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00:00 We're taking stock of earnings from SEIT. Well, it's been a quiet quarter. That's possibly how we can perhaps qualify the Q4 earnings for the tyre maker, the tyre major in fact, where we're looking at a revenue growth of around 4%. It's a bit of margins. Sure, they have expanded to going over 13%. And net profit on the other hand has declined, but that is on account of an exceptional item. Well, to talk to us about the quarter gone by and what we can expect going forward. We are in conversation with
00:29 Kumar Subbiah, the CFO of the company. Well, welcome to the show and thanks for joining in. Well, my first question is to do with the kind of volumes that you're seeing as far as the quarter has gone by. What are your observations here? Because we do see a substantial pickup overall in the automotive space. Is that something that is going to eventually translate?
00:57 Well, into the coming few quarters. What's your observation here?
01:03 Now, as far as last year is concerned, we managed to grow in two of the three business verticals. We grew very strongly in the international business. We grew in mid single digits in the replacement business. And the OEM business was kind of flat. And regarding your question, relating to how we see ourselves, the market looks, there is a momentum in the market, particularly in the replacement market.
01:32 And we see lots of opportunities in the international business. And we lost some volumes in the OEM business based on our own plan. We expect some recovery. So we expect to see some growth momentum starting from current quarter onwards. And we will be participating in that growth. And we would be delighted if we could grow faster than the market.
01:58 Right. In that case, if you could also give us an idea on the current rubber prices, because what we're observing is a little bit of an inch up there. What sort of an impact could it potentially have on your operating margins going forward? And what sort of a lag effect does that have when it comes to incorporating that in your pricing?
02:22 So rubber prices were hovering around 150 rupees per kg in the Indian market as well as the international market till November of last year. And since then, there has been a gradual upward movement in the rubber prices. As we speak, it's hovering around 180 rupees per kg.
02:46 So therefore, it will have an impact on our costs. And therefore, if the realization remains, it will have some impact on margins. And even in petrochemical derivatives, where the crude plays an important role, except in the last two or three days, otherwise crude largely hovered around $90, closer to $90 level. And that has had some impact on crude derivatives.
03:12 In general, there is a lag of up to three months. Over a three-month period, any movement in the raw material prices progressively impact our costs. So therefore, we expect our raw material costs to move up by about a little over 4% in quarter one versus quarter four.
03:32 And our intention is to neutralize this through some price increase as well as through cost efficiencies that we intend to execute during the quarter and beyond.
03:44 Good morning, Mr. Subbaiah. Tamanna here. Just wanted to come to you on the net profit number and this exceptional expense of 58 crores. Because while margins and EBITDA, etc. were in the green, net profits have been down 22%. One assumes because of these exceptional expenses. What are these? Are these the EPR related provisions? And what is sort of the timeline of this?
04:12 Now there are two items in the exception list in the quarter four numbers that we have reported. Approximately about eight crores in that exception amount is on account of some voluntary separation scheme that we launched in one of our factories.
04:30 And therefore, that contributes about eight crores. Balance is the provision that we have made towards extended producers responsibility notification that was issued by the government in 2022-23. So, and we are calling it out as an exception because this amount pertains to the year 2022-23.
04:53 In addition to that, we also have recognized the cost in our own normal expenses, large part of it in quarter four. So, these EPR regulatory changes in terms of manufacturers will have an obligation based on what was produced two years back, either to recycle tires or go and buy certificates from the recyclers.
05:19 If I may ask Mr. Subbiah, so if you say 58 and out of 58, 8 crores is employee VSS voluntary separation costs, about 50 crores for the EPR segment. When does this liability end?
05:32 Ability is not an end. So, it's about 35-36 crores is what is there in exception relating to EPR pertaining to the earlier year. It has just begun and it will be there in the cost based form year.
05:46 So, it will be a recurring sort of expense year on, what would it be on an average per year?
05:53 Okay, it all depends on the value of amount of money that we incur for buying those certificates. It could be up to about a percentage of our selling price on a company level.
06:06 Okay, so if it's 38 crores, this is for FY23. What period is 38 crores for? And for FY24?
06:14 FY24, it's almost double the amount.
06:17 So, for FY24, it will be about 70 or?
06:21 Double the amount, about 70 odd crores.
06:24 And when will this have to be accounted in? So, you have a two-year gap, is it, to account for this?
06:29 Yes, it has already begun. Okay, in the year one, it is about 35 percent. Year two, it is about 70 percent, which is FY24. FY25 onwards, it's about 100 percent. So, therefore, the amount would be higher in FY25.
06:45 And from there onwards, it will sustain.
06:47 Sir, what is the amount in FY25?
06:49 FY25, we expect it to be about 1 percent of our turnover, overall basis. That's what the impact would be in terms of that. So, it could be closer to about 100 crores.
06:59 Okay, thank you, Mr. Subbaiah. We've run out of time, but thank you so much for speaking with us. That was really the key takeaway and perhaps why you're seeing the stock a little depressed today.
07:09 Because all things considered, this EPR cost is going to now be a standard feature for tyre makers and for SEAT and for FY25. It could go up to about 100 crores. That's what the CFO just told us.
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