© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day and welcome to the Balkrishna Industries Limited Q4 FY '23 Earnings Conference Call Hosted by Asian Markets Securities Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ from such expectations, projections, et cetera, whether expressed or implied. Participants are requested to exercise caution while referring to such statements and remarks.[Operator Instructions] Please note, this conference call is being recorded.I now hand the conference over to Mr. Mayur Milak from Asian Market Securities Limited. Thank you and over to you, sir.
Hi. On behalf of Asian Markets Securities, we welcome you all to the Q4 FY '23 [ post ] call of Balkrishna Industries. I'll take this opportunity to welcome the senior management team of Balkrishna. We have with us Mr. Rajiv Poddar, Joint Managing Director and other senior team members. I would now like to invite Mr. Rajiv Poddar for his opening remarks and then followed by a Q&A session.Over to you, sir.
Thank you, Mayur.
Yes, sir, please go ahead. Thank you.
Good morning, everyone, and thank you for joining us today. Along with me, I have Mr. Bajaj, Senior President, Commercial and CFO; Mr. Ravi Joshi, Deputy CFO; Mr. Sushil Mishra, Head Accounts; and SGA, our Investor Relations advisor. Let me begin with performance updates. Q4 Financial Year '23 has been a better quarter from a sequential point of view. We witnessed uptick in volumes, better demand from our end markets, and partial clearing of our high-priced raw materials. However, end markets, especially channel inventory situation, is not completely out of the woods. We believe this channel inventory led issues may be resolved by June or July. We were able to clock 72,676 metric ton in Q4 of financial year '23, which is 9% Q-on-Q growth and accordingly ended the year with 301,181 metric tons, a marginal growth of 4% over the financial year '22.In Q4, the EBITDA margin is at 21.3%, which has improved sequentially. This has been on account of better absorption of high-cost raw material inventory that we were carrying in the system along with lower freight costs. We have continued to make higher spends in brand building and marketing initiatives, which has slight impact in margins. Excluding these investments in the margins, we would have been slightly higher in Q4. In view of our long-term strategy of increasing market share, these investments are required to be made as we move ahead to achieve our aspiration of 10% market share over the next few years. As sales volume increases, the spends, as a percentage of sales, will come down.For financial year '24, we remain positive. We believe that our volume performance we would be in a better position to discuss in the next few months from now. On margin front, multiple levers such as favorable raw material costs, better hedge rates, complete normalization of logistic costs, will aid the improvement in margin profile. In terms of end markets, we expect Europe to mobilize later during the year, while America and India will continue its FY '23 performance trajectory.Let me now update you on the CapEx. The advanced Carbon Black project of 30,000 metric tons per annum is running delayed, and we expect the same to be completed in H2. The CapEx for the brownfield capacity addition of 25,000 metric tons per annum at Waluj has been completed. Full ramp up of production will reach over a period of 6 months. Now the Waluj location is having a total capacity of 55,000 tons per annum.Further, at the company level, our achievable capacity stands back at the original 360,000 metric tons per annum. For the financial year '24, we estimate a CapEx spend of INR550 crores to INR600 crores. Out of this, maintenance routine CapEx will be INR250 crores to INR300 crores. The balance will be spent towards new product development like rubber tracks and giant solid tires. This will help us widen our product basket in the end market along with higher investments in brand building and marketing efforts, which are required to reach our market share goal of 10%.With this, I now move on to operational highlight. Our standalone revenue for the quarter stood at INR2,325 crores, a degrowth of 4% year on year, which includes realized gain of foreign exchange pertaining to the sales of [ INR7 crores ]. For financial year '23, the revenue stood at INR10,072 crores, which includes realized gain of foreign exchange pertaining to the sales of INR262 crores. We have crossed the historical mark of INR10,000 crores sales for the first time in our history.For the financial year '23, 51% of sales came from Europe, 22% came from India, 18% from America, and balance from rest of the world. In terms of channel contribution, 69% was contributed from the Replacement segment, while OEM contributed to 28%, and the balance stemming from uptake. In terms of category, Agricultural segment contributed to 63%, while OTR, Industrial and Construction contributed to 34%, and the balance came from other segments. The standalone EBITDA for the quarter was at INR494 crores with a margin of 21.3%. Financial year '23 EBITDA was reported at INR2,028 crores translating to a margin of 20.1% and a drop of 7% year on year [indiscernible].Other income for the quarter stood at INR28 crores while unrealized gain stood at INR3 crores. Other income for the financial year stood at INR114 crores, while unrealized loss stood at INR88 crores. Coming to the net ForEx items for the quarter. We had a net ForEx gain of INR26 crores, which includes realized gain of INR23 crores and unrealized gain of INR3 crores. For financial year '23, we had net ForEx gain of INR224 crores, which includes realized gain of INR313 crores and unrealized loss of INR88 crores. Profit after tax stood for the quarter at INR256 crores, while for the financial year it stood INR1,079 crores. Our gross debt stood at INR3,254 crores at the end of 31st March '23 out of which about 75% is relating to working capital debt. Our cash and cash equivalents are at INR2,075 crores.For Q4 financial year '23, the euro hedge rate was at 86.50, while for financial year it was at 85.30. Forward hedge rates for financial year '24 currently stand at around 88 to 89 levels. The Board of Directors have declared a final dividend of INR4 per share, subject to the approval of shareholders in the AGM. This is in addition to the earlier interim dividends of INR12 per share paid over the 9 months of the last financial year.With this, I conclude my opening remarks and leave the floor open for Q&A. Thank you.
[Operator Instructions]. We'll take our first question from line of Ashutosh Tiwari from Equirus Securities.
Firstly, on the destocking front, you mentioned that probably by June or July destocking will get completed. So can you [indiscernible] what were the retail sales in quarter versus the reported number [ INR72,700 ] odd?
That we cannot -- we don't have, and we cannot share those details.
Is it like destocking had a large impact on volumes or it was not very high impact in this quarter, per se.
It's higher than our sales. As we've been saying that there is some clearing happening. We can share that details. But not the numbers.
Okay. And you mentioned that probably Europe will recover a bit later during '24, but America and India are going to do well, but even America volumes have come off quite sharply in the second half versus the first half, so this weakness seems across in Europe and USA, at least in the second half of last year.
It's a seasonal thing. In America, the seasonal impact, which is coming. We are quite confident that, as of today, America should react continuous growth trajectory. So we don't see any problem in that.
And lastly, what is the gross debt level?
Gross debt level, 1 minute. Around INR3,200.
We take our next question from the line of Siddhartha Bera from Nomura.
Sir, again, first question on the volume side, in the current quarter, we are already close to like 2 months. So given the channel destocking which you are seeing, shall we start expecting some volume growth coming from Q1 or do you think it may take longer for volumes to come back?
As I had said in my opening speech, we see some clearance happening from June, July, so that is what we can say at this moment.
Okay. And in the quarter, ASPs also have come down by about 4%. So can you just indicate is this largely [indiscernible] passthrough or something else also is leading to lower ASPs? And should we accept more correction going ahead or this is largely behind for now?
So it's a mix of product mix and also the lower freight cost which has passed through.
Okay. So is this largely normal now or should we expect some more correction to come in the coming quarters?
Some minor correction could come in.
Okay, got it. And on the other expense -- and on the volume side, sir, if you look at India volume, they have grown quite well in this year at 28% if I see. And this quarter also the growth has been quite strong. Can you just indicate what is driving this because industry has not been going and [indiscernible] next year the outlook is not very encouraging. So some indications on what is driving this and is there any change in market share or the product side, which you can elicit?
So it's a mix of everything. So product acceptability, product performance in the marketplace, as well as we are growing faster than the market, so we are taking market share as well. So also the branding that we are doing for the Indian market is having the brand -- creating a good brand recall, so all the benefits that we've been talking about are now playing out in the marketplace, so it's a mix of all these factors coming together.
And any particular segment which is coming through this, Agri, OTR, or it's [ all over ]?
Both the products all over India. Both the product lines are doing well.
Okay. So you expect some of these volume growth to continue even in the current year?
Yes, we expect it to continue.
We take the next question from the line of Mumuksh Mandlesha from Anand Rathi.
Sir, what is your expectation in terms of RM cost reduction for next quarter?
So it will be around 1% to 2%.
And sir, mainly the [ rest ] of the lower input cost will be passed through --- the benefit will come in Q1 itself?
We may have to pass. So basically if you see for the whole year what we mentioned is that we will see some improvement in the margins for the whole year. Could be in the range of 200 to 300 basis points, but that will be for the whole year, not in this quarter.
Got it. Sir, in India business, just wanted to come back. Do you expect the double digits to continue for FY '24 in the volumes?
We can't comment on the future, what's going to happen. It looks, as we mentioned, is that we expect the growth trajectory to continue, but difficult to put a number to it.
Got it. And sir, just lastly, what would be the inventory level at distributor end now?
We don't have the number, but what we are seeing is that it is improving. So it is reducing.
We take our next question from the line of Pramod Amthe from Incred Capital.
First question is with regards to your interest costs, it seems to be going up pretty to our last quarter Q2 was INR15 crores, it has gone to INR25 crores. Can you give more color what is happening there?
It is because of the EURIBOR book has gone up, so whatever PCFC we are taking, that rate had gone up. So once it [ had start reacting ] then only it will come down, otherwise it will stay in the same range.
So your rates are what now, 5%, 7% on that? What is the current rate?
It is around 4% approximately.
So if I had to look at [indiscernible] your gross debt is almost around INR3,000 crores plus. So, as you said, 75% is there. So is it peaking out or you still feel there is room for it to go up [ steep ] number before it peaks out? And also, secondly, do you capitalize any of your interest costs for the CapEx? And when that will come through P&L?
So as far as the number of the gross debt, number wise, it will come down in this financial year. We are working towards that.
And I was asking on the interest costs, if it's absolute wise it's very difficult to project from a INR15 crores to INR25 crores, right? So where will we $go from 25 million to where and when it will come down?
Very difficult to say where it will end up the actual number, no? But if the number comes down, the rates remaining same, it will come down. But if the LIBOR goes up [indiscernible] goes up, then it may stay at this level. But on a gross level, the debt will -- you will see a reduction in debt.
Let me put it other way. Do you capitalize any of the CapEx-related interest cost and how much it was for FY '24 -- sorry '23?
Very small portion goes to capitalization. Otherwise most of it goes to P&L.
Okay. And the last question is in terms of the end market pricing behavior, because raw material cost has been benign for all the players. Do you see the manufacturer passing it on to the end consumer? Is there any different which time to pass it on to the consumer or it's again a fight for pricing?
So here also we are reviewing the situation very closely. If the need arises, we will also have to pass on some of that reduction. We are trying and seeing in the best interest of the market and how do we retain our market share. So we are reacting to that.
We'll take our next question from the line of Ankit Kanodia from Smart Sync Services.
So my first question is related to the margins. So if we look at the quarterly numbers in the last year, from March 2022, it was 21%, and then Q-on-Q it's kept on decreasing [indiscernible], and it has now come back to 21%. And when we're saying that Europe will probably conduct later in the coming year, so is it right to assume that probably margin will see a big bump-up in the second half and will continue to maintain kind of margin in the first half as well, that is 21%, 22% margin?
So as I mentioned earlier during 1 of the answers that we are seeing for the whole year improvement in margins ranging from 200 to 300 basis points and bulk of it will come towards the end of the year. So you're absolutely right. You should see some bump in the second half.
For my next question, as you know that the difference between the price at which we sell our tires compared to our European counterparts is decreasing over the years. So it was somewhere around 50% 15 years back. Now it is about 10% to 15%. So do we see any other players, new players coming in with that kind of a price differential with our competitors, or our main competition continues to be the European and American counterparts?
We are playing in the market which is basically quality driven, and we are competing against the quality players. So price is not our game, so we are not looking at that. We are looking at the top players whose quality is at par with us. The range is also important, no.
We'll take our next question from the line of Nishit Jalan from Axis Capital.
Two questions from my side. Number 1, we do have a very high gross debt of about INR3,200 crores, but at the same time we have INR2,000 crores cash also. That's something we have maintained in the past also. But now the debt levels have gone up and cash has also gone up. So any thoughts around that whether you want to use some of the cash to pay off debt? That is 1.Second question is just wanted to understand what is the raw material policy of the company? Typically, what kind of inventory do you carry for rubber and crude derivatives? I'm asking because this time around we have seen a very significant lag in terms of realizing the actual benefit of RM cost. I think more is yet to come. It's already been 2, 3 quarters. So did you have a very highly disproportionate inventory compared to what you typically keep? More color on this would be helpful.
So on the raw material, typically we would keep between 45 and 60 days of stock, but the lag was longer than expected because all of a sudden the market saw a correction, so we were planning at higher levels. And if you saw the numbers in the last 2 quarters, they have dipped significantly from the Q2 and Q1. So that had an impact on this. Also, the lead times were long and all of a sudden the shipping times got cut, so we had to plan for both of them and that's why the lead time, what was being ordered for future, came in a little earlier. So that's why we had a longer lag.
Okay. The debt one?
No, we are not looking to use the cash for repaying, but for extension purposes we will be looking at that.
But Mr. Poddar, your net debt levels will come down, right? You will generate enough cash flow to internally meet your CapEx requirement. So if your net debt is coming down, then why not think about using those cash and paying of the debt and not take the currency rick or anything of that sort?
It's a continuous process which we will be reducing, and besides using this, we want to keep this in case if any opportunity that arises or something, so it's a good cushion to have in the balance sheet for any acquisition opportunity or anything that can come up. So we are anyway being able to reduce the debt without that. So we don't envisage to use this money for that.
Okay, got it. Just 1 follow up. You just mentioned about acquisition or anything. Is there any -- historically you have talked about that you don't want to set up any plant overseas. Or do you think in India is there any reason or anything you may look to acquire because you have the largest capacity. There is no other company which is even closest to you. So what would be the thought on acquisition, if at all you plan to do at any point of time in future?
So you caught on to my word. But what I was trying to say, see, we don't have any intent to set up a plant overseas right now. We don't have that in the near future. I was saying in case an opportunity comes up, that's why we are keeping it so that we are actively looking for an opportunity to acquire anybody or there is something in the marketplace. But you never know what can -- you always plan ahead and keep, so you're not running on that day when an opportunity comes up. So I think that is what is important. Don't look at it that we are looking at an opportunity or we are examining something. There is nothing actively there. I said we are planning to keep as a backup in case that opportunity comes someday. Also, in addition to that, 1 part is of acquisition or potential opportunity, the other is also in-house expansion that we do large expansions. So we plan and keep for that part as well.
We'll take next question from the line of Abhishek Jain from Dolat Capital.
Sir, what is the current retail demand trend in European agriculture market and U.S. OTR market?
So it's better than our wholesale sales currently in both the sectors. So that is a good sign for us.
And what is the normal inventory in first half of calendar year and how much it is higher than the normal?
It is higher than what they normally would have kept, but as I said, it is reducing. It is on a downward trajectory so that is why we feel that in the coming quarters, we will be able to give you some guidance.
And how is the competitive intensity? Are other players allowing for [indiscernible]. Now it's quite aggressive on the pricing front. So do you have any pricing pressure right now on the [indiscernible]?
No, we are pursuing our own strategy, so we are working in that.
And my last question on the CapEx, there is the mention of the plant. So how much benefit will flow in the EBITDA in the coming days because of this?
So we will see some improvements come in once the full volumes are back in place.
We'll take next question from the line of Yash Agarwal from IIFL Securities.
Just 1 question. How should we look at OpEx, excluding freight, as a percentage of revenue? In 3Q it was at 16% and in 4Q it was at 19%.
Hello, yes, can you hear me?
Yes, sir, we can hear you.
Yes, you will see some volatility. As I mentioned in my speech, it is because of the branding exercises that we are intensifying to further reach to the end users and use this opportunity to get the brand name more popular [indiscernible].
We'll take our next question from the line of Lokesh Manik from Vallum Capital.
My question is in the India business, if you can give some sense over the last few years have the margins in the India business been any different from the export business?
No, they're similar margins to export business.
Okay. And the our material cost would also involve the inward rates, that is the import from China and from other countries, so the raw material would be inclusive of that, right?
Inclusive of that.
Next question from the line of Basudeb Banerjee from ICICI Securities.
Am I audible?
Yes, you are.
Yes. So 3 questions. One, as you had mentioned, retails have been better than wholesale. Just to understand some of the additional perspective, the quantum of destocking for you, compared to last quarter, this quarter was similar, higher, or lower, because seasonally Q4 is better quarter, so retail should have been on an absolute basis better Q-o-Q. So just to understand whether the increasing volume was more led by retail jumping more or lesser destocking just to understand [ some pattern here ]?
Mix of both.
And destocking compared to last quarter?
Yes, it's there's, no. Yes.
Quantum was similar compared to last quarter?
So the destocking in the current quarter because the sales has gone up a little bit, so the destocking amount may have come down marginally, but more or less it is the same quantum as last year.
So same quarter as in Q3.
Yes.
Second question, sir, if I look at your quarterly [ realizations ], it used to be roughly to INR260 for a long time. And then with raw mat inflation and logistics cost inflation, it moved up to as high as INR350. Now with the surcharge [indiscernible] getting removed, it's down towards INR320. So how to look at where 1 should look at as a steady state realization looking at your product mix?
Come down. Difficult to give the numbers, what numbers will be, but slowly, slowly it will come down.
They will come down towards INR260 levels or...?
Not that level. It may be INR300 or somewhere near to that.
Sure. And third question is, sir, how much was your brand marketing expenses in FY '23 versus FY '22?
We don't have those numbers readily. We will come back to you.
We'll take your next question from the line of Raghunandhan from Nuvama Wealth Management.
Good to see a sequential improvement in volume. My first question was on the demand side. The expectations that are coming out for Agri production in Europe...
There is a lot of background noise. We can't hear your question very clearly.
Yes. Is it better now, sir?
Yes.
So my first question was on the demand side. The expectations which are there for Agri production in Europe and the U.S. indicate that production should be better in CY '23 versus '22. Ideally that should help the sentiments on Agri side. So what are your expectations as how directionally the demand could improve on the replacement market side over the next few quarters?
It's too early to say, but we are expecting better second half. As we mentioned earlier that Europe will improve in the second half of this year. So we hope that that will play out.
Got it, sir. And the destocking which is likely to be completed or resolved by June-July, by then would the inventory level have reached around 2 months?
Yes, should do.
And lastly, just a clarification. The CapEx of INR600 crores for FY '24 that would be total CapEx, right, growth plus maintenance?
Yes, yes.
We'll take the next question from the line of Arvind Sharma from Citi.
Sir, it's more on the capacity part. Right now, at 360,000, what would your market share be? If it is at 5% to 6%, then going to 10% market share essentially requires a big increase in capacity, assuming the industry remains at similar level.
I mention earlier in my thing that in case of a big expansion which we need to plan, the cash and cash equivalents are being kept for an opportunity to get that expansion going. So you're absolutely right that we will require a big expansion.
Sir, any timeline for that 10% market share, any rough timeline if you could share?
We're targeting 4 to 5 years.
We'll take our next question from the line of says Saif Sohrab Gujar from ICICI Prudential AMC.
So first question is on the hedge rate. As you talked about forward hedge rate being currently at 88. For FY '23 and 4Q, how much would be the average hedge rate and what proportion was hedged?
Q3, you are asking for Q3.
4Q and entire FY '23, what would be the average hedge rate and going forward it would be 88 what you told.
For the entire year it was 85.3. For the last quarter it was 86.5, and for financial year '24, it is around 88, 89.
And how much proportion? I understand we have a rolling forward hedge rate, so what portion we would be hedging currently?
We are targeting 8 to 10 months, so 80% is already hedged for '24 around 88, 89.
Sir, my second question would be on the branding. So we have been very proactive in advertisement, branding, and all. So what would be the advertisement expenses for FY '23 and as compared to FY '22?
I don't have the exact breakup. We can get back to you later.
We'll take our next question from the line of [ Disha Sheth from Anvil Shares ].
Sir, when you mentioned...
Ma'am, please use the handset. We are not able to hear you.
Now am I audible?
Yes, you are. Please go ahead.
Sir, you mentioned that you expect 200, 300...
Sorry, your voice is muffled.
One minute. Hello.
Yes.
Sir, you mentioned that you expect 200, 300 basis points of margin improvement for the next year. So that would be in compared to FY '23 or Q4 FY '23.
Ma'am, your voice is muffled. Please speak louder.
Yes, sure. So you mentioned an improvement of margin around 200 to 300 basis points. Sir, that is compared to Q4 FY '23 or the full year FY '23?
So it will be on the last quarter, 200 basis points to 3% for whole of the year.
Whole of the year. Okay. And sir, when we mention the 10% market share, I'm just confirming, our current market share is around 5%. Correct?
5%, yes, about 5%.
Okay. And sir, how much capacity we would need addition and how much cash you'll need for the increase in over the next 4 to 5 years?
We are working on that. I don't have the numbers right now. It's on the drawing board. We'll come back with an announcement when we are ready.
Okay. And sir, just a last question. Current inventory days are how much?
Around 45 days.
45. Sir, in June-July you expect that to become 30 days.
We'd like to keep it at this level. Around 40, 42 days maybe.
Okay. And historically also we have been around this level, right?
Yes.
[Operator Instructions] We'll take the next question from the line of Ashutosh Tiwari from Equirus Securities.
Firstly, on this next phase of CapEx, the [ capacity ] expansion that we'll do from beyond 360,000. Can that be taken up at Bhuj or there's no room over there and you need to plan a greenfield only.
No, we have ample room there. So we can take it up over there.
And how much capacity can be added in say Bhuj?
A substantial amount.
Okay. And generally, if you plan expansion today, how much time do you take for the plant to come up?
So brownfield can be done between 15 and 20 months.
Okay, 15, 20 months. Okay. And secondly, on the mining side, on the ultra large tires, how is the progress? We entered the segment around 4, 5 years back. So what kind of volumes we're doing over there right now?
I don't have the breakup of the volumes exactly, but we are getting a good response. Our tests have been conducted, results have been good, and now it's become a regular sales feature. So that is going on as a regular product. So it's picking up well. All over the world we've got good response for it.
But what is the capacity of the ultra large tires?
Sorry, could you repeat the last question?
What is the capacity of this ultra large mining tire right now with us?
Around 5,000 tons for the whole annum.
We'll take our next question from the line of [ Pragya Shah ] from Concept Investwell.
[Technical Difficulty]
I'm sorry to interrupt, ma'am. Please use the handset and ask your question again. We're not able to hear you, [ Ms. Pragya ]. We're still unable to hear you. As we are unable to hear the question from the participant, we'll take our next question from the line of Mumuksh Mandlesha from Anand Rathi.
Sir, what was your Carbon Black sales to third party in FY '23?
Approximately 6%.
6% revenue for full year, right. And what would be the utilization of this Carbon Black plant in FY '23, sir?
Sorry, what would be the?
Plant utilization for this Carbon Black?
85% to. 90%.
[Operator Instructions] We'll take our next question from the line of Mayur Milak from Asian Markets Securities.
So just trying to understand the European situation. So we believe there was some news that Chinese tires were supposed to come back and then there is again this news that there will be some [ COVID ] situation in and around. So just wanted to understand what is the real situation in Europe. Are the Chinese competitors back or we still get this advantage of using that market for a longer duration than what we had earlier anticipated?
As of now we are not facing much of a competition from Chinese brands because market sizes have -- it's not a very big size of like a passenger car or truck bus. So that is where it is.
And typically what would be now -- with all this correction in trade and everything, what would be your typical difference of the offering, selling price difference between you and your closest Chinese counterparts?
We don't have their pricing because there's no fixed pricing for them, so it's difficult to give you an answer. And we always try and benchmark against the top-quality European players. So that's what we are aiming to get to.
Right. So just to put it the other way around. So just trying to understand, the general understanding was the difference is about between 12% and 15%. So is it safe to assume that that would kind of continue even now?
Yes. If you see the branding exercises that we've been doing has got us up from a gap of about 40-odd percent to gap of 15%. So it's a lot of effort and hard work done over the years. So we would like to maintain that.
We'll take our next question from the line of Sunil Shah from Turtle Star. Mr. Shah, your line is unmuted. Please go and ask your question. Please unmute yourself from your device.
Yes, sorry. I'm audible I guess.
Yes.
My question is an extension of the previous question. Sir, the pricing differential that we have versus our European competition, so if I look at our company over the last many years, the prime advantage that we had was more on the labor cost advantage, that is our labor cost was reasonably less than the global competition. Now with increased automation that we're doing in our companies, power cost is certainly going to be 1 [ wave ] cost which is going to be a significant part going forward. Sir, to maintain that advantage, what are we doing on the power cost front so that our edge remains over our global competition? Meaning, historically, I believe just the labor advantage had given us a cost advantage of more than 20%. But with automation, power cost will be certainly a bigger factor. So are we doing anything on that power cost front to reduce and have an edge over the global competition? Because once we had an expiration of 28% to 30% operating margin and now we are in that 21% mark. And obviously, due to many reasons that we know in the last few years. But on the power front, if you could just let us know anything that we are doing there to gain some advantage?
So that why this our carbon plant came because it is our self-consumption, as well as whatever the [ derivatives ] are produced, that we convert into the power, so it reduces the power cost.
So any differential in cost that we'll attain over a period of time in power itself, percentage differential versus just labor...
Self-consumption, but definitely, we are [indiscernible].
Okay. And sir, once upon a time used to be a debt-free company. Now we are net debt of INR1,200 crores. So with just about 300 bps increase in our margins, when will we regain that earlier phase of being a debt-free company, meaning we will continue to have a debt [indiscernible]?
As I was mentioning that the gross debt will continue to go down and that will have an impact, but we are working towards being a net debt free company. So hopefully, we should be there in about 15 to 18 months, subject to no major expansion getting announced before that.
We'll take our next question from the line of Chirag Maroo from Keynote Capital.
Sir, as you said that our overall market share is about 5% approximately. Will it be possible for you to provide a bifurcation between how much market share we have in agriculture and OTR?
No, we can't give the bifurcation.
Okay. And second, I wanted to understand what is our strategy or initiative towards increasing our market share in OTR tires at this moment.
So if you see, we've been constantly increasing the sales in the OTR segment, and the growths are coming in higher. So whatever we are doing, working towards, is now paying off in the marketplace. So that is what we have been working for the last 3 to 4 years. And you can see the numbers constantly increasing.
Are we doing any R&D spend related to OTR, at this moment, as of [ 2023 ]?
That is a part and parcel, so that goes on for all the product lines that we are in. It's not just for OTR or it's not just for Agri. It is being done across the product basket that we make.
Okay. And sir, last 1 from my end. Sir, I just wanted to understand if any of your international peers are creating a base in India and trying to become a bit competitive based on their employee expenses. If you can give are there -- is there any an acquisition taking place or a big plant setup taking place which can create a competition [indiscernible] for Balkrishna?
We can't comment on competition and what they plan to do.
We'll take our next question from the line of Pramod Amthe from Incred Capital.
This is with regard to the domestic business. What is your current market share in the Agri? And are you planning -- what's the medium-term ambition on the market [indiscernible] that you have for global? And then second, do you plan to expand into any related subsegments in automotive?
So in India, our market share would be about 3% to 3.5%. And apart from -- in related business, apart from Carbon Black, we don't envisage to -- at the moment, to go in any other business.
And the second 1 is with regard to the margin expansion. So you are at around, if I'm not wrong, 280,000, 290,000 capacity production, assuming this year is going to be a single-digit growth.
In my opening statement, I had mentioned that we ended the year with 301,000-odd metric tons. So last year we clocked 301,181 metric tons.
No, I'm speaking from a quarterly annualized basis. So if you like at -- because if I had to look at the margin guidance which you are talking about, expanding from the current level by another 300 basis points, right, from the 4Q? So if I had to look at in that context, you will be hitting your peak margins even at the lower utilization than the past. So you feel in this upcycle you will scale and move high in operating margins without the Carbon Back itself?
Difficult to comment on now.
But your guidance looks to be heading in that direction.
That is what we're estimating, yes. We are guiding in that. Let's see how it plays out.
We'll take our next question from the line of [ Pragya Shah ] from Concept Investwell.
So my question is regarding the [Technical Difficulty] products like rubber tracks and Giant Tires. So can you give us more to view into how is the market size [Technical Difficulty]?
Sorry, your voice is muffled. I can't really hear what your question is.
[Technical Difficulty]
No, no, it's muffled. I mean, I can hear your voice, but I can't hear the words that you're saying. It's coming muffled.
My question is regarding your expansion into the market with the products like rubber tracks and giant solid tiers. [Technical Difficulty]
Ma'am, I'm sorry to interrupt, your audio is not very clear.
Okay.
As we are unable to hear the question from the participant, we move on with the call. Ladies and gentlemen, we have reached the end of the question-and-answer session, and I'd now like to hand the conference back over to the management for closing comments. Over to you, sir.
Thank you, Mayur. Thank you to everybody for coming on this call, and we'll see you at the end of next quarter. Thank you.
Thank you.
Thank you, sir. Ladies and gentlemen, on behalf of Asian Markets Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.