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Edited Transcript of PRECAM.NSE earnings conference call or presentation 19-Aug-19 10:00am GMT

Q1 2020 Precision Camshafts Ltd Earnings Call

SOLAPUR Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Precision Camshafts Ltd earnings conference call or presentation Monday, August 19, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Karan Y. Shah

Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director

* Yatin Subhash Shah

Precision Camshafts Limited - Chairman & MD

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Conference Call Participants

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* Bhaskar Chaudhry

Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory

* Lalaram Singh

Vibrant Securities Private Limited, Research Division - Research Analyst

* Vatsal Gupta;Baroda Brokers Pvt Ltd;Director

* Vipul Shah;Sumangal Investments;Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Precision Camshafts Limited Q1 and FY '20 Earnings Conference Call.

This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the 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 now hand the conference over to Mr. Karan Shah, Whole Time Director, Business Development. Thank you, and over to you, sir.

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [2]

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Thank you very much. Good afternoon, ladies and gentlemen. I would like to thank you all for being a part of this Precision Camshafts Q1 FY '20 Earnings Con Call. Along with me today, I have Mr. Yatin Shah, Chairman and Managing Director; and SGA, our Investor Relations advisers. Unfortunately, Mr. Joshi, our CFO, will not be able to join this call today. We will, thus, get back to you on specific finance questions at a later point in time if you have any.

Let me begin with an overview of the automotive industry right now. I'm sure everyone on this call is aware that the automotive industry is, indeed, going through one of the toughest times in the last decade. This situation is evident as even the top auto manufacturers have taken a shutdown of plants for a number of days to manage inventory and to control supply. Many factors have contributed to this, which include the liquidity crunch in the economy, higher insurance and tax rates, which has dampened the customer sentiments leading to lower demand. Consequently, the major auto component manufacturers have also had to adjust their production schedules resulting into underutilization of capacities and temporary plant shutdowns.

The industry has met with the finance authorities, and the industry is hopeful for a positive outcome from the same. Moreover, there is hope that after a brief slowdown, the domestic industry will start recovering from the festive season onwards.

Coming to the Precision Camshafts' performance, we are in a much better position than the overall industry as we have a very diversified client base in India as well as outside of India, which has led us to perform strongly in an otherwise weak environment. In our consolidated group business, more than 70% of our revenue contribution came from outside of India in Q1 FY '20.

Our outside India business revenue at a consolidated level grew by 44% in Q1 FY '20 year-on-year, while our India business revenue was flat year-on-year reflecting the weak domestic business environment.

Our diverse customer base from across 4 continents and over 20 countries has insulated us from the Indian automotive slowdown. Markets such as Brazil, Uzbekistan, Europe continued to grow for us as the PCL group now offers a wide variety of components such as camshafts, balanced shafts, injector components, et cetera.

And now due to the overview of the performance highlights of Precision Camshafts' stand-alone camshaft business for Q1 FY '20, the total income in Q1 FY '20 grew by a strong 19.5% year-on-year to INR 119.8 crores led by 15% camshaft growth volume. Our gross profits in Q1 came in at INR 85 crores, which was 20.7% year-on-year higher than the last year, while our gross profit margins stood at 71% in Q1 FY '20 as compared to 70.3% in Q1 FY '19, which is about 70 basis points higher.

Our EBITDA in Q1 stood at INR 28.2 crores, a year-on-year growth of 14.3%, and our EBITDA margins came in at 23.5% in Q1 of FY '20 as compared to 24.6% in Q1 of FY '19.

Profit after tax stood at INR 10.3 crores in Q1 of this year versus INR 7.5 crores in Q1 of last year, a year-on-year growth of solid 36.9% and consequently, PAT margins expanded by 110 basis points from 7.5% to 8.6% in this quarter.

Our focus remains on increasing sale of machined camshafts volumes, which was evident in our Q1 results as well. Our machined camshaft volume increased by 40% in Q1 FY '20 year-on-year to 626,000 units, while our casting camshaft volume also grew by 7% to 1.44 million units in Q1 of this year. That's giving a total blended volume growth of 15% in Q1 of this year compared to the last year. The solid growth in machined camshaft is a result of our continuous marketing efforts and excellent serviceability, which has led us to add new clients on machined camshaft as well as moving some clients from casting to machined camshafts.

The utilization levels in our newly commissioned machining facility have also started to increase, and we hope that we can reach optimum utilization in the next 2 to 3 years.

Let me now quickly take you through rationale and brief of the 3 acquisitions we have done in the last years. As a recap, MEMCO in Nashik offers fuel injection parts, brake components and high-precision instrumentation components. We continue to expand on this business in the years to come.

MFT, based in Germany, has varied product offerings consisting of balancing shafts, bearing caps, engine brackets, camshafts, et cetera, supplying to our German OEMs such as Audi, VW, BMW, et cetera.

Our Dutch company, EMOSS, provides a complete solution for electrified heavy vehicles. The business model includes conversion of diesel buses and trucks into ready-to-use electric trucks or buses with the installation of kits. There is a big scope of cross-selling our product offerings amongst our group companies, which can lead to a great amount of synergies. Carefully integrating all these companies together can bring us cost savings, while also adding to the revenue.

I'm very pleased to announce strong consolidated performance as well for our Q1 FY '20 as new group companies are now starting to take shape. Revenues from operations in Q1 of this year stood at INR 197.1 crores, a year-on-year growth of 27.6%.

Just to give you a breakup of the 3 group companies. The EMOSS revenue increased by more than 3x to INR 29.7 crores in Q1 of this year as the demand for electric trucks and buses in Europe has increased. MFT revenues stood at INR 42.2 crores, while the revenue from MEMCO stood at INR 10.2 crores in Q1 of FY '20. The revenue at MFT has been flat or has slightly reduced due to the average rate of the euro going down, whereas the revenue at MEMCO as compared to Q1 of FY '19 has reduced due to lower offtake by one of the large domestic clients.

The consolidated EBITDA for Q1 of this year increased by 16% year-on-year to INR 31.8 crores, while EBITDA margins came in at 15.8% in Q1 of FY '20 as compared to 17% in Q1 of last year. Profits from continuing operations at the group level more than doubled to INR 5.1 crores in Q1 of FY '20 versus INR 2.5 crores in Q1 of FY '19.

I'm also very pleased to announce 2 new orders, which we have recently signed and announced to the exchanges. One for camshafts in the Precision Camshafts stand-alone business, while the other one is for balancer shafts at MFT, which is our step-down subsidiary. For Precision Camshafts, the order is to supply 1 million fully machined camshafts over the life of the program to General Motors in Brazil. This is on top of the 6 million fully machined camshaft orders that we have initially received from General Motors and have also announced to the exchanges. This is -- this testifies our excellent product quality and our services. The value of this contract for an additional 1 million would be INR 90 crores over the life of the program.

For MFT, we've recently signed a contract to supply 180,000 machined balancing -- balancer shaft assemblies to Linamar over the life of the program. The value of the order would be close to EUR 26 million or INR 208 crores over the life of the program. While these are long-term contracts, they are subject to platform success in the end markets, and thus volumes may undergo changes based on markets.

I would like to end by restating that the Precision Group has performed strongly in Q1 FY '20 registering a 27% year-on-year growth in consolidated revenues, while still maintaining healthy EBITDA margins.

With this, we would like to now open the floor for Q&A. Thank you very much.

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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 Vipul Shah from Sumangal Investments.

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Vipul Shah;Sumangal Investments;Analyst, [2]

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What is the royalty payable to EMAG for this technical collaboration? And is it fixed or is it linked to volumes?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [3]

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There is no amount payable to EMAG for the technical collaboration. We have a long-standing relationship with EMAG because of which we have exclusivity on certain equipment that we buy for them for assembled camshafts. There is no outflow of money.

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Vipul Shah;Sumangal Investments;Analyst, [4]

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Okay. And sir, can you give me the value of machined camshafts and casting camshafts for quarter 1 '20 and Q4 '19 also?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [5]

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The volumes for machined camshafts in...

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Vipul Shah;Sumangal Investments;Analyst, [6]

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The value. I want value. Volume, you have given in your presentation.

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [7]

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Yes, but -- okay, one second. I do not have the value figures right in front of me right now, but what I can tell you is that more than 50% of our revenue came from machine camshaft and the other came from castings. But we will get back to you on the exact numbers.

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Vipul Shah;Sumangal Investments;Analyst, [8]

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And so lastly, can you give me EBITDA for all 3 subsidiaries for this quarter, I mean MFT, MEMCO and EMOSS?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [9]

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We don't publish these numbers. We have the EBITDA for the stand-alone business and the consol business. So in the past, we have always said and I can give you that ballpark again, which we have said in the past, is that MFT and EMOSS are in the 10% to 15% range EBITDA, and MEMCO is slightly above 15%. That is

(technical difficulty)

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Operator [10]

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Hello, sir, are you connected?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [11]

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Yes. I am there.

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Operator [12]

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Yes. Mr. Shah, I request you to stay connected. It seems we have lost the line for the management. Also ladies and gentlemen, please stay connected while we reconnect the management. Thank you.

(technical difficulty)

Ladies and gentlemen, apologies for the inconvenience. We have the line for the management connected. Over to you sir, and Mr. Shah, please go ahead with the question.

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [13]

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Sorry, we got disconnected, but I hope you -- I answered your question.

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Vipul Shah;Sumangal Investments;Analyst, [14]

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Right, sir. But regarding this value of camshaft, if I drop a mail, I hope you...

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [15]

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Yes, yes, of course. We'll come back to you on that.

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Vipul Shah;Sumangal Investments;Analyst, [16]

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And when do we expect to reach the full utilization for the new camshaft to foundry facility?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [17]

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We would reach optimal utilization in 2 to 3 years -- in the next 2 to 3 years.

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Operator [18]

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The next question is from the line of [Priyanka Singh] from (inaudible) Securities.

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Unidentified Analyst, [19]

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I have 2 questions on MEMCO. So basically, what is the product profile and your ownership?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [20]

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Do you want me to answer one at a time?

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Unidentified Analyst, [21]

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Yes, please.

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [22]

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The ownership is 100%. We own 100% of the company, and the product profile is mainly injector components supplying into Tier 1s such as Bosch and Delphi, and we also manufacture some very critical, nonautomotive instrumentation components that go into a variety of applications. These are sold to global clients.

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Unidentified Analyst, [23]

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And what is your Q1 FY '20 performance? Was it same time last year?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [24]

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Like I said, the Q1 performance was 10 -- roughly INR 10 crores compared to INR 12 crores in Q1 of last year, and this is mainly because of lower offtake from one of the larger Indian automotive suppliers.

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Unidentified Analyst, [25]

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Okay. And key client over Europe?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [26]

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Bosch, Delphi.

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Unidentified Analyst, [27]

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Right, right. And what is your target going forward in terms of growth rate?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [28]

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Sorry?

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Unidentified Analyst, [29]

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In terms of growth rate, what is your target?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [30]

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We are -- I mean I can't tell you where we plan to be by the end of this year, but we hope to continue with the same run rate.

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Unidentified Analyst, [31]

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Okay. And then from this CapEx...

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [32]

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If I may comment for a minute?

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Unidentified Analyst, [33]

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Yes.

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [34]

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We are primarily dependent on Bosch and Delphi. Both our suppliers to automotive OEMs. And obviously, if these 2 are affected as we move forward, there is every chance that it is growing better. However, I think, we hope that things will improve as we move forward.

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Unidentified Analyst, [35]

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Okay. And just one last question. What will be the CapEx required in MEMCO? And what will be the funding plan?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [36]

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There is some CapEx plan for the next few years, which will be in the range of INR 15 crores to INR 20 crores, and this would be combination of equity and debt.

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Operator [37]

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The next question is from the line of [Yash Gupta] as an individual investor.

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Unidentified Participant, [38]

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First question, what's the total salary to the KMP for FY '19?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [39]

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Sorry, I didn't get the question.

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Unidentified Participant, [40]

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What is the total salary to the key management persons for FY '19?

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [41]

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That data in terms of key management personnel, we can come back to you on that. Now it is a key management you're talking about, the entire team?

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Unidentified Participant, [42]

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The key management -- No, no. All the key managerial percent.

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [43]

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We don't have that data right now. We'll come back to you.

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Unidentified Participant, [44]

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Okay. What I have collected from the last year annual reports is around to be INR 7-odd crores, sir. So do you think with the market cap of (inaudible) INR 7-odd crores (inaudible) justifiable?

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [45]

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When you look at this now, the same management team contributes to the growth of the acquired company as well, so which if you look at the total turnover, it's about INR 700 crores. So we are looking at paying the same management team is also actively contributing to growing these acquired companies as well.

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Unidentified Participant, [46]

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Okay. Over last few years, particular camshaft, got phased out in China. So do you think this can be happen in -- with our other businesses also?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [47]

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Can you repeat your question, please?

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Unidentified Participant, [48]

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Over the last few years, particular camshaft that have got phased out in China, so due to that they've closed out our one of the subsidiaries in China. So this can be happened with other products in India also?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [49]

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No. This -- we don't expect this. There was clear reasoning for why we have divested from our joint ventures in China, and we've explained that in the previous calls as well. So we don't see that going forward.

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [50]

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I think to answer your question also. There has been no phaseout of camshafts in China in any order. We have divested from our joint ventures for a specific reason.

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Unidentified Participant, [51]

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Okay. And what's the projection for the free cash flow for the next year? And how are you going to utilize this?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [52]

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I'm sorry. We can't answer this futuristic question.

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Unidentified Participant, [53]

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But any of the particular data like INR 100 crores or the INR 50-odd crores?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [54]

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Sorry, we can't give you that guidance.

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Unidentified Participant, [55]

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Okay. So last question. At the current share price in the stock market, what's your take on this? You've got any -- anything you can tell us?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [56]

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Despite the strong financial results of the year, and of Q1, we are also trying to understand what needs to be done in order to improve the share price. We've done our best. We are showing strong performance even in the weak market conditions, and we hope the market recognizes within some time to come.

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Operator [57]

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The next question is from the line of Bhaskar Chaudhry from Entrust.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [58]

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A couple of questions on the margins...

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Operator [59]

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Sorry, Mr. Chaudhry. We are unable to hear you clearly, so I request you to use the handset closer.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [60]

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Hello, is this better?

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Operator [61]

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Yes.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [62]

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Yes, okay. So a couple of questions on the margin. First, on the stand-alone margins. Although the contribution of machined camshaft is increasing, but the margins seem to have dropped from the Q1 FY '19 figure, which kind of is counterintuitive to the machined camshaft volume increasing. So why do you think that is?

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [63]

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I think the primary reason for this is that some of the input costs have risen sharply, which we had not anticipated. All the other costs are some of the things that we can pass on to the customer as we discuss and negotiate. One of the most important cost is electricity, which has risen sharply in the last year. This is a cost that most customers find difficult to absorb, and we are still in the negotiating phase. This is probably one of the largest business reasons for what you have explained that -- as you know, for what you've stated right now for the decline in profits or the margins.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [64]

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Okay. And Mr. Shah, related question on the consol margins. So Q1 FY '19 may not be like-to-like comparison because you have not consolidated all entities. But if you look at Q4 FY '19 versus Q1, the revenue figure for the consol numbers is almost similar. There may be some seasonality, et cetera, but the EBITDA is almost half in Q1 versus Q4 last year. So could you just help us understand why that is?

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [65]

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Okay. What we will do, we'll -- our finance team will come back to you with a specific answer, but as I tell you I probably will share with you just a few things. We'd like to take some notional entries into the books. For example, we had a goodwill that has to be depreciated that has taken INR 4 crores hit to the margins in consol basis. What I would do is -- or me and Karan would do is to come back to you specifically on why the margins have reduced although they are notional in nature. We will explain this in a more specific way.

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Operator [66]

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The next question is from the line of [Ritesh Bafna] from [RB Securities].

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Unidentified Analyst, [67]

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Sir, I would just like to post a question on the company that we have named as MFT. So can you just please explain what sort of products profile do you have in the company? And what synergies do we plan to reap out of this?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [68]

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Sure. I think that the MFT is a company in Germany that we acquired last year. This company is mainly into manufacturing -- machining rather of niche components. These include balancing shafts, these include bearing caps, very intricate prismatic parts, which are nonengine related also. These are the typical profile of the products, and they're supplying into all the large German OEMs including VW, Audi, BMW, Daimler and also several of the Tier 1s in Germany.

Few reasons -- a few things that you can call synergy. What we are looking at is, going forward, if there is a requirement for raw material of cast products for MFT to machine, we would certainly look at PCL foundries as one of the ways to produce them and ship them over to Germany. That's one clear synergy.

The other one is on the customer front as well. Just to give you an example, the biggest customer at MEMCO in India, our acquired company has been Bosch. Bosch being a German company, when they found out that we have also acquired MFT, has come to MFT with new business almost immediately after acquisition, which was never a customer of MFT in the past. So this has certainly helped.

Apart from this, for our stand-alone camshaft business, we see MFT as a great manufacturing footprint to have in Germany to produce low volume parts, prototypes, test work, et cetera, for our German customers, so that we are much closer to them, give them a feeling of comfort. And there is certainly a lot of space at MFT in terms of area where we can expand in the future.

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Unidentified Analyst, [69]

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Okay. Okay. So since you mentioned about a few clients, I would just like to understand what -- who are the clients in this business right now? And what sort of contribution these clients will be having to the revenues of MFT. And if -- as you mentioned, what sort of expansion do you plan at the vacant plant?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [70]

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So that expansion is yet to be articulated and planned, so that we will come back to you at a later point. But in terms of customer profile, the largest customer is the VW Group, as they are one of the largest OEMs in Germany. Consequently, they are one of the largest customers, and we are supplying to a variety of their plants not just to VW, but also to Audi, also to some of the other divisions. But besides that, we have BMW, we have Bosch now, we have different Tier 1 such as Westfalia. So we have quite a diverse customer base there.

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Unidentified Analyst, [71]

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Okay. So now how much will be your largest client contributing to MFT then? If you could share?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [72]

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As a group, it stands at about 50-some percent, but it's the whole company. So it's hard to say that, that's the largest client.

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Unidentified Analyst, [73]

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Okay. Okay. Then can you just give me some color on what CapEx have we planned in this business during the current year or in the future? And how do you know the plan to support the CapEx, either it will be through internal approvals or through debt? Or how will be the procedure of that? I mean what will be the source for that?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [74]

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Yes. So we have already announced this to the exchanges and also spoke about this the last call where we have -- after the acquisition, we have invested about EUR 9 million or say INR 60-odd crores into MFT for new CapEx for a new project that they have won. This new project also we have just announced with our Q1 results, which is a balancer shaft assembly for large client, Linamar, in Germany. The funding for this was partially through PCL equity, which we put in there and majorly through debt on MFT's balance sheet, not on the parent company here in India. And besides this, we have no further CapEx planned until we fully utilize and optimize the capacity setup.

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Unidentified Analyst, [75]

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Okay. I get it. I get it. And lastly, if you don't mind, what sort of revenue outlook do you see during the current fiscal? And also if the capacity you announced will be utilized there, what sort of revenue do we foresee that we will be able to make at full utilizations.

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [76]

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I mean it's hard to give you an outlook for this year, but we are -- like I said earlier in the introduction that while the Indian automotive industry is certainly seeing a slowdown, we are insulated because of our exposure to the global market. So we hope that we can continue at the way we have been doing this quarter, but there are -- obviously, we can't know how it is going to be in 3 or 6 months from now.

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Unidentified Analyst, [77]

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Alternatively, if you could just help me with the capacity utilizations currently at that plant?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [78]

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At where? In PCL?

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Unidentified Analyst, [79]

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MFT, yes.

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [80]

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In MFT, I mean I would not include the new CapEx because that has not just been done and not utilized at all right now because orders -- I mean start of production is yet to begin, but other than that we are upwards of 75% capacity utilization in Germany -- at the German plant.

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Unidentified Analyst, [81]

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And on a consolidated basis at Precision Camshafts?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [82]

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Consolidated, I can't tell you capacity utilization because EMOSS has a very different model, et cetera, but in the camshaft business, in our foundries, perhaps at this point, 65% to 70%. And in our machine shops, more than 70% utilization at this point.

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [83]

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Again, in the machine shop, we have just put in that INR 230 crores. So that's -- the revenues from the investment is yet to happen. If you created -- don't consider that INR 230 crores, then we are at about 80 -- 75% to 80%.

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Operator [84]

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The next question is from the line of Vatsal Gupta from Baroda Brokers.

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Vatsal Gupta;Baroda Brokers Pvt Ltd;Director, [85]

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I had a couple of questions. So if you could get -- take the bookkeeping question out of the way for us. Based on something the earlier participants asked, on the stand-alone numbers, I can see that other expenditure line item has increased drastically. I think that is reducing the EBITDA margin. So other than the electricity expenses, is there a large expense that has increased this quarter, which is calling the margin contraction?

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [86]

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No. No. The largest expenses that hit us is the electricity expenses, which has been pretty significant.

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Vatsal Gupta;Baroda Brokers Pvt Ltd;Director, [87]

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Okay. The other thing I wanted to understand was on the stand-alone business, I can see that the Europe and other countries' business have expanded significantly. So I can think that we have gained market share globally, maybe not in India, but globally, definitely. So can you please explain what's going on? And where can we see those countries giving us business?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [88]

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Yes. So as with the orders that we have declared up until now in the exchanges, a lot of the new business that we have got, perhaps some competitors, which we have got transferred to PCL or new platforms altogether for the OEM, we're supplying large volumes now into Ford of Europe, which is in Spain. We are supplying very large volumes now for the General Motors contract, which is going to Brazil. Also significant volumes going into Uzbekistan, into South Korea. So quite a diversified geographical footprint, I would say. So it's not specific to one geography.

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Vatsal Gupta;Baroda Brokers Pvt Ltd;Director, [89]

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Okay. That's good to hear. So would it be fair to say that we are -- the new platforms are coming to PCL and not going to our competitors worldwide?

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [90]

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You could say that. Not always. We try and we try and see where we are can. But I would just add to Karan what he had said. Up until probably a year ago or so we were always considered a very, very Pan-Asian supplier. Today, fortunately, we have got recognition in terms of becoming a global supplier. This General Motors Brazil contract, I think, is one sign of recognition where PCL has emerged as a global supplier for that platform to all those regions in the world.

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Vatsal Gupta;Baroda Brokers Pvt Ltd;Director, [91]

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That's good to know. The other thing I wanted to know was, of course, EMOSS. So what -- do we have EMOSS to India? And if yes, then would EMOSS be cost competitive given the kind of tenders that the government is floating currently on electric buses?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [92]

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I mean if you look at the EMOSS revenues from last quarter to this quarter -- or last -- Q1 of last year to Q1 of this year, you're going to see almost a 3x increase in revenue, and that is mostly coming from the matured markets where electric mobility is much more acceptable and the infrastructure is available. So most of our resources at EMOSS are right now dedicated to orders that we have on hand. While there is certainly a plan to introduce this technology into India and -- maybe in the year or two, we are still working out the -- some of the -- how do you say, the logistics of how this would work out and in terms of partnership, in terms of how we would do it. So...

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [93]

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There are a lot of German regulatory stuff that is required for this to happen in India. The homologation process is required. So I think we have initiated the process. It will take some time, but we do hope to have this. And as far as being competitive, I think probably that's the bridge we'll cross when it comes. At this point of time, it's very hard to say.

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Vatsal Gupta;Baroda Brokers Pvt Ltd;Director, [94]

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Okay. No, the reason I asked was BYD has partnered with an Indian company to participate in the government tenders. I'm just wondering if we could be eligible to participate in those tenders as well.

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [95]

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Not at this point of time because the technology and the products are still not homologous in India. And that is a longer process, I think, probably because these are -- the company that you speak of has begun years ago, and they probably have been ahead of a lot of things. I think they have got their products homologically accepted by the Indian authorities. And given the Indian government's push to make this happen, I think there will be positive chances for us to do soon and do soon.

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Vatsal Gupta;Baroda Brokers Pvt Ltd;Director, [96]

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And just one last thing was we've talked about even in the previous calls about the kind of camshaft volumes we want through in FY '21 and FY '22. But given the overcapacity in the entire auto sector right now, are we still on track to achieve those number? Or are we thinking of pushing those out -- pushing the numbers out a few years further?

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [97]

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It's very hard to predict now what is going to happen in the next couple of months or year. But if you look at the situation as of now or if you look at what is happening, we seem to be on track. But like Karan said, it's very difficult to predict because what is happening in the Indian market was never predicted. I mean the kind of fall that we have seen has been -- has not been anticipated, has been longer than what we think it is. We haven't seen the bottom end of it. Now on the export front to where we supply, we don't see it happening now. But the disclaimer has to be put that there is every possibility that things could look different if politics change around the world.

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Operator [98]

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The next question is from the line of [Atul Kothari] from (inaudible) Securities.

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Unidentified Analyst, [99]

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Sir, my question is in reference with EMOSS. Sir, may I know as to how many days it takes to convert a diesel truck to electric truck?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [100]

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Once the first one is done, which is the harder part, the first conversion is always the most difficult because it's a lot of technology, a lot of retrofitting involved there. But once that one is done, every other bus or truck can be done in a period of 4 to 6 weeks.

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Unidentified Analyst, [101]

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Okay. So on an average, it takes around a month or so?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [102]

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A month or two, let's put it like that, yes.

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Unidentified Analyst, [103]

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Okay. And sir, what is the cost involved?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [104]

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It depends. I mean it would be very wrong for me to give you an average because EMOSS is one of the few companies, who can actually do retrofitting of a wide variety of vehicles going from 2 tons all the way to up to 50 tons in terms of payload. So the cost would be very different based on the type of vehicle involved.

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Unidentified Analyst, [105]

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Okay. So sir, to put it in another way, what is the cost economics for a truck owner to go for it?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [106]

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Let me put it like this, if you have, say, like 50-seater bus, would cost anywhere between EUR 50,000 to EUR 80,000 to make it fully electric.

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Unidentified Analyst, [107]

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Okay. So -- and sir, is there a potential to bring this technology? Is it viable in India of going ahead? Will it be viable in India?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [108]

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Yes. Like we said, we are exploring this. We have already started the initial process of connecting with the right regulatory authorities, finding the right partners, et cetera, but certainly the technologies would be viable, but we're still in the process of how and when.

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [109]

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More than the technology, I think what is important also if India is ready with the infrastructure to actually start accepting all of these, yes? So I think it's very important that both works in parallel than just one.

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Operator [110]

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The next question is a follow-up question from the line of Vipul Shah from Sumangal Investments.

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Vipul Shah;Sumangal Investments;Analyst, [111]

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Sir, can you quantify electricity expenses because you mentioned twice? So what was...

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [112]

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It increased almost into the tune of about INR 6 crores.

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Vipul Shah;Sumangal Investments;Analyst, [113]

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INR 6 crores. As compared to last quarter or corresponding quarter of last...

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [114]

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Q1 of last year.

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Vipul Shah;Sumangal Investments;Analyst, [115]

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And lastly, sir, can you comment about how our company will -- means how we are taking this whole EV story? Means how our company is responding if EVs is accepted much faster, what is our strategy? So if Mr. Yatin Shah can have some comments?

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [116]

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Okay. So the thing is that, first of all, I think everybody has a different perception about this. So given that our ears and eyes are close to the ground, we don't believe EV is an immediate or a medium-term threat. That doesn't mean that we're ignoring it. As a result of which we invested and bought a company in Netherlands, that does this kind of business. So instead of trying to develop components in the EV space, which could probably be a challenge as we move forward because of the uncertainty, it is best to involve in a complete solution. And that's what we have done. Now obviously, we are looking at expanding this business as we move forward. Along with how things shape up, I mean everybody has a different way of looking at the entire thing. So we continue to focus on internal combustion engines and as well as give the required or due attention to the EV space.

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Operator [117]

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(Operator Instructions) The next question is from the line of Lalaram Singh from Vibrant Securities.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [118]

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My question was how much percentage of the camshaft revenues for us comes from commercial vehicles?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [119]

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We are very much focused on passenger cars. So commercial vehicles would be less than 5% of our stand-alone revenues.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [120]

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Okay. Any particular reason why we are not present into commercial vehicles?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [121]

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I mean we are a specialist in terms of passenger cars. Within passenger cars also we operate in a very specific engine range, and that is purely because that is the largest volume and the most demanding customer in terms of quality, in terms of price also. So we prefer to be in that market where the volatility is much lower than that what you see in commercial vehicles.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [122]

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Got it. Secondly, with respect to MEMCO, I think we acquired it for around INR 40-odd crores, right?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [123]

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Yes.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [124]

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And what was the debt on the company when we acquired it? Net debt or....

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [125]

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Very little debt. I can get back to you with the exact number, but not significant debt.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [126]

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Okay. And what was the EBITDA margin of the company when we acquired?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [127]

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About 15%.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [128]

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Okay. So we bought it for around 7x EBITDA?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [129]

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Yes. Give and take, give and take, yes.

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Operator [130]

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(Operator Instructions) We have a follow-up question from the line of Lalaram Singh from Vibrant Securities.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [131]

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Can you give us some guideline on how we wish to allocate capital in the next 2 to 3 years given big CapEx is already over for the machining side? So do we plan? Are you open to further acquisitions? Or can we also open for doing buybacks given the valuation of our own companies, I think, less than 3x EBITDA? So any thoughts around capital allocation will be very helpful.

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [132]

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At this point of time, on the companies that we have acquired as well as PCL for the next 2-odd years, they don't -- we don't see any significant CapEx. I think we have done enough right now, and we need to see that fructifying and we need to see that translating into revenues. So if there is any other project that comes within this space that requires any CapEx, it will be a different issue. We don't see that at this point of time. So we would like to make sure that we use the capacity that has been put on the top floor first before we start looking at any CapEx. As far as acquisitions are concerned, yes, PCL continues to remain open to look at opportunities.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [133]

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Okay. And just one more question. What is that total gross debt and net debt as of June 30, 2019?

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [134]

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We don't have the figures, but I don't think we have a -- there is an insignificant net debt. We'll get the figures to you.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [135]

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So basically your net debt is around $0 or insignificant. Okay. Got it.

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [136]

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We will come back to you on this.

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Operator [137]

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Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for the closing comments. Thank you, and over to you.

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Karan Y. Shah, Precision Camshafts Limited - Executive Officer of Business Development & Growth Strategy and Director [138]

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Thank you very much for your questions and for attending the Q1 conference call. I'd just like to repeat that as a company, we stay focused very much on our core businesses of camshafts and other niche components through our group companies. Like Mr. Shah said earlier in these challenging times, we have shown positive growth at the consol as well as a stand-alone basis, and we hope to continue doing the same. Thank you very much for joining.

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Operator [139]

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Thank you very much. Ladies and gentlemen, on behalf of Precision Camshafts Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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Yatin Subhash Shah, Precision Camshafts Limited - Chairman & MD [140]

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Thank you.

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Operator [141]

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Thank you.