U.S. Markets closed
  • S&P Futures

    3,657.00
    +33.75 (+0.93%)
     
  • Dow Futures

    29,896.00
    +267.00 (+0.90%)
     
  • Nasdaq Futures

    12,387.25
    +110.25 (+0.90%)
     
  • Russell 2000 Futures

    1,843.30
    +23.20 (+1.27%)
     
  • Crude Oil

    44.97
    -0.37 (-0.82%)
     
  • Gold

    1,788.40
    +7.50 (+0.42%)
     
  • Silver

    22.97
    +0.37 (+1.65%)
     
  • EUR/USD

    1.1960
    +0.0026 (+0.2153%)
     
  • 10-Yr Bond

    0.8440
    +0.0020 (+0.24%)
     
  • Vix

    20.57
    -0.27 (-1.30%)
     
  • GBP/USD

    1.3357
    +0.0025 (+0.1883%)
     
  • USD/JPY

    104.4300
    +0.1060 (+0.1016%)
     
  • BTC-USD

    19,564.21
    +54.33 (+0.28%)
     
  • CMC Crypto 200

    384.12
    +19.53 (+5.36%)
     
  • FTSE 100

    6,266.19
    -101.39 (-1.59%)
     
  • Nikkei 225

    26,842.18
    +408.56 (+1.55%)
     

Edited Transcript of BLKI.NS earnings conference call or presentation 7-Nov-20 5:30am GMT

·54 min read

Q2 2021 Balkrishna Industries Ltd Earnings Call Thane Nov 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Balkrishna Industries Ltd earnings conference call or presentation Saturday, November 7, 2020 at 5:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Arvind Kumar Mahabirprasad Poddar Balkrishna Industries Limited - Chairman & MD * Madhusudan B. Bajaj Balkrishna Industries Limited - President of Commercial & CFO * Rajiv A. Poddar Balkrishna Industries Limited - Joint MD & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Abhishek Kumar Jain Dolat Capital Market Private Limited, Research Division - Analyst * Ankit Kanodia * Ashutosh Tiwari Equirus Securities Private Limited, Research Division - Research Analyst * Basudeb Banerjee AMBIT Capital Private Limited, Research Division - Research Analyst & VP * Bhaskar Bukrediwala * Joseph George IIFL Research - Assistant VP * Mayur Milak BOB Capital Markets Limited, Research Division - Research Analyst * Niket H. Shah Motilal Oswal Securities Limited, Research Division - Former Head of Midcaps Research * Nishant Vass ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst * Nishit Jalan Axis Capital Limited, Research Division - Executive Director of Auto * Ronak Sarda Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary * Shyam Sundar Sriram Sundaram Asset Management Company Ltd. - Research Analyst * Siddharth Vora * Siddhartha Bera Nomura Securities Co. Ltd., Research Division - Associate * Vimal Gohil Union Asset Management Company Private Limited - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, good day, and welcome to the Balkrishna Industries Q2 FY '21 Earning Conference Call hosted by Equirus Securities Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. (Operator Instructions) Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ashutosh Tiwari from Equirus Securities Limited. Thank you. And over to you, sir. -------------------------------------------------------------------------------- Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Thanks, Janice. Good morning, everyone. On behalf of Equirus Securities, I welcome you all on the conference call. From the management side, we have Mr. Rajiv Poddar, Joint Managing Director; Mr. Madhusudan Bajaj, President, Commercial, and CFO; and members of our executive team. Before handing over the conference call to management, I must congratulate them for an exemplary performance during the quarter. Over to you, Mr. Poddar, for opening comments. Thank you. -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [3] -------------------------------------------------------------------------------- Thank you, Ashutosh. Good morning, everyone. I welcome all of you to the Q2 FY '21 earnings call of Balkrishna Industries Limited. Hope all of you, along with your near and dear ones, are safe and healthy. Along with me, I have Mr. Arvind Poddar, the CMD; Mr. Bajaj, President, Commercial, and CFO; and SGA, our Investor Relations adviser team. Let me begin with the performance updates. The demand continues to be strong in agricultural segment across geographies. In other segments, demand continues to remain stable. Our diversified products portfolio, strong presence across the globe, multiple sourcing bases of raw materials and strong balance sheet with no long-term debt, makes our company resilient to face any challenges and maintain competitive edge in the global market. Our strong brand recall, coupled with wide range and superior quality, is helping us in the marketplace. Let me now update you on the thought process about our manufacturing capacity. Our current achievable capacity is 3 lakh, 5,000 metric tons per annum, which includes the 5,000 ton per annum of ultra-large All Steel radial mining tire. Due to the evolving demand scenario in the end markets, there is a significant change in the product groups. This has resulted in a redundancy in some [sizes] and product technology on a regular basis. Accordingly, we believe our achievable capacity will come down to around 280,000 metric ton per annum. However, this will not affect our growth prospects for the year, financial year '22 and financial year '23. Further, in order to address the growing demand of our products in the end markets, we are currently evaluating various options on the drawing board with respect to capacity additions and our plans revolve around as follow. Modernization, technology upgradation, automation and addition of certain balance sheet improvements. This would lead not only to capacity addition, but also increased productivity, quality and efficient levels. Additionally, we are exploring investments by the way of a brownfield CapEx at existing locations to create capacity further to help us grow in the years to come. All the above is in the evaluation stage, and we shall inform of the detailed contract in the month -- coming months. With this, I now move on to the performance highlights. Our sales volume for the quarter was 61,224 metric tons, a growth of 36% year-on-year. This is the highest ever quarterly sales for BKT. For half year financial year '21, the sales volume stood at 99,230 metric ton, a growth of 3% year-on-year. For half year financial year '21, 51% of the sales came from Europe, 23% came from India, 14% came from Americas, and the balance came from the rest of the world. In terms of channel contribution, 71% was contributed from replacement segment, while OEM contributed to 25%, with the balance coming from [offtake] segment. In terms of category, Agriculture segment contributed to 64%, while OTR contributed 33%, and the balance came from other segments. Our stand-alone revenue for the quarter stood at INR 1,551 crore, which includes realized loss of foreign exchange pertaining to the tune of INR 27 crores. For Half Year '21, Financial Year '21, the revenue stood at INR 2,493 crores, which includes the foreign exchange loss pertaining to sales of INR 14 crores. The stand-alone EBITDA for the quarter was at INR 527 crores, with a margin of 34%. While for first half of the year, Financial Year '21, the EBITDA stood at INR 779 crore, with a margin of 31.2%. Other income for the quarter stood at INR 28 crore, which includes unrealized gains of INR 10 crores and other income from investment of INR 18 crores. For first half of Financial Year '21, other income stood at INR 40 crore, which includes unrealized loss of INR 19 crore and other income from investment of INR 59 crore. Coming to the net ForEx item. For the quarter, we incurred a net ForEx loss of INR 4 crore, which includes realized loss of INR 14 crore and unrealized gain of INR 10 crore. For the first half of the Financial Year '21, we incurred a net ForEx gain of INR 11 crore, which includes realized gain of INR 8 crores and unrealized loss of INR 19 crores. Profit after tax stood for the quarter -- was recorded at INR 339 crores, with a margin of 21.9%, while for the first half of the Financial Year '21, it stood at INR 461 crore, with a margin of 18.5%. Our gross debt stood at INR 815 crore. Our cash and cash equivalents were INR 1,299 crores, implying a net cash position. The Board of Directors have declared a second interim dividend of INR 4 per equity share. This is in addition to INR 3 per equity share for the quarter 1 of the Financial Year '21. On the guidance front, with the volume of 99,230 metric ton achieved in the first half, we expect to cross financial year '20 sales volume in the financial year '21. This will be marginal, subject to no further deterioration due to COVID-19. With this, I conclude my opening remarks and leave the floor open for questions and answers. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question is from the line of Siddhartha Bera from Nomura. -------------------------------------------------------------------------------- Siddhartha Bera, Nomura Securities Co. Ltd., Research Division - Associate [2] -------------------------------------------------------------------------------- My first question is on the demand momentum. So I mean, given the trends, which have been really strong and given that seasonally fourth quarter is a much stronger quarter for us. So I mean, will it be fair to say that the current trends will continue [certainly] or there is some amount of [trends] which we normalize? So any thoughts on that? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [3] -------------------------------------------------------------------------------- So as we've been saying that we are expecting a marginal growth in the financial year 2020 -- 2021. This is because the COVID-19 wave is returning to Europe, which is our major market. And hence, we want to be a little conservative in our approach and guidance. -------------------------------------------------------------------------------- Siddhartha Bera, Nomura Securities Co. Ltd., Research Division - Associate [4] -------------------------------------------------------------------------------- Okay. Okay. And secondly, sir, on the CapEx side, some more color, if you can help us understand why it has been [limited to] for a reduction? Is it currently product mix because we could have then used that capacity for this remaining products? And otherwise, add some more color on the brownfield, the CapEx, how much is the quantum we are thinking about? From when will that start, given that now we will maybe touching close to 90% provision levels in next year only? So any -- if you can quantify this, it would be a great help. -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [5] -------------------------------------------------------------------------------- So as I said in my remarks, this is -- regarding the new CapEx and the brownfield, it is all in the drawing board stage. And give us some time, we will come back to you with more numbers and more clarity in the coming months once we have gone through the detailed process of evaluating [with Arvind]. And regarding the capacity, which is -- you asked that, can we throw some light on going down. The reason for that is because new certain technologies become -- they go and the new technology comes in. So we have the new technology, but the old technology has stopped being used. So that is why that is there. And also, there is some product mix. So what we could make in those -- on those machines, the capacity comes on because newer technology requires more time to make more. So you have a certain loss of capacity related to that, and hence, this reduction. -------------------------------------------------------------------------------- Siddhartha Bera, Nomura Securities Co. Ltd., Research Division - Associate [6] -------------------------------------------------------------------------------- Okay. But like for every 30,000 or 50,000 tons, how much will be the CapEx? Any color if you can give on that? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [7] -------------------------------------------------------------------------------- We will get back to you once we have more clarity on what we want -- how we are going to do it then. Give us a couple of months, we will come back to you. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- The next question is from the line of Nishit Jalan from Axis Capital. -------------------------------------------------------------------------------- Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [9] -------------------------------------------------------------------------------- Sir, my first question is on volume performance. If I look at the segmental performance, I think as Europe has done extremely well in the first half. And obviously, it has been largely driven by agri segment. But in Americas, I think we have some -- seen some decline in first half. So just wanted to get a sense, is the agri growth in Europe more industry based? Or we have seen a decent market share gain as well? You may not have exact data, but some color on that would be useful. Secondly, a related part is, in 1Q, our inventory levels had come down very, very sharply because of -- because we are not able to produce in India. Just wanted to understand how are the inventory levels with dealers in your key markets, both in Europe and in U.S. -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [10] -------------------------------------------------------------------------------- So firstly, I'll answer your question regarding the European segment. So it has been a mix of both segments where we have taken some market share from our competitors. And overall, the market has also seen strong demand, which has led to increased volume. And as you rightly said, that the inventories level had shot down quite significantly, which is now being slowly built up. So it is a combination of all 3 things which are coming up in Europe and resulting in these numbers. But overall, it is led by strong demand in Europe at the moment. -------------------------------------------------------------------------------- Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [11] -------------------------------------------------------------------------------- Just a follow-up. Now our inventory levels are at normalized level? Or do you think that we would require -- those are still below, and we would need to fill some channel inventory as well? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [12] -------------------------------------------------------------------------------- And we would need to fill some channel inventory as well because there has been a strong demand. So whatever we are shipping is also -- they are not able to fully use that for their inventory build up because it is going to the end user. So that needs to be built up. -------------------------------------------------------------------------------- Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [13] -------------------------------------------------------------------------------- Okay. Okay. Sir, my second and final question is on gross margin or basically the iron cost. We have seen some increase in natural rubber prices in the last few months. So just wanted to understand, given that the demand scenario is so strong, do you think that we will be able to take price increases and kind of negate that impact, and thereby maintain -- continue to maintain a healthy 32% to 34% kind of an EBITDA margin? What would be your thought on this front? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [14] -------------------------------------------------------------------------------- Yes. So as we've always maintained that our EBITDA margin guidance at a sustainable level would be between 28% and 30%. So that is what we continue to indicate on a long-term sustainable basis. As regards the price increase, we are looking at the same. And we are trying to see how much can we pass onto them. We are in discussions with our channel partners about the same. Regarding the raw material prices, Poddar Ji, if you would like to throw some light on that? -------------------------------------------------------------------------------- Arvind Kumar Mahabirprasad Poddar, Balkrishna Industries Limited - Chairman & MD [15] -------------------------------------------------------------------------------- So good morning, everyone. The prices are on increasing trend. And the rubber prices, which in the last quarter was INR 130 per kg, currently between 130 to 140 (inaudible) and if there is too much fluctuation in the prices. Some days, it goes $100 up and another day, it may come down $50. So yes, prices are increasing trend for the -- [most of the] rubber price. -------------------------------------------------------------------------------- Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [16] -------------------------------------------------------------------------------- Okay, sir. Sir, just one very quick housekeeping question. What are your (inaudible) mentioned in this quarter? And how are we hedged for the remaining part of FY '21 and in FY '22? -------------------------------------------------------------------------------- Arvind Kumar Mahabirprasad Poddar, Balkrishna Industries Limited - Chairman & MD [17] -------------------------------------------------------------------------------- Utilization for the quarter was 82.4 for second quarter. And for the first half year, it was 83.4. And for the next half year is around [INR 85]. -------------------------------------------------------------------------------- Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [18] -------------------------------------------------------------------------------- And for FY '22, sir, you would have done some hedge for FY '22 as well? -------------------------------------------------------------------------------- Arvind Kumar Mahabirprasad Poddar, Balkrishna Industries Limited - Chairman & MD [19] -------------------------------------------------------------------------------- No, no. First half. I am -- sorry, second half, I am talking about that up to March. Yes. -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [20] -------------------------------------------------------------------------------- For the FY '22, it's also around 85 level, but we are just evaluating -- I mean, we just started doing something over there, but it is at the same level of 85. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- The next question is from the line of Ronak Sarda from Systematix Shares. -------------------------------------------------------------------------------- Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [22] -------------------------------------------------------------------------------- Sir, just a couple of clarifications first. This euro (inaudible) for Q2, which you mentioned is 82.4. This is after the realized losses or the realized losses are over and above that? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [23] -------------------------------------------------------------------------------- This is after the realized losses. -------------------------------------------------------------------------------- Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [24] -------------------------------------------------------------------------------- Okay. So this includes you -- okay. Fine. And the second was, what was the production during the quarter? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [25] -------------------------------------------------------------------------------- Give me one second. The production during the quarter was 61,223 tons. -------------------------------------------------------------------------------- Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [26] -------------------------------------------------------------------------------- Okay. Sir, so again, the question on capacity, while we understand that some technology shift has led to this. But if it's a significant -- almost a 10 percentage loss in capacity. So would you be able to be able to point out which segment has -- like today, is it maybe because of regularization? Or -- because I think, I mean, the product mix has moved towards agri segment in the current year. So -- and has agri segment also seen a sharp regularization? What has led to this 10% cut? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [27] -------------------------------------------------------------------------------- So basically, it has been a slow process over the times with the time lag, and this is a product situation. So it's not just technology, but it is a product situation which has moved, the product mix has moved. So as we move -- when I say technology advancement, there is like bigger sizes that started coming in. Even if you look at the agri side, people are preferring bigger sizes because it does more work. So those are the results so tire -- which machine to build. If you have to build a smaller tire, you could build 2. And now if you have to build a bigger one, it takes 1.5. So that's the reason why this is from the (inaudible) we have technologies come in. That is what we are trying to indicate, that we want to be on the higher side of the technology. And the cut that we're indicating is between 6% to 7% and not 10%. -------------------------------------------------------------------------------- Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [28] -------------------------------------------------------------------------------- Okay. Sure. Sure. Right. And sir, second question was on the India volumes. I mean we have seen a tremendous success in the last 3 years here. So how is the situation now? I mean can you continue to grow in similar fashion in India? Or how is the market trending now in India? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [29] -------------------------------------------------------------------------------- Yes. So India market trend is strong. And we are gaining a good pace, having good market share also at a good pace in India, and we expect this to grow. And India will eventually be a good dominant market for us. So we are quite upbeat on this Indian space. And we are focusing there. So you can see the amount of advertisement, brand building, everything that we are doing. And recently, with the ongoing 2020 league, we have also participated with that with sponsoring and partnering with [6 teams,] getting a lot of visibility in the Indian market space. So that is the [entry that] we will focus on, the market [strategy] we will focus on. -------------------------------------------------------------------------------- Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [30] -------------------------------------------------------------------------------- Sure, sure. And the final question was on the other expenses. I mean, if I look at it, there's been a sharp -- I mean it has still lagged the overall top line growth. So is it the normalization is happening, will happen now given how the volumes have ramped up? Or this is the new -- this is a structural reduction in the cost base, and this should continue over the next half as well? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [31] -------------------------------------------------------------------------------- So basically, if you look at it, look at other expenses as a percentage of sales, and this has been stable at 21% level. So if you put that in, that will continue to be around that level. And of course, there are -- as we move on, there are -- every day, there is a cost efficiency drive. This is a part of -- routine part at BKT. So those things happen, but more or less, we will be stable at 21% level. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- The next question is from the line of Abhishek Jain from Dolat Capital. -------------------------------------------------------------------------------- Abhishek Kumar Jain, Dolat Capital Market Private Limited, Research Division - Analyst [33] -------------------------------------------------------------------------------- Sir, as the commodities prices bouncing back and infrastructure sector is also picking up, sir, what is your plan to leverage all this growth and expand your market share in OTR segment? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [34] -------------------------------------------------------------------------------- So in the OTR segment, our -- as we've been saying, we are seeing growth over the period of time. So what -- if you look at history, historically, in OTR segment, we were at about 20%. This is now -- this time is at roughly about 33%. So there has been a growth in our product mix also, which is resulting to this. And we are quite upbeat on this segment, and we are going to go -- our ultra-large radial tires have also been launched for technical purposes, now the 57-inch tires. So we are quite upbeat on this market, and we see this as a strong opportunity for us to grow. -------------------------------------------------------------------------------- Abhishek Kumar Jain, Dolat Capital Market Private Limited, Research Division - Analyst [35] -------------------------------------------------------------------------------- Okay. And sir, so how is the progress in the business in the newer geographies like Africa, South America, Australia, Russia and CIS, sir, please? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [36] -------------------------------------------------------------------------------- So these are -- some of the markets are challenging because of import restrictions, such as South America and Africa. But on the other hand, we have Asia and Australia where we are gaining a lot of -- we have a good market position and may already -- in Australia, where we've got a leadership position in the agri sector. And we look to get there in the industrial construction sector also. So we are quite upbeat on those. In the other markets, we are making some headway, but it is coming in slightly slow pace because of the local challenges of export duties and import restrictions. -------------------------------------------------------------------------------- Abhishek Kumar Jain, Dolat Capital Market Private Limited, Research Division - Analyst [37] -------------------------------------------------------------------------------- So what is the current volume contribution from Australia? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [38] -------------------------------------------------------------------------------- Sorry. What is that? -------------------------------------------------------------------------------- Abhishek Kumar Jain, Dolat Capital Market Private Limited, Research Division - Analyst [39] -------------------------------------------------------------------------------- What is your volume contribution from Australia right now? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [40] -------------------------------------------------------------------------------- I don't have the individual breakup because we club it as rest of the world. -------------------------------------------------------------------------------- Abhishek Kumar Jain, Dolat Capital Market Private Limited, Research Division - Analyst [41] -------------------------------------------------------------------------------- Okay. And sir, as of now, revenue contribution around South America is quite low. In the last quarter, we have seen agriculture export is ramping up well in South American markets. So how do you see potential of this region for Balkrishna Industries? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [42] -------------------------------------------------------------------------------- So yes, we -- as I said, that we are making headwinds in this market also. A little bit slow because we want to move cautiously in this market because of the exchange rate risk, et cetera, and also import duty restrictions, imports and import duty. So we are moving, but we are making headwinds on that. So we are also seeing some uptake on these markets. -------------------------------------------------------------------------------- Abhishek Kumar Jain, Dolat Capital Market Private Limited, Research Division - Analyst [43] -------------------------------------------------------------------------------- Sir, my last question is relative to the volume mix, export versus domestic in second quarter? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [44] -------------------------------------------------------------------------------- Sorry, your voice cracked there. -------------------------------------------------------------------------------- Abhishek Kumar Jain, Dolat Capital Market Private Limited, Research Division - Analyst [45] -------------------------------------------------------------------------------- Volume mix, export versus domestic in second quarter? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [46] -------------------------------------------------------------------------------- So basically, in the last quarter, roughly, about 23 -- roughly 24 -- 14%. No, sorry, 23% came from India and the rest of them came in the export market. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- (Operator Instructions) The next question is from the line of Siddharth Vora from Reliance Nippon Life Insurance. -------------------------------------------------------------------------------- Siddharth Vora, [48] -------------------------------------------------------------------------------- Yes. So we understand the reduction in capacity because of obsolescence of product and shift of sales mix, but this capacity can be revamped to the new sales mix within a kind of 1.5 years? Or it will require a new increased capacity or all over for this -- increase in capacity in the near term? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [49] -------------------------------------------------------------------------------- No. It will be a brownfield expansion that we are talking about. We are -- that's what we are evaluating right now. And once we have more details, if we yet see we need a greenfield, we will come back to the market space. -------------------------------------------------------------------------------- Siddharth Vora, [50] -------------------------------------------------------------------------------- Sure. Sir, your presentation this around, quite details out a lot of ad spend which you are doing for your branding and overall sales outlook. Is this already included in the numbers or sizable [upgrade] is expected to come in Q3 onwards? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [51] -------------------------------------------------------------------------------- No. So if you look at our average spend, we are spending an aggregate level of to the tune of roughly INR 200 crore. And that is already included in this. And these are already included, so it's not that it would be an extra spend which will not -- which will come up in the quarters ahead of us. They're already included. -------------------------------------------------------------------------------- Siddharth Vora, [52] -------------------------------------------------------------------------------- Sure. And sir, so for this broader guidance of 28% to 30% medium-term guidance for band and near-term [band] is 34% or 32%. Can we, because of the market conditions of higher [euro and realization] to near-term demand scenario -- so it is that the core process that over a medium term, these things keep going up and down, and you will achieve a 28% to 30% kind of a margin? Or when you go ahead, you will invest in the business to go back to that margin of 28%? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [53] -------------------------------------------------------------------------------- So I think what we are saying is that this is -- 34 is a one-off kind of a thing. But on a long-term sustainable basis, the EBITDA margin guidance will remain 28% to 30%. -------------------------------------------------------------------------------- Siddharth Vora, [54] -------------------------------------------------------------------------------- Sure. And sir, this import ban of tires in India has benefited the other tires as well. What happens to the agri space (inaudible) important for us on the category would stay in India? Is there an opportunity from this recent import ban? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [55] -------------------------------------------------------------------------------- So the import ban was mainly on commercial vehicles. So it does not impact us in that sense. -------------------------------------------------------------------------------- Operator [56] -------------------------------------------------------------------------------- The next question is from the line of Shyam Sriram from Sundaram Mutual Fund. -------------------------------------------------------------------------------- Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [57] -------------------------------------------------------------------------------- First question is on the -- between U.S., Europe and North America, how are the demand trends now panning out? And between agri, mining and OTR in the different geographies, if you can give some perspective and insight into the demand trend, sir. -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [58] -------------------------------------------------------------------------------- So on the agri side, across the globe, we have seen a good strong demand, which is visible. And on the -- OTR, mining side, it is stable. And we -- it looks to be stable across the geographies. -------------------------------------------------------------------------------- Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [59] -------------------------------------------------------------------------------- Okay. Okay. So the trends are -- on the OTR and mining side, is it more or less flattish compared to last year across geographies, [that is what you're saying?] -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [60] -------------------------------------------------------------------------------- Yes, yes. But agriculture seems to be strong. -------------------------------------------------------------------------------- Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [61] -------------------------------------------------------------------------------- Okay, okay. Understood, sir. And Europe specifically, sir, just an amendment to the prior question, but I -- because of the increasing restrictions, are we seeing any headwinds there in terms of the demand purchase? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [62] -------------------------------------------------------------------------------- The restrictions have just been imposed, and so it's too early to say what the impact will be. And hence, we are being really conservative in our guidance because we don't know what way the COVID-19 base will take -- how long it will be there, whether there will be more restrictions, less restrictions. We are also waiting and watching, but too early to say any kind of impact of that because of this time around, versus the first lockdown there was -- they had suspended all economic activity. This time around, economic activities are allowed to continue. So all our OEs are allowed to continue their manufacturing facilities. They have all sent us already e-mails that there will be no stoppage on -- requirement from them, so do not cut their tires out. Our -- all our distribution partners and their end users have already said that they are -- sorry, their shops and retail counters will be open. So those activities continue to be open even despite the lockdown. So we are yet going to see the full impact, but looks to be better than what it was there last time now than the lockdown. -------------------------------------------------------------------------------- Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [63] -------------------------------------------------------------------------------- Understood, sir. Sir, and on the capacity front, you did indicate some amount of brownfield CapEx we will do. So are there any new products or white spaces that we're trying to address there? If you can -- is it -- or is it primarily on the ultra-large size mining tires specifically? Any perspective that you can provide on which white spaces and in which categories that we are trying to address there? And one other question, sir, on the pricing trend in Europe, are there any early signs of Michelin taking the prices up, any the early signs that we are seeing there? -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [64] -------------------------------------------------------------------------------- So on the first question about the brownfield projects. So we are evaluating what is needed to be done and how much to be done, what is -- so it's too early to comment on that. There is no -- I mean we are yet on the drawing board. So it will be too immature to comment anything on that at this moment. Please wait for us to come back to you. Regarding the price increase, we are following in the marketplace what everybody is doing. We are talking to our distributors and dealers and partners to see what everybody is doing. And it is -- and if the trend continues, everybody will be looking at a product prices increase. -------------------------------------------------------------------------------- Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [65] -------------------------------------------------------------------------------- Okay. Okay. But as of now, we are not seeing any early signs of [replenishment] (inaudible) large sentiment (inaudible) -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [66] -------------------------------------------------------------------------------- Everybody is talking -- everybody is in the same boat. So they're also -- everybody is looking at it. But I think they are just waiting to see how much of this trend continues or what happens. Does it continue to grow? So what is the impact that needs to be passed? So I think it is a work in progress, and you will see it happening. -------------------------------------------------------------------------------- Operator [67] -------------------------------------------------------------------------------- The next question is from the line of Mayur Milak from BOB Capital. -------------------------------------------------------------------------------- Mayur Milak, BOB Capital Markets Limited, Research Division - Research Analyst [68] -------------------------------------------------------------------------------- So 2 questions here. One, do you see this volume increase? Can you really attribute most of this rise to the impact of Chinese tires in Europe as well, or like we've seen in India, or this is specifically something else also? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [69] -------------------------------------------------------------------------------- So I don't think there is any impact on Chinese tires in Europe, because there is no such ban or anything. So I think this is, overall, the demand is -- looks good and strong. -------------------------------------------------------------------------------- Mayur Milak, BOB Capital Markets Limited, Research Division - Research Analyst [70] -------------------------------------------------------------------------------- So the [sen], you increase your share of business, will this be more in the market in Europe? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [71] -------------------------------------------------------------------------------- Yes, yes. -------------------------------------------------------------------------------- Mayur Milak, BOB Capital Markets Limited, Research Division - Research Analyst [72] -------------------------------------------------------------------------------- All right. And one question on margins. Of course, 34%, you mentioned that the one-off in the range would be 20% to 30%. But looking at the kind of rise that has happened in last [year] it would still mean that with the kind of other operating benefits that you're looking at, especially lower other expenses, you would be well in excess of 30%. I mean we're talking of a 400 bps decline mainly because of gross margins. But do you see an increase in your staff expenses or other expenses other than what you reported in this quarter? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [73] -------------------------------------------------------------------------------- No. I don't think we see a major increase on that. But we've always maintained that on a sustainable basis, EBITDA would be 28%to 30%, which is a long-term range because in 1 quarter, you could have some cost benefit or some -- as you see the raw material like we don't see that the raw material trend is going up. So you will see the -- on a long-term basis, this is the EBITDA guidance that we are maintaining. -------------------------------------------------------------------------------- Operator [74] -------------------------------------------------------------------------------- The next question is from the line of Vimal Gohil from Union Mutual Fund. -------------------------------------------------------------------------------- Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [75] -------------------------------------------------------------------------------- Yes. Sir, I'm sorry, but I just missed out on the volume breakup for Agri OTR and others and volume and replacement part. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [76] -------------------------------------------------------------------------------- Yes. So I'm giving you half year numbers. Europe was 51%, India was 23%, 14% was Americas, and rest of the world was -- from the balanced part of it came the rest of the world. And regarding the channel contribution -- sir, you asked channel contribution or segment contribution? -------------------------------------------------------------------------------- Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [77] -------------------------------------------------------------------------------- Actually, (inaudible). -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [78] -------------------------------------------------------------------------------- Okay. So channel contribution was 71% was replacement and OE was 25%, balance was offtake. In terms of segment, it was -- agriculture was 64%, OTR was 33%, and the balance came from other segments. -------------------------------------------------------------------------------- Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [79] -------------------------------------------------------------------------------- Right. Sir, will the company have to take any impairment charges for this capacity that they are -- for this lower receivable capacity now? Do you foresee that? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [80] -------------------------------------------------------------------------------- No. -------------------------------------------------------------------------------- Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [81] -------------------------------------------------------------------------------- Okay, okay. So which means that this capacity still could be used for any -- I mean could be revamped and could be used for into any other product? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [82] -------------------------------------------------------------------------------- Yes, yes. Basically, the machines are yet able to do the job. It's just we are -- because we are looking to move up -- grow up in the bigger sizes, bigger ranges. So that's why we're seeing, but if we see that -- whenever we see demand coming back, and things moving -- going to a little bit slower and not, lower sizes, we can interchange. So that's why it is not -- there is no impairment charges or anything, because these are -- the machines are yet there and they can get produced at if we desire. It is just that to looking at the market trend, moving towards larger and bigger fees. We are saying that there is a downside. If we feel that it comes back, we can always build that, and this capacity will be there. It is still interchangeable, fully flexible. So there's no problem. -------------------------------------------------------------------------------- Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [83] -------------------------------------------------------------------------------- Okay. Okay. So it is your guidance for lower receivable capacity for now is largely on the current market trend and nothing else? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [84] -------------------------------------------------------------------------------- Correct. Absolutely correct. -------------------------------------------------------------------------------- Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [85] -------------------------------------------------------------------------------- Sir, 2 more questions. Is there any more scope it Balkrishna has [not] historically you have consistently introduced more and more to which has been -- which is responsible for gaining market share across the globe. Is there more scope to introduce SKUs? Or are we done with most of the SKUs that are prevalent in the market? That is question #1. And the second question is regarding your margin guidance. So when you say that you -- 28% to 30% is the sustainable range, what kind of gross margin is the management making it? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [86] -------------------------------------------------------------------------------- So regarding the new products, I think that is a part of our DNA. So we have always been saying infusing new segments, new sizes, new SKUs to the tune of about 100 every year, which will continue. So I think that continues to go. And the -- if you can see this current trend also, we are able to hit that wave because of our ability to develop and feed the market with us. So that will continue to be there. Regarding your second question, regarding gross margin, that would be go up somewhat. -------------------------------------------------------------------------------- Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [87] -------------------------------------------------------------------------------- So what is the gross margin that you are looking at on a sustainable basis? So after considering the advantage from the current lockdown. -------------------------------------------------------------------------------- Rajiv A. Poddar, Balkrishna Industries Limited - Joint MD & Executive Director [88] -------------------------------------------------------------------------------- So this was 61% in this quarter. So 58% to -- 58% should be sustainable margin. -------------------------------------------------------------------------------- Operator [89] -------------------------------------------------------------------------------- The next question is from the line of Basudeb Banerjee from AMBIT Capital. -------------------------------------------------------------------------------- Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [90] -------------------------------------------------------------------------------- So already half of Q3 is over almost, and you said that lockdowns have just started. It is too early to get the impact. So can you give a broader commentary, that the Q2 volume offtake is more or less similar to this 60,000-plus (inaudible) so we'll in Q2, so will first of half Q3 is in line with that kind of volume uptake? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [91] -------------------------------------------------------------------------------- So I wouldn't be able to comment on Q3 numbers because that is a quarter which is yet there. But as you said, the demand looks okay. And keeping a conservative view on our guidance, we are saying we will have marginal growth in the year. That is the numbers that we would like to -- I mean this is the kind of guidance we would like to continue, because, as you all know, that we don't know how the pandemic would play out, and there may also be some logistics challenges, is that, traditionally, BKP has always kept a conservative guidance, and we had particularly to do that. -------------------------------------------------------------------------------- Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [92] -------------------------------------------------------------------------------- Surely because if pandemic was not there, the 35% growth then --marginal growth is a huge difference, so from that angle I'm just trying to understand that. And second thing, sir, if I even prorate 63,000 or 61,000 production, so it is almost annualized close to [2 15], which is after the recent today, what we said, 6%, 7% for the lower production ability. So how much is the time frame from paper was being done and see the first production happening for the brownfield almost [time]. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [93] -------------------------------------------------------------------------------- So as I said -- sorry, in my opening commentary that our growth prospects for '22 and the financial year '23 will not be affected. And that's why we are already starting to think of our brownfield and what we need to do and what is it. In the coming few months, we will make announcements regarding that to maintain our capacities and growth, et cetera. So that's why we are going to already started working on that. We are not waiting for it to hit the top capacity and then move on. And for next year, we will be able to discuss only early, we will come back to you on this capacity but in a few months from now. -------------------------------------------------------------------------------- Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [94] -------------------------------------------------------------------------------- Sir, I'm just trying to understand that this normalized rate of 45,000 to 50,000, now has moved up to 60,000 plus. And if we persist at that level, then FY '22 volume with incremental growth by 260-odd. And then you will have very limited scope to growth because you said 6%, 7% loss in production, if the capacity cannot be more than 2 70, 2 80. So that leads to a scope to grow that trying to understand the time line for addition. All cases can move to 3 lakhs, then it's a different proposition. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [95] -------------------------------------------------------------------------------- So basically -- as you see the brownfield additions will also keep on coming and kicking in early. It will not take as long as the brownfield which takes around 24 months. Brownfield will come in phased manner and continue to grow. So -- that's why we are quite confident that our growth prospects would not be affected by this. -------------------------------------------------------------------------------- Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [96] -------------------------------------------------------------------------------- Largely, if you announce at the end of FY '20, one can expect production can be possible at the end of Q1 '21. Will that be right to assume? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [97] -------------------------------------------------------------------------------- Yes. So because some part of it because there are balancing equipment which will help us regain this lost capacity. So certain balancing equipments are only needed. So it's not like a good setup is late. So -- but please give us some time to come back to you with a better sense and better idea because it will be too early to make operational comments because it's a work in progress. So we want to come back once we are ready fully with our going -- once we're ready with it on our drawing board. But definitely, we know for a fact that certain balancing equipments will help us regain this loss thing. And hence, we are not worried about growth prospects for the next 2 or 3 years. By that time, our ground teams and other projects will also come up and be shaped. -------------------------------------------------------------------------------- Operator [98] -------------------------------------------------------------------------------- (Operator Instructions) The next question is from the line of Joseph George from IIFL. -------------------------------------------------------------------------------- Joseph George, IIFL Research - Assistant VP [99] -------------------------------------------------------------------------------- I have a couple of questions. One is, could you give an update on what is happening with the Carbon Black capacity? How much are you producing? How much is being used internally? And how much is being sold to third-parties? The reason is that when I look at the ASP, has moved up. And as analysts, we do a simple math total revenue divided by the reported volumes. And if there is Carbon Black external revenue in there, it pushes up the ASPs. So just wanted some color there. So that's question #1. Question #2 is, I understand that your new CapEx plan is still premature to talk about. But keeping that in a brownfield plant site, can you give us what is your existing CapEx guidance for this year and next year? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [100] -------------------------------------------------------------------------------- Yes. So regarding the Carbon Black, our overall third-party sales is less than 2% -- is approximately around 2% of our overall sales. And hence, it is negligible in that sense. And regarding your question about the projects and the CapEx, going forward, we are yet working on that. And let us -- give us some time, we will get back to you on that with more clarity. -------------------------------------------------------------------------------- Joseph George, IIFL Research - Assistant VP [101] -------------------------------------------------------------------------------- Sir, my question is not on the new CapEx. My question is keeping the CapEx the downstream plant aside, not including that, what was your CapEx guidance for this year and next? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [102] -------------------------------------------------------------------------------- So this year, our guidance was approximately INR 700 crores. Out of which we have spent roughly about INR 350-odd crores. -------------------------------------------------------------------------------- Joseph George, IIFL Research - Assistant VP [103] -------------------------------------------------------------------------------- Okay. And any similar number for next year, excluding brownfield. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [104] -------------------------------------------------------------------------------- That would be mainly maintenance CapEx next year. -------------------------------------------------------------------------------- Joseph George, IIFL Research - Assistant VP [105] -------------------------------------------------------------------------------- Okay. Which is about INR 200 crores per annum if I remember correct? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [106] -------------------------------------------------------------------------------- Yes, approximately. -------------------------------------------------------------------------------- Operator [107] -------------------------------------------------------------------------------- The next question is from the line of Nishant Vass from ICICI Securities. -------------------------------------------------------------------------------- Nishant Vass, ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst [108] -------------------------------------------------------------------------------- So my first question is on the U.S. market. Obviously, Europe has rebounded much faster. But what are your strategies that you're putting out in place for implementing market share gains in the U.S. because that is one market, which is probably then below your expectations. So could you highlight what strategies you're looking for this up cycle that you're now going into. 1, that is my first question. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [109] -------------------------------------------------------------------------------- So in Americas, overall, we are doing multiple things. One is we are creating a full effect with branding and spend on Monster, which now is getting us to become a household name is -- Today, people don't -- if you look at it 2 or 3 years back, they would wonder what BKT is. But today, they are not -- they are aware of the name BKT. And we are seeing results. Due to that, there is a good pull demand being created. Secondly, our distribution network is being further strengthened in that market. Our dealer network is growing. So those are the kinds of things we are doing. We are also developing specialized products especially for the American market. So the mix of a lot of things that are happening at the back end, which are going to result in getting that market share over time. -------------------------------------------------------------------------------- Nishant Vass, ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst [110] -------------------------------------------------------------------------------- So if I can I summarize your statement, you would say you are more confident of market share victory in U.S. this cycle now? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [111] -------------------------------------------------------------------------------- Yes, yes. -------------------------------------------------------------------------------- Nishant Vass, ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst [112] -------------------------------------------------------------------------------- Okay. And sir, my second question is both on cost and margins. So first, on the A&P side because there has been a big investment that you guys had been planning to do -- you plan while the market was down and you are reaping benefits in terms of market share gain. So in terms of an incremental spend, do you think that will trend more in line with the sales revenue growth? So you have made an absolute amount that you think will be your incremental basis spend? And anything you can shed some light on that? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [113] -------------------------------------------------------------------------------- Sorry. Once -- so we could not hear the question. I could not hear your question. -------------------------------------------------------------------------------- Nishant Vass, ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst [114] -------------------------------------------------------------------------------- I'll just repeat it, right. What I was saying is in the last 3 years when the market was down you aggressively invested in branding and advertising. And obviously, you now see benefits via market share being now in Europe primarily. So incrementally, now that the sales momentum is much faster, do you think this cost will remain largely in terms of absolute basis, similar? Or do you think it can grow in line with sales revenue? How are (inaudible). -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [115] -------------------------------------------------------------------------------- So our brand spend, as I said, will continue to the same tune. In the full, which is approximately about INR 100 crores per year. We don't see it going up drastically. We see it continuing at those levels. -------------------------------------------------------------------------------- Nishant Vass, ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst [116] -------------------------------------------------------------------------------- Okay. And sir, a (inaudible) question on margins is looking at the -- or looking at your organization for a fair amount of time, you have consistently surpassed your own guidances, primarily because you've invested in terms of better product, lower cost structure. Is that basically -- I know you're saying 28% to 30%. But is the base in terms of how the companies them to remain the same or is it going to be a little different in this up cycle, whichever you're planning? Because both from a capacity building perspective as well as cost structure, is that fundamentally changing or that is likely to remain the same? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [117] -------------------------------------------------------------------------------- No. That will remain the same. But there is not going to be a change in that. -------------------------------------------------------------------------------- Operator [118] -------------------------------------------------------------------------------- The next question is from the line of Bhaskar Bukrediwala from ASK. -------------------------------------------------------------------------------- Bhaskar Bukrediwala, [119] -------------------------------------------------------------------------------- A couple of questions on the medium to long-term outlook. Just wanted to understand between [medium and tire], how do you see the volume growth over a 3 to 4-year period? And will your OTR segment more partial even that there is a state increased market share from where we are today on the OTR side? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [120] -------------------------------------------------------------------------------- Definitely, we see that the OTR segment will grow faster for us because it's a smaller pie of the overall thing. So that will continue to happen. But overall, both the segments look to be having a good demand. We see good opportunity across there. -------------------------------------------------------------------------------- Bhaskar Bukrediwala, [121] -------------------------------------------------------------------------------- Will you be able to give any or number rates like for margins on the volume side for specifically? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [122] -------------------------------------------------------------------------------- Sorry. The voice is unclear? Would I be able to give you what? -------------------------------------------------------------------------------- Bhaskar Bukrediwala, [123] -------------------------------------------------------------------------------- Would you be able to give a volume guidance, like a (inaudible) margin guidance of [83] to 30%. Volume guidance or more segment separately for the next, let's say, 3 to 5 years. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [124] -------------------------------------------------------------------------------- No. At this stage, we would not be able to give you. Let's see how the pandemic plays out, how the world says out. So we'll take it year by year. And that's what we've been maintaining for our guidance. But overall, we can tell you that the demand is looking up. -------------------------------------------------------------------------------- Bhaskar Bukrediwala, [125] -------------------------------------------------------------------------------- Just 1 question on the margin mix. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [126] -------------------------------------------------------------------------------- There is a lot of blocking, we can't hear you. -------------------------------------------------------------------------------- Bhaskar Bukrediwala, [127] -------------------------------------------------------------------------------- Yes. Also on the margin, just Soleto check Metal OTR and (inaudible) will have OTR higher margins? And therefore, if you go faster, will that mean a better margin profile on a longer-term basis? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [128] -------------------------------------------------------------------------------- Yes, it would have a slightly higher margin. But overall, we will continue to maintain our EBITDA margin guidance of 28% to 30%... -------------------------------------------------------------------------------- Bhaskar Bukrediwala, [129] -------------------------------------------------------------------------------- Despite the improved product mix that like... -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [130] -------------------------------------------------------------------------------- Yes, because the differential would be little. So we -- even in this range, there are a lot of other parameters which will go up and down. So we are looking at this guidance. -------------------------------------------------------------------------------- Bhaskar Bukrediwala, [131] -------------------------------------------------------------------------------- All right. And 1 last question, sir, on the Carbon Black. How much volumes really use for cash share purpose? And how much you see the downside for this quarter? If you can give that number. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [132] -------------------------------------------------------------------------------- So our third-party sales contribution was about 2% of our overall sales in the financial -- in the half year that has happened so far. -------------------------------------------------------------------------------- Bhaskar Bukrediwala, [133] -------------------------------------------------------------------------------- Would you be able to sell volumes in test in terms of active use and ... -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [134] -------------------------------------------------------------------------------- So roughly, it is around 20% of our capacity, which is for the Carbon Black that we sold outside. -------------------------------------------------------------------------------- Operator [135] -------------------------------------------------------------------------------- The next question is from the line of [Dipen Sanki] from Ina Master Management. -------------------------------------------------------------------------------- Unidentified Analyst, [136] -------------------------------------------------------------------------------- My question is on the product mix change that you highlighted which has resulted into a lower capacity achievable capacity. So as a result of the reduction in the capacity and the change of product mix, what kind of upward movement do you anticipate in the ASP or the average selling price per kilo, or what you normally communicate with you, which will kind of make up for the lower capacity? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [137] -------------------------------------------------------------------------------- So I think the ASP should be in that same range. We are not seeing it to go up drastically because there will be a difference of a 6% to 7% reduction. But this is -- we've been seeing this happen for the last few quarters also, which is already coming in. And that's why we are highlighting this back to you. But that will not have a significant change on the ASP because of that. -------------------------------------------------------------------------------- Unidentified Analyst, [138] -------------------------------------------------------------------------------- Okay. So you anticipate ASP in absence of any -- assuming the pricing -- no pricing change and everything else call, with the current product mix, you anticipate ASP to be more or less constant at what you reported in quarter 2, which INR 252, INR 253 per kg. Will that be a correct assessment for next 13 to 24 months until the time you get additional capacity? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [139] -------------------------------------------------------------------------------- Yes. I mean that would be a good assumption. Only thing is the -- there has been some contribution on terms of ForEx also. So assuming -- when you're assuming everything being stable, assume that also to be stable. Other is, more or less, we can say between INR 245 and INR 250, INR 252 to be a stable range. -------------------------------------------------------------------------------- Operator [140] -------------------------------------------------------------------------------- The next question is from the line of Niket Shah from Motilal Oswal AMC. -------------------------------------------------------------------------------- Niket H. Shah, Motilal Oswal Securities Limited, Research Division - Former Head of Midcaps Research [141] -------------------------------------------------------------------------------- I just have one question. When you said about the guidance for the full year to be marginally up, is this conservatism also coming because of the fact that, in the first half, a lot of your competition, whether it is India or outside India, as capacity is not running at optimum utilization as you were running, and hence, that benefit might not sustain in the second half, and hence, that guidance? Is that a right assumption? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [142] -------------------------------------------------------------------------------- I think overall market has been good. And I don't know about our competitors. We can't comment on that. But what we are seeing is there is a good demand for BKT products, and people are -- that is what is contributing to this. But the reason we are seeing conservative guidance is because, as we are talking, the second wave of COVID is coming back. So there is a lot of uncertainty, what happens. They're talking over the, smaller lockdown or lower lockdown than what they did earlier, but we don't know what shape and what form it will take. So looking at one quarter or looking at this, it's difficult to say that things will change or not change. So hence, we are being conservative in our approach because of the current pandemic situation. And none of us can highlight what exactly will happen in the next few months owing to this situation. And hence, the conservatism is coming in. -------------------------------------------------------------------------------- Niket H. Shah, Motilal Oswal Securities Limited, Research Division - Former Head of Midcaps Research [143] -------------------------------------------------------------------------------- No. I was just trying to understand, would there be a significant amount of benefit that you would have got because the capacity of -- globally might not be function and they would have seen supply issues, and you would have taken that advantage. I'm just trying to understand that. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [144] -------------------------------------------------------------------------------- I wouldn't be able to comment on what our competitors would produce or not produce, but the demand has been fairly good so -- which has resulted in this. -------------------------------------------------------------------------------- Operator [145] -------------------------------------------------------------------------------- The next question is from the line of Ashutosh Tiwari from Equirus Securities. -------------------------------------------------------------------------------- Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [146] -------------------------------------------------------------------------------- Firstly, on this euro INR realization, we mentioned that, broadly, we'll be around INR 85 in the second half. If you look at the current rate it's already INR 86, INR 87 and if I look one year right now, probably at a rate of INR 89, INR 90 for next year. Shouldn't the FY '22 relation of should be higher than, say, (inaudible)? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [147] -------------------------------------------------------------------------------- Yes, it should be higher. But I mean, these are the levels that we are currently at. As we go ahead and book more, it should be higher. -------------------------------------------------------------------------------- Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [148] -------------------------------------------------------------------------------- Okay. So next year should be higher than [85] (inaudible) -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [149] -------------------------------------------------------------------------------- Currently looks like (inaudible). -------------------------------------------------------------------------------- Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [150] -------------------------------------------------------------------------------- Yes. Okay. And lastly, on the mining tire part, which is we have now launched 57-inch also. But overall, in this ultra like mining tires 48-inch class, can you provide some color on what kind of volumes you are doing currently or what part of our (inaudible) comes from there? And how do you see the traction going ahead in this segment? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [151] -------------------------------------------------------------------------------- So mining, we are quite upbeat. We have always been upbeat on this segment. And as we -- as I mentioned earlier, our ultra-large tire was also launched in the last week. So this should be giving you a good sense that we are quite confident of this segment. And we look to grow much faster in this segment to gain more market share because our market share in this segment is particularly low compared to where we can in the agricultural field (inaudible). -------------------------------------------------------------------------------- Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [152] -------------------------------------------------------------------------------- And this geographies, we are currently doing well in this segment, will have been more mostly Australia, bigger, the largest market for us in that segment? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [153] -------------------------------------------------------------------------------- India would be good. Australia would be good. And Americas, North America would be good. So I think that would be opportunity -- growth opportunity for our products. And in this segment, the realization would be higher than what we get on (inaudible). Marginally higher, yes, marginally higher. -------------------------------------------------------------------------------- Operator [154] -------------------------------------------------------------------------------- We take the next question from the line of Ankit Kanodia from Smart Sync Services. -------------------------------------------------------------------------------- Ankit Kanodia, [155] -------------------------------------------------------------------------------- I had a couple of questions. #1 is I know that we cannot give guidance on -- we cannot speak much on the quarter 3 that is underway. But if you just look at the numbers of quarter 2 this year and maybe first half, and compare it with last year. So as we saw that number the last year, there was some different volume, particularly in quarter 2. And we had some slippages in quarter 1 of this year. So how much of that percentage would impact the growth in quarter 2 for this year? Can you give some color on that? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [156] -------------------------------------------------------------------------------- On quarter 2, we just released the quarter 2 numbers. -------------------------------------------------------------------------------- Ankit Kanodia, [157] -------------------------------------------------------------------------------- Hello? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [158] -------------------------------------------------------------------------------- Hello? -------------------------------------------------------------------------------- Ankit Kanodia, [159] -------------------------------------------------------------------------------- Yes, sir. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [160] -------------------------------------------------------------------------------- Sorry. You said what would be the impact on quarter 2? -------------------------------------------------------------------------------- Ankit Kanodia, [161] -------------------------------------------------------------------------------- Yes. So basically, what I meant to say the numbers have come really good, but I think a large impact was because of this lower volumes last year and CPG is (inaudible) the quarter 1, right? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [162] -------------------------------------------------------------------------------- No, it is overall, there has been a demand. So there is no -- it's not like because there was a backlog of Q1 which is coming to Q2. It is demand of Q2 is yes, there may be some -- I mean, it will be difficult to say that there was nothing of a backlog, but it is not that -- the big change has come only because of the backlog. -------------------------------------------------------------------------------- Ankit Kanodia, [163] -------------------------------------------------------------------------------- Okay. So that has not impacted the performance. Okay. Let. The second one was, since our India market is growing really well now can you give some color on the competitive landscape, both in terms of who are our 2, 3 competitors right now? If you can share. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [164] -------------------------------------------------------------------------------- So I can tell you this that BKT's market share is about 5% to 6% in the Indian market space. So we have a huge market available to us. And we are focusing on that. And everybody who manufactures tires is our competitor. And we work there. But it's a good market. There's a big market available. So we are competing currently to just see that how we can grow in this market. -------------------------------------------------------------------------------- Ankit Kanodia, [165] -------------------------------------------------------------------------------- Okay, okay. And what would be the impact of margin given our share in India is increasing at a very good speed over the last, say, couple of years now? What is the impact of the margin? -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [166] -------------------------------------------------------------------------------- So there is a -- I mean, India is slightly sales volume -- or the selling price and realization is slightly lower. But all this is accounted into our current numbers also. So overall, you should not have a very significant change if you look at the cumulative market. (inaudible). -------------------------------------------------------------------------------- Operator [167] -------------------------------------------------------------------------------- Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments. -------------------------------------------------------------------------------- Madhusudan B. Bajaj, Balkrishna Industries Limited - President of Commercial & CFO [168] -------------------------------------------------------------------------------- So we once again thank everybody for the time and -- to come up and hear us. And also, before I close, I would like to wish everybody a happy Diwali on this festive occasion. Please be safe. Please remain cautious. And I hope you and your family have a great festival in the coming few weeks. Thank you. -------------------------------------------------------------------------------- Operator [169] -------------------------------------------------------------------------------- Thank you. On behalf of Equirus Securities, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.