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Edited Transcript of PRECAM.NSE earnings conference call or presentation 8-Nov-19 9:30am GMT

Q2 2020 Precision Camshafts Ltd Earnings Call

SOLAPUR Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Precision Camshafts Ltd earnings conference call or presentation Friday, November 8, 2019 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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* Arun Kejriwal;Kejriwal Research & Investment Services Pvt Ltd

* Bhaskar Chaudhry

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

* Keshav Kanoria;ITI Capital Limited

* Manan Shah;Moneybee Group

* Mayur Joshi;Riskpro Management Consulting Pvt.Ltd.

* Vaibhav Badjatya

Honesty and Integrity Investment - Founder

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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 Q2 and H1 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 guarantees of future performance and involve risks and uncertainties that are difficult to predict. (Operator Instructions)

Please note, this conference is being recorded. I’ll 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 would just like to thank all of you for being a part of the Precision Camshafts Limited Q2 and H1 FY ‘20 Earnings Con Call. Along with me today, I have Mr. Joshi, CFO and Director at PCL; and SGA, our Investor Relations Advisor.

I’d like to start with an overview of the auto industry and then get into our company’s performance. Since last year, the auto industry, especially in the Indian market, has undergone a turmoil affecting everybody in the value chain. This has been on account of various reasons ranging from higher fuel price, liquidity crunch, implementing BS-VI norms and a general negative consumer sentiment. This has led to major OEMs starting to [trim] their growth estimates for the year, which also has a direct impact to our production figures.

However, as we had expected, the sentiment has started improving with the festive season. And while we can see that the Indian market is slightly recovering, the overseas market is much more stable and predictable for us. More than 70% of our group business is from outside of India and spread across geographies, including Brazil, the U.S., Europe, Uzbekistan and Korea, to name a few. This diversified presence, ladies and gentlemen, has allowed us to grow in double digits despite a sluggish Indian market.

Precision Camshafts 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 is because of our global [presence] that our company has not only been able to tackle the slowdown, but in fact posted improved performance on both a stand-alone and as a consolidated basis.

Our business outside of India grew by 36% year-on-year, while the Indian business has declined only by 6.9% year-on-year.

Starting with the stand-alone business performance, which houses the Camshaft business in Solapur, the total income for Q2 FY ‘20 increased by 11% year-on-year to INR 112.8 crores and for half year FY ‘20 increased by 15% year-on-year to INR 232.6 crores. EBITDA for Q2 FY ‘20 also increased by strong 25% year-on-year to INR 28.3 crores, and for the first half of FY ‘20, it increased by 19% year-on-year to INR 56.5 crores.

The total income and EBITDA has increased on the basis of improved product mix, that is, the higher volume contribution from the more profitable machined camshafts as we have desired. EBITDA margin expanded by about 270 basis points year-on-year to 25% in Q2 FY ‘20 and by 80 basis points in the first half of FY ‘20 to 24.3%, which has been on the back of strong cost optimization efforts taken by the company.

Profit after tax came in at about INR 15.5 crores in Q2 FY ‘20, which has more than doubled as compared to Q1 of FY ‘20 and while PAT for half year FY ‘20 increased by 81% to INR 25.8 crores Y-o-Y, which is partially aided by tax reversals.

Our strategy to increase more profitable and value-added camshafts is fructifying now and is also leading to better utilization of our facilities. Total camshaft volumes for half year FY ‘20 stood at 3.92 million units. Of that, machined camshafts were 1.23 million units, which increased by 30% year-on-year, which is very much in line with our strategy. Machined camshafts contributed to 32% of the volumes for Q2 FY ‘20 versus 27% in Q2 of last year. Even the camshaft casting volumes stood at 2.69 million units, up by 2% year-on-year.

Our new machining facility has seen increased utilization as compared to Q1, and we expect it to run at about 100% utilization in the next 2 to 3 years, hence, further improving the product mix and the profitability of the company.

Now coming to the consolidated business performance. Total consolidated income for Q2 of this year increased by 11% to INR 185.3 crores and for half year of this year increased by 19% Y-o-Y to INR 386.8 crores. Consolidated EBITDA for Q2 FY ‘20 increased by 17% year-on-year to INR 32.6 crores, and for first half of FY ‘20 increased by 16% to INR 64.4 crores.

Consolidated PAT came in at INR 11.7 crores in this quarter compared to just INR 1.4 crores in Q2 of FY ‘18/’19. This is up by 330% Y-o-Y.

Now coming to our group company’s performance, MEMCO, MFT and EMOSS for the quarter Q2 FY ‘20. The revenue at MFT increased by 30% Y-o-Y and is now at INR 43 crores for this quarter. Revenue at MEMCO has decreased slightly by 11% Y-o-Y and is now at INR 11 crores for this quarter. EMOSS. On the other hand, the revenue at EMOSS has posted a strong growth of 259% year-on-year and has posted a revenue of INR 19 crores in Q2 of FY '20.

I'd like to state that all of the newly acquired group companies are profitable at an EBITDA level and performance continues to improve. We expect them to soon be a big part of our business in the coming years and the segment growth potential for these companies in terms of cross synergistic opportunities across our different businesses, and we will take every effort to scale these businesses profitably.

In closing, our diversified clientele across the globe has led us to overcome the current slowdown in the domestic market. Our strong product profile has led us to become a preferred supplier for many of our reputed clients. We have now started to focus on cross synergies on the acquisitions with a target to diversify the client base across the group and become a preferred supplier for critical and specialized components. And finally, our new machining facility can improve utilization levels leading to better product mix in favor of machined camshafts and will thus improve profitability going forward.

With this, I would like to hand over the call to Mr. Joshi, our CFO, who will walk you through some of the financial highlights of this quarter and first half of the financial year, after which we would then open the floor to Q&A.

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

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Thank you, Karan. Now I will summarize this. PCL India sales is INR 214.75 crores. In that, export is INR 129 crores and domestic INR 85 crores. EBITDA 24.28%. PAT is 11.05%. Loan working capital is INR 42.47 crores. Term loan 0. We have a bank deposit of INR 54 crores, mutual funds INR 123 crores. And we have given a corporate guarantee of INR 60 crores to Bank of Baroda, U.K., and INR 20 crores to Citibank.

And we are coming now to MEMCO where our sales INR 20.12 crores. EBITDA is 15.54%. PAT is 4.19%. Working capital loan is INR 3 crores. Term loan is INR 7.14 crores.

And MFT, we have acquired a 76%, where the sale is INR 83.9 crores, EBITDA is INR 6.07 crores, PAT is negative, loan working capital is INR 16.71 crores, and term loan is INR 56.70 crores. As far as EMOSS is concerned, our sales INR 49 crores, EBITDA is INR 4.38 crores, PAT minus 0.6%. Loan, there’s no term loan and also there is no working capital as far as bank is concerned. And there’s one thing I want to highlight is INR 7.86 crores of intangible asset has been considered in the consolidation of financials. This is extraordinary expenses after acquisition.

This is all from my side. Now the question-and-answer is open.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have our first question from the line of [Bijal Wakhe] from Amit Jeswani Financial Services.

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Unidentified Analyst, [2]

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[Nilay Wakhe]. We are disclosing the subsidiary numbers for the first time. Is this going to be a continuous process? Or are we going to be on and off about it? Because last time, we had decided that we might not be giving subsidiary numbers. At least that’s what I remember.

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

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No. You see, as per the SEBI guidelines, we are -- it is must -- it is compulsory to give the consolidated figures on a quarterly basis. So now we started to give this and it is going to continue.

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Unidentified Analyst, [4]

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Okay. And the second question is, can we have some guidance for the subsidiaries over the next few quarters? Because a lot of capital is getting blocked over there. So how are we going to go about it over the next 1, 2, 3 quarters? If you can give us a brief or at least regarding ‘19, ‘20 financial year.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [5]

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No. I don’t think -- I think, Joshi sir, if you can answer this, but I don’t think we would be able to give you guidance in terms of quarterly. In the past, we have mentioned that each one of these companies is on a growth trajectory. You’ve seen this year-on-year growth that we just mentioned in the call from last year to this year. But it would be very difficult to tell you on a quarterly basis what the performance is going to look like.

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Operator [6]

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We have next question from the line of Mayur Joshi from Riskpro.

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Mayur Joshi;Riskpro Management Consulting Pvt.Ltd., [7]

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So my question is to Karan. Karan, since you are from second generation of the promotors, are there any plans of cultivating the future leadership inside the company? Are you working on developing the future generation of leaders inside the company? Because what I have seen from the recent performances of the company, financial performances of the company, that we are posting good results, but we are not able to probably communicate those results to the stock markets or we are not able to convince the investors rightly. So are there any activities which are being taken by the leaders like you?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [8]

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For sure there are. In terms of -- at our different plants, we do have -- as a mature company would have, we have succession plan for almost all positions that we have within our company at an operational level, strategic level, et cetera. So that is for sure. We are working very hard now over the last few quarters, I would say, to present the story much better to our investors. Our CFO and Director, Mr. Joshi, has been constantly in touch with our investors, institutional as well as retail, to give a constant update on where we are, how things are going, how things are moving. Along with SGA also, we are trying to disseminate this information in the best possible way. So I mean the whole point is that even in these difficult and challenging times, we have posted double-digit growth. So there is definitely stimulus towards this good performance, and it will continue.

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Mayur Joshi;Riskpro Management Consulting Pvt.Ltd., [9]

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Okay. My specific question was about future leadership. So you belong to the second generation of the promotors, right? So you might have some activities which are going in the company, which will probably highlight the strength of your company in terms of human resources. So is there any plan? I mean you also belong to business development. So do you have any team for business development? Or only the promoters go and do the business development? So that is something which I would like to understand more.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [10]

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No. For sure, not. We have very dedicated teams working on specific things. Each of us -- this is not a typical promoter-driven company that just me or my father are doing all of the things by ourselves. At the size of the company and the presence that we have globally, it would not be even possible for 2 people to do it. So everything that we do is a team effort. We have Mr. Joshi and his entire team, which is based in Pune. They are driving the accounts and finance of the entire group. They have a very strong team there, which has expanded over the last 2 years multifold, actually, to take care of the needs of the group.

At each of the plants, we have very, very talented, very, very young, growth-driven people, who are driving the operations, who are driving sales, who are bringing in new customers, who are bringing in new technologies. So we are not one of the companies that will sit and wait around for (inaudible). We are the leaders in the camshaft business. We have a 10% global market share. We continue to be the only company that does all technologies under one roof. We have now an electric vehicle company which is being driven very hard by us, by the technical team there. So for sure, if your question is, are 2 people driving this company, for sure, no.

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Mayur Joshi;Riskpro Management Consulting Pvt.Ltd., [11]

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Okay. So you mentioned about this electric vehicle company. I want to understand, are there any plans to get these electric vehicles into India? Or the technology which you are developing in Netherlands, probably, are we thinking of getting this technology in India?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [12]

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Yes. I’ll answer it in 2 parts. One, yes, we are planning on bringing this technology with a localized content to India, right? Otherwise, it will not make sense to bring it at the way it is done in Europe. So we are working on a solution right now and, hopefully, in the next 6 to 8 months, we should see something here. But on the other side, let me also highlight that this company has grown 200% or 250% in just a year that we have acquired it. And this is purely driven by the demand that is there in the matured markets. So our focus -- our efforts continue to be where the demand is, which is in Europe and North America and New Zealand, Australia, where there is a market, we are focusing there. But of course, India will be a potential market in some time.

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Mayur Joshi;Riskpro Management Consulting Pvt.Ltd., [13]

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Okay. I’m not seeing any kind of thought leadership statement from your end about -- there is a lot of activity in India happening about electric vehicles. But if you are the leaders and if you are driving the European market, why there are no leadership kind of statements coming from your end in media or in the public forums? So is there any kind of reason why you are not coming out with these kind of leadership statements, thought leadership statements?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [14]

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See, I don’t think we are in a position to make thought leadership statements in India at this point. We have a good presence in the markets that we supply to, and we will continue to supply that to the niche market. When we are ready with a product for India, you will see us making a statement and being out there with the press and the media and everything. But it would not be wise to do that without having a product ready for this market.

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Operator [15]

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We have next question from the line of Vaibhav Badjatya from HNI Investment.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [16]

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Sir, in the opening remarks, you highlighted some -- your intangible asset amortization. Can you just elaborate on that? What is the amount for the quarter, for the half year and for what it is?

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

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Joshi sir, can you answer this question?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [18]

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Your voice is cracking. Can you repeat the question, please?

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [19]

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In your opening remarks, you have highlighted that there’s INR 8 crore intangible that is written off. I just wanted to know that what is -- is this amount for the first half of the year or for the quarter? And is this goodwill or what is this intangible?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [20]

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These are intangible assets, which we had created at the time of acquisition. And total intangible assets for the year is INR 16 crores. And this will be written off over the period of 5 to 6 years...

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [21]

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So you are saying INR 15 crores the total write-off last year. That’s what you’re saying, FY ‘19?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [22]

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Yes, every year.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [23]

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Every year there will be INR 15 crores write-off?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [24]

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No, last year, it was INR 15 crores, and from this year onwards, it will be INR 16 crores.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [25]

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INR 16 crores?

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

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Yes.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [27]

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And this comes as part of consolidated...

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

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This is a part of consolidated measures.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [29]

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And this is goodwill write-off or this is some other IP rights write-off or what is it?

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

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This is depreciation write-off. This is intangible asset created at the time of acquisition and is a depreciation which we are writing off over a period of 5 to 6 years.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [31]

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Okay. Okay. Got it. And secondly, on the auditor issue and the qualification and all the statements and clarification that you have released on the exchange, just wanted to understanBoard meeting on 18th of May, and at that point of time, the final report of the subsidiaries was not ready at that point of time and the notice for the Board meeting was issued, and it was ready only afterwards. So why there was rush for the Board meeting and why we could not have holden the Board meeting till the time the audit of the subsidiaries and the number of the subsidiaries were available? I just needed a clarification on that.

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

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Sure. Now you see, on the 31st of March 2019, if you see the balance sheet, there is a qualification done by the PG Bhagwat and Associates on our financials because of -- late availability. He is not telling non-availability, it was because of late availability of financials of subsidiary companies. In our reply to stock exchange, we have already provided the information, but he was not happy with that. If you see the [post] quarter of June, the PG Bhagwat has audited, there is no qualification. We would have said we have provided all the information duly audited by Netherlands and German entity. And if you see this quarter also or if you would say half yearly, the audit has been done by BDO that is a Big Five and there is no qualification and they have accepted all our audit reports.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [33]

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Right. No, I understand that. That I have noticed. But as far as specific issue is concerned, there’s specific issue that the Board meeting was scheduled without having the reports of the subsidiaries ready. I just wanted to understand what was the thought process of issuing Board notice without having the numbers of the subsidiaries in hand?

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

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No, no, no. He has not written like that. What he has written is that if we have appointed an auditor without his knowledge. That is not like that. We have appointed an additional auditor -- joint auditor. He has not written like that.

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Operator [35]

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We have next question from the line of [Ankit Sancheti] from Axis Securities.

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Unidentified Analyst, [36]

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Mr. Karan, I have a question for you. The PAT that you’ve reported for your subsidiaries, both are negative, if I heard correctly. And the margins were in early single digits, 6% and 10%. So what is -- when is it going to be PAT positive and what is the long-term margin profile that you see for the subsidiary businesses that you’ve acquired?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [37]

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So let me touch base on EMOSS first. EMOSS is a very young company, first of all. It’s about 4, 5 years old. It is a very rapidly growing company and you can see that there’s been a lot of research and development happening there for this electric driveline market and, therefore, it’s not profitable at a PAT level at this point of time. I think it is going to take a year or so or maybe a little bit more than that, a year or 2 perhaps to get it profitable at a PAT level, and this is going to happen when we have scale to really supply the type of volume that we are looking at moving from a project-based working style at EMOSS to more of a supplier of kits to niche OEMs around the world, and we are already taking steps towards that, which is why you see this tremendous growth in top line.

And while having said that, there is a lot of work going on, on the supply chain side also to see how we can source better to improve gross profits and, therefore, PAT. But it’s going to take a little bit of time.

With MFT, we have been negative, a small negative, but we are working with all of our customers with the plant there to really turn it around very fast, and the results there will be seen much sooner than what we expect at EMOSS because there is still a lot of R&D at EMOSS, whereas at MFT, we are very much used to the business model there. We are very much used to the customer there, the type of products, et cetera. So a lot of PCL resources are going to be or already deployed at MFT to improve margins. So you’re going to be able to see that in the quarters to come. But on an ongoing basis, having been based in Europe, high cost, et cetera, et cetera, we are still going to talk about a 10% to 15% EBITDA margin on an ongoing basis.

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Unidentified Analyst, [38]

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For MFT?

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

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For MFT, for EMOSS also.

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Unidentified Analyst, [40]

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10% to 15% on a sustainable, let’s say, 2 years down the line basis?

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

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Yes, yes, exactly.

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Unidentified Analyst, [42]

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Okay. And EMOSS, you’ve already said that you have plans to bring that same Indianized model in the next year also?

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

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That’s the plan, yes.

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Unidentified Analyst, [44]

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Okay. Great. I like the business sense. Best of luck.

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

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Thank you.

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Operator [46]

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We have next question from the line of Arun Kejriwal from Kejriwal Research.

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Arun Kejriwal;Kejriwal Research & Investment Services Pvt Ltd, [47]

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Karan, a couple of quick questions. Do you have any buyout left from these 2 companies, that is, EMOSS and MFT? Or it’s all over?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [48]

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No, we do have. We currently own 76% of MFT. There is a plan to buy the remainder of the 24% in a couple of years, which is already planned. It’s based on a certain formula. Similarly, with EMOSS, we own [51%] now and there is a solid plan to get to 100% in the next 3 to 4 years depending on how the business progresses.

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Arun Kejriwal;Kejriwal Research & Investment Services Pvt Ltd, [49]

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So the amount that PCL would say is already earmarked based on performances that the company achieves, correct?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [50]

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It is. Yes.

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Arun Kejriwal;Kejriwal Research & Investment Services Pvt Ltd, [51]

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Right. Second question. Sir, last time, you did not talk about the subsidiaries. This time you’ve given us 2 quarters simultaneously. And there are positives and negatives both to take away. So if you could give us a sense in the coming 4 to 6 quarters what kind of revenue visibility is there with each of these 3 companies as of date. And like you mentioned to the gentleman earlier that you’re looking for 10% to 15% EBITDA, the kind of business plan for each of these companies in a nutshell, sir.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [52]

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Yes. At EMOSS, it would be hard to put a number to say that this is the visibility that we see. There is tremendous demand from the European market to produce these electrical drivelines for specific niche application. So we are working very hard on that. Would not be able to tell you a number in terms of percentage (foreign language) 4 quarters what does it look like.

For MFT, I can tell you, we have also declared this in the past that after our acquisition, we have -- PCL has invested about EUR 8 million additionally in CapEx, which is a combination of equity from PCL and [borne after] MFT’s balance sheet, which has -- which is now going to take the company from about EUR 20 million or about INR 160 crores, as it stands today, to about EUR 30 million to EUR 32 million, which is a 50% growth in the next 2 years. So there is complete visibility for that. We have the order book for that. The plan to ramp up is going as we had planned. So I think things are on track to go to EUR 30 million there at MFT.

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Arun Kejriwal;Kejriwal Research & Investment Services Pvt Ltd, [53]

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And the third one, the Nashik unit?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [54]

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Yes. So the Nashik unit, like, we have also said in the past, was about INR 30 crores when we acquired it. We’ve grown it 50% in a year. It was about INR 47 crores last year, March of last year. This year, because the Nashik company is quite dependent on the Indian market due to suppliers to Tier 1, there has been a slight decline in the business there. We have made efforts and ensured that we kind of balance this slowdown with other new customers at MEMCO, and we have, therefore, not taken a 30% or 40% hit in revenues, but rather only a 7% to 10%. We are looking at taking this company to INR 100 crores in the next 3 years. There is a plan being put in place to do that and that’s very much on track.

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Arun Kejriwal;Kejriwal Research & Investment Services Pvt Ltd, [55]

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Final question, Karan, from my side. The key for the stand-alone operation is the increase in machined camshafts. While there has been a significant growth in the first half, any sort of time line that you have of this number moving up, say, in the next 6 to 12 months?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [56]

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Yes. So we -- if you look at the half year performance, we did about 1.2 million, 1.3 million machined camshafts in the first half of this year. We have said that based on the customer demand and what we have capacity laid out, we are planning to reach about 3.6 million camshafts fully machined by 2021. So that is still on track. There will be a gradual ramp-up till then.

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Operator [57]

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We have the next question from the line of [Nandan Madiwala] from [Madiwala Invests].

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Unidentified Analyst, [58]

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[Congrats] on a good set of numbers. (inaudible)

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

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Your voice is breaking quite a bit. Can’t hear you.

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Unidentified Analyst, [60]

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Can you hear me now? So in the previous quarter, we showed on the balance sheet intangible assets around INR 17 crores. This quarter, you’ve shown it at INR 90 crores. So what is the reason for that jump? And we’ve shown it historically, so we’ve changed it historically, right, to INR 93 crores as of March ‘19? So what is the reason for that?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [61]

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Joshi sir, if you can answer it?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [62]

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In March 2019, all the figures are provisional figures. Now this -- for this -- for September end, it is audited figures, so there is substantial restatement of accounts took place.

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Unidentified Analyst, [63]

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Okay. And what was the reason? So goodwill, I think, I guess, has reduced and intangibles has gone up.

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [64]

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We have carried out the valuation of goodwill as well as intangible assets. So based on that, we have done the entries. And last year, it was on a provisional basis. This year, it has been done based on the valuation.

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Unidentified Analyst, [65]

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Okay. And intangible assets would be what, like, contracts that we -- order books of some sort that we are depreciating, amortizing?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [66]

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No, no. There are 3 to 4 issues over there. The customer relationship is there. Then research and development. And all this -- based on 3 to 4 issues, we have carried out the goodwill and that...

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Unidentified Analyst, [67]

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Okay. No, no -- so what would make the intangible assets?

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

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The intangible is software. For example, if you see in EMOSS, there’s a big amount in software and also their future growth and all this.

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Unidentified Analyst, [69]

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Okay. Okay.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [70]

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If you see, there’s a lot of patented software. There’s a lot of high-end technology in terms of just the (inaudible) also that is available there. So all of that is the intangibles.

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Operator [71]

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We have the next question from the line of Manan Shah from Moneybee.

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Manan Shah;Moneybee Group, [72]

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Congratulations on a good set of numbers. Sir, now we are already sitting on cash and investments of almost INR 150 crores. So I just wanted to know your plan with this? How do you plan to utilize this?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [73]

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INR 150 crores. Out of that, INR 120 crores we have kept in the mutual funds. That we are keeping as it is and whatever we are getting, 8.5% or 6%. But for that, we have kept -- we have a liability of INR 60 crores, which we have to pay to the Bank of Baroda for acquiring the companies. And balance we are keeping for the expansion for our -- in Solapur as well as for various companies what we acquired.

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Operator [74]

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(Operator Instructions) We have next question from the line of [Atul Shah] from (inaudible) Securities.

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Unidentified Analyst, [75]

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Sir, my query is, what is the company’s current capacity utilization for machined and casting camshafts?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [76]

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Okay. At the casting side, we have a capacity of about 9 million castings per year. We are doing approximately 7 million to 8 million, so we’re at about 85%. There is room to close up -- debottleneck and add more capacity there, but right now we are in a good position on the foundry side. On the machining side, as you know, we have spent all of the money that we raised from the IPO to set up a new machining shop, for which the capacity is laid out but not fully utilized at this point because all the customer contracts are in ramp-up. So I would say that we are at 70% of utilization, but would go to about 90%, 95% in the next 1.5 years to 2 years.

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Unidentified Analyst, [77]

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Okay. Sir, have we added any new plant in Q2 FY ‘20?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [78]

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No, not in Q2.

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Unidentified Analyst, [79]

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Okay. And lastly, sir, our machined camshaft volumes have increased by approximately 30% in H1 of this year. So what is the gross margin? Has it expanded?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [80]

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Can you repeat your question? You’re saying that gross margin for machined camshaft...

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Unidentified Analyst, [81]

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Machined camshaft volume has increased by 30%, but our gross profit margins have not expanded. So what is the reason behind the same?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [82]

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Sir, I will tell you, the gross margin has been hidden by our power cost, a substantial increase in the power cost. And that power cost has taken away our machined camshaft additional margin.

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Unidentified Analyst, [83]

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Okay. So that is the reason?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [84]

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Yes.

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Operator [85]

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(Operator Instructions) We have next question 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 [86]

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Mr. Joshi, you mentioned some numbers for the subsidiaries. Could you just repeat those a little slowly?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [87]

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Yes. See, the MEMCO, which is a Nashik-based company, sale is of INR 20.20 crores, this half year ending on (inaudible). EBITDA is INR 16.54 crores. And PAT is 4.19%. And working capital loan is INR 3 crores and term loan is INR 7.14 crores. This is MEMCO. And MFT, this is a German-based company, sale is INR 83.90 crores. EBITDA is 6.07%. PAT 1.93% negative. Loan working capital, INR 16.71 crores and bank term loan is INR 56.70 crores. This is MFT. At EMOSS, sales is INR 48.98 crores. EBITDA 4.38%. PAT 0.6% minus. And working capital, there is no working capital taken from bank, but it has been contributed by shareholders loan.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [88]

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Thank you. Got it. And can you just -- on the stand-alone numbers, the employee costs are rising ahead of sales. So for the half year, they were up close to 20% while sales were up some 16%, 17%. What is the steady state level for employees costs? Or what kind of -- hello?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [89]

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Hello? What you were asking...

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [90]

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I was asking employee costs seem to be rising faster than sales, Mr. Joshi. Why is that? And when -- what is the steady level for the employee costs?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [91]

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The employee cost, we have given only increment to our workers. Because of that, there is an increase. Other than that, there is no additional manpower we have taken.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [92]

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Okay. And could you also mention the realization in the first half for the casting and the machined camshafts?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [93]

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Right now I don’t have this figure. I will come back to you. Okay, I’ll take down this figures.

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Bhaskar Chaudhry, Entrust Family Office Investment Advisors Pvt Ltd. - Principal of Investment and Corporate Advisory [94]

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Just last question, what is going to be your tax rate, sir, on a go forward basis?

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Ravindra Ranganath Joshi, Precision Camshafts Limited - CFO & Whole Time Director [95]

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25.16%.

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Operator [96]

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(Operator Instructions) We have next question from the line of Keshav Kanoria from ITI Capital.

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Keshav Kanoria;ITI Capital Limited, [97]

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I think I might have missed this point. What is the current order book size at the group level?

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

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We have not said what the order book size is at the group level, but individually, I can tell you that in terms of MFT, we have invested certain amount of money in CapEx. We expect the revenue to increase from about INR 160 crores to about INR 240 crores at MFT in the next 1.5 to 2 years. At EMOSS, it’s difficult to put a number right now because it’s still in a very fast growing environment. You’ve seen that the last year has been almost 2.5x growth. So it would be difficult to put a number right now in terms of order book. But there is some kind of growth trajectory. Let’s put it like that. At MEMCO, we have a plan to take the company from about INR 40 crores right now to INR 100 crores in the next 3 to 4 years. At PCL also, we have -- you know that we have the capacity for machined camshafts, 3.6 million. Currently, we’re doing 2.3 million, 2.4 million or so. We have an order book to do that additional 1.1 million, 1.2 million camshafts. That will add about INR 100 crores also -- more than INR 100 crores in top line.

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Keshav Kanoria;ITI Capital Limited, [99]

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Right. And are we looking at any CapEx in the nearby period?

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [100]

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Not at this time. Not major CapEx, unless there is, like Mr. Joshi said earlier, we have certain funds available for expansion. We are looking at new businesses in new geographies, new customers. So if that does fructify, for sure, there would be some CapEx, but not significant at this point.

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Operator [101]

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(Operator Instructions) As there are no further questions from the participants, I’d now like to hand the conference over to the management for closing comments. Sir, over to you.

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Karan Y. Shah, Precision Camshafts Limited - Whole-Time Director - Business Development [102]

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Thank you so much, ladies and gentlemen, for joining our Q2 and half year FY ‘20 results. To kind of recap, we have been through a difficult time in the Indian auto industry. And despite that, we have gone -- improved results not only double digit on the top line, but significant improvement to the bottom line as well. We’ve been working on significant cost optimization goals, adding more machined camshafts, which has been our strategy from the very beginning. We are now getting to see fructification of that. All of our group companies are on a very good growth trajectory, which is why you see also growth at the consol level. So we hope for your continued support, and we are looking for good times ahead. Thank you very much.

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Operator [103]

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