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Edited Transcript of ENDURANCE.NSE earnings conference call or presentation 15-Nov-19 4:30am GMT

Q2 2020 Endurance Technologies Ltd (CN) Earnings Call

AURANGABAD Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Endurance Technologies Ltd (CN) earnings conference call or presentation Friday, November 15, 2019 at 4:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anurang Jain

Endurance Technologies Limited - MD & Director

* Massimo Venuti

Endurance Technologies Limited - Non-Executive Director

* Ramesh Gehaney

Endurance Technologies Limited - COO & Executive Director

* Satrajit Ray

Endurance Technologies Limited - Group CFO & Executive Director

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Conference Call Participants

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* Aditya Jhawar

Investec Bank plc, Research Division - Analyst

* Aditya S. Makharia

HDFC Securities Limited, Research Division - Analyst

* Bharat Gianani

Sharekhan Limited, Research Division - Analyst

* Chirag Shah

Edelweiss Securities Ltd., Research Division - Research Analyst

* Jinesh K. Gandhi

Motilal Oswal Securities Limited, Research Division - SVP of Equity Research

* Mahesh Bendre

KARVY Stock Broking Limited, Research Division - Research Analyst

* Nishit Jalan

Axis Capital Limited, Research Division - Executive Director of Auto

* Priya Ranjan

Antique Stockbroking Ltd., Research Division - Research Analyst

* Ronak Sarda

Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Endurance Technologies Q2 FY '20 Earnings Conference Call hosted by Axis Capital Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Nishit Jalan from Axis Capital. Thank you, and over to you.

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Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [2]

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Thank you. Good morning, everyone. Welcome to the Q2 FY '20 Result Conference Call of Endurance Technologies. From the management team, we have with us Mr. Anurang Jain, Managing Director; Mr. Ramesh Gehaney, Director and COO; Mr. Massimo Venuti, Director and CEO, Endurance Overseas; Mr. Satrajit Ray, Director and Group CFO; and Mr. Raj Mundra, our Treasurer and Head, Investor Relations.

I'll now hand over the call to Mr. Jain for his opening remarks, post which we can have Q&A. Over to you, Anurang.

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Anurang Jain, Endurance Technologies Limited - MD & Director [3]

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Thank you, and good morning, everybody. I would like to share details of how Endurance has done in both the second quarter and the first half of 2019/'20. The first half of 2019/'20 has been tough for the 2-wheeler industry. As per the CM data, the 2-wheeler industry sales degrew by 13.5% as compared to the first half of the previous financial year. In 2-wheelers, scooters degrew by 16.6%, and motorcycles degrew by 11.5%. Endurance stand-alone business degrew by 3.4%. In Europe, in the first half of 2019/'20, automotive sales degrew by 0.6%. Our European operations have posted a total income growth of 1.5% in euro terms.

On the financials, I will briefly talk to you about the second quarter of 2019/'20 and then about the first half of 2019/'20. During quarter 2, as compared to previous year's same quarter, our consolidated total income degrew by 8.3% from INR 19,447 million to INR 17,827 million. Consolidated EBITDA grew by 5.1% from INR 2,877 million to INR 3,025 million. Consolidated EBITDA margin percentage was 17%. Profit after tax grew by 35% from INR 1,252 million to INR 1,691 million. The profit after tax percentage was at 9.5%. This includes the megaproject incentive of INR 230.55 million and a 25% corporate tax gain of INR 224.7 million.

During quarter 2, our stand-alone total income degrew by 9.7% from INR 14,403 million to INR 13,005 million. Stand-alone EBITDA was at INR 2,051 million. EBITDA margin percent improved from 13.2% in quarter 2 of the previous year to 15.8% in quarter 2 of this financial year. The stand-alone profit after tax was INR 1,366 million at 10.5%. This includes the megaproject incentive of INR 230.55 million and a 25% corporate tax benefit of INR 224.7 million. I will now brief you on the financials of the first half of 2019/'20. During the first half, as compared to previous year's first half, consolidated total income degrew by 2.9% from INR 38,092 million to INR 36,986 million.

Consolidated EBITDA grew by 15.5% from INR 5,633 million to INR 6,506 million. Consolidated EBITDA margin percentage improved from 14.8% to 17.6%. Profit after tax was at INR 3,347 million. The profit after tax margin percentage improved from 6.6% to 9%. This includes the megaproject incentive of INR 932.1 million and a 25% corporate tax, an effect of INR 358 million. The consolidated ROCE was at 24.7% and the ROE at 22.4%. The consolidated net debt was at INR 1,886 million, and the net debt-to-equity ratio was at 0.07:1. The asset turnover was 2.18x.

During the first half of 2019/'20, our stand-alone total income degrew by 3.4% from INR 27,581 million to INR 26,649 million. Stand-alone EBITDA was at INR 4,539 million. The EBITDA margin percentage improved to 17% as compared to 13.5% in the first half of the previous year. Stand-alone profit after tax was at INR 2,656 million, and the profit after tax percentage was at [10% -- 4%]. This includes the megaproject incentive of INR 932.1 million and the 25% corporate tax gain of INR 358 million. The stand-alone ROCE was at 26.5% and ROE at 21.4%. The stand-alone net debt was at INR 1,064 million, and the net debt to equity was at 0.5:1. The asset turnover was 2.23x.

In the last 6 months, we have lowered our capital expenditure by INR 640 million, working capital of INR 650 million and lowered our raw material costs and employee costs. Therefore, you are seeing better profit margins in spite of lower growth in sales -- or sorry, in spite of degrowth in sales. The detailed financials are available with the stock exchanges and on the Endurance website.

I would like to share certain key points related to the first half of 2019/'20. 72% of our consolidated net total income, including other income, came from Indian operations, and the balance, 28%, came from our European operations. In India, there was a sizable growth in business, mainly with Hero MotoCorp, by 27%. It is important to note that in the first half of 2019/'20, in spite of Indian 2-wheeler industry degrowth of 13.5% and total auto industry degrowth of 14.4%, Endurance stand-alone business degrew by 3.4%.

In Europe, in the first half of the year, we acquired EUR 18.26 million of new business with Volkswagen, Fiat Chrysler and Maserati. In Europe, in euro terms, we mainly grew 51.9% with Volkswagen Group, including Porsche. The top 5 clients or customers in Europe are: Fiat Chrysler Group; Daimler; Volkswagen Group, including Porsche and Audi; BMW; and Opel, now owned by Peugeot. In the first half of 2019/'20, our aftermarket sales in India grew at 10% from INR 1,217 million to INR 1,339 million. This included both the domestic and export sales.

Since April 2019, in India, INR 3,435 million value of new business has been awarded. And we have INR 12,245 million of requests for quotes in hand, which does not include new business of Bajaj Auto. This new business, which we acquired, is mainly from Kia Motors, HMSI, Hero MotoCorp, Royal Enfield, TVS and Tata Motors. This includes new product platforms and includes new and replacement business also.

The status of our new plants in India are as follows. Our 2-wheeler suspension plant at Halol, Gujarat started the production in September 2018 last year and is now supplying 100% of the front fork and shock absorber requirements of Hero MotoCorp's Halol plant, which today stands at 2,700 sets of front forks and shock absorbers per day.

We are expecting to reach 6,200 per day as per LOI by the end of next financial year.

Our Kolar, Karnataka plant for supplying front fork and shock absorbers has started supplies to HMSI this year in September of 2019 and will reach 3,500 sets of front fork and shock absorbers per day by February 2020. This includes the replacement of scooter shock absorbers to front forks.

In Chennai, our second die casting and machining plant at Vallam will start supplies by end of next month. The customers to start with will be Kia Motors, Hyundai and Royal Enfield. We expect the sales in quarter 4 of this financial year to be approximately INR 350 million.

We are also extremely -- to inform you that we have strengthened our partnership with KTM Components. I've mentioned it even in the last call few months ago. KTM will transfer to Endurance the latest technologies for the front fork and shock absorbers, including semi-active electronic suspensions and suspensions for off-road large bikes. It will also include cooperation for supplying suspension for electric e-bikes and electric 2-wheelers and include increased exports from Endurance India to KTM operations both in Austria and China. This is an extremely important step for Endurance.

As our inverted front fork orders are doubling in the next 2 years, we have entered the aluminum forging business and will start making triple clamps and axle clamps in-house for our inverted front forks. We have signed a technical collaboration with FGM company in Italy. Aluminum forgings will be an import substitute, and we will offer the same at lower prices to our OEM clients. This will be an import-substitute project. Today, we are importing it from supplies in Italy and Austria. This will also help increase our profit margins and give an opportunity to Endurance to grow this aluminum forging proprietary business for other 2-wheelers, 3-wheelers and 4-wheeler aluminum forging requirements, including for electric vehicles. The supplies will start from July 2020. The potential is to reach INR 1,250 million in the next 2.5 to 3 years after start of supplies.

The ABS project -- the ABS brakes tie-up with BWI is also progressing. Our ABS samples both are in process of being tested for performance and road endurance tests by our OEM at present. They are closely engaged with them. We hope to get clearance in quarter 4 of this financial year. By then, we will be ready to start supplies also.

As far as TVS is concerned, after getting the 2-wheeler disc brake assembly order, we further got orders for 2-wheeler front forks and 3-wheeler brake assemblies. The supplies for these orders will start in this financial year. For the 2-wheeler front forks, supplies have already started. We are in the process of getting further orders for brakes and suspension from TVS.

I am happy to inform you that our 29-acre test track in Aurangabad is completed, and all testings have started for our 2- and 3-wheeler components. Ashish Nigam of Axis Bank has brought investors to visit our test track on 27th August, and we would like to invite you all to come and see it also. This test track is one of the best test tracks for 2- and 3-wheeler testing in India and will help us to give first-time-right products to all our OEM clients.

Going forward, we see a large increase in our business volume and value by way of entering new product areas of aluminum forgings, which are required for electric vehicles also; increasing supply of technology-upgraded products, including paper-based clutch assemblies; combined braking systems up to [125] cc bikes; rear disc brakes; ABS 150 cc and above 2-wheelers; inverted front forks and advanced rear shock absorbers in high cc bikes; and the fully machined castings for 2-wheelers, 3-wheelers and 4-wheelers.

We are also increasing our business with Hyundai and Kia Motors. And now we have INR 2,790 million per annum of business, which peak sales will be in 2021, '22. We are further working on orders with Hyundai and Kia Motors, with supplies starting in the end of 2020, '21. So these orders are expected to go up further. Also, as mentioned earlier, 2.76 million scooter front forks will replace front shock absorbers by 2020, '21. These supplies from both our plants at Sanand and Kolar have already started. Our suspension business with Hero MotoCorp, to which today we are supplying 2,700 front fork shock absorbers a day, should be going to 6,200 front forks shock absorbers a day as per the LOI by the end of next financial year. We are focusing on increasing our business with TVS mainly in the suspension and front fork business. Strengthening market share with KTM Components will help us substantially increase our front fork and shock absorber exports to KTM's Europe and China plants, with the latest know-how in technologies, including, like I said earlier, electronic suspensions and supplying suspensions for e-bikes and electric 2-wheelers.

So we at Endurance, our focus will go higher than industry by increasing our share of business with existing clients; adding new clients; adding and upgrading to latest technologies required in our product areas through collaborations and in-house R&D; focusing on growth in new product areas; increasing our aftermarket and exports business; and looking at inorganic opportunities both in India and Europe.

With these opening remarks, I would now like to invite questions from all of you. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Ronak Sarda from Systematix.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [2]

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Anurang, congrats on a decent set of numbers. My question is on the disc brake and disc brake industry now. On the disc brake assembly, how do you see the current penetration? I know the -- it has evolved pretty quickly, so what do you think is the current penetration in motorcycles and scooters? And what could be our market share now?

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Anurang Jain, Endurance Technologies Limited - MD & Director [3]

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See, as far as the penetration of Endurance -- as far as the growth of Endurance business as a share of the -- of our total business in India is concerned, in fact, brake assemblies were at 7% last year. This has grown to 10% largely because of increasing the number of disc brake assemblies, which now we call the combined brake assemblies up to 125 cc, which has become mandatory from April, okay? And as far -- and also, we are finding more and more disc brake assemblies for ABS, which is -- because that has also become mandatory above 125 cc.

So we have seen a huge increase in orders. That's what the 7% to 10% of the share of business that has happened both in the CBS as well as disc brake part without the ABS for the above 125 and the rear brakes also.

So as far as we are concerned, the penetration will be increasing. As we speak, we also have the order from HMSI. We have the LOI. We are starting with them from April 20. So that will be a new client added for the first time for the disc brake assemblies. And as I have told you, TVS, we are starting brakes by the end of next month for the Apache. So for Endurance, the first point is that the disc brake -- I mean for Endurance, the disc brake assembly business is increasing. As long -- as far as our market share goes, it is at about 20% for the disc brake assemblies and about 31% only for the disc. Because to Yamaha, we supply about 65,000 to 70,000 disc orders a month, which are exported to their plant in Southeast Asia also. So you can say Endurance has 20% of the India business. So there's a huge scope for increase there.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [4]

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Okay. Okay. And the rest, 80%, is it a lot of imports still happening? Or it's largely other Indian suppliers, they will not...

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Anurang Jain, Endurance Technologies Limited - MD & Director [5]

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It is -- I would believe it is Brembo, which is the market leader. As well as I know there are some companies importing from China also, which I think be the substitute in due course of time based on technology and price. And also because they have a huge potential because as you know, Endurance is a cost leader. We already mentioned that our prices are lower than what our competition gets.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [6]

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Right. And sir, related question on ABS. I mean I -- if I -- from the checks we have done, we have started doing some business with Royal Enfield on the single-channel ABS. I think the oil filling, we have started. Where do you -- I mean where do you see this business maybe next 12 months? What kind of market share do you think is achievable?

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Anurang Jain, Endurance Technologies Limited - MD & Director [7]

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See, that's a question I will not like to answer right now because right now, our first focus is to get our ABS cleared because the testing is rigorous, and as I mentioned earlier, the kind of test tracks, we have the village roads, the covered roads, I mean the test tracks are severe looking at Indian road conditions. Our first focus is to get it cleared, and then, as you know, our focus will be to grow our share of business like we have done in the last 20 years on proprietary business (inaudible). So our first focus today stands of getting our ABS cleared with our first OEM customers, and then we can talk about share of business later.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [8]

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Okay. But sir, is this -- the oil filling business or oil in-filling, is it large enough? Or is it still a very small part in overall scheme of things?

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Anurang Jain, Endurance Technologies Limited - MD & Director [9]

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[I think it's a] large business. I don't know what is the percentage of the total requirement. Right now, see, the total -- maybe Gehaney can answer that. Bajaj and Royal Enfield, we have started for both. (inaudible)

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Ramesh Gehaney, Endurance Technologies Limited - COO & Executive Director [10]

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Right now, we are doing it for the 350 ccs classic and/or this [bullet]. And the volumes are around 15,000 per month, which has to go up to 25,000.

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Anurang Jain, Endurance Technologies Limited - MD & Director [11]

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So you can say, we will be at 1/3, which is related to the same business we do on disc brakes with them, doing around 30%, 30% to 33% of the brake requirement. The rest is, I think, Brembo.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [12]

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All right. So you're complementing it, sure. Sir, second question is on Kia, and your model has been pretty successful and has ramped up pretty quickly. So are we supplying currently from any other plant or our business would only start from next quarter?

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Anurang Jain, Endurance Technologies Limited - MD & Director [13]

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No. It is being supplied from our existing plant in Chennai. Like I said, the orders, which we received up to the last quarter of 2018/'19, were for INR 2,790 million, and these are very large orders. So that's why the second plant in Vallam is starting. That's both for Kia and Hyundai, by the way. They are both sister company, as you know, and Royal Enfield also partly. But mainly, it is for these 2, and we are getting a lot of opportunity from these 2 companies. And we are really excited about this because they are very stable companies. As you know, a large -- 40% of the production in India is exported. So it's a stable company, and you will see the degrowth, it is very less. We did not [go more than] 4% this year in such a bad environment. You know what I'm saying? So we are very excited about this business. We are getting a lot of opportunities. And that's why the second plant at Vallam will start by end of next month.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [14]

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So just a clarification, sir. I mean can you highlight what was -- what will be our revenues from Kia during the first half? And if you can just revise on the -- what's the order book we have right now.

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Anurang Jain, Endurance Technologies Limited - MD & Director [15]

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Well, see, Kia has started just, I think, 2.5 months ago. So we have just started. The split-up of the INR 2,790 million, I won't -- I don't have it right now, between Hyundai and Kia. But I think I'll tell you that we are the larger part of the business, which Kia has awarded for both transmission and engine, both. I don't have the figure right now. I can share it with you later. I don't have the split-up.

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Operator [16]

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The next question is from the line of [Varun Bakshi] from Equirus.

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Unidentified Analyst, [17]

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Congrats on a good set of numbers. Sir, firstly, my question is on European gross margins. I think we have seen a sharp increase in gross margin in European business. So is it only because of the raw material cost, or it also includes something from mix improvement?

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Anurang Jain, Endurance Technologies Limited - MD & Director [18]

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Okay. I will request Mr. Massimo Venuti to answer this.

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [19]

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Okay. So the EBITDA grew by 4.2% from INR 11.9 million to INR 12.4 million in the second quarter of the financial year. And considering the 2 quarter of this financial year, EBITDA grew by 5.6% from INR 23.8 million to INR 25.1 million. This is due to the better mix compared to the previous year. This is the reason. It's not a question of the reduction of aluminum because as you know, the material is passed through with the customer. This is due to a better mix compared to the previous year due to the increase in terms of share of the Volkswagen business. Because we grew with them more or less 46.6% in the second quarter and in the first 2 quarter, 50.9%. It's a better mix compared to the previous business with Fiat Chrysler.

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Unidentified Analyst, [20]

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Okay. And [just another thing], India business also, we -- on a Y-o-Y basis, sir, gross margin has improved sharply. So even if I adjust for the Maharashtra government incentive, there is a sharp increase in the gross margin. So can you please explain that?

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Anurang Jain, Endurance Technologies Limited - MD & Director [21]

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If I don't take the incentive or the tax benefit, our EBITDA margin has increased from 13.2% to 14.2%, it's by 1%, mainly because of the raw material cost work which we have done, financial costs which we have saved because of, like I said, INR 650 million of capital -- CapEx we have reduced and working capital -- or if -- I think INR 640 million of CapEx we've reduced and INR 650 million of working capital we have reduced largely due to inventories. So the financial costs have also this thing. But really, I wanted to answer your question. And so as financial is below the EBITDA, so [it would be mainly] because of raw material cost and employee costs.

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Unidentified Analyst, [22]

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Yes. So raw material costs have gone down because of our incentive share of the proprietary business?

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Anurang Jain, Endurance Technologies Limited - MD & Director [23]

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Yes, also. Yes, also. Yes. Because now the -- I would say the proprietary business is almost 52%, 53% now. This is about 53%. And the casting business has gone down to 38% now. Because it used to be 41%, 42% of the -- that's the percentage of the India business.

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Unidentified Analyst, [24]

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Okay. And sir, are we supplying any EV components to Bajaj for its new...

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Anurang Jain, Endurance Technologies Limited - MD & Director [25]

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So we will start supplying for their scooter, the Chetak scooter. And -- okay, I'm not allowed to speak, but there are -- for the OEMs, there would be other EV components we are going to be supplying for the new EVs that I'm not allowed to speak. But for the Chetak which was launched, that will have our products.

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Unidentified Analyst, [26]

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And [triple], will that be on the casting side on your proprietary tools?

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Anurang Jain, Endurance Technologies Limited - MD & Director [27]

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On the casting, suspension and braking side, there is no clutch in the EV, so there will be no clutch or a CVT, you call it, a CVT. There will be no CVT, automatic clutch on the scooter as if electric scooter. So 3 of the 4 product area will be supplied.

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Operator [28]

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The next question is from the line of Aditya Jhawar from Investec.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [29]

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And congrats on great set of numbers. Just to understand the Europe growth a little better, so what we understand is that, in euro terms, it was flat Y-o-Y. But if we adjust for the acquisition of Fonpresmetal, what could be the growth on a like-to-like basis? And the second question pertaining to that is what is the margin impact because of this backward integration?

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Anurang Jain, Endurance Technologies Limited - MD & Director [30]

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Okay. I'll request Massimo Venuti to answer that.

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [31]

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Okay. In the second quarter, the market, as Mr. Jain told you, grew by 2.3% compared to the previous year. This is adjusted in September by 14.5% due to the reduction of stock and the new procedure of the WLTP after a minus 3.2% for the period of July and August.

In terms of major markets, sales were up in Germany by 6.8%, Italy plus 4.2%, were down in Spain 11.4% and more or less stable in U.K. In this period, the European operation of Endurance were flat, more or less, 0.3% negative. But considering only the production part, there was an increase of 3.1% without considering the price reduction of aluminum. This is due to the positive impact of Volkswagen Group but for sure also the consolidation of Endurance Casting.

If you analyze the EBITDA, there was an important increase in terms of percentage from my point of view. Compare 19.4% of the previous year, we reached 20.2%. But as you know, the leverage of EBITDA of Endurance Casting was, in the previous year, more or less 9%. And certainly is that we are improving our EBITDA due to the better mix compared to the previous year. It's not due to the Endurance Casting consolidation. In fact, the impact of Endurance Casting will reduce the total EBITDA due to the fact that the leverage was 9%. But as I told you during the last months, the strategy of Endurance was to buy Endurance Casting in order to use their production capacity for our customer. And so day by day, we are improving the mix of Endurance Casting due to the optimization of our [industrial] process in their production capacity.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [32]

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Yes. Actually, my question was, if you adjust -- what we understand is that 50% of the revenue of this acquisition was for outside customer and 50% was for in-house. So if you exclude this acquisition, which is not there in the base, what was the [real] euro decline in revenue for Endurance Europe business?

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [33]

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More or less 7% of reduction compared to the previous year. And this 7% is due to the mix of customers that are impacting our range of product. Because as you can see, we -- the Fiat Chrysler, we have had a reduction of 33.8% in the 2 quarter. And the real reduction is 7%. But please consider that without consider -- the reduction of aluminum, the reduction, without considering [gross, that] is more or less 1.5% and so align with the total reduction of the market.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [34]

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Okay. And one question, sorry for being repetitive. So there was this gross margin expansion of steep 950 basis point in the European business, but our EBITDA margin expansion was restricted to 90 basis point. If you can help us understand this divergence. And in the past also, we have seen that there's a little bit of a volatility between our gross margin expansion or contraction and EBITDA margin movement. If you can help us understand this.

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [35]

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Absolutely, yes. The impact in EBITDA compared to the gross margin is different due to the acquisition of Endurance Casting because if you analyze our cost of material, there was a reduction compared to the previous year. But if you analyze the other expenses and the employees' cost, there was an increase due to the consolidation of the company. Because Endurance Casting is only a foundry. And certainly is that they buy from the market the machining activity. This machining activity will impact our other expenses. And so it means that in our profit and loss, you see a reduction of the cost of material, but this is not compensating EBITDA. Because the other part of the process cost is in the other expenses. I hope that this is clear.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [36]

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Yes, yes, yes. So last question for Massimo. Any incremental breakthrough or discussions to start supply to electric vehicle manufacturers in Europe?

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [37]

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Yes. So in this moment, we are discussing with a lot of new business -- potential business. But in this moment, I am very happy to inform you that with the acquisition of the 1.5 liter with Volkswagen, this was an extremely important acquisition for us because 50% of the total volume of Volkswagen in this moment are assembly with hybrid technology. And so for us, it is an important opportunity. In fact, in this moment, we are delivering more or less 120,000 part per month, this is unbelievable. In fact, you can see an increase of 55% in our customer portfolio with the Volkswagen Group. And now we are discussing new potential agreement with Porsche due to the first PPE program acquired with them in September 2018. Now we are discussing for future opportunities.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [38]

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Okay. Anurang, considering October was a very strong month for retail volume for the Indian business, what sense are you getting from the OEMs for the next few months?

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Anurang Jain, Endurance Technologies Limited - MD & Director [39]

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See, right now, the only sense I have is for this month, this should be, I think, like October, especially because I think Bajaj Auto has been quite stable, which is our largest customer. So we -- so I think our sales of November will be similar to October, is what I feel, so we're growing so far. Future, Aditya, very difficult to say. I can only say that, hopefully, it's a good monsoon. It's a low base which has been reached. I don't know whether the public sector banks who have increased the part of financing is helping auto dealers and also people who need loans. So we'll have to wait and watch. It's a -- I mean it is a tough situation we are in.

So as far as Endurance is concerned, we are working on all austerity measures because -- and when good times return, I mean we are fully prepared for that. But right now, we are working on austerity measures, like I mentioned: working capital, CapEx, employee costs, raw material costs. So there is a lot of work happening. So both -- I would say whether you're growing or you're going down, both the times, you ought to work hard. You know what I'm saying?

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [40]

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Yes, yes. And final question for Mr. Ray. What is the CapEx guidance for FY '20 and '21?

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Anurang Jain, Endurance Technologies Limited - MD & Director [41]

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See, that I would like to answer. See, I think we have enough capacity now. There could be some maintenance CapEx. See, expansion CapEx now, it will only happen in any new products, aluminum forgings or any new projects which we may do right now.

So at present, we have enough capacities. We don't plan to have much of expansion CapEx now next year because we have enough capacity. Because the industry is down by 14%, 15%, so even if it goes up 14%, 15% next year, on an optimistic note, we have enough capacity. So very difficult to guide what that figure will be, but I'm only trying to say that CapEx will not be that much. If you lower our maintenance CapEx, CapEx for your -- for safety, environment, health and safety, and few of -- I mean -- and if there's some incremental idea going to fully finished castings for our 2- and 3-wheeler customers, that may be some CapEx. That's a strategy to go for fully finished machine casting, like I said. So I don't see as of now much of a CapEx happening next year, to be honest. We will control that because like I said, this year still, we have controlled about INR 640 million of CapEx.

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Operator [42]

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(Operator Instructions) The next question is from the line of Mahesh Bendre from KARVY Stock Broking.

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Mahesh Bendre, KARVY Stock Broking Limited, Research Division - Research Analyst [43]

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Sir, in the capital expenditure question, will it be lower than the depreciation cost in broad sense?

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Anurang Jain, Endurance Technologies Limited - MD & Director [44]

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No, no. There -- no. That will not be lower than the...

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Satrajit Ray, Endurance Technologies Limited - Group CFO & Executive Director [45]

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In India, depreciation is about INR 180-odd crores, and now first half, depreciation is about INR 165 crores. So in a year, [lower] depreciation.

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Anurang Jain, Endurance Technologies Limited - MD & Director [46]

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See, our depreciation is not very high. It's about INR 1,800 million. So it will be higher than that in this financial year for sure. Next year, we'll have to wait and watch what happens.

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Mahesh Bendre, KARVY Stock Broking Limited, Research Division - Research Analyst [47]

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Okay. Sure, sure. And sir, general outlook on the European business and the domestic business. I understand it's very difficult to answer, but you are in a better position than us to [look for] next 12 months at least, sir.

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Anurang Jain, Endurance Technologies Limited - MD & Director [48]

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See, as you can appreciate, we cannot be in a better position. This question should be asked to the OEMs. I think they are in a better position. We just follow them. So like I said, we are focusing on our business, and right now, we are focusing on all austerity measures to make more money, to be honest. So when upside happens, whenever it happens, we are fully prepared because we have enough of capacities to do it because we have built it up in 2018, '19 itself, the capacities. So very difficult to answer for India. For Europe, I'll request Massimo Venuti to speak.

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [49]

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Okay. Regarding Europe, the situation is more or less the same. It's not predictable, the situation in the next month. For sure, the market is going down. This is a reality in this market. In October, there was a jump that, from my point of view, is not so clear. They are reducing the stock because if you analyze the production capacity in Germany, this is the second quarter with a reduction, an important reduction of more or less 20% compared to the previous year and certainly means that in the next month, we will be an impact also in the registration process of the new car.

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Mahesh Bendre, KARVY Stock Broking Limited, Research Division - Research Analyst [50]

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Sure. No, sir, I'm just asking, even if you are not able to answer, on the company specifically, generally, on the industry side, when do you think will industry will be able to show some kind of recovery?

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Anurang Jain, Endurance Technologies Limited - MD & Director [51]

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See, like I said earlier, the base has come down. I mean it is quite low. I'm an optimist. I've seen enough downturns since the year 1991 with the Gulf crisis, 2000, 2001, 2008, '09. And in India, somehow, bad times don't last for too long. I mean that's my experience. But it doesn't mean what happened in the past happens in the future, too. So I'm an optimist, I can only say that. And I won't be surprised if it bounces back next financial year. But only thing is the monsoon has been good, the base effect is low, [public sector] banks have started financing. So we now wait and watch. It's a situation, very difficult question, very difficult to answer.

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Mahesh Bendre, KARVY Stock Broking Limited, Research Division - Research Analyst [52]

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Sure. And sir, the grant here (inaudible) will this be a recurring phenomenon? Or is it a onetime phenomenon?

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Satrajit Ray, Endurance Technologies Limited - Group CFO & Executive Director [53]

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It is -- sanction is about INR 367 crores receivable over 7 years.

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Mahesh Bendre, KARVY Stock Broking Limited, Research Division - Research Analyst [54]

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So every quarter, we will have different, right?

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Satrajit Ray, Endurance Technologies Limited - Group CFO & Executive Director [55]

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Yes. It depends on how I book my sales and how I collect my tax and pay to government. So it's an (inaudible). So to answer your question, you will see a concentration in the first 2 quarters of the -- of this year.

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Operator [56]

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The next question is from the line of Jinesh Gandhi from Motilal Oswal Securities Limited.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [57]

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My question pertains to...

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Operator [58]

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Mr. Gandhi, request you to speak closer to the handset, please. Your voice is not audible.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [59]

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Yes. Is it better now?

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Anurang Jain, Endurance Technologies Limited - MD & Director [60]

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Yes, yes. We can hear you.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [61]

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My question pertains to India business aluminum die casting. Can you update us on what will be [incidence] of BS-VI on the 2-wheeler aluminum die casting business? Do we see content going up or going down?

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Anurang Jain, Endurance Technologies Limited - MD & Director [62]

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No. There will be no impact except there are some small design changes in the toolings. But there will be no impact of BS-VI on the business at all.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [63]

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Okay. And secondly, on aluminum die casting business on passenger vehicles, while we have got a breakthrough with Hyundai, Kia and Tata Motors, are you seeing increasing inquiries from other OEMs as well on this...

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Anurang Jain, Endurance Technologies Limited - MD & Director [64]

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Yes, yes, we are. I cannot name them, but we are. We are.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [65]

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And who would be your competitor in passenger vehicles for aluminum die casting?

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Anurang Jain, Endurance Technologies Limited - MD & Director [66]

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See, the competition we have is -- Sundaram Clayton, I would say, is a competition. You have Sandhu.

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Ramesh Gehaney, Endurance Technologies Limited - COO & Executive Director [67]

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Jaya Hind.

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Anurang Jain, Endurance Technologies Limited - MD & Director [68]

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Then we have Jaya Hind Industries in Pune. These 3-, 4-passenger cars, commercial vehicles are quite strong, I would say.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [69]

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Okay. Okay. Understood. Second question pertains to the European business, just a clarification. Massimo mentioned about improvement in product mix that's resulting in RM cost benefits. Is it due to better pricing with Volkswagen or different products which have led to this?

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [70]

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Unfortunately [we do not have] better price with Volkswagen because it's only question of complex part compared to the past. In this moment, as you know, we are producing this [opportunity] for them. But it's true that we have had the benefit in EBITDA. But please, if you analyze our depreciation, we are growing import way compared to the past due to the fact that, as usual, we are specializing high level of automation. And so we invested for them more or less EUR 50 million. So from my point of view, it's [no more] that it is benefiting our contribution margin and also in EBITDA. For sure, part of this benefit will arrive also in the net result. In fact, as you can see, we grew more or less 9.1% in the second quarter from INR 3.8 million to INR 4.2 million in terms of net result. In the 6 months, we grew 8.7% from INR 8.1 million to INR 8.8 million of the previous year. But this is due to the better mix but not unfortunately an increase of price compared with the same parameter -- with the same product compared to the past.

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Operator [71]

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The next question is from the line of Bharat Gianani from Sharekhan.

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Bharat Gianani, Sharekhan Limited, Research Division - Analyst [72]

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Congratulations for a decent set of numbers (inaudible). My question is again on the incentives that we -- as you earlier pointed out to the earlier response to the previous question, that the benefit is -- total benefit is INR 367 crore, and that is achievable a period of -- over a period of 7 years. So I think I guess this will be your -- if my understanding is correct, then this will recur for the next 7 years, right? Is it the correct way to look?

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Anurang Jain, Endurance Technologies Limited - MD & Director [73]

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(inaudible) See, this does not start from April. It started from August of a particular year, in '19. So there will be parts of 2 years, which is not exactly a full financial year. We have already booked the eligible [half] for '18, '19, and '19, '20 is also pretty much done. And this is done on an actual basis. So we have -- still have another 5 years left, not 7.

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Bharat Gianani, Sharekhan Limited, Research Division - Analyst [74]

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Okay. Okay. So for next 5 years, I think I guess about INR 50 crore will be recurring for the next 5 years. That's sustainable, right?

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Anurang Jain, Endurance Technologies Limited - MD & Director [75]

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Yes, yes. Of course.

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Bharat Gianani, Sharekhan Limited, Research Division - Analyst [76]

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Okay, okay, okay, sir. And you said that, that would be skewed in the first half. And so...

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Anurang Jain, Endurance Technologies Limited - MD & Director [77]

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[How the sales go], right? Because if I go at the current rate of sales, it should not be a problem. Then mostly, in Q1, Q2, almost the entire booking is done.

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Operator [78]

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Next question is from the line of Priya Ranjan from Antique Stockbroking.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [79]

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A couple of question on the key clients like, I mean, what was our total sale of Bajaj business in this quarter? And how is the other -- like PSA, the Fiat, et cetera, how has been the growth in those customers, the top 5?

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Anurang Jain, Endurance Technologies Limited - MD & Director [80]

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No. So you are talking about the overseas?

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [81]

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Yes. One is overseas in the Fiat side and the domestic in terms of Bajaj, the stand-alone business.

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Anurang Jain, Endurance Technologies Limited - MD & Director [82]

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See, if -- okay, I will share with you. I see as far as the first 6 months are concerned, overall, our business with Bajaj has been flat. Though they have, I think, degrown overall, I think, in 3-wheelers, about 14% and about 4% in motorcycles. Our sales have been flat.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [83]

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Okay. So the -- it's roughly around 50% of stand-alone business.

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Anurang Jain, Endurance Technologies Limited - MD & Director [84]

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Absolutely, absolutely.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [85]

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Okay. And in terms of Fiat, how much we have declined because we are gaining in VW, but I think there has been degrowth of Fiat as well in production.

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Anurang Jain, Endurance Technologies Limited - MD & Director [86]

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So in fact, the quarter 2 saw for the first time the Volkswagen share of business increasing over Fiat Chrysler Group for the first time. I think I'll request Massimo to speak on this.

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [87]

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Yes. Volkswagen in the second quarter '19/'20 reached 29.2% of our turnover compared 27% of Fiat Chrysler. In 6 months, we have had a reduction of 33.8% with Fiat even if they lost in the market only 9.9% of share. But this is due to the reduction, the important reduction that we are having in the diesel technology in the European market because there was a reduction of more or less 40% compared to the previous year. And we are the first supplier of diesel component for Fiat. And for this reason, we had a major impact compared to the market. But fortunately, we are compensating this impact with Volkswagen because as you know, we are producing for them only gasoline component. And so we are compensating the reduction with Fiat.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [88]

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And in terms of Daimler, are we growing? I mean because last year, we have grown significantly in Daimler as well. So...

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [89]

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Yes. I spoke to you the reduction of Daimler. We have had 18.3% compared to the previous year even if they grew 9.2%. And this is due only to the impact of the minor export to United States due to the duty between United States and China. Because as you know, from Endurance, we produce the (inaudible), the component of the transmission for the Series M that Daimler producing in United States, and they export in China. In this moment, we are affected by this duty policy. And so we have had an important reduction compared to the market.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [90]

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And just on the domestic business side, I mean, a little long term, I mean, I think the 4 or 5 businesses where we are in, I mean, we are very -- pretty strong and in terms of overall market share, is also quite decent and quite healthy. So any new business -- I mean apart from the ABS, which probably will happen next year or so, apart from ABS, do you see any kind of new businesses where we can enter in possibly?

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Anurang Jain, Endurance Technologies Limited - MD & Director [91]

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So as I mentioned to you, we are getting into aluminum forgings. It is also part of lightweighting. We have signed up with a Italian company called FGM. It's near Turin. And this production will start by July 2020. This will start for our own in-house requirement of axle clamps and triple clamps for the inverted front forks. And this has huge opportunities for other aluminum forgings required for 2-wheeler, 3-wheeler passenger cars that we'll do in stage 2. First is to meet our own requirements. So this is a new project, which we are starting. And as we are talking, we're looking at other projects, which we'll announce later once we are 100% clear on that. But we are working on other projects also right now.

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Operator [92]

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The next question is from the line of Aditya Makharia from HDFC.

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Aditya S. Makharia, HDFC Securities Limited, Research Division - Analyst [93]

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Just wondering, any -- are we also hoping to get some orders for the gearless scooters in terms of the -- I believe we were developing some products on that side in terms of the clutch and the gears.

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Anurang Jain, Endurance Technologies Limited - MD & Director [94]

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Yes, yes, yes. So what we were planning was the CVT, the continuous variable transmission, which is under testing at Hero and Honda. So this product is not there today. When it comes to the part of our transmission group, we've been (inaudible) clutches now for motorcycles and 3-wheelers. So this will be, that way, a new product in the transmission side.

So to answer further this question, one is, of course, the CVT for scooters. But like I said, the paper-based clutch assemblies or the rear brakes growing or the combined brake system growing, coming in of ABS. Fully machine casting, like I said, inverted front forks becoming double. These are some of the growth drivers in our existing products apart from the aluminum forgings, which we have got into now.

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Aditya S. Makharia, HDFC Securities Limited, Research Division - Analyst [95]

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Okay. Got you. So nothing immediate at least on the CVT side?

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Anurang Jain, Endurance Technologies Limited - MD & Director [96]

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No. And in fact, as we speak, it goes under testing, we hope to get that clearance. See, both CVT and ABS both are under clearance.

So we are hoping that it happens fast obviously.

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Operator [97]

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The next question is from the line of Ronak Sarda from Systematix.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [98]

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Sir, just to follow up for the H1, if you can highlight for the India business what has been the growth that you highlight, sir, Bajaj, which has been highlighted both for HMSI, Hero and Royal Enfield as well.

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Anurang Jain, Endurance Technologies Limited - MD & Director [99]

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See, normally, we don't get into detailed figures. I can only say that degrowth, everybody has been less than what they have, degrowth. [As you know] I don't share those numbers. But if they ask, Bajaj, our largest customer, I said we are flat while they have degrown, as you know.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [100]

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Yes, okay. And another clarification on the incentive, which you highlighted. I didn't hear it clearly. Did you say it could be more tilted in the first half, and it won't be coming...

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Anurang Jain, Endurance Technologies Limited - MD & Director [101]

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Yes, yes. So it is adjusted against your state, I think, GST. So [once the amount] gets used, which is looking at our sales, has happened in the first 2 quarters, mainly largely, so they should happen for the next 5 years.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [102]

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Yes. But for H2 FY '20, you won't receive similar benefit. Is that the way? Or you'll receive...

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Anurang Jain, Endurance Technologies Limited - MD & Director [103]

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Yes, yes. So we will not repeat the similar benefit.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [104]

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Okay. But it would come for next 5 years, the same number?

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Anurang Jain, Endurance Technologies Limited - MD & Director [105]

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Next 5 years, mainly in the first 2 quarters.

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Operator [106]

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Next question is from the line of Chirag Shah from Edelweiss.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [107]

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Sir, one really basic question. Sir, between brake assembly then ABS, what is the pricing difference that you can incrementally generate? What is the value content increase that goes up for you?

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Anurang Jain, Endurance Technologies Limited - MD & Director [108]

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See, that is something I cannot get into, I'll be honest with you. I cannot get into...

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [109]

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On a broader basis, on a conceptual basis, how should we try to understand the value content increase?

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Anurang Jain, Endurance Technologies Limited - MD & Director [110]

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There are many people on the line. I will not like to talk about that here.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [111]

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Yes. And then second, just a clarification. The gross margin improvement that we have seen in Europe, it seems to be very sharp. Is it largely because of the change in the product mix because VW has come in and it's a new order? Because the swing that we are seeing sequentially is significant over there. Is there anything else that we are missing?

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Anurang Jain, Endurance Technologies Limited - MD & Director [112]

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No, no. Already, I think this question was answered. We can repeat it. But BWI has nothing to do with that overseas. BWI is a...

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [113]

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Volkswagen, Volkswagen.

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Anurang Jain, Endurance Technologies Limited - MD & Director [114]

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Sorry, sorry. Okay. So Massimo, you can repeat the...

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [115]

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Yes. (inaudible)

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [116]

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So I am saying is, from Q1 to Q2, if I look at gross margin, sales minus raw material, that ratio has gone up from 61.4% to 68.1%.

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [117]

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Okay. Okay. So I'll...

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [118]

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That jump seems to be too sharp. So...

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [119]

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It's only due to the acquisition of Endurance Casting. Because in the second quarter compared to the first quarter, there will be -- there is -- there was an impact of the machining activities that we buy from the external market higher compared to the first quarter. In fact, you can see this different of 4% in an increase of other expenses. For these reasons, we haven't an impact in EBITDA. It's not a question of contribution margin, it's only a question of different mix compared to material and other expenses.

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Operator [120]

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The next question is from the line of Aditya Jhawar from Investec.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [121]

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Anurang, one question on aluminum die casting business in India specifically for 4-wheelers. Earlier, I mean the thought process was that the margins and ROCs were not that accretive. So that's why we were kind of defocusing from that business. So is the understanding that the margin this time around is a bit better, ROCs are better, and hence, our aggregate margin will not get diluted because of increasing proportion of die casting for passenger vehicles?

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Anurang Jain, Endurance Technologies Limited - MD & Director [122]

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Yes. So I would put it this way, like I've mentioned earlier also, that we are focusing on machine castings. You see, for the last 2 years, we are looking at machine casting. So the CapEx is higher, but the ROI is much better in machine casting, but the value-add is good in machining. So OEMs are also now getting more and more open to getting the machine casting business as compared to the past. So that's the reason I said one of the major focus areas is to do -- to reach complete fully machine castings even for our existing business. So to answer your question, passenger cars with machinery is a good business to be in, very, very, very good EBITDA margin business.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [123]

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So -- but will it be comparable to the proprietary business?

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Anurang Jain, Endurance Technologies Limited - MD & Director [124]

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Definitely.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [125]

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So essentially, it will be margin and ROC accretive in your assessment?

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Anurang Jain, Endurance Technologies Limited - MD & Director [126]

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Yes, absolutely. And in fact, let me tell you, on the casting business, we have increased our margin [then] this year compared to last year.

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Aditya Jhawar, Investec Bank plc, Research Division - Analyst [127]

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Primarily because of increase of share of machine products?

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Anurang Jain, Endurance Technologies Limited - MD & Director [128]

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Also because of that and of course, I think better purchasing also of material. And so there are many factors to that, improvement in efficiencies also. So many factors have led to this.

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Operator [129]

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The next question is from the line of Mahesh Bendre from KARVY Stock Broking.

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Mahesh Bendre, KARVY Stock Broking Limited, Research Division - Research Analyst [130]

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Sir, what could be the tax rate we should assume for the domestic and international operations for FY '20?

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Satrajit Ray, Endurance Technologies Limited - Group CFO & Executive Director [131]

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Domestic, work with around 25%.

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Mahesh Bendre, KARVY Stock Broking Limited, Research Division - Research Analyst [132]

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And international?

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Anurang Jain, Endurance Technologies Limited - MD & Director [133]

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International would be...

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Massimo Venuti, Endurance Technologies Limited - Non-Executive Director [134]

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28%.

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Anurang Jain, Endurance Technologies Limited - MD & Director [135]

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28%.

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Mahesh Bendre, KARVY Stock Broking Limited, Research Division - Research Analyst [136]

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Sure. And sir, last question is, since Bajaj has launched a new tool, electrical -- I think yesterday, they revealed it to public also in Pune. So will our content per vehicle will go up in EV?

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Anurang Jain, Endurance Technologies Limited - MD & Director [137]

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No, it will not go up, it will go down because you don't have any clutch in that. It will also depend on the -- because see, we work out content based on all the 4 -- in the product areas. So as there's no clutch, it will go down.

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Operator [138]

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As there are no further questions, I now hand the conference over to Mr. Nishit Jalan for closing comments.

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Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [139]

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Thank you. On behalf of Axis Capital, I thank Endurance management and all the participants for joining the call today. Mr. Jain, I'll hand it over to you for any closing remarks or if you'd like to just conclude.

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Anurang Jain, Endurance Technologies Limited - MD & Director [140]

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No, no. I mean well, I can only say that we are focused with profitable growth and higher-than-industry growth we should keep doing both in good and bad times. So I'll just like to say that [as a closing remark].

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Operator [141]

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Thank you. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.