Rolex Rings Ltd (ROLEXRINGS) Q3 FY23 Earnings Concall Transcript

Rolex Rings Ltd (NSE:ROLEXRINGS) Q3 FY23 Earnings Concall dated Feb. 08, 2023.

Corporate Participants:

Hiren Dilipbhai Doshi — Chief Financial Officer

Manesh Dayashankar Madeka — Chairman & Managing Director

Analysts:

Ashutosh Tiwari — Equirus Securities — Analyst

Sonal — — Analyst

Jairam — — Analyst

Praveen — — Analyst

Pooja — — Analyst

Nilesh — — Analyst

Harshit — — Analyst

Amit — — Analyst

Mahesh — — Analyst

Nishant — — Analyst

Sandeep — — Analyst

William — — Analyst

Presentation:

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah. Hi, good morning, everyone. On behalf of Equirus, I welcome you all on Third-Quarter FY23 Conference Call of Rolex Rings. From the management side, we have Managing Director, Mr. Manesh Madeka; and CFO, Mr. Hiren Doshi.

Without further ado, I hand over the call to Mr. Hiren Doshi for opening comments, post which we’ll open for Q&A. Over to you, Hiren bhai.

Hiren Dilipbhai Doshi — Chief Financial Officer

Thank you, Mr. Ashutosh. Good morning to all of you. I fully acknowledge your presence for update on the earnings of quarterly call for the quarter ended December ’22. Hope my screen is visible?

Ashutosh Tiwari — Equirus Securities — Analyst

Yes.

Hiren Dilipbhai Doshi — Chief Financial Officer

Okay. Straightaway taking to the financial numbers and stepping a foot on parameters of financials. Ladies and gentlemen, would like to update that for the quarter ended December, that is Q3 of FY23 — pardon me, one I think, error is there due to this basically, number of Q3 FY23, which we recorded INR308 crore revenue which is the highest in a particular quarter till now. With compared to earlier quarter, it was — September quarter was INR290 odd crore, and having growth of 7% on Q-on-Q basis.

In terms of EBITDA, we are record at INR75.2 crore EBITDA in the particular December quarter and which was INR69 crore in quarter 2 of FY23. In terms of percentage, it has marginally improved by a 0.5%, earlier it was 23.4%, and by the end of quarter 3, it is 23.9%.

In terms of PBT, it was INR49 crore in quarter 2, it has increased to INR53 crore in quarter 3 of FY23. PAT, I’m sorry, it is PAT. PBT was — earlier it was INR60 crore, and it has increased to INR65 odd crore in quarter 3 FY23. In terms of my revenue mix, broadly, it was same what we have a pattern of bearing rings and auto components. Bearings rings is some where about 52%, 53%; and auto components 47% to 49% considering the only through this revenue. But overall revenue considering my scrap and other items that are definitely bearing ring portion is more, that is some where about 53%, 54%.

In terms exports and domestic, as it is there, almost 60%, we are touching to overseas revenue and 40% towards the domestic. Well, again, would like to update you that company is getting consistent new inquiry from the European as well as the U.S. market. No doubt, Europe market is bit sluggish and we are facing some kind of slowdown, even from our existing customers from the Europe, but the company is trying to maintain or rather to cope with the addition of the new customer to the best possible extent so, that the revenue momentum, will be what we have envisaged for the this particular FY23.

Down the line, next couple of quarters, we do not expect any significant turnaround from the European market, it would be more or less on the same line and that is how we are expecting next fiscal is on the same line and having growth of 15% to 18% or something like that on our annualized number of FY23. But looking to the enquiries and the programs, what has already been allotted and we are expecting, the same to be confirmed in the Q4 of this fiscal or in Q1 of the next fiscal, definitely, company is very much bullish for the FY25 and expecting growth, more than 20%, 25% over the numbers of fiscal ’24.

At the same time, would like to tell you that the uncertainty in terms of raw-material pricing, in terms of overseas ocean freight and container availability and all these things. Our company, for the particularly last quarter, it has been almost stabilized and we are getting back to pre-COVID level in terms of ocean freight, as well as the availability of containers and the raw material pricing is more or less stabilized as of now. We do not expect much of the fluctuations in the couple of quarters.

I would like to update that, we were in process of installation of ground mounted solar project and out of that 4 megawatt project has already been operationalized in last month, and the remaining 11.5 to 12 megawatt, we are expecting somewhere in between March to April ’23, which will give us significant benefit, particularly, for the entire fiscal in next year.

I would like to update that the operating cash-flow is quite strong during the fiscal. And with that company was able to reduce the shot term debt drastically, and long-term debt as of now is almost on the verge of moving out-of-the balance sheet. As on 31st December, the long term debt was hardly INR12 crore, which company is planning to pay off maybe by the end of this fiscal.

My revenue bifurcation, what we have been updated earlier also that — in between 40% to 44% that comes from the various passenger vehicle segments or 23% in the current fiscal, it is from the industrial. And the commercial vehicle, heavy commercial vehicle, where company is gaining bit and again further, it would be strengthened, particularly in these three segment rather, Industrial, CV & HCV and Hybrid vehicle.

And in Commercial Vehicle HCV, we have reached to almost 20%, 29% of our revenue. We expect, further, it would be strong. And particularly in Industrial segment, we are expecting a bit high in the current next fiscal. In terms of overall operational revenue, would like to update that for the nine months, company has recorded INR885 crore revenue, apart from the other income that is interest and certain financial income, which earlier it was INR1016 crore for the FY22.

We are almost on the same line, what we have envisaged and we would be able to touch the targets or the numbers, what we have given or estimated for this FY23. In terms of EBITDA, the nine months EBITDA, cumulative EBITDA is INR215 crore which was INR240 crore for the entire year. In terms of percentage, as I was mentioning, it has gone up by 0.5%, 0.4% to 0.5%.

PBT of the company for this nine months is INR186 crore or vis-a-vis INR194 crore for the entire fiscal, we can say, we are behind hardly 5% to 6%, whereas my 25% of the remaining period is yet to come. And in terms of PAT, INR152 crore we have recorded in nine months, and which was INR132 crore for the entire fiscal. Here, the benefit of taxation or rather getting the new tax regime is also factored here.

In terms of operating cash-flow, as I was mentioning, it has quite increased compared to previous fiscal. In FY22, my operating cash-flow was some where about INR59 crore vis-a-vis in this first-half, it is — it was INR86 crore, but if I tell you by end of December for the nine months, it has crossed INR140 odd crore. Now, this 140 crore, have been used maximum, it has been used to reduce my working capital to the extent of INR95 crore to INR100 crore, out of that INR30 odd crore something has been invested in various capex, including solar and long-term debt has almost reduced by INR14 crore.

In terms of net-debt, as on September half-year, it was INR166 crore, let me tell you and by end of December, this net-debt figure is INR87 crore. And again, in this INR87 crore, INR12 odd crore is the long term debt, which is outstanding, which the company is planning to pay off by end of this fiscal.

So, on — we expect net-debt equity yet to be strong in the last quarter. In terms of ROE, yet it has increased to 27% by September ’23, and it is somewhere about 29.5% by nine moths of — ended December ’22. These are the detailed numbers of the — operational numbers in terms of profit, P&L and the balance sheet. Would like members to just go through in detail and let us have any query, any concerns in this regard. Would like to — would be happy to answer your queries.

Session is is open for Q&A. Thank you.

Questions and Answers:

Ashutosh Tiwari — Equirus Securities — Analyst

Thank you, Hiren sir, for the detailed opening remarks. [Operator Instructions] So, we have our first question from Mr. Barghav, please unmute your line and ask your question. Barghav, please unmute your line and ask your question.

Yeah. As there is no response, we’ll move on to Mr. Sonal, please unmute your line and ask your question.

Sonal — — Analyst

Yeah. Hi, good morning, sir, and thanks for taking my question. Great to see it finally, crossing the turnover of INR300 crore a quarter, for this quarter. So, just wanted to, I mean, get some basic numbers, first. So, what was the product revenues for this quarter?

Hiren Dilipbhai Doshi — Chief Financial Officer

Product revenue, is simply bearing rings, and auto component only, it was INR287 crore. I’m not considering scrap, if you’re adding scrap revenue that is somewhere about INR15.5 odd crore. So, both put together, it was INR302 crore, INR303 crore.

Sonal — — Analyst

And the other operating income would be?

Hiren Dilipbhai Doshi — Chief Financial Officer

That is hardly, this one export incentives to the extent of INR4 crore, wind mill is somewhere about INR1 crore. Put together is INR308 crore with the other income of somewhere about INR67 million.

Sonal — — Analyst

Got it. And so, I mean, like, just in terms of the outlook, like you mentioned that even though there are challenges in Europe, you are expecting 15% to 18% growth for next year. So, do you still see — so, you see sequentially, we will continue to grow, go up from this INR300 crore sort of level?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah, just sort of looking to be the program, which has been already been awarded and couple of new customers from U.S., with whom we were talking since rather from many — beginning of this fiscal. We expect them to be there on the board in the second-quarter of next fiscal. And apart from that the European new customers, what we have added, no doubt, they have started a bit slow, but we expect some kind of additional volume from them, and beyond that domestic market particularly in the Industrial segment and other segments we are expecting additional enquiry or rather additional lifting.

Sonal — — Analyst

Got it, sir, got it. So, as of now, I mean, like do you have visibility for say 15% growth next year?

Hiren Dilipbhai Doshi — Chief Financial Officer

We are escalating that, looking to the numbers and in plan or projections, what our customers have indicated as of now.

Sonal — — Analyst

Got it, sir. Okay, sir. Great, thank you so much. I’ll join back the queue.

Hiren Dilipbhai Doshi — Chief Financial Officer

Thank you.

Ashutosh Tiwari — Equirus Securities — Analyst

We have our next question from Mr. Jairam, please unmute your line and ask your question.

Jairam — — Analyst

Yeah, good morning, sir. The first question is on the raw-material cost to sales, that percentage has declined quite a bit, it was — it has been very stable at around 46%, 47% levels, but this quarter it was at almost 52%, 53% levels. So, what was the reason for such a sharp increase in the raw-material cost to sales?

Hiren Dilipbhai Doshi — Chief Financial Officer

So, there are various reasons towards that. Certain new components what we are developing, we are on the trial and error stage as of now, and even the product mix what we are selling, having a better revenue, sometimes it is not like that generally it is at 46% to 47%, sometimes it got fluctuated in between 48% to 52%. And partially, as earlier also we were mentioning that some time lag because of the rate increase, rate decrease is yet to be passed on to the customer. So, something — some recovery from my customer’s towards raw material that may come — rather that will come in the first quarter or rather the Q4 of FY23. So, but on an average by and large, it would be in the ranging of 48% to 50% on an annual basis.

Jairam — — Analyst

Okay. Okay. And another question is on the sales growth that you have guided for 15% to 18% growth next year and FY25 growth should be 20% to 25%. So, can you explain why this kind of a relatively — relative slow down in FY24 and then acceleration again in FY25?

Hiren Dilipbhai Doshi — Chief Financial Officer

See, the main reason is just because of certain European — yet, they have European market, yet, it has not been stabilized, but not clear how my existing customer may further go down by 5% to 10%. Even we don’t expect the quick restart from our new customers. Couple of customers, what they were supposed to lifting or rather we get supply from the last quarter, but yet they are starting in this month gradually, again the volume what we have indicated it has gone down. So, that is how we are not expecting or rather at least for next couple of quarters, a quick recovery from the European market.

Jairam — — Analyst

Right, got it.

Hiren Dilipbhai Doshi — Chief Financial Officer

Got with, restrict to some extent.

Jairam — — Analyst

Okay. Thank you, sir.

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah.

Ashutosh Tiwari — Equirus Securities — Analyst

So, I will take question from Mr. Bhargav from the chat. So, first question is how much of the new orders are from Europe?

Hiren Dilipbhai Doshi — Chief Financial Officer

Sorry?

Ashutosh Tiwari — Equirus Securities — Analyst

How much of the new order wins are from Europe?

Hiren Dilipbhai Doshi — Chief Financial Officer

So, to quantify, let me tell you, on an average, on a quarterly basis, from European market we have almost INR5 crore to INR7 crore particularly in last couple of quarters. Average of INR5 crore to INR7 crore in last two quarters. We expect the same it could be, maybe for Q4 as well as Q1 of next fiscal, but definitely thereafter, we expect it would be more than INR10 crore to INR12 crore. Yes. And the second question is?

Ashutosh Tiwari — Equirus Securities — Analyst

Hiren Bhai, his question is like whatever orders we have won and forecasting the revenue in ’25 and all, roughly what percentage of those will be from Europe, if you can quantify it, like order wins that has happened already, how much percentage could be from Europe of that, maybe, Manesh Bhai can say something on that?

Hiren Dilipbhai Doshi — Chief Financial Officer

Out of total quantum or rather the growth what we are expecting from there, we expect at least 20% to 25% would be coming from European market, that is our conservative (Technical Issues) if we are talking about ’25 numbers. Okay. Ashutosh any other question in chat?

Ashutosh Tiwari — Equirus Securities — Analyst

Yes. So, there is a second question from Mr. Barghav. So, he’s asking what is the current order book and how is the traction with Korean and German customers?

Hiren Dilipbhai Doshi — Chief Financial Officer

My current order book is ranging in-between INR105 crore to INR115 crore month-on-month basis. And the second portion of your question, can you please come again?

Ashutosh Tiwari — Equirus Securities — Analyst

Yes. So, how is your traction with Korean and German customers?

Hiren Dilipbhai Doshi — Chief Financial Officer

Okay. I request my MD, Mr. Manesh Madeka to take up this question. Sir, if you can — sir, you are on mute.

Manesh Dayashankar Madeka — Chairman & Managing Director

Yes. I could not understand the question, what Korean and German?

Ashutosh Tiwari — Equirus Securities — Analyst

Sir, what sort of traction are we seeing from them, Korean and German customers?

Manesh Dayashankar Madeka — Chairman & Managing Director

See Europe, as Hiren said, they are passing through recession, but we have added new customer from Europe and USA both. So, at present the sample submission activity is going on and in automotive components it takes always more than six months to one year to start the bulk supply. And that activity was started in second quarter and third quarter of this year. So, from April onwards, we are expecting some good volume, the initial volume we will start supplying.

Ashutosh Tiwari — Equirus Securities — Analyst

Sir, what they were also asking is, do we expect any competition from the Korean market?

Manesh Dayashankar Madeka — Chairman & Managing Director

No, no. From Korean market or — see in Europe, you all may be knowing that energy cost has gone up drastically and now, they’re are looking towards India or China for their sourcing, so, at present we are getting lot of RFQ inquiries from Europe and USA. And out of that one or two, this EV components for electrical vehicle we have been nominated by one of the very big transmission producer in USA. So, looking to that we are expecting 15% to 20% growth next year also. Europe is already in recession and whatever revenue we are getting now, they are passing through recession by adding new customers, we have maintained that our revenue of INR100 crore.

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah. Okay, thank you.

Operator

Yeah, next question please.

Ashutosh Tiwari — Equirus Securities — Analyst

So, yeah, our next question comes from Mr. Praveen. Please unmute your line and ask your question.

Praveen — — Analyst

Yeah. Hi, am I audible?

Ashutosh Tiwari — Equirus Securities — Analyst

Yes.

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes.

Praveen — — Analyst

Yeah. Hi, thanks for this opportunity. Sir, just one question, on the domestic front, if you can just help us to understand all the demand in the domestic market, number one?

Number two, since Timken and Schaeffler both are expanding their capacity, so if you can just help us to understand any development on those front or any inquiries have started like from lowest lines?

Manesh Dayashankar Madeka — Chairman & Managing Director

So, we cannot give you the name the customer, but recently, we have been awarded a very big business from domestic customer for electrical vehicle. So now, see the penetration of electric vehicle in India is very — they are — all are very aggressive. So good revenue, we will be — we have been nominated for that whatever component. And railway, now in India, railway has increased their sourcing for this — their Vande Bharat train and (Technical Issues) wagon manufacturing.

Praveen — — Analyst

Okay.

Hiren Dilipbhai Doshi — Chief Financial Officer

So, we are expecting rather even the enquiries from the domestic customers and in terms of industrial segment as well as one of the customer who in turn supply to Indian OEMs, who are very much aggressive as far as the passenger vehicle segment and all SUVs (Technical Issues). So, there also, we have just recently been nominated for supplies to the Indian customer, who is our existing customer and they are expanding their activity towards that.

So, we will be getting or rather we are getting share into that, particularly from the other company, who has just recently down the line, before six months back, they have announced certain kind of capex which they are in process, but it may take some more time, at least 12 months to 15 months from now. Once they will be finished out with that expansion, definitely we will be getting some chunk over there, because the kind of (Technical Issues) they had announced and our facilities are very well suitable to produce such kind of components as we are already supplying such kind of components to their existing plants also.

Praveen — — Analyst

Okay, thanks. Those were the two questions from my side.

Ashutosh Tiwari — Equirus Securities — Analyst

We have our next question from Ms. Pooja. Please unmute your line and ask your question.

Pooja — — Analyst

Hi, am I audible?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah.

Pooja — — Analyst

So, the first question is on — as raw material prices have softened, so what margin expansion are we expecting?

Hiren Dilipbhai Doshi — Chief Financial Officer

For this raw material fluctuation, it would not affect our margin because raw material price increase and reduction both would be passing to the customers. So, that will not be affected to our margin significantly. It is only the time lag between where we may got some kind of marginal hit or beat.

Pooja — — Analyst

Okay. Any expectation on EBITDA number?

Hiren Dilipbhai Doshi — Chief Financial Officer

For? Yeah, EBITDA for which period madam, for this nine months somewhere, it is almost touching 24%.

Pooja — — Analyst

No. For FY24?

Hiren Dilipbhai Doshi — Chief Financial Officer

FY24, it will be more or less on the same line. It will go up definitely, because the solar what we have — we are in process and that would be fully operationalized and other reading for the next fiscal. So, we expect at least 5% to 6% of my current EBITDA to be increased definitely.

Pooja — — Analyst

Okay. Any capex plans in pipeline in coming years?

Hiren Dilipbhai Doshi — Chief Financial Officer

For the next fiscal — for the current fiscal, the remaining solar capex hardly to the extent of INR3 crore to INR5 odd crore and the other machinery capex, as we have communicated earlier also that we have ordered one forging line looking to the new business what we have been awarded, and that equipment would be coming to us somewhere in November ’23 or December ’23. So, that capex including other my machining lines and maintenance capex, it would be somewhere about INR40 crore to INR45 crore in the next fiscal.

Pooja — — Analyst

Okay. Okay, thank you.

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah. We have a nice question from Mr. Nilesh. Please unmute your line and ask your question.

Nilesh — — Analyst

Yeah. Hi, am I audible?

Ashutosh Tiwari — Equirus Securities — Analyst

Yes.

Nilesh — — Analyst

Yeah, hi. So, I have a couple of questions. So, one is, I observe that in your raw material breakup, there has been overall I think the change in stock is positive and which is kind of — which is a positive number that way and which has kind of pulled down your gross profit margins quite dramatically. Can you just explain that? And the second is also parallelly, I could see that the other expense component, which has — which otherwise in the recent quarters has been inching up, that has also kind of gone down. So can you just explain the reasons for this?

Hiren Dilipbhai Doshi — Chief Financial Officer

See, first of all the change in stock that is obviously on the volume or rather the basis of the future order, our production schedule (Technical Issues). Hello.

Nilesh — — Analyst

Yeah, sir, we couldn’t hear you, at least I couldn’t hear you for the last 10 seconds to15 seconds.

Hiren Dilipbhai Doshi — Chief Financial Officer

Am I audible now?

Ashutosh Tiwari — Equirus Securities — Analyst

Yes.

Nilesh — — Analyst

Yes.

Hiren Dilipbhai Doshi — Chief Financial Officer

Okay. What I was mentioning that the change in stock or rather increase, decrease (Technical Issue) finished goods, it is as per the production schedule what we have planned for this particular quarter and even for the next quarter. So, obviously, it depends on the lead time what we are having for supplying to our customers. Earlier it was on a higher side because of container congestion and all these things and now it has quickly moved. So definitely the inventory, which was lying with us, it is nowdays on our lower days, so which has reduced my this change in stock, that is the one figure.

And apart from that, the other expenses what you were mentioning, definitely the freight portion, ocean freight, which was very much on the higher side and it has been stabilized particularly in last two to two and half months. So, that also matters in my other expense. Apart from that, certain other expenses as the material — commodity pricing has gone down, certain pricing of my other job work challenges or some kind of consumers, that has also bit gone down, so that overall, it has reduced my expenditure levels.

Nilesh — — Analyst

And these, I mean, by and large these — this cost structure may remain that way, considering — assuming that the ocean freight doesn’t shoot up, the rest of these are like sustainable, the reduced cost?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes, but definitely the chances of 3% to 5% deviation would be there, because sometimes where ever my new development, the new products, which are under process, which are under development, definitely the certain consumption of certain materials stores et cetera, it has gone up, which was very much or rather almost nil in the last quarter. So, down the line for these couple of — second quarter — this one second quarter of next fiscal, we too have certain planning for the product development, trial and runs are going on. So, for that particularly portion, it may go up.

Nilesh — — Analyst

Got it. And one last question, again on a P&L line item itself is, though you mentioned that you have reduced the debt, but again, just on a Q-o-Q basis, the interest expense has gone up?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes. Here, the impact of the restatement of foreign currency that is because it is somewhere about INR16 million which is accounted in INR35 million my overall cost. So, my overall working capital cost is less than INR2 crore on a quarterly basis and again you better know that we are using foreign currency working capital where U.S. dollar is so for has bit increased, so that will also impact a bit.

Nilesh — — Analyst

Got it. And concurrently other income, are there any offsetting things which also has been going up — other income, we’re noticing that…

Hiren Dilipbhai Doshi — Chief Financial Officer

It will not be up because other income also consist of certain kind of Forex reinstatement of my debtors as well as my vendors restatements. So, it would be — maybe now, earlier for the last two quarters of fluctuation of dollar-euro is being increased and we got benefited over there, but now the dollar is almost stabilized, euro from last month onwards it is almost stabilized. So, we do not expect much of the gain from the foreign currency. So, next — last quarter number may bit lower than the INR6 million to INR7 million.

Nilesh — — Analyst

Got it. Yes, I think these are the questions from my side. Thanks a lot. I’ll get back in queue.

Hiren Dilipbhai Doshi — Chief Financial Officer

Thank you.

Ashutosh Tiwari — Equirus Securities — Analyst

We have a next question from Mr. Harshit. Please unmute your line and ask your question.

Harshit — — Analyst

Hello?

Ashutosh Tiwari — Equirus Securities — Analyst

Yes, you are audible.

Harshit — — Analyst

Hi, sir. Sir, I want to understand basics of the rings industry, the outer ring? So, what is the industry size globally? What would be our market share? And how does a customer approach — how do we approach our customer, like do we — our customers are Schaeffler, SKF, these customers or how does it happen?

Hiren Dilipbhai Doshi — Chief Financial Officer

See, first of all, let me tell you, your first part of your question was how big bearing industry across the globe. Bearing industry is quite big or even more than $60 billion something like that and bearings, which are available or which are produced, say, from a 50 mm, 20 mm diameter to 10,000 mm outer diameter kind of thing. But when it comes to Rolex, Rolex is there into particular range of the product, which is, say, from 50 mm diameter to 900 mm diameter kind of thing, that is bearing ring what I’m talking about.

And sorry, we don’t know how big is the globally the bearing ring market is, because again in a particular addressable segment where we are, but I can definitely tell you in a domestic market, in a particular this range and the bearings which are produced from the forging (Technical Issues), we have market share of somewhere about 35 odd percentage.

Later part of your question is how the customers are approaching and how we are addressing them? Definitely, the Rolex is having the facility state-of-art manufacturing facilities, 22 kind of different forging lines and with the various value-added processes what we are offering and the bearing giants across the globe, except Japanese and certain Korean manufacturers, all are very much aware of what kind of capabilities Rolex is having and what kind of range of the products what we’re able to produce. So, accordingly, they are approaching or rather through their sourcing office in India.

Majority of the global players are there having their IP or rather the sourcing office in India and their local officials are very much aware about these things and they approach us and the dialogs would be initiated and this give us some kind of design, drawing of the products and we are just taking up further.

Harshit — — Analyst

Okay. Sir, to follow-up on my previous question only. So how much — so we just make the outer rings of a bearing, correct?

Hiren Dilipbhai Doshi — Chief Financial Officer

Inner, outer both.

Harshit — — Analyst

Okay and how much — so, if we say, if a bearing is INR100, so, both the rings contribute to how much of the cost of the bearing?

Hiren Dilipbhai Doshi — Chief Financial Officer

20% to 25%.

Harshit — — Analyst

Okay. So, basically whatever it will be the total bearing industry, ours will be 20% to 25% of that total?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah. But that is the major chunk of my, what you say, overall cost of production of a bearing.

Harshit — — Analyst

Okay. Sir?

Ashutosh Tiwari — Equirus Securities — Analyst

Mr. Harshit, can I ask you to please join back the queue as there are several participants waiting for their turn.

Harshit — — Analyst

Okay.

Ashutosh Tiwari — Equirus Securities — Analyst

We have our next question from — a repeat question from Mr. Sonal. Please unmute your line and ask your question.

Sonal — — Analyst

Yeah, hi, thanks for taking my question again. Sir, just on this quarter’s numbers like you — somebody also asked that we have seen a sharp jump in RM cost while other expenses have gone down. So is there a reclassification or this is, I mean just some lead lag like you mentioned?

Hiren Dilipbhai Doshi — Chief Financial Officer

No, no, no, there is no reclassification some kind of time lag, as well as I told you the product mix —

Sonal — — Analyst

Hello?

Ashutosh Tiwari — Equirus Securities — Analyst

We are not able to hear you, Hiren, sir.

Sonal — — Analyst

Sir, could you repeat the answer, please?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah. See the main reason is just because of product mix — am I audible?

Sonal — — Analyst

Yes, sir.

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah. So, the main reason for increasing this thing is the product mix and another portion is just because of time lag is something what I’m expecting recovery from my overseas customer, that would be there in the month of January, February.

Sonal — — Analyst

Got it. Sir just because I’m asking this also because if you see our margins have been incredibly stable right, like 22% point something for the last six quarters, so is it a fair way to understand that we don’t really have a lot of unexpected costs et cetera and it’s a very stable business in that sense, despite the raw material cost inflation?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes, raw material inflation, as we told you that it is definitely it affects our percentage, but apart from that these kind of margins are very much expected if we have the same level of operations and down the line or rather the scale of economy, if it has gone up, definitely we will be benefited. And any cost of production, any improvement in cost like, say for example, electricity cost what we are expecting to be reduced in the next fiscal. So, straightaway it would be added to my EBITDA. And looking to our experience and this thing, more than 22% EBITDA is very much stable or rather at the current level of operations.

Sonal — — Analyst

Right. And could you repeat the — like I am not clear, I mean like we should — I mean roughly what portion of your power cost will now be solar? And when do you finally expect to commercialize this?

Hiren Dilipbhai Doshi — Chief Financial Officer

See, as I was mentioning that 4 megawatt of my ground-mounted solar, which is 25% of my total solar what we are trying, it has already been operationalized in the last month and remaining 11.5 megawatt to 12 megawatt, it would be — what we are expecting somewhere in the month of April. So, I would be having entire 15.5 megawatt, 16 megawatt solar benefit in the next fiscal.

Sonal — — Analyst

And that would be what — I mean like what percentage of your sourcing will come from the solar?

Hiren Dilipbhai Doshi — Chief Financial Officer

See, out of my overall sourcing of power, from a DISCOM, definitely it will reduce to the extent of our 25 odd percentage.

Sonal — — Analyst

25 odd. And just last question from my side. In terms of like because despite the challenging environment, you are guiding for fairly strong growth next year and even for the year after that. So, do we see any major capex like next year too — because if you are going to go 15%, 20%, then by FY25, I think your capacity maybe fully utilized or something, right?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah. As we have communicated earlier also that we do have certain spare capacity also available. Apart from that, we have ordered one forging line from Japan, which we are expecting to be installed in the third quarter of FY24. So, that will definitely increase my capacity to the extent of 15 odd percentage — 15% to 20% of my existing level.

And apart from that, value-added process equipments what we are going to install. So, that will definitely — it would be possible for me to achieve the numbers what we are expecting for FY24 as well as FY25. But we do not foresee any significant or big amount of capex. As I was mentioning, my capex numbers for this fiscal remaining maybe INR5 odd crore to INR7 odd crore something we are going to spend and in next fiscal INR40 crore to INR45 crore will be able to help me to achieve these numbers.

Sonal — — Analyst

Got it, sir, great. Thank you so much. All the best. Yeah.

Ashutosh Tiwari — Equirus Securities — Analyst

We have next question from Mr. Amit. Please unmute your line and ask your question.

Amit — — Analyst

Yeah. Just one question from my end, the 7% Q-o-Q topline growth that you reported, is there any benefit from currency in terms of translation gains or something like that?

Hiren Dilipbhai Doshi — Chief Financial Officer

Not much in particular, because as you have seen that for last couple of months dollar, euro both are almost on the same line. And so, there would be — on a euro front, it has increased, but unfortunately or fortunately my euro contribution overall my revenue — to my revenue is very less. So, I didn’t have much of any of the significant appreciation in my topline.

Amit — — Analyst

So, this Q-o-Q topline growth is largely on account of increased volume of business?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes.

Amit — — Analyst

Okay. Thank you.

Hiren Dilipbhai Doshi — Chief Financial Officer

And even the product, the product what we are selling or rather the new products what we have developed particularly in the last six to eight months, where the good amount of chunk has been dispatched, no doubt my existing production or rather the existing product got some reduction this thing, but certainly high value or rather high value-added products have also been supplied.

Amit — — Analyst

Okay. Understood. Thanks.

Ashutosh Tiwari — Equirus Securities — Analyst

Yeah. We have our next question from Mr. Mahesh. Please unmute your line and ask your question.

Mahesh — — Analyst

Hi, sir. Am I audible?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes.

Mahesh — — Analyst

Sir, just wanted to understand, I think half of our revenue comes from the international market and freight cost is very important. So how do you approach, I mean when — do you get into long-term contract for freight cost or is it that…

Hiren Dilipbhai Doshi — Chief Financial Officer

No, we do not have any long-term contract and see, that you need to consider a couple of things. First of all, out of my total exports, hardly 50% of those exports are what you say a CIF kind of terms or including ocean freight et cetera. Remaining is on FOB terms, so there would not be any impact on that. Apart from that, the freight costs, what was there for — before six, eight months back and today it is quite stabilized and it has gone down to almost touching to pre-COVID level. So, we will not have any impact over there.

Mahesh — — Analyst

No, I was just asking that, I mean, do we need to continue with this uncertainty? I mean…

Hiren Dilipbhai Doshi — Chief Financial Officer

No, we didn’t — see that was the particular fees, that was the particular period because of China, U.S. and there are other factors, but now a days for last couple of months or even three months, there is no issue as far as availability of containers and the things have been released, so that the rate has drastically reduced now. We do not expect any uncertainty over there or maybe this thing 5%, 7% plus-minus would be there, but that will not be significant.

Mahesh — — Analyst

Okay. Sure. And sir, what will be the contribution from the top three customers in our sales?

Hiren Dilipbhai Doshi — Chief Financial Officer

If I say top three customer groups, it would be somewhere about 50 odd percentage, and when I say customer group it is having various plants. One of the — my customer group having — we are supplying at their seven plant across the globe and all put together seven plants they are contributing somewhere about 25%, but for me those are my seven customers.

Mahesh — — Analyst

I joined the call a bit late, but what is the capex plan for next two years?

Hiren Dilipbhai Doshi — Chief Financial Officer

Capex for the fiscal ’24, it would be in the range of INR40 crore to INR45 crore and for the FY25 again considering to value-added processes and certain additional facilities requirement maybe to the extent of INR25 crore to INR30-odd crore.

Mahesh — — Analyst

Sir, this is maintenance capex, I mean we are not…

Hiren Dilipbhai Doshi — Chief Financial Officer

No, my maintenance capex is not as much, it is hardly in between INR7 crore to INR10 odd crores, not more than that. So, here I am considering both my new equipments as well as maintenance capex and that’s why I was telling that INR40 crore to INR45 crore something in the next fiscal, because we have ordered one forging line, which we are expecting somewhere in third quarter of next fiscal.

Mahesh — — Analyst

Sure. Thank you so much, sir.

Ashutosh Tiwari — Equirus Securities — Analyst

We have our next question from Mr. Nishant. Please unmute your line and ask your questions.

Nishant — — Analyst

Yeah. Good morning, sir. First of all congratulations for a good set of numbers and record high revenue during the quarter. So, my first question is related to revenue contribution coming from Europe and U.S. on an annual basis or on a quarterly basis, if you can share?

Hiren Dilipbhai Doshi — Chief Financial Officer

I’m sorry, please come again?

Nishant — — Analyst

I’m saying revenue contribution coming from Europe and U.S. region?

Hiren Dilipbhai Doshi — Chief Financial Officer

See, let me tell you my 60% revenue come from the overseas market, where the European continents are contributing somewhere about 15%, 1-5 of my overall revenue. And you can say 25% of my overseas revenue is being contributed by European continents as of now. It has gone down in particularly last four quarters from my existing customer, but in terms of numbers, we are more or less same, what we had in previous years. That is because of adding new customers in European market.

Nishant — — Analyst

And for U.S. likewise numbers would be?

Hiren Dilipbhai Doshi — Chief Financial Officer

Europe, out of my 60% overall this thing, it is somewhere about 65% to 70% that is from U.S. market in terms of overall, you can say almost 38% to 40% of my revenue that comes from U.S. region.

Nishant — — Analyst

Okay. Thank you, sir. And the second question is related to the margins, first like you mentioned that in FY25 or from maybe post the second quarter or third quarter of FY24, we may see CV come — CV segment to see improvement in the revenue contribution. Likewise, industrial revenue contribution is also expected to increase. So, because of this change in the revenue segment, will there be increase in the margin because of this?

Hiren Dilipbhai Doshi — Chief Financial Officer

See, wherever the products carrying more value-added processes, the margins are a bit on higher side. So, it is depending on the products what I’m going to supply and the quantum of that particular component. So definitely CV business we are expecting much from the domestic market and even the industrial segment, where we are expecting growth, but the margins definitely, it is not because of the only product, it also depends on the utilization of my capacity, which will give me push up over there. So, once I will have at least 10% to 15% more utilization or more revenue on a quarterly basis, definitely my margins would go up by, at least, what you say, 1% to 1.5% of my current existing EBITDA level.

Nishant — — Analyst

Sure, sir. And in case of other income, because last two quarter we have been witnessing that the other income is in the range of say, INR5 crore to INR6 crore, if I’m not wrong, you have highlighted that is mainly because of the Forex related changes and now the currencies have stabilized. So, we may not see the similar kind of number going forward, am I correct in that understanding or?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes. Yeah, definitely. But at the same time, I would like to add that, see, for the nine months number where I was, stated INR19 crore by way of other income. Here the major chunk is just the realized gain loss what we had. As I was mentioning that my working capital utilization has drastically gone down during this fiscal and the Forex portion what we had an open invoicing. So, I’ll be getting dollar realization on a best rate, where my export rate was much on a lower side. So, that fluctuation has gained me and out of this INR19 crore, what is there for the nine months these more than 60% is the realized number what we had. So, coming to the quarterly numbers INR67 million, what it is there on December, definitely it will come down because we do not expect much of the fluctuation in the last quarter of current fiscal.

Nishant — — Analyst

Sure, sir, thank you. I’ll fall back in queue. Thank you.

Ashutosh Tiwari — Equirus Securities — Analyst

We have our next question from Mr. Sandeep. Please unmute your line and ask your question.

Sandeep — — Analyst

Yeah. Hi, good morning, sir.

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah, Sandeep.

Ashutosh Tiwari — Equirus Securities — Analyst

Sandeep?

Sandeep — — Analyst

Hello, am I audible to you?

Ashutosh Tiwari — Equirus Securities — Analyst

Yes.

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah, Sandeep.

Sandeep — — Analyst

Yes, hi, sorry, I was on mute. Sir, one question is on the margin side, just wanted some more clarification. Typically, our gross margins are in the range of 52% to 54% and it came down to 47% this quarter, which you explained is a function of mix, but it should also normalize because there are some delayed price hikes also that you should get and mix should also come back to where it was earlier. While your other expenditure, which largely consists of these freight cost going down and some benefit you will get out of the solar plants that will get installed, are we talking of a material increase in margins in that case because that can lead to a 4 percentage point to 5 percentage point increase in margins if the same were to be true?

Hiren Dilipbhai Doshi — Chief Financial Officer

No sir, we don’t expect 4% to 5% straight away in the next fiscal, because there are certain fluctuation. I was mentioning that wherever the new development or rather the new product development is going on, definitely certain kind of expenditure level would definitely go up. And overall, my raw material margin, it is ranging in between 48% to 52%. So again, it depends on that kind of time lag. So, there would be something even in the next quarter also which may be pass it or recover it on the subsequent quarter. So, we are expecting this because of solar and other operational efficiencies, definitely to the extent of 1% to 1.5% additional or rather the improvement in our EBITDA level for the next fiscal.

Sandeep — — Analyst

Okay. So, was this 22% where we are in this Q, we should be somewhere about 24% odd in next financial year, is what you are guiding?

Hiren Dilipbhai Doshi — Chief Financial Officer

Sir, if I’m not mistaken, my current EBITDA is more than 23% or touching, particularly this quarter it is touching 23.5% or so. So, we are expecting more than 23%, it would be stabilized definitely.

Sandeep — — Analyst

Okay. All right. We actually — it’s a different way we calculate but understood, it is similar to where it was. Got it. Second point was on just again clarification on top line guidance. You are guiding for 15% growth next year, I think in previous quarter you’re guiding for 12% to 15%. So, you’re saying you should be on the higher end of this number and then another 20% to 25% in FY25. Is that correct?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah, definitely. What we are expecting and looking to the current program status and the target dates what my customers are indicating. So, we are expecting somewhere about 15% growth in the next fiscal, yeah.

Sandeep — — Analyst

And on — the next point was on the tax rate, we are consistently around at 18%, 19% effective due to the unutilized MAT benefit, if you could just highlight how much of this unutilized benefit is there and approximately —

Hiren Dilipbhai Doshi — Chief Financial Officer

That has already been used in the last fiscal and in this current fiscal my effective current tax rate, you need to consider, which is my tax outflow that would be 25%.

Sandeep — — Analyst

Okay. Sir, but reported numbers are around 19%?

Hiren Dilipbhai Doshi — Chief Financial Officer

So that is a deferred tax, the reversal of deferred tax, which is not having any impact on my inflow, outflow.

Sandeep — — Analyst

Okay. Understood. And last point was on this some land monetization, I think we had guided that we’ll be looking forward to do going forward. Any update on that if you can just give it to us, please?

Hiren Dilipbhai Doshi — Chief Financial Officer

Status is — rather status is, what do you say, as it is. But we are looking for a good customer or rather the good buyer for that particular piece of land. And we are inclined to liquidate that land parcel, but the current scenario of real estate market and the size of the particular land parcel that is bit restricting and we are again trying to move it off. But down the line, definitely we’re inclined to liquidate. As of now status is status quo, you can say.

Sandeep — — Analyst

Got it. All right. Thank you so much for taking these questions.

Ashutosh Tiwari — Equirus Securities — Analyst

We have our last question from Mr. William. Please unmute your line and ask your question.

William — — Analyst

Hello, thanks for the opportunity, sir. Sir, this might be covered, but just want to confirm, sir. Any plans to bring down the debt level further since we are not going to have any further major capex?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes, definitely. See as I was mentioning that as on 31st December, my long-term debt was somewhere about INR12 crore, further within the one month only it has gone down by another 20% of that amount and the working capital again what it was there in December, it has further reduced and it is our continuous endeavor to reduce my entire debt, whether it is short term, long-term, both. I was mentioning that long term that we are planning to pay it off before March also.

William — — Analyst

And so, sir, our plan is to be debt-free by FY24 end?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yes, definitely.

William — — Analyst

Okay. And sir, just a second question. Sir, in terms of the growth sir, considering if the current global scenario remains the same, the probability of achieving 15% to 18% growth is fairly, I would say, high, right?

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah, definitely. See I was telling that 15% that is on the basis of the estimates, forecasts schedule and the indicative numbers given by my customers or even with the new customers that may prolong because of certain uncertainty or maybe any, what you say, abnormal or adverse factors. Definitely it will affect and we are part of overall economy and particularly automobile and infrastructure industry. So, something would be hampering over there, it will definitely affect me.

William — — Analyst

Understood, sir. Thanks a lot.

Hiren Dilipbhai Doshi — Chief Financial Officer

Yeah.

Ashutosh Tiwari — Equirus Securities — Analyst

So that was the last question of the day. I would like to hand over the floor to Hiren, sir for any closing remarks.

Hiren Dilipbhai Doshi — Chief Financial Officer

Thank you very much to all the participants. Hope we, Company are satisfying your queries and concerns. And again would like to tell that management is very much concentrated on the utilization of capacity and to continue with the momentum what we had in last three quarters and we are also envisaging that the overall revenue what it has been estimated, it would be there in FY23 and looking better for the FY24 numbers. Thank you. Thanks a lot for joining.