GMM Pfaudler Limited (505255) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GMM Pfaudler Q3 FY '21 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Binay Sarda from Christensen IR. Thank you, and over to you, sir.

Thank you, Aman. 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 businesses 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 in the press release, and the same are available on the company's website. In case if you've 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. Manish Poddar, CFO. We'll start the call with a brief overview of the quarter one part and then conduct Q&A session. With that said, I'll now hand over the call to Mr. Tarak Patel. Over to you, sir.

Okay. Thank you, Binay. Good evening, ladies and gentlemen. To give you a quick update on our Q3 performance. So all in all, as expected, the Q3 was another very strong quarter for us. We, on a consolidated basis, showed an improvement, growth in revenue of about 29% year-on-year and about 8% quarter-on-quarter. On a stand-alone basis, the revenue increased by about 21% year-on-year and about 8% quarter-on-quarter. The EBITDA also showed a good amount of growth, 38% year-on-year and 6% quarter-on-quarter. On a stand-alone basis as well, the EBITDA grew by about 41% year-on-year and 10% quarter-on-quarter. The growth trajectory still remains very strong. The order backlog currently at the end of Q3, it's about 30% higher than what it was at the same time last year. And we continue to see a lot of traction in both the industry segments that we cater to, which is namely chemical and pharmaceutical. We've seen a strong recovery in the pharmaceutical sector, particularly we've seen a lot of investments coming in, especially when it comes to creating capacity, local capacity in India and reducing Indian company dependencies on China. Our order book in our Swiss subsidiary is at an all-time high, about CHF 20 million to CHF 21 million to be exact, which means that the next financial year for them will also be very strong. They also continue to see a lot of investments coming in on both the European and U.S. shores. So that's something that really bodes well for us in the future. One more point that I would like to make in terms of the PBT impact, which on a quarter-to-quarter basis is slightly lower. There was a onetime depreciation expense that had to be taken because we acquired the Hyderabad facility. The accounting policy in terms of the depreciation had to be aligned with our depreciation policy, which accounted for nearly about INR 3.5 crores onetime noncash expense, which will not be recurring. So going forward, that will no longer be part of the financial statements. So that's a clarity that I just wanted to give you. Besides that, some other highlights for this quarter, our Hyderabad facility is now up and running. We had shipment of about INR 4.2 crores, about 30 equipment shipped out of Hyderabad. That's a very, very promising sign because in spite of getting it in October and having a couple of weeks of no production due to the heavy rains and flooding, we still managed to ship out a good quantity of equipment. We expect that Q4 Hyderabad facility will be fully operational, and we expect a good amount of shipment from there. We also have commissioned our 2 new gas furnaces in Gujarat, which basically means that we will switch off our electric furnaces. So going forward, we will see some improvement in the profitability of the equipment that have been shipped from our Gujarat facility. Lastly, in terms of the Pfaudler International transaction, the highlight is that as of this morning, we have received our last approval. Our antitrust and foreign investment approvals have all now been received. And we believe that we are very close to completing this transaction. We hope to close this transaction by the end of this month and look at consolidating the global business revenues with GMM Pfaudler from the 1st of February. So all in all, the business looks very promising. The long-term prospect of the company look good as well. And with that, I would like to now open this conference for the question-and-answer session. So I will now hand over the question back to who will set up the line for the question and ask the session. Thank you very much.

[Operator Instructions] The first question is from the line Ronak Vora from AUM Advisors.

This is a technical question. Why has our depreciation doubled on from a year-on-year basis?

Right. So as I mentioned in the opening remarks, we have accounted the depreciation for our recently acquired Hyderabad facility. I will just pass the call on to Manish Poddar, our CFO, to answer that in detail.

Sure. So this is basically to account -- to align with our accounting policy, we have useful life of every asset defined in the accounting policy. Hyderabad facility doesn't fall at this point of time earlier. And once the asset was acquired, we have to make sure that the rest of the useful life falls in line with our rest of the assets that we have in the organization. Therefore, to that extent, that's a onetime impact in any acquisition that has to happen, the additional depreciation has to be taken as a onetime hit in the P&L.

Okay. So that was the figure of INR 3.5 crores, like you said.

Right. Correct. Correct.

And how do you see -- sir, any comments with -- about Pfaudler acquisition and agreement, how do you see your global market panning out?

Yes. So luckily for us, the order intake in the Pfaudler group over the last couple of months has been very strong. Just to give you some highlights Pfaudler received the first order for an acid recovery order from Russia, which we've been speaking about on this conference call for quite some time. So that's a new business line that Pfaudler has entered into. We at GMM, Pfaudler have also tried to enter into that business here in India. We are also very close to winning our first acid recovery business order here in India. So all in all, Pfaudler entity also have a very strong order book, also at a good margin. China, Germany, U.S. all remain very strong. The focus is now shifting to actually execution now. So we need to make sure that we can ship out the equipment and reduce the backlog. But the order intake across the group has been very strong. So we have seen that happening now because a lot of these production is moving back to European and U.S. shores. People are building redundancies in Europe and the U.S. We have seen that specifically without this subsidiary who has the backlog now close to CHF 21 million, which is something for a company of that size unheard of. It used to be a company the size of $12 million, $30 million, if you can imagine, they have a CHF 21 million backlog. So definitely some traction is being seen in these geographies. And hopefully, over the next few quarters, we'll see that improve and more investment coming in, in Europe and the U.S. also.

So can we say [indiscernible], we'll do upwards of INR 2,200 crores on a consol level top line?

So I would not be able to give any guidance on that right now. The guidance that we've already shared is about INR 2,000 crores top line on a full year basis. However, if we -- once we -- once we close the transaction, if there's any updates in terms of guidance that we need to give, we will be the first to share it with everybody.

The next question is from the line of Ashit Kothi from Almondz.

Sorry, I'm just on the way. So if there is any disturbance, pardon me? What was expected after the takeover in terms of labor-intensive business would be transferred to GMM over here. To what extent you have been successful in doing that?

Okay. So basically, the transaction has been not closed. Like I mentioned to you, we have received all the approval from the government authorities regarding foreign investment and antitrust. We expect to close the transaction very soon by the end of this month, hopefully. Once we close those -- once we close the transaction, then we can really speak about the synergies and what are the benefits that this consolidation will have. But just to give the group an idea in terms of what we are working on, it's not that we have waited the last few months by doing nothing. We already have a good amount of groundwork done. And we are going to look at low-cost sourcing where India becomes hub for some of the other manufacturing facilities globally. There is definitely new markets that we can enter into. Southeast Asia and Middle East is a very important market for GMM Pfaudler per se. Earlier, we were restricted and could not supply into those markets. We are looking at cross selling. We're looking at bringing European-made technology into India, localizing that. One of the things that we have spoken about would be Interseal. That is something that we have already made in India. It has gone back to Europe for testing and approval. Once that is approved, we will be manufacturing that locally here in India. And then lastly, we are also looking at bringing our capabilities when it comes to operational excellence into some of the Pfaudler facilities. Like I mentioned to you, they are all booked solid. They all have large backlog. If we can improve their production and their output, that will be a significant benefit for the entire group. So all in all, there are specific areas we have created honestly. We have already identified people. And hopefully, as soon as the transaction closes, we will start working on these initiatives and hit the ground running.

Sir, to be very specific, if I have to look at Pfaudler in labor-intensive business in numbers, what would that be?

The Pfaudler International business, I mean, are you talking about the revenue of the Pfaudler International business?

Labor-intensive business of Pfaudler International?

Okay. The labor intensive. So everything is labor intensive. So if you see the glass lined reactor itself, the basic raw material cost the same, both in Europe and in India. The steel cost the same. The electricity and the gas cost the same. So the big arbitrage is really the manpower, the labor. So as soon as you move the labor to India, there's intensive activities in India, then you will see a big reduction in cost. I mean one example I can give you is our Swiss subsidiaries, 80% of that manufacturing for Switzerland is done here in India. It is shipped to Switzerland, and then they complete it, they add whatever other part that they need to add. They finally test it, they assemble it and they operate locally to that. So they get that benefit and the arbitrage of moving all the labor-intensive, noncritical activities to a low-cost country.

The next question is from the line of Amar Mourya from AlfAccurate Advisors.

Couple of questions from my side. Firstly, sir, in terms of the international subsidiary, like we indicated that Germany is already about a breakeven and post the shift of China facility to the new location, China would also be profitable. So if you can give some color on the Germany and China at the global level? And secondly, how had been the 9-month profitability at the global level?

Yes. So at the global group, they are actually targeting, and they're very close to whatever they had guided towards. I'll be more comfortable sharing the global profitability numbers once we have the transaction closed. It would be not been my right position to speak about it right now. But overall, as a group, I think we are tracking towards the numbers that we have internally and probably being a little bit better than we had planned. Like I said, fortunately for us, both -- all 3 major facilities, the U.S., China and Germany are book solid. The order intake over the last couple of months has been very strong. Just to give you some idea, like I mentioned to you, there was a $4 million coming in from acid recovery from Russia. There was a large U.S. engineered systems order that came in from Kargil of about $6 million. This morning, we found out that we're getting a large order from China for close to $7 million. So overall, order intake across all the geographies have been very, very strong. I mean we have been actually very lucky that in terms of timing, we've done the transaction and then the order intake has increased significantly. On the flip side, what's not very good is the backlog have meant that the delivery time for Germany for China have moved to 12 months, 14 months, which is much, much longer than we would like. So going into these facilities and giving them some kind of official excellence kind of initiatives and pushing them to produce more is something that we would have to do. But on the good side, it's definitely that order intake is there and that execution is now the focus that we have to shift to. Having said that, India has also benefited from some of these backlogs because, as I mentioned, China was book solid. We started getting some business from China as well. We got about 10 or 12 glass-lined equipment that came in from China because China could not produce. So we are working along with the other groups now to see and look at ways of reducing the backlog and making sure that the delivery time lines come down. But from an order intake standpoint, we are very comfortable. We have orders on hand. So that is not a problem. The problem is now making sure that we ship all these products as soon as possible.

Okay. So when you say delivery time line, sir, it is because of the lockdown or it is because of some productivity issue at the specific locations?

No, no. So it has nothing to do with either, it is just the quantum of business that is there. And unfortunately, for them, the new plants of Germany and China have still not reached that kind of efficiency levels and output that we enjoy here in India. That's something they're working on, but you will start seeing a lot of improvement going through. So both China and Germany for the next year will definitely be profitable because business is there. And as long as the output is maintained, there is no reason why they should be in the red.

And sir, second question is like if you see your engineering, heavy engineering business, despite a higher revenue run rate, I mean, the profitability has been very, very weak compared to the Q1 or even if I compare the last year. Are there any specific reasons for the same?

Yes. So I think the -- you will see a little bit of up and down because it all depends on product mix. Sometimes you have large equipment moving out, which are high-value and high profitability, some quarters, you'll see a little bit lower. But all in all, on a yearly basis, we are definitely as per plan. So I would not let a quarterly kind of a profitability really change any of the long-term kind of understanding of the business.

The next question is from the line of Srinivas Iyer from Rockford Consulting.

Congratulations for excellent numbers. I have 2 questions. One is related to the accounting, how the accounting will be done because as I understand, the Pfaudler International accounting year closes on 31st of August. So current year, do we get the benefit of -- from September 2020 in our books? That is the first question.

Yes. So Pfaudler will now change to our accounting year. We will have April 1 to 31 March as our accounting year. There will be only one set of accounts, and they will report and consolidate into India. We are hopeful that we can start the consolidation from the 1st of February of this year and get February and March this year. And then obviously, from April onwards, it will be a full year consolidation.

Okay. My second question, I had written a mail to Neelam madam also. But I understand the Bangladesh is setting up API Park near Dhaka. Do we have any plan of opening sales of it in Dhaka or servicing from here because some units have already started coming up there.

So yes, we have been working on the Bangladesh market for over now 2 years. We have appointed a person based out of Calcutta who travel to Bangladesh regularly. Of course, during the pandemic time, he's not been allowed to travel. But before that, he did travel regularly. We have agents in Bangladesh who follow-up for the business, and we're getting orders from Bangladesh. So yes, we recognize that Bangladesh is going to be a house for pharmaceutical products as well. And traditionally, they have a lot of dependence on India for the technology and for the manpower for it for plants. And we also know them pretty well over the years. So yes, we are focusing on that market.

The next question is from the line of Sanjay Shah from KSA Securities.

Gentlemen and we welcome Manish Poddar as the CFO. Congratulations, Manish ji.

Thank you.

Tarak sir, can you highlight on this acid recovery business, which you have received from Russia. What is the scope of the business? What actually we do there? And what is the potential of that business?

So acid recovery is, as the name suggest, you recover waste acids from the process. So in a process, you typically start with consolidated acid or consolidated nitric acid or a consolidated sulfuric acid. And then in the process, there are other chemicals added by which the waste stream of the process contains weak acid. Now disposal of the weak acid in the earlier days was easy. There are people who are willing to take it and convert it. But now with the environmental laws becoming stricter by the day all over the world, even in India, it is not permitted to take out this material the way they used to do in the past. So most of these companies now are looking for to reconcentrate, that is first purifier from all the other waste products and then concentrate the weak acid, sulfuric acid or nitric acid back to concentrated acid so that they can reuse for their production. So that's the whole process. And that's how we compete in that space to get orders for our complete systems that concentrates weak acids to back to the original high concentration acid for production.

Great. And sir, now we are having a good number of orders. As you cited, received $6 million from Kargil, $7 from China and even that Russia acid recovery orders. So all these orders, which are coming in our subsidiaries now that is outside India, are all of glass lined or anything else or other heavy equipment also?

No. So it's basically built around glass-lined and engineered systems. So like I said, the engineered system order from Kargil is basically kind of a kit that they're supplying. The one from China is definitely glass lined mainly and the acid recovery, also the combination of glass lined and process knowledge. Heavy engineering also is coming through to us from the subsidiaries, but not such large orders. But recently, we supplied to Saudi Arabia, through Pfaudler, some large stainless steel vessels. And so that's something that we're working constantly with Pfaudler. But heavy engineering as of right now, most of the order intake is coming in is for the Indian market. The oil and gas sector here is -- has seen a lot of investment as well. So that is an area that we're trying to focus on.

Mr. Tarak, correct me if I'm wrong. We see a lot of opportunity lying ahead of us with this taking over of Pfaudler International by expanding our footprint into different geographies, as you rightly pointed out, which we have not allowed previously; bringing in the new technology, which they have been using, we have not been using; give us -- give them our low-cost advantage, means labor arbitration. So there are not many leeway. And how do you see that, sir?

So I think it's a very exciting time. I think that it's important that we obviously look at it from a point of view that this company has kind of changed ownership quite a few times, but the people are very loyal. They're hardworking. They know their products quite well. I think the first kind of reaction that we've got from the people around the world and the different Pfaudler facilities is that they are very happy that GMM Pfaudler has acquired the business because in GMM Pfaudler, they finally have a parent who is stable, who is strategic in nature, has the long-term best interest of the company at heart. So everybody is excited. Everybody is motivated. One of the things that we would have liked to do after the transaction would have closed or at least when we would have a signed, would have been to go to these facilities, meet the people, tell them what the long-term strategic direction of the company is. But all in all, I do see that there is definitely motivation and momentum picking up. But at the same time, again, it's a lot of work to be done. There are a lot of initiatives that are planned. There are a lot of workgroups and work streams that we have created, but we are definitely going to start only by focusing on the low-hanging fruit. So really going after what is easily and then we build successes and then you can build more on those successes. So that is the idea that, that is our short-term plan. We also need to make sure that the integration is something that gets done very, very efficiently. For that, we've also formed the PMO, project management office that will take care and monitor the integration process and look at reducing costs. And then lastly, if we find additional areas where we can add value, then we will do that. But right now, the idea is to really stabilize the group, start focusing on our own businesses. And on top of that, build some synergies, which will give us long-term benefits.

[Operator Instructions] The next question is from the line of Dhaval Shah from Girik Capital.

Congratulations for good numbers. Sir, just one question, a follow-up on the depilation explanation which you gave at the start. So I was going through the annual report and the depreciation policy. So we follow percentage of completion method in our GMM Pfaudler. So for a manufacturing business like us -- how -- this percentage of completion method, how does it relate to the kind of business model we have? Generally, that's more in a project-driven kind of businesses, this policy. And secondly, so what was the change in the depreciation onetime that you had to take? So was there again a policy change in the company which we acquired, which led to this? So can you just little bit explain on both of these points?

Yes. So before I let Manish, get into the details, let me just give you a high level view. The Hyderabad facility, which we acquired recently from De Dietrich had plant and equipment, which were more than 30 years old. I assume that became part of our assets. We had to depreciate it as per our depreciation policy. So that's why there was a onetime noncash hit of about INR 3 crores, INR 3.5 crores odd. On the percentage of completion, it is not related to depreciation. It's related to basically the sales that we do. So we invest a lot in engineering hours. We invest a lot in raw materials. We go out and we do a lot of other activities which kind of relay. So when we have certain policies in place that if an order from a single vendor, it's greater than a certain size, going to a purchase specific address, then we can take percentage of completion. And over time, this has kind of been something that has been quite stagnant in our business. And especially when it comes to the large project orders that we get in the heavy engineering business, 1 year contract, large INR 20 crores plus contract, then it helps us kind of spread the kind of shipment over a period of time rather than having it all coming in one specific time. But it's a normal process, Pfaudler also follows it, many of the other manufacturing companies do it as well. And that's something that we do quite regularly in our business as well. You want to add something on the depreciation again?

Yes. So on depreciation, there also, as Tarak said, for building, for example, in JMM have a pretty year life cycle for a building. This building was already 30 years old. So logically, for us to align with our whole accounting policy, we need to make sure that we do not carry any WDV for the Hyderabad building. So that's fair. And accordingly, plant and machinery also, we had a shorter life -- useful life assigned as per our policy, just to be on a conservative basis. And therefore, there is an accelerated depreciation. Collectively, it makes up to INR 3.5 crores odd. And going forward, because you have that much of net WDV, you have lower depreciation and a higher PBT and PAT I think coming quarters as we go along. And of course, Hyderabad now was -- in this quarter was only partial operations. And as we go along in Q4, it will be fully -- full operational fee. So you'll have the full sales and there is margins coming in, but a lower depreciation in the coming quarter. You see, as Tarak mentioned, that is a normal industry practice. And of course, this is a CapEx for the customer. And once we have the order -- it's not an official product for us. Once we have the order, we make the product as per the specifications of the customer, therefore, it actually takes the shape of this project for us. So we can't just make it and then sell it to customer A or B or C. Therefore, the percentage of completion is being followed as a consistent accounting policy for us on -- regarding depreciation.

So typically, your production would take around what 5, 6 months, right? So that's how you...

Yes. So right now, it's around 8, 9 months, depends. So -- and it's also spread over a longer period because some of our projects are very large in nature, even in glass lined, we have 120, 130 vessels. So that takes maybe more than that. And in the heavy engineering space, sometimes it's even longer than that.

Okay. Okay. Fair enough, sir. And sir, one question was on the steel inflation. So our GP was slightly lower this quarter. Is it because of steel? And how is the -- because you've seen a like percent increase in steel prices in the past couple of months. So how are you handling this and way forward, how do you see this?

So sorry, I don't know if I got the question, but our EBITDA margin are around the same. If you compare it to last quarter, it was about 23% and then -- no, sorry, so 24% in the current quarter. So that's -- it's around the same number, right? So what is the question exactly? Sorry, I didn't get that.

Yes, I'm talking about your steel being a raw material so your sales minus your COGS. So your gross profit, I think, is slightly lower this quarter.

So there is a lag between the way that we buy steel in advance. So the steel that we are using today was bought about 3, 4 months ago, maybe 1 quarter, 5 months ago. And the steel that we are buying today, it will be used for shipments that we do 4, 5 months down the line. So we are in a good position to pass on any material increases to our -- the customer. There might be maybe for a month or slow or slight hit that we might have to take. But I think with the new furnaces coming in, I think that should be something that we should be able to kind of mitigate. But overall, we have in the past and we will continue to do is to pass on these price increases to the customers. The customers are quite aware because they buy the stainless steel equipment, they buy carbon steel, they buy steel for their plant as well. So they are very, very clear that any steel increases, either upwards or downwards, will benefit them or kind of hurt them, and they are quite okay with that as well.

The next question is from the line of Puneet Jain from Fair Value Capital.

So basically, I was looking at -- yes, I was looking at our segmental result, consolidated level. So generally, our unallocated expenses are in the range of INR 2 crores, INR 3 crores per quarter. This quarter, we have about INR 10 crores. So is there any one-off item in there?

So not really sure off hand. We have to check. Maybe if you could separately reach out to Manish or to the company secretary who will provide the information with the exact -- so this is unallocated expenses you're talking about, right?

Yes.

Okay. So we'll check on this and maybe come back to you.

Sure. And also in our Swiss subsidiaries, basically, our margins are falling quarter-on-quarter with increasing revenue. So basically, can you give some color on that?

Yes. So it's basically some orders, which obviously came in earlier, which were probably slightly lower margin. But again, for the year, once we finish Q4, you will see a significant improvement in margins and also the order intake for the next 8, 9 months, which we will produce has a good margin profile. And again, we are now manufacturing most of the stuff here in India. There were 1 or 2 orders that we've seen that was not in terms of a very high-margin profile. But I don't see any reason why the international business will not be able to maintain their profitability going forward.

The next question is from the line of Ravi from Naredi Investments.

It is indeed a very good result in this situation. Can you tell what is the order position in money terms or time terms?

So the order book right now is -- one second, what is the number here. Yes. So it's about INR 512 crores as of quarter 3 end, okay, on a consolidated basis versus the INR 380 crores-odd previous quarter.

No same quarter last year.

Previously -- okay. So in March 31 -- March was INR 382 crores?

Yes.

March last year was INR 375 crores. And today, we are standing at INR 520 Crores?

Yes.

So about 20% higher than previous year same time.

Okay. And second, due to this government PLI scheme, what are you looking for next 2 to 3 years for our company?

So I was actually on a couple of new channels today, and I was saying that, hopefully, we would be also included in the PLI scheme. We have an end user of pharmaceuticals who get the PLI benefit, and then we have the steel manufacturers who get it. Especially companies like ours who are looking to manufacture in India to move manufacturing to India, if we have some kind of benefit, it will definitely be helpful. But from an end user segment, definitely, pharmaceutical is something that we will see a lot of traction. We will see a lot of investment coming in. There are already a lot of talk about new projects being set up, especially in Hyderabad and Vizag area. And maybe, Ashok, do you want to add something on that.

So there has been a lot of traction both in the Gujarat and Hyderabad area. So in Hyderabad, it's mostly obviously pharmaceutical. And all the big names over there are putting up big projects. Whether you talk about Aurobindo, Divis, Hetero, Laurus Labs, [ Suven ] Lifesciences, all of them are putting either have the orders or are in a very good position to take the orders. In the Gujarat area, it's mostly chemicals and specialty chemicals are those in that region. There also, the demand is very strong, and there are large projects that are coming up and putting up new projects. Some of it is an offshoot of the China effect, but the business is still very strong in the region.

The next question is from the line of Vivek Gautam from GS Investments.

So first of all, congratulations on excellent rent up numbers, sir. And I just wanted to know about the, sir, adding to the first question, previous question. How strong are the tailwinds for our sector and which particular segment? Does it comprise only of the GLE or of the other segment also including the takeover, which we did from Sudarshan, F&D. Overall, the chemical sector overall is going through unprecedented boom time for Indian manufacturing, especially, and now international also, sir?

So definitely the tailwind for the chemical sector, both pharma as well as specialty chemicals is seeing a very strong tailwind. So -- and we see that strength in the demand for chemical products, and therefore, our equipment to be -- continue to be strong for the next few years. That will apply not only to GL equipment, but since our product lines are always complementary to the glass lined equipment, we can see some traction for the other equipment as well. So all product lines, other than HE, really follow the pharma and specialty chemicals in a big way. HE have some contributions from these sectors. But going forward, we depend a lot on the nontraditional sectors of GMM like fertilizer, oil and gas, petro -- petrochemicals and refining. And those markets are also expected to grow. And our appetite for those businesses is not very large for us to be full and find a good growth year-over-year. So all in all, we see good growth prospects in the chemical sector and therefore, helping our basic product lines and also the non-glass lines, including the heavy engineering.

So the China Plus One and China Blue Sky obviously helping us in real terms and/or is it sort of more of a hype, sir?

So definitely, there was more than hype in the initial part of it. We also recognize, as is our customers that this may be the only for a short time, but many of the customers have put in big projects to take advantage of the China scarcity both in terms of the first time when they had the environmental issues and then the overall, the trade dispute between the U.S. and China. So all those things and also our issues with China at the same time, around the same time. So all those have actually given traction to a lot of chemical companies in India to put up projects or to expand their capacity to handle some of the products that they were not manufacturing earlier, and all that has resulted in additional orders for us.

The next question is from the line of Omkar Deepak Sawant from Marcellus Investment Managers.

My question has been answered before. So that's just the one question I had.

The next question is from the line of [ Farhan Malani from S J Investment ]. [ Farhan ], your line is unmuted, please unmute yourself and go ahead. Seems there is no response from the line. We will move to the next question that is from the line of Rahul Jain from Anand Rathi.

Can you give a segment-wise breakup of the current order book of INR 512 crores?

I don't remember it on top of my head. Well out of INR 500 crores, I think INR 200-plus crores was the glass lining business, INR 260 crores was -- but the majority was the glass lining. And then obviously, we had a good -- we want our GMM Pfaudler. Just hold one 1 second, I think the one. Yes. So it's about INR 200-odd crores in glass lined, another -- about INR 80 crores in HE and about INR 100 crores in PP. That GMM stand-alone basis.

Okay. And sir, what has been the GLE volume for Gujarat and Hyderabad facility? And what is the outlook for the same going ahead?

So I think currently, our Gujarat facility about 2,100 units. We hope to ramp that up with the new furnaces to about 2,500 odd. Hyderabad should be on a full year basis, 400 to 500. So about 3,000 units for the next financial year, something is what we are looking at.

The next question is from the line of Rohit Ohri from Progressive.

I have 2 questions. One, if you can share the developments, which have -- which you might be working with Norman as of now? And Mixion has completed nearly 1 year, so what are the takeaways from Mixion? And second question is, what is the total debt on books, if you would like to share that?

So first, Rohit, I'll first talk to you about the Normet is something that we're working with, but there's no traction as yet. They have glass products. So it will probably time with the first order that we get for acid recovery. There will be parts of the all glass product that Normet makes and goes into that. We have, from them, for example, a test center that is -- we have imported from them, and that's getting assembled and put up in current search where customers can actually bring the waste acid that I talked about earlier and do the trials over there. And then depending on the success for the full plant. So that's our relationship with Normet. On Mixion, our business is good. We are selling products both to the chemical, pharmaceutical and the nontraditional sectors as well. So that's doing well.

And on the debt piece, Rohit, currently, we have got a data of INR 46 crores primarily for this Hyderabad facility that we acquired last -- earlier in this year. And going forward, we plan to borrow $6 million for the Pfaudler acquisition. If you recall, in our earlier presentation, we had said we would be borrowing something like $12.5 million of debt and $5 million will be our own internal accruals out of the total $17.5 million in planned investment into Pfaudler. But now we have turned the tables around. And because of the stellar performance and a good collection, we have managed to generate $11.5 million of own funds and will now be borrowing only $6 million of, and that's through ECB. So that's where we stand. So 46 of Hyderabad and another 46 to 47 depending on exchange rate. So it should be close to INR 90 crores post the transaction is over on account of the bid.

The next question is from the line of Nihil Parekh from Dhanki Securities.

Sir, thank you for the opportunity. I just had one question. One of our presentations, you've mentioned that the overall CapEx plan by our user industry is about 70,000, 75,000 odd crores. So sir, wanted to understand what is our addressable market opportunity here? And like what is the market opportunity for the next 2 years?

So I didn't get the whole question. I think the addressable market only in the pharmaceutical play -- space or glass lined market here in India?

Glass lined market in India. So overall, the user industry are planning a CapEx about 70,000, 75,000 from FY '20 to '23, this is what the presentation says. So I just wanted to understand what is the market opportunity for the glass lining industry?

So just to give you round numbers, I believe the market size of glass line will be for the INR 1,000 crores odd here in India. It's a growing market continues to grow, and we expect that market to grow. When we say INR 75,000 crores, obviously, this includes pharmaceutical and chemical and again, they include the whole spectrum. We only cater to bulk drugs and APIs and in the chemical space, which is agro and specialty chemicals. So obviously, our pie is much smaller. However, having said that, our market share in Lat Am remains very strong. If we were -- if the customers had an option that we could meet their pricing and their delivery, they will definitely go for somebody as reputed as ours. So I think market is growing at a good pace, plus we have an ability to take market share as well. So from that standpoint, I'm not really worried in terms of the growth that's going to come on the glass lining sector.

So sir, can I assume -- or can we say that out of INR 75,000 crores expansion or CapEx coming through, can we say that about INR 20,000 crores is the market which glass line will be catering to.

No, I think that would be too large. I think so in a normal kind of CapEx that comes in, pharma plant, we -- if you don't count the land and the building, the equipment glass line would be anywhere from maybe 10% to 30% of the total expense. Chemical plant, it could go a little bit higher, but that's the normal thumb rule that you should take. So if you look at API, bulk drug, agro and specialty chemical plants, the investment that's going to go in there and maybe take a thumb rule of 20%, 30% of that, and then you can really look at all the products that we cater to, that might be the number that will be more correct.

The next question is from the line of [ Vineet Mittal ], as an individual investor.

And the great set of numbers. So sir, my basic question is what's the normal life of our equipment at the customer side?

So it depends on the industry. It depends on how to use it. The chemical industry has much more corrosive reaction. So life on equipment could be anywhere between, let's say, 3 to 7 years. In pharma, it could be 5 to 10 years, depending on how well you use it. At the same time, there are equipment in Europe, which have been running for 20 years as well. So it really depends on the process, how you handle, how you take care of this equipment, how do you maintain this equipment. But otherwise, generally, between 3 to 7 years is normally the life cycle of the equipment here in India.

Okay, sir. And the second question is on the -- during the September investor presentation, so 40% of the Pfaudler revenue comes from the services, right? So what portion of that kind of revenue we can expect in India?

Yes. So that's a good question, Vineet. And I think it's important to understand that the European and the U.S. market are very mature market, and that's a significant amount of revenue that comes. I think India is moving in that direction. Currently, we have increased our after-sale business from something like 7%, 8%, maybe 2, 3 years ago to close to 13%, 14% today. We believe that the entire industry is changing. The need for going back to the original equipment manufacturers for after sales, for support, for service, is increasing now that FDA and regulators require people to go back and not have top gap arrangements. So you will see a lot of new business coming in from the aftermarket and the after-sales as well for the [indiscernible] business. We expect that business to increase. And that is why we are being proactive, and we've set up service centers in Ankleshwar, in Vizag, in [ Rohtak ] and now we have plans of opening a couple of more service centers who will be close to the customer, and we'll be very prompt in terms of giving the customer support and services as required.

The next question is from the line of [ Deepak ], as an individual investor.

I have one comment and two questions. So the comment basically is that when I look at the results, so there is broadly 10% kind of EPS growth versus a PE multiple of 70 that we have currently. So it looks quite imbalanced. Going forward, it would be difficult to maintain this kind of evaluation with this kind of EPS growth. That's the comment. And two questions which I have. First one is that when I compare Y-on-Y results for the quarter, so the total comprehensive income has reduced. But despite that, the EPS is up. So does this mean that the total share count has reduced, that is why the EPS is higher?

No, no, the share capital remains the same. But there's no change in the share capital per se.

Okay. So the total comprehensive income, the consolidated in the row #13 that has dropped from 218 to 212. So despite that, the EPS is up. So I'm not sure what...

So revenue that has increased by about -- on a consolidated basis, revenue has increased by about 29% or 8% quarter-on-quarter or about 29% year-on-year, so... income, right, he said?

Yes. So #13, the total comprehensive income...

Total comprehensive income will be more related to the reserves and all, right? So we -- EPS will be dependent upon the PAT. So not related to other competitive income, is that's the question, right? EPS will be dependent upon PAT.

Okay. Okay. So that is how the -- with the same share count. The second question was that in the same row #13. When I look at the total of the row #13, the numbers don't seem to add up. Last year September number coming to 217.91, that is adding up after the PAT from a PAT of 210.51, if you add up all those numbers row of #12, other comprehensive income, it adds up to 217.91. But on the current quarter, from 231.64, if I add up all the items of row #12, it shouldn't be 211.98. It should be somewhere like 250. Would you please clarify this?

Okay. So I think this would not be the right forum to answer these questions, something that we can definitely cannot. Yes, we can definitely take up separately if you share your e-mail ID or your phone number with the company secretary. We can definitely take this and answer this in more detail.

The next question is from the line of [ Bhavan Shah ], as an individual investor.

As you mentioned earlier in your presentation that you have taken the onetime depreciation in this quarter, that has impacted the profitability. So even if we take out the depreciation, still our profitability will be flat in this quarter if you compare it on quarter-on-quarter, right? So what else has impacted the profitability, apart from depreciation?

Right. That is primarily on the PAT basis. So there was INR 1.5 crores, if I remember correctly the number, INR 1.5 crores of tax refund during the quarter to which was, of course, an exceptional onetime item and you'll be able to get those tax statements every quarter. So that is why your PAT was increased in Q2. So that was an additional impact. And if you couple it with the INR 3.5 crores of onetime impact that we spoke about, the INR 5 crores, so then the -- yes, and there is a -- so that's another INR 5 crores. So that will add up. And then, of course, we have a non-complete fee for Hyderabad, which is going to consistently go up for the next 2.5 years. That's another INR 1 crore. So INR 6 crores, if you add up, so probably your numbers will add that.

The next question is from the line of [ Udit Sharma ] from Investing Hut.

Congratulation for clocking strong set of numbers. I'm really -- I'm really happy after seeing the numbers. I mean most of my questions are already answered, but I have only one question left with me. So I'll quickly summarize my question. I was seeing the past result. So when I'm checking the cost of material consumed in comparison to revenue. So it is -- see, the number is coming out to be 40% to 45%. In this quarter, it is coming out to be 48%, 49%. So is there any specific reason why cost has increased in this quarter? And also on the labor charges, it is coming out to be 5.5%. I mean when I compare with the revenue, this quarter, it's coming out to be closer to 6%. So labor charge is increased slightly, and cost of raw material consumed is increased. So is there any specific reason? Or I mean, I'm misunderstanding anything?

Sure. So [ Udit ], Manish here. So as Tarak earlier mentioned, it's basically because of the projects and individual mix that we have, every item would have specific [Technical Difficulty].

Ladies and gentlemen, it seem, we have lost the line for the management. Request you all to stay connected while we reconnect them. Ladies and gentlemen, thank you for patiently waiting. We have the line for the management connected. Over to you, sir.

Sure. [ Udit ], can you hear me?

Yes, I can hear you so okay.

So what you were discussing was that those individual projects or individual order will have a different combination of the steel requirements and the labor hours required. And that, therefore, you'll not have exactly consistent material consumption throughout the quarter. So depending upon which segment and which product line actually improves or goes up and down. Depending on that, the consumption will definitely be quarter-on-quarter will not be as consistent as in any standard or over-the-counter industry.

[Operator Instructions] The next question is from the line of Mudit Kabra from Hem Securities.

Congratulations for a great quarter. Just some follow-up questions on -- put up by a few gentlemen earlier. Like if you could please give a share of breakup of new orders among our 3 verticals, also a breakup between the new orders versus replacement orders?

Right. So most of our demand, Mudit, is from new orders. Capacity in India is still being built, and we don't see a lot of replacement demand, maybe 15% to 20% in a full year basis could be replacement. But otherwise, most of it is really driving by new plants being set up and new capacity is being set up. Having said that, we will definitely see replacement demand picking up in the next maybe few years because now it's been about 15, 20 years since the first phase of plants went up in Hyderabad and Gujarat and in other parts of India. So you will see these plants now aging and being requiring to be refurbished and revamped. And that would again give a kind of a prop to new business coming in, which will be driven by replacement demand. In terms of the order backlog, as I mentioned, out of about the INR 400 crores backlog that we have here in India, about INR 200-plus crores is in the glass-lined segment, about INR 80 crores is in the heavy engineering and 100-plus odd crores is in the proprietary product. So it's quite well spread. It does not kind of heavily depend on only 1 product line. And it's important to start all our product lines with a strong backlog, so that we can have a strong Q1 and a strong Q2 and then build on that going forward. Because if you lose a quarter or a couple of months by not having a strong backlog, then it's very difficult to make up. So we are in a very strong position for next year. And then hopefully, the next couple of months we'll continue to remain strong in terms of order booking. So we are quite confident that next year, we can maintain the same levels of growth.

The next question is from the line of [ Puneet ], as an individual investor.

Congratulations on a very consistent set of numbers. I think most of the queries have been addressed earlier. I had a query regarding cost of raw material 48% against 43%, which has been already answered. I just have a query regarding Mavag. If you see the consol EPS, I see that the performance of Mavag even though it was indicated during last quarter that this should change this quarter onwards, it's not reflecting in the EPS when you look at the consolidated basis. Having said that, I get the comfort that the order book is very strong, but it's not affecting in the bottom line. Kindly elaborate a bit?

Sure. So I can definitely see that concerned, but I think just hang in there for another quarter. There is a lot of material that has been shipped out from India, which is going to get completed and shipped out in Q4. So you will see, on a full year basis, definitely growth in both in terms of revenue and profitability. And then again, for next year onwards, we have a very aggressive plan in terms of making Mavag even more profitable and growing a little bit faster than expected. But I think on a full year basis, you will not be disappointed. You will see them coming back because Q4 is going to be a strong quarter for them.

The next question is from the line of [ Achal Shah ], as an individual investor.

I think most of my questions have been answered. Just one question was the proprietary products business, on a consolidated basis has been -- there's been a drop in terms of revenue and margin on a quarter-on-quarter basis. Is there any reason for that? Or is this something one-off that we don't know?

We had some large orders for engineered systems for a specific customer in Hyderabad. It was more of a strategic decision to take these orders. But on a full year basis, you will see, again, significant improvement in terms of both revenue and profitability. Good growth in proprietary products. We've done well. Our strategies are working quite nicely. And you see a significant improvement in both those parameters. So I really would not -- for a manufacturing business like ours, I think quarter-to-quarter comparisons are not generally something that will really give a lot of clarity and color. But I think on a full year basis, I think you will find that we will still be doing a lot better than we did previous year.

The next question is from the line of Dinesh Gupta from Validus Wealth.

Sir, just want to understand about the debt position right now. Just want to have a clarity on that. What will be the debt position right now, your comment?

Sorry, Dinesh, your audio is breaking.

So I think I got it, it's about debt position. So as Manish mentioned, we have about INR 40-odd crores, INR 46 crores of debt on GMM Pfaudler's balance sheet currently. This debt was used to acquire the Hyderabad facility. On top of that for the Pfaudler acquisition, we will raise another $6 million of debt and the India balance sheet, so another about INR 46 crores or so. Then we have some debt we will be raising in our Swiss subsidiaries. So that will be required for the Pfaudler acquisition. The good news is that we had actually planned to raise about $12 million here in India, but we've been able to reduce that number by internal accruals. So all in all, quite a comfortable debt situation.

The next question is from the line of Kunjan Gupta from Client First Wealth Management.

First of all, I would like to congratulate you for the great numbers. My question is, like you said, the order book is currently at around INR 500 crores like, right?

Yes.

Can you just elaborate it like how much from this number is coming from the new clients and how much is from the old?

So I think most of our clients are really old in nature. You will find maybe 4 or 5 new customers that have come in, new plants in India, but mostly these are our existing customers, large companies -- large Indian companies who we are dealing with for a long period of time. But every year, we also have new customers. But I would say about 80 -- maybe 60% to 70% of our kind of order book, at least in the glass-lined segment will come from our old customers. In heavy engineering, since we are not a very established player, there's a new business for us. There, we have a lot of new customers like L&T and so on and so forth. And then our proprietary products, always, again, being very similar to glass line, we will have 60%, 70% coming from old customers.

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

Our longer-term guidance of INR 2,000 odd crores in FY '21 to INR 2,400 odd crores. So I had a question on that. So given in your initial comments around the tailwinds that we are expecting on the shores of U.S. and Europe. So just wanted to get your thoughts of, do you think that we would -- our growth rate could actually propel more than the 10% that we are guiding for over the next 3 years. And how are we looking at beyond 24, considering the tailwinds we have seen in our figures?

Yes. So again, too early for me to comment and would be kind of premature. Let the transaction close. I mean already from a stand-alone point of view, we've shown significant improvement in profitability. When these guidances were kind of brought to the table, our profitability margins were much, much lower, about 18%, 19% EBITDA. Today, we are clocking around 23%, 24%. So there's already an improvement there. But I would not like to change the guidance right now. I think let the transaction close, there is -- understand where the international business is -- get the momentum going. And if we believe that we could improve on the current guidance that we've given, we'll be the first to come to the market. But having said that, we have been a little bit conservative with the numbers. We would like to obviously outperform the market. We want to definitely look at the synergies, which are based on top of the guidance that we've given. So there is definitely low-hanging fruit. There are definitely opportunities available. But again, I think it's better to kind of guide low and do better than kind of guide high and then not perform. So I think that's the thought process. But having said that, if we believe that there's going to be improvement in certain areas, we will come back and inform the public that we are now planning to change our guidance.

Ladies and gentlemen, due to paucity of time, that would be the last question for today. I now hand the conference over to the management for their closing remarks. Thank you, and over to you.

Yes. So thank you very much, everybody, for your time. I think this quarter, again, has been a strong quarter. Lots of things going on and a lot of things that we have to keep in mind. The India business continues to remain strong. Our end-user segments continue to remain very strong as well. So India is really on autopilot. We need to keep increasing and improving our market share and penetration here. At the same time, it's exciting time for us now that we are really transforming this company from Indian company to really a global powerhouse in the anticorrosion glass lining space. Lots of exciting things happening in the next few quarters and few years. Hopefully, the amount of hard work that we have put in so far and the hard work that we'll put in over the next few quarters, we'll see a lot of improvement on a consolidated basis. We definitely want to turn the international business around. We believe that there's definitely scope and possibility of doing that. Like I mentioned a little bit earlier, the people are good. The products are good. The technology is very strong. And luckily for us, the end-user market, both in Europe and U.S. are also now conducive to growing the business. So all in all, we are quite pleased with the outcome. The focus is now going to shift on closing the transaction, which should happen very shortly. And then next time we speak, we would have a couple of months of consolidation. And then from April onwards next year, we can really look at the numbers from a completely different aspect and look at the group as a much larger group and hopefully, by then, you will have specific questions with international business and also the kind of outlook that we have. So look forward to going on this journey with you all. And hopefully, we can surprise you with our performance, and make sure that we -- whatever we promised, we step up to and continue to perform. So thank you again, and I wish you all a very nice weekend coming up, and please stay safe, and thank you for your time.

Thank you very much. Ladies and gentlemen, on behalf of GMM Pfaudler Limited that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.