Transcript. Conference Call of Sanghvi Forging & Engineering Limited

Transcript Conference Call of Sanghvi Forging & Engineering Limited Presentation Session Event Date / Time : 22 nd November 2012, 04:00 PM IST Event Duration : 43 min 55 sec Good afternoon ladies and gentlemen. I am Moumita, moderator for this conference. Welcome to the conference call of Sanghvi Forging & Engineering Limited. At this moment, all participants are in a listen only mode. Later, we will conduct a question and answer session. At that time, if you have a question, please press * and 1 on your telephone keypad. Please note this conference is recorded. I would now like to hand over the floor to Mr. Sunil Mudgal. Please go ahead sir. Sunil Mudgal: Good afternoon ladies and gentlemen. On behalf of Kirin Advisors, I welcome you all to the conference call of Sanghvi Forging & Engineering Limited to discuss the company s results and future plans. We have with us today Mr. Jayanti Sanghvi, Managing Director at Sanghvi Forging & Engineering Limited. I will now hand over the call to Mr. Jayanti Sanghvi to give the overview of the company and the development during the particular quarter. Over to you sir. Good afternoon everybody. I am Jayanti Sanghvi, Managing Director of Sanghvi Forging & Engineering Limited. I welcome all of you to our conference call to discuss the results of September and our future plans. First of all I would like to go through our results. Our quarterly sale for September 2012 is 903.03 lakhs and our profit after tax of 113.71 lakhs. Our half yearly total results as compared to last year, September 30 th 2011 sale, total sale for six months was 20 crores, 9 lakhs and in September 2012 that is 18 crores, 91 lakhs. Our profit after tax for September 30 th 2011 was 185.96 lakhs. Our profit after tax for September 30 th 2012 is 212.96 lakhs, which is increase of around 15%. Our EPS for half year September 30 th 2011 was 1.61. Our EPS for September 30 th 2012 is 1.68. Overall our sales has reduced by 5% on six monthly basis. In last quarter we had received few orders. And overall the scenario and sentiment for getting new orders is relatively weak, which we feel that will improve in another couple of quarters. Now about the major developments what has happened in our company in last quarter is that we have completed our expansion program and we have commissioned our new Open Die Forgings plant. The new plant has added a total capacity of 16,000 tons per annum. Our existing capacity is 3600 tons per annum. So, now our total capacity has become 18,600 tons per annum. Now, with the commissioning of this plant, which is just under stabilizing period, in another one or two months it will be fully operational, fully stabilized. So, you will have a good effect of numbers from the last quarter onwards. Now, in our forging business, lots of business is dependent upon the various approvals. Already we have various key approvals in place, like we are approved by Engineers

India Limited, ISRO, Bhabha Atomic Research Centre, Nuclear Power Corporation, BHEL, Siemens etc. But, now already with our new plant operational, we have requested all these customers to enhance our existing approval. And in last quarter we had received few another major approvals from companies like ABB, Voith, Boving Fouress for our new plant also. We had received small orders for new plant. But, once it is stabilized we are expecting a good amount of orders. And with the help of this new plant, we will be now substituting lot of imported items in India. Most of these big forgings are currently imported in India from various countries like Italy, Germany and Korea. So, with the commissioning of our plant, we are targeting the customers who are importing this item and the customer also wants to have an indigenized product due to various reasons like currency fluctuation, longer lead time etc. So, in next couple of quarters, once things are streamlined and new order booking is in place, we think there will be a huge and good amount of growth in our 05:18. And all the machines whatever we have installed, the key equipments are purchased from the leading companies from the world, for example forging press which has a capacity of 4500 metric tons has been purchased from Italian company Danieli Breda. Another key equipment is forging manipulator, which we have purchased from German company, Dango and Dienenthal. And all the forging furnaces, which are just fired, have been purchased from German company Schlager. Due to gas fire furnaces we will have a very good heat control and our cost will be optimized. Yes, Sunil. Sunil Mudgal: Yeah. We can start the Q&A. Question and Answer Session Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press * and 1 on your telephone keypad. The first question comes from Mr. Srinath Krishnan from Sundaram Mutual Fund. Please go ahead. Thanks a lot sir. Sir, you mentioned that this year the increase in capacity, you will be able to manufacture about piece of about 40 to 50 tons as against 4 tons which you have currently. So, would you be able to quantify the order backlog which you have in this 40 to 50 tons category. And also you mentioned the gas fire furnaces which you would be having. The total number of furnaces, how many would be gas fire furnaces sir? The total we have five furnaces in the new plant. And all five furnaces are gas fired. And for gas, we have tie ups with the GAIL and the gas has been connected, given to us through pipeline by GAIL. Okay. What is the approximate cost benefit which we would be having because of these gas furnaces? Around, as compared to other suppliers, we will be around 20% to 25% of our energy cost will be lower than them. And for the new order booking, for the new plant we have only few orders at the moment, because most of the customers have given us the trial order initially for the new plant. So, once we execute the trial order, then we will get the bulk order basically. So, that will take around three to

four months time to execute these trial orders successfully and then to get the bulk order from the customer. Okay sir. But, with the trial order, you must be having some sort of insides on how, where this can be scaled up to in this category. So, for your own personal use, I am sure, I am not asking for guidance, but where can this go from here, like what is the order book you are expecting for 2013? I will tell you. Right now our existing pending order book is around 25 cr that is mostly for the existing plant. But, once the things are streamlined for the new plant, our pending order backlog will go in the range of 75 to 100 cr. Okay, this is what you are expecting for 2014? customers basically. be, mainly you will be in? Yeah, for the next year basically. Because, it will be fully operational then. Yeah, fully operational and we will be proven with the Okay sir. But, in the 40 ton category, which industries will Mainly we will be focusing on four different industries. First is oil and gas, so they buy big amount of forgings for their various projects. And another is power equipment, like companies who make the power turbines etc. any type of power generation equipment needs big amount of forging. Third is ship building sector, they also need big amount of forgings. And another is defense applications. So, these are the four major segments what we are focusing. And into these also, suppose in power there are some sub segments, nuclear power, thermal power, but we club into the same segment basically. Okay sir. Sir, currently you have 15,000 tons, but you have about five furnaces and we have scaled up and with this the capacity will also be doubled. Has there been any thought process of increasing the number of furnaces with visibility? Already we have that in the thought process. But, for doing that first we should get the full amount of booking for the first five furnaces. So, once we have enough orders for five, then definitely we will add another five as per the requirement grows. delivered? twelve months basically. How long does it take for those five furnaces to get Another five, another five furnaces it will take eight months to Okay. Thank you sir. Thanks a lot.

Thank you sir. The next question comes from Mr. Ameen Pirani from Deutsche Bank. Go ahead please. Yeah, thanks sir for taking my questions. Sir, just I joined a little late, so pardon me if I am repeating some questions. Within the segments that you have mentioned, could you also give us examples of the products that you would be doing, so that we can get a sense? Like in power equipment, are you doing components for the turbine, as in are you doing the rotor shaft? For power segment, we are fortunate enough that first order, for the new plant we have got from the power industry and that too from one of the very good German customers, a company called Voith. This is the company which is the world leader in hydro turbine technology. And we are manufacturing hydro shaft for the hydro turbines now, for them. The hydro shaft. With different companies in power segment will need different items, but we also need to develop our track record for supplying the items. So, initially we had just got some small, small different customers in different segments, but power we have got current orders from two-three different companies. One is Voith and another is Boving Fouress, they are also in hydro turbines. Sir, can you repeat the name? Boving, Boving Fouress. It is a UK based company, but they have a plant in Bangalore. They are also into hydro turbines. none of this is? Okay. And all of this would mostly be exports, right; I think These are for the Indian projects what they are doing. Okay understood. Sir, and on the oil and gas side, can you give some examples if possible? Oil and gas we are working with IOCL, Reliance, they need lot of big forgings. Now, Reliance big project is coming up. So, we have been already qualified for the new plant also, for general expansion. So, they will need lot of big forgings like flanges for the piping, connections etc. Okay. And are you doing anything on the exploration side as in, are you doing stuff like blow out the entire? There are also we are 12:30 till now we have not received any confirmed orders from that segment. And we are under approval in various stages with companies like Cameron, Halliburton and Schlumberger etc. Still confirmed order is yet to be received by any of these customers to us. But, in two-three months definitely we will receive good orders from these companies. Okay sir. Thank you sir. Thanks for taking my questions.

Thank you. The next question comes from Mr. Nilesh Karani from Magnum Equity. Go ahead please. Nilesh Karani: Good evening sir. Good evening. Nilesh Karani: Yeah, this is Nilesh Karani from Magnum Equity. Sir, my question was regarding your raw material basically. For forging I think the fluctuations in metal prices, I have seen from last two-three quarters have been more and also your forex, basically the fluctuations. So, what kind of impact does it put on your top to bottom line, whatever or wherever, can you be little bit define on that? I will tell you. See, till now there was not much impact due to forex, because most of our raw materials were indigenously procured. But, for new plant now most of the materials we will be importing for the bigger ingot. So, definitely there will be an effect on our profitability due to the currency fluctuation as well as the raw material price fluctuation also. And in percentage terms, it is difficult to quantify, because it depends upon size of material, grade, weight etc. But, normally good thing is we are always able to pass it on to our customers basically. Nilesh Karani: something? But sir have we tied up with any raw material vendors or We have already tied up. Suppose for example, from India we have tied up with couple of companies like Remi Metals and Mepco from Bombay. Similarly for international sources we have tied up with internationally good companies. But, then also tied up, it doesn t mean that it is a fixed price contract. Nilesh Karani: No, no, that is okay. And sir, regarding your forex basically, any fluctuation, hit due to forex fluctuations? Yeah, for our new project we have taken various loans in foreign currency also like ECB etc. So, there we have some, since because our dollar, whenever it goes up, we have to pay a higher price. But, our tenure for loans are longer, like seven, eight years period is there for paying the total loan. So, over a period of time, we feel it will gradually get stabilized. But, at this moment definitely we are hitting hard due to the currency fluctuations. Nilesh Karani: Okay. Thank you sir. Thank you sir. The next question comes from Mr. Srinath Krishnan from Sundaram Mutual Fund. Go ahead sir. Thanks sir. Sir you spoke about import substitution for 40 ton category, my basic question, I just want to understand the current price differential which we might have from our production from your end from the import substitution? There are two criteria for import substitution. One is the price and another is the lead time what we offer to our customers. Normally a 40 ton

piece, if anybody wants to order and import from any of the countries, from Europe or Korea, it takes for customers five to eight months to receive the goods into their factory, from order. And the first, our proposition is we will be, increasing the lead time for our customer at least by two to three months for our customer. So, they will get the same forging from three to five months, depending upon the size and material to the customer that is first point. Second is price wise, generally we will be 10% to 15% lower as compared to the international sources basically. Okay. But, 10% to 15% lower at Rs.55, if there is rupee cost at about Rs.45, then the price differential will not be Then also, then we will also become competitive because of our raw material is also imported in some of the cases. Okay. What percentage of our RM? In our existing plants, our 100% purchase was made within India. For our new plant, at least 40% raw material we will be importing from various sources. 40% is imported here. Yeah, because in India nobody makes the bigger ingots up to weight of 50 ton, 40 ton like that. Sir, what is the, again a basic question, what is the average realization per ton or which you might think for the 40 ton capacity? That we cannot justify at the moment, because normally average per ton realization is justifiable into the automobile forging type of things, because you do same composition repeatedly. In our industry everything is customized. So, we may make one piece, five pieces, different material, different width, it is difficult to give. But, on an average it is slightly more than the auto, but forging whatever people do like that. Okay. When compared to your 6 tons earlier, the one you manufacture at this point of time, so will it be 17:44? Average what we manufacture at this point in time, average of our price is in the range of around 10%. So, we are hopeful that that we will go, increase to at least 12% by doing the bigger forging. 10% in the sense? Our average PAT for the small forging is around 10%. So, that we are expecting to increase by around 200 basis points for the bigger forging. Okay. And also in terms of this, you are confident of only doing this only for the replacement of the domestic is it or are there any plans of exporting?

No, already 25% we are exporting on an average. And similarly we are expecting to continue with the increased capacity also. And we are already approved as a global vendor with General Electric, USA. So, we are supplying to their various plants and they are one of the very large customers who buy lot of big forging also. Sir, I understand your difficulty in quantifying the realization per ton in the 40 tonnage category. But, if you want to break it up, just to give some kind of idea in the power segment or ship building segment or oil and gas segment, what is the average; because you would have had some? That is at least the moment premature to say from my side, but definitely I can say 10% is the average PAT for the small forgings and big forging it will be around 12%. Okay sir. Thanks a lot. Thank you. The next question comes from Mr. Ameen Pirani from Deutsche Bank. Go ahead please. Yeah, thanks for taking my question again. I just wanted to ask you for your this new plant, will you be requiring specialty steel for this? Just wanted to understand if in India is the availability enough or what are the sources in India that you acquire the steel from? For few critical components, for various industries we need good amount of specialty steel. In India we have tied up with MUSCO. Recently MUSCO, recently have been acquired by Sanyo Steel, Japan. So, now that is part of the Sanyo Steel. MUSCO is a Mahindra group company which has been recently acquired by Sanyo Steel of Japan. And Sanyo is very good in specialty steel worldwide. We have tied up with them, whatever range is available with MUSCO, we will be buying and sourcing from them. And for another item which is not available through them, we have good sources in Europe, who can supply us the required quality of steel. Okay. Thank you sir. Thank you. The next question comes from Mr. Pritesh Vora from Equanum. Go ahead sir. Hello, good afternoon sir. My question is this 15,000 tons per annum capacity, what would be the utilization in FY14? Will the plant be fully utilized or what is it? In FY14 we are expecting average utilization of around 55%. Okay and FY15? FY15 it will be in the range of around 65.

Okay. So, do you have some sort of, when your customers are giving such big orders, are they also qualifying you before they give the order or what is the procedure? the order. be? In our case, 95% of the customers qualify us before giving So, what is the qualification pipeline, how it is, when it will I will tell you, that is one of the major advantages what we are having, because of our existing plant; we have around forty such qualifications already in place. We are already qualified as a vendor for these companies like Nuclear Power Corporation, ISRO, BARC, EIL, BHEL etc. And now what we are doing is, we are enhancing our existing qualification with these customers. And average lead time for qualification is, if it is new approval, then it takes from six months to two years depending upon the procedure by each customer. But, the enhancement will take approximately three to six months with these customers. Okay. My second question is you are relying mostly in present plant, relying on process industry, be it be oil and gas industry or power or fertilizer or whatever it maybe. So, now this industry has lot of volatility in terms of its orders coming through. Do you have any plan to go into automobile forging or any derisk model on the auto forging or anything? No, we are not planning to enter into auto segment. And we will be focusing on these segments like ship building and power equipment only. But, what we are doing for these is, we are not directly associated with the power plant. We are working with the OEM s basically, companies like BHEL, Siemens, Alstom, GE. They have normal order backlog of two to three years time. So, we work with these several customers in different segments, so we try to deal it that way, not by entering into the auto segment or something like that. And the new forging machine which you have bought for 40 ton capacity, this is only one piece of equipment, right? Yes, yes. So, where do you compete in the similar range? Like Bharat Forge also has enhanced in the non-auto side, they have also come in the bigger forging, so who are the people who compete on that particular machinery? In India it is, up to 10 ton segments there are three to four different other companies. But, above 10 ton forging, we have to mostly compete with the Bharat Forge and the imported companies, foreign companies basically. Okay. L&T also has a plan to put up a forging shop. L&T has already put up the plant, but they are targeting the forging above 100 ton segment. So, they have put up a forging press to do a single

piece forging up to 200 to 250 tons. So, their setup to make a small forging is not economical for them actually. Okay, they are doing above 100 ton is it? They are focusing to do that. So, their plant setup is designed to do forging up to 300 tons single piece. But, although the design will be 300 tons, they might be taking a smaller available order, available up to 40 tons. It doesn t become economical, because the furnace is if you design for 300 tons and if you heat the material for 20 tons, then you are losing lot of money on heating basically. Forge unit, right? forgings in India basically. Okay. So, basically in total you compete only with Bharat Bharat Forge and lot of forging companies who are selling Okay, alright. Thank you very much. Thank you sir. Ladies and gentlemen, if you have any questions, please press * and 1 on your telephone keypad. The next question comes from Mr. Ameen Pirani from Deutsche Bank. Go ahead sir. Thanks for taking my question. Sir, just wanted to know for my understanding, you said that L&T is doing forgings above 100 tons. So, what would be the segments or products that are targeted by those large forgings and are they different segments completely compared to the 40 tons? They will be mainly focusing on nuclear front and big rotor for super critical boilers. So, normally nuclear reactors you need big shaft of 200 tons, 300 tons like that. And the super critical power plants, there is the turbine capacity of 600 megawatts and above, you need very big rotor forging basically. So, your rotors which you make, which are up to 40 tons, they will only be going into sub critical, below 660 megawatt. We will be able to make mainly up to 220 megawatts and for some item up to 440 megawatts, that will be our maximum range. basically? Okay. So, for super critical you need higher than 100 tons Higher than that, yes. Okay. And just one more thing, you said that you were competing in that up to 40 tons space with Bharat Forge and other foreign, so as a

country are we, do we import forgings or those companies have setups in India and are they selling forgings? No, most of these forgings are currently imported in India basically. What happens is, all the customers who import the forgings, they import under their item code. They don t import it as a forging. For example, steel plant will import as a roll or power Equipment Company will import as a rotor. They import the forging, but you don t know it is a forging, it is like that. Okay sir, thank you sir. Thank you sir. The next question comes from Mr. Pritesh Vora from Equanum. Please go ahead. Sir, as you said that you will be utilizing the plant, 55% by April. How you can be, because lot of trial has to, as I questioned earlier, lot of qualification has gone, so how you are so sure that you can predict that whether the plant will be utilized that much, I mean how is the prediction? There are two reasons for that, because in forgings there are two-three different types of market. One is the very critical component like the power component or oil and gas segment. But, there is some 28:96 market, where the margins are little bit less, but the commodity type of items like the round bar forging, which are used for general engineering applications or die block forging, which are used by various induction molding companies or forging companies, that is the die block. So, there is some simpler application which can speed up our capacity to start with. As we are presently qualifying with the steel customers, steel components, we will be mainly focusing to that segment basically. So, round bar forging and die block forging, there is enough demand is it, we are exporting die block? Because, we can export also to various consumers, already we are exporting, so we have reasonably good market. That is reason we export also. In India also there is reasonably good demand. Okay. And this generally, what is the end use industry for engineering, this round bar forging? Round bars are mainly for all type of machine building basically. Mechanical machine buildings or bearing applications, various different applications they have it. And for die block, it is used in injection molding, which is as a die block for plastic moldings basically. Okay. But, for this kind of commodity forging as you mentioned, your margin will remain that high. No, in that case margin will be low. And what will be that margin?

That depends from time to time, but it will be generally low than the engineering forging. Okay. Lower than the engineering forging. Yes, yes, sure. Okay, alright sir. Thank you very much. Thank you sir. The next question comes from Mr. Pritesh Vora from Equanum. Please go ahead. Sir, one more question. You have concluded 130 crores of CAPEX by putting up this facility. What can be the asset turnover ratio typically if it is utilized fully 100%? What kind of revenue we can see out of this particular project? turnover is possible. Fully utilized it will be around 2.5 times to 3 times asset 2.5 times to 3 times? 3 times, yes. Okay, thank you very much. Thank you sir. Ladies and gentlemen, if you have any questions, please press * and 1 on your telephone keypad. The next question comes from Mr. Pravesh Rawat from CRISIL Limited. Please go ahead. Pravesh Rawat: Hello. Thank you sir for taking my question. Sir, my question is first of all what is your guidance on sales for this year sir, FY13? FY13, our earlier prediction was, we will be growing at a good rate, but it will be little bit less than our earlier prediction, but we will be growing, as compared to the last year in the range of 20% to 30% basically. Pravesh Rawat: Okay, because the first half has been little sluggish, so far in the first half we have done close to 19 crores. And as you told, as you informed that we still have 24-25 crores of executable order book, so do you expect any further more orders in the next H2 or are you in the verge of We are already expecting some good orders, but it will come in next couple of months, we are expecting some good orders. And basically for the new plant and new plant we will get good orders basically. Pravesh Rawat: But, new plant will take some time, because as you told it will take three months for stabilization and you are still in the process of, in the prototype.

But, prototype also, there are customers who have given the orders for prototype also, that will also go for sales only. Our overall guidance has been reduced. But for next year we are reasonably bullish, next year will be a much better year, because all the stabilizing and everything will be completed by that period basically. Pravesh Rawat: Okay. Second thing I want to understand, during the call you informed that in the new plant, in the heavy forging plant, 40% of the raw material would be imported. And you told that because heavy forgings, up to 40 tons, 50 tons no one manufactures in India. So, my question is, because you will be operating plant and all the material which you will be producing for the plant, it will be heavy forging, so why only 40% of the raw material would be imported? What about the rest? Our maximum piece forging capacity is 40 tons. We can do 20 tons, 25 tons, 5 tons like that. So, in India below 30 tons are available. Pravesh Rawat: Okay, 30 tons and 30 tons below is available. Yeah. So, above that only we have to import. Whatever is available, our first choice is to buy it from India. But, whatever is not, there are few particular grades which are not available, then you have to import it. It depends upon the grade, approval, our customer approval. Suppose sometimes I want to make forgings for GE, they asked me to buy the raw material from their approved source. So, if it is not in India, I have to buy from their source, it is like that. Pravesh Rawat: Sure, sure. So, when you put up a number, like 40%, strategically you are saying that 40% of the production you will do for 40 tons, 40 tons and above and 60% of the production you will in the range of 20. Not like that, sometimes 15 tons raw material also I have to import if my customer s approved vendor, supplier is not available in India. So, it depends upon the customer also, who are the approved vendors for raw material basically. Pravesh Rawat: that specifically. Right, right, so it will depend on the product order mix. Yeah, product. It will depend on production and end users in Pravesh Rawat: Okay. Sir, my last question is on the margins, because this quarter margins improved significantly and probably this is because of the execution of high orders. So, I would like to know about from you that in the next H2, how the margins will move? Do you expect any further order from those clients who will give you high margin? We expect that these are all basically defense and Government plans. So, we never can confirm when they will be releasing the orders, because it will depend upon their internal process and approval. We have quoted big amount of quotations, but we are expecting orders in next one quarter basically from this customer.

Pravesh Rawat: Okay. So, the customer is the same, the high margin customer of which you have executed the orders in Q2 FY13? Pravesh Rawat: Pravesh Rawat: margin would be Yes, yes. Is it the same customer? Yes. Okay. So, I think your margin would again; your EBITDA EBITDA would increase and the PAT would decrease, because now fully plant has been operational, so depreciation and everything will come into effect. Pravesh Rawat: Pravesh Rawat: Depreciation and interest cost will take your PAT. Yes, yes. Sure sir, that was it. Thank you. Thanks a lot. Thank you sir. The next question comes from Mr. Ameen Pirani from Deutsche Bank. Go ahead please. Sir, as far as your steel price is concerned or raw material price, do you get a pass through from your customer, especially when you have to import the raw material? No, normally our orders are fixed price contracts. And what we do is, when we take an order, we book the raw material with our supplier also. So, the price is generally fixed basically. Okay. So, in case if there is any forex fluctuations that has to be borne by you completely? So, that is we either hedge that also or we keep it open, then that we will take, it is like that. Okay. So, your customer doesn t, your competition, some company mentioned that steel price is a pass through and any increase or decrease in steel price, the cost as well as the It is true for auto components basically. Okay, it is not in the non-auto. Because, non-auto most of the products are customized products, so every time we have to negotiate the price for each piece basically, depending upon their requirement.

Okay. So, you are saying in more standardized products, such pass throughs are allowed. Yes, correct. Okay, thank you sir. Thanks. Thank you sir. The next question comes from Mr. Sonal Shrivastav from PhillipCapital. Please go ahead. Sonal Shrivastav: Sir, I had two aspects to understand. One, you mentioned that because of using gas furnace, you will be saving around 20% to 25% cost. Second aspect what I wanted to understand was, when you mentioned that these products being import substituted and they are imported under item code, what would be the implication if you are on the duties basically, if you are importing say power equipment and the duty is under power equipment, both are reduced, so are we competitive for these like to like basis on these kind of products? First, I will answer the first question, we have five gas furnaces. Normally most of the furnaces in India are fired through the furnace oil or LDA basically. And you cannot have a very automatic, sophisticated control for that type of furnace. Gas is easier to control full on fully automatic parameter basis. And heating time for the furnace is, because of the gas, all the lining material is more light, what the furnace manufacturer uses for that type of furnace. So, with oil gas furnace, you have to heat the bricks and everything, here you have to heat only the ceramic. So, gas consumption is low basically. So, your energy cost is less, that is my reply to your first question. Second is, for the imported forgings how will be the competition. Now there are two aspects to this. There is one segment of customer who wants to import big amount of forgings, but they are not able to import it due to various reasons. Like for example, Nuclear Power Corporation wants to import big amount of forgings, but no country wants to give them the forgings. Similarly, ISRO wants to import the forgings, but the developed country don t wants to import, because ISRO is competing with them in satellite launching business, so they don t want to give. So, that segment of customers, where the availability is very important, if it is available in India and its cost is 5%-10% higher also, they are willing to pay. That is one type of customer. Now, to answer the other question, whether we will be competitive enough if the power equipments are given zero duty for import or exemption? Now, we are working with the companies who are global players, like companies like General Electric or Voith or Honeywell or ABB, they all have global manufacturing locations as well as global sourcing capability. So, if I am able to supply to GE s two or three, four plants, that means I am competitive enough to supply them the same product in India as well as for the international market. So, competition wise, we feel that we will be reasonably competitive as compared to any other supplier and as compared to imported suppliers; definitely we will be 10%-15% cheaper than them also. Sonal Shrivastav: Okay. Just one more aspect I wanted to understand was with regard to the gestation period with regard to winning the order. How is the gestation period, when you start discussing with regard to being able to manufacture these products, subsequently when you achieve 65% or 55% utilization, at that point of time you will have to look at spare capacity available? And if you are taking one big single order, then it will be very difficult to give that kind of delivery schedule. So, what is the

time taken to bag an order and what is the time usually taken to manufacture the product? Normally in India for the Government sector it is three to six months for getting the order. And for private sector it is around two to three months for getting the order. Sonal Shrivastav: large? Right. And how much it takes to deliver these kinds of For executing the order, it depends upon the product, but it starts with minimum two months and it can go up to six months. Sonal Shrivastav: Okay, right sir. Thank you very much. Thank you sir. The next question comes from Mr. Srinath Krishnan from Sundaram Mutual Fund. Please go ahead. Sir, just one clarification, if I look at your gross margins, it has been consistently improving last few quarters, just want to understand in terms of product mix, what has been changing? The product mix, we have different components in different segments where we are operating. In last few quarters we have very good amount of business from the Indian defense sector, which is slightly more lucrative as compared to the other sectors. So, that amount of business is picking up with us, so due to that main reason, the margins are improving basically. What is the contribution sir from the Indian defense sector? At this moment that will be around 40%. 40% of your sales come from Yeah, that is mainly, normally it is not that, but recently we have good amount of orders from that only. What is the order backlog sir in the defense sector? The total order backlog at the moment is around 25 cr. Okay, it is the total, inclusive of this. Including all, everything. Okay. Thanks. Thank you sir. The next question comes from Mr. Kaavya Subramanian from Capital Market. Please go ahead. Kaavya Subramanian: Hello. Hello sir.

Go ahead sir. Go ahead with your question. Kaavya Subramanian: Yeah. I missed out the guidance you have given for FY13, could you please repeat it sir? compared to last year. I said we are expecting a growth of around 20% to 30% as Kaavya Subramanian: 20% to 30%? Kaavya Subramanian: Yes. Okay. Thank you. Thank you sir. Ladies and gentlemen, if you have any questions, please press * and 1 on your telephone keypad. Ladies and gentlemen, if you have any questions, please press * and 1 on your telephone keypad. There are no further questions. Now, I hand over the floor to Mr. Sunil Mudgal for closing comments. Please go ahead sir. Sunil Mudgal: I thank you all on behalf of Kirin Advisors for participating in this teleconference. If you have any further queries, please drop in your mail at sunil@kirinadvisors.com, sunil@kirinadvisors.com. Once again thank you very much. Thank you everybody. Thanks. You are most welcome sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha s conference call service. You may disconnect your lines now. Thank you and have a good evening. Note: 1.This document has been edited to improve readability. 2. Blanks in this transcript represent inaudible or incomprehensible words.