Analyzing...
Yes. Thank you sir, for your insightful presentation. Now, we move forward with the question-and-answer session. Anyone who wishes to ask questions may please raise their hands or use chat box. Please note that, there will be two to three questions taken up.
We have one from Mr. Vansh. Why is the interest cost Rs. 0.24 crores, although borrowings have increased? This is the question.
I will answer that. This is interest cost for Q4. There were some interest costs which are related to term loan and some are related to the regular working capital. So, as we capitalized a significant portion of assets in Q4. Similarly, we capitalized the term loan for the same as per the accounting standards. And that's why it's looking much less than a typical quarterly trend. So, I would look at the full year figure for the interest cost.
So, the next question is from Vansh. At the current fixed asset level, what can be maximum sales that can be reached?
The typical fixed asset turnover ratio in the industry is 1.5 to 2. We have always operated at a level of 3.5 to 4 which is highly stretched. So, if we look at our Kalyani Forge’s historic pattern, I would take a ratio of 3 and so with Rs. 90 to 99 crores fixed assets, that would be a Rs. 300 crores turnover at a sort of steady-state level.
Next question is from Vansh only. Receivables have been increasing faster than the sales booking. So, why the working capital getting stretched? What should be the compatible cash conversion cycle going ahead?
Yes, this is an area we are putting a lot of focus on. With credit controls to ensure timely payments from customers in a systematic way. At the same time, we have made warehousing or stocking commitments to some customers, where they keep some safety stock and have a more just-in-time delivery. Some of our key OEMs, so that would increase some receivables in the short term. But it will stabilize going forward. In terms of the cash conversion cycle, we are targeting, at the first level, 120 to 130 days to come down from our current levels.
The next question is from Mr. Saket Kapoor. Please unmute yourself.
Yes. Namaskar Viraj ji.
Namaskar.
Hearty congratulations to the entire team at Kalyani Forge and sir, firstly, congratulations for not only a good set of numbers but quality set of numbers and the effort you have taken in explaining to us what has contributed to it and how are things shaping up.
So, thank you, first of all, for your efforts, sir. Sir, just to the previous participant chat box questions on the finance cost, if you could just explain, sir, I just missed it because of a bad line, why were the finance cost at Rs. 24 lakhs versus the average of Rs. 2 crores for the quarter?
Yes. Typically, we capitalize the term loan, which is used for Capex. So, we did some significant capex installation in Q4 and therefore, we were able to capitalize the term loan for the same and that has reduced the interest cost. This is more from an accounting perspective, but for a full year, the overall interest cost would be in line with the trend.
So, just to dwell it in, just to have a better understanding, when we have a quarterly run rate of Rs. 2 crores plus, there are some, embedded finance costs that are part of the business. That does not go out, even if we capitalize a large part of the capex. That connect is not getting.
Yes, the term loan interest costs were the interest costs taken in earlier quarters and those were capitalized in Q4. That's why, it was a significant amount. And it's not just one quarter's value which was capitalized.
One more question can I ask and my second question.
Sir, you have also just explained to us that, depending upon the order booking, the bit pipeline. Now, these qualitative numbers or the EBITDA margin of 15%, what the base formation should be. It is not a one-off number that has come, because we are only concentrating on the EBITDA number, so going ahead, sir, we can be now on the path that Schaeffler or SKF, for the OEM part, if you could explain these two correlations, and how should then the EBITDA margin trajectory be going, these are the points, and then I'll join the queue, sir.
Yes. As we're focusing on OEMs, we are definitely adding, providing their value addition in our products. So, they command a better price and there are better margins overall. That's the top line, quality improvement. On the EBITDA margin, definitely, 15% is now a floor, it's a baseline. And it's a minimum that we need to be achieving. Going forward, we are targeting 20% EBITDA margin, which we hope to reach, I'd say, in a year's time. So, by end of this financial year, or early next financial year, we should move upwards closer to 20%.
Right, sir. Sir, I will definitely join the queue for my follow-up and I hope the moderator gives me an opportunity.
Yes, thank you.
Thank you.
Okay. So, we have next question from Mr. Ankur Agarwal. I request him to please unmute and ask the question.
Hello?
Yes, hi.
Hi. For this quarter, there is some other income in comparison to last year, Rs. 2 crore excess. That will reflect in bottom line. It is, what type of this other income?
This includes multiple items. Some of it are incentives for exports or other government schemes. Some of it is also sale of old assets. Where we have done a resale. of some fixed assets, which are obsolete for us and have a market value outside.
Okay, that's okay from my side. Thank you.
Okay.
Is there anyone who wants to ask questions?
So, may I continue then, Anup ji?
Yes.
Yes sir. So, just to the earlier part also, sir, so if we eliminate that this other income is not going to be the part of the core, going ahead. That understanding, correct?
No, there's part of it is always there, especially the incentives. Our government incentives are fairly stable and they will increase as we increase our exports.
And we may apply for more incentives, based on new schemes coming up for encouraging manufacturing. Also, in terms of sale of old assets. This is a routine exercise we do every year. So, some assets get retired, they become obsolete and then we have replacement capex so there will always be some portion of this. Because of our existing initiatives of transforming the company, we have been able to unlock more of such opportunities. That is the benefit or another additional benefit of the transformation initiatives.
Correct, sir. Sir, as you have been speaking to us over a period of time and the sense, which we investors are getting is that we are in that transformative phase, wherein, you as a management and we as investors are better aligned to see the sustained set of operational and financial performance from the company. Since we are in a sector which is performing good. So that understanding is getting embedded now. Sir, as you have mentioned 4 to 5 points in press release, in your business and operational progress,
wherein you have mentioned about strategic new order win, continued operational efficiency, progress on modernization of the forging and the plant energy engineering initiative, then strengthening of supply chain, and the clean audit roadmap. Sir, going ahead, how to model our company, especially, such as SKF or Schaeffler. Taking that also into context, your bid pipeline, revenue visibility, program of business, if you explain further and whether we can come for plant visit. These were the questions.
Yes. Okay, okay. So, Anup, could you share the press release on the screen. I'll just stop my screen.
Do you have it on that laptop? Otherwise, I will just share it from my laptop.
I can narrate it, you can just speak on the same.
I have got it, I'll just share it.
Yes.
It's fine, Anup. Okay, can you all see.
Yes, yes, visible, sir.
Yes. This is our press release. And the points you were talking about are these 5 points.
Strategic new order wins in high-volume and EV products, continued operational efficiency and cost optimization initiatives, progress on forging modernization and plant engineering initiatives, strengthening of supply chain and raw material planning systems and clean audit roadmap has moved forward to Phase 2.
The first one, strategic new order wins, all the new business that we are targeting and winning is the kind of business we want and we know that that will work very well in our setup and match with our capabilities. We have received these new order wins in the axle segment. Like, I mentioned, some customers, like Schaeffler and SKF, they are in the bearings market, which is, especially for passenger vehicles.
We are on the same page, and you can speak, sir. We got your point. Yes, yes, now it is good.
Now you can see it?
Yes, yes, yes.
Let me just quickly repeat the five main points on business and operation progress. Strategic new order wins, continued operational efficiency and cost
optimization initiatives, forging modernization and plant engineering initiatives, strengthening of supply chain, and clean audit roadmap. I was on the first point. The new business orders we have won from some OEM and Tier 1 customers. These are in the axel segment, and they are for passenger vehicles. And they are typical components which fit in the wheels of passenger cars, so they are typically Gen 3 hubs and at the roof forefront or an advanced product line in passenger vehicles. This is extremely good for us, because the kind of orders we are winning are future-proof, they are growing. They have a large market size.
And they fit with our capabilities. So that's what, we will continue to target. So, when we have made a order-winning target for this year, FY27 and I've discussed it with our business development team and the leadership, as well. Where we are not going after too many customers or too many opportunities. We will stay focused on these few products and markets and go deep in those critical market leaders in those segments. So our entire business development strategy, is getting more focused, to achieve this.
Second is the continued operational efficiency and cost optimization initiatives. We have, concluded our Vriddhi Council project for FY26. We had a good review with our entire Council. And, we brainstormed on lessons learned, what went well, what needs to improve.
And particularly on redefining some projects. So we had around 13 to 14 projects last year.
Now we have, refined the project topics and focused on 10 critical projects. And within that, we have added the plant engineering, initiative as well. So, each of these projects will run much more efficiently compared to last year, based on the overall team learning, which has built up over one year. So, we are going to get much better at it. The maturity of driving transformation projects of leadership skills of our team members, all of that is increasing, and I'm very happy to see that progress in our organization. And the result of that is straight to the bottom line, where we see better EBITDA and net profit then progress on forging modernization and plant engineering. In both these areas, in forging modernization especially, related to forging machinery, we are going really deep into our machine recon projects. We are resetting the standards of these machines in terms of what kind of tolerances they should have, so that we automatically achieve the quality levels and the productivity in the production process. This depth of our manufacturing understanding and implementing that in the machines, is going to give very good results. And it is, along, similarly with plant engineering as well. We are redesigning layouts of the electrical, water, and air pipelines in all the plants and all of these feed into the machines, into the lines, production lines. We're also redesigning layouts, decongesting the shop floor, making it much more world-class, less clutter, safer. All of this, the beauty of it is that it just requires a lot of brain work and a lot of sheer human effort. It doesn't require too much capex.
So, basically, we are putting our own team's strength and focusing it on what everyone does best. And bringing out their talents in these areas. So these are really exciting projects.
And we see, every week, typically every Sunday, the maintenance and utility teams are working in the plants while the production is off and they are removing a lot of old pipelines, simplifying the circuits, simplifying the layouts and it gives a lot of satisfaction.
And, with each week, the production team members can see the effect of that in their day- to-day production. Even the operators on the line are beginning to notice the benefits. So, this is a good initiative. And very important one for Kalyani Forge, given that it was an area that we never looked at in so much detail or so much depth. And now, we are able to do it, because once we came upon the realization that this is one of the deep root causes of low OEE and a deeper root cause for some machine breakdowns, etc., and downtime. That's when we started moving fast into this area and it happened just in the last quarter.
Fourth one is strengthening of supply chain and raw material planning systems. So, as we have simplified our business on the customer side and we have focused on high-volume, OEM, Tier 1, good quality business. It is very demanding business and we need to be very fast and that is correctly putting pressure now on our supply chain, our supplier base, on our purchase teams. We are now strengthening that side, the supply side of the business, engaging more deeply with our suppliers to improve their delivery and quality performance and taking the learnings from our own shop floor and from our own production, we are sharing that with our supplier base to gear them up and we will be deepening those relations in the coming quarters as well.
Finally, the clean Audit Roadmap has moved to Phase 2. This is a very important governance and compliance initiative, where we are working closely with our statutory auditors and our internal auditors. To work on all their critical observations, in our accounting system, in our controls across various business processes. This involves a lot of, I would say, going deep inside our SAP data into our books of accounts, doing some clearing entries, simplifying the ledgers and things like that, so that our reporting of numbers becomes much, much more robust, much more seamless and reliable. So, that's the clean audit roadmap, and in Phase 2, we have hired an external consultant to add bandwidth to the existing internal team to work on this in a very focused way and we are continuing with that.
Just to add one thing, Anup ji and I know it is a paucity of time, sir, in the order booking segment, in slide number 12, the new business order book, it is the same which was for Q3. So, can you give us some understanding, since we have been adding new businesses.
Yes, yes.
Number remains same, sir.
Yes, the number remains the same. Because some of those items have moved to production. It's like a balanced figure. This is the order book, which is to be moved to production.
Right, sir. And these are the long-term programs, as you mentioned earlier, also.
Yes.
It is for years, multiple years that we are going to continue the same, sir? It's a multi-year program?
Yes, all our businesses are multi-year programs and typically, 5 to 10 years in life cycle. Many of them are even more than 10 years, some of them go on for 20 years. If the design hasn't changed of the OEM.
Okay, so with this note, we conclude this call. Thank you, all the participants, for joining this call today. And the transcript and recording will be available on the Stock Exchange portal, as well as company's website. Thank you.
If there are any further questions, we can take them offline and we will also organize the plant visit of any interested shareholders, so please reach out to Anup Sancheti, our Company Secretary for the same.
Yes and okay, please share your email ID, or whatever update you can have.
You have my number also, I think, so it could be available to connect with you.
Yes, thank you.
Thank you, Anup ji, Thank you, Viraj, sir and all the best to the team, sir. Yes, thanks a lot. Thank you, sir.
Have a nice day, everyone. Bye-bye.
Same, same here, thank you.
Thank you, thank you.