CRAFTSMAN

[Regulatory cover note] 17th October, 2022 To The Manager - Listing, The Manager - Listing, BSE Limited, National Stock Exchange of India Limited, Rotunda Building, Exchange Plaza, Phiroze Jeejeebhoy Towers, Bandra Kurla Complex, Dalal Street, Bandra (East), Mumbai - 400 001 Mumbai - 400 051 Scrip Code: 543276 Stock Code: CRAFTSMAN Dear Sir/Madam, Sub: Audio Recordings of the Earnings Conference Call on Unaudited Financial Results for the quarter and half year ended 30th September, 2022; Pursuant to Regulation 30 read with Part A of Schedule III and Regulation 46(2)(oa) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, we wish to inform you that the audio recordings of the Earnings Conference Call held on Monday, 17th October, 2022 at 04.00 P.M. on Unaudited Financial Results for the quarter and half year ended 30th September, 2022 is available at the Company website and the same can be accessed through the below link. https://www.craftsmanautomation.com/investors/wp-content/uploads/2022/10/Earningscall_17102022.mp3 We request you to kindly take the aforesaid information on record and disseminate the same on your respective websites. Thanking you. Yours faithfully, for CRAFTSMAN AUTOMATION LIMITED Shainshad Aduvanni Company Secretary & Compliance Officer Encl: As above Craftsman Automation Limited Registered Office: Senthel Towers, 4th Floor tel: + 91 422 71 650 00 1078, Avanashi Road fax: + 91 422 71 650 56 Coimbatore - 641 018 info@craftsmanautomation.com CIN NO: L28991TZ1986PLCO01816 Tamilnadu, India www.craftsmanautomation.com GST NO: 33AABCC2461K1ZW [Investor-call recording transcript] Ladies and gentlemen, good day and welcome to Q2 FY23 conference call of Craftsman Automation Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Ravi, Chairman and Managing Director from Craftsman Automation Limited. Thank you and over to you sir. Good afternoon ladies and gentlemen. Thank you very much for joining this earnings call. It gives me a lot of pleasure to address you again after one quarter. We have had a reasonable performance in Q2 in spite of the large headwinds we had regarding the war as well as the looming recession in Europe and US. We have as a company performed reasonably well because of our broad based strategy and a good product mix and a reasonable execution. I'll just run you through the headlines and the highlights of this quarter and leave more time for the Q&A. We have clocked the sales of 1447 crore vis-à-vis 1000 crore on H1 last year, PBT of 180 crore comparable which is 62% higher than last year H1, PAT of 116 crore which is 61% higher, EBIT of 337 crore which is 34% higher than H1 of last year. I will just run you through the financial ratios. Debt equity has improved to 0.58, debt to EBITDA is 1.08, EBITDA margins slightly reduced from 24 to 23, EBITDA has increased from 15 to 16, PBT has improved from 11 to 12. I am comparing with the last financial year. PAT has improved from 7 to 8% now, current ratio is 1.16, return of capital employed pre-tax annualized for H1 is 24%, for last year it was 20%, ROE annualized is 20% for last year it was 15%. So I will also give the headline numbers for the segment wise revenue. Auto power train vis-à-vis 524 crore over H1 last year, aluminium products 368 over 242 last year plus H1, industrial engineering 353 comparable H1 for last year was 234. The EBIT margins have shown some fluctuations but I will explain that later. Auto power train EBIT has been 188, comparable H1 was 148 last year, aluminium products 35 crore EBIT comparable 19 crore last year, industrial engineering 35 crore H1 last year was 6 crore. So overall our EBIT is 229 for H1, comparable to H1 of last year was 151. With this I will leave the floor open to questions and answers. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Joseph George from IIFL. Please go ahead. Thank you. Can you hear me clearly? Yes. So you mentioned in your opening remarks about the fluctuations in the EBIT margin. If you can spend a couple of minutes explaining the fall in EBIT margin in both the power train and the aluminium segment, that is the first question. And the second question is your guidance of capex for the full year, because if I recall correctly in the 4 queue call of last year and the 1 queue call of this year, you had indicated a number of about 225 or so. Whereas in the first half itself, I think the companies blocked the capex of about 170, 180. So what is the renewed guidance for the full year? These are the two questions. Thank you. Thank you, Joseph. Regarding the EBIT margins, on the auto power train we have grown, but there was slightly disproportionate growth on the material business and the other machining charges business. So I think there is a small margin drop, which is optical. In the aluminium business, on Q2 we had a sequential month-on-month drop in the raw material prices. And normally we carry an inventory of 8 to 10 weeks, 12 weeks with raw material or in-process goods all put together. So we had to take a hit on the raw material a little. And so that increased the cost and that depressed the EBIT margins. But overall, I think the absorption has been very good on the industry engineering business, plus also the steel prices being more stable. The bulk of the revenue growth has also come from the storage solutions. So we have seen a margin expansion on the industry engineering. So it has been a mixed bag. Overall, as a company, I think we are in line with the margins, whatever we had in the previous quarters. Coming to the capex, last year we grew by 40% and now the growth also, it is almost more than 40%. So we had to do some little capacity balancing capex. And we have guided, yes, 225 crore, 20 crore in the region for the capex. We have already done 150 crore. In April of this year, we received quite a sizable order for aluminium in the business, which we didn't expect to be done in this particular financial year. But customer needs the production to start in this financial year itself at the end of Q4. So we had an additional capex of 70 crore, which is underway. So we are trying to control the capex in spite of the unplanned capex of 75 crore to 275 crore. So we will be around 275 crore this year. I think this capex will be vindicated by the situation that we had two years, 40% this year growth, year on year. And we will leave some headroom for further growth if it happens in Q4. Understood, sir. Thank you. Just one follow-up. So for this year, if you are building 275, should we look at lower capex next year? No, as it is, the plan is around the same level only, provided we have guided the market for 20% CAGR. So in spite of the 40% what we are flocking now, we are hoping to clock 20% next year totally. But the base has become absolutely high because we will be very close to around 2900 crore this year. And then we are looking at more than 20% growth. Then we need to understand that there will be some capex. But if we grow at 20%, we will be still containing the capex in the region of 250 crores. And I want to also remind that our depreciation is hovering around 210 to 220 crore this region. And the net block will not be increasing or the capital employed also will not be increasing. Even the working capital we have, despite of the top-line growth, we are able to manage the working capital situation. So overall debt also is... Understood, sir. Thank you. Thank you. We have our next question from the line of Abhishek Jain from Dollars Capital. Please go ahead. Thanks for the opportunity, sir. Sir, can you give value addition figure of each segment in Q2? Yes, I will give it. For Q2 of this year, value addition for auto power train is 232 crore, aluminum product 68, industrial engineering is 76. Sir, in power train business, more customers are now asking to buy material this size. So pure machining or value addition will go down in the coming quarter. So this will impact your margin going ahead? No, this will not impact margin going ahead. There are products which are casting intensive, there are certain products which are machining intensive. Cylinder blocks fully finished are machining intensive. So there I don't think there is any change there, but the tractor segment where the structural parts, the casting to machining prices are totally very much skewed. So there it may change there. But overall I think our value addition as a segment of the business has increased quarter on quarter also. But it is not equal, so that's what I wanted to mention. Sir, first half tractor production was strong and going ahead it will be muted in the second half. So how do you see the impact on the power train business margin? Will it be continued in the lower side? It is already muted in Q2 because we are impacted a little earlier than the numbers which is actually sold in retail or by the VMs. So even in Q2 itself we are highly impacted on the tractor. I don't see that number dropping very much in Q3. It is already at a very low level in Q2. There are couple of questions from the aluminium casting side sir. In aluminium business now margin has gone down to quite a strong growth in the top line. As you mentioned that this is because of the old inventory. So going ahead what sort of the margin do you see and what would be the growth drivers for the margin? I would clarify that inventory, inventory is not old inventory. For any company to work we need 8 weeks to 10 weeks inventory because of the different product segments and two different locations for manufacturing. Plus also WAP is there, some finished goods for customers will be there. So we are around between around 8 weeks, it may be plus minus depending on the particular quarter inventory is there. So the pricing now mechanism is more straightforward where it is fair to customer as far as supplier. It is moving very smoothly. So it is not a delayed impact that when the price goes down we get a benefit in the current quarter because we are billing at higher rate and next quarter it will be down. No, no it's not like that. It is happening more in the live situation. So we have reduced the selling price to our customer in line with the market price drop in aluminium which has dropped by around 10% approximately in the retail. We look at the LME prices or I mean the product prices, input from around 10% drop by 10%. So that impact has slowly affected us on the cost a little. So it looks a little particularly that we are not performed but I think as a company, as a division it is going in the same line as you want. So now in aluminium casting business 80% revenue comes from the two wheeler only which is only casting products not a machine. As you will move into the more passenger vehicle and CVs your margin will see start expansion. So just wanted to understand what is the current mix and how do you see the mix ahead in aluminium products. I wish to clarify 95% of our castings we machine it. Whether it is two wheeler, four wheeler, commercial vehicle or industrial aluminium more than 95% is machined. And the product segment, today the two wheeler business as a segment has come down totally. Two wheeler is approximately in the aluminium business is 68%, passenger vehicles is around 2%, commercial vehicle is around 9% and non-water aluminium products is around 15%. Despite the improvement in the mix for the passenger vehicles, CVs and non-automotive parts your margin has not expanded. And going ahead you are also looking for the good orders from the export side especially for the battery motor housing and all these things. So what would be the margin visibility going ahead and the top line growth? The margin, the aluminium price we had to take an impact of 10% because this is a steep drop of aluminium prices which if you look at the trend it is quarter on quarter there is a drop of 10%. Because of we had to take that brunt the margin looks depressed actually the margins have been in line with Q1, the operational margins at least. Thank you that's all from my side. Thank you. We have our next question from the line of Jinesh Gandhi from Motilal Oswal financial services, please go ahead. Hi sir, continuing on the aluminium business margins. So what you are indicating is that we had to give the 10% price reduction because of the change in the aluminium pricing in LIMI. However we did not get the benefit in our actual sourcing is that the reason why margins are impacted? See the 10% is not on one single drop it is month on month drop. So overall I think we have been impacted around 5% because of the pipeline inventory what we had. So the 5% is on the raw material means is around 4% on the top line. Okay, so it's mainly the difference between the timing difference between what when you realize the benefit versus when you have passed on the benefit to customers because of such margins. Around 3 to 4% it has impacted on the top line. Got it, got it. And secondly can you share the bandwidth data for UPS by 22 as well across three segments? Can you come again you asked for the value addition for Q2 or H2, H1 I didn't understand. Q2, F5 22 same quarter last year. Q2, F5 22, okay. Value addition on Q2, F5 22 was on auto power train was 88 crore. Aluminium products was 79 sorry 80 and industrial engineering was 94. And this 94 crore is including I mean after excluding aluminum industrial segment, right? No, it is reclassified already. So you want Apple to Apple Q2 to Q2, F5 22 to Q2, F5 23 I have read the numbers in sequence. Q2, F5 22 auto power train was 88 and Q2, F5 23 was 146. Aluminium products Q2, F5 22 was 80 crore. Q2, F5 23 was 128 sorry sorry sorry I am reading the wrong and reading the cost I will read the value addition. Q2 on the value addition portion for auto power train has been 203 crore. And Q2 for this year is 232. Aluminium products was 61 crore last year. This year Q2 has been 68 crore. This year it is. And would you be having storage solution revenues for this year and last year? Yes, we have the Q quarter on quarter or you would like to have H1 over H1? Q2, F5 22 or Q2, F5 22? Q2, F5 22 I will not have it. Q2 sir? H1 and last year and H2 this year. F5 22 as a whole was 253. F5 23 was 88. And Q2, F5 23 was 111. And if you compare H1 and H2, H1, F5 22 was 134. And this year H1, F5 23 has been 199. 199, okay got it. And are we seeing increasing failures of automated storage in this number or that is yet to see a material ramp up? No, sorry I think the line is not so clear or I think it is echoing I am not sure. I am not able to hear you. Sorry, just a second. So are we seeing increasing salience of automated storage in this number? Automotive storage, no. It is general storage solutions across all segments, induced segments without automotive storage. Automotive storage is a negligible percentage. Right, right, right. And lastly, would you comment on any new order wins in current quarter and till October have we seen any major new order wins in either powertrain or aluminium side? So we are getting a continuous inflow of new customers and new orders. At the same time there is some attrition which is happening at the other end, the older products are going out. So overall net net I think we are having traction for growth. The timeline for each of these projects are different and it is linked to certain, sometimes it is emissions, sometimes it is new model launch, it is also related to strategy. So I don't want to talk about customers. Now we have taken for the company when we are looking at 20% growth next year, we are more looking at a strategy that what is really still going to come. We have to, cannot add up all the numbers of the customer projections and project it to our investors that will be giving a wrong picture. I think there will be some failures from customer side or there may be some delay in projects. So overall I think the traction is good enough for 20% growth. Okay, okay. And this, the aluminium order which we got in April 22 for which we are putting up this KPEX, how big would be the annual revenues from this order? We can expect for FY24 a 150 crore revenue. FY23 will be transition period. Fair point. 150 crore on a full year period. No sir, FY25 150 crore, FY24 will be ramp up period. Okay, thanks all the best. I will come back in few. Thank you. Reminder to participants to press star and 1 to ask a question. We have our next question from the line of TS Vijay Sarathy from Anand Raji. Please go ahead. Thank you, thank you sir. So just want to understand, so you said it's because of width metals the margin sequentially has fallen. We just want to understand what kind of product that we actually for source material and make it raw and then sell it out. Or is it within the cylinder block and cylinder head that there is some customer specification, some clarity on that. Because this we have experienced both in first quarter as well as second quarter, both in a YO basis and sequentially basis. This is related to only aluminium product. Aluminium is the basic raw material we have to buy. So there the price have dropped. So that is impacted all the aluminium products. I am talking about the power train division where there has been more less of machining and more of width metal. Just wanted to understand is there any different product category apart from cylinder and cylinder block that is. No, we have lot of parts. We have transmission parts, gearbox parts. We have other also structural parts are also there, everything. And also what you need to take into account is the commodity prices have gone up. So that itself will fluctuate in depressed T numbers, EBITDA numbers. Only the top line will go up. Okay, so this we have witnessed both in Q1 and Q2 on a YOY basis. Does this situation continue even going forward? Yeah, it will continue because commodity prices settle at a higher level now. And with respect to aluminium business, so this 125 crore that you said in FY25, this is over and above the peak revenue of 650 crores that you would reach based on your existing capacity. Am I right sir or this is included in it? Already the run rate on the aluminium products as a whole, we have clocked 196 crore revenue in the last quarter. So we are already at a run rate of around 800 crore. We have our next question from the line of Sandeep Agarwal from Melody Investment. So what is our net debt and the cost of borrowing? What is our plan to reduce it? The cost of borrowing is I think very very competitively we are borrowing thanks to our lenders, bankers and also financial institutions. Whatever we call we look at as financial cost is also the other as per India's standards, the lease rentals what we are paying is classified as depreciation and financial cost as per accounting standards. That is why the financial cost looks high. I would say 70% is actual financial cost, 30% is related to interest and depreciation classified in India. And the borrowings, look at it sequentially quarter on quarter the borrowings is same. So I want to say that if you share any presentation, so it will be more beneficial for us to understand coming pattern. I think the borrowings are quite straight forward. I think there is a term borrowing and there is a short term borrowing. Overall I think it is sometimes changing a little, but overall it is at around 720 crores now. Thank you. We have our next question from the line of Dawal Shah from Girik Capital. Please go ahead. Hello, great set of numbers. A couple of questions from my side. Firstly, if you can spend some time on these high-end sufficient products, what sort of traction are you seeing? A lot goes to the capital goods industry. So what traction do you see there? That is our first question. The traction is not picked up to the extent what we expected because of the current headwinds in the global economy. We would have seen it going better. But overall the current set of customers, current set of products, everything is doing well. We are adding more product portfolio there also. There will be some time delay between that. The gestation period will be there before we can scale up. So overall we are seeing good traction in the industrial engineering segment. Overall, inclusive of the Christian sub-assemblies and products in the contract management. So here, almost everything, are we exporting in this? Mostly we are exporting, yes. Okay. And if you could tell which would be your top three or top five products, what is the break-up of this 19-year-old quarterly revenue, it will help us better understand the number. The export, I think, per quarter is we are clocking around 40-50 crores, something like this. 40 crores on the industrial engineering segment, right? Okay. So 40 out of 90 exports. Yes. What is the product in that 40 crores? We are exporting major to North America, to Europe and to also Japan. Each of the customers are different. End usage is different. Somebody is in wall manufacturing, some are in gearbox manufacturing. One is in oil and gas, the other is in printing. The other is cartoon box manufacturing. So it is quite a diversified end requirement. As a contract manufacturer, we are making products to their design, and also we are making fully finished machines also, tested here and we ship it to the end customer. So it is too diverse. Okay. The level of the engineering and the details which we go into, you know, between our strengths, is that the same or is it a little low-end work in this business? No, the entry barrier is extremely high, and there we are not having any competition here from the Indian market. And our diverse engineering capability, design capability, and our manufacturing infrastructure, is required to do this sort of high-end assembly, so we need to have the know-how also. So when we are making this equipment and shipping across the world, we don't have much competitors anywhere in the world. Okay, okay. What visibility would you have, say, for our next, you know, 25, 23, half and 24? What should be the size of the business? This business has been steady. It has not been growing exponentially. You could have seen from our export revenue overall. We have not been adding customers aggressively there, but now I think there are some chances of adding customers now. But there will be a time gap between product development and to actual revenue. So we may see a gap of one year. Okay. To answer my question on the aluminium side, so we had this order from Peugeot Motors. So has this started this year and then ramped up in 24, 25? So how is that going? It is, product development is going on time. Infrastructure is getting set up. We'll be giving samples in Q4. The customer requires four, five months for testing the product. I think production will start by Q3, if not in Q2 of next financial year. And we will get, I think, 30, 40% of the revenues we should be able to clock in the next financial year, subject to approval. Because you are supposed to do some 50, 60 crore revenue in the FY23 out of this order. So that's the idea. Okay. FY23, we were thinking that they will not go through the full product testing cycle. But I think the customer is cautious. Even though the product has been tested, when it's coming from a different source, they want to go through that. So they are asking for four to five months testing period. So we cannot actually really do. We are ready. We will be ready. Thank you, Paul. Great. So now, lastly, the entire, you know, the demand destruction... Mr. Shah, we are not clearly audible. Yeah, okay. So the last question is that the demand destruction which we expect, you know, in the order, so are we experiencing anything right now? You know, so you mentioned in your high precision, there is not that, you know, the momentum of order is not very high. But in the revenue component and the power train, do you see impact of, you know, this problem in the order? I'm sorry. Maybe not sent the right message. When some of these segments are growing in each one at 40%, I have to... In the relative terms, the export order is not growing at that level. That's what I meant on the momentum side, totally. So it is... The storage business is carrying one bulk of the momentum in the industrial engineering business is what I wanted to mention. But we are growing. Even on the export side, we are growing. Okay, thank you. Thank you. We have our next question from the line of Mukesh Sara from Spark Capital. Please go ahead. Yes sir, good evening and thank you for the opportunity. Firstly, sir, on the power train segment, can you just remind us of the revenue mix there, sir? How it will be probably this quarter or the first half between CVs, tractors, construction equipment, et cetera? Yes. I will talk for each one. That may be better. We will give a better number instead of having that. 3.85 crore for commercial vehicle. Okay. All five is 150. Farm sector 125. And passenger vehicle is... Right, right. Thank you for that. And secondly, the power costs in Tamil Nadu have gone up. So given that we are basically power intensive, how is that expected to impact us or how much has it already impacted this quarter because we do have... Maybe we can read out the power cost as a company. I will not be able to keep it for Tamil Nadu. No, yeah, at the company. 50% of the power we consume is in... More than 60% is in Tamil Nadu, you are right. 40% is... We will read the numbers, please. You can ask the next question. Even if the number is not really available, I just want to understand the impact of this heightened power tariff in Tamil Nadu. So is there an impact or are we having, say, mitigation efforts such as sourcing wire, renewables, et cetera? So anything like that. Sourcing wire and renewable, we are weighing the options, yes. We are thinking whether to go for capital or whether to go for third party because the wheeling charges and other cross-subsidy, everything all put together, I think it is becoming un-economical and governments are changing policies regarding cross-subsidy. So it might not be viable for us to take a long-term contract with any of the service providers and getting into these third party power purchase agreements for the future might not be viable because carbon credit, we will not get it. It might be getting valuable also in the future. So power and fuel, when compared to the whole of last financial year where we were, as a company level, we were at 112 crore. We are at 70 crore for this first half of this year. So I think efficiencies of scale, I think pro reta, we are still keeping almost the same percentage if you look at it. Got it. And just lastly, sir, in the past, you have mentioned about the EV segment within two-wheelers for the aluminum business that we have. You had mentioned about kind of looking at that and probably looking to enter that segment. So how are we placed there given that a lot of the OEMs are expanding capacities, such as EVs, for example. So how are we looking at the aluminum business for EV two-wheelers? Early this year, we got orders from new start-up EVs. We got orders. Yes, some are under development, some are already in trial production now. But overall, the numbers are a little not very appealing for financial results. So it's a long way for a minimum economic scale of this business to be fruitful as a company. So whatever revenue we have seen, this 190-odd crore in Q2 on aluminum business doesn't carry any EV portion of it. So we have factored in EV sales only next year, even though we are going to start from Q3 onwards. Okay, okay, okay. So we are not aggressively looking to expand into that segment because we have made that in the past as well as to how volumes might not scale up. I would say that we are aggressive to take critical parts. We don't want to take simple parts on commodity pricing. And plus, at automotive pricing, we need automotive numbers, volumes. And if the volumes are getting split up with 10 to 20 players, and at the same automotive price, we stand to lose. So we have to pick out the winners, we have to pick out the volumes, we have to get the pricing also right, which may be much higher than the, which we need to be, it needs to be higher because of the lower volumes. So there is a challenge there. So we don't want to get a big development cycle. We are developing a lot of EV parts, but all parts put together, it doesn't, it may change the top line too much. So we are very careful about how much focus we are giving towards the current state. Models also are evolving because these models have been designed in a way in the beginning and now when it comes to cost, many models are getting redesigned or cost effectiveness by the startups. I think as the mature companies will do very good design to start with itself, you can see the cautious approach, which I really appreciate. And I think that the market will mature in the coming years. Right, right. Thank you for the opportunity. Thank you. We have our next question from the line of Yash Agarwal from IIFL Securities. Please go ahead. Sir, hopefully congratulations on a great set of numbers. Just a couple of questions. For FY23, we are in a tax rate of 35% on account of the matriculation. So from the next financial year, I assume that we fall back into the 25-26% bracket. Am I correct on that? You are correct. Absolutely correct. Still we are having some matriculation even post Q2. But in Q3, we may change our situation or we may take a change in Q4 to write off the matriculation, which will have no impact on the P&L, but we may go to a new tax structure. So we are weighing the cash outflow versus the total benefit what we have. Today all pointers are that we are likely to move to the new tax structure in the current financial years. Okay, got it. Secondly, on your guidance of 20% revenue growth in FY24, is it on a value-added basis or a reported revenue basis? Yes, I would always say 20% on a value-added basis because the top line can be different with the product mix what we have and the commodity prices. I have been always advocating the value-added portion. Fair enough. That's it. Thank you. Thank you. We have our next question from the line of Chetan Gindoria from Alpha Accurate. Please go ahead. Hello, sir. Congratulations for a great set of numbers. With respect to the aluminium segment, while the aluminium price was going up consistently during the last one and a half years, we were impacted in terms of taking hit on the margins. But now that the aluminium price is coming down, we had assumed that we would be benefiting at least for some period in terms of margin expansion because there is generally a lag in passing on to the customer. But we are seeing exactly the opposite. So we have been impacted both on the rising commodity and the falling commodity also. Can you explain a bit on this? Thanks for this question. I think this needs to be explained thoroughly before I clarify this. Last year, last financial year I would say, it was with some of the customers on a trailing quarter. The trailing quarter aluminium prices were applied on the next quarter. So when the prices were continuously increasing, we were getting a lower selling price compared to what we are buying. So we managed to and also the customers and the entire market changed to a real-time pricing. That is the average of the current quarter or the monthly correction on pricing. Both are the same, fundamentally both are the same. So that is the real-time situation where we do not have big changes for a long time. Suppose the prices have gone down in this quarter, whatever inventory we are carrying only is having an effect. It is not having a residual effect going into the next quarter totally. But this average is a big problem totally overall. So I think the aluminium prices are at a level which it was I think three years ago or two and a half years ago. I think now if it is going to increase, we may get some little benefit in one quarter, maybe a very partial benefit, which will again like this, we may have some positive operation than a negative operation. But last time it was to add a number to it, from 180 rupees a kilo, the alloy price went up all the way to 285 rupees within a year's time. So that is where we face the music. Got it. Secondly, with respect to aluminium segments, so now that two-wheeler contribution in the mix is declined to 68% and non-auto is increasing to 15%, so what would be the difference in margin that we earn on two-wheeler versus the non-two-wheeler side? It is when mixed it back, it will be different from product to product and there are a lot of synergies there between, there are the gravity parts, low-pressure diecast parts in all the three segments in the industrial aluminium business, in the passenger vehicle, commercial vehicle, as well as in the two-wheeler business. So we have a common overheads and we are managing, but the calculation-wise it is showing the same. Predominantly the high-pressure die-casting is being used for a two-wheeler and very little of gravity and low-pressure die-casting, but the margins are more or less the same. And lastly the 70 crore capex that we are planning to commission for the new order on the aluminium side, so can you share some light on what is the nature of the customer or the segment, is it a two-wheeler or an export order domestic, any kind of details if you can say? No, sorry I cannot share that, but because we had done some capex in the previous years, the additional capex what we are doing is only 70 crore. We are not saying 70 crore is the capex. In building we have diverted many things from various other projects and we have done it, apart from the new capex whatever we have planned. So I would not like to share competitive information in a general platform. Sorry, I have to abstain myself here. No problem. Thank you, thank you so much. I will wish you all the best. Thank you. We have our next question from the line of Pranay Rup Chatterjee from BCMPL. Please go ahead. Hi, good evening everyone. Am I audible? Yes. Firstly, I just go segment wise, I have one question for each segment. In powertrain, it was not entirely clear in the first part the reason for a Q on Q drop in margins. So one reason could be that, let me correct me if I am wrong, that the tractors have actually gone down in the mix versus others and the tractor is supposed to be high in machining. So that could be one of the reasons. But you actually mentioned couple of other reasons. Some charges and you mentioned commodity prices are at a higher level. So given commodity prices have decreased Q on Q, steel especially and aluminium, how would you break down this Q on Q drop in powertrain and should we expect it to come back to normal in the next one or two quarters? There has not been any dramatic change in Q1 and Q2. The value addition has been 223 going up to 232. Practically it is only 9 crore has been the increase total value addition in the auto powertrain. There has been of course inflation all over, whether it is salary, whether it is power or whatever it may be. The segment of the business capacity which is available, the capacity utilization was low because the farm sector went down. Some of the plants were suboptimal utilization. So it had impacted a little. But overall I think the EBIT margins we had maintained I think from not any significant drop compared to inflation, which is three months apart, where we had implemented also the salary increases. Next is trying to understand something in the aluminium segment. So how I track this is basically I see how much the aluminium price, the average aluminium price has moved Q on Q. Then I see your overall revenue Q on Q. And then I see your value addition Q on Q. And usually it is additive in nature. But what I see this quarter is that aluminium price is LME. Average prices have actually gone down by about... We were billing at a lower price because the price dropped. We are billing at a lower price to the customer. That is the reason for the depression and value addition in aluminium. No, no, no. So that is not my question. My question is that the overall revenue has gone up by double digit percentage despite the value addition and aluminium prices Q on Q dropping. So this would imply that the non-valuated portion products have increased in the mix. Is that a correct understanding? Non-valuated products means what do you mean by non-valuated products? Aluminium price quarter on quarter has dropped. So part of your portfolio is where you directly pass on the aluminium price. So that portion the top line should have dropped. Then the other portion is the value added portion which is also Q on Q there is a slight drop. From 71 CR last quarter to 68 CR in this quarter. So but overall on the revenue we see that there is a double digit growth quarter on quarter. I am just trying to tie how it is working out. The revenue quarter on quarter is grown by 10% right totally. It should have grown by 20% if the aluminium prices had been stable. That is the explanation. You mentioned that inventory hit was the reason. That is well understood. My question is if the inventory hit had not happened, whether the aluminium price would have been seen, given the product with this quarter, would the margins still have come at around 11-12% and should we expect it to go back to 11-12% in the next few quarters or would there still be a pressure on margins because of prices? Thanks for the question. Now on the aluminium products as I mentioned, their top line revenue has moved from 171 to 196. If the aluminium prices had not dropped, this 196 would have been approximately 205. The 205 would have resulted in another 10 crore increase in value addition. Instead of 68 crore, it would have been 78 crore. So that entire say around 10 crore would have flowed through to the EBITDA level and that means the margin would have been normalized. Basically the Stellantis order, again it was not entirely clear at my end, did you mention that the order around 40-50% would be booked in FY24 instead of the entire revenue being booked as was previously stated? Here I have to take a little back step. Now I stopped talking about customers and names. So because these customer numbers do not add up, you could see that without Stellantis anything being here, we are talking 200 crore on the business quarter and we are continuing to grow. I think putting a customer projection here, their project delays or their product strategies or whatever is happening in Europe is impacting us. So we will take it as it comes. So now production is supposed to start next year, yes, but how much is starting? How much will be the sale? I will not like to put a number to it now, but we can commit as a company that our aluminium business will grow by 20% next year compared to this year. And if I could slip in one more on revenue for FY23, would you expect the second half to be materially stronger than the first half? Here it is for FY23 or FY24? The quarter three is always a challenge for inventory correction for customers, end of the year multinational companies within the country closing down their plants for two weeks, plus also the automotive December production keeping it low for year of manufacture reasons, all that and the post-specialization inventory correction. So all put together we always see a challenge on Q3. It is difficult to even replicate the current Q2 and Q3, but compared to last year Q3 I think will be far far better off in this Q3. Yes, Q4 if there is no further big new headwinds coming in the way of international issues, geopolitical issues, also we are still facing a huge inflation of not only for the industries but for the common man. If this continues for more time we may see some depressed retail off-take. There may be some challenges, but even factoring that in I think Q4 will be a good number because of our diverse portfolio. If one cylinder is not kicking in, not doing well, I think we will do better on something else. So we are still very confident about Q4, not about Q3. Thank you. We have our next question from the line of Jitendra Khatri from Tata Mutual Fund. Please go ahead. Jitendra Khatri, I am sorry your line is not clear. Yes, thank you. Am I audible? There is lot of disturbance here. Okay, just a second. Is it okay now? Yes, please go ahead. Yes, thank you sir. My question was how much of light weighting does an aluminum division provide in automotive? Would there be a range which you can provide like 15 to 20% or what is the range of light weighting? Light weighting still it is not very effectively happening in India. So we are yet to see any significant change there. Okay, so is it that the aluminum division, the product that it is making, is it that structurally it has always been made in aluminum or is it that the industry is shifting to aluminum like the housing and all those things which we make in aluminum for automotive? Currently what we are doing is traditionally has been in aluminum always. So we are not seeing the benefit of the industry moving to aluminum so far which has to happen in the future but still it has not happened. Okay, any reason that it has traditionally been in aluminum? It was more suitable for aluminum from the very beginning either it is the cost performance or it is the strength and durability requirement and it is the near net shape requirement of the casting which is done on high pressure casting. So there was a big advantage of doing it in aluminum which continues but for the reason for light weighting with the new aluminum prices I think there can be a shift which may happen but at the earlier last year it was around 280 rupees a kilo. Now it has come to 180 so that range I mean approximately. So they may again look at it but also that requires fundamental model design change or new platforms to come in on the vehicles to accommodate these new standards. Yes, safety standards testing has to be done. So whenever a new platform comes only it is going to happen. Okay and sir would you have any international benchmark in the automotive aluminum division? Like some European player or someone you can anchor it? Competitor or the guy who has been there for a very long time. You are talking about the size of the aluminum business or you are talking about? No, I am talking about any competition in the auto aluminum division. Any major competitor or any major benchmark company which you might be following. We have three big companies in Japan but I would put the names to you. One is Ryobi, the next is Hiroshima die castors, third is RST. All of them are in the range of 1.3 to 1.5, 1.7 billion dollars top line only in the aluminum business. They are quite well integrated some are with machining and most of them are with the making the dies also. But in Europe you know very well Linamar of Canada, NEMAC of Mexico. They are quite a lot of companies in North America as well as in Europe. They are dominating the space including George Fischer I think has been acquired. Then we have Martin Hansel, we have Rheinmetall, we have Euro castings. There are players of more than 1 billion Euro, 1 billion Euro to around 3 billion Euro. There are around 7-8 players that are standalone in Europe or maybe owned by companies like Linamar of Canada or maybe NEMAC of Mexico. This is a well known fact. I am really using their names because they are market leaders. And Magna is also a very big name in North America. But all of them are more than a billion dollars that is very very clear. Maybe 2-3 billion dollars also. So the scale is very big. Yes. Thank you so much sir, very insightful. Thanks for your time. We have our next question from the line of Darshil Zaveri from Crown Capital. Please go ahead. Hi hello, good evening sir and thank you for taking my question. Sir I am bit new to the company so sorry if my questions are a bit basic. I just got a bit confused when you were referring to 20% growth on value added and not on reported terms. So could you just help me figure that out? 20% growth we are talking about the revenue that we just did about 1170 crores right? Or how does that factor in? We have been advocating in the past that top line minus cox is the value addition. And that is the real work the company does. Otherwise it is a commodity price fluctuation which is either inflating the top line or depressing the top line accordingly which is not an apple to apple comparison. When you look at year on year with this sort of large movements in the commodity prices which we have witnessed in the last 2-3 years. So our margin comes from the work we do and that is we call it the top line minus the cox. That is the value addition or some of the calculation, some of the way of noting that is the gross profit totally. So we say when we say growth we say normally that growth in gross profit or growth in value addition. So basically we are talking about growth. Okay thank you so much that helps you a lot. And other thing I just wanted to ask about our margin. We just said about aluminum and I have understood about that. So now that one 10% drop has come. So going forward we will have similar margin that we had in previous quarters right? If the operating leverage remains the same if the top line is getting depressed because of demand. Then our over its absorption will not be. Okay thank you that answers my question. Thank you so much. Thank you. Thank you. We have our next question from the line of Jyoti Singh from Arihan Capital Markets Limited. Please go ahead. Thank you for the opportunity. Sir I want to understand your view on the energy cost as is currently its cycle loss. So how we are seeing the impact on our company overall view on the energy side? We are not an energy intensive usage company as a whole. If you look at the top line for each one the power and fuel has been 70 crore on a top line of 1446 crore. Okay so we don't have any impact because of the increase energy cost in Europe? No there is impact globally because of the energy cost of the fuel which has increased. And also in India power cost also is increasing. As I mentioned that today on our top line its around 5%. So it may go up to 6%, 7% if there is a big growth. There is an impact. It is an impact for everybody. It is on public domain whatever is there. From state to state it varies on the power cost. But at least the diesel or the gas CNG or LPG gas also we use for melting. There has been it will be different from state to state. There has been increase all over. Okay thank you sir. As there are no further questions I would now like to hand the conference over to Mr. Srinivasan Ravi for closing comments. Over to you sir. Thank you everybody for the active participation and also the detailed questions which also helps us to do some thinking again. Whether we are on the right track. Yes we are confident about the company. And we have demonstrated that over the last six quarters we are a very versatile company. And we have withstood the different ups and downs in the industry which has happened and still managed to grow. We will keep that spirit up going forward and thank you for all your support. On behalf of Craftsman Automation Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines.