Tube Investments of India Ltd (TIINDIA) Q3 FY23 Earnings Concall Transcript

Tube Investments of India Ltd (NSE:TIINDIA) Q3 FY23 Earnings Concall dated Feb. 06, 2023.

Corporate Participants:

Vellayan Subbiah — Executive Vice Chairman

Mukesh Ahuja — Managing Director

AN Meyyappan — Chief Financial Officer

K Murali — Executive Vice President – TPI

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

Analysts:

Anupam Gupta — IIFL Securities — Analyst

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Abhishek Ghosh — DSP — Analyst

Nishit Jalan — Axis Capital — Analyst

Hardik Doshi — White Whale Partners — Analyst

Vimal Gohil — Alchemy Capital — Analyst

Mahesh Bendre — LIC Mutual Fund — Analyst

Rohit Ohri — Progressive Share Brokers Private Limited — Analyst

Vipul Kumar Shah — Sumangal Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Tube Investments Q3 FY ’23 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions]

I now hand the conference over to Mr. Anupam Gupta from IIFL Securities. Thank you. And over to you, Mr. Gupta.

Anupam Gupta — IIFL Securities — Analyst

Thanks, Nirav. And welcome everyone to Tube Investments 3Q FY ’23 conference call. From the management, we have Mr. Vellayan Subbiah, Executive Vice Chairman; Mr. Arun Murugappan, Executive Chairman at TI; Mr. Mukesh Ahuja, Managing Director; Mr. AN Meyyappan, Chief Financial Officer; Mr. KK Paul, Managing Director at TICMPL and a couple of other team members as well.

I’ll hand over to Mr. Vellayan for the opening remarks, post which we can have the Q&A. Over to you, sir.

Vellayan Subbiah — Executive Vice Chairman

Thanks, Anupam, and good morning, everybody. The — I’ll just go with a quick set of opening remarks and then turn it over to you for questions. The Board of TII met and approved the financial results for the quarter ended 31st December 2022, the Board met on Friday. The Board has declared an interim dividend of INR2 per share for the financial year 2022-2023. The standalone results for the quarter, the revenue in Q3 was at INR1,710 crores compared with INR1,701 crores same period previous year.

The PBT was at INR192 crores as against INR161 crores in the same period previous year. And the ROIC was at 52% compared to 50% in the same period previous year. Free cash flow for the quarter was INR115 crores. The Engineering business revenue for the quarter was at INR1,081 crores compared with INR996 crores and the PBIT was INR134 crores as against INR87 crores. The — encouraged by the strong demand, the Company has planned to expand its capacity in the large diameter precision tubes manufacturing facility at Tiruttani at a cost of about INR140 crores.

For Metal Formed [Phonetic], our revenue was at INR371 crores as against INR330 crores for the corresponding quarter and PBIT was at INR42 crores versus INR32 crores. Mobility revenue was INR174 crores compared with INR280 crores, and PBIT was INR2 crores as against INR15 crores. So the Cycles business continues to be sluggish for us. The Others revenue was INR166 crores versus INR160 crores, and PBIT was INR12 crores versus INR11 crores. At a consol level, that obviously includes CG Power and Shanthi Gears. Revenue was at INR3,666 crores as against INR3,410 crores. And the profit before share of profit of an associate joint venture exceptional items and tax for the quarter was at INR416 crores as against INR354 crores in the corresponding quarter of the previous year.

CG Power in which we had a 58% stake, registered a consolidated revenue of INR1,775 crores as against INR1,551 crores, and PBT there was INR282 crores versus INR174 crores. And Shanthi Gears, in which we have 70% stake had a revenue of INR115 crores as against INR95 crores and a profit of INR23 crores as against INR17 crores.

Commenting on the results, Mr. M. A. M. Arunachalam, Chairman, TII said Engineering and Metal Formed Products businesses continued their excellent performance in the third quarter as well. The bicycle industry continues to suffer from contraction in demand and our Bicycle business managed its costs and operations well to remain profitable. Overall, the Company has delivered excellent performance in both top-line and profits. Our subsidiaries, CG Power and Shanthi have all registered consistent performance and delivered strong results.

So that’s a quick summary on results. And let me stop and turn it over to you for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Hi, sir. My first question pertains to the Engineering business. We have seen a Q-o-Q decline in revenues for Engineering business. So is this reflection of the two-wheeler industry performance or are we seeing any further pressures beyond two-wheeler segment as well?

Vellayan Subbiah — Executive Vice Chairman

You’re talking about quarter-on-quarter, is it?

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Quarter-on-quarter, yeah, vis-a-vis previous quarter.

Vellayan Subbiah — Executive Vice Chairman

Okay. So usually, obviously — Mukesh, why don’t you go?

Mukesh Ahuja — Managing Director

Yeah. You are right, particularly if you see there’s a seasonality in the demand, December months generally model change in all these things will going down the production, and two-wheeler contract, let’s say, flat demand has resulted into this. But however, it has been recovered by the PV as well as commercial vehicle strong demand. So a little bit slowdown is on account of two-wheeler industry. You’re right.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay. And exports continue to do well after — can you share how big is exports now for Engineering business?

Mukesh Ahuja — Managing Director

Yeah, exports continue to do well, but as we are aware, Europe is going through some little bit slowdown along with the U.S., particularly because of the pile up of inventory due to energy crisis there. Otherwise, the — there is a good progress on account of OEMs getting awarded new businesses and the new programs getting launched on that side, there is a good performance.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay, okay, got it. And on the Engineering business again, I mean the margin contraction on Q-o-Q basis, that would be on account of operating deleverage only or there is something else there as well?

Mukesh Ahuja — Managing Director

Like we shared in the last quarter, there was a customer price settlement happens generally in quarter, sometimes it happens due to delay. So there was a one-time item, otherwise, there’s a consistent maintaining of the margin, there is no issue.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

In 2Q, we had one-time item on price settlement, okay. And any — can you quantify how big that was or adjusted for that, what were the margins in 2Q?

Mukesh Ahuja — Managing Director

Generally, we don’t quantify that, but it is on account of that only.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Got it. Got it. And second question on the Cycle business. So there we are continuing to see pressures on volumes. So can you indicate what kind of decline we saw in the Cycle business? And where are we in terms of the export ramp-up in the Cycle business?

Mukesh Ahuja — Managing Director

Yes, Cycle is going through a little tough times because after COVID, there was a really escalation in demand and post COVID getting streamlined, the Bicycle business is getting into a little bit stress and there’s a huge contraction in demand. So we are trying to optimize the internal costs and work on logistics and all those stuff, so that we can pass through this.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

So for the industry, what would the decline, and for us, are we in line with the industry in terms of decline or can you…

Mukesh Ahuja — Managing Director

Yes, we are maintaining market share as of now.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay, okay. And lastly…

Mukesh Ahuja — Managing Director

We are focused on the cash flow in this business along with the capacity rationalization, those steps we’re taking.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Got it. Got it. And broadly, the Mobility business level, can you indicate what have been the losses on the electric three-wheeler business, because the margins again here have corrected quite materially? I’m presuming that could be partly because of or largely because of increased activity for the electric three-wheeler launch?

Vellayan Subbiah — Executive Vice Chairman

So, Meyyappan, we — so, Meyyappan, do we have the data? Can you share?

AN Meyyappan — Chief Financial Officer

Yeah, yeah. See, it’s consolidated, sir, the difference in the Mobility, INR37 crores is there, that is the loss which we’ve shown, and INR39 crores is the Mobility — on account of new Mobility, sir.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Got it. Got it. Got it. Thanks. I will come back in the queue.

Vellayan Subbiah — Executive Vice Chairman

Yeah.

Operator

Thank you. [Operator Instructions] Next question is from the line of Abhishek Ghosh from DSP. Please go ahead.

Abhishek Ghosh — DSP — Analyst

Yeah, hi, sir, thanks for the opportunity. Sir, just one question in terms of the slight softness in the top-line is also on account of some amount of pass-through of the lower commodity prices. Is there also an effect of that?

Mukesh Ahuja — Managing Director

Yes, that’s right.

Abhishek Ghosh — DSP — Analyst

Okay, and that would be to the tune of 5% to 7%, would that be a fair estimate?

Mukesh Ahuja — Managing Director

Generally, we don’t quantify, but you can assume it is around those numbers.

Abhishek Ghosh — DSP — Analyst

Okay, okay, thanks.

Vellayan Subbiah — Executive Vice Chairman

Yeah, no, but what you can do is if you — yeah, so, Mukesh — I mean, yeah. So basically, it’s about right.

Abhishek Ghosh — DSP — Analyst

Okay. So where we’re coming from the volume growth is fairly healthy, the moderation is largely because of the commodity pass-through, that’s the way to look forward?

Vellayan Subbiah — Executive Vice Chairman

Yeah, exactly. Yeah.

Abhishek Ghosh — DSP — Analyst

Yeah. Sir, the other thing is in the last con call, we were kind of talking about some amount of inventory pile up at the global levels and that’s why there was a little bit of destocking which was happening. So how is the situation now? Obviously you have an advantage of catering to many countries. But just from a broad level of exports, which was about 20%, how should one look at the outlook on that?

K Murali — Executive Vice President – TPI

I mean…

Mukesh Ahuja — Managing Director

As of — yes, please, go ahead.

K Murali — Executive Vice President – TPI

Yeah, sorry, Mukesh. This is Murali, Head of Engineering Division. The stocks are getting slowly liquidated, and we are seeing the signs of recovery from the month of January onwards. So we see that in the coming quarters, yeah, the volume requirement of most of the export customers mainly in North America and Europe will get realized.

Abhishek Ghosh — DSP — Analyst

Okay, that’s helpful. Sir, just one other thing, railways, if you broadly look at it, which is part of the Metal Formed, there’s been a lot of upbeat in terms of the overall outlook, and that’s a segment which through the crisis didn’t do well. Any thoughts in terms of how should one expect contribution from there in terms of growth rates and other things and given the overall outlook on the order book there?

Mukesh Ahuja — Managing Director

KRS, you will take this? KRS, you’re there?

Vellayan Subbiah — Executive Vice Chairman

Mukesh, maybe you answer.

Mukesh Ahuja — Managing Director

Yeah, I will take care. As of now, the Government of India has started rewarding the new contracts, which are the pipelines and contracts are getting confirmed. But scheduling, there is a bit of delay. We are optimistic about these factors going forward. But as of now in Q3 [Phonetic], there was not much of progress. But the new contracts, the good news is new contracts have started getting released and we have participated in that, and we are hopeful this coming quarter will be better in the railways.

Abhishek Ghosh — DSP — Analyst

So railway has still not started contributing to the volume growth, it will only come in, in the coming quarter, that’s a fair assumption?

Mukesh Ahuja — Managing Director

That’s right.

Abhishek Ghosh — DSP — Analyst

Okay. And sir, just one last question, in terms of the new capex that you’ve announced, of that INR140 crores, INR150 crores of capex, what should one assume that peak revenues that you can do from that plant?

Mukesh Ahuja — Managing Director

As of now, we are running on the capacity is — utilization is getting close to 100%. So we generally take a proactive step in doing the capacity expansion in terms of the foreseen growth in that sector. And as you are aware of that infrastructure spend by the Government of India is multiplying, and we expect the construction industry to do pretty well going forward and which is going to result in the more volume for large diameter plant. And that’s why we decided proactively to expand the capacity and which will help us not only on the capacity, even on the capability front also to contribute for the current time.

Abhishek Ghosh — DSP — Analyst

Sir, my question was more around, can you do a peak revenues something like INR400 crores out of this plant whenever it gets fully operational?

Mukesh Ahuja — Managing Director

We can assume that.

Abhishek Ghosh — DSP — Analyst

Okay, sir, thank you so much. I’ll come back in the queue. All the best.

Vellayan Subbiah — Executive Vice Chairman

Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.

Nishit Jalan — Axis Capital — Analyst

Yeah, hi, sir, this is Nishit from Axis Capital. My question was primarily on two fronts. One, on the EV side, just wanted to understand, we had launched our three-wheeler, so any initial feedback? And last call, we mentioned that we will launch our electric tipper in December, has that launch happened or what is the new timeline? So if any update you can give us on the EV business that would be great? And second question is, what are our net debt levels now in both standalone and consolidated entity? Just wanted to understand because we have done some acquisitions and making seed investments for the EV business. So wanted to understand how is the balance sheet looking like?

Vellayan Subbiah — Executive Vice Chairman

Sure. So first on EV. So we — EV three-wheeler, we did have the — we did have the marketing launch for it. We will start manufacturing and put out the first set of products in March is the current plan and then start selling — increasing volumes from April onwards. On the EV tractor also it will follow — sorry, the EV truck, the 55-ton truck will follow a similar timeline. The EV tractor is something that will still need a full homologation. So that timeline we’re estimating that we’ll get homologated in that March-April timeframe, which means that sales will only happen in the July timeframe. The EV tractor timeline is a delay from what we had anticipated in the past, right? So that is in terms of when we assume the revenue on these three products will start. The question on net debt at a standalone and a consol level, is it INR170 crores of net debt, Meyyappan or I…

AN Meyyappan — Chief Financial Officer

Yes, sir. INR170 crores standalone, sir. Correct, sir.

Vellayan Subbiah — Executive Vice Chairman

INR170 crores standalone. And obviously like CG Power had, I think has INR600 crores in net cash. So at a consol level, we’re still positive, but — and CG and Shanthi are both cash positive. And to the extent of about — I would estimate between the two about INR650 crores. And Meyyappan, you can have — if you have any exact numbers, Meyyappan, you can give us. But standalone net debt for TII is INR170 crores.

AN Meyyappan — Chief Financial Officer

Yeah, INR170 crores, sir.

Nishit Jalan — Axis Capital — Analyst

Got it. Just one follow-up. I was not very clear on exports, comment on exports. You did mention that — I think in the last quarter, you had mentioned that exports are weak because the markets are not in a good shape right now. So how did it pan out for us in the third quarter? And I just understood that the — you mentioned that the outlook is getting better now from January onwards. Did I hear you correctly?

Mukesh Ahuja — Managing Director

Correct.

Nishit Jalan — Axis Capital — Analyst

And any numbers you can share for the nine-month, how has the exports panned out for us, sir, in the nine-month timeframe, has it grown, declined, and what percentage of revenues for the standalone entity are coming from exports?

Mukesh Ahuja — Managing Director

Standalone on the TII basis, because the domestic demand was pretty strong, there is a decline of about a percentage, 1% in overall pile, but overall, maybe, let’s say, in terms of absolute numbers, maybe we are able to maintain it.

Nishit Jalan — Axis Capital — Analyst

Got it, sir. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Hardik Doshi from White Whale Partners. Please go ahead.

Hardik Doshi — White Whale Partners — Analyst

Yeah. Thanks for taking the question. My first question was on the three-wheeler electric vehicle, you mentioned you’re going to launch the product in April. But can you give an update in terms of the numbers of three-wheelers and the geographies and…

Operator

Hardik, sorry to interrupt you, but your voice is not coming very clear.

Hardik Doshi — White Whale Partners — Analyst

Can you hear me now?

Operator

Yes, sir.

Hardik Doshi — White Whale Partners — Analyst

Okay. Yeah. So I just wanted to ask a question on the three-wheeler electric vehicle that you’re launching in April. Can you give an update in terms of what we are — like how many distributors have you gotten on Board or dealers you’ve gotten on Board, which — what is the geographic distribution? And what is the profile of these guys, because obviously we are launching on the OEM side for the first time. So how are you convincing them to kind of come on Board?

Vellayan Subbiah — Executive Vice Chairman

We have Paul or Sushant on, can they answer that?

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

I’ll answer that question. This is Paul here. I think in the first phase, we are looking at the Southern states for our launch, for the commercial production and the supply, which as Mr. Vellayan said commences from March onwards and then steadily we ramp up. The distributors around these areas have been selected. And currently, we have about 42 distributors with us, along with the service centers, and by year end, we plan to be at about 75 distributors. That’s the plan. We are going systematically and then we go state-by-state. We’ve had very good interactions with the distributors. We’ve sent some products to a few of them, and this has been tested and they are quite positive about it.

We are getting into the final stages because we battled the homologation, one part from the change on standard had to be done, which we have obtained. And the last part is what we are obtaining, at February, we hope to get that. And so in March, we should be full scale supplying, the plans that we have made. While selecting the dealers also, we have been very careful in working out the ROIs carefully, so that you know that there is — based on the volumes that we estimated, so that we could sufficiently fit them are motivated. Does that answer your question?

Hardik Doshi — White Whale Partners — Analyst

Yeah, just a follow-up, I mean, what is the profile of these distributors, I mean, are they existing OEM dealers already or are they like part of the Murugappa Group?

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

No, most of them are — some of them are existing, some of them are new, some of them have experience not in three-wheelers, but in the OEM business of vehicles, etc. So we — it’s a good mix of people, predominantly a little younger in nature and wanting to make a difference is the kind of people in terms of the profile that we have taken.

Hardik Doshi — White Whale Partners — Analyst

Okay, got it. Just one follow-up question on the other parts of the business, like you mentioned the optical lens and then possibly looking at medical equipment. Can you just give maybe a more broader overview as to like how are we looking beyond EVs in terms of the new areas to — that we are looking to diversify into?

Mukesh Ahuja — Managing Director

Kalyan, sir, you want to take it, this question or shall I go ahead.

Vellayan Subbiah — Executive Vice Chairman

Mukesh, you can go ahead.

Mukesh Ahuja — Managing Director

Regarding Medtech, maybe we are still exploring and at appropriate time, we will announce it to the market what are the areas we are going to enter it. And in optics, we have acquired a facility in Noida, which we are happy to announce that Mobility at the [Phonetic] restructuring breakeven levels now. And we are increasing our share of business with the low metal [Phonetic] volumes as of now and at appropriate time, we will even expand the business to do camera modules for even the higher pixel.

Hardik Doshi — White Whale Partners — Analyst

Okay. All right, thanks, thanks so much.

Operator

Thank you.

Vellayan Subbiah — Executive Vice Chairman

Thank you.

Operator

[Operator Instructions] The next question is from the line of Vimal Gohil from Alchemy Capital. Please go ahead.

Vimal Gohil — Alchemy Capital — Analyst

Okay. So sir, my question is on industrial chains exports, if you could just highlight how have they done and even highlight what is the domestic picture looking like over there? And I’m sorry to make you repeat this, but I missed out on your electric three-wheeler costs that you probably highlighted earlier in the call, if you could just probably mention that again? Thanks.

Mukesh Ahuja — Managing Director

First, I’ll take your industrial chain. Industrial chain exports, particularly in Europe, there’s a bit slowdown because of the issues related to Europe, but otherwise, our other geographies are doing pretty well. And we also announced in that particular business also to do more OEM acquisitions on the new product development side and forecast seems to be good going forward even for industrial chains, and the domestic business is also doing pretty well in industrial chains. EVs, Paul, sir, you can take it?

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

Sorry, I didn’t get your question.

Vimal Gohil — Alchemy Capital — Analyst

Sir, Paul, sir, you mentioned…

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

I didn’t get your question, question on EVs.

Vimal Gohil — Alchemy Capital — Analyst

Yeah. Paul, sir,, you mentioned something on electric three-wheeler costs that came about in this quarter, earlier in the call, if you can just highlight that once again, if it’s okay?

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

The figure, I think Meyyappan shared there, I’ll ask him to…

AN Meyyappan — Chief Financial Officer

I think it’s not about the cost, it’s a profit, that is it’s a loss, which this three-wheeler this quarter TICMPL made during the quarter is INR39 crores. You’re referring to that?

Vimal Gohil — Alchemy Capital — Analyst

Yeah, yeah, yeah. Okay, yeah, got it, got it, sir.

AN Meyyappan — Chief Financial Officer

Okay.

Vimal Gohil — Alchemy Capital — Analyst

Thanks. Thanks a lot.

AN Meyyappan — Chief Financial Officer

Yeah, okay, thank you. Bye.

Vimal Gohil — Alchemy Capital — Analyst

Yeah. And sir, in industrial — within industrial chains, if you can just tell us how much is autos at this point in time?

Mukesh Ahuja — Managing Director

Industrial chains is nothing to do with auto.

Vimal Gohil — Alchemy Capital — Analyst

Okay, fair enough, sir. Thank you so much, and all the best.

Operator

Thank you. Next question is from the line of Anupam Gupta from IIFL Securities. Please go ahead.

Anupam Gupta — IIFL Securities — Analyst

Good morning, sir. The first question is relating to the three-wheeler launch delays which have happened, you have mentioned two standard changes which have happened. Can you just highlight what were those changes and what is that is reflecting in the delayed launch versus the September marketing launch which happened?

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

I’ll take that question. I think in the interim if you know that there have been two standards on battery that has got announced by the government, NHAI, which we have to comply with. And therefore that entailed doing, revising the specifications on the batteries and having adhering to those safety standards, which are the new ones that they have regulated. And that’s what has been one of the reasons you know where we had to raise on, for example, there was a CAN enabled charger and many other stuff that they mandated, which resulted in the delays of the launch. The other thing also was that, we took that opportunity to do a far a lot more reliability kind of tests further to just ensure ourselves. So these are the two reasons.

The other one was also the ramping up of the supplier volume and aligning them with the quality and delivery standards and having everything up to date to be — for them to be capable to ready just-in-time supply. So this combination of factors has actually resulted in this delay from the launch. And now going forward, as we already mentioned, in March, we should see the first vehicles rolling out for sales at least.

Anupam Gupta — IIFL Securities — Analyst

Sure. That’s helpful. Sir, the second question is slightly, let’s say, if you look at the medium term for EVs, I think as of now, your — it’s more of sort of assembly with some structural doing yourself, battery and cells being, I think even motors being outsourced and acquired from third-party. If you can highlight what will be the path to indigenize, not indigenization, in-sourcing for yourself for both three-wheelers as well as trucks? So from what are we at right now and how will we change that in terms of sourcing, how much will come in in-house if you can highlight that?

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

See, I think we have to break this question down into two parts. The first part would be in terms of three-wheelers, we are sufficiently indigenized, excepting for sales which we have to import, not only us, everybody else. Battery is assembled here. The motor and controllers is local. There is nothing to import there. That’s the first part on the three-wheeler piece.

On the heavy commercial vehicle, there is a huge opportunity of indigenization, and we are working around those plans to materialize ours in the first half of next year in stages with that cost reduction program related with batteries related with motor controller, related with cabins and a few other items, things of that. There is a internal plan that we are monitoring. And the way we look at it in the first half of next year, there will be substantial reduction in cost some and also in terms of the lead time for supplies because it will get indigenized in terms — that’s the way we are working around this.

Anupam Gupta — IIFL Securities — Analyst

And just maybe more from a slightly longer-term in the same aspect, what part of, let’s say, the three-wheeler or trucks will you want to retain with yourself and not do even on a outsourcing basis to ensure that you are competitive versus in the longer-term? So what portion of the supply chain will you want to have with yourself?

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

Yeah. I think the first part would be gradually, we would like to see that the software and associated hardware, we are largely controlling because the vehicle is going to get more and more software-driven. And so those differential advantages we would want to retain with ourselves. And actually, we are arming ourselves to be able to get to that stage to be able to do that, that’s the phase that we would do.

The second is with the volumes ramp up, we should be able to get far a lot more suppliers who we can synergize with each other and thereby look at stable supply chain and stable costs. That’s the second thing. Third thing is in terms of how we look at which components in the supply chain would be outsourced, which components do we manufacture ourselves or assemble ourselves is another view that we have taken, and we are working around to that to get to a much more leaner and cost effective supply chain.

Anupam Gupta — IIFL Securities — Analyst

Okay, understand. This is helpful, sir. And just one last question from my side on the optic lens business, what is the update on that? Have we got the full sort of validation or what’s the timeline for that?

Mukesh Ahuja — Managing Director

In optical lens, our samples has been given and it is approved. And we have received the first set of orders and now we have to deliver that to entire commercial production and we have interest there. We hope to deliver that in this quarter.

Anupam Gupta — IIFL Securities — Analyst

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

Operator

Thank you. Next question is from the line of Mahesh Bendre from LIC Mutual Fund. Please go ahead.

Mahesh Bendre — LIC Mutual Fund — Analyst

Hi, sir, thank you so much for the opportunity. Sir, about the optical lens, from whom we have received the orders?

Mukesh Ahuja — Managing Director

Generally, we don’t share the name, but it will be basically in China and Korea.

Mahesh Bendre — LIC Mutual Fund — Analyst

And from which industry side?

Mukesh Ahuja — Managing Director

It’s for the optical lens, maybe for automobile industry if you’re talking about the AI optics.

Mahesh Bendre — LIC Mutual Fund — Analyst

Okay, okay. And sir, second question is regarding the investments in electronics and medical devices. Is it possible to share what kind of at least investment we are looking for a medium-term perspective over next two years, three years in terms of growing this business organically, inorganically, any timeline and budget on this?

Vellayan Subbiah — Executive Vice Chairman

No, I think it’s too early in some of the new businesses to give any forward-looking statements. So we will refrain from that, it’s kind of till we get more comfort with the business.

Mahesh Bendre — LIC Mutual Fund — Analyst

But sir, if I look at for next three years, do you think this business have a — can materially add more than 10% of our sales?

Vellayan Subbiah — Executive Vice Chairman

Yes.

Mahesh Bendre — LIC Mutual Fund — Analyst

Okay, okay. And if the investments required for these businesses, this will come internally or is it that we need to raise the cash for these businesses?

Vellayan Subbiah — Executive Vice Chairman

So we’ve said that we will continue to take. So yes, I mean in a situation where we do believe that it does not make sense, see, because basically what we’ve kind of openly discussed with you is that we don’t want to go more than two times free cash flow as debt, right? So we believe that a business is better funded by bringing in external investments, yes, we will pursue that one.

Mahesh Bendre — LIC Mutual Fund — Analyst

Okay. And sir, last question is from Tube Investments perspective, our Company, we will keep developing businesses in our subsidiary and Tube Investments will act as a holding Company or is it that we will keep — we can develop the business inside the Company as well?

Vellayan Subbiah — Executive Vice Chairman

So in some — it’s going to be dependent on the nature of the business. In some cases, they will develop in Tube. But like you know in specific areas like in Clean Mobility because it makes sense to kind of keep that as a separate standalone entity or kind of as we — like when we go down the path of perhaps a totally different business like Medtech or something like that, then we will basically push it out as a separate entity — subsidiary basically.

Mahesh Bendre — LIC Mutual Fund — Analyst

And electronics and medical devices will be the same thing whenever we will develop those businesses?

Vellayan Subbiah — Executive Vice Chairman

Right now like you know, electronics, I mean, is — well, the Moshine acquisition is different, but then otherwise, kind of electronics, no, we’ve not kind of created a standalone subsidiary for that. So like I said, it’s going to depend on the nature of each business that makes sense for that business to standalone as a separate subsidiary, then we will do that.

Mahesh Bendre — LIC Mutual Fund — Analyst

Okay, sure. Thank you so much, sir.

Vellayan Subbiah — Executive Vice Chairman

Thank you.

Operator

Thank you. [Operator Instructions] The next follow-up question is from the line of Abhishek Ghosh from DSP Mutual Fund. Please go ahead.

Abhishek Ghosh — DSP — Analyst

Yeah, hi, sir, thanks for the opportunity again. Sir, few questions. Just we’ve seen a very sharp moderation in the overall shipping rates and supply chains have gotten normalized. Are you seeing any impact of that on the imports for certain of your segments because import substitution was also a big theme, any sense on that?

Mukesh Ahuja — Managing Director

Vellayan, maybe I start with it?

Vellayan Subbiah — Executive Vice Chairman

To your question for import substitution…

Mukesh Ahuja — Managing Director

Yes, please go ahead.

Vellayan Subbiah — Executive Vice Chairman

So, Mukesh, yeah, I’m just going to answer that first and then you can jump in. To your question on import substitution, when we talked about some of these new businesses, right, that’s what we talked about import substitution from a reference to. And I think that thesis definitely continues to hold, right? We don’t see any change in that thesis because there are two things driving it, right? One is the pricing. The second is clearly, India wants to make a lot of this ourselves within the country.

So I think that, that will continue, right? I think to your second question, I don’t know if you were also talking about just imports in general and what’s happening on that front. And I don’t think — I mean, the size of steel, which we import a small quantity of, I don’t think we’ll do kind of anything much more significant on that front.

Abhishek Ghosh — DSP — Analyst

Okay. No, sir, my question was more around in generally across when we are seeing where people had benefited because of lower imports because of higher shipping costs, I think those benefits are going away. So I was more trying to understand are you also kind of seeing those impacts or benefits going away. That was my question, but I think you’ve made it clear. So that’s clear. Yeah.

Vellayan Subbiah — Executive Vice Chairman

Yeah.

Abhishek Ghosh — DSP — Analyst

And the second thing is, sir, in the last year’s annual report, you had articulated that broadly in small bits and pieces, you’ll be putting up four new plants, which either had just got commissioned towards the year-end or through the year, it will get commissioned in terms of the four new plants which were there in terms of the Aurangabad auto chain unit industrial chain, new tube mill at Chennai. Just in terms of have they been able to ramp up or what is the status or should we assume growth coming from those in the subsequent years, just your status there?

Vellayan Subbiah — Executive Vice Chairman

Mukesh, these are plants of existing business currently.

Mukesh Ahuja — Managing Director

Yeah, existing businesses. Whatever the investments we have done in the Rajpura on the tube mill side, we are able to ramp up and it’s getting fully stabilized. In terms of — we took some initiative for putting a capacity on the exports capability development side, that is ramping up. New programs are getting awarded on the export business. And it’s a question of time we will start increasing the capacity utilization. All other capex are work-in-progress like on industrial chains and on the CRSS side, which will take about — industrial chain, we expect it to be over by next quarter, and CRSS will take about another few quarters to get it commissioned.

Abhishek Ghosh — DSP — Analyst

Okay, okay, okay. And sir, the other thing is whatever margins that you’ve reported in the current quarter, that does not include any one-off or anything, this is ex of that, right? Is that a fair assumption?

Mukesh Ahuja — Managing Director

That’s right.

Abhishek Ghosh — DSP — Analyst

Okay. So margins from here on, these are base margins and margins should improve from here on, given the operating leverage and overall benefits of the project LEAP and other things, is that the way one should assume?

Mukesh Ahuja — Managing Director

Yes, that’s what maybe, generally, we don’t give forecast, but that’s what the attempt we are driving it internally.

Abhishek Ghosh — DSP — Analyst

Okay, great, sir. Thank you so much. And wish you all the best. Thank you so much.

Operator

Thank you.

Vellayan Subbiah — Executive Vice Chairman

Thank you.

Operator

[Operator Instructions] Next question is from the line of Rohit Ohri from Progressive Shares. Please go ahead.

Rohit Ohri — Progressive Share Brokers Private Limited — Analyst

Hi, team. I’ve got three or four more questions related to Shanthi Gears, if you allow me, then I should ask.

Vellayan Subbiah — Executive Vice Chairman

No, I think we’ve said this, right, which is we sort to do kind of — maybe we can just take one question from you, but kind of our preference is to do with subsidiaries kind of independent meetings, even those are independent listed companies on their own. We can take one question from your side just to…

Rohit Ohri — Progressive Share Brokers Private Limited — Analyst

Okay. So Shanthi Gears is exploring some opportunities, which are related to some buying of plant in Sanand and there’s an agreement that Shanthi Gears has entered into. So if you can just take us through that what sort of area is there available in that plot? What is the amount that you intend to spend? And which is the area where you see that there will be stronger demand coming from the CGP business?

Vellayan Subbiah — Executive Vice Chairman

Mukesh, can you just take that?

Mukesh Ahuja — Managing Director

So like you said that we already signed the agreement in the West for expansion. Today, Shanthi Gears is more of a South-based manufacturing company. We want to actually expand our operations to get the operating leverage as well as getting into new sectors like renewable energy, that’s the intent, we want to do it in West. And hopefully, that plant should be up running in the next one quarter or two quarters.

Rohit Ohri — Progressive Share Brokers Private Limited — Analyst

And the spend, if you can share and which segment do you intend to focus on?

Mukesh Ahuja — Managing Director

I mentioned that, maybe it will be renewable energy and the gear business, whatever we do it in Shanthi Gears, that will be done in the West.

Rohit Ohri — Progressive Share Brokers Private Limited — Analyst

But if you just help me with the cash levels or bank balances that Shanthi Gears has as of nine months?

Vellayan Subbiah — Executive Vice Chairman

See, again, you’re trying to go through all of this level of details. So I appreciate it. We can — we are happy to take your question offline and answer it offline. So you can contact us kind of Investor Relations, we’ll absolutely get back to you and respond to it.

Rohit Ohri — Progressive Share Brokers Private Limited — Analyst

Okay, that’s cool. Thank you, sir. Thanks a lot.

Vellayan Subbiah — Executive Vice Chairman

Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Vipul Kumar Shah from Sumangal Investments. Please go ahead.

Vipul Kumar Shah — Sumangal Investments — Analyst

Hi, sir, thanks for the opportunity. My question is what is our cumulative investment till date for electric three-wheeler, that truck and tractor and what will be the capex for next financial year in all these three products?

Vellayan Subbiah — Executive Vice Chairman

So we are not discussing our capex number yet for the next financial year because that plan is evolving. We’re in the middle of our business planning cycle. We will have a number for you on that by March when we take our business planning cycle to the Board. In the three businesses to-date, the total expenditure that has come off as internal accruals has been to the extent of about INR500 crores.

Vipul Kumar Shah — Sumangal Investments — Analyst

Okay, thank you, sir.

Vellayan Subbiah — Executive Vice Chairman

But we’ll share that with you. We’ll share our capex estimate with you in the — after we finish our March quarter [Phonetic]. So it will be in the next earnings call.

Vipul Kumar Shah — Sumangal Investments — Analyst

Thank you, sir.

Operator

Thank you. [Operator Instructions] As there are no further questions, I now hand the conference over to the management for closing comments.

Vellayan Subbiah — Executive Vice Chairman

Thank you.

Operator

Sir, would you like to give any closing comments?

Vellayan Subbiah — Executive Vice Chairman

Nothing from our side. I think kind of — so I mean, we continue to be bullish on the overall outlook. I think like we told you in the past kind of some of the new businesses will take time to kind of set route and start growing. But we continue to be kind of extremely bullish about both our new businesses and the existing businesses. The two segments in which we are seeing a certain level of sluggishness obviously is Bicycle business and currently on railways and TI [Phonetic], though we do see that changing with some of the new announcements in the budget as well. And overall, we are quite excited about the outlook for the next financial year, which seems very promising at this stage. Yeah, and that’s it from my side. But I’m happy to turn back Anupam to you and take the questions as well [Phonetic].

Anupam Gupta — IIFL Securities — Analyst

Sure. Thanks, thanks, Vellayan. Thanks for the time, and we can end the call here. Thank you.

Operator

Thank you very much.

Vellayan Subbiah — Executive Vice Chairman

Thank you.

Mukesh Ahuja — Managing Director

Thank you.

AN Meyyappan — Chief Financial Officer

Thank you.

Kalyan Kumar Paul — Managing Director of TI Clean Mobility Private Limited

Thank you, everyone. Bye. Thank you, everyone.

Operator

[Operator Closing Remarks]