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Edited Transcript of RANEHOLDIN.NSE earnings conference call or presentation 12-Nov-19 9:30am GMT

Q2 2020 Rane Holdings Ltd Earnings Call

Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Rane Holdings Ltd earnings conference call or presentation Tuesday, November 12, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Harish Lakshman

Rane Holdings Limited - Vice Chairman & Joint MD

* Lakshminarayan Ganesh

Rane Engine Valve Limited - Chairman & MD

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Conference Call Participants

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* Kavan Pandit;Latin Manharlal Securities;Equity Research Analyst

* Manish Goyal

Enam Holdings Pvt. Ltd - Investment Analyst

* Shyam Sundar Sriram

Sundaram Asset Management Company Ltd. - Research Analyst

* Viraj Kacharia

Securities Investment Management Pvt Ltd - Senior Analyst

* Diwakar Pingle;Finnacle Capital Advisors Private Limited;Associate Director

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Presentation

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Diwakar Pingle;Finnacle Capital Advisors Private Limited;Associate Director, [1]

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Hello, friends. Welcome to the Q2 FY '20 Earnings Call of the Rane Group. To take you through the results and answer your questions today, we have the management team from the Rane Group: Mr. L. Ganesh, Chairman and Managing Director, Rane Holdings Limited; Mr. Harish Lakshman, Vice Chairman, Rane Holdings Limited; Mr. P.A. Padmanabhan, President, Finance and Group CFO; Mr. Siva Chandrasekaran, Executive Vice President of Secretarial and Legal Services; and Mr. J. Ananth, CFO of Rane Holdings Limited.

Please note that we have sent you the press release for each of the listed companies, and we also sent you a presentation link of the deck. In case any of you have not received the presentation, you could look at it on our website or even the BSE site of Rane, or you could write to us at Christensen, and we'll be happy to send the detailed earnings presentation over to you.

As usual, the safe harbor clause, I'd like to say that everything that is said on this call that reflects any outlook for the future, or which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These uncertainties and risks are included, but not limited to, what we mentioned in the prospectus and subsequent annual reports, which you can find on our website.

With that said now, I'll quickly hand over the call to Mr. Ganesh. Over to you, sir.

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [2]

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Thank you, Diwakar. Good afternoon, ladies and gentlemen. Thank you for dialing in. I'd like to welcome you all to this teleconference. You would have seen the Q2 FY '20 performance highlights of the group companies posted on our website. This has been one of the most stressful quarters I have -- remember in the last decade or so. All segments of the auto industry and the farm tractors had significant drop in volumes. In addition, in Rane NSK, we had to make a provision for a warranty issue, for which we had made an estimate based on whatever technical information that we have as on date.

The group aggregate sales declined by 21%. Actually, domestic revenue declined from Indian OE customers by 33%, somewhat compensated by 9% growth in revenue from international customers.

EBITDA margin significantly declined by nearly 316 basis points on account of lower fixed cost absorption and basically, the employee costs having gone up with increments and other increases and their top line not growing.

The aggregate PBT before exceptional items declined by nearly 80% to INR 14.5 crores.

Just a brief outline of each company. Rane Madras stand-alone experienced a revenue decline of nearly 21%. Sales to Indian OE customers dropped by 31%, and sales to international customers dropped by 14%. Lower volume and unfavorable mix resulted in the drop in EBITDA margin.

The overseas subsidiary, Rane Precision Die Casting, as mentioned by us briefly last time, we now have a good order book position starting from 2021. We have strengthened the operations team with 4 more managers from Rane. We are trying to do a lot of improvements before these new orders kick in. So it will take about 12 to 15 months for the way forward to be clear, and as I said last time, we will share the progress with you on a quarterly basis.

Rane Engine Valve, the revenue declined by nearly 12.3%, both domestic and international. Plants continue to improve operational performance. Despite the lower volume, favorable raw material and forex movement and operational performance improvement helped to improve the EBITDA margin slightly. Of course, there was a significant drop in demand, and this has been a setback for us. The team is working to further improve operational performance and reduce costs. We are hopeful that these measures will help REVL to get back to the turnaround plan once the demand environment improves.

Rane Brake Lining experienced about a 7.6% decline in revenue. Sales to OE dropped by 14%. The aftermarket posted a marginal 1% growth, which somewhat mitigated the overall revenue drop. Margin improvement was driven by a favorable product mix, to some extent offset by higher employee costs, like in the other group companies. There were also one-off reversal of some provision for certain indirect taxes and bad debts made during the quarter that also helped that the -- not so much decline in profitability.

Rane TRW had a 11.4% decline in revenue. Drop in medium and heavy commercial segment impacted this company, especially the Steering Gear Products division, which was partially compensated by the growth of the occupant safety products driven by higher volumes from international customers. Adverse product mix and volume drop resulted in an EBITDA drop.

Rane NSK revenue declined by 35%, basically because of Maruti Suzuki and Honda. Significant drop in volume affected the cost structure. Adverse material cost and lower volume resulted in EBITDA drop. There was an exceptional item, the provisions we have been making for a warranty claim, which I talked about earlier. We made a technical estimate of the total possible claim under this in the next few years. And after discussion with the auditors, made a provision of nearly INR 48-odd crores this quarter.

This is, of course, something which we are watching closely along with NSK, trying to resolve the issue. RNS has made some incremental provision because of this and that is the reason, apart from the volume drop.

The signs are not encouraging on the demand environment, although October, due to the festive season, as you would have seen from media, there was some inventory clearance by our OEM customers. Given the transition and given the kind of situation that we are facing in terms of BS4 to BS VI and the uncertainty in the overall economy, we are very, very cautious about the remaining 2 quarters. We continue to save on CapEx and drive cost savings aggressively.

With this, I would like to hand it over to Harish for his comments, and then we'll take on questions.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [3]

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Good afternoon, everyone. Just a few more comments from my side. As Mr. Ganesh explained, we've had a very bad quarter for the entire industry across all segments. But on top of that, many of our businesses also was in line with the industry or even slightly worse. And I'll just explain vehicle segment by segment.

So in the Passenger Car segment, while on the car side, our performance of the group was in line with the industry; however, in the Utility Vehicle segment, there was better growth in the unserved models, especially like Kia and MG Hector, et cetera. Therefore, our decline is more in that segment.

Similarly, in the LCV segment also we had a higher drop in the models that we serve, as a result of which our performance was worse than the industry. And then in the M&HCV -- and you can refer to the Page number 3 in that investor deck, so then you can understand the numbers I'm talking about. Similarly, in the M&HCV segment, our drop was more than the industry because of the fact that the drop in the higher tonnage vehicles was more than the other categories, like single axle, et cetera. Because for our group, the higher the tonnage, the more the pack value that we have on the vehicle. So as a result from a revenue standpoint, our drop was more.

In terms of the Two-Wheeler segment, we did slightly better because we had some growth in our new product, which is friction materials supplied from Rane Brake Lining to the Two-Wheeler industry. And again, in tractor, also, we did worse than the industry because -- driven by, again, our -- the served customers and models, they did worse than compared to the industry average.

At a overall market level, our international sales grew by 9%, largely driven by the occupant safety business, seatbelts and airbag business in Rane TRW, and as for the last quarter, our international sales contributed about 25% of the overall revenue. If you recollect, this was a stated goal of Rane, but obviously not under these circumstances. It's a decline in the domestic business that has resulted in this mix.

The aftermarket has also been very sluggish, while not as bad as the OE segment, but still, we had a degrowth of about 10%.

So with these few words, we are ready to take any questions that you may have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Viraj Kacharia from Securities Investment Management.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [2]

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Just had a couple of questions. First is on PDC, you said that you have further strengthened the order book, so what is the order book position we have? And typically, over what period this would be materialized?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [3]

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All the business will start in the middle of next year, which is middle of 2020. And the contracts vary. Some of them are 7-year contracts, some are 5-year contracts. But on a full-year basis, from '21-'22, we see visibility for about $35 million.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [4]

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$35 million. So typically, our own communication has been in the past that once the scale exceeds somewhere around $30 million to $33 million, we should start being EBITDA positive. So is that how one should understand profitability road map for PDC once these kind of order book start materializing, we should see profitability kicking in?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [5]

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Correct. Yes. EBITDA positive. Yes.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [6]

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Yes. And we just did a preferential issue where we kind of raised INR 50 crores for investment in PDC. So for next 2 to 3 years, the kind of investment, which we have already made if you can just provide some color how much has already been invested in the form of your equity or loans and advances? And how much we're looking to either fund the losses or fund the programs, CapEx or any other part for next 2 to 3 years for PDC?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [7]

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I'm not sure we have all the numbers what you're asking for. But approximately -- just hold on 1 second.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [8]

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Sure.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [9]

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In the last 3 years, we have invested close to about $9 million, which has gone into CapEx, operational improvement initiatives and funding of losses and out of which funding of -- out of the $9 million, funding of losses has been fairly a large chunk, much more than we anticipated. So based on the new order books that we have, there is a further inclusion of about $9 million?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [10]

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Yes. $9 million.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [11]

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About $9 million.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [12]

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Okay. And in addition to this, there will also be certain loans and advances, which you would have given to the subsidiary, right?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [13]

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Everything, this is all-inclusive.

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [14]

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There is some borrowing.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [15]

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There is also some borrowing happen directly at the RPDC level also.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [16]

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Yes, but you will be the corporate backup for those borrowings, right? Because...

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [17]

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Yes. Correct, correct. This includes everything. Right?

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [18]

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Okay. Second question was around -- hello?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [19]

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Yes.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [20]

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Yes. Second question was on Rane NSK. So again, there, the whole thinking we had a couple of quarters back that these kind of provisions may be largely onetime in nature, but with each quarter, it kind of keeps on increasing. So is this the final leg of provisioning, or do we expect any further increase in provisioning in coming quarters? That's one.

And second, has there been some way affected our ability to win new programs with, say, customers like Maruti? Because if you look at last 2, 3 launches for them, we are not there in any of those new launches when it comes to Rane NSK for EPS. So if you can just provide some color over there?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [21]

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Well, in terms of provisioning, we have been earlier doing based on the actual returns on this account, which we are replacing free of cost, et cetera, et cetera. And this time around, we have kind of agreed with the customer on the -- what will be the warranty period. So based on discussion with the auditors, we felt it is prudent to provide for the entire -- as per the agreement with Maruti. Although having said that, we are also talking to Maruti on the root cause, et cetera. This is a very strange problem which NSK has not had on the same product anywhere in the world. So there is something to do with the operating environment here. There's something to do with specification. So the discussion is going on at Suzuki Japan, and some mitigative measures are also being discussed. But as a prudent measure, we thought for the entire warranty period agreed, we will provide for it. And this is what the auditors also wanted. So we have done that.

In terms of this affecting, I would say, no, because this is, as I said, very, very strange problem, which we ourselves have not had in any of our other EPS nor NSK nor Suzuki has had in Japan or in China or in Hungary anywhere. So we are still trying to -- the NSK engineers are working with us trying to find the root cause. So this is not affected. The reason maybe last season 1 or 2 orders have not come to us is because of the big [sute] business which came to us. So Maruti always, as we discussed earlier, kind of balances the volume between the 2 suppliers. That is the only reason. This has no effect long term.

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Operator [22]

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(Operator Instructions) The next question is from the line of [Anirudh Agarwal] from AAA Investments.

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Unidentified Analyst, [23]

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So if I heard correctly, in the RPDC business, you mentioned that we are aiming for $35 million of revenues in FY '22, but in last quarter, we were talking about $38 million to $40 million, so what has changed over there?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [24]

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I'm not able to recollect this $38 million to $40 million. You mean in the last quarter, we had indicated $38 million to $40 million?

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Unidentified Analyst, [25]

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Yes, yes, yes. You had indicated $38 million to $40 million last time around if I remember correctly.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [26]

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I don't think so.

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Unidentified Analyst, [27]

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Okay. So there have been no sort of order losses or cancellations later? There has been nothing of the sort in this?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [28]

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No.

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Unidentified Analyst, [29]

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Okay. And the business, you mentioned, will kick-in from middle of next year, so say from Q2 of FY '21, we'll actually start seeing revenue from the new orders?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [30]

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Correct.

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Unidentified Analyst, [31]

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And so what sort of -- what will be your revenue target for FY '21 in RPDC?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [32]

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So it will be around $31 million, $32 million.

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Unidentified Analyst, [33]

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Okay. And by then, do you see the losses abating at least next year? So this year, obviously, they will be protracted, but from next year onwards should we see some deduction in losses? Or will that only happen in FY '20 [toward]?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [34]

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No, that's the hope that there will be a marginal reduction next year.

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Unidentified Analyst, [35]

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Okay. And FY '22 onwards, we believe we can be EBITDA positive if we do $35 million of revenue?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [36]

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Correct.

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Unidentified Analyst, [37]

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Okay. And on the India Die-casting business, what's the outlook like for the next -- for this year as well as the next year?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [38]

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Unfortunately, this situation is somewhat similar, although operationally, the Indian operations, it's in much better shape. But from the booking of business standpoint, both this year and part of next year, there is going to be underutilization of capacity. But towards the end of next year, we see the new -- some of the new businesses that we have won will kick in. So '22, '20 -- sorry, '22-'23 should be better.

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Unidentified Analyst, [39]

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Okay. So even there, we're seeing some slowdown. And overall -- on the auto market, overall, do you really see some kind of revival, like does the festive season demand uptake? Do you see that as being sustainable at all? Or do -- could we also see some sort of prebuy before BS VI implementation?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [40]

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See, it's too early to say that. As you know October because of the festive season, there has been a slight improvement. Inventories have gone down with our OEM customers, especially in the passenger vehicle segment. But it is really too early to say. And we are just waiting and watching what goes on in the next 2, 3 months. As far as commercial vehicle goes, we believe it will take a while because the capacity utilization and what data we get from the inventory of the dealers, et cetera, it might take a few more months. Perhaps, passenger vehicle may improve before that, commercial vehicle may take some more months. But all this is just kind of what we also understand from customers and media. Honestly, if you ask us, we would like to be cautious for the remaining part of '19-'20.

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Unidentified Analyst, [41]

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Okay. So on Rane Madras what would be the CapEx plan for this year then stand-alone?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [42]

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Rane Madras, again, we have overall significant -- I'll just give you the figure, but we have overall significantly cut back on CapEx. So to give you an idea as against [for] Steering Gear division for the -- we had planned something like INR 36 crores, INR 37 crores, we are cutting down too. Ordering is only about INR 16 crores. So similarly, in all these divisions, we have cut back. So what we have done is only for new customer programs, where we have got committed orders and kind of start-up production, we have invested. All other CapEx we have cut back significantly.

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Unidentified Analyst, [43]

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Okay. And sir, do we also see some possibility of further -- like, particularly on Rane Madras, do we see some possibility of further cost reduction that we can do? Or this will be the bare minimum cost that we'll have to run with and hope for the volumes and revenues to actually pick up for profitability?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [44]

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See, we've -- in the first half, actually over and above our plan, we've done some significant cost reduction, both materials and rationalization of working shifts, number of days, fixed cost reduction, including every line item. So -- and we are similarly aiming slightly better than that in the second half in terms of cost reduction. So this is a continuous effort. In fact, even the Die Cast division, you would have -- could have seen that the losses have come down significantly, although the top line also was lower.

So cost reduction continues to be our focus. I wouldn't say there's significant opportunity more, but we are driving it very, very aggressively so that we kind of keep this from further deterioration.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [45]

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Yes. I'd like to just clarify one point. Apparently, in the Q1 call we had mentioned about the visibility in RPDC for $38 million to $40 million. The number that I mentioned today is based on secure orders that we have on hand, the $35 million that I mentioned. There is still visibility of some other orders that -- which we have yet to win any contract. So that's the difference. Visibility is slightly more, but what we have in hand with firm orders is in that region. When I say firm orders, I'm including letter of intent, which is not 100% firm, but almost sure. So this includes one contract that is still in LOI stage, that is included in the $35 million.

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Operator [46]

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The next question is from the line of Shyam Sundar from ICICI Bank (sic) [Sundaram Mutual Fund].

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [47]

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From -- I'm Shyam Sundar from Sundaram Mutual Fund, sir. Sir, in the opening remarks as well as in the presentation, you have mentioned that tonnage has affected this tiering business by in terms of realization. Can you explain how that is related to the -- how the steering business realization related to tonnage, sir?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [48]

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Well, in terms of -- especially Rane Madras, the pack value of all the steering linkages that we supply on the higher tonnage vehicle, obviously, the realization is more. And as the tonnage goes down, the overall pack value comes down. So that is the...

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [49]

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Yes. More axles means more linkages, less axle means less linkages.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [50]

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Okay. Understood, sir. Understood. That is helpful, sir. And in NSK, just on the -- so we provided about INR 3 crores in 1Q, now this INR 48 crores that we have provided this quarter, does that include the INR 3 crores that we provided in 1Q? Or this is incremental over what we already provided in 1Q?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [51]

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This is incremental. So as I said, now we're taking a view as for the understanding with the customer, how long the warranty, if at all, we will honor. Although further discussions are going on, on mitigating this, this is the maximum that we have committed with the customer. So therefore, we took a view with the auditors that it's better to provide it now. But we are trying to mitigate this so various discussions are going on in terms of how to mitigate this. And of course, insurance as the -- the large insurance claim, also that will take some time as you will understand.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [52]

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Right, sir. So this will be the final provision that we have made as of now, right? No [that]...

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [53]

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Yes. This is for a period going almost in the next 2, 3 years. So therefore, exactly I'm not able to tell you, but this is a technical estimate we have made along with the NSK as to what could be the warranty in the next few years.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [54]

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Okay, sir. Got it. This is for one particular model, right, sir?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [55]

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That's correct.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [56]

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Okay, okay. Got it, sir. Sir, and just on the NSK itself. Sir, given the volume outlook, are there any -- I mean you mentioned in the call also, one will have to wait and watch for the actual volumes to pick up, now given where we are in terms of the industry volumes, is there any -- are there any margin levers that we can pull to improve profitability at the NS -- for NSK?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [57]

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See, the structure is kind of well-matured, so capacity utilization is very important. And as you know, we have been operating the first half at a very low capacity. October has been slightly better because, as you know, Maruti built more cars. So it really depends on the volume. And as far as the manual steering column is concerned, it mostly depends on commercial vehicle, which is still in bad shape, although the value of manual steering column is only 10% of the total company sales. So it is, by and large, volume-dependent. Nothing much we can do, although we are trying -- on fixed costs, traveling and those kinds of things -- we are trying to reduce as much as possible.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [58]

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Understood, sir. You also mentioned adverse material costs in Rane NSK, did I hear it right? Because broadly, the materials have been coming down, material cost. So anything specific that is particular for Rane NSK, sir?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [59]

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Some delay in localization. Because of this problem, we had to put behind our testing facility et cetera, and convincing the customer on some localization. So that has somewhat affected our cost structure. We should have done during this first half. That's what I meant. Otherwise, you're right, commodities have generally come down.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [60]

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Yes. Okay, okay. Understood, understood, sir. Sir, and from TRW perspective, how much will -- would have been exports in one -- in the first half, sir?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [61]

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You're asking in terms of rupees in crores or percentage?

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [62]

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Yes, sir, rupees crores, rupees crores or percentage, whichever way, sir.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [63]

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One second. Close to INR 115 crores.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [64]

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INR 115 crores. And how would this compare with last year, sir?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [65]

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Last year, it's about -- INR 84 crores.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [66]

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INR 84 crores. This is for one hedge, right, sir, what you're saying?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [67]

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Q2.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [68]

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Q2.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [69]

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Q2.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [70]

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Okay, okay, okay. Understood, sir. Understood, understood. Sir, and in TRW, we also were providing for the -- for a royalty starting last quarter, we had provided about INR 10 crores last quarter and -- so incrementally, how is the royalty provision going to happen at TRW, sir?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [71]

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So the INR 10 crores that you saw is an accumulation of the previous year's amount done in one shot. That is why you saw the impact for the entire quarter. But otherwise, I think the royalty is about 2% or 3%.

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [72]

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2.5%.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [73]

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2.5%. 2.5%.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [74]

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2.5%. Yes, I think 2% to 3%, it varies. There are 3, 4 products, some are 2%, some are 3%, I think in that range.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [75]

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Okay. Understood, sir. Just one more question...

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Operator [76]

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Sir, I'm sorry to interrupt, may we request you to come back in queue for follow-up questions. The next question is from the line of Shravan (sic) [Kavan] Pandit from Latin M Securities.

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Kavan Pandit;Latin Manharlal Securities;Equity Research Analyst, [77]

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This is Kavan Pandit from Latin Manharlal Securities. My question was with respect to Rane Holdings, Rane Madras and Rane Brake Limited. Can I have the names of the top 5 customers and the percentage contribution to sales from each of these customers for the 3 of the company's subsidiary, if possible?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [78]

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No. We usually don't disclose our top customers by revenue. I mean at a group level, we can tell you that Maruti, Tata -- Maruti, Mahindra and Tata are the top 3 customers.

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Operator [79]

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

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Unidentified Participant, [80]

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I wanted to ask what's the capacity utilization in Rane Engine?

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Unidentified Company Representative, [81]

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Rane Engine Valve?

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Unidentified Participant, [82]

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Yes.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [83]

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It would be around 70%.

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Unidentified Participant, [84]

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And what would be the current order book we have?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [85]

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No. See the order book -- see 60% of that company is -- 65% of that company -- oh, no, let me clarify. 60% of that company sales is directly dependent on the OE business, and then some aftermarket and then exports. So our entire fortune is linked to how the two-wheeler, passenger car and the commercial vehicle segments perform.

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Unidentified Participant, [86]

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Okay. Because we are struggling with the operating efficiency there for quite a long time now. It's been a drag on the group also.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [87]

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Correct. See I think that's what -- yes, as Mr. Ganesh said in the -- in the opening statement, the company is still very much in turnaround mode. And actually, last year to this year if you see, a lot of operational improvements have taken place. When at -- if you have to look at things like rejection cost, if you look at things like power costs, if you look at things like premium freight, overtime, actually, many of these things have come down. But unfortunately, the downturn in the overall industry has pulled the numbers back to -- it doesn't look good, but if only the market had continued, REVL would have shown a better performance, unfortunately.

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Unidentified Participant, [88]

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So this particular business, the visibility is the least in the group, right?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [89]

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Sorry?

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Unidentified Participant, [90]

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So in this particular business, the visibility is the least, right, for revenues?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [91]

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Visibility is...

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Unidentified Participant, [92]

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The visibility of revenues is the least, right?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [93]

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Least. Oh, okay. No. See, again, as I said, it depends on the domestic market. If -- the faster the market comes around, it's going to help REVL more. But yes, obviously, the downturn in the domestic market is definitely hurting REVL a lot.

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [94]

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Also, the value addition there is very high. So there is not much we can do on -- the fixed cost element is also high. Therefore, it's very volume-dependent business, capacity utilization, volume-dependent business.

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Operator [95]

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The next question is from the line of Manish Goyal from Enam Holdings.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [96]

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A few questions on -- first on Rane Madras. In last call, we had mentioned that we had received some new export orders, so would it be possible to give some sense as to what are the size of the orders? And when do you expect the dispatches to start?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [97]

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One second.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [98]

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Sure.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [99]

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Yes. Actually, Manish, if you don't mind get a refresh, which order this was? We're not able to recollect.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [100]

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So the last presentation in the con call mentioned that we have received new export orders and -- in the steering gears, and we expect to start soon. So just trying to...

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [101]

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So that is that -- must be the steering gear business that we were supposed to start with one of our customers. That was supposed to start in Q4 of this year, but that is getting delayed to next year.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [102]

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Okay. Okay. Sure. Okay. And in Rane TRW, please, can you give us a revenue breakup on the steering gears and the occupant safety products for the quarter -- this quarter and comparable quarter?

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Unidentified Company Representative, [103]

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Yes. So the occupant safety for the current quarter is INR 162 crores. The previous year's current comparable quarter Q2 is INR 129 crores.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [104]

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Okay. And steering gears? Okay, fine, I'll derive that. And can you give us the breakup of occupant safety between seatbelts and airbags?

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Unidentified Company Representative, [105]

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Airbag is INR 98 crores, so 60%. And seatbelt -- sorry, air -- domestic export. Export is 60%, domestic 40%.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [106]

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Of the occupant safety, right?

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Unidentified Company Representative, [107]

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Yes, occupant safety.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [108]

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Total?

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Unidentified Company Representative, [109]

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Occupant safety. This is occupant safety and the airbag is INR 68 crores.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [110]

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That is the revenue share of the occupant safety?

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Unidentified Company Representative, [111]

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Yes. Out of INR 162 crores, INR 68 crores is the airbag.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [112]

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Okay, okay. And in Rane Brakes in Q2, we have -- in the notes, it is mentioned that there has been some reversals of bad debts in the quarter, can you please quantify the amount?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [113]

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About INR 2.5 crores worth of 2, 3 provisions we have made and those have been reversed and yes, about -- totally about INR 2.5 crores. Some -- relating to some indirect tax, GST and some related to bad debt provision which are now reversed.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [114]

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Okay. And on the aftermarket, how do you see -- especially in Rane Brake, do you see any improvement or it will continue to be subdued?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [115]

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Aftermarket continues to be subdued because the collections are a concern and dealers are not stocking. They're not buying for stock. So generally, as a group, we are finding aftermarket -- of course, each company like Rane Brake Lining is trying to focus some areas, some products, et cetera, to do a better performance. But overall, if you ask me, it is still quite sluggish aftermarket.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [116]

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Okay. And last question in Rane Precision. So the quarterly loss run rate what we see now it will continue for a few more quarters, like at least for the next 3, 4 quarters? Or we expect that, at least operationally, we should be able to kind of reduce losses?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [117]

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No. It will take some more time, Manish. Because the operational initiatives, it is going to take at least 6 months before we start to see the results. And that, coupled with the top line also has to grow. As you have seen, last year the sales revenue has dropped from the previous year. We dropped from almost 30 million to 25 million. And this year, also, it will be only -- well, it will be better than 25. So it's a combination of both top line growth and operational improvements. So...

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [118]

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Okay, okay, okay. So is it that this -- because what I see is yearly on Y-o-Y basis, the number I derive is in the other expense that number has gone up from -- for the subsidiary has gone up from INR 13 crores to INR 17 crores, there's a INR 4 crore increase and even the employee cost has gone up on the numbers what I derived from consol and stand-alone, even employee cost seems to have gone up significantly. So just want to know that is there any onetime element or both these other expansion employee costs will remain at elevated level?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [119]

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No. So -- see, part of the costs went up because of the new business that we started. We had shared with you that -- see, the top line is actually growing from 25 million last year, so this year we are hopeful of close to 30 million. So that is based on a new order that we won already. And that has gone into production. So that involved additional head count that got added. So that is why you see the increase.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [120]

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Okay, okay, okay. Because still, like, it looks quite disproportionate as compared to the revenue growth. So that was why wondering because at PBT level, we are seeing a quarterly loss of almost INR 13 crores now, quite a high run rate.

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [121]

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Yes.

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Operator [122]

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The next question is from the line of Viraj Kacharia from Securities Investment Management.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [123]

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Just had 2 questions. First is on the CapEx. So for different group companies and divisions, if you can just broadly give some color, what is the CapEx we will be doing for each of them this year and any indication for next year?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [124]

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Well, we had planned for the CapEx as a group this year about INR 228 crores. But so far, we have committed only about INR 65 crores. And the second half, I don't expect any significant commitment. So we might probably end up with INR 80 crores to INR 90 crores CapEx, less than 50% of the plan. Next year is too early. We normally do our planning sometime in February, March. And as you know, with today's uncertainty, it's all the more difficult to talk about next year's CapEx. We will probably plan it sometime February, March. But if you look at the capacity utilization today, it won't be a significant number next year also.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [125]

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Okay. And for the breakup in TRW between steering and occupant safety, you said it's INR 168 crores and INR 116 crores, right?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [126]

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OSD and...

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Unidentified Company Representative, [127]

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Sales.

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [128]

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Yes. Sales.

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Unidentified Company Representative, [129]

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Yes.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [130]

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That's the correct number, right?

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Unidentified Company Representative, [131]

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Yes. INR 162 crores.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [132]

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INR 162 crores is occupant safety, right?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [133]

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Occupant safety, correct.

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Unidentified Company Representative, [134]

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Correct. And another INR 110 crores.

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Operator [135]

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(Operator Instructions) The next question is from the line of Shyam Sundar from Sundaram Mutual Fund.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [136]

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Sir, on the TRW side, we had indicated the seatbelt order from Maruti to start with. Any further order wins on the occupant safety in TRW, sir?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [137]

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I guess -- I mean, definitely the order book for that business is looking good. And as I said, this double-digit growth on the OSD side will happen. As you know, we have been -- we've also invested in this new plant. Let us also keep in mind the order book. So there is continuously some new orders coming in for the outer years, and I mean '21, '22, et cetera.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [138]

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Okay. But anything incremental on the domestic side, sir because the export is also doing very well, right? Exports to Korea has been growing very well?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [139]

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Correct, correct. Both domestic as well as exports, we're winning new orders.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [140]

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Okay. Okay. Understood, sir. Understood, understood. And any new order wins on the NSK side, sir, for the steering business?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [141]

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Nothing now because there's no new model. We have quoted, of course, for quite a few businesses. We are working on that, but nothing as of now.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [142]

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Okay. Understood, sir. Sir, on Rane Brake Linings, if we see on a quarter-on-quarter basis, our RM cost to sales has slightly inched up. I mean if you can help us understand why that has been the case, that will be helpful, sir?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [143]

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Just 1 minute. Just 1 minute.

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Unidentified Company Representative, [144]

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RM cost has actually come down. We have the favorable mix, RBL, the aftermarket remains as well as OEM has dropped just a favorable RM cost percentage in this quarter because of the mix impact.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [145]

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Okay, sir. Let me check again my numbers. And sir, broadly, on the tax rate for the different business segments, if you can just comment on how are -- which businesses we are transitioning to the new tax regime and where we are not? That will be helpful.

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [146]

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We're just evaluating that. So it depends on the company's MAT if any, and R&D and weighted reduction, et cetera. So all the companies are evaluating to switch. So we'll probably make this decision in -- by March. By end of the year, we'll take the decision.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [147]

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Okay. So as of now, the tax rates remain as they were earlier?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [148]

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Except in Rane TRW, we have decided to take the lower tax rate because there's no MAT, there's no other issue. So there we decided. Other companies, we're evaluating.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [149]

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Okay. Understood, sir. Understood. Sir, one last question, if I may squeeze? On the CapEx front, you had indicated that we will do about INR 90 crores for the year. If you can broadly give some sense on which businesses or segments are we investing in this year?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [150]

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Well, INR 90 crores, as I said, as of now, we've committed only INR 65 crores. I'm saying, it could be maybe about INR 90 crores in total. But mainly, again, Rane TRW OSD, we are adding some capacity, both for the businesses which Harish mentioned, and for some exports of airbag cushions back to ZF. And other is Rane Madras Steering Gear division, where we have won some new businesses, both domestic and export. And Rane NSK, this was part of the Gujarat project online we have to establish. We're starting Volkswagen business and some commitments, although the capacity utilization is currently low. So broadly, these 3. The others are insignificant.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [151]

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Okay. Understood, sir. Volkswagen business, where are we -- where we'll be shipping that from, sir? From NSK Gujarat, sir?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [152]

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Mostly Gujarat. Yes, yes.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [153]

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Okay, okay, okay. And the export of airbag to ZF, that is a recently started business, sir?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [154]

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Yes, part of the reason why we set up the Trichy plant was that to make the airbag cushions for domestic consumption plus export back to ZF. So that has now commenced, and it's getting good, good traction.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [155]

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Okay, okay. And any sense of how big is that order or on a annual basis or anything, if you can give that, sir?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [156]

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No. I mean it has the potential to go to about INR 250 crores over the next 3 years.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [157]

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Okay. INR 250 crores per annum only to ZF you're saying, or the Trichy plant, you're saying?

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Harish Lakshman, Rane Holdings Limited - Vice Chairman & Joint MD [158]

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The Trichy plant.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [159]

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Trichy plant. Okay. Okay sir. Got it.

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Operator [160]

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(Operator Instructions) The next question is from the line of Manish Goyal from Enam Holdings.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [161]

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Yes. On Rane Madras is there any orders, incremental orders coming in the hydraulics business, both in cylinders as well as the steering business?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [162]

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In the steering, we continue to get some good orders, apart from domestic. Also export, we've got some orders for both steering gears and ball joints also, we've got some very good orders. So export order books are very good. Hydraulics, cylinders continue -- we continue to export and domestic business is doing well. Of course, the tractor segment went through a little bit of a lower volumes in Q1, Q2. And after the monsoon, we understand that the inventory has now been reduced. So we expect, although the season for tractors is coming to an end. So we have to see, while the inventory has come down, the season also might come down in the next 1 or 2 months. So we'll have to see. But the order books are quite good in hydraulics.

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Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [163]

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Okay. So in cylinders, we had got some export orders. So how is that shaping up?

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [164]

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That is shaping up well. We're continuing to work on some more RFQs. We are now exporting regularly to, I think Europe, and we are working on 1 or 2 more RFQs. So we're trying to build that business. I think that's a good opportunity for us.

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Operator [165]

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

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Lakshminarayan Ganesh, Rane Engine Valve Limited - Chairman & MD [166]

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So thank you very much for your attention. And as I said, this has been a very stressful quarter, and we are very cautious in terms of the remaining 2 quarters. We continue to focus on cash preservation in the business, cost reduction, and let's wait and see the transition is going to take place to BS VI, so how '20-'21 is going to turn out, but we would like to be very cautious as far as '19-'20 is concerned and hope for the best for next year. Thank you.

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Operator [167]

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Thank you. Ladies

(technical difficulty)