GMM Pfaudler Limited (505255) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GMM Pfaudler Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from Christensen IR. Thank you, and over to you, sir.

Thank you, Thaman. Good evening to all the participants on this call. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risks that could cause future results performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. Please note that we have mailed the results and the press release and the same are available on the company's website. In case you have not received the same, you can write to us and we will be happy to send the same over to you. To take us through the results and answer your questions today, we have the top management of GMM Pfaudler, represented by Mr. Tarak Patel, Managing Director; Mr. Ashok Pillai, COO; and Mr. Jugal Sahu, CFO. We will start the call with a brief overview of the quarter gone past and then conduct the Q&A session. With that said, I'll now hand over the call to Mr. Tarak Patel. Over to you, sir.

Good afternoon, everybody. Let me start off by giving you a brief about the quarter that just ended in December 31, 2019. We are quite happy with how the quarter progressed. We have been performing consistently throughout the year. And every quarter, we continue to grow significantly, both in terms of revenue and profitability. On a 9-month basis, we grew our revenue on a standalone basis at about 35%, up INR 403 crores versus INR 298 crores for the 9 months in the previous year. The operating expenses reduced by about 4%, improving our EBITDA margin from 16% to 21%. In terms of rupee values, we grew from INR 48.5 crores to INR 79.3 crores. PBT was also up at about 49% over previous year, and profit after tax also improved by 74% year-on-year. On a consolidated basis, we grew our revenues -- on a 9-month basis, on a consolidated basis, we grew our revenues by 26%, INR 363 crores versus INR 459 crores in this quarter. Operating expenses reduced by 3%, improving the EBITDA from 16% to 19%. In terms of rupee value, we increased the EBITDA from INR 57.2 crores to INR 88.7 crores, which is an increase of 55%. Our PBT and PAT were up 41% and 60% year-on-year, respectively. We continue to be very bullish about the coming quarters. Next quarter for us also will be a similar growth story for both revenue and profitability. We continue to have a very healthy backlog in all 3 product lines. Our glass-lined business continues to do very well. What has been really heartening with our heavy engineering business is now we have a very strong backlog that puts us in a very good position for next year, especially for Q1, and we are making a lot of traction there. So that should give us a good amount of opportunities to grow the business in the next financial year. We also have found that the proprietary product businesses are also doing well. The mixing systems business, the filtration and drying business and the engineered system businesses also are showing a lot of traction. So we continue to be very bullish on the opportunities available. The chemical as well as the pharmaceutical industry are continuing to invest, and we are seeing a lot of opportunities out in the market. And with our competitive edge that we have, we have been able to take the orders and to build our backlog. We also have some opportunities lined up. We recently launched our next 5-year strategic plan that comes into effect on April 1, 2020. We have some good opportunities in the pipeline, which if they eventually turn out positive, I think that will help us to the next level of growth in the coming months. With that, I would like to open the call for question and answers. Thank you very much.

[Operator Instructions] First question is from the line of Rahul Jain from Credence Wealth Management.

Congratulations on a very good set of numbers, sir. Couple of questions. One, so with regards to the 5-year plan which you have released just last week back, with regards to moving from INR 600 crores to INR 1,000 crores by FY '23. If you could share some more details as to how do you plan to go ahead in this direction? And what kind of CapEx plans? Because last call, you had mentioned that probably by the next quarter, we should be able to give you more about the CapEx plans. So what kind of CapEx plans are you envisaging over a period of next 12 to 24 months? And if you could share that with regards to the -- each of your segments? Secondly, sir, in terms of -- you are at record margins, as far as our company is concerning, glass-lined business and overall also. Of course, last 2 quarters prior to the quarter, we had the benefit of steel prices being low, but of late, steel prices have started moving up. So what will be the impact of that going ahead? And will we be able to further pass on this? If you could share something more on that side? And thirdly, sir, how is the -- you mentioned that you have a very strong order book. If you could just share details about each of these segments in regards to how the order book is currently? Or what kind of deliveries today you're talking about? Are there deliveries in about 6 months or more? Or have that period increased to 9 months, somewhere like that?

Okay. So let me start with the last question first. Our deliveries right now are actually not at a very high level. Even though we have a backlog of about 800 equipment, we can still offer equipment within a 5- to 6-month range as we have the capacity, and we are manufacturing nearly 200 equipment every month. Some of you may have known that we had ordered a glass -- a gas furnace a few months ago, which was just came operational about a month or so ago. So that will definitely add capacity. Last time, I had mentioned that we had some CapEx plans in mind. We did take approval from the Board to actually add capacity. So we recently ordered 2 more gas furnaces from Japan, which should come online sometime in June or July. So with that additional capacity, I think we will be in a very strong position. We will also be doing a little bit of reorganization in our factory in our glass lining shop. And I think we can really -- the capacity increase that will come from this furnace, which was just commissioned as well as the new furnaces, would put us in a very strong position. Regarding the prices of commodities, you know that most of the time, we have plates -- the plates that we use today have been bought in advance. We usually take the price advantage, and since we buy such large quantities, we are able to get really good pricing from the steel suppliers, and we usually buy a few quarters' worth of steel at once. So the steel that have been -- that will be -- the currently being used as well as maybe 3, 4 months down the line have always been bought at a lower prices. If we do buy new steel, that will obviously be passed on to our -- the customers. The backlog, like I mentioned to you, 800 equipment in glass-lined business. In heavy engineering, we have a very strong backlog. That should definitely be -- Q1 and Q2 is already booked out. So last -- so this financial year, actually, we started the year with a very poor backlog in heavy engineering, and that's why we had to play the catch up. However, next -- Q1 of next year, we believe that HE is going to be a very strong performer, and I think next year is a year that HE will really have a breakthrough performance. Lastly, on the UDAAN strategic plan, I just mentioned the mission 2020 ends and a new 5-year plan comes into effect. We have planned for both growing organically as well as inorganically. We still strongly believe that India is a market that we need to focus on. There is definitely market share available as well. And being the premier supplier of glass-lined equipment, that more often than not if the price in the deal and the time frames are acceptable to the customer, the customer will give us the first right of refusal. As I mentioned, also, there are a few opportunities out there for the M&A transactions, which we are always very keen on to look at. And hopefully, in the coming months, 1 of those -- or 2 of those would materialize, and that would give us another leg of growth going forward.

[Operator Instructions] The next question is from the line of Kaushal Shah from Dhanki Securities.

Sir, I had questions on the glass-lined equipment. So in that, you mentioned that the gas furnace became operational in, let's say, November or December. So our average run rate has been in the region of around INR 85 crores, INR 90 crores in the last few quarters. So can we expect a ramp-up in that run rate going forward? That was one. On the heavy engineering side, you've just now mentioned that there is a decent order book. But in the December quarter, we've seen a drop in the segmental revenue. So there, what you're basically alluding to is that we should see a higher execution in the forthcoming quarters. And also within heavy engineering, we've seen some increase in the capital employed. So if you can also share as to why that has happened?

Okay. So on the heavy engineering business, as you rightly mentioned, that 1 quarter would not really make a big difference. But yes, you are right, the next 2 quarters, there's a very strong order book. There are some equipment which have got manufactured but have not been shipped and will get shipped this quarter. But the next -- this Q4 and Q1 of next year, I think HE will perform quite well. From a glass-lined point of view -- can you say that question again, you asked something...

So what I wanted to know was that since this gas furnace has become operational, let's say, a month back, can we expect a higher run rate in terms of revenues? We've done roughly, let's say, INR 85 crores, INR 90 crores in the last few quarters on the revenue every quarter on GLE. So now that this additional furnace has come into play, can we expect a higher quarterly run rate?

Yes, definitely. So the quarterly run rate will increase. There's definitely more capacity added. And the furnaces were a bottleneck for us, so you will see an increase there. You'll also see an increase in profitability because this gives us an opportunity to probably not use one of the electric furnaces and push the extra production through only the gas. So there will be a simultaneous effect both on the top line as well as the bottom line.

And sir, if I can squeeze in one more question on the proprietary products. There, we have seen kind of fairly stable numbers last 2, 3 quarters around INR 28 crores, INR 30 crores. So are we expecting a ramp-up there also now that the integration of that IMSD facility will be completed and we will be in a good position to take newer orders?

So the proprietary products will ramp up. Of course cannot match the rate at which the glass-lined division has grown. There is a lot of metal work involved in all the proprietary products. But yes, we do plan to see in the next quarter as well as for the next year a very good ramp-up in all divisions of proprietary, including mixing, filtration, drying as well as engineering systems.

And just to add to that, as we've been speaking, and many of you who've been on our calls earlier also heard us talk about acid recovery, if that is a product line that we'll be working on quite -- with a lot of focus, and we expect this year to probably be a year where we can probably execute maybe 1 or maybe even 2 orders in that business.

The next question is from the line of Dhavan Shah from ICICI Securities.

So I have a few questions. Firstly, about -- we heard through our channel check that the third-largest player in the glass-lined equipment, which is De Dietrich, so they are going out from the business. So is that correct? And if it is so, then are they selling out -- selling it off their business or they are just shutting it down?

So they had stopped taking orders in the Hyderabad plant. They definitely did not make a lot of money. And they've been in India for maybe 10 years, have not been very successful. On a global basis, I think they are facing some difficulties around the world. So as far as I know, they have also probably thought of reducing their exposure here in India. But you must understand that they were a very small player, maximum, I think they were doing about INR 30 crores, INR 35 crores every year. So them exiting really won't have a lot of additional market for us. I mean, obviously, in terms of market share, they didn't have a lot of market. If they are selling or exiting, I'm not really sure what their game plan is.

Okay. And as far as the next goal, you mentioned about INR 1,300-odd crores. So the revenue mix would remain at the same level, like GLE would contribute around 55%, 60-odd percent and the rest would come from the other businesses?

Probably not. I think that glass-lined, after a point with the market share that we own, will probably stagnate. If the market continues to grow, obviously, the glass-lined business will continue to grow. There will be also a lot of replacement demand. We are already seeing that. Plants are now 10, 15 years old. So if that continues to happen, then we'll see a lot of growth in the glass-lined business. But I think with the rates that we want to grow at, eventually I think we will have to increase the other businesses, especially heavy engineering, to make it maybe 30%, 40% out of the total sales that we do.

[Operator Instructions] The next question is from the line of Pritesh Chedda from Lucky Investment Managers.

Sir, for the 9 months or whatever, for the calendar year, what would have been the glass-lined market growth rate and our market share?

So market share...

30% is growth.

Yes, so our growth is 30%, which more or less reflects the growth in the market as well, but we expect our market share to remain around greater than 55%, 57%.

Okay. And my second question is the UDAAN plan that we have, where have given our revenue target, would there be any assumption on acid recovery plant business size in that? And if it is, what it would be?

Right. So there would definitely be the component, but it would not be a very large component. I think maybe in the fifth year, it could be around the INR 50 crore mark. That's being a little conservative. But if things were to pan out the way we think they will pan out, and if the government actually becomes a lot stricter on way companies are allowed to dispose of acid, then that would definitely be a bigger chunk of the business.

But if you're talking about getting a couple of orders in FY '21 itself, that itself should be about INR 30 crores, INR 40 crores, right?

Right, exactly. So that is not really that much, it could be that much. But we have said 2 orders of about INR 10 crores to INR 20 crores is what we are trying to target. But as you said that if things were to happen and they might happen -- 2 or 3 orders might happen at the same time, then obviously, those numbers will be a lot higher.

[Operator Instructions] We'll move to the next question, that is from the line of Dhaval Shah from Girik Capital.

So a couple of questions. First, just we don't understand that on the raw material, so do we book the -- book stainless steel and alloys as in how we get the contract -- I mean as in how we get the order, so as to negate the entire commodity risk? How do we exactly do it? You mentioned you have 5 to 6 months of steel on hand, so is it like back-to-back book so that you don't have to negotiate on the steel prices in delivering the products? How does it work?

So typically, for glass-lined business and even for many of the HE businesses, the prices are fixed. So it's not variable on prices of commodity changing. Our glass lined, we hedge it very well because we have several quarters' worth of steel line reserve at the price that we have bought. So we have accurately costed the steel, we know exactly the product cost, and our prices are based on those costs. Going forward, will we anticipate or when we see prices increase in the market, we adjust our sales prices so that we quote higher and we close at higher prices than what we did now. So that by the time these equipment come for delivery, we'll have steel at the right prices. That's how we take care of it in the glass-lined business. In the nonglass-lined businesses, again, for the smaller HE orders, again, they are fixed-price contracts, and they are based on the current prices of steel and we typically procure steel for each order. So in that, we are pretty much covered from the commodity price fluctuation.

Because when I was going through your earlier annual reports, you did mention about increase in the raw material, which impacted the margin. So have we changed our procurement process and the way we do our orders, book our raw material with the growth in our size?

No, we have not changed that. But different product lines have different margins that are expected and are possible. And if sometimes the product mix changes, then that could impact margin because the MoC, the material of construction, would allow for certain markets. In some cases, it doesn't. So in those ways, if the mix changes, your margin that is reported could get affected.

Okay. And sir, last question. So what is the difference between labor charge and employee expense in the P&L?

Yes. Labor charges, there are like outside contractors that we get the work done.

So that's mainly done on a job work basis, and employees is obviously employees on our roll.

The next question is from the line of [ Kirti ] from Sundaram Mutual Fund.

Sir, in terms of our heavy engineering, you highlighted that next year, we will have a breakthrough year. So can you highlight in terms of what is our capacity in our heavy engineering and what is our order flow, order book in heavy engineering side?

So I believe the current capacity, we have 2 very large sheds which we have dedicated for heavy engineering. I believe with the right order mix, the output from those 2 sheds could be anywhere in the range of maybe INR 150 crores to INR 200 crores. Again, the right product mix, the right metals, the right pricing. So anywhere between that. And our current backlog, we don't share actual backlog numbers. And maybe from next year onwards, we might start sharing that. That's something that we are considering. However, right now, I can say that we have more than 6 months' worth of backlog in heavy engineering.

Okay. So next year, we would be able to reach the lower end of that INR 150 crores, sir?

Again, I can't tell you that because that is forward-looking, and I'm not sure if that's something that we'll do. But I believe at least a 30% growth of what we will end up doing this year is possible next year.

The next question is from the line of [ Jatin ] from Alpha Capital.

Sir, on GLE, my question was how -- on this 30%, 35% 9-month growth, what would be pricing growth and volume growth? And after these 2 things -- the 2 machines that you'll -- furnaces that we'll get from Japan, what would be our capacity utilization, current capacity utilization, basically?

Sorry, so just a couple of clarification here. So the growth that we have seen in the past 9 months has come from obviously volume growth as well. So in number of EUs, I think, we've increased by about 25%. And in terms of price also, we've been able to manage better pricing with our customers because the demand has been quite high. One furnace was commissioned last month, so we will see some impact in the coming quarters. The next 2 furnaces that come in will be coming in sometime in June, July. So you will probably see an effect from Q2, Q3 and Q4 of next financial year.

So our capacity utilization would be about 70%, 80% after those 2 furnaces come?

I mean we would definitely like to use much more than that because we believe the demand is there. If the demand were to slow down, then there's definitely market share available. We believe that the market size would be anywhere between INR 750 crores to INR 800 crores on a conservative basis, out of which we are somewhere between the INR 300 crore, INR 400 crore mark, so there's still market share to be taken. But we strongly believe that the market will continue to grow. So hopefully, by the time the new furnaces come in, we would probably be able to take more orders and build up a backlog, which we will then execute through the new capacity.

The next question is from the line of [ Ankit Gupta from Bamboo Capital. ]

Congratulations for a good set of numbers. Sir, on the order backlog and order inquiry side, can you talk us how has been the growth in that over the past few months or the past few quarters compared to what it was a year back? And on the similar thing, like which segments are driving this increase in order backlog? Primarily, a few quarters back, we used to say that the pharma growth -- the orders were primarily from agrochemicals, chemicals and specialty chemicals and pharma was a bit lacking in that. So have we seen revival in the API segments of pharma for our orders?

Okay. So let me just talk you through a few quarters of order book. So if you go back to Q4 FY '19, we had an order booking of INR 160 crores. Q1 of this financial year was INR 165 crores. Q2 of the financials, there was a bit of a slowdown, and we came down to INR 100 crores. But Q3, again, has been quite good, and we are back to the original levels of INR 160-plus crores again. So that has helped us build a nice backlog. We believe the orders are continuing. We've seen a good amount of traction, and we expect to book good orders in the coming months as well. Coming back to pharma, there has been investment in pharma companies, especially in and around Hyderabad region have been investing. Sun Pharma has had a round of CapEx after really a long period of time. They also have mandates of upgrading some of their facilities, their plants in Halol and stuff. The management has decided to completely revamp those facilities. So there's a good amount of the business comes from that. We will see companies like the Lupin, the Cipla will also start investing. Aurobindo with Divis, Hetero in Hyderabad region have always been continuously investing, and I think they will continue for the foreseeable future. Pharma City, I think lately have also received some permissions. So I think that is moving along well. And I think the future could be that we will see a lot of growth coming from investments in Pharma City.

And how do you see the growth panning out in GLE segment next year?

Next year, GLE segment, I think it will continue to grow at the same rate. I think the order book that we have currently gives us a lot of hope for next year. And as I said before, even if the market were to slow down for a few quarters, there's always market share that we can also capture.

Next question is from the line of [ Anand Jain ] as an investor.

Congratulations on the good set of numbers. I just want to understand what is happening with subsidiary, the European subsidiary, and the numbers there are falling. The second question is that our margins in the proprietary segment are lower compared to the other 2 segments. Can you just throw some light on that?

So the subsidiary, things in Europe not fantastic right now. So there has been a bit of slowdown. However, they will manage to remain at the same level like they did last year. They are still going to remain profitable, but we won't see the kind of growth that we enjoy here in India at GMM for the standalone. However, we are working with them to look at new markets and new areas. Part of the next 5-year plan, we have a strategy in place for them as well. They have a good brand. They are financially stable. They have cash on their books. So I think if we can really implement the strategy that we want, I think we can see some growth. But again, it will be nowhere close to the 30% growth level that we are seeing here in India. On a propriety product, it really, really depends on what orders you have. Proprietary products, there is a bit more competition. The products are more -- yes, there's more competition as well, and we are not the market leaders. However, we're trying to find in -- find areas where we can compete or give equipment in critical applications where the margins are much better. We've seen a lot of improvement in the profile of what we are selling. So some of our strategies of improving margins in that business will also play out in the coming quarters.

The next question is from the line of Amandeep Singh from AMBIT Capital.

Congratulations for a good set of results. So sir, can you help us with current split of the order backlog between GL and non-GL? And also, are you witnessing incremental inquiries from pharma players post the center clearance on Hyderabad Pharma City, which you just mentioned earlier?

On the second question first, it's just in the news about the pharma -- Hyderabad Pharma City, so it's too early for inquiries to come in because there will be a lot of other things that have to go forward. So it'll probably be at least about a year before we start seeing actual inquiries coming through from that expansion in the pharma API manufacturing. On the breakup of the backlog, the glass-lined product is the biggest backlog that we have, and that would be more than 50% of the backlog and about 30% would be HE and the balance would be proprietary products.

That's helpful, sir. And just secondly, in the previous call, you had mentioned about improving profitability in GL segment in coming quarters as the installation of gas furnace has come up. However, overall gross margin and GL's EBIT margin have contracted sequentially. So can you guide us here?

The glass-lined, if you look at the segmental results, it is about 22% profit, right? Even current quarter, preceding quarter, all 22%. On a 9-month basis, it is about 21%. So there is -- it's not -- there's no contract here, gradually growing, correct?

Next question is from the line of G. Vivek from GS Invest.

Sir, congratulation once again on the fantastic set of numbers. Sir, I would like to know, are you facing any slowdown in the specialty chemicals sector or not and agrochem sector? And what about the pharma API? And how does the opportunity size remain, and is it sustainable?

So for the moment, we are seeing no particular slowdown in the specialty or the agrochemical. The pharma sector still continues to struggle. And although we are seeing some green shoot revival from our product point of view in the Hyderabad pharma industry, we are still yet to see much of those things happening in the rest of the pharma industry. Having said that, we do know that some of the majors that are based out of Mumbai, the Sun Pharma and the Lupins are looking at expansions. And we expect to see that business grow as well. So at this point of time, we are not seeing any significant slowdown in specialty and agrochemical sector.

Okay, sir. And what about the ANFD filter, where do we stand? And how's the opportunity size in that particular segment?

F&D sector typically follows the glass-lined business because most F&D goes just after the glass-lined equipment is placed. So as such, the volume should follow -- or the potential to follow the glass-lined business. The difference between the glass-lined sector and the F&D is that in glass-lined, we are the market leader by a large margin, whereas in the F&D, we are not. And we are still trying to make sure that we become #2, if not #1, in a very short time. So there's good potential over there. The prices there are much lower than what we would want them to be. And therefore, we struggle to look for applications that requires technology, where the customer would appreciate what we are giving and rather than being forced to supply it as a commodity product.

We'll move to the next question. That is from the line of Alisha M. from Avendus Wealth.

Can you share the volume in glass-lined segment for Q3?

Volume as in the number of units?

Yes, the number of units.

About -- usually have that, about 1,600-odd, plus or minus 10%.

You're saying, this is a 9-month number, correct?

Yes.

Okay. And you feel that the earlier vision of having 2,400 units by FY '20 is on track, we'll be able to do it in Q4? Based on...

So Q4, obviously, we are going to make an effort to try and improve and increase production, especially now with the new furnace coming in. 2,400, is that possible or not, I'm not really sure. There has been a slight change in the average size as well. So maybe we need to look at that. But maybe as -- I'm really not sure 2,400 is the right number. But in terms of volume growth over previous year, I think we should be able to definitely have a 25% volume growth over previous year.

And once -- so now that the gas -- one of the gas furnace has been added, your capacity from 200 units per month is expected to reach where?

So I think one is that 200 units could become a sustainable number. We have hit 200 units in the past, but it's been one-off, so we can definitely become more consistent and probably look at increasing that number by 20 units a month or something like that. We also need to do a little bit of reorganization in the factory in the blasting area, like I mentioned, which improves the flow of material, the cooling area, the spraying area. That's something we are working on. We're actually expanding to double the size of the blasting facility. That work is ongoing. So I think when the new 2 furnaces comes in, I think then we will have a kind of a transformational jump in terms of production capacity.

Okay. And sir, lastly, the average realization for EU would be in the range of 15 lakhs, 16 lakhs?

Yes, right around there. Maybe slightly on the higher side.

The next question is from the line of Dhruv Bhatia from BOI AXA Mutual Fund.

Sir, could you just talk about the true inorganic opportunities that you're looking at? What are the capabilities that you're looking to acquire? I mean is it a larger market size that you're trying to tap?

So it's a combination of technology, market size, competition. We don't really have a specific area that we want to do the transaction in, but it could be a combination of market as well as technology. We could even look at international companies that have good technology that can increase and improve our product portfolio. So there's no specific area that we focus on. I think we look for really the right company that can add value for all shareholders at the right price.

Sure. And could you also talk about the export opportunity? And...

Sorry, Mr. Bhatia, we are unable to hear you. Can you be a bit loud, please?

Fine. Can you hear me now?

Yes.

Yes. What would be the export opportunity that you're looking for in the next 3 years? So you've given a vision of FY '23 and FY '25, how big can export be in this whole scheme of things?

So for us, especially in the glass-lining space, India is still the focus area for us. The volumes that India needs here are significantly higher than anything else that they have in Europe, plus Europe has Pfaudler facilities, so it's really not in our best interest to really go into those territories. But there are times when Pfaudler uses us to win business around the world, and we are very happy to support them. The area where we can actually grow our export business is in the heavy engineering space. That is where we've made a lot of traction. We've recently done some jobs through the Pfaudler network for the U.S. market, for the Middle East market. We are currently working for a project for Saudi Arabia. There are some Southeast Asian countries as well where we've made some amount of traction. So exports can become a good area -- a good growth area for the heavy engineering space. And also in the proprietary product market, there are WFEs, there are filter dryers that we export. We do filter business with the Mavag as well. So those are the 2 areas where we see exports. Exports currently are at about 10% to 12%. We would, over time, like to increase that to at least 15% in the short term and 20% in the long term.

And the last question, if you could just talk about -- you said that the 2 new furnaces which will come up, I mean what will the expanded capacity be from this 200 units per month?

Okay. So I don't have the details right now with me. I had them, maybe -- I'm not really sure. So maybe I'll answer this question probably during the next conference call, if you don't mind.

The next question is from the line of Jason Soans from Monarch Networth Capital.

Just wanted to know -- I mean there's been a sequential rise in the cost of raw materials, which has kind of dented your margins to a certain extent. I just wanted to know the reason for it.

No, they say the raw materials have dented your margins. So can you just...

On a stand-alone basis or on a consolidated basis?

The consolidated basis.

I think that is not really -- so if you look at GMM standalone, I don't there is an impact really from commodity prices, I think profitability has improved. But maybe on a consol basis, there could have been probably more absorption in Mavag that could have resulted in a slight dent there.

Yes. On a stand-alone basis, our raw material consumption is about 45% this quarter, even in the preceding quarter. And in the corresponding quarter, it was about 48%. So gradually, it is reducing. But as far as Mavag is concerned, it all depends on their product mix there.

Okay. And just one -- just to confirm, you said your market share right in GLE is 55% ground and the growth rate for this 9 months has been 30% for GLE. Is that right?

GLE growth rates for the first 9 months compared to the previous year...

Yes, about 30%.

Yes, about 30%, that's the growth rate, yes, which is a combination of price as well as volume growth and size improvement -- increase.

The next question is from the line of Kunal Bhatia from Dalal & Broacha.

Sir, congratulations on excellent set of numbers. Sir, I have a few questions. Sir, when we say that we have 50% of our order book in the form of GLE, so sir, that would be how many months or how many quarters' visibility?

So we have basically about 800 units. If you look at 200 units a month consistently, maybe that's about 4 to 5 months, that's what we are really -- that should be -- around 5 months would be our sweet spot.

Okay. And sir, this heavy engineering that we have that could be going to which industry specific or it's the same as GLE or it's slightly different?

No. Some of it is the same industry, so it's chemical is one of the industry that we do follow in HE. But also in the oil and gas, refineries and fertilizers, they are the potential industry for which we expect to get more and more revenue as we go forward in the heavy engineering space. So we've also just recently brought in people from oil and gas where we're trying to make a big push. And there has been certain tenders where we have been L1. We've been also registered now with EIL. So we are hopeful over the next few months, we will start getting business from these industries as well.

Next question is from the line of Sunil Jain from Nirmal Bang.

Congratulations for a good set of numbers, sir. Sir, my question relates to whatever the future 5-year plan what you had given, that is purely for GMM Pfaudler standalone or it include even Mavag?

The UDAAN plan is on a consolidated basis.

Okay. And sir, this second question relating to heavy engineering margin, how you see this margin in this particular business as compared to glass-lined business?

So heavy engineering is a more competitive business as it stands now. And what we are trying to do -- and therefore, the margins are lower than that of glass-lined. We are trying to go into the spaces where the competition is less. And we believe that with the approval that we expect to get from EIL and we go into the oil and gas and refinery business, the number of people that are competing thus reduces, and therefore, our margins can improve. But essentially that HE will be a business that has higher revenues but could be marginally lower margins than compared to that of glass-lining.

Next question is from the line of Riya Mehta from Anand Rathi.

Congratulations on a good set of numbers. Sir, actually, I would want to know, like you've always been giving guidance for equivalent units for annual figures. For FY '20 and '21, if you could just help -- with the new furnaces addition, what would be the target at equivalent units?

Yes. So on this, let me come back to you next quarter when we have this call. I will give you some guidance for EUs for the next 5-year strategic plan that we have, how that is going to shape up. For this year, as I mentioned, we've done about 1,600, 1,700. And we'll probably -- in the last quarter, we performed better than what we had in the previous quarter, so probably take us around -- not really sure. So I don't want to give you a number and then not be able to back it. So just give us some time and maybe we'll give you some guidance on EUs in a more scientific and a thoughtful way so that we don't have to go back on the number.

The next question is from the line of [ Vihang Subramanian ] from Samsung Asset Management.

Just a broader question, like you gave out a 5-year plan and stuff, so do you think your customers in like specialty chemicals are entering like a super cycle of CapEx? Or do you think we are already halfway like done through that CapEx cycle? Because last few quarters, et cetera, have also been very good for us. So just wanted your thoughts on where are we exactly in that cycle?

So the way we see -- the way we hear from our customers is that they have not finished their CapEx cycle. They are still investing, especially in the specialty sector. Companies may have pushed back their implementation plan on the CapEx plan for the short duration, but they still believe that in the medium term, next 3 to 5 years, their CapEx program is going to be strong, and they're expecting to see increased revenues with that CapEx. So we believe that the specialty and agrochemical sectors are still quite bullish, and we expect to derive some good market share from them.

Okay. Just a follow-up on that, like the clients whom you are bullish on, are they like export-oriented specialty chemical companies? Or are they like more domestic focused?

So almost all the specialty chemicals are largely export oriented. They may have some portion or a very small portion for domestic, but these are all mostly contract manufacturing and mostly tailored for export market.

Okay. Okay. And just my second question, I think you mentioned earlier that if the market slows down, you can kind of take market share as well to kind of keep the growth rates high. So how does that sort of work? Like do you have like low-hanging fruits where some customers are like waiting to shift to you or something?

If we were having -- if we were to drop prices, for example, or give more aggressive deliveries, both of which we have an option of doing, we believe that many of the customers who are not buying from us will buy from us. All things being equal, we believe that customers will prefer to buy from GMM Pfaudler because of the reliability and the quality of equipment.

And just to add here, there is also baked -- there are orders that we've let go because of delivery issues with our key customers, so customers who buy 80% of their business from us have -- actually these customers are the ones that would have preferred to have bought from us and just because we couldn't supply in a stipulated time period, then they were forced to pretty much go outside. So there's a lot of business that we've let go also because of capacity, which we can obviously take back quite easily going forward. And I think the Indian -- the customer has also changed and evolved over time. It's no longer the cheapest vendor. I think they now want to build really world-class plants, really outstanding facilities because they have foreign customers who come and visit them regularly. They themselves have visited European plants and American plants. So they see they have the exposure. So I think in a matter of 5%, 7% between us and the next bet, they don't really want to take a risk anymore. Plus, having said that, the applications in specialty and agrochemical are much more corrosive. They're much larger-sized reactors. So customers don't really want to take a risk there with unproven quality or unproven competitors.

The next question is from the line of Avishek Datta from Prabhudas Lilladher.

Sir, I just missed the order backlog number per se because you gave overall GLE accounts for around 50%. Can you just quantify the number, right?

So sorry, we don't share backlog numbers. I just gave you a breakup between glass-lined, heavy engineering and proprietary products. But we can tell you that we do have visibility of Q1 and a little bit of Q2 as well going forward.

You mentioned some time back INR 160 crores. After Q2 -- there was a dip in Q2 and now it is back to INR 160 crores.

So that was order book, the orders that were coming in. Q4 of last year was very strong, it was around INR 160-plus crores. Q1 was INR 160-plus crores as well. Q3, we did about INR 100-odd crores. And then again, in the last quarter Q3, we've again crossed the INR 160 crore mark, INR 150 crore, INR 160 crore mark.

[Operator Instructions] The next question is from the line of Kamlesh Kotak from Asian Market Securities.

Just wanted to understand, sir, from the demand side, is this investment or the CapEx demand that comes from the client, is it mainly coming from the new capacity? Or is it also a replacement demand? How the demand is shaping up between these 2, if you can share?

So in the glass-lined space, the demand is still largely driven by new requirements, new CapEx. Having said that, some of the customers who have both aging plants, like the Aurobindo, Cipla and stuff like that, they are now looking to replace the old equipment that they bought maybe 15 years ago, and they're considering how they need to do this. So we are finding that we are seeing some interest from them to look at replacement market. We have seen that they are now looking at to replace their equipment. So we can see the replacement market also going to grow and the shift being from the new market which was dominating all these years to now being partly a replacement market as well.

So help us, for example, hypothetically, if we install 1 furnace for glass-liner equipment, after how long the demand for replacement or maybe wear and tear or spares come up to us?

So there's a difference between spares requirement, which will be continuous, and it would be there all the time. But the replacement of the vessel itself would typically come between 7 to 10 years. And some of the well-maintained plants, you could continue using equipment even for longer, maybe 12 years. So -- but these all cycles have now come to that stage in different ages of plants that we've supplied 10, 15 years ago. And we think that, that replacement cycle is now going to show an upswing. And this is especially true for pharma.

The next question is from the line of Anish Jobalia from Banyan Capital.

My question is related to the proprietary products division. So as I understand, the rest of the 2 are expected to do quite well in the next year. And looking at the numbers of Q3, we saw a growth of 9%. But I think this quarter includes that IMSD division, which wasn't there in the last Q3 of FY '19. So adjusting for that, we are actually seeing a degrowth in the proprietary products of Q3. So could you -- if my data and my logic is correct, could you please explain what are the reasons why this has happened? And are only things were to improve in this division in Q4 and FY '21?

So we actually felt that there were some parts of the proprietary product business that were not giving us enough margin, and we said we're going to pick and choose the business that we do because we really don't want to have a price war and reduce our overall margin. So our strategy for proprietary products, especially the filter -- the filtration space is to really go after the critical applications, to go after the high-end applications, where we can really differentiate our products from that. So I don't think you should look at the proprietary products as an area of -- or as a group of products that -- we will definitely still have to play it by year, in some cases. We still believe that there is a lot of demand in these areas. But every year I believe that there will be growth in these product lines, even the mixing system business, even the acquisition which we have done recently. Together, we will combine the IMSD business and the GMM Pfaudler business. We are going to continue growing that business. The engineered system business is something that probably we are also seeing a lot of action in. But in the future, obviously, we don't really want to just take orders and fill up our factory and then reduce our overall margin. But on year-on-year basis, you will definitely see a growth in proprietary products compared to previous year. And as for our plans for the next financial year, again, we definitely plan to grow the proprietary -- the business as well.

Okay. And if you can throw some light around the raw material prices? Is there any change in terms of the raw material prices, increased or declined? I mean what's the scenario around there?

So I think we -- currently when we bought last, we bought it a few months ago and we bought a couple of quarters' worth of carbon steel plates. That time the pricing was good. And we expected the price to rise, so we decided to buy a large quantity at the same time. Ashok, maybe you can..

So yes, so there are -- there is news in the market that the prices of steel are expected to increase. We've not seen that as yet because, as I said, we have already taken care of a few quarters' requirement in the last purchase. But we keep close track on that, so that we can adjust our prices in time for the next round of orders and when the deliveries are due so that we can time that as well as we can. But more often than not, especially in the heavy engineering and in the proprietary business, we will cost our products as per the actual material prices, so all the prices and the price increases are passed on to the customer. In glass-lined, there could be a lag of maybe a few months, but eventually, the prices will get passed on to the customer.

The next question is from the line of [ Sriram Rajaram from Ratnatraya Capital. ]

Just a follow-up to an earlier question, what is the mix between replacement and redemand?

So right now, the OE demand of new equipment is probably around 85%...

90% would be entirely new and 10%...

And 10% is replacement.

The next question is from the line of Kaushal Shah from Dhanki Securities as a follow-up question.

In the last quarter, that is the September quarter, we had a debt of around INR 20 crores, INR 25 crores. Is it still there? Or it is retired?

Can you please repeat it? We had a debt of INR 25 crores in the last -- since Q...

No, there was no debt only. There was no debt, maybe working capital loan of about INR 10 crores that we've taken at the end of last quarter, which has been repaid in the month of October itself.

Next question is from the line of Dhavan Shah as a follow-up question from ICICI Securities.

So basically, you mentioned some strong growth which is coming from pharma as well as the specialty chemical plus agrochemical. And given that the glass-lined equipment market right now is a duopoly, like you and the HLE Glasscoat is only [ bad ]. So is it safe to assume that you still will grow at around 20%, 25% on Y-o-Y basis for next 8 to 10 quarters on -- in the glass-lined business?

So I would not say we are a duopoly because there are 3 other manufacturers in India. There's a small company in Ahmedabad that does about INR 50 crores, INR 60 crores. There's a company in Hyderabad that does about INR 70 crores, INR 80 crores. And there is obviously a French multinational in India who does about INR 30 crores. So there is additional market that is available. But most of these are companies that have received business because either us or HLE were not in a position to book business because of our capacity. So there is definitely -- if the market continues to grow, obviously, we grow along with the market. If the market were to slow down, there is definitely market share that can be captured.

Next question is a follow-up question from the line of Dhaval Shah from Girik Capital.

Sir, what will be the opportunity size or the market size of GLE equipment in China, given China has been such an established market in the chemical industry? If you were supposed to see India 10 years down the line given the way tailwind of chemical segment is for us, what do you see? What inference can we draw from the Chinese market?

Good question. The Chinese market is very peculiar, it's quite different from the Indian market. One is that they do have aspiration to buy European product. So maybe 20%, 30% of the equipment that goes into China is actually made in Europe, made in Pfaudler or the other competitors of Pfaudler around the world is Europe and then supply to China. There are also local manufacturers, and there's multiple levels of quality there. There is now also Pfaudler and their global competitors also have factories in China. I know Pfaudler may be around $40 million, $50 million, I think the French company could be around that. But I know there are some Chinese companies that are like maybe $100 million plus, the companies who are only involved in glass-lining. So it's quite a large market. It's quite fragmented, and there are very different quality levels. But as you've seen with China, because of the explosions that have happened, the controls have become much more strict. So the new plants that they've been building, it's going to come in with a lot more expense. The quality of equipment that these guys are going to put in is going to be more expensive, and they're going to have much more automation. In India, we've been doing this now for a few years now. So our plants are definitely much more stable and well organized than some of the Chinese plants. But I think once the Indian companies have got their foot in the door well, foreign multinationals have to deal with the China strategies, have dual options when it comes to large quantities of the same product. Your India will continue to get investment because more and more customers will look at India because the cost structures probably will be slightly lower than Chinese counterparts.

Next question is a follow-up question from the line of [ Kirti ] from Sundaram Mutual Fund.

My questions have been largely answered.

The next question is a follow-up question from [ Ankit Gupta from Bamboo Capital. ]

Sir, on the ANFD side, how has the growth in the demand for -- the products been largely in line with the GLE growth? Or it's been lower?

Largely in line with?

GLE.

GLE, yes.

No. I mean it's -- no for us, it has not been in line with the GLE growth. As we said -- I said earlier also, the market for ANFD products are dominant -- the main market leader is somebody else. And so they have a majority of the market share. So we don't have the same level of growth potential -- there probably is a growth potential for that, but we don't have the same capability in terms of getting the market share that can match the growth rate offered by ANFD product.

I think he was asking more from a market standpoint. I think, yes, it would be similar, maybe not as high as glass-lined because not all the companies that use glass-lined, especially in the specialty and chemical industry, use ANFDs. ANFDs are more common in the pharma industry. So having said that, glass-lined growth would be slightly higher than the filter -- the ANFD growth.

Next question is from the line of Rahul Jain from Credence Wealth.

Sir, with regards [Audio Gap] and more so with regards to heat exchangers.

Sorry, Rahul, your audio is breaking, sir.

Is it clear more? Is it now clear? Hello?

Slightly better, yes. Please go ahead.

Sir, with regards to the heavy engineering business, just wanted to understand more so the industry demand as far as the heat exchanger segment is concerned. Where are we seeing this demand coming from? And do you feel -- because you mentioned heavy engineering, you have a decent order backlog, which has been there for the next year. So the demand is coming from which segments? And how do you perceive heat exchangers to do for next 2, 3 years to come?

So heat exchanger is one of the heavy engineering products. And heavy engineering -- I mean heat exchangers are used in almost all industries, fertilizer industry, oil and gas, petrochemicals, refineries, and in all the industries, heavy heat exchangers, which are tailor-made for their particular applications form a part of HE. The other thing that forms a part of HE are specialty high-pressure vessels and columns. And they again follow the various industries that I talked about, power sector, oil and gas, refineries and petrochemicals.

The next question is from the line of [ Jatin ] from Alpha Capital.

My question was regarding the -- your comment about the market share gains. How high do you think we can go in case there is a slowdown? And with capacity coming in next year, the 2 furnaces, do you think we will go for market share gain that time? Or the industry will grow enough that we won't need to go for market share gains that time?

Good question. I really don't have a crystal ball. But I think around another maybe 10%, 12%, 15% of market share is definitely possible. As I mentioned, few customers do want to go for well-established, good quality products now. If we are able to give the customer a pricing that makes sense to him, if we can give him delivery that makes sense to him, there's definitely options there. So yes, there could be a slight pressure on margins. But I think that kind of market share increase could be possible if there was slowdown. But as of now, all of us are busy. We are adding capacity. Some of the other competitors have added capacity and there's no shortage of business. And I expect the market to continue to grow as well, especially driven by chemicals. There are large projects that our customers are talking about, a significantly large CapEx and investments that are going to come in. And then if pharma were to pick up, that would definitely grow -- I mean help us grow for the next few years.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments. Thank you, and over to you.

Yes. So thank you very much, everybody. We'll see you next quarter for the next round of discussions. By then, I do -- I will try to make some more information on the EUs and what we plan in terms of EUs for the next foreseeable -- the future. And we look forward to talking to you again in the coming months. Thank you very much.

Thank you very much. Ladies and gentlemen, on behalf of GMM Pfaudler, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.