Elecon Engineering Company Limited ($505700)

Ladies and gentlemen, good day, and welcome to the Elecon Engineering Companies Limited Conference Call hosted by Emkay Global Financial Services Limited. [Operator Instructions] I now hand the conference over to Mr. Abhishek Taparia, Emkay Global Financial Services Limited. Thank you, and over to you.

Good afternoon, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Aayush Shah, Director; Mr. Chintan Shah, CFO; Mr. Dipak Dalwadi, Head of Gear Division; and Mr. Kaushik Patel, Head of Material Handling Equipment Division. I shall now hand over the call to the management for their opening remarks. Over to you, gentlemen.

Thank you, Abhishek. Good evening, everyone, and a very warm welcome to Elecon Engineering Quarter 4 and FY '26 Earnings Conference Call. Joining me today are Mr. Dipak Dalwadi, Head of Gear Division; Mr. Kaushik Patel, Head of MHE Division; and we would like to welcome our CFO, Mr. Chintan Shah, who joined us recently. He brings nearly 19 years of experience, and we are confident that he will play an important role in driving Elecon's continued growth. The earnings press release and investor presentation has been uploaded to the stock exchanges and are also available on our website. I trust that you've had the opportunity to review them. I will begin with a brief overview of the operating environment and our business performance, following which Chintan will take you through the detailed financials. Elecon Engineering marks a significant milestone this year as we celebrate 75 years of engineering excellence, innovation and strong customer partnerships. Over the decade, we have had -- we have established ourselves as one of Asia's largest and leading providers of industrial gear solutions and material handling equipment, supported by deep domain expertise and strong technical capabilities. Our Material Handling Equipment division continues to build strong momentum and remains a key growth driver for the company. With a legacy of over 7 decades, the division has developed specialized capabilities in designing and manufacturing large, complex and high-capacity systems, including conveyors, port equipment, feeders and other critical infrastructure. These capabilities are limited to a select group of players in India, providing Elecon with a distinct competitive advantage serving core sectors such as power, steel, cement, ports, mining and fertilizers, the MHE business consistently delivers customized high-value solutions that enhance our operational efficiency and reliability for our customers. In the Gear division, Elecon continues to maintain a leadership position in India's organized industrial gear market. We offer a comprehensive and diversified portfolio, ranging from heavy-duty gearboxes to precision engineered components catering to industries such as steel, cement, sugar, power and marine. Our continued focus on research and development ensures that innovation, product customization and end-to-end life cycle support remains central to our offering. With a strong domestic presence and established distribution network and long-standing customer relationships, Elecon is well positioned to enter its next phase of growth and further strengthen its presence across key markets, both in India and internationally. Moving to segment-wise performance. The Gear division, which accounted for approximately 63% of consolidated revenue in Q4, reported revenue of INR 472 crores, reflecting a decline of 21% year-on-year. This was primarily due to delayed order inflows, extended dispatch time lines and customer-led deferment of deliveries amid ongoing macroeconomic and geopolitical uncertainties. While near-term performance was impacted by external factors, the underlying demand fundamentals remain intact. We expect a gradual normalization in timing difference for order flows and execution as market conditions stabilize. During the year, we secured a healthy inflow of orders across key sectors, including power, steel, cement and material handling equipment. And as we are carrying a strong open order book for the next year, supported by a strengthening demand environment and a healthy project pipeline, we remain confident in Gear division's ability to regain momentum and deliver improved performance going forward. The MHE division, which contributed approximately 37% of the consolidated revenue in Q4, continued its strong growth trajectory, posting a 37% year-on-year increase in revenue during the quarter. This performance was driven by sustained demand across core sectors such as power, cement, mining and port along with consistent execution. Looking ahead, we remain confident that the division will maintain its growth momentum, supported by a healthy order book, strong sectoral outlook and continued customer engagement. Despite the challenging environment, we delivered moderate consolidated revenue growth of 6% in FY '26. The underlying fundamentals across both divisions remain strong, a robust order book and strong execution pipeline provide clear visibility for sustained growth in the coming financial year. Elecon remains committed to its long-term growth strategy with a clear focus on portfolio diversification, expansion into new sectors and geographies and continuous strengthening of our engineering and execution capabilities. As part of our strategy to expand into international markets, we are pleased to announce the recent establishment of a step-down subsidiary in Mexico, further strengthening our presence in the Latin American region. On the domestic front, core sectors are expected to continue driving sustained capital investments, and we are well positioned to capitalize on these opportunities for our strong capabilities and market presence. Supported by strategic capital expenditure, strong in-house R&D, differentiated product offerings and our proven ability to deliver customized, high-quality solutions, we are well positioned to address the evolving and increasingly complex needs of our customers. We believe the current challenges are transient and do not alter our long-term growth trajectory. With this, I now hand over the call to our CFO, Mr. Chintan Shah, who will take you through the detailed financial performance for the quarter and full year FY '26. Over to you, Chintan.

Thank you, Aayush. Let me give a quick walk-through of the financial performance for Q4 and then for the full year FY '26. Financial performance Q4 FY '26. For the quarter ended March 2026, our consolidated revenue from operations stood at INR 746 crores compared to INR 798 crores in the corresponding quarter of the last year, reflecting a moderate year-on-year contraction. This quarter's performance was primarily impacted by slower conversion of the order pipeline into the revenue in line with a broader industry trend of execution cycle across all capital intensive sectors. Several customers across key end user industries recalibrated the CapEx schedule, leading to a stretch in the dispatch direction across the value chain. The underlying demand environment remains constructive. Domestic market contributed almost 82% of the consolidated revenue while international market accounted for 18%. During the quarter consolidated order inflow stood at INR 657 crores, registering a year-on-year growth of about 1.9%. Consolidated EBITDA for the quarter stood at INR 158 crores with a margin of 31.2%. Profit entity was impacted by operating deleverage due to lower revenue conversion, marginally higher employee cost, along with the change in the product mix. Net profit for the quarter came in at INR 108 crores, translating into a PAT margin of 14.5%, which exclude the one time [indiscernible] goodwill of [ INR 10 crores ] recognized as an exceptional item. We expect margins to improve gradually as execution accelerate and [indiscernible]. Now moving to performance for the year ended March 2026. For the full year FY '26 adjusted revenue stood at INR 2,341 crores compared to INR 2,227 crores in FY '25 which excludes realized [indiscernible] of INR 25 crores recording in the first quarter of FY '26 in the entity [indiscernible]. Adjusted EBITDA for FY '26 stood at INR 498 crores with margins of 21.3% remaining broadly stable with near term execution volatility. Apart from arbitration award realized [indiscernible] additionally INR 10 crores were entered under other income as a part of arbitration settlement. furthermore this also excluded exceptional gain of INR 80 crores profit before tax representing unrealized mark-to-market gain arising from the [indiscernible] as well as internal goodwill. [indiscernible] of goodwill INR 102 crores entered as an exceptional item. Including all exceptional and onetime items reported PAT for FY '26 stood at INR 341 crores. Moving to segment wise performance, starting with Gear Division. The Gear division contributed 63% of consolidated revenue in Q4 FY '26 and continues to be the largest contributor, Revenue for the quarter stood at INR 472 crores compared to INR 597 crores in Q4 FY '25. The performance reflects a temporary gap between the order booking and deferment of deliveries driven by the phasing of execution in large industrial projects. Importantly, demand fundamentals remain strong, supported by sustained customer engagement and healthy inquiry pipeline across both domestic and overseas markets. EBIT for the division stood at INR 91 crores versus INR 147 crores in the same period last year with margins at about 19.3%. Margins were impacted by low output and changes in the product mix. However, there are transitional factors, and we are expecting the same to be normalized as execution improves. Order intake remained strong at INR 550 crores during the quarter and the open order that we have is about INR 894 crores as of March 31, 2026. This provides a good visibility for the coming quarters. As execution time line normalize and macro conditions stabilize, we expect the Gear division to return to steady growth trajectory. Moving to Material Handling Equipment division. The MHE division continued its strong growth momentum in Q4 FY '26, reinforcing its role as a key growth driver. Revenue for the quarter increased to INR 274 crores from INR 200 crores in Q4 FY '25, reflecting a robust growth of 36.8% year-on-year. This performance was driven by sustained demand across sectors such as power, cement and supported by both replacement demand and ongoing industrial infrastructure investments. EBIT for the division stood at INR 62 crores compared to INR 59 crores in the corresponding quarter of the last year, reflecting stable profitability despite a dynamic revenue mix. Margins remain healthy, supported by a balanced contribution from equipment sales and aftermarket services. Order inflow during the quarter stood at INR 107 crores and the order book is at INR 398 crores as of March 31, 2026, which again provides a strong foundation for the continued growth. We continue to see the MHE division as a structurally high growth segment supported by long-term trends in the industrial automation and increasing focus on material handling efficiency. Moving to balance sheet and capital allocation. On the balance sheet front, we continue to maintain a strong financial position with a net cash balance of approximately INR 700 crores. This provides a significant strategic flexibility to pursue growth opportunities while maintaining financial [indiscernible] recommend a final of [ 150 ] that is INR 1.5 per equity share having face value of INR 1, which is subject to shareholder approval. While our performance for the year was below initial expectation, this was primarily due to geopolitical uncertainty and unfavorable product mix and delays in customer deliveries. Given the continued macroeconomic uncertainty and limited near-term visibility, we believe it is prudent to adopt a cautious approach. Accordingly, we are holding our guidance for FY '27 at this stage and we revisit our outlook once there is greater clarity and stability in the operating environment. With that, we conclude the detailed financial review and now open the floor for the questions. Thank you.

[Operator Instructions] We have the first questions from the line of [ Ramesh Jain ], an individual investor.

My first question is the Gear to MHE ratio was 63:37 for the full [indiscernible] historical trend of 75:25. [indiscernible] impacting the EBITDA margin. Do we expect this trend going forward?

No. Going forward, the EBITDA margin should not be affected. We still do expect further growth in the Material Handling division going forward while the Gear division [indiscernible]. So the mix might change further, but we don't expect the long term margin to [indiscernible].

My second question is as you give me the number of domestic and export [indiscernible]

Could you repeat that?

So can you give me the domestic and export split for Gear and MHE and engineer versus catalog mix for Gear for quarter 4?

So mix for the engineer versus catalog is -- for the quarter is 55 [indiscernible] and engineers product is 45. There is a [indiscernible] product. And for the year FY '26 catalog product is 55% versus engineered product is 45%.

Okay. And my last question is what issue is MSME is facing order flow for the quarter was low. That's my last question.

If timing difference impact, we were expecting certain opportunity to be converted into order, but it has been deferred for Q1. In fact, in month of April, we have already received almost more than 15 crores orders. So we are hoping that in April month itself, we can mitigate that gap of Q4, which has been [indiscernible].

We have the next question from the line of [indiscernible] from [ Arjun Capital ].

We have a CapEx for almost INR 400 crores, how much was spent in FY '26 and if you could share what is CapEx [indiscernible] MHE and I am trying to understand of the [ ROCE ] part also. So ROC [ 11.14% ] in FY '24 to 23% in FY '26. So I'm trying to understand with higher CapEx and lower margin like [indiscernible] FY '28.

Let me take the lead on this question. This is Chintan. So we have CapEx plan as we just last quarter of INR 400 crores between FY '26 to FY '28. We have roughly spent about INR 95 crores towards different categories. Out of that, if you want to have a split, has almost 80% spent and MG has the rest of the spend. Coming back to your question on ROCE from FY '24 to FY '26, it's a valid question. What I want to highlight right now is as we grow our base for equity and capital employed increases. And if you look at the quality of the total capital that we employ almost INR 800 crores of the balance that we have is parked into different form of investments -- now we have a policy of investments where we are very conservative with the investment. And so the yield on the investment is about 8%. So this is point number one. Point number two, every year in last 2 years, we have generated average cash post tax about INR 300 crores, INR 350 crores. So every year, we have added the new cash on the capital employed. But to that extent, our CapEx has not -- has happened. So we have not increased our installed capacity by way of increasing the CapEx. So as we move from this year and next 2 years, we will have our own CapEx. We will build the capability, increase the installed capacity and have -- and we'll see the results in terms of the revenue increase and the EBITDA increase, improving the margin. Having said that, this position of INR 750 crores INR 800 crores that we have an investment it's a good problem to have. That gives us the flexibility to remain open for any strategic investments as well as the expansion. We are closely monitoring the macroeconomic conditions and would like to continue with the same approach at least for some more time till the time we have the clarity on the expansions that we want to go with.

Sir on the defense side [indiscernible] Navy order impacted our margins. However the future order is also to shout like [indiscernible]. So like one or two orders maybe orders by FY '27 and how long it will take to get a larger defense contract and we have qualified for [indiscernible] order.

I'm Dipak here. So for the financial year Q4 we are expecting very good order from the Indian Navy and that is a big order [indiscernible].

And the follow-up on that, I think, is initial order we might have a lower margins [indiscernible] defense order whether we can expect quite higher margin levels?

So as far as these are the project orders, so margins are actually good margins. And for the small orders, of course, there will be a margin gap. But for this kind of a big project orders, there are good margins.

Just to refine the answer, the first order that we executed as we discussed in our last call, since the first order has a lot of developmental initiative and activity we have likely lower margin as we communicated last time at 102% margin was lower. If you try to repeat order of the same grade that what we're talking about, then yes the margin will be good. And in terms of timeline, it's almost 2 years [indiscernible].

Yes. these kind of project orders are executed which will go to 3 years.

Sir, my last question [indiscernible] our current capacity utilization level in Q4 and [indiscernible] I am trying to understand our pricing power [indiscernible] steel, sugar, plastic and [indiscernible] hydro pricing power side. So we have seen more [indiscernible] pricing pressure and why we're getting higher margins?

So for capacity volume is concerned, we're heading [indiscernible] CapEx in around 56% to 60% utilization in gas. So for answering your second question, our engineering products had a better margin than the catalog products. So definitely we're going for a better margin in engineering products.

We have the next question from the line of Raj Shah from Enam AMC.

My first question was, sir, on the revenue front, if we see on the export side for the quarter, we have largely maintained what was there in the same quarter last year. But when it comes to Gear especially in the domestic gear, the revenue growth -- I mean, the revenues are down by 27%. So within gear sector in the domestic geography, exactly where are we seeing such kind of delays in dispatches where customers are not of the -- can you be a little specific in sharing your thoughts...

We have faced these issues where the customer has asked us to defer the delivery specifically in the steel sector a little bit more. Another reason why also there was a reduction in the turnover is specifically because we got the order booking a little bit later because everyone was trying to defer their CapEx investment because of the current geopolitical scenario. Hence, the order booking was late, so it couldn't be executed within the year. But we expect it to really improve in this quarter.

Got it. And this delay in orders, was it specific to any large order or it was broad-based within the steel sector that you are talking about?

Not for a specific large order [indiscernible] it was across the board.

Okay. Perfect. Second, sir, on this Mexico part, we are aware that the management was contemplating investing -- setting up assembly centers before the tariff kicked in. So today, what is the scenario? Do we still 50% tariff what kind of strategy are we seeing to cater that part of geography?

So right now, in the U.S.A., we have the 50% tariff whatever we export from India to our U.S. because of Section 232. But establish of Mexico, Latin America and the tariff is not applicable there. So we want to get the opportunity to establish and to supply our products from there to the Latin...

Okay. And will we be investing or incurring any CapEx in Mexico?

Not much right now. We just established, so we will come back to you after some time.

[Operator Instructions] We have the next question from the line of [ Harsh Patel ] from Share India Securities.

I wanted to just -- wanted update on export side. So as we had planned we would be ramping our export up to 50% in the next 3 to 4 years. So what would be the -- in current geopolitical scenario, what would be our export mix going forward? And how would be our sustainable margins in FY '27, '28 or if we're focusing more on domestic or export...

Going forward, we still -- this year, despite of the existing scenario, we have managed to maintain at least what we were able to perform last year. So we expect going forward, it will still improve. We have some improvement in order booking in a few of our entities, while the Middle East obviously has suffered significantly. So we still expect regardless of what the situation is that we will be improving going forward. And the product mix, I mean, the EBITDA that you asked regarding the product mix and export versus domestic, we expect it to not affect us that much going forward.

So what would be the sustainable margins which we would be focusing forward?

Right now, we can't comment on that specifically because of the current scenario and it's currently an ever-changing scenario. So we cannot comment on it right now. We will assess the situation and get back once we have a better understanding.

One more thing I wanted to ask what kind of orders would be gear side, is it customized gears or [indiscernible] gear are on sale point for Elecon or [indiscernible] last couple of quarters, we are -- the mix shifted majorly on catalog framework.

So major it will be power industry and steel industry and cement is from there. So major will be contribution for engineering and customized products and catalog order, it will be 2% 3% lower than the engineering products.

Okay. And what would be the margins in this industry will be seen?

Typically we do not review the margin profile, we give a broad range in terms of how the product is moving and how it impacts other broad margin percentage. So customer level, we do not provide...

We have the next question from the line of from Kashyap Javeri from Emkay Investment Managers.

Two questions from my side. One is -- the first one is to Chintan. On this goodwill side, there is a comment # 8b in the notes to accounts. If you can explain that comment? And did we get any tax benefit from that goodwill write-off? That's the first question. And second is to Mr. Dalwadi. From Gear division side even in fact, if Mr. Aayush can also throw some light. You mentioned that because of the geopolitical risk, there was some deferment of the order booking. But overall, if you look at the geopolitical risks that sort of rose only on the intervening night of 27, 28. Could 1 month make such a large difference?

So let me take up the first question about the goodwill. I think you're referring to note #8.b. There is a detailed in the notes to accounts, which will comprehensively cover, but let me explain to the entire large audience that we have. This goodwill represented the goodwill that we acquired way back in 2010, '11 when Elecon did the acquisition of [indiscernible] Group in the European region. Now what happens is over the last 15 years, Elecon has done an integration of all the business into the Elecon group of products and the geographies that we have it. We do not have any separate structure. The single team, sales and marketing and the operations team takes care of all the mix of the products that we have it. So eventually, we realize that goodwill as a stand-alone on the acquisition do not have much value in our financials. Of course, the business as a whole has the valuation, which doesn't need to be like discounted right now, but it has a good cash flow profitability and all. But from a goodwill alone, stand-alone basis, we do not see that the carrying amount should continue. And that's the reason we did the. Coming back to your question about the tax deduction of this write-off that we have done. This goodwill was never into the stand-alone financial. It was always a part of our consolidated financial statement. So as far as tax deduction is concerned, it will be in the books of the NPC where this goodwill is to raise in U.K. As far as the tax deduction in the local tax is concerned, there is a tax deduction which is being claimed every year and probably now only 5 years have left with only $13 million amount, $1 million amount. So that is going to be claimed as a deduction in next 5 years' time gradually. So this is how the position is.

Regarding your question about the -- sorry, if I got it right, you were asking about the...

So my question was that the geopolitical risks, the major part of it played out starting February '27, '28 and that 1 month has probably made a fairly large difference on the overall revenue side. So if you can -- so was this largely to do with the month of March or this played out throughout the quarter?

As you rightly said, I think the news about the disruption started coming in the last week of February, it got in the first week of March. The largest impact is from the month of March, about INR 77 crores of the orders were in a bucket INR 2 crores, which were ready for dispatch, but it was on hold by the customer. We also had the order of about INR 34 crores in the month of March, which were scheduled to be delivered, but now it is to be delivered probably in April and the situation is clarified in April itself. We also had INR 31 crores of the order which was scheduled to be dispatched in the March, but the production was put on hold on immediate basis. And that's how we had almost INR 70 crores impact for this event in the month of March. And if you look at your -- I know where you're coming from. In the December quarter itself, we had lowered down our guidance and we communicated that we are reducing the revenue in the quarter ending March by at least 5%. So that's the guidance we already had released in the month of January when we are talking about December quarter and March quarter.

Okay. Okay. Just one last question on the receivable side. That number has gone up from INR 610 crores to about INR 720 crores. Any particular reason for that?

So about INR 90 crores compared to last year's balance sheet, if you look at it INR 90 crores, INR 70 crores to INR 75 crores is largely because of the sale which has happened in the February and in March, which has not due as on 31st March. And about INR 15-odd crores is overdue compared to the same bucket of the last year, which is getting in the month of April.

We have the next question from the line of Pratik Kothari from Unique PMS.

Sir in domestic, we did highlight the delays in terms of some steel sectors. If you can touch upon the various other sectors we cater to from sugar, power, cement, how are things panning out there? And because we see the order book kind of building up from INR 600 crores last year to INR 900 crores. So across sectors, is the execution expected to be delayed gradual? If you can just touch upon that?

Going forward, the executions are not being delayed because for the domestic now there is visibility and we are having a good orders in the -- on hand and at the same time, good orders in the pipeline also. So we anticipate that there won't be any delays in deliveries for the power sector and the cement and steel because steel is also now expanding their execution and power, of course, they are demanding the projects to be closed very fast. So they all are demanding. So I don't see any -- I mean delays in delivery for the power sectors and steel sectors.

And how about the cement, sugar...

Cement is stagnant as such. But even though we are getting good orders from the 2, 3 major contractors, but cement, they are more in the brownfield project than the greenfield. So they are moving at their own space. And sugar industry is now because of this, we are anticipating good orders from the sugar because now the gas and the petroleum we are facing -- we may face problem from this war situation. So ethanol will be now on the demand. So we are also anticipating good demand from the sugar also.

Sir, one on margins, I mean, usually, our engineered products are in -- I mean, when you look at the mix, it's usually in 50s. I mean this, I think, was a different year where we saw it at 45%. So one -- if this goes back, I mean, why aren't we guiding that our margins will go back to the earlier numbers?

I mean we will sustain the margins. But at this moment, we are not I mean...

Generally, when we calculate the margins what we projected at the beginning of the year, we calculate based on the EP is the 50-50 standard we consider. But during the year, the orders we received in the slog delay from the customer side of the project they have. So catalog product order we received much more than the engineered product in the beginning of the year and the second part of the year. So that's why that educate in the same year, but the EP orders we have in hand on the 31st March 2026. So it may be educated next year sometime.

Just to clarify what Aayush is saying. What -- we are not giving clear guidance that we expect it to go up simply because of the current geopolitical scenario, and we don't know how it's going to pan out. But if all the domestic orders go smoothly and what demand we are expecting comes in, you're right, we'll be able to go back to the EBITDA levels that we had suggested even earlier, which is close to INR 22 crores to INR 24 crores.

And sir, last on CapEx...

We have the next question from the line of [ Aman Soni ] from Invest Analytics Advisory.

First question, do we have any education or order visibility from the nuclear side?

Sorry, the...

Nuclear side.

No, we didn't.

Okay. And secondly, you are mentioning that visibility is there in the domestic market, particularly from the steel and the power and things are improving. Then I'm not able to understand why are we not giving any clear guidance on that part, maybe on the growth side as well as the margin front for FY '27?

We have a strong order book, right? But [indiscernible] delay in the schedules and all. So we have -- based on that learning, decided to stay at least for a few months until the time we have a clarity in the situation that we have...

It is -- the situation is quite fluid still at the moment. While we see that there's a possibility that everything will be smooth going forward. Again, I believe yesterday or today, we are seeing conflicting news and information. So this is the reason we want to put a hold on that for right now. And once things clear out, we'll be able to give you a much...

Got it. And because of all this scenario in Middle East, there must be some infra redevelopment requirement, right? So do you see any history of that like some new orders may be coming in because of this infra redevelopment that will be required in Middle East?

Yes. There is no doubt that there will be a strong requirement going forward once everything clears out. But which direction it is going in, we are still not sure based on how the outcomes go ahead. So while you are right, there is possibility for a significant uptick in orders from the Middle East, we can't guarantee that which way it's going to go until the...

Got it. And regarding [indiscernible] aircraft carrier that we were expecting in FY '27. What is the current update on that, sir?

Yes. So the cost -- we have already got the orders from the Indian Navy. So in Q1, they are going to release the RFP. And then we are expecting orders to come by Q4 of this financial year.

Getting delayed, right? I think you mentioned Q2 of FY '27?

It is a little bit deferred from the defense.

Okay. And what about the P17 alpha, sir?

P17 Alpha also they have deferred, but it may come in the financial year of '28, around Q3. We were even [indiscernible] RFQ.

Okay. Got it. So can we expect a margin growth over FY '26 or there can be scenario of degrowth in FY '27?

No, we are not expecting any degrowth to happen compared to FY '26. We are expecting growth. The amount of growth is currently what is under question. But otherwise, we're expecting growth.

And how confident are you on the margins front we will be able to at least maintain or grow from FY '27...

From FY '26, we'll be able to definitely maintain or grow it. We are expecting growth, but the geopolitical situation will control it a little bit. What we are anticipating, there is going to be an increase in some raw material costs and logistic costs. We are already filling that into our new orders. So that shouldn't affect us.

And any kind of supply chain issue are you people observing right now because of this state of closure and all that can further lead to some problems maybe in the margin...

Generally, for our domestic orders, we don't see that happening. Only wherever there is something in the Middle East, we expect that to be impacted. So our overseas entity, which is in UAE will be impacted. But our other entities and domestically, which we don't see impacting us.

We have the next question from the line of Ashwani Sharma from Emkay Global Financial.

Sir, my first question is on the inquiry pipeline, which you indicated that we have a healthy inquiry pipeline. Is it possible to quantify for both the segments, Gear and MHE?

So as on Q4 FY '26 the inflow order that we had for the Gear was about INR 894 crores and for the same period last year it was about INR 583 crores. If I look at MHE division the product order for Q4 FY '26, roughly about INR 398 crores versus what we had in Q4 FY '25 was INR 365 crores. That's how it's about totaling to about INR 1,292 crores of open order we have as on 31st March 2026 which is what we had as an open order about INR 940 crores as of 31st March 2025. And basically, this only gives us confidence in a lot of the questions being raised right now in terms of how do we maintain the margins for...

I was referring to the inquiry pipeline, which did not get converted, which got deferred because of the geopolitical...

For MHE, yes, we have a good inquiry inflow. If I'm quantifying it is more than INR 1,000 crores. More than INR 1,000 crore inquiry we have right now for various sectors.

And for the Gear division, it is I mean very good news for all of us that in the first week itself, we are having whatever inquiry was in pipeline, it is converted -- going to be converted in the order in 1 or 2 days' time. We already got the LOI. So it's a very single largest order ever got in the industrial gear business market. So that is in a few days, we will get the good news, from the power sector.

Okay. And secondly, since the deferred revenue when you talk about, is it possible to quantify how much was that?

We had the last day and we are having LOI. We would like to publish further details once the things materialize.

Okay. Sir, second question I had on the MHE. If you look at the growth trajectory of MHE, I think it's been very, very strong in the last 4 to 5 years. This year, I think, obviously, there is some moderation in terms of order inflow and that we see the order backlog as well. What kind of growth one should estimate given the fact that power a space is doing really great, especially. So from an estimation perspective, what kind of growth we should assume going ahead, let's say, in the next 2 to 3 years? Is it possible to quantify?

As I mentioned that we have a good inquiry inflow for [indiscernible] is going to help us to grow further. But at this point of time, I can only assure you that whatever the growth trajectory we have in the last 2, 3 years, we definitely we can continue with the same space and growth perspective.

We have the next question from the line of [indiscernible] from Sundaram Mutual Fund.

So firstly, with respect to increase in prices of input cost, how will it get passed on with respect to the order book business because you would have taken the order time back?

In those cases, we would have already placed the orders or secured the prices for the raw material as soon as we receive the order because we were expecting the situation to take place. So to safeguard us, we had already taken action as soon as we...

And our execution cycle is not long. So it will be taken care. Whatever orders are on hand, we have already placed and we are executing, so till the given supply [indiscernible] what is their need actually. So it is all depending order is taken care of.

Is taken care of with respect to the order book. So there will not be much impact in terms of margins, whatever we have. Is that the correct way to understand?

Yes.

And one more question is on current order book, Gear and MHE [indiscernible] segments?

Power, steel and cement. These are the 3 main sectors we are seeing [indiscernible].

Within this value chain is there a slowdown or something with respect to steel, right? Could you explain a bit on that?

There was a deferment of delivery that was requested from the customer end. The orders were -- the gearboxes were ready in that case, but we couldn't deliver it to the customer and we couldn't invoice because of that. So there are a few cases where there was deferment, but it will be clear in the Q1 and -- this is a usual -- it can happen, but specifically because of the geopolitical, it was affected even more.

We have the next question from the line of [ Rohan from Envision Capital ].

So sir, you mentioned that in sugar given the geopolitical issues related to the crude prices, we expect strong demand going forward and order inflow going forward. So can you explain a little bit more because what we are hearing from some other players is that there is excess capacity built in the country for ethanol. So how should one look at it?

No. Actually, because of this war situation, we anticipate that if there is -- if it continues still further, then there will definitely a lack of supply from this for the gas and petroleum. So that is why we anticipate that there will be demand [indiscernible] and we [indiscernible] that is all anticipated.

We have the next question from the line of Manish Goyal from Thinqwise Wealth Managers.

Sir, this is particularly for the Gear business margin. As you provided the revenue mix for quarter 4, catalog is 55% and engineer was 45%. But sir if I look on Y-o-Y basis and compared with Q4 of last year, your catalog has come down from 60% to 55% and your engineered product has improved from 40% to 45%. So I guess I do not understand why there is such a marginal impact? And also related question which you alluded to in terms of development order from Navy, which is being implemented and very lower margin. So what is the impact? What is [indiscernible] and what kind of this development order are you referring to? Is it something related to your P17 Alpha orders or if you can highlight on that? And sir, if we see your overall margins for the entire year for Gears business, in FY '26, these margins are in fact lower than what you have reported in FY '22 and in FY '22 you were roughly at 20% margin and this increased to 26% in FY '24 and now it has fallen to 18.8%. So how do we see this going forward, sir? I would really appreciate if you can provide perspective on this.

First question for the engineered product versus the catalog product. So this year, we had done the catalog products 55% and engineered 45%. We have better margins in the engineered product. But this year, we could the orders or we couldn't supply dispense the orders to the customers because of the customers' requirement. So the margins are not reflecting in our financials. Despite because we have some inventory of engineered products. So it will -- and we have not invoiced during the quarter and during the year. So because of that, the margin has not improved this year against the last year.

So what is this number, sir? How much of these orders? Earlier you had mentioned INR 77 crores. So I just want to reconfirm how much of these orders are pertaining to Gears business and engineered products.

So almost 50% of the open orders we have in the engineered products. But the inventory we have around INR 45 crores to INR 46 crores that includes the -- because we are valuating the inventory at the cost. So around 25% to 30% margins if we consider the inventory when we are invoicing. So that is not reflecting in the financials.

Okay. And so just to complete my earlier question on the 5-year picture where your margins are lowest right now ideally, do you really expect that should revert to your level of 23%, 24% now with your [indiscernible] improving probably opeating leverage with revenue growth. So in FY '27, do you expect the margins to improve, sir?

If you see -- if you compare with the FY '22, '23 because the India in the growth trajectory, so the CapEx was going on and it is also going on. So we were getting the good orders in the product. So that's why the margins are good. Now we are also getting the orders in the product, but that was not reflected in invoicing this year. So that's why the margins is not reflecting. The second thing is R&D cost because we are developing some new products. If you see our investor presentation, we have taken the 4 patents and we are applied for the 3 more patents. So we are also working on the R&D to develop new products and upgrade the existing products. So we are also spending some cost there.

And what is it pertaining to the development orders, sir, what you referred to earlier? In earlier calls also, you had mentioned that there is a couple of percentage point margin impact due to some orders related to Navy. So if you can just clarify on this?

For the Navy orders, we will come back to you.

And last question on the MHE margin, sir, how do we see that sustainable? Because now MHE margins for this year -- sorry, intersegmental number also. And after that, you are providing the margins in the presentation. So what is the sustainable margin for MHE? Would it be at 22%, 23% going forward considering now that equipment contribution will increase and your spare parts may not grow in the same pattern as your equipment business?

Yes. Considering the revenue mix, as you mentioned, the sustainable margin around 20% to 22% in...

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

Thank you all for taking the time to join our investor call today and for your continued trust and engagement. While the Gear division experienced a temporary moderation in performance in FY '26 due to execution timing factors, the underlying fundamentals of the business remains strong. At the same time, the MHE division continues to demonstrate consistent growth momentum and has delivered revenues ahead of the guidance set for the year, supported by robust demand across the sectors and a strong execution pipeline. With 2 well-established divisions, the business remains structurally balanced and is not reliant on a single segment for the overall performance. Together, both the divisions position us well for sustained and resilient growth going forward. As previously communicated, we will not be providing forward-looking guidance for FY '27. However, our strategic priorities remain unchanged, focused on disciplined execution, operational efficiency, prudent capital allocation and strengthening our presence in high-growth markets. Despite near-term challenges, we remain confident in our ability to take advantage of long-term growth prospects and to deliver long-term sustainable value to our stakeholders. Thank you once again for your participation and continued support. Should you have any further questions, please feel free to reach out to our CFO. Thank you, and have a great evening.

Thank you. On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.