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Edited Transcript of SOLARINDS.NSE earnings conference call or presentation 1-Aug-19 6:00am GMT

Q1 2020 Solar Industries India Ltd Earnings Call

Nagpur Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Solar Industries India Ltd earnings conference call or presentation Thursday, August 1, 2019 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Manish Satyanarayan Nuwal

Solar Industries India Limited - CEO, MD & Executive Director

* Nilesh Panpaliya

Solar Industries India Limited - CFO

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Conference Call Participants

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* Abhijit Mitra

ICICI Securities Limited, Research Division - Analyst

* Abhishek Ghosh

DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation

* Ankit Pande

Systematix Shares & Stocks (I) Ltd. - VP of Institutional Sales

* Dhaval Dama

Equirus Securities Private Limited, Research Division - Research Analyst

* Gagan Thareja

* Jasdeep Walia

Infina Finance Private Limited - VP

* Nirav Savai

JM Financial Institutional Securities Limited, Research Division - Analyst

* Pinaki Banerjee

* Rohan Gupta

Edelweiss Securities Ltd., Research Division - Research Analyst

* Shreyas Bhukhanwala

* Priyanka Baliga

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Solar Industries India Limited Q1 FY '20 Earnings Conference Call, hosted by KRChoksey Shares & Securities. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Priyanka Baliga from KRChoksey. Thank you, and over to you, Ms. Baliga.

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Priyanka Baliga, [2]

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Thank you, [Barre]. Good morning, everyone. This is Priyanka Baliga from KRChoksey Research. Welcome to you all for the Q1 FY '20 Earnings Conference Call of Solar Industries India Limited.

From the management side, we have Mr. Manish Nuwal, CEO and MD; Mr. Nilesh Panpaliya, CFO; and Mr. Suresh Menon, Executive Director.

Now I would like to hand it over to Mr. Nilesh Panpaliya for his opening remarks, subsequent to which we will have a question-and-answer session.

Thank you, and over to you, sir.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [3]

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A very good afternoon to all the valued investors, well-wishers and potential investors of Solar Investors India Limited. On behalf of Solar, I am Nilesh Panpaliya, CFO, welcome you all to Earnings Call for Quarter 1 of Financial Year 2019-'20. As always, I would like to remind you that during this call, we might make projections or other forward-looking statements regarding future events and about the future financial performance.

Please remember that such statements are only predictions. Actual events or results may differ materially. And our website will be updated with all the relevant information.

So now to begin with, I would request our Managing Director and CEO, Mr. Manish Nuwal for his comment on the complete performance for the year.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [4]

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Good afternoon to everyone. During the quarter, results are satisfactory in the current demand scenario and it reflects the continued challenges and overall economic slowdown in global markets. Spending after general elections in India impacted the demand from domestic infrastructure sector. We also witnessed subdued demand from coal mining on account of lower overburden removal. The global issues that impacted us, includes the trade war which [elected] currency depreciation, ultimately leading to translation loss of INR 35 crores in overseas business. Domestic explosive market will see increased demand from the mining sector and overburden removal is likely to increase and demand from road construction and housing activity will also grow as these sectors are priority sectors of the government. In the budget, the government intends to spend INR 100 lakh crores in next 5 years on infrastructure development, which will boost the activities in infrastructure development and will help the explosive industry. The recent budget also plans to construct 1.95 crore houses in the next 5 years, which will provide a major boost to the housing segment as well.

The overseas revenue is expected to increase from next quarter, looking at the current market situation in Turkey and South Africa. As far as defense is concerned, we have received order for guided Pinaka rocket. Further, the RFPs for Pinaka and multi-mode hand grenade have been [floated], which is a very positive step in the direction of Make in India program. Our current order book from defense stands at INR 390 crores, and we are expecting revenue in the range of INR 300 crores in this year. We are now entering into the manufacturing of propulsion systems for space applications, which is synergistic with our current business of ammunition. The proposed foray of company in space sector will enable it to develop and offer products, which will cater to the demand of ISRO and various other space technology companies in India and across the globe. We are expecting our growth for this year to be around 20% for the top line and bottom line as well.

Now I will request Mr. Nilesh to share the financial details of quarter 1 in detail to you all.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [5]

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Thank you. So coming to the key highlights for the first quarter, our consolidated revenue growth is 0.86%, that is INR 620 crores from INR 614 crores. Our domestic explosives revenue grew by 9%, that is from INR 313 crores to INR 343 crores. Our domestic volume growth is 2%, that is from 90,623 metric tons to 92,531 metric tons, and the realization of explosives in domestic market has grown by almost 7%. That is from 34,582 to 36,342. The domestic [initialing] system revenue grew by 33%, that is from INR 61.74 crores to INR 82.3 crores. Our over -- export and overseas revenue is INR 195.45 crores compared to INR 237 crores. This decrease is on account of [transmissional] loss of INR 35 crores, coupled with lower revenues from Turkey and Zambia on account of global [shutdown]. Revenue from Defence is INR 25.24 crores in the current quarter compared to INR 27.98 crores as the delivery has been shifted to second quarter. Coming onto raw material consumption, the (inaudible) increased by 0.71% from 56.7% to 57.41%, when we compare year-on-year. This is on account of increase in material prices in the global market, coupled with solid product realization in global markets. The employee cost has increased by 0.89%, that is from 7.57% to 8.46% because of annual pay hike, that is the (inaudible) increment.

However, because of subdued sales on account of global slowdown, it looks marginally higher as a percentage of sales in this quarter. The other expenses has decreased by 0.84%, that is from 14.88% to 14.04%. Last year, there was foreign exchange loss of INR 9 crores in overseas operation, which is not there in the current quarter. We reported an EBIDTA of INR 130.28 crores for the quarter, which is 21% compared to 22.10% when we compare year-on-year. Yes, going ahead, we expect better margins because of improved revenues from defense, overseas and exports. Interest and finance cost is almost at the same level, that is 1.95% as a percentage of sales when we compare year-on-year. Depreciation has increased by 0.87% and this is because of CapEx carried out in the last year. The profit before tax margin stands at 15.92% compared to 17.89%. The current tax rate for the quarter is 25% compared to 34% as the tax rate was reduced because of the budgetary provisions of 2019. In absolute basis, the net profit has shown marginal growth of 1.25%, that is INR 73.83 crores compared to INR 72.92 crores.

Now coming to the CapEx, the total CapEx in Q1 FY '20 was INR 48.68 crores. We have a planned CapEx of INR 270 crores for the year. The total order book is of INR 897 crores, comprising of orders from Coal India, Singareni and Defence. Defence order book, as we shared, is INR 390 crores. So these are the updates for the quarter. Now we would be happy to take any questions, comments or suggestions that you may have. Back to you operator.

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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 Dhaval Dama from Equirus Capital.

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Dhaval Dama, Equirus Securities Private Limited, Research Division - Research Analyst [2]

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I just wanted to ask you now...

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Operator [3]

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Mr. Dama, I'm sorry to interrupt. Sir, your voice coming too low, can you please speak a bit louder?

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Dhaval Dama, Equirus Securities Private Limited, Research Division - Research Analyst [4]

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Sure. Just a second. Yes, sir, so wanted to ask you, now we're seeing that there's global slowdown in the market. And so that has also impacted your overseas operations and exports. So going out for the next 3 quarters, how do you see this panning out? Also coupled with the fact that because we you have been guiding for around 20% annual profit growth number for the full year. So do you think that, that will still be achievable, looking at the current (inaudible)?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [5]

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So first of all, as we have mentioned that we will continue with the guidance which we have given. Definitely with our first quarter, we got affected, particularly in export and overseas revenue but now with the type of feedback we have from our marketing team, we are working in these areas. We definitely see that Q2, Q3, Q4 will be better compared to Q1.

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Dhaval Dama, Equirus Securities Private Limited, Research Division - Research Analyst [6]

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Okay. And sir, any chances of translation loss coming into the further quarters? Or are you seeing any translation loss coming into the current quarter also?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [7]

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As of now, we don't think there will be so much translational loss, but we can't predict how the trade war is going to shape up in the future. And what will the various decisions taken by U.S., China and other influencing economies. So once we get a clarity on that probably then it would be relevant. But as of now, under the present conditions, there will be significant translational loss. And as we mentioned that the (inaudible) figures for the (inaudible) translational losses happening because we are converting the currency from the local currency to the Turkish currency to U.S. dollars and again from U.S. dollar to INR, right, so for having a consolidated figure. So actually, in their country, there is no such loss, but it is only a book entry which we need to [continue].

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Dhaval Dama, Equirus Securities Private Limited, Research Division - Research Analyst [8]

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Right. Yes, yes. Sure, sir. Sir, again I wanted to ask you on your domestic business front also, like say, which are the particular products where we are expanding capacity on the exclusive side? Not on the defense side. So like say, can you just elaborate more on what would be the current capacity in both cartridge and bulk and how you are looking to ramp it up further from here on?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [9]

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Whilst we have licensed capacity of [3,14,000], but what we can deliver right now is close to [2,50,000]. So as and when we see the demand coming up, we'll be increasing the number of contracts. So we have a planned CapEx for that. Similarly, in case of explosives, we are almost running 100% capacity utilization of around [1,75,000] metric tons that also we are planning to increase it subsequently with the demand, which we are expecting from the Infrastructure segment and Housing segment. And we are expanding in packaging, we have (inaudible) systems and bulk. So all the 3 segments, we are having our expansion.

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Dhaval Dama, Equirus Securities Private Limited, Research Division - Research Analyst [10]

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Sure. Sir, so I guess that it would be fair enough to assume that your cartridges or cartridge explosives would be growing faster as compared to bulk and would continue to do that in the near term at least?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [11]

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Yes, definitely, because of priority of Infrastructure and Housing system by the certain government.

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Dhaval Dama, Equirus Securities Private Limited, Research Division - Research Analyst [12]

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Okay. And sir, one last thing I wanted to ask you on how your capacities are ramping up in the South African business. And because I think that going into last year, also we were pretty confident that South Africa business will contribute meaningfully to the overseas operations during the current year. So how do we see the year panning out for the South African business? I think that we are at around 25,000 tonnes of capacity over there. So what kind of revenues could you expect for the full year from that business?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [13]

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So as far as South African business is concerned, yes, now the supply chain and logistics has been established there. We have successfully completed the various trials with further requirement of the plants there. And from second quarter onwards, we will see that quarter-on-quarter there will be improvement in the revenues.

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Operator [14]

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The next question is from the line of Jasdeep Walia from Infina Finance.

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Jasdeep Walia, Infina Finance Private Limited - VP [15]

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Sir, first of all, the order which you've got on Pinaka, is it a commercial order or is it just a trial order?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [16]

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It is not so much a trial order, or a development order.

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Jasdeep Walia, Infina Finance Private Limited - VP [17]

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Got it. And sir, this RFP which has been [followed] by the government with respect to Pinaka and one more item you mentioned, the contracts are how big, sir?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [18]

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So this RFP has just been quoted. So first, we'll have to participate for technical qualification and then it will be for price discussion. So we, after one of the price discussion happens, we will be able to understand that how big that contract will be.

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Jasdeep Walia, Infina Finance Private Limited - VP [19]

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Got it. And sir, so basically the process of -- for awarding the contract is pretty long. So the RFPs [have been] for now, but it seems like the order will come possibly in 3 or 4 quarters, if at all it comes.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [20]

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Yes. Definitely going by the historic analysis, it normally takes some time. But now with the present success of the government in that election and different team and Make in India being their priority sector again. So we are definitely very confident that it should happen in 3 to 4 quarters. And typically, when you talk about these RFPs, if you talk about Pinaka, it is approximately about 1,000 pieces as far as the RFP growth per annum. So price discovery will happen and then only we'll be able to see how big it is. And as far as the multi-mode hand grenade is concerned, it is again for 10 lakh (inaudible), and that is for 2 years. So for that also, the size will depend. And this Pinaka is for 10 years and the multiple hand grenade for 2 years.

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Jasdeep Walia, Infina Finance Private Limited - VP [21]

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Got it. And sir, what's your scope of work in Pinaka? So you will manufacture only the propellant or you'll assemble the entire Pinaka missile?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [22]

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The entire Pinaka, we'll have to assemble it, yes.

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Jasdeep Walia, Infina Finance Private Limited - VP [23]

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Got it. The last question, sir, what's the total size of the explosives market outside India, in which you participate?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [24]

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Just I'll give you in a few minutes from now, wherever another question answer is going on, in between I'll comment on this, but what is (inaudible) in which we are there, okay.

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Jasdeep Walia, Infina Finance Private Limited - VP [25]

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And sir, any other development in the defense business which you would like to highlight apart from what you have mentioned already?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [26]

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No, we have mentioned whatever we had to, so there is no other thing which we'd like to comment on.

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Operator [27]

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The next question is from the line of [Mr. B.D. Bajaj] from [Bajaj Shares and Securities].

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Unidentified Analyst, [28]

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Congrats for the excellent results maintained, though global Chinese market and international market, we could do a bit little low. Sir, I have 2 questions. One is on Pinaka, which is front ended by DRDO. So we are in turn supplying to DRDO or Indian Army? And are you having, second question is are you having any opening in Prahaar missile and also which is developed by DRDO?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [29]

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Can you come to the second question?

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Unidentified Analyst, [30]

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Second question, that Prahaar, that Prahaar missile developed by DRDO. Are we having any stake of supply in that as a propellant or as an ammunition?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [31]

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So for Prahaar missile, we don't have anything right now, as of now, but we are definitely working towards it. And the second question is on the Pinaka and we'll be supplying it (inaudible), yes.

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Unidentified Analyst, [32]

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Sir, it is front ended by -- DRDO have developed, front-ended by as a...

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [33]

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That has been developed by DRDO, but it is funded for India.

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Unidentified Analyst, [34]

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I see, sir, yes. And one other question of industry segment on explosives that your employee cost is much low compared to other peer companies. So is there any attrition level or you are facing, any other things? Because it is really low, almost 8% only though after division of their (inaudible). Can you highlight on this, sir?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [35]

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It is (inaudible).

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Unidentified Analyst, [36]

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Almost 20%, sir.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [37]

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No, no. No, for our illustrating, we are working very -- the type of efficiency levels which we are maintaining a type of scale of operations we have. This is pretty much in line with that. And probably, we would have looking that this figure has been -- should have been a bit lower, but (inaudible) good pay, so as their pay will increase, we'll see that coming down.

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Operator [38]

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The next question is from the line of Shreyas Bhukhanwala from Canara Robeco.

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Shreyas Bhukhanwala, [39]

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So couple of questions. One is on the overseas business. So last quarter, we had an issue with Turkey as well as Zambia, either because of the elections or the economic scenario. And we're hoping that from this quarter, probably it should improve. So how are the things on that end?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [40]

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So definitely, as we said now, even the government there is wanting the growth to happen and that's why they have reduced the interest rate from 24% to 19.5%, just to boost the Turkish economy. And with that, we are really positive that the economy will pick up and more demand will come in that sector. So when we will -- if you see our interest rate, which was around 1.95%, so the interest rate has gone subsequently higher in Turkey because of the effective steps taken by us to increase our (inaudible) because one -- and this has been maintained at same levels.

But as for whatever our feedback we get from our marketing people out there, they definitely think that the demand will pick up in Turkey, and we'll get good sales.

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Shreyas Bhukhanwala, [41]

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But have you seen that happening in this quarter?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [42]

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We have seen in the first month after that there has been an increased demand.

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Shreyas Bhukhanwala, [43]

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Okay. Of the total, so exports and overseas together, last year, we did around INR 865 crores on a full year basis. So how much are we targeting for this year?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [44]

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It is INR 1,000 crores plus.

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Shreyas Bhukhanwala, [45]

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Yes. Okay. On the domestic side, last 3, 4 quarters, we have been seeing a decline on other institutional sales. So how are things panning out on that side? Because Coal India, we have seen at least a decent growth, but other institutional side?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [46]

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So for non (inaudible) if you see from the previous quarter, Q4 FY '19, where our revenue was INR 66 crores, now in Q1 FY '20, it has increased to INR 71.80 crores so which is a growth. So this is just the start. So eventually, you will see that this revenue coming from this sector as well and the growth is there.

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Shreyas Bhukhanwala, [47]

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Okay. So tendering and all, how is that happening on that side?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [48]

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So here in case of this thing, the tenderings are going on and as more and more private sector mainly start-up, that will help us to increase our share in the institutional business. As far as Coal India tenders are concerned, they are on the verge that in couple of months, things really take -- shape up, and we will inform everyone of how we fared in the tender once things are finalized.

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Shreyas Bhukhanwala, [49]

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Okay. Sir, on the domestic front, so last year, I guess we did volumes of almost INR 3.5 lakhs. So how much are we targeting this year on volume trend?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [50]

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This year, we are expecting around 15% growth in the volume.

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Shreyas Bhukhanwala, [51]

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Okay. Sir, again on the guidance front, so we are guiding on 20% growth despite having a more muted growth in Q1. So the asking rate goes to almost 25% for the next 3 quarters. So are we confident we probably would be able to achieve that?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [52]

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Yes, we are confident, that is why we are maintaining the guidance.

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Shreyas Bhukhanwala, [53]

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Sir would that be immediately driven by a comeback in export overseas or of overseas as well as domestic?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [54]

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It will be overall, export, overseas and defense and then our Coal India and Coal segment as well as Infrastructure. So unless and until something terribly goes wrong as far as the trade wars are concerned and some policies and defocus by the government on spending in infrastructure and housing. But as far as what is going on, on the present moment for indication here, we are still comfortable of that 18% to 20% growth.

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Shreyas Bhukhanwala, [55]

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Okay. Sir, on the margin side, how do you see margins in the coming year?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [56]

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So there is a marginal decline in the margin, it still above 21% compared to the previous quarter and the last quarter. And definitely, as the sales will grow, margins will grow.

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Shreyas Bhukhanwala, [57]

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Okay. And can you give a bifurcation of the exports and overseas for Q1?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [58]

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Yes. So from Q1, our overseas are INR 162 crores, and our export is INR 32 crores -- INR 33 crores almost.

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Operator [59]

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The next question is from the line of Nirav Savai from JM Financial.

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Nirav Savai, JM Financial Institutional Securities Limited, Research Division - Analyst [60]

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The question is particularly for the oversea market. We were planning to start manufacturing in 2 new countries, Australia was one of them, which we had indicated in the last call. So what is the progress there? And where do we see revenues coming on from newer geographies?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [61]

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So we are still (inaudible) constructing the capacities there in Australia and in (inaudible). And definitely we see that from Q3, Q4 onwards, revenue will come from those (inaudible) operations we are doing.

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Nirav Savai, JM Financial Institutional Securities Limited, Research Division - Analyst [62]

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Okay. And also as we see, we had a CapEx plan where we are increasing our capacity to about 7 lakh tonnes domestic capacity, which was expected to come by FY '20. And so is that in place or we see that can be postponed to FY '21?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [63]

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No, that is very much in place. And that's why, like last year also we did CapEx. And this year also, we have a target of INR 270 crores for CapEx which we'll be doing and increasing that production, taking up capacities this year.

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Nirav Savai, JM Financial Institutional Securities Limited, Research Division - Analyst [64]

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Okay. And this INR 270 crores also includes overseas capacities, right, oversea (inaudible)?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [65]

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Yes. [Positive] domestic and defense.

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Nirav Savai, JM Financial Institutional Securities Limited, Research Division - Analyst [66]

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All right. Is there any possibility you can give us a breakup, what is the CapEx what you are doing on the overseas side?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [67]

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So this is typically, if you talk about INR 270 crores in equally divided among the 3 segments. And then depending on the opportunity, a plus/minus 10%, 15% in either of [the categories].

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Operator [68]

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The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [69]

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Sir, could you help us with the trend in ammonia prices, how have they fared and how does it look like?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [70]

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So ammonia prices, we talk about 2 scenarios, one is globally. So globally they have been very strong. And ammonia nitrate prices, and as far as India is concerned, there is a big reduction in the local prices.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [71]

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Okay. Sir, why the difference? Because some capacities in India has come up a bit?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [72]

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Yes. Capacities have come up in India and because of global slowdown, even imports are coming down.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [73]

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Okay, okay. And sir, how is the working capital situation in the current quarter? Because have you also rejected or not taken up some of the orders because of the working capital issue. And how is it looking like from the March levels?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [74]

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Yes, from the March level, we are pretty much within, the working capital days are pretty much the same. Because the market was 90 days and then this end of this quarter, it is around 92 days.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [75]

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Okay. And sir, sorry, we hear some amount of spike in Coal India and other things, which have been going around. So when does the tendering for the Coal India thing come up? Does it come up in the next 2, 3 months? And can that impact the kind of tenders that they gave out, in your assessment?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [76]

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These issues shouldn't have. There was just the subsidiary which was such issues like that. But I think it will be sorted out and it will not affect the tender size overall.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [77]

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But when does it come up, the Coal India tender?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [78]

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Another 2 months (inaudible) .

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [79]

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So basically if I look at your overall Coal India listing, you have about INR 300 crores of order backlog, which is almost about 8, 9 months kind of a backlog for you and post that, you're seeing in couple of months, you'll have the new tender come up so your order backlog (inaudible).

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [80]

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We see for the tender will -- the process has already started and within 2 months' time, it will be finalized for the full year.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [81]

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Okay. You have that cover and that's it.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [82]

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Yes.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [83]

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Okay. And then this one last thing, what's going on in Singareni because in terms of we had some issues (inaudible) for last 4 quarters, it's been on a constant decline also, what's the situation there?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [84]

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Yes, because of the last year, like there was (inaudible) price between our competition in there, and we decided firstly that we will not be -- go and make it further lower. But we are very hopeful that the first tender which will be coming (inaudible) take up the quantities.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [85]

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Sir, when does that come up?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [86]

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(inaudible) that is next year.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [87]

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In FY '21 the renewal of the tender?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [88]

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Yes. The renewal of the tender.

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Operator [89]

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The next question is from the line of Abhijit Mitra from ICICI Securities.

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [90]

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So my question is on this explosives volumes, which reported at a 2% Y-o-Y growth for the current quarter. Now so what we were trying to understand is that the trade in the Infra segment actually has seen a 29% top line growth, almost a 29% sort of a top line growth. So what kind of volume decline have you seen for Coal India and other institutional miners? And what led to this decline?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [91]

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Yes. So when we talk about the volumes, so overall, sir, the volume as we said has gone from 90,623 to to 92,531. That is a...

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [92]

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2% sort of an increase.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [93]

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But as we said, but because of the lower [government renewal] in place of Coal India and coupled with finding out of the -- this is the last phase of this election and it's been (inaudible) person, the selection in our remainder. So we saw that the demand was lower from this segment. But now with the government announcing (inaudible) the next quarter for the state network, we again are confident that the demand which we're already seeing in the month of July at (inaudible) pickup from the segments. And even the overburden removal in mining has to happen because unless this thing is opened, we are not able to maintain the cost structure. So from October onward, that is the post monsoon, we will see that also Q3, it will go up because now the monsoon, as you are aware, that this is a seasonal industry that in the second quarter, yes, the production got worse. So from Q3, October onwards, you see, we see that

we'll see that increase significantly.

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [94]

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Yes. And if -- so the second question was related to it only. So if -- how much lever do you have on the Trader Infra segment? I mean, how much can you ramp it up further? If there is weakness which persists in the institutional side.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [95]

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If we have the capacity, and we are increasing the capacity so we'll be able to meet the demand. We have already made necessary concessions to ensure that if that type of demand comes up, our company will be able to meet that.

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [96]

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Yes. And the second part is that this Trade and Infra, this is majorly catering to the Road segment, right? So are you seeing a slowdown there or have any talks of funding? And I'll come to your notice, I mean, how do you see it for the course of the remainder year or 1.5 years?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [97]

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Yes. So there were some fundings which is that I think the honorable minister and the government has taken the necessary steps to ensure that as problems are eliminated and the progress should be there. So last year also, we saw substantial this problem being taken care of and the road construction is going to almost 40 kilometers [further]. And we are very confident that now also, because we've been in this priority sector, and they will take various measures to meet the stressed asset by implementing of many innovative schemes with land acquisition processing scheme like. So all these things result in them achieving their targets.

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Operator [98]

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The next question is from the line of Sneha Talreja from Emkay Global.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [99]

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Sir, Rohan in from Edelweiss. Yes, sir, you mentioned that the global trade war can have impact on our business and that can cause a concern. Can you give a little more specific, it will -- what part of our business will be affected by this, so just only our exports or our overseas operations? Or you also see that the Indian operations can also come under pressure because of that? A little bit more detail in that.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [100]

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Yes, as far as trade wars impact on our company is concerned, we are not seeing the impact of all these wars or trade wars on Indian markets. But definitely, we have seen the effect of wars existing on our global market. Like especially Turkish market, where the currency has [devalued to] almost 40% in this 1 month last year in the middle of September after the market fell down. And now things are improving. So firstly it can happen anywhere, any time. We can't predict those things. But we are part of these systems so definitely we get impacted by all these things. But as of now like in our region, we have seen there are some positive indications in all the market wherever we are present, and things will be better now onwards.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [101]

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Sir, once again, getting slightly more in detail. So even in those markets, we understand that because of the global trade war, those markets may be affected a little bit. But now we have presence in more than 5 to 7 countries and now going to Australia and Ghana including, and that is more of the translational in nature rather than the actual losses we were -- which we are going to incur in those markets. So do you see that it is going to have a significant impact on our actual profitability or real cash flows, even if the trade war continues globally?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [102]

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Like you have said, we are present in all those 5 countries. This is just an example of, say, an African country. So those countries are not affected directly by any kind of trade wars. But definitely as the commodity demand goes up or goes down in (inaudible) situation, right? And please look at the currency transformation part. So we have seen that it has been the effect of more income European side, not in African side. So as far as our [retail is concerned], we have not seen much being of all these things in our profitability (inaudible). But yes, in Turkish market, there was a big currency movement, which has affected us, but also a correction has been taking place. And we believe that things will be better.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [103]

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And sir, just a last question. Sir, you mentioned that the INR 270 crores CapEx will be equally divided in all the 3 business aspects, roughly, it means roughly INR 90 crores to INR 100 crores will further go in defense. With that, I think that we will have close to total investment in defense, close to INR 400 crores, as we mean that INR 300 crores has already gone. With this INR 400 crores sort of investment last year, we did revenue of INR 170 crores. So I just want to gauge that of the INR 400 crores CapEx by the year-end, what is the revenue potential on a full optimization, optimal level of that investment can be?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [104]

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Yes. So as we mentioned that we have invested around this level in our defense business, definitely there are (inaudible) there's trials and our product (inaudible) and policy parameters has been tested. And we are expecting that at least INR 1,000 crores revenue on the present investment, we should be able to do. So we are waiting for the various RFPs to execute and then we will see these levels (inaudible). However, as far as like you have said that we have invested INR 300 crores and all that figures, actually we have invested almost close to INR 500 crores. And in this year, it is (inaudible) our future CapEx program for this year with (inaudible) INR 600 crores now. So what we will be getting out of this investment, correct, this is your very good question. So out of these investments, what products or what kind of activities we have already created? We have created facilities for (inaudible) materials, components, warhead manufacturing, integration of (inaudible) or integration of any kind of rocket or missile. We have also created lot of testing facilities in our centers. We have also created facilities to make products like grenades and fuses. So only issue is that once all these products start in commercial sales, we will see a big positive impact in our top line and bottom line. The issue or question is when it will start, right? So like we have said, we have an order book of almost INR 390 crores and other things progressing like conversion of RFPs into commercial orders. So then things will be different. And on the top of INR 600 crores, if we achieve INR 1,000 crores, so then it will make a big positive impact on our top line and bottom line numbers.

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Operator [105]

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The next question is from the line of Jasdeep Walia from Infina Finance.

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Jasdeep Walia, Infina Finance Private Limited - VP [106]

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Sir, just wanted to get an update on the status of BMCS and ammunition orders. I think in 2Q call, you had commented that both these orders are under technical evaluation. So what's the status of these orders right now, sir?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [107]

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The status of these RFPs are still the same. And practically, there is no change illustrated as of now. But we are expecting by December, the RFPs, as far as technical evaluation is concerned, it should conclude. But there is a recent statement officially by the [DRDO].

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Jasdeep Walia, Infina Finance Private Limited - VP [108]

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Got it. And sir, what's the potential opportunity, and within that, your foray into this space exploration?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [109]

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Yes, like we have shared that this business is a great opportunity for various private players, for the next few decades and we have decided to enter into the segment of making operational system. And we believe that it will provide a big opportunity for us, and will put Solar into different orbit of technology world as far as space is concerned. However, as far as the opportunity is concerned, it will take some time for us to share what kind of opportunity and what kind of investments we will be carving out for this business. So we will share the progress as and when it happens. Hello?

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Operator [110]

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Sir, are we still connected? Ladies and gentlemen, we will just go ahead and re-call the line for the management.

(technical difficulty)

(Operator Instructions) The next question is from the line of Ankit Pande from Systematix Shares.

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Ankit Pande, Systematix Shares & Stocks (I) Ltd. - VP of Institutional Sales [111]

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Let's stay on this new opportunity in the space that you call it, the small (inaudible) could you tell us about the way to look forward into that particular opportunity that you have? How did you come across the opportunity? And really, what kind of a business timeline that you have on this. It's actually a very exciting development to have.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [112]

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Yes. Ankit, thank you for this question again. Like I have said, this business of (inaudible) small satellite launch we think is a great opportunity for the private sector. And once the government policy will be in place, it will be a big boost for India's commercial and strategic needs to be boosted by this kind of development. So as a company, we have decided to enter into the segment of operation for space applications. We will be open for an investment in some kind of technology adoption on joining hands with some people. So as we progress in this segment, we will (inaudible) which is quite synergistic with our current business is a big opportunity for all of us.

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Ankit Pande, Systematix Shares & Stocks (I) Ltd. - VP of Institutional Sales [113]

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Okay. So this would entail probably maybe joint ventures or partnerships and maybe trials also. So if I'm not mistaken, there have been no tenders so far, is that correct?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [114]

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This is (inaudible).

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Ankit Pande, Systematix Shares & Stocks (I) Ltd. - VP of Institutional Sales [115]

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I'm sorry, so have there been any tenders or any formal offers, none of that yet?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [116]

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No, it will take some time. As of now, there are no formal tenders for these kind of products.

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Operator [117]

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(Operator Instructions) The next question is from the line of Pinaki Banerjee from Dalmia Securities.

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Pinaki Banerjee, [118]

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Sir, actually in last quarter, you had mentioned that you are expecting a volume growth of 15%, where in the FY '19, you had reported, I think was (inaudible) [lakh 48 500]. So are you still confident of reporting a 15% year-on-year volume growth?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [119]

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Yes, we are confident (inaudible).

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Pinaki Banerjee, [120]

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Okay. Sir, and actually I'm coming to that rate -- explosive rate of relation, you said that since then (inaudible) the rate of relation is dependent on the ammonium nitrate prices. You said that they have almost peaked, and you are expecting no further significant increase in the prices of ammonium nitrate. So what is your stance now, actually? Do you find any increase or will it be staying at the same level?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [121]

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Like we have shared over the years that explosive prices are linked to the ammonium nitrate prices through a rate exchange. And is impacted by some kind of demand-supply gap or some kind of extreme activation in the [tendering] process also. But as of now, like we have shared that ammonium nitrate [plus price] has now started softening a bit. And we have to reduce the explosive prices also in line with these kind of factors.

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Operator [122]

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The next question is from the line of Gagan Thareja from Kotak.

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Gagan Thareja, [123]

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Sir, you indicated the new potential once you reach optimum turnover from the defense investments that you have made. Two questions on that. One, conservatively, if one were to put a time line to the numbers that you have given, what could be the approximate time frame by when you could hit that? Two, since there will be operating leverage benefits coming in as you utilize this facility better, what margin, potential improvements in margin are possible from that? That is the first question.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [124]

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Yes, like you said that what is our projection or potential when we can reach to these kind of numbers. Like we have shared that by 2020, we were targeting to achieve INR 500 crores mark from defense segment. That we have shared that due to various factors related to RFPs, these projections will not be achievable in this. By this point next year, we are pretty confident that looking at the current indication, we will reach to that INR 500 crores or we will cross INR 500 crores. But as of now, it will be reaching in the range of INR 300 crores and next year, we are trying to reach INR 500 crores level. But as we progress further, definitely more (inaudible) will start. But the kind of infrastructure which we have created can handle practically any kind of product as far as ammunition is concerned. So we have an advantage of complete integration right some small item to any kind of bigger item as well. So we have a potential to unlock this [bundle] in coming years. But frankly speaking, today, as of now, it is difficult for us to share when we will reach INR 1,000 crores or INR 1,200 crores. But like I said, as we progress towards the next year level, in the next projection definitely.

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Gagan Thareja, [125]

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So the RFPs that you are participating in, the Pinaka order, the grenade order and some of the other ammunition orders, put together, roughly what could be the revenue potential from these orders? From these RFPs for you?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [126]

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Yes, like we have simulation (inaudible) that we will be participating now again out of sales of Pinaka and multi-mode. So multi-mode grenade is 10 lakh pieces in next 2 years, which means 5 lakh pieces per annum. And as far as Pinaka is concerned, is 1,000 pieces per annum, this is for 20 years. So as of now, we may not be able to share the kind of value arising out of these 2 products. But based on the past RFPs and these RFPs , we are confident that in next year, we will cross INR 500 crores. This is what I can share with you at this juncture. Your point on another point was on advantage of operating leverage and its impact on our margin

(technical difficulty)

an increase in margins. And over the year, our margins are variating between

(technical difficulty)

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Operator [127]

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Sir, are we still connected?

(technical difficulty)

Ladies and gentlemen, we have the chairperson reconnected back to the conference.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [128]

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Yes, hello?

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Gagan Thareja, [129]

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Yes. Sir, you were talking about the margins and the line got disconnected. So if you could just repeat what you were saying.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [130]

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Yes. I will repeat again. So as I shared that as we move towards crossing INR 300 crores in this year or reaching to INR 300 crores, next year INR 500 crores. So as we go towards that range of INR 1,000 crores, INR 1,200 crores, our margins will definitely improve from current level of 21%, 22% to almost 24%, which is our expectation.

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Gagan Thareja, [131]

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Okay. And on the staying on defense, is the working capital conversion in defense very different from your other businesses? Your current working capital, as you pointed out, net working is 92 days. Is it longer in defense in terms of receivables?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [132]

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Based on our recent experiences, we have not seen that it's operating different from our regular industry. But like we have been saying with all the investors in various conference calls, that for each order, whenever we start, definitely, initially for the first 5, 6 months, there is always a trading off between higher working capital (inaudible). But as it stabilize then it almost reached to [1,900 base] level.

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Gagan Thareja, [133]

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Okay. And the government is also more talking about some restructuring of the Ordnance Factory Board. And also sort of saying that the nomination based orders that they have been deferring so far may possibly not exist, if I have understood it correctly. I just wanted your thoughts and comments on how should we integrate what the government is trying to do with the Ordnance Factory Board? And what are the implications for you, therefore?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [134]

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We've also come across that kind of policy the government is planning to (inaudible) to go. So that will definitely help our mission as far as our mission industry is concerned. So once they have a proper mechanism to [relate] the cost matrixes, so definitely, efficiency should go up and it will help our mission assets. But as far as our private industry is concerned, when we have to compare, when buyers, they compare the pricing from a private and a government, definitely, it will help the private industry in the long run. But as far as nomination and nomination business are very (inaudible). We believe that for another couple of years, it will keep going like this because the (inaudible) system to produce a particular product, which was obviously last -- in years or last many years, if you think that any private sector can just come in and replace any existing supply can support. So it will take some time.

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Gagan Thareja, [135]

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Okay, okay. And one final question, if I'm allowed. You have given a fairly elaborate picture of how you see the defense part of your business evolving in a medium-term time frame over a 3- to -5 year. Likewise, it would be very helpful if you could give us a similar sort of a perception from the management of how they see this year[indiscernible and the other international pieces of the business evolving over a 3- to 5-year time frame, it would be good, it would be very helpful, sir.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [136]

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Yes. So like you said, the outlook on overseas and export and other sectors, we have shared in our '17/'18 annual report that by 2020, we are likely to achieve certain numbers. So we are moving in that direction, and we are not debating it. But due to certain global factors and some India challenges, including the sector which is because of lack of overburden removal growth, our target has been shifted from 2020 to probably next year, 2021. So I believe that, that much clarity we have already provided.

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Operator [137]

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The next question is from the line of of Abhijit Mitra from ICICI Securities.

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [138]

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So just to -- as a follow-up on the previous question. So Manish, you mentioned that as defense ramps up to, say a INR 500 crores kind of a top line, the margins of the business will move from 21%, 22% to 24%. Is the understanding right?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [139]

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What we mentioned was that, that going there, as you move from INR 300 crores to INR 500 crores (inaudible) when the time we reach INR 1,000 crores and INR 1,200 crores, then the margins will be (inaudible).

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [140]

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Of the entire business, right?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [141]

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The entire business.

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Operator [142]

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Ladies and gentlemen, due to time constraints, that was the last question for today. I would like to hand the conference over to the line of management for closing comments.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [143]

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Okay. Thank you, everyone, for joining on this con call. Hope we have been able to answer your queries to satisfaction. If you still have something more to ask, you can email us and then we can even have a one-to-one call and give answers to (inaudible). Thank you. Thank you so much. And I also thank KRChoksey and the operator for picking up this conference call and doing all the help (inaudible) for us.

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Operator [144]

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You're welcome, sir. Thank you.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [145]

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Yes. Thank you.

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Operator [146]

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On behalf of KRChoksey Shares & Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.