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Questions and Answers
Rahul Gajare: Good afternoon to everybody who has logged into this call of
TIL’s third quarter earnings. From the management we have with us Mr. Aloke
Banerjee, CFO, and Ms. Shreya Mukerji, business analyst. We will have opening
remarks from Mr. Banerjee, after which we will move onto the question and
answer session. Thank you and over to sir.
Aloke Banerjee:Thank you. The way I would like to share my information with
you is like this. First I will discuss the group performance for the period October
to December. Thereafter, TIL and TIPL performance for October to December,
and then MHS, PSS, and CMS that is the material handling, the power systems,
and the construction mining for the period October to December. Once I share
the financial numbers on the quarterly basis, I will give you in the same
sequence the nine-month result that is for the period April to December, and
after that we can have the question and answer session. Now coming back to
the group performance for the third quarter that is October to December, the
topline has grown by 22%, from a level of INR 313 Crores it has increased to
INR 383 Crores, but there is a dip in the PBT. Last year same period we had INR
24.2 Crores as profit for the third quarter vis-à-vis this year third quarter we
have INR 22.4. Coming to TIL and TIPL, that is Indian subsidiary, for the
financial performance from October to December, in the topline it has grown by
34%, that is sales income has grown from INR 215 Crores to INR 288 Crores.
Profit before tax has increased from INR 10.3 Crores to INR 18.6 Crores, a
growth of 81%. But in this there is other income, which is corporate income of
INR 9.3 Crores, which comes primarily from Myanmar and Singapore
operations, that is from our subsidiary companies in Myanmar and Singapore. If
someone were following our quarterly accounts, you would see that every year
we get significant amount of money from subsidiary companies. For the last
financial year 2009-10, the total amount we received was roughly about INR 16
Crores and against that this year we have so far up to December we have taken
INR 9 Crores. Coming to material handling group for the period October to
December, the topline has grown by 18% from a level of INR 48 Crores it has
gone to INR 57 Crores and profit before tax has increased marginally from INR
5.7 Crores to INR 6.4 Crores. In this quarter, we have been able to dispatch 35
cranes and vis-à-vis last year same period it was 30, so there is an increase in
dispatch of the cranes from the plant. For the power systems, the topline has
been almost similar to last year’s level, last year it was 52.3 and this quarter it
is 52.7. There is significant improvement in terms of the bottomline, last year
the profit was INR 40 Lakhs and this year it is INR 1.6 Crores. In this quarter we
dispatched 130 numbers of genset vis-à-vis last year same period we had
dispatched 133. There is a marginal fall in terms of dispatch being billed for the
company. Coming to the construction mining group in the third quarter, the
topline has grown by 55% primarily because in this quarter we have dispatched
373 machines and last year same period we had dispatched 235 machines. So
the number of sales in this quarter has been significantly higher than the third
quarter of 2009. In respect to profit before tax, last year it was 4.1 and this
year it is INR 2.7 Crores, so there is a dip in terms of the profits for the third
quarter. It has primarily happened because the margins of the machine sale are
lower than margins of the parts and service that is one and there is also
increase in terms of expenses. Coming to April to December, I am speaking
from group performance, the topline has grown by 39%, last year April to
December it was INR 735 Crores and this year it is INR 1025 Crores. Profit
before tax last year was INR 49.1 Crores and this current nine-month period the
profit before tax is INR 57.3 Crores. This is the group performance.
Coming to TIL and TIPL nine-month performance, the topline has grown by
35% from INR 588 Crores to INR 792 Crores, and profit before tax which
includes other income also last year PBT was INR 29.8 Crores and this year it is
INR 43.4 Crores, that is increase of 46%. Material handling for nine-month
period, the topline has grown by 24% from INR 125 Crores to INR 154 Crores.
Profit before tax has increased from INR 14.8 Crores to INR 16.7 Crores, an
increase of 13%. In this nine-month period, we have dispatched 87 cranes and
reach stackers jointly machine dispatches vis-à-vis 67 during the last ninemonth
period. Coming to the power systems group, during the nine-month
period, the topline has grown by 21% from INR 136 Crores to INR 165 Crores.
Profit before tax has increased from 5.5 to 7.1, registering an increase of 29%.
During the current nine-month period, we have sold 393 gensets vis-à-vis 333
during the last year same period. Construction mining’s topline has grown 44%,
that is sales income increased from INR 327 Crores to INR 473 Crores, and
profit before tax has increased 63%, from INR 8.4 Crores to INR 13.7 Crores.
The total number of machine sales during this nine-month period has been 846
vis-à-vis last year same time was 636. This is so far the profit and loss figures.
With relation to the balance sheet also I will give you certain key financial
numbers for TIL and TIPL financial results. EBITDA as a percentage to sales in
December 2010 has been 8.8. PBT as a percentage to sales is 5.4. PAT is 3.7.
Debtor days covered has been 57 days, inventory days covered 124 days, and
total offset liability versus tangible net worth has been 1.69. The debt in the
books of account as on 31st of December is INR 259 Crores. The reason for the
increase in the loan fund is primarily because of the inventory and the debtors.
Inventories are in place because for the Caterpillar business we have to get
machines and engines from Caterpillar and Caterpillar is still following the
managed distribution, so we have to place our orders well in advance. We are
hopeful that a significant part of this inventory will get liquidated before 31st of
March. Now I will answer questions.
Moderator: Thank you very much Sir. Ladies and gentlemen, we will now begin
with question and answer session. Anyone who wishes to ask a question may
please enter “*” followed by “1” on the touchtone telephone. If you wish to
withdraw your question from the queue, you may enter “*” followed by “2”.
Participants are requested to use handsets while asking a question. The first
question is from the line of Bhalchandra Shinde from B&K Securities. Please go
ahead.
Bhalchandra Shinde: Sir first of all I want to ask our MHS group this quarter
has given a very minimal growth, 2% growth only, what is the reason behind it?
Aloke Banerjee:In the materials handling group, the topline has grown by
some INR 48 Crores to INR 56.5 Crores. So the topline has grown by 18% in
materials handling group and profit before tax has increased for the quarter,
October to December, from 5.7 to 6.4, which is a growth of 12%.
Bhalchandra Shinde: Sir, what I wanted to know is what type of scenario you
expect your materials handling group to contribute around 50% of your total
revenue, you had plans regarding that right?
Aloke Banerjee:That is an interesting question. But I said in next four to five
years’ time, the internal plan is that the materials handling group should be
50% and the dealership business will be 50%, in four to five years from now.
Ranjith Suguram: Sir, I am just joining and I am Ranjith Suguram, in your
segmental breakup which you have given in your quarterly release, it was
showing a growth of 53.5 and also like last year’s number is it year-on-year
comparable?
Aloke Banerjee:No, they are not comparable because in the press release
what is happening is we are giving firstly the consolidated results and below we
are giving standalone, only three or four important financial figures. I will tell
you the logic behind it, as on 31st of December 2010, I did not have TIPL that is
the Caterpillar business was not bifurcated. So if you see our point #2 in the
notes we have mentioned that these figures were not available with us, so
therefore we are unable to publish, that is why in this concall I have given to
the participants the exact numbers for the quarter as well as for the nine-month
period, so that they are comparable numbers and the people would understand
what we are referring to. In point #3 in the press release we have mentioned
the results and quarter for nine months, reported by the company with effect
from 1st of April 2010. As on 31st of December 2009, that is last year, we never
had the subsidiary company and therefore we did not have separate financial
numbers to be published, and they were not subjectively limited with the audit
also. Everything was consolidated that is TIL, TIPL, MHS, CMS, and PSS
everything was consolidated and Pricewater house did limited review. That is
why we could not publish it, but what we have done in the concall is I have
given the relevant numbers for the analysts as well as for the participants to
understand how they are comparable quarterly as well as on a nine-month
basis.
Ranjith Suguram: Thank you Sir, but I was just vis-à-vis considering, you told
a number of INR 56 Crores MHS if I am right, but in your release it is INR 53.5
Crores.
Aloke Banerjee:This is net sales of income and I am giving gross sales. That is
why.
Ranjith Suguram: Thank you Sir for the clarification. Bhalchandra will join you
for more questions.
Bhalchandra Shinde: What kind of guidance you will give for this year and the
next year?
Aloke Banerjee:For the materials handling group?
Bhalchandra Shinde: For the total company?
Aloke Banerjee:It is a very difficult question you have asked, but just let me
give you a background then you will understand that where I am coming from.
We have been reading in the papers that lot of investments are taking place in
the infrastructure. Yesterday in Calcutta, in the Times of India publication we
saw that the finance minister has mentioned that in 2010-11 GDP growth is
likely to be 8%, but in that breakup I saw agriculture is there, , education is
there, power/electricity is there. But I did not see much of the infrastructure
sector. What I am trying to tell you is I do not think that significant amount of
the promised investment in infrastructure sector has yet taken place and
whatever performance you see in TIL and TIPL taken together, please
understand that they are all in terms of orders that have been received during
the nine-month period for ones, twos and threes. We have not received any
bulk orders. By virtue, we can say that the investment in the whole construction
has been significant and we have got huge bulk orders from the road
construction sector or from the mining sector. So whatever has happened, it has
happened in ones, twos, and threes. I am trying to respond to you for what is
my forecast for the future, I would only mention that the investment in the
infrastructure will happen in a matter of time, some analysts have mentioned
that the investment should start taking place from middle of February. Even if it
happens, it is very good. At the out of set what we can think is the investments
are likely to happen between 2011 and 2012. This is how TIL and TIPL has
performed without seeing much of the investments taking place. I am quite sure
that when the investments really happen and in the two terms that finance
minister has mentioned, then I personally think that our growth will be
phenomenal. It will be very difficult to mention a percentage at this point in
time because if nothing happens then the growth will be something like what we
are seeing today, but if investments take place the growth can be as large of
60% or 70% also, but these are forward looking statements and I am too sure
whether these statements will mature in the first three months of the next
financial year or six months because this really will depend on the investments
from the government side. Does it answer your query?
Bhalchandra Shinde: Sir, in the last concall you have given the guidance of
1500 to 1600 Crores, are we in line with that?
Aloke Banerjee:I think we are still in line with that.
Bhalchandra Shinde: Sir regarding the margin front how is your outlook,
because we feel that in the margins we are losing out, there is some erosion in
the EBITDA margin, so what will be the margin for the construction equipment
division?
Aloke Banerjee:Let me just recollect, in the material-handling group for the
nine-month period we have sold cranes and reach stackers jointly 87 in number
vis-à-vis 67. From the power systems, we have sold 393 gensets vis-à-vis 333
in the earlier period, and in construction mining we have sold 846 machines visà-
vis 636. The point I am trying to make is the more machines, the more
products we sell, the EBITDA margin is likely to come down because the
contribution percent in the prime product sale is not high and is very low.
Therefore, the EBITDA margin has decreased. However, in the same breath, I
must also tell you at one time our EBITDA margin was at 12.5. We would still
pursue to see whether we can attain that March 2010 results, it is difficult in
2010-2011, but having achieved 12.5% our endeavors will be to again be
around that may be in 2011-2012 or 2012- 2013.
Bhalchandra Shinde: Sir lastly in the backhoe loader what kind of market
share do we have, we have a significant competition in that area. So, what kind
of market share we have in India?
Aloke Banerjee:3%.
Bhalchandra Shinde: 3%, okay. Any chances of this going forward or which
are our key brand machines that we sell of the Caterpillar portfolio?
Shreya Mukerji:We sell backhoe loaders, wheeled loaders,we have steel
branding, mining machines, obviously the other large machines.
Bhalchandra Shinde: So if I put your revenues of Caterpillar what one
machine that stands out among all these which you have mentioned just to get
an idea of it?
Aloke Banerjee:In terms of volume, the number of machines that we sell,
backhoe loaders will be highest. From memory I am telling you for the full
financial year we may sell around 600 for 2010-11, but in terms of value, highvalue
items we may sell excavators, that would be smaller in number but value
wise it will be much higher because you see a backhoe loader costs about 19
Lakhs, whereas the excavators could cost you as high as INR 73 Lakhs and in
certain cases more than INR 1 Crore also.
Bhalchandra Shinde: Okay. I am asking this question because Volvo is also
planning to launch its operations in India and so seeing the competitive scenario
and also the lion’s share of the market share being with the other players, do
you see pricing pressure going forward or what is our strategy to tackle the
situation?
Aloke Banerjee:It is like this, for the first nine-month results, I think TIPL has
operated under very stiff competition and I am sure that the participants know
that the Caterpillar branded products are at least 10-15% premium products
higher than the competition. So in spite of it the fact that we have sold
increased number of machines and increased number of gensets clearly
indicates that we are selling more than last year, but at the same time how
much of it we are taking away from competition that is something we need to
calculate and see. Our objective is to increase the market share and in this
context I am sure that you are aware that Tractors India has informed, the
subsidiary company, and it has got four verticals and the verticals operate two
in the eastern part of India and two in the northern part of India, and each of
these verticals are headed by four COOs. So, the purpose of creating these
verticals or the territory bifurcation is that we have more customer satisfaction;
we have deeper penetration as we open branches, and we have the
infrastructure facilities. Just to give an example, from the city of Bhubaneswar
300 km away from Bhubaneswar may be we were not there, but now we have
opened up area offices or branch officers, and our presence is there. Basically,
what I am trying to communicate is reach to the customer and customer
satisfaction. If we are able to do this I am quite sure and of course we need to
give a quality product, which I am sure when Caterpillar dispatches their
products from the plant, the product quality is assured. If TIPL is able to give
customer satisfaction, I think the numbers will increase. If the customer is
satisfied with the product having paid higher premium price for the product and
if the service is good, I am sure there would be repeat orders coming to us. I
think in the dealership business the most important factor which plays is that
you need to be near the customers, we need to satisfy the customer, and the
customer needs to be confident that whenever he requires, the service people
are available within the shortest possible time, so that the machine is up and
running.
Bhalchandra Shinde: Sir I just asked this question because I just want to
understand the Caterpillar business, as per whatever understanding, you said
you sell the product and also apart from the product do you have any AMC tieup
or any service tie-up where you can have a higher margin or the sales of
spares? Once you sell a machine, for example backhoe loader for 19 lakhs, so
this you will have a lesser margin because your are just buying the Caterpillar
machine and you are acting as a trader, so the value add as a company which
we can provide is the after-sale services, so in that issue if want to put in a
number like if 100 Crores is the total Caterpillar business then what percentage
will be the actual sales and what percentage will be the related services and
space?
Shreya Mukerji:You want to know what the customer support business?
Bhalchandra Shinde: Yes, the prime products is the customer support, if you
want to put a number so that we will get an idea that look in that prime
products we will be having around 4-5% margins, but the margins can be
ramped up doing more services?
Shreya Mukerji:As we pointed out this year we sold a considerable number of
prime products, so this year when I compare the first nine-month figure of 2011
versus 2010, for customer support, for TIPL standalone, for construction and
mining solutions, it the customer support percentage, which comprises the
spares, services, and rental 33% against 42% last year. For the power system
solutions business, it is 28% and 26% last year.
Bhalchandra Shinde: Okay, so how do you see this composition, going forward
in FY’12 perspective, you see this ratio to be maintained, just give an idea so
that we will also be able to know why your EBITDA margins are coming down in
this business?
Aloke Banerjee:Just like I mentioned to you that the investments by the
government have to happen. When the investments happen, there will all be
prime products sale. The parts and service sales will catch up three years down
the line.
Bhalchandra Shinde: Okay that means going forward also you see this ratio to
remain in the same range so that we will be having some kind of margin
pressure going forward also?
Aloke Banerjee:No, it will also dependent how much of parts and service we
are selling, because please understand that three years back we also sold a
number of machines and they will come under the service, so it is very difficult
to tell you that. That is why I said on an overall basis our endeavor will be to
achieve that EBITDA margin of 12.5, which we have achieved under certain mix.
But whether that mix will be repeated or not is something to be seen, but
definitely we would like to be in two-digit EBITDA margin.
Bhalchandra Shinde: Okay thanks and last question that we are planning a
new facility, so these cranes and reach stackers are we planning to manufacture
ourselves from scratch so that we will be able to have a higher margin play in
that division?
Aloke Banerjee:We are manufacturing already in our existing plant and in the
new plant we are manufacturing the existing products plus some new products?
Bhalchandra Shinde: The new products will be for the coal-handling
equipment for crushers, screeners if I understand it rightly?
Aloke Banerjee:You are right.
Bhalchandra Shinde: Okay. Thank you so much Sir. We appreciate you.
Moderator: Thank you. The next question is from the line of Pritesh Chheda
from Emkay Global. Please go ahead.
Pritesh Chheda:Thanks for taking my question. Just one or two questions, in
the call when you gave the numbers, these are TIL consolidated numbers right?
Aloke Banerjee:The first number was the consolidated number.
Pritesh Chheda:Right that was consolidated number, which should have also
been published.
Aloke Banerjee:The second one what I gave you is the TIL and TIPL that is
Indian operation numbers.
Pritesh Chheda:Secondly, on a like-to-like basis in the consolidated number,
same period last year we were not publishing consolidated numbers, but are
these like to like? Obviously they should be like to like comparable. There is no
addition or deletion of any business or company in these numbers. It is mere
shifting of the business from standalone to a subsidiary company and hence
whether it is in a standalone company or it is a subsidiary, on consolidation it is
one and the same.
Aloke Banerjee:You are absolutely correct.
Pritesh Chheda:Okay, just I was clarifying the confusion. One question only I
have, on the power system side if you could help us understand the strategy
there and the status of business versus, Kirloskar Engines and Cummins India,
if you could compare our business with their and give us some knowledge?
Aloke Banerjee:What are we trying to do is, so much of strategy effect is
concerned, I will reiterate, it is something like this, we are treated for vertical,
so the dealership is there, therefore this is applicable for the construction
mining as well as for the power system. Let me tell you the purpose of creating
these verticals. There are two verticals in Eastern India and two verticals in
Northern India for sustainable growth in terms of topline as well as sustainable
growth in terms of the bottomline. Now what is the reason behind it? The
reason behind it is the reach to the customer will be higher than what it is today
and if that is so we expect to improve the topline as well as there should be
improvement in the bottomline. So far the competition is concerned, it is like
this, Caterpillar engines are always expensive engine but at the same time if
someone does a life cycle costing of a Caterpillar engine vis-à-vis Cummins or
Kirloskar, it has been proved that Caterpillar engine is much more cost
competitive. The initial capital investment could be high, but over a period of
time the number of hours it runs, the number of part replacement it requires,
the amount of fuel consumption it has, all these eventually lead to our saving in
terms of what the customer is concerned. The other important factor is that in
the power systems group there could be a lot of retail sales also, and there are
sales in the shopping malls, there are sales in various manufacturing units,
where even small variation of power can affect the manufacturing process, and
supplies in the hospitals and very critical centers. TIL has been supplying
Caterpillar engines or Caterpillar branded gensets in the shopping malls in
Calcutta and elsewhere also, and this is against the competition and this
product is facing the competition from Cummins as well as from Kirloskar. The
most important factor is that Caterpillar engines are at least 10-15% higher
than that. Backed by this, the other important factor in the power system,
which is very strong, is our customer support. As soon as an engine is brought
and after having it run, our sales engineers would be there to monitor the usage
of the engines and how long it has run and replacement. That is why in this
segment, in power systems, we have got a lot of annual maintenance contracts
with us. It is not so much in the construction mining, but it is quite large in
power systems, I cannot give your number straight away. This is one important
factor, 25% of our customers have annual maintenance contract in the power
systems.
Pritesh Chheda:How does our product portfolio compare with Cummins and
Kirloskar?
Shreya Mukerji: In terms of diesel gensets, Cummins’ breaks the market into
15-160 KVA, 160-500 KVA and 500-2500 KVA ranges. That is accounts for
140,000 units.
Pritesh Chheda:Sorry, I did not get the first KVA numbers. If you could
repeat?
Shreya Mukerji: 15-160. Now we operate in the 200-2500 KVA range. This is
something like $1.1 billion dollar market. That is for the entire range. I am not
sure of the value of the 200-2500 KVA that is about 10000 units. Cummins
operates for the entire range from 15-2500 KVA. Kirloskar operates in the up to
the 500 KVA category. Cummins has a share in the 200-2500 KVA range of
about 40-45%, Kirloskar is about 15-17%, and Caterpillar is 15%.
Pritesh Chheda:You said Kirloskar is between 15 KVA and 500 KVA. Cummins
is from 15 KVA to 2500 KVA and Caterpillar is between 200 KVA and 2500 KVA.
Shreya Mukerji: Yes, All of the diesel engines for these gensets are
manufactured in India by Caterpillar. The Gas genset market is about $56
million.
Pritesh Chheda:Okay, that is small.
Shreya Mukerji: Yes, it is not that large. These are very large engines, so the
Caterpillar engines are imported, used in construction projects for ONGC or Oil
India. We do very well in this segment. I cannot say exactly, I think our share is
approximately 40%.
Pritesh Chheda:You said gas gensets market is $56 million and 200 to 2500
KVA market is about $1.1 billion dollar with 10,000 units. That is right?
Shreya Mukerji: 15 to 2500 KVA market is $1.1 billion.
Pritesh Chheda:Okay, the entire range is 1.1.
Shreya Mukerji: 140,000 units.
Pritesh Chheda:Total 140.
Moderator: Excuse me this is the operator. Madam can you come a bit closer
to the speaker phone.
Shreya Mukerji: In the 200-2500 KVA range, which is about 10,000 units. I
cannot tell you the precise valuePritesh Chheda: Just one confirmation I
wanted to do, you shared the customer support service and space business
percentage numbers in the construction and power systems business, was that
33% for construction and 28% for power systems that is how was it for nine
months?
Shreya Mukerji: Yes 33% for Construction, 28% for power systems for the first
nine months in FY11 compared to the first nine months of FY’10, it was 33% for
construction mining and 26% for power systems.
Pritesh Chheda:So, this is customer support, services and space business,
entire nonmachine business.
Shreya Mukerji: Services, spares, and rentals.
Pritesh Chheda:And rental as well.
Shreya Mukerji: Rental is of 3% of our revenues in the entire TIPL business so
it does not have much impact.
Pritesh Chheda:So, is that safe to assume when this particular percentage
component comes down, it means your margins have to come down because
you tend to make a lower margin on all traded business and when this
percentage goes up should you make a higher margin.
Shreya Mukerji: Precisely.
Pritesh Chheda:Many thanks to you and all the best to you Sir.
Moderator: Thank you. Our next question is from the line of Ram V from
Kotak. Please go ahead.
Ram V: Good afternoon Sir, just some macro questions, recently Caterpillar has
took over the Bucyrus International and they have bagged some big orders from
Reliance Power, the Terex machines. Will the Caterpillar dealers will be handling
these machines also or it is going to be a different set of dealership?
Aloke Banerjee:It is like this, although it has been announced in the papers,
but the entire process is likely to finish by June or July 2011. Then only the
Caterpillar will be able to distribute the machines to the dealer. We are hopeful
that we will also get the machines to be sold, but it has still not been
communicated to us, so it is slightly premature.
Ram V: Sir one last question, recently they bagged an order from NTPC and I
have heard somewhere earlier saying that you have some tie up with Thiess to
supply some Caterpillar equipment. Is that true and what is the development
and when you expect this order to come in?
Aloke Banerjee:The Thiess order, I think we should get it, but I think it will be
towards the later part of 2011- 2012.
Ram V: How big is this going to be?
Aloke Banerjee:It is really big. It is a very substantial order.
Ram V: But in which financial year you are expecting this?
Aloke Banerjee:In the end of 2011-2012 and in 2012-2013 end, last quarter
of 2011-2012.
Ram V: So in that more or less everything is finalized. I think NTPC has signed
up with Thiess, I think now NTPC is talking about?
Aloke Banerjee:NTPC has signed up with Thiess, but whether TIL will get the
order or not is yet to be seen. I mean we should, but nothing has been so far
put in writing, so it is premature at this point of time.
Ram V: Sir in between you lost some orders in Hindustan Zinc also because
they also went for some other equipment and all that?
Aloke Banerjee:That was in last February and March 2010.
Ram V: But have you started getting fresh order from Hindustan Zinc?
Aloke Banerjee:With Hindustan Zinc we have done maintenance and repair
contract, which is being done and which has been renewed also, so that process
is continuously on, and the order we lost is because of pricing and we do not
want to comment beyond that.
Ram V: Any big mine development is happening in your command area or are
you expecting any big breakthrough expected to happen in the near future?
Aloke Banerjee:Private mines have been allocated we have been told in
Eastern India, but the infrastructure facilities are yet to be provided and this is
happening for the last six months. I am not sure when and how soon it will
happen. When it happens, I am sure we will read it in the papers and then
fortunately we will also start getting the orders. As of now, nothing much is
happening.
Ram V: Okay, thank you Sir.
Moderator: Thank you. The next question is from the line of Radhika Poddar
from ShareKhan. Please go ahead.
Radhika Poddar: Sir my question is what is the update on our capex plan that
we have?
Aloke Banerjee:The update on the capex plan is like this, the construction on
the land has already been started and we now have a production date,
sometime in July, August the production will start in the new plant. We have
also acquired another piece of land just beside that because this 160 acres
which we have got is not , so therefore we have procured another 100 acres
from WBIDC, which is nearer to the existing plot, and we will start construction
there later, but in the existing plant, which we have already acquired, there the
construction is going on. We have also ordered for the plant and machinery and
we expect that we should start our production sometime in June, July or August
that is the timeframe we have.
Radhika Poddar: So what is the capex till date in that plant or what is the
plan?
Shreya Mukerji: As of October it is only about INR 20 Crores, but I do not
know what has happened in the interim.
Radhika Poddar: Okay, what is the current order book?
Shreya Mukerji:For the MHS business the current order backlog is 47.9. Of
that 41.7 is for manufacturing and the rest is for customer support. There is an
additional INR 23.3 Crores for the imported machines, but we only receive
contribution on that. Then for the CMS business, it is inr 33.3 Crores and I
believe 100% of that is going to be executed in Q4. For the PSS business it is
INR 100 Crores, there is a large order in there, something like INR 69 Crores,
for ONGC, about INR 44 Crores will be executed in Q4.
Radhika Poddar: So what is the overall order book looking like?
Shreya Mukerji: I cannot give you any more information than what I shared
now.
Radhika Poddar: Okay, tax rate has come down for the last three quarters, so
any particular benefits you are hearing from any plants?
Shreya Mukerji: The tax rate, this I cannot comment on, I have to wait till the
CFO comes back. I will just make a note on that one. Anything else?
Radhika Poddar: If you could just repeat the TIPL numbers for the nine
months, I missed on that.
Shreya Mukerji: For nine months, you are talking about the topline?
Radhika Poddar: Even PBT numbers.
Shreya Mukerji: INR 791.5 Crores versus INR 588 Crores for the last year.
Radhika Poddar: This is for TIPL?
Shreya Mukerji: 43.4 versus 29.9.
Radhika Poddar: Okay.
Aloke Banerjee:I am sorry there was an urgent call, I had to go.
Radhika Poddar: Okay Sir, I will call you later.
Aloke Banerjee:You want something?
Radhika Poddar: Actually can you repeat the whole number in nine months
that will better?
Aloke Banerjee:Okay then you take this, for the nine-month period, TIL and
TIPL together topline is 588 vis-à-vis 792. PBT 29.8 and 43.4. For MHS 124.6
and 154. PBT 14.8 and 16.7. Power systems 136.3 and 165, and 5.5 and 7.1.
Construction mining 327 and 472, and 8.4 and 13.7. In case you have further
queries, you can always write to me or write to Shreya and we can give you
further details in case you require that.
Radhika Poddar: Okay Sir, that is all from my side, thank you sir.
Moderator: Thank you. The next question is from the line of Manish Goel from
Enam Holdings. Please go ahead.
Manish Goel: Sir just on this new facility, earlier we were expecting our facility
to start in April, so now we are saying that it would start in June or July right?
Aloke Banerjee:The main reason for the plant for April was that we thought
that the land which is in between the factory shed, we thought we will be able
to take it, but then we found that it is creating much of problem, so now we
have found out a way in building the factory excluding that piece of land. The
other is that there are certain imports, the plant and machinery is taking a bit of
time, so we have now revised our production starting time and it has been
planned between June to July or may be latest by August we should start the
production.
Manish Goel: In Q4, basically what I was looking at, if you want to probably
somewhere reach near to what our overall margins had been for FY10, last year
basically full year operating margins were roughly in range of 11.7%, now that
has come down basically for 9 months to 8.1%. I understand that prime product
sales have been very strong. What I am trying to say is that last full year
topline has more or less been achieved in nine months, whereas operating profit
is by far very low as compared to what we had seen last year. So is it possible
that in Q4 we should be able to catch up and we should have better margins?
Aloke Banerjee:No, I do not think it is possible. Let me put it this way, one as
I mentioned to you that the prime product sale numbers are high. The second
factor is that we have recruited roughly about 200 additional people, and
therefore certain cost related with the staff cost has also gone up. These are
long-term investments. We have invested in people because we expect the
business to grow. We expect certain main contracts to be awarded to us and in
that event we will require the resources. We have just now spoken about
contract that Thiess has got. If Thiess places orders on us and expects us to
perform in the way they expect then we will require not only human resources,
we will require trained people and typically a person who is recruited in TIPL in
the Caterpillar business and a trainee, it could be as long as between 12-15
months before he can go and start meeting the customer. It is very important in
terms of growing the business, although they are revenue investments, such
revenue investments have been done. To answer your query, it is very difficult
to achieve those financial numbers or percentages as we have mentioned
because the month left are only two months, February and March.
Manish Goel: Sir how much capex overall we have done in the current year and
how much we are planning for next year.
Aloke Banerjee:In the current year, our net fixed assets investments will be
about INR 20 Crores, which is net that means after depreciation, cost would be
higher, but the next year will be large because we will be investing in the new
plant also.
Manish Goel: So how much that could be next year and how much on that
could be capitalized?
Aloke Banerjee:The investment in the plant and machinery asset, land,
building, etc., will be roughly about INR 150 Crores next year and I think
another INR 40 to 50 Crores would be in the existing business that is in the
Caterpillar business.
Manish Goel: Okay that INR 40 to 50 Crores in the existing business do you
mean to say it would be in working capital?
Aloke Banerjee:In building up infrastructure facilities in terms of branches,
locations, having rental assets in the Caterpillar dealership business and things
like that.
Manish Goel: Okay, and also coming back to this new plant, we were expecting
that in FY12 in last call you have said you will do INR 158-160 Crore revenues
from the new plant and in FY13 we expect INR 700 Crores, so does that change
now with plan getting delayed?
Aloke Banerjee:In six months, it will be roughly about INR 100 to 110 Crores.
Manish Goel: Okay, but that would take away some sales from the existing
plant also?
Aloke Banerjee:No.
Manish Goel: This would be incremental sales?
Aloke Banerjee:Incremental sales.
Manish Goel: What about the FY13 Sir?
Aloke Banerjee:That we will try to stick with the original number, because that
is a full-year production.
Manish Goel: You have recently taken a board approval to raise INR 250
Crores, is this entirely through equity route or how you are looking to?
Aloke Banerjee:What we have done, as you know, our stare capital is only 10
Crores and if the business is growing, we need to go and borrow money also
from the bank. So we need to raise our share capital also, so we have taken a
omnibus resolution so that we will decide at the point of raising the fund,
whether we take it in terms of private equity or QIP because it will be a mixture
of everything, but yes we have plans of raising equity funds for the company, so
that when the business grows, this year if it is between INR 1400-1500 Crores
topline and next year if we are there between INR 1800-1900 Crores then you
know the borrowing for the company will also go up and same for share capital,
equity ratios and the total outside liability versus equity they often get affected,
so therefore that is also another reason for raising the share capital, but let me
also tell you we are in no urgent pressure for raising funds, but we have taken a
board resolution and we are also planning to take shareholders resolution and
thereafter we will plan the timing of the issue so that it is appropriate and it
meets our internal requirement also.
Manish Goel: But Sir you already have roughly INR 200 Crores of capex
planned for next year, which is like you would probably require money may be
in six months to eight months, and our market cap is between INR 500-600
Crores and if you are looking to this INR 250 Crores which would be roughly
50%, so basically not too sure that would we looking to raise so much money at
one stroke and that too entirely through equity, because again the debt
requirement will go up as you said because of increasing turnover.
Aloke Banerjee:You are right, I said it would be a combination, plus also let
me tell you that today during the course of the discussion I had mentioned that
all our inventory levels are very high, which we expect to liquidate. If we are
able to liquidate about INR 75 to 100 Crores of inventory, so INR 75 to 100
Crores of cash would again come back into the system and as on 31st of
December 2010 our long-term loan is only INR 22 Crores, so we have enough
resources of raising debt also, so it will be a mixture of debt and equity, you are
very right, but the timing part of it that when we are going to do it and what will
be the combination would depend also on the market that is where the share
price is and how it is looking forward, how has been our performance, what
would be the EPS, what is PE. There are various parameters that we have to
internally work out and then plan that this is how we are going to raise the
fund. Nothing is written in stone, but we have taken a resolution from the board
and we are going to take a resolution from the shareholders also so that we are
in readiness. In case we have to do a PE or QIP, then you know lot of other
backroom documents have to be prepared and lot of work is involved, so that
we are able to complete all these and keep in readiness, so the time will decide
and we can go ahead and do it.
Manish Goel: And last question on the inventory, what is the number because it
was INR 305 Crores in Q 2, so what is our inventory number?
Aloke Banerjee:As on 31st of December the inventory is INR 268 Crores for
TIL and TIPL.
Manish Goel: Thank you very much.
Moderator: Thank you. Ladies and gentleman that was the last question I
would now like to hand the floor over to Mr. Rahul Gajare for closing comments.
Rahul Gajare: I would like to thank the management for taking time out for
this concall and wish them well for the following quarters. Thank you.
Moderator: On behalf of the Edelweiss Securities that concludes this
conference call. Thank you for joining us. You may now disconnect your lines.
Thank you.
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Questions and Answers
Rahul Gajare: Good afternoon to everybody who has logged into this call of
TIL’s third quarter earnings. From the management we have with us Mr. Aloke
Banerjee, CFO, and Ms. Shreya Mukerji, business analyst. We will have opening
remarks from Mr. Banerjee, after which we will move onto the question and
answer session. Thank you and over to sir.
Aloke Banerjee:Thank you. The way I would like to share my information with
you is like this. First I will discuss the group performance for the period October
to December. Thereafter, TIL and TIPL performance for October to December,
and then MHS, PSS, and CMS that is the material handling, the power systems,
and the construction mining for the period October to December. Once I share
the financial numbers on the quarterly basis, I will give you in the same
sequence the nine-month result that is for the period April to December, and
after that we can have the question and answer session. Now coming back to
the group performance for the third quarter that is October to December, the
topline has grown by 22%, from a level of INR 313 Crores it has increased to
INR 383 Crores, but there is a dip in the PBT. Last year same period we had INR
24.2 Crores as profit for the third quarter vis-à-vis this year third quarter we
have INR 22.4. Coming to TIL and TIPL, that is Indian subsidiary, for the
financial performance from October to December, in the topline it has grown by
34%, that is sales income has grown from INR 215 Crores to INR 288 Crores.
Profit before tax has increased from INR 10.3 Crores to INR 18.6 Crores, a
growth of 81%. But in this there is other income, which is corporate income of
INR 9.3 Crores, which comes primarily from Myanmar and Singapore
operations, that is from our subsidiary companies in Myanmar and Singapore. If
someone were following our quarterly accounts, you would see that every year
we get significant amount of money from subsidiary companies. For the last
financial year 2009-10, the total amount we received was roughly about INR 16
Crores and against that this year we have so far up to December we have taken
INR 9 Crores. Coming to material handling group for the period October to
December, the topline has grown by 18% from a level of INR 48 Crores it has
gone to INR 57 Crores and profit before tax has increased marginally from INR
5.7 Crores to INR 6.4 Crores. In this quarter, we have been able to dispatch 35
cranes and vis-à-vis last year same period it was 30, so there is an increase in
dispatch of the cranes from the plant. For the power systems, the topline has
been almost similar to last year’s level, last year it was 52.3 and this quarter it
is 52.7. There is significant improvement in terms of the bottomline, last year
the profit was INR 40 Lakhs and this year it is INR 1.6 Crores. In this quarter we
dispatched 130 numbers of genset vis-à-vis last year same period we had
dispatched 133. There is a marginal fall in terms of dispatch being billed for the
company. Coming to the construction mining group in the third quarter, the
topline has grown by 55% primarily because in this quarter we have dispatched
373 machines and last year same period we had dispatched 235 machines. So
the number of sales in this quarter has been significantly higher than the third
quarter of 2009. In respect to profit before tax, last year it was 4.1 and this
year it is INR 2.7 Crores, so there is a dip in terms of the profits for the third
quarter. It has primarily happened because the margins of the machine sale are
lower than margins of the parts and service that is one and there is also
increase in terms of expenses. Coming to April to December, I am speaking
from group performance, the topline has grown by 39%, last year April to
December it was INR 735 Crores and this year it is INR 1025 Crores. Profit
before tax last year was INR 49.1 Crores and this current nine-month period the
profit before tax is INR 57.3 Crores. This is the group performance.
Coming to TIL and TIPL nine-month performance, the topline has grown by
35% from INR 588 Crores to INR 792 Crores, and profit before tax which
includes other income also last year PBT was INR 29.8 Crores and this year it is
INR 43.4 Crores, that is increase of 46%. Material handling for nine-month
period, the topline has grown by 24% from INR 125 Crores to INR 154 Crores.
Profit before tax has increased from INR 14.8 Crores to INR 16.7 Crores, an
increase of 13%. In this nine-month period, we have dispatched 87 cranes and
reach stackers jointly machine dispatches vis-à-vis 67 during the last ninemonth
period. Coming to the power systems group, during the nine-month
period, the topline has grown by 21% from INR 136 Crores to INR 165 Crores.
Profit before tax has increased from 5.5 to 7.1, registering an increase of 29%.
During the current nine-month period, we have sold 393 gensets vis-à-vis 333
during the last year same period. Construction mining’s topline has grown 44%,
that is sales income increased from INR 327 Crores to INR 473 Crores, and
profit before tax has increased 63%, from INR 8.4 Crores to INR 13.7 Crores.
The total number of machine sales during this nine-month period has been 846
vis-à-vis last year same time was 636. This is so far the profit and loss figures.
With relation to the balance sheet also I will give you certain key financial
numbers for TIL and TIPL financial results. EBITDA as a percentage to sales in
December 2010 has been 8.8. PBT as a percentage to sales is 5.4. PAT is 3.7.
Debtor days covered has been 57 days, inventory days covered 124 days, and
total offset liability versus tangible net worth has been 1.69. The debt in the
books of account as on 31st of December is INR 259 Crores. The reason for the
increase in the loan fund is primarily because of the inventory and the debtors.
Inventories are in place because for the Caterpillar business we have to get
machines and engines from Caterpillar and Caterpillar is still following the
managed distribution, so we have to place our orders well in advance. We are
hopeful that a significant part of this inventory will get liquidated before 31st of
March. Now I will answer questions.
Moderator: Thank you very much Sir. Ladies and gentlemen, we will now begin
with question and answer session. Anyone who wishes to ask a question may
please enter “*” followed by “1” on the touchtone telephone. If you wish to
withdraw your question from the queue, you may enter “*” followed by “2”.
Participants are requested to use handsets while asking a question. The first
question is from the line of Bhalchandra Shinde from B&K Securities. Please go
ahead.
Bhalchandra Shinde: Sir first of all I want to ask our MHS group this quarter
has given a very minimal growth, 2% growth only, what is the reason behind it?
Aloke Banerjee:In the materials handling group, the topline has grown by
some INR 48 Crores to INR 56.5 Crores. So the topline has grown by 18% in
materials handling group and profit before tax has increased for the quarter,
October to December, from 5.7 to 6.4, which is a growth of 12%.
Bhalchandra Shinde: Sir, what I wanted to know is what type of scenario you
expect your materials handling group to contribute around 50% of your total
revenue, you had plans regarding that right?
Aloke Banerjee:That is an interesting question. But I said in next four to five
years’ time, the internal plan is that the materials handling group should be
50% and the dealership business will be 50%, in four to five years from now.
Ranjith Suguram: Sir, I am just joining and I am Ranjith Suguram, in your
segmental breakup which you have given in your quarterly release, it was
showing a growth of 53.5 and also like last year’s number is it year-on-year
comparable?
Aloke Banerjee:No, they are not comparable because in the press release
what is happening is we are giving firstly the consolidated results and below we
are giving standalone, only three or four important financial figures. I will tell
you the logic behind it, as on 31st of December 2010, I did not have TIPL that is
the Caterpillar business was not bifurcated. So if you see our point #2 in the
notes we have mentioned that these figures were not available with us, so
therefore we are unable to publish, that is why in this concall I have given to
the participants the exact numbers for the quarter as well as for the nine-month
period, so that they are comparable numbers and the people would understand
what we are referring to. In point #3 in the press release we have mentioned
the results and quarter for nine months, reported by the company with effect
from 1st of April 2010. As on 31st of December 2009, that is last year, we never
had the subsidiary company and therefore we did not have separate financial
numbers to be published, and they were not subjectively limited with the audit
also. Everything was consolidated that is TIL, TIPL, MHS, CMS, and PSS
everything was consolidated and Pricewater house did limited review. That is
why we could not publish it, but what we have done in the concall is I have
given the relevant numbers for the analysts as well as for the participants to
understand how they are comparable quarterly as well as on a nine-month
basis.
Ranjith Suguram: Thank you Sir, but I was just vis-à-vis considering, you told
a number of INR 56 Crores MHS if I am right, but in your release it is INR 53.5
Crores.
Aloke Banerjee:This is net sales of income and I am giving gross sales. That is
why.
Ranjith Suguram: Thank you Sir for the clarification. Bhalchandra will join you
for more questions.
Bhalchandra Shinde: What kind of guidance you will give for this year and the
next year?
Aloke Banerjee:For the materials handling group?
Bhalchandra Shinde: For the total company?
Aloke Banerjee:It is a very difficult question you have asked, but just let me
give you a background then you will understand that where I am coming from.
We have been reading in the papers that lot of investments are taking place in
the infrastructure. Yesterday in Calcutta, in the Times of India publication we
saw that the finance minister has mentioned that in 2010-11 GDP growth is
likely to be 8%, but in that breakup I saw agriculture is there, , education is
there, power/electricity is there. But I did not see much of the infrastructure
sector. What I am trying to tell you is I do not think that significant amount of
the promised investment in infrastructure sector has yet taken place and
whatever performance you see in TIL and TIPL taken together, please
understand that they are all in terms of orders that have been received during
the nine-month period for ones, twos and threes. We have not received any
bulk orders. By virtue, we can say that the investment in the whole construction
has been significant and we have got huge bulk orders from the road
construction sector or from the mining sector. So whatever has happened, it has
happened in ones, twos, and threes. I am trying to respond to you for what is
my forecast for the future, I would only mention that the investment in the
infrastructure will happen in a matter of time, some analysts have mentioned
that the investment should start taking place from middle of February. Even if it
happens, it is very good. At the out of set what we can think is the investments
are likely to happen between 2011 and 2012. This is how TIL and TIPL has
performed without seeing much of the investments taking place. I am quite sure
that when the investments really happen and in the two terms that finance
minister has mentioned, then I personally think that our growth will be
phenomenal. It will be very difficult to mention a percentage at this point in
time because if nothing happens then the growth will be something like what we
are seeing today, but if investments take place the growth can be as large of
60% or 70% also, but these are forward looking statements and I am too sure
whether these statements will mature in the first three months of the next
financial year or six months because this really will depend on the investments
from the government side. Does it answer your query?
Bhalchandra Shinde: Sir, in the last concall you have given the guidance of
1500 to 1600 Crores, are we in line with that?
Aloke Banerjee:I think we are still in line with that.
Bhalchandra Shinde: Sir regarding the margin front how is your outlook,
because we feel that in the margins we are losing out, there is some erosion in
the EBITDA margin, so what will be the margin for the construction equipment
division?
Aloke Banerjee:Let me just recollect, in the material-handling group for the
nine-month period we have sold cranes and reach stackers jointly 87 in number
vis-à-vis 67. From the power systems, we have sold 393 gensets vis-à-vis 333
in the earlier period, and in construction mining we have sold 846 machines visà-
vis 636. The point I am trying to make is the more machines, the more
products we sell, the EBITDA margin is likely to come down because the
contribution percent in the prime product sale is not high and is very low.
Therefore, the EBITDA margin has decreased. However, in the same breath, I
must also tell you at one time our EBITDA margin was at 12.5. We would still
pursue to see whether we can attain that March 2010 results, it is difficult in
2010-2011, but having achieved 12.5% our endeavors will be to again be
around that may be in 2011-2012 or 2012- 2013.
Bhalchandra Shinde: Sir lastly in the backhoe loader what kind of market
share do we have, we have a significant competition in that area. So, what kind
of market share we have in India?
Aloke Banerjee:3%.
Bhalchandra Shinde: 3%, okay. Any chances of this going forward or which
are our key brand machines that we sell of the Caterpillar portfolio?
Shreya Mukerji:We sell backhoe loaders, wheeled loaders,we have steel
branding, mining machines, obviously the other large machines.
Bhalchandra Shinde: So if I put your revenues of Caterpillar what one
machine that stands out among all these which you have mentioned just to get
an idea of it?
Aloke Banerjee:In terms of volume, the number of machines that we sell,
backhoe loaders will be highest. From memory I am telling you for the full
financial year we may sell around 600 for 2010-11, but in terms of value, highvalue
items we may sell excavators, that would be smaller in number but value
wise it will be much higher because you see a backhoe loader costs about 19
Lakhs, whereas the excavators could cost you as high as INR 73 Lakhs and in
certain cases more than INR 1 Crore also.
Bhalchandra Shinde: Okay. I am asking this question because Volvo is also
planning to launch its operations in India and so seeing the competitive scenario
and also the lion’s share of the market share being with the other players, do
you see pricing pressure going forward or what is our strategy to tackle the
situation?
Aloke Banerjee:It is like this, for the first nine-month results, I think TIPL has
operated under very stiff competition and I am sure that the participants know
that the Caterpillar branded products are at least 10-15% premium products
higher than the competition. So in spite of it the fact that we have sold
increased number of machines and increased number of gensets clearly
indicates that we are selling more than last year, but at the same time how
much of it we are taking away from competition that is something we need to
calculate and see. Our objective is to increase the market share and in this
context I am sure that you are aware that Tractors India has informed, the
subsidiary company, and it has got four verticals and the verticals operate two
in the eastern part of India and two in the northern part of India, and each of
these verticals are headed by four COOs. So, the purpose of creating these
verticals or the territory bifurcation is that we have more customer satisfaction;
we have deeper penetration as we open branches, and we have the
infrastructure facilities. Just to give an example, from the city of Bhubaneswar
300 km away from Bhubaneswar may be we were not there, but now we have
opened up area offices or branch officers, and our presence is there. Basically,
what I am trying to communicate is reach to the customer and customer
satisfaction. If we are able to do this I am quite sure and of course we need to
give a quality product, which I am sure when Caterpillar dispatches their
products from the plant, the product quality is assured. If TIPL is able to give
customer satisfaction, I think the numbers will increase. If the customer is
satisfied with the product having paid higher premium price for the product and
if the service is good, I am sure there would be repeat orders coming to us. I
think in the dealership business the most important factor which plays is that
you need to be near the customers, we need to satisfy the customer, and the
customer needs to be confident that whenever he requires, the service people
are available within the shortest possible time, so that the machine is up and
running.
Bhalchandra Shinde: Sir I just asked this question because I just want to
understand the Caterpillar business, as per whatever understanding, you said
you sell the product and also apart from the product do you have any AMC tieup
or any service tie-up where you can have a higher margin or the sales of
spares? Once you sell a machine, for example backhoe loader for 19 lakhs, so
this you will have a lesser margin because your are just buying the Caterpillar
machine and you are acting as a trader, so the value add as a company which
we can provide is the after-sale services, so in that issue if want to put in a
number like if 100 Crores is the total Caterpillar business then what percentage
will be the actual sales and what percentage will be the related services and
space?
Shreya Mukerji:You want to know what the customer support business?
Bhalchandra Shinde: Yes, the prime products is the customer support, if you
want to put a number so that we will get an idea that look in that prime
products we will be having around 4-5% margins, but the margins can be
ramped up doing more services?
Shreya Mukerji:As we pointed out this year we sold a considerable number of
prime products, so this year when I compare the first nine-month figure of 2011
versus 2010, for customer support, for TIPL standalone, for construction and
mining solutions, it the customer support percentage, which comprises the
spares, services, and rental 33% against 42% last year. For the power system
solutions business, it is 28% and 26% last year.
Bhalchandra Shinde: Okay, so how do you see this composition, going forward
in FY’12 perspective, you see this ratio to be maintained, just give an idea so
that we will also be able to know why your EBITDA margins are coming down in
this business?
Aloke Banerjee:Just like I mentioned to you that the investments by the
government have to happen. When the investments happen, there will all be
prime products sale. The parts and service sales will catch up three years down
the line.
Bhalchandra Shinde: Okay that means going forward also you see this ratio to
remain in the same range so that we will be having some kind of margin
pressure going forward also?
Aloke Banerjee:No, it will also dependent how much of parts and service we
are selling, because please understand that three years back we also sold a
number of machines and they will come under the service, so it is very difficult
to tell you that. That is why I said on an overall basis our endeavor will be to
achieve that EBITDA margin of 12.5, which we have achieved under certain mix.
But whether that mix will be repeated or not is something to be seen, but
definitely we would like to be in two-digit EBITDA margin.
Bhalchandra Shinde: Okay thanks and last question that we are planning a
new facility, so these cranes and reach stackers are we planning to manufacture
ourselves from scratch so that we will be able to have a higher margin play in
that division?
Aloke Banerjee:We are manufacturing already in our existing plant and in the
new plant we are manufacturing the existing products plus some new products?
Bhalchandra Shinde: The new products will be for the coal-handling
equipment for crushers, screeners if I understand it rightly?
Aloke Banerjee:You are right.
Bhalchandra Shinde: Okay. Thank you so much Sir. We appreciate you.
Moderator: Thank you. The next question is from the line of Pritesh Chheda
from Emkay Global. Please go ahead.
Pritesh Chheda:Thanks for taking my question. Just one or two questions, in
the call when you gave the numbers, these are TIL consolidated numbers right?
Aloke Banerjee:The first number was the consolidated number.
Pritesh Chheda:Right that was consolidated number, which should have also
been published.
Aloke Banerjee:The second one what I gave you is the TIL and TIPL that is
Indian operation numbers.
Pritesh Chheda:Secondly, on a like-to-like basis in the consolidated number,
same period last year we were not publishing consolidated numbers, but are
these like to like? Obviously they should be like to like comparable. There is no
addition or deletion of any business or company in these numbers. It is mere
shifting of the business from standalone to a subsidiary company and hence
whether it is in a standalone company or it is a subsidiary, on consolidation it is
one and the same.
Aloke Banerjee:You are absolutely correct.
Pritesh Chheda:Okay, just I was clarifying the confusion. One question only I
have, on the power system side if you could help us understand the strategy
there and the status of business versus, Kirloskar Engines and Cummins India,
if you could compare our business with their and give us some knowledge?
Aloke Banerjee:What are we trying to do is, so much of strategy effect is
concerned, I will reiterate, it is something like this, we are treated for vertical,
so the dealership is there, therefore this is applicable for the construction
mining as well as for the power system. Let me tell you the purpose of creating
these verticals. There are two verticals in Eastern India and two verticals in
Northern India for sustainable growth in terms of topline as well as sustainable
growth in terms of the bottomline. Now what is the reason behind it? The
reason behind it is the reach to the customer will be higher than what it is today
and if that is so we expect to improve the topline as well as there should be
improvement in the bottomline. So far the competition is concerned, it is like
this, Caterpillar engines are always expensive engine but at the same time if
someone does a life cycle costing of a Caterpillar engine vis-à-vis Cummins or
Kirloskar, it has been proved that Caterpillar engine is much more cost
competitive. The initial capital investment could be high, but over a period of
time the number of hours it runs, the number of part replacement it requires,
the amount of fuel consumption it has, all these eventually lead to our saving in
terms of what the customer is concerned. The other important factor is that in
the power systems group there could be a lot of retail sales also, and there are
sales in the shopping malls, there are sales in various manufacturing units,
where even small variation of power can affect the manufacturing process, and
supplies in the hospitals and very critical centers. TIL has been supplying
Caterpillar engines or Caterpillar branded gensets in the shopping malls in
Calcutta and elsewhere also, and this is against the competition and this
product is facing the competition from Cummins as well as from Kirloskar. The
most important factor is that Caterpillar engines are at least 10-15% higher
than that. Backed by this, the other important factor in the power system,
which is very strong, is our customer support. As soon as an engine is brought
and after having it run, our sales engineers would be there to monitor the usage
of the engines and how long it has run and replacement. That is why in this
segment, in power systems, we have got a lot of annual maintenance contracts
with us. It is not so much in the construction mining, but it is quite large in
power systems, I cannot give your number straight away. This is one important
factor, 25% of our customers have annual maintenance contract in the power
systems.
Pritesh Chheda:How does our product portfolio compare with Cummins and
Kirloskar?
Shreya Mukerji: In terms of diesel gensets, Cummins’ breaks the market into
15-160 KVA, 160-500 KVA and 500-2500 KVA ranges. That is accounts for
140,000 units.
Pritesh Chheda:Sorry, I did not get the first KVA numbers. If you could
repeat?
Shreya Mukerji: 15-160. Now we operate in the 200-2500 KVA range. This is
something like $1.1 billion dollar market. That is for the entire range. I am not
sure of the value of the 200-2500 KVA that is about 10000 units. Cummins
operates for the entire range from 15-2500 KVA. Kirloskar operates in the up to
the 500 KVA category. Cummins has a share in the 200-2500 KVA range of
about 40-45%, Kirloskar is about 15-17%, and Caterpillar is 15%.
Pritesh Chheda:You said Kirloskar is between 15 KVA and 500 KVA. Cummins
is from 15 KVA to 2500 KVA and Caterpillar is between 200 KVA and 2500 KVA.
Shreya Mukerji: Yes, All of the diesel engines for these gensets are
manufactured in India by Caterpillar. The Gas genset market is about $56
million.
Pritesh Chheda:Okay, that is small.
Shreya Mukerji: Yes, it is not that large. These are very large engines, so the
Caterpillar engines are imported, used in construction projects for ONGC or Oil
India. We do very well in this segment. I cannot say exactly, I think our share is
approximately 40%.
Pritesh Chheda:You said gas gensets market is $56 million and 200 to 2500
KVA market is about $1.1 billion dollar with 10,000 units. That is right?
Shreya Mukerji: 15 to 2500 KVA market is $1.1 billion.
Pritesh Chheda:Okay, the entire range is 1.1.
Shreya Mukerji: 140,000 units.
Pritesh Chheda:Total 140.
Moderator: Excuse me this is the operator. Madam can you come a bit closer
to the speaker phone.
Shreya Mukerji: In the 200-2500 KVA range, which is about 10,000 units. I
cannot tell you the precise valuePritesh Chheda: Just one confirmation I
wanted to do, you shared the customer support service and space business
percentage numbers in the construction and power systems business, was that
33% for construction and 28% for power systems that is how was it for nine
months?
Shreya Mukerji: Yes 33% for Construction, 28% for power systems for the first
nine months in FY11 compared to the first nine months of FY’10, it was 33% for
construction mining and 26% for power systems.
Pritesh Chheda:So, this is customer support, services and space business,
entire nonmachine business.
Shreya Mukerji: Services, spares, and rentals.
Pritesh Chheda:And rental as well.
Shreya Mukerji: Rental is of 3% of our revenues in the entire TIPL business so
it does not have much impact.
Pritesh Chheda:So, is that safe to assume when this particular percentage
component comes down, it means your margins have to come down because
you tend to make a lower margin on all traded business and when this
percentage goes up should you make a higher margin.
Shreya Mukerji: Precisely.
Pritesh Chheda:Many thanks to you and all the best to you Sir.
Moderator: Thank you. Our next question is from the line of Ram V from
Kotak. Please go ahead.
Ram V: Good afternoon Sir, just some macro questions, recently Caterpillar has
took over the Bucyrus International and they have bagged some big orders from
Reliance Power, the Terex machines. Will the Caterpillar dealers will be handling
these machines also or it is going to be a different set of dealership?
Aloke Banerjee:It is like this, although it has been announced in the papers,
but the entire process is likely to finish by June or July 2011. Then only the
Caterpillar will be able to distribute the machines to the dealer. We are hopeful
that we will also get the machines to be sold, but it has still not been
communicated to us, so it is slightly premature.
Ram V: Sir one last question, recently they bagged an order from NTPC and I
have heard somewhere earlier saying that you have some tie up with Thiess to
supply some Caterpillar equipment. Is that true and what is the development
and when you expect this order to come in?
Aloke Banerjee:The Thiess order, I think we should get it, but I think it will be
towards the later part of 2011- 2012.
Ram V: How big is this going to be?
Aloke Banerjee:It is really big. It is a very substantial order.
Ram V: But in which financial year you are expecting this?
Aloke Banerjee:In the end of 2011-2012 and in 2012-2013 end, last quarter
of 2011-2012.
Ram V: So in that more or less everything is finalized. I think NTPC has signed
up with Thiess, I think now NTPC is talking about?
Aloke Banerjee:NTPC has signed up with Thiess, but whether TIL will get the
order or not is yet to be seen. I mean we should, but nothing has been so far
put in writing, so it is premature at this point of time.
Ram V: Sir in between you lost some orders in Hindustan Zinc also because
they also went for some other equipment and all that?
Aloke Banerjee:That was in last February and March 2010.
Ram V: But have you started getting fresh order from Hindustan Zinc?
Aloke Banerjee:With Hindustan Zinc we have done maintenance and repair
contract, which is being done and which has been renewed also, so that process
is continuously on, and the order we lost is because of pricing and we do not
want to comment beyond that.
Ram V: Any big mine development is happening in your command area or are
you expecting any big breakthrough expected to happen in the near future?
Aloke Banerjee:Private mines have been allocated we have been told in
Eastern India, but the infrastructure facilities are yet to be provided and this is
happening for the last six months. I am not sure when and how soon it will
happen. When it happens, I am sure we will read it in the papers and then
fortunately we will also start getting the orders. As of now, nothing much is
happening.
Ram V: Okay, thank you Sir.
Moderator: Thank you. The next question is from the line of Radhika Poddar
from ShareKhan. Please go ahead.
Radhika Poddar: Sir my question is what is the update on our capex plan that
we have?
Aloke Banerjee:The update on the capex plan is like this, the construction on
the land has already been started and we now have a production date,
sometime in July, August the production will start in the new plant. We have
also acquired another piece of land just beside that because this 160 acres
which we have got is not , so therefore we have procured another 100 acres
from WBIDC, which is nearer to the existing plot, and we will start construction
there later, but in the existing plant, which we have already acquired, there the
construction is going on. We have also ordered for the plant and machinery and
we expect that we should start our production sometime in June, July or August
that is the timeframe we have.
Radhika Poddar: So what is the capex till date in that plant or what is the
plan?
Shreya Mukerji: As of October it is only about INR 20 Crores, but I do not
know what has happened in the interim.
Radhika Poddar: Okay, what is the current order book?
Shreya Mukerji:For the MHS business the current order backlog is 47.9. Of
that 41.7 is for manufacturing and the rest is for customer support. There is an
additional INR 23.3 Crores for the imported machines, but we only receive
contribution on that. Then for the CMS business, it is inr 33.3 Crores and I
believe 100% of that is going to be executed in Q4. For the PSS business it is
INR 100 Crores, there is a large order in there, something like INR 69 Crores,
for ONGC, about INR 44 Crores will be executed in Q4.
Radhika Poddar: So what is the overall order book looking like?
Shreya Mukerji: I cannot give you any more information than what I shared
now.
Radhika Poddar: Okay, tax rate has come down for the last three quarters, so
any particular benefits you are hearing from any plants?
Shreya Mukerji: The tax rate, this I cannot comment on, I have to wait till the
CFO comes back. I will just make a note on that one. Anything else?
Radhika Poddar: If you could just repeat the TIPL numbers for the nine
months, I missed on that.
Shreya Mukerji: For nine months, you are talking about the topline?
Radhika Poddar: Even PBT numbers.
Shreya Mukerji: INR 791.5 Crores versus INR 588 Crores for the last year.
Radhika Poddar: This is for TIPL?
Shreya Mukerji: 43.4 versus 29.9.
Radhika Poddar: Okay.
Aloke Banerjee:I am sorry there was an urgent call, I had to go.
Radhika Poddar: Okay Sir, I will call you later.
Aloke Banerjee:You want something?
Radhika Poddar: Actually can you repeat the whole number in nine months
that will better?
Aloke Banerjee:Okay then you take this, for the nine-month period, TIL and
TIPL together topline is 588 vis-à-vis 792. PBT 29.8 and 43.4. For MHS 124.6
and 154. PBT 14.8 and 16.7. Power systems 136.3 and 165, and 5.5 and 7.1.
Construction mining 327 and 472, and 8.4 and 13.7. In case you have further
queries, you can always write to me or write to Shreya and we can give you
further details in case you require that.
Radhika Poddar: Okay Sir, that is all from my side, thank you sir.
Moderator: Thank you. The next question is from the line of Manish Goel from
Enam Holdings. Please go ahead.
Manish Goel: Sir just on this new facility, earlier we were expecting our facility
to start in April, so now we are saying that it would start in June or July right?
Aloke Banerjee:The main reason for the plant for April was that we thought
that the land which is in between the factory shed, we thought we will be able
to take it, but then we found that it is creating much of problem, so now we
have found out a way in building the factory excluding that piece of land. The
other is that there are certain imports, the plant and machinery is taking a bit of
time, so we have now revised our production starting time and it has been
planned between June to July or may be latest by August we should start the
production.
Manish Goel: In Q4, basically what I was looking at, if you want to probably
somewhere reach near to what our overall margins had been for FY10, last year
basically full year operating margins were roughly in range of 11.7%, now that
has come down basically for 9 months to 8.1%. I understand that prime product
sales have been very strong. What I am trying to say is that last full year
topline has more or less been achieved in nine months, whereas operating profit
is by far very low as compared to what we had seen last year. So is it possible
that in Q4 we should be able to catch up and we should have better margins?
Aloke Banerjee:No, I do not think it is possible. Let me put it this way, one as
I mentioned to you that the prime product sale numbers are high. The second
factor is that we have recruited roughly about 200 additional people, and
therefore certain cost related with the staff cost has also gone up. These are
long-term investments. We have invested in people because we expect the
business to grow. We expect certain main contracts to be awarded to us and in
that event we will require the resources. We have just now spoken about
contract that Thiess has got. If Thiess places orders on us and expects us to
perform in the way they expect then we will require not only human resources,
we will require trained people and typically a person who is recruited in TIPL in
the Caterpillar business and a trainee, it could be as long as between 12-15
months before he can go and start meeting the customer. It is very important in
terms of growing the business, although they are revenue investments, such
revenue investments have been done. To answer your query, it is very difficult
to achieve those financial numbers or percentages as we have mentioned
because the month left are only two months, February and March.
Manish Goel: Sir how much capex overall we have done in the current year and
how much we are planning for next year.
Aloke Banerjee:In the current year, our net fixed assets investments will be
about INR 20 Crores, which is net that means after depreciation, cost would be
higher, but the next year will be large because we will be investing in the new
plant also.
Manish Goel: So how much that could be next year and how much on that
could be capitalized?
Aloke Banerjee:The investment in the plant and machinery asset, land,
building, etc., will be roughly about INR 150 Crores next year and I think
another INR 40 to 50 Crores would be in the existing business that is in the
Caterpillar business.
Manish Goel: Okay that INR 40 to 50 Crores in the existing business do you
mean to say it would be in working capital?
Aloke Banerjee:In building up infrastructure facilities in terms of branches,
locations, having rental assets in the Caterpillar dealership business and things
like that.
Manish Goel: Okay, and also coming back to this new plant, we were expecting
that in FY12 in last call you have said you will do INR 158-160 Crore revenues
from the new plant and in FY13 we expect INR 700 Crores, so does that change
now with plan getting delayed?
Aloke Banerjee:In six months, it will be roughly about INR 100 to 110 Crores.
Manish Goel: Okay, but that would take away some sales from the existing
plant also?
Aloke Banerjee:No.
Manish Goel: This would be incremental sales?
Aloke Banerjee:Incremental sales.
Manish Goel: What about the FY13 Sir?
Aloke Banerjee:That we will try to stick with the original number, because that
is a full-year production.
Manish Goel: You have recently taken a board approval to raise INR 250
Crores, is this entirely through equity route or how you are looking to?
Aloke Banerjee:What we have done, as you know, our stare capital is only 10
Crores and if the business is growing, we need to go and borrow money also
from the bank. So we need to raise our share capital also, so we have taken a
omnibus resolution so that we will decide at the point of raising the fund,
whether we take it in terms of private equity or QIP because it will be a mixture
of everything, but yes we have plans of raising equity funds for the company, so
that when the business grows, this year if it is between INR 1400-1500 Crores
topline and next year if we are there between INR 1800-1900 Crores then you
know the borrowing for the company will also go up and same for share capital,
equity ratios and the total outside liability versus equity they often get affected,
so therefore that is also another reason for raising the share capital, but let me
also tell you we are in no urgent pressure for raising funds, but we have taken a
board resolution and we are also planning to take shareholders resolution and
thereafter we will plan the timing of the issue so that it is appropriate and it
meets our internal requirement also.
Manish Goel: But Sir you already have roughly INR 200 Crores of capex
planned for next year, which is like you would probably require money may be
in six months to eight months, and our market cap is between INR 500-600
Crores and if you are looking to this INR 250 Crores which would be roughly
50%, so basically not too sure that would we looking to raise so much money at
one stroke and that too entirely through equity, because again the debt
requirement will go up as you said because of increasing turnover.
Aloke Banerjee:You are right, I said it would be a combination, plus also let
me tell you that today during the course of the discussion I had mentioned that
all our inventory levels are very high, which we expect to liquidate. If we are
able to liquidate about INR 75 to 100 Crores of inventory, so INR 75 to 100
Crores of cash would again come back into the system and as on 31st of
December 2010 our long-term loan is only INR 22 Crores, so we have enough
resources of raising debt also, so it will be a mixture of debt and equity, you are
very right, but the timing part of it that when we are going to do it and what will
be the combination would depend also on the market that is where the share
price is and how it is looking forward, how has been our performance, what
would be the EPS, what is PE. There are various parameters that we have to
internally work out and then plan that this is how we are going to raise the
fund. Nothing is written in stone, but we have taken a resolution from the board
and we are going to take a resolution from the shareholders also so that we are
in readiness. In case we have to do a PE or QIP, then you know lot of other
backroom documents have to be prepared and lot of work is involved, so that
we are able to complete all these and keep in readiness, so the time will decide
and we can go ahead and do it.
Manish Goel: And last question on the inventory, what is the number because it
was INR 305 Crores in Q 2, so what is our inventory number?
Aloke Banerjee:As on 31st of December the inventory is INR 268 Crores for
TIL and TIPL.
Manish Goel: Thank you very much.
Moderator: Thank you. Ladies and gentleman that was the last question I
would now like to hand the floor over to Mr. Rahul Gajare for closing comments.
Rahul Gajare: I would like to thank the management for taking time out for
this concall and wish them well for the following quarters. Thank you.
Moderator: On behalf of the Edelweiss Securities that concludes this
conference call. Thank you for joining us. You may now disconnect your lines.
Thank you.
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