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Edited Transcript of PRECAM.NSE earnings conference call or presentation 14-Feb-20 9:30am GMT

Q3 2020 Precision Camshafts Ltd Earnings Call

SOLAPUR Feb 19, 2020 (Thomson StreetEvents) -- Edited Transcript of Precision Camshafts Ltd earnings conference call or presentation Friday, February 14, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Karan Y. Shah

Precision Camshafts Limited - Whole-Time Director - Business Development

* Ravindra Ranganath Joshi

Precision Camshafts Limited - CFO & Whole Time Director

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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

* Jatin Nayak

* Jay Kale

Elara Securities (India) Private Limited, Research Division - VP & Auto Sector Equity Analyst

* Keshav Kanoria

* Ritesh Poladia

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Precision Camshafts Limited Q3 and 9-Month FY 2020 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 guarantees of future performance and involve risks and uncertainties that are difficult to predict. (Operator Instructions) Please note that this conference is being recorded.

Participants for this call from Precision Camshafts Limited are Mr. Karan Y. Shah, Whole Time Director, Business Development; and Mr. Ravindra R. Joshi, Whole Time Director and CFO.

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 - Whole-Time Director - Business Development [2]

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Thank you. Good afternoon, ladies and gentlemen. I'd like to thank all of you for being a part of this Precision Camshafts Q3 and 9-Month FY '20 Earnings Con Call. Along with me today, I have Mr. Ravindra Joshi, Whole Time Director and CFO of our company.

I'd like to start with an overview of the auto industry and then get to our company's performance. After an unprecedented slowdown, the Indian auto industry is pinning on hopes on the next financial year for a turnaround, banking on a host of new and upgraded models slated to make their way to the market. The industry's hopes are also in line with expectations that the economy would finally come out of this slump and draw people back to the showrooms.

Yet, the challenges of transition to the stricter BS VI emission norms and compliance to new safety norms, thereby making vehicles costlier, are lurking around the corner. 2020 will be an interesting year with BS VI getting implemented and entirely new platforms being available in this market.

The Indian economy is expected to revive early next year, which along with the low base of last year and availability of newer models, should support growth in the auto sector.

Coming to our company, the Precision Group, along with its 3 group companies, which are MEMCO, MFT and EMOSS, has now truly become a global company with manufacturing facilities in India, Germany and the Netherlands, with global automotive OEMs in our clientele list. It's because of this global presence that our company has not only been able to tackle the slowdown but in fact, posted very good performance on both a stand-alone as well as a consolidated basis.

Our core camshafts business has grown by 12% year-on-year despite the slowdown in the Indian market. This is mainly because of increase in the sale of niche machined camshafts to export customers in Europe, USA, Mexico and Brazil.

Our Indian subsidiary, MEMCO, which is acquired from the internal accruals of the company, has grown in revenue in spite of the sluggish market situations in India and has major customers like Bosch and Delphi on its client list. Our international subsidiaries, EMOSS and MFT, which were acquired with a combination of internal accruals and debt, have also registered growth in sales during the last 9 months.

As a company, PCL is increasing its management bandwidth for its Indian as well as overseas subsidiaries for better profitability and growth in the years to come. Starting with the stand-alone business performance, which houses the camshaft business, the total income for the 9 months in FY '20 increased by 12% to INR 351 crores, and for the third quarter, it increased by 4.9% to INR 118 crores. EBITDA for the 9 months FY '20 increased by a strong 24% year-on-year to INR 91.8 crores. And for quarter 3 FY '20, it increased by 32% year-on-year to INR 35.3 crores.

The total income and EBITDA has increased on the back of improved products, that is higher volume contribution from the more profitable machined camshafts as we have always desired. EBITDA margin expanded by 260 basis points year-on-year to 26.1% in the 9 months and by 620 basis points in Q3 to 29.8%, again, backed by the strong cost optimization efforts by the company.

Profit after tax increased by 126% to INR 50.6 crores in the 9 months and for Q3 increased by circa 206% to INR 24.8 crores. Our strategy to increase more profitable and value-added machined camshaft is now fructifying and is also leading to better utilization of our facilities.

Total camshaft volume for the last 9 months stood at 5.86 million units, of which, machined camshafts were 1.89 million, which increased by 27% year-on-year, which has been exactly in line with our strategy. Castings camshafts volumes stood at about 3.96 million, which was down about 1% year-on-year. Our new machining facility has seen increased utilizations and we expect it to run at peak utilization in the next 2 years, hence further improving our product mix and further increasing profitability of the company.

Now coming to the consolidated business performance. The total console income for 9 months FY '20 increased by 14.5% to about INR 585 crores, and Q3 FY '20 increased by 7% to about INR 197.8 crores. Consolidated EBITDA for the 9 months increased by 15% to about INR 102.5 crores and for the quarter 3 increased by 14.3% Y-o-Y to INR 38.1 crores.

Consolidated PAT for the 9 months increased by 254% year-on-year to INR 33 crores as compared to just INR 9.3 crores for the 9 months last year. The consolidated PAT for this quarter Q3 increased by circa 200% to INR 16.3 crores as compared to just INR 5.4 crores in the same quarter last year.

Now coming to our group company's individual performances. Revenue of MFT in this quarter was about INR 44 crores and for the 9 months was about INR 129 crores. Revenue at MEMCO for quarter 3 was about INR 10 crores and about INR 30 crores for the 9 months of this year, and revenue at EMOSS was about INR 25 crores for this quarter and about INR 74 crores for the 9 months.

I'd like to state that all of our newly acquired group companies have started registering growth in sales. We expect them to be a bigger part of our business in the years to come. There is an immense growth potential for each of these companies in terms of cross synergistic opportunities across our different businesses, and we are making every effort to scale these businesses and that too profitably.

With this, I would now like to hand over the call to Mr. Ravindra Joshi, our Whole Time Director and CFO, who will walk you through some of the financial highlights of this quarter and the 9 months of the financial year, after which we will open the floor to Q&A.

Over to you, Mr. Joshi.

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [3]

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Thank you, Karan, and good afternoon. I would like to highlight on the EBITDA of the company. The EBITDA of PCL -- currently, the EBITDA of PCL is in between 24%, 25% to -- in between 24% to 25%, and our aim is to achieve EBITDA at 30% in coming years. What -- the measures we have taken is increase in machined camshafts sales where the margin is more, and we are working on the purchase of power through captive consumption where the proposed rate would be around INR 6 per unit as compared to the INR 8.64. We believe we can save substantial money by adopting captive consumption. This is as far as PCL is concerned.

MEMCO now present -- the EBITDA percent is 19%. Our target is to get it to 25%. Measures, what we are going to take is concentrating on sale of higher-margin components like (inaudible) and reduction in labor cost. Presently, the CTC ratio of the company is in between 25% to 30%. The company will announce VR scheme to get rid of higher salary workers and also the present suppliers of the companies are directed and approved by customers, therefore, is not able to do any negotiation, we are trying to source the similar (technical difficulty) so we can negotiate and reduce the prices.

This EMOSS now present -- at presently, the EBITDA percentage is between 1% to 5% and the company has an ample opportunity to increase the EBITDA to the level of 10%. And the management on the company is confident to achieve this level in coming years, that is by increasing sale volume, reducing the purchase of battery cost and reduction in labor cost and reduction in other expenses.

Right now, in MFT, our EBITDA percentage is between 6% to 10%, and our endeavor is to get it down to 10% to 15%. So measures we are taking there in MFT is to reduce the labor cost -- to reduce the raw material cost, labor cost and also the interest cost is in between 4% to 5%, and we are -- we want to get it down to 1%. This as far as the EBITDA is concerned.

Now the borrowing. The PCL has only INR 28 crores of borrowing of working capital, where we are taking this loan for our post-shipment credit. And as far as this future expansion is concerned, we are going to expand -- we are going to invest near about INR 60 crores in next 2 to 3 years for expansion in the machine shops.

And CapEx for MEMCO, we are going to invest near about INR 20 crores from our internal source, half from borrowings from the bank. And MFT, we have already invested near about INR 58 crores for the expansion in machine shops where the revenue and EBITDA will increase. And as far as the IPO funds are concerned, we have utilized all the INR 240 crores in our machine shop in Solapur.

Karan, this is -- this is from my side now. Now the question-answer is open for all the invitees.

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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 [Shweta Kumar] from [Smriti Investments].

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Unidentified Analyst, [2]

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I just want to know what is the price difference between foundry and machined camshafts?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [3]

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Can you repeat your question, please?

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Unidentified Analyst, [4]

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Sure. The price difference between foundry and machined camshafts.

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [5]

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Yes. The foundry, the average realization is in between INR 300 to INR 350 and machining is between INR 800 to INR 1,200.

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Unidentified Analyst, [6]

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Okay, sir. And what is the margin difference?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [7]

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In between INR 400 to INR 500.

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Unidentified Analyst, [8]

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Okay. And the current capacity of utilization would be?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [9]

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In foundry, it is 70%, and on machine shop, it is 75% right now.

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Unidentified Analyst, [10]

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Okay, sir. And 90% utilization, what revenue can be expected?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [11]

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90%?

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Unidentified Analyst, [12]

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Yes.

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [13]

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90% utilization, if you see, 90% utilization, in machine shop, revenue will be up in between INR 450 crores to INR 500 crores.

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Operator [14]

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(Operator Instructions) The next question is from the line of Ritesh Poladia from Girik Capital.

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Ritesh Poladia, [15]

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Company got some damages of INR 11 crore. Can you elaborate like what are the basis of this calculation and what happens to that order from the...

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [16]

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Karan?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [17]

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Can you hear me?

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Ritesh Poladia, [18]

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Yes, I can hear you.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [19]

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Yes. Okay. So I can't give you details regarding the calculation of this number because it is confidential with our customer. Basically -- in short, there was a cancellation of 1 order for which there was a compensation paid by the customer. Suffice to say that this business has not gone away, it has been replaced by another business from the same customer. So in terms of volumes and in terms of forecast, as we have planned, stays as is. This is just an exceptional cancellation from the customer which have been compensated for.

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Ritesh Poladia, [20]

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Okay. You said your utilization of foundry is 70% and machine facility is 75%. So when do you see the peak utilization coming? And what are the new orders which can help you to take this there?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [21]

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Yes. See, on the foundry side, we are -- a good utilization is about 80%, 85%. We can't reach 100% on the foundry. So we are looking at that in the next 2 years or so, which is also when we will have a peak utilization at our machine shops. This is backed by orders which we have released in the past, mainly from Ford, General Motors and some other customers in North America and South America as well. So these are -- the investments that have gone into our machining plant will be fully utilized in the next 2 years.

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Ritesh Poladia, [22]

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Can you give us profitability of the 9 months of the 3 subsidiaries separately?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [23]

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Yes. I think Mr. Joshi just briefly mentioned the profitability of the subsidiary companies in terms of EBITDA. What we're saying is the Dutch subsidiary, which is EMOSS, is under 5% EBITDA, but this is also a very high growth company, and we're investing a lot of resources into growing the company very fast. MFT is in the range of 8% to 10%, and our Nashik subsidiary in India is about 18% to 20% right now, EBITDA.

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Ritesh Poladia, [24]

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Can you give us the exact numbers, please?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [25]

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Joshi sir, can we give them the exact numbers? Or maybe we can get back to you with the exact numbers?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [26]

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Yes, we'll get back to them.

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Ritesh Poladia, [27]

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Okay. And our stand-alone and consolidated working capital position?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [28]

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Stand-alone working capital, what we're utilizing only INR 30 crores. That is PCFC, that is foreign currency (inaudible) for shipment.

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Ritesh Poladia, [29]

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Yes. In terms of receivable days and your inventory days?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [30]

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Okay. You're asking on receivables. Receivables -- overseas receivables is 100 days. And stock is in between 10 to 15 days. This is raw material plus finished goods and WIP.

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Ritesh Poladia, [31]

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And oversees receivable is 100 days. What would be the domestic?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [32]

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Domestic is 60 days.

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Ritesh Poladia, [33]

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And for subsidiary?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [34]

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For subsidiary, you mean to say, for MEMCO, it is 30 days from Bosch. And for EMOSS, we take the advanced money based on their -- based on the requirement. And as far as MFT is concerned, it is again between 45 to 60 days.

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Ritesh Poladia, [35]

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Any new domestic wins you got in this financial year?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [36]

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Can you repeat?

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Ritesh Poladia, [37]

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Any new domestic order wins in this financial year in 9 months?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [38]

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Karan?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [39]

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No. We have -- in terms of the Indian business for camshafts, we -- like we have said that we are almost a single source to most of the OEMs in India. So we continue to be with them. There is -- at this point, we've not disclosed any new orders that we have received from the Indian market, but we have over a 70% market share here in India. So that kind of answers.

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Ritesh Poladia, [40]

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Okay. I -- this might be a stupid question, but can we go to the -- can we expand to the commercial vehicles or tractors or something or our focus is only passenger vehicles?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [41]

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Our focus is certainly passenger vehicles. (technical difficulty) used to manufacture camshafts for CVs, tractors, railways, 2-wheelers, everything. But as the company has progressed, we focused on passenger vehicles for a few reasons. One, this is the highest volume globally. We're talking about 100 million camshafts that are required, 100 million to 110 million. We do about 10 million, so we've 10% market share, but we have tremendous potential to grow there. These are the most demanding customers and, therefore, also good on the price side. And this continues to be our focus to grow with the larger OEMs around the world. But having said that, we do supply camshafts to the Indian farm agriculture segment. So to all your tractor suppliers in India, we do supply camshafts.

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Ritesh Poladia, [42]

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Okay. The reason to ask is the electrification would first attack the passenger vehicles, that's where we are headed. So definitely, your EMOSS is pretty small to compensate whatever business loss we can have. So how do you see the future going forward for the camshafts in passenger vehicle?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [43]

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We actually don't see much of a reduction in combustion engine, at least for the next (technical difficulty) we get. We are very close to the ground with OEM customers. We see what their forecasts are, their investment plans for production engines. So if you look at it, we have a solid plan for at least the next 5 years in terms of new orders that we have from around the world.

If you look at it, electric passenger vehicles are (technical difficulty) of the global new vehicles that are produced. So to us, this is not a short or a medium challenge or a threat for our camshaft business. It is down-the-line type of issue.

But I think with EMOSS being part of PCL now, we are actually growing the company very fast. When we acquired the company, it was about, say, INR 50 crores of sales. We are talking about more than INR 120 crores of sales this year. So it's very fast growing. I think the commercial vehicle space has been quite (technical difficulty) in terms of electrification. So we have a good hold in that market right now at least.

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Ritesh Poladia, [44]

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If I get it right, in EMOSS, we convert the diesel commercial vehicle into the electric. Can you run us through what are the incremental cost? How old vehicle -- means what would be the age of vehicle when you convert? And what are the benefits?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [45]

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So there are 2 models. One is what you mentioned is the retrofitting. So if you have an older vehicle, we would retrofit it with a completely electric drive (technical difficulty). This is -- we continue to work on this business model. And a typically, it's really hard to put a (technical difficulty) cost to convert because it depends on the type of vehicle. It can be a 20-seater up to a 2 -- or a 50 tonne truck, so it really depends...

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Ritesh Poladia, [46]

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Sir, whichever is your higher selling model, if you can...

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [47]

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Say about EUR 50,000 to EUR 60,000 to convert one. But in Europe, given the strict norms on pollution and such, so we have a return on investment in less than 5 years for -- because of the lower cost of operation. So this is on the retrofitting side.

But the newer business that we are really developing very fast is the kit model (technical difficulty) to the OEM directly. The OEM then assembles it onto their vehicle and sells it as an electric bus from the start. So it's not conversion, but rather a new vehicle for which the driveline is supplied by EMOSS. So this is a very active model, where we are working with very different types of OEMs, niche OEMs. I'm not talking about the MANs or the Scanias or the Daimlers of the world, but rather the smaller OEMs who make niche commercial vehicles, for say, airport buses, post office buses, delivery vans, things like that.

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Ritesh Poladia, [48]

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Any models launched, if you can give us a name?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [49]

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We can give you -- there is a chart which will tell you 1 name, but if you are able to access the EMOSS website, which is -- you should see a lot of (technical difficulty) on there. But very, very different type of business, that is.

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Ritesh Poladia, [50]

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Sure. Also in MFT, I believe there was some synergy benefit that the foundry can be supplied from India and MFT will be the machining. What are the progress on that?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [51]

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We are taking steps towards that. It's -- unfortunately, we have to have approvals from the end customer, et cetera. So it takes a little bit longer than we would like, but there is -- there are steps taken towards that, for sure.

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Ritesh Poladia, [52]

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I think MFT was acquired for assembled camshafts. So has that been launched in India?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [53]

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No, no. MFT doesn't do any assembled camshafts. So MFT is a machinist (technical difficulty) different automotive components. So camshaft is actually a very small part of their business, maybe 5% to 10%. The other 90% comes from different components like balancing shafts, tow ball bars, bearing caps, all types of different components which require very precision (technical difficulty).

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Ritesh Poladia, [54]

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Okay. And I believe India never had a balancing shaft. So what's happening there?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [55]

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No, (technical difficulty) that require balancing shafts. So we are in talks with our (technical difficulty) this solution as well. So if I have to summarize, in the last 1.5 years, we have gone from a camshaft to (technical difficulty).

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Operator [56]

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Sir, sorry to interrupt. Karan sir, your voice is breaking. So...

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [57]

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Okay. Can you hear me?

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Operator [58]

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Yes, sir, but in between, it keeps breaking.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [59]

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Okay.

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Ritesh Poladia, [60]

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Karan, it's like after 5 words, there is a pause.

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Operator [61]

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Yes, sir.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [62]

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Okay, okay.

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Operator [63]

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So, can I disconnect the line and call you back?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [64]

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Sure.

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Operator [65]

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Thank you. Ladies and gentlemen, I would request you to please stay connected while we connect Mr. Shah back.

Ladies and gentlemen, thank you for patiently waiting. We have Karan, sir, connected. Sir, you can go ahead.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [66]

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So no, I was saying that we are now able to provide to our customers a complete solution rather than just a single product as camshaft. So we are in talks with all of our customers for balancing shafts, for different prismatic parts, injector parts, et cetera.

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Ritesh Poladia, [67]

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One final question to Joshi sir. Sir, can you give us the gross cash and debt on the stand-alone as well as subsidiary?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [68]

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Yes. Standalone, so only INR 30 crores was there, that's the working capital. And consolidated level, debt is INR 90 crores. And cash, we have INR 160 crores. INR 126 crores was invested in mutual fund and balance is in fixed deposit.

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Ritesh Poladia, [69]

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That's in standalone, right?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [70]

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Yes.

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Operator [71]

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(Operator Instructions) The next question is from the line of Bhaskar Chaudhry from Entrust Family Office.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [72]

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Karan, so I mean, Mr. Joshi and you gave some data on the 3 acquisitions, the revenue and the current EBITDA margin. So I was just trying to reconcile that with the 9-month consol numbers. So MFT is at INR 130 crore approximately with an EBITDA margin of 6% to 10% and MEMCO is at INR 30 crores with 19%, EMOSS is at INR 74 crores with 1% to 5%. Overall, if you see the EBITDA for these 3 companies is closer to 4%, 4.5%. So I mean, it was not adding up. I just wanted to check what am I missing here.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [73]

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You mean the consol EBITDA is not adding up with -- if you add up the individuals?

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [74]

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Yes. So basically, what I did was for these 3 companies -- just for these 3 companies, consol minus standalone, so there, the EBITDA margin -- the revenues add up, so close to INR 230 crore. But the EBITDA margin is only 4.5%. But if you look at the individual company numbers, it should be much higher if MFT is at 6% to 10%, if MEMCO is at 19% and if EMOSS is at 2% to 3%.

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [75]

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See, for MEMCO, EBITDA, in concern, is 19%, okay?

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [76]

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Yes.

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [77]

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And EMOSS is -- for December end, it is 1% and MFT is 6%. And PCL is 24.76% is without other income.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [78]

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Yes. And Mr. Joshi, on these 3 companies, so it looks like you would -- the EBITDA margin was at a better run rate for the first half than in the 9 months. So 9 months, the EBITDA margin seems to have come off for these 3 companies. Could you help with the reason?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [79]

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For MEMCO, it remains as it is. And for EMOSS, yes, there is a little -- because of the increase in raw material cost, particularly battery. And MFT, it is -- yes, it is 6%.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [80]

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Okay. And another question on PCL. So you had said that at 90% utilization of the machine shop, revenue should be INR 450 crores to INR 500 crores. Now at that utilization, what will be the gross margin for the business? Currently, it's close to 71.5%, 71% or so.

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [81]

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So this is -- all the INR 450 crores and INR 500 crores is all added to the EBITDA, that will be because it's all machined camshafts, so the margin is on higher side. So the EBITDA will be in between 30%.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [82]

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But that is assuming that you are able to solve your power cost issues, correct?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [83]

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No, we -- yes, yes, with the power cost. Now if you deleted power cost, it will be around 27%.

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Operator [84]

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(Operator Instructions) The next question is from the line of Jay Kale from Elara Capital.

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Jay Kale, Elara Securities (India) Private Limited, Research Division - VP & Auto Sector Equity Analyst [85]

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My first question is just in continuation to the earlier question on the subsidiary margins. So just to be -- I mean, we just did consol minus standalone. And that margin trajectory if we see for the last few quarters, from that 4% to 8% range, now in this quarter, it has come down to 2%. So one, of course, reason you mentioned about the battery cost, so I'm just trying to access the -- this has been quite volatile on a quarterly basis. So how should we look at -- whereas the top line has been fairly consistent in that INR 70 crore to INR 80 crore kind of a range. So is there any bulkiness of expenses? Or how should we look at steady-state margins for this subsidiary, say, in Q4 or FY '21, '22?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [86]

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So as I've already explained you that MEMCO, we are with year-end or within 6 months, we are going to take our EBITDA from 19% to 25%. We have a definite plan for that. And this EMOSS, yes, it is now -- right now 1%. Within 6 months, we are getting out to 6%. We are going to increase our sales there. And also we are going to reduce the cost of the battery. And also, we are going to reduce our labor cost and other expenses. Because if we increase our sales volume, then our EBITDA percent will increase automatically. So our endeavor is to increase the volume, and that is going to happen within a 6-month period of time.

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Jay Kale, Elara Securities (India) Private Limited, Research Division - VP & Auto Sector Equity Analyst [87]

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Okay. So in that sense, this 2% margin of subsidiary should be like the bottom...

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [88]

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Yes, definitely, it's going to improve within a period of 6 months.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [89]

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Yes.

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Operator [90]

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The next question is from the line of [Harsh Shah], an individual investor.

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Unidentified Participant, [91]

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My question is to Mr. Karan. So with respect to this product, camshaft, is the company planning any new sort of product? Or is there any product line which is coming up?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [92]

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In terms of -- at PCL?

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Unidentified Participant, [93]

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Sorry?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [94]

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You mean at PCL or at our subsidiaries?

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Unidentified Participant, [95]

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At both the levels.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [96]

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See, at PCL, our core focus has been camshafts, continues to be. We are looking at significant new business potential from customers which we already have on board as well as new customers. We are looking at new markets as well, new geographies as well. So I think there is, like I said earlier, there's tremendous headroom to grow this business. We are hardly at about a 9% to 10% global market share. There's potential to grow this, and we're looking at it very aggressively.

Having said that, there is -- we are looking at certain intricate castings to be manufactured in 1 of our foundries. So what we -- the plan is that we have 4 foundries. If we debottleneck 3 of them, we can produce the camshafts that are required in those, and we would dedicate 1 foundry to completely new products. I can't tell you exactly what product they would be, but they would be very intricate, high value-add castings that would be required for the automotive world. So this is at PCL.

At MFT, the investment that we've done or the new CapEx that we have done has been for a completely new product. This is something that takes MFT from really a product supplier to a system supplier. This is the first time for MFT that they've done something like this. It's the product that we would be selling to General Motors or Opel is going to be now a assembly of over 20 components, and extremely high-value addition, therefore, higher margins in that.

So a new business that we are looking at comes with a very sharp focus of saying that we will not do run-of-the-mill items, but rather are looking at more assemblies, system-driven -- system sales and then also looking at machine parts at all of our automotive companies at least.

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Unidentified Participant, [97]

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Okay. Sir, my other question is with respect to the very high cash and cash equivalents, which we just disclosed by CEO. So are we planning to utilize it somewhere, or we have no plans for that as of now?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [98]

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I mean we -- at this point, I can't disclose much more than what I have already. We are looking at some very interesting opportunities, both organic and inorganic. So I can't explain beyond -- I can't go beyond that at this point.

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Operator [99]

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The next question is from the line of [Raj Shah], individual investor.

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Unidentified Participant, [100]

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You talked about bringing EMOSS to India...

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Operator [101]

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Sir, sorry to interrupt. [Raj], we can't hear you. Can you speak a little louder, please?

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Unidentified Participant, [102]

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Yes, just hold on.

Yes, so now am I audible?

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Operator [103]

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Yes, sir. You can go ahead.

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Unidentified Participant, [104]

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Yes. So Mr. Karan, you talked about bringing EMOSS to India.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [105]

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Yes.

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Unidentified Participant, [106]

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Is there any update on that? In the last con call, I had heard that.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [107]

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Yes. So this is very much in progress. It would be a little premature to give you more details at this point, but we have identified a platform that we would be working on to have an electrified solution for India. What I would like to just add on what I have said in the past is that we are looking for a localized solution though. It is -- it would have been the easiest for us to bring a vehicle that's available in the Netherlands to here, but would not fit the bill in terms of pricing, ROI, et cetera.

So we are -- we have a team in India now that we are working on developing a localized solution for the market needs in India. So I hope that in the next quarter -- the next con call, I hope I can give you a little bit more information on this.

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Unidentified Participant, [108]

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Okay, okay. And also, I want to know the PAT level of the EMOSS and MFT and everything.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [109]

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Joshi sir, can you...

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Unidentified Participant, [110]

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You talked about the EBITDA thing.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [111]

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Yes.

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Unidentified Participant, [112]

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But how are they doing at the PAT level?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [113]

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PAT, MEMCO, it is 4.02%. MFT is negative and EMOSS is also negative.

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Unidentified Participant, [114]

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Negative. Okay. And till when can we find a turnaround in these numbers?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [115]

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Because our management is involved deeply into the -- to change the entire thing now. So in 6 months, you will see the turnaround and the company will be able to achieve it's required profitability.

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Operator [116]

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(Operator Instructions) The next question is from the line of Keshav Kanoria from ICICI Capital (sic) [ITI Captial].

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Keshav Kanoria, [117]

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I think most of my questions have been answered. So I think a lot of people have been asking about the subsidiaries. And so just wanted to request you, if you could shed some light about the strategy going forward for each of the subsidiaries of -- if you could just compile the whole questioning around the subsidiaries?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [118]

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Yes. So let me tell you each 1 at a time. So MEMCO, which is our Indian subsidiary, we have grown it considerably in the last year -- 1.5 years that we've acquired the company. It was at about INR 30 crore type of turnover, we closed last year at about INR 45 crore. Despite the dip in the Indian market, which is what MEMCO mostly relies on, we have been able to maintain stable revenues and profitability.

The plan going forward is, like we have said in the past, to take this company to about INR 100 crores in the next 2 to 3 years. We are looking at a more diversified customer base for this and not relying on Bosch which is today the largest customer.

We are looking at nonautomotive business as well in the instrumentation segment, which we have a customer for, which is developing very nicely over the last year. So that is going to be our focus at MEMCO.

MFT, I have told you that we have already invested about EUR 8 million in expanding. We are looking at ramping up. All of these projects are on track. We are looking at ramping up and reaching peak next year, end of next year. So this is all in order, and the idea is to take this company from about EUR 20 million as it was or about INR 160 crores to about EUR 32 million in 2 years from now. So this is also very much on track. All of our customers' commitments stay intact. So this is going on track.

EMOSS, very, very fast growing. Like I've said, we are looking at new markets, new customers, focusing more on the kit models rather than the one-off retrofitting, which also gives more value to be added to EMOSS. We are looking at India as a market for sure. Like I said in the last question that we are developing a localized solution for this market.

So if you look at the overall group, everything seems to be in order, everything seems to be going as per plan. We are now also looking at tapping into each of our customers, whether at MEMCO, MFT or PCL, which is the auto comps business to start looking at selling a packaged deal to our customers instead of just 1 product that we sell at this point. So, yes.

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Operator [119]

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(Operator Instructions) The next question is from the line of Jatin Nayak from ICICI Prudential Mutual Fund.

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Jatin Nayak, [120]

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So just some clarification. So if you do your consol -- I know this is getting repeated, but if you do your consol minus stand-alone revenue and EBITDA, so for this quarter, you've reported a INR 78 crores of revenue for the subsidiaries, and the EBITDA comes to around INR 1.8 crores, and the margins are 2%. So can you please clarify as to how much margins have you done in each MFT, EMOSS and MEMCO? Because the 19% in MEMCO, 10% in MFT and 1% in EMOSS is actually not tallying to this INR 1.8 crores of EBITDA. So can you -- only for this quarter, what has been the margin profile in each of your subsidiaries, MFT, EMOSS and MEMCO?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [121]

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Joshi sir, do you have -- can you provide this?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [122]

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He is talking about only 1 quarter?

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Jatin Nayak, [123]

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Yes, only for this quarter.

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [124]

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It is, for this quarter, PCL EBITDA is 24.76%, that is without other income, and MEMCO is 19%. EMOSS is 1%; and MFT is 6%.

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Jatin Nayak, [125]

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MFT is 6%?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [126]

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Yes.

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Jatin Nayak, [127]

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And what will be the split, sir, for the revenue, for the top line of INR 78 crores between MFT, EMOSS and MEMCO?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [128]

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So I have this. I think MFT is about INR 44 crores, MEMCO is INR 10 crores and EMOSS is INR 25 crores.

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Jatin Nayak, [129]

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So then there is some confusion because if the EBITDA -- I think I'll take this offline with you because there is some confusion. It's not tallying to the EBITDA that...

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [130]

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Yes. Sure. We can connect offline and we can give you this data as required.

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Operator [131]

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(Operator Instructions) As there are no further questions, I would now like to hand the conference over to the management for closing comments.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [132]

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Thank you very much, ladies and gentlemen, for joining this con call. We appreciate your continued support in our company, and we are looking at very exciting times ahead because of -- you can see that despite the difficult times in our Indian auto segment, we have been able to post great results at a stand-alone as well as a consolidated basis, and we hope to do so going forward. Thank you very much.

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Operator [133]

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Thank you. 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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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [134]

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Thank you.