetan, Whole-Time Director and Chief Financial Officer; and Mr. Rajesh Mundhra, Company Secretary and Vice-President, Finance. I shall now hand over the call to Mr. Lalit Khetan, for his opening remarks, post which we will open the floor for Q&A session. Over to you sir.

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Thank you, Chirag. Good evening, ladies and gentlemen, on behalf of Ramkrishna Forgings, I would like to extend a warm welcome to everyone. We are pleased to report that despite ongoing challenges in the global economy, we have delivered strong results in Q4 FY ’23 creating sustainable value for all our stakeholders. India’s commercial vehicle segment has witnessed a remarkable growth in recent times with an increase in economic activity and infrastructure development, the demand has surged. In addition, the government’s focus on boosting the manufacturing sector and implementing various initiatives such as Make in India and AatmaNirbhar Bharat has also given a significant impetus to the sector. The commercial vehicle segment in India is poised for further growth in the coming years, driven by economic expansion, infrastructure development and adoption of leaner technologies.

We are excited to share the Ramkrishna Forgings and Titagarh Wagons consortium has received LOA for manufacturing and supply of forge wheels for Indian Railway, which is a significant milestone for our company. The size is INR12,226 crores and it is a long-term contract of 20 years, which adds to our strong revenue visibility for the coming years. Additionally, we have renewed a long-term contract with an overseas Tier-1 customer based in North America, which included additional new product range. This contact renewal and addition bring the total number of contracts to eight during the year totaling INR774.70 crores from various geographies and business verticals, excluding the long-term order from the Indian Railways.

Ramkrishna Forgings has also taken big step forward towards sustainability by planning to set up a 7.82 megawatt solar power — rooftop solar power plant, which will help reduce our carbon footprint and contribute to greener future. The total cost of project is estimated to be around INR35 crore. This investment reflects our commitment to responsible business practices and our dedication to reducing our carbon footprint. We are pleased to see an increase in demand for our products, which has led to significant revenue and profit growth.

In Q4 FY ’23 we have recorded a revenue of INR835 crore, representing an year-on-year growth of 22%, and for the full year FY ’23, we recorded a revenue of INR3,001 crore, representing a year-on-year growth of 31%. EBITDA margin for Q4 FY ’23 is 22.52% expanded by 42 basis point sequentially, and we are confident of sustaining the margins and endeavor is to improve upon the same. Our net profit after tax was INR67 crore versus INR86 crore for the previous — year-on-year, but however that was due to the deferred tax reversal in the previous year. If you correct that tax impact profit after tax has increased by 25% from the previous year in the Q4. We are also pleased to announce that our long-term rating has been upgraded by IFRA and India Ratings to A+ with stable outlook. This reflects the confidence of rating agency in our company’s financial state and growth prospects.

Thank you all for your continued support. That’s all from my side.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Mumuksh Mandlesha from Anand Rathi. Please go ahead.

Mumuksh Mandlesha — Anand Rathi — Analyst

Thank you so much, sir, for the opportunity, sir. Sir, can you share some light on the railway project, what kind of capex plan and how we see the revenue flow from FY ’26 and some light on the profitability side, sir? Hello? Hello.

Naresh Jalan — Managing Director

Total project outlay on this — cost on this project will be close to INR1,200 plus crores and the LOA, which we have received from railways is close to around INR12,500 crores for 20 years starting FY ’27 onwards. That’s the reason we have mentioned also in our presentation that we expect to start production from last quarter of FY ’26 and we are setting up, while railway requirement and confirmed guarantee is for 80,000 wheels per year, we are setting up this capacity for 2 lakh plus wheels and we expect to do a business of close to around INR28,000 crores over next 20 years from this project. And profitability right now it’s being worked out. I think we can safely say that the current margins, which we are doing in standalone basis in RKFL, we are aiming for similar margins in the joint venture.

Mumuksh Mandlesha — Anand Rathi — Analyst

Sir, but the addditional capacity which you are planning for the field is it will be for export market or what kind of opportunity you’re seeing, sir?

Naresh Jalan — Managing Director

I think the 80,000 is for railways help consumption for OE application and plus I think there is a huge market within India for ware and tear as well as the wagon builders and as well as the privatization of railways, which are happening in Vande Bharat. Right now they are importing wheels, so those also will be required. And as well as export market is huge and there is right now very limited capacity globally post the Ukraine war. So we are already in touch with lot of OEMs globally who buy wheels and I think before the plant commences production, we will have a long-term contract with these OEMs also.

Mumuksh Mandlesha — Anand Rathi — Analyst

Right sir. Sir, can you share outlook for the overseas CV market for next one year, sir?

Naresh Jalan — Managing Director

I think, the overall global market right now in export is strong and we expect it to remain strong over the year.

Mumuksh Mandlesha — Anand Rathi — Analyst

Right, sir. Sir, can you provide timeline for the completion of the JMT Auto and ACL acquisition, sir? And post acquisition, what would be the capex plan for both the companies, sir?

Naresh Jalan — Managing Director

I think, JMT Auto and ACL both are from our side, whatever we could have done, we have done. It is right now at Indian Legal System, so we are hopeful of having this as fast as possible, but I think legal process takes his own time. So we would not like to comment on exactly the timelines of it. In terms of capex, I think both taken together to modernize the plant and bring it up to the shape, we expect close to — including both to close to around INR200 crores of capex will be required to get a 100% result from both the plants.

Mumuksh Mandlesha — Anand Rathi — Analyst

Thank you so much sir for the opportunity.

Operator

Thank you. The next question is from the line of Abhishek from Dolat Capital. Please go ahead.

Abhishek Jain — Dolat Capital — Analyst

Thanks for the opportunity and congress for a great up numbers, sir. Sir, you have won the new orders from the railway for supplying 2 lakhs — for supplying huge wheels, and the total wheels production would be around the 2 laksh per annum. So what would be the total project cost and what would be your sharing for that?

Naresh Jalan — Managing Director

I think, this JV is at a 51%, 49% model and so similar, we will share the — share of finances also will be similar and we expect a capex of close to around approximately INR1,200 crores plus minus 5% at the current levels of market.

Abhishek Jain — Dolat Capital — Analyst

And so, revenue won’t be added in your top-line. It’ll come into your bottom-line.

Naresh Jalan — Managing Director

No revenue will be added in my consol as well as the profitability will be also added in my consol.

Abhishek Jain — Dolat Capital — Analyst

Okay. So it won’t be soon as j JV profit?

Naresh Jalan — Managing Director

But I think we at a 49%, we will need to have a consolidated balance — we will need to bring that 51% of the revenue into my consol.

Abhishek Jain — Dolat Capital — Analyst

Okay. And sir, in domestic market basically the BSVI number was — because of BSVI phase two number was quite as strong in 4Q, but there’s expectation that FY ’24 number would be muted. So can you give some color on how the outlook would be for the domestic market in MSME segment?

Naresh Jalan — Managing Director

I cannot comment on the exact market share. I can only comment on what RKFL is, and we are extremely confident of a strong performance in FY ’24. And given the global scenario, given the domestic market and given the order book we right now have and the visibility we have from all our customers, we expect to continue our growth trajectory and we produce strong results.

Abhishek Jain — Dolat Capital — Analyst

So in earlier in quarter third you had mentioned that you are looking for 15% to 20% kind of the growth in the top-line in tonnage segment. So your guidance is intact despite this strong base in the quarter our number?

Naresh Jalan — Managing Director

I think, my quarter four numbers already are visible in terms of tonnage growth, and I think we will continue to have similar growth or as I say that we expect to have a very strong year FY ’24.

Abhishek Jain — Dolat Capital — Analyst

Okay, sir. So, in last two years, sir, capex was very strong and you have done a great numbers in your top-line as well. Going ahead, you are coming with the two, three acquisitions and plus that you are going to set up a plant for the forge wheel side. So, what would be your next two years capex target FY ’24 and ’25?

Naresh Jalan — Managing Director

Standalone basis RKFL will continue to grow and continue to deploy cash in terms of whatever we earn, we have already defined our capital allocation policy. We will be strictly following those capital allocation policy in terms of our debt reduction as well as allocating capital for the growth of RKFL capital standalone basis. Acquisition we will see as and when it comes. I think right now until we complete the legal process, I would not like to comment on those, but in standalone basis RKFL, we can very clearly say that we have a defined capital location policy, and we will follow those policies strictly in terms of debt reduction, dividend, and whatever is leftover cash we’ll deploy it back into the growth of the capacities within RKFL.

Abhishek Jain — Dolat Capital — Analyst

But your most of the acquisition on the consolidative basis. So if you can throw some more light on that, how much capex you are looking in the ACL, JMT as well as your other plants like forge plant and what is your take to payment plan?

Naresh Jalan — Managing Director

JMT, ACL already my acquisition cost has already been in the market domain. So unless it comes right now, I will not be able to say anything when and how it’ll happen. So we will wait till the court order comes through and then only we’ll be able to comment on that and we will surely keep investors updated as and when the acquisition gets cleared through the legal process. And in terms of the wheel project, my responsibility is for 51% of the capex spend and part will be funded through debt and equity. So equity is the portion which RKFL will bring into that SPV. So we are working out, I think we are not yet freezed on the numbers and as in — I think it’ll be by first quarter, we will give you the numbers, what RKFL intends to get equity in that company and what is the debt going to be that in the company. But that is over next three years, which is going to — it is going to happen.

Abhishek Jain — Dolat Capital — Analyst

And what is the ROCE of this business, forge wheel business, sir?

Naresh Jalan — Managing Director

I think, right now we will need to wait because I think we are still at a 40% capacity or not even 40% capacity has been sold. So we will need to wait for rest of the contracts and other things to get closed. And closest I think FY ’25, we should be speaking on what is going to be the ROCE. Right now when we have quoted for the project, we have quoted on an ROCE of close to around five, five and a half years.

Abhishek Jain — Dolat Capital — Analyst

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

Operator

Thank you. The next question is from the line of Balasubramanian from Arihant Capital. Please go ahead.

Balasubramanian A — Arihant Capital — Analyst

Thank you so much for the opportunity, sir. Sir, my first question on the wheel side, like we are going to sell FY ’26 towards, what would be the average realizations for these wheels? Because we are going to supply for next 20 years, what kind of price escalation class we have with Indian Railways? These are my first questions.

Naresh Jalan — Managing Director

I think the price relation right now [Technical Issues] shared it to the market…

Balasubramanian A — Arihant Capital — Analyst

Sir, could you please repeat, I’m not getting it, sir.

Naresh Jalan — Managing Director

Close to around INR190 per [Technical Issues] and price realization clause is very clear that it is as determined by every quarterly in the RBI index of steel and inflation.

Balasubramanian A — Arihant Capital — Analyst

Okay, got it, sir. Sir, my second question, on the wheel side, how many wheels we have to sell for breakeven in that project?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Basically it is on that 40,000 per annum.

Balasubramanian A — Arihant Capital — Analyst

40,000 wheels. Okay, sir. Sir, I just want to understand about the wheel side market overall in global, like in that wheel cost it can — forge wheel sets it comes anywhere between 2.52 lakhs to 2.8 lakhs. So could you please break down that what are the components are available?

Naresh Jalan — Managing Director

I think, it is not relevant question right now and it is very difficult for us to answer right now. Just project which has been taken up and we are working on it and it is right now very preliminary to give all those information.

Balasubramanian A — Arihant Capital — Analyst

Okay. Thank you, sir.

Operator

[Operator Instructions] The next question is from the line of Pratik Banthia from Girik Capital. Please go ahead.

Dhaval Shah — Girik Capital — Analyst

Yes, hi, Lalitji Dhaval here. Sir, my question is really related to the Slide 20 where you’re mentioning about warm forging capability. So if you could just tell us about this new capability, which we’re adding to our portfolio? And you’ve mentioned under product families about differential gears and differential opinions. So, which — how many other players are there in India in this, and which customer segment we would be targeting? Yes, that’s my first question.

Naresh Jalan — Managing Director

In warm forging, we have already — since last quarter, we have already started supplies to domestic and overseas customers. And primary, right now we are catering to the commercial vehicle market, and with the new installation, which is getting completed in next couple of months, we are going to target the light vehicle market also. And for which we have already got some contracts and we are in process of getting some contracts globally and within India.

To answer your second question, I think the biggest player within the Indian market in this segment is Sona Comstar, and I think we are just starting part of this and we will gradually grow in this business. And I think we look to make significant progress over next two years, and this is the first step to make entire differential assembly as one of our product platforms.

Dhaval Shah — Girik Capital — Analyst

Interesting. Sir, with this product coming in now our average EBITDA per turn, how will that move, like for this under warm forging, what sort of profitability is there in the product?

Naresh Jalan — Managing Director

I think right now, in last two quarters we were not — we are not very significant player right now. So we will continue to work on margins in this and with the installation of and modernization, which is taking up right now, which is going to get completed. And I think in next six months time, we are looking at, at least 100, 150 bps more than what we are on an average doing in our traditional folding setup in warm forging.

Dhaval Shah — Girik Capital — Analyst

Got it. Got it, sir. So now on the — this question one on the balance sheet and cash flow side, in the current setup and the current in our organic way, which we are going by expansion, over next two years or by three years we’ll have a significant cash flow coming in. So how will our debt on books be? And we also have this JMT, ACL where you’ll be investing INR200 crores plus Railway project also. So how will that — over next three years, how will the cash flows will be used because you seem to be fairly confident about the growth from the existing setup. So how will this cash flows be used?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

See our cash flow in the future, whatever we have on the cash flow and we have the future growth plans. Now our future cash flow will be enough to take care of our — and working capital requirement. So overall, we are not anticipating to increase on that, whether every year the debt will go down. Even if you look at the standalone basis, it’ll be at least INR200 crores we will go down. And on the consol basis, also the overall debt will not increase.

Dhaval Shah — Girik Capital — Analyst

Okay. Okay. So this INR1,200 crore debt, which is there as on March 31, ’23. So over next three year period, this absolute number will keep coming down?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Yes, it’ll keep coming down with the growth also and acquisitions also, and on a standalone basis it’ll continue to go down by at least INR150 crore to INR200 crore per annum.

Naresh Jalan — Managing Director

No, and as well as also INR1,200 crores is the gross debt. At the net level, if you see minus the bill discounting INR93 crores is only the net debt, and we expect the net debt to be on the downside going forward with the cash to come out of the operations.

Dhaval Shah — Girik Capital — Analyst

Correct, correct. And how much will be our contribution towards this railway project?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

That will be INR180 crore of equity will go and that will also go over a period of three year.

Dhaval Shah — Girik Capital — Analyst

Over a three year. Okay. So it won’t be too stressful for us in terms of cash. Got it. Got it. And sir, we’ve just removed the INR5,000 crores figure from the presentation. Any specific reason?

Naresh Jalan — Managing Director

Basically, we do not want to put a number right now. We are looking at a extremely strong growth in next two years and three years with the kind of plans and the vision we have. So we did not want to put a number to it. Number may exceed expectations. So we don’t want anybody to judge the company based on those numbers.

Dhaval Shah — Girik Capital — Analyst

Correct, correct. Got it, sir. Thank you very much and good luck.

Naresh Jalan — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Mitul Shah from Reliance Securities. Please go ahead.

Mitul Shah — Reliance Securities — Analyst

Thank you for the opportunity. Sir, one clarification of previous question on debt, so we said that standalone date will keep coming down and consol debt will not go up. Can we assume that consol debt for some time will remain at current level or it’ll also come down?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Mitul, it depends up a lot things, when the acquisition approval come and when we need to deploy the capex. So see — and the capex will be done also in a calibrated manner and those company will have their own earnings also with that capex. So everything will pan out in span of time. But right now that’s very clear and vision of the company is very clear that on standalone base we are going to reduce and consol debt also we never used to not increase the debt, but reduce the debt. So that will continue because whatever cash towards debt try to grow from that only.

Mitul Shah — Reliance Securities — Analyst

Okay. Sir, second question on raw material side in fourth quarter RMY sales raw material as a percentage of sales has gone up by 200 basis Y-o-Y as well as Q-o-Q. So now it is coming almost eight quarter highest at 50.2%, whereas actual raw material price movement is very limited during the quarter. So any specific reason, any delay in compensation from the vendor or what would be the reason behind this?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

That’s — basically that happens due to the product mix because we sell the product of different categories and that’s why it’s a function of sales realized versus raw material consumed. So that’s why there is a 100, 200 basis point plus minus quarter-on-quarter and that has nothing to do with the right now price movement or any discount from the vendor.

Mitul Shah — Reliance Securities — Analyst

Okay. So there is nothing related to delay or lag effect of passing first escalation to vendor or anything like that. And so sir, at the same time, other expense also came down significantly Q-on-Q despite our revenues and volumes going up. So here any specific reason?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Mitul, other expense has gone due to the reduction in ocean freight basically on shipping costs.

Mitul Shah — Reliance Securities — Analyst

Okay, sir.

Operator

Sir, sorry to interrupt. If you have any further questions, we request you to please rejoin the queue.

Mitul Shah — Reliance Securities — Analyst

Yes.

Operator

[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead. Mr. Pritesh, the line for you is unmuted. Ladies and gentlemen, we will proceed with the next question from the line of Chirag Shah from White Pine Investment Management Private Limited. Please go ahead.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Hello. Hello. Thanks for the opportunity, sir. Sir, congrats for good set of results. So first, before I ask my question, a clarification on this JV, so is this a completely ground up plant or some part will be done by RK Forging standalone, like a basic forging and machining will be done at the JV level or is it a completely ground up plant where…

Naresh Jalan — Managing Director

It is a completely greenfield project.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Okay. So everything would be done over there. Sir, my question pertains to EU and U.S. customer. So in the past you have been indicating that you are in discussion with a few customers and you are very hopeful of adding some of them. So any update if you can share on that, it would be helpful? Any new customers you may have added?

Naresh Jalan — Managing Director

Lalit, has already updated close to around INR700 plus crores of order wins in this year is basically on whatever we had been able to complete in terms of our customer acquisition is concerned. And in terms of revenue, if you see already Europe is growing, in absolute numbers, if you see Europe is close to 15% now of our total revenue, from a — starting from a base of zero and within two years we have reached a revenue of close to around 15% from the Europe. So I think that substantiate our statement what I have said that, we are working on customers and it takes time, but customers are getting converted as we move up.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Yes, no, so I was more referring to number of customers, because — and the sense customer breakthrough could happen immediately or could take number of years, it depends upon when and how they want to ramp it up. So is there any breakthrough being made that where a new customer has given some trial orders or we have got some approval?

Naresh Jalan — Managing Director

Yes, that is the answer to it that we have already converted a lot of customers wherein we were doing trials, and that is the reason this kind of revenue we were able to achieve in this set also. And with the strong growth, what we see is basically the marketing activity, which we have done over the years from where we are still having a visibility of a very strong year going forward.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

And sir, this breakthrough is largely in U.S. or it’s more Europe driven?

Naresh Jalan — Managing Director

It is globally. I cannot put a particular geography to it, but we are overall — in terms of overall performance, we expect strong growth and we are extremely happy with the customer response globally.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

And sir, and last question on cold and warm forging. So, it was supposed to start in Q1, right? Operationalization of that effect the incremental…

Naresh Jalan — Managing Director

I think last two quarters already we started doing warm forging and the latest new equipment which is entered, we are in the process of starting that equipment I think from second quarter onwards. By that we have already very clearly mentioned all these capex addition of 56,000 tons will get completed on or before September ’23. And we have already given entire roadmap by first quarter what is going to get completed and by second quarter what is going to get completed.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Yes, but sir, my question was how should we look at ramp-up of this plant?

Naresh Jalan — Managing Director

So this is basically a ramp-up plan, capex if it is getting completed and commissioned and start-up. So we have immediate order book to ramp it up. So we have given guidelines based on ramp up plan itself that first quarter and we will be able to see the tonnage mentioned ramp up will happen from second quarter and the second quarter, the part which is getting completed from third quarter we’ll see the ramp up of those.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Basically, once you start the asset over next 12 months, we can achieve optimal utilization levels or it may take slightly longer time?

Naresh Jalan — Managing Director

No, once we — within 12 months — six to eight months, we can see optimum levels. And order book we have, we are very confident to achieve that.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

And is there any additional of customer for this facility? We already have one of the customers, because you were in active discussion with more customers?

Naresh Jalan — Managing Director

We already have a complete order book and production capacity is almost sold.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Almost sold. Okay. Thank you and all the best.

Operator

Thank you. The next question is from the line of Deepak Jain from Enum Asset Management. Please go ahead.

Deepak Jain — Enam Asset Management — Analyst

Sir, can you talk to working capital, how it is poised for the next year given that you are expecting a strong growth? On an absolute terms, will it remain there or it’ll expand? What is your view on that?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Working capital Deepak is right now at around 108 days and our endeavor will be to bring down by another 8 to 10 days. So we target the net working capital days to remain at 100 days going forward.

Deepak Jain — Enam Asset Management — Analyst

Sir, can you share your outlook on Class 8 demand from the industry level?

Naresh Jalan — Managing Director

No, I don’t think I would be able to comment on Class 8, but overall we see the commercial vehicle market, overall in North America is doing extremely well in terms of production. I don’t see as a order book. As a production, all OEMs are sold out and offtake of material is extremely good.

Deepak Jain — Enam Asset Management — Analyst

Okay. Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Ankul Kumar [Phonetic] from Alpha Capital. Please go ahead.

Ankul Kumar — Alpha Capital — Analyst

Hello, sir. Congrats for a good set of numbers. Sir, couple of questions. First question is on the growth side, you’re saying that next two years will be very good, but can you quantify as in this year we did 20% volume growth. Can the coming years be similar or can they be better than this also?

Naresh Jalan — Managing Director

First of all, I have never said for two years. I am saying for FY ’24 we are expecting strong growth and we stick to that statement that we would not like to put a number to it. In terms of previous quarter, we have given a tonnage guidance of 15% to 20% growth. We would like to stick to that. I think we are expecting continued volume growth and revenue growth in this year and we feel that the performance we have been able to achieve, we will continue with a strong performance in FY ’24.

Ankul Kumar — Alpha Capital — Analyst

Sure, sir. Next question is on the margin, gross margin has come down this year compared to the last. So any reasons and what is our expectation on that front?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

No, gross margin from last year it has improve. If you look at EBITDA per ton, it has improved by INR,2500 per ton.

Ankul Kumar — Alpha Capital — Analyst

Sir, I was asking in terms of gross margin percentage.

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Percentage, yes. percentage wise [indecipherable] cost base for this year that’s why the EBITDA margin has gone down by 100 basis point from the last year, but from year on it’ll sustained at this level or improve from this level.

Ankul Kumar — Alpha Capital — Analyst

Sure, sir. And for tax rate will be 23% or 25% next year.

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Yes, next year we’ll be moving to 25% tax rate, the 22% plus surcharge.

Ankul Kumar — Alpha Capital — Analyst

Sure, sir. Thank you and all the best.

Operator

Thank you. The next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead.

Pritesh Chheda — Lucky Investment Managers — Analyst

Yes, sir, I have three questions. The first question is in Europe and North America, what would be our CV dependence in terms of business? My second question is, if you could give the tonnage growth outlook for Europe, U.S., and Asia, separately if possible? And is there any deflation element in FY ’24 whereby there can be any price reduction or any — for us to understand the top-line?

Naresh Jalan — Managing Director

I think first of all, in terms of Europe and North America or maybe India as a overall order book, 70% of my order book is from automotive sales and this entire automotive sales is from different type of commercial vehicles only. I mean, CV or LCV. We are not into PVs and I have been — I have clarified that in earlier quarters also, we are in only commercial vehicle market across the globe automotive segment. North America or Europe, we also cater to the off-highway industry, oil and gas and long-haul trailer bodies as well as we have just entered the oil and gas in the Dubai and Abu Dhabi, Gulf countries. So that is also a market which we are looking to grow considerably.

In terms of deflation, all our contracts are tied up, in terms of inflation we are not affected only…

Pritesh Chheda — Lucky Investment Managers — Analyst

No. Sir, my question was as on today, whatever you understand, will there be a deflation in your realization next year driven by steel price?

Naresh Jalan — Managing Director

I think steel price quarterly is a reset. In case there is a reduction in steel price, the top-line may go down. In case there is a increase in steel price, top-line will go up. But my margins and other things are not dependent on basically steel pricing.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. And sir, your volume growth outlook for tonnage growth in Europe, US and Asia.

Naresh Jalan — Managing Director

We don’t have a bifurcated tonnage as of now, but surely we can ask our CFO to — you can have a one-on-one call with him to get all this.

Pritesh Chheda — Lucky Investment Managers — Analyst

And my last question is, sir, there is a working capital improvement for a certain extent driven by better payables. Can you explain, the rise in the payables, what kind of credit and where are we getting?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

See rise in payable is basically due to the higher volumes also, and there is no such rise in the debtors commensurate to that. That’s why it’s there. If you look at my payable from last year to this year it is up by 35% of my volume. And my top-line growth is also 31%. So there is no significant rise in payable that way. And if you look at my debtors, debtors has not rose that significantly and that’s why there is an improvement in our overall working capital cycle.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. Okay, sir. Thank you very much.

Operator

Thank you. The next question is from the line of Kaushik Mohan from Ashika Stock Broking. Please go ahead.

Koushik Mohan — Ashika Stock Broking — Analyst

Hi sir. Congratulations for the good set of numbers. Sir, I just wanted to understand some guidance, not on the exact number wise, what would be your revenue mix on the railway and oil and gas, sir?

Naresh Jalan — Managing Director

I think, we are looking at almost doubling our sales to railways in this year. So I think, whatever percentage right now we are close to I think 3% right now. We are looking at 5% plus this year from railways. And in oil and gas also, we expect at least 100, 150 basis points increase in share of business from oil and gas.

Koushik Mohan — Ashika Stock Broking — Analyst

Sir, another question, sir. like how is the railway payment happening, sir? Is it — like if you bill it today how long will they take it to put the cash in your banks?

Naresh Jalan — Managing Director

From the date of dispatch from my plant, it takes — the payment is received in my bank account within 25 to 26 working days.

Koushik Mohan — Ashika Stock Broking — Analyst

Thanks, sir. I have another question. Can I ask or should I come back on the line?

Naresh Jalan — Managing Director

Please continue.

Koushik Mohan — Ashika Stock Broking — Analyst

Sir, I just wanted to understand another thing, you have partnership with Titagarh for wheels, sir, how much percent of that entire project will be your revenue?

Naresh Jalan — Managing Director

51%.

Koushik Mohan — Ashika Stock Broking — Analyst

51 percentage. And what will be the cost sir and how is the production going to happen and what’s the plan on that?

Naresh Jalan — Managing Director

I think capex plan is close to INR1,200 plus crores and production is going to start — we expect the production to start from last quarter of FY ’26.

Koushik Mohan — Ashika Stock Broking — Analyst

FY’ 26 last quarter. Okay. So sir, — and how is your EBITDA margins over there, sir?

Naresh Jalan — Managing Director

Right now I think it is pretty nascent to speak on the EBITDA margins. We would work on it and come back basically in FY ’25 for that.

Koushik Mohan — Ashika Stock Broking — Analyst

Sure, sir. Thanks for that.

Operator

[Operator Instructions] The next question is from the line of Vignesh Iyer from Sequent Investments. Please go ahead.

Vignesh Iyer — Sequent Investments — Analyst

Congratulations sir on good set of numbers. I have two questions from my side. The first one is I just want to know the tax rate, as of now we’re paying somewhere around 30% plus 31%, 32%. That is probably one of the reason being deferred tax coming in. I just want to know, are we going to continue in the same slab for the FY ’24? Or we are going to switch to a 25% slab like many other companies in manufacturing are doing?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

We are going to shift to 25% tax rate in the next financial year.

Vignesh Iyer — Sequent Investments — Analyst

Okay. Right. Thank you, sir. Yes, and my second question is just to understand from just purely a utilization point of view, our press is running almost like on 94% forging has been consistently doing above 100%. I just want to understand from where would the next leg of growth come? I mean, the higher…

Naresh Jalan — Managing Director

56,000 tons of production is getting — tonnage is going to get added in next six months time. Within this quarter, I think close to around 20,000 plus tons is going to get added and start production and balance is going to — total 53,000 tons is going to get completed within first six months. And as well as the utilization level 94%, which is being shown, I think we will revise those percentages also in next six months time. So overall, we see that things are going to be much better in this year.

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Plus there is a lot of capacity left in our fabrication plant ramp-up where we are doing the production for railways where we have a lot of capacities left out for growing railway segment. So that is not added in tonnage.

Vignesh Iyer — Sequent Investments — Analyst

Okay. That is separate. Okay. Right. Yes, that’s all from my side. Thank you, sir.

Operator

Thank you. The next question is from the line of Naveen Matta [Phonetic] from Mahindra Manuel Life. Please go ahead.

Naveen Matta — Mahindra Manuel Life — Analyst

Yes, thanks for the opportunity. Sir, I think the question, I think we are all trying to grapple with is that we are — next year potentially some of the industry bodies in U.S. are saying that Class 8 might see a decline. So just one way of trying to understand this is in case assuming that the market is flat, how much can we outgrow based on our order book or market share gains that we are looking at?

Naresh Jalan — Managing Director

First of all, I have not heard that any OEMs has come out and said that they are going to see market degrowth next year or this year. No OMSs have come out and said that. And second is that, we are not in two alone Class 8 in the North American market. We are across all platforms of commercial vehicles, Class 8 forms one of the part. And with our past experience in the current order book, we are extremely confident that the way we have improved our content per vehicle, we will be extremely doing well and we are confident of outperforming the market, but we cannot put a percentage how much we will be able to outperform the market.

Naveen Matta — Mahindra Manuel Life — Analyst

Understood, sir. And just based on our product mix improvement, do we see scope for further margin improvement from current levels?

Naresh Jalan — Managing Director

We expect to retain and improve both, you will see continued out performance in terms of margins. I think, we continue to work on improvements in terms of our structure of working and I think this will result in continued improvement in bottom-line of the company.

Naveen Matta — Mahindra Manuel Life — Analyst

So it should be kind of more cost control led, opex cost control is what we are trying to indicate that we can kind of improve margins from that side. Is that understanding right?

Naresh Jalan — Managing Director

Yes.

Naveen Matta — Mahindra Manuel Life — Analyst

Got it, sir. Got it. Thank you very much.

Operator

Thank you. We have the next question from the line of Mitul Shal from Reliance Securities. Please go ahead.

Mitul Shah — Reliance Securities — Analyst

Thanks for follow-up opportunity. Sir, I have question on this railway business in new JV. It’ll be forging and machining everything in-house, sir, from…

Naresh Jalan — Managing Director

Yes. Everything has to be in-house.

Mitul Shah — Reliance Securities — Analyst

Okay. And second question, sir, on the EV strategy, can you give what is our current revenue contribution and for next year has already EV now becoming sizeable in the Indian markets, particularly in the two-wheelers and PVs. So we are anywhere entering into these two-wheelers and PVs also.

Naresh Jalan — Managing Director

We are not entering two-wheeler, we are entering PV. And I think, right now we are not in PV so we are not affected with this EV strategy right now. But EV continues to be a big focus for us and we have already updated in our presentation, where we are in EV and what is the future for us, how we look at EV going forward for RKFL.

Mitul Shah — Reliance Securities — Analyst

Sir, on the same this new investment, 51% for TSUYO INR500 crore we are planning to invest over next five years — sorry, INR100 crore we are planning to invest with a revenue potential of INR500 crore. So would that be in a phased manner or you expect in last one or two years it’ll reach to those?

Naresh Jalan — Managing Director

No, I think we are expecting — TSUYO has done close to around INR12 plus crore already in the last financial year. And I think this year also we expect at least three folds jump in the top-line from TSUYO and gradually we are putting in money and our INR100 crore investment is based on some assumptions and capex plans at TSUYO to graduate from only motor supplier for a complete solution of e-axle and transmission in next five years from Suo. But TSUYO will form a formidable arm for RKFL as we continue our investment in TSUYO till the tune of 51%, it’ll become one of the significant norms of our RKFL in terms of our EV portfolio and EV visibility skills.

Mitul Shah — Reliance Securities — Analyst

Sir, lastly on this, what would be breakeven revenue for this TSUYO?

Lalit Khetan — Whole-Time Director and Chief Financial Officer

TSUYO is already breakeven.

Naresh Jalan — Managing Director

We are in profit, already in profit.

Unidentified Speaker —

INR12 crore turnover also we are in profit.

Mitul Shah — Reliance Securities — Analyst

Okay, sir. Thanks.

Operator

Thank you. The next question is from the line of Rahul Shah from PK Capital. Please go ahead.

Rahul Shah — PK Capital — Analyst

Yes, hi. I just wanna ask regarding this North American customer where you have an LTA, can you just gimme the broad contours of that deal in terms of — is there going to be a price revision with steel compensation or manufacturing costs increasing in India?

Naresh Jalan — Managing Director

Yes, I think, we have — all our global contracts are backed by steel and inflationary changes. Steel is every quarter and inflationary changes every once a year. Steel and — inflation and energy is every once a year.

Rahul Shah — PK Capital — Analyst

Okay, thanks. And second question is on — you’ve installed some solar capacity at the plant. Is there any impact on this on the bottom line? Like what percentage of your energy costs are taken care by solar now?

Naresh Jalan — Managing Director

Solar, we have just placed the order and I think we expect the installation to get completed in nine months time. Once that happens to that tune our cost of energy is going to come down.

Rahul Shah — PK Capital — Analyst

Okay, thank you.

Operator

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

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Yes, sir. Thanks for the opportunity again. Sir, just one clarification you indicated that the press capacity is likely to get restated, right? Is it right? Because…

Naresh Jalan — Managing Director

Yes.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

So basically, your operating efficiency is improving over there and when the same effect is generating more…

Naresh Jalan — Managing Director

It’s not only operating efficiency, which is improving, we are improving in terms of automations, which we are putting in will improve the efficiency. We are right now working and gauging exactly to what tune the capacity can be revised at and accordingly in coming quarters the capacity will be revised.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

So is it possible to indicate by when do you expect to come to a conclusion on this? Because this would be an additional lever on your operating leverage side.

Naresh Jalan — Managing Director

I think, you can safely say that at least in my press plant capacity is going to go up by 8% to 10%, but by August, this entire exercise is going to get completed. Second quarter at least see 10% to 15% jump in capacity from the press plant.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Press plant. And similarly on the ring rolling side, how much you can stretch it more?

Naresh Jalan — Managing Director

No, I think we are at working in ring rolling at the optimal.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Any tolerating more capacity for ring rolling.

Naresh Jalan — Managing Director

No, no.

Chirag Shah — White Pine Investment Management Private Limited — Analyst

Not at the moment. Okay. This is helpful, sir. Thank you very much.

Operator

[Operator Instructions] The next question is from the line of Abhishek from Dolat Capital. Please go ahead.

Abhishek Jain — Dolat Capital — Analyst

Sir, you have mentioned that your interest cost has gone — or date has gone down. But if you see the numbers like in interest cost that has gone up quarter-on-quarter basis and Y-on-Y basis? So is it the impact of the increase in the yield or is that last minute of change in the working capital that’s why it has gone down?

Chirag Jain — Investor Relations with Emkay Global Financial Services

See, Abhishek, if you look at our all four quarter performance, so that has not gone down in the last minute and it has gone in each quarter. If you look at all the four quarters number. And the interest cost has only gone up due to the increase in rate and it includes bank charges also that increases due to the higher utilization of limits or non-fund based limits.

Naresh Jalan — Managing Director

With the increased in top-line, Abhishek, we have to use more LCs to get raw material. So LC usage, bank charges are also included in the interest rate. As well as while we are reducing our debt, we are not reducing our limits. Limits stay intact and to get renewal of those limits we need to pay commitment cost to the banks. So those charges are also built into that.

Abhishek Jain — Dolat Capital — Analyst

So how much increase in the interest cost in last one year because of the change in interest cost — increase in the interest cost?

Chirag Jain — Investor Relations with Emkay Global Financial Services

It is almost 30%, Abhishek, it has gone up from 6% to around 8%.

Abhishek Jain — Dolat Capital — Analyst

Okay. Got it, sir. And sir, as you mentioned, that steel and energy contracts are renewed on yearly basis. So this year many contacts would be revised, I think?

Naresh Jalan — Managing Director

We are still working with the OEMs. I think it’ll take another one or two months where we will have clear visibility. Because different countries have different mechanisms for energy and electricity and inflation. So we are working with the OEMs. I think we should be clear in next month or so.

Abhishek Jain — Dolat Capital — Analyst

But in other cases, it is based on the indexation and it is renewed on every three to six months. It is not with you.

Naresh Jalan — Managing Director

Can you repeat your question, please?

Abhishek Jain — Dolat Capital — Analyst

Sir, in most of the cases this prices are revised based on the indexations and that is renewed on every three to six months.

Naresh Jalan — Managing Director

That is for raw material basically. And for inflation and energy, it is dependent country specific. So we need to produce our own invoices and the increases which has happened in India in gas, electricity, and other denominators, and they are verified and then they are worked on. So it takes its own time.

Abhishek Jain — Dolat Capital — Analyst

Okay, sir. Thanks, sir. That’s all from my side.

Operator

[Operator Instructions] The next question is from the line of Akshay Karwa from Anand Rathi. Please go ahead.

Akshay Karwa — Anand Rathi — Analyst

Hi, sir. Thank you for the opportunity. Just a question on capex. So what’s the capex guidance for FY ’24 and ’25?

Naresh Jalan — Managing Director

FY ’24 like we have said, we — whatever post dividend and debt — we are looking at that reduction of INR100 crore to INR150 crores post debt reduction and dividend payout, whatever cash is there, we will deploy that cash back into the system to grow their capacities, both in terms of forging as well as in terms of value add.

Akshay Karwa — Anand Rathi — Analyst

Okay, sir. Okay, sir. That’s it from my side.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing commences. Over to you, sir.

Lalit Khetan — Whole-Time Director and Chief Financial Officer

Thank you all. I take this opportunity to thank everyone for joining the call. I hope we have been able to answer all your queries and questions. For further inquiry and information, you can get in touch with us or with our investor relationship advisors. Thank you and have a great pleasant weekend.

Operator

[Operator Closing Remarks]